613 B.R. 721
9th Cir. BAP2020Background
- Sterling made secured loans to four LLCs; Dr. John G. Moser guaranteed the loans and the LLCs later sued Sterling in state court.
- Moser filed chapter 7 in 2009; the trustee settled Moser’s individual claim against Sterling and dismissed that action; Moser received a discharge.
- The LLCs amended their state-court complaints; Sterling believed those claims were really Moser’s and sought bankruptcy relief; state courts ultimately held the LLCs liable to Sterling for over $1,000,000 (including fees).
- Sterling filed an Alter Ego Complaint in state court (seeking to reach Moser for postpetition fees/costs) and then sued in bankruptcy for a declaratory judgment that prosecuting its Second Amended Alter Ego Complaint would not violate the discharge injunction.
- Moser’s pleadings and oral statements repeatedly conceded that the discharge did not bar Sterling’s pursuit of postpetition fees/costs; the bankruptcy court nevertheless declined to decide, dismissed the adversary proceeding (saying it would be speculation), and warned Sterling it proceeded in state court at its peril.
- The BAP held the bankruptcy court abused its discretion by refusing to clarify the discharge’s scope, found Moser’s judicial admissions binding, reversed, and remanded with instructions to enter judgment for Sterling that the discharge does not apply to the Second Amended Alter Ego Complaint.
Issues
| Issue | Sterling's Argument | Moser's Argument | Held |
|---|---|---|---|
| Whether the bankruptcy court erred by refusing to determine if the Second Amended Alter Ego Complaint violated the discharge injunction | Sought declaratory judgment that prosecuting the Alter Ego claims and collecting on any judgment would not violate the discharge | Court should decline because deciding would require impermissible speculation about how the state court will rule; ownership of claims is a state-court issue | Court abused its discretion in refusing to decide; BAP reversed and remanded for judgment for Sterling |
| Whether the dismissal was final/appealable | The dismissal conclusively denied Sterling’s requested relief and thus was final for appeal | (Implicit) dismissal without prejudice is interlocutory | BAP held the order sufficiently final for appeal (or would grant leave if interlocutory) |
| Whether Moser’s admissions in pleadings preclude him from asserting the discharge here | Moser expressly admitted the discharge does not bar the Alter Ego claims | (Previously argued discharge violation but later abandoned that position) | Moser’s judicial admissions are binding; they foreclose discharge defense; judgment directed for Sterling |
Key Cases Cited
- Boeing N. Am., Inc. v. Ybarra (In re Ybarra), 424 F.3d 1018 (9th Cir.) (postpetition attorney fees may not be discharged when debtor "returns to the fray")
- Taggart v. Lorenzen, 139 S. Ct. 1795 (2019) (standard for violation of the discharge injunction)
- Johnson v. Nielson (In re Slatkin), 525 F.3d 805 (9th Cir.) (summary judgment reviewed de novo)
- United States v. Hinkson, 585 F.3d 1247 (9th Cir.) (two-step abuse-of-discretion review framework)
- Spokane Law Enforcement Fed. Credit Union v. Barker (In re Barker), 839 F.3d 1189 (9th Cir.) (judicial admissions are binding)
- Beal Bank v. Crystal Props., Ltd. (In re Crystal Props., Ltd.), 268 F.3d 743 (9th Cir.) (judicial admissions withdraw facts from issue)