625 B.R. 172
9th Cir. BAP2021Background:
- In 2004 Lisa executed a $75,000 promissory note to her mother Dorothy but did not list it in her 2009 Chapter 7 schedules; Lisa received a no-asset discharge.
- Dorothy created a revocable family trust and in 2012–2013 wrote holographic memoranda directing that certain lifetime transfers (including $75,000 to Lisa) be treated as advances on beneficiaries’ final shares.
- After Dorothy’s 2017 death, successor trustee Carl computed trust distributions and deducted $75,000 from Lisa’s residual share as an advancement; Lisa objected, invoking her bankruptcy discharge.
- Probate Court granted Carl’s petition for instructions under Cal. Prob. Code §§ 17200, 21135, treating the $75,000 as an advancement; Lisa sought contempt in bankruptcy court claiming a § 524 discharge violation.
- Bankruptcy court denied contempt, concluding no "debt" was being collected "as a personal liability of the debtor;" Lisa’s motions for reconsideration under Rules 59(e)/60(b) were denied.
- The BAP affirmed: a bankruptcy discharge does not prevent a settlor/testator from directing testamentary dispositions that treat lifetime transfers as advancements on inheritance.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether § 524(a)(2) bars a testator/settlor from reducing a legacy to a discharged debtor by treating prior lifetime transfers as an advancement | Lisa: discharge of the $75,000 debt prevents the trustee from deducting $75,000 from her legacy | Carl/Trustee: settlor’s testamentary power permits treating lifetime transfers as advances; that is not collecting a debt as a personal liability | Held: No — § 524(a)(2) does not bar testamentary adjustments treating lifetime transfers as advancements; affirmed |
| Whether the bankruptcy court abused its discretion in denying contempt and refusing reconsideration under Rules 59(e)/60(b) | Lisa: bankruptcy court should have found contempt and granted relief | Carl: no contempt because Probate Court action implemented settlor intent, not collection of a discharged debt; Lisa also forfeited her Rule 59/60 arguments | Held: No abuse; denial of contempt and denial of reconsideration affirmed; Lisa failed to meet burdens and forfeited some arguments |
Key Cases Cited
- Taggart v. Lorenzen, 139 S. Ct. 1795 (2019) (civil contempt in discharge context requires absence of an objectively reasonable basis for believing conduct lawful)
- Marshall v. Marshall, 547 U.S. 293 (2006) (probate exception limits federal courts from exercising in rem jurisdiction over estate res)
- Ohio v. Kovacs, 469 U.S. 274 (1985) (definition of "debt" and "claim" under bankruptcy law)
- U.S. Bank Nat'l Ass'n v. Vill. at Lakeridge, 138 S. Ct. 960 (2018) (standard for reviewing mixed questions of law and fact)
- Knupfer v. Lindblade (In re Dyer), 322 F.3d 1178 (9th Cir. 2003) (abuse-of-discretion standard for contempt sanctions)
- McGhan v. Rutz (In re McGhan), 288 F.3d 1172 (9th Cir. 2002) (state-court judgments construing discharge may be void to the extent they violate § 524)
- Gruntz v. Cnty. of L.A. (In re Gruntz), 202 F.3d 1074 (9th Cir. 2000) (relation of federal injunctive relief to state proceedings and exceptions)