In re: Peter Emanuel Kvassay
CC-15-1420-KiTaKu
| 9th Cir. BAP | Oct 6, 2016Background
- Peter Kvassay filed chapter 7; listed state probate and related claims by his brother Robert (Trustee) as prepetition claims. Robert obtained relief from the automatic stay to continue the Probate Action to final judgment and timely filed an adversary complaint under § 523 seeking to except those debts from discharge (later limited to § 523(a)(4) and (6)).
- Peter received a Chapter 7 discharge on January 8, 2013; the discharge form expressly noted that debts the bankruptcy court "specifically has decided or will decide" under § 523 may not be discharged.
- After discharge, the state probate court proceeded to trial (permitted by stay relief) and entered judgments against Peter that reduced his distributive share in the Trust and awarded reimbursement and attorney fees to Robert.
- Peter moved in bankruptcy for contempt, arguing the post-discharge state-court judgments were void because they enforced prepetition debts discharged in bankruptcy and thus violated the § 524(a)(2) discharge injunction; he sought damages and fees.
- The bankruptcy court denied the contempt motion without written findings; on the record in a related adversary proceeding the court explained that timely-filed § 523 adversary proceedings preserve the creditor’s ability to litigate nondischargeability and that the discharge injunction does not apply to debts properly the subject of a § 523 complaint.
- The BAP affirmed, holding that because Robert filed a timely § 523 complaint and the bankruptcy court had not determined dischargeability, the debts had not been discharged and no discharge injunction violation occurred.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the bankruptcy court's Contempt Order needed written findings | Peter: court abused discretion by issuing denial without factual/legal findings | Robert: denial rests on legal rulings made on the record in adversary; transcript supplies findings | Court: error to omit written findings but harmless because the record (hearing transcript) clearly states the legal basis for denial |
| Whether Robert willfully violated the discharge injunction by obtaining post-discharge state-court judgments | Peter: post-discharge judgments enforced prepetition debts that were discharged, so judgments are void and violated § 524(a)(2) | Robert: timely § 523 adversary preserved nondischargeability; relief-from-stay allowed state-court fact-finding; discharge injunction not applicable | Court: no contempt — debts were not discharged while a timely § 523 action was pending, so § 524 injunction did not apply and no willful violation occurred |
Key Cases Cited
- ZiLOG, Inc. v. Corning, 450 F.3d 996 (9th Cir. 2006) (civil contempt for violating discharge injunction requires willful violation)
- Lakhany v. Khan (In re Lakhany), 538 B.R. 555 (9th Cir. BAP 2015) (timely § 523 action preserves creditor’s ability to pursue state-court litigation and use facts for nondischargeability)
- Eber v. Ackerman (In re Eber), 687 F.3d 1123 (9th Cir. 2012) (timely § 523 complaint means discharge injunction does not apply to that debt until bankruptcy court rules)
- Grogan v. Garner, 498 U.S. 279 (1991) (standards for proving fraud-based nondischargeability and use of collateral findings)
- Rein v. Providian Financial Corp., 270 F.3d 895 (9th Cir. 2001) (bankruptcy court has exclusive authority to determine dischargeability, but predicate facts may be litigated elsewhere)