651 B.R. 538
9th Cir. BAP2023Background
- RS Air, LLC (single-member Delaware LLC) purchased fractional jet interests from NetJets; NetJets filed a prepetition claim ~$2.1M.
- RS Air filed a Subchapter V chapter 11 petition in Nov. 2020; its plan was confirmed and the bankruptcy court entered a discharge that expressly referenced NetJets’ claim.
- After discharge, NetJets sued Stephen Perlman (RS Air’s sole member/trustee) and Rearden LLC in federal court in Ohio, alleging they were RS Air’s alter egos and seeking judgment for RS Air’s debt; RS Air was not named as a defendant.
- RS Air and the Perlman Parties moved in bankruptcy for contempt under 11 U.S.C. § 524(a)(2), arguing the alter-ego complaint sought to recover a discharged debt and thus violated the discharge injunction.
- The bankruptcy court denied contempt, concluding there was a fair ground of doubt because § 524(e) preserves liability of "any other entity" and the Ohio complaint sought recovery only from non-debtors; the BAP affirmed.
Issues
| Issue | Plaintiff's Argument (RS Air) | Defendant's Argument (NetJets) | Held |
|---|---|---|---|
| Whether post‑discharge alter‑ego allegations against non‑debtors violate the discharge injunction | Alter‑ego theory treats the parties as the same and effectively seeks collection of a discharged debt; thus it violates § 524(a) and risks addition of RS Air to any judgment | § 524 protects only the debtor’s personal liability; § 524(e) preserves liability of other entities; the complaint does not name RS Air so no violation | No violation. Discharge bars collecting the debt from RS Air personally but does not bar actions to hold non‑debtors liable under alter‑ego theories. |
| Whether discovery or participation in the alter‑ego litigation violates the discharge injunction | Requiring RS Air to participate (discovery, testimony) coerces collection and therefore violates § 524(a) | Participation or being a witness is not collection; discovery does not constitute enforcement of personal liability | No violation. Obligations to participate in discovery do not alone constitute collection of a discharged debt. |
Key Cases Cited
- Taggart v. Lorenzen, 139 S. Ct. 1795 (2019) (standard for civil contempt under a discharge: no "fair ground of doubt" that conduct violates the discharge).
- Blixseth v. Credit Suisse, 961 F.3d 1074 (9th Cir. 2020) (a bankruptcy discharge does not absolve non‑debtors of liability for the same debt).
- Resorts Int’l, Inc. v. Lowenschuss, 67 F.3d 1394 (9th Cir. 1995) (§ 524(e) prevents bankruptcy courts from discharging the liabilities of non‑debtors).
- Reed v. Nielsen, 640 B.R. 932 (9th Cir. BAP 2022) (scope of the discharge injunction is a mixed question of law and fact; plain statutory text controls).