573 B.R. 247
Bankr. D. Utah2017Background
- Debtors (Gene and Jamie Slater) obtained a Chapter 13 filing in 2009 that converted to Chapter 7; they received a Chapter 7 discharge on May 11, 2010, in a no-asset case and the case was closed in August 2010.
- In 2007 the Slaters (and their company Fallgren & Slater LLC) incurred a personal obligation to Gary and Cindy Hatch under a note (the “2007 Note”) that remained unpaid at the time of the 2009 bankruptcy.
- In 2011 Gene Slater and an affiliated LLC contracted with Pegasus Construction (controlled by the Hatches) for work/materials, creating a separate post‑bankruptcy business debt of ~$29,189 (the “2011 Debt”).
- In July 2013 the Hatches sued the Slaters and related entities in Utah state court on both the 2007 Note and the 2011 Debt; a default judgment entered in October 2014 for ~$480,000 (including the 2007 Note) and $29,189 (the 2011 Debt) and pierced corporate veils to impose personal liability on Gene Slater.
- The Slaters moved in state court (2016) to set aside the default judgment based on the 2010 bankruptcy discharge; state court denied relief. Slater appealed. Meanwhile the Hatches garnished wages and bank accounts in late 2015–2016.
- Debtors reopened their 2009 bankruptcy in 2017 and moved for sanctions under 11 U.S.C. §§ 362 and 524, seeking (among other relief) voiding of the state default judgment, refund of garnished wages, and fees/costs.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the 2007 Note was discharged in 2010 and protected by §524 | 2007 debt arose prepetition and was discharged in 2010; collection on it violates §524 | Default judgment imposed alter‑ego liability in 2014, so personal liability arose postdischarge and is not discharged | 2007 Note was a prepetition debt discharged under §727 and §524 applies; state judgment enforcing it is void |
| Whether §523(a)(3)(A) excepts the 2007 Note from discharge because it was unscheduled | Slaters argued discharge applies despite Hatch being unscheduled; Hatch had notice anyway | Hatch argued lack of scheduling/notice makes debt nondischargeable under §523(a)(3)(A) | §523(a)(3)(A) does not bar discharge here (no‑asset case; Parker controls); debt discharged |
| Whether the 2011 Debt was discharged or collectible | Slaters: state action included discharged 2007 Note so entire action violated discharge | Hatches: 2011 Debt arose postpetition and is collectible; they only intended to collect that portion | 2011 Debt arose post‑discharge and was not discharged; but the related state action nevertheless violated §524 because it sought to collect the discharged 2007 Note |
| Appropriate relief/sanctions for violation of §524 | Refund garnished wages, attorney fees, $100,000 punitive damages, and void judgment | Argues good faith, piecemeal collection, and procedural defects; opposes punitive damages | Court found Hatches had actual knowledge and willfully violated §524; ordered contempt remedies: refund of garnished wages and award of costs/attorney fees (punitive damages denied); default judgment void; amounts to be determined |
Key Cases Cited
- In re Parker, 313 F.3d 1267 (10th Cir.) (unscheduled creditors in no‑asset Chapter 7 cannot be excepted from discharge under §523(a)(3)(A))
- Paul v. Iglehart (In re Paul), 534 F.3d 1303 (10th Cir.) (bankruptcy court may hold creditor in contempt for collecting discharged debts; equitable power to enforce §524)
- Franklin Sav. Ass’n v. Office of Thrift Supervision, 31 F.3d 1020 (10th Cir.) (orders entered in violation of the automatic stay are void and without effect)
- Kalb v. Feuerstein, 308 U.S. 433 (U.S. 1940) (state court judgments entered in violation of federal bankruptcy protections may be void)