In re Stubbs
16-8027
| 6th Cir. | Mar 9, 2017Background
- Debtor Laneka Stubbs filed Chapter 7 pro se in December 2014; trustee suspected a 2014 tax refund might be estate property.
- Trustee completed the § 341 meeting in February 2015, instructed Stubbs to provide her 2014 tax returns when filed, and warned her not to spend any refund.
- Trustee obtained a Bankruptcy Rule 2004 order (amended) requiring Stubbs to appear on November 4, 2015 and bring her 2014 federal and state tax returns; Stubbs did not appear.
- On November 4, 2015 trustee filed an adversary complaint seeking revocation of Stubbs’ discharge under 11 U.S.C. § 727(d)(2) and (3) for failure to obey the 2004 order; Stubbs was served but did not respond.
- Clerk entered default; trustee moved for default judgment. At hearings the bankruptcy court denied default judgment, sua sponte vacated the 2004 exam order, and sua sponte dismissed the adversary. Trustee appealed.
- The Bankruptcy Appellate Panel held the bankruptcy court abused its discretion, vacated the court’s orders, and remanded for further proceedings.
Issues
| Issue | Plaintiff's Argument (Trustee) | Defendant's Argument (Stubbs) | Held |
|---|---|---|---|
| Whether the court properly vacated the Rule 2004 exam order sua sponte | 2004 exam was proper to compel turnover of tax returns; vacatur was improper and impeded estate administration | (No responsive filings; implicitly: vacatur justified by trustee’s conduct in closing 341) | Vacatur was an abuse of discretion; appellate court vacated the bankruptcy court’s vacatur and remanded |
| Whether denial of default judgment was proper | Default and default judgment appropriate for failure to obey an express court order; revocation under §727(d)(3) available | Bankruptcy court concluded trustee’s delay and approach prejudiced debtor; revocation not warranted | Denial of default judgment was abuse of discretion; appellate court vacated that order |
| Whether sua sponte dismissal of the adversary was proper | Dismissal was improper; trustee timely sought relief under §727 within statutory period | Bankruptcy court preferred dismissal (analogy to Chapter 13 practice) and criticized trustee’s handling | Sua sponte dismissal abused discretion; appellate court vacated dismissal and remanded |
| Whether trustee’s chosen remedies violated public policy or administration norms | Trustee acted within duties under §704 and should be afforded deference to pursue revocation rather than delay discharge | Bankruptcy court relied on perceived equitable concerns and policy parity with Chapter 13 | Appellate court rejected the bankruptcy court’s policy reasoning; trustee’s approach was permissible and orders reversed |
Key Cases Cited
- Midland Asphalt Corp. v. United States, 489 U.S. 794 (1989) (defines finality for appeals)
- In re Eagle-Picher Indus., Inc., 285 F.3d 522 (6th Cir. 2002) (abuse of discretion standard)
- Smith v. Jordan (In re Jordan), 521 F.3d 430 (4th Cir. 2008) (willfulness standard for §727(a)(6) refusal to obey a court order)
- Kontrick v. Ryan, 540 U.S. 443 (2004) (limits on defenses and procedural posture in bankruptcy adversary proceedings)
- Costello v. United States, 365 U.S. 265 (1961) (elements of laches)
- U.S. v. Rylander, 460 U.S. 752 (1983) (inability to comply as defense to civil contempt)