594 B.R. 890
Bankr. C.D. Cal.2018Background
- Katherine Torres was sole member/manager of Le Pop Shop, LLC; Michael Roennau invested and later loaned additional funds to the business and alleged inadequate capitalization and misconduct.
- Roennau sued Torres and Le Pop Shop in state court (May 2016) alleging fraud, breach of fiduciary duty, accounting, and that Torres was alter ego of the LLC.
- Torres filed joint chapter 7 bankruptcy (May 28, 2016) and received a discharge (Sept. 19, 2016); Roennau was listed as a creditor but did not file an adversary to except any debt from discharge.
- After the discharge, Roennau continued prosecuting the state action against Le Pop Shop while the complaint still contained alter-ego allegations tying the LLC to Torres; he obtained default-related filings and served punitive-damages notice on Torres as the LLC’s agent.
- Torres moved for contempt/sanctions for violation of the § 524 discharge injunction; the bankruptcy court held evidentiary hearings and found post-discharge continuation violated § 524 but declined to impose sanctions because Roennau lacked knowledge that the discharge applied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether continuing state-court suit against LLC after debtor’s discharge violated the § 524 discharge injunction when complaint alleges debtor is LLC’s alter ego | Torres: alter-ego allegations make prosecution of the LLC a prosecution against her personally, so continuation violated the discharge injunction | Roennau: suit was only against the LLC; California law precludes adding Torres to a default judgment in these circumstances, and he did not intend to collect from Torres | Court: Continuation violated § 524 because alter-ego allegations meant action against the LLC was effectively action against discharged debtor |
| Whether a plaintiff’s expressed intention not to pursue a discharged debtor avoids § 524 liability when alter-ego allegations remain | Torres: intent statements irrelevant; substance of pleadings controls—alter-ego allegations make LLC suit a suit against debtor | Roennau: his counsel pledged not to pursue Torres personally, so no threat to discharge | Court: Intentions do not cure the violation; pleadings alleging unity of interest suffice to render continuation a violation |
| Whether debtor could be added to or held liable under a default judgment against the LLC (due process / California law) | Torres: named as defendant; had notice and control so could be held liable via alter-ego theory | Roennau: cites cases barring adding individuals to default judgments where they were not served or had no opportunity to defend | Court: Distinguishing precedents, court concluded likely outcome would permit adding Torres under Cal. CCP § 187 given she was named and exercised control; thus continuation threatened collection against discharged debtor |
| Whether sanctions/contempt are warranted for the discharge violation (knowledge and intent standard) | Torres: sought sanctions and damages for contempt | Roennau: testified he did not know continuation violated the discharge; no willful contempt | Court: Under In re Taggart two-part test, creditor must know injunction applied and intend violative acts; court found Roennau lacked knowledge and therefore declined to award sanctions |
Key Cases Cited
- Misik v. D'Arco, 197 Cal. App. 4th 1065 (Ct. App.) (alter-ego may justify amending judgment to add individual debtor)
- Motores De Mexicali, S.A. v. Superior Court, 51 Cal. 2d 172 (Cal. 1958) (due-process concerns in adding individuals to default judgments when they were not named or served)
- NEC Elecs. Inc. v. Hurt, 208 Cal. App. 3d 772 (Ct. App.) (refusal to add individual to entity judgment where individual unserved and lacked control/opportunity to defend)
- Shapoff v. Scull, 222 Cal. App. 3d 1457 (Ct. App.) (discussing alter-ego doctrine and piercing limited liability)
- Lorenzen v. Taggart (In re Taggart), 888 F.3d 438 (9th Cir.) (two-part test for contempt of discharge injunction: creditor must know injunction applied and intend violative acts)