Roy Nielsen Hafen, 640 B.R. 581

Background

Debtor Roy N. Hafen filed Chapter 7 in 2004, received a discharge on July 21, 2004, and the case closed in 2005; the Trustee administered modest personal-property assets then.
In July 2018 several prepetition creditors (the Harrison Group) sued debtor’s affiliates in state court and named Hafen as a defendant (apparently “by name only”); the creditors then moved to reopen Hafen’s bankruptcy, and the case was reopened in August 2018 with a Chapter 7 trustee appointed.
Hafen moved for sanctions (Dec. 28, 2018), alleging the creditors’ naming of him in the state-court complaint violated the § 524(a)(2) discharge injunction; the bankruptcy court denied relief (June 6, 2019), and Hafen appealed to the BAP.
The BAP reversed and remanded, directing the bankruptcy court to determine (1) whether the state-law causes of action are property of the estate and (2) whether the creditors have standing, and then to reconsider any § 524 violation.
On remand, after the Trustee sold some estate property in 2021 (not including chapter 5 avoidance rights), the Court concluded the creditors have constitutional standing to pursue the state-law claims (since the Trustee declined to pursue chapter 5 rights) but that naming Hafen personally violated the discharge because his liability was not a prerequisite to recovery from the non-debtor defendants.
The Court granted Hafen’s motion for sanctions in principle, finding attorney’s fees constitute compensable injury; a separate hearing on damages is to be scheduled.

Issues

Issue	Plaintiff's Argument (Hafen)	Defendant's Argument (Creditors)	Held
Mootness after Trustee sale	Sanctions claim survives; monetary relief prevents mootness	Trustee’s sale of estate assets rendered claim moot	Held: Not moot; monetary relief survives sale (case not moot)
Ownership of causes of action	Trustee had exclusive bankruptcy rights; claims were estate property originally	State-law causes of action coexist with bankruptcy rights and can be pursued if Trustee declines	Held: Trustee owned chapter 5 rights, but state-law claims also exist; concurrent rights can belong to creditors if Trustee will not pursue them
Standing to sue in state court	Hafen: creditors lack bankruptcy standing to assert estate-created claims in state court	Creditors: have constitutional standing to pursue state-law claims against non-debtors once Trustee declines	Held: Creditors have constitutional standing to pursue state-law claims against non-debtors (Trustee alone had bankruptcy standing but declined to act)
§524(a)(2) violation and §524(e) exception	Naming Hafen personally injures fresh-start; creditors cannot rely on §524(e) because debtor liability is not prerequisite to third-party recovery	Creditors contend debtor named only to establish liability against affiliates and waived collection rights; debtor’s inclusion is harmless	Held: Naming Hafen on each cause of action violated §524(a)(2). §524(e) inapplicable because judgment against Hafen is not a prerequisite to recover from third parties; attorney’s fees are compensable injury

Key Cases Cited

Hafen v. Adams, 616 B.R. 570 (B.A.P. 10th Cir. 2020) (BAP reversed and remanded for bankruptcy court to determine whether asserted causes of action are estate property and whether creditors had standing)
In re Robben, 562 B.R. 469 (Bankr. D. Kan. 2017) (test for when a judgment against the debtor is a prerequisite to third-party recovery under §524(e))
In re Walker, 927 F.2d 1138 (10th Cir. 1991) (§524(e) allows actions to establish debtor liability only when necessary to reach third parties; protects debtor’s fresh start)
Mission Prod. Holdings, Inc. v. Tempnology, LLC, 139 S. Ct. 1652 (2019) (monetary claims can survive a trustee’s sale; informs mootness analysis)
Walls v. Wells Fargo Bank, 276 F.3d 502 (9th Cir. 2002) (civil contempt and §105 relief can include compensatory damages and attorney’s fees for discharge violations)
United States v. Whiting Pools, 462 U.S. 198 (1983) (bankruptcy estate includes causes of action; supports comprehensive bankruptcy jurisdiction)
Artesanias Hacienda Real S.A. de C.V. v. N. Mill Cap., LLC (In re Wilton Armetale, Inc.), 968 F.3d 273 (3d Cir. 2020) (trustee holds bankruptcy standing while creditors retain constitutional standing to sue if trustee does not pursue)
In re Otero, 498 B.R. 313 (Bankr. D.N.M. 2013) (discusses contempt power and sanctions for discharge-injunction violations)