In re Slater
MEMORANDUM DECISION REGARDING MOTION FOR SANCTIONS
The matter before the Court is the Motion to Reopen Case to Impose Sanctions
The Court conducted a preliminary hearing on February 8, 2017, and granted the Debtors’ request to reopen the case and issued an order on the same.
On May 26, 2017, the Court held an evidentiary hearing on the Motion for Sanctions (the “Hearing”) and thereafter took the matter under advisement.
Having reviewed and considered the Motion for Sanctions, the notice of hearing filed in connection with the Motion,
FINDINGS OF FACT
A. The 2007 Note
On June 4, 2007, the Debtors and their company Fallgren & Slater LLC (“Fall-gren”) entеred into a transaction with Gary Hatch and Cindy Hatch evidenced by a note in favor of Hatch (the “2007 Note”).
B. The 2009 Bankruptcy
This case was filed as voluntary chapter 13 on March 9, 2009, (the “2009 Bankrupt
On June 1, 2009, this case was converted to one under chapter 7.
C. The 2011 Debt owed to Pegasus for Business Obligations
In 2011, Gene Slater and GS & K Properties, LLC (“GS & K”) entered into various agreements with Pegasus Construction LLC (“Pegasus”), a company controlled by Hatch, to provide material and work with regard to real estate ventures,
D. The State Court Action
On July 2,2013, Hatch filed a civil action relating to the 2007 Note and 2011 Debt against Gene Slater; Slater Investments LLC (“Slater Investments”); Fallgren; GS & K; and Slater Invеstment Properties of Utah, LLC (“Slater Properties of Utah” and together with Gene Slater, Slater Investments, Fallgren, GS & K, the “State Action Defendants”) in the Utah Third Judicial Court in Salt Lake County (the “State Court”), Case No. 130408372 (the “State Action”).
The State Court also granted declaratory relief in the Default Judgment, piercing the corporate veil and establishing Slater Investments, Fallgren, GS & K, and Slater Properties of Utah as Gene Slater’s alter-ego.
E. The 2015 Bankruptcy
On September 24, 2015, Hatch learned that Gene Slater was employed at Red Mat, Inc. (“Red Mat”) and applied for and obtained a writ of garnishment from the State Court.
Pegasus filed a proof of claim for the amount of $29,189.26, on account of the 2011 Debt Judgment in the 2015 Bankruptcy.
F. Debtors’ Motion to Set Aside Default Judgment
On August 24, 2016, Gene Slater filed a motion to set aside the Default Judgment entered October 8, 2014, in the State Action. He argued, in pertinent part, that the Default Judgment should set aside because of the 2009 Bankruptcy and related discharge order issued in 2010. Hatch argued in the Objection that this was the first time Gene Slater informed the State Court and Hatch of the 2009 Bankruptcy. However, at the Hearing on the present Motion for Sanctions, Cindy Hatch testified that she was aware of the 2009 Bankruptcy before the filing of the State Action on July 2,2013.
On November 8, 2016, the State Court entered an order denying Gene Slater’s motion to set aside the Default Judgment and found that Gene Slater:
[Fjailed to provide sufficient argument or legal basis for the court to find that the judgment entered in [the] matter in 2014 should be sеt aside based on his 2010 bankruptcy discharge. The court cannot find that the bankruptcy would somehow void the judgment' in [the] matter. Rather, the Court finds that the allegations of fraud, post bankruptcy payments and alter ego made by the Plaintiffs cause the judgment to fall outside the bankruptcy.28
On November 22, 2016, Gene Slater appealed the State Court order denying the motion to set aside the Default Judgmеnt to the Supreme Court of Utah, Case No.
G. Motion for Sanctions
On January 6, 2017, Debtors filed the present Motion for Sanctions and request to reopen the case. On February 10, 2017, the case was reopened by this Court for the sole purpose of considering the Motion for Sanctions.
Thе Debtors argue that they received a discharge in their 2009 Bankruptcy case on May 11, 2010; Hatch filed the State Action against Debtors on July 2, 2013, on debts that arose in 2007—which was prior to the filing of the 2009 Bankruptcy and subsequent discharge; and thus, Hatch has violated the automatic stay and the discharge injunction.
Debtors did not list Hatch' on their schedules in the 2009 Bankruptcy; however, Debtors and Gary Hatch and Cindy Hatch were neighbors and friends at the time and Hatch received notice of the 2009 Bankruptcy when Gene Slater personally told them about the bankruptcy case in 2009. The court finds Gene Slater’s testimony credible on that point. Further, . Cindy Hatch testified that she knew of the 2009 bankruptcy when she discussed commencing the State Action with her attorney in 2013.
Debtors seek 1) entry of an order pursuant to
Hatch argues in the Objection that the Motion fоr Sanctions should be denied because 1) Gene Slater’s liability pursuant to the Default Judgment did not arise until October 8, 2014, when the State Court made a finding of alter ego and thus Gene Slater’s alter ego liability could not have been discharged in his 2009 Bankruptcy; 2) the Debtors’ 2009 Bankruptcy did not discharge or adjudicate the debts of their companies Slater Investments, Fallgren, GS & K, and Slater Properties of Utah and corporate debts cannot be discharged in bankruptcy; and 3) if the Court finds the debt to Hatch was incurred prior to the 2009 Bankruptcy, the Debtors failed to list Hatch on their 2009 Bankruptcy schedules and did not provide Hatch with notice so
At the hearing, Hatch argued that 1) the 2011 Debt for $29,189.26 arose after the 2009 Bankruptcy and thus was not discharged; and 2) the Default Judgment was based in part on the 2007 Note and the 2011 Debt, and thus collection on the Default Judgment for the 2011 Debt did not violate the discharge injunction.
CONCLUSIONS OF LAW
A. Jurisdiction
This Court has jurisdiction over this matter pursuant to
B. The 2007 Note is a “debt discharged under
In a Chapter 7 case,
Section 524(a) “prevents any act intended to cause a debtor to repay a discharged debt, including legal proceedings, letters, phone calls, threats of criminal proceedings or similar actions.”
The Debtors received a discharge under
In In re Parker, the Tenth Circuit Court of Appeals held that “§ 523(a)(3)(A) does not apply to except unscheduled debts from discharge in no asset cases where no deadline to file proofs of claim is set, because unscheduled creditors can file ‘timely’ proofs of claim if assets become available for distribution.”
In re Parker is controlling in this Circuit and the fact that the 2007 Note debt was not scheduled does nоt mean that Hatch could collect on it. Although the 2007 Note debt cannot be excepted from discharge under § 523(a)(3)(A) it has been “discharged by operation of law under
The argument of Hatch that the debt arose in October 8, 2014, when the Default Judgment was entered based on alter ego does not change this conclusion because the Default Judgment was based, in part, on the 2007 Note dеbt that was discharged in 2010 under
C. The 2011 Debt is not a “debt discharged under
The 2011 Debt for $29,189.26 was not a debt discharged under
The State Action was based in part on thе 2007 Note debt and the 2011 Debt. Hatch obtained one Default Judgment on both debts and not just the 2011 Debt. Hatch did not include the 2007 Note debt in their proof of claim in the Debtors’ 2015 bankruptcy case which is evidence that Hatch only intended to collect on the portion of the Default Judgment relating to the 2011 Debt. However, as explained below, the piecemeal approach of the State Action and resulting Default Judgment is irrelevant in light of the fact that Hatch initiated the State Action on account of the 2007 debt that was discharged.
D. The automatic stay provisions of
“The automatic stay prevents the collection of prepetition debts during the pendency of the bankruptcy case, while the discharge injunctiоn prohibits efforts to collect a discharged debt as a personal liability of the debtor.”
E. Sanctions and Damages
A violation of Section 524 does not create a cause of action for damages itself. Violations of § 524 are treated as civil contempt. Under
Here, Hatch had actual knowledge of the 2009 Bankruptcy because Gene Slater gave notice to Gary Hatch in 2009. This clearly establishes that Hatch had notice and actual knowledge of the discharge issued to Debtors in 2010 prior to filing the State Action. Moreover, Cindy Hatch testified that she had notice of the 2009 Bankruptcy before filing the State Action. Notice to Gary and Cindy Hatch in their individual capacities was sufficient to give notice to their business Pegasus. Accordingly, the evidence is clear and convincing that Hatch had actual knowledge of the discharged debt and intended the actions which were taken in violation of the injunction.
The argument of Hatch that they only attempted to collect on thе portion of the Default Judgment which included the 2011 Debt does not change this analysis. The filing of the State Action on account of the 2007 Note, a discharged debt, is a clear violation of the discharge injunction and the State Action and resulting Default Judgment cannot be piecemealed.
The Court finds that a refund of all wages garnished by Hatch and an award of attorney fees and costs is appropriate for violation of § 524. The Court declines to award punitive damages against Hatch.
CONCLUSION
The 2007 Note debt was discharged in 2010 under
The Court also concludes that Hatch should be liable to Debtors for actual damages for all wages garnished, as well as costs and reasonable attorney fees incurred by the Debtors in bringing the Motion for Sanctions before this Court to enforce the discharge order in an amount to be determined.
The Court will enter a separate' order • setting deadlines for Debtоrs’ counsel to file an accounting of all wages garnished and a verified application for attorney fees and costs and for Hatch’s response.
A separate judgment in favor of Debtors for actual damages and attorney fees and costs shall be entered after the amount of wages garnished, attorney fees and expenses is determined.
Notes
. Case No. 09-21947, Docket Nо. 74, Motion to Re-Open to Impose Sanctions for Violation of the Automatic Stay and Discharge Injunction Against Gary Hatch, Cindy Hatch, and Pegasus Construction LLC. All future references to the Docket will be to Case No. 09-21947, unless otherwise specified.
. Docket No. 79, Order to Reopen Case.
. Docket No. 80, Order Governing Scheduling and Preliminary Matters for Motion for Sanctions.
. At the Hearing, the Court denied Creditors’ Motion to Strike [Docket No. 89] and оverruled Creditors Objection to Debtors’ Witness and Exhibit List [Docket No. 90], On June 3, 2017, Creditor filed a Request to Supplement Evidence [Docket No. 98] (the "Request”) and Debtors filed an objection to the Request [Docket No. 99]. The Request was not set for hearing; however, the Court has reviewed the Request and denies the same as good cause has not been shown to supplement the record with such additional evidence in this matter.
. Dockеt No. 75, Notice of Hearing on Motion to Reopen and Motion for Sanctions.
. Docket No. 76, Response to Motion for Sanctions.
. Docket No. 77, Reply to Response.
. The following discussion shall constitute findings of fact and conclusions of law under
. See Creditors’ Exhibit G, Complaint in Case No. 130408372 and Exhibit P, Nóte dated June 4, 2007.
. Docket No. 1, Chapter 13 Voluntary Petition.
. Docket No. 24, Order Granting Motion to Convert Case to Chapter 7.
. Docket entry on May 11, 2010, Order Discharging Debtor(s).
. Docket entry datеd July 21, 2010, Chapter 7 Trustee’s Report of No Distribution. This docket entry is commonly referred to as the "No Asset Report”.
. Docket entry dated August 23, 2010, Order Closing Case.
. See Creditors' Exhibit N, Pegasus Construction Estimates.
. This amount is commutated based on Creditors' Exhibits N and M.
. See Creditors’ Exhibit M, Pegasus Construction Statements.
. Id.
. See Creditors' Exhibit D, Docket from case in the Third Judicial District Court in and for Salt Lake County, State of Utah entitled Gary Hatch et al v. Gene Slater, et al, ("Case No. 130408372”) and Creditors’ Exhibit G, Complaint in Case No. 130408372.
. Id.
. See Creditors’ Exhibit E, Default Judgment entered in Case No. 130408372.
. Id.
. See Creditors' Exhibit D.
. Case No. 15-30297-RKM.
. See Exhibit C to Objection, Fax dated November 5, 2015.
.Case No. 15-30237, Docket No, 21.
. See Proof of Claim No. 2, Case No. 15-30237.
. Creditors’ Exhibit F, Order Denying Defendant’s Motion to Set Aside Judgment in Case No. 130408372.
. See Creditors' Exhibit D.
. Id.
. Id.
. Id. Based on the testimony of Mr. Slater, the total amount of wage garnishment is approximately $1,300.00; however, Mr. Slater was unsure of the exact amount.
. Docket No. 79, Order to Reopen Case.
. All subsequent statutory references are to Title 11 of the United States Code unless otherwise indicated.
. Peyrano v. Sotelo (In re Peyrano),
. Id. (citing Norton Bankruptcy Law & Practice 3d, § 58:2 (2016); Walker v. Wilde (In re Walker),
. See Pritner v. COFCO Credit Co., LLC (In re Pritner),
. Id. (citing In re Parker,
. In re Parker,
. In re Parker,
. "Pursuant to
. See In re Pritner,
. In re Pritner,
. White v. Cannon Federal Credit Union (In re White), No. 10-14503 TR7,
. See Creditors' Exhibit D.
. In re Paul,
. In re Peyrano,
. Culley v. Castleberry (In re Culley),
. See Johnson v. Johnson (In re Johnson),
. Although an argument could be made that only part of the Default Judgment relating to the 2007 Note is void, the Court determines that carving the Default Judgment up as to void and not void would be problematic. Since the Default Judgment includes both discharged and non-discharged obligations, the Court deems the entire Default Judgment void for the reasons set forth herein. The Court makes no findings or conclusions as to whether Hatch could seek current enforcement of the 2011 Debt or some other modifications of the Default Judgment from the State Court to make the judgment compliant with
. Although there was some testimony regarding the amounts of wages garnished, the evidence on the same was, in the opinion of the Court, inadequate to quantify the same.