FILED
1 ORDERED PUBLISHED JUN 14 2016 2 SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. NV-15-1380-BDF )
6 GIL KABILING and LINDA ) Bk. No. 2:11-bk-11458-LED KABILING, )
7 )
Debtors. )
8 _____________________________ )
)
9 DESERT PINE VILLAS HOMEOWNERS )
ASSOCIATION, )
10 )
Appellant, )
11 )
v. ) O P I N I O N 12 )
GIL KABILING; LINDA KABILING, )
13 )
Appellees. )
14 ______________________________) 15 Argued and Submitted on May 19, 2016 16 at Las Vegas, Nevada 17 Filed – June 14, 2016 18 Appeal from the United States Bankruptcy Court for the District of Nevada 19 Honorable Laurel E. Davis, Bankruptcy Judge, Presiding 20 21 Appearances: Steven T. Loizzi, Jr. of Alessi & Koenig, LLC, 22 argued for appellant Desert Pine Villas Homeowners Association; Malik W. Ahmad of the Law Office of 23 Malik W. Ahmad argued for Appellees Gil Kabiling and Linda Kabiling.
24 25 Before: BARASH,1 DUNN, and FARIS, Bankruptcy Judges. 26 27
1
28 Hon. Martin R. Barash, United States Bankruptcy Judge for the Central District of California, sitting by designation.
1 BARASH, Bankruptcy Judge: 2 3 Secured Creditor Desert Pine Villas Homeowners Association 4 appeals from the bankruptcy court’s order finding it in contempt 5 for violating the section 5242 discharge injunction and awarding 6 compensatory damages in favor of debtors, Gil Kabiling and Linda 7 Kabiling. We AFFIRM the bankruptcy court’s judgment. 8 FACTUAL BACKGROUND 9 A. Prepetition Events and the Debtors’ Chapter 7 Bankruptcy Case
10 11 Appellees Linda Kabiling (“Linda”)3 and her then-husband, 12 Gil Kabiling (“Gil,” and with Linda, the “Debtors”), owned a 13 condominium located in Las Vegas, Nevada (the “Property”), which 14 was part of a common interest development. The Debtors used the 15 Property as a rental property and resided elsewhere. The 16 Property was subject to a Declaration of Covenants, Conditions, 17 and Restrictions (“CC&Rs”) in favor of Appellant Desert Pine 18 Villas Homeowners Association (“Desert Pines”). The CC&Rs 19 require homeowners, such as the Debtors, to pay regular 20 homeowners association (“HOA”) assessments and grant Desert Pines 21 a lien against each condominium unit for any delinquent 22 assessments, late fees, interest, and collection fees and costs. 23 At some point in time prior to filing their bankruptcy case, the 24 25 2 Unless specified otherwise, all chapter and section 26 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
3
27 Because both of the Debtors retain the same surname, we refer to them by their first names to identify them. No 28 disrespect is intended by their first name references.
3
1 Debtors became delinquent in paying assessments to Desert Pines 2 and liens arose against the Property to the extent of those 3 delinquencies. The Debtors received collection notices from 4 Desert Pines, and from counsel for Desert Pines, Alessi & Koenig, 5 LLC (“Alessi & Koenig”). 6 On February 1, 2011, the Debtors filed a voluntary chapter 7 7 petition (the “Petition Date”) along with a Statement of 8 Intention asserting that they would abandon the Property. On 9 their Schedule F, the Debtors listed a debt owed to “original 10 creditor Desert Pine Villas / 6134 Pine Villa Ave. #103/HO 11 #23141” for assessor’s parcel number 138-11-517-007 in care of 12 “Alessi & Koenig, LLC, 9500 W. Flamingo Rd., Suite 100, Las 13 Vegas, NV 89147.” 14 The Debtors received their discharge on June 28, 2011. A 15 discharge order, including an “Explanation of Bankruptcy 16 Discharge in a Chapter 7 Case” (the “Discharge Order”), was 17 mailed to creditors on June 30, 2011, by the Bankruptcy Noticing 18 Center. The Discharge Order includes the following admonition: 19 The discharge prohibits any attempt to collect from the debtor a debt that has been discharged. For example, a 20 creditor is not permitted to contact a debtor by mail, phone, or otherwise, to file or continue a lawsuit, to 21 attach wages or other property, or to take any other action to collect a discharged debt from the 22 debtor . . . A creditor who violates this order can be required to pay damages and attorney’s fees to the 23 debtor. 24 Among the entities served with the Discharge Order was “Alessi & 25 Koenig, LLC, 9500 W. Flamingo Rd., Suite 100, Las Vegas, NV 26 89147-5720.” 27 /// 28 ///
4
1 B. Post-discharge Events and the Filing of the Quiet Title Action
2 3 Desert Pines nonjudicially foreclosed on its HOA liens in 4 2013 and thereby acquired title to the Property. On December 15, 5 2014, in the District Court for Clark County Nevada, Desert 6 Pines, through its counsel, Alessi & Koenig, filed a complaint 7 against the Debtors and three additional named defendants (the 8 “Complaint”) seeking to quiet title to the Property and confirm 9 that it held good title to the Property based on its nonjudicial 10 foreclosure in 2013 (the “Quiet Title Action”). The Complaint 11 alleged that the Debtors were “the former record owners of the” 12 Property, that Linda took title to the Property in 2005, and that 13 Linda was indebted to Desert Pines: 14 22. Defendant Linda . . . failed to pay her regular assessments and further failed to comply with other 15 requirements set forth in the CC&Rs and other related governing documents.
16 * * * 30. Defendant Linda . . . failed to meet her 17 obligations to pay assessments pursuant to CC&Rs and NRS 116, et al.
18 19 The Complaint also included a demand for attorneys’ fees to 20 be awarded against the Debtors and their co-defendants: 21 41. It has been necessary for Plaintiff to employ the legal services of [Alessi & Koenig], as duly licensed 22 and practicing attorneys in the State of Nevada to file and litigate this action, and reasonable attorneys’
23 fees should be awarded to Plaintiff, to be paid by Defendants.
24 PRAYER FOR RELIEF WHEREFORE, Plaintiffs pray for judgment against 25 Defendants and each them as follows:
* * *
26 3. For reasonable attorneys’ fees . . . . 27 Desert Pines served the Complaint on the Debtors, who 28 thereafter retained counsel to respond on their behalf. The
5
1 Debtors’ counsel sent a January 26, 2015 letter to Alessi & 2 Koenig alleging that the filing of the Complaint violated the 3 discharge injunction. Alessi & Koenig’s first substantive 4 response to this allegation consisted of an April 2, 2015 email 5 from Steven Loizzi of Alessi & Koenig (the “A&K Email”), 6 acknowledging that the Discharge Order applied to the prepetition 7 HOA delinquency but denying that the Complaint violated the 8 discharge injunction: 9 THIS CASE DOES NOT SEEK MONEY, SET OFF, PROPERTY, OR ANYTHING ELSE FROM YOUR CLIENTS . . . our action is NOT 10 intended to collect, recover, or offset any debt as a personal liability of the debtors . . . again, we are 11 not trying to collect any debt from the debtors. The discharge eliminated the personal liability of the 12 debtors for the HOA assessments . . . . 13 (Emphasis in original). 14 After reopening their bankruptcy case, the Debtors filed 15 their motion to have Desert Pines found in contempt based on the 16 filing and service of the Complaint (the “Debtors’ Contempt 17 Motion”). The bankruptcy court conducted an initial hearing on 18 the Debtors’ Contempt Motion on June 30, 2015, and thereafter 19 conducted an evidentiary hearing on August 6, 2015 (the 20 “Evidentiary Hearing”). The parties stipulated to the admission 21 of various exhibits; both Debtors and Harold Barling, president 22 of the board of directors of Desert Pines, testified. At the 23 conclusion of the Evidentiary Hearing, the bankruptcy court took 24 the matter under submission. 25 On October 20, 2015, the court issued its memorandum of 26 decision finding that Desert Pines (1) knew of the existence and 27 scope of the Discharge Order and (2) intended to file and serve 28 the Complaint on the Debtors. The bankruptcy court determined
6
1 that the filing and service of the Complaint violated the 2 Discharge Order because it was based on Desert Pines’ prepetition 3 relationship with the Debtors and included an attorneys’ fee 4 demand that appeared to arise out of discharged claims. The 5 bankruptcy court found Desert Pines in contempt and held it 6 liable for the Debtors’ compensatory damages in the amount of 7 $8,928.00. Desert Pines timely appealed. 8 JURISDICTION 9 The bankruptcy court had jurisdiction under 28 U.S.C. 10 §§ 1334 and 157(b)(2)(O). We have jurisdiction under 28 U.S.C. 11 § 158. 12 ISSUE 13 Whether the bankruptcy court erred when it determined that 14 Desert Pines willfully violated the discharge injunction. 15 STANDARDS OF REVIEW 16 The bankruptcy court’s decision to impose civil contempt 17 sanctions for a violation of the discharge injunction is reviewed 18 for an abuse of discretion. Nash v. Clark Cty. Dist. Attorney’s 19 Office (In re Nash), 464 B.R. 874, 878 (9th Cir. BAP 2012). 20 Under the abuse of discretion standard, the first step is to 21 determine de novo whether the court applied the correct legal 22 rule. United States v. Hinkson, 585 F.3d 1247, 1261-62 (9th Cir. 23 2009) (en banc). If it failed to do so, it abused its 24 discretion. Mujica v. AirScan, Inc., 771 F.3d 580, 589 (9th Cir. 25 2014). If the court applied the correct legal rule, the second 26 step is to determine whether the court’s application of the law 27 to the facts was: “(1) ‘illogical,’ (2) ‘implausible,’ or 28 (3) without ‘support in inferences that may be drawn from the
7
1 record.’” Id. (quoting Hinkson, 585 F.3d at 1262). 2 DISCUSSION 3 A discharge in a bankruptcy case “operates as an injunction 4 against the commencement or continuation of an action, the 5 employment of process, or an act, to collect, recover or offset 6 any [prepetition] debt as a personal liability of the debtor.” 7 § 524(a)(2). A violation of this discharge injunction is 8 enforced through the court’s civil contempt authority under 9 section 105(a). Renwick v. Bennett (In re Bennett), 298 F.3d 10 1059, 1069 (9th Cir. 2002). The debtor has the burden of 11 proving, by clear and convincing evidence, that the offending 12 creditor knowingly and willfully violated the discharge 13 injunction. ZiLOG, Inc. v. Corning (In re ZiLOG, Inc.), 450 F.3d 14 996, 1007 (9th Cir. 2006). The offending creditor acts knowingly 15 and willfully if (1) it knew the discharge injunction was 16 applicable and (2) it intended the actions which violated the 17 injunction. Id. 18 With respect to the first prong, a creditor cannot be held 19 in contempt for violating a discharge injunction unless it has 20 actual knowledge of the injunction, which is a question of fact. 21 ZiLOG, 450 F.3d at 1008. If the creditor disputes that it had 22 such knowledge, an evidentiary hearing is required. Id. Actual 23 knowledge of the discharge injunction does not end the inquiry, 24 however, as the creditor also must be aware that its claim 25 against the debtor was subject to the discharge injunction. 26 Emmert v. Taggart (In re Taggart), 548 B.R. 275, 288 (9th Cir. 27 BAP 2016). “Whether a party is aware that the discharge 28 injunction is applicable to his or her claim is a fact-based
8
1 inquiry which implicates a party’s subjective belief, even an 2 unreasonable one.” Id. 3 With respect to the second prong, courts employ the same 4 analysis regarding violations of the discharge injunction as they 5 do with violations of the automatic stay. Id. The focus is on 6 whether the creditor’s conduct violated the injunction and 7 whether that conduct was intentional; it does not require a 8 specific intent to violate the injunction. Knupfer v. Lindblade 9 (In re Dyer), 322 F.3d 1178, 1191 (9th Cir. 2003) (citing Hardy 10 v. United States (In re Hardy), 97 F.3d 1384, 1390 (11th Cir. 11 1996); and Havelock v. Taxel (In re Pace), 67 F.3d 187, 191 (9th 12 Cir. 1995)). 13 The bankruptcy court applied the correct legal standard in 14 determining whether Desert Pines willfully violated the Discharge 15 Order. The bankruptcy court expressly cited to ZiLOG and its 16 progeny for the two-part test to determine whether the knowing 17 and willful standard had been met. After conducting an initial 18 hearing on the Debtors’ Contempt Motion, the bankruptcy court 19 conducted an evidentiary hearing at which the parties were 20 allowed to present live testimony and submit stipulated 21 documentary evidence. The evidentiary record in this case 22 supports the bankruptcy court’s ultimate conclusion that Desert 23 Pines knew that the Discharge Order applied and that Desert Pines 24 intended the actions that violated the discharge injunction. 25 A. Desert Pines Knew That the Discharge Injunction Applied to its Prepetition Claims Against the Debtors.
26 27 Desert Pines does not dispute that it had actual knowledge 28 of the Discharge Order entered in the Debtors’ bankruptcy case on
9
1 June 28, 2011. Desert Pines admits that the Debtors listed 2 Alessi & Koenig on their Schedule F as an agent for Desert Pines 3 with respect to the Property. The record is clear that Alessi & 4 Koenig was served on June 30, 2011, by the Bankruptcy Noticing 5 Center with a copy of the Discharge Order at Alessi & Koenig’s 6 address listed on Schedule F. Desert Pines admits that Alessi & 7 Koenig received the Discharge Order and admits that Alessi & 8 Koenig represents Desert Pines with respect to the Debtors and 9 the Property. Indeed, at the Evidentiary Hearing, Desert Pines’ 10 president, Harold Barling, acknowledged that Desert Pines had 11 been notified of the Debtors’ discharge either directly or 12 through Alessi & Koenig. The bankruptcy court’s conclusion that 13 Desert Pines had actual knowledge of the Discharge Order is 14 supported by the record and is neither illogical nor implausible. 15 Desert Pines, moreover, does not assert that it believed 16 that its prepetition claim against the Debtors was excepted from 17 the discharge. There is ample evidence in the record that Desert 18 Pines knew that the Discharge Order applied to its prepetition 19 claims against the Debtors. The bankruptcy court quoted at 20 length from the Discharge Order served on Alessi & Koenig 21 regarding the scope of the injunction. At the Evidentiary 22 Hearing, Mr. Barling testified that he knew that the entry of the 23 bankruptcy discharge precluded Desert Pines from collecting 24 delinquent sums owed by the Debtors. After filing the lawsuit, 25 Alessi & Koenig sent an email to the Debtors’ counsel which 26 expressly states that the “discharge eliminated the personal 27 liability of the debtors for the HOA assessments.” These 28 statements corroborate Mr. Barling’s testimony that Desert Pines
10
1 knew that the Discharge Order meant Desert Pines could not try to 2 collect the prepetition delinquent assessments from the Debtors. 3 Thus, the bankruptcy court’s conclusion that Desert Pines knew 4 that the Discharge Order applied to its prepetition claims 5 against the Debtors is supported by the record and is neither 6 illogical nor implausible. 7 B. Desert Pines Intentionally Filed the Complaint Which Violated the Discharge Injunction.
8 1. Desert Pines Acknowledges That It Filed and Served the 9 Complaint Against the Debtors. 10 At the Evidentiary Hearing, Mr. Barling testified that 11 Desert Pines retained Alessi & Koenig to file the Quiet Title 12 Action and that the lawsuit was a prerequisite to obtaining title 13 insurance to sell the Property. He also testified to his 14 understanding that quieting title required providing notice of 15 the quiet title action to the Debtors in the event they wished to 16 intervene. During oral argument at the June 30, 2015 hearing, 17 counsel for Desert Pines specifically admitted that Desert Pines 18 filed the Complaint in the Quiet Title Action, that it named the 19 Debtors as defendants, and that it sought recovery of attorneys’ 20 fees and costs. Thus, the record supports the bankruptcy court’s 21 conclusion that Desert Pines intended to file the Quiet Title 22 Action. The only remaining question is whether the filing of the 23 Complaint violated the Discharge Order. 24 2. The Complaint Violated the Discharge Injunction. 25 Desert Pines argues that the Complaint could not have 26 violated the Discharge Order because it sought only a declaration 27 that it held good title to the Property and did not seek to 28 collect, recover, or offset any of the delinquent prepetition HOA
11
1 assessments. 2 The mere filing of a complaint against a debtor by a 3 prepetition creditor does not necessarily violate the discharge 4 injunction. For example, pursuing a post-discharge lawsuit in 5 which the debtor is named as a putative party to collect from a 6 collateral source, such as an insurance policy or an uninsured 7 employers’ fund, does not violate section 524 provided “the 8 plaintiff makes it clear that it is not naming the debtor as a 9 party for anything other than formal reasons.” Ruvacalba v. 10 Munoz (In re Munoz), 287 B.R. 546, 550 (9th Cir. BAP 2002) 11 (citing Patronite v. Beeney (In re Beeney), 142 B.R. 360, 363 12 (9th Cir. BAP 1992)). 13 But that is not the case here. The Complaint repeatedly 14 alleges that Linda failed to pay her HOA assessments to Desert 15 Pines and utterly fails to mention that the Debtors’ prepetition 16 delinquencies had been discharged under section 524(a). Further, 17 the Complaint makes no attempt to communicate that the Debtors 18 were named only as putative parties, that no amounts were being 19 sought from the Debtors, or that the only circumstance in which 20 fees might be sought was if the Debtors elected to oppose the 21 relief requested.4 To the contrary, the Complaint alleges that 22 Desert Pines was required to incur attorneys’ fees to file the 23
4
24 The bankruptcy court noted that Desert Pines’ counsel could have contacted the Debtors prior to filing the Complaint to 25 explain the quiet title relief and request that the Debtors file 26 a “Disclaimer of Interest” with respect to the Property. Counsel rejected the suggestion because “there are thousands of these 27 quiet title actions filed every single day . . . . No one does that in any situation where there’s been a bankruptcy because 28 it’s only a title action.” Hr’g Tr. (June 30, 2015) at 11:19-23.
12
1 action and prays for a fee award against each of the named 2 defendants, including the Debtors. Nothing within the four 3 corners of the Complaint indicates that Desert Pines was not 4 seeking an attorneys’ fee award from the Debtors. 5 Desert Pines argues that it should not be held in contempt 6 because the Discharge Order does not prohibit it from seeking 7 attorneys’ fees in a post-discharge lawsuit against the Debtors. 8 This argument is without merit. The argument is premised on 9 (1) an incomplete description of the applicable law and (2) the 10 incorrect assumption that the attorneys’ fees asserted in the 11 Complaint were clearly post-discharge debts. 12 A chapter 7 discharge releases the debtor from personal 13 liability for debts arising “before the date of the order for 14 relief under this chapter.” § 727(b). A “debt” means a 15 liability on a claim. § 101(12). While state law ordinarily 16 determines whether a claim exists, federal law determines whether 17 such claim arose prepetition or postpetition. SNTL Corp. v. 18 Centre Ins. Co. (In re SNTL Corp.), 571 F.3d 826, 839 (9th Cir. 19 2009); ZiLOG, 450 F.3d at 1000. 20 The general rule in the Ninth Circuit is that “a claim 21 arises, for purposes of discharge in bankruptcy, at the time of 22 the events giving rise to the claim, not at the time the 23 plaintiff is first able to file suit on the claim.” O’Loghlin v. 24 Cty. of Orange, 229 F.3d 871, 874 (9th Cir. 2000) (plaintiff’s 25 claims against debtor were discharged to the extent based on 26 pre-discharge violations of the Americans with Disabilities Act 27 despite plaintiff not receiving right-to-sue letter until 28 post-discharge, but claims based on post-discharge violations
13
1 were not discharged).5 2 Desert Pines’ demand for attorneys’ fees in the Quiet Title 3 Action appears to be based on prepetition events. The Complaint 4 alleges: (1) Linda took title to the Property in 2005; (2) Linda 5 failed to pay assessments; (3) by operation of the CC&Rs, Desert 6 Pines obtained a lien against the Property to the extent of such 7 delinquent assessments, late fees, interest, and collection fees 8 and costs; and (4) Desert Pines foreclosed nonjudicially on the 9 Property in 2013. Desert Pines does not dispute that the 10 delinquent assessments arose prior to the Petition Date. Thus, 11 the only relationship described in the Complaint between the 12 Debtors and the Property is based on pre-discharge circumstances. 13 Moreover, the Complaint does not identify any postpetition 14 conduct by the Debtors, any postpetition default by the Debtors, 15 or any postpetition contract between Desert Pines and the Debtors 16 on which the Quiet Title Action was based. It appears that –- 17 other than the 2013 nonjudicial foreclosure -- the only events on 18 which that action could be based took place prepetition. Thus, 19 Desert Pines’ demand for attorneys’ fees in the Complaint appears 20 to be based on those events and discharged obligations. Under 21 O’Loghlin, Desert Pines’ demand for attorneys’ fees is reasonably 22 construed as an attempt to collect a claim that arose 23
5
24 A narrow exception to this rule, not applicable here, recognizes that even if a creditor’s underlying substantive claim 25 against the debtor arose prepetition, postpetition attorneys’ 26 fees “are not discharged where post-petition, the debtor voluntarily commences litigation or otherwise [postpetition]
27 voluntarily ‘return[s] to the fray’” of litigation commenced prepetition. Boeing N. Am., Inc., v. Ybarra (In re Ybarra), 424 28 F.3d 1018, 1026 (9th Cir. 2005).
14
1 pre-discharge. 2 It does not matter whether Desert Pines believed in good 3 faith that including a demand for attorneys’ fees in the 4 Complaint would not violate the discharge injunction. Dyer, 322 5 F.3d at 1191; Taggart, 548 B.R. at 287. By including allegations 6 regarding prepetition debts of the Debtors, failing to disclose 7 that those debts were discharged, and failing to make explicit 8 that the Debtors were named only as putative parties from whom no 9 sums were sought, Desert Pines violated the discharge 10 injunction.6 The bankruptcy court did not abuse its discretion 11 in reaching this conclusion and finding Desert Pines in contempt. 12 CONCLUSION 13 For the reasons stated, we AFFIRM the bankruptcy court’s 14 judgment. 15 16 17 18 19
6
20 In its opening brief, Desert Pines also complains that the Debtors’ counsel “sent an extortion letter” to Alessi & 21 Koenig allegedly in violation of the Rules of Professional Conduct. The relevance of Desert Pines’ argument is unclear.
22 Section 524(a) includes express anti-waiver provisions and 23 therefore nothing a debtor does, or fails to do, post-discharge diminishes or abrogates the discharge injunction. Rooz v. Kimmel 24 (In re Kimmel), 378 B.R. 630, 638 (9th Cir. BAP 2007) (“[T]he chapter 7 discharge is absolute and, in light of the anti-waiver 25 provisions of § 524(a), does not admit of an equitable exception 26 that would permit it to be waived by postdischarge conduct.”);
Lone Star Security & Video, Inc. v. Gurrola (In re Gurrola), 328 27 B.R. 158, 172 (9th Cir. BAP 2005) (“The gravamen of our analysis is that § 524(a) eliminates the revival of the discharged debt as 28 a remedy for postpetition misconduct.”).