In re: Paul Douglas Knight

• Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
• Decided: November 7, 2011
• Docket: OR-10-1371-JuClPa
• Status: Unpublished

Opinion

FILED NOV 07 2011 1 SUSAN M SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT 2 3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. OR-10-1371-JuClPa ) 6 PAUL DOUGLAS KNIGHT, ) Bk. No. 10-30580 ) 7 Debtor. ) Adv. No. 10-03092 ______________________________) 8 ALLAN F. KNAPPENBERGER, ) ) 9 Appellant, ) ) 10 v. ) M E M O R A N D U M* ) 11 PAUL DOUGLAS KNIGHT, ) ) 12 Appellee. ) ______________________________) 13 Argued and Submitted on October 20, 2011 14 at Portland, Oregon 15 Filed - November 7, 2011 16 Appeal from the United States Bankruptcy Court for the District of Oregon 17 Honorable Randall L. Dunn, Bankruptcy Judge, Presiding 18 _____________________________ 19 Appearances: Appellee Allan F. Knappenberger argued pro se. ______________________________ 20 Before: JURY, CLARKSON,** and PAPPAS Bankruptcy Judges. 21 22 23 24 * This disposition is not appropriate for publication. 25 Although it may be cited for whatever persuasive value it may 26 have (see Fed. R. App. P. 32.1), it has no precedential value. See 9th Cir. BAP Rule 8013-1. 27 ** Hon. Scott C. Clarkson, Bankruptcy Judge for the Central 28 District of California, sitting by designation.

-1- 1 Appellant-creditor, Allan F. Knappenberger 2 (“Knappenberger”) appeals the bankruptcy court’s (1) judgment 3 dismissing his adversary complaint against appellee, chapter 71 4 debtor Paul Douglas Knight and (2) order denying Knappenberger’s 5 motion to amend the judgment. 6 After a trial, the bankruptcy court dismissed the complaint 7 on the grounds that Knappenberger did not prove that his state 8 court contempt judgment against debtor satisfied the willful and 9 malicious injury elements of the discharge exception under 10 § 523(a)(6). On appeal, Knappenberger argues that the 11 bankruptcy court erred in its application of the law to the 12 undisputed facts of this case. We disagree and AFFIRM. 13 I. FACTS2 14 Knappenberger, an attorney, sued debtor in the Oregon state 15 court for unpaid attorney’s fees. On January 22, 2008, the 16 state court entered a general judgment (“General Judgment”) for 17 Knappenberger and against debtor by default for the sum of 18 $1,634.39 plus costs of $471.20, bearing interest at 9%. Debtor 19 did not pay the General Judgment. 20 In early 2009, Knappenberger began collection efforts by 21 moving for and obtaining an order from the state court which 22 required debtor to appear for a judgment debtor exam on May 13, 23 2009. Debtor did not appear and Knappenberger obtained a second 24 25 1 Unless otherwise indicated, all chapter, section and rule 26 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. 27 2 We take most of the undisputed facts from the bankruptcy 28 court’s Memorandum Opinion filed September 17, 2010.

-2- 1 order which required debtor to appear for a judgment debtor exam 2 on June 12, 2009. Debtor again did not appear and, as a result, 3 the state court issued an Order to Show Cause, requiring debtor 4 to appear and show cause why he should not be held in contempt 5 of the court’s previous orders. The order proposed sanctions in 6 the amount of $500, or one percent of debtor’s gross income 7 (whichever was greater), for each day that the contempt of court 8 continued. Knappenberger served debtor with the notice of the 9 order to show cause. 10 Debtor did not appear at the August 14, 2009, order to show 11 cause hearing. The state court found that debtor was in willful 12 contempt of court for his failure to obey both judgment debtor 13 exam orders. As a consequence, the state court imposed remedial 14 sanctions for $687.03 and $20.00 per day, or $600.00 per month, 15 beginning on August 14, 2009, until debtor complied with the 16 orders. On August 26, 2009, the state court entered a 17 supplemental judgment (“Supplemental Judgment”) for 18 Knappenberger that reflected these findings. 19 In December 2009, debtor wrote Knappenberger stating that 20 he intended to string Knappenberger along so that Knappenberger 21 received payment at debtor’s convenience. However, in the same 22 letter debtor offered $700 to settle the judgment debt for the 23 unpaid legal fees. Knappenberger did not accept the offer. 24 On January 27, 2010, debtor filed his chapter 7 petition. 25 At that time, debtor was receiving unemployment compensation 26 benefits of $172.50 a month. Debtor’s schedules reflected that 27 he owned no real property, and his personal property assets, 28 with an aggregate value of $2,480, consisted of household goods

-3- 1 and furnishings, books, clothing and a dog, all of which were 2 claimed as exempt. Debtor’s schedules further showed that he 3 did not own a car.3 4 Knappenberger filed an adversary complaint against debtor 5 on March 26, 2010, seeking to except the debts contained in the 6 General Judgment and Supplemental Judgment from discharge under 7 § 523(a)(6). Debtor answered by denying all allegations in the 8 complaint. 9 On August 2, 2010, the bankruptcy court held a trial on the 10 matter; debtor did not appear.4 Knappenberger’s evidence, in 11 the form of exhibits, were all admitted at the trial and are 12 part of the record in this appeal. The exhibits generally 13 consisted of the General Judgment, the state court orders 14 regarding the judgment debtor exams, debtor’s letter offer of 15 settlement, and the Supplemental Judgment. After hearing 16 Knappenberger’s argument, the bankruptcy court found that the 17 evidence did not prove that debtor’s failure to appear at the 18 court ordered judgment debtor exams met the elements for a 19 willful and malicious injury under § 523(a)(6). Accordingly, 20 the bankruptcy court dismissed the adversary proceeding by order 21 entered on August 31, 2010. 22 On September 7, 2010, Knappenberger filed a motion to amend 23 24 3 We take judicial notice of debtor’s schedules which were not included in the record. Atwood v. Chase Manhattan Mortg. Co. 25 (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003). 26 4 Knappenberger represented at trial that he had received a 27 letter from debtor’s mother advising him that debtor had been imprisoned for a short term and would enter rehab upon his 28 release.

-4- 1 the judgment, asserting that the bankruptcy court erred in its 2 application of the law. The bankruptcy court denied the motion 3 in a Memorandum Opinion and entered a separate order on 4 September 17, 2010. Knappenberger timely appealed.5 5 II. JURISDICTION 6 The bankruptcy court had jurisdiction over this proceeding 7 under 28 U.S.C. §§ 1334 and 157(b)(2)(I). We have jurisdiction 8 under 28 U.S.C. § 158. 9 III. ISSUE 10 Whether the bankruptcy court erred by finding that 11 Knappenberger did not prove, by a preponderance of the evidence, 12 that debtor’s failure to appear at his judgment debtor exams 13 satisfied the willful and malicious injury elements of the 14 discharge exception under § 523(a)(6). 15 IV. STANDARDS OF REVIEW 16 The issue of dischargeability of a debt is a mixed question 17 of fact and law that is reviewed de novo. Miller v. United 18 States, 363 F.3d 999, 1004 (9th Cir. 2004). We review the 19 bankruptcy court’s factual findings for clear error. Rule 8013. 20 We review for abuse of discretion a bankruptcy court’s 21 denial of a motion to alter or amend the judgment. Ta Chong 22 Bank Ltd. v. Hitachi High Techs. Am., Inc., 610 F.3d 1063, 1066 23 (9th Cir. 2010). We follow a two-part test to determine 24 objectively whether the bankruptcy court abused its discretion. 25 26 5 In its Memorandum Opinion, the bankruptcy court ruled that 27 the General Judgment was discharged because it was a debt based on a breach of contract (i.e. for unpaid legal fees). 28 Knappenberger did not appeal that portion of the court’s ruling.

-5- 1 United States v. Hinkson, 585 F.3d 1247, 1261-62 (9th Cir. 2 2009). First, we “determine de novo whether the bankruptcy 3 court identified the correct legal rule to apply to the relief 4 requested.” Id. Second, we examine the bankruptcy court’s 5 factual findings under the clearly erroneous standard. Id. at 6 1262 n.20. We affirm the court’s factual findings unless those 7 findings are “(1) ‘illogical,’ (2) ‘implausible,’ or (3) without 8 ‘support in inferences that may be drawn from the facts in the 9 record.’” Id. (internal quotation marks omitted). If the 10 bankruptcy court did not identify the correct legal rule, or its 11 application of the correct legal standard to the facts was 12 illogical, implausible, or without support in the record, then 13 the bankruptcy court abused its discretion. Id. 14 V. DISCUSSION 15 The discharge of debts for the honest and unfortunate 16 debtor lies at the heart of the Bankruptcy Code’s fresh start 17 policy. See Grogan v. Garner, 498 U.S. 279, 287 (1991). The 18 Code however carves out various exceptions to discharge in 19 § 523(a) which “reflect a conclusion on the part of Congress 20 ‘that the creditors’ interest in recovering full payment of 21 debts in these categories outweigh[s] the debtors’ interest in a 22 complete fresh start.’” Id. Nonetheless, given the strong 23 fresh start policy in the Code, exceptions to discharge are 24 “strictly construed against an objecting creditor and in favor 25 of the debtor.” Snoke v. Riso (In re Riso), 978 F.2d 1151, 1154 26 (9th Cir. 1992). 27 Section 523(a)(6) states that a discharge under § 727 does 28 not discharge an individual from any debt — “(6) for willful and

-6- 1 malicious injury by the debtor to another entity or to the 2 property of another entity.” This section applies to debts 3 arising from intentionally inflicted injuries. Carrillo v. Su 4 (In re Su), 290 F.3d 1140, 1143 (9th Cir. 2002) (citing 5 Kawaauhau v. Geiger, 523 U.S. 57 (1998)). In determining 6 whether a debtor’s conduct falls within the scope of the 7 statute, a two-step analysis is required. The first step of the 8 analysis is determining whether there was a “willful” injury, 9 while the second step concerns whether the conduct was 10 “malicious.” In re Su, 290 F.3d at 1146–47; and see Barboza v. 11 New Form, Inc. (In re Barboza), 545 F.3d 702, 711 (9th Cir. 12 2008) (recent case reinforcing Su and the requirement of courts 13 to apply a separate analysis for each prong of “willful” and 14 “malicious”). 15 For conduct to be willful, a creditor must prove that the 16 debtor had the subjective intent to cause harm or the subjective 17 knowledge that harm was substantially certain to occur. Su, 18 290 F.3d at 1146. For conduct to be malicious, a creditor must 19 prove that the debtor: (1) committed a wrongful act; (2) done 20 intentionally; (3) which necessarily causes injury; and (4) was 21 done without just cause or excuse. Id. at 1146–47. 22 Knappenberger had the burden of proving these elements by a 23 preponderance of the evidence. Grogan, 498 U.S. at 287. “The 24 burden of showing something by a ‘preponderance of the 25 evidence,’ . . . ‘simply requires the trier of fact to believe 26 that the existence of a fact is more probable than its 27 nonexistence before [he] may find in favor of the party who has 28 the burden to persuade the [judge] of the fact’s existence.’”

-7- 1 Concrete Pipe & Prods. of Cal., Inc. v. Constr. Laborers Pension 2 Trust for S. Cal., 508 U.S. 602, 622 (1993). 3 The gravamen of Knappenberger’s argument on appeal is 4 essentially that contempt sanctions are per se nondischargeable. 5 To support his position, Knappenberger relies on three decisions 6 from other circuits: Siemer v. Nangle (In re Nangle), 274 F.3d 7 481 (8th Cir. 2001), Neufeld v. McDowell (In re McDowell), 8 415 B.R. 612 (Bankr. S.D. Fla. 2008),6 and PRP Wine Int’l. v. 9 Allison (In re Allison), 176 B.R. 60 (Bankr. S.D. Fla. 1994). 10 According to Knappenberger, the courts in all three cases held 11 that damages from a contempt order obtained by a creditor as a 12 result of a debtor violating court orders were nondischargeable 13 as a matter of law because such conduct met the “willful and 14 malicious” injury test of § 523(a)(6). He further asserts that 15 in none of the cases did the court require any further analysis 16 to determine if the debtor’s conduct met the § 523(a)(6) 17 standards other than the debtor’s failure to obey a court order. 18 Finally, Knappenberger argues that injury to the creditor “is 19 assumed” from the damages awarded to the creditor by the state 20 court. 21 We are not persuaded by Knappenberger’s arguments or 22 23 6 The bankruptcy court in In re McDowell addressed the nondischargeability of a sanctions award under § 523(a)(7) after 24 the debtor filed a motion for judgment on the pleadings. The 25 bankruptcy court determined that because the sanctions award was not payable to a governmental unit, the debt did not fall within 26 the § 523(a)(7) exception to discharge. The facts and the holding in In re McDowell do not assist Knappenberger’s position 27 in this appeal. 28 -8- 1 citations to non-binding case law. His argument for a per se 2 rule is plainly contrary to our holding in Suarez v. Barrett 3 (In re Suarez), 400 B.R. 732 (9th Cir. BAP 2009). In In re 4 Suarez, the Panel considered whether conduct leading to a 5 judgment for contempt of court could be for a willful and 6 malicious injury under § 523(a)(6). In conducting its statutory 7 analysis, the Panel first examined the plain language of 8 § 523(a), observing that § 523(a)(6) “does not make ‘contempt’ 9 sanctions nondischargeable per se, and neither does any other 10 subpart of section 523(a).” Id. at 737. Because the statutory 11 language did not support a per se rule, the Panel concluded that 12 “whether contempt sanctions are nondischargeable accordingly 13 depends not on whether they are labeled as ‘contempt,’ but on 14 whether the conduct leading to them was ‘willful and 15 malicious.’” Id. 16 The Panel next considered applicable case law — including 17 In re Nangle and In re Allison — two of the cases upon which 18 Knappenberger now relies. In In re Nangle, the Eighth Circuit 19 declined to decide whether a contempt judgment was per se 20 nondischargeable under § 523(a)(6), while the bankruptcy court 21 in In re Allison held that failure to comply with a court order 22 constitutes willful and malicious conduct as a matter of law 23 within the meaning of § 523(a)(6). Following the Eighth 24 Circuit’s lead in In re Nangle, the Panel in In re Suarez also 25 declined to adopt a per se rule and held that a debt for 26 contempt sanctions may be nondischargeable under § 523(a)(6) 27 when the conduct leading to the contempt is willful and 28 -9- 1 malicious, as required by the holding in In re Su. 2 The record shows that the bankruptcy court followed and 3 correctly applied the two-step analysis set forth in In re Su.7 4 In analyzing the willful requirement, the bankruptcy court 5 concluded that Knappenberger’s evidence did not permit an 6 inference that debtor had the subjective intent to cause harm to 7 Knappenberger or that debtor had the subjective knowledge that 8 harm was substantially certain to occur because there was other 9 evidence that supported a contrary conclusion. Specifically, 10 debtor’s schedules showed that he was unemployed and had no 11 nonexempt assets to pay the General Judgment. Further, 12 Knappenberger had presented no evidence showing that debtor had 13 the ability to pay the General Judgment at the time it was 14 issued or anytime thereafter. Therefore, debtor’s lack of 15 resources to pay the General Judgment raised the probability 16 that debtor did not appear for his judgment debtor exams due to 17 his dire financial circumstances as opposed to his subjective 18 intent to harm Knappenberger. When the evidence gives rise to 19 7 Although the state court found debtor in “willful” 20 contempt of court, the meaning of “willful” under the Oregon 21 contempt statute (Or. Rev. Stat. 33.015(2)) does not have the same intent requirements as needed for the finding of a willful 22 injury under § 523(a)(6). “[P]roof that a party had knowledge of a valid court order and failed to comply with that order” 23 establishes a finding of “willfulness” under Or. Rev. Stat. 33.015(2). See In re Conduct of Chase, 121 P.3d 1160, 1163 (Or. 24 2005)(en banc)(citing State ex rel Mikkelsen v. Hill, 847 P.2d 25 402 (Or. 1993)). The Oregon Supreme Court went on to state that this standard did not require a conscious purpose or objective to 26 accomplish a particular result. Id. Therefore, the bankruptcy court properly made an independent inquiry into whether debtor’s 27 conduct rose to the § 523(a)(6) willful injury standard. 28 -10- 1 competing interpretations, each plausible, “the factfinder's 2 choice between them cannot be clearly erroneous.” Anderson v. 3 City of Bessemer City, N.C., 470 U.S. 564, 574 (1985). 4 At oral argument, Knappenberger pointed to debtor’s 5 December 2009 letter as evidence of debtor’s subjective intent 6 to harm Knappenberger. In that letter, debtor stated that he 7 intended to string Knappenberger along so that Knappenberger 8 received payment at debtor’s convenience. However, at the same 9 time, debtor offered $700 to settle the General Judgment, a 10 settlement which Knappenberger refused. The bankruptcy court 11 placed no significance on debtor’s statements in the letter 12 other than observing that the language of the letter was 13 colorful and tended to indicate that relations between the 14 parties were anything but cordial as Knappenberger pursued his 15 collection efforts against debtor in state court. The court 16 also observed that the letter was essentially cumulative in 17 characterizing the relationship between the parties as a dogged 18 debt collector pursuing a bitter and impecunious debtor, feeling 19 cornered. The bankruptcy court’s interpretation of the letter 20 was certainly plausible in light of the record as a whole. 21 Accordingly, the bankruptcy court did not err in finding that 22 Knappenberger failed to meet his burden of proof on the willful 23 element. 24 In analyzing the malicious requirement, the court found the 25 same facts relating to debtor’s financial condition showed that 26 his conduct did not necessarily cause injury to Knappenberger. 27 In other words, without the resources to pay the General 28 -11- 1 Judgment prior to the issuance of the orders for the judgment 2 debtor exams, debtor’s failure to appear at those exams could 3 not have caused Knappenberger injury beyond the dischargeable 4 debt contained in the General Judgment. That there may be other 5 plausible interpretations of the evidence is not enough to 6 overturn the bankruptcy court’s findings. Therefore, the 7 bankruptcy court did not err in finding that Knappenberger 8 failed to meet his burden of proof on the malicious element. 9 The bankruptcy court also did not abuse its discretion by 10 denying Knappenberger’s motion to amend the dismissal judgment. 11 Knappenberger did not present newly discovered evidence, 12 demonstrate clear error, or show an intervening change in 13 controlling law. See 389 Orange St. Partners v. Arnold, 14 179 F.3d 656, 665 (9th Cir. 1999) (setting forth grounds for 15 reconsideration under Fed. R. Civ. P. 59(e)); see also Rule 9023 16 (incorporating Fed. R. Civ. P. 59(e) in bankruptcy proceedings). 17 VI. CONCLUSION 18 For the reasons stated, we AFFIRM. 19 20 21 22 23 24 25 26 27 28 -12-