Trustee Blog

The Contempt Case:

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Chapter 7 Riverside Bankruptcy Trustee

Todd Frealy

Riverside Bankruptcy Judge Houle’s recent case (In which Mr. Frealy was the Chapter 7 Trustee) had a good discussion about contempt for violating the automatic stay and the Beezley case.

Motion for an Order to Show Cause Why ______ Should Not Be Found in Contempt for Violating the Automatic Stay

BACKGROUND

On May 21, 20XX, (“Debtor”) filed for chapter 7 relief. Mr. Frealy was  the Trustee. The Debtor received a discharge on September 03, 20xx . The Debtor’s bankruptcy case was closed on September 10, .

On January 31 , the Debtor’s case was reopened for Debtor to bring his Motion re: Contempt.

On February 20, the Debtor filed his Notice of Motion and Motion for an Order to Show Cause Why ( “Respondents”) Should Not be Found in Contempt for Violation of the Automatic Stay (“Motion”).

On March 1, Respondents filed their Opposition to the Motion (“Opposition”).

1) Contempt Under § 524

A party who knowingly violates the discharge injunction can be held in contempt under section 105(a) of the bankruptcy code. See In re Bennett, 298 F.3d at 1069; Walls v. Wells Fargo Bank, N.A., 276 F.3d 502, 507 (9th Cir.2002) (holding that civil contempt is an appropriate remedy for a willful violation of section 524’s discharge injunction). In Bennett, the Ninth Circuit held that the party seeking contempt sanctions has the burden of proving, by clear and convincing evidence, that the sanctions are justified. Additionally, the Ninth Circuit has held that “[T]he movant must prove that the creditor (1) knew the discharge injunction was applicable and (2) intended the actions which violated the injunction.” Bennett, 298 F.3d at 1069

(citing Hardy v. United States (In re Hardy), 97 F.3d 1384, 1390 (11th Cir.1996)). In addition to knowledge, the Ninth Circuit requires that the entity subject to contempt know of its potential applicability to their claims. In re Zilog, Inc., 450 F.3d 996, 1008 (9th Cir.2006). Both knowledge of the discharge injunction and its applicability to the claims are questions of fact to be determined by the bankruptcy court.

The Debtor asserts that an order to show cause is justified because:

1) Debtor mistakenly failed to include a pending law suit which she had filed against him in his schedules;

2) Not withstanding the omission,onDecember13,–following the Debtor’s receipt of a discharge and the closing of the case – Debtor’s counsel contacted Respondents and provided them with the Notice of Bankruptcy, Notice of Discharge, and separately, with the case of In re Beezley, a Ninth Circuit case which Debtor and Debtor’s counsel assert stands for the proposition that where a Debtor in a no-asset case fails to include a creditor, the omission does not affect the dischargeability of the debt:

3) Despite emails and conference calls with Respondents, they continue with the prosecution of the collection case in state court.

More about this case next time….

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