Ch. 7 Debtor Fails to Show That Ex-Wife's Attorney Violated Automatic Stay For Filing Lawsuit When Debtor Failed to List Atty. or Ex-Wife on Schedules

6/18/08
Mark Stoiber v. Craig S. Galpern, Adv. Proc. No. 08-6052-fra
In re Mark Jeffery Stoiber, Case No. 07-61157-fra7
UNPUBLISHED opinion by Judge Frank R. Alley, III

A debtor is not going to win an argument against a creditor for violation of the automatic stay if the debtor does not bother to include the creditor on the creditor schedule, even if the creditor is his ex-wife represented by an attorney who could have easily found out about his bankruptcy case, and even if that attorney had filed a state court action in the meantime against debtor pursuing a dischargeable debt and failed to dismiss it even after getting notice of the bankruptcy case.

Subject matter jurisdiction:
Before getting to the automatic stay issue, Judge Alley ruled against the effort by defendant, creditor’s attorney, to have the issue of the automatic stay violation decided in the pending state court case. Shortly before learning about the bankruptcy case, the attorney had filed an action against debtor in state court on behalf of the debtor’s ex-wife, which included a prayer for contempt for debtor’s failure to pay the attorney fees awarded in the earlier dissolution proceeding. In the adversary proceeding by debtor against him for violation of the automatic stay, the case at issue here, the attorney argued that jurisdiction on this matter is concurrent between state and federal courts, and so jurisdiction rested in the state court unless and until the pending case was removed to bankruptcy court. He relied on a 1995 Oregon bankruptcy court opinion, In re Jeffries, 191 B.R. 861 (1995), which spoke of such concurrent jurisdiction pursuant to 28 U.S.C. §1334(b). But Judge Alley effectively stated that the 9th Circuit Court of Appeals overruled that Jeffries opinion with its holding in In re Gruntz, 202 F.3d 1074, 1082 (9th Cir. 2000): “Because of the bankruptcy court’s plenary power over core proceedings, the . . . argument that states have concurrent jurisdiction over the automatic stay under 28 U.S.C. §1334(b) is unavailing.” Id. At 1082-83.

Although losing the jurisdictional argument, defendant prevailed in his motion for summary judgment in debtor’s adversary proceeding against him for violation of the stay because 1) Judge Alley found no evidence that defendant had actual knowledge of the bankruptcy case when he filed the state court action; 2) defendant had no “duty to search the bankruptcy records for a filing” even if he was an experienced litigator, “especially when the Plaintiff [debtor] had the duty under the Bankruptcy Code to list all creditors with his initial filing”; and 3) the evidence showed that neither defendant, nor anyone acting on behalf of the defendant, nor the state court “took any action in furtherance of the state court action pertaining to the debt.” Interestingly, Judge Alley cited no judicial authority whatsoever in support of these standards that he relied on in giving summary judgment to defendant, perhaps because he did not intend for his opinion here to be published.

BOTTOM LINES: 1) The Ninth Circuit has made it quite clear that state courts have no subject matter jurisdiction over disputes about the automatic stay and so must defer to bankruptcy courts.
2) If a debtor wants to be able to assert a violation of the automatic stay against a creditor, he ought to be sure to include the creditor in the creditor schedules, and, especially if there is any delay in doing so, also to be sure to have solid evidence that the creditor had actual knowledge of the bankruptcy case before the alleged stay violation.

by Andrew Toth-Fejel, Bankruptcy Litigation Services for Attorneys, Andy@BLSforAttorneys.com

© 2008 Bankruptcy Litigation Support for Attorneys

Debtor Can't Make US Trustee Pay for His Atty. Fees In Successfully Defending Against Allegations of Abuse. Not Under These Facts But How About Yours?

06/04/08
In re David B. Lorenz , Case No. 07-30593-elp7; Appellate No. CV-08-443-KI
Oregon US District Court Judge Garr King

Judge Perris’ order denying debtor’s application for attorney fees under the Equal Access to Justice Act (“EAJA”), 28 U.S.C. § 2412, was upheld on appeal in this unpublished opinion by Oregon US District Court Judge Garr King. His opinion hinged simply on his conclusion that Judge Perris did not abuse her discretion in denying fees to the debtor, specifically that her order was not based “on an erroneous legal conclusion or a clearly erroneous finding of fact.” Oregon Envtl. Council v. Kunzman, 817 F.2d 484, 496 (9th Cir. 1987). Although unpublished, this opinion is noteworthy because it gives the U.S. Trustee, and thus debtors, guidance about the kind of abuse case the U.S. Trustee (“UST”) can file without worrying about being held liable for the debtors’ attorney fees, even if those abuse allegations are found at trial to have been without merit.

The EAJA provides for attorney fees and expenses to be paid by the U.S. to a prevailing party in any civil action brought by or against the U.S. unless the court finds that the government’s position was substantially justified or that special circumstances make an award unjust. 28 U.S.C. § 2412(d)(1)(A).
Although the burden is on the government, it needs only to show that its position had a reasonable basis both in law and fact or were “justified in substance or in the main.” Pierce v. Underwood, 487 U.S. 552, 565 (1988).

The debtor’s circumstances seem to make this an easy case at first blush. As stated by Judge Perris in the underlying case: “This debtor had an $800,000 house, at least four vehicles on which he owed substantial amounts, and a wife who contributes a substantial amount to the household but who did not join in the bankruptcy petition. Although the court ultimately decided that, even given reasonable expenses, this debtor could not afford to make a meaningful payment to creditors, the UST was justified in challenging this debtor’s use of the bankruptcy system, given the lifestyle he leads. This debtor is living beyond his means, and even with a bankruptcy discharge, will have to curtail his living expenses in order to maintain a reasonable standard of living in the future.”

Debtor’s counsel, Bret Knewtson, argued that the UST should have dismissed its pending abuse motion as soon as debtor became employed when it should have become clear that he would not be able to repay a meaningful amount to his business debts totaling between $500,000 and a million dollars. Counsel also argued that the UST was wrong in pushing for the reasonableness of Lorenz’s expenses to be judged by the IRS Standards, and in arguing that the non-debtor wife should contribute to paying debtor’s debts. But Judge King discussed how each of these factors are reasonable to include when judging the rather ambiguous concept of abuse, and that thus Judge Perris was within her discretion in consider these factors, and so also within her discretion in not making the UST pay debtor’s attorney fees.

BOTTOM LINE: The UST is undoubtedly keeping an eye on the Equal Access to Justice Act’s standards as laid out in this case, and so is filing motions to dismiss for abuse only when it is confident that it can bear the burden of showing that its position, at each point in the proceedings, is substantially justified. The facts here did not seem to make it very hard for the UST to avoid being hit with attorney fees. But debtor’s counsel should nevertheless keep an eye on the EAJA and this opinion whenever defeating a trustee’s motion to dismiss for abuse, and should also try to use these as leverage to persuade the UST to drop its motion if the case turns more in debtor’s favor during discovery.

by Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, Andy@BLSforAttorneys.com

© 2008 Bankruptcy Litigation Support for Attorneys