In re Ybarra

• Decision Date: 14 September 2005
• Docket Number: No. 03-56314.,03-56314.
• Citation: 424 F.3d 1018
• Parties: In re Nancy Elaine YBARRA, Debtor, Boeing North American, Inc., Successor for Limited Purposes to Rockwell International Corporation, Appellant, v. Nancy Elaine Ybarra, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1018

424 F.3d 1018

In re Nancy Elaine YBARRA, Debtor,

Boeing North American, Inc., Successor for Limited Purposes to Rockwell International Corporation, Appellant, v. Nancy Elaine Ybarra, Appellee.

No. 03-56314.

United States Court of Appeals, Ninth Circuit.

Submitted March 10, 2005.^*

Filed September 14, 2005.

Wayne R. Terry, Mitchell, Silberberg & Knupp LLP, Los Angeles, CA, for the appellant.

Nancy Elaine Ybarra, Santa Barbara, CA, pro se, for the appellee.

Appeal from the Ninth Circuit Bankruptcy Appellate Panel; Perris, Klein and Baum, Bankruptcy Judges, Presiding. BAP No. CC-02-01356-KBaP.

Before WARDLAW, PAEZ, Circuit Judges, and BEISTLINE, District Judge.^**

PAEZ, Circuit Judge.

After filing for bankruptcy protection, Nancy Elaine Ybarra ("Ybarra") persuaded a state court to vacate the dismissal of an action she had filed against her former employer Rockwell International Corporation ("Rockwell") prior to filing for bankruptcy. Rockwell prevailed and was awarded attorney fees and costs by the state court. The bankruptcy court held that despite Ybarra's discharge in bankruptcy, Rockwell could collect the portion of the fees and costs incurred after Ybarra filed for bankruptcy. In a divided opinion, the Bankruptcy Appellate Panel of the Ninth Circuit ("BAP") reversed. The BAP majority held that the entire award was encompassed in the discharge. Boeing North American, Inc., as successor to Rockwell, appealed. We hold that the fees and costs incurred post-petition were not discharged, and therefore reverse.

I. Statement of Facts and Procedural History

In 1988, Ybarra sued Rockwell in Orange County Superior Court. Ybarra's Fifth Amended Complaint, filed in April of 1991, asserted two causes of action: 1) employment discrimination in violation of California Government Code section 12940; and 2) violation of the covenant of good faith and fair dealing.

On December 10, 1991, Ybarra filed a Chapter 11 bankruptcy petition. Ybarra did not initially schedule the cause of action against Rockwell. Ybarra v. Boeing N. Am., Inc. (In re Ybarra), 295 B.R. 609, 611 (9th Cir. BAP 2003). Rockwell first learned of the bankruptcy petition in 1993, and thereafter promptly objected to Ybarra's disclosure statement and moved to convert the case to Chapter 7. The bankruptcy court granted Rockwell's motion and converted the case in June of 1993.

The trustee for Ybarra's Chapter 7 bankruptcy estate agreed with Rockwell to settle the case via a compromise in which Rockwell would purchase Ybarra's cause of action for $17,500. Id. Although Ybarra objected to the proposed compromise, the bankruptcy court approved it on November 12, 1993. Thereafter the state court granted the trustee's and Rockwell's motion to dismiss Ybarra's lawsuit.

On September 29, 1993, Ybarra amended her schedule of exempt property to add the cause of action against Rockwell. The bankruptcy court sustained Rockwell's objection to Ybarra's claim of exemption on February 24, 1994. The BAP reversed this decision, and we affirmed the BAP. Ybarra v. Rockwell Int'l Corp. (In re Ybarra), 124 F.3d 215, 1997 WL 579130 (9th Cir. 1997).

On remand, the bankruptcy court ruled that the cause of action was exempt. The court gave Ybarra the option of either accepting $17,500 in full satisfaction and release of all claims against Rockwell ("the Election"), or taking ownership of "all right, title and interest" in the lawsuit.

Ybarra elected to take ownership of the cause of action. Thereafter, Ybarra successfully persuaded the state court to set aside the dismissal. Ybarra, 295 B.R. at 612. Ultimately, the state court granted summary judgment in favor of Rockwell. Rockwell then moved for an award of attorney fees and costs pursuant to California Code of Civil Procedure sections 1032 and 1033.5¹ and California Government Code sections 12940(a) and 12965(b).² The state court awarded Rockwell $456,884.03 in attorney fees and costs. Ybarra appealed, and the California Court of Appeal affirmed in 2001. Ybarra, 295 B.R. at 612.

Meanwhile, the bankruptcy court had granted Ybarra a discharge in May of 1998 pursuant to 11 U.S.C. § 727. In light of the discharge, Rockwell moved the bankruptcy court for leave to enforce its state court award of fees and costs. The bankruptcy court partially granted Rockwell's motion, holding that the portion of the award incurred after Ybarra filed her bankruptcy petition ($159,030.78) was not discharged. It held that Rockwell was free to collect this "Enforceable Amount" without violating the discharge injunction of 11 U.S.C. § 524. In awarding Rockwell attorney fees incurred after the filing of Ybarra's bankruptcy petition, the bankruptcy court relied on Siegel v. Federal Home Loan Mortgage Corp., 143 F.3d 525 (9th Cir.1998), which held that an award of attorney fees incurred post-petition based on a pre-petition cause of action was not discharged in bankruptcy.

Ybarra appealed the bankruptcy court's decision to the BAP. The BAP, in a divided decision, reversed, holding that the entire fee and cost award was discharged in Ybarra's bankruptcy. Ybarra, 295 B.R. at 617. The majority opinion relied on Abercrombie v. Hayden Corp. (In re Abercrombie), 139 F.3d 755 (9th Cir.1998), and Kadjevich v. Kadjevich (In re Kadjevich), 220 F.3d 1016 (9th Cir.2000), both of which held that claims for post-petition attorney fees could not be granted administrative expense priority in the distribution of bankruptcy assets. Ybarra, 295 B.R. at 612-16. This case, however, involves whether Ybarra's debt to Rockwell was discharged, not whether Rockwell's claim should be accorded administrative expense priority in the distribution of the bankruptcy estate's assets. The BAP majority explained that it relied on the administrative expense priority cases because they turned on the issue of whether attorney fees were a pre-petition claim. Id. at 612. The majority distinguished Siegel on the ground that it involved a suit commenced post-petition. Id. at 616. The dissent argued that Siegel should apply because it involved the discharge of post-petition attorney fees, which, it reasoned, is a "different concern" from the issue of administrative expense priority in Abercrombie and Kadjevich. Ybarra, 295 B.R. at 624 (Baum, J., dissenting).³ Rockwell timely appealed.

II. Jurisdiction and Standard of Review

We have jurisdiction to review decisions of the BAP pursuant to 28 U.S.C. § 158(d). We review BAP decisions de novo, and we independently review the bankruptcy court's decision on appeal from the BAP. Carrillo v. Su (In re Su), 290 F.3d 1140, 1142 (9th Cir.2002). We review the bankruptcy court's conclusions of law de novo, and its findings of fact for clear error. Id.

III. Analysis

Ybarra argues that the BAP should be affirmed because the rule set forth in Abercrombie and Kadjevich applies to this case. Rockwell advances the BAP dissent's argument that Siegel controls. As we explain below, we agree with the BAP dissent's conclusion that this case is governed by the discharge principles recognized in Siegel, rather than the rules relating to administrative expense priority claims. Accordingly, we reverse the BAP's judgment and remand with directions to enter a judgment affirming the bankruptcy court. Because we conclude that this case is governed by the principles of discharge, we first address this area of bankruptcy law.

A. Discharge Pursuant to 11 U.S.C. § 727

A Chapter 7 bankruptcy discharge releases the debtor from personal liability for her pre-bankruptcy debts. United States v. Hatton (In re Hatton), 220 F.3d 1057, 1059-60 (9th Cir.2000); 1 David G. Epstein et al., Bankruptcy § 1-7(e), at 12 (1992). A discharge is the "legal embodiment of the idea of the fresh start; it is the barrier that keeps the creditors of old from reaching the wages and other income of the new." 2 id. § 7-16, at 312. If the debtor receives a discharge, the creditor will receive only its pro-rata share of the distribution of the property of the bankruptcy estate. 1 id. § 1-7, at 12.

Specifically, § 727 of the Bankruptcy Code ("the Code")⁴ "discharges the debtor from all debts that arose before the date of the order for relief...." 11 U.S.C. § 727(b). The Code defines "debt" as "liability on a claim." § 101(12). "Claim" is defined as a "right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured." § 101(5)(A). "This `broadest possible definition' of `claim' is designed to ensure that `all legal obligations of the debtor, no matter how remote or contingent, will be able to be dealt with in the bankruptcy case.'" California Dep't of Health Servs. v. Jensen (In re Jensen), 995 F.2d 925, 929 (9th Cir.1993) (quoting H.R.Rep. No. 95-595, at 309 (1978), reprinted in 1978 U.S.C.C.A.N. 5963, 6266; S.Rep. No. 95-598, at 22 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5808).

The filing of a petition under Chapter 7 constitutes an "order for relief." See § 301. For the purposes of discharge, conversion of a case from Chapter 11 to Chapter 7 constitutes an order for relief, but does not change the date of the filing of the petition or order of relief. § 348(a). Thus, the relevant date in this case is December 10, 1991, the date of Ybarra's original bankruptcy petition. Rockwell argues that its claim for attorney fees and costs did not arise before the order of relief and therefore was not discharged.⁵

B. When a Claim Arises Under 11 U.S.C. § 727(b)

"[A] claim arises, for purposes of discharge in bankruptcy, at the time of the events giving rise to the claim...." O'Loghlin v. County of Orange, 229 F.3d 871, 874 (9th Cir.2000). For example, in Jensen, we held that environmental cleanup expenses incurred post-petition arising from pre-petition conduct were discharged in bankruptcy. 995 F.2d at 931. In O'Loghlin, alleged violations of the Americans with...