In re Passa
| Citation | 578 B.R. 898 |
| Decision Date | 19 December 2017 |
| Docket Number | Bankruptcy Number: 14–25369 |
| Parties | IN RE: Chad A. PASSA and Lisa M. Hart, Debtor. |
| Court | United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of Utah |
Chad A. Passa, Lisa M. Hart, 6274 South Palomar Place, West Valley City, UT 84118, Debtors
Scott Mitchell, 2469 East 7000 South, Suite 204, Salt Lake City, UT 84121, Attorney for Debtors
Kelly Clark, c/o Albert Pranno, P.O. Box 4276, Salt Lake City, UT 84110, Creditor
Albert Pranno, Pranno Law, PLLC, P.O. Box 4276, Salt Lake City, UT 84110, Attorney for Creditor
The matter before the Court is the Debtors' Motion for Sanctions for Violation of the Automatic Stay, and the Debtors' Motion for Sanctions for Violation of the Discharge Injunction. Because the facts and law overlapped, the Court consolidated those matters for hearing. Scott Mitchell appeared on behalf of the Debtors. Albert Pranno appeared on behalf of the Creditor, Mr. Kelly G. Clark.
After review of the pleadings filed, and based upon the oral arguments and evidence presented by the parties at the hearing, the Court took the matter under advisement and then issued a bench ruling and an order, reserving the right and option to memorialize the ruling in this memorandum decision, which constitutes the Court's findings of fact and conclusions of law under Federal Rule of Civil Procedure 52, made applicable to this contested matter by Federal Rules of Bankruptcy Procedure 7052 and 9014(c).
The jurisdiction of this Court is properly invoked under 28 U.S.C. § 1334. This is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2) and this Court may enter a final order. Venue is proper under the provisions of 28 U.S.C. §§ 1408 and 1409. Notice of all of the hearings is found to be adequate in all respects.
The allegations in this matter involve two parcels of residential property, owned by Debtor Lisa Hart. The homes are located in Magna, Utah and Draper, Utah, and will be referred to as the Magna Property and the Draper Property, and together as the Properties. The Properties are located in Salt Lake County. When the Debtors' chapter 13 plan was confirmed, the Debtors agreed to pay the mortgages on the Properties directly and retain the Properties.
Before the bankruptcy petition was filed, the Creditor filed two lawsuits in state court, one against Debtor Lisa Hart, and one against both Debtors, Lisa Hart and Chad Passa, as well as a third defendant who is not part of the bankruptcy. Accordingly, these were both based on pre-bankruptcy claims and facts. The parties have referred to these lawsuits as the "Domestic Matter" and the "Conspiracy Matter." The Court will use those references, without making any finding about the nature of the underlying matters.
On May 22, 2014, the Debtors filed a chapter 13 petition. The lawsuits filed by the Creditor were listed on Schedule F as "domestic litigation" and were marked unliquidated and disputed. Upon the filing of the petition, the lawsuits were stayed by operation of the automatic stay found at 11 U.S.C. § 362(a).1 On August 14, 2014, the Creditor filed a motion for relief from stay to proceed with litigation regarding the Domestic Matter and the Conspiracy Matter. On October 7, 2014, an order was issued granting that motion (Exhibit # 1) which specifically stated: "The automatic stay is lifted as to the domestic matter involving Debtor Hart, and as to the Conspiracy matter involving both Debtors for the purpose of liquidating the amount of the claim; however no judgment may be entered by the state court as to findings of non-dischargeability." The second paragraph of the order states that "Any judgment rendered in either matter may be presented in Bankruptcy Court as a claim, but no collection efforts on the judgment may occur."
After confirmation of Debtors' chapter 13 plan, on November 4, 2014, the Creditor obtained a Judgment and Order in the Domestic Matter, awarding $116,000 against Ms. Hart (Exhibit # 2). The Order states that Ms. Hart should begin making $655 monthly payments. No evidence was entered that she actually made those payments. On April 10, 2015, the Creditor obtained a judgment in the Conspiracy Matter against Ms. Hart and Mr. Passa, awarding $125,000 in compensatory damages and $125,000 in punitive damages, for a total judgment of $250,000. The Debtors did not appear or defend against those matters and as a result, default judgments were entered. The Court will refer to both judgments together as the "Judgments." The Creditor brought the Judgments back to this Court in the form of two proofs of claims dated November 18, 2014 (Exhibits 28 and 29) which is all that the Court authorized.
Also on November 18, 2015, the same day that the Creditor filed the proofs of claim, the Creditor recorded the Judgments in both the Conspiracy and Domestic Matters with the Salt Lake County Recorder (the "First Recorded Judgments"). The testimony at the hearing on these motions was that the Creditor acted without legal advice and recorded those Judgments on his own initiative.
Approximately two years later, the Debtors completed their chapter 13 plan payments. On September 13, 2017, they received their discharge by order of this Court. Shortly thereafter, on September 22, 2017, the Creditor recorded the Conspiracy Matter Judgment again in the Salt Lake County Recorder's Office (Exhibit 21), (the "Second Recorded Judgment or Judgments"). It is unclear if the Domestic Matter Judgment was rerecorded. At the hearing, it seemed that all parties assumed both Judgments had been recorded again, however Exhibit 21 shows only that the judgment against Ms. Hart and Mr. Passa for $250,000 in the Conspiracy Matter was recorded again. The Court does not have evidence that the $116,000 judgment in the Domestic Matter was recorded again after the discharge was issued. Mr. Pranno, counsel for Mr. Clark, stated in his closing argument that his office recorded both of those Judgments on behalf of the Creditor.
On September 29, 2017, the Debtors filed a Motion for Sanctions for Violation of the Automatic Stay, alleging that the First Recorded Judgments caused sales of the Properties owned by Ms. Hart to be delayed and causing other damages. When the Debtor sought to sell the Properties, she discovered the Judgments had been recorded, and were liens on the title of both Properties.
After a preliminary hearing was conducted and continued on the Motion for Sanctions for Violation of the Automatic Stay, the Debtors filed a Motion for Sanctions for Violation of the Discharge Injunction against both the Creditor and his attorney on October 28, 2017. The Court consolidated the hearings on both Motions for Sanctions. As a result, there are two separate matters before the Court, i.e. the motion alleging violation of the stay and the motion alleging violation of the discharge injunction. The main difference between the two is timing. The issuance of a discharge order eliminated the stay and substituted a discharge injunction which is addressed hereafter.
On November 2, 2017, the Creditor released the First Recorded Judgments. The evidence is that the Second Recorded Judgment or Judgments that was or were rerecorded in September 2017 have not been released. Neither property has sold yet. The buyer for the Magna Property has cancelled the Real Estate Purchase Contract (Exhibit 26). The sale of the Draper Property was postponed until December 8, 2017.
The Creditor has made several miscellaneous arguments, which the Court will address before moving on to the substance of the Motions for Sanctions.
The Creditor argued that the Debtors were not eligible to be debtors under chapter 13 because the chapter 13 trustee's final report stated that $470,409.03 of unsecured debt had been discharged, and the debt limit for a chapter 13 debtor is $394,725 under § 109(e). This argument is unavailing. The debt limit is evaluated on the petition date, and includes only noncontingent and liquidated claims. On the petition date, the Debtors listed approximately $78,532 in liquidated, unsecured debt. The Court finds that the Debtors were within the debt limit for chapter 13 relief. The fact that some debts are later liquidated to a sum certain does not vitiate the initial filing or make the Debtor ineligible for chapter 13 relief.2
Next, the Creditor argued that the Debtors were dealing with "unclean hands" because they listed the Properties for sale before they received a discharge. However, when asked, he could not cite any law or rule that the Debtors had violated. The Court has not found any violation either. The Court finds that there was nothing improper about the Debtors listing the Properties for sale, or entering into Real Estate Purchase Contracts, while their bankruptcy case was pending. Their plan had been completed and the Trustee had recommended a closing of their case as of the time of the listings. The Properties had been fully disclosed during the confirmation process. Furthermore, these Properties were listed in the plan as being treated "outside the Plan." That is a sometimes inartful phrase, but commonly means that the debts associated with the Properties will be paid directly and not through the chapter 13 trustee and that the related properties will be retained by the Debtors.
Finally, the parties also spent significant time discussing whether or not the Judgments were dischargeable or non-dischargeable. That matter is not properly before the Court. The Creditor filed two motions3 that discussed several legal theories, including non-dischargeability, but they were not noticed for hearing under Local Rule 9013–1. In addition, a non-dischargeability action should comply with Rules 4007 and 7001, which require a timely filed adversary proceeding. That has not been done. Accordingly, the Court makes no finding today about whether or not the judgments were...
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