In re Edwards

• Decision Date: 05 November 1997
• Docket Number: Bankruptcy No. 94-31760.,BAP No. WW-96-2123-RHRy
• Parties: In re John Henry EDWARDS, Debtor. Donna BARNETT, Appellant, v. John Henry EDWARDS, Appellee.
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit

214 B.R. 613 (1997)

In re John Henry EDWARDS, Debtor.

Donna BARNETT, Appellant, v. John Henry EDWARDS, Appellee.

BAP No. WW-96-2123-RHRy, Bankruptcy No. 94-31760.

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued and Submitted October 24, 1997.

Decided November 5, 1997.

COPYRIGHT MATERIAL OMITTED

John S. Mills, Tacoma, WA, for Appellant.

Kathryn A. Ellis, Seattle, WA, for Appellee.

Before: RUSSELL, HAGAN, and RYAN, Bankruptcy Judges.

OPINION

RUSSELL, Bankruptcy Judge.

The bankruptcy court determined that a creditor violated § 362¹ by recording a lis pendens against the debtor's residence, and awarded sanctions against the creditor and her counsel for violating the stay. The bankruptcy court also denied the creditor's motion under § 305 for abstention or dismissal of the chapter 13 case. The creditor appeals. We AFFIRM.

I. FACTS

Appellant Donna Barnett and appellee John Henry Edwards were divorced pursuant to a Decree of Dissolution entered in October, 1990, in the Superior Court for the State of Washington (the "state court"). The dissolution decree awarded Edwards most of the community property, including the family home, which had been built with the assistance of a loan from Barnett's great-aunt, Leona LaBarge. The dissolution decree awarded Barnett as her separate property a "judgment in the sum of $22,068.00, representing her share of community property," and a 1986 Oldsmobile, and awarded her a judgment against Edwards for $3,000 in attorneys' fees and costs. The dissolution decree did not specify a due date for payment of the $22,068 judgment and did not contain findings of fact or conclusions of law regarding alimony, maintenance, or support for Barnett.

After the dissolution decree was entered, Edwards failed to make payments on the Oldsmobile, and it was repossessed by the bank. He stopped making payments to LaBarge, and made no payments to Barnett on the $22,068 judgment.²

In March, 1993, Barnett served Edwards with an order to show cause regarding contempt ("show cause order") for his failure to comply with the terms of the dissolution decree regarding the $22,068 judgment, the LaBarge debt, the Oldsmobile debt, and the $3,000 in attorneys' fees and costs. The show cause order included requests for a judgment in the amount of $11,000 for the value of the Oldsmobile, sanctions for contempt (including imprisonment), and attorneys' fees and costs incurred in connection with the show cause order. A hearing on the show cause order was set for April 23, 1993.

On April 20, 1993, three days before the scheduled show cause hearing, Edwards filed a chapter 7 bankruptcy case. On July 13, 1993, the bankruptcy court issued an order of discharge which "discharged all dischargeable debts."

Barnett filed a second show cause order regarding contempt in the state court in February 1994. She requested the same relief sought in the first show cause order, and also requested that the state court modify the dissolution decree to award her the family home, which she stated she would sell to pay the LaBarge debt. She asserted that the LaBarge debt, which by this time totaled approximately $27,000, had been discharged in Edwards' chapter 7 case.

The second show cause order was set for hearing on March 29, 1994, but was briefly continued³ to April 18, 1994, at which time the state court conducted a hearing on the second show cause order. Barnett argued at this hearing that the obligations arising under the dissolution decree, including the LaBarge debt, were debts for alimony, maintenance, or support, and were therefore nondischargeable under § 523(a)(5). At the conclusion of the April 18 hearing, the state court scheduled a hearing for May 4, 1994, to conclusively determine both the contempt and dischargeability issues. Edwards filed this chapter 13 case on May 3, 1994.

On May 5, 1994, the bankruptcy court granted Barnett limited relief from the stay to allow her to proceed with the state court hearing, on the condition that any order or judgment obtained from that court could not be enforced without a further order from the bankruptcy court. The state court then held a full evidentiary hearing on the contempt and dischargeability issues.

In July, 1994, the state court issued findings of fact and conclusions of law, in which it determined that: (1) the LaBarge debt was dischargeable because it was not in the nature of alimony, maintenance or support; (2) the Oldsmobile debt was nondischargeable because it was necessary for the maintenance or support of Barnett and the children; (3) Barnett should be awarded a judgment in the amount of $9,000 plus interest as compensation for the loss of the vehicle; and (4) the $3,000 debt for attorneys' fees was nondischargeable as maintenance or support. The court awarded Barnett attorneys' fees in connection with the second show cause order. In addition, the findings and conclusions included a provision which required Edwards to sign a deed of trust on the family home as additional security for the nondischargeable debts "promptly (meaning as soon as practicable given the bankruptcy court's order restricting enforcement of judgments here." Barnett appealed the portion of the decision concerning the dischargeability of the LaBarge debt to the Court of Appeals of the State of Washington.

Meanwhile, in the chapter 13 case, Edwards filed an amended⁴ plan which proposed to refinance the family home prior to December 31, 1995, in order to pay Barnett's $22,068 secured claim in full, to pay Barnett's unsecured claims in monthly installments over the life of the plan, and to continue making child support payments outside the plan.

Barnett objected to confirmation of the amended plan, claiming, among other things, that Edwards would not be able to locate a lender willing to refinance the home. She included in the objection a renewed⁵ motion under § 305 for dismissal of the bankruptcy case or abstention. She contended that the bankruptcy court should dismiss the case because the amended plan could not be confirmed, or abstain because the case solely concerned collection of alimony, maintenance, or support, and the bankruptcy court was improperly interfering with the state court's efforts to collect a nondischargeable debt by way of its contempt powers. The bankruptcy court denied her motion, and overruled her objection to plan confirmation.

The bankruptcy court confirmed Edwards' amended plan on September 26, 1995. Barnett refused to file a proof of claim,⁶ on the theory that because all of the debt owed her was nondischargeable, she was entitled to abstain from participation in the bankruptcy case, allow Edwards to pay what he would through the plan, and then pursue collection of any unpaid balance after the case closed.

In December, 1995, the bankruptcy court entered an Order on Motion to Determine Claim, which fixed the amount of Barnett's secured claim at $22,068 plus 12% simple interest from October 19, 1990 until paid, determined that all other claims of Barnett were unsecured and "shall not constitute a lien or encumbrance against the family home," and ordered Barnett to cooperate in signing all documents necessary to complete the refinancing contemplated by the confirmed plan.

Edwards completed the refinancing on January 3, 1996, and Barnett's secured claim was paid in full in the amount of $38,852.23. The next day, Barnett caused a lis pendens to be recorded against the residence. The lis pendens gave notice of the pending state court marital dissolution action and stated that the object of that action included enforcement of various provisions of the dissolution decree already entered in that case and, in particular, "to enforce a prior contempt judgment directing John Edwards to execute a deed of trust in favor of Barnett to secure various unpaid judgments."

When Edwards' counsel discovered the lis pendens, she asked Barnett's counsel to voluntarily remove it because it was recorded in violation of the automatic stay. Barnett's counsel refused to do so. In October, 1996, the Court of Appeals filed its published opinion, which affirmed the state court's determination that the LaBarge debt was dischargeable. Upon receipt of the Court of Appeals' decision, Edwards' counsel again asked Barnett's counsel to voluntarily remove the lis pendens. He again refused, and threatened to cause another contempt hearing to be scheduled.

Edwards filed a motion to strike the lis pendens and requested sanctions for Barnett's violation of the stay. He included in this motion a request to modify the confirmed plan to allow him to sell the residence, pay Barnett in full, and complete the bankruptcy case, in the hopes that her litigation against him would then cease.

Barnett filed an objection to the proposed modification, contending that although a sale of the residence would result in early repayment of nondischargeable debt, it would impair her ability to collect postpetition debt, and would therefore not be worthwhile to her. In her objection, she included a renewed motion to abstain or dismiss the case under § 305, on the same grounds as the earlier motion which the bankruptcy court had denied at the time of plan confirmation. These matters were set for hearing on December 12, 1996.

At the conclusion of the December 12 hearing, the bankruptcy court approved three orders.⁷ First, it approved an order which voided the lis pendens because it was recorded in violation of the stay, approved Edwards' request to modify the plan to allow the home to be sold, and ordered Barnett to file a proof of unsecured claim or the claim would otherwise be allowed in the amount of "zero dollars."

Next, the bankruptcy court approved an order which awarded $1,000 in sanctions against Barnett and her counsel. This order stated that Barnett's counsel had filed the lis pendens in violation of the stay, had provided no evidence to indicate that he had acted other than knowingly,...