In re Gurrola
| Decision Date | 20 June 2005 |
| Docket Number | BAP No. CC-04-1143-KMoB.,Adversary No. LA 03-01257-ER.,Bankruptcy No. LA 96-31858-ER. |
| Citation | 328 B.R. 158 |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
| Parties | In re Paul Michael GURROLA, Debtor. Lone Star Security & Video, Inc., Appellant, v. Paul Michael Gurrola, Appellee. |
Before: KLEIN, MONTALI, and BRANDT, Bankruptcy Judges.
Ignorance. Pure ignorance. The debtor was amazingly ignorant of the legal consequences of his bankruptcy discharge. The question is whether such ignorance is punishable by equitably estopping the debtor from relying on the discharge because he did not assert the discharge as a defense to entry of a postpetition judgment on a discharged debt. We hold that the bankruptcy discharge cannot be circumvented on equitable grounds.
The provision of 11 U.S.C. § 524(a) that a discharge "voids any judgment at any time obtained, to the extent that such judgment is a determination of the personal liability of the debtor with respect to any debt discharged ... whether or not such discharge is waived," and the concomitant statutory injunction, do not admit of an equitable exception and are self-executing. Any inappropriate postpetition conduct by the debtor that unfairly harms a creditor can be addressed by measures other than reviving the debt through an estoppel.
Accordingly, we AFFIRM the judgment refusing to estop the debtor from relying on his discharge to defeat a postpetition judgment rendered on a prepetition debt.
On May 15, 1996, Paul Gurrola contracted with Lone Star Security, Inc. (later renamed Lone Star Security and Video, Inc., hereafter, "Lone Star"), for a $650.00 installation of a security system in his residence in Los Angeles, California, and for monitoring service at $15.95 per month for 36 months.
Dissatisfied with the installation, and in a dispute over whether the price included a siren, Gurrola stopped payment on his $697.85 check that represented the installation and first three months of monitoring service. Although the total contractual obligation was $1,224.20 [= $650.00 + ($15.95 × 36 mos.)], Lone Star filed a small claims action against Gurrola on May 31, 1996, seeking $2,664.90, based on the $697.85 check and the "balance of the alarm monitoring contract."
Gurrola, acting pro se,1 countered on June 26, 1996, by suing Lone Star for breach of contract and fraud. This action, Gurrola v. Lone Star Security, Inc., Los Angeles County Municipal Court, No. 96K14098, effectively preempted the small claims suit.
On July 8, 1996, Gurrola, represented by counsel, filed a chapter 7 bankruptcy in which he accurately listed his Municipal Court action against Lone Star on the Statement of Financial Affairs as a suit pending when the bankruptcy was filed. Lone Star was not, however, separately scheduled as a creditor and, hence, was not on the notice list.
Gurrola did nothing to prosecute his Municipal Court action after he filed bankruptcy.
Unaware of the bankruptcy, on July 16, 1996, Lone Star, through attorney George M. Wallace, sent Gurrola an "offer" to settle if Gurrola would pay $2,550.00. Gurrola did not respond.
On August 6, 1996, Lone Star filed a $2,664.90 counterclaim and an answer in Gurrola's Municipal Court action.2
Then, on September 20, 1996, Lone Star obtained Gurrola's default after he did not respond to its $2,664.90 counterclaim.
Gurrola's bankruptcy discharge was entered on October 23, 1996. The bankruptcy case was closed on November 1, 1996, as a "no asset" case in which no claim filing deadline had been set.
At a November 1997 status hearing, not attended by Gurrola, the Municipal Court dismissed his complaint and set a default judgment hearing for March 12, 1998, on Lone Star's counterclaim.
When Gurrola learned of the default judgment hearing, and acquiescing in the dismissal of his complaint, he filed a motion to vacate default and defend against Lone Star's counterclaim.
In support of Gurrola's motion, state-court attorney Scott A. Meehan averred that, while "assisting" Gurrola during September 1996, he had been misled by the Municipal Court's default clerk into believing that no default would be entered.
At the default judgment hearing on March 12, 1998, the Municipal Court refused to vacate the default and entered a default judgment in favor of Lone Star for $2,725.20, plus $2,488.25 attorneys' fees, $499.62 interest, and $140.00 costs.
Gurrola did not mention the bankruptcy discharge before the default judgment was entered. Instead, he first told Mr. Meehan about the bankruptcy after the hearing which information Mr. Meehan communicated to Lone Star's counsel on March 13, 1998.
When Lone Star continued to assert that the default judgment remained enforceable, Gurrola engaged new bankruptcy counsel, Simon J. Dunstan, to enforce the bankruptcy discharge.
On May 8, 1998, Mr. Dunstan sent Lone Star's counsel a letter asserting that the discharge injunction rendered the postpetition judgment "void," and that the discharge could not be "waived." He demanded that Lone Star desist.
Lone Star stuck to its position that Gurrola was estopped because he had not earlier told Lone Star about the bankruptcy.
Lone Star also contended that it is the debtor's burden to enforce the discharge and instructed Gurrola that he should seek a court order to stop Lone Star from enforcing its judgment.
At a judgment debtor's examination under state law on August 9, 1999, Gurrola invoked the discharge. The Municipal Court refused to compel testimony without a bankruptcy court ruling on the impact of the discharge on the judgment. The examination was continued in order to afford time for a bankruptcy court ruling.
Nobody, however, asked the bankruptcy court to do anything until March 14, 2002, when Lone Star filed a motion to reopen the bankruptcy case. Gurrola opposed reopening, arguing the underlying merits of the discharge dispute. The bankruptcy court denied the request to reopen the case, ruling that Gurrola was not estopped from relying on his discharge. Lone Star appealed.
We affirmed the refusal to reopen the case but vacated the ruling on the discharge question because it is error to purport to resolve underlying substantive merits in a procedural motion to reopen a case. We explained that underlying substantive disputes should be resolved in a procedurally correct manner independent of the merely administrative reopening issue. Lone Star Sec. & Video, Inc. v. Gurrola, CC-02-1313-KBaP (9th Cir. BAP December 20, 2002).
On March 4, 2003, Lone Star filed an adversary proceeding seeking to block enforcement of Gurrola's discharge against it.
After trial, the bankruptcy court ruled that Gurrola was not estopped from relying on his discharge. It believed his testimony that he was ignorant of the scope of the discharge and did not intend to mislead Lone Star. Judgment was entered February 13, 2004. This appeal ensued.
The bankruptcy court had jurisdiction via 28 U.S.C. §§ 1334 and 157(b)(1). We have jurisdiction under 28 U.S.C. § 158(a)(1).
Whether a debtor can be equitably estopped from relying on the bankruptcy discharge.3
The availability of estoppel doctrines to circumvent the statutory effect of the bankruptcy discharge is a question of law that we review de novo. Alary Corp. v. Sims (In re Associated Vintage Group, Inc.), 283 B.R. 549, 554 (9th Cir. BAP 2002). Once it is determined that estoppel is available as a matter of law, the decision whether to apply a particular estoppel doctrine is reviewed for abuse of discretion. Id.; accord, Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 780 (9th Cir.2001).
Lone Star's theory is one of confession and avoidance. It concedes that the debt was discharged and concedes that the debt is not excepted from discharge under 11 U.S.C. § 523(a).4 It then argues that the discharge nevertheless can be circumvented on an estoppel theory based on postpetition events that do not operate to create new liability. This theory is misconceived.
That the present version of the federal bankruptcy discharge provides an absolute, nonwaivable defense is apparent from the language of the implementing statute, the history of the evolution of the discharge, and the case law.
As with all statutory construction issues, we start with the statutory language. Here, we look at the statute describing the effect of the discharge.
Bankruptcy Code § 524(a), enacted in 1978, provides:
§ 524. Effect of discharge
(a) A discharge in a case under this title —
(1) voids any judgment at any time obtained, to the extent that such judgment is a determination of the personal liability of the debtor with respect to any debt discharged under section 727, 944, 1141, 1228, or 1328 of this title, whether or not discharge of such debt is waived;
(2) operates as an injunction against the commencement or continuation of an action, the employment for process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived; [community property rule omitted].
11 U.S.C. § 524(a), enacted by Pub.L. 95-598, § 101, 92 Stat. 2549, 2592 (1978) (emphasis supplied).
Bankruptcy Code § 524(a) reenacted Bankruptcy Act § 14f, which was first enacted in 1970:
§ 14f. An order of discharge shall —
(1) declare that any judgment theretofore or thereafter obtained in any other court is null and void as a determination of the personal liability of the bankrupt with respect to any of the following: (a) debts not excepted from the discharge under subdivision a of section 17 of this Act; (b) debts discharged under paragraph (2) of subdivision c of section 17 of this Act; and (c) debts determined to be discharged under paragraph (3) of subdivision c of section 17 of this...
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In re Johns-Manville Corp.
...on certain prepetition debts were 'null and void' and creditors were enjoined from collection." Lone Star Sec. & Video, Inc. v. Gurrola (In re Gurrola), 328 B.R. 158, 168 (B.A.P. 9th Cir. 2005). The bankruptcy discharge is not an affirmative defense that can be waived. Neither is the injunc......
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Cini v. Viscomi & Gersh, PLLP (In re Cini)
...daring greatly". Actions taken in violation of the automatic stay are void, not merely voidable. Lone Star Sec. & Video, Inc. v. Gurrola (In re Gurrola), 328 B.R. 158, 175 (9th Cir. BAP 2005); Gruntz, 292 F.3d at 1082. Carroll did not seek relief from the stay before he attempted execution ......
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Cini v. Viscomi (In re Cini)
...daring greatly”. Actions taken in violation of the automatic stay are void, not merely voidable. Lone Star Sec. & Video, Inc. v. Gurrola (In re Gurrola), 328 B.R. 158, 175 (9th Cir.BAP2005); Gruntz, 202 F.3d at 1082. Carroll did not seek relief from the stay before he attempted execution of......
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In re Johns-Manville Corp.
...on certain prepetition debts were ‘ and void’ and creditors were enjoined from collection.” Lone Star Sec. & Video, Inc. v. Gurrola (In re Gurrola), 328 B.R. 158, 168 (9th Cir. BAP 2005). The bankruptcy discharge is not an affirmative defense that can be waived. Neither is the injunction.Co......