In re Sasson

• Decision Date: 13 September 2005
• Docket Number: No. 03-16364.,03-16364.
• Citation: 424 F.3d 864
• Parties: In re Robert SASSON, Debtor. Robert SASSON, Appellant, v. Norman F. Sokoloff, M.D., individually and as Trustee for Camelot Medical Group, Inc., Profit Sharing Plan, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

424 F.3d 864

In re Robert SASSON, Debtor.

Robert SASSON, Appellant, v. Norman F. Sokoloff, M.D., individually and as Trustee for Camelot Medical Group, Inc., Profit Sharing Plan, Appellee.

No. 03-16364.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted February 15, 2005.

Filed August 25, 2005.

Amended September 13, 2005.

COPYRIGHT MATERIAL OMITTED

David A. Boone and Susan D. Silveira, Law Offices of David A. Boone, San Jose, CA, for the appellant.

Wayne A. Silver, Sunnyvale, CA, for the appellee.

Appeal from the Ninth Circuit Bankruptcy Appellate Panel; Perris, Meyers, and Marlar, Bankruptcy Judges, Presiding. BAP No. NC-02-01410-MaMeP.

Before: SIDNEY R. THOMAS, SUSAN P. GRABER, and RICHARD A. PAEZ, Circuit Judges.

THOMAS, Circuit Judge:

In this appeal, we are presented with the question of whether a bankruptcy court has subject matter jurisdiction to enter a money judgment in a nondischargeability adversary proceeding where the underlying debt has been reduced to judgment in state court. We conclude that it may and affirm the decision of the Ninth Circuit Bankruptcy Appellate Panel ("BAP").

I

In 1988, Sokoloff, as trustee of Camelot Medical Group, Inc., Profit Sharing Plan, obtained a judgment against Sasson on a cross-complaint for breach of a promissory note. A California Superior Court entered judgment against Sasson for $120,000, plus accrued interest and statutory costs.

Before Sokoloff could enforce the judgment, Sasson filed a motion for reconsideration and obtained a stay of enforcement pending determination of the motion for reconsideration. The stay was granted subject to the condition that Sasson "not dissipate any assets except in the normal course of business." While the stay was in place and without informing the court of his actions, Sasson dissipated the majority of his assets through dissolution proceedings with his wife, purchase of a new property, creation of encumbrance on that property and ultimately by payment to other creditors. The court denied Sasson's motion for reconsideration, and Sokoloff recorded an abstract of judgment. At that point, however, the judgment was uncollectible.

Subsequently, Sasson filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code, 11 U.S.C. §§ 301, 701-784 in the Northern District of California. His bankruptcy schedule did not mention Sasson's recent transfer of assets. Sokoloff then filed a complaint seeking a determination of nondischargeability of the state court judgment under 11 U.S.C. § 523(a)(6) and a denial of discharge under 11 U.S.C. § 727(a)(2).¹ The bankruptcy court rejected the § 727(a)(2) claim, but found that Sasson's transfer of assets in violation of the state court stay constituted a willful and malicious injury under § 523(a)(6). The court entered a judgment for $148,142.46 plus costs and accruing interest. Sasson filed an appeal of this decision, but later dismissed it. Subsequently, both Sasson's bankruptcy and the adversary proceeding were closed by the bankruptcy court.

Sokoloff continued to pursue collection remedies in bankruptcy court. Sokoloff filed a notice of the judgment lien and recorded an abstract of judgment. Sokoloff then obtained a Writ of Execution to the United States Marshal and instructed the Marshal to levy on Sasson's wages. Sasson filed a claim of exemption, which the court granted in part.

In 2001, Sokoloff renewed the 1991 Judgment. The bankruptcy court issued an Abstract of Judgment for $239,160.42 on July 9, 2001, which was then recorded. Subsequently, the bankruptcy court granted Sasson's ex-parte motion to reopen his Chapter 7 proceedings for sixty days. Sasson then filed a motion pursuant to Federal Rule of Civil Procedure 60(b) to vacate the 1991 money judgment and to quash the 2001 abstract of judgment. In his motion, Sasson argued that the bankruptcy court lacked subject matter jurisdiction to enter a new federal money judgment and therefore the renewal of judgment and abstract of judgment were void ab initio. The bankruptcy court denied the motion after a hearing. Sasson filed a notice of appeal, which was referred to the BAP. The BAP affirmed the bankruptcy court, holding that the bankruptcy court had jurisdiction both to enter the 1991 judgment of nondischargeability and to determine the amount of damages caused by Sasson's postjudgment conduct. Sokoloff timely appealed the BAP decision.

We review both the bankruptcy court's and the BAP's interpretation of the Bankruptcy Code de novo. Debbie Reynolds Hotel & Casino, Inc. v. Calstar Corp. (In re Debbie Reynolds Hotel & Casino, Inc.), 255 F.3d 1061, 1065 (9th Cir.2001). We review a ruling on a motion to set aside a judgment as void de novo "because the question of the validity of a judgment is a legal one." Export Group v. Reef Indus., 54 F.3d 1466, 1469 (9th Cir.1995). We review the scope of the exercise of equitable power de novo, Graves v. Myrvang (In re Myrvang), 232 F.3d 1116, 1124 (9th Cir.2000), and the exercise of equitable power for an abuse of discretion, id. at 1121.

II

The bankruptcy court had jurisdiction to enter a money judgment in the adversary proceeding. We have long held that "the Bankruptcy Court has jurisdiction to enter a monetary judgment on a disputed state law claim in the course of making a determination that a debt is nondischargeable." Cowen v. Kennedy (In re Kennedy), 108 F.3d 1015, 1016 (9th Cir.1997).

A

Our holding in Kennedy was firmly grounded. Under the original 1898 Bankruptcy Act, Pub.L.No. 55-171, 30 Stat. 544 (repealed 1978) (as amended through date of repeal) ("1898 Bankruptcy Act"), bankruptcy courts were considered to have equitable jurisdiction to issue orders in aid of a nondischargeability determination. Local Loan Co. v. Hunt, 292 U.S. 234, 240, 54 S.Ct. 695, 78 L.Ed. 1230 (1934); see also Pepper v. Litton, 308 U.S. 295, 304, 60 S.Ct. 238, 84 L.Ed. 281 (1939) ("[F]or many purposes courts of bankruptcy are essentially courts of equity, and their proceedings inherently proceedings in equity." (internal quotation marks omitted)).

In 1970, Congress codified the power of bankruptcy courts, in the exercise of their power to declare debts nondischargeable, to "determine the remaining issues, render judgment, and make all orders necessary for the enforcement thereof." 1898 Bankruptcy Act § 17(c)(3). When Congress enacted the Bankruptcy Reform Act of 1978, Pub.L. No. 95-598, 92 Stat. 2549 ("Bankruptcy Code" or "Code"), Congress removed specific jurisdictional language in favor of a general broad jurisdictional grant. However, in doing so, it clearly intended to incorporate the specific pre-Code jurisdiction of the bankruptcy courts.² In addition, the Bankruptcy Code specifically provides that:

The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclue the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.

11 U.S.C. § 105(a) (emphasis added). Thus, the bankruptcy court clearly has the power under the Bankruptcy Code to determine whether a debt is nondischargeable, to "determine the remaining issues, render judgment, and make all orders necessary for the enforcement thereof," and to "issue any order, process, or judgment that is necessary or appropriate in carrying out" the order of nondischargeability.

In addition to continuation of the bankruptcy court's pre-Code jurisdiction and the specific grant of new powers, the Bankruptcy Code provided for the exercise of "original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. § 1334(b). A bankruptcy court's "related to" jurisdiction is very broad, "including nearly every matter directly or indirectly related to the bankruptcy." Mann v. Alexander Dawson (In re Mann), 907 F.2d 923, 926 n.4 (9th Cir.1990). The bankruptcy court's "related to" jurisdiction granted by the Bankruptcy Code derives directly from the Bankruptcy Clause, which grants Congress the power "[t]o establish ... uniform Laws on the subject of Bankruptcies throughout the United States." U.S. Const., art. 1, § 8. Congress expanded the Bankruptcy Court's Article I jurisdiction by granting federal district courts with "original and exclusive jurisdiction of all cases under title 11." 28 U.S.C. § 1334(a). Thus, at present, the bankruptcy court's "related to" jurisdiction also includes the district court's supplemental jurisdiction pursuant to 28 U.S.C. § 1367 "over all other claims that are so related to claims in the action within [the court's] original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution." See Montana v. Goldin (In re Pegasus Gold Corp.), 394 F.3d 1189, 1195 (9th Cir.2005); Sec. Farms v. Int'l Bhd. of Teamsters, 124 F.3d 999, 1008 n. 5 (9th Cir.1997).

Even the discharge of a debtor does not automatically deprive the federal courts of jurisdiction over a claim "related to" the bankruptcy. See Kieslich v. United States (In re Kieslich), 258 F.3d 968, 971 (9th Cir.2001). Indeed, we have held that a bankruptcy court's "related to" jurisdiction includes post-confirmation jurisdiction over state court actions such as breach of contract, breach of convenant of good faith and fair dealing, and fraud when those claims have a "close nexus" to the bankruptcy proceeding. In re Pegasus Gold Corp., 394 F.3d at 1194; see also Celotex Corp. v. Edwards, 514 U.S. 300, 309, 115 S.Ct. 1493, 131 L.Ed.2d 403 (1995). We have also held that bankruptcy courts have post-discharge jurisdiction to enjoin collection actions, even if those actions occur in another country. Hong Kong & Shanghai Banking...