Jet Florida Systems, Inc., In re
| Decision Date | 15 September 1989 |
| Docket Number | No. 88-6033,88-6033 |
| Citation | 883 F.2d 970 |
| Parties | , 19 Bankr.Ct.Dec. 1364, Bankr. L. Rep. P 73,078 In re JET FLORIDA SYSTEMS, INC. f/k/a Air Florida System, Inc. and Airport Systems, Inc., f/k/a Air Florida, Inc., Debtors. Tracy OWASKI, Plaintiff-Appellee, v. JET FLORIDA SYSTEMS, INC., f/k/a Air Florida System, Inc. and Airport Systems, Inc., f/k/a Air Florida, Inc., Defendants-Appellants, Phoenix Ventures, Inc., as successor by merger to the reorganized debtors, Appellants. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
Gerard M. Kouri, Jr., Miami, Fla., Thomas C. Woods, Miami, Fla., for Jet Florida Systems, Inc.
John K. Olson, Stearns, Weaver, Millier, Weissler, Alhadeff & Sitterson, P.A., Tampa, Fla., for Phoenix Ventures, Inc.
Wilson E. Hodge, Homestead, Fla., for Tracy Owaski.
Appeal from the United States District Court for the Southern District of Florida.
Before ANDERSON and COX, Circuit Judges, and BUTLER *, District Judge.
The judgment of the district court is AFFIRMED on the basis of and for the reasons stated in the well-reasoned opinion rendered in this case in the district court by Judge Stanley Marcus. A copy of that opinion is appended hereto.
APPENDIX
In Re Jet Florida System, Inc., f/k/a Air Florida System, Inc.
v.
Jet Florida System, Inc., f/k/a Air Florida System, Inc. and
Airport Systems, Inc., f/k/a Air Florida, Inc., Appellees.
United States District Court
Southern District of Florida
Filed Sept. 27, 1988.
ORDER OF REMAND
THIS CAUSE is before the Court upon the appeal of Appellant Tracy Owaski from a bankruptcy court order denying his motion to vacate the permanent injunction established by 11 U.S.C. section 524 in the above-styled bankruptcy. The Appellant brought a defamation suit against the Debtor two years prior to the Debtor having petitioned for bankruptcy. Appellant moved to vacate the injunction of Sec. 524 in order to seek a judgment of liability against the Debtor so that he may proceed against the Debtor's liability insurer. For the reasons set forth below, we reverse the bankruptcy court's determination and remand for further proceedings consistent with this Order.
Appellant Tracy Owaski was employed by Appellees Jet Florida System, Inc., f/k/a Air Florida Systems, Inc. and Airport Systems, Inc., f/k/a Air Florida, Inc. (collectively "Air Florida") as an aircraft mechanic. On or about November 30, 1981, Air Florida terminated Mr. Owaski for his purported involvement in the mechanical sabotage of an Air Florida aircraft. In December 1981, Appellant commenced an action against Air Florida in the Circuit Court of the Eleventh Judicial Circuit in and for Dade County, Florida, alleging defamation and challenging the constitutionality of the federal Railway Labor Act. 45 U.S.C. Secs. 151-188. According to the complaint, Appellant Owaski was defamed by Air Florida's notice of termination.
In November 1983, Air Florida removed the matter to the United States District Court for the Southern District of Florida. The removal was based upon Owaski's challenge to the constitutionality of the Railway Labor Act. Jet Florida filed a petition for voluntary bankruptcy pursuant to Chapter 11 of the Bankruptcy Code on July 3, 1984. On July 31, 1984, upon sua sponte review of the matter, the Honorable Sidney M. Aronovitz, United States District Judge entered an Order staying all proceedings in Owaski's case.
Air Florida's reorganization subsequently commenced. The bankruptcy court set November 30, 1984 as the bar date for filing proofs of claims. While Appellant Owaski filed a proof of claim with respect to unpaid wages and benefits, he filed no proof of claim pertaining to his defamation action. On August 7, 1986, the bankruptcy court approved Air Florida's amended consolidated reorganization plan. The bankruptcy court then issued a permanent injunction pursuant to 11 U.S.C. section 524(a).
On June 29, 1987, Owaski moved the district court to vacate the section 524(a) permanent injunction entered by the bankruptcy court. Judge Aronovitz denied Owaski's motion on the grounds that he lacked jurisdiction over the matter because the injunction had been entered by the bankruptcy court. Owaski v. Air Florida, Inc., No. 83-2882-CIV-SMA (S.D.Fla. Oct. 22, 1987). In the same Order, Judge Aronovitz dismissed Owaski's defamation claim without prejudice to proceed in the bankruptcy court.
Owaski moved to vacate the section 524(a) injunction on November 20, 1984 in the bankruptcy court. He sought to proceed with his defamation claim in either state or federal court. The bankruptcy court denied Owaski's motion on the ground that a discharge under 11 U.S.C. Sec. 1141 operated to bar any claim asserted by Owaski. In re Jet Florida Systems, Inc., No. 84-01223-BKC-SMW (Bankr.S.D.Fla. Dec. 15, 1987). Appellant Owaski subsequently filed this appeal.
Title 11, United States Code, section 524(a) operates as an injunction against actions against a debtor subsequent to a discharge of debt. Section 524(a) provides:
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, 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 of process, or any act, to collect, recover or offset any such debt as a personal liability of the debtor, or from property of the debtor, whether or not discharge of such debt is waived; and
(3) operates as an injunction against the commencement or continuation of an action, the employment of process, or any act, to collect or recover from, or offset against, property of the debtor of the kind specified in section 541(a)(2) of this title that is acquired after the commencement of the case, on account of any allowable community claim, except a community claim that is excepted from discharge under section 523 or 1328(c)(1) of this title, or that would be so excepted, determined in accordance with the provisions of section 523(c) and 523(d) of this title, in a case concerning the debtor's spouse commenced on the date of the filing of the petition in the case concerning the debtor, whether or not discharge of the debt based on such community claim is waived.
11 U.S.C. Sec. 524(a). A bankruptcy discharge and the concommitant injunction against subsequent actions are designed to give the debtor a financial "fresh start." Jackson, The Fresh-Start Policy in Bankruptcy Law, 98 Harv.L.Rev. 1393, 1396-97 (1985). Thus, with the injunction, a discharge in bankruptcy may be more effective in preventing "abuse by harassing creditors." H.R.Rep. No. 1502, 91st Cong., 2d Sess. at 1-2 (1970) [, U.S.Code Cong. & Admin.News 1970, p. 4156].
Generally, in order for a creditor to retain its claim against the bankrupt, the creditor must file a notice of claim during the bankruptcy proceedings. When no such notice is filed, the creditor often waives any right against the bankrupt to which it may have been entitled. See Litton Systems, Inc. v. Frigitemp Corp. (In re Frigitemp Corp.), 8 B.R. 284, 287-88 (S.D.N.Y.1981). In such a case, the section 524(a) injunction will act to shield the debtor from such creditors.
The section 524(a) injunction was designed primarily to protect the debtor and the bankruptcy estate. However, a discharge will not act to enjoin a creditor from taking action against another who also might be liable to the creditor.
Except as provided in subsection (a)(3) of this section, discharge of a debt of the debtor does not affect the liability of any other entity on, or the property of any other entity for, such debt.
11 U.S.C. Sec. 524(e). For example, a surety, who is secondarily liable to the obligee, is not shielded by the obligor's bankruptcy or section 524 injunction. See Bowers v. American Surety Co., 30 F.2d 244 (2d Cir.), cert. denied, 279 U.S. 865 [, 49 S.Ct. 480, 73 L.Ed. 1003] (1929); see also Underhill v. Royal, 769 F.2d 1426, 1432 (9th Cir.1985).
In the case at bar, Appellant Owaski concedes that he may not proceed against the assets of the bankruptcy estate. However, Owaski maintains that he may proceed against the debtor to establish the debtor's liability in order to recover from the debtor's insurer.
To determine whether Owaski should be permitted to proceed with his defamation claim, we begin with an examination of section 524 of the Bankruptcy Code. Section 524(a) explicitly renders judgments void only for "the personal liability of the debtor." 11 U.S.C. Sec. 524(a). Accordingly, the statutory language, on its face, does not preclude the determination of the debtor's liability upon which the damages would be owed by another party, such as the debtor's liability insurer.
Moreover, section 524(e) permits a creditor to seek recovery from "any other entity" who may be liable on behalf of the debtor. 11 U.S.C. Sec. 524(e). In discussing the scope of section 524(a) and (e), Collier's makes this observation:
the provisions of 524(a) apply only with respect to the personal liability of the debtor. When it is necessary to commence or continue a suit against a debtor in order, for example, to establish liability of another, perhaps a surety, such suit would not be barred. Section 524(e) was intended for the benefit of the debtor but was not meant to affect the liability of third parties or to prevent establishing such liability through whatever means required.
3 R. Babitt, A. Herzog, R. Mabey, H. Novikoff, & M. Sheinfeld, Collier on Bankruptcy p 524.01 at 524-16 (15th ed.1987) (emphasis added)....
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