Layng v. Rael (In re Rael)
| Decision Date | 07 December 2018 |
| Docket Number | No. 18-8026,18-8026 |
| Parties | In re: ROBERT RAEL; LISA RAEL, Debtors. PATRICK S. LAYNG, United States Trustee for Region 19, Plaintiff - Appellee, v. ROBERT RAEL; LISA RAEL, Defendants - Appellants. |
| Court | United States Courts of Appeals. United States Court of Appeals (10th Circuit) |
(D. Wyo.)
ORDER AND JUDGMENT*Before LUCERO, KELLY, and PHILLIPS, Circuit Judges.
This appeal involves several orders entered in the bankruptcy proceedings stemming from the joint petition for bankruptcy relief filed by Robert and Lisa Rael ("the Raels"), and the adversary proceeding filed by the United States Trustee("Trustee") seeking denial of the Raels' claim for discharge. The Raels appeal the district court's orders (1) affirming the bankruptcy court order denying their motion to dismiss the adversary proceeding; (2) affirming the bankruptcy court's denial of their C.R.C.P. 60(b) motions, which, like the motion to dismiss, challenged the court's jurisdiction to enter an order permitting the sale of their real property; (3) reversing the bankruptcy court judgment granting their claim for discharge; and (4) reversing the bankruptcy court's order requiring the Trustee to pay the Raels' attorney fees as a discovery sanction. Exercising jurisdiction pursuant to 28 U.S.C. § 1291, we affirm.
The bankruptcy court confirmed the Raels' Amended Chapter 11 Plan of Reorganization ("the Plan") and granted a final decree soon thereafter. As pertinent here, the Plan required them to satisfy a debt to Wells Fargo Bank, N.A. ("Wells Fargo") by selling several parcels of real property in Wyoming and making monthly payments to Wells Fargo. The Raels voluntarily closed their Chapter 11 case after confirmation to avoid accruing Trustee's fees during the administration of the Plan.
After the Raels defaulted on their monthly payments, Wells Fargo obtained state court judgments against them and filed liens against the Wyoming properties based on those judgments. In response, the Raels filed motions in the bankruptcy court to reopen the Chapter 11 case and to hold Wells Fargo in contempt for filing the state court proceedings.
In the reopened proceedings, the bankruptcy court issued an order at the Raels' request approving the sale of the Wyoming properties that were the subject of the liens ("Sale Order"). Consistent with the terms of the Plan, the Sale Order required the Raels to pay the proceeds of any sales to Wells Fargo. The court denied the Raels' motions to hold Wells Fargo in contempt for obtaining the state court judgment and filing the liens ("Contempt Orders"). After the court denied the Raels' motion for reconsideration of the Contempt Orders, they appealed to the Tenth Circuit Bankruptcy Appellate Panel ("BAP"), which affirmed. Rael v. Wells Fargo Bank, N.A., (In re Rael), Nos. WY-14-035, 08-20251 & WY-14-048, 527 B.R. 799, 2015 WL 847432 (B.A.P. 10th Cir. Feb. 27, 2015) ("BAP Order").
While the appeal of the Contempt Orders was pending, the Raels closed on the sale of one of the Wyoming properties that was the subject of the state court liens and the bankruptcy court's Sale Order, but they did not give the proceeds to Wells Fargo as required by the Sale Order. Instead, almost a year after the closing, they used the proceeds to pay their non-dischargeable legal fees and IRS debt. Soon thereafter, they converted their Chapter 11 case to a Chapter 7 proceeding and filed a motion for discharge.
The Trustee then commenced an adversary proceeding to prevent discharge under 11 U.S.C. § 727(a)(6), on the ground that the Raels violated the Sale Order by not giving Wells Fargo the proceeds of the sale. The Raels moved to dismiss the adversary proceeding and to set aside the Sale Order, claiming that the bankruptcy court lacked jurisdiction to enter the Sale Order because, after the court closed theChapter 11 case, the Wyoming properties were no longer the property of the bankruptcy estate. The court denied both motions. After trial, the court granted discharge, finding that the Raels violated the Sale Order but that their non-compliance was not willful because they violated the order in reliance on the advice of their attorney. U.S. Trustee v. Rael (In re Rael), Case Nos. 08-20251 & 15-2013, 2017 WL 4083128, at *4 (Bankr. D. Wyo. Sept. 14, 2017).
On appeal, the U.S. District Court for the District of Wyoming affirmed the orders denying the Raels' motion to dismiss the adversary proceeding and to set aside the Sale Order, but reversed the judgment granting discharge, concluding that the bankruptcy court's determination that the Raels' violation of the Sale Order was not willful was clearly erroneous. The district court also reversed the order awarding attorney fees against the Trustee as a discovery sanction.
The Raels claim the bankruptcy court erred by denying their motion to dismiss the adversary proceeding under Fed. R. Civ. P. 12(b)(6) on the ground that the court lacked jurisdiction to enter the Sale Order in the reopened Chapter 11 proceeding and therefore lacked jurisdiction to enforce that order in the adversary proceeding. We disagree.
When hearing an appeal from a district court's review of a bankruptcy court order, we independently review the underlying bankruptcy court decision. Jubber v. SMC Elec. Prods., Inc. (In re C.W. Mining Co.), 798 F.3d 983, 986 (10th Cir. 2015).We accept the bankruptcy court's factual findings unless they are clearly erroneous. Alderete v. Educ. Credit Mgmt. Corp. (In re Alderete), 412 F.3d 1200, 1204 (10th Cir. 2005). But we review its legal conclusions, including on jurisdictional questions, de novo. Lee v. McCardle (In re Peeples), 880 F.3d 1207, 1212 (10th Cir. 2018).
Initially, we note that in affirming the bankruptcy court's denial of the motion to dismiss, the district court interpreted the Raels' argument as challenging the bankruptcy court's jurisdiction over the adversary proceeding itself. Aplt. App. Vol. V, at 1039. To the extent the Raels make such an argument on appeal, we reject it. A challenge to the propriety of discharge under § 727 impacts the determination whether to grant discharge. It is thus part of a core proceeding that is plainly within the bankruptcy court's jurisdiction. See 28 U.S.C. § 157(b)(2)(I) ().
We also reject the Raels' contention that the bankruptcy court's ruling in the Contempt Orders constituted a finding that the court lacked jurisdiction over the property after the case was closed. In their contempt motions, the Raels claimed Wells Fargo's state court actions were improper because they violated the automatic stay and because the bankruptcy court had exclusive jurisdiction to enforce the provisions of the Plan. Relying on Santander Consumer, USA, Inc. v. Houlik (In re Houlik), 481 B.R. 661 (B.A.P. 10th Cir. 2012), the bankruptcy court rejected those arguments, finding that (1) after the case was closed, the automatic stay was nolonger in effect, and (2) Wells Fargo was entitled to enforce its rights under the confirmed Plan in state court because the bankruptcy court did not have exclusive jurisdiction over the property. See id. at 674 (). With respect to the latter finding, the court concluded that the bankruptcy court retained jurisdiction over core proceedings and matters related to the bankruptcy estate, but that the state court had jurisdiction over Wells Fargo's state court actions to enforce its liens and determine the priority of lien rights. See id. at 679 (Brown, J., concurring) (). The BAP affirmed, holding that while the bankruptcy court was "not left without jurisdiction entirely," it "did not have exclusive jurisdiction to enforce" the Plan. In re Rael, 527 B.R. 799, 2015 WL 847432, at *1, 8 (emphasis added).
Contrary to the Raels' contention, nothing in either the Contempt Orders or the BAP Order suggested that, after the case was closed, the bankruptcy court lacked jurisdiction over any matters related to the property that was the subject of the Sale Order—those orders simply held that the bankruptcy court did not have exclusive jurisdiction over issues related to the subject property. Indeed, an order that the bankruptcy court lacked jurisdiction altogether would have been inconsistent with thejurisdiction retention language in the Plan, which provided that the bankruptcy court retained post-confirmation jurisdiction to "enter orders necessary or appropriate to carry out the provisions of" the Plan. Aplt. App. Vol. I, at 152.
In any event, at the Raels' request, the case had been reopened before the Sale Order was entered. And, because entry of a sale order is a core proceeding, the bankruptcy court was statutorily within its jurisdiction to enter an order—again, at the Raels' request—authorizing them to sell the property. See 11 U.S.C. §§ 363(f)-(h) (); 11 U.S.C. § 1107(a) (); 28 U.S.C. § 157(b)(2)(N) (); Fed. R. Bankr. P. 6004 (...
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