Paeplow v. Foley

• Citation: 128 BR 429
• Decision Date: 07 May 1991
• Docket Number: No. S90-533(RLM).,S90-533(RLM).
• Parties: William D. PAEPLOW, Appellee, v. Edmond W. FOLEY, et al., Appellants.
• Court: U.S. District Court — Northern District of Indiana

128 B.R. 429 (1991)

William D. PAEPLOW, Appellee, v. Edmond W. FOLEY, et al., Appellants.

No. S90-533(RLM).

United States District Court, N.D. Indiana, South Bend Division.

April 8, 1991.

Rehearing Denied April 18, 1991.

As Corrected May 7, 1991.

COPYRIGHT MATERIAL OMITTED

Henry A. Hoover, South Bend, Ind., for appellee.

Edmond W. Foley, South Bend, Ind., for appellants.

MEMORANDUM AND ORDER

MILLER, District Judge.

This is an appeal by Edmond W. Foley, R. Kent Rowe, R. Kent Rowe, III, Jerry E. Huelat, V.E. Beagles, Betty Beagles, Pete Cassen, and Karen Cassen ("the creditors") from final decisions of the bankruptcy court on September 21, 1990, as amended on September 24, 1990, granting debtor William Paeplow's request for injunctive relief and denying a motion to strike the debtor's complaint for injunction. 119 B.R. 610. The creditors claim that the bankruptcy court improperly found that a certain real property debt of Mr. Paeplow and his wife was dischargeable in a Chapter 7 proceeding. The creditors claim the right to proceed in state court on the debtor's liability and fault the bankruptcy court for improperly enjoining them from so doing.

Background

The parties do not dispute the facts of this appeal. On October 5, 1981, Mr. and Mrs. Paeplow executed a joint note payable to the First Interstate Bank in Roswell, New Mexico in the amount of $60,000.00. The balance on the October 5, 1981 note was due on or before April 5, 1982.

Shortly after execution of the October 5 note, the creditors signed an agreement subordinating their rights to certain of the debtor's property to the Roswell bank. The Paeplows' defaulted on the October, 1981 note on September 3, 1982, and the creditors assumed the Paeplows' liability on the promissory note in order to protect their interests in property secured by an agreement pledging certain collateral and accounts receivable.

Mr. Paeplow individually filed his petition under Chapter 7 of the Bankruptcy Code on September 3, 1982. In his Schedule B-4 list of claimed property exemptions, Mr. Paeplow listed the South Bend property as exempt from the estate pursuant to IND.CODE 34-2-28-1(a). Mr. Paeplow received a discharge in bankruptcy on January 6, 1984. The discharge of debtor entered in Mr. Paeplow's case reads as follows:

It appearing that the person named above has filed a petition commencing a case under title 11, United States Code on September 3, 1982, that an order for relief was entered under chapter 7 and that no complaint objecting to the discharge of the debtor was filed within the time fixed by the court or that a complaint objecting to discharge of the debtor was filed and, after due notice and hearing, was not sustained, it is ordered that

1. The above named debtor is released from all dischargeable debts.

2. Any judgment heretofore or hereafter obtained in any court other than this court is null and void as a determination of the personal liability of the debtor with respect to any of the following:

(a) debts dischargeable under 11 U.S.C. § 523; (b) unless heretofore or hereafter determined by order of this court to be nondischargeable, debts alleged to be excepted from discharge under clauses (2), (4) and (6) of 11 U.S.C. § 523(a);

(c) debts determined by this court to be discharged under 11 U.S.C. § 523.

3. All creditors whose debts are discharged by this order and all creditors whose judgments are declared null and void by paragraph 2 above are enjoined from commencing, continuing or employing any action, process or 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 that debt is waived.

On December 12, 1983, the Roswell bank moved for relief from automatic stay with the bankruptcy court, seeking permission for leave to file an action against Mr. Paeplow in state court to secure a judgment against the debtor and his wife with respect to the South Bend property. The bankruptcy court granted the Roswell Bank's motion for relief from stay on January 16, 1984. In granting the Roswell Bank's motion, the court modified the order submitted by the creditor. Specifically, the bankruptcy court ordered:

That the automatic stay of 11 U.S.C. § 362(a) as against Bank shall be and hereby is modified to enable it to proceed in state court on its joint claim against Debtor and Debtor\'s wife,

but deleted the following language from the remainder of the paragraph in the creditor's form of order:

to enforce any subsequent judgment lien thereby obtained against the real estate located at 51921 Whitestable Lane, South Bend, Indiana held by the Debtor and his wife as tenancy by the entireties property . . .

The Roswell bank later assigned its rights to the October, 1981 promissory note to the creditors, who, in September, 1987, filed their own motion for relief from stay for the purpose of proceeding against Mr. Paeplow in state court and securing a judgment with respect to the South Bend property. The bankruptcy court entered a order noting that a discharge had been issued to Mr. Paeplow on January 6, 1984, at which time the stay was lifted as to all creditors.

In October, 1988, the creditors filed a motion for leave to amend their complaint in the St. Joseph Superior Court, adding Mr. Paeplow to the previously filed action against Mrs. Paeplow for collection on the Roswell Bank note. The state court granted the creditors' motion two days later. The creditors added Mr. Paeplow to the state court action so as to obtain a joint judgment against both Paeplows and execute that judgment against the South Bend property. The creditors characterize the nature of the St. Joseph Superior Court proceeding as in rem.

Trial in the St. Joseph Superior Court action was scheduled for September 26, 1990. At no time did Mr. Paeplow raise the defense of discharge in bankruptcy in the state court proceedings.

On July 25, 1990, Mr. Paeplow filed a complaint for injunction under 11 U.S.C. § 524 against the creditors, seeking to prohibit them from taking any further action in the St. Joseph Superior Court with respect to their promissory note. The creditors responded to the complaint with a motion to strike that pleading and additionally requested attorney fees and sanctions against Mr. Paeplow for his alleged bad faith in seeking the injunctive relief. Mr. Paeplow filed for partial summary judgment on the complaint for injunction.

Following briefing of the motions and a hearing, the bankruptcy court issued an order denying the creditors' motion to strike and granting the debtor's request for an injunction on September 21, 1990. In its amended order of September 24, the bankruptcy court set forth a lengthy discussion of its September 21 ruling, and stated:

As the debtor listed his indebtedness to First Interstate Bank in his bankruptcy schedules and was granted a discharge before any party obtained a judgment lien on the property which he and his wife held as tenants by the entirety, the court finds that the debtor\'s joint and several liability arising from the promissory note executed in favor of First Interstate Bank has been discharged. First Interstate Bank and/or its assignors further have been enjoined from the date of the discharge from taking any further action to collect the debtor\'s portion of the liability. 11 U.S.C. § 524(a)(2) (Callaghan 1989). They, of course, are free to attempt to collect the debtor\'s spouse\'s portion of the liability but may not obtain a lien against property which the debtor and his wife held as tenants by the entirety at the time of the debtor\'s discharge because they failed to preserve their claim to the property prior to the discharge. The court finds this to be so notwithstanding the debtor\'s action or inaction in the subsequent state court proceeding.

Standard of Review

Bankruptcy Rule 8013 provides:

On an appeal the district court or bankruptcy appellate panel may affirm, modify, or reverse a bankruptcy court\'s judgment, order, or decree or remand with instructions for further proceedings. Findings of fact shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses.

This rule makes it clear that the court's review of the bankruptcy judge's findings of fact is to be under the clearly erroneous standard. In re Weber, 892 F.2d 534, 538 (7th Cir.1989); In re Hilligoss, 849 F.2d 280, 282 (7th Cir.1988); First Wisconsin Nat'l Bank v. Federal Land Bank, 849 F.2d 284, 286 (7th Cir.1988); In re Excalibur Automobile Corp., 859 F.2d 454, 457 n. 3 (7th Cir.1988). Under this standard, if the trial court's account of the evidence is plausible in light of the record viewed in its entirety, a reviewing court may not reverse even if convinced that it would have weighed the evidence differently as trier of fact; the fact finder's choice between two permissible views of evidence cannot be clearly erroneous. Anderson v. City of Bessemer City, 470 U.S. 564, 573-574, 105 S.Ct. 1504, 1511-12, 84 L.Ed.2d 518 (1985); EEOC v. Sears, Roebuck & Co., 839 F.2d 302, 309 (7th Cir.1988).

A bankruptcy court's conclusions of law are reviewed de novo on appeal. In re Newman, 903 F.2d 1150 (7th Cir.1990); Calder v. Camp Grove State Bank, 892 F.2d 629 (7th Cir.1990). The bankruptcy court's conclusions do not bind the district court and are entitled only to such deference as the district court sees fit. In re Cricker, 46 B.R. 229 (N.D.Ind.1985); Rushville Production Credit Ass'n v. Mohr, 42 B.R. 1000 (S.D.Ind.1984); In re Schaller, 27 B.R. 959 (W.D.Wis.1982). In addition, the court must determine whether the bankruptcy court applied the proper legal standard to the facts. In re Stratton, 23 B.R. 284, 287 (D.S.D.1982).

The creditors present the following issue on appeal:

Whether the bankruptcy court erred in denying defendants\' motion to strike the plaintiff\'s complaint

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