Court Opinion

ID: 9399413
Source: CourtListenerOpinion
Date Created: 2023-06-02 21:01:00.423179+00
Date Added: 2024-06-11T17:18:56.242339
License: Public Domain

FILED
                                                                     JUN 2 2023
                        ORDERED PUBLISHED
                                                                SUSAN M. SPRAUL, CLERK
                                                                  U.S. BKCY. APP. PANEL
        UNITED STATES BANKRUPTCY APPELLATE PANEL                  OF THE NINTH CIRCUIT

                  OF THE NINTH CIRCUIT

In re:                                     BAP No. NC-23-1008-FSG
RS AIR, LLC,
                  Debtor.                  Bk. No. 20-51604

RS AIR, LLC; REARDEN LLC; STEPHEN
G. PERLMAN, individually and as
trustee of the First Amendment and
Complete Restatement of the Stephen G.
Perlman Revocable Trust by Declaration
of Trust dated February 12, 2004,
                   Appellants,
v.                                     OPINION
NETJETS AVIATION, INC.; NETJETS
SALES, INC.; NETJETS SERVICES, INC.,
                   Appellees.

            Appeal from the United States Bankruptcy Court
                  for the Northern District of California
            M. Elaine Hammond, Bankruptcy Judge, Presiding

                              APPEARANCES:
Jennifer C. Hayes of Finestone Hayes LLP argued for appellant RS Air,
LLC; Jeffrey L. Fillerup of Rincon Law, LLP argued for appellant Stephen
G. Perlman; Kelly Singer of Squire Patton Boggs (US) LLP argued for
appellees.

Before: FARIS, SPRAKER, and GAN, Bankruptcy Judges.

FARIS, Bankruptcy Judge:
                                 INTRODUCTION

      Once a debtor receives a bankruptcy discharge, § 524(a) 1 precludes a

creditor from enforcing a prepetition debt as a personal liability of the

discharged debtor. The discharge injunction does not, however, extinguish

the debt or protect any other entity from its liability on that debt. After

chapter 11 debtor RS Air, LLC received its discharge, creditors sued to

collect a discharged debt from RS Air’s alleged alter egos. RS Air claims

that this was a violation of the discharge injunction. We agree with the

bankruptcy court that the creditors did not violate the discharge injunction.

We therefore AFFIRM.

      We publish to confirm that the discharge injunction does not protect

a debtor’s alter egos.

                                       FACTS

A.    Prepetition events

      RS Air is a Delaware limited liability company. Appellant Stephen G.

Perlman is its founder and sole managing member. Its stated purpose was

to provide aircraft transportation services to Mr. Perlman.

      Mr. Perlman is trustee of the First Amendment and Complete

Restatement of the Stephen G. Perlman Trust by Declaration of Trust dated

      1
        Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101-1532, all “Rule” references are to the Federal Rules
of Bankruptcy Procedure, and all “Civil Rule” references are to the Federal Rules of
Civil Procedure.

                                           2
February 12, 2004 (the “Perlman Trust”). He also allegedly owns and

controls appellant Rearden LLC.

       Appellees NetJets Aviation, Inc., NetJets Sales, Inc., and NetJets

Services, Inc. (collectively, “NetJets”) are in the business of selling and

leasing fractional interests in private jets. RS Air purchased a 6.25% interest

in two aircraft from NetJets and entered into multiple management

agreements with NetJets regarding the aircraft.

       NetJets filed a complaint in Ohio against RS Air for breach of certain

agreements and refusal to pay certain fees and return title to the aircraft to

NetJets. RS Air counterclaimed for breach of contract and fraud.

B.     The chapter 11 case

       In November 2020, just before trial in Ohio was set to commence, RS

Air filed a bankruptcy petition under subchapter V of chapter 11.

       NetJets filed a proof of claim for approximately $2.133 million. It also

filed a motion to dismiss the chapter 11 case, as well as an objection to RS

Air’s designation as a subchapter V small business debtor. These efforts

were unsuccessful.2

       NetJets filed a motion requesting standing to pursue claims against

Mr. Perlman, the Perlman Trust, and Rearden (collectively, the “Perlman

       2
         NetJets also filed a motion for relief from the automatic stay to pursue the Ohio
litigation and to apply setoff. The bankruptcy court did not grant stay relief as to the
Ohio litigation but granted stay relief to allow NetJets to setoff monies owed to RS Air
against its claim. We affirmed. RS Air, LLC v. NetJets Sales, Inc. (In re RS Air, LLC), BAP
No. NC-21-1080-TBG, 2022 WL 1288463 (9th Cir. BAP Apr. 26, 2022).
                                             3
Parties”) as alter egos of RS Air, or, alternatively, to dismiss the bankruptcy

case. It argued that RS Air and the Perlman Parties “operated as [a] single

economic unit to the detriment of creditors” such that the court should

pierce the corporate veil.

      The bankruptcy court denied NetJets’ motion for standing. It

examined both Delaware and Ninth Circuit law and concluded that NetJets

failed to allege facts in the proposed complaint that would allow NetJets to

pierce the corporate veil. NetJets appealed to the BAP.

      In the meantime, the bankruptcy court confirmed RS Air’s third

amended plan. The plan entitled NetJets to receive, at minimum, a pro-rata

distribution from a $100,000 contribution by Mr. Perlman. NetJets appealed

the confirmation order to the BAP. We affirmed the bankruptcy court’s

confirmation order and its order denying NetJets’ objection to RS Air’s

subchapter V election. NetJets Aviation, Inc. v. RS Air, LLC (In re RS Air,

LLC), 638 B.R. 403 (9th Cir. BAP 2022).

      In a separate decision, we vacated the bankruptcy court’s order

denying NetJets’ motion for standing to pursue alter ego claims. NetJets

Sales, Inc. v. RS Air, LLC (In re RS Air, LLC), BAP No. NC-21-1102-GTB, 2022

WL 1284012 (9th Cir. BAP Apr. 26, 2022). We held that the bankruptcy

court erred in its application of the colorability standard when deciding

whether NetJets could assert a veil-piercing claim under Delaware law.3

      3
       We stated, however, that, “even if the estate has exclusive standing to pierce its
corporate veil [during the bankruptcy],” that exclusivity “will terminate upon the
                                            4
We remanded the matter to the bankruptcy court.

C.    The alter ego Ohio litigation

      Prior to the bankruptcy court entering RS Air’s discharge, NetJets

filed a new complaint (the “Ohio Complaint”) against Mr. Perlman

(individually and as trustee of the Perlman Trust) and Rearden in the

United States District Court for the Southern District of Ohio. The Ohio

Complaint did not name RS Air as a defendant but included allegations

that RS Air was “conclusively liable” to NetJets on the underlying debt. It

contained a single cause of action for a judgment declaring that the

Perlman Parties are alter egos of RS Air and are liable to NetJets for

$1,767,571.15.

      RS Air received its discharge shortly thereafter. Although the

standard discharge order does not identify the creditors whose claims are

discharged, RS Air’s discharge order provided for a discharge of all debts

“including, but not limited to, the debt evidenced by the proof of claim

filed by NetJets Aviation, Inc., NetJets Sales, Inc., and NetJets Services, Inc.

as Claim No. 1 . . . .”

      The Perlman Parties filed motions to dismiss the Ohio Complaint.

The Ohio district court found that there was no alter ego liability as to

Reardon but denied the motion as to Mr. Perlman and the Perlman Trust.

confirmation order becoming effective.” 2022 WL 1284012 at *1 n.2. We further stated
that, “[u]pon the confirmation order becoming effective, any right of the estate to assert
a veil-piercing action will terminate.” Id. at *1 n.3.

                                            5
D.    The motion for contempt

      Meanwhile, RS Air and the Perlman Parties (collectively, the “RS Air

Parties”) filed a motion for contempt (“Contempt Motion”) against NetJets

for violation of the discharge injunction under § 524(a)(2).

      They argued that the Ohio Complaint’s alter ego claim impermissibly

sought to recover a discharged debt because the alter ego allegation meant

that “the Defendants are all one and the same.”

      NetJets opposed the Contempt Motion. It argued that the BAP had

stated that the discharge injunction did not preclude the Ohio Complaint. It

also contended that the discharge injunction does not apply to non-debtors

and that RS Air’s discharge could not discharge the alter ego claims against

the Perlman Parties in the Ohio Complaint.

      After a hearing, the bankruptcy court issued its order denying the

Contempt Motion. It analyzed whether “(1) NetJets knew RS Air’s

Discharge injunction applied, and (2) NetJets intended the actions that

violated the Discharge.”

      The bankruptcy court quickly disposed of the second question,

holding that NetJets intended its actions because the filing of the Ohio

Complaint seeking recovery on its claim was an intentional act.

      As to the first question, the bankruptcy court concluded that there

was a “fair ground of doubt” whether the discharge injunction applied to

the Ohio Complaint. The bankruptcy court favored NetJets’ argument that

§ 524(e) expressly provides that the discharge injunction does not apply to

                                      6
the liabilities of “any other entity,” including the Perlman Parties. It held

that, because the Ohio Complaint did not name RS Air as a defendant,

NetJets had an objectively reasonable basis to determine that the discharge

applied only to RS Air and that it did not violate the discharge injunction

as to the Perlman Parties.

E.    The motion for clarification

      The RS Air Parties filed a motion for clarification and reconsideration

of the contempt order (“Clarification Motion”). They said that, although

the bankruptcy court held that NetJets had not committed contempt, the

court did not answer the threshold question of whether NetJets had

violated the discharge injunction as to RS Air.

      RS Air acknowledged that it was not named personally in the Ohio

Complaint but argued that the bankruptcy court’s ruling potentially

allowed NetJets to add RS Air to a judgment against the Pearlman Parties

under California Code of Civil Procedure (“CCP”) § 187. RS Air argued

that this threat constituted a violation of the discharge injunction.4

      The bankruptcy court agreed that it should have expressly decided

whether NetJets had violated the discharge injunction. It clarified its ruling

and determined that NetJets did not violate the discharge injunction.

      The court concluded that the Ohio Complaint “does not seek relief

against RS Air,” so the alter ego allegations did not violate the discharge

      4
        Counsel later conceded that CCP § 187 only applies if an Ohio judgment for
NetJets is domesticated in California.
                                          7
injunction as to RS Air. However, it cautioned that, “[s]hould NetJets . . .

act to collect or recover any debt of RS Air as a personal liability, then

NetJets will violate the discharge. . . . [T]hus far NetJets has not acted in

violation of Section 524(a)(2) and, as such, no violation of RS Air’s

discharge has occurred.”

      The bankruptcy court entered an order reiterating its denial of the

Contempt Motion. The RS Air Parties timely appealed both orders.

                                JURISDICTION

      The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and

157(b)(2)(A). We have jurisdiction under 28 U.S.C. § 158.

                                     ISSUE

      Whether the bankruptcy court erred in holding that the alter ego

allegations in NetJets’ Ohio Complaint did not violate the discharge

injunction.

                         STANDARDS OF REVIEW

      “The scope of the bankruptcy discharge injunction is a mixed

question of law and fact to be reviewed either de novo or for clear error,

depending upon whether questions of law or questions of fact

predominate.” Reed v. Nielsen (In re Reed), 640 B.R. 932, 938 (9th Cir. BAP

2022) (citation omitted), aff’d in part, appeal dismissed in part, No. 22-60021,

2023 WL 1879516 (9th Cir. Feb. 10, 2023). In this case, the facts are

uncontroverted and questions of law predominate, so our review is de

novo. Similarly, we review de novo the bankruptcy court’s statutory

                                        8
interpretation of § 524(a). Id.

      “De novo review requires that we consider a matter anew, as if no

decision had been made previously.” Francis v. Wallace (In re Francis), 505

B.R. 914, 917 (9th Cir. BAP 2014).

      We review for an abuse of discretion the denial of sanctions for an

alleged violation of the discharge injunction, see In re Reed, 640 B.R. at 938,

and the ruling on a motion for relief under Civil Rule 59 or Civil Rule 60

(made applicable in bankruptcy cases by Rules 9023 and 9024), see Rigby v.

Mastro (In re Mastro), 585 B.R. 587, 591 (9th Cir. BAP 2018). To determine

whether the bankruptcy court has abused its discretion, we conduct a two-

step inquiry: (1) we review de novo whether the bankruptcy court

“identified the correct legal rule to apply to the relief requested” and (2) if

it did, we consider whether the bankruptcy court’s application of the legal

standard was illogical, implausible, or without support in inferences that

may be drawn from the facts in the record. United States v. Hinkson, 585

F.3d 1247, 1262-63 (9th Cir. 2009) (en banc).

                                  DISCUSSION

A.    The discharge injunction precludes any act to recover a debt as a
      personal liability of the debtor.

      This appeal hinges on the effect of RS Air’s discharge under § 524.

Our analysis begins with the statutory language. If that language is plain,

our analysis also ends there. See Lamie v. U.S. Tr., 540 U.S. 526, 534 (2004)

(“It is well established that when the statute’s language is plain, the sole

                                        9
function of the courts—at least where the disposition required by the text is

not absurd—is to enforce it according to its terms.” (cleaned up));

Smallwood v. Allied Van Lines, Inc., 660 F.3d 1115, 1121 (9th Cir. 2011) (“Our

analysis begins, as it must, with the text of the statute in question. Under

the ‘plain meaning’ rule, where the language of a statute is plain and

admits of no more than one meaning the duty of interpretation does not

arise, and the rules which are to aid doubtful meanings need no

discussion.” (cleaned up)).

      By the plain terms of the statute, the discharge only protects the

debtor from personal liability. The discharge “operates as an injunction

against the commencement or continuation of an action, the employment of

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[.]”

§ 524(a)(2). Similarly, the 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 a discharged debt.

§ 524(a)(1).

      The statute also plainly provides that the discharge only protects the

debtor and not any other person who is liable with the debtor. Subject to an

exception not applicable here, the “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.” § 524(e).

                                       10
B.    The bankruptcy court correctly held that NetJets’ alter ego
      allegations did not violate the discharge injunction.

      1.    The alter ego allegations did not concern RS Air’s “personal
            liability.”

      Following the plain language of the statute, we have repeatedly

emphasized that the discharge only affects the debtor’s “personal liability.”

See, e.g., In re Reed, 640 B.R. at 939 (“But the discharge only affects the

debtor’s ‘personal liability.’”); Mellem v. Mellem (In re Mellem), 625 B.R. 172,

182 (9th Cir. BAP 2021) (“[T]he extent [of] the discharge is limited to

‘personal liability of the debtor.’”), aff’d, No. 21-60020, 2021 WL 5542226

(9th Cir. Nov. 26, 2021); Ruvacalba v. Munoz (In re Munoz), 287 B.R. 546, 550

(9th Cir. BAP 2002) (“[T]he assumption . . . that a bankruptcy court order is

required any time an action is taken nominally against a debtor after

discharge is also incorrect. The § 524(a)(2) discharge injunction prohibits

only actions to recover a debt as a personal liability of the debtor. Where

the purpose of the action is to collect from a collateral source, such as

insurance . . . , and the plaintiff makes it clear that it is not naming the

debtor as a party for anything other than formal reasons, no bankruptcy

court order is necessary.”).

      Here, there is no dispute that the Ohio Complaint does not name RS

Air as a defendant and does not seek any relief against RS Air. It repeatedly

mentions RS Air’s liability but only seeks to hold the non-debtor Perlman

Parties liable for RS Air’s debt. Neither § 524(a)(1) nor (a)(2) prohibits this.

                                        11
      At oral argument, counsel for RS Air and Mr. Perlman conceded that

RS Air was not named as a party in the Ohio Complaint but argued that

merely requiring RS Air to participate in discovery for that litigation

violated the discharge injunction. But the discharge injunction only enjoins

personal collection of a discharged debt and does not relieve a discharged

debtor from all forms of imposition or inconvenience. We have repeatedly

held that a discharged debtor’s obligation to participate in discovery is not

an effort to personally collect a debt and does not violate the discharge

injunction. See, e.g., Groner v. Miller (In re Miller), 262 B.R. 499, 506 (9th Cir.

BAP 2001) (“Section 524(a)(2) provides that a debtor’s discharge operates as

an injunction ‘against the commencement or continuation of an action [or]

the employment of process’ to collect a discharged debt. Judicial

interpretations of this section indicate that calling a debtor to testify does

not violate the injunction against ‘employment of process.’”); Patronite v.

Beeney (In re Beeney), 142 B.R. 360, 363 (9th Cir. BAP 1992) (holding that the

proposed litigation did not violate the discharge injunction because

“allowing [creditor’s] suit to proceed merely leaves [debtor] in the position

of a witness who would appear at trial”); see also In re Traylor, 94 B.R. 292,

293 (Bankr. E.D.N.Y. 1989) (Where the creditors “are not seeking any

recovery from the debtor himself[,]” “the debtor, whether discharged or

not, is under the same obligations as would be any witness, regardless of

the inconvenience to him, to attend any trial that may take place if the relief

is granted.”).

                                         12
       Moreover, § 524(e) explicitly provides that the discharge injunction

“does not affect the liability of any other entity on” the discharged debt.

The Ninth Circuit employs an especially strict reading of § 524(e): “This

court has repeatedly held, without exception, that § 524(e) precludes

bankruptcy courts from discharging the liabilities of non-debtors.” Resorts

Int’l, Inc. v. Lowenschuss (In re Lowenschuss), 67 F. 3d 1394, 1401 (9th Cir.

1995); see Blixseth v. Credit Suisse, 961 F. 3d 1074, 1082 (9th Cir. 2020) (“We

have interpreted the section generally to prohibit a bankruptcy court from

discharging the debt of a non-debtor.”); In re Beeney, 142 B.R. at 362

(“Subsection (a) enjoins creditors from attempting to collect from the

debtor or the debtor’s assets debts that have been discharged in

bankruptcy. Subsection (e) makes clear that this injunction applies only to

the debtor’s personal liability and does not inhibit collection efforts against

other entities.”). 5

       5
        At oral argument, counsel for Mr. Perlman argued that § 524(e) was
inapplicable because the Ohio Complaint was seeking to hold RS Air liable not as “any
other entity,” but as an entity that is one and the same as the Perlman Parties. We
disagree. The parties have previously agreed that Delaware law controls the alter ego
analysis. See In re RS Air, LLC, 2022 WL 1284012, at *3 (stating that “[t]he parties also
agree that because Debtor is a Delaware LLC, Delaware law governs” and examining
“veil-piercing claims” under Delaware law). Although the alter ego doctrine requires a
showing that the two entities “operated as a single economic entity,” Official Unsecured
Creditors’ Comm. of Broadstripe, LLC v. Highland Cap. Mgmt., L.P. (In re Broadstripe, LLC),
444 B.R. 51, 102 (Bankr. D. Del. 2010), the result is not to deem the entities the same, but
to hold one liable for the other’s debts, see Blair v. Infineon Techs. AG, 720 F. Supp. 2d
462, 469 (D. Del. 2010) (“[T]he corporate veil can be pierced, as a tool of equity, to
disregard the existence of a corporation and impose liability on the corporation’s
individual principals and their personal assets. The alter ego doctrine for piercing the
                                             13
      We asked RS Air’s counsel at oral argument if NetJets could avoid a

discharge violation by amending its complaint. Counsel responded that

NetJets would have to allege that RS Air’s debt to NetJets is “zero dollars.”

This reveals a fundamental flaw in the RS Air Parties’ position: the

discharge does not extinguish the debt; instead, it protects only the debtor

from personal liability on that debt. As the Ninth Circuit stated:

            That § 524(e) confines the debt that may be discharged to
      the “debt of the debtor”—and not the obligations of third
      parties for that debt—conforms to the basic fact that a discharge
      in bankruptcy does not extinguish the debt itself but merely
      releases the debtor from personal liability. . . . The debt still
      exists, however, and can be collected from any other entity that
      may be liable.

Blixseth, 961 F.3d at 1082 (cleaned up); see also id. at 1083 (stating that the

discharge injunction “does not, however, absolve a non-debtor’s liabilities

for that same ‘such’ debt”). RS Air continues to owe the full amount of the

debt; the discharge injunction precludes collection of that debt from RS Air,

but not from anyone else.

      Relying on the legislative history of § 524, the RS Air Parties argue

that § 524(e) applies only to co-obligors or guarantors, i.e., “parties legally

bound by contract on a discharged debt[.]” But we turn to legislative

history only when the statutory language is ambiguous. See Transwestern

corporate veil allows derivative liability to be placed upon a corporation’s individuals.”
(citations omitted)).

                                            14
Pipeline Co. v. 17.19 Acres of Prop. Located in Maricopa Cnty., 627 F.3d 1268,

1271 (9th Cir. 2010) (“If the plain meaning of the statute is unambiguous,

that meaning is controlling and we need not examine legislative history as

an aid to interpretation unless the legislative history clearly indicates that

Congress meant something other than what it said.” (citation omitted)).

Section 524(a) and (e) are not ambiguous.

      Even if we considered the legislative history, we would reject this

argument. While it is true that the legislative history mentions co-obligors

and guarantors, there is no reason to think that Congress intended to limit

the broad sweep of § 524(e) to those examples. The statute speaks broadly

of “the liability of any other entity[.]” If Congress had intended the result

that the RS Air Parties favor, it would have said, “the liability of any other

entity that is legally bound by contract on a discharged debt.” We may not

interpolate that phrase into the plain statutory language; instead, we must

assume that Congress meant exactly what it said.

      At oral argument, counsel for RS Air predicted that the bankruptcy

court’s decision would open the floodgates to post-discharge litigation on

prepetition alter ego claims, particularly concerning single-member LLCs.

We do not foresee such a result. The corporate veil is a formidable obstacle,

and parties that file baseless alter ego claims risk sanctions for frivolous

filings.

      2.    The cases cited by the RS Air Parties are unpersuasive.

      The RS Air Parties primarily rely on three cases: Yan v. Lombard Flats,

                                       15
LLC (In re Lombard Flats, LLC), Case No. 15-cv-00870-PJH, 2016 WL 1161593

(N.D. Cal. Mar. 23, 2016), In re Ostrander, Case No. 11-33801, 2022 WL

999680 (Bankr. N.D. Ohio Apr. 1, 2022), and In re Torres, 594 B.R. 890

(Bankr. C.D. Cal. 2018). Lombard Flats and Ostrander are distinguishable,

and we think that Torres was incorrectly decided.

         In Lombard Flats, Martin Eng transferred real property to his LLC.

Later, the LLC filed a chapter 11 petition, successfully completed its

reorganization plan, and received its discharge. 2016 WL 1161593, at *1.

         The creditors sued the LLC and Mr. Eng to recover on four

promissory notes made by Mr. Eng. The complaint alleged that the LLC

was liable for Mr. Eng’s debts because the LLC was Mr. Eng’s alter ego. Id.

at *3.

         The LLC filed a motion for contempt against the creditors’ attorney

for violation of the discharge injunction. The bankruptcy court agreed that

the attorney had violated the discharge injunction. The district court

affirmed, holding that the alter ego claim against the LLC was a “claim”

under bankruptcy law. Id. at *6. It stated that “Section 524(a)(1) provides

that any judgment on a debt that is discharged is void as a determination of

the debtor’s personal liability. . . . Characterizing the alter ego theory as a

‘judgment collection remedy,’ rather than a claim for substantive relief,

does not escape enforcement of the discharge.” Id. (citation omitted).

         Lombard Flats is not applicable because the creditor sought to collect a

debt from the LLC even though the LLC had received its discharge in

                                         16
bankruptcy. This plainly violated § 524(a). In this case, however, NetJets is

doing the opposite: it has a claim against discharged debtor RS Air, but it is

seeking to collect the debt from the Perlman Parties, who are not protected

by the discharge. Lombard Flats says nothing about a creditor’s ability to

collect a debt (owed by a discharged debtor) from a non-debtor.

      The RS Air Parties argue that Lombard Flats “held that mere alter ego

allegations against the debtor violated the discharge injunction.” They

contend that “the collection target is irrelevant[,]” such that an allegation

involving the debtor violates the discharge injunction. The RS Air Parties

are wrong. The district court in Lombard Flats said no such thing. To the

contrary, the district court made clear that the complaint sought to hold the

debtor liable for the discharged debt: the creditors “sought to hold debtor

liable on [Mr.] Eng’s debts as [Mr.] Eng’s alter ego.” Id. at *3.

      In Ostrander, a creditor had claims against an individual debtor,

Bonnie Ostrander, and two companies she controlled. After Ms. Ostrander

received a chapter 7 discharge, the creditor filed a state court complaint to

collect its claims. Ms. Ostrander asked the bankruptcy court to hold the

creditor in contempt for violating the discharge.

      The bankruptcy court exhaustively analyzed the complaint (which it

described as “a mess”). 2022 WL 999680 at *28. The court held that many of

the causes of action in the complaint did not violate the discharge

injunction because they stated claims only against the companies, not

Ms. Ostrander. Id. at *13.

                                       17
      But the court also found that some of the causes of action seemed to

assert discharged claims against Ms. Ostrander. For example, one of the

causes of action alleged that Ms. Ostrander’s corporations were her alter

egos and sought to hold her and others “personally liable for the entities[’]

acts . . . .” Id. at *25. The court concluded that the overall effect of the

complaint was a violation. Because the confusing drafting of the complaint

made it difficult to separate the permissible and impermissible claims,

Ms. Ostrander did not have counsel to assist her with that task, and the

companies had no known assets, “the practical, objective effect of the

complaint overall is to coerce and pressure [Ms.] Ostrander to repay

discharged debts.” Id. at *30.

      We need not opine on the Ostrander court’s reliance on the overall

effect of the complaint, because the facts on which the Ostrander court

relied are not present in this case. NetJets’ Ohio Complaint is clearly

drafted and carefully avoids asserting discharged claims. The RS Air

Parties have defended themselves aggressively with the assistance of able

counsel. There is no reason to think that NetJets is trying to slip a

discharged claim by the Ohio court and no discernible risk that it would

succeed if it tried.

      In Torres, Katherine Torres personally guaranteed the loan made to

her wholly-owned business. 594 B.R. at 891-92. The creditor sued

Ms. Torres and her business, alleging that she was an alter ego of the

business. Id. at 892. Shortly thereafter, Ms. Torres and her husband filed a

                                        18
chapter 7 petition and received a discharge. Id. at 893.

       The creditor resumed prosecution of the state court complaint against

the business but voluntarily dismissed Ms. Torres without prejudice. The

creditor did not dismiss or amend the alter ego allegation and moved for

an entry of default against the business. Id. at 894.

       Ms. Torres moved for sanctions against the creditor for a discharge

violation. The bankruptcy court acknowledged that the creditor was

proceeding only against the business but was concerned by the alter ego

allegations in the complaint. Id. It noted that California courts have held

that, under CCP § 187, a court may amend a judgment against a defendant

by adding the defendant’s alter egos as judgment debtors. The court stated

that “the matter is not entirely free from doubt,” but concluded that “the

most likely outcome is that in the normal course of events, and without any

intervention by this Court based upon the discharge injunction, [the

creditor] would be successful in adding Ms. Torres to a default judgment

obtained against [the business] under the authority of [CCP] § 187.” Id. at

896.

       The bankruptcy court relied on Lombard Flats. It said that it

       stands for the proposition that if A receives a bankruptcy
       discharge, an action against B alleging that A and B are alter
       egos violates the discharge injunction if it is shown that the
       alter ego claim is a prepetition claim. Thus, [Lombard Flats]
       indicates that not only is the continuation of the State Court
       Action against Ms. Torres (recipient of the discharge) a
       violation of the discharge injunction but also that the State

                                       19
      Court Action’s continuation against [the business] likewise
      violates the discharge injunction as long as the alter ego
      allegations remain in the Complaint.

Id. at 896-97. Ultimately, however, the court declined to sanction the

creditor because he did not know that the discharge injunction applied to

the state court action.

      We respectfully disagree with Torres. First, the Torres court misread

Lombard Flats. Lombard Flats did not hold that, if the debtor receives a

discharge, any action against the principal alleging that the debtor and its

principal are alter egos violates the discharge injunction. Rather, it held

that an action to recover a debt against the discharged debtor violates the

discharge injunction.

      Second, we do not agree that a discharge violation exists whenever a

creditor might later seek a judgment against the discharged debtor. If

Torres is right, the discharge protects non-debtor parties whenever CCP

§ 187 or a similar statute or doctrine might apply. This would gut § 524(e),

since no one could ever rule out the possibility that a creditor might violate

the discharge in the future. Further, it is unnecessary because a creditor’s

later attempt to add the discharged debtor to a judgment would

unquestionably violate the discharge injunction.

      There is no fair ground of doubt that NetJets would violate the

discharge injunction if it sought a judgment against RS Air under CCP

§ 187 or on any other basis. See Taggart v. Lorenzen, 139 S. Ct. 1795, 1804

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(2019) (“A court may hold a creditor in civil contempt for violating a

discharge order where there is not a ‘fair ground of doubt’ as to whether

the creditor’s conduct might be lawful under the discharge order.”). We

will not protect the Perlman Parties from liability based on an assumption

that NetJets will commit an obvious contempt.

                              CONCLUSION

     The bankruptcy court did not err in denying the Contempt Motion

and deciding the Clarification Motion. We AFFIRM.

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