Court Opinion

ID: 48834
Source: CourtListenerOpinion
Date Created: 2010-04-25 23:49:37+00
Date Added: 2024-06-11T17:18:29.798006
License: Public Domain

United States Court of Appeals
                                                                Fifth Circuit
                                                             F I L E D
               IN THE UNITED STATES COURT OF APPEALS           April 4, 2007
                       FOR THE FIFTH CIRCUIT
                                                         Charles R. Fulbruge III
                         ))))))))))))))))))))))))))              Clerk

                              No. 06-30557
                            Summary Calendar

                         ))))))))))))))))))))))))))

In The Matter of: ALONZO WILLIAMS, SR.

                Debtor

FRIENDLY FINANCE SERVICE MID-CITY, INC.; DAVID C. MCMILLIN

                Appellants

     v.

ALONZO WILLIAMS, SR.

                Appellee

           Appeal from the United States District Court
               for the Western District of Louisiana
                          No. 3:05-CV-1826

Before DeMOSS, STEWART, and PRADO, Circuit Judges.

PER CURIAM:*

     Before the court is an appeal by Appellant Friendly Finance

Service Mid-City, Inc. (“Friendly Finance”) and its attorney,

Appellant David C. McMillin (“McMillin”), of the district court’s

order affirming the bankruptcy court’s order that dismissed

     *
       Pursuant to 5TH CIRCUIT RULE 47.5, the court has determined
that this opinion should not be published and is not precedent
except under the limited circumstances set forth in 5TH CIRCUIT
RULE 47.5.4.
Friendly Finance’s adversary complaint as moot and sanctioned

McMillin for filing the adversary complaint.    For the following

reasons, we AFFIRM.

                 I. FACTUAL AND PROCEDURAL BACKGROUND

     The facts of this case are undisputed.    On June 30, 2004,

Alonzo Williams, Sr. (“Williams”) received a discharge from

Chapter 7 bankruptcy.    Following his discharge, Williams applied

for and received a loan from Friendly Finance in July 2004.

Williams and his wife, Melvina Williams (“Mrs. Williams”), then

jointly filed a Chapter 7 bankruptcy petition on March 9, 2005.

     Pursuant to the version of 11 U.S.C. § 727(a)(8) in effect

at that time, a debtor was ineligible for a bankruptcy discharge

if he had been granted a discharge “in a case commenced within

six years before the date of the filing of the [current] petition

. . . .”1    Therefore, the bankruptcy court issued a show cause

order requiring Williams to demonstrate why he should not be

dismissed from the current bankruptcy proceeding, given his 2004

discharge.    At a hearing on May 11, 2005, the bankruptcy court

determined that Williams was ineligible for a discharge and

entered an order dismissing Williams from the bankruptcy case

that same day.    Mrs. Williams, however, was allowed to proceed

with her bankruptcy petition.

     On July 12, 2005, Friendly Finance, by way of McMillin,

     1
        Section 727(a)(8) has since been amended to increase the
amount of time between discharges from six years to eight years.

                                  2
filed an adversary complaint against Williams.      The complaint,

entitled “Complaint to Discharge,” stated it was filed “pursuant

to 11 U.S.C. § 727” and alleged that Williams was obligated on

three loans to Friendly Finance.       The complaint then noted that

Williams had received a discharge in June 2004, making him

ineligible for a discharge in the current bankruptcy proceeding.

As a result, Friendly Finance asked that Williams’s discharge be

denied.

     The bankruptcy court issued a show cause order on July 14,

2005, requiring McMillin to demonstrate why he should not be

sanctioned under Rule 9011 of the Federal Rules of Bankruptcy

Procedure for filing the adversary complaint.      In its order, the

bankruptcy court noted that the precise relief sought in the

adversary complaint had been granted over sixty days earlier when

the bankruptcy court dismissed Williams from the bankruptcy case.

Had McMillin examined the bankruptcy court filings, the

bankruptcy court reasoned, he would have easily discovered that

Williams had already been dismissed from the case.      The

bankruptcy court also listed five other cases in which it had

previously warned McMillin about the inadequacy of his pleadings.

     In response, McMillin admitted that he was aware at the time

he filed the adversary complaint that Williams had already been

dismissed from the bankruptcy case.      However, McMillin stated

that the intent of his filing was to establish that Williams’s

debt to Friendly Finance could not be discharged, meaning there

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could be no injunction against Friendly Finance’s post-discharge

collection of community debt pursuant to 11 U.S.C. § 524.    The

bankruptcy court held a hearing on the matter on September 7,

2005, and dismissed Friendly Finance’s adversary complaint as

moot.    The bankruptcy court also sanctioned McMillin by requiring

him to obtain leave of court before filing any complaint under 11

U.S.C. §§ 523 or 727 in the Monroe and Alexandria divisions of

the bankruptcy court for the Western District of Louisiana.

     Friendly Finance appealed the dismissal of its adversary

complaint as moot and McMillin appealed the sanctions order to

the district court, which affirmed the decision of the bankruptcy

court.    Friendly Finance and McMillin now appeal to this court.

We have jurisdiction over this matter pursuant to 28 U.S.C.

§ 158(d)(1).

                           II.   DISCUSSION

     This court applies the same standard of review to the

decisions of a bankruptcy court as does the district court.

Nesco Acceptance Corp. v. Jay (In re Jay), 432 F.3d 323, 325 (5th

Cir. 2005).    Findings of fact are reviewed for clear error, while

conclusions of law are considered de novo.    Id.; see also FED. R.

BANKR. P. 8013.   We may affirm on any grounds supported by the

record, even if those grounds were not relied upon by the lower

courts.    Bonneville Power Admin. v. Mirant Corp. (In re Mirant

Corp.), 440 F.3d 238, 245 (5th Cir. 2006).

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A.   Whether Friendly Finance’s Adversary Proceeding Was Moot

     We first turn to the question of whether Friendly Finance’s

adversary proceeding was moot.   Friendly Finance asserts that its

adversary complaint is not moot, but rather is necessary in order

to ensure that no injunction is entered against collecting the

pre-petition debt through after-acquired community property.     For

this proposition, Friendly Finance relies on 11 U.S.C.

§ 524(a)(3) & (b), which state as follows:

     (a) A discharge in a case under this title-

     . . .

     (3) operates as an injunction against the commencement or
     continuation of an action, the employment of process, or
     an 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, 1228(a)(1), or
     1328(a)(1), or that would be so excepted, determined in
     accordance with the provisions of sections 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.

     (b) Subsection (a)(3) of the section does not apply if-

     . . .

     (2)(A) the court would not grant the debtor’s spouse a
     discharge in a case under chapter 7 of this title
     concerning such spouse commenced on the date of the
     filing of the petition in the case concerning the debtor;
     and

     (B) a determination that the court would not so grant
     such discharge is made by the bankruptcy court within the
     time and in the manner provided for a determination under

                                 5
      section 727 of this title of whether a debtor is granted
      a discharge.

      As recognized by the bankruptcy and district courts in this

case, these statutes are difficult to decipher.   In short, when

only one spouse declares bankruptcy and receives a discharge, an

injunction typically issues that prevents creditors who are owed

pre-petition debts from collecting on after-acquired community

property.   See Brown v. Kastner (In re Kastner), 197 B.R. 620,

622 (Bankr. E.D. La. 1996).   A creditor can preserve his right to

collect on after-acquired community property by bringing suit

against the non-debtor spouse to determine if the debt is

hypothetically non-dischargeable as to that spouse.   Id. at 622-

23.   Collier on Bankruptcy states that the purpose of these

statutes is to prevent a “wrong doing” non-debtor spouse from

receiving a discharge through an innocent spouse in bankruptcy.

3 Collier on Bankruptcy ¶ 524.02[3] at 524-28 (15th ed. 1996).

      We need not, however, unravel this complicated area of law,

because Friendly Finance’s adversary complaint simply did not

raise these issues.   The adversary complaint did not mention

§ 524, a hypothetical debtor, community property, or any other

facts that might indicate to the bankruptcy court that this was

the relief Friendly Finance was seeking.   Instead, it was a bare-

bones request that the bankruptcy court declare that Williams was

ineligible for discharge in light of his 2004 discharge.    Two

months earlier, the bankruptcy court had declared exactly that

                                 6
and dismissed Williams from the bankruptcy case.   As a result,

Friendly Finance’s adversary complaint was moot.   See McCorvey v.

Hill, 385 F.3d 846, 849 (5th Cir. 2004) (stating that a case is

moot when “the issues presented are no longer live”).

Consequently, the bankruptcy court did not err in dismissing

Friendly Finance’s adversary complaint as moot, and the district

court did not err in affirming that decision.

B.   Whether the Sanctions Against McMillan Were Warranted

     Having determined that Friendly Finance’s adversary

complaint was moot at the time it was filed, we now consider

whether the sanctions imposed by the bankruptcy court on McMillin

were justified.   We review the bankruptcy court’s imposition of

sanctions for abuse of discretion.   Christopher v. Kendavis

Holding Co. (In re Kendavis Holding Co.), 249 F.3d 383, 385 (5th

Cir. 2001).

     Rule 9011 of the Federal Rules of Bankruptcy Procedure,

under which McMillin was sanctioned, states as follows:

     (b) Representations to the court

     By presenting to the court (whether by signing, filing,
     submitting, or later advocating) a petition, pleading,
     written motion, or other paper, an attorney or
     unrepresented party is certifying that to the best of the
     person’s knowledge, information, and belief, formed after
     an inquiry reasonable under the circumstances,--

     (1) it is not being presented for any improper purpose,
     such as to harass or to cause unnecessary delay or
     needless increase in the cost of litigation;

     (2) the claims, defenses, and other legal contentions
     therein are warranted by existing law or by a

                                 7
     nonfrivolous argument for the extension, modification, or
     reversal of existing law or by the establishment of new
     law;

     (3) the allegations and other factual contentions have
     evidentiary support or, if specifically so identified,
     are likely to have evidentiary support after a reasonable
     opportunity for further investigation or discovery; and

     (4) the denials of factual contentions are warranted on
     the evidence or, if specifically so identified, are
     reasonably based on lack of information or belief.

Subsection (c) of Rule 9011 provides that, after notice and a

reasonable opportunity to respond, a court may impose an

appropriate sanction for violations of subsection (b).    FED. R.

BANKR. P. 9011(c).

     As discussed in the previous section, the adversary

complaint filed by McMillin was, on its face, clearly moot.      The

complaint asked only that Williams be denied bankruptcy

discharge, a ruling that McMillin knew the bankruptcy court had

made two months earlier.   Despite McMillin’s claim that he was

attempting to prevent an injunction from issuing under 11 U.S.C.

§ 524, the adversary complaint contained no hint of this

“intention.”   Given the bankruptcy court’s warnings in prior

cases that McMillin’s pleadings were inadequate, the bankruptcy

court did not abuse its discretion in sanctioning McMillin for

his inadequate pleading in this case.   Therefore, we affirm the

bankruptcy court’s imposition of sanctions on McMillin.

                           III. CONCLUSION

     For the reasons above, we AFFIRM the decisions of the lower

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courts.

    AFFIRMED.

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