Court Opinion

ID: 9520520
Source: CourtListenerOpinion
Date Created: 2023-08-07 01:41:43.456489+00
Date Added: 2024-06-11T12:46:21.354937
License: Public Domain

BAUM, Bankruptcy Judge,
dissenting.
While I appreciate and respect the majority’s and concurrence’s analysis of this seemingly unclear area of the law, I must respectfully dissent. As my colleagues have aptly explained, it is not an easy task to decide where this case fits within the various Ninth Circuit decisions dealing with attorney’s fees awarded postpetition against bankrupt debtors as constituting either pre- or postpetition claims.
The majority concludes that this issue is resolved by the timing of whether the underlying action was commenced pre- or postpetition which then determines whether the discharge applies to the attorney fees. Although it is far from certain, I am not convinced that the Ninth Circuit has *624established such a standard. Both In re Abercrombie, 139 F.3d 755 (9th Cir.1998), and In re Kadjevich, 220 F.3d 1016 (9th Cir.2000), dealt with the question of whether claims for postpetition attorney’s fees awards should be granted first priority administrative expense status in bankruptcy cases. The purpose of administrative expense priority is to facilitate the operation of the debtor in possession’s business with a view to rehabilitation. Kadjevich strongly suggests that the outcome there would probably have been different when it noted that its decision was a “narrow one” because the court was not dealing with a case where an estate representative had obtained stay relief to continue prepetition litigation. Id. at 1021. That appears to suggest that the timing of the action was not the sole determining factor. Significantly, these cases did not consider whether such claims were discharged. The purpose of a discharge is to provide the debtor with a fresh start, which is a different concern from determining administrative priority. The Ninth Circuit has not concluded that the standard for determining administrative expense status under § 503(b) and dischargeability under § 727(b) is the same.
Siegel v. Fed. Home Loan Mortg. Corp., 143 F.3d 525 (9th Cir.1998), concluded that the debtor’s actions and conduct post-discharge in pursuing litigation regarding contract obligations that had been discharged caused that debtor to be liable for attorney’s fees notwithstanding the bankruptcy discharge. It was the debtor’s affirmative actions in litigating claims that were otherwise subject to the bankruptcy discharge which caused the debtor to be liable for those post-discharge attorney’s fees. Such rationale, that the bankruptcy discharge does not discharge actions taken post-discharge, was confirmed in O’Loghlin v. County of Orange, 229 F.3d 871 (9th Cir.2000), which involved a similar factual setting, i.e., conduct straddling the bankruptcy discharge. There, an employee sued Orange County claiming violations of the Americans with Disabilities Act. The County claimed that its bankruptcy discharge protected it from such claims. The county’s Conduct occurred both pre- and post petition. The pre-petition conduct was discharged precluding any claim thereon. However, the court held that the post discharge conduct was not discharged and, hence, was actionable. That court did not focus on when the action was filed, but rather when the conduct occurred. “A suit for illegal conduct occurring after discharge threatens neither the letter nor the spirit of the bankruptcy laws. A ‘fresh start’ means only that; it does not mean a continuing license to violate the law.” O’Loghlin, 229 F.3d at 875.
In this case, the debtor engaged in sufficient post-discharge conduct to trigger the Siegel and O’Loghlin standard that the post discharge attorney’s fees she caused Rockwell to incur were not shielded by her bankruptcy discharge.
Prior to bankruptcy, in 1988, the debtor sued Rockwell in state court. The debtor filed for relief under Chapter 11 in 1991. The case was converted to Chapter 7 in 1993 and the debtor ultimately received a discharge. After many legal proceedings in state court and bankruptcy court, the debtor re-acquired the right to pursue the action against Rockwell. In 1998, the state court ruled against the debtor and awarded Rockwell its fees and costs for defending against the debtor’s claims. That decision was affirmed on appeal.
For over ten years after filing for bankruptcy protection, the debtor elected to continue to pursue her claims rather than using the bankruptcy to shield herself and allow her to walk away from the litigation and any resulting liability. Among other *625postpetition actions and conduct, the debt- or (1) obtained a determination that her claims were exempt; (2) pursuant to court order, elected to litigate the claims rather than take an available cash fund; (3) obtained an order from the state court reinstating the dismissed action; and, most importantly, (4) litigated the action on the merits resulting in the claim for attorney’s fees now before the court.
The court’s statements in Siegel seem to have been made with this debtor in mind:
This is a case where the debtor, Siegel, had been freed from the untoward effect of contracts, he had entered into. Freddie Mac could not pursue him further, nor could anyone else. He, however, chose to return to the fray and to use the contract as a weapon. It is perfectly just, and within the purposes of bankruptcy, to allow the same weapon to be used against him.
Siegel, 143 F.3d at 533. The Court later added:
Siegel’s decision to pursue a whole new course of litigation made him subject to the strictures of the attorney’s fee provision. In other words, while his bankruptcy did protect him from the results of his past acts, including attorney’s fees associated with those acts, it did not give him carte blanche to go out and commence new litigation about the contract without consequences.
Id. at 534.
Accordingly, I would affirm the bankruptcy court’s decision, relying on Siegel and based upon the debtor’s decade long and postpetition odyssey of litigation, that she was not discharged from the attorney’s fees incurred by Rockwell post bankruptcy. Therefore, I dissent.