Court Opinion

ID: 2757200
Source: CourtListenerOpinion
Date Created: 2014-12-03 19:08:40.820876+00
Date Added: 2024-06-11T11:26:54.133919
License: Public Domain

FILED
                                                             NOV 07 2011
 1                                                       SUSAN M SPRAUL, CLERK
                                                           U.S. BKCY. APP. PANEL
                                                           OF THE NINTH CIRCUIT
 2
 3                   UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                             OF THE NINTH CIRCUIT
 5   In re:                        )         BAP No.   OR-10-1371-JuClPa
                                   )
 6   PAUL DOUGLAS KNIGHT,          )         Bk. No.   10-30580
                                   )
 7                  Debtor.        )         Adv. No. 10-03092
     ______________________________)
 8   ALLAN F. KNAPPENBERGER,       )
                                   )
 9                  Appellant,     )
                                   )
10   v.                            )         M E M O R A N D U M*
                                   )
11   PAUL DOUGLAS KNIGHT,          )
                                   )
12                  Appellee.      )
     ______________________________)
13
                     Argued and Submitted on October 20, 2011
14                              at Portland, Oregon
15                           Filed - November 7, 2011
16                Appeal from the United States Bankruptcy Court
                            for the District of Oregon
17
              Honorable Randall L. Dunn, Bankruptcy Judge, Presiding
18                      _____________________________
19   Appearances:      Appellee Allan F. Knappenberger argued pro se.
                       ______________________________
20
     Before:     JURY, CLARKSON,** and PAPPAS Bankruptcy Judges.
21
22
23
24
          *
            This disposition is not appropriate for publication.
25   Although it may be cited for whatever persuasive value it may
26   have (see Fed. R. App. P. 32.1), it has no precedential value.
     See 9th Cir. BAP Rule 8013-1.
27
          **
            Hon. Scott C. Clarkson, Bankruptcy Judge for the Central
28   District of California, sitting by designation.

                                       -1-
 1            Appellant-creditor, Allan F. Knappenberger
 2   (“Knappenberger”) appeals the bankruptcy court’s (1) judgment
 3   dismissing his adversary complaint against appellee, chapter 71
 4   debtor Paul Douglas Knight and (2) order denying Knappenberger’s
 5   motion to amend the judgment.
 6            After a trial, the bankruptcy court dismissed the complaint
 7   on the grounds that Knappenberger did not prove that his state
 8   court contempt judgment against debtor satisfied the willful and
 9   malicious injury elements of the discharge exception under
10   § 523(a)(6).     On appeal, Knappenberger argues that the
11   bankruptcy court erred in its application of the law to the
12   undisputed facts of this case.       We disagree and AFFIRM.
13                                  I.   FACTS2
14            Knappenberger, an attorney, sued debtor in the Oregon state
15   court for unpaid attorney’s fees.         On January 22, 2008, the
16   state court entered a general judgment (“General Judgment”) for
17   Knappenberger and against debtor by default for the sum of
18   $1,634.39 plus costs of $471.20, bearing interest at 9%.        Debtor
19   did not pay the General Judgment.
20            In early 2009, Knappenberger began collection efforts by
21   moving for and obtaining an order from the state court which
22   required debtor to appear for a judgment debtor exam on May 13,
23   2009.     Debtor did not appear and Knappenberger obtained a second
24
25        1
            Unless otherwise indicated, all chapter, section and rule
26   references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
     to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.
27
          2
            We take most of the undisputed facts from the bankruptcy
28   court’s Memorandum Opinion filed September 17, 2010.

                                         -2-
 1   order which required debtor to appear for a judgment debtor exam
 2   on June 12, 2009.    Debtor again did not appear and, as a result,
 3   the state court issued an Order to Show Cause, requiring debtor
 4   to appear and show cause why he should not be held in contempt
 5   of the court’s previous orders.   The order proposed sanctions in
 6   the amount of $500, or one percent of debtor’s gross income
 7   (whichever was greater), for each day that the contempt of court
 8   continued.   Knappenberger served debtor with the notice of the
 9   order to show cause.
10        Debtor did not appear at the August 14, 2009, order to show
11   cause hearing.   The state court found that debtor was in willful
12   contempt of court for his failure to obey both judgment debtor
13   exam orders.   As a consequence, the state court imposed remedial
14   sanctions for $687.03 and $20.00 per day, or $600.00 per month,
15   beginning on August 14, 2009, until debtor complied with the
16   orders.   On August 26, 2009, the state court entered a
17   supplemental judgment (“Supplemental Judgment”) for
18   Knappenberger that reflected these findings.
19        In December 2009, debtor wrote Knappenberger stating that
20   he intended to string Knappenberger along so that Knappenberger
21   received payment at debtor’s convenience.   However, in the same
22   letter debtor offered $700 to settle the judgment debt for the
23   unpaid legal fees.   Knappenberger did not accept the offer.
24        On January 27, 2010, debtor filed his chapter 7 petition.
25   At that time, debtor was receiving unemployment compensation
26   benefits of $172.50 a month.   Debtor’s schedules reflected that
27   he owned no real property, and his personal property assets,
28   with an aggregate value of $2,480, consisted of household goods

                                     -3-
 1   and furnishings, books, clothing and a dog, all of which were
 2   claimed as exempt.     Debtor’s schedules further showed that he
 3   did not own a car.3
 4            Knappenberger filed an adversary complaint against debtor
 5   on March 26, 2010, seeking to except the debts contained in the
 6   General Judgment and Supplemental Judgment from discharge under
 7   § 523(a)(6).     Debtor answered by denying all allegations in the
 8   complaint.
 9            On August 2, 2010, the bankruptcy court held a trial on the
10   matter; debtor did not appear.4     Knappenberger’s evidence, in
11   the form of exhibits, were all admitted at the trial and are
12   part of the record in this appeal.      The exhibits generally
13   consisted of the General Judgment, the state court orders
14   regarding the judgment debtor exams, debtor’s letter offer of
15   settlement, and the Supplemental Judgment.     After hearing
16   Knappenberger’s argument, the bankruptcy court found that the
17   evidence did not prove that debtor’s failure to appear at the
18   court ordered judgment debtor exams met the elements for a
19   willful and malicious injury under § 523(a)(6).     Accordingly,
20   the bankruptcy court dismissed the adversary proceeding by order
21   entered on August 31, 2010.
22            On September 7, 2010, Knappenberger filed a motion to amend
23
24        3
            We take judicial notice of debtor’s schedules which were
     not included in the record. Atwood v. Chase Manhattan Mortg. Co.
25
     (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).
26        4
            Knappenberger represented at trial that he had received a
27   letter from debtor’s mother advising him that debtor had been
     imprisoned for a short term and would enter rehab upon his
28   release.

                                       -4-
 1   the judgment, asserting that the bankruptcy court erred in its
 2   application of the law.       The bankruptcy court denied the motion
 3   in a Memorandum Opinion and entered a separate order on
 4   September 17, 2010.     Knappenberger timely appealed.5
 5                                II.    JURISDICTION
 6            The bankruptcy court had jurisdiction over this proceeding
 7   under 28 U.S.C. §§ 1334 and 157(b)(2)(I).          We have jurisdiction
 8   under 28 U.S.C. § 158.
 9                                      III.    ISSUE
10            Whether the bankruptcy court erred by finding that
11   Knappenberger did not prove, by a preponderance of the evidence,
12   that debtor’s failure to appear at his judgment debtor exams
13   satisfied the willful and malicious injury elements of the
14   discharge exception under § 523(a)(6).
15                          IV.   STANDARDS OF REVIEW
16            The issue of dischargeability of a debt is a mixed question
17   of fact and law that is reviewed de novo.          Miller v. United
18   States, 363 F.3d 999, 1004 (9th Cir. 2004).          We review the
19   bankruptcy court’s factual findings for clear error.         Rule 8013.
20            We review for abuse of discretion a bankruptcy court’s
21   denial of a motion to alter or amend the judgment.         Ta Chong
22   Bank Ltd. v. Hitachi High Techs. Am., Inc., 610 F.3d 1063, 1066
23   (9th Cir. 2010).     We follow a two-part test to determine
24   objectively whether the bankruptcy court abused its discretion.
25
26        5
            In its Memorandum Opinion, the bankruptcy court ruled that
27   the General Judgment was discharged because it was a debt based
     on a breach of contract (i.e. for unpaid legal fees).
28   Knappenberger did not appeal that portion of the court’s ruling.

                                               -5-
 1   United States v. Hinkson, 585 F.3d 1247, 1261-62 (9th Cir.
 2   2009).    First, we “determine de novo whether the bankruptcy
 3   court identified the correct legal rule to apply to the relief
 4   requested.”    Id.    Second, we examine the bankruptcy court’s
 5   factual findings under the clearly erroneous standard.     Id. at
 6   1262 n.20.    We affirm the court’s factual findings unless those
 7   findings are “(1) ‘illogical,’ (2) ‘implausible,’ or (3) without
 8   ‘support in inferences that may be drawn from the facts in the
 9   record.’”    Id. (internal quotation marks omitted).   If the
10   bankruptcy court did not identify the correct legal rule, or its
11   application of the correct legal standard to the facts was
12   illogical, implausible, or without support in the record, then
13   the bankruptcy court abused its discretion.     Id.
14                                V.   DISCUSSION
15        The discharge of debts for the honest and unfortunate
16   debtor lies at the heart of the Bankruptcy Code’s fresh start
17   policy.   See Grogan v. Garner, 498 U.S. 279, 287 (1991).       The
18   Code however carves out various exceptions to discharge in
19   § 523(a) which “reflect a conclusion on the part of Congress
20   ‘that the creditors’ interest in recovering full payment of
21   debts in these categories outweigh[s] the debtors’ interest in a
22   complete fresh start.’”     Id.   Nonetheless, given the strong
23   fresh start policy in the Code, exceptions to discharge are
24   “strictly construed against an objecting creditor and in favor
25   of the debtor.”      Snoke v. Riso (In re Riso), 978 F.2d 1151, 1154
26   (9th Cir. 1992).
27        Section 523(a)(6) states that a discharge under § 727 does
28   not discharge an individual from any debt — “(6) for willful and

                                        -6-
 1   malicious injury by the debtor to another entity or to the
 2   property of another entity.”   This section applies to debts
 3   arising from intentionally inflicted injuries.    Carrillo v. Su
 4   (In re Su), 290 F.3d 1140, 1143 (9th Cir. 2002) (citing
 5   Kawaauhau v. Geiger, 523 U.S. 57 (1998)).     In determining
 6   whether a debtor’s conduct falls within the scope of the
 7   statute, a two-step analysis is required.    The first step of the
 8   analysis is determining whether there was a “willful” injury,
 9   while the second step concerns whether the conduct was
10   “malicious.”    In re Su, 290 F.3d at 1146–47; and see Barboza v.
11   New Form, Inc. (In re Barboza), 545 F.3d 702, 711 (9th Cir.
12   2008) (recent case reinforcing Su and the requirement of courts
13   to apply a separate analysis for each prong of “willful” and
14   “malicious”).
15        For conduct to be willful, a creditor must prove that the
16   debtor had the subjective intent to cause harm or the subjective
17   knowledge that harm was substantially certain to occur.      Su,
18   290 F.3d at 1146.   For conduct to be malicious, a creditor must
19   prove that the debtor: (1) committed a wrongful act; (2) done
20   intentionally; (3) which necessarily causes injury; and (4) was
21   done without just cause or excuse.     Id. at 1146–47.
22   Knappenberger had the burden of proving these elements by a
23   preponderance of the evidence.    Grogan, 498 U.S. at 287.     “The
24   burden of showing something by a ‘preponderance of the
25   evidence,’ . . . ‘simply requires the trier of fact to believe
26   that the existence of a fact is more probable than its
27   nonexistence before [he] may find in favor of the party who has
28   the burden to persuade the [judge] of the fact’s existence.’”

                                      -7-
 1   Concrete Pipe & Prods. of Cal., Inc. v. Constr. Laborers Pension
 2   Trust for S. Cal., 508 U.S. 602, 622 (1993).
 3            The gravamen of Knappenberger’s argument on appeal is
 4   essentially that contempt sanctions are per se nondischargeable.
 5   To support his position, Knappenberger relies on three decisions
 6   from other circuits:     Siemer v. Nangle (In re Nangle), 274 F.3d
 7   481 (8th Cir. 2001), Neufeld v. McDowell (In re McDowell),
 8   415 B.R. 612 (Bankr. S.D. Fla. 2008),6 and PRP Wine Int’l. v.
 9   Allison (In re Allison), 176 B.R. 60 (Bankr. S.D. Fla. 1994).
10   According to Knappenberger, the courts in all three cases held
11   that damages from a contempt order obtained by a creditor as a
12   result of a debtor violating court orders were nondischargeable
13   as a matter of law because such conduct met the “willful and
14   malicious” injury test of § 523(a)(6).     He further asserts that
15   in none of the cases did the court require any further analysis
16   to determine if the debtor’s conduct met the § 523(a)(6)
17   standards other than the debtor’s failure to obey a court order.
18   Finally, Knappenberger argues that injury to the creditor “is
19   assumed” from the damages awarded to the creditor by the state
20   court.
21            We are not persuaded by Knappenberger’s arguments or
22
23        6
            The bankruptcy court in In re McDowell addressed the
     nondischargeability of a sanctions award under § 523(a)(7) after
24   the debtor filed a motion for judgment on the pleadings. The
25   bankruptcy court determined that because the sanctions award was
     not payable to a governmental unit, the debt did not fall within
26   the § 523(a)(7) exception to discharge. The facts and the
     holding in In re McDowell do not assist Knappenberger’s position
27   in this appeal.
28                                     -8-
 1   citations to non-binding case law.    His argument for a per se
 2   rule is plainly contrary to our holding in Suarez v. Barrett
 3   (In re Suarez), 400 B.R. 732 (9th Cir. BAP 2009).    In In re
 4   Suarez, the Panel considered whether conduct leading to a
 5   judgment for contempt of court could be for a willful and
 6   malicious injury under § 523(a)(6).   In conducting its statutory
 7   analysis, the Panel first examined the plain language of
 8   § 523(a), observing that § 523(a)(6) “does not make ‘contempt’
 9   sanctions nondischargeable per se, and neither does any other
10   subpart of section 523(a).”   Id. at 737.   Because the statutory
11   language did not support a per se rule, the Panel concluded that
12   “whether contempt sanctions are nondischargeable accordingly
13   depends not on whether they are labeled as ‘contempt,’ but on
14   whether the conduct leading to them was ‘willful and
15   malicious.’”   Id.
16        The Panel next considered applicable case law — including
17   In re Nangle and In re Allison — two of the cases upon which
18   Knappenberger now relies.   In In re Nangle, the Eighth Circuit
19   declined to decide whether a contempt judgment was per se
20   nondischargeable under § 523(a)(6), while the bankruptcy court
21   in In re Allison held that failure to comply with a court order
22   constitutes willful and malicious conduct as a matter of law
23   within the meaning of § 523(a)(6).    Following the Eighth
24   Circuit’s lead in In re Nangle, the Panel in In re Suarez also
25   declined to adopt a per se rule and held that a debt for
26   contempt sanctions may be nondischargeable under § 523(a)(6)
27   when the conduct leading to the contempt is willful and
28                                  -9-
 1   malicious, as required by the holding in In re Su.
 2            The record shows that the bankruptcy court followed and
 3   correctly applied the two-step analysis set forth in In re Su.7
 4   In analyzing the willful requirement, the bankruptcy court
 5   concluded that Knappenberger’s evidence did not permit an
 6   inference that debtor had the subjective intent to cause harm to
 7   Knappenberger or that debtor had the subjective knowledge that
 8   harm was substantially certain to occur because there was other
 9   evidence that supported a contrary conclusion.     Specifically,
10   debtor’s schedules showed that he was unemployed and had no
11   nonexempt assets to pay the General Judgment.     Further,
12   Knappenberger had presented no evidence showing that debtor had
13   the ability to pay the General Judgment at the time it was
14   issued or anytime thereafter.     Therefore, debtor’s lack of
15   resources to pay the General Judgment raised the probability
16   that debtor did not appear for his judgment debtor exams due to
17   his dire financial circumstances as opposed to his subjective
18   intent to harm Knappenberger.     When the evidence gives rise to
19
          7
            Although the state court found debtor in “willful”
20   contempt of court, the meaning of “willful” under the Oregon
21   contempt statute (Or. Rev. Stat. 33.015(2)) does not have the
     same intent requirements as needed for the finding of a willful
22   injury under § 523(a)(6). “[P]roof that a party had knowledge of
     a valid court order and failed to comply with that order”
23   establishes a finding of “willfulness” under Or. Rev. Stat.
     33.015(2). See In re Conduct of Chase, 121 P.3d 1160, 1163 (Or.
24   2005)(en banc)(citing State ex rel Mikkelsen v. Hill, 847 P.2d
25   402 (Or. 1993)). The Oregon Supreme Court went on to state that
     this standard did not require a conscious purpose or objective to
26   accomplish a particular result. Id. Therefore, the bankruptcy
     court properly made an independent inquiry into whether debtor’s
27   conduct rose to the § 523(a)(6) willful injury standard.
28                                     -10-
 1   competing interpretations, each plausible, “the factfinder's
 2   choice between them cannot be clearly erroneous.”   Anderson v.
 3   City of Bessemer City, N.C., 470 U.S. 564, 574 (1985).
 4        At oral argument, Knappenberger pointed to debtor’s
 5   December 2009 letter as evidence of debtor’s subjective intent
 6   to harm Knappenberger.   In that letter, debtor stated that he
 7   intended to string Knappenberger along so that Knappenberger
 8   received payment at debtor’s convenience.   However, at the same
 9   time, debtor offered $700 to settle the General Judgment, a
10   settlement which Knappenberger refused.   The bankruptcy court
11   placed no significance on debtor’s statements in the letter
12   other than observing that the language of the letter was
13   colorful and tended to indicate that relations between the
14   parties were anything but cordial as Knappenberger pursued his
15   collection efforts against debtor in state court.   The court
16   also observed that the letter was essentially cumulative in
17   characterizing the relationship between the parties as a dogged
18   debt collector pursuing a bitter and impecunious debtor, feeling
19   cornered.   The bankruptcy court’s interpretation of the letter
20   was certainly plausible in light of the record as a whole.
21   Accordingly, the bankruptcy court did not err in finding that
22   Knappenberger failed to meet his burden of proof on the willful
23   element.
24        In analyzing the malicious requirement, the court found the
25   same facts relating to debtor’s financial condition showed that
26   his conduct did not necessarily cause injury to Knappenberger.
27   In other words, without the resources to pay the General
28                                  -11-
 1   Judgment prior to the issuance of the orders for the judgment
 2   debtor exams, debtor’s failure to appear at those exams could
 3   not have caused Knappenberger injury beyond the dischargeable
 4   debt contained in the General Judgment.     That there may be other
 5   plausible interpretations of the evidence is not enough to
 6   overturn the bankruptcy court’s findings.    Therefore, the
 7   bankruptcy court did not err in finding that Knappenberger
 8   failed to meet his burden of proof on the malicious element.
 9        The bankruptcy court also did not abuse its discretion by
10   denying Knappenberger’s motion to amend the dismissal judgment.
11   Knappenberger did not present newly discovered evidence,
12   demonstrate clear error, or show an intervening change in
13   controlling law.   See 389 Orange St. Partners v. Arnold,
14   179 F.3d 656, 665 (9th Cir. 1999) (setting forth grounds for
15   reconsideration under Fed. R. Civ. P. 59(e)); see also Rule 9023
16   (incorporating Fed. R. Civ. P. 59(e) in bankruptcy proceedings).
17                            VI.   CONCLUSION
18        For the reasons stated, we AFFIRM.
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28                                  -12-