Tuesday, October 10, 2017
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Ninth Circuit:
Retroactive Lifting of Bankruptcy Stay Was Proper
Action Brings Two Law Firms Closer to Collecting on 2008 Fraud Judgment Against Ex-Client
By a MetNews Staff Writer
The Ninth U.S. Circuit Court of Appeals has held that two law firms that in 2008 won, between them, a verdict in state court for $48,080.94 in damages against a former client for fraud were properly granted relief in 2015 after the debtor raised the point that the judgment was void because it was signed after she filed for bankruptcy and an automatic stay went into effect.
The decision came Thursday in a memorandum opinion.
Prevailing were the Law Office of Andrew S. Bisom and the Eisenberg Law Firm, APC, which had gained a jury verdict in Orange Superior Court on Aug. 21, 2008, against their ex-client, Nancy Ann Howell.
On Oct. 16 of that year—after the judge scrapped the jury’s punitive damage award of $144,243.71—the law firms submitted their proposed judgment; on Oct. 28, Howell filed a bankruptcy petition in the Orange County branch of the Bankruptcy Court for the Central District of California; on Nov. 3, the state court judgment was signed. Note was apparently not immediately taken by either side of the possible significance of when the judgment was signed.
Howell’s bankruptcy petition was dismissed based on a failure to appear for an examination, but on Dec. 12, 2013, she filed a new petition in the Riverside division, and gained a discharge in bankruptcy.
Dischargeability of Debt
The law firms on March 14, 2014, brought an action for a determination as to the dischargeability of Howell’s debt. They proceeded to seek summary judgment, contending the debt was nondischargeable because the judgment was predicated on fraud.
Under 11 U.S.C. § 523(a), a discharge “does not discharge an individual debtor from any debt...for money...obtained by...actual fraud.”
On Dec. 1, 2014, Howell, a pro per, raised the contention, for the first time, that the Orange Superior Court judgment was void because it was signed six days after she declared bankruptcy.
Summary judgment was denied the law firms by the court in Riverside, without prejudice. (The bankruptcy judge raised the point that it might be that the signing of the judgment after the stay went into effect was merely a ministerial act, given that the jury had reached its verdict earlier.)
On Feb. 23, 2015, invoking Rule 60(b)—which authorizes relief from an order based on “surprise”—the law firms asked the Santa Ana division to reopen the proceeding Howell had filed there in 2008 and grant them relief from the stay.
The bankruptcy court in Santa Ana did reopen the case and on April 13, 2015, declared that the automatic stay was “lifted retroactive to November 3, 2008 to validate and give effect to the judgment” in the Orange Superior Court case.
Judge Snyder’s Opinion
U.S. District Court Judge Christina A. Snyder of the Central District of California on Dec. 22, 2016, affirmed. She wrote:
“Even though the Santa Ana Bankruptcy Court does not appear to have made an express finding that Howell filed the Santa Ana bankruptcy petition specifically to avoid the judgment in the State Case, the timing of her initial petition strongly suggests that Howell filed her Santa Ana Bankruptcy petition to avoid the effects of the State Case judgment. If true, such a conclusion would, on its own, support granting appellees relief from the automatic stay.
“Howell’s former attorneys might have realized the Santa Ana Bankruptcy stay’s potential effect upon the judgment in the State Case sooner. However, consideration of the appropriate factors leads to the conclusion that the Santa Ana Bankruptcy Court did not abuse its discretion in granting retroactive relief from the automatic stay.”
Snyder went on to note:
“[A]s observed by the Santa Ana Bankruptcy Court, Howell does not point to any unfair prejudice she will suffer if appellees are granted relief from the stay. In contrast, the potential prejudice to appellees is clear—a jury rendered a verdict in their favor and the Superior Court’s judgment thereafter may be void for no equitable reason. The Santa Ana Bankruptcy Court concluded that retroactive relief from the automatic stay was necessary in the interests of justice and, in doing so, the court did not abuse its discretion.”
In Thursday’s memorandum opinion, a three-judge panel of circuit judges declared, summarily:
“The bankruptcy court did not abuse its discretion in granting appellees’ motion to reopen because such relief was necessary in the interests of justice.”
It added:
“The bankruptcy court did not abuse its discretion in granting appellees’ retroactive relief from the automatic stay because it properly balanced the equities and concluded that appellees would suffer prejudice and irreparable injury.”
The case is Howell v. Law Offices of Andrew S. Bisom, 17-55027.
The court in Riverside has yet to render a decision as to whether the debt is dischargeable. A hearing on the law firms’ new motion for summary judgment is scheduled to be heard Jan. 31.
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