In re Deitz (9th Cir BAP 042312)
BAP holds bky court can liquidate the amount of debt, as part of ruling whether the debt is nondischargeable or not
The United States Bankruptcy Appellate Panel of the Ninth Circuit has held that Stern v. Marshall does not limit the bankruptcy court’s jurisdiction to enter a final nondischargeable money judgment. In re Deitz (9th Circuit BAP Docket No. EC-11-1427, April 23, 2012).
Facts and Procedural History.
Creditors hired the Debtor to build a handicap-assisted home for $444,105. After change orders, Creditors paid the Debtor a total of $511,800, but the house was still only 65% complete. The Debtor’s contractor’s license was suspended at the time the contract was signed (and later re-instated and then revoked). After consideration of the Creditors’ evidence, including testimony and documents showing that the Debtor also misrepresented the status of his contractor’s license and particular skills to several other parties (admitted as evidence of habit under FRE 406), the bankruptcy court entered a nondischargeable money judgment against the Debtor in the amount of $386,092.76, under 11 U.S.C. section 523(a)(2), (4), and (6).
Jurisdictional Argument under Stern rejected.
Affirming the lower court’s judgment, the BAP held that, in accordance with dictum in the opinion itself, Stern v. Marshall 131 S. Ct. 2594 (2011) is a narrow limitation on bankruptcy jurisdiction, and that the BAP was bound by pre-Stern Ninth Circuit Court of Appeals authority, which holds that the bankruptcy court has jurisdiction not only to determine the nondischargeability of debts, a classic bankruptcy function created by bankruptcy law, but also to liquidate the amount of the claim and enter a final money judgment against the debtor. In connection with the latter point, citing to In re Sasson, 424 F.3d 864 (9th Cir. 2005) and In re Kennedy, 108 F.3d 1015, 1017 (9th Cir. 1997) ("it is impossible to separate the determination of dischargeability function from the function of fixing the amount of the nondischargeable debt," [quoting from another case]), the BAP noted that, consistent with one test formulated in Stern, the determination of whether a claim was dischargeable is "inextricably" tied up with determining whether there is a debt and the amount of the debt.
Merits.
The BAP found that the bankruptcy court did not clearly err on the merits of its decision that the Creditors’ claims against the Debtor were nondischargeable, noting that the bankruptcy court made detailed factual findings that the Debtor intended to deceive the Creditors and keep money that should otherwise have been used in the construction. The Debtor appeared pro se at the trial, but hired an attorney for his appeal.
Concurring Opinion.
Judge Markell issued a concurring opinion, in which he agreed that the BAP was bound by Ninth Circuit Court of Appeals authority (Sasson and Kennedy) , concerning the jurisdictional dispute. The concurrence goes on, however, to explain the jurisdictional problems raised by Stern, which Judge Markell indicates will need to be addressed by the Court of Appeals not only in the nondischargeability context, but in other contexts such as claims objections. Judge Markell opines that in a "no asset" chapter 7 case, a bankruptcy court generally would not have "related to" jurisdiction (28 U.S.C. § 1334(b)) over the liquidation of a nondischargeability claim, since such liquidation would not affect the bankruptcy estate at all. He also discusses the fact that, in the Sasson case, the Ninth Circuit Court of Appeals endorsed the use of "supplemental jurisdiction" under 28 U.S.C. section 1367 (claims that are part of the same case or controversy) and 11 U.S.C. section 105, to shore up the "related to" jurisdictional foundation for the bankruptcy court’s entry of a money judgment against the debtor, but that this analysis may be flawed in the wake of the Stern decision.
This analysis is from the California State Bar Insolvency Law Committee