ORDER ON REORGANIZED DEBTORS' MOTION FOR: (I) PARTIAL SUMMARY JUDGMENT AS TO LIABILITY AGAINST WELLS FARGO BANK, N.A. AND WELLS FARGO HOME MORTGAGE RE: VIOLATION OF THE DISCHARGE INJUNCTION PURSUANT TO 11 U.S.C. §§ 105(a) AND 524(a)(2); OR (II) IN THE ALTERNATIVE, FOR AN ORDER TREATING SPECIFIED FACTS AS ESTABLISHED1
Honorable Mike K. Nakagawa, United States Bankruptcy Judge.
On January 19, 2017, a hearing was held on the Reorganized Debtors' Motion for: (I) Partial Summary Judgment as to Liability Against Wells Fargo Bank, N.A. and Wells Fargo Home Mortgage Re: Violation of the Discharge Injunction Pursuant to 11 U.S.C. §§ 105(a) and 524(a)(2); or (II) in the Alternative, for an Order Treating Specified Facts as Established ("Debtors' MSJ"). (ECF No. 698).2 The appearances of counsel were noted on the record. Opposition to the motion had been filed by Wells Fargo Bank, N.A. and Wells Fargo Home Mortgage (together "Wells Fargo"). (ECF No. 767).3 A reply had been filed by the above-captioned Debtors. (ECF No. 819).4 After arguments were presented, the matter was taken under submission.5
The court having considered the Debtors' MSJ, together with the arguments and representations of counsel, concludes that the motion must be denied.
Debtors maintain that there are no genuine issues of material fact and that they are entitled, as a matter of law, to sanctions against Wells Fargo for violation of the discharge injunction. In this reopened proceeding, the Debtors allege that Wells Fargo committed six separate violations of the discharge injunction on the following dates: April 16, 2015, May 18, 2015, June 16, 2015, June 29, 2015, July 16, 2015, and July 30, 2015. See Debtors MSJ at ¶¶ 21, 22, 24, 25, 31, and 32. Debtors assert that Wells Fargo's conduct on these specific occasions constitute "six (6) distinct intentional acts in violation of the Discharge Injunction and the Confirmation Order when it sought to collect money in excess of the Plan treatment as confirmed by the Confirmation Order." Id. at ¶ 73 (emphasis added).
The court recently entered an order continuing Wells Fargo's separate Motion to Set Aside Valuation Order ("WFB Set Aside Order") (ECF No. 883) to February 8, 2017, for the purpose of scheduling an evidentiary hearing on a limited issue. For reasons discussed therein, see WFB Set Aside Order at 6:17 to 8:17, the amount of money required to satisfy Wells Fargo's secured and unsecured claims under the Debtors' confirmed Plan is uncertain: it was to be based on a value of the Linda Avenue Property, apparently determined as of May 15, 2014.6 Neither the language of the Plan, nor the provisions of the Plan Confirmation Order specifies that value. There also is no motion of record to value the Linda Avenue Property as of the required date.7 Additionally, there is no evidence in the record establishing that the Debtors and Wells Fargo reached a stipulation as to the value of the Linda Avenue Property as of the required date.8 Under these circumstances, there is at least a material factual dispute over the amount that the Debtors were required to pay Wells Fargo under the language of their own Plan.9
Resolution of this factual uncertainty obviously impacts the Debtors' core allegation that Wells Fargo sought to collect more than was permitted by the confirmed Plan: if the amount to be paid is unknown, how did Wells Fargo violate the Plan by seeking a particular amount? Moreover, because the Debtors' plan provided for Wells Fargo to retain its lien against the Linda Avenue Property until the allowed amount of the claim was paid, there are material issues of fact as to whether Wells Fargo intended to collect the claim as a personal liability of the Debtors rather than to require satisfaction of its lien. Compare ZiLOG, Inc. v. Corning (In re ZiLOG), 450 F.3d 996, 1007 (9th Cir. 2006)(debtor has the burden of showing that the creditor (1) knew the discharge injunction was applicable10 and (2) intended the actions that violated the injunction), with Nelson v. Parker (In re Nelson), 2016 WL 7321196 at *7 (9th Cir. BAP Dec. 15, 2016)("In this circuit, there must be evidence showing that the alleged contemnor was aware of the discharge injunction and aware that it applied to his or her claim." (Emphasis in original.)).11 These uncertainties alone preclude entry of partial summary judgment as to Wells Fargo's asserted liability for violation of the discharge injunction.
These factual uncertainties also dovetail with Wells Fargo's assertion that the doctrine of unclean hands should preclude the Debtors from obtaining sanctions. "Unclean hands" is an equitable doctrine designed to prevent the court from becoming a participant in or abettor of inequitable conduct. See Precision Inst. Mfg. Co. v. Automotive Maintenance Mach. Co., 324 U.S. 806, 813, 65 S.Ct. 993, 89 S.Ct. 1381 (1945). In this circuit, the doctrine applies in bankruptcy cases because bankruptcy courts are courts of equity. See In re Harwood, 2016 WL 1436235 at *5 (9th Cir. BAP Apr. 8, 2016). The doctrine is applicable in connection with the discharge and may preclude a plaintiff with unclean hands from preventing a less culpable individual debtor from discharging a specific debt. See, e.g., Northbay Wellness Group, Inc. v. Beyries, 789 F.3d 956, 959 (9th Cir. 2015)(unclean hands "requires balancing the alleged wrongdoing of the plaintiff against that of the defendant, and `weigh[ing] the substance of the right asserted by [the] plaintiff against the transgression which, it is contended, serves to foreclose that right.").12 In this instance, Wells Fargo argues, inter alia, that the Debtors misrepresented that they had completed the requirements of their confirmed Plan when they applied for entry of their Chapter 11 discharge. See WF Opposition at ¶¶ 8, 9, 10, 11, 12, 13 and 14. If the Debtors in fact engaged in wrongdoing to obtain the very Chapter 11 discharge they now seek to enforce, such wrongdoing might outweigh Wells Fargo's purported misconduct in seeking to enforce its lien. See Ellenburg v. Brockway, Inc., 763 F.2d 1091, 1097 (9th Cir. 1985)("In applying the doctrine, `[w]hat is material is not that the plaintiff's hands are dirty, but that he dirtied them in acquiring the right he now asserts, or that the manner of dirtying renders inequitable the assertion of such rights against the defendants." (Emphasis added.)).13
Wells Fargo also argues that none of the six separate and specific acts asserted by the Debtors constituted violations of the discharge injunction, or caused any harm for which sanctions are appropriate. See WF Opposition at ¶¶ 15 to 18, 19 to 25, 26 to 31, 32 to 38. Because there are material issues of fact going to each of the specific acts alleged to have violated the discharge injunction, summary judgment with respect to these matters must be denied. Moreover, various threshold and potentially dispositive factual disputes discussed above also warrant denial of summary judgment as to these separate arguments.
IT IS THEREFORE ORDERED that Reorganized Debtors' Motion for: (I) Partial Summary Judgment as to Liability Against Wells Fargo Bank, N.A. and Wells Fargo Home Mortgage Re: Violation of the Discharge Injunction Pursuant to 11 U.S.C. §§ 105(a) and 524(a)(2); or (II) in the Alternative, for an Order Treating Specified Facts as Established, Docket No. 698, be, and the same hereby is, DENIED.