Robert D. Berger, United States Bankruptcy Judge.
This matter comes before the Court on its own motion. Fed. R. Bankr. P. 7056 and Fed. R. Civ. P. 56(f) permit a court, after giving notice and a reasonable time to respond, to "consider summary judgment on its own after identifying for the parties material facts that may not be genuinely in dispute." On April 10, 2018, this Court issued an order to show cause why a summary judgment order substantially identical to this one should not be entered.
Defendant Ronald Nussbeck made a personal loan to plaintiff Sheldon Gray in 2010. Gray partially repaid the loan before he filed a Chapter 7 bankruptcy petition on August 17, 2012. The balance on the loan was discharged in the bankruptcy. Nussbeck was served with notice of Gray's bankruptcy on December 3, 2012,
The discharge prohibits any attempt to collect from the debtor a debt that has been discharged. For example, a creditor is not permitted to contact a debtor by mail, phone, or otherwise, to file or continue a lawsuit, to attach wages or other property, or to take any other action to collect a discharged debt from the debtor.
Following the discharge, however, Gray and Nussbeck entered into a "Settlement
Following Gray's breach of the Agreement, defendant Kevin Odrowski, an attorney representing Nussbeck, sent Gray a collection letter.
Five days after filing the Missouri complaint, Nussbeck applied a $33,500 "credit" to the amount he claimed Gray owed him under the Agreement, including "$27,997.05 to principal, leaving a principal balance of $22,983.71."
On November 12, 2014, the Missouri court entered judgment in favor of Nussbeck on Counts I and III of his complaint.
Following the Missouri court's entry of judgment and denial of his motion for new trial, Gray filed the present adversary proceeding.
Summary judgment will be appropriate in this proceeding if there is no genuine dispute as to any material fact and a party is entitled to judgment as a matter of law. See Fed. R. Bankr. 7056; Fed. R. Civ. P. 56(a). "A fact is `material' if under the substantive law it is essential to the proper disposition of the claim." Wright ex rel. Trust Co. of Kan. v. Abbott Labs., Inc., 259 F.3d 1226, 1231 (10th Cir. 2001). A dispute of material fact is "genuine" if the evidence is such that a reasonable factfinder could return a verdict for the party against whom summary judgment is sought. See Anderson v. Liberty Lobby, 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
Section 301(b) of the Bankruptcy Code provides that "[t]he commencement of a voluntary case under a chapter of this title constitutes an order for relief under such chapter." Because Gray commenced his voluntary Chapter 7 case when he filed his petition on August 17, 2012, the date of the order for relief was also August 17, 2012.
Section 727(b) provides, in relevant part and with emphasis added, that "[e]xcept as provided in section 523 of this title, a discharge under subsection (a) of this section discharges the debtor from all debts that arose before the date of the order for relief under this chapter ...." Therefore, Gray's discharge included debts that arose before August 17, 2012. It did not, however, include any debts that arose after August 17, 2012, as "[l]iabilities for post-petition conduct are not discharged." In re Paul, 534 F.3d 1303, 1306 and n.4 (10th Cir. 2008).
Under 11 U.S.C. § 524(a)(1), a discharge in bankruptcy "voids any judgment obtained, to the extent that such judgment is a determination of the personal liability of the debtor" as to the discharged debt. Because Count I of Nussbeck's complaint alleged that Gray had breached the Agreement, one component of which was the discharged personal loan, the Missouri court's judgment against Gray on Count I would be void to the extent that it is a determination of Gray's liability on the discharged personal loan.
Accordingly, on February 21, 2018, the Court entered the following order:
Gray filed that order with the Missouri court, which provided the requested clarification by its own order on March 28, 2018: "This Court specifically finds that no portion of the judgment entered herein included any liability for any debt which had been discharged in Defendant Gray's bankruptcy."
The Court now turns to whether either of the defendants violated the discharge injunction prior to application of the $33,500 credit. As many courts (including this one) have observed, the purpose of § 524 is to afford a debtor a "fresh start." Section 524(a)(2) operates as "an equitable remedy precluding the creditor, on pain of contempt, from taking any actions to enforce the discharged debt." Espinosa v. United Student Aid Funds, Inc., 553 F.3d 1193, 1200 (9th Cir. 2008), aff'd, 559 U.S. 260, 130 S.Ct. 1367, 176 L.Ed.2d 158 (2010). That said, "[t]he discharge prohibits prepetition creditors only from collecting their prepetition debts. It is not a lifelong shield against other acts — including assertions of claims, and litigation — by those same creditors." Paul, 534 F.3d at 1308 (quoting In re Schlichtmann, 375 B.R. 41, 97 (Bankr. D. Mass. 2007)).
A party seeking contempt sanctions for violation of the discharge injunction has the burden of proving, by clear and convincing evidence, that the defendant (1) knew the discharge injunction was applicable and (2) intended the actions that violated the injunction.
Nussbeck was served with notice of Gray's discharge and the discharge injunction on January 19, 2013. Notwithstanding this notice, he negotiated and executed the Agreement, which he specifically intended to include Gray's discharged personal loan. Then, when Gray breached the Agreement, Nussbeck sued him. Although Nussbeck applied the $33,500 credit (which removed the discharged loan from the case)
Section 105 empowers bankruptcy courts to enter civil contempt orders, including an order for monetary sanctions against a creditor who violates the discharge injunction in § 524(a)(2). See Paul, 534 F.3d at 1306; In re Skinner, 917 F.2d 444, 447-48 (10th Cir. 1990). A contempt sanction is considered civil if it is remedial and for the benefit of the complainant. Int'l Union, United Mine Workers of Am. v. Bagwell, 512 U.S. 821, 827, 114 S.Ct. 2552, 129 L.Ed.2d 642 (1994). Here, because Gray incurred no additional expenses due to the inclusion of the discharged personal loan in the Agreement, and made no payments on the loan following discharge, the only damages Gray could have suffered as a result of Nussbeck's violation of the discharge injunction would have been emotional.
The Tenth Circuit has not addressed the issue of whether § 105 authorizes damages for emotional distress caused by a violation of the discharge injunction. While a number of bankruptcy courts have held that § 105 does authorize such damages, those courts have required a showing of (1) a causal connection between the emotional distress and the violation of the discharge injunction as well as (2) egregious conduct from the creditor or significant emotional harm to the debtor. See, e.g., In re Nibbelink, 403 B.R. 113, 120-21 (Bankr. M.D. Fla. 2009); In re Feldmeier, 335 B.R. 807, 813-15 (Bankr. D. Or. 2005); In re Perviz, 302 B.R. 357, 371 (Bankr. N.D. Ohio 2003). Having considered the entire record, the Court is unable to find evidence that Gray suffered any emotional distress, significant or otherwise, caused specifically by Nussbeck's inclusion of the discharged personal loan in the Agreement. Moreover, although Nussbeck's actions violated the discharge injunction, they were taken pursuant to assurances by Gray's attorney and cannot be considered egregious. Under these facts, the Court holds that Gray is not entitled to damages for emotional distress. It follows that although Nussbeck is liable for civil contempt under § 105, he is not subject to monetary sanctions.
Following Gray's breach of the Agreement, Odrowski sent Gray a collection letter and filed the Missouri case, both on Nussbeck's behalf. The record contains no evidence that Odrowski knew the discharge injunction was applicable to the personal-loan component of the Agreement when he performed these tasks. Because there is no evidence that Odrowski knew the discharge injunction applied, Odrowski cannot be subject to contempt sanctions. Put differently, although Odrowski's actions constitute a slight technical violation
For all of the foregoing reasons, summary judgment will be entered (1) in favor of plaintiff Gray as to his complaint against defendant Nussbeck, with no damages awarded; and (2) in favor of the Odrowski Defendants as to Gray's complaint against them. The Court will enter a separate judgment pursuant to Fed. R. Bankr. P. 7056 and Fed. R. Civ. P. 58(a). All pending motions are hereby denied as moot.
IT IS SO ORDERED.