Thomas J. Tucker, United States Bankruptcy Judge.
These two bankruptcy cases require the Court to decide whether certain claims, alleged in a state court lawsuit against two bankruptcy Debtors, were discharged in the Debtors' Chapter 7 bankruptcy cases.
In these cases, the Debtors, Jamal Kalabat and Salam Kalabat, each obtained a discharge. Several years later, the Kalabats (who are brothers) and others were sued in state court, by James A. Akouri and the James A. Akouri Living Trust (the "Akouri Parties"). After the parties litigated in state court for several months, the Akouri Parties filed a second amended complaint. The Kalabats now allege, in this Court, that the second amended complaint asserts claims that were discharged in their bankruptcy cases. The Akouri Parties deny this.
In each of these cases, the Debtor filed a motion entitled "Motion for Civil Contempt and to Enforce Discharge Injunction" (Docket # 53 in Case No. 11-60667 and Docket # 85 in Case No. 11-60831) (together, the "Motions"). The Motions allege the same facts and involve the same issues. Each of the Motions seeks an Order finding the Akouri Parties in contempt, and awarding injunctive and monetary relief, for the Akouri Parties' alleged violations of the discharge injunction under 11 U.S.C. § 524(a)(2). The Akouri Parties oppose the Motions.
The Court held a joint hearing on the Motions, then permitted certain post-hearing filings and briefing by the parties. The Court then took the Motions under advisement.
The Court has considered all the briefs and oral arguments of the parties, and the exhibits and other documents filed by the parties,
This Court has subject matter jurisdiction over these contested matters under 28 U.S.C. §§ 1334(b), 157(a) and 157(b)(1), and Local Rule 83.50(a) (E.D. Mich.). These are core proceedings, under 28 U.S.C. § 157(b)(2)(O).
In addition, these contested matters each fall within the definition of a proceeding "arising under title 11" and of a proceeding "arising in" a case under title 11, within the meaning of 28 U.S.C. § 1334(b). Matters falling within either of these categories in § 1334(b) are deemed to be core proceedings. See Allard v. Coenen (In re Trans-Industries, Inc.), 419 B.R. 21, 27 (Bankr. E.D. Mich. 2009). These are a proceedings "arising under title 11" because they are "created or determined by a statutory provision of title 11," see id., including Bankruptcy Code § 524(a)(2). And these are proceedings "arising in" a case under title 11, because they are proceedings that "by [their] very nature, could arise only in bankruptcy cases." See Allard v. Coenen, 419 B.R. at 27.
The following facts are undisputed.
In 2007, one or both of the Akouri Parties loaned $250,000.00 to two Michigan limited liability companies, named K-LV Investment LLC and K 4 DEVELOPMENT LLC. The loan was evidenced by, among other things, a promissory note dated July 3, 2007 in the amount of $250,000.00 with a stated maturity date of July 3, 2009, under which the borrowers agreed to repay the stated amount, plus interest, by paying to the order of "James A. Akouri Living Trust, dated March 26, 2003."
To secure payment of the $250,000.00 loan and their guaranty obligations, Jamal Kalabat and Salam Kalabat each signed a written security agreement, entitled "Membership Interest Security and Pledge Agreement," dated July 2, 2007 (the "Security Agreements").
Jamal Kalabat and Salam Kalabat each filed a Chapter 7 bankruptcy case in 2011, and each obtained a discharge of debts. Thus, the personal liability of Jamal Kalabat and Salam Kalabat to the Akouri Parties, under the 2007 Guaranty Agreement, was discharged in the bankruptcy cases, in 2011.
Several years later, on November 4,
The Kalabats argue that in asserting the five counts against the Kalabats in the Second Amended Complaint, the Akouri Parties sought to collect on the pre-petition debt of the Kalabats under their 2007 Guaranty Agreement of the $250,000.00 loan made by the Akouri Parties. As a result, the Kalabats argue, this action by the Akouri Parties sought to collect on debts that had been discharged in the Kalabats' 2011 bankruptcy cases.
It is therefore necessary to describe these counts in the Second Amended Complaint.
Count I of the Second Amended Complaint alleges a claim that the Kalabats converted the Akouri Parties' collateral, in the form of the membership interests in Birmingham Property, LLC, which the Kalabats pledged in 2007 as security for their loan guaranties. This count seeks damages for the conversion, including treble damages under Mich. Comp. Laws § 600.2919(a).
Count I alleges that this alleged conversion occurred on or after October 13, 2015, when the Akouri Parties sought to collect on the $250,000.00 loan made in 2007, which was in default. The Akouri Parties sought to realize on their collateral, in the form of the Kalabats' pledged membership interest in Birmingham Property, LLC. This count alleges that on October 13, 2015, the Akouri Parties "sent a notice of default" to Birmingham Property, LLC, directing it to "register the membership interest of Defendants Kalabat in the name of [the Akouri Parties]," and notified Birmingham Property, LLC that "[the Akouri Parties] were entitled to, among other things, receive all distributions and exercise all voting rights relating to the membership interests of Defendants Kalabat in [Birmingham Property, LLC]."
Count II alleges a claim of unjust enrichment against the Kalabats, based on the same facts stated in Count I.
In Count III of the Second Amended Complaint, the Akouri Parties seek to foreclose on their security interest in the Kalabats' shares of stock in Waterford Hotel, Inc., because of the default on the $250,000.00 loan. This count seeks an order directing that the stock be sold, and that the proceeds be applied to pay the $250,000.00 loan, plus interest and attorney fees.
Count VII of the Second Amended Complaint seeks damages for an alleged breach of contract by the Kalabats. This count alleges that the Kalabats made an agreement with the Akouri Parties in May 2015, under which the Kalabats agreed to pay the Akouri Parties $250,000.00 "by May 16, 2016," in exchange for unspecified "consideration" given to the Kalabats by the Akouri Parties.
The Second Amended Complaint does not specify what the "consideration" was for the alleged May 2015 agreement. But the allegation that "consideration" was given by the Akouri Parties clearly implies that they gave something of value, rather than a mere release of the Kalabats' personal liability for their pre-petition debt under their 2007 Guaranty Agreement. That personal liability had been discharged in the Kalabats' bankruptcy cases in 2011, so a release of it in 2015 clearly would not constitute "consideration" as that word is used in the Second Amended Complaint.
Although the Second Amended Complaint does not specify what the "consideration" was for the alleged May 2015 agreement, the Akouri Parties have made clear what it was, in their written response to the Kalabats' Motions and in the hearing on the Motions. They say that the Kalabats' May 2015 promise to pay $250,000.00 was in exchange for the Akouri Parties' releasing their lien in the Kalabats' membership interests in Birmingham Property, LLC. After the Akouri Parties released that lien, they say, the Kalabats failed to pay the promised $250,000.00.
In their written responses to the Kalabats' Motions, the Akouri Parties stated:
Counsel for the Akouri Parties reiterated that this is their breach of contract theory, during the hearing on the Motions.
Count VIII seeks reformation of the Security Agreements signed by the Kalabats in 2007. This Count states:
Initially, the Court reiterates certain basic points of law about the Chapter 7 discharge injunction and the relief available for a violation of that injunction. As this Court stated in the recent case of Schubiner v. Zolman (In re Schubiner), 590 B.R. 362, 397-99, Adv. No. 17-4677, 2018 WL 4489454, at *26-27 (Bankr. E.D. Mich., September 18, 2018):
Jamal Kalabat filed his Chapter 7 case on July 29, 2011, and obtained his
Under § 524(a)(2), the discharge injunction prohibits collection efforts on debts that were discharged. Since post-petition debts are not discharged, the discharge injunction does not bar efforts to collect post-petition debts.
Furthermore, under the wording of § 524(a)(2), the discharge injunction prohibits efforts to collect discharged, pre-petition debts only "as a personal liability of the debtor." If a creditor had a lien to secure payment of a pre-petition debt before the Chapter 7 bankruptcy, that lien survives, or "rides through" the Chapter 7 bankruptcy and bankruptcy discharge, unless the lien is avoided in the bankruptcy case. And a creditor with such a lien may seek to enforce its lien rights and collect on its secured claim, sometimes called its "in rem claim," after discharge, even if the debtor's personal liability for the creditor's debt was discharged. As this Court explained in In re Johnson, 439 B.R. 416, 428 (Bankr. E.D. Mich. 2010), aff'd. on other grounds, 2011 WL 1983339 (E.D. Mich. 2011),
See also In re Jackson, 554 B.R. 156, 165 (6th Cir. BAP 2016), aff'd., No. 16-4021, 2017 WL 8160941 (6th Cir. October 18, 2017) ("The discharge of personal obligations through a Chapter 7 discharge does not terminate a secured creditor's in rem rights unless the creditor's lien was avoided during the bankruptcy.")
Having considered all of the arguments of the parties, the Court concludes that none of the counts in the Second Amended Complaint seeks to collect or recover, "as a personal liability of" either of the Kalabats, on any debt that was discharged in the Kalabats' bankruptcy cases. The filing of the Second Amended Complaint, therefore, did not violate the discharge injunction under § 524(a)(2).
The Court will now discuss each of the relevant counts in the Second Amended Complaint, which are described in detail in Part III.C of this Opinion.
In Count III, the Akouri Parties seek to foreclose on their security interest in the Kalabats' shares of stock in Waterford Hotel, Inc., because of the default on the $250,000.00 loan. This count seeks an order directing that the stock be sold, and that the proceeds be applied to pay the $250,000.00 loan, plus interest and attorney fees.
This count merely seeks to enforce and realize upon a lien that the Akouri Parties claim to have in specific assets owned by the Kalabats. Any such lien "rode through" — i.e., survived — the Kalabats' bankruptcy cases and discharges, because it was not avoided in either of the bankruptcy cases under any of the various Bankruptcy Code provisions that permit the avoidance of liens.
The Kalabats contend that Count III violates the discharge injunction, for two reasons. First, they argue that neither of the Akouri Parties ever actually had a valid lien. This is so, the Kalabats say, because the 2007 Security Agreement purported to grant a security interest only to "Jimmy Akouri," and the Kalabats never owed any debt to Jimmy Akouri (aka James Akouri). Rather, the Kalabats' liability on their 2007 Guaranty Agreement was only a debt owing to the James A. Akouri Living Trust. In substance, the Kalabats argue that from the beginning, their 2007 Security Agreements secured no debt at all, because the Kalabats owed no debt to James Akouri individually.
From this premise, the Kalabats argue that Count III does not in fact seek to enforce a lien, even though it purports to do so, because there actually is no lien and
The Akouri Parties make at least three responses to the Kalabats' argument. One response is to point to Count VIII of the Second Amended Complaint — the reformation count. That count is discussed in Part IV.C.2 of this Opinion, below.
Second, the Akouri Parties argue that because James Akouri was and is the Trustee of the James A. Akouri Living Trust, the Security Agreements' granting of liens to "Jimmy Akouri" should be considered a grant to James Akouri in his representative capacity, as Trustee of the James A. Akouri Living Trust. As such, it was a grant of liens to the Trust, not to James Akouri in his individual capacity. As analogous authority in support of this argument, the Akouri Parties cite Michigan's version of Section 9-503 of the Uniform Commercial Code, Mich. Comp. Laws Ann. § 440.9503. That section states rules for naming the debtor and the secured party in a financing statement. Among other things, it states that "[f]ailure to indicate the representative capacity of a secured party or representative of a secured party does not affect the sufficiency of a financing statement." Mich. Comp. Laws Ann. § 440.9503(4).
As further support of this argument by the Akouri Parties, the Court notes that given the circumstances, documents and facts described in Part III.A of this Opinion, it is clear that all of the parties — including the Kalabats and the Akouri Parties — intended for the 2007 Security Agreements to grant liens that secured payment of the Kalabats' guarantees of payment of the $250,000.00 promissory note, which was made payable to the James A. Akouri Living Trust. These parties obviously did not intend for the 2007 Security Agreements to secure nothing, which is the effect of the outcome now argued by the Kalabats.
The Akouri Parties make a third response to the Kalabats' argument. They argue that for purposes of determining if Count III violates the discharge injunction, it does not matter whether the count is meritorious; rather, it only matters whether the count alleges a claim to enforce a lien, and seeks to enforce a lien.
The Court concludes that it is not necessary for this Court to decide the merits of the Kalabats' contention, that the 2007 Security Agreements were ineffective to actually grant any liens on the Kalabats' property. The Kalabats' argument is a possible defense to Count III of the Second Amended Complaint, which can and should be decided by the state court in the State Court Case, rather than by this Court. The key points for this Court are that (1) Count III clearly and expressly alleges a lien and seeks to enforce that lien, and does nothing more; and (2) if there is a lien as alleged in Count III, it clearly survived the Kalabats' bankruptcy discharges. These things are enough to establish that the Akouri Parties' pleading and prosecution of Count III in the State Court Case is not a violation of the discharge injunction.
The Kalabats also argue that in pleading Count III, the Akouri Parties know that they have no hope of actually recovering any money by enforcing their claimed lien. They know this, say the Kalabats, because they know that a competing creditor, Larry
From this, the Kalabats argue that pleading and prosecuting Count III is merely a pretext by which the Akouri Parties are attempting to coerce the Kalabats into paying on the debt that was discharged in their bankruptcy cases. As such, the Kalabats argue, Count III violates the discharge injunction.
In support of this argument, the Kalabats cite the bankruptcy court's decision in the case of In re Jackson, 539 B.R. 327 (Bankr. N.D. Ohio 2015), rev'd. and vacated, 554 B.R. 156 (6th Cir. BAP 2016), aff'd., No. 16-4021, 2017 WL 8160941 (6th Cir. October 18, 2017). In that case, the bankruptcy court found that a creditor's action in foreclosing on a lien in the debtor's home could not hope to yield any money, because there was no equity to support the lien, and that because of this, the creditor's action was merely a pretext to coerce the debtor into paying a discharged debt. As a result, the bankruptcy court concluded that the creditor's action in enforcing its lien was a violation of the discharge injunction.
The Court finds the bankruptcy court's decision in Jackson unpersuasive, for several reasons. First, as counsel for the Kalabats acknowledges, the bankruptcy court's decision in Jackson was reversed by the Bankruptcy Appellate Panel of the Sixth Circuit. And that reversal by the B.A.P. was later affirmed by the Sixth Circuit. Both of these reviewing courts ruled that the bankruptcy court had abused its discretion in finding a violation of the discharge injunction.
Second, the Akouri Parties correctly point out that it is far from certain that they can obtain no money from foreclosing on their lien, as they seek to do in Count III. This is so because (1) the Akouri Parties dispute that Larry Yaldo has a lien that has priority over the Akouri Parties' lien, and even though the state trial court ruled against them on this issue on a partial summary disposition motion, they still have the right to appeal that disputed decision; (2) the original debt owing to Larry Yaldo has been paid in part, without liquidation of the collateral at issue (the Kalabats' shares of stock in Waterford Hotel, Inc.), and the current amount of that debt is not yet established; and (3) the value of the collateral at issue — the Kalabats' shares of stock in Waterford Hotel, Inc. — has not been established. As the Bankruptcy Appellate Panel noted in Jackson, "the sale price for a foreclosure cannot be known until the sale actually occurs." Jackson, 554 B.R. at 166. From all of this, it is far from certain that the value of the collateral at issue in Count III is not high enough to pay anything on the Akouri Parties' lien, even if that lien is treated as junior to the Yaldo lien.
Third, the Court rejects the Kalabats' "pretext" theory in any event. The theory assumes that a lien creditor's action can violate the discharge injunction simply because it is intended to coerce, and/or that has the effect of coercing, a debtor into paying on a discharged debt. That is a false assumption, because every action of enforcing a lien after discharge has such intent and effect. As the Bankruptcy Appellate Panel noted in the Jackson case,
554 B.R. at 165, 167 (italics in original). If such a coercive intent or effect were enough to establish a violation of the discharge injunction, no creditor whose lien survived a discharge could ever enforce such lien. But this is clearly not the law, as case law shows. See Part IV.B of this Opinion.
Moreover, if the Kalabats' "pretext" theory were adopted, it could limit or prohibit a lien creditor's exercise of its in rem rights in a way that is inconsistent with applicable state law. On the one hand, if applicable state law permits a junior lien creditor to foreclose on a lien even when that will only result in senior lienholders getting paid, then such creditor's right to foreclose in that circumstance is part and parcel of the rights that the junior lien creditor has by virtue of having its lien on the debtor's property. And such lien rights survive the debtor's bankruptcy discharge, unless the lien is avoided in the bankruptcy case. Enforcing such in rem rights therefore is not prohibited by the discharge injunction. On the other hand, if applicable state law does not permit a junior lien creditor to foreclose on a lien when it will yield no money to that creditor, then the creditor's effort to foreclose will fail on the merits under state law. Either way, however, what the lien creditor has done is merely attempt to exercise in rem rights as a lien creditor of the debtor. That attempt is not an act to collect a discharged debt "as a personal liability of the debtor" under § 524(a)(2).
The parties have not briefed or argued about whether Michigan law would permit the Akouri Parties to force a sale of their collateral under Count III, if such a sale would not yield them any money. And, as noted above, it is far from certain that such a sale under Count III would not yield any money for the Akouri Parties. It is for the state court to decide these issues. This bankruptcy court is not the proper court to decide these things, because they are not relevant to deciding whether Count III violates the discharge injunction. It does not.
As described in more detail in Part III.C of this Opinion, Count VIII seeks reformation of the Security Agreements signed by the Kalabats in 2007. This count obviously is pleaded in support of Counts I and III, which counts are based on the allegation that under the 2007 Security Agreements, the Akouri Parties have a valid lien in the Kalabats' property. If the state court should decide that the naming of the secured party as "Jimmy Akouri" in the Security Agreements would otherwise render the claimed security interests invalid, Count VIII seeks reformation of the Security Agreements, to expressly name the secured party as the James A. Akouri Living Trust.
The Kalabats argue that in seeking such reformation of the 2007 Security Agreements, Count VIII seeks to create a lien that did not exist as of the dates in 2011 when the Kalabats filed their bankruptcy petitions. They argue that this cannot be done, and even if somehow it could be done now, years after the petition dates, the action of the Akouri Parties in seeking such reformation is an effort to collect on an unsecured, pre-petition debt that was
Under Michigan law, reformation is an equitable remedy that makes the language in a written contract or instrument conform to what the court finds was in fact the agreement of the parties. See generally Ross v. Damm, 271 Mich. 474, 260 N.W. 750, 753 (1935) (Under Michigan common law, where a contract or instrument "does not express the true intent of the parties, equity will reform the instrument so as to express what was actually intended."). Reformation does not create a new contract or new rights; it merely recognizes contractual rights that are deemed to have existed from the beginning. For example, in Howell v. State Farm Fire & Cas. Co., No. 12-14406, 2014 WL 840094 (E.D. Mich. March 4, 2014) the court stated the following:
Id. at *3.
In this case, the state court could order the type of reformation sought by Count VIII if the court found that the Kalabats and the Akouri Parties all intended, in the 2007 Security Agreements, for the Kalabats to grant a security interest to the James A. Akouri Living Trust, which was the named lender of the $250,000.00 loan that the Kalabats guaranteed in their 2007 Guaranty Agreement, rather than to James Akouri individually. The intent of the parties to grant a security interest to the James A. Akouri Living Trust seems clear from the wording of the Guaranty Agreement signed by these parties, which is described in Part III.A of this Opinion. In any event, if the state court were to make such a finding about the intent of the parties, and reform the Security Agreements accordingly, that would merely confirm the existence and validity, from the beginning, of the security interests that the Kalabats granted to the James A. Akouri Living Trust in their 2007 Security Agreements. Thus, such reformation would not and could not create either a debt or a security interest; rather, such reformation merely would recognize that such debt or security interest had existed all along.
The Kalabats argue that reformation cannot be used post-petition, to convert a prepetition unsecured creditor into a secured creditor. As they put it in their Motions, "[a] party cannot reform a document after the filing of a bankruptcy. The parties' rights are fixed as of the petition date, and an unsecured creditor cannot `fix' items postpetition so that it can become a secured creditor."
The Duckworth case is distinguishable from this case, and it actually supports the position of the Akouri Parties. Duckworth
The court of appeals agreed with the trustee, based on the trustee's avoiding powers under the so-called strong-arm provisions of 11 U.S.C. § 544(a). Id. at 458. The Duckworth court discussed reformation in this context. The court noted that "[t]he testimony of both the bank officer who prepared the documents and borrower Duckworth makes clear that the bank made a mistake in preparing the security agreement." Id. at 457-58. Then the court stated that "[w]e are confident that the bank would have been able to obtain reformation — even of an unambiguous agreement — against the original borrower if he had tried to avoid the security agreement based on the mistaken date." Id. at 458 (citations omitted). Thus, the court recognized that the bank could have obtained reformation of the security agreement against the bankruptcy debtor (the original borrower), and thereby have secured status. But the court held that the bank could not use reformation, or parol evidence that would support reformation, against the Chapter 7 trustee. This was because unlike the debtor, the trustee had the strong-arm avoidance powers under § 544(a).
In the present cases, unlike Duckworth, the purportedly secured creditor does not seek to use reformation to correct an error in a security agreement against a Chapter 7 trustee, but rather, only against the bankruptcy debtors (the Kalabats). As noted above, the court of appeals in the Duckworth case clearly indicated that the creditor can seek and obtain reformation post-petition against the bankruptcy debtor, notwithstanding § 544(a).
The Chapter 7 trustees in the Kalabats' cases never tried to avoid any security interest. Reformation, as sought by the Akouri Parties in Count VIII, is not foreclosed
The Kalabats do not have the same strong-arm avoidance powers under § 544(a) as the Chapter 7 trustee. Duckworth itself indicates this, as discussed above. See 776 F.3d at 458. The Chapter 7 debtor's power to use the trustee's powers to avoid liens is granted by Bankruptcy Code § 522(h), 11 U.S.C. § 522(h). But such power is limited by the combination of §§ 522(g) and 522(h), so as to preclude the Chapter 7 debtor's use of the trustee's avoidance power under § 544(a) when the lien at issue was given as a voluntary transfer by the debtor. Sections 522(g) and (h) state:
11 U.S.C. §§ 522(g), 522(h) (emphasis added). Because the Kalabats' granting of security interests under the 2007 Security Agreements was a voluntary transfer by them, they cannot seek to avoid such transfers using the Chapter 7 trustee's avoidance powers under § 554(a).
For all of the above reasons, the Akouri Parties' reformation count, Count VIII, is not precluded by the Bankruptcy Code, nor is it a violation of the discharge injunction. Rather, it is merely part of the Akouri Parties' effort to enforce the liens that they claim to have had at all times from 2007 on, in the Kalabats' membership interests in Birmingham Property, LLC and in the Kalabats' shares of stock in Waterford Hotel, Inc. Therefore, Count VIII cannot be viewed as an effort by the Akouri Parties to collect on a discharged debt "as a personal liability" of the Kalabats.
Counts I and II are described in detail in Part III.C of this Opinion. Both counts allege a claim that arose on or after October 13, 2015, more than four years after the Kalabats filed their 2011 bankruptcy cases. Count I is based on actions by the Kalabats that allegedly were done on or after October 13, 2015, which the Akouri Parties allege was a wrongful conversion of their collateral rights, based on their security interest in the Kalabats' membership interests in Birmingham Property, LLC. Count II is an unjust enrichment claim that is based on the same actions by the Kalabats alleged in Count I.
These clearly are post-petition claims, and as such they were not discharged in the Kalabats' 2011 bankruptcy cases. As noted earlier, the Kalabats contend that
As described in detail in Part III.C of this Opinion, Count VII alleges a breach of contract, based on an agreement allegedly made in May 2015, almost four years after the Kalabats filed their bankruptcy petitions. The Court concludes that this count alleges a claim that arose in or after May 2015, and therefore that it was a post-petition claim that was not discharged in the 2011 bankruptcy cases.
Count VII alleges that the Kalabats made an agreement with the Akouri Parties in May 2015, under which the Kalabats agreed to pay the Akouri Parties $250,000.00 "by May 16, 2016," in exchange for "consideration." The consideration allegedly given for this alleged promise to pay by the Kalabats was the Akouri Parties' release of their lien in the Kalabats' membership interests in Birmingham Property, LLC. After the Akouri Parties released that lien, they say, the Kalabats failed to pay the promised $250,000.00 and repudiated their agreement.
The Kalabats argue that even though this alleged agreement was made in May 2015, it amounts to a "post-discharge promise to pay a prepetition claim" that was discharged,
In Close, the creditor made an unsecured loan of $35,000 to the debtor, who later filed bankruptcy. The pre-petition unsecured loan was discharged in the debtor's bankruptcy case. Later, the creditor filed suit in state court to obtain repayment of the loan. The debtor then filed an adversary proceeding in the bankruptcy court, alleging that the creditor's lawsuit violated the discharge injunction. One of the creditor's arguments to the bankruptcy court was that the debtor had made several post-discharge oral promises to repay the $35,000 debt. The creditor argued that these promises were valid post-petition agreements under state law, supported by new consideration. But the only alleged new consideration for the debtor's post-discharge promises to pay was "a moral obligation to pay a discharged debt." Close, 2003 WL 22697825, at *7. The creditor cited "several old Pennsylvania cases for the proposition that a post-discharge promise to pay a prior debt can be enforced under Pennsylvania law which recognizes that a moral obligation to pay a
The court in Close held that where the consideration for a post-discharge promise to pay is in whole or in part a discharged pre-petition debt, the Bankruptcy Code's requirements applicable to reaffirmation agreements, 11 U.S.C. §§ 524(c) and 524(d), must be met in order for the promise to be enforceable. Id. at *8. The court held that seeking to enforce a post-petition promise to pay such a debt without meeting the reaffirmation agreement requirements would violate the discharge injunction. See id. at *9.
The court in Close acknowledged, but distinguished, several reported cases in which a debtor made a post-discharge agreement to pay money in exchange for a secured creditor giving up, in whole or in part, the enforcement of lien rights that survived the bankruptcy discharge. Id. at *8-9. In those cases, Close reasoned, the debtors "entered into valid post-discharge agreements in which they exchanged payment for something of value, neither of which was based `in whole or in part' on the discharged debt." Id. at *9. Trying to collect on the debt in those cases is not considered to be enforcing a discharged pre-petition debt, but rather is considered to be enforcing a post-petition debt that was not discharged. See id.
In this case, the Akouri Parties allege that in exchange for the Kalabats' May 2015 promise to pay $250,000.00, they agreed to, and did, release their lien in the Kalabats' membership interests in Birmingham Property, LLC, a lien that survived the Kalabats' 2011 bankruptcy cases. That claim, in Count VII, clearly states a post-petition claim that was not discharged in the Kalabats' 2011 bankruptcy cases. The filing and pursuit of that claim by the Akouri Parties therefore did not violate the discharge injunction.
The Kalabats make certain other arguments that could be defenses to Count VII on the merits. These include (1) a denial that they made the May 2015 agreement alleged by the Akouri Parties; and (2) a denial that the lien that the Akouri Parties released was a valid lien. These and other possible defenses are for the state court to decide, not this Court. They do not bear on whether the breach of contract claim in Count VII is a post-petition claim. It is, so it was not discharged.
For the reasons stated in this Opinion, the Court concludes that the Akouri Parties have not violated the discharge injunction arising in the Kalabats' bankruptcy cases. So the Court will enter an order in each of these bankruptcy cases, denying the Debtor's Motion.
11 U.S.C. § 544(a).
