Opinion
NOT FOR PUBLICATION
Argued and Submitted at Pasadena, California, May 20, 2010
Appeal from the United States Bankruptcy Court for the Central District of California. Bk. No. LA 09-29187-SB. Hon. Samuel Bufford, Bankruptcy Judge, Presiding.
Before JAROSLOVSKY, [ DUNN and MARKELL, Bankruptcy Judges.
Hon. Alan Jaroslovsky, United States Bankruptcy Judge for the Northern District of California, sitting by designation.
This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. See 9th Cir. BAP Rule 8013-1.
This appeal is from an order denying relief from the automatic stay to permit appellants to continue to litigate an action against a Chapter 7 debtor for damages for alleged stalking and extortion. Appellants take the position that bankruptcy courts are expressly denied jurisdiction to try personal injury actions so it was error for the bankruptcy court to deny relief. This position is incorrect. Denial of relief was well within the bankruptcy court's discretion. We AFFIRM with a slight modification, as discussed below.
I. FACTS
On June 16, 2003, Appellee Debtor Joy Jordan (" Jordan") began working for the law firm of Appellant Berman, Berman & Berman, LLP (" Berman") as a legal secretary. During her employment, Appellee was assigned to work for various attorneys, including partner Appellant Spencer Schneider (" Schneider"). On March 16, 2006, Jordan's employment with Berman ended.
On March 11, 2008, Jordan filed a complaint in Superior Court for the County of Los Angeles, Case No. BC387043, against Berman and Schneider, alleging eleven causes of action, including sexual harassment, discrimination based on disability or perceived disability, and wrongful termination. On June 27, 2008, Schneider filed a cross-complaint against Jordan, alleging causes of action for stalking, civil extortion, and intentional infliction of emotional distress.
On July 24, 2009, Berman's and Schneider's motion for summary judgment as to Jordan's complaint came on for hearing before the Los Angeles Superior Court. The state court granted the motion in its entirety, ruling that there was no triable issue of material fact as to any of Jordan's eleven causes of action and that Berman and Schneider were entitled to judgment on the complaint as a matter of law.
Immediately after the hearing on the motion for summary judgment, Jordan left the Los Angeles County courthouse and filed her petition for protection under Chapter 7 in the United States Bankruptcy Court for the Central District of California. The filing imposed a stay of the pending trial on Schneider's cross-complaint, which was set to commence 17 days later. Berman and Schneider asserted an additional effect was to prevent them from obtaining the judgment in their favor as to Jordan's complaint.
On October 13, 2009, Schneider filed an adversary proceeding in bankruptcy court to determine the nondischargeability of any judgment he would receive in his cross-claim against Jordan for stalking, civil extortion, and intentional infliction of emotional distress, pursuant to 11 U.S.C. § 523(a)(6).
On November 6, 2009, Berman and Schneider filed for relief in bankruptcy court from the automatic stay under 11 U.S.C. § 362 to allow (1) Schneider to proceed with his cross-complaint in Los Angeles Superior Court, and (2) Berman and Schneider to obtain a judgment in Los Angeles Superior Court on Jordan's complaint.
On December 1, 2009, the bankruptcy court heard Berman's and Schneider's motion for relief from the stay, seeking to be allowed to have judgment entered on Jordan's complaint and to be allowed to litigate Schneider's cross-complaint. Stating only that " this is the place to litigate [dischargeability], " the court denied the motion in its entirety. This appeal timely followed.
Although not part of the record of this appeal, some post-appeal events need to be mentioned. The state court apparently insisted on entering judgment in favor of Berman on Jordan's complaint. Jordan complained to the bankruptcy court that this was a violation of the automatic stay. The bankruptcy court held that entry of the judgment did not violate the automatic stay. Berman then filed a bill of costs, and Jordan again complained to the bankruptcy court, which held that this act did violate the stay but declined to assess sanctions. Berman then withdrew its cost bill.
II. JURISDICTION
The bankruptcy court had jurisdiction pursuant to 28 U.S.C. § § 1334 and 157(b)(1) and (b)(2)(G). We have jurisdiction pursuant to 28 U.S.C. § 158.
III. ISSUES
The primary issue is whether the bankruptcy court abused its discretion by denying the motion for relief from the automatic stay so that claims against the debtor for stalking and extortion could be litigated in state court. A secondary issue is whether such claims can be heard in bankruptcy court pursuant to § 157(b)(2)(I) or must be heard in the district court pursuant to § 157(b)(2)(O) and § 157(b)(5). A further issue, seemingly moot in light of the post-appeal events described in footnote 3 above, is whether the automatic stay prohibits entry of a judgment in state court against the debtor when the debtor is the plaintiff.
IV. STANDARD OF REVIEW
We review decisions denying motions to lift the automatic stay for abuse of discretion. Mataya v. Kissinger (In re Kissinger), 72 F.3d 107, 108 (9th Cir. 1995).
V. DISCUSSION
From a historical perspective, there is some irony in Schneider's argument that it was error for the bankruptcy court to deny him leave to litigate his claim against Jordan in state court. Prior to 1970, dischargeability matters were litigated in state court. Because of abuses which often occurred when state courts heard these bankruptcy issues, the 1970 amendments to the Bankruptcy Act gave exclusive jurisdiction over dischargeability disputes to the bankruptcy courts. See Grove v. Fulwiler (In re Fulwiler), 624 F.2d 908, 909-10 (9th Cir. 1980). After 1970, the issue was not whether the bankruptcy courts had to defer to state courts but rather whether a bankruptcy court could, in an appropriate case, allow litigation affecting dischargeability to go forward in state court under any circumstances. Since the amendments, courts have usually held that state court litigation of dischargeability issues is disfavored by the policies underlying the 1970 amendments, but not strictly prohibited. See Austin v. Wendell-West Co., 539 F.2d 71 (9th Cir. 1976). The Bankruptcy Code has carried forward the exclusive jurisdiction of the bankruptcy courts to hear dischargeability litigation under § 523(a)(2), (4) and (6). Sasson v. Sokoloff (In re Sasson), 424 F.3d 864, 869 (9th Cir. 2005), cert. denied, 547 U.S. 1206, 126 S.Ct. 2890, 165 L.Ed.2d 917 (2006). See also 11 U.S.C. § 523(c); 4 Collier On Bankruptcy, ¶ 523.03 (16th ed. 2010).
It was within the bankruptcy court's discretion to allow Schneider's cross-complaint to be heard in state court, and such a decision might have been appropriate if there were many non-debtor defendants or Schneider did not learn of the bankruptcy in time to file a timely dischargeability complaint. Tidwell v. Smith (In re Smith), 582 F.3d 767, 781 (7th Cir. 2009). However, no such factors are present in this case and, even if they were present, state court litigation would only be permitted, not mandatory.
In exercising its discretion to allow state court actions with discharge implications to proceed, bankruptcy courts may consider many factors. These include (1) the effect or lack thereof on the efficient administration of the estate if a court abstains, (2) the extent to which state law issues predominate over bankruptcy issues, (3) the difficulty or unsettled nature of the applicable law, (4) the presence of a related proceeding commenced in state court or other nonbankruptcy court, (5) the jurisdictional basis, if any, other than 28 U.S.C. § 1334, (6) the degree of relatedness or remoteness of the proceeding to the main bankruptcy case, (7) the substance rather than the form of an asserted 'core' proceeding, (8) the feasibility of severing state law claims from core bankruptcy matters to allow judgments to be entered in state court with enforcement left to the bankruptcy court, (9) the burden on (the bankruptcy court's) docket, (10) the likelihood that the commencement of the proceeding in bankruptcy court involves forum shopping by one of the parties, (11) the existence of a right to a jury trial, and (12) the presence in the proceedings of nondebtor parties. Christensen v. Tucson Estates, Inc. (In re Tucson Estates, Inc.), 912 F.2d 1162, 1167 (9th Cir. 1990).
While some of these considerations may have militated in favor of allowing litigation to proceed in state court, the bankruptcy court clearly found the predominant consideration was that Schneider's claims went to the issue of dischargeability under the Bankruptcy Code. A bankruptcy court is usually well within its discretion to deny relief from the automatic stay to continue state court litigation where issues of nondischargeability are present. Mass. Dept. of Revenue v. Crocker (In re Crocker), 362 B.R. 49, 55 (1st Cir. BAP 2007). Indeed, Schneider has not cited a single case where it was held to be error for a bankruptcy court to retain jurisdiction to hear dischargeability issues. We cannot say that such a decision in this case was an abuse of discretion.
Schneider's argument that the bankruptcy court erred in not giving him permission to litigate his cross-complaint against Jordan in state court because the bankruptcy court lacks jurisdiction over personal injury actions has numerous flaws. First, it is not established that the personal injury exceptions to those matters which may be heard in the bankruptcy court, contained in 28 U.S.C § 157(b)(2)(O) and 157(b)(5) apply to dischargeability determinations. Second, it is by no means certain that the types of claims raised by Schneider are personal injury tort claims within the meaning of the statute. See, e.g., Vinci v. Town of Carmel (In re Vinci), 108 B.R. 439, 442 (Bankr. S.D.N.Y. 1989)(personal injury exception to bankruptcy court jurisdiction only applies to actual bodily injury). Third, it appears that Schneider may have waived any right to have the matter litigated outside the bankruptcy court by filing an adversary proceeding in bankruptcy court alleging core status. Adelson v. Smith (In re Smith), 389 B.R. 902, 913-14 (Bankr. D. Nev. 2008). And fourth, even if all of the above considerations are resolved in favor of Schneider, all he has is a right to litigate in district court. Sections 157(b)(2)(O) and 157(b)(5) do not create a right to be heard in state court so it cannot be error, based on these sections, for the bankruptcy court to have denied Schneider's motion for relief from the automatic stay.
The only remaining issue is whether the automatic stay prohibited Berman from having judgment entered in its favor on Jordan's complaint. This issue appears moot for two reasons. First, the bankruptcy court only denied relief to litigate dischargeability issues of the cross-complaint, and did not make any sort of declaration that entry of the judgment was stayed. Second, judgment has in fact been entered and the bankruptcy court has ruled that entry of judgment was permitted notwithstanding the automatic stay.
To the extent not moot, the automatic stay does not bar Berman from having judgment entered in its favor on Jordan's complaint. The plain language of § 362 affects only those cases brought " against the debtor." § 362(a)(1). Case law makes it clear that the automatic stay only prohibits actions " against the debtor" and not defensive actions in litigation brought " by the debtor." White v. City of Santee (In re White), 186 B.R. 700, 703 (9th Cir. BAP 1995)(" [w]e could find no case that supports the proposition that the automatic stay prevents a defendant to continuing to defend against a pre-bankruptcy lawsuit. To the contrary, there is substantial authority that the stay is inapplicable to postpetition defensive action in a prepetition suit brought by the debtor."); Gordon v. Whitmore (In re Merrick), 175 B.R. 333, 336 (9th Cir. BAP 1994) (defensive action taken by defendants in a state court lawsuit commenced by a debtor does not violate the automatic stay imposed by 11 USC § 362).
While the state court's judgment order stated that the motion for summary judgment of both Berman and Schneider had been granted, judgment was entered only in favor of Berman. At oral argument, counsel for Appellants stated that judgment could not be entered in favor of Schneider under state court rules while Schneider's cross-complaint was unresolved.
VI. CONCLUSION
The bankruptcy court did not abuse its discretion in denying Schneider relief from the automatic stay to litigate his cross-complaint in state court. In denying the motion, the bankruptcy court did not intend to bar Berman from having judgment entered in its favor on Jordan's complaint. We accordingly MODIFY the order to so reflect and AFFIRM the order denying relief from stay as modified.
The upshot of all of this is that even though Berman ascribes error in this appeal to the bankruptcy court's failure to allow it to have judgment entered in its favor on Jordan's complaint, judgment has nonetheless been entered and the bankruptcy court has found the entry of the judgment to be permitted.