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Christian v. Pacific Western Bank

United States District Court, E.D. Texas

December 8, 2017

MELISA ANGELA CHRISTIAN, Appellant,
v.
PACIFIC WESTERN BANK, Appellee.

          MEMORANDUM AND ORDER

          MARCIA A. CRONE UNITED STATES DISTRICT JUDGE

         Pending before the court is Appellant Melisa Angela Christian's (“Christian”) appeal from the judgment of the United States Bankruptcy Court for the Eastern District of Texas (“E.D. Bankruptcy Court”), wherein the bankruptcy court found that a civil contempt order for $100, 000.00 (the “Contempt Amount”) entered by the United States Bankruptcy Court for the Northern District of Texas (“N.D. Bankruptcy Court”) is a non-dischargeable debt and thus was not discharged by the Order of Discharge entered by the E.D. Bankruptcy Court. Having reviewed the bankruptcy judge's opinion, the record, the submissions of the parties, and the applicable law, the court is of the opinion that the E.D. Bankruptcy Court's decision should be reversed.

         I. Background

         Christian, a dentist, was the president, sole owner, and guarantor of Travis Walk Dental Care (“Travis Walk”), [1] a dental office in Dallas, Texas. In the course of business, on October 27, 2011, Travis Walk executed a loan agreement and U.S. Small Business Administration Note (“the Note”) in favor of Appellee Pacific Western Bank (“PacWest”).[2] The terms of the Note were subsequently modified by a loan extension and modification agreement entered into by Travis Walk and PacWest.

         On November 3, 2014, Travis Walk filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the N.D. Bankruptcy Court (the “Travis Walk Bankruptcy Action”). Travis Walk filed an Emergency Motion for Interim Use of Cash Collateral, which the N.D. Bankruptcy Court granted on March 10, 2015 (the “Cash Collateral Order”). Pursuant to the Cash Collateral Order, Travis Walk was authorized to use the funds in the Cash Collateral Account for approved expenses. As further protection for PacWest, Travis Walk's largest creditor, the Cash Collateral Order required Travis Walk to pay PacWest “the amount of all excess funds on hand after payment of approved expenses.” The Cash Collateral Order, along with Travis Walk's ability to use the cash collateral, was set to expire on March 31, 2015.[3]

         Travis Walk, however, made no payments to PacWest, in violation of the Cash Collateral Order. Therefore, PacWest filed an Emergency Motion for Entry of Order for Relief from the Automatic Stay, which the court granted on June 5, 2015 (together with the Cash Collateral Order, the “Cash Collateral Orders”). Accordingly, the N.D. Bankruptcy Court ordered Travis Walk to wire to PacWest all cash in its debtor-in-possession accounts within three days. Again, Travis Walk failed to comply with the court's order.[4] Therefore, on September 4, 2015, PacWest filed a Motion to Show Cause asking the N.D. Bankruptcy Court to require Travis Walk to show cause why it should not be held in contempt for violating the Cash Collateral Orders. Additionally, PacWest requested that a contempt order be entered against Travis Walk and Christian for their repeated refusal to comply with the court orders. The N.D. Bankruptcy Court scheduled a hearing on this matter for October 19, 2015.

         Three days before the scheduled hearing, however, Christian filed an individual, voluntary petition under Chapter 7 of the Bankruptcy Code in the E.D. Bankruptcy Court (the “Christian Bankruptcy Action”).[5] Consequently, the show cause hearing in the N.D. Bankruptcy Court was cancelled. PacWest then sought relief from the automatic stay in the Christian Bankruptcy Action to proceed with the show cause hearing in the Travis Walk Bankruptcy Action. Christian did not oppose PacWest's request and, thus, on December 2, 2015, the E.D. Bankruptcy Court granted PacWest relief from the automatic stay and permitted the show cause hearing in the N.D. Bankruptcy Court to proceed. Significantly, the E.D. Bankruptcy Court expressly authorized PacWest to ask the N.D. Bankruptcy Court to hold Christian in contempt of court and for any and all damages available to it. The N.D. Bankruptcy Court then rescheduled the show cause hearing for December 18, 2015. The hearing was held as scheduled, and, on December 30, 2015, the N.D. Bankruptcy Court granted PacWest's motion and ordered Travis Walk and Christian to appear on January 27, 2016, to show cause why the court should not enter an order holding each in contempt for violating the Cash Collateral Orders and issue sanctions against them. On January 27, 2016, Christian and PacWest appeared before the N.D. Bankruptcy Court. At the show cause hearing, PacWest offered evidence that Christian had knowledge of and understood the court's orders and nevertheless continued to expend funds from the Travis Walk accounts after the termination date of the Cash Collateral Order. Further, PacWest demonstrated that Christian used funds from the Travis Walk accounts to open a new dental practice. The N.D. Bankruptcy Court took the matter under advisement, indicating that it would issue a ruling at a later date.

         On January 30, 2016, prior to a ruling from the N.D. Bankruptcy Court, the E.D. Bankruptcy Court entered the Order of Discharge granting Christian a discharge in the Christian Bankruptcy Action. Subsequently, on February 3, 2016, the N.D. Bankruptcy Court issued an oral ruling on the record holding Christian and Travis Walk in contempt for violating the Cash Collateral Orders. Thereafter, on February 8, 2016, the N.D. Bankruptcy Court entered the Civil Contempt Order, which held Christian and Travis Walk jointly and severally liable for the Contempt Amount.[6] Christian and Travis Walk failed to pay the Contempt Amount to PacWest.

         On May 27, 2016, PacWest initiated an adversary proceeding against Christian in the E.D. Bankruptcy Court, asking the court to hold that the Contempt Amount owed by Christian is not dischargeable. Both parties filed cross-motions for summary judgment. The E.D. Bankruptcy Court granted summary judgment in PacWest's favor on June 29, 2017, concluding that the Contempt Amount is a valid post-petition debt. Thus, the court held that the Contempt Amount was not discharged by the Order of Discharge in the Christian Bankruptcy Action. Christian appeals from this decision.

         II. Analysis

         A. Jurisdiction

         District courts have jurisdiction to hear appeals from “final judgments, orders, and decrees” and, with leave of the court, “other interlocutory orders and decrees” of bankruptcy judges. 28 U.S.C. § 158(a). An appeal from the bankruptcy court to the district court “shall be taken in the same manner as appeals in civil proceedings generally are taken to the courts of appeals from the district courts.” Id. § 158(c)(2). Therefore, “when reviewing a bankruptcy court's decision in a ‘core proceeding, ' a district court functions as a[n] appellate court.” Webb v. Reserve Life Ins. Co. (In re Webb), 954 F.2d 1102, 1103-04 (5th Cir. 1992); accord Perry v. Dearing (In re Perry), 345 F.3d 303, 308-09 (5th Cir. 2003); In re S. White Transp., Inc., 473 B.R. 695, 698 (S.D.Miss. 2012), aff'd, 725 F.3d 494 (5th Cir. 2013).

         B. Standard of Review

         In reviewing a decision of the bankruptcy court, Rule 8013 of the Federal Rules of Bankruptcy Procedure requires the court to accept the bankruptcy court's findings of fact unless clearly erroneous and to examine de novo the conclusions of law. See In re Halo Wireless, Inc., 684 F.3d 581, 586 (5th Cir. 2012); Drive Fin. Servs., L.P. v. Jordan, 521 F.3d 343, 346 (5th Cir. 2008); Texas v. Soileau (In re Soileau), 488 F.3d 302, 305 (5th Cir. 2007), cert. denied, 552 U.S. 1180 (2008). Mixed questions of law and fact are reviewed de novo. Tech. Lending Partners, LLC v. San Patricio Cty. Cmty. Action Agency (In re San Patricio Cty. Cmty. Action Agency), 575 F.3d 553, 557 (5th Cir. 2009). “The standard of review for the granting of summary judgment and the denial of a cross-motion for summary judgment is de novo.” St. Paul Fire & Marine Ins. Co. v. Whitaker Constr., Inc., Nos. CIVA 06-1595, 02BK12642, ADVNO 03AP1113, 2007 WL 196903, at *2 (W.D. La. Jan. 23, 2007), aff'd, 288 F. App'x 153 (5th Cir. 2008); see CQ, Inc. v. TXU Min. Co., L.P., 565 F.3d 268, 272 (5th Cir. 2009).

         C. Arguments in Support of Appeal

         Christian appeals the E.D. Bankruptcy Court's judgment on two grounds. First, Christian maintains that the Contempt Amount accrued prior to the filing of the petition in the Christian Bankruptcy Action and, thus, is a dischargeable pre-petition debt. Notably, this is the only argument set forth in Christian's Opening Brief. Second, in her Reply Brief, Christian contends that the Contempt Order merely permitted PacWest to proceed with the contempt hearing but did not authorize the N.D. Bankruptcy Court to order the payment of any sanction. To the extent that the Contempt Order sought to authorize the N.D. Bankruptcy Court to order sanctions, Christian argues such would violate ...


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