IN RE LUNT Case No. 10-13712.
In re: PHILIP DUANE LUNT, Chapter 7, Debtor.
United States Bankruptcy Court, D. Kansas.
May 2, 2011.
MEMORANDUM OPINION AND ORDER DENYING MOTION TO EXERCISE DISCRETIONARY ABSTENTION
DALE L. SOMERS, Bankruptcy Judge
The matter before the Court, filed by Peoples Bank of Pratt (hereafter "Bank"), is the Motion to Exercise Discretionary Abstention as it Pertains to the Motion for Contempt filed by Debtor (hereafter "Motion to Abstain").
This Chapter 7 case was originally filed in 1988 as Case no. 88-41511, and Debtor was granted a discharge on July 19, 1989. The case was reopened on August 31, 2010, with case no. 10-13712, to allow the Debtor to file a Motion to Find Peoples Bank in Contempt for Violating the Discharge Injunction (hereafter "Motion for Contempt"). The Motion for Contempt was filed on September 9, 2010. It alleges that the Bank, in its capacity as trustee of the Harry B. Lunt Trust, violated Debtor's discharge by applying trust distribution due the Debtor as payment on Debtor's note to the trust, the liability on which was discharged. The Bank objected to the Motion for Contempt on the merits, relying primarily upon the doctrine of recoupment, a well-established exception to the discharge injunction.
The Bank also responded to the Motion for Contempt by filing the Motion to Abstain which is now before the Court. It argues that this Court should defer to the state court because the Motion for Contempt raises the same issues as currently pending in state court litigation brought by the Debtor, styled Lunt v. The Peoples Bank, et al., pending in the District Court of Pratt County Kansas, case no. 10 CV 52 (hereafter "State Court Litigation").
The statutory basis for permissive abstention is 28 U.S.C. § 1334(c)(1). It provides:
The federal courts have developed a list of relevant factors to consider when deciding whether to abstain. A commentator lists those factors as follows:
In bankruptcy cases, factor five, the jurisdictional basis, is very important. One commentator states, "Although this permissive abstention applies both to core and noncore matters, it is unusual in core proceedings for the court to exercise permissive abstention."
The Debtor contends that the Motion for Contempt is a core proceeding. The Bank does not argue otherwise, and case law supports the Debtor's position. The Tenth Circuit has said, "Civil contempt proceedings arising out of core matters are themselves core matters."
Although some of the other factors weigh in favor of abstention, they are not sufficient to overcome the fact that the Motion for Contempt is a core proceeding. Factors two and three support abstention since state law issues will be important to the recoupment defense. As to factor four, the assertion that the Bank violated the discharge injunction is alleged in Count III of the petition filed in the State Court Litigation. Factor eight, the absence of feasability to completely sever the bankruptcy issues from the state law claims, supports abstention. Since all claims arise from the same complex family relationship, there will undoubtedly be overlap of factual issues. Pursing contemporaneous parallel proceedings in the state and bankruptcy courts will not be efficient. As to factor twelve, the Bank, non-debtor, is a party to the Motion for Contempt. The additional factors which in some cases would support abstention are not present. As stated above, because the Motion for Contempt is a core matter, factors five, six, and seven strongly indicate the Motion for Abstention should be denied. In addition, factors nine, ten, and eleven are not present, as retaining the Motion for Contempt will not overly burden this Court's docket, there is no forum shopping in the customary sense of molding facts for the purpose of conferring jurisdiction on another court, and there is no jury trial issue raised by the Bank.
For the foregoing reasons, the Court denies the Motion to Abstain. However, the Court will carefully monitor trial preparation and the timing of hearing the Motion for Contempt to reduce to fullest extent possible the duplication of efforts which the Court anticipates will result from having litigation in two courts. To this end, a status conference shall be held on August 30, 2011 at 10:00 A.M. In addition, the Court pursuant to Bankruptcy Rule 9014(c), hereby directs the parties to comply with Federal Rule of Civil Procedure 26(f). Avoidance of duplication of efforts and efficient timing of the hearing of the Motion for Contempt shall be goals of the discovery plan.
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