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Noel v. Hall

United States District Court, Ninth Circuit

September 9, 2013

ERIC NOEL, Plaintiff,
v.
MYRNA A. HALL, trustee and personal representative of the ESTATE OF BRIAN C. HALL, deceased, SANDRA A. HALL, fka SANDRA JOHNSON, GABRIELLE S. LENNARTZ, HERB WEISSER, and MICHELLE A. MERCHANT, Defendants.

FINDINGS AND RECOMMENDATION

JOHN V. ACOSTA, Magistrate Judge.

Introduction

Plaintiff Gabrielle S. Lennartz ("Lennartz") moves for an award of attorney fees as the prevailing party on Noel's state law wiretap claim against her. Plaintiff Eric Noel ("Noel") opposes the motion, claiming that Lennartz is estopped from and lacks standing to claim the fees in question, the result of an earlier bankruptcy proceeding. For the reasons stated, Lennart's motion for attorney fees should be granted in part, and fees should be awarded in the amount $5, 696.18.

Background

This case was originally filed in 1999 and, in her answer, Lennartz alleged her entitlement to attorney fees under ORS 133.739, as the prevailing party on the state wiretap claim. On April 20, 2001, the court ruled that two of the other defendants in this case, Brian and Sandra Hall, were entitled to fees as prevailing parties on the state law wiretap claims and apportioned twenty-five percent of fees to defense of the wiretap claims. See Findings and Recommendation, April 20, 2001 (#200).

On August 19, 2001, Lennartz filed for Chapter 7 bankruptcy in the United States Bankruptcy Court for the Western District of Washington. (Plaintiff's Exhibit 2 at 1.) In her petition, Lennartz did not list her claim for attorney fees as an asset in Schedule B of her application in the section for "contingent and unliquidated claims of every nature, including tax refunds, counterclaims of the debtor, and rights to setoff claims." (Pl.'s Ex. 2 at 5.) In Schedule F of the application, Lennartz listed attorney Steven Kraemer ("Kraemer") as holding an unsecured nonpriority claim against her and Kraemer received notice of Lennartz's pending bankruptcy. (Pl.'s Ex. 2 at 12, 30.) The bankruptcy court ruled on November 27, 2002, that Lennartz was entitled to discharge and was thereby granted a discharge. (Pl.'s Ex. 3.)

Discussion

Noel asserts several legal theories upon which the court should deny Lennartz's request for attorney fees including estoppel, standing, unjust enrichment, discharge, and waiver. Noel does not otherwise object to the fees sought by Lennartz.

I. The Bankruptcy

Noel's arguments against the motion for attorney fees each hinge on a determination as to the impact of Lennartz's intervening bankruptcy on her claim for fees as alleged and as presently sought. It is well-established that, generally, an undisclosed cause of action may not be pursued by the debtor following discharge in bankruptcy. Hay v. First Interstate Bank of Kalispell, N.A., 978 F.2d 555, 557 (9th Cir. 1992). Here, however, the award of fees is pursued in only nominally by Lennartz. Rather, the real party in interest to this motion is the defending insurer, State Farm, by way of the attorneys it retained to defend Lennartz. As such, the real dispute as to fees is between State Farm, vis-a-vis the attorneys, and Noel. Having thus established the identity of the parties in interest, the court turns to Noel's arguments in opposition to the motion for fees.

A. Judicial Estoppel

Section 727 of the bankruptcy code provides that "a debtor is discharged from all debts that arose before the date of the order for relief under [Chapter 7].'" Siegel v. Federal Home Loan Mortgage Corp., 143 F.3d 525, 532 (9th Cir. 1998) (quoting the 11 U.S.C. § 727(b)). Noel argues that judicial estoppel bars the claim for fees because Lennartz failed to list it as personal property on her bankruptcy schedules. As the Ninth Circuit has held, "[i]n the bankruptcy context, a party is judicially estopped from asserting a cause of action not raised in a reorganization plan or otherwise mentioned in the debtor's schedules or disclosure statements." Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 783 (9th Cir. 2001) (citing Hay, 978 F.2d at 557).

Lennartz argues in response that, although the discharge extinguished her personal liability on the debt, it did not extinguish the debt as to liable third parties. Section 524, which controls the effect of a discharge, states that "discharge of a debt of the debtor does not affect the liability of any other entity on, or the property of any other entity for, such debt." 11 U.S.C. § 524(e). Accordingly, "[a] discharge in bankruptcy does not extinguish the debt itself, but merely releases the debtor from personal liability for the debt. Section 524(e) specifies that the debt still exists and can be collected from any other entity that might be liable." In re Edgeworth, 993 F.2d 51, 53 (5th Cir. 1993); see also Star Phoenix Mining Co. v. West One Bank, 147 F.3d 1145, 1147 n.2 (9th Cir. 1988) (noting that discharge "does not result in the extinguishment of the underlying debt but merely releases the debtor from personal liability[, ]" and citing In re Edgeworth ). Furthermore, the "failure to file in the bankruptcy proceeding should not impair the right to file suit against another party who may be liable on the debt." Id. at 54-55.

These principles are applicable to the present case. Here, Lennartz is a debtor whose liabilities were discharged in bankruptcy. Lennartz does not seek fees on her own behalf and, rather, stands in nominally for State Farm, the insurer that provided her a defense in this matter. Specifically, the insurer seeks attorney fees for that defense from Noel, the party against whom Lennartz prevailed in this litigation. Therefore, Lennartz's position in bankruptcy is not at odds with her present request for fees.

B. Standing

Noel argues that Lennartz lacks standing to assert a claim for attorney fees because she is not the real party in interest, rather, the bankruptcy estate possesses the claim and is the party in interest. Noel again cites Dunmore v. U.S., 358 F.3d 1107 (9th Cir. 2004), for the proposition that an unscheduled claim becomes the property of the bankruptcy estate after discharge. In Dunmore, assets that Dunmore failed to schedule remained by operation of statute

the bankruptcy estate's property, even after the court discharged his debt. Thus, the unscheduled tax refund claims remained the estate's property post-bankruptcy. Accordingly, we conclude that the bankruptcy estate was the real party ...

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