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Bankruptcy Court Denies Debtor's Motion for Contempt

By Karl Johnson posted 10-17-2022 09:35

Natasha Wells, Dorsey & Whitney LLP


In In re Paczkowski, Case No. 19-40365 (Bankr. D. Minn. Oct. 6, 2022), the U.S. Bankruptcy Court for the District of Minnesota (the “Court”) denied a chapter 7 debtor’s motion for contempt against certain creditors because the creditors’ actions did not violate the Court’s order. Previously, the Court issued an order granting the creditors’ motion for relief from the automatic stay to pursue and liquidate certain Minnesota Uniform Voidable Transactions Act (“MUVTA”) claims against the debtor in state court, but not to collect on any resulting judgment without the Court’s permission. Subsequently, the creditors obtained a state court monetary judgment for the MUVTA claims, and thereafter, motioned for prejudgment interest and attorneys’ fees.

The debtor then filed the contempt motion with the Court, alleging that the creditors should be held in contempt for violating the Court’s order by obtaining a state court monetary judgment and seeking an award for attorney’s fees. The debtor further alleged that the creditors engaged in prohibited collection activity by docketing a judgment.

The Court denied the debtor’s motion under the civil contempt standard in Koehler v. Grant, 213 B.R. 570 (B.A.P. 8th Cir. 1997), under which the movant must prove by clear and convincing evidence that the respondent (1) had knowledge of an order and (2) violated such order, determining that the Court’s order explicitly authorized litigation of the state court MUVTA claims and that the creditors did not engage in prohibited collection activity because the creditors did not file an affidavit of identification of the debtor as required under Minn. Stat. § 548.09, subd. 2 to docket a judgment.

 Co-Editors in Chief
Karl J. JohnsonTaft Stettinius & Hollister LLP
David M. TanabeWinthrop & Weinstine, P.A.