Bednar v. Bednar (In re Bednar)

IN RE ALEXANDER L. BEDNAR, Debtor.

JILL BEDNAR, RICK WARREN, Oklahoma County Clerk of Court, andJENNIFER BYLER, Deputy Courtroom Clerk, Appellants, v. ALEXANDER L. BEDNAR and JOHN T. HARDEMAN, Chapter 13 Trustee, Appellees.

BAP No. WO-20-041

BAP No. WO-20-042

Bankr. No. 19-14021

UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE TENTH CIRCUIT

April 27, 2021

NOT FOR PUBLICATION¹

Chapter 13

OPINION

Appeal from the United States Bankruptcy Court for the District of Oklahoma Western

Before ROMERO, Chief Judge, SOMERS, and PARKER, Bankruptcy Judges.

ROMERO, Chief Judge.

The subject of how chapter 13 Trustees are to deal with funds in their possession upon the dismissal of a chapter 13 case has received considerable court attention the past few years. This case presents yet another chapter in the ever-evolving manual for dealing with such funds. In the matter before us, judgment creditors in a chapter 13 case dismissed before confirmation moved the Bankruptcy Court for authority to initiate garnishment proceedings against plan payments in the Trustee's possession post-dismissal. The Bankruptcy Court denied the request and this matter is now before us on appeal.

I. FACTS

Alexander Bednar ("Bednar") is a disbarred Oklahoma attorney who is no stranger to the bankruptcy system. The present saga began in connection with proceedings to foreclose Bednar's interest in real property before the Oklahoma County District Court ("Oklahoma Court"). Specifically, on June 6, 2019, Bednar was ordered by the Oklahoma Court to appear for a hearing on assets.² Instead of appearing, Bednar filed a voluntary petition under chapter 13 of the Bankruptcy Code before the United States Bankruptcy Court for the Western District of Oklahoma ("Bankruptcy Court"),³ causing the hearing to terminate with no action. The First Case was promptly dismissed because Bednar failed to obtain the mandatory credit counseling.⁴

Subsequently the Oklahoma Court reset the asset hearing.⁵ This was followed by Bednar filing another bankruptcy petition, again preventing the hearing from going forward.⁶ Bednar failed to appear for the Meeting of Creditors and the Bankruptcy Court dismissed the Second Case on September 6, 2019.⁷ Once again, the Oklahoma Court reset the asset hearing,⁸ but the third try was not the charm, as Bednar filed bankruptcy yet again on October 1, 2019.⁹ These appeals arise from proceedings in the now-dismissed Third Case.

Shortly after Bednar filed the Third Case, Oklahoma County Court Clerk Rick Warren ("Warren") and Deputy Courtroom Clerk Jennifer Byler ("Byler") filed their appearances before the Bankruptcy Court.¹⁰ Warren and Byler, in their official capacities, are each creditors of Bednar by virtue of four sanctions judgments against him: two judgments issued by the Oklahoma Court and two issued by the Oklahoma Supreme Court ("Sanctions Judgments").¹¹ The four Sanctions Judgments arose uponfindings Bednar engaged in frivolous and vexatious conduct and together total $31,582.50 (excluding interest).

Warren and Byler promptly requested the Bankruptcy Court enter an order confirming the non-existence of the automatic stay in the Third Case pursuant to 11 U.S.C. § 362(c)(4)(A)(i).¹² On October 10, 2019, the Bankruptcy Court agreed and entered an Order confirming there was no stay in effect.¹³

Over the next eight months, Bednar made multiple attempts to confirm a chapter 13 Plan. Each of Bednar's confirmation attempts were opposed by Warren, Byler, chapter 13 Trustee John Hardeman ("Trustee") and Bednar's ex-spouse, Jill Bednar ("J. Bednar").¹⁴ On June 9, 2020, these efforts culminated in a final evidentiary hearing on confirmation of Bednar's Amended Chapter 13 Plan.¹⁵ On June 24, 2020, the Bankruptcy Court sustained the objections to confirmation, finding Bednar was not eligible to proceed under chapter 13.¹⁶ The Bankruptcy Court denied confirmation and dismissed the Third Case effective June 24, 2020.¹⁷ The Bankruptcy Court's dismissalorder neither reserved jurisdiction for any particular purpose nor altered the typical revesting of estate property provided in § 349(b).

Before dismissal, Bednar made plan payments totaling $30,838.92.¹⁸ The Trustee deducted his fees of $1,572.77, leaving a balance of $29,266.15. On June 26, 2020, Warren and Byler filed a motion with the Bankruptcy Court seeking leave to garnish those funds in the hands of the Trustee.¹⁹ J. Bednar then filed her own motion for leave to garnish the funds in the Trustee's possession, asserting her garnishment rights as a priority creditor holding domestic support obligations were superior over Warren and Byler's interest as general unsecured creditors.²⁰

The Bankruptcy Court entered an order requiring the Trustee to file a response stating his position and setting a telephonic hearing for July 31, 2020.²¹ The Trustee responded, stating he opposed allowing garnishment of the funds in his possession.²² The Trustee agreed with Warren, Byler, and J. Bednar that, under the Barton doctrine, the Bankruptcy Court must consent to any garnishment action proceeding in state court. However, the Trustee also maintained § 1326(a)(2) required him to return anyundistributed plan payments to the Debtor irrespective of the Barton doctrine.²³ The Bankruptcy Court took the matter under advisement at the end of the telephonic hearing. On September 2, 2020, the Bankruptcy Court entered its Order Denying Motions for Leave to Garnish Funds, denying both Oklahoma County's Motion and Bednar's Motion (the "Order").²⁴

The Bankruptcy Court first framed the request, explaining the movants "are essentially asking this Court to grant them permission to institute garnishment actions against the Trustee in state court while imposing a stay preventing the Trustee's distribution of surplus funds as directed by § 1326(a)(2)."²⁵ According to the Bankruptcy Court, "Movants and the Trustee agree that before Movants may initiate garnishment actions in state court to reach the funds held by the Trustee, the Barton Doctrine requires them to obtain approval from this Court."²⁶ Reviewing the policy and intent underlying the Barton doctrine, the Bankruptcy Court found "the relief Movants seek here is the type of action the Barton Doctrine is designed to prevent."²⁷

The Bankruptcy Court reasoned the Barton doctrine applies in this case to protect the Trustee from "a tremendous administrative burden . . . requiring him to be personallyinvolved in garnishment actions across his district, which stretches across forty counties."²⁸ While the Bankruptcy Court acknowledged "the administrative duties may be minimal in this one case," the Bankruptcy Court found "the small burden of one garnishment could quickly swell to a large burden of hundreds of garnishments if creditors are given the green light to file immediately upon the conclusion of every bankruptcy case."²⁹ Even though the Bankruptcy Court found the Barton doctrine likely prevented the garnishment from being enforced, after reviewing a split of authority on the issue, it ruled the plain language of § 1326(a)(2) requires the Trustee to return the funds to the Debtor with no possibility of any intervening diversion.³⁰

Warren, Byler and J. Bednar filed separate notices of appeal on September 15, 2020. J. Bednar requested the appeals be companioned for briefing and oral argument, and a BAP motions panel (consisting of Judges Michael, Jacobvitz, and Parker) granted the motion on October 13, 2020. Both appellants requested the Bankruptcy Court stay the Order pending appeal. The Bankruptcy Court granted these requests on October 19, 2020, preventing the Trustee from returning the $29,266.15 to the Debtor prior to disposition of the appeals.

II. JURISDICTION AND STANDARD OF REVIEW

The Order affects the final distribution of chapter 13 plan payments in the Debtor's underlying bankruptcy case, and therefore is a final appealable order.³¹ Here, the issues on appeal primarily involve pure questions of law which are reviewed de novo.³² Specifically, the Bankruptcy Court's application of § 1326(a)(2) as a per se bar to garnishment of a trustee following dismissal, irrespective of the Barton doctrine, is reviewed de novo. Similarly, whether the Barton doctrine applies and requires leave to sue presents an issue which is "jurisdictional in nature" and therefore subject to de novo review.³³ However, the Bankruptcy Court's decision to decline leave to sue the Trustee under the Barton doctrine is reviewed for abuse of discretion because "the bankruptcy court . . . given its familiarity with the underlying facts and the parties, is uniquely situated to determine whether a claim against the trustee has merit."³⁴

III. ANALYSIS

a. Barton Doctrine

Bankruptcy law, as it has evolved in United States jurisprudence, has led to the creation of a few relatively obscure doctrines. One such concept, the Barton doctrine, was established in Barton v. Barbour, 104 U.S. 126 (1881), and requires before suit can be brought against bankruptcy trustees or their counsel for acts taken in their official capacities during a bankruptcy case, the plaintiff must first seek leave of the overseeing bankruptcy court.³⁵ The Barton doctrine includes actions seeking bankruptcy estate property as well as actions against a bankruptcy trustee for conduct during the pendency of the bankruptcy case.³⁶ Because of this, the Barton doctrine is "jurisdictional in nature."³⁷ As explained by the Bankruptcy Court, the doctrine "exists to ensure other courts do not intervene in the bankruptcy court's administration of an estate without permission."³⁸ Generally, the Barton doctrine is intended: "(1) to maintain the integrity of the bankruptcy court's jurisdiction; (2) to control burdensome litigation that mayimpede the trustee's work as an officer of the court; and (3) to allow the bankruptcy court to monitor effectively the trustee's work."³⁹

In Satterfield v. Malloy,⁴⁰ the Tenth Circuit Court of Appeals expounded on the functions and...