UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF ALASKA

        Because of that, almost four years later, the trustee seeks to revoke debtor's discharge for: (a) knowingly and fraudulently obtaining property of the         6 ABR 335  estate or an advantage in connection with the case;⁽¹⁾ and, (b) failing to obey a lawful order of the court.⁽²⁾ Debtor failed to answer the complaint and the trustee has defaulted the debtor.

        Default judgment should nonetheless be denied because: (a) revocation for fraudulently obtaining property or advantage is time barred ⁽³⁾ and the trustee has not identified any property or advantage that the debtor obtained; and, (b) the complaint cites no court order which debtor failed to obey.

    
       2. FACTS- The debtor received his discharge on November 9, 1995.⁽⁴⁾ Shortly before that, the trustee began an adversary proceeding against James Bates to invalidate a deed of trust given by Kirschbaum and to recover a preferential payment. ⁽⁵⁾ He also had objected to debtor's exemptions.

        In February 1996, the trustee and the debtor entered into a global settlement agreement to resolve the Bates fraudulent transfer matter, the objection to exemptions, and issues involving whether or not certain property belonged to the estate or the debtor. The settlement agreement provided that:

I.	the debtor would execute a quitclaim to property located at Lake Louise, Alaska, and a bill of sale to a hot tub, and various appliances and fixtures located on the Lake Louise property;
II.	the debtor would pay off or take steps necessary to clear the title to the Lake Louise property, including removing the         6 ABR 336  Bates' deed of trust and any taxes that had accrued prior to 1995;
III.	the debtor would waive and release any right to a homestead or a homestead exemption in the Lake Louise property;
IV.	the debtor would surrender a boat, motor and trailer, and snowmobile to the trustee and waive and release any interest to them;
V.	the debtor would pay the trustee $12,000 in installments; and,
VI.	the trustee would withdraw his objections to certain items claimed as exempt.

        In retrospect, it is not clear to the court what the consideration for the $12,000 was.

        The trustee's present complaint, filed over three years after the settlement agreement, seeks to revoke debtor's discharge. It is based on a bare bones assertion that the debtor and trustee entered into the settlement and that the debtor failed to comply with the agreement because he did not pay the $12,000. The trustee cites 11 USC §§ 727(a)(4)(C) and 727(a)(6)(A) as authority for revoking debtor's discharge. To the extent the complaint is alleging fraud, it is not specific.

        The debtor's father would not disclose to the trustee the debtor's address, so the trustee served by publication. The debtor has not answered.

        The Clerk of the Court entered debtor's default on August 19, 1999.⁽⁶⁾ The affidavit of the trustee in support of the default judgment merely cites that he         6 ABR 337  was served by publication, an attempted mail notification was returned as "unknown," and that defendant failed to answer.⁽⁷⁾

        The main case remains open for administration.

    
        3. DISCUSSION-

    
        3.1.  Court Should Review Entitlement of Default Judgment-   If a defendant fails to answer, the court is authorized to enter default judgment.⁽⁸⁾ But, entry of a default judgment by the court is within the court's sound discretion.⁽⁹⁾ Certainly the judgment should not be entered if the court recognizes that the facts stated in the complaint not only do not state a legal basis for recovery, but reveal that the plaintiff is not entitled to judgment.

        Seeking revocation of a discharge is serious business - an "extraordinary remedy," according to the BAP. ⁽¹⁰⁾ Even if a debtor defaults, the court should not enter a default judgment unless grounds for entry are justified. Though the facts alleged to establish liability are binding on the defaulting defendant, that defendant or the court can still question the legal underpinnings of the relief sought.⁽¹¹⁾

        The trustee has submitted no evidence explaining the factual circumstances justifying relief. There may be a reason for nonpayment, other than         6 ABR 338  a refusal to pay. For example, debtor may have failed to pay because of illness, or any number of other reasons which would not qualify as a "refusal." ⁽¹²⁾

        But, aside from just refusing to enter a default judgment, a review of the pleadings in this case and the history of the main case, lead me to believe the complaint is without legal basis.

    
        3.2. Revocation on 11 USC § 727(a)(4)(C) Grounds is Not Available and is Time Barred-   Although the trustee cites 11 USC §§ 727(a)(4)(C) and 727(a)(6)(A), as the statutory basis for relief, these sections apply to the granting of discharge, not its revocation. Revocation is covered by § 727(d), and is subject to the time limits set out in § 727(e).

        The reason that the trustee cites § 727(a)(4)(C) as a basis for revocation of the discharge is not clear. It may be because the trustee contends that debtor got property of the estate based upon a fraudulent promise to pay $12,000, which he never intended to keep. Or, perhaps the trustee is alleging the $12,000 was property of the estate. Or, maybe the trustee means the debtor got the advantage of a settlement regarding his exemptions based on a fraudulent promise to pay $12,000.

        Whatever the trustee is saying in his complaint with reference to a § 727(a)(4)(C) violation, it must have occurred in 1996, when the settlement was approved. Under no interpretation of the complaint can the trustee recover.

        6 ABR 339 
        Section 727(a)(4)(C) provides:

(a) The court shall grant the debtor a discharge unless -

(4) the debtor knowingly and fraudulently and in or in connection with the case - . . .

(C) gave, offered, received, or attempted to obtain money, property, or advantage, or a promise of money, property, or advantage, for acting or forbearing to act . . .

        Revocation of discharge provides that a trustee, among others, may seek to revoke a discharge on three grounds under § 727(d):

(1) such discharge was obtained through the fraud of the debtor, and the requesting party did not know of such fraud until after the granting of such discharge;

(2) the debtor acquired property that is property of the estate, or became entitled to acquire property that would be property of the estate, and knowingly and fraudulently failed to report the acquisition of or entitlement to such property, or to deliver or surrender such property to the trustee; or

(3) the debtor committed an act specified in subsection (a)(6) of this section.

        The allegation in the complaint citing § 727(a)(4)(C) about fraudulently obtaining property or an advantage with respect to the $12,000 settlement does not give rise to any right to a revocation under §§ 727(d)(1),(2), or (3) because:

VII.

the settlement was after the discharge and could not have been a fraudulent means of obtaining the discharge, thus eliminating revocation under § 727(d)(1), which is also barred by a one-year time limit (not a mere statute of limitations, but an element of the trustee's case) in bringing the revocation complaint;(13)

6 ABR 340

VIII.

the debtor neither acquired property of the estate, nor failed to disclose it to the trustee, thus eliminating revocation under § 727(d)(2); and,

IX.

the § 727(a)(4)(C) count does not state a claim under § 727(a)(6), thus eliminating revocation under § 727(d)(3).

        Finally, in its discussion of § 727(a)(4)(C), Collier on Bankruptcy,⁽¹⁴⁾ captions the section as "Extortion and Bribery," a far cry from the deeds attributed to the debtor in this matter.

    
        3.3. Revocation on 11 USC § 727(a)(6) Grounds is Not Justified-

The second basis for revocation relies on § 727(a)(6)(A) which states that:

The court shall grant the debtor a discharge, unless - . . .

(6) the debtor has refused in the case -

        (A) to obey any lawful order of the court, other than an order to respond to a material question or to testify; . . .

        Since a discharge had already been entered before the trustee and the debtor entered into a settlement agreement regarding the $12,000, the trustee must be relying on § 727(d)(3) for revocation. This section allows revocation for an act specified in § 727(a)(6)(A). The only order which is mentioned in the complaint is the court's order approving the settlement agreement.

        Even assuming that the debtor duped the trustee into signing the settlement agreement, and never intended to pay a penny, he did not disobey a court order. Although it is unclear what the $12,000 was consideration for, the         6 ABR 341  court did not order that it be paid, but merely approved the settlement and authorized the trustee to complete it.⁽¹⁵⁾

        And, even if the failure to pay the court approved $12,000 settlement could be viewed as a failure to comply with a court order in the right circumstances, the trustee has not established that these are the right circumstance. Failure to pay a judgment could be for a number of reasons which do not fail under the ambit of a § 727(a)(6)(A) violation.

        A debtor's "failure to comply with a court order, standing alone, is not the equivalent of "refusal" under § 727(a)(6)." ⁽¹⁶⁾ To deny a discharge under § 727(a)(6)(A), the "refusal to obey a court order" must be the result of "wilful, intentional disobedience or dereliction and not merely inadvertence or mistake."⁽¹⁷⁾

        "Bankruptcy law recognizes that mere failure does not equal refusal where the creditor does not show wilful or intentional disobedience, as opposed to inability, inadvertence or mistake" on the part of the debtor.⁽¹⁸⁾

        Before the trustee can obtain a default judgment in this court (assuming there are legally sustainable grounds for revoking the discharge), he must show the facts exist to be entitled to the revocation he seeks.

             6 ABR 342 
       
4. CONCLUSION- The court will enter an order giving the trustee 30 days to seek reconsideration of this order or appeal. The trustee may wish to cure by amending the complaint to state his claims based on fraud with more specificity, if he feels he can plead a case which will pass muster.

        If no further action is taken by the trustee, the court will dismiss this matter without prejudice.

DATED:     February 10, 2000

HERBERT A. ROSS
U.S. Bankruptcy Judge

N O T E S:

        6 ABR 335  1. 11 USC § 727(a)(4)(C).

        6 ABR 335  2. 11 USC § 727(a)(6)(A).

        6 ABR 335  3. 11 USC § 727(e)(1).

        6 ABR 335  4. Discharge of Debtor, Main Case Docket Entry 96, filed November 9, 1995, O&J No. 31195.

        6 ABR 335  5. Kenneth W. Battley v. James A. Bates, dba J & H Enterprises, A94-00745-002-HAR (BANCAP 95-3116), filed October 24, 1995.

        6 ABR 336  6. Ex Parte Request for Entry of Default, Docket Entry 11, filed August 12, 1999; Entry of Default, Docket Entry 13, filed August 16, 1999.

        6 ABR 337  7. Affidavit of Kenneth W. Battley, Docket Entry 12, filed August 12, 1999.

        6 ABR 337  8. FRBP 7055, incorporating FRCP 55(b).

        6 ABR 337  9. Wright, Miller & Kane, 10 Federal Practice and Procedure, Civil 3d § 2685 (1998).

        6 ABR 337  10. Bowman v Belt Valley Bank (In re Bowman), 173 BR 922, 924 (9^th Cir BAP 1994).

        6 ABR 337  11. Alan Neuman Productions, Inc. v Albright, 862 F2d 1388, 1392 (9^th Cir 1989), cert den 110 SCt 168 (1989); Kubick v Federal Deposit Ins. Corp. (In re Kubick), 171 BR 658, 659 (9^th Cir BAP 1994).

        6 ABR 338  12. See, discussion in Part 3.3 of this Memorandum, beginning at page 9.

        6 ABR 339  13. Kozman v Herzig (In re Herzig), 96 BR 264, 267 fn 1 (9^th Cir BAP 1986); 11 USC § 727(e)(1); 6 Collier on Bankruptcy, ¶¶ 727.06, 727.16[1] (15^th ed rev 1999).

        6 ABR 340  14. 6 Collier on Bankruptcy, ¶ 727.06 (15^th ed rev 1999).

        6 ABR 341  15. See, Order Granting Motion for Approval Settlement With Debtor, Main Case Docket Entry 107, filed April 8, 1996.

        6 ABR 341  16. Solomon v Barman (In re Barman), 237 BR 342, 349 (Bankr ED Mich 1999).

        6 ABR 341  17. Concannon v Costantini (In re Costantini), 201 BR 312, 316 (Bankr MD Fla 1996), citing Friendly Finance Discount Corp. v Jones (In re Jones), 490 F2d 452, 456 (5^th Cir 1994).

        6 ABR 341  18. Wilmington Trust Co. v Jarrell (In re Jarrell), 129 BR 29, 32 (Bankr D Del 1991), citing 4 Collier on Bankruptcy, ¶ 727.09[2] (15th ed. 1979). See also, Friendly Finance Discount, supra at 456; Matter of Kokoszka, 479 F2d 990, 997-98 (2^nd Cir 1973); and, In re Weir, 173 BR 682, 691 (Bankr ED Cal 1994).