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In re Huffman5/27/1999
ankruptcy] discharge in a case under this title -- "(1) voids any judgment at any time obtained, to the extent that such judgment is a determination of the personal liability of the debtor with respect to any debt discharged * * *; "(2) operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor * * *[.]"
The accused contends that there was a good faith reason, well grounded in law, for him to pursue his claims and to defend the resulting judgments in spite of the bankruptcy discharge. He bases that argument in part on the brief filed by his lawyer, Kelly, on his behalf in Huffman v. Leon De Mendoza, 135 Or App 680, 899 P2d 734 (1995), rev den 322 Or 489 (1996). Kelly testified for the accused before the trial panel and explained the accused's legal argument. According to Kelly, a bankruptcy discharge does not eliminate debts but, rather, enjoins creditors from pursuing any actions to recover debts "as a personal liability of the debtor." 11 USC ยง 524(a)(2). He further noted that, under 11 USC section 524(e), "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, the debt." See also Matter of Edgeworth, 993 F2d 51, 53 (5th Cir 1993) (bankruptcy discharge "does not extinguish the debt itself, but merely releases the debtor from personal liability for the debt").
According to the accused, his fraudulent-transfer claim was permissible under 11 USC section 524(e), because, in that action, the accused was seeking to recover the debt from someone other than the debtor, namely, Javier. The accused contends that ORS 95.270(2) allows him to seek a judgment against Javier for fraudulent transfer. That statute provides, in part:
"* * * o the extent a transfer is voidable in an action by a creditor * * *, the creditor may recover judgment for the value of the asset transferred * * *. The judgment may be entered against: "(a) The first transferee of the asset or the person for whose benefit the transfer was made[.]"
The accused further argues that his action for fraud, conversion, and breach of contract was legally supported because it was necessary to facilitate his fraudulent transfer action against Javier. See In re Jet Florida Systems, Inc., 883 F2d 970, 973 (11th Cir 1989) (quoting 3 R. Babitt, et al., Collier on Bankruptcy , 524.01 at 524-16 (15th ed 1987)):
"'When it is necessary to commence or continue a suit against a debtor in order, for example, to establish liability of another, perhaps a surety, such suit would not be barred. Section 524(e) was intended for the benefit of the debtor but was not meant to affect the liability of third parties or to prevent establishing such liability through whatever means required.'"
See also In re Gary W. Beeney, 142 Bank Rep 360 (9th Cir 1992) (allowing creditor to pursue claim against discharged debtor solely to determine debtor's liability so that creditor could collect damages from debtor's insurer).
A lawyer violates DR 7-102(A)(2) when the lawyer " nowingly advance a claim * * * that is unwarranted under existing law except that the lawyer may advance such claim * * * if it can be supported by good faith argument for an extension, modification or reversal of existing law." We need not decide whether the accused would have prevailed on his claims, but only whether the claims were warranted by existing law or supported by a good faith argument to extend, modify, or reverse existing law. The arguments that the accused offers to buttress his claims are supported by the case law
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