David N. Chandler, p.c. v. Kopstein et al

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re
EMANUEL Z. KOPSTEIN, No. 99-11520
Debtor(s).
______________________________________/
DAVID N. CHANDLER, p.c.,
Plaintiff(s),
v. A.P. No. 05-1068
EMANUEL Z. KOPSTEIN, et al.,
Defendant(s).
_______________________________________/
Memorandum on Cross-Motions for Summary Judgment
_________________
The salient facts in this adversary proceeding are simple and not subject to material dispute.
Both sides have filed motions for summary judgment which allow the court to fully adjudicate the
bankruptcy issues in the case. The remaining non-bankruptcy issues can thereafter be remanded to state
court.
David Chandler is a bankruptcy lawyer. He had done extensive bankruptcy-related work for
debtor and defendant Emanuel Kopstein in the early 1990's, and represented Kopstein when Kopstein
Entered on Docket
January 10, 2006
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 05-01068 Doc# 28 Filed: 01/10/06 Entered: 01/10/06 14:23:41 Page 1 of 4

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filed his own Chapter 7 case in 1999. As a result of that bankruptcy, Kopstein’s obligation to Chandler
on account of the earlier work, in the amount of $25,605.10, was discharged.
After Kopstein’s discharge, his wife formed a business known as Asset Protection Recoveries,
LLC (“APR”), which is also a defendant in this adversary proceeding. In form, Kopstein has no legal
interest in APR although he signs agreements on its behalf as its “agent” from “time to time.”
This dispute involves Chandler’s fees representing APR in a Nevada bankruptcy case well after
Kopstein’s discharge. In a written fee agreement executed by Chandler on behalf of his professional
corporation and Kopstein on behalf of APR, it was agreed that APR would pay an hourly fee and, in
addition, pay Chandler $25,605.00. Kopstein then personally guaranteed the payments to Chandler.
Chandler succeeded in recovering a substantial amount for APR in the Nevada bankruptcy case,
but a dispute arose between them as to Chandler’s fees. The dispute was submitted to non-binding
arbitration, resulting in a decision that APR is liable to Chandler for $93,773.00 in hourly fees but not
the $25,605.00. Chandler then commenced state court litigation which was removed to this court for
resolution of the bankruptcy issues.
There are two bankruptcy issues raised in this adversary proceeding. First, the court must decide
if Kopstein’s guarantee of APR’s agreement with Chandler is enforceable against Kopstein. Second, if
the court finds that Kopstein’s guarantee is not enforceable, it must then decide if that makes any part of
the agreement unenforceable as to APR.
Chandler does not dispute that the $25,605.00 in the fee agreement represents his discharged fees
in Kopstein’s personal bankruptcy, nor does he seriously dispute that Kopstein’s guarantee is void as to
this amount. Unless made before discharge and filed with the bankruptcy court, an agreement whose
purpose was essentially to reaffirm debt and re-impose personal liability is unenforceable, regardless of
new consideration, pursuant to § 524(c) of the Bankruptcy Code. In re Lopez, 345 F.3d 701, 710 (9th
Cir. 2003).
Relying on In re Getzoff, 180 B.R. 572 (9th Cir. BAP 1995), Kopstein argues that his entire
personal guarantee is unenforceable. While this might be the case where, as in Getzoff, the reaffirmed
Case: 05-01068 Doc# 28 Filed: 01/10/06 Entered: 01/10/06 14:23:41 Page 2 of 4

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debt is inextricably bound up in the new obligation, there is no basis for giving Kopstein a windfall as to
the postpetition services Chandler rendered to APR. The fee arbitrator had no difficulty separating the
discharged obligation from the postpetition obligation, nor does the court.
Nor is the court swayed by Kopstein’s argument that § 1608 of the California Civil Code makes
the entire contract a nullity. Assuming that state law is applicable at all, it does not apply when the court
can readily separate out the legal consideration from the illegal consideration. Keen v. Harling (1964)
61 Cal.2d 318, 320-21, 38 Cal.Rptr. 513, 392 P.2d 273; Ryan v. Mike-Ron Corp. (1968) 259
Cal.App.2d 91, 95-96, 66 Cal.Rptr. 224; Lawn v. Camino Heights, Inc. (1971) 15 Cal.App.3d 973, 980,
93 Cal.Rptr. 621. Chandler performed very valuable service after the discharge at Kopstein’s request,
and the discharged debt is very clear and distinct from the rest of the consideration. State law permits
the court to enforce the lawful portion and bar only the discharged portion of the obligation from
enforcement. Keen, at 321. It is only where the court cannot distinguish between the lawful and
unlawful portions of the agreement, and the illegality taints the entire agreement, that the entire agreement
will be illegal and unenforceable. See Beck v. American Health Group Internat., Inc. (1989) 211
Cal.App.3d 1555, 1567, 260 Cal.Rptr. 237.
This is not to say that this is a “no harm, no foul” situation. The court may sanction Chandler for
contempt if it finds that his actions constituted a violation of Kopstein’s discharge rights. These rights
are enforced by contempt proceedings, and the court will retain jurisdiction to assess sanctions and
damages to the extent appropriate.
There is no basis in the law for APR’s assertion that because Chandler violated Kopstein’s
discharge rights the contract is unenforceable as to it. A discharge in bankruptcy protects only the
debtor, not third parties. In re American Hardwoods, Inc., 885 F.2d 621, 626 (9th Cir. 1989).
"[D]ischarge 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).
For the foregoing reasons, the court will enter a judgment as follows:
1. The court will declare that Kopstein is not liable for the $25,605.00 obligation in the Legal
Case: 05-01068 Doc# 28 Filed: 01/10/06 Entered: 01/10/06 14:23:41 Page 3 of 4

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Representation Agreement, but is liable for the remainder of APR’s obligations under that agreement to
the extent permitted by state law.
2. The court will declare that APR is liable for all obligations under the Legal Representation
Agreement, including the $25,605.00, to the extent permitted by state law.
3. The court will retain jurisdiction to sanction Chandler as appropriate for contempt to the
extent he violated Kopstein’s discharge.
4. There being no just reason for delay, judgment as recited above shall be entered immediately
pursuant to FRCP 54(b).
5. Upon entry of judgment as provided above, this adversary proceeding will be remanded to
state court for adjudication of the liability of Kopstein and APR under state law.
A separate judgment will be entered.
Dated: January 10, 2006
SAlan Jaroslovsky
U.S. Bankruptcy Judge
Case: 05-01068 Doc# 28 Filed: 01/10/06 Entered: 01/10/06 14:23:41 Page 4 of 4