United States v. 2006-06-14 | 04-15787 | ZILOG, INC. VCORNING | precedential | opinion |

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
 In re: ZILOG, INC.; In re: ZILOG
MOD III, INC.,
Debtors, No. 04-15787
D.C. Nos.
ZILOG, INC., CV-03-02704-JF Plaintiff-Appellee, 02-51144-MM
v.
ROSE MARIE CORNING; SELENA
ROBERT; MARGIE CLEVERDON,
Defendants-Appellants. 
 In re: ZILOG, INC.; In re: ZILOG
MOD III, INC.,
Debtors, No. 04-15794
D.C. Nos.
ZILOG, INC., CV-03-02705-JF Plaintiff-Appellee, 02-5286
v. OPINION
ROSE MARIE CORNING; SELENA
ROBERT; MARGIE CLEVERDON,
Defendants-Appellants. 
Appeal from the United States District Court
for the Northern District of California
Jeremy Fogel, District Judge, Presiding
Argued and Submitted
December 7, 2005—San Francisco, California
6593

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Filed June 15, 2006
Before: Alex Kozinski and Barry G. Silverman,
Circuit Judges, and Roger T. Benitez,* District Judge.
Opinion by Judge Kozinski
*The Honorable Roger T. Benitez, United States District Judge for the
Southern District of California, sitting by designation.
6594 In re ZILOG, INC.

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COUNSEL
Eric S. Rossman, Rossman Law Group, PLLC, Boise, Idaho,
and Ruth Elin Auerbach, Glassberg, Pollak & Associates, San
Francisco, California, for the defendants-appellants.
Richard Levin and Kurt Ramlo, Skadden, Arps, Slate,
Meagher & Flom LLP, Los Angeles, California, for the
debtors/plaintiff-appellee.
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OPINION
KOZINSKI, Circuit Judge:
This case shows once again why it’s important for lawyers
representing a bankruptcy debtor to turn square corners.
Facts
In June 2001, ZiLOG, Inc. announced that it would close
one of its Idaho plants, effective December 31, 2001. To
retain employees through the plant closure, ZiLOG offered
certain employees one-time retention bonuses. Rose Marie
Corning, Selena Robert and Margie Cleverdon (collectively,
“the women”) were among the employees who accepted the
offer.
In December 2001, ZiLOG notified the women that it had
rescinded the retention bonus agreements because the women
would not, after all, lose their jobs at the end of the year. In
January 2002, Corning and Robert learned that three male
engineers would receive retention bonuses. Corning and Rob-
ert claim, however, that not until “late April or early May,
2002,” did they learn that those same three male employees
had been paid bonuses even though they were not laid off.
Cleverdon claims that she did not learn this until mid-June
2002.
Prior to this time, on February 28, 2002, ZiLOG and a
related entity had filed for bankruptcy in the Northern District
of California. ZiLOG employees received an email soon after-
ward from the company’s general counsel explaining that they
would receive proof of claim forms from the bankruptcy
court. The employees were instructed that “[y]ou need to fill
out and return the Proof of Claim form only if you believe
that, on February 28, 2002, ZiLOG owed you money other
than the wages, benefits and expense reimbursements that you
are entitled to as an employee. Otherwise, you do not need to
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take any action in connection with the notice that you have
received.”
Around this same time, the women received a notice from
the bankruptcy court explaining that the deadline for filing
proofs of claims that had accrued prior to the bankruptcy fil-
ing was April 19, 2002. The women did not file proofs of
claim prior to the deadline.
The bankruptcy court confirmed ZiLOG’s plan of reorgani-
zation on April 30 of that year, and the reorganization became
effective on May 13. The bankruptcy court’s April 30 confir-
mation order—mirroring ZiLOG’s reorganization plan—
provided that “[o]n the Effective Date, the Debtors shall be
discharged of all liability for payment of any Claims incurred
before the Effective Date, to the fullest extent provided by
Bankruptcy Code § 1141, except that any liability imposed by
or assumed under the Plan shall not be discharged.” The con-
firmation order also provided that “July 1, 2002, is the dead-
line for filing a request for payment of an administrative
expense arising from February 28, 2002 through April 30,
2002.” The women received written notice of the plan’s con-
firmation.
Pursuant to 11 U.S.C. § 524(a)(2), confirmation of a plan
“operates as an injunction against the commencement or con-
tinuation of an action, the employment of process, or an act,
to collect, recover or offset any such debt as a personal liabil-
ity of the debtor.” Id.; see also id. § 1141(d)(1). Notwithstand-
ing the discharge injunction, the women subsequently filed an
action in Idaho state court (the “Idaho action”) alleging con-
tract, tort and statutory claims based on ZiLOG’s failure to
pay the promised retention bonuses. The complaint did not
allege sex discrimination.
In response to this filing, ZiLOG initiated an adversary pro-
ceeding in the Northern District of California Bankruptcy
Court, and sought to enjoin the Idaho action, arguing that
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those claims had been discharged in bankruptcy. Shortly after
commencement of this adversary proceeding, the women and
ZiLOG stipulated that the women would stay the Idaho action
until the bankruptcy court entered a judgment in the adver-
sary. The bankruptcy court approved this stipulation and it
was entered into the record.
Subsequently, the women filed complaints with the Idaho
Human Rights Commission and the United States Equal
Employment Opportunity Commission. Each of the verified
complaints contained identical statements of fact, alleging that
[s]ometime after December 31, 2001, I learned that
I would not be paid the promised retention bonus.
That in late April or early May, 2002, I learned that
male employees who had signed retention bonus
agreements had been paid the retention bonuses and/
or rehired within a period of time that Zilog repre-
sented such individuals would not be rehired.
Several months later, the women filed affidavits in the
bankruptcy court further detailing their allegations of discrim-
ination. Corning and Robert claimed (consistent with their
verified complaints) that they did not learn until “late April or
early May, 2002,” that the three male engineers who had
received retention bonuses would not be laid off. During this
same period, Corning and Robert allegedly learned that three
male maintenance workers who had been laid off in January
2002 might be returning to ZiLOG but would not have to
repay their retention bonuses.
Corning and Robert also claimed to have learned by late
April or early May 2002 that a seventh male employee who
had been paid a retention bonus was neither terminated nor
was asked for a refund. (This was in contrast to a female
employee who had apparently been retained, but was forced
to return her bonus.) Finally, in “mid-June 2002,” Corning
and Robert allegedly learned that an eighth male employee
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had been rehired without being required to repay his retention
bonus.
While Corning and Robert’s affidavits to the bankruptcy
court were consistent with their verified complaints to the
Idaho Human Rights Commission and the EEOC, Clever-
don’s was not. In her complaint to the Idaho Human Rights
Commission, Cleverdon had alleged that she became aware of
disparate treatment in late April or early May 2002. In her
later affidavit to the bankruptcy court, however, Cleverdon
claimed that she did not become aware of the disparate treat-
ment until “approximately mid-June 2002,” when she was
informed of such by Corning and Robert.
Subsequently, the women moved to enter their untimely
contract, tort and statutory claims into the bankruptcy pro-
ceedings under the equitable doctrine of excusable neglect.
See Fed. R. Bankr. 9006(b)(1). They also requested payment
of their sex discrimination claims as post-petition administra-
tive expenses.1
The bankruptcy court granted summary judgment to
ZiLOG, and held all of the women’s claims barred by the
bankruptcy confirmation order. Applying California Depart-
ment of Health Services v. Jensen (In re Jensen), 995 F.2d
1Although not disputed by the parties, we note in passing that a literal
reading of 11 U.S.C. § 503(b), governing administrative expenses, might
suggest that “[t]o be deemed an administrative expense, the claim must
have arisen from a transaction with the debtor in possession, and directly
and substantially benefitted the estate.” Boeing N. Am., Inc. v. Ybarra (In
re Ybarra), 424 F.3d 1018, 1025 (9th Cir. 2005) (emphasis added) (foot-
note omitted). But the Supreme Court has “carved out an exception” by
holding that “[i]n the interests of ‘fairness to all persons having claims
against the insolvent’ . . . tort claims arising post-petition [are] ‘actual and
necessary expenses’ of preserving the estate.” Id. at 1025 n.10 (emphasis
added) (quoting Reading Co. v. Brown, 391 U.S. 471, 477, 482 (1968)).
Thus, under Reading and its progeny, discrimination claims that arise
post-petition but pre-confirmation can be filed as administrative expenses
against the debtor’s estate.
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925 (9th Cir. 1993) (per curiam), which held that a claim
arises under the bankruptcy code once it is within the claim-
ant’s “fair contemplation,” id. at 930, the bankruptcy court
held that the women’s sex discrimination claims “should have
been within their fair contemplation as of the effective date of
confirmation on May 13, 2002. As preconfirmation claims
they are subject to the bankruptcy proceedings.”2 The bank-
ruptcy court also found all of the women’s other claims to be
within their fair contemplation pre-petition, and thus barred
because no proofs of claim were filed by the April 19 dead-
line. The bankruptcy court found no excusable neglect for the
late filing of these claims, and held the women in contempt
for willfully violating the discharge injunction. ZiLOG was
awarded $20,000 in attorneys’ fees.
The district court affirmed, holding that the bankruptcy
court had made “explicit [factual] findings” that, by late April
or early May 2002, Corning and Robert were aware that a
number of male employees had received retention bonuses
while remaining employed at ZiLOG. The district court held
that the bankruptcy court’s findings were not clearly errone-
ous, and that “the bankruptcy court did not err in finding that
Corning’s and Robert’s gender discrimination claims were
classified appropriately as pre-petition and thus barred by the
May 13, 2003 bankruptcy discharge.”3 (Emphasis added.)
2It’s unclear why the bankruptcy court looked to May 13 rather than
April 30 as the relevant date. See pp. 6604-6606 infra.
3Setting aside the fact that the discharge became effective on May 13,
2002, not 2003, we do not understand why the district court described the
claims as “pre-petition.” The bankruptcy court had determined that the
claims arose pre-discharge, not pre-petition. As we explain on pages
6604-6606, the bankruptcy court’s use of the May 13 effective date, rather
than the April 30 confirmation date, as the deadline for the discharge of
administrative claims was inconsistent with other portions of its confirma-
tion order. In any event, the district court’s description as “pre-petition”
of claims that the bankruptcy court had “found” to have arisen in late
April or early May 2002 (i.e., at least one-and-a-half months after the fil-
ing of the bankruptcy petition) is contradicted by the record.
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The district court described the issue of when Cleverdon’s
sex discrimination claim arose as “closer.” Citing the conflict
between Cleverdon’s complaint to the Idaho Human Rights
Commission and her subsequent affidavit to the bankruptcy
court, the district court affirmed the bankruptcy court’s grant
of summary judgment against Cleverdon: “In light of Clever-
don’s conflicting statements, this Court cannot conclude that
the bankruptcy court’s factual determination that Cleverdon’s
claims were pre-petition [sic] and barred by the confirmation
plan on May 13, 2003 [sic] constituted clear error.” (Empha-
sis added.)
The district court also affirmed the sanctions award, hold-
ing that “[a]bsent any affirmative act by Defendants to stay or
dismiss the Idaho litigation, the bankruptcy court’s finding
that the continuing Idaho state proceedings were a willful vio-
lation of the discharge order was reasonable.”4
Summary Judgment on the Discrimination Claims
[1] We look to federal law to determine when a claim arises
under the bankruptcy code. Cool Fuel, Inc. v. Bd. of Equaliza-
tion (In re Cool Fuel, Inc.), 210 F.3d 999, 1006 (9th Cir.
2000). In Jensen, we held that an environmental claim arises
under the bankruptcy code once it is within the claimant’s
“fair contemplation.” 995 F.2d at 930. Jensen has been
applied to a range of non-environmental claims. See, e.g., In
re Cool Fuel, Inc., 210 F.3d at 1000 (tax claim); Hassanally
v. Republic Bank (In re Hassanally), 208 B.R. 46, 53 (B.A.P.
9th Cir. 1997) (negligent construction claim); Corman v.
Morgan (In re Morgan), 197 B.R. 892, 898 (N.D. Cal. 1996)
(fraud claim).
4This statement is puzzling, given that the bankruptcy court approved
a stipulation by the parties staying the Idaho action pending resolution of
the adversary bankruptcy proceeding. See p. 6600 supra and pp.
6619-6620 infra.
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[2] Although we have not had occasion to consider whether
Jensen’s “fair contemplation” test extends to claims of dis-
crimination, we see no reason why these claims should not be
analyzed under Jensen’s framework. We therefore agree with
the courts below that the women’s claims of sex discrimina-
tion accrued under the bankruptcy code once they were within
the women’s “fair contemplation.”
The bankruptcy court granted summary judgment to
ZiLOG and held that the sex discrimination claims arose pre-
discharge. The plan was confirmed on April 30, 2002, and
became effective on May 13. The bankruptcy court held that
claims arising prior to May 13 were discharged under the
plan, even though the April 30 confirmation order only per-
mitted claims arising “from February 28, 2002 through April
30, 2002” to be filed as administrative expenses. Under the
bankruptcy court’s confirmation order, claims arising from
May 1 to May 12 were discharged, even though no provision
was made for their presentation and payment.
The issue of which date should be used to bar claims for
administrative expenses was raised before the bankruptcy
court at the hearing on motions for summary judgment. Coun-
sel for the women objected that, because the July 1 bar date
only related to administrative claims that had arisen on or
before April 30, the discharge injunction should likewise only
bar claims that had accrued through April 30, rather than May
13. As counsel for the women explained: “The problem with
using the effective date is that the debtor is trying to vacate
any right to payment for claims that it didn’t even know
existed at the time that one would vote on confirmation of the
plan.” For reasons not apparent from the record, the bank-
ruptcy court overruled the objection.
[3] Assuming that the bankruptcy court even has the
authority to discharge post-confirmation debts,5 we cannot see
5Both the reorganization plan and the bankruptcy court’s confirmation
order—in identical language—discharged ZiLOG “of all liability for pay-
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how, in this case, the bankruptcy court could have discharged
claims arising between the plan’s confirmation and effective
dates without first allowing for the presentation of such
claims. Given the manifest injustice of discharging claims that
could not have been filed under the bankruptcy court’s April
30 confirmation order, we hold that only claims against
ZiLOG arising on or before April 30 were discharged.
[4] Even if the bankruptcy court meant to say that the
women’s discrimination claims arose prior to the April 30
confirmation order, summary judgment was still unwarranted.
Corning and Robert claimed that they became aware by late
ment of any Claims incurred before the Effective Date, to the fullest extent
provided by [11 U.S.C. § 1141].” Section 1141 of the bankruptcy code
provides that “[e]xcept as otherwise provided in this subsection, in the
plan, or in the order confirming the plan, the confirmation of a plan . . .
discharges the debtor from any debt that arose before the date of such con-
firmation.” 11 U.S.C. § 1141(d)(1)(A) (emphasis added).
We are uncertain whether post-confirmation debts can in fact be dis-
charged in bankruptcy. The “[e]xcept as otherwise provided” clause in
section 1141 can be read in either of two ways. One way would be to read
the clause as modifying the words “any debt.” Under that reading, all pre-
confirmation debts are dischargeable, except as limited by the plan or the
code. Alternatively, one could read the “[e]xcept as otherwise provided”
clause as modifying the phrase “before the date of such confirmation.”
Under that reading, even post-confirmation debts could be discharged if
that were provided for in the reorganization plan.
We have not located a case addressing which reading is correct. Nor
have we found an answer in the statute’s legislative history. See H. Rept.
No. 95-595 to accompany H.R. 8200, 95th Cong., 1st Sess. (1977), at 418.
Although we find the first alternative more plausible, we need not decide
the matter here. Under either reading, the bankruptcy court’s confirmation
order failed to provide for the presentation and adjudication of claims aris-
ing between April 30 and May 13. Because it would be manifestly unjust
to discharge claims that could not have been filed as either pre-petition
claims or administrative expenses, we hold that even if the bankruptcy
court had the power to discharge post-confirmation claims, the court
abused its discretion in discharging the women’s discrimination claims
here.
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April or early May 2002 that female ZiLOG employees were
subjected to disparate and allegedly discriminatory treatment.
As this was a motion for summary judgment, the court was
required to resolve disputed issues of fact in favor of the
women, as the non-moving parties. See Matsushita Elec.
Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986);
see also Fed. R. Bankr. P. 7056; Fed. R. Civ. P. 56.
[5] Accepting that Corning and Robert’s sex discrimination
claims arose in late April or early May 2002, there is a sub-
stantial possibility that those claims were not within the
women’s fair contemplation until after the April 30 confirma-
tion order, and thus were outside the bankruptcy process. The
bankruptcy court therefore erred in granting summary judg-
ment and finding those claims discharged.
The bankruptcy court’s grant of summary judgment to
ZiLOG on Cleverdon’s sex discrimination claim is even more
problematic. Cleverdon claimed in her complaint to the Idaho
Human Rights Commission and the EEOC that she learned of
the allegedly disparate treatment by late April or early May
2002. Even if this were true, the bankruptcy court’s grant of
summary judgment must be reversed for the reasons discussed
above.
[6] Cleverdon, however, claimed in her subsequent affida-
vit to the bankruptcy court that she did not learn of the alleg-
edly disparate treatment until mid-June 2002. The date by
which Cleverdon’s allegedly disparate treatment was within
her fair contemplation was therefore in dispute. Taking the
facts in the light most favorable to Cleverdon, her discrimina-
tion claim did not come within her fair contemplation until
one-and-a-half months after confirmation of the plan.6 The
6The district court appeared to believe that, because Cleverdon had indi-
cated in her administrative complaint that she learned the facts underlying
the discrimination complaint in late April or early May, it was entitled to
ignore her declaration in the bankruptcy court that she only learned of
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bankruptcy court therefore erred in granting summary judg-
ment to ZiLOG on Cleverdon’s sex discrimination claim.
[7] The district court then compounded these mistakes by
deferring under the clearly erroneous standard of review to
the bankruptcy court’s “explicit [factual] findings”—
“findings” that the bankruptcy court had no authority to make
on a motion for summary judgment. The district court’s affir-
mance of the bankruptcy court’s grant of summary judgment
was therefore erroneous.
[8] Taking the facts in the light most favorable to the
women, there is a substantial possibility with respect to Cor-
ning and Robert, and a certainty with respect to Cleverdon,
that their discrimination claims arose post-confirmation. We
reverse the bankruptcy court’s grant of summary judgment on
the women’s discrimination claims and remand to the bank-
ruptcy court to determine when those claims came within the
women’s fair contemplation. See Renwick v. Bennett (In re
Bennett), 298 F.3d 1059, 1072 (9th Cir. 2002).
Excusable Neglect
[9] We next consider whether the bankruptcy court abused
its discretion in declining to excuse the women’s failure to file
timely proofs of claim regarding their retention bonuses. The
determination of whether neglect is “excusable” is “an equita-
ble one, taking account of all relevant circumstances sur-
rounding the party’s omission.” Pioneer Inv. Servs. Co. v.
these facts in mid-June. But the fact that Cleverdon presented a sworn
statement in another proceeding that appears to contradict her sworn state-
ment in this proceeding does not vitiate her sworn statement here. At most,
the conflicting statement may be used to impeach her testimony at trial.
Confronted with that inconsistency, Cleverdon may be able to reconcile
the two statements or otherwise explain away the inconsistency. Or, the
trier of fact may resolve the inconsistency in favor of the later statement.
These are matters to be resolved at trial, not on summary judgment.
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Brunswick Assocs. Ltd. P’ship, 507 U.S. 380, 395 (1993).
Such circumstances include “the danger of prejudice to the
debtor, the length of the delay and its potential impact on judi-
cial proceedings, the reason for the delay . . . and whether the
movant acted in good faith.” Id. This list is not exhaustive.
See id.
On March 11, 2002, the women received the following
email from ZiLOG’s general counsel:
Sent: Monday, March 11, 2002 7:40 PM
To: Austin Users; Field Sales Americas;
Fort Worth Users; Tampa Users; San
Jose Users
Cc: ‘rlevin@skadden.com’;
‘pclapp@skadden.com’;
‘tivey@skadden.com’;
‘slubben@skadden.com’
Subject: Proof of Claim
Importance: High
As you know, we commenced our chapter 11 case on
February 28, 2002. The case will affect only the
holders of the company’s public debt securities and
the current holders of our common and preferred
shares. We expect to conclude the case and emerge
from chapter 11 by early May. In the interim, the
bankruptcy court has granted the company’s motion
for permission to pay all amounts owed to employ-
ees for salary, wages, expense reimbursements, and
vacation, medical, and other benefits as they become
due. We expect that the chapter 11 case will have no
effect on you or on our business operations.
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The Federal bankruptcy rules requires [sic] that we
provide the broadest possible notice of the case’s
commencement. For that reason, you will likely all
receive in the mail a written notice, together with a
Proof of Claim form, from . . . the company’s notic-
ing agent. You may receive additional notices about
the progress of the case.
This is nothing to be concerned about. You need to
fill out and return the Proof of Claim form only if
you believe that, on February 28, 2002, ZiLOG owed
you money other than the wages, benefits and
expense reimbursements that you are entitled to as
an employee. Otherwise, you do not need to take any
action in connection with the notice that you have
received.
I am out of the office until Monday. In my absence,
if you have any particular questions, please call Ste-
phen Lubben of Skadden, Arps (213-687-5000).
Cheers,
dmj
Daniel M. Jochnowitz
Vice President and General Counsel
532 Race Street
San Jose, CA 95126
(t) 408-558-8485 (Emphasis added.)
The email was not calculated to inform the women that they
needed to file their wage claims with the bankruptcy court.
More likely, it would have led them to believe exactly the
opposite.
The second sentence of the email states: “The [bankruptcy]
case will affect only the holders of the company’s public debt
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securities and the current holders of our common and pre-
ferred shares.”7 The clear import of this language, especially
when read by employees who were not lawyers and had no
expertise in bankruptcy law, is that the bankruptcy would not
affect their rights. The author of the email reinforced this
view by concluding the first paragraph with a sentence
expressing the company’s expectation that “the chapter 11
case will have no effect on you or on our business operations.”
(Emphasis added.)
The third paragraph reinforces the idea that the employees
need not file claims with the bankruptcy court. Having
explained in the second paragraph that the notice was sent
only because “[t]he Federal bankruptcy rules requires [sic]
that we provide the broadest possible notice of the case’s
commencement,” the third paragraph begins by assuring
employees that “[t]his is nothing to be concerned about.” Cf.
The Wizard of Oz (Metro Goldwyn-Mayer 1939) (“Pay no
attention to that man behind the curtain.”). Then follows—
buried in the middle of the third paragraph—the only sentence
that gives any hint that some employees may need to file
proofs of claim after all: “You need to fill out and return the
Proof of Claim form only if you believe that, on February 28,
2002, ZiLOG owed you money other than the wages, benefits
and expense reimbursements that you are entitled to as an
employee.”
Assuming diligent employees made their way past the
assurances that they needn’t worry about all the legal mumbo-
jumbo, it is far from clear that they would have understood
they were required to file proofs of claim for monies they
7This statement was plainly incorrect. The bankruptcy affected virtually
all pre-petition creditors, in that they were required to file proofs of claim
in order to preserve their rights to payment. Presumably, what the com-
pany meant to say was that, under the terms of the reorganization plan, all
valid general unsecured pre-petition claims would receive 100% on the
dollar, assuming proofs of claim were filed with the bankruptcy court. It
was only public debt and equity holders whose claims would be impaired.
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believed they were owed as retention bonuses. The bonuses
ZiLOG had promised the women were supposed to compen-
sate them for services they had rendered or would be render-
ing to the company. As such, the bonuses could easily be
understood to be “wages, benefits and expense reimburse-
ments that you are entitled to as an employee”—the type of
claims for which no proof of claim needed to be filed. We
also note that the “you need to do X only if Y” construction
of the sentence—giving information by way of negative infer-
ence rather than affirmative assertion—appears designed to
deflect attention from, rather than underscore the necessity of,
filing proofs of claim.8
[10] Read in its entirety, the email from the general counsel
hardly gives fair notice to the women, or to others in their
8The bankruptcy judge, in her oral ruling, concluded that the March 11
email gave the women fair notice because the email “referred to employ-
ees’ wages, expense reimbursements, vacation, medical, and other benefits
as they become due.” (Emphasis added.) In the bankruptcy court’s view,
“[t]hat language clearly projects into the future,” whereas “[t]he retention
bonuses, if payable to the claimants, were due January 4th, 2002 more
than a month before the petition date.”
The problem with the bankruptcy court’s analysis is twofold. First, it
ignores the other parts of the email that speak directly to the necessity of
filing a proof of claim. Specifically, the email told employees they need
not file claims for wages or other benefits owed to them on February 28,
2002. Contrary to what the bankruptcy court believed, this refers to claims
for past services, rather than “project[ing] into the future.” Second, the
language on which the bankruptcy court relied says nothing about the fil-
ing of proofs of claim; rather, it advises employees that “the bankruptcy
court has granted the company’s motion for permission to pay all amounts
owed to employees for salary, wages, expense reimbursements, and vaca-
tion, medical, and other benefits as they become due.” To someone versed
in bankruptcy law, saying that the debtor is authorized by the court to pay
certain claims suggests that no proofs need be filed for those claims. But
the employees to whom the email was addressed can’t be presumed to
have understood that connection. A fair reading of the email, using the
eyes of an ordinary non-lawyer employee, does not convey the idea that
proofs of claim had to be filed for all pre-petition claims for employee
compensation.
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position, that they were required to file proofs of claim to pre-
serve their rights. Rather, the email seems designed to lull the
employees into a false sense of security about the need to file
claims, and to dissuade them from paying very close attention
to any notices sent out by the bankruptcy court.9
The written notice from the bankruptcy court muddied the
waters further. That notice stated:
The Bankruptcy Court has set April 19, 2002, as the
deadline for filing proofs of claim (the “Bar Date”).
. . . If you have a prebankruptcy claim against either
Debtor that is not based on the delivery of goods or
services to the Debtors in the ordinary course of
business, you must file a proof of claim . . . so that
it is received no later than the Bar Date. If you fail
to do so, your claim will be discharged.
. . . .
The Plan alters the rights of the holders of ZiLOG’s
Senior Notes and its equity securities but does not
alter the rights of holders of any other class of
claims. If the Court confirms the Plan, it will be
9It’s not as if fair and accurate notice would have been impossible to
give. Rather than minimizing the notice from the bankruptcy court as an
irrelevant technicality, the general counsel could have encouraged
employees to examine it closely and make sure that they had no need to
file timely proofs of claim. He could also have encouraged employees who
did not understand the notice to seek independent legal advice. The email
could also have laid out in plain terms who was required to file proofs of
claim using language such as this: “You must file a proof of claim to pre-
serve your rights, unless you are seeking payment only of ordinary sala-
ries, wages, employee benefits and expense reimbursements. If you have
any doubt as to whether your claim falls into this excepted category, you
should file a proof of claim to preserve your rights or contact a lawyer for
guidance.” The plainly defective notice was cc’d to four of ZiLOG’s out-
side counsel, none of whom sent a corrected notice.
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binding on all holders of claims against and interests
in the Debtors.
. . . .
Confirmation of the Plan will result in a discharge of
claims against the Debtors, which may include all or
part of your claim. A discharge means that you may
never try to collect the claim from the Debtors,
except as provided in the Plan. (First emphasis in
original.)
Part of the problem, of course, is that—having been assured
by the general counsel’s email that “[t]his is nothing to be
concerned about”—many employees may not have read the
bankruptcy court’s notice very carefully, or at all. Assuming,
however, that employees did read the notice, they would have
learned that no proof of claim had to be filed for any “pre-
bankruptcy claim . . . based on the delivery of . . . services to
the Debtors in the ordinary course of business.” The phrase
“in the ordinary course of business” is most readily under-
stood as modifying “delivery of . . . services to the Debtors,”
which immediately precedes it. The women’s one-time reten-
tion bonuses were based on their performing services for
ZiLOG, and the services were rendered in the ordinary course
of ZiLOG’s business. ZiLOG does not claim that the women
were required to perform extraordinary services to earn the
bonuses; as best the record reveals, the bonuses were to be
paid if the women kept their jobs through the end of the year.
Given that the services they rendered to earn the bonuses were
exactly the same ones they had been rendering to ZiLOG all
along, we can easily see how the women, even had they read
the notice from the bankruptcy court closely, would have
believed there was no need to file proofs of claim to preserve
their right to recover the promised bonuses.10 Moreover, given
10Once again, careful drafting could have avoided the problem. Rather
than speaking of compensation for services in the ordinary course of busi-
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the misleading statements in the March 11 email that “the
chapter 11 case will have no effect on you” and “[t]his is
nothing to be concerned about,” we can readily understand
why the women may not have parsed the notice from the
bankruptcy court more closely or consulted an attorney at that
time.
In Pioneer—which, as it happens, was also a bankruptcy
case involving a late proof of claim—a creditor represented
by “an experienced bankruptcy attorney” missed the deadline
for filing pre-petition claims because his lawyer overlooked
the filing date in the bankruptcy court’s notice. 507 U.S. at
384. The bankruptcy court refused to find excusable neglect
for the creditor’s late filing, and the district court affirmed.
See id. at 384-86.
The Sixth Circuit reversed the bankruptcy court’s refusal to
accept the late-filed proofs of claim, and the Supreme Court
affirmed. Id. at 386-87. In holding that the bankruptcy court
abused its discretion, the Supreme Court explained that the
standard for excusable neglect
is at bottom an equitable one, taking account of all
relevant circumstances surrounding the party’s omis-
sion[, including] . . . the danger of prejudice to the
debtor, the length of the delay and its potential
impact on judicial proceedings, the reason for the
delay, including whether it was within the reasonable
control of the movant, and whether the movant acted
in good faith.
Id. at 395.
ness, the notice might have said something like this: “If you are an
employee, you need not file proofs of claim if you believe ZiLOG owes
you money only for ordinary wages, salaries and expense reimbursements.
If you are in doubt as to whether the monies you claim are owed to you
fall into this narrow category, you must file a proof of claim to preserve
your rights.”
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In Pincay v. Andrews, 389 F.3d 853 (9th Cir. 2004) (en
banc), we applied Pioneer to hold that the district court did
not abuse its discretion by finding excusable neglect when a
sophisticated law firm missed a filing deadline because of a
paralegal’s error. See id. at 860. Although we did not hold that
the district court was required to find excusable neglect under
those circumstances, we upheld a finding of excusable neglect
because we found the evidence sufficient to support it. See id.
In Pioneer and Pincay, sophisticated attorneys were let off
the hook after missing filing deadlines. In fact, the Supreme
Court in Pioneer went so far as to hold that it was an abuse
of discretion not to find excusable neglect where a versed
bankruptcy practitioner missed the bankruptcy court’s notice
and failed to file a timely proof of claim. By contrast, Cor-
ning, Robert and Cleverdon were unrepresented by counsel,
and the notices sent out by debtor’s counsel and the bank-
ruptcy court were, at the very least, ambiguous, and more
likely affirmatively misleading. It would be very strange
indeed to find the neglect in our case inexcusable, when the
neglect in Pioneer and Pincay was found excusable.
ZiLOG argues that permitting the late-filing of the
women’s claims could create a “Material Adverse Change,”
which could interfere with the effectiveness of the reorganiza-
tion. Even if this were a “theoretical possibility,” as ZiLOG
puts it, the bankruptcy court made no finding that ZiLOG
would suffer any prejudice if the claims were filed late. Based
on the record before us, we cannot say that ZiLOG would be
prejudiced by the late-filing of the women’s claims. See Pio-
neer, 507 U.S. at 389. In any event, to the extent that ZiLOG
is prejudiced as a result of its own deficient lawyering, the
burden of such errors or malfeasance must be borne by those
who caused it, rather than by innocent creditors who were
misled thereby.
[11] After Pioneer and Pincay, we have little difficulty in
concluding that the bankruptcy court here abused its discre-
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tion in failing to find excusable neglect. See Fed. R. Bankr.
9006(b)(1) (“[W]hen an act is required or allowed to be done
at or within a specified period by these rules . . . the court for
cause shown may at any time in its discretion . . . on motion
made after the expiration of the specified period permit the act
to be done where the failure to act was the result of excusable
neglect.”). We remand to the bankruptcy court to permit the
women to file their pre-petition claims in the bankruptcy pro-
ceedings as timely. Similarly, in the event that the bankruptcy
court determines that the women’s discrimination claims
came within their fair contemplation after the filing of the
bankruptcy petition but before its April 30 confirmation order,
the bankruptcy court shall permit those claims to be filed as
timely administrative expenses. (Of course, if the discrimina-
tion claims are found to have accrued after April 30, 2002, the
women may pursue those claims outside of the bankruptcy
proceedings.)
Sanctions Award
[12] Section 524 of the bankruptcy code provides that dis-
charge “operates as an injunction against the commencement
or continuation of an action . . . to collect, recover or offset
any [discharged] debt as a personal liability of the debtor.” 11
U.S.C. § 524(a)(2). A party who knowingly violates the dis-
charge injunction can be held in contempt under section
105(a) of the bankruptcy code. See In re Bennett, 298 F.3d at
1069; Walls v. Wells Fargo Bank, N.A., 276 F.3d 502, 507
(9th Cir. 2002) (holding that civil contempt is an appropriate
remedy for a willful violation of section 524’s discharge
injunction). In Bennett, we noted that the party seeking con-
tempt sanctions has the burden of proving, by clear and con-
vincing evidence, that the sanctions are justified. We cited
with approval the standard adopted by the Eleventh Circuit
for violation of the discharge injunction: “[T]he movant must
prove that the creditor (1) knew the discharge injunction was
applicable and (2) intended the actions which violated the
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injunction.” Bennett, 298 F.3d at 1069 (citing Hardy v. United
States (In re Hardy), 97 F.3d 1384, 1390 (11th Cir. 1996)).
It is clear from our cases, and should have been clear to the
bankruptcy court, that knowledge of the injunction is a ques-
tion of fact that can normally be resolved only after an evi-
dentiary hearing.11 The bankruptcy court, however, decided
the contempt motion on a paper record. The court did so after
expressing its views about the applicable law in its oral ruling,
such as “contempt need not be willful to justify an award of
damages,” and “[c]ontempt may be established even if the
failure to comply with the Court order was unintentional.”
The bankruptcy court also seemed to be under the misimpres-
sion that knowledge, for purposes of contempt, could be pre-
sumed: “While a party can’t be held in contempt absent
knowledge of the injunction, knowledge may be presumed in
a case where the defendants received notice of bankruptcy
and of confirmation of the debtor’s plan of reorganization.”
The court went on to conclude that “[b]ased on the evidence,
it appears that the defendants knew about the bankruptcy case,
knew that the plan had been confirmed. That is sufficient for
a presumed knowledge of the discharge injunction.”
[13] It is certainly true that a trier of fact could infer knowl-
edge of an automatic stay or discharge injunction from the
fact that a creditor knew of the bankruptcy. Such an inference,
however, would be a matter of fact, not a presumption implied
in law. Knowledge of the injunction, which is a prerequisite
to its willful violation, cannot be imputed; it must be found.
If, as here, the creditors dispute that they had such knowledge,
a finding that they knew of the injunction, and thus willfully
violated it, can only be made after an evidentiary hearing.
11Of course, where the facts are not in dispute, no hearing need be held.
See, e.g., Knupfer v. Lindblade (In re Dyer), 322 F.3d 1178, 1191-92 (9th
Cir. 2003) (contempt sanctions upheld where creditor admitted having
notice of the automatic bankruptcy stay, yet took no steps to remedy his
violation of the stay).
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We made this point clear, if it was not before, in a case
decided after the bankruptcy court entered its contempt order
(but before it denied the women’s motion to reconsider its
finding of contempt). In Knupfer v. Lindblade (In re Dyer),
322 F.3d 1178 (9th Cir. 2003), we dealt with contempt sanc-
tions for violation of the automatic bankruptcy stay by a cred-
itor, represented by counsel, who filed a lien on property of
the estate after commencement of the bankruptcy proceed-
ings. See id. at 1183-84. In considering whether to uphold the
sanctions, we noted that the creditor and his lawyer both knew
of the bankruptcy but “may not have been familiar with that
particular Code provision [section 362(a) of the bankruptcy
code, which imposes an automatic stay].” Id. at 1191. While
acknowledging that “a party with knowledge of bankruptcy
proceedings is charged with knowledge of the automatic stay”
for purposes of awarding damages under section 362(h) of the
bankruptcy code, “we hesitate[d] to extend that principle to
the contempt context. Generally, a party cannot be held in
contempt for violating an injunction absent knowledge of that
injunction.” Id. at 1191-92 (citing Bennett, 298 F.3d at 1069,
and Jove Eng’g, Inc. v. IRS, 92 F.3d 1539, 1555 (11th Cir.
1996)).
As noted, the women here dispute knowing of the discharge
injunction. That a competent lawyer should have known about
the injunction after diligent inquiry is not dispositive. The
creditor’s lawyer in Dyer no doubt should have known about
the existence of the automatic stay, which he could easily
have discovered by doing elementary legal research. Never-
theless, we declined to affirm the contempt sanctions on this
basis because the lawyer “may not have been familiar with
that particular Code provision.” There is nothing remarkable
or surprising about this aspect of Dyer; it simply reiterates the
well-established proposition that only actual knowledge of the
discharge injunction suffices for a finding of contempt.12
12Although Dyer involved the automatic stay, rather than the discharge
injunction, it relied on discharge injunction cases such as Bennett and
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By the time ZiLOG was appealed to the district court, Dyer
had been decided and the district court, in fact, relied on it.
Perhaps aware that Dyer undercut the bankruptcy court’s
rationale for imposition of contempt sanctions, the district
court relied on an alternative theory for affirming the con-
tempt order. In Dyer, we ultimately upheld the contempt sanc-
tions on the ground that, though the creditor may not have
known about the automatic stay initially, he became aware of
it when he was notified by the trustee, and this created “an
affirmative duty to remedy [the] automatic stay violation” by
“undo[ing] the recordation process.” Dyer, 322 F.3d at 1192.
Because the failure to cure the violation after notice was
undisputed in Dyer, we agreed that the violation was willful
and upheld the contempt sanctions.
The district court relied on this aspect of Dyer in upholding
the bankruptcy court:
Defendants were charged with knowledge of the stay
[sic13] no later than August 21, 2002, when ZiLOG
served a complaint on Defendants seeking injunctive
relief to stop the Idaho state actions. See In re Dyer,
322 F.3d at 1191. Defendants’ failure to take affir-
mative action to undo an arguably innocent violation
of the automatic stay [sic13] constituted a willful
violation. Absent any affirmative act by Defendants
to stay or dismiss the Idaho litigation, the bankruptcy
Hardy, and, indeed, we see no material difference between the discharge
injunction and the automatic stay for these purposes. A contempt order
entered for violation of either is governed by the same standards, namely
those applicable to all civil contempt proceedings. See Dyer, 322 F.3d at
1191-92 (citing Fed. R. Civ. P. 65(d) for the proposition that an “injunc-
tion [is] not binding unless [a] party has actual knowledge of it”).
13We don’t understand why the district court discussed the automatic
stay. By August 21, 2002, the automatic stay had long since disappeared;
it was only the discharge injunction that was relevant. See 11 U.S.C.
§ 362(c)(2)(C) (“[The automatic stay] continues until . . . the time a dis-
charge is granted or denied.”).
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court’s finding that the continuing Idaho state pro-
ceedings were a willful violation of the discharge
order was reasonable. . . . There is nothing in the
record to suggest that the bankruptcy court abused its
discretion. (Emphasis added.) (Internal citation omit-
ted.)
But the record, in fact, clearly undercuts the district court’s
conclusion. Specifically, the record contains a stipulation,
approved by the bankruptcy court, staying the Idaho state
court proceedings.
There remains the question of whether the women and their
counsel were, in fact, unaware of the discharge injunction and
its potential applicability to their claims. Dyer relied on the
fact that the automatic stay is imposed by statute, rather than
court order, and counsel may not have been aware of the stat-
ute. See 322 F.3d at 1191-92. The same is true here; the dis-
charge injunction is imposed by section 524(a) of the
bankruptcy code, and we have found no place where it is also
embedded in the bankruptcy court’s confirmation order. This
raises the possibility, as in Dyer, that counsel for the women
“may not have been familiar with that particular Code provi-
sion.” Id. at 1191.
To say that counsel may not have known of section 524 is
not the same as saying that he did not know. Dyer had no rea-
son to resolve this uncertainty because it affirmed on another
ground. Here, the uncertainty is crucial because there is no
evidentiary basis on which to dispose of the contempt claim.
On remand, the bankruptcy court shall determine whether the
women were aware of the discharge injunction and its appli-
cability to their claims. See Bennett, 298 F.3d at 1069 (in
order to justify sanctions, “the movant must prove that the
creditor (1) knew the discharge injunction was applicable and
(2) intended the actions which violated the injunction”).14 We
14The willfulness question is clouded to some extent by the deficiencies
in the March 11 email and the notice sent out by the bankruptcy court,
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vacate the bankruptcy court’s contempt finding and remand
for a determination of willfulness.
[14] We REVERSE (1) the bankruptcy court’s grant of
summary judgment to ZiLOG on the women’s sex discrimina-
tion claims; (2) the bankruptcy court’s discharge of the
women’s statutory, contract and tort claims; (3) the bank-
ruptcy court’s permanent injunction against the women’s pur-
suit of those claims; (4) the bankruptcy court’s determination
that the women failed to show excusable neglect for not filing
those claims on time; and (5) the bankruptcy court’s award of
sanctions.
We REMAND to the bankruptcy court to conduct proceed-
ings in close conformity with the views expressed in this
opinion. On remand, the bankruptcy court should consider
whether any fees it may have approved for debtor’s counsel
should be adjusted in light of our observations. The bank-
ruptcy court should also consider whether costs and attorneys’
fees incurred by the women in defending this adversary pro-
ceeding, and the appeal therefrom, should in equity and good
conscience, be shifted to ZiLOG and its lawyers.
REVERSED and REMANDED.
discussed at length above. See pp. 6608-6614 supra. To be held in con-
tempt, the women must not only have been aware of the discharge injunc-
tion, but must also have been aware that the injunction applied to their
claims. To the extent that the deficient notices led the women to believe,
even unreasonably, that the discharge injunction did not apply to their
claims because they were not affected by the bankruptcy, this would pre-
clude a finding of willfulness.
6621 In re ZILOG, INC.

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