BUKE, LLC v. Eastburg et al

* The parties did not request oral argument, and after examining the briefs
and appellate record, the Court has determined unanimously that oral argument
would not materially assist in the determination of this appeal. 	See Fed. R.
Bankr. P. 8012. 	The case is therefore ordered submitted without oral argument.
FILED
U.S. Bankruptcy Appellate Panel
of the Tenth Circuit
April 12, 2011
Blaine F. Bates
ClerkPUBLISH
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE TENTH CIRCUIT
IN RE RANDALL SCOTT
EASTBURG and LISA SUE
EASTBURG, also known as Lisa
Bowling Eastburg, formerly known as
Lisa Sue Bowling,
Debtors.
BAP No. 	NM-10-060
BUKE, LLC,
Plaintiff – Appellee,
Bankr. No. 	10-10131
Adv. No. 	10-01024
Chapter 	7
v. 	OPINION
RANDALL SCOTT EASTBURG and
LISA SUE EASTBURG,
Defendants – Appellants.
Appeal from the United States Bankruptcy Court
for the District of New Mexico
Submitted on the briefs: *
Chris W. Pierce of Hunt & Davis, P.C., Albuquerque, New Mexico, for
Defendants – Appellants.
William R. Keleher of Modrall, Sperling, Roehl, Harris & Sisk, P.A.,
Albuquerque, New Mexico, for Plaintiff – Appellee.
Before MICHAEL, BROWN, and ROMERO, Bankruptcy Judges.
BAP Appeal No. 10-60 Docket No. 33 Filed: 04/12/2011 Page: 1 of 15
Case 10-01024-j Doc 75 Filed 04/27/11 Entered 04/27/11 13:58:19 Page 1 of 15

1 The bankruptcy court’s decision is published at BUKE, LLC v. Eastburg (In
re Eastburg), 440 B.R. 851 (Bankr. D.N.M. 2010) (hereafter “Eastburg I”).
-2-
MICHAEL, Bankruptcy Judge.
Most of us are familiar with the adage that in real estate, the three most
important things are location, location, and location. The same can sometimes be
said of litigation. Parties that seek the protection afforded under the United
States Bankruptcy Code usually want matters pertaining to them to be tried in the
bankruptcy court. Creditors often prefer to litigate in state courts, especially
when a lawsuit was ongoing at the time of the bankruptcy case filing. The
question before us today is whether a bankruptcy court may allow litigation
against a debtor to continue in state court notwithstanding the filing of the
bankruptcy case. The bankruptcy court said yes, and allowed state court litigation
against the debtor to proceed, with the caveat that the bankruptcy court would,
prior to any trial in state court, determine whether the debts owed the creditor
should be discharged. 1 While we may not agree with the analysis employed by
the bankruptcy court, we take no issue with the result reached therein, and thus
we affirm the decision of the bankruptcy court for the reasons set forth below.
I. 	BACKGROUND FACTS
Randall Scott Eastburg (“Mr. Eastburg”) was the managing member of
BUKE, LLC (“BUKE”) which owned an automobile dealership and a General
Motors franchise (license). 	He was also the managing member of three other
LLCs involved in automobile sales which were owned by members different than
BUKE’s members, and which were not General Motors franchise dealers.
In June 2009, BUKE filed a state court action in New Mexico against Mr.
Eastburg, his wife, Lisa Sue Eastburg (collectively, the “Eastburgs”), and other
defendants. 	In the state court action, BUKE alleged Mr. Eastburg, with the
knowledge of Mrs. Eastburg, used the rights and privileges associated with
BAP Appeal No. 10-60 Docket No. 33 Filed: 04/12/2011 Page: 2 of 15
Case 10-01024-j Doc 75 Filed 04/27/11 Entered 04/27/11 13:58:19 Page 2 of 15

2 See Verified Complaint to Determine Non-Dischargeability of Debts and
for Judgment on the Debts (“Complaint”), in Appellant’s App. at 20. 	These three
other LLCs are also defendants in the state court litigation. 	See Motion for Relief
from Automatic Stay, in Appellants’ App. at 32.
3 Unless otherwise indicated, all future statutory references in text are to the
Bankruptcy Code, Title 11 of the United States Code.
4 Complaint at 7-10, in Appellant’s App. at 26-29.
5 Motion for Relief from Automatic Stay, in Appellant’s App. at 32.
6 Discharge of Debtor Lisa Sue Eastburg and Randall Scott Eastburg, in
Appellant’s App. at 66.
7 Amended Verified Complaint to Determine Non-Dischargeability of Debts,
(continued...)
-3-
BUKE’s General Motors franchise for the benefit of the three other LLCs he
managed. BUKE alleged the Eastburgs were guilty of conversion, civil
conspiracy, breach of fiduciary duty, usurpation of corporate opportunity, unfair
competition, interference with contractual relations, and racketeering resulting in
fraud, embezzlement, and larceny. 2
The Eastburgs filed their Chapter 7 petition on January 15, 2010. 	Based on
substantially the same facts alleged in the state court action, on March 3, 2010,
BUKE filed the adversary proceeding that is the subject of this appeal. 	In this
action, BUKE sought a judgment on the debts owed BUKE and asked that those
debts be held nondischargeable under 11 U.S.C. § 523(a)(2) and (a)(4). 3 The
complaint contained four counts alleging: 	1) conversion; 2) breach of fiduciary
duty; 3) civil conspiracy, and 4) violation of the New Mexico Racketeering Act. 4
Concurrent with the filing of its complaint, BUKE filed a motion for relief from
the automatic stay in the main bankruptcy case requesting it be allowed to
continue the state court proceedings against the Eastburgs. 5
On April 21, 2010, the bankruptcy court entered a discharge order in favor
of the Eastburgs pursuant to § 727(a). 6 Shortly thereafter, BUKE filed an
amended complaint in this adversary proceeding (“Amended Complaint”). 7 The
BAP Appeal No. 10-60 Docket No. 33 Filed: 04/12/2011 Page: 3 of 15
Case 10-01024-j Doc 75 Filed 04/27/11 Entered 04/27/11 13:58:19 Page 3 of 15

7 (...continued)
for Judgment on the Debts, for Declaratory Judgment, and for Modification of the
§ 524 Discharge Injunction, in Appellant’s App. at 68.
8 Id. at 10-11, in Appellant’s App. at 77-78. 	The applicable portion of § 524
regarding the effect of a discharge and imposition of an injunction provides:
(a) A discharge in a case under this title–
(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, whether or not discharge
of such debt is waived . . . .
11 U.S.C. § 524(a)(2).
9 Id. at 11-12, in Appellant’s App. at 78-79.
10 On July 19, 2010, the parties stipulated that pursuant to § 362(c)(2)(C), the
automatic stay terminated upon entry of the discharge order, rendering BUKE’s
motion for relief from stay moot. 	Stipulated Order Regarding Automatic Stay, in
Appellants’ App. at 81.
11 Eastburg I, 440 B.R. at 856.
-4-
Amended Complaint contained the original four counts, together with two new
counts relating to the discharge injunction. In Count Five, BUKE sought a
declaratory judgment that the discharge injunction imposed pursuant to § 524 did
not apply to its claims pending in this adversary proceeding or the claims in the
state court action. 8 In the alternative, in Count Six BUKE requested that the
bankruptcy court modify the discharge injunction to permit the state court action
to go forward. 9
The parties briefed the discharge injunction issues raised in Counts Five
and Six of the Amended Complaint. 	BUKE argued that because 1) the automatic
stay terminates upon entry of a discharge order, 10 and 2) the discharge injunction
is inapplicable to the claims raised in the adversary proceeding until the
bankruptcy court rules on their dischargeability, it was free to continue
prosecution of its claims against the Eastburgs in state court. 11 The Eastburgs
responded that the bankruptcy court has exclusive jurisdiction to determine
BAP Appeal No. 10-60 Docket No. 33 Filed: 04/12/2011 Page: 4 of 15
Case 10-01024-j Doc 75 Filed 04/27/11 Entered 04/27/11 13:58:19 Page 4 of 15

12 Id. at 856-57.
13 Id. at 857.
14 [Debtors’] Reply to BUKE LLC’s Memorandum Brief on Automatic Stay,
Discharge Injunction and § 523 Actions at 6, in Appellants’ App. at 110.
15 Eastburg I, 440 B.R. at 856.
16 Id. at 857.
17 Id.
-5-
dischargeability issues, and therefore it also has exclusive jurisdiction to
determine the validity and amount of the claims BUKE brought against them in
state court. 12 BUKE countered that the bankruptcy court and the state court have
concurrent jurisdiction to establish the validity and amount of the claims against
the Eastburgs, and thereafter, the bankruptcy court has exclusive jurisdiction to
rule on the dischargeability of those claims. 13 The Eastburgs “request[ed] that the
Court deny [BUKE’s] request to continue proceedings in State Court, and that the
Court order the parties to proceed in this Adversary Proceeding as appropriate.” 14
The bankruptcy court held a hearing on the matter on August 4, 2010.
After taking the matter under advisement, the bankruptcy court issued a
memorandum opinion on August 23, 2010, stating the issue before it was “at its
core, [ ] whether BUKE’s claims against [the Eastburgs] in the State Court Action
can be litigated in that action or whether they must be litigated in this adversary
proceeding.” 15 The bankruptcy court noted that “[t]he parties agree that the stay
terminated upon the entry of the order discharging the [Eastburgs] in their
Bankruptcy Case, and that the discharge injunction does not apply to a debt when
a timely objection to dischargeability of the debt is made under 11 U.S.C.
§ 523(a)(2), (4) or (6) unless and until the bankruptcy court determines that the
debt is discharged.” 16 The bankruptcy court “agree[d] that the parties’ stipulation
is a correct application of the law.” 17 As a result, the bankruptcy court concluded
BAP Appeal No. 10-60 Docket No. 33 Filed: 04/12/2011 Page: 5 of 15
Case 10-01024-j Doc 75 Filed 04/27/11 Entered 04/27/11 13:58:19 Page 5 of 15

18 Id. at 863-64 (footnotes omitted).
19 Minutes of Hearing held on 9/9/10, at Adversary Docket #43, in Appellant’s
App. at 6.
-6-
the validity and amount of the claims need not be litigated in the adversary
proceeding, and ruled BUKE could continue its action against the Eastburgs in
state court. In so ruling, the bankruptcy court further opined:
After the debtor is granted a discharge, neither the automatic
stay nor the discharge injunction nor the bankruptcy court’s
exclusive jurisdiction over dischargeability actions precludes a
plaintiff from prosecuting a cause of action against a debtor in state
court in furtherance of the collection, recovery or offset of any debt
as a personal liability of the debtor provided 1) the cause of action to
establish the debt under applicable non-bankruptcy law and a claim
of non-dischargeability are based on the same conduct, transactions
and occurrences, 2) the non-dischargeable character of the debt is at
issue in an adversary proceeding, and 3) the creditor is prosecuting
the cause of action in state court for the purpose of applying
collateral estoppel to avoid relitigating in bankruptcy court the
validity and extent of the debt in the nondischargeability adversary
proceeding. Nevertheless, the bankruptcy court may still act as
gatekeeper to determine whether those claims are to be litigated in
state court or bankruptcy court. A debtor-defendant may timely
remove the claims against the debtor to bankruptcy court pursuant to
28 U.S.C. § 1452(a) and Rule 9027, Fed. R. Bankr. P., and then move
under Rule 42, Fed. R. Civ. P., to consolidate the removed action
with the pending non-dischargeability action. The plaintiff may then
move to remand. In addition, in appropriate circumstances the debtor
may seek an injunction under 11 U.S.C § 105(a) to stay the
prosecution of claims in the state court action.
[The Eastburgs] did not timely seek to remove the State Court
Action to this Court and have not requested the Court to stay the
State Court Action. Thus, BUKE is not precluded from pursuing its
claims in the State Court Action against [the Eastburgs] for fraud,
breach of fiduciary duty, and RICO for the purpose of establishing
facts pertinent to the non-dischargeability claims raised and
preserved in this adversary proceeding. 18
The Eastburgs timely appealed the bankruptcy court’s decision, and filed two
additional motions: 	1) a motion to stay the order pending appeal; and 2) as
suggested by the bankruptcy court in its decision, a motion to stay the state court
action pursuant to § 105(a). 	On September 9, 2010, the bankruptcy court set both
motions for hearing on October 7, 2010. 19 On September 30, 2010, the Eastburgs
BAP Appeal No. 10-60 Docket No. 33 Filed: 04/12/2011 Page: 6 of 15
Case 10-01024-j Doc 75 Filed 04/27/11 Entered 04/27/11 13:58:19 Page 6 of 15

20 Withdrawal of Document, at Adversary Docket #51, in Appellant’s App. at
7.
21 Minutes of Hearing held on 10/7/10, at Adversary Docket #57, in
Appellant’s App. at 7.
22 The bankruptcy court’s subsequent decision is published at BUKE, LLC v.
Eastburg (In re Eastburg), 440 B.R. 864 (Bankr. D.N.M. 2010) (hereafter
“Eastburg II”).
23 Id. at 873-74.
24 Id. at 877.
25 Id.
-7-
withdrew their motion to stay pending appeal, 20 and the bankruptcy court held a
final evidentiary hearing on their motion to stay the state court action. 21
On November 4, 2010, the bankruptcy court entered a memorandum
opinion and order denying the motion to stay the state court action. 22 However,
utilizing the “deprivation of a fresh start” criteria, the bankruptcy court found the
Eastburgs had demonstrated a sufficient likelihood of success, 23 and after
considering the balancing of harms, ruled it “can and will fashion relief to
mitigate the harm to both parties without issuing an injunction. 	The Court can
conduct a trial in the adversary proceeding, and make a decision on BUKE’s non-
dischargeability claims, before the trial in the State Court Action commences.” 24
Further, the bankruptcy court stated “[u]pon resolution of the claims in this
adversary proceeding, further prosecution of the claims against the Eastburgs in
the State Court Action would be barred by the discharge injunction, or would be
unnecessary as a result of a binding decision on the merits by this Court.” 25 The
effect of this ruling was to temper somewhat the effect of the prior ruling
allowing the state court action to go forward, as the bankruptcy court promised to
rule upon the dischargeability of the BUKE claims prior to the trial of the state
court action. 	Neither party appealed the bankruptcy court’s decision that it would
deny the Eastburgs’ motion to stay but nevertheless resolve the adversary
BAP Appeal No. 10-60 Docket No. 33 Filed: 04/12/2011 Page: 7 of 15
Case 10-01024-j Doc 75 Filed 04/27/11 Entered 04/27/11 13:58:19 Page 7 of 15

26 Although the subsequent order has not been appealed, it has been made a
part of the record in this appeal. 	See Memorandum Opinion, in Appellee’s App.
at 1.
27 28 U.S.C. § 158(a)(1), (b)(1), and (c)(1); Fed. R. Bankr. P. 8002; 10th Cir.
BAP L.R. 8001-3.
28 Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 712 (1996) (quoting Catlin
v. United States, 324 U.S. 229, 233 (1945)).
29 Order Denying Leave to Appeal As Unnecessary and Setting Briefing
Schedule, at BAP Appeal No. NM-10-060 Docket No. 12 (citing Tidwell v. Smith
(In re Smith), 582 F.3d 767, 776-77 (7th Cir. 2009)).
-8-
proceeding in advance of the state court’s trial on the matter. 26
II. 	APPELLATE JURISDICTION
This Court has jurisdiction to hear timely-filed appeals from “final
judgments, orders, and decrees” of bankruptcy courts within the Tenth Circuit,
unless one of the parties elects to have the district court hear the appeal. 27
Neither party elected to have this appeal heard by the United States District Court
for the District of New Mexico. 	The parties have therefore consented to appellate
review by this Court.
A decision is considered final “if it ‘ends the litigation on the merits and
leaves nothing for the court to do but execute the judgment.’” 28 A motions panel
of this Court previously determined that the bankruptcy court’s order is final for
purposes of appellate review. 29
III. 	ISSUE ON APPEAL AND STANDARD OF REVIEW
The facts of this case are undisputed. 	Broadly viewed, the issue on appeal
is whether, in ruling on Counts Five and Six of BUKE’s Amended Complaint, the
bankruptcy court erred in allowing BUKE to continue its state court action against
the Eastburgs while the nondischargeability proceedings based on the same claims
were pending. 	We see BUKE’S requested rulings regarding the discharge
BAP Appeal No. 10-60 Docket No. 33 Filed: 04/12/2011 Page: 8 of 15
Case 10-01024-j Doc 75 Filed 04/27/11 Entered 04/27/11 13:58:19 Page 8 of 15

30 BUKE’s requested rulings on the discharge injunction cannot technically be
viewed as a motion to lift stay because, pursuant to § 362(c)(2)(C), the automatic
stay is no longer in effect after a discharge is granted or denied.
31 Franklin Savs. Ass’n v. Office of Thrift Supervision, 31 F.3d 1020, 1023
(10th Cir. 1994).
32 In re Rafter Seven Ranches L.P., 414 B.R. 722, 731 (10th Cir. BAP 2009).
33 Moothart v. Bell, 21 F.3d 1499, 1504 (10th Cir. 1994).
34 Eastburg I, 440 B.R. at 856.
-9-
injunction as analogous to a motion to lift the automatic stay. 30 A bankruptcy
court’s decision on a motion for stay relief is reviewed for abuse of discretion. 31
Additionally, BUKE’s requested rulings are conversely related to a debtor’s
motion to stay the state court action pursuant to § 105. 	A bankruptcy court’s
exercise of its equitable powers under § 105(a) is also reviewed for abuse of
discretion. 32 Therefore, we review the order on appeal here under the abuse of
discretion standard. 	Under the abuse of discretion standard, a trial court’s
decision will not be disturbed unless the appellate court has a definite and firm
conviction that the lower court made a clear error of judgment or exceeded the
bounds of permissible choice in the circumstances. 33
IV. 	ANALYSIS
According to the bankruptcy court, the issue before it was “at its core, [ ]
whether BUKE’s claims against [the Eastburgs] in the State Court Action can be
litigated in that action or whether they must be litigated in this adversary
proceeding.” 34 We agree. 	The bankruptcy court concluded the claims did not
have to be litigated in the adversary proceeding, and ruled BUKE could continue
its proceedings against the Eastburgs in state court. 	We reach the same
conclusion, but as discussed below, for somewhat different reasons than the
bankruptcy court, and affirm its order.
In ruling that BUKE could continue its action against the Eastburgs in state
BAP Appeal No. 10-60 Docket No. 33 Filed: 04/12/2011 Page: 9 of 15
Case 10-01024-j Doc 75 Filed 04/27/11 Entered 04/27/11 13:58:19 Page 9 of 15

35 Id. at 857-58 (emphasis added) (citations omitted).
36 11 U.S.C. § 523(c)(1).
37 In footnote three of its memorandum opinion, the bankruptcy court cited to
three bankruptcy court cases, and one district court case as authority for this
proposition. 	Eastburg I, 440 B.R. at 858 n.3. 	See In re Redburn, 193 B.R. 249,
261 (Bankr. W.D. Mich. 1996); In re Mitchell, 255 B.R. 345 (Bankr. D. Mass.
2000); In re Gray, 2000 WL 34239244, at *5 (W.D. Wis. Apr. 12, 2000); and In
re Massa, 217 B.R. 412, 421 (Bankr. W.D.N.Y. 1998), aff’d, 187 F.2d 292 (2d
Cir. 1999). 	However, we are not bound by the decisions of those courts, and
further, having reviewed the cases, deem the statements regarding nonapplication
of the § 524(a)(2) discharge injunction to debts subject to a pending
dischargeability adversary to be dicta. 	In Redburn and Mitchell, the bankruptcy
courts were asked to determine the eligibility of the debtors for Chapter 13 relief.
In Gray, the district court was reviewing a bankruptcy court’s decision granting a
(continued...)
-10-
court, the bankruptcy court stated
Bankruptcy Code § 523(a) and (c) and (d) contemplate that a
debt is not discharged if a timely complaint is filed objecting to
discharge of the debt under 11 U.S.C. § 523(a)(2), (4) or (6) unless
and until the court denies the objection. Here, because there has
been no determination of the dischargeability of the debt that BUKE
seeks in this adversary proceeding to except from the discharge, the
discharge injunction is not yet applicable to that debt. 35
Although we do not necessarily agree with the bankruptcy court’s conclusion in
this regard, we need not reach the issue in order to resolve this appeal.
Section 523(c), regarding nondischargeability of the type of debts involved
in this appeal, provides:
(c)(1) Except as provided in subsection (a)(3)(B) of this section, the
debtor shall be discharged from a debt of a kind specified in
paragraph (2), (4), or (6) of subsection (a) of this section, unless, on
request of the creditor to whom such debt is owed, and after notice
and a hearing, the court determines such debt to be excepted from
discharge under paragraph (2), (4), or (6), as the case may be, of
subsection (a) of this section. 36
The bankruptcy court interpreted this statutory provision to mean that the
discharge injunction of § 524(a)(2) does not apply to a debt of the type described
in § 523(a)(2), (4), and (6) while a nondischargeability adversary proceeding
regarding that debt is pending. 	There is little authority to support the
proposition. 37 Further, we believe interpreting § 523(c) to mean that the
BAP Appeal No. 10-60 Docket No. 33 Filed: 04/12/2011 Page: 10 of 15
Case 10-01024-j Doc 75 Filed 04/27/11 Entered 04/27/11 13:58:19 Page 10 of 15

37 (...continued)
relief from the automatic stay and the discharge order specifically stated that it
did not apply to any pending adversary to determine dischargeability of a debt.
And in Massa, a debtor was contesting a state court’s determination that a debt
was not dischargeable because the judgment creditor’s claim had not been
scheduled.
38 The situation that this case presents, i.e., a discharge order has been entered
but a dischargeability adversary is pending, is common. 	The bankruptcy court’s
conclusions throw those types of debts into “debt limbo,” with neither the
automatic stay nor the discharge injunction functioning to protect debtors. 	The
danger associated with the bankruptcy court’s interpretation of § 523(c), as it
relates to the discharge injunction under § 524(a)(2), is that creditors could
perceive it as granting them the “green light” to commence or continue litigation
against debtors in state court during the pendency of a bankruptcy case without
bankruptcy court approval. 	The policies underlying bankruptcy generally, as well
as the breadth of a bankruptcy court’s jurisdiction, run contrary to such
interpretation. 	We need not address that concern here, because BUKE sought
permission from the bankruptcy court to continue its state court action. 	Our
affirmance of the bankruptcy court’s order should not be viewed as authority for
continuation of litigation or collection activities with respect to a debt that is the
subject of a pending nondischargeability adversary proceeding without
bankruptcy court approval. 	We realize that, as a practical matter, our concern
may be overstated, since once a state court is apprised that a litigant before it is a
debtor 	in bankruptcy, it typically seeks assurances regarding the applicability of
the automatic stay and the discharge injunction. 	In any event, we do not endorse
the bankruptcy court’s interpretation of § 523(c).
-11-
described debts are “presumptively discharged” until the bankruptcy court
makes a determination regarding dischargeability, and hence the discharge
injunction applies, is sounder both in theory and in practice than the bankruptcy
court’s interpretation. However, because BUKE pled in the alternative for
modification of the discharge injunction to permit them to proceed against the
Eastburgs in state court, and because the bankruptcy court held further
proceedings on the Eastburgs’ motion to stay the state court action, we may
affirm the bankruptcy court’s order without reaching the statutory interpretation
issue today. 38
We are “free to affirm . . . on any grounds for which there is a record
sufficient to permit conclusions of law, even grounds not relied upon” by the trial
BAP Appeal No. 10-60 Docket No. 33 Filed: 04/12/2011 Page: 11 of 15
Case 10-01024-j Doc 75 Filed 04/27/11 Entered 04/27/11 13:58:19 Page 11 of 15

39 Griess v. Colo., 841 F.2d 1042, 1047 (10th Cir. 1988) (internal quotation
marks omitted).
40 Hertz v. Luzenac Am., Inc., 370 F.3d 1014, 1017 (10th Cir. 2004) (quoting
Abuan v. Level 3 Commc’ns, 353 F.3d 1158, 1171 n.3 (10th Cir. 2003)). 	See also
Reynolds v. United States, 643 F.2d 707, 710 (10th Cir. 1981) (“we are reminded
of our well established appellate maxim that if a trial court’s decision is correct
upon any proper theory, we will uphold that decision”) (quoting Pound v. Ins. Co.
of N. Am., 439 F.2d 1059, 1062 (10th Cir. 1971)).
41 Ctr. for Native Ecosystems v. Cables, 509 F.3d 1310, 1324 (10th Cir. 2007)
(citation omitted).
42 Id. (quoting Anixter v. Home-Stake Prod., 77 F.3d 1215, 1228 (10th Cir.
1996)).
-12-
court. 39 Further, we may affirm “even where the lower court reached its
conclusions from a different or even erroneous course of reasoning.” 40 This rule
is applicable only when the parties have had a “fair opportunity to develop the
record and to address the ground on which we rely.” 41 Presentation of the issue in
the lower court is required in order “to ensure that litigants may not be surprised
on appeal by final decision there of issues upon which they have had no
opportunity to introduce evidence or to present whatever legal arguments they
may have.” 42 Here, the issue of modification of the discharge injunction was
raised in the court below. 	Additionally, the parties were afforded further
opportunity to present arguments regarding the best forum for litigation of
BUKE’s claims during the hearing on the Eastburgs’ motion to stay the state court
action. 	Thus, we feel comfortable premising our decision in this case on the
alternate basis that, even if the discharge injunction applies to the claims pending
in the nondischargeability adversary, it was within the bankruptcy court’s
discretion to modify the injunction and permit BUKE to go forward with those
claims against the Eastburgs in state court.
Although the Bankruptcy Code does not expressly provide for such relief,
the majority of courts have concluded that the discharge injunction may be
BAP Appeal No. 10-60 Docket No. 33 Filed: 04/12/2011 Page: 12 of 15
Case 10-01024-j Doc 75 Filed 04/27/11 Entered 04/27/11 13:58:19 Page 12 of 15

43 See, e.g., Hendrix v. Page (In re Hendrix), 986 F.2d 195, 198 (7th Cir.
1993) (“[A]lthough the Bankruptcy Code does not expressly authorize the
modification of a discharge, ... any court that issues an injunction can modify it
for good cause on the motion of a person adversely affected by it.”); In re Schultz,
251 B.R. 823, 826-27 (Bankr. E.D. Tex. 2000) (“[A] bankruptcy court’s ability to
modify the § 524 injunction is consistent with the Code’s policy of maintaining
control over the bankruptcy discharge and avoiding misinterpretation and abuse in
other courts.”); but cf. In re Munoz, 287 B.R. 546, 553 (9th Cir. BAP 2002) (the
“statutory scheme constitutes a ‘clear and valid’ legislative command that leaves
no discretion in the court to ‘modify’ the discharge injunction”).
44 See, e.g., In re Walker, 927 F.2d 1138 (10th Cir. 1991).
45 The bankruptcy court referred to this role as that of “gatekeeper.” 	See
Eastburg I, 440 B.R. at 863.
-13-
modified. 43 Nearly all of the cases addressing the issue involve a creditor’s
request to proceed in state court against a debtor nominally with respect to
liability, in order to collect or recover damages from a third party, such as an
insurer. 44 Although not the factual situation here, the purpose of modification of
the discharge injunction by the bankruptcy court is the same–to give a creditor
permission to continue litigation against a debtor in state court. 	Once a party has
filed for protection from his creditors under the Bankruptcy Code, the bankruptcy
court is expected to take charge of logistics and play the role of “traffic cop” with
respect to creditors’ actions against a debtor. 45 We believe modification of the
discharge injunction is one method the bankruptcy court may use to properly
exercise this role.
We agree with the bankruptcy court that, although the bankruptcy court has
exclusive jurisdiction over a determination of dischargeability under § 523(a)(2),
(4), and (6), bankruptcy courts and state courts have concurrent jurisdiction to
adjudicate the validity and extent of debts arising under applicable non-
bankruptcy law. 	Whether or not the validity and extent of a debt is better
litigated in the bankruptcy court or the state court is left to the bankruptcy court’s
discretion. 	Many factors may impact a bankruptcy court’s decision in this regard,
and as a result, such decision would necessarily be made on a case-by-case fact
BAP Appeal No. 10-60 Docket No. 33 Filed: 04/12/2011 Page: 13 of 15
Case 10-01024-j Doc 75 Filed 04/27/11 Entered 04/27/11 13:58:19 Page 13 of 15

46 See e.g., Eastburg II, 440 B.R. at 870-71.
47 Id. at 877.
48 Id. 	A scheduling order entered in the state court action on September 10,
2010, sets the trial for December 5, 2011. 	See id. at 869. 	The bankruptcy court
set trial of the nondischargeability adversary for October 4, 2011. 	See Scheduling
Order, dated November 29, 2010, at Docket #62.
49 See Eastburg II, 440 B.R. at 876-77.
-14-
specific basis. Among the relevant criteria would likely be judicial economy and
efficiency (for example, at what phase of litigation is the state court action), the
burden and expense to the parties (for example, the time and expense that would
be involved in duplication of discovery and litigation), whether there are
additional integral parties to the state court action over which the bankruptcy
court does not have jurisdiction, the right to a jury trial in state court, whether the
state court proceeding negatively impacts the bankruptcy estate, and whether the
state court proceeding would impair a debtor’s reorganization efforts. Some of
these criteria were among those the bankruptcy court considered when it ruled on
the Eastburgs’ motion to stay the state court action. 46
Although the bankruptcy court declined to enjoin the state court
proceedings, it fashioned relief it believed would mitigate harm to both parties. 47
It determined that it would conduct a trial in the adversary proceeding and make a
decision on BUKE’s nondischargeability claims before the state court trial
commences. 48 Further, in order to avoid duplication of discovery, the bankruptcy
court consolidated discovery with the state court action. 49 Because neither party
appealed the bankruptcy court’s November 4, 2010, decision, we suspect they
were satisfied that the bankruptcy court, after careful and deliberate
consideration, had meted out a solution that was as fair to both parties as it could
be under the circumstances.
Whether we would have handled this situation in a manner different than
BAP Appeal No. 10-60 Docket No. 33 Filed: 04/12/2011 Page: 14 of 15
Case 10-01024-j Doc 75 Filed 04/27/11 Entered 04/27/11 13:58:19 Page 14 of 15

50 Moothart v. Bell, 21 F.3d 1499, 1504 (10th Cir. 1994).
-15-
the bankruptcy court did is not relevant. Under the abuse of discretion standard,
we do not reverse a trial court’s decision unless we have a definite and firm
conviction that the lower court made a clear error of judgment or exceeded the
bounds of permissible choice in the circumstances. 50 We cannot say that is the
case here.
V. 	CONCLUSION
The bankruptcy court did not abuse its discretion in allowing BUKE to
continue its litigation against the Eastburgs in state court. 	Its order is therefore
AFFIRMED.
BAP Appeal No. 10-60 Docket No. 33 Filed: 04/12/2011 Page: 15 of 15
Case 10-01024-j Doc 75 Filed 04/27/11 Entered 04/27/11 13:58:19 Page 15 of 15