In In re Kamine/Bescorp. Allegany, L.P., 214 B.R. 953 (Bankr. D. N.J. 1997), Bankruptcy Judge William F. Tuohey addressed the "long and winding road" of an adversary proceeding in which certain claims had been held to be non-core "related to" matters. On remand, Judge Tuohey addressed the issue of whether the choice of forum clause in the agreement at issue must be enforced. Noting that the Supreme Court has held that a forum selection clause is "prima facia" valid and should be enforced, unless the resisting party can show that enforcement would be "unreasonable under the circumstances." In applying that test to the facts, the court held that the debtor had not met its heavy burden. The court held that the forum selection clause must be enforced resulting in mandatory abstention from hearing the non-core related to matters.

Disgorgement of Fees

In In re Unitcaste Inc., 214 B.R. 992 (Bankr. N.D. Ohio 1997), Chief Bankruptcy Judge Richard L. Speer addressed a request that interim fees paid to the attorney’s former chapter 11 debtor be disgorged so that a redistribution could occur whereby all administrative creditors would receive a pro rata distribution. The court noted that a number of cases from other jurisdictions had ordered such disgorgement and that while "the reasoning in these cases is appealing at first blush, it loses its appeal upon closer scrutiny." The court then went on to follow the "plain language and intent of the Code and the overriding policy arguments against such a rule." The court held that the Bankruptcy Code does not provide for disgorgement of monies paid for admin-istrative expenses, but rather contemplates only a pro rata payment based upon the unpaid portion of all administrative expenses. It further went on to hold that the language of the Bankruptcy Code shows that interim fees were not intended to be recoverable solely due to administrative insolvency. Finally, the court held that the policies that underlie the Bankruptcy Code weigh heavily in favor of requiring disgorgement of interim fees upon the insolvency of the bankruptcy case, but only upon a final review of the merits of the fee application. However, in such a review, the results achieved would be a significant factor. Applying that analysis to the facts before him, the court allowed the interim fees and expenses, but denied any further payments from the bankruptcy estate.

Perfection of Security Interests

In In re First T.D. & Investment Inc., Adv. No. AD 96-03493-TD (Jan. 23, 1998), Bankruptcy Judge Thomas Donovan applied Cal. Bus. & Pro. Code §10233.3, a little known and recently enacted California statute. This statute changed the long-standing Uniform Commercial Code (UCC) rule regarding perfection of security interests a negotiable instrument. The court held that investors’ security interest in certain promissory notes were deemed perfected, notwithstanding the failure of the investors to take actual possession of the notes, where the notes had been validly assigned, and assignment recorded in the real property records prior to the debtor’s bankruptcy.

Statement of Intention

The question of surrender, reaf-firmation or redemption under §521(2)(A) was visited again in In re Schafer, 215 B.R. 205 (Bankr. D. Ore. 1997). The court observed the "considerable disagreement between trial and appellate courts" over the issue and cited numerous of the opinions on the matter since 1989. The issue arose in a motion for relief from stay in a chapter 7 case in which the debtors filed their statement electing to retain the collateral, but neither reaffirming the debt nor redeeming the collateral. The court elected to follow the opinions in In re Mayton, 208 B.R. 61 (9th Cir. Bankr. 1987) (a case in which the Ninth Circuit BAP determined that "The only logical basis for reconciling the conflicting elements of §521(2) is to hold that it is essentially a notice statute," and In re Boodrow, 126 F.3d 43 (2nd Cir. 1997) (which permitted reinstatement). The court agreed that the primary purpose of the statute is to require the debtor to give early notice to the secured creditor—not to provide any additional relief to the secured creditor. Thus, the court held that as the debtors had equity in the collateral and apparently were not otherwise in default, there were no grounds to modify the automatic stay.

Non-dischargeability of Tax Penalty

In Matter of Taylor, 132 F.3d 256 (5th Cir. 1998), the debtor’s confirmed chapter 11 plan (as well as the disclosure statement approved by the court) purported to fix its liability for a "responsible person" penalty under 26 U.S.C. §6672 concerning withholdings of income and Social Security taxes from the employees of the company for which the debtor was a responsible person. Initially the IRS filed a proof of claim in the individual case for unpaid personal income taxes, and the individual debtor objected to the claim. After an audit, the IRS withdrew the claim and made no other claim in the individual’s bankruptcy case. After the individual’s chapter 11 plan had been confirmed, the IRS notified him that a §6672 penalty in excess of $96,000 would be assessed based upon a corporation’s failure to pay §941 taxes. Thereafter, the individual debtor initiated an adversary proceeding seeking a declaratory judgment that he was not indebted to the government for the §6672 penalty. The thrust of his argument was the confirmed plan and its treatment of all "claims entitled to priority of payment in accordance with 11 U.S.C. §507 including: ...[a]ny claim for taxes or penalties owed to the Internal Revenue Service, including but not limited to penalties under 26 U.S.C. §6672." Analogizing the position of the IRS with that of a secured creditor, the court ruled that since the §6672 tax penalty is a non-dischargeable debt, the IRS is entitled to stay outside of the bankruptcy case and thereafter pursue the debtor outside of bankruptcy. "The confirmation of a plan does not itself invoke the tax determination process." The court further held that principles of estoppel did not bar the IRS because the debtor did not reasonably rely on any representation that the IRS would not seek to enforce its claim, holding that a reasonable debtor should expect the IRS to enforce non-dischargeable taxes. It is worth noting that in the instant case, the debtor did not utilize the tax determination procedures under 11 U.S.C. §505.

Classifying Unsecured Creditors

In Troy Savings Bank v. Travelers Motor Inn Inc., 212 B.R. 485 (N.D.N.Y. 1997), the district court affirmed con-firmation of plans in three single asset real estate cases. Each plan classified unsecured creditors into three separate classes: (1) the complaining creditor’s unsecured deficiency claims as to each of the motels; (2) the general unsecured creditors with claims over $250; and (3) the general unsecured creditors with claims under $250. The accepting impaired class was the class with claims under $250. The deficiency creditor had submitted a competing plan that had two unsecured classes: (a) the general unsecured creditors with claims over $250 and (b) all other unsecured creditors, including the deficiency claim. The deficiency creditor argued that the debtor’s plan was required to place all unsecured creditors in one class and that the debtor had engaged in a improper gerrymandering of claims. The bankruptcy court found that there was a reasonable business justification for segregation of the deficiency claim into a separate class, finding that the creditors with small unsecured claims held different interests and expectations than did the secured creditor, and that this distinction is further preserved by the different treatments given to the classes of unsecured claims with claims over $250 and the classification of claims under $250. It also noted that, even using the secured creditor’s plan, cramdown still "would have been affected because it was the ‘under $250’ class who accepted the debtor’s plan as to all three of the motels." On appeal, the district court approved the classification scheme.

Withdrawal of Reference

In In re Dow Corning Corp., 215 B.R. 526 (Bankr. E.D. Mich. 1997), the court recommended pursuant to 28 U.S.C. §157(d) that the district court withdraw the reference to the bankruptcy court "solely with respect to the debtor’s omnibus objection to [products liability claims asserted against it by women who had received breast implants with silicone gel manufactured by the debtor] and with respect to the debtor’s motion for summary judgment on its omnibus objection In its previous opinion at 215 B.R. 346, the bankruptcy court held that it was empowered to grant summary judgment disallowing the personal injury claims. Primarily at issue are questions concerning Daubert issues on admis-sibility of expert testimony concerning causation, and whether the claimants’ expert witnesses will be allowed to testify. After a complete review of all of the competing policies, including the procedures of the bankruptcy court’s first ruling on the motions for summary judgment and a subsequent review of that decision by the district court, the bankruptcy court concluded that the best use of judicial economy "and other prudential considerations strongly point to the conclusion that the proper way to proceed here is for the district court to withdraw the reference to this court with regard to debtor’s omnibus objection to disease claims and the motion for summary judgment thereon." "[T]he bizarre personal injury jurisdictional provisions of the Judicial Code creates a very peculiar procedural relationship between the district and bankruptcy courts. This relationship potentially puts a district judge into a position of internal conflict due to her dual roles as both a trial court and appellate court in the same bank-ruptcy case. The best way to prevent such conflict is for the issue to bypass the bankruptcy judge altogether, leaving the district court as solely a trial court."

Miscellaneous

• Town of Hempstead Employees Federal Credit Union v. Wicks, 215 B.R. 316 (E.D.N.Y. 1997), (four-month administrative freeze constituted setoff in violation of the automatic stay subjecting the credit union to $500 in sanctions);

• In re Lee, 212 B.R. 22 (Bankr. 9th Cir. 1997), (mortgagee secured claim secured only by debtor’s principal residence, notwithstanding language in deed of trust purporting a security interest in appliances);

• In re Mickens, 214 B.R. 976 (N.D. Ohio 1997), (tax forms filed by chapter 7 debtors/taxpayer more than seven years after the IRS had filed substitute returns for the years in question did not constitute "returns" for dischargeability purposes);

• In re Hogan, 214 B.R. 1022 (Bankr. E.D. Ark. 1997), (denial of discharge arising out of fraudulent transfer of property does not create a collateral estoppel effect in subsequent proceedings to set aside allegedly fraudulent conveyances); and

• In re Jenkins, 130 Fd. 3rd 1335 (9th Cir. 1997), (total compensation to chapter 7 trustee for services performed by trustee and by paraprofessionals employed by trustee is limited by statutory cap, unless paraprofessional has been employed pursuant to §327 as a result of a required expertise beyond that expected of ordinary trustee).