Benchnotes Feb 2001
Contractor's "Intent to Deceive"
In In re Orsine, 254 B.R. 184 (Bankr. N.D. Ohio 2000), Chief Bankruptcy Judge Richard L. Speer ruled on a complaint to determine dischargeability of debt that arose from the failure of a contractor to install windows. After reciting the facts of the case, the court identified the necessity for determining a debtor's intent to deceive and found that once a contractor accepts money for services, that contractor must take reasonable steps to protect the creditors' interests, and a failure to do so when coupled with the false representations will rise to the level of an intentional deception for purposes of §523(a)(2)(A). In this case, the defendant had contracted to install windows, obtained a 50 percent deposit, failed to order the windows, not used any portion of the deposit in order to obtain the windows and had not taken any other action to safeguard the money plaintiffs had given to the debtor. As a result, the court held that the plaintiffs had met their burden of proof with regard to establishing that representations were made by the debtor with the intent to deceive the creditor. As to the issue of reasonable reliance, the court examined statements in Field v. Mans, 516 U.S. 59 (1995), noting that the parties had dealt with each other formerly on "amicable terms," the down payment was only 50 percent of the project, this down payment was similar to contracts like this, and there was nothing else that would have alerted the plaintiff or any other party to the problems they were to encounter. The court held that the plaintiffs had established the non-dischargeability of the obligation owed by the contractor.
Bid-rigging and "Fraud on the Court"
In In re Clinton Street Food Court, 254 B.R. 523 (Bankr. S.D.N.Y. 2000), Chief Bankruptcy Judge Stuart M. Bernstein considered allegations of bid-rigging that arose after the sale of debtor's assets by a chapter 7 trustee. The trustee asserted fraud, "fraud on the court" and fraudulent concealment. In ruling on the defendant's motion for summary judgment, Judge Bernstein found that the "law of the case" was that §363(n) allegations seeking to set aside the bankruptcy sales orders were subject to and thus barred by the one-year period of limitations established by Fed. R. Civ. P. 60(b)(3). The court then considered the issue of fraud on the court, reviewing in particular Leber-Krebs Inc. v. Capitol Records, 779 F.2d 895 (2nd Cir. 1985). Judge Bernstein identified four basic elements: (1) the defendant's misrepresentation to the court, (2) an action by the court based on the misrepresentation, (3) a lack of an opportunity to discover the misrepresentation by either bringing it to the court's attention or bringing some other timely action against the offending party, and (4) the benefit the defendant derived by inducing the erroneous decision. The court found that in the context of the §12(b) motion before the court, the fraud-on-the-court claim would not be dismissed.
Recovering Proceeds from Pre-petition Check
In re Franklin, 254 B.R. 718 (Bankr. W.D. Tenn. 2000), addressed efforts to recover proceeds from the post-petition presentment of a pre-petition check. Bankruptcy Judge G. Harvey Boswell held that the check qualified as a "negotiable instrument" and that the presentment after the petition date did not violate the automatic stay. The court also held that the bank that was without notice of the debtor's chapter 13 filing was not liable for failing to turnover the entire checking account balance on the petition date to the trustee. Ultimately, the court held that the money received upon presentment of the check could be recovered for the benefit of the bankruptcy estate as the avoidance of an unauthorized post-petition transfer from the debtor's account.
Motion to Dismiss for Failure to Attend §341 Meeting
In In re Rodriguez, 255 B.R. 118 (Bankr. S.D.N.Y. 2000), the chapter 7 trustee moved to dismiss the case based on the debtor's failure to attend the §341 meeting. Bankruptcy Judge Robert E. Gerber held that the relief requested was ineffective and inappropriate to deal with the real issue—the discharge of the debtor where the debtor was not examined. The court took judicial notice that under Fed. R. Evid. 201(1) and (2), the debtor had already been discharged. Under Bankruptcy Rule 4004(a), the trustee had 60 days from the time first set for the §341 meeting to object to the discharge, but did not do so. The trustee could have sought an extension of time to object to discharge, and the failure to attend a §341 examination would have constituted cause for such an extension. However, the time for filing such a motion had already expired. Thus, the court denied the motion to dismiss the case, but authorized and directed the trustee to seek an order authorizing the examination of the debtor pursuant to Bankruptcy Rule 2004. If the debtor ignored the Rule 2004 order, the trustee could request an arrest under Bankruptcy Rule 2005, seek to revoke the discharge under §727(d)(3) and/or seek to dismiss the case as prejudiced under §349(a).
- In re Stylesite Marketing Inc., 253 B.R. 503 (Bankr. S.D.N.Y. 2000) (even assuming that equity holder was entitled to imposition of constructive trust upon consideration that paid for purchase of debtor's stock, that right was the nature of a "claim" against the estate that had to be subordinated pursuant to §510(b));
- In re Eggleston Works Loudspeaker Co., 253 B.R. 519 (6th Cir. BAP 2000) (attorneys that represented chapter 7 debtors were eligible to be compensated for post-petition services necessary to administrate the estate after appointment of chapter 7 trustee);
- In re Montgomery, 224 F.3d 1193 (10th Cir. 2000) (earned income credits are treated as tax refunds, and such contingent interests are to be included in the bankruptcy estate even though petitions were filed prior to the end of the tax year and even though debtor's interests and earned income credit were not finalized as of the end of the tax year);
- In re Alvarez, 224 F.3d 1273 (11th Cir. 2000) (legal malpractice claim arising from alleged negligence in failing to follow a client's instructions to file chapter 11 accrued at the moment the petition was filed and accordingly was included in "property of the estate," which the debtor could not pursue without trustee participation);
- In re Rigal, 254 B.R. 145 (Bankr. S.D. Tex. 2000) (the bankruptcy court lacks authority to vacate an order of discharge upon a chapter 7 debtor's request in order to allow the debtors to enter into a reaffirmation agreement);
- In re Monclova Care Center Inc., 254 B.R. 167 (Bankr. N.D. Ohio 2000) (as a practical and necessary facet of a chapter 11 case is a requirement that, unless otherwise approved by the court and provided for by a plan, all objections to proofs of claim must be submitted prior to entry of the confirmation order);
- In re Country Manor of Kenton Inc., 254 B.R. 174 (Bankr. N.D. Ohio 2000) (interest to be paid to fifth-level priority claim is to be paid at the federal judgment rate, not the contractual rate); and
- In re Pomainville, 254 B.R. 699 (Bankr. S.D. Ohio 2000) (damages and related judgment for alleged embezzlement of insurance proceeds by debtor/shareholder runs to corporation, not to other shareholders).