In In re Vebeliunas, 231 B.R. 181 (Bankr. S.D.N.Y. 1999) Chief Bankruptcy Judge Tina L. Brozman addressed the issue of the disinterestedness of a chapter 7 trustee's counsel. However, the disqualification was not on the "usual grounds;" the primary grounds for disqualification was bias displayed against the debtor. Apparently, in a conversation preceding the §341 meeting, counsel for the trustee was quoted as saying that he did not believe "anything the debtor said in this case." The debtor was a convicted felon. Counsel for the trustee unsuccessfully argued that neither the trustee nor trustee's counsel need to be disinterested vis-à-vis the debtor, and that trustee's counsel had no duty to question the debtor before concluding that the debtor was "completely untrustworthy." However, the court found that while the debtor may be guilty of supplying misinformation to the parties in interest, absent a bias or prejudice, counsel for the trustee could not have concluded that the debtor was lying because there had not been an examination of the debtor, and therefore the totality of the evidence necessary for counsel to have formed a reasoned judgment was not available at the time the statement was made. Thus, the issue became whether an unsubstantiated bias was grounds for disqualification of the trustee's counsel. The court went on to note that there are two standards for the retention of counsel—§327(a) and §101(14). Under the facts of this case, the debtor was a potential equity security holder and thus is a party in interest. The trustee's counsel must be disinterested as to parties in interest. As an attorney admitted in the state of New York, trustee's counsel was required to comply with the Cannons of the Code of Professional Responsibility, specifically Cannons 5 and 9, which require counsel to exercise independent judgment on behalf of its client and that a "lawyer should avoid even the appearance of impropriety." The court concluded that counsel's attitude was "impossible to reconcile with counsel's fiduciary duties to the debtor as well as his duty to avoid even the appearance of impropriety, and to exercise independent judgment concluding that counsel was not disinterested as to the debtor as required."

Ordinary Course of Business Preference Defense

In In re Demert & Dougherty Inc., 232 B.R. 103 (N.D. Ill. 1999), District Judge Castillo provided a primer for establishing the ordinary course of business defense to an avoidance action. In order to establish the ordinary course of business exception to a preference avoidance under §547(c)(2), a preference defendant must prove, by a preponderance of the evidence, three distinct elements of defense:

• The debt was incurred in the ordinary course of business of the debtor and the transferee.
• The payment was made in the ordinary course of business between the debtor and the transferee.
• The payment was made according to ordinary business terms.

In this case, the issue was the standards for establishing the "ordinary business terms" elements. With one exception, every circuit court that has inquired into the meaning of "ordinary business terms" has come to the conclusion that it refers "more broadly to customary terms and conditions used by other parties in the same industry facing the same or similar problems" as opposed to merely focusing on the dealings between the debtor and the creditor. Clearly, the courts have also recognized the difficulty defendants would encounter in attempting to gather information to establish industry-wide standards. Judge Castillo noted that the Seventh Circuit in In re Tolona Pizza, 3 F.3d 1029 (7th Cir. 1993) adopted what was characterized as "something of an evidentiary compromise," requiring the preference defendant to introduce evidence of its competitors' accounts receivable and collection practices and also the actual payment practices of the competitors' customers. The court also noted that there is less guidance for identifying the relevant business or industry to be examined, noting that billing practices vary greatly from industry to industry. The majority of the courts have looked not only at the creditor's industry activity, but to the creditor's activity as it relates to the debtor specifically. In this case, the court adopted a narrow industry of suppliers for chemicals used in beauty products, and not the broader market of chemical manufacturers supplying chemical products generally. The court then found that the defendant failed to introduce sufficient evidence of ordinary business terms. Its witness, although he had substantial experience as a credit manager, had very limited experience in the relevant industry (chemical supplier to beauty product manufacturers). The court noted that the defendant failed to produce additional witnesses or documentary evidence relating to whether the debtor had made the preferential payments according to the ordinary business terms. Where the sole witness did not have personal first-hand knowledge of competitors practices and the defendant failed to produce any other evidence of such practices, the court found that the evidence was insufficient to establish ordinary business terms.

Miscellaneous

• In re Burnip, 229 B.R. 904 (Bankr. S.D. Ohio 1999) (liability that was contingent upon partnership's default and was business-oriented did not support less favorable treatment in a chapter 13);
• In re Watkins, 229 B.R. 907 (Bankr. N.D. Ill. 1999) (chapter 7 trustee has standing to oppose request for dismissal of case even where no creditors opposed the dismissal);
• In re Rimsat Ltd., 229 B.R. 910 (Bankr. N.D. Ind. 1998) (as surplus assets in a chapter 7 are to go "to the debtor," there will be no distribution to shareholders, and thus no reason to consider equitably subordinating the various interests of shareholders);
• In re Gibbs, 230 B.R. 471 (Bankr. D. Conn. 1999) (it is against public policy to confirm a chapter 11 plan that authorizes a voluntary assignment of an individual's future wages);
• In re Johnson, 230 B.R. 608 (Bankr. 8th Cir. 1999) (§522(f)(1)(B)(2i) permits the debtor to have two trades and to claim exemptions for both trades);
• In re Abbo, 168 F.3d 930 (6th Cir. 1999) (state court judgment for malicious prosecution and for abuse of process stated they are non-dischargeable obligations);
• In re National Liquidators Inc., 232 B.R. 99 (Bankr. S.D. Ohio 1999) (as a matter of law, the perpetrator of a ponzi scheme acts with actual intent to hinder, delay and/or defraud creditors when it makes payments to old investors from funds invested by new investors); and
• In re Dygert, 232 B.R. 155 (Bankr. D. Minn. 1999) (creditors' committee did not have standing to commence adversary proceeding to deny debtor's discharge.