n re United Airlines Inc., 368 F.3d 720 (7th Cir. 2004), held that a trustee in bankruptcy or a debtor-in-possession (DIP) may assume a credit card processing agreement, following the holding in In re Thomas B. Hamilton Co., 969 F.2d 1013 (11th Cir. 1992). The argument against assumption was that the credit card system "operates like a revolving line of credit," and since a line of credit directly with the processor bank could not be assumed, neither could the credit card processing agreement. The court held that the processor bank was an "intermediary" whose role was not that of "financial accommodation." The court rejected the argument that "if any non-trivial part of a complex business arrangement can be called a guaranty, then none of the deal may be assumed in bankruptcy." Instead, it held that credit "is implied whenever performance is not simultaneous." "[I]f a lease may be assumed despite an implicit loan, a credit-card-processing agreement may be assumed despite an implicit guaranty... We think that Thomas B. Hamilton Co. was right to say that a court must determine the nature of the entire transaction rather than hunt for features that look like loans or guarantees." The Seventh Circuit did depart from Hamilton in dicta that "bankruptcy judges should not allow assumption of contracts that expose the other party to 'unreasonable risk'‹whatever 'unreasonable' might mean." As a result, as there had not been a default in the agreement, United was not required to provide adequate assurance of future performance. "A bankruptcy judge may properly withhold approval assumption when an executory contract is no longer in the debtor's interest, or the debtor is unlikely to perform its obligations, but not on an open-ended ground such as 'unreasonable' risk to the other contracting party... United has kept its part of the bargain and is entitled to insist that National Processing do the same."

Fair Debt Act vs. Bankruptcy Code

In Randolph v. IMBS Inc., 368 F.3d 726 (7th Cir. 2004), the court addressed whether a demand for payment while the debtor is in bankruptcy (or after the debt has been discharged) creates a claim under the Fair Debt Collection Practices Act (FDCPA) as a "false" demand that asserts that money is due, "although, because of the automatic stay or the discharge injunction, it is not." The FDCPA creates a strict liability rule, while the Bankruptcy Code makes liability depend on the actor's knowledge. The FDCPA does provide a defense "if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error." The district courts had held that the remedies under the Bankruptcy Code were the only recourse against post-bankruptcy debt-collection efforts‹essentially holding that the Bankruptcy Code "trumps" the FDCPA. Rejecting Walls v. Wells Fargo Bank N.A., 276 F.3d 502 (9th Cir. 2002), the court held that the Bankruptcy Code and the FDCPA are "simply different rules, with different requirements of proof and different remedies... To say that only the Code applies is to eliminate all control of negligent falsehoods. Permitting remedies for negligent falsehoods would not contradict any portion of the Bankruptcy Code, which therefore cannot be deemed to have repealed or curtailed [the FDCPA] by implication."

Credit Card "Convenience Checks" Non-dischargeable

In In re Ashland, 307 B.R. 317 (Bankr. D. Mass. 2004), Bankruptcy Judge William C. Hillman addressed three common situations in connection with the issuance and use of credit cards and the effect on an objection to dischargeability under §523(a)(2)(A). The debtor had a pre-petition credit card with a high rate of interest and subsequently obtained a new credit card, which accompanied each monthly statement with three enclosed "convenience checks." Within 60 days prior to the filing and after making an appointment with a bankruptcy attorney, the debtor used several checks, and the credit card issuer objected under §523(a)(2)(A). The checks were used to (a) pay off the balance on the higher-interest-rate card and (b) make a deposit into a bank account to support payments on the homestead debt and to pay a bankruptcy attorney. As to the funds deposited into the account, the court found that use of a convenience check to ultimately obtain cash (as opposed to a direct cash advance) fell within §523(a)(2)(C), and the debtor's testimony that she fully intended to repay the advance did not overcome the presumption that the amount of the check was non-dischargeable. As to the first check, while the court said that the presumption did not apply to the check that was used to pay off the high-rate card, relying on AT&T Universal Card Services Corp. v. Searle, 223 B.R. 384 (D. Mass. 1998), there was an implied representation that she intended to repay that amount and that the amount was also non-dischargeable.

Creditor Request for "Compromise" Denied

In In re Salindari, 307 B.R. 353 (Bankr. D. Conn. 2004), Chief Bankruptcy Judge Albert S. Dabrowski addressed the "unique policies and concerns" that arise as a result of a creditor objecting to a debtor's discharge and then seeking to have the court approve a compromise that runs to the benefit of only the objecting creditor. In this case, the complaint alleged, inter alia, that the debtors "engaged in an orchestrated pattern of concealment of income and other assets designed to subvert the legitimate efforts of creditors to collect on their debts." A settlement provided for dismissal of the complaint and an agreement that $50,000 of the plaintiff's claim was excepted from any discharge granted to the debtors. Notice of the proposed settlement was given to all interested parties in compliance with Local Rule, and no creditor objected or moved to intervene or be substituted as plaintiff. However, the Local Rule prohibits a discharge unless an affidavit is filed to the effect that "no consideration has been promised or given, directly or indirectly" in exchange for dismissal of an adversary proceeding seeking to deny a discharge. The court noted that "various tools are available to combat the peril inherent in an unregulated system for the consensual disposition of discharge objections." These tools include (1) broad-based notice of any proposed disposition of pending litigation, (2) the explicit authority the courts have to "police proposed settlements for evidence of tainted compromise" and (3) Local Rule 7041-1(b) (which finds its support in the Advisory Committee Note to Bankruptcy Rule 7041), which requires both that the debtor and counsel present that no consideration is being given to the plaintiff in exchange for dismissal of the proceeding. Rejecting the view set out in In re Hayden, 246 B.R. 795 (Bankr. D. S.C. 1999), Judge Dabrowski held that the lack of creditor response is "not necessarily indicative of the absence of creditor harm or prejudice," and refused to approve the settlement.

Extensions Are Limited Under §108

In re Marshall, 307 B.R. 517 (Bankr. E.D. Va. 2003), deals with §108(a), which in essence provides a trustee an extension of up to two years to commence an action if limitations expire during the bankruptcy case. Bankruptcy Judge Robert G. Mayer addressed the issue of whether the Virginia statute of limitations is suspended for the benefit of the debtor or his present trustee during the period that the debtor's prior bankruptcy was pending. The cause of action in question accrued prior to the first bankruptcy, and the initial trustee failed to pursue the claim. The trustee for the second case argued that §108(a) extended the original statute of limitations by its application in both cases‹in other words, since two years had not expired between the two bankruptcy petitions, §108(a) gave the second trustee another two years. The court rejected this argument, stating that the "fallacy of the trustee's argument is that §108(a) does not enlarge the statute of limitations by a set period of two years, if applicable, but only grants the trustee an extension of time up to two years to commence an action. The extension inures only to the trustee's benefit." The court went on to note that if a cause of action ceases to be an asset of the estate and revests in the debtor, there is no extension under §108(a), and if limitations expired prior to the re-vesting, then "it is not revived when it ceases to be property of the estate, and the debtor may not pursue the cause of action."

Miscellaneous

• In re Shin, 306 B.R. 397 (Bankr. D. D.C. 2004) (individual could not use §505(b) to discharge in a chapter 11 plan personal tax liabilities that were not administrative expenses, as they did not arise in connection with activities as debtor-in-possession);
• In re Dubois, 306 B.R. 423 (Bankr. D. Me. 2004) (although Maine "opted out" of federal exemptions, the statute that limited the homestead exemption's availability and applicability to liens was pre-empted by §522(c) and (f));
• In re Zambre, 306 B.R. 428 (Bankr. D. Mass. 2004) (Rooker-Feldman doctrine precluded hearing on debtors' lien avoidance where state court had already determined that debtors did not have homestead exemption in subject property);
• In re Limieux, 306 B.R. 433 (Bankr. D. Mass. 2004) (Rooker-Feldman doctrine barred bankruptcy court from determining whether state court had erred in awarding damages);
• In re Whitefoot, 306 B.R. 563 (Bankr. N.D. Miss. 2004) (where state court had previously entered judgment in favor of holder of deed of trust, Rooker-Feldman doctrine barred debtors from asserting that deed not encumber residence);
• In re Lucas, 307 B.R. 703 (Bankr. D. Kan. 2004) (Rooker-Feldman doctrine prohibited bankruptcy court from engrafting the additional remedy of a constructive trust onto a prior state court judgment as such a remedy was "inextricably intertwined" with the prior state court judgment);
• In re Sbriglio, 306 B.R. 445 (Bankr. D. Conn. 2004) (state court determination that transfer of residence was an avoidable fraudulent conveyance did not re-vest the property in the debtors or otherwise make it an asset of the estate);
• In re Enron Corp., 306 B.R. 465 (Bankr. S.D.N.Y. 2004) (while order annulling stay has retroactive effect and can validate actions that would otherwise be deemed to be void ab initio, order terminating or lifting stay operates only date of entry and does not affect status of actions taken between date bankruptcy petition was filed and entry of order);
• In re Carematrix Corp., 306 B.R. 478 (Bankr. D. Del. 2004) (creditor that does not receive adequate notice is not bound by confirmation order);
• In re Allied Digital Technologies Corp., 306 B.R. 505 (Bankr. D. Del. 2004) (even if proceeds of D&O policy were property of the estate, court would lift stay to allow directors and officers to obtain payment of defense and other costs under the policy);
• In re Shelby Yarn Co., 306 B.R. 523 (W.D.N.C. 2004) (investment fund that owned all of chapter 7 debtor's stock was an "employer" that could be held liable for debtor's alleged violations of COBRA, ERISA and the North Carolina Wage and Hour Act where there was commonality of ownership and of directors between fund and debtor and fund had assumed de facto control over debtor);
• In re Georgetown Steel Co., 306 B.R. 542 (Bankr. D. S.C. 2004) (names of key employees under a KERP would be sealed as in the nature of "confidential commercial information"); and
• In re Phillips, 306 B.R. 655 (Bankr. E.D. Mo. 2004) (even an urgent foreclose sale does not justify filing a petition without a debtor's signature).