Benchnotes Mar 2001
Attorney Fees, Expenses "Substantial Contribution"
In In re Celotex Corp., 227 F.3d 1336 (11th Cir. 2000), in a case of first impression, the Eleventh Circuit considered whether a creditor's attorney may recover fees and expenses for a "substantial contribution" pursuant to §503(b)(3)(D) where the creditor client has an adverse interest in the debtor. The Eleventh Circuit adopted the Fifth Circuit's holding in In re DP Partners Ltd., 106 F.3d 667 (5th Cir. 1997), that "...a creditor's motive in taking actions that benefit the estate has little relevance in the determination whether the creditor has...ma[de] a substantial contribution to a case." The plain language of the statute does not require a "self-deprecating, altruistic intent as a prerequisite to recovery..." The Eleventh Circuit ruled that the creditor's attorney was entitled to fees and expenses for a substantial contribution and remanded the case for a determination of the appropriate hourly rate. The dissent would remand the case to the bankruptcy court "...to determine whether the services for which [the attorneys] seek to be compensated constitute a substantial contribution under 11 U.S.C. §503(b)(3) and (4), under the correct legal standards. Assuming that the court correctly holds that the bankruptcy court applied the wrong legal principle in examining the facts, that court should make the final factual determination without that legal error, not this court."
Appeal Procedural Requirements Still Mandatory
The courts continue to remind us that procedural requirements for appeal are mandatory, and the failure to remember this can have serious adverse consequences. In In re Starcher, 255 B.R. 292 (S.D. W.Va.), the court held that the 10-day time limit for filing a notice of appeal from an order of the bankruptcy court is jurisdictional and must be strictly construed. The Tenth Circuit held in In re Key Energy Resources Inc., 230 F.3d 1197 (10th Cir. 2000), that a party waives appellate review by failing to file timely objections to a magistrate judge's report and recommendation. It also noted that the only way around such a waiver is to satisfy application of the "interest of justice exception" to the waiver rule.
Doctrine of Issue Preclusion
In Adair v. Sherman, 230 F.3d 890 (7th Cir. 2000), confirmation of a chapter 13 bankruptcy plan operated under the doctrine of issue preclusion to bar the debtor from bringing a subsequent suit under the Fair Debt Collection Practices Act, alleging that the claim had been overvalued. There was no objection to the valuation of the claim prior to the confirmation of the chapter 13 plan, and the claim was allowed as fully secured by the terms of the plan itself. Thus, the claim was definitively determined as to both status and amount. As such, imposition of the doctrine of issue preclusion was appropriate.
Substantive Consolidation Order Is Final and Appealable
In In re Bonham, 229 F.3d 750 (9th Cir. 2000), the Ninth Circuit made a number of first-impression rulings in reference to issues involving substantive consolidation of cases. The chapter 7 trustee moved to substantively consolidate a debtor's estate with the non-debtor estates of her two closely held corporations. The Ninth Circuit held that the bankruptcy court's order substantively consolidating the entities is a final and appealable order. The district court had dismissed the appeal for lack of finality, having held (erroneously, as it turns out) that the bankruptcy court's order lacked finality. With reference to the substantive nature of the appeal, the Ninth Circuit held that bankruptcy courts have the power to substantively consolidate entities (not just different debtor estates) pursuant to their general equity powers and that, in this case, the bankruptcy court had not erred in ordering substantive consolidation of the debtor's estate and those of her two closely held corporations. The Ninth Circuit also held that the bankruptcy court did not err in ordering the substantive consolidation nunc pro tunc as of the date of filing of the initial involuntary chapter 7 petition. The facts showed that the debtor operated a Ponzi investment scheme and had used the corporations to further the scheme. The Ninth Circuit also concluded that the bankruptcy court did not err in its ruling, which preserved the trustee's avoidance powers.
- Securities and Exchange Commission v. Brennan, 230 F.3d 65 (2nd Cir. 2000) (the district court's repatriation order obtained by the SEC was found to be an effort to enforce a money judgment and thus fell within the "governmental unit" exception to the automatic stay and violated the stay);
- In re McAlpin, 254 B.R. 449 (Bankr. D. Minn. 2000) (prior order in the chapter 13 bankruptcy case that disallowed as excessive the collection costs as part of proof of claim qualified as a final judgment on the merits that could be given collateral estoppel effect);
- In re Frank, 254 B.R. 368 (Bankr. S.D. Tex. 2000) (automatic stay terminates immediately upon entry of an order dismissing the case);
- In re Keeney, 227 F.3d 679 (6th Cir. 2000) (the Sixth Circuit joins the Fifth Circuit and others in adopting the use of the Doctrine of Continuing Concealment under objections to discharge pursuant to §727(a)(2)(A). See, also, Thibodeaux v. Olivier, (In re Olivier), 819 F.2d 550 (5th Cir. 1987));
- In re PWS Holding Corp., 228 F.3d 224 (3rd Cir. 2000) (court approved a plan provision granting broad immunity to debtors, reorganized debtors, creditor representative envisioned by the plan, the creditors' committee or any of their respective members, officers, directors, employees, advisors, professionals or agents "...except for willful misconduct or gross negligence...," as the relief granted follows the standard of liability contained in §1103(c));
- In re Lapes, 254 B.R. 501 (Bankr. S.D. Fla. 2000) (Florida homestead exemption is not available to one who acquires the homestead with traceable proceeds of fraudulent transfers);
- In re Hoekstra, 255 B.R. 285 (E.D. Va. 2000) (chapter 7 debtors' attempt to avoid junior liens held by the IRS and the homeowner's association was a prohibited "strip down" under §506(d));
- In re Tennohio Transp. Co., 255 B.R. 307 (Bankr. S.D. Ohio 2000) (post-petition advances of new value may not be applied to offset preferential transfers);
- In re GWI PCS 1 Inc., 230 F.3d 788 (5th Cir. 2000) (for purposes of constructive fraudulent transfer avoidance action, the "transfer" occurred when the debtors executed promissory notes for the remainder of the purchase price under a winning bid at the government auction, not when the bid was submitted);
- In re Berg, 230 F.3d 1165 (9th Cir. 2000) (in a case of first impression, the Ninth Circuit holds that sanctions imposed against a debtor attorney for unprofessional conduct in litigation falls within the government regulatory exemption and is not subject to the automatic stay);
- In re Carrozzella & Richardson, 255 B.R. 267 (Bankr. D. Conn. 2000) (the bankruptcy court is not bound by stare decisis to follow decisions of district courts or a bankruptcy appellate panel);
- Constructivist Foundation Inc. v. Bonner, 254 B.R. 863 (Bankr. D. Md. 2000) (debtor's appeal of an order lifting stay became moot once the foreclosure sale by the mortgagee was completed); and
- In re Beverage Canners Intern. Corp., 255 B.R. 89 (Bankr. S.D. Fla. 2000) (creditor seeking allowance of administrative expense claim satisfied the burden of demonstrating actual "benefit" to the chapter 11 estate by showing that debtor's post-petition use of licensed trademarks benefited the estate).