In In re Columbia Gas Transmission Corp., 219 B.R. 716 (S.D. W.Va. 1998), Chief District Judge Haden addressed the status of a post-petition, pre-confirmation personal injury claim. Although the claimant was not given personal notice of the bankruptcy case, notice of the confirmation hearing, entry of the order of confirmation and the bar date for non-ordinary course administrative expenses were published in numerous newspapers. The lawsuit was initiated two years after confirmation of the plan. The first issue the court addressed was whether the claim had been discharged in bankruptcy. Finding that this was not sufficiently disputed, the court found the claim was discharged as to the debtor and dismissed the claim as to the debtor. The court then addressed the issue of whether the plaintiff would be allowed to pursue the debtor/defendant for the sole purpose of establishing liability and thus a claim against the debtor's excess insurance company. Under the terms of the policy, the debtor, not the primary insurer, was responsible for the defense of the lawsuit. In addition, there was no primary insurer, and the liability of the excess insurer was not triggered until the debtor was "legally obligated to pay." The court reviewed the decisions of In re Jet Florida Systems Inc., 883 F.2d 970 (11th Cir. 1989), In re Edgeworth, 993 F.2d 51 (5th Cir. 1993) and Green v. Welsh, 956 F.2d 30 (2nd Cir. 1992) and other lower court decisions. The court also noted that there was no pronouncement of applicable public policy from the state where the accident arose. Without such guidance, the court applied the law to the facts presented and found that there was no coverage under the policy to the claims because the debtor was not legally obligated to pay a discharged obligation. Therefore, the court found that there was no insurance coverage for the claims. The court also found that it would violate the Bankruptcy Code's fresh-start policy to require the debtor to defend against the claims where the debtor (and not the insurer) is liable for costs of defense. Thus, Judge Haden held that he would not permit the action to go forward against the debtor solely to establish liability against the insurer.

Notice of Bar Date

In Matter of First American Health Care of Georgia, 220 B.R. 720 (Bankr. S.D. Ga. 1998), a creditor had filed state court suit against the debtor. The notice of bar date for filing of proofs of claim against the chapter 11 estate was mailed to the creditor in care of the creditor's state court attorneys. The court held that notice to counsel was sufficient and reasonably calculated to inform the creditor of the bar date. Therefore, the notice was sufficient to satisfy due process.

Fiduciary Role

In In re Zoldan, 221 B.R. 79 (Bankr. S.D.N.Y. 1998),the managing partner of a limited partnership filed a chapter 7 bankruptcy after one of the limited partners obtained a state court judgment in a surcharge action. The limited partner objected to the dischargeability of the judgment debt under 11 U.S.C. §523(a)(4) as a debt for money obtained by the debtor/managing partner's "fraud or defalcation while acting in a fiduciary capacity." The court held that fiduciary duties owed by the managing partner to limited partners under New York law fall within the scope of §523(a)(4)'s "fiduciary" fraud or defalcation. However, the court also found that the debtor was not acting in a "fiduciary capacity" with respect to the collection of management or other fees paid in connection with the renovation and operation of the partnership's office building. However, where the debtor collected a five percent fee in lieu of a broker's commission over the limited partner's objection, and prior to a determination of the debtor's right as managing partner to receive such a fee, the payment of the five percent fee was a defalcation in his fiduciary capacity.

Equitability of Setoff

In In re Whimsy Inc., 221 B.R. 69 (S.D.N.Y. 1998), the district court considered the U.S. government's request to set off an obligation owed by the U.S. Customs Service against the debtor's Internal Revenue Service (IRS) obligation. The court held that there was a mutuality of parties between the IRS and the Customs Service sufficient to permit setoff. However, the bankruptcy court below had found that the case was administratively insolvent and held that allowing the setoff "would unfairly prefer the IRS over other unsecured creditors." On appeal, the district court found that "the administrative insolvency of the debtor's estate, however, does not necessarily render a setoff inequitable. Indeed, Congress itself recognized that the allowance of setoff may be particularly appropriate where, as here, setoff would not interfere with a debtor's efforts to reorganize..." Since the debtor's business and reorganization efforts already had failed and the court already had approved the sale of the debtor's assets, "allowing a setoff in this case could not possibly have interfered with the operation of the debtor's business..."

Bankruptcy Fraud

In a beautifully written opinion, the Fifth Circuit held in U.S. v. Cluck, 143 F.3d 174 (5th Cir. 1998), that charging the same conduct under both the false statement and the fraudulent concealment provisions of the bankruptcy fraud statutes did not render an indictment multiplicitous. Further, the court determined that the concealment of accounts receivable by the defendant/debtor (who was a practicing attorney) caused loss to the bankruptcy estate/trustee sufficient to form the basis of the court's restitution order. "Although Cluck had high hopes that an appellate detour would shortly return him to his golden highway, he soon found that the detour itself would require a steep toll of 10 percent in the form of the supersedeas bond necessary to forestall execution. Short of funds and in need of a cul-de-sac in which to safely park his troubled vehicle for a while, Cluck turned to the refuge of the bankruptcy court, as many a similarly threatened sojourner had done before him." Unfortunately for Mr. Cluck, he didn't follow the rules of the road, lost his discharge and suffered a conviction for bankruptcy fraud.

Medicare Reimbursements

In In re Home Comp Care Inc., 221 B.R. 202 (N.D. Ill. 1998), the debtor filed an adversary seeking turnover of Medicare reimbursement payments that had been withheld after a determination by the U.S. Department of Health and Human Services (HHS) that the debtor had been overpaid for previous services. The debtor, a provider of home health care services, sought an order enjoining the HHS from withholding future payments. The complaint was dismissed by the bankruptcy court for lack of subject matter jurisdiction. The district court affirmed, holding that the debtor had failed to exhaust its administrative remedies under the administrative scheme promulgated by the regulations governing the Medicare payment program. The court held that the debtor's claim is one arising under the Medicare Act. A final determination by the Provider Reimbursement Review Board (PRRB) or HHS is required before a complaint may be in the federal court system. 42 U.S.C. §405(h); Ringer (Heckler v. Ringer), 104 S.Ct. 2013 (1984) at 627; Homewood, 764 F.2d at 1248 (Homewood Prof'l Care Ctr. Ltd. v. Heckler), 764 F.2d 1242 (7th Cir. 1985)).

Miscellaneous

• In re Sommerfield Pine Manor, 219 B.R. 637 (Bankr. 1st Cir. 1998) (Bankruptcy court exercising original and exclusive jurisdiction cannot abstain from administration of bankruptcy case or from hearing core matters);

• FTC v. American Institute for Research and Development, 219 B.R. 639 (D. Mass. 1998) (Bankruptcy abstention provisions §305(a) may be used to dismiss bankruptcy case sua sponte.;

• In re Lauriat's Inc., 219 B.R. 649 (N.D.N.Y. 1998) (28 U.S.C. §959(b) prohibits the bankruptcy court from exempting debtors from state law requirements regarding store closing sales);

• In re Unit Cast, 219 B.R. 741 (Bankr. 6th Cir. 1998) (Disgorgement of fees from professionals in an administratively insolvent case is a discretionary remedy—not a mandatory result);

• In re Fretter Inc., 219 B.R. 769 (Bankr. N.D. Ohio 1998) (Mortgages held by law firm employed as special counsel constituted interests adverse to bankruptcy estate);

• In re Campesinos Unidos Inc., 219 B.R. 886 (Bankr. S.D. Cal. 1998) (Post-confirmation quarterly fees are based upon all post-confirmation disbursements, not just those payments expressly provided for in the plan);

• In re Trebol Motors Distributor Corp., 220 B.R. 500 (Bankr. 1st Cir. 1998) (Class proofs of claim are permissible in bankruptcy cases);

• In re New England Cartage Corp., 220 B.R. 503 (Bankr. D. Mass. 1998) (The §507(a)(4) cap on unsecured claims for contributions to an employee benefit plan is an aggregate limitation on the total claims—not the amount that can be paid to or on account of an individual employee);

• In re Beck, 220 B.R. 573 (Bankr. D. Md. 1998) (Rule 9006(a) applies to the time limitations of Bankruptcy Rule 4007(c) with regard to the filing of a dischargeability complaint); and

• In re Emory, 219 B.R. 703 (Bankr. D.S.C. 1998) (Complaint objecting to discharge was constructively "filed" when it was received by the clerk of the court, albeit without the required filing fee).