Blogs

By: Justin W. Curcio

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

The Sixth Circuit recently held that an assignee of a bankruptcy claim has the right to stand in the shoes of the original creditor and assert that the debt was  non-dischargeable under section 523(a)(2)(B) of the Bankruptcy Code.[1]In Pazdzierz v. First American Title Insurance Co. (In re Pazdzierz), the debtor allegedly procured loans from the original creditor based on false statements regarding his income, assets, and employment.[2] The debtor eventually defaulted and filed for bankruptcy.[3]After the original creditor assigned its claim, the assignee commenced an adversary proceeding seeking a determination that the debt owed under the assigned claim was non-dischargeable because of the debtor’s alleged fraud in obtaining the loans underlying the assigned claim.[4]The debtor moved for summary judgment, arguing that the assignee’s complaint was asserting a simple fraud claim, which the assignee could not assert because fraud claims cannot be assigned under Michigan Law.[5] The bankruptcy court granted the debtor’s motion.[6] The district court reversed, holding that assignee was pursuing a non-dischargeability claim, which was not a naked fraud claim that .[7] The Sixth Circuit affirmed, stating that assignee’s claim arose from the promissory notes, not a naked claim of fraud.[8]  Accordingly, the Sixth Circuit held that the rule barring the assignment of fraud claims did not apply because the assignee’s complaint sought to enforce the assignee’s rights under the promissory notes, which only depended on a showing of fraud incidentally.[9]

By: Alexandra Hastings

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

Finding that a public relations firm did not qualify as a bankruptcy “professional” within the meaning of section 327(a) of the Bankruptcy Code, the United States Bankruptcy Court for the Western District of Kentucky, in In re Seven Counties Services, Inc.,[i] authorized a debtor to retain the firm under section 1108 to assist with the general operation of its post-petition business.  In Seven Counties Services, the debtor sought to retain a public relations firm, which had been working with the debtor prior to the bankruptcy case, to participate in “lobbying, third party advocacy and support of [the d]ebtor’s efforts in restructuring its retirement plans and media relations.”[ii]  The court found that although the firm’s representatives were “professional persons” within the context of section 327(a), the firm was “not performing any tasks of the [d]ebtor enumerated in 11 U.S.C. § 1107,” nor was it “involved in formulating the [d]ebtor’s plan of reorganization or the administration of the estate.”[iii]  Moreover, the firm’s work for the debtor did not “involve any part in negotiating the plan, adjusting debtor/creditor relationships, disposing or acquiring assets or performing any duty required of the [d]ebtor under the Code.”[iv]  Thus, the firm did not qualify as a bankruptcy “professional” for purposes of section 327.[v]

By: Aldo A. Caira III

St. John’s Law Student

By:  Brian J. Adelmann

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

Recently, in In re Rivera,[1] the Bankruptcy Appellate Panel of the First Circuit held that the debtor was prohibited from filing a second bankruptcy case within 180 days of voluntarily dismissing his first case.[2]  The debtor filed his first chapter 13 bankruptcy case on the eve of foreclosure of real property that he owned, which was encumbered by a mortgage.[3]  The secured creditor moved for relief from the automatic stay on the grounds that the debtor failed to make post-petition mortgage payments.[4]  After the debtor failed to file a timely response to the motion, the bankruptcy court granted the secured creditor relief from stay.[5]  Subsequently, the debtor voluntarily dismissed his bankruptcy case.[6]  On the same day that he dismissed his first case, the debtor filed a new chapter 13 case.[7]  The bankruptcy court granted the creditor’s motion to dismiss the second petition pursuant to section 109(g)(2) of the Bankruptcy Code, which provides that no individual may be a debtor in a bankruptcy case if such individual voluntarily dismissed a bankruptcy case within the preceding 180 days.[8]  The Bankruptcy Appellate Panel of the First Circuit affirmed the bankruptcy court.[9]

By: Maurizio Anglani

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

In a matter of first impression, the Court of Appeals for the Fifth Circuit refused to enforce a foreign debtor’s plan of reorganization because it discharged debts of the debtor’s non-debtor subsidiaries.[1] In 2003, Vitro S.A.B. de CV (“Vitro”), a Mexican corporation, issued various notes totaling more than $1 billion. Most of Vitro’s direct and indirect subsidiaries, including its U.S. subsidiaries, guaranteed the notes.[2] Before the notes became due, Vitro initiated an insolvency proceeding in Mexico.[3] However, many of Vitro’s U.S. subsidiaries did not participate in the insolvency proceedings.[4] In February 2012, the Mexican court approved Vitro’s reorganization plan.[5] The Mexican plan purported to extinguish the guarantees of Vitro’s debt by Vitro’s U.S. subsidiaries.[6] Vitro’s representatives then sought to recognize and enforce releases granted in the foreign case, but the Bankruptcy Court for the Northern District of Texas denied relief, holding that non-consensual, non-debtor releases are “manifestly contrary” to U.S. public policy.[7]