Blogs

By: Timothy Fox

St. John's Law Student

American Bankruptcy Institute Law Review Staff

In Nichols v. Birdsell,

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the Ninth Circuit held that a taxpayer’s pre-bankruptcy irrevocable election to apply a tax refund as a credit for the following tax year was not a bar to the bankruptcy trustee’s turnover claim under section 542, i.e. the credit was property of the estate.  In Nichols, the debtors filed their 2001 tax return two weeks before filing their Chapter 7 bankruptcy and, pursuant to sections 6402(b) and 6513(d) of the Tax Code, irrevocably elected to apply their anticipated refund to the 2002 tax year. The following year, the debtors used nearly the entirety of the 2001 credit to satisfy their 2002 income tax obligation.  The trustee instituted the suit against the debtors to recover the 2001 overpayment, advancing theories under sections 542(a) and 548(a)(1) of the Bankruptcy Code.

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  Analogizing the present case to its previous decision in Feiler v. Sims (In re Feiler),

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the Ninth Circuit rejected debtors’ argument that the irrevocable nature of the election and their resulting inability to access the funds was a bar to the assertion by the trustee that the tax credit was property of the estate.

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By: Christine Knoesel

St. John's Law Student

American Bankruptcy Institute Law Review Staff

In an expansive reading of the homestead cap added by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, the First Circuit Court of Appeals, in Larson v. Howell, held that criminal negligence is sufficient to trigger the cap.

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  The BAPCPA provision, section 522(q)(1)(B)(iv) of the Bankruptcy Code, applies a $136,875 cap on the homestead exemption where the “debtor owes a debt arising from any . . . criminal act, intentional tort, or willful or reckless misconduct.”

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  In Larson, the debtor was driving her van in Massachusetts and took a shortcut through a parking lot, striking the oncoming motorcycle of Howell.  Howell’s wife, a passenger, died as a result of the accident.  In the criminal case, the judge found facts sufficient to find Larson guilty of negligent vehicular homicide.

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  In the bankruptcy proceeding, the Court of Appeals reasoned that use of the word “or” in the section 522(q)(1)(B)(iv) list of triggering acts indicates that criminal acts are separate triggers to the subsection, independent of any intent or recklessness.

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 The court also determined that the debtor need not be convicted of the crime, holding that section 522(q)(1)(B)(iv) applies “wherever the debtor’s debt arises from . . .  any criminal act.”

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 Therefore, the provision is triggered whenever one admits to facts sufficient for a finding of guilt, as Larson did.  The court concluded that the cap on the homestead exemption applies to Larson because her act was a crime of negligence and her debt to Howell arose from that criminal act.

By: Thomas Rooney
St. John’s Law Student
American Bankruptcy Institute Law Review Staff

The Second Circuit Court of Appeals heard arguments this past week

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on appeal of the Bankruptcy Court for the Southern District of New York’s decision in Oneida Ltd. v. Pension Benefit Guaranty Corporation.

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  In Oneida, the Bankruptcy Court held that the debtor’s liability for pension termination premiums (DRA Premiums)

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is a dischargeable pre-petition “claim” even though the pension termination occurs during the debtor’s chapter 11 case.  This appeal’s outcome will directly impact debtors seeking relief from pension obligations.

By: David Bloom

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

Although a “hedging” arrangement between attorneys retained by a Chapter 7 Trustee and a lender did not appear to offend policy considerations underlying 11 U.S.C. §504, such an agreement could not be approved as a means to obtain downside protection against risks associated with an appeal.  In the case of In re Winstar Communications, Inc.,

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the Trustee’s special litigation counsel and a consultant sought permission to assign part of their anticipated contingency fees to their lender.

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  Under the proposed agreement, the lender agreed to pay an undisclosed fixed price to Trustee’s counsel and consultant.

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  In exchange, the lender would receive the actual amount of contingency fees awarded, up to $10,000,000.00.

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  If the contingency fees were to exceed $10,000,000.00, the counsel and consultant would share the fees in excess of that amount.

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  Moreover, the lender agreed to waive any right to object to the Trustee’s settlement or other disposition of the adversary proceeding.

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  The Court concluded that this arrangement constituted impermissible “sharing” of fees within the meaning of §504, and denied the motion to approve the transaction.

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By: Rebecca Leaf

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

Adopting a middle ground approach, the Florida bankruptcy court in In re Courtney,

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held that a trustee could waive an individual debtor’s attorney-client privilege based on balancing of benefits and harms.

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   The court rejected the view that had been adopted in an earlier Florida bankruptcy case, that the debtor’s attorney-client privilege automatically passes, as a matter of law, from debtor to trustee in a chapter 7 bankruptcy proceeding.

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  In this case, the trustee wanted the power to waive the debtor's privilege and direct the law firm representing the debtor to turn over all files that it kept in connection with its representation of the debtor in a wrongful death action brought against the debtor.

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  In allowing the records to be turned over to the trustee, the court weighed the harm to the debtor against the benefits to the bankruptcy estate; rather than applying a blanket rule that all attorney client-privileged materials pass from debtor to trustee.

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