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St. John's Case Blog

By: Keith L. Abrams
St. John’s Law Student
American Bankruptcy Institute Law Review Staff
 
The threshold issue of standing is “an essential and unchanging part of the case-or-controversy requirement of Article III.”[1] In In re Moran,[2] the Sixth Circuit held that a third party appeal of a bankruptcy court order that allowed for abandonment of estate property lacked standing when the only basis for the third party’s appeal was one of an alleged loss of profit.[3] Shortly after declaring bankruptcy, Robert Moran, debtor and a co-shareholder of Airpack, Inc., proposed an agreement with the bankruptcy trustee where the trustee would abandon Moran’s Airpack stock retroactively to the date of the filing of the bankruptcy petition provided Moran paid off all of his creditors’ claims and the bankruptcy trustee’s fees.[4] The stock, once abandoned, pursuant to the Bankruptcy Code would return to the debtor.[5] Thomas Stark, Moran’s co-shareholder in Airpack, Inc., who offered to purchase Moran’s stock from the bankruptcy trustee, filed objections to the abandonment on the grounds that it adversely affected his financial interests.[6] The bankruptcy court approved the arrangement between Moran and the trustee, including the nunc pro tunc abandonment; subsequently, the decision was affirmed by the Bankruptcy Appellate Panel.[7]
April 28 2010
By: Paul Clancy
St. John’s Law Student
American Bankruptcy Institute Law Review Staff
 
Recently, the United States Bankruptcy Court for the District of Delaware held that the Bankruptcy Code does not permit triangular setoff of debts, notwithstanding pre-petition contracts among parties that contemplate such an exchange.[1]   In In re Semcrude, L.P., Chevron Products Company (“Chevron”), the creditor, had entered into separate petroleum-related contracts with three affiliated debtors: Semcrude, L.P., SemFuel, L.P., and SemStream, L.P.[2] Each contract expressly allowed the parties to setoff debts related to the contract or to any other contract between the parties and their affiliates.[3] At the time of the debtors’ bankruptcy filings, Chevron owed a debt to Semcrude, L.P., and was owed a debt from each of SemFuel, L.P. and SemStream, L.P.[4] Chevron moved for relief from the automatic stay to effect a triangular setoff of the debts among itself and the debtors, arguing that the terms of the contracts permitted such a setoff.[5] The court denied Chevron’s motion and held that, regardless of the contract language at issue, section 553 plainly does not allow triangular setoff.[6] The court determined that the contract arrangement did not satisfy the section 553 requirement that debts be mutual in order to be setoff, and that no exception existed that would allow parties to contract around the mutuality requirement.[7]
 
April 24 2010
By: Leslie M. Hyatt
St. John’s Law Student
American Bankruptcy Institute Law Review Staff
 
Recently, in In re Egebjerg, the United States Court of Appeals for the Ninth Circuit dismissed, as abusive, a debtor’s chapter 7 petition because it found that the payments owed to the debtor’s 401(k) were not debt and thus, the debtor had excess disposable monthly income.[1] In 2004, the debtor borrowed money from his 401(k) to keep up with financial obligations and personal expenses. To repay the money owed to his 401(k), the debtor had his employer deduct $733.90 from his monthly paycheck. In 2006, the debtor had $31,000 in unsecured consumer debt and filed for chapter 7.[2]
 
April 10 2010
By: Yana Knutson
St. John’s Law Student
American Bankruptcy Institute Law Review Staff
 
The question of whether a debtor can obtain an exemption under 11 U.S.C. § 1146(a) from having to pay stamp or similar tax in a pre-confirmation asset transfer was decisively answered in the negative by the United States Supreme Court last year.[1] However, whether the exemption applies to a pre-confirmation sale that closed post-confirmation remains an issue with which courts must continue to struggle. 
April 7 2010
By: Tracy Keeton
St. John’s Law Student
American Bankruptcy Institute Law Review Staff
 
In the case of Tate v. Bolen (In re Tate),[1] the Fifth Circuit held that for the purposes of calculating monthly income deductions under the “means test,”[2] a chapter 7 debtor may deduct a transportation ownership expense for a vehicle that is not encumbered by any debt or lease. In January 2007, the Tates sought to file for Chapter 7 bankruptcy. After filing, they were subject to the “means test” added to the Code by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The purpose of the means test is to determine whether debtors have sufficient disposable income to repay a portion of their debt to creditors, which was at least $166.67 a month (or at least $10,000 over 5 years) at the time of the Tates’ bankruptcy filing, and if so, a chapter 7 proceeding is presumptively abusive.[3] 
 
April 6 2010
By: Richard C. Solow
St. John’s Law Student
American Bankruptcy Institute Law Review Staff
 
Determining exactly which parties have the right to request relief from the automatic stay in bankruptcy has long been a challenging and contentious issue for the courts. Recently, in In re Jacobson,[1] the Bankruptcy Court for the Western District of Washington held that a “servicing agent” was not a “real party in interest” for the purpose of filing a section 362(d) motion, which when granted entitles a party to relief from an automatic stay. Substantiated evidence proving standing in bankruptcy court is necessary to allow parties to bring such motions. In denying UBS AG's (“UBS”) motion, the court upheld important notions of prudential standing, which require, even within the context of a federal bankruptcy forum, strict adherence and awareness of pertinent state requirements.[2]
April 5 2010
By: Daniel J. Carollo
St. John’s Law Student
American Bankruptcy Institute Law Review Staff
 
Recently, the United States Bankruptcy Court for the Southern District of Texas in In re Energy Partner’s Ltd.[1] held that employment agreements for professionals and other agents in a bankruptcy re-organization under 11 U.S.C. § 328 are subject to a heightened reasonableness standard because once a fee is approved by the court it will not be subject to review absent unforeseeable circumstances.[2] Energy Partners Ltd., an offshore oil and gas exploration company, and its affiliates filed a petition for relief under chapter 11 in May of 2009.[3] Two creditors committees appointed by the United States Trustee filed applications under section 328 requesting court approval to employ investment banking firms to provide two separate valuation reports on the bankrupt debtor corporation.[4] Each investment banking firm had requested a non-refundable fee of $500,000, plus various other administrative fees.[5] The court rejected the applications to employ the investment banks because the court determined that neither firm would provide a material benefit to the estate.[6]
 
April 3 2010

By: John P. Esposito
St. John’s Law Student
American Bankruptcy Institute Law Review Staff
 
Recently, in a case of first impression, the Sixth Circuit was presented with the opportunity to address the interaction of the “mootness” provision of section 363(m)[1] and the power of a trustee under section 363(h) to sell “both the estate’s interest . . . and the interest of any co-owner in [estate] property.”[2] In In re Nashville Senior Living, LLC,[3] the Sixth Circuit held that a non-debtor co-owners’ failure to obtain a stay of the bankruptcy court’s order approving the sale of both the debtors’ interest and the interests of the co-owners in jointly-owned property rendered an appeal to undo the sale as moot.[4] The court rejected, as “an aberration in well-settled bankruptcy jurisprudence,”[5] the contrary reasoning of the Ninth Circuit in Clear Channel Outdoor, Inc. v. Knupfer (In re PW, LLC)[6], which held that mootness could not apply to the “free and clear” aspect of a sale authorized under section 363(f). In essence, the Sixth Circuit interpreted section 363’s mootness provision expansively to cover sales under subsection (h),[7] despite the fact that 363(m) explicitly applies only to sales under sections 363(b)[8] or (c).[9]
April 1 2010
By: Marissa Gross
St. John’s Law Student
American Bankruptcy Institute Law Review Staff
 
Recently, in Midwest Holding # 7, LLC v. Anderson (In re Tanner Family, LLC),[1] the Eleventh Circuit held that a debt on a lease agreement is incurred at the time of signing and not when the rental payments become due. Under section 547(b) of the Code, a bankruptcy trustee can avoid “any transfer of an interest of the debtor in property” provided the transfer meets five elements.[2] Since one of those elements requires that the payment sought to be avoided must be “for or on account of an antecedent debt owed by the debtor before such transfer was made,” determining when a debt is incurred is essential to the analysis.[3]
 
March 30 2010
By: Reshma Shah
St. John’s Law Student
American Bankruptcy Institute Law Review Staff
 
In In re Century City Doctors Hospital, LLC (“Century City”), the Bankruptcy Court for the Central District of California held that the chapter 7 trustee who assumed control of the debtor’s business operations solely to liquidate assets was not required to abide by the Worker Adjustment and Retraining Notification (“WARN”) Act.[1] In Century City, a hospital with over one hundred employees, filed for chapter 7 relief and, within two hours of the hospital’s filing, the trustee assigned to wind down the hospital’s operations conducted a mass lay off of employees.[2] After the admitted patients had been transferred into appropriate health care facilities,[3] the remaining staff was also terminated.[4] None of the hospital’s employees received notice prior to being laid off.
 
March 28 2010