Collier Bankruptcy Case Update April-23-01
A Weekly Update of Bankruptcy and Debtor/Creditor Matters
Collier Bankruptcy Case Update
The following case summaries appear in the Collier Bankruptcy Case Update, which is published by Matthew Bender & Company Inc., one of the LEXIS Publishing Companies.
April 23, 2001
CASES IN THIS ISSUE
(scroll down to read the full
summary)
- 1st Cir.
§ 507(a)(8) IRS was entitled to priority only for taxes assessed within 240 days of petition filing.
Mulcahy v. United States (Bankr. D. Mass.) 044015§ 522(f) Lien attaching to the interest of one tenant by the entirety could still be deemed to impair homestead exemption.
In re Patenaude (Bankr. D. Mass.) 044021§ 541(a)(5)(A) Trust was testamentary, making distributions to debtor property of the estate.
Richardson v. McCullough (In re McCullough) (Bankr. D.R.I.) 044030§ 541(c) Incentive stock options were partly deemed estate property.
In re Denadai (Bankr. D. Mass.) 044032
2d Cir.
§ 523(a)(5) Legal fees owed to creditor law firm resulting from custody suit were nondischargeable as a support obligation.
Falk & Siemer, LLP v. Maddigan (In re Maddigan) (Bankr. W.D.N.Y.) 044026
3d Cir.
§ 328(a) Court applied broad standard of reasonableness in determining whether postpetition retainer to counsel was allowable.
In re Troung (Bankr. D.N.J.) 044004§ 365(a) Debtor could not waive its right to assume executory contract.
In re TWA (Bankr. D. Del.) 044010
4th Cir.
§ 523(a)(1) Conversion of debtor’s bankrupcty case did not create a new petition date for purposes of the three-year look-back period for tax liability.
Lee v. United States (In re Lee) (Bankr. D. Md.) 04402328 U.S.C. § 1738 Court of Appeals conferred preclusive effect to state (Hawaii) default judgment.
Meindl v. Genesys Pacific Technologies, Inc. (In re Genesys Data Techs.) (4th Cir.) 044041
5th Cir.
§ 362(d) Creditor could not compel debtor to arbitrate dispute under contract that contained an arbitration provision.
In re Hemphill Bus Sales (Bankr. E.D. Tex.) 044007§ 507(a)(8) 240-day window period for tax priority was tolled during pendency of debtor’s previous petition.
In re Hoppe (Bankr. E.D. Tex.) 044017§ 541(a) Although estate could pursue debtor’s legal malpractice claim, district court properly held that estate offered insufficient proof of injury.
Yaquinto v. Segerstrom (In re Segerstrom) (5th Cir.) 044029
7th Cir.
§ 362 Section 362 did not apply to debtor’s cause of action against seller of termite infested real property.
In re Foor (Bankr. C.D. Ill.) 044006§ 523(a)(1) IRS did not show requisite willful intent to evade taxes to support a summary judgment denial of discharge.
United States of America v. Donnelly (In re Donnelly) (Bankr. W.D. Wis.) 044024
8th Cir.
§ 502(a) Debtors had standing to object to proof of claim after conversion to chapter 7.
White v. Coors Distributing Co. (In re White)(B.A.P. 8th Cir.) 044011§ 523(a)(15) Divorce obligations were dischargeable in part.
Brown v. Grossman (In re Grossman) (Bankr. D.N.D.) 044028
9th Cir.
§ 523(a)(6) Bankruptcy court erred in applying objective standard of certainty of harm to its dischargeability determination.
Su v. Carrillo (In re Su) (B.A.P. 9th Cir.) 044027
10th Cir.
§ 105(a) District court affirmed decision that transfer could not be authorized as administrative expense for unsecured credit obtained in ordinary course of business.
In re Lodge America, Inc. (D. Kan.) 044001§ 110(i)(1) Preparers’ conduct warranted sanctions.
In re Gomez (Bankr. D. Colo.) 044003
11th Cir.
§ 506(b) State statute was preempted.
Welzel v. Advocate Realty Invs., LLC (In re Welzel) (S.D. Ga.) 044013§ 507(a)(4) Issues of fact existed as to whether claimant was entitled to section 507(a)(4) priority for medical expenses.
In re A.B.C. Fabrics of Tampa, Inc. (Bankr. M.D. Fla.) 044014§ 507(b) Automobile finance company was entitled to superpriority claim based on failure of adequate protection.
In re Mendez (Bankr. M.D. Fla.) 044018§ 522(b)(2)(A) Absent evidence that IRA accounts were ERISA-qualified, QDRO was unnecessary and Florida debtor was entitled to exemptions claimed.
In re Brackett (Bankr. M.D. Fla.) 044019
Collier Bankruptcy Case Summaries
1st Cir.
IRS was entitled to priority only for taxes assessed within 240 days of petition filing. Bankr. D. Mass. The debtor filed a chapter 7 petition in 1994, listing the IRS as the only creditor holding an unsecured nonpriority claim. The chapter 7 trustee filed a report of no distribution and the case was closed. In 1997 the debtor moved to reopen the case to determine his liability to the IRS. The motion was granted and the debtor filed an adversary proceeding seeking a determination that his tax obligations for 1988 and 1989 were dischargeable. For those tax years, the debtor had filed incomplete returns, stating approximate figures for taxable income and failing to include applicable expenses or deductions. The debtor never filed amended returns but eventually filed returns with income figures that differed substantially from the estimates set forth in the original documents.The bankruptcy court held that the tax obligations for those years were nondischargeable, since the original filings could not be deemed actual returns. But the court ruled that, for the purposes of section 507(a)(8), the IRS was entitled to priority only for taxes assessed less than 240 days prior to the petition filing.Mulcahy v. United States, 2001 Bankr. LEXIS 257, – B.R. – (Bankr. D. Mass. March 8, 2001) (Feeney, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:507.10[2][b]
Lien attaching to the interest of one tenant by the entirety could still be deemed to impair homestead exemption. Bankr. D. Mass. The chapter 7 debtor reported on his schedules a residence, owned with his nondebtor spouse, as tenants by the entirety. The debtor valued the residence at approximately $190,000 and listed two mortgages on the property totaling $101,057. The debtor elected the $100,000 homestead exemption available under state (Massachusetts) law. The debtor then filed a motion requesting that a certain judicial lien in the sum of $51,837 be voided pursuant to section 522(f). The creditor holding the lien argued that the debtor had undervalued the property and that, because under state law, each tenant by the entirety held no separate interest, section 522(f) was inapplicable to a lien attaching to the interest of only one owner. The bankruptcy court held that, for the purposes of section 522(f), the debtor’s interest in tenancy by the entirety property should be valued at 100 percent and fixed, thereby assuring finality. The court rejected the creditor’s argument that the interest of an individual owner of property held as a tenancy by the entirety was so ephemeral that a continuing lien impairs no exemption. The court reasoned that while the lien remained, the property could not be sold or refinanced, which disability was contrary to the debtor’s fresh start contemplated by Congress. The court scheduled an evidentiary hearing on the issue of valuation.In re Patenaude, 2001 Bankr. LEXIS 275, – B.R. – (Bankr. D. Mass. March 19, 2001) (Boroff, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:522.11
Trust was testamentary, making distributions to debtor property of the estate. Bankr. D.R.I. The chapter 7 trustee filed a complaint seeking turnover of the debtor’s interest in a trust established with the proceeds from a life insurance policy on the debtor’s late wife. The trustee asserted that the trust was testamentary in nature, and that the payments received by the debtor from the trust within 180 days of the petition date were property of the estate. The trust, which was to be funded solely by the proceeds of the wife’s life insurance policy, was established one month before her death in order to distribute the proceeds of the policy after her death. The bankruptcy court entered judgment for the trustee, holding that because the trust was testamentary, the distributions received by the debtor in the 180 days after the petition were property of the estate. The court found that the trust was testamentary in nature and was established as a will substitute. The trust was deemed to be transferred when the debtor’s wife died and was subject to the six-month window of section 541(a)(5)(A).Richardson v. McCullough (In re McCullough), 2001 Bankr. LEXIS 264, – B.R. – (Bankr. D.R.I. January 18, 2001) (Votolato, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:541.16
Incentive stock options were partly deemed estate property. Bankr. D. Mass. The chapter 7 debtor was entitled to certain stock option contracts as an employment benefit. After the debtor filed his petition, certain of those options would become exercisable, and the debtor sought to exclude or exempt the options from the chapter 7 estate. The debtor asserted that, pursuant to section 541(c)(2), the options should be considered postpetition wages because they were excercisable as a result of postpetition labors, and that the options could be considered either trusts or ERISA qualified plans under the same provision. The bankruptcy court held that, for the purposes of section 541(c)(2), stock options whose full value were attributable to both prepetition and postpetition efforts were first and foremost property of the estate, based on the debtor’s underlying right to them at the time of the petition filing. But the court went on to hold that the value of the options was estate property only to the extent that the percentage of required days worked prepetition to effectuate exercise of the options had passed prepetition. The court also rejected the debtor’s trust and ERISA contentions, concluding that the options were not interests in a trust without the intent to create a trust and the designation of beneficiaries, and that, unlike ERISA plans, the options’ restrictions on alienation were not akin to the protections of retirement benefits.In re Denadai, 2001 Bankr. LEXIS 282, – B.R. – (Bankr. D. Mass. March 23, 2001) (Rosenthal, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:541.11[7], .24
2nd Cir.
Legal fees owed to creditor law firm resulting from custody suit were nondischargeable as a support obligation. Bankr. W.D.N.Y. The debtor was the father of a child conceived during an out-of-wedlock relationship. The debtor and the child’s mother both instituted proceedings for custody in state (New York) family court. Ultimately custody was awarded to the mother, with liberal visitation granted to the debtor. The creditor was the law firm representing the mother. The creditor moved for an award of legal fees from the debtor. After considering the relative merits of the parties’ positions, the family court directed the debtor to pay $12,000 to the creditor. After the debtor failed to pay, the creditor obtained a money judgment for that amount. After the debtor filed his chapter 7 petition, the creditor commenced an adversary proceeding seeking a determination that its claim for legal fees was nondischargeable pursuant to section 523(a)(5). The debtor argued that the debt should not be excepted from discharge because the fees arose not from any support proceeding but were designed to satisfy someone who was neither a spouse nor a former spouse. The bankruptcy court held that the fees were in the nature of support and were nondischargeable. The court found that section 523(a)(5) spoke to any claim for support arising in connection with a separation agreement, divorce decree or other order, and that the determination of custody constituted such other order. The court concluded that the obligation was in the nature of support for the debtor’s child, since the family court listed factors dispositive of the issue of support in making its determination regarding the legal fees.Falk & Siemer, LLP v. Maddigan (In re Maddigan), 2001 Bankr. LEXIS 276, – B.R. – (Bankr. W.D.N.Y. March 14, 2001) (Bucki, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.11
3rd Cir.
Court applied broad standard of reasonableness in determining whether postpetition retainer to counsel was allowable. Bankr. D.N.J. The chapter 13 debtors filed an application to retain counsel and to pay the firm a postpetition retainer of $15,000. The United States Trustee filed a limited objection, arguing that prior to allowance of a postpetition retainer a hearing must be held for counsel to demonstrate that circumstances warranted such an allowance. At the time of the petition filing, the debtors had already been subject to adverse decisions in various litigation. The debtors filed the chapter 13 petition pro se, and subsequently numerous procedural and substantive deficiences regarding the petition and the attempt to convert to chapter 11 evidenced the debtors’ inability to represent themselves. The United States Trustee argued that the debtors’ counsel was required to show compliance with the factors set forth in In re Knudsen Corporation, 84 B.R. 668 (B.A.P. 9th Cir. 1988).The bankruptcy court elected to apply a broader and more flexible set of criteria for the purposes of determining reasonableness under section 328(a). Specifically, the court enumerated additional factors to consider whether to allow a postpetition retainer and found that (1) the retainer was not taken out of the debtors’ cash flow and did not impair the debtors’ ability to pay postpetition expenses; (2) the debtors would gain advice and guidance to increase chances of reorganization; (3) the amount of the retainer was not extraordinary given the services required; (4) the case had a level of complexity that demanded experienced counsel. But the court concluded that the debtor failed to serve all interested parties with its application, and reserved decision until proper notice procedures were followed.In re Troung, 2001 Bankr. LEXIS 258, – B.R. – (Bankr. D.N.J. February 27, 2001) (Winfield, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:328.02[1]
Debtor could not waive its right to assume executory contract. Bankr. D. Del. In January 2001, the debtor, an airline company, filed its third chapter 11 filing in 10 years. In its previous case, the debtor and the creditor entered an agreement whereby the creditor would be permitted to purchase airline tickets at substantially discounted rates. The agreement contained a provision that, in the event of a future petition filing, the debtor would not seek to reject the agreement. After its petition filing in 2001, the debtor filed a motion for authority to reject the agreement. The creditor argued that the rejection should not be approved because of the express waiver in the agreement, which was part of the previous confirmed chapter 11 plan, and because the prior confirmation order was res judicata as to the ability to reject. The bankruptcy court granted the debtor’s motion, holding that a debtor did not have the capacity to waive rights bestowed by the Code upon a chapter 11 debtor in possession. The court concluded that such debtor could not agree to assume or reject until after a petition is filed and the debtor was acting as a debtor in possession. The court also rejected the creditor’s res judicata argument, holding that the argument fails because the confirmation order did not bar claims based on postconfirmation acts and was not a judgment on the merits of the agreement’s enforceability.In re TWA, 2001 Bankr. LEXIS 267, – B.R. – (Bankr. D. Del. March 12, 2001) (Walsh, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:365.03
4th Cir.
Conversion of debtor’s bankrupcty case did not create a new petition date for purposes of the three-year look-back period for tax liability. Bankr. D. Md. The chapter 7 debtor reopened her case and filed an adversary proceeding to determine whether her tax liability had been discharged. The debtor had previously converted her case from chapter 13 and claimed that the court should treat the date her case was converted to chapter 7 as a new petition date. The debtor argued that the three-year look-back period under section 507(a)(8) established by the new petition date resulted in the discharge of the tax liability. The IRS moved to dismiss, asserting that the tax liability survived pursuant to section 523(a)(1). The bankruptcy court granted the motion to dismiss, holding that conversion of the debtor’s case to a new chapter had no effect on the dischargeability of her tax obligations. The three-year look back period for priority tax treatment was unaffected by the exceptions to section 348.Lee v. United States (In re Lee), 2001 Bankr. LEXIS 266, – B.R. – (Bankr. D. Md. January 25, 2001) (Keir, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.07[2][a]
Court of Appeals conferred preclusive effect to state (Hawaii) default judgment. 4th Cir. The debtor appealed from the district court’s allowance of a creditor’s claim. The claim was based on a default judgment obtained against the debtor in state (Hawaii) court. The Court of Appeals for the Fourth Circuit held that the judgment was entitled to preclusive effect so long as the judgment under state law was not void. To that end, the Court of Appeals remanded to state court to rule on the issue of whether the default judgment was void when the debtor received notice of the creditor’s state court complaint, and of the specific amount requested along with an itemization of damages. The state court ruled that the judgment was not void. The Court of Appeals then affirmed the district court ruling, applying a two part test to determine whether the full faith and credit statute applied. The Court of Appeals found that (1) the judgment had preclusive effect under state law and (2) there was no basis for finding an exception to section 1738 or for refusing to give the state court default judgment the preclusive effect to which it was entitled under state law. Meindl v. Genesys Pacific Technologies, Inc. (In re Genesys Data Techs.), 2001 U.S. App. LEXIS 4927, – F.3d. – (4th Cir. March 27, 2001) (Motz, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 6:727.15[4]
5th Cir.
Creditor could not compel debtor to arbitrate dispute under contract that contained an arbitration provision. Bankr. E.D. Tex. The debtor was a seller and distributor of school buses. The creditor was a manufacturer of buses. The debtor and creditor were both licensed by the state (Texas) motor vehicle commission, and entered into a distribution contract granting the debtor a non-exclusive right to sell the creditor’s buses. The contract contained a mandatory arbitration provision. In February 2000, the creditor notified the debtor that it was terminating its contract. The debtor filed a protest with the commission, after which the creditor filed a suit in district court seeking to compel arbitration. That court entered an order enjoining the proceeding with the commission and directing the debtor to arbitrate the dispute. Thereafter, the debtor filed a chapter 11 petition. The creditor filed a motion for relief from the automatic stay to permit it to proceed to arbitration to determine whether the distribution contract had been terminated. The bankruptcy court denied the motion. The court reasoned that, for the purposes of section 362(d), the dispute went to the very purpose of the Code, namely the expeditious and equitable distribution of the estate’s assets. The court concluded that the disposition of distribution contract was essential to the debtor’s reorganization and to all the creditors, rendering it a core proceeding.In re Hemphill Bus Sales, 2001 Bankr. LEXIS 273, – B.R. – (Bankr. E.D. Tex. March 22, 2001) (Sharp, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.07[3]
240-day window period for tax priority was tolled during pendency of debtor’s previous petition. Bankr. E.D. Tex. The debtor filed a chapter 13 petition on February 25, 2000. The IRS filed a proof of claim reflecting a priority claim for the tax years 1993, 1997, 1998 and 1999. The debtor objected to the priority classification of the 1993 obligation. The debtor argued that this obligation was assessed by the IRS on October 31, 1998, more than 240-days prior to the petition filing. The IRS argued that there was cause for an equitable exception to section 507(a)(8), because the debtor had previously filed a petition on September 1, 1998, which was dismissed on November 9, 1998. The IRS contended that it was denied the benefit of the 240-day window period, and that this time period should be tolled. The bankruptcy court held that the 240-day period under section 507(a)(8) was tolled during the pendency of the debtor’s prior bankruptcy case. The court reasoned thatit was the intent of Congress to provide the government full and unimpeded periods to collect income taxes so as to avoid shifting burdens from lost revenues to other taxpayers. The court concluded its ruling thereby served both legislative intent and public policy. In re Hoppe, 2001 Bankr. LEXIS 256, – B.R. – (Bankr. E.D. Tex. March 5, 2001) (Sharp, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:507.10[2][b]
Although estate could pursue debtor’s legal malpractice claim, district court properly held that estate offered insufficient proof of injury. 5th Cir. The trustee of the chapter 7 debtor’s bankruptcy estate appealed from the district court’s grant of summary judgment in favor of attorneys and an insurer, who were defendants in a legal malpractice, breach of fiduciary duty and breach of contract action brought by the trustee. The crux of the appeal involved the attorneys’ alleged conflict of interest in representing the debtor as well as her codefendants in a negligence proceeding that arose from an automobile accident. The insurer’s alleged liability was also predicated on the attorneys’ alleged conflict of interest. The United States Court of Appeals for the Fifth Circuit held that the estate could pursue the debtor’s legal malpractice claim. The court found that a legal malpractice claim against the attorneys had accrued under state (Texas) law as of the commencement of the debtor’s case and that the debtor neither denied nor waived the claim prior to the commencement of her case. Moreover, the attorneys provided no tenable basis in federal law for withholding the legal malpractice claim from the debtor’s bankruptcy estate. The court also held, however, that the estate failed to offer sufficient proof that the debtor suffered injury as consequence of the attorneys’ legal representation. Thus, the court affirmed the district court’s grant of summary judgment in favor of the attorneys, and, similarly, its grant of summary judgment in favor of the insurer.Yaquinto v. Segerstrom (In re Segerstrom), 2001 U.S. App. LEXIS 5261, – B.R. – (5th Cir. March 30, 2001) (Benavides, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:541.08
7th Cir.
Section 362 did not apply to debtor’s cause of action against seller of termite infested real property. Bankr. C.D. Ill. After the debtors purchased a home, they discovered extensive termite damage and infestation to the premises. The debtors commenced a suit against the seller for breach of contract, negligent misrepresentation and fraud. After filing a chapter 7 petition, the debtors filed a motion to lift the automatic stay and to abandon the cause of action against the seller. The trustee, who had hired an attorney to represent the estate in the debtor’s damage suit, objected to the motion.The bankruptcy court ruled, as an initial matter, that the automatic stay of section 362 did not apply because that provision stayed actions against a debtor, not actions by a debtor. The court went on to deny the motion in its entirety, determining that the cause of action was too valuable to the estate to warrant abandonment. In re Foor, 2000 Bankr. LEXIS 1716, – B.R. – (Bankr. C.D. Ill. October 12, 2000) (Lessen, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.03[3]
IRS did not show requisite willful intent to evade taxes to support a summary judgment denial of discharge. Bankr. W.D. Wis. The IRS filed a motion for summary judgment seeking an order denying the debtor’s discharge. The IRS contended that the debtor willfully attempted to evade or defeat the payment of federal income taxes. In support of its motion, the IRS alleged numerous facts to evoke a systematic attempt by the debtor to evade creditors. The bankruptcy court denied the motion, holding that, for the purposes of section 523(a)(1)(C),the IRS was required to demonstrate the willful intent to evade taxes, and concluded that the record reflected genuine issues of fact as to the debtor’s intent.United States of America v. Donnelly (In re Donnelly), 2000 Bankr. LEXIS 1714, – B.R. – (Bankr. W.D. Wis. November 17, 2000) (Utschig, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.07[3]
8th Cir.
Debtors had standing to object to proof of claim after conversion to chapter 7. B.A.P. 8th Cir. The debtors purchased a vehicle from the sellers under a retail installment contract and security agreement, which provided for an 18 percent per annum rate of interest. Thereafter the seller assigned the contract to the creditor. The debtors made payments under the contract only sporadically, prompting the creditor to file a replevin action in state (Nebraska) court, and resulting in repossession of the vehicle. The debtors then filed a chapter 13 petition, and the creditor filed a proof of claim that included postpetition interest at the 18 percent rate, along with attorney’s fees and costs. The debtors objected, arguing that under state law only sellers and licensed sales finance companies were entitled to the statutory 18 percent interest. After the petition was converted to chapter 7, the trustee sold the vehicle for $18,000. The bankruptcy court overruled the debtor’s claim, holding that, because the creditor was oversecured, it was entitled to an allowed secured claim for the amount of principal and interest due at the petition filing, along with postpetition interest at 18 percent, fees and costs up to the sale price. The court specifically held that the creditor was not required to be licensed as a sales finance company. After the debtors appealed, the creditor asserted that the debtors did not have standing to object to its claim at all because, for the purposes of section 502(a), a debtor had no standing to object to claims because the debtor did not have a pecuniary interest in the distribution of estate assets. The B.A.P. for the Ninth Circuit held that the debtors had standing to object after the conversion to chapter 7, because the debtors could be entitled to receive surplus after all claims were paid, since the estate was solvent (citing Collier on Bankruptcy 15th Ed. Revised).White v. Coors Distributing Co. (In re White), 2001 Bankr. LEXIS 281, – B.R. – (B.A.P. 8th Cir. April 2, 2001) (Dreher, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:502.02[2][c]
Divorce obligations were dischargeable in part. Bankr. D.N.D. The debtor’s former wife filed an adversary proceeding seeking a determination that a cash property settlement award and an award to her of a portion of the debtor’s pension were nondischargeable under section 523(a)(15). The divorce (North Dakota) court had directed that when the debtor became eligible to receive a retirement pension his former spouse would be entitled to one-half of each monthly payment. The debtor had serious medical problems and lived frugally on his disability payments and early retirement pension. In contrast, his former wife lived comfortably with her new spouse. The bankruptcy court granted judgment for the debtor in part, holding that the debtor did not have the present or future ability to pay either the property settlement award or suffer a reduction in his retirement pension and the former wife would suffer little detriment if payments were discharged. Nevertheless, the court determined that the portion of the pension benefit that came due postpetition was not a debt which could be discharged, irrespective of the result under section 523(a)(15).Brown v. Grossman (In re Grossman), 2001 Bankr. LEXIS 265, – B.R. – (Bankr. D.N.D. March 7, 2001) (Hill, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.21
9th Cir.
Bankruptcy court erred in applying objective standard of certainty of harm to its dischargeability determination. B.A.P. 9th Cir. The creditor obtained a state (California) court judgment against the debtor for $130,000 in actual damages and $400,000 in non-economic damages as a result of an auto accident. The jury specifically found that the debtor was negligent, that the negligence resulted in the creditor’s injury, and that the debtor was guilty of malice. Thereafter the debtor along with his spouse filed a chapter 7 petition. The creditor filed an adversary proceeding seeking to have the judgment declared nondischargeable. The bankruptcy court ruled for the creditor, holding that for the purposes of section 523(a)(6) the injury could be deemed willful and malicious because there was either an objective substantial certainty of harm or a subjective motive to cause harm. The court ruled that the objective standard was applicable, and that the debt was consequently nondischargeable. The debtor appealed. The B.A.P. for the Ninth Circuit reversed, holding that the bankruptcy court erred in applying an incorrect objective substantial certainty standard to determine the requirement of willfulness under section 523(a)(6), rather than a subjective standard. The B.A.P. followed the line of decisions which required a finding that the debtor’s motive was to inflict the injury or that the debtor’s act was substantially certain to result in injury. The B.A.P. remanded for the bankruptcy court to apply the appropriate legal standard in making its determination.Su v. Carrillo (In re Su), 2001 Bankr. LEXIS 280, – B.R. – (B.A.P. 9th Cir. March 26, 2001) (Ryan, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.12
10th Cir.
District court affirmed decision that transfer could not be authorized as administrative expense for unsecured credit obtained in ordinary course of business. D. Kan. A transferee appealed a bankruptcy court order that held that a postpetition pre-conversion transfer made by the then chapter 11 debtor-in-possession was not authorized by the court or the Bankruptcy Code and could be avoided by the trustee under section 549(a). The bankruptcy ordered the transferee to repay the amount transferred, and allowed the transferee an unsecured nonpriority claim in that amount against the chapter 7 debtor’s estate. On appeal, the transferee conceded that the transfer was not authorized in advance by the bankruptcy court, but argued that the transaction should have been granted at least an administrative priority as an ordinary course of business unsecured debt or in equity as unsecured debt approved by the court in an order nunc pro tunc. The district court affirmed, and held that the transfer could not be authorized by an order nunc pro tunc pursuant to the court’s equitable powers under section 105(a). The court explained that issuing an order nunc pro tunc retroactively authorizing the debtor to obtain unsecured credit, not in the ordinary course of business, and without notice and a hearing would be inconsistent with the specific provisions of section 364.In re Lodge America, Inc., 2001 U.S. Dist. LEXIS 3632, – B.R. – (D. Kan. February 27, 2001) (Murguia, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:105.01
Preparers’ conduct warranted sanctions. Bankr. D. Colo. The chapter 7 debtor filed a motion complaining that the petition preparers who helped her fill out her petition and schedules engaged in fraudulent, unfair and deceptive practices. The preparers used a computer program to prepare documents which utilized a questionnaire to gather information from the debtor. They relied upon the program’s determination of the information necessary to prepare documents and, where the information was inadequate, either allowed the program to automatically supply the information or supplied it themselves. The preparers reviewed the questionnaire, assisted the debtor in providing additional information, corrected and revised the information and advised the debtor concerning the automobile exemption. The bankruptcy court found in favor of the debtor, holding that the petition preparers’ practices were not authorized by section 110 and were unfair and deceptive. The court certified the matter to the district court and recommended that the petition preparers be fined for their violations.In re Gomez, 2001 Bankr. LEXIS 268, – B.R. – (Bankr. D. Colo. February 16, 2001) (Krieger, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:110.10
11th Cir.
State statute was preempted. S.D. Ga. The chapter 7 debtor objected to the portion of the oversecured creditor’s claim which represented statutory attorney’s fees. Under state (Georgia) law, the creditor was authorized to collect a 15 percent attorney’s fee upon default and with proper notice. The bankruptcy court allowed the claim and determined that the reasonable fees actually incurred by the creditor would be treated as a secured claim and the balance of the 15 percent would be treated as a general unsecured claim. The district court reversed and held that the state statute was preempted by section 506(b). The Court of Appeals for the Eleventh Circuit affirmed the district court, holding that the oversecured creditor was entitled to its reasonable attorney’s fees under section 506(b) and not the 15 percent fee provided by state law. The court noted that the creditor was entitled to recover in full its reasonable attorney’s fees as a secured claim but that any additional amount was not recoverable.Welzel v. Advocate Realty Invs., LLC (In re Welzel), 2001 U.S. App. LEXIS 5207, – F.3d – (S.D. Ga. March 29, 2001) (Gibson, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:506.04[3]
Issues of fact existed as to whether claimant was entitled to section 507(a)(4) priority for medical expenses. Bankr. M.D. Fla. The creditors filed a claim for monies owed for medical expenses under an employee health plan maintained by the chapter 11 debtor, asserting that the claim was an unsecured priority claim pursuant to section 507(a)(4). The debtor argued that the claim was not entitled to priority because the creditors were never employees of the debtor, that the medical claims were incurred more than 180 days prepetition, and that the debtor never agreed to provide health care coverage to the creditors. The debtor filed a motion for summary judgment based on its various objections to the claim of priority. The bankruptcy court denied the motion, finding that genuine issues of fact existed as to whether the creditors were covered by the debtor’s health care plan and whether any of the claims arose within the 180 days prepetition. But the court also made the finding that if the debtor had determined that the creditor satisfied eligibility requirements set forth in the health plan and qualified for benefits under the plan, the debtor could not now assert that the creditor was not an employee for the purposes of section 507(a)(4) (citing Collier on Bankruptcy, 15th Ed. Revised ).In re A.B.C. Fabrics of Tampa, Inc., 2001 Bankr. LEXIS 277, – B.R. – (Bankr. M.D. Fla. February 8, 2001) (Glenn, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:507.06
Automobile finance company was entitled to superpriority claim based on failure of adequate protection. Bankr. M.D. Fla. The debtors entered into a prepetition retail installment contract with an automobile finance company for the purchase of an automobile. In return, the debtors granted the company security interest in the automobile. After the conversion of their chapter 7 case to one under chapter 13, the debtors and the finance company entered into a stipulation for adequate protection, which required, among other things, that the debtors maintain certain insurance. The debtors’ subsequent chapter 13 plan provided for the return of the automobile in lieu of monthly payments. However, the automobile had been completely destroyed and the debtors had apparently failed to maintain the necessary insurance. The finance company therefore objected to confirmation of the debtor’s plan and sought payment of an administrative claim based upon the failure of the adequate protection order. The bankruptcy court held that the finance company was entitled to a superpriority claim under section 507(b). The court found first that because the finance company provided a benefit to the debtors’ estate by permitting them to continue using the vehicle postpetition, the company was entitled to an allowable administrative claim under section 503(b). Next, the court noted that adequate protection was provided pursuant to the court’s adequate protection order. Lastly, the court found that the adequate protection provided was insufficient, since the value of the automobile had almost entirely vanished. The court also found that the finance company established that the imposition of the automatic stay caused a decline in the value of its collateral.In re Mendez, 2001 Bankr. LEXIS 262, – B.R. – (Bankr. M.D. Fla. January 9, 2001) (Proctor, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:507.12
Absent evidence that IRA accounts were ERISA-qualified, QDRO was unnecessary and Florida debtor was entitled to exemptions claimed. Bankr. M.D. Fla. The chapter 7 trustee moved to compel the divorced debtor to turn over property of the estate obtained from debtor’s ex-husband and objected to her claim of exemptions for two IRA accounts under state (Florida) law. The bankruptcy court noted that if an ERISA-qualified plan was at issue, Florida law provided an available exemption based upon the debtor’s status as an alternate payee only if a QDRO had first been entered. The court found it unclear from the evidence and testimony presented whether the IRA accounts at issue were ERISA-qualified. Noting that Rule 4003(c) places the burden of proving that IRA accounts are ERISA-qualified on the trustee, the court held, in the absence of any evidence presented by the trustee that the IRA accounts were ERISA-qualified, that a QDRO was unnecessary and that the debtor was allowed to claim the IRA accounts as exempt under state law.In re Brackett, 2001 Bankr. LEXIS 263, – B.R. – (Bankr. M.D. Fla. March 6, 2001) (Proctor, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:522.10