Collier Bankruptcy Case Update April-28-03
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 28, 2003
CASES IN THIS ISSUE
(scroll down to read the full summary)
§ 523(a)(2) Commercial rent claim was nondischargeable
based on creditor’s reliance on false statements made by debtor with whom
creditor also had a friendship.
Lentz v. Spadoni (In re Spadoni) (1st Cir.)
2d Cir.
§ 727 Bankruptcy court properly denied discharge due to debtor’s failure to produce documents.
Helms v. Gangemi (In re Gangemi) (E.D.N.Y.)
3d Cir.§ 330 Enhancement of compensation for debtor’s attorney approved due to unusual skill and expertise of counsel in handling reorganization involving three billion dollars in claims.
In re Covad Communs. Group (D. Del.)
5th Cir.
§ 523(a)(8) Chapter 13 debtor’s student
loans were nondischargeable absent proper adversary proceeding.
In re Tyler (Bankr. W.D. Tex.)
§ 1325(a)(5)(B) Debtors’ truck valued at
amount between values set by National Automobile Dealers Association and Blue
Book and creditor was entitled to interest at contract rate.
In re Gray (Bankr. N.D. Tex.)
6th Cir.
§ 523(a)(3)(A) Reopening no-asset case to add unlisted creditor was unnecessary as debt was already discharged.
In re Williams (Bankr. E.D. Tenn.)
§ 727 Trustee had no authority to settle objections to discharge in exchange for consideration from debtor.
In re Levine (Bankr. E.D. Mich.)
§ 727(a) Petition dismissed due to debtor’s bad faith and failure to pay deceased spouse’s life insurance proceeds to children of spouse’s prior marriage pursuant to divorce decree.
In re Eddy (Bankr. E.D. Tenn.)
7th Cir.
§ 365(d)(4) Bankruptcy court order to extend deadline for assumption or rejection of unexpired store leases was not appealable.
Key Plaza I, Inc. v. Kmart Corp. (N.D. Ill.)
§ 523(a)(5) Monthly payment from debtor’s pension to ex-spouse pursuant to divorce decree was a dischargeable property settlement, not alimony or support.
In re Townsley (Bankr. C.D. Ill.)
8th Cir.
§ 547 Creditor bank was not an insider of debtor and was not liable for alleged preferential transfers to debtor’s officers and shareholders.
Dowden v. First Sec. Bank (In re Mid-South Auto Brokers, Inc.) (Bankr. E.D. Ark.)
§ 547 Payments made to builder by debtor as creditor’s intermediary were avoidable due to debtor’s commingling of funds, and reduction in value of estate with no new value received.
Manty v. Miller (In re Nation-Wide Exch. Servs.) (Bankr. D. Minn.)
9th Cir.
§ 303(b) Involuntary bankruptcy filed on behalf of former spouse dismissed as filing spouse did not have a non-contingent claim of at least $11, 625.
Mardeusz v. Magers (In re Magers) (N.D. Cal.)
§ 362 Relief from stay denied in interests of judicial economy where claims concerned business ventures that were estate assets and presented multiparty issues.
Shepard v. Patel (In re Patel) (Bankr. D. Ariz.)
§ 522(b)(2)(A) Debtors domiciled in Washington were entitled to claim homestead exemption in Florida home but only to the extent allowed under Washington state law.
In re Tanzi (Bankr. W.D. Wash.)
§ 523(a) State criminal restitution order stemming from injuries caused by debtor in auto accident was nondischargeable.
Huntley v. Vessey (In re Vessey) (Bankr. D. Idaho)
10th Cir.
§ 362 Debtor entitled to actual and punitive damages for creditor’s continuation of foreclosure action in violation of stay.
In re Gagliardi (Bankr. D. Colo.)
11th Cir.
§ 506 Debtor could not seek determination of extent, validity and priority of federal tax lien in order to strip down the nonconsensual lien which would pass through bankruptcy unaffected.
Carpenter v. United States (In re Carpenter) (Bankr. M.D. Fla.)
§ 507(a)(8)(A) Unsecured claim of IRS was not priority claim.
In re Tecson (Bankr. M.D. Fla.)
§ 1329 Plan modified on motion of trustee to allow payment of excess fire insurance proceeds to creditors.
In re Thomas (Bankr. M.D. Ala.)
Collier Bankruptcy Case Summaries
1st Cir.
Commercial rent claim was nondischargeable
based on creditor’s reliance on false statements made by debtor with
whom creditor also had a friendship. 1st Cir. PROCEDURAL
POSTURE: Plaintiff creditor sued defendant debtor to recover rent.
The debtor filed for bankruptcy and the creditor asserted his rent claim in
the bankruptcy court alleging the debt was nondischargeable under 11 U.S.C.
§ 523(a)(2)(A). The Bankruptcy Appellate Panel affirmed the decision
of the bankruptcy court which held the debt was dischargeable. The creditor
appealed. OVERVIEW: The creditor and the debtor had been
friends. The debtor leased space from the creditor in order to operate a cellular
telephone business. The debtor fell behind in rent and assured the creditor
that he would take care of it. The debtor did not pay the rent and instead
filed for bankruptcy. The creditor alleged that he trusted the debtor and
gave him the benefit of the doubt because they were friends. The bankruptcy
court determined that the creditor failed to prove actual reliance. The court
of appeals found that the creditor testified that he did rely on the debtor’s
statement that he would pay the rent, and friendship could have reinforced
the decision, but it was enough for reliance if the false statements contributed
to it. The creditor justifiably relied on the debtor’s assurances because
the debtor said that his business had been slow but was developing and the
friendship between the two men made the assurances more palatable than normal.
Accordingly, the rent due for a nine month period qualified as a nondischargeable
debt. Lentz v. Spadoni (In re Spadoni), 2003 U.S. App.
LEXIS 465, 316 F.3d 56 (1st Cir. January 14, 2003) (Boudin, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.08 [back
to top]
ABI Members, click here to get the full opinion.
2d Cir.
Bankruptcy
court properly denied discharge due to debtor’s failure to produce documents.
E.D.N.Y. PROCEDURAL POSTURE: Appellant, the
debtor, challenged an order of the bankruptcy court, that granted the appellee
creditors’ motion for summary judgment and declared that the debtor was
not entitled to a discharge under 11 U.S.C. § 727. OVERVIEW:
The bankruptcy court found that the creditors, on their motion for summary judgment,
raised an inference that the debtor had failed to maintain documents by asserting
that the debtor failed to produce any documents. Further, the bankruptcy court
found that the debtor failed to rebut the inference, which he was obligated
to do in the face of a motion for summary judgment. On appeal, the court held
that the debtor did not produce any documents; furthermore, his statement that
he had produced documents, unsupported by any evidentiary support, was unavailing
and his statement that he was ready to produce documents was insufficient. At
the summary judgment stage, the debtor had a duty to produce admissible evidence
of an issue of fact in dispute, which he failed to do. The debtor argued that
he was denied an evidentiary hearing and that, as such, summary judgment was
inappropriate. The court rejected that assertion. The debtor had the opportunity
to submit evidence in response to the summary judgment motion, both in submitting
papers and at oral argument. Helms v. Gangemi (In re Gangemi), 2003
U.S. Dist. LEXIS 5576, — B.R. — (E.D.N.Y. March 31, 2003) (Seybert,
D.J.).
Collier on Bankruptcy, 15th Ed. Revised 6:727.01 [back
to top]
ABI Members, click here to get the full opinion.
3d Cir
Enhancement
of compensation for debtor’s attorney approved due to unusual skill and
expertise of counsel in handling reorganization involving three billion dollars
in claims. D. Del. PROCEDURAL POSTURE:
An enhancement to lodestar rates with respect to the services provided by debtor’s
legal counsel was requested in a chapter 11 case. The trustee filed the only
objection. OVERVIEW: An enhancement of $1,000,000
plus an option to purchase 100,000 shares of the reorganized debtor was sought.
Testimony at a hearing established that counsel guided the debtor through a
successful chapter 11 reorganization involving approximately $3 billion in claims
by virtue of a reasonable cash payment and a minimal dilution of equity resulting
in a consensual plan of reorganization. The trustee argued that counsel’s
achievements were routine and within a range the trustee believed should have
been expected of chapter 11 counsel. The court concluded that the requested
enhancement was warranted by virtue of the witness testimony presented at the
hearing, the circumstances of the debtor’s reorganization, the lack of
objection by interested constituencies, and the court’s assessment of
the results achieved by virtue of the skill and expertise of counsel. The court
found the trustee’s assessment factually unsupported. In contrast, no
creditor or equity interest holder objected to the requested enhancement.
In re Covad Communs. Group, 2003 U.S. Dist. LEXIS
5630, — B.R. — (D. Del. April 2, 2003) (Farnan, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:330.01 [back
to top]
ABI Members, click here to get the full opinion.
Chapter 13 debtor’s student loans were
nondischargeable absent proper adversary proceeding. Bankr. W.D.
Tex. PROCEDURAL POSTURE: The debtor moved to enforce discharge.
The motion raised the question of whether the discharge order entered in the
debtor’s bankruptcy case discharged the debtor’s student loans.
OVERVIEW: At the time the debtor filed for relief under chapter
13 and at all times thereafter, 11 U.S.C. § 1328(a)(2) excepted student
loan debt from dischargeability pursuant to 11 U.S.C. § 523(a)(8). Section
523(a)(8) required that a debtor file an adversary proceeding in order to obtain
discharge of his student loans. The debtor failed to file such an adversary
proceeding and therefore the student loan creditor had no notice prior to the
entry of the discharge order that the student loans would be discharged. This
was a violation of due process. As such, the court found that the discharge
order entered was void and the debtor’s student loans were nondischargeable.
Further, the court found that the discharge order was only able to apply to
discharges authorized by the Bankruptcy Code. The Bankruptcy Code did not authorize
discharges of student loans through the discharge order. The court therefore
was basically powerless to enter such a discharge order. In re Tyler,
2002 Bankr. LEXIS 1565, 285 B.R. 635 (Bankr. W.D. Tex. October
10, 2002) (Monroe, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.14 [back
to top]
ABI Members, click here to get the full opinion.
Debtors’ truck valued at
amount between values set by National Automobile Dealers Association and Blue
Book and creditor was entitled to interest at contract rate. Bankr.
N.D. Tex. PROCEDURAL POSTURE: A secured creditor objected
to confirmation of the debtors’ chapter 13 plan, alleging that the debtors
undervalued its collateral (a pickup truck), that the plan provided for an insufficient
rate of interest, and that a plan provision requiring release of liens upon
payment of the collateral value was invalid. OVERVIEW: The
creditor held a first lien against the debtors’ truck, which it claimed
was worth $8,450, based on the National Automobile Dealers Association (“NADA”)
retail value. The debtors’ chapter 13 plan valued the truck at $4,640,
based on the Kelly Blue Book (“KBB”) private party value. As the
truck’s value had to reflect the cost to the debtors to obtain a like
asset, the court assumed the debtors would buy their vehicle from a dealer rather
than a private party; thus, the NADA value was the proper starting point for
valuing the truck under 11 U.S.C. § 1325(a)(5)(B). However, the NADA value
included inappropriate items, such as commissions and overhead and carrying
costs. As the parties presented no evidence of the amount by which the NADA
value should be reduced to account for such items, the court estimated the value
by choosing the midpoint between the NADA and KBB values — $5,745. The
debtors did not rebut the presumption that the creditor was entitled to the
contract interest rate, 21 percent, rather than the plan’s 13 percent
figure. The provision requiring release of all liens upon payment of the collateral
value was a permissible term in a chapter 13 plan. In re Gray,
2002 Bankr. LEXIS 1545, 285 B.R. 379 (Bankr. N.D. Tex. November 14, 2002) (Lynn,
B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1325.06[3] [back
to top]
ABI Members, click here to get the full opinion.
6th Cir.
Reopening no-asset case to add unlisted creditor
was unnecessary as debt was already discharged. Bankr. E.D. Tenn.
PROCEDURAL POSTURE: Two debtors in closed no-asset bankruptcy
cases sought an order reopening their respective cases to add a creditor not
originally listed on the schedules filed by the debtors. The court decided,
sua sponte, to provide guidance on the practice. OVERVIEW:
In a no-asset chapter 7 case, if a creditor was given notice or learned of the
bankruptcy prior to any assets being later recovered, the creditor could still
“timely” file a proof of claim. Accordingly, the moment the creditor
received notice of the bankruptcy case, 11 U.S.C. § 523(a)(3)(A) ceased
to provide the basis for an exception from discharge. Consequently, the debt
was at that point discharged. Reopening a no-asset chapter 7 bankruptcy case
to amend a debtor’s schedules to add an unlisted creditor had no effect
on the dischargeability of the debt and was, therefore, unnecessary. Since the
court had not directed the unsecured creditors in the debtors’ cases to
file claims, the deadline for filing unsecured claims had not run, and any such
proofs of claim would be timely. Since the unlisted creditor had received notice
of the debtors’ bankruptcy cases, if her state court lawsuit was based
upon actions of the debtors arising prepetition, and the cause of action was
not based upon fraud, false pretenses, or the willful and malicious conduct
of the debtors, the debtors’ liability was discharged. In
re Williams, 2003 Bankr. LEXIS 271, — B.R. — (Bankr.
E.D. Tenn. March 12, 2003) (Stair, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.09[3][a] [back
to top]
ABI Members, click here to get the full opinion.
Trustee had no authority to settle objections
to discharge in exchange for consideration from debtor. Bankr.
E.D. Mich. PROCEDURAL POSTURE: The chapter 7 trustee requested
that the court approve a settlement he reached with the debtor and the debtor’s
former wife. The settlement related to the trustee’s objection to the
debtor’s discharge and to various transfers which the wife had received
from the debtor. The trustee filed a motion to approve the settlement pursuant
to Fed. R. Bankr. P. 9019(a). A creditor filed an objection to the settlement.
OVERVIEW: The settlement with the debtor provided for the resolution
of the trustee’s objection to the debtor’s discharge in exchange
for $5,000 if paid by a certain date, or for $15,000 if paid after that date.
The settlement provided for the resolution of the trustee’s claims against
the wife, in exchange for the return of the debtor’s interests in two
companies, and payment of $30,000. The creditor argued that the debtor should
not had been permitted to purchase a discharge which he did not deserve. In
considering the trustee’s motion for approval of the proposed settlement
with the debtor, the court was squarely faced with the question of whether a
trustee had the authority under 11 U.S.C. § 727 or some other statute to
accept money or other consideration in lieu of proceeding with the objection.
The court concluded that the trustee simply had no authority to settle objections
to discharge in exchange for consideration. The settlement reached between the
trustee and the debtor was ultra vires and, therefore, breached the trustee’s
fiduciary duty to engage in only lawful activities on behalf of the bankruptcy
estate. In re Levine, 2002 Bankr. LEXIS 1567, 287 B.R.
683 (Bankr. E.D. Mich. December 23, 2002) (Hughes, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 6:727.01 [back
to top]
ABI Members, click here to get the full opinion.
Petition dismissed due to debtor’s
bad faith and failure to pay deceased spouse’s life insurance proceeds
to children of spouse’s prior marriage pursuant to divorce decree. Bankr.
E.D. Tenn. PROCEDURAL POSTURE: Movant, the father of minor
children of his deceased former wife, moved to dismiss, pursuant to 11 U.S.C.
§§ 727(a)(3), (4), or (5), the chapter 7 petition filed by debtor,
the surviving spouse of the decedent, or alternatively to find nondischargeable
a judgment against the debtor to pay over life insurance proceeds from policies
on the decedent’s life for the benefit of her minor children. OVERVIEW:
As a result of the divorce between the decedent and the movant, each was required
to maintain life insurance policies with the proceeds payable for the benefit
of the children. The decedent, who had remarried the debtor, died in a car accident.
The debtor refused to pay or account for the proceeds from the decedent’s
life insurance, resulting in a state court judgment whereby the children were
creditors of the debtor for life insurance proceeds in the amount of $100,665
plus pre-judgment interest, that he was required to hold in trust for the children.
The bankruptcy court found that the debtor had engaged in a number of actions
that evidenced his lack of good faith in filing the bankruptcy petition, including
that he continued to live an expansive lifestyle, he incredibly failed to recall
the bank accounts where the funds were held, and he was fully able to pay his
debts. The court found it was unfair to allow the debtor to continue to hold
the children at bay, denying them the insurance proceeds to which they were
entitled. In re Eddy, 2002 Bankr. LEXIS 1551, 288 B.R.
500 (Bankr. E.D. Tenn. December 10, 2002) (Stair, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 6:727.01 [back
to top]
ABI Members, click here to get the full opinion.
7th Cir.
Bankruptcy court order to extend
deadline for assumption or rejection of unexpired store leases was not appealable.
N.D. Ill. PROCEDURAL POSTURE: A bankruptcy
court granted defendant debtor/lessee’s motion under 11 U.S.C. §
365(d)(4) to extend the deadline to assume or reject unexpired store leases.
Plaintiff landlords appealed. OVERVIEW: The court’s first
task was to identify whether it had jurisdiction over the appeal. It concluded
that it did not have jurisdiction because the bankruptcy court’s order
was not final and appealable under 28 U.S.C. § 158(a)(1). The order did
not resolve all contested issues on the merits or lead to a final distribution
of assets. The order did not ultimately determine the landlords’ positions
in the bankruptcy proceeding, and it did not dispose of the leases. Finally,
the order did not mark the conclusion of the equivalent of a stand-alone suit.
The order did not qualify for appeal under 28 U.S.C. § 158(a)(3) because
the landlords did not identify a substantial ground for a difference of opinion
in the controlling question of law or any exceptional circumstances that would
have justified the exercise of jurisdiction over the bankruptcy court’s
interlocutory order. The extension was consistent with the well-established
factors for determining whether cause existed for an extension. Accordingly,
the order granting the lessee’s motion for an extension under 11 U.S.C.
§ 365(d)(4) was not appealable. Key Plaza I, Inc. v. Kmart
Corp., 2002 U.S. Dist. LEXIS 25234, — B.R. — (N.D.
Ill. January 10, 2002) (Darrah, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:365.04[3] [back
to top]
ABI Members, click here to get the full opinion.
Monthly payment from debtor’s
pension to ex-spouse pursuant to divorce decree was a dischargeable property
settlement, not alimony or support. Bankr. C.D. Ill. PROCEDURAL
POSTURE: Husband and wife debtors filed a chapter 13 plan. A creditor
filed an objection to the confirmation of the debtors’ proposed chapter
13 plan that proposed to treat the creditor as an unsecured creditor with regard
to a property settlement from a prior divorce of the creditor and the husband.
The creditor asserted that such debt was not subject to discharge under 11 U.S.C.
§§ 523(a)(5) and 1328. OVERVIEW: The creditor was
formerly married to the husband and pursuant to their divorce decree, the parties
executed a marital settlement which awarded the creditor a monthly payment from
the husband’s retirement pension until either party died. The debtors’
plan proposed to pay the creditor only 25 percent of this debt. The court disagreed
with the creditor that the debt was not subject to discharge under 11 U.S.C.
§§ 523(a)(5) and 1328. The court found that the debt was in reality
a property settlement rather than alimony or support for a former spouse. Both
parties were represented by counsel during the negotiation of the settlement
agreement and the agreement stated that the payments were for a property settlement.
The payments also continued if the husband or the creditor later remarried other
people, which was not an attribute of maintenance. Finally, neither party treated
the monthly payment to the creditor as maintenance for federal income tax purposes.
In re Townsley, 2003 Bankr. LEXIS 13, — B.R. —
(Bankr. C.D. Ill. January 6, 2003) (Fines, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.11 [back
to top]
ABI Members, click here to get the full opinion.
Creditor bank was not an insider of
debtor and was not liable for alleged preferential transfers to debtor’s
officers and shareholders. Bankr. E.D. Ark. PROCEDURAL
POSTURE: The trustee filed an action against defendant, a creditor,
in which the trustee alleged a cause of action for the recoveries of fraudulent
conveyances pursuant to 11 U.S.C. § 548(a)(1)(B) and 11 U.S.C. §
550 and preferential transfers pursuant to 11 U.S.C. § 548(b) and
11 U.S.C. § 550. OVERVIEW: The trustee sought to
recover two different categories of preferences: those preferential transfers
that occurred between 90 days and one year after the date the bankruptcy
petition was filed and those transfers made on or within 90 days before
the petition was filed. Regarding the first set of transfers, the trustee
argued that because three individuals were guarantors of the debtor’s
obligations to the bank and that they were officers and shareholders of
the debtor, they were insiders for the purposes of 11 U.S.C. § 547.
The court held that the trustee was correct in that the individuals were
insiders and that they received a benefit. However, the court found that
the trustee did not allege that the bank was an insider and that there
was no authority in support of the argument that the bank was liable for
transfers it received more than 90 days prior to the petition date. Addressing
the second set of transfers, the court found that the trustee had not
established that the transfers in question enabled the bank to recover
more than it would have received in a chapter 7 liquidation as required
by 11 U.S.C. § 547(b)(5). Dowden v. First Sec. Bank (In
re Mid-South Auto Brokers, Inc.), 2003 Bankr. LEXIS
265, 290 B.R. 658 (Bankr. E.D. Ark. April 1, 2003) (Mixon, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:547.01 [back
to top]
ABI Members, click here to get the full opinion
Payments made to builder
by debtor as creditor’s intermediary were avoidable due to debtor’s
commingling of funds, and reduction in value of estate with no new value
received. Bankr. D. Minn. PROCEDURAL POSTURE:
In jointly administered adversary proceedings, plaintiff bankruptcy trustee,
under 11 U.S.C. § 547, sought to avoid payments to a builder made
by debtor as a qualified intermediary for defendant creditor in a like-kind
exchange of real property, and the creditor sought a declaration that
it was entitled to real property transferred to the debtor in the exchange.
The trustee and the creditor cross-moved for summary judgment.
OVERVIEW: The debtor received funds from a sale of the creditor’s
property and made payments to a builder which was improving property to
be conveyed to the creditor, but the trustee contended that such payments
constituted a preferential transfer within the meaning of section 547.
The creditor argued that the funds received by the debtor were the funds
of the creditor rather than the debtor and that, in any event, the payments
constituted an exchange for new value and were made in the ordinary course
of business. The bankruptcy court first held that the funds were in fact
the property of the debtor since the parties expressly disclaimed any
agency relationship, the debtor exercised substantial control over the
funds, and the debtor’s commingling of the funds constituted a conversion
of the funds. Further, the creditor’s contingent and unmatured right
to receive the funds constituted an antecedent debt to which the payments
were applied, and the payments reduced the debtor’s estate. Also,
the debtor itself received no new value for the payments, and the payments
were not made in the ordinary course of the creditor’s business,
but the creditor was entitled to a conveyance of the improved property.
Manty v. Miller (In re Nation-Wide Exch. Servs.),
2003 Bankr. LEXIS 267, — B.R. — (Bankr. D. Minn. March 31,
2003) (Kishel, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:547.01 [back
to top]
ABI Members, click here to get the full opinion
9th Cir.
Involuntary bankruptcy filed on behalf of former spouse dismissed as filing spouse did not have a non-contingent claim of at least $11, 625. N.D. Cal. PROCEDURAL POSTURE: Appellant former wife sought review of a decision of the bankruptcy court, which dismissed the involuntary bankruptcy petition that the wife filed on behalf of appellee former husband under 11 U.S.C. § 303. The bankruptcy court also denied the wife’s motion for reconsideration under Fed. R. Civ. P. 60(b), as incorporated by Fed. R. Bankr. P. 9024. OVERVIEW: The wife filed an involuntary chapter 7 proceeding against her husband, claiming unpaid child support. Dismissing and finding that the petition had been filed in bad faith, the bankruptcy court awarded the husband attorney’s fees and punitive damages, and denied the wife’s petition for reconsideration under Fed. R. Civ. P. 60(b). Affirming, the court held that the bankruptcy court’s dismissal of the petition was supported by the evidence and by 11 U.S.C. §§ 303(b)(1) and (2) because the wife did not possess a non-contingent claim in the amount of at least $11,625. The state court child support order to the wife had been fully satisfied and had in fact been superseded by another order requiring that the wife should pay child support to the husband. The imposition of attorney’s fees was reasonable, and the punitive damages were supported by the record, given the wife’s history of harassment. The bankruptcy court had authority under 11 U.S.C. § 105(a) to restrict the wife’s ability to file any subsequent action because there was evidence that the wife was a vexatious litigant. The bankruptcy court did not abuse its discretion by denying the Fed. R. Civ. P. 60(b) motion. Mardeusz v. Magers (In re Magers), 2003 U.S. Dist. LEXIS 338, — B.R. — (N.D. Cal. January 6, 2003) (Hamilton, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:303.04 [back to top]
ABI Members, click here to get the full opinion
Relief from stay denied
in interests of judicial economy where claims concerned business ventures
that were estate assets and presented multiparty issues. Bankr.
D. Ariz. PROCEDURAL POSTURE: In a chapter 11 bankruptcy
proceeding involving respondents, corporate and individual debtors, movant
creditor filed two motions for relief from the automatic stay to pursue
pending state court lawsuits against debtors. The debtors and certain
secured creditors objected to the creditor’s motions. OVERVIEW:
The creditor was a stockholder in the debtor corporation and had engaged
in several joint ventures with the individual debtors. The creditor’s
first suit was for a declaration of stock ownership in the debtor corporation
and raised shareholder derivative claims against the individual debtors
for breach of fiduciary duties and embezzlement. When the debtors filed
in chapter 11, this case was ready for entry of judgment in the creditor’s
favor. The debtors subsequently removed it to a sister bankruptcy court.
The second action, against the individual debtors, sought declaratory
relief, an accounting, dissolution of six joint ventures, and damages
for fraud and breach of fiduciary duty. Based on policy considerations,
the bankruptcy court declined to give the creditor relief from the stay.
Inter alia, the suits concerned business ventures that were bankruptcy
estate assets and presented inherently multiparty issues. The automatic
stay gave the debtors a “breathing spell” from creditors.
The bankruptcy court was in a better position to determine significant
claims issues. Retaining the stay could promote judicial economy and would
preserve a level playing field for plan negotiation. Shepard
v. Patel (In re Patel), 2003 Bankr. LEXIS 263, — B.R. —
(Bankr. D. Ariz. January 30, 2003) (Haines, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.01 [back
to top]
ABI Members, click here to get the full opinion
Debtors domiciled in Washington
were entitled to claim homestead exemption in Florida home but only to
the extent allowed under Washington state law. Bankr. W.D.
Wash. PROCEDURAL POSTURE: Involuntary chapter 7
petitions were filed separately against married debtors. On summary judgment
the cases were converted to chapter 11 and consolidated for joint administration.
The debtors filed schedules which claimed their Florida residence as exempt
and a creditor objected to the claimed exemption. OVERVIEW:
The debtors lived in the State of Washington but claimed the entire value
of their Florida residence as exempt and claimed use of the Florida exemptions.
The creditor asserted that the debtors were required to use either the
Washington or federal exemptions, where their domicile was Washington
for purposes of 11 U.S.C. § 522(b)(2)(A). The court found that: (1)
the debtors admitted that their primary residence was in Washington; (2)
both debtors possessed Washington drivers licenses; (3) both debtors were
registered to vote in Washington; and (4) the debtors admitted to residence
in Washington for a longer portion of the 180 days immediately proceeding
the filing of the involuntary petition. The court found that the debtors
sold and purchased property subject to exemptions after the involuntary
petitions were filed and prior to the order for relief being entered.
The debtors were entitled to claim an exemption in the Florida residence,
but only to the extent exempt under the law of the domiciliary state.
It was undisputed that the debtors were not domiciled in Florida for a
longer portion of the 180 day period preceding the filing of the petition
than any other place. In re Tanzi, 2002 Bankr. LEXIS
1556, 287 B.R. 557 (Bankr. W.D. Wash. December 19, 2002) (Snyder, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:522.02 [back
to top]
ABI Members, click here to get the full opinion
State criminal restitution order
stemming from injuries caused by debtor in auto accident was nondischargeable.
Bankr. D. Idaho PROCEDURAL POSTURE: Defendant
debtor filed a chapter 7 petition and defendants, judgment creditors,
filed an adversary action against the debtor to determine the dischargeability
of debt related to a state criminal restitution order, pursuant to 11
U.S.C. §§ 523(a)(7) and (9). Both parties moved for summary
judgment related to the creditors’ claims against the debtor. OVERVIEW:
Two judgment creditors were injured by the debtor in an automobile accident
and the creditors later sought a decision that a court judgment, pursuant
to an Idaho State restitution statute, was a nondischargeable debt. The
bankruptcy court held that it had jurisdiction to review the matter. The
court found that certain affidavits created a genuine issue of material
fact over whether the debtor was illegally operating a vehicle while intoxicated.
The 11 U.S.C. § 523(a)(9) issue could not be decided on summary judgment
and the trial was necessary. The court found that no genuine issue of
material fact existed related to the 11 U.S.C. § 523(a)(7) issues
related to the criminal restitution order and summary judgment for the
judgment creditors on this claim was appropriate. The Idaho State criminal
restitution order was held to be nondischargeable pursuant to section
523(a)(7). Huntley v. Vessey (In re Vessey), 2003
Bankr. LEXIS 252, — B.R. — (Bankr. D. Idaho January 15, 2003)
(Myers, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.01 [back
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10th Cir.
Debtor entitled to actual and punitive
damages for creditor’s continuation of foreclosure action in violation
of stay. Bankr. D. Colo. PROCEDURAL POSTURE:
Petitioners, married debtors, filed a chapter 7 petition. A debtor alleged
violations of the automatic stay, pursuant to 11 U.S.C. § 362 by
respondents, two creditors and their legal counsel, related to the foreclosure
of the debtors’ property. OVERVIEW: The bankruptcy
court found that when the debtors filed their bankruptcy petition that
the debtors had three remaining interests in the property in issue and
included: (1) legal title; (2) a right of redemption; and (3) a legal
right of possession. The court found that these property interests were
sufficient interests protected by the automatic stay and the automatic
stay prevented any commencement or continuation of an act against either
the debtors or the property. The court found that even though all respondents
denied receipt of any notice of the debtors’ bankruptcy petition,
these parties received adequate notice of the bankruptcy case by other
means. The court held that the actions against the debtors in the foreclosure
action in violation of the automatic stay of 11 U.S.C. § 362 was
willful and that the debtors were entitled to actual damages. The debtors
were also entitled to punitive damages after the court applied five factors,
which included: (1) the nature of the creditor’s conduct; (2) the
creditor’s ability to pay damages; (3) the level of sophistication
of the creditor; (4) the creditor’s motives; and (5) any provocation
by the debtors. In re Gagliardi, 2003 Bankr.
LEXIS 255, 290 B.R. 808 (Bankr. D. Colo. March 17, 2003) (Brown, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.01 [back
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11th Cir.
Debtor could not seek determination of extent, validity and priority of federal tax lien in order to strip down the nonconsensual lien which would pass through bankruptcy unaffected. Bankr. M.D. Fla. PROCEDURAL POSTURE: Defendant Internal Revenue Service (“IRS”) filed a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6) a claim filed by plaintiff debtors seeking a determination of the extent, validity, and priority of federal tax liens filed by the IRS prior to a chapter 7 bankruptcy petition. OVERVIEW: The debtors asserted that the IRS liens, which totaled approximately $117,000.00, should have been limited to $2,715.00 — the alleged value of the debtors’ unencumbered personal assets at the time of the filing of a chapter 7 bankruptcy petition. The IRS claimed that the relief sought by the debtors was impermissible “lien stripping.” The court held that relief in the form of 11 U.S.C. § 506 was not available to the debtors because a chapter 7 debtor could not use section 506 to “strip down” a nonconsensual federal tax lien. Such liens passed through bankruptcy unaffected. Further, tax liens were not subject to 11 U.S.C. § 522(f), and were allowed to remain against exempt property under 11 U.S.C. § 522(c)(2)(B). Carpenter v. United States (In re Carpenter), 2003 Bankr. LEXIS 277, — B.R. — (Bankr. M.D. Fla. March 14, 2003) (Baynes, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:506.01 [back to top]
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Unsecured claim of IRS was not priority
claim. Bankr. M.D. Fla. PROCEDURAL POSTURE:
The debtors objected to a claim filed by a creditor, the Internal Revenue
Service (“IRS”). OVERVIEW: The debtors made
restitution payments after they were convicted of tax evasion for three
tax years. The debtors’ objection raised the issues of (1) whether
the IRS properly credited the restitution payments to the one tax year
instead of allocating the payments across the three years; and (2) whether
the majority of the debtors’ unsecured claim should have been classified
as a priority claim. The court found that the debtors’ restitution
payments were in the nature of involuntary and undesignated payments.
Under Internal Revenue Service (“IRS”). Rev. Proc. 2002-26,
2002-15 I.R.B. 746, such payments were to be allocated in the manner that
served the best interest of the IRS. The debtors argued the 240-day priority
period of 11 U.S.C. § 507(a)(8)(A)(ii) was tolled from the time they
filed their Tax Court petition to when their case was dismissed for lack
of jurisdiction as untimely filed. The situation in Young was not analogous
to this case and the court declined to expand its holding. To toll the
priority period in any way other then what section 507 explicitly provided
would have frustrated congressional intent. In re Tecson,
2003 Bankr. LEXIS 279, — B.R. — (Bankr. M.D. Fla. March 31,
2003) (Proctor, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:507.10[2] [back
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Plan modified on motion of trustee
to allow payment of excess fire insurance proceeds to creditors. Bankr.
M.D. Ala. PROCEDURAL POSTURE: The trustee moved
to modify the chapter 13 debtor’s confirmed plan of reorganization.
OVERVIEW: The debtor’s residence was destroyed
in a fire. The insurance carrier paid the mortgage holder in full and
tendered the remaining funds to the trustee. The insurer’s total
payment greatly exceeded the value the debtor had placed on the home in
her schedules. The trustee sought to modify the debtor’s plan to
pay the excess funds to creditors. The debtor objected and sought to keep
the funds for herself, notwithstanding the fact that her plan provided
only a 10 percent dividend to the holders of unsecured claims. The proposed
modification to the chapter 13 plan was one to increase the amount to
be paid to the holders of unsecured claims. Therefore, the modification
was one of a type contemplated by 11 U.S.C. § 1329(a)(1). The court
found that the section 1329(b) requirements were met, and the trustee
had met the requirements for the modification of a chapter 13 plan after
confirmation. Further, the doctrine of res judicata did not operate to
bar amendment of a confirmed plan. In re Thomas,
2003 Bankr. LEXIS 256, — B.R. — (Bankr. M.D. Ala. March 27,
2003) (Sawyer, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1329.01 [back
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