Collier Bankruptcy Case Update August-12-02
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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.
August 12, 2002
CASES IN THIS ISSUE
- 1st Cir.
§ 523(a) Creditor’s motion for exception to discharge denied due to insufficient evidence of intent to deceive.
Northeast Credit Union v. Butterworth (In re Butterworth) (Bankr. D.N.H.)
2d Cir.
§ 304 Modification of injunction prohibiting action against debtor during pendency of foreign proceeding denied.
In re Bd. of Dirs. of Hopewell Int’l Ins. Ltd. (Bankr. S.D.N.Y.)§ 524 IRS violated discharge injunction by holding a refund and continuing to demand payment for 14 years.
Atkins v. U.S. (In re Atkins) (Bankr. N.D.N.Y.) 082022
3d Cir.
§ 1113 Debtor’s motion to reject collective bargaining agreement denied due to difficulty in assessing fairness and equity of proposal.
Nat’l Forge Co. v. Indep. Union of Nat’l Forge Employees (In re Nat’l Forge Co.) (Bankr. W.D. Pa.)
4th Cir.
§ 506 Tax refund, where debtor filed taxes jointly with nondebtor spouse, was not exempt tenancy-by-the-entirety property but property of the estate.
Valley Inn v. B.O.A. Wholesale (In re The Valley Inn) (Bankr. W.D. Va.)
5th Cir.
§ 105 Chapter 7 case dismissed due to inaccurate filings by debtor who was a bankruptcy attorney.
In re Solomon (Bankr. E.D. Tex.)§ 109(e) As judgment in favor of state against debtor was unliquidated at time of filing, Chapter 13 case did not exceed unsecured debt limit.
In re Horne (Bankr. E.D. Tex.)§ 362(a) Creditor who exceeded terms of limited lifting of stay found in contempt of court.
Thornburg v. Lynch (In re Thornburg) (Bankr. E.D. Tex.)
6th Cir.
§ 101(5)(B) Injunctive relief is not a claim subject to discharge in bankruptcy.
River View Land Co. v. Bucak (In re Bucak) (Bankr. W.D. Tenn.)§ 523(a)(6) Claim arising from debtor’s negligent operation of motor vehicle dischargeable.
Guthrie v. Kokenge (In re Kokenge) (Bankr. E.D. Tenn.)
7th Cir.
§ 548 Service fees and commissions earned by broker in good faith from debtor engaged in Ponzi scheme were not avoidable fraudulent transfers.
First Commer. Mgmt. Group v. Reinhardt (In re First Commer. Mgmt. Group) (Bankr. N.D. Ill.)
8th Cir.
§ 522(b)(2)(B) Tax refund where debtor filed jointly with nondebtor spouse, was not exempt tenancy-by-the-entirety property but property of the estate.
In re Walker (Bankr. W.D. Mo.)
9th Cir.
§ 362 Foreclosure sale to bona fide purchaser in violation of stay voided.
Mitchell v. Mitchell (In re Mitchell) (B.A.P. 9th Cir.)§ 541(a)(1) Chapter 7 debtors’ unscheduled equitable interest in real property was property of the estate and not subject to tax foreclosure.
U.S. v. Gabel (N.D. Cal.)
10th Cir.
§ 365(a) After initial dismissal for improper notice, debtor’s renewed motion for rejection of unexpired commercial leases granted nunc pro tunc.
In re CCI Wireless, LLC (Bankr. D. Colo.)§ 544 Trustee’s amended complaint including § 548 claim related back to original claims under § 544 and state law.
Malloy v. Mulkey Tire, Inc. (In re Universal Factoring Co.) (Bankr. N.D. Okla.)
11th Cir.
§ 362 Service of civil contempt warrant not barred by automatic stay.
Goodman v. Albany Realty Comp. (In re Goodman) (Bankr. M.D. Ga.)§ 362(a) Creditor’s post-filing repossession of equipment and refusal to turn it over to trustee on request violated stay.
Mullis v. USA Restaurant Equip. Co. (In re Harsh) (Bankr. M.D. Ga.)§ 523(a)(6) Injuries caused to creditor by business of which debtor was sole shareholder did not prevent discharge.
Ford Motor Credit Co. v. Moody (In re Moody) (Bankr. S.D. Ga.)
Collier Bankruptcy Case Summaries
1st Cir.
Creditor’s motion for exception to discharge denied due to insufficient evidence of intent to deceive. Bankr. D.N.H. PROCEDURAL POSTURE: The debtor filed a petition under Chapter 13 of the Bankruptcy Code, which was dismissed. The debtor then filed a petition under Chapter 7. The creditor filed a complaint against the debtor seeking an exception to discharge of monies owed pursuant to 11 U.S.C. § 523(a)(2)(B). OVERVIEW: The court found that in order to satisfy its burden under 523(a)(2)(B), the creditor was required to prove that there was a statement in writing, that it was materially false concerning the debtor’s financial condition, that the creditor reasonably relied on this false statement, and that the debtor made the false statement with the intent to deceive. The court found that the credit increase form was not an equation of the assets and liabilities of the debtor. The court found that the term 'base annual income' was not defined and was ambiguous in the context of one running a business as a 'doing business as' and not as a separate legal entity. The application was not a financial statement that asked for a complete listing of the debtor’s assets and liabilities. There was no evidence that the creditor relied on the base annual income entry on the form in granting the credit card limit increase. The court found that there was insufficient evidence of the debtor’s intent to deceive.Northeast Credit Union v. Butterworth (In re Butterworth), 2002 Bankr. LEXIS 645, 279 B.R. 31 (Bankr. D.N.H. May 28, 2002) (Vaughn, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.01
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2nd Cir.
Modification of injunction prohibiting action against debtor during pendency of foreign proceeding denied. Bankr. S.D.N.Y. PROCEDURAL POSTURE: Movant, a creditor, sought modification of a permanent injunction issued in August 1999 granting debtor’s petition for ancillary relief under 11 U.S.C. § 304. The injunction prohibited commencement or continuation of any action or proceeding against debtor or its United States assets in violation of debtor’s Bermuda 'Scheme of Arrangement.' OVERVIEW: The court had earlier held that a Bermuda Injunction and the Bermuda 'Scheme of Arrangement' were entitled to comity and that the creditor would not be unfairly prejudiced by entry of a permanent injunction, prohibiting it from pursuing its claims against the debtor in the United States other than through the Scheme, and requiring that it arbitrate any dispute with the debtor under Bermuda law. In its present motion, the creditor argued that it was entitled to a modification of the permanent injunction under the equitable provisions of Fed. R. Civ. P. 60(b)(5). The creditor’s argument for modification was principally based on alleged critical changes in the circumstances since 1999, particularly the fact that the debtor had fully carried out its Scheme of Arrangement, and had paid all of its creditors. The court did not find any changes in the facts or the law since its entry that would have justified disturbing its conclusion that the provision of the Scheme providing for a uniform arbitration procedure in Bermuda under Bermuda law was entitled to be enforced in the United States. The court also was not persuaded by arguments alleging maladministration of the Scheme.In re Bd. of Dirs. of Hopewell Int’l Ins. Ltd., 2002 Bankr. LEXIS 673, – B.R. – (Bankr. S.D.N.Y. June 27, 2002) (Gropper, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:304.01
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IRS violated discharge injunction by holding a refund and continuing to demand payment for 14 years. Bankr. N.D.N.Y. PROCEDURAL POSTURE: The debtor filed an adversary action seeking damages against defendant United States ('U.S.'), alleging violations of the discharge injunction provided by 11 U.S.C. § 524. The debtor sought compensatory damages under 11 U.S.C. § 105(a), 524(a), a return of an income tax refund with interest, interest on income tax refunds that had been intercepted and later returned, and attorneys’ fees and costs under 28 U.S.C. § 2412. OVERVIEW: The U.S. received a copy of the discharge order, but ignored it, and for 14 years demanded payment of a discharged mortgage debt after the property was surrendered. It was a stream of harassment that affected the debtor mentally and physically; medical evidence was not required. The U.S. stated it had a prepetition reaffirmation agreement, but, there was no bankruptcy debtor when it was allegedly signed, and it was never filed with the court. A tax refund had been seized and held for 15 years. There were threatening collection demands. The debtor’s request of $150,000 was too large to compensate for the emotional stress shown. Damages of $30,000 were appropriate, plus return of the tax refund still being held. I.R.C. § 6343(c) did not waive sovereign immunity for interest to be awarded. The willful violation of the discharge injunction and a bad faith finding allowed an award of attorneys’ fees. A government agent had told the debtor his debt had not been discharged. Attorney’s fees under 28 U.S.C. § 2412(d)(2)(A) were increased by a cost of living increase for each year in which the work was performed, but expenses for retrieving and reopening the case were not allowed.Atkins v. U.S. (In re Atkins), 2002 Bankr. LEXIS 670, 279 B.R. 639 (Bankr. N.D.N.Y. June 18, 2002) (Littlefield, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:524.01
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3d Cir.
Debtor’s motion to reject collective bargaining agreement denied due to difficulty in assessing fairness and equity of proposal. Bankr. W.D. Pa. PROCEDURAL POSTURE: Debtor filed a voluntary petition under Chapter 11 of the Bankruptcy Code. The debtor filed a motion to reject a collective bargaining agreement in accordance with 11 U.S.C. § 1113. The committee of unsecured creditors supported the motion and the union opposed the motion. OVERVIEW: Debtor filed a voluntary petition under Chapter 11 of the Bankruptcy Code. The debtor filed a motion to reject a collective bargaining agreement in accordance with 11 U.S.C. § 1113. The committee of unsecured creditors supported the motion and the union opposed the motion.Nat’l Forge Co. v. Indep. Union of Nat’l Forge Employees (In re Nat’l Forge Co.), 2002 Bankr. LEXIS 639, 279 B.R. 493 (Bankr. W.D. Pa. June 19, 2002) (Bentz, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 7:1113.01
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4th Cir.
Tax refund, where debtor filed taxes jointly with nondebtor spouse, was not exempt tenancy-by-the-entirety property but property of the estate. Bankr. W.D. Va. PROCEDURAL POSTURE: Appellant, the debtor, challenged the decision of the United States Bankruptcy Court for the Western District of Virginia to grant appellee, the creditor, attorney’s fees as secured debt. OVERVIEW: The debtor argued that the creditor was not entitled to attorney’s fees because it failed to make a demand for fees at the time of default. That, under the terms of the note, the creditor could only demand fees upon a subsequent default, and since the debtor fulfilled its obligations under the plan, there was no subsequent default. The court found that the note intended for the creditor to declare attorney’s fees due and payable as part of the note. Reading the default provision as a whole revealed that 'together with a reasonable attorney’s fee' modified 'balance due and payable' and not 'the privilege to declare.' Declaring the entire unpaid balance of the note due and payable was a condition precedent to obtaining attorney’s fees. Rather than requiring two separate declarations, 'together with a reasonable attorney’s fee' simply indicated that the defaulting debtor was required to pay attorney’s fees in addition to immediately satisfying the debt. The debtor’s argument that the deed of trust only secured the principal amount plus interest and not any other obligations under the note contradicted state law. The plan also revealed that the fees were part of the secured debt.Valley Inn v. B.O.A. Wholesale (In re The Valley Inn), 2002 U.S. Dist. LEXIS 11576, – B.R. – (Bankr. W.D. Va. June 21, 2002) (Michael, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:506.01
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5th Cir.
Chapter 7 case dismissed due to inaccurate filings by debtor who was a bankruptcy attorney. Bankr. E.D. Tex. PROCEDURAL POSTURE: A creditor filed a motion to dismiss the debtor’s Chapter 7 bankruptcy pursuant to 11 U.S.C. §§ 105, 707(a), pleading as cause the debtor’s lack of good faith. OVERVIEW: There was no evidence that any debt was non-dischargeable under 11 U.S.C. § 523. No complaints under § 523 or 11 U.S.C. § 727 had been filed. But, the debtor’s schedules and statement of financial affairs were inaccurate in violation of his duties under 11 U.S.C. § 521, and no amendments had been filed. A statement that the debtor made monthly charitable contributions of $400 was an error. Other inconsistencies, such as listing debts that had previously been paid, were identified. The court was disturbed that all of the mistakes were made in the debtor’s favor and were designed to reach a result favorable to him. The schedules were not prepared haphazardly or in haste. He knew or should have known of the errors, as he was a bankruptcy attorney. If he did not know of the inaccuracies, it was by choice. Regardless of whether good faith was required under 11 U.S.C. § 707(a) or whether it was lacking, the errors were the type of malfeasance that the court was empowered to protect against through 11 U.S.C. § 105. The inaccuracies as to unsecured nonpriority creditors inflated the debt to exceed the Chapter 13 illegibility limits under 11 U.S.C. § 109(e).In re Solomon, 2002 Bankr. LEXIS 655, 277 B.R. 706 (Bankr. E.D. Tex. March 12, 2002) (Sharp, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:105.01
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As judgment in favor of state against debtor was unliquidated at time of filing, Chapter 13 case did not exceed unsecured debt limit. Bankr. E.D. Tex. PROCEDURAL POSTURE: In a Chapter 13 action, before the court was the trustee’s motion to dismiss. OVERVIEW: Several months after the debtor filed a voluntary petition for relief under Chapter 13, the State of Texas Office of the Attorney General (Texas) filed an unsecured claim in the case in the amount of $485,375.00. The unsecured claim of Texas resulted from a judgment entered by a Texas district court against a corporation in which the debtor was an officer and a 50% shareholder as of the date of filing his schedules and statement of financial affairs. The trustee sought dismissal of the case on the basis that the debtor did not qualify for relief under Chapter 13 because his unsecured debt exceeded the limits set forth in 11 U.S.C. § 109(e). The court concluded that the debt owed to Texas by the debtor, as reprehensible as his conduct may have been, could not have been liquidated on the date of the filing of the petition under any theory of what constituted a liquidated debt. In re Horne, 2002 Bankr. LEXIS 653, 277 B.R. 712 (Bankr. E.D. Tex. March 12, 2002) (Sharp, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:109.06
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Creditor who exceeded terms of limited lifting of stay found in contempt of court. Bankr. E.D. Tex. PROCEDURAL POSTURE: The debtor filed a motion for contempt, sanctions, and attorney fees. The debtor also moved to a declare a judgment lien void. OVERVIEW: An automatic stay was lifted for the specific purpose of allowing the creditor to pursue a motion for enforcement in connection with a state court divorce settlement agreement. The creditor filed an abstract of judgment with respect to that judgment entered in post divorce enforcement proceedings. The debtor filed a motion in contempt. The court held that neither the doctrine of res judicata nor the law of the case precluded judgment. The court found that the creditor’s argument that she believed she had relief from the stay to fully pursue her motion for enforcement in family law court wholly lacked merit. The debtor averred that the creditor violated the automatic stay by filing a notice of lis pendens against his real property. The creditor denied the allegation and denied that the act of filing the same was an attempt to create a lien on the property. However, the court held that the filing the notice of lis pendens was a violation of the automatic stay because it was an act beyond the scope of the relief requested.Thornburg v. Lynch (In re Thornburg), 2002 Bankr. LEXIS 654, 277 B.R. 719 (Bankr. E.D. Tex. March 12, 2002) (Sharp, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.03
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6th Cir.
Injunctive relief is not a claim subject to discharge in bankruptcy. Bankr. W.D. Tenn. PROCEDURAL POSTURE: A creditor, a hunting club, sought a determination that its judgment against the debtor for attorney’s fees incurred during the pursuit of a civil action for injunctive relief, due to the debtor’s altercation with another guest on the hunting club’s premises, was non-dischargeable under 11 U.S.C. § 523(a)(6). The creditor moved for a judgment on the pleadings, arguing that collateral estoppel applied to the state court judgment. OVERVIEW: The injunctive relief was not a 'claim' subject to discharge by virtue of 11 U.S.C. § 101(5)(B). But, there was insufficient evidence from the state court action that the debtor actually intended for his conduct to cause a willful and malicious injury to the creditor, a corporate entity, or its property, under 11 U.S.C. § 523(a)(6). The state court complaint alleged that the debtor willfully, maliciously, brutally, and physically assaulted another guest. Other than a breach of the hunting club rules, there was no substantive proof showing a cognizable 'willful and malicious' injury to the creditor, its land, or its property. The willful and malicious injury was personal to the other guest. The creditor suffered the unfortunate effects of one its guests, the debtor, materially breaching the terms of a use agreement which defined certain proscribed conduct. But, such conduct regarding the creditor could not under the circumstances be defined as a willful and malicious injury. Assuming arguendo that the debtor willfully and maliciously injured the other guest, such injury could not be vicariously imputed in favor of the creditor so as to except its attorney’s fees from discharge. River View Land Co. v. Bucak (In re Bucak), 2002 Bankr. LEXIS 656, 278 B.R. 488 (Bankr. W.D. Tenn. May 17, 2002) (Kennedy, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 1:105.05
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Claim arising from debtor’s negligent operation of motor vehicle dischargeable. Bankr. E.D. Tenn. PROCEDURAL POSTURE: Creditors, asserting they were injured while they were passengers in a car being driven by the debtor, and that the debtor had been attempting to race against another car on a snowy and winding mountain road at excessive speeds, filed a complaint under 11 U.S.C. § 523(a)(6) to have the personal injury debts declared non-dischargeable. The debtor filed a motion for summary judgment to which the creditors objected. OVERVIEW: While the debtor’s version of the facts was less detailed than that of the creditors, he did acknowledge that the vehicle might have been operated in a reckless manner. The court held that § 523(a)(6) required deliberate or intentional injury. Even in a light most favorable to the creditors, the court found the creditors had failed to make a sufficient showing on the one material element of their case — the willfulness of the debtor’s conduct. The creditors asked the court to infer, from the 'outrageousness' of the debtor’s driving, that he 'willfully' wrecked his car and caused injury to the creditors. However, their evidence, if believed in full, showed only that the debtor intentionally drove his car in an irresponsible and unjustified manner at high speeds while intentionally racing on a winding mountain road. There was not one shred of evidence to support that the debtor intended to, or believed it was 'substantially certain' that he would, injure the creditors by wrecking his car. In sum, the evidence pointed only to the conclusion that the debtor acted recklessly. Debts arising from recklessly or negligently inflicted injuries did not fall within the compass of § 523(a)(6). Guthrie v. Kokenge (In re Kokenge), 2002 Bankr. LEXIS 649, – B.R. – (Bankr. E.D. Tenn. June 4, 2002) (Stair, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.12[2]
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7th Cir.
Service fees and commissions earned by broker in good faith from debtor engaged in Ponzi scheme were not avoidable fraudulent transfers. Bankr. N.D. Ill. PROCEDURAL POSTURE: The trustee filed a complaint against the defendant, a broker for the debtor engaged in a Ponzi scheme, to avoid fraudulent transfers under 11 U.S.C. §§ 544, 548, and 740 Ill. Comp. Stat. 160/5(a), of the Illinois Uniform Fraudulent Transfer Act ('UFTA'). On cross motions for summary judgment, the broker argued that in serving as a broker and recruiting purchasers of pay telephones from the debtor, he had no knowledge of the fraudulent scheme. OVERVIEW: The complaint pled constructive fraud. The proper analysis looked to the actual transaction between the debtor and the broker, and the court had to measure what was given and received in that transaction. There was a distinction between profits and commissions in the context of a Ponzi scheme and a fraudulent transfer action. The broker performed services for the debtor by recruiting investors, and then performed follow up services with respect to those investors. To the extent he did so, the broker had a claim against the debtor equal to the value of his services, thus, the 11 U.S.C. § 548(a)(1)(B) claim failed. The commissions did not deplete the estate because the debtor received adequate consideration, or reasonably equivalent value, in the form of a release of the broker’s claims for unpaid commissions. The debtor’s obligation to pay the commissions was a debt that was satisfied by paying the broker. The satisfaction of that obligation fell within 11 U.S.C. § 548(d)(2)(A). The commissions were within the range of commissions within the industry. The broker acted in good faith under 11 U.S.C. § 548(c) when he received his commissions. The analysis under UFTA was the same.First Commer. Mgmt. Group v. Reinhardt (In re First Commer. Mgmt. Group), 2002 Bankr. LEXIS 676, 279 B.R. 230 (Bankr. N.D. Ill. May 9, 2002) (Black, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:548.01
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8th Cir.
Tax refund where debtor filed jointly with nondebtor spouse, was not exempt tenancy-by-the-entirety property but property of the estate. Bankr. W.D. Mo. PROCEDURAL POSTURE: The Chapter 7 trustee filed a motion to compel the debtor to turnover an income tax refund, arguing the refund was property of the estate under 11 U.S.C. § 541(a)(1). The debtor claimed that the refund was due to an earned income credit ('EIC') under a joint tax return, that she and her nondebtor husband held the refund as tenants by the entirety, and the refund was exempt under Missouri law and 11 U.S.C. § 522(b)(2)(B). OVERVIEW: The debtor’s interest in the refund was property of the estate under 11 U.S.C. § 541(a)(1), and was not exempt as 'earnings' under Missouri’s garnishment statute. The debtor testified that the refund was received because of the EIC and the amount was increased because the husband’s two minor children lived with them. But, the debtor had earned all of the income for her family, and, accordingly, the refund was property in which the debtor held a legal interest; it was property of her estate. Under 11 U.S.C. § 522(b)(2)(B) and Missouri law, if the debtor held the refund as a tenant by the entirety, she could exempt the entire refund. A tax refund issued on behalf of debtors who filed a joint tax return was not per se owned by the debtors as tenants-by-the-entirety property. Congress allowed taxpayers to file joint tax returns in order to equalize the tax burden for married persons in noncommunity property states, not to effect a change of ownership of property rights as between the spouses. The joint tax return did not contain any language of conveyance. The refund was property of the bankruptcy estate, and it was not exempt as tenants-by-the-entirety property.In re Walker, 2002 Bankr. LEXIS 664, 279 B.R. 544 (Bankr. W.D. Mo. June 7, 2002) (Federman, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:522.02
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9th Cir.
Foreclosure sale to bona fide purchaser in violation of stay voided. B.A.P. 9th Cir. PROCEDURAL POSTURE: Appellees, the debtors, filed a Chapter 13 bankruptcy petition prior to a foreclosure sale of their residence. Appellant, a purchaser, acquired the residence without notice. He filed an action and moved for a declaration that 11 U.S.C. § 549(c) excepted the purchase from the automatic stay. The motion was denied and the purchaser appealed the denial of the United States Bankruptcy Court for the Southern District of California. OVERVIEW: The debtors’ counsel claimed that he notified the debtors’ lender of the bankruptcy filing, but the foreclosure sale proceeded. The purchaser later moved for an order annulling the automatic stay and validating the foreclosure sale. The purchaser alternatively requested an order declaring the foreclosure sale excepted from the automatic stay by § 549(c). The debtors opposed the motion and the bankruptcy court denied it, holding § 549(c) was not an exception to the automatic stay. The court voided the foreclosure sale. On appeal, the appellate panel determined that the only issue was whether § 549(c) was an exception to the automatic stay, which would then validate the postpetition foreclosure sale to the purchaser, who was a bona fide purchaser ('BFP') without notice of the debtors’ bankruptcy petition. The court found that Congress saw fit to protect BFPs in § 549 but not in 11 U.S.C. § 362. This appeared to give greater protection to BFPs who purchased from debtors than to those purchasing at sales violating an automatic stay. A transfer of estate property to a BFP was not an exception to § 362.Mitchell v. Mitchell (In re Mitchell), 2002 Bankr. LEXIS 663, 279 B.R. 839 (B.A.P. 9th Cir. June 17, 2002) (Brandt, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.01
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Chapter 7 debtors’ unscheduled equitable interest in real property was property of the estate and not subject to tax foreclosure. N.D. Cal. PROCEDURAL POSTURE: Plaintiff United States sued defendant taxpayers to reduce tax assessments to judgments and to foreclose tax liens against the taxpayers’ residence. The taxpayers objected to certain evidence and moved to dismiss the complaint for lack of subject matter jurisdiction. The court held a trial on the matter. OVERVIEW:The parties stipulated that the taxpayers did not pay federal income taxes for four years and owed certain taxes and penalties for those years. The only issue for trial was whether the Internal Revenue Service ('IRS') failed to properly assess the taxes and penalties. The court admitted the assessment forms and the summary records of assessment prepared by the IRS because they were self-authenticating public documents that complied with the standards required under 26 C.F.R. § 302.6203-1. Moreover, the assessment forms sufficiently identified the taxpayers and they had submitted no contrary evidence indicating that the assessments were invalid. Thus, the assessments were valid and final judgment was entered in favor of the United States. Nevertheless, the court granted the motion to dismiss the claims for foreclosure on the taxpayers’ residence because to the extent that the taxpayers retained an unscheduled equitable interest in the real property after their Chapter 7 bankruptcy, that interest remained property of the bankruptcy estate even though the bankruptcy case had closed. Thus, only the bankruptcy trustee had standing to pursue a claim with respect to the residence.U.S. v. Gabel, 2002 U.S. Dist. LEXIS 11533, – B.R. – (N.D. Cal. March 25, 2002) (Brown Armstrong, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:541.04
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10th Cir.
After initial dismissal for improper notice, debtor’s renewed motion for rejection of unexpired commercial leases granted nunc pro tunc. Bankr. D. Colo. PROCEDURAL POSTURE: The Chapter 11 debtor filed a motion under 11 U.S.C. § 365(a) to reject unexpired real property shopping center leases, which was dismissed for inadequate notice. The debtor filed a renewed motion to reject the leases nunc pro tunc to the date of the original motion. The creditor lessors objected, and moved to compel payments of postpetition rents under 11 U.S.C. § 365(d)(3), to which the debtor and the creditors’ committee objected. OVERVIEW: The debtor and the committee argued that rent was due and payable on February 1st, the petition was filed February 8th, and thus, the rent should not be prorated, and all of the February rent was a prepetition claim. The court adopted the 'performance date approach' under the circumstances. The obligation to pay rent fell on the first day of the month. The leases did not have a prorated rent clause. The debtor’s obligation arose when the debtor became legally obligated to perform, that was, on the first. To prorate the February rent would not comport with the terms of the leases. Allowing a proration when the leases did not allow for it would render a windfall to the lessors and would be a significant detriment to the unsecured creditors and the debtor. The equities were well balanced; it was an ordinary course of business circumstance. Approving the rejection nunc pro tunc to the date of the original motion, the court found most or perhaps all of the leased premises were vacated before, on, or shortly after the bankruptcy was filed. While the original motion’s notice was not proper, it did not appear that the debtor was dilatory or abusing the bankruptcy system in its actions.In re CCI Wireless, LLC, 2002 Bankr. LEXIS 650, 279 B.R. 590 (Bankr. D. Colo. June 24, 2002) (Brooks, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:365.03
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Trustee’s amended complaint including § 548 claim related back to original claims under § 544 and state law. Bankr. N.D. Okla. PROCEDURAL POSTURE: The trustee filed a complaint to recover payments from a creditor under 11 U.S.C. § 544 and the Oklahoma Uniform Fraudulent Transfer Act (UFTA). An amended complaint added a claim under 11 U.S.C. § 548. A pretrial order was entered. The creditor moved to dismiss, asserting a failure to plead fraud with particularity under Fed. R. Civ. P. 9(b), and argued the amended complaint was filed after 11 U.S.C. § 546(a)’s period of limitations. OVERVIEW: The creditor argued that the amended complaint did not incorporate the first complaint’s claims. But, that was irrelevant because the pretrial order, filed four months earlier, superceded the pleadings. Pleading fraud with particularity did not apply, because the creditor was aware of details from discovery. Relation back under Fed. R. Civ. P. 15(c) applied to the amended complaint which merely added a claim as to transfers during the year before the bankruptcy. It related back because the first complaint sought recovery of transfers during the four years before the bankruptcy. Assuming that the elements of UFTA were equivalent to 11 U.S.C. § 548, the § 548 claim would be encompassed by the UFTA count in the first complaint. The amended complaint incorporated by reference the first complaint’s factual allegations, including that the debtor was engaged in a continuing Ponzi scheme; its allegations of transfers during the year before the bankruptcy could be seen as springing from the same underlying pattern of conduct as alleged in the first complaint.Malloy v. Mulkey Tire, Inc. (In re Universal Factoring Co.), 2002 Bankr. LEXIS , 279 B.R. 297 (Bankr. N.D. Okla. June 12, 2002) (Michael, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:544.01
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11th Cir.
Service of civil contempt warrant not barred by automatic stay. Bankr. M.D. Ga. PROCEDURAL POSTURE: The debtor filed a motion for contempt and request for an emergency hearing. The court held a hearing and had to decide whether to issue a permanent injunction, based on the automatic stay of 11 U.S.C. § 362, against service of an arrest warrant which had been issued for the debtor. OVERVIEW: The creditor was unable to collect a judgment from the debtor, and the debtor did not respond to discovery requests or orders. The state court issued a warrant for the debtor’s arrest. The debtor filed for bankruptcy, and the bankruptcy court granted the debtor a preliminary injunction against service of the warrant, and then the debtor sought a permanent injunction. The bankruptcy court found that the warrant in this case was in the nature of civil contempt. A contempt order that allowed the debtor to purge himself of contempt, as the warrant here did, was civil. The creditor sought to have the bankruptcy court dissect the purposes behind the warrant and hold that to the extent it was used to force the debtor to comply with the creditor’s efforts to enforce a judgment, it was controlled by the automatic stay of 11 U.S.C. § 362, but to the extent it issued due to the debtor’s disregard for the authority of the state court, the automatic stay did not apply. However, the bankruptcy court found that the purposes were inextricably intertwined and were not able to be severed. The court found that an injunction was not necessary since the automatic stay fulfilled that purpose.Goodman v. Albany Realty Comp. (In re Goodman), 2001 Bankr. LEXIS 1917, 277 B.R. 839 (Bankr. M.D. Ga. October 15, 2001) (Walker, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.01
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Creditor’s post-filing repossession of equipment and refusal to turn it over to trustee on request violated stay. Bankr. M.D. Ga. PROCEDURAL POSTURE: The trustee filed a complaint to avoid the transfer of a security interest under 11 U.S.C. § 544, for turnover of the debtor’s restaurant equipment, and for damages for violating the automatic stay under 11 U.S.C. § 362(a), (h), because the creditors refused to turnover the equipment after the trustee demanded a turnover. The court entered a default but permitted the creditors to fully participate in the pretrial conferences and the trial. OVERVIEW: The equipment had deteriorated and had no fair market value. The creditors had failed to perfect their security interest under Ga. Code Ann §§ 11-9-302(1), 11-9-401. The trustee’s rights as a hypothetical lien creditor took priority over the unperfected interest, under 11 U.S.C. § 544(a). Repossessing the equipment after the bankruptcy and continuing to hold it violated the automatic stay. When the creditors received the trustee’s second letter, they knew of the bankruptcy filing and of the unlawful nature of their actions. But they continued to refuse to cooperate. It was a knowing and willful violation for which the trustee could recover damages, costs, and attorney fees under 11 U.S.C. § 362(h). The value of the equipment was less than the Rev. Proc. 87-56, 1987-2 C.B. 674, depreciated value based on the purchase price. The creditors, who were not nationals, were aware of the law but preferred to remain ignorant of its requirements. Punitive damages were appropriate, given that the creditors refused to comply with the court’s order to disclose the location of the equipment, and did not comply until the first trial date. Mullis v. USA Restaurant Equip. Co. (In re Harsh), 2001 Bankr. LEXIS 1926, 277 B.R. 833 (Bankr. M.D. Ga. August 27, 2001) (Walker, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.03
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Injuries caused to creditor by business of which debtor was sole shareholder did not prevent discharge. Bankr. S.D. Ga. PROCEDURAL POSTURE: The creditor, secured by a floor-plan financing arrangement on the debtor’s automobile dealership, filed a complaint against the debtor to determine dischargeability under 11 U.S.C. § 523(a)(6). The creditor asserted that that the dealership was 'out of trust,' because proceeds from the sales of five vehicles, representing the creditor’s collateral, were not remitted by the dealership as required by the floor-plan agreement. OVERVIEW: The debtor, the dealership’s sole shareholder, was unaware of irregularities until the manager, hired on the creditor’s approval, informed the debtor. The debtor immediately shut down the business to prevent further losses and notified the creditor. The debtor was not directly involved with the dealership’s day-to-day operations. The creditor had refused to approve the debtor’s first choice for manager and was actively involved in overseeing the financing with regular inspections. The creditor’s employee had done an inspection just days before the debtor was told of the out-of-trust position and found no problems. By placing responsibility for floor-plan financing with a man who had been approved by the creditor and submitting to regular inspections, it could not be said that the creditor was substantially certain to be injured by the debtor’s actions under § 523(a)(6). Although several checks were issued to other creditors after the out-of-trust position was known, no segregated account was required, and the creditor knew that the funds were commingled. Regardless of whether the dealership willfully inflicted injury on the creditor, the debtor was not actively involved.Ford Motor Credit Co. v. Moody (In re Moody), 2001 Bankr. LEXIS 1916, 277 B.R. 865 (Bankr. S.D. Ga. October 5, 2001) (Walker, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.12[2]
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