Collier Bankruptcy Case Update December-24-01
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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.
December 24, 2001
CASES IN THIS ISSUE
(scroll down to read the full
summary)
- 1st Cir.
§ 363(b)(1) Debtor’s motion for authority to implement 'key employee retention program' granted.
In re Aerovox, Inc. (Bankr. D. Mass.)
2d Cir.
§ 362(d) Lien creditor granted limited relief from stay to file state court actions necessary to allow encumbrances to continue.
In re 360 Networks (USA), Inc. (Bankr. S.D.N.Y.)§ 365(b) Housing authority’s request for award of prepetition attorney’s fees and utility and repair charges as condition to lease assumption denied.
Brattleboro Hous. Auth. v. Parker (In re Parker) (D. Vt.)
3d Cir.
§ 365(c) Licensing of children’s book character held to be exclusive and subject to assignment.
In re Golden Books Family Entm’t, Inc. (Bankr. D. Del.)§ 503(b)(1)(A) Terminated employees were not entitled to administrative expense claims.
In re M Group, Inc. (Bankr. D. Del.)§ 522(f) Only the portion of the judicial lien which impaired the debtor’s exemption was avoided.
Nese v. Lokay (In re Lokay) (Bankr. W.D. Pa.)
4th Cir.
§ 1307(c) Debtor’s bad faith filing resulted in dismissal of case with prejudice.
In re Shaheen (Bankr. E.D. Va.)
5th Cir.
§ 106(a) Court of Appeals for the Fifth Circuit held that an adversary proceeding seeking discharge of student loan was jurisdictionally barred by Eleventh Amendment.
Murphy v. Michigan Guaranty Agency (In re Murphy) (5th Cir.)28 U.S.C. § 158 Motion for emergency stay pending de novo review of bankruptcy court order denied.
In re O’Connor (N.D. Tex.)
6th Cir.
§ 304 District court proceeding against Toronto debtor and its officer/director stayed while Canadian bankruptcy proceeding was pending.
Badalament, Inc. v. Mel-O-Ripe Banana Brands, Ltd. (E.D. Mich.)§ 1329(a) After fewer unsecured creditors filed claims than anticipated, trustee could seek modification to increase plan payments.
In re Fields (Bankr. S.D. Ohio)
7th Cir.
§ 330(a)(4) Fifty-eight percent of fees for chapter 13 debtors’ attorney were disallowed.
In re Palladino (Bankr. N.D. Ill.)§ 523(a)(15) Obligations between former spouses did not arise until entry of divorce decree.
Nelson v. Miller (In re Miller) (Bankr. N.D. Ind.)
8th Cir.
§ 1325(b) Chapter 13 debtors’ failure to devote all disposable income to plan resulted in dismissal.
In re Nissly (Bankr. N.D. Iowa)Rule 9024 Chapter 13 debtor not entitled to relief from bankruptcy court order that denied his homestead claim.
Alexander v. Jensen-Carter (In re Alexander) (B.A.P. 8th Cir.)
9th Cir.
§ 365(d)(3) Landlord’s chapter 11 administrative claim was not entitled to superpriority status.
Kir Temecula, L.P. v. LPM Corp. (In re LPM Corp.) (B.A.P. 9th Cir.)§ 1107(b) Court denied application for employment of professional where agreement attempted to limit professional liability by limiting standing of those who might rely on the professional’s work or work product.
In re Komag, Inc. (Bankr. N.D. Cal.)§ 1325(a)(6) Grossly underfunded chapter 13 plan was not feasible.
In re Thornhill (Bankr. E.D. Cal.)
10th Cir.
§ 327(e) Chapter 11 plan did not authorize employment of counsel without court approval.
Compuspeak, Inc. v. Simmons (In re Compuspeak, Inc.) (Bankr. D. Kan.)
11th Cir.
§ 363(h) Former spouse of debtor successfully disputed trustee’s interest in property.
Jones v. Marchman (In re Marchman) (Bankr. M.D. Ala.)§ 1322(b)(2) Mobile home was not real property for purposes of antimodification provision.
In re Johnson (Bankr. M.D. Ala.)
Collier Bankruptcy Case Summaries
1st Cir.
Debtor’s motion for authority to implement 'key employee retention program' granted. Bankr. D. Mass. The chapter 11 debtor-in-possession, a manufacturer of electrostatic and aluminum electrolytic capacitors, moved for authority to implement a Key Employee Retention Program ('KERP'). The KERP consisted of a bonus plan and a severance package for four of the debtor’s executives. The creditors’ committee and two individual creditors objected to the debtor’s motion. The bankruptcy court noted, at the outset, that a KERP would be approved if a debtor uses proper business judgment in formulating the program, and if the court finds the program to be 'fair and reasonable.' The court noted that the determination of whether to approve such plans ultimately turns on the facts and circumstances of each particular case. The court then held, upon consideration of the evidence and applicable legal principles, that the debtor sustained its burden of establishing that it properly exercised its business judgment, and that the KERP was fair and reasonable under the circumstances. The court noted that the committee and objecting creditors failed to introduce evidence to rebut the evidence offered by the debtor showing that the KERP was an exercise of its sound business judgment. The court also held that, in the event the case was converted to chapter 7, it would specifically exclude expense claims against one of the objecting creditors under section 506(c), and would only allow chapter 11 administrative expense claims for any rights under KERP.In re Aerovox, Inc., 2001 Bankr. LEXIS 1458, 269 B.R. 74 (Bankr. D. Mass. Oct. 31, 2001) (Feeney, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:363.02
2nd Cir.
District court proceeding against Toronto debtor and its officer/director stayed while Canadian bankruptcy proceeding was pending. E.D. Mich. The plaintiff filed an action in federal district court against a Toronto company and its officer/director, alleging claims for breach of contract, account stated, unjust enrichment and quantum meruit. Thereafter, the Toronto company’s bankruptcy proceeding continued in Canada in accordance with Canadian law, and its officer/director sought to stay the United States district court proceedings. In support of their argument for a stay, the company and its officer/director argued that because the debt at issue might be discharged in the Canadian bankruptcy proceedings, a significant part of the action could become moot. The district court granted the defendants’ motion for a stay of the proceeding. The court held that as to the Toronto company, the district court case should be stayed or dismissed on the principle of comity pending the bankruptcy action in Canada. As to the individual defendant, the court held that he was closely intertwined with the identity of the company, and, as an officer of the company, was also entitled to a stay. The court noted that although no proceeding had been initiated under section 304 to enjoin creditors from bringing suit in United States federal courts during the pendency of the Canadian bankruptcy proceedings, it was important to recognize that Congress had recognized this right.Badalament, Inc. v. Mel-O-Ripe Banana Brands, Ltd., 2001 U.S. Dist. LEXIS 18944, 265 B.R. 732 (E.D. Mich. June 29, 2001) (Pagehood, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:304.01
Housing authority’s request for award of prepetition attorney’s fees and utility and repair charges as condition to lease assumption denied. D. Vt. A local public housing authority, as lessor, appealed a bankruptcy court decision that denied the housing authority’s request for an award of certain prepetition attorney’s fees and utility and repair charges as a condition to the chapter 13 debtor’s assumption of a lease. The housing authority argued that the fees and charges at issue should have been included as a condition to the assumption pursuant to section 365(b)(1)(B) to reimburse it for the 'actual pecuniary loss' it incurred in bringing an ejectment action against the debtor. Alternatively, the housing authority argued that the attorney’s fees should have been included as a general unsecured claim against the debtor’s estate. The district court affirmed the bankruptcy court’s decision. The court concluded that the debtor was not contractually liable for attorney’s fees, but held that regardless of the presence of any provision for payment of the fees at issue in the lease, the inclusion of attorney’s fees and the repair and utility charges as a condition of the debtor’s assumption would have violated federal (i.e., Department of Housing and Urban Development regulations) and state (Vermont) nonbankruptcy law. The court also rejected the housing authority’s argument that it was entitled to compensation for the attorney’s fees as a general unsecured creditor. The court noted that the attorney’s fees had not been reduced to judgment prepetition, and found no contractual or statutory basis for the claim (citing Collier on Bankruptcy 15th Ed. Revised).Brattleboro Hous. Auth. v. Parker (In re Parker), 2001 U.S. Dist. LEXIS 18493, – B.R. – (D. Vt. Oct. 31, 2001) (Sessions, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:365.05
3rd Cir.
Licensing of children’s book character held to be exclusive and subject to assignment. Bankr. D. Del. The debtor was a publisher of children’s books and related media. After filing its chapter 11 petition, the debtor proposed to assume and assign various executory contracts, one of which was a licensing agreement that granted copyright and trademark rights to a children’s character. The licensor under the agreement objected to the transfer of rights, arguing that the agreement was a nonexclusive personal license because the rights it conferred were limited in temporal and geographical scope. Under applicable copyright law, such an agreement was nonexclusive and could not therefore be assigned without permission. Conversely, the debtor argued that the agreement was an exclusive license because it granted exclusive rights with respect to a subset of the copyright, and that such exclusive status rendered the agreement an exclusive license. The bankruptcy court overruled the licensor’s objection, holding that, for the purposes of section 365(c), the agreement was an exclusive agreement because, under copyright law, even if a license was limited in geographic or temporal scope, it was an exclusive license if it granted rights that were exclusive within those parameters. The court also held that the licensor’s permission was not required, despite the agreement provision necessitating it, because copyright law allowed that exclusive licenses were freely assignable.In re Golden Books Family Entm’t, Inc., 2001 Bankr. LEXIS 1442, 269 B.R. 311 (Bankr. D. Del. Nov. 8, 2001) (McKelvie, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:365.06
Terminated employees were not entitled to administrative expense claims. Bankr. D. Del. After the debtors filed chapter 11 petitions on May 11, 2000, two former employees filed claims. Claim A was an administrative priority claim for severance pay, in support of which employee A asserted that the employment contract provided for a lump sum payment in lieu of notice. Employee B’s claim was both a prepetition unsecured priority claim and an administrative claim for the same amount, reflecting both salary and severance pay calculated on the basis of one week for each year of service. Both employees A and B declined to sign a contract with the debtors in connection with postpetition work and also declined to accept a retention acceptance plan. Subsequently, both employees were terminated postpetition. The creditors’ committee objected to the claims. The bankruptcy court found that both employment agreements in issue contained provisions for payment of annual salary in the event employment was terminated without cause and that, as such, neither was a length of service nor a termination without notice clause. Therefore, the administrative status of the right to severance pay was dependent on the substance of the contractual provision, and an inquiry was necessary into whether such entitlement arose from a transaction with the debtor in possession and also benefited the estate. The court concluded that neither claim was entitled to administrative expense status for the purposes of section 503(b)(1)(A). Both employees declined to sign postpetition contracts or to accept retention acceptance plans, and continued employment in itself was insufficient to establish a transaction with the debtor for administrative priority purposes, thereby precluding a finding that the claims were actual and necessary costs of preserving the estate. In addition, employee B was not entitled to a prepetition priority claim because it was not earned 90 days prepetition, as set forth in section 507(a)(3).In re M Group, Inc. 2001 Bankr. LEXIS 1424, 268 B.R. 896 (Bankr. D. Del. Nov. 2, 2001) (Fitzgerald, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:503.06[1],[2],[3]
Only the portion of the judicial lien which impaired the debtor’s exemption was avoided. Bankr. W.D. Pa. The chapter 7 debtor brought a motion in accordance with section 522(f)(1)(A) to avoid a judgment lien because it impaired the exemption he had taken in his real property. The total of the judicial lien, two consensual mortgage liens against the property and the exemption, exceeded the value of the debtor’s interest in the property in the absence of any liens against it. Nevertheless, there was 'excess equity' in the real property, above and beyond the mortgage liens and the amount of the exemption the debtor had taken. The bankruptcy court granted the motion in part, holding that the debtor could only partially avoid the judicial lien. The debtor could not avoid the portion of the judicial lien that 'consumed' the 'excess equity' because it did not impair the exemption taken in the property.Nese v. Lokay (In re Lokay), 2001 Bankr. LEXIS 1437, 269 B.R. 132 (Bankr. W.D. Pa. Nov. 7, 2001) (Markovitz, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:522.11[3]
4th Cir.
Debtor’s bad faith filing resulted in dismissal of case with prejudice. Bankr. E.D. Va. The chapter 13 trustee moved to dismiss the debtor’s case pursuant to section 1307(c). The debtor undervalued his residence and failed to list the ownership of stock and a mutual fund in his schedules. The debtor also failed to timely complete certain schedules and did not list payments made to a creditor prior to the commencement of the case. After a prepetition garnishment was served on the debtor for the payment of a previously determined nondischargeable debt, he substantially increased his income tax withholding to minimize the amount seized. Although his income increased significantly in the year prior to the petition, the debtor’s increased expenses exceeded his income, leaving him with no disposable income. The bankruptcy court granted the trustee’s motion, holding that the incomplete and inaccurate petition, schedules and statement of financial affairs demonstrated a deliberate attempt by the debtor to delay the payment of his creditors by any means and was grounds for dismissal under section 1307(c)(1). The court found that the filing was prejudicial principally to the nondischargeable judgment holder, and the debtor’s attempts to hinder the creditor’s recovery were evidence of his bad faith. The case was dismissed with prejudice to the debtor filing a petition for a period of one year.In re Shaheen, 2001 Bankr. LEXIS 1417, 268 B.R. 455 (Bankr. E.D. Va. June 8, 2001) (Mayer, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1307.04[1]
5th Cir.
Court of Appeals for the Fifth Circuit held that an adversary proceeding seeking discharge of student loan was jurisdictionally barred by Eleventh Amendment. 5th Cir. The debtor filed a chapter 7 petition in 1999 and received a discharge of all dischargeable debts. A student loan creditor, a state (Michigan) agency, did not file a proof of claim, and the debtor commenced an adversary proceeding to determine the dischargeability of the student loan debt. The creditor objected to the proceeding, arguing that it was immune from suit under the Eleventh Amendment. The bankruptcy court held that the Eleventh Amendment prevented it from determining whether the student loan debt was discharged, and dismissed the proceeding for lack of jurisdiction. The district court affirmed, and the debtor appealed. The Court of Appeals for the Fifth Circuit affirmed, holding that an adversary proceeding constituted a suit for Eleventh Amendment purposes. The Court of Appeals examined six factors, and found that a suit consists of (1) an adversarial proceeding, (2) which arose out of deprivation or injury, (3) which involved two parties, (4) which compelled attendance of the parties, (5) which asserted and prosecuted a claim against one party, and (6) which demanded restoration. In concluding that the dischargeability action was a suit that invoked sovereign immunity, the Court of Appeals also reasoned that the outcome of the proceeding could coercively affect the creditor’s legal position, whose actions could be restrained, resulting in a drain on the public treasury. Murphy v. Michigan Guaranty Agency (In re Murphy), 2001 U.S. App. LEXIS 24379, – F.3d – (5th Cir. Nov. 14, 2001) (Stewart, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:106.02, .03
Motion for emergency stay pending de novo review of bankruptcy court order denied. N.D. Tex. The debtor filed a motion in bankruptcy court to hold the creditor and its attorney in contempt for violation of the automatic stay. Rather than grant the debtor’s motion for contempt, the court issued an Order Regarding Automatic Stay and Sanctions, awarding sanctions against the creditor and its attorney. The creditor and its attorney did not appeal the bankruptcy court’s order, but rather filed a Motion for Emergency Stay Pending De Novo Review with the district court. The district court denied the creditor’s motion, explaining that the order imposing sanctions for violating the automatic stay was a core proceeding and was reviewable only by brining an appeal pursuant to 28 U.S.C. § 158. Because the creditor improperly characterized the action as an objection to a contempt ruling under Rule 9020(c), the motion was incorrectly brought before the district court. In re O’Connor, 2001 U.S. Dist. LEXIS 17457, – B.R. – (N.D. Tex. Oct. 24, 2001) (Fish, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.12
6th Cir.
District court proceeding against Toronto debtor and its officer/director stayed while Canadian bankruptcy proceeding was pending. E.D. Mich. The plaintiff filed an action in federal district court against a Toronto company and its officer/director, alleging claims for breach of contract, account stated, unjust enrichment and quantum meruit. Thereafter, the Toronto company's bankruptcy proceeding continued in Canada in accordance with Canadian law, and its officer/director sought to stay the United States district court proceedings. In support of their argument for a stay, the company and its officer/director argued that because the debt at issue might be discharged in the Canadian bankruptcy proceedings, a significant part of the action could become moot. The district court granted the defendants' motion for a stay of the proceeding. The court held that as to the Toronto company, the district court case should be stayed or dismissed on the principle of comity pending the bankruptcy action in Canada. As to the individual defendant, the court held that he was closely intertwined with the identity of the company, and, as an officer of the company, was also entitled to a stay. The court noted that although no proceeding had been initiated under section 304 to enjoin creditors from bringing suit in United States federal courts during the pendency of the Canadian bankruptcy proceedings, it was important to recognize that Congress had recognized this right.Badalament, Inc. v. Mel-O-Ripe Banana Brands, Ltd., 2001 U.S. Dist. LEXIS 18944, 265 B.R. 732 (E.D. Mich. June 29, 2001) (Pagehood, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:304.01
After fewer unsecured creditors filed claims than anticipated, trustee could seek modification to increase plan payments. Bankr. S.D. Ohio The trustee sought to modify two separate chapter 13 plans to increase dividends paid on allowed unsecured claims to 100 percent. Both plans provided for 70 percent dividends, and both had already been confirmed. The passage of the bar date resulted in allowed unsecured claims to be less than scheduled unsecured claims, and the trustee argued that, as a consequence of this shortfall, the debtors were not surrendering all projected disposable income to the plans. The debtors made the threshold argument that neither the trustee nor any of the unsecured creditors objected to confirmation of the plans, and that the trustee’s motion should be barred by res judicata. The bankruptcy court held that it was not necessary to decide whether the disposable income test applied a plan modification context, because the express language of section 1329(a) permitted such a modification without an analysis of whether the shortfall triggered a reconfiguration of disposable income. The court concluded that a change in the debtors’ financial circumstances, including fewer claims being filed than anticipated, was a factor to be considered in determining the trustee’s request for modification. The debtors did not contend that they had experienced any change in financial circumstances, such as decreased income or increased expenses. Upon the filing of a colorable affidavit reflecting any such changes, the court would set an evidentiary hearing. Absent such filing, the court intended to grant the trustee’s motion.In re Fields, 2001 Bankr. LEXIS 1431, 269 B.R. 177 (Bankr. S.D. Ohio Aug. 27, 2001) (Aug and Hopkins, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1329.04
7th Cir.
Fifty-eight percent of fees for chapter 13 debtors’ attorney were disallowed. Bankr. N.D. Ill. In anticipation of their third bankruptcy filing, the debtors entered into an agreement with an attorney, under which they paid a fee of $1,695 for specific services. Additional services would be charged at a rate of $225 per hour. During the pendency of the case, the attorney filed a fee application, requesting $6,854 in fees. When the debtors received notice of this request, they terminated the attorney’s services and objected to the application, as did the chapter 13 trustee. Applying the Johnson v. Georgia Highway Express, Inc. (488 F.2d 714 (5th Cir. 1974)) factors, the bankruptcy court held that the attorney was entitled to only $2,925 of the requested $6,854, because the attorney expended excessive amounts of time for a very typical chapter 13 case. The court disallowed the following charges: (1) additional services that were covered by the flat fee, (2) services rendered prior to the contract, (3) services rendered after the attorney’s employment was terminated, (4) services rendered in the prior bankruptcy case, and (5) services performed by other attorneys. Although the debtors sought to have the fees reduced further, the court concluded that both parties were bound by the contract. Finally, the court disallowed expenses for postage that could not be substantiated. In re Palladino, 2001 Bankr. LEXIS 1322, 267 B.R. 825 (Bankr. N.D. Ill. Oct. 4, 2001) (Squires, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:330.04
Obligations between former spouses did not arise until entry of divorce decree. Bankr. N.D. Ind. The chapter 7 debtor’s former wife filed an adversary proceeding in order to obtain a declaration concerning the dischargeability of any obligations that could be imposed upon the debtor by the state (Indiana) divorce court. Although their marriage had been dissolved, issues concerning the division of their marital property and the apportionment of their debts remained under advisement with an arbitrator when the debtor filed his petition. Both parties argued that any obligations that could be imposed upon the debtor by the state court’s yet-to-be-issued decree were contingent debts that arose before the petition date. The bankruptcy court dismissed the complaint, holding that any obligations imposed on the debtor by the state court’s domestic relations decree would be postpetition debts; therefore, there were no debts to which section 523(a)(15) could be applied. The court determined that relying upon the date of the state court’s decree to determine whether the obligations it imposed upon the debtor constituted a debt for the purposes of nondischargeability provided a brightline standard that could be easily ascertained and readily applied.Nelson v. Miller (In re Miller), 2001 Bankr. LEXIS 1428, 268 B.R. 826 (Bankr. N.D. Ind. Oct. 16, 2001) (Grant, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.21; 6:727.13
8th Cir.
Chapter 13 debtors’ failure to devote all disposable income to plan resulted in dismissal. Bankr. N.D. Iowa In 1996, the debtors built a house, but cost overruns forced them to borrow from their parents and use credit cards to complete the construction. In June 2000, the debtors decided they could not afford to keep the house and attempted to sell it. No offers were received, and the debtors filed a chapter 13 petition in November 2000. After the trustee objected, the bankruptcy court granted the debtors 20 days to modify their plan, which they failed to file for five months. In the modified plan, the debtors proposed to pay $413 per month for the first six months of the 36-month plan. Thereafter, the monthly payments would increase to $500 for 18 months and then $600 for the remaining 12 months. The trustee objected to confirmation, arguing that the debtors were not making their best efforts to pay creditors. Specifically, the trustee alleged that the debtors were not committing their disposable income to the plan because certain budgeted expenses were not reasonably necessary. The court denied confirmation and dismissed the case, holding that the debtors’ proposed plan failed to meet the disposable income requirement of section 1325(b)(1)(B). The court reasoned that if the $500 disposable income figure was accurate, it was accurate at the beginning of the plan, not merely six months into the plan. The court concluded that the debtors’ failure to extend the plan period to cure their failure to provide disposable income during the first six months was fatal to confirmation. The court also found that, by attempting to retain a homestead that they admitted cost more than they could afford, the debtors were not making their best effort to change their lifestyle or to pay creditors. In re Nissly, 2001 Bankr. LEXIS 1416, 266 B.R. 717 (Bankr. N.D. Iowa Sept. 5, 2001) (Edmonds, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1325.08[4]
Chapter 13 debtor not entitled to relief from bankruptcy court order that denied his homestead claim. B.A.P. 8th Cir. A chapter 13 debtor filed a pro se motion pursuant to Fed. R. Civ. P. 60(b) and section 105, arguing, among other things, that throughout the various proceedings in his case the bankruptcy court erred in concluding that he could not claim certain property exempt as his own homestead. The debtor also argued that proceedings by the trustee and the bankruptcy court attempting to recover the property in his case were void ab initio because they violated the automatic stay and discharge injunction in his wife’s bankruptcy cases. The bankruptcy court held that the debtor could not prevail under either argument, primarily because he was either rehashing arguments which had already been decided and affirmed by other courts, or which should have been raised in earlier proceedings. The court explained that the presumption of the validity of the debtor’s original claimed homestead exemption was rebutted by the fact that he declared that he was residing elsewhere at the time he filed his original bankruptcy petition. This issue was decided by the bankruptcy court and ultimately affirmed by the United States Court of Appeals for the Eighth Circuit, and could not be relitigated in the subsequent Rule 60(b) motion. The debtor’s argument that he was entitled to an exemption because he lived at the homestead property on the date his case was converted to chapter 7 was similarly unavailing, because this argument had been rejected by the bankruptcy and appellate courts. In addition, the court also found no evidence in the record to indicate that the debtor’s wife properly claimed an interest or exemption for the homestead property in either of her bankruptcy cases. Thus, neither the trustee nor the bankruptcy court in the debtor’s case violated the automatic stay or discharge injunction in her case. Finally, the court concluded that even if the arguments asserted by the debtor in the Rule 60(b) motion had merit or had not been previously determined, they were untimely because the motion was not brought within a reasonable time.Alexander v. Jensen-Carter (In re Alexander), 2001 Bankr. LEXIS 1454, – B.R. – (B.A.P. 8th Cir. Nov. 15, 2001) (Koger, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 10:9024.01
9th Cir.
Landlord’s chapter 11 administrative claim was not entitled to superpriority status. B.A.P. 9th Cir. The debtor’s landlord appealed an order of the bankruptcy court denying its request for turnover of funds. After the debtor filed its chapter 11 petition, the landlord obtained a writ of execution from the bankruptcy court for the debtor’s failure to timely pay postpetition rent. The landlord subsequently served a notice of levy on the debtor’s bank account. Before the levy was completed, the debtor converted its case to chapter 7 and the bank froze its assets. The bankruptcy court denied the landlord’s motion to compel the bank to turnover the funds to satisfy the levy, on the ground that the claim was not entitled to priority over either chapter 7 or other chapter 11 administrative claims. The B.A.P. for the Ninth Circuit affirmed, holding that the bankruptcy court did not err in determining that the landlord was not entitled to superpriority status. The B.A.P. noted that section 365(d)(3) simply imposed a duty on the debtor to make its rental payments in a timely manner; it did not grant the landlord’s administrative claim superpriority status. Because the estate was administratively insolvent, the landlord was only entitled to its pro rata share with the other administrative claimants, pursuant to section 726(b).Kir Temecula, L.P. v. LPM Corp. (In re LPM Corp.), 2001 Bankr. LEXIS 1419, 269 B.R. 217 (B.A.P. 9th Cir. July 27, 2001) (Ryan, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:365.04[3][f]
Court denied application for employment of professional where agreement attempted to limit professional liability by limiting standing of those who might rely on the professional’s work or work product. Bankr. N.D. Cal. The debtor filed an application for an order to retain an accounting firm as restructuring and financial advisors. The proposed retention agreement included provisions that attempted to limit jurisdiction, and the means of resolving any controversy or claim that might arise from the firm’s employment. The U.S. trustee objected to provisions in the agreement that restricted trial forum, waived jury trial and mandated binding arbitration. At the hearing on the application, the trustee argued that these limiting provisions were not included for the benefit of the estate and its creditors, but rather to limit the accounting firm’s malpractice exposure. The court found the trustee’s argument persuasive and denied the accounting firm’s application for employment as presented. The court also disapproved of language in the agreement which would have made the agreement binding on 'all successors and assigns,' because it was inappropriate for the debtor to attempt to waive the fundamental rights of unidentified parties in interest. In re Komag, Inc., 2001 Bankr. LEXIS 1402, 268 B.R. 566 (Bankr. N.D. Cal. Oct. 12, 2001) (Grube, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 7:1107.04; 3:327.05
Grossly underfunded chapter 13 plan was not feasible. Bankr. E.D. Cal. The debtors’ second amended chapter 13 plan proposed to pay the sum of $1,200 per month for 36 months in order to pay all secured and priority debts in full, and provide for payment of 8 percent on all unsecured claims. However, the secured and priority obligations, excluding administrative expenses, totaled nearly $70,000. Based upon these figures, the chapter 13 trustee and a secured creditor objected to confirmation. The bankruptcy court held that the plan payments were insufficient to fund the payments provided for in the plan, and that the plan itself was so patently unconfirmable that issues of good faith were implicated. Although the plan provided for payment of debt in the amount of $90,000, the debtors proposed to pay merely $43,200 to the trustee. Neither the debtor’s vague offer to pay more in future years nor the submission to nonbinding 'annual reviews' by the trustee could cure the significant plan defects. The court opined that the magnitude of the feasibility problem rendered submission of the plan subject to sanctions under Rule 9011. In re Thornhill, 2001 Bankr. LEXIS 1336, 268 B.R. 570 (Bankr. E.D. Cal. Oct. 12, 2001) (Lee, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1325.07
10th Cir.
Chapter 11 plan did not authorize employment of counsel without court approval. Bankr. D. Kan. The confirmed chapter 11 plan contained a provision which permitted the creditors’ committee to commence avoidance actions against insiders if the debtor did not do so. The plan further provided that the creditors’ committee had the right to seek appointment of special counsel. The plan did not state any particular terms for special counsel’s employment, disclose whether the counsel had any adverse interests and did not state the proposed fees for the counsel. When the creditors’ committee brought a preference action, the defendant moved to dismiss, asserting that the action was not authorized because approval for employment of counsel had not been sought. Counsel responded that the plan authorized its employment and that provision of the confirmed plan was binding. The bankruptcy court held that the language of the chapter 11 plan did not authorize the creditors’ committee to employ special counsel without court authorization. Rather, the plan authorized the committee to seek court approval according to the procedures customarily followed in employing counsel. The fact that there was a letter in existence regarding employment terms was of no import since the voting creditors were not informed of those terms. Thus, counsel was not appointed by operation of the plan. The proceeding was not dismissed, however, and trial would proceed after counsel’s employment was requested and approved.Compuspeak, Inc. v. Simmons (In re Compuspeak, Inc.), 2001 Bankr. LEXIS 1338, 268 B.R. 286 (Bankr. D. Kan. Aug. 16, 2001) (Flannagan, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:327.03, 327.04[9], 327.06,
11th Cir.
Former spouse of debtor successfully disputed trustee’s interest in property. Bankr. M.D. Ala. The chapter 7 trustee filed a complaint under section 363(h), claiming a one-half interest in real property owned by the debtor. The debtor’s former wife owned the other one-half interest and the property was secured by a valid properly perfected mortgage. The parties’ prepetition divorce judgment awarded the full title and ownership of the home to the debtor’s wife, and divested the debtor of any interest in the same. A subsequent state (Alabama) court order set forth an accounting of the liabilities of the parties under the judgment of divorce and ordered the debtor to convey his former wife his interest in the property upon her payment of a sum representing the debtor’s equity in the marital assets. At the time of the debtor’s petition, the former wife had not made the payment to the debtor and the debtor had not executed a deed conveying his one-half interest. The bankruptcy court granted summary judgment to the former wife, holding that because the judgment of divorce transferred title to the debtor’s one-half interest in the property to his former wife, the trustee had no interest in the property to sell under section 363(h). At the time of the filing of the petition, the debtor had no interest in the property that could become property of the estate and, at best, the estate held bare legal title in trust for the debtor’s former spouse.Jones v. Marchman (In re Marchman), 2001 Bankr. LEXIS 1410, 268 B.R. 859 (Bankr. M.D. Ala. May 4, 2001) (Williams, Jr., B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:363.08
Mobile home was not real property for purposes of antimodification provision. Bankr. M.D. Ala. The chapter 13 debtors owned a mobile home that was situated on a tract of land. The creditor held a mortgage on the land but not on the home. In their plan, the debtors proposed to treat the creditor’s claim as secured only to the extent of the land’s value, leaving the balance to be paid as an unsecured debt. The creditor argued that the debtors could not modify its claim and that it was entitled to full payment. It was undisputed that (1) the mobile home was not permanently affixed to the land, (2) the home was the debtors’ principal residence, and (3) the creditor did not have a security interest of record in the certificate of title to the home. The bankruptcy court overruled the creditor’s objection, holding that, for the purposes of the antimodification provision of section 1322(b)(2), the debtors’ mobile home was personal property, not real property, under state (Alabama) law. The court found that the debtors lived in the mobile home, which, being unaffixed to the land, was personal property, and that the land upon which the home was situated was separate from the home and did not constitute the debtors’ residence. Because the creditor did not have a security interest in the debtors’ residence, it was not protected by the antimodification provision and its rights could be modified by the chapter 13 plan.In re Johnson, 2001 Bankr. LEXIS 1438, 269 B.R. 246 (Bankr. M.D. Ala. Oct. 29, 2001) (Sawyer, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1322.06[1]