Collier Bankruptcy Case Update February-12-01
A Weekly Update of Bankruptcy and Debtor/Creditor Matters
Collier Bankruptcy Case Update
The following case summaries appear in the Collier Bankruptcy Case Update, which is published by Matthew Bender & Company Inc., one of the LEXIS Publishing Companies.
February 12, 2001
CASES IN THIS ISSUE
(scroll down to read the full
summary)
- 1st Cir.
ß 362(d) Secured creditor who mistakenly notated a release of lien no longer held a security interest entitling him to relief from stay.
In re Gutierrez (Bankr. D. Mass.) 022008§ 727(d) Creditor’s complaint to revoke debtor’s discharge dismissed as untimely.
Hadlock v. Dolliver (In re Dolliver) (Bankr. D. Me.) 022029Rule 8002(b) Second motion for reconsideration did not toll time for filing an appeal.
In re Colomba (B.A.P. 1st Cir.) 022046
2d Cir.
§ 523(a)(2)(A) Allegations by credit card company regarding debtor’s spending and income were insufficient to support finding of fraud.
American Express Travel Related Servs. Co. v. Henein (E.D.N.Y.) 022014
3d Cir.
§ 541(a)(1) Order for disgorgement of fees was upheld.
Jones v. Staiano (In re Henry Ortlieb’s Original Philadelphia Beer Works) (E.D. Pa.) 022019§ 554(a) Trustee did not abandon right to appeal federal district court judgment.
Trustee in Bankruptcy v. Monumental Life Ins. (M.D. Pa.) 022027
4th Cir.
§ 365(g) Postpetition rejection of previously assumed lease entitled creditor to administrative priority claim.
In re Wright (Bankr. W.D.N.C.) 022009§ 548(a)(1)(A) Judgment in trustee’s favor on complaint to avoid transfers to debtor’s adult children.
Rinn v. Fraidin (In re Fraidin) (Bankr. D. Md.) 022025
5th Cir.
§ 105(a) Temporary injunction in plan was allowed.
In re Seatco, Inc. (Bankr. N.D. Tex.) 022002§ 523(a)(2)(A) Default judgment for punitive damages in state court did not invoke collateral estoppel on issue of fraud.
Go Partners, Ltd. v. Poynor (N.D. Tex.) 022015§ 524(e) Objection to confirmation was overruled.
In re Seatco, Inc. (Bankr. N.D. Tex.) 022018§ 547(b)(2) Debtor did not prove element of preference.
Rand Energy Co. v. Del Mar Drilling Co. (In re Rand Energy Co.) (Bankr. N.D. Tex.) 022022
6th Cir.
§ 544(a)(3) Mortgage that was unwitnessed pursuant to state law was potentially avoidable.
Logan v. U.C. Lending, Inc. (In re Caldwell) (Bankr. S.D. Ohio) 022020
8th Cir.
§ 1229(c) Debtors could not modify chapter 12 plan by filing a second chapter 12 petition.
In re Harry & Larry Maronde Pshp. (Bankr. D. Neb.) 022035
9th Cir.
§ 105(a) Section 105 did not create a private right of action to sue under section 524.
Kibler v. WFS Financial, Inc. (C.D. Cal.) 022003§ 106(b) State Board waived sovereign immunity by filing a proof of claim which related to the trustee’s cause of action.
Schulman v. State of California (In re Lazar) (9th Cir.) 022006§ 510(b) Shareholders’ claims were subordinated.
In re Betacom of Phoenix, Inc. (D. Ariz.) 022012§ 523(a)(6) Debt for unpaid wages was excepted from discharge.
Petralia v. Jercich (In re Jercich) (N.D. Cal.) 022016
10th Cir.
§ 329(a) Fee agreement was wrongful and disallowed.
In re Marin (Bankr. D. Colo.) 022007§ 502(a) Chapter 7 trustee had standing to assert a position as to debtors’ objection to claim.
In re Drew (B.A.P. 10th Cir.) 022010§ 551 Avoidance of lien did not give the trustee the right to collect the debt from the debtor.
Morris v. Vulcan Chemical Credit Union (In re Rubia) (B.A.P. 10th Cir.) 022026
11th Cir.
§ 105(a) Sanctions imposed on counsel who failed to make reasonable inquiry prior to filing the debtor’s petition.
In re Smith (Bankr. N.D. Ala.) 022004§ 522 Claim of exemption which failed to state an amount was in bad faith.
In re Kelley (Bankr. N.D. Ala.) 022013§ 727(a)(2) Transfers made to preferred creditors and acquaintances established inference of fraudulent intent.
Moecker v. Strasnick (In re Strasnick) (Bankr. M.D. Fla.) 022028
Collier Bankruptcy Case Summaries
1st Cir.
Secured creditor who mistakenly notated a release of lien no longer held a security interest entitling him to relief from stay. Bankr. D. Mass. After the debtor filed a chapter 7 petition, the creditor filed a motion seeking relief from the stay, alleging that the debtor failed to make postpetition payments on a secured automobile loan, and failed to reaffirm her debt or redeem the collateral. The trustee objected to the creditor’s motion, stating that the certificate of title attached to the motion indicated that the lien was released. The creditor informed the trustee that it confused this loan with another customer and released the security interest on the title and sent the title to a dealer. When the mistake was found the dealer returned the title to the creditor. The bankruptcy court ruled for the trustee, holding that under state (Massachusetts) law, the exclusive method of perfection is a notation on the certificate of title. The court concluded that the creditor’s release of the lien effectively nullified the notation of the lien on the same certificate, and that the creditor, no longer the holder of a security interest, was not entitled to relief from the stay to repossess the vehicle.In re Gutierrez, 2000 Bankr. LEXIS 1618, – B.R. – (Bankr. D. Mass. May 15, 2000) (Feeney, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.07
Creditor’s complaint to revoke debtor’s discharge dismissed as untimely. Bankr. D. Me. A creditor filed a complaint seeking to revoke the chapter 7 debtors’ discharge under section 727(d). The debtors moved to dismiss the complaint on the grounds that it was untimely under section 727(e). The creditor argued that the debtors’ concealment of assets resulted in their bankruptcy case never being 'closed' within the meaning of section 727(e), rendering his 727(d) claims timely. The creditor also urged the court to apply equitable tolling to extend the one-year limitations period set forth in the section 727(e). The bankruptcy court rejected both arguments, and granted the debtors’ dismissal motion. The court held that a case is 'closed' for purposes of section 727(e)(2) when the clerk’s office enters its order closing the case. The court concluded that closure is not subject to an indefinite, undefined extension on account of a debtor’s failure to schedule assets. The court also held that equitable tolling did not apply to section 727(e)(1). The court also noted that although the chance to revoke the debtors’ discharge had passed, there were other remedies available to vindicate creditors’ interests and public policy. The court explained that a trustee (and others) may reopen a bankruptcy case to recover and administer fraudulently concealed assets, and that such cases could be referred to the United States Attorney for prosecution of bankruptcy crimes.Hadlock v. Dolliver (In re Dolliver), 2000 Bankr. LEXIS 1391, – B.R. – (Bankr. D. Me. November 16, 2000) (Haines, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 6:727.16
Second motion for reconsideration did not toll time for filing an appeal. B.A.P. 1st Cir. Within the ten days after the bankruptcy court dismissed his chapter 13 case, the debtor filed a motion for reconsideration. When the bankruptcy court denied the motion, the debtor, within ten days, filed a second motion for reconsideration. Only after the second motion for reconsideration was denied did the debtor file a notice of appeal. The bankruptcy appellate panel dismissed the appeal, holding that the second motion for reconsideration did not toll the time for filing an appeal of the order of dismissal.Rather, the second motion only tolled the time for filing an appeal of the order denying the first motion for reconsideration. Even if the debtor were appealing the denial of the motion for reconsideration, the debtor failed to make the requisite showing under Rule 60(b), Federal Rules of Civil Procedure, that the bankruptcy court abused its discretion in denying the motion for reconsideration.In re Colomba, 2001 Bankr. LEXIS 6, – B.R. – (B.A.P. 1st Cir. January 8, 2001) (Per Curiam).
Collier on Bankruptcy, 15th Ed. Revised 10:8002.07
2d Cir.
Allegations by credit card company regarding debtor’s spending and income were insufficient to support finding of fraud. E.D.N.Y. In April 1999, the debtor filed a chapter 7 petition. In August 1999 the creditor, a credit card company, filed an adversary proceeding seeking to have charges in the amount of $17,996.73 declared nondischargeable pursuant to several Code sections, notably section 523(a)(2)(A). Specifically, the creditor argued that the debtor had insufficient income or assets at the time the charges were made from which he could reasonably expect to pay the debt. The bankruptcy court dismissed the complaint, holding that the allegations of false representations, justifiable reliance and intent were insufficient to establish a finding of fraud. This appeal followed. The district court affirmed, holding that the creditor merely indicated the debtor’s income, his total debt load, and the dates and amounts of the charges. The court concluded that none of the recited facts presented the circumstantial evidence necessary to infer an intent to deceive. The court also noted that the creditor was not entitled to a presumption of nondischargeability, because the charges were incurred between seven to ten months before the petition was filed. American Express Travel Related Servs. Co. v. Henein, 2001 U.S. Dist. LEXIS 486, – B.R. – (E.D.N.Y. January 18, 2001) (Block, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.08[1]
3rd Cir.
Order for disgorgement of fees was upheld. E.D. Pa. The chapter 7 debtor’s attorney appealed the bankruptcy court’s order requiring him to disgorge fees paid to him while the case was in chapter 11 proceedings. Funds from postpetition loans to the debtor were placed in the attorney’s escrow account, rather than a debtor-in-possession account. The debtor’s lender, consultant and attorney then authorized, without court approval, the payment of professional fees from the escrow account. The bankruptcy court found that the funds were part of the estate and ordered disgorgement. The district court affirmed, holding that the bankruptcy court did not err in determining that the monies from which the attorney was paid his fees were part of the debtor’s estate. The funds were forwarded to the account with the understanding by the lender that the funds were to be used to pay various prepetition debts and it was irrelevant that the debtor’s principal did not have control over the funds.Jones v. Staiano (In re Henry Ortlieb’s Original Philadelphia Beer Works), 2001 U.S. Dist. LEXIS 434, – B.R. – (E.D. Pa. January 19, 2001) (Padova, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:541.04
Trustee did not abandon right to appeal federal district court judgment. M.D. Pa. Prior to filing their chapter 7 cases, an insurance agency, a management corporation and their principals brought a state court breach of contract action against their underwriter, a life insurance company. The action was removed to federal district court. After a trial, liability was imposed upon the agency. All of the agency’s requests for post-trial relief were substantially denied, and the agency and the management company appealed. Thereafter, the agency and management company filed for chapter 7 relief and, during the pendency of their appeals from the federal district court’s decisions, the bankruptcy court granted their motion to substitute their bankruptcy trustee as party in interest and to amend the caption accordingly. The United States Court of Appeals for the Third Circuit held, among other things, that the appeal was not abandoned. The court explained that the right to appeal was part of the debtors’ estates, and that, unless the appeals were abandoned by the trustee, only the trustee could pursue the appeals. Since the trustee’s motion for substitution to pursue the appeal and amendment to the caption was granted, the appeal was not abandoned.Trustee in Bankruptcy v. Monumental Life Ins., 2001 U.S. App. LEXIS 844, – F.3d. – (M.D. Pa. January 23, 2001) (Rosenn, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:554.02
4th Cir.
Postpetition rejection of previously assumed lease entitled creditor to administrative priority claim. Bankr. W.D.N.C. The chapter 13 debtors expressly assumed the unexpired lease of a trailer in their confirmed plan. Subsequently the debtors made a postpetition motion to abandon the trailer to the creditor and to have the creditor’s claim treated as unsecured. The creditor objected, arguing that that it was entitled to an administrative expense claim. The bankruptcy court held that, under section 365(g)(2)(A), when an assumed lease is later rejected, the resulting damages were to be construed as arising postpetition at the time of the breach. The court determined that the debtor’s subsequent breach could no longer be treated as a prepetition obligation, and that the creditor was entitled to an administrative priority claim. The court drew a distinction between the breach of a previously assumed lease and he postpetition rejection of an unassumed lease, which was characterized as arising prepetition and treated as an unsecured claim (citing Collier on Bankruptcy 15th Ed. Revised). In re Wright, 2001 Bankr. LEXIS 33, – B.R. – (Bankr. W.D.N.C. January 5, 2001) (Whitley, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:365.09[5]
Judgment in trustee’s favor on complaint to avoid transfers to debtor’s adult children. Bankr. D. Md. The chapter 7 trustee filed a complaint against the debtors’ adult children to recover alleged prepetition fraudulent conveyances. The bankruptcy court entered judgment in favor of the trustee, holding that the record clearly established that the debtor intentionally hindered, delayed and defrauded creditors by making the challenged transfers to his children. The court found that the trustee successfully established that the debtor received no consideration in exchange for the transfers to his children and that the debtor was insolvent. In addition, the timing of the transfers, which were made after litigation was brought and a judgment was entered against the debtor, made the transfers classic fraudulent conveyances. The court also found that the debtor’s history of attempting to avoid paying creditors, the nature of his trial testimony, and his demeanor at trial compelled the conclusion that his testimony was unworthy of belief.Rinn v. Fraidin (In re Fraidin), 2001 Bankr. LEXIS 18, – B.R. – (Bankr. D. Md. January 5, 2001) (Schneider, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:548.04
5th Cir.
Temporary injunction in plan was allowed. Bankr. N.D. Tex. The chapter 11 debtor’s secured creditor objected to confirmation of the debtor’s plan and contended that the temporary injunction provision of the plan improperly discharged non- debtor third parties. The plan provided for a temporary injunction restraining creditors’ collection efforts against the debtor’s principal, who had prepetition granted a personal guaranty to the secured creditor, during the pendency of the plan. The bankruptcy court overruled the creditor’s objection, holding that the temporary injunction facilitated the debtor’s successful reorganization. The court found that the debtor’s ability to reorganize would be substantially threatened if the creditor was allowed to collect from the debtor’s principal while the principal was funding the plan. If the debtor defaulted in its plan payments, the creditor was free to pursue the personal guaranty.In re Seatco, Inc., 2001 Bankr. LEXIS 24, – B.R. – (Bankr. N.D. Tex. January 19, 2001) (Houser, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:105.03[1][a]
Default judgment for punitive damages in state court did not invoke collateral estoppel on issue of fraud. N.D. Tex. The creditor and debtor entered into a partnership agreement. Subsequently they quarreled and the debtor commenced a state (Texas) court action against the creditor, who filed a counterclaim alleging breach of contract, fraud and conspiracy to commit fraud. The debtor did not appear at trial and the creditor was permitted to present evidence and testimony on the issue of damages. The state court entered a final default judgment in favor of the creditor, ordering the debtor to pay damages of $493,250 along with attorney’s fees and costs. The trial transcript revealed that $50,000 of the award was for punitive damages. The debtor then filed a chapter 7 petition, and the creditor filed an adversary proceeding to determine dischargeability of the debt pursuant to sections 523(a)(2) and (a)(4). The creditor argued that the state court judgment was conclusive on the issues of liability and damages. At the bankruptcy court hearing, the creditor presented no evidence other than the transcript of the state court proceeding. The bankruptcy court rejected the issue preclusion argument, and further found that the state court trial transcript was only offered into evidence in connection with the collateral estoppel contention and not otherwise. This appeal followed. The district court affirmed in part and reversed in part. The court held that the bankruptcy court had not committed reversible error in determining that the state court judgment was not conclusive on the issues of liability and damages. The court reasoned that a finding of fraud was not essential to the prior judgment, since the creditor had only produced evidence on the issue of damages and could not ask for an inference of liability based solely on that evidence. The court noted that punitive damages could have been awarded on other causes of action, and followed the principle that courts should hesitate in applying collateral estoppel to a judgment containing alternate determinations when estoppel was used offensively. But the court reversed and remanded the determination that the transcript was only offered in connection to the collateral estoppel argument, and that the transcript should have been considered evidence in support of the nondischargeability claim. Go Partners, Ltd. v. Poynor, 2001 U.S. Dist. LEXIS 583, – B.R. – (N.D. Tex. January 17, 2001) (Buchmeyer, C.D.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.08[1]
Objection to confirmation was overruled. Bankr. N.D. Tex. The chapter 11 debtor’s secured creditor objected to confirmation of the debtor’s plan and contended that the temporary injunction provision of the plan improperly discharged non- debtor third parties. The plan provided for a temporary injunction restraining creditors’ collection efforts against the debtor’s principal, who had prepetition granted a personal guaranty to the secured creditor, during the pendency of the plan. The bankruptcy court overruled the creditor’s objection, holding that the temporary injunction facilitated the debtor’s successful reorganization. The court found that the debtor’s ability to reorganize would be substantially threatened if the creditor was allowed to collect from the debtor’s principal while the principal was funding the plan. If the debtor defaulted in its plan payments, the creditor was free to pursue the personal guaranty.In re Seatco, Inc., 2001 Bankr. LEXIS 24, – B.R. – (Bankr. N.D. Tex. January 19, 2001) (Houser, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:524.05
Debtor did not prove element of preference. Bankr. N.D. Tex. The chapter 11 debtor, an oil and gas exploration and production company, sought to avoid a deposit made to a commonly owned company for the drilling of a well. The debtor made the pre-payment transfer before it entered into a contract with the drilling company and before the company performed any services on the well. The drilling company countered that the transfer did not meet the requirements for an avoidable preference because the transfer was not made for or on account of an antecedent debt owed by the debtor before the transfer was made. The bankruptcy court accepted the creditor’s argument, holding that the debtor failed to establish that the transfer was for or on account of an antecedent debt owed before the transfer was made. The debtor did not establish that it had any liability to the drilling company before the contract was entered, which was after the transfer.Rand Energy Co. v. Del Mar Drilling Co. (In re Rand Energy Co.), 2000 Bankr. LEXIS 1607, – B.R. – (Bankr. N.D. Tex. July 28, 2000) (Felsenthal, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:547.03[4]
6th Cir.
Mortgage that was unwitnessed pursuant to state law was potentially avoidable. Bankr. S.D. Ohio In 1997 the debtors executed a mortgage in favor of the creditor’s predecessor in interest. In 1999 the debtors filed a chapter 7 petition, and the trustee commenced an adversary proceeding, seeking avoidance of the creditor’s mortgage under section 544(a). The trustee asserted that the mortgage was invalid because there was only one witness’ signature, and that two witnesses’ signatures were required under state (Ohio) law. The creditor argued that it was a transferee in good faith and without knowledge of the avoidability of the transfer, since it was unaware of the defects in the mortgage when it took the assignment, and sought to invoke the protection of section 550(b)(1). The bankruptcy court held that the mortgage was not executed in accordance with state law, rendering it potentially avoidable, and granted that part of the trustee’s motion. But the court also found that there existed genuine issues of material fact with respect to whether the creditor accepted the assignment of the mortgage without knowledge of its potential voidability, and declined to grant summary judgment on that issue. Logan v. U.C. Lending, Inc. (In re Caldwell), 2000 Bankr. LEXIS 1612, – B.R. – (Bankr. S.D. Ohio November 22, 2000) (Caldwell, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:544.05, .06, .08
8th Cir.
Debtors could not modify chapter 12 plan by filing a second chapter 12 petition. Bankr. D. Neb. The debtors’ chapter 12 plan was confirmed in 1990. Under the plan, the debtors were no sell certain real and personal property to pay of the secured creditor’s claim, and make installment payments on the balance until a balloon payment became due on December 31, 2000. The debtors did not make payments during 1999 and failed to pay real estate taxes on the property. The debtors then filed two new chapter 12 petitions, and in each case the creditor filed a motion for relief from the stay, arguing that the debtors were attempting to modify the provisions of the confirmed plan, and that by filing the new petitions the debtors were acting in bad faith to frustrate the creditor’s claim. The bank granted the motions, holding that section 1229(c) allowed payments under a modified plan to be made only up to five years after the first payment was due. The court reasoned that a necessary corollary of section 1229 was that debtors should not be permitted to circumvent the plan modification restrictions by simply filing a new petition, and noted that the debtors’ proposed chapter 12 plan would reamortize the creditor’s secured claim over a period in excess of 5 years, which would not be permissible if the same relief were sought under the original plan. In re Harry & Larry Maronde Pshp., 2000 Bankr. LEXIS 1609, – B.R. – (Bankr. D. Neb. December 15, 2000) (Minahan, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1229.01
9th Cir.
Section 105 did not create a private right of action to sue under section 524. C.D. Cal. The debtors obtained a loan in order to purchase their vehicle. Upon the filing of their chapter 7 case, the lender continued to bill the debtors and took payments, ultimately receiving full payment on the loan. Later, realizing that their personal liability on the obligation had been discharged, the debtor sued the lender in district court, asserting violations of the discharge injunction, the automatic stay, and the Fair Debt Collection Practices Act. The debtors also sought declaratory relief, injunctive relief, an accounting, attorney’s fees, and class certification. Upon the lender’s motion to dismiss, and after addressing several of the grounds for dismissal, the district court determined that there was no private right of action for damages under section 524. In response to the debtors’ argument that section 105 provided the support for a private right of action, the district court held that section 105 could not be utilized to imply a private right of action under section 524 because section 105 is not a source of substantive rights. Rather, section 105 is a means to implement remedies for rights that already exist under the Code. Kibler v. WFS Financial, Inc., 2000 U.S. Dist. LEXIS 19131, – B.R. – (C.D. Cal. September 12, 2000) (Baird, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:105
State Board waived sovereign immunity by filing a proof of claim which related to the trustee’s cause of action. 9th Cir. The debtors, as operators of retail gasoline stations, were required to make payments to a reimbursement fund administered by the state (California) Water Resources Control Board. State entities holding claims against the debtor included the Controller, for taxes, and the Board of Equalization, for the unpaid fees payable to the reimbursement fund. As an operator, the debtor was entitled to file claims against the fund for reimbursement of cleanup costs. When the trustee was appointed, he acquired the interest in twenty claims pending against the fund. When state board denied these claims, the trustee exhausted his administrative remedies and filed a mandamus proceeding against the Board in the state court, seeking not only payment on the claims, but also damages and attorney’s fees. The trustee subsequently removed the proceeding to the bankruptcy court, whereupon the bankruptcy court denied the Board’s motion for remand, declined to abstain, and determined that the Board had waived its sovereign immunity. The district court affirmed the order denying remand and abstention, and focused solely upon the Fund’s sovereign immunity, holding that it was not an arm of the state.The Court of Appeals for the Ninth Circuit affirmed and reversed, holding that although it was undisputed that the state Board was an arm of the state, the Board waived sovereign immunity with regard to the estate’s claims since it filed a proof of claim which arose out of the same transaction or occurrence as the estate’s claims. There was a logical relationship between the claims since the Board’s claims were for fees associated with the underground storage tanks and the trustee sought recovery on claims against the fund created by those fees. Since the state’s claims were greater than the estate’s claims, the court did not decide whether broader affirmative recovery from the state was permissible. Schulman v. State of California (In re Lazar), 2001 U.S. App. LEXIS 490, – F.3d – (9th Cir. January 12, 2001) (Wardlaw, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:106.02[1]
Shareholders’ claims were subordinated. D. Ariz. The chapter 11 debtors filed a complaint against several shareholders, seeking mandatory subordination of their claims for damages resulting from alleged breaches of contract and fraud in connection with the debtors’ merger agreement. The claimants were shareholders in two of the debtor entities and asserted that the third debtor entity failed to convey shares to them after the debtors merged. The bankruptcy court granted partial summary judgment against the shareholders on the ground that the merger was a 'purchase or sale of securities of the debtor.' The district court reversed and held that an actual purchase of stock was required to trigger mandatory subordination under section 510(b). The Court of Appeals for the Ninth Circuit reversed the district court and affirmed the bankruptcy court, holding that the bankruptcy court properly subordinated the claims of the shareholders for breach of contract against the debtors. The court rejected the shareholders’ arguments and concluded that mandatory subordination was not limited to securities fraud claims. Additionally, neither physical possession of the stock nor an actual sale was required under section 510(b).In re Betacom of Phoenix, Inc., 2001 U.S. App. LEXIS 905, – F.3d – (D. Ariz. January 24, 2001) (Hall, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:510.04
Debt for unpaid wages was excepted from discharge. N.D. Cal. The creditor appealed the B.A.P. affirmance of the bankruptcy court’s order granting judgment for the chapter 7 debtor in the creditor’s action seeking to have a debt excepted from discharge. The creditor was employed by the debtor’s real estate company and, pursuant to an employment agreement, was to be paid a salary and commission for loans which were funded through his efforts. The creditor obtained a state (California) court judgment for the debtor’s willful failure to pay money owed him. The B.A.P. affirmed the bankruptcy court’s finding that the debt was dischargeable on the ground that there was not a tort independent of the contract. The Court of Appeals for the Ninth Circuit reversed, holding that the debt arose from willful and malicious injury caused by the debtor’s tortious conduct. The debtor knew he owed the wages to the creditor and that injury to the creditor was substantially certain to occur if the wages were not paid. The debtor had the clear ability to pay the wages, yet chose not to pay and instead used the money for his own personal benefit(citing Collier on Bankruptcy, 15th Ed. Revised).Petralia v. Jercich (In re Jercich), 2001 U.S. App. LEXIS 850, – F.3d – (N.D. Cal. January 23, 2001) (Nelson, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.12
10th Cir.
Fee agreement was wrongful and disallowed. Bankr. D. Colo. The debtors and their attorney entered into a fee agreement for representation in filing a chapter 13 petition. The agreement called for a $1,400 fee, of which $240 was paid in advance, and the balance to be paid from plan payments. Postconfirmation services were to be provided at an hourly rate of $125, and in the event of dismissal the actual earned attorneys fees would be payable. Eventually the attorney withdrew from the case, and the debtors moved successfully to have their petition dismissed. Thereafter, the attorney contacted the trustee, demanding payment of $4,200 from payments made into the plan. The trustee complied, and the attorney received a check payable to the debtors, which he deposited into a trust account and then transferred those funds into his general business account. The United States Trustee then commenced a proceeding to examine the fees paid to the attorney and to determine whether he should be permitted to retain the $4,200. The bankruptcy court examined the disclosures made by the attorney and found that he failed to comply with the requirements of section 329(a). The court determined that the 369 statement only disclosed what fees might be charged for preconfirmation services, and spoke of a fee of $2,000, while the agreement sets forth a fixed fee of $1,400. The court also noted that no amendment was filed to disclosed a billing in excess of $4,000, and that the attorney had no authority to endorse and deposit a check payable to the debtors. The court concluded that the $4,200 retained by the attorney was wrongful and disallowed. In re Marin, 2000 Bankr. LEXIS 1617, – B.R. – (Bankr. D. Colo. December 15, 2000) (Matheson, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:329.03
Chapter 7 trustee had standing to assert a position as to debtors’ objection to claim. B.A.P. 10th Cir. The debtors failed to disclose a personal injury lawsuit pending at the time of their chapter 7 filing and received a discharge in their no asset case. Upon disclosure of the personal injury lawsuit, the case was reopened in order for the trustee to administer the asset. Creditors were notified to file claims on or before a certain date and four of the thirty listed creditors, including a medical facility, did so. A second notice of assets was issued and creditors were again solicited to file proofs of claim. After the bar date, the medical facility filed three additional claims. Several months after the bar date, the chapter 7 trustee filed proofs of claim for all of the creditors listed, utilizing the information from the debtors schedules. The debtor objected to the medical facility’s claim and the trustee responded that the claims should be allowed. The debtor moved to strike the trustee’s response, asserting that the trustee lacked standing to oppose their objection. The bankruptcy court overruled the debtors objections and denied their motion to strike. The bankruptcy appellate panel affirmed on these issues, holding that the chapter 7 trustee had standing to appear and be heard in the proceeding concerning allowance of claims. The bankruptcy court did not err in stating that the trustee had standing 'in all areas affecting distribution of property of the estate and ensuring that creditors with valid claims are paid.' Moreover, the trustee was not precluded from contacting creditors or encouraging them to file claims.In re Drew, 2000 Bankr. LEXIS 1553, – B.R. – (B.A.P. 10th Cir. December 15, 2000) (Pusateri, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:502.02[2]