Collier Bankruptcy Case Update January-10-05

Collier Bankruptcy Case Update January-10-05

 


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.

 

January 10, 2005

CASES IN THIS ISSUE
(scroll down to read the full summary)

 

1st Cir.

§ 1307 Trustee’s motion to convert or dismiss on grounds of debtor’s failure to file tax returns denied upon showing by IRS that missing returns had been filed. In re Mackenzie (Bankr. D.N.H.)


2d Cir.

§ 505 Enforcement of arbitration award properly stayed pending bankruptcy court determination of taxes which were the basis for the award. In re Winimo Realty Corp. (S.D.N.Y.)

§ 1104(c) Bankruptcy court should have appointed an examiner where $5,000,000 debt threshold had been met. Loral Stockholders Protective Comm. v. Loral Space & Communs., Ltd. (In re Loral Space & Communs., Ltd.) (S.D.N.Y.)


3d Cir.

§ 362(d) Relief from stay granted to allow arbitration of dispute between debtor and subcontractor to continue. Erie Power Techs., Inc. v. Ref-Chem, LP (In re Erie Power Techs., Inc.) (Bankr. W.D. Pa.)


4th Cir.

§ 365 Landlord’s appeal of orders approving assumption of commercial leases dismissed on grounds of equitable mootness where nearly identical issues had been reviewed on prior appeal of rejection orders. U.S. Rest. Props, Inc. v. Convenience USA, Inc. (In re Convenience USA, Inc.) (M.D.N.C.)


5th Cir.

§ 549(a) There were no surplus proceeds from foreclosure sale due debtor where purchasing creditor bid less than its contractual, state law debt amount. Home & Hearth Plano Parkway, LP v. LaSalle Bank (In re Home & Hearth Plano Parkway, LP) (Bankr. N.D. Tex.)

28 U.S.C. § 157(d) Motion to withdraw reference was not appropriate vehicle for determining if adversary proceedings would interfere with proceedings before Federal Energy Regulatory Commission. Mirant Americas Energy Mktg., LP v. PG & E (In re Mirant Corp.) (Bankr. N.D. Tex.)


6th Cir.

§ 502(e)(1) Bankruptcy court correctly applied damages cap to creditor’s indemnification claim. Capitol Indus., Inc. v. Regal Cinemas, Inc. (In re Regal Cinemas, Inc.) (6th Cir.)


7th Cir.

§ 727(a)(5) Discharge denied where debtor could not satisfactorily explain or prove assertion that missing cash had been “gambled away.” Saluja v. Mantra (In re Mantra) (Bankr. N.D. Ill.)

§ 1322(b)(2) Confirmation order vacated where plan impermissibly modified rights of secured creditor with claim secured solely by debtor’s residence. In re Carr (Bankr. W.D. Wis.)

§ 1325 Plan providing for zero percent interest rate on crammed down loan, rather than adjusted prime, could not be confirmed. In re Scrogum (Bankr. C.D. Ill.)


8th Cir.

§ 304(c) Injunction barring proceedings against assets involved in debtor’s Cayman Islands liquidation proceeding affirmed. Hoffman v. Bullmore (In re National Warranty Ins. Risk Retention Group) (8th Cir.)


9th Cir.

§ 365(d)(3) Approval of lease rejection that was made retroactive to date motion was filed affirmed. Pacific Shores Dev., LLC v. At Home Corp. (In re At Home Corp.) (9th Cir.)


10th Cir.

§ 502(a) Absence of writings on which claims were based was not sufficient basis for objection to proofs of claim. In re Mazzoni (Bankr. D. Kan.)

§ 523(a)(2)(B) False financial statement provided to lender was not basis for nondischargeability absent evidence of debtor’s intent to defraud or creditor’s reliance. Blue Ridge Bank & Trust v. Cascio (In re Cascio) (Bankr. D. Kan.)


11th Cir.

§ 106(a) Bankruptcy Code abrogation of Eleventh Amendment sovereign immunity was unconstitutional in the context of student loan dischargeability proceeding. Georgia Higher Educ. Assistance Corp. v. Crow (In re Crow) (11th Cir.)

§ 341 Examiner appointed in chapter 11 case based upon debtor’s testimony at meeting of creditors. In re Hardy (Bankr. M.D. Fla.)

§ 362 Criminal action by homeowners against debtor contractor based on nonpayment of dischargeable debt to subcontractor was not barred by stay. Perry v. Jones (In re Perry) (Bankr. M.D. Ga.)

 


 


Collier Bankruptcy Case Summaries

 

1st Cir.

Trustee’s motion to convert or dismiss on grounds of debtor’s failure to file tax returns denied upon showing by IRS that missing returns had been filed. Bankr. D.N.H. PROCEDURAL POSTURE: After the debtor filed a plan of reorganization in a chapter 13 bankruptcy, objector mortgagee filed an objection to the confirmation of the plan. Movant trustee sought to dismiss or convert the case based on the debtor’s failure to file federal income tax returns for two years. OVERVIEW: The trustee’s motion to dismiss was denied because the Internal Revenue Service’s amended proof of claim indicated that the debtor had filed the missing tax returns and that its claim was reduced to zero. The mortgagee was not entitled to a distribution under a confirmed plan because it had failed to file a timely claim in the chapter 13 case and as a result, it did not have an allowed claim under 11 U.S.C. § 502. Since it did not have a right to a distribution under the plan, it did not have standing to object to the plan’s confirmation based upon the plan’s alleged failure to make a payment on account of its claim. Thus, the mortgagee’s objection to the plan was overruled. The court declined to accept the debtor’s claims regarding the prepetition arrearage owed to the mortgagee because to the extent that any payments to the mortgagee under the confirmed plan did not fully pay the amount of any prepetition arrearage, those amounts remained outstanding and secured by the mortgagee’s lien on the debtor’s residence after completion of the plan. In re Mackenzie, 2004 Bankr. LEXIS 1388, 314 B.R. 277 (Bankr. D.N.H. August 27, 2004) (Deasy, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 8:1307.01[back to top]

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2d Cir.

Enforcement of arbitration award properly stayed pending bankruptcy court determination of taxes which were the basis for the award. S.D.N.Y. PROCEDURAL POSTURE: Appellants, a city and commission, appealed a stay order from the bankruptcy court that stayed enforcement of a final arbitration award and extended the time for the debtor to assume or reject a lease. Appellants sought confirmation of the arbitration award. The debtor moved to partially vacate the arbitration award or, alternatively, to stay its enforcement. OVERVIEW: The debtor was engaged in the business of refining, marketing, transporting, and distributing petroleum and asphalt products. The debtor leased land from appellants. The leases require the debtor to pay property taxes and contained a mandatory arbitration clause. In 1991, the debtor entered into an agreement with appellants under which the debtor was to make payments “in lieu of taxes.” The debtor defaulted on the payments and filed for bankruptcy. An arbitration panel returned an arbitration award in favor of appellants. The debtor commenced an 11 U.S.C. § 505 and challenged the appellants’ assessment of the taxes. The bankruptcy court stayed enforcement of the arbitration award. The district court found that the stay order did not constitute a modification of the arbitration award; rather, it simply delayed payment of property taxes pending a judicial determination of the proper amount of those taxes. Even if the stay order did modify the award, it was permitted by 9 U.S.C. § 11 because the arbitration panel did not have the authority to order the debtor to pay specific amounts in taxes. The debtor was permitted under section 505 to contest the validity of the assessed taxes. In re Winimo Realty Corp., 2004 U.S. Dist. LEXIS 25922, — B.R. — (S.D.N.Y. December 22, 2004) (Chin, D.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:505.01[back to top]

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Bankruptcy court should have appointed an examiner where $5,000,000 debt threshold had been met. S.D.N.Y. PROCEDURAL POSTURE: Appellant stockholders committee sought review of a judgment of the bankruptcy court denying their motion for the appointment of an examiner under 11 U.S.C. § 1104(c)(1) and (2) in a chapter 11 bankruptcy case commenced by appellee debtors, a company and its affiliated debtors and debtors in possession. OVERVIEW: The stockholders committee moved for the appointment of an examiner after the debtors announced their agreement with the Creditors’ Committee on the terms of a chapter 11 plan under which the company’s preferred and common shareholders would not receive any distributions. The stockholders committee claimed that an examiner was necessary to provide a complete appraisal of the debtor assets and liabilities in question, and it argued that the debtors were undervaluing many of their most valuable assets and that the debtors and Creditors’ Committee were improperly colluding to depress the valuations of the company. Although the bankruptcy judge recognized that the debtors’ fixed, liquidated, unsecured debts, other than debts for goods, services, or taxes, or owing to an insider, exceeded $5,000,000 and that the majority view of section 1104(c)(2) required appointment of an examiner if the $5,000,000 threshold was met, he declined to appoint an examiner. However, the court held that the bankruptcy court had no discretion to deny appointment of an examiner where the $5,000,000 debt threshold was met and shareholders of a public company moved for appointment of an examiner. Loral Stockholders Protective Comm. v. Loral Space & Communs., Ltd. (In re Loral Space & Communs., Ltd.), 2004 U.S. Dist. LEXIS 25681, — B.R. — (S.D.N.Y. December 23, 2004) (Patterson, D.J.).

Collier on Bankruptcy, 15th Ed. Revised 7:1104.03[back to top]

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3d Cir.

Relief from stay granted to allow arbitration of dispute between debtor and subcontractor to continue. Bankr. W.D. Pa. PROCEDURAL POSTURE: Movant debtor moved to hold respondent sub-contractor in contempt for the willful violation of the automatic stay. The sub-contractor requested relief from the automatic stay so that the parties’ arbitration proceeding could continue. OVERVIEW: Debtor entered into an agreement under which the sub-contractor would provide heat recovery steam generators. Debtor obtained a payment and performance bond from its surety. A dispute arose between debtor and the sub-contractor over the scope of the work and amount due under their agreement. The sub-contractor filed suit and debtor moved to compel arbitration. The matter was set for arbitration and the sub-contractor made a demand against the surety who was added as a party to the arbitration. A hearing was held on whether the arbitration proceeding was stayed by debtor’s bankruptcy. The arbitration panel determined that the arbitration should proceed between the sub-contractor and the surety. The bankruptcy court found that it was debtor who elected to proceed with arbitration and who initiated arbitration. There were no specific causes of action in the underlying litigation which were created by the Bankruptcy Code and there was no conflict between enforcement of the arbitration provisions of the contract and the Bankruptcy Code. The arbitration would cause no material impact in the bankruptcy case that was sufficient to override the federal policy favoring arbitration. Erie Power Techs., Inc. v. Ref-Chem, LP (In re Erie Power Techs., Inc.), 2004 Bankr. LEXIS 1381, 315 B.R. 41 (Bankr. W.D. Pa. September 22, 2004) (Bentz, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:362.07[back to top]

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4th Cir.

Landlord’s appeal of orders approving assumption of commercial leases dismissed on grounds of equitable mootness where nearly identical issues had been reviewed on prior appeal of rejection orders. M.D.N.C. PROCEDURAL POSTURE: In a case involving a bankruptcy reorganization plan that included an assignment of 15 of appellant landlord’s leases. The landlord appealed that portion of the plan that provided for the assumption and assignment of the 15 remaining appellee debtors’ stores pursuant to 11 U.S.C. §§ 365 and 1123(b)(2). The landlord also filed a motion to stay pending appeal. The debtors and appellee trustee moved to dismiss. OVERVIEW: The total number of leases was 27. Earlier the bankruptcy court had issued two orders, which permitted the debtors to reject a total of 12 of the leases. The landlord appealed those orders, but did not seek a stay. In reliance upon the two rejection orders, the debtors negotiated and filed a consensual resolution of their business affairs in the amended joint plan of reorganization. The two rejection orders affirmed by the present court, and the landlord’s motion to stay pending appeal was denied. The appellate court dismissed the landlord’s appeal of the two rejection orders. When the appellate court was presented with the nearly identical factual background and record that was now before the present court, the appellate court granted appellees’ joint motion to dismiss. That dismissal constituted subsequently decided binding authority on the present court. The appellate court found that doctrine of equitable mootness applied. U.S. Rest. Props, Inc. v. Convenience USA, Inc. (In re Convenience USA, Inc.), 2004 U.S. Dist. LEXIS 18999, 314 B.R. 552 (M.D.N.C. September 7, 2004) (Tilley, D.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:365.01[back to top]

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5th Cir.

There were no surplus proceeds from foreclosure sale due debtor where purchasing creditor bid less than its contractual, state law debt amount. Bankr. N.D. Tex. PROCEDURAL POSTURE: Plaintiff creditor and defendant debtor moved for summary judgment in the debtor’s action alleging, inter alia, there were surplus proceeds from a foreclosure sale and a violation of 11 U.S.C. § 362(a)(3), and seeking a turnover under 11 U.S.C. § 542(b), avoidance of the transfer of the surplus to the creditor under 11 U.S.C. § 549(a), and damages for conversion. The creditor asserted a counterclaim to recover certain sums. OVERVIEW: At the time of bankruptcy filing, the debtor owned a hotel that served as collateral for a nonrecourse note in the principal amount of $4,600,000, executed by the debtor and payable to the creditor. The note was secured by a deed of trust covering the hotel, an assignment of leases and rents, and a security agreement granting a security interest in furniture, fixtures, equipment, inventory, cash, and deposit accounts. The debtor argued that, while a claim order limited the creditor’s claim to $4,393,941.55, the creditor bid over that amount (i.e., $4,740,000) at the foreclosure sale and surplus proceeds of $346,058.45 had to be remitted to the debtor under the deed of trust. The court concluded that no surplus proceeds were generated from the foreclosure sale, since the creditor bid less than its contractual, state law calculated debt amount at the foreclosure sale. An order denying confirmation granted the creditor relief from the automatic stay to permit foreclosure under the terms of the deed of trust and pursue any other available state law remedies under the loan documents. There was no property of the estate that the creditor wrongfully refused to turnover to the debtor. Home & Hearth Plano Parkway, LP v. LaSalle Bank (In re Home & Hearth Plano Parkway, LP), 2004 Bankr. LEXIS 2030, — B.R. — (Bankr. N.D. Tex. December 15, 2004) (Houser, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 5:549.03 [back to top]

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Motion to withdraw reference was not appropriate vehicle for determining if adversary proceedings would interfere with proceedings before Federal Energy Regulatory Commission. Bankr. N.D. Tex. PROCEDURAL POSTURE: Defendant utilities moved to withdraw the reference pursuant to 28 U.S.C. § 157(d) in connection with adversary proceedings brought by plaintiff companies. OVERVIEW: The utilities wished the reference to be withdrawn to the district court as a first step to dismissal in favor of proceedings before the Federal Energy Regulatory Commission (“FERC”). The court recommended that the reference not be withdrawn because it was unlikely that the adversary proceedings would have required interpretation of the Federal Power Act (“FPA”) or any federal statute other than the Bankruptcy Code, and thus the adversary proceedings were not subject to mandatory withdrawal of the reference. Whether the adversary proceedings affected proceedings before FERC should have been determined in the context of a motion to dismiss, not a motion under 28 U.S.C. § 157(d). Justification for dismissal was not a basis for withdrawal of the reference. Because FERC would decide the quantification of claims, the proceedings would have required only that the trial court accept the conclusions of FERC in applying the Bankruptcy Code to those claims. Having filed a claim and invoked the bankruptcy court’s jurisdiction, it was unreasonable for the utilities to argue that FERC had to determine not just the quantification of the claims but also their status under 11 U.S.C. § 506(a). Mirant Americas Energy Mktg., LP v. PG & E (In re Mirant Corp.), 2004 Bankr. LEXIS 1378, — B.R. — (Bankr. N.D. Tex. September 15, 2004) (Lynn, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 1:3.04[back to top]

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6th Cir.

 

Bankruptcy court correctly applied damages cap to creditor’s indemnification claim. 6th Cir. PROCEDURAL POSTURE: Appellant creditor filed a bankruptcy claim against appellee chapter 11 debtor based on an indemnification provision of an agreement in which the creditor assigned its lease on a theater to the debtor. The District Court for the Middle District of Tennessee at Nashville affirmed the bankruptcy court’s order disallowing the claim. The creditor appealed the judgment. OVERVIEW: The parties had entered a lease assignment agreement by which the creditor became a guarantor to the landlord of any rent obligations not paid by the debtor. The creditor argued that its claim included more than lease-rejection damages and should not have been barred by the cap on such damages established by 11 U.S.C. § 502(e)(1). The creditor’s claim was subject to section 502(e)(1) because it was a claim for indemnification for money that the creditor owed the landlord as a guarantor of the lease agreement. In other words, the creditor shared liability with the debtor on the landlord’s claim under the parties’ lease assignment agreement. Since the landlord had already recovered the maximum amount allowed, the creditor’s claim arising from the same lease on which it was a codebtor was not allowed. Capitol Indus., Inc. v. Regal Cinemas, Inc. (In re Regal Cinemas, Inc.), 2004 U.S. App. LEXIS 26727, — F.3d — (6th Cir. December 22, 2004) (Sutton, C.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:502.06[2][back to top]

 

 

 

 


 

7th Cir.

Discharge denied where debtor could not satisfactorily explain or prove assertion that missing cash had been “gambled away.” Bankr. N.D. Ill. PROCEDURAL POSTURE: Creditor filed a complaint objecting to the discharge of chapter 7 debtor pursuant to 11 U.S.C. § 727(a)(2) and (5). OVERVIEW: Debtor borrowed money from creditor, securing the debt with a second mortgage on real property owned by debtor. Subsequently, debtor refinanced the first mortgage, receiving money that he deposited in his checking account. After debtor stopped making payments to creditor, he filed a voluntary chapter 7 petition. Debtor claimed that, prior to filing the petition, he had gambled away the money that he received from the refinancing of the first mortgage. The court held that it was unable to conclude that debtor transferred, removed, destroyed or concealed assets with intent to hinder, delay or defraud a creditor, within the meaning of 11 U.S.C. § 727(a)(2). The court held that debtor was merely fiscally irresponsible in hindsight by gambling away the cash he received from refinancing the first mortgage and did not conceal the cash. The court did hold, however, that debtor was not entitled to discharge because under 11 U.S.C. § 727(a)(5) he did not satisfactorily explain the loss of the cash, having presented no corroborative records or other credible testimony, other than his self-serving testimony, to substantiate his explanation that he gambled away the cash. Saluja v. Mantra (In re Mantra), 2004 Bankr. LEXIS 1374, 314 B.R. 723 (Bankr. N.D. Ill. September 20, 2004) (Squires, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 6:727.08[back to top]

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Confirmation order vacated where plan impermissibly modified rights of secured creditor with claim secured solely by debtor’s residence. Bankr. W.D. Wis. PROCEDURAL POSTURE: Debtor petitioned for relief under chapter 13 of the Bankruptcy Code. She filed, and the court confirmed without objection, debtor’s chapter 13 plan. Creditor, a mortgagee, moved to vacate the confirmation order. OVERVIEW: Creditor filed in debtor’s bankruptcy a claim for over $146,000 for a debt secured by a mortgage on debtor’s primary residence. No objection to that claim had been filed. Before debtor filed her bankruptcy petition, creditor had foreclosed on that mortgage and obtained a judgment against debtor for approximately $138,000. Debtor’s chapter 13 plan provided for payments to creditor based upon the appraised value of the residence and treated the remainder of creditor’s claim as unsecured. Creditor did not object to debtor’s plan but later moved to vacate the order confirming the plan. Creditor argued that the court lacked authority to confirm the plan because the plan violated 11 U.S.C. § 1322(b)(2) and 11 U.S.C. § 1325(a)(5). The court agreed. 11 U.S.C. § 1322 was mandatory in restricting the right to modify the claim of a secured creditor whose sole security was the debtor’s principal residence. The provisions of debtor’s plan did not comply with the mandatory provisions of the Code. Therefore, confirmation of the plan must be deemed nugatory. In re Carr, 2004 Bankr. LEXIS 2015, — B.R. — (Bankr. W.D. Wis. November 30, 2004) (Martin, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 8:1322.06[back to top]

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Plan providing for zero percent interest rate on crammed down loan, rather than adjusted prime, could not be confirmed. Bankr. C.D. Ill. PROCEDURAL POSTURE: Movant creditor filed an objection to the confirmation of debtor’s amended chapter 13 plan. In the plan, debtor proposed to pay the creditor at an interest rate of zero percent per annum on its secured indebtedness. The creditor asserted that it was entitled to an interest rate of six and one-quarter percent. OVERVIEW: Debtor entered into a retail installment contract for the purchase of a car. The note bore an annual percentage interest rate of zero. After debtor filed a chapter 13 bankruptcy petition, the creditor filed a proof of claim in the amount of $15,637.16 plus nine percent interest per annum. In the amended plan, debtor proposed to pay zero percent interest on the amount of the fair market value of the car and the same percentage paid to all other unsecured creditors on the remaining amount of the creditor’s claim. The court held that the formula approach, which involved taking the national prime rate and adjusting it to compensate the lender for the risk incurred in making the loan, was the appropriate method for determining an interest rate on crammed down loans pursuant to a chapter 13 plan. Using that formula, the court found that the proposed zero percent interest rate in debtor’s amended chapter 13 plan violated 11 U.S.C. § 1325. Therefore, the court declined to confirm the amended plan. In re Scrogum, 2004 Bankr. LEXIS 1376, — B.R. — (Bankr. C.D. Ill. September 15, 2004) (Lessen, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 8:1325.01[back to top]

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8th Cir.

Injunction barring proceedings against assets involved in debtor’s Cayman Islands liquidation proceeding affirmed. 8th Cir. PROCEDURAL POSTURE: After appellant vehicle service contract buyer sued a warranty insurance group, appellee group liquidators filed a petition under 11 U.S.C. § 304 seeking an injunction to stop all proceedings against the assets involved in the group’s Cayman Islands liquidation. The bankruptcy court granted the requested section 304 relief and the Bankruptcy Appellate Panel affirmed. The buyer appealed. OVERVIEW: There were three main issues: whether the bankruptcy court had jurisdiction over the matter; whether injunctive relief was appropriate; and whether the injunction was too broad. The bankruptcy court properly found that the Cayman Islands was the group’s domicile for purposes of winding up and liquidating the corporation because the term “domicile” as used in 11 U.S.C. § 304 referred to a corporation’s place of business. In this case, the group’s place of incorporation, and thereby its domicile, was the Cayman Islands. The bankruptcy court did not abuse its discretion in awarding the liquidators injunctive relief where it had evaluated the factors set forth in 11 U.S.C. § 304(c) and concluded that Cayman law was capable of justly treating all claimants. The scope of the injunction was appropriate as it prevented a chaotic and uncontrolled scramble for the group’s estate. Finally, although the bankruptcy appellate panel failed to rule on the denial of discovery, the error was without prejudice as the bankruptcy court had not abused its discretion in denying the buyer’s request for discovery of the nationality of the group’s members. Hoffman v. Bullmore (In re National Warranty Ins. Risk Retention Group), 2004 U.S. App. LEXIS 24708, 384 F.3d 959 (8th Cir. September 24, 2004) (Bye, C.J.).

Collier on Bankruptcy, 15th Ed. Revised 2:304.08[back to top]

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9th Cir.

Approval of lease rejection that was made retroactive to date motion was filed affirmed. 9th Cir. PROCEDURAL POSTURE: Immediately after filing for relief under chapter 11 of the Bankruptcy Code, appellee debtor moved for rejection of leases between debtor and appellant lessor and asked that the rejection be deemed effective on the date debtor filed its motion. The bankruptcy court granted that motion and the District Court for the Northern District of California upheld the bankruptcy court’s decision. The lessor sought further review. OVERVIEW: The lessor objected, not to the rejection of its leases, but to retroactive application of the order approving the rejection. A later effective date would mean that debtor owed the lessor an additional $1 million in rent. The bankruptcy court had equitable authority under 11 U.S.C. § 105(a) and 11 U.S.C. § 365(d)(3) to approve retroactively the rejection of debtor’s unexpired nonresidential leases. In addition, the bankruptcy court did not abuse its discretion by granting retroactive approval, even where the effective date preceded the lessor’s resumption of possession of the leased premises. Debtor promptly moved for authorization to reject the leases. There was no appreciable delay between the filing of, and the hearing on, the motion. The bankruptcy court could consider, when deciding whether to make its approval retroactive, the amount of rent owed under the contract, that the lessor appeared only to be attempting to obtain administrative rent, not to enforce its right to start re-letting the premises quickly, and the fact that debtor had never occupied the leased premises, which would make it easier for the lessor to re-let the property. Pacific Shores Dev., LLC v. At Home Corp. (In re At Home Corp.), 2004 U.S. App. LEXIS 26893, — F.3d — (9th Cir. December 28, 2004) (Graber, C.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:365.04[3][g][back to top]

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10th Cir.

Absence of writings on which claims were based was not sufficient basis for objection to proofs of claim. Bankr. D. Kan. PROCEDURAL POSTURE: In a chapter 13 bankruptcy case, debtor filed objections to proofs of claim filed by several creditors. OVERVIEW: Debtor objected to the proofs of claim solely on the ground that the writings on which the claims were based were not attached to the proofs of claim. Debtor was not entitled to the relief. The proofs of claim provided evidence of a demand for payment from the estate, including the demanding creditor’s name, an account number by which the creditor identified the debtor, and the amount of the claim at the time the case was filed. And, the proofs of claim were signed under penalty of up to $500,000 or up to five years in prison. Therefore, to prevail on her objections to the proofs of claim, debtor had to come forward with evidence that would minimally “meet, overcome, or at least equalize” creditors’ statements on the proofs of claim. In other words, because creditors satisfied their initial burden of proving the existence and amount of their claims with the presentation of their proofs of claim, debtor had to have a basis for challenging the validity of the claims. Debtor, however, presented no basis for challenging creditors’ proofs of claim. In re Mazzoni, 2004 Bankr. LEXIS 2027, — B.R. — (Bankr. D. Kan. December 20, 2004) (Berger, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:502.02[back to top]

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False financial statement provided to lender was not basis for nondischargeability absent evidence of debtor’s intent to defraud or creditor’s reliance. Bankr. D. Kan. PROCEDURAL POSTURE: Plaintiff judgment creditor filed an action against defendant judgment debtor in order to obtain a ruling that the debtor’s obligation to the creditor was not dischargeable pursuant to 11 U.S.C. § 523(a)(2)(B). Before the bankruptcy petition was filed the creditor had obtained a money judgment against the debtor for amounts due on loans. OVERVIEW: At the time that the debtor’s bankruptcy petition was filed, the debtor owed $658,605 to the creditor as part of a money judgment entered against the debtor. The creditor and the debtor had a 36-year banking relationship and the debtor had paid off earlier loans. In reference to the loans at issue, which had been reduced to a money judgment, the debtor had submitted a financial statement to the bank that exaggerated the debtor’s assets. The court found that a finding of nondischargeability of the creditor’s money judgment was not warranted, pursuant to 11 U.S.C. § 523(a)(20)(B). There was evidence that the debtor’s financial statement was materially false. However, the evidence was insufficient to establish by a preponderance of the evidence that the debtor had any intent to defraud, or that the creditor had reasonably relied on the financial statement. The creditor was under an obligation to investigate or verify the amount receivable of $480,000 that the debtor said he was owed. The creditor did not even undertake a minimal investigation and was obligated to do so if it sought to assert reasonable reliance on the financial statement. Blue Ridge Bank & Trust v. Cascio (In re Cascio), 2004 Bankr. LEXIS 2022, — B.R. — (Bankr. D. Kan. December 20, 2004) (Berger, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:523.08[back to top]

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11th Cir.

Bankruptcy Code abrogation of Eleventh Amendment sovereign immunity was unconstitutional in the context of student loan dischargeability proceeding. 11th Cir. PROCEDURAL POSTURE: Defendants, two state agencies, appealed a judgment of the District Court for the Southern District of Georgia, which affirmed a bankruptcy court’s denial of the agencies’ motion to dismiss in plaintiff debtors’ adversary proceedings brought against the agencies pursuant to the debtors’ filing of a chapter 7 petition for bankruptcy relief. The bankruptcy court had dismissed a third claim of the debtors. OVERVIEW: The debtors claimed that student loan obligations were dischargeable and sought damages because of the agencies’ attempt to collect in violation of the automatic stay of 11 U.S.C. § 362(a). The district court held that the adversary proceedings were not barred by the Eleventh Amendment. On appeal, the court held that the dismissal of the claim that the loans were dischargeable was properly denied based on a prior case of the United States Supreme Court, which held that the seeking of discharge was an in rem proceeding that did not implicate the Eleventh Amendment. The court reversed as to the automatic stay claim after finding that Congress’ attempt under 11 U.S.C. § 106(a) to abrogate Eleventh Amendment immunity in proceedings under 11 U.S.C. § 362 was an unconstitutional overreaching of its bankruptcy clause powers under U.S. Const. art. I, § 8, cl. 4. The bankruptcy court had no authority to entertain the in personam claim against the agencies absent sovereign consent. The court found that the provision could not be validated under U.S. Const. amend XIV, § 5 because Congress could not legislatively elevate bankruptcy to the constitutional status of a privilege or immunity. Georgia Higher Educ. Assistance Corp. v. Crow (In re Crow), 2004 U.S. App. LEXIS 26872, — F.3d — (11th Cir. December 23, 2004) (per curiam).

Collier on Bankruptcy, 15th Ed. Revised 2:106.02[back to top]

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Examiner appointed in chapter 11 case based upon debtor’s testimony at meeting of creditors. Bankr. M.D. Fla. PROCEDURAL POSTURE: Debtor filed for chapter 11 bankruptcy relief. Movant creditor moved for the appointment of a trustee or examiner. OVERVIEW: The creditor asserted that it was appropriate to appoint a trustee or examiner especially since the debtor had in the past and still had an ongoing modus operandi, which involved fraudulent transfers among family members and 37 affiliates controlled by the debtor, none of them subject to the control of the bankruptcy court. The court found that based on the precedent in the Eleventh Circuit it would consider the testimony of the debtor given in an 11 U.S.C. § 341 meeting of creditors. This testimony established that despite the lack of reported income, the debtor was able to take a two-week trip to Australia to visit his ranch holding, the debtor was a part owner of land located in Florida on which he ran large herds of cattle. The debtor failed to fully disclose all the transfers of funds, source of his funds, and his interest in membership of two country clubs. However, the debtor was not operating any business and therefore, there was no need for new management. But, it was without question that there was a need for a thorough and in-depth pervasive investigation by an examiner to untangle the intricate and complicated affairs of the debtor. In re Hardy, 2004 Bankr. LEXIS 2001, — B.R. — (Bankr. M.D. Fla. July 15, 2004) (Paskay, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:341.01[back to top]

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Criminal action by homeowners against debtor contractor based on nonpayment of dischargeable debt to subcontractor was not barred by stay. Bankr. M.D. Ga. PROCEDURAL POSTURE: Plaintiff bankruptcy debtor, a construction contractor, brought an adversary proceeding against defendant homeowners, alleging that the homeowners, in violation of the automatic bankruptcy stay, initiated criminal proceedings against the debtor for failure to pay a dischargeable debt to a subcontractor. The homeowners moved to dismiss the complaint. OVERVIEW: The homeowners hired the debtor to construct an addition to their residence and the debtor subcontracted a portion of the work but failed to pay the subcontractor despite payment by the homeowners. After the subcontractor filed a materialman’s lien against the residence, the homeowners initiated criminal proceedings under a state statute criminalizing the failure to pay the subcontractor. The debtor contended that the criminal action was initiated solely to collect the debt to the subcontractor and thus violated the automatic bankruptcy stay. The bankruptcy court held that the automatic stay did not stay the criminal proceeding, even if the proceeding was initiated by the homeowners solely to collect the debt to the subcontractor. Thus, there was no violation of the automatic stay, and injunctive relief barring the criminal action was not warranted since the debtor could raise the alleged improper motive of the homeowners in the criminal action. Perry v. Jones (In re Perry), 2004 Bankr. LEXIS 1382, 314 B.R. 873 (Bankr. M.D. Ga. September 3, 2004) (Hershner, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:362.01[back to top]

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