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 21, 2002

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

• 2d Cir.

  § 523(a)(4) Creditor failed to prove that debtor was liable for her successor’s default.
  Airlines Reporting Corp. v. Vinogradova (In re Vinogradova) (Bankr. S.D.N.Y.)

  § 1112(b) Case was converted after court concluded that creditors were in need of chapter 7 case to protect their interests.
  In re Hampton Hotel Investors, L.P. (Bankr. S.D.N.Y.)

  ---

  3d Cir.

  § 510(a) Prepetition subordination agreement did not survive approval of confirmed plan that did not specifically provide for contractual subordination.
  AWC Liquidation Corp. v. Orentzel (In re American White Cross, Inc.) (D. Del.)

  28 U.S.C. § 158(d) District court class action complaint was barred by order that enjoined plaintiff from pursuing claims against debtor in nonbankruptcy forum.
  Miell v. Greyhound Lines, Inc. (8th Cir.)

  ---

  4th Cir.

  § 1327(a) Plan confirmation barred chapter 13 debtor’s lawsuit against lender.
  Snow v. Countrywide Home Loans, Inc. (In re Snow) (D. Md.)

  ---

  5th Cir.

  § 329(a) Debtor’s counsel breached his duty to provide an absolute and complete disclosure of all payments received.
  In re Mayeaux (Bankr. E.D. Tex.)

  § 349(b) United States was not entitled to reinstatement of liens after chapter 11 dismissal.
  United States v. Ramirez (N.D. Tex.)

  28 U.S.C. § 158 Order approving interim fee application was not a final, appealable order.
  W. Delta Oil Co. v. Hof (In re W. Delta Oil Co.) (E.D. La.)

  ---

  6th Cir.

  § 547(c)(3) Preferential transfer to creditor was avoidable by chapter 7 trustee.
  Boyd v. Superior Bank FSB (In re Lewis) (Bankr. W.D. Mich.)

  ---

  7th Cir.

  § 365(g) Debtor could not reject product orders if breach would constitute breach of related agreements under applicable nonbankruptcy law.
  In re Comdisco, Inc. (Bankr. N.D. Ill.)

  § 522(b)(2)(A) Illinois debtor who was caring for elderly, terminally ill mother in Louisiana did not abandon Illinois homestead.
  In re Owens (Bankr. N.D. Ill.)

  § 1328(a) Student loan creditor was not precluded from collecting remaining balance on loans after debtor received a discharge. Educ. Credit Mgmt. Corp. v. Loving (In re Loving) (Bankr. S.D. Ind.)

  ---

  8th Cir.

  § 523(a)(2)(A) Creditor/bank granted summary judgment on complaint to determine dischargeability of debt for loans made to chapter 7 debtor/farmer.
  Valley Bank & Trust v. Fick (In re Fick) (Bankr. N.D. Iowa)

  § 707(b) Evidence presented by U.S. trustee warranted dismissal of chapter 7 petition for substantial abuse.
  In re Harger (Bankr. N.D. Iowa)

  § 707(b) Chapter 7 petition represented substantial abuse.
  In re Regan (Bankr. W.D. Mo.)

  § 1112(b) Administratively insolvent debtor’s chapter 11 case was dismissed.
  In re Midwest Communs. Inc. (Bankr. N.D. Iowa)

  § 1208(e) Conversion from chapter 12 to chapter 11 was denied.
  In re Gregerson (Bankr. N.D. Iowa)

  ---

  9th Cir.

  § 328(a) Professional’s retention application that did not specify that it sought approval under section 328 was subject to review under section 330.
  Circle K Corp. v. Houlihan, Lokey, Howard & Zukin, Inc. (In re Circle K Corp.) (9th Cir.)

  ---

  10th Cir.

  Rule 8009(a) Debtors sufficiently explained second failure to file appellate brief by the court-ordered deadline.
  Reppert v. W. Nat’l Bank (In re Reppert) (D. Kan.)

  ---

  11th Cir.

  § 523(a)(6) Injury caused while driving under the influence of alcohol was not a 'willful and malicious' injury.
  Allen v. Greenwasser (In re Greenwasser) (Bankr. S.D. Fla.)

  § 1328(a) Imposition of equitable lien did not impermissibly cause debt that would be dischargeable under section 1328 to become nondischargeable.
  Thiel v. Thiel (In re Thiel) (Bankr. M.D. Fla.)

  ---

Collier Bankruptcy Case Summaries

2nd Cir.

Creditor failed to prove that debtor was liable for her successor’s default. Bankr. S.D.N.Y. The creditor, a national clearinghouse for issuing blank airline tickets to travel agents, filed an adversary proceeding against the chapter 7 debtor seeking a declaration that amounts owed it were nondischargeable. The individual debtor owned a travel agency which had been approved by the creditor to issue its traffic documents. While the debtor operated the agency, she complied with all obligations to the creditor with respect to making weekly sales reports and the depositing of sales proceeds in a special bank account. The debtor subsequently sold her business to a third party, but failed to ensure that the required change-of-ownership form was submitted to the creditor. After the purchaser defaulted in payments, the creditor sued the debtor for breach of contract, conversion and breach of fiduciary duty. The bankruptcy court dismissed the adversary proceeding, holding that because the debtor never had possession of or control over either the traffic documents or the sale proceeds, there was no basis to assert that she was guilty of fraud, defalcation, embezzlement or larceny. The court further found that there was no basis for nondischargeability under sections 523(a)(2) or 523(a)(6) because the debtor was not liable for the creditor’s loss.Airlines Reporting Corp. v. Vinogradova (In re Vinogradova), 2001 Bankr. LEXIS 1502, 270 B.R. 159 (Bankr. S.D.N.Y. November 16, 2001) (Hardin, Jr., B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:523.10

Case was converted after court concluded that creditors were in need of chapter 7 case to protect their interests. Bankr. S.D.N.Y. The United States trustee moved pursuant to section 1112(b) to convert the debtor’s chapter 11 case to chapter 7. The debtor, a limited partnership which operated a hotel property, sold its primary asset postpetition and ceased operations. During the pendency of the chapter 11 case, the debtor made several unauthorized payments to professionals and to the debtor’s general partner. The debtor further failed to collect receivables from its general partner’s affiliate and made several unauthorized payments of prepetition debt. The debtor’s general partner also made agreements with third parties with respect to bidding on estate assets and took an undisclosed interest in the assets acquired. The bankruptcy court granted the U.S. trustee’s motion, holding that conversion of the case to chapter 7 was in the best interests of creditors and the estate. The general partner’s self-dealing and mismanagement required the appointment of an independent trustee (citing Collier on Bankruptcy, 15th Ed. Revised).In re Hampton Hotel Investors, L.P., 2001 Bankr. LEXIS 1503, 270 B.R. 346 (Bankr. S.D.N.Y. November 14, 2001) (Gerber, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 7:1112.04

3d Cir.

Prepetition subordination agreement did not survive approval of confirmed plan that did not specifically provide for contractual subordination. D. Del. The creditor appealed the bankruptcy court’s denial of its motion to intervene in an adversary proceeding between the chapter 11 debtor and a group of creditors. After the debtor’s plan of reorganization was confirmed, the debtor filed an amended complaint, seeking to subordinate, pursuant to a contractual provision, the claims of former shareholders of a company the debtor had purchased prepetition. Because the creditor and the former shareholders received equal treatment under the confirmed plan, the creditor moved to intervene in the action. The bankruptcy court determined that the debtor and creditor had waived their contractual subordination rights by supporting confirmation of the plan. Because the plan failed to provide for the subordination of the shareholders’ payments, principles of claim preclusion foreclosed the assertion of subordination, and the creditor’s motion to intervene was futile. The district court affirmed, holding that the creditor’s and debtor’s failure to object to the plan, which set an equivalent priority for claims, constituted a waiver of their rights to seek contractual subordination. The confirmation of the plan, which placed the claims of both the creditor and the former shareholders in the same class, was a final judgment on the merits of those claims. The creditor was barred by claim preclusion from seeking to alter the rights to which the parties were entitled to under the plan.AWC Liquidation Corp. v. Orentzel (In re American White Cross, Inc.), 2001 U.S. Dist. LEXIS 19351, 269 B.R. 555 (D. Del. November 26, 2001) (McKelvie, D.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:510.03

District court class action complaint was barred by order that enjoined plaintiff from pursuing claims against debtor in nonbankruptcy forum. 8th Cir. An individual plaintiff, as representative of a class of similarly situated persons, filed a district court proceeding against the chapter 11 debtor/bus company seeking damages for the debtor’s alleged breach of employment contracts with drivers. The district court dismissed the complaint and ruled that the plaintiff, who had not filed a claim in the debtor’s case, was barred from proceeding in the district court by a Texas bankruptcy court order that enjoined him from pursuing his claims in any forum other than the bankruptcy court. The plaintiff appealed. The Court of Appeals for the Eighth Circuit affirmed. The court held that the bankruptcy court’s order, which clearly enjoined the plaintiff from pursuing his claims in any forum other than the bankruptcy court, had res judicata effect. The Court of Appeals noted that on two separate occasions, the Texas bankruptcy court held that the plaintiff’s claims were discharged by the debtor’s bankruptcy. On each occasion, the bankruptcy court enjoined the plaintiff from pursuing his claims in other forums, pursuant to the confirmation injunction. Both bankruptcy court orders were final, since the debtor failed to appeal from the first order, and the district court and the Court of Appeals for the Fifth Circuit affirmed the second order. Thus, the plaintiff was barred from pursuing his claims.Miell v. Greyhound Lines, Inc., 2001 U.S. App. LEXIS 25932, – F.3d – (8th Cir. December 3, 2001) (per curiam).

Collier on Bankruptcy, 15th Ed. Revised 1:5.02[4]

4th Cir.

Plan confirmation barred chapter 13 debtor’s lawsuit against lender. D. Md. The lender filed a proof of claim which contained, as part of the arrearage, a property inspection fee. The chapter 13 plan provided for full payment of the claim, including the inspection fee. After the plan was confirmed, the debtor filed a class action adversary proceeding asserting that imposition of the fee violated state (Maryland) law. The bankruptcy court granted the lender’s motion to dismiss, concluding that confirmation of the plan, which provided for payment of the fee, barred the adversary proceeding. On appeal, the district court affirmed, holding that res judicata barred the debtor from litigating the propriety of a fee when the confirmed plan provided for full payment of that fee. The fact that allowance of a proof of claim was subject to reconsideration under 11 U.S.C. § 502(j) did not render the order nonfinal. Moreover, the causes of action were the same since the debtor was essentially challenging the right to the fee, i.e., the amount payable, not the extent of the lien. Snow v. Countrywide Home Loans, Inc. (In re Snow), 2001 U.S. Dist. LEXIS 18866, – B.R. – (D. Md. November 16, 2001) (Chasanow, D.J.).

Collier on Bankruptcy, 15th Ed. Revised 1327.02[1]

5th Cir.

Debtor’s counsel breached his duty to provide an absolute and complete disclosure of all payments received. Bankr. E.D. Tex. The United States trustee filed a motion to examine the chapter 13 debtor’s transactions with his attorney and sought a determination that section 329(a) imposed a duty upon the attorney to disclose all fees which had been paid to him by the debtor. The debtor had contacted the attorney approximately six weeks before he filed the petition regarding possible representation concerning improprieties allegedly committed by the debtor as a financial and investment advisor. The attorney subsequently rendered services to the debtor in relation to civil and criminal claims asserted against the debtor by a former client and ultimately assisted the debtor with his bankruptcy petition. Though not disclosed in his Rule 2016(b) statement, debtor’s counsel actually received substantial sums from the debtor both before and after the filing of the petition. The debtor’s attorney claimed he was not required to disclose any of the payments in his Rule 2016(b) statement because those sums were not paid in connection with the bankruptcy case. The bankruptcy court granted the motion to examine transactions, holding that because the payments to the debtor’s attorney were made 'in contemplation of or in connection with' the bankruptcy case, the attorney was required to disclose the existence of the payments. The services rendered by the debtor’s attorney prepetition directly related to the precipitating cause of the bankruptcy filing and had a direct impact on the bankruptcy case. The court interpreted section 329(a) broadly and concluded that the duty to disclose the existence of the payments was not erased by the fact that the debtor’s counsel was also capable of rendering criminal law advice to the debtor (citing Collier on Bankruptcy, 15th Ed. Revised).In re Mayeaux, 2001 Bankr. LEXIS 1495, 269 B.R. 614 (Bankr. E.D. Tex. October 10, 2001) (Parker, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:329.03; 9:2016

United States was not entitled to reinstatement of liens after chapter 11 dismissal. N.D. Tex. In 1987, the debtors filed a chapter 11 petition, and in 1998, a reorganization plan was confirmed. Under that plan, liens held by the creditor, the United States, on seven tracts of land were released because the liens were determined to be of no value. To effectuate that provision, the creditor executed a partial release. In 1992, the chapter 11 case was dismissed due to the debtors’ failure to comply with the plan. In 1996 and 1999, the debtors again filed chapter 11 petitions, both of which were also dismissed. In 1998, a notice of cancellation of the partial release and reinstatement of liens was filed. In 2000, the debtors executed warranty deeds conveying four of the seven tracts to their son. Soon thereafter, the creditor filed this suit in district court to correct the real estate records in order to reflect the reinstatement of the liens and to rescind the partial release. The creditor argued that the liens were reinstated as a matter of law because the chapter 11 case was dismissed, and sought summary judgment. The debtors argued that no such reinstatement took place because a plan had been confirmed at the time of dismissal. The district court drew a distinction, for the purposes of section 349(b), between chapter 13 and chapter 11 dismissal and held that, while a chapter 13 dismissal restored rights as they existed prepetition, a chapter 11 debtor was bound by a confirmed plan. Consequently, the postconfirmation dismissal in chapter 11 did not result in a revocation of a confirmed plan, and the creditor was not entitled to reinstate the liens in contravention of the plan’s terms. The court also rejected the argument that unilateral rescission was appropriate because the debtors materially breached the contract established by the plan, finding that the creditor had not presented sufficient summary judgment evidence that the debtors had in fact repudiated the contract, which would have entitled the creditor to the equitable remedy of rescission. United States v. Ramirez, 2001 U.S. Dist. LEXIS 19891, – B.R. – (N.D. Tex. December 3, 2001) (Cummings, D.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:349.03[1]

Order approving interim fee application was not a final, appealable order. E.D. La. The bankruptcy court granted the debtor’s attorneys’ interim fee application over the objection of certain creditors, and the creditors appealed. The district court dismissed the appeal as interlocutory, holding that the order authorizing payment of interim fees was not final and, thus, the appeal was premature, even though the creditors asserted that the attorneys had a conflict of interest. Only if the attorneys had been discharged while the chapter 11 case was ongoing would the order constitute a final order for purposes of appeal. Looking to 28 U.S.C. § 1292(b), the court also concluded that an interlocutory appeal was not warranted.W. Delta Oil Co. v. Hof (In re W. Delta Oil Co.), 2001 U.S. Dist. LEXIS 19065, – B.R. – (E.D. La. November 14, 2001) (Barbier, D.J.).

Collier on Bankruptcy, 15th Ed. Revised 1:5.07; 8003.07

6th Cir.

Preferential transfer to creditor was avoidable by chapter 7 trustee. Bankr. W.D. Mich. The chapter 7 trustee filed an adversary proceeding against the creditor seeking to avoid a preferential transfer. The debtor had previously transferred real property to her son and his fiancee by quit claim deed. The debtor refinanced the property with the creditor and, as required by the creditor’s insurer, the son and fiancee transferred the property back to the debtor with a quit claim deed prior to the closing. The debtor gave the creditor a promissory note and mortgage; however, the creditor waited several months to record the mortgage. Because the debtor filed her petition 17 days after the recording of the mortgage, the trustee contended that the creditor received an avoidable preference. The bankruptcy court granted partial summary judgment to the trustee, holding that the creditor, by delaying perfection of its own mortgage beyond the 20-day enabling loan provision of section 547(c)(3)(B), received a preference that was avoidable by the trustee under section 547(b). The court further refused to apply the doctrine of equitable subrogation.Boyd v. Superior Bank FSB (In re Lewis), 2001 Bankr. LEXIS 1519, 270 B.R. 215 (Bankr. W.D. Mich. November 15, 2001) (Stevenson, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 5:547.04[3]

7th Cir.

Debtor could not reject product orders if breach would constitute breach of related agreements under applicable nonbankruptcy law. Bankr. N.D. Ill. The debtor moved to reject two product orders. Each product order was issued in connection with a related agreement, but the debtor did not move to reject the related agreements. The other party to the orders and agreements objected to the debtor’s motion to reject the product orders. The bankruptcy court granted the debtor’s motion to reject one of the product orders, but denied its motion to reject the other product order absent an election by the debtor to reject the entire related agreement. The court held that the debtor could not reject the product orders without also rejecting the related agreements if, under applicable nonbankruptcy law, a breach of the product orders would constitute a breach of the related agreements. With respect to the first product order, the court concluded that the parties did not intend that a breach of the product order would constitute a breach of a related option agreement (or any other product order). With respect to the second product order, however, the court concluded that the parties expressed an intent that a breach of the product order entered into pursuant to a 'managed network agreement' would be a breach of that agreement and other product orders entered into pursuant to that agreement. The court therefore denied the debtor’s motion to reject the second product order with prejudice to its renewal if the debtor elected to reject the entire agreement.In re Comdisco, Inc., 2001 Bankr. LEXIS 1527, – B.R. – (Bankr. N.D. Ill. November 28, 2001) (Barliant, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:365.09

Illinois debtor who was caring for elderly, terminally ill mother in Louisiana did not abandon Illinois homestead. Bankr. N.D. Ill. A credit union that held an unsecured claim against the chapter 13 debtor objected to both the debtor’s claimed state (Illinois) law homestead exemption and to the confirmation of her plan. The credit union contended that the debtor was not entitled to the claimed homestead exemption because she abandoned the homestead. The credit union further claimed that because the homestead was abandoned, the debtor’s plan had to provide for an increased percentage or dividend payment to unsecured creditors in the value of the exemption claimed. The debtor acknowledged that she was not currently residing in the homestead and had not regularly resided there for some time, but explained that the sole cause of her absence was the need for her to care for her terminally ill, elderly mother in Louisiana. Based on the unique facts and evidence presented, the court overruled the credit union’s objections to the debtor’s claimed homestead exemption. The court held that debtors who care for sick or disabled family members for an indefinite period of time should not automatically lose or abandon their homestead exemption. The court found that the debtor intended to return to the homestead property permanently once her mother’s health stabilized, and that her temporary absence, though indefinite, did not constitute an intentional abandonment of her homestead.In re Owens, 2001 Bankr. LEXIS 1525, 269 B.R. 794 (Bankr. N.D. Ill. November 27, 2001) (Squires, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:522.10[2]

Student loan creditor was not precluded from collecting remaining balance on loans after debtor received a discharge. Bankr. S.D. Ind. The chapter 13 debtor filed a motion to enforce the discharge order after the student loan creditor attempted to collect the balance due on the loans. The debtor’s plan provided for the payment of a sum certain to the creditor without explicit reference to whether the treatment was intended to discharge the debt. The creditor received a dividend under the plan, which it applied first to collection costs, second to interest and third to principal. Because the debtor completed all of her plan payments and received a discharge, she argued that the creditor was barred from collecting any remaining balance due on the loans. The bankruptcy court denied the debtor’s motion, holding that the obligations to the student loan creditor, consisting of unpaid costs and fees, interest and principal, were not discharged by virtue of the debtor’s completed chapter 13 plan. The debtor’s plan did not explicitly provide for the full payment or discharge of the debt and did not have any preclusive effect on the creditor (citing Collier on Bankruptcy, 15th Ed. Revised).Educ. Credit Mgmt. Corp. v. Loving (In re Loving), 2001 Bankr. LEXIS 1512, 269 B.R. 655 (Bankr. S.D. Ind. November 19, 2001) (Coachys, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 8:1328.02[3][d]

8th Cir.

Creditor/bank granted summary judgment on complaint to determine dischargeability of debt for loans made to chapter 7 debtor/farmer. Bankr. N.D. Iowa A creditor/bank filed an adversary complaint seeking a determination that a debt that arose from loans made by the bank to support the chapter 7 debtor’s farm business was nondischargeable. The debtor admitted liability for the debt but denied all allegations that the debt was nondischargeable. The bank moved for summary judgment. The bankruptcy court granted summary judgment in favor of the bank and held that the debt was nondischargeable under sections 523(a)(2)(A) and 523(a)(2)(B). With respect to the section 523(a)(2)(A) claim, the court found that the debtor made a false statement to the bank in order to induce the bank to make the loan, and that the bank relied on the false representation to its detriment. With respect to the section 523(a)(2)(B) claim, the debtor admitted that he submitted a false financial statement with intent to deceive the bank as to his true financial condition in order to acquire refinancing of his debt to the bank. The court found that the bank established that it relied on the false statement to its detriment, and that the bank’s reliance was reasonable. The court also held that the debt arising from the debtor’s false representations and use of a false financial statement included interest accumulating, plus the bank’s attorneys’ fees incurred in collecting the debt and enforcing its security agreement.Valley Bank & Trust v. Fick (In re Fick), 2001 Bankr. LEXIS 1521, – B.R. – (Bankr. N.D. Iowa October 18, 2001) (Edmonds, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:523.08

Evidence presented by U.S. trustee warranted dismissal of chapter 7 petition for substantial abuse. Bankr. N.D. Iowa The United States trustee moved to dismiss the chapter 7 debtor’s case pursuant to section 707(b). The debtor’s monthly income was greater than his expenses and the U.S. trustee contended that several of his expenses were inappropriate. The debtor received substantial income tax refunds for the last taxable year and made monthly payments toward a 401(k) loan. The U.S. trustee further asserted that the debtor’s monthly recreational expenses were excessive. The debtor countered that his expenses could increase and his disposable income could decrease due to the likely elimination of overtime at work. The bankruptcy court granted the motion to dismiss, holding that granting relief would have been a substantial abuse of chapter 7 because the debtor had the ability to fund a chapter 13 plan. The relevant finances of the debtor were determined as of the time of the filing. The court noted that chapter 13 was flexible and allowed for modification of an existing plan if changes occurred in the debtor’s financial picture.In re Harger, 2001 Bankr. LEXIS 1492, 267 B.R. 848 (Bankr. N.D. Iowa October 3, 2001) (Kilburg, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 6:707.04

Chapter 7 petition represented substantial abuse. Bankr. W.D. Mo. In August 2001, the United States trustee filed a motion to dismiss the debtors’ chapter 7 petition on the basis of substantial abuse, pursuant to section 707(b). Specifically, the United States trustee argued that the debtors’ contributions to 401(k) plans should not be deducted from disposable income, and further contended that the debtors’ scheduled expenditures for medical and dental costs, transportation, charitable contributions, tobacco and optical expenses were excessive. Additionally, the debtors’ loan secured by a lawnmower would be paid off in January 2002. The bankruptcy court found that the United States trustee had failed to meet his burden in establishing that those scheduled expenditures were excessive, since no evidence was offered with regard to the reasonable amount for such costs. Nonetheless, the court granted the motion to dismiss, holding that the elimination of the 401(k) deduction and the monthly payment on the secured loan would yield approximately $374.55 per month. Because such amount could fund a hypothetical chapter 13 plan, thereby satisfying unsecured creditors to the extent of 29 percent of total debt, the debtors’ petition represented a substantial abuse. The court gave the debtors 20 days to file a motion to convert to chapter 13.In re Regan, 2001 Bankr. LEXIS 1533, 269 B.R. 693 (Bankr. W.D. Mo. November 19, 2001) (Venters, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 6:707.04

Administratively insolvent debtor’s chapter 11 case was dismissed. Bankr. N.D. Iowa The debtor was an internet service provider. On the debtor’s motion, a previous chapter 11 case was dismissed. In March 2001, the debtor filed the present chapter 11 petition. The United States trustee filed a motion to dismiss pursuant to section 1112(b), alleging that the debtor’s profit and loss statements reflected that since the petition filing, the debtor had endured financial loss in most months, accrued tax obligations and accumulated substantial trade payables, leading to the conclusion that the debtor was administratively insolvent. The debtor countered by asserting that it made attempts to sell the business, the sale of which would have generated substantial proceeds if sold within a chapter 11 context. The debtor also stated that it was actively pursuing accounts receivable and that its subscriber base had increased postpetition. The bankruptcy court held that the United States trustee had established sufficient grounds to dismiss pursuant to section 1112(b). The court reasoned that it could not be convinced that the debtor’s efforts would reverse its financial condition or that the passage of time would enhance the debtor’s ability to file a feasible plan and rehabilitate itself.In re Midwest Communs. Inc., 2001 Bankr. LEXIS 1522, 269 B.R. 40 (Bankr. N.D. Iowa November 5, 2001) (Kilburg, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 7:1112.01[2][a]

Conversion from chapter 12 to chapter 11 was denied. Bankr. N.D. Iowa The debtor, an individual, filed a chapter 12 petition in May 2001, scheduling monthly income of approximately $19,500 from the operation of a business or farm and about $1,000 from social security benefits. The debtor’s spouse, who was not a codebtor, was stated to have social security and real property income of $1370 per month. The debtor and his spouse resided on acreage that was wholly owned by the spouse. His schedules also reflected stock in a farming corporation and a trucking corporation. The debtor had previously filed a chapter 12 petition, which was dismissed through an agreement with a bank, to which certain farm real estate was transferred. The spouse then purchased an acreage from the same bank, which was part of the farmland that had earlier been transferred to the bank. To effectuate this purchase, the debtor had pledged his shares of stock in the two corporations. The debtor’s only debt was to a judgment creditor who was also the bank’s successor in interest. The creditor levied on the stock. Before any execution sale could take place, the debtor filed this second chapter 12 petition. The debtor now moved to convert the case to chapter 11. His attorney conceded that the corporations’ gross incomes could not be considered in determining whether the debtor met the chapter 12 qualification requirements. The creditor argued that the bankruptcy court did not have the jurisdiction to convert a misfiled chapter 12 case to chapter 11. The court acknowledged that case law was divided on the issue of whether section 1208(e) conferred authority to convert from chapter 12 to chapter 11, but stated an assumption that such authority existed. However, the court denied the debtor’s motion. According to the debtor’s 2000 tax return, the net income from the farming corporation was $844, and thus it was clear that the debtor had not received more than 50 percent of gross income from a farming operation owned or operated by him. The court concluded that the debtor had not filed the chapter 12 in good faith and consequently should not be permitted to convert to chapter 11, but gave the debtor the opportunity to convert to chapter 7.In re Gregerson, 2001 Bankr. LEXIS 1520, 269 B.R. 36 (Bankr. N.D. Iowa October 29, 2001) (Edmonds, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 8:1208.05

9th Cir.

Professional’s retention application that did not specify that it sought approval under section 328 was subject to review under section 330. 9th Cir. The bondholders’ committee and unsecured creditors’ committee in the chapter 11 debtor’s case sought and received authorization from the bankruptcy court to retain a financial advisor. When the financial advisor submitted a fee application to the bankruptcy court, the court assessed the reasonableness of the advisor’s fees and expenses under section 330, and entered orders granting one-half of the requested fees and costs. The financial advisor appealed from the bankruptcy court’s fee assessment, and the district court reversed. The district court held that the advisor was employed pursuant to section 328; thus, the bankruptcy court was required to award the preapproved fee unless it found that this amount proved 'improvident' in light of later developments that were not capable of being foreseen. On remand, the bankruptcy court awarded the advisor the full amount of fees and costs requested (plus interest and attorney’s fees). The district court affirmed, and the debtor appealed. The Court of Appeals for the Ninth Circuit reversed, and remanded the case with instructions for the district court to grant the advisor fees and expenses in accordance with the bankruptcy court’s section 330 assessment. The court held that unless a professional’s retention application unambiguously specifies that it seeks approval under section 328, it is subject to review under section 330. The court suggested that as a matter of good practice, a bankruptcy court’s retention order should specifically confirm that a professional’s retention has been approved pursuant to section 328 so as to avoid any ambiguity, although the court also stated that the absence of such a specific reference in the bankruptcy court’s order would not, of itself, automatically override the retention application’s invocation of section 328. Since the advisor in this case failed unambiguously to invoke section 328 in its retention application and the bankruptcy court’s retention order did not mention section 328 or otherwise make clear that section 328 applied, section 330 review was appropriate.Circle K Corp. v. Houlihan, Lokey, Howard & Zukin, Inc. (In re Circle K Corp.), 2001 U.S. App. LEXIS 25972, 272 F.3d 1150 (9th Cir. December 5, 2001) (Fisher, C.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:328.02

10th Cir.

Debtors sufficiently explained second failure to file appellate brief by the court-ordered deadline. D. Kan. The debtors filed an appeal with the district court in May 2001, seeking an extension of time to submit their brief. The court extended the deadline until July 16, 2001. The debtors failed to file their brief by that date, and the court issued an order to show cause ordering the debtors to show why their appeal should not be dismissed for failure to prosecute. The court accepted the explanation that the debtors’ counsel had not received a copy of the order granting the extension due to confusion about the correct address. The debtors were granted another extension until August 13, 2001 to file the brief, but on that date the debtors filed a motion seeking a further extension of time. The court granted an extension until August 27, 2001. Once again the debtors failed to file their brief, and on August 31, 2001, the court again issued an order to show cause why the appeal should not be dismissed. The debtors’ counsel provided documentation that he was admitted to the emergency room to undergo oral surgery. The court held that, for the purposes of Rule 8009, the late filing of an appellate brief did not justify dismissal of an appeal unless there was a showing of bad faith, negligence or indifference. The court concluded that, although the deadlines had been missed twice and the debtors offered after-the-fact explanations only after being compelled by the court to do so, the debtors’ actions or the actions of their counsel could not be characterized as taken in bad faith, and accepted the explanation for the second late filing as sufficient. The court granted the debtors’ motion for another extension of time to file their appellate brief. Reppert v. W. Nat’l Bank (In re Reppert), 2001 U.S. Dist. LEXIS 19940, 269 B.R. 242 (D. Kan. November 1, 2001) (Lungstrum, D.J.).

Collier on Bankruptcy, 15th Ed. Revised 10:8009.01, .02

11th Cir.

Injury caused while driving under the influence of alcohol was not a 'willful and malicious' injury. Bankr. S.D. Fla. The creditor moved for summary judgment seeking a determination that a potential award against the chapter 7 debtor was excepted from discharge. After the debtor’s vehicle collided with the creditor’s vehicle, the debtor exited his car and fled the accident scene. The police subsequently discovered an open bottle of alcohol in the debtor’s car and, upon apprehension, the debtor was unable to successfully complete a roadside sobriety test. The debtor later pleaded no contest to driving under the influence with ensuing property damage or personal injury and the creditor filed a civil suit in state (Florida) court seeking damages. After the debtor filed his petition, the creditor sought a determination that the potential state court award was excepted from discharge pursuant to section 523(a)(6). The bankruptcy court denied the motion for summary judgment, holding that the creditor failed to prove by a preponderance of the evidence that the debtor’s conduct was both willful and malicious. The creditor had not alleged that the debtor acted with the actual intent to cause injury. Whether or not the debt was excepted from discharge under section 523(a)(9) remained a genuine issue of material fact to be determined at trial.Allen v. Greenwasser (In re Greenwasser), 2001 Bankr. LEXIS 1515, – B.R. – (Bankr. S.D. Fla. November 2, 2001) (Hyman, Jr., B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:523.12

Imposition of equitable lien did not impermissibly cause debt that would be dischargeable under section 1328 to become nondischargeable. Bankr. M.D. Fla. The debtor/defendant’s father obtained a prepetition state (Montanta) court judgment against the debtor for the debtor’s actual fraud in liquidating and converting proceeds from the father’s certificates of deposit to pay off the mortgage on the debtor’s homestead in Florida. After the debtor commenced his chapter 13 case, the father filed a complaint seeking the imposition of an equitable lien on the debtor’s homestead. The father moved for summary judgment. The bankruptcy court granted the father’s summary judgment motion, and held that he established the necessary predicate to justify the court’s imposition of an equitable lien. The court dismissed as without merit the debtor’s claim that the imposition of an equitable lien would impermissibly make nondischargeable a debt that would otherwise be dischargeable pursuant to section 1328. The court acknowledged that the debt relied upon for the imposition of the equitable lien was a debt that would otherwise be subject to the 'super-discharge' provided for in section 1328, but explained that since the father established the requisite legal basis for establishing an equitable lien under Florida law as of the petition date, there was no impediment to the imposition of an equitable lien.Thiel v. Thiel (In re Thiel), 2001 Bankr. LEXIS 1529, – B.R. – (Bankr. M.D. Fla. November 26, 2001) (Corcoran, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 8:1328.01