Collier Bankruptcy Case Update January-26-05

Collier Bankruptcy Case Update January-26-05

 


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 26, 2005

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

 

1st Cir.

§ 523(a)(2)(A) Bankruptcy court judgment that debt to credit union for which debtor never delivered promised security was nondischargeable was not clearly erroneous. American Airlines Employees Fed. Credit Union v. Rosario Diaz (In re Rosario Diaz) (Bankr. D.P.R.)


3d Cir.

§ 362(d)(1) Relief from stay granted to allow ejectment action against debtor where foreclosure was final and debtor no longer held any legal or equitable interest in their residence. JP Morgan Chase Bank v. Rocco (In re Rocco) (Bankr. W.D. Pa.)

§ 523(a)(15) Debtor’s credit card obligations under property settlement agreement with former spouse were nondischargeable as incurred during divorce and within debtor’s ability to pay. Shreffler v. Shreffler (In re Shreffler) (Bankr. W.D. Pa.)

§ 541(a)(6) Surrogate mother contract was a personal services contract and pregnant debtor’s future earnings thereunder were not estate property. Skiba v. Bimber (In re Bimber) (Bankr. W.D. Pa.)


4th Cir.

§ 727(a) Discharge denied due to detbor’s failure to keep records and failure to explain deficiency of assets. Phillips v. Uddin (In re Uddin) (Bankr. E.D. Va.)

§ 727(a)(4)(A) Discharge denied due to debtor’s knowing and fraudulent false representations in schedules. Lubman v. Duncan (In re Duncan) (Bankr. E.D. Va.)


5th Cir.

§ 550 Employment committee had standing to obtain avoidance judgments on behalf of the estate. Official Employment-Related Issues Comm. v. Lavorato (In re Enron Corp.) (Bankr. S.D. Tex.)

28 U.S.C. § 157(d) Withdrawal of reference of adversary proceeding not recommended where no federal law other than the Bankruptcy Code was involved and settlement of claims was central to reorganization. Mirant Ams. Energy Mktg., LP v. PG & E (In re Mirant Corp.) (Bankr. N.D. Tex.)


6th Cir.

§ 522(f)(1)(B) Household goods exemption did not apply to tanning bed and applied to only one of several family firearms. In re Heath (Bankr. W.D. Ky.)


7th Cir.

§ 109(e) Conversion to chapter 13 denied due to debt in excess of limit. In re Arcella-Coffman (Bankr. N.D. Ind.)


8th Cir.

§ 547 Summary judgment in preference action denied due to need for factual findings on subsequent new value and ordinary course of business defenses. Strauss v. Janesville Prods. (In re Acoustiseal, Inc.) (Bankr. W.D. Mo.)


9th Cir.

§ 509 Debtors who were jointly and severally liable on a statutory lien were not subrogated to claims against each other. Milgard Tempering, Inc. v. DaRosa (In re DaRosa) (B.A.P. 9th Cir.)

§ 704 Trustee had standing to commence professional negligence action against debtor’s accountant. Schnelling v. Thomas (In re Agribiotech, Inc.) (D. Nev.)


10th Cir.

§ 523(a)(5) Divorce decree requirement that debtor pay second mortgage on real property owned by former spouse was nondischargeable. Cotten v. Cotten (In re Cotten) (Bankr. W.D. Okla.)


11th Cir.

§ 524(e) Bankruptcy court refused to reopen case to allow creditor to pursue medical malpractice action against debtor solely to establish liability of hospital where debtor was not a necessary party. Milton v. Sewell (In re Sewell) (Bankr. N.D. Ga.)

§ 727(a)(4)(A) Failure of highly educated debtor engaged in high finance and investments to disclose $1,000,000 receivable resulted in denial of discharge. Jensen v. Slater (In re Slater) (Bankr. M.D. Fla.)


Collier Bankruptcy Case Summaries

 

1st Cir.

Bankruptcy court judgment that debt to credit union for which debtor never delivered promised security was nondischargeable was not clearly erroneous. Bankr. D.P.R. PROCEDURAL POSTURE: Defendant debtors, one of whom was a member of plaintiff federal credit union, filed for bankruptcy. The credit union filed a complaint contesting the dischargeability of its claim pursuant to 11 U.S.C. § 523(a)(2)(A). Following a trial, the bankruptcy court entered a decision declaring that the debt was not dischargeable as to the credit union member. The debtors appealed. OVERVIEW: As part of a loan agreement, the member agreed to grant the credit union a security agreement and lien over the car; however, the member never delivered to the credit union the vehicle’s registration and certificate of title. The debtors did not persuade the court that the bankruptcy court erred in its assessment of the evidence. The bankruptcy court explained how it evaluated the evidence and whose testimony it gave more weight to appraise the witnesses’ credibility, and the court could not say that the bankruptcy court erred in its evaluation. Because it was the court’s opinion that the bankruptcy court did not err upon finding that the member made a fraudulent misrepresentation to the credit union and that the credit union had a justification for relying on such misrepresentation, the court was unable to depart from established case law determining that the protection of bankruptcy law did not extend to fraudulent actions. Finally, an extension of time was granted to the creditor for filing its dischargeability complaint, the complaint was timely filed, and thus, the bankruptcy court had jurisdiction over the claim. American Airlines Employees Fed. Credit Union v. Rosario Diaz (In re Rosario Diaz), 2004 U.S. Dist. LEXIS 26264, — B.R. — (Bankr. D.P.R. December 6, 2004) (Garcia-Gregory, D.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:523.08[1][back to top]

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3d Cir.

Relief from stay granted to allow ejectment action against debtor where foreclosure was final and debtor no longer held any legal or equitable interest in their residence. Bankr. W.D. Pa. PROCEDURAL POSTURE: Chapter 13 creditor filed a motion for relief from the automatic stay pursuant to 11 U.S.C. § 362(d)(1). OVERVIEW: Creditor held a mortgage on debtors’ residence. Creditor commenced a foreclosure action against debtors, which resulted in creditor’s purchase of the premises at a sheriff’s sale. The creditor then recorded the deed to the premises and instituted an ejectment action, which action was stayed when debtors filed for bankruptcy under chapter 13. In granting creditor’s motion for relief from the stay, the court held that debtors lacked standing to object to relief from the stay because they held no legal or equitable interest in the property that could, upon the filing of the bankruptcy case, become property of the estate pursuant to 11 U.S.C. § 541. The court also held that, absent any evidence of collusion at the sheriff’s sale itself or that the sale was conducted improperly or contrary to applicable state law, creditor obtained title at a regularly-conducted, non-collusive sheriff’s sale. The court also rejected creditors’ argument that their contingent, unliquidated claims alleged in their pending adversary actions against third parties provided creditor with adequate protection under 11 U.S.C. § 361, holding that the claims were insufficient to provide adequate protection. JP Morgan Chase Bank v. Rocco (In re Rocco), 2005 Bankr. LEXIS 9, — B.R. — (Bankr. W.D. Pa. January 6, 2005) (Agresti, B.J.).

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

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Debtor’s credit card obligations under property settlement agreement with former spouse were nondischargeable as incurred during divorce and within debtor’s ability to pay. Bankr. W.D. Pa. PROCEDURAL POSTURE: Plaintiff, the former wife of debtor, filed an adversary proceeding against debtor, requesting an exception from discharge pursuant to 11 U.S.C. § 523(a)(2)(A) and (a)(15) of certain debt that arose in connection with a property settlement agreement. OVERVIEW: As part of their divorce, the wife and debtor entered into a property settlement agreement. They agreed on the transfer of various items of personal property to debtor, in consideration for which debtor was to remit $5,000 to the wife. The agreement also required the parties to equally share in the payment of a joint credit card debt. Less than a month after executing the agreement, debtor signed his petition in bankruptcy, which was ultimately filed the following month. In denying discharge of the obligations owed to the wife under section 523(a)(15), the court held that debtor incurred the obligations in the course of the divorce. The court also held that debtor’s income and assets were sufficient to satisfy the obligations. The court further held that debtor failed to produce any evidence of any harm he would suffer if he were denied discharge of the debts and that the wife provided significant testimony showing the harm to her if she were not to receive payment for the debts. The court did hold that the mere filing of bankruptcy shortly after the property settlement agreement was executed, without more, did not satisfy the wife’s burden to establish fraud under section 523(a)(2)(A). Shreffler v. Shreffler (In re Shreffler), 2004 Bankr. LEXIS 2109, — B.R. — (Bankr. W.D. Pa. December 21, 2004) (Agresti, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:523.21[back to top]

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Surrogate mother contract was a personal services contract and pregnant debtor’s future earnings thereunder were not estate property. Bankr. W.D. Pa. PROCEDURAL POSTURE: Plaintiff trustee field a complaint to revoke defendant’s chapter 7 discharge and for denial of exemptions. OVERVIEW: Prior to the bankruptcy filing, the debtor executed a contract under which she was to perform services as a surrogate mother for remuneration. The debtor received $1,000 prior to the filing date and $23,000 thereafter. The debtor did not list the contract or the payments in her bankruptcy schedules. The debtor asserted that the contract was void or voidable and that even though she had received $1,000 prior to the filing date, she would not have received any additional compensation under the contract until the birth of the children. The court held that, if the personal services contract was valid, it required the debtor to deliver a child or carry a child to term before any fee was earned. In the absence of a contract, the debtor was in the early stages of the pregnancy as of the filing date and the great majority of her services for which she earned remuneration were performed postpetition. Postpetition earnings were not property of the estate pursuant to 11 U.S.C. § 541(a)(6). Further, many court held that a personal services contract itself was not property of the estate. Thus even if the debtor should have disclosed the contract, there was no prejudice to the estate. Skiba v. Bimber (In re Bimber), 2004 Bankr. LEXIS 2046, — B.R. — (Bankr. W.D. Pa. December 8, 2004) (Martin, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 5:541.17[back to top]

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4th Cir.

Discharge denied due to detbor’s failure to keep records and failure to explain deficiency of assets. Bankr. E.D. Va. PROCEDURAL POSTURE: Plaintiff chapter 7 trustee filed a complaint against defendant debtor asserting that the debtor’s discharge should be denied pursuant to 11 U.S.C. §§ 727(a)(3), (4) or (5) for debtor’s failure to keep records, making of a false oath, or failure to explain deficiency of assets. The trustee filed an amended complaint asserting a denial of discharge under 11 U.S.C. § 727(a)(2)(A) for debtor’s fraudulent prepetition transfers of property. OVERVIEW: The trustee supported his claim under section 727(a)(2)(A), by showing that the debtor transferred more than $100,000 in cash gifts to friends, usually made with cash advances on the debtor’s credit cards, in the year prior to filing bankruptcy. The debtor made a concerted effort to conceal these transfers by both failing to maintain records and by refusing to provide more information when requested by the trustee. The trustee supported his claim under section 727(a)(3) by showing that the debtor did not provide adequate records regarding his business, his claim against his landlord related to that business, a gambling debt in excess of $100,000, and the cash gifts. The trustee did not meet his burden under section 727(a)(4). The debtor was not a native speaker of English, and the marked language barrier between debtor, his counsel, and the trustee may have affected debtor’s appreciation of the importance of his signature on his petition and schedules and his testimony under oath. As to section 727(a)(5), the debtor could not account for the accumulation of $447,339 in unsecured debt and only $200 worth of assets. Phillips v. Uddin (In re Uddin), 2004 Bankr. LEXIS 2084, — B.R. — (Bankr. E.D. Va. August 13, 2004) (Tice, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 6:727.01[4][back to top]

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Discharge denied due to debtor’s knowing and fraudulent false representations in schedules. Bankr. E.D. Va. PROCEDURAL POSTURE: Chapter 7 trustee objected to debtor’s discharge pursuant to 11 U.S.C. § 727(a)(4)(A). OVERVIEW: Trustee alleged that debtor made false oaths regarding her income, expenses, and the nature and value of her assets by misrepresenting the true amount of the items on her schedules and in falsely representing under oath at her creditor meetings that the schedules were accurate. Debtor’s sworn schedules verified by sworn testimony represented that her home and automobile were encumbered by a deed of trust and security agreement and that she was making monthly payments toward these debts. The loans were shams, and debtor did not make payments toward the debts. Debtor also materially understated her income and the value of her residence. In denying debtor a discharge, the court held that debtor had engaged in a pattern of omissions and inaccuracies, which demonstrated that debtor’s false representations in her schedules were made knowingly and fraudulently. Lubman v. Duncan (In re Duncan), 2004 Bankr. LEXIS 2085, — B.R. — (Bankr. E.D. Va. December 10, 2004) (Perkins, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 6:727.04[back to top]

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5th Cir.

Employment committee had standing to obtain avoidance judgments on behalf of the estate. Bankr. S.D. Tex. PROCEDURAL POSTURE: Debtors filed petitions for relief under chapter 11. The trustee appointed an employment committee as an official creditor committee. The employment committee filed an adversary proceeding to avoid transfers under 11 U.S.C. §§ 549 and 550, 11 U.S.C. §§ 547 and 550, and 11 U.S.C. §§ 544(b), 548 and 550, and applicable state law. Defendant transferees moved the court for summary judgment dismissing the complaint. OVERVIEW: The transferees asserted that the court improperly assigned the avoidance claims from the debtors to the committee. They also asserted that the committee was not prosecuting the avoidance claims for the benefit of the bankruptcy estates and therefore could not obtain a judgment under 11 U.S.C. § 550. The committee responded that the court merely assigned standing to prosecute the avoidance claims to the committee. The court found that, although the committee filed the avoidance action before plan confirmation, the plan incorporated a prior court order authorizing the committee to act on behalf of the debtors and their estates. The committee could therefore prosecute the claims pursuant to 11 U.S.C. § 1123(b)(3)(B), as the plan provided for the distribution of the estate, with the portion of the estate that could be recovered by the committee being paid to settling employees through a plan created trust. Functionally, the committee recovered a judgment for the benefit of the estate under 11 U.S.C. § 550(a) and the plan, as confirmed by court order, directed its distribution. As a result, the committee could recover a judgment for the benefit of the estate under section 550(a). Official Employment-Related Issues Comm. v. Lavorato (In re Enron Corp.), 2004 Bankr. LEXIS 2097, — B.R. — (Bankr. S.D. Tex. November 19, 2004) (Felsenthal, C.B.J.).

Collier on Bankruptcy, 15th Ed. Revised 5:550.01[back to top]

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Withdrawal of reference of adversary proceeding not recommended where no federal law other than the Bankruptcy Code was involved and settlement of claims was central to reorganization. Bankr. N.D. Tex. PROCEDURAL POSTURE: Plaintiff debtors filed adversary proceedings against defendant creditors. The creditors filed motions to withdraw reference to the adversary proceedings. The matter was submitted to the bankruptcy judge for a report and recommendation. OVERVIEW: The creditors all filed proofs of claim, asking to participate in the division of the estate held by the United States bankruptcy court in custodia legis. The debtors filed adversary proceedings against the creditors and the creditors sought withdrawal of reference of the adversary proceedings to the bankruptcy court. The court recommended that the district court should deny the withdrawal of reference because it was unlikely that consideration of the adversary proceedings would require interpretation of the Federal Power Act (“FPA”) or any other federal statute outside of the Bankruptcy Code. The court further found that the process of claims resolution and associated issues were central to the debtor’s reorganization. The creditors argued that adjudication of the adversary proceedings would affect proceedings that were pending before the Federal Energy Regulatory Commission (“FERC”), but the court determined that the issue of conflict with FERC proceedings could be correctly addressed in the context of a motion to dismiss, or a motion to abstain. Mirant Ams. Energy Mktg., LP v. PG & E (In re Mirant Corp.), 2004 Bankr. LEXIS 2100, — B.R. — (Bankr. N.D. Tex. September 2, 2004) (Lynn, B.J.).

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

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6th Cir.

Household goods exemption did not apply to tanning bed and applied to only one of several family firearms. Bankr. W.D. Ky. PROCEDURAL POSTURE: Debtors, husband and wife, moved pursuant to 11 U.S.C. § 522(f)(1)(B) to avoid a non-possessory, non-purchase money lien on household goods. The goods at issue consisted of two 12 gauge shotguns, one 410 shotgun, one 22 caliber automatic rifle, one 30/30 rifle, and a tanning bed. OVERVIEW: The issue was whether the items, if any, were “household goods” within the meaning of the Bankruptcy Code. In resolving the issue, the court found that “functional nexus” test best defined the meaning intended by “household goods.” Such a nexus existed when the good fostered or helped enable daily existence in the household. Whether a gun, or any other disputed item, was a household good depended, at least in part, on the culture and/or geographic location of the household in question. In this case, the debtors lived in a fairly rural area of Kentucky where hunting was common and culturally appropriate. The wife testified that the guns were used for hunting to supply meat for the family. However, because the debtors did not personally do the hunting, but the hunting was done by their grown, the court allowed exemption of only one firearm. As for the tanning bed, this was not deemed to be a “household good.” Although the debtors claimed that the tanning bed was used by the husband as a treatment for his arthritis, the debtors provided neither a prescription nor an affidavit from a doctor that recommended this treatment. In re Heath, 2004 Bankr. LEXIS 2057, 318 B.R. 115 (Bankr. W.D. Ky. December 10, 2004) (Fulton, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:522.11[6][back to top]


7th Cir.

Conversion to chapter 13 denied due to debt in excess of limit. Bankr. N.D. Ind. PROCEDURAL POSTURE: Debtor filed a motion to convert her chapter 7 case to a case under chapter 13, and two creditors filed objections to that motion. OVERVIEW: The court noted that the issue was whether debtor had noncontingent, liquidated, unsecured debts of less than the applicable chapter 13 eligibility ceiling of $290,525 stated in 11 U.S.C. § 109(e). The court listed four criteria to determine whether a debt is “liquidated” or “unliquidated” for the purposes of 11 U.S.C. § 109(e). The relevant date upon which the 11 U.S.C. § 109(e) determination was to be made was the date of the filing of the chapter 7 petition. Thus, the pertinent schedules which provided the jumping off point for analysis were those reflective of matters as they existed on that date. The court found that the total of the noncontingent, liquidated insider debts was $250,000 and that amount combined with the previously-determined of other noncontingent, liquidated unsecured debt resulted in debtor’s having had noncontingent, liquidated unsecured debts in the amount of over $447,000 on the date of the filing of her chapter 7 case. That amount exceeded the $290,525 noncontingent, liquidated unsecured debt limitation applicable to her case. The court found that debtor was not eligible for relief under chapter 13. In re Arcella-Coffman, 2004 Bankr. LEXIS 2081, — B.R. — (Bankr. N.D. Ind. December 8, 2004) (Klingeberger, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 2:109.06[back to top]

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8th Cir.

Summary judgment in preference action denied due to need for factual findings on subsequent new value and ordinary course of business defenses. Bankr. W.D. Mo. PROCEDURAL POSTURE: Plaintiff bankruptcy trustee brought an adversary proceeding against defendant transferee of payments from the debtor, seeking to avoid the payments as preferential transfers under 11 U.S.C. § 547, but the transferee contended that the transfers were made in the ordinary course of business and that the transferee provided new value for the transfers. The trustee and the transferee cross-moved for summary judgment. OVERVIEW: It was undisputed that, during the preference period, the transferee provided product to the debtor and that the debtor made payments to the transferee. The transferee contended that it provided new value in the form of product in excess of the amount of the preferential transfers, and that the transfers were made in the ordinary course of the parties’ business dealings. The trustee argued that only a portion of the product provided by the transferee constituted new value for the transfers, and that the variable periods for the debtor’s payments for product precluded an ordinary course of business. The bankruptcy court first held that evidence of the business transactions of the debtor and the transferee was insufficient to demonstrate the consistency required to establish an ordinary course of business, and further factual development was required. Further, the transferee was entitled to claim new value for the transfers only for product provided after the transfers and thus, to the extent that the value of product exceeded the amount of prior transfers, such excess was not new value which could be offset against subsequent preferential transfers. Strauss v. Janesville Prods. (In re Acoustiseal, Inc.), 2004 Bankr. LEXIS 2050, — B.R. — (Bankr. W.D. Mo. November 24, 2004) (Federman, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 5:547.01[back to top]

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9th Cir.

Debtors who were jointly and severally liable on a statutory lien were not subrogated to claims against each other. B.A.P. 9th Cir. PROCEDURAL POSTURE: Appellant creditor sought review of a decision of the Bankruptcy Court for the Eastern District of California, which avoided the creditor’s judicial lien against each of appellee debtors’ homesteads. OVERVIEW: The creditor attempted to evade avoidance of its lien under a literal application of 11 U.S.C. § 522(f). The creditor argued that since the debtors were jointly and severally liable on a superior statutory lien, they were each subrogated to claims against the other. The creditor argued each debtor should therefore reduce the statutory lien by one-half when calculating the encumbrances against their respective homesteads for purposes of determining whether the creditor’s lien impaired their exemptions. The panel concluded that the debtors were not currently subrogated to each other. As for implicit contractual subrogation, the creditor presented no evidence of implicit agreement and the pleadings did not support an inference that the debtors entered a subrogation contract. There was no statutory subrogation under 11 U.S.C. § 509; the section was inapplicable, as neither debtor had made any payment. There was no equitable subrogation, as no portion of the debt had been paid and both debtors were primarily liable for the debt secured by the lien. Finally, the panel would not deviate from the formula of 11 U.S.C. § 522(f) merely to account for hypothetical future subrogation. Milgard Tempering, Inc. v. DaRosa (In re DaRosa), 2004 Bankr. LEXIS 2071, — B.R. — (B.A.P. 9th Cir. December 15, 2004) (Montalil, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:509.01[back to top]

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Trustee had standing to commence professional negligence action against debtor’s accountant. D. Nev. PROCEDURAL POSTURE: Plaintiff, a trustee of a creditors’ trust created by bankruptcy debtors, sued defendants, professionals formerly hired by the debtors, including an outside accountant. The complaint alleged that the accountant engaged in professional negligence, participated in a breach of fiduciary duty, committed actual and constructive fraud, and aided and abetted actual and constructive fraud. The accountant moved for summary judgment on the claims. OVERVIEW: The debtors produced forage and turf grass seed. They commenced a chapter 11 case and created a creditors’ trust. The trustee commenced litigation on behalf of the trust. The accountant sought summary judgment, alleging that the trustee did not have standing to pursue non-debtor third party claims, which did not belong to the debtors’ estate. The court denied the motion. The trustee’s standing to pursue a cause of action depended on whether the cause of action belonged to the debtors’ estate. The allegations of professional negligence against the accountant belonged to the debtors under applicable state law. Thus, the trustee, as successor to the debtors’ claims, had standing to assert that claim. Similarly, the debtors and thus, the trustee, had standing to assert the claims that alleged the accountant’s participation in a breach of corporate duties by the debtors’ officers and directors. Two other counts alleged damages to the debtors from the accountant’s acts and omissions relating to effective-date-accounting fraud perpetrated by the debtors’ insiders. Thus, the trustee had standing because he was asserting claims that belonged to the estate. Schnelling v. Thomas (In re Agribiotech, Inc.), 2004 U.S. Dist. LEXIS 26502, — B.R. — (D. Nev. December 7, 2004) (Pro, C.D.J.).

Collier on Bankruptcy, 15th Ed. Revised 6:704.01[back to top]

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10th Cir.

Divorce decree requirement that debtor pay second mortgage on real property owned by former spouse was nondischargeable. Bankr. W.D. Okla. PROCEDURAL POSTURE: A divorce decree provided that defendant debtor was obligated to pay a second mortgage note on real property retained by plaintiff, debtor’s former wife. The decree specifically provided that such obligation was a support obligation under 11 U.S.C. § 523(5). Debtor failed to pay the note. In debtor’s chapter 7 case, the former wife filed an adversary proceeding seeking an exception to debtor’s discharge. OVERVIEW: The former wife had the burden of showing that the parties intended the mortgage obligation to be support and that the obligation was support in substance. The bankruptcy court first found that debtor’s obligation to pay the second mortgage was intended by the parties to be for support. The divorce decree, which was entered with the parties’ express consent, stated that debtor’s obligation to pay the note was deemed to be for support. It also mandated that the obligation was nondischargeable under section 523(a)(5). This provision was the best evidence of the parties’ shared intent. The parties also repeated their intention that debtor would remain responsible for the debt in a subsequent consent order. The bankruptcy court further found that the obligation was truly in the nature of support. At the time of the decree, the former wife and the parties’ child lived in the home for which debtor was obligated on the second mortgage note. They continued to live there. The shelter provided by the home was sustained so long as debtor paid the debt. When he failed to pay, the former wife was forced to pay it herself to stave off foreclosure. Cotten v. Cotten (In re Cotten), 2004 Bankr. LEXIS 2058, — B.R. — (Bankr. W.D. Okla. November 18, 2004) (Bohanon, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:523.11[8][back to top]

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11th Cir.

Bankruptcy court refused to reopen case to allow creditor to pursue medical malpractice action against debtor solely to establish liability of hospital where debtor was not a necessary party. Bankr. N.D. Ga. PROCEDURAL POSTURE: Movant creditor was a patient at a hospital where respondent debtor had worked as a physician. The creditor moved to reopen the debtor’s closed bankruptcy case and for modification of the discharge so that he could continue with his state court malpractice suit against the debtor. The creditor alleged that he needed to establish the debtor’s liability for malpractice so he could establish vicarious liability on the part of the hospital. OVERVIEW: It was well established that the discharge injunction did not shield the hospital from liability caused by the debtor’s conduct. Thus, the creditor could continue his action directly against the debtor for the purpose of establishing the debtor’s liability, but only if the debtor was a “necessary party” to the action. The creditor asserted that the presence of the debtor as a defendant in the lawsuit was required because his claim against the hospital was based on the theory that the debtor acted negligently and that the hospital was vicariously liable. Under Georgia law, however, the debtor was not a necessary party to establish the hospital’s liability because the debtor and the hospital were jointly and severally liable for the damages that arose from the debtor’s conduct and the creditor could proceed against either the debtor or the hospital for the entire amount of damages. Accordingly, the debtor’s dismissal from the action would not have prevented the creditor from establishing that the debtor rendered negligent care and that the hospital was vicariously liable. Milton v. Sewell (In re Sewell), 2004 Bankr. LEXIS 2110, — B.R. — (Bankr. N.D. Ga. November 9, 2004) (Drake, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:524.05[back to top]

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Failure of highly educated debtor engaged in high finance and investments to disclose $1,000,000 receivable resulted in denial of discharge. Bankr. M.D. Fla. PROCEDURAL POSTURE: Adversary plaintiff trustee brought a challenge to defendant chapter 7 debtor’s right to the protection of a general discharge, based on allegations of concealment of assets and the making of a false oath, 11 U.S.C. § 727(a)(4)(A). The debtor was a highly educated British-born citizen who engaged in high finance insurance and investment activities. OVERVIEW: The trustee alleged that the debtor failed to list in his schedules a $1,000,000 receivable. He also had transferred a total of $111,200. in U.S. funds and £13,797 British to family and business acquaintances that had not been disclosed. The trustee asserted that the record supported her claim that the debtor was not entitled to a general bankruptcy discharge. The court rejected the trustee’s arguments as to fraudulent concealment of property and the failure to keep books and records, and to produce such books and records to the trustee when requested. However, the trustee’s argument that the debtor had made a false oath met success. The evidence established all elements of the false oath claims as to the assets and transfers the debtor had failed to list. Jensen v. Slater (In re Slater), 2004 Bankr. LEXIS 2105, — B.R. — (Bankr. M.D. Fla. December 3, 2004) (Paskay, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 6:727.04[back to top]

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