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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 6, 2003

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

 

1d Cir.

Rule 7008 Creditor’s "Objection to Discharge," though not an adversary complaint, gave debtor sufficient notice of claim and relief sought to allow amended filing.
Calendario v. Pagan (In re Pagan) (Bankr. D. Mass.)

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2d Cir.

§ 523(a)(4) Debt to title company resulting from attorney/escrow agent’s failure to pay off client’s first mortgage upon refinancing was nondischargeable.
First Am. Title Ins. Co. v. Eberhart (In re Eberhart) (Bankr. D. Conn.)

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5th Cir.

28 U.S.C. § 1334(c) Dispute between debtor electrical cooperative and developer over infrastructure charges was not an appropriate matter for exercise of permissive abstention.
Denton County Elec. Coop. Inc. v. Eldorado Ranch, Ltd. (In re Denton County Elec. Coop., Inc.) (Bankr. N.D. Tex.)

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6th Cir.

§ 105(a) Where debtor could not realistically repay entire amount of student loan, equitable partial discharge was justified.
Flores v. U.S. Dep’t of Educ. (In re Flores) (Bankr. N.D. Ohio)

§ 362 Postpetition acceptance of funds pursuant to prepetition garnishment violated stay.
In re McCall-Pruitt (Bankr. E.D. Mich.)

§ 362(d) Relief from stay denied to secured creditor due to failure to establish lack of equity or adequate protection.
In re Harrington (Bankr. S.D. Ohio)

§ 522(g) Garnishment of debtor’s wages was involuntary transfer which could be avoided by debtor.
Maus v. Joint Twp. Dist. Mem. Hosp. (In re Maus) (Bankr. N.D. Ohio)

§ 523 Credit card debt owed to ex-spouse was nondischargeable due to debtor’s unreasonable monthly expenses and clear ability to pay.
Erd v. Erd (Bankr. N.D. Ohio)

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7th Cir.

§ 506(a) Cramdown of second mortgage allowed where value of home was less than amount of first mortgage.
Havel v. Household Mtg. Servs. (In re Havel) (Bankr. S.D. Ill.)

§ 522 Exempt funds were still subject to creditor’s properly perfected lien rights, although relief from stay to set off against the funds denied on other grounds.
In re Brewer (Bankr. S.D. Ill.)

§ 523(a)(6) Employee’s default judgment for sexual harassment and wrongful discharge against debtor employer was nondischargeable.
Thomason v. Thomason (In re Thomason) (Bankr. S.D. Ill.)

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8th Cir.

§ 362 Automatic stay did not apply to criminal prosecution of debtor for bouncing checks.
In re Bibbs (Bankr. E.D. Ark.)

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9th Cir.

§ 105(a) Equitable sanctions against law firm that violated stay not applicable where actual damages are recoverable.
Eskanos & Adler, PC v. Roman (In re Roman) (B.A.P. 9th Cir.)

§ 108(c) Tolling of statute of limitations until 30 days after termination of stay made creditor’s renewal of judgment during pendency unnecessary.
In re Lobherr (Bankr. C.D. Cal.)

§ 362 Lifting of stay justified in chapter 7 for debt held nondischargeable in prior chapter 13 filing.
Arneson v. Farmers Ins. Exch. (In re Arneson) (B.A.P. 9th Cir.)

§ 362(h) Award to debtor for law firm’s violation of stay limited to actual damages.
Eskanos & Adler, PC v. Roman (In re Roman) (B.A.P. 9th Cir.)

§ 523(a)(9) Judgment that debt owed for death or injury due to driving while intoxicated was nondischargeable had preclusive effect.
Arneson v. Farmers Ins. Exch. (In re Arneson) (B.A.P. 9th Cir.)

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10th Cir.

§ 365(d)(3) After conversion from chapter 7 to chapter 13, it was proper for trustee to pay only lease payments accrued post-conversion and pre-rejection or assumption.
El Paso Props. Corp. v. Gonzales (In re Furr’s Supermarkets, Inc.) (B.A.P. 10th Cir.)

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Collier Bankruptcy Case Summaries

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2d Cir.

Debt to title company resulting from attorney/escrow agent’s failure to pay off client’s first mortgage upon refinancing was nondischargeable. Bankr. D. Conn. PROCEDURAL POSTURE: Creditor title company filed an adversary proceeding to determine the dischargeability a debt under 11 U.S.C. § 523(a)(4), arguing that the debtor, an escrow agent and an attorney, failed to pay off a first mortgage in connection with the refinancing of property owned by the debtor’s clients. OVERVIEW: An express trust was created when the lender transmitted and the debtor accepted, the refinancing loan proceeds as an escrow agent. The conduct of the lender and the debtor showed an intention to transfer the proceeds to be maintained by the debtor in a fiduciary capacity. The proceeds were deposited into, and disbursed from, a client fund account. The use of such an account was ostensibly consistent with the fiduciary requirements imposed upon the debtor as an attorney. There was ample evidence to establish the debtor’s misconduct in exercising his duties as an escrow agent. He was, at best, reckless in releasing a substantial portion of the loan proceeds at the direction of the property owners where those disbursements did not satisfy the first mortgage. As a real estate attorney with vast experience in mortgage refinance transactions, the debtor understood that the loan proceeds would not have been provided on any condition other than the satisfaction and release of the first mortgage. A personal benefit to the debtor was not required. Recklessness in a fiduciary capacity sufficiently established nondischargeability under section 523(a)(4). First Am. Title Ins. Co. v. Eberhart (In re Eberhart), 2002 Bankr. LEXIS 1009, 283 B.R. 97 (Bankr. D. Conn. September 13, 2002) (Dabrowski, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:523.10 [back to top]

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5th Cir.

Dispute between debtor electrical cooperative and developer over infrastructure charges was not an appropriate matter for exercise of permissive abstention. Bankr. N.D. Tex. PROCEDURAL POSTURE: A chapter 11 debtor electrical cooperative sought declaratory relief on the propriety of electrical infrastructure charges it expected to recover from defendant developer. Claiming the debtor’s charges were a "taking" under the Texas and United States Constitutions, and that the debtor was using a monopolistic position and violating tariffs, a contract, and local ordinances, the developer moved to abstain under 28 U.S.C. § 1334(c) and dismiss. OVERVIEW: Because there was no pending state court action, mandatory abstention under 28 U.S.C. § 1334(c)(2) did not apply. As to permissive abstention under 28 U.S.C. § 1334(c)(1), applying the 12 factors to be considered, such as the nature of the action, its impact on administration, the expertise of the forum and efficient and prompt disposition, abstention, on balance, would be appropriate. However, the debtor had asserted that the defendant’s claims were unfounded to the point of being borderline frivolous, that the defendant was simply unhappy with the way the debtor entered into contracts in the ordinary course of business. Those issues were core issues, and the dispute would focus on both the ordinary and normal course of business within the industry and expectations regarding the conduct of the debtor’s business, the two tests ordinarily applied to determine the ordinary course of business. If the debtor was correct, the fact that state law was at issue was collateral to the ordinary conduct of the debtor’s business. The issues were largely instances of first impression. Resolution by a state court, therefore, was not as important. Denton County Elec. Coop. Inc. v. Eldorado Ranch, Ltd. (In re Denton County Elec. Coop., Inc.), 2002 Bankr. LEXIS 1005, 281 B.R. 876 (Bankr. N.D. Tex. August 1, 2002) (Lynn, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 1:3.05 [back to top]

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6th Cir

Where debtor could not realistically repay entire amount of student loan, equitable partial discharge was justified. Bankr. N.D. Ohio PROCEDURAL POSTURE: The debtor sought to discharge her $63,817 student loan owed to the creditor United States Department of Education under 11 U.S.C. § 523(a)(8), claiming the debt would impose an undue hardship. Alternatively, the debtor asked the court to invoke its equitable powers under 11 U.S.C. § 105(a) and partially discharge her student loan. Both the debtor and the creditor filed motions for summary judgment. OVERVIEW: The expenses for supporting a 19 year-old son were deducted from the debtor’s expenses; he was not a dependent for purposes of 11 U.S.C. § 523(a)(8). Car expenses of $403 were excessive, as reliable transportation could be found at about $325. The expenses were not extravagant, but a $60 per month expense for eating out was deducted. The court would not include the income received as child support arrearages since that would not exist for a significant period. The debtor’s current job was stable, but pay increases would likely only cover inflation. Tax refunds of $50 per month were imputed to income. The court found the debtor had $250 per month for paying the loan. But after 24 years, the balance would be over $30,000. The education helped her obtain her job, thereby conferring a real and tangible benefit. The student loan was a very large majority of the unsecured debt, but by not seeking additional work as she had done in the past, the debtor was not using her best efforts to maximize income. The entire amount could not realistically be repaid and she had not acted dishonestly. It was equitable under 11 U.S.C. § 105(a) to discharge all but $30,000 of the loan. Flores v. U.S. Dep’t of Educ. (In re Flores), 2002 Bankr. LEXIS 999, 282 B.R. 847 (Bankr. N.D. Ohio July 2, 2002) (Speer, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 2:105.05 [back to top]

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Postpetition acceptance of funds pursuant to prepetition garnishment violated stay. Bankr. E.D. Mich. PROCEDURAL POSTURE: The debtor sought contempt and sanctions against respondents, a creditor and its attorneys, alleging the respondents violated 11 U.S.C. § 362(a)(1) by accepting funds postpetition under a prepetition garnishment of the debtor’s tax refund. The respondents argued the garnishment attached when it was served prior to the bankruptcy, that the lien on the refund was perfected, and the stay was not violated because they merely accepted the funds. OVERVIEW: Whether the respondents had a perfected security interest was not relevant to the issue of whether they violated the automatic stay. Upon receiving actual notice of the bankruptcy case, the respondents had an affirmative duty under 11 U.S.C. § 362 to discontinue the collection activities against the debtor. They had a duty to halt all collection proceedings when the debtor filed for bankruptcy protection. Their failure to do so and their acceptance of the funds from the state on the tax refund garnishment violated the automatic stay, even though they took no further action to enforce the garnishment. The court noted that ordinarily it would order a return of all funds obtained in violation of the automatic stay. But in order to preserve the creditor’s ability to retain the lien that it asserted, the respondents were allowed to retain the funds as long as they sought relief from the automatic stay within 30 days. Otherwise the funds had to be returned to the debtor. In re McCall-Pruitt, 2002 Bankr. LEXIS 989, 281 B.R. 910 (Bankr. E.D. Mich. July 19, 2002) (Rhodes, C.B.J.).

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

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Relief from stay denied to secured creditor due to failure to establish lack of equity or adequate protection. Bankr. S.D. Ohio PROCEDURAL POSTURE: Creditor moved for relief from debtor’s automatic stay. Creditor sought to enforce its state-law remedies with respect to a tractor leased by debtor. OVERVIEW: Creditor contended that there was a lack of adequate protection. Creditor asserted that debtor’s failure to make lease payments required under the chapter 13 plan or to maintain an insurance policy on the tractor with creditor named as a loss payee established cause under 11 U.S.C. § 362. However, creditor did not establish a prima facie case under 11 U.S.C. § 362(d)(1) for lack of adequate protection. Also, debtor showed that the lease payments were, in fact, made according to the chapter 13 trustee’s records and that the recent modification of his plan would be able to cure any arrearages. Alternatively, creditor sought relief under 11 U.S.C. § 362(d)(2) based on its allegation that there was no equity in the tractor and that retention of the tractor was not necessary to debtor’s effective reorganization. However, creditor did not introduce any evidence that debtor lacked equity in the tractor. Therefore, debtor was not required to show that the tractor was necessary for his effective reorganization. In re Harrington, 2002 Bankr. LEXIS 988, 282 B.R. 637 (Bankr. S.D. Ohio May 6, 2002) (Sellers, B.J.).

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

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Garnishment of debtor’s wages was involuntary transfer which could be avoided by debtor. Bankr. N.D. Ohio PROCEDURAL POSTURE: Plaintiff debtor filed a chapter 7 petition under the Bankruptcy Code. The debtor filed an action against defendant creditor to recover garnished funds as a preferential transfer. Both parties filed motions for summary judgment. OVERVIEW: The creditor had obtained a judgment against the debtor and garnished the debtor’s wages. The debtor later filed the bankruptcy petition. The debtor sought to use the bankruptcy trustee’s avoiding powers to allow him to recover certain preferential transfers that were made in the period immediately prior to the filing of his bankruptcy petition. The bankruptcy trustee did not attempt to pursue a preference action against the creditor. The court found that the garnishment action qualified as an involuntary transfer of property under 11 U.S.C. § 522(g). An important issue for the court was whether the bankruptcy trustee would have been entitled to avoid, as a preferential transfer, those wages the creditor garnished. The court found that the 11 U.S.C. § 547(c)(8) $600 limit requirement had been met. The court aggregated the individual amounts garnished from the debtor’s wages. Maus v. Joint Twp. Dist. Mem. Hosp. (In re Maus), 2002 Bankr. LEXIS 1002, 282 B.R. 836 (Bankr. N.D. Ohio May 14, 2002) (Speer, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:522.12[1] [back to top]

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Credit card debt owed to ex-spouse was nondischargeable due to debtor’s unreasonable monthly expenses and clear ability to pay. Bankr. N.D. Ohio PROCEDURAL POSTURE: Defendant debtor filed a chapter 7 petition under the Bankruptcy Code. Plaintiff creditor filed an adversary action to determine the dischargeability of a debt under 11 U.S.C. § 523related to the parties’ divorce. OVERVIEW: The parties were married and later divorced. Their separation agreement provided that the debtor was responsible for the payment of a credit card debt, however, the court found that the debtor failed to make any payments towards this debt. The debtor responded to the creditor’s section 523 complaint by claiming that the debt at issue should be discharged under one of the two exceptions to nondischargeability set forth in 11 U.S.C. § 523(a)(15). The debtor had failed to list this debt in the bankruptcy petition. The court determined that some of the debtor’s monthly expenses did not seem reasonable under the circumstances. The court found that based upon her disposable income figure, the debtor had a sufficient amount of disposable income available to pay her marital debt within a reasonable amount of time. The court also applied the balancing test and determined that the debtor paid for luxury items and services rather than paying the marital debt owed. Erd v. Erd, 2002 Bankr. LEXIS 1001, 282 B.R. 620 (Bankr. N.D. Ohio May 10, 2002) (Speer, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:523.01 [back to top]

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Cramdown of second mortgage allowed where value of home was less than amount of first mortgage. Bankr. S.D. Ill. PROCEDURAL POSTURE: A creditor holding a second mortgage on the chapter 13 debtors’ residence, objected to confirmation. The debtors filed a complaint to determine the invalidity of the creditor’s lien, asserting that because the value of the home was less than what was owed on the first mortgage, the creditor’s claim was wholly unsecured under 11 U.S.C. § 506(a), and thus was not protected by the antimodification exception of 11 U.S.C. § 1322(b)(2). OVERVIEW: Following the majority of courts, the court held that the court was first required to determine the secured status of a mortgagee under 11 U.S.C. § 506(a). Then, the antimodification exception of 11 U.S.C. § 1322(b)(2) protected a creditor’s rights in a mortgage lien only where the debtors’ residence retained enough value-after accounting for other encumbrances that had priority over the lien-so that the lien was at least partially secured under 11 U.S.C. § 506(a). A wholly unsecured claim, as defined under section 506(a), was not protected under the antimodification exception of 11 U.S.C. § 1322(b)(2). A rule requiring debtors to pay completely unsecured mortgages through their bankruptcy plans would cause many more debtors to convert to a chapter 7 bankruptcy to eliminate the mortgage, which would result in unsecured creditors receiving little or no payment. The majority rule encouraged debtors to stay in chapter 13 bankruptcy and pay their unsecured creditors. The creditor’s lien was voided. After payment of the creditor’s distribution under the plan, the claim was reclassified as a general unsecured claim. Havel v. Household Mtg. Servs. (In re Havel), 2002 Bankr. LEXIS 1004, — B.R. — (Bankr. S.D. Ill. August 15, 2002) (Fines, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:506.03 [back to top]

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Exempt funds were still subject to creditor’s properly perfected lien rights, although relief from stay to set off against the funds denied on other grounds. Bankr. S.D. Ill. PROCEDURAL POSTURE: The debtors filed a chapter 13 petition under the Bankruptcy Code. A creditor filed a motion for relief from the automatic stay and the debtors objected. OVERVIEW: The creditor was a credit union that sought relief from the automatic stay to exercise a set-off of the funds held in the debtors’ checking account. The debtors claimed that the funds were exempt under state law, and in the alternative, were protected by the 42 U.S.C. § 407(a) anti-alienation provisions. The court found that under 11 U.S.C. § 522(c), property that was exempt was not liable for prepetition debts. However, 11 U.S.C. § 522 also provided that exempt property was subject to certain prepetition debts, including a debt secured by a lien that was not avoided under 11 U.S.C. § 522(f), (g). The debtors’ claim that the funds were exempt did not affect the creditor’s lien rights, which were properly perfected against the funds in the debtors’ checking account. However, the court did agree with the debtors’ 42 U.S.C. § 407(a) claim. The court applied an United States Court of Appeals for the Tenth Circuit ruling which held that a credit union could not use the self-help remedy of set-off and apply Social Security benefits contained in a checking account to satisfy a depositor’s loan obligation. In re Brewer, 2002 Bankr. LEXIS 992, — B.R. — (Bankr. S.D. Ill. August 15, 2002) (Fines, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:522.01 [back to top]

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Employee’s default judgment for sexual harassment and wrongful discharge against debtor employer was nondischargeable. Bankr. S.D. Ill. PROCEDURAL POSTURE: A creditor, a former employee, filed a complaint objecting to the discharge of a debt against the debtor, the employee’s former manager, under 11 U.S.C. § 523(a)(6), based on the creditor’s sexual harassment and retaliatory discharge action under 42 U.S.C. § 2000e et seq., for which the creditor had received a default judgment against the debtor. OVERVIEW: Noting that the creditor and her witness, who had also filed the state court action, were truthful and straight forward, and that the debtor was not a credible witness based upon his lack of cooperation and a lack of memory, the court found the creditor had been subjected to numerous sexually inappropriate statements made by the debtor, as well as suggestive and threatening physical conduct. The debtor had fired the creditor from her position as finance manager at the car dealership, after approximately two months and after the creditor complained to senior management to no avail. The debtor’s actions toward the creditor were physically and verbally abusive, clearly intentional, and the debtor desired to cause injury to the creditor. The debtor’s actions were clearly wrongful, and were done consciously and knowingly in the absence of just cause or excuse. The ultimate conduct of firing the creditor as a result of her complaints about his continual abuse was retaliatory and done with the specific intent of doing injury to the creditor, both mentally and financially. The state court judgment, including the punitive damages award, was nondischargeable under 11 U.S.C. § 523(a)(6). Thomason v. Thomason (In re Thomason), 2002 Bankr. LEXIS 993, — B.R. — (Bankr. S.D. Ill. August 2, 2002) (Fines, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:523.14[2] [back to top]

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8th Cir.

Automatic stay did not apply to criminal prosecution of debtor for bouncing checks. Bankr. E.D. Ark. PROCEDURAL POSTURE: The chapter 13 debtor moved for damages alleging she was damaged when the automatic stay of 11 U.S.C. § 362 was willfully violated by respondents, a county, a city, the prosecuting attorney’s office and its prosecuting attorney. The debtor alleged that the stay was violated when she was incarcerated as a result of a conviction under the Arkansas Hot Check Law, Ark. Code Ann. § 5-37-301-306 (Michie 1997 & Supp. 2001). OVERVIEW: The debtor admitted that a judge had previously sentenced her to jail in 1998 for 364 days on bounced check charges and that she had escaped incarceration by filing a bankruptcy petition. The 1998 case was dismissed, and the current case was filed in 2000. The debtor also admitted writing postpetition bounced checks and being arrested for those charges and for a "probation revocation" in connection with other bounced check violations. The court held that under 11 U.S.C. § 362(b)(1), the automatic stay of 11 U.S.C. § 362 did not apply to the criminal prosecution of a debtor who wrote bounced checks. The debtor had failed to establish that any of the respondents had violated the provisions of the automatic stay because the stay, by its express terms, did not apply to criminal proceedings including the enforcement of orders to pay fines and restitution. In re Bibbs, 2002 Bankr. LEXIS 1007, 282 B.R. 876 (Bankr. E.D. Ark. August 19, 2002) (Mixon, B.J.).

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

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9th Cir.

Equitable sanctions against law firm that violated stay not applicable where actual damages are recoverable. B.A.P. 9th Cir. PROCEDURAL POSTURE: Appellants, a creditor’s law firm, appealed from an order of the bankruptcy court, disputing the award of actual damages and attorneys’ fees under 11 U.S.C. § 362(h) and, alternatively, sanctions under 11 U.S.C. § 105(a) which included an order that the firm notify the state bar of the sanctions under Cal. Bus. & Prof. Code § 6068(o)(3) (West). OVERVIEW: The law firm filed a state court action after the bankruptcy was filed. Actual damages consisting of attorneys’ fees and costs were recoverable "actual damages" under 11 U.S.C. § 362(h). The debtor incurred $5 in travel expenses in driving to her attorney’s office after she received the state court complaint. Her decision to drive was reasonable under the circumstances. The firm could neither dictate nor second-guess how the debtor should have protected her rights when she was forced to defend herself against its wrongful conduct. Circumstances justifying punitive damages were unnecessary. The debtor did not know that the firm had dismissed the state court suit when she presented a draft complaint. The previously prepared pleading saved expenses. The firm’s non-communication contributed to the ongoing injury. Reducing the requested $2,000 in fees to $1,000 was reasonable. The remedy under section 362(h) was exclusive. Since the sanction as to notification of the state bar was imposed under the improper 11 U.S.C. § 105(a) sanction, that part of the order was remanded. Awarding the debtor her appellate attorneys’ fees and costs under 11 U.S.C. § 362(h) was mandatory. Eskanos & Adler, PC v. Roman (In re Roman), 2002 Bankr. LEXIS 1014, 283 B.R. 1 (B.A.P. 9th Cir. August 15, 2002) (Marlar, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 2:105.05 [back to top]

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Tolling of statute of limitations until 30 days after termination of stay made creditor’s renewal of judgment during pendency unnecessary. Bankr. C.D. Cal. PROCEDURAL POSTURE: The debtor reopened his bankruptcy and filed a motion for declaratory relief that a creditor’s renewal of a judgment under Cal. Code Civ. Proc. §§ 683.020, 683.210, during the pendency of the automatic stay of 11 U.S.C. § 362(a) was null and void. OVERVIEW: Although the state court judgment had been held nondischargeable under 11 U.S.C. § 523, the renewal of judgment was not an action that could have been taken ex parte, without notice. The renewal process required service of the application for renewal on the debtor, thus affording the him the opportunity to object. What was relevant was that California’s statutory renewal of judgments required filing of the papers in the same court from which the original judgment was obtained, service on the adversarial party, and the possibility of objection. It was a continuation of a proceeding as contemplated by 11 U.S.C. § 362(a)(1) and, as such, was a violation of the automatic stay. Even though the judgment was nondischargeable, renewal of the judgment without first obtaining relief from the stay violated the stay, regardless of whether the renewal has any immediate impact on the debtor’s rights. 11 U.S.C. § 108(c) kept the creditor’s rights intact for 30 days after termination of the stay. The creditor instead improperly renewed the judgment when section 108(c) specifically provided for the tolling of the statute of limitations for the renewal of that judgment, preempting state law. In re Lobherr, 2002 Bankr. LEXIS 1008, 282 B.R. 912 (Bankr. C.D. Cal. September 13, 2002) (Jury, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 2:108.04[1] [back to top]

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Lifting of stay justified in chapter 7 for debt held nondischargeable in prior chapter 13 filing. B.A.P. 9th Cir. PROCEDURAL POSTURE: In a chapter 13, the debtor appealed a creditor’s nondischargeable judgment under 11 U.S.C. § 523(a)(9). The chapter 13 was dismissed and the appeal was then dismissed for failure to prosecute. In the debtor’s later chapter 7, the creditor moved for relief from 11 U.S.C. § 362’s stay to enforce its judgment. Granting the motion, the bankruptcy court applied claim preclusion. The debtor appealed. OVERVIEW: The 11 U.S.C. § 523(a)(9) judgment had the same preclusive effect as any other judgment under Fed. R. Civ. P. 58. The appeal did not affect the its preclusive force and was binding in the second bankruptcy. The debtor should have requested vacatur when the appeal was dismissed. To do so now, the debtor would have to show equitable entitlement to the extraordinary remedy of vacatur and that he was not responsible for the mootness. Since the court of appeals relinquished jurisdiction when it dismissed the appeal, the debtor could have moved for relief from judgment in the bankruptcy court under Fed. R. Civ. P. 60(b)(5), under Fed. R. Bankr. P. 9024. Since the indirect attack was presented to the same bankruptcy judge who rendered the original judgment, the judge had discretion to deviate from the requirement of seeking relief from his prior judgment. There was no abuse of discretion. The filing of the second bankruptcy imposed a new automatic stay under 11 U.S.C. § 362. The creditor’s motion for relief from stay was necessary. Since the debtor was not entitled to an automatic vacatur by attacking the previous judgment in the later proceeding, granting relief from stay was proper. Arneson v. Farmers Ins. Exch. (In re Arneson), 2002 Bankr. LEXIS 1006, 282 B.R. 883 (B.A.P. 9th Cir. August 30, 2002) (Klein, B.J.).

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

ABI Members, click here to get the full opinion.

Award to debtor for law firm’s violation of stay limited to actual damages. B.A.P. 9th Cir. PROCEDURAL POSTURE: Appellants, a creditor’s law firm, appealed from an order of the bankruptcy court, disputing the award of actual damages and attorneys’ fees under 11 U.S.C. § 362(h) and, alternatively, sanctions under 11 U.S.C. § 105(a) which included an order that the firm notify the state bar of the sanctions under Cal. Bus. & Prof. Code § 6068(o)(3) (West). OVERVIEW: The law firm filed a state court action after the bankruptcy was filed. Actual damages consisting of attorneys’ fees and costs were recoverable "actual damages" under 11 U.S.C. § 362(h). The debtor incurred $5 in travel expenses in driving to her attorney’s office after she received the state court complaint. Her decision to drive was reasonable under the circumstances. The firm could neither dictate nor second-guess how the debtor should have protected her rights when she was forced to defend herself against its wrongful conduct. Circumstances justifying punitive damages were unnecessary. The debtor did not know that the firm had dismissed the state court suit when she presented a draft complaint. The previously prepared pleading saved expenses. The firm’s non-communication contributed to the ongoing injury. Reducing the requested $2,000 in fees to $1,000 was reasonable. The remedy under section 362(h) was exclusive. Since the sanction as to notification of the state bar was imposed under the improper 11 U.S.C. § 105(a) sanction, that part of the order was remanded. Awarding the debtor her appellate attorneys’ fees and costs under 11 U.S.C. § 362(h) was mandatory. Eskanos & Adler, PC v. Roman (In re Roman), 2002 Bankr. LEXIS 1014, 283 B.R. 1 (B.A.P. 9th Cir. August 15, 2002) (Marlar, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:362.11[3] [back to top]

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Judgment that debt owed for death or injury due to driving while intoxicated was nondischargeable had preclusive effect. B.A.P. 9th Cir. PROCEDURAL POSTURE: In a chapter 13, the debtor appealed a creditor’s nondischargeable judgment under 11 U.S.C. § 523(a)(9). The chapter 13 was dismissed and the appeal was then dismissed for failure to prosecute. In the debtor’s later chapter 7, the creditor moved for relief from 11 U.S.C. § 362’s stay to enforce its judgment. Granting the motion, the bankruptcy court applied claim preclusion. The debtor appealed. OVERVIEW: The 11 U.S.C. § 523(a)(9) judgment had the same preclusive effect as any other judgment under Fed. R. Civ. P. 58. The appeal did not affect the its preclusive force and was binding in the second bankruptcy. The debtor should have requested vacatur when the appeal was dismissed. To do so now, the debtor would have to show equitable entitlement to the extraordinary remedy of vacatur and that he was not responsible for the mootness. Since the court of appeals relinquished jurisdiction when it dismissed the appeal, the debtor could have moved for relief from judgment in the bankruptcy court under Fed. R. Civ. P. 60(b)(5), under Fed. R. Bankr. P. 9024. Since the indirect attack was presented to the same bankruptcy judge who rendered the original judgment, the judge had discretion to deviate from the requirement of seeking relief from his prior judgment. There was no abuse of discretion. The filing of the second bankruptcy imposed a new automatic stay under 11 U.S.C. § 362. The creditor’s motion for relief from stay was necessary. Since the debtor was not entitled to an automatic vacatur by attacking the previous judgment in the later proceeding, granting relief from stay was proper. Arneson v. Farmers Ins. Exch. (In re Arneson), 2002 Bankr. LEXIS 1006, 282 B.R. 883 (B.A.P. 9th Cir. August 30, 2002) (Klein, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:523.15 [back to top]

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10th Cir.

After conversion from chapter 7 to chapter 13, it was proper for trustee to pay only lease payments accrued post-conversion and pre-rejection or assumption. B.A.P. 10th Cir. PROCEDURAL POSTURE: In extending the time for the trustee to assume or reject a warehouse lease, under 11 U.S.C. § 365(d)(3) the bankruptcy court ordered the trustee to pay only the prorated portions of the lease obligations attributable to the period during which the trustee was in possession, after the case was converted from chapter 11 to chapter 7. The lessor and its management agent appealed. OVERVIEW: The lessor had essentially asked that during the pre-rejection period, the bankruptcy court depart from the payment provisions of the lease and require monthly advance payments of the rents and taxes, thus, triggering the invited error doctrine to preclude appellate review. But, even if the error had not been invited, the proration rule was the correct approach to section 365(d)(3). The lessor was entitled to lease payments under section 365(d)(3) arising during and attributable to the period after the conversion date. Rent and other payments coming due under a lease after conversion were prorated between the pre-conversion period and the post-conversion period. The trustee was required to pay only those amounts that accrued after conversion and prior to rejection or assumption. If the lease was rejected, the chapter 11 rents would be administrative expenses, subordinated to unpaid chapter 7 rents under 11 U.S.C. § 726(b). The interest and penalties were attributable to a pre-conversion obligation and would not be allowed. And, the interest and penalties on taxes arose under state law, not under the terms of the lease. The bankruptcy court did not err in excluding the interest and penalties. El Paso Props. Corp. v. Gonzales (In re Furr’s Supermarkets, Inc.), 2002 Bankr. LEXIS 1018, 283 B.R. 60 (B.A.P. 10th Cir. September 17, 2002) (Nugent, B.J.).

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

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