Collier Bankruptcy Case Update July-21-03
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.

July 21, 2003
CASES IN THIS ISSUE
(scroll down to read the full summary)
§ 363 Although
baseball season tickets were property,
trustee could not sell tickets
as property of the estate absent
proof of debtor’s ownership.
Grossman v. Boston Red Sox
Baseball Club, LP (In re Platt)
(Bankr. D. Mass.)
§ 1322(b)(2)
Bifurcation of lien into
secured and unsecured portions
was not nullified by granting
of relief from stay upon postconfirmation
default.
Carvalho v. Federal Nat’l
Mortg. Ass’n (In re Carvalho)
(1st Cir.)
2d Cir.
§ 545(2) Liens filed pursuant to state law which would not attach to interest of a bona fide purchaser could be avoided.
Schoonover Elec. Co. v. Enron Corp. (In re Enron Corp.) (Bankr. S.D.N.Y.)
28 U.S.C. § 1452(a) Securities law actions brought by pensions against fiduciaries of debtor were “related to” debtor’s bankruptcy and properly removed to federal court.
New York City Employees’ Ret. Sys. v. Ebbers (In re Worldcom Secs. Litig.) (S.D.N.Y.)
3d Cir.§ 507(a)(4) Creditor’s claim for workers’ compensation insurance premiums entitled to priority status as contribution to employee benefit plan.
In re Integrated Health Servs., Inc. (Bankr. D. Del.)
4th Cir.
§ 541 Medical
malpractice settlement funds were
not property of the estate where
there had been no timely objection
to original claim of exemption.
In re Zaidi (Bankr. E.D. Va.)
5th Cir.
§ 523(a)(6) Debt arising from violation of collective bargaining agreement was dischargeable where debtor did not intend to cause injury to the union.
Williams v. International Bhd. of Elec. Workers (In re Williams) (5th Cir.)
6th Cir.
§ 547(c)(3)(B) Security interest granted within 90 days of petition was avoidable despite state law permitting relation back.
Luper v. United Bank, Inc. (In re Owens) (Bankr. S.D. Ohio)
7th Cir.
§ 362(h) Damages and attorneys’ fees awarded to debtor due to listed creditor’s willful violation of stay.
In re Welch (Bankr. C.D. Ill.)
§ 523(a)(5) Debtor’s obligation to pay down mortgage on marital residence occupied by custodial former spouse was in the nature of child support and nondischargeable.
Waters v. Waters (In re Waters) (Bankr. C.D. Ill.)
§ 523(a)(8) Debtor’s mere failure to pay tuition did not create a nondischargeable student loan.
Manning v. Chambers (N.D. Ill.)
8th Cir.
§ 523(a)(15) Benefit of discharge of promissory note from elderly debtor to former spouse outweighed detriment to former spouse due to debtor’s poor health and limited income.
Bullinger v. Wehr (In re Wehr) (Bankr. D.N.D.)
§ 523(b) State taxes not discharged in previous bankruptcy but that would have been discharged if debtor had filed later, were dischargeable in subsequent bankruptcy.
Cates v. Arkansas Dep’t of Fin. & Admin. (In re Cates) (Bankr. E.D. Ark.)
9th Cir.
§ 1325(c) Sovereign immunity barred bankruptcy court order requiring IRS to send tax refunds to trustee.
In re Knapp (W.D. Wash.)
10th Cir.
§ 362 Creditors not entitled to relief from stay in debtor’s third bankruptcy absent evidence of bad faith nor could creditors obtain in rem relief from stays in future filings by debtor.
Fushimi v. Saline (In re Saline) (Bankr. D. Colo.)
11th Cir.
§ 523(a)(8) Student loan debt dischargeable on grounds of undue hardship where 50-year old debtor suffered from chronic pain, glaucoma and had little likelihood of business success.
McGinnis v. Pennsylvania Higher Educ. Assistance Agency (In re McGinnis) (Bankr. M.D. Ga.)
§ 547(b)(2) Payments by debtor to franchisee as refund of franchise fee and rebate payments were made on account of antecedent debt and recoverable by trustee.
Levine v. Custom Carpet Shop, Inc. (In re Flooring America, Inc.) (Bankr. N.D. Ga.)
Collier Bankruptcy Case Summaries
1st
Cir.
Although
baseball season tickets were
property, trustee could not
sell tickets as property of
the estate absent proof of debtor’s
ownership. Bankr.
D. Mass. PROCEDURAL
POSTURE: Plaintiff
trustee sought, inter alia,
a declaration and an injunction
against defendant, a professional
baseball club, so that the trustee
could sell four season tickets
to the baseball club’s
home season and all attendant
rights, including the right
to future renewals of the season
tickets at a public auction.
OVERVIEW: The
trustee claimed the tickets
as an asset of the bankruptcy
estate, and the baseball club
argued that the season tickets
were not transferable and thus
the trustee could not sell them.
The baseball club also argued
that the season ticket license
was an executory contract that
the trustee deemed to have rejected
by his failure to timely assume.
The trustee responded that the
baseball club’s historical
pattern of permitting transfers
of other season tickets gave
rise to a reasonable expectation
of annual renewal of the tickets
and thus created a property
interest, which he could sell
pursuant to 11 U.S.C. §
363. The court agreed with the
trustee that the season tickets
were indeed property. The court
found that the baseball club
did not consider it a violation
of the alleged “no transfer”
policy for season tickets holders
to give away tickets, or to
sell the tickets at or, in isolated
instances, above face value.
However, the court could not
permit the sale where the trustee
had failed to establish the
crucial proof that the debtor
owned the tickets. The baseball
club was correct that the account
was held in the name of a management
company, and not in the debtor’s
name. Grossman v.
Boston Red Sox Baseball Club,
LP (In re Platt), 2003
Bankr. LEXIS 106, 292 B.R. 12
(Bankr. D. Mass. February 14,
2003) (Rosenthal, B.J.).
Collier on Bankruptcy,
15th Ed. Revised 3:363.01
[back
to top]
ABI Members, click here to get the full opinion.
Bifurcation
of lien into secured and unsecured
portions was not nullified by
granting of relief from stay
upon postconfirmation default.
1st Cir. PROCEDURAL
POSTURE: Appellants,
debtors, sought review of a
judgment from the District Court
for the District of Massachusetts.
Appellee mortgage company opposed
the debtors’ motions.
OVERVIEW: The
debtors borrowed from the mortgage
company, signed a promissory
note, and secured it by granting
the company a first mortgage
on a multi-family residence.
In this case of first impression
at the federal appellate level,
the court addressed the effect
of postconfirmation default
and consequent relief from the
automatic stay on the bifurcated
lien of a secured creditor.
The creditor claimed that, in
such circumstances, relief from
the automatic stay nullified
the earlier lien-stripping order,
mended the bifurcation, and
restored the lien on the collateral
to its original shape. Both
the bankruptcy court and the
district court rebuffed this
claim. As the parties framed
the case, the central issue
was not whether the debtors
had a right to attempt to cure
their default, but, rather,
how much they must pay in order
to do so. The court held that
to accept the company’s
position would tilt the scales
in favor of secured creditors,
allowing them to use the fortuity
of even a technical postconfirmation
default to disrupt a confirmed
plan. Bifurcation of a creditor’s
claim into secured and unsecured
portions was not annulled by
the mere act of granting relief
from the automatic stay. Carvalho
v. Federal Nat’l Mortg.
Ass’n (In re Carvalho),
2003 U.S. App. LEXIS 13824,
— F.3d — (1st Cir.
July 9, 2003) (Selya, C.J.).
Collier on Bankruptcy,
15th Ed. Revised 7:1322.06
[back
to top]
2d Cir.
Liens
filed pursuant to state law which
would not attach to interest of
a bona fide purchaser could be
avoided. Bankr. S.D.N.Y.
PROCEDURAL POSTURE:
A creditor contractor moved for
summary judgment in its adversary
action to determine the validity
and priority of its liens against
a jointly administered debtor’s
property, arguing it was secured
under the New Jersey Construction
Lien Claim Law, N.J. Stat. §
2A:44A-1 et seq. and 11 U.S.C.
§ 546(b)(1). The debtor argued
the liens were not perfected at
the time of the bankruptcy and
could be avoided under 11 U.S.C.
§ 545(2). OVERVIEW:
N.J. Stat. § 2A:44A-10 explicitly
stated that a lien would not attach
to the interest acquired by a
bona fide purchaser first recorded.
A trustee was treated as an intervening
lien creditor under 11 U.S.C.
§ 544(a). Thus, the liens,
filed after the bankruptcy, did
not qualify for the 11 U.S.C.
§ 546(b) exception. The creditor
had not filed a Notice of Unpaid
Balance and Right to File Lien
(“NUB”) under N.J.
Stat. § 2A:44A-20(a), (f),
which was the only way to gain
priority, thus the liens did not
date back to the start of the
creditor’s work. Even if
the creditor was ineligible to
file a NUB, it could have filed
actual lien claims once it completed
the majority of the work. Under
N.J. Stat. § 2A:44A-10, liens
that were eligible to participate
in a lien fund did not relate
back to the initial lien filed
in connection with such fund so
as to gain priority over intervening
claims. The liens were not enforceable
against a hypothetical bona fide
purchaser prior to the filing
of the petition, and could be
avoided under 11 U.S.C. §
545(2), thus, the lien fund did
not apply. Schoonover
Elec. Co. v. Enron Corp. (In re
Enron Corp.), 2003
Bankr. LEXIS 630, 294 B.R. 232
(Bankr. S.D.N.Y. June 23, 2003)
(Gonzalez, B.J.).
Collier on Bankruptcy, 15th Ed.
Revised 5:545.01 [back
to top]
ABI Members, click here to get the full opinion.
Securities
law actions brought by pensions
against fiduciaries of debtor
were “related to”
debtor’s bankruptcy and
properly removed to federal court.
S.D.N.Y. PROCEDURAL
POSTURE: Plaintiff pension
systems sued defendants, who were
connected to a telecommunications
corporation, in state court alleging
federal securities law and state
law claims but did not name the
corporation, which earlier had
filed for bankruptcy. Defendants
removed the action and others
like it, based on the bankruptcy.
Plaintiffs moved to remand for
lack of subject matter jurisdiction
or on equitable grounds, or alternatively,
for abstention. OVERVIEW:
The court examined the propriety
of removal and whether the state
court action was so related to
the bankruptcy that there was
federal subject matter jurisdiction
over it pursuant to 28 U.S.C.
§ 1334(b). Inter alia, the
court held that, because the contribution
claims had the potential to alter
the distribution of assets among
creditors, the effect of contribution
claims on the bankruptcy estate
was at least “conceivable.”
The conditions for bankruptcy
jurisdiction were met, and the
action did not fall within the
two limited exceptions to removal
under 28 U.S.C. § 1452(a),
which did not require defendants’
unanimous consent to removal.
As to abstention, the pension
systems failed to prove that the
action could be timely adjudicated
in state court, or that 28 U.S.C.
§ 1334 provided the sole
basis for jurisdiction. The mandatory
abstention provision was not available
because the action could have
been commenced in federal court,
since it pled two federal securities
law claims. Moreover, most of
the Second Circuit factors for
discretionary abstention weighed
heavily against abstention. New
York City Employees’ Ret.
Sys. v. Ebbers (In re Worldcom
Secs. Litig.), 2003 U.S.
Dist. LEXIS 2790, 293 B.R. 308
(S.D.N.Y. March 3, 2003) (Cote,
D.J.).
Collier on Bankruptcy,
15th Ed. Revised 1:3.07
[back
to top]
ABI Members, click here to get the full opinion.
3d Cir
Creditor’s
claim for workers’ compensation
insurance premiums entitled to
priority status as contribution
to employee benefit plan. Bankr.
D. Del. PROCEDURAL
POSTURE: In a chapter
11 proceeding, creditor, a workers’
compensation insurance provider,
filed a claim for $3,919,891 representing
insurance premiums due for workers’
compensation coverage. Creditor
filed the claim as a priority
claim under 11 U.S.C. § 507(a)(4),
asserting it represented contributions
to an employee benefit plan. Debtors
objected to the status of the
claim, asserting it should be
classified as a general unsecured
claim. OVERVIEW: The
court opined that 11 U.S.C. §
507(a)(4) was a simple provision
that granted priority to “allowed
unsecured claims for contributions
to an employee benefit plan.”
Without a definition of “contributions
to an employee benefit plan,”
the Bankruptcy Code relied on
courts to apply the provision
according to the plain meaning
of its terms. The court determined
that reference to the legislative
history of section 507(a)(4) was
not warranted. The underlying
payments to injured employees
from workers’ compensation
fitted the archetypical examples
of employee benefit plans such
as health insurance, disability,
and pension plans. The debtors’
choice to contract with the creditor
for insurance to cover such employee
benefits was the implementation
of a “plan.” Accordingly,
the court found that the premiums
were “contributions to an
employee benefit plan.”
As such, the creditor’s
claim enjoyed priority under section
507(a)(4). The court found that
there was no clearly expressed
legislative intent to exclude
workers’ compensation benefits
from the plain language of section
507(a)(4). In re Integrated
Health Servs., Inc., 2003
Bankr. LEXIS 123, 291 B.R. 611
(Bankr. D. Del. February 24, 2003)
(Walrath, B.J.).
Collier on Bankruptcy, 15th Ed.
Revised 4:507.06 [back
to top]
ABI Members, click here to get the full opinion.
Medical
malpractice settlement funds were
not property of the estate where
there had been no timely objection
to original claim of exemption.
Bankr. E.D. Va. PROCEDURAL
POSTURE: A former chapter
7 debtor moved to reopen his case
to determine if a medical malpractice
claim, claimed as exempt under
Va. Code § 34-28.1, was property
of the estate under 11 U.S.C.
§ 541 when a state court
disbursed settlement funds. The
debtor argued his bankruptcy counsel,
the trustee, and his medical malpractice
counsel acted improperly with
respect to the action, and if
it was property of the estate,
sought review of such conduct.
OVERVIEW: Because
no objection to the claim of exemption
was timely filed within 30 days
after the end of the first meeting
of creditors under Fed. R. Bankr.
P. 4003(b), the exemption was
allowed and the medical malpractice
claim ceased to be property of
the bankruptcy estate. Thus, later,
when the state court authorized
the disbursement, the trustee
had no further interest in the
fund. The state court overruled
the debtor’s objection to
the disbursement, but it appeared
no appeal was taken. The funds
were disbursed to the malpractice
lawyers. Reopening the case could
not affect the state court order.
The bankruptcy court was not an
appellate court of state court
judgments. There was nothing per
se improper about the trustee
endorsing the state court order.
It appeared that the Office of
the United States Trustee investigated
the debtor’s complaints
and responded to them. There was
nothing for the bankruptcy court
to do. If there was professional
misconduct of the personal injury
lawyers, the matter could be pursued
with the state bar association
which regulated the conduct of
attorneys. It was inappropriate
for the bankruptcy court to become
involved in such action.
In re Zaidi, 2002
Bankr. LEXIS 1721, 293 B.R. 861
(Bankr. E.D. Va. December 16,
2002) (Mayer, B.J.).
Collier on Bankruptcy,
15th Ed. Revised 5:541.01
[back
to top]
ABI Members, click here to get the full opinion.
Debt
arising from violation of collective
bargaining agreement was dischargeable
where debtor did not intend to
cause injury to the union. 5th
Cir. PROCEDURAL POSTURE:
The District Court for
the Western District of Texas
affirmed a decision of the Bankruptcy
Court that a union’s two
unsecured claims against the debtor
were excepted from discharge under
11 U.S.C. § 523(a)(6). The
debtor appealed that decision.
OVERVIEW: There
were two debts at issue, one arising
from the violation of a collective
bargaining agreement (“CBA”)
and the other arising from the
violation of an agreed final judgment
and decree. The dischargeability
of the debts depended on the intentional
or certain nature of the injury
the debtor inflicted upon the
union. When the debtor hired non-union
electricians in violation of the
CBA, he was motivated by a desire
to save his business. Although
he acted intentionally, he did
not intend to injury the union.
The only direct injuries to the
union were to its prestige and
to its ability to uphold its contracts.
There was no showing of an intentional
or substantially certain injury
to the union. Turning to the violation
of the agreed final judgment and
decree, the debtor knew his obligations
under the CBA, yet he knowingly
violated those obligations. Even
if the debtor did not intend to
injure the union, the agreed final
judgment and decree made him substantially
certain that his acts would inflict
injury. The debtor’s argument
advocating discharge of the damages
for contempt overlooked the fact
the damages assessed arose from
his defiance of the agreed final
judgment and decree. Williams
v. International Bhd. of Elec.
Workers (In re Williams),
2003 U.S. App. LEXIS 13579, —
F.3d — (5th Cir. July 7,
2003) (Little, D.J.).
Collier on Bankruptcy, 15th Ed.
Revised 4:523.12[2]. [back
to top]
ABI Members, click here to get the full opinion.
6th Cir.
Security
interest granted within 90 days
of petition was avoidable despite
state law permitting relation
back. Bankr. S.D.
Ohio PROCEDURAL POSTURE:
The chapter 7 trustee filed a
complaint to avoid a preferential
transfer, alleging that the notation
of a lien upon the title for the
debtors’ car within 90 days
before the petition date was recoverable
under 11 U.S.C. §§ 547(b),
550. On the trustee’s motion
for summary judgment, the bank
argued that under Ohio Rev. Code
§ 4505.06(A)(5)(b), the lien
related back to when the debtors
took possession. OVERVIEW:
The debtors filed bankruptcy 77
days after the perfection of the
security interest, but had bought
and taken possession of the car
26 days before the perfection.
Ohio Rev. Code § 4505.06(A)(4)
and (5)(a)(1) required the car
dealer to submit an application
for a certificate of title and
pay the applicable tax within
seven business days after the
date of delivery of the car, but
the dealer failed to do so. The
promissory note and security interest
taken by the dealer at the time
of the sale was assigned to the
bank. 11 U.S.C. § 547(c)(3)(B)
created a uniform 20-day federal
perfection period immune to alteration
by state laws permitting relation
back. The debtors took possession
of the car on April 25, but the
bank’s lien was not noted
on the certificate of title until
May 21. The notation of lien was
made to or for the benefit of
the bank while the debtors were
presumed to have been insolvent,
was made within 90 days of the
bankruptcy petition, and enabled
the bank to receive more than
it would have received if the
transfer had not been made. All
of the elements of 11 U.S.C. §
547(b) were established and the
trustee was entitled to judgment
as a matter of law. Luper
v. United Bank, Inc. (In re Owens),
2003 Bankr. LEXIS
660, 294 B.R. 289 (Bankr. S.D.
Ohio May 14, 2003) (Calhoun, B.J.).
Collier on Bankruptcy, 15th Ed.
Revised 5:547.04 [back
to top]
ABI Members, click here to get the full opinion.
7th Cir.
Security interest granted within
90 days of petition was avoidable
despite state law permitting relation
back. Bankr. S.D.
Ohio PROCEDURAL POSTURE:
The chapter 7 trustee
filed a complaint to avoid a preferential
transfer, alleging that the notation
of a lien upon the title for the
debtors’ car within 90 days
before the petition date was recoverable
under 11 U.S.C. §§ 547(b),
550. On the trustee’s motion
for summary judgment, the bank
argued that under Ohio Rev. Code
§ 4505.06(A)(5)(b), the lien
related back to when the debtors
took possession. OVERVIEW:
The debtors filed bankruptcy
77 days after the perfection of
the security interest, but had
bought and taken possession of
the car 26 days before the perfection.
Ohio Rev. Code § 4505.06(A)(4)
and (5)(a)(1) required the car
dealer to submit an application
for a certificate of title and
pay the applicable tax within
seven business days after the
date of delivery of the car, but
the dealer failed to do so. The
promissory note and security interest
taken by the dealer at the time
of the sale was assigned to the
bank. 11 U.S.C. § 547(c)(3)(B)
created a uniform 20-day federal
perfection period immune to alteration
by state laws permitting relation
back. The debtors took possession
of the car on April 25, but the
bank’s lien was not noted
on the certificate of title until
May 21. The notation of lien was
made to or for the benefit of
the bank while the debtors were
presumed to have been insolvent,
was made within 90 days of the
bankruptcy petition, and enabled
the bank to receive more than
it would have received if the
transfer had not been made. All
of the elements of 11 U.S.C. §
547(b) were established and the
trustee was entitled to judgment
as a matter of law. Luper
v. United Bank, Inc. (In re Owens),
2003 Bankr. LEXIS 660, 294 B.R.
289 (Bankr. S.D. Ohio May 14,
2003) (Calhoun, B.J.).
Collier on Bankruptcy, 15th Ed.
Revised 5:547.04 [back
to top]
ABI Members, click here to get the full opinion.
Debtor’s
obligation to pay down mortgage
on marital residence occupied
by custodial former spouse was
in the nature of child support
and nondischargeable. Bankr.
C.D. Ill. PROCEDURAL
POSTURE: Plaintiff creditor
filed a motion for summary judgment
in her adversary complaint against
defendant debtor, seeking a determination
that the debtor’s debt to
the creditor arising out of a
judgment for dissolution of marriage
was nondischargeable pursuant
to 11 U.S.C. § 523(a)(5).
OVERVIEW: When
the parties’ marriage was
dissolved, physical custody of
the children was awarded to the
creditor. The debtor agreed to
pay child support, which would
be increased once the debt on
the marital residence was reduced
from the sale of another property,
listed on the real estate market.
The creditor was awarded the marital
residence, and the husband had
to pay the mortgage until the
debt was reduced to $18,000. When
she filed the adversary proceeding,
the creditor had been making payments
on the mortgage. The husband had
sold the other property but had
not applied the proceeds against
the mortgage of the marital residence,
and the balance remained in excess
of $18,000. The court held that
the subject obligation was in
the nature of a child support
obligation and was nondischargeable
pursuant to section 523(a)(5).
The divorce court intended that
the debtor pay down the mortgage
with the sale proceeds of the
other property as additional support
for the minor children. The court
emphasized that the creditor had
physical custody of the children
and that the child support obligation
would be increased after the sale
proceeds were applied to reduce
the mortgage. Waters
v. Waters (In re Waters), 2003
Bankr. LEXIS 644, 292 B.R. 907
(Bankr. C.D. Ill. April 17, 2003)
(Lessen, B.J.).
Collier on Bankruptcy, 15th Ed.
Revised 4:523.01] [back
to top]
ABI Members, click here to get the full opinion.
Debtor’s mere failure to pay tuition did not create a nondischargeable student loan. N.D. Ill. PROCEDURAL POSTURE: Appellee bankruptcy debtor, a former university student, brought an adversary proceeding against appellant university official alleging that the student’s university tuition debt was discharged, where the official contended that the debt was a nondischargeable loan under 11 U.S.C. § 523(a)(8). The official appealed the order of the U.S. Bankruptcy Court for the Northern District of Illinois which granted summary judgment to the student. OVERVIEW: The student registered, enrolled, and attended classes at the university but failed to pay tuition. The official contended that the student’s tuition debt constituted an educational loan which was not dischargeable under section 523(a)(8), but the student argued that her failure to pay tuition when due, while creating an obligation to pay, did not create a loan. The district court held that, in the abs