Collier Bankruptcy Case Update July-22-02
- West's
Bankruptcy Newsletter
A Weekly Update of Bankruptcy and Debtor/Creditor Matters
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 22, 2002
CASES IN THIS ISSUE
(scroll down to read the full
summary)
28 U.S.C. § 1334(c)(1) Bankruptcy court exercised proper
discretion in refusing to reopen Chapter 11 proceeding to intervene in
municipal tax foreclosure.
New Eng. Power and Marine, Inc. v. Tyngsborough (In re Middlesex
Power Equip. & Marine, Inc.) (1st Cir.)
2d Cir.
§ 348(d) Debtor's attorneys' fees incurred prior to
conversion from Chapter 11 to Chapter 7, though priority administrative
claims, were discharged to the extent not covered by estate
assets.
In re Fickling (Bankr. E.D.N.Y.)
§ 506(b) Creditor's attorneys' fees for preparation of a Chapter
11 plan that was never filed not chargeable to the estate.
In re Univ. Towers Owners' Corp. (Bankr. D. Conn.)
§ 707(a) The mere fact that debtor has filed a Chapter 7 case in
response to a wrongful debt claim does not warrant dismissal for bad
faith.
Deglin v. Keobapha (Bankr. D. Conn.)
Rule 7037 Trustee could not recover attorneys' fees incurred in
compelling production from creditor after being directed by court to end
discovery.
In re Gold (Bankr. E.D.N.Y.)
3d Cir.
§ 510(b) Shareholder creditors' contract-based claim against
debtor corporation was properly subordinated under §
510(b).
Int'l Wireless Communs. Holdings, Inc. (D. Del.)
§ 548(a)(1)(B) Debtor's acquisition of cellular phone company
not fraudulent where purchase price was in line with prevailing values
and did not render debtor insolvent.
Peltz v. Hatten (Bankr. D. Del.)
6th Cir.
§ 522(b)(2) Brokerage account held to be non-exempt.
In re Johnson (Bankr. E.D. Mich.)
§ 524(a)(2) Creditor sanctioned for violating discharge
injunction by pursuing claim that was within its fair contemplation
prior to debtor's Chapter 7 filing.
In re Parks (Bankr. E.D. Mich.)
8th Cir.
§ 1325(b) Chapter 13 plan was not confirmable due to debtor's
fraudulent concealment of real and personal property, income and
fraudulent transfers.
In re Terry (Bankr. W.D. Ark.)
9th Cir.
§ 304 Trustee of foreign case was the proper representative
to file an ancillary case in the U.S. under § 304.
In re Artimm (Bankr. C.D. Cal.)
§ 1328 Debtor's objection four years after confirmation to
payment of secured creditor not otherwise provided for in Chapter 13
plan denied.
Shook v. CBIC (In re Shook) (B.A.P. 9th Cir.)
10th Cir.
§ 523(a)(2)(B) Debtor's obligation to bank dischargeable due
to bank's unreasonable reliance on unaudited financial statements
provided by debtor.
Bank of Commerce v. Smith (In re Smith) (Bankr. N.D. Okla.)
28 U.S.C. § 158 Court's denial of Chapter 13 plan without
dismissal of petition was not an appealable final judgment.
Wade v. Connor (In re Connor) (10th Cir.)
11th Cir.
§ 304(a) A potential fraudulent conveyance claim is property of an estate and may provide a basis for discovery in ancillary case by foreign trustee.
In re Petition of Gross (Bankr. M.D. Fla.)
§ 506(a) Bankruptcy court bifurcation based on erroneous valuation rate.
EvaBank v. Baxter (Bankr. N.D. Ala.)
§ 727(a) Discharge denied due to debtors' pervasive pattern of fraud and nondisclosure.
Jensen v. Brooks (Bankr. M.D. Fla.)
§ 1325(a)(5)(B) Bankruptcy court erred in valuing collateral retained by Chapter 13 debtor and setting interest rate without proper evidence.
EvaBank v. Baxter (Bankr. N.D. Ala.)
Collier Bankruptcy Case Summaries
Bankruptcy court exercised proper discretion in refusing to reopen
Chapter 11 proceeding to intervene in municipal tax
foreclosure. 1st Cir. PROCEDURAL POSTURE: In
appellant purchaser's attempt to reopen a bankruptcy case to hear a
motion for civil contempt on the part of appellee town for attempting to
collect real estate taxes on the purchaser's real property, the
purchaser appealed the judgment of the United States District Court for
the District of Massachusetts denying the purchaser's motions.
OVERVIEW: In debtor's Chapter 11 bankruptcy proceeding, the
purchaser bought debtor's real properties pursuant to a bankruptcy court
order, 'free and clear of liens, with liens attaching to the proceeds of
sale.' Based on this language, the purchaser refused to pay real estate
taxes levied prior to the sale. The town sued in state court to
foreclose tax liens on the properties. While the state court had the
case under advisement, the purchaser moved the bankruptcy court to
reopen the bankruptcy case to hear its civil contempt motion against the
town. The bankruptcy court denied the motion to reopen. After the state
court entered judgment for the town, the purchaser appealed and also
again moved to reopen the bankruptcy case to rule on a contempt motion
and to stay the state court's judgment. The bankruptcy court denied the
motion, and the district court dismissed the purchaser's appeal, leading
to the instant appeal. The court of appeals found that the bankruptcy
court had the discretion to abstain under 28 U.S.C. § 1334(c)(1)
(amended 1994), and that its decision to abstain was sound and
supportable, based on judicial economy and comity, as well as avoidance
of forum shopping. New Eng. Power and Marine, Inc. v. Tyngsborough
(In re Middlesex Power Equip. & Marine, Inc.), 2002 U.S. App.
LEXIS 11154, 292 F.3d. 61 (1st Cir. June 11, 2002) (Lynch, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 1:3.05[1]
2d Cir.
Debtor's attorneys' fees incurred prior to conversion from Chapter
11 to Chapter 7, though priority administrative claims, were discharged
to the extent not covered by estate assets. Bankr. E.D.N.Y.
PROCEDURAL POSTURE: Before the court was a motion for final
allowance of compensation and reimbursement of expenses by the debtor's
counsel to be payable by the debtor and not from the bankrupt estate.
The counsel sought a determination that $120,095 in legal fees and
expense reimbursements associated with representing debtor while he was
a debtor under Chapter 11 were not discharged when the case was
converted to Chapter 7 and a Chapter 7 discharge was entered.
OVERVIEW: The debtor filed a voluntary petition under Chapter 11
of the Bankruptcy Code. By order, dated January 28, 1993, the debtor was
authorized to employ his counsel in the Chapter 11 case. The case was
converted to Chapter 7 on November 13, 1996. The counsel served until
March 18, 1997. On April 14, 1997, an order of discharge was entered and
the debtor was released from all dischargeable debts. The Court held
that, to the extent that estate assets were insufficient to satisfy
them, the counsel's Chapter 11 counsel fees were discharged by the order
of discharge that issued after the case was converted to Chapter 7. The
Chapter 11 counsel fees would, however, be given priority as a Chapter
11 administrative expense payable from the estate. The court also noted
that the counsel could make an application for reimbursement of fees and
expenses as debtor's Chapter 7 counsel. In re Fickling, 2002
Bankr. LEXIS 590, 277 B.R. 168 (Bankr. E.D.N.Y. April 30, 2002)
(Cyganowski, B.J.).
Collier on Bankruptcy, 15th Ed. Revised
3:348.05[2]
ABI Members, click here to get the full opinion.
Creditor's attorneys' fees for preparation of a
Chapter 11 plan that was never filed not chargeable to the estate.
Bankr. D. Conn. PROCEDURAL POSTURE: Appellant over-secured
creditor appealed from an order of the United States Bankruptcy Court
for the District of Connecticut disallowing payment in attorney's fees
under 11 U.S.C. § 506(b) in the voluntary Chapter 11 bankruptcy
proceeding filed by appellee debtor. OVERVIEW: When the debtor
did not file a plan of reorganization, the creditor worked on a first
plan, then later filed a second plan. Within months, the debtor filed
its own plan of reorganization, which was the one used. The creditor
sought attorneys' fees incurred in preparing its first plan. The
bankruptcy court found that the creditor's counsel's efforts in
preparing its own plan were not reasonable because the resulting work
product was not utilized prior to the time the creditor submitted an
invoice for the fees, and could, in fact, have never been used. If the
work product was used, it was only by incorporation into the second plan
submitted by the creditor, which itself was never used in the bankruptcy
reorganizations. Although the creditor was free to use it resources to
draft its own plan, the expenditure of resources on a plan that was
never filed with the bankruptcy court was an unreasonable waste of
resources that could not reasonably be charged to the estate under
§ 506(b). The reviewing court was unpersuaded that the bankruptcy
court's factual finding in that regard was incorrect, let alone clearly
erroneous. In re Univ. Towers Owners' Corp., 2002
Bankr. LEXIS 10360, 278 B.R. 302 (Bankr. D. Conn. May 24, 2002)
(Arterton, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:506.04
ABI Members, click here to get the full opinion.
The mere fact that debtor has filed a Chapter 7 case
in response to a wrongful debt claim does not warrant dismissal for bad
faith. Bankr. D. Conn. PROCEDURAL POSTURE: Creditors,
the parents of children killed in a car accident allegedly caused by the
debtor, filed a motion under 11 U.S.C. §§ 707(a), 349(a),
105(a), to dismiss the debtor's Chapter 7 case as a bad faith filing,
and requested that the debtor be prohibited from filing a new petition
for 180 days following the dismissal, and that the debts that would have
been discharged be barred from discharge in any later case. The debtor
objected. OVERVIEW: The court found there was no evidence that in
the bankruptcy case that the debtor had engaged in any egregious
behavior, such as misleading the court, misrepresenting his finances, or
hampering the trustee. The creditors argued that the debtor sought to
avoid one creditor due to a potential state court judgment and there had
been no attempt to repay the creditors. They asserted that the use of
the Bankruptcy Code would be an unconscionable detriment. But while
there was essentially one creditor, the debtor did not manipulate his
financial situation to reduce his estate before the bankruptcy. He did
not live a lavish lifestyle and made no pre-petition transfers. He could
barely make ends meet on his meager income; he provided a home for two
grown children. While the petition was in response to the wrongful death
action, that alone was not cause for dismissal under 11 U.S.C. §
707(a). The substantial abuse test under 11 U.S.C. § 707(b) could
only be used for primarily consumer debt cases. The debt at issue was
not consumer debt. Even if the court considered an ability to pay, the
debtor did not have the means to pay the substantial debt, potentially
millions of dollars. Deglin v. Keobapha, 2002 Bankr. LEXIS
598, 279 B.R. 49 (Bankr. D. Conn. May 22, 2002) (Krechevsky, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 6:707.03
ABI Members, click here to get the full opinion.
Trustee could not recover attorneys' fees incurred in
compelling production from creditor after being directed by court to end
discovery. Bankr. E.D.N.Y. PROCEDURAL POSTURE: After
creditor partners withdrew a demand for a further disbursement from the
sale of partnership property, the trustee moved for sanctions, arguing
sanctions could issue under the court's inherent authority, 11 U.S.C.
§ 105(a), and Fed. R. Bankr. P. 7034, 7037, because the demand had
been a fraud on the court and the trustee had been forced to file a
motion to compel discovery during the contested matter. OVERVIEW:
The court found that despite the withdrawal, the trustee's counsel
insisted upon enforcing the order compelling production after being
directed by the court to end to his discovery campaign. 11 U.S.C. §
105(a) did not authorize the creation of substantive rights not
otherwise unavailable. Fed. R. Bankr. P. 7034 had no direct bearing, it
simply addressed the production of documents and was not a predicate for
sanctions. Fed. R. Bankr. P. 7037 provided for sanctions for a violation
of an order compelling discovery. But, the trustee had pressed a motion
that went beyond the scope of the rule. The bulk of his attorneys' fees
were incurred before the motion to compel was filed and after the demand
was withdrawn. Reasonable attorney's fees incurred for the period
between preparing the motion to compel through the withdrawal were
appropriate. The partners had withdrawn the demand on a pragmatic
assessment of costs versus benefits. While the demand may have only had
a marginal basis, it was not a fraud upon the court. The partners were
obstreperous for repeatedly refusing to produce records. But the trustee
was faulted for expending substantial resources in contesting the
matter. In re Gold, 2002 Bankr. LEXIS 578, B.R. (Bankr.
E.D.N.Y. May 31, 2002) (Bernstein, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 10:7037.01
3d Cir.
Shareholder creditors' contract-based claim against debtor
corporation was properly subordinated under § 510(b). D.
Del. PROCEDURAL POSTURE: Appellant creditors challenged the
order of the United States Bankruptcy Court for the District of Delaware
which granted appellee debtor's motion to subordinate the creditors'
claim under 11 U.S.C. § 510(b). OVERVIEW: After the debtor
filed for bankruptcy, the creditors asserted a claim for $6,159,000. The
creditors were shareholders of the debtor, and claimed the $6,159,000
because the debtor failed to hold an initial public offering pursuant to
the parties' agreement. The trial court granted the debtor's motion to
subordinate the creditor's claim under § 510(b). On appeal, the
court affirmed. The transaction giving rise to the claim involved the
purchase of the debtor's stock because the creditors received the
debtor's stock as part of their compensation for the sale of another
corporation's stock. The fact that the debtor's alleged breach of the
parties' agreement occurred after the issuance of stock was insufficient
to remove the claim from § 510(b)'s scope. The court held that
§ 510(b) did was not limited to tort claims for securities fraud,
and therefore the creditors' claim was not exempt from its scope because
it was asserted as a contract claim. By operation of 11 U.S.C. §
365(g), the debtor's breach gave rise to a pre-petition claim because
the debtor's breach of the agreement occurred with their rejection of it
under the terms of its confirmed plan. Int'l Wireless Communs.
Holdings, Inc., 2002 U.S. Dist. LEXIS 10283, B.R. (D. Del. June 3,
2002) (Farnan, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:510.04
ABI Members, click here to get the full opinion.
Debtor's acquisition of cellular phone company not
fraudulent where purchase price was in line with prevailing values and
did not render debtor insolvent. Bankr. D. Del. PROCEDURAL
POSTURE: Pursuant to a stock purchase agreement, a debtor had
purchased a cellular phone company from defendant holding company. After
the debtor filed for Chapter 11 bankruptcy protection, plaintiff
liquidating trustee sued the holding company and defendant stock owners
to avoid, as constructively fraudulent, the cash transfers made in
connection with the stock purchase transaction. The court held a hearing
on the action. OVERVIEW: To determine whether the acquisition of
the cellular company was a constructively fraudulent avoidable transfer,
the court had to determine whether the debtor (1) received less than
reasonably equivalent value in return for its payment, 11 U.S.C. §
548(a)(1)(B)(i), or (2) was insolvent at the time of (or rendered
insolvent by) the transaction's closing or the debtor was left with
unreasonably small capital. 11 U.S.C. § 548(a)(1)(B)(ii)(I-II). The
trustee failed to show that the debtor received less than reasonably
equivalent value in acquiring the cellular company given that the
relevant comparable sales showed that the price paid was in line with
the prevailing values of such companies and that the trustee's
discounted cash flow studies were based on outdated information. The
debtor was not insolvent or rendered insolvent by the acquisition as the
trustee failed to show that the cellular company's fair enterprise value
was not less than the price paid. The trustee failed to show that the
debtor had unreasonably small capital given the debtor's immediate funds
and the reasonable expectation that it was able to access capital
markets to procure additional capital. Peltz v. Hatten, 2002
U.S. Dist. LEXIS 10282, B.R. (Bankr. D. Del. June 5, 2002) (McKelvie,
D.J. ).
Collier on Bankruptcy, 15th Ed. Revised 5:548.05
6th Cir
Brokerage account held to be non-exempt. Bankr. E.D.
Mich. PROCEDURAL POSTURE: The debtor filed a voluntary
petition for relief under Chapter 7 of the Bankruptcy Code, claiming
exemptions under 11 U.S.C. § 522(b)(2) for a brokerage account and
life insurance policies. The trustee filed an objection to the debtor's
claims of exemption and a motion requiring the debtor to turnover the
non-exempt property. OVERVIEW: The trustee claimed that 11 U.S.C.
§ 522(b)(2) was not a basis for exemption of the debtor's property.
The debtor asserted that his claim of exemption was based upon the state
law of Michigan and that the brokerage account was held jointly with his
non-debtor spouse. The debtor argued that Mich. Comp. Laws §
500.2207 provided for the exemption of the life insurance policies and
that Mich. Comp. Laws § 557.151 provided for the exemption of the
brokerage account. With regard to the insurance policies, the trustee
argued that § 2207 exempted life insurance proceeds, not the cash
surrender values of the policies. The debtor claimed that the statute
specifically referred to the cash value as being exempt from creditors'
claims. The court agreed with the debtor. The debtor's exemption was not
based on Mich. Comp. Laws 500.2209(1), as the trustee claimed. Section
2209(1) pertained only to death benefits payable under a life insurance
policy. The court also believed that the limitation in § 2209(1)
might be unconstitutional. The court found that the brokerage account
was not an individual retirement account, nor a joint account. In
re Johnson, 2002 Bankr. LEXIS 575, 274 B.R. 473 (Bankr. E.D.
Mich. February 15, 2002) (Spector, B.J.).
Collier on Bankruptcy, 15th Ed. Revised
4:522.09[2]
ABI Members, click here to get the full opinion.
Creditor sanctioned for violating discharge
injunction by pursuing claim that was within its fair contemplation
prior to debtor's Chapter 7 filing. Bankr. E.D. Mich.
PROCEDURAL POSTURE: The debtor filed for Chapter 7 relief under
the Bankruptcy Code. The debtor received a discharge. After the
discharge, a creditor filed a third-party complaint against the debtor
and the debtor filed a motion for sanctions for violating the discharge
injunction. OVERVIEW: The debtor contended that any claims that
the creditor may have had against him arose pre-petition and were
discharged in the bankruptcy. The court adopted the 'fair contemplation'
approach to determine when the claim arose. The court found that the
potential that the creditor might have a claim against the debtor was
within the fair contemplation of the creditor before the bankruptcy was
filed. The creditor had a pre-petition relationship with the debtor and
was in a position to ascertain whether the debtor's representations were
accurate. The court concluded that the creditor's claim was a
pre-petition claim. The creditor was listed on the schedules and the
matrix, and received notice of the bankruptcy case. Because the creditor
had notice of the case, the exception to discharge found in 11 U.S.C.
§ 523(a)(3)(B) did not apply. Because the creditor had notice and
did not timely file a complaint to determine the dischargeability of
debt, the court concluded that its debt was discharged, and the attempt
to collect the discharged debt violated 11 U.S.C. § 524(a)(2). The
creditor's third-party complaint violated the discharge injunction and
sanctions were appropriate. In re Parks, 2002 Bankr. LEXIS
579, B.R. (Bankr. E.D. Mich. June 5, 2002) (Rhodes, B.J.).
Collier on Bankruptcy, 15th Ed. Revised
4:524.02[2]
8th Cir.
Chapter 13 plan was not confirmable due to debtor's fraudulent
concealment of real and personal property, income and fraudulent
transfers. Bankr. W.D. Ark. PROCEDURAL POSTURE:
Creditor bank and the Chapter 7 trustee objected to confirmation of the
debtor's Chapter 13 plan arguing the plan was not proposed in good faith
and was forbidden by law under 11 U.S.C. § 1325(a)(3), and that the
value of property to be distributed was less than the amount that would
be paid if the case was a Chapter 7 case, in violation of 11 U.S.C.
§ 1325(a)(4). The bank and trustee also objected to the debtor's
exemption claims. OVERVIEW: Under the plan, unsecured creditors
would be paid 5.1 percent over 36 months. The debtor's original
schedules stated he owned no real property. After inquiry by the trustee
on transfers of assets, the debtor disclosed his interest in 80 acres,
which he later valued at $15,000. He stated he forgot about the
property. The court did not believe the debtor. The debtor also failed
to list a transfer of a boat, motor, and trailer for $2,500, which was
appraised a few days later for $7,800. It evidenced a fraudulent
conveyance. Based on the debtor's bank statements, he had understated
income when he filed the Chapter 7 by $1,800 per month, and had
understated monthly expenses. He had also intentionally misstated income
and expenses when he moved to convert the case to Chapter 13. The plan
was misleading, inaccurate, and manipulated to deceive the court and the
creditors. The boat transfer would be nondischargeable in a Chapter 7
case. The plan was not confirmable. The fraudulent concealment was
evidence so as to deny the exemption in the acreage. The debtor had not
claimed the boat as exempt. There was no contrary evidence of the value
of the carpenter tools claimed as exempt. In re Terry, 2002
Bankr. LEXIS 582, 279 B.R. 240 (Bankr. W.D. Ark. June 5, 2002) (Fussell,
B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1325.08
9th Cir.
Trustee of foreign case was the proper representative to file an
ancillary case in the U.S. under § 304. Bankr. C.D. Cal.
PROCEDURAL POSTURE: The trustee of an Italian bankruptcy debtor
brought an 11 U.S.C. § 304 case to administer its United States
affairs in connection with its Italian case, and moved for a stay under
11 U.S.C. § 304(b) to forestall a default judgment being taken by a
creditor in a state court action. The creditor argued the trustee was
not the authorized representative of the Italian estate. The debtor
filed a document purporting to withdraw the case. OVERVIEW: The
court found that in addition to the creditor's litigation, the debtor
had other business in the district, including claims against another
company, and claims for royalty payments and other entitlements under
various motion picture production agreements. 11 U.S.C. § 304 did
not require that the debtor have assets in the United States. Because a
§ 304 petition commenced a case, it could only be terminated by
dismissal; the purported withdrawal was ineffective. The trustee
submitted a duly certified order issued by the Italian court's
bankruptcy section showing the debtor had a bankruptcy case pending in
that court, and that the trustee was the authorized representative. The
Italian automatic stay, which was similar to a stay under the Bankruptcy
Code, prohibited the creditor from proceeding in the state court, and
any proceedings in the state court after the filing of the Italian
bankruptcy were void. Alternatively, the court issued its own stay order
under 11 U.S.C. § 304(b). The court authorized any United States
creditor to file a claim in the ancillary case. In re Artimm,
2002 Bankr. LEXIS 577, 278 B.R. 832 (Bankr. C.D. Cal. May 31, 2002)
(Bufford, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:304.01
ABI Members, click here to get the full opinion.
Debtor's objection four years after confirmation to
payment of secured creditor not otherwise provided for in Chapter 13
plan denied. B.A.P. 9th Cir. PROCEDURAL POSTURE: Over
four years after confirmation of the Chapter 13 plan, the debtors
objected to a secured creditor's paid claim under Fed. R. Bankr. P.
3007. The United States Bankruptcy Court for the District of Nevada held
that laches barred the objection. The debtors appealed. The creditor
argued that its filed claim was deemed allowed and was not otherwise
provided for under the plan under 11 U.S.C. §§ 502,
1322(b)(2), 1325(a)(5), 1327(a), 1328(a). OVERVIEW: The debtor's
schedules had listed the creditor as unsecured, but the creditor held a
judgment lien. After confirmation, the trustee served a notice of intent
to pay claims, listing the claim as secured. No objection was filed and
the creditor was then paid in full. The court held the claim was deemed
allowed; listing the claim as unsecured in the schedules did not divest
the claim of its secured status under 11 U.S.C. § 502(a). The plan
did not 'provide for' the secured claim and lien; it was not referred to
in the plan. The plan treated all unsecured claims by paying them
nothing. Nothing in the plan alerted the creditor that the debtors
intended simultaneously to avoid its lien and pay it nothing. Such
'treatment' did not meet the due process requirements for the discharge
of a secured debt under 11 U.S.C. § 1328(a). A valuation motion
should have been brought before the creditor was paid, and the untimely
objection was subject to denial based on the equities of the case and
the consideration of the totality of the circumstances. Prejudice
was presumed from delay. Shook v. CBIC (In re Shook), 2002 Bankr.
LEXIS 586, B.R. (B.A.P. 9th Cir. May 22, 2002) (Marlar, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1328.01
ABI Members, click here to get the full opinion.
10th Cir.
Debtor's obligation to bank dischargeable due to bank's
unreasonable reliance on unaudited financial statements provided by
debtor. Bankr. N.D. Okla. PROCEDURAL POSTURE:
Plaintiff bank sought an order determining that an obligation owed to
the bank by defendant debtor was non-dischargeable under 11 U.S.C.
§ 523(a)(2)(B). OVERVIEW: The bank loaned operating capital
to the debtor's painting business, requiring the loan to be personally
guaranteed by the debtor. The debtor provided an unaudited personal
financial statement to the bank describing the debtor's investment real
estate and partnerships. The bank made no effort to verify any of the
information contained on the debtor's financial statement, nor did the
bank conduct any sort of lien search with respect to the assets listed
on the financial statement. The debtor's business defaulted on the note,
and the debtor filed for Chapter 7 bankruptcy. The court determined that
the debtor's obligation to the bank was dischargeable and the bank did
not satisfy the requirements under 11 U.S.C. § 523(a)(2)(B),
because the bank did not reasonably rely on the financial statement
supplied by the debtor. The bank overlooked or chose to ignore 'red
flags' in the incomplete financial statement. Bank of Commerce v.
Smith (In re Smith), 2002 Bankr. LEXIS 596, 278 B.R. 532 (Bankr.
N.D. Okla. May 30, 2002) (Michael, B.J. ).
Collier on Bankruptcy, 15th Ed. Revised
4:523.08[2]
ABI Members, click here to get the full opinion.
Court's denial of Chapter 13 plan without dismissal
of petition was not an appealable final judgment. 10th Cir.
PROCEDURAL POSTURE: The creditor appealed from an order of the
United States District Court for the Eastern District of Oklahoma, which
affirmed a bankruptcy court judgment that sustained the debtor's
objection to the creditor's proof of claim, but denied confirmation of
the debtor's plan without dismissing the debtor's petition filed under
Chapter 13 of the Bankruptcy Code. OVERVIEW: The creditor filed a
proof of claim in the bankruptcy court against the Chapter 13 debtor.
The bankruptcy court held that the creditor's claim, based on a default
judgment in a state court foreclosure action, was not entitled to
preclusive effect under Oklahoma law. The bankruptcy court also
sustained the creditor's objection to the debtor's Chapter 13 plan and
denied confirmation of the plan without dismissing the petition. The
creditor appealed the bankruptcy decisions to the district court, which
entered an order affirming the bankruptcy court's holdings. The court
dismissed the creditor's subsequent appeal. The court held that the
bankruptcy court's orders were not final and neither the court nor the
district court had jurisdiction over the creditor's appeals that
followed. The court noted that the bankruptcy court did not dismiss the
Chapter 13 petition and its decision was thus not final for purposes of
appeal. The court also reviewed the creditor's arguments and found them
to be without merit. Wade v. Connor (In re Connor), 2002 U.S.
App. LEXIS 10908, B.R. (10th Cir. June 7, 2002) (Kelly, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 1:5.01
11th Cir.
A potential fraudulent conveyance claim is property of an estate
and may provide a basis for discovery in ancillary case by foreign
trustee. Bankr. M.D. Fla. PROCEDURAL POSTURE: In an
ancillary case filed under 11 U.S.C. § 304 by a German trustee of a
foreign debtor, respondents, who were alleged to be transferees of funds
from the debtor, moved to dismiss for lack of subject matter
jurisdiction and for sanctions, asserting the debtor had no property in
the district, and that German law provided no right to discovery, thus
the trustee could not proceed with Fed. R. Bankr. P. 2004 examinations
of the transferees. OVERVIEW: The court held that under 11 U.S.C.
§ 541(a), any property was property of the estate that was
available, including an action available to a trustee under the
Bankruptcy Code, which would include a fraudulent transfer claim under
11 U.S.C. § 548. The term 'property' as used in 11 U.S.C. §
304 was to be interpreted in the broadest sense, including property that
was available to the debtor's estate. The fact that the debtor did not
have any tangible 'property' in the district was of no consequence. It
was sufficiently alleged that the respondents, who resided in the
district, received funds allegedly transferred by the debtor which could
be subject to recovery as a fraudulent transfer. As to the contention
that under German law there was no right to discovery, the court
concluded it was without merit because the right to conduct discovery
was procedural, not substantive. It did not make sense to handcuff a
foreign representative from conducting an inquiry under Fed. R. Bankr.
P. 2004. Allowing initial discovery furthered the policy of 11 U.S.C.
§ 304 to aid in the efficiency of foreign insolvency proceedings
involving assets outside of the foreign court. In re Petition of
Gross, 2002 Bankr. LEXIS 566, 278 B.R. 557 (Bankr. M.D. Fla.
February 6, 2002) (Paskay, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:304.03
ABI Members, click here to get the full opinion.
Bankruptcy court bifurcation based on erroneous
valuation rate. Bankr. N.D. Ala. PROCEDURAL POSTURE:
The United States Bankruptcy Court confirmed a debtor's chapter 13
bankruptcy plan. Appellant creditor appealed the decision regarding
valuation of its secured claim on an automobile. OVERVIEW: The
appeal essentially turned on fundamental principles of evidence, the
burden of proof and the burden of going forward, and the question of the
preclusive effect of a chapter 13 plan confirmation order on a debtor
who failed to object to a timely, pre-confirmation filed proof of claim.
In essence, the bankruptcy court erred in taking a short cut approach to
valuation of the car, i.e., by valuing the car without any evidence
other than a car pricing guide and splitting the difference between the
creditor's claimed value and the value set forth in the pricing guide.
Thus, the bankruptcy court had improperly shifted the burden of going
forward with the creditor. Moreover, the bankruptcy court erred in
determining the market interest rate for the secured claim because there
was no evidence in the record to support the risk premium assumed by the
bankruptcy court. Finally, the bankruptcy court erred in allowing the
later reconsideration of the bank's secured claim and the interest to be
paid thereon by allowing the debtor to file a motion to determine value
post-confirmation. That motion was simply an objection to classification
of claims under a different name.EvaBank v. Baxter, 2002 U.S.
Dist. LEXIS 10118, 278 B.R. 867 (Bankr. N.D. Ala. May 30, 2002) (Acker,
D.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:506.03
ABI Members, click here to get the full opinion.
Discharge denied due to debtors' pervasive pattern of
fraud and nondisclosure. Bankr. M.D. Fla. PROCEDURAL
POSTURE: In a Chapter 7 bankruptcy case, plaintiff, the Chapter 7
Trustee filed a complaint against defendant debtors, challenging,
pursuant to 11 U.S.C. § 727(a)(2)(A), (a)(4)(A) and (a)(4)(D), the
debtors' right to the benefits of a general discharge. OVERVIEW:
The Trustee alleged that the debtors knowingly and fraudulently made
false oaths in connection with four distinct issues, including payments
made to reduce the debtors' mortgage and transfers of funds and jewelry
to relatives. In addition, the trustee alleged that, despite repeated
demands by the Trustee, the debtors failed to provide the Trustee with
books, documents, and papers relevant to unscheduled and undisclosed
transfers and payments. Finally, the trustee alleged the debtors made
the undisclosed transfers and payments to hinder, delay, or defraud
creditors. The debtors admitted that they failed to schedule and
disclose the payments and transfers, but they argued that they did not
intend to defraud any creditors, they ultimately gave the Trustee the
documents she requested, and they disclosed at the meeting of creditors
the unscheduled and undisclosed transactions. The court was unpersuaded.
The debtors were represented by counsel and were both highly educated.
The schedules and Statement of Financial Affairs were replete with
numerous significant omissions and indicated a pervasive pattern that
warranted a conclusion that the omissions were not inadvertent.
Jensen v. Brooks, 2002 Bankr. LEXIS 564, 278 B.R. 563 (Bankr.
M.D. Fla. February 19, 2002) (Paskay, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 6:727.01
ABI Members, click here to get the full opinion.
Bankruptcy court erred in valuing collateral retained
by Chapter 13 debtor and setting interest rate without proper
evidence. Bankr. N.D. Ala. PROCEDURAL POSTURE: The
United States Bankruptcy Court confirmed a debtor's chapter 13
bankruptcy plan. Appellant creditor appealed the decision regarding
valuation of its secured claim on an automobile. OVERVIEW: The
appeal essentially turned on fundamental principles of evidence, the
burden of proof and the burden of going forward, and the question of the
preclusive effect of a chapter 13 plan confirmation order on a debtor
who failed to object to a timely, pre-confirmation filed proof of claim.
In essence, the bankruptcy court erred in taking a short cut approach to
valuation of the car, i.e., by valuing the car without any evidence
other than a car pricing guide and splitting the difference between the
creditor's claimed value and the value set forth in the pricing guide.
Thus, the bankruptcy court had improperly shifted the burden of going
forward with the creditor. Moreover, the bankruptcy court erred in
determining the market interest rate for the secured claim because there
was no evidence in the record to support the risk premium assumed by the
bankruptcy court. Finally, the bankruptcy court erred in allowing the
later reconsideration of the bank's secured claim and the interest to be
paid thereon by allowing the debtor to file a motion to determine value
post-confirmation. That motion was simply an objection to classification
of claims under a different name. EvaBank v. Baxter, 2002 U.S.
Dist. LEXIS 10118, 278 B.R. 867 (Bankr. N.D. Ala. May 30, 2002) (Acker,
D.J.).
Collier on Bankruptcy, 15th Ed. Revised
8:1325.06[3]