Collier Bankruptcy Case Update June-16-03
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.
June 16, 2003
CASES IN THIS ISSUE
(scroll down to read the full summary)
§ 541 Funds
due debtor under federal program to reimburse
city for internet installation in city schools
were not property of the estate but city
property.
City of Springfield v. Ostrander (In
re LAN Tamers, Inc.) (1st Cir.)
§ 1329(a) Bankruptcy
court erred in conditioning debtor’s
requested refinance of residence upon modification
of plan.
Muessel v. Pappalardo (In re Muessel)
(B.A.P. 1st Cir.)
2d Cir.
§ 365 Bankruptcy court properly approved agreement for assumption and assignment of lease of store located in a shopping center.
In re Ames Dep’t Stores, Inc. (S.D.N.Y.)
§ 548 Payments to former officer of debtor corporation for less than equivalent value while debtor was insolvent were fraudulent.
Tese-Milner v. Brune (In re Red Dot Scenic, Inc.) (S.D.N.Y.)
28 U.S.C. § 1334(b) Bankruptcy court erred in dismissing adversary proceeding against decedent’s estate for lack of personal jurisdiction as “related to” jurisdiction requires federal question analysis.
Michaelesco v. Estate of Richard (In re Michaelesco) (D. Conn.)
3d Cir.§ 548(a)(1)(B) “Bonus” checks, paid to wife of officer of debtor, absent corroborating evidence that such plan existed, were avoidable fraudulent transfers.
Lichtenstein v. Buttery (In re Computer Personalities Sys., Inc.) (Bankr. E.D. Pa.)
§ 1322(b)(7) Debtors allowed a final chance to amend plan to provide for prompt cure of default and assumption of lease in order to prevent lifting of stay in favor of landlord.
Mumma Realty Assocs. v. Zerance (In re Zerance) (Bankr. M.D. Pa.)
4th Cir.
28 U.S.C. § 158(a)
Leave to file interlocutory appeal of bankruptcy
court’s dismissal of adversary unfair
trade practice claim denied.
Charlotte Commer. Group, Inc. v. Fleet
Nat’l Bank (In re Charlotte Commer.
Group, Inc.) (M.D.N.C.)
5th Cir.
28 U.S.C. § 1412 Lawsuit filed by debtor in federal court in Texas was non-core and therefore not subject to transfer to Ohio, where bankruptcy was pending, on grounds of convenience.
Moto Photo v. K.J. Broadhurst Enters., Inc. (N.D. Tex.)
Rule 8009 District court exercised discretion to allow late filing of reply brief due to appellant’s lack of bad faith or negligence.
GE Capital Corp. v. Acosta (In re Acosta) (E.D. La.)
6th Cir.
§ 328 Bankruptcy court erred in conducting review of actual attorneys’ fees for reasonableness when the contingent fee had been pre-approved.
Nischwitz v. Airspect Air, Inc. (In re Airspect Air, Inc.) (B.A.P. 6th Cir.)
§ 362(d) Bankruptcy was not filed in bad faith where debtor was an actual business entity with operations and revenue.
In re Cambridge Woodbridge Apts., LLC (Bankr. N.D. Ohio)
§ 523(a)(8) Undue hardship discharge of student loan debt based on medical condition denied absent supporting medical evidence or testimony.
Pace v. Education Credit Mgmt. Corp. (In re Pace) (Bankr. S.D. Ohio)
18 U.S.C. § 157 Defendant cleared of bankruptcy fraud was a “party” under the Hyde Amendment (18 U.S.C. § 3006A) and entitled to seek fees and costs for frivolous prosecution.
United States v. Heavrin (6th Cir.)
7th Cir.
§ 109(f) Debtor who derived less than 50 percent of gross income from farming operation was not eligible for relief under chapter 12.
In re Swanson (Bankr. C.D. Ill.)
§ 506 Assets of debtor’s “rabbi trust” were not subject to secured creditor’s security interest but were subject to claims of unsecured or “general” creditors.
Bank of Am. v. Moglia (7th Cir.)
§ 524 State court contempt proceeding that did not seek money judgment or imposition of personal liability against debtors did not violate discharge injunction.
In re Elmes (Bankr. N.D. Ill.)
8th Cir.
§ 1112(b) Conversion from chapter 11 to chapter 7 affirmed where losses were continuing and rehabilitation was not reasonably likely.
Loop Corp. v. United States Trustee (D. Minn.)
9th Cir.
§ 365(d)(3) Nondebtor lessee’s claims against bankruptcy trustee were not entitled to administrative priority.
Einstein/Noah Bagel Corp. v. Smith (In re BCE West, LP) (9th Cir.)
10th Cir.
§ 522(b) Farmer and spouse were both entitled to state exemptions in farm equipment where spouse worked on farm, operated equipment and proceeds were placed in joint account.
Lampe v. Williams (In re Lampe) (10th Cir.)
§ 523(a) Judgment creditor’s motion to reopen for lack of notice denied as service based on the prior name and agent as listed in the original judgment amounted to actual notice.
Chanute Prod. Credit Ass’n v. Schicke (In re Schicke) (B.A.P. 10th Cir.)
11th Cir.
§ 362 Bankruptcy court properly held creditor in contempt for refusing to return automobile repossessed from debtor shortly before filing.
Motors Acceptance Corp. v. Rozier (M.D. Ga.)
Collier Bankruptcy Case Summaries
1st
Cir.
Funds
due debtor under federal program to reimburse
city for internet installation in city
schools were not property of the estate
but city property. 1st Cir.
PROCEDURAL POSTURE: Appellee
city brought an adversary bankruptcy proceeding,
alleging that funds due to the debtor
under a federal program for reimbursement
to the city for installation and maintenance
of internet networks at the city’s
schools were property of the city rather
than the bankruptcy estate. Appellant
trustee appealed the ruling of the District
Court for the District of Massachusetts
which upheld the city’s title to
the funds. OVERVIEW:
The debtor, an internet service provider,
performed installation and maintenance
of internet networks at the city’s
schools and received payment from the
city for such services. Under a federal
program implementing the Telecommunications
Act of 1996, the city was eligible for
reimbursement of a portion of the cost
of the debtor’s services but payment
from the program could only be made to
the debtor, which would then pay the funds
to the city. However, before the debtor
was paid by the program, the debtor filed
a bankruptcy petition and the trustee
claimed that funds due from the program
were property of the debtor’s bankruptcy
estate. The appellate court held that
the funds belonged to the city and were
not the property of the estate. The debtor
was merely a vehicle for delivering the
reimbursement to the city, as evidenced
by the acknowledgment executed by the
debtor indicating that the debtor was
required to remit funds to the city and
that the debtor disclaimed any beneficial
interest in the funds. Further, the program
was subject to a substantial degree of
federal regulatory control and the funds
were expressly intended to assist schools
in obtaining internet access. City
of Springfield v. Ostrander (In re LAN
Tamers, Inc.), 2003 U.S. App.
LEXIS 9564, 329 F.3d 204 (1st Cir. May
19, 2003) (Lynch, C.J.).
Collier on Bankruptcy, 15th Ed.
Revised 5:541.01 [back
to top]
ABI Members, click here to get the full opinion.
Bankruptcy
court erred in conditioning debtor’s
requested refinance of residence upon
modification of plan. B.A.P.
1st Cir. PROCEDURAL POSTURE:
The Bankruptcy Court for the District
of Massachusetts granted the debtor’s
motion to refinance the debtor’s
residence to make a lump sum payment to
the chapter 13 trustee, but required an
amended plan under 11 U.S.C. § 1329
to provide for a 100 percent dividend
to unsecured creditors. The debtor appealed
and also appealed the dismissal of the
chapter 13 while the appeal was pending.
OVERVIEW: The record
did not show that the bankruptcy court
decided that the debtor’s motion
to refinance was a request to modify the
confirmed 13 plan. The Bankruptcy Code
did not authorize the bankruptcy court
to either draft or dictate the provisions
of a plan. Under 11 U.S.C. § 1329(a),
the bankruptcy court was excluded from
the universe of persons who could propose
or request modification of a confirmed
plan. The requirement that the debtor
file an amended plan providing a 100 percent
dividend exceeded the bankruptcy court’s
legal and equitable powers and had to
be vacated. The bankruptcy court found
it did not have jurisdiction to hear the
trustee’s second motion to dismiss
during the appeal of the refinance order,
but sua sponte dismissed the case with
prejudice under 11 U.S.C. § 109(g)(1)
for failure to make plan payments, without
notice. Dismissing the case without notice
violated the debtor’s fundamental
rights to procedural due process, 11 U.S.C.
§ 1307(c), and Fed. R. Bankr. P.
1017(f). On remand, any motion to refinance
could only be deemed an attempt to cure
any arrearage in plan payments. Muessel
v. Pappalardo (In re Muessel),
2003 Bankr. LEXIS 443, — B.R. —
(B.A.P. 1st Cir. May 13, 2003) (per curiam).
Collier on Bankruptcy, 15th Ed.
Revised 8:1329.04 [back
to top]
2d Cir.
Bankruptcy
court properly approved agreement for assumption
and assignment of lease of store located
in a shopping center. S.D.N.Y.
PROCEDURAL POSTURE:
The landlord of premises leased by one of
the debtors moved for emergency relief under
Fed. R. Bank. P. § 8005 for a stay
pending an appeal of an order of the bankruptcy
court approving the agreement for the assumption
and assignment of the lease between landlord
and one of the debtors. OVERVIEW:
Debtor moved under 11 U.S.C. §§
363 and 365 to assume and assign the lease
of its store # 740 to a certain retailer.
The landlord objected to the motion, contending
that the debtors and the retailer failed
to provide it with the adequate assurance
of future performance to which the landlord
was entitled under section 365(f), and,
since the lease was argued to be in a shopping
center, under section 365(b)(3). The bankruptcy
court concluded that the lease was a “shopping
center,” and that the retailer had
satisfied the requirements of section 365(f),
and satisfied the requirements of section
365(b)(3). The district court held that
the landlord had not established a substantial
possibility of success on the merits sufficient
to support the emergency relief for which
landlord moved the district court. The bankruptcy
court correctly construed the requirements
under 11 U.S.C. § 365 (b)(3). The district
court found, inter alia, that the bankruptcy
court’s review of debtor’s 10-K
statements for January 31, 2000 were appropriate
as these statements clearly incorporated
debtor’s performance for the year
in which debtor became a lessee under the
lease. In re Ames Dep’t
Stores, Inc., 2003 U.S.
Dist. LEXIS 3150, — B.R. — (S.D.N.Y.
March 3, 2003) (Batts, D.J.).
Collier on Bankruptcy, 15th Ed. Revised
3:365.01 [back
to top]
ABI Members, click here to get the full opinion.
Payments
to former officer of debtor corporation
for less than equivalent value while debtor
was insolvent were fraudulent. S.D.N.Y.
PROCEDURAL POSTURE:
Defendant, a former officer of the bankrupt
corporation, appealed the bankruptcy court
order that granted summary judgment to plaintiff
trustee on the trustee’s claim that
four payments to the former officer from
the corporation’s corporate checking
account were fraudulent transfers that may
have been avoided by the trustee. OVERVIEW:
The trustee commenced an adversary proceeding
to avoid the conveyance of the corporation’s
property to the former officer and recover
that property pursuant to 11 U.S.C. §§
548(a)(1) and 550(a)(1). In her motion for
summary judgment, the trustee contended
that the $18,000 could be recovered from
the former officer because he was an initial
transferee of four payments from the corporation’s
account. The bankruptcy court had granted
the trustee’s motion for summary judgment
on the ground that the former officer was
an initial transferee under 11 U.S.C. §
550(a)(1). The reviewing court noted that
it was undisputed that there was a transfer
of the corporation’s property, that
the corporation did not receive reasonably
equivalent value for the transfers, and
that the corporation was insolvent at the
time of the transfers to the former officer.
The elements of 11 U.S.C. § 548 were
satisfied, and the trustee was authorized
to exercise her avoidance power. The court
next addressed 11 U.S.C. § 550. The
court agreed with the bankruptcy court’s
determination that the former officer was
an “initial transferee.”
Tese-Milner v. Brune (In re Red Dot
Scenic, Inc.), 2003 U.S.
Dist. LEXIS 4447, — B.R. — (S.D.N.Y.
March 20, 2003) (Mukasey, D.J.).
Collier on Bankruptcy, 15th Ed. Revised
5:548.01 [back
to top]
ABI Members, click here to get the full opinion.
Bankruptcy
court erred in dismissing adversary proceeding
against decedent’s estate for lack
of personal jurisdiction as “related
to” jurisdiction requires federal
question analysis. D. Conn.
PROCEDURAL POSTURE:
Plaintiff debtor brought an adversary proceeding
against defendant estate, seeking to obtain
payment for services rendered for the estate.
The bankruptcy court dismissed the adversary
proceeding for lack of personal jurisdiction
and, alternatively, due to the estate’s
lack of capacity to be sued. The debtor
appealed. The estate moved to dismiss the
appeal as untimely. OVERVIEW:
The debtor alleged a direct right to payment
for services she performed for the decedent’s
project and an indirect right to be paid
for the professional and domestic services
she performed for her architect nondebtor
husband on that project. The debtor failed
to designate the record within 10 days of
filing her notice of appeal, but she satisfied
that requirement 10 days after the district
court directed her attention to her obligation.
The district court determined that dismissal
was not warranted for the debtor’s
late designation, because the debtor’s
misinterpretation did not evidence bad faith,
neglect, or indifference with respect to
established deadlines. On the merits of
the appeal, the district court determined
that the bankruptcy court erred in dismissing
the proceeding for lack of personal jurisdiction;
the bankruptcy court improperly used the
minimum contacts analysis. In the federal
question case, the proper inquiry was whether
the estate resided within the United States.
Also, although the estate lacked capacity
to be sued, the debtor could have cured
the capacity issue by joining the executors.
Michaelesco v. Estate of Richard
(In re Michaelesco), 2003 U.S.
Dist. LEXIS 1876, 288 B.R. 646 (D. Conn.
February 5, 2003) (Arterton, D.J.).
Collier on Bankruptcy, 15th Ed.
Revised 1:3.01[4] [back
to top]
ABI Members, click here to get the full opinion.
3d Cir
“Bonus”
checks, paid to wife of officer of debtor,
absent corroborating evidence that such
plan existed, were avoidable fraudulent
transfers. Bankr.
E.D. Pa. PROCEDURAL
POSTURE: The trustee filed
a complaint against defendants, a former
officer of the debtor and the officer’s
wife, to avoid and recover transfers of
funds from the debtor to defendants under
11 U.S.C. §§ 548(a)(1)(B), 550,
and 12 Pa. Cons. Stat. §§ 5104(a)(2),
5110. The former officer filed a counterclaim
for compensation for services provided to
the debtor. Defendants did not appear at
trial, and their testimony was though depositions.
OVERVIEW:
Three checks were paid to the wife and deposited
into a joint account with the officer, who
claimed the transfers were bonuses. An unauthenticated
offer letter stated that a bonus plan would
be defined by separate agreement but no
bonus plan was produced. None of the debtor’s
files mentioned the bonus plan or the bonuses.
There was no attempt to explain how the
payments were computed. There was no reasonably
equivalent value received by the debtor
for the transfers, which were avoidable
under 11 U.S.C. § 548(a)(1)(B). A fourth
check payable to the officer was beyond
the one-year period of 11 U.S.C. §
548, but was recoverable under 12 Pa. Cons.
Stat. § 5103. The bonus plan was not
proven; there was no antecedent debt to
be satisfied by that check. The officer
was the initial transferee of that check
and the wife was immediate transferee due
to her dominion and control of the joint
account under Pennsylvania law. The wife
was the initial transferee of the checks
made payable to her, and the officer was
the mediate transferee because of the deposit
into the joint account. Joint and several
liability attached to all the transfers.
No evidence was offered on the counterclaim.
Lichtenstein v. Buttery
(In re Computer Personalities Sys., Inc.),
2002 Bankr. LEXIS
1625, — B.R. — (Bankr. E.D.
Pa. December 23, 2002) (Sigmund, B.J.).
Collier on Bankruptcy, 15th Ed. Revised
5:548.05 [back
to top]
ABI Members, click here to get the full opinion.
Debtors
allowed a final chance to amend plan to
provide for prompt cure of default and assumption
of lease in order to prevent lifting of
stay in favor of landlord. Bankr.
M.D. Pa. PROCEDURAL POSTURE:
Chapter 13 debtors, whose previous bankruptcy
filing had been dismissed, filed a plan
whereby they proposed to continue to occupy
property pursuant to a commercial lease,
to timely pay postpetition charges under
the lease, and to cure prepetition deficiencies.
Movant landlord sought an order granting
it relief from the automatic stay and immediate
possession of the property. OVERVIEW:
The landlord initiated an eviction proceeding
against the debtors, and the debtors filed
an initial chapter 13 petition. The first
petition was dismissed the same day the
landlord was granted relief from the automatic
stay. A judge entered judgment for possession
in favor of the landlord, which then obtained
a writ of possession. Immediately thereafter,
the debtors filed their second petition.
The landlord argued that the commercial
lease was terminated prior to the filing
of the second chapter 13 petition and that
the debtors had no lease left to assume.
It also asserted that the debtors had no
ability to cure either the prepetition or
postpetition defaults under the lease. The
bankruptcy court found the provisions of
the debtors’ proposed plan did not
specify an amount or the terms and time
over which the prompt cure would be effected,
and it was unclear whether the debtors would
be able to timely meet their postpetition
obligations under the lease. As such the
debtors’ plan was insufficient, but
the court offered debtors one final opportunity
to present an amended plan that satisfied
those requirements for assumption of the
lease, or relief would be granted the landlord.
Mumma Realty Assocs. v. Zerance
(In re Zerance), 2003 Bankr. LEXIS
85, — B.R. — (Bankr. M.D. Pa.
February 6, 2003) (Bentz, B.J.).
Collier on Bankruptcy, 15th Ed.
Revised 8:1322.11 [back
to top]
ABI Members, click here to get the full opinion.
Leave to
file interlocutory appeal of bankruptcy
court’s dismissal of adversary unfair
trade practice claim denied. M.D.N.C.
PROCEDURAL POSTURE: In an adversary
proceeding, appellant debtor sued defendant
bank for: (1) breach of contract; (2) breach
of the duty of good faith; and (3) violation
of the North Carolina Unfair and Deceptive
Trade Practices Act, N.C. Gen. Stat. §
75-1.1. Pursuant to 28 U.S.C. § 158(a),
the debtor moved for leave to appeal a bankruptcy
court’s interlocutory order dismissing
its third cause of action. OVERVIEW:
In dismissing the third claim, the bankruptcy
court concluded that the debtor’s
complaint alleged a breach of contract claim,
but failed to allege substantial aggravating
circumstances that would give rise to a
claim for unfair and deceptive trade practices.
To determine if an interlocutory appeal
was appropriate, the court turned to the
requirements in 28 U.S.C. § 1292(b).
The question of law presented in the appeal
was grounded in the specific facts of the
case. It did not present a narrow question
of pure law. While the debtor may have asserted
that the bankruptcy court misapplied the
law, that was not the standard under the
section 1292(b)’s second requirement.
The standard was whether courts themselves
disagreed as to what the law was. While
the debtor could maintain both a breach
of contract claim and an unfair and deceptive
trade practices claim, there was no dispute
that to maintain the latter the debtor had
to allege substantial aggravating factors.
Since the debtor’s two remaining claims
involved many of the same issues involved
in the unfair trade and deceptive practices
act claim, granting an interlocutory appeal
would not materially advance the end of
the litigation. Charlotte Commer.
Group, Inc. v. Fleet Nat’l Bank (In
re Charlotte Commer. Group, Inc.), 2003
U.S. Dist. LEXIS 5392, — B.R. —
(M.D.N.C. March 13, 2003) (Bullock, D.J.).
Collier on Bankruptcy, 15th Ed. Revised
1:5.02[2] [back
to top]
ABI Members, click here to get the full opinion.
5th Cir.
Lawsuit
filed by debtor in federal court in Texas
was non-core and therefore not subject to
transfer to Ohio, where bankruptcy was pending,
on grounds of convenience. N.D.
Tex. PROCEDURAL POSTURE:
Plaintiff photo developing company sued
defendants, a franchise and its owners,
in federal court for trademark infringement,
trademark dilution, unfair competition,
breach of contract, and unjust enrichment.
The developing company filed for bankruptcy
in Ohio and wanted the case transferred
to an Ohio federal court where it presumably
would be referred to the bankruptcy court.
Defendants opposed the transfer. OVERVIEW:
The company entered into a 10-year franchise
agreement with the franchise to operate
a photo developing store in a certain town.
As part of the agreement, the company allowed
the franchise to use the service mark and
other proprietary trade names, trademarks,
logos, and emblems for marketing purposes.
The franchise, in turn, was obligated to
pay the company an initial franchise fee
and royalty fees, which it periodically
defaulted on. The company demanded that
the franchise cure its default and threatened
to terminate the franchise agreement if
the payments were not made. The company
maintained that the lawsuit was related
to the bankruptcy because the claims against
the franchise might have significant effects
on the chapter 11 process and, ultimately,
the rights of other creditors. However,
the weight of authority held that a “related
to” or non-core bankruptcy proceeding
was not one under title 11. While it way
have been more convenient for the company
to litigate the action in Ohio, a transfer
was not appropriate where the only justification
was to shift the balance of inconveniences
from one party to another. Moto
Photo v. K.J. Broadhurst Enters., Inc.,
2003 U.S. Dist. LEXIS 1955, — B.R.
— (N.D. Tex. February 10, 2003) (Kaplan,
M.J.).
Collier on Bankruptcy, 15th Ed.
Revised 1:4.04 [back
to top]
ABI Members, click here to get the full opinion.
District
court exercised discretion to allow late
filing of reply brief due to appellant’s
lack of bad faith or negligence.
E.D. La. PROCEDURAL POSTURE:
This action was an appeal from the judgment
of the bankruptcy court on a complaint to
determine dischargeability of a debt. Debtor
moved to strike the reply brief filed by
appellant because it was untimely. OVERVIEW:
Both debtor and appellant agreed that the
brief filing deadlines prescribed in Fed.
R. Bankr. P. 8009 were not jurisdictional
and that whether or not a party should be
sanctioned for failure to comply with those
deadlines was within the court’s discretion.
In deciding whether to impose a sanction
for failing to timely file a brief in accordance
with the Federal Rules of Bankruptcy Procedure,
the court noted that some infractions of
the rules of bankruptcy procedure were harmless
and did not merit dismissal. Regardless
of whether the time computation rules of
the Federal Rules of Civil Procedure or
the Federal Rules of Bankruptcy Procedure
were applicable to the filing of briefs
in a bankruptcy appeal, the court found
no evidence by appellant of bad faith, egregious
behavior, consistently dilatory conduct,
negligence or indifference. Even if the
reply brief was filed three days late, such
an infraction of the bankruptcy procedural
rules was harmless and it would not merit
the striking of the reply brief. GE
Capital Corp. v. Acosta (In re Acosta),
2003 U.S. Dist. LEXIS 1908, — B.R.
— (E.D. La. February 5, 2003) (Africk,
D.J.).
Collier on Bankruptcy, 15th Ed. Revised
10:8009.01 [back
to top]
ABI Members, click here to get the full opinion.
6th Cir.