Collier Bankruptcy Case Update June-23-03
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 23, 2003
Evidentiary hearing necessary
regarding debtor’s use of
vacant lot contiguous to residential
lot prior to determination of
application of homestead exemption
to vacant lot.
Fiffy v. Nickless (In re Fiffy) (B.A.P. 1st Cir.)
§ 362 Injunction proceeding stayed where plaintiff had commenced an involuntary bankruptcy proceeding against an indispensable party.
Boat Basin Investors, LLC v. First Am. Stock Transfer, Inc. (S.D.N.Y.)
§ 365 License agreements with franchisees were executory contracts which could be rejected by debtor.
In re HQ Global Holdings, Inc. (Bankr. D. Del.)
§ 547(c)(2) Trustee could not avoid payment made by debtor clothier for prepetition shipment of sweaters pursuant to the ordinary course of business exception.
Bohm v. Golden Knitting Mills, Inc. (In re Forman Enters.) (Bankr. W.D. Pa.)
Attorney’s fees and late
charges denied as court could
not determine reasonableness of
agreed flat fee without time records.
Countrywide Home Loans, Inc. v. Poff (In re Poff) (Bankr. W.D. Va.)
§ 523(a)(10) Debtor who agreed to waive discharge of claim in first bankruptcy could not seek discharge of the same claim in subsequent filing.
Glover v. Herzog (In re Herzog) (Bankr. N.D. Miss.)
§ 1322(b)(1) Plan confirmation denied due to separate classification of unsecured student loans which were given more favorable treatment than general unsecured debt.
In re Gilley (Bankr. N.D. Tex.)
28 U.S.C. § 1412 Venue of dispute between debtor and customer changed to district where bankruptcy was pending in the interests of justice and efficient administration of the estate.
Bayou Steel Corp. v. Boltex Mfg. Co., LP (E.D. La.)
§ 544(a)(1) Creditor’s lien in debtor’s insurance proceeds which was perfected postpetition was avoidable by trustee.
Farmer v. LaSalle Bank (In re Morgan) (Bankr. E.D. Tenn.)
§ 550(a) Bankruptcy court properly held that creditor lacked standing to bring avoidance actions against other creditors.
Qualitech Steel Corp. v. GE Supply Co. (In re Qualitech Steel Corp.) (S.D. Ind.)
§ 727(d)(1) Discharge revoked due to debtor’s fraudulent concealment of assets.
Swartz v. Spears (In re Spears) (Bankr. C.D. Ill.)
§ 1322(c)(1) Bankruptcy court properly lifted automatic stay to allow debtor’s mortgagee to complete foreclosure where debtor had no further right to redeem when plan was filed.
Colon v. Option One Mortg. Corp. (7th Cir.)
§ 507(a)(3)(A) Debtor’s employees’ claims for severance and vacation pay were entitled to limited priority treatment.
In re Acoustiseal, Inc. (Bankr. W.D. Mo.)
§ 524(a) Predischarge phone calls and one postdischarge collection letter did not provide basis for sanctions against creditor for violation of discharge injunction.
In re Graves (Bankr. N.D. Iowa)
§ 524(a) Debtor’s motion for sanctions for violation of discharge injunction denied as discharge had not yet issued.
In re Bandy (Bankr. N.D. Iowa)
§ 550(a)(1) Creditor could not enforce settlement agreement that was subject of preference action where agreement was a transfer of estate property and was not part of a final judgment.
Peltz v. Gulfcoast Workstation Group (In re Bridge Info. Sys., Inc.) (Bankr. E.D. Mo.)
§ 110 Bankruptcy court properly held that petition preparer had engaged in unfair and deceptive practices and improperly collected court fees from debtors.
Scott v. United States Trustee (In re Doser) (D. Idaho)
§ 503(b) Creditor entitled to administrative expense for unpaid, postpetition lease payments on debtor’s construction vehicles, but was not entitled to superpriority.
Zions Credit Corp. v. Rebel Rents, Inc. (In re Rebel Rents, Inc.) (Bankr. C.D. Cal.)
§ 330(a) Bankruptcy court properly reduced debtors’ attorney’s fees and ordered payment of the fees through the chapter 12 plan as administrative expenses.
Miller v. United States Trustee (In re Miller) (B.A.P. 10th Cir.)
§ 523(a)(2)(A) Claim of creditor who sold medical practice on the basis of debtor’s misrepresentations was nondischargeable on grounds of intentional fraud.
Doig v. McHugh (In re McHugh) (Bankr. D. Colo.)
§ 522(b) Debtor was not entitled to state exemption in interest in non-qualified pension plan.
In re Madia (Bankr. M.D. Fla.)
§ 523(a) Judgment against attorney debtor for fraud while acting in a fiduciary capacity was nondischargeable.
Bookbinder v. Pleeter (In re Pleeter) (Bankr. S.D. Fla.)
§ 523(a)(4) Claim that debtor accountant overcharged former client did not rise to the level of fraud or embezzlement and was dischargeable.
Kagan v. Bercu (In re Bercu) (Bankr. M.D. Fla.)
§ 544(b) Trustee could not avoid purchases made by nondebtor with cash received from corporate debtor’s principal shareholder absent judgment of liability to estate, although imposition of constructive trust was appropriate.
Hyman v. Harrold (In re Scott Wetzel Servs., Inc.) (Bankr. M.D. Fla.)
Collier Bankruptcy Case Summaries
Evidentiary hearing necessary regarding debtor’s use of vacant lot contiguous to residential lot prior to determination of application of homestead exemption to vacant lot. B.A.P. 1st Cir. PROCEDURAL POSTURE: Appellant debtor appealed the order of the Bankruptcy Court for the District of Massachusetts that sustained in part and overruling in part the objection of appellee chapter 7 trustee to the debtor’s claimed homestead exemption in four parcels of real estate under Mass. Gen. Laws ch. 188, section 1. OVERVIEW: The debtor owned three lots (residential lots) on which his house, outbuildings, and driveway were located. The debtor also acquired a fourth contiguous parcel of land, designated as “lot A,” by a separate deed. Lot A was vacant wooded land, had no frontage on any street, and was located immediately behind the residential lots. The debtor filed a declaration of homestead with respect to the four contiguous lots. The trustee asserted that only the lot with the house, was entitled to the exemption. The bankruptcy appellate panel found that Massachusetts law did not proscribe a homestead exemption simply because the property consisted of separately-deeded parcels, nor did it require partition of property included in the homestead simply because a part of the claimed homestead was vacant land. Rather, it required that the additional parcel actually be used and occupied as part of the principal residence or in connection with the principal residence. Although the bankruptcy court stated the standard to be one of “actual use” of the property, it did not conducted a fact specific inquiry into the nature and use, or the intended use, of lot A by the debtor. Fiffy v. Nickless (In re Fiffy), 2003 Bankr. LEXIS 502, — B.R. — (B.A.P. 1st Cir. May 29, 2003) (Votolato, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:522.02 [back to top]
proceeding stayed where plaintiff
had commenced an involuntary bankruptcy
proceeding against an indispensable
party. S.D.N.Y. PROCEDURAL
POSTURE: Plaintiff sellers
moved pursuant to Fed. R. Civ.
P. 65 for an injunction ordering
the delivery of a certain number
of free-trading shares of a corporation
by defendant companies and individuals.
corporation was an indispensable
party under Fed. R. Civ. P. 19(a).
Thus, the court could not reach
the merits of the seller’s
claim ; the seller’s could
not show the likelihood of success
on the merits or serious questions
going to the merits. The court
assumed the corporation had acquiesced
to the jurisdiction of the court,
as the corporation submitted papers
and appeared before the court.
Further, there was no evidence
that the corporation would destroy
diversity jurisdiction. Thus,
the corporation met the jurisdictional
requirements of Rule 19. The corporation
was also a necessary party, as
complete relief could not be accorded
in the absence of the corporation,
which was the principal in a principal/agent
relationship with two defendants
and had given its agents limited
ability to provide the relief
requested. Further, the sellers
appeared to acknowledge that the
corporation should be a party
to this action; however, they
did not join the corporation because
they had initiated an involuntary
bankruptcy petition against the
corporation under 11 U.S.C. §
303. Because the resulting automatic
stay, the court had to stay this
action until the corporation could
be joined. Boat Basin
Investors, LLC v. First Am. Stock
Transfer, Inc., 2003
U.S. Dist. LEXIS 1838, —
B.R. — (S.D.N.Y. February
7, 2003) (Sweet, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.01 [back to top]
agreements with franchisees were
executory contracts which could
be rejected by debtor. Bankr.
D. Del. PROCEDURAL
POSTURE: A debtor
and its related entities (the
debtors) filed chapter 11 petitions
and the cases were jointly administered.
The debtors later moved to reject
certain license agreements with
certain franchisees. The franchisees’
committee and the individual franchisees
opposed the motion and claimed
that the agreements were not executory
contracts subject to 11 U.S.C.
§ 365. OVERVIEW:
The agreements in issue were related
to the exclusive use of the proprietary
marks in certain territories.
Under the agreements the debtors
could not use the proprietary
marks in the territories it granted
to the franchisees. The court
found that the debtors’
agreement to forbear from using
the proprietary marks in the exclusive
franchisee territories was an
ongoing material obligation as
of the bankruptcy petition date.
The court concluded that the agreements
were executory contracts subject
to the provisions of 11 U.S.C.
§ 365. The court used the
business judgment standard to
determine that the debtors’
rejection of the agreements was
made to benefit the estate and
not done in bad faith. The franchisees
were not protected by 11 U.S.C.
In re HQ Global Holdings,
Bankr. LEXIS 146, 290 B.R. 507
(Bankr. D. Del. February 25, 2003)
Collier on Bankruptcy, 15th Ed. Revised 3:365.01 [back to top]
Trustee could not avoid payment made by debtor clothier for prepetition shipment of sweaters pursuant to the ordinary course of business exception. Bankr. W.D. Pa. PROCEDURAL POSTURE: Plaintiff, chapter 7 trustee in bankruptcy, sought to avoid as a preference a payment made by debtor clothier to defendant creditor, made five weeks prior to the filing of debtor’s bankruptcy petition for a shipment of sweaters the debtor had previously received from the creditor. The creditor asserted the payment was made within the “ordinary course” of business, and was not avoidable under 11 U.S.C. § 547(c)(2). OVERVIEW: The creditor sold the merchandise to the debtor after receiving a favorable credit report, on NET 30-day terms. The two had never done business before. The court determined that the transfer to the creditor qualified as a preference under 11 U.S.C. § 547(b), because the debtor was insolvent at the time it made the payment. The creditor argued that the transfer nonetheless fell within the scope of the “ordinary course” exception set forth in 11 U.S.C. § 547(c)(2). It was undisputed that the transfer debtor made for the first shipment of sweaters was on account of a debt incurred in the ordinary course of the business affairs of the debtor and the creditor. The creditor presented testimony describing the relevant industry, that payments routinely were made after the due date on “NET 30” terms. The court agreed that no unusual conduct occurred during the period between when the creditor had shipped the sweaters and the debtor had sent the payment that would have taken the payment out of the ordinary course of business. Although the payment was a preference, it could not be avoided under the ordinary course of business exception. Bohm v. Golden Knitting Mills, Inc. (In re Forman Enters.), 2003 Bankr. LEXIS 543, — B.R. — (Bankr. W.D. Pa. June 3, 2003) (Markovitz, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:547.04 [back to top]
fees and late charges denied as
court could not determine reasonableness
of agreed flat fee without time
records. Bankr. W.D.
Va. PROCEDURAL POSTURE:
Previously, the chapter 7 trustee
liquidated property in which movant,
a secured creditor, held a security
interest. The trustee paid the
secured debt from the sale proceeds,
and the secured creditor moved
for the payment of attorney fees
and late charges pursuant to 11
U.S.C. § 506. The trustee
objected to the motion. OVERVIEW:
The secured creditor sought payment
of attorney’s fees in the
amount of $1,225.00 and late charges
of $50.95. The trustee objected.
At hearing on the objection, counsel
for the secured creditor presented
no evidence to support allowance
of attorney’s fees under
11 U.S.C. § 506(b) or the
late charges. Subsequently, in
response to an order of the court,
the secured creditor’s attorney
filed documentation supporting
the fee request and late charges.
In that documentation, counsel
revealed that the matters covered
by the request for attorney’s
fees arose as a result of a flat
fee arrangement between counsel
and the secured creditor. Counsel
did not maintain time records.
Without time records, the court
has no basis for determining the
reasonableness of the fees counsel
requested. Also, counsel again
failed to justify the late charge
fee of $50.95. Countrywide
Home Loans, Inc. v. Poff (In re
Bankr. LEXIS 507, — B.R.
— (Bankr. W.D. Va. May 27,
2003) (Krumm, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:506.04 [back to top]
who agreed to waive discharge
of claim in first bankruptcy could
not seek discharge of the same
claim in subsequent filing.
Bankr. N.D. Miss. PROCEDURAL
POSTURE: In a prior bankruptcy,
defendant debtor agreed to a waiver
of discharge on obligations owed
to plaintiff creditor. Subsequently,
the debtor filed for bankruptcy,
seeking to discharge the creditor’s
obligations to which the debtor
waived discharge. The creditor
filed an adversary proceeding
seeking a determination that the
debts were nondischargeable pursuant
to 11 U.S.C. § 523(a)(10).
The creditor moved for summary
After the waiver in the prior
bankruptcy, the creditor obtained
a state court judgment against
the debtor. The debtor submitted
an affidavit that although at
the time of the waiver, he felt
it was a conscious and fully informed
judgment, he subsequently discovered
the total ramifications of such
a waiver. If he had known the
full ramifications, he would never
have agreed to this waiver of
discharge. The bankruptcy court
was unsympathetic, calling the
debtor’s actions a blatant
effort to abuse the bankruptcy
process. The debtor could not
manufacture a disputed material
issue of fact by simply submitting
a second sworn affidavit that
was directly adverse to the earlier
affidavit that he submitted in
the prior bankruptcy. The bankruptcy
court held that the debtor was
judicially estopped from attempting
to take his current legal position
which was completely inconsistent
with the position that he took
in the prior bankruptcy. Glover
v. Herzog (In re Herzog),
2003 Bankr. LEXIS 501, —
B.R. — (Bankr. N.D. Miss.
May 5, 2003) (Houston, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.16 [back to top]
confirmation denied due to separate
classification of unsecured student
loans which were given more favorable
treatment than general unsecured
debt. Bankr. N.D. Tex.
PROCEDURAL POSTURE: Debtors
moved for confirmation of their
proposed final chapter 13 plan.
The chapter 13 trustee objected
to the plan, arguing that it unfairly
discriminated against unsecured
Debtors’ plan was a 60-month
plan providing for payments of
$440 per month, resulting in a
5.6 percent return to unsecured
creditors. The plan separately
classified the two student loans
and provided for direct payments
of $200 per month against the
student loans. Debtors and the
trustee stipulated that, if the
student loan debts were not separately
classified (and hence no discrimination)
and thus paid pro rata with other
unsecured creditors, the dividend
to unsecured creditors under a
hypothetical 36-month plan would
increase to approximately 12 percent.
The parties further stipulated
that the $200 direct payment on
the student loans was the regular
payment on the loans and that
such payment will continue for
a period of 10 years. The trustee
argued that the plan violated
11 U.S.C. § 1322(b)(1), by
treating nondischargeable unsecured
student loan obligations more
favorably than dischargeable general
unsecured debt. The court adopted
a formula described in another
bankruptcy case in the district
and, based on that formula, debtors’
plan did violate section 1322(b)(1).
Paragraph (b)(5) did not save
the plan, as it did not constitute
an exception to paragraph (b)(1).
In re Gilley,
2003 Bankr. LEXIS 520, —
B.R. — (Bankr. N.D. Tex.
June 3, 2003) (Jones, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1322.05 [back to top]
of dispute between debtor and
customer changed to district where
bankruptcy was pending in the
interests of justice and efficient
administration of the estate.
E.D. La. PROCEDURAL
POSTURE: Plaintiff seller
filed a voluntary petition for
relief under chapter 11 in the
Bankruptcy Court for the Northern
District of Texas. The seller
commenced an action in state court
against defendant buyer, seeking
money for steel allegedly purchased
by the buyer. The buyer removed
the case and moved to transfer
venue. The seller moved for abstention
and/or remand. OVERVIEW:
The case was removed to the district
court on the grounds that it was
arising in or related to the seller’s
bankruptcy case, under 28 U.S.C.
§§ 1334(b), 1452(a).
The buyer contended that it was
entitled to a setoff and/or recoupment.
There was a strong presumption
in favor of placing venue in the
district where the bankruptcy
proceedings were pending. The
court found that the considerations
behind the presumption were heightened
because the determination under
28 U.S.C. § 157(b)(3) was
required in order to decide the
seller’s motion for abstention
and/or remand. This determination
was for the bankruptcy judge.
Thus, the interests of justice
and the efficient administration
of the bankruptcy estate strongly
favored transfer. Moreover, it
likely would have been more convenient
for the parties to litigate both
the seller’s claim and the
buyer’s counterclaim in
the same forum-particularly if
both claims arose out of the same
transaction. Thus, whether the
buyer’s claim was ultimately
classified as a setoff or not,
the buyer was restricted to the
bankruptcy court in its pursuit
of that claim until the bankruptcy
court determined otherwise. Bayou
Steel Corp. v. Boltex Mfg. Co.,
LP, 2003 U.S. Dist. LEXIS
9395, — B.R. — (E.D.
La. May 30, 2003) (Englehardt,
Collier on Bankruptcy, 15th Ed. Revised 1:4.04 [back to top]
lien in debtor’s insurance
proceeds which was perfected postpetition
was avoidable by trustee. Bankr.
E.D. Tenn. PROCEDURAL
POSTURE: The chapter
7 trustee sought to avoid the
creditor’s security interest
in the debtor’s car under
Tenn. Code § 55-3-126 and
11 U.S.C. §§ 544 and
550, and argued that perfection
after the bankruptcy violated
11 U.S.C. § 362 and that
insurance proceeds paid to the
creditor were subject to turnover
under 11 U.S.C. § 542. On
cross motions for summary judgment,
the creditor argued it was entitled
to equitable subrogation. OVERVIEW:
The exclusive method for obtaining
a perfected security interest
on the car was by having such
lien noted on the certificate
of title as provided by Tenn.
Code § 55-3-126. Although
the creditor had refinanced the
debtor’s car and paid off
the prior lienor, the creditor’s
security interest was not perfected
for two years. The security interest
in the car was not perfected until
the Tennessee Department of Title
and Registration received the
creditor’s application for
the notation of the lien on the
certificate of title, which was
after the bankruptcy. Any equitable
principals under Tenn. Code §
47-1-103, such as subordination,
had to give way to the requirements
of Tenn. Code §§ 47-9-311
and 55-3-126. Perfection occurred
in violation of the automatic
stay of 11 U.S.C. § 362(a)(4)
and was voided. The trustee, as
a hypothetical judicial lien creditor
under 11 U.S.C. § 544(a)(1),
was entitled to avoid the creditor’s
lien in the insurance proceeds
received from the insurance company
and to recover the same under
11 U.S.C. § 550(a)(1). Farmer
v. LaSalle Bank (In re Morgan),
2003 Bankr. LEXIS 327, 291 B.R.
795 (Bankr. E.D. Tenn. March 18,
2003) (Stair, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:544.05 [back to top]
court properly held that
creditor lacked standing
to bring avoidance actions
against other creditors.
Plaintiff, a creditor, filed
avoidance actions against
defendants, two corporations.
On cross-motions for summary
judgment, the bankruptcy
court granted summary judgment
to the corporations and
denied summary judgment
to the creditor. The creditor
On appeal, the creditor
asserted that the bankruptcy
court erred when it found
that it lacked jurisdiction
over the proceedings because
the assets at issue had
been transferred out of
the bankruptcy estates and
because the creditor lacked
standing. Based on the facts
and the history of the case,
the district court found
that the bankruptcy court
committed clear error when
it found that the avoidance
claims at issue were sold
in the estate asset sale,
and therefore, the bankruptcy
court lacked jurisdiction
over the action. Therefore,
the bankruptcy court improperly
granted summary judgment
in the corporations’
favor on the basis that
it lacked subject matter
jurisdiction over the claims
asserted. However, the district
court also found that the
creditor lacked standing
to bring adversary proceedings
against the corporations
because it failed to demonstrate
that it could stand in the
shoes of the debtors and
because it failed to show
that recovery would benefit
the bankruptcy estates.
Accordingly, the bankruptcy
court properly granted summary
judgment in favor of the
corporations on the basis
that the creditor lacked
Steel Corp. v. GE Supply
Co. (In re Qualitech Steel
U.S. Dist. LEXIS 9427, —
B.R. — (S.D. Ind.
May 9, 2003) (McKinney,
Collier on Bankruptcy, 15th Ed. Revised 5:550.02 [back to top]
Discharge revoked due to debtor’s fraudulent concealment of assets. Bankr. C.D. Ill. PROCEDURAL POSTURE: The trustee filed an adversary complaint to revoke the debtor’s discharge under 11 U.S.C. § 727(d)(1), arguing that the debtor failed to disclose a large sum of cash in her bankruptcy papers as the debtor was obligated to do by 11 U.S.C. § 521 and Fed. R. Bankr. P. 1007(b). OVERVIEW: It was undisputed that the trustee was unaware of facts which would have put him on notice of the debtor’s possible frau