Collier Bankruptcy Case Update May-14-01
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.
May 14, 2001
CASES IN THIS ISSUE
(scroll down to read the full
summary)
- 1st Cir.
Rule 9006(b)(1) B.A.P. affirmed decision that debtor’s failure to amend list of creditors was not result of excusable neglect and that no cause existed to schedule omitted creditors.
Moretti v. Bergeron (In re Moretti) (B.A.P. 1st Cir.) 053041
2d Cir.
§ 523(a)(7) Civil forfeiture funds were nondischargeable.
Thaler v. Nassau District Attorney (In re Wolfson) (Bankr. E.D.N.Y.) 053020
§ 1121(d) Exclusivity period was not terminated.
In re Sletteland (Bankr. S.D.N.Y.) 053035Rule 9024 Shareholders pursuing fraud action were barred by res judicata.
Lawrence Group v. Barton (N.D.N.Y.) 053042
3d Cir.
§ 362(d) Mortgagee satisfied burden of establishing that its interests were not adequately protected and that cause existed for relief from stay.
In re Geiger (Bankr. E.D. Pa.) 053008§ 506(a) IRS lien attached to equity in property.
Jeffrey v. United States (In re Jeffrey) (Bankr. W.D. Pa.) 053011§ 1327 Confirmed plan did not affect judgment lien where debtor did not file adversary complaint to avoid mortgagee’s lien or object to its proof of claim.
In re Geiger (Bankr. E.D. Pa.) 05303728 U.S.C. § 959 Suit against trustee required leave of bankruptcy court.
Richman v. Batt (In re Batt) (E.D. Pa.) 053039
4th Cir.
§ 503(b)(1)(A) Claim for postpetition payments for lease of aircraft did not qualify as administrative expense.
In re Air South Airlines, Inc. (Bankr. D.S.C.) 053009§ 507(a)(8) Previous chapter 13 case tolled the three-year period for priority on tax claim.
In re Fiels (Bankr. D. Md.) 053012
5th Cir.
§ 727(a)(4)(A) Court of Appeals affirms finding of debtor’s false oath.
In re Sholdra (5th Cir.) 053032
6th Cir.
§ 348(f) Date of petition was dispositive in determining whether insurance proceeds constituted property of the estate.
In re Carter (Bankr. W.D. Tenn.) 053004§ 362(a)(8) IRS was not in contempt.
Madison Recycling Assocs. v. IRS (In re Madison Recycling Assocs.) (E.D. Ky.) 053007
8th Cir.
§ 105(a) Payment of prepetition claims was authorized.
In re Wehrenberg, Inc. (Bankr. E.D. Mo.) 053002§ 109(g) 180-day period set forth in section 109(g) was tolled during pendency of improperly filed petition.
In re Rives (Bankr. E.D. Mo.) 053003§ 362(a)(6) Chapter 7 debtor could recover garnishment of wages earned postpetition and paid out postpetition based on violation of automatic stay.
Jackson v. K.A.S. Enters., Inc. (In re Jackson) (Bankr. E.D. Mo.) 053006§ 522(b)(2)(A) Misouri debtor could not claim exemption in proceeds from deceased nondebtor spouse’s Federal Employee Group Life Insurance policy.
In re Selfe (Bankr. E.D. Mo.) 053014
9th Cir.
§ 350(b) Former trustee’s motion to reopen was denied.
In re DeLash (Bankr. E.D. Cal.) 053005§ 523(a)(4) Prepetition default judgment was excepted from discharge.
Cal-Micro, Inc. v. Cantrell (In re Cantrell) (Bankr. N.D. Cal.) 053017§ 523(a)(6) Judgment for wrongful termination had collateral estoppel effect.
Jorge v. Mannie (In re Mannie) (Bankr. N.D. Cal.) 053019§ 523(a)(8) District court remanded issue of undue hardship for a determination of debtor’s good faith and future ability to pay. United States Department of Education v. Wallace (In re Wallace) (C.D. Cal.) 053021
10th Cir.
§ 503(b)(1)(A) Court of Appeals held that lump sum payments upon termination pursuant to employment contracts were not entitled to priority as administrative expenses.
Bachman v. Commercial Financial Services, Inc. (In re Commercial Fin. Servs.) (10th Cir.) 053010
11th Cir.
§ 523(a)(8) Chapter 7 debtor’s student loans discharged as undue hardship.
Mallinckrodt v. Chemical Bank (In re Mallinckrodt) (Bankr. S.D. Fla.) 05302228 U.S.C. § 157(e) Trustee did not waive right to jury trial.
Hays v. Equitex, Inc. (In re RDM Sports Group) (Bankr. N.D. Ga.) 053038
Collier Bankruptcy Case Summaries
1st Cir.
B.A.P. affirmed decision that debtor’s failure to amend list of creditors was not result of excusable neglect and that no cause existed to schedule omitted creditors. B.A.P. 1st Cir. The debtor appealed from a bankruptcy court order in his reopened chapter 7 case that denied him leave to amend his schedules to add four omitted creditors. The First Circuit B.A.P. affirmed. The court held that the bankruptcy court did not abuse its discretion when it concluded that the debtor failed to satisfy his burden of establishing both that his failure to amend the list of creditors and the schedule of liabilities was the result of excusable neglect and that cause existed to schedule the omitted creditors. The court explained that contrary to the debtor’s claims, excusable neglect was both relevant and part of the debtor’s burden of proof. The court also found that the bankruptcy court properly considered financial prejudice that the creditors suffered in deciding the excusable neglect issue. Finally, the court rejected the debtor’s argument that the creation of procedures for adjudicating the dischargeability of omitted debts constituted cause for allowing the requested amendments.Moretti v. Bergeron (In re Moretti), 2001 Bankr. LEXIS 321, – B.R. – (B.A.P. 1st Cir. March 30, 2001) (Per curiam).
Collier on Bankruptcy, 15th Ed. Revised 10:9006.06
2nd Cir.
Civil forfeiture funds were nondischargeable. Bankr. E.D.N.Y. The chapter 7 trustee filed an adversary proceeding seeking a determination that two bank accounts held in escrow by the district attorney’s office in the names of the debtors were property of the estate and subject to turnover. The debtors had settled prepetition a civil forfeiture proceeding in connection with a state (New York) criminal prosecution against them for the promotion of an illegal gambling operation. The stipulation and order specifically provided for the forfeiture of funds held in the debtors’ bank accounts. The parties filed cross motions for summary judgment. The bankruptcy court granted the district attorney’s motion for summary judgment, holding that even if the forfeited funds were property of the estate, the funds were nondischargeable under section 523(a)(7). The court noted that the funds qualified as forfeitures payable to and for the benefit of a governmental unit and were not compensation for actual pecuniary loss.Thaler v. Nassau District Attorney (In re Wolfson), 2001 Bankr. LEXIS 327, – B.R. – (Bankr. E.D.N.Y. April 2, 2001) (Bernstein, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.13[2]
Exclusivity period was not terminated. Bankr. S.D.N.Y. A shareholder group that had obtained a substantial judgment against the individual chapter 11 debtor filed a motion to terminate the period during which the debtor had the exclusive right to file a plan. The exclusive period had been extended four times while the state law matters were on appeal. The debtor’s principal assets were his minority interests in the companies controlled by the shareholder group and the group argued that he could not confirm a plan over their objections. The bankruptcy court denied the motion, holding that the creditor failed to show sufficient cause why the period should be shortened. The debtor’s interests in the companies had not deteriorated over the passage of time and much of the litigation had been initiated and continued by the creditors (citing Collier on Bankruptcy, 15th Ed. Revised).In re Sletteland, 2001 Bankr. LEXIS 347, – B.R. – (Bankr. S.D.N.Y. March 28, 2001) (Gropper, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 7:1121.06
Shareholders pursuing fraud action were barred by res judicata. N.D.N.Y. At the time of their petition filing, the debtors held shares of stock in an entity. It was determined that the stock was an asset of the estates, which should be liquidated. A purchaser offered to purchase the shares on behalf of anonymous buyers, and the bankruptcy court found that $2.25 per share was the fair and reasonable price, and approved the sale, which occurred in September 1997. In October 1997 information regarding a certain product of the entity became public, and the debtors alleged that this information was previously known to the purchasers and was withheld to keep the sale price low. Thereafter, shares of the entity stock increased to $9.87. In September 1998 the debtors commenced seven adversary proceedings alleging fraud. The purchasers filed a motion to dismiss, arguing that the debtors sought to collaterally attack the sale order. The court denied the motion to dismiss. The B.A.P. transferred the consolidated appeal to the district court, which reversed the bankruptcy court’s decision by order dated September 5, 2000, holding that the debtors’ adversary proceedings must be dismissed as impermissible collateral attacks. Thereafter a group of shareholders of stock in the entity, which stock was to be sold pursuant to the sale order, filed adversary proceedings alleging securities fraud. The purchasers filed a motion to dismiss, arguing that the shareholders were bound by the district court order. The shareholders argued that they did not have standing to bring a motion pursuant to FRCP Rule 60(b), made applicable by Rule 9024, before the bankruptcy court. The district court granted the motion and dismissed the adversary proceeding, holding that the shareholders were precluded by res judicata from pursuing their action. The court reasoned that the shareholders were parties to the original adversary proceedings, which asserted the same cause of action for fraud. Accordingly, the claim asserted by the shareholders could not be relitigated.Lawrence Group v. Barton, 2001 U.S. Dist. LEXIS 4919, – B.R. – (N.D.N.Y. April 23, 2001) (Hurd, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 10:9024.01, .03
3rd Cir.
Mortgagee satisfied burden of establishing that its interests were not adequately protected and that cause existed for relief from stay. Bankr. E.D. Pa. A secured mortgagee moved for relief from the automatic stay to pursue its in rem, state court foreclosure rights against the chapter 13 debtor’s residence. The mortgagee argued that its lien survived the plan confirmation process and that its interests were not adequately protected. The bankruptcy court granted the mortgagee’s motion. The court held that because the debtor did not file either an adversary complaint to avoid the mortgagee’s lien or an objection to mortgagee’s proof of claim, the debtor’s confirmed plan was ineffective to the extent that it purported to avoid, cancel, reduce or modify the mortgagee’s judgment lien. The judgment lien survived the confirmation process. Next, the court noted that the debtor’s confirmed plan did not provide for the mortgagee’s secured claim or lien. The mortgagee held a foreclosure judgment and the amount of the judgment exceeded the value of the collateral. The debtor lacked equity in the collateral, and the debtor had not made a payment on the mortgage since February of 1999. The court held, based upon the foregoing, that the mortgagee met its burden of establishing that its interests were not adequately protected and that cause existed to grant it relief from the automatic stay.In re Geiger, 2001 Bankr. LEXIS 324, – B.R. – (Bankr. E.D. Pa. March 22, 2001) (Twardowski, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.07[3]
IRS lien attached to equity in property. Bankr. W.D. Pa. The chapter 13 debtor filed an adversary proceeding to determine the secured status of the IRS tax liens on her household goods, unliquidated medical malpractice claim and pension. The debtor argued that she had no equity in the property and that the property was protected by the exemptions from levy provided in 26 U.S.C. section 6334. The bankruptcy court granted the IRS’s cross-motion for summary judgment, holding thatthe IRS liens attached to debtor’s personal property to the extent of her equity in same, to the value of the medical malpractice claim and to the present value of her right to receive future payments from her pension. The court noted that the debtor was correct that 26 U.S.C. section 6334 exempted certain property from levy, however it did not preclude attachment of the valid tax liens under 26 U.S.C. section 6321, nor did it preclude payment of the liquidated claims through the chapter 13 plan.Jeffrey v. United States (In re Jeffrey), 2001 Bankr. LEXIS 337, – B.R. – (Bankr. W.D. Pa. April 12, 2001) (Fitzgerald, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:506.03
Confirmed plan did not affect judgment lien where debtor did not file adversary complaint to avoid mortgagee’s lien or object to its proof of claim. Bankr. E.D. Pa. A secured mortgagee moved for relief from the automatic stay to pursue its in rem, state court foreclosure rights against the chapter 13 debtor’s residence. The mortgagee argued that its lien survived the plan confirmation process and that its interests were not adequately protected. The bankruptcy court granted the mortgagee’s motion. The court held that because the debtor did not file either an adversary complaint to avoid the mortgagee’s lien or an objection to mortgagee’s proof of claim, the debtor’s confirmed plan was ineffective to the extent that it purported to avoid, cancel, reduce or modify the mortgagee’s judgment lien, and the judgment lien survived the confirmation process. Since the plan did not extinguish the mortgagee’s lien or its in rem rights, and the court found that the mortgagee met its burden of establishing that its interests were not adequately protected, the court concluded that cause existed to grant the mortgagee relief from the automatic stay.In re Geiger, 2001 Bankr. LEXIS 324, – B.R. – (Bankr. E.D. Pa. March 22, 2001) (Twardowski, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1327.01
Suit against trustee required leave of bankruptcy court. E.D. Pa. In 1991 an involuntary chapter 7 petition was filed against the debtor and a trustee was appointed. In 2000 the debtor’s former spouse filed a complaint with the district court seeking $50 million in damages against the trustee, alleging that the trustee allowed lawyers and accountants to steal money from the estate and that he accepted low settlements on behalf of the estate. The trustee filed a motion to dismiss, arguing lack of personal jurisdiction, lack of standing, immunity, failure to state a claim, improper venue and statute of limitations. The district court considered the applicability of the Barton doctrine, which precludes a party from bringing suit against a court appointed bankruptcy trustee for acts done in an administrative capacity without first obtaining leave from the appointing court. The court also noted the narrow exception to that rule, set forth in section 959(a), which authorizes suits in nonappointing courts without leave when the suits are based on acts of a trustee committed for the purpose of operating a debtor’s business. The court finally held that the former spouse’s action did not fit within that exception, determining that the claim was based on actions of the trustee which were wholly unrelated to carrying on the debtor’s business and that, without the benefit of the exception, the spouse was required to seek leave of the bankruptcy court. Accordingly, the district court granted the motion and dismissed the complaint.Richman v. Batt (In re Batt), 2001 U.S. Dist. LEXIS 4670, – B.R. – (E.D. Pa. April 17, 2001) (Buckwalter, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 1:10.02
4th Cir.
Claim for postpetition payments for lease of aircraft did not qualify as administrative expense. Bankr. D.S.C. The debtor operated a commercial airline. At the time the debtor filed its chapter 11 petition, it was leasing aircraft from the creditor. The creditor filed a motion for relief from the automatic stay, alleging lack of adequate protection, that the leases were in default with a $1.2 million arrearage, and that the debtor was incapable of maintaining the leases and reorganizing. No objections to the motion were filed, and the matter was resolved by a consent order that, however, made no reference to lease payments. Eventually the case was converted to chapter 7, and the creditor filed a proof of claim in the approximate amount of $348,000. The claim was filed as a priority claim for postpetition rent on the aircraft. The creditor also filed an unsecured, nonpriority claim for the balance owed on the leases. The trustee objected to the priority claim, arguing that the creditor had not applied for an administrative claim and that the amount sought did not represent the actual and necessary costs and expenses of preserving the estate as required by section 503(b). Thereafter, the creditor filed its application for allowance of payment of an administrative claim. The trustee objected, arguing that any agreement regarding the retention of aircraft by the debtor was not properly noticed to the creditor body, that there was no agreement for the continuation of lease payments, and that the present application was not timely filed. The bankruptcy court sustained the trustee’s objection, holding that the benefit to the estate element necessary for administrative expense status had not been met. Specifically, the court found that the debtor did not use the aircraft in the ordinary course of business, that it was in fact not allowed to do so unless the creditor gave express consent, and that consequently there was no concrete benefit bestowed upon the estate. The court also noted that the consent order contained no assumption of the lease provision and no adequate protection in the form of lease payments. In re Air South Airlines, Inc., 2000 Bankr. LEXIS 1725, – B.R. – (Bankr. D.S.C. December 18, 2000) (Waites, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:503.06[3]
5th Cir.
Court of Appeals affirms finding of debtor’s false oath. 5th Cir. After the debtor filed a chapter 7 petition, a creditor filed an adversary proceeding objecting to the debtor’s discharge, alleging that the debtor’s discharge should be denied for concealment of assets and, pursuant to section 727(a)(4)(A) for making a false oath or account, because the debtor had testified in a deposition that some information in his schedules and financial statement was false. Although the debtor filed amended schedules purporting to correct the false statements, the bankruptcy court granted the creditor’s motion to dismiss and denied the debtor a discharge. After the district court affirmed, this second appeal followed. The debtor argued that he had corrected the schedules and that, as a medical doctor, he was inexperienced in financial matters and had relied on incorrect information provided by his counsel. The Court of Appeals for the Fifth Circuit affirmed, holding that no argument raised by the debtor negated the fact that he had knowingly made false oaths in his original schedules and statement of financial affairs, thereby creating no genuine issue of material fact to defeat the creditor’s summary judgment motion.In re Sholdra, 2001 U.S. App. LEXIS 7393, – F.3d. – (5th Cir. April 23, 2001) (Parker, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 6:727.04
6th Cir.
Date of petition was dispositive in determining whether insurance proceeds constituted property of the estate. Bankr. W.D. Tenn. The debtors filed a chapter 13 petition on August 3, 1999. On November 22, 2000, the case was converted to chapter 7 by filing a notice of conversion. On January 18, 2001 one of the codebtors died. The surviving debtor attended and testified at the section 341(a) meeting that she was the sole beneficiary of her deceased spouse’s $50,000 life insurance policy. The trustee thereafter filed a motion, seeking a determination as to whether the insurance proceeds constituted an asset of the estate. The bankruptcy court held that the insurance proceeds were not property of the estate. The court ruled that, pursuant to section 348(f)(1)(A), property of the estate in a converted case consisted of all property of the estate as of the date of the petition filing and pursuant to 541(a)(5), any interest in property acquired within 180 days after this filing. The surviving debtor acquired her interest substantially more than 180 days after the petition was filed and was thus entitled to the insurance proceeds. (citing Collier on Bankruptcy, 15th Ed.).In re Carter, 2001 Bankr. LEXIS 317, – B.R. – (Bankr. W.D. Tenn. March 23, 2001) (Kennedy, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:348.07
IRS was not in contempt. E.D. Ky. The chapter 7 debtor appealed the bankruptcy court’s order denying its motion to hold the IRS in contempt for failure to abide by the automatic stay. The debtor, a limited partnership, filed its petition one week prior to a tax court trial to determine the propriety of a final partnership administrative adjustment. Both the tax court and the bankruptcy court refused to stay the litigation. On appeal, the debtor argued that the automatic stay should have stayed the proceedings because the petitioner in the tax court was the partnership, not the limited partners. The district court affirmed, holding that the partners’ readjustment proceeding in the tax court was not stayed simply because the partnership was in bankruptcy. The court noted that the petitioner in a readjustment proceeding is not the partnership, but the partners since the proceeding affects only the tax liabilities of the partners.Madison Recycling Assocs. v. IRS (In re Madison Recycling Assocs.), 2001 U.S. Dist. LEXIS 4741, – B.R. – (E.D. Ky. March 1, 2001) (Forester, C.D.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.03[10]
8th Cir.
Payment of prepetition claims was authorized. Bankr. E.D. Mo. The chapter 11 debtor filed a motion for authorization to pay prepetition claims of critical vendors. The debtor was a party to certain general agreements with vendors that provided pictures for exhibition by the debtor. Several vendors had stated that no film would be shipped postpetition until the prepetition debt had been paid. The bankruptcy court granted the motion, holding that payment of the prepetition claims pursuant to section 105(a) was necessary for the continued operation of the debtor. The court noted that the inability to obtain and exhibit film under the license agreements would significantly reduce the likelihood of a successful reorganization.In re Wehrenberg, Inc., 2001 Bankr. LEXIS 326, – B.R. – (Bankr. E.D. Mo. March 7, 2001) (Barta, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:105.04[4]
180-day period set forth in section 109(g) was tolled during pendency of improperly filed petition. Bankr. E.D. Mo. The debtors filed a chapter 13 petition on December 28, 1999. The creditor, a mortgage lender holding a secured claim, filed a motion for relief from the automatic stay, which was denied as settled by stipulation in May 2000. In June 2000 the chapter 13 plan was confirmed, and on August 3, 2000 the bankruptcy court granted the debtors’ motion to dismiss the case. On August 14, 2000 the debtors filed a second chapter 13 petition. In October 2000 the chapter 13 trustee’s motion to dismiss prior to confirmation was granted. That case, however, was reinstated on the debtors’ motion, and the court then entered a second order granting the trustee’s motion and dismissing the case for the debtors’ failure to make plan payments. That order was entered on December 20, 2000. The debtors filed a third chapter 13 petition on February 15, 2001. The creditor filed a motion to dismiss the petition as having been filed before the expiration of the 180-day period established by section 109(g). The creditor argued that the debtors had been ineligible to file the second petition as a result of section 109(g). The 180-day period was tolled during the pendency of the second case, and that consequently the balance of the 180 days had not expired when the debtors filed the third petition. The debtors argued that the 180 days should not have been tolled and that they should be allowed to proceed on equitable grounds. The bankruptcy court granted the creditor’s motion and dismissed the case. The court held that the 180-day period had been tolled during the pendency of the second case, reasoning that the purpose of section 109(g) was to curb abusive and repetitive filings. This purpose was frustrated if the 180-day period was not tolled during the pendency of an improperly filed case.In re Rives, 2001 Bankr. LEXIS 334, – B.R. – (Bankr. E.D. Mo. March 15, 2001) (Barta, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:109.08
Chapter 7 debtor could recover garnishment of wages earned postpetition and paid out postpetition based on violation of automatic stay. Bankr. E.D. Mo. The chapter 7 debtor and a judgment creditor cross-moved for summary judgment on the debtor’s complaint to avoid certain transfers made to the creditor pursuant to a wage garnishment. The debtor sought the return of the transferred funds under, among other bases, the lien and transfer avoidance provisions of the Bankruptcy Code. The court held that with respect to the fourth transfer at issue, the debtor was entitled to avoid the judgment lien as to any wages that were earned prepetition and paid out postpetition. The court also held that the debtor could recover the wages earned postpetition and paid out postpetition based on a violation of the automatic stay.Jackson v. K.A.S. Enters., Inc. (In re Jackson), 2001 Bankr. LEXIS 330, – B.R. – (Bankr. E.D. Mo. March 23, 2001) (Barta, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.03[8]
Misouri debtor could not claim exemption in proceeds from deceased nondebtor spouse’s Federal Employee Group Life Insurance policy. Bankr. E.D. Mo. Within 180 days of the commencement of her chapter 7 case, the debtor’s nondebtor husband passed away. The debtor, who was named as a cobeneficiary of her deceased husband’s Federal Employee Group Life Insurance (FEGLI), claimed an exemption in the amount of $4,900.00 in the policy proceeds pursuant to a provision of the state (Missouri) exemption statute (see Rev. Stat. Mo. § 513.430(10)). The chapter 7 trustee objected to this claim of exemption. The bankruptcy court sustained the objection, and held that the record did not support the debtor’s argument that the FEGLI proceeds qualified as a payment entitled to exemption under the state exemption provision. The court discussed how the Missouri exemption scheme distinguishes between life insurance and death benefit plans and other plans, and found no reference to or information indicating that the debtor’s interest under the FEGLI Program was related to or should be construed as a benefit arising under a death benefit plan or other plan designated under the relevant state exemption provision. The court concluded that the Missouri legislature’s intended to exclude life insurance from the scope of the relevant exemption provision, noting that if the legislature had intended an exemption for life insurance proceeds, the language of 11 U.S.C. section 522(d)(11) would have been mirrored in the Missouri statute as was the language relating to death benefit plans/contracts on account of death found under 11 U.S.C. section 522(d)(10)(E) and Rev. Mo. Stat. section 513.430(10)(e).In re Selfe, 2001 Bankr. LEXIS 325, – B.R. – (Bankr. E.D. Mo. March 2, 2001) (Barta, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:522.10[5]
9th Cir.
Former trustee’s motion to reopen was denied. Bankr. E.D. Cal. The former chapter 7 trustee filed a motion to reopen the case after the debtor offered to satisfy a preferential judgment against her mother. The trustee had previously sued the debtor’s mother, obtained a money judgment and recorded a lien against the mother’s home; however he was unable to collect on the judgment and the case was closed. The trustee requested that the case be reopened and that he be appointed by the court to distribute the funds collected from the debtor to the creditors. The bankruptcy court denied the motion, holding that the former trustee lacked standing to reopen the case because he was not a party in interest. The court noted that he could only be considered a party in interest if he had a personal stake in the relief that would be sought once the case was reopened.In re DeLash, 2000 Bankr. LEXIS 1726, – B.R. – (Bankr. E.D. Cal. December 15, 2000) (McManus, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:350.03
Prepetition default judgment was excepted from discharge. Bankr. N.D. Cal. An employee stock option plan and trust filed an adversary proceeding seeking a nondischargeable judgment against the chapter 7 debtor pursuant to section 523(a)(4). The plan and trust moved for summary judgment on the ground of collateral estoppel based on a prepetition state (California) default judgment. The complaint in state court alleged that the debtor, as an officer of the corporation, breached his fiduciary duty to the employee plan and trust by converting corporate funds for his own use, among other things. The bankruptcy court granted summary judgment to the plan and trust, holding that the allegations in the state court complaint were sufficient to establish a claim for fraud or defalcation by a fiduciary. The debtor held a fiduciary position in the corporation to the extent that he had the ability to exercise control over corporate asset and his conduct qualified as a defalcation within the meaning of section 523(a)(4).Cal-Micro, Inc. v. Cantrell (In re Cantrell), 2001 Bankr. LEXIS 339, – B.R. – (Bankr. N.D. Cal. February 13, 2001) (Tchaikovsky, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.10
Judgment for wrongful termination had collateral estoppel effect. Bankr. N.D. Cal. Prior to the petition filing, the creditor brought a suit against her former employer, of whom the debtor was the sole shareholder. The creditor’s complaint alleged wrongful termination and breach of implied in fact contract. Neither the debtor nor the employer appeared for trial, and a judgment was entered awarding the creditor compensatory and special damages against both the debtor and employer on both causes of action, along with punitive damages against the debtor on the wrongful termination cause of action. Thereafter the debtor filed a chapter 7 petition and the creditor filed an adversary proceeding seeking to have the judgment declared nondischargeable pursuant to section 523(a)(6). Eventually the creditor filed a motion for summary judgment, and the debtor filed a cross-motion for summary judgment. The bankruptcy court granted the creditor’s motion, holding that collateral estoppel applied. The court determined that the judgment for wrongful termination contrary to public policy necessarily required a finding that the debtor acted intentionally in terminating the creditor and that the termination caused the plaintiff’s injury, thereby establishing the willful and malicious injury standard of section 523(a)(6). Jorge v. Mannie (In re Mannie), 2001 Bankr. LEXIS 352, – B.R. – (Bankr. N.D. Cal. January 25, 2001) (Tchaikovsky, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.12[3]
District court remanded issue of undue hardship for a determination of debtor’s good faith and future ability to pay. C.D. Cal. The bankruptcy court ruled that the educational loans owed by the chapter 7 debtor were discharged on the basis of undue hardship, granting the debtor’s motion for summary judgment. The creditor appealed, arguing that, for the purposes of section 523(a)(8), the debtor had failed to carry his burden of proof and that the court had erred in making findings of fact on disputed matters. Regarding the debtor’s future ability to pay, the creditor argued that the debtor’s expenses were inconstant and that his salary would not remain at the same level. Additionally, the creditor asserted that the debtor had failed to elect one of the various income contingent plans offered by the debtor, thereby failing to demonstrate the good faith required for a discharge based on undue hardship. The district court reversed, and remanded, holding that factual issues remained in dispute with respect to (1) the debtor’s likely future income and ability to pay and (2) whether the debtor exhibited the requisite good faith in considering alternate payment plans offered by the creditor. United States Department of Education v. Wallace (In re Wallace), 2000 U.S. Dist. LEXIS 20392, – B.R. – (C.D. Cal. July 10, 2000) (Morrow, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.14[2]
10th Cir.
Court of Appeals held that lump sum payments upon termination pursuant to employment contracts were not entitled to priority as administrative expenses. 10th Cir. The creditors entered into employment contracts with the debtor whereby both creditors were promised lump sum cash payments upon termination prior to the expiration of the contracts unless the termination was for cause. The payments would equal each creditor’s annual base salary. Prior to the expiration of the contracts, the debtor filed a chapter 11 petition. Each creditor continued to work for the debtor in possession but was terminated, without cause, within one month of the petition filing. Both creditors were paid full salaries for that postpetition period when they worked. Thereafter, with the bankruptcy court’s approval, the debtors rejected the employment contracts. The creditors then filed a motion seeking an order classifying their lump sum payments as priority administrative claims pursuant to section 503(b)(1)(A). The court held the lump sum payments were not necessary costs and expenses of preserving the estate pursuant to that provision, and that the claims neither arose from a transaction with the debtor in possession nor benefited the debtor in possession. The court thereby concluded that the claims were not entitled to priority as administrative claims. The district court affirmed, and this appeal followed. The Court of Appeals for the Tenth Circuit affirmed the bankruptcy court, holding that (1) the creditors’ claims did not arise from a transaction with the debtor in possession; (2) the consideration supporting the right to payment was neither supplied not beneficial to the debtor in possession; and (3) the payments were not actual and necessary costs and expenses of preserving the estate.Bachman v. Commercial Financial Services, Inc. (In re Commercial Fin. Servs.), 2001 U.S. App. LEXIS 7427, – F.3d. – (10th Cir. April 24, 2001) (Murphy, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:503.06
11th Cir.
Chapter 7 debtor’s student loans discharged as undue hardship. Bankr. S.D. Fla. The chapter 7 debtor brought an adversary proceeding to determine whether his student loan obligations were dischargeable under section 523(a)(8). The bankruptcy court held that the debtor satisfied his burden of proving that repayment would constitute an 'undue hardship'; thus, the student loan obligation was discharged in its entirety. The court found that the feasibility of repayment was the key determination in this case, and the record reflected that there was no reasonable prospect that the debtor would ever be able to repay the loans. In deciding the undue hardship issue, the court referred with approval to the Sixth Circuit’s decision in Tennessee Student Assistance Corp. v. Hornsby (In re Hornsby), where the court specifically declined to adopt any one particular test and looked to many factors, including the amount of debt, the debtor’s claimed expenses and current standard of living, and any evidence regarding the debtor’s efforts to minimize those expenses. The court also discussed and expressed misgivings about applying the test first promulgated by the Second Circuit in Brunner v. New York State Higher Educ. Services Corp., which requires the debtor to establish that he cannot maintain, based on current income and expenses, a minimal standard of living for himself and his dependents if forced to repay the loans; that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period; and that the debtor has made good faith efforts to repay the loans. Nevertheless, the court found that even under the Brunner test, the debtor demonstrated that repayment of his student loans would constitute an 'undue hardship.' Finally, the court refused to interpret section 523(a)(8) as requiring the bankruptcy court to consider deferrals or debt restructuring.Mallinckrodt v. Chemical Bank (In re Mallinckrodt), 2001 Bankr. LEXIS 331, – B.R. – (Bankr. S.D. Fla. April 4, 2001) (Utschig, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.14
Trustee did not waive right to jury trial. Bankr. N.D. Ga. The chapter 11 liquidating trustee filed an adversary proceeding against several noncreditor third parties alleging breach of fiduciary duty, legal malpractice and civil conspiracy. The defendants moved to strike the trustee’s jury demand, arguing that the trustee waived his right to a jury trial by filing his complaint in a court that lacked the authority to conduct a jury trial. The defendants pointed out that absent consent, the bankruptcy court could only issue proposed findings of fact and conclusions of law in noncore matters and the Seventh Amendment prohibited a de novo review of findings made by a jury. They reasoned that the bankruptcy court could not conduct a jury trial since the jury’s findings would be automatically, yet impermissibly, subject to a de novo review by the district court. The bankruptcy court denied the motion to strike the jury demand, holding that the trustee’s commencement of the action in bankruptcy court did not constitute an automatic waiver of his right to a trial by jury. The court nevertheless found that, notwithstanding the defendants’ failure to consent, it would be unconstitutional to try the case since the majority of the claims were noncore and the proceeding would have to be referred to the district court.Hays v. Equitex, Inc. (In re RDM Sports Group), 2001 Bankr. LEXIS 336, – B.R. – (Bankr. N.D. Ga. April 2, 2001) (Drake, Jr., B.J.).
Collier on Bankruptcy, 15th Ed. Revised 1:3.08