Collier Bankruptcy Case Update May-21-01
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 21, 2001
CASES IN THIS ISSUE
(scroll down to read the full
summary)
- 1st Cir.
§ 362(h) Creditor’s new computer system rendered stay violation not willful.
In re Rijos (Bankr. D.P.R.) 054006§ 522(b) Wild card exemption could be applied to real estate and stacked with homestead exemption.
Vaillancourt v. Granite Group (In re Vaillancourt) (Bankr. D.N.H.) 054010§ 727(a)(2) Debtor’s omissions were not borne of fraudulent intent.
Casa Investments Company v. Brenes (In re Brenes) (Bankr. D. Conn.) 054027Rule 6004(g) Waiver of stay authorizing sale was affirmed.
Yamaha Motor Corp. v. Schreiber (In re Perry Hollow Mgmt. Co.) (D.N.H.) 054054Rule 9011(b) Merely copying a prior motion was failure to conduct a reasonable inquiry in violation of Rule 9011(b).
In re Rijos (Bankr. D.P.R.) 054060
2d Cir.
§ 522(f) Motion to avoid lien was denied.
In re Vincent (Bankr. D. Conn.) 054013§ 727(a)(4)(A) Denial of discharge was affirmed.
Weiss v. Winkler (E.D.N.Y.) 054031
3d Cir.
§ 1141(d)(2) Chapter 11 debtors’ tax obligation was discharged upon payment of the stipulated amount.
In re Matunas (Bankr. D.N.J.) 054037
5th Cir.
§ 362(d) Relief from stay was not warranted to enforce an agreement which was a security interest rather than a lease.
In re Triplex Marine Maintenance, Inc. (Bankr. E.D. Tex.) 054005§ 524(e) Proposed injunction against pursuing debtor’s president and sole shareholder did not violate section 524(e).
In re Seatco, Inc. (Bankr. N.D. Tex.) 054018§ 1111(a) Tax debt scheduled as 'unknown' did not constitute filing of a proof of claim.
Lawrence v. IRS (W.D. La.) 054033§ 1141(d) Bankruptcy court’s confirmation order did not discharge former employee’s claim for pension benefits.
Kendavis Holding Co. v. Christopher(In re Kendavis Holding Co.) (5th Cir.) 05403628 U.S.C. § 1334(b) Plaintiff’s claim to liability insurance proceeds by debtor’s insurers created 'related to' jurisdiction.
Landry v. Exxon Pipeline Co. Mendoza Marine, Inc. (Bankr. M.D. La.) 05404928 U.S.C. § 1452(a) Chapter 7 debtor’s case was properly removed from tribal court.
Chickaway v. Bank One Dayton, N.A. (S.D. Miss.) 054051
6th Cir.
§ 106(a)(5) Bankruptcy court lacked jurisdiction over counterclaim.
United States v. Braeview Manor, Inc. (In re Braeview Manor, Inc.) (N.D. Ohio) 054001§ 522(b) Worker’s compensation award was properly claimed exempt.
In re Lindsay (Bankr. S.D. Ohio) 054011§ 522(b) Proceeds from a Qualified Domestic Relations Order could not be claimed exempt.
In re Hageman (Bankr. S.D. Ohio) 054012Rule 8006 Creditor’s failure to submit trial transcript was not, in and of itself, reason to deny appeal of order that awarded attorney’s fees to debtors.
Knowles Building Co. v. Zinni (In re Zinni) (B.A.P. 6th Cir.) 054059
8th Cir.
§ 362(b)(2) Automatic stay did not preclude local court action to obtain alimony.
In re Vargason (Bankr. D.N.D.) 054004§ 541(a)(1) Payments pursuant to federal agricultural assistance programs received postpetition were not property of the estate. Drewes v. Vote (In re Vote) (B.A.P. 8th Cir.) 054020
§ 1225(a)(5) Chapter 12 plan failed to meet cramdown requirements necessary for plan confirmation.
United States v. Krause (In re Krause) (B.A.P. 8th Cir.) 054038§ 1325(a)(3) Plan which proposed to surrender wrecked vehicle was proposed in good faith.
In re Ussery (Bankr. E.D. Ark.) 054042
9th Cir.
§ 362 District court did not err in refusing to give preclusive effect to state court judgment against debtors.
Far Out Productions, Inc. v. Oskar (9th Cir.) 054003§ 363(m) Motion to dismiss appeal of bankruptcy court’s order authorizing sale of debtor’s residence granted.
In re Griffin (N.D. Cal.) 054007§ 502(a) District court affirmed order sustaining debtors’ objection to IRS’s claim.
United States v. Briguglio (In re Briguglio) (C.D. Cal.) 054009§ 541(d) Insurer was entitled to summary judgment.
Farmers Ins. Group v. Krommenhoek (In re Hiatt) (Bankr. D. Idaho) 054023§ 1327 Plan provisions discharging student loans in chapter 13 plans were binding.
Patton v. U.S. Dep’t of Educ. (In re Patton) (Bankr. E.D. Wash.) 054044Rule 7056 Case was remanded to resolve factual issue of 'drop-box' filing.
Svob v. Bryan (In re Bryan) (B.A.P. 9th Cir.) 054056
10th Cir.
§ 303(i) Claim for damages was dismissed.
Glannon v. Garrett & Assocs. (D. Kan.) 054002
11th Cir.
§ 523(a)(6) Conversion was not established.
Smith Drug Co. v. Pharr-Luke (In re Pharr-Luke) (Bankr. S.D. Ga.) 054016§ 1227(c) Judgement lien was not extinguished despite confirmation of chapter 12 plan.
Holloway v. Southeast Alabama Med. Ctr. (In re Holloway) (M.D. Ala.) 054040§ 1322(b)(1) Evidentiary hearing on the chapter 13 plan’s separate classification was required.
In re Hill (Bankr. N.D. Fla.) 054041Rule 7069 Contempt was not a remedy for debtor’s failure to pay consent judgment.
Eickhoff v. Eickhoff (In re Eickhoff) (Bankr. S.D. Ga.) 054057
Collier Bankruptcy Case Summaries
1st Cir.
Creditor’s new computer system rendered stay violation not willful. Bankr. D.P.R. Chapter 13 debtors sought damages, costs and attorney’s fees against two credit card companies who continued to bill the debtors despite receiving notice of the chapter 13 case. The debtors filed a motion for summary judgment and, separately addressing the six elements of the section 362(h) cause of action, the bankruptcy court rejected the creditors’ arguments that the billing statements were not attempts to collect the debt. The bankruptcy court concluded that the notations on the bills that 'you must pay,' and 'please remit' constituted attempts to collect the debt in violation of the stay. However, in addressing willfulness, the bankruptcy court held that the fact that the credit card company accidentally mailed the bill while installing a new software program negated any intent to send the bill. In contrast, the second credit card company’s actions were willful in that it sent six statements after receiving notice of the chapter 13 case. However, the debtors failed to furnish evidence of damages, their attorney’s fees were unreasonable, and the violations were merely technical, so that no monetary award was warranted. Indeed, the fees appeared to be unnecessary and generated in bad faith since the debtors made no effort to mitigate the situation. Finally, punitive damages were not warranted since there was no showing of any egregious, vindictive or intentional misconduct (citing Collier on Bankruptcy, 15th Ed. Revised).In re Rijos, 2001 Bankr. LEXIS 350, – B.R. – (Bankr. D.P.R. April 4, 2001) (Lamoutte, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.11[3]
Wild card exemption could be applied to real estate and stacked with homestead exemption. Bankr. D.N.H. The debtor filed a chapter 7 case, claiming his residence as exempt utilizing both the homestead and wild card exemptions under state (New Hampshire) law. Having exempted virtually all of his equity in the residence from property of the estate, the debtor filed a motion to avoid a lien on the real property. Within the time period for objecting to the claims of exemption, the lien holder responded to the motion, asserting that the debtor was not entitled to utilize the state wild card provision to exempt any portion of real estate. The bankruptcy court held that the wild card exemption could be utilized to claim any property, including real property, exempt. Examining the plain language of the statute, the policies underlying the fresh start, and comparing the state and federal exemptions, the bankruptcy court concluded that the debtor could utilize the wild card exemption to claim any property, real or personal, exempt. Moreover, the debtor was entitled to stack the exemptions, i.e., apply both exemptions to one item of property. Since the debtor’s claims of exemption were proper, the lien on the real property was avoided under section 522(f) as impairing his exemptions.Vaillancourt v. Granite Group (In re Vaillancourt), 2001 Bankr. LEXIS 348, 260 B.R. 66 (Bankr. D.N.H. March 16, 2001) (Deasy, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:522.10
Debtor’s omissions were not borne of fraudulent intent. Bankr. D. Conn. After the debtor, a physician, filed a chapter 7 petition, creditors filed adversary proceedings seeking a denial of discharge on various grounds. One count was based on section 727(a)(2), whereby the creditors alleged that the debtor transferred or concealed property with the intent to hinder, delay or defraud creditors. Specifically, the creditors contended that the debtor concealed assets based upon omissions or inaccuracies in the petition schedules for various business entities, real estate, jewelry, household furnishings and receivables. The bankruptcy court ruled against the creditors. The court held that concealment of assets alone was not sufficient to deny discharge but that there must be a showing of actual intent to hinder, delay or defraud. The court concluded that the creditors failed to establish such intent, since the debtor demonstrated that he was unaware of the nature of certain ownership interests, had made honest mistakes in scheduling property, and that the accounts receivable were proven to be worthless by several witnesses. Notably, the court stated that the majority of the omissions provided no benefit to the debtor or adversely affected any creditor.Casa Investments Company v. Brenes (In re Brenes), 2001 Bankr. LEXIS 364, – B.R. – (Bankr. D. Conn. April 17, 2001) (Dabrowski, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 6:727.02[3]
Order denying relief from stay was not a final order for purposes of appeal. B.A.P. 1st Cir. The creditor filed a motion seeking relief from the automatic stay. The bankruptcy court denied the motion, holding that the creditor was not entitled to relief from the stay because it failed to demonstrate that it held a valid, perfected security interest in the chapter 7 debtor’s collateral. The creditor appealed. The B.A.P. for the First Circuit dismissed the appeal for lack of jurisdiction. The B.A.P. visited the issue of whether the denial of the motion for relief from the stay was a final order pursuant to section 158(a)(1) and, therefore, an appealable order. Finally, the B.A.P. took a view that opposed existing case law and held that the order denying relief from the stay was not a final order because of the general nature of relief from stay proceedings and because the creditor was not foreclosed from attempting to prove the status of its interest in the adversary proceeding. Caterpillar Financial Services Corporation v. Braunstein (In re Henriquez), 2001 Bankr. LEXIS 358, – B.R. – (B.A.P. 1st Cir. April 11, 2001) (Haines, B.A.P.J.).
Collier on Bankruptcy, 15th Ed. Revised 1:5.02[2],[3]
Waiver of stay authorizing sale was affirmed. D.N.H. The creditor appealed the decision of the bankruptcy court authorizing the sale of golf carts in which the creditor held an improperly perfected security interest. The chapter 11 trustee had asked the court to waive the 10-day stay under Rule 6004(g) to permit the carts to be sold the next day. The creditor contended that the bankruptcy court erred in waiving the stay period in conjunction with the court’s order. The district court affirmed, holding that the bankruptcy court’s decision to waive the Rule 6004(g) stay was not clearly erroneous. The court pointed out that the creditor had agreed that the sale price was reasonable and that the buyer was ready for the sale to be held the next day. The present owner of the golf course wanted the carts removed and would probably have charged to keep the carts in their present location any longer.Yamaha Motor Corp. v. Schreiber (In re Perry Hollow Mgmt. Co.), 2001 U.S. Dist. LEXIS 5097, 260 B.R. 58 (D.N.H. March 27, 2001) (DiClerico, Jr., D.J.).
Collier on Bankruptcy, 15th Ed. Revised 10:6004.09
2nd Cir.
Motion to avoid lien was denied. Bankr. D. Conn. The chapter 7 debtors sought to avoid a judgment lien held by the creditor on the residence they owned at the commencement of their case, but conveyed by them to third parties postpetition. The creditor had obtained a deficiency judgment against the debtors in connection with a foreclosure on another piece of debtors’ real property and properly recorded a judgment lien against their residence. The debtors sold the property without obtaining a release of the lien. The creditor opposed the motion, arguing that because the residence was not owned by the debtors, it was not subject to lien avoidance. The bankruptcy court denied the motion, holding that although the debtors’ prior conveyance of the property was not an impediment to their ability to avoid the judicial lien, the lien was a judgment arising out of a mortgage foreclosure within the meaning of section 522(f)(2)(C) and was not voidable. The court noted that the residence was property of the debtor at the time of the fixing of the lien and was properly the subject of the lien avoidance motion.In re Vincent, 2000 Bankr. LEXIS 1735, – B.R. – (Bankr. D. Conn. December 20, 2000) (Dabrowski, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:522.11
Denial of discharge was affirmed. E.D.N.Y. The chapter 7 debtor appealed the bankruptcy court’s order denying his discharge pursuant to section 727(a)(4)(A). While the debtor was in chapter 11, he failed to disclose a loan and two personal guarantees on his schedules. The debtor argued that the nondisclosure was due to the faulty advice of counsel and that his subsequent inclusion of the items in his amended schedules cured the omissions. The district court affirmed the order denying discharge, holding that the debtor’s failure to disclose the liabilities supported the conclusion of fraudulent intent that warranted denial of his discharge. The court noted that the repeated material omissions, made by a sophisticated businessperson, represented a pattern of falsehoods.Weiss v. Winkler, 2001 U.S. Dist. LEXIS 5148, (E.D.N.Y. March 30, 2001) (Block, D.J.) (for electronic publication only).
Collier on Bankruptcy, 15th Ed. Revised 6:727.04
3rd Cir.
Chapter 11 debtors’ tax obligation was discharged upon payment of the stipulated amount. Bankr. D.N.J. Taxpayers filed a chapter 11 case in order to resolve their difficulties in paying federal taxes for the 1993 through 1995 taxable years. The amount of the obligations were not in dispute and, after confirmation of the plan, the parties entered into a stipulation, ultimately incorporated into a consent decree, that the amounts on the IRS’ proof of claim were correct. The debtors not only met their obligation at an early date, but they overpaid the taxes. Accordingly, they sought an order reopening the case, and the parties initially agreed on the amount of refund. Before the consent order was finalized, however, the IRS discovered it had inadvertently failed to include the amount of the 1993 tax liability in its proof of claim, and, therefore, in the stipulated agreement. The IRS argued that the claim was excepted from discharge under section 1141. The bankruptcy court held that since the liabilities were specifically addressed in a consent judgment, section 1141 could not be applied to render the judgment meaningless. The parties entered into an agreement as to the amount of the tax liabilities due and that agreement, incorporated into a judgment, was binding, despite the factual error made by the IRS as to the amounts of the liabilities.In re Matunas, 2001 Bankr. LEXIS 344, – B.R. – (Bankr. D.N.J. April 16, 2001) (Lyons, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1141.05
5th Cir.
Relief from stay was not warranted to enforce an agreement which was a security interest rather than a lease. Bankr. E.D. Tex. When the chapter 7 debtor was unable to obtain financing to resolve its payment difficulties with the IRS, it entered into a transaction for the sale and lease-back of all of its assets. The creditor failed, however, to timely file any U.C.C.-1 financing statements. When the chapter 7 case was filed, the creditor sought relief from stay in order to repossess the equipment. The chapter 7 trustee objected, asserting that the transaction was not a true lease but merely a lending agreement. The trustee argued that since the creditor failed to perfect its interest by timely filing the U.C.C.-1 statements, it was merely a general unsecured creditor in the case and not entitled to obtain the property in satisfaction of the obligation. Applying the modern, objective standard, the bankruptcy court held that since the transaction granted a security interest and was not a true lease, relief from stay was not warranted. Noting that the statute established a two-step analysis, the court first determined that the finding of a security interest was compelled under U.C.C. § 201(37)(B) because the debtor was precluded from terminating the agreement prior to the conclusion of all payments, and the debtor had the option of becoming the owner for a nominal consideration upon compliance with the lease. The amount required to exercise the option, being a mere ten percent of the cost or five percent of the total lease payments, was nominal. Indeed, the parties had made no attempt to even ascertain the residual value of the property at the end of the lease term because it was understood that the debtor would exercise the purchase option no matter how the final figure was quantified. Although the results of the first prong mandated that the transaction created a security interest, the court also concluded that the economic realities of the transaction indicated that the agreement created a security interest. The debtor transferred virtually every asset it owned to the creditors, was responsible for insurance and taxes, and was left with no choice at the end of the lease but to exercise its option to purchase the equipment. Accordingly, the transaction was typical financing, disguised as a lease. Since the creditor failed to perfect its interest, it was a general unsecured creditor and not entitled to relief from stay. In re Triplex Marine Maintenance, Inc., 2000 Bankr. LEXIS 1724, 258 B.R. 659 (Bankr. E.D. Tex. November 13, 2000) (Parker, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.07
Proposed injunction against pursuing debtor’s president and sole shareholder did not violate section 524(e). Bankr. N.D. Tex. The creditor objected to the confirmation of the chapter 11 debtor’s third modification of its plan of reorganization. The creditor objected, pursuant to section 524(e), to the provision for an injunction with regard to pursuing claims against the debtor’s president and sole shareholder. The creditor asserted that the president was not required to post a bond or disclose his assets under oath and was not restrained from converting nonexempt assets to exempt assets, among other objections. The bankruptcy court overruled the creditor’s objections, holding that the plan did not affect the president’s liability to the creditor. Specifically, the court found that the president remained liable for any amounts not being paid under the plan and for amounts to be paid under the plan if the debtor defaulted, and that consequently the plan did not violate section 524(e). In re Seatco, Inc., 2001 Bankr. LEXIS 365, 259 B.R. 279 (Bankr. N.D. Tex. February 21, 2001) (Houser, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:524.05
Tax debt scheduled as 'unknown' did not constitute filing of a proof of claim. W.D. La. The bankruptcy court granted the IRS’s motion to dismiss or, alternately, for summary judgment because it found that the debtors’ 1991 tax liability was not included in the confirmed plan of reorganization. The debtors appealed, arguing that the tax liability was an allowed claim under the first amended plan because a proof of claim was deemed filed in a timely manner and no party in interest filed an objection to the claim. Specifically, the debtors asserted that the 1991 tax liability, listed as an unknown debt on the schedules, was not listed or checked off as disputed, contingent or unliquidated and was consequently deemed filed pursuant to section 1111(a). The district court affirmed, holding that the bankruptcy court’s finding was not clearly erroneous. The court concurred in the finding that, for the purposes of section 1111(a), the listing of a claim as unknown was the same as listing it either as contingent or unliquidated, which necessitated the filing of a claim.Moreover, the IRS’s proof of claim did not include the 1991 liability, and so the determination that a proof of claim was never filed mandated the conclusion that the corresponding debt never settled.Lawrence v. IRS, 2001 U.S. Dist. LEXIS 4953, – B.R. – (W.D. La. March 23, 2001) (Walter, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 7:1111.02[1]
Bankruptcy court’s confirmation order did not discharge former employee’s claim for pension benefits. 5th Cir. In a reopened chapter 11 case, the bankruptcy court held that the debtor’s former employee’s claim for pension benefits was discharged by the court’s confirmation order and that sanctions should be assessed against the employee for violating the court’s injunction. The employee appealed, and the district court reversed. The district court held that the discharge of the employee’s claim for pension benefits violated his right to adequate notice as required by constitutional due process even though he knew of the debtor’s bankruptcy proceedings. The debtor appealed. The United States Court of Appeals for the Fifth Circuit affirmed the district court’s decision. The court held that the bankruptcy court’s confirmation order did not discharge the employee’s claim; the employee did not violate the bankruptcy court’s injunction; and the bankruptcy court’s imposition of sanctions was an abuse of the court’s discretion. The court concluded that despite the employee’s actual knowledge of the debtor’s chapter 11 proceeding, an unrepresented person in his position should not be expected to file a claim in the bankruptcy court to protect his rights. The court found that the employee acted reasonably by relying on the debtor’s assurance that his pension benefits were not in jeopardy. In addition, the court noted that an employer owes a fiduciary duty to pension plan beneficiaries when it seeks to recover surplus funds by terminating the plan, which occurred in this case. Kendavis Holding Co. v. Christopher(In re Kendavis Holding Co.), 2001 U.S. App. LEXIS 7391, – F.3d – (5th Cir. April 23, 2001) (Parker, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1141.02, .05
Plaintiffs’ claim to liability insurance proceeds by debtor’s insurers created 'related to' jurisdiction. Bankr. M.D. La. The plaintiffs filed suit in state (Louisiana) court against the debtor and other entities, alleging damages resulting from land contamination. Thereafter, the suit was removed to the district court, which in turn remanded to the state court. Shortly thereafter, an involuntary chapter 11 petition was filed against the debtor. The creditors moved to dismiss the debtor from the state suit, which motion was granted. Two of the entities then filed a notice of removal with the district court, asserting that the chapter 11 case provided a basis for jurisdiction under the 'related to' prong of section 1334(b). The entities subsequently moved to voluntarily dismiss the removal and the district court remanded the suit to state court. Thereafter the entities once again removed the suit to district court, arguing that the possible distribution of the debtor’s liability insurance proceeds were property of the estate, which conferred jurisdiction on the district court which was handling the debtor’s chapter 11 case. The creditors filed a motion to remand or abstain, arguing that the addition of the insurers did not confer jurisdiction and that, alternatively, equity dictated either remand or abstention. The district court remanded that matter to the bankruptcy court to determine the issue of jurisdiction. The court held that, for the purposes of section 1334(b), the matter was 'related to' the chapter 11 case because the payment by the insurance to the creditors had the correlative effect of reducing the debtor’s liability for those same damages, thus increasing the potential disbursal among the remaining creditors who had rights equal to the plaintiffs. The court, however, noted that the basis for jurisdiction did not undercut the propriety of remand, and decided to remand to state court on equitable grounds.Landry v. Exxon Pipeline Co. Mendoza Marine, Inc. 2001 Bankr. LEXIS 355, – B.R. – (Bankr. M.D. La. March 28, 2001) (Phillips, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 1:3.01[4][c][ii]
Chapter 7 debtor’s case was properly removed from tribal court. S.D. Miss. After the creditor removed the chapter 7 debtor’s cause of action against it to the district court, the debtor moved to remand the case to the tribal (Choctaw Indian) court. The debtor, a member of the tribe, had filed the lawsuit in tribal court seeking damages and injunctive relief based on allegations that she had been defrauded by the creditor in connection with her prepetition purchase of a home satellite system. The debtor had received a discharge and her bankruptcy case had been closed. The debtor argued that the removal statutes upon which the creditor relied did not provide for the removal of cases from tribal courts. The district court denied the motion to remand, holding that removal from the tribal court to the bankruptcy court was allowed under 28 U.S.C. section 1452(a) despite the lack of specific reference to tribal courts. The court noted that removal under 28 U.S.C. section 1452 was based on the relationship of a civil action to a bankruptcy proceeding, which existed regardless of where the civil action was pending. Chickaway v. Bank One Dayton, N.A., 2001 U.S. Dist. LEXIS 5115, – B.R. – (S.D. Miss. March 5, 2001) (Lee, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 1:3.07
6th Cir.
Bankruptcy court lacked jurisdiction over counterclaim. N.D. Ohio The IRS appealed an interlocutory order of the bankruptcy court denying its motion to dismiss the chapter 11 debtor’s objection to its claim. The IRS filed a proof of claim based upon three prepetition tax levies issued to the debtor for all property belonging to a company purchased by the debtor, as nominee or alter ego of a third party taxpayer. The debtor asserted that it was not liable to the IRS because its company was not the nominee or alter ego of the taxpayer. The IRS asserted that the objection was not a valid objection to the allowance of a claim, but was instead an attempt to assert a wrongful levy counterclaim against the United States, which was bared by the doctrine of sovereign immunity. The district court vacated the bankruptcy court’s order, holding that although the IRS filed a proof of claim, it did not waive its sovereign immunity to the debtor’s counterclaim. Consequently, the bankruptcy court did not have jurisdiction to decide the issue of whether or not the debtor’s company was the nominee or alter ego of the taxpayer.United States v. Braeview Manor, Inc. (In re Braeview Manor, Inc.), 2001 U.S. Dist. LEXIS 5015, – B.R. – (N.D. Ohio March 26, 2001) (Oliver, Jr., D.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:106
Worker’s compensation award was properly claimed exempt. Bankr. S.D. Ohio Chapter 7 debtor became totally disabled as a result of an injury at work and, some years later, he received an annuity as part of his worker’s compensation benefits. Upon the filing of the chapter 7 petition, he claimed the annuity payments exempt, and the trustee objected to the claim of exemption, asserting that the debtor was unable to prove that the funds were the result of a worker’s compensation claim and that the payments were merely a structured settlement in payment of a claim and not a substitute for future earnings. The bankruptcy court held that the trustee’s objection was overruled, in part, because the funds could only have been derived from a worker’s compensation claim and sustained, in part, because the payments were a structured settlement. Although all records regarding debtor’s worker’s compensation claim had been destroyed or misplaced, under the circumstances in which the injury occurred, under state (Ohio) law, the annuity could only have been the result of a worker’s compensation action. Accordingly, the claim of exemption was proper under the state exemption statute. However, inasmuch as the payments were not akin to future earnings, but, rather, were to compensate for an injury, they could not be claimed exempt under state law as an annuity. In re Lindsay, 2001 Bankr. LEXIS 375, – B.R. – (Bankr. S.D. Ohio March 27, 2001) (Caldwell, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:522.10
Proceeds from a Qualified Domestic Relations Order could not be claimed exempt. Bankr. S.D. Ohio The property settlement agreement in debtor’s divorce provided for $60,000 of her husband’s retirement plan to be distributed to her through a Qualified Domestic Relations Order ('QDRO'). When she filed her chapter 7 petition seven months later, she claimed the $60,000 exempt as an IRA, as well as under the state (Ohio) provisions regarding pensions and spousal support. The chapter 7 trustee objected, asserting that since the debtor’s interest in the fund was based upon the QDRO and not the retirement plan, her interest could not be claimed exempt as a pension or annuity. The bankruptcy court held that since the property interest emanated from the QDRO, not a retirement plan, the funds could not be claimed exempt. Moreover, pursuant to the property settlement agreement, the funds were clearly a division of marital property not warranting a claim of exemption as spousal support.In re Hageman, 2001 Bankr. LEXIS 370, – B.R. – (Bankr. S.D. Ohio March 22, 2001) (Caldwell, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:522.10
Creditor’s failure to submit trial transcript was not, in and of itself, reason to deny appeal of order that awarded attorney’s fees to debtors. B.A.P. 6th Cir. A creditor appealed a bankruptcy court order that awarded attorney’s fees to the debtors under Rule 9011 based on the creditor’s improper prosecution of a nondischargeability claim. The debtors argued, among other things, that the appeal should be dismissed because the creditor failed to include a trial transcript in the record on appeal. The court rejected this argument, and held that the creditor’s failure to submit the transcript was not, in and of itself, a reason to deny the appeal. The court concluded that while the failure to include the trial transcript or portions thereof might hinder the creditor’s ability to argue that the bankruptcy court made an unsupported finding of fact or conclusion of law, denial of the appeal was not warranted, especially since the cost of the transcript was 44 percent of the sanction amount at issue.Knowles Building Co. v. Zinni (In re Zinni), 2001 Bankr. LEXIS 340, – B.R. – (B.A.P. 6th Cir. April 19, 2001) (Aug, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 10:8006.07
8th Cir.
Automatic stay did not preclude local court action to obtain alimony. Bankr. D.N.D. The chapter 7 debtor obtained a decree of divorce from the local (Guam) court which required monthly payments in order to equalize the division of property and did not provide for spousal support. When the debtor ceased making the payments, and after the filing of the chapter 7 case, the former spouse obtained an order from the local court awarding alimony and a wage assignment. The debtor filed an adversary proceeding seeking a determination that the debt was discharged because the former spouse failed to timely file an action under section 523(a)(15). The debtor asserted that the local court’s award of alimony made after the filing of the chapter 7 petition was invalid as a violation of the automatic stay. The bankruptcy court held that the former spouse’s proceeding to obtain alimony was excepted from the application of the automatic stay. Section 362(b)(2) expressly provided for an exception to the automatic stay for marital disputes. The fact that the debtor’s chapter 7 discharge prevented the former spouse from enforcing the divorce decree property settlement provision did not preclude her from obtaining an award of alimony and the right to collect that alimony from property that was not property of the estate. Nothing in the Code precluded the local court from modifying its previous order (citing Collier on Bankruptcy, 15th Ed. Revised).In re Vargason, 2001 Bankr. LEXIS 345, 258 B.R. 659 (Bankr. D.N.D. April 5, 2001) (Hill, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.05[2]
Payments pursuant to federal agricultural assistance programs received postpetition were not property of the estate. B.A.P. 8th Cir. After the debtor filed a chapter 7 petition, the trustee sought the turnover of certain postpetition payments received by the debtor pursuant to two federal agricultural assistance and crop disaster programs. The bankruptcy court determined that the payments were not property of the estate because, as of the date of the petition, the federal legislation that authorized and funded the programs had not yet been enacted and that, consequently, the debtor’s right to receive the payment did not exist at the time the petition was filed. The trustee appealed, arguing that the court erred by defining property of the estate too narrowly and that the scope of property under section 541(a)(1) was broad enough to include the payments, and that property acquired postpetition could be considered estate property if sufficiently rooted in the prepetition past. The B.A.P. for the Eighth Circuit affirmed, holding that, because the date certain on which the debtor was entitled to the funds was postpetition, the payments could not be considered property of the estate. The B.A.P. noted that at the time of the petition filing, the debtor had no assurance that Congress would authorize the programs or that the debtor would be entitled to their benefits. Drewes v. Vote (In re Vote), 2001 Bankr. LEXIS 354, – B.R. – (B.A.P. 8th Cir. April 25, 2001) (Venters, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:541.04
Chapter 12 plan failed to meet cramdown requirements necessary for plan confirmation. B.A.P. 8th Cir. The United States appealed a bankruptcy court order that confirmed the chapter 7 debtors’ amended chapter 12 plan. The plan allowed the debtors to use payments received under their Conservation Reserve Program (CRP) contract to pay part of a mortgage debt owed to the Farm Service Agency (FSA) and barred the United States from offsetting funds from the CRP against the mortgage debt. The Eighth Circuit B.A.P. held, among other things, that the debtors failed to meet the cramdown requirements necessary for confirmation of their amended plan. The court found that the plan, which did not include a component for setoff rights on behalf of the United States, failed to recognize or provide for payment of the government’s entire secured claim as required by section 1225(a)(5)(B)(ii). The B.A.P. found that the United States had a secured right to setoff that could be exercised when the automatic stay was lifted, and that the bankruptcy court’s finding that the United States did not waive its secured setoff rights was not clearly erroneous.United States v. Krause (In re Krause), 2001 Bankr. LEXIS 341, – B.R. – (B.A.P. 8th Cir. April 19, 2001) (Schermer, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1225.03
Plan which proposed to surrender wrecked vehicle was proposed in good faith. Bankr. E.D. Ark. Two days after she received notice that her automobile insurance was cancelled, the debtor’s vehicle was wrecked in an accident. Nearly a year later, the debtor filed a chapter 13 petition, proposing to surrender the vehicle and treat the obligation on the vehicle as an unsecured claim. The automobile lender objected to this treatment, asserting that the debtor was obligated to be self-insured and, thus, was required to provide for payment of the market value of the vehicle. Alternatively, the lender asserted that the plan was not proposed in good faith because the debtor failed to maintain insurance on the vehicle. The bankruptcy court held that the plan was proposed in good faith even though the debtor proposed to surrender her wrecked vehicle which had a substantially diminished value. No testimony or other evidence indicated that the debtor’s schedules were inaccurate, that she attempted to mislead the court or creditors, that she unfairly manipulated the Code or that discharge would offend the policies of the Code. The lone circumstance that the vehicle was wrecked before she found replacement insurance was insufficient to demonstrate bad faith. The court declined to apply case authority analyzing similar situations arising in the post confirmation context. Finally, the debtor was not required under state (Arkansas) law to be self-insured.In re Ussery, 2001 Bankr. LEXIS 376, – B.R. – (Bankr. E.D. Ark. April 12, 2001) (Scott, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1325.04[1]
9th Cir.
District court did not err in refusing to give preclusive effect to state court judgment against debtors. 9th Cir. In consolidated cases involving the use of the federally registered trademark 'WAR' used by a musical group, two original members of the musical group appealed a district court order that granted the debtor/appellees’ motion for summary judgment, denied the appellants’ motion for summary judgment, and denied the appellants’ motion for a new trial. The United States Court of Appeals for the Ninth Circuit affirmed. The court held, among other things, that the federal district court did not err in declining to give preclusive effect to a state (Florida) court judgment that determined that the debtor/appellees’ obtained the trademark fraudulently. The court held that, based upon application of the automatic stay and as a matter of federal bankruptcy law, the Florida judgment could not be binding upon the appellees. The court acknowledged that the state court litigation was initially filed in November 1982 and that the debtor/appellees did not file for bankruptcy until June 1984. However, the record did not show that either of the debtor/appellees participated in the Florida litigation in a meaningful way before declaring bankruptcy, that the appellees declared bankruptcy merely to avoid being subject to the postpetition Florida judgment, or that the appellees failed to notify the state court plaintiffs of their bankruptcy applications.Far Out Productions, Inc. v. Oskar, 2001 U.S. App. LEXIS 7400, – F.3d – (9th Cir. April 24, 2001) (Breyer, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.03[3]
Motion to dismiss appeal of bankruptcy court’s order authorizing sale of debtor’s residence granted. N.D. Cal. The chapter 7 trustee moved to dismiss the debtor’s appeal of the bankruptcy court’s order that authorized the trustee’s sale of the debtor’s real property to a third party. The bankruptcy court found that the third party purchased the property in good faith pursuant to section 363(m), and the debtor did not appeal this finding. The bankruptcy court also denied the debtor’s motion for stay pending appeal. The district court granted the trustee’s motion, holding that the appeal was moot. Section 363(m) allowed a reversal of an authorization of a sale to affect the validity of the sale only if the sale was stayed pending appeal. Since the sale was not stayed pending appeal, the court did not have the power to modify or set aside the sale.In re Griffin, 2001 U.S. Dist. LEXIS 5147, – B.R. – (N.D. Cal. April 16, 2001) (Breyer, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:363.11
District court affirmed order sustaining debtors’ objection to IRS’s claim. C.D. Cal. The IRS appealed from a bankruptcy court order that sustained the chapter 13 debtors’ objection to its tax claim. The bankruptcy court held that under the Internal Revenue Code, partners in a partnership must be assessed individually before they can be held liable for tax assessments. Since the debtors, as individual partners, were not assessed within the Internal Revenue Code’s three-year statute of limitations, collection of the assessments was held barred. The district court affirmed. The court held that the bankruptcy court did not err in interpreting the word 'individual' to include individuals who are general partners of partnerships; the bankruptcy court was correct in holding that collection was barred because the debtors were not assessed within the three-year period; and, based on the applicable statutes and decisions, the bankruptcy court correctly found that the debtors presented sufficient evidence to rebut the claim’s prima facie validity.United States v. Briguglio (In re Briguglio), 2001 U.S. Dist. LEXIS 4829, – B.R. – (C.D. Cal. March 23, 2001) (Phillips, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:502.02[2], [3]
Insurer was entitled to summary judgment. Bankr. D. Idaho The insurer filed an adversary proceeding against the chapter 7 trustee to determine the right, title and interest of the parties to personal injury proceeds recovered from the tortfeasor. After the debtor was injured in an automobile accident, her insurer paid the debtor’s medical expenses pursuant to the terms of the insurance policy. The policy also provided for reimbursement of funds paid by the insurer upon recovery from a third party. The insurer moved for summary judgment, arguing that the amount of the settlement recovered by the debtor which was necessary to reimburse the insurer was not property of the estate. The bankruptcy court granted summary judgment to the insurance company, holding that under section 541(d), the insurer held the equitable interest in the subrogation claim. The rights of the insurer under its contractual right to subrogation were sufficient to elevate its claim of the recoveries over the right and interest of the debtor under state law and, thus, over the rights of the trustee (citing Collier on Bankruptcy, 15th Ed. Revised).Farmers Ins. Group v. Krommenhoek (In re Hiatt), 2000 Bankr. LEXIS 1733, – B.R. – (Bankr. D. Idaho June 30, 2000) (Myers, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:541.26
Plan provisions discharging student loans in chapter 13 plans were binding. Bankr. E.D. Wash. Five chapter 13 debtors’ plans provided for discharge of their student loan obligations as an undue hardship. Although the student loan creditors in each of the cases had notice of the plans, they failed to object and the plans were confirmed. Debtors then filed adversary proceedings seeking declaratory judgments that the student loan debts would be discharged upon completion of the plans. The bankruptcy court held that the student loan provisions of the confirmed chapter 13 plans were re judicata and could not be challenged by defendant creditors so that the loan obligations would be discharged upon successful completion of the confirmed plans. While the provisions were improper, it was the creditors’ obligation to protect their interests and, having failed to take action to do so, they were bound by the plan. It was not significant that the debtors had not yet been granted a discharge. The important date for this issue was the confirmation of the plan, not when the debtors might receive their discharges.Patton v. U.S. Dep’t of Educ. (In re Patton), 2001 Bankr. LEXIS 349, – B.R. – (Bankr. E.D. Wash. April 3, 2001) (Rossmeissl).
Collier on Bankruptcy, 15th Ed. Revised 1327.02[1]
Case was remanded to resolve factual issue of 'drop-box' filing. B.A.P. 9th Cir. The creditor appealed the bankruptcy court’s order dismissing her complaint as untimely under 11 U.S.C. section 523(a)(2)(A). The creditor claimed that the complaint was placed in the bankruptcy court’s after-hours drop box on the last date for filing nondischargeability actions. The clerk of court processed the complaint and marked it as filed the following morning. The debtor moved to dismiss the complaint, stating that a supervising deputy clerk confirmed that the complaint was filed after the deadline and that there was no error in the file stamp. The creditor opposed the motion and included a declaration by a messenger who swore that he put the complaint in the drop box before the filing deadline passed. The B.A.P. reversed, holding that substantial evidence rebutted the presumption that the clerk’s filed stamp accurately recorded when the complaint was filed, which left a genuine issue of material fact that precluded summary judgment. The affidavit of the messenger established the existence of an issue of fact that was material as to whether or not the complaint was timely filed.Svob v. Bryan (In re Bryan), 2001 Bankr. LEXIS 357, – B.R. – (B.A.P. 9th Cir. April 17, 2001) (Klein, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 10:7056
10th Cir.
Claim for damages was dismissed. D. Kan. After the bankruptcy court determined that the involuntary petition had been filed against the debtor in bad faith, the debtor brought suit in district court against the petitioners based on their participation in the involuntary case and related adversary proceeding. A jury trial to determine the amount of damages under section 303(i) was pending before the bankruptcy court. The district court dismissed the claim sua sponte, holding that section 303(i) was not an independent cause of action and the issue could only have been determined by the bankruptcy court. The court further found dismissal appropriate since a determination of damages was pending in the collateral case.Glannon v. Garrett & Assocs., 2001 U.S. Dist. LEXIS 5137, – F.Supp.2d – (D. Kan. April 9, 2001) (Saffels, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:303.15
11th Cir.
Conversion was not established. Bankr. S.D. Ga. The secured creditor filed an adversary proceeding against the chapter 7 debtor, alleging that the debtor committed a willful and malicious injury by converting collateral of the creditor. The creditor held a second lien on inventory of a retail store controlled by the debtor. After the trustee abandoned the inventory, the debtor physically merged the assets with that of another corporation under her control and then pledged the latter corporation’s assets to a third party lender. The creditor argued that the debtor’s actions constituted conversion. The bankruptcy court denied judgment for the creditor, holding that because the creditor retained its security interest in the commingled inventory, the claim of conversion was precluded. The court pointed out that the creditor had subsequently received proceeds of the store’s inventory sale.Smith Drug Co. v. Pharr-Luke (In re Pharr-Luke), 2000 Bankr. LEXIS 1734, 259 B.R. 426 (Bankr. S.D. Ga. June 29, 2000) (Davis, Jr., B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.12
Judgement lien was not extinguished despite confirmation of chapter 12 plan. M.D. Ala. The chapter 12 debtor appealed the bankruptcy court’s ruling that confirmation of his plan did not divest the creditor of its judgment lien because the plan did not provide for the lien. The secured creditor had filed a proof of claim which was not objected to by the debtor, but in filing the plan, the debtor treated the creditor as an unsecured creditor. The creditor failed to object to the plan, the plan was confirmed and the debtor ultimately received a discharge. The district court affirmed the decision of the bankruptcy court, holding that because the plan did not acknowledge the creditor’s claim as a secured lien, it was not provided for in the plan and survived the debtor’s discharge. Even though the creditor should have objected to confirmation of the plan, the creditor’s failure to do so did not justify avoidance of the lien.Holloway v. Southeast Alabama Med. Ctr. (In re Holloway), 2001 U.S. Dist. LEXIS 5029, – B.R. – (M.D. Ala. April 16, 2001) (Albritton, C.D.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1227.03
Evidentiary hearing on the chapter 13 plan’s separate classification was required. Bankr. N.D. Fla. Debtors’ chapter 13 plan proposed to pay in full an unsecured debt on which there existed a nondebtor co-obligor, but proposed zero distribution to all other unsecured claimants. Upon the trustee’s objection to the separate classification and treatment, the bankruptcy court held that whether separate classification was warranted was a factual question to be determined together with consideration of good faith test. The court reasoned that application of the unfair discrimination test of section 1322(b)(1) had to be read in connection with section 1325(a)(3)’s good faith requirement. Since, despite debtor’s assertion, there was no presumption of good faith based upon the exception carved out by section 1322(b)(1), an evidentiary hearing was required in order for the debtors to demonstrate that the proposed treatment and discriminatory impact of the plan were justified. To aid in the endeavor, the Court suggested eight factors which would be relevant in the determination.In re Hill, 2001 Bankr. LEXIS 371, – B.R. – (Bankr. N.D. Fla. April 12, 2001) (Killian, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1322.05[1]
Contempt was not a remedy for debtor’s failure to pay consent judgment. Bankr. S.D. Ga. Debtor’s former spouse obtained a judgment of nondischargeability and thereafter sought over $25,000 in attorney’s fees. The parties settled the fee dispute, with the debtor consenting to an award of $20,000 in fees and costs. When the debtor failed to pay the fees, the former spouse filed a motion for contempt under Fed. R. Civ. P. 69(a). The debtor argued that contempt was not a remedy to enforce the monetary terms of the judgment. The bankruptcy court held that since the judgment for fees was an ordinary contractual obligation, contempt was not available as a remedy. Although an exception under state (Georgia) law existed for judgments entered in a divorce proceeding, the consent judgment at issue was not incorporated into the parties’ divorce decree. Accordingly, the only manner it could be enforced was through a writ of execution, and not a motion for contempt.Eickhoff v. Eickhoff (In re Eickhoff), 2000 Bankr. LEXIS 1723, 259 B.R. 234 (Bankr. S.D. Ga. August 7, 2000) (Davis, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 10:7065.02