Collier Bankruptcy Case Update May-28-01
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 28, 2001
CASES IN THIS ISSUE
(scroll down to read the full
summary)
- 1st Cir.
§ 523(a)(2)(A) Credit card companies proved debtor’s actual fraud in making charges with no realistic prospect of repayment. American Express v. Kahn (In re Kahn) (Bankr. D. Conn.) 061017
§ 523(a)(6) Debtor’s summary judgment motion granted based on showing that he lacked actual intent to cause injury.
Morse v. Soda (In re Soda) (Bankr. D. Conn.) 061020Rule 8013 District court deferred to bankruptcy judge’s factual findings and credibility assessments on appeal from decision that allowed and awarded claim.
Zerbe v. Botet (In re Diaz) (D.P.R.) 061048
2d Cir.
§ 350(a) Debtor’s preference action was not barred by statute of limitations because assets were not fully administered prior to closing of case.
Price v. Manufacturers & Traders Trust Co. (In re Price) (Bankr. W.D.N.Y.) 061004§ 523(a)(2)(A) Debt that arose from separation agreement incorporated into a marriage dissolution judgment was not excepted from discharge under section 523(a)(2)(A).
Burbank v. Capelli (In re Capelli) (Bankr. D. Conn.) 061018§ 544(b)(1) Defendants’ motion for summary judgment in fraudulent transfer proceeding denied.
Official Comm. of Unsecured Creditors of Color Tile, Inc. v. Investcorp S.A. (S.D.N.Y.) 06102828 U.S.C. § 157(b) Bankruptcy court had jurisdiction to determine the assets in the debtor’s estate.
In re Kassover (S.D.N.Y.) 061039
3d Cir.
§ 105(a) Payment was not disgorged.
Schwab v. United States (In re Shop N’ Go Partnership) (Bankr. M.D. Pa.) 061001§ 362 Court of Appeals held that section 362 did not operate to stay appeal of tax court proceeding filed by debtor.
Rhone-Poulenc Surfactants & Specialties, L.P. v. Commissioner of Internal Revenue (3d Cir.) 061005§ 363(m) Court of Appeals remands issue of assumed and assigned employment contracts for a determination of statutory mootness.
Cinicola v. Scharffenberger (3d Cir.) 061007§ 365(d)(3) Leases were deemed true leases and not mere financing arrangements, thereby invoking section 365(d)(3).
In re Integrated Health Servs. (Bankr. D. Del.) 061008Rule 9027(a)(3) Motion to remand removed case was denied.
Arnold v. E.W. Bliss Co. (E.D. Pa.) 061051
5th Cir.
§ 523(a)(6) Judgment debt arising from trademark infringement action held dischargeable.
Rolex Watch U.S.A. v. Meece (In re Meece) (Bankr. N.D. Tex.) 061021
6th Cir.
§ 544(b)(1) District court affirmed bankruptcy court’s dismissal of proceeding brought by trustee to avoid transfers.
Bruinsma v. Thomas (W.D. Mich.) 061029§ 547(b)(4) Court of Appeals held that dispositive date of preferential transfer was the date the debtor’s salary was earned, not the date garnishment order was served.
Morehead v. State Farm Mut. Auto. Ins. Co. (In re Morehead) (6th Cir.) 061030
9th Cir.
§ 329(b) Fees described in agreement between debtor and attorneys held excessive and not payable from estate.
Stringer v. Mitchell (In re Stein) (Bankr. D. Or.) 061003
11th Cir.
§ 106(b) Sovereign immunity not waived by withholding of postpetition earnings by agency that asserted but did not file claim or by another agency’s filing of claim.
Wilson v. Georgia (In re Wilson) (Bankr. S.D. Ga.) 061002§ 363(c)(1) Transferee failed to establish ordinary course of business 'safe harbor' defense in trustee’s proceeding to recover postpetition, preconversion payments.
Moore v. Brewer (In re HMH Motor Servs., Inc.) (Bankr. S.D. Ga.) 061006§ 502(a) On remand, United States granted summary judgment on chapter 13 debtor’s objection to its claim.
In re Hicks (Bankr. M.D. Fla.) 061009§ 506 Second lienholder that objected to value of collateral was entitled to secured claim in amount of additional value.
First Franklin Fin. v. Mizell (In re Mizell) (Bankr. S.D. Ga.) 061010§ 521(2) Chapter 7 debtors who failed to timely perform stated intentions with respect to collateral securing prepetition debts were precluded from retaining collateral.
In re Jones (Bankr. N.D. Ala.) 061011§ 522(b)(2)(A) Florida debtor was not entitled to exemption where vehicle held with nondebtor husband was held jointly and not as tenants by the entireties.
In re Daugherty (Bankr. M.D. Fla.) 061012§ 523(a)(1) Tax liabilities were nondischargeable.
Olson v. United States (In re Olson) (Bankr. M.D. Fla.) 061016§ 707(b) Chapter 7 petition dismissed for substantial abuse.
In re May (Bankr. M.D. Fla.) 061036§ 727(a)(5) Chapter 7 discharge denied for failure to account for substantial losses of net worth.
Colonial Bank v. Wynn (In re Wynn) (Bankr. M.D. Ala.) 06103828 U.S.C. § 1334(c) District court affirmed bankruptcy court order that remanded removed proceeding to state court.
Farmers Nat’l Bank v. Robertson (In re Robertson) (M.D. Ala.) 061041
Collier Bankruptcy Case Summaries
1st Cir.
Credit card companies proved debtor’s actual fraud in making charges with no realistic prospect of repayment. Bankr. D. Conn. The debtor filed a chapter 7 petition on June 27, 1998. Between March 21, 1998 and the middle of June 1998, the debtor’s credit card balance on one account increased from $25 to over $5,000. On a second account, the debtor’s balance increased from $64 to $2,455 for the single billing period ending in June 1998. The creditors filed adversary proceedings seeking a determination that the debts were nondischargeable pursuant to sections 523(a)(2)(A) and (a)(2)(C). The debtor, who earned an annual income of $11,000 in 1997 and $2,400 in 1998, stated that he intended to pay his credit card debts by finding a new job or winning money at a gambling casino. The bankruptcy court limited its determination to the section 523(a)(2)(A) claim and ruled for the creditors. The court found that: (1) the debtor made a false representation by signing credit card receipts when his prospects of repaying the debt were unrealistic and incredible; (2) the signature on the charges induced the creditor to act to its detriment; and (3) the creditors established actual reliance by approving each of the transactions.American Express v. Kahn (In re Kahn), 2001 Bankr. LEXIS 377, – B.R. – (Bankr. D. Conn. April 20, 2001) (Shiff, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.08
Debtor’s summary judgment motion granted based on showing that he lacked actual intent to cause injury. Bankr. D. Conn. The debtor was operating his motorboat when his vessel collided with another boat operated by the creditor, whose passengers included other individual creditors who instituted a state (Connecticut) court suit against the debtor, alleging that the debtor’s negligence had been caused by operating the boat under the influence of alcohol. After the debtor filed a chapter 13 petition, the creditors filed various adversary proceedings seeking a determination that the claim was nondischargeable under sections 523(a)(6) and (a)(9). The debtor filed motions for summary judgment in the respective adversary proceedings. The bankruptcy court granted the motion with respect to the section 523(a)(6) claim, determining that the debtor’s lack of actual intent to cause injury was a material fact, not controverted, and thereby deemed admitted. The court concluded that the element of actual intent required by section 523(a)(6) had not been met.Morse v. Soda (In re Soda), 2001 Bankr. LEXIS 372, – B.R. – (Bankr. D. Conn. April 17, 2001) (Dabrowski, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.12[1]
District court deferred to bankruptcy judge’s factual findings and credibility assessments on appeal from decision that allowed and awarded claim. D.P.R. The chapter 7 debtor appealed a bankruptcy court order that allowed a creditor’s claim and awarded judgment in favor of the creditor in the full amount of the claim. The debtor listed eleven issues on appeal, and argued that all eleven issues dealt with mixed questions of law and fact. The creditor asserted that the ultimate issue on appeal was one of fact, which concerned the credibility of both the debtor and the creditor with respect to the claim at issue. The district court affirmed. The court found that the bankruptcy judge’s ruling relied upon factual determinations; i.e., that the creditor loaned the debtor $85,000.00 and received an assurance of repayment, and that the creditor and the debtor structured the repayment of the loan in such a way that the debtor agreed to assume an obligation when and if repayment was not completed from the sale of proceeds of an office building. Moreover, the bankruptcy judge’s decision rested on her ascertainment of witness credibility, including the credibility of the parties. Since the bankruptcy judge specifically addressed credibility, and the district court did not have a definite and firm conviction that a mistake had been made, the district court was obligated to defer pursuant to Rule 8013.Zerbe v. Botet (In re Diaz), 2001 U.S. Dist. LEXIS 5272, – B.R. – (D.P.R. April 6, 2001) (Pieras, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 10:8013.01
2nd Cir.
Debtor’s preference action was not barred by statute of limitations because assets were not fully administered prior to closing of case. Bankr. W.D.N.Y. In 1997 the creditor obtained a judgment against the debtor and served an income execution on the debtor’s employer. In August 1999 the debtor filed a chapter 7 petition and scheduled the debt. During the 90 days prepetition the employer had withheld wages in the sum of $1,231.12, all of which was forwarded to the creditor. The debtor did not include any withheld wages on his schedule of assets, and thereafter the case was closed after the trustee filed a no-asset report. In February 2000 the debtor filed a motion to reopen his case for the purpose of amending his schedules and to an initiate an adversary proceeding to recover preferential payments to the creditor garnished from the debtor’s wages. The creditor argued that the statutes of limitation found in sections 546 and 550 barred the adversary proceedings. The bankruptcy court held that section 350(a) confirmed the position that a case’s closing appropriately followed the full administration of all assets. The court concluded that, because the debtor’s assets were never fully administered, a closing should not have occurred and any statute of limitation should not have been imposed (citing Collier on Bankruptcy 15th Ed. Revised). The creditor’s motion for summary judgment was denied.Price v. Manufacturers & Traders Trust Co. (In re Price), 2001 Bankr. LEXIS 373, – B.R. – (Bankr. W.D.N.Y. April 4, 2001) (Bucki, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:350.02
Debt that arose from separation agreement incorporated into a marriage dissolution judgment was not excepted from discharge under section 523(a)(2)(A). Bankr. D. Conn. The chapter 7 debtor’s former spouse sought a nondischargeability determination with respect to a debt that arose from a separation agreement incorporated into a marriage dissolution judgment. The former spouse argued, among other things, that the debt was nondischargeable under section 523(a)(2)(A). The bankruptcy court held that section 523(a)(2)(A) did not afford any relief to the former spouse because she failed to establish that the debtor made any fraudulent acts or representations (other than those contained in a written financial statement) that occurred prior to, and induced the creation, of the debt. The court explained that no provision of section 523 creates a dischargeability cause of action for oral misrepresentations regarding financial condition, and ultimately held that the debt at issue was excepted from discharge pursuant to section 523(a)(2)(B), based upon the debtor’s intentionally false written misstatement regarding his financial condition.Burbank v. Capelli (In re Capelli), 2001 Bankr. LEXIS 363, – B.R. – (Bankr. D. Conn. April 17, 2001) (Dabrowski, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.08[2]
Defendants’ motion for summary judgment in fraudulent transfer proceeding denied. S.D.N.Y. The creditors’ committee filed a complaint against eight individuals and 23 legal entities that asserted various causes of action arising from a variety of international investment transactions involving the chapter 11 debtors. Various claims and defendants were dismissed early in the proceedings. Thereafter, the remaining defendants moved for summary judgment seeking dismissal of all remaining claims, including a fraudulent conveyance claim. The defendants argued, among other things, that the alleged fraudulent conveyance was not a direct payment from the debtor to the transferee, but rather a capital contribution to a third party and a subsequent transfer by that party to one of the defendants. The defendants further argued that the third party, a non-party to the litigation, was an indispensable party to any proceeding to avoid the transfer. The district court denied the defendants’ motion for summary judgment and held that because neither side submitted sufficient information about the third party’s current status and the current location of the business in question or its assets, it was impossible to determine whether the third party was an indispensable party. The court directed the parties to submit the relevant factual information.Official Comm. of Unsecured Creditors of Color Tile, Inc. v. Investcorp S.A., 2001 U.S. Dist. LEXIS 4887, – B.R. – (S.D.N.Y. April 20, 2001) (Cedarbaum, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:544.09
Bankruptcy court had jurisdiction to determine the assets in the debtor’s estate. S.D.N.Y. The chapter 11 debtor’s former wife appealed a bankruptcy court order disallowing the portion of her claim that related to the proceeds of the sale of certain properties. Although a state court injunction forbade the debtor from conveying the properties to his former wife, the parties’ separation agreement provided for the transfer. The wife filed a proof of claim and asserted that the properties had been rightfully transferred to her and were not assets of the estate. The bankruptcy court sustained the trustee’s objection to her proof of claim. On appeal, the wife argued that because the properties had been conveyed to her, the bankruptcy court never had subject matter jurisdiction over them, and its actions regarding the properties were invalid. The district court dismissed the appeal, holding that the bankruptcy court had jurisdiction to decide which assets comprised the debtor’s estate. The court noted that the bankruptcy court’s decision on the merits was correct, as well.In re Kassover, 2001 U.S. Dist. LEXIS 5430, – B.R. – (S.D.N.Y. April 24, 2001) (Buchwald, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 1:3.02[3][c]
3rd Cir.
Payment was not disgorged. Bankr. M.D. Pa. The chapter 7 trustee petitioned the bankruptcy court to use its equitable powers to disgorge a sum of money the debtor paid to the IRS during the chapter 11 reorganization. Pursuant to a settlement agreement approved by the court, the debtor paid a reduced amount of its FICA and other prepetition tax obligations to the IRS within 30 days after confirmation of the plan. The case was later converted to chapter 7 and estate became insolvent. The trustee alleged that the debtor perpetrated a fraud on the postpetition creditors when it made payment to satisfy the prepetition tax debt before satisfying the postpetition filing expenses of the chapter 7. The bankruptcy court granted judgment in favor of the IRS, holding that the court lacked cause to order disgorgement of the payment made to the IRS. The court noted that at the time the settlement was approved, it was deemed to be in the best interest of the estate by the debtor, the court and the creditors, as evidenced by the fact that no party objected to the agreement.Schwab v. United States (In re Shop N’ Go Partnership), 2001 Bankr. LEXIS 413, – B.R. – (Bankr. M.D. Pa. March 15, 2001) (Thomas, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:105
Court of Appeals held that section 362 did not operate to stay appeal of tax court proceeding filed by debtor. 3d Cir. The debtor had instituted a prepetition proceeding in tax court, which was eventually appealed to the Court of Appeals for the Third Circuit. After the debtor filed a chapter 11 petition, both parties requested that the appeal be removed from the calendar, asserting that the petition filing, and the automatic stay, had operated to stay the appeal. The Court of Appeals denied the request, holding that section 362 did not stay the appeal because that provision stayed only actions or proceedings against the debtor. In the present appeal the debtor was the party who had commenced the proceeding in tax court. The court dismissed for lack of appellate jurisdiction the appeal of the tax court’s order denying appellant’s motion for summary judgment, and remanded the case for further proceedings on the merits. Rhone-Poulenc Surfactants & Specialties, L.P. v. Commissioner of Internal Revenue, 2001 U.S. App. LEXIS 7969, – F.3d. – (3d Cir. May 1, 2001) (Shadur, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.03
Court of Appeals remands issue of assumed and assigned employment contracts for a determination of statutory mootness. 3d Cir. The chapter 11 debtor was a parent corporation managing several entities in a healthcare network. A group of physicians had signed employment contracts with affiliates of the debtor to serve as primary health care providers. After the petition was filed, the chapter 11 trustee obtained approval of the bankruptcy court to assume eight physician contracts and to assign those contracts to another hospital. The physicians appealed, arguing that their contracts were not assignable. After the district court affirmed, this second appeal followed. The chapter 11 trustee and the assignee argued that the physicians’ appeal was statutorily moot because the assignment of the contracts triggered the protection of section 363(m). The Court of Appeals for the Third Circuit vacated the district court’s holding. The Court of Appeals followed its established reasoning and formulated a two-prong test for mootness: (1) whether the underlying sale was stayed pending appeal and (2) whether a reversal or modification of the authorization to sell would affect the validity of the sale. The Court of Appeals held finally that the district court had not considered whether the requested relief would affect the validity of the transaction and did not consider the issue of whether the plaintiffs’ appeal was statutorily mooted under federal law, and remanded for a determination of that issue (citing Collier on Bankruptcy, 15th Ed.).Cinicola v. Scharffenberger, 2001 U.S. App. LEXIS 7921, – F.3d. – (3d Cir. April 25, 2001) (Scirica, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:363.11
Leases were deemed true leases and not mere financing arrangements, thereby invoking section 365(d)(3). Bankr. D. Del. The creditor loaned $53 million to various subsidiaries of the debtors. The loan was used to purchase six nursing home facilities. The loan agreements provided that the subsidiaries would lease the properties to the debtor’s acquisition subsidiary and, to secure the loan, the subsidiaries granted the creditor a mortgage on each facility and an assignment of the rents and leases on them. Thereafter the debtors filed a chapter 11 petition. The creditor contended that the debtors failed to pay the obligations since March 2000, and filed a motion on the basis that the failure to make rent payments violated section 365(d)(3). The debtors argued that the agreements were not true leases but merely financing arrangements. The bankruptcy court held that the agreements were true leases, thereby obligating the debtors to pay all postpetition rent pursuant to section 365(d)(3) if they sought to maintain possession of the facilities. The court reasoned that (1) the agreements contained no purchase option at the end of the leases; (2) the leases were only for one year, with an option to renew for successive one year terms; and (3) the aggregate rental payments did not equal the original cost of the facilities. The court concluded that these factors supported the determination that the leases were not financing arrangements but true leases. In re Integrated Health Servs., 2001 Bankr. LEXIS 383, 260 B.R. 71 (Bankr. D. Del. March 13, 2001) (Walrath, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:365.04[3][f][ii]
Motion to remand removed case was denied. E.D. Pa. The plaintiffs in a products liability diversity action moved to remand their cause of action to state court, arguing that the chapter 11 debtor’s notice of removal was not timely filed. The plaintiffs filed their lawsuit against the debtor and its two subsidiaries approximately six months before the debtor filed its notice of removal. The notice of removal was filed, however, only 20 days after the automatic stay had been modified to allow the plaintiffs to proceed against the debtor. The district court denied the plaintiffs’ motion to remand, holding that because the time for the debtor to remove to federal court did not begin to run until the automatic stay was modified, the debtor timely removed the action. The court noted that since the debtor filed its petition prior to the filing of the complaint, it could not have been served with the complaint until after the stay was lifted.Arnold v. E.W. Bliss Co., 2001 U.S. Dist. LEXIS 5537, – B.R. – (E.D. Pa. March 8, 2001) (Kauffman, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 10:9027.05[2]
5th Cir.
Judgment debt arising from trademark infringement action held dischargeable. Bankr. N.D. Tex. A creditor who obtained a federal district court judgment against the debtor in a trademark infringement action moved for summary judgment on its adversary complaint seeking, among other things, a determination that the judgment debt was nondischargeable under section 523(a)(6). The creditor asserted that the district court’s finding of intentional use of a counterfeit mark met, as a matter of law, the element of willful and malicious injury required under section 523(a)(6). The bankruptcy court rejected this assertion, denied the creditor’s motion for summary judgment, and dismissed the creditor’s complaint. The court held that since the district court found that the debtor did not willfully use the counterfeit mark and did not cause consumer confusion, he necessarily could not have intended to injure the creditor; thus, a finding of 'willful' injury under section 523(a)(6) was precluded. The court explained that because the district court found that the debtor did not intentionally infringe the creditor’s marks, a finding of a deliberate or intentional injury to the creditor was precluded.Rolex Watch U.S.A. v. Meece (In re Meece), 2001 Bankr. LEXIS 421, – B.R. – (Bankr. N.D. Tex. March 9, 2001) (Felsenthal, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.08
6th Cir.
District court affirmed bankruptcy court’s dismissal of proceeding brought by trustee to avoid transfers. W.D. Mich. The chapter 7 trustee appealed a bankruptcy court order that dismissed an adversary proceeding brought by the trustee to recover certain transfers. The trustee sought to avoid the transfers under state law, in accordance with his section 544(b) 'strong arm' powers. The district court affirmed the bankruptcy court’s decision. The court held that the bankruptcy court committed no legal error in allowing parol evidence, and its factual findings concerning a deed and whether certain payments were made to a trust or an individual were not clearly erroneous.Bruinsma v. Thomas, 2001 U.S. Dist. LEXIS 5244, – B.R. – (W.D. Mich. April 9, 2001) (Enslen, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:544.09
Court of Appeals held that dispositive date of preferential transfer was the date the debtor’s salary was earned, not the date garnishment order was served. 6th Cir. The creditor obtained a judgment against the debtor and issued a wage garnishment to the debtor’s employer. The debtor thereafter filed a chapter 7 petition. Within the 90 days prepetition, the creditor withheld $731.35 from the debtor’s paycheck. The trustee did not attempt to avoid the transfer but the debtor filed an adversary proceeding to recover those funds. The bankruptcy court held that the creditor had obtained its status as a perfected lien creditor when it served the garnishment order and that, because the perfection occurred prior to the 90-day preference period, no preferential transfer occurred. After the district court affirmed, the debtor filed a second appeal. The Court of Appeals for the Sixth Circuit reversed, holding that the transfer of the wages was avoidable pursuant to section 547(b)(4)(A). The Court of Appeals reasoned that, regardless of when the lien was perfected, a transfer could only occur after the debtor had rights to the property. In the wage garnishment context, this could not logically occur until the debtor performed the services that entitled her to receive the wages that were subject to garnishment. Morehead v. State Farm Mut. Auto. Ins. Co. (In re Morehead), 2001 U.S. App. LEXIS 8009, – F.3d. – (6th Cir. May 3, 2001) (Gaughan, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:547.03[1]
9th Cir.
Fees described in agreement between debtor and attorneys held excessive and not payable from estate. Bankr. D. Or. Creditor/attorneys filed an adversary complaint against the chapter 7 trustee seeking to enforce an alleged security interest in certain funds held by the trustee for the debtor’s bankruptcy estate. The bankruptcy court entered judgment in favor of the trustee. The court held, among other things, that the bankruptcy court fees described in the an agreement between the debtor and the attorneys was excessive. The court noted, as stipulated by the parties, that the legal services performed by the attorneys for the debtor provided no benefit to the debtor’s bankruptcy estate. The court canceled the fee arrangement and concluded that the requested fees could not be paid from assets of the estate.Stringer v. Mitchell (In re Stein), 2001 Bankr. LEXIS 379, – B.R. – (Bankr. D. Or. April 20, 2001) (Dunn, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:329.01
11th Cir.
Sovereign immunity not waived by withholding of postpetition earnings by agency that asserted but did not file claim or by another agency’s filing of claim. Bankr. S.D. Ga. The state’s (Georgia) Department of Medical Assistance commenced investigations into the chapter 13 debtor/dentist’s billing practices and interrupted payments reimbursing him for services rendered. In response, the debtor filed an adversary proceeding seeking injunctive relief to prohibit the state from withholding payments for patients he treated during the postpetition period. The state moved to dismiss the adversary proceeding, relying on sovereign immunity granted by the Eleventh Amendment. The bankruptcy court granted the state’s motion. The court held that the state’s sovereign immunity was not waived as a result of the filing of proofs of claim in the debtor’s case. Even though an agency of the state other than the Department of Medical Assistance filed the claim, and the Department of Medical Assistance withheld the debtor’ postpetition earnings, sovereign immunity was not waived. The court noted that the Department of Medical Services asserted but did not file a claim; thus, no waiver occurred. Moreover, the court found no logical relationship between the claims asserted by the other agency (the Department of Revenue) and the Department of Medical Assistance. The court concluded that the agencies’ claims did not arise from the same transaction or occurrence; accordingly, the claim filed by the Department of Revenue did not constitute a waiver of immunity for the Department of Medical Assistance. The court also held that the state’s participation in the Medicaid program, a federally funded program, was insufficient to constitute a waiver of sovereign immunity. The mere receipt of federal funds did not establish a consent to suit in federal court.Wilson v. Georgia (In re Wilson), 2000 Bankr. LEXIS 1731, 259 B.R. 432 (Bankr. S.D. Ga. July 17, 2000) (Davis, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:106.06
Transferee failed to establish ordinary course of business 'safe harbor' defense in trustee’s proceeding to recover postpetition, preconversion payments. Bankr. S.D. Ga. In a case that was converted from chapter 11, the chapter 7 trustee brought an adversary proceeding to recover certain postpetition payments made by the debtor, a sole proprietorship, to another sole proprietorship. The debtor/sole proprietorship was operated by a nondebtor husband and his nondebtor wife operated the transferee/proprietorship. Among the payments that the trustee sought to recover were postpetition preconversion payments and lease transactions made by the debtor to or for the benefit of his wife (doing business as her sole proprietorship). The bankruptcy court held, among other things, that the proven postpetition, preconversion payments and lease transactions were recoverable by the trustee. The court found that the source of the preconversion payments was postpetition earnings of the debtor, which were property of the estate pursuant to sections 541(a)(6) and (7). The court also found that the wife failed to establish her section 363(c)(1) ordinary course of business 'safe harbor' defense. The court found that the preconversion payments and lease transactions failed the horizontal dimension test. From an industry-wide perspective, the transaction was not of the sort commonly undertaken by companies in that industry. It also failed the vertical dimension test (the leases did not conform to the reasonable expectations of a hypothetical creditor) for purposes of section 363(c)(1).Moore v. Brewer (In re HMH Motor Servs., Inc.), 2000 Bankr. LEXIS 1732, 259 B.R. 440 (Bankr. S.D. Ga. September 18, 2000) (Davis, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:363.03[1]
On remand, United States granted summary judgment on chapter 13 debtor’s objection to its claim. Bankr. M.D. Fla. On remand from the district court, the bankruptcy court included findings of fact and conclusions of law consistent with an earlier oral ruling that granted the United States’ motion for summary judgment on the chapter 13 debtor’s objection to its claim. The bankruptcy court held that there was no legal basis to support the debtor’s challenges to the constitutionality of the tax law, and there were no genuine issues of material fact raised by the debtor’s objection to the IRS’s claim. The debtor failed to meet his burden of proof with respect to both his objection to the IRS’s claim and the IRS’s motion for summary judgment. With respect to burdens of proof, the court noted that the IRS had the burden of establishing its prima facie case as to the debtor’s objections, and that the IRS presented ample valid, supportive and admissible evidence to meet this burden. The burden then shifted to the debtor, who provided no supportive evidence (other than a copy of a letter, which was hearsay). Moreover, the court concluded that, as a matter of law, there was no evidence to indicate that that the various statutes that limited the time by which the debtor could challenge the IRS’s claim had not run.In re Hicks, 2001 Bankr. LEXIS 362, – B.R. – (Bankr. M.D. Fla. March 30, 2001) (Baynes, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:502.02
Second lienholder that objected to value of collateral was entitled to secured claim in amount of additional value. Bankr. S.D. Ga. A creditor objected to confirmation of the chapter 13 debtors’ plan to the extent that it was listed as the holder of an unsecured claim for approximately $1,500. The creditor alleged a valid secured claim in the amount of approximately $1,500 secured by, among other things, a lien on an automobile. The holder of a first lien on the automobile did not object to the debtor’s plan. At the confirmation hearing, the objecting creditor and the debtor stipulated to a value of the automobile that exceeded the value stated in the plan by $1,000. The bankruptcy court’s decision in this matter resolved the issue of the proper disposition of the automobile’s additional value. The court held that the debtors’ plan would be confirmed only if it proposed to afford the objecting creditor a secured claim for $1000.00. The court deemed the first lienholder’s silence as indicative of its agreement as to the automobile’s value, acceptance of the plan’s terms, or both. Upon plan confirmation, all interest in the additional value would therefore vest either in the debtors (pursuant to section 1327), or in another party that held another claim or lien. Prior to confirmation, the objecting creditor had an interest in the estate’s interest in the automobile subject to its lien pursuant to section 506(a). Since the estate had a $1,000.00 interest in the automobile and the first lienholder effectively declined any interest that it might have had in the automobile above the initial amount set forth in the plan, the additional value was available to support the objecting creditor’s secured claim (citing Collier on Bankruptcy 15th Ed. Revised).First Franklin Fin. v. Mizell (In re Mizell), 2000 Bankr. LEXIS 1749, – B.R. – (Bankr. S.D. Ga. October 13, 2000) (Walker, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:506.01
Chapter 7 debtors who failed to timely perform stated intentions with respect to collateral securing prepetition debts were precluded from retaining collateral. Bankr. N.D. Ala. Joint debtors in two chapter 7 cases filed their respective statements of intention contemporaneous with their chapter 7 petitions. In the first case, the debtors’ statement of intention indicated their intent to reaffirm a debt secured by property stated to be a mobile home. The debtors did not exempt the mobile home, the chapter 7 trustee subsequently filed his final report, the court discharged the debtors, and the case was closed. In the second case, the debtors’ statement of intention indicated their intent to reaffirm a debt secured by property stated to be cookware. The debtors did not exempt the property, the chapter 7 trustee filed his final report and the debtors received a discharge, but their case was not closed. In the first case, a creditor moved to reopen the debtors’ case in order to file a reaffirmation agreement. In the second case, the debtors moved to redeem the property. The bankruptcy court held that since the debtors in both chapter 7 cases failed to performed their stated intentions or to seek extensions of the time periods during which they could perform those intentions, they were precluded from retaining property securing their prepetition debts. The court explained that pursuant to the plain and unambiguous language of section 521(2), chapter 7 debtors wishing to retain property of the estate securing consumer debts must elect one of the retention options specified in section 521(2)(A), and then timely perform the elected options in accordance with section 521(2)(B). Where, as here, the applicable time period has expired, section 521(2) extinguishes the rights of performance, and neither a debtor, creditor, party in interest, nor the court can resurrect the time period for facilitating the requisite performance.In re Jones, 2001 Bankr. LEXIS 378, – B.R. – (Bankr. N.D. Ala. April 6, 2001) (Sledge, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:521.10
Florida debtor was not entitled to exemption where vehicle held with nondebtor husband was held jointly and not as tenants by the entireties. Bankr. M.D. Fla. The chapter 7 trustee moved to compel the debtor to turn over a vehicle that was not listed in the debtor’s bankruptcy schedules. The debtor amended her schedules, scheduled the vehicle as one of her assets, and described her interest in the vehicle as bare title interest only. She also claimed an exemption for her interest in the vehicle, claiming that she owned the vehicle as a tenant by the entireties with her nondebtor co-tenant husband. The trustee disputed the debtor’s claim that she owned the vehicle with her husband as tenants by the entireties, and objected to her claim of exemption. The debtor moved for summary judgment. The bankruptcy court denied the debtor’s summary judgment motion, and, even though the trustee made no formal cross- motion, granted summary judgment in favor of the trustee. The court held that the debtor’s interest in the vehicle was property of the estate subject to administration by the trustee. The court also held that pursuant to state (Florida) law, the vehicle was held by the debtor and her husband as joint tenants and not as tenants by the entireties; thus, the debtor was not entitled to the exemption claimed.In re Daugherty, 2000 Bankr. LEXIS 1738, – B.R. – (Bankr. M.D. Fla. October 25, 2000) (Paskay, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:522.10
Tax liabilities were nondischargeable. Bankr. M.D. Fla. The chapter 7 debtor filed an adversary proceeding against the IRS to determine the dischargeability of his income tax liability for various tax years. Because the debtor did not file timely income tax returns for the years at issue, the IRS filed on his behalf a substitute return. After the IRS assessed the taxes based upon the substitute return, the debtor filed his own returns. The debtor argued that the tax liabilities were dischargeable because he filed actual tax returns. The IRS claimed that the returns filed by the debtor after the government filed a substitute return and made an assessment were not deemed to be returns within the meaning of section 523(a)(1). The bankruptcy court granted summary judgment for the IRS, holding that the tax liabilities of the debtor as determined by the substitute for return were excepted from discharge pursuant to section 523(a)(1)(B)(i). The court noted that under 26 U.S.C. section 6020(b), the assessment made by the government based on the substitute return was a proper determination for liability and was a valid assessment.Olson v. United States (In re Olson), 2001 Bankr. LEXIS 394, – B.R. – (Bankr. M.D. Fla. February 22, 2001) (Paskay, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.07[3]
Chapter 7 petition dismissed for substantial abuse. Bankr. M.D. Fla. The chapter 7 debtor’s schedules stated a total value of assets as approximately $118,900. Among the assets scheduled were a variable annuity IRA and a 401K plan. The debtor’s monthly net income was $2,694.87, including a surplus of $907.16 per month, although the debtor subsequently made multiple revisions of his budget. The trustee filed a motion pursuant to section 707(b) seeking a dismissal of the petition based on a violation of the substantial abuse test. The bankruptcy court granted the motion. The court applied a totality of circumstances test and determined that the debtor’s substantial abuse was principally based on the inference of lack of good faith, a finding supported by the multiple amendments to his budget, the last of which was implicitly made for the purpose of eliminating disposable income which could fund a viable chapter 13 plan.In re May, 2001 Bankr. LEXIS 384, – B.R. – (Bankr. M.D. Fla. April 2, 2001) (Paskay, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 6:707.04
Chapter 7 discharge denied for failure to account for substantial losses of net worth. Bankr. M.D. Ala. The chapter 7 debtor filed a statement of financial affairs and schedules which reflected real property with a total value of $950,000, secured debt in excess of $900,000, and a gross annual income of $26,000, although the debtor had been actively engaged in the home building business and in the sale of used automobiles. The trustee filed adversary proceedings seeking denial of the debtor’s discharge pursuant to section 727(a)(5), on the basis that the debtor failed to account for money loaned by various banks to him and to satisfactorily explain the loss of those monies. The bankruptcy court denied the debtor’s discharge, holding that, for the purposes of section 727(a)(5), the debtor had failed to produce receipts or invoices which could accurately account for the loss of the loan proceeds. The court noted the substantial discrepancy between the net worth figure in the debtor’s October 1997 financial statement, and the trial balance financial statement in December 1997. The court also found that the debtor had failed to account for the many substantial cash transactions which he undertook during the operation of the construction business.Colonial Bank v. Wynn (In re Wynn), 2001 Bankr. LEXIS 382, – B.R. – (Bankr. M.D. Ala. April 19, 2001) (Sawyer, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 6:727.08
District court affirmed bankruptcy court order that remanded removed proceeding to state court. M.D. Ala. The debtor filed a prepetition complaint in state (Alabama) court against lenders. The complaint alleged that the lenders fraudulently misrepresented provisions of a loan modification agreement entered into by the parties, causing substantial monetary damages to the debtor. The complaint also alleged deceit, breach of fiduciary duty, breach of contract, negligence, wantonness, and slander of title. After the debtor’s chapter 11 filing (which was later converted to chapter 7), the defendants removed the state court proceeding to the bankruptcy court. The debtor objected to removal, and filed a motion for abstention and/or remand with the bankruptcy court. The bankruptcy court remanded the case to the state court, and the lenders appealed. The district court affirmed. Based upon the law as clearly expressed by the United States court of Appeals for the Eleventh Circuit, the district court held that a case removed from state court pursuant to 28 U.S.C. section 1452 is still subject to the mandatory abstention statute. The court also held that the bankruptcy court properly classified the matter as 'non-core', and all of the elements necessary for mandatory abstention were present. Farmers Nat’l Bank v. Robertson (In re Robertson), 2001 U.S. Dist. LEXIS 5042, 258 B.R. 470 (M.D. Ala. April 12, 2001) (Albritton, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 1:3.05[2]