Collier Bankruptcy Case Update May-7-01
A Weekly Update of Bankruptcy and Debtor/Creditor Matters
Collier Bankruptcy Case Updates
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 7, 2001
CASES IN THIS ISSUE
(scroll down to read the full
summary)
- 2d Cir.
§ 547(c)(2) Creditor proved that acceptance of late payments was ordinary business practice and not subject to avoidance.
Berger Industries, Inc. v. Artmark Products Corp. (In re Berger Indus.) (Bankr. E.D.N.Y.) 052026§ 548(a)(1) Debtor’s use of principal investment deemed reasonably equivalent value for payment of interest.
Lustig v. Weisz and Associates, Inc. (In re Unified Commer. Capital, Inc.) (Bankr. W.D.N.Y.) 052027Rule 9024 Modification of plan was not allowed.
In re Rickel & Assocs. (Bankr. S.D.N.Y.) 052042
3d Cir.
§ 362(d) Remand was required to determine whether retroactive relief from the stay had been granted.
In re Gimelson (E.D. Pa.) 052005§ 363(e) Court denied one interested party’s adequate protection motion and approved settlement reached between debtor and other party asserting interest.
In re 3036 Richmond, Inc. (Bankr. E.D. Pa.) 052008§ 523(a)(2)(A) Credit card company was justified in relying upon debtor’s history of payments.
In re Jadusingh (E.D. Pa.) 052019
4th Cir.
§ 365(d)(3) Landlord entitled to attorney’s fees and interest beyond date lease was rejected.
In re Geonex Corp. (Bankr. D. Md.) 052009§ 1322(b)(2) Bank held claim against the debtor’s estate based on mortgage despite lack of privity, but debtor could cure defaults through chapter 13 plan.
In re Trapp (Bankr. D.S.C.) 052030§ 1327(a) Notice provided to creditor of proposed treatment of claim under plan satisfied due process requirements, and confirmation of plan was binding.
In re Durham (Bankr. D.S.C.) 052032
5th Cir.
§ 522(b)(2)(A) Bankruptcy court’s did not clearly err in overruling objections to Texas debtor’s homestead exemption, and exemptions for tractor, riding lawn mower, and truck.
Painewebber, Inc. v. Murray (E.D. Tex.) 052014
6th Cir.
§ 522(d)(10) Right to payment pursuant to divorce judgment was deemed exempt from estate.
Harbaugh v. Sweet (In re Harbaugh) (E.D. Mich.) 052016§ 523(a)(2)(A) State court’s grant of summary judgment established debt for money obtained by actual fraud and false representation and satisfied section 523(a)(2)(A).
A Packaging Serv. Co. v. Siml (In re Siml) (Bankr. N.D. Ohio) 052020§ 523(a)(7) Disciplinary costs, including reimbursement of clients’ security fund and publication expenses, were nondischargeable.
Supreme Court of Ohio v. Bertsche (In re Bertsche) (Bankr. S.D. Ohio) 052021§ 1327(a) Secured creditor filing proof of claim postconfirmation was bound by confirmed plan.
In re Hudson (Bankr. W.D. Mich.) 052033
7th Cir.
§ 1322(c) Exception to modification did not apply.
In re Amos (Bankr. C.D. Ill.) 052031
8th Cir.
28 U.S.C. § 1334(b) Insufficient nexus existed between the Missouri state court proceeding and Nevada bankruptcy case to confer subject matter jurisdiction on district court.
Fitzgeralds Sugar Creek, Inc. v. Kansas City Station Corp. (In re Fitzgeralds Gaming Corp.) (Bankr. W.D. Mo.) 052036Rule 3001(a) Objection to proof of claim was overruled.
In re Thompson (Bankr. W.D. Mo.) 052038
9th Cir.
§ 522(b)(2)(A) California debtors could not claim exemption for quarterly payments received from sale of business as private retirement fund.
Lieberman v. Hawkins (In re Lieberman) (9th Cir.) 052015§ 523(a)(8) Court of Appeals affirmed district court’s reversal of bankruptcy court’s decision that discharged student loans as undue hardship.
Rifino v. United States (In re Rifino) (9th Cir.) 052022
10th Cir.
§ 101(43) Holder of bond issue was a purchaser.
In re Geneva Steel Co. (B.A.P. 10) 052001§ 505 In receivership action, receiver could not invoke section 505 exception to prohibition against declaring the rights of parties with respect to federal taxes.
Sterling Consulting Corp. v. United States (10th Cir.) 05201228 U.S.C. § 157(d) Appeal of favorable decision after withdrawal of reference to district court was dismissed.
Kimboko v. United States of America (In re Kimboko) (D. Colo.) 052034
11th Cir.
§ 109(e) Entire IRS debt deemed liquidated, rendering debtor ineligible for chapter 13.
In re Newman (Bankr. M.D. Fla.) 052003
Collier Bankruptcy Case Summaries
2d Cir.
Creditor proved that acceptance of late payments was ordinary business practice and not subject to avoidance. Bankr. E.D.N.Y. The debtor was a manufacturer of electrical couplings and connectors. The creditor was an importer of industrial components. The debtor usually made late payments to the creditor, often failing to pay within 60 days of the invoice. The creditor tolerated the late payments because the debtor was a longtime and good customer of the creditor for over 10 years. After the debtor filed its chapter 11 petition, it filed an adversary proceeding to recover alleged preferential transfers, arguing that certain payments were made within 90 days prepetition. The creditor argued that any such payments were protected from avoidance and recovery under the ordinary course of business exception of section 547(c)(2). The bankruptcy court held that the creditor sustained its burden of proof in establishing the section 547(c)(2) exception. Specifically, the court found that (1) the parties endured a steady, long-term relationship during which the creditor liberally permitted late payments from the debtor and did not alter its normal collection practices or initiate or threaten legal action; and (2) the ordinary practice for suppliers of industrial components was to permit late payments from regular, long-term customers and that the creditor demonstrated conformity with that practice. The court concluded that the subject payments were made according to ordinary business terms (citing Collier on Bankruptcy, 15th Ed.).Berger Industries, Inc. v. Artmark Products Corp. (In re Berger Indus.), 2001 Bankr. LEXIS 318, – B.R. – (Bankr. E.D.N.Y. April 12, 2001) (Feller, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:547.04[2][a]
Debtor’s use of principal investment deemed reasonably equivalent value for payment of interest. Bankr. W.D.N.Y. An individual was the sole or controlling shareholder of a number of corporations, including the debtor. The individual, at the time of his death, was under investigation by the SEC. After the debtor and other entities filed chapter 7 petitions in 1998, the trustee commenced an adversary proceeding against an entity, alleging that the entity invested $100,000 with the debtor, which repaid the principal along with interest at 12 percent per annum, that the debtor received less than reasonably equivalent value and no fair consideration in its payment of interest, and that the installment payments of interest were fraudulent transfers. The entity responded by arguing that the debtor had received reasonably equivalent value because the transfer was made in satisfaction of an antecedent debt, which the debtor had a contractual obligation to pay, and that the $100,000 represented property, used by the debtor, and constituted fair consideration. The bankruptcy court held that, for the purposes of section 548(a)(1), the debtor had received reasonably equivalent value by benefiting from use of the $100,000 for a year’s time. The court also noted that the underlying policy of section 548(a) was to prevent the diminution of the estate, and that it would be unpersuasive for a trustee to argue that to allow the enforcement of contracts to pay reasonable interest diminished the estate at a time when the debtor could not repay all of its creditors.Lustig v. Weisz and Associates, Inc. (In re Unified Commer. Capital, Inc.), 2001 Bankr. LEXIS 320, – B.R. – (Bankr. W.D.N.Y. March 29, 2001) (Ninfo, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:548.02
Modification of plan was not allowed. Bankr. S.D.N.Y. The chapter 11 debtor moved to modify the confirmation order to change the treatment of the equity class. Under the debtor’s confirmed plan, the shareholders neither received a distribution nor retained their interests. After the plan had been substantially consummated the debtor commenced an adversary proceeding in connection with a postconfirmation auction of an asset. Because the adversary proceeding had the potential to generate enough money to pay all claims in full and leave a surplus, the debtor argued that the confirmation order should be modified. The bankruptcy court denied the motion, holding that because the plan had been substantially consummated, it could not be modified pursuant to the provisions of Fed. R. Civ. P. 60(b). The court further found that it could not modify the plan pursuant to the general equitable provisions under section 105(a) (citing Collier on Bankruptcy, 15th Ed. Revised).In re Rickel & Assocs., 2001 Bankr. LEXIS 308, – B.R. – (Bankr. S.D.N.Y. April 12, 2001) (Bernstein, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 10:9024, 7:1127.04
3rd Cir.
Remand was required to determine whether retroactive relief from the stay had been granted. E.D. Pa. Mother’s conveyance of her real property to her children prompted a judgment creditor to file a fraudulent transfer action. Although the mother attempted to halt the trial and judgment by filing a chapter 7 petition, the state court entered an order finding that the transfer was fraudulent and granted permission to execute on the judgment. Subsequently, the bankruptcy court lifted the stay to permit foreclosure. The mother then sought to dismiss her chapter 7 case, admitting that she intended to file a chapter 13 petition the next day in order to reinstate the automatic stay. When that motion was denied, the daughter filed a chapter 13 petition to halt the sale. The bankruptcy court granted relief from stay in the daughter’s chapter 13 case and this appeal ensued. The daughter raised several arguments, including the fact that the state court judgment was entered in violation of the stay in her mother’s chapter 7 case. Finding the bankruptcy court’s order unclear as to the issue, the district court remanded directing that the bankruptcy court make a specific finding as to whether retroactive relief from the stay had been granted in the mother’s chapter 7 case. Reviewing each of the daughter’s arguments, the district court further concluded that the daughter mischaracterized the bankruptcy court’s order and that bankruptcy court did not err in granting relief from stay in the daughter’s case. Even if the fraudulent transfer judgment were a claim in the daughters’ chapter 13 case, cause for relief existed.In re Gimelson, 2001 U.S. Dist. LEXIS 4249, – B.R. – (E.D. Pa. April 3, 2001) (Kelly, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.07
Court denied one interested party’s adequate protection motion and approved settlement reached between debtor and other party asserting interest. Bankr. E.D. Pa. Attorneys for the plaintiffs, including the chapter 11 debtor-in-possession, and defendants in a commercial dispute that was determined by arbitration but not finally resolved filed motions for adequate protection of their asserted interests in an escrow account. The bankruptcy court denied the defendants’ counsel’s motion and approved an adequate protection settlement that was reached between the debtor and the plaintiffs’ counsel. The court acknowledged that before the debtor in possession could use the escrow funds, it had to adequately protect the interests of other parties in those funds. However, the court found that the defendants’ counsel lacked an interest in the escrow funds under applicable state (Pennsylvania) law, and was not entitled to receive adequate protection under section 363(e).In re 3036 Richmond, Inc., 2001 Bankr. LEXIS 303, – B.R. – (Bankr. E.D. Pa. March 13, 2001) (Fox, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:363.05
Credit card company was justified in relying upon debtor’s history of payments. E.D. Pa. The debtor had a consistent and reliable record of usage and payment on her credit card for eight years. But, suffering from multiple sclerosis, in the spring of 1998, she lost her job. Although she remained unemployed she continued to use and pay her credit card regularly. However, during a two-month period in the fall of 1999, she surpassed her credit limit, made substantial charges and obtained cash advances. Within two weeks after substantial charges, filed a chapter 7 petition in bankruptcy. The credit card company obtained a judgment that the debt was nondischargeable based upon the debtor’s fraudulent use of the card and the district court affirmed, holding that since the debtor had an eight year history of reliable payments and usage of the card, the creditor was justified in relying upon the debtor’s implied representation of an intent to repay. Moreover, the bankruptcy court did not err in determining that the debtor made fraudulent misrepresentations.In re Jadusingh, 2001 U.S. Dist. LEXIS 4265, – B.R. – (E.D. Pa. April 10, 2001) (Dubois, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.08[1][d]
4th Cir.
Landlord entitled to attorney’s fees and interest beyond date lease was rejected. Bankr. D. Md. The creditor, the chapter 13 debtors’ former landlord, filed proofs of claim as administrative priority claims for postpetition, prerejection rental arrears, based on a rejection of lease date of June 1, 1995. But the creditor also sought counsel fees and interest allegedly accruing after the rejection date, arguing that the lease agreement provided for indemnification for any loss occurring upon default. The creditors also continued to demand payment of the rent obligation beyond the supposed rejection date. The debtors objected to the part of the claim seeking attorney’s fees and interest. The bankruptcy court held that, for the purposes of section 365(d)(3), the creditor was entitled to reimbursement of all attorney’s fees it was required to expend to enforce its right to payment of rent, from the petition date to the present. The court reasoned that the attorney’s fees were recoverable as part of the creditor’s rent claim that were incurred to collect rent where the lease called for reimbursement of fees as that rent. Congress intended a landlord to be placed in the same position in bankruptcy as they would outside it with respect to the enforcement of leases. The court also determined that, despite the lease’s silence on the issue of interest, the creditor was entitled to interest on the administrative claim under state (Pennsylvania) law (citing Collier on Bankruptcy, 15th Ed.).In re Geonex Corp., 2001 Bankr. LEXIS 283, – B.R. – (Bankr. D. Md. January 18, 2001) (Schneider, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:365.10[2]
Bank held claim against the debtor’s estate based on mortgage despite lack of privity, but debtor could cure defaults through chapter 13 plan. Bankr. D.S.C. A bank was the assignee of a mortgage against property that the mortgagors transferred to the chapter 13 debtor prepetition and without notice to the bank. The bank moved for relief from the automatic stay to permit it to proceed in state court with foreclosure and eviction proceedings. The bank also objected to confirmation of the debtor’s chapter 13 plan. In support of its motion, the bank argued that there was no debtor-creditor relationship between the debtor and the bank; thus, the mortgage debt was not a claim and the debtor could not force the bank to accept the terms of the repayment proposed in the plan. The bank also argued that the debtor’s plan could not cure and reinstate its claim, which was accelerated upon the expiration of the right to cure granted in a letter to the mortgagors. The bankruptcy court rejected the bank’s arguments, and denied its motion for relief from the stay. The court held that the bank held a claim against the debtor’s estate even though there was no privity between the bank and the debtor, and the fact that the debt to the bank was accelerated due to the debtor’s default did not prohibit the curing of that default through the debtor’s chapter 13 plan. The court also noted that because contractual privity still existed between the original parties to the mortgage, the bank had the right to proceed against the mortgagors, subject to relief from the codebtor stay.In re Trapp, 2001 Bankr. LEXIS 297, – B.R. – (Bankr. D.S.C. February 5, 2001) (Waites, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1322.06
Notice provided to creditor of proposed treatment of claim under plan satisfied due process requirements, and confirmation of plan was binding. Bankr. D.S.C. An automobile leasing company entered into a prepetition motor vehicle lease with the chapter 13 debtor. Under the agreement, the debtor acquired an automobile and, in turn, was required to make monthly payments with an option to make a balloon payment at the end of the contract term. After the debtor’s plan was confirmed, the leasing company moved for reconsideration of the confirmation order on the grounds that the debtor held only a leasehold interest in the automobile and had no ownership rights. It was undisputed that the leasing company failed to timely object to the plan prior to confirmation. The court held, after analyzing the totality of circumstances and the language of the plan, which was served on all creditors and interested parties, that the notice given to the leasing company of the proposed treatment of its claim under the plan satisfied due process requirements; thus, confirmation of the plan was binding upon it. The court noted that the leasing company did file a proof of claim, asserting its status as the holder of a secured claim based upon the lease. In turn, the debtor filed a chapter 13 plan, which reclassified the claim. The court found that the debtor’s plan properly provided for the leasing company’s claim and constituted adequate notice of its claim’s treatment under the plan, and that the leasing company neglected to timely respond to this treatment, although it had sufficient time and opportunities to do so.In re Durham, 2001 Bankr. LEXIS 298, – B.R. – (Bankr. D.S.C. March 2, 2001) (Waites, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1327.02
5th Cir.
Bankruptcy court’s did not clearly err in overruling objections to Texas debtor’s homestead exemption, and exemptions for tractor, riding lawn mower, and truck. E.D. Tex. Creditors appealed a bankruptcy court order that overruled their objections to the Texas debtor’s claimed homestead exemption, and also sought review of his claimed exemptions of a tractor, a riding lawn mower, and a pickup truck The district court affirmed the bankruptcy court’s rulings on each challenged matter. Specifically, the court held that the bankruptcy court did not clearly err in determining, under the applicable state (Texas) exemption statutes that the debtor qualified as the head of a family since he claimed more than 100 acres as exempt that homestead. The debtor demonstrated overt acts of homestead usage consistent with a rural home. In addition the bankruptcy court’s order exempting the tractor, riding lawn mower, and pickup truck was not clearly erroneous.Painewebber, Inc. v. Murray, 2001 U.S. Dist. LEXIS 4453, – B.R. – (E.D. Tex. March 30, 2001) (Schell, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:522.10
6th Cir.
Right to payment pursuant to divorce judgment was deemed exempt from estate. E.D. Mich. At the time the debtor filed her chapter 7 petition, her former spouse owed approximately $42,000 to her pursuant to a consent divorce judgment. In her petition, the debtor claimed that her right to receive alimony was exempt from the estate pursuant to section 522(d)(10)(D). The trustee objected. The bankruptcy court ruled that the alimony amount was reasonably necessary for the debtor’s support and, in a subsequent order, rejected the trustee’s objection. This appeal by the trustee followed. The trustee argued that the consent judgment provided for the unconditional payment of a sum certain, which was not in the nature of spousal support but was instead a vested property right and not exempt from the estate. The district court held that section 522(d)(10)(D) exempted any payments from the estate that(1) were intended by the parties or the state court to support a spouse and (2) were, in the judgment of the bankruptcy court, reasonably necessary for that purpose. The district court acknowledged that the precise nature of the debtor’s right to receive the payment was murky, but concluded that the bankruptcy court had sufficient evidence that the trustee had failed to carry his burden, and affirmed the order. Harbaugh v. Sweet (In re Harbaugh), 2001 U.S. Dist. LEXIS 3966, – B.R. – (E.D. Mich. January 23, 2001) (Cook, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:522.09[10]
State court’s grant of summary judgment established debt for money obtained by actual fraud and false representation and satisfied section 523(a)(2)(A). Bankr. N.D. Ohio Prior to commencing this adversary proceeding, a state (Ohio) court granted the creditor/plaintiff’s motion for summary judgment on a complaint that alleged fraud and misrepresentation in connection with the debtor’s embezzlement of funds. The creditor then sought summary judgment in the adversary dischargeability proceeding on the grounds that the debtor was collaterally estopped from disputing any operative facts, and that the facts established in state court entitled the creditor to judgment as a matter of law. The debtor argued, however, that as a result of his wife’s active concealment of mail, he was not aware of the state court proceeding until after the trial court granted summary judgment, that his wife retained an attorney on his behalf without his knowledge, and that, as a result, collateral estoppel was not applicable. The bankruptcy court rejected the debtor’s claims, and held that the creditor was entitled to judgment as a matter of law. The court held that the debtor was prohibited by collateral estoppel and the Rooker-Feldman doctrine from relitigating the issues underlying the state court judgment. The findings and conclusions in the state court summary judgment, which established a debt for money obtained by actual fraud and false representation, were sufficiently litigated and squarely satisfied the requirements of section 523(a)(2)(A).A Packaging Serv. Co. v. Siml (In re Siml), 2001 Bankr. LEXIS 299, – B.R. – (Bankr. N.D. Ohio April 9, 2001) (Baxter, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.08
Disciplinary costs, including reimbursement of clients’ security fund and publication expenses, were nondischargeable. Bankr. S.D. Ohio A state (Ohio) court entered an order suspecting the debtor from the practice of law. The order also directed the debtor to pay the court costs for the disciplinary proceeding, reimburse any amounts awarded to former clients by the Clients’ Security Fund and bear the costs of publication of the suspension order. After the debtor filed a chapter 7 petition, he filed an adversary proceeding to determine whether the disciplinary debts were nondischargeable pursuant to section 523(a)(7).The bankruptcy court adopted the line of holdings that costs imposed in a disciplinary proceeding were nondischargeable. The court also held that the obligations to reimburse the fund and to pay for publication, although not, strictly speaking, costs, were similarly nondischargeable because they were conditions imposed on a state criminal court as part of a sentence and that federal courts were not to interfere with a state’s efforts to protect its citizens. Supreme Court of Ohio v. Bertsche (In re Bertsche), 2000 Bankr. LEXIS 1720, – B.R. – (Bankr. S.D. Ohio December 14, 2000) (Hopkins, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.13
Secured creditor filing proof of claim postconfirmation was bound by confirmed plan. Bankr. W.D. Mich. The chapter 13 debtors’ plan listed a creditor, an automobile financing lender, as holding a secured claim in the amount of $8,000, to be paid at $120 per month. The plan provided that the creditor would retain its lien on the vehicle and any claim amount in excess of $8,000 would be treated as unsecured. Interest on the secured portion of the claim was stated as 13 percent or the contract rate, whichever was less. The creditor received notice of the confirmation hearing, but the notice and plan summary failed to explicitly advise secured creditors that if an objection was made, a valuation hearing regarding secured claims would take place at the confirmation hearing. The creditor did not appear at the confirmation hearing and the plan was confirmed. Thereafter, the creditor filed a proof of claim, setting forth a fully secured claim in the amount of $12,812.12 along with interest at the contract rate of 15.25 percent. The debtors objected, and the creditor argued that its proof of claim governed its treatment under the plan. The bankruptcy court made a detailed analysis of plan confirmation, claims allowance and permissive valuation processes, and concluded that, pursuant to section 1327(a), the confirmed plan was binding on the creditor and the creditor could not demand a greater payment on the secured portion of its claim. The court determined that (1) the creditor received proper notice of the petition filing, the plan summary and its provision for the secured claim and interest, the date of the confirmation plan and the deadline by which objections were to be filed; (2) the creditor failed to object; (3) the subsequent filing of the proof of claim was irrelevant; and (4) the claims allowance process did not defeat the treatment of the secured claim pursuant to the confirmed plan. With regard to the possible deficiency in the notice of confirmation hearing, the court found that the information necessary to apprise a secured creditor that its lien could be modified was not specifically set forth in the Code or Rules, and thereby failed to find a deficiency in that notice (citing Collier on Bankruptcy, 15th Ed.).In re Hudson, 2001 Bankr. LEXIS 319, – B.R. – (Bankr. W.D. Mich. March 30, 2001) (Gregg, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1327.02[1]
7th Cir.
Exception to modification did not apply. Bankr. C.D. Ill. The undersecured creditor objected to confirmation of the debtors’ chapter 13 plan. The creditor argued that section 1322(b)(2) prohibited the debtors from cramming down its first mortgage on their residence which was secured by no other collateral and which did not come due, by its own terms, within the course of the plan. The debtors asserted that because the creditor had commenced a foreclosure action, the mortgage on the residence had been accelerated and was due, allowing modification under section 1322(c)(2). The bankruptcy court sustained the creditor’s objection to confirmation, holding that section 1322(c)(2) did not apply to the mortgage that, but for the debtors’ default and acceleration, would by its terms have extended beyond the plan. The last payment on the original payment schedule was not due before the last payment of the proposed plan.In re Amos, 2001 Bankr. LEXIS 307, – B.R. – (Bankr. C.D. Ill. January 26, 2001) (Lessen, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1322.16
8th Cir.
Insufficient nexus existed between the Missouri state court proceeding and Nevada bankruptcy case to confer subject matter jurisdiction on district court. Bankr. W.D. Mo. A nondebtor Missouri corporation filed a state court action against another Missouri corporation and its parent corporation alleging tortious interference with business expectancies, fraudulent concealment, and civil conspiracy. The nondebtor plaintiff’s parent corporation was a debtor in a chapter 11 case pending in the District of Nevada. The defendants in the Missouri action filed a notice of removal of the state court proceeding to the United States Bankruptcy Court for the Western District of Missouri. The plaintiff moved for remand, or alternatively, for abstention on the grounds that the court lacked subject matter jurisdiction. The bankruptcy court remanded the proceeding to the state court. The court held that there was an insufficient nexus between the Missouri state court proceeding and the Nevada bankruptcy case to confer subject matter jurisdiction on the district court. The court noted that the state court proceeding was between nondiverse parties, neither of whom were debtors, involving Missouri’s state gaming laws. The court concluded that the state court proceeding would not affect administration of the debtor’s estate or the allocation of assets under a confirmed plan, and explained that the mere fact that one party’s parent corporation filed a bankruptcy petition did not ratchet the proceeding into a bankruptcy proceeding. Finally, the court held that even if the court had subject matter jurisdiction, the doctrine of mandatory abstention applied and required abstention and remand of the proceeding to the state court.Fitzgeralds Sugar Creek, Inc. v. Kansas City Station Corp. (In re Fitzgeralds Gaming Corp.), 2001 Bankr. LEXIS 304, – B.R. – (Bankr. W.D. Mo. March 29, 2001) (Federman, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 1:3.01
Objection to proof of claim was overruled. Bankr. W.D. Mo. The credit card company filed a proof of claim with a copy of the most recent billing statement, which contained an account number, the billing cycle closing date and the minimum payment due. The chapter 7 trustee objected, citing lack of documentation. The bankruptcy court overruled the trustee’s objection, holding that the proof of claim was properly documented. The court noted that the objection was groundless, unless the trustee had some evidence to indicate that the debtors had not incurred the debt.In re Thompson, 2001 Bankr. LEXIS 314, – B.R. – (Bankr. W.D. Mo. February 20, 2001) (Federman, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 9:3001.01
9th Cir.
California debtors could not claim exemption for quarterly payments received from sale of business as private retirement fund. 9th Cir. The chapter 7 debtors appealed a district court order that affirmed the bankruptcy court’s denial of their exemption claim for quarterly payments that the debtor/husband received from the purchasers of his business pursuant to a prepetition agreement. The agreement guaranteed the debtors a ten-year stream of income in exchange for the debtor/husband’s noncompetition agreement. The debtors claimed that the quarterly payments were exempt from claims of their creditors under a provision of the state (California) exemption statute (see California Code of Civil Procedure (Cal. Civ. Proc. Code) § 704.115(a)(1)), which provided an exemption for private retirement plans. The United States Court of Appeals for the Ninth Circuit affirmed. The court concluded that the California legislature intended the exemption provision at issue to apply to a retirement plan created by a private employer or employee organization, as opposed to an arrangement by an individual to use specified assets for retirement purposes. Thus, the court held that the quarterly payments were not exempt as a 'private retirement plan' under the state’s exemption statute.Lieberman v. Hawkins (In re Lieberman), 2001 U.S. App. LEXIS 6237, – F.3d. – (9th Cir. April 13, 2001) (Thompson, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:522.10
Court of Appeals affirmed district court’s reversal of bankruptcy court’s decision that discharged student loans as undue hardship. 9th Cir. The debtor appealed the district court’s reversal of a bankruptcy court decision that held that the debtor’s student loans were dischargeable as an undue hardship pursuant to section 523(a)(8). The United States Court of Appeals for the Ninth Circuit affirmed the district court’s decision, and held that the debtor was not entitled to a discharge of her student loan obligations on undue hardship grounds. The Court of Appeals found that the bankruptcy court properly concluded that the debtor failed to satisfy the Brunner test, which required her prove that she could not maintain, based on current income and expenses, a minimal standard of living if forced to repay the loans; that additional circumstances existed that indicated that this state of affairs was likely to persist for a significant portion of the repayment period; and that the debtor made good faith efforts to repay the loans. The court concluded that the debtor failed to prove that her present circumstances were likely to persist for a significant portion of the repayment period.Rifino v. United States (In re Rifino), 2001 U.S. App. LEXIS 6239, – F.3d – (9th Cir. April 13, 2001) (Gould, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:523.14
10th Cir.
Holder of bond issue was a purchaser. B.A.P. 10th Cir. A chapter 11 debtor had two public bond issues outstanding and the indenture trustee for each issue timely filed proofs of claim on behalf of all note holders. However, one individual bond-holder filed a separate proof of claim, asserting fraud based upon the decline in the debtor’s financial circumstances. The debtor objected to the proof of claim and sought a determination of the claim’s priority. The bankruptcy court determined as a matter of law that the claim was duplicative of the trustee’s claim and, even if fraud existed, the claim was subordinated under section 510(b) as a claim arising from the purchase or sale of a security. On appeal, the claimant argued that section 510(b) did not apply because the damages under the claim were not causally related to the initial purchase of the security. In determining that subordination under section 510(b) was mandated, the bankruptcy appellate panel affirmed, holding that the claimant was a purchaser of the securities by virtue of his acquisition of them. To be a purchaser, the claimant did not have to obtain the notes when they were first issued, obtain them directly from the debtor, or provide any consideration for the notes. Rather, acquisition of the notes gave him the status of a purchaser within the meaning of the Bankruptcy Code and established the causal connection between the purchase and the damages he sought for the alleged fraud (citing Collier on Bankruptcy, 15th Ed. Revised).In re Geneva Steel Co., 2001 Bankr. LEXIS 292, – B.R. – (B.A.P. 10th Cir. April 4, 2001) (Michael, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:101.43
In receivership action, receiver could not invoke section 505 exception to prohibition against declaring the rights of parties with respect to federal taxes. 10th Cir. The United States appealed the district court’s assertion of jurisdiction over the determination of tax liabilities in a receivership action and the district court’s imposition of a deadline upon the IRS for such tax determinations. On interlocutory appeal, the controlling questions of law certified by the district court concerned the district court’s jurisdiction over the government’s tax liability determinations for entities within the receivership estate, which included debtor corporations in this case, and the district court’s authority to set enforceable deadlines for the tax determinations. The United States Court of Appeals for the Tenth Circuit reversed the district court orders that required the IRS to address the merits of the tax returns for the entities and prohibited the government from determining the tax liabilities for failure to comply with the court imposed deadline. The court held that the Declaratory Judgment Act barred the district court from declaring that entities within the receivership estate owed no additional federal taxes. The Anti-Injunction Act prohibited the district court from enjoining the IRS from assessing and collecting the entities’ taxes for failure to evaluate their tax returns by the court- imposed deadline. The court also held that the receiver could not invoke Bankruptcy Code section 505’s exception to the prohibition against declaring the rights of parties with respect to federal taxes because the district court proceeding was a receivership action, not a bankruptcy proceeding.Sterling Consulting Corp. v. United States, 2001 U.S. App. LEXIS 6065, – F.3d – (10th Cir. April 10, 2001) (Murphy, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:505.01
Appeal of favorable decision after withdrawal of reference to district court was dismissed. D. Colo. After the debtors’ chapter 13 case was closed, they filed a second adversary proceeding concerning disputes with the IRS not resolved in a first adversary proceeding. The debtors filed a motion for withdrawal of the reference in the bankruptcy court, seeking to have the district court resolve all noncore issues raised in the two adversary proceedings. The bankruptcy court ordered the motion transmitted to the district court, pursuant to section 157(d). On remand, the bankruptcy court ruled that the debtors’ prepetition tax penalties for certain years had been discharged. The debtors filed a pro se appeal. The district court dismissed the appeal, holding that the debtors could not appeal a favorable decision, rendering their appeal inappropriate.Kimboko v. United States of America (In re Kimboko), 2001 U.S. Dist. LEXIS 4671, – B.R. – (D. Colo. February 27, 2001) (Daniel, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 1:3.04
11th Cir.
Entire IRS debt deemed liquidated, rendering debtor ineligible for chapter 13. Bankr. M.D. Fla. After the debtor filed his chapter 13 petition, the creditor, the United States, filed a motion to dismiss, alleging that the debtor’s unsecured debts exceeded the limit set forth in section 109(e). The creditor asserted that the debtor owed noncontingent, liquidated, unsecured debts of approximately $301,600. The bankruptcy court granted the motion and dismissed the petition. The court held that, in determining the liquidation requirement of section 109(e), the key factor was whether the process for determining the claim was fixed, certain, or otherwise determined by a specific standard. The court concluded that the provisions of the IRC used to establish the debtor’s tax liability were the specific standards to calculate the debt. The court also noted that, although the IRS proof of claim had been amended to reflect a larger amount, this did not mandate the conclusion that the debt was unliquidated because the amount due on the petition date was ascertainable with information provided by the debtor and the application of the IRS’s specific standards for making those determinations.In re Newman, 2001 Bankr. LEXIS 286, – B.R. – (Bankr. M.D. Fla. March 5, 2001) (Glenn, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:109.06[2]