Collier Bankruptcy Case Update November-11-02
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Bankruptcy Newsletter
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.
November 11, 2002
CASES IN THIS ISSUE
(scroll down to read the full
summary)
§ 362(a) Automatic stay did not bar payment of defense
costs of corporate debtor’s officers and directors by
insurer.
Exec. Risk Indemnity, Inc. v. Boston Reg’l Med. Ctr.,
Inc. (Bankr. D. Mass.)
§ 363(b)(1) Lessor with claim to lessee debtor’s
property was obligated to raise any objection to the sale thereof in the
bankruptcy proceeding, not collaterally.
Cummings Props., LLC v. Heidelberg Print Fin. Ams. (Bankr. D.
Mass.)
2d Cir.
§ 106 Adversary proceeding against municipal transit
authority allowed to proceed as sovereign immunity had been waived in
the D.C. Code.
In re Metromedia Fiber Network (Bankr. S.D.N.Y.)
§ 548 District court lacked jurisdiction over alleged
fraudulent transfer resulting from settlement distribution approved by
Ohio state court.
Harris v. Hudson (N.D.N.Y.)
§ 707(a) Bankruptcy court erred in dismissing petition
without providing debtors with meaningful opportunity to be
heard.
Bucurescu v. 190A Realty Corp. (In re Bucurescu) (S.D.N.Y.)
3d Cir.
§ 1123(b)(3) Trustee’s postconfirmation preference
action was not barred by prior confirmation hearing.
Cohen v. TIC Fin. Sys. (In re Ampace Corp.) (Bankr. D.
Del.)
4th Cir.
§ 109(e) Debts owed by debtors sufficiently liquidated
to establish non-eligibility for chapter 13.
In re Wienco (Bankr. W.D. Va.)
5th Cir.
§ 503(b)(3) Under-secured creditor’s request for
attorney’s fees was denied as in excess of value of
collateral.
In re Blount (Bankr. M.D. La.)
6th Cir.
§ 101(4) Attorney not admitted to state bar but admitted
to federal bar permitted to appear as counsel in bankruptcy
court.
Rittenhouse v. Delta Home Improvements, Inc. (In re Desilets)
(6th Cir.)
§ 523(a)(8) Debtor’s failure to make any effort to
repay student loans resulted in finding of
nondischargeability.
Bruen v. United States (In re Bruen) (Bankr. N.D. Ohio)
§ 541(a) Earned Income Tax Credit was not subject to state
public assistance exemption and was part of the debtor’s
estate.
In re Duvall (Bankr. W.D. Ky.)
7th Cir.
§ 365(d)(2) Assumption and assignment of lease was
approved over lessee’s objection.
In re Sae Young Westmont-Chicago, LLC (Bankr. N.D. Ill.)
U.S.C. § 1334(e) Bankruptcy court properly exercised
jurisdiction in approving assignment of debtor’s lease with state
agency.
In re Sae Young Westmont-Chicago, LLC (Bankr. N.D. Ill.)
8th Cir.
§ 523(a) Bankruptcy court erred in awarding creditor attorneys’ fees absent bad faith or willful or malicious conduct by debtor.
Seimer v. Nangle (In re Nangle) (B.A.P. 8th Cir.)
9th Cir.
§ 523(c) Bankruptcy court, not state court, was required to adjudicate adequacy of notice received by creditor.
McGhan v. Rutz (In re McGhan) (9th Cir.)
10th Cir.
§ 524(a)(2) Bankruptcy court correctly ruled that creditor’s collection of interest and insurance premiums was consistent with debtors’ reaffirmation.
Schott v. WyHy Fed. Credit Union (In re Schott) (B.A.P. 10th Cir.)
Fed. Cir.
§ 347(a) U.S. Treasury department has no obligation to pay interest on unclaimed bankruptcy estate funds.
Leider v. U.S. (Fed. Cir.)
Collier Bankruptcy Case Summaries
1st Cir.
Automatic stay did not bar payment of defense costs of corporate
debtor’s officers and directors by insurer. Bankr. D.
Mass. PROCEDURAL POSTURE: Plaintiff insurer under
an officers and directors policy brought an adversary proceeding against
defendant debtor and nominal defendants, the former officers and
directors of the debtor, seeking a declaration that the insurer could
lawfully pay the defense costs of the officers and directors. The
insurer moved for summary judgment and for an order authorizing payment
of the expert witness costs of the officers and directors.
OVERVIEW: With a monetary ceiling, the policy covered
the defense costs of the officers and directors and also covered any
claims for indemnification by the officers and directors against the
debtor. The insurer contended that it was not prohibited from paying the
defense costs of the officers and directors, but the debtor maintained
that payment of such costs would adversely affect the debtor’s
property interests since it would reduce the amount available to pay the
potential claims against the debtor. The bankruptcy court first held
that the insurer failed to show that the debtor had no interest in the
insurance proceeds, since the insurer’s allegation that the
defense costs were among the claims for which the debtor would require
indemnification coverage was neither uncontroverted nor necessarily
true. Nonetheless, the insurer was entitled to pay the expert witness
costs of the officers and directors. Neither the automatic stay nor the
plan injunction precluded payment of the defense costs, and the
irreparable harm to the officers and directors by their failure to
provide expert testimony outweighed the harm to the debtor from the
minimal reduction of the insurance proceeds. Exec. Risk
Indemnity, Inc. v. Boston Reg’l Med. Ctr., Inc., 2002
Bankr. LEXIS 866, — B.R. — (Bankr. D. Mass. April 2, 2002)
(Kenner, B.J.).
Collier on Bankruptcy, 15th Ed. Revised
3:362.03
ABI Members, click here to get the full opinion.
Lessor with claim to lessee debtor’s
property was obligated to raise any objection to the sale thereof in the
bankruptcy proceeding, not collaterally. Bankr. D.
Mass. PROCEDURAL POSTURE: Plaintiff lessor filed
suit in state court against defendant creditor to challenge the validity
of the creditor’s purchase of a printing press from a bankrupt
debtor that leased property from the lessor. The creditor removed the
case. Both parties moved for summary judgment.
OVERVIEW: The creditor argued that the case should have
been dismissed because the lessor was obliged to raise any claims to the
press in the bankruptcy proceeding and could not bring a collateral
action attacking the bankruptcy court’s approval of the sale. The
lessor argued that it was entitled to judgment because the bankruptcy
proceedings were conducted improperly and because its interest in the
press was superior to the creditor’s interest. For the instant
purposes, it was assumed that the lessor did not receive proper notice
of the motion to approve the sale of the press or of the bankruptcy
court’s order approving the sale. Nevertheless, the lessor was
obliged, once it learned of the order and sale, to seek a remedy from
the bankruptcy court. By failing to assert its objections to the sale in
the bankruptcy proceedings, the principles of res judicata barred the
lessor from asserting those objections in the instant suit. The lessor
did not qualify for equitable relief from the rules of res judicata as
relief was not warranted because the omission of notice to the lessor
was not so egregious that it was unconscionable to enforce the approval
of the sale of the press. Cummings Props., LLC v. Heidelberg
Print Fin. Ams., 2002 U.S. Dist. LEXIS 15279, — F.
Supp.2d — (Bankr. D. Mass. August 12, 2002) (O’Toole,
D.J.).
Collier on Bankruptcy, 15th Ed. Revised
3:363.02
2d Cir.
Adversary proceeding against municipal transit authority allowed to proceed as sovereign immunity had been waived in the D.C. Code. Bankr. S.D.N.Y. PROCEDURAL POSTURE: Debtor-plaintiff optical fiber infrastructure provider filed an adversary proceeding seeking injunctive relief restraining defendant Washington Metropolitan Area Transit Authority ('WMATA') from terminating its prepetition executory license agreement with the debtor that allowed debtor to use the WMATA’s rights of way. The WMATA moved to dismiss the adversary proceeding under Fed. R. Civ. P. 12(b) on the grounds of Eleventh Amendment immunity. OVERVIEW: The debtor owed the WMATA over $2 million under the parties agreement and the WMATA was threatening to terminate the agreement if the amount was not paid. A temporary restraining order ('TRO') had been granted based upon a prima facie showing by the debtor that if the WMATA was not enjoined from discontinuing service under the license agreement, irreparable injury would be sustained not only by the debtor but by the users of their fiber network in the Washington, D.C., area whose telecommunications services would be terminated. The court noted that it did not need to reach the question of whether Congress had the legislative power under U.S. Const. art. I to abrogate sovereign immunity in 11 U.S.C. § 106 because it held that the WMATA waived its sovereign immunity in D.C. Code Ann. § 9-1107.01(12)(a), (80) and (81). Therefore because the debtor was seeking only prospective relief and there was not a detailed remedial scheme for enforcement, Ex parte Young would be applicable once an amended complaint was served upon a responsible official of the WMATA. In re Metromedia Fiber Network, 2002 Bankr. LEXIS 868, 281 B.R. 524 (Bankr. S.D.N.Y. August 1, 2002) (Hardin, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:106.02
ABI Members, click here to get the full opinion.
District court lacked jurisdiction over alleged
fraudulent transfer resulting from settlement distribution approved by
Ohio state court. N.D.N.Y. PROCEDURAL
POSTURE: Plaintiff commenced an adversary proceeding against
defendants pursuant to N. Y. Debt. & Cred. Law §§ 273,
273(a), 276, 276(a), and 11 U.S.C. §§ 548, 550, and 551.
Defendants moved to dismiss the complaint pursuant to, inter alia, Fed.
R. Civ. P. 12(b)(1) or 12(b)(6). OVERVIEW: The court
observed that plaintiff’s claim was inextricably intertwined with
a Ohio state court order because the injury plaintiff complained of was
that the Ohio state court order placed defendant’s assets out of
the reach of creditors. The court concluded that the relief plaintiff
sought would entail overturning the Ohio state court order. Thus, in
effect, plaintiff sought appellate review of a state court judgment in a
federal district court, an action outside the jurisdiction Congress had
conferred. As the party asserting jurisdiction, plaintiff failed to
carry the burden of establishing subject matter jurisdiction.
Accordingly, all of plaintiff’s claims had to dismissed.
Harris v. Hudson, 2002 U.S. Dist. LEXIS 15141, 216
F. Supp.2d 10 (N.D.N.Y. August 13, 2002) (Hurd, D.J.).
Collier on Bankruptcy, 15th Ed. Revised
5:548.01
ABI Members, click here to get the full opinion.
Bankruptcy court erred in dismissing petition
without providing debtors with meaningful opportunity to be
heard. S.D.N.Y. PROCEDURAL POSTURE:
Plaintiff debtors appealed from two orders of the bankruptcy court. The
January 22 order imposed sanctions against the debtors, and the March 26
order dismissed the debtors’ bankruptcy petition.
OVERVIEW: The debtors filed a chapter 13 proceeding,
which was later converted to a chapter 7 adversary proceeding. The
debtors’ claimed that defendants engaged in various forms of
misconduct during the litigation between the parties. The bankruptcy
court found differently and imposed sanctions upon the debtors, and
issued a warning that the bankruptcy petition would be dismissed if the
sanctions were not paid. The debtors appealed, and the court concluded
that it lacked jurisdiction over the sanctions issue because the appeal
of that bankruptcy order was not timely. However, the court concluded
that the bankruptcy court had erred in dismissing the debtors’
bankruptcy petition. The bankruptcy court failed to provide the debtors
with a meaningful opportunity to be heard with respect to the impending
dismissal, there was no motion for dismissal, as required by Fed. R.
Bankr. P. 1017 and 9014, and the bankruptcy court failed to inform the
pro se debtors that a hearing regarding whether dismissal would be a
sanction appropriate for failure to pay the monetary sanctions might be
available or identify for them the Bankruptcy Code provision under which
the action would be dismissed. Bucurescu v. 190A Realty
Corp. (In re Bucurescu), 2002 U.S. Dist. LEXIS 15324, 282 B.R.
124 (S.D.N.Y. August 19, 2002) (Kaplan, D.J.).
Collier on Bankruptcy, 15th Ed. Revised
6:707.03
ABI Members, click here to get the full opinion.
3d Cir.
Trustee’s postconfirmation preference action was not
barred by prior confirmation hearing. Bankr. D. Del.
PROCEDURAL POSTURE: The liquidating trustee brought an
action against a creditor to avoid and recover preferential transfers
under 11 U.S.C. §§ 547(b), 550. The creditor moved for summary
judgment, arguing its claim had been deemed allowed and thus res
judicata barred relitigation of further treatment of its claim, that the
plan did not disclose a preference claim against the creditor before
confirmation, and that the action was barred by 11 U.S.C. § 502(d).
OVERVIEW: The court agreed that its prior orders
extending the time for objecting to claims improperly modified the plan
under 11 U.S.C. § 1127(b); the plan did not provide that the time
could be extended by court order. The claims were allowed under the
plan. But the preference action and the confirmation did not involve the
same cause of action and therefore, the doctrine of res judicata did not
apply. Even if there was an identity of claims, the disclosure statement
and plan generally reserved preference actions, showing an intent to
preserve the right to bring preference actions. It satisfied 11 U.S.C.
§§ 1123(b)(3), 1125. That the plan reservation language
specifically referenced payments to two creditors did not bar such
actions against the creditor. The creditor was on notice that an
avoidance action might be filed against it. Under 11 U.S.C. §
1141(a), the creditor was bound by the plan and precluded from objecting
to the provisions reserving the right to pursue avoidance actions
post-confirmation. The fact that there was no objection to the
creditor’s claims and that the creditor’s claims had been
allowed under the plan was irrelevant for purposes of 11 U.S.C. §
502(d). Cohen v. TIC Fin. Sys. (In re Ampace
Corp.), 2002 Bankr. LEXIS 435, 279 B.R. 145 (Bankr. D. Del. May
3, 2002) (Walsh, B.J.).
Collier on Bankruptcy, 15th Ed. Revised
7:1123.02[3]
ABI Members, click here to get the full opinion.
4th Cir
Debts owed by debtors sufficiently liquidated to establish
non-eligibility for chapter 13. Bankr. W.D. Va.
PROCEDURAL POSTURE: Movant creditor filed a motion to
dismiss the chapter 13 petitions filed by three debtors, on grounds that
they were ineligible to be chapter 13 debtors under 11 U.S.C. §
109(e), as their liquidated debts exceeded $290,525. The debtors filed
motions to have a final decree entered against them and in favor of the
creditor by a state court in the amount of $611,119 determined to be
void, as it had been entered postpetition. OVERVIEW:
The state court had, by decree nisi, ordered the debtors (members of a
quartet) and the quartet they formed to jointly and severally pay the
creditor $611,119. After the debtors filed chapter 13, and the quartet
filed chapter 7, the state court entered an adjudication and final
decree that affirmed the decree nisi. Also postpetition, the debtors
filed a third motion for post-trial relief. In the instant case, the
debtors sought to have the state court’s final decree declared
void, as it was entered in violation of the automatic stay. They also
claimed they were eligible to be chapter 13 debtors, because their debts
to the creditor were not 'liquidated.' The bankruptcy court rejected
this argument, and held they were not eligible for chapter 13. A debt
was 'liquidated' under section 109(e) despite the presence of a dispute
and the potential for modification upon judicial review. Further, even
assuming the state court had the power to modify the $611,119 judgment
as requested in the debtors’ post-trial motions, if it had granted
the relief the debtors’ requested, the remaining judgment jointly
and severally owed by them would still exceed the eligibility cap.
In re Wienco, 2002 Bankr. LEXIS 403, 275 B.R. 772
(Bankr. W.D. Va. April 3, 2002) (Krumm, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised
2:109.06
ABI Members, click here to get the full opinion.
5th Cir.
Under-secured creditor’s request for attorney’s
fees was denied as in excess of value of collateral. Bankr.
M.D. La. PROCEDURAL POSTURE: Bankruptcy trustee
and debtor filed objections to creditor bank’s claim for a
deficiency over the credit given through a postpetition foreclosure upon
property securing the claim, which included postpetition interest and
attorney’s fees. Alternatively, the bank claimed that it or its
lawyer should have been awarded attorney’s fees due to
counsel’s discovery an unscheduled asset of debtor that the
trustee had liquidated. OVERVIEW: After debtor’s
chapter 7 case was closed, the bank discovered debtor’s
prepetition personal injury claim, which resulted in a payment due to
debtor of $241,651.37. The trustee reopened the chapter 7 case to
collect enough monies from the personal injury award to pay off various
debts. The bank then filed a claim for the difference debtor owed on his
mortgage, and the monies received by the bank in a foreclosure sale. The
court held that since the bank was under-secured, it was not entitled to
postpetition interest on its secured claim as interest could have only
accrued to the extent the home would have permitted. Further, because
attorney’s fees that were unliquidated as of the petition date
were provided for only by 11 U.S.C. § 506(b), to the extent the
collateral could have paid, the bank was not entitled to have attorneys
fees as a part of its unsecured claim. The bank’s claim was an
allowed unsecured claim in the amount of $11,237.21, plus interest at
5.6 percent per annum from the date of the petition. Finally, while the
bank contributed to the trustee’s recovery of the personal injury
proceeds, the trustee was the party that actually recovered the monies.
In re Blount, 2002 Bankr. LEXIS 434, 276 B.R. 753
(Bankr. M.D. La. May 1, 2002) (Phillips, B.J.).
Collier on Bankruptcy, 15th Ed. Revised
4:503.10[1][a]
ABI Members, click here to get the full opinion.
6th Cir.
Attorney not admitted to state bar but admitted to federal
bar permitted to appear as counsel in bankruptcy court. 6th
Cir. PROCEDURAL POSTURE: Plaintiff attorney
appealed from the judgment of the United States District Court for the
Western District of Michigan at Marquette, affirming a bankruptcy court
ruling that he was not an attorney as defined by 11 U.S.C. §
101(4), and, thus, could not appear before the bankruptcy court.
OVERVIEW: The attorney argued that he was an attorney
as defined by 11 U.S.C. § 101(4), because, although he was not
authorized by the state bar to practice law in state court, he was
properly licensed to practice law in another state, and he was properly
licensed to practice law before the federal bar. The court held that the
district court erred in upholding the bankruptcy court’s
determination because the attorney was properly admitted to the federal
bar under U.S. Dist. Ct., W.D. Mich., R. 83.1 and he was properly
licensed to practice law in another state. The court further held that
federal standards governed practice before the federal bar and that the
applicable law authorizing an attorney to practice before the bankruptcy
court consisted solely of the federal rules for admission to the federal
bar. Rittenhouse v. Delta Home Improvements, Inc. (In re
Desilets), 2002 U.S. App. LEXIS 10583, 291 F.3d 925
(6th Cir. June 3, 2002) (Boggs, C.J.).
Collier on Bankruptcy, 15th Ed. Revised
2:101.04
ABI Members, click here to get the full opinion.
Debtor’s failure to make any effort to
repay student loans resulted in finding of nondischargeability.
Bankr. N.D. Ohio PROCEDURAL POSTURE: Debtor
filed a petition for bankruptcy under chapter 7 of the United States
Bankruptcy Code. Debtor then filed a complaint to determine the
dischargeability of certain educational loans held by creditor, a
student loan agency. Creditor disputed debtor’s complaint,
claiming the loans were nondischargeable pursuant to 11 U.S.C. §
523(a)(8). OVERVIEW: At the trial, debtor agreed that
the circumstances of her case did not constitute an undue hardship
within the meaning of 11 U.S.C. § 523(a)(8). She did request that
the court exercise its equitable powers under 11 U.S.C. § 105(a) to
provide her with some relief. Debtor was employed as a teacher and also
worked at other jobs. In support of the position that she acted in good
faith with respect to her student loan debts, debtor argued that the
court should consider the fact that, after receiving deferments, she
agreed to make partial payments. Debtor also maintained that given the
overwhelming nature of her student loan obligations, it was simply
impossible for her to repay the student loan obligations in full. The
court rejected both of debtor’s arguments. It found that before
filing for bankruptcy, debtor and her husband borrowed against their
real property, in order to purchase additional land. Debtor and her
husband also received tax refunds for several years, and debtor used
none of the proceeds to make payments on her loans. The facts and
circumstances in debtor’s situation did not support her claim of
acting in good faith with regard to the student loan obligations.
Bruen v. United States (In re Bruen), 2001 Bankr.
LEXIS 1891, 276 B.R. 837 (Bankr. N.D. Ohio December 18, 2001) (Speer,
B.J.).
Collier on Bankruptcy, 15th Ed. Revised
4:523.14; 2:105.05
ABI Members, click here to get the full opinion.
Earned Income Tax Credit was not subject to
state public assistance exemption and was part of the debtor’s
estate. Bankr. W.D. Ky. PROCEDURAL
POSTURE: In several case, bankruptcy debtors claimed exemptions
for the Earned Income Tax Credit ('EIC') portion of their tax refunds
from their estates under Ky. Rev. Stat. Ann. § 205.220(3) which
exempted public assistance payments. The trustees objected to the
claimed exemptions. OVERVIEW: The debtors’
claimed that the refundable EIC provided relief for low-income families,
and thus the refunds of the credit constituted public assistance which
was exempt under Ky. Rev. Stat. Ann. § 205.220(3).The court held,
however, the refunded EICs were not in the nature of public assistance
but rather were refunded tax overpayments and thus were not exempted
from the debtors’ bankruptcy estates. The EICs were not welfare
grants but an incentives to work which was intended to negate the
disincentive to work caused by Social Security taxes. In re
Duvall, 2002 Bankr. LEXIS 864, 281 B.R. 646 (Bankr. W.D. Ky.
August 9, 2002) (Stosberg, B.J.).
Collier on Bankruptcy, 15th Ed. Revised
5:541.01
ABI Members, click here to get the full opinion.
7th Cir.
Assumption and assignment of lease was approved
over lessee’s objection. Bankr. N.D. Ill.
PROCEDURAL POSTURE: Debtor leased property to the
Illinois Department of Children and Family Services ('DCFS'). Debtor
later filed a bankruptcy petition under chapter 11 of the Bankruptcy
Code. Debtor moved to assume and assign its long-term lease of the
property with DCFS, pursuant to 11 U.S.C. §§ 365(a), (f). DCFS
objected, claiming that its rights under 11 U.S.C. § 365(d)(2) were
violated and that the Eleventh Amendment precluded court jurisdiction.
OVERVIEW: After initial attempts to market its
properties failed, debtor sought approval from the bankruptcy court to
sell substantially all of its assets free and clear of liens pursuant to
11 U.S.C. § 363, and to assume and assign its tenant leases to the
successful bidder pursuant to 11 U.S.C. § 365. Section 365(d)(2)
did not apply to the commercial lease at issue. The court rejected
DCFS’s section 365(d)(2) claim. Debtor’s motion was filed
and served within the deadline and notified DCFS that debtor intended to
assume and assign its lease. Debtor met the deadline, and DCFS could not
complain later that it was deprived of section 365(d)(2) protection when
it never requested that the court impose a deadline. The court also
rejected DCFS’s Eleventh Amendment claim. No compulsory process
was used to require DCFS to appear before the court and it only appeared
to challenge jurisdiction. It was not named as a defendant in any
adversary complaint and was not coerced to appear. The court’s
jurisdiction to approve assignment of the lease was within its
jurisdiction over debtor’s estate. The order allowing debtor to
assign its lease did not transform into an in personam action against
DCFS. In re Sae Young Westmont-Chicago, LLC, 2002
Bankr. LEXIS 427, 276 B.R. 888 (Bankr. N.D. Ill. May 2, 2002)
(Schmetterer, B.J.).
Collier on Bankruptcy, 15th Ed. Revised
3:365.04[2]
ABI Members, click here to get the full opinion.
Bankruptcy court properly exercised jurisdiction
in approving assignment of debtor’s lease with state
agency. Bankr. N.D. Ill. PROCEDURAL
POSTURE: Debtor leased property to the Illinois Department of
Children and Family Services ('DCFS'). Debtor later filed a bankruptcy
petition under chapter 11 of the Bankruptcy Code. Debtor moved to assume
and assign its long-term lease of the property with DCFS, pursuant to 11
U.S.C. § 365(a), (f). DCFS objected, claiming that its rights under
11 U.S.C. § 365(d)(2) were violated and that the Eleventh Amendment
precluded court jurisdiction. OVERVIEW: After initial
attempts to market its properties failed, debtor sought approval from
the bankruptcy court to sell substantially all of its assets free and
clear of liens pursuant to 11 U.S.C. § 363, and to assume and
assign its tenant leases to the successful bidder pursuant to 11 U.S.C.
§ 365. Section 365(d)(2) did not apply to the commercial lease at
issue. The court rejected DCFS’s section 365(d)(2) claim.
Debtor’s motion was filed and served within the deadline and
notified DCFS that debtor intended to assume and assign its lease.
Debtor met the deadline, and DCFS could not complain later that it was
deprived of section 365(d)(2) protection when it never requested that
the court impose a deadline. The court also rejected DCFS’s
Eleventh Amendment claim. No compulsory process was used to require DCFS
to appear before the court and it only appeared to challenge
jurisdiction. It was not named as a defendant in any adversary complaint
and was not coerced to appear. The court’s jurisdiction to approve
assignment of the lease was within its jurisdiction over debtor’s
estate. The order allowing debtor to assign its lease did not transform
into an in personam action against DCFS. In re Sae Young
Westmont-Chicago, LLC, 2002 Bankr. LEXIS 427, 276 B.R. 888
(Bankr. N.D. Ill. May 2, 2002) (Schmetterer, B.J.).
Collier on Bankruptcy, 15th Ed. Revised
1:3.01
ABI Members, click here to get the full opinion.
8th Cir.
Bankruptcy court erred in awarding creditor
attorneys’ fees absent bad faith or willful or malicious conduct
by debtor. B.A.P. 8th Cir. PROCEDURAL
POSTURE: Appellant-debtor filed a petition under chapter 7 of
the Bankruptcy Code. Appellee-creditor filed an adversary proceeding and
claimed that a judgment awarding the creditor attorneys’ fees was
nondischargeable under 11 U.S.C. § 523(a)(6), (7). The court
entered an order which declared the judgment to be nondischargeable. The
debtor appealed the judgment of the bankruptcy court.
OVERVIEW: Earlier, the bankruptcy court had granted the
creditor’s motion for summary judgment, which the debtor appealed.
The bankruptcy appellate panel affirmed that the debtor was collaterally
estopped from relitigating issues from a state court judgment. The panel
reversed the grant of summary judgment as to the dischargeability of the
state judgment and remanded for trial on that issue, as well as the
issue of the creditor’s request for attorneys’ fees incurred
in the bankruptcy proceeding. The panel noted that the bankruptcy court
had found that the creditor’s request for attorneys’ fees
was for costs that she incurred in pursuing the dischargeability
complaint in the bankruptcy court and on appeal. The bankruptcy
appellate panel examined bankruptcy law for the authority to award
attorneys’ fees before finding reversal was appropriate. The panel
noted that the bankruptcy court did not find that the debtor’s
actions in the bankruptcy court constituted the willful disobedience of
a court order, bad faith, or wanton or oppressive behavior. Nor were the
debtor’s actions willful or malicious. Seimer v.
Nangle (In re Nangle), 2002 Bankr. LEXIS 865, 281 B.R. 654
(B.A.P. 8th Cir. August 13, 2002) (Federman, B.J.).
Collier on Bankruptcy, 15th Ed. Revised
4:523.01
ABI Members, click here to get the full opinion.
9th Cir.
Bankruptcy court, not state court, was required to adjudicate
adequacy of notice received by creditor. 9th Cir.
PROCEDURAL POSTURE: Creditor brought a personal injury
suit against debtor in a state court, which determined that creditor was
not bound by debtor’s chapter 7 discharge order. Debtor brought a
motion in the bankruptcy court to reopen his case and sought leave to
file a complaint against creditor for violation of the discharge
injunction. The bankruptcy court denied the motion, and the bankruptcy
appellate panel affirmed. Debtor appealed. OVERVIEW:
Debtor filed bankruptcy shortly after pleading guilty to sexually
molesting creditor, debtor’s stepson, who was a minor at the time.
Debtor’s petition listed creditor as holding an unsecured
nonpriority claim in the form of a potential personal injury action.
Creditor’s mother, as his guardian, received timely notice, but
did not file a nondischargeability claim on creditor’s behalf. The
debt to creditor was discharged. Upon reaching adulthood, creditor
brought his suit for damages arising out of the molestation, and argued
that he had not received proper notice under 11 U.S.C. § 523(c)(1).
The state court agreed that notice was inadequate, and the bankruptcy
court found that the state court had jurisdiction to make that decision.
The appellate court found that the state court had no jurisdiction to
effectively modify the discharge order and injunction. The state court
erroneously relied on 11 U.S.C. § 523(a)(3), which did not apply to
a listed and scheduled creditor. The bankruptcy court abused its
discretion in refusing to reopen debtor’s case in the face of an
invalid state court action infringing upon the bankruptcy court’s
jurisdiction. McGhan v. Rutz (In re McGhan), 2002
U.S. App. LEXIS 8739, 288 F.3d 1172 (9th Cir. May 7, 2002) (Fisher,
C.J.).
Collier on Bankruptcy, 15th Ed. Revised
4:523.26
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10th Cir.
Bankruptcy court correctly ruled that creditor’s collection of interest and insurance premiums was consistent with debtors’ reaffirmation. B.A.P. 10th Cir. PROCEDURAL POSTURE: Plaintiff debtors appealed from an order of the bankruptcy court denying them their motion for contempt. OVERVIEW: The debtors argued that the bankruptcy court erred when it held that the creditor with whom the debtors reaffirmed a $14,431.94 debt did not violate 11 U.S.C. § 524(a)(2) when it collected interest on that debt as well as premiums on the declining term life insurance that the debtors requested when they entered into the original promissory note. Alternatively, the debtors argued that the bankruptcy court erred when it did not find that the creditor violated their discharge by debiting monies other than their bimonthly payment from their account. The court held that the reaffirmation agreement changed nothing fundamental about the original note; it simply reestablished the original obligation. Moreover, the reaffirmation agreement specifically referred to the interest rate: it stated that the sum due was $14,431.94 and the interest rate was 9.89 percent. Next, the court held that because the bankruptcy court did not address the argument of an additional monthly debit, the issue was remanded to the bankruptcy court for findings on this issue. Schott v. WyHy Fed. Credit Union (In re Schott), 2002 Bankr. LEXIS 870, 282 B.R. 1 (B.A.P. 10th Cir. August 15, 2002) (McFeeley, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:524.02[2]
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Fed. Cir.
U.S. Treasury department has no obligation to pay interest on unclaimed bankruptcy estate funds. Fed. Cir. PROCEDURAL POSTURE: Plaintiff creditor sued defendants, the United States, the United States Treasury Department, and the United States Secretary of the Treasury (collectively, the United States), for an alleged taking of interest accumulated in a bankruptcy creditor account. The district court dismissed the complaint. The court of appeals transferred the creditor’s appeal. OVERVIEW: The creditor alleged, inter alia, that the failure to pay interest on his distributive share of unclaimed bankruptcy funds constituted a taking of property under the Fifth Amendment. The appellate court determined that the 'interest follows the principal' rule did not apply because interest was never generated on the unclaimed funds. Thus, the creditor did not have a property interest that was entitled to protection under the Fifth Amendment. Moreover, the relevant statutory framework did not impose an obligation on the United States to earn and disburse interest to unlocated creditors because the plain language of 28 U.S.C. § 2041, the statute upon which the creditor’s funds were deposited in the name and to the credit of the bankruptcy court, did not impose an express duty on the United States to earn interest as a fiduciary, trustee, or otherwise. Leider v. U.S., 2002 U.S. App. LEXIS 16709, 301 F.3d 1290 (Fed. Cir. August 15, 2002) (Schall, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:347.02
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