Collier Bankruptcy Case Update October-13-03
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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.
October 13, 2003
CASES IN
THIS ISSUE
(scroll down to read the full
summary)
§ 503 Settlement of administrative expense claim by liquidating supervisor was properly approved as reasonable.
Bos v. Jalbert (In re ServiSense.com, Inc.) (D. Mass.)
2nd Cir.
§ 1205 Bankruptcy court properly
refused to order adequate protection payments for security interest in
cows absent sufficient evidence of likelihood of decline in
value.
Zinik v. Vanmiddlesworth (N.D.N.Y.)
§ 1322(d) Allowing debtor to reopen case
to make final three delinquent payments did not violate
anti-modification provisions where objecting creditor held unsecured
mortgage.
Audain v. LaSalle Nat’l Bank (In re Aubain) (Bankr.
E.D.N.Y.)
3th Cir.
§ 365 Debtor airline’s assumption of contracts with creditors barred preference actions against creditors.
Kimmelman, Trustee v. Port Authority of N.Y. and N.J. (In re Kiwi Int’l Airlines, Inc.) (3d Cir.)
4th Cir.
§ 363 Breach of contract claim by debtor against leasing company limited to liquidated damage as stated in agreement.
Axtell v. Equipment Leasing Co. (In re Equipment LeasingCo., Inc.) (Bankr. E.D. Pa.)
§ 727(d)(1) Discharge properly revoked by bankruptcy court due to debtor’s fraud and reckless indifference.
Dean v. McDow (E.D. Va.)
5th Cir.
§ 707(b) Bankruptcy dismissed due to healthy, employed debtors’ excessive expenses, heavy consumer spending, ability to fund chapter 13 plan, and filing of misleading schedules
In re Fergason (Bankr. S.D. Tex.)
6th Cir.
§ 101(5)(A) Debtor entitled to finding of dischargeability of tax debt despite agreement with IRS that there were no outstanding taxes for the years in question.
Landrie v. IRS (In re Landrie) (Bankr. N.D. Ohio)
7th Cir.
§ 546(a) Limitation period for commencement of preference action was tolled by agreement of the parties.
Moglia v. Inland Plywood Co. (In re Outboard Marine Corp.) (Bankr. N.D. Ill.)
§ 1110(a)(2)(A) Debtor airline’s election to honor obligations under agreements with creditor vacated as prejudicial to debtor and other creditors.
In re UAL Corp. (Bankr. N.D. Ill.)
8th Cir.
§ 364 Factors used in approving original debtor in possession financing agreement also applied to approval of amendment to the agreement.
In re Farmland Indus., Inc. (Bankr. W.D. Mo.)
§ 1110 Bankruptcy court reviewed and reversed ruling that it did not have the power to recharacterize secured status of creditor with lien in aircraft parts and equipment.
Vanguard Airlines, Inc. v. Int’l Aero Components, Inc. (Bankr. W.D. Mo.)
9th Cir.
§ 502(b)(7) Bankruptcy court improperly denied claims of debtor’s employees for severance pay by adjusting compensation cap based on payments received.
Young v. Condor Sys. (In re Condor Sys.) (B.A.P. 9th Cir.)
§ 524(c) Postdischarge agreement allowing debtors to retain jewelry in return for monthly payments to creditor was an invalid reaffirmation agreement.
Bankruptcy Receivables Management v. Lopez (9th Cir.)
§ 547 Preference action upheld despite being filed after confirmation of chapter 11 plan where plan, disclosure and confirmation order provided sufficient notice.
Ringel Valuation Servs. v. Shamrock Foods Co. (In re Arizona Fast Foods, LLC) (Bankr. D. Ariz.)
10th Cir.
§ 105 Debtors’ attempt to obtain reimposition of stay against mortgagee could not be brought as a contested matter but required an adversary proceeding.
In re Bryant (Bankr. D. Colo.)
11th Cir.
§ 105(a) Debtor and associates sanctioned for interference with trustee’s administration of probate asset to detriment of creditors.
Henkel v. Lickman (In re Lickman) (Bankr. M.D. Fla.)
§ 523(a)(7) Restitution order that was not payable to and for the benefit of a governmental unit was dischargeable.
Verola v. Colton (In re Verola) (Bankr. S.D. Fla.)
Collier Bankruptcy Case Summaries
1st Cir.
Settlement of administrative expense
claim by liquidating supervisor was properly approved as
reasonable. D. Mass. PROCEDURAL
POSTURE: Appellants creditors of appellee Chapter 11 debtor
appealed from an order of the United States Bankruptcy Court for the
District of Massachusetts approving a settlement between appellee
liquidating supervisor of the debtor and the former president of the
debtor. The creditors appealed. OVERVIEW: The
bankruptcy court approved the debtor’s settlement motion with the
former president. Subsequently, the former president filed a request for
payment of his administrative claim. The creditors filed an objection to
the former president’s claim, arguing, inter alia, that he was not
entitled to severance because he had been terminated for cause. The
liquidating supervisor filed a motion for approval of a stipulation of
settlement with the former president regarding his administrative
expense claim stating that the liquidating supervisor had settled the
claim and agreed to pay him $ 35,000 as an administrative expense. The
remaining amount would be classified a non-priority claim. The former
president had a plausible argument of implied acceptance, relied on by
the bankruptcy judge. Thus, it was not unreasonable to have settled the
former president’s claim for short money. Also, no party objected
to the appointment of the liquidating supervisor or his counsel.
Finally, the bankruptcy court found that the creditors’ interests
would be best served by approving the settlement, given that the costs
inherent in fighting for the creditors’ views would likely exceed
the cost of settlement. Bos v. Jalbert (In re
ServiSense.com, Inc.), 2003 U.S. Dist. LEXIS 17057,
— B.R. — (D. Mass. September 26, 2003) (Saris,
D.J.).
Collier on Bankruptcy, 15th Ed. Revised [back to top]
ABI Members, click here to get the full opinion.
Bankruptcy court properly refused to
order adequate protection payments for security interest in cows absent
sufficient evidence of likelihood of decline in value.
N.D.N.Y. PROCEDURAL POSTURE: In respondent
debtors’ Chapter 12 proceedings, the United States Bankruptcy
Court (New York) denied appellant creditors’ motions for adequate
protection and for lifting of the automatic stay. The creditors
appealed. OVERVIEW: The creditors claimed that the
bankruptcy court erred in failing to order the debtors to make adequate
protection payments because they had a valid priority security interest
in the cows they sold to the debtors pursuant to a promissory note and
security agreement and the value of the cows was declining. The court
initially held that the bankruptcy court did not err in determining
that, pursuant to N.Y. U.C.C. § 9-324(d), the creditors did not
achieve livestock purchase-money security interest priority over another
creditor because the creditors never notified the other creditor of
their interest. The court then held that the bankruptcy court did not
err in determining that the creditors failed to satisfy their burden
under 11 U.S.C. §§ 363 and 1205 to show that adequate
protection was necessary because the creditors failed to offer
sufficient evidence that there was a likelihood of a decline in the
value of the cows they sold to the debtors, and that the creditors
failed to offer sufficient evidence in support of lifting the stay on
the ground of lack of adequate protection under 11 U.S.C. §§
362(d)(2). Zinik v. Vanmiddlesworth, 2003 U.S.
Dist. LEXIS 17302, — B.R. — (N.D.N.Y. September 30, 2003)
(Mordue, D.J.).
Collier on Bankruptcy, 15th Ed. Revised [back to top]
ABI Members, click here to get the full opinion.
Allowing debtor to reopen case to make final three delinquent payments did not violate anti-modification provisions where objecting creditor held unsecured mortgage. Bankr. E.D.N.Y. PROCEDURAL POSTURE: Plaintiff debtor filed a Chapter 13 petition under the Bankruptcy Code. The debtor filed an action against defendant creditor. The case was later dismissed, but not closed. The debtor moved to reopen the case and vacate a dismissal, pursuant to Fed. R. Civ. P. 60, but the creditor objected. The debtor moved for summary judgment to avoid the creditor’s second mortgage. OVERVIEW: The creditor held a second mortgage lien on the debtor’s primary residence and opposed the debtor’s motion as a prohibited effort to extend the final payment under her modified plan beyond the maximum statutory limit of 60 months. The debtor replied that by paying the balance of the modified plan, she only cured a default under that Chapter 13 plan. The court found that the creditor failed or refused to provide the court with proof of an assignment or with proof that it notified the debtor of the assignment. The court was not satisfied that the creditor held the mortgage. The court found that the debtor fully satisfied the requirements of Fed. R. Civ. P. 60(b)(6), as incorporated in Fed. R. Bankr. P. 9024. The appropriate date to be used for valuation of the property was the date of the debtor’s Chapter 13 petition. Since the parties stipulated that the second mortgage was unsecured as of the petition date, the anti-modification provision did not apply and the second mortgage lien could be avoided under 11 U.S.C. § 506(d). The debtor was entitled to summary judgment. Audain v. LaSalle Nat’l Bank (In re Aubain), 2003 Bankr. LEXIS 1208, — B.R. — (Bankr. E.D.N.Y. August 1, 2003) (Bernstein, B.J.).
Collier on Bankruptcy, 15th Ed. Revised [back to top]
ABI Members, click here to get the full opinion.
Debtor airline’s assumption of
contracts with creditors barred preference actions against
creditors. 3d Cir. PROCEDURAL
POSTURE: Appellant bankruptcy trustee sought review of an order
from the United States District Court for the District of New Jersey,
which affirmed the bankruptcy court’s dismissal of three
preference actions that the trustee brought against appellee creditors
under 11 U.S.C. § 547 to recover payments that the debtor airline
company made to the creditors before it filed a petition for bankruptcy
under Chapter 11 of the Bankruptcy Code. OVERVIEW: In
all three cases, the debtor made payments to the creditors pursuant to
written agreements that were essential to its efforts to stay in
business. After the debtor filed its bankruptcy petition, it assumed the
contracts under 11 U.S.C. § 365. One contract allowed the airline
to continue aircraft operations at an airport, and another contract
allowed the airline to use a computerized reservation system. The
debtor’s assumption of leases allowed the airline to continue
using a lessor’s aircraft equipment. The court affirmed the
judgment, agreeing with the lower courts that the assumption of the
contracts under section 365 barred the preference claims by the trustee.
The court found that the trustee’s characterization of the
creditors as being similarly situated to general unsecured creditors for
purposes of 11 U.S.C. § 547(b)(5) disregarded the unique set of
rights provided to the creditors by 11 U.S.C. § 365 and, in the
case of the lessor, by 11 U.S.C. § 1110. The court also found that
the bankruptcy court did not abuse its discretion in denying the trustee
discovery concerning the circumstances surrounding the assumptions.
Kimmelman, Trustee v. Port Authority of N.Y. and N.J. (In re
Kiwi Int’l Airlines, Inc.), 2003 U.S. App. LEXIS
19780, — F.3d — (3d Cir. September 25, 2003) (Fuentes,
C.J.).
Collier on Bankruptcy, 15th Ed. Revised [back to top]
ABI Members, click here to get the full opinion.
4th Cir.
Breach of contract claim by debtor
against leasing company limited to liquidated damage as stated in
agreement. Bankr. E.D. Pa. PROCEDURAL
POSTURE: Defendant leasing company filed a renewed motion for
partial summary judgment limiting the debtors’ claim for damages
under an asset purchase agreement. OVERVIEW: Plaintiff
trustee was authorized under the debtors’ confirmed plan to
liquidate the assets of the debtors’ estates for the benefit of
the debtors’ former creditors. One such asset was the
debtors’ claim against the leasing company for terminating the
agreement. In that capacity, the trustee commenced suit against the
leasing company and was seeking damages of nearly $ 1 million. The
leasing company requested that the court interpret the asset purchase
agreement pursuant to which the leasing company was to purchase the
portfolio of equipment leases from the debtors pursuant to 11 U.S.C.
§ 363. The trustee contended that his damages were not limited by
the amount of a deposit because the deposit was never paid.
Characterizing the deposit as liquidated damages, the trustee argued
that the leasing company was not entitled to the benefit of liquidated
damages when it had not performed the quid pro quo. In his answer to the
renewed motion, the trustee claimed liquidated damages of $ 500,000. The
court found that the trustee advanced a new position, and asking the
court to enter an order granting the trustee liquidated damages was in
effect a request for summary judgment. Axtell v. Equipment
Leasing Co. (In re Equipment LeasingCo., Inc.), 2003 Bankr.
LEXIS 1223, — B.R. — (Bankr. E.D. Pa. September 12, 2003)
(Sigmund, B.J.).
Collier on Bankruptcy, 15th Ed. Revised [back to top]
ABI Members, click here to get the full opinion.
Discharge properly
revoked by bankruptcy court due to debtor’s fraud and reckless
indifference. E.D. Va. PROCEDURAL
POSTURE: Appellant debtor appealed from an order of the United
States Bankruptcy Court for the Eastern District of Virginia, which
revoked her discharge of indebtedness pursuant to 11 U.S.C. §
727(d)(1). OVERVIEW: It was unnecessary to address
whether the trustee’s complaint was timely filed because the
debtor had failed to raise the issue before the bankruptcy court.
Similarly, the debtor had not raised the issue of the trustee’s
knowledge of fraud in her answer or at trial. Thus, the debtor had
waived her right to have those issue considered on appeal. The
bankruptcy court did not commit clear error in determining that the
debtor knowingly and fraudulently made false oaths, and that the oaths
concerned material facts. Also, the court could find no error in the
bankruptcy court’s conclusion that the debtor’s failure to
read her bankruptcy papers constituted a reckless indifference to the
truth and the functional equivalent of fraud, and there was no de
minimus exception to the disclosure requirements. Even if there were
such an exception, debtor’s valuable jewelry pieces did not fit
within such a framework. Finally, the debtor objected for the first time
on appeal to the admission of eight exhibits at trial. The admission of
the exhibits, if error at all, did not even approach the standard of
error so serious and flagrant that it goes to the very integrity of the
trial. Dean v. McDow, 2003 U.S. Dist. LEXIS 17188,
— B.R. — (E.D. Va. September 25, 2003) (Smith,
D.J.).
Collier on Bankruptcy, 15th Ed. Revised [back to top]
ABI Members, click here to get the full opinion.
5th Cir.
Bankruptcy dismissed due
to healthy, employed debtors’ excessive expenses, heavy consumer
spending, ability to fund chapter 13 plan, and filing of misleading
schedules Bankr. S.D. Tex. PROCEDURAL
POSTURE: The United States trustee filed a motion to dismiss
the debtors’ chapter 7 bankruptcy under 11 U.S.C. § 707,
alleging that allowing the debtors to obtain a chapter 7 discharge would
be an abuse of the Bankruptcy Code within the meaning of section 707(b).
OVERVIEW: The debtors filed bankruptcy after the IRS
began serious collection efforts. The court found that five of the six
factors discussed in the jurisprudence suggested that granting the
debtors a discharge would be a substantial abuse of the Bankruptcy Code:
(1) their expenses were excessive; (2) their disposable income of over $
1,300 per month would have allowed them to pay 40 percent of unsecured
claims under a 36-month chapter 13 plan; (3) they filed 'padded' and
misleading bankruptcy schedules; (4) the petition was not filed due to
illness, unemployment, or some other calamity; (5) they obtained
consumer goods on credit exceeding their ability to repay the debt. As
to the sixth factor, they did not appear to have engaged in
eve-of-bankruptcy purchases. In re Fergason,
2003 Bankr. LEXIS 867, 295 B.R. 96 (Bankr. S.D. Tex. June 2, 2003)
(Steen, B.J.).
Collier on Bankruptcy, 15th Ed. Revised [back to top]
ABI Members, click here to get the full opinion.
Debtor entitled to finding of
dischargeability of tax debt despite agreement with IRS that there were
no outstanding taxes for the years in question. Bankr. N.D.
Ohio PROCEDURAL POSTURE: An adversary proceeding
was commenced to determine the dischargeability of federal income tax
liabilities assessed against plaintiff taxpayer for certain tax years.
In his complaint, the taxpayer sought a specific finding of
dischargeability, but defendant Internal Revenue Service (IRS) refused
to accede to such a finding. The IRS filed a motion to dismiss the
taxpayer’s complaint. OVERVIEW: The debtor filed
a petition for Chapter 7 relief and was granted a discharge. Because it
was undisputed that there were no outstanding tax liabilities for the
tax years at issue, the IRS argued that the instant adversary proceeding
involving the dischargeability of tax obligations during those years did
not meet the “case or controversy” requirement of U.S.
Const. art. III, § 2. In denying the IRS’s motion to dismiss,
the court held that in a dischargeability proceeding, the “case or
controversy” requirement was met as long as there existed a
“debt” to discharge. Based on the broad nature of a
“debt” in bankruptcy, the issue was whether the debtor could
still conceivably be assessed a tax liability obligation for the years
in question. The court concluded that the IRS could make such an
assessment pursuant to 26 U.S.C. § 6501(c)(1) if it decided to
investigate the debtor for tax fraud. Consequently, the IRS held a
contingent claim against the debtor’s bankruptcy estate, and a
“case or controversy” existed that entitled the debtor to
maintain an action to determine the dischargeability of any potential
federal tax obligations for the years at issue. Landrie v.
IRS (In re Landrie), 2003 Bankr. LEXIS 868, —
B.R. — (Bankr. N.D. Ohio April 22, 2003) (Speer,
B.J.).
Collier on Bankruptcy, 15th Ed. Revised [back to top]
ABI Members, click here to get the full opinion
7th Cir.
Limitation period for
commencement of preference action was tolled by agreement of the
parties. Bankr. N.D. Ill. PROCEDURAL
POSTURE: The trustee sought to recover payments made by the
debtor to a creditor as preference payments under 11 U.S.C. § 547.
Cross-motions were filed as to the creditor’s affirmative defense
under 11 U.S.C. § 546(a). The creditor argued that section 546(a)
was jurisdictional, and thus, the parties’ tolling agreement, and
later extensions, did not toll the limitations period of section 546(a).
OVERVIEW: The court joined the majority of cases,
finding that section 546(a) was a true statute of limitations that could
be waived. The court had subject matter jurisdiction under 28 U.S.C.
§§ 157(b)(2)(F), 1334(b), which were wholly separate from 11
U.S.C. § 546(a). Legislative intent evidenced that Congress enacted
section 546(a) as a limitations period which, like a typical statute of
limitations, could be waived. The tolling agreement’s provision
prohibiting the use of the tolling agreement as evidence did not
preclude using the tolling agreement to prove that the parties entered
into an agreement to toll section 546(a). The agreement as a whole
reflected the intent to toll the statute of limitations in an effort to
settle the dispute. It stated that all applicable statutes of
limitations and other time-based defenses were tolled under the
agreement. The prohibition as to using the agreement indicated that it
could not be used as evidence in connection with any admission of
wrongdoing, liability, or culpability, not that it could not be used to
establish a tolling of section 546(a). The statute of limitations was
tolled pursuant to the agreement and the adversary proceeding was not
time barred. Moglia v. Inland Plywood Co. (In re Outboard
Marine Corp.), 2003 Bankr. LEXIS 1227, — B.R.
— (Bankr. N.D. Ill. September 11, 2003) (Squires, B.J.).
Collier on Bankruptcy, 15th Ed. Revised [back to top]
ABI Members, click here to get the full opinion
Debtor airline’s
election to honor obligations under agreements with creditor vacated as
prejudicial to debtor and other creditors. Bankr. N.D.
Ill. PROCEDURAL POSTURE: In a Chapter 11
bankruptcy case, a creditor filed motions requesting enforcement of the
debtors’ election to perform under 11 U.S.C. § 1110(a)(2)(A)
with respect to three aircraft in the debtors’ possession. The
debtors requested that the court vacate its order approving that
election. OVERVIEW: As to the three aircraft in
dispute, the amounts owed under the leases and financing agreement
exceeded the market value. The debtors intended to keep the aircraft in
their fleet only if the leases and financing agreement could be
renegotiated. With the understanding that there were no prepetition
defaults as to the aircraft, the debtors made the section 1110(a)(2)(A)
election to perform their obligations under the leases, so as to retain
the protection of the automatic stay while renegotiation took place. The
debtors were mistaken as to the existence of prepetition defaults,
however, and the creditor requested immediate payment of defaulted
amounts as an administrative expense. The court granted relief to the
debtors under Fed. R. Civ. P. 60(b)(1), concluding that the
debtors’ mistaken exercise of the election, although negligent,
was excusable neglect for which relief was available. The court observed
that the election, which provided no benefit to the debtors, was
manifestly prejudicial to the debtors and to other creditors. Vacating
the election would cause no comparable prejudice to the creditor. The
debtors had not engaged in any culpable behavior or acted in bad faith.
In re UAL Corp., 2003 Bankr. LEXIS 1207, —
B.R. — (Bankr. N.D. Ill. September 25, 2003) (Wedoff,
B.J.).
Collier on Bankruptcy, 15th Ed. Revised [back to top]
ABI Members, click here to get the full opinion
8th Cir.
Factors used in approving original debtor in possession financing agreement also applied to approval of amendment to the agreement. Bankr. W.D. Mo. PROCEDURAL POSTURE: Debtors, including reportedly the largest farmer-owned cooperative in the United States, moved for approval of a “first amendment” to their debtor in possession (“DIP”) credit agreement with a consortium of lenders. The motion was supported by the agent for the lenders, and opposed by the official committees of unsecured creditors and bondholders. OVERVIEW: The parties raised three basic issues: (1) whether debtors exercised sound and reasonable business judgment in entering into the first amendment, (2) whether the First Amendment was in the best interests of the estate and its creditors, and (3) whether the DIP lenders unreasonably withheld their approval of debtors’ proposed plan of reorganization. A key legal question for the court was whether all of the factors that would apply to an original DIP financing agreement under 11 U.S.C. § 364(c), (d), should be applied in determining whether to approve an amendment to an earlier court-approved financing arrangement. The court concluded that courts needed to determine on a case-by-case basis how high to raise the bar when considering amendments to post-petition financing. It believed that the applicable factors could be synthesized into five factors, which included: (1) that the proposed financing was an exercise of sound and reasonable business judgment, and (2) that the financing was in the best interests of the estate and its creditors. Applying all five factors, the court was firmly convinced that, all things considered, the first amendment should be approved. In re Farmland Indus., Inc., 2003 Bankr. LEXIS 864, 294 B.R. 855 (Bankr. W.D. Mo. April 17, 2003) (Venters, B.J.).
Collier on Bankruptcy, 15th Ed. Revised [back to top]
ABI Members, click here to get the full opinion
Bankruptcy court
reviewed and reversed ruling that it did not have the power to
recharacterize secured status of creditor with lien in aircraft parts
and equipment. Bankr. W.D. Mo. PROCEDURAL
POSTURE: Debtor filed a motion for relief under Fed. R. Bankr.
P. 9023 and 9024 from the court’s order that 11 U.S.C. § 1110
prevented debtor from avoiding the unperfected liens of a creditor on
aircraft parts and equipment. OVERVIEW: The court ruled
that debtor was precluded from recharacterizing the interests of the
creditor as something other than a secured party, lessor, or conditional
vendor. Debtor asserted that the preclusion was ruled in error, and
requested that the court amend its order to allow debtor to pursue at
trial its challenge to the creditor’s standing under 11 U.S.C.
§ 1110. In response, the creditor contended that debtor judicially
admitted that the creditor had standing to assert 11 U.S.C. § 1110
to repossess aircraft parts and equipment and that 11 U.S.C. § 1110
prevented the court from recharacterizing its interest. The court found
that the examples given by the creditor regarding its assertion that
debtor judicially admitted that the creditor had standing were
sufficient to create a judicial admission. The court did find that the
creditor had met its initial burden of establishing a prima facie case
that it had a valid claim as a condition vendor or a secured party under
section 1110. The court held that it had the power to recharacterize the
creditor’s status within the context of section 1110, and held
that debtor had presented a colorable argument for recharacterization.
Vanguard Airlines, Inc. v. Int’l Aero Components,
Inc., 2003 Bankr. LEXIS 1214, — B.R. —
(Bankr. W.D. Mo. September 17, 17) (Venters, B.J.).
Collier on Bankruptcy, 15th Ed. Revised [back to top]
ABI Members, click here to get the full opinion
9th Cir.
Bankruptcy court improperly denied claims of debtor’s employees for severance pay by adjusting compensation cap based on payments received. B.A.P. 9th Cir. PROCEDURAL POSTURE: The United States Bankruptcy Court for the Northern District of California sustained the chapter 11 debtor’s objections to two former employees’ termination damages, ruling that prepetition severance payments and draws received under letters of credit reduced the 11 U.S.C. § 502(b)(7) one-year total compensation caps for the employees to zero. The employees appealed. OVERVIEW: The debtor owed employee severance debts to the employees when it filed bankruptcy. The employees’ severance packages were funded by letters of credit issued by a bank. When the debtor objected to one employee’s claims, he attempted to withdraw a portion of it. The bankruptcy court did not rule on this attempt, but sustained the objection to the claims. The appellate court held that under Fed. R. Bankr. P. 3006, once the debtor objected to claim, the employee could no longer withdraw it; thus, the trial court’s ruling applied to the original claim, and the employee’s appeal of the court’s denial of the claim was not moot. Denial of the claims was error. The 11 U.S.C. § 502(b)(7) cap on payments to terminated employees was calculated mechanically as of the date of the filing of the petition; prepetition severance payments and pre- and postpetition draws on letters of credit could affect the amount of the claim but not the section 502(b)(7) cap. The fact that one employee received three years of base salary in the interval between his termination and the bankruptcy did not disqualify him from an allowable section 502(b)(7) claim for actual damages remaining “as of” the date of filing. Young v. Condor Sys. (In re Condor Sys.), 2003 Bankr. LEXIS 861, 296 B.R. 5 (B.A.P. 9th Cir. July 18, 2003) (Klein, B.J.).
Collier on Bankruptcy, 15th Ed. Revised [back to top]
ABI Members, click here to get the full opinion
Postdischarge agreement
allowing debtors to retain jewelry in return for monthly payments to
creditor was an invalid reaffirmation agreement. 9th
Cir. PROCEDURAL POSTURE: Appellant creditor sought
review of a ruling from the Ninth Circuit Bankruptcy Appellate Panel,
which affirmed a bankruptcy court holding that an agreement between the
creditor and appellee debtors was an invalid reaffirmation agreement for
its failure to comply with 11 U.S.C. § 524(c). The bankruptcy
court’s decision also declared that the debtors were entitled to
rescind the agreement. OVERVIEW: The postbankruptcy
discharge agreement allowed the debtors to retain certain jewelry and
required the debtors to make monthly payments. After making one payment,
the debtors attempted to return the jewelry but the creditor would not
accept it. When the creditor threatened to sue the debtors, they
reopened their bankruptcy case and filed the instant action. The court
affirmed the judgment. The court found that the bankruptcy court
permissibly construed the debtors’ complaint to include a cause of
action for declaratory relief. The court also determined that the
agreement did not comply with 11 U.S.C. § 524’s procedural
requirements for reaffirmation agreements. Although the creditor
asserted that it offered the debtors new consideration in the form of
waiving its right of replevin, the court found that the consideration
was based in part on the debtors’ discharged debt. Because the
agreement was based in part on a discharged debt, it triggered scrutiny
pursuant to section 524(c). The court concluded that the
creditor’s attempt to reaffirm the debt did not comport with
section 524(c) because the agreement was entered after the discharge and
was not filed with the bankruptcy court. Bankruptcy
Receivables Management v. Lopez, 2003 U.S. App. LEXIS 19803,
— F.3d. — (9th Cir. September 26, 2003) (Hug,
C.J.).
Collier on Bankruptcy, 15th Ed. Revised [back to top]
ABI Members, click here to get the full opinion
Preference action
upheld despite being filed after confirmation of chapter 11 plan where
plan, disclosure and confirmation order provided sufficient
notice. Bankr. D. Ariz. PROCEDURAL
POSTURE: Debtor filed a Chapter 11 petition under the
Bankruptcy Code and filed a Chapter 11 plan. Plaintiff liquidating
trustee filed an adversary action against defendant transferee and
alleged it received a voidable preference pursuant to 11 U.S.C. §
547. The transferee moved for summary judgment under Fed. R. Bankr. P.
7056. The liquidating trustee responded to the motion and cross-moved
for summary judgment. OVERVIEW: The transferee argued
that the complaint should be dismissed because the Chapter 11 plan
proponents failed to preserve any of the avoidance claims prior to plan
confirmation. The court rejected this position where it was clear that
the Chapter 11 plan, the disclosure statement under 11 U.S.C. §
1125, and the confirmation order provided more than adequate information
about the possibility that the transferee, and other creditors, were
susceptible to avoidance actions postconfirmation under 11 U.S.C. §
547. None of the language in any of the documents provided a specific
release or waiver of potential preference claims against the transferee.
The language in the pleadings was sufficient to put creditors on notice
that preference claims might have existed. In many of the large Chapter
11 cases, the plan of reorganization was often confirmed before the
debtor and/or a trustee had undertaken a detailed investigation of the
potential preference actions. The court concluded that the plan
proponents adequately disclosed and preserved potential avoidance
actions. The transferee was not entitled to summary judgment.
Ringel Valuation Servs. v. Shamrock Foods Co. (In re Arizona
Fast Foods, LLC), 2003 Bankr. LEXIS 1212, — B.R. —
(Bankr. D. Ariz. March 28, 2003) (Curley, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised [back to top]
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Debtors’ attempt to obtain reimposition of stay against
mortgagee could not be brought as a contested matter but required an
adversary proceeding. Bankr. D. Colo.
PROCEDURAL POSTURE: Debtor mortgagors converted their
Chapter 13 bankruptcy petition to Chapter 7 and creditor mortgagee
obtained unopposed relief from the automatic stay. Upon realizing that a
prior discharge precluded a Chapter 7 discharge, the mortgagors
reconverted their petition to Chapter 13 and moved under 11 U.S.C.
§ 105 to reimpose the automatic stay against the mortgagee.
OVERVIEW: The mortgagee contended that the automatic
stay could not be reimposed by way of a contested matter under §
105, rather than by way of an adversary proceeding. The bankruptcy court
held that reimposition of the automatic stay against the mortgagee could
only be sought by and through an adversary proceeding, and that §
105 provided no basis for reimposing the stay. The mortgagors’
reconversion of their petition did not automatically reinstate the stay,
and no extraordinary circumstances existed to reinstate the stay at the
behest of the mortgagors. Further, consideration of the
mortgagors’ request for essentially injunctive relief expressly
required an adversary proceeding under Fed. R. Bankr. P. 7001(7) rather
than a contested matter under section 105. In any event, the
mortgagors’ only real basis for seeking reimposition of the stay
was to allow the mortgagors more time to forestall the mortgagee which
provided no proper ground for injunctive relief. In re
Bryant, 2003 Bankr. LEXIS 887, 296 B.R. 516 (Bankr. D. Colo.
July 15, 2003) (Brooks, B.J.).
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Debtor and associates sanctioned for
interference with trustee’s administration of probate asset to
detriment of creditors. Bankr. M.D. Fla.
PROCEDURAL POSTURE: Plaintiff bankruptcy trustee filed
an adversary proceeding against defendant debtor and others, in
connection with their efforts to thwart the trustee’s
administration of the debtor’s bankruptcy estate.
OVERVIEW: Litigation in this bankruptcy case involved a
dispute as to who should have ownership and control over a 15 percent
interest in a probate estate and putative claims against the executrix
of the probate estate. The instant court first concluded the debtor and
others violated the automatic stay. The automatic stay applied to acts
taken by them outside the bankruptcy court, prior to the time the
trustee sold the probate asset, to assert or usurp control over the
asset. The stay also applied to acts outside the bankruptcy case, after
the sale of the asset, as those acts were designed to attack the
estate’s right to possession of proceeds of the sale of the asset.
Each defendant acted willfully and intentionally in taking the
unjustifiable actions. The court limited its consideration to sanctions
for such acts under 11 U.S.C. § 105(a), excluding reliance on 11
U.S.C. § 362(h). Attorneys fees and costs the trustee sought were
eminently reasonable under the Johnson factors. Further, the debtor and
others had a unit of purpose — to return the asset to the debtor.
Joint and several liability was appropriate. Inter alia, the court found
the debtor and other violated a sanctions order. Henkel v.
Lickman (In re Lickman), 2003 Bankr. LEXIS 871, 297 B.R. 162
(Bankr. M.D. Fla. July 25, 2003) (Corcoran, B.J.).
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Restitution order that
was not payable to and for the benefit of a governmental unit was
dischargeable. Bankr. S.D. Fla. PROCEDURAL
POSTURE: Plaintiff debtor filed a voluntary Chapter 7 petition
under the Bankruptcy Code and received a discharge. The debtor filed an
adversary action against defendant creditor and sought a determination
of the dischargeability of debt pursuant to 11 U.S.C. § 523(a)(7).
Both parties moved for summary judgment under Fed. R. Bankr. P. 7056.
The parties responded to the summary judgment motions.
OVERVIEW: The debtor asserted that the debt in the
restitution order was dischargeable in bankruptcy where this debt did
not constitute a fine, penalty, or forfeiture payable to and for the
benefit of a governmental unit. Instead it was compensation for actual
pecuniary loss. The creditor disagreed and asserted that the debt was
nondischargeable pursuant to 11 U.S.C. § 523(a)(7). The restitution
order in issue required the debtor to repay his victims in accordance
with Florida law, but the victims did not constitute a governmental
unit. The bankruptcy court found that the debtor’s restitution
order was a fine and was not for the compensation of his victims’
actual pecuniary loss, which satisfied the first and third requirements
under section 523(a)(7). However, the second requirement, that the
amount be payable to and for the benefit of a governmental unit, was not
satisfied in this case. The debtor’s restitution obligation was
dischargeable, and the debtor was entitled to summary judgment under
Fed. R. Civ. P. 56, which was applicable in bankruptcy proceedings by
Fed. R. Bankr. P. 7056. Verola v. Colton (In re
Verola), 2003 Bankr. LEXIS 869, 296 B.R. 266 (Bankr. S.D. Fla.
July 8, 2003) (Friedman, B.J.).
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