Collier Bankruptcy Case Update September-2-02
- West's
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.
September 2, 2002
CASES IN THIS ISSUE
(scroll down to read the full
summary)
ß 110 Bankruptcy petition preparers previously held liable
for unauthorized practice of law held in violation of court order and
permanently enjoined from acting as preparers.
Bonarrigo v. Marshall (In re Bonarrigo) (D. Mass.)
2d Cir.
ß 327 Law firm forfeited right to fees and expenses for
representation of trustee in personal injury settlement due to failure
to disclose debtor's opposition.
In re Mercury (Bankr. S.D.N.Y.)
3d Cir.
ß 327 Reduced fee awarded to accountants hired by debtor upon
trustee's objection to amount.
In re Penn Specialty Chems, Inc. (Bankr. D. Del.)
ß 510(b) Subordination of claims was proper due to reservation
of rights in plan disclosure statement.
In re Worldwide Direct, Inc. (Bankr. D. Del.)
ß 541(a) Debtor's withdrawal liability for pension fund, to
which it continued to contribute after filing, was not property of the
estate.
Bd. of Trs. v. Foodtown, Inc. (3d Cir.)
ß 1109(b) Injunction against debtor's contract with competitor
was a non-core adversary proceeding related to bankruptcy in which
committee could intervene.
Wakefern Food Corp. v. C&S Wholesale Grocers, Inc. (D.
Del.)
ß 1306(a)(1) Claim by debtor against prior bankruptcy counsel
was not estate property.
Shuman v. Kashkashian (In re Shuman) (Bankr. E.D. Pa.)
4th Cir.
28 U.S.C. ß 1446(b) Defendants' failure to make a timely
motion for removal could not be excused by co-defendant's
bankruptcy.
Gee v. Lucky Realty Homes, Inc. (D. Md.)
5th Cir.
28 U.S.C. ß 157(c)(1) Bankruptcy court had jurisdiction over
jury demand and motion to dismiss in adversary proceeding absent motion
to withdraw reference.
I.G. Serv. v. Deloitte & Touche (In re Blackwell) (Bankr.
W.D. Tex.)
28 U.S.C. ß 158 As decision on objection to homestead exemption
could only be overturned if clearly erroneous, there was little
likelihood of success to justify an appellate stay.
In re Burkett (Bankr. W.D. Tex.)
6th Cir.
28 U.S.C. ß 157(c)(1) Bankruptcy court erred in failing to
establish core jurisdiction over proceeding between two nondebtors prior
to granting motion for default.
Schoenlein v. Option One Mortgage Co. (In re Schoenlain) (B.A.P.
6th Cir.)
7th Cir.
ß 503 Successful bidder at both original and second auctions
denied administrative costs.
Corporate Assets, Inc. v. Paloian (In re GGSI Liquidation, Inc.)
(Bankr. N.D. Ill.)
8th Cir.
18 U.S.C. ß 152(3) False statement in bankruptcy may be the basis of a perjury prosecution.
United States v. Moriel (S.D. Iowa)
9th Cir.
ß 507(a)(8)(E) State's claim for repayment of worker's compensation obligation three years after injury was dischargeable.
Arizona v. Bliemeister (In re Bliemeister) (9th Cir.)
ß 707(b) Chapter 7 case dismissed for substantial abuse where debtor owed primarily consumer debts which could be paid off in three years.
Price v. U.S. Tr. (In re Price) (B.A.P. 9th Cir.)
11th Cir.
ß 105(a) Sanctions ordered against creditor's counsel for filing default motion which did not conform to consent order prepared by same counsel.
Rucker v. Conseco Fin. Serv. Co. (In re Rucker) (Bankr. M.D. Ga.)
ß 506(b) Attorneys' standard flat fee charged in all cases in district was reasonable.
Powe v. Chrysler Fin. Corp. (In re Powe) (Bankr. S.D. Ala.)
ß 1327 County taxes included in chapter 13 plan without objection by tax collector were discharged upon confirmation.
Tepper v. Burnham (In re Tepper) (Bankr. M.D. Fla.)
ß 1327(b) Confirmation of chapter 13 plan vested future earnings from tort claim with debtor and did not preclude litigation of that claim.
In re Ross (Bankr. M.D. Ga.)
Collier Bankruptcy Case Summaries
Collier on Bankruptcy, 15th Ed. Revised 2:110.01
2d Cir.
Law firm forfeited right to fees and expenses for representation
of trustee in personal injury settlement due to failure to disclose
debtor's opposition. Bankr. S.D.N.Y. PROCEDURAL
POSTURE: Claimant, a law firm, filed an application for professional
compensation and reimbursement of expenses in connection with the
settlement, on behalf of the debtors' chapter 7 trustee, of a state
court personal injury action in which they were counsel of record for
the debtors. In the firm's application to be retained by the trustee
under 11 U.S.C. ß 327, the firm had represented that it was
disinterested. OVERVIEW: The firm had the duty to disclose to the
debtors that the trustee owned and controlled the personal injury action
and could seek approval of a settlement over the debtors' objection, and
a duty to advise that a conversion to chapter 11 could trump the
trustee's control over the personal injury case. The firm never withdrew
as counsel for the debtors in the personal injury case. The firm owed
the debtors competence, zealous advocacy, fidelity, and undivided
loyalty under N.Y. Code of Prof'l. Responsibility Canons 6, 7, 5.
Instead, it switched sides and represented the trustee. There was an
actual conflict between the trustee and the debtors; the debtors
rejected the settlement. The firm joined in the trustee's application to
retain the firm as special counsel to the trustee for the precise
purpose of seeking approval of the settlement. The debtors had not
received notice of the trustee's motion to retain the firm. For failing
to comply with 11 U.S.C. ß 327 and its duties to the debtors, the
firm forfeited a right to fees and expenses. If the firm had disclosed
that the debtors were adverse to the trustee's settlement, the firm
would not have been approved as special counsel. In re
Mercury, 2002 Bankr. LEXIS 713, 280 B.R. 35 (Bankr. S.D.N.Y. May 30,
2002) (Hardin, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:327.01
3d Cir.
Reduced fee awarded to accountants hired by debtor upon trustee's
objection to amount. Bankr. D. Del. PROCEDURAL
POSTURE: Debtor filed a petition under chapter 11 of the Bankruptcy
Code and filed an application to retain the accountants, which was
granted. The accountants filed an application for compensation for
services rendered and for reimbursement of expenses. The trustee
objected, challenging the necessity and the reasonableness of the fees
requested. The court sustained in part the trustee's objection and the
accountants moved for reconsideration. OVERVIEW: The debtor
wanted the accountants for work on finance negotiation, budget
preparation and testimony, and the preparation of various financial
schedules and tax returns. The trustee, with whom the court had
previously agreed with to an extent, claimed the fees were too high for
a case that involved only one debtor and was uncomplicated. The court
had reduced the compensation that the accountants sought because too
much of the work performed was found to be clerical in nature and did
not require any exercise of professional judgment. At the second hearing
on consideration of their fee application, the accountants presented two
witnesses, a factual witness and an expert. The trustee objected to the
presentation of a fact witness, which was overruled. One witness gave
testimony that conflicted with the earlier testimony of an accountant
about the excessive fees. The court found the witness testimony
unconvincing. The court believed that some of the fees requested were
permissible. In re Penn Specialty Chems, Inc., 2002 Bankr.
LEXIS 711, - B.R. - (Bankr. D. Del. June 28, 2002) (Walrath, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:327.01
ABI
Members, click here to get the full opinion.
Subordination of claims was proper due to reservation
of rights in plan disclosure statement. Bankr. D. Del.
PROCEDURAL POSTURE: The debtors filed voluntary petitions under
chapter 11 of the Bankruptcy Code. The liquidating trustee filed a
motion to subordinate certain claims pursuant to 11 U.S.C. ß
510(b). The claimants objected to the motion, claiming res judicata.
OVERVIEW: Under the reorganization plan (the Plan), the
liquidating trustee was appointed to liquidate the debtors' remaining
assets and distribute the proceeds to creditors. The claimants had filed
proofs of claim based on a complaint which had been filed against the
debtors' former officers, directors, and accountants. The trustee
asserted that their claims must be subordinated pursuant to section
510(b). The claimants asserted that the trustee was precluded from
subordinating their claims under the doctrine of res judicata and that a
general reservation of rights was insufficient. The trustee argued that
the Plan's disclosure statement did reserve the right to subordinate the
claims. The court disagreed with the claimants, and found that the
reservation of rights was drafted broadly and did not waive any rights
which the estate may have to contest those claims. The court held that
it was simply impractical and unwarranted to require a debtor to provide
in detail all of the possible defenses or objections which the estate
may have to every single claim being treated in the Plan. It was
sufficient for the Plan to reserve the right to object to a claim on any
grounds. In re Worldwide Direct, Inc., 2002 Bankr. LEXIS 714,
- B.R. - (Bankr. D. Del. July 2, 2002) (Walrath, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:510.04
ABI Members, click here to get the full opinion
Debtor's withdrawal liability for pension fund, to
which it continued to contribute after filing, was not property of the
estate. 3d Cir. PROCEDURAL POSTURE: Appellant union
pension fund sued appellees, a distributor of supermarket products, and
numerous corporate and individual defendants, under the Employee
Retirement Income Security Act of 1974 ('ERISA'), 29 U.S.C. ß 1001
et seq., for withdrawal liability to the union's multiemployer pension
fund. The United States District Court for the District of New Jersey
dismissed the action for lack of standing. The union appealed.
OVERVIEW: After the distributor became insolvent, it had
defaulted on its pension fund contributions. The union had sought
judgment against the corporate and individual defendants as the
distributor's alter egos. The appellate court held that with regard to
alter ego liability in cases involving claims to pension benefits
protected by ERISA, there was a federal interest supporting disregard of
the corporate form to impose liability. The district court was correct
that once the distributor had filed for bankruptcy, the union had lacked
standing to assert claims that were property of the estate. However, the
distributor's liability was not property of the estate. Although it
filed its bankruptcy petition on December 7, 1998, it did not cease
operations until it entered into a shutdown agreement on December 25,
1998, and it had continued contributions to the pension fund until
January 25, 1999. Therefore, the claim for withdrawal liability had not
arisen until after the filing of the bankruptcy petition. Because the
liability was owed only to the pension fund, the claim was personal to
the union. Finally, the union had adequately pled a claim of alter-ego
liability. Bd. of Trs. v. Foodtown, Inc., 2002 U.S. App. LEXIS
14402, 296 F.3d 164 (3d Cir. July 17, 2002) (McKee, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:541.01
ABI Members, click here to get the full opinion
Injunction against debtor's contract with competitor
was a non-core adversary proceeding related to bankruptcy in which
committee could intervene. D. Del. PROCEDURAL POSTURE:
Plaintiff food cooperative's action against defendant competitor, for
tortious interference with the cooperative's contract with the debtor,
was removed to the United States Bankruptcy Court for the District of
New Jersey and transferred to the United States Bankruptcy Court for the
District of Delaware. The cooperative filed a motion to withdraw the
reference of the action under 28 U.S.C. ß 157(d).The intervenor
creditors' committee objected. OVERVIEW: The action was
intertwined with other matters before the bankruptcy court, who had
stated that the action should be adjudicated together with other related
actions. 11 U.S.C. ß 1109(b) gave the committee an unconditional
right to intervene in the non-core adversary which was 'related to' the
bankruptcy case. The complaint, seeking an injunction against the
debtors' contract with the competitor, affected the estate and
reorganization. Promoting uniform bankruptcy administration, reducing
forum shopping, fostering the economical use of the debtors' and
creditors' resources, and expediting the bankruptcy process, were best
served by denying withdrawal under 28 U.S.C. ß 157(d).The
bankruptcy court had already made findings as to what would constitute a
breach of good faith and fair dealing under the cooperative's contract.
While the cooperative intended to formally demand a jury trial, it had
not done so. Filing an amended complaint could constitute waiver of the
Seventh Amendment right to a jury. A jury trial, if properly asserted,
would not be adversely affected by having the bankruptcy court preside
over pretrial matters until the case was ready for a district court
trial. Wakefern Food Corp. v. C&S Wholesale Grocers, Inc.,
2002 U.S. Dist. LEXIS 12609, - B.R. - (D. Del. July 11, 2002) (Sleet,
D.J.).
Collier on Bankruptcy, 15th Ed. Revised 7:1109.02
ABI Members, click here to get the full opinion
Claim by debtor against prior bankruptcy counsel was
not estate property. Bankr. E.D. Pa. PROCEDURAL
POSTURE: After the chapter 13 debtors had made all plan payments,
they filed a complaint against defendants, the debtors' prior bankruptcy
counsel, for material misrepresentations, violations of state trade
practices law, conversion or unjust enrichment, and, under 11 U.S.C.
ß 542, for turnover of all plan distributions, loan payments, and
all fee payments received. The court sua sponte raised the issue of
jurisdiction under 28 U.S.C. ß 1334. OVERVIEW: A state court
action brought by the debtors against counsel was pending which included
allegations similar to those in the adversary proceeding. The
confirmation order, under 11 U.S.C. ß 1327(b), vested all of the
property of the estate in the debtor. The dispute arose only after
confirmation and the cases were just about ready to be closed under 11
U.S.C. ß 350(a). The trustee had already made all distributions.
The outcome of the adversary proceeding affected the rights only of the
debtors and counsel; it would not affect the rights or responsibilities
of the trustee or affect compliance with the plan. It would not increase
or decrease distributions to creditors or affect the debtors' discharge.
The claims were not 'estate property' under 11 U.S.C. ßß
541(a), 1306(a)(1). The trustee asserted no right to any recovery. The
outcome would have no effect upon estate property, exemptions, or upon a
distribution of estate property. The proceeding was not 'related' to the
bankruptcy under 28 U.S.C. ßß 157(c), 1334, for jurisdictional
purposes. Since the plan was confirmed and estate property had revested
in the debtors, it was not a turnover action under 11 U.S.C. ß
542(a). Shuman v. Kashkashian (In re Shuman), 2001 Bankr.
LEXIS 1933, 277 B.R. 638 (Bankr. E.D. Pa. December 21, 2001) (Fox,
C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1306.02[2]
4th Cir
Defendants' failure to make a timely motion for removal could not
be excused by co-defendant's bankruptcy. D. Md.
PROCEDURAL POSTURE: Plaintiff purchasers brought suit against
defendant real estate brokers, realty companies, attorneys, and real
estate appraiser, alleging that defendants engaged in a scheme to
defraud African-American home buyers by inflating the entire cost of
home purchase transactions, and by concealing the true condition and
value of the properties. Defendants removed the action to the federal
court, and the purchasers sought remand. OVERVIEW: The appraiser
was the first served with notice, and he filed a motion to remove that
the other defendants joined. Litigation against the brokers was
automatically stayed because of a previous bankruptcy. After the stay
was lifted, the brokers filed a second motion to remove, which all other
defendants joined. The purchasers sought to remand on the ground that
the first notice of removal was not filed until 32 days after the
appraiser had been served. The attorneys argued that because of the
automatic stay, any actions that the purchasers took prior to the
lifting of the stay, amounted to a nullity or were effective only as of
the date the stay was lifted. The court found that while the automatic
stay precluded the brokers from being validly served during the period
in which the stay was in effect, neither the bankruptcy statute nor the
case law of the Fourth Circuit supported the defendants' assertions that
the stay nullified the suit altogether or nullified service upon the
brokers' co-defendants. Thus, the appraiser's failure to remove the case
within the time limits imposed by 28 U.S.C. ß 1446(b) could not be
excused by the brokers' bankruptcy. Gee v. Lucky Realty Homes,
Inc., 2002 U.S. Dist. LEXIS 12849, - B.R. - (D. Md. July 9, 2002)
(Motz, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 1:3.07[6][a]
5th Cir.
Bankruptcy court had jurisdiction over jury demand and motion to
dismiss in adversary proceeding absent motion to withdraw reference.
Bankr. W.D. Tex. PROCEDURAL POSTURE: Defendant accounting
firm filed a jury demand and stated it did not consent to the bankruptcy
court's conduct of a jury trial or entry of a final judgment. Plaintiff
debtor conceded the jury demand was well founded, but asked the
bankruptcy court to rule on the accounting firm's pending motion to
dismiss the case. OVERVIEW: Although the accounting firm's jury
demand was well founded, the court noted that no party had moved for the
withdrawal of the reference to the bankruptcy court; therefore, the
district court had no way to take jurisdiction over the matter. The
court questioned whether the failure to move to withdraw the reference
constituted a waiver of a jury trial before the district court,
comparing referral to the bankruptcy court to a referral to a magistrate
judge for trial. So long as the reference remained with the bankruptcy
court, the motion to dismiss, and any other dispositive motions should
be considered by the bankruptcy court. When the court ruled with respect
to such motions, it would prepare a report and recommendation for
submission to the district court, requesting entry of a final order
thereon, and affording the parties the opportunity to timely and
specifically object, as provided in 28 U.S.C. ß 157(c)(1).
I.G. Serv. v. Deloitte & Touche (In re Blackwell), 2002
Bankr. LEXIS 729, 279 B.R. 818 (Bankr. W.D. Tex. June 26, 2002) (Clark,
B.J.).
Collier on Bankruptcy, 15th Ed. Revised 1:3.03[2]
ABI
Members, click here to get the full opinion.
As decision on objection to homestead exemption could
only be overturned if clearly erroneous, there was little likelihood of
success to justify an appellate stay. Bankr. W.D. Tex.
PROCEDURAL POSTURE: Previously, the court issued an order
sustaining the trustee's objection to the debtor's claim of a homestead
exemption in a house. The debtor sought a stay of that order pending
appeal. OVERVIEW: Before sustaining the trustee's objection, the
court conducted an evidentiary hearing at which it heard testimony from
the debtor, the debtor's spouse, and various creditors who happened to
live in the same community. The hearing provided the court with an
opportunity to observe the demeanor of the witnesses. The court based
its decision on its evaluation of the witnesses' credibility. The
court's findings and opinion were reversible on appeal only if clearly
erroneous. Given that standard of appellate review, the court found it
highly unlikely that its findings would be disturbed on appeal. Thus,
the debtor could not establish a likelihood of success on the merits. In
addition, the debtor did not establish that the stay would not
substantially harm other parties. The debtor's offer to insure the
property fell far short of protecting the estate and its representative,
the trustee, from the vagaries of the marketplace, or from the loss of
the time value of money as a result of this property's being tied up in
litigation during the pendency of an appeal. Furthermore, the offer
failed to cover the costs of the trustee in defending the decision to
deny the debtor the exemption. In re Burkett, 2002 Bankr.
LEXIS 728, 279 B.R. 816 (Bankr. W.D. Tex. June 24, 2002) (Clark, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 1:5.02
6th Cir.
Bankruptcy court erred in failing to establish core jurisdiction
over proceeding between two nondebtors prior to granting motion for
default. B.A.P. 6th Cir. PROCEDURAL POSTURE: Defendant
creditor appealed the order of the United States Bankruptcy Court for
the Southern District of Ohio, Eastern Division, at Columbus granting a
default judgment to plaintiff, the nondebtor spouse of the debtor.
OVERVIEW: The creditor contended that the bankruptcy court abused
its discretion in granting the default judgment and that it should have
set aside the default. The creditor also claimed that service of the
complaint was improper and violated due process. The bankruptcy court
incorrectly concluded that service of process upon the creditor was
proper. Moreover, the core jurisdiction of the bankruptcy court was
never determined, placing into question its authority to enter a default
judgment. Finally, the bankruptcy court abused its discretion in
entering a default judgment. Under the facts, the granting of the
default judgment was an overly harsh sanction, one granted solely upon a
finding that the creditor was negligent in failing to timely answer. The
party to whose attention the copy of the complaint and summons was
addressed was not an employee of the creditor, or an officer, managing,
or general agent, nor was he authorized to receive service of process on
the creditor's behalf. The nature of the proceeding, brought by a
nondebtor plaintiff against nondebtor defendants and concerning
nonbankruptcy issues, was sufficient to place into question whether the
proceeding was core. Schoenlein v. Option One Mortgage Co. (In re
Schoenlain), 2002 Bankr. LEXIS 730, - B.R. - (B.A.P. 6th Cir. July
16, 2002) (Brown, B.A.P.J.).
Collier on Bankruptcy, 15th Ed. Revised 1:3.03[2]
ABI Members, click here to get the full opinion.
7th Cir.
Successful bidder at both original and second
auctions denied administrative costs. Bankr. N.D. Ill.
PROCEDURAL POSTURE: Appellant bidder sought review of a decision
of the bankruptcy court, which allowed the debtors to reopen of the
auction, confirmed the debtors' sale of the assets at the second bid
price, and denied the bidder's request for administrative costs. The
bidder had been the successful high bidder before the re-opening and was
the successful high bidder after the re-opening, but was required to
submit a winning bid that was $352,500 higher. OVERVIEW: On the
scheduled day of the debtors' auction to sell the estate assets, the
bidder placed the highest bid. Before the bankruptcy court confirmed the
sale, the second highest bidder indicated that he wanted to put in a
higher bid. The bankruptcy court allowed a second auction, and the
bidder was required to bid more than it had originally bid to remain the
highest bidder. The bankruptcy court confirmed the sale from the second
auction and denied the bidder's request for administrative costs, and
the court affirmed. The court determined that the bankruptcy court did
not abuse its discretion when it held that the debtors had acted within
the bidding procedures outlined for the auction and that the second
auction was in the best interest of the estate. The court held that the
sale complied with the bidders' reasonable expectations because they had
received copies of the bidding procedures and were put on notice that
the debtors reserved rights to impose certain terms and conditions. The
court affirmed the denial of the bidder's request for administrative
costs, because their expense was not a dent that had been an actual and
necessary cost of preserving the estate. Corporate Assets, Inc. v.
Paloian (In re GGSI Liquidation, Inc.), 2002 U.S. Dist. LEXIS 12639,
280 B.R. 425 (Bankr. N.D. Ill. July 10, 2002) (Bucklo, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:503.01
ABI Members, click here to get the full opinion.
8th Cir.
False statement in bankruptcy may be the basis of a perjury
prosecution. S.D. Iowa PROCEDURAL POSTURE: Defendant
was charged with making a false statement in bankruptcy in violation of
18 U.S.C. ß 152(3), filing a false income tax return, in violation
of 26 U.S.C. ß 7207, and making false declarations while under oath
in violation of 18 U.S.C. ß 1623. Defendant filed a motion to
dismiss the perjury charge and a motion to suppress certain documents
that she alleged were protected by attorney-client privilege.
OVERVIEW: Defendant argued that the statement she submitted to
the bankruptcy court was not made under oath. The district court
disagreed, and adopted the position that a statement other than one made
under oath, such as a sworn affidavit, could constitute one of the
statements involved in a prosecution under 18 U.S.C. ß 1623(c). The
bankruptcy petition was an official filing submitted a court. This was
not a situation where defendant could have reasonably believed her
bankruptcy filing constituted a statement beyond the reach of a perjury
prosecution, and the district court did not believe that the filing
would have been any more solemn had an oath been administered prior to
its making. Defendant also attempted to exclude a bankruptcy
questionnaire that she prepared for her attorney's use. This information
was used to prepare her bankruptcy petition, which disclosed a
significant portion of the information in the questionnaire. The
district court held that the bankruptcy petition was a disclosure of the
communication between defendant and her bankruptcy lawyer, and she
waived the attorney-client privilege with respect to the underlying
document used in preparing the petition. United States v.
Moriel, 2002 U.S. Dist. LEXIS 12768, 201 F. Supp.2d 952 (S.D. Iowa
April 12, 2002) (Longstaff, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 1:7.02[3]
9th Cir.
State's claim for repayment of worker's compensation obligation
three years after injury was dischargeable. 9th Cir.
PROCEDURAL POSTURE: Appellant State of Arizona sought review of a
decision of the United States District Court for the District of
Arizona, which affirmed a decision of the bankruptcy court. The
bankruptcy court and the district court determined that the State had
waived any right it had to sovereign immunity and that the obligation of
the appellee debtor was dischargeable. OVERVIEW: The debtor had
an ownership interest in a mechanic's shop that did not carry worker's
compensation insurance. An employee of the shop was injured on his first
day of work, and eventually obtained a settlement of his worker's
compensation claim from the state. The state sought repayment of the
obligation from the debtor three weeks before the debtor filed for
chapter 7 bankruptcy relief. In an adversary proceeding, the bankruptcy
court found that the state had waived its claim to sovereign immunity,
because it was not raised until a supplemental brief, and further
determined that the debtor's obligation was dischargeable under 11
U.S.C. ß 507(a)(8)(E)(ii). The court affirmed the decision of the
district court affirming the decision of the bankruptcy court. The court
agreed with the district court's assertion that the state's delay in
asserting immunity was a tactical decision and that the defense had been
waived. The court held further that the transaction was more than three
years old, using the date the employee was injured as the operative
date, and the matter was thus dischargeable under section
507(a)(8)(E)(ii). Arizona v. Bliemeister (In re Bliemeister),
2002 U.S. App. LEXIS 14536, 296 F.3d 858 (9th Cir. July 19, 2002) (Lay,
C.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:507.10[6]
ABI Members, click here to get the full opinion.
Chapter 7 case dismissed for substantial abuse where
debtor owed primarily consumer debts which could be paid off in three
years. B.A.P. 9th Cir. PROCEDURAL POSTURE: The
debtor appealed the order of the United States Bankruptcy Court for the
District of Nevada dismissing his chapter 7 case for substantial abuse
under 11 U.S.C. ß 707(b). OVERVIEW: 11 U.S.C. ß 707(b)
requires the moving party to establish that the debtor owes primarily
consumer debts and that granting chapter 7 relief represents a
substantial abuse of that chapter. Despite his concession at hearing
that both of these elements were satisfied, the debtor argued the
dismissal of his case was error. The appellate court found that the
debtor's total debts were $322,552. According to the exhibit to his
petition, his personal debts total $72,150. If both debts secured by his
residence were included, then his consumer debt totaled at least
$213,661, which was well over half his total debt. Thus, his debts were
primarily consumer debts within the meaning of section 707(b) as
construed in Kelly. As he conceded at hearing, and again in his brief,
the debtor was able to pay 100 percent of general unsecured claims over
three years. While there was no indication that the debtor was
dishonest, he was not so unfortunate as to be entitled to a chapter 7
discharge. He conceded both elements required for dismissal under
section 707(b) as interpreted by the Ninth Circuit Court of Appeals in
Kelly, and did not credibly distinguish his case. Price v. U.S.
Tr. (In re Price), 2002 Bankr. LEXIS 724, 280 B.R. 499 (B.A.P. 9th
Cir. June 28, 2002) (Brandt, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 6:707.04
ABI
Members, click here to get the full opinion.
11th Cir.
Sanctions ordered against creditor's counsel for filing default
motion which did not conform to consent order prepared by same
counsel. Bankr. M.D. Ga. PROCEDURAL POSTURE: The
creditor twice filed for relief from the automatic stay for the debtor's
failure to make payments under her chapter 13 plan. The court entered a
consent order each time. The creditor filed a default motion, which was
denied, and the debtor moved for sanctions pursuant to 11 U.S.C. ß
105(a), and Fed. R. Bankr. P. 9011. OVERVIEW: The second consent
order allowed the creditor, in case of default, to file a default motion
and affidavit. The creditor then would have been entitled to relief from
the automatic stay. After a notice of default, the debtor made her
principal and interest payment within the grace period, but did not pay
insurance premiums the creditor claimed were owed. The creditor then
filed the default motion at issue. In denying that motion, the court
found that the second consent order had resolved the parties' dispute,
and was silent regarding the insurance premiums. The consent order was
prepared by the creditor's counsel, who had prepared a prior consent
order which specifically addressed insurance premiums. It was clear to
the court that the creditor's counsel knew how to prepare a consent
order which dealt with insurance premiums. Thus, the court found that
the default motion had no reasonable basis and should not have been
excused. The debtor's motion for sanctions did not comply with the 'safe
harbor' provision of Fed. R. Bankr. P. 9011(c)(1)(A) and sanctions were
not able to be awarded under that Rule. Sanctions under 11 U.S.C. ß
105(a) were appropriate. Rucker v. Conseco Fin. Serv. Co. (In re
Rucker), 2001 Bankr. LEXIS 1938, 278 B.R. 262 (Bankr. M.D. Ga.
September 13, 2001) (Hershner, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:105.05
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Attorneys' standard flat fee charged in all cases in
district was reasonable. Bankr. S.D. Ala. PROCEDURAL
POSTURE: Two chapter 13 debtors' class action challenged a car
financing creditor's postpetition/preconfirmation attorneys' fees,
requesting reconsideration of claims allowed or dealt with in confirmed
plans under 11 U.S.C. ß 502(j). The creditor moved to dismiss
arguing the debtors' claims were moot, moved for judgment in its favor
arguing flat fees were reasonable under 11 U.S.C. ß 506(b), and
moved to decertify the Fed. R. Civ. P. 23(b)(2) class. OVERVIEW:
While the debtors' claims became moot after the case was filed, and
after certification, due to an involuntarily repossession or the payment
of the fee to receive a discharge, for which that debtor would be due a
refund if the class prevailed, the case was viable. Since a trial was
held, Rule 23(b)(2) certification was moot. The creditor's proofs of
claims disclosed the attorneys fees being charged, and the
reasonableness standard for pre- and postpetition attorneys fees was the
same. The claims may not have indicated clearly that a fee was pre- or
postpetition, but the disclosure of the fee was sufficient. Attorneys
testified that fees were only charged when the creditor was oversecured
or there was a codebtor. The fees were personal to each case or
district; there was insufficient commonality as to what was an
appropriate fee except as to debtors in the court's district. The
creditor's $225 flat fee for all the cases in the district was not
inappropriate or unfair. The fees were reasonable. There was no need for
reconsideration under 11 U.S.C. ß 502(j). As to debtors in the
district, the class requirements were met. A class was appropriate and
would be bound by the ruling. Powe v. Chrysler Fin. Corp. (In re
Powe), 2002 Bankr. LEXIS 731, 278 B.R. 539 (Bankr. S.D. Ala. May 10,
2002) (Mahoney, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:506.04
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County taxes included in chapter 13 plan without
objection by tax collector were discharged upon confirmation.
Bankr. M.D. Fla. PROCEDURAL POSTURE: Plaintiff chapter 13
bankruptcy debtor brought an adversary proceeding against defendant
county tax official, seeking a declaration that the official's claim for
ad valorem taxes assessed against the debtor were discharged upon
confirmation of the debtor's plan. The bankruptcy court conducted a
trial. OVERVIEW: The debtor's bankruptcy petition listed the
taxes as unsecured debts and the debtor filed proofs of claim after the
official failed to do so. Subsequently, the debtor modified his plan to
provide for a minimal payment in satisfaction of the official's claims,
and the modified plan was confirmed without objection from the official.
The debtor contended that the debts for the taxes were thus discharged,
but the official maintained that the taxes constituted secured debts as
a matter of law and thus survived the bankruptcy. The bankruptcy court
held that, since the tax debts were expressly provided for in the plan,
the official was bound by the terms of the plan. Thus, the property
subject to the tax claims vested in the debtor, free and clear of the
official's purported statutory security interest in the property, and
the tax debts were discharged in accordance with the terms of the plan.
The official was on notice that the debts were consistently
characterized by the debtor as unsecured in the debt schedule, the
proofs of claim, and the plan, and such characterization was binding in
the absence of any objection from the official. Tepper v. Burnham
(In re Tepper), 2002 Bankr. LEXIS 722, 279 B.R. 859 (Bankr.
M.D. Fla. May 20, 2002) (Proctor, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1327.01
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Confirmation of chapter 13 plan vested future
earnings from tort claim with debtor and did not preclude litigation of
that claim. Bankr. M.D. Ga. PROCEDURAL POSTURE: The
debtor moved to reopen her chapter 13 plan pursuant to 11 U.S.C. ß
350(b). OVERVIEW: After the debtor's bankruptcy was filed, she
was in a car accident. She did not amend her schedules to include her
potential claim against the tortfeasor. After the bankruptcy was
dismissed, the debtor sued the tortfeasor in state court. The tortfeasor
asserted that judicial estoppel barred the claim because the debtor
failed to list the claim on her bankruptcy schedules. The accident, was
not an asset concealed for the debtor's benefit, but was a devastating
financial catastrophe. The bankruptcy court found that when dealing with
a claim arising postconfirmation in a chapter 13 case, the bankruptcy
court had not, by having previously confirmed the chapter 13 plan,
adopted a position taken by the debtor that contradicted a position the
debtor took in state court by asserting that claim. The debtor's plan
payments were based on her disposable income. Therefore, only that
amount of her future earnings was the necessary to maintain the plan.
All her other future assets, including the tort claim, became the
debtor's property. Judicial estoppel was inapplicable because the post
plan confirmation tort claim was simply not involved in the bankruptcy
case. In re Ross, 2001 Bankr. LEXIS 1937, 278 B.R. 269
(Bankr. M.D. Ga. October 5, 2001) (Walker, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1327.03
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