Collier Bankruptcy Case Update September-23-02
- 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 23, 2002
CASES IN THIS ISSUE
(scroll down to read the full
summary)
§ 330 Attorneys' fees in chapter 13 case reduced as excessive
relative to traditional hourly fees and benefit and necessity of
services rendered.
In re Argento (Bankr. D. Mass.)
§ 503(b)(1)(A) Creditor's postpetition bandwith management
services for debtor's website were valid administrative
expenses.
In re Talk City, Inc. (Bankr. D. Mass.)
Rule 2016(b) Attorneys' fees' reduced for failure to properly
disclose postpetition payments received from debtor.
In re Argento (Bankr. D. Mass.)
2d Cir.
§ 326(a) Trustee could not claim maximum allowable commission
on fees paid to special counsel absent performance of extraordinary
service to estate.
In re Butts (Bankr. W.D.N.Y.)
§ 362 Advanced stage of sexual harassment case and lack of
prejudice to other creditors justified relief from stay to allow action
to proceed.
Stranz v. Ice Cream Liquidation, Inc. (In re Ice Cream Liquidation,
Inc.) (Bankr. D. Conn.)
§ 544 Debtor's fraudulent conveyance claim dismissed on
pleadings in adversary proceeding could be raised by trustee.
Sharp Int'l Corp. v. State Street Bank & Trust Co. (In re Sharp
Int'l Corp.) (Bankr. E.D.N.Y.)
3d Cir.
§ 330 Attorneys' fees awarded to secured creditor must bear
reasonable relationship to amount of claim.
In re Green Valley Beer (Bankr. W.D. Pa.)
§ 503(b) Royalty payments due consultant pursuant to agreement
with debtor were not administrative claims.
In re Waste Sys. Int'l, Inc. (Bankr. D. Del.)
§ 506(b) Oversecured creditor's claim for attorney's fees
reduced to the extent that it was unreasonable and for delay in
providing information to debtor.
In re Green Valley Beer (Bankr. W.D. Pa.)
§ 522(f)(1)(A) Portion of debtor's interest in property not
encumbered by mortgage or exemption subject to unavoidable judgment
lien.
Miller v. Sul (In re Miller) (3d Cir.)
5th Cir.
§ 548 'Loan payments' to corporate officers for undocumented
loans which rendered debtor insolvent properly held fraudulent.
Randall v. Erstmark Capital Corp. (In re Erstmark) (N.D.
Tex.)
6th Cir.
§ 349(a) Debtor who willfully transferred assets after
trustee's request for turnover barred from refilling for six years after
dismissal.
In re Johnson (Bankr. W.D. Ky.)
§ 706(a) Debtors who allegedly lied about assets and concealed
information allowed to convert from chapter 7 to chapter 13 over
trustee's objection.
In re Gibbons (Bankr. N.D. Ohio)
§ 1111(a) Late filing of proofs of claim by creditors with
undisputed claims allowed due to insufficient notice of bar date
order.
In re ATD Corp. (Bankr. N.D. Ohio)
7th Cir.
§ 707(b) Chapter 7 case properly dismissed for substantial
abuse where chapter 13 could be sustained absent payments on SUVs debtor
sought to retain.
Costello v. Bodenstein (N.D. Ill.)
8th Cir.
§ 363(b) Non-judicial sale of debtor's real property was
subject to court approval.
Brink v. Payless Cashways, Inc. (In re Payless Cashways, Inc.)
(B.A.P. 8th Cir.)
9th Cir.
§ 502(b)(1) IRS proofs of claim against individual debtors for partnership debt disallowed where the only timely assessment was against the partnership.
U.S. v. Galletti (In re Galletti) (9th Cir.)
11th Cir.
§ 106 Section 106 abrogates the states' 11th Amendment immunity and is unconstitutional.
Venable v. Acosta (In re Venable) (Bankr. M.D. Fla.)
§ 506(b) Mortgagee's attorneys fees must be disclosed as part of secured claim.
Slick v. Norwest Mortgage Inc. (In re Slick) (Bankr. S.D. Ala.)
§ 523(a)(1)(C) Bankruptcy court erred in discharging debtor's IRS liability.
U.S. v. Spiwak (In re Spiwak) (S.D. Fla.)
Collier Bankruptcy Case Summaries
Attorneys' fees in chapter 13 case reduced as excessive relative to traditional hourly fees and benefit and necessity of services rendered. Bankr. D. Mass. PROCEDURAL POSTURE: The debtors' attorney filed an application for compensation and application for fee seeking total fees of $12,837.50 and no expense reimbursement is requested. The application and the attorney's disclosure of compensation pursuant to Fed. R. Bankr. P. 2016(b) stated that $1,500.00 was paid as a retainer, although the application also indicated that $2,700.00 had also been paid postpetition. The debtors filed their case under chapter 13. OVERVIEW: The bankruptcy court first noted that the attorney failed to file a supplemental statement to disclose the postpetition payments. The postpetition receipt of money directly from the debtors, and the source of those funds, should have been disclosed. In attempting to calculate a reasonable fee amount, the bankruptcy court adopted a standard that incorporated both the 'initial fixed fee standard' for what were the routine services inherent in any routine chapter 13 case and the lodestar method for those services that exceeded the routine tasks. There was no document that clearly stated what the attorney charged as his initial fixed fee although the bankruptcy court assumed the $1,500.00 charge was for the routine services. The bankruptcy court found this reasonable. For the non-routine services that the attorney performed, the bankruptcy court found reasonable the $150.00 per hour rate and the $200.00 per hour rate for time spent in court. The bankruptcy court then found some of the hours spent on certain tasks excessive and reduced the fees. The court also reduced the fees for the attorney's failure to disclose. In re Argento, 2002 Bankr. LEXIS 799, - B.R. - (Bankr. D. Mass. August 1, 2002) (Rosenthal, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:330.01
ABI Members, click here to get the full opinion.
Creditor's postpetition bandwith management services
for debtor's website were valid administrative expenses. Bankr.
D. Mass. PROCEDURAL POSTURE: Creditor presented seven
requests for allowance and payment of administrative expense claims. The
claims arose from the creditor's operation and then turnover to the
debtor of debtor's web site during the initial five months of the
debtor's bankruptcy under chapter 11. The claims totaled $442,547.23;
the debtor objected to all but $25,992.00 of the total. OVERVIEW:
The debtor's contented that the charges were not administrative expenses
within the meaning of 11 U.S.C. § 503(b)(1)(A) because they were
not provided at the debtor's request. The bankruptcy court agreed. The
debtor had demanded turnover of the web site and was at all times
entitled to turnover as expeditiously as possible. Instead, the creditor
operated the web site by its own decision, not under obligation or at
the debtor's request. Thus, the services and costs were prepetition
claims and not administrative expenses. Further, costs associated with
the turnover were also not administrative expenses because the parties'
prepetition agreement contemplated a turnover. In negotiating the
transfer of the web site to the debtor, the creditor agreed that, until
the debtor could procure bandwidth from another source, the creditor
would continue to provide bandwidth. The creditor also provided
bandwidth management services during this period. The bankruptcy court
found this was a valid administrative expense. The court deferred ruling
on the creditor's request for intellectual property licensing fees.
In re Talk City, Inc., 2002 Bankr. LEXIS 795, - B.R. - (Bankr.
D. Mass. July 17, 2002) (Kenner, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:503.06
ABI Members, click here to get the full opinion.
Attorneys' fees' reduced for failure to properly
disclose postpetition payments received from debtor. Bankr. D.
Mass. PROCEDURAL POSTURE: The debtors' attorney filed an
application for compensation and application for fee seeking total fees
of $12,837.50 and no expense reimbursement is requested. The application
and the attorney's disclosure of compensation pursuant to Fed. R. Bankr.
P. 2016(b) stated that $1,500.00 was paid as a retainer, although the
application also indicated that $2,700.00 had also been paid
postpetition. The debtors filed their case under chapter 13.
OVERVIEW: The bankruptcy court first noted that the attorney
failed to file a supplemental statement to disclose the postpetition
payments. The postpetition receipt of money directly from the debtors,
and the source of those funds, should have been disclosed. In attempting
to calculate a reasonable fee amount, the bankruptcy court adopted a
standard that incorporated both the 'initial fixed fee standard' for
what were the routine services inherent in any routine chapter 13 case
and the lodestar method for those services that exceeded the routine
tasks. There was no document that clearly stated what the attorney
charged as his initial fixed fee although the bankruptcy court assumed
the $1,500.00 charge was for the routine services. The bankruptcy court
found this reasonable. For the non-routine services that the attorney
performed, the bankruptcy court found reasonable the $150.00 per hour
rate and the $200.00 per hour rate for time spent in court. The
bankruptcy court then found some of the hours spent on certain tasks
excessive and reduced the fees. The court also reduced the fees for the
attorney's failure to disclose. In re Argento, 2002
Bankr. LEXIS 799, - B.R. - (Bankr. D. Mass. August 1, 2002) (Rosenthal,
B.J.).
Collier on Bankruptcy, 15th Ed. Revised 9:2016.15, 16
2d Cir.
Trustee could not claim maximum allowable commission on fees paid to special counsel absent performance of extraordinary service to estate. Bankr. W.D.N.Y. PROCEDURAL POSTURE: Chapter 7 debtors, a husband and wife, challenged the reasonableness of the trustee's request for an allowance of commissions equal to the maximum amount allowable under 11 U.S.C. § 326(a). OVERVIEW: During the administration of their bankruptcy estate, the debtors settled a medical malpractice case for an amount substantially in excess of that required to pay all claims against the debtors and expenses of administering the estate. The trustee had minimal involvement in the suit and its settlement, but sought the maximum commissions on sums disbursed to special counsel in the malpractice suit. The bankruptcy court declined to award the amount of commissions that the trustee requested because that amount was not reasonable under 11 U.S.C. § 330, and recalculated the amount based on the distributions that would have been necessary to effect a full repayment of all creditors, but only a partial commission on the remainder of the distributions. The estate was not complicated. The trustee did not perform any extraordinary service relating to the malpractice claim. Because of the surplus, the trustee had no need to evaluate its adequacy from the perspective of creditors. Nor did the trustee need to exercise any special diligence on behalf of the debtors, who supported the settlement. There were no complex disputes regarding claims. In re Butts, 2002 Bankr. LEXIS 794, 281 B.R. 176 (Bankr. W.D.N.Y. July 19, 2002) (Bucki, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:326.01
ABI Members, click here to get the full opinion.
Advanced stage of sexual harassment case and lack of
prejudice to other creditors justified relief from stay to allow action
to proceed. Bankr. D. Conn. PROCEDURAL POSTURE: Debtor
was a corporation in chapter 11 bankruptcy. Plaintiffs were former
employees who sued the debtor for sexual harassment under Title VII of
the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq., in federal
district court. Plaintiffs moved for relief from automatic stay to
permit them to prosecute to judgment their claim against the debtor. The
debtor objected to the motion, the employees' claim. OVERVIEW:
The issue for the bankruptcy court was whether a grant of relief from
stay and abstention under 28 U.S.C. § 1334(c) in order to allow the
prepetition proceedings to proceed in a federal district court outside
of the district in respect of a 'personal injury tort claim' would have
been an invalid exercise by the bankruptcy court of the exclusive
jurisdiction enjoyed by the district court for the district to set venue
in respect of such claims. The bankruptcy court concluded that the
sexual harassment counts constituted a 'personal injury tort claim.' As
such, the bankruptcy court found it lacked jurisdiction pursuant to 28
U.S.C. § 157(b)(5) to try the claim. Granting stay relief would not
have unduly prejudiced the interests of other creditors. The litigation
had been pending before the district court for almost five years and
motions for summary judgment where pending. The district court was
therefore more advanced with respect to the merits of the matter than
the bankruptcy court. If the stay of pre-trial proceedings remained in
effect, the employees would have had to bear the cost and delay inherent
in duplicating those proceedings in the bankruptcy court. Stranz
v. Ice Cream Liquidation, Inc. (In re Ice Cream Liquidation, Inc.),
2002 Bankr. LEXIS 801, 281 B.R. 154 (Bankr. D. Conn. July 31, 2002)
(Weill, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.01
ABI Members, click here to get the full opinion.
Debtor's fraudulent conveyance claim dismissed on
pleadings in adversary proceeding could be raised by trustee. Bankr.
E.D.N.Y. PROCEDURAL POSTURE: Debtors, a corporation and its
subsidiary, filed an adversary proceeding in bankruptcy court against
defendant bank. The debtors alleged the bank aided and abetted officers
of the debtors in committing fraud against its shareholders. The bank
moved to dismiss for failure to state a claim upon which relief could be
granted pursuant to Fed. R. Civ. P. 12(b)(6) and for failure to plead
fraud with particularity pursuant to Fed. R. Civ. P. 9(b).
OVERVIEW: The debtor's officers breached their fiduciary duties
to the debtor and its creditors by causing the debtor to raise many
millions of dollars through misrepresentations and fraudulent fund
transfers. With respect to the an aiding and abetting claim, the bank
argued that the complaint did not adequately allege that the bank had
actual knowledge of the officers' breach of fiduciary duty, or that the
bank induced or participated in the breach. The debtor tried to impute
knowledge to the bank by analogizing events surrounding the debtor to
another corporate fraud where the bank was a lender. This, at best,
alleged constructive knowledge, which was insufficient to impose aiding
and abetting liability under New York law. With respect to the
inducement or substantial assistance allegations, the fact that the bank
failed to return telephone calls from investors did not amount to
'substantial assistance.' The debtor also alleged that the bank received
a fraudulent transfer or constructive fraudulent transfer because a
payment was made while the debtor was insolvent. The appellate court
disagreed; the payment was made for fair consideration it was payment
for an antecedent debt. Sharp Int'l Corp. v. State Street Bank
& Trust Co. (In re Sharp Int'l Corp.), 2002 Bankr. LEXIS
797, 281 B.R. 506 (Bankr. E.D.N.Y. July 30, 2002) (Craig, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:544.01
3d Cir.
Attorneys' fees awarded to secured creditor must bear reasonable
relationship to amount of claim. Bankr. W.D. Pa.
PROCEDURAL POSTURE: An oversecured creditor, a bank, sought
approval of counsel fees of $24,610 and expenses of $1,104 under 11
U.S.C. § 506(b). The debtor objected, arguing that (1) the bank was
adequately protected, (2) the fees were unreasonable, (3) the services
were lumped together, and (4) the fees should be reduced by amounts the
debtor paid in United States trustee's fees due to the bank's delay in
providing information resulting in delay in proposing a plan.
OVERVIEW: The was sufficient collateral to protect the bank's
claim nearly three times over and it received regular adequate
protection payments. Under 11 U.S.C. § 506(b) the bank had to meet
the billing standards of 11 U.S.C. § 330. The compensation had to
bear a rational relationship to the amount of the secured claim. The
bank's delay in providing materials resulted in additional fees.
Staffing the case with 24 professionals was excessive. The amount
requested was excessive in relation to an $82,000 debt secured by
collateral worth three times that much. But, the debtor's past defaults
required more involvement than might otherwise have been needed. One
category, listed as general bankruptcy matters, lacked enough meaningful
description for a finding of reasonableness. It was disallowed in full.
The fees were reduced by 30 percent on disclosure statement and plan
issues due to the bank's delay. Being unable to ascertain whether the
debtor could have confirmed its plan and avoid the trustee's fees, the
court found the debtor's objection was not the appropriate vehicle for
addressing whether the bank should be held responsible for the trustee's
fees as a sanction. In re Green Valley Beer, 2002
Bankr. LEXIS 779, 281 B.R. 253 (Bankr. W.D. Pa. July 29, 2002)
(Fitzgerald, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:330.01
ABI
Members, click here to get the full opinion.
Royalty payments due consultant pursuant to agreement
with debtor were not administrative claims. Bankr. D. Del.
PROCEDURAL POSTURE: The debtor and several affiliates filed a
petition under chapter 11 of the Bankruptcy Code. A consultant filed a
proof of administrative claim. Later the consultant and his children
filed an adversary action against the debtor and its directors. The
debtor filed a motion to dismiss and for sanctions. The consultant filed
a response and a cross-motion. The debtor objected to the consultant's
response and cross-motion. OVERVIEW: The consultant had sold a
company to the debtor in exchange for stock. The debtor and the
consultant executed a consulting agreement. The court found that neither
the debtor nor the consultant had terminated the agreement. The
consultant had sought to classify the royalty payments due under the
agreement as an administrative claim pursuant to 11 U.S.C. §
503(b)(1)(A). The debtor claimed that the agreement was not an executory
agreement because it had expired by its own terms. The court found that
the time for testing whether there were material unperformed obligations
on both sides was when the bankruptcy petition was filed. The mere fact
that the agreement itself had expired did not render the issue moot. The
obligation to make the royalty payments arose when the agreement was
executed prepetition. The fact that the prepetition obligation was
dependent upon the occurrence of a postpetition event did not make the
obligation an administrative claim. Instead, the obligation was a
contingent claim. Whether the event occurred or not determined the
amount of the contingent claim, not its priority. In re Waste Sys.
Int'l, Inc., 2002 Bankr. LEXIS 768, 280 B.R. 824 (Bankr. D. Del.
July 19, 2002) (Walrath, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:503.05
ABI Members, click here to get the full opinion
Oversecured creditor's claim for attorney's fees
reduced to the extent that it was unreasonable and for delay in
providing information to debtor. Bankr. W.D. Pa.
PROCEDURAL POSTURE: An oversecured creditor, a bank, sought
approval of counsel fees of $24,610 and expenses of $1,104 under 11
U.S.C. § 506(b). The debtor objected, arguing that (1) the bank was
adequately protected, (2) the fees were unreasonable, (3) the services
were lumped together, and (4) the fees should be reduced by amounts the
debtor paid in United States trustee's fees due to the bank's delay in
providing information resulting in delay in proposing a plan.
OVERVIEW: The was sufficient collateral to protect the bank's
claim nearly three times over and it received regular adequate
protection payments. Under 11 U.S.C. § 506(b) the bank had to meet
the billing standards of 11 U.S.C. § 330. The compensation had to
bear a rational relationship to the amount of the secured claim. The
bank's delay in providing materials resulted in additional fees.
Staffing the case with 24 professionals was excessive. The amount
requested was excessive in relation to an $82,000 debt secured by
collateral worth three times that much. But, the debtor's past defaults
required more involvement than might otherwise have been needed. One
category, listed as general bankruptcy matters, lacked enough meaningful
description for a finding of reasonableness. It was disallowed in full.
The fees were reduced by 30 percent on disclosure statement and plan
issues due to the bank's delay. Being unable to ascertain whether the
debtor could have confirmed its plan and avoid the trustee's fees, the
court found the debtor's objection was not the appropriate vehicle for
addressing whether the bank should be held responsible for the trustee's
fees as a sanction. In re Green Valley Beer, 2002 Bankr. LEXIS
779, 281 B.R. 253 (Bankr. W.D. Pa. July 29, 2002) (Fitzgerald,
B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:506.04
ABI Members, click here to get the full opinion
Portion of debtor's interest in property not
encumbered by mortgage or exemption subject to unavoidable judgment
lien. 3d Cir. PROCEDURAL POSTURE: Appellant debtor
sought review of a decision of the United States District Court for the
District of Pennsylvania, which affirmed a decision of the bankruptcy
court. The bankruptcy court determined that a portion of a judgment lien
possessed by the judgment creditor was not avoidable under 11 U.S.C.
§ 522(f)(1)(A). OVERVIEW: The debtor owed a one-half
interest in a house with another person who was not a party to the
bankruptcy and who was not the debtor's spouse. The house was valued at
$100,000 total with an outstanding mortgage of $74,703. The debtor
claimed an exemption in the home of $8,075. The judgment creditor had a
judgment lien against the debtor. The bankruptcy court determined that
the debtor's one-half interest in the property was encumbered by one
half of the mortgage, leaving a portion of $4,573 which was not
avoidable and which could be applied toward the creditor's judgment
lien. The district court affirmed the bankruptcy court, and the court
affirmed. The court rejected the debtor's contention that the entire
mortgage obligation needed to be applied to the debtor's interest in the
property, which would result in no funds being left to apply toward the
judgment lien. The court held that it was illogical to net the total
outstanding secured debt balance attributable to both the debtor and the
joint tenant against the debtor's one-half interest in the property.
Such an application essentially provided a windfall to the debtor and
disregarded the rights of other creditors. Miller v. Sul (In re
Miller), 2002 U.S. App. LEXIS 3, 299 F.3d 183 (3d Cir. August
6, 2002) (Scirica, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:522.11
5th Cir
'Loan payments' to corporate officers for undocumented loans which
rendered debtor insolvent properly held fraudulent. N.D.
Tex. PROCEDURAL POSTURE: The bankruptcy court awarded damages
to appellee corporate debtor, finding that appellant corporate officers
fraudulently transferred sums from the debtor to themselves and breached
their fiduciary duties to the debtor's creditors by making the
transfers. The officers appealed from the judgment. OVERVIEW: The
officers received payments from the debtor which the officers argued
were loan repayments. The district court determined that the bankruptcy
court did not err in finding that the transfers were fraudulent. The
officers presented no documentation of the loans, and the bankruptcy
court found that the officers actually owed the debtor. Also, the
bankruptcy court properly found that the debtor was insolvent at the
time of the transfers. In addition, the officers breached their
fiduciary duty to the debtor and its creditors by making the transfers.
Finally, the bankruptcy court correctly calculated the amount to be
awarded as damages for the fraudulent transfers, not on the breach of
fiduciary duty findings. Randall v. Erstmark Capital Corp. (In re
Erstmark), 2002 U.S. Dist. LEXIS 14493, - B.R. - (N.D. Tex. August
2, 2002) (Lynn, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:548.01
6th Cir.
Debtor who willfully transferred assets after trustee's request
for turnover barred from refilling for six years after dismissal.
Bankr. W.D. Ky. PROCEDURAL POSTURE: After the trustee
filed a motion to compel debtor to turn over to the trustee certain
estate property, debtor moved to dismiss her bankruptcy petition. The
trustee moved for an extension of the time to file a nondischargeability
complaint. OVERVIEW: After debtor filed her bankruptcy petition,
the trustee faxed a letter to her directing debtor to turn over
$5,621.55 of estate property. When the trustee did not receive the money
requested from debtor, the trustee filed a motion to compel debtor to
turnover the property. At a hearing, debtor offered no reasonable
explanation for her failure to pay the money over to the trustee. She
simply stated that she spent the money on living expenses and private
school tuition. Documents debtor later filed, in response to a court
directive, established that she had spent the majority of the estate's
money after the trustee notified her of her duty to turnover the money.
The trustee filed a recommendation asking the court to dismiss debtor's
case with prejudice and bar her from filing another bankruptcy petition
for six years. The court found debtor's conduct to have been
particularly egregious, as debtor 'blatantly' spent property of the
estate, postpetition, after the trustee notified her in writing of the
duty to provide the trustee with the money. Therefore, the court found,
merely prohibiting debtor from filing another petition for 180 days was
an insufficient punishment. In re Johnson, 2002 Bankr. LEXIS
783, 281 B.R. 269 (Bankr. W.D. Ky. July 29, 2002) (Stosberg, B.J.).
Collier on Bankruptcy, 15th Ed. Revised
3:349.01[1]
ABI Members, click here to get the full opinion.
Debtors who allegedly lied about assets and concealed
information allowed to convert from chapter 7 to chapter 13 over
trustee's objection. Bankr. N.D. Ohio PROCEDURAL
POSTURE: Debtors moved to convert their chapter 7 case to a chapter
13 case. OVERVIEW: The bankruptcy trustee had filed an adversary
proceeding asking that debtors be denied discharge. The trustee alleged
that debtors failed to list their assets completely and that they
concealed other information critical to the administration of the
estate. In opposing the motion to convert, the trustee argued that the
right to convert was not absolute in cases where debtors had allegedly
lied about their assets, concealed material information from the
trustee, and moved to convert to nullify the trustee's objection to
discharge. The court, however, found that the language of 11 U.S.C.
§ 706(a) was unambiguous, the plain meaning was easily ascertained
from its language, and the legislative history was consistent with a
straightforward reading of the section; therefore, the court applied the
section as written, and allowed debtors to convert their chapter 7 case
to a proceeding under chapter 13. In re Gibbons, 2002
Bankr. LEXIS 792, 280 B.R. 833 (Bankr. N.D. Ohio July 16, 2002)
(Morgenstern, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 6:706.02
ABI Members, click here to get the full opinion.
Late filing of proofs of claim by creditors with
undisputed claims allowed due to insufficient notice of bar date
order. Bankr. N.D. Ohio PROCEDURAL POSTURE: The debtor
filed a chapter 11 petition under the Bankruptcy Code and listed two
creditors (the creditors), among others, on its schedules. The court
entered an order establishing a bar date and a notice requiring
creditors to file claims. Neither of the creditors objected to the
order. The court later entered an order confirming the debtor's first
amended plan of reorganization. The creditors filed motions seeking
payments of their claims. OVERVIEW: The debtor listed the
creditors' claims as fixed and undisputed. The debtor also prepared the
bar date order, which the court later found was not sufficiently
specific and detailed. The debtor commenced making distributions to
creditors who had physically filed proofs of claim prior to the deadline
specified in the bar date order, but did not make any distribution to
the creditors. The debtor claimed that under the terms of the bar date
order, all unsecured creditors were required to file proofs of claim.
The debtor argued that because the creditors had failed to file proofs
of claim, the debtor did not need to make any distributions. The court
disagreed. The court found that the creditors did not receive sufficient
notice of their need to physically file proofs of claim. The bar date
order was ambiguous. The court found that nowhere in the bar date order
did it state that the provisions of 11 U.S.C. § 1111(a) no longer
applied. The court noted that the bar date order's citation to Fed. R.
Bankr. P. 3003 further supported the interpretation that the creditors
were not required to physically file proofs of claim. In re ATD
Corp., 2002 Bankr. LEXIS 804, 278 B.R. 758 (Bankr. N.D. Ohio March
1, 2002) (Bodoh, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 7:1111.02
7th Cir.
Chapter 7 case properly dismissed for substantial abuse where
chapter 13 could be sustained absent payments on SUVs debtor sought to
retain. N.D. Ill. PROCEDURAL POSTURE:
Appellant-debtors appealed from an order of the United States Bankruptcy
Court for the Northern District of Illinois granting the motion of
appellee United States trustee dismissing their petition as a
substantial abuse of the provisions of chapter 7 of the Bankruptcy Code,
pursuant to 11 U.S.C. § 707(b). OVERVIEW: The trustee in
bankruptcy asserted that the debtors' case was abusive because they
sought to retain two new high end sport utility vehicles ('SUVs'),
arguing that if the debtors did not have payments on the SUVs, they
would be able to repay unsecured creditors under chapter 13 of the
Bankruptcy Code. The bankruptcy court conducted an evidentiary hearing
on the motion, orally stated its finding that the debtors were favoring
the SUVs creditor over unsecured debt they would otherwise be able to
pay. The court granted the trustee's motion and entered an order
dismissing the debtors' case. Although different courts of appeal
defined substantial abuse somewhat differently, the district court held
that the bankruptcy court had followed the correct procedure by adopting
a totality of the circumstances analysis, whereby the debtors' ability
to repay debts was considered in the full context of the case. The
bankruptcy court had not abused its discretion in engaging in such a
factual analysis. Costello v. Bodenstein, 2002 U.S. Dist.
LEXIS 14421, - B.R. - (N.D. Ill. July 24, 2002) (Coar, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 6:707.04
ABI Members, click here to get the full opinion.
8th Cir.
Non-judicial sale of debtor's real property was
subject to court approval. B.A.P. 8th Cir. PROCEDURAL
POSTURE: Appellee debtor filed a petition under chapter 11 of the
Bankruptcy Code. Appellant, an individual, sought approval of real
property which he purchased from the debtor. The bankruptcy court
approved the transaction, but at a higher price than the individual had
originally bid in a non-judicial procedure. The individual appealed from
the United States Bankruptcy Court for the Western District of Missouri.
OVERVIEW: The debtor used a real estate broker to sell the real
property, but this plan was never subjected to court review or approval,
nor were the creditors given notice or an opportunity to comment. The
panel found that the sales contract stated that the sale was subject to
court approval. The bankruptcy court had made a correct decision, based
on judicial precedent, to rebid the matter. The panel found the
individual's arguments were without merit. The bankruptcy court had the
discretion to hold an auction in the face of a competing higher bid. The
court did not abuse its discretion in finding that any expectation the
individual had in the first sale did not rise to a level warranting an
approval of his bid without conducting a judicial auction. The sale of
the bankruptcy estate's property was clearly subject to court approval
under the express terms of 11 U.S.C. § 363(b). Brink v.
Payless Cashways, Inc. (In re Payless Cashways, Inc.), 2002 Bankr.
LEXIS 805, 281 B.R. 648 (B.A.P. 8th Cir. August 8, 2002) (Kressel,
B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:363.02
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9th Cir.
IRS proofs of claim against individual debtors for partnership
debt disallowed where the only timely assessment was against the
partnership. 9th Cir. PROCEDURAL POSTURE: Appellees,
debtors, filed chapter 13 bankruptcy petitions. Appellant United States
through its agency the Internal Revenue Service ('IRS') filed proofs of
claim against the debtors for unpaid employment taxes assessed the
debtors' partnership. The bankruptcy court disallowed the claim. The
United States District Court for the Central District of California
affirmed the bankruptcy court decision. The United States appealed.
OVERVIEW: The IRS filed proofs of claim against the debtors for
the unpaid taxes that the IRS had assessed against the partnership. The
debtors objected to the claims on the ground that the IRS had assessed
only the partnership and not the individual debtors and that the statute
of limitations for assessment had run. The IRS conceded that it had not
assessed the debtors within the usual three-year limit, but argued that
its timely assessments against the partnership extended the time for
collection of the taxes from the debtors. The court of appeals held that
the IRS's claims were properly disallowed. The assessment against the
partnership was not an assessment against the individual debtors,
because they were separate taxpayers. Consequently, the assessment
against the partnership extended the statute of limitations only for the
partnership; it had no effect on the ordinary three-year statute of
limitations for the debtors. California partnership law did not aid the
IRS because it did not obtain a judgment against the debtors, and it was
too late to do so because the applicable statute of limitations was
three years. U.S. v. Galletti (In re Galletti), 2002 U.S. App.
LEXIS 15906, - F.3d - (9th Cir. August 8, 2002) (Kleinfeld, C.J.).
Collier on Bankruptcy, 15th Ed. Revised
4:502.03[2]
11th Cir.
Section 106 abrogates the states' 11th Amendment immunity and is
unconstitutional. Bankr. M.D. Fla. PROCEDURAL POSTURE:
The debtor filed a complaint alleging the defendants, a city police
department and its officers, violated the automatic stay under 11 U.S.C.
§ 362 by failing to intervene in a postpetition re-possession of
the debtor's vehicle. The defendants moved to dismiss, arguing Eleventh
Amendment immunity, that 11 U.S.C. § 106 was unconstitutional as
applied to the defendants, and that the claims were barred by the
doctrine of sovereign immunity. OVERVIEW: The city police
department and its police officers were agents of the State of Florida,
and the Eleventh Amendment was a bar against any claims against them in
the bankruptcy court. The Defendants had not in any way unequivocally
expressed a waiver of immunity. There was no cause of action for damages
against the defendants for acting in their official capacities for
misconduct arising directly under the due process clause of the Florida
Constitution, and if such an action did exist it would be barred by
sovereign immunity. The police officers' activities were clearly
discretionary. The police officers did nothing more than follow the
long-standing police department policy of not interfering with civil
disputes between private citizens. That policy resulted from the city's
exercise of its executive power. The court held that Congress' attempt
in enacting 11 U.S.C. § 106 to abrogate the states' Eleventh
Amendment immunity was unconstitutional. Congress' bankruptcy powers
granted in U.S. Const. art. I, section 8, did not confer on Congress the
power to abrogate a state's Eleventh Amendment rights. The suit was
barred by the Eleventh Amendment. Venable v. Acosta (In re
Venable), 2002 Bankr. LEXIS 770, 280 B.R. 916 (Bankr. M.D. Fla. July
25, 2002) (Proctor, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:106.01
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Mortgagee's attorneys fees must be disclosed as part
of secured claim. Bankr. S.D. Ala. PROCEDURAL POSTURE:
Debtors, a certified class, argued that creditor could not charge
attorneys fees to debtors' accounts at any time during a bankruptcy case
without disclosure of those fees. Creditor, a mortgage company, moved
for a judgment on partial findings pursuant to Fed. R. Bankr. P. 7054.
Creditor also moved for a verdict at the close of the evidence.
OVERVIEW: Creditor argued that the fees were not treated a
'defaults,' and therefore, did not need to be cured under 11 U.S.C.
§ 1322(b)(5). However, because debtors did not know the fee
existed, the fee could not be a part of the secured claim and could not
be collected after discharge. Also, creditor could not decide for
debtors what arrearage or costs debtors may or may not pay in the plan
by picking and choosing which 11 U.S.C. § 506(b) costs to disclose.
Creditor also argued that debtors could remain liable for some debts
that could not be or were not included in creditor's proof of claim.
However, the court held that if the fee was not disclosed, it was
discharged. Creditor then contended that the statute of limitations had
run on some debtors. However, the fact that the fees were completely
undisclosed made an equitable tolling argument especially appropriate.
Debtors were awarded a refund or expungement of the undisclosed fees
plus prejudgment interest. Slick v. Norwest Mortgage Inc. (In re
Slick), 2002 Bankr. LEXIS 772, 280 B.R. 722 (Bankr. S.D. Ala. May
10, 2002) (Mahoney, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:506.04
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Bankruptcy court erred in discharging debtor's IRS
liability. S.D. Fla. PROCEDURAL POSTURE: Appellant,
the United States, sought review of the judgment of the United States
Bankruptcy Court for the Southern District of Florida, discharging
appellee debtor's income tax liabilities for certain years and denying
the motions of the United States to dismiss and for judgment on the
pleadings. OVERVIEW: The debtor beneficially owned a condominium.
He enabled a corporation owned by a trust funded by his father to
acquire the mortgage on his condominium. The debtor caused initiation of
a foreclosure proceeding, which he later abandoned on discovering that
the United States did not have a lien against the property. In a suit by
the United States, the district court entered a judgment against the
debtor and his wife for unpaid taxes, establishing that federal tax
liens applied to the condominium. Prior to foreclosure, the debtor filed
bankruptcy. The bankruptcy court held that the debtor's tax obligations
were discharged for lack of evidence of willful tax evasion, despite the
argument of the United States that the tax liabilities were
nondischargeable under 11 U.S.C. § 523(a)(1)(C), as the debtor did
not have the wherewithal to pay his tax liabilities. The district court
found this ruling to be clearly erroneous in light of the debtor's tax
return for the last year in question, which reported a substantial tax
liability. The court remanded the matter to examine tax liability for
that year, and to determine, under the totality of circumstances,
whether there was willful evasion. U.S. v. Spiwak (In re
Spiwak), 2002 U.S. Dist. LEXIS 14530, - B.R. - (S.D. Fla. June 10,
2002) (Moore, D.J.).
Collier on Bankruptcy, 15th Ed. Revised
4:523.07[4]
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