Collier Bankruptcy Case Update September-8-03
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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.
September 8, 2003
CASES IN
THIS ISSUE
(scroll down to read the full
summary)
28 U.S.C. § 1930 Indigent
debtor’s request to proceed with bankruptcy appeal in forma
pauperis denied.
Lu v. Ravida (In re Ravida) (B.A.P. 1st Cir.)
2nd Cir.
§ 524(a) Postdischarge recording of previously unrecorded equitable lien that passed through bankruptcy was not an attempt to collect but rather an attempt to preserve lien rights in property.
In re Pecora (Bankr. W.D.N.Y.)
3rd Cir.
§ 105(a) Court exercised equitable
powers to issue channeling injunction to protect two affiliates of
debtor from asbestos claims.
In re Combustion Eng’g, Inc. (Bankr. D. Del.)
§ 548(a)(1)(A) Trustee could not maintain
fraudulent transfers claims grounded in a previously denied attempt to
pierce corporate veil.
Brown v. G.E. Capital Corp. (In re Foxmeyer Corp.) (Bankr. D.
Del.)
Rule 9006 Late proof of claim allowed due to
misrouted or delayed mail but second late claim disallowed due to lack
of testimony as to circumstances causing delay.
In re Spring Ford Indus., Inc. (Bankr. E.D. Pa.)
4th Cir.
§ 522(b)(2)(B) Trustee’s objection to debtor’s claim of exemption in property held with nondebtor spouse as tenants by the entirely overruled.
In re Greathouse (Bankr. D. Md.)
5th Cir.
§ 522(d)(10) Promissory note from former spouse to debtor was part of property settlement, not alimony, and could not be shielded from creditors.
Milligan v. Evert (In re Evert) (5th Cir.)
§ 707 Debtor’s second chapter 7 petition dismissed as an attempt to avoid state court action filed after dismissal of first chapter 7 petition.
Montes v. Wells Fargo Bank (In re BMG Invs., Inc.) (Bankr. N.D. Tex.)
28 U.S.C. § 586(e) District court properly ruled that United States trustee could recover compensation overpayment made to trustee.
Bolen v. Dengel (5th Cir.)
6th Cir.
§ 522(f) Bankruptcy Code definition of impairment controlled over state law definition in ruling on exemption.
In re Northern (Bankr. E.D. Tenn.)
7th Cir.
§ 523(a)(15) Debts which were the debtor’s responsibility pursuant to divorce decree and which debtor had made no efforts to pay for two years were nondischargeable.
Huchteman v. Ingalls (In re Ingalls) (Bankr. C.D. Ill.)
Rule 9023 Counsel’s reliance on erroneous information from clerk’s office and failure to monitor docket did not constitute excusable neglect that would allow relief from dismissal.
In re Delaughter (Bankr. N.D. Ill.)
Rule 9024 Confirmation of second amended plan that changed start date of payments to creditor vacated despite creditor’s delayed objection.
In re Hunt (Bankr. C.D. Ill.)
8th Cir.
§ 330 Bankruptcy court properly approved employment of financial advisors subject to court approval of fees.
Official Comm. of Unsecured Creditors v. Farmland Indus., Inc. (In re Farmland Indus., Inc.) (B.A.P. 8th Cir.)
§ 727(a) Erroneous, prematurely entered discharged vacated and discharge denied due to debtor’s nondisclosure and misrepresentation.
Gray v. Gray (In re Gray) (Bankr. W.D. Mo.)
§ 1322(e) Objection to plan confirmation sustained due to debtors’ failure to provide for mortgage interest.
In re Koster (Bankr. E.D. Mo.)
9th Cir.
§ 544(a) Debtor’s divorce attorney did not have a valid lien in the proceeds of prepetition sale of community real property that had not been distributed at time of filing.
Broach v. Michell (In re Bouzas) (Bankr. N.D. Cal.)
10th Cir.
§ 362(a) Bankruptcy court abused discretion in denying relief from stay for purposes of allowing completion of administrative action for final accounting.
Oklahoma State Dep’t of Health v. Medical Mgmt. Group, Inc. (In re Medical Mgmt. Group, Inc.) (B.A.P. 10th Cir.)
28 U.S.C. § 157(b)(2)(C) Adversary proceeding challenging contract that was the basis for creditor’s proof of claim was a core proceeding.
Malloy v. Zeeco, Inc. (In re Applied Thermal Sys., Inc.) (Bankr. N.D. Okla.)
11th Cir.
§ 330(a) Separately billed paralegal time allowed as administrative expense of counsel to committee only to extent functions performed were professional and not clerical.
In re Joseph Charles & Assocs., Inc. (Bankr. S.D. Fla.)
§ 523(a)(4) Debt owed to state by store owner who failed to remit lottery proceeds was nondischargeable as fiduciary defalcation.
Georgia Lottery Corp. v. Thompson (In re Thompson) (Bankr. M.D. Ga.)
Collier Bankruptcy Case Summaries
1st Cir.
Indigent debtor’s request to
proceed with bankruptcy appeal in forma pauperis denied.
B.A.P. 1st Cir. PROCEDURAL POSTURE: Appellant
individual appealed the dismissal of his case in which he objected to an
order of the Bankruptcy Court for the District of Massachusetts
discharging appellee debtor. The individual moved for leave to proceed
in forma pauperis before the First Circuit. The First Circuit
transmitted the motion to the bankruptcy appellate panel for action.
OVERVIEW: The question was whether the
individual’s appellate filing fees could be waived under 28 U.S.C.
§ 1915(a). The bankruptcy appellate panel concluded that it could
consider the individual’s 28 U.S.C. § 1915 request to proceed
in forma pauperis on appeal because appeal fees were not explicitly
excepted from waiver by 28 U.S.C. § 1930. Turning to the merits of
the motion, the individual met the requisite showing of poverty given
his attestations of homelessness, unemployment, and lack of assets.
However, the individual failed to demonstrate probable success on the
merits because he was attempting to relitigate the district
court’s final judicial decision affirming the bankruptcy
court’s order overruling his objection to the debtor’s
discharge. Moreover, the claims were manifestly frivolous as the
individual had presented no valid ground for vacating or modifying the
bankruptcy court’s order. Lu v. Ravida (In re
Ravida), 2003 Bankr. LEXIS 889, 296 B.R. 278 (B.A.P.
1st Cir. July 31, 2003) (per curiam).
Collier on Bankruptcy, 15th Ed. Revised 1:9.05 [back to top]
2nd Cir.
Postdischarge recording of
previously unrecorded equitable lien that passed through bankruptcy was
not an attempt to collect but rather an attempt to preserve lien rights
in property. Bankr. W.D.N.Y. PROCEDURAL
POSTURE: Married debtors filed a joint chapter 7 petition.
Debtors requested an order that authorized chapter 7 trustee to abandon
any interest in certain mortgaged property. An abandonment order and a
discharge order were entered. The case was closed and reopened on
debtors’ motion after creditor recorded its previously unrecorded
equitable lien in the property. Debtors’ moved to hold creditor in
contempt, pursuant to 11 U.S.C. § 524. OVERVIEW:
Chapter 7 trustee did not exercise any rights and powers that he had to
avoid the unrecorded equitable lien of the mortgaged property issue, and
trustee also affirmatively consented to its abandonment. The trustee
would have had the status of a bona fide purchaser for value under 11
U.S.C. § 544(a)(3), and could have avoided the unrecorded mortgage
property had it conferred a benefit upon the bankruptcy estate. The
court believed that trustee did not exercise his avoidance powers on
behalf of the estate where there was insufficient equity over and above
the first mortgage and debtors’ exemption to administer the
property. After debtors’ chapter 7 case was closed, the equitable
lien passed through bankruptcy unaffected, and the automatic stay,
pursuant to 11 U.S.C. § 362, was no longer in effect when the
mortgage was recorded. The act of recording the lien was intended to
ensure that the equitable rights of the mortgagee was not affected by
the rights of any future bona fide purchaser for value and was not an
act to recover a discharged debt as a personal liability of debtors.
Creditor’s action did not violate the discharge injunction of 11
U.S.C. § 524(a)(2). In re Pecora,
2003 Bankr. LEXIS 897, — B.R. — (Bankr. W.D.N.Y. July
21, 2003) (Ninfo, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:524.02 [back to top]
ABI Members, click here to get the full opinion.
Court exercised equitable powers to
issue channeling injunction to protect two affiliates of debtor from
asbestos claims. Bankr. D. Del. PROCEDURAL
POSTURE: Proponents of a chapter 11 plan filed by the debtor,
an engineering corporation, sought approval of its disclosure statement
and confirmation of its plan. OVERVIEW: Products
liability claims involving asbestos injuries left the debtor unable to
pay its obligations without assistance from its parent company. The plan
proponents sought a channeling injunction to protect two affiliates of
the debtor from asbestos lawsuits in order to maintain the availability
of shared insurance coverage to the debtor. The plan included the
establishment of a fund for asbestos claimants. The bankruptcy judge
found that the cutoff date for claims against the fund was fair to all
claimants. Although a channeling injunction under 11 U.S.C. §
524(g) could not apply to a nondebtor’s independent liabilities,
the court’s equitable power under 11 U.S.C. § 105(a) was
broad enough to permit a stay of proceedings and channeling injunction
against the debtor’s affiliates for their direct liabilities. For
plan confirmation purposes, there was no value to potential fraudulent
transfer claims. The bankruptcy judge further found that the plan was
feasible, that the disclosure statement was adequate with respect to the
information provided to creditors at the time it was disseminated, and
that the plan was in the best interests of all creditors. In
re Combustion Eng’g, Inc., 2003 Bankr. LEXIS
729, 295 B.R. 459 (Bankr. D. Del. June 23, 2003) (Fitzgerald,
B.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:105.05 [back to top]
ABI Members, click here to get the full opinion.
Trustee could not
maintain fraudulent transfers claims grounded in a previously denied
attempt to pierce corporate veil. Bankr. D. Del.
PROCEDURAL POSTURE: Plaintiffs, related debtors, filed
chapter 7 petitions and the cases were jointly administered. The debtors
and co-plaintiff chapter 7 trustee filed suit against defendants,
various creditors. The creditors moved for consideration of a motion for
the entry of a judgment in their favor on the trustee’s four
remaining counts for fraudulent conveyance, pursuant to Fed. R. Civ. P.
52(c); Fed. R. Bankr. P. 7052. OVERVIEW: The court
disagreed with the trustee’s position that the motion under Fed.
R. Civ. P. 52(c), which was applicable to the bankruptcy adversary
action by Fed. R. Bankr. P. 7052, was procedurally improper. The court
found, as a matter of law, that if a party was fully heard on a
particular issue that arose within the prosecution of a claim and a
court found against such party on such issue, then the court was free to
grant judgment under Fed. R. Civ. P. 52(c) against such party on other
issues that such party was not yet heard. The court held that pursuant
to an earlier decision that denied corporate veil piercing, the trustee
could no longer prevail certain counts related to alleged fraudulent
intent, which precluded recovery. The court rejected the trustee’s
position that the transactions in issue were intended to hinder, delay,
or defraud the debtor’s unsecured creditor body within the meaning
of 11 U.S.C. § 548(a)(1)(A); N.Y. Debt. & Cred. Law § 276.
In certain situations the debtor could favor, indeed prefer, any one or
several of its unsecured creditors with a transfer of assets to the
detriment of the remaining unsecured creditor body, even in the face of
insolvency. Brown v. G.E. Capital Corp. (In re Foxmeyer
Corp.), 2003 Bankr. LEXIS 915, 296 B.R. 327 (Bankr. D. Del.
August 4, 2003) (McCullough, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:548.04
[back to
top]
ABI Members, click here to get the full opinion.
Late proof of claim
allowed due to misrouted or delayed mail but second late claim
disallowed due to lack of testimony as to circumstances causing
delay. Bankr. E.D. Pa. PROCEDURAL
POSTURE: Debtor filed a chapter 11 petition. Creditor filed two
claims after the claim bar date and debtor objected. Creditor moved for
a court order that permitted the late filed claims.
OVERVIEW: The court found that related to
creditor’s claim one, there was no prejudice, which was the most
important factor to disallow an untimely filed claim. Given the absence
of any prejudice from the late filing, it was not necessary for the
justification for the delay to be so strong. The court found that the
Third Circuit recognized misrouted mail and short internal mail delays
as justification for untimely filings, but the United States Supreme
Court cautioned that office upheaval was not. The bankruptcy court gave
consideration to creditor’s promptness of the action taken once
the missed deadline was discovered. Pursuant to Fed. R. Bankr. P. 9006,
the court allowed the late filing of claim one, but disallowed claim
two. Claim two was not allowed where creditor failed to present any
testimony related to the circumstances of the late filing of claim two.
Creditor had the burden to show, as the moving party, to prove excusable
neglect, which it failed to do. In re Spring Ford Indus.,
Inc., 2003 Bankr. LEXIS 683, — B.R. — (Bankr. E.D.
Pa. June 20, 2003) (Sigmund, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 10:9006.01
[back to
top]
ABI Members, click here to get the full opinion.
Trustee’s objection to
debtor’s claim of exemption in property held with nondebtor spouse
as tenants by the entirely overruled. Bankr. D. Md.
PROCEDURAL POSTURE: Chapter 7 trustee filed an
objection to debtor’s amended claim of exempt property.
OVERVIEW: The trustee took exception and sought to
prevent debtor from exempting from administration by the trustee
debtor’s interest in a single family residence owned by debtor and
debtor’s spouse (not in bankruptcy), as tenants by the entireties.
The residence was located in Maryland. The trustee argued that
debtor’s interest in the tenancy by the entireties could not be
exempted for any purpose. The trustee’s position had been rejected
without exception by other courts. The trustee would have the court find
that where only a hypothetical creditor could be posited that could
collect from debtor’s interest in the tenants by the entirety
property, the exemption totally failed and the property was
administrable for all actual creditors, regardless of their rights
against the property interest. The court, however, found that the ruling
sought by the trustee would render 11 U.S.C. § 522(b)(2)(B)
nugatory. In re Greathouse, 2003 Bankr. LEXIS 717,
295 B.R. 562 (Bankr. D. Md. June 12, 2003) (Keir,
B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:522.10[3] [back to top]
ABI Members, click here to get the full opinion.
5th Cir.
Promissory note from former spouse to
debtor was part of property settlement, not alimony, and could not be
shielded from creditors. 5th Cir. PROCEDURAL
POSTURE: Appellants, a bankruptcy trustee and creditors, sought
review of a judgment from the District Court for the Western District of
Texas, which affirmed the bankruptcy court’s determination that a
promissory note payable to appellee debtor and executed by the
debtor’s former husband constituted alimony, support, or separate
maintenance and, therefore, could be shielded from the creditors under
11 U.S.C. § 522(d)(10)(D). OVERVIEW: Because there
was little precedent concerning what qualified as “alimony,
support, or separate maintenance” under section 522(d)(10)(D), the
lower courts relied on precedent interpreting 11 U.S.C. §
523(a)(5). The trustee argued that the bankruptcy court applied the
wrong law because the Nunnally factors used to define alimony, support,
and maintenance in the discharge context were not applicable to the
interpretation of the exemption under 11 U.S.C. § 522(d)(10)(D).
The court reversed the judgment, finding that the bankruptcy court made
an error of law in prematurely resorting to the Nunnally factors.
Although the Nunnally factors were binding law at least as to 11 U.S.C.
§ 523(a)(5), the court concluded that they should not be applied to
11 U.S.C. § 522(d)(10)(D) where the written agreement and divorce
decree clearly established the nature of the obligation and where there
were distinct provisions for nontrivial alimony and for the property
settlement. The court held that the note was not exempt because both the
labels given to the obligation in the agreement and the substantive
characteristics of the obligation clearly reflected that it was a part
of a property settlement. Milligan v. Evert (In re
Evert), 2003 U.S. App. LEXIS 16115, — F.3d — (5th
Cir. August 6, 2003) (Garwood, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:522.09[10]
[back to
top]
ABI Members, click here to get the full opinion.
Debtor’s second
chapter 7 petition dismissed as an attempt to avoid state court action
filed after dismissal of first chapter 7 petition. Bankr.
N.D. Tex. PROCEDURAL POSTURE: Defendant debtor
filed a chapter 7 petition, but was dismissed. Plaintiffs, two
creditors, filed a state court action against the debtor that was
removed after the debtor second chapter 7 petition was filed. The debtor
moved for relief from alleged violations of the automatic stay. The
creditors moved: (1) to dismiss the chapter 7 case; and (2) remand the
action back to state court. OVERVIEW: The
debtor’s first case was dismissed for failure to file required
schedules and a statement of financial affairs. The chapter 7 trustee
opposed the creditors’ remand motion. The trustee also opposed the
dismissal motion and sought an opportunity to investigate the potential
assets listed in the debtor’s schedules. The court found that
there was no automatic stay violation. The motion for sanctions was
filed after the prior case was dismissed and before the present case was
filed. Pursuant to 11 U.S.C. § 362(c)(2)(B), the automatic stay did
not apply after the dismissal of a case or before the filing of a case.
The court found that dismissal, pursuant to 11 U.S.C. § 707, was
warranted where the debtor’s bankruptcy petitions were attempts to
avoid the creditors’ state court action. The bankruptcy court
found that bankruptcy was not an appropriate form of relief where the
debtor lacked required elements. Because of the dismissal of the
bankruptcy case, remanding the case was appropriate. Montes
v. Wells Fargo Bank (In re BMG Invs., Inc.), 2003 Bankr. LEXIS
672, — B.R. — (Bankr. N.D. Tex. June 27, 2003) (Jones,
B.J.).
Collier on Bankruptcy, 15th Ed. Revised 6:707.01
[back to
top]
ABI Members, click here to get the full opinion.
District court properly
ruled that United States trustee could recover compensation overpayment
made to trustee. 5th Cir. PROCEDURAL
POSTURE: Appellee the United States trustee (“UST”)
sued appellant trustee to recover a compensation overpayment. The
trustee counterclaimed against the UST and filed third-party claims
against appellee bank. The District Court for the Eastern District of
Louisiana found in favor of the UST, and granted the bank’s motion
to dismiss as well. The trustee appealed. OVERVIEW: The
court initially held that the UST’s interpretation of 28 U.S.C.
§ 586(e) using the Executive Office of the United States
Trustee’s (“EOUST”) handbook was reasonable due to the
ambiguity of 28 U.S.C. § 586(e), and that, although the EOUST
handbook was not entitled to full Chevron deference, the UST’s
expense first policy was persuasive, due to the limited available
legislative history and the entire context of 28 U.S.C. § 586(e).
The court further held that the UST’s calculation of the
trustee’s compensation fees was not arbitrary and capricious under
5 U.S.C. § 706 because the UST had authority to disallow the
trustee from drawing any compensation for the years in dispute because
the EOUST handbook specifically disallowed any carryover of unpaid
compensation from year to year. The court further held that the district
court properly converted the bank’s motion to dismiss under Fed.
R. Civ. P. 12(b)(6) into a summary judgment motion, and properly granted
summary judgment for the bank under Fed. R. Civ. P. 56(c) because the
trustee failed to produce a complete credit agreement with the bank as
he failed to sign the credit agreement as required by La. Rev. Stat.
§ 6:1122. Bolen v. Dengel, 2003 U.S. App.
LEXIS 16402, — F.3d — (5th Cir. August 11, 2003) (Stewart,
C.J.).
Collier on Bankruptcy, 15th Ed. Revised 1:6.10
[back to
top]
ABI Members, click here to get the full opinion.
6th Cir.
Bankruptcy Code
definition of impairment controlled over state law definition in ruling
on exemption. Bankr. E.D. Tenn. PROCEDURAL
POSTURE: Debtors sought the avoidance of a judicial lien in
favor of creditor because it impaired their homestead exemption under
Tennessee law. The creditor claimed that its lien had priority over a
later consensual lien and, thus, should not be avoided as it did not
impair the debtors’ homestead exemption.
OVERVIEW: The bankruptcy court first determined that
the debtors’ mobile home was included in the value of the property
because it had become a fixture — the debtors had maintained the
mobile home as their primary residence, they connected the mobile home
to the necessary utility services, they landscaped the property, and any
attempt to remove the mobile home would have damaged it and the real
property. The bankruptcy court then determined that the debtors could
avoid the judicial lien to the extent that it impaired their homestead
exemption or up to $15,261.48. In so holding, the bankruptcy court
rejected the creditor’s contention that it should have applied
Tennessee’s priority law which would have put the creditor’s
lien ahead of a mortgage lien because the creditor perfected its lien
first. The bankruptcy court held that 11 U.S.C. § 522(f)(2)(A)
contained a federal definition of impairment and, in light of its
explicit language, prohibited the court from looking to state law to
define impairment. Thus, even though the mortgage may have been inferior
under state law, it nevertheless was required to be included in the
impairment analysis of 11 U.S.C. § 522(f)(2). In re
Northern, 2003 Bankr. LEXIS 711, 294 B.R. 821 (Bankr.
E.D. Tenn. June 4, 2003) (Stair, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:522.11 [back to top]
ABI Members, click here to get the full opinion.
Debts which were the debtor’s
responsibility pursuant to divorce decree and which debtor had made no
efforts to pay for two years were nondischargeable. Bankr.
C.D. Ill. PROCEDURAL POSTURE: In a debtor’s
chapter 7 bankruptcy, plaintiff, the debtor’s ex-wife, filed a
complaint to determine the dischargeability of certain marital debts or
to object to the discharge of the debts. OVERVIEW:
Pursuant to a divorce decree, the debtor was required to pay certain
debts. The parties agreed in the settlement that they would not seek to
have the debts discharged in bankruptcy. The court found that the
evidence was insufficient to deny the debtor’s discharge under
either 11 U.S.C. § 727(a)(2)(A), or (a)(5). There was no evidence
that the debtor concealed transfers of assets, or made the transfers to
hinder, delay, or defraud creditors. However, as to an 11 U.S.C. §
523 inquiry, the court found that the debtor’s evident dereliction
in making any meaningful effort to satisfy the obligations deserved a
good deal of weight. Two years after the settlement, the debtor filed
bankruptcy and obtained a discharge without making any meaningful effort
to pay the debts. Thus, the court’s equitable powers entitled it
to require the debtor to tighten his belt. The equities strongly favored
the ex-wife. Accordingly, the debts were nondischargeable under 11
U.S.C. § 523(a)(15). By entering into the settlement, the debtor
knowingly made a false statement. This was precisely the kind of deceit
which merited a finding of nondischargeability under section
523(a)(2)(A). Huchteman v. Ingalls (In re
Ingalls), 2003 Bankr. LEXIS 896, — B.R. —
(Bankr. C.D. Ill.August 4, 2003) (Lessen, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.21 [back to top]
ABI Members, click here to get the full opinion
Counsel’s
reliance on erroneous information from clerk’s office and failure
to monitor docket did not constitute excusable neglect that would allow
relief from dismissal. Bankr. N.D. Ill.
PROCEDURAL POSTURE: Debtors filed a joint petition for
relief under the Bankruptcy Code. Debtors later switched legal counsel
and the counsel missed a previously scheduled pre-trial conference
related to creditor’s claim. The court granted judgment against
debtors and debtors moved for: (1) an amendment of judgment; and (2) an
enlargement of time. OVERVIEW: Debtors argued excusable
neglect and sought relief from the court’s order pursuant to Fed.
R. Bankr. P. 9023 and 9006. They claimed that their new lawyer did not
receive a copy of the order issued and that their new lawyer was
misinformed by an employee of the clerk’s office related to the
filing deadline. Debtors asserted that these two events constituted
excusable neglect, but the court disagreed. The court found that
debtors’ new attorney had an independent duty to keep informed and
the mere failure of the clerk to notify parties that a judgment has been
entered did not provide grounds for excusable neglect or warrant an
extension of time. It was debtors’ new attorney’s
responsibility to monitor the progress of their cases by checking the
court’s docket, which he failed to do. This failure did not
constitute excusable neglect. Reliance on erroneous information given by
an employee in the clerk’s office also did not constitute
excusable neglect. In re Delaughter, 2003
Bankr. LEXIS 705, 295 B.R. 317 (Bankr. N.D. Ill. June 11, 2003) (Grant,
B.J.).
Collier on Bankruptcy, 15th Ed. Revised 10:9023.01
[back to
top]
ABI Members, click here to get the full opinion
Confirmation of second
amended plan that changed start date of payments to creditor vacated
despite creditor’s delayed objection. Bankr. C.D.
Ill. PROCEDURAL POSTURE: Debtor obtained an order
that confirmed its second amended chapter 12 plan (plan). Movant
creditor moved the bankruptcy court to vacate the order that confirmed
the plan. OVERVIEW: Debtor’s counsel and the
creditor’s counsel had reached an agreement as to the repayment of
the creditor and an amended plan was filed which listed the start date
for payments to the creditor as January 1, 2003. Debtor’s counsel
subsequently submitted a second amended plan, which did not change the
substance of the creditor’s claims except that payments would not
begin until January 15, 2004. When the creditor’s counsel
discovered the change he asked that the plan be changed back to the
original start date. The bankruptcy court interpreted the present motion
as brought under Fed. R. Civ. P. 60(b)(1) pursuant to Fed. R. Bankr. P.
9024. Given the similarity between the disputed plans, the
creditor’s failure to object to the date upon which payments would
begin amounted to excusable neglect, if negligence at all, and justified
relief from the court’s previous order confirming debtor’s
second amended plan. The failure to serve the creditor’s counsel
with a copy of the second amended plan could, in and of itself, provide
sufficient reason to revoke the order confirming debtor’s second
amended plan due to a violation of the creditor’s Fifth Amendment
right to due process. In re Hunt, 2003 Bankr. LEXIS
714, 293 B.R. 191 (Bankr. C.D. Ill. April 15, 2003) (Altenberger,
B.J.).
Collier on Bankruptcy, 15th Ed. Revised 10:9024.01
[back to
top]
ABI Members, click here to get the full opinion
8th Cir.
Bankruptcy court
properly approved employment of financial advisors subject to court
approval of fees. B.A.P. 8th Cir. PROCEDURAL
POSTURE: Appellees, debtor and affiliates, (the debtors) filed
petitions under chapter 11. Appellant, unsecured creditors’
committee, moved pursuant to 11 U.S.C. §§ 1103(a) and 328(a)
to employ financial advisors. The committee appealed an order, from the
Bankruptcy Court for the Western District of Missouri, that allowed
payment but not from the estate’s general funds.
OVERVIEW: The parties requested that the bankruptcy
court decide the transaction fee payment issue separately from the
financial advisors’ employment issue. Because the issue of the
appropriateness of the compensation was treated separately from the
issue of its employment, the bankruptcy appellate panel believed that
the order appealed from was a final order where it finally determined
that issue. On appeal the committee argued that the bankruptcy
court’s order violated 11 U.S.C. §§ 330 and 503. The
bankruptcy appellate panel found that where the bankruptcy court
concluded that any transaction fee payable would be subject to the
standard of review of 11 U.S.C. § 330, which provided for
professionals to receive reasonable compensation for their actual and
necessary services, that this did not bind the court, as the committee
argued, by 11 U.S.C. § 503(b), which allowed administrative
expenses, including compensation and reimbursement awarded under 11
U.S.C. § 330(a). The bankruptcy court, per the committee’s
request, incorporated the terms of an agreement made by the parties into
its order. The court implied that no matter who paid the compensation,
it would be subject its approval. Official Comm. of
Unsecured Creditors v. Farmland Indus., Inc. (In re Farmland Indus.,
Inc.) 2003 Bankr. LEXIS 903, 296 B.R. 188 (B.A.P. 8th Cir.
August 7, 2003) (Kressel, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:330.01
[back to
top]
ABI Members, click here to get the full opinion
Erroneous, prematurely
entered discharged vacated and discharge denied due to debtor’s
nondisclosure and misrepresentation. Bankr. W.D. Mo.
PROCEDURAL POSTURE: Plaintiff, a chapter 7
debtor’s ex-husband, filed an adversary complaint against the
debtor. The complaint alleged that the debtor failed to fully disclose
her financial condition, misrepresented her current and potential
income, misrepresented her indebtedness, misrepresented her assets, and
made various misrepresentations on her statement of financial affairs.
OVERVIEW: The debtor admitted to omitting child support
from her income, omitting expenses, failing to disclose the transfer of
assets, and failing to list her ex-husband as a codebtor. In addition,
the debtor admitted that certain real property was scheduled
incorrectly. The court found that the number and pattern of omissions
constituted false oaths and an intent to deceive. The inaccuracies were
material. Therefore, there was more than ample evidence to sustain the
ex-husband’s claim based on 11 U.S.C. § 727(a)(4)(A) and to
deny the debtor a discharge. The ex-husband also showed that the debtor
had substantial and identifiable property that would have been available
to her creditors. The debtor failed to disclose the liquidation of
stocks and a qualified domestic relations order that she received in the
property settlement. The court was not satisfied with the debtor’s
vague explanation that she spent the money fixing her home and paying
bills. Therefore, the court found that the debtor failed to
satisfactorily explain the disappearance of approximately $15,700 and
that denial of discharge was warranted on that basis under 11 U.S.C.
§ 727(a)(5). Gray v. Gray (In re Gray), 2003
Bankr. LEXIS 899, 295 B.R. 338 (Bankr. W.D. Mo. June 17, 2003) (Venters,
B.J.).
Collier on Bankruptcy, 15th Ed. Revised 6:727.01
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Objection to plan
confirmation sustained due to debtors’ failure to provide for
mortgage interest. Bankr. E.D. Mo. PROCEDURAL
POSTURE: Debtors filed a joint chapter 13 petition and creditor
filed a secured proof of claim related to debtors’ mortgage.
Debtors submitted a proposed chapter 13 plan and creditor objected to
the plan’s confirmation. OVERVIEW: Creditor
asserted that debtors’ proposed plan failed to provide sufficient
property to be distributed under the plan to cure the default as
required under 11 U.S.C. § 1325(a)(5). Debtors responded that 11
U.S.C. § 1322(e) did not require them to provide for interest on an
arrearage. The prepetition arrearage consisted of missed payments that
had principal and interest components. The analysis of 11 U.S.C. §
1322(e) was a two-part process. First, the amount necessary to cure was
required to be in accordance with the parties’ agreement. Second,
the amount sought to be included could not be otherwise forbidden by
applicable, nonbankruptcy law. 11 U.S.C. § 1322(e) did not provide
for the inclusion of an item in an arrearage claim that would be
permitted under applicable nonbankruptcy law that was not included in
the underlying agreement. The court found concluded that
“underlying agreement” referred to in section 1322(e) did
not require language specific to the treatment of interest on an
arrearage in a bankruptcy case. In re Koster, 2003
Bankr. LEXIS 689, 294 B.R. 737 (Bankr. E.D. Mo. June 12, 2003) (Barta,
C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1322.18
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9th Cir.
Debtor’s divorce
attorney did not have a valid lien in the proceeds of prepetition sale
of community real property that had not been distributed at time of
filing. Bankr. N.D. Cal. PROCEDURAL
POSTURE: The debtor’s bankruptcy case was commenced by
the debtor in the midst of a marriage dissolution action. At the time
the petition was filed, her marital relationship had been severed, but
the community property had not yet been divided. Two parcels of
community real property were sold before the bankruptcy case was filed,
and the trustee was holding the proceeds. The debtor’s divorce
attorney claimed an attorney’s charging lien in the proceeds.
OVERVIEW: The trustee contended that the lien did not
attach to the proceeds or, if it did attach, that the lien was avoidable
under 11 U.S.C. § 544(a). An attorney’s charging lien was
enforceable in bankruptcy even if the judgment had not been rendered at
the time the bankruptcy petition was filed. The contract language was
clearly sufficient under California law to give the attorney a charging
lien in any judgment or settlement in the dissolution action. However,
the lien could only be deemed to attach to the real property if, under
California law, an attorney’s charging lien necessarily attached
to the subject matter of the underlying litigation. The California
Supreme Court had held that it did not. The attorney was entitled to
summary judgment declaring that she had a valid charging lien on any
judgment or settlement in the dissolution action and that such lien was
not avoidable under 11 U.S.C. § 544(a). However, she was not
entitled to a ruling that she had a non-avoidable lien on the sale
proceeds. Broach v. Michell (In re Bouzas), 2003
Bankr. LEXIS 911, 294 B.R. 318 (Bankr. N.D. Cal. June 18, 2003)
(Tchaikowsky, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:544.05 [back to top]
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10th Cir.
Bankruptcy court abused discretion in denying relief from stay for purposes of allowing completion of administrative action for final accounting. B.A.P. 10th Cir. PROCEDURAL POSTURE: Appellant Oklahoma State Department of Health (“OSDH”) appealed the Order of the Bankruptcy Court for the Western District of Oklahoma denying OSDH’s motion for relief from automatic stay as to appellee, a former officer of the chapter 7 debtor, to allow it to continue an administrative action (final accounting) against the officer in state court. OVERVIEW: The bankruptcy court’s denial of the stay motion was a final order over which the appellate court found that it had jurisdiction. The issue before the court was whether the bankruptcy court abused its discretion in enjoining proceedings against the officer. The stay in 11 U.S.C. § 362(a) was not able to be invoked by nondebtors who were related to the debtor in some way. Therefore, the automatic stay did not apply to actions by OSDH against the officer, a nondebtor, and any injunction thereunder resulting from the bankruptcy court’s denial of the stay motion was in error. The officer did not meet his burden of proving that he was entitled to an 11 U.S.C. § 105(a) injunction. Indeed, it did not appear that he presented any evidence needed to make such findings. The bankruptcy court expressed its concern that the administrative proceeding would impact administration of the estate. This concern was not able to override the general rule that the automatic stay did not protect nondebtors, and that a section 105(a) injunction was not able to be issued based on a record such as the one in this case. Oklahoma State Dep’t of Health v. Medical Mgmt. Group, Inc. (In re Medical Mgmt. Group, Inc.), 2003 Bankr. LEXIS 678, — B.R. — (B.A.P. 10th Cir. June 27, 2003) (Starzynski, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.03 [back to top]
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Adversary proceeding challenging
contract that was the basis for creditor’s proof of claim was a
core proceeding. Bankr. N.D. Okla. PROCEDURAL
POSTURE: In a chapter 7 bankruptcy adversary proceeding,
defendant creditor moved: (1) for a determination that the proceeding at
issue, which was a contract dispute affecting the creditor’s right
to collect the debt asserted in its proof of claim, was a non-core
proceeding; (2) for a jury trial; and (3) to withdraw the district
court’s reference of the case to the bankruptcy court.
OVERVIEW: The creditor argued that reference of the
adversary proceeding should have been withdrawn for “cause”
under 28 U.S.C. § 157(d), because: (1) the contract claim being
pursued by the trustee failed to constitute a core proceeding as that
term was defined by section 157, and (2) the creditor was entitled to a
jury trial of the matters raised in the complaint under the Seventh
Amendment. The court found that in the present case, the complaint
operated as a counterclaim to the proof of claim filed by the creditor.
The same contract which was the basis of the creditor’s claim was
also the basis for the complaint; therefore, under Fed. R. Civ. P. 13,
the complaint constituted a compulsory counterclaim. Under the rationale
of Katchen, as under the plain meaning of 11 U.S.C. § 157(b)(2)(C),
the complaint was a core proceeding. Filing of a proof of claim waived
such entitlements as a creditor’s Seventh Amendment right to a
jury trial, and the right to have private claims heard by an Article III
court as established in Katchen. If the creditor was concerned about
defending counterclaims in bankruptcy court, it should have foregone
filing its proof of claim. Malloy v. Zeeco, Inc. (In re
Applied Thermal Sys., Inc.), 2003 Bankr. LEXIS 694, 294 B.R.
784 (Bankr. N.D. Okla. June 30, 2003) (Michael, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 1:3.02[3][d][i]
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11th Cir.
Separately billed paralegal time allowed as administrative expense of counsel to committee only to extent functions performed were professional and not clerical. Bankr. S.D. Fla. PROCEDURAL POSTURE: Debtor filed a chapter 11 petition and a committee of unsecured creditors was appointed. Law firm was appointed counsel to the committee and filed a fee application, pursuant to 11 U.S.C. § 330, but was denied in part. Firm moved for reconsideration. OVERVIEW: Law firm sought a revised final allowance for additional fees for its separately billed paralegal time. 11 U.S.C. § 330(a)(1)(A) allowed the court to award to a professional person reasonable compensation for actual, necessary services. 11 U.S.C. § 330(a)(2) permitted the court, on its own motion, to award compensation that was less than the amount of compensation that was requested. Upon its initial review of the fee application, the court took the position that the paralegal or paraprofessional time was not compensable. Upon reconsideration, the court analyzed each entry of separately-billed paraprofessional time to determine whether a given entry reflected services rendered that merely required the performance of a clerical function, or rather, whether the entry reflected the exercise of a degree of professional judgment that warranted compensation at the paraprofessional’s hourly rate. Any request that was purely clerical or secretarial in nature, or vague as to the precise degree of professional judgment required, was denied. The court awarded compensation only for those entries clearly reflecting the need for independent professional judgment. In re Joseph Charles & Assocs., Inc., 2003 Bankr. LEXIS 700, 295 B.R. 399 (Bankr. S.D. Fla. June 20, 2003) (Friedman, B.J.) .
Collier on Bankruptcy, 15th Ed. Revised 3:330.01, .04 [back to top]
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Debt owed to state by store owner
who failed to remit lottery proceeds was nondischargeable as fiduciary
defalcation. Bankr. M.D. Ga. PROCEDURAL
POSTURE: Plaintiff Georgia Lottery Corporation instituted an
action against defendant debtor, who had filed for chapter 7 protection,
alleging that the debtor’s failure to remit lottery proceeds was a
defalcation while acting in a fiduciary capacity pursuant to §
523(a)(4) of the Bankruptcy Code, 11 U.S.C. § 523(a)(4). The
Corporation sought summary judgment. OVERVIEW: The
debtor operated a retail store and entered into a contract with the
Corporation under which the debtor agreed to sell lottery tickets at the
store. The debtor was to deposit, on a daily basis, the sales proceeds
from the tickets into a separate account. The debtor later closed his
business and sought chapter 7 relief. The Corporation alleged
defalcation as an exception to discharge. The parties disagreed as to
whether the failure to remit lottery proceeds was a defalcation while
acting in a fiduciary capacity under section 523(a)(4). The court held
that the failure to remit lottery proceeds satisfied the defalcation
while acting in a fiduciary capacity requirements of the statute. In so
holding, the court relied on the terms of the parties’ contract
and O.C.G.A. § 50-27-21 of the Georgia Lottery for Education Act in
determining that lottery retailers and their officers had a fiduciary
duty to preserve and account for lottery proceeds. As to the amount of
damages, however, there were questions of material fact as to the
amount, if any, of lottery proceeds that the debtor failed to remit to
the Corporation and summary judgment on that issue was therefore
precluded. Georgia Lottery Corp. v. Thompson (In re
Thompson), 2003 Bankr. LEXIS 890, 295 B.R. 563 (Bankr. M.D. Ga.
August 1, 2003) (Hershner, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.10
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