Collier Bankruptcy Case Update February-10-03
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.
February 10, 2003
CASES IN THIS ISSUE
(scroll down to read the full summary)
§ 522 Debtor’s claim of homestead exemption
in property owned with ex-spouse as tenants in common denied based on Massachusetts
statute.
In re Cassesse (Bankr. D. Mass.)
2d Cir.
§ 507(b) Trustees of indenture trust did not
act imprudently with regard to bankruptcy of trust obligor, regardless of whether
superpriority claim was available.
LNC Investments, Inc. v. Nat’l Westminster Bank (2d Cir.)
§ 541(b) Absent fiduciary relationship between
creditor and debtor, there were no grounds for establishment of a constructive
trust that would be excluded from the estate.
PlasmaNet, Inc. v. Phase2Media Inc. (In re Phase2 Media Inc.) (Bankr.
S.D.N.Y.)
§ 727 Discharge denied due to debtor’s omissions
from schedules and inconsistent sworn testimony.
Katz v. Kurtaj (In re Kurtaj) (Bankr. D. Conn.)
Rule 9019(a) Approval denied of settlement agreement
filed by interested shareholder of debtor which lacked consideration and released
parties not named in the underlying adversary proceeding.
In re Matco Elecs. Group, Inc. (Bankr. N.D.N.Y.)
3rd Cir.
§ 303(a) Corporation incorporated as church
but subsequently operating a day care center was still a non-profit corporation
which could not be an involuntary debtor.
Strassburger, McKenna, Gutnick & Potter v. Quinn (In re Grace Christian
Ministries, Inc.) (Bankr. W.D. Pa.)
§ 362 Professional corporation’s exercise
of control over receivables collected by debtor services company, though a violation
of stay, did not warrant punitive damages.
In re U.S. Physicians (E.D. Pa.)
5th Cir.§ 523(a) Debtor’s failure to notify student loan servicer of relocations established a lack of good faith preventing an undue hardship discharge of the loans.
Hollins v. Department of Ed. (In re Hollins) (Bankr. N.D. Tex.)
6th Cir.
§ 365 Debtor’s homestead exemption denied
due to executory contract for sale of the property in which the exemption was
claimed.
In re Carson (Bankr. E.D. Tenn.)
§ 522 Trustee’s objection to debtor’s
claimed IRA exemptions overruled due to trustee’s failure to present plan
to court for analysis.
In re Fixel (Bankr. N.D. Ohio)
§ 523(a)(6) Prepetition judgment against debtor
farmer for infringement of seed technology patent was dischargeable absent evidence
of malice.
Monsanto Co. v. Trantham (In re Trantham) (Bankr. W.D. Tenn.)
7th Cir.
§ 108(b) Debtor could not redeem delinquent
taxes after expiration of redemption period.
Smith v. Phoenix Bond & Indem. (N.D. Ill.)
§ 362 Bankruptcy court properly denied relief
from stay to plaintiffs with ADA claim against debtor where prejudice to debtor
in litigating outweighed that to plaintiffs if stayed.
In re Kmart Corp. (N.D. Ill.)
§ 365 Insurance contracts were not executory
and creditor’s prepetition obligations thereunder were unaffected by debtor’s
failure to assume.
Beloit Liquidating Trust v. United Ins. Co. (N.D. Ill.)
8th Cir.
§ 522 Debtor could not claim exemption in property
in which it had voluntarily granted a security interest.
In re Buelow (Bankr. N.D. Iowa)
§ 551 Unperfected lien avoided by trustee preserved
for the benefit of the estate.
In re Buelow (Bankr. N.D. Iowa)
9th Cir.
§ 1322(b)(2) Holder of wholly unsecured second lien on debtor’s property was not a secured creditor as defined by the code and not entitled to antimodification protection.
Zimmer v. PSB Lending Corp. (In re Zimmer) (9th Cir.)
10th Cir.
§ 523(a)(6) Creditor’s nondischargeability complaint dismissed for failure to establish debtor’s knowledge of alleged embezzlement.
Bryant v. Lynch (In re Tilley) (Bankr. D. Colo.)
11th Cir.
§ 503(b) Creditor entitled to payment of administrative expense claim based on oral agreement where parties’ actions demonstrated a meeting of the minds.
In re Atlanta Retail, Inc. (Bankr. N.D. Ga.)
§ 522(a)(2) Stock, which debtor claimed as exempt, properly valued according to fair market value as of filing date, despite possibility of postpetition fluctuation.
Tidwell v. Leskosky (In re Leskosky) (Bankr. M.D. Ga.)
Collier Bankruptcy Case Summaries
1st Cir.
Debtor’s claim of homestead exemption
in property owned with ex-spouse as tenants in common denied based on Massachusetts
statute. Bankr. D. Mass. PROCEDURAL POSTURE:
A debtor filed a chapter 7 petition under the Bankruptcy Code and claimed
a homestead exemption in jointly owned property. The chapter 7 trustee objected
to the exemption. OVERVIEW: Despite their divorce, the court
found that the debtor and the debtor’s former spouse continued to live
on the property in issue, along with their two minor children. The debtor
failed to file a homestead declaration on the property. After their divorce
the form of ownership of the property, which was a tenancy by the entirety,
was transformed by operation of law into a tenancy in common. Both the debtor
and the former spouse each held a separate interest in the property. The debtor
unsuccessfully claimed that she was entitled to base her homestead exemption
on her ex-husband’s homestead, which the court rejected. The court found
that the debtor and the former spouse did not fit within the definition of
family for the purpose of Mass. Gen. Laws ch. 188, section 1. A co-tenant
who was not already protected by being in the same family of a declarant could
file a separate declaration of homestead on the property for the benefit of
her separate family, but a co-tenant who was already covered by an existing
homestead exemption filed by a family member, however, could not file a separate
homestead exemption. In re Cassesse, 2002 Bankr.
LEXIS 1435, 286 B.R. 472 (Bankr. D. Mass. December 13, 2002) (Rosenthal, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:522.01 [back
to top]
2d Cir.
Trustees of indenture trust did not act imprudently with regard to bankruptcy of trust obligor, regardless of whether superpriority claim was available. 2d Cir. PROCEDURAL POSTURE: Plaintiff bondholders sought review of a decision of the District Court for the Southern District of New York, which entered a judgment in favor of defendant trustees after the jury returned a special verdict that found that the trustees did not breach their obligation to act prudently under the terms of an indenture trust and under the terms of the Trust Indenture Act ("TIA"), 15 U.S.C. § 77ooo. OVERVIEW: The bondholders filed an action alleging that the trustees had failed in their obligations to exercise prudence on behalf of the bondholders, in violation of the TIA and the terms of the indenture trust. The situation arose when the company that was obligated under the indenture trust filed for bankruptcy and the trustees allegedly did not seek adequate protection and were thus not allegedly able to assert a superpriority claim under 11 U.S.C. § 507(b). On remand for a second trial, the district court fashioned instructions that did not address the allegedly unsettled state of the availability of a superpriority lien under section 507(b) at the time at issue. The jury returned a special verdict finding that the trustees did not act imprudently and judgment was entered in their favor. Affirming, the court held that the issue concerning whether a section 507(b) superpriority lien was available was not relevant because the district court properly instructed the jury on the level of prudence that was required of the trustees and the jury returned a verdict that the trustees acted with the appropriate level of prudence. LNC Investments, Inc. v. Nat’l Westminster Bank, 2002 U.S. App. LEXIS 21689, 308 F.3d 169 (2d Cir. October 17, 2002) (Sotomayor, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:507.12 [back to top]
ABI Members, click here to get the full opinion.
Absent fiduciary relationship between
creditor and debtor, there were no grounds for establishment of a constructive
trust that would be excluded from the estate. Bankr. S.D.N.Y.
PROCEDURAL POSTURE: Plaintiff sought to impose a constructive
trust over funds collected by debtor for advertising posted on plaintiff’s
website. It relied on a contract clause prohibiting debtor from commingling
plaintiff’s funds with its own and declaring that debtor was not the beneficial
owner of the advertising payments beyond its thirty percent fee. Plaintiff moved
for partial summary judgment declaring that debtor had no beneficial interest
in such funds. OVERVIEW: Debtor was an Internet advertising
sales and marketing company that sold advertising inventory on the websites
of branded web publishers, including plaintiff. Plaintiff hired debtor to solicit
and sell advertising on its websites. Debtor was responsible for invoicing,
collecting and accounting for all amounts owed for the advertisements. Plaintiff
claimed that debtor failed to set up a lockbox account, despite contract requirements,
and wrongfully commingled funds that belonged to plaintiff. The bankruptcy court,
however, rejected plaintiff’s constructive trust claim because plaintiff
failed to show a fiduciary relationship and unjust enrichment. The relationship
between the parties was more appropriately characterized as one of debtor and
creditor as the transactions between the parties were essentially arms-length
commercial transactions. The bankruptcy court concluded that debtor’s
breach of the contractual requirement to segregate 70 percent of the funds received
from certain advertisers was insufficient, in equity or good conscience, to
cause the bankruptcy court to prefer plaintiff over all other creditors who
were also unpaid. PlasmaNet, Inc. v. Phase2Media Inc. (In re Phase2
Media Inc.), 2002 Bankr. LEXIS 1457, — B.R. — (Bankr. S.D.N.Y.
December 20, 2002) (Gropper, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:541.01 [back
to top]
ABI Members, click here to get the full opinion.
Discharge denied due to debtor’s
omissions from schedules and inconsistent sworn testimony. Bankr.
D. Conn. PROCEDURAL POSTURE: The debtor filed a chapter
7 bankruptcy petition. The trustee and a creditor commenced adversary proceedings
to deny the debtor a discharge under 11 U.S.C. § 727. OVERVIEW:
The debtor’s schedules omitted any reference to her checking accounts,
which were later disclosed. Moreover, the debtor’s schedules failed to
disclose a prepetition transfer to her son. Subsequently, the debtor offered
inconsistent sworn testimony to explain that transfer. To deny the debtor’s
discharge under 11 U.S.C. § 727(a)(4), a plaintiff had to prove that the
debtor made a statement under oath, which the debtor knew to be false, with
the intent to defraud creditors or the trustee, and which related materially
to the bankruptcy case. Statements under oath included statements in documents,
such as the bankruptcy schedules and statement of financial affairs. Thus the
court found that the evidence established the debtor’s reckless indifference
for the truth of the papers she filed with her petition. Under 11 U.S.C. §
727(a)(3), a debtor was obligated to keep and fully disclose his or her financial
affairs. The debtor’s explanation for her failure to keep financial records
was that it was her routine practice to destroy them. The court found that if
that justification were sufficient to avoid the consequence of a denial of discharge,
the exception would have become the rule. Katz v. Kurtaj (In re
Kurtaj), 2002 Bankr. LEXIS 1106, 284 B.R. 528 (Bankr. D. Conn.
September 30, 2002) (Shiff, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 6:727.01 [back
to top]
ABI Members, click here to get the full opinion.
Approval denied of settlement agreement
filed by interested shareholder of debtor which lacked consideration and released
parties not named in the underlying adversary proceeding. Bankr.
N.D.N.Y. PROCEDURAL POSTURE: Several debtors’ creditors
filed involuntary chapter 11 petitions under the Bankruptcy Code. The court
signed an order that granted a motion for joint administration of the cases.
The debtors moved to seek approval of a settlement agreement pursuant to Fed.
R. Bankr. P. 9019(a). A creditor filed a limited objection and the unsecured
creditors’ committee objected. OVERVIEW: The debtors
claimed that the settlement agreement would lead to payment to the estate. The
committee asserted that the settlement agreement was really only an admission
of debt already incurred. The court had several problems with the debtors’
proposed settlement agreement. The court found that the agreement was not being
proposed by a disinterested trustee in the cases, but by an interested shareholder.
The agreement provided for the release of the same individuals who signed it
without any explanation for their release or consideration being tendered on
their part. The agreement also provided for the release of the claims asserted
against certain parties that were not identified as party defendants in the
adversary proceeding the debtors previously commenced, but were named in the
adversary proceeding the committee commenced. The court was not convinced by
the debtors’ arguments in support of the settlement agreement. In
re Matco Elecs. Group, Inc., 2002 Bankr. LEXIS 1451, 287 B.R. 68 (Bankr.
N.D.N.Y. November 27, 2002) (Gerling, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 10:9019.01 [back
to top]
ABI Members, click here to get the full opinion.
3rd Cir.
Corporation
incorporated as church but subsequently operating a day care center was still
a non-profit corporation which could not be an involuntary debtor. Bankr.
W.D. Pa. PROCEDURAL POSTURE: An involuntary chapter 11
petition was brought against alleged debtor corporation. The trustee appointed
by a state court to manage certain of the affairs of the corporation brought
a motion on its behalf to dismiss the involuntary chapter 11 petition brought
against it. He asserted that the petition must be dismissed because the requirements
for bringing an involuntary petition found at 11 U.S.C. §§ 303(a)
and (b) were not satisfied. OVERVIEW: The corporation was a
church that had been incorporated in 1905 as a non-profit entity. It amended
its articles of incorporation in 1995. The creditors argued that the corporation
no longer functioned as a church but solely as a day care center that was run
as a for-profit business. The court concluded that the corporation for purposes
of 11 U.S.C. § 303(a) was a not-for-profit corporation and therefore could
not be an involuntary debtor in bankruptcy. The 1995 amendments changed only
its name, not its non-profit status. Furthermore the fact that it charged for
day care services did not make it a moneyed, business, or commercial corporation,
that would depend on what it did with any surplus revenue. Strassburger,
McKenna, Gutnick & Potter v. Quinn (In re Grace Christian Ministries, Inc.),
2002 Bankr. LEXIS 1437, — B.R. — (Bankr. W.D.
Pa. December 13, 2002) (Markovitz, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:303.02 [back
to top]
ABI Members, click here to get the full opinion.
Professional corporation’s exercise
of control over receivables collected by debtor services company, though a violation
of stay, did not warrant punitive damages. E.D. Pa. PROCEDURAL
POSTURE: Appellant, trustee for entities affiliated with debtor doctors,
claimed that the bankruptcy court erred in finding that the trust did not violate
the automatic stay provision, in not awarding punitive damages for a willful
violation of that provision and in awarding $60,000 rather than $167,602.50
in compensatory damages for conversion. OVERVIEW: The doctors,
who were in a professional corporation, entered into an asset purchase agreement
with another company by which they sold to the company all of the assets of
their professional corporation. The doctors simultaneously entered into five-year
employment agreements with a medical services company. The agreement provided
that the medical services would arrange for billing and collecting receivables
generated by the doctors. The medical services company’s was unable to
undertake an initial public offering and it filed for bankruptcy. Determining
whether the doctors exercised control over estate property, the bankruptcy court
concluded that the prohibition did not reach the passive act of possessing the
property. The bankruptcy court found that the doctors converted the funds and
awarded the costs incurred in collecting those funds as compensatory damages,
but concluded that the doctors’ conduct was not so egregious as to justify
the imposition of punitive damages. However, the doctors’ control over
the receivables was not passive. Under any standard, they violated the automatic
stay by expending funds properly belonging to the bankruptcy estate. In
re U.S. Physicians, 2002 U.S. Dist. LEXIS 24438, — B.R. —
(E.D. Pa. December 20, 2002) (Waldman, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.01 [back
to top]
ABI Members, click here to get the full opinion.
5th Cir
Debtor’s
failure to notify student loan servicer of relocations established a lack of
good faith preventing an undue hardship discharge of the loans. Bankr.
N.D. Tex. PROCEDURAL POSTURE: Plaintiff
debtor filed a chapter 7 petition under the Bankruptcy Code. The debtor commenced
an adversary action against defendant United States Department of Education
(government) and sought to discharge debt under 11 U.S.C. § 523(a)(8).
OVERVIEW: The debtor claimed that repayment
of the student loans would impose an undue hardship on the debtor and her dependants.
The court found that the debtor established the first prong of the Brunner test
in a hardship analysis where the debtor could not maintain a minimal standard
of living for herself and her husband if she was forced to repay her student
loan debt. The court found that the government had not obtained a judgment against
the debtor regarding the debt due. The court examined three possible alternative
payment plans. The court found that the debtor failed to notify her student
loan servicers of her relocations, which established a lack of good faith. The
debtor failed to satisfy the third prong of the Brunner test for undue hardship.
The government was entitled to a judgment excluding the student loans from a
discharge under 11 U.S.C. § 523(a)(8). Hollins v. Department
of Ed. (In re Hollins), 2002 Bankr. LEXIS 1436, 286 B.R. 310
(Bankr. N.D. Tex. November 22, 2002) (Felsenthal, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.01 [back
to top]
ABI Members, click here to get the full opinion.
Debtor’s homestead
exemption denied due to executory contract for sale of the property in which
the exemption was claimed. Bankr. E.D. Tenn. PROCEDURAL
POSTURE: The debtor filed a chapter 11 petition under the Bankruptcy
Code and claimed an exemption. A creditor filed two contested matters related
to: (1) an objection of the debtor’s claimed exemption; and (2) a motion
to compel the assumption or rejection of a contract. OVERVIEW:
Both of the creditor’s contested matters related to a contract for deed
for the purchase of real property between the parties. The creditor’s
objection to the claimed exemptions asserted that she was the property owner
pursuant to the terms of the contract for deed and the debtor was not entitled
to a homestead exemption in the property. The debtor conceded the issue and
the court disallowed the debtor’s exemption. The creditor’s motion
requested that the court determine that the contract for deed was an executory
contract and require the debtor to either assume or reject the contract for
deed within a specified time. The court agreed with the creditor and found that
the contract for deed was executed in Tennessee and it was subject to the laws
of the State of Tennessee. The contract for deed was an executory contract and
both parties remained obligated to the other to complete performance, the failure
of which would result in a material breach. In re Carson, 2002
Bankr. LEXIS 1453, 286 B.R. 645 (Bankr. E.D. Tenn. December 2, 2002) (Stair,
B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:365.01 [back
to top]
ABI Members, click here to get the full opinion.
Trustee’s objection to debtor’s
claimed IRA exemptions overruled due to trustee’s failure to present plan
to court for analysis. Bankr. N.D. Ohio PROCEDURAL
POSTURE: The debtors filed a chapter 7 petition under the Bankruptcy
Code and claimed their individual retirement accounts as exempt under Ohio Rev.
Code Ann. § 2329.66(a)(10)(C). The trustee objected to the debtors’
exemptions. OVERVIEW: The chapter 7 trustee objected to the
debtors’ exemption and asserted as precedent a decision of the Sixth Circuit
which held that the Employee Retirement Income Security Act of 1974 ("ERISA"),
29 U.S.C. § 1001 et seq., excepted individual retirement accounts ("IRA")
from exemption. The trustee also argued that the IRAs were not exempt from garnishment.
The court found that the trustee failed to present a copy of the subject benefit
plan. The court found that at a minimum, the plan must be examined to determine
how it fit the applicable Ohio exemption entitlement, ERISA’s statutory
scheme, and other evaluative factors such as whether: (1) the plan’s triggering
events occurred that gave the debtor access; (2) the estate’s access to
the funds was derivative of the debtor’s rights to the funds; (3) the
plan was excepted from the debtor’s estate by ERISA; (4) there was a challenged
state law provision subject to federal preemption; (5) the IRAs related to an
employee or employer benefit plan; (6) the plan was presented for the court’s
examination; and (7) the plan was excluded from ERISA’s anti-alienation
clause by an express ERISA provision. In re Fixel, 2002
Bankr. LEXIS 1448, 286 B.R. 638 (Bankr. N.D. Ohio November 27, 2002) (Baxter,
B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:522.01
[back to top]
ABI Members, click here to get the full opinion.
Prepetition judgment against debtor farmer
for infringement of seed technology patent was dischargeable absent evidence
of malice. Bankr. W.D. Tenn. PROCEDURAL POSTURE:
Plaintiff creditor sought a judicial determination that the particular debts
owed to it in the aggregate amount of $592,677 arising out of a prepetition
patent infringement judgment against defendant chapter 7 debtor, were nondischargeable
under 11 U.S.C. § 523(a)(6). The creditor moved for summary judgment. OVERVIEW:
In the infringement action, a jury found that the debtor, a farmer, willfully
infringed patented seed technology, The instant issue was whether the creditor’s
prepetition judgment should be excepted from the debtor’s chapter 7 general
discharge. The creditor had the burden to show which part of the prepetition
district court record was based on a willful and malicious injury, and also
bore the ultimate burden of proof to demonstrate by a preponderance of the evidence
that all elements of 11 U.S.C. § 523(a)(6) were sufficiently met. The court
found that the willfulness issue was adjudicated in the prepetition patent infringement
litigation, but the issue of the malicious element required further consideration.
It was required to apply a strict analysis of a debtor’s subjective intent
on a case-by-case basis. It concluded that the malice element of section 523(a)(6)
required a subjective intent to cause the harm, and that evidence of the debtor’s
willful patent infringement in violation of the creditor’s rights with
knowledge of those rights under the facts was insufficient to concomitantly
establish a "malicious" injury of the kind contemplated by the section
523(a)(6) exception. Monsanto Co. v. Trantham (In re Trantham),
2002 Bankr. LEXIS 1446, 286 B.R. 650 (Bankr. W.D. Tenn. December 18, 2002) (Kennedy,
C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.12[2]
[back to top]
ABI Members, click here to get the full opinion.
7th Cir.
Debtor could not redeem delinquent taxes after
expiration of redemption period. N.D. Ill. PROCEDURAL
POSTURE: Appellant mortgagee sought judicial review of a bankruptcy
court order granting appellee bond company’s motion for relief from the
automatic stay imposed by 11 U.S.C. § 362(a) and denying the debtors and
the mortgagee’s opposing motions. The bond company moved to dismiss the
appeal based on lack of standing. OVERVIEW: The bond company
bought the delinquent property taxes on the debtor’s home. Without knowing
that the debtor had declared bankruptcy, the bond company filed a petition for
a tax deed and notice was served on the debtor and the mortgagee. The latter
asserted that 11 U.S.C. § 1322(c)(1), (b)(2) allowed for modification of
debtor’s plan to cure the tax default regardless of the expiration of
the redemption period. The court rejected that contention. The debtor and the
mortgagee had notice on September 12, 2000, of the January 5, 2001, redemption
cut-off. The debtor had nearly four months from notice to request modification
of his plan to include the delinquent tax claim, and five months from the filing
of his bankruptcy petition. Debtor’s failure to timely redeem the delinquent
taxes cannot be cured under section 1322(c)(1), (b)(2) after the time period
allowed under 11 U.S.C. § 108(b) ended. Smith v. Phoenix Bond
& Indem., 2002 U.S. Dist. LEXIS 24330, — B.R. —
(N.D. Ill. December 17, 2002) (Moran, Sr. D.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:108.03 [back
to top]
ABI Members, click here to get the full opinion.
Bankruptcy court properly denied relief
from stay to plaintiffs with ADA claim against debtor where prejudice to debtor
in litigating outweighed that to plaintiffs if stayed. N.D. Ill.
PROCEDURAL POSTURE: Before defendant debtor, a retail chain,
filed for bankruptcy, plaintiffs sued the debtor for violations of Title II
of the Americans with Disabilities Act ("ADA"), 42 U.S.C. §§
12181-12189. The bankruptcy filing stayed the action pursuant to 11 U.S.C. §
362. Plaintiffs moved for relief from the stay. The bankruptcy judge denied
the motion. Plaintiffs appealed. OVERVIEW: The bankruptcy judge
weighed each of the Fernstrom factors in finding that the prejudice to the debtor
in having to litigate the ADA case at that time was not outweighed by the hardship
to plaintiffs resulting from maintaining the automatic stay. The district court
found that the bankruptcy judge had not abused her discretion in denying the
motion. Lifting the say would have resulted in financial risks, enormous expenditures,
the cost of litigation, and the time that it would have taken for executives
and employees of the debtor to deal with a lawsuit. Also, while plaintiffs,
and others similarly situated, faced some hardship if the litigation remained
stayed, the bankruptcy judge had not abused her discretion in determining that
such hardship did not considerably outweigh the hardships to the debtor if the
ADA litigation proceeded at that time. Plaintiffs failed to show that they had
a sufficient probability of prevailing on the merits so as to overcome the other
factors considered in maintaining the automatic stay. And contrary to plaintiffs’
assertion, in denying the motion the judge had not granted the debtor a license
to violate the ADA. In re Kmart Corp., 2002 U.S. Dist.
LEXIS 24141, — B.R. — (N.D. Ill. December 10, 2002) (Holderman,
D.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.01
[back to top]
ABI Members, click here to get the full opinion.
Insurance contracts were not executory
and creditor’s prepetition obligations thereunder were unaffected by debtor’s
failure to assume. N.D. Ill. PROCEDURAL POSTURE:
Plaintiff brought suit against defendant, alleging breach of a duty to defend,
seeking a declaration defendant was estopped to deny coverage, and a declaration
that defendant was required to indemnify plaintiff. Defendant moved for summary
judgment, and for leave to file a reply brief in excess of 15 pages. OVERVIEW:
Defendant argued it was entitled to summary judgment because plaintiff’s
failure to assume the insurance contracts resulted in the rejection of those
contracts under 11 U.S.C. § 365 and that the rejection extinguished defendant’s
obligation to perform under the contracts. Defendant’s argument failed
because the insurance contracts were not executory contracts subject to assumption
or rejection in the bankruptcy proceeding. In the Bankruptcy Clauses, defendant
agreed that plaintiff’s bankruptcy would not relieve defendant of its
obligations under the policies. Implicit was the understanding that failure
to pay retrospective premiums due to the plaintiff’s bankruptcy would
not excuse defendant from paying claims arising from occurrences during the
prepetition policy coverage period, and that defendant’s right to collect
the retrospective premiums would be governed by the Bankruptcy Code’s
provisions dealing with prepetition claims. Since the payment of retrospective
premiums was the only obligation remaining on plaintiff and since the failure
to pay these premiums would not excuse defendant’s performance, the contract
was not executory. Beloit Liquidating Trust v. United Ins. Co.,
2002 U.S. Dist. LEXIS 24540, — B.R. — (N.D. Ill. December 20, 2002)
(Reinard, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:365.01
[back to top]
ABI Members, click here to get the full opinion.
8th Cir.
Debtor could not claim exemption in property
in which it had voluntarily granted a security interest. Bankr.
N.D. Iowa PROCEDURAL POSTURE: The debtor filed a chapter
7 petition under the Bankruptcy Code, and claimed a vehicle as exempt and failed
to schedule the secured creditor. No objections were filed and the case was
closed. The trustee moved to reopen the case and then commenced an action against
the creditor to avoid an unperfected lien. A consent decree was entered, and
the trustee objected to the debtor’s claimed exemption and moved for a
turnover. OVERVIEW: The court found that the debtor’s
failure to schedule the secured creditor in her initial schedules was a good
faith mistake. The debtor argued that the vehicle was exempt since the bankruptcy
was completed and no objections were filed regarding the exemption. The court
disagreed with the debtor’s position and found that the debtor granted
the creditor a security interest in the vehicle through a note and security
agreement. The trustee’s objection to the vehicle exemption argued that
the debtor’s claim in the vehicle was void and of no effect pursuant to
11 U.S.C. § 551. The evidence indicated that the debtor granted the creditor
a lien and the creditor failed to perfect its lien. The trustee properly avoided
the creditor’s unperfected lien under 11 U.S.C. § 544. The lien was
preserved for the benefit of the estate pursuant to 11 U.S.C. § 551. The
debtor’s prepetition rights remained the same postpetition as she had
voluntarily granted the lien, even though the creditor failed to perfect it.
The trustee had the rights of a creditor with a later-perfected lien. In
re Buelow, 2002 Bankr. LEXIS 1447, — B.R. — (Bankr. N.D.
Iowa December 19, 2002) (Kilburg, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:522.01 [back
to top]
ABI Members, click here to get the full opinion.
Unperfected lien avoided by trustee
preserved for the benefit of the estate. Bankr. N.D. Iowa PROCEDURAL
POSTURE: The debtor filed a chapter 7 petition under the Bankruptcy
Code, and claimed a vehicle as exempt and failed to schedule the secured creditor.
No objections were filed and the case was closed. The trustee moved to reopen
the case and then commenced an action against the creditor to avoid an unperfected
lien. A consent decree was entered, and the trustee objected to the debtor’s
claimed exemption and moved for a turnover. OVERVIEW: The court
found that the debtor’s failure to schedule the secured creditor in her
initial schedules was a good faith mistake. The debtor argued that the vehicle
was exempt since the bankruptcy was completed and no objections were filed regarding
the exemption. The court disagreed with the debtor’s position and found
that the debtor granted the creditor a security interest in the vehicle through
a note and security agreement. The trustee’s objection to the vehicle
exemption argued that the debtor’s claim in the vehicle was void and of
no effect pursuant to 11 U.S.C. § 551. The evidence indicated that the
debtor granted the creditor a lien and the creditor failed to perfect its lien.
The trustee properly avoided the creditor’s unperfected lien under 11
U.S.C. § 544. The lien was preserved for the benefit of the estate pursuant
to 11 U.S.C. § 551. The debtor’s prepetition rights remained the
same postpetition as she had voluntarily granted the lien, even though the creditor
failed to perfect it. The trustee had the rights of a creditor with a later-perfected
lien. In re Buelow, 2002 Bankr. LEXIS 1447, — B.R.
— (Bankr. N.D. Iowa December 19, 2002) (Kilburg, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:551.01 [back
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9th Cir.
Holder of wholly unsecured second
lien on debtor’s property was not a secured creditor as defined by the
code and not entitled to antimodification protection. 9th Cir.
PROCEDURAL POSTURE: Appellant, a chapter 13 bankruptcy petitioner,
filed suit against appellee lending corporation to avoid a lien against her
home. The District Court for the Southern District of California ruled in favor
of the lender and the petitioner appealed. OVERVIEW: The lender
held a second position deed of trust on the petitioner’s primary residence,
which was entirely unsecured because the value of the first deed of trust exceeded
the value of the home. The district court dismissed the petitioner’s complaint
for failure to state a claim, finding that 11 U.S.C. § 1322(b)(2) prohibited
avoidance of any lien on the debtor’s primary residence, even where the
lien was wholly unsecured. However, the appellate court held that the district
court erred in holding that a wholly unsecured lien on a primary residence may
not be avoided in a chapter 13 proceeding. The plain language of 11 U.S.C. §
1322(b)(2) provided that antimodification protection was only available to holders
of secured claims. The lender was not the holder of a secured claim under the
definitions provided in the Bankruptcy Code, and therefore its rights could
be modified under section 1322(b)(2). In this case, the lender may well have
been the holder of a claim secured only by a security interest in real property
that was the debtor’s home. Nonetheless, because the lender was still
not a holder of a secured claim, it could not qualify for antimodification protection.
Zimmer v. PSB Lending Corp. (In re Zimmer), 2002 U.S. App.
LEXIS 26581, 313 F.3d 1220 (9th Cir. December 24, 2002) (Schwarzer, Sr. C.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1322.06 [back
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Creditor’s nondischargeability
complaint dismissed for failure to establish debtor’s knowledge
of alleged embezzlement. Bankr. D. Colo. PROCEDURAL POSTURE:
Defendant debtor filed a chapter 7 petition under the Bankruptcy Code.
Plaintiff creditor filed an adversary action against the debtor and sought
a determination that a debt owed was nondischargeable under 11 U.S.C.
§ 523. The creditor moved to amend her complaint and the debtor moved
for summary judgment. OVERVIEW: The bankruptcy court
found that the debtor denied that he had any knowledge of the embezzlement,
let alone any intent to injure the creditor. The court observed the debtor’s
demeanor at trial and could make a determination whether the debtor was
credible, however, the possibility that the debtor would not be believed
was an insufficient basis for denying a summary judgment motion. To survive
the motion, the creditor was required to demonstrate enough evidence to
create a triable issue of fact as to the debtor’s knowledge and
intent, whether by circumstantial evidence or otherwise. The court found
that where the creditor’s amended complaint could not withstand
the debtor’s supplemental motion for summary judgment, there was
no purpose in allowing the creditor time to amend her complaint. 11 U.S.C.
§ 523 did not apply to the debt. Bryant v. Lynch (In
re Tilley), 2002 Bankr. LEXIS 1434, 286 B.R. 782 (Bankr.
D. Colo. November 25, 2002) (Brown, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.12[2] [back
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11th Cir.
Creditor entitled to payment of administrative expense claim based on oral agreement where parties’ actions demonstrated a meeting of the minds. Bankr. N.D. Ga. PROCEDURAL POSTURE: Creditor moved for an allowance and payment of an administrative expense claim, pursuant to 11 U.S.C. § 503(b). Debtors objected to the motion. OVERVIEW: Debtors asserted that an oral contract did not exist between the parties because there was not a meeting of the minds as to certain essential elements. Debtors specifically argued that a buyback provision the parties entered into made the agreement a non-ordinary course contract that had to be approved by the court. The court held, however, that the parties’ actions with respect to the essential elements of the oral agreement, evinced a meeting of the minds. Subsequent to debtors’ bankruptcy filings, the parties entered into a valid and enforceable contract, which was entered into in the ordinary course of business, and provided a concrete and direct benefit to debtors’ estate. Accordingly, creditor was entitled to an administrative expense priority claim. In re Atlanta Retail, Inc., 2002 Bankr. LEXIS 1442, — B.R. — (Bankr. N.D. Ga. December 17, 2002) (Mullins, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:503.05 [back to top]
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Stock, which debtor claimed
as exempt, properly valued according to fair market value as of filing
date, despite possibility of postpetition fluctuation. Bankr.
M.D. Ga. PROCEDURAL POSTURE: The debtor filed a
chapter 7 petition under the Bankruptcy Code and claimed shares of stock
as exempt under state law. The trustee objected to the debtor’s
claimed exemption. OVERVIEW: The debtor was a shareholder
in several corporations and each corporation filed a chapter 11 petition
for relief under the Bankruptcy Code. The court noted that the debtor’s
interest in the corporations from his stock could be wiped out in the
corporations’ chapter 11 plans of reorganization. The trustee conceded
that the debtor’s stock was probably worthless, but was concerned
that the stock’s value could increase if the corporations were successful
in their reorganizations. The trustee’s objection claimed that:
(1) the exemption should be limited to the amount the debtor claimed;
and (2) the trustee was entitled to any postpetition appreciation in value
of the stock. The court was not persuaded by the trustee’s passive
approach to the corporations’ chapter 11 cases. The court found
that the trustee failed to present evidence concerning the value of the
debtor’s stock and the court made a conclusion regarding the stock’s
value. Tidwell v. Leskosky (In re Leskosky), 2002
Bankr. LEXIS 1444, 287 B.R. 295 (Bankr. M.D. Ga. December 17, 2002) (Hershner,
C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:522.03 [back
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