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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.

January 27, 2003

CASES IN THIS ISSUE
(scroll down to read the full summary)

 

1st Cir.

§ 506(b) Interest, reasonable fees and costs pursuant to debtor’s agreement with creditor may be added to a secured claim to the extent the security exceeds the claim.
In re Center (Bankr. D.N.H.)

§ 522(f) Order avoiding judgment liens voided on creditor’s post discharge motion due to failure of service.
Maloni v. Fairway Wholesale Corp. (In re Maloni) (B.A.P. 1st Cir.)

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2d Cir.

§ 547(b) Trustee’s preferential transfer claim did not put creditor on notice that the same transfer might be claimed to be fraudulent.
Coan v. Meryl Diamond, Ltd. (In re Gantos, Inc.) (Bankr. D. Conn.)

§ 1322(c)(1) Debtor allowed to cure mortgage default through chapter 13 plan despite loss of equity of redemption.
In re Pellegrino (Bankr. D. Conn.)

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3rd Cir.

§ 523(a)(4) Debt owed by contractor to subcontractor was nondischargeable due to fiduciary duty created by state construction trust fund statute.
Richard F. Kline, Inc. v. McCormick (In re McCormick) (Bankr. W.D. Pa.)

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5th Cir.

§ 105 Order for assumption of lease, of which financing lender had notice, did not require property lessor to give lender further notice of default by debtor lessee.
In re Woody Enters., Inc. (Bankr. E.D. Tex.)

§ 330 Appointment of special counsel to trustee approved as of date of filing proper application.
In re Rivera (Bankr. E.D. Tex.)

§ 502(b) Employees’ claims for postpetition attorneys’ fees and adjusted severance and bonus pay denied as amounts were fixed on the filing date.
Pride Cos., LP v. Johnson (In re Pride Cos., LP) (Bankr. N.D. Tex.)

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6th Cir.

§ 109 A business trust is an eligible debtor under the bankruptcy code.
Brady-Morris v. Schilling (In re Knight Trust) (6th Cir.)

§ 362(a) Employees’ discrimination claim against nondebtor managers with potential indemnification claim against debtor barred as an attempt to avoid stay.
Republic Techs. Int’l, LLC v. Maley (In re Republic Techs. Int’l, LLC) (Bankr. N.D. Ohio)

§ 524(a)(2) Debtor’s ex-wife and attorney violated discharge injunction by pursuing modification of divorce judgment as to joint debt for which debtor’s obligation was discharged.
In re Tostige (Bankr. E.D. Mich.)

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7th Cir.

§ 328(a) There is no flat prohibition of indemnification clauses in retention agreements between the estate and professional advisors.
Bodenstein v. KPMG Corp. Fin. LLC (In re Dec Int’l, Inc.) (W.D. Wis.)

§ 362(d)(1) Relief from stay granted to city tax creditor in debtor’s tenth bankruptcy filing in nineteen years which was filed in bad faith.
In re Foster (Bankr. E.D. Wis.)

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8th Cir.

§ 328(a) Financial advisor firm’s letter of engagement containing exculpation and indemnity clauses was unreasonable given potential cost to estate.
Unsecured Creditors’ Comm. v. Pelofsky (In re Thermadyne Holdings Corp.) (B.A.P. 8th Cir.)

§ 362 Bankruptcy court properly denied relief from stay to creditor who sought to pursue claim in state court with same subject matter as existing adversary proceeding.
Wintroub v. Wintroub (In re Wintroub) (B.A.P. 8th Cir.)

§ 1103 Bankruptcy court properly denied approval of financial advisor due to unreasonable exculpation and indemnity clauses in engagement letter.
Unsecured Creditors’ Comm. v. Pelofsky (In re Thermadyne Holdings Corp.) (B.A.P. 8th Cir.)

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9th Cir.

§ 105(a) Creditors allowed to file complaint against debtors post-discharge where the bankruptcy court mailed notices with conflicting bar dates.
In re Sutton (Bankr. D. Nev.)

§ 1322(b) Local rule requiring debtors to cure certain mortgage defaults within fifteen days of filing impermissibly conflicted with liberal cure provisions of bankruptcy code.
Steinacher v. Rojas (In re Steinacher) (B.A.P. 9th Cir.)

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11th Cir.

§ 523(a)(8) Bankruptcy court erred in discharging student loans where debtor had not met burden of showing future inability to repay.
Educational Credit Mgmt. Corp. v. Carter (M.D. Ga.)

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Collier Bankruptcy Case Summaries

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2d Cir.

Trustee’s preferential transfer claim did not put creditor on notice that the same transfer might be claimed to be fraudulent. Bankr. D. Conn. PROCEDURAL POSTURE: The trustee sought to recover a preferential transfer under 11 U.S.C. § 547(b) from a creditor. In an amended complaint, the trustee asserted a second claim, alleging that the same transaction was a fraudulent transfer under 11 U.S.C. § 548(a)(1)(B). The creditor moved to dismiss the second claim, arguing it was time barred by the statute of limitations under 11 U.S.C. § 546(a)(1) and did not relate back under Fed. R. Civ. P. 15(c)(2). OVERVIEW: Noting that the pertinent inquiry under Fed. R. Civ. P. 15(c)(2), Fed. R. Bankr. P. 7015, was whether the original complaint gave the defendant fair notice of the newly alleged claims, the court found that the original complaint did not give such sufficient notice. Even if the result was the same, that is, the avoidance of a transfer, the amendment could not relate back if different facts were essential to reach that conclusion. While both the original and amended pleadings identified the same parties, date, and amount of the transfer, there was no allegation in the original complaint that claimed that the creditor received a preferential transfer under 11 U.S.C. § 547(b) that would put the creditor on notice of the amended claim that the creditor received a fraudulent transfer that was for less than reasonably equivalent value. The statutory basis and available defenses were different. The second claim, under 11 U.S.C. § 548(a)(1)(B), filed more than two years after the entry of the order for relief, did not relate back and was time barred under 11 U.S.C. § 546(a)(1). Coan v. Meryl Diamond, Ltd. (In re Gantos, Inc.), 2002 Bankr. LEXIS 1104, 283 B.R. 649 (Bankr. D. Conn. October 1, 2002) (Shiff, C.B.J.).

Collier on Bankruptcy, 15th Ed. Revised 5:547.03 [back to top]

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Debtor allowed to cure mortgage default through chapter 13 plan despite loss of equity of redemption. Bankr. D. Conn. PROCEDURAL POSTURE: In bankruptcy proceedings, creditor mortgage company objected to debtor’s chapter 13 plan. OVERVIEW: Debtor’s plan proposed to cure a payment default under a mortgage held by the company on his residence. Prior to debtor’s filing of bankruptcy, the company had obtained a foreclosure judgment against debtor in state court. The company objected to the proposed cure of the mortgage default, claiming that debtor’s equity of redemption expired during the pendency of the bankruptcy case, and that debtor no longer held an ownership interest in the residence. The court held that a chapter 13 debtor may argue in good faith that, despite an apparent loss of his equity of redemption through the interplay of state law and 11 U.S.C. § 108(b), he may have revived that interest by confirming a chapter 13 plan which utilized 11 U.S.C. § 1322(c)(1) to cure the mortgage default. Indeed, the substance of section 1322(c)(1) extended to chapter 13 debtors an ample, uniform federal window for curing a mortgage default, even if that time extended beyond the period provided by state law and 11 U.S.C. § 108(b). Finally, since the company had not acquired unified, or absolute title, 11 U.S.C. § 1322(c)(1) afforded debtor an indefinite period of time to the plan which cured the mortgage default. In re Pellegrino, 2002 Bankr. LEXIS 1097, 284 B.R. 326 (Bankr. D. Conn. August 19, 2002) (Dabrowski, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 8:1322.15 [back to top]

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3rd Cir.

Debt owed by contractor to subcontractor was nondischargeable due to fiduciary duty created by state construction trust fund statute. Bankr. W.D. Pa. PROCEDURAL POSTURE: The debtor filed for chapter 7 bankruptcy. The creditor filed a complaint to determine the nondischargeability of a debt and an objection to discharge under 11 U.S.C. § 523, citing the Maryland Construction Trust Fund Statute ("Trust Fund Statute"), Md. Code Ann., Real Prop. § 9-201 et seq. The debtor moved to dismiss the complaint on the grounds that it failed to state a claim upon which relief could have been granted and that it was untimely. OVERVIEW: The creditor filed his complaint by facsimile the first working day after the deadline, which fell on a weekend. The court found that the filing was timely, since it was actually delivered to the clerk on that day. The creditor claimed that the debtor was the principal officer, managing agent, or director of a company that used the creditor as a subcontractor on construction projects. The creditor alleged that the debtor, as a principal of that company, was required to hold monies received for the creditor’s work in trust under the Trust Fund Statute for the purpose of paying the creditor and that the debtor knowingly and intentionally retained the funds or diverted them for other construction projects. The creditor alleged that the money it was owed was a nondischargeable obligation under 11 U.S.C. § 523(a)(4). The court found that the Trust Fund Statute was sufficient to create a fiduciary duty under section 523(a)(4). By alleging that the debtor breached his fiduciary duty by failing to maintain in trust payments due to the creditor and/or diverting such funds to other construction projects, the creditor had alleged a viable claim for defalcation under section 523(a)(4). Richard F. Kline, Inc. v. McCormick (In re McCormick), 2002 Bankr. LEXIS 1059, — B.R. — (Bankr. W.D. Pa. September 20, 2002) (Bentz, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:523.10 [back to top]

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5th Cir

Order for assumption of lease, of which financing lender had notice, did not require property lessor to give lender further notice of default by debtor lessee. Bankr. E.D. Tex. PROCEDURAL POSTURE: Debtor filed a voluntary petition for chapter 11 bankruptcy relief and promptly followed it with a motion to assume a lease agreement. At a hearing on the motion, debtor and the lessor presented to the court an agreed order, which the court signed. Pursuant to a motion of the United States trustee, the case was dismissed. However, the case was not closed. Movant, a guarantor, sought clarification of the agreed order under 11 U.S.C. § 105. OVERVIEW: Before filing for bankruptcy, debtor leased property for a marina. The lender loaned debtor money for a marina on the leased property. As security for the loan, the lessor agreed to provide to the lender, at least 30 days before any termination of the lease, notice of and an opportunity to cure any default by debtor. The lender was not made a party to the assumption agreement presented to the bankruptcy court, but counsel for the lender was included in the service of notice of the motion hearing and was afforded an opportunity to object. The agreed order stated, in part, that in the event of a breach, the lessor "shall have the right to provide" debtor, the lender, and the United States trustee with written notice of the breach and, 10 days thereafter, to cure such breach. The lender sought clarification of the order pursuant to 11 U.S.C. § 105. Contrary to the lender’s argument, the agreed order gave the lessor the right, but did not impose a duty, to give the lender notice of a default. The order did not nullify the notice the lessor gave to the lender before entry of the agreed order and did not restart the clock requiring the lessor to provide the lender with renewed notice of debtor’s default. In re Woody Enters., Inc., 2002 Bankr. LEXIS 976, — B.R. — (Bankr. E.D. Tex. September 6, 2002) (Sharp, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 2:105.01 [back to top]

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Appointment of special counsel to trustee approved as of date of filing proper application. Bankr. E.D. Tex. PROCEDURAL POSTURE: Debtor’s personal injury counsel filed an application for employment as special counsel for trustee nunc pro tunc. Counsel had represented the debtor in a personal injury action that was listed as an asset of the debtor’s estate. OVERVIEW: Some eight months after the debtor sought bankruptcy relief, the attorney filed his first application for employment as the debtor’s personal injury counsel. The first application was dismissed because it did not contain a certificate of service. Thereafter, counsel filed a second application, with proper service, which was originally approved and subsequently denied and the matter stayed upon a motion for reconsideration from the trustee. Counsel then filed the current nunc pro tunc application. The court denied the request for nunc pro tunc relief, but otherwise approved counsel’s employment from the date of the filing of the nunc pro tunc motion. The court determined that equity did not warrant nunc pro tunc relief when counsel was dilatory in seeking appointment as counsel in a timely manner. The court rejected counsel’s contingency fee contract and held that counsel was free to file a fee application detailing service rendered after the date certain. The court would not consider the requested referral fee to a second lawyer unless that lawyer filed an application for employment and fee application. In re Rivera, 2002 Bankr. LEXIS 975, — B.R. — (Bankr. E.D. Tex. August 21, 2002) (Sharp, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:330.01 [back to top]

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Employees’ claims for postpetition attorneys’ fees and adjusted severance and bonus pay denied as amounts were fixed on the filing date. Bankr. N.D. Tex. PROCEDURAL POSTURE: Five creditors, former employees, moved for reconsideration, under Fed. R. Bankr. P. 3008, 9023, of the court’s resolution of the debtor’s objection to their claims for bonuses and severance payments. The employees sought reconsideration of the denial of any attorneys’ fees under Tex. Civ. Prac. & Rem. Code Ann. § 37.001 (Vernon 2002), the denial of severance payments for two employees, and the court’s rationale as to the amounts of the bonuses. OVERVIEW: The motion was filed within 10 days of the order, thus, Fed. R. Bankr. P. 9023 and Fed. R. Civ. P. 59 applied. The Texas statute provided no substantive right recognizable in federal court. The proofs of claim were sufficient presentment under Tex. Civ. Prac. & Rem. Code Ann. § 38.002 (Vernon 2002), but the attorneys’ fees were incurred postpetition and had not accrued when the claims were filed. Under 11 U.S.C. § 502(b), the amount of a claim was determined as of the bankruptcy filing date. Postpetition fees could not be included. Agreeing with the majority, the court held the postpetition fees were not allowed. While one employee’s proof of claim asked for severance pay, and while the other may have orally amended his claim in court to include severance, the issue was first presented in the reconsideration motion. The three other employees signed waivers and releases as a condition to receiving severance. One of the two employees had left voluntarily and signed no release; the other received the severance he contracted for. The employment contracts did not entitle each to the same severance. The motion as to amounts of the bonuses merely rehashed the original arguments. Pride Cos., LP v. Johnson (In re Pride Cos., LP), 2002 Bankr. LEXIS 1090, 285 B.R. 366 (Bankr. N.D. Tex. September 27, 2002) (Jones, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:502.03 [back to top]

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A business trust is an eligible debtor under the bankruptcy code. 6th Cir. PROCEDURAL POSTURE: Plaintiff daughters sought review of a decision of the district court, which affirmed a decision of the bankruptcy court declaring that the debtor trust was a business trust that was entitled to bankruptcy protection pursuant to 11 U.S.C. § 101(9)(A)(v). OVERVIEW: The daughters were beneficiaries of the debtor trust and challenged its categorization as a business trust for purposes of filing for bankruptcy protection under 11 U.S.C. § 101(9)(A)(v). The daughters contended that the trust, which owned a house and a holding company that owned four subsidiary corporations, was a family trust that was not eligible for bankruptcy protection. The case was originally heard and eventually appealed to the court, which remanded it to the bankruptcy court for further factual findings, and was appealed again to the court after the bankruptcy court determined, and the district court affirmed, that the trust was a business trust. Affirming, the court held that the bankruptcy court applied the proper standard when it evaluated the primary purpose of the trust, without regard to whether the trust maintained transferable certificates of ownership. The bankruptcy court also properly determined that the primary purpose of the trust was to transact business for the benefit of its creator. The court rejected the daughters’ argument that state law controlled, finding the determination to be procedural rather than substantive, so that federal law applied. Brady-Morris v. Schilling (In re Knight Trust), 2002 U.S. App. LEXIS 18759, 303 F.3d 671 (6th Cir. September 13, 2002) (Batchelder, C.J.).

Collier on Bankruptcy, 15th Ed. Revised 2:109.01 [back to top]

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Employees’ discrimination claim against nondebtor managers with potential indemnification claim against debtor barred as an attempt to avoid stay. Bankr. N.D. Ohio PROCEDURAL POSTURE: The debtor filed a declaratory judgment complaint, asserting the automatic stay of 11 U.S.C. § 362(a)(1) stayed a pending state court action brought by two creditors, a former employee and his wife, against two nondebtor former managers of the debtor, alleging age discrimination under Ohio Rev. Code Ann. ch. 4112. The debtor argued the managers could be entitled to indemnification by the debtor and the action was an "end run" around the stay. OVERVIEW: The original state court action was also filed against the debtor, and stated that the debtor had filed chapter 11. The filing of the complaint was a willful violation of the stay. The managers were no longer employed by the debtor, thus, interfering with their contribution to the reorganization process was not a factor. The employee testified that he did not know who decided to terminate him or why he was terminated. No replacement was hired. Under Ohio Rev. Code Ann. ch. 4112, some discriminatory conduct had to be undertaken by the supervisor. An indirect discrimination case against supervisors was not allowed. There was no evidence of discriminatory conduct by the manager or by the debtor. The managers held an indemnification claim under Ohio Rev. Code Ann. § 1701.13(E). The creditors had sought an "end run" around the stay. Under 11 U.S.C. § 105 it was appropriate to extend the stay. Many employees had lost their jobs. The creditors had little chance of succeeding in the action. The timing and efficacy of downsizing by debtors could be diluted if managers had to fear the prospect of being a sole defendant in an indirect discrimination case. Republic Techs. Int’l, LLC v. Maley (In re Republic Techs. Int’l, LLC), 2002 Bankr. LEXIS 1095, 283 B.R. 483 (Bankr. N.D. Ohio September 20, 2002) (Shea-Stonum, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:362.03 [back to top]

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Debtor’s ex-wife and attorney violated discharge injunction by pursuing modification of divorce judgment as to joint debt for which debtor’s obligation was discharged. Bankr. E.D. Mich. PROCEDURAL POSTURE: Debtor moved for sanctions against respondents, his ex-wife and her attorney, for allegedly violating the discharge injunction. The ex-wife and attorney filed an objection. The court conducted a hearing and took the matter under advisement. OVERVIEW: In debtor’s chapter 7 bankruptcy, a property settlement he owed to his ex-wife was discharged, as was a debt he owed to a bank for a boat. The ex-wife was jointly liable for the boat debt and, thus, she had to make payments on the debt after the debtor ceased doing so. The ex-wife then filed a motion in state court to set aside the property settlement provisions in the final judgment in the parties’ divorce proceedings. Debtor then initiated the instant proceeding, arguing that the ex-wife and her attorney violated the discharge injunction, 11 U.S.C. § 524(a)(2), by seeking to modify the divorce judgment. The ex-wife argued that she had not violated the discharge injunction because she was seeking reimbursement for payments she made after debtor’s bankruptcy petition was filed. The court disagreed. Debtor’s debt to the bank was discharged by his bankruptcy proceeding. He therefore was no longer obligated to make those payments. The fact that the ex-wife remained liable as a codebtor did not entitle her to seek reimbursement from debtor for payments she had made postpetition. In re Tostige, 2002 Bankr. LEXIS 1100, 283 B.R. 462 (Bankr. E.D. Mich. October 1, 2002) (Rhodes, C.B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:524.02[2] [back to top]

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7th Cir.

There is no flat prohibition of indemnification clauses in retention agreements between the estate and professional advisors. W.D. Wis. PROCEDURAL POSTURE: Appellant, the United States trustee, sought review of an order entered by the bankruptcy court, allowing the debtor to retain defendant finance company as its investment adviser to assist in the disposition of certain assets of the debtor and its subsidiaries. OVERVIEW: The trustee did not object to the retention of the finance company in and of itself, but objected to the fact that the retention agreement included a provision requiring the debtor to reimburse the finance company for any damages for which it might become liable arising out of its role as the debtor’s investment adviser. The trustee’s appeal was limited to the contention that indemnification provisions for professional advisers could never constitute reasonable terms and conditions of employment under 11 U.S.C. § 328(a). The court concluded that the trustee failed to show the necessity for a flat prohibition on indemnification provisions for professional advisers. Although such provisions had to be scrutinized with care, the court could not say that indemnification provisions were unreasonable in all situations. They might be either reasonable or unreasonable under 11 U.S.C. § 328, depending on the circumstances of the particular retention agreement, the specific terms of the agreement, the complexity of the work involved, and the nature of the particular bankruptcy proceeding. Therefore, the court refused to reverse the bankruptcy court’s ruling. Bodenstein v. KPMG Corp. Fin. LLC (In re Dec Int’l, Inc.), 2002 U.S. Dist. LEXIS 17064, 282 B.R. 423 (W.D. Wis. August 5, 2002) (Crabb, D.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:328.02 [back to top]

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Relief from stay granted to city tax creditor in debtor’s tenth bankruptcy filing in nineteen years which was filed in bad faith. Bankr. E.D. Wis. PROCEDURAL POSTURE: In the debtor’s 10th bankruptcy case, the debtor filed a motion under Fed. R. Civ. P. 60(b) for a new evidentiary hearing to reconsider the court’s order granting relief from the automatic stay under 11 U.S.C. § 362(d)(1) to a tax creditor, a city, in connection with property. The debtor claimed that material misrepresentations were made at the evidentiary hearing by a city assessor and an assistant city attorney. OVERVIEW: The debtor claimed that the city attorney’s statements that the debtor’s repeated bankruptcy filings frustrated the city’s efforts to obtain the property for many years were false. But, the city had, in at least one previous case, moved for relief from the stay. Any false statements, if made, were immaterial, had no bearing on the court’s order, and did not justify relief under Fed. R. Civ. P. 60(b). What was compelling was the debtor’s past pattern of repeated bankruptcies, broken promises to make payments on past due real estate taxes, and the increasing arrearage of the taxes. In the debtor’s first bankruptcy case in 1983, the taxes owed were $10,211. That sum had escalated to more than $115,000. The court had found that the case was filed in bad faith and that there was cause for relief from the stay under 11 U.S.C. § 362(d)(1). It was a fact situation of abuse due to the debtor’s appalling record of ten bankruptcy case filings over a 19-year period and the history of increasing unpaid taxes. To deny the city relief on its motion under the circumstances would be an abuse of the bankruptcy system. The court was not persuaded that any misrepresentations were made. In re Foster, 2002 Bankr. LEXIS 1094, 283 B.R. 917 (Bankr. E.D. Wis. September 4, 2002) (Shapiro, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:362.07[3] [back to top]

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8th Cir.

Financial advisor firm’s letter of engagement containing exculpation and indemnity clauses was unreasonable given potential cost to estate. B.A.P. 8th Cir. PROCEDURAL POSTURE: A creditors’ committee and a financial advisor firm appealed an order of the bankruptcy court that denied approval of the indemnification and exculpation provisions in the firm’s letter of engagement under 11 U.S.C. § 1103(a), and appealed the denial of reconsideration under Fed. R. Civ. P. 60(b)(6). The United States trustee argued the provisions were unreasonable under 11 U.S.C. § 328(a). OVERVIEW: The bankruptcy court had not applied a per se rule that the provisions were unreasonable; it had considered market conditions, current economic conditions, and the potential economic costs to the estate under section 328(a). Under 11 U.S.C. § 1103(a), the bankruptcy court found that having the estate bear the risk of exculpation was unreasonable, and the impact and financial risk to the estate were not finite and certain. It correctly considered prevailing employment terms outside the bankruptcy context, one of many factors in the analysis. It correctly found that if economic conditions would spur dissatisfied parties to litigation, there was even greater cause to protect the estate from that risk. It was prudent that that risk be borne by the firm. Assuming higher fees would be charged without the indemnity provisions, such a result would have a finite and certain impact on the value of the estate, which was better than the potentially unlimited impact to be faced if the provisions were approved. The committee sought to hire the firm for its own use yet require the debtor to indemnify the firm. No exceptional circumstances justified relief under Fed. R. Civ. P. 60(b). Unsecured Creditors’ Comm. v. Pelofsky (In re Thermadyne Holdings Corp.), 2002 Bankr. LEXIS 1085, 283 B.R. 749 (B.A.P. 8th Cir. October 3, 2002) (Kressel, C.B.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:328.02 [back to top]

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Bankruptcy court properly denied relief from stay to creditor who sought to pursue claim in state court with same subject matter as existing adversary proceeding. B.A.P. 8th Cir. PROCEDURAL POSTURE: A creditor, a former client of the chapter 11 debtor attorney, appealed an order of the bankruptcy court that denied the creditor’s request for relief from the automatic stay of 11 U.S.C. § 362 to pursue a claim for reimbursement against the Client’s Security Trust Fund of the Bar of Iowa under Iowa Client Sec. & Atty. Disc. Comm. R. 39.9(3) (2002). OVERVIEW: The bankruptcy court had concluded that, because the dischargeability of the indebtedness was the subject of the creditor’s separate adversary action under 11 U.S.C. § 523(a)(4), it was improvident to let the creditor proceed in a foreign forum. The bankruptcy court concluded that the burden to the debtor and the chapter 11 estate if the creditor was allowed to proceed in another forum, when the same claims would nevertheless be tried before the bankruptcy court regardless of the outcome of the state proceeding, outweighed the harm to the creditor caused by a denial of the motion. The appellate panel found the bankruptcy court properly weighed the relevant factors and concluded that the distraction of defending the client trust fund proceeding would adversely impact the debtor’s chapter 11 efforts to reorganize. There was no abuse of discretion. The panel had been informed that the case had been converted to a chapter 7. If conversion had occurred, the panel saw no reason why a new motion for relief under 11 U.S.C. § 362 would not be granted, since the distraction from the debtor’s efforts to reorganize was no longer relevant. The creditor was invited to file a new motion. Wintroub v. Wintroub (In re Wintroub), 2002 Bankr. LEXIS 1088, 283 B.R. 743 (B.A.P. 8th Cir. October 4, 2002) (Schermer, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:362.01 [back to top]

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Bankruptcy court properly denied approval of financial advisor due to unreasonable exculpation and indemnity clauses in engagement letter. B.A.P. 8th Cir. PROCEDURAL POSTURE: A creditors’ committee and a financial advisor firm appealed an order of the bankruptcy court that denied approval of the indemnification and exculpation provisions in the firm’s letter of engagement under 11 U.S.C. § 1103(a), and appealed the denial of reconsideration under Fed. R. Civ. P. 60(b)(6). The United States trustee argued the provisions were unreasonable under 11 U.S.C. § 328(a). OVERVIEW: The bankruptcy court had not applied a per se rule that the provisions were unreasonable; it had considered market conditions, current economic conditions, and the potential economic costs to the estate under section 328(a). Under 11 U.S.C. § 1103(a), the bankruptcy court found that having the estate bear the risk of exculpation was unreasonable, and the impact and financial risk to the estate were not finite and certain. It correctly considered prevailing employment terms outside the bankruptcy context, one of many factors in the analysis. It correctly found that if economic conditions would spur dissatisfied parties to litigation, there was even greater cause to protect the estate from that risk. It was prudent that that risk be borne by the firm. Assuming higher fees would be charged without the indemnity provisions, such a result would have a finite and certain impact on the value of the estate, which was better than the potentially unlimited impact to be faced if the provisions were approved. The committee sought to hire the firm for its own use yet require the debtor to indemnify the firm. No exceptional circumstances justified relief under Fed. R. Civ. P. 60(b). Unsecured Creditors’ Comm. v. Pelofsky (In re Thermadyne Holdings Corp.), 2002 Bankr. LEXIS 1085, 283 B.R. 749 (B.A.P. 8th Cir. October 3, 2002) (Kressel, C.B.J.).

Collier on Bankruptcy, 15th Ed. Revised 7:1103.01 [back to top]

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9th Cir.

Creditors allowed to file complaint against debtors post-discharge where the bankruptcy court mailed notices with conflicting bar dates. Bankr. D. Nev. PROCEDURAL POSTURE: Two creditors attempted to file a complaint against the debtors under 11 U.S.C. §§ 523(a)(6) and 727(a)(2), but were told the case had been closed and a discharge had entered. The creditors moved for leave to file the complaint under Fed. R. Bankr. P. 9006(b)(3), arguing a second notice with a shorter time limit to file such actions was not received. The creditors asked for the date to be extended to the time stated in the original notice. OVERVIEW: Noting that the time limits of Fed. R. Bankr. P. 4004(a), 4007(c), were strict, the court held there was an exception where a party had relied on a bankruptcy court’s incorrect notice of a deadline. If a court had made a mistake upon which a party relied to its detriment, the court could use its equitable power under 11 U.S.C. § 105(a) to correct its mistake. The creditors had received a bar date in the original notice upon which they were justified in relying. After receiving the original notice from the clerk’s office through a mailing service, the creditors had attempted a timely filing of their complaint within that deadline. The debtors argued that 30 days’ advance knowledge of an impending bar date was necessary before a complaint would be dismissed as untimely, and that the creditors had more than the 30 days deemed sufficient under one case. But that case did not hold or suggest that a 30-day notice could cure conflicting bar date notices. The court, sua sponte, ordered that the case be reopened to decide the issue and for the filing of the complaint. In re Sutton, 2002 Bankr. LEXIS 1084, 283 B.R. 592 (Bankr. D. Nev. August 22, 2002) (Riegle, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 2:105.05 [back to top]

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Local rule requiring debtors to cure certain mortgage defaults within fifteen days of filing impermissibly conflicted with liberal cure provisions of bankruptcy code. B.A.P. 9th Cir. PROCEDURAL POSTURE: The debtors appealed the dismissal of their chapter 13 case from the bankruptcy court for failure to comply with Local Bankruptcy Rule 3015-1(m)(2) by not tendering unpaid prepetition mortgage payments that had become due in the two months prior to their chapter 13. The debtors argued that the rule impermissibly conflicted with the cure provisions of 11 U.S.C. § 1322(b). OVERVIEW: 28 U.S.C. § 2075 meant that any conflict between the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure had to be settled in favor of the Code. Under Fed. R. Bankr. P. 9029, a local rule could not enlarge, abridge, or modify any substantive right. 11 U.S.C. § 1322(b)(3) stated that a chapter 13 plan could provide for the curing or waiving of any default. And, 11 U.S.C. § 1322(b)(5) provided that, notwithstanding 11 U.S.C. § 1322(b)(2), the debtors could propose to cure any default within a reasonable time. Local Bankruptcy Rule 3015-1(m)(2) of the United States Bankruptcy Court for the Central District of California limited the chapter 13 debtors’ rights to cure prepetition defaults through their plans within a reasonable time. It impermissibly forced all debtors who had cases pending in the six months prior to the petition date to cure specified prepetition defaults within 15 days of their chapter 13, rather than within the "reasonable time" provided by 11 U.S.C. § 1322. Under the rule, the debtors would lose the ability to extend payment of those arrearages through the plan. Consequently, Local Bankruptcy Rule 3015-1(m)(2) abridged substantive rights regarding cure provided to all debtors under 11 U.S.C. § 1322(b) and was invalid. Steinacher v. Rojas (In re Steinacher), 2002 Bankr. LEXIS 1049, 283 B.R. 768 (B.A.P. 9th Cir. September 13, 2002) (Montali, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 8:1322.01 [back to top]

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11th Cir.

Bankruptcy court erred in discharging student loans where debtor had not met burden of showing future inability to repay. M.D. Ga. PROCEDURAL POSTURE: Appellant creditor challenged a decision from the bankruptcy court that entered an order to discharge approximately $30,000 in student loans held by appellee debtor pursuant to 11 U.S.C. § 523(a)(8). OVERVIEW: The creditor contended that the bankruptcy court erred in discharging the debt because the debt did not imposed an "undue hardship" on the debtor and her dependents. The reviewing court noted that section 523(a)(8) stated that unless the debtor demonstrated the imposition of undue hardship, the debt was not dischargeable. In determining whether a nondischarge would impose an "undue hardship" upon the debtor, the Second Circuit set out a three-part test in Brunner. The debtor met the exception only if she showed: (1) she could not maintain a minimal standard of living for herself and her dependents if forced to repay the loans; (2) additional circumstances indicated that these conditions would persist; and (3) she had made good faith efforts to repay the loans. The court held that it could not grant a partial discharge for debts incurred from these types of loans. The court found no error in the bankruptcy court’s determination that the debtor met the first prong of the Brunner test. However, the court held that the debtor had not satisfied her burden of showing her future inability to repay her educational loans. Educational Credit Mgmt. Corp. v. Carter, 2002 U.S. Dist. LEXIS 18714, 279 B.R. 872 (M.D. Ga. May 16, 2002) (Fitzpatrick, D.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:523.14 [back to top]

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West's Bankruptcy Newsletter
A Weekly Update of Bankruptcy and Debtor/Creditor Matters

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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.

March 26, 2001

CASES IN THIS ISSUE
(scroll down to read the full summary)

• 1st Cir.

  § 362(a)(1) Continuation of sale did not warrant sanctions.
  In re Pond (Bankr. D. Mass.) 034013

  § 362(a)(7) Automatic stay prohibited setoff of postpetition debt.
  United States of America v. Fleet National Bank (In re Calorie Express Co.) (D. Mass.) 034014

  § 507(a)(8) Debtor’s inaccurate tax estimate that invalidated filing extension did not also cause tax debt to fall outside three year period.
  Kimball v. United States (In re Kimball) (Bankr. D. Mass.) 034027

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  3d Cir.

  § 105(a) Motion for preliminary injunction was denied.
  Sabratek Corp. v. LaSalle Bank, N.A. (In re Sabratek Corp.) (Bankr. D. Del.) 034001

  § 365(d)(10) Letter of credit proceeds fully satisfied postpetition rent claim, rendering moot an administrative expense claim.
  In re Hechinger Inv. Co. of Delaware (Bankr. D. Del.) 034018

  § 503(b)(1)(A) Additional consideration due under agreement for sale of business gave rise to prepetition claim and not administrative expense.
  In re APF Co. (Bankr. D. Del.) 034023

  § 510(a) Allegations in debtor’s complaint withstood contractual subordination count, but more definite statement was required. Montgomery Ward Holding Corp. v. Schoeberl (In re Montgomery Ward Holding Corp.) (Bankr. D. Del.) 034029

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  4th Cir.

  § 365(c) Purchaser under hog partnership agreement could not compel debtor to reject executory contract.
  In re Neuhoff Farms, Inc. (Bankr. E.D.N.C.) 034017

  § 365(d)(10) In converted case, equipment lessor was entitled to administrative claim for postpetition rent during postpetition preconversion period.
  In re Eastern Agri-Systems, Inc. (Bankr. E.D.N.C.) 034019

  § 523(a)(2)(A) Creditor met burden of establishing debtor’s fraud and violations of state consumer protection statute for nondischargeability purposes.
  Fowler v. Garey (In re Garey) (Bankr. E.D. Va.) 034035

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  5th Cir.

  § 330(a)(1) Court applied community rate in determining reasonable compensation to trustee’s special counsel.
  In re El Paso Refinery, L.P. (Bankr. W.D. Tex.) 034007

  § 365(a) Lease deemed rejected on chapter 11 filing date.
  In re O’Neil Theaters, Inc. (Bankr. E.D. La.) 034015

  Rule 7062 Creditor not entitled to stay as of right upon posting of bond during appeal of contested matter.
  In re West Delta Oil Co. (E.D. La.) 034073

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  6th Cir.

  § 109(g) Debtor was ineligible for chapter 13 relief.
  In re Pike (Bankr. S.D. Ohio) 034003

  § 506(a) Value of vehicle was determined for redemption.
  In re Ballard (Bankr. W.D. Tenn.) 034024

  § 523(a)(2)(A) Creditor failed to establish false pretenses or actual fraud.
  Alside Supply Center v. Kromar (In re Kromar) (Bankr. N.D. Ohio) 034036

  § 541(a)(1) Issue of whether inventory and receivables were estate property required further discovery, but debtor held at least some equitable interest that supported court’s entry of interim order.
  In re LTV Steel Co. (Bankr. N.D. Ohio) 034040

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  7th Cir.

  § 105(a) Court rejected creditor’s attempt to circumvent Rule 9011 safe harbor requirements by seeking relief under section 105. In re McNichols (Bankr. N.D. Ill.) 034002

  § 506(a) State liquor license was not subject to liens.
  VanKirk v. Boyer (In re Barnes) (N.D. Ind.) 034025

  § 547(b)(5) Trustee’s motion for summary judgment denied for failure to allege or establish that transfers allowed transferee to receive more than it would have in a chapter 7 distribution.
  Kapila v. Acme Portable Machines, Inc. (In re I.M. Import & Export, Inc.) (Bankr. N.D. Ill.) 034043

  § 1103(b) Neither attorney-client privilege nor imputed disqualification precluded employment of accounting firm.
  In re Doctors Hospital of Hyde Park, Inc. (N.D. Ill.) 034051

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  8th Cir.

  § 523(a)(5) Former wife failed to satisfy burden of proving that debtor/former husband’s obligations were in the nature of maintenance or support.
  Kennard v. Kennard (In re Kennard) (Bankr. W.D. Mo.) 034038

  § 727(a)(2) Chapter 7 trustee failed to meet burden in establishing debtor’s fraudulent intent.
  Jacoway v. Mathis (In re Mathis) (Bankr. W.D. Ark.) 034049

  § Rule 523(a)(15) Secured creditor whose future advances were not noted on certificate of title did not have a properly perfected lien.
  Lumley v. Lumley (In re Lumley) (Bankr. W.D. Mo.) 034060

  § Rule 544(a)(1) Secured creditor whose future advances were not noted on certificate of title did not have a properly perfected lien.
  In re Merrill (Bankr. W.D. Mo.) 034061

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  9th Cir.

  § 305(a) Bankruptcy court abstained from hearing debtor’s dispute with IRS and dismissed petition.
  In re Guenther (Bankr. D. Or.) 034004

  § 365(f)(1) Court of Appeals affirmed invalidation of change in ownership provision as unenforceable anti-assignment clause. Crow Winthrop Dev. Ltd. Partnership v. Jamboree LLC (In re Crow Winthrop Operating Partnership) (9th Cir.) 034020

  28 U.S.C. § 157(b) Proceeding on counterclaim was core proceeding in which court could enter judgment.
  Marshall v. Marshall (In re Marshall) (Bankr. C.D. Cal.) 034063

  Rule 2016(b) Attorney’s request for fees reduced by 20 percent for failure to comply with disclosure requirements.
  In re Combe Farms, Inc. (Bankr. D. Idaho) 034068

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  Collier Bankruptcy Case Summaries

1st Cir.

Continuation of sale did not warrant sanctions. Bankr. D. Mass. The chapter 11 debtor requested the imposition of sanctions against a creditor for violating the automatic stay by continuing a foreclosure sale without authority of the court. A foreclosure sale had been pending at the time the debtor filed its case and the creditor continued the sale three times postpetition. The creditor asserted that continuation of the sale was not a stay violation and even if it were, it was not a willful violation. The bankruptcy court denied the request for sanctions, holding that a single continuation of a foreclosure sale following the filing of a petition was not a violation of the automatic stay if, before the continued sales date, the creditor filed an appropriate motion for relief from stay. The court noted that there should not be an absolute rule allowing continuances of foreclosure sales in all circumstances, however. Given the obscurity of the rule, the court did not impose sanctions on the creditor.In re Pond, 2001 Bankr. LEXIS 173, – B.R. – (Bankr. D. Mass. January 18, 2001) (Hillman, C.B.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:362.03[3], .11

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Automatic stay prohibited setoff of postpetition debt. D. Mass. In 1995 the debtor, a shipping company, filed a chapter 11 petition. Thereafter the debtor obtained permission from the bankruptcy court to borrow funds from a lender in order to continue operation as a debtor in possession. The IRS filed a series of claims detailing the debtor’s liability for postpetition taxes. The debtor was owed money for an overpayment to the General Services Administration (GSA), but until June 1996 the IRS’s claims made no mention of setoff. At that time the IRS directed the GSA to freeze any payments to the debtor, indicating that the tax division would seek permission to effectuate an offset. The debtor filed a motion, arguing that the IRS’s actions violated the automatic stay. The bankruptcy court ordered that the frozen payments be released. At the court’s suggestion, the IRS then filed a motion for relief from the automatic stay, which was denied on the basis that the IRS had waived any right of setoff. This appeal followed. The IRS argued that the bankruptcy court lacked jurisdiction over postpetition setoff claims, since such claims were not subject to the stay, and that the court erred in determining that the IRS waived its setoff rights. The district court affirmed, holding that the section 362(a)(7) prohibition against setoffs of prepetition claims in extended to postpetition setoff claims by way of section 362(a)(3). The court reasoned that almost any attempt to enforce either a prepetition or postpetition claim could be considered an act to obtain control over estate property, and that the legislative history and existing case law all suggested that setoffs of postpetition debts were subject to the same limitations as setoffs of prepetition debts (citing Collier on Bankruptcy, 15th Ed.).United States of America v. Fleet National Bank (In re Calorie Express Co.), 2000 U.S. Dist. LEXIS 19950, – B.R. – (D. Mass. October 31, 2000) (Gertner, D.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:362.03[9]

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Debtor’s inaccurate tax estimate that invalidated filing extension did not also cause tax debt to fall outside three year period. Bankr. D. Mass. .Prior to filing his chapter 11 case, the debtor filed a request for an extension of the deadline to file his 1995 tax returns. On the extension form, the debtor indicated that no tax was due; however, the eventual tax due was approximately $42,000. After filing his chapter 11 petition, the debtor filed a complaint for declaratory relief seeking a determination that his 1995 income tax liability was dischargeable under section 523(a)(1)(A). Specifically, the debtor argued that because his inaccurate estimate rendered the extension invalid, the 1995 taxes fell outside of the section 507(a)(8)(A)(i) three year time period. The IRS moved to dismiss the debtor’s complaint on the grounds that the extension was valid. The bankruptcy court granted the IRS’s motion to dismiss, finding that the debtor could prove no set of facts in support of his dischargeability claim. The court held that it would be inequitable to allow a taxpayer to estimate a tax liability in order to obtain an extension and then claim that the estimate was wrong for the self-serving purpose of discharging a liability.Kimball v. United States (In re Kimball), 2001 Bankr. LEXIS 164, – B.R. – (Bankr. D. Mass. January 18, 2001) (Hillman, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:507.10

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3rd Cir.

Motion for preliminary injunction was denied. Bankr. D. Del. The chapter 11 affiliated debtors procured a letter of credit from the bank so that they could enter into an agreement with a third-party seller to purchase the latter’s subsidiary. After the debtors filed bankruptcy, the seller initiated a lawsuit against the bank in state (Illinois) court in which it sought payment under the letter of credit. The debtors moved for a preliminary injunction to enjoin the seller from continuing its action against the bank. The bankruptcy court denied the debtors’ motion for a preliminary injunction, holding that permitting the draw on the letter of credit would not have an adverse impact on the estate. The court noted that the suit involved non-debtors and no property of the estate. Even if the seller were successful, the claims against the estate would not be impacted because the bank would merely be substituted as a holder of the claim.Sabratek Corp. v. LaSalle Bank, N.A. (In re Sabratek Corp.), 2000 Bankr. LEXIS 1686, – B.R. – (Bankr. D. Del. November 16, 2000) (Walrath, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 2:105.02, .03

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Letter of credit proceeds fully satisfied postpetition rent claim, rendering moot an administrative expense claim. Bankr. D. Del. In 1998 the debtor entered into an agreement in which an entity provided the debtor with leased computer equipment. That agreement was subsequently assigned by the entity to the creditor. The lease required the debtor to make monthly payments of $33,380 for an initial term of 36 months. The debtor posted a $600,000 standby letter of credit in favor of the creditor. In June 1999 the debtor and its affiliates filed chapter 11 petitions. As of the filing, the debtor was current on its obligations under the lease, but inadvertently failed to make postpetition rent payments. The creditor drew on the letter of credit for the full amount after representing that the debtor was in default and that it applied the letter of credit proceeds to the present value of its resultant claim for damages in the amount of $706,163.34. The debtor asserted that the creditor did not give any notice of default or intent to accelerate. The creditor stated that it sent the debtor a letter of nonpayment. In October 1999 the creditor filed a motion asserting a claim for the balance due after application of the letter of credit proceeds, and a claim for an administrative expense for postpetition use of the equipment. The debtor rejected the lease effective January 2000 and, in response to the creditor’s motion, argued that the letter of credit proceeds paid the postpetition rent claim in full, leaving the creditor with only a general unsecured claim for the balance due on the lease damages claim. The creditor argued that the debtor was in default under the lease in July 1999, and that both the failure to pay monthly rent and the petition filing were acts of default. The bankruptcy court denied the creditor’s motion. The court determined that section 365(d)(10) invalidated a contractual default based on a lessee’s insolvency or petition filing, and that the creditor was essentially in violation of the automatic stay by accelerating the lease in September 1999. The court concluded that the administrative rent claim was paid in full because the letter of credit proceeds satisfied the postpetition rent claim, which was the only claim to which the creditor could have applied those proceeds in September 1999. In re Hechinger Inv. Co. of Delaware, 2001 Bankr. LEXIS 148, – B.R. – (Bankr. D. Del. January 29, 2001) (Walsh, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:365.04[6][a]

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Additional consideration due under agreement for sale of business gave rise to prepetition claim and not administrative expense. Bankr. D. Del. Chapter 11 claimants requested administrative expense payment of approximately $1 million that was due to them as 'additional consideration' under two agreements that governed the prepetition sale of their business to the debtors. The claimants’ characterized the additional consideration as incentive compensation for services they rendered postpetition. The bankruptcy court denied the claimants’ request, and held that the additional consideration was not a bonus provision earned postpetition, as the claimants asserted, but a deferred payment arrangement for the prepetition acquisition of the claimants’ business that gave rise to a prepetition claim. The court’s decision was based upon its reading of the unambiguous terms of one of parties’ agreements.In re APF Co., 2001 Bankr. LEXIS 157, – B.R. – (Bankr. D. Del. February 5, 2001) (Walsh, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:503.06

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Allegations in debtor’s complaint withstood contractual subordination count, but more definite statement was required. Bankr. D. Del. A creditor filed a $1,430,000.00 proof of claim in the chapter 11 debtor’s case based on a promissory note the debtor issued as partial payment for redeemed stock. The debtor filed an adversary complaint requesting contractual, statutory and equitable subordination of the debtor’s claim under sections 510(a), (b) and (c) of the Bankruptcy Code, based on the note’s origin as payment for equity and the creditor’s status as a former shareholder. The creditor sought dismissal of the debtor’s complaint, or in the alternative, a more definite statement. The bankruptcy court granted the defendant’s motion to dismiss the count for statutory subordination under section 510(b), and granted the creditor’s motion for a more definite statement on the remaining two counts. The court held, among other things, that the allegations contained in the complaint were sufficient to withstand dismissal of the count requesting contractual subordination, but that the debtor needed to amend its complaint to identify which contractual provisions and correlating facts allegedly triggered subordination.Montgomery Ward Holding Corp. v. Schoeberl (In re Montgomery Ward Holding Corp.), 2001 Bankr. LEXIS 158, – B.R. – (Bankr. D. Del. January 16, 2001) (Walsh, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:510.03

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4th Cir.

Purchaser under hog partnership agreement could not compel debtor to reject executory contract. Bankr. E.D.N.C. The debtor filed a chapter 11 petition in October 1999. Since the filing, the debtor continued operating under an executory contract with the creditor, originally executed in 1995, under which the debtor supplied the creditor with market hogs. Subsequent to the petition filing, the creditor renewed the contract pursuant to its original terms, extending the agreement by way of letter for an additional five year term. Contrary to that position, however, the creditor filed a motion seeking an order requiring the debtor to reject the executory contract, lift the automatic stay, and pay an administrative expense. The underlying reason the creditor sought to force the rejection is the hypothetical deficit ledger amount accumulated under the agreement. As previously ruled by the bankruptcy court, that deficit amount, in excess of $5 million, was a contingent liability that might never materialize to an actual claim. The creditor asserted two arguments upon which it asked the court to rule that the hog partnership agreement was an executory contract that could neither be assigned nor assumed by the debtor: (1) the agreement was a contract to extend financial accommodations to the debtor, within the meaning of section 365(c)(2) and could not be assumed, and (2) the debtor could not assign the contract without the creditor’s consent. The court denied the creditor’s motion, holding that a hypothetical deficit ledger amount did not fall within the ambit of a financial accommodation within the narrow restrictions imposed by section 365(c)(2). The court went on to conclude that no applicable law barred the debtor from assuming the contract (citing Collier on Bankruptcy 15th Ed. Revised). In re Neuhoff Farms, Inc., 2000 Bankr. LEXIS 1683, – B.R. – (Bankr. E.D.N.C. April 26, 2000) (Leonard, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:365.06

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In converted case, equipment lessor was entitled to administrative claim for postpetition rent during postpetition preconversion period. Bankr. E.D.N.C. In a case that was converted from chapter 11 to chapter 7, the trustee objected to an equipment lessor’s proof of claim to the extent that the lessor asserted an administrative expense claim for lease payments that were due between filing of the chapter 11 case and its conversion to chapter 7. The trustee argued primarily that because the leased equipment was never used by the chapter 11 debtor, the postpetition lease payments could not form the basis of a priority claim in the converted case (because they would not be afforded priority under section 503(b)). Thus, the trustee argued, the lessor’s claim arose solely under section 365(d)(10), and the literal language of section 348(d), which characterizes claims that arise after the entry of an order for relief but before conversion, operated to change the character of the claim and required that it be treated as a prepetition unsecured claim. The trustee also argued that the fact that the debtor gained no benefit from the lease was an equitable consideration that could be used under section 365(d)(10) to deny administrative status to the postpetition lease payments. The bankruptcy court rejected the trustee’s arguments, and held that the lessor was entitled to an administrative claim under section 365(d)(10) for postpetition rent in the amount requested. The court reasoned that acceptance of the trustee’s primary argument would render section 365(d)(10) a nullity in converted cases. The court also concluded that section 365(d)(10) is independent of section 503(b)(1), and does not requires a showing that lease expenses were actual and necessary expenses of the estate (citing on Bankruptcy 15th Ed. Revised).In re Eastern Agri-Systems, Inc., 2000 Bankr. LEXIS 1681, – B.R. – (Bankr. E.D.N.C. October 30, 2000) (Leonard, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:365.04[6][c]

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Creditor met burden of establishing debtor’s fraud and violations of state consumer protection statute for nondischargeability purposes. Bankr. E.D. Va. A creditor obtained a prepetition judgment against the debtor in state court representing treble compensatory damages for the debtor’s willful violation of the state’s (Virginia’s) Consumer Protection Act, together with interest, costs and attorney’s fees. After the debtor commenced his chapter 7 case, the creditor sought a determination that the judgment debt was nondischargeable under section 523(a)(2)(A). The bankruptcy court found that the creditor met his burden of establishing, by a preponderance of the evidence, the debtor’s fraud and the two violations of the Virginia Consumer Protection Act for dischargeability purposes. The court held that all damages, including reasonable attorney’s fees as provided by statute, were non- dischargeable. The court noted that in order to prevail, the creditor had to prove that the debtor made a representation; that the debtor knew the representation was false at the time the representation was made; that the debtor made the false representation with the intention of deceiving the creditor; that the creditor justifiably relied on the representation; and that the creditor sustained the alleged loss and damage as the proximate result of the false representation. In this case, the court found that the creditor was entitled to rely, without further investigation, on statements regarding the repair of the debtor’s son’s automobile made by the debtor, who represented himself as an automobile mechanic. The court noted that the debtor’s statements appeared on their face to be true, that there were no circumstances that indicated that the statements were false or fraudulent, and that the creditor discovered that the statements were false only after he had parted with his money. Fowler v. Garey (In re Garey), 2000 Bankr. LEXIS 1674, – B.R. – (Bankr. E.D. Va. September 29, 2000) (Mayer, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:523.08

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5th Cir.

Court applied community rate in determining reasonable compensation to trustee’s special counsel. Bankr. W.D. Tex. In 1994 the chapter 7 trustee retained a law firm as special counsel. The firm eventually represented the trustee and the estate primarily in four matters: (1) the sale of a subsidiary company of the estate and various appurtenant settlements; (2) defense of various environmental matters; (3) federal, state and local tax matters; and (4) served in administrative matters and handled litigation. In sum, the firm handled six adversary proceedings, three appeals, and 20 contested matters and effectuated the reduction of an IRS claim by $23 million. The firm then applied to the bankruptcy court for a compensation increase. The fee examiner and trustee did not object to the application of the lodestar formula, but rather the standard to be used to arrive at the lodestar. The firm argued that the decisive standard was the community rate, which it asserted was $250 per hour, while the opposing parties argued that the controlling factor should be the firm’s standard hourly rate for nonbankruptcy clients during the pendency of the action, or $195 to $200 per hour. The bankruptcy court held that community standard applied, and that the firm had met its burden of proof with respect to establishing the community standard rates charged by attorneys of like or similar experience.In re El Paso Refinery, L.P., 2000 Bankr. LEXIS 1676, – B.R. – (Bankr. W.D. Tex. November 29, 2000) (Clark, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:330.04[2],[3]

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Lease deemed rejected on chapter 11 filing date. Bankr. E.D. La. The chapter 11 debtor filed a motion seeking to reject a theater lease. The debtor moved to reject the lease retroactively as of the date that the theater was closed. The landlord argued that the date of rejection should be the hearing date. The bankruptcy court concluded first that it had the power to authorize a retroactive rejection of a nonresidential lease to a date prior to the court’s approval of the lease rejection. Under the facts and circumstances presented, the court then held that the lease was rejected retroactive to the date that the debtor filed its petition for chapter 11 relief. The court found that retroactive rejection was warranted in this case because the debtor closed the theater prepetition with the landlord’s knowledge after rental negotiations failed. The next day, the landlord padlocked the leased premises, and exercised full dominion and control over the property. The court refused to the rejection date the date that the theater was closed, however, because that date was before the petition filing date. The court emphasized that in most cases, a lease would be considered rejected as of the date of entry of the order approving the rejection, and only in exceptional circumstances, such as those presented here, would a retroactive date be adopted.In re O’Neil Theaters, Inc., 2000 Bankr. LEXIS 1685, – B.R. – (Bankr. E.D. La. November 13, 2000) (Brown, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:365.03

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Creditor not entitled to stay as of right upon posting of bond during appeal of contested matter. E.D. La. The creditor filed a motion in bankruptcy court seeking to stay the court’s order instructing the clerk to withdraw the funds previously deposited into court by or on behalf of the creditor. The creditor appealed that ruling and sought a stay of execution pending appeal. The court denied the motion, holding that the creditor had failed to establish the necessary elements for a stay. The creditor then filed a motion for a stay in the district court, arguing that it was entitled to a stay as of right upon posting of a supersedeas bond. The court denied the motion, holding that the creditor was not entitled to a stay as of right upon a bond posting. The court reasoned that, pursuant to Rule 7062, a stay as of right was only applicable to adversary proceedings, and that there was no authority entitling the creditor a stay as of right pending the appeal of a contested matter. The court noted that an appeal in bankruptcy as of right was typically limited to appeals from money judgments or one transferring an interest in property (citing Collier on Bankruptcy, 15th Ed.).In re West Delta Oil Co., 2001 U.S. Dist. LEXIS 2183, – B.R. – (E.D. La. February 15, 2001) (Barbier, D.J.).

Collier on Bankruptcy, 15th Ed. Revised 10:7062.03, .06

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6th Cir.

Debtor was ineligible for chapter 13 relief. Bankr. S.D. Ohio The creditor holding a secured claim in the chapter 13 debtor’s automobile filed a motion to dismiss the debtor’s case under section 109(g). The debtor had filed four previous chapter 13 cases after the creditor had repossessed her vehicle and each case had been dismissed for failure to pay the trustee. The debtor argued that section 109(g) did not bar her eligibility for relief because the prior dismissal order did not expressly state that the dismissal resulted from a willful failure to abide by a court order. The bankruptcy court granted the motion to dismiss, holding that based upon the debtor’s history of serial filings, the dismissal of the prior case resulted from the debtor’s willful failure to abide by court orders or appear before the court in proper prosecution of her case. The court noted that a finding of willfulness could be found either at the time of dismissal or in a subsequent case.In re Pike, 2001 Bankr. LEXIS 169, – B.R. – (Bankr. S.D. Ohio February 8, 2001) (Hoffman, Jr., B.J.).

Collier on Bankruptcy, 15th Ed. Revised 2:109.08

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Value of vehicle was determined for redemption. Bankr. W.D. Tenn. The chapter 7 debtor filed a motion to redeem collateral from the creditor holding a lien on the debtor’s vehicle. The parties disagreed on the appropriate valuation standard for determining the creditor’s allowed secured claim under section 506 for purposes of redemption under section 722. The bankruptcy court granted the debtor’s motion, holding that in the context of a redemption, the appropriate valuation standard was the liquidation or wholesale value of the vehicle. The court noted that the determination of value was based on the proposed use and disposition of the collateral. Unlike a chapter 13 cramdown, there was no distinction between the economic consequences to the creditor between surrender and redemption in chapter 7.In re Ballard, 2001 Bankr. LEXIS 172, – B.R. – (Bankr. W.D. Tenn. February 26, 2001) (Boswell, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:506.03[4]

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Creditor failed to establish false pretenses or actual fraud. Bankr. N.D. Ohio In 1995 the debtor and his father incorporated a home improvement business. In 1996 they sought an extension of credit from the creditor to the corporation. To that end, the debtor and his father completed an application which requested five credit references. The corporation submitted the names of five suppliers when in fact it had only purchased supplies from two of those listed. The submitted application also indicated that it provided both company and personal financial information, which included cash on hand, equipment, and equity in residential real estate. The application did not request information designating which assets were personal, so none was provided. Finally, the application required signatures of guarantors, and four were provided, one of which was inauthentic. Upon receipt of these documents, credit was extended, and the creditor continued a pattern of loan transactions with the corporation. In April 1996, the debtor’s father withdrew from the corporation. He notified the creditor that he wished to revoke his guaranty but did not disclose that it was primarily his personal real estate and cash that were previously listed as collateral. The corporation then began to default on payments, and credit privileges were terminated, leaving the balance owed as approximately $45,000. Thereafter, in June 2000, the debtor filed a chapter 7 petition. The creditor filed an adversary proceeding seeking a declaration that the corporation’s debt was nondischargeable, arguing that the debtor deliberately presented false information in the credit application, that the creditor relied on the information and was damaged by that reliance. To support its contention, the creditor asserted that (1) there was no trade relationship with three of the five references; (2) the nondisclosure that the assets listed belonged predominantly to the debtor’s father, who subsequently withdrew from the corporation; (3) the invalid signature of one guarantor; and (4) the noncompliance with contractual language requiring notification of material changes in financial condition or ownership.The bankruptcy court held that the debtor failed to meet its burden under section 523(a)(2)(A). Specifically, the court found that (1) the listing of references without an actual trade relationship did not constitute a misrepresentation, since the application did not indicate that such a relationship was required; (2) the debtor’s intent to deceive was not established, since any information provided was not deceitful and no evidence suggested that the debtor was aware of the forged signature; (3) no justifiable reliance was proven, since the creditor did not check the references and had no policy of doing so. Alside Supply Center v. Kromar (In re Kromar), 2001 Bankr. LEXIS 142, – B.R. – (Bankr. N.D. Ohio February 21, 2001) (Baxter, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:523.08[1]

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Issue of whether inventory and receivables were estate property required further discovery, but debtor held at least some equitable interest that supported court’s entry of interim order. Bankr. N.D. Ohio A creditor brought an emergency motion seeking to modify an interim bankruptcy court order that allowed the chapter 11 debtor and debtor-in-possession in 48 jointly administered cases to use cash assets that the creditor claimed to be cash collateral in which it held an interest. The court overruled the creditor’s motion. Among other things, the court rejected the creditor’s argument that the receivables that constituted its collateral were not property of debtor’s estate and that the court therefore lacked jurisdiction to enter the interim order. The court held that determination of this issue required further discovery, but that, in any event, the debtor held at least some equitable interest in the inventory and receivables sufficient to support the entry of the interim cash collateral order. Finally, the court held that granting the creditor relief from the interim cash collateral order would be highly inequitable on the facts presented, and that the creditor’s interest in the cash collateral was adequately protected by an equity cushion and by the other terms of the interim order.In re LTV Steel Co., 2001 Bankr. LEXIS 131, – B.R. – (Bankr. N.D. Ohio February 5, 2001) (Bodoh, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 10:9024.01

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7th Cir.

Court rejected creditor’s attempt to circumvent Rule 9011 safe harbor requirements by seeking relief under section 105. Bankr. N.D. Ill. After the chapter 13 debtor’s case was dismissed, with prejudice, a creditor moved for sanctions against the chapter 13 debtor and her counsel pursuant to Rule 9011. The creditor alleged that the debtor filed and prosecuted her bankruptcy case in bad faith and for the sole purpose of avoiding payment of a judgment entered in favor of the creditor. According to the creditor, the debtor repeatedly filed false and misleading schedules, and four unconfirmable, discriminatory chapter 13 plans, which were not proposed in good faith. The debtor argued that each version of the plan she proposed was supported by existing law, that her schedules were prepared in conformity with existing law and/or based upon a good faith understanding of what the existing law required, and that any prior bankruptcy court ruling that the debtor and/or the her counsel acted in bad faith was contrary to the evidence. The bankruptcy court denied the creditor’s motion for sanctions because it violated the safe-harbor provision contained in Rule 9011(c)(1)(A). The court also rejected the creditor’s attempt to 'end-run the safe-harbor requirements of Rule 9011' by invoking section 105(a) as an alternative. The court noted that the debtor sought relief under section 105(a) for the first time in its reply to the debtor’s response to its sanctions motion, and held that this request was 'too little, too late.'In re McNichols, 2001 Bankr. LEXIS 167, – B.R. – (Bankr. N.D. Ill. January 11, 2001) (Squires, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 2:105.05

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State liquor license was not subject to liens. N.D. Ind. Employee’s judgment of foreclosure provided generally for foreclosure upon all assets of the employer corporation. In addition, individual lenders recorded documents claiming a security interest in the same corporation’s liquor license. The corporation subsequently transferred its liquor license to two individuals who became debtors in chapter 7 cases. The employee and the lenders sought determinations that they held valid security interests in the liquor license. The bankruptcy court held that neither the lenders nor the employee were secured. The district court affirmed, holding that although the license was property of the estate, the lien interest did not attach to the state issued liquor license.Under state (Indiana) law, a security interest in a liquor license may not be perfected and is not enforceable against the state Alcoholic Beverage Commission. Thus, the estate took the license free and clear of any security interests.VanKirk v. Boyer (In re Barnes), 2001 U.S. Dist. LEXIS 2080, – B.R. – (N.D. Ind. February 2, 2001) (Lee, C.D.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:506.03[1], [5]

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Trustee’s motion for summary judgment denied for failure to allege or establish that transfers allowed transferee to receive more than it would have in a chapter 7 distribution. Bankr. N.D. Ill. The chapter 7 trustee filed an adversary proceeding seeking to avoid several transfers made by the debtor as preferential transfers under section 547(b). The parties cross-moved for summary judgment. The bankruptcy court denied both summary judgment motions. The court held, among other things, that the trustee was not entitled to summary judgment on her section 547(b) claim because she failed to allege, let alone demonstrate, the fifth element necessary to establish a preferential transfer. The court explained that in order to prevail on her motion, the trustee had to allege and show prima facie proof that the creditor received more than it would have received if the case were a chapter 7 liquidation case, the transfers had not been made, and the creditor received payments on the debts to the extent provided by the provisions of the Code (citing Collier on Bankruptcy 15th Ed. Revised).Kapila v. Acme Portable Machines, Inc. (In re I.M. Import & Export, Inc.), 2001 Bankr. LEXIS 166, – B.R. – (Bankr. N.D. Ill. February 27, 2001) (Squires, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 5:547.03[7]

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Neither attorney-client privilege nor imputed disqualification precluded employment of accounting firm. N.D. Ill. The unsecured creditors’ committee sought to employ an accounting firm to assist in investigating claims against third parties, including a doctor. The doctor objected to the application on the basis that a new, junior employee at the firm had previously been employed at a firm which did work for the doctor and that the junior employee had had access to attorney- client privileged information. The employee indicated that he had disclosed no confidences and had merely assisted in preparing the doctor’s personal income tax returns. The bankruptcy court granted the application to employ the firm, concluding that there was no imputed disqualification, the attorney-client privilege did not apply and that the firm had established an ethical wall to preclude transmission of confidential information. Upon the doctor’s appeal, the district court affirmed, holding that the accounting firm was not disqualified even though a junior employee may have received attorney-client information in the context of other employment. The junior employee had not disclosed any information and the firm had established a ethical wall by instructing the employee and other members of the firm not to disclose confidential information regarding the doctor. Moreover, while the attorney-client privilege could apply to nonattorneys, the doctor failed to show that the information was disclosed for the purpose of obtaining a legal opinion. Accordingly, as a factual matter, the privilege was inapplicable.In re Doctors Hospital of Hyde Park, Inc., 2001 U.S. Dist. LEXIS 2051, – B.R. – (N.D. Ill. February 22, 2001) (Andersen, D.J.).

Collier on Bankruptcy, 15th Ed. Revised 7:1103.03[4], 3:327.06, 327.04[7]

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8th Cir.

Former wife failed to satisfy burden of proving that debtor/former husband’s obligations were in the nature of maintenance or support. Bankr. W.D. Mo. The chapter 7 debtor’s former wife filed an adversary proceeding objecting to the discharge of certain marital debts. The debts at issue included a mortgage debt, joint credit card debt, and a property settlement debt. The bankruptcy court found, among other things, that the debts were not excepted from discharge under section 523(a)(5) because the former wife failed to satisfy her burden of establishing that the divorce decree, which expressly referred to a division of marital property, created a debt in the nature of maintenance or support. The court based its conclusion, in part, on the former wife’s own testimony, including her statement that she believed that the assignment of the mortgage debt to the debtor was part of a property division.Kennard v. Kennard (In re Kennard), 2001 Bankr. LEXIS 143, – B.R. – (Bankr. W.D. Mo. January 29, 2001) (Federman, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:523.11

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Chapter 7 trustee failed to meet burden in establishing debtor’s fraudulent intent. Bankr. W.D. Ark. The debtor bought a retail tire and repair shop and continued to pay rent to the landlord on whose property the business was situated. Thereafter, in 1998, the debtor entered into a contract of sale with the landlord to purchase approximately two acres of commercial real estate, including all buildings on the property, for $450,000. The contract required a $5,000 down payment at contract and $45,000 in cash to be paid at closing, the balance of the purchase price to be paid in monthly installments. The debtor eventually testified that he paid the landlord the $5,000 down and had a cashier’s check dated August 29, 1998 in the amount of $29,000 payable to the landlord. The debtor also testified that he withdrew $20,500 from his personal account and paid the landlord $20,000 of that sum. In addition, the debtor’s business purchased a cashier’s check payable to a bank in the amount of $33,500 dated August 27, 1998. Thereafter, in April 1999, the debtor filed a chapter 7 petition. The chapter 7 trustee reviewed the petition, schedules and statement of affairs, and stated that those documents failed to disclose the real estate purchase, the two cashier’s checks, and the bank withdrawal by the debtor. The trustee filed an adversary proceeding alleging that the debtor concealed or transferred property of the estate within one year prepetition with the intent to hinder, delay or defraud creditors, and requested that the petition be dismissed pursuant to section 727(a)(2)(A). The bankruptcy court held that the trustee had not met her burden of proof under section 727(a)(2)(A) because the requisite element of intent had not been proven. The court found that the transactions could not be deemed made with fraudulent intent, since the debtor had not demonstrated a pattern of fraudulent conduct and because the transactions were effectuated with consideration given.Jacoway v. Mathis (In re Mathis), 2000 Bankr. LEXIS 1673, – B.R. – (Bankr. W.D. Ark. November 15, 2000) (Fussell, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 6:727.02[3]

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Secured creditor whose future advances were not noted on certificate of title did not have a properly perfected lien. Bankr. W.D. Mo. The debtor and former spouse were divorced pursuant to a separation agreement that provided for the debtor to hold the spouse harmless on a debt jointly owed. The debtor made no payments toward the debt, and the creditor pursued collection against the spouse. After the debtor filed a chapter 7 petition in 2000, the spouse filed an adversary proceeding objecting to the discharge of the debt pursuant to section 523(a)(15). The bankruptcy court employed a balance of harms test and held that the hold harmless obligation was nondischargeable. The court found that the debtor had the ability to pay the debt and failed to prove any benefit to him of discharging the debt other than having an additional $195 per month in disposable income. In contrast, the spouse had no disposable income, was the custodial parent of the parties’ children, and was forced regularly to borrow money. The court concluded that the benefit to the debtor of a discharge was outweighed by the detriment to the spouse. Lumley v. Lumley (In re Lumley), 2001 Bankr. LEXIS 141, – B.R. – (Bankr. W.D. Mo. February 8, 2001) (Federman, C.B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:523.21

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Secured creditor whose future advances were not noted on certificate of title did not have a properly perfected lien. Bankr. W.D. Mo. The creditor extended a loan to the debtors for the purchase of a truck. After having its lien noted on the certificate of title, the creditor made two additional loans to the debtors, both of which were at least partially secured by the same vehicle. The security agreement stated that the loan was subject to future advances, but that provision was not noted on the certificate of title. The debtors filed a chapter 7 petition in 2000, stating an intention to retain the vehicle and indicating that the creditor had a lien on the vehicle in the amount of $14, 870. The debtor’s schedules valued the vehicle at $14,000. After the debtors received a discharge, the debtors surrendered the truck to the creditor, but the chapter 7 trustee never abandoned the estate’s interest. The creditor filed a motion to compel the trustee to abandon the estate’s interest in the truck, and the trustee responded with a motion to compel turnover of the truck, arguing that the creditor was not properly perfected. The bankruptcy court held that the creditor did not have a properly perfected lien. The court found applied state (Missouri) law in determining that a lien extended to future advances only if that information was noted on the certificate of title, or if a new filing was made as to the later advance. The court concluded that the creditor had failed to meet either requirement and granted the trustee’s motion for turnover pursuant to section 544(a)(1).In re Merrill, 2001 Bankr. LEXIS 151, – B.R. – (Bankr. W.D. Mo. February 13, 2001) (Federman, C.B.J.).

Collier on Bankruptcy, 15th Ed. Revised 5:544.05

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9th Cir.

Bankruptcy court abstained from hearing debtor’s dispute with IRS and dismissed petition. Bankr. D. Or. The IRS filed motions to abstain, to dismiss and for relief from the automatic stay, and also filed an objection to confirmation of the debtor’s proposed chapter 13 plan. The bankruptcy court dismissed the chapter 13 pursuant to section 305(a). The court reasoned that the matter was essentially a two party dispute capable of resolution outside bankruptcy, that there was no legitimate purpose to the filing, and concluded that the parties’ interests would be best served if the court abstained from hearing the matter.In re Guenther, 2000 Bankr. LEXIS 1671, – B.R. – (Bankr. D. Or. December 29, 2000) (Brown, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 2:305.02[2][b]

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Court of Appeals affirmed invalidation of change in ownership provision as unenforceable anti-assignment clause. 9th Cir. In settlement of certain litigation, the debtor and a third party entered into a prepetition agreement regarding the management of common areas and parking on property in which both parties held an interest. The agreement allowed an affiliate of the debtor to manage the common areas and parking in exchange for a substantial monthly payment to the third party. Under a 'change in ownership' provision contained in the agreement, however, the common area management and parking provisions would terminate if the debtor no longer maintained an ownership interest in the property. After the debtor commenced its bankruptcy case, the bankruptcy court approved the transfer of its debtor’s interest in the parcel. Thereafter, the third party attempted to enforce the change in ownership provision contained in the agreement, and void the agreed upon parking and management provisions. The transferee of the debtor’s interest in the parcel, as the assignee of the debtor’s interest in the agreement, filed a motion asking the bankruptcy court to determine the validity of the change in ownership provision. The bankruptcy court invalidated the change in ownership provision as an unenforceable anti- assignment clause, and the district court affirmed. The United States Court of Appeals for the Ninth Circuit affirmed, and held that the bankruptcy court did not err in invalidating the provision as an unenforceable anti-assignment clause under section 365(f). The court agreed with the bankruptcy court’s practical conclusion that the settlement agreement, when read in conjunction with the terms of a related agreement between the parties, led to the conclusion that the rights under the settlement agreement were interwoven with the debtor’s ownership interest. The court also concluded that the bankruptcy court had sufficient evidence before it to determine the validity of the change in ownership provision.Crow Winthrop Dev. Ltd. Partnership v. Jamboree LLC (In re Crow Winthrop Operating Partnership), 2001 U.S. App. LEXIS 2918, – B.R. – (9th Cir. March 1, 2001) (Per curiam).

Collier on Bankruptcy, 15th Ed. Revised 3:365.08

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Proceeding on counterclaim was core proceeding in which court could enter judgment. Bankr. C.D. Cal. A creditor who commenced an adversary proceeding in the debtor’s case objected to the bankruptcy court’s jurisdiction over a counterclaim asserted against him. The bankruptcy court had previously held that the counterclaim in the adversary proceeding was, in substance, also a counterclaim to the creditor’s claim filed in the debtor’s case, pursuant to which he voluntarily submitted to the bankruptcy court’s jurisdiction. The court held that the proceeding was a core proceeding, and the bankruptcy court was empowered to enter its own judgment on the counterclaim. The court also concluded, however, that the debtor failed to establish an entitlement to injunctive relief in support of her money judgment.Marshall v. Marshall (In re Marshall), 2000 Bankr. LEXIS 1682, – B.R. – (Bankr. C.D. Cal. December 29, 2000) (Bufford, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 1:3.02

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Attorney’s request for fees reduced by 20 percent for failure to comply with disclosure requirements. Bankr. D. Idaho After the debtor’s chapter 12 petition was dismissed, the debtor sought to retain the same attorney for a second chapter 12 filing. But at the time of the dismissal, the debtor still owed the attorney approximately $24,000 in fees. The debtor and attorney reached an agreement whereby part of the outstanding fees were waived, with the balance to be secured by a cash payment and a promissory note secured by a deed of trust on real property. After the second chapter 12 petition was filed and a plan confirmed, the attorney filed a fee application. The bankruptcy court found that the attorney had failed to comply with statutory disclosure requirements. Specifically the court found that the attorney had filed neither a timely disclosure statement pursuant to Rule 2016(b), nor a Rule 2014(a) statement disclosing of all the attorney’s connections with the debtor, both of which delayed a proper examination of the parties’ relationships until the conclusion of the case. This omission was the basis of the court’s reduction of the requested fees by 20 percent (citing Collier on Bankruptcy, 15th Ed.)In re Combe Farms, Inc., 2001 Bankr. LEXIS 179, – B.R. – (Bankr. D. Idaho January 3, 2001) (Pappas, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 9:2016.15

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