Collier Bankruptcy Case Update December-3-01
A Weekly Update of Bankruptcy and Debtor/Creditor Matters
Collier Bankruptcy Case Updates
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.
December 3, 2001
CASES IN THIS ISSUE
(scroll down to read the full
summary)
- 1st Cir.
ß 523(a)(6) Tape recording of conversation was willful and malicious.
Mazurczyk v. O’Neil (Bankr. D. Mass.)ß 547(b) Trustee was granted summary judgment.
Stephenson v. Schreiber (In re Emerson) (Bankr. D.N.H.)ß 1325(a)(6) Creditor’s objection was overruled.
In re Amadon (Bankr. D.N.H.)
2d Cir.
ß 328(a) Debtor seeking attorney’s fees was entitled to one-third of the actual recovery in discrimination action.
Schlant v. Victor Belata Belting Co. (W.D.N.Y.)ß 547(c)(2) Insiders’ motions for summary judgment were denied.
Lawson v. Corrao Family LLC (In re Kelly’s Chocolates, Inc.) (Bankr. W.D.N.Y.)
3d Cir.
ß 109(e) Judgment based on guarantee was held to be noncontingent.
In re Heaton (E.D. Pa.)ß 541(d) No sufficient nexus existed to establish constructive trust.
EBS Pension, L.L.C. v. Edison Bros. Stores, Inc. (In re Edison Bros., Inc.) (Bankr. D. Del.)ß 1127(b) Creditor precluded from seeking payment on its claim where payment would be inconsistent with debtor’s plan of reorganization.
In re Planet Hollywood Int’l (Bankr. D. Del.)
4th Cir.
ß 101(5) Assigned annuity payments were property rights, not dischargeable claims.
Granati v. Stone St. Capital, Inc. (In re Granati) (Bankr. E.D. Va.)
6th Cir.
ß 550(e) Holder of avoided lien could not invoke section 550(e) entitlement to replacement lien.
Carpenter v. G.E. Capital Mortg. Servs. (In re Carpenter) (Bankr. E.D. Tenn.)ß 1307(c) Motion to reconsider dismissal of chapter 13 denied.
In re Nosker (Bankr. S.D. Ohio)
7th Cir.
ß 523(a)(1) Debtor willfully evaded tax liabilities and was not entitled to discharge the tax debt in bankruptcy.
Krumhorn v. United States (In re Krumhorn) (N.D. Ill.)
8th Cir.
ß 362(a) Although creditor violated automatic stay, debtor failed to establish damages.
In re Hoskins (Bankr. W.D. Mo.)ß 523(a)(8) Debtor’s obligation to repay student loans not dischargeable, despite hardship, where hardship was not 'undue.' Brightful v. Pa. Higher Educ. Assistance Agency (In re Brightful) (8th Cir.)
9th Cir.
ß 110(b)(1) Preparers were held in contempt.
In re Powell (Bankr. N.D. Cal.)ß 522(f) Debtors were entitled to avoid lien on real property after sale to third parties.
Culver, LLC v. Chiu (In re Chiu) (B.A.P. 9th Cir.)ß 523(a)(6) B.A.P. for the Ninth Circuit remanded for determination of insolvency and intent on section 523(a)(6) claims.
Nahman v. Jacks (In re Jacks) (B.A.P. 9th Cir.)ß 523(a)(8) Student loans were not discharged.
Furneri v. Graduate Loan Ctr. (In re Furneri) (Bankr. D. Alaska)Rule 7015 Adversary proceeding 'related back' to contested matter.
Gschwend v. Markus (In re Markus) (B.A.P. 9th Cir.)
11th Cir.
ß 505(a)(1) District court remanded for determination of whether tax debt was unliquidated.
United States v. Goldsby (In re Goldsby) (S.D. Fla.)ß 548(d)(2)(B) Transfers made to commodity broker were not protected by section 548(d)(2)(B).
Harpley v. A.G. Edwards & Sons, Inc. (In re Paramount Citrus, Inc.) (M.D. Fla.)
Collier Bankruptcy Case Summaries
1st Cir.
Tape recording of conversation was willful and malicious. Bankr. D. Mass. The debtor and creditor, who were neighbors with a history of disputes, launched into an argument during which the debtor tape recorded their oral exchanges. The argument culminated in the creditor’s assault of the debtor with a fishing net. The creditor was charged with assault and battery, but the jury found him not guilty of assault with a dangerous weapon. The creditor then filed suit against the debtor for tape recording the conversation in violation of state (Massachusetts) law. Shortly thereafter, the debtor filed a chapter 7 petition. The bankruptcy court lifted the automatic stay to allow the state court action to proceed. The creditor obtained a judgment against the debtor, based on the debtor’s act of illegally tape recording conversations he had with the creditor. The state court found that the tape recording was 'willful and malicious,' but also determined that the debtor’s intent was not to injure the creditor but to create an accurate record. The creditor then filed a motion for summary judgment seeking a determination that the judgment was nondischargeable pursuant to section 523(a)(6). The court ruled for the creditor, holding that the state court findings were not inconsistent because an intent to injure was not required for an act to be willful and malicious. The court concluded that (1) the act was willful, because the debtor intentionally used the tape recorder; (2) the act was malicious, because the debtor acted in conscious disregard of his duties, despite the lack of intent to cause injury; and (3) the creditor suffered an injury, because the state court awarded the creditor a monetary amount (citing Collier on Bankruptcy, 15th Ed.). Mazurczyk v. O’Neil, 2001 Bankr. LEXIS 1302, 268 B.R. 1 (Bankr. D. Mass. October 11, 2001) (Rosenthal, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.12
Trustee was granted summary judgment. Bankr. D.N.H. A transferee filed a complaint seeking the net proceeds from the auction sale of the debtor’s aircraft by the chapter 7 trustee. The trustee denied that the transferee was entitled to the net proceeds from the sale and filed a motion for summary judgment. The bankruptcy court had previously concluded that the debtor’s transfer of the aircraft to the transferee was preferential under section 547(b) and fraudulent under section 544. The transferee asserted that under the Uniform Fraudulent Transfer Act, he held a lien on the proceeds of the sale of the aircraft because he held a lien on the property at the time it was auctioned by the trustee. The bankruptcy court granted the trustee’s motion for summary judgment, holding that a defense under the Uniform Fraudulent Transfer Act was not a defense to the preferential transfer action under the Code. Because the transferee failed to establish a claim of defense under which he could ultimately prevail against the trustee with respect to the proceeds, judgment was entered in favor of the trustee.Stephenson v. Schreiber (In re Emerson), 2001 Bankr. LEXIS 1305, – B.R. – (Bankr. D.N.H. July 24, 2001) (Deasy, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:547.03, .04
Creditor’s objection was overruled. Bankr. D.N.H. The secured creditor objected to confirmation of the debtors’ chapter 13 plan, asserting that the debtors were unable to show that they had the ability to make the payments under the plan. The debtors’ plan provided for monthly payments both through the trustee and outside the plan for two years, followed by a substantial balloon payment to the secured creditor. One of the debtors testified that her codebtor’s brother had committed to obtain a loan to permit him to buy the secured collateral as an investment. The creditor argued that the lack of a legally enforceable obligation to refinance the property was fatal to the debtors’ efforts to confirm the plan. The bankruptcy court overruled the objection, holding that the debtors satisfied their burden of proof to establish a reasonable likelihood of their ability to make the balloon payment. The court noted that the Code did not require absolute certainty that the balloon payment would be made, only that the likelihood of payment was based on more than pure speculation.In re Amadon, 2001 Bankr. LEXIS 1304, – B.R. – (Bankr. D.N.H. September 6, 2001) (Deasy, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1325.07
2nd Cir.
Debtor seeking attorney’s fees was entitled to one-third of the actual recovery in discrimination action. W.D.N.Y. The debtor commenced an action alleging that her employer discriminated against her on the basis of sex and intentionally inflicted emotional distress. In 1998, the trustee was substituted as plaintiff because the debtor had failed to list the claims in her schedule of assets, resulting in the inclusion of those claims in the estate. The debtor claimed as damages all past salary and increases, retirement benefits, vacation pay from 1992 to the date of judgment, along with $1 million in punitive damages and $1 million in compensatory damages. The district court dismissed the claim for emotional distress and granted the employer’s motion to bifurcate the liability and damages phases of the action. After trial, the jury awarded neither compensatory nor punitive damages, and the court eventually awarded $832.34 in back pay and $316.64 in interest. The trustee then filed a motion seeking to recover attorney’s fees of approximately $46,500 and disbursements of about $2,000. The employer opposed any award of attorney’s fees, arguing that the debtor’s success was de minimis. The court determined that the debtor’s recovery was de minimis, (1) given the substantial difference between the judgment sought and the award recovered, and (2) in light of the legal issue on which the debtor prevailed, which had no particular significance beyond the parties to the action. The court concluded that the de minimis nature of the recovery foreclosed a full award of attorney’s fees, which consequently was limited to one-third of the recovery amount. The court, however, allowed the disbursements, which were not addressed in any opposition pleadings by the employer. Schlant v. Victor Belata Belting Co., 2001 U.S. Dist. LEXIS 16539, – B.R. – (W.D.N.Y. October 2, 2001) (Elfvin, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:328.02
Insiders’ motions for summary judgment were denied. Bankr. W.D.N.Y. Various insiders of the chapter 7 debtor moved for summary judgment on the trustee’s complaints seeking avoidance of preferential transfers. The debtor, whose business cycle necessitated annual short-term loans, sought a prepetition loan from a quasi-public development authority. The development authority authorized the loan, under the condition that the debtor obtain a matching subordinated loan from a separate entity. The debtor’s principal and her family members advanced the debtor sufficient funds, and the obligations were paid back several weeks before their due dates and within one year of the debtor’s involuntary petition. The insiders argued that because they were first-time lenders in what was the ordinary borrowing cycle for the debtor, the loans were made in the ordinary course of their and the debtor’s businesses. The bankruptcy court denied the motions for summary judgment, holding that the insiders’ loan transactions were not ordinary within the meaning of section 547(c)(2). The court noted that the purpose of the preference statute was to ensure equity of distribution in favor of those creditors who were not relatives of the debtor’s principal officer.Lawson v. Corrao Family LLC (In re Kelly’s Chocolates, Inc.), 2001 Bankr. LEXIS 1328, 268 B.R. 345 (Bankr. W.D.N.Y. September 28, 2001) (Kaplan, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:547.04[2]
3d Cir.
Judgment based on guarantee was held to be noncontingent. E.D. Pa. In 1990, an entity entered into agreements with the creditor for the financing of vehicles. The debtor was one of two officers and shareholders of the entity. To secure the loan, the entity granted security interest in the vehicles and other assets, and the debtor executed continuing guarantees, agreeing to act as surety. After defaulting on its payment, the entity entered a forbearance agreement with the creditor to allow repayment, but the entity was unable to do so and instead filed a chapter 11 petition. As a result, the creditor declared the entire indebtedness due and confessed judgment in state (Pennsylvania) court against the debtor. That court entered judgment in the claimed amount of approximately $947,000. The debtor filed a chapter 7 petition in 1998. The creditor filed an adversary proceeding seeking a determination of nondischargeability. Prior to the hearing, the debtor filed a motion to convert to chapter 13, which was granted. Thereafter, the creditor filed an amended motion to reconvert to chapter 7, which the bankruptcy court granted, holding that the debtor did not qualify under chapter 13 because the debtor owed a noncontingent, liquidated and unsecured debt in excess of the statutory limit of $250,000. The debtor appealed, arguing principally that the judgment was a confessed judgment and was subject to challenge. As such, the debt was disputed and not final and could not be classified as liquidated. The district court affirmed, holding that, for the purposes of section 109(e), the debt was liquidated and noncontingent. The court reasoned that the judgment made the value of the claim ascertainable, and the possibility of a challenge to its validity was not an occurrence of an extrinsic event which would trigger liability, thereby making it contingent.In re Heaton, 2001 U.S. Dist. LEXIS 15813, – B.R. – (E.D. Pa. September 28, 2001) (Waldman, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:109.06[2][a]
No sufficient nexus existed to establish constructive trust. Bankr. D. Del In the debtors’ first chapter 11 cases during 1997, an order was entered confirming a joint plan of reorganization that provided for the termination of the debtors’ over-funded pension plan and the payment of the excess funds to the creditor, for distribution to general unsecured creditors. A portion of the funds was reserved by the debtors to pay potential tax liabilities arising from the termination. To the extent that no money was due to the IRS, the debtors were required to remit the balance to the creditor. In 1998, the IRS notified the debtors that no additional taxes were owed, and the creditor thus made demand for turnover of the reserved funds. Before remitting those funds, the debtors filed new chapter 11 petitions in 1999. At all times between the termination of the pension plan and the second petition filing, the debtors had sufficient availability under a revolving credit facility to borrow the sum due to the creditor. The creditor then filed this adversary proceeding seeking turnover of the funds, which it claimed were being held by the debtors in a constructive trust for the creditor’s benefit and were therefore exempt from estate property pursuant to section 541(d). The debtors argued that the funds were never segregated but were commingled with other funds, and that, consequently, no constructive trust had been created. The bankruptcy court issued an opinion in which it denied both parties’ motions for summary judgment, based on the conclusion that a material issue of disputed fact existed as to whether there was a nexus between the alleged constructive trust and the funds sought. The parties stipulated that, at the time of the second petition filing, the debtor, by way of the revolving credit facility, had access to the amount sought. The parties then filed motions seeking final judgment. The debtor argued that the creditor was equitably estopped from arguing that there was a constructive trust on the funds, since the creditor filed statements with the SEC identifying itself as an unsecured creditor, not the beneficiary of a constructive trust. The creditor argued that it disagreed with the characterization of its claim as unsecured and pointed to its filed proof of claim as evidence. The court rejected the debtor’s equitable estoppel argument, holding that there was no evidence of the debtor’s reliance on the creditor’s statements, a necessary component of equitable estoppel. But the court went on to grant the debtor’s motion, holding that there was no sufficient nexus to establish a constructive trust. Specifically, the debtors did not designate the funds they had available to borrow or identify them in any way as funds subject to a trust. The court concluded that there was a significant difference between having cash on hand and being able to draw upon a line of credit because, until the money was borrowed, it remained the property of the secured lenders.EBS Pension, L.L.C. v. Edison Bros. Stores, Inc. (In re Edison Bros., Inc.), 2001 Bankr. LEXIS 1333, 268 B.R. 409 (Bankr. D. Del October 11, 2001) (Walrath, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:541.26
Creditor precluded from seeking payment on its claim where payment would be inconsistent with debtor’s plan of reorganization. Bankr. D. Del. The bankruptcy court disallowed a portion of creditor’s claim because the creditor had not provided sufficient evidence to establish that the expense was payable by the debtor, but allowed the remainder of the claim. The debtor filed a timely appeal of the court’s order allowing the remainder of the claim and, as a result, had not paid the creditor’s claim. The creditor then filed a motion for reconsideration, arguing that the court should modify its order and direct the debtor to make an immediate distribution of the amounts owed to the creditor under the plan or, alternatively, escrow that sum until the appeal was completed. The creditor based its motion on the deterioration of the debtor’s financial condition and its concern that the debtor would not have any funds left to pay the creditor if payment was not required until after the debtor’s appeal was decided. In rebuttal, the debtor argued that it could not pay the creditor because the debtor’s confirmed plan of reorganization only allowed for payment of 'allowed claims,' which were defined in the plan as claims that were allowed by a final order no longer subject to appeal. The bankruptcy court then denied the creditor’s motion, finding that the creditor was bound by the terms of the debtor’s plan of reorganization and could not ask for relief, including payment of its claim or escrowing of funds, that was inconsistent with the debtor’s confirmed plan. In re Planet Hollywood Int’l, 2001 Bankr. LEXIS 1352, – B.R. – (Bankr. D. Del. October 19, 2001) (Walrath, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 7:1127.04
4th Cir.
Assigned annuity payments were property rights, not dischargeable claims. Bankr. E.D. Va. The debtor entered an agreement settling an action she brought for the wrongful death of her husband. The defendant in the action, a trucking company, agreed to make monthly payments to the debtor, which would be secured by the purchase of an annuity contract from a life insurance company. After the debtor had received monthly payments for 12 years, the debtor and creditor entered a purchase agreement whereby the creditor paid the debtor a lump sum of $52,000 in exchange for the remaining annuity payments payable between 1997 and 2015. Anticipating that the payor might not honor the assignment, the agreement required the debtor to instruct the payor to mail the payments to a lockbox address designated by the creditor, for deposit into an account in the debtor’s name but under the creditor’s control. The creditor received payments in this fashion for approximately 21 months, but in March 1999 the debtor instructed the payor to cease sending payments to the lockbox and send them instead to an account under the debtor’s control. Consequently, the debtor kept payments made for April 1999 and subsequent months. The creditor filed suit in circuit court against the debtor, alleging breach of contract and fiduciary duty, fraud and conversion. The court directed the debtor to deposit into the court’s registry any payments received pending a final ruling. The debtor did not comply but instead, in November 2000, filed a chapter 7 petition and claimed the payments as exempt under state (Virginia) law. The creditor filed an objection to the exemption and an adversary proceeding to determine that its claim against the debtor was nondischargeable. Eventually the creditor moved for summary judgment based on section 523(a)(6). The debtor argued that a valid assignment never occurred because assignment was prohibited under the terms of the settlement agreement and annuity contract. The bankruptcy court granted the creditor’s motion in part and denied it in part, based on two principal rulings: (1) although the debtor had no power to make a valid legal assignment of the payments, a finding of equitable assignment was appropriate because allowing the debtor to keep the lump sum payment along with the annuity payment would constitute unjust enrichment; and (2), according to the majority of decisions, equitable assignments of personal injury proceeds were not dischargeable claims, pursuant to section 101(5), but property interests and that, accordingly, the creditor’s right to specific performance of the annuity purchase agreement was not a claim and had not been discharged. However, the court did not rule on the section 523(a)(6) claim with regard to the payments the debtor retained prepetition, holding that the factual element of malice remained in general dispute, and denying that portion of the summary judgment motion. Granati v. Stone St. Capital, Inc. (In re Granati), 2001 Bankr. LEXIS 1212, – B.R. – (Bankr. E.D. Va. September 1, 2001) (Mitchell, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:101.05[5]
6th Cir.
Holder of avoided lien could not invoke section 550(e) entitlement to replacement lien. Bankr. E.D. Tenn. In 1998, the debtors executed a note and deed of trust in favor of the lender, by which they pledged their interest in previously-acquired real property as security for a loan. The lender mistakenly recorded the deed of trust in the wrong county. The creditor was the lender’s successor in interest. After the debtors filed their chapter 7 petition, the trustee sold the property pursuant to an order of the bankruptcy court, with the creditor’s lien attaching to the sale proceeds to the extent that it was enforceable against the real property. The trustee then filed a motion for summary judgment, seeking to avoid the lien pursuant to his powers under section 544(a). The creditor also sought summary judgment, arguing that, although its security interest could be avoided by the trustee, it was still entitled to a replacement lien pursuant to section 550(e). The parties stipulated that the funds obtained by the loan to the debtors were applied to a prior encumbrance on the property, therefore constituting an 'improvement' of the property, and that the prior lien would have been superior to the trustee’s rights. The bankruptcy court noted that the issue of whether the protections of section 550(e)(1) extended to holders of avoided security interests, or whether anything was actually 'recovered' when a trustee used strong arm powers to avoid a nonpossessory interest, was the subject of divided opinion. The court finally denied the creditor’s motion, reasoning that the debtor’s interest became property of the estate upon the petition filing and that, when such interest merged with the avoided mortgage, the trustee held the entire interest in the property. As such, there was no need for the trustee to recover the creditor’s interest under section 550. Because avoidance and recovery were distinct remedies, and because the trustee was not required to effectuate any additional recovery, section 550(e) was not implicated and defenses provided under that section were unavailable to the creditor. Carpenter v. G.E. Capital Mortg. Servs. (In re Carpenter), 2001 Bankr. LEXIS 1218, 266 B.R. 671 (Bankr. E.D. Tenn. August 13, 2001) (Stair, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:550.06
Motion to reconsider dismissal of chapter 13 denied. Bankr. S.D. Ohio The debtor filed a motion seeking reconsideration of the bankruptcy court’s order denying confirmation of his amended chapter 13 plan and dismissing the case. The court had determined that the debtor failed to (1) establish that he was an individual whose income was sufficiently stable and regular; (2) provide for submission of future income; (3
Collier Bankruptcy Case Update June-23-03
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.
June 23, 2003
CASES IN THIS ISSUE
(scroll down to read the full summary)
§ 522(b)
Evidentiary hearing necessary
regarding debtor’s use of
vacant lot contiguous to residential
lot prior to determination of
application of homestead exemption
to vacant lot.
Fiffy v. Nickless (In re Fiffy)
(B.A.P. 1st Cir.)
2d Cir.
§ 362 Injunction proceeding stayed where plaintiff had commenced an involuntary bankruptcy proceeding against an indispensable party.
Boat Basin Investors, LLC v. First Am. Stock Transfer, Inc. (S.D.N.Y.)
3d Cir.§ 365 License agreements with franchisees were executory contracts which could be rejected by debtor.
In re HQ Global Holdings, Inc. (Bankr. D. Del.)
§ 547(c)(2) Trustee could not avoid payment made by debtor clothier for prepetition shipment of sweaters pursuant to the ordinary course of business exception.
Bohm v. Golden Knitting Mills, Inc. (In re Forman Enters.) (Bankr. W.D. Pa.)
4th Cir.
§ 506(b)
Attorney’s fees and late
charges denied as court could
not determine reasonableness of
agreed flat fee without time records.
Countrywide Home Loans, Inc.
v. Poff (In re Poff) (Bankr.
W.D. Va.)
5th Cir.
§ 523(a)(10) Debtor who agreed to waive discharge of claim in first bankruptcy could not seek discharge of the same claim in subsequent filing.
Glover v. Herzog (In re Herzog) (Bankr. N.D. Miss.)
§ 1322(b)(1) Plan confirmation denied due to separate classification of unsecured student loans which were given more favorable treatment than general unsecured debt.
In re Gilley (Bankr. N.D. Tex.)
28 U.S.C. § 1412 Venue of dispute between debtor and customer changed to district where bankruptcy was pending in the interests of justice and efficient administration of the estate.
Bayou Steel Corp. v. Boltex Mfg. Co., LP (E.D. La.)
6th Cir.
§ 544(a)(1) Creditor’s lien in debtor’s insurance proceeds which was perfected postpetition was avoidable by trustee.
Farmer v. LaSalle Bank (In re Morgan) (Bankr. E.D. Tenn.)
7th Cir.
§ 550(a) Bankruptcy court properly held that creditor lacked standing to bring avoidance actions against other creditors.
Qualitech Steel Corp. v. GE Supply Co. (In re Qualitech Steel Corp.) (S.D. Ind.)
§ 727(d)(1) Discharge revoked due to debtor’s fraudulent concealment of assets.
Swartz v. Spears (In re Spears) (Bankr. C.D. Ill.)
§ 1322(c)(1) Bankruptcy court properly lifted automatic stay to allow debtor’s mortgagee to complete foreclosure where debtor had no further right to redeem when plan was filed.
Colon v. Option One Mortg. Corp. (7th Cir.)
8th Cir.
§ 507(a)(3)(A) Debtor’s employees’ claims for severance and vacation pay were entitled to limited priority treatment.
In re Acoustiseal, Inc. (Bankr. W.D. Mo.)
§ 524(a) Predischarge phone calls and one postdischarge collection letter did not provide basis for sanctions against creditor for violation of discharge injunction.
In re Graves (Bankr. N.D. Iowa)
§ 524(a) Debtor’s motion for sanctions for violation of discharge injunction denied as discharge had not yet issued.
In re Bandy (Bankr. N.D. Iowa)
§ 550(a)(1) Creditor could not enforce settlement agreement that was subject of preference action where agreement was a transfer of estate property and was not part of a final judgment.
Peltz v. Gulfcoast Workstation Group (In re Bridge Info. Sys., Inc.) (Bankr. E.D. Mo.)
9th Cir.
§ 110 Bankruptcy court properly held that petition preparer had engaged in unfair and deceptive practices and improperly collected court fees from debtors.
Scott v. United States Trustee (In re Doser) (D. Idaho)
§ 503(b) Creditor entitled to administrative expense for unpaid, postpetition lease payments on debtor’s construction vehicles, but was not entitled to superpriority.
Zions Credit Corp. v. Rebel Rents, Inc. (In re Rebel Rents, Inc.) (Bankr. C.D. Cal.)
10th Cir.
§ 330(a) Bankruptcy court properly reduced debtors’ attorney’s fees and ordered payment of the fees through the chapter 12 plan as administrative expenses.
Miller v. United States Trustee (In re Miller) (B.A.P. 10th Cir.)
§ 523(a)(2)(A) Claim of creditor who sold medical practice on the basis of debtor’s misrepresentations was nondischargeable on grounds of intentional fraud.
Doig v. McHugh (In re McHugh) (Bankr. D. Colo.)
11th Cir.
§ 522(b) Debtor was not entitled to state exemption in interest in non-qualified pension plan.
In re Madia (Bankr. M.D. Fla.)
§ 523(a) Judgment against attorney debtor for fraud while acting in a fiduciary capacity was nondischargeable.
Bookbinder v. Pleeter (In re Pleeter) (Bankr. S.D. Fla.)
§ 523(a)(4) Claim that debtor accountant overcharged former client did not rise to the level of fraud or embezzlement and was dischargeable.
Kagan v. Bercu (In re Bercu) (Bankr. M.D. Fla.)
§ 544(b) Trustee could not avoid purchases made by nondebtor with cash received from corporate debtor’s principal shareholder absent judgment of liability to estate, although imposition of constructive trust was appropriate.
Hyman v. Harrold (In re Scott Wetzel Servs., Inc.) (Bankr. M.D. Fla.)
Collier Bankruptcy Case Summaries
1st
Cir.
Evidentiary
hearing necessary regarding
debtor’s use of vacant
lot contiguous to residential
lot prior to determination of
application of homestead exemption
to vacant lot. B.A.P.
1st Cir. PROCEDURAL
POSTURE: Appellant
debtor appealed the order of
the Bankruptcy Court for the
District of Massachusetts that
sustained in part and overruling
in part the objection of appellee
chapter 7 trustee to the debtor’s
claimed homestead exemption
in four parcels of real estate
under Mass. Gen. Laws ch. 188,
section 1. OVERVIEW:
The debtor owned three lots
(residential lots) on which
his house, outbuildings, and
driveway were located. The debtor
also acquired a fourth contiguous
parcel of land, designated as
“lot A,” by a separate
deed. Lot A was vacant wooded
land, had no frontage on any
street, and was located immediately
behind the residential lots.
The debtor filed a declaration
of homestead with respect to
the four contiguous lots. The
trustee asserted that only the
lot with the house, was entitled
to the exemption. The bankruptcy
appellate panel found that Massachusetts
law did not proscribe a homestead
exemption simply because the
property consisted of separately-deeded
parcels, nor did it require
partition of property included
in the homestead simply because
a part of the claimed homestead
was vacant land. Rather, it
required that the additional
parcel actually be used and
occupied as part of the principal
residence or in connection with
the principal residence. Although
the bankruptcy court stated
the standard to be one of “actual
use” of the property,
it did not conducted a fact
specific inquiry into the nature
and use, or the intended use,
of lot A by the debtor. Fiffy
v. Nickless (In re Fiffy),
2003 Bankr. LEXIS 502, —
B.R. — (B.A.P. 1st Cir.
May 29, 2003) (Votolato, B.J.).
Collier on Bankruptcy,
15th Ed. Revised 4:522.02
[back
to top]
2d Cir.
Injunction
proceeding stayed where plaintiff
had commenced an involuntary bankruptcy
proceeding against an indispensable
party. S.D.N.Y. PROCEDURAL
POSTURE: Plaintiff sellers
moved pursuant to Fed. R. Civ.
P. 65 for an injunction ordering
the delivery of a certain number
of free-trading shares of a corporation
by defendant companies and individuals.
OVERVIEW: The
corporation was an indispensable
party under Fed. R. Civ. P. 19(a).
Thus, the court could not reach
the merits of the seller’s
claim ; the seller’s could
not show the likelihood of success
on the merits or serious questions
going to the merits. The court
assumed the corporation had acquiesced
to the jurisdiction of the court,
as the corporation submitted papers
and appeared before the court.
Further, there was no evidence
that the corporation would destroy
diversity jurisdiction. Thus,
the corporation met the jurisdictional
requirements of Rule 19. The corporation
was also a necessary party, as
complete relief could not be accorded
in the absence of the corporation,
which was the principal in a principal/agent
relationship with two defendants
and had given its agents limited
ability to provide the relief
requested. Further, the sellers
appeared to acknowledge that the
corporation should be a party
to this action; however, they
did not join the corporation because
they had initiated an involuntary
bankruptcy petition against the
corporation under 11 U.S.C. §
303. Because the resulting automatic
stay, the court had to stay this
action until the corporation could
be joined. Boat Basin
Investors, LLC v. First Am. Stock
Transfer, Inc., 2003
U.S. Dist. LEXIS 1838, —
B.R. — (S.D.N.Y. February
7, 2003) (Sweet, D.J.).
Collier on Bankruptcy, 15th Ed.
Revised 3:362.01 [back
to top]
ABI Members, click here to get the full opinion.
3d Cir
License
agreements with franchisees were
executory contracts which could
be rejected by debtor. Bankr.
D. Del. PROCEDURAL
POSTURE: A debtor
and its related entities (the
debtors) filed chapter 11 petitions
and the cases were jointly administered.
The debtors later moved to reject
certain license agreements with
certain franchisees. The franchisees’
committee and the individual franchisees
opposed the motion and claimed
that the agreements were not executory
contracts subject to 11 U.S.C.
§ 365. OVERVIEW:
The agreements in issue were related
to the exclusive use of the proprietary
marks in certain territories.
Under the agreements the debtors
could not use the proprietary
marks in the territories it granted
to the franchisees. The court
found that the debtors’
agreement to forbear from using
the proprietary marks in the exclusive
franchisee territories was an
ongoing material obligation as
of the bankruptcy petition date.
The court concluded that the agreements
were executory contracts subject
to the provisions of 11 U.S.C.
§ 365. The court used the
business judgment standard to
determine that the debtors’
rejection of the agreements was
made to benefit the estate and
not done in bad faith. The franchisees
were not protected by 11 U.S.C.
§ 365(n).
In re HQ Global Holdings,
Inc., 2003
Bankr. LEXIS 146, 290 B.R. 507
(Bankr. D. Del. February 25, 2003)
(Walrath, B.J.).
Collier on Bankruptcy, 15th Ed.
Revised 3:365.01 [back
to top]
ABI Members, click here to get the full opinion.
Trustee could not avoid payment made by debtor clothier for prepetition shipment of sweaters pursuant to the ordinary course of business exception. Bankr. W.D. Pa. PROCEDURAL POSTURE: Plaintiff, chapter 7 trustee in bankruptcy, sought to avoid as a preference a payment made by debtor clothier to defendant creditor, made five weeks prior to the filing of debtor’s bankruptcy petition for a shipment of sweaters the debtor had previously received from the creditor. The creditor asserted the payment was made within the “ordinary course” of business, and was not avoidable under 11 U.S.C. § 547(c)(2). OVERVIEW: The creditor sold the merchandise to the debtor after receiving a favorable credit report, on NET 30-day terms. The two had never done business before. The court determined that the transfer to the creditor qualified as a preference under 11 U.S.C. § 547(b), because the debtor was insolvent at the time it made the payment. The creditor argued that the transfer nonetheless fell within the scope of the “ordinary course” exception set forth in 11 U.S.C. § 547(c)(2). It was undisputed that the transfer debtor made for the first shipment of sweaters was on account of a debt incurred in the ordinary course of the business affairs of the debtor and the creditor. The creditor presented testimony describing the relevant industry, that payments routinely were made after the due date on “NET 30” terms. The court agreed that no unusual conduct occurred during the period between when the creditor had shipped the sweaters and the debtor had sent the payment that would have taken the payment out of the ordinary course of business. Although the payment was a preference, it could not be avoided under the ordinary course of business exception. Bohm v. Golden Knitting Mills, Inc. (In re Forman Enters.), 2003 Bankr. LEXIS 543, — B.R. — (Bankr. W.D. Pa. June 3, 2003) (Markovitz, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:547.04[2] [back to top]
ABI Members, click here to get the full opinion.
Attorney’s
fees and late charges denied as
court could not determine reasonableness
of agreed flat fee without time
records. Bankr. W.D.
Va. PROCEDURAL POSTURE:
Previously, the chapter 7 trustee
liquidated property in which movant,
a secured creditor, held a security
interest. The trustee paid the
secured debt from the sale proceeds,
and the secured creditor moved
for the payment of attorney fees
and late charges pursuant to 11
U.S.C. § 506. The trustee
objected to the motion. OVERVIEW:
The secured creditor sought payment
of attorney’s fees in the
amount of $1,225.00 and late charges
of $50.95. The trustee objected.
At hearing on the objection, counsel
for the secured creditor presented
no evidence to support allowance
of attorney’s fees under
11 U.S.C. § 506(b) or the
late charges. Subsequently, in
response to an order of the court,
the secured creditor’s attorney
filed documentation supporting
the fee request and late charges.
In that documentation, counsel
revealed that the matters covered
by the request for attorney’s
fees arose as a result of a flat
fee arrangement between counsel
and the secured creditor. Counsel
did not maintain time records.
Without time records, the court
has no basis for determining the
reasonableness of the fees counsel
requested. Also, counsel again
failed to justify the late charge
fee of $50.95. Countrywide
Home Loans, Inc. v. Poff (In re
Poff), 2003
Bankr. LEXIS 507, — B.R.
— (Bankr. W.D. Va. May 27,
2003) (Krumm, B.J.).
Collier on Bankruptcy, 15th Ed.
Revised 4:506.04 [back
to top]
ABI Members, click here to get the full opinion.
5th Cir.
Debtor
who agreed to waive discharge
of claim in first bankruptcy could
not seek discharge of the same
claim in subsequent filing.
Bankr. N.D. Miss. PROCEDURAL
POSTURE: In a prior bankruptcy,
defendant debtor agreed to a waiver
of discharge on obligations owed
to plaintiff creditor. Subsequently,
the debtor filed for bankruptcy,
seeking to discharge the creditor’s
obligations to which the debtor
waived discharge. The creditor
filed an adversary proceeding
seeking a determination that the
debts were nondischargeable pursuant
to 11 U.S.C. § 523(a)(10).
The creditor moved for summary
judgment. OVERVIEW:
After the waiver in the prior
bankruptcy, the creditor obtained
a state court judgment against
the debtor. The debtor submitted
an affidavit that although at
the time of the waiver, he felt
it was a conscious and fully informed
judgment, he subsequently discovered
the total ramifications of such
a waiver. If he had known the
full ramifications, he would never
have agreed to this waiver of
discharge. The bankruptcy court
was unsympathetic, calling the
debtor’s actions a blatant
effort to abuse the bankruptcy
process. The debtor could not
manufacture a disputed material
issue of fact by simply submitting
a second sworn affidavit that
was directly adverse to the earlier
affidavit that he submitted in
the prior bankruptcy. The bankruptcy
court held that the debtor was
judicially estopped from attempting
to take his current legal position
which was completely inconsistent
with the position that he took
in the prior bankruptcy. Glover
v. Herzog (In re Herzog),
2003 Bankr. LEXIS 501, —
B.R. — (Bankr. N.D. Miss.
May 5, 2003) (Houston, B.J.).
Collier on Bankruptcy,
15th Ed. Revised 4:523.16 [back
to top]
ABI Members, click here to get the full opinion.
Plan
confirmation denied due to separate
classification of unsecured student
loans which were given more favorable
treatment than general unsecured
debt. Bankr. N.D. Tex.
PROCEDURAL POSTURE: Debtors
moved for confirmation of their
proposed final chapter 13 plan.
The chapter 13 trustee objected
to the plan, arguing that it unfairly
discriminated against unsecured
creditors. OVERVIEW:
Debtors’ plan was a 60-month
plan providing for payments of
$440 per month, resulting in a
5.6 percent return to unsecured
creditors. The plan separately
classified the two student loans
and provided for direct payments
of $200 per month against the
student loans. Debtors and the
trustee stipulated that, if the
student loan debts were not separately
classified (and hence no discrimination)
and thus paid pro rata with other
unsecured creditors, the dividend
to unsecured creditors under a
hypothetical 36-month plan would
increase to approximately 12 percent.
The parties further stipulated
that the $200 direct payment on
the student loans was the regular
payment on the loans and that
such payment will continue for
a period of 10 years. The trustee
argued that the plan violated
11 U.S.C. § 1322(b)(1), by
treating nondischargeable unsecured
student loan obligations more
favorably than dischargeable general
unsecured debt. The court adopted
a formula described in another
bankruptcy case in the district
and, based on that formula, debtors’
plan did violate section 1322(b)(1).
Paragraph (b)(5) did not save
the plan, as it did not constitute
an exception to paragraph (b)(1).
In re Gilley,
2003 Bankr. LEXIS 520, —
B.R. — (Bankr. N.D. Tex.
June 3, 2003) (Jones, B.J.).
Collier on Bankruptcy, 15th Ed.
Revised 8:1322.05 [back
to top]
ABI Members, click here to get the full opinion.
Venue
of dispute between debtor and
customer changed to district where
bankruptcy was pending in the
interests of justice and efficient
administration of the estate.
E.D. La. PROCEDURAL
POSTURE: Plaintiff seller
filed a voluntary petition for
relief under chapter 11 in the
Bankruptcy Court for the Northern
District of Texas. The seller
commenced an action in state court
against defendant buyer, seeking
money for steel allegedly purchased
by the buyer. The buyer removed
the case and moved to transfer
venue. The seller moved for abstention
and/or remand. OVERVIEW:
The case was removed to the district
court on the grounds that it was
arising in or related to the seller’s
bankruptcy case, under 28 U.S.C.
§§ 1334(b), 1452(a).
The buyer contended that it was
entitled to a setoff and/or recoupment.
There was a strong presumption
in favor of placing venue in the
district where the bankruptcy
proceedings were pending. The
court found that the considerations
behind the presumption were heightened
because the determination under
28 U.S.C. § 157(b)(3) was
required in order to decide the
seller’s motion for abstention
and/or remand. This determination
was for the bankruptcy judge.
Thus, the interests of justice
and the efficient administration
of the bankruptcy estate strongly
favored transfer. Moreover, it
likely would have been more convenient
for the parties to litigate both
the seller’s claim and the
buyer’s counterclaim in
the same forum-particularly if
both claims arose out of the same
transaction. Thus, whether the
buyer’s claim was ultimately
classified as a setoff or not,
the buyer was restricted to the
bankruptcy court in its pursuit
of that claim until the bankruptcy
court determined otherwise. Bayou
Steel Corp. v. Boltex Mfg. Co.,
LP, 2003 U.S. Dist. LEXIS
9395, — B.R. — (E.D.
La. May 30, 2003) (Englehardt,
D.J.).
Collier on Bankruptcy,
15th Ed. Revised 1:4.04
[back
to top]
ABI Members, click here to get the full opinion.
6th Cir.
Creditor’s
lien in debtor’s insurance
proceeds which was perfected postpetition
was avoidable by trustee. Bankr.
E.D. Tenn. PROCEDURAL
POSTURE: The chapter
7 trustee sought to avoid the
creditor’s security interest
in the debtor’s car under
Tenn. Code § 55-3-126 and
11 U.S.C. §§ 544 and
550, and argued that perfection
after the bankruptcy violated
11 U.S.C. § 362 and that
insurance proceeds paid to the
creditor were subject to turnover
under 11 U.S.C. § 542. On
cross motions for summary judgment,
the creditor argued it was entitled
to equitable subrogation. OVERVIEW:
The exclusive method for obtaining
a perfected security interest
on the car was by having such
lien noted on the certificate
of title as provided by Tenn.
Code § 55-3-126. Although
the creditor had refinanced the
debtor’s car and paid off
the prior lienor, the creditor’s
security interest was not perfected
for two years. The security interest
in the car was not perfected until
the Tennessee Department of Title
and Registration received the
creditor’s application for
the notation of the lien on the
certificate of title, which was
after the bankruptcy. Any equitable
principals under Tenn. Code §
47-1-103, such as subordination,
had to give way to the requirements
of Tenn. Code §§ 47-9-311
and 55-3-126. Perfection occurred
in violation of the automatic
stay of 11 U.S.C. § 362(a)(4)
and was voided. The trustee, as
a hypothetical judicial lien creditor
under 11 U.S.C. § 544(a)(1),
was entitled to avoid the creditor’s
lien in the insurance proceeds
received from the insurance company
and to recover the same under
11 U.S.C. § 550(a)(1). Farmer
v. LaSalle Bank (In re Morgan),
2003 Bankr. LEXIS 327, 291 B.R.
795 (Bankr. E.D. Tenn. March 18,
2003) (Stair, B.J.).
Collier on Bankruptcy, 15th Ed.
Revised 5:544.05 [back
to top]
ABI Members, click here to get the full opinion.
Bankruptcy
court properly held that
creditor lacked standing
to bring avoidance actions
against other creditors.
S.D. Ind.
PROCEDURAL POSTURE:
Plaintiff, a creditor, filed
avoidance actions against
defendants, two corporations.
On cross-motions for summary
judgment, the bankruptcy
court granted summary judgment
to the corporations and
denied summary judgment
to the creditor. The creditor
appealed. OVERVIEW:
On appeal, the creditor
asserted that the bankruptcy
court erred when it found
that it lacked jurisdiction
over the proceedings because
the assets at issue had
been transferred out of
the bankruptcy estates and
because the creditor lacked
standing. Based on the facts
and the history of the case,
the district court found
that the bankruptcy court
committed clear error when
it found that the avoidance
claims at issue were sold
in the estate asset sale,
and therefore, the bankruptcy
court lacked jurisdiction
over the action. Therefore,
the bankruptcy court improperly
granted summary judgment
in the corporations’
favor on the basis that
it lacked subject matter
jurisdiction over the claims
asserted. However, the district
court also found that the
creditor lacked standing
to bring adversary proceedings
against the corporations
because it failed to demonstrate
that it could stand in the
shoes of the debtors and
because it failed to show
that recovery would benefit
the bankruptcy estates.
Accordingly, the bankruptcy
court properly granted summary
judgment in favor of the
corporations on the basis
that the creditor lacked
standing. Qualitech
Steel Corp. v. GE Supply
Co. (In re Qualitech Steel
Corp.), 2003
U.S. Dist. LEXIS 9427, —
B.R. — (S.D. Ind.
May 9, 2003) (McKinney,
C.D.J.).
Collier on Bankruptcy, 15th
Ed. Revised 5:550.02 [back
to top]
ABI Members, click here to get the full opinion
Discharge revoked due to debtor’s fraudulent concealment of assets. Bankr. C.D. Ill. PROCEDURAL POSTURE: The trustee filed an adversary complaint to revoke the debtor’s discharge under 11 U.S.C. § 727(d)(1), arguing that the debtor failed to disclose a large sum of cash in her bankruptcy papers as the debtor was obligated to do by 11 U.S.C. § 521 and Fed. R. Bankr. P. 1007(b). OVERVIEW: It was undisputed that the trustee was unaware of facts which would have put him on notice of the debtor’s possible frau
Collier Bankruptcy Case Update September-8-03
- West's
Bankruptcy Newsletter
A Weekly Update of Bankruptcy and Debtor/Creditor Matters
Collier Bankruptcy Case Update
The following case summaries appear in the Collier Bankruptcy Case Update, which is published by Matthew Bender & Company Inc., one of the LEXIS Publishing Companies.
September 8, 2003
CASES IN
THIS ISSUE
(scroll down to read the full
summary)
28 U.S.C. § 1930 Indigent
debtor’s request to proceed with bankruptcy appeal in forma
pauperis denied.
Lu v. Ravida (In re Ravida) (B.A.P. 1st Cir.)
2nd Cir.
§ 524(a) Postdischarge recording of previously unrecorded equitable lien that passed through bankruptcy was not an attempt to collect but rather an attempt to preserve lien rights in property.
In re Pecora (Bankr. W.D.N.Y.)
3rd Cir.
§ 105(a) Court exercised equitable
powers to issue channeling injunction to protect two affiliates of
debtor from asbestos claims.
In re Combustion Eng’g, Inc. (Bankr. D. Del.)
§ 548(a)(1)(A) Trustee could not maintain
fraudulent transfers claims grounded in a previously denied attempt to
pierce corporate veil.
Brown v. G.E. Capital Corp. (In re Foxmeyer Corp.) (Bankr. D.
Del.)
Rule 9006 Late proof of claim allowed due to
misrouted or delayed mail but second late claim disallowed due to lack
of testimony as to circumstances causing delay.
In re Spring Ford Indus., Inc. (Bankr. E.D. Pa.)
4th Cir.
§ 522(b)(2)(B) Trustee’s objection to debtor’s claim of exemption in property held with nondebtor spouse as tenants by the entirely overruled.
In re Greathouse (Bankr. D. Md.)
5th Cir.
§ 522(d)(10) Promissory note from former spouse to debtor was part of property settlement, not alimony, and could not be shielded from creditors.
Milligan v. Evert (In re Evert) (5th Cir.)
§ 707 Debtor’s second chapter 7 petition dismissed as an attempt to avoid state court action filed after dismissal of first chapter 7 petition.
Montes v. Wells Fargo Bank (In re BMG Invs., Inc.) (Bankr. N.D. Tex.)
28 U.S.C. § 586(e) District court properly ruled that United States trustee could recover compensation overpayment made to trustee.
Bolen v. Dengel (5th Cir.)
6th Cir.
§ 522(f) Bankruptcy Code definition of impairment controlled over state law definition in ruling on exemption.
In re Northern (Bankr. E.D. Tenn.)
7th Cir.
§ 523(a)(15) Debts which were the debtor’s responsibility pursuant to divorce decree and which debtor had made no efforts to pay for two years were nondischargeable.
Huchteman v. Ingalls (In re Ingalls) (Bankr. C.D. Ill.)
Rule 9023 Counsel’s reliance on erroneous information from clerk’s office and failure to monitor docket did not constitute excusable neglect that would allow relief from dismissal.
In re Delaughter (Bankr. N.D. Ill.)
Rule 9024 Confirmation of second amended plan that changed start date of payments to creditor vacated despite creditor’s delayed objection.
In re Hunt (Bankr. C.D. Ill.)
8th Cir.
§ 330 Bankruptcy court properly approved employment of financial advisors subject to court approval of fees.
Official Comm. of Unsecured Creditors v. Farmland Indus., Inc. (In re Farmland Indus., Inc.) (B.A.P. 8th Cir.)
§ 727(a) Erroneous, prematurely entered discharged vacated and discharge denied due to debtor’s nondisclosure and misrepresentation.
Gray v. Gray (In re Gray) (Bankr. W.D. Mo.)
§ 1322(e) Objection to plan confirmation sustained due to debtors’ failure to provide for mortgage interest.
In re Koster (Bankr. E.D. Mo.)
9th Cir.
§ 544(a) Debtor’s divorce attorney did not have a valid lien in the proceeds of prepetition sale of community real property that had not been distributed at time of filing.
Broach v. Michell (In re Bouzas) (Bankr. N.D. Cal.)
10th Cir.
§ 362(a) Bankruptcy court abused discretion in denying relief from stay for purposes of allowing completion of administrative action for final accounting.
Oklahoma State Dep’t of Health v. Medical Mgmt. Group, Inc. (In re Medical Mgmt. Group, Inc.) (B.A.P. 10th Cir.)
28 U.S.C. § 157(b)(2)(C) Adversary proceeding challenging contract that was the basis for creditor’s proof of claim was a core proceeding.
Malloy v. Zeeco, Inc. (In re Applied Thermal Sys., Inc.) (Bankr. N.D. Okla.)
11th Cir.
§ 330(a) Separately billed paralegal time allowed as administrative expense of counsel to committee only to extent functions performed were professional and not clerical.
In re Joseph Charles & Assocs., Inc. (Bankr. S.D. Fla.)
§ 523(a)(4) Debt owed to state by store owner who failed to remit lottery proceeds was nondischargeable as fiduciary defalcation.
Georgia Lottery Corp. v. Thompson (In re Thompson) (Bankr. M.D. Ga.)
Collier Bankruptcy Case Summaries
1st Cir.
Indigent debtor’s request to
proceed with bankruptcy appeal in forma pauperis denied.
B.A.P. 1st Cir. PROCEDURAL POSTURE: Appellant
individual appealed the dismissal of his case in which he objected to an
order of the Bankruptcy Court for the District of Massachusetts
discharging appellee debtor. The individual moved for leave to proceed
in forma pauperis before the First Circuit. The First Circuit
transmitted the motion to the bankruptcy appellate panel for action.
OVERVIEW: The question was whether the
individual’s appellate filing fees could be waived under 28 U.S.C.
§ 1915(a). The bankruptcy appellate panel concluded that it could
consider the individual’s 28 U.S.C. § 1915 request to proceed
in forma pauperis on appeal because appeal fees were not explicitly
excepted from waiver by 28 U.S.C. § 1930. Turning to the merits of
the motion, the individual met the requisite showing of poverty given
his attestations of homelessness, unemployment, and lack of assets.
However, the individual failed to demonstrate probable success on the
merits because he was attempting to relitigate the district
court’s final judicial decision affirming the bankruptcy
court’s order overruling his objection to the debtor’s
discharge. Moreover, the claims were manifestly frivolous as the
individual had presented no valid ground for vacating or modifying the
bankruptcy court’s order. Lu v. Ravida (In re
Ravida), 2003 Bankr. LEXIS 889, 296 B.R. 278 (B.A.P.
1st Cir. July 31, 2003) (per curiam).
Collier on Bankruptcy, 15th Ed. Revised 1:9.05 [back to top]
2nd Cir.
Postdischarge recording of
previously unrecorded equitable lien that passed through bankruptcy was
not an attempt to collect but rather an attempt to preserve lien rights
in property. Bankr. W.D.N.Y. PROCEDURAL
POSTURE: Married debtors filed a joint chapter 7 petition.
Debtors requested an order that authorized chapter 7 trustee to abandon
any interest in certain mortgaged property. An abandonment order and a
discharge order were entered. The case was closed and reopened on
debtors’ motion after creditor recorded its previously unrecorded
equitable lien in the property. Debtors’ moved to hold creditor in
contempt, pursuant to 11 U.S.C. § 524. OVERVIEW:
Chapter 7 trustee did not exercise any rights and powers that he had to
avoid the unrecorded equitable lien of the mortgaged property issue, and
trustee also affirmatively consented to its abandonment. The trustee
would have had the status of a bona fide purchaser for value under 11
U.S.C. § 544(a)(3), and could have avoided the unrecorded mortgage
property had it conferred a benefit upon the bankruptcy estate. The
court believed that trustee did not exercise his avoidance powers on
behalf of the estate where there was insufficient equity over and above
the first mortgage and debtors’ exemption to administer the
property. After debtors’ chapter 7 case was closed, the equitable
lien passed through bankruptcy unaffected, and the automatic stay,
pursuant to 11 U.S.C. § 362, was no longer in effect when the
mortgage was recorded. The act of recording the lien was intended to
ensure that the equitable rights of the mortgagee was not affected by
the rights of any future bona fide purchaser for value and was not an
act to recover a discharged debt as a personal liability of debtors.
Creditor’s action did not violate the discharge injunction of 11
U.S.C. § 524(a)(2). In re Pecora,
2003 Bankr. LEXIS 897, — B.R. — (Bankr. W.D.N.Y. July
21, 2003) (Ninfo, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:524.02 [back to top]
ABI Members, click here to get the full opinion.
Court exercised equitable powers to
issue channeling injunction to protect two affiliates of debtor from
asbestos claims. Bankr. D. Del. PROCEDURAL
POSTURE: Proponents of a chapter 11 plan filed by the debtor,
an engineering corporation, sought approval of its disclosure statement
and confirmation of its plan. OVERVIEW: Products
liability claims involving asbestos injuries left the debtor unable to
pay its obligations without assistance from its parent company. The plan
proponents sought a channeling injunction to protect two affiliates of
the debtor from asbestos lawsuits in order to maintain the availability
of shared insurance coverage to the debtor. The plan included the
establishment of a fund for asbestos claimants. The bankruptcy judge
found that the cutoff date for claims against the fund was fair to all
claimants. Although a channeling injunction under 11 U.S.C. §
524(g) could not apply to a nondebtor’s independent liabilities,
the court’s equitable power under 11 U.S.C. § 105(a) was
broad enough to permit a stay of proceedings and channeling injunction
against the debtor’s affiliates for their direct liabilities. For
plan confirmation purposes, there was no value to potential fraudulent
transfer claims. The bankruptcy judge further found that the plan was
feasible, that the disclosure statement was adequate with respect to the
information provided to creditors at the time it was disseminated, and
that the plan was in the best interests of all creditors. In
re Combustion Eng’g, Inc., 2003 Bankr. LEXIS
729, 295 B.R. 459 (Bankr. D. Del. June 23, 2003) (Fitzgerald,
B.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:105.05 [back to top]
ABI Members, click here to get the full opinion.
Trustee could not
maintain fraudulent transfers claims grounded in a previously denied
attempt to pierce corporate veil. Bankr. D. Del.
PROCEDURAL POSTURE: Plaintiffs, related debtors, filed
chapter 7 petitions and the cases were jointly administered. The debtors
and co-plaintiff chapter 7 trustee filed suit against defendants,
various creditors. The creditors moved for consideration of a motion for
the entry of a judgment in their favor on the trustee’s four
remaining counts for fraudulent conveyance, pursuant to Fed. R. Civ. P.
52(c); Fed. R. Bankr. P. 7052. OVERVIEW: The court
disagreed with the trustee’s position that the motion under Fed.
R. Civ. P. 52(c), which was applicable to the bankruptcy adversary
action by Fed. R. Bankr. P. 7052, was procedurally improper. The court
found, as a matter of law, that if a party was fully heard on a
particular issue that arose within the prosecution of a claim and a
court found against such party on such issue, then the court was free to
grant judgment under Fed. R. Civ. P. 52(c) against such party on other
issues that such party was not yet heard. The court held that pursuant
to an earlier decision that denied corporate veil piercing, the trustee
could no longer prevail certain counts related to alleged fraudulent
intent, which precluded recovery. The court rejected the trustee’s
position that the transactions in issue were intended to hinder, delay,
or defraud the debtor’s unsecured creditor body within the meaning
of 11 U.S.C. § 548(a)(1)(A); N.Y. Debt. & Cred. Law § 276.
In certain situations the debtor could favor, indeed prefer, any one or
several of its unsecured creditors with a transfer of assets to the
detriment of the remaining unsecured creditor body, even in the face of
insolvency. Brown v. G.E. Capital Corp. (In re Foxmeyer
Corp.), 2003 Bankr. LEXIS 915, 296 B.R. 327 (Bankr. D. Del.
August 4, 2003) (McCullough, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:548.04
[back to
top]
ABI Members, click here to get the full opinion.
Late proof of claim
allowed due to misrouted or delayed mail but second late claim
disallowed due to lack of testimony as to circumstances causing
delay. Bankr. E.D. Pa. PROCEDURAL
POSTURE: Debtor filed a chapter 11 petition. Creditor filed two
claims after the claim bar date and debtor objected. Creditor moved for
a court order that permitted the late filed claims.
OVERVIEW: The court found that related to
creditor’s claim one, there was no prejudice, which was the most
important factor to disallow an untimely filed claim. Given the absence
of any prejudice from the late filing, it was not necessary for the
justification for the delay to be so strong. The court found that the
Third Circuit recognized misrouted mail and short internal mail delays
as justification for untimely filings, but the United States Supreme
Court cautioned that office upheaval was not. The bankruptcy court gave
consideration to creditor’s promptness of the action taken once
the missed deadline was discovered. Pursuant to Fed. R. Bankr. P. 9006,
the court allowed the late filing of claim one, but disallowed claim
two. Claim two was not allowed where creditor failed to present any
testimony related to the circumstances of the late filing of claim two.
Creditor had the burden to show, as the moving party, to prove excusable
neglect, which it failed to do. In re Spring Ford Indus.,
Inc., 2003 Bankr. LEXIS 683, — B.R. — (Bankr. E.D.
Pa. June 20, 2003) (Sigmund, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 10:9006.01
[back to
top]
ABI Members, click here to get the full opinion.
Trustee’s objection to
debtor’s claim of exemption in property held with nondebtor spouse
as tenants by the entirely overruled. Bankr. D. Md.
PROCEDURAL POSTURE: Chapter 7 trustee filed an
objection to debtor’s amended claim of exempt property.
OVERVIEW: The trustee took exception and sought to
prevent debtor from exempting from administration by the trustee
debtor’s interest in a single family residence owned by debtor and
debtor’s spouse (not in bankruptcy), as tenants by the entireties.
The residence was located in Maryland. The trustee argued that
debtor’s interest in the tenancy by the entireties could not be
exempted for any purpose. The trustee’s position had been rejected
without exception by other courts. The trustee would have the court find
that where only a hypothetical creditor could be posited that could
collect from debtor’s interest in the tenants by the entirety
property, the exemption totally failed and the property was
administrable for all actual creditors, regardless of their rights
against the property interest. The court, however, found that the ruling
sought by the trustee would render 11 U.S.C. § 522(b)(2)(B)
nugatory. In re Greathouse, 2003 Bankr. LEXIS 717,
295 B.R. 562 (Bankr. D. Md. June 12, 2003) (Keir,
B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:522.10[3] [back to top]
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5th Cir.
Promissory note from former spouse to
debtor was part of property settlement, not alimony, and could not be
shielded from creditors. 5th Cir. PROCEDURAL
POSTURE: Appellants, a bankruptcy trustee and creditors, sought
review of a judgment from the District Court for the Western District of
Texas, which affirmed the bankruptcy court’s determination that a
promissory note payable to appellee debtor and executed by the
debtor’s former husband constituted alimony, support, or separate
maintenance and, therefore, could be shielded from the creditors under
11 U.S.C. § 522(d)(10)(D). OVERVIEW: Because there
was little precedent concerning what qualified as “alimony,
support, or separate maintenance” under section 522(d)(10)(D), the
lower courts relied on precedent interpreting 11 U.S.C. §
523(a)(5). The trustee argued that the bankruptcy court applied the
wrong law because the Nunnally factors used to define alimony, support,
and maintenance in the discharge context were not applicable to the
interpretation of the exemption under 11 U.S.C. § 522(d)(10)(D).
The court reversed the judgment, finding that the bankruptcy court made
an error of law in prematurely resorting to the Nunnally factors.
Although the Nunnally factors were binding law at least as to 11 U.S.C.
§ 523(a)(5), the court concluded that they should not be applied to
11 U.S.C. § 522(d)(10)(D) where the written agreement and divorce
decree clearly established the nature of the obligation and where there
were distinct provisions for nontrivial alimony and for the property
settlement. The court held that the note was not exempt because both the
labels given to the obligation in the agreement and the substantive
characteristics of the obligation clearly reflected that it was a part
of a property settlement. Milligan v. Evert (In re
Evert), 2003 U.S. App. LEXIS 16115, — F.3d — (5th
Cir. August 6, 2003) (Garwood, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:522.09[10]
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Debtor’s second
chapter 7 petition dismissed as an attempt to avoid state court action
filed after dismissal of first chapter 7 petition. Bankr.
N.D. Tex. PROCEDURAL POSTURE: Defendant debtor
filed a chapter 7 petition, but was dismissed. Plaintiffs, two
creditors, filed a state court action against the debtor that was
removed after the debtor second chapter 7 petition was filed. The debtor
moved for relief from alleged violations of the automatic stay. The
creditors moved: (1) to dismiss the chapter 7 case; and (2) remand the
action back to state court. OVERVIEW: The
debtor’s first case was dismissed for failure to file required
schedules and a statement of financial affairs. The chapter 7 trustee
opposed the creditors’ remand motion. The trustee also opposed the
dismissal motion and sought an opportunity to investigate the potential
assets listed in the debtor’s schedules. The court found that
there was no automatic stay violation. The motion for sanctions was
filed after the prior case was dismissed and before the present case was
filed. Pursuant to 11 U.S.C. § 362(c)(2)(B), the automatic stay did
not apply after the dismissal of a case or before the filing of a case.
The court found that dismissal, pursuant to 11 U.S.C. § 707, was
warranted where the debtor’s bankruptcy petitions were attempts to
avoid the creditors’ state court action. The bankruptcy court
found that bankruptcy was not an appropriate form of relief where the
debtor lacked required elements. Because of the dismissal of the
bankruptcy case, remanding the case was appropriate. Montes
v. Wells Fargo Bank (In re BMG Invs., Inc.), 2003 Bankr. LEXIS
672, — B.R. — (Bankr. N.D. Tex. June 27, 2003) (Jones,
B.J.).
Collier on Bankruptcy, 15th Ed. Revised 6:707.01
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District court properly
ruled that United States trustee could recover compensation overpayment
made to trustee. 5th Cir. PROCEDURAL
POSTURE: Appellee the United States trustee (“UST”)
sued appellant trustee to recover a compensation overpayment. The
trustee counterclaimed against the UST and filed third-party claims
against appellee bank. The District Court for the Eastern District of
Louisiana found in favor of the UST, and granted the bank’s motion
to dismiss as well. The trustee appealed. OVERVIEW: The
court initially held that the UST’s interpretation of 28 U.S.C.
§ 586(e) using the Executive Office of the United States
Trustee’s (“EOUST”) handbook was reasonable due to the
ambiguity of 28 U.S.C. § 586(e), and that, although the EOUST
handbook was not entitled to full Chevron deference, the UST’s
expense first policy was persuasive, due to the limited available
legislative history and the entire context of 28 U.S.C. § 586(e).
The court further held that the UST’s calculation of the
trustee’s compensation fees was not arbitrary and capricious under
5 U.S.C. § 706 because the UST had authority to disallow the
trustee from drawing any compensation for the years in dispute because
the EOUST handbook specifically disallowed any carryover of unpaid
compensation from year to year. The court further held that the district
court properly converted the bank’s motion to dismiss under Fed.
R. Civ. P. 12(b)(6) into a summary judgment motion, and properly granted
summary judgment for the bank under Fed. R. Civ. P. 56(c) because the
trustee failed to produce a complete credit agreement with the bank as
he failed to sign the credit agreement as required by La. Rev. Stat.
§ 6:1122. Bolen v. Dengel, 2003 U.S. App.
LEXIS 16402, — F.3d — (5th Cir. August 11, 2003) (Stewart,
C.J.).
Collier on Bankruptcy, 15th Ed. Revised 1:6.10
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6th Cir.
Bankruptcy Code
definition of impairment controlled over state law definition in ruling
on exemption. Bankr. E.D. Tenn. PROCEDURAL
POSTURE: Debtors sought the avoidance of a judicial lien in
favor of creditor because it impaired their homestead exemption under
Tennessee law. The creditor claimed that its lien had priority over a
later consensual lien and, thus, should not be avoided as it did not
impair the debtors’ homestead exemption.
OVERVIEW: The bankruptcy court first determined that
the debtors’ mobile home was included in the value of the property
because it had become a fixture — the debtors had maintained the
mobile home as their primary residence, they connected the mobile home
to the necessary utility services, they landscaped the property, and any
attempt to remove the mobile home would have damaged it and the real
property. The bankruptcy court then determined that the debtors could
avoid the judicial lien to the extent that it impaired their homestead
exemption or up to $15,261.48. In so holding, the bankruptcy court
rejected the creditor’s contention that it should have applied
Tennessee’s priority law which would have put the creditor’s
lien ahead of a mortgage lien because the creditor perfected its lien
first. The bankruptcy court held that 11 U.S.C. § 522(f)(2)(A)
contained a federal definition of impairment and, in light of its
explicit language, prohibited the court from looking to state law to
define impairment. Thus, even though the mortgage may have been inferior
under state law, it nevertheless was required to be included in the
impairment analysis of 11 U.S.C. § 522(f)(2). In re
Northern, 2003 Bankr. LEXIS 711, 294 B.R. 821 (Bankr.
E.D. Tenn. June 4, 2003) (Stair, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:522.11 [back to top]
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Debts which were the debtor’s
responsibility pursuant to divorce decree and which debtor had made no
efforts to pay for two years were nondischargeable. Bankr.
C.D. Ill. PROCEDURAL POSTURE: In a debtor’s
chapter 7 bankruptcy, plaintiff, the debtor’s ex-wife, filed a
complaint to determine the dischargeability of certain marital debts or
to object to the discharge of the debts. OVERVIEW:
Pursuant to a divorce decree, the debtor was required to pay certain
debts. The parties agreed in the settlement that they would not seek to
have the debts discharged in bankruptcy. The court found that the
evidence was insufficient to deny the debtor’s discharge under
either 11 U.S.C. § 727(a)(2)(A), or (a)(5). There was no evidence
that the debtor concealed transfers of assets, or made the transfers to
hinder, delay, or defraud creditors. However, as to an 11 U.S.C. §
523 inquiry, the court found that the debtor’s evident dereliction
in making any meaningful effort to satisfy the obligations deserved a
good deal of weight. Two years after the settlement, the debtor filed
bankruptcy and obtained a discharge without making any meaningful effort
to pay the debts. Thus, the court’s equitable powers entitled it
to require the debtor to tighten his belt. The equities strongly favored
the ex-wife. Accordingly, the debts were nondischargeable under 11
U.S.C. § 523(a)(15). By entering into the settlement, the debtor
knowingly made a false statement. This was precisely the kind of deceit
which merited a finding of nondischargeability under section
523(a)(2)(A). Huchteman v. Ingalls (In re
Ingalls), 2003 Bankr. LEXIS 896, — B.R. —
(Bankr. C.D. Ill.August 4, 2003) (Lessen, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.21 [back to top]
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Counsel’s
reliance on erroneous information from clerk’s office and failure
to monitor docket did not constitute excusable neglect that would allow
relief from dismissal. Bankr. N.D. Ill.
PROCEDURAL POSTURE: Debtors filed a joint petition for
relief under the Bankruptcy Code. Debtors later switched legal counsel
and the counsel missed a previously scheduled pre-trial conference
related to creditor’s claim. The court granted judgment against
debtors and debtors moved for: (1) an amendment of judgment; and (2) an
enlargement of time. OVERVIEW: Debtors argued excusable
neglect and sought relief from the court’s order pursuant to Fed.
R. Bankr. P. 9023 and 9006. They claimed that their new lawyer did not
receive a copy of the order issued and that their new lawyer was
misinformed by an employee of the clerk’s office related to the
filing deadline. Debtors asserted that these two events constituted
excusable neglect, but the court disagreed. The court found that
debtors’ new attorney had an independent duty to keep informed and
the mere failure of the clerk to notify parties that a judgment has been
entered did not provide grounds for excusable neglect or warrant an
extension of time. It was debtors’ new attorney’s
responsibility to monitor the progress of their cases by checking the
court’s docket, which he failed to do. This failure did not
constitute excusable neglect. Reliance on erroneous information given by
an employee in the clerk’s office also did not constitute
excusable neglect. In re Delaughter, 2003
Bankr. LEXIS 705, 295 B.R. 317 (Bankr. N.D. Ill. June 11, 2003) (Grant,
B.J.).
Collier on Bankruptcy, 15th Ed. Revised 10:9023.01
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Confirmation of second
amended plan that changed start date of payments to creditor vacated
despite creditor’s delayed objection. Bankr. C.D.
Ill. PROCEDURAL POSTURE: Debtor obtained an order
that confirmed its second amended chapter 12 plan (plan). Movant
creditor moved the bankruptcy court to vacate the order that confirmed
the plan. OVERVIEW: Debtor’s counsel and the
creditor’s counsel had reached an agreement as to the repayment of
the creditor and an amended plan was filed which listed the start date
for payments to the creditor as January 1, 2003. Debtor’s counsel
subsequently submitted a second amended plan, which did not change the
substance of the creditor’s claims except that payments would not
begin until January 15, 2004. When the creditor’s counsel
discovered the change he asked that the plan be changed back to the
original start date. The bankruptcy court interpreted the present motion
as brought under Fed. R. Civ. P. 60(b)(1) pursuant to Fed. R. Bankr. P.
9024. Given the similarity between the disputed plans, the
creditor’s failure to object to the date upon which payments would
begin amounted to excusable neglect, if negligence at all, and justified
relief from the court’s previous order confirming debtor’s
second amended plan. The failure to serve the creditor’s counsel
with a copy of the second amended plan could, in and of itself, provide
sufficient reason to revoke the order confirming debtor’s second
amended plan due to a violation of the creditor’s Fifth Amendment
right to due process. In re Hunt, 2003 Bankr. LEXIS
714, 293 B.R. 191 (Bankr. C.D. Ill. April 15, 2003) (Altenberger,
B.J.).
Collier on Bankruptcy, 15th Ed. Revised 10:9024.01
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8th Cir.
Bankruptcy court
properly approved employment of financial advisors subject to court
approval of fees. B.A.P. 8th Cir. PROCEDURAL
POSTURE: Appellees, debtor and affiliates, (the debtors) filed
petitions under chapter 11. Appellant, unsecured creditors’
committee, moved pursuant to 11 U.S.C. §§ 1103(a) and 328(a)
to employ financial advisors. The committee appealed an order, from the
Bankruptcy Court for the Western District of Missouri, that allowed
payment but not from the estate’s general funds.
OVERVIEW: The parties requested that the bankruptcy
court decide the transaction fee payment issue separately from the
financial advisors’ employment issue. Because the issue of the
appropriateness of the compensation was treated separately from the
issue of its employment, the bankruptcy appellate panel believed that
the order appealed from was a final order where it finally determined
that issue. On appeal the committee argued that the bankruptcy
court’s order violated 11 U.S.C. §§ 330 and 503. The
bankruptcy appellate panel found that where the bankruptcy court
concluded that any transaction fee payable would be subject to the
standard of review of 11 U.S.C. § 330, which provided for
professionals to receive reasonable compensation for their actual and
necessary services, that this did not bind the court, as the committee
argued, by 11 U.S.C. § 503(b), which allowed administrative
expenses, including compensation and reimbursement awarded under 11
U.S.C. § 330(a). The bankruptcy court, per the committee’s
request, incorporated the terms of an agreement made by the parties into
its order. The court implied that no matter who paid the compensation,
it would be subject its approval. Official Comm. of
Unsecured Creditors v. Farmland Indus., Inc. (In re Farmland Indus.,
Inc.) 2003 Bankr. LEXIS 903, 296 B.R. 188 (B.A.P. 8th Cir.
August 7, 2003) (Kressel, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:330.01
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Erroneous, prematurely
entered discharged vacated and discharge denied due to debtor’s
nondisclosure and misrepresentation. Bankr. W.D. Mo.
PROCEDURAL POSTURE: Plaintiff, a chapter 7
debtor’s ex-husband, filed an adversary complaint against the
debtor. The complaint alleged that the debtor failed to fully disclose
her financial condition, misrepresented her current and potential
income, misrepresented her indebtedness, misrepresented her assets, and
made various misrepresentations on her statement of financial affairs.
OVERVIEW: The debtor admitted to omitting child support
from her income, omitting expenses, failing to disclose the transfer of
assets, and failing to list her ex-husband as a codebtor. In addition,
the debtor admitted that certain real property was scheduled
incorrectly. The court found that the number and pattern of omissions
constituted false oaths and an intent to deceive. The inaccuracies were
material. Therefore, there was more than ample evidence to sustain the
ex-husband’s claim based on 11 U.S.C. § 727(a)(4)(A) and to
deny the debtor a discharge. The ex-husband also showed that the debtor
had substantial and identifiable property that would have been available
to her creditors. The debtor failed to disclose the liquidation of
stocks and a qualified domestic relations order that she received in the
property settlement. The court was not satisfied with the debtor’s
vague explanation that she spent the money fixing her home and paying
bills. Therefore, the court found that the debtor failed to
satisfactorily explain the disappearance of approximately $15,700 and
that denial of discharge was warranted on that basis under 11 U.S.C.
§ 727(a)(5). Gray v. Gray (In re Gray), 2003
Bankr. LEXIS 899, 295 B.R. 338 (Bankr. W.D. Mo. June 17, 2003) (Venters,
B.J.).
Collier on Bankruptcy, 15th Ed. Revised 6:727.01
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Objection to plan
confirmation sustained due to debtors’ failure to provide for
mortgage interest. Bankr. E.D. Mo. PROCEDURAL
POSTURE: Debtors filed a joint chapter 13 petition and creditor
filed a secured proof of claim related to debtors’ mortgage.
Debtors submitted a proposed chapter 13 plan and creditor objected to
the plan’s confirmation. OVERVIEW: Creditor
asserted that debtors’ proposed plan failed to provide sufficient
property to be distributed under the plan to cure the default as
required under 11 U.S.C. § 1325(a)(5). Debtors responded that 11
U.S.C. § 1322(e) did not require them to provide for interest on an
arrearage. The prepetition arrearage consisted of missed payments that
had principal and interest components. The analysis of 11 U.S.C. §
1322(e) was a two-part process. First, the amount necessary to cure was
required to be in accordance with the parties’ agreement. Second,
the amount sought to be included could not be otherwise forbidden by
applicable, nonbankruptcy law. 11 U.S.C. § 1322(e) did not provide
for the inclusion of an item in an arrearage claim that would be
permitted under applicable nonbankruptcy law that was not included in
the underlying agreement. The court found concluded that
“underlying agreement” referred to in section 1322(e) did
not require language specific to the treatment of interest on an
arrearage in a bankruptcy case. In re Koster, 2003
Bankr. LEXIS 689, 294 B.R. 737 (Bankr. E.D. Mo. June 12, 2003) (Barta,
C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1322.18
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9th Cir.
Debtor’s divorce
attorney did not have a valid lien in the proceeds of prepetition sale
of community real property that had not been distributed at time of
filing. Bankr. N.D. Cal. PROCEDURAL
POSTURE: The debtor’s bankruptcy case was commenced by
the debtor in the midst of a marriage dissolution action. At the time
the petition was filed, her marital relationship had been severed, but
the community property had not yet been divided. Two parcels of
community real property were sold before the bankruptcy case was filed,
and the trustee was holding the proceeds. The debtor’s divorce
attorney claimed an attorney’s charging lien in the proceeds.
OVERVIEW: The trustee contended that the lien did not
attach to the proceeds or, if it did attach, that the lien was avoidable
under 11 U.S.C. § 544(a). An attorney’s charging lien was
enforceable in bankruptcy even if the judgment had not been rendered at
the time the bankruptcy petition was filed. The contract language was
clearly sufficient under California law to give the attorney a charging
lien in any judgment or settlement in the dissolution action. However,
the lien could only be deemed to attach to the real property if, under
California law, an attorney’s charging lien necessarily attached
to the subject matter of the underlying litigation. The California
Supreme Court had held that it did not. The attorney was entitled to
summary judgment declaring that she had a valid charging lien on any
judgment or settlement in the dissolution action and that such lien was
not avoidable under 11 U.S.C. § 544(a). However, she was not
entitled to a ruling that she had a non-avoidable lien on the sale
proceeds. Broach v. Michell (In re Bouzas), 2003
Bankr. LEXIS 911, 294 B.R. 318 (Bankr. N.D. Cal. June 18, 2003)
(Tchaikowsky, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:544.05 [back to top]
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10th Cir.
Bankruptcy court abused discretion in denying relief from stay for purposes of allowing completion of administrative action for final accounting. B.A.P. 10th Cir. PROCEDURAL POSTURE: Appellant Oklahoma State Department of Health (“OSDH”) appealed the Order of the Bankruptcy Court for the Western District of Oklahoma denying OSDH’s motion for relief from automatic stay as to appellee, a former officer of the chapter 7 debtor, to allow it to continue an administrative action (final accounting) against the officer in state court. OVERVIEW: The bankruptcy court’s denial of the stay motion was a final order over which the appellate court found that it had jurisdiction. The issue before the court was whether the bankruptcy court abused its discretion in enjoining proceedings against the officer. The stay in 11 U.S.C. § 362(a) was not able to be invoked by nondebtors who were related to the debtor in some way. Therefore, the automatic stay did not apply to actions by OSDH against the officer, a nondebtor, and any injunction thereunder resulting from the bankruptcy court’s denial of the stay motion was in error. The officer did not meet his burden of proving that he was entitled to an 11 U.S.C. § 105(a) injunction. Indeed, it did not appear that he presented any evidence needed to make such findings. The bankruptcy court expressed its concern that the administrative proceeding would impact administration of the estate. This concern was not able to override the general rule that the automatic stay did not protect nondebtors, and that a section 105(a) injunction was not able to be issued based on a record such as the one in this case. Oklahoma State Dep’t of Health v. Medical Mgmt. Group, Inc. (In re Medical Mgmt. Group, Inc.), 2003 Bankr. LEXIS 678, — B.R. — (B.A.P. 10th Cir. June 27, 2003) (Starzynski, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.03 [back to top]
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Adversary proceeding challenging
contract that was the basis for creditor’s proof of claim was a
core proceeding. Bankr. N.D. Okla. PROCEDURAL
POSTURE: In a chapter 7 bankruptcy adversary proceeding,
defendant creditor moved: (1) for a determination that the proceeding at
issue, which was a contract dispute affecting the creditor’s right
to collect the debt asserted in its proof of claim, was a non-core
proceeding; (2) for a jury trial; and (3) to withdraw the district
court’s reference of the case to the bankruptcy court.
OVERVIEW: The creditor argued that reference of the
adversary proceeding should have been withdrawn for “cause”
under 28 U.S.C. § 157(d), because: (1) the contract claim being
pursued by the trustee failed to constitute a core proceeding as that
term was defined by section 157, and (2) the creditor was entitled to a
jury trial of the matters raised in the complaint under the Seventh
Amendment. The court found that in the present case, the complaint
operated as a counterclaim to the proof of claim filed by the creditor.
The same contract which was the basis of the creditor’s claim was
also the basis for the complaint; therefore, under Fed. R. Civ. P. 13,
the complaint constituted a compulsory counterclaim. Under the rationale
of Katchen, as under the plain meaning of 11 U.S.C. § 157(b)(2)(C),
the complaint was a core proceeding. Filing of a proof of claim waived
such entitlements as a creditor’s Seventh Amendment right to a
jury trial, and the right to have private claims heard by an Article III
court as established in Katchen. If the creditor was concerned about
defending counterclaims in bankruptcy court, it should have foregone
filing its proof of claim. Malloy v. Zeeco, Inc. (In re
Applied Thermal Sys., Inc.), 2003 Bankr. LEXIS 694, 294 B.R.
784 (Bankr. N.D. Okla. June 30, 2003) (Michael, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 1:3.02[3][d][i]
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11th Cir.
Separately billed paralegal time allowed as administrative expense of counsel to committee only to extent functions performed were professional and not clerical. Bankr. S.D. Fla. PROCEDURAL POSTURE: Debtor filed a chapter 11 petition and a committee of unsecured creditors was appointed. Law firm was appointed counsel to the committee and filed a fee application, pursuant to 11 U.S.C. § 330, but was denied in part. Firm moved for reconsideration. OVERVIEW: Law firm sought a revised final allowance for additional fees for its separately billed paralegal time. 11 U.S.C. § 330(a)(1)(A) allowed the court to award to a professional person reasonable compensation for actual, necessary services. 11 U.S.C. § 330(a)(2) permitted the court, on its own motion, to award compensation that was less than the amount of compensation that was requested. Upon its initial review of the fee application, the court took the position that the paralegal or paraprofessional time was not compensable. Upon reconsideration, the court analyzed each entry of separately-billed paraprofessional time to determine whether a given entry reflected services rendered that merely required the performance of a clerical function, or rather, whether the entry reflected the exercise of a degree of professional judgment that warranted compensation at the paraprofessional’s hourly rate. Any request that was purely clerical or secretarial in nature, or vague as to the precise degree of professional judgment required, was denied. The court awarded compensation only for those entries clearly reflecting the need for independent professional judgment. In re Joseph Charles & Assocs., Inc., 2003 Bankr. LEXIS 700, 295 B.R. 399 (Bankr. S.D. Fla. June 20, 2003) (Friedman, B.J.) .
Collier on Bankruptcy, 15th Ed. Revised 3:330.01, .04 [back to top]
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Debt owed to state by store owner
who failed to remit lottery proceeds was nondischargeable as fiduciary
defalcation. Bankr. M.D. Ga. PROCEDURAL
POSTURE: Plaintiff Georgia Lottery Corporation instituted an
action against defendant debtor, who had filed for chapter 7 protection,
alleging that the debtor’s failure to remit lottery proceeds was a
defalcation while acting in a fiduciary capacity pursuant to §
523(a)(4) of the Bankruptcy Code, 11 U.S.C. § 523(a)(4). The
Corporation sought summary judgment. OVERVIEW: The
debtor operated a retail store and entered into a contract with the
Corporation under which the debtor agreed to sell lottery tickets at the
store. The debtor was to deposit, on a daily basis, the sales proceeds
from the tickets into a separate account. The debtor later closed his
business and sought chapter 7 relief. The Corporation alleged
defalcation as an exception to discharge. The parties disagreed as to
whether the failure to remit lottery proceeds was a defalcation while
acting in a fiduciary capacity under section 523(a)(4). The court held
that the failure to remit lottery proceeds satisfied the defalcation
while acting in a fiduciary capacity requirements of the statute. In so
holding, the court relied on the terms of the parties’ contract
and O.C.G.A. § 50-27-21 of the Georgia Lottery for Education Act in
determining that lottery retailers and their officers had a fiduciary
duty to preserve and account for lottery proceeds. As to the amount of
damages, however, there were questions of material fact as to the
amount, if any, of lottery proceeds that the debtor failed to remit to
the Corporation and summary judgment on that issue was therefore
precluded. Georgia Lottery Corp. v. Thompson (In re
Thompson), 2003 Bankr. LEXIS 890, 295 B.R. 563 (Bankr. M.D. Ga.
August 1, 2003) (Hershner, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.10
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Collier Bankruptcy Case Update February-19-01
A Weekly Update of Bankruptcy and Debtor/Creditor Matters
Collier Bankruptcy Case Update
The following case summaries appear in the Collier Bankruptcy Case Update, which is published by Matthew Bender & Company Inc., one of the LEXIS Publishing Companies.
February 19, 2001
CASES IN THIS ISSUE
(scroll down to read the full
summary)
- 2d Cir.
§ 544(a)(1) Trustee granted summary judgment complaint to recover a fraudulent transfer under New York law.
Skalski v. Barden (In re Skalski) (Bankr. W.D.N.Y.) 023025
3d Cir.
§ 350(b) Bankruptcy court had jurisdiction to reopen chapter 7 case.
Martin’s Aquarium, Inc. v. Goldstein (In re Martin’s Aquarium, Inc.) (E.D. Pa.) 023006§ 507(a)(8) Claims held by private entity, as city’s assignee, not entitled to priority.
National Tax Funding v. Thomas (In re Thomas) (Bankr. W.D. Pa.) 023014
4th Cir.
§ 524 Creditor’s actions in enforcing charging order did not violate discharge order.
Keeler v. Academy of American Franciscan History, Inc. (In re Keeler) (Bankr. D. Md.) 023022
5th Cir.
§ 363(m) Appeal of bankruptcy court’s authorization of sale was dismissed as moot.
Ginther v. The Ginther Trusts (In re Ginther Trusts) (5th Cir.) 023012§ 523(a)(2)(A) Innocent partners could not discharge debt.
Deodati v. M.M. Winkler & Assocs. (In re M.M. Winkler & Assocs.) (N.D. Miss.) 023016
6th Cir.
§ 105(a) Petition preparer was found in contempt.
In re Walker (Bankr. N.D. Ohio) 023002
8th Cir.
§ 101(54) Transfer occured when wages were earned, not when garnishment payment was remitted.
James v. Planters Bank (In re James) (B.A.P. 8th Cir.) 023001§ 362(d) Circumstances warranted annulment or retroactive lifting of stay to validate foreclosure sale.
In re Williams (Bankr. W.D. Mo.) 023011§ 523(a)(5) State was entitled to judgment as matter of law.
Hardin v. South Carolina Dept. of Social Servs. (In re Hardin) (Bankr. E.D. Ark.) 023017§ 547(b)(5) Payments held not to be preferential because they did not reduce assets of estate.
R.M. Taylor, Inc. v. H.M. White, Inc. (In re R.M. Taylor, Inc.) (Bankr. W.D. Mo.) 023027Rule 9019(a) Settlement not approved because creditors were likely to succeed in fraudulent transfer litigation and recover 100 percent of their claims.
In re Revelle (Bankr. W.D. Mo.) 023039
9th Cir.
§ 330(a)(2) Failure to comply with confirmation requirements was basis for reduction in professional fees.
In re Crown Oil, Inc. (Bankr. D. Mont.) 023004§ 362(a) Prepetition sale did not violate stay.
In re McLouth (Bankr. D. Mont.) 023008§ 362(b)(1) Stay exception was no defense to avoidable transfer.
Gandara v. Bitterroot Rock Prods. (In re Gandara) (Bankr. D. Mont.) 023010§ 523(a)(8) Student loans were excepted from discharge.
Marsh v. Moorehead State College (In re Marsh) (Bankr. D. Mont.) 023020§ 1325(a)(3) Failure to disclose girlfriend’s income in chapter 13 petition did not constitute bad faith.
In re Gress (Bankr. D. Mont.) 023031§ 1325(a)(5) Dual valuation method was applied to determine payments required to adequately protect secured creditor.
In re Farmer (Bankr. D. Mont.) 023033
10th Cir.
§ 523(a)(1) Chapter 11 debtor’s postpetition, preconfirmation tax obligation was nondischargeable.
In re Tuttle (Bankr. D. Kan.) 023015Rule 8017(b) The B.A.P. had jurisdiction to stay mandate pending appeal to the Court of Appeals.
Fross v. MJPB, Inc. (In re Fross) (B.A.P. 10th Cir.) 023038
11th Cir.
§ 109(e) Debtor held eligible for chapter 13 relief over creditor’s argument that debtor was not an 'individual with regular income.'
In re Goodrich (Bankr. M.D. Fla.) 023003§ 1325(b) Court granted trustee’s motion to modify confirmed plan to add proceeds from workers’ compensation settlement as disposable income.
In re Tolliver (Bankr. M.D. Fla.) 023035
Collier Bankruptcy Case Summaries
2d Cir.
Trustee granted summary judgment complaint to recover a fraudulent transfer under New York law. Bankr. W.D.N.Y. The chapter 7 trustee moved for summary judgment on an adversary complaint seeking, among other things, to recover a fraudulent transfer pursuant to the state (New York) debtor and creditor law. The trustee claimed that debtor transferred her home to her daughter and son-in-law, took a note in the amount of $ 35,000 in return, and, at some point in time, forgave the $35,000 obligation in violation of state law. The bankruptcy court granted the trustee’s summary judgment motion, and held that the trustee made a prima facie case that the transfer was fraudulent under the state’s debtor and creditor law and Code section 544 because there was no fair consideration and the debtor was insolvent at the time the transferred occurred, or was rendered insolvent thereby. The court rejected the transferees’ claim that their promise of future support constituted fair consideration. In addition, the court found the transferees’ argument that they lacked knowledge of the debtor’s insolvency and took title in good faith to be unavailing because state law required not only good faith, but good consideration as well.Skalski v. Barden (In re Skalski), 2001 Bankr. LEXIS 30, – B.R. – (Bankr. W.D.N.Y. January 2, 2001) (Kaplan, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:544.05
3rd Cir.
Bankruptcy court had jurisdiction to reopen chapter 7 case. E.D. Pa. In 1998 the creditors, who had commenced a state court action against the debtor and its owners, filed an involuntary chapter 7 petition against the debtor. The trustee filed an adversary proceeding to recover a fraudulent conveyance, and the creditors participated in the action. After judgment was entered against the owners of the debtor business, the bankruptcy court approved a negotiated settlement. In April 2000, with the settlement payment still outstanding, one of the creditors reinitiated the suit in state court, and the debtor’s owners filed a motion in bankruptcy court to reopen the adversary proceeding. The court dismissed the motion for lack of jurisdiction, setting forth factual findings and suggesting that the court would have ruled against the owners if the court had jurisdiction. The owners appealed. The district court reversed, holding that it was unable to determine whether the bankruptcy court exercised its discretion in not reopening the case under section 350(b), or whether the court erroneously concluded that it lacked subject matter jurisdiction to consider reopening under that provision. The district court remanded for a determination of that issue.Martin’s Aquarium, Inc. v. Goldstein (In re Martin’s Aquarium, Inc.), 2001 U.S. Dist. LEXIS 666, – B.R. – (E.D. Pa. January 26, 2001) (Padova, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:350.03
Claims held by private entity, as city’s assignee, not entitled to priority. Bankr. W.D. Pa. Pursuant to Rule 9023 or 9024, a private entity, as the assignee of a city’s tax liens, moved to amend a bankruptcy court decision. In the challenged decision, expressed by the court in a memorandum opinion, the court held that the assignee did not have priority claims, nor were its liens perfected. The bankruptcy court granted the reconsideration motion, in part, and denied the motion, in part. The court held that the assignee’s claims did not have section 507(a)(8) priority because, under the plain language of that section, priority depends on the holder of the claims being a 'governmental unit.' The court also held that examination of whether the assignee’s liens were perfected was a necessary part of the prior decision, and the memorandum opinion was not advisory; that the lack of recording of the lien in the name of the assignee, as the entity that actually held the claim on the date the debtors’ bankruptcy was filed, rendered the lien unenforceable; and that prepetition penalties that were purchased were allowed as part of the assignee’s claim to the extent that the penalties and interest charges combined did not exceed ten percent.National Tax Funding v. Thomas (In re Thomas), 2001 Bankr. LEXIS 32, – B.R. – (Bankr. W.D. Pa. January 18, 2001) (Fitzgerald, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:507.10
4th Cir.
Creditor’s actions in enforcing charging order did not violate discharge order. Bankr. D. Md. The chapter 7 debtor brought proceedings for declaratory relief seeking a determination that prepetition charging orders entered by a county court in favor of a creditor and against the debtor’s partnership interests were terminated by the discharge. The debtor also alleged that the creditor’s attempts to collect income on account of the partnership interests violated the discharge, and that the partnership’s escrow agent had received income from the partnership that it refused to pay over to the debtor. The parties cross-moved for summary judgment. The bankruptcy court granted summary judgment in favor of the creditor and the escrow agent. Based on the undisputed facts presented, the court held that no violation of the discharge occurred by the creditor’s post discharge actions in enforcing and liquidating its charging order through collection of the partnership distributions. The court explained that the discharge was a permanent injunction that barred the commencement or continuation of actions to recover or collect a debt as a personal liability of a debtor and voids any judgment to the extent that the judgment was a determination of personal liability of the debtor. However, the discharge injunction did not extinguish the liability itself. The court concluded that although any action to collect upon the lien was stayed during the debtor’s case, the lien itself 'rode through' the case and remained viable against property captured before the case commenced. The court stated that while the prepetition judgment could not be used postdischarge as the basis for obtaining any new liens or for collection against the debtor personally, no facts were asserted to suggest that the creditor had attempted any such prohibited actions.Keeler v. Academy of American Franciscan History, Inc. (In re Keeler), 2001 Bankr. LEXIS 31, – B.R. – (Bankr. D. Md. January 11, 2001) (Keir, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:524.02
5th Cir.
Appeal of bankruptcy court’s authorization of sale was dismissed as moot. 5th Cir. The grantors created a revocable inter vivos trust to which they transferred their interest in real property. Upon the death of one grantor in 1989, and in accordance with the trust agreement, the trust’s 51 percent interest in the property was divided into two separate shares, which were then placed into the debtor company, a joint venture serving as successor trustee. In 1998 the debtor filed a chapter 11 petition. In response to the challenge by certain creditors to the debtor’s standing to file, the bankruptcy court found that the debtor constituted a de facto joint venture under state (Texas) law and that it did have the proper standing. The venture and other owners entered into an agreement to sell the property to a purchaser subject to approval by the court. The surviving grantor challenged the debtor’s record title to the property and attempted to block the sale but did not challenge the purchaser’s status as a good faith purchaser until the eventual appeal to the district court. The bankruptcy court approved the sale, and the grantor appealed to the district court and then the Court of Appeals for the Fifth Circuit, seeking a stay of the sale pending each appeal. The district court refused to grant a stay, and the sale was consummated. Despite the failure to obtain a stay, the grantor appealed the authorization of the sale to the district court, which dismissed the appeal as moot because the sale had already closed. This second appeal followed. The Court of Appeals affirmed, holding that, pursuant to section 363(m), the bankruptcy court’s authorization of the sale of property to a good faith purchaser could not be reversed or modified, unless such authorization or sale were stayed pending appeal. The Court of Appeals noted that the challenge to the purchaser’s good faith status was being made for the first time on appeal, and thereby declined to address the issue. Ginther v. The Ginther Trusts (In re Ginther Trusts), 2001 U.S. App. LEXIS 1167, – F.3d. – (5th Cir. January 29, 2001) (PER CURIAM).
Collier on Bankruptcy, 15th Ed. Revised 3:363.11
Innocent partners could not discharge debt. N.D. Miss. The creditor appealed a decision of the district court upholding the bankruptcy court’s judgment in favor of the chapter 7 debtors. One of the debtors’ partners in their accounting firm placed the creditor’s money in her personal bank account and generated fictitious income statements to conceal the fraud. Although the debtors were unaware of the fraud and did not receive any of the stolen money individually or through the partnership, they admitted to the vicarious liability imposed by state (Mississippi) law. The bankruptcy and district courts held that section 523(a)(2)(A) did not bar the innocent partners from discharging the fraud unless they benefitted from the fraud and the perpetrator of the fraud acted in the ordinary course of partnership business. The Court of Appeals for the Fifth Circuit reversed, holding that because the debt arose from fraud and the debtors were liable for that debt under state partnership law, the debt was nondischargeable under section 523(a)(2)(A). The receipt of benefits and the ordinary course of business were irrelevant to the inquiry as a matter of law (citing Collier on Bankruptcy, 15th Ed. Revised).Deodati v. M.M. Winkler & Assocs. (In re M.M. Winkler & Assocs.), 2001 U.S. App. LEXIS 1359, – F.3d – (N.D. Miss. February 1, 2001) (Jones, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.08[3]
6th Cir.
Petition preparer was found in contempt. Bankr. N.D. Ohio The United States trustee moved to hold the chapter 7 debtor’s petition preparer in contempt for failure to refund fees to the debtor and to pay a fine pursuant to a prior court order. The preparer, although given notice of the court order, the motion for contempt and the scheduled hearing date, failed to appear in court. The bankruptcy court found that the petition preparer did not present any evidence that he was unable to comply with the order, even though given a chance to do so both at the time the order was entered and at the contempt hearing. The court imposed an additional fine of ten dollars for each day that he failed to pay the fine from the original order.In re Walker, 2001 Bankr. LEXIS 37, – B.R. – (Bankr. N.D. Ohio January 26, 2001) (Morgenstern-Clarren, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:105.04[1]
8th Cir.
Transfer occured when wages were earned, not when garnishment payment was remitted. B.A.P. 8th Cir. Bank obtained a judgment against the debtor and, later, a judgment of garnishment which required the debtor’s employer to make payments of the debtor’s wages to the bank. After thirteen payments were made, the debtor filed a chapter 7 petition. The debtor filed a complaint to recover nine of the thirteen payments as preferences, and to hold the bank in contempt for violation of the automatic stay on the grounds that the last payment was made after the date the chapter 7 petition was filed. The debtor asserted that the dates of transfer for preference purposes were either the dates that the bank received the payments or the dates the employer sent the wages to the bank. The bankruptcy court held that only five of the payments were preferences and that no violation of the automatic stay occurred. The B.A.P. affirmed, holding that the dates of transfer of the garnished wages were the dates that the wages were earned, not the later remittance dates. Under state (Arkansas) law, service of the writ of garnishment created a lien in favor of the bank which attached to the wages when the employer became obligated to the debtor employee. Thus, the employer’s obligation to the bank arose when the wages were earned. Since the wages were earned more than 90 days before the chapter 7 petition was filed, the payments were not preferences, even though the payments were remitted within the 90 day period.James v. Planters Bank (In re James), 2001 Bankr. LEXIS 25, – B.R. – (B.A.P. 8th Cir. January 24, 2001) (Kressel, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:101.54; 5:547.05[7][b]
Circumstances warranted annulment or retroactive lifting of stay to validate foreclosure sale. Bankr. W.D. Mo. A mortgagor and the chapter 13 debtor filed competing motions with respect to a foreclosure sale of the debtor’s residence conducted by the mortgagor in violation of the automatic stay. The mortgagor sought validation of the sale, and the debtor sought relief for the stay violation. The bankruptcy court held that actions taken in violation of the automatic stay were voidable, and not void ab initio, and the circumstances in this case warranted annulment or retroactive lifting of the stay to validate the mortgagor’s foreclosure sale. The court noted the following factors that may be considered in determining whether to grant the extraordinary relief of annulment or retroactive lifting of the automatic stay: whether the creditor had actual or constructive knowledge of the bankruptcy filing and, therefore, of the stay; whether the debtor has acted in bad faith; whether there was equity in the property of the estate; whether the property was necessary for an effective reorganization; whether grounds for relief from the stay existed and a motion, if filed, would have been granted prior to the violation; whether failure to grant retroactive relief would cause unnecessary expense to the creditor; whether the creditor detrimentally changed its position on the basis of the action taken; whether the creditor took some affirmative action postpetition to bring about the violation of the stay; and whether the creditor promptly sought retroactive lifting of the stay and approval for the action that was taken. The court found that several of the foregoing factors were present in this case. The court acknowledged that the automatic stay was at the very heart of the protections extended to debtors, and that violations of the automatic stay should not be lightly regarded or routinely condoned. Nevertheless, the court found that in this case, exceptional circumstances existed making it equitable and appropriate to annul the stay, grant retroactive relief to the creditor, and validate the foreclosure sale (citing Collier on Bankruptcy 15th Ed. Revised).In re Williams, 2001 Bankr. LEXIS 29, – B.R. – (Bankr. W.D. Mo. January 12, 2001) (Venters, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.07
State was entitled to judgment as matter of law. Bankr. E.D. Ark. The chapter 7 debtor filed an adversary proceeding, seeking a determination that his child support obligation was dischargeable under section 523(a)(5) because the debt was assigned to the state (South Carolina). The debtor asserted that the state had to demonstrate that it took the assignment in order to collect money it had paid to support the minor child, not merely for the purpose of collecting the money for the minor child or parent entitled to receive the support. The state moved for judgment on the pleadings. The bankruptcy court granted the state’s motion for judgment on the pleadings, holding that the child support obligation could not be discharged even if the obligation was assigned, so long as the assignment was to a state or federal entity. The court noted that the dischargeability was not limited by reason of the assignment to the government agency (citing Collier on Bankruptcy, 15th Ed. Revised).Hardin v. South Carolina Dept. of Social Servs. (In re Hardin), 2001 Bankr. LEXIS 39, – B.R. – (Bankr. E.D. Ark. January 29, 2001) (Scott, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.11[8]
Payments held not to be preferential because they did not reduce assets of estate. Bankr. W.D. Mo. The debtor was a general contractor engaged in manufacturing conveyor systems for the automotive industry. The debtor was in the practice of hiring subcontractors to complete various projects. The creditor, a sheet metal contractor, was hired by the debtor, and the parties’ agreement required the debtor to pay $477,868 for the work it was to perform. The debtor made several payments, the last two of which became the subject of a preference action. Commensurate with the payments, the debtor obtained partial lien releases from the creditor. These releases were required by the debtor to receive payments for certain construction projects. In 1997, the debtor filed a chapter 11 petition. Thereafter, the debtor in possession filed an adversary proceeding seeking to avoid the last two payments as a preference. After conversion to chapter 7, the trustee maintained the preference action, arguing that all elements of a preference under section 547(b) had been met. The bankruptcy court held that the payments did not constitute a preference because the estate would have been reduced by the amount of the payments had the debtor filed a chapter 7 petition without making those payments. The court reasoned that the third entity’s obligation to the debtor would have been reduced had the payments not been made, and that the creditor waived its lien rights in exchange for payment (citing Collier on Bankruptcy 15th Ed. Revised). R.M. Taylor, Inc. v. H.M. White, Inc. (In re R.M. Taylor, Inc.), 2000 Bankr. LEXIS 1633, – B.R. – (Bankr. W.D. Mo. December 8, 2000) (Federman, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:547.03[7]
Settlement not approved because creditors were likely to succeed in fraudulent transfer litigation and recover 100 percent of their claims. Bankr. W.D. Mo. The chapter 13 debtor purchased a life insurance policy on the life of his spouse, who was subsequently murdered. As a result of certain of the debtor’s actions, the insurance proceeds were not paid to the debtor but to a conservatorship for the benefit of his children. The chapter 13 trustee filed a motion to approve a monetary settlement with the debtor and certain family members, whereby a portion of those proceeds would be paid to creditors in full satisfaction of their claims. Two objecting creditors held claims against the debtor as a result of the debtor’s conviction for misappropriation of funds during employment. The bankruptcy court denied the motion to approve the settlement, holding that the settlement was not in the paramount interest of the creditors nor a proper deference to their views. Specifically, the court determined that the objecting creditors had a substantial probability of prevailing in the fraudulent transfer litigation and of recovering 100 percent of their claims if the matter was not settled, rather than the 69 percent provided for by the proposed settlement (citing Collier on Bankruptcy 15th Ed. Revised).In re Revelle, 2001 Bankr. LEXIS 36, – B.R. – (Bankr. W.D. Mo. January 12, 2001) (Federman, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 10:9019.02
9th Cir.
Failure to comply with confirmation requirements was basis for reduction in professional fees. Bankr. D. Mont. The debtor, an oil producing company, filed a chapter 11 petition on August 1, 1997, which was converted to chapter 7 on September 9, 1998. The conversion order set forth numerous deficiencies in the liquidating plan, including failure to address (1) IRS obligations, (2) assumption or rejection of leases, and (3) the method in which the debtor’s assets would be sold. The debtor’s attorney and the economist eventually filed applications seeking approval of professional fees in the amounts of $46,104 and $7,549.28, respectively. During the administration of the chapter 11 case, tax returns were incorrect, quarterly tax returns were delinquent, and the plan failed to address municipal problems with oil wells. The attorney testified that the debtor and its professionals knew that reorganization could not be successful given the low price of oil, and the fact that the debtor’s primary assets were disputed oil leases and potential preference actions against shareholders. The bankruptcy court applied section 330(a)(2) and awarded fees to the attorney and the economist in the amounts of $15,000 and $7,500, respectively. The court found that the attorney and economist sought compensation for submitting plans which failed to address confirmation requirements, never had a realistic chance of being approved, and that the two parties failed to demonstrate that the services they rendered throughout the pendency of the case were reasonably likely to benefit the estate. The court also found that there had been a lack of proper disclosure of oil prices to the creditors and the court. The parties filed a motion for reconsideration, which resulted in amended findings regarding the disclosures but did not reduce the awards.In re Crown Oil, Inc., 2000 Bankr. LEXIS 1626, – B.R. – (Bankr. D. Mont. September 13, 2000) (Kirscher, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:330.03[3]
Prepetition sale did not violate stay. Bankr. D. Mont. The chapter 13 debtor filed a motion for turnover and sanctions for violation of the automatic stay against her secured lender. The debtor’s home was sold to a third party at a foreclosure sale several hours prior to the time the debtor filed her petition. The debtor argued that her petition stayed the sale because it was filed on the date of the sale, even though the sale took place before she filed her petition. The bankruptcy court denied the debtor’s motion, holding that the creditor did not violate the automatic stay because the stay was not in effect at the time of the sale. The court declined to adopt the 'indivisible day' rule urged by the debtor.In re McLouth, 2000 Bankr. LEXIS 1630, – B.R. – (Bankr. D. Mont. September 14, 2000) (Kirscher, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.03
Stay exception was no defense to avoidable transfer. Bankr. D. Mont. The chapter 11 debtors sought judgment against a creditor for funds held by the county attorney as an unauthorized postpetition transfer voidable under section 549(a). A check written by the debtor husband to the creditor was returned for insufficient funds. The creditor turned the check over to the county attorney’s office, which thereby informed the debtor that it would not prosecute him if he made the check good. The debtor paid the county attorney postpetition and the latter remitted the funds to the creditor. The creditor argued that the transfer was excepted from the automatic stay because the payment was for nondischargeable criminal restitution. The bankruptcy court entered judgment for the debtors, holding that the transfer of funds through the county attorney’s office in exchange for dismissal of the felony bad check charges was avoided pursuant to sections 549(a) and 550(a). Section 549 operated independently of the automatic stay, and section 362(b)(1) was no defense even if the payment was excepted from the stay (citing Collier on Bankruptcy, 15th Ed. Revised).Gandara v. Bitterroot Rock Prods. (In re Gandara), 2000 Bankr. LEXIS 1622, – B.R. – (Bankr. D. Mont. October 3, 2000) (Kirscher, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.05[1]
Student loans were excepted from discharge. Bankr. D. Mont. The chapter 7 debtor sought discharge of student loan obligations based upon undue hardship. The debtor lived in public housing, never received a degree past high school and worked minimum wage jobs her entire life. Although her monthly income exceeded her expenses, the debtor argued that she would not be able to maintain a minimal standard of living and repay her student loan debts at the same time. The bankruptcy court dismissed the debtor’s complaint, holding that the debtor failed to show that excepting her student loan debts from her discharge would impose an undue hardship. The debtor failed to satisfy the first and second prongs of the test set forth in Brunner v. New York State Higher Educ. Servs. Corp., 831 F.2d 395 (2d Cir. 1987). She could not demonstrate inability to maintain a minimal standard of living if forced to repay her loans and that her state of financial affairs was likely to persist for a significant portion of the repayment period.Marsh v. Moorehead State College (In re Marsh), 2000 Bankr. LEXIS 1628, – B.R. – (Bankr. D. Mont. November 20, 2000) (Kirscher, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.14[2]
Failure to disclose girlfriend’s income in chapter 13 petition did not constitute bad faith. Bankr. D. Mont. The debtor had cohabited with his girlfriend, who received monthly social security income of $500 and with whom the debtor financed the purchase of two motor vehicles, an automobile and a pickup truck, in the debtor’s name. The debtor filed a chapter 13 petition, listing his interest in four motor vehicles and listing the girlfriend as codebtor on the truck loan. The debtor’s schedules did not disclose the social security income. Shortly thereafter the girlfriend moved out of the debtor’s residence. The debtor’s first proposed plan treated the creditor on the automobile as having an allowed impaired secured claim and made no provision for the truck loan. After his girlfriend’s departure, the debtor filed an amended plan, removing the automobile loan from any treatment and instead providing for payment of a secured claim on the truck loan. The trustee filed objections, arguing that the debtor proposed the modified plan in bad faith by failing to disclose the social security income, thereby demonstrating a misrepresentation and egregious behavior. The bankruptcy court denied the trustee’s objections and confirmed the plan, finding that the debtor did not show a lack of good faith under section 1325(a)(3). The court reasoned that the girlfriend was listed as a codebtor, both vehicle loans were listed, and the girlfriend was not legally obligated to contribute her income to the debtor’s support. In re Gress, 2000 Bankr. LEXIS 1620, – B.R. – (Bankr. D. Mont. November 20, 2000) (Kirscher, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1325.04[1]
Dual valuation method was applied to determine payments required to adequately protect secured creditor. Bankr. D. Mont. The debtor filed a chapter 13 petition on August 3, 2000. The debtor had purchased a pickup truck pursuant to a retain installment contract and security agreement dated April 3, 1998. In her chapter 13 schedules, the debtor valued the truck at $9,800. The secured creditor filed a proof of claim in the amount of $16,759.01, which included principal, interest to the petition date, and late charges. The debtor was current in all preconfirmation plan payments to the trustee, but confirmation was not scheduled until January 2001. The creditor filed a motion seeking a modification of the stay, contending that it was not receiving adequate protection on the claim. The bankruptcy court held that the dual valuation method was the proper method of valuation for confirmation purposes under section 1325(a)(5)(B)(ii). Accordingly the court determined that the rate of depreciation on the vehicle could be calculated by comparing its value on the date of purchase and the date of the petition filing. The court concluded that the vehicle had depreciated at a rate of $215 per month. The court then determined that the monthly calculated depreciation was then deducted from the petition date value for the five additional months from August 2000 to January 2001, which calculation provided the creditor with adequate protection and required an amendment to the allowed secured claim (citing Collier on Bankruptcy, 15th Ed.).In re Farmer, 2000 Bankr. LEXIS 1625, – B.R. – (Bankr. D. Mont. November 16, 2000) (Kirscher, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1325.06[3]
10th Cir.
Chapter 11 debtor’s postpetition, preconfirmation tax obligation was nondischargeable. Bankr. D. Kan. Chapter 11 debtor’s plan provided for full payment of the principal on a nondischargeable priority tax claim as well as postconfirmation interest. However, the plan did not provide for payment of any interest accruing between filing of the petition and confirmation. Since this gap period was six years, the interest amounted to $30,000. The IRS asserted that the interest accruing postpetition was nondischargeable. The bankruptcy court held that the postpetition, preconfirmation interest accruals on the priority tax obligation were not discharged in the chapter 11 case.The bankruptcy court reasoned that section 1129(a)(9)(C) established the requirements for payment of a priority tax claim and, since that section did not require payment of interest accruing between the filing of the petition and confirmation, Congress intended those sums to be dischargeable. However, since the Court of Appeals for the Tenth Circuit had declared Bruning to be applicable in chapter 11 cases, the bankruptcy court was not free to apply the reasoning it believed to be correct.In re Tuttle, 2000 U.S. Dist. LEXIS 19357, – B.R. – (Bankr. D. Kan. October 30, 2000) (Pusateri, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.07; 4:507.10[1]; 7:1129.03[9]
The B.A.P. had jurisdiction to stay mandate pending appeal to the Court of Appeals. B.A.P. 10th Cir. The bankruptcy court dismissed the debtors’ chapter 11 petition, holding that the debtors were unable to formulate a confirmable plan. The debtors appealed to the B.A.P. for the Tenth Circuit. The bankruptcy court issued an order staying its dismissal order pending the appeal and requiring the debtors to provide a mortgage creditor proof of insurance on their residence. In December 2000, the B.A.P. affirmed the dismissal order, and on January 5, 2001, prior to the B.A.P. issuing a mandate but after the stay had expired, the debtors filed a notice of appeal to the Court of Appeals for the Tenth Circuit, also filing a motion seeking stay of the mandate and a stay pending the appeal. The creditor notified the B.A.P. that it did not object to the continuation of the bankruptcy court stay but did not address the debtor’s request for a stay of the mandate. The B.A.P. addressed the issue of its jurisdiction pursuant to Rule 8017(b), and held that the B.A.P. had jurisdiction over motions to stay the mandate and motions for stay pending appeal that were filed simultaneously with or after the filing of a notice of appeal, provided the B.A.P. did not yet issue a mandate. The B.A.P. noted that its ruling was in keeping with general principles of postjudgment jurisdiction, which included holdings that lower courts retain jurisdiction after a notice of appeal over tangential matters, such as issuance of stays pending appeal. The B.A.P. granted the debtors’ motion.Fross v. MJPB, Inc. (In re Fross), 2001 Bankr. LEXIS 34, – B.R. – (B.A.P. 10th Cir. January 24, 2001) (PER CURIAM).
Collier on Bankruptcy, 15th Ed. Revised 10:8017.02
11th Cir.
Debtor held eligible for chapter 13 relief over creditor’s argument that debtor was not an 'individual with regular income.' Bankr. M.D. Fla. A creditor objected to confirmation of the chapter 13 debtor’s plan. Arguing that the debtor was not eligible for chapter 13 relief because he was not an individual with regular income as required by section 109(e). The creditor also argued that the debtor did not have regular income on the date he filed his petition because his income was not sufficient for him to make payments under his plan. The bankruptcy court rejected this argument, and held that the debtor had the ability to make the payments under his plan and was eligible to be a debtor under chapter 13. The court explained that it was not the date of the filing of the debtor’s petition that determined whether debtor has regular income, but the court could view the circumstances prospectively, at the time of confirmation. The court stressed that the relevant inquiry was whether the debtor could make the required payments under the plan. In this case, at the time of the confirmation hearing, the debtor was substantially current with the plan payments.In re Goodrich, 2000 Bankr. LEXIS 1642, – B.R. – (Bankr. M
Collier Bankruptcy Case Update January-14-02
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Bankruptcy Newsletter
A Weekly Update of Bankruptcy and Debtor/Creditor Matters
Collier Bankruptcy Case Update
The following case summaries appear in the Collier Bankruptcy Case Update, which is published by Matthew Bender & Company Inc., one of the LEXIS Publishing Companies.
January 14, 2002
CASES IN THIS ISSUE
(scroll down to read the full
summary)
- 1st Cir.
§ 503(b)(1)(B) Court of Appeals ruled that postpetition interest owed to IRS was entitled to first priority.
United States v. Yellin (In re Weinstein) (1st Cir.)
2d Cir.
§ 323(b) Trustee had standing to sue for losses that were separate and distinct from injuries to debtor’s subsidiary.
Ochs v. Simon (In re First Cent. Fin. Corp.) (Bankr. E.D.N.Y.)28 U.S.C. § 1334 Debtor/gasoline supplier’s rejection of supply agreement did not defeat district court’s jurisdiction over complaint brought under Petroleum Marketing Practices Act.
Koylum, Inc. v. Peksen Realty Corp. (2d Cir.)
3d Cir.
§ 502(a) Debtor’s objections to proofs of claim sustained as to claims where state law statute of limitations on collection of the underlying debt had expired.
Pagnotti v. Lehigh Valley Coal Sales Co. (In re. Pagnotti) (Bankr. M.D. Pa.)§ 523(a)(7) Court of Appeals reversed district court and held that forfeited bail bond was nondischargeable.
City of Philadelphia v. Nam (In re Nam) (3d Cir.)Rule 7041 Bankruptcy court denied defendants’ motion for dismissal of third party complaint in adversary proceeding.
HHCA Tex. Health Servs., L.P. v. LHS Holdings, Inc. (In re Home Health Corp. of America) (Bankr. D. Del.)
4th Cir.
28 U.S.C. § 158 Order dismissing motion for sanctions was not a final, appealable order.
CitiBank South Dakota, N.A. v. Topper (In re Topper) (4th Cir.)
5th Cir.
§ 541(a)(1) Court of Appeals vacated dismissal of discrimination action brought by debtor instead of trustee.
Wieburg v. GTE Southwest, Inc. (5th Cir.)
6th Cir.
§ 105(a) Section 105(a) did not authorize order permitting debtor in possession to distribute assets absent a confirmed plan.
Ohio Dep’t of Taxation v. Swallen’s, Inc. (In re Swallen’s, Inc.) (B.A.P. 6th Cir.)
7th Cir.
§ 523(a)(8) Student loan debtor failed to demonstrate undue hardship.
Shirzadi v. U.S.A. Group Loan Servs. (In re Shirzadi) (Bankr. S.D. Ind.)
8th Cir.
§ 523(a)(8) B.A.P. affirmed discharge of debtor’s student loan obligation.
Ford v. Student Loan Guar. Found. of Ark. (In re Ford) (B.A.P. 8th Cir.)§ 707(b) Debtors’ ability to fund a chapter 13 plan resulted in the dismissal of their chapter 7 case.
In re Beckel (Bankr. N.D. Iowa)
9th Cir.
§ 330(a)(2) Attorneys’ fees were reduced for lack of benefit to the estate.
In re Berg (Bankr. D. Mont.)§ 723(a) Trustee could not recover against debtor’s general partner.
Ehrenberg v. WSCR, Inc. (In re Hoover WSCR Assocs.) (Bankr. C.D. Cal.)Rule 9024 Court of Appeals dismissed appeal as moot.
IRS v. Pattullo (In re Pattullo) (9th Cir.)
10th Cir.
§ 1325(a)(1) Chapter 13 was properly reconverted on finding of bad faith.
Sladek v. Zeman (In re Sladek) (D. Colo.)
11th Cir.
§ 704(1) Complaint was not dismissed because trustee sufficiently pled a claim on behalf of the debtor.
Tabas v. Greenleaf Ventures, Inc. (In re Flagship Healthcare, Inc.) (Bankr. S.D. Fla.)
D.C. Cir.
§ 507 Bankruptcy court sustained, in part, and denied, in part, debtors’ objections to administrative claims.
In re Greater Southeast Cmty. Hosp. Found., Inc. (Bankr. D.C.)
Collier Bankruptcy Case Summaries
1st Cir.
Court of Appeals ruled that postpetition interest owed to IRS was entitled to first priority. 1st Cir. After the debtor filed a chapter 7 petition in 1992, the trustee sold assets of the estate but did not file an income tax return. The IRS determined that the estate owed, in addition to taxes, both penalties and interest. The IRS agreed to forgive the penalties but in 1997, filed a request for the remaining interest. The trustee offered to pay that interest as a first priority, but a successor trustee suggested paying the IRS as a fifth priority, which would have resulted in no payment since the estate assets were insufficient. The IRS maintained that it was entitled to first priority, arguing that section 503(b)(1)(B)(i) included interest. The bankruptcy court ruled for the trustee, and on appeal the B.A.P. for the First Circuit affirmed. This second appeal followed. The Court of Appeals for the First Circuit reversed, holding that the IRS was entitled to first priority administrative expense. The Court of Appeals interpreted section 503(b)(1)(B)(i) by reading the statute in conjunction with section 726(a)(5) and its provision for postpetition interest, and found that the analysis could not end with the silence of section 503(b) on the issue of interest, but instead required an examination of legislative history and underlying policy. The need for trustees to pay postpetition tax claims promptly and to compensate the taxing authority for delayed payment led to the conclusion that it was unlikely that Congress would choose to give priority treatment to penalties but not to interest (citing Collier on Bankruptcy 15th Ed. Revised). United States v. Yellin (In re Weinstein), 2001 U.S. App. LEXIS 25446, 272 F.3d. 39 (1st Cir. November 30, 2001) (Lynch, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:503.07
2nd Cir.
Trustee had standing to sue for losses that were separate and distinct from injuries to debtor’s subsidiary. Bankr. E.D.N.Y. The superintendent of insurance, in his capacity as liquidator of the debtor’s subsidiary insurance company, moved to dismiss the adversary proceeding commenced by the chapter 7 trustee, on the grounds that the trustee lacked standing to assert claims against certain former officers and directors of the debtor holding company. The trustee’s complaint sought recovery for the officers’ and directors’ breach of fiduciary duty to the debtor by committing waste and mismanagement of corporate assets and for fraudulent conveyances by the debtor to the officers and directors. The superintendent also commenced an action against many of the same officers and directors, for their breach of duty to the subsidiary. The superintendent asserted that the trustee’s causes of action belonged exclusively to the subsidiary and should be dismissed on the grounds that they were derivative rather than direct. The bankruptcy court denied the motion to dismiss, holding that the trustee had standing to assert claims against the debtor’s former officers and directors because the trustee was suing for damages caused to the debtor, not its subsidiary. The claims against the debtor’s officers and directors belonged to the debtor, and the trustee was the only person with standing to assert those claims.Ochs v. Simon (In re First Cent. Fin. Corp.), 2001 Bankr. LEXIS 1478, 265 B.R. 481 (Bankr. E.D.N.Y. November 6, 2001) (Craig, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:323.03[2]; 6:704.03
Debtor/gasoline supplier’s rejection of supply agreement did not defeat district court’s jurisdiction over complaint brought under Petroleum Marketing Practices Act. 2d Cir. A tenant leased a gas station that was operated in accordance with two agreements, a lease agreement and a supply agreement. The supply agreement provided that the debtor would purchase its gasoline supplies from a designated supplier. During the term of the agreements, the designated supplier commenced a chapter 11 case. The tenant filed a postpetition district court action against its lessors that asserted improper breach of an alleged franchise agreement under the Petroleum Marketing Practices Act ('PMPA') (15 U.S.C. § 2801 et seq.) and sought, among other things, a preliminary injunction enjoining the lessors from pursuing holdover or nonpayment proceedings in state court. The district court granted the preliminary injunction, and the lessors appealed. The Court of Appeals for the Second Circuit affirmed. The court held that the PMPA provided jurisdiction over the debtor’s complaint, and the district court did not abuse its discretion in granting a preliminary injunction under the PMPA’s lenient standard. The court also held that the supplier/debtor’s rejection of the supply agreement did not defeat the tenant’s claim that a franchise relationship existed and did not deprive the court of its subject matter jurisdiction. The court explained that whether the complaint alleged a violation of the PMPA depended on whether a franchise relationship existed at the time of the events complained of, and that the facts asserted in the tenant’s complaint relating to the time prior to the debtor/supplier’s rejection of the supply agreement properly alleged a claim under the PMPA and properly pleaded a federal question.Koylum, Inc. v. Peksen Realty Corp., 2001 U.S. App. LEXIS 24949, 272 F.3d 138 (2d Cir. November 21, 2001) (Leval, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 1:3.01
3rd Cir.
Debtor’s objections to proofs of claim sustained as to claims where state law statute of limitations on collection of the underlying debt had expired. Bankr. M.D. Pa. The debtor had received a series of loans and surety promises from businesses who were closely related to the debtor and other members of the debtor’s family. When the debtor filed a petition under chapter 11, the creditors filed several proofs of claim. The debtor objected to the claims, arguing that the creditors were time-barred from asserting their claims. In assessing the validity of the debtor’s position, the court was called upon to determine when the statute of limitations to collect each debt started running, the length of the statute of limitations, and whether each creditor had acted within the required time period. Since the Code does not establish a statue of limitations, the court looked to state (Pennsylvania) law, which provided that an action to recover a debt must be commenced within four years. Because the debts were 'payable on demand' and because the debtor’s family members never made a demand (since they knew debtor was not financially able to repay), the court determined that the statutory period began running at the time when the loan repayment time was extended. The court then determined that the statute of limitations had run on all but two of actions to collect and sustained the debtor’s objections as to the remaining proofs of claim. Pagnotti v. Lehigh Valley Coal Sales Co. (In re. Pagnotti), 2001 Bankr. LEXIS 1471, 269 B.R. 326 (Bankr. M.D. Pa. August 3, 2001) (Thomas, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:502.
Court of Appeals reversed district court and held that forfeited bail bond was nondischargeable. 3d Cir. In 1997, the debtor’s son was charged with murder, robbery, and burglary. Bail was set at $1 million, conditioned on a 10 percent cash payment by a surety, who was also obligated to assume legal responsibility to pay the full amount of the bond. The debtor provided the son with living quarters and necessaries, but the son fled the country. Subsequently, the son failed to appear in court for a pretrial status and, as a result, the criminal court entered a judgment against the debtor as a surety on the forfeited bond. In 1999, the debtor filed a chapter 7 petition listing the creditor (the City of Philadelphia) to whom the bond was payable. The creditor filed an adversary proceeding seeking a determination of nondischargeability pursuant to section 523(a)(7). The debtor filed a motion to dismiss, arguing that the debt was dischargeable. The bankruptcy court granted the debtor’s motion, holding that section 523(a)(7) must be construed narrowly to exempt from discharge only obligations imposed on the debtor as punishment for his wrongdoing, and that the judgment against the debtor arose because a condition of the bond was breached, not because the debtor, as surety, was being punished. The district court affirmed, holding that section 523(a)(7) excepted from discharge only sanctions that were penal, not civil, in nature, and that resulted from the debtor’s wrongdoing. The court also noted that the debtor never assumed any obligation to produce his son in court, and that a judgment arising from a forfeited bail bond was exempted from discharge only if the surety had an affirmative hand in the defendant’s failure to appear. The creditor appealed. The Court of Appeals for the Third Circuit reversed, holding that the debt fell within the meaning of 'forfeiture' as provided by section 523(a)(7). The Court of Appeals reasoned that the district court’s conclusion that a forfeiture must be penal in order to be nondischargeable conflicted with the plain language of the statute, which sets forth 'penalty' and 'forfeiture' as two distinct terms. The Court of Appeals also found that case law and state (Pennsylvania) law supported its finding, as well as public policy considerations (citing Collier on Bankruptcy, 15th Ed.). City of Philadelphia v. Nam (In re Nam), 2001 U.S. App. LEXIS 24859, 273 F.3d. 281 (3d Cir. November 20, 2001) (Roth, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.13
Bankruptcy court denied defendants’ motion for dismissal of third party complaint in adversary proceeding. Bankr. D. Del. An affiliate of the chapter 11 debtor filed an adversary complaint against several defendants seeking reimbursement for more than $600,000 that was allegedly owed in overpayments on a Medicare provider agreement that the affiliate acquired from the defendants. The defendants asserted that they were entitled to offset or recoup sums that were due to them from the affiliate against the amounts they owed to the affiliate. A secured lender filed a third party complaint against the defendants. The third party complaint alleged that any sums due to the defendants, including sums due for setoff or recoupment, should be subordinated to the secured lender’s claims pursuant to a subordination agreement between the defendants and the secured lenders. The defendants moved to dismiss the third party complaint and asserted that by the terms of the parties’ agreement, subordination did not apply to setoff or recoupment rights. The bankruptcy court denied the dismissal motion. The court noted that the subordination agreement did not expressly except setoff or recoupment rights from the effect of the subordination, and held that absent an express exclusion of setoff or recoupment rights, the court could not, in the context of a motion to dismiss in which all pleaded facts and all reasonable inferences were drawn in the secured lender’s favor, dismiss the secured lender’s complaint.HHCA Tex. Health Servs., L.P. v. LHS Holdings, Inc. (In re Home Health Corp. of America), 2001 Bankr. LEXIS 1476, 267 B.R. 687 (Bankr. D. Del. October 4, 2001) (Walrath, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 10:7041.01
4th Cir.
Order dismissing motion for sanctions was not a final, appealable order. 4th Cir. The bankruptcy court dismissed a party’s motion for sanctions and, upon appeal, the district court denied leave to appeal that interlocutory order. Upon further appeal, the Court of Appeals for the Fourth Circuit dismissed the appeal for lack of jurisdiction, holding that the denial of a motion for sanctions is not final and, thus, is not reviewable on appeal.CitiBank South Dakota, N.A. v. Topper (In re Topper), 2001 U.S. App. LEXIS 24600, – F.3d – (4th Cir. November 16, 2001) (per curiam).
Collier on Bankruptcy, 15th Ed. Revised 1:5.07; 8003.07
5th Cir.
Court of Appeals vacated dismissal of discrimination action brought by debtor instead of trustee. 5th Cir. In 1996, the debtor was discharged by her employer. Shortly thereafter, she and her husband filed a chapter 7 petition. In early 1997, the debtor wrote a letter to the Equal Employment Opportunity Commission ('EEOC') making an official charge of age and sex discrimination. In April 1997, the debtor received a discharge, and later that month the debtor filed formal discrimination charges with the EEOC. In August 1998, the debtor filed this action against the employer, and shortly thereafter, the bankruptcy court, unaware of the discrimination claim, approved the trustee’s final report and closed the case. The employer moved to dismiss the complaint in the discrimination action, arguing that the claim was property of the estate and that only the chapter 7 trustee had standing to assert it. Soon thereafter, the bankruptcy court granted the trustee’s motion to reopen the chapter 7 case, and the debtor filed an adversary proceeding asserting that the claim was not part of the estate. The debtor and trustee reached an agreement providing that the discrimination claim was deemed estate property, but that the debtor’s counsel would pursue the claim in the debtor’s name without formal intervention by the trustee. In April 2000, the employer supplemented its motion to dismiss, arguing that the debtor had had a reasonable time to join or substitute the trustee and that her claims should be dismissed or, alternatively, that she should be ordered to join or substitute the trustee as the real party in interest. The debtor argued that, in keeping with her agreement with the trustee, she was properly pursuing the action without substitution or joinder. The district court granted the motion to dismiss, holding that the debtor lacked standing because the trustee was the real party in interest. The court noted the bankruptcy court’s finding that the discrimination claim was estate property, while making no allusion to the agreement, and concluded that the trustee was the only proper plaintiff. The debtor moved to vacate the judgment, arguing that there was no basis for dismissal without allowing an opportunity for the trustee to be joined or substituted. The court denied the motion, and the debtor appealed. The Court of Appeals for the Fifth Circuit affirmed the dismissal, holding that, although the agreement granted the debtor the right to pursue the claims in her own name without intervention by the trustee, the claims still belonged to the estate. But the Court of Appeals also held that the district court’s dismissal had failed to address, pursuant to Fed. R. Civ. P. Rule 17(a), whether the debtor had been given reasonable time after the employer’s objection during which to obtain joinder, ratification, or substitution of the trustee, or whether her decision to pursue the action in her own name was the result of an understandable mistake. Accordingly, the case was remanded for a determination of that issue.Wieburg v. GTE Southwest, Inc., 2001 U.S. App. LEXIS 24854, 272 F.3d. 302 (5th Cir. November 20, 2001) (Jolly, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:541.08
6th Cir.
Section 105(a) did not authorize order permitting debtor in possession to distribute assets absent a confirmed plan. B.A.P. 6th Cir. After six years in a chapter 11 case, and, having failed to even file a plan, the debtor in possession moved for an order allowing it to distribute funds on hand pursuant to section 507 and dismiss the chapter 11 case. The bankruptcy court granted the motion over the objection of a priority creditor. On appeal, the B.A.P. for the Sixth Circuit reversed, holding that distribution may not take place except pursuant to a confirmed plan of reorganization, absent extraordinary circumstances. The bankruptcy court abused its discretion by permitting the debtor in possession to distribute its assets, and thereby circumvent the provisions of the Code for the administration of a chapter 11 case, without a confirmed plan. The equitable powers of section 105(a) were not a license to disregard the language of the Code and Rules. The court rejected the creditor’s argument that the motion was subject to being set aside for lack of notice to all creditors. The creditor had no standing to raise the issue since it had received notice of the motion.Ohio Dep’t of Taxation v. Swallen’s, Inc. (In re Swallen’s, Inc.), 2001 Bankr. LEXIS 1474, 269 B.R. 634 (B.A.P. 6th Cir. November 19, 2001) (Cook, B.J.).
Collier on Bankruptcy, 15th Ed. Revised : 2:105.04[5], 105.05; 7:1112.04
7th Cir.
Student loan debtor failed to demonstrate undue hardship. Bankr. S.D. Ind. The chapter 7 debtor filed an adversary proceeding against her student loan creditors, seeking to have her loan obligations declared dischargeable under the undue hardship exception of section 523(a)(8). The debtor had earned a Ph.D. in adult education and at the time of the adversary proceeding, was employed by two separate universities. The debtor alleged that her former spouse’s delinquency in child support payments had principally contributed to her financial hardship. The bankruptcy court held that the debtor did not meet the requirements for a finding of undue hardship. Specifically, the court found that (1) many of the debtor’s expenditures could be reduced or eliminated, such as contributions to retirement accounts and her children’s education funds; (2) the debtor was not maximizing her income because she was not claiming both her children as dependents and thereby decreasing her tax burden; (3) the debtor was not attempting to collect child support to which she was entitled; and (4) there was no reason to believe that the debtor’s earning potential would be reduced or eliminated in the future.Shirzadi v. U.S.A. Group Loan Servs. (In re Shirzadi), 2001 Bankr. LEXIS 1516, 269 B.R. 664 (Bankr. S.D. Ind. November 19, 2001) (Coachys, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.14[2]
8th Cir.
B.A.P. affirmed discharge of debtor’s student loan obligation. B.A.P. 8th Cir. A student loan lender appealed from a bankruptcy court order that declared the debtor’s student loan obligation to be dischargeable. The bankruptcy court held that repaying the loan would cause an undue hardship for the debtor and declared the loan dischargeable under section 523(a)(8). The B.A.P. for the Eighth Circuit affirmed, and held that the bankruptcy court’s conclusion that the student loan debt was dischargeable was not clearly erroneous. Specifically, the B.A.P. held not clearly erroneous the bankruptcy court’s finding that the debtor’s frugal expenses consumed all of her scheduled income, and that, as a result, she had no excess funds in her budget to finance the repayment of the student loan. The court also held that the bankruptcy court did not clearly err in concluding that a physical disability suffered by the 62-year-old debtor was likely to continue, and that her ability to work would only continue to deteriorate.Ford v. Student Loan Guar. Found. of Ark. (In re Ford), 2001 Bankr. LEXIS 1482, 269 B.R. 673 (B.A.P. 8th Cir. November 5, 2001) (Koger, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.14
Debtors’ ability to fund a chapter 13 plan resulted in the dismissal of their chapter 7 case. Bankr. N.D. Iowa The United States trustee moved to dismiss the chapter 7 debtors’ case for substantial abuse under section 707(b). The debtors had considerable income, late model cars and a sizable house. Although they had minimal savings, the debtors spent substantial sums each month on housing, dining out, movies, gifts, food, cable television, lawn service and credit card payments. The debtors’ total expenses were higher than average consumers in their area and equaled approximately 150 percent of the IRS collection financial standards. The bankruptcy court granted the motion to dismiss, holding that because the debtors had a substantial ability to pay their creditors, granting them chapter 7 relief would have constituted substantial abuse of the Code. The court measured the debtors’ ability to pay creditors by evaluating their financial condition in a hypothetical chapter 13 case.In re Beckel, 2001 Bankr. LEXIS 1490, 268 B.R. 179 (Bankr. N.D. Iowa October 16, 2001) (Kilburg, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 6:707.04
9th Cir.
Attorneys’ fees were reduced for lack of benefit to the estate. Bankr. D. Mont. The United States trustee objected to the fee applications filed by the debtor’s attorneys, which sought compensation for services rendered while the case was in chapter 11. The individual debtor filed the petition to stop a sheriff’s sale of the inventory and machinery of his unprofitable business. While the case was pending under chapter 11, the debtor sold assets without court authorization, rebuked offers to purchase certain assets, and personally spent accounts receivable and proceeds from the business. The debtor further failed to pay postpetition taxes and incurred additional debt. The debtor’s violations of his fiduciary obligations ultimately resulted in the conversion of the case to chapter 7. The United States trustee contended that the attorneys’ services furthered the debtor’s interests rather than the estate’s and that they should have recognized that no prospect of plan confirmation was possible. The bankruptcy court sustained the objection and awarded reduced fees and costs, holding that the services rendered by the debtor’s attorneys were not reasonably likely to benefit the estate or were not necessary for the administration of the case. The court determined that the attorneys lacked professional control over their client and knew, or should have known, that a financial reorganization of the debtor’s business was not a viable possibility.In re Berg, 2001 Bankr. LEXIS 1493, 268 B.R. 250 (Bankr. D. Mont. September 25, 2001) (Kirscher, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:330.04[1][b][iv]
Trustee could not recover against debtor’s general partner. Bankr. C.D. Cal. The debtor was a limited partnership formed by three entities. Entity A transferred a shopping center lease, along with its appurtenant rights and obligations as landlord, to the debtor. In 1990, the lessees filed suit against the debtor and other defendants seeking damages of breach of the lease. Entity B was not named as a defendant. Prior to trial, the debtor filed its chapter 11 petition. The trial proceeded and the lessees obtained a judgment against the remaining defendants. In 1994, Entity B assigned its partnership interest to assignees C and D. In April 1995, the chapter 11 case was dismissed and, subsequently, the lessees obtained a judgment against the debtor in the approximate amount of $401,000. The debtor made no payments on the judgment, and in October 1998, one of the lessees filed an involuntary chapter 7 petition against the debtor and then a timely proof of claim. The estate contained no cash or assets with which to pay any claims, and the chapter 7 trustee filed an adversary proceeding against Entity B to recover the amount of judgment debt owed to the lessees by the debtor. Entity B argued that it was not personally liable for the deficiency under state (California) law because the lessees did not sue or obtain a judgment against it and were now barred from doing so because the statute of limitations had expired. The trustee argued that Entity B was liable for the debtor’s debts even if the lessees could not obtain a judgment against it on the partnership debt, since section 723(a) only required that the trustee prove that Entity B was liable to the trustee for the debtors of the debtor partnership, not that it was directly liable to the lessees for the partnership debt. The bankruptcy court held that the trustee was entitled to judgment against general partners under section 723(a) only to the extent that partnership creditors have recovered or could recover against those partners under nonbankruptcy law. The court concluded that Entity B was not personally liable to the trustee under state law, because the lessees could never obtain a judgment against Entity B on its claim against the debtor since the statute of limitations had expired. Consequently, Entity B was not liable to the trustee for any portion of that claim. The court also denied the trustee’s claim for an administrative expense against Entity B, reasoning that the trustee of a partnership could not include administrative expenses incurred in claims against a partner’s estate because, for the purposes of section 723, the term 'creditor' did not include administrative expenses of the bankruptcy estate (citing Collier on Bankruptcy 15th Ed. Revised). Ehrenberg v. WSCR, Inc. (In re Hoover WSCR Assocs.), 2001 Bankr. LEXIS 1475, 268 B.R. 227 (Bankr. C.D. Cal. August 6, 2001) (Barr, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 6:723.02
Court of Appeals dismissed appeal as moot. 9th Cir. The IRS filed a motion to dismiss the debtor’s chapter 13 petition, arguing that the debtors were not eligible under section 109(e) because their unsecured debts exceeded the statutory cap of $250,000. The debtors argued that the IRS was precluded from asserting that argument because it had previously stipulated to the amount of unsecured debt as part of a prior settlement. The debtors moved for summary judgment and the bankruptcy court granted the motion, holding that the prior stipulation had preclusive effect. When the district court affirmed, the IRS filed an appeal. During the pendency of the appeal, the bankruptcy court dismissed the chapter 13 petition because the debtors failed to comply with their plan. Prior to being informed of the dismissal, the Court of Appeals for the Ninth Circuit issued a memorandum disposition. Thereafter, the IRS filed a motion to vacate that disposition and to dismiss the appeal as moot. The debtors opposed the motion, arguing that they filed a new chapter 13 petition and that the amount of unsecured debt was likely to be litigated in the new proceeding, thereby establishing that a live controversy still existed. The debtors also asserted that the bankruptcy court’s order of dismissal explicitly provided for the possible reinstatement of the first chapter 13 proceeding, which prevented this appeal from being moot. The Court of Appeals focused its mootness inquiry upon whether it could still grant relief between the parties, and concluded that the appeal was moot. Because the only relief available was to confirm or reject the validity of the original chapter 13 proceeding, and because that proceeding was dismissed, the Court of Appeals held that it could grant no effective relief. It also rejected the debtors’ argument regarding the possible reinstatement, holding that, Fed. R. Civ. P. 60, made applicable by Rule 9024, explicitly provided that a motion for relief from a judgment or order, even a motion for reinstatement, did not affect the finality of an order or suspend its operation. Accordingly, because the chapter 13 petition was dismissed, any ruling to its validity would be moot. As such, the Court of Appeals found that it lacked jurisdiction, vacated its memorandum disposition, and dismissed the appeal. Its decision also contained the ruling that the decisions below should be vacated, since the chapter 13 was dismissed as a result of the debtors’ failure to comply with plan previsions, and vacatur was in order when mootness occurs through the unilateral action of the party who prevailed in the lower court.IRS v. Pattullo (In re Pattullo), 2001 U.S. App. LEXIS 24947, 271 F.3d. 898 (9th Cir. November 21, 2001) (Schroeder, Lay and Thompson, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 10:9024.01
10th Cir.
Chapter 13 was properly reconverted on finding of bad faith. D. Colo. The chapter 13 trustee objected to certain of the debtors’ exemptions in certain malpractice causes of action and also filed a motion to reconvert the proceeding to chapter 7. The bankruptcy court granted both requests, and the debtors appealed, arguing that they did not intend to claim the causes of action as exempt but rather that those assets did not belong to the estate. The debtors also argued their actions, such as the filing of a motion to convert only after the chapter 7 discharge and the errors of omission in their schedules, were not the result of bad faith, as the bankruptcy court held, but of mistake and lack of knowledge. The district court denied the appeal, holding that the bankruptcy court’s findings of bad faith were sufficient grounds to grant the trustee’s motion for reconversion. The court noted that (1) the debtors had repeatedly tried to use the bankruptcy court as their personal debt restructuring agency with little or no regard for ultimate creditors, (2) they attempted to correct their omissions by moving to exempt those items, and (3) they resisted the chapter 7 and chapter 13 trustees’ efforts to administer the estate, all of which supported a finding of bad faith. The court also rejected the exemption claims, because the claimed exemptions did not fall within any statutory exemptions, and found that the bankruptcy court did not err in holding that the debtors’ plan was unfeasible, since the debtors lacked sufficient income and hinged their proposed plan on the successful outcome of their causes of action.Sladek v. Zeman (In re Sladek), 2001 U.S. Dist. LEXIS 19421, 269 B.R. 229 (D. Colo. October 11, 2001) (Kane, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1325.04[1]
11th Cir.
Complaint was not dismissed because trustee sufficiently pled a claim on behalf of the debtor. Bankr. S.D. Fla. The debtor’s financial advisor moved to dismiss the chapter 7 trustee’s adversary proceeding filed against it, arguing that the trustee lacked standing to pursue the claim. The financial advisor had been engaged by the debtor prepetition to prepare a valuation analysis in connection with various acquisitions. Because the advisor’s valuation recorded significant goodwill in companies previously acquired by the debtor, the debtor continued its acquisition program. The complaint alleged that the debtor’s reliance on the negligent valuation resulted in the debtor making a bad decision to obtain increased financing and to acquire another company, leading to its demise. The advisor argued that the trustee lacked standing to pursue the negligence claim since the only damage allegations referred to were damages suffered by specific creditors. The bankruptcy court denied the motion to dismiss, holding that the trustee had standing because the complaint asserted damages incurred independently by the debtor. The court noted that even if the debtor had been insolvent before the advisor’s valuation, the additional debt incurred thereafter, (and allegedly as a result of the advisor’s negligence) could provide a measure of damages recoverable by the trustee.Tabas v. Greenleaf Ventures, Inc. (In re Flagship Healthcare, Inc.), 2001 Bankr. LEXIS 1497, 269 B.R. 721 (Bankr. S.D. Fla. November 13, 2001) (Mark, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 6:704.03; 3:323.03[2]
DC Cir.
Bankruptcy court sustained, in part, and denied, in part, debtors’ objections to administrative claims. Bankr. D.C. The chapter 11 debtors were among several entities that made up a regional healthcare system. A pension plan and certain employees filed administrative claims that arose principally out of the debtors’ employment of numerous employees for an operating hospital. The debtors objected to the claims. The bankruptcy court sustained the debtors’ objections, in part, and denied the objections, in part. Specifically, the court held that the debtors were liable for a challenged 1999 plan contribution because their employees were still employed by the debtors as of December 31, 1999. The court also held that the 1999 plan contribution obligation gave rise to an administrative claim entitled to priority under section 507(a)(1). The court further determined that a plan contribution obligation for 1998 was entitled to priority under and subject to the dollar limitations of section 507(a)(4), to the extent that the final triggering event of liability occurred on or after 180 days prior to the debtors’ bankruptcy filing. The court found that the 1998 contribution obligation was not entitled to treatment as an administrative claim, despite provisions in a postpetition collective bargaining agreement that called for benefits to remain unchanged. Finally, the court held that the pension plan committee had an allowable administrative expense claim for postpetition expenses incurred in connection with pension plan administration up until the effective date of a plan amendment that provided for the payment of such expenses.In re Greater Southeast Cmty. Hosp. Found., Inc. 2001 Bankr. LEXIS 1481, 267 B.R. 7 (Bankr. D.C. July 9, 2001) (Teel, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:507.01