Collier Bankruptcy Case Update May-20-03
- 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.
May 20, 2002
CASES IN THIS ISSUE
(scroll down to read the full
summary)
1st Cir.
§ 507(a)(8) Debtor could not void tax return filing extension
in order to place tax obligation outside of three-year
nondischargeability period.
Kimball v. United States (In re Kimball) (D. Mass.)
§ 523(a)(6) Debt that arose from judgment for defamation,
product disparagement and intentional interference with advantageous
business relations was not excepted from discharge.
M & I Heat Transfer Prods., Ltd. v. Gorchev (In re Gorchev)
(Bankr. D. Mass.)
§ 523(a)(8) Loan extended by private party was not excepted from
debtor's discharge.
In re Reis (Bankr. D. Mass.)
§ 523(a)(15) Debtor's obligation to his former spouse for their
credit card debt was discharged.
Summiel v. Tuoni (In re Tuoni) (Bankr. D.R.I.)
2d Cir.
§ 362(a) Fraudulent conveyance action commenced against
debtor's wife was void.
Serio v. DiLoreto (S.D.N.Y.)
§ 547(b)(4) Transfer occurred at the time debtor's wages were
paid.
Price v. Mfrs. and Traders Trust Co. (In re Price) (Bankr.
W.D.N.Y.)
3d Cir.
§ 502(b) Creditors' claims required to be discounted to
present value as of petition date.
In re Loewen Group Int'l, Inc. (Bankr. D. Del.)
4th Cir.
§ 503(b)(1)(A) Denial of creditor's request for
administrative expense claim was affirmed on appeal.
Tidewater Fin. Co. v. Henson (D. Md.)
§ 523(a)(6) Damage caused by debtor's ransacking of mobile home
deemed nondischargeable.
Oakwood Acceptance Corp. v. Coltrane (In re Coltrane) (Bankr.
D.S.C.)
§ 523(a)(8) Debtor's student loans dischargeable after car
injury rendered her severely disabled.
Carlson v. UNIPAC Student Loan (In re Carlson) (Bankr.
D.S.C.)
Rule 8020 District and court of appeals awarded sanctions for moot
and frivolous appeals.
Property Movers, L.L.C. v. Goodwin (In re Property Movers,
L.L.C.) (4th Cir.)
5th Cir.
§ 323(a) Chapter 11 trustee's conduct did not rise to level
of gross negligence.
U.S. Metro Line Servs. v. Litzler (In re VVCI Acquisition Corp.)
(N.D. Tex.)
28 U.S.C. § 586(e) District court adopted bankruptcy court's
recommendation that funds retained by standing chapter 12 trustee be
turned over to United States Trustee.
Taylor v. Dengel (E.D. La.)
6th Cir.
§ 329(a) Debtor's attorney was denied award of compensation
for postpetition services.
In re McNickle (Bankr. S.D. Ohio)
7th Cir.
§ 523(a)(2)(A) Creditor failed to state section 523(a)(2)(A)
claim where relevant allegations related to oral representations of
insider's financial condition.
Jeffrey M. Goldberg & Assocs. v. Holstein (In re Holstein)
(Bankr. N.D. Ill.)
§ 546(a) Defendant in fraudulent transfer action denied summary
judgment because trustee might establish that limitations period was
subject to equitable tolling.
Heyman v. Dec (In re Dec) (Bankr. N.D. Ill.)
8th Cir.
§ 522(d)(10) Court sustained trustee's objections to
exemptions claimed by debtor for IRA and college fund.
In re Skipper (Bankr. W.D. Ark.)
9th Cir.
§ 522(f) Arizona debtor could not avoid condominium association's lien.
Reece v. Parkview Villas of Scottsdale Owners' Ass'n (In re Reece) (Bankr. D. Ariz.)
10th Cir.
§ 109(g) Debtor who willfully failed to comply with court
order was enjoined from refiling chapter 13 case.
In re Basse (Bankr. D. Wyo.)
11th Cir.
Rule 7056 Moving party was not entitled to judgment as a matter of
law.
Toffel v. United States (In re M. Jack Hollingsworth & Assocs.,
P.C.) (Bankr. N.D. Ala.)
D.C. Cir.
28 U.S.C. § 1452(b) Equitable considerations warranted remand
of product liability cases.
Weaver v. Owens-Corning Fiberglas Corp. (D.C.)
Collier Bankruptcy Case Summaries
1st Cir.Debtor could not void tax return filing extension in order to
place tax obligation outside of three-year nondischargeability
period. D. Mass. The debtor appealed the bankruptcy court's
dismissal of an adversary proceeding seeking to discharge his
prepetition income tax liability. The debtor had previously sought a
four-month automatic extension to file his tax return. Because the date
of the extension was within three years of the date the debtor filed his
petition, the IRS contended that the tax obligation was
nondischargeable. The debtor argued that the extension was invalid
because of misrepresentations he made when filing the request for an
extension. The bankruptcy court granted the IRS's motion to dismiss and
held that the debtor taxpayer could not receive the benefit of the
extension and then argue that it was invalid because of
misrepresentations that he had made. The district court affirmed,
holding that the debtor's tax liability was not discharged because
the three-year period of section 507(a)(8)(A)(1) was measured from the
date of the filing extension requested by the debtor. The debtor
taxpayer did not have the power to seek an invalidation of the automatic
extension independently of the IRS. Kimball v. United States (In
re Kimball), 2002 U.S. Dist. LEXIS 4470, - B.R. - (D. Mass. February
27, 2002) (Keeton, D.J.).
Collier on Bankruptcy, 15th Ed. Revised
4:507.10
ABI Members, click here to get the full opinion.
Debt that arose from judgment for defamation, product
disparagement and intentional interference with advantageous business
relations was not excepted from discharge. Bankr. D. Mass. A
creditor filed an adversary proceeding against the chapter 7 debtor
seeking, among other things, a determination that a debt that arose from
a prepetition federal district court judgment was excepted from
discharge under section 523(a)(6). The district court judgment, to the
extent that it was affirmed by the Court of Appeals for the First
Circuit, awarded the creditor damages for defamation, product
disparagement and intentional interference with business relations. The
creditor claimed that the necessary elements of proof for a
nondischargeability determination under section 523(a)(6) (i.e., that
the debtor injured another entity or the property of another entity
willfully and maliciously and, by such injury, gave rise to the debt at
issue) were established by virtue of the prepetition judgment; thus, the
debtor was collaterally estopped from relitigating the issues. The
bankruptcy court rejected the creditor's argument and entered judgment
in the debtor's favor. The court held that none of the three torts
for which the debtor was adjudicated liable (defamation, product
disparagement and intentional interference with advantageous business
relations) required a showing that the injury was willful or malicious
within the meaning of section 523(a)(6). The court also found that
the creditor's evidence failed to establish that the debtor caused
injury to the creditor both willfully and maliciously. In addition to
its holding on the dischargeability issue, the court held that the
creditor failed to satisfy his burden of proof on other causes of action
brought to deny the debtor's discharge under section 727(a). M
& I Heat Transfer Prods., Ltd. v. Gorchev (In re Gorchev), 2002
Bankr. LEXIS 198, 275 B.R. 154 (Bankr. D. Mass. March 7, 2002) (Kenner,
B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.12
ABI Members, click here to get the full opinion.
Loan extended by private party was not excepted from
debtor's discharge. Bankr. D. Mass. The chapter 13 debtor
objected to the proof of claim filed by her grandparents that asserted
that the debt owed to them was nondischargeable pursuant to section
523(a)(8). The funds had been advanced to the debtor by her grandparents
to enable her to attend hair styling school so that she could become a
licensed beautician. The debtor argued that because the loan was not
made or guaranteed by a governmental entity or a nonprofit institution,
her grandparents were not entitled to have the debt excepted from
discharge. Her grandparents contended that the statute's language, 'an
obligation to repay funds received as an educational benefit,
scholarship or stipend,' meant that all student loans were
nondischargeable, not simply those made or guaranteed by governmental or
nonprofit organizations. The bankruptcy court sustained the debtor's
objection, holding that the obligation owed to the debtor's
grandparents did not qualify as a student loan and did not come within
the exception to discharge under section 523(a)(8). The intent of
Congress was to except from discharge loans that were made, guaranteed
or funded by a governmental unit or nonprofit institution, not loans
extended by a private party. In re Reis, 2002 Bankr. LEXIS
186, 274 B.R. 46 (Bankr. D. Mass. February 28, 2002) (Feeney, B.J.).
Collier on Bankruptcy, 15th Ed. Revised
4:523.14[1]
ABI Members, click here to get the full opinion.
Debtor's obligation to his former spouse for their
credit card debt was discharged. Bankr. D.R.I. The chapter 7
debtor's former spouse filed a complaint seeking a determination that an
obligation owed by the debtor was nondischargeable. Pursuant to the
parties' divorce decree, the debtor was responsible for paying his
former wife $6,000, at the rate of $100 per month, for credit card debt
incurred during their marriage. The former spouse had remarried, and
together with her new husband had a combined annual income of $83,000.
The debtor earned approximately $24,000 a year and had little disposable
income and no significant assets. The bankruptcy court entered judgment
in favor of the debtor, holding that the debtor's former spouse
failed to meet her burden of proving that the obligation was
nondischargeable under section 523(a)(15). The debtor was unable to
pay the debt at the time of the trial or at any time in the foreseeable
future. The court concluded that the former spouse's financial condition
was far more comfortable than that of the debtor and that his situation
was not likely to change. The harm caused to the former spouse with the
debt discharged was minimal compared to the hardship to the debtor if he
were required to pay the obligation. Summiel v. Tuoni (In re
Tuoni), 2002 Bankr. LEXIS 213, 275 B.R. 186 (Bankr. D.R.I. February
19, 2002) (Votolato, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.21
Fraudulent conveyance action commenced against debtor's wife was
void. S.D.N.Y. The debtor's wife moved to dismiss the
fraudulent conveyance action brought against her by the liquidator of an
insurance company in district court, arguing that the commencement of
the action violated the automatic stay. The liquidator sought to recover
the value of certain residential property conveyed from the debtor to
his wife. However, it did not seek relief from the automatic stay or
intervention by the trustee. The district court granted the motion to
dismiss without prejudice, holding that the action against the
debtor's wife was commenced in violation of the automatic stay. The
fraudulent conveyance action was a prohibited action to recover a claim
against the debtor and was void. Serio v. DiLoreto,
2002 U.S. Dist. LEXIS 4473, - F. Supp.2d - (S.D.N.Y. March 19, 2002)
(Swain, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.03
ABI Members, click here to get the full opinion.
Transfer occurred at the time debtor's wages were
paid. Bankr. W.D.N.Y. More than 90 days prepetition, a
creditor served a continuing levy upon the debtor's employer and, within
90 days of the filing of the bankruptcy petition, the employer paid
funds to the creditor. The debtor sought turnover of the funds as a
preference, and the creditor responded that since the transfer occurred
at the time the levy was served, no transfer occurred during the
preference period. Upon cross motions for summary judgment, the
bankruptcy court held that the transfer was not made until the debtor
acquired rights in the property, i.e., at the time the wages were
paid. Thus, when the employer paid the wages to the debtor within 90
days of the filing of the petition, a preferential transfer occurred.
Price v. Mfrs. and Traders Trust Co. (In re Price), 2002
Bankr. LEXIS 151, 272 B.R. 828 (Bankr. W.D.N.Y. January 24, 2002)
(Bucki, B.J.).
Collier on Bankruptcy, 15th Ed. Revised
5:547.05[7][b]
3d Cir.
Creditors' claims required to be discounted to present value as of
petition date. Bankr. D. Del. After filing for chapter 11
relief, the debtors filed two motions seeking to fix the amounts of
certain proofs of claim and scheduled claims related to the debtors'
obligations under some promissory notes. Each claim at issue was
asserted or scheduled in an amount equal to the aggregate nominal amount
of all outstanding payments due under the applicable promissory note as
of the date the debtors filed for bankruptcy. Some of the claims also
included amounts for postpetition interest, late fees, attorneys' fees
and other charges. In its motion, the debtor sought entry of an order
pursuant to section 502(b), reducing the claims to present value as of
the petition date and reducing the claims by the amount of any
postpetition interest, fees or charges. Certain creditors objected,
arguing that their claims should be allowed in the full amount asserted.
The bankruptcy court ruled that the language of section 502(b)
required that the disputed claims be discounted to their present value
as of the petition date. The court reasoned that, under the
principles established in section 502(b), interest stops accruing at the
date of the filing of the petition because any claim for unmatured
interest is disallowed under this section. Further, the court noted that
the debtors' bankruptcies operated to accelerate the principal amount
due on the claims because the discounting factor for claims after the
commencement of a case is generally equivalent to the contractual
interest rate on the claim. However, the court reserved for a later date
a determination as to the proper discount factor to be applied to
calculate the present value of the claims in this case. In re
Loewen Group Int'l, Inc., 2002 Bankr. LEXIS 199, 274 B.R. 427
(Bankr. D. Del. February 19, 2002) (Walsh, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:502.03
4th Cir.
Denial of creditor's request for administrative expense claim was
affirmed on appeal. D. Md. The creditor holding a purchase
money security interest in the chapter 13 debtor's furniture appealed
the bankruptcy court's order denying its request for payment as an
administrative expense. The debtor had purchased the furniture
prepetition and pledged it as collateral for any monies unpaid. Although
the debtor's confirmed plan proposed to pay the creditor in full, she
failed to pay any of the installments due under the plan for over a
year. At no time before, during or after the debtor's default did the
creditor move for relief from the automatic stay or for adequate
protection. The bankruptcy court denied the creditor's request for
payment as an administrative expense to recover the decline in the value
of its collateral during the pendency of the debtor's case. On appeal,
the creditor argued that the debtor's postpetition use of the furniture
conferred a concrete benefit upon her estate. The district court
affirmed, holding that section 503(b) was not the appropriate remedy
for the prepetition secured lender whose collateral diminished in value
due the debtor's postpetition possession and use. The debtor's
furniture was a consumer purchase used for personal purposes, and was
not employed in an effort to operate or reestablish a business, or make
an economic profit for the debtor or her estate. Having failed to
request adequate protection as the appropriate remedy, the creditor
could not use section 503(b) as an alternative means to accomplish the
same end. Tidewater Fin. Co. v. Henson, 2002 U.S. Dist. LEXIS
7284, - B.R. - (D. Md. April 18, 2002) (Blake, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:503.06
ABI Members, click here to get the full opinion.
Damage caused by debtor's ransacking of mobile home
deemed nondischargeable. Bankr. D.S.C. The debtor purchased a
1996 mobile home from the creditor under a retail installment contract
and gave the creditor a security interest in the mobile home, including
its fixtures, appliances and accessories. When the debtor failed to make
payments on the home, the creditor filed a state court action to retake
possession. After the debtor was served with the state court summons and
complaint, the creditor inspected the mobile home and discovered that it
was being stripped of its furniture, appliances, equipment and
accessories, including its bathtub, stove, refrigerator, air
conditioning system, shutters, countertop tiling, light fixtures, stereo
system, closet doors, commode, doors and storm windows. The creditor
obtained a temporary restraining order against the debtor and the debtor
then filed for chapter 7 relief. The creditor then filed an adversary
proceeding in the debtor's bankruptcy, seeking to have the debtor's debt
determined nondischargeable under section 523(a)(6). The debtor failed
to plead or appear in the matter, and the court entered default. At a
damage hearing, the court found that the payoff amount of the mobile
home was $67,732.98, but due to the damage, the fair market value was
$45,000.00. Had the home not been damaged, its fair market value would
have been $60,000.00. It also cost the creditor $10,606.95 to repair the
damage. The court ruled that the debtor's conversion of the property
constituted willful and malicious injury to the property and awarded the
creditor a nondischargeable judgment in the amount of $60,000.00,
subject to reduction in the amount of any proceeds received from the
sale of the mobile home, less the $10,606.95 in repair costs (citing
Collier on Bankruptcy, 15th Ed. Revised 4:523.12). Oakwood
Acceptance Corp. v. Coltrane (In re Coltrane), 2001 Bankr. LEXIS
1824, 273 B.R. 478 (Bankr. D.S.C. May 11, 2001) (Waites, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.12
ABI Members, click here to get the full opinion.
Debtor's student loans dischargeable after car injury
rendered her severely disabled. Bankr. D.S.C. After the
debtor's divorce in 1986, she was awarded custody of her two minor
children but received only sporadic child support payments from her
ex-spouse. To support her children, she went to school to earn her GED
and went on to receive a bachelor's degree in secondary education social
sciences. While she was attending school, the debtor obtained guaranteed
student loans from the creditor in the amount of $6,402. Repayment on
the loans began in September 1992, and the debtor requested forbearances
on the loans for a total of 51 of the next 92 months. On August 16,
1999, the debtor was involved in a serious car accident and suffered a
concussion and spinal injury. Following the car accident, the debtor
petitioned for chapter 7 relief and filed a section 523(a)(8)
dischargeability complaint, seeking to discharge the student loans owed
to the creditor. At the time of the nondischargeability hearing, the
debtor was 49-nine-years-old, and her physician had advised her that she
would never be capable of holding full-time employment due to her
medical condition. Also at the time of the hearing, the debtor derived
income from part-time baby-sitting at the rate of $115 per week and a
$300 contribution from her ailing father. The creditor objected to the
discharge of the student loans, arguing that the debtor had not made a
serious effort to repay her student loans prior to filing for bankruptcy
relief. After reviewing the elements of the Brunner test, the court
found that the debtor would not be able to maintain a minimal standard
of living if required to repay the loans and that the permanent nature
of her disability would likely prevent her from repaying the loans in
the future. The court then found that, while the debtor had requested
and received multiple forbearances on her loan repayment, she never
fully abandoned her obligation to repay the loans. Because the debtor
paid when she could, sought forbearances when she was unable to make
payments and kept the creditor informed of her financial situation, the
court found that the debtor satisfied the final prong of the Brunner
test and ordered the student loan debt discharged. Carlson v.
UNIPAC Student Loan (In re Carlson), 2001 Bankr. LEXIS 1826, 273
B.R. 481 (Bankr. D.S.C. May 18, 2001) (Waites, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.14
ABI Members, click here to get the full opinion.
District and court of appeals awarded sanctions for
moot and frivolous appeals. 4th Cir. When a lessor obtained a
judgment of eviction against a holding company and its principal, the
holding company filed a chapter 7 petition. The bankruptcy court granted
the lessor relief from stay and, while the debtor's motion for
reconsideration was pending, obtained an order evicting the debtor and
principal from the premises. After the eviction, the debtor withdrew its
motion for reconsideration, admitting that the eviction rendered the
motion for relief from stay moot. Despite this admission, the debtor
appealed the bankruptcy court's order granting relief from stay. The
district court dismissed the appeal and awarded sanctions against the
debtor, concluding that the issues were moot and the appeal was
frivolous. Applying the clear error standard, the Court of Appeals for
the Fourth Circuit affirmed and awarded sanctions, holding that not
only did the district court properly award sanctions, but that sanctions
for filing a frivolous appeal to the circuit court were warranted.
The court first addressed the debtor's contentions and concluded that
the appeal was frivolous because the issues were patently moot. Second,
sanctions were warranted against both the debtor and its attorney
because the result was obvious and the arguments wholly without merit.
The debtor's contentions included an argument that the lessor did not
exist and an unfounded assertion of ex parte communications between the
bankruptcy court and the lessor. Property Movers, L.L.C. v.
Goodwin (In re Property Movers, L.L.C.), 2002 U.S. App. LEXIS 2444,
- F.3d - (4th Cir. February 14, 2002) (per curiam).
Collier on Bankruptcy, 15th Ed. Revised
10:8020.04[1]
5th Cir
Chapter 11 trustee's conduct did not rise to level of gross
negligence. N.D. Tex. In May 1996, several creditors
filed an involuntary bankruptcy petition against the debtor. Shortly
thereafter, a chapter 11 trustee was appointed. Between May 1996 and
January 1997, the trustee disbursed over $1.3 million. In January 1997,
the bankruptcy court confirmed the debtor's joint plan of reorganization
and discharged the trustee from his duties, releasing him from all
further authority, duties and responsibilities related to the bankruptcy
case. The plan named the trustee as disbursing agent for the proceeds of
a $2.5 million letter of credit, which was to be placed in a claims
reserve account to pay allowed claims. Instead of depositing the
proceeds of the letter of credit into a claim reserve account, the
trustee deposited the proceeds into the trustee operating account. The
debtor then filed an adversary proceeding against the trustee,
asserting, in part, breach of fiduciary duty for commingling the funds
from the claim reserve account with funds from the operating account.
After a hearing, the bankruptcy court ruled that, although the trustee
was inattentive to detail, the conduct did not breach his fiduciary duty
and that the trustee had been discharged from all duties and
responsibilities as of the date the commingling occurred. On appeal, the
district court rejected the trustee's argument that he could not be
liable because his trustee duties had been discharged and found that a
trustee retains a continuing duty of loyalty even after discharge.
Nevertheless, the district court affirmed the bankruptcy court's
ruling because it found that the bankruptcy court did not clearly err in
finding that the trustee's conduct did not amount to an intentional
failure to perform his duties or reckless disregard of the consequences
of his actions. U.S. Metro Line Servs. v. Litzler (In re VVCI
Acquisition Corp.), 2002 U.S. Dist. LEXIS 4317, - B.R. - (N.D. Tex.
March 14, 2002) (Lindsay, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:323.02
ABI Members, click here to get the full opinion.
District court adopted bankruptcy court's
recommendation that funds retained by standing chapter 12 trustee be
turned over to United States Trustee. E.D. La. The United
States Trustee brought a proceeding against a chapter 12 trustee seeking
recovery of funds allegedly collected by the chapter 12 trustee over and
above the United States Trustee's statutorily determined compensation
orders. The chapter 12 trustee filed a counterclaim that, ultimately,
was governed by the Federal Tort Claims Act, over which the district
court had exclusive jurisdiction. Nevertheless, for purposes of judicial
economy, the bankruptcy court undertook the responsibility of issuing
proposed findings of fact and conclusions of law as to whether the funds
taken by the chapter 12 trustee were excessive. To make that
determination, the bankruptcy court considered, among other things, the
effect of a policy statement of the Executive Office for United States
Trustees ('EOUST') in two handbooks for standing chapter 12 trustees
that were in effect during the relevant time period. The bankruptcy
court found that funds retained by the chapter 12 trustee had to be
turned over to the United States Trustee. In so finding, the bankruptcy
court accepted the EOUST's trustee's interpretation of 28 U.S.C. §
586(e), which governs compensation of chapter 12 standing trustees and
which was interpreted in the handbooks as requiring expenses to be paid
prior to compensation. The district court held that the application
of the handbook regulations at issue was appropriate and reasonable;
therefore, the bankruptcy court's proposed findings of fact and
conclusions of law should be adopted. The district court carefully
reviewed section 586(e), and decided that this provision did not appear
to either allow or preclude the 'expenses first' policy. However,
considering the ambiguity of the statute, the regulatory powers of the
attorney general with respect to compensation and the rationale of the
'expenses first' policy in encouraging standing trustees to minimize
expenses, the court decided that the policy as set forth in the
handbooks was entitled to some deference. Taylor v. Dengel,
2002 U.S. Dist. LEXIS 4145, - B.R. - (E.D. La. March 5, 2002) (Duval,
D.J.).
Collier on Bankruptcy, 15th Ed. Revised 1:6.08
6th Cir.
Debtor's attorney was denied award of compensation for
postpetition services. Bankr. S.D. Ohio The chapter 7 debtor
reopened her case and moved for sanctions against her former attorney
for attempting to collect outstanding legal fees subsequent to her
discharge. The debtor sought disallowance of all compensation on the
bases that the creditor failed to adequately disclose the nature of the
fee arrangement and that the charges for the services were unreasonable.
Prior to filing for bankruptcy, the debtor received a subpoena for a
judgment debtor examination and subsequently met with the attorney and
paid him a $500 retainer for his services. The parties executed a fee
agreement that generally referred to 'debt problems' and stated that
work was to be performed at specific hourly rates. The debtor and her
attorney later concluded that filing a chapter 7 petition was in the
debtor's best interest. The compensation statement filed at the time of
the petition referred to an attached copy of the previously executed
agreement, but did not disclose what the bankruptcy charges would be,
the amount of any retainer or any balance due. The bankruptcy court
granted judgment to the debtor, holding that postpetition
compensation was disallowed due to the inadequacy of the attorney's
disclosure of compensation. The postpetition charges were not
unreasonable under section 329(b), but the attorney's disclosure of the
charges specific to the bankruptcy filing was inadequate. The court
noted that the purpose of the compensation disclosure requirement was to
enable the court and the United States Trustee to monitor and examine
the compensation paid by the debtors to protect them from overreaching
and to make sure assets were not shielded from creditors. In re
McNickle, 2002 Bankr. LEXIS 197, 274 B.R. 477 (Bankr. S.D.
Ohio February 19, 2002) (Caldwell, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:329.03;
9:2016.17
7th Cir.
Creditor failed to state section 523(a)(2)(A) claim where relevant
allegations related to oral representations of insider's financial
condition. Bankr. N.D. Ill. An alleged creditor of the
chapter 7 debtor filed a complaint seeking a denial of the debtor's
discharge under various subsections of section 727(a). The complaint
also sought a determination of the nondischargeability of the particular
alleged debt owed to the creditor pursuant to various subsections of
section 523(a). The debtor moved for summary judgment. The bankruptcy
court granted the debtor's motion, in part, and denied the motion, in
part. Among other things, the court held that to the extent that the
creditor alleged causes of action under section 523(a)(2)(A), he failed
to state a claim upon which relief could be granted because virtually
all of the relevant allegations related to oral representations
regarding the financial condition of an insider of the debtor and, as
such, were actionable only under section 523(a)(2)(B), which requires
that misrepresentations concerning financial condition be in
writing. Jeffrey M. Goldberg & Assocs. v. Holstein (In re
Holstein), 2001 Bankr. LEXIS 1833, 272 B.R. 463 (Bankr. N.D. Ill.
September 27, 2001) (Sonderby, B.J.).
Collier on Bankruptcy, 15th Ed. Revised
4:523.08[1]
ABI Members, click here to get the full opinion.
Defendant in fraudulent transfer action denied
summary judgment because trustee might establish that limitations period
was subject to equitable tolling. Bankr. N.D. Ill. In
connection with his prepetition purchase of real property from the
chapter 7 debtor, an individual granted the debtor's wife at the time a
nine-year option to repurchase the property. According to the purchaser,
the wife contemporaneously assigned the option to the debtor at the time
of the sale. Years later, after the debtor and his wife divorced and the
debtor's bankruptcy discharge was granted and his case was closed, the
purchaser moved to reopen the chapter 7 case based on the debtor's
alleged failure to schedule the option as an asset. The purchaser
offered to purchase the trustee's interest in the property for a flat
fee in an apparent effort to resolve a pending state court action
brought by the former wife to enforce the purchase option, which she
claimed had been reassigned to her by the debtor. The trustee rejected
the purchase offer, and instead brought an adversary proceeding against
the purchaser to recover the property. The trustee alleged that the
debtor's initial transfer of the property to the trustee was a
fraudulent transfer pursuant to section 544 and the state (Illinois)
fraudulent transfer statute. The purchaser moved for summary judgment
and alleged, among other things, the trustee's fraudulent transfer
claims were time-barred. It was undisputed that the trustee's causes of
action under section 544(b) were brought beyond the two-year statute of
limitations of section 546(a); thus, the issue for decision was whether
the doctrine of equitable tolling applied to the limitations period. The
bankruptcy court denied the purchaser's motion for summary judgment. The
court held that, among other things, that the purchaser failed to
establish that the trustee actually knew of the property sale or that he
failed to exercise due diligence in investigating the debtor's financial
affairs; therefore, the trustee might be able to establish that the
statute of limitations was subject to equitable tolling.
Heyman v. Dec (In re Dec), 2001 Bankr. LEXIS 1835, 272 B.R.
218 (Bankr. N.D. Ill. September 6, 2001) (Sonderby, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:546.02
ABI Members, click here to get the full opinion.
8th Cir.
Court sustained trustee's objections to exemptions claimed by
debtor for IRA and college fund. Bankr. W.D. Ark. The chapter
7 trustee objected to exemptions claimed by the debtor for an IRA and a
'college fund.' The trustee did not dispute that the debtor was entitled
to exempt a portion of the funds using the section 522(d)(5) 'wildcard'
exemption. However, the trustee objected to the debtor's claim of
exemption for the remaining value of the funds under section
522(d)(10)(E). The bankruptcy court held that the debtor was not
entitled to claim exemptions under section 522(d)(10)(E) for either the
IRA or the college fund because the funds were not payments received
pursuant to a pension, annuity or 'similar plan or contract' within the
meaning of section 522(d)(10)(E). The court determined that there is
no per se exemption under section 522(d)(10)(E) for IRAs that qualify
for tax exempt status under section 408 of the Internal Revenue Code;
rather, Congress intended to exempt section 408 IRAs to the extent they
are 'similar plans or contracts' payable 'on account of illness,
disability, death, age or length of service' and 'reasonably necessary
for the support of the debtor and any dependent of the debtor.' In this
case, based on the evidence presented, the court found that both
accounts were simply savings accounts set up to pay for the college
education of the debtor's son. The court also held that the debtor was
not entitled to the exemption claimed because his right to payment from
the funds was not on account of illness, disability, death, age or
length of service, and because the funds were not reasonably necessary
for the support of the debtor or a dependent. In re Skipper,
2002 Bankr. LEXIS 189, 274 B.R. 807 (Bankr. W.D. Ark. February 12, 2002)
(Fussell, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:522.09[10]
9th Cir.
Arizona debtor could not avoid condominium association's lien.
Bankr. D. Ariz. The chapter 13 debtor moved to avoid a lien
asserted by a condominium association on the grounds that it impaired
his homestead exemption. The lien was based on a judgment obtained by
the association in connection with an action brought against the debtor
to enforce and collect a previously asserted lien for the debtor's
unpaid condominium assessments. The bankruptcy court noted that in order
to prevail on his motion, the debtor had to establish the following four
factors: (1) he had an interest in his homestead property; (2) he was
entitled to a homestead exemption; (3) the condominium association's
lien impaired the exemption; and (4) the lien was judicial rather than
statutory. The parties did not dispute the existence of the first three
factors; thus, the dispositive issue before the court was whether the
lien asserted by the association was statutory. The bankruptcy court
held that the condominium association's lien was a statutory lien as
defined by section 101(53); therefore, the lien could not be avoided for
impairing the debtor's homestead exemption. The court rejected the
debtor's argument that the lien was judicial because the condominium
association obtained a judgment in an enforcement action and the lien
was not truly created or choate until that judgment was entered. The
court also rejected the debtor's assertion that since the definitions of
judicial lien in both the state (Arizona) condominium statute and the
Code contained the word 'levied,' the original assessment by the
association was a judicial lien even prior to the commencement of the
enforcement action. Reece v. Parkview Villas of Scottsdale Owners'
Ass'n (In re Reece), 2001 Bankr. LEXIS 1820, 274 B.R. 515 (Bankr. D.
Ariz. August 24, 2001) (Curley, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:522.11
10th Cir.
Debtor who willfully failed to comply with court order was
enjoined from refiling chapter 13 case. Bankr. D. Wyo. The
court directed the 13 debtor, who was 'seriously in default,' to submit
a plan modification, make payments on the default and provide
information to the chapter 13 trustee by a date certain. Although a
modification was submitted, the debtor did not comply with any other
terms of the order and, two months after the deadlines established by
the order, the court dismissed the chapter 13 case. Soon thereafter, the
debtor received a federal income tax refund with which she paid the
arrearage on her home mortgage and purchased auto insurance. When she
filed her second chapter 13 petition, she failed to disclose the payment
on her mortgage. Upon a creditor's motion to dismiss for the willful
failure to abide by a court order, the bankruptcy court held that the
debtor was ineligible for chapter 13 due to her intentional failure to
comply with a court order. The debtor deliberately and voluntarily
failed to provide information to the trustee and cure her default, even
though she knew she would soon receive a large income tax refund. She
deliberately waited for the court to dismiss her case and, thus, further
delayed her creditors. In light of the calculated nature of her actions
and her lack of good faith, the debtor was enjoined from filing a
chapter 11 or 13 case for 180 days. In re Basse, 2001 Bankr.
LEXIS 1813, 272 B.R. 16 (Bankr. D. Wyo. November 8, 2001) (McNiff,
B.J.).
Collier on Bankruptcy, 15th Ed. Revised 2;109.08
ABI Members, click here to get the full opinion.
Moving party was not entitled to judgment as a matter
of law. Bankr. N.D. Ala. The chapter 7 trustee initiated an
adversary proceeding against the IRS, and the IRS moved for summary
judgment. The IRS contended that the federal tax obligation of the
debtor professional corporation's principal was secured by property
owned by the corporation under an alter ego theory. In support of its
motion for summary judgment, the IRS asserted that the principal's sole
signatory authority over all of the debtor's bank accounts evidenced the
misuse of his power over the debtor. The trustee argued that someone
other than the debtor's principal could have written checks for the
debtor. The bankruptcy court denied the IRS's motion, holding that
genuine issues of material fact precluded summary judgment. The
court had to reconcile who had control over the payment of expenses in
the corporation, which was a factual issue in dispute. Toffel v.
United States (In re M. Jack Hollingsworth & Assocs., P.C.),
2002 Bankr. LEXIS 207, - B.R. - (Bankr. N.D. Ala. January 29, 2002)
(Cohen, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 10:7056
D.C. Cir.
Equitable considerations warranted remand of product liability
cases. D.C. The plaintiffs in several asbestos product liability
cases moved to remand the removed cases back to the District of Columbia
Superior Court. The defendant manufacturer had removed the cases on the
grounds that the actions were 'related to' the chapter 11 case of a
different asbestos producer. The defendant had a pending claim of
indemnification against the debtor with respect to certain friction
product claims, the reference of which had been provisionally withdrawn
from the Delaware Bankruptcy Court by the Delaware District Court. The
plaintiffs asserted that the District of Columbia District Court lacked
subject matter jurisdiction over the removed actions because the claims
in question were not 'related to' the debtor's chapter 11 proceedings.
The defendant moved to stay consideration of the remand motion and
argued that the court lacked jurisdiction to remand the actions because
the Delaware District Court's provisional order was still in effect. The
district court denied the defendant's motion to stay, holding that
equitable remand of the product liability cases was warranted to
avoid disruption to the superior court docket and prejudicial delay to
the other litigants in the cases. The court noted that the defendant
removed whole cases and not only the claims against itself, causing a
legal monkey wrench to have been thrown into the dockets of the state
courts where the asbestosis cases were pending. Nevertheless, because
the Delaware District Court order was applicable to the claims against
the defendant, the cases were remanded without the defendant's friction
product claims. Weaver v. Owens-Corning Fiberglas Corp., 2002
U.S. Dist. LEXIS 3910, 275 B.R. 119 (D.C. March 6, 2002) (Robertson,
D.J.).
Collier on Bankruptcy, 15th Ed. Revised 1:3.07[5]
Collier Bankruptcy Case Update January-10-05
- 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.
January 10, 2005
CASES IN THIS ISSUE
(scroll down to read the full summary)
1st Cir.
§ 1307 Trustee’s motion to convert or dismiss on grounds of debtor’s failure to file tax returns denied upon showing by IRS that missing returns had been filed. In re Mackenzie (Bankr. D.N.H.)
2d Cir.
§ 505 Enforcement of arbitration award properly stayed pending bankruptcy court determination of taxes which were the basis for the award. In re Winimo Realty Corp. (S.D.N.Y.)
§ 1104(c) Bankruptcy court should have appointed an examiner where $5,000,000 debt threshold had been met. Loral Stockholders Protective Comm. v. Loral Space & Communs., Ltd. (In re Loral Space & Communs., Ltd.) (S.D.N.Y.)
3d Cir.
§ 362(d) Relief from stay granted to allow arbitration of dispute between debtor and subcontractor to continue. Erie Power Techs., Inc. v. Ref-Chem, LP (In re Erie Power Techs., Inc.) (Bankr. W.D. Pa.)
4th Cir.
§ 365 Landlord’s appeal of orders approving assumption of commercial leases dismissed on grounds of equitable mootness where nearly identical issues had been reviewed on prior appeal of rejection orders. U.S. Rest. Props, Inc. v. Convenience USA, Inc. (In re Convenience USA, Inc.) (M.D.N.C.)
5th Cir.
§ 549(a) There were no surplus proceeds from foreclosure sale due debtor where purchasing creditor bid less than its contractual, state law debt amount. Home & Hearth Plano Parkway, LP v. LaSalle Bank (In re Home & Hearth Plano Parkway, LP) (Bankr. N.D. Tex.)
28 U.S.C. § 157(d) Motion to withdraw reference was not appropriate vehicle for determining if adversary proceedings would interfere with proceedings before Federal Energy Regulatory Commission. Mirant Americas Energy Mktg., LP v. PG & E (In re Mirant Corp.) (Bankr. N.D. Tex.)
6th Cir.
§ 502(e)(1) Bankruptcy court correctly applied damages cap to creditor’s indemnification claim. Capitol Indus., Inc. v. Regal Cinemas, Inc. (In re Regal Cinemas, Inc.) (6th Cir.)
7th Cir.
§ 727(a)(5) Discharge denied where debtor could not satisfactorily explain or prove assertion that missing cash had been “gambled away.” Saluja v. Mantra (In re Mantra) (Bankr. N.D. Ill.)
§ 1322(b)(2) Confirmation order vacated where plan impermissibly modified rights of secured creditor with claim secured solely by debtor’s residence. In re Carr (Bankr. W.D. Wis.)
§ 1325 Plan providing for zero percent interest rate on crammed down loan, rather than adjusted prime, could not be confirmed. In re Scrogum (Bankr. C.D. Ill.)
8th Cir.
§ 304(c) Injunction barring proceedings against assets involved in debtor’s Cayman Islands liquidation proceeding affirmed. Hoffman v. Bullmore (In re National Warranty Ins. Risk Retention Group) (8th Cir.)
9th Cir.
§ 365(d)(3) Approval of lease rejection that was made retroactive to date motion was filed affirmed. Pacific Shores Dev., LLC v. At Home Corp. (In re At Home Corp.) (9th Cir.)
10th Cir.
§ 502(a) Absence of writings on which claims were based was not sufficient basis for objection to proofs of claim. In re Mazzoni (Bankr. D. Kan.)
§ 523(a)(2)(B) False financial statement provided to lender was not basis for nondischargeability absent evidence of debtor’s intent to defraud or creditor’s reliance. Blue Ridge Bank & Trust v. Cascio (In re Cascio) (Bankr. D. Kan.)
11th Cir.
§ 106(a) Bankruptcy Code abrogation of Eleventh Amendment sovereign immunity was unconstitutional in the context of student loan dischargeability proceeding. Georgia Higher Educ. Assistance Corp. v. Crow (In re Crow) (11th Cir.)
§ 341 Examiner appointed in chapter 11 case based upon debtor’s testimony at meeting of creditors. In re Hardy (Bankr. M.D. Fla.)
§ 362 Criminal action by homeowners against debtor contractor based on nonpayment of dischargeable debt to subcontractor was not barred by stay. Perry v. Jones (In re Perry) (Bankr. M.D. Ga.)
Collier Bankruptcy Case Summaries
1st Cir.
Trustee’s motion to convert or dismiss on grounds of debtor’s failure to file tax returns denied upon showing by IRS that missing returns had been filed. Bankr. D.N.H. PROCEDURAL POSTURE: After the debtor filed a plan of reorganization in a chapter 13 bankruptcy, objector mortgagee filed an objection to the confirmation of the plan. Movant trustee sought to dismiss or convert the case based on the debtor’s failure to file federal income tax returns for two years. OVERVIEW: The trustee’s motion to dismiss was denied because the Internal Revenue Service’s amended proof of claim indicated that the debtor had filed the missing tax returns and that its claim was reduced to zero. The mortgagee was not entitled to a distribution under a confirmed plan because it had failed to file a timely claim in the chapter 13 case and as a result, it did not have an allowed claim under 11 U.S.C. § 502. Since it did not have a right to a distribution under the plan, it did not have standing to object to the plan’s confirmation based upon the plan’s alleged failure to make a payment on account of its claim. Thus, the mortgagee’s objection to the plan was overruled. The court declined to accept the debtor’s claims regarding the prepetition arrearage owed to the mortgagee because to the extent that any payments to the mortgagee under the confirmed plan did not fully pay the amount of any prepetition arrearage, those amounts remained outstanding and secured by the mortgagee’s lien on the debtor’s residence after completion of the plan. In re Mackenzie, 2004 Bankr. LEXIS 1388, 314 B.R. 277 (Bankr. D.N.H. August 27, 2004) (Deasy, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1307.01[back to top]
ABI Members, click here to get the full opinion.
2d Cir.
Enforcement of arbitration award properly stayed pending bankruptcy court determination of taxes which were the basis for the award. S.D.N.Y. PROCEDURAL POSTURE: Appellants, a city and commission, appealed a stay order from the bankruptcy court that stayed enforcement of a final arbitration award and extended the time for the debtor to assume or reject a lease. Appellants sought confirmation of the arbitration award. The debtor moved to partially vacate the arbitration award or, alternatively, to stay its enforcement. OVERVIEW: The debtor was engaged in the business of refining, marketing, transporting, and distributing petroleum and asphalt products. The debtor leased land from appellants. The leases require the debtor to pay property taxes and contained a mandatory arbitration clause. In 1991, the debtor entered into an agreement with appellants under which the debtor was to make payments “in lieu of taxes.” The debtor defaulted on the payments and filed for bankruptcy. An arbitration panel returned an arbitration award in favor of appellants. The debtor commenced an 11 U.S.C. § 505 and challenged the appellants’ assessment of the taxes. The bankruptcy court stayed enforcement of the arbitration award. The district court found that the stay order did not constitute a modification of the arbitration award; rather, it simply delayed payment of property taxes pending a judicial determination of the proper amount of those taxes. Even if the stay order did modify the award, it was permitted by 9 U.S.C. § 11 because the arbitration panel did not have the authority to order the debtor to pay specific amounts in taxes. The debtor was permitted under section 505 to contest the validity of the assessed taxes. In re Winimo Realty Corp., 2004 U.S. Dist. LEXIS 25922, — B.R. — (S.D.N.Y. December 22, 2004) (Chin, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:505.01[back to top]
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Bankruptcy court should have appointed an examiner where $5,000,000 debt threshold had been met. S.D.N.Y. PROCEDURAL POSTURE: Appellant stockholders committee sought review of a judgment of the bankruptcy court denying their motion for the appointment of an examiner under 11 U.S.C. § 1104(c)(1) and (2) in a chapter 11 bankruptcy case commenced by appellee debtors, a company and its affiliated debtors and debtors in possession. OVERVIEW: The stockholders committee moved for the appointment of an examiner after the debtors announced their agreement with the Creditors’ Committee on the terms of a chapter 11 plan under which the company’s preferred and common shareholders would not receive any distributions. The stockholders committee claimed that an examiner was necessary to provide a complete appraisal of the debtor assets and liabilities in question, and it argued that the debtors were undervaluing many of their most valuable assets and that the debtors and Creditors’ Committee were improperly colluding to depress the valuations of the company. Although the bankruptcy judge recognized that the debtors’ fixed, liquidated, unsecured debts, other than debts for goods, services, or taxes, or owing to an insider, exceeded $5,000,000 and that the majority view of section 1104(c)(2) required appointment of an examiner if the $5,000,000 threshold was met, he declined to appoint an examiner. However, the court held that the bankruptcy court had no discretion to deny appointment of an examiner where the $5,000,000 debt threshold was met and shareholders of a public company moved for appointment of an examiner. Loral Stockholders Protective Comm. v. Loral Space & Communs., Ltd. (In re Loral Space & Communs., Ltd.), 2004 U.S. Dist. LEXIS 25681, — B.R. — (S.D.N.Y. December 23, 2004) (Patterson, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 7:1104.03[back to top]
ABI Members, click here to get the full opinion.
3d Cir.
Relief from stay granted to allow arbitration of dispute between debtor and subcontractor to continue. Bankr. W.D. Pa. PROCEDURAL POSTURE: Movant debtor moved to hold respondent sub-contractor in contempt for the willful violation of the automatic stay. The sub-contractor requested relief from the automatic stay so that the parties’ arbitration proceeding could continue. OVERVIEW: Debtor entered into an agreement under which the sub-contractor would provide heat recovery steam generators. Debtor obtained a payment and performance bond from its surety. A dispute arose between debtor and the sub-contractor over the scope of the work and amount due under their agreement. The sub-contractor filed suit and debtor moved to compel arbitration. The matter was set for arbitration and the sub-contractor made a demand against the surety who was added as a party to the arbitration. A hearing was held on whether the arbitration proceeding was stayed by debtor’s bankruptcy. The arbitration panel determined that the arbitration should proceed between the sub-contractor and the surety. The bankruptcy court found that it was debtor who elected to proceed with arbitration and who initiated arbitration. There were no specific causes of action in the underlying litigation which were created by the Bankruptcy Code and there was no conflict between enforcement of the arbitration provisions of the contract and the Bankruptcy Code. The arbitration would cause no material impact in the bankruptcy case that was sufficient to override the federal policy favoring arbitration. Erie Power Techs., Inc. v. Ref-Chem, LP (In re Erie Power Techs., Inc.), 2004 Bankr. LEXIS 1381, 315 B.R. 41 (Bankr. W.D. Pa. September 22, 2004) (Bentz, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.07[back to top]
4th Cir.
Landlord’s appeal of orders approving assumption of commercial leases dismissed on grounds of equitable mootness where nearly identical issues had been reviewed on prior appeal of rejection orders. M.D.N.C. PROCEDURAL POSTURE: In a case involving a bankruptcy reorganization plan that included an assignment of 15 of appellant landlord’s leases. The landlord appealed that portion of the plan that provided for the assumption and assignment of the 15 remaining appellee debtors’ stores pursuant to 11 U.S.C. §§ 365 and 1123(b)(2). The landlord also filed a motion to stay pending appeal. The debtors and appellee trustee moved to dismiss. OVERVIEW: The total number of leases was 27. Earlier the bankruptcy court had issued two orders, which permitted the debtors to reject a total of 12 of the leases. The landlord appealed those orders, but did not seek a stay. In reliance upon the two rejection orders, the debtors negotiated and filed a consensual resolution of their business affairs in the amended joint plan of reorganization. The two rejection orders affirmed by the present court, and the landlord’s motion to stay pending appeal was denied. The appellate court dismissed the landlord’s appeal of the two rejection orders. When the appellate court was presented with the nearly identical factual background and record that was now before the present court, the appellate court granted appellees’ joint motion to dismiss. That dismissal constituted subsequently decided binding authority on the present court. The appellate court found that doctrine of equitable mootness applied. U.S. Rest. Props, Inc. v. Convenience USA, Inc. (In re Convenience USA, Inc.), 2004 U.S. Dist. LEXIS 18999, 314 B.R. 552 (M.D.N.C. September 7, 2004) (Tilley, D.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:365.01[back to top]
ABI Members, click here to get the full opinion.
5th Cir.
There were no surplus proceeds from foreclosure sale due debtor where purchasing creditor bid less than its contractual, state law debt amount. Bankr. N.D. Tex. PROCEDURAL POSTURE: Plaintiff creditor and defendant debtor moved for summary judgment in the debtor’s action alleging, inter alia, there were surplus proceeds from a foreclosure sale and a violation of 11 U.S.C. § 362(a)(3), and seeking a turnover under 11 U.S.C. § 542(b), avoidance of the transfer of the surplus to the creditor under 11 U.S.C. § 549(a), and damages for conversion. The creditor asserted a counterclaim to recover certain sums. OVERVIEW: At the time of bankruptcy filing, the debtor owned a hotel that served as collateral for a nonrecourse note in the principal amount of $4,600,000, executed by the debtor and payable to the creditor. The note was secured by a deed of trust covering the hotel, an assignment of leases and rents, and a security agreement granting a security interest in furniture, fixtures, equipment, inventory, cash, and deposit accounts. The debtor argued that, while a claim order limited the creditor’s claim to $4,393,941.55, the creditor bid over that amount (i.e., $4,740,000) at the foreclosure sale and surplus proceeds of $346,058.45 had to be remitted to the debtor under the deed of trust. The court concluded that no surplus proceeds were generated from the foreclosure sale, since the creditor bid less than its contractual, state law calculated debt amount at the foreclosure sale. An order denying confirmation granted the creditor relief from the automatic stay to permit foreclosure under the terms of the deed of trust and pursue any other available state law remedies under the loan documents. There was no property of the estate that the creditor wrongfully refused to turnover to the debtor. Home & Hearth Plano Parkway, LP v. LaSalle Bank (In re Home & Hearth Plano Parkway, LP), 2004 Bankr. LEXIS 2030, — B.R. — (Bankr. N.D. Tex. December 15, 2004) (Houser, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 5:549.03 [back to top]
ABI Members, click here to get the full opinion.
Motion to withdraw reference was not appropriate vehicle for determining if adversary proceedings would interfere with proceedings before Federal Energy Regulatory Commission. Bankr. N.D. Tex. PROCEDURAL POSTURE: Defendant utilities moved to withdraw the reference pursuant to 28 U.S.C. § 157(d) in connection with adversary proceedings brought by plaintiff companies. OVERVIEW: The utilities wished the reference to be withdrawn to the district court as a first step to dismissal in favor of proceedings before the Federal Energy Regulatory Commission (“FERC”). The court recommended that the reference not be withdrawn because it was unlikely that the adversary proceedings would have required interpretation of the Federal Power Act (“FPA”) or any federal statute other than the Bankruptcy Code, and thus the adversary proceedings were not subject to mandatory withdrawal of the reference. Whether the adversary proceedings affected proceedings before FERC should have been determined in the context of a motion to dismiss, not a motion under 28 U.S.C. § 157(d). Justification for dismissal was not a basis for withdrawal of the reference. Because FERC would decide the quantification of claims, the proceedings would have required only that the trial court accept the conclusions of FERC in applying the Bankruptcy Code to those claims. Having filed a claim and invoked the bankruptcy court’s jurisdiction, it was unreasonable for the utilities to argue that FERC had to determine not just the quantification of the claims but also their status under 11 U.S.C. § 506(a). Mirant Americas Energy Mktg., LP v. PG & E (In re Mirant Corp.), 2004 Bankr. LEXIS 1378, — B.R. — (Bankr. N.D. Tex. September 15, 2004) (Lynn, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 1:3.04[back to top]
ABI Members, click here to get the full opinion.
6th Cir.
Bankruptcy court correctly applied damages cap to creditor’s indemnification claim. 6th Cir. PROCEDURAL POSTURE: Appellant creditor filed a bankruptcy claim against appellee chapter 11 debtor based on an indemnification provision of an agreement in which the creditor assigned its lease on a theater to the debtor. The District Court for the Middle District of Tennessee at Nashville affirmed the bankruptcy court’s order disallowing the claim. The creditor appealed the judgment. OVERVIEW: The parties had entered a lease assignment agreement by which the creditor became a guarantor to the landlord of any rent obligations not paid by the debtor. The creditor argued that its claim included more than lease-rejection damages and should not have been barred by the cap on such damages established by 11 U.S.C. § 502(e)(1). The creditor’s claim was subject to section 502(e)(1) because it was a claim for indemnification for money that the creditor owed the landlord as a guarantor of the lease agreement. In other words, the creditor shared liability with the debtor on the landlord’s claim under the parties’ lease assignment agreement. Since the landlord had already recovered the maximum amount allowed, the creditor’s claim arising from the same lease on which it was a codebtor was not allowed. Capitol Indus., Inc. v. Regal Cinemas, Inc. (In re Regal Cinemas, Inc.), 2004 U.S. App. LEXIS 26727, — F.3d — (6th Cir. December 22, 2004) (Sutton, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:502.06[2][back to top]
7th Cir.
Discharge denied where debtor could not satisfactorily explain or prove assertion that missing cash had been “gambled away.” Bankr. N.D. Ill. PROCEDURAL POSTURE: Creditor filed a complaint objecting to the discharge of chapter 7 debtor pursuant to 11 U.S.C. § 727(a)(2) and (5). OVERVIEW: Debtor borrowed money from creditor, securing the debt with a second mortgage on real property owned by debtor. Subsequently, debtor refinanced the first mortgage, receiving money that he deposited in his checking account. After debtor stopped making payments to creditor, he filed a voluntary chapter 7 petition. Debtor claimed that, prior to filing the petition, he had gambled away the money that he received from the refinancing of the first mortgage. The court held that it was unable to conclude that debtor transferred, removed, destroyed or concealed assets with intent to hinder, delay or defraud a creditor, within the meaning of 11 U.S.C. § 727(a)(2). The court held that debtor was merely fiscally irresponsible in hindsight by gambling away the cash he received from refinancing the first mortgage and did not conceal the cash. The court did hold, however, that debtor was not entitled to discharge because under 11 U.S.C. § 727(a)(5) he did not satisfactorily explain the loss of the cash, having presented no corroborative records or other credible testimony, other than his self-serving testimony, to substantiate his explanation that he gambled away the cash. Saluja v. Mantra (In re Mantra), 2004 Bankr. LEXIS 1374, 314 B.R. 723 (Bankr. N.D. Ill. September 20, 2004) (Squires, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 6:727.08[back to top]
ABI Members, click here to get the full opinion.
Confirmation order vacated where plan impermissibly modified rights of secured creditor with claim secured solely by debtor’s residence. Bankr. W.D. Wis. PROCEDURAL POSTURE: Debtor petitioned for relief under chapter 13 of the Bankruptcy Code. She filed, and the court confirmed without objection, debtor’s chapter 13 plan. Creditor, a mortgagee, moved to vacate the confirmation order. OVERVIEW: Creditor filed in debtor’s bankruptcy a claim for over $146,000 for a debt secured by a mortgage on debtor’s primary residence. No objection to that claim had been filed. Before debtor filed her bankruptcy petition, creditor had foreclosed on that mortgage and obtained a judgment against debtor for approximately $138,000. Debtor’s chapter 13 plan provided for payments to creditor based upon the appraised value of the residence and treated the remainder of creditor’s claim as unsecured. Creditor did not object to debtor’s plan but later moved to vacate the order confirming the plan. Creditor argued that the court lacked authority to confirm the plan because the plan violated 11 U.S.C. § 1322(b)(2) and 11 U.S.C. § 1325(a)(5). The court agreed. 11 U.S.C. § 1322 was mandatory in restricting the right to modify the claim of a secured creditor whose sole security was the debtor’s principal residence. The provisions of debtor’s plan did not comply with the mandatory provisions of the Code. Therefore, confirmation of the plan must be deemed nugatory. In re Carr, 2004 Bankr. LEXIS 2015, — B.R. — (Bankr. W.D. Wis. November 30, 2004) (Martin, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1322.06[back to top]
ABI Members, click here to get the full opinion.
Plan providing for zero percent interest rate on crammed down loan, rather than adjusted prime, could not be confirmed. Bankr. C.D. Ill. PROCEDURAL POSTURE: Movant creditor filed an objection to the confirmation of debtor’s amended chapter 13 plan. In the plan, debtor proposed to pay the creditor at an interest rate of zero percent per annum on its secured indebtedness. The creditor asserted that it was entitled to an interest rate of six and one-quarter percent. OVERVIEW: Debtor entered into a retail installment contract for the purchase of a car. The note bore an annual percentage interest rate of zero. After debtor filed a chapter 13 bankruptcy petition, the creditor filed a proof of claim in the amount of $15,637.16 plus nine percent interest per annum. In the amended plan, debtor proposed to pay zero percent interest on the amount of the fair market value of the car and the same percentage paid to all other unsecured creditors on the remaining amount of the creditor’s claim. The court held that the formula approach, which involved taking the national prime rate and adjusting it to compensate the lender for the risk incurred in making the loan, was the appropriate method for determining an interest rate on crammed down loans pursuant to a chapter 13 plan. Using that formula, the court found that the proposed zero percent interest rate in debtor’s amended chapter 13 plan violated 11 U.S.C. § 1325. Therefore, the court declined to confirm the amended plan. In re Scrogum, 2004 Bankr. LEXIS 1376, — B.R. — (Bankr. C.D. Ill. September 15, 2004) (Lessen, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 8:1325.01[back to top]
ABI Members, click here to get the full opinion.
8th Cir.
Injunction barring proceedings against assets involved in debtor’s Cayman Islands liquidation proceeding affirmed. 8th Cir. PROCEDURAL POSTURE: After appellant vehicle service contract buyer sued a warranty insurance group, appellee group liquidators filed a petition under 11 U.S.C. § 304 seeking an injunction to stop all proceedings against the assets involved in the group’s Cayman Islands liquidation. The bankruptcy court granted the requested section 304 relief and the Bankruptcy Appellate Panel affirmed. The buyer appealed. OVERVIEW: There were three main issues: whether the bankruptcy court had jurisdiction over the matter; whether injunctive relief was appropriate; and whether the injunction was too broad. The bankruptcy court properly found that the Cayman Islands was the group’s domicile for purposes of winding up and liquidating the corporation because the term “domicile” as used in 11 U.S.C. § 304 referred to a corporation’s place of business. In this case, the group’s place of incorporation, and thereby its domicile, was the Cayman Islands. The bankruptcy court did not abuse its discretion in awarding the liquidators injunctive relief where it had evaluated the factors set forth in 11 U.S.C. § 304(c) and concluded that Cayman law was capable of justly treating all claimants. The scope of the injunction was appropriate as it prevented a chaotic and uncontrolled scramble for the group’s estate. Finally, although the bankruptcy appellate panel failed to rule on the denial of discovery, the error was without prejudice as the bankruptcy court had not abused its discretion in denying the buyer’s request for discovery of the nationality of the group’s members. Hoffman v. Bullmore (In re National Warranty Ins. Risk Retention Group), 2004 U.S. App. LEXIS 24708, 384 F.3d 959 (8th Cir. September 24, 2004) (Bye, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 2:304.08[back to top]
ABI Members, click here to get the full opinion.
9th Cir.
Approval of lease rejection that was made retroactive to date motion was filed affirmed. 9th Cir. PROCEDURAL POSTURE: Immediately after filing for relief under chapter 11 of the Bankruptcy Code, appellee debtor moved for rejection of leases between debtor and appellant lessor and asked that the rejection be deemed effective on the date debtor filed its motion. The bankruptcy court granted that motion and the District Court for the Northern District of California upheld the bankruptcy court’s decision. The lessor sought further review. OVERVIEW: The lessor objected, not to the rejection of its leases, but to retroactive application of the order approving the rejection. A later effective date would mean that debtor owed the lessor an additional $1 million in rent. The bankruptcy court had equitable authority under 11 U.S.C. § 105(a) and 11 U.S.C. § 365(d)(3) to approve retroactively the rejection of debtor’s unexpired nonresidential leases. In addition, the bankruptcy court did not abuse its discretion by granting retroactive approval, even where the effective date preceded the lessor’s resumption of possession of the leased premises. Debtor promptly moved for authorization to reject the leases. There was no appreciable delay between the filing of, and the hearing on, the motion. The bankruptcy court could consider, when deciding whether to make its approval retroactive, the amount of rent owed under the contract, that the lessor appeared only to be attempting to obtain administrative rent, not to enforce its right to start re-letting the premises quickly, and the fact that debtor had never occupied the leased premises, which would make it easier for the lessor to re-let the property. Pacific Shores Dev., LLC v. At Home Corp. (In re At Home Corp.), 2004 U.S. App. LEXIS 26893, — F.3d — (9th Cir. December 28, 2004) (Graber, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:365.04[3][g][back to top]
ABI Members, click here to get the full opinion.
10th Cir.
Absence of writings on which claims were based was not sufficient basis for objection to proofs of claim. Bankr. D. Kan. PROCEDURAL POSTURE: In a chapter 13 bankruptcy case, debtor filed objections to proofs of claim filed by several creditors. OVERVIEW: Debtor objected to the proofs of claim solely on the ground that the writings on which the claims were based were not attached to the proofs of claim. Debtor was not entitled to the relief. The proofs of claim provided evidence of a demand for payment from the estate, including the demanding creditor’s name, an account number by which the creditor identified the debtor, and the amount of the claim at the time the case was filed. And, the proofs of claim were signed under penalty of up to $500,000 or up to five years in prison. Therefore, to prevail on her objections to the proofs of claim, debtor had to come forward with evidence that would minimally “meet, overcome, or at least equalize” creditors’ statements on the proofs of claim. In other words, because creditors satisfied their initial burden of proving the existence and amount of their claims with the presentation of their proofs of claim, debtor had to have a basis for challenging the validity of the claims. Debtor, however, presented no basis for challenging creditors’ proofs of claim. In re Mazzoni, 2004 Bankr. LEXIS 2027, — B.R. — (Bankr. D. Kan. December 20, 2004) (Berger, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:502.02[back to top]
ABI Members, click here to get the full opinion.
False financial statement provided to lender was not basis for nondischargeability absent evidence of debtor’s intent to defraud or creditor’s reliance. Bankr. D. Kan. PROCEDURAL POSTURE: Plaintiff judgment creditor filed an action against defendant judgment debtor in order to obtain a ruling that the debtor’s obligation to the creditor was not dischargeable pursuant to 11 U.S.C. § 523(a)(2)(B). Before the bankruptcy petition was filed the creditor had obtained a money judgment against the debtor for amounts due on loans. OVERVIEW: At the time that the debtor’s bankruptcy petition was filed, the debtor owed $658,605 to the creditor as part of a money judgment entered against the debtor. The creditor and the debtor had a 36-year banking relationship and the debtor had paid off earlier loans. In reference to the loans at issue, which had been reduced to a money judgment, the debtor had submitted a financial statement to the bank that exaggerated the debtor’s assets. The court found that a finding of nondischargeability of the creditor’s money judgment was not warranted, pursuant to 11 U.S.C. § 523(a)(20)(B). There was evidence that the debtor’s financial statement was materially false. However, the evidence was insufficient to establish by a preponderance of the evidence that the debtor had any intent to defraud, or that the creditor had reasonably relied on the financial statement. The creditor was under an obligation to investigate or verify the amount receivable of $480,000 that the debtor said he was owed. The creditor did not even undertake a minimal investigation and was obligated to do so if it sought to assert reasonable reliance on the financial statement. Blue Ridge Bank & Trust v. Cascio (In re Cascio), 2004 Bankr. LEXIS 2022, — B.R. — (Bankr. D. Kan. December 20, 2004) (Berger, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 4:523.08[back to top]
ABI Members, click here to get the full opinion.
11th Cir.
Bankruptcy Code abrogation of Eleventh Amendment sovereign immunity was unconstitutional in the context of student loan dischargeability proceeding. 11th Cir. PROCEDURAL POSTURE: Defendants, two state agencies, appealed a judgment of the District Court for the Southern District of Georgia, which affirmed a bankruptcy court’s denial of the agencies’ motion to dismiss in plaintiff debtors’ adversary proceedings brought against the agencies pursuant to the debtors’ filing of a chapter 7 petition for bankruptcy relief. The bankruptcy court had dismissed a third claim of the debtors. OVERVIEW: The debtors claimed that student loan obligations were dischargeable and sought damages because of the agencies’ attempt to collect in violation of the automatic stay of 11 U.S.C. § 362(a). The district court held that the adversary proceedings were not barred by the Eleventh Amendment. On appeal, the court held that the dismissal of the claim that the loans were dischargeable was properly denied based on a prior case of the United States Supreme Court, which held that the seeking of discharge was an in rem proceeding that did not implicate the Eleventh Amendment. The court reversed as to the automatic stay claim after finding that Congress’ attempt under 11 U.S.C. § 106(a) to abrogate Eleventh Amendment immunity in proceedings under 11 U.S.C. § 362 was an unconstitutional overreaching of its bankruptcy clause powers under U.S. Const. art. I, § 8, cl. 4. The bankruptcy court had no authority to entertain the in personam claim against the agencies absent sovereign consent. The court found that the provision could not be validated under U.S. Const. amend XIV, § 5 because Congress could not legislatively elevate bankruptcy to the constitutional status of a privilege or immunity. Georgia Higher Educ. Assistance Corp. v. Crow (In re Crow), 2004 U.S. App. LEXIS 26872, — F.3d — (11th Cir. December 23, 2004) (per curiam).
Collier on Bankruptcy, 15th Ed. Revised 2:106.02[back to top]
ABI Members, click here to get the full opinion.
Examiner appointed in chapter 11 case based upon debtor’s testimony at meeting of creditors. Bankr. M.D. Fla. PROCEDURAL POSTURE: Debtor filed for chapter 11 bankruptcy relief. Movant creditor moved for the appointment of a trustee or examiner. OVERVIEW: The creditor asserted that it was appropriate to appoint a trustee or examiner especially since the debtor had in the past and still had an ongoing modus operandi, which involved fraudulent transfers among family members and 37 affiliates controlled by the debtor, none of them subject to the control of the bankruptcy court. The court found that based on the precedent in the Eleventh Circuit it would consider the testimony of the debtor given in an 11 U.S.C. § 341 meeting of creditors. This testimony established that despite the lack of reported income, the debtor was able to take a two-week trip to Australia to visit his ranch holding, the debtor was a part owner of land located in Florida on which he ran large herds of cattle. The debtor failed to fully disclose all the transfers of funds, source of his funds, and his interest in membership of two country clubs. However, the debtor was not operating any business and therefore, there was no need for new management. But, it was without question that there was a need for a thorough and in-depth pervasive investigation by an examiner to untangle the intricate and complicated affairs of the debtor. In re Hardy, 2004 Bankr. LEXIS 2001, — B.R. — (Bankr. M.D. Fla. July 15, 2004) (Paskay, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:341.01[back to top]
ABI Members, click here to get the full opinion.
Criminal action by homeowners against debtor contractor based on nonpayment of dischargeable debt to subcontractor was not barred by stay. Bankr. M.D. Ga. PROCEDURAL POSTURE: Plaintiff bankruptcy debtor, a construction contractor, brought an adversary proceeding against defendant homeowners, alleging that the homeowners, in violation of the automatic bankruptcy stay, initiated criminal proceedings against the debtor for failure to pay a dischargeable debt to a subcontractor. The homeowners moved to dismiss the complaint. OVERVIEW: The homeowners hired the debtor to construct an addition to their residence and the debtor subcontracted a portion of the work but failed to pay the subcontractor despite payment by the homeowners. After the subcontractor filed a materialman’s lien against the residence, the homeowners initiated criminal proceedings under a state statute criminalizing the failure to pay the subcontractor. The debtor contended that the criminal action was initiated solely to collect the debt to the subcontractor and thus violated the automatic bankruptcy stay. The bankruptcy court held that the automatic stay did not stay the criminal proceeding, even if the proceeding was initiated by the homeowners solely to collect the debt to the subcontractor. Thus, there was no violation of the automatic stay, and injunctive relief barring the criminal action was not warranted since the debtor could raise the alleged improper motive of the homeowners in the criminal action. Perry v. Jones (In re Perry), 2004 Bankr. LEXIS 1382, 314 B.R. 873 (Bankr. M.D. Ga. September 3, 2004) (Hershner, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 3:362.01[back to top]
ABI Members, click here to get the full opinion.
;";";";01/10/2005;
Collier Bankruptcy Case Update August-26-02
- West's
Bankruptcy Newsletter
A Weekly Update of Bankruptcy and Debtor/Creditor Matters
Collier Bankruptcy Case Update
The following case summaries appear in the Collier Bankruptcy Case Update, which is published by Matthew Bender & Company Inc., one of the LEXIS Publishing Companies.
August 26, 2002
CASES IN THIS ISSUE
(scroll down to read the full
summary)
§ 510(c) Loan made to undercapitalized debtor, under
which creditor never collected or exercised rights, was an equity
interest which trustee could subordinate.
Atlanticrancher, Inc. v. Black (Bankr. D. Mass.)
2d Cir.
§ 366 Chapter 11 debtor utility provided adequate
assurance of payment to its vendors through record of payment and
allowance of postpetition administrative fees.
In re Adelphia Bus. Solutions, Inc. (Bankr. S.D.N.Y.)
§ 541(a)(1) Debtor’s directors and officers insurance
policy was estate property as 'Insured vs. Insured' exclusion in policy
did not apply to trustee.
In re County Seat Stores, Inc. (Bankr. S.D.N.Y.)
3d Cir.
§ 707(a) Section 707(a) was improper basis for
trustee’s motion to dismiss case and revoke discharge for
debtors’ failure to cooperate.
In re Rodwell (Bankr. D.N.J.)
Rule 7020 Debtor’s security holder’s adversary
proceeding improperly joined 24 defendants without establishing
transactional relatedness.
NPF X, Inc. v. Shubert (In re Nuclear Imaging Sys.) (Bankr.
E.D. Pa.)
4th Cir.
§ 523(a)(4) Debtors’ breach of fiduciary duties to
creditor and debtor’s corporation renedered related debt
non-dischargeable.
Airlines Reporting Corp. v. Ellison (In re Ellison) (4th
Cir.)
5th Cir.
§ 523(a)(5) Debtor husband, who had treated payments to
ex-spouse as alimony on tax returns, estopped from claiming same as
dischargeable property payments.
In re Stebbins (Bankr. N.D. Tex.)
§ 547(c)(2) Payments were preferences absent evidence that
they were made in accordance with industry practice.
Gulf City Seafoods, Inc. v. Ludwig Shrimp Co. (In re Gulf City
Seafoods, Inc.) (5th Cir.)
6th Cir.
§ 523(a)(8) Debtor who had made good faith efforts to
pay was entitled to have several of her student loans discharged for
undue hardship.
Meyers v. Fifth Third Bank (In re Meyers) (Bankr. S.D.
Ohio)
7th Cir.
28 U.S.C. § 1409(a) Permissive nature of 28 U.S.C.
1409(a) allowed for enforcement of forum selection clause in
contract.
Gruner AG v. KG Components, Inc. (Bankr. N.D. Ill.)
Rule 9021 Appeal of adversary proceeding prior to entry of final
judgment remanded.
Enodis Corp. v. Employer Ins. (In re Consolidated Indus. Corp.)
(Bankr. N.D. Ind.)
8th Cir.
§ 523(a)(8) Totality of circumstances justified discharge of student loans for 'undue hardship.'
Cheney v. Educ. Credit Mgmt. Corp. (In re Cheney) (Bankr. N.D. Iowa)
§ 548(a)(1)(B) Summary judgment in favor of trustee on fraudulent transfer claim vacated due to uncontroverted affidavit of debtor.
Youngblut v. Quag’s Equip. L.L.C. (In re Pepmeyer) (Bankr. N.D. Iowa)
§ 1227 Bank was bound by confirmed chapter 12 plan despite the fact that it did not provide for payment in full as originally intended.
Schelhorn v. Farmers Savings Bank (Bankr. N.D. Iowa)
9th Cir.
§ 105(a) Sanctions against debtor and attorney for bad faith, serial filing and removals of state court case were warranted under section 105(a).
DeVille v. Cardinale (In re DeVille) (B.A.P. 9th Cir.)
10th Cir.
§ 1325(a)(4) Exemption for truck that was necessary to chapter 13 debtor’s business met the 'best-interest' test.
In re Black (Bankr. D. Colo.)
28 U.S.C. § 157(c) Claim by debtor against former employee who formed a competing entity did not give rise to 'related to' jurisdiction.
Prof’l Home Health Care, Inc. v. Complete Home Health Care, Inc. (Bankr. D. Colo.)
11th Cir.
§ 1322(c) Bifurcation and cramdown of undersecured short-term mortgages permitted (Case of first impression).
Am. Gen. Fin., Inc. v. Paschen (In re Paschen) (11th Cir.)
Collier Bankruptcy Case Summaries
Loan made to undercapitalized debtor, under which creditor
never collected or exercised rights, was an equity interest which
trustee could subordinate. Bankr. D. Mass.
PROCEDURAL POSTURE: Plaintiff, the chapter 7 trustee,
filed suit against defendant creditors, seeking a determination of
whether loans made to the debtor by the creditors should be
recharacterized as equity interests in the debtor corporation and
whether the creditors’ claims should be equitably subordinated to
all other secured and unsecured claims pursuant to 11 U.S.C. §
510(c). OVERVIEW: The trustee asserted that the debts
owed to the creditors should be recharacterized as equity, arguing that
although couched as secured debt the advances represented by the
convertible promissory note and another note were more properly
characterized as equity investments of capital. The trustee reasoned
that the debtor was always grossly undercapitalized, the creditors never
attempted to collect the convertible promissory note or exercise any
rights under the security agreements, and the creditors bargained for
and were given extraordinary rights to control the debtor’s
actions. The creditors argued that their actions were consistent with
those of a lender, and, therefore, recharacterization was improper. The
creditors reasoned that each loan was fully documented, with fixed
maturity dates and interest rates, and were secured by the
debtor’s assets. With regard to one transaction, the court held
that the transaction had the substance and character of an equity
contribution while cast in the form of a loan. With regard to a second
transaction, the court held that the trustee failed to sustain his
burden of proving that the note should be recharacterized as equity.
Atlanticrancher, Inc. v. Black, 2002 Bankr. LEXIS
706, 279 B.R. 411 (Bankr. D. Mass. June 21, 2002) (Freeney, B.J.).
Collier on Bankruptcy, 15th Ed. Revised
4:510.05
2d Cir.
Chapter 11 debtor utility provided adequate assurance of
payment to its vendors through record of payment and allowance of
postpetition administrative fees. Bankr. S.D.N.Y.
PROCEDURAL POSTURE: In this chapter 11 contested
matter, the debtors, providers of telecommunications services, moved for
an order, under 11 U.S.C. § 366, determining that they had provided
adequate assurance of payment to their utility vendors —
overwhelmingly, other telecommunications providers.
OVERVIEW: The debtors contended that the combination of
their record of prepetition payment and the allowance to their utilities
of an administrative expense for postpetition service was sufficient to
provide those utilities with adequate assurance of payment. Four
telecommunications providers contended that such was insufficient, and
three of them argued that adequate assurance to them required payment of
security deposits to them, in an aggregate amount in excess of $14
million. Two of the providers requested prepayment of their charges as
well. While the court determined that the debtors’ proffered basis
was insufficient to provide the adequate assurance that section 366
required, the court determined that adequate assurance did not, under
the facts of this case, now require the deposits and prepayments
requested by the objecting utilities. The court reasoned that this would
drain the debtors of all of their cash, and be highly prejudicial to the
interests of all of the other creditors in the case. In re
Adelphia Bus. Solutions, Inc., 2002 Bankr. LEXIS 705, 280 B.R.
63 (Bankr. S.D.N.Y. June 25, 2002) (Gerber, B.J.).
Collier on Bankruptcy, 15th Ed. Revised
3:366.01
ABI
Members, click here to get the full opinion.
Debtor’s directors and officers insurance
policy was estate property as 'Insured vs. Insured' exclusion in policy
did not apply to trustee. Bankr. S.D.N.Y.
PROCEDURAL POSTURE: A corporate debtor filed for relief
under chapter 11 of the Bankruptcy Code. Plaintiffs, the trustee and the
unsecured creditors’ committee, filed a complaint against
defendant insurance company, seeking the directors and officers
insurance policy. The debtor’s former directors and officers moved
to intervene, which was granted. The trustee and intervenors filed
motions for partial summary judgment. OVERVIEW: The trustee sued seven
former directors and officers, alleging that they caused the
debtor’s bankruptcy and liquidation by committing a number of acts
in their official capacities. The insurance company denied coverage on
the debtor’s directors and officers policy, asserting that the
claims brought by the trustee against the directors and officers
belonged to, and could only be asserted on behalf of the debtor. The
trustee believed that the policy belonged to the debtor’s
bankruptcy estate. The court found that the trustee was not subject to
the 'insured vs. insured' exclusions, as these exclusions did not extend
to trustees in bankruptcy. This was because the trustee was not the same
entity as the debtor before it filed the bankruptcy petition. The court
found that the applicable clause was intended to prevent collusive
suits, which was not necessary in this matter where the trustee was not
acting on behalf of any entity that could potentially engage in
collusion. The court did not find the exclusion language to be
ambiguous. If the trustee asserted the claim, the exclusion was not
triggered because the trustee was not the insurance company or an
insured. In re County Seat Stores, Inc., 2002
Bankr. LEXIS 716, 280 B.R. 319 (Bankr. S.D.N.Y. July 10, 2002)
(Blackshear, B.J.).
Collier on Bankruptcy, 15th Ed. Revised
5:541.04-.11
3d Cir.
Section 707(a) was improper basis for trustee’s motion
to dismiss case and revoke discharge for debtors’ failure to
cooperate. Bankr. D.N.J. PROCEDURAL
POSTURE: The debtors filed a chapter 7 petition under the
Bankruptcy Code and received a discharge. The trustee later filed a
motion to dismiss the case and to revoke the debtors’ discharge,
claiming a lack of cooperation. The debtors did not oppose the motion.
OVERVIEW: The trustee wanted to revoke the discharge
order based upon the debtors’ failure to respond to a request for
information related to a personal injury claim. The court stated that a
bankruptcy court could revoke a debtor’s discharge only on the
grounds stated in 11 U.S.C. § 727(d). The court found that the
trustee did not prove or allege that the debtors’ failure to
cooperate was within the scope of section 727(d). On a separate
procedural note, the court found that the trustee had not complied with
Fed. R. Bankr. P. 7001(4), which required that an action to revoke a
discharge must be commenced as an adversary proceeding. The court found
that under the circumstances it was also inappropriate to dismiss the
chapter 7 case pursuant to 11 U.S.C. § 707(a) based upon the
debtors’ lack of cooperation. The debtors had received a discharge
and there might have been assets available for any creditors. The court
believed that there were other alternatives for persuading the debtors
to cooperate with the trustee under the Bankruptcy Code and the Federal
Rules of Bankruptcy Procedure. In re Rodwell, 2002
Bankr. LEXIS 697, 280 B.R. 100 (Bankr. D.N.J. July 3, 2002) (Lyons,
B.J.).
Collier on Bankruptcy, 15th Ed. Revised
6:707.03
ABI
Members, click here to get the full opinion.
Debtor’s security holder’s adversary
proceeding improperly joined 24 defendants without establishing
transactional relatedness. Bankr. E.D. Pa.
PROCEDURAL POSTURE: Plaintiff, the debtors’
security holder, filed an adversary proceeding against defendants, 24
named individuals and entities. The security holder sought various
levels of monetary damages from each named defendant and alleged that
while the debtors were debtors in possession, they made improper
payments of estate property to the defendants.
OVERVIEW: The court noted that some of the individuals
and entities were governmental entities, including the bankruptcy
trustee. The security holder claimed that joinder was proper because it
joined numerous parties who had received improper payments from the
debtors from the proceeds of the security holder’s collateral. The
court did not agree. Instead, it found that misjoinder of the defendants
had occurred. The security holder failed to establish that the Fed. R.
Bankr. P. 7020 transactional relatedness standard had been met, which
permitting the joinder. The court analyzed factors against joinder,
including unfairness to the individuals and entities, and the issues
surrounding the governmental entities involved. The court found that
misjoining did not justify the dismissal of the entire proceeding. The
court exercised its discretion and allowed the security holder to
initiate separate adversary proceedings against the individuals and
entities dismissed. NPF X, Inc. v. Shubert (In re Nuclear
Imaging Sys.), 2002 Bankr. LEXIS 692, 277 B.R. 59 (Bankr. E.D.
Pa. March 6, 2002) (Fox, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised
10:7020.01
4th Cir
Debtors’ breach of fiduciary duties to creditor and
debtor’s corporation renedered related debt non-dischargeable.
4th Cir. PROCEDURAL
POSTURE: A creditor brought an adversary proceeding in the
United States District Court for the Southern District of West Virginia
in the chapter 7 bankruptcy of two debtors. The bankruptcy court granted
partial summary judgment for the creditor, finding that the debtors were
liable on personal guarantees and declaring the indebtedness
non-dischargeable under 11 U.S.C. § 523(a)(4). The debtors
appealed. OVERVIEW: The debtors were officers,
directors, and shareholders of a corporation that operated a travel
agency. The corporation entered into an agreement with the creditor to
facilitate airline ticket sales. The agreement required ticket payments
to be deposited in a trust account for the benefit of the creditor. The
debtors signed personal guarantees of the corporation’s
performance. When financial difficulties arose, the debtors caused the
corporation to fail to make required deposits. The appellate court
agreed with the bankruptcy court that the resulting indebtedness was
non-dischargeable under section 523(a)(4). Given the personal
guarantees, the fact that the indebtedness arose from the
corporation’s breach of a fiduciary duty to the creditor, the fact
that the debtors brought about the corporation’s breach of duty,
and the debtors’ resulting breach of their duty to the
corporation, the debt arose from the debtors’ defalcation while
acting in a fiduciary capacity. However, the contracts that set the
ticket prices did not support the bankruptcy court’s damages
calculation. The creditor’s claim that those contracts were
invalid had yet to be addressed by the bankruptcy court.
Airlines Reporting Corp. v. Ellison (In re
Ellison), 2002 U.S. App. LEXIS 13918, 296 F.3d 266 (4th Cir.
July 11, 2002) (Wilkinson, C.J.).
Collier on Bankruptcy, 15th Ed. Revised
4:523.10
5th Cir.
Debtor husband, who had treated payments to ex-spouse as
alimony on tax returns, estopped from claiming same as dischargeable
property payments. Bankr. N.D. Tex. PROCEDURAL
POSTURE: Appellant husband sought review of a decision of the
bankruptcy court, which granted summary judgment in favor of appellee
wife and applied quasi-estoppel against the husband so that the husband
could not claim that payments made pursuant to a divorce settlement were
property payments that were dischargeable in bankruptcy.
OVERVIEW: The husband and the wife entered into a
separation agreement as part of a divorce proceeding, which provided
that the husband would provide monthly payments to the wife until a
mortgage was retired, regardless of whether the wife lived until the
debt was retired. The husband deducted the payments as alimony on his
tax returns and the wife treated the payments as income on her tax
return. Thereafter, when the husband filed for bankruptcy, the
bankruptcy court granted the wife’s request for quasi-estoppel to
prevent the husband from asserting that the payments were property
payments so that the would be dischargeable. The court affirmed the
decision of the bankruptcy court. The court found that the husband had
irrevocably received the benefit of the tax deductions, whether they
were correct or not, because the statute of limitations had expired on
prosecuting a tax action. As such, the bankruptcy court properly applied
the doctrine of quasi-estoppel so that the husband could not now be
heard to argue that the payments were actually property payments that
would be dischargeable. In re Stebbins, 2002 U.S.
Dist. LEXIS 12213, — B.R. — (Bankr. N.D. Tex. July 8, 2002)
(Lynn, D.J.).
Collier on Bankruptcy, 15th Ed. Revised
4:523.11
ABI
Members, click here to get the full opinion.
Payments were preferences absent evidence that
they were made in accordance with industry practice. 5th
Cir. PROCEDURAL POSTURE: Debtor, a seafood sales
corporation, appealed from an order of the United States District Court
for the Southern District of Mississippi that affirmed a bankruptcy
court finding that the debtor had made multiple payments in the ordinary
course of business to defendant creditor, a supplier, and they therefore
were not held to be preferences pursuant to 11 U.S.C. § 547(c)(2).
OVERVIEW: On appeal, the debtor argued that the
supplier failed to show that the payments in question were made
according to ordinary business terms, one of statutory elements
necessary to establish the 'ordinary course of business' defense under
11 U.S.C. § 547(c)(2). The court of appeals, following the rule in
most of the sister circuits, held that a party claiming that payments
were made according to ordinary business terms must show that the
payments in question fell within the range of payment practices of the
relevant industry, in the instant case, the business of purchasing,
processing, and reselling seafood products. Thus, the bankruptcy court
committed clear error in finding that the seventeen payments at issue
were made in the ordinary course of business. Gulf City
Seafoods, Inc. v. Ludwig Shrimp Co. (In re Gulf City Seafoods,
Inc.), 2002 U.S. App. LEXIS 13914, 296 F.3d 363 (5th Cir. July
11, 2002) (Garwood, C.J.).
Collier on Bankruptcy, 15th Ed. Revised
5:547.04
6th Cir.
Debtor who had made good faith efforts to pay was entitled to
have several of her student loans discharged for undue
hardship. Bankr. S.D. Ohio PROCEDURAL
POSTURE: In this chapter 7 adversary proceeding, plaintiff
debtor sought the dischargeability of student loans pursuant to 11
U.S.C. § 523(a)(8). OVERVIEW: The debtor was
married and lived with her husband and nine children. She had three
children from a prior marriage ages 11, 14, and 16. There were five
children from the husband’s prior marriage ages 8, 10, 12, 13, and
14. The 8 year old child had cerebral palsy and a seizure condition. The
court noted that whether there was an analysis of the parties’
joint income and debts, or an analysis of the individual debtor’s
separate income and debts, there was a present inability to pay the
total amount of the existing student loan without the undue hardship and
this inability would continue to persist into the foreseeable future.
The court was persuaded that the debtor had made a good faith effort to
repay the claimed student loans consistent with her past, and her now
present, financial resources. The court concluded that it would be an
undue hardship for the debtor to repay several of the student loans.
However, the court also held that the debtor did have the ability to
repay, without undue hardship, as partially discharged and modified,
several of the loans. Meyers v. Fifth Third Bank (In re
Meyers), 2002 Bankr. LEXIS 698, 280 B.R. 416 (Bankr. S.D. Ohio
July 9, 2002) (Waldron, B.J.).
Collier on Bankruptcy, 15th Ed. Revised
4:523.14
ABI Members, click here to get the full opinion.
7th Cir.
Permissive nature of 28 U.S.C. 1409(a) allowed
for enforcement of forum selection clause in
contract. Bankr. N.D. Ill. PROCEDURAL
POSTURE: Defendant debtor and company moved to dismiss the
breach of contract and unjust enrichment claims for improper venue,
arguing that the forum selection clause in the purchase order contracts
between plaintiff and defendants required dismissal as the contracts
made a German court the sole court of competent jurisdiction for any
disputes resulting directly or indirectly from the contractual
relationship. OVERVIEW: The debtor was in bankruptcy,
and the automatic stay was lifted for a determination of liability.
Plaintiff acknowledged that it issued invoices requiring litigation
related to the invoices be conducted in Germany, but argued that
enforcement of the forum selection clause would contravene strong public
policy set forth in 28 U.S.C. § 1334(a) that vested original and
exclusive jurisdiction for all cases under the bankruptcy code in the
district court. Plaintiff further argued that enforcing the forum
selection clause would result in piecemeal litigation. However, to the
extent that there was a public policy in favor of providing a single
forum to preserve, protect and distribute the assets of a bankruptcy
estate, that forum was not a single judicial district, but the
bankruptcy court where the bankruptcy case was pending. In the face of
the permissive nature of 28 U.S.C. § 1409(a), the fact plaintiff
obtained relief from the stay to proceed outside the bankruptcy court,
and the absence of any cases cited to the contrary, the court could not
say enforcement of the forum selection clause would violate a strong
public policy in the bankruptcy related matter. Gruner AG v.
KG Components, Inc., 2002 U.S. Dist. LEXIS 12385, — B.R.
— (Bankr. N.D. Ill. April 16, 2002) (Reinhard, D.J.).
Collier on Bankruptcy, 15th Ed. Revised
1:4.02[1]
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Appeal of adversary proceeding prior to entry of
final judgment remanded. Bankr. N.D. Ind.
PROCEDURAL POSTURE: The United States Bankruptcy Court
for the Northern District of Indiana, Hammond Division at Lafayette,
signed a written order dismissing appellant debtor’s adversary
proceeding against appellee insurer. Although a final judgment had not
issued pursuant to Fed. R. Bankr. P. 9021, the debtor appealed. The
insurer moved to dismiss. The debtor moved for entry of a final
judgment. The bankruptcy court declined to entertain either motion.
OVERVIEW: The insurer filed the motion to dismiss and
the debtor filed the motion for entry of a final judgment in the
bankruptcy court. The bankruptcy court held that it lacked subject
matter jurisdiction to entertain those motions. Before the instant
court, the insurer argued that the appeal was untimely and, thus, the
instant court lacked subject matter jurisdiction over it. The debtor
argued that the appeal either was timely because a final judgment had
not yet been entered pursuant to Fed. R. Bankr. P. 9021 or, in the
alternative, that an extension of time to file the appeal should be
granted because the debtor had shown 'excusable neglect.' The court
noted that it could consider the technically premature appeal on the
merits. However, the court believed that the better course was to remand
the case to the bankruptcy court for entry of a judgment on a separate
document in accordance with the bankruptcy rules; the purpose of Rule
9021 was to give the parties notice of the applicable time periods for
filing an appeal. Enodis Corp. v. Employer Ins. (In re
Consolidated Indus. Corp.), 2002 U.S. Dist. LEXIS 12514, 279
B.R. 831 (Bankr. N.D. Ind. June 5, 2002) (Sharp, D.J.).
Collier on Bankruptcy, 15th Ed. Revised
10:9021.01
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8th Cir.
Totality of circumstances justified discharge of student
loans for 'undue hardship.' Bankr. N.D. Iowa
PROCEDURAL POSTURE: A student loan creditor appealed
the bankruptcy court’s determination that the debtor’s two
student loans should be discharged, because excepting the loans from
discharge would impose an 'undue hardship' on the debtor and the
debtor’s dependents. The debtor asserted that the bankruptcy
court’s ruling should be affirmed in all respects.
OVERVIEW: The creditor challenged: (1) the findings
regarding the debtor’s present and reasonably predictable future
income and financial resources; (2) the bankruptcy court’s alleged
failure to require the debtor to explore options for refinancing her
loans; (3) its finding that the debtor had made strenuous efforts to
maximize her income, in light of her failure to work full-time or to
seek larger child support payments from the fathers of her dependents;
and (4) its alleged failure to conduct a separate dischargeability
analysis as to each of two educational loans. The debtor bore the burden
of proving 'undue hardship' under 11 U.S.C. § 523(a)(8) by a
preponderance of the evidence. The court applied the Andrews test, which
required a totality of the circumstances inquiry with special attention
to the debtor’s current and future financial resources, the
debtor’s necessary reasonable living expenses for her and her
dependents, and any other unique circumstances. Under the facts, the
court could not find that the bankruptcy judge’s conclusions were
clearly erroneous. The debtor had established 'undue hardship' as to
each of her loans, whether considered separately or together.
Cheney v. Educ. Credit Mgmt. Corp. (In re Cheney),
2002 U.S. Dist. LEXIS 12478, — B.R. — (Bankr. N.D. Iowa July
8, 2002) (Bennett, D.J.).
Collier on Bankruptcy, 15th Ed. Revised
4:523.14
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Summary judgment in favor of trustee on
fraudulent transfer claim vacated due to uncontroverted affidavit of
debtor. Bankr. N.D. Iowa PROCEDURAL
POSTURE: During the debtor’s bankruptcy proceedings,
plaintiff trustee filed a claim under 11 U.S.C. § 548(a)(1)(B) for
fraudulent transfer against defendant equipment company. The trustee
filed a motion for summary judgment, which the court granted. The
equipment company filed a motion for reconsideration.
OVERVIEW: The trustee sought to recover the payments to
the company as either preferential transfers under 11 U.S.C. §
547(b) or fraudulent transfers under section 548(a)(1)(B). The court had
denied the trustee summary judgment under section 547(b) after the court
concluded that issues of fact existed regarding the parties’
relationship and the existence of a debt. The court did grant the
trustee’s motion for summary judgment under section 548(a)(1)(B).
The trustee had claimed that under this section the debtor did not
receive reasonably equivalent value for the transfer. The company
asserted factual disputes still existed regarding this issue. The
company pointed to the debtor’s uncontroverted affidavit which
showed that the company sold and delivered equipment for which it was
entitled payment. The court concluded summary judgment on the
trustee’s section 548(a)(1)(B) claim should be vacated as
improvidently granted. The court made no findings of fact.
Youngblut v. Quag’s Equip. L.L.C. (In re
Pepmeyer), 2002 Bankr. LEXIS 701, — B.R. — (Bankr.
N.D. Iowa July 3, 2002) (Kilburg, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised
5:548.05
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Bank was bound by confirmed chapter 12 plan
despite the fact that it did not provide for payment in full as
originally intended. Bankr. N.D. Iowa
PROCEDURAL POSTURE: Debtors were a couple with a
farming business who filed bankruptcy under chapter 12 for themselves,
personally, and the business. The debtors requested a declaratory
judgment that creditor bank’s secured claims had been properly
paid according to debtors’ chapter 12 plans confirmed in 1988.
They sought release of the bank’s lien in the business case and a
determination of the remaining amount due in their personal case.
OVERVIEW: The bankruptcy court first noted that
debtors’ chapter 12 plans were binding, and even if the
plans’ treatment of the bank’s claims was not proper, the
bank was precluded from seeking different treatment. The question was
how to interpret the plans’ treatment of the claims. The court
record indicated that the treatment of the bank’s claims in the
plan did not accurately reflect the intentions of the bank or of
debtors. The plans were defective in their treatment of the bank’s
claims and incapable of consistent interpretation. Given this obstacle,
the bankruptcy court attempted to treat each party fairly and equitably
and to come as close as possible to enforcing the parties’
expectations while maintaining the preclusive effect of the confirmed
plans as written. In the personal case, the bank was aware that the
payments would not have paid its claim in full, but instead expected
debtors to 'prepay' the remainder. Debtors believed the 30 annual
payments would pay the claim in full and the bank would then release its
liens. The court concluded that the bank unreasonably relied on the
pre-payment provision. This analysis also applied to the business
bankruptcy. Schelhorn v. Farmers Savings Bank, 2002
Bankr. LEXIS 699, — B.R. — (Bankr. N.D. Iowa June 17, 2002)
(Kilburg, C.B.J.).
Collier on Bankruptcy, 15th Ed. Revised
8:1227.01
9th Cir.
Sanctions against debtor and attorney for bad faith, serial
filing and removals of state court case were warranted under section
105(a). B.A.P. 9th Cir. PROCEDURAL
POSTURE: Appellants, an attorney and a debtor, appealed from a
United States Bankruptcy Court for the Northern District of California
order that awarded sanctions to a state court plaintiff under Fed. R.
Bankr. P. 9011(c)(1)(B), 28 U.S.C. § 1927, and 11 U.S.C. §
105, including attorneys’ fees and costs, plus a penalty. The
appellants argued that the bankruptcy court exceeded its authority and
violated due process. OVERVIEW: The appellate panel
found that the appellants deserved the sanctions awarded against them
for their bad faith conduct, serial bankruptcies, and removals of the
plaintiff’s state court action. But, Fed. R. Bankr. P. 9011 was
applied in error, because the sanction was ordered on the court’s
own motion, and the plaintiff’s attorney’s fee statement,
filed at the court’s request, was not the functional equivalent of
such a motion. While sanctions could be ordered sua sponte, they had to
be payable to the court. The sanction of attorneys’ fees and costs
was sustained under the inherent authority of 11 U.S.C. § 105(a),
on the finding that the appellants used an overall scheme to harass,
delay, and increase the plaintiff’s costs. The bankruptcy
court’s second order to show cause specifically addressed lack of
good faith and manipulation of the bankruptcy system. The appellants had
an opportunity to respond in writing, and to appear and testify. The
notice satisfied due process. The penalty was authorized, and was
appropriate in amount, but it had to be reversed because a Fed. R.
Bankr. P. 9011(c)(2) penalty had to be paid into court, instead of to
the plaintiff as had been ordered. DeVille v. Cardinale (In
re DeVille), 2002 Bankr. LEXIS 720, 280 B.R. 483 (B.A.P. 9th
Cir. November 29, 2001) (Marlar, B.J.).
Collier on Bankruptcy, 15th Ed. Revised
2:105.05
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10th Cir.
Exemption for truck that was necessary to chapter 13
debtor’s business met the 'best-interest' test.
Bankr. D. Colo. PROCEDURAL POSTURE: The debtor
filed for chapter 13 relief under the Bankruptcy Code. The debtor
claimed his truck as an exempt asset pursuant to Colo. Rev. Stat. §
13-54-102(1)(i) (2000). The trustee and a creditor objected to the
claim. The creditor also objected to confirmation of the debtor’s
chapter 13 plan. OVERVIEW: The debtor owned a truck
clear of encumbrances and used the truck primarily in his business as a
self-employed building contractor. The court found that the truck was
necessary in order for the debtor to conduct his business. The court
believed that a motor vehicle could be exempted under section 102(1)(i),
separate and apart from Colo. Rev. Stat. 13-54-102(1)(j). The court
found that the debtor’s truck qualified as a machine or equipment
of the debtor used for carrying on a gainful occupation. The mere use of
a vehicle for transportation to and from work was not use for carrying
on a gainful occupation, as intended by the exemption of section
102(1)(i). The court held that a truck driver’s use of his rig was
use for carrying on a gainful occupation. For purposes of applying the
best-interest test of 11 U.S.C. § 1325(a)(4), the debtor’s
claim to an exemption for his truck for use in his trade or business met
the test. In re Black, 2002 Bankr. LEXIS
707, 280 B.R. 258 (Bankr. D. Colo. May 10, 2002) (Campbell, B.J.).
Collier on Bankruptcy, 15th Ed. Revised
8:1325.05
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Claim by debtor against former employee who
formed a competing entity did not give rise to 'related to'
jurisdiction. Bankr. D. Colo. PROCEDURAL
POSTURE: Defendants filed a third party complaint against
plaintiff debtor’s principal in which it sought damages against
the debtor and the principal. Before the court were the parties’
arguments on the question of whether the court had jurisdiction over
defendants’ claims against the principal.
OVERVIEW: The debtor originally brought an action
against defendants in connection with defendants’ conduct in
leaving the employ of the debtor and forming a competing entity. The
debtor and the principal argued that defendants’ claims against
the principal were non-core over which the court could assert
jurisdiction pursuant to 28 U.S.C. § 157(c). The court noted that
defendants’ claims were, at best, 'related to' a case under Title
11. The court determined that unless the outcome of the litigation
between the nondebtor would have precluded the debtor by way of res
judicata or collateral estoppel in other litigation, the bankruptcy
court did not have jurisdiction over the litigation between the
nondebtors. Defendants’ request for injunctive relief and attorney
fees against the principal, individually, related to their claims
against her in connection with her alleged intentional conduct prior to
and after their leaving the employ of the debtor. Because there could be
no collateral estoppel or res judicata effect on the debtor by any
ruling against the principal in a separate proceeding against her, such
claims were not 'related to' the bankruptcy. Prof’l
Home Health Care, Inc. v. Complete Home Health Care, Inc., 2002
Bankr. LEXIS 695, — B.R. — (Bankr. D. Colo. July 2, 2002)
(Campbell, B.J.).
Collier on Bankruptcy, 15th Ed. Revised
1:3.03
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11th Cir.
Bifurcation and cramdown of undersecured short-term mortgages
permitted (Case of first impression). 11th Cir.
PROCEDURAL POSTURE: Plaintiff creditor appealed the
bankruptcy court’s confirmation of defendant debtors’ plan
to the United States District Court for the Middle District of Georgia,
which rejected the creditor’s arguments and affirmed the
bankruptcy court’s decision. The creditor filed a timely notice of
appeal. OVERVIEW: The case presented an issue of first
impression in the United States Court of Appeals for the Eleventh
Circuit: does 11 U.S.C. § 1322(c)(2) permit chapter 13 debtors to
bifurcate undersecured, short-term home mortgages into secured and
unsecured claims, with the unsecured claim subject to 'cramdown'
pursuant to 11 U.S.C. § 1325(a)(5)? The bankruptcy court, in
confirming the debtors’ chapter 13 plan, held that section
1322(c)(2) did indeed permit the debtors to modify undersecured,
short-term home mortgages through bifurcation and 'cramdown.' The
bankruptcy court’s interpretation of section 1322(c)(2) was the
correct one. The provision plainly permitted the modification of the
creditor’s claim through the bifurcation and 'cramdown.' The
bankruptcy court did not err in confirming the debtors’ plan,
based upon such a construction of section 1322(c)(2), and the district
court correctly affirmed the bankruptcy court’s decision. The
creditor’s claims that the bankruptcy court’s confirmation
ruling was based on a misapplication of several basic principles of
contract law was meritless. Am. Gen. Fin., Inc. v. Paschen
(In re Paschen), 2002 U.S. App. LEXIS 13853, — F.3d
— (11th Cir. July 10, 2002) (Wilson, C.J.).
Collier on Bankruptcy, 15th Ed. Revised
8:1322.01
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