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.

April 30, 2001

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

• 1st Cir.

  § 106(b) Waiver of sovereign immunity was unconstitutional.
  Arecibo Cmty. Health Care, Inc. v. Puerto Rico (D.P.R.) 051002

  § 327(a) Photographer and wetlands experts were not professionals.
  In re Ponce Marine Farm, Inc. (Bankr. D.P.R.) 051005

  § 523(a)(2)(A) Creditor was entitled to summary judgment.
  Stoehr v. Al Saud (D. Mass.) 051018

  ---

  2d Cir.

  § 101(5) Vendor’s claim arose when the purchase orders were entered into rather than when contract was breached.
  Pearl-Phil GMT (Far East) Ltd v. The Caldor Corporation (S.D.N.Y.) 051001

  § 362(h) State court’s ignorance rendered stay violation not willful.
  Salem v. Praoli (S.D.N.Y.) 051010

  § 525(a) Section 525(a) does not require government landlords to reinstate leases in default or authorize courts to allow tenants greater rights after default.
  In re Stoltz (Bankr. D. Vt.) 051021

  Rule 8002(a) District court lacked jurisdiction over untimely appeal.
  Johnson v. 1187 Tenants Group (Bankr. S.D.N.Y.) 051041

  ---

  3d Cir.

  § 364(d) Nunc pro tunc financing was denied.
  In re Lehigh Valley Prof’l Sports Clubs, Inc. (Bankr. E.D. Pa.) 051012

  § 541(a) District court erred in deciding that chapter 11 debtor’s interest in grant relationship with HUD constituted property of bankruptcy estate.
  Westmoreland Human Opportunities, Inc. v. Walsh (3d Cir.) 051022

  Rule 5011(c) Motion for stay was granted.
  Miller v. Vigilant Ins. Co. (In re Eagle Enters.) (Bankr. E.D. Pa.) 051037

  ---

  4th Cir.

  § 362(c) Revesting of property in the debtor did not terminate the automatic stay.
  In re Concrete Structures, Inc. (E.D. Va.) 051009

  § 507(a)(8) Priority claim was allowed.
  In re Fiels (Bankr. D. Md.) 051016

  § 541(a)(1) IRA was property of the estate.
  Phillips v. Bottoms (E.D. Va.) 051023

  Rule 9019 Bankruptcy court did not err in adhering to its order approving settlement despite dicta from an appellate court.
  In re Mountain Laurel Resources Company (S.D. W. VA.) 051042

  ---

  5th Cir.

  § 362(b) Relief from stay to litigate tort liability granted despite paucity of evidence.
  In re Fowler (Bankr. E.D. Tex.) 051008

  § 523(a)(8) Deferments precluded discharge of debt.
  United States v. Davis (N.D. Tex.) 051019

  ---

  6th Cir.

  § 1307(c) De facto modification was not cause for dismissal.
  In re Wallace (Bankr. E.D. Tenn.) 051028

  28 U.S.C. § 158(d) Absent certification, Court of Appeals lacked jurisdiction over appeal from district court decision that remanded matter to bankruptcy court for further proceedings.
  IRS v. Hildegrand (In re Brown) (6th Cir.) 051032

  ---

  8th Cir.

  § 506(a) Wholly undersecured claim was stripped off.
  Black v. Conseco Fin. Serv. Corp. (In re Black) (Bankr. E.D. Ark.) 051015

  ---

  9th Cir.

  § 362(a)(4) State administrative determination regarding the automataic stay was subject to review.
  In re Dunbar (9^th Cir.) 051007

  § 523(a)(15) Attorney lacked standing to sue.
  Ashton v. Dollaga (In re Dollaga) (B.A.P. 9th Cir.) 051020

  28 U.S.C. § 157(b) Court had jurisdiction over dispute.
  In re Storm Tech. (Bankr. N.D. Cal.) 051031

  ---

  11th Cir.

  Rule 7056 Summary judgment was affirmed on appeal.
  Gray v. Manklow (In re Optical Techs.) (M.D. Fla.) 051040

  ---

Collier Bankruptcy Case Summaries

1st Cir.

Waiver of sovereign immunity was unconstitutional. D.P.R. The commonwealth (Puerto Rico) appealed the order of the district court reversing the bankruptcy court’s order dismissing the adversary proceeding against it. The commonwealth had filed a breach of contract suit prepetition against the chapter 7 debtor in state court and filed a proof of claim postpetition. The trustee subsequently commenced an adversary proceeding against the commonwealth asserting various claims allegedly arising out of the same contract as was the subject of the state court action and the proof of claim. The bankruptcy court dismissed the adversary complaint and ruled that the commonwealth could not be deemed to have waived its Eleventh Amendment immunity because it filed a proof of claim in the case. The district court reversed, concluding that the invalidity of section 106(a) did not carry over to section 106(b) because the waiver was premised upon an affirmative action by the commonwealth. The Court of Appeals for the First Circuit reversed the district court, holding that section 106(b) violated the Eleventh Amendment. The court applied the stringent test to the allegation that the commonwealth waived its sovereign immunity, as set forth in College Sav. Bank v. Florida Prepaid Postsecondary Educ. Expense Bd., 527 U.S. 666, 119 S.Ct. 2199 (1999), and concluded that the commonwealth did not voluntarily and unequivocally declare a waiver of immunity.Arecibo Cmty. Health Care, Inc. v. Puerto Rico, 2001 U.S. App. LEXIS 5624, – F.3d – (D.P.R. April 5, 2001) (Torruella, C.C.J.).

Collier on Bankruptcy, 15th Ed. Revised 2:106.06

Photographer and wetlands experts were not professionals. Bankr. D.P.R. Administration of consolidated chapter 11 cases included litigation of numerous lawsuits which, after years of litigation, culminated in an approved settlement in which a third party purchased secured claims. In the process of adjudicating the attorney’s fee application, the bankruptcy court, sua sponte, approved the retention and compensation of debtors’ wetland expert and a professional photographer. The United States trustee asserted that the bankruptcy court did not have the authority to issue that order absent an application for compensation and that the court applied the wrong standard in approving the employment. The district court affirmed, holding that since neither the wetlands expert nor the photographer were professional persons within the meaning of the Code, any error in permitting payment for their services was harmless. The expert and photographer were not professionals under section 327 because they were not retained to carry out duties central to the administration of the bankruptcy estate. Accordingly, approval for their employment and payment was not necessary. In any event, the bankruptcy court had the authority to authorize compensation and did not err in determining that had an application been filed, it would be approved nunc pro tunc. In re Ponce Marine Farm, Inc., 2001 U.S. Dist. LEXIS 3590, – B.R. – (Bankr. D.P.R. March 8, 2001) (Pieras, D.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:327.02[5]

Creditor was entitled to summary judgment. D. Mass. The chapter 7 debtor appealed the district court’s affirmance of the bankruptcy court’s allowance of the creditor’s motion for summary judgment. After the debtor obtained counterfeit certificates of origin for the creditor’s cars and sold them to third parties, the creditor received a state (Massachusetts) court judgment against the debtor for unfair and deceptive acts. The bankruptcy court held that because the state court had specifically determined that the debtor committed fraud, the issue could not be relitigated and the creditor was entitled to summary judgment on his nondischargeability complaint. The Court of Appeals for the First Circuit affirmed, holding that the issue of fraud was actually litigated in the state court, was a necessary component of the court’s judgment and was the same as the issue adjudicated in the section 523(a)(2)(A) proceeding. Although fraud was not an element necessary for a determination of liability under the unfair and deceptive acts statute, the state court’s findings made clear that fraud was in fact the basis for the liability under the statute and did not suggest any different theory of liability.Stoehr v. Al Saud, 2001 U.S. App. LEXIS 5444, – F.3d – (D. Mass. April 3, 2001) (per curiam).

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

2nd Cir.

Vendor’s claim arose when the purchase orders were entered into rather than when contract was breached. S.D.N.Y. A discount retailer filed a petition under chapter 11 of the Bankruptcy Code intending continue operating. When it could not meet its obligations, the debtor cancelled most of its orders for goods, but did not suspend relations with a particular Asian vendor. Determining that it could not longer operate, the debtor filed an emergency motion to wind-down, in which the debtor proposed that it would not pay any postpetition claims arising before a certain date, establish a bar date for those claims, and would give super-priority administrative status to postpetition claims arising during the wind-down period. The application was heard and approved on an emergency basis, without notice to the Asian vendor. A subsequent hearing was set in order for objections to be filed and heard. Due to difficulties in locating addresses, the debtor mailed notice of the hearing and objection period a mere three days before the scheduled hearing. Upon receipt of the notice, one month after the objection time expired, the Asian vendor sought and obtained a hearing seeking payment of its claim as an administrative expense. The vendor asserted that it was denied due process and that since the debtor breached the purchase order contract during the wind-down period, its claim was a wind-down claim entitled to super priority. The bankruptcy court denied the motion and, applying federal law, the district court affirmed, holding that the vendor’s claim arose when the purchase orders were executed, not when the breach occurred. A claim in bankruptcy may be contingent upon breach and need not be a presently enforceable obligation. Thus, as a contract-based bankruptcy claim vendor’s claim arose when the contract was executed.Pearl-Phil GMT (Far East) Ltd v. The Caldor Corporation, 2001 U.S. Dist. LEXIS 3664, – B.R. – (S.D.N.Y. March 30, 2001) (Casey, D.J.).

Collier on Bankruptcy, 15th Ed. Revised 2:101.05

State court’s ignorance rendered stay violation not willful. S.D.N.Y. A pro se debtor with an extraordinary penchant for litigation prosecuted and defended lawsuits in Michigan and New York against his brother and others he believed to be his political enemies. On the eve of a hearing in the state (New York) court that could have resulted in the sale of his home, he filed a bankruptcy petition. The state court continued with the matter, however, and orally ruled in favor of the opposing party. The debtor filed an adversary proceeding against the state court judge and others, seeking injunctive relief and damages for violation of the automatic stay. The bankruptcy court dismissed the complaint and the debtor appealed. Consolidating the appeal with another matter commenced by the debtor and pending in the district court, the district court affirmed, holding that although the state court violated the automatic stay by proceeding with the hearing, the judge did not act willfully because it did not understand the import of the automatic stay provision of the Bankruptcy Code. The state court’s patent misreading of bankruptcy law tended to show that his action to disregard the stay was not willful. Moreover, once the court and other parties received official notice of the bankruptcy petition, they took active steps to halt the state court proceeding. Finally, the debtor did not demonstrate that he suffered any harm as a result of the stay violation. Accordingly, the bankruptcy court properly dismissed the complaint seeking damages for violation of the stay.Salem v. Praoli, 2001 U.S. Dist. LEXIS 3644, – F.-Supp. – (S.D.N.Y. March 7, 2001) (Conner, D.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:362.11[3]

Section 525(a) does not require government landlords to reinstate leases in default or authorize courts to allow tenants greater rights after default. Bankr. D. Vt. A housing authority, as the governmental entity that operated the public housing complex where the debtor resided, moved for relief from the automatic stay to enforce its rights and remedies under its lease with the debtor and her cotenant. The housing authority alleged that the postpetition payment defaults under the lease entitled it to relief from stay to commence eviction proceedings. The debtor argued that the conversion of her case from chapter 13 to chapter 7 transformed any postpetition, preconversion lease default debts to prepetition claims, and that any attempt to evict her would be based on dischargeable prepetition rent defaults and violate section 525(a). The bankruptcy court disagreed, and granted the housing authority’s motion for relief from the stay to allow it to pursue its nonbankruptcy law remedies with respect to the lease. The court acknowledged that the conversion of the debtor’s case to one under chapter 7 converted her postpetition rent obligation to an unsecured prepetition claim. The court held, however, that section 525(a) does not require government landlords to reinstate leases that are in default or authorize courts to allow debtors greater rights under leases after they default solely because their landlords are governmental entities. The court explained that a debtor cannot be turned away from a government subsidized rental unit simply because she files for bankruptcy protection or has previously discharged a rent debt to a governmental landlord. However, a debtor also should not be immune from eviction when she fails to pay her rent simply because her landlord happens to be a governmental unit.In re Stoltz, 2000 Bankr. LEXIS 1721, – B.R. – (Bankr. D. Vt. September 18, 2000) (Brown, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:525.02

District court lacked jurisdiction over untimely appeal. Bankr. S.D.N.Y. Upon the chapter 13 debtor’s failure to file her plan and schedules the bankruptcy court dismissed the chapter 13 case with prejudice. The debtor moved to reinstate the case and, at the hearing, asserted that she did not receive the order stating when her plan was due. The court denied the motion to reinstate and, nearly six months later, filed a Notice of Appeal with the district court. The district court held that it did not have jurisdiction over the untimely appeal. Even if the court accepted the debtor’s assertion that she had filed a Notice of Appeal with the bankruptcy court 26 days after of entry of the bankruptcy court order, the appeal was still untimely since that notice was also untimely. The debtor did not move for an extension of time pursuant to Rule 8002(c).Johnson v. 1187 Tenants Group, 2001 U.S. Dist. LEXIS 3662, – B.R. – (Bankr. S.D.N.Y. March 29, 2001) (Batts, D.J.).

Collier on Bankruptcy, 15th Ed. Revised 10:8002.03

3rd Cir.

Nunc pro tunc financing was denied. Bankr. E.D. Pa. The chapter 11 debtor filed a motion for authority to obtain secured postpetition financing nunc pro tunc pursuant to section 364(d). When the finances of the debtor, which owned a membership in a baseball league and fielded a team, reached crisis proportions, the league paid the costs necessary to complete the playing season. The debtor never obtained authorization to borrow funds from the league before the third party payments were made. The creditors’ committee objected to the motion, arguing that the loan was of no benefit to the estate, failed to preserve its assets and the league was not a good faith lender. The bankruptcy court denied the motion, holding that the league’s request for retroactive secured status was not made in good faith. The court determined that the payments were not intended as loans to the debtor, but were voluntary payments made in the league’s own self interest which incidentally also benefitted the debtor.In re Lehigh Valley Prof’l Sports Clubs, Inc., 2001 Bankr. LEXIS 300, – B.R. – (Bankr. E.D. Pa. March 28, 2001) (Sigmund, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:364.05

District court erred in deciding that chapter 11 debtor’s interest in grant relationship with HUD constituted property of bankruptcy estate. 3d Cir. Before it encountered financial difficulties and filed its chapter 11 petition, the debtor, a nonprofit organization, was selected by the Department of Housing and Urban Development (HUD) to receive grant moneys under the federal Supportive Housing Program. After the debtor filed its chapter 11 petition, one of its largest creditors (also a nonprofit organization and a member of the unsecured creditors committee) assumed the debtor’s position as the recipient of the grant funds. The chapter 11 trustee filed an adversary proceeding against the creditor and alleged that the creditor breached its fiduciary duty to committee constituents by assuming the debtor’s interest in the grant relationship without notice to the committee or the bankruptcy court. The creditor argued that the debtor’s interest in the granted relationship was not property of the debtor’s bankruptcy estate and, thus, did not trigger a fiduciary duty on the creditor’s part. The bankruptcy court held that the debtor’s interest in the grant relationship constituted part of the debtor’s bankruptcy estate and that the creditor violated its fiduciary obligations. The district court affirmed. The United States Court of Appeals for the Third Circuit reversed. The court held that despite section 541’s considerable breadth, the singular supervisory interest of the grantor (HUD) in ensuring the effective administration of the Supportive Housing Program, as evidenced by the pervasive, strict, and minute oversight over the grant relationship imposed by the Program’s relevant statutory and regulatory provisions, sufficed to exclude the debtor’s interest in the grant relationship from section 541’s property definition. The court remanded the case for resolution of the following issue: whether, despite the fact that the debtor’s interest in the grant relationship with HUD was not property of its bankruptcy estate, the creditor’s assumption of that interest without notice to committee members or the court violated the fiduciary duty owed by the creditor to committee constituents.Westmoreland Human Opportunities, Inc. v. Walsh, 2001 U.S. App. LEXIS 6061, – F.3d – (3d Cir. April 10, 2001) (Becker, C.J.).

Collier on Bankruptcy, 15th Ed. Revised 5:541.01

Motion for stay was granted. Bankr. E.D. Pa. After the chapter 7 trustee filed an adversary proceeding against it, the insurance company filed a motion for stay of the complaint pending the district court’s ruling on a withdrawal motion. The insurance company alleged that the adversary proceeding was identical to a case pending in state (New York) court and should be consolidated with it. The company also argued that the trustee’s demand for a jury trial deprived the bankruptcy court of subject matter jurisdiction over the noncore claims. The bankruptcy court granted the motion for stay pending the district court’s decision, holding that the company demonstrated that it would likely prevail on the merits of the withdrawal motion.The court also noted that any potential harm to the trustee was outweighed by the attendant benefits to the parties, as well as a consideration of the public interest, judicial economy and uniformity (citing Collier on Bankruptcy, 15th Ed. Revised).Miller v. Vigilant Ins. Co. (In re Eagle Enters.), 2001 Bankr. LEXIS 305, – B.R. – (Bankr. E.D. Pa. February 9, 2001) (Raslavich, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 9:5011.03

4th Cir.

Revesting of property in the debtor did not terminate the automatic stay. E.D. Va. A contractor recorded a mechanics’ lien against real estate owned by the debtor, but, before the contractor could file an action to enforce its lien, the debtor filed its chapter 11 petition. The debtor commenced an adversary proceeding to avoid the lien as a preference and the contractor moved to dismiss on the grounds that its lien was a statutory lien and, thus, not subject to avoidance. The debtor argued that upon entry of the order of confirmation, the property vested in the debtor and was no longer property of the estate. The bankruptcy court held that a pending motion to vacate the order of confirmation precluded finality of confirmation so that the stay remained in effect. The bankruptcy court dismissed the proceeding and the district court affirmed, holding that the automatic stay was not terminated under section 362(c)(1) merely because the property was returned to the debtor. Rather, section 362(c)(1) terminates the stay with regard to property if it ceases to be property of the estate by such procedures as sale, abandonment or exemption. In contrast, property in the hands of the debtor continued to be protected by the automatic stay by virtue of section 362(a)(5) (citing Collier on Bankruptcy, 15th Ed. Revised).In re Concrete Structures, Inc., 2001 U.S. Dist. LEXIS 3675, – B.R. – (E.D. Va. March 30, 2001) (Payne, D.J.).

Collier on Bankruptcy, 15th Ed. Revised

Priority claim was allowed. Bankr. D. Md. The chapter 13 debtors objected to the priority claim filed by the IRS contending that the income tax liabilities were too old to qualify for priority treatment because more than three years had passed since the returns were last due. The IRS defended its claim by arguing that the three-year priority period provided in section 507(a)(8)(A)(i) was tolled during the debtors’ prior chapter 13 case. The bankruptcy court allowed the claim, holding that the priority period was suspended during the pendency of the automatic stay in the debtors’ prior chapter 13 case. The court noted that although the plain language of the Code did not permit tolling of the priority period a literal application of section 507(a)(8) to a serial filing situation would produce absurd results. In re Fiels, 2001 Bankr. LEXIS 301, – B.R. – (Bankr. D. Md. March 30, 2001) (Keir, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:507.10[2][a][i]

IRA was property of the estate. E.D. Va. The chapter 7 trustee objected to the debtors’ claim of an exemption in an IRA. The bankruptcy court concluded that the IRA was property of the estate but that it could be claimed exempt to the extent allowed under state (Virginia) law. The trustee appealed and the debtors cross appealed asserting that since the IRA had originally been funded with exempt funds, the funds retained an exempt status even though the IRA was not ERISA qualified. The district court affirmed, holding that the non-ERISA qualified IRA was property of the estate even though it was created using exempt funds. Once the funds were withdrawn from the ERISA qualified plan, they lost that status and, thus, became property of the estate when the debtors filed the chapter 7 petition.Phillips v. Bottoms, 2000 U.S. Dist. LEXIS 20236, – B.R. – (E.D. Va. December 15, 2000) (Payne, D.J.).

Collier on Bankruptcy, 15th Ed. Revised 5:541.11[6][7]

Bankruptcy court did not err in adhering to its order approving settlement despite dicta from an appellate court. S.D. W. VA. When the state and a municipality sought abatement and cleanup damages against numerous entities, including a chapter 11 debtor, two of the defendants filed cross claims for indemnification and fraud against the debtor. The chapter 11 trustee initiated an adversary proceeding seeking determination of rights under insurance policies. The state, municipality, trustee, insurers and all defendants except the cross claimants entered into a global settlement of the causes of action. The proposed settlement was noticed and ultimately approved over the objection of the cross claimants and their appeal was later dismissed based upon equitable mootness. However, the opinion by the Court of Appeals for the Fourth Circuit discussed the settlement order and, based upon a provision in the order, made reference to the potential for continued viability of the cross claimants causes of action against the estate if funds existed for distribution to general unsecured creditors. Based upon this footnote, the cross claimants filed a motion in the bankruptcy court for the trial on the cross claim to proceed. The bankruptcy court denied the motion and the district court affirmed, holding that the bankruptcy court did not err in interpreting its own order or the circuit court’s holding that the bankruptcy court had the authority to enjoin the cross claimants’ action. In contrast to the circuit court’s holding, the footnote upon which the cross claimants relied was peripheral to the issues before the court and, thus, was dicta. Secondly, the bankruptcy court was entitled to deference in interpreting its own order approving the settlement so that it did not err in determining that the all claims, including the cross claim, were in fact resolved by the compromise. In the unlikely event that there would be funds for distribution to unsecured creditors, the bankruptcy court could, at that juncture and upon proper motion, estimate the cross claimants’ claims to permit a distribution to them.In re Mountain Laurel Resources Company, 2001 U.S. Dist. LEXIS 3557, – F.Supp. – (S.D. W. VA. February 16, 2001) (Haden, C.D.J.).

Collier on Bankruptcy, 15th Ed. Revised 10:9019

5th Cir.

Relief from stay to litigate tort liability granted despite paucity of evidence. Bankr. E.D. Tex. On the eve of trial, the defendant in a personal injury lawsuit filed a chapter 13 petition. The personal injury plaintiffs, seeking damages in excess of the insurance coverage, sought relief from stay in order to liquidate their claim. Declining to utilize a 12-factor test from the Second Circuit, the bankruptcy court held that relief from stay would be granted to liquidate the personal injury claim despite plaintiffs’ lack of evidence regarding cause. Although the plaintiffs unnecessarily focused upon the accident and injuries, cause existed because it was necessary to liquidate the claim, debtors would not bear substantial additional costs to defend the lawsuit, and the personal injury damages could not be determined by the bankruptcy court. If relief from stay were not granted, the personal injury victims were left with no remedy in any court.In re Fowler, 2001 Bankr. LEXIS 279, – B.R. – (Bankr. E.D. Tex. March 5, 2001) (Sharp, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:362.07

Deferments precluded discharge of debt. N.D. Tex. The United States filed a complaint alleging that the chapter 7 debtor failed to repay her nondischargeable student loan. The debtor’s first payment on her student loan debt was deferred until September 1984 and she filed her petition in August 1989. The debtor argued that because the government did not provide signed proof that she requested a deferment of the loan, the court must conclude that the loan first became due more than five years before her bankruptcy filing. The district court granted summary judgment for the United States, holding that because the debtor’s first payment on her student loan debt was deferred to a date less than five years before the filing of her petition, the loan was not discharged. The government provided sufficient evidence demonstrating that the debtor did request and was granted a deferment of payments on her debt.United States v. Davis, 2001 U.S. Dist. LEXIS 4434, – B.R. – (N.D. Tex. April 9, 2001) (Mahon, D.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:523.14[3]

6th Cir.

De facto modification was not cause for dismissal. Bankr. E.D. Tenn. The chapter 13 debtors purchased an automobile for their daughter’s use and the daughter, although not obligated on the note, made payments on the loan they obtained through their credit union. When the debtors filed their chapter 13 petition, they scheduled the claim and proposed to pay it outside the plan, specifically providing that the daughter would be responsible for the payments. The credit union agreed to this treatment and the plan was confirmed. When the car was ruined and the daughter ceased making the payments for the vehicle, the credit union sought dismissal of the chapter 13 case, asserting that a de facto modification occurred so that cause existed for dismissal. The bankruptcy court held that the failure of the daughter to make payments on the credit union’s note was not a de facto modification of the confirmed plan warranting dismissal of the chapter 13 case. Indeed, under the binding terms of the plan, the debtors were not even obligated to make payments on the note. Since the plan required the credit union to look to a third party for payment, there was no modification of the plan.In re Wallace, 2001 Bankr. LEXIS 260, – B.R. – (Bankr. E.D. Tenn. March 6, 2001) (Stair, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 6:1307.04, 1307.09; 2:109.08

Absent certification, Court of Appeals lacked jurisdiction over appeal from district court decision that remanded matter to bankruptcy court for further proceedings. 6th Cir. The IRS moved to dismiss the chapter 13 trustee’s appeal from a district court order that reversed a bankruptcy court decision that held that the IRS’s claims were untimely and should be dismissed. Specifically, the district court held that since the IRS had not received notice of entry of the order for relief until after the period for filing claims had passed, the IRS’s claim was not automatically barred by section 502(b)(9). In addition, the district court remanded the case for proceedings consistent with the Court’s ruling. The IRS argued that the trustee’s appeal had to be dismissed for lack of subject matter jurisdiction by virtue of the fact that the district court’s decision was not a final judgment and therefore not appealable under 28 U.S.C. section 158(d). The United States Court of Appeals for the Sixth Circuit agreed, and dismissed the appeal for lack of subject matter jurisdiction. The court held that a district court’s decision remanding to a bankruptcy court for further proceedings is not final if the district court has not certified the decision pursuant to Fed. R. Civ. P. 54(b). In this case, no certification was requested or issued.IRS v. Hildegrand (In re Brown), 2001 U.S. App. LEXIS 6014, – F.3d – (6th Cir. April 9, 2001) (Kennedy, C.J.).

Collier on Bankruptcy, 15th Ed. Revised 1:5.02[4]

8th Cir.

Wholly undersecured claim was stripped off. Bankr. E.D. Ark. The creditor holding a second mortgage on the chapter 13 debtors’ residence objected to confirmation of their plan that treated its claim as a wholly unsecured claim. The debtors filed an adversary proceeding and contended that the mortgage could be modified because the creditor was not the holder of a secured claim supported by collateral with any remaining value after satisfaction of the first mortgage. The creditor argued that Nobelman v. American Sav. Bank, 508 U.S. 324, 113 S.Ct. 2106 (1993), prohibited any modification of the rights of the holder of a security interest in a debtor’s personal residence. The bankruptcy court overruled the objection to confirmation, holding that the debtors were permitted to modify the wholly undersecured claim. The court adopted the interpretation of Nobelman followed by the majority of courts(citing Collier on Bankruptcy, 15th Ed. Revised).Black v. Conseco Fin. Serv. Corp. (In re Black), 2001 Bankr. LEXIS 290, – B.R. – (Bankr. E.D. Ark. March 26, 2001) (Mixon, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:506.03[7][c], 8:1322.06[1]

9th Cir.

State administrative determination regarding the automataic stay was subject to review. 9^thCir. Contractor installed a driveway for homeowners. Two years later, the contractor filed a chapter 13 petition and, since the contract had long been completed, did not schedule or otherwise give notice of the chapter 13 case to the homeowners. A year after the filing of the chapter 13 petition, without knowledge of the bankruptcy filing, the homeowners filed a complaint with the state (California) contractors’ license board. Rather than appear at the hearing, the debtor sent a letter asserting that the administrative hearing was subject to the automatic stay. The administrative law judge concluded that the proceeding was to enforce a governmental unit’s regulatory power and, thus, was an exception to the stay. The debtors requested injunctive relief from the bankruptcy court that concluded that it was barred by the doctrine of collateral estoppel from redetermining the application of the automatic stay. The district court reversed and remanded. The Court of Appeals for the Ninth Circuit affirmed the district court, holding that the bankruptcy court was not precluded by principles of collateral estoppel from determining whether an exception to the automatic stay permitted state administrative action. Applying In re Gruntz, 202 F.3d 1074 (9th Cir. 2000)(en banc), the court concluded that determinations regarding the automatic stay were within the province of the bankruptcy court, not the administrative tribunal so that the bankruptcy court was required to decide whether the regulatory exception to the automatic stay applied. The federal courts have the final authority to determine the scope and applicability of the stay and, therefore, are not required to apply principles of res judicata, collateral estoppel, or the Rooker-Feldman doctrine in determining those issues.In re Dunbar, 2001 U.S. App. LEXIS 5535, – F.3d – (9^thCir. April 4, 2001) (Fletcher, C.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:362.05.[5]

Attorney lacked standing to sue. B.A.P. 9th Cir. The chapter 7 debtor husband’s attorney appealed a determination by the bankruptcy court that she lacked standing to sue under section 523(a)(15) for unpaid legal fees incurred prepetition. The attorney, who represented the husband in the debtors’ dissolution proceedings, alleged that because 90 percent of her services pertained to the custody of the children and support of the debtor husband her fees were nondischargeable. The B.A.P. affirmed, holding that the attorney lacked standing to bring a nondischargeability complaint under section 523(a)(15). The panel noted that the attorney did not allege that the debtor’s former spouse or children had any liability to her. Thus, the discharge of the debt would result in a benefit to the debtor that was greater than the detriment to his former spouse or children because the detriment to the latter was zero. Ashton v. Dollaga (In re Dollaga), 2001 Bankr. LEXIS 289, – B.R. – (B.A.P. 9th Cir. March 23, 2001) (Russell, B.J.).

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

Court had jurisdiction over dispute. Bankr. N.D. Cal. The claimant filed a limited objection to the chapter 7 trustee’s sale of the estate’s patents free and clear of liens and interests. The claimant had sold the patents in scanner technology to the debtor prepetition and contracted for the right to the license upon default on the debtor’s payment obligation. The claimant argued that the bankruptcy court did not have jurisdiction to hear the matter since the third party purchaser paid the full price and the estate was not affected by the outcome of the dispute between the claimant and the purchaser. The bankruptcy court rejected the claimant’s argument, holding that the dispute was within the court’s core jurisdiction under 28 U.S.C. section 157(b)(2)(K).The claimant elected to exercise its rights under section 365(n), which would not have existed independent of the bankruptcy case.In re Storm Tech., 2001 Bankr. LEXIS 288, – B.R. – (Bankr. N.D. Cal. March 27, 2001) (Morgan, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 1:3.02[3]

11th Cir.

Summary judgment was affirmed on appeal. M.D. Fla. The chapter 11 debtors appealed the district court’s affirmance of summary judgment entered by the bankruptcy court in favor of former principals of the debtors. The debtors filed an adversary proceeding against the principals seeking to recover allegedly fraudulent transfers, preference payments and damages for breach of fiduciary duty. The bankruptcy court granted summary judgment to the former principals on the grounds that the undisputed facts showed that the transfers were made by nondebtor entities and the former principals were not insiders of the debtors. The district court affirmed and the debtors appealed, claiming genuine issues of material fact existed. The Court of Appeals for the Eleventh Circuit affirmed, holding that pursuant to a de novo review, summary judgment was appropriate because there were no genuine issues of material fact in dispute. Gray v. Manklow (In re Optical Techs.), 2001 U.S. App. LEXIS 5770, – F.3d – (M.D. Fla. April 6, 2001) (Marcus, C.J.).

Collier on Bankruptcy, 15th Ed. Revised 10:7056