Bankruptcy Year In Review - 2007
San Diego County Bar Association
January 17, 2008
Marrama v. Citizens Bank of Massachusetts
___ U.S. ____, 127 S.Ct. 1105, 166 L.Ed.2d 956 (2007)
Debtor does not have an absolute right to convert a Chapter 7 case to a Chapter 13, and a motion can be denied where the debtor has acted in bad faith.
Travelers Casualty and Surety Co v. Pacific Gas & Elec.
___ U.S. ___; 127 S.Ct. 1199, 167 L.Ed.2d 178 (2007)
Creditor may include contract based unsecured claim for attorneys fees where fees were incurred litigating bankruptcy law issues.
UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
In re Adbox, Inc.
488 F.3d 836 (9th Cir. 2007)
A counterclaim alleging a prepetition claim may not be filed in a preference action brought by a trustee because the Trustee is not an “opposing party” for purpose of BR 7013 (FRCP 13(a), (b)). Earmarking is not a defense that is waived if not plead as an affirmative defense, but the burden of proof of such a defense is on the recipient of the transfer.
In re Ahaza Systems, Inc.
482 F.3d 1118 (9th Cir. 2007)
Pre-BAPCPA preference action. Payments were in the ordinary course even if the underlying debt and restructuring agreement was the first such transaction between the parties.
In re Brawders
503 F.3d 856 (9th Cir. 2007)
Confirmed Chapter 13 plan did not revest property free and clear of County’s property tax lien.
Davis v. Yageo Corporation
481 F.3d 661(9th Cir. 2007)
Bankruptcy Code does not preempt claims of minority shareholders that majority shareholders and directors breached their fiduciary duty by pre-bankruptcy conduct to exclude minority rights, including deciding to pursue a bankruptcy case to achieve that objective.
Ditto v. McCurdy
___ F.3d___, 2007 Westlaw 4355367 (9th Cir. 2007)
Debt for negligent medical malpractice was nondischargeable under exception to willful and malicious injury.
In re El Toro Materials Co, Inc.
504 F.3d 918 (9th Cir. 2007)
Cap to lessor’s claim under section 502(b)(6) does not apply to collateral damage to real property.
In re Excel Innovations, Inc.
502 F.3d 1086 (9th Cir. 2007)
To obtain injunctive stay against non-debtors under section 105, the debtor must prove the typical elements for a preliminary injunction under nonbankruptcy law (balancing likelihood of prevailing and irreparable harm or serious questions and balance of hardships).
Ellett v. Stanislaus
506 F.3d 774 (9th Cir. 2007)
Debt not discharged where notice to creditor failed to provide correct social security number.
In re Harbin
486 F.3d 510 (9th Cir. 2007)
A bankruptcy court considering the feasibility of a plan of reorganization must evaluate the effect of a debtor’s ongoing civil case with a potential creditor. The Rooker Feldman doctrine does not prevent the court evaluating the likelihood that a state court judgment in favor of the debtor will be reversed on appeal (rejecting In re Audre, 216 BR 19 (9th Cir.BAP 1997 as inconsistent with recent US Supreme Court rulings on Rooker-Feldman). [Note: the 9th Circuit knew that by the time of its ruling the state appellate court had reversed and reinstated a judgment against the debtor.]
Hale v. US Trustee
___ F.3d___, 2007 Westlaw 4293312 (9th Cir. 2007)
No right to jury trial on reasonableness of debtor’s attorneys fees in bankruptcy proceeding.
In re Healthcentral.com
504 F.3d 775 (9th Cir. 2007)
Bankruptcy court may retain jurisdiction of preference proceeding for all pretrial matters, including summary judgment, despite proper demand for jury trial.
In re International Fibercom, Inc.
503 F.3d 933 (9th Cir. 2007)
Court could clarify and reconsider prior approval of Chapter 11 DIP’s assumption of insurance agreement on motion by Chapter 7 trustee made two years later on the grounds that the agreement was not an executory contract.
In re Pomona Valley Medical Group
476 F.3d 665 (9th Cir. 2007)
Because business judgment test applies in determining whether Chapter 11 debtor may reject executory contract, bankruptcy court should presume that the debtor acted prudently, on an informed basis, in good faith, and in the honest belief that the action taken was in the best interests of the estate unless it finds the debtor’s judgment “so manifestly unreasonable that it could not be based on sound business judgment, but only on bad faith, or whim or caprice.”
In re Reynoso
477 F.3d 1117 (9th Cir. 2007)
Website providing software for consumers could prepare bankruptcy petitions and schedules, and informational guides, was engaged in the unlawful practice of law and was a petition preparer for purpose of 11 U.S.C. section 110. (pre BAPCPA).
Nichols v. Birdsell
491 F.3d 987 (9th Cir. 2007)
A debtor’s pre-petition irrevocable election to apply tax overpayments/refunds to future (post-petition) tax obligations constitutes an asset of the estate, the value of which must be turned over the Trustee.
Suter v. Goedert
504 F.3d 982 (9th Cir. 2007)
Appeal of order approving compromise of state court lawsuit not barred as moot.
United States v. Milwitt
475 F.3d 1150 (9th Cir. 2007)
The crime of bankruptcy fraud requires a specific intent to defraud an identifiable victim or class of victims of the identified fraudulent scheme. (Note: defendant pretended to be a lawyer, was hired by tenants to assist in unlawful detainer proceedings, did nothing in the state court proceedings, filed sham bankruptcy proceedings without the knowledge or consent of the tenants to prevent the eviction. The 9th Circuit majority noted that the government did not introduce evidence that the defendant intended to defraud the lessors and did not act to defraud the tenants. Justice Thomas was a Montana trustee.)
In re Wind N’Wave
___ F.3d ___, 2007 Westlaw 4226146 (9th Cir. 2007)
Creditor’s right to attorney’s fees include fees on appeal.
SELECTIVE DECISIONS OF THE
BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT
In re Beverly
374 B.R. 221 (9th Cir.BAP 2007)
Transfer under marital settlement agreement may still be set aside as fraudulent transfer.
In re Brown & Cole Stores, LLC
375 B.R. 873 (9th Cir.BAP 2007)
Supplier could assert 20 days administrative priority claim even if claim may also be secured.
In re Chappell
373 B.R. 73 (9th Cir.BAP 2007)
Post-petition appreciation in debtor’s homestead inures to the benefit of the estate.
In re Frazer
377 B.R. 621 (9th Cir.BAP 2007)
Chapter 13 plan may cure default under real estate purchase agreement later than the 108(b) extension of the right to cure for 60 days.
In re Hansen
368 B.R. 868 (9th Cir.BAP 2007)
Debtor’s settlement of section 727 action filed by Trustee does not affect creditor’s separate section 727 action on the same grounds.
In re Hoopai
369 B.R. 506 (9th Cir.BAP 2007)
Oversecured lender who did not prevail on issues actually litigated against debtor is not the prevailing party for purpose of award of attorneys fees.
In re JZ LLC
371 B.R 412 (9th Cir.BAP 2007)
Reorganized licensor debtor could sue licensee even though license not assumed during the Chapter 11 case because debtor’s property rights “ride through.”
In re Leal
366 B.R. 77 (BAP 9th 2007)
Silent general partners are jointly liable for unpaid sales tax despite requirement for control or supervision to impose liability under Cal. Rev. & Tax section 6829.
In re Lopez
372 B.R. 40 (9th Cir.BAP 2007)
Chapter 13 debtor may make post-petition mortgage payments directly to creditors and pay prepetition arrearages through Trustee.
In re Lynch
363 B.R. 101 (BAP 9th 2007)
Implied valuation of debtor’s residence in connection with approval of Chapter 13 plan is not binding on Chapter 7 trustee in a converted case.
In re Maple-Whitworth, Inc.
375 B.R. 558 (9th Cir. BAP 2007)
No subordination under section 510(b) for claim for damages from the delay in providing stock as compensation when promised.
In re Onubah
375 B.R 549 (9th Cir.BAP 2007)
Trustee may surcharge debtor’s homestead exemption resulting from debtor’s refusal to turnover resident, remove household goods, and obstructions of Trustee’s sale.
In re Macke International Trade, Inc.
370 B.R. 236 (9th Cir.BAP 2007)
Attorneys fees may be awarded for dismissal of involuntary petition under best interests test of section 305.
In re Mendez
367 B.R. 109 (9th Cir.BAP 2007)
Debtor may not use own failure to complete credit counseling as basis to dismiss her own.
In re Summerville
361 B.R. 133 (BAP 9th 2007)
Confirmation of Chapter 13 plan does not bar debtor’s ability to contest debt where debt was to be paid outside the plan.
In re Wiersma
483 B.R. 933 (BAP 9th 2007)
A bankruptcy court’s order is a final order when it resolves and seriously affects substantive rights and finally determines the discrete issue to which it is addressed. The BAP does not have inherent jurisdiction to correct its dismissal of a timely filed appeal even if the dismissal was based on the failure to respond to a inquiry by the BAP why the order was not interlocutory. The “unique circumstances” doctrine permits the BAP to hear the appeal only if a party relied on the specific and affirmative assurance by the court that a later appeal would be timely (ambiguous or misleading court action is insufficient.)
UNITED STATES BANKRUPTCY COURT
FOR THE SOUTHERN DISTRICT OF CALIFORNIA
In re Gordon
360 B.R. 679 (Bankr. S.D.Cal. 2007)
Denying confirmation of Chapter 13 plan because it provided no significant return to unsecured creditors in comparison with the Form B22C form calculations; her actual income reported in the schedules is insufficient to establish feasibility to make plan payments and her prior inability to perform other Chapter 13 plans within the past 6 years. (Bowie).
CALIFORNIA CASES OF NOTE
Circle Star Center Assoc. v. Liberate Technologies
147 Cal. App.4th 1203 (2007)
Lessor may include claim for attorneys fees incurred in obtaining the dismissal of a tenant’s bankruptcy case in state court action for breach of lease.
McMullen v. Haycock
147 Cal.App.4th 753 (2007)
Assets rolled over and traceable from fully exempt ERISA plan into an IRA remain fully exempted under CC 703.115(b) (applicable to ERISA plans) and not partially exempt to the extent necessary for support under CC 704.115(e) (applicable to IRA’s).
Young v. McCoy
147 Cal.App.4th 1078 (2007)
Probate Code section 15305.5(c) does not permit a court to order a trustee to invade the assets of a discretionary trust to pay a restitution judgment creditor if the trustee has properly exercised its discretion to make no payments to the beneficiary. (NB: beneficiary was serving life sentence for attempted murder of petitioner, beneficiary’s brother.)
