New Cases For the Week of March 26, 2001 - March 30, 2001

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March 29, 2001

Case

Court

Holding

In re Meyer
(DBN Subscription Required)
4th Cir. A debtor's voluntary prepetition prepayment of mortgages securing properties held by the debtor and his wife as tenants by the entireties was not a fraudulent transfer under 11 USC 544(b), since, in return for the transfer, the debtor received consideration deemed valuable in law.
In re Elkins Welding & Construction, Inc.
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(unpublished)

10th Cir. BAP In the absence of a written security agreement between a debtor and a putative secured creditor, were notation of a lien on a motor vehicle certificate of title is not effective to establish priority of the lien as against a later judgment creditor 

March 28, 2001

Case

Court

Holding

In re Genesys Data Technologies, Inc.
(DBN Subscription Required)
4th Circuit The Circuit Court asked the Hawaii Supreme Court to answer the certified question:

Under Rule 54(c) of the Hawaii Rules of Civil Procedure, is Pacific's default judgment for $1,262,067.24 void when Data received notice of Pacific's complaint requesting "[g]eneral, special, treble, and punitive damages in an amount to be determined at trial" before the entry of any default, and Data received notice of the specific amount requested and itemization of damages claimed after the entry of the default but before the entry of judgment?

Because the Court answered the question in the negative, the creditor's default judgment is entitled to full faith and credit and the claim objection is denied.

March 27, 2001

Case

Court

Holding

In re Mercer
(DBN Subscription Required)
5th Cir. For nondischargeability purposes, there is no statutory basis for distinguishing between cards obtained at the debtor's initiative and those obtained in response to a solicitation (pre-approved).

Each use of a credit card by a debtor is a representation of an intent to pay the charges. The appropriate focus with respect to a debtor's intent is whether she acted in bad faith by knowingly making a false representation. The card-use representation of intent to pay is false if there is use without that intent.

Courts have listed various factors to consider in determining whether the card-user's representation was made with the requisite scienter; the time between card-use and the bankruptcy filing; whether, prior to card-use, an attorney was consulted about bankruptcy; the number of charges; their amount; the debtor's financial condition at card-use; whether the limit was exceeded; whether multiple charges were made on the same day; whether the debtor was employed; her employment prospects; her financial sophistication; whether her buying habits changed suddenly; and whether luxuries or necessities were purchased. But these factors are nonexclusive; none is dispositive, nor must a debtor's conduct satisfy a minimum number" to constitute fraudulent intent.  The debtor's financial condition at card-use is only one of many factors to consider, and should not be the sole basis for finding fraudulent intent.  Hopeless insolvency alone cannot form the basis for fraudulent intent. To the extent the Circuit's prior opinion in Boydston could be interpreted as requiring a bankruptcy court to infer fraudulent intent solely on the basis of "hopeless insolvency" at card-use, it would be inconsistent with the Restatement. It requires, instead, that the inquiry focus on the debtor's subjective intent, with such "hopeless insolvency" simply being "evidence from which his lack of honest belief may be inferred". Accordingly, "hopeless insolvency", or inability to pay, at card-use may support finding the debtor did not intend to pay, but only if she was aware of her financial condition and knew she could not (and therefore did not intend to) make even the minimum monthly payment to the issuer.  In the case at bar (involving a debtor with a gambling problem), one relevant inquiry is what the debtor intended to do with any winnings. Did she intend to use them to pay her card-debt, or to finance more gambling?

As for the element of actual reliance, a credit card issuer usually will be able to establish actual reliance by showing it would not have approved the loan in the absence of debtor's promise to pay (through card-use).

In re Midland Marina, Inc.
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8th Cir. BAP Despite opposition to dismissal from the debtor's lessor, the bankruptcy court did not abuse its discretion in dismissing the debtor's Chapter 11 case (rather than converting the case to Chapter 7) following the debtor's deemed rejection of its lease pursuant to 11 USC 365(d)(4).
In re Bagwell
(DBN Subscription Required)
9th Cir. ERISA plan fiduciaries are also fiduciaries within the meaning of 11 USC 523(a)(4)
Kaiser v. Teledyne
(DBN Subscription Required)
11th Cir. Since a dispute between (i) a party entitled to certain stock in an entity formed to receive the assets of a reorganized debtor and (ii) another party claiming that it was entitled to some of the first party's stock, did not arise from the same nucleus of operative facts at issue in the debtor's plan confirmation, the second party was not barred by res judicata from pursuing its claims against the first party. 
US v. Fretz 11th Cir. A debtor's intentional failure to file tax returns and to pay taxes owed to the Internal Revenue Service is sufficient, even without any supporting affirmative conduct, to show that he "willfully attempted in any manner to evade or defeat [a] tax," within the meaning of the non-discharge provision contained in 11 U.S.C. § 523(a)(1)(C).

March 26, 2001

Case

Court

Holding

In re Smith
(DBN Subscription Required)
8th Cir. BAP Although a Housing Authority was precluded by 11 USC 525 from denying consideration of a Chapter 7 debtor's applications for government housing subsidies when the debtor had failed to repay the Authority for discharged imputed rent, the Housing Authority was not precluded by section 525 from evicting the debtor  and terminating the debtor's current entitlement to housing benefits.
 
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