New Cases - Week of September 12, 2011

New Cases For the Week of September 12, 2011 - September 16, 2011

September 16, 2011
In re Hotels Nevada, LLC (DBN)	Bankr. NV	A law firm which represented both: (i) Ch. 7 corporate debtors and (ii) non-debtor affiliates pre-petition is ordered to turnover to the debtors' trustee information arising during the representation. The fact that the law firm's joint representation included non-debtors does not preclude the information turnover.

September 15, 2011
In re Washington Mutual, Inc. (DBN)	Bankr. DE	The Bankruptcy Court has the authority to disallow a claim on "equitable grounds" in those extreme instances — perhaps very rare — where it is necessary. Where an equity committee has stated a colorable claim that noteholders who were on a creditors' committee engaged in insider trading, an issue of equitable disallowance of the noteholders' claims prevents confirmation of the debtor's plan. The court determines that the noteholders' warning that future participation by creditors on committees will be chilled is misplaced. The court suggests an "easy solution": creditors who want to participate in settlement discussions in which they receive material nonpublic information about the debtor must either restrict their trading or establish an ethical wall between traders and participants in the bankruptcy case
In re Merrifield Town Center Limited Partnership (DBN)	Bankr. ED VA	An attorney for a creditor engaged in litigation with a debtor filed an involuntary bankruptcy petition against the debtor without the creditor's authorization. However, the litigation engagement agreement between the creditor and his attorney gave the attorney broad authority to take steps to resolve the litigation. Thus, the engagement agreement constituted actual authority by the creditor to the attorney to file the involuntary bankruptcy. The creditor was personally liable for the debtor's legal fees when the involuntary petition was dismissed, even though the creditor's attorney had not kept the creditor advised regarding developments in the bankruptcy case.
In re Garrett-Beck Corporation (DBN)	Bankr. SD TX	A nursing home debtor's "Medicaid-certified bed allotment" became property of the estate when the debtor filed Ch. 7 bankruptcy. Although the debtor's authority to use the bed allotment terminated when the debtor ceased operation, the bed allotment could be recertified to another facility within 12 months. Any sale of a recertified bed allotment has to be approved by any lienholder. Thus, the bed allotment had potential value, and the debtor sold the allotment for $1.2 million, with the mortgage holder's approval. The trustee then sought to avoid the mortgage owner's lien on the bed allotment pursuant to 11 USC 544(a)(3) (bona fide purchaser of real property, other than fixtures). The effort failed, since the bed allotment was a general intangible, not real property.

September 12, 2011
In re LLS America, LLC (DBN)	Bankr. ED WA	Substantive consolidation does not exist outside of bankruptcy. The goal of such consolidation is ratable fair distribution to creditors, which is one of the fundamental goals and purposes of the federal bankruptcy scheme. Hence, a substantive consolidation motion is a core matter with respect to which the bankruptcy court can issue a final judgment under Stern v. Marshall.
In re Ruiz (DBN)	10th Cir. BAP	An entity in possession of estate property at any time during the case is liable for turnover, even if the entity no longer has the property.
360 Electrical, LLC v. Gottrox, LLC (DBN)	ED TX	The automatic stay does not bar the post-petition adjudication of claims owned by a debtor, including pre-petition counter-claims of a debtor. However, if pre-petition counter-claims are inextricably interwoven with pre-petition claims against a debtor (which are barred by the stay), the court will extend the automatic stay to prevent adjudication of the counter-claims.
In re AFY, Inc. (DBN)	Bankr. NE	Where a trustee brought a turnover action to collect a receivable owed on the debtor's books by an insider, but the insider asserted that the money transferred to it by the debtor was a capital contribution, the action was not appropriately framed as turnover litigation and was not a core matter. Once the debt was controverted, the trustee was pursuing a demand on an "alleged debt," which which is beyond the scope of section 542. Due to the non-core nature of the proceeding, the bankruptcy court lacked subject matter jurisdiction to issue a final order. Stern v. Marshall.