New Cases For the Week of October 23, 2000 - October 27, 2000

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October 27, 2000

Case

Court

Holding

SEC v. Brennan 2d Cir. Although an exception to the automatic stay applies to allow the SEC to obtain a money judgment  against a debtor, enforcement of such money judgments is  not within the scope of the stay.  The SEC's efforts to obtain an order from a nonbankruptcy court requiring the debtor to repartiate his offshore trust, under penalty of contempt, violated the automatic stay in the debtor's bankruptcy even though the SEC appeared to be acting in good faith and indicated it intended to submit any recovery to the bankruptcy court for allocation according to Bankruptcy Code priorities.
In re Schultz 6th Cir. BAP Although "'excusable neglect' is not defined by the Bankruptcy Rules, the concept has been appropriately characterized as the failure to timely perform a duty due to circumstances which were beyond the reasonable control of the person whose duty it was to perform.

Where debtor's attorney's wife was in critical condition in the hospital during the appellate period, and debtor was only able to attend to his sole practitioner law practice intermittently during such period, the bankruptcy court abused its discretion in determining that the Debtor's failure to timely file a notice of appeal or a request for an extension of the time to appeal was not attributable to excusable neglect.

The Court distinguished this situation from the "law office upheaval" line of cases (which generally decline to find excusable neglect based on a lawyer's heavy workload or the illness of a firm's staff member), finding that the illness of the debtor's attorney's wife, when the debtor's attorney was the primary caregiver, is excusable.

Key Energy v. Merrill 10th Cir. Although appellant's counsel was in the hospital during most of the 10-day period during which appellant could object to the findings of a magistrate appointed by the district court to review a bankruptcy appeal, appellant failed to demonstrate that the interests of justice required relief from the firm waiver rule. Appellant's counsel received a copy of the magistrate's report during the applicable period, and could have requested an extension of time. The Court is disinclined to grant relief where counsel was able to file or have filed a timely motion for extension of time.

October 25, 2000

Case

Court

Holding

In re Nolan 6th Cir. As a matter of law, a Chapter 13 debtor may not modify her confirmed plan to surrender depreciated collateral (an automobile) to a secured creditor in order to require the secured creditor to sell the collateral and recover the balance of its deficiency claim as an unsecured claim.  Once the plan has been confirmed, the rights of the secured creditor are fixed, and the debtor cannot use the modification power to transfer the risk of postconfirmation depreciation to the secured creditor.
Gulf Marine & Industrial Supplies, Inc. v. Golden Prince M/V 5th Cir. Legal services rendered in connection with a vessel are not "necessaries" under the Federal Maritime Law Act, and thus a claim for such services does not trump the priority rights of a prior ship mortgage.

October 24, 2000

Case

Court

Holding

In re Berg 9th Cir. The imposition of a sanction by an appellate court against a debtor/attorney for pursuing a frivolous appeal was not subject to the automatic stay.  The award of sanctions the award of sanctions falls under the "government regulatory power" exemption of 11 USC 362(b)(4)

October 23, 2000

Case

Court

Holding

In re GWI PCS 1 5th Cir. The debtors' obligation to pay the FCC $894 million for the winning bid in a spectrum auction is avoidable as a constructive fraudulent transfer or obligation, since, at the time the obligation was incurred, the value of the subject licenses had declined from $1.06 billion (the auction date value) to $166 million (the value on the date [appx. six months after the auction] that the licenses were conditionally granted to the debtor by the FCC). The debtors were permitted to keep the licenses, subject to payment of $60 million of the original $954 million unpaid purchase price.

Although the bankruptcy court may have erred in issuing the avoidance judgment, the debtors' confirmation and implementation of a plan incorporating the fraudulent transfer judgment made the FCC's appeal of the avoidance judgment and the plan equitably moot, since the FCC had not obtained a stay pending appeal.

Kittay v. Kornstein 2d Cir. When both the debtor and its limited partner claimed an interest in a judgment against the debtor's general partner, and the debtor sought to hire the limited partner's lawyer as special counsel for the debtor to pursue the judgment,  the bankruptcy court eliminated any potential conflict of interest when the court ordered, and the special counsel agreed, that any recovery form the judgment would be placed in escrow to be divided by the bankruptcy court regardless of how the judgment was awarded in State court. 

However, where it was alleged that special counsel's actions, after the judgment was collected, caused the settlement proceeds to not be deposited in the Court-ordered escrow account, a cognizable cause of action was stated against such special counsel.

In re Annis 10th Cir. A tax refund is not "earnings" or "wages" within the meaning of an Oklahoma exemption statute exempting personal service earnings.
Empire Funding Corp. v. Armor
(unpublished)
4th Cr. When, before filing his Chapter 13 case, a debtor prevailed on affirmative claims for relief for construction defects against a contractor and subcontractor, but the State court failed to rule on the debtor's claim to have the construction loan obligation (assigned to a third party by the contractor) set aside, the debtor was not barred by claim preclusion from asserting  his defenses against the loan assignee as a claim objection in his Chapter 13 bankruptcy.  Under North Carolina law, the court's failure to rule on the debtor's request to set aside the loan obligation deprived the judgment of final effect as to that claim for relief, and enabled the debtor to continue to assert the claim post-judgment.  
 
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