New Cases For the Week of November 13, 2000 - November 17, 2000

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November 17, 2000

Case

Court

Holding

FDIC v. Barton 5th Cir. In a cause of action for "wrongful bankruptcy" (i.e., a breach of fiduciary duty or ordinary duty accomplished through aiding and abetting the filing of a bankruptcy when the filing violated the rights of the plaintiff), the plaintiff, when seeking to recover the attorneys' fees it incurred to contest the wrongful bankruptcy, need not prove that bankruptcy would result in lower recoveries than other scenarios.  Plaintiff's recovery is based on the legal expense incurred in recovering the right to control to liquidation of the debtor, not on the actual liquidation dividend obtained.

Although attorneys' fees are not normally awarded under the American Rule, legal fees incurred in other litigation can be awarded as an element of damage despite the Rule. 

The court erred in granting summary judgment in favor of defendants alleged to have aided and abetted the filing of wrongful bankruptcies resulting in the need for plaintiff to incur $13 million in legal fees to recover control of the bankrupt debtors.

In re Boswell 4th Cir.  The bankruptcy court erred in finding that a prepetition unlawful detainer action in which the debtor defended by challenging the propriety of a foreclosure was preclusive as to debtor's bankruptcy court challenge to the foreclosure.  Under applicable State law (Virginia) a judgment of possession in an unlawful detainer action is a determination only of the right to immediate possession of the property; it does not determine title to the property or any other issue in controversy with respect to the property.

November 16, 2000

Case

Court

Holding

U.S. v. Shaltry 9th Cir.  Although a debtor's parent's irrevocable election to waive NOL carrybacks reported in a consolidated return can, under appropriate circumstances, be avoided as a fraudulent transfer, the bankruptcy trustee's effort to avoid the debtor's parent's waiver during the gap period was barred by the statute of limitations applicable to 11 USC 549. While the statute of limitations for a tax refund is longer than the limitations period under section 549 (and would have rendered the trustee's action timely had it applied), the trustee's refund action depended conceptually on avoidance of the debtor's parent's waiver. Since the limitations period under section 549 had expired before the trustee filed her suit, her action was barred.
In re Short 9th Cir. A bankruptcy court can consider both incomes of a debtor and his or her economically interdependent live-in companion in determining a debtor's ability to pay a debt incurred in a judgment of dissolution pursuant to the "relative harm" test in 11 USC 523(a)(15)(A) 
In re Sullivan
(requires Adobe Acrobat Reader to view)
Bankr. N.J Under New Jersey law, a State tax lien is a "statutory lien" for bankruptcy purposes.

Although a New Jersey taxing agency can choose to enforce its statutory lien by filing a certificate of debt, which, upon registration is deemed to be equivalent to a judgment, an agency which does so does not thereby transform the statutory lien to a "judgment lien" for bankruptcy purposes. Consequently, a Chapter 7 trustee cannot avoid a statutory State tax lien where the State filed a certificate of debt prepetition, but did not levy on the encumbered assets before the petition date.

November 15, 2000

Case

Court

Holding

Renfrow v. Draper 9th Cir. There is no general right to recover attorney's fees under the Bankruptcy Code.  However, because state law necessarily controls an action on a contract, a party to such an action is entitled to an award of fees if the contract provides for an award and state law authorizes fee shifting agreements.

A bankruptcy court lacks authority to award a party attorney's fees for litigating federal law issues in a bankruptcy court dischargeability case whenever state law is "integral" to determining dischargeability. Instead, attorney's fees should be awarded solely to the extent they were incurred in litigating state law issues.  

If a divorce decree provides for the payment of attorney's fees, and state law issues are litigated in the bankruptcy proceedings, attorney's fees are available, but only to the extent that they were incurred litigating the state law issues.

Clark v. Trailiner 10th Cir. A court presiding over a postdischarge lawsuit in which a former debtor is a plaintiff must dismiss the action if the debtor failed to list the claim as an asset in his bankruptcy.  Standing is determined at the time of the filing of the action. The debtor cannot retroactively "cure" standing by attempting to reopen his bankruptcy so that he can try to convince his bankruptcy trustee to abandon the claims at issue in the postdischarge lawsuit.
In re Holstein, Mack & Klein 7th Cir. When a partner in a debtor/law firm entered into a forbearance agreement and fee sharing agreement with the debtor's lender, and gave the lender a security interest in the receivables of partner's new firm, the bank was entitled to the entire fee received by the partner's new firm following the expiration of the forbearance agreement. 

November 14, 2000

Case

Court

Holding

In re Continental Airlines
(requires Adobe Acrobat reader to view)
Bankr. Court - Delaware A claim for the breach of labor protective provisions (requiring the debtor airline to integrate pilots of another, merged airline into the debtor's pilot seniority/compensation structure) under a collective bargaining agreement was a claim convertible to monetary damages upon rejection of the agreement, and thus was a claim dischargeable in bankruptcy.

Since the rejected collective bargaining agreement was an "employment contract" within the meaning of 11 USC 502(b)(7), the amount of the claim arising from the debtor's rejection of the agreement (including the damages attributable to the breach of the labor protective provisions)  was limited by the cap in section 502(b)(7).

In re Wilcox 6th Cir. An anti-alienation clause contained in a retirement plan established under a municipal charter is an enforceable nonbankruptcy restriction of alienation despite: (i) the fact that the debtor's rights in the plan were entirely on account of  the debtor's voluntary contributions of his own funds and (ii) the fact that the plan and the city charter contained no explicit statutory right of action to "enforce" the plan provisions.

November 13, 2000

Case

Court

Holding

 
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