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New Cases For the Week of September 18, 2000 - September
22, 2000
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September 21, 2000
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Case
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Court
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Holding
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| In
re Moffitt |
6th Cir. BAP |
A
prepetition jury finding that a debtor "intentionally, or
recklessly (with conscious disregard) caused serious emotional distress"
is sufficient to satisfy the standard of liability under 11 USC
523(a)(6) announced in Kawaauhau v. Geiger, 523 U.S. 57, 118 S.Ct.
974 (1998), and is entitled to collateral estoppel effect. The inclusion
of the phrase "with conscious disregard" in the finding
insures that the jury must have found that the Debtor's intent reached
the level of intent required by Kawaauhau
A prepetition judgment against a debtor for infecting
his wife with genital warts through misrepresentations about his
extramarital affairs is nondischargeable under 11 USC 523(a)(6). The
Debtor admitted to having unprotected sex with a third party and others,
knew the risks of transmitting sexually transmitted diseases, and lied
to his wife about having extramarital affairs and about having genital
warts. The conduct of the Debtor indicates no other conclusion but that
the Debtor intended to cause harm to his wife or that harm was
substantially certain to result (i.e., willfully) and that he acted in
conscious disregard of his duty to his wife (i.e., maliciously).
While a factual finding sufficient to support punitive
damages will generally give rise to preclusion under 11 USC 523(a)(6),
the converse is not true, and the absence of a punitive damages award
does not bar claims under 11 USC 523(a)(6). |
| In
re Innovative Software Designs, Inc. |
8th Cir. BAP |
A
contract between the individual operators of the corporate debtor
stating that each of them would own equal shares in the debtor was
abandoned prepetition by the conduct of one of the putative owners who
failed to disclose his alleged interest in the debtor in financial
statements or a divorce decree and who left the employ of the debtor for
other work. Since the debtor had never implemented the "equal
ownership contract" by issuing stock, the proof of interest filed
in the debtor's bankruptcy by the former putative owner was
disallowed. |
| In
re Bell |
2d Cir. |
The
conversion of a case from Chapter 11 to Chapter 7 does not trigger a new
period for objecting to exemptions, and absent timely objections,
property claimed as exempt is exempt. The ruling applies only to
conversions from Chapter 11 to Chapter 7. |
| In
re VIC Supply Co. |
7th Cir. |
A
perfected secured creditor's failure to sign a security agreement which
states that "the terms and provisions of this agreement shall not
become effective and Bank shall have no duties hereunder unless and
until this agreement is accepted by Bank as provided below" does
not permit a later-in-time secured creditor to attack the validity of
the first secured creditor's lien. |
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September 20, 2000
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Case
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Court
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Holding
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| In
re Celotex Corp. |
11th Cir. |
There
is a conflict in the Circuits regarding whether the motivation behind a
creditor's actions should disqualify him from receiving fees where a
contribution has been made to the resolution of the bankruptcy
proceeding. One line of authority (5th Circuit) holds that
"the plain language of the statute does not require "a
self-deprecating, altruistic intent as a prerequisite to
recovery." Another line of authority (10th Circuit) holds
that "efforts undertaken by a creditor solely to further his own
self-interest . . . will not be compensable, notwithstanding any
incidental benefit accruing to the bankruptcy estate."
The 11th Circuit adopts the Fifth Circuit's reasoning
and holds that a creditor who has an adverse interest to the debtor may
nevertheless recover fee under 11 USC 503(b)(3)(d) for making a
substantial contribution to a bankruptcy case. |
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September 19, 2000
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Case
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Court
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Holding
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| In
re Bruno's, Inc. |
3rd Cir. |
A
plan of reorganization which released certain avoidance and other claims
against equity interests did not violate the absolute priority rule by
transferring property (the released claims) to junior interests prior to
full payment of senior classes. Although a release of claims is a
"transfer," for a violation of the absolute priority rule to
occur property must be transferred to a junior class "on account
of" (i.e., because of) such junior class' interests. Here,
the transfers were not made "on account of" such interests,
but rather because the claims were expensive to litigate, of marginal
viability and cancellation of the claims would result in the most value
to the bankruptcy estate.
An appeal of a confirmation order based on improper
releases is not equitably moot after implementation of the plan, since
the challenged releases could be undone if error occurred.
The evidence did not support an appealing creditor's
theory that a plan was confirmed in bad faith because of an alleged
collusive agreement by which the debtor waived fraudulent transfer
claims to obtain support of equity and preference claims to obtain
support of general unsecured creditors, all to the detriment of a class
of subordinated debt.
A subrogation clause under a subordination agreement
entitling a subordinated class to subrogation rights upon payment of the
senior class was never triggered because the confirmed plan did not
provide for full payment of the of the senior class. Under the
Bankruptcy Code, rights under the subordination agreement must be
measured as of the effective date of the plan. Although the
senior class received equity in the reorganized debtor on the effective
date, and such equity might someday be worth more than the senior class'
effective date claims, the equity was not worth more than such claims on
the effective date, thereby defeating a subordinated class' argument for
subrogation rights in the form of warrants that would capture future
increases in equity value for the benefit of the subordinated class.
A provision in a confirmed plan which releases a
debtor, official committees, committee members, and their agents and
professionals from liability for their duties performed in connection
with the bankruptcy case (save and except for willful or grossly
negligent misconduct) does not violate 11 USC 524(e) (prohibiting
nondebtor discharges), since it merely restates the scope of liability,
and correlative immunities, already imposed by the Bankruptcy Code.
The broad rule stated in 11 USC 1109(b), permitting
virtually any party in interest to appear and be heard in a bankruptcy
case does not extend to appellate standing. Appellate standing
requires the appellant to be a "person aggrieved," which
is a more stringent standard than the Constitutional standard for
standing. A creditor seeking to appeal a plan confirmation order
on the grounds that the debtor failed to disclose the extent of its
preference analysis is not a person aggrieved since the creditor itself
pointed out the alleged disclosure deficiency to the debtor and the
Court, and provided the information to the other creditors, thereby
blunting any argument that the complaining creditor itself was the
victim of inadequate disclosure. In addition, because it had provided
the subject information to the other creditors, the complaining creditor
mooted any argument that other creditors might have voted differently in
the face of fuller disclosure. |
| In
re Tenn-Fla Partners |
6th Cir. |
The
fraud required to revoke confirmation of a confirmed plan must be actual
fraud, as opposed to constructive fraud. Fraud on the court is one
species of such fraud, as is fraud on specific creditors or the
creditors in general.
A debtor in possession who represents to the Court
that only low offers have been received for the purchase of the debtor's
assets has committed fraud on the court (warranting revocation of
confirmation) when it fails to disclose the existence of higher offers
for the property.
Although attorneys' fees and costs cannot generally be
awarded absent a statutory or contractual foundation, an exception to
this rule is legal costs incurred to uncover a fraud on the court. |
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September 18, 2000
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Case
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Court
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Holding
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| In
re Waterman & Assoc. |
6th Cir. |
In
the 6th Circuit, an informal proof of claim must: (i) be in writing,
(ii) contain a demand by the creditor on the debtor's estate, (iii)
express an intent to hold the debtor liable for the debt and (iv) be
filed with the bankruptcy court. If these requirements are met,
the Court may allow or disallow amendments to the putative claim based
on whether it would be equitable.
Even where a putative informal proof of claim
satisfies the above-referenced four-element test, a bankruptcy
court does not abuse its discretion when it denies the creditor's
attempt to formalize the informal proof of claim based upon findings of
judicial economy and the interests in protecting the debtor and
creditors, all of whom had adhered to the bankruptcy procedural rules,
against further delay in distribution of the estate. Where "reasonable
minds might differ" as to the equitable allowance of an informal
proof of claim, there is no abuse of discretion.
The same rules apply when a creditor who objects to
confirmation of a plan, but fails to file a ballot, requests that his
objection be treated as an informal negative vote. A bankruptcy
court does not abuse its discretion in denying the request on equitable
grounds if reasonable minds could differ as to the equities. |
| In
re Hervey |
8th Cir. BAP |
Where
a secured creditor successfully forecloses prepetition, but a debtor
obtains confirmation of a Chapter 13 plan that proposes to cure the
prepetition arrearages, the creditor cannot appeal such confirmation if
it has not created any evidentiary record in the bankruptcy court, and
its appeal must be dismissed. |
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