New Cases For the Week of December 23, 2024 - December 27, 2024

2023 case summaries can be accessed by clicking here

 

December 27, 2024

 
In re: Ali Bankr. ED NY

The court denies a Ch. 7 debtor's motion to convert to Ch. 13. The debtor is not eligible for Ch. 13 because she is not an individual with regular income.

 
In re: Glanton D NJ

The bankruptcy court did not err when it approved a settlement which sold the estate's interest in the debtor's primary residence for $400,000 to the debtor's wife:

Appellant contends that the Bankruptcy Court never considered the probability of success in litigation (first Martin factor) or the expense, inconvenience, or delay in attending to litigation (third Martin factor), because the Bankruptcy Court could have granted the "unopposed" Motion for Summary Judgment, thereby avoiding further litigation altogether. (App. Br. at 17 ("The complexity, expense, inconvenience, and delay typically associated with litigation and Martin are non-existent.").) But granting the Motion for Summary Judgment was not as much as a foregone conclusion as Appellant contends. The Bankruptcy Court heard argument from Trustee about the likelihood that Trustee would succeed on the merits of the Motion for Summary Judgment, and the combined costs associated with briefing the Motion or potentially preparing for trial. Appellee explained that, although she had not yet filed an opposition to the Motion because settlement was ongoing, she would certainly fight the Motion were the Settlement not approved. Trustee even conceded the possibility that the Bankruptcy Court could find an issue of material fact that would require resolution at trial. Additionally, the estate could have lost at trial and been precluded from selling the house, thereby recovering nothing at all for the estate. Contrary to Appellant's contentions, the Bankruptcy Court found that the threat of continued litigation was anything but "nonexistent."

Settlement, on the other hand, avoids these potential consequences, brings finality to the adversarial proceeding, and provides a guaranteed recovery for the estate. See In re O'Grady, Nos. 20-18906, 21-16401, 2022 WL 1058379, at *5 (D.N.J. Apr. 8, 2022) (weighing the third Martin factor in favor of settlement because "further litigation .. . would have resulted in substantial time and expense, unnecessary depletion of the estate and potentially extinguished any remaining equity. The settlement avoided these consequences and brought finality."). In approving the Settlement Agreement, the Bankruptcy Court considered the first and third Martin factors and found that the benefit to settling outweighed the risk of not settling, spending more time and resources litigating, and recovering potentially nothing for the estate if the estate were not authorized to sell the co-owned Property under § 363(h).

 
     

December 26, 2024

 
In re: Clem 5th Cir.

The bankruptcy court erred when it failed to properly apply collateral estoppel to findings in an arbitration:

Defendant-Debtor Steven Andrew Clem, the former owner of a defunct homebuilding company, appeals a sizeable judgment for nondischargeability of a debt incurred in connection with a failed project. After an arbitration panel found Clem personally liable to Plaintiffs LaDainian and LaTorsha Tomlinson for breach of contract and violations of the Texas Deceptive Trade Practices Act (“DTPA”), Clem filed a Chapter 7 bankruptcy case. In this subsequent adversary proceeding brought by the Tomlinsons, the bankruptcy court determined that because Clem had obtained over $660,000 from them through “false representation” or “false pretenses,” the debt was not dischargeable. See 11 U.S.C. § 523(a)(2)(A). But we conclude that the bankruptcy court erred in failing to apply collateral estoppel to the findings in an underlying arbitration, see generally In re Amberson, 73 F.4th 348, 350–51 (5th Cir. 2023), and also erred in its interpretation of a fraud-by-nondisclosure claim. We REVERSE and RENDER judgment for Clem.

 
In re: Birchell Bankr. UT

The court rejects the argument that the debtor's breach of a non-compete agreement created a non-dischargeable debt under 11 USC 523(a)(6).

 
In re: JLM Coture, Inc. Bankr. DE

The court awards attorney's fees and additional rent to a landlord who previously received an administrative claim award for post-petition rent:

This is the third decision in this case related to the landlord JLJ Bricken LLC's (the "Landlord") request for allowance and payment of an administrative expense claim from the debtor JLM Couture, Inc. (the "Debtor"). The Landlord was previously awarded an administrative expense claim for post-petition rent and Attorney's Fees. The parties have been unable to reach agreement on the amount of Attorney's Fees or Additional Rent.

* * *

[T]he Motion will be granted, in part, and denied, in part. The Landlord is entitled to administrative expense claims in the following amounts:

(a) RLG fees in the amount of $59,683.50;

(b) Sprinkler charges in the amount of $993.55;

(c) Water charges in the amount of $993.55; and

(d) Electricity charges in the amount of $6,865.29.

 
     

December 23, 2024

 
In re Heritage Collegiate Apparel, Inc. Bankr. ED MI

In a Ch.11 case, the court declines to give preliminary approval of a disclosure statement until certain changes are made.

 
In re: Graminga Bankr. CT

Noting a split of authority, the court finds that a consensual deficiency judgment following a foreclosure is not a "judgment arising out of a mortgage foreclosure" and thus is not protected from judicial lien avoidance by 11 USC 522(f)(2)(C):

For the reasons stated above, the Court concludes that a deficiency judgment is a judicial lien under section 101(36), can be avoided under section 522(f)(1), and is not protected as an exception to avoidance under section 522(f)(2)(C). The Court further concludes that the stipulated deficiency judgment in this case is a judicial lien under section 101(36) that can be avoided under section 522(f)(1). The Respondent’s other bases set forth in the Objection are not persuasive. Because the stipulated deficiency judgment is a judicial lien that can be avoided, under the facts and circumstances of this case, the stipulated deficiency judgment impairs the Debtor’s exemption in the Property.

 
In re: Bagwell Bankr. SD NY

The court finds that automatic dismissal is required when a debtor has failed to file required schedules within 45 days after the petition date. The court rejects the argument that the debtor can escape the "automatic dismissal" language of 11 USC 521(i) if the reason for the failure to file is outside of debtor's control (here, the debtor's alleged dementia).

[T]he Court is not persuaded by debtor’s submission, and concludes that automatic dismissal is required here by the plain language of § 521(i). Assuming without deciding that courts may have authority to deviate from the statutory “automatic dismissal” in some circumstances, as some courts have concluded, no such circumstances are present here. The Court therefore directs the issuance of an order “automatically dismissing” the case pursuant to §521(i). As a result, the Court denies as moot the motions of debtor’s original counsel to withdraw and of debtor’s landlord (East 124th LLC) for a determination that the automatic stay is terminated or lifted.

 
In re: Fasciglione Bankr. SD NY

The bankruptcy court permissively abstains from an adversary proceeding in favor of state court litigation:

The Court finds that here, as in Fierro, the Adversary Proceeding “raises the specter of forum shopping.” Regarding the pursuit of a different outcome in a new forum, Parker Hart suggests that perhaps NY Tower was seeking to avoid Parker Hart’s participation in the determination of its declaratory judgment claim,, an argument that NY Tower does not refute or address in the Abstention Objection. NY Tower does, however, indicate in the Abstention Objection it was aware of Parker Hart’s request to intervene in the State Court Action. . Furthermore, while NY Tower states that “Movants’ veiled suggestion that NY Tower is somehow ‘forum shopping’ by commencing its adversary proceeding is false,” NY Tower does not explain why it did not name Parker Hart in this action. [Abstention Objection, Doc. 12, p. 4]. Instead, NY Tower sets forth a lengthy explanation as to how Parker Hart has no interest in Holdings 24 or the Williams Street Property, and NY Tower fails to establish why the Court should not abstain and why the Adversary Proceeding should go forward in this Court.

The Court thus finds that WorldCom factors (4) and (10) also weigh heavily in favor of permissive abstention.

 
In re: ClubX, LLC Bankr. ED VA

The court approves a settlement, rejecting an objector's argument that the objector's claims are also being released.

 
GDI Adventura Development, LLC v, Pier 1 Imports, Inc. ED VA

A couple of years ago a rejection claimant filed a proof of claim and then communicated with a representative of the debtor who told the claimant that at that time no dividend was expected for unsecured creditors. Subsequently, an omnibus claim objection reduced the claimant's claim to $0, with no objection from the claimant or the claims agent, who had filed a notice directing all court notices to the agent. Recently, the claimant was contacted by a clams trader. This triggered further communication by the claimant with the debtor, who notified the claimant that an 8%-9% interim unsecured distribution was imminent, but the claimant was ineligible because its clam had been reduced to $0. The bankruptcy court did not err when it denied the claimant's "excusable neglect" motion:

The Bankruptcy Court found that "GDI’s intentional choice to 'sit back and ignore the bankruptcy’. . . [did] not constitute neglect and, as such, cannot constitute cause for reconsideration of the Order.” This is not error. In so finding, the Bankruptcy Court noted that ''GDI was actively engaged with [Pier 11 and in frequent communications with [Pier 1] about the Lease and the Claim, until GDI learned that its Claim may not be paid.” “At that point, GDI ceased communications with [Pier I] for almost three years. 8.) The Bankruptcy Court observed that “[i|t was not until GDI learned through a third party that a distribution would be made to unsecured creditors that it recommenced such communication”. (ECF No. 2-24, at and that “the record shows that GDI [had] made a conscious business decision that its continued participation no longer made economic sense” Indeed, GDI itself concedes GDI’s “ceased affirmative efforts to contact the Debtor” constituted a “decision”.

 
In re: Valdellon 9th Cir. BAP

The bankruptcy court erred when it dismissed discharged Ch. 13 debtors' claim under 11 USC 524(i):

Chapter 13 debtors Melanio L. Valdellon and Ellen C. Valdellon (“Debtors”) completed their plan and received a discharge. Although the plan provided for payment of arrears and cure of their mortgage default, Debtors allege that mortgage servicer PHH Mortgage Corporation and note holder Wells Fargo Bank, N.A. (together “PHH”) continued to assert past due amounts and ultimately accelerated the note and initiated foreclosure proceedings based on prepetition arrears. Debtors filed an adversary complaint against PHH for willful failure to credit plan payments, intentional infliction of emotional distress, and other state law claims.

The bankruptcy court dismissed the complaint with prejudice, holding: (1) Debtors did not plausibly allege a violation of § 524(i) because they had an incurable material default under the plan and did not demonstrate that PHH failed to credit payments “under a plan;” and (2) emotional distress damages based on civil contempt are unavailable as a matter of law. The court concluded it lacked jurisdiction over Debtors’ remaining state law claims and alternatively abstained under 28 U.S.C. § 1334(c)(1).

We hold that the bankruptcy court erred by dismissing Debtors’ claim for relief under § 524(i). Debtors sufficiently alleged that PHH failed to credit plan payments by giving them the curative effect required by the confirmed plan. The court erred by holding that the plan must have remained in default because the discharge order conclusively bars a later finding of default.

We have previously held that bankruptcy courts can award compensatory damages for emotional distress caused by willful violations of the discharge injunction, Ocwen Loan Servicing, LLC v. Marino (In re Marino), 577 B.R. 772, 788-88 (9th Cir. BAP 2017), aff'd in part & appeal dismissed in part, 949 F.3d 483 (9th Cir. 2020), and we disagree with the bankruptcy court that Taggart v. Lorenzen, 587 U.S. 554 (2019) alters its authority to do so.

We REVERSE the bankruptcy court’s order dismissing Debtors’ second amended complaint as it pertains to their claim for violations of § 524(i),2 and we REMAND for further proceedings consistent with this disposition. We publish to clarify that a creditor may be liable for willful failure to credit plan payments when it disregards the cure effectuated by a completed plan, and to affirm our holding that bankruptcy courts may, in appropriate circumstances, award emotional distress damages for violations of the discharge injunction, either directly or through § 524(i).