Recent Bankruptcy Decisions from the Appellate Courts - March 2005



as published in the Norton Bankruptcy Law Advisor


In re R&R Assocs.

--- F.3d ----, 2005 WL 729659, 1st Cir.(N.H.), Mar. 31, 2005
Holding: Chapter 7 Trustee allowed to recover against pre-conversion Chapter 11 counsel for debtor on theory of legal malpractice based on conflict of interest when counsel represented both debtor, a general partnership, and the general partners of the debtor.  During representation, counsel took efforts to shield partners' assets from creditors while knowing that debtor was one of the largest such creditors.  Counsel held liable for entire amount shielded from collection.

In re Mercurio

--- F.3d ----, 2005 WL 665321, 1st Cir.(R.I.), Mar 23, 2005
Holding:  Bankruptcy trustee in Rhode Island sought arbitration in Rhode Island despite Tennessee forum selection clause in debtor's pre-petition contract.  First Circuit reversed Bankruptcy Court decision ordering arbitration in Rhode Island; District Court's opinion that the trustee would be "deprived of his day in court" was not supported by proof of unusual circumstances to contravene the forum selection clause.

In re Watson

--- F.3d ----, 2005 WL 678953, 1st Cir., Mar 25, 2005
Holding:  No clear error by Bankruptcy Court in denying confirmation of Chapter 13 plan on grounds that debtors' children's private parochial school tuition was not "reasonably necessary" expense pursuant to § 1325(b), where no educational necessities or special circumstances prohibited children from receiving education at public school.


In re Genesis Health Ventures, Inc.

--- F.3d ----, 2005 WL 729031, 3rd Cir.(N.J.), Mar 21, 2005
Holding:  Separate quarterly fee to U.S. Trustee required of approximately 350 debtors in jointly administered Chapter 11 cases.  Plain language of 28 U.S.C. 1930(a)(6) requires separate fees in "each case," despite cash management procedures in which subset of debtors paid expenses for all debtors.  Debtor's plan of reorganization streamlined plan voting and distribution but did not substantively consolidate the cases, leaving unchanged the obligation to pay the U.S. Trustee fee in each case.

In re Ferandos

---- F.3d ----, 2005 WL 627747, 3rd Cir.(N.J.), Mar 18, 2005
Holding:  Section 1322(b)(2) anti-modification provision applied to mortgage that was also secured by rents and escrow funds, despite requirement that claim be secured only by a security interest in real property.  New Jersey law treats as real estate both rents and escrow funds; and escrow funds were outside estate; mortgagee thus did not have secured interest in property other than real property.


In re Howard Delivery Service, Inc.

--- F.3d ----, 2005 WL 674869, 4th Cir.(W.Va. ), Mar 24, 2005
Holding:  Statutory workers compensation system constituted plan benefiting employees; therefore, under plain and unambiguous meaning of § 507(a)(4), claim for unpaid premiums was entitled to priority given to claims for contributions to employee benefit plans.

In re Urban Broadcast Corp.

--- F.3d ----, 2005 WL 563890, 4th Cir.(Va.), Mar. 11, 2005
Holding:  For someone to be a "person aggrieved" by a bankruptcy order, so as to have standing for appeal, the order must have a direct, adverse pecuniary effect on the person.  When a person will receive the same distribution regardless the outcome of the bankruptcy order, the person does not have standing to appeal the order.


Armstrong v. Capshaw, Goss & Bowers, LLP

--- F.3d ----, 2005 WL 697991, 5th Cir.(Tex. ), Mar 28, 2005
Holding:  Debtor did not have property interest sufficient to intervene in litigation he initiated pre-petition, under Fed. R. Civ. Proc. 24(a)(2).  Cause of action belonged to estate, not to debtor.

In re Craig’s Stores

--- F.3d ----, 2005 WL 503717, 5th Cir.(Tex. ), Mar 4, 2005
Holding:  When funds are deposited with the Court and it is ultimately found that the Court does not have jurisdiction, the funds must be returned to the entity that deposited the funds.  Funds were originally deposited by debtor as part of an adversary proceeding with bank.  After the Fifth Circuit held that the Bankruptcy Court did not have jurisdiction, the District Court ordered the funds released to bank.  Bank argued that it should get the funds because the debtor's deposit was part of a settlement.  Fifth Circuit reversed finding that the Agreed Order under which the funds were deposited contained no language suggesting that the deposit was a settlement and, until bank proved in court of competent jurisdiction its entitlement to funds, the funds should be returned to debtor.


In re Brinley

--- F.3d ----, 2005 WL 645302, 2005 Fed.App. 0141P, 6th Cir.(Ky. ), Mar 22, 2005
Holding:  Senior lien was reduced pursuant to § 522(f)(2) to the extent it impaired the debtor's homestead exemption.  Junior lien was not affected, because statute requires only reduction of lien that impairs exemption.

Seventh circuit

Fowler v. Shadel

--- F.3d ----, 2005 WL 589982, 7th Cir.(Wis. ), Mar. 15, 2005
Holding:  Debtor could not claim exemption for vehicles owned by corporation of which debtor was sole shareholder.  No exemption was claimed for debtor's stock, which passed to bankruptcy estate on the petition date.  Any equitable interest, derived from the stock, in the vehicles now belonged to the estate, not the debtor.


Grassmueck v. American Shorthorn Ass'n

--- F.3d ----, 2005 WL 724836, 8th Cir.(Neb. ), Mar. 31, 2005
Holding:  Trustee's ability to assert causes of action on behalf of the bankruptcy estate was subject to the state-law in pari delicto defense that could have been raised against the debtor.

In re Drenttel

--- F.3d ----, 2005 WL 724835, 8th Cir.(Min.), Mar. 31, 2005
Holding:  In bankruptcy case pending in Minnesota, Minnesota homestead exemption extended to debtor's home in Arizona.


In re Sicroff

--- F.3d ----, 2005 WL 665251, 5 Cal. Daily Op. Serv. 2462, 2005 Daily Journal D.A.R. 3413, 9th Cir.(Cal.), Mar 23, 2005
Holding:  Libel was malicious and therefore nondischargeable pursuant to § 523(a)(6), where student wrote letters to the editor of university newspaper making personal accusations against professor which went beyond otherwise legitimate protest.


In re Hodes

--- F.3d ----, 2005 WL 681784, 10th Cir.(Kan. ), Mar 25, 2005
Holding:  Kansas homestead exemption extended to a pre-petition deposit for an addition to debtors' home, including amounts not yet spent by builder.


In re Banco Latino Int’l

--- F.3d ----, 2005 WL 729586, 11th Cir.(Fla. ), Mar. 31, 2005
Holding:  Eleventh Circuit reverses allowance of indemnification claim against debtor filed five years after bar date, where debtor did not argue excusable neglect.