Recent Bankruptcy Decisions from the Appellate Courts - March 2005
as published in the Norton Bankruptcy Law Advisor
FIRST CIRCUIT
In re R&R Assocs.
--- F.3d ----, 2005 WL 729659, 1st Cir.(N.H.), Mar. 31, 2005Holding: 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, 2005Holding: Bankruptcy trustee in
In re Watson
--- F.3d ----, 2005 WL 678953, 1st Cir., Mar 25, 2005Holding: 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.
THIRD CIRCUIT
In re Genesis Health Ventures, Inc.
--- F.3d ----, 2005 WL 729031, 3rd Cir.(N.J.), Mar 21, 2005Holding: 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, 2005Holding: 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.
FOURTH CIRCUIT
In re Howard Delivery Service, Inc.
--- F.3d ----, 2005 WL 674869, 4th Cir.(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, 2005Holding: 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.
FIFTH CIRCUIT
Armstrong v. Capshaw, Goss & Bowers, LLP
--- F.3d ----, 2005 WL 697991, 5th Cir.(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.(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.
SIXTH CIRCUIT
In re Brinley
--- F.3d ----, 2005 WL 645302, 2005 Fed.App. 0141P, 6th Cir.(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.(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.
EIGHTH CIRCUIT
Grassmueck v. American Shorthorn Ass'n
--- F.3d ----, 2005 WL 724836, 8th Cir.(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, 2005Holding: In bankruptcy case pending in Minnesota,
NINTH CIRCUIT
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, 2005Holding: 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.
TENTH CIRCUIT
In re Hodes
--- F.3d ----, 2005 WL 681784, 10th Cir.(Holding:
ELEVENTH CIRCUIT
In re Banco Latino Int’l
--- F.3d ----, 2005 WL 729586, 11th Cir.(Holding: Eleventh Circuit reverses allowance of indemnification claim against debtor filed five years after bar date, where debtor did not argue excusable neglect.
