Recent Bankruptcy Decisions from the Appellate Courts - May 2005

as published in the Norton Bankruptcy Law Advisor

THIRD CIRCUIT

In re General DataComm Industries, Inc.

--- F.3d ----, 2005 WL 1134858 (3rd Cir. May 16, 2005)

Holding:  Employees terminated without cause at retirement age constitued "retired employees" entitled to protections of § 1114, when employer moved to reject the employees' benefit agreement and the termination was strategically designed to bypass the provisions of § 1114.

Knapper v. Bankers Trust Co. (In re Knapper)

--- F.3d ----, 2005 WL 1220467 (3rd Cir. May 24, 2005)

Holding:  Bankruptcy Court did not have subject matter jurisdiction in debtor's adversary proceeding to have pre-petition state court foreclosure sales vacated.  Debtor could only prevail in the adversary proceeding if the federal court concluded that state court default judgments were improper based on failure of service of process.   This made the federal claim "inextricably intertwined" with state court adjudications and, thus, subject to Rooker-Feldman doctrine.

FOURTH CIRCUIT

In Re: Computer Learning Centers, Inc.

--- F.3d ---, 2005 WL 1124700 (4th Cir. May 13, 2005)

Holding:  Bankruptcy Court interim awards of fees to trustee and trustee's law firm were not "final orders" subject to appeal pursuant to 28 U.S.C. § 158(a), and district court order affirming interim awards was not final pursuant to § 28 U.S.C. § 158(d), when fee awards were provisional and subject to adjustment and/or disgorgement and provided that payment required further court order.

In re Midway Airlines Corp.

406 F.3d 229 (4th Cir. May 2, 2005)

Holding:  Section 365(d)(10) eliminates the § 503(b)(1) requirement of actual use for administrative expense claims based on leases of personal property for the period beginning sixty days after petition.  Debtor rejected pre-petition lease of telephone equipment approximately 15 months after petition.  Lessor sought administrative expense claim for the entire 15 month period.  For the period beginning 61 days after petition and ending at the time of rejection,  bankruptcy court limited recovery based on the equipment being of little use to the debtor and lessor's failure to timely seek adequate protection.  Although the bankruptcy court may modify the trustee's prospective obligations, the court may not alter the claim that results if the trustee does not fulfill his obligations.  Accordingly, lessor was entitled to administrative expense claim for the entire 13 month period beginning 61 days after petition.

FIFTH CIRCUIT

Whitaker Constr. Co. v. Benton & Brown, Inc. (In re Whitaker Constr. Co.)

--- F.3d ----, 2005 WL 1253869 (5th Cir. May 27, 2005)

Holding:  Subcontractor's failure to comply with state law precludes allowance of claim in a bankruptcy case.  Subcontractors sought payment from debtor-contractor for work performed on a public project.  Since the subcontractors did not comply with state public works act requirement that they timely file claims in land records, their claims were not enforceable against debtor.

SEVENTH CIRCUIT

United Airlines, Inc. v. U.S. Bank N.A.

--- F.3d ----, 2005 WL 1265851 (7th Cir. May 27, 2005)

Holding:  The Seventh Circuit granted request in the nature of mandamus to enforce the prior opinion of the Seventh Circuit holding that aircraft lessors were entitled to immediate possession of their aircraft.  Seventh Circuit directed the district judge and bankruptcy judge to immediately vacate an injunction against lessors, nothwithstanding debtor's Sherman Act allegations.

In re UAL Corp.

--- F.3d ----, 2005 WL 1243335 (7th Cir. May 24, 2005)

Holding:  Fiduciary of employee pension plans is not "interested party" under § 1113(d)(1) and, thus, cannot object to debtor's rejection of collective bargaining agreements that would terminate pension plans.  Since labor and management are free to change their agreements without the consent of third-parties like the pension fiduciary, no reason exists to include these third-parties in the § 1113 proceeding.

United Airlines, Inc. v. U.S. Bank N.A.

406 F.3d 918 (7th Cir. May 06, 2005)

Holding:  Lessors' right under § 1110 to repossess aircraft from debtor or receive the full lease payment amount is absolute and cannot be impaired by allegations of antitrust violations by debtor against lessors.

TENTH CIRCUIT

Tillman ex rel. Estate of Tillman v. Camelot Music, Inc.

--- F.3d ----, 2005 WL 1112086 (10th Cir. May 11, 2005)

Holding:  Claim of estate of former employee of bankrupt employer, for life insurance proceeds paid to the employer despite its lack of an insurable interest, was not barred by claim bar date.  The employer/debtor's publication notice of the bar date to all unknown creditors was insufficient notice to the employee when the employer had actively concealed the existence of the life insurance policy from the employee.

In re Luna

406 F.3d 1192 (10th Cir. May 3, 2005)

Holding:  Amounts debtors promised to contribute to an ERISA-qualified employee benefit plan are dischargeable debts.  Although the promised contributions were plan assets, the debtors were not fiduciaries under ERISA.  Without a fiduciary relationship, there can be no finding of nondischargeability under § 523(a)(4).

Bartmann v. Malloy (In re Bartmann)

--- F.3d ----, 2005 WL 1244812 (10th Cir. May 25, 2005)

Holding:  Bankruptcy Court did not abuse discretion when it denied motion for extension of time to file appeal.  Debtor blamed its late filing on excusable neglect – counsel's ignorance of the time computation provisions of Bankruptcy Rule 9006(a) – but ignorance of the rules is not excusable neglect.

ELEVENTH CIRCUIT

In re International Admin. Serv., Inc.

--- F.3d ----, 2005 WL 1017990 (11th Cir. May 3, 2005)

Holding:  In a fraudulent transfer adversary proceeding,  trustee is not required to sue initial transferee to recover from a subsequent transferee.  This case involved more than 100 transfers among 23 different entities.  The subsequent transferee relied upon § 550(a), stating that the trustee may recover property transferred "to the extent that a transfer is avoided," to argue that the transfer is not avoided (and, thus, not recoverable) unless an action is brought against the initial transferee.   To avoid the harsh result of forcing a trustee to sue each transferee in a case involving a multitude of patently fraudulent transfers, the court found ambiguity in the phrase "to the extent that a transfer is avoided."  The court also held that the trustee is not required to trace every dollar of the fraudulently transferred funds.