Recent Bankruptcy Decisions from the Appellate Courts - June 2005

as published in the Norton Bankruptcy Law Advisor

FIRST CIRCUIT

Boston Reg'l Med. Ctr., Inc. v. Reynolds (In re Boston Reg'l Med. Ctr., Inc.)
410 F.3d 100 (1st Cir. June 14, 2005)
Holding:  In the context of a liquidating plan of reorganization, Bankruptcy Court's related-to jurisdiction does not diminish post-confirmation to the same degree it would in a viable, reorganized debtor case.

Hannigan v. White (In re Hannigan)
409 F.3d 480 (1st Cir. June 2, 2005)
Holding:  Debtor cannot amend schedules to take full advantage of homestead exemption when debtor intentionally undervalued his home.

SECOND CIRCUIT

Pereira v. Farace
--- F.3d ----, 2005 WL 1532318 (2d Cir. June 30, 2005)
Holding:  Standing in the shoes of the debtor corporation, Chapter 7 Trustee cannot maintain "due care" claim against debtor's directors, when exculpatory language in the corporate charter would preclude the debtor from bringing such claims. Trustee argued unsuccessfully that the claim was brought on behalf of creditors, not the corporation.

JP Morgan Chase Bank v. Altos Hornos de Mexico, S.A. de C.V.
--- F.3d ----, 2005 WL 1460567 (2d Cir. June 22, 2005)
Holding:  A bona fide  dispute regarding ownership of property that is the subject of a foreign bankruptcy case, may be heard in a U.S. court despite principles of comity, because ownership must be determined before distribution of the property can be addressed in the foreign court (the Koreag  comity exception). Because no bona fide  dispute existed regarding ownership of funds in a collection account, the District Court properly dismissed the creditor's U.S. litigation to determine ownership, in deference to the debtor's pending bankruptcy case in Mexico.

Dairy Mart Convenience Stores, Inc. v. Nickel (In re Dairy Mart Convenience Stores, Inc.)
--- F.3d ----, 2005 WL 1385287 (2d Cir. June 13, 2005)
Holding:  Eleventh Amendment immunity was not implicated by the tolling, pursuant to § 108, of the debtor's deadline for filing an application for reimbursement from the State of Kentucky for environmental cleanup costs. Ex parte Young  entitled Debtor to injunctive relief against state agents to compel them to accept the application as timely filed, because the injunction did not directly cause disbursement of state funds.

THIRD CIRCUIT

Joubert v. ABN AMRO Mortgage Group, Inc. (In re Joubert)
--- F.3d ----, 2005 WL 1404699 (3d Cir. June 16, 2005)
Holding:  Neither § 105(a) nor § 506(b) entitled debtor to private right of action for secured creditor's allegedly improper assertion of post-petition attorneys' fees.

FOURTH CIRCUIT

Hall v. Chrysler Credit Corp. (In re JKJ Chevrolet, Inc.)
--- F.3d ----, 2005 WL 1459732 (4th Cir. June 22, 2005)
Holding:  Creditor lost new value defense to preference claim when debtor made subsequent payments on account of the new value, even though trustee did not seek to avoid subsequent payments. Although the statute of limitations had run on avoidance of the subsequent payments, the trustee nonetheless could have avoided the payments, so they are "otherwise unavoidable" under § 547(c)(4)(B). The Court also held that § 547(b)(5) refers to state law to determine whether a creditor was paid out of the creditor's collateral and, thus, contains no "tracing" requirement unless one exists in state law.

FIFTH CIRCUIT

Jethroe v. Omnova Solutions, Inc.
--- F.3d ----, 2005 WL 1385197 (5th Cir. June 13, 2005)
Holding:   Debtor was judicially estopped to pursue Title VII claim against former employer because she failed to mention the claim in her previous Chapter 13 case. The judicial estoppel requirement that the omission not be inadvertent was satisfied, because she knew of the claim. Debtor's assertion that the omission was an innocent error was irrelevant.

Cadle Co. v. Pratt (In re Pratt)
--- F.3d ----, 2005 WL 1313802 (5th Cir. June 3, 2005)
Holding:  Bankruptcy Court did not err in overruling creditor's objections to discharge when it found insufficient evidence that the debtor's failure to disclose assets was the result of fraudulent intent.

SIXTH CIRCUIT

Ruehle v. Educational Credit Mgmt. Corp. (In re Ruehle)
--- F.3d ----, 2005 WL 1473934 (6th Cir. June 23, 2005)
Holding:  Chapter 13 debtor's discharge of student loans was obtained in violation of the creditor's substantial due process rights and was illegal and void. Student loan creditor was entitled to relief under Rule 60(b)(4). Debtor did not initiate an adversary proceeding to determine undue hardship, as required by Rule 7001(6). Instead, debtor filed a "discharge by declaration" reciting the undue hardship language found in § 523(a)(8). The student loan creditor did not object to the discharge, but there was no evidence that the creditor received notice of the plan or had an opportunity to be heard before confirmation.

Tirch v. Pennsylvania Higher Educ. Assistance Agency (In re Tirch)
409 F.3d 677 (6th Cir. June 3, 2005)
Holding:  Debtor did not establish an undue hardship that would allow discharge of student loans. The debtor did not prove that her current lack of income would continue long-term; her evidence of physical and psychological problems was unaccompanied by any evidence that these problems prevented her from working or that these problems would persist. Debtor had not made a good faith effort to repay the loans; she had not applied for an Income Contingent Repayment Plan and, in almost twenty years, she had repaid only 5% of the amount owed while earning more than $27,000 in some years.

SEVENTH CIRCUIT

In re UAL Corp.
--- F.3d ----, 2005 WL 1389432 (7th Cir. June 14, 2005)
Holding:  United's unilateral mistake in miscalculating amounts owed on aircraft leases, leading to a misinformed decision to retain the leases, constituted "excusable neglect" justifying relief pursuant to Federal Rule of Civil Procedure 60(b).

In re UAL Corp.
--- F.3d ----, 2005 WL 1433877 (7th Cir. June 21, 2005)
Holding:  Bankruptcy Court's injunction against sale of debtor's stock by Employee Stock Ownership Plan should have provided stockholders adequate protection of their interests or required debtor to post a bond against loss in stock value. No party requested this security, and none was provided. When the Internal Revenue Service changed the rules governing ESOPs and the debtor terminated the ESOP, the ESOP trustee distributed the ESOP's shares to the stockholders, who then became entitled to sell the shares. On appeal, the trustee of the terminated ESOP sought damages on behalf of the stockholders for the loss in stock value between the date of the injunction and the date of the distribution of the shares. The Court held that the appeal was moot based on the dissolution of the ESOP and held that the trustee could not recover damages in the absence of an injunction bond.

NINTH CIRCUIT

Scott v. United States Tr. (In re Doser)
--- F.3d ----, 2005 WL 1413520 (9th Cir. June 17, 2005)
Holding:  Document preparer franchisee engaged in deceptive practice in violation of § 110 by advertising the availability of an attorney who was not authorized to render legal advice and by offering printed booklets explaining bankruptcy law erroneously. The Court did not reach the question of whether the franchisee engaged in the unauthorized practice of law. Court rejected multiple Constitutional challenges to § 110.

Cossu v. Jefferson Pilot Securities Corp. (In re Cossu)
410 F.3d 591 (9th Cir. June 3, 2005)
Holding:  Debtor's undisclosed moonlighting resulted in indemnification obligation to former employer that was nondischargeable under § 523(a)(2)(A).

Muegler v. Bening
--- F.3d ----, 2005 WL 1490461 (9th Cir. June 24, 2005)
Holding:  Pre-bankruptcy determination in federal district court that debtor committed intentional fraud under Missouri law collaterally estops debtor from re-litigating fraud in § 523(a)(2) proceeding.

TENTH CIRCUIT

Jaurdon v. Cricket Communications, Inc.
--- F.3d ----, 2005 WL 1427637 (10th Cir. June 20, 2005)
Holding:  Plaintiff's race discrimination and retaliation claim against Chapter 11 debtor was discharged upon confirmation of plan.

Alderete v. Educational Credit Mgmt. Corp. (In re Alderete)
--- F.3d ----, 2005 WL 1525260 (10th Cir. June 29, 2005)
Holding:  Debtors did not establish undue hardship that would allow discharge of student loans, and Bankruptcy Court does not have equitable power to partially discharge student loans in the absence of undue hardship.