Recent Bankruptcy Decisions from the Appellate Courts - September 2005

as published in the Norton Bankruptcy Law Advisor

SECOND CIRCUIT

In re Smart World Technologies, LLC
--- F.3d ----, 2005 WL 2197676 (2nd Cir.(N.Y.))
Holding:  The Second Circuit vacated approval of an adversary proceeding settlement that had been obtained by a creditor over the objection of the debtor-in-possession plaintiff.  A creditor’s § 1109(b) right to be heard does not override the debtor-in-possession’s sole power to settle the estate’s claims pursuant to § 323(a) and Rule 9019, and there was insufficient evidence to support the creditor’s claim of derivative standing.

SIXTH CIRCUIT

In re Cain
--- F.3d ----, 2005 WL 2240969 (6th Cir. Sept. 16, 2005)
Holding:   Pre-petition foreclosure on debtors’ principal residence precluded any right to cure in bankruptcy pursuant to § 1322(c)(1), because such right exists until a “foreclosure sale,” which unambiguously refers to a discreet event such as an auction, and does not extend through the period of a debtor’s post-foreclosure right of redemption under state law.  Lender’s objection to the debtors’ plan, which proposed to cure default and make payments beyond the redemption period, was properly sustained.

In re National Century Financial Enterprises, Inc.
--- F.3d ----, 2005 WL 2206780 (6th Cir. Sept. 13, 2005)
Holding: Creditor’s state court litigation against third party financial institution which held debtor’s funds was subject to the automatic stay pursuant to § 362(a)(3), even though the creditor claimed ownership of the funds via a constructive trust.

NINTH CIRCUIT

In re Ybarra
--- F.3d ----, 2005 WL 2218905 (9th Cir. Sept. 14, 2005)
Holding:   After the Chapter 7 Debtor successfully reversed a purchase and dismissal of her prepetition contractual claim, the Debtor’s postpetition prosecution of the claim was a new act that entitled the successful defendant to a postpetition attorney fee claim.

In re Cooper Commons, LLC
--- F.3d ----, 2005 WL 2209929 (9th Cir. Sept. 13, 2005)
Holding:  Appeal of approval of post-petition loan that would pay the ongoing fees of the trustee but not pay the previously incurred fees of debtor-in-possession counsel was moot pursuant to § 364(e) because the validity of the loan would be threatened by any of the three alternative forms of relief requested: (i) invalidate the loan, (ii) order the loan proceeds to be distributed in part to debtor-in-possession counsel, or (iii) order an increase in the amount of the loan.

TENTH CIRCUIT

In re Faragalla
--- F.3d ----, 2005 WL 2203239 (10th Cir. Sept. 12, 2005)
Holding:  Dismissal of appeal as untimely was improper, when notice of appeal was filed within 10 days of docket entry of underlying order, despite the fact that the Bankruptcy Judge had signed the order 13 days prior to the notice of appeal.  Pursuant to Bankruptcy Rule 5003(a), the relevant date for calculating the time for appeal is the date the bankruptcy court clerk dockets the order, not the date it is signed by the bankruptcy court judge.

ELEVENTH CIRCUIT

Justice Cometh Ltd. v. Lambert
--- F.3d ----, 2005 WL 2403079 (11th Cir. Sept. 30, 2005)
Holding:  Debtor’s complaint in U.S. District Court alleging willful violation of the automatic stay pursuant to § 362(h) was improperly dismissed by the District Court for lack of subject matter jurisdiction.  Although district courts may refer bankruptcy cases to their respective bankruptcy courts, district courts are explicitly given original subject matter jurisdiction over bankruptcy cases pursuant to 28 U.S.C. § 1334.

Finova Capital Corp. v. Larson Pharmacy Inc. (In re Optical Techs., Inc.)
--- F.3d ----, 2005 WL 2276420 (11th Cir. Sept. 20, 2005)
Holding:  Confirmation order and plan bound non-debtor lessors and lessees to new contractual terms even though the leases had expired pre-petition.  The lessees were scheduled as creditors and provided with summaries of the plan, which gave new life to leases that had expired pre-petition.  The lessees failed to object to confirmation but objected when the lessor attempted to enforce the leases post-confirmation.  The Court held that the confirmation order and plan were res judicata  and barred relitigation of the enforceability of the leases and the issue of whether the Bankruptcy Court had subject-matter jurisdiction.