Recent Bankruptcy Decisions from the Appellate Courts - November 2005



as published in the Norton Bankruptcy Law Advisor


Lomagno v. Saloman Bros. Realty Corp.
--- F.3d ----, 2005 WL 3036319 (1st Cir. Nov. 14, 2005)
Holding:  Foreclosure sale that occurred after dismissal of a Chapter 13 petition but before reversal of the dismissal was valid.  The debtors initially sought to stay the dismissal pending appeal.  When the stay was denied, the debtors did not appeal the denial.  Although the dismissal was reversed as violating due process, the foreclosure sale remained valid.  The First Circuit has not adopted a due process exception to stay termination upon dismissal, as the Ninth Circuit did in Great Pac. Money Mkts., Inc. v. Krueger (In re Krueger), 88 B.R. 238, and here the debtors did not diligently pursue a stay pending appeal.


Lynch v. United States (In re Lynch)
--- F.3d ----, 2005 WL 3150609 (2d Cir. Nov. 28, 2005)
Holding:  Bankruptcy Court did not err in dismissing debtor’s appeal of order finding tax debt non-dischargeable.  The debtor had failed to timely file a designation of the items to include in the record on appeal, as required by Rule 8006, and did not put on proof of excusable neglect.  The fact that the Bankruptcy Court had transmitted the record to the District Court, where the District Court had entered a scheduling order and the defendant had participated in assembling the record before the District Court, did not change the result because an appeal cannot proceed with a Rule 8006 designation.


In re Stonebridge Technologies, Inc.
--- F.3d ----, 2005 WL 2982311 (5th Cir. Nov. 8, 2005)
Holding:  Landlord’s recovery of lease damages from debtor’s bank pursuant to a letter of credit was not subject to the § 502(b)(6) cap, because the letter of credit was not property of the estate pursuant to Fifth Circuit law, and the landlord did not file a claim against the bankruptcy estate.


In re UAL Corp.
--- F.3d ----, 2005 WL 2848938 (7th Cir. Nov. 1, 2005)
Holding:  Debtor’s settlement of complex liability and collection disputes with the Pension Benefit Guaranty Corporation (“PBGC”) did not require the union’s participation pursuant to § 1113(c), even though the settlement called for PBGC to evaluate terminating the flight attendant union’s pension plan.  The PBGC’s authority to both settle its claims and terminate plans is independent of § 1113.


Thomas v. Money Mart Financial Services, Inc.
--- F.3d ----, 2005 WL 2897643 (8th Cir. Nov. 4, 2005)
Holding:  Payday loan company’s post-petition, pre-discharge presentment of debtor’s pre-petition checks were excepted from the automatic stay pursuant to § 362(b)(11), where Missouri law precluded presentment only after discharge.

A&L Laboratories, Inc. v. Bou-Matic, LLC
--- F.3d ----, 2005 WL 3071211 (8th Cir. Nov. 17, 2005)
Holding:  Debtor’s rejection of executory contract was breach of a contractual provision added post-petition even though § 365(g) provides that the breach is deemed to have occurred immediately pre-petition.  In a bankruptcy case, the debtor’s trademark licensing agreement had been amended to provide the licensee with greater rights in the event the debtor-licensor committed a new breach “after the effective date of the amendment.”  The debtor later rejected the contract.  In this later litigation, the successor to the debtor’s trademarks argued that the debtor’s rejection of the contract did not give the licensee the greater rights specified in the contract because the rejection was deemed a pre-petition breach, not a breach after the effective date of the amendment.  The Eighth Circuit disagreed, stating that the purpose of Section 365(g) was not to determine the rights of parties regarding their contracts but to ensure that non-debtors would have claims against the debtor for rejection of executory contracts.

Ellsworth v. Bauder (In re Bauder)
--- F.3d ----, 2005 WL 3028243 (8th Cir. Nov. 14, 2005)
Holding:  Bankruptcy Court erred in denying discharge to Chapter 7 debtor.  The basis for denial was that the debtor had omitted from her statements and schedules a $300 ring in the possession of her daughter.  The Circuit Court found that the debtor had given consistent explanations for the failure to list the ring and had amended her statements and schedules to include the ring before the plaintiff filed the adversary proceeding objecting to discharge.  The Circuit Court also questioned the materiality of the omission since the ring was of little value.  On these facts, the Circuit Court concluded that the Bankruptcy Court committed clear error in denying discharge.


In re Rains
--- F.3d ----, 2005 WL (9th Cir. Nov. 8, 2005)
Holding:  The Bankruptcy Court retained jurisdiction to enforce a settlement agreement while the order approving the settlement agreement was on appeal, because enforcement of the settlement did not change the terms of the order, and the appellant did not obtain a stay.  Regarding the Court of Appeals’ review of the approval order, even if it was interlocutory and therefore not within the jurisdiction of the Court of Appeals pursuant to 28 U.S.C. § 158(d), once the Bankruptcy Court entered a final order of judgment enforcing the settlement, the Court of Appeals could review the order of approval as a final order.  Because the settlement agreement contained a provision that denied the debtor’s exemption claim to retirement plan funds, the debtor was precluded from arguing that the funds were not property of the estate, since only estate property can be exempted.  Trustee’s ex parte request that the Bankruptcy Court enter a judgment enforcing the settlement agreement was permissible pursuant to Fed. Bankr. Rule 9003(b) as a communication that did not affect a pending proceeding, because the order approving the settlement had already been adjudicated.

Moldo v. Ash (In re Thomas)
--- F.3d ----, 2005 WL 3078585 (9th Cir. Nov. 18,2005)
Holding:  Bankruptcy Appellate Panel (“BAP”) erred in not considering Bankruptcy Court’s post-judgment factual findings.  After trial in an adversary proceeding to avoid a fraudulent transfer, the defendant filed a motion to alter or amend and a notice of appeal.  In response to the motion to alter or amend, the Bankruptcy Court made additional factual findings.   The BAP construed Fed. R. Bankr. P. 8002 to prohibit consideration of the additional factual findings since they were made after the notice of appeal was filed.  The Ninth Circuit held that the notice of appeal was ineffective until the motion to alter or amend was adjudicated, so the BAP had jurisdiction to consider the additional factual findings.