Recent Bankruptcy Decisions from the Appellate Courts - February 2006




In re Miles
436 F.3d 291 (1st Cir. Feb. 7, 2006)
Holding:  District Court did not err in reimposing automatic stay that had been lifted by Bankruptcy Court.  Chapter 13 debtor had listed mortgage holder as unsecured in its confirmed plan.  Mortgage holder then obtained post-confirmation stay relief, but debtor later initiated adversary proceeding to determine validity of lien as it had promised to do in its plan.  The District Court’s decision to reimpose the stay was based on this change in the underlying circumstances occurring after the Bankruptcy Court granted stay relief.


In re The Bennett Funding Group, Inc.
--- F.3d ----, 2006 WL 436006 (2d Cir. Feb. 24, 2006)
Holding:  Appeal filed more than ten days after entry of the Bankruptcy Court order was untimely pursuant to Bankruptcy Rule 8002.  Bankruptcy Court order approving settlement pursuant to Bankruptcy Rule 9019 was “final order” subject to appeal, despite its nonconformity with the form originally proposed for the order and despite the condition contained in the order that the District Court approve and enter a final order of judgment.


French v. Liebmann (In re French)
--- F.3d ----, 2006 WL 328392 (4th Cir. Feb. 14, 2006)
Holding:  A bankruptcy court can avoid a fraudulent transfer of foreign real property between United States residents.  Although a presumption exists against extraterritoriality, when Congress adopted § 541, broadly defining property of the estate as all property “wherever located,” it expressly exercised its authority to enforce its laws beyond the territorial boundaries of the United States.  Additionally, principles of international comity do not require application of foreign law in this case despite the property’s location because it is desirable to deal with the entire bankruptcy estate as a whole, the vast majority of interested parties in this case are located in the United States, and most of the activity surrounding the transfer occurred in the United States.


Leidenheimer Baking Co., Ltd. v. Sharp (In re SGSM Acquisition Co., LLC)
--- F.3d ----, 2006 WL 267186 (1st Cir. Feb. 6, 2006)
Holding:  None of debtor’s pre-petition payments to suppliers qualified for ordinary course of business defense, but some such payments qualified for subsequent advance defense.  Suppliers did not qualify for ordinary course of business defense because they did not offer admissible proof that the payments were made according to ordinary business terms under § 547(c)(2)(C).  A series of payments and shipments had occurred, and, under subsequent advance defense pursuant to § 547(c)(4), suppliers were entitled to have excess new value cancel out prior payments still exposed as preferences.  Supplier was also entitled to credit against preference liability for refund that supplier gave debtor for worthless goods that debtor returned during preference period.

Herrington v. Grant (In re Paxton)
--- F.3d ----, 2006 WL 327374 (5th Cir. Feb. 13, 2006)
Holding:  Section 549, and not § 362, granted Bankruptcy Trustee power to set aside post-petition tax foreclosure sale conducted in violation of the automatic stay.

In re Mirant Corp.
--- F.3d ----, 2006 WL 330121 (5th Cir. Feb. 13, 2006)
Holding:  Agency of the federal government violated automatic stay when it terminated contract with debtor pursuant to ipso facto clause providing for default and a termination payment in the event of a bankruptcy filing.  A party must obtain relief from the stay in order to terminate a contract containing an ipso facto clause.  The federal agency, thus, violated the stay when it terminated the contract without seeking relief from the stay.  Additionally, the bankruptcy court did not abuse its discretion when it denied the agency’s subsequent request for stay relief.  Although the federal Anti-Assignment Act prohibited the assignment of the contract, the agency did not show cause for relief because it did not demonstrate that its contract with the debtor was actually going to be assigned.  Section 365(e)(2)(A) permits the termination of a contract containing an ipso facto clause only upon a showing of more than the hypothetical possibility that a contract will be assigned.  The non-debtor party to the contract must show that the contract will actually be assigned.  


In re Valdez Fisheries Development Association, Inc.
--- F.3d ----, 2006 WL 399603 (9th Cir. Feb. 22, 2006)
Holding:  Bankruptcy Court did not retain “related-to” jurisdiction to interpret settlement agreement between two creditors, where the underlying bankruptcy case had since been closed and dismissed, and where dispute at issue would not affect the bankruptcy estate.  District Court erred in ruling that Bankruptcy Court retained ancillary jurisdiction from having approved the settlement agreement pre-dismissal, where no order of the Bankruptcy Court stated that it would retain jurisdiction.

In re OneCast Media, Inc.
--- F.3d ----, 2006 WL 454361 (9th Cir. Feb. 23, 2006)
Holding:  Bankruptcy Court committed clear error in holding that it had no jurisdiction over bankruptcy trustee’s claim for proceeds of letter of credit debtor had given to its landlord as a security deposit.  Trustee’s interest in the letter of credit proceeds was property of the estate, giving the Bankruptcy Court jurisdiction.


In re Pony Express Delivery Services, Inc.
--- F.3d ----, 2006 WL 456361 (11th Cir. Feb. 27, 2006)
Holding:  Wire transfer which replaced funds insurance broker had advanced to debtor two weeks prior to wire did not constitute preferential transfer pursuant to § 547.  Pursuant to “control” test, broker was not initial transferee, because the funds were wired to a trust account over which the broker had no control, and the parties’ intention was that the wire pay for the debtor’s insurance policy.

In re New Power Co.
--- F.3d ----, 2006 WL 259611 (11th Cir. Feb. 3, 2006)
Holding:  Amendments to debtor’s liquidating Chapter 11 plan did not “materially and adversely” change the way objecting creditor was treated so as to require a new disclosure statement and vote, and provision of amended plan allowing interim distributions did not violate § 1123(a)(4) requirement equal treatment of each claim or interest of a particular class.  The court had appointed an examiner to determine whether certain claims should be recharacterized.  The objecting creditor claimed that it voted in favor of the initial plan because that plan limited the examiner’s investigatory authority to the pre-confirmation period.  The court found, however, that the examiner’s power had no temporal limitation and that the disclosure statement contained no mention of a time limitation, so the treatment of the objecting creditor’s claims and interests did not change in the amended plan.  Additionally, at the time the objecting creditor voted in favor of the initial plan, the objecting creditor had adequate information concerning the risk that its claims and interests could be recharacterized.  Provision of amended plan allowing interim distributions did not violate § 1123(a)(4) because the provision only established a procedure under which the court could approve interim distributions; it did not award such distributions.  Additionally, delayed receipt of distributions to members of a class whose claims remain disputed does not, in and of itself, violate § 1123(a)(4).


Hazelquist v. Guchi Moochie Tackle Co., Inc.
--- F.3d ----, 2006 WL 302283 (Fed. Cir. Feb. 9, 2006)
Holding:  Discharge injunction under § 524(a)(2) does not bar continuation of pre-petition civil action to the extent it seeks to recover for debtor’s post-discharge patent infringement.  Plaintiff initiated action pre-petition alleging defendant infringed on plaintiff’s patent.  Defendant filed Chapter 7 petition and obtained discharge.  District Court then dismissed the pre-petition action based on the discharge despite plaintiff’s objection that defendant’s patent infringement continued after discharge.  Court of Appeals reversed because each act of infringement gives rise to a separate cause of action.  Just as § 362 only stays actions that arose or could have been commenced pre-petition, § 524(a)(2) only operates as a continuing injunction of debts that arose before discharge.

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