Recent Bankruptcy Decisions from the Appellate Courts - March 2006



Reprinted from the Norton Bankruptcy Law Adviser, with permission of Thomson/West. For more information about this publication please visit


Gregory v. Finova Capital Corp.
--- F.3d ----, 2006 WL 619063 (4th Cir. Mar. 14, 2006)
Holding:  District Court abused its discretion in finding a class action superior under Fed. R. Civ. P. 23(b)(3) to a bankruptcy adversary proceeding for determining the same or substantially similar causes of action.


In the Matter Of AMCO Insurance
--- F.3d ----, 2006 WL 832678 (5th Cir. March 31, 2006)
Holding:  Bankruptcy Court erred in ordering substantive consolidation of debtor and non-debtor nunc pro tunc, where Bankruptcy Court had previously authorized creditor to pursue litigation with non-debtor in state court and consolidation would void the litigation.  Considering that result of settlement was not unexpected, that no new facts warranted a change in the status quo, and that nunc pro tunc  consolidation would significantly prejudice the settling creditor, Bankruptcy Court either had no jurisdiction under § 105(a) to apply consolidation nunc pro tunc, or it abused its discretion.


In re John Richards Homes Bldg. Co., LLC
--- F.3d ----, 2006 WL 469982 (6th Cir. Mar. 1, 2006)
Holding:  Bankruptcy court did not err in awarding costs, attorneys’ fees, compensatory damages and punitive damages totaling $6.4 million pursuant to § 303(i) based on bad faith filing of involuntary petition.  The evidence of bad faith included that the petitioning creditor knew or should have known that his claim was disputed, intended to cause the debtor harm and did not know how the amount of the debt allegedly owed him was calculated.

Educational Credit Mgmt. Corp. v. Barrett (In re Barrett)
--- F.3d ----, 2006 WL 488448 (6th Cir. Mar. 2, 2006)
Holding:  A debtor seeking discharge of student loan debt may establish, without expert medical proof, the likely persistence for a significant portion of the repayment period of his inability to maintain a minimal standard of living if required to repay the loan.  Furthermore, the debtor’s failure to participate in an income-contingent repayment plan does not preclude a finding of good faith, where there is no reasonable likelihood that the debtor would ever be able to repay the student loan.

Americredit Fin. Svcs., Inc. v. Nichols (In re Nichols)
--- F.3d ----, 2006 WL 644894 (6th Cir. Mar. 16, 2006)
Holding:  Bankruptcy Court did not err in modifying Chapter 13 plan under § 1329 based on debtors’ financial hardship.  Modification of plan did not violate § 1325(a)(5)(B)(1) because secured lender was allowed to retain its lien.  Although lender will likely become undersecured during the one-year period in which it will not receive payments under the modified plan, the lender’s lien is not “totally destroyed” because the lender has received a significant portion of what it bargained for, plus interest.


In re UAL Corp.
--- F.3d ----, 2006 WL 827307 (7th Cir. March 31, 2006)
Holding:  Retired airline pilots were not entitled to relief from bankruptcy court's approval of active pilots' modification of their collective bargaining agreement.  Because the agreement, which left the retired pilots with no benefits, was approved as a post-petition contract outside the ordinary course of business pursuant to section 363(b)(11) and not as a rejection of the former agreement pursuant to 1113, the retired pilots had a right to be heard by the bankruptcy court.  In light of post-modification developments, however, vacating the agreement would be impermissibly disruptive.

Biesek v. Soo Lin R.R. Co.
--- F.3d ----, 2006 WL 521903 (7th Cir. Mar. 6, 2006)
Holding:  District Court properly granted summary judgment to debtor’s employer in separate action under Federal Employers’ Liability Act, 45 U.S.C. §§ 51-60.  Debtor had intentionally omitted the claim against the employer from his statements and schedules.  District Court found that the separate action was barred by judicial estoppel.  Circuit Court found judicial estoppel inapplicable because the chose in action belonged to the Trustee, not the debtor, as a pre-petition claim.  The Circuit Court nonetheless affirmed summary judgment because the Trustee had not abandoned the chose in action and thus the debtor could not pursue the action.


International Paper Co. v. MCI WorldCom Network Services, Inc.
--- F.3d ----, 2006 WL 522194 (5th Cir. Mar. 6, 2006)
Holding:  The Eighth Circuit dismissed the appeal of a pre-petition District Court summary judgment ruling in favor of debtor/defendant, where debtor/defendant’s alleged trespass for its use of underground cables was not a continuing trespass under state law and thus arose pre-confirmation.  Such pre-confirmation claims were discharged in the order confirming the plan of reorganization pursuant to § 1141(d)(1)(A).


In re Sherman
--- F.3d ----, 2006 WL 722178 (9th Cir. March 23, 2006)
Holding:  SEC had creditor status despite Receiver's simultaneous claim against debtor for the same violation of securities laws.  Receiver's settlement of nondischargeability action against debtor did not preclude SEC's continued prosecution of its claim for funds not recovered by Receiver.