Recent Bankruptcy Decisions from the Appellate Courts - November/December 2007

Reprinted from the Norton Bankruptcy Law Adviser , with permission of Thomson/West. For more information about this publication please visit http://www.west.thomson.com/.

FIRST CIRCUIT

Bourne v. Northwood Properties, LLC (In re Northwood Properties, LLC)
--- F.3d ----, 2007 WL 4209261 (1st Cir. Nov. 30, 2007)
Holding:  Amended Chapter 11 plan's eclassification of creditors who objected to the original plan was permissible.  The approval of these creditors was not necessary for confirmation of the amended plan because the creditors were paid in full under the plan, so, under § 1124(1), their claims were not impaired.

FOURTH CIRCUIT

Bosinger v. U.S. Airways
--- F.3d ----, 2007 WL 4357194 (4th Cir. Dec. 14, 2007)
Holding:  (1) District court properly dismissed claim brought six months after debtor's emergence from its second bankruptcy that debtor had improperly terminated plaintiff's pension in debtor's first bankruptcy.  In debtor's first Chapter 11 case, it terminated certain pension plans.  Debtor later initiated a second Chapter 11 case, and the debtor's plan was confirmed.  If plaintiff's pension plan was improperly terminated in the first case, plaintiff was an unsecured creditor in the second case and was required, under Rule 3003(c), to file a proof of claim.  Plaintiff failed to do so and, thus, debtor's obligations to plaintiff were discharged by the bar date order entered by the bankruptcy court.  (2) Plaintiff's claim that he did not receive notice of the second bankruptcy case, the claims bar date and the confirmation order was without merit.  Debtor introduced proof that these notices were mailed, and plaintiff's general denial that he could not recall receiving the notices did not overcome the presumption that letters placed in the mail are received.

SIXTH CIRCUIT

Triad Int'l Maint. Corp. v. Southern Air Trainsp. (In re Southern Air Transp.)
--- F.3d ----, 2007 WL 4355168 (6th Cir. Dec. 14, 2007)
Holding: Pre-petition payment to aircraft maintenance firm was not an avoidable preference because the recipient of the payment held an artisan's lien on the aircraft perfected by possession of the aircraft.  As a result of the lien, the trustee was unable to establish, as required by § 547(b)(5), that the payment exceeded what the recipient would have received from the debtor under a hypothetical Chapter 7 liquidation.

Tidewater Fin. Co. v. Curry (In re Curry)
--- F.3d ----, 2007 WL 4302135 (6th Cir. Dec. 11, 2007)
Holding:  Pre-petition repossession of automobile did not prevent, under § 1322(b)(2), Chapter 13 debtor from modifying the rights of creditor whose claim was secured by the automobile.

NINTH CIRCUIT

Ditto v. McCurdy
--- F.3d ----, 2007 WL 4355367 (9th Cir. Dec. 14, 2007)
Holding:  (1) A physician's failure to disclose his qualifications, or lack thereof, does not give rise to a non-dischargeable debt under § 523(a)(6).  For § 523(a)(6) non-dischargeability to apply, the debtor must have intended the injury that occurred.  An action based on the failure to obtain informed consent, though sometimes classified as an intentional tort, ultimately focuses on the reasonableness of the physician's disclosure to the patient.  Without proof that the physician desired to injure the patient or believed that injury was substantially certain to occur, the physician's debt to the patient is not non-dischargeable under § 523(a)(6).  (2) After it had granted discharge to Chapter 7 debtor, bankruptcy court did not err in denying creditor's motion to amend non-dischargeability complaint to assert additional basis for finding of non-dischargeability that had previously been voluntarily dismissed.  Creditor originally obtained a judgment of non-dischargeability.  After that judgment was entered, creditor voluntarily dismissed an alternative basis for a finding of non-dischargeability.  The judgment was later set aside pursuant to Rule 60(b).  More than 15 months after the bankruptcy court granted debtor a discharge, creditor moved to amend her complaint to reinstate the alternative basis for non-dischargeability.  This would effectively revoke the debtor's discharge.  Given the strong interests in finality, the court refused to allow the amendment.

Hale v. U.S. Trustee
--- F.3d ----, 2007 WL 4293312 (9th Cir. Dec. 10, 2007)
Holding: (1) Bankruptcy court did not err in sanctioning attorney who prepared petition but who disclaimed representing debtors at 341 meeting or any other representation.  Attorney did not obtain debtors' informed consent to this limited representation.  Attorney repeatedly provided these "unbundled" legal services to "pro se" debtors.  Although sanctions were not warranted under Rule 9011(c) because no papers were filed by the attorney, the bankruptcy court properly exercised its inherent power to sanction vexatious conduct.  The court could not countenance the attorney's exclusion of critical and necessary services or endorse the pretense of adequately advised and informed consent in the attorney's cases and, thus, prohibited the attorney from assisting pro se debtors in a limited manner that allows them to remain pro se.  (2) Bankruptcy court did not err in disgorging, pursuant to § 329(b), the attorney of pre-petition fees paid by debtors.  The only service the attorney provided was the completion of an incomplete and erroneous petition that required extensive amendments.  (3) There is no constitutional right to a jury trial on the reasonableness of attorney's fees in bankruptcy proceedings.

TENTH CIRCUIT

Redmond v. Lentz & Clark, P.A. (In re Wagers)
--- F.3d ----, 2007 WL 4328792 (10th Cir. Dec. 12, 2007)
Holding:  Chapter 7 debtor's attorney was not entitled to be compensated from pre-petition retainer for post-petition services.  Under state law, the retainer was not earned until services were performed.  Accordingly, the unused portion of the retainer at the time the petition was filed became property of the estate under § 541(a)(1) and could not be used to pay debtor's counsel for post-petition services.  Additionally, counsel was not entitled to compensation under § 330(a) because counsel had not been employed pursuant to § 327.

DISTRICT OF COLUMBIA CIRCUIT

McCarthy v. BMW Bank
--- F.3d ----, 2007 WL 4139392 (D.C. Cir. Nov. 23, 2007)
Holding:  Trustee was entitled to avoid, under § 547(b), transfer of security interest in automobile that was perfected during preference period.  The security interest was not perfected by notation on the title within 20 days of the debtor receiving possession of the automobile.  The court rejected secured creditor's argument that the security interest was perfected under the common law before the notation was made on the title.  Under state law, a security interest in an automobile may only be perfected by compliance with the title statute.