Recent Bankruptcy Decisions from the Appellate Courts - March/April 2008



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


In re Jordan
--- F.3d ----, 2008 WL 917117 (4th Cir. Apr. 3, 2008)
Holding:  A trustee seeking to revoke a bankruptcy discharge under §727(a)(6)(A) must establish that the debtor wilfully and intentionally refused to obey a court order. Debtor refinanced her home days after discharge without the knowledge or consent of the Trustee or the bankruptcy court. Court’s administrative order prohibited selling or transferring property, but did not specifically prohibit refinancing property. Court found that the debtor’s failure to comply with the court’s order was not willful and that the drafters of the administrative order should have anticipated refinancing as a common homeowner practice that should have been specifically prohibited if it was intended to be covered.


Cadle Co. v. Pratt (In re Pratt)
--- F.3d ----, 2008 WL 933633 (5th Cir. Apr. 8, 2008)
Holding:  (1) Rule 9011 requires that counsel serve an actual motion for sanctions – not just warning letters – at least 21 days before filing motion for sanctions. The informal notice provided by two warning letters was insufficient, so the court properly denied the motion. (2) Appellate court did not have jurisdiction to review the award of attorney’s fees after district court remanded the issue back to the bankruptcy court. The district court’s remand order required the bankruptcy court to perform further judicial functions, rendering the proceeding not final.


Maxwell v. KPMG LLP
--- F.3d ----, 2008 WL 746849 (7th Cir. Mar. 21, 2008)
Holding:  "Extreme weakness" of lawsuit brought by Chapter 7 trustee invites into question trustee’s litigation judgment. Unlike those running a viable operation, the trustee of a defunct enterprise typically does not have the same concerns relating to client relations and the cost of a lawsuit. Trustee’s questionable exercise of litigation judgment may justify imposing sanctions or denying reimbursement of trustee’s expenses under § 330(a).


Barclay v. MacKenzie (In re AFI Holding, Inc.)
--- F.3d ----, 2008 WL 1734583 (9th Cir. Apr. 16, 2008)
Holding:  Good faith exception to fraudulent transfers under state law equivalent of §548(c) is not barred as a matter of law in action to avoid distribution to investor in Ponzi scheme. Investor acquired a restitution claim when he initially bought into pre-existing Ponzi scheme, which was proportionally reduced with the return of his principal investment. Reasonably equivalent value was, thus, exchanged. Even if the investor did not acquire a restitution claim, the distribution was not paid on account of an equity position, but was rather the termination of the investor’s interest in the partnership and was "something more than a simple equity payment in proportion to a capital contribution."


Smith v. Rockett
--- F.3d ----, 2008 WL 1094384 (10th Cir. Apr. 11, 2008)
Holding:  Chapter 13 debtor has standing to file a civil claim under the Fair Debt Collections Practices Act on behalf of the bankruptcy estate. Rule 6009 supports this conclusion because a Chapter 13 debtor remains in possession of the property of the estate pursuant to § 1306(b).


Hedrick v. Novastar Mortgage, Inc. (In re Hedrick)
--- F.3d ----, 2008 WL 1724009 (11th Cir. Apr. 15, 2008)
Holding:  (1) Where refinancing loan transaction closed within ten days of the date when the checks that paid-off prior security deeds on the property cleared, the transfer was made at closing for purposes of § 547(e)(2)’s relation-back provision. The date the checks cleared was considered the date on which the transfer was perfected. Accordingly, the subject transaction was non-preferential because it occurred outside the preference period. (2) The determination whether a transaction is “substantially contemporaneous” under § 547(c)(1)(B) requires an examination of all facts and circumstances. The court disagreed with other circuits that equate "substantially contemporaneous" with the ten-day rule found in §547(e)(2)(A). The court held that analysis of whether a transaction is substantially contemporaneous should take into account the objective reasonableness of the time taken to perfect the interest, the length of the delay, the cause of the delay and the motivations for the delay. The court found that the transaction at issue was substantially contemporaneous because it was perfected eight days after closing, the lender sent the deed for recording the first business day after the federally mandated rescission period ended and there was no suggestion of bad faith by the lender.