Monday, September 19, 2011

Recent Bankruptcy Decisions within the First Circuit

Commercial tort claims are not proceeds of collateral;
Chapter 7 Trustee had exclusive standing to pursue the commercial tort claims;
Issues not raised on appeal per Rule 8006 are deemed waived;
Bankruptcy Court's approval of settlement was properly deferred to by District Court;

City Sanitation (In re re American Cartage, Inc.) v. Allied Waste Services, 2011 U.S. App. Lexis 18115 (1st  Cir. 8/31/11).
Appeal from the U.S. District Court in Massachusetts.  Debtor trash hauler filed Chapter 11, which was converted to Chapter 7.  Appellant trash hauler which had purchased some of the debtor's equipment filed a state court action against apellee trash hauler and the debtor's former manager.  District Court affirmed the Bankrutpcy Court's orders for the trustee to take over the claim.
OUTCOME:  Affirmed.
JUDGES:  Before Circuit Judges Selya, Howard and Thompson, Opinon by Judge Selya.
Discussion:  Resolved questions of standing to prosecute claims arising out of a bankruptcy case; questions of first impression as to distinction between "commercial tort claims" and "proceeds" [of collateral] and as to to the force and effect of Bankrupcy Rule 8006; and a question re the fairness of a negotiated settlement.

Re-conversion: Conversion from 13 to 7, and then from 7 to 13 is "discretionary":

(In re Povah) Povah v. Hansbury and Finn, Inc., 2011 Bankr. Lexis 3229 (Bankr. D. Mass. 8/22/11).
JUDGE:  Joan N. Feeney, Bankruptcy Judge.
PROCEDURAL:  Debtor filed a motion to convert her Chapter 7 case to 13.  In the adversary proceeding, defendant mortgage lender filed a motion to dismiss.
OUTCOME:  Court denied debtor's motion to convert, but allowed a period of time for the debtor to file a motion to reconsider together with a feasible Chapter 13 plan.

BAP reversed bankruptcy court giving preclusive effect to state court finding on fiduciary duty, when the state court finding was too broad as applicable to the bankruptcy issue, requiring an adjudication on the merits in bankruptcy court regarding the debtor’s discharge:

D'ABROSCA v. D'ABROSCA, 2011 Bankr. LEXIS 3007 (BAP 1st Cir. 8/10/11)(NOT FOR PUBLICATION).

PROCEDURAL:  Appeal from the United States Bankruptcy Court for the District of Rhode Island. (Hon. Arthur N. Votolato). Appellant debtor, sought review of orders from the Bankruptcy Court granting the motion for summary judgment of appellee creditor, and denying the debtor's motion for reconsideration. Debtor argued that the bankruptcy court erred in giving preclusive effect to a state court jury verdict against the debtor for breach of fiduciary duty in a dischargeability action under 11 U.S.C.S. § 523(a)(4).
OVERVIEW: Debtor and creditor owned, and then sold, a car dealership. The creditor subsequently alleged numerous financial irregularities, including self-dealing and forgery, and brought a count for breach of fiduciary duty against the debtor, based on their roles in the joint venture. A state jury awarded damages of $1,616,500 plus an additional $500,000 of enhanced compensatory damages, reduced by some comparative negligence on the part of the creditor and his bookkeeper. The bankruptcy court found the claim nondischargeable under § 523(a)(4), based on the fiduciary duty. The appellate panel reversed. Because the jury was given a broad definition of fiduciary, and not one related to the specific duties between the parties, the court could not conclude that preclusion on collateral estoppel grounds applied. The litigation issue was not identical to the issue presented to the jury. It was error to enter summary judgment based upon collateral estoppel and to deny reconsideration of the debtor's fiduciary duty.
OUTCOME: The orders granting summary judgment and denying reconsideration were reversed, and the matter remanded for further proceedings.
JUDGES:  Before Bankruptcy Judges de Jesus, Tester and Bailey, Opinion by Bailey.

Student Loan partially discharged upon completion of Ford Program:

2011 Bankr. LEXIS 3031 (Bankr. D. Mass. 8/2/11),
PROCEDURAL: Plaintiff, chapter 7 debtor, filed a complaint against creditor, the manager of her student loan debt, seeking a discharge of her student loan obligations, totaling $114,680.69 pursuant to 11 U.S.C.S. § 523(a)(8).
JUDGE:  Bankruptcy Judge Joan Feeney.

OVERVIEW: Debtor asserted that, based upon her current circumstances, repayment of her student loans would constitute an undue hardship, and she would be unable to maintain a minimal standard of living if she were required to repay the loans. She had not listed an $8,000 claim for unpaid income taxes. She had lived in a homeless shelter previously. Creditor argued that she failed to show that her future prospects are bleak enough to warrant the discharge of her student loan debt, and that her request for an exception to discharge must be rejected in view of her right to consolidate her debts under the William D. Ford Direct Repayment Loan Program (Ford Program). Although the court found that a standard of unique circumstances and good faith need not be met, the debtor was obligated to pursue the Ford Program as a remedy.
OUTCOME: Judgment was entered in favor of the creditor and against the debtor, with the proviso that if she chose within 14 days to participate in the Ford Program and abide by the provisions of the Income Based Repayment Plan Option in good faith, the court would enter a judgment partially discharging her student loan debt remaining at the expiration of the repayment plan.

Res judicata and Rooker-Feldman bar debtor’s objection to superior court default judgment amount:

IN RE MORALES, 2011 Bankr. LEXIS 3218 (Bankr. D.P.R. 8/23/11)
BACKGROUND:  Chapter 13 debtor objected to a creditor’s claim for attorney’s fees in connection with a default judgment entered in superior court as excessive and unreasonable.  Creditor argued that res judicata applied to the superior court judgment.
OUTCOME:  Debtor’s objection denied. Court held the creditor satisfied all of the element of res judicata.  Further, to the extent the debtor request the bankruptcy court to review an aspect of the state court’s ruling his claim was barred by the Rooker-Feldman Doctrine.
JUDGE:  Bankruptcy Judge Brian K. Tester.

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