Monday, June 18, 2012

Recent Bankruptcy Decisions within the First Circuit: May 2012 (Part 3 of 4).

(In re: LEVINGS) LEVINGS v. SOVEREIGN BANK, 2012 Bankr. LEXIS 2134 (5/7/12)(William C. Hillman, Bankruptcy Judge).
PROCEDURAL POSTURE: After the court denied a motion for summary judgment by a bank that was defending an adversary proceeding by plaintiff debtor seeking to avoid attachments against its property as preferential, the court then found no merit in defendant's counterclaims, which included nondischargeability claims per 11 U.S.C.S. § 523. Defendant then moved for reconsideration, which debtor opposed.
OVERVIEW: Debtor originally sought orders avoiding preferential attachments against certain property. Defendant filed a disingenuous answer and asserted counterclaims. The court later entered judgment for debtor on findings that the challenged liens were preferential, leaving defendant’s counterclaims, including one seeking a judgment of nondischargeability per
§ 523(a), for adjudication. While it did not specify § 523(a)(2)(B), one such claim referred to a financial statement received from debtor a year after the loan was made, which was an inadequate basis for the § 523 claim. When the court then denied summary judgment on findings that the only financial statement identified by defendant postdated the extension of credit, defendant submitted a different financial statement, one that presumably was provided at the time loan documents were signed, but relief was denied. Specifically, defendant’s
§523(a)(2)(B) claim still was deficient. That is, even if the newly submitted financial statement met the criteria in § 523(a)(2)(A), defendant still had failed to show that the newer statement was materially false, was made with the intent to deceive, and defendant had reasonably relied thereon.
OUTCOME: The court denied the motion for reconsideration.

Debtor granted SJ as to discharge challenge from benefit plan trustee, the plan trustee seeking unsuccessfully to establish that delinquent contributions owed to the benefit plan were nondischargeable in the individual case where debtor was the president and sole shareholder of the employer company;
Debtor was not a fiduciary under the ERISA definition:

(IN RE: JAMES M. FAHEY) RASO, v. FAHEY, 2012 Bankr. LEXIS 2133 (Bankr. D. Mass. 5/14/12)(William C. Hillman, Bankruptcy Judge).
PROCEDURAL POSTURE: In this adversary proceeding, plaintiff employee benefit plan trustee (the creditor) filed a motion for summary judgment seeking to establish that delinquent contributions owed to the benefit plan were nondischargeable in the debtor's bankruptcy pursuant to 11 U.S.C.S. § 523(a)(4). The debtor was the president and sole shareholder of the employer company.
OVERVIEW: The employer had entered into a collective bargaining agreement (CBA) with a union, under which the employer agreed to be bound by the terms of trust agreements, which required certain contributions to employee benefit plans. After the employer stopped making payments, the plan sued and was granted a judgment for the unpaid contributions. The debtor filed for bankruptcy and the creditor filed this adversary proceeding seeking to establish the nondischargeability of all unpaid contributions pursuant to
11 U.S.C.S. § 523(a)(4). Looking to the definition of "fiduciary" under the Employee Retirement Income Security Act (ERISA), 29 U.S.C.S. § 1002(21)(A), the court concluded that, while there was no question that the debtor had control over the unpaid contributions, that control was not discretionary in nature. The debtor had a contractual obligation under the CBA to pay contributions to the funds and had the option to breach the contract. However, the debtor could not become an ERISA fiduciary merely because it breached contractual obligations to the plan. The debtor was not an ERISA fiduciary and no other basis was provided for a finding a fiduciary status under § 523(a)(4).
OUTCOME: With respect to the plan contributions, the court denied the creditor's summary judgment motion and granted summary judgment for the debtor.

To avoid dismissal under Rule 12(b)(6) a complaint must contain enough factual material to raise a right to relief above the speculative level on the assumption that all the allegations in the complaint are true (even if doubtful in fact); Non-conclusory factual allegations in the complaint must then be treated as true, even if seemingly incredible:

PROCEDURAL POSTURE: Before the court were Motions to Dismiss filed (1) by defendant construction company as to Counts III and IV of the Joint Amended Complaint, and (2) by defendant power company as to Counts II, V, and VI of the Complaint. The Chapter 7 Trustee for plaintiff debtor, and a second plaintiff, a secured creditor, opposed the motions.
OVERVIEW: To avoid dismissal under Fed.R.Civ.P. 12(b)(6), a complaint had to contain enough factual material to raise a right to relief above the speculative level on the assumption that all the allegations in the complaint were true (even if doubtful in fact). In plain terms, the allegations in the Amended Complaint could easily be read to say that the construction company (and the power company) were using strong arm tactics to force debtor to waive a valid claim for compensation under a contract. Twombly cautioned against thinking of plausibility as a standard of likely success on the merits; the standard was plausibility assuming the pleaded facts to be true and read in the plaintiff's favor. The facts alleged in the Amended Complaint easily met this standard because even a plausible but inconclusive inference from pleaded facts would survive a motion to dismiss. Thus, the construction company's Motion to Dismiss Counts III and IV was denied. The power company's Motion to Dismiss Counts V and VI was similarly flawed, and was denied. However, Counts II, V, and VI, as asserted by the secured creditor against the power company, were duplicative and were dismissed.
OUTCOME: The motions to dismiss were granted in part and denied in part.

Trustee's motion to extend the time to file an appeal denied; excusable neglect not raised:

OUTCOME: Trustee’s Motion to extend the time to file an appeal DENIED
DISCUSSION:  Pursuant to Bankr. R. 8002(a), a notice of appeal must be filed within fourteen (14) days of the date of entry of the judgment, order or decree appealed from.  The timely filing of a notice of appeal is "mandatory and jurisdictional".  Under specific circumstances the Court may extend the time for filing a notice of appeal, per Bankr. R. 8002(c)(2).  However, such a request "must be made by a written motion filed before the time for filing a notice of appeal has expired, except that such a motion filed not later than 21 days after the expiration of the time for filing a notice of appeal may be granted upon a showing of excusable neglect."  As the Partial Judgment was entered on May 3, 2012, the deadline to file the notice of appeal in this case expired on Thursday, May 17, 2012. Here, the Trustee filed the motion to extend the deadline for filing a notice of appeal within the twenty-one (21) days of the "excusable neglect" period. The Trustee, however, made no showing, or even a reference to the excusable neglect requirement. Thus, the Court has no elements to grant the Trustee's Motion.

Motion for reconsideration on expedited discovery request denied:

(IN RE: LOPEZ)LOPEZ v. MAZA & GREEN ATTORNEYS AND COUNSELORS AT LAW, 2012 Bankr. LEXIS 2061 (Bankr. D.P.R. 5/8/12)(Brian K. Tester, Bankruptcy Judge).
OVERVIEW: Defendants sought leave of court to shorten the response period on a limited discovery comprising two interrogatories and two requests for production of documents, pursuant to Fed. R. Civ. P. 26.  Defendants argued that the discovery request was needed to properly answer the complaint. The court entered an order granting defendants' unopposed motion and reducing the period for response to 15 days. Plaintiffs then filed a motion for reconsideration, stating that defendants' request to shorten the period to answer to discovery should have been denied as a matter of law. The court concluded that plaintiffs' request for reconsideration was meritless. Defendants narrowly tailored the discovery purportedly needed to answer plaintiffs' claims and bring forth their defenses. Once the need for expedited discovery was established by defendants, and upon plaintiffs' failure to raise a timely opposition that outweighed defendants' request, the court found good cause to grant the request. In the request for reconsideration, plaintiffs failed to allege details showing excusable neglect under Fed. R. Civ. P. 60(b)(1), or any other reason justifying relief under Fed. R. Civ. P. 60(b)(6).
OUTCOME: The court denied plaintiffs' motion for reconsideration.

Court grants debtor’s motion to reduce bank’s secured claim to the value of the property, which included the judge viewing the property itself:

In re: ESPINAL, 2012 Bankr. LEXIS 2095 (Bankr. D.R.I. 5/4/12)(Arthur N. Votolato, Bankruptcy Judge).
PROCEDURAL POSTURE: Before the court was debtors' motion to modify, i.e., reduce the secured claim of a bank to the market value of debtors' property, pursuant to 11 U.S. C. Sections 1322, 1325 and Fed. R. Bankr. P. 3012. The bank opposed the motion.
OVERVIEW: Debtors contended that the value of their multi-family property was $80,000, while the bank placed the market value at $135,000. The court heard testimony and reviewed documentary evidence submitted by a real estate broker for debtors, and a certified real estate appraiser, who testified as to her estimate of value on behalf of the bank. In addition, the court conducted a view of the subject property, both interior and exterior, and took a drive by look at the comparable sales used by both witnesses. The court was comfortable ruling that the bank's comments as to competency generally, as well as its evidence as to value in this case were inappropriate and clearly off the mark, i.e., the appraiser's testimony amounted to a partisan, aggressive sales pitch intended to degrade all broker/witnesses, rather than an objective effort to assist the court to arrive at a correct accurate valuation. The court found that the market value was $80,000, which was near the average price of properties the broker used as comparables, two of which were within a short walk to the subject property. The court noted that the sales considered by the bank's appraiser were in blatantly superior locations.
OUTCOME: Debtors' Motion was granted.

Court estimated claim for purposes of determining the confirmability of the CH. 11 plan:
In re: LOUCHESCHI LLC,  2012 Bankr. LEXIS 2415 (Bankr. D. Mass. 5/30/12)(Melvin S. Hoffman, Bankruptcy Judge).

Imposition of stay denied where debtor slept on his rights:

In re: BLANCHARD, 2012 Bankr. LEXIS 1984 (Bankr. D.R.I. 5/4/12)(Arthur N. Votolato, Bankruptcy Judge).
PROCEDURAL POSTURE: Chapter 13 debtor filed a motion to enforce or impose the automatic stay.
OVERVIEW: The debtor was the president and sole shareholder of a company that owned real property. The property was sold by the city tax collector at a tax sale. The purchaser commenced an action to foreclose the tax title. The debtor failed to meet the terms of redemption and the state court entered a decree foreclosing the debtor's right of redemption. The debtor later asserted that, based upon an alleged stock ownership, he retained an equitable interest in the property, that the interest was property of the estate and was, therefore, protected by the automatic stay when he filed an earlier bankruptcy case, that the purchaser had actual notice of said interest through his amended Schedule E, and that the purchaser violated the stay when it proceeded, post-petition, to foreclose the tax title. The court held that the purchaser had no knowledge of the debtor's alleged interest in the property. Also, the debtor had slept through any rights he may have had to the property by filing the instant motion more than two years after the actions that the debtor said violated the stay, and more than three years after the company filed its answer to the purchaser's tax foreclosure action.
OUTCOME: The court denied the debtor's motion.
Discussion:   For openers, the "Anti-Injunction Act," 28 U.S.C. Section 2283, states that "A court of the United States may not grant an injunction to stay proceedings in a State court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments." Throughout his argument Blanchard assumes that somehow the property will rise from the ashes free and clear, as an asset that can be used to fund his plan, but totally overlooks the silver bullet needed to achieve such a ludicrous pipe dream.

Claim filed after bar date in Ch. 13 allowed due to “extenuating circumstances”:

IN RE: SANTOS, 2012 Bankr. LEXIS 2005 (Bankr. D.P.R. 5/4/12)(Mildred Caban Flores, Bankaruptcy Judge).
ISSUE:  The Issue before the Court is as follows: How should the dismissal, and then reinstatement, of a Chapter 13 case impact the proof of claim bar date, when the bar date elapses during the period after dismissal and prior to reinstatement?
DISCUSSION:  Ch. 13 Trustee objection to claim of American Express as untimely filed after the bar date; Am EX replied that since the bar date elapsed during a period in which the case was dismisse, their claim was timely filed within 7 days of the case being reoopend;
A proof of claim which is filed under 11 U.S.C. Section 501 is deemed allowed unless a party in interest objects.  The time for filing a claim, or the bar date, is set by Fed. R. Bankr. P; 3002(c).  Certain untimely filed proof of claims are excepted from the bar date, but these are limited to the six exceptions listed in Rule 3002(c)(1-6).  After reviewing the six exceptions, the court finds that the facts of the instant case do not fall within any of these six exceptions.  In addition, Rule 9006(b)(3) limits the court's jurisdiction to enlarge the time for taking action under Rule 3002(c) to the extent and only under the conditions stated by this particular rule.  However, in spite of the strict parameters of the bankruptcy rules that unambiguously preclude any equitable discretion on the part of the bankruptcy court to extend or toll the deadlines set forth, this Court adopts the decision reached in In re Gulley, 400 B.R. 529 (Bankr. N.D. Tex. 2009). The court in Gulley determined that in cases where there has been extenuating circumstances of disruption of a case, for example, a dismissal of the case and a proof of claim deadline that elapses before reinstatement of the case, the bankruptcy courts have the power to nullify the original bar date and recalculate them. As stated by the court:
To hold otherwise offends notions of due process, but also invites mischief... Th[e] court can envision scenarios in which crafty debtors may allow their cases to be dismissed on technical grounds (like failure to file paperwork), allow the proof of claim deadline to pass, and then seek to reinstate the case and hold a creditor to the deadline that ran while the case was a non-case. Id. at 538.

SJ denied where facts alleged insufficient to meet proofs on discharge violation:

(IN RE: MENDOZA) MENDOZA v. PR ACQUISITIONS LLC, 2012 Bankr. LEXIS 2407 (Bankr. D.P.R. 5/25/12)(Brian K. Tester, Bankruptcy Judge).
OPINION AND ORDER: This proceeding is before the court upon Plaintiff's motion requesting Partial Summary Judgment which is DENIED.
Procedural Background: Debtor/Plaintiff, Siria Nelly Vaca Mendoza, had a previous bankruptcy case numbered 10-07244 that concluded with a discharge in November 2010. Plaintiff now appears before us with the allegation of a collection attempt made by Defendant, PR Acquisition, LLC, thru Leonard & Associates, PSC, on a debt that was allegedly discharged in the previous bankruptcy case referenced.
The only document presented by the Plaintiff with her request for summary judgment is a letter allegedly received by the Plaintiff. This document by itself does not satisfy the elements necessary to decide a motion for summary judgment, namely that there are no contested material facts. Actually, there remain several disputed material facts that would mandate a trial, such as whether the debt that is being collected by Defendant is the same that was discharged; whether this claim was discharged; was Defendant properly listed and notified in the previous case that received a discharge; the amount being collected is the same amount that was discharged; the debtor is the same for the discharge and the collection letter; and the collection letter that the Plaintiff present was in fact sent by Leonard & Associate, PSC by request and on behalf of PR Acquisitions, LLC.

Wilful stay violation found and actual damages assessed plus attorney costs/fees:

In re: CHERYL M. TINE, Debtor, 2012 Bankr. LEXIS 2092 (Bankr. D.R.I. 5/4/12)(Arthur N. Votolato).
PROCEDURAL POSTURE: Debtor brought a motion to adjudge a bank creditor in contempt and for violation of 11 U.S.C. Section 362, for actions taken allegedly to preserve its secured interest in debtor's property.
OVERVIEW: The automatic stay forbids any act to obtain possession of the estate or of property from the estate or to exercise control over property of the estate. This language is comprehensive, wide-sweeping and direct. The court was clearly satisfied that the bank's September 18, 2011, conduct violated the automatic stay. With the fact in mind that the bank's actions were essentially a continuation of its pre-petition conduct, the court also concluded that said conduct was "willful". A violation was "willful" if a creditor's conduct was intentional (as distinguished from inadvertent), and committed with knowledge of the pendency of the bankruptcy case. Here, on September 18, 2011, the bank had knowledge of the bankruptcy, and based on its own inspections the bank's agents knew that the property was not vacant prior to and when they entered onto the property. This conduct clearly was not inadvertent, as the contractor ordered his sub-contractor to take photos, and the subcontractor admitted that she and another person entered onto the property at the contractor's direction. The evidence was that they were all over the property.
OUTCOME: The bank was ordered to pay debtor $15,000 in actual damages, and $4,345 in attorney's fees for violation of the automatic stay.

Stay relief granted to reduce debt to judgment relevant to property with no equity and said property (a boat) was not available for the reorganization of the Debtor:

(IN RE: RS YACHT SERVICES INC) BANCO POPULAR DE PUERTO RICO, Movant v. RS YACHT SERVICES INC, Respondent(s), 2012 Bankr. LEXIS 2434 (Bankr. D.P.R. 5/29/12)(Brian K. Tester, Bankruptcy Judge).
Lender moved for stay relief. At the hearing, lender and the Debtor agreed that the total liens on the property exceed the value of the property, such that there is no equity available to the Debtor. In determining whether the property is necessary to an effective reorganization in this Ch. 11 case, the Court takes into consideration the fact that the Debtor's primary property is subject to an arrest order, issued by the US District Court, for the District of Puerto Rico on March 29, 2012. Because the arrest order prevents the Debtor from using and even having access to the vessel in question, it is not available to the Debtor for reorganization purposes at this time. Therefore, the Court finds that an effective reorganization, based upon the proposed use of the property in question, is not possible. Furthermore, the Court finds unlikely that the Debtor's situation will change within the next thirty (30) days. As such, there is no reasonable likelihood that Debtor would prevail if a final hearing on the request for relief from automatic stay is held. Accordingly, the Court modifies the automatic stay to allow the continuance of the in personam breach of contract and collection action against Debtor before the Puerto Rico Court of First Instance, San Juan Part, and the in rem action against Debtor's property before the United States District Court for the District of Puerto Rico, up to the entry of judgment.

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