(In
re Shields)RBOC, INC., as assignee of ROY BROS. OIL CO. INC. v. Shields, 2012
U.S. Dist. LEXIS 86038 (D. Mass. 6/21/12)(Rya W. Zobel, District Judge).
Memorandum of Decision: Appellant, RBOC, INC. ("RBOC"), a family-owned petroleum business, appeals a July 21, 2011, bankruptcy court order sanctioning it in the amount of $10,000 for misusing the process of the bankruptcy court to advance a matter pending in the Worcester Superior Court.
Debtor guaranteed a corporate debt of appellant. Debtor later filed Ch. 7. Appellant brought sate-court litigation against the debtor pre-petition for certain transfers of corporate assets, which action was stayed by the Ch. 7 filing. Appellant also filed an adversary proceeding against debtor objecting to his discharge. Appellant subsequently moved for voluntary dismissal of the adversary proceeding, stating that the discovery conducted in the state-court litigation "confirms the adequacy of the remedy in the Worcester Superior Court." At the hearing on RBOC's motion to dismiss, the bankruptcy court allowed the motion but ordered RBOC to pay appellees' legal fees in the amount of $10,000, and, addressing RBOC, explained: this adversary proceeding really wasn't filed with the intention of trying to bar the debtor's discharge so much as it was a strategy to collect the debt which you were pursuing in the Worcester Superior Court and for some reason weren't happy with the way it was going, or perhaps felt that by adding another front in the battle, you would advance your client's goal of collecting the money; and I don't find that is an appropriate use of this Court or of the purpose to which 727 exists.” It is from this award of attorney fees and costs that RBOC has appealed.
Memorandum of Decision: Appellant, RBOC, INC. ("RBOC"), a family-owned petroleum business, appeals a July 21, 2011, bankruptcy court order sanctioning it in the amount of $10,000 for misusing the process of the bankruptcy court to advance a matter pending in the Worcester Superior Court.
Debtor guaranteed a corporate debt of appellant. Debtor later filed Ch. 7. Appellant brought sate-court litigation against the debtor pre-petition for certain transfers of corporate assets, which action was stayed by the Ch. 7 filing. Appellant also filed an adversary proceeding against debtor objecting to his discharge. Appellant subsequently moved for voluntary dismissal of the adversary proceeding, stating that the discovery conducted in the state-court litigation "confirms the adequacy of the remedy in the Worcester Superior Court." At the hearing on RBOC's motion to dismiss, the bankruptcy court allowed the motion but ordered RBOC to pay appellees' legal fees in the amount of $10,000, and, addressing RBOC, explained: this adversary proceeding really wasn't filed with the intention of trying to bar the debtor's discharge so much as it was a strategy to collect the debt which you were pursuing in the Worcester Superior Court and for some reason weren't happy with the way it was going, or perhaps felt that by adding another front in the battle, you would advance your client's goal of collecting the money; and I don't find that is an appropriate use of this Court or of the purpose to which 727 exists.” It is from this award of attorney fees and costs that RBOC has appealed.
AFFIRMED: District Court found
that in addition to possessing the inherent power to sanction, the bankruptcy court
also found that the complaint failed to even plead the facts to sustain the
action.
The court then found that the "complaint doesn't allege or even come close to alleging any facts that flow within 727(a)(2)(A)." When the court determines that a "petition, pleading, written motion, or other paper" was filed "for an improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation," 11 U.S.C. Section 9011 of the Bankruptcy Code authorizes sanctions. The question remained whether the standard for levying such sanctions was met. Such decisions are reviewable only for abuse of discretion. A Rule 11 sanction does not require a full hearing in every case ... [the] procedural format should depend on the circumstances of the situation... However, a judge's decision to impose Rule 11 sanctions must comport with due process requirements, and the determination of what process is due is, in part, a function of the type and severity of the sanction.
Here, appellees sought sanctions in their response to appellant's motion to voluntarily dismiss the adversary complaint in the amount of attorney fees and costs, the court scheduled a hearing on the motion, at the hearing the court provided appellant an opportunity to explain the basis for its motion, and indicated to appellant on the record his intent to award appellees their legal fees and costs. The adversary complaint also had the effect of delaying appellees' bankruptcy action for approximately eight months. Although appellant now argues that its complaint, based on §727(a)(2)(A) of the bankruptcy code, was not frivolous, it has yet to explain to this court or the bankruptcy court the legal basis for its position. It neither briefed the issue nor justified its position at the hearing.
The court then found that the "complaint doesn't allege or even come close to alleging any facts that flow within 727(a)(2)(A)." When the court determines that a "petition, pleading, written motion, or other paper" was filed "for an improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation," 11 U.S.C. Section 9011 of the Bankruptcy Code authorizes sanctions. The question remained whether the standard for levying such sanctions was met. Such decisions are reviewable only for abuse of discretion. A Rule 11 sanction does not require a full hearing in every case ... [the] procedural format should depend on the circumstances of the situation... However, a judge's decision to impose Rule 11 sanctions must comport with due process requirements, and the determination of what process is due is, in part, a function of the type and severity of the sanction.
Here, appellees sought sanctions in their response to appellant's motion to voluntarily dismiss the adversary complaint in the amount of attorney fees and costs, the court scheduled a hearing on the motion, at the hearing the court provided appellant an opportunity to explain the basis for its motion, and indicated to appellant on the record his intent to award appellees their legal fees and costs. The adversary complaint also had the effect of delaying appellees' bankruptcy action for approximately eight months. Although appellant now argues that its complaint, based on §727(a)(2)(A) of the bankruptcy code, was not frivolous, it has yet to explain to this court or the bankruptcy court the legal basis for its position. It neither briefed the issue nor justified its position at the hearing.
Ch. 7 Trustee not entitled to costs and fees deducted from marital
asset that was administered;
Court reviews law on the creations of a marital estate upon divorce
filing;
Court reviewed the use of Section 105:
IN RE: BLOOM, 2012
BNH 4; 2012 Bankr. LEXIS 2807 (Bankr. D.N.H.
6/20/12)(J. Michael Deasy).
PROCEDURAL POSTURE: Debtor declared Chapter 7
bankruptcy in June 2011, and his ex-wife obtained relief from the automatic
stay so she could proceed with a divorce action she filed in September 2010.
The ex-wife obtained a final decree of divorce from a New Hampshire court and
filed a motion in the bankruptcy court for an order enforcing that decree. Two
creditors filed an objection.
OVERVIEW: The trustee sold a yacht, a watch collection, and real property that were part of the debtor's bankruptcy estate, and the debtor's ex-wife asked the bankruptcy court to issue an order which enforced a New Hampshire court's divorce decree, by requiring the trustee to pay her $375,165 plus costs the trustee incurred to administer those assets. Two creditors filed an objection to the ex-wife's motion to the extent it requested a distribution to the ex-wife free and clear of an $814,000 attachment they obtained against the property before the debtor declared bankruptcy, and the trustee asked the court for permission to deduct attorneys' fees and expenses she incurred that were related to her administration of the property. The court denied the ex-wife's request for reimbursement of costs the trustee incurred to administer the property, denied the trustee's request for permission to deduct attorneys' fees and expenses she incurred to protect the property and sell it, and directed the trustee to distribute $375,165 to the debtor's ex-wife. However, the court refused the ex-wife's request for an order declaring that the distribution was free and clear of the creditors' attachment.
OUTCOME: The court stated that it would issue a separate order which directed the Chapter 7 trustee to distribute $375,165 to the debtor's ex-wife. However, the court refused the ex-wife's request for an order declaring that the distribution was free and clear of the creditors' attachment, and ruled that the trustee was not allowed to deduct attorneys' fees and expenses she incurred to administer the property from the amount she paid the ex-wife.
OVERVIEW: The trustee sold a yacht, a watch collection, and real property that were part of the debtor's bankruptcy estate, and the debtor's ex-wife asked the bankruptcy court to issue an order which enforced a New Hampshire court's divorce decree, by requiring the trustee to pay her $375,165 plus costs the trustee incurred to administer those assets. Two creditors filed an objection to the ex-wife's motion to the extent it requested a distribution to the ex-wife free and clear of an $814,000 attachment they obtained against the property before the debtor declared bankruptcy, and the trustee asked the court for permission to deduct attorneys' fees and expenses she incurred that were related to her administration of the property. The court denied the ex-wife's request for reimbursement of costs the trustee incurred to administer the property, denied the trustee's request for permission to deduct attorneys' fees and expenses she incurred to protect the property and sell it, and directed the trustee to distribute $375,165 to the debtor's ex-wife. However, the court refused the ex-wife's request for an order declaring that the distribution was free and clear of the creditors' attachment.
OUTCOME: The court stated that it would issue a separate order which directed the Chapter 7 trustee to distribute $375,165 to the debtor's ex-wife. However, the court refused the ex-wife's request for an order declaring that the distribution was free and clear of the creditors' attachment, and ruled that the trustee was not allowed to deduct attorneys' fees and expenses she incurred to administer the property from the amount she paid the ex-wife.
Under New Hampshire law, the filing of a divorce petition creates a marital estate. The marital estate is comprised of all tangible and intangible property, real or personal, belonging to either or both of the parties. NH RSA 458:16-a(I). The marital estate includes not only property held on the date of the divorce petition, but includes property acquired up to the date of the final divorce decree. After the filing of a petition for divorce, a non-owner spouse does not have legal title to marital property owned solely by the other spouse but, because a final decree could award an interest in such property to the non-owner spouse, such a spouse has an equitable interest in the property sufficient to convey standing to protect legal title to the property pending entry of a final divorce decree. Accordingly, once a divorce petition is filed, the owner spouse retains legal title to property and, as a matter of state law, the non-owner spouse acquires a contingent equitable interest in such property pending the issuance of a final divorce decree. The equitable interest of a non-owner spouse in marital property does not supersede the rights of creditors of the owner spouse during the pendency of the divorce proceeding. A creditor can attach marital property prior to the issuance of a final divorce decree and any interest in that property awarded in a final divorce decree is subject to such attachment.
As a general rule, expenses of administration must be satisfied from assets of
the estate not subject to liens. Similarly here, the Trustee must recover her
attorneys' fees from property that remains part of the bankruptcy estate, and
not from bankruptcy estate property that was awarded to Bloom in the Final
Divorce Decree, in which Bloom's equitable interest has transformed into a
legal interest. Accordingly, the Court will not reduce the distribution to
Bloom by $27,750.36 as requested by the Trustee. There are other assets in the
bankruptcy estate from which these fees could be paid upon proper application
to the Court.
Mortgage that was perfected 90 days prior to filing was avoided & treated then as unsecured debt:
(IN RE: ROLDAN) JOSE
R. CARRION, Chapter 13 Trustee v. USDA RURAL HOUSING SERVICE,
2012 Bankr. LEXIS
2720 (Bankr. D.P.R. 6/13/12) (Enrique S. Lamoutte, Bankruptcy Judge).
PROCEDURAL POSTURE: This proceeding was before the
court upon debtor's Motion for Summary Judgment, subsequently adopted by
plaintiff Chapter 13 Trustee, seeking an order to have defendant, the USDA
Rural Housing Service, return to the estate debtor's mortgage note for
cancellation purposes and for the USDA's Claim No. 2 to be allowed as a general
unsecured creditor. The USDA filed its Opposition, also requesting summary
judgment be entered dismissing the Complaint.
OVERVIEW: Debtor contended that because she filed for bankruptcy 13 days later, the USDA's refiling of its mortgage deed constituted a transfer of interest that occurred within 90 days prior to the bankruptcy petition and that as a result the mortgage lien could be avoided as a preferential transfer under 11 U.S.C.S. § 547(b). The court found that in the case at bar, the five criteria set in Wolas were met: (1) the refiling of the Mortgage Deed on November 3, 2010 only benefited the USDA inasmuch as it would make it a secured creditor when it had been unsecured since August 10, 2009, (2) the mortgage arose on account of an antecedent debt to purchase the Real Property on April 16, 1998, (3) debtor was insolvent when she filed for bankruptcy and thirteen days prior when the Mortgage Deed was refiled at the Property Registry, (4) the transfer was made within the 90-day period prior to the filing of the bankruptcy petition, and (5) it would have enabled the USDA to receive more than it would have under Chapter 7. The USDA, a government institution, was a creditor like any other in the instant case and as such was subject to Puerto Rico's Mortgage Law when attempting to secure a mortgage lien.
OUTCOME: Debtor's and the Trustee's Motion for Summary Judgment was granted. The USDA's Opposition thereto and cross motion for summary judgment were denied. Consequently, upon the avoidance of the USDA's Mortgage Deed, the USDA's Claim Register No. 2 was allowed as a general unsecured claim. The USDA was further ordered to return to the Trustee debtor's mortgage note over her Real Property for cancellation purposes at the Property Registry.
OVERVIEW: Debtor contended that because she filed for bankruptcy 13 days later, the USDA's refiling of its mortgage deed constituted a transfer of interest that occurred within 90 days prior to the bankruptcy petition and that as a result the mortgage lien could be avoided as a preferential transfer under 11 U.S.C.S. § 547(b). The court found that in the case at bar, the five criteria set in Wolas were met: (1) the refiling of the Mortgage Deed on November 3, 2010 only benefited the USDA inasmuch as it would make it a secured creditor when it had been unsecured since August 10, 2009, (2) the mortgage arose on account of an antecedent debt to purchase the Real Property on April 16, 1998, (3) debtor was insolvent when she filed for bankruptcy and thirteen days prior when the Mortgage Deed was refiled at the Property Registry, (4) the transfer was made within the 90-day period prior to the filing of the bankruptcy petition, and (5) it would have enabled the USDA to receive more than it would have under Chapter 7. The USDA, a government institution, was a creditor like any other in the instant case and as such was subject to Puerto Rico's Mortgage Law when attempting to secure a mortgage lien.
OUTCOME: Debtor's and the Trustee's Motion for Summary Judgment was granted. The USDA's Opposition thereto and cross motion for summary judgment were denied. Consequently, upon the avoidance of the USDA's Mortgage Deed, the USDA's Claim Register No. 2 was allowed as a general unsecured claim. The USDA was further ordered to return to the Trustee debtor's mortgage note over her Real Property for cancellation purposes at the Property Registry.
Turnover motion granted relevant to U.S. property of foreign debtors:
In re RAYMOND
CHO-MIN LEE and PRISCILLA HWANG LEE, Debtors in Foreign Proceedings
Chapter 15, Case
Nos. 09-21367-JNF and 09-21377-JNF (Jointly Administered), 2012 Bankr.
LEXIS 2505 (Bankr. D. Mass. 6/4/2012)(Joan N. Feeney, Bankruptcy Judge).
PROCEDURAL POSTURE: Movants, the foreign
representatives of foreign debtor's estate, sought an order pursuant to 11 U.S.C.S.
§§ 1521(a)(5) and (b),
directing the turnover of all assets of the debtors located in the United
States (U.S.). The debtors objected to the turnover motion. The dispute
concerns whether the foreign representatives were entitled to the turnover of
the debtors' equity interests in several U.S. companies.
OVERVIEW: Also at issue was whether the interests of creditors and other interested parties, including the debtor, would be sufficiently protected if the turnover motion was granted. 11 U.S.C.S. § 1522(a). The foreign debtors had been adjudged bankrupt following the filing of petitions in the High Court of the Hong Kong. They owned shares in U.S. close corporate entities that owned properties located in Massachusetts. The U.S. entities had paid substantial funds to the foreign representatives. The U.S. entities challenged, unsuccessfully, a finding that protections for other shareholders embodied in the transfer restrictions would apply to the foreign representatives only when they eventually, if ever, transferred the foreign debtors' equity interests to third parties. The foreign debtors and the U.S. entities failed to introduce any evidence that the lenders have taken any actions, or are likely to take any actions, in the Chapter 15 cases to enforce the default provisions or the guaranties. Hong Kong law was consistent with U.S. law, and the foreign representatives' rights would be no greater than the rights that the debtors could have exercised.
OUTCOME: The motion for turnover was granted.
OVERVIEW: Also at issue was whether the interests of creditors and other interested parties, including the debtor, would be sufficiently protected if the turnover motion was granted. 11 U.S.C.S. § 1522(a). The foreign debtors had been adjudged bankrupt following the filing of petitions in the High Court of the Hong Kong. They owned shares in U.S. close corporate entities that owned properties located in Massachusetts. The U.S. entities had paid substantial funds to the foreign representatives. The U.S. entities challenged, unsuccessfully, a finding that protections for other shareholders embodied in the transfer restrictions would apply to the foreign representatives only when they eventually, if ever, transferred the foreign debtors' equity interests to third parties. The foreign debtors and the U.S. entities failed to introduce any evidence that the lenders have taken any actions, or are likely to take any actions, in the Chapter 15 cases to enforce the default provisions or the guaranties. Hong Kong law was consistent with U.S. law, and the foreign representatives' rights would be no greater than the rights that the debtors could have exercised.
OUTCOME: The motion for turnover was granted.
BAP affirms reduction
in attorney fees claimed by secured creditor under penalty clause in mortgage:
RNPM, LLC, by and through Operating Partners Co., Inc., Appellant,
v. VIRGEN P. MERCADO ALVAREZ, Appellee, 2012 Bankr. LEXIS 2963 (1st
Cir. BAP 6/28/12)(Before Judges Boroff Deasy & Bailey, Opinion by Bailey).
PROCEDURAL POSTURE: Appellee debtor declared Chapter
13 bankruptcy, and appellant LLC filed a claim against the debtor's bankruptcy
estate, seeking payment of principal and interest the debtor owed on a note
that was secured by a mortgage on her residence and $7,600 in attorney's fees
under a penalty clause in the mortgage. The U.S. Bankruptcy Court for the
District of Puerto Rico awarded the LLC only $2,000 under the penalty clause,
and the LLC appealed.
OVERVIEW: The debtor executed a note in the amount of $76,000 in favor of a mortgage company in 2003, that was secured by a mortgage on her residence, and the mortgage company assigned the note and mortgage to an LLC. The debtor defaulted on her obligations under the note and mortgage, and after the debtor declared bankruptcy in 2010, the LLC filed a claim against her bankruptcy estate, seeking payment of principal and interest that was due under the note and attorney's fees in the amount of $7,600 that was allowed under a penalty clause that was included in the mortgage pursuant to P.R. Laws Ann. tit. 31, § 3131. The bankruptcy court allowed the LLC's request for payment of attorney's fees in the amount of $2,000, and the LLC appealed. The appellate panel found that the bankruptcy court had not abused its discretion. Although 11 U.S.C.S. § 1322(e) allowed the LLC to recover attorney's fees under the penalty clause because Puerto Rico law recognized the use of penalty clauses and the mortgage contained a penalty clause, the bankruptcy court had the power under P.R. Laws Ann. tit. 31, § 3133 to reduce the amount allowed under the penalty clause if it found that the amount was excessive.
OUTCOME: The bankruptcy appellate panel affirmed the bankruptcy court's decision. The record supported the bankruptcy court's determination that there was a lack of proportion between the amount the LLC requested and the amount of unpaid principal and interest the debtor owed.
OVERVIEW: The debtor executed a note in the amount of $76,000 in favor of a mortgage company in 2003, that was secured by a mortgage on her residence, and the mortgage company assigned the note and mortgage to an LLC. The debtor defaulted on her obligations under the note and mortgage, and after the debtor declared bankruptcy in 2010, the LLC filed a claim against her bankruptcy estate, seeking payment of principal and interest that was due under the note and attorney's fees in the amount of $7,600 that was allowed under a penalty clause that was included in the mortgage pursuant to P.R. Laws Ann. tit. 31, § 3131. The bankruptcy court allowed the LLC's request for payment of attorney's fees in the amount of $2,000, and the LLC appealed. The appellate panel found that the bankruptcy court had not abused its discretion. Although 11 U.S.C.S. § 1322(e) allowed the LLC to recover attorney's fees under the penalty clause because Puerto Rico law recognized the use of penalty clauses and the mortgage contained a penalty clause, the bankruptcy court had the power under P.R. Laws Ann. tit. 31, § 3133 to reduce the amount allowed under the penalty clause if it found that the amount was excessive.
OUTCOME: The bankruptcy appellate panel affirmed the bankruptcy court's decision. The record supported the bankruptcy court's determination that there was a lack of proportion between the amount the LLC requested and the amount of unpaid principal and interest the debtor owed.
Dismissal of Ch. 7 case reversed on appeal creditors lacked
constitutional standing to pursue a motion to dismiss the debtor's case
pursuant to § 707(a)
because the creditors would have received no benefit in the case or in any
potential future case the debtor might file by dismissing the case;
Issue was also moot since debtor had already received discharge:
RIDEL ALEGRE
FERNÁNDEZ ROSADO, Appellant, v. CELEDONIO CORREDERA PABLOS, PABLO LÓPEZ BÁEZ,
EMMA TERESA BENÍTEZ, and OSIRIS DELGADO, Appellees, 2012 Bankr. LEXIS 2969 (1st Cir.
BAP 6/29/12)(Before Judges Boroff, Deasy & Bailey, Per curiam).
PROCEDURAL POSTURE: Appellant Chapter 7 debtor
challenged a decision of the United States Bankruptcy Court for the District of
Puerto Rico, which dismissed his Chapter 7 case pursuant to 11 U.S.C.S. §
707(a).
OVERVIEW: The debtor filed a Chapter 7 petition and the trustee filed a report of no distribution. The debtor filed a motion for entry of his discharge. Before the bankruptcy court ruled on the motion, appellee creditors filed a motion to dismiss the debtor's case. The bankruptcy court denied the debtor a discharge and granted the motion to dismiss. The court reversed and remanded for an entry of the debtor's discharge. The bankruptcy court entered the discharge. The bankruptcy court, however, reaffirmed the dismissal of the case. On appeal, the court held that the creditors lacked constitutional standing to pursue a motion to dismiss the debtor's case pursuant to § 707(a) because the creditors would have received no benefit in the case or in any potential future case the debtor might file by dismissing the case. The dismissal motion became moot once the debtor received his discharge.
OUTCOME: The court reversed the bankruptcy court's decision and remanded the matter for proceedings consistent with the court's opinion.
OVERVIEW: The debtor filed a Chapter 7 petition and the trustee filed a report of no distribution. The debtor filed a motion for entry of his discharge. Before the bankruptcy court ruled on the motion, appellee creditors filed a motion to dismiss the debtor's case. The bankruptcy court denied the debtor a discharge and granted the motion to dismiss. The court reversed and remanded for an entry of the debtor's discharge. The bankruptcy court entered the discharge. The bankruptcy court, however, reaffirmed the dismissal of the case. On appeal, the court held that the creditors lacked constitutional standing to pursue a motion to dismiss the debtor's case pursuant to § 707(a) because the creditors would have received no benefit in the case or in any potential future case the debtor might file by dismissing the case. The dismissal motion became moot once the debtor received his discharge.
OUTCOME: The court reversed the bankruptcy court's decision and remanded the matter for proceedings consistent with the court's opinion.
Debtor’s counsel paid after trustee appointed as all creditors paid in
full before surplus funds returned to debtor:
In re:
INTERNATIONAL GOSPEL PARTY BOOSTING JESUS GROUPS, INC., 2012 Bankr. LEXIS
2946 (Bankr. D. Mass. 6/28/12)(Henry J. Boroff, Bankruptcy Judge).
PROCEDURAL POSTURE: Debtor nonprofit organization filed
a petition under Chapter 11 of the Bankruptcy Code, and the court appointed a
Chapter 11 trustee to administer the debtor's bankruptcy estate. The Chapter 11
trustee and the United States Trustee filed an objection to an application for
attorney's fees and expenses that was filed by an attorney who represented the
debtor.
OVERVIEW: The debtor declared bankruptcy in August 2010 and conducted business as a debtor-in-possession until October 2010, when the court approved the appointment of a Chapter 11 trustee. An attorney who represented the debtor asked the court for an award of attorney's fees and expenses, and although the Chapter 11 trustee and the UST did not object to payment of fees the attorney earned before the Chapter 11 trustee was appointed, they objected to payment of fees the attorney charged for work he performed after the Chapter 11 trustee was appointed. The court found that the attorney was not eligible under 11 U.S.C.S. § 330(a) to receive payment for work he performed after the court appointed the Chapter 11 trustee because the trustee had not asked the court for permission under 11 U.S.C.S. § 327 to hire the attorney. However, it also found that there was cause under 11 U.S.C.S. § 1112(b) to dismiss the debtor's bankruptcy case and that the attorney could be paid out of surplus funds the trustee held for the debtor following the sale of the one asset the debtor owned--real property the debtor valued at $1,425,100 that was sold for $1,326,001.
OUTCOME: The court stated that it would enter an order which directed the trustee to pay the debtor's attorney $10,088 in fees and $257 in expenses he charged for work he performed for the debtor after the trustee was appointed. The court retained jurisdiction under 11 U.S.C.S. § 349 over surplus funds the trustee held for the debtor, and cause existed under § 349(b) to direct the trustee to pay the attorney's unpaid fees and expenses from those funds. Before the Court is an "Application for Fee of Counsel to Chapter 11 Debtors" (the "Fee Application") filed by Attorney David Nickless, counsel to International Gospel Party Boosting Jesus Groups, Inc., the debtor in this Chapter 11 case (the "Debtor"). Both the United States trustee and the Chapter 11 trustee object to the Fee Application in part, asserting that Attorney Nickless cannot, consistent with § 330(a) as interpreted by the Supreme Court in Lamie v. U.S. Trustee, 540 U.S. 526, 124 S. Ct. 1023, 157 L. Ed. 2d 1024 (2004), be compensated by the bankruptcy estate for services rendered following the appointment of the Chapter 11 trustee. But here there is a twist. Attorney Nickless seeks payment from funds that will not be necessary to pay creditors. There are sufficient funds in this case to pay creditors in full, and the funds from which Attorney Nickless seeks payment constitute the type of "surplus" typically returned to a debtor after dismissal of a Chapter 11 case, pursuant to § 349 of the United States Bankruptcy Code.
Because the case will be dismissed, the interpretation of § 330(a) in Lamie has no application here. And under § 349(b), the Court retains jurisdiction over the surplus, non-estate funds to direct distribution to an entity other than the Debtor for cause. Since Attorney Nickless's reasonable, uncontested fees remain unpaid, the Court finds cause for directing the Trustee to pay Attorney Nickless the remainder of the compensation he is owed upon dismissal of the case. Based solely on equitable principles, in a case such as this where all creditors have been paid in full, the Court would be hard pressed to conclude that Lamie precludes this Court from providing compensation to a debtor's counsel before returning a surplus to that debtor upon dismissal of a bankruptcy case. While § 330(a) prohibits payment to Attorney Nickless from the bankruptcy estate for those fees and expenses incurred after the appointment of the Chapter 11 Trustee, the Court finds there is cause to dismiss the case under § 1112(b). Accordingly, the Surplus Funds will no longer be property of the bankruptcy estate. The Court also determines that, pursuant to § 349(b), cause exists to direct the payment of Attorney Nickless's unpaid fees and expenses from the Surplus Funds that will vest in the Debtor upon dismissal of the case.
OVERVIEW: The debtor declared bankruptcy in August 2010 and conducted business as a debtor-in-possession until October 2010, when the court approved the appointment of a Chapter 11 trustee. An attorney who represented the debtor asked the court for an award of attorney's fees and expenses, and although the Chapter 11 trustee and the UST did not object to payment of fees the attorney earned before the Chapter 11 trustee was appointed, they objected to payment of fees the attorney charged for work he performed after the Chapter 11 trustee was appointed. The court found that the attorney was not eligible under 11 U.S.C.S. § 330(a) to receive payment for work he performed after the court appointed the Chapter 11 trustee because the trustee had not asked the court for permission under 11 U.S.C.S. § 327 to hire the attorney. However, it also found that there was cause under 11 U.S.C.S. § 1112(b) to dismiss the debtor's bankruptcy case and that the attorney could be paid out of surplus funds the trustee held for the debtor following the sale of the one asset the debtor owned--real property the debtor valued at $1,425,100 that was sold for $1,326,001.
OUTCOME: The court stated that it would enter an order which directed the trustee to pay the debtor's attorney $10,088 in fees and $257 in expenses he charged for work he performed for the debtor after the trustee was appointed. The court retained jurisdiction under 11 U.S.C.S. § 349 over surplus funds the trustee held for the debtor, and cause existed under § 349(b) to direct the trustee to pay the attorney's unpaid fees and expenses from those funds. Before the Court is an "Application for Fee of Counsel to Chapter 11 Debtors" (the "Fee Application") filed by Attorney David Nickless, counsel to International Gospel Party Boosting Jesus Groups, Inc., the debtor in this Chapter 11 case (the "Debtor"). Both the United States trustee and the Chapter 11 trustee object to the Fee Application in part, asserting that Attorney Nickless cannot, consistent with § 330(a) as interpreted by the Supreme Court in Lamie v. U.S. Trustee, 540 U.S. 526, 124 S. Ct. 1023, 157 L. Ed. 2d 1024 (2004), be compensated by the bankruptcy estate for services rendered following the appointment of the Chapter 11 trustee. But here there is a twist. Attorney Nickless seeks payment from funds that will not be necessary to pay creditors. There are sufficient funds in this case to pay creditors in full, and the funds from which Attorney Nickless seeks payment constitute the type of "surplus" typically returned to a debtor after dismissal of a Chapter 11 case, pursuant to § 349 of the United States Bankruptcy Code.
Because the case will be dismissed, the interpretation of § 330(a) in Lamie has no application here. And under § 349(b), the Court retains jurisdiction over the surplus, non-estate funds to direct distribution to an entity other than the Debtor for cause. Since Attorney Nickless's reasonable, uncontested fees remain unpaid, the Court finds cause for directing the Trustee to pay Attorney Nickless the remainder of the compensation he is owed upon dismissal of the case. Based solely on equitable principles, in a case such as this where all creditors have been paid in full, the Court would be hard pressed to conclude that Lamie precludes this Court from providing compensation to a debtor's counsel before returning a surplus to that debtor upon dismissal of a bankruptcy case. While § 330(a) prohibits payment to Attorney Nickless from the bankruptcy estate for those fees and expenses incurred after the appointment of the Chapter 11 Trustee, the Court finds there is cause to dismiss the case under § 1112(b). Accordingly, the Surplus Funds will no longer be property of the bankruptcy estate. The Court also determines that, pursuant to § 349(b), cause exists to direct the payment of Attorney Nickless's unpaid fees and expenses from the Surplus Funds that will vest in the Debtor upon dismissal of the case.
Trustee’s objection to debtor’s amending schedules to change value of
exemption was overruled:
IN RE: CARLOS
GUTIERREZ HERNANDEZ, 2012 Bankr. LEXIS 2735 (Bankr. D.P.R. 6/14/12)(Enrique
S. Lamoutte, Bankruptcy Judge).
PROCEDURAL POSTURE: The chapter 7 trustee filed an
objection to debtor's motion to inform an amendment of his schedules B and C to
change the value of a case he held as plaintiff in a non-federal court of first
instance, and to amend his claimed exemptions, under 11 U.S.C.S. §
522, based on that new value.
OVERVIEW: Debtor scheduled a cause of action against the local telephone company of unknown value with his bankruptcy petition. He later moved to amend his schedule B to change the value of the debtor's interest in the suit from unknown to $181,000. The motion was timely under Fed. R. Bankr. P. 1009(a). The court found that the trustee failed to meet his burden under Fed. R. Bankr. P. 4003(b), and failed to show any prejudice whatsoever or bad faith by the debtor. Also, no intention of hindering or obstructing the administration of the trustee could be inferred from the record or the trustee's objection. The trustee did not contest the validity of the debtor's amended claimed exemptions. Thus an evidentiary hearing on the value of the debtor's claimed exemptions was unwarranted.
OUTCOME: The trustee's objection was denied.
OVERVIEW: Debtor scheduled a cause of action against the local telephone company of unknown value with his bankruptcy petition. He later moved to amend his schedule B to change the value of the debtor's interest in the suit from unknown to $181,000. The motion was timely under Fed. R. Bankr. P. 1009(a). The court found that the trustee failed to meet his burden under Fed. R. Bankr. P. 4003(b), and failed to show any prejudice whatsoever or bad faith by the debtor. Also, no intention of hindering or obstructing the administration of the trustee could be inferred from the record or the trustee's objection. The trustee did not contest the validity of the debtor's amended claimed exemptions. Thus an evidentiary hearing on the value of the debtor's claimed exemptions was unwarranted.
OUTCOME: The trustee's objection was denied.
Ch. 13 debtor's counsel disqualified due to conflict, lack of candor & Court questioned counsel's competence:
In re: SILVEIRA, SOUZASILVEIRA,
Ch. 13 Debtors, 2012 Bankr. LEXIS 3022
(Bankr. D. Mass. 6/18/12)(Melvin S. Hoffman, Bankruptcy Judge).
PROCEDURAL POSTURE:
After counsel for bankruptcy
debtors disclosed his relationship with an organization which assisted clients
in financial difficulty in retaining their homes and which designated counsel
to represent the debtors, the bankruptcy
court considered whether counsel should be disqualified from representing the
debtors.
OVERVIEW:
Counsel was affiliated with the organization which designated counsel to
represent the debtors, counsel was compensated from a fund maintained by the
organization to which the debtors contributed, and the organization was
directed to turn over funds deposited by the debtors to the bankruptcy estate. The bankruptcy court held that counsel was
disqualified from representing the debtors and was required to disgorge fees
which were paid directly to counsel by the debtors. Counsel had a clear
conflict of interest in representing both the debtors and the organization
which had adverse interests in view of the turnover requirement and the
likelihood of additional claims of the bankruptcy
estate against the organization. Further, counsel's disclosure of the nature
and terms of his compensation as counsel for the debtors was lacking in
completeness and candor, and counsel put the bankruptcy trustee and the court through a great deal of wasted
time and effort in a frustrating attempt to extract from counsel a coherent and
accurate explanation of his relationship with the debtors and the organization,
and how and when counsel was paid.
OUTCOME:
Counsel was disqualified as the debtors' counsel and ordered to disgorge fees.
Failure to give creditor a damages hearing on willful stay relief violation is reversible error; issue of damages on remand left material facts disputed and thus not ripe for SJ:
(IN RE: CALDERO)CALDERO
v. DORAL FINANCIAL CORPORATION, 2012 Bankr. LEXIS 2956 (Bankr. D. P.R.
6/27/12)(Brian K. Tester, Bankruptcy Judge).
PRIOR HISTORY: Laboy v. Doral Mortg. Corp. (In re Laboy), 647 F.3d 367, 2011 U.S. App. LEXIS 10881 (1st Cir., 2011)
PRIOR HISTORY: Laboy v. Doral Mortg. Corp. (In re Laboy), 647 F.3d 367, 2011 U.S. App. LEXIS 10881 (1st Cir., 2011)
PROCEDURAL POSTURE: Following the reversal of the
bankruptcy court’s denial of a hearing on damages resulting from defendant
creditor’s willful violation of the automatic stay, the creditor moved for
summary judgment on the issue of damages. Plaintiff Chapter 7 debtors opposed
the motion.
OVERVIEW: Although the bankruptcy court had originally held that the creditor’s post-petition attempt to perfect its mortgage fell under an exception to the automatic stay, it granted the debtors’ motion for reconsideration and reversed itself. However, it denied the debtors’ petition for damages, finding that cancellation of the mortgage was remedy enough. The bankruptcy appellate panel affirmed, but the First Circuit Court of Appeals reversed the bankruptcy court’s denial of a hearing on damages, vacated its rejection of damages, and remanded for further proceedings. In its motion for summary judgment, the creditor argued that res judicata applied. It alleged that the order approving settlement of a separate, subsequent adversary complaint alleging violation of the discharge injunction and that complaint’s subsequent dismissal with prejudice barred damages. The court held that res judicata did not bar a hearing for adjudication of damages. The court found that there were disputed issues of material fact as to whether the settlement of damages in the 11 U.S.C.S. § 524 complaint took into consideration the damages alleged in the 11 U.S.C.S. § 362 complaint.
OUTCOME: The court denied the creditor's motion for summary judgment on the issue of damages.
OVERVIEW: Although the bankruptcy court had originally held that the creditor’s post-petition attempt to perfect its mortgage fell under an exception to the automatic stay, it granted the debtors’ motion for reconsideration and reversed itself. However, it denied the debtors’ petition for damages, finding that cancellation of the mortgage was remedy enough. The bankruptcy appellate panel affirmed, but the First Circuit Court of Appeals reversed the bankruptcy court’s denial of a hearing on damages, vacated its rejection of damages, and remanded for further proceedings. In its motion for summary judgment, the creditor argued that res judicata applied. It alleged that the order approving settlement of a separate, subsequent adversary complaint alleging violation of the discharge injunction and that complaint’s subsequent dismissal with prejudice barred damages. The court held that res judicata did not bar a hearing for adjudication of damages. The court found that there were disputed issues of material fact as to whether the settlement of damages in the 11 U.S.C.S. § 524 complaint took into consideration the damages alleged in the 11 U.S.C.S. § 362 complaint.
OUTCOME: The court denied the creditor's motion for summary judgment on the issue of damages.
Before this Court is Defendant's Motion for Summary Judgment
on Issue of Damages [Dkt. No. 223], Defendant's Statement of Material Facts on
Motion for Summary Judgment [Dkt. No. 223-1 Appendix], Plaintiff's Opposition
to Doral's Motion for Summary Judgment on the Issue of Damages [Dkt. No. 230],
and Plaintiff's Statement Opposing Uncontested Facts and Plaintiff's Statement
of Uncontested Facts [Dkt. No. 231]. For the reasons set forth below, the
Defendant's Motion for Summary Judgment is DENIED.
Personal Injury settlement was not referenced in confirmation order,
although disclosed to trustee, as such, its proceeds were not part of the plan
payments:
(IN RE: VARGAS), BOYAJIAN,
Chapter 13 Trustee v. VARGAS, 2012 Bankr. LEXIS 2910 (1st Cir. BAP 6/8/12)(Before Judges Hillman,
Feeney, Hoffman, opinion by Feeney).
NOTICE: NOT FOR PUBLICATION
PROCEDURAL POSTURE: Appellee bankruptcy debtor claimed an exemption in an unliquidated personal injury claim, and appellant bankruptcy trustee objected to the exemption on the ground that proceeds from the claim should be included in the debtor's projected disposal income in the debtor's plan. The trustee appealed the order of the U.S. Bankruptcy Court for the District of Rhode Island which overruled the trustee's objection.
OVERVIEW: The debtor's plan was confirmed without including the unknown value of the personal injury claim in the debtor's projected disposable income for distribution to unsecured creditors, and the trustee contended that the estimated value of the claim should be included in disposable income even if the claim was exempt. The bankruptcy appellate panel held that, since the bankruptcy court entered a final order confirming the debtor's plan without reserving the issue of whether the personal injury claim should be included in the debtor's disposable income, there was no case or controversy sufficient to trigger the panel's jurisdiction. The binding confirmation order contained no indication that it was subject to a subsequent ruling on the trustee's objection to the debtor's claimed exemption, and the order confirming the debtor's plan was not appealed and was final.
OUTCOME: The trustee's appeal was dismissed.
Consequence of the impact of bankruptcy on a pending loan mod is a material fact precluding SJ:
NOTICE: NOT FOR PUBLICATION
PROCEDURAL POSTURE: Appellee bankruptcy debtor claimed an exemption in an unliquidated personal injury claim, and appellant bankruptcy trustee objected to the exemption on the ground that proceeds from the claim should be included in the debtor's projected disposal income in the debtor's plan. The trustee appealed the order of the U.S. Bankruptcy Court for the District of Rhode Island which overruled the trustee's objection.
OVERVIEW: The debtor's plan was confirmed without including the unknown value of the personal injury claim in the debtor's projected disposable income for distribution to unsecured creditors, and the trustee contended that the estimated value of the claim should be included in disposable income even if the claim was exempt. The bankruptcy appellate panel held that, since the bankruptcy court entered a final order confirming the debtor's plan without reserving the issue of whether the personal injury claim should be included in the debtor's disposable income, there was no case or controversy sufficient to trigger the panel's jurisdiction. The binding confirmation order contained no indication that it was subject to a subsequent ruling on the trustee's objection to the debtor's claimed exemption, and the order confirming the debtor's plan was not appealed and was final.
OUTCOME: The trustee's appeal was dismissed.
Consequence of the impact of bankruptcy on a pending loan mod is a material fact precluding SJ:
(IN
RE: SANTIAGO) SANTIAGO v. RG MORTGAGE CORPORATION, et als., 2012 Bankr. LEXIS 2542 (Bankr. D.P.R. 6/4/12)(Brian K. Tester, Bankruptcy
Judge).
PROCEDURAL POSTURE: Plaintiff debtors filed the present adversary proceeding
alleging that defendant bank breached the contractual agreement signed with
debtors and that they also violated the stay at Section 362(a) as enforced by Section
541(a)(5). Both sides moved for summary judgment.
OVERVIEW: Debtors argued
that they were not informed of the consequences of a bankruptcy filing on the Federal Deposit Insurance Corporation
(FDIC) Loan Modification Program and that the bank was aware of their intention
to file. The bank claimed it provided debtors a document titled "FDIC Loan
Modification Program" that stated that loans subject to these contracts
were typically eligible for modification if the borrower was currently not in bankruptcy, or had not been discharged
from Chapter 7 bankruptcy since
the loan was originated. Debtors argued to the contrary that said document was
not provided to them. After reviewing all the documents presented with the
summary judgment motions, the court found that there were still, with regard to
Fed. R. Civ. P. 56(c), made applicable by Fed. R. Bankr. Pro. 7056, , contested
material facts that mandated an evidentiary hearing: first, whether the bank
had an obligation to inform debtors that filing a bankruptcy case during the probation period would result in not
executing a Modification Agreement; second, regardless of the obligation to
inform, did the bank actually inform debtors the consequences of a bankruptcy filing on the Modification
Agreement.
OUTCOME: The motions were denied.
No comments:
Post a Comment