After a trial on a creditor’s motion to appoint a Chapter 11 trustee, with a joinder by the U.S. Trustee, the court granted the motion, finding clear and convincing evidence that such an appointment is warranted under subsections (1) and (2) of 11 U.S.C. § 1104(a). The court identified the debtor’s “vendetta” against family members who were more interested in protecting their own financial interests than in helping him reorganize as an obstacle to the debtor in possession’s ability to exercise his fiduciary duties and to act in the estate’s best interests. For that reason, the court ruled that an independent trustee should be appointed under § 1104(a)(2). In addition, the debtor’s trial testimony demonstrated incompetence and gross mismanagement of the case, as well as possible fraud and dishonesty, leading the court to also find cause for appointment of a trustee under § 1104(a)(1).
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In this order denying the debtors’ motion to avoid a judgment lien, the court reiterated the paramount importance of providing proper notice to a defendant whose rights may be altered, and set out some guidelines for ensuring the achievement of proper service under the procedural rules. First, the defendant must be properly identified. Then, the plaintiff must figure out which method of service is appropriate, e.g., on a registered agent, by first-class mail to an officer or agent at the defendant’s street address, or on a named officer of an insured depository institution. “Achieving proper service of process takes time and effort. To get it right, one needs to know the proper legal name of the entity, where it is organized, its registered address, and its registered agent or officer names and addresses.”
The court granted the defendants’ motion to dismiss an adversary proceeding resulting from a long-running family dispute. In doing so, the court recognized that the plaintiffs were attempting to relitigate previously discounted and disallowed causes of action under new theories of recovery and new legal articulations. The court pointed out that res judicata precluded the plaintiffs’ breach of contract allegations, which were simply a reiteration of the plaintiffs’ previously overruled objections to the defendants’ proofs of claims, as well as the breach of fiduciary duty claim that was merely the breach of contract claim in a different guise. The court also disposed of the plaintiffs’ breach of loyalty claim by noting that only the debtor corporation has standing to pursue it under the shareholder standing rule. Finally, the court reminded litigants of the importance of the bankruptcy process and the dim view taken of those who try to attack the integrity of the system.
The debtors had previously filed a lender liability lawsuit in Rhode Island. Upon filing bankruptcy in Nebraska, the debtors filed an adversary proceeding containing the same allegations. The bankruptcy court granted relief from the automatic stay to the defendant to permit the Rhode Island litigation to proceed, based on the contract’s forum selection clause naming Rhode Island as the agreed-upon forum and the status of the litigation there prior to the bankruptcy filing, as well as the plaintiffs’ request for a jury trial, which would not be held in the bankruptcy court in any event.
The court ruled that the debtor remains personally liable for all ancillary amounts still owing in connection with a judgment, if the judgment is found to be non-dischargeable. Therefore, the debtor would owe the judgment rate of interest on the debt until it is paid in full. Here, summary judgment was denied so a trial could be held to determine dischargeability.
The court is unable to determine whether or not the defendant in a § 523(a)(2)(B) dischargeability proceeding is entitled to summary judgment because the movant failed to submit any evidence in support of the motion.
The bankruptcy court denied the defendants’ motion for summary judgment in this legal malpractice case. The motion was primarily based on the doctrine of judicial estoppel, and the defendants argued that testimony on the debtor’s behalf had changed significantly, with the debtor taking the position in the bankruptcy case that abandonment of certain assets was necessary, and now taking the position in the malpractice action that it could have maintained those assets and should not have been forced to abandon them. The court found that the evidence presented does not establish judicial estoppel, and ordered the case to proceed to trial.
Venue for a trustee’s adversary proceeding to avoid allegedly fraudulent transfers was appropriate in the district in which the bankruptcy case was filed. The out-of-state defendants had moved to dismiss, arguing that 28 U.S.C. § 1409(b) requires such lawsuits to be brought in the defendants’ home district, but the court denied that motion, noting that § 1409(b) addresses only proceedings “arising in” or “related to” a bankruptcy case and fraudulent transfer avoidance actions “arise under” the Bankruptcy Code.
The debtor’s managing member and guarantor of its debt objected to the manner in which the primary secured creditor disposed of the debtor’s assets. The movant objected to the creditor’s proof of claim, arguing that the disposition was not commercially reasonable because the assets were not offered to industry buyers and because the creditor ignored the movant’s competing bid and the possibility of an even higher third-party bid. The court determined that the validity and amount of claim as of the petition date were not in dispute, but the movant was contesting the amount of the claim in light of post-petition events. The court ruled that the matter should be heard as an adversary proceeding and deferred the claim objection pending the outcome of the adversary proceeding.
The debtors moved to avoid a judicial lien which impaired their homestead exemption. Under the § 522(f)(2) formula, only a portion of the judicial lien actually impaired the exemption and was subject to avoidance. Two other judicial liens on the property had already been avoided, so those liens were not part of the statutory calculation. The debtors were directed to file an amended post-confirmation plan to clarify how they would deal with the secured claim represented by the unavoided portion of the judicial lien.