The debtor failed to comply with terms of its confirmed Chapter 11 plan applicable to one secured creditor. After extensive litigation, the bankruptcy court ruled in the creditor's favor in part, but denied its request to force the debtor to sell certain vehicles, finding that the plan did not include the vehicles among the assets the debtor had agreed to liquidate to pay this creditor's claim.
The creditor then filed a motion seeking derivative standing to prosecute claims on behalf of the bankruptcy estate concerning the allegedly fraudulent transfer of the vehicles and unauthorized use of cash collateral. The debtor did not object or appear at the hearing on the motion, although one of the debtor's members did appear without counsel. The bankruptcy court granted the motion for derivative standing.
Members of the debtor then filed a motion to reconsider or amend the order, which is what the court addressed here.
First, the court granted the motion to reconsider its order granting the creditor derivative standing, despite the court's observation that the matter had either been waived or raised by parties who lacked authority to assert it, because standing is a jurisdictional prerequisite that courts are obligated to examine.
Second, the court granted the motion to amend its order concerning standing, finding that the creditor had not established either element necessary under § 1123(b)(3). The debtor did not reserve under the terms of the confirmed plan, to itself or its designee, the right to bring Chapter 5 enforcement actions, nor can the creditor establish it is acting as a representative of the estate to benefit unsecured creditors. Instead, the court found, the moving creditor would be the only creditor to benefit from the litigation.
Accordingly, the court vacated its order granting derivative standing and denied the creditor's motion.
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A secured creditor filed a motion for civil contempt and sanctions to force the debtor to turn over machinery and equipment and execute a deed as provided for in the confirmed plan. After hearings, the court granted the motion and entered a writ of execution authorizing the creditor to repossess and sell the machinery and equipment at issue. Members of the debtor then filed a motion to amend the order, claiming that some of the equipment actually belonged to them and not to the debtor.
After an evidentiary hearing on the ownership issues, the bankruptcy court concluded the members were equitably estopped from claiming ownership of the bulk of the machinery and equipment. The court specifically found that one of the members had intentionally and willfully made false representations to the court and the creditor concerning ownership of the equipment. The court further found the creditor exercised reasonable prudence, relied on the false representations in the debtor's schedules, and acted in accordance with that reliance by agreeing to the terms of the plan and dismissing litigation against the members in their capacity as guarantors. Accordingly, the court denied in large part the members' motion to amend the sanctions order and ordered the members to turn over the property at issue.
The debtors filed this adversary proceeding to stop the IRS's post-discharge collection of pre-petition taxes that the debtors believed were paid through the Chapter 13 plan. The court granted summary judgment to the IRS because the taxes arose from late-filed returns and were not dischargeable under §§ 1328(a)(2) and 523(a)(1)(B)(ii). The debtors had miscalculated the amount due when they objected to the IRS's claim; because the IRS was not properly served with notice of the objection, it did not oppose the objection. Regardless of the notice issue, the debt was not discharged and the IRS did not violate the discharge injunction in renewing its collection efforts.
The court granted summary judgment to the plaintiffs in their action to except a debt from discharge under § 523(a)(2)(A). The plaintiffs purchased a house from the debtor and later discovered the basement suffered water damage, which the debtor had failed to disclose. The matter was arbitrated, with an award being entered in the plaintiffs' favor based on the debtor's knowing failure to disclose. The debtor then filed for bankruptcy protection before the arbitration award could be confirmed.
Collateral estoppel principles allowed the plaintiffs to rely on the arbitration findings to prove the fraudulent nature of the debtor's representations. The arbitration award established that the debtor knowingly made a false statement to the plaintiffs concerning water intrusion in the basement, the plaintiffs justifiably relied on the debtor's representations, and they suffered damage as a result. Therefore, the plaintiffs were entitled to judgment as a matter of law excepting this debt from discharge.
The debtors filed this show-cause motion to challenge the IRS's post-discharge seizure of tax refunds and Social Security payments to collect post-petition interest when the underlying taxes and penalties were paid in full through the confirmed Chapter 13 plan. Eighth Circuit precedent is clear that post-petition interest and penalties are non-dischargeable, and the debtors remain personally liable for that interest subsequent to bankruptcy proceedings, so the motion is denied.
The court denied a pharmaceutical supplier's administrative expense claim based on alleged reclamation rights, finding that the supplier did not have a valid reclamation claim under § 546(c) or the right to exercise the equitable doctrine of asset marshaling.
The debtor and the supplier had entered into a stipulation concerning the supplier's right to assert its reclamation claim, but the agreed-upon conditions for pursuing that claim were not met. The terms of the stipulation required the supplier to establish that it had both an enforceable reclamation claim and enforceable marshaling rights as of the petition date. The court found the supplier's reclamation rights under § 546(c) were valueless and unenforceable because prior secured claims existed that exceeded the value of the pharmaceutical goods. The court also ruled that the supplier did not have the ability to use marshaling as a remedy because that would have required delaying the sale of the debtor's pharmacy assets in order to see if the lenders would have been paid in full from other assets. Such a tactic would have substantially reduced the sale price of the assets and resulted in an inequitable remedy for other creditors.
Finally, the court held that the supplier could not establish its claim outside the terms of the stipulation under § 507(b) (the supplier did not hold a secured claim that was inadequately protected), § 546(c) (there were no proceeds to which the supplier's claim could attach, so its right had no value), or § 503(b)(1)(A) (the supplier had no post-petition transaction with the debtor, and the supplier's valueless reclamation claims did "not morph into valuable post-petition administrative expense priority claims simply because the goods were sold").
On a request for payment of certain administrative expense claims filed by the debtor's landlords, the court addressed four questions:
1. Are the administrative expense claimants entitled to immediate payment of allowed administrative expense claims other than as set forth in the Confirmation Order? The court granted the request for immediate payment of § 365(d)(3) post-petition/pre-rejection lease obligations and ruled that the § 503(b)(1) claims for the costs of preserving the estate are simply entitled to § 507(a)(2) priority and would be paid in accordance with the terms of the plan.
2. Are the landlords are entitled to administrative expense claims for stub rent? The court extensively analyzed the Eighth Circuit Court of Appeals decisions of Burival and Wedemeier and determined that Burival, with its endorsement of the "billing date" approach to § 365(d)(3) obligations, did not overrule Wedemeier's use of "the reasonable rental value of the property" to provide a measure of the administrative claim for rent under § 503(b)(1). Therefore, the court ruled the landlords are entitled to an administrative expense claim under § 503(b)(1) for the debtor's use of the properties between the petition date and the date the first post-petition rent payment was due.
3. Are the landlords entitled to administrative expense claims for the prorated portion of base rent or additional rent items (e.g. taxes, utilities, etc.) billed or payable post-rejection but attributable to the post-petition/pre-rejection period? The court said, "Clearly, under Burival, such charges would constitute administrative expenses if billed to the tenant prior to rejection. However, if such items were not billed before lease rejection, the provisions of § 365(d)(3) – which address post-petition lease obligations – preempt the application of § 503(b)(1) to such charges." Because these post-petition charges were not billed during the post-petition/pre-rejection period, the landlords are not entitled to claim them as administrative expenses.
4. Are the landlords entitled to administrative expense claims for additional rent items attributable to the pre-petition period that become due or payable post-rejection? For the reasons stated in the preceding paragraph, the court also denied this request.
After a trial in this adversary proceeding, the court applied a two-step analysis to determine the validity of a landowner's claim under an oral lease agreement and that a portion of the debt should be excepted from discharge under § 523(a)(2)(A). The court found that the debtor made false representations to the landowner regarding his plans to pay the landowner's portion of the crop proceeds. The evidence did not support a finding of actual fraud by the debtor, however, because he "did not engage in deception, trickery or a scheme to deprive" the landowner of the proceeds.
The bankruptcy court granted the Chapter 7 trustee's motion for turnover of a vehicle which was titled only in the debtor's name, although the debtor claimed his non-debtor spouse also held a 50% ownership in it. The court ruled that the trustee's strong-arm powers under § 544 trump the non-debtor spouse's claim of an equitable interest in the vehicle, and noted that creditors and bankruptcy trustees need to be able to rely on certificates of title in order to ascertain valid ownership and security interests in vehicles.
The court granted the Chapter 7 trustee's objection to exemptions concerning the debtor's shares of his employer's stock incentive plan. The "retention shares" were part of his earnings, but they were not subject to garnishment and cannot be exempted under Neb. Rev. Stat. § 25-1558(1). The debtor owns the shares, subject to forfeiture if certain conditions are not met, and enjoys all the rights and benefits of ownership, so they are no longer wages and are simply personal property which is not under any special protection.
Because the retention shares were not fully vested on the petition date, the debtor may prorate their value for purposes of valuing his interest in the shares as property of the bankruptcy estate.