Tuesday, July 29, 2014

9th Cir. Published - Court determined that BK Court can award money damages in objection to discharge proceeding

The panel adopted the BAP’s opinion as its own. The BAP held that, even after Stern v. Marshall, 131 S.Ct. 2594 (2011), the bankruptcy court had the constitutional authority to enter a final judgment determining both the amount of the Fords’ damage claims against the debtor Shawn Deitz, and determining that those claims were excepted from discharge. The BAP also held that the bankruptcy court did not err in concluding that the debt owed by Deitz to the Fords was nondischargeable under 11 U.S.C. §§ 523(a)(2)(A), (a)(4), and (a)(6).

The panel noted that dischargeability actions are central to federal bankruptcy proceedings and are necessarily resolved during the process of allowing or disallowing claims against the state, and that the dischargeability determination therefore constitutes a public rights dispute that the bankruptcy courts may decide.

In re Deitz (9th Cir. 2014)

Tuesday, July 8, 2014

"Small Chihuahua" creates a non dischargeable debt for the "Pugs"

A Missouri BK Court caught the Debtors in multiple "false statements" and found that they lacked credibility at trial when they defended a 523 cause of action based upon damages from their "small Chihuahua".  The Court found that they must have had a larger dog because there was remarkably damaged heavy metal doorknob which was chewed up (perhaps the small dog jumped??) and the look from the urine stained floors, damaged doors and doorknob that a large dog or dogs were locked in the house for a longer period of time. 

The Court analyzed the situation under 523(a)(2)(A) and found in favor of the Landlord...named Pugh (perhaps it is pronounced Pug).

If you like dog stories, check out the case.

Pugh v. Ennis (In re Ennis), 2014 Bankr. LEXIS 2674

United States Bankruptcy Court for the Western District of Missouri
June 17, 2014, Decided
Case No. 13-61122, Adversary No. 13-6044

Monday, July 7, 2014

5th Circuit - Published - Funds held by Chapter 13 Trustee in a Confirmed Plan, are required to be paid to the creditors per the plan

The 5th Circuit held that a Debtor who converted after the plan was confirmed, is NOT entitled to the funds held by the Chapter 13 Trustee.  Rather, the funds belong to the creditors in the confirmed plan.

The 5th Circuit analyzed the situation and determined that the plan was still effective and the Chapter 13 Trustee held the funds in Trust for the creditors.

** Under 9th Circuit approach, funds are not part of the Chapter 7 Estate, but the 9th Circuit never addressed the issue if the Chapter 13 Trustee should distribute funds to the creditors.

(In re Nash, 765 F.2d 1410 (9th Cir. 1985) (holding that any undistributed earnings paid to a Chapter 13 trustee pursuant to a confirmed plan must be returned to the debtor upon dismissal of the Chapter 13 case).

In re Harris

Hawaii is a beautiful state...but one Debtor's firm was denied their fees....Aloha! (2014 - unpublished Hawaii)

One must wonder if the law firm representing this debtor was surfing, enjoying a sunset or perhaps just attending a luau.  In any case, the firm's fees were denied....here are some of the errors made by the law firm:

1)  Failed to disclose a payment of $8,000.00 pre-petition by the Debtor
2) Failed to disclose a $4,000.00 post-petition payment by the Debtor (which they returned to the Debtor after it was "brought" to their attention.
3) Put a Debtor in a Chapter 13, but the Debtor did not qualify for the 13
4) Failed to appear for hearings but rather hired a "contract" attorney to appear but never disclosed the compensation to the contract attorney
5) Failed to affiliate with a competent Chapter 11 attorney

For those who remember Judge Markell and his epic opinions, the Court cited to In re Spickelmeir which stood in part for the proposition that requested compensation may be reduced if the court finds that the work done was excessive or of a poor quality...

The end result was...no fees.

In re Wegesend, 2014 Bankr. LEXIS 2902 United States Bankruptcy Court for the District of Hawaii

July 3, 2014, Decided
CASE NO. 13-01686, (Chapter 11)

As it applies to property of the estate, the Bankruptcy Code is intended to apply to property located anywhere...including outside of the U.S. (9th Cir. 2014) - Published

This is the second case which the 9th recently decided in this matter.

The Diaz Defendants concede that they waived any objection they could have
raised under Stern v. Marshall, 131 S. Ct. 2594 (2011), to the bankruptcy court’s entry of final judgment. See Exec. Benefits Ins. Agency v. Arkison, 702 F.3d 553, 566–70 (9th Cir. 2012), aff’d on other grounds, 573 U.S. ___ (2014).

(interesting that the parties conceded that they could waive the objection)

The panel affirmed the district court’s affirmance of the bankruptcy court’s judgment (1) invalidating the transfer to Alejandro Diaz-Barba and Martha Barba de la Torre (the

“Diaz Defendants”) of a Mexican coastal villa owned by debtors Jerry and Donna Icenhower and (2) requiring the Diaz Defendants to transfer the property to Kismet Acquisition, LLC, for the benefit of debtors’ bankruptcy estate.

The debtors transferred the property to H&G, a shell company they had purchased. After the debtors filed for bankruptcy, H&G sold the property to the Diaz Defendants. The bankruptcy trustee filed a fraudulent conveyance action seeking to avoid the sale of the villa to H&G as a fraudulent

pre-petition transfer. The bankruptcy trustee also filed an action seeking to avoid the sale to the Diaz Defendants on the basis that H&G was the debtors’ alter ego and that the sale was an unauthorized postpetition transfer.

The panel affirmed the bankruptcy court’s judgment on the postpetition transfer action. It held that the Diaz Defendants had waived any objection they could have raised to the bankruptcy court’s Article III authority to enter final judgment. The panel held that since the bankruptcy court’s judgment for Kismet was the same in both actions, the panel’s judgment rendered the fraudulent conveyance action moot.

The panel held that the bankruptcy court did not err by exercising jurisdiction over Mexican land. The panel held that the local action doctrine was preempted by statute and that 28 U.S.C. § 1334(e) granted the bankruptcy court  exclusive in rem jurisdiction over the villa interest. The panel also held that the bankruptcy court did not improperly apply  U.S. law extraterritorially because Congress intended extraterritorial application of the Bankruptcy Code as it applies to property of the estate. Given the bankruptcy court’s ruling that H&G was the debtors’ alter ego and its substantive consolidation of H&G with the bankruptcy estate,  the villa interest was property of the estate as of the petition date.

The panel held that the bankruptcy court did not abuse its discretion by failing to honor the contractual selection of a Mexican forum. The bankruptcy court also did not err by declining to abstain from ordering recovery of the property based on international comity because there was no true conflict of law. The panel held that Mexico was not a
necessary and indispensable party. Distinguishing In re Tippett, 542 F.3d 684 (9th Cir. 2008), the panel held that the
bankruptcy court did not err in applying U.S. law instead of Mexican law to determine whether the Diaz Defendants were good faith purchasers. Finally, the panel held that
bankruptcy court did not clearly err in finding that Martha Barba de la Torre purchased the villa in bad faith

In re Icenhower - 9th Cir. 2014

Tuesday, July 1, 2014

Supreme Court Grants Cert in the next Stern v. Marshall issue - July 1, 2014 - Wellness International Network, Limited, et al., Petitioners Case No. 13-935

On July 1, 2014, the Supreme Court granted Cert limiting Cert to Questions 1 and 3 as indicated in the petition.  Questions 1 and 3 are as follows:

1. Whether the presence of a subsidiary state property law issue in a 11 U.S.C. § 541 action brought against a debtor to determine whether property in the debtor’s possession is property of the bankruptcy estate means that such action does not  "stem[] from the bankruptcy itself” and therefore, that a bankruptcy court does not have the
constitutional authority to enter a final order deciding that action.


2.  Whether Article III permits the bankruptcy courts to exercise the judicial power of the United States over claims against a debtor where the debtor has consented to the exercise of such judicial power by voluntarily filing for bankruptcy relief.


3.  Whether Article III permits the exercise of the judicial power of the United States by the bankruptcy courts on the basis of litigant consent, and if so, whether implied consent based on a litigant’s conduct is sufficient to satisfy Article III.


Whether bankruptcy courts have the statutory authority to submit proposed findings of
fact and conclusions of law for de novo review by a district court in a "core" proceeding under 28 USC 157(b).


Jul 1 2014Petition GRANTED limited to Questions 1 and 3 presented by the petition.

7-1-14 - Cert Granted

See Prior Blog on Case - Wellness Blog 2013

9th Cir BAP Vacates and Remands Denial of Discharge back to BK Court to Make Specific Findings of Fact - 9th Cir. BAP - Unpublished 2014

It appears that the Court may have had a bad debtor on its hands and was frustrated with the actions taken by the debtor.  As a result, after a trial on the case, the Court denied the debtor a discharge under 727(a)(5), 727(a)(2) and 727(a)(4)(A).  The problem was that the Court did not make specific findings on the elements of the cause of action. 

727(a)(2) - the Court never determined that the assets that were concealed were property of the Estate.  The Debtor argued that the property belonged to a corporation.

727(a)(5) - Same Issue, the failure to explain the disposition of the assets....the question was were they property of the estate or the corporation.

727(a)(4)(A) - The Court needed to make a determination as to whether the debtor knowingly and fraudulently made a false oath (clearly the statement was false...but knowingly and fraudulently but more importantly the false oath pertained to a prior bankruptcy case and such false statement in the prior case were not actionable in the new case...citing to In re Carter, 125 B.R. 631, 634 (Bankr. D. Utah 1991)?)

In essence, the Court needed to make specific findings to support the denial of the discharge.  I'd suggest that the BK Court will make such findings the second time around.

In re Sethi - 2014 - 9th Cir. BAP