Actual Timely Notice of a Bankruptcy = Due Process and an Obligation to Investigate (9th Cir. BAP Unpublished)

If you know about a bankruptcy case then you are obligated to investigate to determine the dates to object to the discharge and to file a proof of claim.  Actual written notice is not necessary.  Moreover, notice to an agent of the creditors such as its attorney constitutes notice. 

In the recent 9th Cir. BAP Case the Debtor utilized the creditors wrong address but the creditor received actual notice within 3 days of the bankruptcy filing.  Despite such notice, the creditor did nothing until it was too late.  The creditor filed a motion requesting authority to file a late filed proof of claim and a late objection to discharge proceeding. The BAP determined that under 9th Cir. Law, actual notice is tantamount to notice and denied the motions.

In re Calderon - 9th Cir BAP Unpublished

Property Abandoned is Stil Subject to the Automatic Stay Until the Stay is Terminated (9th Cir. BAP Published)

Once property is abandoned the property is no longer property of the Bankruptcy Estate as it reverts in the Debtor as of the date of the filing of the petition (just like no bankruptcy was filed).  However, the property is still subject to the automatic stay under 362(a)(5).  By utilizing statutory construction, the BAP found that despite the abandonment and the Bankruptcy Court's belief that the stay is terminated upon abandonment, the property was still subject to the stay. An interesting and well developed decision.

In re Gasprom 9th Cir. BAP

A Christmas Tree Story - Was the Bank Secured in the Christmas Trees (I know it's only October so it is a bit early for a Christmas case) 9th Cir. BAP - Unpublished

Twas about 60 days before Christmas and all through the BAP House a decision was made finding that the UCC Financing Statement adequately described the Bank's collateral in one million Christmas Trees.

Feel free to read about descriptions of collateral....



In re Grogan

9th Cir Unpublished - District Court Reversed for revoking an order confirming a chapter 11 plan 3 years later

The District Court was reversed because it utilized its equitable powers to revoke a Chapter 11 plan more than 3 years after it was entered.  The Court stated in part:

 

Once a Chapter 11 plan is confirmed, "all questions that could have been raised pertaining to the plan are entitled to res judicata effect." Miller v. United States, 363 F.3d 999, 1004 (9th Cir. 2004)

 

Section 1144 of the Bankruptcy code is the only avenue for revoking a confirmed Chapter 11 plan. In re Orange Tree Assocs., 961 F.2d 1445, 1447 n.6 (1992) (citing In re Longardner & Assocs., 855 F.2d 455, 460 (7th Cir. 1988)). Under Section 1144, a party seeking revocation may only move for such relief within 180 days after "the date of the entry of the order of confirmation, and . . . the court may revoke such order if and only if such order was procured by fraud."

 

In re Asset Resolution, LLC

 

 

 

 

 

 

 

9th Cir. - Unpublished - reiterated the person aggrieved test for standing

The BAP correctly determined that Debtor lacked standing to appeal the

bankruptcy order authorizing the sale of an asset of the bankruptcy estate, because

he was not a "person aggrieved" by the order. Fondiller v. Robertson (In re

Fondiller), 707 F.2d 441 (9th Cir. 1983).9th Cir. BAP - Unpublished - reiterated the person aggrieved test for standing


In re Finley

Classifications of Claims under 1122 - "substantially similar"

Judge Ross from Alaska, followed In re Barkat, 99 F.3d 1520 (9th Cir. 1996)in determining that separate classification of a deficiency claim was not warranted in the Chapter 11 case. 

In Barkat,  an apartment building worth $4,000,000, encumbered by a claim of $4,600,000. The debtor's plan proposed to classify the unsecured $600,000 deficiency claim separately from several other classes of unsecured creditors, including a class of trade debt.  While recognizing the possibility of classifying similar claims in different classes, the court also said that there  are limits to that right. One of the limits is that separate classification should not be condoned "in order to gerrymander an affirmative vote on a reorganization plan." A second is that, if claims are substantially similar, there must be a valid business or economic reason for separate classification. It approved a BAP decision saying that the right to make a § 1111(b)(2) election was not such a valid reason.

Similarly in this case, while the claim has a co-debtor, Marc Marlow, he is apparently not personally solvent and has many unpaid money judgments against him. He is not like the creditor in Johnston, which had viable guarantors to collect from, at least in part. Nor is there any other collateral than the real and personal property securing the two loans owed to AHFC, valued at no more than $2,700,000.
The claim on the second promissory note is very similar to a garden variety unsecured claim, notwithstanding its "easy terms." 11 USC § 502(b)(1) makes the claim presently allowable despite  [19] being an unmatured claim, the balance of which is due in 2037. Also, under the terms of the Second Loan Agreement, the second promissory note can be accelerated due to the default under the first promissory note. And, even if second promissory note had been nonrecourse (which it is not), in chapter 11 it is treated as a recourse claim.

United States Bankruptcy Court for the District of Alaska

October 9, 2013, Decided

Case No. A12-00421-HAR, In Chapter 11

In re Marlow Manor Downtown, LLC, 2013 Bankr. LEXIS 4270 (Bankr. D. Alaska Oct. 9, 2013)

9th Cir BAP 523(a)(4) - breach of fiduciary duty - published (pro-se case - reversed)

The court reversed a bankruptcy court ruling that a debt was nondischargeable under sec. 523(a)(4) for fiduciary defalcation.

The BAP said it would have remanded because the bankruptcy court had made its 2012 ruling under the precedent of In re Lewis, which required no fraud, or even negligence.  The Supreme Court May 2013 case reversed the holding on Lewis in Bullock v. BankChampaign:

Bullock effectively abrogated that part of In re Lewis holding that a debtor who failed to account to another need not possess any particular state of mind to except a debt from discharge based on fiduciary defalcation under § 523(a)(4). To the contrary, in Bullock, the Supreme Court interpreted § 523(a)(4) to require that, in order to except a debt for a defalcation by a fiduciary, the debtor must possess “a culpable state of mind . . . akin to that which accompanies application of the other terms in the same statutory phrase. We describe that state of mind as one involving knowledge of, or gross recklessness in respect to, the improper nature of the relevant fiduciary behavior.” Id. at 1757.

But, the BAP outright reversed the case, instead of remanding, since the agreements of the parties did no show there was a "present" formation of a partnership (or, even an LLC).  Thus there was no "present" fiduciary duty that could give rise to a defalcation:

.  .  . we conclude that the bankruptcy court erred in its determination that a partnership was formed by the Loan Agreement. At best, the parties agreed to form an LLC based upon events to occur in the future, events that never came to pass. Since no partnership existed between the parties during their dealings, we conclude that, as a matter of law, William was not a fiduciary as to Crulls for purposes of § 523(a)(4), and that the bankruptcy court erred in excepting the debt from discharge under that provision of the Bankruptcy Code.

In re Utnehmer - 9th Cir BAP 2013

5th Cir. Continuing Duty to Disclose - Even in a Chapter 13 - No disclosure -> Judicially Estopped!

Even in a Chapter 13 case, disclosure is the key.  In this case, the Debtor filed a Chapter 13 case and was injured after the filing.  The Debtor did not disclose the personal injury accident and proceeded to file suit.  The Defendants filed a motion asserting judicial estoppel.  The Court held in favor of the Defendants but permitted the Chapter 13 Trustee to proceed but citied to Reed which held that the Trustee can proceed, but any remaining funds after distribution to the creditors would be returned to the defendants.

In re Flugence 2013 5th Cir.

9th Cir. BAP 2013 - Which State Law is applicable when the debtor resides in a diffferent state...look to the state in which the judgment was obtained (not published)

The 9th Circuit BAP in In re Van Damme, examined the concept of issue preclusion.  This was a very contentious case in which the Debtor's were alleged to have trespassed onto property, thrown paint upon their neighbor and tore down a wall in order to build a pool.  To make matter's worse, counsel for the Debtors apparently stated   

At one point debtor’s counsel alleges that the state court’s FFCL were "hardly a model of judicial temperance" and make "unsupported accusations of criminal activity wholly inappropriate to a civil proceeding against Mr. Van Damme. . . ." In connection with this statement, counsel contends that the judge in the Nevada action, "has been intemperate in other contexts as well" and then points out that he received a public reprimand for driving under the influence of alcohol.

The Court examined the doctrine of issue preclusion and examined the preclusive effect of judgment not obtained in the state in which the debtor resides.  The Court found that that the proper subject of inquiry is the law of the state in which the judgment was obtained.  

In re Van Damme

Annulment of Stay Retroactively - Affirmed -9th Cir. BAP

The Debtor filed BK at 9:21 a.m. to prevent the foreclosure sale which took place at 10:28 a.m..  At the time of the foreclosure sale, the Borrowers were 42 months (more than 3 years!!) in default and owed over $2 million on the loan.  The Creditor filed a motion to annul the stay retroactively.  The Court affirmed the Bankruptcy Court decision. 

The Court found that the Debtors engaged in unreasonable or inequitable conduct that showed that they were utilizing the bankruptcy process to delay or hinder the creditor. 

The moral of the story is don't wait 42 months to file, don't file about an hour prior to the sale and don't be perceived to be greedy.

In re Mendaros

In Rem Relief in Prior BK Case is Binding in Subsequent Case - 9th Cir. Published

Debtors have resorted to filing tactical, serial bankruptcy cases to prevent creditors from enforcing liens against their property. In 2005, Congress fashioned special relief for creditors when § 362(d)(4) was added to the Bankruptcy Code under BAPCPA. That provision permits the bankruptcy court to grant so-called "in rem" relief from the automatic stay to the creditor to address schemes using bankruptcy to thwart legitimate
foreclosure efforts through one or more transfers of interest inreal property or, as was apparently the situation here, multiple
bankruptcy filings affecting the subject in rem property
 In re Alakozai - 10-2-13 - 9th Cir. BAP - Published

9th Cir. BAP Mootness when Case is Dismissed

Upon being advised at oral argument that the Debtor's chapter 11 case was dismissed (but not advised by the Debtor's counsel), the Court determined that the underlying appeal was now moot.  The Court had an excellent but brief discussion on mootness.

In re Koo - 9th Cir. BAP

9th Cir. BAP Affirms Denial of Rule 60(b) Motion on Attorney Disciplinary Proceeding - Greenfield

I point this case out not for the applicable issues, but for things NOT TO DO as a bankruptcy attorney.  Without copying the entire case in this blog, the Court implied that Mr. Greenfield's actions from filing bankruptcy cases for clients in pro se so that he does not get a judge that disliked him and then making an appearance to not being competent in Chapter 11 cases was not looked upon too fondly.

It is an unpublished Ninth Circuit BAP Opinion.

Greenfield v. Anderson