Ninth Circuit BAP Gives Cold Treatment to Blanket Account Freeze

By: Amanda L. Lewis
St. John's Law Student
American Bankruptcy Institute Law Review

In Mwangi v. Wells Fargo Bank, N.A., (In re Mwangi)[1] the Ninth Circuit BAP recently held that an automatic freeze of the bankruptcy debtors’ accounts, which was unrelated to a right of setoff, constituted an exercise of control over estate property in violation of the automatic stay.[2] The chapter 7 debtors had four bank accounts at Wells Fargo, which was also a creditor of the debtors.[3] Upon learning of the debtors’ bankruptcy filing, Wells Fargo froze the debtors’ accounts.[4] The freeze was implemented, not to assert any right of setoff that Wells Fargo had, but rather pursuant to the bank’s policy to freeze accounts of all customers that file a bankruptcy petition.[5] Wells Fargo refused to release 75% of the funds, the portion that debtors had claimed as exempt.[6] 

Can a Utility Company Discontinue Service for Failure to Pay Post-Petition Bills

By: David P. Griffin
St. John's Law Student
American Bankruptcy Law Review Staff

Recently, in Weisel v. Dominion Peoples Gas Company (In re Weisel),[1] a Pennsylvania district court held that a utility company could terminate a chapter 13 debtors’ gas service after the debtors defaulted on their post-petition contract, without seeking either leave of the court or relief from the automatic stay.[2] The debtors listed in their schedules an unsecured debt owed to the gas utility company for pre-petition services.[3] As a result of the bankruptcy petition, the utility company closed the debtors’ pre-petition account.[4] At the same time the utility opened a new post-petition account for the debtors, after the debtors posted a deposit.[5] The utility continued to provide service under the contract until the debtors amassed a post-petition delinquency.[6] After the post-petition default, the utility company provided proper notice to the debtors pursuant to state law and terminated gas utility services, without first seeking court approval.[7] The bankruptcy court held that the gas company had not violated section 362(d) of the Bankruptcy Code by terminating debtors’ post-petition gas service without obtaining relief from the automatic stay because the debtors had failed to provide adequate assurance of payment within the twenty day period set forth in section 366(b).[8] On appeal, the district court held that the gas utility company was permitted to terminate service, albeit for different reasons than the bankruptcy court. Specifically, the district court allowed the utility to unilaterally terminate gas service because section 366 allows a utility to terminate service to debtors who have posted adequate assurance, but have subsequently failed to make post-petition payments on the utility service.[9]

Chapter 11 Gives Retirees More Than They Bargained For

By: Daniel J. Opisso
St. John's Law Student
American Bankruptcy Institute Law Review Staff

Recently, in In re Visteon, the Third Circuit held that a chapter 11 debtor had to follow section 1114 of the Bankruptcy Code when terminating a retiree benefit plan, notwithstanding the terms of an existing collective bargaining agreement (“CBA”) that permitted unilateral termination.[1] At the time Visteon filed for chapter 11, the CBA provided that retired employees would receive medical benefits until death.[2] However, the CBA gave Visteon the discretionary power to unilaterally terminate or modify any retiree benefits at any time.[3] Despite Visteon’s apparent reservation of the right to terminate retiree benefits, the Third Circuit held that Visteon could not do so in its bankruptcy case without complying with section 1114, which sets forth a specific procedure for termination or modification of retiree benefits.[4]

Court Denies Trustees Attempt to Revoke Section 554(c) Abandonment

By: Justin Zaroovabeli
St. John's Law Student
American Bankruptcy Institute Law Review Staff

Recently, in In re Reiman,[1] a Michigan bankruptcy court held that a trustee could not revoke abandonment of property that he later discovered to have additional value.[2] The Reimans, the debtors, listed both their house’s value and a secured claim above their house’s value on their chapter 7 schedules.[3] After the trustee filed his no-asset report, the bankruptcy case closed and the debtors received a discharge.[4] The property eventually foreclosed at a bid price below the house’s fair market value and the trustee moved to re-open the case to recover any additional value in the house.[5] Although the court re-opened the case,[6] the court denied the trustee’s motion to revoke abandonment because the trustee’s no asset-report was not influenced by an unforeseeable change or mistake of law.[7] The court also noted that policy considerations typically favored finality in bankruptcy cases.[8]

Objection Use it or Lose it after Final Fee Order

By: David Wohlstadter
St. John's Law Student
American Bankruptcy Institute Law Review Staff

In AASI Creditor Liquidating Trust v. Raymond James & Associates, Inc. (In re All American Semiconductor, Inc.),[1] a bankruptcy court held that res judicata barred creditors from objecting to a final fee order because the creditors had notice of the prior hearing regarding the fee application and should have objected to the specific fees then.  The liquidating trustee challenged pre-petition fees paid to a financial advisor for his efforts to sell various assets owned by the debtor.[2]  The bankruptcy court overruled the trustee’s objection because the creditor’s committee and United States Trustee had already objected unsuccessfully during the final fee hearing.[3]