Benchnotes Mar 1999

<h3>Claims for Attorney's Fees After Conversion to Chapter 13</h3>

<p>In <i>In re Bottone,</i> 226 B.R. 290 (Bankr. D. Mass. 1998) Bankruptcy Judge Henry J. Boroff wound his way through

various provisions of the Code attempting to answer the question of whether a claim held by an attorney for services

rendered in a chapter 7 case in defending dischargeability actions that was later converted to a case under chapter 13

is stayed from collection and/or must be paid through the chapter 13 plan. He first analyzed §348, which specifically

provides that upon conversion, the entry of the order for relief is deemed to be the date of the original filing of the

chapter 7. The court then found that §348(d) is "doubly inapplicable" as it excludes claims arising under §503(b),

and under §706(a) it does not apply to claims arising in a chapter 7 subsequently converted to another chapter. The

court then turned to §1305(a)(2), which supplements §§501 and 502 in chapter 13 cases. However, the court found

that §1305(a) is of no assistance because it leaves to the creditor alone the right to file a proof of claim for its

post-petition debt. Under §348(b), for purposes of §1305(a), the date of the order for relief in a case converted from

chapter 13 is not deemed to be the date of commencement, but rather the date of conversion. There is no question

that the fees in question arose post-petition but before confirmation. The court then turned to §330(a) and related

sections and held that §330(a)(4)(B) applied to the fees sought in this case. As a result, the court found that the

claim of a debtor's attorney for legal services rendered in a chapter 7 case subsequently converted to chapter 13 is an

administrative priority claim in the chapter 13 case, which must be treated pursuant to the provisions of §1322(a)(2).

</p><h3>Equitable Subordination of Claims</h3>

<p>In <i>In re Citicorp Venture v. Committee of Creditors Holding Unsecured Claims,</i> 160 F.3d 982 (3rd Cir. 1998),

the unsecured creditors' committee brought an adversary proceeding objecting to the allowance of claims against a

debtor and seeking equitable subordination of those claims. The target of the action was an entity who had a

pre-petition right to and has exercised a right to seat a representative on the board of directors of the debtor and its

subsidiaries. As a result, the target was found to be a fiduciary of the chapter 11 debtor. That fiduciary was found to

have purchased claims against the debtor without specifically disclosing the purchase to the debtor or the unsecured

creditors' committee. The bankruptcy court found that the fiduciary intended to profit from purchasing the debt at a

discount and to gain control of the debtor's reorganization through the purchases, and was motivated primarily by

self interest. Further, the purchase was facilitated by access to material non-public information. The court held that

equitable subordination of the claims was justified as the selling noteholders were deprived of the ability to make

fully and informed decisions to sell, they suffered dilution of voting rights and there were costs incurred in delaying

confirmation.

</p><h3>Miscellaneous</h3>

<p></p><ul>

<li><i>In re Hagerstown Fiber Ltd.,</i> 226 B.R. 353 (Bankr. S.D.N.Y. 1998) (under New York law, a dissolved

partnership that could continue in business solely for the purpose of winding up its affairs was ineligible for chapter

11 relief either to reorganize or liquidate);

</li><li><i>In re East Shoshone Hospital District,</i> 226 B.R. 430 (Bankr. D. Idaho 1998) (prior court approval of a

chapter 9 debtor's professionals is not required);

</li><li><i>In re Central Copters Inc.,</i> 226 B.R. 447 (Bankr. D. Mont. 1998) (U.S. Trustee is entitled to quarterly fee

from the proceeds of the sale of collateral, even where paid directly to the secured creditor in reduction of its claim);

</li><li><i>In re Healthback LLC,</i> 226 B.R. 464 (Bankr. W.D. Okla. 1998) (bankruptcy court has jurisdiction to decide

that withholding current Medicare payments to apply against purported pre-petition overpayment violated the

automatic stay as an unauthorized setoff rather than a recoupment, which would not be subject to the automatic

stay);

</li><li><i>In re Bryer,</i> 227 B.R. 201 (Bankr. D. Maine 1998) (restitution obligation did not lose its non-dischargeable

character following assignment to sureties);

</li><li><i>In re Southwestern Water Corp.,</i> 227 B.R. 262 (Bankr. W.D. Tex. 1998) (Section 1129(a)(9) allows the

court to confirm a liquidating plan only if the plan provides for full payment of all priority claims in cash on the

effective date of the plan unless other treatment has been agreed to);

</li><li><i>In re Ben Franklin Retail Store Inc.,</i> 227 B.R. 268 (Bankr. N.D. Ill. 1998) (fees incurred by counsel to

interim trustee in contesting an election for a permanent trustee are not compensable under §330(a)(1) as the duties of

the trustee under §704 do not include such contest, but rather the role is reserved to the U.S. Trustee);

</li><li><i>Matter of Kindhart,</i> 160 F.3d 1176 (7th Cir. 1998) (adherence to district's 10-year old $800.00 base for

attorney's fees in chapter 13 cases was an abuse of discretion where it appeared to be outmoded and arbitrary);

</li><li><i>In re Lafeyette Hotel Partnership,</i> 227 B.R. 445 (S.D.N.Y. 1998) (separate classification of tenant's claim

from that of general unsecured creditors is appropriate where the tenant provided the funding necessary to fulfill

debtor's payment responsibilities to its creditors); and

</li><li><i>In re Steaks to Go Inc.,</i> 226 B.R. 35 (Bankr. E.D. Mo. 1998) (covenants not to compete contained within

franchise agreements remained enforceable following debtor/franchisee's rejection of agreements).

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