Benchnotes May 2001
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In <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… re Home America TV-Appliance Audio Inc.,</i> 232 F.3d 1046 (9th
Cir. 2000)</a>, the chapter 7 debtor's parent corporation previously claimed for
itself the chapter 7 debtor's net operating losses on a consolidated return. On
cross-motions for summary judgment, the Ninth Circuit held that the success of the
chapter 7 trustee in the case depended on the trustee's ability to utilize §549(d)
to avoid, as an unauthorized post-petition transfer, the election by the debtor's
parent to waive the right to carry back the debtor's net operating losses. Thus, the
case was not governed exclusively by federal statutes of limitations on tax refund
claims, but was further limited by §549(d). The court held that the trustee's
adversary proceeding against the Internal Revenue Service (IRS) was governed by the
two-year statute of limitations for avoidance claims under the Bankruptcy Code.
Further, the trustee failed to show that she relied on the IRS's letter stating that
the tax refund claim had been accepted for filing, while not indicating whether the
tax refund claim would be approved or denied. Thus, the IRS was not prevented from
asserting the statute of limitations under §549(d) under principles of equitable
estoppel.
</p><h3>Student Loan Discharge Denied</h3>
<p>In the case of <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… re Woods,</i> 233 F.3d 324 (5th Cir. 2000)</a>,
the chapter 13 debtor completed his chapter 13 plan and received a general
discharge. His plan called for the complete repayment to the holder of non-priority
unsecured claims, including a student loan debt to United Student Aid Funds Inc.
(USAF). His general discharge was granted pursuant to <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… U.S.C.
§1328(a)</a>. The debtor then sought a declaratory judgment that the USAF debt had
been discharged. The district court denied the debtor's motion, ruling that the debtor
was liable for the debt, including all post-petition interest, costs and attorney's
fees. Observing that §1328(a) specifically exempts educational loans made through
a governmentally funded program (§523(a)(8)) from discharge, the Fifth Circuit
adopted the opinion of the district court.
</p><h3>Forum Selection Clause</h3>
<p>In <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… re McCrary & Dunlap Const. Co.,</i> 256 B.R. 264 (Bankr.
M.D. Tenn. 2000)</a>, the bankruptcy court considered a forum selection clause in
the context of the debtor's adversary proceeding attempting to collect on an alleged
account receivable under a contract with the general contractor on a project in which
the debtor had been involved. The general contractor was not a creditor or otherwise
involved in the debtor's bankruptcy case. Observing that the debtor did not allege
fraud or overreaching in the bargaining for a forum selection clause in the contract
in question, and following the Supreme Court's ruling in <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… Bremen v. Zapata
Offshore Co.,</i> 92 S.Ct. 1907 (1972)</a> that forum selection clauses are
"<i>prima facie</i> valid and should be enforced unless enforcement is shown by the resisting
party to be 'unreasonable' under the circumstances," the court held that the suit to
collect the pre-petition account receivable was non-core. The court concluded that
where the case is non-core, then the bankruptcy policies favoring centralization of
disputes in the bankruptcy case is not strong enough to abandon the forum selection
clause contained in the contract. Therefore, the defendant's motion to dismiss for
improper venue was granted.
</p><h3>Under State Partnership Law, Debt from Fraud Non-dischargeable</h3>
<p>Can the innocent partners discharge the partnership's and their own liability to the
defrauded person where one of the partners committed fraud? This is the question
pondered by the Fifth Circuit in <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… re M.M. Winkler & Associates,</i> 239
F.3d 746 (5th Cir. 2001)</a>. The partnership filed bankruptcy. A defrauded
client filed suit in state court, and the innocent partners admitted to the vicarious
liability imposed on them by state law. An unopposed motion for summary judgment in
the state court suit was granted and judgment entered imposing joint and several
liability against the partnership and the individual partners. The innocent partners filed
chapter 7, and the defrauded client sought to prevent them from discharging the debt
because it arose from fraud. The bankruptcy court applied a three-part test to
determine dischargeability under <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… U.S.C. §523(a)(2)(A)</a>, (4) and
(6), including "whether the innocent partners received a benefit from the fraud."
The bankruptcy court found the debt to be dischargeable, finding that the defrauded
client had not proved that the guilty partner acted in the ordinary course of business
of the partnership. Further, the defrauded client failed to prove that the innocent
partners received a benefit from the fraud. On appeal, the Fifth Circuit held that
<a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… U.S.C. §523(a)(2)(A)</a> bars the innocent partners from discharging the
debt even if they did not benefit monetarily from the fraud, holding that the express
language of the statute includes no "receipt of benefit" requirement. "The statute
focuses on the character of the debt, not the culpability of the debtor or whether
the debtor benefited from the fraud..." Thus, the plain meaning of the statute is
that debtors cannot discharge any debts that arise from fraud so long as they are
liable to the creditor for the fraud." Relying on <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… v. Bradner,</i> 5 S.Ct.
1038 (1885)</a>, "Confronted with this precise question, we hold that
§523(a)(2)(A) prevents an innocent debtor from discharging liability for the
fraud of his partners, regardless whether he receives a monetary benefit." We conclude
that if a debt arises from fraud and the debtor is liable for that debt under state
partnership law, the debt is non-dischargeable under §523(a)(2)(A). Receipt
of benefits and the ordinary course of business are irrelevant to this inquiry as
matters of federal law.
</p><h3>Creditors' Meeting Designees Defined by Court</h3>
<p>In the case of <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… re Muy Bueno Corp.,</i> 257 B.R. 843 (Bankr.
W.D. Tex. 2001)</a>, the court considered the question of what individual should
be the person to appear at a §341 meeting. The court may require (designate) any
or all of the officers of a debtor corporation, members of its board of directors
or trustee or of a similar controlling body, a controlling stockholder or member, or
any other person in control of the debtor to appear at the meeting of creditors
required under <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… U.S.C. §341(a). 11</a> <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=…. §343(a)</a> indicates that
the debtor shall appear and submit to examination under oath at the meeting of
creditors under §341(a) of this title. In reading the Code together with Rule
9001(5), the bankruptcy court concluded that the court may, under the provisions
of Rule 9001(5), require the presence of a particular individual person as the
debtor's representative at the §341 meeting. The rule provides that whenever any act
is required to be performed by a debtor, or when it is necessary to compel the
attendance of a debtor for examination, and the debtor is not a natural person,
then, under those circumstances, if "designated by the court, any or all of its
officers, members of its board of directors or trustees or of a similar controlling
body, a controlling stockholder or member, or any other person in control" will be
that person or individual.
</p><h3>Miscellaneous</h3>
<ul>
<li><a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… re Seatco Inc.,</i> 257 B.R. 469 (Bankr. N.D. Tex. 2001)</a>
(a provision of a chapter 11 plan providing for a temporary injunction against
collection on a guaranty, while preserving the rights of the entity having the benefit
of the guaranty as against the guarantor, does not violate the terms of <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=…
U.S.C. §524(e)</a>); and
</li><li><a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… re Mailman Steam Carpet Cleaning Inc.,</i> 256 B.R. 240 (Bankr.
D. Mass. 2000)</a> (chapter 7 debtor successfully claimed that real estate taxes
that accrued over a period of more than 26 months between conversion to chapter 7
and abandoned were administrative expenses of the chapter 7 estate and not the
responsibility of the individual debtor). <i>See</i> <a href="http://www.westlaw.com/find/default.asp?rs=CLWP2.1&vr=1.0&cite=… U.S.C. §§503(b)(1)(B)</a>
and 554.
</li>
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