Benchnotes Apr 2006

Journal Issue

Apr 2006

Column Name

Benchnotes

Citation

ABI Journal, Vol. XXV, No. 3, p. 6, April 2006

Topic Tags

Automatic Stay

Mortgage

Professional Compensation/Fees

Journal HTML Content

<h4>Municipality Stayed from Collecting Vehicle Taxes</h4>

An In re Jessamey, 330 B.R. 80 (Bankr. D. Mass. 2005), the issue was whether
a local municipality, which was unable to collect motor vehicle excise taxes,
violated the automatic stay. A municipality that certifies to the state the
inability to collect such taxes essentially prevents the taxpayer from obtaining
a renewal of a car license and a car registration. Bankruptcy Judge Robert
Somma, addressing cross motions for summary judgment, refused to dismiss
the action, finding that the debtor had at least stated a claim on which relief
could be granted. The "clear purpose of the statute is the collection of
past due excise taxes," which remains effective until, by further notice,
the local tax collector discontinues it. As such, the court was persuaded that
"when a municipality issues to the registrar a notice of nonpayment under
that section, it institutes an 'action or proceeding' to recover a claim within
the meaning of §362(a)(1); that the post-petition continuation of such
an action or proceeding is a violation of §362(a)(1) and that the continued
blocking of access to motor vehicle privileges is also a stayed 'act' under
§326(a)(6)."
Adversary Proceeding Required in Secured Creditor's Attack on Lien Validity

In In re Anderson, 330 B.R. 180 (Bankr. S.D. Tex. 2005), Bankruptcy
Judge Jeff Bohm held that an adversary proceeding is required if the
secured creditor's objection attacks the validity of the lien. However, an objection
pursuant to Rule 3007 will suffice if the objection is that the documentation
attached to the proof of claim did not establish that the claim was, in fact,
a secured claim.
Creditor Only Entitled to Attorney's Fees Necessary to Protect Interest
In In re Jemps Inc., 330 B.R. 258 (Bankr. D. Wyo. 2005), a debtor objected
to the attorney's fees charged by an oversecured creditor. Bankruptcy Judge
Peter J. McNiff turned to the issue of the "reasonableness" of the
requested fees, noting that even where the rates were reasonable, "the
creditor is only entitled to include services reasonably required to protect
its interest in the loan. Overzealousness will not be compensated, even if the
creditor approves of such action by its counsel." Services that were disallowed
included those that were clerical in nature (downloading the docket from PACER),
duplicative (performed by both bankruptcy and bank counsel) and incurred after
lender knew its claim was protected by the value of the collateral.
Court Denies 18 Percent Default Interest Rate
 In In re Holmes, 330 B.R. 317 (Bankr. M.D. Ga. 2005), Chief Bankruptcy
Judge Robert F. Hershner Jr. addressed the issue of whether an oversecured creditor
was entitled to 18 percent default interest, a pre-payment premium or interest
on its attorneys' fees. The court allowed the default interest on the principal
of the debt. The court found that the creditor had failed to offer any evidence
that the prepayment premium was reasonable. As the promissory note did not provide
for interest on attorneys fees, that request was denied.

Arguable Claim of Right Affirmed in Foreclosure Case
 A recent decision from the Fifth Circuit should act as a check on unilateral
action when a debtor asserts an interest in property. In In re Chesnut,
422 F.3d 298 (5th Cir. 2005), the question was whether a "creditor violates
the stay if, without permission of the bankruptcy court, he forecloses on an
asset to which the debtor has only an arguable claim of right." The court
"answer[ed] in the affirmative." The case arose out of a foreclosure
on property where the debtor's wife was named in the deed as the sole purchaser,
although she was married to the debtor about three years prior to the acquisition
of the property. The debtor asserted that the property was paid for with community
funds and that Texas law created a rebuttable presumption that property purchased
during a marriage was community property. The notice of the bankruptcy filing
was given to the secured lender and reviewed by the lender's counsel. "The
petition put [the lender] on notice that [the debtor] claimed that the property
was community property under the protection of the automatic stay." However,
the lender still proceeded with the foreclosure. Subsequently, the district
court determined that the property was the wife's separate property. The lender
argued that determination "must mean that the automatic stay did not bar
the foreclosure." The Fifth Circuit noted that as of the foreclosure, it
was not clear whether the property was or was not property of the bankruptcy
estate. Relying on Sniadach v. Family Finance Corp. of Bay View, 395
U.S. 337 (1969), the Fifth Circuit held that retroactive classification of the
property does not "shape the scope of the stay" and, under these facts,
foreclosure on "arguable property" constituted a willful violation
of the stay.
Miscellaneous
• In re Metromedia Fiber Network Inc., 416 F.3d 136 (2d Cir. 2005)
(court would not disturb order confirming plan, although bankruptcy court "without
adequate inquiry into relevant factors" had approved nondebtor releases
where appellants had failed to seek a stay of the order or to pursue an expedited
appeal);
• In re AB Liquidating Corp., 416 F.3d 961 (9th Cir. 2005) (landlord's
security deposit, whether in the form of a cash deposit or third-party letter
of credit, had to be applied against capped damages and not to gross contractual
damages);
• In re Process Property Corp., 327 B.R. 603 (Bankr. N.D. Tex.
2005) (bankruptcy court has discretion to set post-petition, pre-confirmation
interest owed to oversecured taxing authorities at rate that was "equitably
appropriate to circumstances of case," even though there is an applicable
state statutory rate);

• In re Cluxton, 327 B.R. 612 (BAP 6th Cir. 2005) (loan that financed
purchase of mobile home that became part of real property under applicable law
could not be stripped down under §1322(b)(2));
• Cantor v. Perelman, 414 F.3d 430 (3rd Cir. 2005) (issue of material
fact as to whether corporation was injured by restrictions imposed by controlling
shareholders and directors on corporation's ability to engage in debt and equity
financing in nonrecourse notes issued by affiliates of the shareholders and
directors to the corporation precluded summary judgment on whether the directors
breached their fiduciary duty);
• In re Bogdan, 414 F.3d 507 (4th Cir. 2005) (trustee had standing
pursuant to unconditional assignment by mortgage lenders of claims against debtor's
alleged co-conspirators with no right to share in trustee's recovery except
pro rata with other creditors, and doctrine of in pari delicto
did not apply to prevent chapter 7 trustee, as unconditional assignee of claims
of mortgage lenders, from pursuing such claims);
• In re American Homepatient Inc., 414 F.3d 614 (6th Cir. 2005)
(damages arising from breach of executory contract had to be determined as of
time of deemed breach, which was immediately prior to date of filing of chapter
11 petition);

• In re Worldcom Inc., 329 B.R. 10 (Bankr. S.D.N.Y. 2005) (§510
subordination provision applies to claims that an equity-holder did not sell
stock because of a failure to timely disclose fraud);
• Everett v. Friedman's Inc., 329 B.R. 40 (S.D. Miss. 2005) (rule
of unanimity, which requires that all defendants join in a notice of removal,
does not apply to removals under the bankruptcy removal statute in 28 U.S.C.
§1452);
• In re Troff, 329 B.R. 85 (D. Utah 2005) (court-ordered restitution
obligation, imposed as part of state criminal sentence for arson, was excepted
from discharge);
• In re Thompson, 418 F.3d 362 (3d Cir. 2005) (criminal restitution
payments ordered by state court are nondischarageable, even though state collected
money for sole purpose of distribution to victim's of debtor's crimes in compensation
for injuries);
• In re Ktona, 329 B.R. 105 (Bankr. M.D. Fla. 2005) (attorney
that deliberately files case in wrong district may be subject to Rule 9011 sanctions);
• Arevalo v. Herman, 128 Fed. Appx. 952 (4th Cir. 2005) (parties
who previously had control and discretion regarding an ERISA plan were no longer
fiduciaries and thus not responsible for actions taken after control of plan
assets transferred to chapter 7 trustee);

• In re eToys Inc., 331 B.R. 176 (Bankr. D. Del. 2005) (plan exculpation
clause does not protect counsel who failed to disclose actual conflicts of interest);
• In re Heath, 331 B.R. 424 (9th Cir. BAP 2005) (credit card issuer
may comply with Fed. R. Bankr. P. 3001(c) by attaching "some sort of summary"
of the account);
• In re Shaw, 330 B.R. 113 (Bankr. D. Vt. 2005) (chapter 7 trustee
allowed commission based on principles of quantum meruit based on the net increase
in distribution to creditors where conversion to chapter 13 was triggered by
discovery of fraudulent conveyance);
• In re Lisanti Foods Inc., 329 B.R. 491 (D. N.J. 2005) (Fed.
R. Evid. 615, which gives a litigant the right to have witnesses excluded from
the courtroom, applies to depositions); and
• In re Joseph, 330 B.R. 87 (Bankr. D. Conn. 2005) (attorney that
held charging lien against the proceeds of a pre-petition judgment in favor
of the chapter 7 debtor could credit bid its claim at trustee's sale of the
judgment).

Journal Authors

Deborah D. Williamson

Thomas Rice

Journal Date

Saturday, April 1, 2006 - 12:00

Bankruptcy Rule

2006

362

3007