In
In re U.S. Wireless Corp., 333 B.R. 688 (Bankr. D. Del. 2005), the liquidating
trust asserted claims of unjust enrichment against an employee based on the
failure to reimburse debtor's for payment of tax obligations arising from exercise
of stock options. Bankruptcy Judge Peter J. Walsh refused to dismiss
the action, finding that the complaint had set forth facts sufficient to support
the claims and found it "worth noting that some of the disputed issues
may arise from a misunderstanding as to when the taxable events occurred. Neither
party addresses this tax law issue. The complaint takes the position that the
taxable event occurred...when [the employee] exercised the options. In contrast,
[the employee] implicitly takes the position that the taxable events occurred
only when he sold the stock, and not at the time he exercised the options. A
yet-to-be-presented analysis of the underlying tax laws may sharpen the issues."

Validity of Forum Selection Clauses in Bankruptcy 
In In re Access Care Inc., 333 B.R. 706 (Bankr. E.D. Pa. 2005), the
debtor brought an adversary proceeding seeking to recover on a breach of contract
or quantum meruit theory for services it provided pre- and post-petition.
The defendant sought to enforce a forum selection clause in the contract. The
parties conceded that the general rule established in M/S Bremen v. Zapata
Off-Shore Co., 407 U.S. 1 (1972), for determining the validity and enforcement
of forum-selection clauses applies in bankruptcy proceedings. The debtor, however,
argued that enforcement would violate the "strong public policy" in
favor of centralizing all proceedings in the bankruptcy court where the case
is pending. Bankruptcy Judge Stephen Raslavich rejected this argument,
finding that even if some of the claims were core, it "would be inefficient
for this court to retain jurisdiction over the 'core' claims while transferring
the 'related' claims" and transferred the case.
Secured Lender Fees and Expenses Denied 
In In re Hedstrom Corp., 333 B.R. 815 (Bankr. N.D. Ill. 2005), Bankruptcy
Judge Jack B. Schmetterer addressed an objection to a claim for reimbursement
of fees and expenses of the financial advisor to an over-secured creditor. The
agreement by the lender to pay the advisor a monthly fee of $125,000 was not
approved by the committee, the debtor or the court. The loan agreement provided
that the creditor could charge the debtors for all costs related to the liquidation
of the debtors' obligations, including "costs and expenses of preserving
and protecting" the collateral and "costs and expenses paid or incurred
in connection with obtaining payment of the obligations, enforcing the security
interests and liens of collateral agent, selling or otherwise realizing upon
the collateral." The court found that it was "undisputed" that
the lender was entitled to hire the financial advisor to perform certain specified
services. At the hearing on the objection, the lender and the advisor offered
only oral testimony outlining the work performed and a three-page "summary"
describing the work. "Not a single piece of work product arising out of
work pertaining to such services was offered in evidence, not any reports, not
any analyses, not any compilations of data, not any recommendations. Nothing."
The summary was found to be insufficient. The description of services was lumped
and vague, which made it "impossible to ascertain the amount of time spent
on specific tasks and which tasks were performed." Similarly, there was
no evidence presented that compared the services provided in this case to other
situations where similar work was performed and billed on a flat fee without
accounting for personnel time worked or work product produced, and there was
no evidence that the same number of employees was required, which might have
allowed the court to determine whether the fees charged were competitive within
the market. The court found that since "the flat-fee contract cannot support
the application, the application must be entirely denied."

Chapter 15 Mandates Protection of Creditor Interests 
While In re Artimm, S.R.L., 335 B.R. 149 (Bankr. C.D. Cal. 2005), was
filed as an ancillary proceeding under former §304, the court's decisions
regarding approval of a proposed settlement and prosecution of a claim by a
U.S. creditor were "informed" by the provisions of new chapter 15.
Bankruptcy Judge Samuel L. Bufford noted that under chapter 15, a bankruptcy
court would not be required to issue an order recognizing a foreign proceeding
as a foreign main proceeding unless the foreign proceeding was pending in the
country where the center of the debtor's main interests is located. The consequences
of an order recognizing a foreign main proceeding "are substantial,"
including the application of the automatic stay "in all its details"
without the necessity of a court order. Similarly, chapter 15 §§363,
549 and 552 apply to any transfer of an interest of the debtor in property within
the territorial jurisdiction of the United States to the same extent that those
sections would apply to property of a domestic bankruptcy case. Chapter 15 also
requires turnover of U.S. assets to the foreign representative, "provided
that the court is satisfied that the interests of creditors in the United States
are sufficiently protected." Judge Bufford held that the "provided
that" language in §1521(b) is more demanding than the language of
§304(c), as §1521(b) appears to make the protection of the interests
of creditors in the United States a mandatory condition on the turnover of U.S.
assets to a foreign representative. In United States v. J.A. Jones Construction
Group LLC, 333 B.R. 637 (E.D.N.Y. 2005), the failure to commence a proceeding
for recognition of foreign insolvency under chapter 15 was held to have deprived
the district court of the authority to consider a request for stay filed by
the Canadian interim receiver.
Miscellaneous
• In re Sabol, 337 B.R. 195 (Bankr. C.D. Ill. 2006) (even under
revised UCC and after applying composite document rule, which allows debtor's
intent to grant a security interest to be demonstrated by reference to various
loan documents, a description of the alleged collateral, absent words actually
granting a security interest, fails to meet the minimum requirements of a security
interest);
• In re Brink, 333 B.R. 560 (Bankr. D. Mass. 2005) (deliberate
trespass to intentionally cut down trees that overhung the debtor's property
constituted a nondischargeable willful and malicious injury);

• In re Casiello, 333 B.R. 571 (Bankr. D. Mass. 2005) (bankruptcy
court has jurisdiction to impose sanctions under 28 U.S.C.A. §1927 against
any attorney who "unreasonably and vexatiously" multiplies proceedings);
 • In re Adley, 333 B.R. 587 (Bankr. D. Mass. 2005) (in the context
of a motion to approve a settlement between a chapter 7 trustee of bankrupt
officer and insurance company, bankruptcy court does not have jurisdiction to
enjoin claims by other nondebtor-covered officers and directors against D&O
insurance policy);
• In re Godios, 333 B.R. 644 (Bankr. W.D.N.Y. 2005) (chapter 7
dismissed as substantial abuse where "hard-working upper-middle class parents"
of two high school seniors sought to discharge nearly $60,000 of credit card
debt for "the sole and stated purpose of better positioning the family
finances in preparation for large, anticipated, discretionary expenditures in
providing a college education for the children");
• A & L Laboratories Inc. v. Bou-Matic LLC, 429 F.3d 775 (8th
Cir. 2005) (purchaser of assets "free and clear" was bound by post-petition
trademark license granted by debtor absent specific bankruptcy court order altering
or extinguishing such license);
• In re Great Point Intermodal LLC, 334 B.R. 359 (Bankr. E.D.
Pa. 2005) (pre-judgment interest is recoverable on avoided preferential transfer
from the date that the return of the transfer is demanded);

• In re Trusted Net Media Holdings LLC, 334 B.R. 470 (Bankr. N.D.
Ga. 2005) (efficient administration of the estate mandates that only a chapter
7 trustee may file objections to proofs of claim);
• In re Neely, 334 B.R. 863 (S.D. Tex. 2005) ("extreme circumstances"
that support denial of motion to convert chapter 7 to chapter 13 must, at a
minimum, involve a finding of bad faith);
• In re National Century Financial Enterprises Inc., 334 B.R.
907 (Bankr. S.D. Ohio 2005) (bankruptcy court has authority to resolve dispute
over contents of record on appeal);
• In re Metromedia Fiber Network Inc., 335 B.R. 41 (Bankr. S.D.N.Y.
2005) ("default" in the context of a demand for adequate assurance
of future performance context means a failure by the debtor-lessor to perform
a legal or contractual duty required of it by the contract, and it is irrelevant
whether the lessee had either given notice of default and opportunity to cure
or sought damages for pecuniary losses); and
• In re Netfax Inc., 335 B.R. 85 (D. Md. 2005) (once appeal was
filed to circuit court, district court lost jurisdiction to consider motion
for stay pending appeal).

Journal Authors

Deborah D. Williamson

Thomas Rice

Journal Date

Sunday, October 1, 2006 - 12:00

Bankruptcy Rule

2006

none