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“Singular” Cases on Nondischarge and Dischargeability

March 27, 2017

Authors

James Maloney

“Singular” Cases on Nondischarge and Dischargeability

March 27, 2017

by: James Maloney

Liar businessman with crossed fingers at back .

Two recent cases analyzed the misrepresentations of a debtor regarding a single asset and held a written misrepresented value of a single scheduled estate asset would result in nondischargeability under Section 727, and that a verbal misrepresentation of a pre-petition asset to a creditor did not result in an exception to discharge under Section 523.

In Worley v. Robinson,[1]/ the Fourth Circuit affirmed nondischarge where a financially sophisticated debtor’s Schedules substantially undervalued his estate’s only substantial asset.  In Appling v. Lamar, Archer Cofrin LLP,[2]/ the Eleventh Circuit reversed a district decision and held that a false oral statements to a creditor regarding one pre-petition asset would not render the associated debt nondishargeable because they were statements of “financial condition” that

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Supreme Court Completely Endorses Critical Vendor Theory! Well, Not Completely. But Almost!

March 23, 2017

Authors

Mark Duedall and Leah Fiorenza McNeill

Supreme Court Completely Endorses Critical Vendor Theory! Well, Not Completely. But Almost!

March 23, 2017

by: Mark Duedall and Leah Fiorenza McNeill

We at the Bankruptcy Cave are not very surprised by the ruling yesterday in Czyzewski v. Jevic Holding Corp.  The Supreme Court in Jevic reviewed a Bankruptcy Court’s decision to approve a settlement (with a distribution of proceeds that contravened the Bankruptcy Code’s priority scheme) in conjunction with dismissing the bankruptcy case of the Chapter 11 debtor Jevic Holding Corp. According to the Bankruptcy Court, because the distributions would occur pursuant to a “structured dismissal” rather than a confirmed plan, the failure to follow the creditor priority scheme did not bar approval.  In short, the Bankruptcy Court did not confirm a plan of reorganization for the Chapter 11 debtor, in which sufficient creditor support can re-order some of the Bankruptcy Code’s priority scheme.  Nor did the Bankruptcy Court convert Jevic’s Chapter 11 case to Chapter 7, in which the Code’s creditor priority scheme can never be changed. Instead,

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Tenth Circuit Joins Missouri River to Divide Kansas City Over What Constitutes A Stay Violation

March 22, 2017

Authors

Jay Krystinik

Tenth Circuit Joins Missouri River to Divide Kansas City Over What Constitutes A Stay Violation

March 22, 2017

by: Jay Krystinik

On February 27, 2017, the United States Court of Appeals for the Tenth Circuit joined a minority approach followed by District of Columbia Circuit:  failing to turn over property after demand is not a violation of the automatic stay imposed by 11 U.S.C. § 362.  WD Equipment v. Cowen (In re Cowen), No. 15-1413, — F.3d —-, 2017 WL 745596 (10th Cir. Feb. 27, 2017), opinion here.

In Cowen, one secured creditor (WD Equipment) repossessed a vehicle in need of repairs for which the debtor (Cowen) could not pay.  Id. at *1.  Another secured creditor (Dring, the debtor’s father-in-law who is likely no longer welcome at Thanksgiving) repossessed a separate vehicle through the use of false pretenses, a can of mace, and five goons helpful colleagues:

“Mr. Dring lured Mr. Cowen under false pretenses to his place of business to repossess the Kenworth [truck].  Mr. Dring asked Mr. Cowen,

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Ruined, Missing Wine leads to Million Dollar Hangover for Debtor

March 21, 2017

Authors

William Maloney

Ruined, Missing Wine leads to Million Dollar Hangover for Debtor

March 21, 2017

by: William Maloney

Old wine bottles in a wooden crate.

A Chapter 7 debtor’s failure to comply with a bankruptcy court order to preserve a $2 million dollar-plus collection of fine wines has led to the imposition of sanctions of over $1 million, most of which could be charged against the debtor’s otherwise exempt property.

The wine in question, after three years of litigation, was determined to be part of the bankruptcy estate of Jeffrey Prosser.  Prosser used to own companies that provided telephone, internet and cable television service to the U.S. Virgin Islands.  Both he and his companies filed bankruptcy in 2006.  A recent, 66-page opinion from the U.S. District Court in the Virgin Islands sets forth this saga of the wine collection in great detail; if you are taken to oenophilia,

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What Do You Mean My Claim Is Capped? Ninth Circuit Ruling Further Clarifies Types Of Damages Excluded From A Landlord’s Claim In Bankruptcy

March 2, 2017

Authors

Natalie Daghbandan

What Do You Mean My Claim Is Capped? Ninth Circuit Ruling Further Clarifies Types Of Damages Excluded From A Landlord’s Claim In Bankruptcy

March 2, 2017

by: Natalie Daghbandan

The Ninth Circuit Court of Appeals recently provided landlords dealing with a rejected lease with further guidance on the size and basis of their claims against a tenant’s bankruptcy estate.  Kupfer v. Salma (In re Kupfer), No. 14-16697 (9th Cir. Dec. 29, 2016).  The Ninth Circuit held that the statutory cap – 11 U.S.C. § 502(b)(6) – on a landlord’s claims against a tenant arising from lease rejection in bankruptcy applies only to claims that result directly from the lease termination; the cap does not apply to collateral claims.

The Statutory Cap in Bankruptcy Code Section 502(b)(6)

Bankruptcy Code Section 502(b)(6) caps a landlord’s claim for damages for a lease terminated before or during the tenant’s bankruptcy to (a) the greater of (i) one year’s worth of rent or (ii) 15%, not to exceed three years, of the remaining lease term; plus (b) any unpaid rent

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What’s Yours is Mine and What’s Mine is For the Benefit of My Creditors: Bankruptcy Courts Remain Reluctant to Impose Constructive Trusts on Debtor Property

February 27, 2017

Authors

Laith Hamdan

What’s Yours is Mine and What’s Mine is For the Benefit of My Creditors: Bankruptcy Courts Remain Reluctant to Impose Constructive Trusts on Debtor Property

February 27, 2017

by: Laith Hamdan

There is an inherent tension between the goals of bankruptcy law and the state law doctrine of constructive trust.  A central tenet of bankruptcy policy is that similarly situated creditors should be treated equally: because an insolvent business or individual will not be able to pay all creditors in full, a proper bankruptcy system must provide as equitable a distribution to each of them as possible.  Constructive trust law, on the other hand, works to the advantage of a single creditor – which always means the detriment of the others when everyone is competing for limited funds.

Constructive trusts are imposed when “property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest.”  Beatty v Guggenheim_Exploration_Co, 225 N.Y. 380, 386 (1919) (Cardozo, J.).  When a creditor in a bankruptcy case alleges that the debtor is holding

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Fifth Circuit Rules for PACA Claimants, and Weakens PACA, All in One Curious Ruling

February 15, 2017

Authors

Leah Fiorenza McNeill

Fifth Circuit Rules for PACA Claimants, and Weakens PACA, All in One Curious Ruling

February 15, 2017

by: Leah Fiorenza McNeill

Set of colored vegetables for kids

Most restructuring practitioners are aware, either vaguely or through punishing experience, of the power of PACA creditors.  PACA (or the Perishable Agricultural Commodities Act, 7 U.S.C. § 499a et seq. for those who hate brevity) requires that buyers of produce hold such produce – and their proceeds – in trust for the benefit of produce sellers.  General creditors of the produce buyer receive nothing, even if they hold a lien on the buyer’s assets, until produce sellers are paid in full on any valid PACA claims (including their interest and attorneys’ fees in most instances).

But sometimes, or many times, the PACA trust assets needed to pay produce sellers are not present.  Accounts must be collected, by use of employees, lawyers, collection agents, or other

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No Trustee Left Behind – Another Bankruptcy Court Requires Colleges to Return Tuition to the Bankruptcy Estate

February 13, 2017

Authors

Mark Duedall

No Trustee Left Behind – Another Bankruptcy Court Requires Colleges to Return Tuition to the Bankruptcy Estate

February 13, 2017

by: Mark Duedall

b09036864402bfedc690a2f80d6de804Another bankruptcy trustee catches another hapless college unaware.  In Roach v. Skidmore College (In re Dunston), Bankr. S.D. Ga. (Jan 31, 2017), a trustee appears to win the next battle of “bankruptcy estates v. child’s college,” ruling that an insolvent parent who paid the college tuition of an adult child made a fraudulent transfer to the college.  Thus, the unsuspecting college will likely have to return the tuition to the parent’s bankruptcy estate.

The theory is simple (albeit unsettling to some).  Under Section 548 of the Bankruptcy Code (and applicable state law, as a back-up), if any debtor makes a transfer to a third party while insolvent, and does not receive reasonably equivalent value in return, the debtor’s bankruptcy trustee may reclaim such transfer for the benefit

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A Lender’s Federal Post-Judgment Interest Quandary

February 11, 2017

Authors

Jacob Maskovich and Bob Miller

A Lender’s Federal Post-Judgment Interest Quandary

February 11, 2017

by: Jacob Maskovich and Bob Miller

Post-judgment interest is not something most lenders consider when making a loan. In fact, it is not ordinarily the subject of significant analysis even when litigation becomes necessary.  Where the United States District Court is the preferred venue, however, parties easily can fall into the quandary of being stuck with the federal statutory post-judgment interest rate, which is currently less than 1% per annum.

Pre-judgment, a lender often has solid rights to contract interest and potentially very high default interest rates, which often approach double-digits, added to a recovery when a solvent obligor is on the other side. But a final judgment may be a game-changer on the rate of interest a lender is able to receive.  Recent circuit court decisions are developing the law on post-judgment interest in a way contrary to the economic recovery of contracting parties, and lenders in particular.  It may be possible, however, to draft

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