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Case Title Date & Status Case Number(s) Judge & PDF Summary

In re Green Street, 132 B.R. 460 (Bankr.D.Utah)

(Internal Ref: Opinion 337)




Judge Allen

PDF icon 337.pdf

Before the court were three debtors' motions, pursuant to 11 U.S.C. § 327, to employ the same counsel in separate chapter 11 cases. Due to existing prepetition debts between the debtors, the court found an actual conflict that rendered the attorney an "interested" party within the scope of 11 U.S.C. § 101(13)(E), and thus subject to disqualification under § 327(a). Further, as the conflict was actual with the specific debtors, rather than simply hypothetical or theoretical, disqualification was mandatory and the motions to employ were denied.

Richard L. Clissold Inv. Co. v. Valley Bank & Trust Co. (In re Richard L. Clissold Inv. Co.)

(Internal Ref: Opinion 335)




Judge Clark

PDF icon 335.pdf

Debtor brought this adversary action, claiming that defendant creditor was obligated to apply the fair market value of debtor's properties to its notes, and that its refusal to do so constituted conversion, unjust enrichment, and breach of contract. Creditor counterclaimed, asserting that, since the fair market value of the properties at issue had yet to be determined, it should be allowed three months after any award of money to debtor in which to pursue a deficiency judgment. On cross-motions for summary judgment, the court held that: (1) Debtor/plaintiff asserted a jury demand in its adversary complaint but failed to request a withdrawal of reference, which constituted a waiver of the jury demand. (2) Under Utah law, when a secured creditor sells collateral securing a debt in a non-judicial sale, the creditor must commence a deficiency action, pursuant to Utah Code Ann. § 57-1-32, in order to preserve its claim for a deficiency. (3) However, since creditor's notes were secured by more than one property, creditor was not required to commence a deficiency action until three months after the last property securing that specific debt is sold. On one of creditor's notes, one of the properties securing the note had not yet been sold, and creditor was not precluded by § 57-1-32 from filing a deficiency action. On creditor's other note, however, all properties had been sold and the three-month period had run, which precluded creditor from filing a deficiency action on that note, whether or not the fair market values of those properties had been determined.

In re Smith, 130 B.R. 102 (Bankr.D.Utah)

(Internal Ref: Opinion 334)




Judge Allen

PDF icon 334.pdf

The issue before the court was whether the debtors' 36-month chapter 13 plan satisfied the good faith requirement of 11 U.S.C. § 1325(a)(3), where the plan proposed a 30% return to unsecured creditors on their claims. Both the trustee and the lender on a student loan objected to the proposed plan. The court determined that the student loan debt would not have been dischargeable in a chapter 7 case, but that a chapter 13 discharge is much broader. Because of that, § 1325(a)(3) requires that a chapter 13 plan be proposed in good faith. As the Bankruptcy Code does not define "good faith," the court found it essential to consider the totality of the circumstances surrounding the proposed plan, including debtors' income prospects and the length of the plan. Concluding that debtor husband's education had enabled him to earn an income that was likely to include substantial increases, the court held that a 60-month plan was imperative for the debtors to meet the good faith requirement for confirmation.

In re Swenson, 130 B.R. 99 (Bankr.D.Utah)

(Internal Ref: Opinion 333)




Judge Allen

PDF icon 333.pdf

Debtor's IRA accounts were subject to a prepetition writ of garnishment, but debtor claimed the accounts as exempt property in his chapter 7 bankruptcy. The judgment creditor objected and moved for relief from the automatic stay, asserting it held a perfected lien on the accounts. The court determined that, in order to be exempt under Utah law (Utah Code Ann. § 78-23-6(3)), an account must be "an annuity or other similar plan," and that most courts had ruled that IRA accounts were not exempt under similar statutes. Noting that public policy concerns dictate whether a particular trust fund may be exempted from a bankruptcy estate, the court determined that it would be unjust to allow debtors to frustrate the rights of their creditors by claiming that accounts to which they have easy access are "annuities or other similar plans." Therefore, the court granted creditor's motion for relief from stay, finding it "clear" that IRAs were not exempt property under Utah law.

Placer U.S., Inc. v. Dahlstrom, 129 B.R. 240 (Bankr.D.Utah)

(Internal Ref: Opinion 332)




Judge Clark

PDF icon 332.pdf

In an adversary proceeding seeking non-dischargeability, under 11 U.S.C. § 523(a)(6), of a state court award of compensatory and punitive damages against debtor, the court previously ruled that debtor was collaterally estopped from re-litigating both the non-dischargeability of the compensatory damages and that the punitive damage award was based on "willful and malicious injury" of plaintiff. Four minority arguments to the effect that § 523's non-dischargeability provisions are inapplicable to punitive damages were considered and rejected by the court. In doing so, the court noted that it had previously held, along with a minority of other courts, that punitive damage awards were subject to discharge. However, the court felt compelled to reevaluate that position after the U.S. Supreme Court, in Grogan v. Garner, 498 U.S. 279 (1991), included punitive damages in the amount determined to be non-dischargeable under § 523(a)(2). The bankruptcy court concluded that punitive damages may be non-dischargeable under § 523(a)(6), and that the punitive damage award against debtor in the case before it was non-dischargeable.

Alside Supply Ctr. v. Aste (In re Aste), 129 B.R. 1012 (Bankr.D.Utah)

(Internal Ref: Opinion 331)




Judge Boulden

PDF icon 331.pdf

Creditor brought a non-dischargeability action against the debtor under 11 U.S.C. § 523(b)(2)(B), based on a line of credit that had been granted on the basis of a materially false financial statement. Debtor had signed the financial statement as vice president of a small non-party corporation, and had personally guaranteed the corporation's debt. In response to Grogan v. Garner, 498 U.S. 279 (1991), the court expressed a need to reconcile the newly imposed preponderance of the evidence standard in non-dischargeability cases with its obligation to narrowly construe exceptions to dischargeability in favor of the debtor. The court held that, since strict construction is applicable to statutory interpretation rather than to evidentiary burden, that standard was therefore unaffected by Grogan's change of the evidentiary standard. Applying a preponderance of the evidence standard, the court found that plaintiff had not established either that debtor had actual knowledge that the financial statement he signed, which had been prepared by another corporate employee, was false, or that his signing of the document had been reckless. Without proof of either actual intent to defraud or reckless disregard of the truth, the court concluded that plaintiff had failed to establish that its claim against debtor was non-dischargeable under § 523(b)(2)(B).

In re Fullmer

(Internal Ref: Opinion 330)


APPEAL Unpublished See 306.pdf


U.S. District Court, Utah

PDF icon 330.pdf

Debtors appealed a bankruptcy court ruling that an ERISA retirement fund was an asset of debtors' estate and was not exempt under either federal or Utah law, within the meaning of 11 U.S.C. § 522(b)(2)(A). The district court noted, first, that debtors could not avail themselves of the otherwise applicable exemption in § 522(d)(10)(E), both because Utah is an opt-out state, and because § 522(d) exemptions are excluded from the federal exemptions that debtors may claim under § 522(b)(2)(A). The court further determined that the Utah statutory exemptions on which debtors had relied were "related to" ERISA, and therefore preempted by that Act. The bankruptcy court ruling was affirmed.

Bagley v. United States (In re Murdock Mach. & Eng'g Co. of Utah)

(Internal Ref: Opinion 329)


UNPUBLISHED See 328.pdf & 361.pdf


Judge Boulden

PDF icon 329.pdf

The government filed claims against the estate based on government contracts with the debtor. Trustee filed this adversary proceeding objecting to the claims. Finding the case of In re Gary Aircraft Corp., 698 F.2d 775 (5th Cir. 1983) to be instructive, the court discussed primary jurisdiction and discretionary deferral of government contract claims disputes. The court concluded that deferral would unduly delay administration of the estate and denied the government's motion to dismiss or defer.

In re Murdock Mach. & Eng'g Co. of Utah

(Internal Ref: Opinion 328)




Judge Boulden

PDF icon 328.pdf

In this Bankruptcy Act Chapter XI case, trustee argued entitlement to partial summary judgment on a claim filed by the United States for unliquidated progress payments. In response to trustee's motion, the government filed a motion to dismiss for lack of jurisdiction, or to defer resolution of the disputes to the Armed Services Board of Contract Appeals or the U.S. Claims Court. Finding that no unliquidated progress payments had survived the ruling in Murdock Mach. & Eng'g Co. v. United States, 873 F.2d 1410 (D.C. Cir. 1989), the court granted trustee's partial summary judgment motion and denied the government's motion.

In re Packham, 126 B.R. 603 (Bankr.D.Utah)

(Internal Ref: Opinion 327)




Judge Clark

PDF icon 327.pdf

Upon objections by trustee and an unsecured creditor, the court refused to confirm debtors' proposed Chapter 13 plan, and dismissed their case, on the ground that debtors had not devoted all of their disposable income to plan payments, as is required by 11 U.S.C. § 1325(b)(1)(B). After debtors testified regarding their expenses, the court concluded that all of the listed expenses were reasonably necessary for the support of debtors or their dependents, with the exception of a monthly tithing payment to the Church of Jesus Christ of Latter-day Saints. The court adopted the view that, although church donations may be a source of strength and comfort to some debtors, they do not satisfy the reasonably necessary for maintenance or support requirement of § 1325(b)(2)(A).

Cascade Energy & Metals Corp. v. Banks (In re Cascade Energy & Metals Corp.)

(Internal Ref: Opinion 326)


APPEAL Unpublished


U.S. District Court, Utah

PDF icon 326.pdf

The bankruptcy court considered debtor's adversary claims against defendants and concluded that defendants had not properly perfected their equitable lien on debtor's property, but dismissed the remaining allegations of the complaint for lack of subject matter jurisdiction. On appeal, the district court held that, pursuant to 11 U.S.C. § 1142(b), bankruptcy courts retain post-confirmation jurisdiction to resolve issues that are necessary to the plan's success, including the promotion of justice and fair play. The court then concluded that resolution of debtor's adversary claims was necessary for the plan's completion, as the issues related to priority of claims. The district court remanded the case, on the ground that the bankruptcy court had subject matter jurisdiction to decide all of the issues raised in debtor's post-confirmation adversary proceeding.

In re Powell

(Internal Ref: Opinion 324)




Judge Boulden

PDF icon 324.pdf

Debtors sought sanctions from a worker's compensation insurer for violating the automatic stay provisions of 11 U.S.C. § 362. Insurer was paying benefits to debtor husband when the bankruptcy petition was filed. Prior to the filing, insurer had determined that it had overpaid some of debtor's previous benefits, and thereafter began deducting set amounts from debtor's benefit payments in order to recoup the overpayments. Although insurer received actual notice of debtors' bankruptcy filing, it continued to reduce the benefit payments post-petition, and the parties stipulated that insurer had deducted a total of $1,300 from debtor's post-petition benefit payments. In defense of the stay violation claim, insurer asserted the doctrine of "recoupment." Although § 362(a)(7) prohibits setoff of a prepetition debt owed to the debtor against a claim against the debtor, the equitable doctrine of recoupment allows a creditor to make such an offset when both the creditor's and the debtor's claims arose from the same transaction. The court determined that the automatic stay does not prohibit such recoupment in this jurisdiction. Adopting the view that the "same transaction" prong of recoupment was controlled, in the case before it, by the source of the injury, the court found that insurer had proven that both its claim and debtor's arose from the same transaction. However, the court concluded that the recoupment doctrine was not applicable because a right to recoupment must be created by contract, and there were no contracts between insurer and debtor. The court granted debtors' motion, and awarded them their actual damages based on insurer's willful violation of the stay.

In re TS Indus., Inc., 125 B.R. 638 (Bankr.D.Utah)

(Internal Ref: Opinion 325)



89C-4920 & -4221

Judge Clark

PDF icon 325.pdf

Counsel for debtors in a chapter 11 proceeding submitted an application for payment of legal fees that were incurred both before and after a trustee had been appointed. Applying 11 U.S.C. §330(a) and 503(b)(2), the court concluded that reasonable and necessary fees and costs of a chapter 11 debtor's attorney were compensable as administrative expenses, and that applicant's pre-trustee fees were largely compensable. The court then rejected the holding of In re NRG Res., Inc., 64 B.R. 643 (W.D. La. 1986), to the effect that debtor's counsel may not be compensated for services rendered after a trustee was appointed, even for services that both benefitted the estate and were requested by the trustee, unless counsel was first approved to act as special counsel for the trustee under 11 U.S.C. § 327(e). Instead, the court slightly lessened the NRG standard based on the facts before it, which were that the post-trustee services rendered by debtor's counsel largely benefitted the estate, the fee application was "not hotly contested," trustee had proffered that no duplicative work had been performed, and the absence of case law in this district, at the time services were performed, on the issue of post-trustee services performed by debtor's counsel. However, the court emphasized that, in the future, if debtor's counsel performs any services that are duties of the trustee after one has been appointed, approval to act as special counsel for the trustee under 11 U.S.C. § 327(e) should be obtained first. The court then considered the application and eliminated post-trustee fees that were for services it determined to be either unreasonable or unnecessary.

ln re Concept Clubs, Inc., 125 B.R. 634 (Bankr.D.Utah)

(Internal Ref: Opinion 323)



89A-2750 through -2754

Judge Allen

PDF icon 323.pdf

Debtor's broker sought approval, as an administrative expense, of a 10% sales commission for brokering a $1 million property sale. Several creditors and the U.S. Trustee objected, contending that the commission for such sales should be no more than 5%. Applying a "reasonable compensation" standard, and considering the factors for determining a reasonable broker's commission delineated in Matter of Womack, Inc., 1 B.R. 95 (Bankr. D. Nev. 1979), the court concluded that a reasonable award was $50,000.

In re CF&I Fabricators of Utah, Inc.In re The Colorado & Wyoming Ry. Co.

(Internal Ref: Opinion 322)



90B-6721 90B-6730

Judge Boulden

PDF icon 322.pdf

Chapter 11 trustee filed an unopposed motion for an order allowing payment of various unsecured prepetition claims prior to plan confirmation, relying on 11 U.S.C. § 1122(b). The court held that, although § 1122(b) allows creation of an administrative convenience class of claims, it does not authorize payment of those claims prior to confirmation of a plan. The court further rejected trustee's assertion that the small service creditors' claims should be paid pursuant to the Necessity of Payment Rule, finding no evidence that payment of the creditors prior to implementation of a plan was necessary to debtor's rehabilitation. Finally, the court rejected trustee's argument that the proposed payments could be made under 11 U.S.C. § 1171(b), which incorporates the Six Months Rule applicable to railroad reorganization and allows certain prepetition debts to be paid from postpetition operating income. The court concluded that the claims at issue did not satisfy the rule's criteria, both because the creditors that trustee sought to pay had not relied on anything other than debtor's general credit for repayment, and because tax claims are not debts for labor, equipment, supplies, or improvements.

Stewart v. Wynn (In re Wynn)

(Internal Ref: Opinion 321)




Judge Clark

PDF icon 321.pdf

Relying heavily on Job v. Calder (In re Calder), 93 B.R. 734, 735 (Bankr. D. Utah 1988), aff'd, 907 F.2d 953 (10th Cir. 1990), the bankruptcy court denied debtor's discharge under 11 U.S.C. § 727(a)(4)(A) and (a)(5). Applying a clear and convincing standard of proof due to uncertainty regarding the applicable standard, the court found that plaintiffs had established that debtor's statements and schedules contained numerous omissions, in violation of § 727(a)(4), and that debtor's explanations for the omissions were "not proper defenses." The court also denied discharge under § 727(a)(5), based on debtor's inadequate and contradictory responses to questions regarding his assets. The court then awarded plaintiffs only those damages that had been supported by adequate evidence, and denied their claim for punitive damages on the ground that denial of debtor's discharge was sufficiently punitive.

Micoz v. Carter (In re Carter), 125 B.R. 631 (Bankr.D.Utah)

(Internal Ref: Opinion 320)




Judge Clark

PDF icon 320.pdf

Sellers of a residence to debtors filed an adversary proceeding seeking to deny debtors' discharge under 11 U.S.C. § 727(a)(4). Debtors' previous bankruptcy case, in which they had not listed either the property or the debt to plaintiffs, had been dismissed. In the case before the court, however, debtors listed both the property and the debt. The court rejected plaintiffs' claim that debtors' false oath in their previous bankruptcy case provided grounds for denial of discharge in the pending case, concluding that neither the language of § 727(a)(4), nor a reading of § 727(a) as a whole, led to a conclusion that a false oath in a previous bankruptcy case could be used as grounds for denial of discharge in a subsequent case. The court further concluded that § 727(a)(7) did not provide grounds for denial of debtors' discharge, as that provision only applies to misconduct in a substantially contemporaneous related case, other than the debtor's own.

Cascade Energy & Metals Corp. v. Banks (In re Cascade Energy & Metals Corp.)

(Internal Ref: Opinion 319)




Judge Clark

PDF icon 319.pdf

The court had previously ruled that a judgment lien against real property owned by debtor in California had not been properly perfected. Lien holders appealed that ruling, without providing a supersedeas bond or releasing the lien, although they did file a copy of the bankruptcy court's order regarding the lien in California. In an adversary proceeding against the lien holders, debtor sought an order compelling defendants to either release the lien or provide a $2.6 million bond. Relying on a California statute that it had inaccurately quoted, debtor argued that defendants were statutorily required to release their lien. The court found that, once the portions of the statute omitted by debtor were included, it was clear that the statute had no applicability to the dispute before it. The court further found that debtor had failed to establish a need for a supersedeas bond, and that the status quo was best maintained by allowing the lien to remain recorded, especially since the filing of the court's previous judgment would inform interested parties of the lien's status. Finally, the court determined that debtor's attorney had misquoted the statute with the intent to mislead the court, which warranted sanctions under Fed. R. Bankr. P. 9011.

Zions First Nat'l Bank v. Christiansen Bros., Inc. (In re Davidson Lumber Sales, Inc.)

(Internal Ref: Opinion 318)




Judge Clark

PDF icon 318.pdf

Chapter 7 trustee abandoned the bankruptcy estate's cause of action against third parties after concluding that any recovered funds would belong to bank. After bank replaced trustee as plaintiff in the adversary proceeding, the court raised the issue of its subject matter jurisdiction. Relying on Gardner v. United States (In re Gardner), 913 F.2d 1515 (10th Cir. 1990), the court concluded that it lacked jurisdiction because the adversary proceeding only involved non-debtor parties and non-estate property, and its outcome would not affect administration of the estate. The adversary proceeding was dismissed.

In re Whitelock, 122 B.R. 582 (Bankr.D.Utah)

(Internal Ref: Opinion 317)




Judge Boulden

PDF icon 317.pdf

Chapter 13 trustee objected to debtors' proposed plan on the ground that, by giving specialized classification and treatment to one unsecured debt, the plan was unfairly discriminatory. The specially treated debt had originally been incurred as an unsecured loan that debtors used to pay taxes owed to the IRS, but the initial note was replaced with a new note executed by both debtor husband and his mother. Although the mother provided security for the second note by giving lender a deed of trust on her home, the note was an unsecured claim in the bankruptcy because debtors had no interest in the property that secured it. Under the proposed 60-month plan, all other unsecured creditors would receive payments that totaled 30% of their claims, while the note would be paid in full with interest. The first issue considered by the court was whether the note was a "consumer debt," since 11 U.S.C. § 1322(b)(1) allows consumer debt to be treated differently than other unsecured claims when an individual other than the debtor is also liable. The court rejected the argument that a debt secured by real property is not consumer debt, and determined that the note at issue was in fact consumer debt because it was not business related. However, after applying the four-part fairness test set forth in Amfac Distrib. Corp. v. Wolff (In re Wolff), 22 B.R. 510 (9th Cir. BAP 1982), the court concluded that the proposed discriminatory treatment of the note would be unfair to debtors' other unsecured creditors. The court denied confirmation, finding that the totality of the circumstances before it indicated that the plan had not been proposed in good faith, which is a requirement of 11 U.S.C. § 1325(a)(3).

Billings v. Key Bank of Utah (In re Granada, Inc.)

(Internal Ref: Opinion 316)


APPEAL 156 B.R. 303 (D.Utah) See also 305.pdf


U.S. District Court, Utah

PDF icon 316.pdf

Chapter 11 debtor was a partner in three partnerships, each of which obtained a loan from bank that was guaranteed by debtor's president. As the partnerships' manager, debtor would "upstream" excess partnership funds to itself, and then "downstream" funds to the partnerships for expenses, as needed. Such transfers were documented by bookkeeping entries that indicated increases or decreases in the debt balance between debtor and the partnerships. The chapter 11 trustee filed an adversary action against bank, seeking avoidance and recovery of transfers made by debtor to the partnerships, which the partnerships then transferred to bank in payment of their loans. Trustee claimed that debtor had essentially paid bank directly, arguing that the partnerships were mere "conduits" between debtor and the bank. The bankruptcy court agreed, and bank appealed. The district court accepted the bankruptcy court's conclusion that all of the elements of a preference under 11 U.S.C. § 547(b) had been satisfied, noting that debtor's transfers benefitted a creditor whether they were to the partnerships or to the bank. The district court then turned to the issue of liability under 11 U.S.C. § 550, which only allows recovery of preferential transfers from the initial transferee. The bankruptcy court had concluded that, since the partnerships were mere conduits for debtor's transfers, bank was the initial transferee. Although several tests for determining whether an entity is a "conduit" had been used by other courts, the bankruptcy court had held that the partnerships' failure to exercise "dominion and control" over the transferred funds rendered all other tests unnecessary. The district court disagreed, both because it found the bankruptcy court's position to be unnecessarily restrictive, and because the partnerships retained the right to use money received from debtor for their own purposes and, as such, were not mere conduits for debtor.

Household Bank, N.A. v. Touchard (In re Touchard), 121 B.R. 397 (Bankr.D.Utah)

(Internal Ref: Opinion 315)




Judge Boulden

PDF icon 315.pdf

Creditor sought non-dischargeability of credit card debt pursuant to 11 U.S.C. § 523(a)(2)(A). Debtor had been issued a Visa credit card in 1986, which she used regularly. Beginning in early 1989, debtor's credit limit for the card was raised to $2,500, which limit debtor did not exceed prior to July 1989. The balance on debtor's July 9, 1989 Visa bill was approximately $2,200, but that balance had ballooned to more than $11,000 by September 19, 1989, when debtor filed her chapter 7 petition. Purchases made by debtor on July 1, 1989 put her balance over the credit limit, and her purchases thereafter totaled approximately $8,650. When debtor made those purchases, she was insolvent. The court adopted the "implied representation" doctrine, to the effect that credit card purchases include an implied representation that the cardholder has the ability and intention to pay the charge, to conclude that creditor had established that debtor made a materially false representation, upon which creditor relied to its detriment, as required for non-dischargeability by § 523(a)(2)(A). In considering whether creditor had established debtor's intent to deceive, the court sought guidance from factors other courts within the Tenth Circuit had used, concluding that nearly all of those factors supported a finding that debtor intended to deceive creditor. The court additionally found that debtor's demeanor and credibility also supported a finding of intent to deceive. The court concluded that the charges in excess of debtor's credit limit were non-dischargeable under § 523(a)(2)(A), and that creditor was entitled to a non-dischargeable judgment for that amount, plus interest and attorney's fees.

Billings v. Richards Woodbury Mortg. Corp. (In re Granada, Inc.)

(Internal Ref: Opinion 314)


UNPUBLISHED See also 345.pdf


Judge Clark

PDF icon 314.pdf

Chapter 11 trustee filed an adversary proceeding, seeking to avoid certain prepetition payments by debtor to a secured creditor as preferences under 11 U.S.C. § 547(b). The court considered whether the transfers in question satisfied the requirements of § 547(b)(5), which requires a determination of whether the creditor obtained more from the payments it received than it would have received from a liquidation. The court considered it "generally settled" that payments to a fully secured creditor will not meet the § 547(b)(5) standard, since each payment to a fully secured creditor proportionately reduces the secured debt, and thereby does not diminish the estate. Since the creditor that had received the targeted payments had been oversecured, the court concluded that the payments had not been preferential under § 547(b). Trustee's argument that security for the debt should be valued based solely on the debtor's own interest in it, which would render creditor under-secured, was rejected by the court, noting that creditor would have the ability to foreclose on the entire property in a liquidation, not just on the part of it that was owned by debtor.

Research-Planning, Inc. v. Segal (In re First Capital Mortg. Loan Corp.)

(Internal Ref: Opinion 313a)


APPEAL 917 F.2d 424 (10th Cir.) See 189.pdf & 226.pdf


Tenth Circuit Court of Appeals (en banc)

PDF icon 313a.pdf

Debtor, who had agreed to act as escrow agent on a loan from plaintiff to a third party, improperly used escrowed funds to pay its own debts to a good faith creditor. After debtor was involuntarily placed in bankruptcy, the chapter 7 trustee recovered the funds from debtor's creditor on the ground that the payments had been avoidable preferences. Plaintiff filed an adversary proceeding, contending that the recovered amount was subject to a trust in its favor, and was thus not available for distribution to other creditors. Both the bankruptcy and district courts had ruled in favor of trustee, finding that the recovered funds were part of the bankruptcy estate. A divided Circuit panel reversed, leading to the Circuit's en banc hearing. The en banc court agreed with the lower courts that, once the recovered funds were transferred to a good faith creditor, plaintiff's interest in them was extinguished. Additionally, pursuant to 11 U.S.C. § 550(a), a trustee's power to recover preferences must be exercised "for the benefit of the estate." Therefore, the Circuit held that, while plaintiff had an unsecured claim against the estate, the recovered funds were estate property available for the benefit of all creditors.

In re Group Commc'ns, Inc.

(Internal Ref: Opinion 313)




Judge Boulden

PDF icon 313.pdf

Chapter 11 debtor objected to two proofs of claim filed by creditor, asserting that interest on under-secured notes ceased to accrue upon co-makers' filing of a bankruptcy petition. The court held that interest continued to accrue on debtor's obligation until the filing of debtor's own petition. The court also held that an order in the co-makers' bankruptcy case, which incorporated the terms of a stipulation between creditor and the co-makers regarding the fair market value of the property, the amounts secured, and the amounts owed by co-makers, had no res judicata effect in debtor's case. Debtor's objection to the claims was denied.

Walker, McElliott, Wilkinson & Assocs. v. Smith, Halander, Smith & Assocs. (In reWalker, McElliott, Wilkinson & Assocs.)

(Internal Ref: Opinion 312)




Judge Boulden

PDF icon 312.pdf

Debtor had filed an action against defendant to avoid a property transfer, alleging defendant's conduct violated the automatic stay in debtor's Missouri bankruptcy, and that it constituted a fraudulent conveyance. The court found that the Missouri bankruptcy filing was ineffective, and ruled in favor of defendant. Defendant then sought sanctions from debtor under both Fed. R. Bankr. P. 9011 and 28 U.S.C. § 1927. The court found that, even though the Missouri filing was later determined to be ineffective, debtor's counsel had made reasonable inquiry into the facts and law in relation to debtor's stay violation claim. Defendant's Rule 9011 and § 1927 fee claims were therefore denied as to the stay violation claim. However, the court found that debtor's counsel had failed to sufficiently ascertain the legal requirements of the fraudulent conveyance claim under the Utah Fraudulent Conveyance Act, and had thereby violated both Rule 9011 and § 1927 as to that claim. The court imposed sanctions under Rule 9011, which are mandatory, and denied sanctions under § 1927, which are discretionary, concluding that the Rule 9011 sanction was sufficient for both statutes.

Am. First Credit Union v. Shaw (In re Shaw)

(Internal Ref: Opinion 311)




Judge Boulden

PDF icon 311.pdf

Creditor had brought a non-dischargeability action that was based on an incomplete investigation of the facts, and the court had declined to award attorney's fees to debtor under 11 U.S.C. § 523(d). Debtor then requested fees under Utah Code Ann. § 78-27-56.5, which allows an award of fees to the prevailing party if the parties' contract allows at least one party to recover fees. The court found that creditor had a contractual right to attorney's fees in the contract, but that right was limited to fees incurred in taking possession of collateral. The court concluded that fees incurred by creditor in its non-dischargeability action could not be considered a cost of obtaining collateral, as the debt at issue was unsecured. Therefore, creditor did not have a contractual right to attorney fees in the adversary proceeding and, as debtor's right to fees was predicated on creditor's right to fees under the state statute, debtor could not rely on that statute to recover attorney's fees.

In re Lopez

(Internal Ref: Opinion 310)




Judge Boulden

PDF icon 310.pdf

Creditor filed a motion for sanctions against both debtor and debtor's counsel under Bankruptcy Rule 9011, based on their filing of a chapter 13 petition while a prior chapter 13 case dealing with substantially the same debt was still pending. Because of the second filing, creditor had been forced to seek relief from stay in that proceeding, despite having already obtained that relief in the prior one. The court found that debtor had merely relied on counsel, and had not refiled to either cause delay or harass his creditors. However, the court found that debtor's counsel knowingly and improperly filed a new petition while the previous case was still pending, and that his doing so had not been objectively reasonable. Sanctions were awarded against debtor's counsel.

Haymond v. Grant (In re Grant)

(Internal Ref: Opinion 309)




Judge Boulden

PDF icon 309.pdf

Plaintiffs sought a non-dischargeable judgment against debtor under 11 U.S.C. § 523(a)(2)(B), alleging that debtor had provided a materially false financial statement in support of his personal guarantee to repay the price of stock purchased from plaintiffs by a company debtor controlled. After hearing and analyzing extensive evidence, the court found that plaintiffs had failed to prove by clear and convincing evidence that debtor intended to deceive them, as required for non-dischargeability by § 523(a)(2)(B). The debt to plaintiffs was therefore discharged. This decision was reversed and remanded by the district court in 340.pdf for the bankruptcy court's reconsideration of the outcome, using a preponderance of the evidence standard.

In re TS Indus., Inc., 117 B.R. 682 (Bankr.D.Utah)

(Internal Ref: Opinion 308)



89C-4919 through -4921

Judge Clark

PDF icon 308.pdf

Chapter 11 debtor-in-possession moved to reject a prepetition executory contract, which the court described as "clearly a pre-bankruptcy workout." The court considered whether the contract, which involved the extension of financial accommodations to debtor, could be assumed under 11 U.S.C. § 365(a), notwithstanding the prohibitions of § 365(c)(2), since the contract had been entered in anticipation of debtor's bankruptcy. Concluding that § 365(c)(2) was intended to protect creditors that were unaware of an impending bankruptcy, the court determined that assumption of the contract at issue was not precluded by that provision. Therefore, the court held that the contract could be assumed or rejected by the debtor-in-possession, subject to claims by interested parties that debtor's choice was an abuse of business judgment. The court concluded that such issues could be addressed at the confirmation hearing.