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

Elggren v. Enoch Smith Sons Co. (In re Park Meadows Inv. Co.)

(Internal Ref: Opinion 307)




Judge Clark

PDF icon 307.pdf

Chapter 7 trustee sought to avoid a transfer debtor had made to a related entity, alleging it was a preference under 11 U.S.C. § 547(b), and defendant moved for partial summary judgment. The transaction at issue was part of a three-way debt forgiveness between debtor, defendant, and another related entity. Defendant argued that the transaction constituted a setoff rather than a transfer, and thus § 547(b) was inapplicable. The court agreed that § 547(b) does not apply to setoffs, and considered whether the "triangular setoff" at issue fell within the protection of 11 U.S.C. § 553(a). The court held that creditors only have the right to setoff "mutual debt," which generally requires that debtor and creditor owe debts to each other, and as such, triangular offsets are not typically considered "mutual." The court recognized narrow exceptions to that outcome, however, where the debtor "formally agreed" that two related entities could aggregate debts owed to and from debtor as a setoff, or where the other entities were alter egos of one another. Concluding that these scenarios were fact-dependent, the court denied defendant's summary judgment motion.

In re Martin, 115 B.R. 311 (Bankr.D.Utah)In re VerwerIn re Fullmer

(Internal Ref: Opinion 306)


PUBLISHED See 330.pdf

89B-5149 89B-5263 89B-6063

Judge Boulden

PDF icon 306.pdf

Trustees in three chapter 7 cases objected to debtors' exemption claims with respect to funds held in ERISA-qualified retirement plans. The court held that an ERISA retirement fund was an asset of debtors' estate that was not exempt within the meaning of 11 U.S.C. § 522(b)(2)(A), because the Utah statutes seeking to exempt such funds were preempted by ERISA pursuant to 29 U.S.C. § 1144(a). The district court affirmed the bankruptcy court's decision in 330.pdf.

Billings v. Key Bank of Utah (In re Granada, Inc.), 115 B.R. 702 (Bankr.D.Utah)

(Internal Ref: Opinion 305)


PUBLISHED See 316.pdf


Judge Clark

PDF icon 305.pdf

Relying on 11 U.S.C. § 547(b), chapter 11 trustee sought to avoid payments made by debtor to three partnerships, in which debtor was a partner, that were then used by the partnerships to make loan payments to defendant bank. The bankruptcy court held that trustee could recover the payments from bank, as the "initial transferee" under 11 U.S.C. § 550, finding that the partnerships were mere "conduits" between debtor and bank. This decision was reversed by the district court in 316.pdf.

Stoddard v. Stoddard (In re Stoddard)

(Internal Ref: Opinion 304)




Judge Boulden

PDF icon 304.pdf

Prior to the filing of debtor's chapter 7 petition, debtor's wife had placed money into an account she owned jointly with him, with the understanding that debtor would manage those funds on her behalf. Instead, debtor used wife's funds for his own purposes. Wife claimed entitlement to a non-dischargeable judgment against debtor pursuant to 11 U.S.C. § 523(a)(4). The court found that, as wife had not proven the existence of an express, technical, or statutory trust, she had not proven a claim for breach of fiduciary duty under § 523(a)(4). However, the court found that debtor's conduct was an embezzlement within the scope of § 523(a)(4), and awarded wife a non-dischargeable judgment for the funds debtor had appropriated to his own use.

In re Isakson

(Internal Ref: Opinion 303)




Judge Boulden

PDF icon 303.pdf

Creditor repossessed business equipment from chapter 13 debtor without seeking relief from stay, and asserted as a defense to a stay violation claim that it believed its contract to be with a corporate entity rather than with debtor individually. The court found that debtor had informed creditor that her business had not filed its articles of incorporation, and had signed the agreement without listing any corporate capacity. The court further found that creditor had failed to either confirm the existence of a corporate entity or take any other action in response to debtor's disclosure that she was under the court's protection. The court concluded that creditor had willfully violated the stay, and awarded debtor actual damages, attorney's fees, and punitive damages pursuant to 11 U.S.C. §105(a) and 362(h).

In re Mann

(Internal Ref: Opinion 302)




Judge Clark

PDF icon 302.pdf

Creditor had obtained relief from stay to foreclose on chapter 13 debtors' residence, due to their failure to make postpetition mortgage payments. Before the foreclosure sale had taken place, the court denied confirmation of debtors' proposed plan, and specifically kept the case open until the foreclosure sale was completed. Shortly before the foreclosure sale, and while their chapter 13 was still pending, debtors filed a second chapter 13, thereby forcing cancellation of the property sale. Creditor sought sanctions under Fed. R. Bankr. P. 9011. Finding that the second petition had been filed as a bad faith attempt to forestall the foreclosure sale, especially since 11 U.S.C. § 109(g)(2) would have barred debtors from refiling their case for 180 days if they had voluntarily dismissed it, the court awarded sanctions against debtors' attorney, but not from debtors themselves.

Am. First Credit Union v. Shaw (In re Shaw), 114 B.R. 291 (Bankr.D.Utah)

(Internal Ref: Opinion 300)




Judge Boulden

PDF icon 300.pdf

Creditor filed a non-dischargeability complaint against chapter 7 debtor under 11 U.S.C. § 523(a)(2)(B), then later stipulated to dismissal of the complaint with prejudice. Debtor requested attorney's fees from plaintiff under § 523(d). Noting that the purpose of the § 523(d) fee-shifting provision was to protect an honest debtor from claims that have no basis in fact or law, the court found that plaintiff could have discovered facts, with little cost or inconvenience, that would have led it to conclude that its legal claim was not supported. Therefore, the claim against debtor was not substantially justified. However, because creditor had relied on debtor's schedules and her sworn testimony at the creditors' meeting, the court concluded that special circumstances made an award of fees unjust, and debtor's request was denied.

Commercial Factors of Salt Lake City, Inc. v. Jensen (In re Jensen), 113 B.R. 51 (Bankr.D.Utah)

(Internal Ref: Opinion 301)




Judge Boulden

PDF icon 301.pdf

Creditor successfully asserted that its debt was non-dischargeable under 11 U.S.C. § 523(a)(2)(A), after having incurred both prepetition and postpetition attorney's fees in its collection efforts. The court determined that § 523(d) only authorizes debtors to recover their attorney's fees, and even then, only if the claims against the debtor were not substantially justified. However, the court held that, where the contract sought to be enforced was freely entered into between parties of relatively equal bargaining power, and provides that the winning party is entitled to recover its fees, the attorney's fees and costs incurred in enforcing the contract become part of the debt, as defined in 11 U.S.C. § 101(11). Therefore, a creditor who successfully obtains a non-dischargeable judgment against a debtor is entitled to recover the fees and costs it incurred, both before and after debtor's bankruptcy filing, as part of the non-dischargeable judgment on the contract.

Dahlstrom v. Placer U.S., Inc. (In re Dahlstrom)

(Internal Ref: Opinion 298)




Judge Clark

PDF icon 298.pdf

The court granted creditor's motion to dismiss the chapter 11 debtor's complaint that had sought to prevent creditor from enforcing its state court judgment. Debtor argued that creditor's claim had been discharged, pursuant to 11 U.S.C. § 1141(d)(1)(A), when debtor's plan of reorganization was confirmed. Creditor had filed a proof of claim in debtor's bankruptcy, but debtor had not amended his schedules or his mailing matrix to reflect that claim. As such, creditor did not receive formal notice of matters in the bankruptcy proceeding. Relying on Reliable Elec. Co. v. Olson Constr. Co., 726 F.2d 620 (10th Cir. 1984), the court concluded that debtor's failure to give defendant reasonable notice of the plan confirmation hearing constituted a denial of due process that rendered creditor's claim not subject to the plan and, therefore, not discharged. The court further ruled that creditor, similar to the one in the Reliable case, had acted reasonably by expecting that it would receive the same formal notice of the confirmation hearing as did debtor's other creditors. Finally, the court ruled that debtor's attempt to attack the validity of creditor's judgment was an attempt to use Fed. R. Civ. P. 60(b) as a substitute for appeal, which was not permitted.

In re Dillon, 113 B.R. 46 (Bankr.D.Utah)

(Internal Ref: Opinion 299)




Judge Boulden

PDF icon 299.pdf

Chapter 7 debtor claimed a car and a rifle as exempt under Utah law, asserting that both items had particular sentimental value, and that the car was used in her businesses. Trustee objected to the exemption claims. The court determined that the sentimental value exemption could only be claimed as to one item, and was intended to apply only when the estate's potential monetary gain from the asset would be minimal compared to the emotional harm suffered by debtor as a result of its loss. The court then considered what types of sentimental attachment were protected by the exemption, concluding that a bona fide emotional attachment is required. Debtor failed to establish such a sentimental attachment, either to the car that she won in a contest, or to the rifle that she purchased to replace one she owned as a child but lost in a divorce. The court also concluded that debtor failed to establish that the car was subject to a business use exemption, in that she had not provided any evidence of an ongoing business.

In re Fossey

(Internal Ref: Opinion 297a)


APPEAL 119 B.R. 268 (D.Utah)


U.S. District Court, Utah

PDF icon 297a.pdf

District court reversed a bankruptcy court decision that denied an unsecured creditor's motion to reopen a chapter 7 case to administer unadministered assets. The district court first ruled that debtor's assertion that creditor was barred from making its current claim by its failure to directly appeal the abandonment was without merit, since creditor had not been properly notified of the abandonment, as required by 11 U.S.C. § 554(a) and Bankruptcy Rule 6007. In addition, the fraudulent conveyance claim could not be deemed abandoned under § 554(c), as it had not been "scheduled" by debtor. The district court then concluded that the bankruptcy court had abused its discretion by denying the motion to reopen because trustee's failure to comply with the requirements for abandonment of the claim at issue left an asset unadministered.

In re Vanderbilt Assoc., Ltd., 111 B.R. 347 (Bankr.D.Utah)In re Sandal Ridge Assocs.

(Internal Ref: Opinion 297)


PUBLISHED See 117 B.R. 678 (D.Utah 1990)

89PB-2556 89PB-4314

Judge Boulden

PDF icon 297.pdf

Law firm sought to represent two chapter 11 debtor limited partnerships, which shared a common general partner, in their bankruptcies. The court concluded that the proposed dual representation presented an actual conflict of interest that precluded the law firm's representation of both debtors. Specifically, the court was concerned with each debtor's independent choice to either assert, or not assert, claims against their joint general partner. This decision was subsequently reversed by the Utah district court in 117 B.R. 678.

Billings v. Zions First Nat'l Bank (In re Granada, Inc.), 110 B.R. 548 (Bankr.D.Utah)

(Internal Ref: Opinion 296)




Judge Clark

PDF icon 296.pdf

Defendant lenders moved to dismiss chapter 11 trustee's complaint against them, which sought to avoid alleged preferential payments under 11 U.S.C. § 547(b) and fraudulent transfers under 11 U.S.C. § 548(a)(2). The court denied the motion after finding that, for the most part, trustee had alleged sufficient facts in support of his claims under §547, 548, and 11 U.S.C. § 550 to avoid dismissal. In so ruling, the court considered the Tenth Circuit's recent decision in Lowrey v. Mfrs. Hanover Leasing Corp. (In re Robinson Bros. Drilling, Inc.), 892 F.2d 850 (10th Cir. 1989).

In re Naka Indus., Inc.

(Internal Ref: Opinion 295)




Judge Boulden

PDF icon 295.pdf

Both the corporate debtor and its related individuals filed petitions in bankruptcy, and separate counsel was appointed to represent them. Eventually, the two bankruptcy cases were consolidated for administrative purposes, and counsel for the individual debtors began acting as counsel for the corporation, without having been appointed to do so. Subsequently, counsel filed a motion to appoint him as counsel for the corporate debtor, nunc pro tunc to the date its petition had been filed. The court denied the motion, concluding that counsel was not disinterested and had failed to make full and adequate disclosure in his application. The court restated the law regarding nunc pro tunc motions, noting the appropriate use of such a motion is to correct a mistake or error that actually occurred rather than to change the record to reflect something that did not occur or to cure the omissions of counsel.

Assoc. Builders & Contractors of Utah, Inc. v. United Bank (In re Lindsay)

(Internal Ref: Opinion 294)




Judge Boulden

PDF icon 294.pdf

Plaintiff corporation filed a state court action against bank, alleging that it had negligently issued a credit card to debtor, who was neither an officer nor a director of plaintiff, and had improperly collateralized the credit card debt using plaintiff's funds. Bank responded and counterclaimed against plaintiff for failure to pay card balances, and filed a third-party complaint against debtor. Debtor filed a chapter 7 petition, and bank removed the state court action and amended its complaint against debtor to allege non-dischargeability under 11 U.S.C. § 523(a)(2)(A). Plaintiff moved to remand the original action back to state court or, if the court would not remand, to abstain pursuant to 28 U.S.C. § 1334(c)(2). The bankruptcy court submitted its decision as a report and recommendation to the district court on the requested relief. The court first determined whether the case had been properly removed, and concluded that neither the initial state court action nor the third party action was a "core" proceeding, but that both claims sought to establish liability for debtor's pledge of plaintiff's property, and the matters in their entirety were therefore "related to" the bankruptcy and were subject to removal. The court also determined that plaintiff's claims against bank were "intertwined" with bank's claims against debtor, and, therefore, could not realistically be severed. Finally, although the court questioned applicability of § 1334(c)(2) to the remand issue, it determined that abstention was not required by that provision. The court recommended that plaintiff's motion be denied.

In re Creech

(Internal Ref: Opinion 293)




Judge Clark

PDF icon 293.pdf

Creditor that had sold farm equipment to chapter 12 debtors moved to dismiss their bankruptcy case pursuant to 11 U.S.C. § 1208(c)(6) and Bankruptcy Rule 1017, based on their failure to make payments on the confirmed plan. Although debtors continued making plan payments to their other creditors, they had decided approximately one year after their plan had been confirmed that the equipment was not productive or cost-efficient. Debtors proposed to surrender the farm equipment on the ground that surrender would be in the best interests of the estate. Debtors also attempted to assert defenses to their contract with lender. The court found debtors' proffered cure to be unacceptable, since it would require amendment of their confirmed plan and such an alteration would threaten the integrity of confirmed reorganization plans generally. The court further concluded that the confirmed plan was res judicata as to all issues that could have been raised in defense of a claim prior to confirmation, and debtors' defenses were thereby precluded. Finally, the court determined that dismissal was an appropriate remedy in the case, in part, because no creditors had objected to the motion to dismiss.

Rushton v. Holy Land Christian Mission (In re Jensen)

(Internal Ref: Opinion 292)


APPEAL Unpublished

88PA-0763, -0769, -0783, -0796, -0837,-0839, -0841

U.S. District Court, Utah

PDF icon 292.pdf

The sole issue on appeal was whether the two year limitations period set forth in 11 U.S.C. § 546(a)(1) begins to run from the date of the trustee's actual permanent appointment at the first meeting of creditors, or from an earlier date if the creditors' meeting is held later than the 20 to 40-day time period dictated by Bankruptcy Rule 2003(a). Based on the facts, the statutory language, and the policies behind the Bankruptcy Code, the district court concluded that the limitations period does not begin to run until the trustee is actually appointed, despite the rule requirement that the creditors' meeting be held within 40 days of the order for relief. Therefore, the trustee's adversary actions had been timely filed, and the bankruptcy court's orders were affirmed.

Peoples Nat'l Bank v. Tracy Bancorp (In re Tracy Bancorp)

(Internal Ref: Opinion 291)




Judge Clark

PDF icon 291.pdf

The court considered whether claims made by trustee and creditor against a bank purchased by the FDIC were barred by the "estoppel doctrine," established in D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447 (1942), and later codified in 12 U.S.C. § 1823(e). The estoppel doctrine bars makers of facially valid promissory notes from asserting claims, such as fraud, conspiracy, or lack of consideration, premised on the claimant's dealings with a bank later purchased by the FDIC. Concluding that none of the reasons given by the plaintiffs for inapplicability of the doctrine was valid, the court granted the FDIC's motion to dismiss.

Telecash Indus., Inc. v. Universal Assets (In re Telecash Indus., Inc.), 104 B.R. 401 (Bankr.D.Utah)

(Internal Ref: Opinion 290)




Judge Clark

PDF icon 290.pdf

Debtor-in-possession sought to avoid creditor's security interest under 11 U.S.C. § 547(b). Debtor claimed that creditor's perfection of its security interest had been preferential because creditor filed its UCC-1 financing statement more than ten days after the security interest was granted, and that such delayed perfection constituted a transfer for or on account of an antecedent debt, which is prohibited by § 547(e)(2). The court agreed that creditor's delayed perfection constituted a transfer on account of an antecedent debt within the meaning of the preference statute, but disagreed that creditor was thereby precluded from claiming that the perfection was subject to the § 547(c) preference exception . Because fact issues needed to be resolved on the issue of whether the perfection was part of a "substantially contemporaneous exchange" within the meaning of the exception, the court denied debtor's motion for summary judgment.

In re Coll. Terrace, Ltd.

(Internal Ref: Opinion 289)




Judge Boulden

PDF icon 289.pdf

Oversecured creditor moved for relief from stay under 11 U.S.C. § 362(d) to foreclose on real property that was the sole asset of chapter 11 debtor, the owner/operator of an apartment complex. After considering numerous factors related to plan prospects, the court found that a reasonable likelihood existed that debtor would be able to make the payments set forth in its plan, and that debtor had evinced an attitude and willingness to make the plan work. Additionally, creditor failed to establish "cause" for relief from stay under § 362(d)(1), despite what the court considered to be debtor's "serious breaches" of a court order and of its obligations as a debtor-in-possession. Particularly, the court found that debtor had changed management, had shown recent improvement in compliance, and that less drastic measures could be used to ensure further compliance. The court concluded that debtor had established both that the property was necessary for its effective reorganization and that reorganization was "in prospect," and denied creditor's motion.

Irwin v. Arrowsmith (In re Arrowsmith)

(Internal Ref: Opinion 288)




Judge Boulden

PDF icon 288.pdf

Prior to filing his chapter 7 petition, debtor and his law partners accepted and guaranteed loans to their law firm by a firm client. Until the funds were received by the firm, debtor did not realize that client was the source of the funds. Client filed a complaint in debtor's bankruptcy seeking non-dischargeability of the loan debt under 11 U.S.C. § 523(a)(4) and (6). With respect to § 523(a)(6), client attempted to impute another law firm member's knowledge of the transaction details to debtor. However, the court held that non-dischargeability under that provision requires the debtor's actual knowledge and, therefore, imputed knowledge was insufficient to satisfy client's burden of proof. Regarding § 523(a)(4), the court held that client must establish that debtor was the trustee of an intentionally created trust, and had control of a trust res. The court concluded that client had failed to establish non-dischargeability under § 523(a)(4) as well, because no fiduciary capacity had been established, and the breach involved was not a breach of trust but, instead, was a breach of a contractual obligation to pay. Although debtor violated a disciplinary rule applicable to attorneys' business dealings with clients, client failed to establish both a clearly defined trust res and an intent to create a trust relationship.

Tradex, Inc. v. Volvo White Truck Corp. (In re IML Freight, Inc.)

(Internal Ref: Opinion 287)


APPEAL Unpublished


U.S. District Court, Utah

PDF icon 287.pdf

Plaintiff, on behalf of debtor, filed a complaint against defendant seeking recovery of prepetition freight charges for debtor's transportation of goods for defendant. Based on stipulated facts, including that defendant had a valid prepetition claim against debtor that exceeded the valid freight charges, the bankruptcy court concluded that defendant's offset was precluded by the Interstate Commerce Act, which limits defenses that may be asserted in response to a claim for freight charges. Debtor argued that, since defendant had not raised any of the defenses under that Act, it could not claim an offset in the adversary proceeding and was limited to filing a proof of claim in the bankruptcy. The bankruptcy court agreed, and defendant appealed. The district court reversed, holding that 11 U.S.C. § 553 preserved defendant's offset claim in the bankruptcy. Since 11 U.S.C. § 542(b) precludes a turnover of debt that is subject to offset, defendant was entitled to assert its offset claim in defense of plaintiff's turnover claim.

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

(Internal Ref: Opinion 285)




Judge Clark

PDF icon 285.pdf

Defendants were awarded a monetary judgment and an equitable lien on debtor's California property by the Utah federal district court, which they recorded in California. Debtor appealed the district court judgment and provided a supersedeas bond that was acceptable to the Utah court. The bankruptcy court determined that a federal judgment could only be perfected and enforced in another state when it became final by appeal or by expiration of the time for appeal, and it then must be registered in the appropriate district court in the state in which its enforcement is sought. Under California law, recording of a document that does not qualify for recording does not provide constructive notice of its existence or its terms. As the lien was not properly perfected, the court concluded that it was subject to avoidance by the chapter 11 debtor-in-possession.

In re Sedgwick

(Internal Ref: Opinion 284)




Judge Clark

PDF icon 284.pdf

Debtors claimed that income tax refunds were "disposable earnings" that are subject to exemption under Utah law, and the chapter 7 trustee objected. Relying on Kokoszka v. Belford, 417 U.S. 642 (1974), the court concluded that income tax returns are not disposable earnings and, therefore, could not be exempted from the debtors' estate.

In re Turner, 101 B.R. 751 (Bankr.D.Utah)

(Internal Ref: Opinion 286)




Judge Clark

PDF icon 286.pdf

The court considered whether homeowner fees assessed after the filing of debtor's chapter 7 petition were a debt for which debtor had been released from personal liability by her chapter 7 discharge. Debtor listed the homeowners' association and its prepetition debt in her bankruptcy schedules, and indicated her intent to surrender the property from which the fees arose. The court determined that the association's claim against debtor for her proportionate share of common expenses had arisen when debtor purchased the property, and her obligation continued until she no longer owned the property. Thus, although the association's right to postpetition fees was unmatured and contingent when debtor's petition was filed, it was still a prepetition obligation that was discharged in debtor's bankruptcy. In this respect, the court specifically disagreed with a line of cases from the district of Colorado bankruptcy court.

In re Caldwell, 101 B.R. 728 (Bankr.D.Utah)

(Internal Ref: Opinion 283)




Judge Boulden

PDF icon 283.pdf

Creditor moved for relief from stay, pursuant to 11 U.S.C. § 362(d)(1), and for conversion of debtor's chapter 12 case to a chapter 7 case, pursuant to 11 U.S.C. § 1208(d). The court held that sufficient cause did not exist to grant relief from stay, because creditor had not shown that it had or would suffer harm unless the stay was lifted. In considering § 1208(d), the court held that proof of fraud by clear and convincing evidence was required. The court then found from the evidence that debtor's failure to list assets in his chapter 12 statements and his failure to amend the statement to list assets accurately was intentional and constituted a continued pattern of concealment. Because chapter 12 debtors are given wide latitude in producing and effectuating their plans, with no court-approved disclosure statement, the court held that full disclosure by the debtor has a significantly expanded role in those cases. Finding that debtor's material misstatement of estate assets, coupled with his failure to amend the asset statement when omissions were discovered, indicated an intent to defraud the court and the creditors, the court granted creditor's motion to convert the case to chapter 7.

Walker v. Wilde (In re Walker)

(Internal Ref: Opinion 282)


APPEAL 103 B.R. 281 (D.Utah)


U.S. District Court, Utah

PDF icon 282.pdf

Plaintiffs appealed a bankruptcy court order denying their request for relief from the post-discharge injunction of 11 U.S.C. § 524. Plaintiffs sought to recover from the Utah Real Estate Recovery Fund ("Fund") based on debtor's alleged fraud as a realtor. The district court held that, since recovery from the Fund required a final judgment against the realtor, such recovery would violate the § 524 injunction and prejudice debtor's fresh start, concluding that the bankruptcy court had correctly applied a higher standard to motions for relief from the post-discharge injunction than is applied to motions for relief from the automatic stay. The district court also held that the bankruptcy court properly denied plaintiffs' motion for an extension of time to file an objection to dischargeability of their claim, based on In re Green, 876 F.2d 854 (10th Cir. 1989). The bankruptcy court's decision was affirmed.

Am. Sav. & Loan Assoc. v. Weber (In re Weber), 99 B.R. 1001 (Bankr.D.Utah)

(Internal Ref: Opinion 281)




Judge Boulden

PDF icon 281.pdf

Bank filed complaint against chapter 7 debtors, claiming that its debt should be non-dischargeable under 11 U.S.C. § 523(a)(4) and (6), and that debtors' discharge should be denied under 11 U.S.C. § 727(a)(2) and (7). Bank's claims arose from postpetition improper use of its cash collateral by debtor husband's wholly owned trucking company, in its own chapter 11 bankruptcy. The court held that the trucking company, as a debtor-in-possession, was a fiduciary of a statutory trust imposed by 11 U.S.C. § 1107. The court further found that debtor husband completely controlled the closely held corporation, while debtor wife did not. Therefore, husband was liable for any breach of fiduciary duty by the corporation, but wife was not. Finally, the court found that the corporation's dissipation of bank's cash collateral, which resulted in a substantial loss to bank, was a defalcation under § 523(a)(4) that warranted a non-dischargeable judgment in bank's favor against debtor husband, as well as a general denial of debtor husband's discharge.

Fed. Savings and Loan Ins. Corp. v. Smith (In re LittleTree Inns-Layton, Inc.)

(Internal Ref: Opinion 280)


APPEAL Unpublished


U.S. District Court, Utah

PDF icon 280.pdf

The district court considered, on interlocutory appeal, whether the bankruptcy court erred in deciding that creditor's cause of action to recover funds that were transferred by debtor-in-possession to its attorney, allegedly in violation of 11 U.S.C. § 363(c)(2), was a core bankruptcy proceeding. The district court concluded that the bankruptcy court had properly decided that creditor's cause of action was a core matter, since the claim asserted unauthorized use of cash collateral under the bankruptcy code. The district court also rejected appellant's argument that dismissal of the bankruptcy case should also have resulted in dismissal of the adversary proceeding, concluding that the underlying bankruptcy case was closed, rather than dismissed, and therefore the bankruptcy court had discretion to hear the adversary matter. Finally, the district court rejected appellant's claim that creditors cannot recover against third-parties under § 363(c)(2), concluding that a party whose rights were created by bankruptcy law may pursue violations of those rights in the bankruptcy court. The bankruptcy court's order was affirmed.

Scovill v. Beauty, Inc. (In re Scovill)

(Internal Ref: Opinion 279)




Judge Clark

PDF icon 279.pdf

Debtor filed an adversary proceeding against defendant, and defendant filed a motion for abstention, which debtor opposed. The court described the adversary proceeding, in which the parties' claims were essentially identical to ones they had asserted in a prepetition state court action, as a "garden-variety notes receivable action" based entirely on state law, and concluded that such actions were not core bankruptcy proceedings. Finding that all of the requisites of abstention under 28 U.S.C. § 1334(c)(2) had been satisfied, the court indicated that it believed abstention to be mandatory. Alternatively, the court concluded that, even if abstention was discretionary, an analysis of the factors in § 1334(c)(1) also led it to conclude that abstention was appropriate. The court submitted its decision as a report and recommendation to the district court.