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

In re L.W. Gardner Co.


(Internal Ref: Opinion 74)

Mar-30-1983

UNPUBLISHED

80C-2316

Judge Clark

PDF icon 74.pdf

With approval of the court, chapter 11 trustee hired two individuals to round up and sell debtor's cattle. Prior to the scheduled sale, debtor's principal filed a complaint against trustee's agents in district court, seeking to enjoin the cattle sale, total damages of $40 million, plus costs and attorney's fees. When the agents were served, they declined to proceed with the sale. Trustee obtained an order to show cause against debtor's principal and his attorney. At a previous hearing, the court had found the lawsuit against the agents to be "meritless on its face," and that debtor's principal was in contempt because the suit had been filed in order to deter the agents from performing their duties. Thereafter, the sale was completed. At a later hearing on the contempt issues, the court determined that no penalty would be imposed on debtor's principal, and that no finding of contempt would be issued against his attorney, since the court's earlier contempt ruling had successfully induced compliance.

Gen. Elec. Mtg. Corp. v. S. Vill., Inc. (In re S. Vill., Inc.)


(Internal Ref: Opinion 71)

Mar-29-1983

UNPUBLISHED

82PC-0127

Judge Clark

PDF icon 71.pdf

A state court action seeking foreclosure of debtor's property was removed to the bankruptcy court, and defendant subcontractor moved for summary judgment on its cross-claim against defendant contractor. The issue before the court was whether a payment provision in the contractor/subcontractor contract was a condition precedent to subcontractor's payment. The court held that the provision, which indicated that subcontractor would be paid 10 days after owner paid contractor, was not a condition, and that subcontractor had not agreed to assume the risk of owner's non-payment. In the event of owner's non-payment, contractor was obliged to pay subcontractor "within a reasonable time." The court rejected contractor's argument that a reasonable time was the time necessary for it to exhaust its remedies against owner.

In re Utah Agricorp, Inc.


(Internal Ref: Opinion 70)

Mar-10-1983

UNPUBLISHED

79C-0037

Judge Clark

PDF icon 70.pdf

In a case filed under the Bankruptcy Act, the court ruled that the state of Delaware could not file an untimely proof of claim, even though it had not been listed in debtor's schedules and had not received notice of the bankruptcy. In so ruling, the court followed the holding of In re Universal Trade Corp, No. 79-2148 (10th Cir. Nov. 17, 1980), that the deadline under the Act was a statute of limitations that courts had no equitable discretion to extend.

In re L.W. Gardner Co.


(Internal Ref: Opinion 68)

Mar-8-1983

UNPUBLISHED

80C-2316

Judge Clark

PDF icon 68.pdf

The court dismissed an order to show cause obtained by creditor against debtor's principal, concluding that principal's imprudent handling of a check issued to him in exchange for cattle, which constituted proceeds subject to creditor's lien, did not justify imposition of contempt.

In re Midwest Serv. & Supply Co.


(Internal Ref: Opinion 69)

Mar-8-1983

UNPUBLISHED

82M-0329

Judge Clark

PDF icon 69.pdf

In 57.pdf, the court previously granted government's motion for new trial, solely to consider additional legal arguments on a contempt order. Following a flurry of filings, including debtor's own motion for new trial, which were complicated by conversion of debtor's case to chapter 7, the court again ruled that the government violated the automatic stay when, in order to recoup a previous overpayment of debtor, it reduced payments that it owed to debtor. Debtor was awarded $2,000 in attorney fees. This decision was reversed on appeal in 44 B.R. 262 (D. Utah 1983).

Color Craft Press, Ltd. v. Nationwide Shopper Sys., Inc (In re Color Craft Press, Ltd.)


(Internal Ref: Opinion 67a)

Feb-22-1983

APPEAL 27 B.R. 962 (D.Utah) See 66.pdf and 67.pdf

82PM-0974

U.S. District Court, Utah

PDF icon 67a.pdf

On appeal from the bankruptcy court's dismissal orders in 66.pdf and 67.pdf, the district court ruled that N. Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982) did not invalidate district court jurisdiction over bankruptcy cases, and that the district court could, by its emergency rule of December 24, 1982, continue using the bankruptcy court system to assist in the exercise of that jurisdiction. Specifically, the district court held that the Supreme Court's invalidation of bankruptcy court jurisdiction under 28 U.S.C. § 1471(c) did not invalidate district court jurisdiction over bankruptcy matters under § 1471(a), as those provisions are severable and, in addition, the Marathon decision did not in any way indicate that district court jurisdiction was affected.

Color Craft Press, Ltd. v. Nationwide Shopper Sys., Inc (In re Color Craft Press, Ltd.), 27 B.R. 392 (Bankr.D.Utah)


(Internal Ref: Opinion 66)

Feb-7-1983

PUBLISHED See 67a.pdf

82PM-0974

Judge Mabey

PDF icon 66.pdf

The bankruptcy court held that it was without jurisdiction over chapter 11 debtor's breach of contract proceeding, and granted defendant's motion to dismiss. The court based its decision on non-severability of 28 U.S.C. § 1471, concluding that, when that portion of the statute that granted jurisdiction to the bankruptcy courts had been declared unconstitutional in N. Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982), the entire statute failed, including the jurisdictional grant to the district courts over bankruptcy matters, and no other jurisdictional basis existed. The court stayed its dismissal of the case, and certified its decision to the district court for review. The district court vacated the bankruptcy court's decision in 27 B.R. 962 (D. Utah 1983) [67a.pdf].

Gillman v. Preston Family Inv. Co. (In re Richardson), 27 B.R. 407 (Bankr.D.Utah)


(Internal Ref: Opinion 67)

Feb-7-1983

UNPUBLISHED See 67a.pdf

82PC-0746

Judge Clark

PDF icon 67.pdf

In this case, as in Color Craft [66.pdf], the bankruptcy court dismissed an action arising under the Bankruptcy Code, based on its conclusion that the Supreme Court's Marathon decision eliminated any jurisdiction the court had over the matter. This decision was vacated in 27 B.R. 962 (D. Utah 1983) [67a.pdf].

In re Bekins Bar-V Ranch Corp.


(Internal Ref: Opinion 65)

Jan-13-1983

UNPUBLISHED

80C-1019

Judge Clark

PDF icon 65.pdf

Law firm's fee application was approved, as modified by the court, over an objection. The court rejected creditor's claim that services relating to two lawsuits filed by law firm on behalf of debtor should not be paid, finding that both suits had been brought to vindicate good faith claims by the debtor, and that an award of fees did not depend on the success or failure of those claims.

Gen. Elec. Mortg. Corp. v. S. Vill., Inc. (In re S. Vill., Inc.), 25 B.R. 987 (Bankr.D.Utah)


(Internal Ref: Opinion 64)

Dec-30-1982

PUBLISHED

82PM-0200

Judge Mabey

PDF icon 64.pdf

Mortgage company that held lien on debtor's shopping mall sought relief from stay "for cause" under 11 U.S.C. § 362(d)(1), alleging lack of adequate protection of the value of its interest in the property. The property, which was worth slightly less than creditor's lien, was not appreciating enough to cover the interest provided under the parties' agreement. Creditor asserted that the stay imposed an "opportunity cost" on it equal to the amount it would earn on its money if it was allowed to foreclose and reinvest, and that amount would exceed the interest under its current contract. Thus, creditor asserted that it was losing the "use value of its money." The court concluded that Congress did not leave creditors without remedies for attrition in values, and had included several provisions that were tailored to solve problems caused by delay, which provisions complement the adequate protection requirement. Therefore, creditor was not entitled to interest as compensation for the opportunity cost of the stay in order to be adequately protected.

In re Santa Clara Circuits W., 27 B.R. 680 (Bankr.D.Utah)


(Internal Ref: Opinion 63)

Dec-10-1982

PUBLISHED

82M-2022

Judge Clark

PDF icon 63.pdf

Debtor's gas utility notified it that a new account had been set up for debtor as of the date its chapter 11 petition was filed, and that debtor must provide a deposit to the utility in order to continue service. Debtor objected to the charging of a deposit, contending that it violated the 11 U.S.C. § 362(a) stay, and further alleged that the utility's deposit requirement discriminated against it for filing bankruptcy, in violation of 11 U.S.C. § 525. The court determined that, although § 362(a)(3) might be read to prohibit utility's deposit demand, such a demand is specifically authorized by 11 U.S.C. § 366(b), and was therefore lawful. The court ruled that it need not address debtor's discrimination claim because, even if utility is assumed to be a governmental unit, acts that are permitted by § 362 are not prohibited by § 525. Next, the court considered what constitutes "adequate assurance of payment" under § 366(b), concluding that it was a fact question that depends on the circumstances of each case. The court found that the administrative expense priority of utility's claim would not be adequate to assure payment, and that a cash deposit was necessary since, even though debtor's unpaid balance when it filed its petition was only $29, its unpaid balance had been as high as $950 a few months earlier. Debtor's claim that utility was adequately protected by guarantees was rejected, as the guarantees were from a corporation whose president was also an officer of debtor, and had not been shown to be reliable. Finally, the court ruled that the maximum cash deposit that may be charged for adequate assurance of payment would be the amount of an average billing period charge. plus an amount to cover services from the end of the billing period to the date on which payment for that period is due.

In re Wall


(Internal Ref: Opinion 62)

Dec-10-1982

UNPUBLISHED

81C-0162

Judge Clark

PDF icon 62.pdf

Debtor sought to reopen his closed bankruptcy case in order to use 11 U.S.C. § 522(f) to avoid judicial liens on his residence, and creditor objected. The court indicated that, although § 522(f) did not specify a time limit for avoidance claims, such claims could still be barred by laches. Moreover, as such actions are "related to" the bankruptcy case, the court had jurisdiction under 28 U.S.C. § 1471 to consider them, with or without reopening the case.

In re Colonial Ford, Inc., 24 B.R. 1014 (Bankr.D.Utah)


(Internal Ref: Opinion 61)

Nov-29-1982

PUBLISHED

82M-0778

Judge Mabey

PDF icon 61.pdf

Debtor was involved in multiple long-term litigations with its creditors prior to entering bankruptcy. Ultimately, creditors and debtor resolved all claims in their pending lawsuits, except a single cross-claim that was based on an agreement whereby creditors reduced their claims and allowed debtor a period of nine months in which to sell or refinance its dealership. If debtor neither sold nor refinanced within that time, a decree of foreclosure would be entered. Debtor did not sell or refinance and, instead, filed a chapter 11 petition. One of the workout creditors filed a motion requesting that the court abstain, pursuant to 11 U.S.C. § 305(a)(1). The court noted that § 305(a)(1) reflects a policy of favoring private, negotiated workouts between creditors and debtors, both inside and outside of bankruptcy cases. In order to encourage such workouts, § 305(a)(1) allows bankruptcy courts to dismiss or suspend a bankruptcy proceeding if the parties' interests would be better served by that action, and a decision under § 305(a)(1) is non-appealable, pursuant to § 305(c). Although § 305(a)(1) does not specify the criteria for dismissal, the court held that they would include speed, economy, and freedom from litigation, as well as fairness, priorities in distribution, capacity to deal with avoidance issues, and importance to debtor of a discharge. The court found, on the facts before it, that all parties' interests would be better served outside of bankruptcy. Because the parties' workout was comprehensive and designed to end the parties' difficult relations, the court opted for dismissal over suspension of the bankruptcy case.

In re Jacobsen


(Internal Ref: Opinion 60)

Nov-17-1982

UNPUBLISHED

81C-3502

Judge Clark

PDF icon 60.pdf

Chapter 7 debtors, who had been discharged in a no asset case, reopened the case to add an omitted creditor in order to discharge his claim. The court inadvertently reopened debtors' case without considering creditor's objection. However, as the reopening order allowed creditor time to file an objection to discharge, the reopening was allowed to stand. The court also provided creditor with the option to examine debtor pursuant to Rule 205, in order to remedy its lost opportunity to examine debtor at the creditors meeting.

M.W. Kasch Co. v. Styler (In re World of Toys & Hobbies, Inc.)


(Internal Ref: Opinion 59)

Oct-15-1982

UNPUBLISHED

81PC-0680

Judge Clark

PDF icon 59.pdf

Plaintiff filed an adversary action seeking to have the court determine the validity, priority, and extent of its security interest in debtor's accounts. Trustee moved for summary judgment on the ground that plaintiff had failed to file a proof of claim. The court denied trustee's motion, concluding that 11 U.S.C. § 501(a) did not mandate the filing of a proof of claim, except where creditor seeks to share in a liquidation distribution. Where creditor asserts a lien on estate assets, neither § 501 nor Bankruptcy Rule 302(e) bars its claim.

Conn v. Hall (In re Hall)


(Internal Ref: Opinion 58)

Oct-11-1982

UNPUBLISHED

82PC-0048

Judge Clark

PDF icon 58.pdf

The court denied plaintiff's motion for summary judgment on a 11 U.S.C. § 523(a)(2)(A) claim, because the mere fact that debtor knew there were insufficient funds in his account to cover a check tendered to plaintiff was not sufficient to prove the required element of intent to deceive.

In re Midwest Serv. & Supply, Inc.


(Internal Ref: Opinion 57)

Oct-11-1982

UNPUBLISHED See 69.pdf

82M-0329

Judge Clark

PDF icon 57.pdf

The court had found the government in contempt for reducing payments owed to debtor, postpetition, in order to recoup a previous overpayment. However, a new trial was granted due to inadequate notice to government regarding the offset issue.

Gillman v. Preston Family Inv. Co. (In re Richardson), 23 B.R. 434 (Bankr.D.Utah)


(Internal Ref: Opinion 56)

Oct-2-1982

PUBLISHED

82PC-0746

Judge Clark

PDF icon 56.pdf

Chapter 7 trustee sought to avoid a foreclosure sale of debtors' home that took place one day before debtors filed their petition. On trustee's motion for summary judgment, which was denied, the court considered whether 11 U.S.C. § 544(a)(3), § 544(b), or § 548(a)(2) would allow trustee to avoid the sale, ruling that: (1) § 544(a)(3) does not shield trustee from constructive notice and, therefore, where there is constructive notice of foreclosure, trustee's status as a bona fide purchaser without knowledge will be unavailing; (2) § 544(b) relies on state law that had not yet been interpreted in Utah and, therefore, the court should exercise its discretion and decline to determine trustee's § 544(b) claim based on a motion for summary judgment; and (3) trustee was entitled to partial summary judgment on his § 548(a)(2) claim, to the extent that the following elements had been established: (a) the sale effected a transfer of debtors' interest in the property, (b) within one year of the filing of their petition, and (c) the sale took place either when debtors were insolvent or were made insolvent by the sale. The court further ruled that, should trustee succeed in avoiding the sale at trial, purchaser would be entitled to a lien on the property in the amount of the purchase price and interest on seller's debt from the sale date, but not including purchaser's attorney's fees, as those would not confer a benefit on debtors.

In re Day


(Internal Ref: Opinion 55)

Sep-29-1982

UNPUBLISHED

81C-3514

Judge Clark

PDF icon 55.pdf

Debtors sought allowance of an exemption in a tax refund that they had orally assigned, prepetition, to a secured creditor. In making its decision, the court identified and resolved the following issues: (1) debtors could not rely on the Utah Exemptions Act, which does not include an exemption for tax refunds; (2) income tax refunds are property of debtors' estates pursuant to 11 U.S.C. § 541; (3) to the extent that assignment of the tax refund was valid, it constituted a security interest under Article 9 of Utah's UCC, it required perfection, but was not perfected. The request was denied.

Senior Corp. v. Terracor (In re Terracor)


(Internal Ref: Opinion 54)

Sep-27-1982

UNPUBLISHED

82PM-0321

Judge Mabey

PDF icon 54.pdf

In a removed action in which plaintiff claimed that certain officers and directors of debtor had misused funds loaned by plaintiff to debtor, defendants counterclaimed that plaintiff's action against them constituted the tort of wrongful use of civil proceedings, and that defendants were entitled to attorney's fees under Utah Code Ann. § 78-27-56, because plaintiff's action was without merit and had not been asserted in good faith. Concluding that a prerequisite to a wrongful use of civil proceedings claim is termination of plaintiff's action in favor of defendants, the court dismissed defendants' claim, noting that it did not matter to the dismissal whether the claim was based entirely on tort law, or on tort law together with § 78-27-56. The court also considered whether defendants' allegations stated a claim for abuse of process, concluding that they did not since such claims require not just use of process with an ulterior motive, but also misuse of the process, as opposed to use of process in the ordinary course. To the extent defendants' counterclaim asserted an abuse of process claim, that claim was dismissed as well.

In re Pead


(Internal Ref: Opinion 53)

Sep-20-1982

UNPUBLISHED

82C-0408

Judge Clark

PDF icon 53.pdf

Trustee objected to debtors' exemption claim under Utah Code Ann. § 78-23-8(2) on the ground that debtor had admitted that other vehicles could be provided for him in his employment. The court rejected the objection as insufficient, concluding that the exemption statute applies to vehicles used in a business or profession, but does not require the vehicle to be necessary in light of available substitute vehicles.

In re Bennion


(Internal Ref: Opinion 52)

Sep-16-1982

UNPUBLISHED

82C-1605

Judge Clark

PDF icon 52.pdf

Creditor sought to dismiss or convert this chapter 13 case on the ground that debtor was a "stockbroker," and thus precluded from filing a chapter 13 petition. Based on legislative history, the court ruled that "stockbrokers" were precluded from filing under chapter 13 in order to allow their customers the protections offered by chapter 7. Based on the definition of "stockholder," a sales agent of a brokerage house that is commonly called a "stockbroker" does not meet the statutory definition of "stockbroker." Such "common" stockbrokers do not have "customers" that require the protection of chapter 7, subchapter III. Creditor's motion was denied.

McCoy v. Interlake Thrift (In re McCoy)


(Internal Ref: Opinion 51)

Sep-15-1982

UNPUBLISHED

81PM-0182

Judge Mabey

PDF icon 51.pdf

Chapter 13 debtors filed a complaint to avoid liens pursuant to 11 U.S.C. § 522(f). In defense, defendant asserted that § 522(f) is not applicable in chapter 13 cases. The court disagreed, stating several reasons why § 522(f) was applicable in chapter 13. The court also rejected defendant's assertion that § 522(f) was inconsistent with 11 U.S.C. § 1325(a), which requires that creditors retain their liens in order for a chapter 13 plan to be confirmed, noting that avoided liens need not be included in the plan. The court also noted that chapter 11 contains a similar provision to § 522(f), which is 11 U.S.C. § 1129(b)(2)(A)(i)(I), and defendant's interpretation would therefore eviscerate every avoidance power under both chapters, which was a result Congress could not have intended.

Red Mountain Mining Co. v. Reeves (In re Reeves)


(Internal Ref: Opinion 50)

Aug-13-1982

UNPUBLISHED See 84.pdf

82PC-0709

Judge Clark

PDF icon 50.pdf

Debtor filed a motion to dismiss plaintiffs' non-dischargeability complaint against him. The complaint included by reference a claim made against debtor in an Arizona state court that alleged breach of contract, and both negligent and fraudulent misrepresentation. The court found that, to the extent plaintiffs' claim was for non-dischargeability, the court had subject matter jurisdiction over it. However, if plaintiffs wished to pursue other claims as well, they would first need to seek relief from stay. Plaintiffs were ordered to amend their complaint to assert only claims that were properly before the bankruptcy court.

Empire Enters., Inc. v. Koopmans (In re Koopmans), 22 B.R. 395 (Bankr.D.Utah)


(Internal Ref: Opinion 49)

Aug-11-1982

PUBLISHED

81PM-0890

Judge Mabey

PDF icon 49.pdf

Plaintiff, which held a lien on one of fourteen homes owned and rented out by chapter 11 debtors, sought relief from stay to foreclose its lien. The complaint alleged that debtors had no equity in the home, and had no prospect of rehabilitation. The court found that debtors did not have any equity in the property, and had not presented evidence concerning their rehabilitation prospects. However, the court agreed with debtors that the standard under 11 U.S.C. § 362(d)(2)(B) was not based on rehabilitation prospects, but on the necessity of the property to an effective reorganization. In considering the statutory language, the court ruled that an "effective reorganization" could be either an effective rehabilitation or an effective liquidation, and that the standard was therefore a necessity, rather than a rehabilitation, test. As most courts analyzed § 362(d)(2)(B) as a rehabilitation test, the court adopted its own necessity criteria for situations in which debtors have no equity in the property, which was that property is necessary to an effective reorganization whenever it is necessary, either to operation of the business or in a plan, to further the interests of the estate through either rehabilitation or liquidation. Because the home at issue was producing net income, the court found that it satisfied the § 362(d)(2)(B) necessity test, and relief from stay was denied.

Andrus v. Afco Dev. Corp (In re Afco Dev. Corp.)Utah Firstbank v. Andrus


(Internal Ref: Opinion 48)

Jul-22-1982

UNPUBLISHED

82PC-0575 and -0628

Judge Clark

PDF icon 48.pdf

Andrus filed a complaint in debtor Afco's bankruptcy case, naming Afco, Firstbank, and Grant Affleck as defendants. Shortly thereafter, Andrus removed a state court action, brought against him by Firstbank, to the bankruptcy court. Andrus almost immediately moved to consolidate the removed lawsuit and the pending adversary proceeding. Counsel for Afco and Affleck filed a motion to dismiss the adversary, asserting that it violated the automatic stay. Shortly thereafter, Affleck filed his own bankruptcy petition. The court had previously ruled that a postpetition lawsuit against the debtor, based on a prepetition claim, violates the automatic stay when it is filed in bankruptcy court without first securing relief from the automatic stay. However, in this case, Affleck was not protected by a bankruptcy stay when the adversary was filed, only Afco was, and the court found that Afco had waived protection of the stay by accepting service of the complaint and filing an entry of appearance of counsel. In addition, Afco did not raise any objection to the adversary until after the objection period had run. Finally, the court determined that the automatic stay attached to Affleck's bankruptcy did not prevent the court from ruling on the motion for consolidation, which was ready for decision when the stay took effect. Consolidation of the two cases was granted.

Larson v. Olympic Fin. Co. (In re Larson), 21 B.R. 264 (Bankr.D.Utah)


(Internal Ref: Opinion 47)

Jun-25-1982

PUBLISHED

81P-0128

Judge Mabey

PDF icon 47.pdf

Chapter 7 debtor sought to avoid three prepetition garnishments by creditor as preferences under 11 U.S.C. § 547(b) and 11 U.S.C. § 522(h). Creditor denied that debtor was insolvent at the time of the transfers, claiming that he had regular employment and a high income. Debtor stated that his filings established his insolvency when the transfers occurred, and relied on the § 547(f) presumption of insolvency during the 90-day period prior to filing of the petition. The court determined that creditor had failed to meet its burden to rebut the presumption and, therefore, debtor was insolvent during the 90-day period. The only remaining issues were whether the transfers occurred in the 90-day period, and whether they allowed creditor to recover more than it would have received in a distribution under the Code. The court noted that garnishment proceedings under Utah law involve several steps, at least two of which would be considered "transfers" under 11 U.S.C. § 101(40). However, § 547(e)(3) provides that a transfer does not occur until debtor has acquired rights in the transferred property. Therefore, on the day the writ of garnishment was served on debtor's employer, a transfer of all wages debtor had already earned took place on that date, and subsequent wages within the same pay period were "transferred" to creditor on each day they were earned by debtor. Any garnishments of wages earned within the 90-day period were therefore avoidable.

In re Booth, 19 B.R. 53 (Bankr.D.Utah)


(Internal Ref: Opinion 46)

Apr-13-1982

PUBLISHED

80-0292

Judge Mabey

PDF icon 46.pdf

Debtor, a buyer and seller of real property under contracts for deed, which require transfer of the deed by the seller to the buyer upon full payment under the contract, had purchased property from creditor and later sold it to a third party. Creditor asserted that 11 U.S.C. § 365(i) and (j) make contracts for deed executory contracts, and requested that debtor be compelled to either accept or reject the parties' agreement. The court held that contracts for the sale of real property to the debtor are classified as liens rather than executory contracts, both because § 365(i) and § 365(j) were intended to protect non-debtor sellers in the same way that mortgage holders were protected, and because classification of the debt as a lien benefits the estate by enlarging its value. Treatment of such contracts as liens where debtor is the buyer both furthers debtor's rehabilitation and provides protection to sellers.

In re Barrington Oaks Gen. P'ship, 15 B.R. 952 (Bankr.D.Utah) In re Starcrest Props., Ltd.


(Internal Ref: Opinion 45)

Dec-9-1981

PUBLISHED

80-1233, -1234

Judge Mabey

PDF icon 45.pdf

The court held that chapter 11 debtor's sale of real property to a third party, in violation of a "due on sale" provision in its contract with secured creditor, altered creditor's interest in the property, and was thus an "impairment" under 11 U.S.C. § 1124, whether or not the due on sale provision was valid, because a change of obligors also changes the risk. There were two secured classes in debtor's plan, one was the objecting creditor, and the other was another lienholder on the property that had neither accepted nor rejected the plan. The court concluded that 11 U.S.C. § 1129(a)(10) requires at least one impaired class to affirmatively vote for the plan in order for the plan to be confirmed. Although the addition of 11 U.S.C. § 1126(f), which deems unimpaired classes to have accepted the plan, created some ambiguity, it did not undo the intent of § 1129(a)(10). Confirmation of debtor's plan was denied.

In re Callister, 15 B.R. 521 (Bankr.D.Utah)


(Internal Ref: Opinion 44)

Nov-20-1981

PUBLISHED

80-2605

Judge Mabey

PDF icon 44.pdf

Secured creditor of chapter 11 debtor sought relief from stay, after which the parties agreed to the value of the collateral and the amount owed, and to other conditions that would adequately protect creditor's interest. Debtor defaulted on the payment provision it had agreed to, and the stay was lifted according to the terms of the parties' agreement. Debtor's case was converted to chapter 7, and fee applications were submitted by counsel for debtor and counsel for the creditors committee, to which creditor objected on the basis of its superpriority under 11 U.S.C. § 507(b). As of the date on which the stay was lifted, the court determined that the collateral had significantly decreased in value due to various circumstances, including debtor's use of the collateral, error in the stipulated values, and uninsured loss of one of three secured tractors, due to debtor's inadvertent failure to obtain insurance on it as required by the stipulation. The court explained that the concepts of adequate protection and superpriority are related and intertwined. Adequate protection initially shields the creditor from impairment in the value of its interest, whereas superpriority is intended to recapture value that was unexpectedly lost during the course of a case. Thus, "the superpriority is born when adequate protection fails," and only applies to declines in value that could and probably would have been prevented or mitigated, but for the stay. The court then considered whether creditor was entitled to superpriority for each loss of value, concluding that creditor was not entitled to superpriority for loss attributable to error in the parties' stipulation, but was entitled to superpriority for losses attributable to uninsured loss, market forces, and depreciation through use of the collateral. However, since depreciation was a factor taken into account in the interim payments required by the parties' stipulation, the court held that the amount of that loss for which creditor would receive superpriority would be limited to the total of the required stipulated payments until the stay was lifted, less the amount of payments that were actually made. Finally, the court rejected creditor's contention that its superpriority precluded payment of attorney's fees until it's claim was paid, holding that fees "may" be paid on an interim basis under 11 U.S.C. § 331, which creates a rebuttable presumption that they will be paid, despite the existence of a superpriority.

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