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

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

(Internal Ref: Opinion 365)




Judge Boulden

PDF icon 365.pdf

The trustee of a Chapter X debtor (the case was originally filed in 1975 under the former Bankruptcy Act) objected to multi-million dollar proofs of claim filed by the Government. The Government's claims resulted from debtor's defaults under several military procurement contracts, and included costs of re-procurement, over-payment, recovery of Government property, and other damages. The court found that the debtor's defaults on the contracts were due to circumstances beyond its control, and were the direct result of the Government's improper actions on a different contract. Because the bankrupt's defaults were excusable, the court converted the terminations of the contracts to terminations for the Government's convenience. As a result, the Government lost its claims for excess re-procurement costs and for recovery of unliquidated progress payments. The Government was ordered to re-calculate and resubmit its claims to the court in an amount consistent with the ruling.

In re SLC Ltd. V

(Internal Ref: Opinion 364)


APPEAL 999 F.2d 464 (10th Cir.) See 355.pdf


Tenth Circuit Court of Appeals

PDF icon 364.pdf

Chapter 11 debtor sought to disqualify a secured creditor's law firm. The bankruptcy court disqualified one firm attorney, but refused to disqualify the entire firm. On appeal, the district court disqualified the law firm by imputation. The secured creditor appealed the district court's order, and the 10th Circuit held that: (1) the bankruptcy court properly disqualified the attorney because the attorney's prior representation of the debtor's general partner was "substantially factually related" to the current litigation; (2) the attorney's disqualification did not have to be imputed to the law firm because the attorney did not have actual knowledge of material information protected by Utah Rules of Professional Conduct ("URPC") 1.6 and 1.9(b); and (3) the bankruptcy court improperly imposed screening measures because the URPC only require screening measures for former government attorneys. URPC 1.10, 1.6 and 1.9(b).

David Dorsey Dist., Inc. v. Sanders (In re Sanders)

(Internal Ref: Opinion 363a)


APPEAL Unpublished See 39 F.3d 258 (10th Cir. 1994)


U.S. District Court, Utah

PDF icon 363a.pdf

Chapter 7 debtor's motion to avoid a judgment lien pursuant to 11 U.S.C. § 522(f)(1) was granted by the bankruptcy court, and the lien was avoided in its entirety. On appeal from that order, the district court held that, where a judgment lien impairs an exemption, § 522(f)(1) does not permit a debtor to avoid the lien beyond the amount of the debtor's homestead exemption, which in this case was provided by Utah exemption law. The district court found that the judgment lien did not impair debtor's homestead exemption because, under Utah law, a homestead exemption is immune from judicial liens. Therefore, it was not necessary to avoid the lien for debtor to enjoy the exemption. The district court concluded that § 522(f)(l) lien avoidance was superfluous, since Utah's homestead exemption statute performs the same protective function.

In re CF&I Fabricators of Utah, Inc.

(Internal Ref: Opinion 363)




Judge Boulden

PDF icon 363.pdf

From 1931 through 1981, debtor owned and operated a 216-acre limestone quarry in the state of Colorado that provided limestone for its open-hearth furnace production of steel and iron products. Debtor eventually converted its open-hearth manufacturing process to electric arc furnace melting of scrap metal, which does not require large amounts of limestone. Debtor leased the quarry to a third party from 1981 to 1991, at which time, all mining activity ceased. After filing a chapter 11 bankruptcy petition, debtor filed a motion to abandon the quarry, under 11 U.S.C. § 554(a), as property that is burdensome or of inconsequential value and benefit to the estate. The Colorado Mined Land Board ("Colorado") objected to abandonment of the quarry, claiming such action would be improper under the standard announced in MidIantic Nat'l Bank v. New Jersey Dept. of Envtl. Prot., 474 U.S. 494 (1986), limiting a debtor's right to abandon property where abandonment would contravene state laws designed to protect public health and safety from identified hazards. Colorado asserted that the proposed abandonment fell within the Midlantic limitation because it would violate Colorado state law requiring mine operators to reclaim mined property. Both sides estimated the cost of reclaiming the quarry property, and debtor's estimate of $222,662 was deemed most accurate by the court, which thereby fixed that as the amount of Colorado's unsecured prepetition claim. The court then found, based on that reclamation liability, debtor had no realizable equity in the quarry property. However, the court also found that there were no hazardous or toxic substances stored on the property, and that the only quarry hazard that would not be remedied by forfeiture of previously provided reclamation bonds was a general presence of unconsolidated and unstable rock. As a result, the court concluded that Colorado had failed to prove either that any existing hazard at the quarry site presented an inevitable and imminent harm to the public, or that abandonment of the quarry would aggravate existing conditions or create peril at the quarry. Therefore, application of the Midlantic exception was not warranted under the circumstances of the case. Debtor's motion to abandon the quarry property was granted.

In re I.A. Corp.

(Internal Ref: Opinion 362)




Judge Boulden

PDF icon 362.pdf

Attorneys for unsecured creditors and equity interest-holders filed an application for allowance of attorney's fees under 11 U.S.C. § 503(b)(3)(D) and (b)(4). The court determined that the attorneys' services that related to an objection to a secured claim had produced a substantial and demonstrable benefit to the estate, and were therefore compensable under § 503. However, the attorneys were not allowed compensation for their general participation in the reorganization process, as any benefit to creditors from that participation was too contingent or speculative to be quantified. In addition to entries related to general matters, the court also disallowed incomplete itemized entries and duplicate services.

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

(Internal Ref: Opinion 361)


APPEAL 990 F.2d 567 (10th Cir.) See 328.pdf & 329.pdf


Tenth Circuit Court of Appeals

PDF icon 361.pdf

In 1971, debtor held several contracts with the U.S. Navy, including one for construction of anti-submarine rocket launchers ("ASROC contract"). In 1975, the Navy terminated the ASROC contract, along with debtor's other Navy contracts, causing debtor to file for bankruptcy protection. The government filed proofs of claims in the bankruptcy, in which it asserted that its claims would completely offset all of debtor's claims against it, leaving it with a net claim against the estate. The bankruptcy trustee filed a complaint with the Armed Services Board of Contract Appeals ("ASBCA"), asserting wrongful termination of the ASROC contract by the Navy. In 1978, the Contract Disputes Act increased the ASBCA's jurisdiction. Relying on that Act, trustee filed a second claim for substantial consequential damages caused by the alleged wrongful termination of the ASROC contract. As the Navy contracting officer did not timely decide that claim, trustee appealed it to the ASBCA. Thereafter, the contracting officer denied the claim, and trustee appealed that ruling as well. All of trustee's claims were consolidated by the ASBCA, which then found that termination of the ASROC contract had been proper. Trustee appealed that decision to the Federal Circuit Court, which reversed and remanded for recalculation of the Navy's liability. In the interim, based on the Federal Circuit's decision, trustee requested disallowance of the government's claims from the bankruptcy court. The government responded by asking the bankruptcy court to abstain from ruling on its claims until ASBCA had resolved trustee's claims against it, which involved the same issues. The bankruptcy court refused to abstain, holding that it had jurisdiction over the government's claims against the debtor, and that the bankruptcy case had already been pending for fifteen years. The bankruptcy court ruled that the Federal Circuit's decision that the ASROC contract had been wrongfully terminated precluded the government from any affirmative recovery under that contract, and disallowed the government's ASROC contract claim. On appeal of that ruling by the government, the district court affirmed, which decision the government also appealed. During the circuit appeal, the ASBCA finally ruled that the government owed approximately $4 million to debtor, subject to some offsets that had not yet been calculated, and rejected the government's claim against debtor. USBCA remanded the matter to the contracting officer for additional determination of the offsets. The Tenth Circuit held that the government's appeal was not mooted by the ASBCA's decision. It acknowledged that claims asserted by bankruptcy debtors that fall within the jurisdiction of a specialized tribunal, such as the ASBCA, should ordinarily be tried in that special forum instead of the bankruptcy court. However, the circuit stated that the same rationale does not apply to claims made by creditors against debtors, which bankruptcy courts have a duty to timely determine and quantify. In its ruling, the bankruptcy court had considered the criteria for deferral of government contract claims that were set forth in Gary Aircraft Corp. v. United States (In re Gary Aircraft Corp.), 698 F.2d 775 (5th Cir. 1983), and concluded that at least some of those criteria had to be examined on a case-by-case basis. The bankruptcy court considered that it was faced with an unusual situation, since the Federal Circuit had ruled on the central issue, but deference to the ASBCA would likely involve years more litigation, and declined to defer. The circuit concluded that the bankruptcy court correctly held that it had discretion to either defer or determine the viability of the government's claims itself, and limited its own determination to whether the bankruptcy court had abused its discretion. The circuit concluded that, accepting as true that debtor's claim against the government for wrongful termination of the ASROC contract was its only asset, any error by the bankruptcy court in failing to defer a decision on the government's claims was harmless, since the best result the government could obtain from the ASBCA proceedings would eliminate the debtor's only potential asset, and thereby its own recovery from the debtor.

SLC Ltd. V v. Bradford Group West, Inc. (In re SLC Ltd. V), 152 B.R. 755 (Bankr.D.Utah)

(Internal Ref: Opinion 360)




Judge Boulden

PDF icon 360.pdf

The court held that a secured lender's interest in an assignment of rents and proceeds was an interest in real property under applicable state law. Accordingly, the secured lender's interest had been perfected prepetition, upon its proper recording with the county recorder, and constituted a perfected interest in postpetition cash collateral under 11 U.S.C. §363(a) and 552(b). Further, lender's action to enforce its interest in the collateral rents, by obtaining appointment of a receiver in state court within 90 days prior to the petition date, was not a voidable preference under 11 U.S.C. § 547(b). Settlement funds derived from an action by the debtor to recover prepetition and postpetition unpaid rents from a tenant in breach of its lease agreement were also subject to the lender's perfected security interest in rents. Debtor's unilateral action to recover the rents through judicial action did not change the nature of the funds from rents to general intangibles, which would not have been subject to the lender's recorded security interest. Finally, lender did not violate the Utah one-action rule by pursuing an action against the individual guarantors of the debt before exhausting its remedies against the property securing the debt, as a guaranty agreement is a separate, unsecured debt, and the one-action rule does not prevent a creditor on a debt secured solely by real property from pursuing an action against guarantors without first foreclosing the security.

Matravers v. United States (In re Matravers), 149 B.R. 204 (Bankr.D.Utah)

(Internal Ref: Opinion 359)




Judge Allen

PDF icon 359.pdf

Chapter 13 debtors commenced adversary proceeding against IRS, requesting declaratory judgment that tax liabilities were discharged and seeking return of sums paid to the IRS postpetition, plus attorney's fees and costs. Debtors moved for summary judgment. The court held that: (1) taxes become payable when tax return is due, not when income on which tax was applied was earned; (2) requirements for waiver of sovereign immunity were met; and (3) debtors were entitled to recover property seized postpetition, as well as attorney's fees and costs incurred in pursuing the proceeding.

In re CF&I Fabricators of Utah, Inc.

(Internal Ref: Opinion 358)


UNPUBLISHED See 375a.pdf


Judge Boulden

PDF icon 358.pdf

The court heard evidence related to remaining factual issues regarding proofs of claim filed by Pension Benefit Guaranty Corporation ("PBGC") against debtor's estate for underfunded ERISA-qualified pension plans sponsored and administered by debtor. The court ruled that the amount of minimum contribution claims representing "normal pension costs" for the 180-day period prior to filing bankruptcy allowed under 11 U.S.C. § 507(a)(4) was $429,232. Under the circumstances in this case, there could not be a distribution under § 507(a)(3). Therefore, no allowed unsecured wage claims existed on the date of filing, and PBGC's claims could not be reduced by a prepetition distribution to employees. Normal pension costs are granted administrative priority pursuant to § 507(a)(1). The court further ruled that, although the burden shifted to PBGC to prove the validity of all aspects of its proofs of claim, PBGC failed to allocate its minimum contribution claims between postpetition interest, post-termination funding requirements, and charges attributable to amounts due in the future. Based on a lack of credible evidence regarding the components of the minimum contribution claims, the court disallowed $69,228,373 of those claims. The court also determined that debtor had failed to establish that the method (prescribed by regulation and substantive non-bankruptcy law) used by PBGC to calculate the discount rate applicable to its claims either disproportionately favored PBGC or unjustifiably inflated the claims. While the court recognized its authority to modify the discount rate in a case of manifest injustice or unreasonableness, it found that the equitable factors unique to this case did not warrant such a modification. Finally, the court ruled that the reiterative process employed by the PBGC to calculate the total amount of its unfunded benefit claims, as reduced by the probable recovery on its minimum contribution claims, eliminated any duplication and produced a total unfunded benefit claim of $212,286,000.

In re Bonneville Pac. Corp., 147 B.R. 803 (Bankr.D.Utah)

(Internal Ref: Opinion 357)


PUBLISHED See 386.pdf


Judge Allen

PDF icon 357.pdf

In considering a fifth fee application from counsel for the debtor-in-possession, the court emphasized that professionals who represent a bankruptcy estate are held to high fiduciary standards and act as officers of the court. The task presented by the fee application before it was described by the court as requiring it to ascertain whether the fees sought were for necessary and appropriate legal services in pursuit of legitimate reorganization of the debtor, or were for conduct "designed to deliberately sabotage efforts to ascertain the truth" of debtor's financial state. Based on a report prepared by an examiner who was appointed to conduct an extensive evaluation of debtor's business affairs, the court concluded that the plan and disclosure statement proposed by debtor had been offered for reasons other than the benefit of the estate, and that counsel's efforts had, instead, been aimed at protecting debtor's principals and their status quo. Noting that the Bankruptcy Code imposes numerous limitations on the compensation of court-approved counsel in order to insure the highest standards of ethical conduct, the court held that the magnitude of counsel's and debtor's misrepresentation of facts to the court warranted denial of the fee application before it in its entirety, as well as an order directing the law firms to disgorge all previously awarded fees in the case.

In re CF&I Fabricators of Utah, Inc., 148 B.R. 332 (Bankr.D.Utah)

(Internal Ref: Opinion 356)


PUBLISHED See 53 F.3d 1155; 516 U.S. 1005


Judge Boulden

PDF icon 356.pdf

The IRS filed proofs of claim against each of the debtors in this jointly administered case for priority tax claims under 11 U.S.C. § 507(a)(7)(E) and (G) or, in the alternative, as administrative claims for "excise taxes" pursuant to 26 U.S.C. § 4971(a) and (b). The claims were based on debtors' failure to make minimum funding payments to their ERISA-qualified pension plans. Pursuant to § 4971(a), the IRS imposes an immediate 10% first-tier tax, based on accumulated funding deficiency, when an employer fails to make the minimum funding contribution to an ERISA-qualified plan when their annual report is due. If the sponsoring employer does not correct the deficiency, § 4971(b) imposes an additional second-tier tax equal to 100% of the accumulated funding deficiency. The IRS filed amended proofs of claim for the debtors' liability under § 4971(a) and (b), as postpetition administrative priority or, alternatively, as prepetition priority taxes under § 507(a)(7)(E) and (G). In addition to findings based on the specific circumstances related to timing and claim calculations peculiar to this case, the court found that claims for excise taxes under § 4971 are neither excise taxes given priority by § 507(a)(7)(E), nor pecuniary loss penalties related to a governmental claim under § 507(a)(7)(G), rejecting the holding of In re Mansfield Tire & Rubber Co., 942 F.2d 1055 (6th Cir. 1991), cert. denied sub nom, Krugliak v. United States, 112 S. Ct. 1165 (1992). The court also found that penalties under § 4971 do not relate to a tax and, therefore, are also not entitled to administrative priority under 11 U.S.C. § 503(b)(1)(C). The IRS asserted that, since its original proofs of claim included protective language that placed debtors' income tax liability in issue, amended proofs of claim should be permitted to cure the defect in the claims as originally filed. The court held, under the circumstances of this case, that whether the original proofs opened the door for later amendment was subject to different interpretations, and reserved that issue for further evidentiary proceedings. However, the court held that the original proofs did not give the debtor notice of the existence or amount of the 1990 excise tax claims under § 4971. The court concluded that, as the amended proof of claim created a new claim that tripled the amount of the original claim, allowance of the amended claim was not justified.

In re SLC Ltd. V

(Internal Ref: Opinion 355)


APPEAL 147 B.R. 586 (D.Utah) See 364.pdf


U.S. District Court, Utah

PDF icon 355.pdf

The chapter 11 debtor sought to disqualify creditor's law firm due to a conflict of interest with an individual attorney of the creditor's law firm, asserting a conflict of interest based on the attorney's representation of the debtor's general partner in prior commercial transactions while working at a different law firm. The bankruptcy court disqualified the attorney but refused to disqualify the firm. The district court on appeal held that: (1) the law firm may not sufficiently remedy a conflict of interest by building a "Chinese Wall" to screen the tainted attorney after potential for improper disclosure has existed; and (2) disqualification of creditor's attorney was required under U.P.C.R. imputed disqualification provision when individual attorney at the firm had represented debtor's general partner in prior commercial transactions while attorney worked at a different firm, since neither the firm nor attorney produced any evidence indicating that the firm instituted screening mechanisms prior to the attorney's arrival at the firm.

Styler v. Am. Sav. (In re Peterson)

(Internal Ref: Opinion 354)


APPEAL Unpublished


U.S. District Court, Utah

PDF icon 354.pdf

In 1984, debtors executed a trust deed in favor of defendant that secured a $78,000 loan. Although the deed was recorded, and a notary seal and signature were affixed to the deed's acknowledgment, the acknowledgment itself was left blank. Debtors filed bankruptcy under chapter 7 in 1989, and the bankruptcy trustee sought to avoid the trust deed under 11 U.S.C. § 544, asserting that it did not comply with Utah law. The bankruptcy court avoided the lien. On appeal, the district court determined, as had the bankruptcy court, that the trust deed acknowledgement was ineffectual under the Utah law in effect when the deed was executed, and that the deed should not have been recorded. However, four years after the deed's execution, Utah passed the Effects of Recording Act of 1988 (Utah Code Ann. ASSASS 57-4a-1, et seq.), providing that a recorded document is notice of its contents regardless of any defect in, among other things, the document's acknowledgment. The district court disagreed with the bankruptcy court's conclusion that the Recording Act was inapplicable to debtors' trust deed, and reversed the order avoiding the deed, concluding that the Recording Act's plain wording operated to cure defects in documents that were recorded prior to its enactment.

In re Moulton Excavating, 143 B.R. 955 (Bankr.D.Utah)

(Internal Ref: Opinion 353)




Judge Allen

PDF icon 353.pdf

The bankruptcy court previously approved an agreement between debtor and the IRS that allowed debtor to use prepetition cash collateral subject to the IRS's secured interest, by granting the IRS a replacement lien in debtor's postpetition cash collateral. In addition, the agreement required debtor to make monthly adequate protection payments to the IRS. Based on debtor's failure to make the agreed adequate protection payments, the IRS requested superpriority of its claim under 11 U.S.C. § 507(b). The court noted that successful reorganization in bankruptcy requires the cooperation of secured creditors, and that adequate protection payments provide a means for debtors to obtain such cooperation. Therefore, when a creditor sacrifices its collateral for the benefit of all, and the adequate protection given to encourage creditor to do so fails, § 507(b) places that creditor's claim ahead of even administrative expenses, deeming it a "superpriority." Calling a cooperative creditor "the catalyst that [more often than not] advances the reorganization effort," the court concluded that there was no equitable justification for denying superpriority to the IRS for the risk it had taken, and superpriority status was granted.

In re Ambra Oil & Gas Co.

(Internal Ref: Opinion 352)




Judge Boulden

PDF icon 352.pdf

Chapter 11 debtor-in-possession proposed a plan of reorganization that provided for systematic liquidation of all assets over a two-year period. Debtor proposed to continue operating its business during the liquidation period, in order to maximize the value of its assets. The plan also provided that, upon confirmation, debtor would receive a discharge of all of its debts. Under 11 U.S.C. § 1141(d)(3), such a discharge is permissible only if the evidence indicates that the debtor will engage in business after consummation of the plan. Creditors overwhelmingly approved the proposed plan, which would be consummated, for the purposes of § 1141(d)(3)(B), when substantially all of debtor's assets were liquidated. The only assets remaining after consummation would be the skill of the debtor's employees, its name, and its debt-free corporate shell. Debtor presented evidence that it intended to conduct its service business after its assets were liquidated, but did not clearly establish an ability to do so. The court determined that, given the uncertainty of market conditions, mere intent to conduct business was sufficient to satisfy § 1141(d)(3), as no evidence was presented that debtor proposed the plan for improper purposes.

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

(Internal Ref: Opinion 351)




Judge Clark

PDF icon 351.pdf

Chapter 11 debtor, a subcontractor, entered into a postpetition arrangement to supply lumber to a project. Debtor purchased the lumber from a sub-subcontractor, but did not pay for it when payment was due. Pursuant to state law, the sub-subcontractor placed a materialman's lien on the project, which was not estate property. Due to debtor's failure to pay, the general contractor paid the sub-subcontractor directly to obtain release of the lien, as was allowed under state law. The court held that neither placement of the mechanic's lien on the project, nor the general contractor's payment of the sub-subcontractor, constituted a violation of the automatic stay. The court further held that direct payment of the sub-subcontractor also did not violate the cash collateral provisions of 11 U.S.C. § 363, noting that nothing in § 363 precluded the actions taken. In any event, the creditor with a security lien on debtor's accounts receivable had not notified the general contractor ("account debtor") that payments made on its account could only be made to the debtor or to the secured creditor.

Valley Bank & Trust Co. v. Associated Factors, Inc. (In re Laurie Jackson McVey's Collectables)

(Internal Ref: Opinion 350)


APPEAL Unpublished


U.S. District Court, Utah

PDF icon 350.pdf

The district court reversed the bankruptcy court's determination that it had related matter jurisdiction over an action that had been removed from state court. Prior to removal, the chapter 7 trustee had abandoned all of debtor's assets. The district court held that debtor's residual interest in abandoned assets was not an asset of the bankruptcy estate. Therefore, there were no estate assets for the bankruptcy court to administer, and the bankruptcy court was without either core or related matter jurisdiction to determine and resolve competing claims to debtor's residual interest by secured creditors. The bankruptcy court was ordered to vacate its orders in the case and to remand the case to state court.

Gillman v. Swire Pac. Holdings, Inc. (In re D-Mart Servs., Inc.), 138 B.R. 985 (Bankr.D.Utah)

(Internal Ref: Opinion 349)


PUBLISHED See 336.pdf

90PC-0524 & -0551

Judge Clark

PDF icon 349.pdf

Chapter 7 trustee filed adversary proceedings, pursuant to 11 U.S.C. § 547(b), seeking to avoid transfers made by debtor to the defendants. The court considered motions regarding whether the adversary proceedings were barred by the two-year limitation period set forth in 11 U.S.C. § 546(a), applicable to such claims. Debtor had previously operated its business as a debtor-in-possession under chapter 11, but the case was converted to chapter 7 approximately seven months after it was filed. Upon conversion to chapter 7, a trustee was appointed. Defendants claimed that the § 546(a) limitation period began to run when the chapter 11 petition was filed, relying on a statement in Zilkha Energy Co. v. Leighton, 920 F.2d 1520 (10th Cir. 1990) to the effect that Congress intended the term "trustee" to include a debtor in possession. The bankruptcy court concluded that defendants' interpretation of Zilkha was overbroad, noting that Zilkha had only decided that a debtor in possession was subject to the same statute of limitations as an appointed trustee, and specifically did not limit the ability of a subsequently appointed chapter 7 trustee to commence avoidance actions for up to two years after that appointment. As a matter of policy, the court held that, following conversion of a case from another chapter, the § 546(a) limitations period runs from the date of the chapter 7 trustee's appointment. Therefore, the adversary proceedings were not time barred.

In re SLC Ltd. V, 137 B.R. 847 (Bankr.D.Utah)

(Internal Ref: Opinion 348)




Judge Boulden

PDF icon 348.pdf

Within a motion for relief from automatic stay, debtor and an under-secured creditor requested a ruling from the court on whether the new value exception to the absolute priority rule had survived adoption of the Bankruptcy Code of 1978. Circuit courts were split on the continued existence of the judicially created new value exception, as it had not been expressly incorporated into 11 U.S.C. § 1129(b) of the new bankruptcy code, and the U.S. Supreme Court had declined to rule on its continued vitality in Nw. Bank Worthington v. Ahlers, 485 U.S. 197 (1988). Determining that the statutory language did not plainly exclude or eliminate the new value exception, and considering the general presumption that, by enacting a statute, Congress did not intend to alter an existing judicially created concept of law, unless it specifically manifests such an intent, the court concluded that the new value exception had survived enactment of the Bankruptcy Code of 1978. However, due to both lack of evidence and the odd procedural posture of the case before it, the court considered the parties' request for a ruling, as to whether debtor could obtain confirmation of a plan based on the new value exception, to be premature.

In re Med. Sys. Research, Inc.

(Internal Ref: Opinion 347)




Judge Boulden

PDF icon 347.pdf

Confirmation of debtor's proposed chapter 11 plan turned on whether it satisfied the new value exception to the absolute priority rule. Finding that the new contribution at issue did not satisfy the new value exception, the court denied confirmation of the plan, without deciding whether the exception remained viable after enactment of the 1978 Bankruptcy Code. Prior to the confirmation hearing, the court authorized debtor's former president, Holbrook, who owned approximately 35% of debtor's stock, to loan debtor $15,000 as an unsecured administrative claim under 11 U.S.C. § 503(b)(1). Debtor's plan, which was rejected by both the unsecured creditor class and debtor's equity interest holders, proposed to cancel all of its current stock and to provide Holbrook with more than 80% of its newly-issued stock, in repayment of his $15,000 administrative claim. The plan further provided that Holbrook would loan debtor up to $150,000 post-confirmation, which would be repaid over time, with interest, and would be secured by all of debtor's assets. The court found that, although the proposed Holbrook loan would be essential to the plan's feasibility, it could not be considered "new value" in support of the exception to the absolute priority rule, since the plan provided that the post-petition loan would be repaid in full, with interest. Therefore, the court considered whether Holbrook's $15,000 administrative claim was new value that was reasonably equivalent to his proposed post-confirmation equity interest in debtor. Analyzing Holbrook's administrative claim in light of the value of the senior rights being threatened, the court concluded that the present value of debtor's projected cumulative cash flow significantly exceeded Holbrook's $15,000 investment. In addition, none of the $15,000 contribution had been used to pay prepetition creditors, as it was all used prepetition to fund debtor's monthly operation. Finally, since the contribution had been obtained as an administrative expense, notice had not been required or given to all of debtor's creditors and equity holders, and those parties had no similar opportunity to participate in the future profits of the reorganized debtor. Based on its analysis of all of the facts, the court concluded that the proposed plan was not fair and equitable to the classes of claims that had not accepted it and, therefore, could not be confirmed under 11 U.S.C. § 1129(b).

Cottage Farms, Ltd. v. Sloan (In re Larsen)

(Internal Ref: Opinion 346)


UNPUBLISHED (District Court)


U.S. District Court, Utah

PDF icon 346.pdf

Debtor previously held a percentage interest in a limited partnership that owned real property, which it sold on an installment basis. Debtor transferred all of his interest in the partnership to a third party, who subsequently transferred half of that interest to debtor's wife. When the first installment payment was made on the sale of the property, the limited partnership received conflicting claims to the amount that would have been paid on debtor's previous percentage interest. The trustee in debtor's bankruptcy claimed that debtor's transfer of his interest in the partnership had been fraudulent, under 11 U.S.C. § 548(a)(2)(A), and demanded that the partnership pay the full value attributable to debtor's prior interest to the estate, while the third party and debtor's wife each claimed a one-half interest in that share. The limited partnership filed an interpleader action in the bankruptcy court and deposited the full percentage payment with the bankruptcy court clerk. The third party filed a motion in district court to withdraw the reference to the bankruptcy court, claiming she was entitled to a jury trial on the interpleader issues. That motion was supported by debtor's wife and opposed by the trustee. Holding that interpleader is an equitable remedy that does not give rise to a right to a jury trial, the district court denied the motion to withdraw the reference.

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

(Internal Ref: Opinion 345)


APPEAL Unpublished See 314.pdf


U.S. District Court, Utah

PDF icon 345.pdf

Relying on 11 U.S.C. §547(b) and 550(a), chapter 11 trustee sought to avoid and recover loan payments made by debtor during the one-year period preceding the filing of its petition. The bankruptcy court ruled that, as the transfers did not satisfy the criteria of § 547(b)(5), they were not preferential, and trustee appealed. The parties stipulated that the debt on which the payments were made was over-secured during the preference period and, therefore, the lien-holder had not received more from the payments than it would have received from liquidation of the collateral, as is required for avoidance under § 547(b)(5). However, the district court relied on a case law exception to the over-secured rule, which is that payments on an over-secured property may still be preferential if the payments are not accompanied by the release of an equivalent value to the estate. The district court then found that the loan payments had not been accompanied by release of an equivalent value, since the loan had been made to a joint venture, of which debtor was only a 50% owner. Therefore, the benefit to debtor was only 50% of the amount of the payments made. The district court rejected lender's argument that it could impose a junior lien on the property for the 50% of the payments that debtor had made on behalf of the other joint-venturer, concluding that such a lien was potentially valueless. Accordingly, the payments were held to have been preferential, and the bankruptcy court's order denying trustee's avoidance claim was reversed.

First Am. Sav. Bank v. Iron County (In re United Constr. & Dev. Co.), 135 B.R. 904 (Bankr.D.Utah)

(Internal Ref: Opinion 344)




Judge Clark

PDF icon 344.pdf

The court considered whether the automatic bankruptcy stay (11 U.S.C. § 362) precludes postpetition creation, perfection, and enforcement of tax liens, under Utah law, for real property taxes that are assessed postpetition. Section 362(b)(3)'s exception to the stay allows postpetition perfection of an interest in property to the extent that such perfection is allowed by 11 U.S.C. § 546(b). However, the court ruled that the exception was inapplicable, concluding that it allows postpetition perfection of a property interest only when a "generally applicable law" provides that perfection will be effective against one who acquired rights in the property prior to the date of perfection. The court found nothing in the Utah tax laws that allows tax liens to take priority over those whose interests attached to real property after taxes were assessed but before the tax lien was perfected. Therefore, the automatic stay precluded postpetition creation, perfection, and enforcement of tax liens created by Utah law.

In re Spanton

(Internal Ref: Opinion 343)




Judge Boulden

PDF icon 343.pdf

Chapter 7 debtor listed an automobile personal injury claim, which he valued at $25,000, as an asset of his estate and claimed it as exempt under Utah law. The court identified three Issues: 1) whether debtor was bound by a subrogation agreement executed by his mother in favor of the health plan that covered both her and debtor; 2) whether the asset that debtor claimed to be exempt constituted "compensatory damages," as provided by the Utah exemption statute; and 3) whether the claimed exemption was preempted by the subrogation provisions of an ERISA-qualified plan. The court concluded that the subrogation provisions were binding upon the debtor, who ratified the subrogation terms by knowingly accepting benefit payments under the plan and failing to take any action in four years to disaffirm his mother's execution of the agreement. The court also determined that proceeds from debtor's personal injury claim would be considered "compensatory damages," which were exempt under the Utah Exemptions Act (Utah Code Ann. § 78-23-5(1)(i)). However, relying on In re Martin, 115 B.R. 311 (Bankr. D. Utah 1990) aff'd sub nom. In re Fullmer, 127 B.R. 55 (D. Utah 1991), the court concluded that, because the exemption statute "related" to an ERISA-qualified plan, it was preempted by the provisions of that plan. Therefore, debtor's exemption was allowed, over the trustee's objection, but only to the extent that the recovery exceeded the amount of the ERISA plan's subrogation claim.

Performance Inv. Corp. of Utah v. Folsom (In re Folsom)

(Internal Ref: Opinion 341)




Judge Clark

PDF icon 341.pdf

Defendants in a state court action removed that action to the bankruptcy court and sought to have venue transferred to Oregon, where they had a pending bankruptcy. Plaintiffs did not appear at the motion to change venue. Nonetheless, the court considered equitable grounds for remand, including duplication of judicial resources, uneconomical use of judicial resources, effect of remand on the administration of the estate, questions of state law better addressed by a state court, comity considerations, prejudice to involuntarily removed parties, lessened possibility of inconsistent result, and expertise of the court where the action originated, concluding that those considerations supported remand to Utah's state courts. The court particularly found the facts that the state court action had been proceeding for ten years, final judgment had been rendered by the state trial court, and the matter was on appeal in the state appellate court for the second time, coupled with the existence of unique state law issues, supported remand. Further, the court concluded that the removal statute, 28 U.S.C. § 1452, should not be applied where doing so would result in the bankruptcy court functioning as an appellate court.

Thomas Am. Stone & Bldg., Inc. v. White (In re White)

(Internal Ref: Opinion 342)




Judge Clark

PDF icon 342.pdf

Creditor filed a state court action seeking to foreclose its interest in defendant's Utah real property. Defendant removed the case to Utah federal district court and, approximately two years later, filed a chapter 11 petition in California. Creditor moved for relief of stay in California, in order to proceed with the foreclosure action in Utah, and that motion had been granted by the California bankruptcy court. After the stay relief order was signed, but before it was entered, defendant/debtor obtained the Utah district court's referral of the Utah foreclosure action, as an ancillary action, to the Utah bankruptcy court. Creditor moved the Utah bankruptcy court to remand the case back to the district court, while defendant/debtor moved to transfer venue from the Utah bankruptcy court to the California bankruptcy court. Considering the equities of the case, the court concluded, based in large part on the California bankruptcy court's order allowing creditor to proceed with the Utah foreclosure action, that the case would more appropriately be decided by the Utah district court than by the California bankruptcy court. Creditor's case was remanded to the district court, with a recommendation that the district court deny the motion for change of venue.

Haymond v. Grant (In re Grant)

(Internal Ref: Opinion 340)


APPEAL Unpublished See 309.pdf


U.S. District Court, Utah

PDF icon 340.pdf

A bankruptcy court judgment discharging a debt over creditors' objections was vacated, and the case was remanded for the bankruptcy court to reexamine its ruling in light of the U.S. Supreme Court's Grogan v. Garner, 498 U.S. 279 (1991) decision. Grogan held that the evidentiary standard of proof applicable to 11 U.S.C. § 523(a) discharge exceptions is an ordinary preponderance standard, rather than a clear and convincing standard. The district court found that the bankruptcy court had improperly placed the burden on plaintiffs to prove intent to deceive when, since plaintiffs had established a rebuttable presumption of such intent, it was debtor's burden to rebut it. The district court also concluded that the bankruptcy court had properly denied plaintiff's demand for a jury trial since, although the demand had been both timely and properly made, plaintiffs were not entitled to a jury trial on their dischargeability claim, as it is a claim in equity rather than law.

In re CF&I Fabricators of Utah, Inc., 131 B.R. 474 (Bankr.D.Utah)

(Internal Ref: Opinion 339)




Judge Boulden

PDF icon 339.pdf

In a jointly administered case, professionals sought compensation for services from the estates of the chapter 11 debtors-in-possession. The court held that time reasonably spent preparing fee applications is compensable at normal hourly rates, and is neither subject to a percentage limitation nor an across-the-board discount, provided that the estate is billed only for time spent (1) preparing the fee application pleading, including the narrative section, at the lowest applicable hourly rate; (2) exercising billing judgment while reviewing the application; and (3) responding to objections and attending the hearing on allowance of the fee application. Customary overhead charges such as reviewing time records for accuracy, posting accumulated time records, and compiling the billing statement, are non-compensable charges. The court also held that, if services provided to the estate by a paraprofessional are clerical in nature and would traditionally be charged to overhead in a non-bankruptcy case, they are non-compensable. Finally, the court found that telecopier charges should reflect the actual cost to the estate of long distance telephone rates and supplies and should not produce a profit for the applicant.

Gillman v. American Savings & Loan Assoc. (In re CFS Fin. Corp.)

(Internal Ref: Opinion 338)


APPEAL Unpublished


U.S. District Court, Utah

PDF icon 338.pdf

The holder of a deed of trust on debtor's real property moved for relief from stay in the bankruptcy court, which was granted when no objections were filed. Trust deed holder thereafter obtained the property by foreclosure sale. More than a year after the foreclosure sale, chapter 7 trustee filed an adversary action in the bankruptcy court, seeking to avoid the trust deed lien pursuant to 11 U.S.C. § 544 and to recover the property pursuant to 11 U.S.C. § 549. The parties filed cross-motions for summary judgment on the issue of the validity of the deed of trust's acknowledgment, which was individual rather than corporate, and the bankruptcy court granted trustee's motion and voided the lien on the property. The district court did not determine the acknowledgement's validity, holding instead that the recording of the trust deed had provided effective notice to trustee. The district court then reversed the bankruptcy court's order on the ground that trustee's lesser interest in the property had been extinguished by the foreclosure sale.

Gillman v. Swire Pac. Holdings, Inc. (In re D-Mart Servs., Inc.)

(Internal Ref: Opinion 336)



90PC-0524 and -0551

Judge Clark

PDF icon 336.pdf

The court addressed the issue of when the two-year limitation period (set forth in 11 U.S.C. § 546(a) and applicable to 11 U.S.C. § 547 avoidance actions) commences, when a case that began in chapter 11 with a debtor-in-possession is subsequently converted to chapter 7. The court held that the limitation period does not begin to run until the chapter 7 trustee has been appointed. Therefore, trustee's avoidance action was not time-barred. On April 7, 1992, the court amended this decision, which at 349.pdf.