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.
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Title: In re CF&I Fabricators of Utah, Inc., 148 B.R. 332 (Bankr.D.Utah) | Date: Nov-25-1992 | Status: PUBLISHED See 53 F.3d 1155; 516 U.S. 1005 (Judge Boulden) | Case(s): 90B-6721
Title: In re SLC Ltd. V | Date: Nov-12-1992 | Status: APPEAL 147 B.R. 586 (D.Utah) See 364.pdf (U.S. District Court, Utah) | Case(s): 91B-3012
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.
Title: Styler v. Am. Sav. (In re Peterson) | Date: Nov-6-1992 | Status: APPEAL Unpublished (U.S. District Court, Utah) | Case(s): 91PB-0213
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.
Title: In re Moulton Excavating, 143 B.R. 955 (Bankr.D.Utah) | Date: Jul-15-1992 | Status: PUBLISHED (Judge Allen) | Case(s): 87A-2805
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.
Title: In re Ambra Oil & Gas Co. | Date: May-29-1992 | Status: UNPUBLISHED (Judge Boulden) | Case(s): 89B-7810
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.
Title: Zions First Nat'l Bank v. Christiansen Bros., Inc., (In re Davidson Lumber Sales, Inc.) | Date: Apr-17-1992 | Status: UNPUBLISHED (Judge Clark) | Case(s): 90PC-0044
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.
Title: Valley Bank & Trust Co. v. Associated Factors, Inc. (In re Laurie Jackson McVey's Collectables) | Date: Apr-13-1992 | Status: APPEAL Unpublished (U.S. District Court, Utah) | Case(s): 89PB-0753
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.
Title: Gillman v. Swire Pac. Holdings, Inc. (In re D-Mart Servs., Inc.), 138 B.R. 985 (Bankr.D.Utah) | Date: Apr-7-1992 | Status: PUBLISHED See 336.pdf (Judge Clark) | Case(s): 90PC-0524 & -0551
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.
Title: In re SLC Ltd. V, 137 B.R. 847 (Bankr.D.Utah) | Date: Mar-6-1992 | Status: PUBLISHED (Judge Boulden) | Case(s): 91B-3012
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.
Title: In re Med. Sys. Research, Inc. | Date: Feb-5-1992 | Status: UNPUBLISHED (Judge Boulden) | Case(s): 89B-3601
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).