The court considered a creditor's claim that post-confirmation expenses it incurred in obtaining conversion of debtor's chapter 11 case to chapter 7 were administrative expenses under 11 U.S.C. § 503(b)(3)(D) and (b)(4). The court concluded that whether pre-conversion expenses were entitled to administrative priority depended on the policies that underlie the compensation provisions, rather than whether claimant's actions occurred before or after plan confirmation. In particular, claimant must prove that its actions provided a substantial contribution to debtor's case. As creditor had failed to make such a showing, its application for administrative expense priority was denied.

Prior to filing its bankruptcy petition, chapter 11 debtor had entered into a licensing agreement with Micro Focus, a British software company. Also prior to the petition filing, debtor sent a letter to Micro Focus that essentially attempted to cancel the licensing agreement due to changed circumstances. Debtor listed the licensing agreement as an executory contract in its bankruptcy filings, but did not list Micro Focus as a creditor or its own alleged claim against Micro Focus as an asset. Micro Focus was sent a letter informing it that debtor had filed a bankruptcy petition, but was not officially notified of the pending bankruptcy. While the bankruptcy was pending, debtor filed a lawsuit against Micro Focus in district court, seeking refund of monies debtor had paid under the agreement. Micro Focus filed a motion to stay that action, pending arbitration, as provided in the parties' agreement. In the meantime, debtor's chapter 11 plan was approved. The district court stayed all proceedings before it and certified two bankruptcy-related questions to the bankruptcy court. In response to the certified questions, the bankruptcy court determined that (1) the licensing agreement was an enforceable executory contract; (2) despite debtor's failure to expressly assume or reject the licensing agreement, the agreement was assumed pursuant to a plan provision providing that debtor assumed all executory contracts not expressly rejected; and (3) the Bankruptcy Code impliedly modified the Arbitration Act such that the decision whether to stay a bankruptcy proceeding pursuant to a contractual arbitration provision is left to the sound discretion of the bankruptcy judge. The court then listed the policies and factors that should be considered in making such a decision, and concluded that, since the plan had already been confirmed, no bankruptcy policy would be seriously compromised by allowing arbitration to proceed in the case before it.

Debtor, who had agreed to act as escrow agent on a loan from plaintiff to a third party, improperly used escrowed funds to pay its own debts to a good faith creditor. After debtor was involuntarily placed in bankruptcy, the chapter 7 trustee recovered the funds from debtor's creditor on the ground that the payments were avoidable preferences. Plaintiff filed an adversary proceeding contending that the recovered amount was subject to a trust in its favor, and was thus not available for distribution to other creditors. The bankruptcy court ruled that the recovered funds were estate property, and that plaintiff simply had an unsecured claim against the estate. The district court affirmed, rejecting plaintiff's claim that the trustee could not recover a greater interest in the funds than debtor would have had. The district court noted that a trustee's avoidance power is an extraordinary power that debtor does not have, which allows the trustee to retrieve property transferred by the debtor that, in equity, all of debtor's creditors should share. This district court order was reversed by a divided decision in 872 F.2d 335 (10th Cir. 1989), and that decision was then vacated on en banc review in 917 F.2d 424 (10th Cir. 1990) [313a.pdf], which affirmed the district court.

Plaintiff credit union filed an adversary complaint against debtor, its former president and treasurer, seeking non-dischargeability of its debt under 11 U.S.C. § 523(a)(2), (a)(4), and (a)(6). After trial, the court dismissed the complaint. Plaintiff filed a motion for new trial, which the court denied, electing instead to amend its previous ruling. The court had previously found that debtor was a fiduciary to plaintiff under state law, and that he owed the amount of the pending claim based on various failures to meet his obligations to plaintiff. However, the court had found that plaintiff's claim was still dischargeable under § 523(a)(4) because plaintiff had not proven that defendant's conduct constituted "fraud or defalcation" under that provision. On the motion for new trial, however, the court concluded that defalcation by a fiduciary under § 523(a)(4) includes failure to account for funds entrusted to the fiduciary, even if only negligent, innocent, or ignorant. Since debtor had breached several of the duties he owed to plaintiff as its president and treasurer, his conduct satisfied the defalcation element of § 523(a)(4), and plaintiff's claim was held to be non-dischargeable under that provision. This decision was reversed by the district court in 245.pdf.