Bankruptcy court dismissed plaintiffs/debtors' complaint objecting to defendant's proof of claim, then denied their motion to reinstate the complaint on the grounds that (1) counsel failed to appear at the hearing on the motion, and (2) the complaint failed to state a claim upon which relief could be granted. Plaintiffs' subsequent FRCP 60(b) motion was also denied. The district court dismissed plaintiffs' appeal, and the Tenth Circuit remanded to the district court, which remanded to the bankruptcy court. The bankruptcy court interpreted the remands as a mandate to allow plaintiffs another opportunity to present their Rule 60(b) motion, which it did.
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Title: Artistic Tape & Label Printers v. Coordinated Fin. Servs. (In re Artistic Tape & Label Printers) | Date: Apr-1-1986 | Status: UNPUBLISHED (Judge Allen) | Case(s): 83PA-0458
Title: In re Allen | Date: Apr-1-1986 | Status: UNPUBLISHED (Judge Allen) | Case(s): 85A-0372
Debtors sought to dismiss their chapter 7 bankruptcy in order to immediately refile it and obtain a discharge of both medical expenses incurred postpetition and a student loan. The court denied the motion, concluding that 11 U.S.C. § 707 applies to voluntary dismissals and requires a showing of "cause" for the dismissal. The court found that neither debtors' desire to discharge debts incurred postpetition, nor to time bar a claim of non-dischargeability constituted "cause" for dismissal of their bankruptcy case.
Title: Merrill v. Dietz (In re Universal Clearing House Co.) | Date: Mar-31-1986 | Status: APPEAL Unpublished (U.S. District Court, Utah) | Case(s): 83PA-3105
Trustee for Ponzi-scheme debtors sought to avoid and recover payments made to defendant, and the bankruptcy court awarded judgment in the amount of all payments, plus interest, to trustee. On appeal, defendant argued that, since all of debtors' funds were obtained through fraud, debtors had acquired no interest in them that could be recovered by trustee. The district court rejected defendant's argument, noting that cases unanimously hold that trustees can recover preferential and fraudulent transfers made by debtors to investors in their Ponzi schemes, because agreements induced by fraud are voidable, rather than void. Thus, where debtor had obtained investments through fraud, mingled them such that they could not be traced, and the investor failed to timely avoid the transaction, the money became property of the estate for avoidance purposes. The district court reviewed the evidence from the parties' trial and determined that, under § 550(a), defendant had been the initial transferee of some of the payments, and a transferee of the initial transferee in others. As a mediate transferee, defendant was entitled to the protection afforded by § 550(b), the elements of which (for value, in good faith, and without knowledge) had been established at trial in defendant's favor. The bankruptcy court's decision was reversed as to transactions determined on appeal to be § 550(a)(2) transactions, and affirmed as to § 550(a)(1) transactions. With respect to the affirmed transactions, the district court concluded that the bankruptcy court had not abused its discretion in awarding prejudgment interest.
Title: Wasatch Factoring, Inc. v. Martin (In re Wasatch Factoring, Inc.) | Date: Mar-31-1986 | Status: APPEAL Unpublished (U.S. District Court, Utah) | Case(s): 85PA-0687
Debtor issued a check, postpetition, to three of its officers and directors to indemnify them for expenses incurred defending themselves from lawsuits against them in their corporate capacities. The officers transferred the check to their attorney, who placed the check funds into an account, withdrew them in payment of legal fees, and returned the balance to officers. Debtor sought to recover the attorney's fee amount from attorney under 11 U.S.C. § 550(a), alleging the fee payment was a voidable postpetition transfer under 11 U.S.C. § 549(a). The bankruptcy court entered summary judgment in favor of debtor under § 550(a)(1), concluding that attorney was the entity for whose benefit debtor's transfer had been made. The district court disagreed, concluding that the funds were transferred by debtor to the officers for their benefit, and it did not matter if attorney ultimately benefitted as well. However, the district court also concluded that attorney was an immediate transferee of officers, within the meaning of § 550(a)(2), and would therefore be required to relinquish the fee unless he could prove that he gave value for the funds in good faith, as required by § 550(b). Because there were issues of fact regarding attorney's good faith, the case was remanded for further proceedings in the bankruptcy court.
Title: In re Irving Fin. Corp. | Date: Mar-26-1986 | Status: APPEAL Unpublished (U.S. District Court, Utah) | Case(s): 82C-2706
The bankruptcy court approved trustee's compromise of three secured creditors' claims, and debtor appealed. The district court determined that debtor had no standing to appeal the bankruptcy court orders, because the claims against its estate were approximately ten times the estate's value and debtor would gain nothing from the relief it was seeking on appeal. Therefore, debtor was not an "aggrieved person" entitled to appeal, which standard had been judicially applied to appeals under the Bankruptcy Code.
Title: The Lockhart Co. v. Hansen (In re Hansen) | Date: Feb-26-1986 | Status: UNPUBLISHED (Judge Clark) | Case(s): 83PC-0010
The court considered several claims to real property asserted by the debtors/record owners, the occupier/improver, and debtors' lender/holder of a trust deed. In the course of untangling the parties' interests, the court considered the impacts of the statute of frauds and its exception for part performance, ratification, good faith purchase for value, Utah's race-notice recording act, constructive/inquiry notice, and fraud under 11 U.S.C. § 523(a). Ultimately, the court concluded that a state court judgment in favor of occupiers made their claim to the property superior to both debtors and lender, but that lender's claim against debtor met the standard for a non-dischargeable debt under § 523(a)(2)(B).
Title: Zions First Nat'l Bank v. Sanders Livestock Co., Inc. (In re L.W. Gardner Co.) | Date: Feb-19-1986 | Status: APPEAL Unpublished (U.S. District Court, Utah) | Case(s): 84PC-1032
In an adversary proceeding, various parties asserted interests in real property that was owned by, and the sole asset of, a corporation owned by another corporation, which was owned by the debtor partnership. Debtor listed the property as an asset in its bankruptcy filings, noting that it was subject to a contract with original sellers of the property to the corporation it remotely owned. Debtor claimed that the property had been designated to it by the corporate buyer, but no record of such a transaction existed. The bankruptcy court allowed the property to be transferred to bank, debtor's principal creditor and only apparent lienholder on the property. Sellers received no notice of debtor's chapter 11 filing or of the subsequent transfer of the property. On appeal, the district court found the inclusion of the property in debtor's estate to have been a de facto substantive consolidation of debtor and its related corporation, which deprived sellers of due process by denying them any opportunity to have their claim heard on its merits. The case was remanded for further proceedings.
Title: Styler v. Aztec Copy, Inc. (In re Gleed Inv. Corp.) | Date: Feb-3-1986 | Status: UNPUBLISHED (Judge Clark) | Case(s): 83PC-0152
Chapter 11 trustee filed an adversary complaint against defendant alleging that numerous payments to it by debtor, its franchisee, were preferential under 11 U.S.C. § 547(b). The court considered the elements required for a preference, as well as the preference exceptions, with respect to all of the payments at issue. The court concluded that one of those payments, although satisfying the elements of a preference, fell within the new value exception set forth in § 547(c)(4), and was therefore not avoidable. All of the other payments trustee sought to avoid fell within the general preference rule, did not satisfy any exception to that rule, and were avoided.
Title: In re Colvin, 57 B.R. 299 (Bankr.D.Utah) | Date: Jan-29-1986 | Status: PUBLISHED (Judge Allen) | Case(s): 82A-0429
Second lienholder on debtors' primary residence moved for relief from stay because debtors' confirmed chapter 13 plan did not include payment of creditor's postpetition attorney's fees. The bankruptcy court had initially denied all postpetition fees, which decision was reversed by the district court's holding that an oversecured chapter 13 creditor is entitled to postpetition fees under 11 U.S.C. § 506(b). On remand, the bankruptcy court allowed all of creditor's claimed fees and costs. However, debtors failed either to pay that amount or to amend their plan, which caused creditor to file its motion for relief. The court held that 11 U.S.C. § 1322(b)(2) allows debtors to cure defaults, but also requires that the rights of mortgage lienholders be preserved. Therefore, chapter 13 debtors must pay creditor's arrearage claim, plus attorney's fees, under their plan in order to return the parties to their pre-default condition. Debtor's were given an opportunity to amend the plan, or the court would grant creditor's motion for relief.
Title: In re Pacheco | Date: Jan-21-1986 | Status: APPEAL Unpublished (U.S. District Court, Utah) | Case(s): 81C-1246
Discharged chapter 7 debtors asserted in the bankruptcy court that prepetition judgment creditors had violated the discharge injunction of 11 U.S.C. § 524(a), because their judgment remained on debtors' post-discharge credit report, and allegedly caused them to be refused credit. The bankruptcy court denied the claim and awarded attorney's fees to creditors, on the ground that debtors' claim had been filed in bad faith by their attorney. On debtors' motion for rehearing, the bankruptcy court again awarded fees to creditors. On appeal, the district court agreed with the bankruptcy court's denial of the claim and its award of fees in connection with the motion. However, the award of fees on rehearing was reversed, based on debtor's counsel's assertion that he had done more research on the issue and had found no law on either side. Noting that the research performed may not have been "brilliant," the district court held that, under the circumstances, sanctions could have a chilling effect on legitimate rehearing motions.