Chapter 11 debtor's counsel issued a letter to all creditors, asking for their input regarding five potential "plans" that would result in dismissal of the bankruptcy. The letter attached exhibits, including appraisals of debtor's properties, debtor's estimates of costs, and various payout provisions for secured and unsecured creditors. Trustee filed a contempt motion asserting that the communication was an unauthorized solicitation of plan votes that violated 11 U.S.C. § 1125(b), and that debtor's attorney had inappropriately had direct contact with creditors who were represented by counsel. The court ruled that "solicitation" must be narrowly construed, and that debtor's communication, which was not a specific request for official votes, was not an unauthorized solicitation under § 1125(b). However, the court further ruled that debtor's attorney's direct communication with creditors without obtaining their attorneys' permission was a violation of Utah's Disciplinary Rule 7-104(A)(1), and the attorney was reprimanded, but was not required to bear the costs of the proceedings.
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Title: In re Snyder, 51 B.R. 432 (Bankr.D.Utah) | Date: Jul-25-1985 | Status: PUBLISHED (Judge Clark) | Case(s): 82C-2235
Title: In re McNeeley, 51 B.R. 816 (Bankr.D.Utah) | Date: Jul-19-1985 | Status: PUBLISHED (Judge Clark) | Case(s): 83C-2990
Creditor obtained pre-judgment writs of attachment against debtor's property prior to the filing of debtor's chapter 7 petition. On the day the petition was filed, creditor obtained a state court judgment that exceeded the value of the property subject to the writs. Creditor moved for relief from stay, which was opposed by both debtor and trustee. The court ruled that a judicial lien was superior to the interest of a bankruptcy trustee and, upon entry of judgment, became perfected as of the time of its initial filing. Therefore, the court granted creditor relief from stay, as well as a lien on the proceeds of property sold by trustee, subject to the claims of superior lien holders.
Title: In re IML Freight, Inc., 52 B.R. 124 (Bankr.D.Utah) | Date: Jun-25-1985 | Status: PUBLISHED See 253.pdf (Judge Clark) | Case(s): 83C-1950
In a case that began in chapter 11, but was subsequently converted to chapter 7, the court considered several claims for payment of approved professional fees incurred in connection with the chapter 11 proceedings. Trustee established that complete liquidation of debtor's assets would not provide sufficient funds to satisfy all administrative claims. The court noted that professional fees are allowed under 11 U.S.C. § 330, may be paid on an interim basis under 11 U.S.C. § 331, and are considered administrative expenses under 11 U.S.C. § 503(b)(2). All administrative expenses, including professional fees, incurred under chapter 11 are treated in parity with each other. However, pursuant to 11 U.S.C. § 726(b), chapter 7 administrative expenses that are incurred after conversion of a chapter 11 case to chapter 7 are entitled to superpriority, and administrative expenses incurred in the chapter 11 are paid pro rata if there are insufficient funds to pay all administrative expenses in full. Given the substantial doubt that all administrative claims will be paid in full, the court ruled that only the amount that would almost certainly be paid under all possible contingencies would be paid on an interim basis. In the absence of evidence on best and worst case scenarios, trustee's motion to pay all professional fees in full was denied.
Title: Larson v. Zion's First Nat'l Bank (In re Larson) | Date: Jun-22-1985 | Status: UNPUBLISHED (Judge Clark) | Case(s): 84PC-1950
Bank filed a motion for relief from stay in chapter 11 debtor's bankruptcy case in order to foreclose a lien it had on property either formerly or currently owned by debtor. Debtor then filed an adversary complaint against bank, asserting causes of action that arose from the parties' dealings with respect to the property. Bank raised a number of defenses to the adversary complaint by motion. The court concluded that, because debtor's claims primarily involved adjudication of rights under state law, the adversary action was not a "core" bankruptcy proceeding. The court then rejected bank's argument that debtor was precluded by collateral estoppel from re-litigating issues decided in a state court restraining order proceeding, on the ground that the state court record had not been provided. The court also refused to dismiss the complaint based on bank's argument that the claims stated were compulsory counterclaims in its foreclosure action, concluding that no foreclosure action had been filed. Finally, bank's requests, (1) to dismiss for failure to plead jurisdiction, (2) to strike portions of debtor's complaint, and (3) to abstain, were all denied.
Title: In re Hall, 51 B.R. 326 (Bankr.D.Utah) | Date: May-31-1985 | Status: PUBLISHED (Judge Clark) | Case(s): 82C-3137
After debtors' chapter 11 case was converted to chapter 7, the court issued an order directing creditors to file claims within 30 days of the order. As a result, claims were due only 4 days after the first meeting of creditors. Creditor that filed its claim 7 days after the meeting of creditors (3 days after the noticed cut-off date) moved for leave to file its untimely claim. The court determined that Bankruptcy Rule 3002(c) sets the cut-off date for filing claims in a chapter 7 case at 90 days after the creditors meeting (with exceptions that were not applicable), and that Bankruptcy Rule 9006(c)(2) specifically prohibits reduction of that time. Therefore, creditor's claim had been timely filed.
Title: Orosco v. Veterans Admin. (In re Orosco) | Date: May-15-1985 | Status: UNPUBLISHED (Judge Allen) | Case(s): 84PA-1409
Debtor purchased a residence that was subject to an outstanding trust deed. Although debtor made payments on the trust deed loan, she never assumed that obligation. When debtor allowed the loan to default, lender foreclosed, and the house was purchased at the foreclosure sale by the loan guarantor for the outstanding loan amount. One day later, debtor filed a chapter 13 petition. Debtor's attempt to avoid the foreclosure sale pursuant to 11 U.S.C. § 547 was rejected by the court, which first assumed without deciding that guarantor was a "creditor" of the debtor. The court ruled that debtor's § 547 claim would still fail because the outstanding loan was fully secured and, therefore, debtor could not establish that defendant received more than it would have in a chapter 7 liquidation. However, because evidence of the property's value established that it was worth more than the amount defendant had paid for it, the court determined that defendant had given less than reasonably equivalent value for the transfer, and the foreclosure sale was declared null and void as a fraudulent transfer under 11 U.S.C. § 548(a).
Title: In re Mobile Mfg. Co. | Date: May-8-1985 | Status: UNPUBLISHED (Judge Allen) | Case(s): 82A-1195
In the course of this chapter 7, creditors were notified that debtor probably had no assets from which to pay claims and, therefore, no proofs of claim would be necessary unless creditors were subsequently notified that assets had become available. Assets did become available, and the court issued a notice to that effect, requiring creditors to file their proofs of claim within 60 days of the notice if they wanted to participate. Shortly after the deadline set forth in the notice, the IRS filed its claim, asserting both a secured amount and an unsecured priority amount, and both trustee and another creditor objected that the claim was untimely. The court denied the timeliness objection, based on its conclusion that the notice had inadvertently specified a shorter time period for filing claims than the 90-day period prescribed by Bankruptcy Rule 3002(c)(5), and that, due to Bankruptcy Rule 9006(c)(2), the court had no authority to reduce that time period. The court then identified four issues it had with the IRS' claim, which were that (1) the unsecured portion of the claim was estimated, (2) the secured portion of the claim was not supported by evidence that the security had been perfected, (3) a stipulation to the secured claim amount, between the IRS, trustee, and creditor, had not been approved by the court, and (4) debtor's filing of a claim on behalf of the IRS, pursuant to 11 U.S.C. § 501(c), may not have been effective if creditor's failure to file its own claim is a precondition to such a filing. The IRS was given 20 days within which to amend its claim, which must reflect a tax that has actually been assessed, and must be accompanied by evidence of perfection.
Title: Merrill v. Allen (In re Universal Clearing House Co.) | Date: May-3-1985 | Status: UNPUBLISHED See 185.pdf (Judge Allen) | Case(s): 82PA-0253
Trustee asserted adversary claims against salesmen for Ponzi scheme debtors, claiming that commissions defendants had received from debtors were fraudulent under 11 U.S.C. § 548(a)(2). The court determined that the first three elements of a § 548(a)(2) fraudulent conveyance were not in question and, therefore, the only issue before it was whether defendants had given less than reasonably equivalent value in exchange for debtors' payments. The court held, as a matter of law, that services rendered on behalf of a Ponzi scheme, even if performed in good faith and without any knowledge of fraud, are without legally cognizable value, and awarded judgment to trustee. On appeal, in 185.pdf, this decision was remanded by the district court for a factual determination of the value of defendants' services, and whether they were "reasonably equivalent" to the payments defendants received.
Title: Segal v. Bennett (In re Meacham-Brown Ctr., Inc.) | Date: May-2-1985 | Status: UNPUBLISHED (Judge Clark) | Case(s): 84PC-1618
Defendant moved to dismiss chapter 7 trustee's avoidance claim against it, asserting that debtor had not complied with a state statute requiring it to file an assumed name certificate, which would be an absolute defense to any claim asserted by debtor under state law. The court first discussed the real party in interest rule set forth in Fed. R. Civ. P. 17 (Bankr. R. 7017), noting that the rule is intended to ensure that plaintiff has an interest in the proceeding that is sufficient to cause its diligent advancement. In pursuing avoidance actions, a trustee acts on behalf of debtor's creditors, which is authorized by 11 U.S.C. § 323 and Bankruptcy Rule 6009. Thus, with respect to such claims, trustee, rather than debtor, is the real party in interest. Moreover, the court held that trustee's avoidance powers are not limited to the debtor's right to assert a claim, but also include the rights of creditors. Debtor's failure to file the assumed name certificate under state law was held to have no application to trustee's exercise of his avoidance powers.
Title: In re Am. Res. Mgmt. Corp., 51 B.R. 713 (Bankr.D.Utah) | Date: Apr-23-1985 | Status: PUBLISHED See 44.pdf (Judge Clark) | Case(s): 84C-1749
Bank, which held a significantly undersecured claim in virtually all of chapter 11 debtor's assets, obtained relief from stay to foreclose its interests in those assets. Subsequently, bank agreed, pursuant to stipulations approved by the court, to provide a set amount of funds per month for debtor's operating expenses. The stipulations further required that all administrative expenses would be paid first from assets not subject to bank's security and, if available funds were insufficient to pay them, payment of trustee's and creditors committee's attorney and accounting fees would be paid from bank's cash collateral, up to a specified amount. Bank's advances were to be treated as superpriority claims. At a hearing to consider interim professional compensation, the court allowed the attorney and accountant applications for fees in full, but restricted trustee's payments to one-half of each amount authorized. On rehearing, the court explained that secured creditors are protected in bankruptcy up to the value of their collateral, and only surplus proceeds are available to pay estate creditors and administrative expenses. Therefore, unless debtor has equity in encumbered property, administrative expenses may not be paid from collateral. The court found that the stipulations were reasonably designed to allow debtor to continue its business and, without bank's advances, there would be no surplus with which to pay administrative expenses, and bank could not be forced to pay more administrative expenses than it had agreed to pay.