Edward J. Nazar, Trustee vs. North American Savings Bank, Charles Lawrence Born and Lorraine Anne Born; (In re Born); Case No. 04-14382; Adv. No. 05-5067 (Nugent) (March 2, 2006).
MEMORANDUM OPINION; JUDGMENT ON DECISION
Facts:
The Trustee invoked his 11 U.S.C. 544 hypothetical lien creditor powers to avoid North American Saving’s Bank’s (“NASB”) unperfected lien in debtors’ mobile home. The parties stipulated that the lien was not perfected and that the trustee succeeded to it for the benefit of creditors as provided in 11 U.S.C. 551. The issue remained as to what the value of the estate’s interest in the mobile home and to the manner of allocating that interest in debtor’s homestead. One appraiser gave the mobile home (which was in very poor condition) no value because refurbishment of the home would cost more than any resulting increase in value. A second appraiser valued the home at $5,000 which was the value of the “shell” of the home. The trustee calculated that the $5,000 was one fourth of the value of the land with buildings as a whole. Testimony valued one fourth the total stream of payments on the NASB mortgage adjusted to present value to be $12,916. The trustee argued that because the debtor wished to remain in the homestead and were current on their mortgage payments, the valuation of the estate’s interest should be based on an income valuation, here the present value of the stream of payments to be made on NASB’s loan. NASB argued that the mobile home was worthless and the trustee thus had no interest in the mobile home.
Holding:
The Court held that the mobile home was worth no more than $5,000 which contributed 20% of the aggregate value of the land and other buildings where the home was located. The trustee was permitted to recover 20% of each monthly payment until the trustee had collected the entire $5,000. Accordingly, NASB’s allowed secured claim was reduced by the $5,000 value of the mobile home and was allowed to collect 80% of the monthly payment. The Court rejected the trustee’s argument that the valuation of the estate’s interest should be based on an income valuation. In doing so, the Court relied on In re Rubia, which held that the trustee’s rights only extend to the ability to recover personal property and expressly rejected the view that the payments themselves were proceeds of the preserved lien. Instead the Court found it proper to value the collateral in accord with the principles of 506(a) as interpreted by the Supreme Court in Rash giving paramount importance to proposed use and disposition of the property.
In re Michael James Schmitz; Case No. 04-16019 (Nugent )(March 6, 2006).
MEMORANDUM OPINION
Facts:
The Debtor was indebted to Central Bank & Trust (CB&T) on two loans, and filed a chapter 13 petition after CB&T filed a state court foreclosure action against the debtor. The Debtor is objecting to the allowance of attorney fees to CB&T, claiming that the amount set forth in CB&T’s proof of claim was excessive. The Debtor challenges only the time spent and hourly rate of Doug Bebout, a legal assistant with Stinson Morrison Hecker LLP which represents CB&T. The Debtor called a witness, an experienced attorney to testify that the highest current hourly rate paid to legal assistants in Wichita was $65 at the date of trial. Debtor’s counsel also showed that they charge only $40 to $50 for legal assistant time. CB&T was seeking attorney fees of Mr. Bebout in the amount of $4,580.66 for 45.3 hours at $90-$105 an hour. To recover attorney fees under 11 U.S.C. §506(b), the creditor must establish that (1) it is oversecured in excess of the fees requested; (2) the agreement giving rise to the claim provides for recovery of attorney fees; and (3) the fees are reasonable. The only matter in dispute is the reasonableness of the fees sought.
Holding:
The Court held that in order for the fees to be considered reasonable, we must look both at the number of hours spent and the hourly fee charged. In this case, the Court concluded that the number of hours Mr. Bebout spent on the matter was not excessive. Mr. Bebout’s hourly rate was found to be excessive. There was no evidence of any special qualifications or training that would distinguish him from other capable legal assistants, and although an attorney could charge more per hour for the same work, the attorney most likely, would spend less time on the work. The Court held that the attorney fees should be reduced to $70 for all time billed in connection with the foreclosure and bankruptcy case.
In re Daniel Raymond Thomas; Case No. 06-10242 (Nugent) (March 14, 2006).
MEMORANDUM AND ORDER DENYING TRUSTEE’S MOTION FOR SUMMARY JUDGMENT AND SETTING CASE FOR TRIAL
Facts:
The Debtor filed his Chapter 13 petition on March 8, 2006. With the petition, he requested a temporary waiver of the pre-filing credit counseling requirement of 11 U.S.C. §109(h)(1) due to exigent circumstances. The courts that have examined the sufficiency of a certificate of exigent circumstances under §109(h)(3) impose three requirements: (1) the certificate must sufficiently describe and detail the “exigent circumstances”, (2) the certificate must state that the debtor requested credit counseling before filing the bankruptcy petition but was unable to obtain the credit counseling within 5 days of his request, and (3) the certificate must be satisfactory to the court. The Debtor’s cites to a “foreclosure date” on his home scheduled on March 9, 2006 (one day after his filing) as the exigent circumstance.
Holding:
The Court denied the temporary waiver, concluding that the second requirement stated above was not met. Courts have generally recognized that an imminent foreclosure sale of debtor’s home qualifies as an exigent circumstance. However, in this case, the debtor failed to state that he requested credit counseling before filing and was unable to obtain the credit counseling within five days of the request. The Debtor does not state the date on which he requested credit counseling nor the date on which credit counseling was available. Therefore, his request for a temporary waiver of the credit counseling requirement is denied.
Mitchell Lee Foster and Katherine Louise Foster vs. Onyx Investment, L.L.C.;(In re Foster), Case No. 00-42068; Adv. No.05-7020; (Karlin) (March 15, 2006).
MEMORANDUM AND ORDER
Facts:
The Debtors originally entered into a contract for deed for a piece of land in Jefferson County, Kansas. In December 1997, the debtors executed a second mortgage on their home to Rosslare Funding, which also was properly perfected. Rosslare assigned the mortgage to Empire Funding (Empire) and Empire subsequently filed a petition in May of 2000 under Chapter 11. The Debtors received no notice of the filing of the bankruptcy proceeding. The debtors then filed for bankruptcy in September of 2000. Empire was listed on the debtors’ Schedule F (unsecured creditors).
Subsequently, Onyx, Investment, LLC (Onyx) acquired the second mortgage from Empire in June of 2001. The debtors’ plan stated that Empire had an unsecured mortgage on the debtor’s home. Notice of the bankruptcy case, meeting of creditors and deadlines, a copy of the plan, and a proof of claim form were mailed to Empire in September 2000. These documents were never returned by the post office, although Onyx questioned whether Empire received notice of the initial bankruptcy proceedings. In January 2001, debtors filed an amended plan which in bold print said that Empire’s second mortgage was unsecured and would be stripped and voided. This amended plan was confirmed in April 2001 without objection.
Three months later, Onyx ran a credit check on the debtors and “discovered” the bankruptcy. Onyx then filed a proof of claim within the time limits allowed by 1330(a). The trustee however objected to the proof of claim because it was filed after the bar date. Onyx filed no response and an order was entered granting the Chapter 13 Trustee’s objection to Onyx’s proof of claim. Onyx did not seek reconsideration or appeal the order. The Debtors completed their plan and were granted a discharge.
Then, ten months after discharge, Onyx filed a Petition for Foreclosure in state court that sought in rem relief without specific reference to the bankruptcy. To resolve the dispute, the debtors reopened their bankruptcy case and filed this adversary proceeding. Onyx argued that the debtors were required to initiate an adversary proceeding to strip the lien, that the Court should revoke the discharge on the basis that it was fraudulently received, and that Empire received inadequate notice of the debtors’ intent to strip the lien. Finally, Onyx argued that because Empire was in bankruptcy when the debtors filed their petition, their plan could not strip Empire’s lien without the debtors’ first receiving relief from the stay.
Holding:
Relying on indistinguishable facts in Centex Home Equity Company, L.L.C. v. Woodling (In re Woodling), 2004 Bankr. LEXIS 1751 (Bankr. D. Kan. 2004), the Court held that a mortgage lien can be stripped without filing an adversary proceeding. The Court found that Onyx’s attempt to revoke the debtors’ discharge was untimely because it was first raised almost two years after the Debtors’ discharge, far outside the one year period prescribed in 1328(e)(1). In doing so, the Court rejected the argument that the pleading should relate back to the filing of the state foreclosure action which was within the one year provision of 1328(e)(1).
Furthermore, the Court found that the debtors failure to obtain relief from the automatic stay in Empire’s bankruptcy proceeding did not prevent the enforcement of their confirmed Chapter 13 plan. Relying on equitable principles the court found that although a violation of the automatic stay had occurred, the notice given to Empire through the filing of Chapter 13 plan was sufficient and effective. The Court found that Empire had actual notice of debtors’ bankruptcy because it was presumed to have received the relevant documents and that presumption had not been rebutted. Perhaps more telling was the fact that, Onyx filed its proof of claim on a form that was actually sent to Empire by the Court. The Court also commented that there was no bad faith on the part of the debtors, they were never notified of Empire’s bankruptcy, the violation was inadvertent, and the debtors had completed their plan.
Therefore the Court found that the debtors’ were entitled to summary judgment and the debtors’ request for a permanent injunction against the foreclosure action was granted. No attorney’s fees were awarded to the debtors because a violation of the automatic stay had been committed by both parties. Onyx’s request for a declaratory judgment that it had a valid and enforceable lien was also denied.
In re Donald Lee Mattern; Case No. 05-40985 (Somers) (March 9, 2006).
MEMORANDUM determining that debtor’s interest in revocable trust is not estate property and denying trustee’s motion for turnover
Facts:
The Debtor’s father executed a Revocable Trust and a Last Will and Testament in March 12, 2005. The Debtor filed for chapter 7 bankruptcy on April 7, 2005. On June 1, 2005, within 180 days of filing for bankruptcy, debtor’s father died. The issue is whether the income and/or property from the trust is property of the estate pursuant to 11 U.S.C.A. §§541(a)(1) or (a)(5). The court considered three different interests: (1) the Debtor’s interest under the Trust on the date of filing, (2) the Debtor’s interest under the Trust upon his father’s death, not considering the Will; and (3) the Debtor’s interest in property transferred to the Trust by the Will upon the death of Debtor’s father.
Holding:
The Court held that the first interest, the Debtor’s interest under the Trust on the date of filing, was excluded from the estate. Pursuant to §541(c)(2), spendthrift trusts are recognized to the extent that they are enforceable under state law, and assets in a valid spendthrift trust do not become property of the estate. Because Debtor was a contingent beneficiary, there was a spendthrift clause, and spendthrift clauses were enforced in Arizona (the state where the trust was executed), his interest could not be included in the estate.
The next interest, the Debtor’s interest under the Trust upon his father’s death was also held to be excluded from the estate. Under §541(a)(5), any property that the debtor acquires within 180 days after filing by bequest, devise, or inheritance is included in the estate. The Court found that the Debtor’s rights under the trust “were transferred inter vivos, not by will (bequest or devise) or intestate succession (inheritance).
The third interest, the Debtor’s interest in property transferred to the Trust by the Will upon the death of Debtor’s father is also excluded. The Court held that the Debtor acquired his interest under the Trust, not the Will, therefore this issue lacks standing.
J. Michael Morris, Trustee vs. Lou Delgado; (In re Alton); Case No. 05-13729, Adv. No. 05-5789 (Somers) (March 3, 2006).
MEMORANDUM AND ORDER GRANTING THE TRUSTEE’S COMPLAINT TO AVOID AND PRESERVE PREFERENTIAL TRANSFER
Facts:
On April 5, 2005 the debtor purchased a 1987 Porsche from a dealer. The purchase was made by use of a trade in valued at $1,000 and a check for $2,128.69 drawn on debtor’s account, to which $2,300 supplied by the defendant had been deposited. Per industry custom, the title to the vehicle was not released to the buyer until at least 10 days after sale (in this case on April 27). A Title and Registration receipt showed a lien in favor of the defendant on May 2, 2005. Later, the debtor decided to surrender the car to the defendant. The defendant took possession and a lien release was sent to the Department of Revenue. A paper title showing the car owned by the Debtor without a lien in favor of the Defendant was issued. The Debtor filed for Chapter 7 relief and the Porsche was not shown as an asset because it had been transferred to the Defendant. Trustee alleged that the debtor’s transfer of his Porsche to the defendant was a preferential transfer pursuant to 11 U.S.C.A. 547(b). Therefore, the Trustee asserted he was entitled to avoid the transfer, recover the transfer from the transferee pursuant to 550, and preserve the security interest for the benefit of the estate pursuant to 551. The Defendant asserted that there was no preferential transfer based upon the 547(c)(3) purchase money enabling loan exception, the 547(c)(1) contemporaneous exchange for value exception and the 547(c)(4) exception for transfers for subsequent new value.
Holding:
The Court found that the 547(c)(3) exception did not apply because the lien was not perfected within 20 days of Debtor’s possession of the Porsche. The Court rejected the argument that that debtor did not have possession of the Porsche until the title was delivered in mid April. The Court also held that the contemporaneous exchange exception of 547(c)(1) was not available to a purchase money lender who failed to perfect within 20 days of debtor’s possession. Finally, the Court found that 547(c)(4) did not apply because no new value was given to the debtor after the transfer of the lien in the Porsche. Thus, the perfected lien in the Porsche to the Defendant was preferential. The Court declined to order the lien in the Porsche preserved under 551 for three reasons. First, the lien was released prepetition, and there was no lien on the Porsche on the date of filing. Second, pursuant to 541(a)(3) the estate includes property recovered under 550, and the Court ruled the Trustee could recover the Porsche. Third, the Court found that lien preservation under 551 is automatic.
Steven R. Rebein vs. Ken Kost, Michael Adkins and Rob Peterson (In re III, Inc.), Case No. 03-22200-7; Adv. No. 05-6077 (Somers) (March 3, 2006).
Recommendation to the district court to grant the defendants’ motion to withdraw the reference of this adversary proceeding
Facts:
The defendants seek to withdraw the District Court’s reference of the adversary proceeding in the matter pending before the District Court so that the case may proceed to be tried to a jury rather than a bench trial on all issues so triable. The defendants filed an untimely answer demanding a jury trial on all issues so triable. Fourteen days later the defendants filed their motion asking the District Court to withdraw the reference of the adversary proceeding from the Bankruptcy Court.
Holding:
The proper method for demanding a jury trial in bankruptcy matters depends on which court will hear the dispute. If the district court will hear the dispute, the party who wants to have a jury trial conducted by the district court must make a demand for jury trial and file a motion to withdraw reference, although not necessary within the same pleading. For a party who wants to have a jury trial conducted by a bankruptcy court, the two parts would be a demand for jury trial and a written consent to trial before the bankruptcy court. Failure to complete both parts in the time allowed would be deemed a waiver of the jury trial. Despite the fact that the defendants failed to timely complete both parts of the jury request, the Court held that the trustee would not be prejudiced by having his claims tried to a jury. Therefore the Court recommended that five counts of the trustee’s complaint be tried to a jury as to all three defendants.
In re Shirley A. Hensley, Case No. 98-22556 (Somers) (March 20, 2006).
MEMORANDUM AND ORDER DENYING THE MOTION OF THE UNITED STATES DEPARTMENT OF EDUCATION TO SET ASIDE THE COURT’S ORDER GRANTING DEBTOR’S OBJECTION TO CLAIM
Facts:
The Debtor filed for bankruptcy on September 2, 1998. The Debtor’s matrix included the Department of Education (The Department). The Department filed a proof of claim and listed an address in Minnesota as to where notices should be sent. The Debtor filed an objection on July 19, 2000 alleging that she had never applied for a student loan and thus the student loan on the books of the Department was fraudulent. Notice of hearing was served by mail to the address listed in the proof of claim.
The Department admitted receiving the notice, but alleged that the notice was received on October 25, 2000, two days after the hearing date. Because no response to the objection was filed and the Department did not appear at the hearing, the objection was sustained by the Court. The Department filed no motion to set aside the order before discharge was granted or while the case was still open.
Even though there was an order of discharge, the Department tried to collect the debt. The debtor filed a motion to reopen the bankruptcy case to resolve the issue of discharge of the loan. After some delay, a pretrial conference was held and eventually, a motion to set aside the Court’s October 23, 2000 order was filed. The Department argued that the claim should be set aside pursuant to Federal Rule 60(b), which relieves a party from a final judgment if the judgment is void. It asserted that the order was void because the Court lacked jurisdiction due to a defect in notice which resulted in a denial of due process. It alleged that various Bankruptcy Rules required that notice be sent to the U.S. Attorney and the Regional Director of the Department. Debtor argued that personal jurisdiction was present because the Department filed a proof of claim and had actual notice.
Holding:
The Court rejected the Departments contention that the Court lacked personal jurisdiction because the Department had filed a proof of claim. In doing so, the Department subjected itself to the dominion of the Court. The Court also held that due process was satisfied because the debtor complied with Bankruptcy Rule 3007 in sending notice to the address stated in the proof of claim.
Also, the U.S. Attorney was not entitled to notice, because although Kansas Standing Order 99-2 requires that the matrix include the name and address of the U.S. attorney, it does not expressly require that notice be served on the U.S. Attorney. The Court commented that the bankruptcy courts have large measure of discretion in application of local rules. The Court also rejected the Department’s reliance on Bankruptcy Rule 2000(j)(requiring notice to the U.S. Attorney) was misplaced because it deals specifically with situations where copies of notices are required to be mailed to all creditors. Because 3007 requires notice to only be mailed to the claimant, the debtor, and the trustee, the notice provisions of Bankruptcy Rule 3007 were controlling. Similarly, the Court rejected the Department’s argument that notice should have been sent in accord with Bankruptcy Rule 7004. Due process was satisfied because the Department received notice with sufficient time to seek reconsideration. Therefore, the Department’s motion was denied.
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