United States
of America and Linda S. Parks v. Gary Krause, et al. (In re: Gary E. Krause);
Case No. 05-17429; Adversary Case No. 05-5775 (Nugent) (August 14, 2007)
ORDER DENYING INTERVENER DRAKE KRAUSE’S MOTION FOR RECONSIDERATION
OF SANCTIONS ORDER
• Fed.R.Civ.P. 59(e)
Facts:
This was an adversary proceeding commenced on November
1, 2005 against debtor Gary and his brother Richard Krause, in Richard’s capacity as trustee
of several trusts. The reader is directed to the August case summaries for
a complete overview of that adversary proceeding and the Court’s ruling
(August 3, 2007). Drake filed a motion for reconsideration of the Court’s
ruling.
Drake did not challenge that his father, Gary, committed spoliation of
electronic evidence and that he acted in contempt of certain Court orders.
Drake only
seeks reconsideration of the sanctions imposed by the Court for Gary’s
misconduct.
Holding:
Drake asserted that the Court failed to consider
some of the factors in Ehrenhaus v. Reynolds, 965 F.2d 916 (10th Cir. 1992)
before imposing the sanction of
default and in effect, abused its discretion in imposing such a sanction. In
that case, the Tenth Circuit upheld the dismissal of plaintiff’s securities
fraud case as a sanction for plaintiff’s failure to appear for the completion
of his deposition. Plaintiff was cautioned that if he failed to appear for
the scheduled deposition the court would entertain a motion to dismiss the
case from the defendants. As the Trustee correctly pointed out in her response
to Drake’s motion, the prior warning consideration noted in Ehrenhaus
was directed at the litigant who was engaged in the offending discovery behavior.
This Court warned Gary early and often. Moreover, Drake claimed no surprise
by the sanction of default. Both the Trustee and Government were abundantly
clear in their motions that they were seeking default judgment as a sanction
for Gary’s spoliation of electronic evidence and contempt violations.
Drake suggested that a sanction short of default would have just as readily
secured Gary’s cooperation, full disclosure and compliance with Court
orders. He suggested that a sufficient sanction for Gary’s misconduct
would consist of “a substantial monetary fine, payment of costs, attorneys
fees and expenses” incurred by the Government and the Trustee. The Court
saw little value, and even less realistic hope of getting paid, a monetary
sanction as suggested by Drake. Drake had not offered how the imposition of
monetary sanction would alleviate the severe prejudice inflicted upon the Government
and Trustee by Gary’s spoliation of evidence. The imposition of a monetary
sanction, even if paid by Gary, would not magically make the destroyed computer
evidence reappear. Under the circumstances, the Court gave full consideration
to the Ehrenhaus factors in its sanctions order before defaulting Gary on the
Gary E. Krause Trust, the Krause Family Irrevocable Trust, and the specified
entities – PHR, LLC, Drake Enterprises, Inc., FIMCO, and Federal Gasohol
Corporation. The Court also concluded that Drake and his brother were provided
due process in the course of the spoliation hearing.
Based upon the foregoing, the motion to reconsider was denied.
Sheryle L. Schwaiger v. Mark Joseph Schwaiger
(In re: Mark Joseph Schwaiger,
Susan Denise Schwaiger;
Case No. 05-16267; Adversary Case No. 05-5769 (Nugent)
(August 17, 2007)
ORDER DENYING DEFENDANT’S MOTION FOR CLARIFICATION
• 11 U.S.C. §523(a)(15)
• Fed.R.Civ.P. 60(b)
Facts:
This adversary proceeding involved a claim under 11
U.S.C. §523(a)(15)
in which plaintiff, debtor-defendant’s ex-wife, sought to have defendant’s
property settlement obligation from their divorce declared nondischargeable.
On January 12, 2007, this Court entered judgment in favor of the plaintiff,
partially excepting (one-half) from discharge defendant’s monthly payments
on his property settlement obligations. On January 26, 2007, plaintiff filed
a motion to amend the judgment seeking to except the full amount of defendant’s
monthly payments from discharge; that motion was denied by order on February
23, 2007. The adversary proceeding was then closed. On June 12, 2007 some three
and one-half months later, the defendant filed the instant motion, seeking
clarification from the Court of the effective date of the partial discharge.
Holding:
The Court noted that the Federal Rules
of Civil Procedure do not explicitly recognize a post-judgment pleading styled
as a motion for
clarification of
an order or judgment. The Court concluded that the defendant’s post-judgment
motion must therefore be treated as a motion to alter or amend judgment under
Fed.R.Civ.P. 59(a), or a motion for relief from judgment under Fed.R.Civ.P.
60(b)(6). Since the motion was filed months after this Court’s judgment
and well outside of the ten day window allowed for a Rule 59(e) motion, the
Court construed it as a Rule 60(b) request for relief.
Relief under 60(b) is discretionary
and is warranted only in exceptional circumstances. The moving party must demonstrate
exceptional circumstance through
one of the six grounds laid out in Rule 60(b).
The defendant made no claim in
his motion of any mistake, neglect, misrepresentation, or newly discovered evidence
of any kind that would support relief under the
first five categories of Rule 60(b). The Court thus construed the defendant’s
motion as one under Rule 60(b)(6) – the “catch-all” ground
for relief.
In conclusion, the Court noted that the defendant’s partial discharge
became effective as of February 23, 2007, the date this Court denied the plaintiff’s
post-judgment motion and the underlying judgment became final. From that date
forward, the defendant’s obligation to make property settlement payments
in excess of $200.00 per month for the period outlined in the January 12, 2007
Memorandum Opinion was discharged. The defendant was entitled to no credit
against his future, reduced monthly property settlement obligations.
The Court
denied the defendant’s motion for clarification.
Leland E. Thomas; Case No. 06-21363; (Somers) (August 27, 2007)
Janiece Marie Whitelightning, Case No. 06-21856 (Somers) (August 27, 2007)
Bradley Shawn Barger and Virginia Lee Barger, Case No. 06-22148 (Somers) (August
27, 2007)
Christopher Allen Ritch and Mary Darlene Ritch, Case No. 06-22174 (Somers)
(August 27, 2007)
Carol Renae Brown, Case No. 06-22003 (Somers) (August 27, 2007)
Mark Anthony Milton, Case No. 06-22004 (Somers) (August 27, 2007)
Jose Blas Pagan, Jr. and Jennifer Ellen Lester-Pagan, Case No. 06-20008 (Somers)
(August 27, 2007)
Robert Lee Ward and Regina Lynn Ward, Case No. 07-20083 (Somers) (August 27,
2007)
Felipa Soto, Case No. 07-20202 (Somers) (August 27, 2007)
Jeremy P. Cauthon and Romona A. Cauthon, Case No. 07-20913 (Somers) (August
27, 2007)
MEMORANDUM OPINION AND ORDER SUSTAINING OBJECTIONS TO CHAPTER 13 PLANS THAT
PAY NO INTEREST TO 910-CREDITORS
• 11 U.S.C. §1325(a)(9)
Facts:
The matter under advisement in each of the above captioned
cases was an objection to confirmation of a proposed Chapter 13 plan filed
by the holder of a claim
secured by a vehicle and governed by the hanging paragraph following 11 U.S.C. § 1325(a)(9),
enacted by the BAPCPA. In each case, the parties agreed that the proposed plan
provided for the debtor to retain possession of a motor vehicle purchased within
910 days before filing for relief for the personal use of the debtor which
is subject to a purchase money lien. In each case, the Chapter 13 plan proposed
by the debtor provided for payment of the full amount owed the 910-creditor
as of the date of filing of the petition in periodic payments over the term
of the plan without interest. The respective creditors objected to the plans,
contending they were entitled to interest.
Holding:
The Court noted that the Tenth Circuit Bankruptcy
Appellate Panel, in In re Wilson, and the Kansas District Court, in Citifinancial
Auto, had held that
when a debtor elects to retain collateral securing a 910-claim, the creditor’s
claim should be treated as a secured claim for the full amount of the loan
balance as of the date of the petition and that 11 U.S.C. §1325(a)(5)(B)(ii)
required the debtor to pay interest at the Till rate on the allowed secured
claim over the life of the plan. The Court also noted that the construction
of the hanging paragraph that interest is required has emerged as the overwhelming
position of the courts, making reversal of the construction of the hanging
paragraph adopted by the BAP and the District Court unlikely.
As to the merits
of the question, the Court adopted the reasoning of In re Wilson and held that
for purposes of a Chapter 13 plan, the allowed claim of
a creditor holding an obligation secured by a purchase money lien in a vehicle
purchased with 910 days before filing of the petition for the personal use
of the debtor is an allowed secured claim in the amount of the loan balance
on the date of filing the petition, and §1325(a)(5)(B)(ii) requires that
interest be paid at the Till rate.
Donald Alan Kidd and Linda Kay Kidd; Case No. 06-41232 (Karlin) (August 27,
2007)
Barbara Lynn Roberts; Case No. 07-40131 (Karlin) (August 27, 2007)
Jerry Dean Rose and Geneva Rosie Rose; Case No. 07-40249
Sharon Kay Kill; Case No. 07-40254 (Karlin) (August 27, 2007)
Jennifer Anne Olson; Case No. 07-40276 (Karlin) (August 27, 2007)
Nathan Andrew Adams and Teresa Jane Adams; Case No. 07-40283
Barry Craig Metz and Pamela Kaye Metz; Case No. 07-40321 (Karlin) (August 27,
2007)
James Patrick Price and Leslie Inez Price; Case No. 07-40368 (Karlin) (August
27, 2007)
Paul Jeffrey Moore; Case No. 07-40368 (Karlin) (August 27, 2007)
Jamie Allen Richardson and Heather Leehanne Richardson; Case No. 07-40421 (Karlin)
(August 27, 2007)
David Charles Lane, and Alma Jean Lane, Case No. 07-40462 (Karlin) (August
27, 2007)
Edwin Gerald Hattemer and Kelly Jo Hattemer, Case No. 07-40463 (Karlin) (August
27, 2007)
Terence Alan Howe and April Diana Howe; Case No. 07-40572 (Karlin) (August
27, 2007)
Shaun Alan Pytlowany; Case No. 07-40573 (Karlin) (August 27, 2007)
Margaret Elizabeth Waniska; Case No. 07-40574 (Karlin) (August 27, 2007)
Donald Eugene Gillispie and Julie Ann Gillispie; Case No. 07-40582 (Karlin)
(August 27, 2007)
Scott William Morgan and Jody Lynn Morgan; Case No. 07-40607 (Karlin) (August
27, 2007)
Ronald Ray Anderson and Darlene Lillian Anderson; Case No. 07-40607 (Karlin)
(August 27, 2007)
Justin Clyde Harris and Sherri Irene Harris; Case No. 07-40667 (Karlin) (August
27, 2007)
MEMORANDUM OPINION AND ORDER
• 11 U.S.C. §1324(b)(4)
•
11 U.S.C. §1329
Facts:
The Trustee objected to confirmation of the plans in
each of these cases, because each plan either expressly or impliedly allows
for the Debtor to pay
off or “cash out” the plan, and thus receive a discharge, sooner
than the 3 or 5 year “applicable commitment period” required by
11 U.S.C. §1324(b)(4). Although there are several variations on the theme,
the majority of these plans contained language essentially as follows:
“After
confirmation, Debtor reserves the right to pay off the case in full by tendering
funds to the Trustee sufficient to pay all claims allowed
and proposed to be paid under this plan. Debtor reserves the right to increase
plan payments in order to pay off the plan over a time shorter than 60 months
so long as the plan requirements are satisfied.”
Holding:
The Court observed that it had frequently seen debtors
elect to refinance an exempt home, or borrow from an exempt Individual Retirement
Account or 401(k)
plan, to fund the early payoff of their Chapter 13 plans. In most instances,
these exempt assets were likely available on the date of filing, but debtors
understandably wished to take advantage of the ability to discharge their unsecured
debt that filing a Chapter 13 plan allowed. This was a form of “bankruptcy
planning” that allowed certain debtors to obtain confirmation of a plan
that required payment for at least 36 months, then later tap into the exempt
asset to pay off the plan (which in most instances only included debt that
was either secured by debtor’s house or car, or a non-dischargeable tax
liability-all of which debtor would have to pay regardless whether they filed
Chapter 7 or 13).
The Court noted that as logical and compelling
as the policy arguments were for the proposition that debtors should be able
to ignore the
three or five
year applicable commitment period recently established by Congress, the bottom
line was that it was not for this Court to make this policy.
Congress specifically
addressed the issue of early pay outs in 11 U.S.C. §1325(b)(4)(B)
by expressly conditioning shorter plans on full repayment of all unsecured
claims during that shorter time period.
In addition, as discussed in this Court’s prior decisions in In re
Pohl and In re Lanning, the “applicable commitment period” clearly
defined by Congress in 11 U.S.C. §1325(b)(4)(A) is a temporal yard stick
for Chapter 13 plans. It did not provide that a finite dollar amount must be
paid to creditors and then, once that amount is paid, debtors can complete
their Chapter 13 plans and receive their discharge. Instead, it clearly provides
the time period over which payments must be made.
For these reasons, the Court
ruled that plans that state or infer that debtors have an absolute right to
pay off their plans and receive a discharge before
the expiration of the applicable commitment period cannot be confirmed over
the Trustee’s objections.
Joseph Russell Doherty; Case No. 07-21326 (Berger) (August 28, 2007)
OPINION DENYING TRUSTEE’S MOTION TO DISMISS
• 11 U.S.C. §707(b)
Facts:
Debtor filed for Chapter 7 relief on August 30, 2006.
The Trustee filed a motion to dismiss the case. Debtor’s debts were primarily consumer debts,
and Debtor reported above-median income. On his Statement of Current Monthly
Income and Means Test Calculation (“Form B22A”), Debtor reported
negative monthly disposable income of $88.48.
Debtor did not anticipate any decrease
in income or increase in expenses. Debtor had been employed for one year. Debtor
filed his petition because he
could not remain current on his monthly payments. Debtor reported $108,947.12
in secured debt, $3,304.68 in priority debt, and $46,358.23 in unsecured debt.
Holding:
The UST sought dismissal under §707(b)(3)’s
totality-of-the-circumstances test. That section provides:
In considering under
paragraph (1) whether the granting of relief would be an abuse of the provisions
of this chapter in a case in which the presumption
in subparagraph (A)(i) of such paragraph does not arise or is rebutted, the
court shall consider –
(A) whether the debtor field the petition in
bad faith; or
(B) the totality of the circumstances (including whether the debtor seeks to
reject a personal service contract and the financial need for such rejection
as sought by the debtor) of the debtor’s financial situation demonstrates
abuse.
Under the old Act, 11 U.S.C. §707 provided a presumption in favor of
granting relief to the debtor. This presumption had been removed, and BAPCPA
also lowered the standard for finding cause to dismiss a debtor’s Chapter
7 case from “substantial abuse” to “abuse.” A non-exhaustive
list of pre-BAPCPA factors adopted by the Tenth Circuit includes 1. whether
the debtor enjoys a stable income; 2. whether the debtor is eligible for Chapter
13 relief; 3. whether the debtor suffered a sudden calamity precipitating the
bankruptcy filing; 4. whether the debtor made prepetition purchases far in
excess of his ability to repay; 5. whether the debtor’s expenses are
excessive; 6. whether the debtor’s schedules are accurate; and 7. whether
the debtor has demonstrated good faith. In re Steward, 175 F.3d 796 (10th Cir.
1999).
In this case the Court ruled that, the UST had failed to meet its burden, and the Court denied the UST’s motion.
John Francis Lane and Michelle Anne Lane; Case No. 06-20433 (Somers) (August 28, 2007)
MEMORANDUM OPINION AND ORDER ON DEBTORS’ OBJECTION TO CLAIM OF FORD
MOTOR CREDIT COMPANY AND CREDITOR’S MOTION FOR RELIEF FROM STAY
• 11 U.S.C. §1325(a)(9)
Facts:
The issue before the Court was what claim remained for payment pursuant to
a
Chapter 13 plan after a creditor holding an allowed claim arising from the
purchase of a vehicle for personal use within the 910 days prior to filing
for bankruptcy is granted relief from stay because the vehicle was destroyed
post-confirmation and a deficiency remained after application of the insurance
proceeds and plan payments to date.
Holding:
The Tenth Circuit BAP, like many courts, has held,
in the context of initial plan confirmation, that surrender of the vehicle
pursuant to 11 U.S.C. §1325(a)(5)(C)
satisfies the 910-claim in full. They reason that pre-BAPCPA, the unsecured
claim arising upon a plan election to surrender collateral under 11 U.S.C. §1325(a)(5)(c)
was based upon 11 U.S.C. §506(a), that the hanging paragraph precludes
the application of 11 U.S.C. §506(a) for 910-vehicle loans, and therefore
surrender pursuant to a Chapter 13 plan satisfies the claim in full.
The leading
case holding that following post-confirmation surrender of collateral The Court
noted that both Collier on Bankruptcy and Lundin’s treatise
on Chapter 13 find Nolan wrongly decided, and that many bankruptcy courts have
held that following surrender of collateral, an amended Chapter 13 plan that
provides for the payment of the deficiency in the secured claim as an unsecured
claim is permitted by the Code.
The Court further noted that under the circumstances
of this case, where the collateral was destroyed in an accident and the claim
is governed by the
hanging paragraph of 11 U.S.C §1325(a), the Court would adopt those courts
allowing modification of confirmed Chapter 13 plans where collateral, which
the plan provided would be retained by the debtor, is liquidated during the
term of the plan.
The Court held that modification of a confirmed Chapter 13 plan
under the authority of 11 U.S.C.§1329(a)(1) and (3) is permitted under
the circumstances presented. The total amount of the claim as of the petition
date had not changed,
but any deficiency remaining after the credit for payments pursuant to the
plan and the insurance proceeds is no longer payable as a 910-claim.
The Court
granted the creditor’s motion for relief from stay in part
and sustained Debtors’ objection to claim.
Don Allen Kopp; Case No. 04-23171 (Berger) (August 31, 2007)
ORDER REGARDING OBJECTION TO CLAIM OF DANA RUTH DOLLINS (CLAIM #1)
AND TRUSTEE’S
MOTION TO RECONSIDER ORDER STRIKING SUPPLEMENTAL RESPONSE
• 11 U.S.C. §544
•
11 U.S.C. §521
Facts:
Debtor objected to the allowance of creditor Dana Ruth
Dollins’ proof
of claim because Dollins dismissed a state court action against him post-discharge
and after the statute of limitations had run, thereby, according to Debtor,
making her claim unenforceable under 11 U.S.C. §502(b)(1).
On November 23,
2004, the Trustee filed a Report of No Distribution and Intended Abandonment.
Debtor received his discharge on December 15, 2004, and the case
was closed.
After an exchange of correspondence between Debtor’s counsel and Dollins’ counsel,
Dollins voluntarily dismissed her state court action without prejudice in September
2005.
On November 29, 2005, the Trustee moved to reopen the case, having discovered
Ms. Dollins’ claim to avoid certain fraudulent transfers by Debtor. Dollins
timely filed a proof of claim. Debtor objected to Dollins’ claim.
Holding:
The Court observed that upon the commencement of a bankruptcy
case, the trustee is vested with the exclusive right to pursue and recover fraudulently
conveyed
assets to the exclusion of all other creditors. To invoke 11 U.S.C. §544(b),
the trustee must have an existing unsecured creditor who, on the date of the
bankruptcy, is in a position to avoid a transfer of the debtor’s property.
The petition date generally fixes the rights of the estate and other parties
in interest. A claim allowed under 11 U.S.C.§502(b) is determined as of
the petition date. Post-petition events between the debtor, creditor, and transferee
do not defeat the avoidance rights vested in the trustee as of the petition
date. In order to abandon property, the trustee must know it exists.
Pursuant
to 11 U.S.C. §§521 and 544, Dollins’ claim to avoid
fraudulent transfers could not be dispensed with absent the Trustee’s
involvement because the right to recover fraudulently transferred property
vested in the Trustee as of the petition date; any property recovered inures
to the benefit of all creditors, not just Dollins.
The Court found that the Trustee
may step into Dollins’ shoes as of
the petition date and proceed with her claim to avoid the allegedly fraudulent
transfers under 11 U.S.C. §544 for the benefit of the estate. The unauthorized
post-petition dismissal of the state court lawsuit does not affect the status
of Dollins’ claim as it existed on the petition date. The parties were
returned to their positions prior to the initial closing. The Court denied
Debtors’ objection to Dollins’ claim.
Charles Frederick McBratney; Case No. 07-20222 (Somers) (September 7, 2007)
MEMORANDUM OPINION AND ORDER DENYING TRUSTEE’S OBJECTION TO DEBTOR’S
HOMESTEAD EXEMPTION
• K.S.A. §60-2301
Facts:
On June 7, 2007, the Court conducted trial on the Chapter 7 Trustee’s
objections to the Debtor’s exemption of a 1971 Pontiac and his homestead,
a single family residence which had been converted into a four-plex. Debtor’s
schedules showed that he resided in and owned a four-plex located in Kansas
City, Kansas. He claimed the entire property as his exempt homestead under
K.S.A. 60-2301, even though he only resides in one of the units and rents the
other three units. The Trustee objected to the exemption, asserting the business
use of the property was so pervasive and Debtor’s personal use so limited
that only the single unit occupied by Debtor was entitled to the homestead
exemption.
Holding:
The Court noted that the Debtor’s entitlement to his homestead exemption
is determined exclusively by Kansas law. As permitted by the Bankruptcy Code,
Kansas has provided in K.S.A. 60-2312 that, with the exception of exemptions
defined in 11 U.S.C. §522(d)(10), Kansas citizens may not elect Federal
bankruptcy exemptions, but are entitled to exemptions allowed under state law.
The
Court discussed the fact that there are no Kansas appellate cases applying
the homestead exemption to a residence, occupied by the owner, that has been
subdivided into several apartments. However, there are several cases from the
nineteenth century, which have not been overruled or questioned, holding the
homestead exemption encompassed the owner’s entire interest even though
a portion of the improvements was used as a hotel or a boardinghouse.
Under Kansas
law, use of the property where the owner and his family reside to produce income
does not defeat the exemption. As to the exemption of 160
acres of farm property outside a city, it is generally assumed that income
will be generated from the use of the land. As to businesses operated on one
acre homesteads in an incorporated town or city, the Kansas
Supreme Court requires that the business use of the property be “of an
incidental character” so that the exemption does not attach “to
property used essentially and primarily for commercial purposes and only incidentally
as a residence.” Accordingly, the owner’s occupancy of a building
used partly as a dwelling and partly as a retail grocery business does not
deprive the property of its homestead character, even though the property was
constructed with intent to use the ground floor for the store and the upper
stories for a residence.
The Court held that all the improvements on the property
claimed as Debtor’s
homestead, including all units of the four-plex, were exempt. The Court denied
the Trustee’s objection.
Frontier Farm Credit, PCA v. Christopher Charles Norris, Mary Beth Norris,
Craig C. Norris,
First National Bank of Girard, Ford Motor Credit Company
(In
re: Christopher Charles Norris and Mary Beth Norris);
Case No. 05-43551; Adversary
Case No. 06-7005 (Somers) (September 10, 2007)
OPINION GRANTING DEFENDANT FORD MOTOR CREDIT COMPANY’S RENEWED
MOTION TO DISMISS
• 28 U.S.C.A §1334(b)
Facts:
This proceeding began as Frontier’s dischargeability
complaint against the Debtors. Frontier later obtained permission to amend
its complaint to seek
additional relief. Among other things, Frontier asserted a claim against Ford
Credit based on the following allegations.
Late in 2003, the Debtors obtained
a $150,000.00 revolving line of credit from Frontier, indicating the purpose
of the line was to refinance an existing
cattle loan of $100,000.00, to use $1,000.00 to buy stock, and to buy cattle
with the remaining $49,000.00. Frontier alleged the Debtors actually used the
line of credit for various other purposes, including making payment of $17,000.00
to Ford Credit.
Ford Credit originally interpreted Frontier’s amended complaint to
be trying to recover the $17,000.00 as a preference that could be avoided under
11 U.S.C. §547 of the Bankruptcy
Code, and moved to dismiss the claim. Ford Credit moved to dismiss Frontier’s
claim against it on two grounds: 1. fraud had not been plead with particularity
as required by the rules of procedure, so the complaint failed to state a claim
for relief against Ford Credit; and 2. the Court did not have subject-matter
jurisdiction over the claim.
Holding:
The Court first addressed Ford Credit’s argument that the Court did
not have subject-matter jurisdiction over Frontier’s claim against it.
The Court noted that under 28 U.S.C.A. §1334(b), the subject-matter jurisdiction
available in bankruptcy court reaches to “all civil proceedings . . .
related to a case under title 11.” The Tenth Circuit had explained that
a “proceeding is related to the bankruptcy if the outcome could alter
the debtor’s rights, liabilities, options, or freedom of action in any
way, thereby impacting on the handling and administration of the bankruptcy
estate.” Gardner v. United States, 913 F.2d 1515 (10th Cir. 1990). If
Frontier could succeed in recovering from Ford Credit, Ford Credit would in
turn have a claim to recover that amount from the Debtors and probably be entitled
to enforce that claim against the Debtors’ truck. The Court believed
that this potential impact was sufficient to bring Frontier’s claim against
Ford Credit within the Court’s jurisdiction.
The Court also felt that Frontier
was contending that the Debtors obtained a loan from it and used the proceeds
fraudulently. Frontier claimed a constructive
trust should be imposed on the proceeds of the loan and any subsequent property
Frontier could trace to those proceeds. Frontier asked the Court to conclude
the constructive trust followed the sale proceeds into Ford’s hands.
The Court noted that Frontier did not claim that Ford Credit did anything wrong
that would justify imposing a constructive trust directly against it, but contended
Ford Credit received fruits from the Debtor’s alleged fraud. The Court
noted that section 168 of the Restatement of Restitution makes it clear that
Frontier cannot recover the money from Ford Credit despite Frontier’s
claimed constructive trust, if Ford Credit qualifies as a bona fide purchaser.
Under the rules explained in the Restatements of Restitution, the facts alleged
in Frontier’s complaint establish that Ford Credit qualified as a bona
fide purchaser of the $17,000.00 the Debtors paid it.
For these reasons, the
Court concluded Frontier’s complaint did not
state a viable claim for relief against Ford Credit. Ford Credit’s renewed
motion to dismiss was granted.
MEMORANDUM OPINION AND ORDER DENYING MOTION OF NEMAHA COUNTY CO-OP ASSOCIATION
FOR RELIED FROM AUTOMATIC STAY
• 11 U.S.C §362
•
11 U.S.C. §553
Facts:
The matter was before the Court on the Motion of Nemaha
County Co-op Association (“NCCA”) for Relief from Automatic Stay (hereafter “Motion”).
In
the Motion, NCCA sought relief from stay pursuant to 11 U.S.C. §362
to permit it to exercise, pursuant to 11 U.S.C. §553, a set off of the
prepetition amount owed to the NCCA by the Debtors against the Debtors' interest
in deferred patronage allocations and stock. The NCCA relied upon the articles
and bylaws of the Co-op as the source of its offset right. The Debtors responded
that the NCCA had no right of offset and had not established the elements for
relief from stay.
Holding:
The Court noted that stay relief may be granted under
11 U.S.C. §362(d)(1)
for cause. The moving party must establish a prima facie case, and failure
to do so requires dismissal of the motion. Although lack of adequate protection
of an interest in property is cause under 11 U.S.C. §362(d)(1), cause
is not so limited. “The moving party has the burden to show that ‘cause’ exists
to lift the stay.” Busch v. Busch, 294 B.R. 137 (10th Cir. BAP 2003)
When relief from stay is sought for the purpose of exercising set off, the
relief may be denied if the movant has not satisfied 11 U.S.C §553 United
States v. Myers, 362 F.3d 667 (10th Cir.2004).
The Court noted 11 U.S.C. §553
preserves the right of set off when four conditions exist: 1. The creditor holds
a claim against the debtor that arose
prepetition; 2. the creditor owes a debt to the debtor that arose prepetition;
3. the claim and the debt are mutual; and 4. the claim and the debt are valid
and enforceable.
The Court held that the NCCA had not established that it has
a right of offset under Kansas law. Because 11 U.S.C. §553 offset required authority to
offset under nonbankruptcy law, the Court held the NCCA had failed to establish
that prima facie case of right to offset under 11 U.S.C. §553.
For the foregoing reasons, the Court denied NCCA’s Motion.
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