Milk Palace Dairy, LLC v. L & N Pump, Inc. (In re: Milk Palace Dairy, LLC); Case No. 03-16743; Adversary Case No. 05-5821 (Nugent) (May 15, 2007)
MEMORANDUM OPINION
• 11 U.S.C. §547 (b)
•
11 U.S.C. §547(c)(2)
Facts:
Milk Palace filed for Chapter 11 relief on December 15, 2003 and subsequently sought to recover an alleged preferential transfer it made to L&N Pump under 11 U.S.C. §547(b). L&N Pump serviced pumps and equipment for Milk Palace. The typical billing practice of L&N was to issue invoices for service rendered in a month at the beginning of the following month.
At issue was the payment of three invoices sent out at the beginning of 2003. In October 2003, Milk Palace paid L&N Pump $10,000.00 by check.
Holding:
L&N Pump stipulated to the elements of 11 U.S.C. §547(b), but relied on the “ordinary course” exception provided for by 11 U.S.C. §547(c)(2) as a defense. 11 U.S.C. §547(c)(2) provides that the trustee may not avoid a transfer to the extent that such transfer was in payment of a debt incurred by the debtor in the ordinary course of business or financial affairs of the debtor and the transferee, and such transfer was: 1. made in the ordinary course of business or financial affairs of the debtor and transferee; and 2. made according to ordinary business terms.
The Court noted that many courts recognize this defense as both a subjective and objective test. The Tenth Circuit Bankruptcy Appellate Panel has held that the subjective test examines whether the transfers at issue “were ordinary in the industry.” The Court further noted that a transaction must meet both tests in order to qualify as an exception, and the defense under 11 U.S.C. §547(c)(2) should be narrowly construed.
The Court concluded that the $10,000.00 payment was made in the ordinary course of business as between the two parties. The Court entered judgment for L&N Pump on its complaint charging the costs of the action to Milk Palace.
Troy Sellner v. John W. Patterson (In re: John W. Patterson); Case No. 05-27015-7; Adversary Case No. 06-6025 (Somers) (June 4, 2007)
OPINION DENYING MOTION TO STRIKE DEFENDANT’S RESPONSE TO PLAINTIFF’S
MOTION FOR SUMMARY JUDGMENT, AND DENYING PLAINTIFF’S MOTION FOR PARTIAL
SUMMARY JUDGMENT
• Fed. R. Bankr. P. 7056
•
11 U.S.C. §523(a)(2)(A)
Facts:
This proceeding was before the Court on the plaintiff’s motion for summary judgment and his motion to strike the defendant Debtor’s response to the motion.
The Debtor had a company called American Auto Consultants, Inc. (“Consultants”). In January of 2004, on behalf of Consultants, he sold an auto consulting business opportunity to Troy Sellner, whose address was in Mankato, Minnesota. The contract described Consultants as “a professional advisor and consultant in the area of new vehicle purchases.” Under their agreement, Sellner was to pay consultants $22,500.00 in return for various materials, supplies, and services, including “comprehensive personal training at Sellner’s home or office,” a computer, automobile rebate information that was to be regularly updated, and new car pricing software. Sellner was also to pay an annual fee of $700.00 to continue to receive updated rebate information and pricing software.
In his summary judgment brief, Sellner alleged that neither the Debtor nor consultants was registered to sell franchises in Minnesota when the Sellner-Consultants contract was formed, and set forth various theories for relief and recovery.
Sellner filed his motion for summary judgment on November 20, 2006. Pursuant to the local rules, the Debtor had twenty-three days to respond to the motion. Instead, the Debtor filed his response on January 17, 2007. Based on that tardiness, Sellner filed a motion to strike the response and to treat his motion as uncontested and to be granted without further notice.
The Debtor did not file a motion for an extension of time to respond to Sellner’s motion; however, on December 20, he did late file a motion in his main bankruptcy case, asking for thirty days to respond.
Holding:
The Court first addressed whether to consider the Debtor’s response to Sellner’s motion for summary judgment. The Court noted that the response was a week late and mistakenly filed in the main case instead of the adversary case. The Court treated the misfiling as excusable neglect and decided not to strike the response nor grant Sellner’s summary judgment motion simply because the response was filed late.
The Court further noted that Sellner’s evidence did not establish that the Sellner-Consultants contract constituted a sale of a franchise under the Minnesota Franchises Act (“MFA”) and that his summary judgment motion should be denied; however, the Court felt compelled to address another shortcoming of his motion. The Court discussed that even if the MFA applied and the Debtor is liable to Sellner for violations of that Act, the resulting debt is not necessarily excepted from the Debtor’s discharge by 11 U.S.C. §523(a)(2)(A) as alleged by the Debtor.
The Court indicated that to establish a debt covered by 11 U.S.C. §523(a)(2)(A) of the Bankruptcy Code, Sellner must prove: (1) the Debtor made a representation; (2) at the time of the representation, the Debtor knew it to be false; (3) the Debtor made the representation with the intent to deceive Sellner; (4) Sellner justifiably relied on the representation; and (5) Sellner sustained damage as a proximate result of the Debtor making the representation.
Sellner argued that he is entitled to summary judgment on the dischargeability question based solely on the alleged failure of Consultants and the Debtor to register their alleged franchise with the state and their alleged failure to give him a public offering statement. The Court noted that assuming Sellner could show the Debtor is liable to him under the MFA for the alleged violations, Sellner would have to prove additional facts to establish that the Debtor’s obligation to him is nondischargeable.
The Court denied Sellner’s motion to strike the Debtor’s response to the summary judgment motion and also denied Sellner’s motion for partial summary judgment.
Marsha L. Gaddis; Case No. 07-40476 (Karlin) (June 4, 2007)
MEMORANDUM AND OPINION DISMISSING CASE
• 11 U.S.C. §109(h)
Facts:
The Court issued a show cause order as to why the Debtor’s case should not be dismissed, given the Debtor’s failure to timely obtain credit counseling. Debtor obtained credit counseling on October 13, 2006 and filed her bankruptcy Petition on April 18, 2007, or 186 days after receiving credit counseling. The signature of the counselor on the actual certificate of counseling was dated November 1, 2006, but it clearly stated that the actual counseling was received on October 13, 2006. The Debtor argued that she should not be deemed to have “received” the counseling until the date the counselor signed the certificate. The Debtor further argued that the Court should look past the statutory language, and decline to dismiss the case, on the basis that Congress was just concerned that debtors obtain credit counseling, and because she did in fact receive credit counseling, the delay was essentially “no harm, no foul.” The Debtor also argued that nothing in Title 11 established a remedy for failure to comply with credit counseling requirements.
Holding:
The provisions of BAPCPA made widespread changes to the existing Bankruptcy Code. One of the new additions was the added requirement for individual debtors to obtain pre-bankruptcy credit counseling from an approved agency, pursuant to 11 U.S.C. §109(h). The Court noted that the vast majority of Courts that have faced this unfortunate fact pattern concede that Congress provided them no authority to waive or overlook a debtor’s failure to obtain credit counseling within 180 days of filing when that debtor does not qualify for an exception under §109(h). This Court cited In re Giles, 361 B.R. (Bankr. D. Utah 2007), a case with facts essentially identical to the action before this Court and found that the language of 11 U.S.C. §109(h) makes it clear that absolute compliance is required by the debtors, and the Courts may not create new exceptions under 11 U.S.C. §109(h). The Court dismissed the Debtor’s petition, without prejudice as to re-filing.
Justin Wayne Spoonemore and Cassandra Kathleen Spoonemore; Case No. 05-17380; (Nugent) (May 21, 2007)
ORDER DENYING CREDITOR CIT GROUP/CONSUMER FINANCE, INC.’S MOTION
FOR SUMMARY JUDGMENT
• 11 U.S.C. §542
•
11 U.S.C. §362(h)
•
K.S.A. §60-2414(i)
Facts:
The Debtors filed their bankruptcy petition on October 10, 2005. CIT Group/Consumer Finance, Inc. (“CIT”) claimed a first and second mortgage on the Debtors’ real property. The Debtors did not claim the property as exempt in their bankruptcy schedules. An agreed order granting CIT relief from the automatic stay was entered on December 30, 2005. CIT subsequently took a deed to the property. On July 20, 2006, the Trustee filed a motion for turnover of the property pursuant to 11 U.S.C. §542 and for sanctions pursuant to 11 U.S.C. §362(h), alleging CIT violated the automatic stay and converted the property. CIT objected to the Trustee’s motion and filed a summary judgment motion on the Trustee’s claim.
Holding:
The Court noted that CIT’s legal position ignored an obvious point: since the property was not claimed as exempt, it effectively remained titled in the Trustee. The Court also noted that when the Debtors did not exempt the property, it remained in the estate, subject to the Trustee’s administration, and when the stay was lifted to allow a state court foreclosure, one of the conditions of that relief was that the Trustee be included as an in rem party defendant. The Court further noted that had CIT included the Trustee as a party defendant and foreclosed the mortgages as against the estate, it would have been entitled to judgment and an order of sale under Kansas law.
The Court also discussed the fact that the deed-in-lieu was not a cure-all for CIT’s error, and that the deed conveyed no more than what the Debtors had at the time, which was nothing. According to K.S.A §60-2414(i) the holder of legal title, which was the Trustee in this action, is entitled to possession of the property for the full redemption period. Only when the Trustee abandons the property or sells its, or when CIT revives and successfully prosecutes its foreclosure would the Trustee be divested.
The Court denied CIT’s motion for summary judgment.
Justin Wayne Spoonmore and Cassandra Kathleen Spoonemore; Case No. 05-17380; (Nugent) (May 21, 2007)
ORDER DENYING CREDITOR CIT GROUP/CONSUMER FINANCE, INC.’S MOTION TO
DISMISS THE TRUSTEE’S TURNOVER MOTION
• 11 U.S.C. §362(h)
•
11 U.S.C. §105(a)
Facts:
The factual and procedural setting giving rise to this motion are set out in the Court’s order denying CIT’s motion for summary judgment and described above. The Trustee also requested sanctions for CIT’s alleged violation of the automatic stay under 11 U.S.C. §362(h). CIT moved to dismiss the Trustee’s request for sanctions and damages for the alleged stay violation on the basis that trustees are not “individuals” for the purpose of former 11 U.S.C §362(h) and, therefore, the Trustee had no standing to bring the contested matter.
Holding:
The Court noted that of the five circuits that have ruled on this issue and that they are closely divided, but that the 10th Circuit had yet to decide the issue. The Court did discuss numerous definitions of “individual”, and eventually concluded that for the purpose of this motion the Trustee may well be an “individual” for 11 U.S.C. §362(h) purposes and be permitted to seek stay violation sanctions, including punitive damages separate and apart from those afforded in other sections of the code. The Court further noted that when a creditor openly flouts the jurisdiction and authority of the Court, the Court may vindicate its authority through the exercise of its statutory powers under 11 U.S.C. §105(a) even if it is later demonstrated that the Trustee may not receive punitive damages under 11 U.S.C. §362(h).
The Court denied CIT’s motion to dismiss.
Charles Daniel Palm and Tia Lind Benson-Palm; Case No. 06-20551; (Berger) (June 19, 2007)
MEMORANDUM OPINION AND ORDER DENYING IN PART UNITED STATES TRUSTEE’S
MOTION TO DISMISS
• 11 U.S.C. §707(b)
Facts:
Debtors filed for Chapter 7 relief on April 27, 2006. On their Form B22A, the Debtors deducted monthly payments for a house and pickup on account of future payments on secured claims. Debtors then surrendered the residence and pickup. With the deductions, the presumption of abuse did not arise; however, if the deductions were removed, the Debtors’ filing would have been presumptively abusive.
The UST sought dismissal for presumed abuse under 11 U.S.C. §707(b)(2) and 11 U.S.C. §707(b)(3), alleging that the totality of the circumstances demonstrated abuse. The parties to this matter deferred the issue arising under the “totality of the circumstances” test pending the Court’s decision as to whether the case should be dismissed under the “presumptive abuse test.” The Court noted that the “presumptive abuse” test depended on whether the Debtors may deduct monthly payments for secured debt related to a home and car when the collateral is surrendered post-petition.
Holding:
The Court noted that the issue in this case was the allowed deductions for secured debt provided for in 11 U.S.C. §707(b)(2)(A)(iii). The Court discussed In re Walker, 4 Bankr. N.D. Ga. (2006), which was the first case to address this issue and came to the conclusion that the deduction covered payments owed under contract at the time of filing. The Court in Walker determined that expenses are calculated as they exist on the petition date. Walker found the UST’s position to be anomalous because it required the court to consider the impact of the debtor’s ability to surrender collateral, which is a remedy only available if the debtor is first entitled to bankruptcy relief.
This Court ruled as the Walker court had and held that based on a plain reading of the statute, “scheduled as contractually due” means the payments owed to secured creditors under contract as of the petition date. The Court denied the Trustee’s motion to dismiss based upon the presumption of abuse arising under 11 U.S.C. §707(b)(2). The Court held over a final determination based upon the totality of the circumstances test of 11 U.S.C. §707(b)(3).
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