All items from Creditors' Rights

Tenth Circuit Holds that BAPCPA did not Abrogate the Absolute Priority Rule in Individual Chapter 11 Cases

In a case of first impression, the Tenth Circuit Court of Appeals has held that the amendments to the Bankruptcy Code in BAPCPA did not abrogate the Absolute Priority Rule in Individual Chapter 11 Cases.  Its decision in Dill Oil Company, et al v. Arvin Stephens, et al (In re Stephens), 704 F.3d 1279 (10th Cir. 2013) agreed with the reasoning of the Fourth Circuit Court of Appeals in In re Maharaj, 681 F.3d 558 (4th Cir. 2012).  In its opinion, the court addressed the differing interpretations courts have provided to sections 1115(a)(1) and 1129(b)(2)(B)(ii) of the Bankruptcy Code.
Section 1129(b)(2)(B)(ii) provides that, in order for a plan to be fair and equitable as against a dissenting class, “the holder of any claim or interest that is junior to the claims of such class will not receive or retain under the plan on acct of such junior claim or interest any property, except that in a case in which the debtor is an individual, the debtor may retain property included in the estate under section 1115, subject to the requirements of subsection (a)(14) of this section.”  Section 1115(a)(1)(a)(1) provides that “in a case in which the debtor is an individual, property of the estate includes, in
addition to the property specified in section 541—(1) all property of the kind specified in section 541 that the debtor acquires after the commencement of the case but before the case is closed, dismissed, or converted to a case under chapter 7, 12, or 13. . . “.



From Creditors' Rights
Posted 1 week 5 days ago

Utah Court of Appeals Holds that a Judgment Creditor may Execute on a Chose in Action Under Utah Rules of Civil Procedure

In its decision in Lamoreaux v. Black Diamond Holdings, LLC, 296 P.3d 780 (Utah App. 2013), the Utah
Court of Appeals addressed a judgment debtor’s argument that, through its repeal of Rule 69 of the Utah Rules of Civil Procedure, the Utah Legislature had intended to abolish the right of judgment creditors to execute against their judgment debtors choses in action. The court held that the Utah Legislature did not intend to abolish this right, and upheld the conduct by the Black Diamond Holdings in purchasing a chose in action at an execution sale for the purpose of dismissing the litigation brought against it by David Lamoreaux.
Lamoreaux brought suit against Black Diamond Holdings alleging a debt owed and seeking a judgment to collect it.  Following a bench trial on the dispute, the court took the matter under advisement.



From Creditors' Rights
Posted 3 weeks 5 days ago

Ninth Circuit BAP Clarifies Standard of Review for Undue Hardship Determination

Under 11 U.S.C. § 523(a)(8), student loans are excepted from a debtor’s discharge unless paying those loans would “impose an undue hardship on the debtor and the debtor’s dependents.”  In the Ninth Circuit, a debtor must prove three elements to obtain a discharge of student loans—(1) that the debtor cannot maintain, based on current income and expenses, a minimal standard of living for him/herself and his/her dependents if forced to repay the loans; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (3) that the debtor has made good faith efforts to repay the loans.  See United Student Aid Funds v. Pena (In re Pena), 155 F.3d 1108, 1111 (9th Cir. 1998).
In Roth v. Education Credit Management Corp., BAP No. AZ-11-1233-RnPaKi (B.A.P. 9th Cir. filed Apr. 16, 2013) the Bankruptcy Appellate Panel for the Ninth Circuit was faced with the determination of whether the bankruptcy court erred in concluding that the debtor failed to make a good faith effort to repay her student loans.  However, a threshold question the court had to resolve before deciding whether the bankruptcy court erred was what standard should be applied in reviewing that determination as Ninth Circuit precedent contains contradictory language regarding the appropriate standard of review.



From Creditors' Rights
Posted 3 weeks 6 days ago

Fifth Circuit Court of Appeals Holds Artificial Impairment of Creditors does not Violate Sec. 1129(a)(10)

In its decision in Matter of Village at Camp Bowie I, L.P., 2013 WL 690497, the United States Court
of Appeals addressed the issue of whether a debtor may artificially impair a class of unsecured creditors in order to obtain the necessary acceptance of its plan by an impaired class under 1129(a)(10).  This section requires as an element of confirmation of a plan that “If a class of claims is impaired under the plan, at least one class of claims that is impaired under the plan has accepted the plan, determined without including any acceptance of the plan by any insider.” 



From Creditors' Rights
Posted 5 weeks 5 days ago

Ninth Circuit BAP Holds, for Purposes of Determining Venue, a Debtor’s Intangible Assets are not Necessarily Located Where the Debtor Resides

If the only assets a debtor owns are intangible assets, where are those assets located for purposes of determining venue of a case under title 11?  This was the exact question faced by the United States Bankruptcy Court for the District of Nevada, and the Ninth Circuit Bankruptcy Appellate Panel, who came to different conclusions in the case of State of Montana, Dept. of Revenue v. Blixseth (In re Blixseth).  The BAP’s opinion can be found at In re Blixseth, 2012 WL 6562839 (9th Cir. BAP 2012).
The State of Montana and two other creditors filed an involuntary petition against Timothy Blixseth in the United States Bankruptcy Court for the District of Nevada.  The petition stated that Blixseth resided in the State of Washington, but also stated that the location of his principal place of business was Las Vegas, Nevada.  The involuntary petition also alleged that venue was appropriate in Nevada because Blixseth’s principal assets were located in the district.  The bankruptcy court issued an Order to Show Cause Why Venue in This District is Proper and Why Transfer of Case is Not Appropriate.  The debtor also filed a motion to dismiss,contending that he had never resided in Nevada, conducted no business in Nevada, had no place of business in Nevada and owned non property in Nevada.



From Creditors' Rights
Posted 10 weeks 1 day ago

Ninth Circuit BAP Addresses the Elements Required to Establish Substantial Justification Under Sec. 523(d)

Creditors who purchase consumer debt should be aware of a recent ruling by the Ninth Circuit BAP in considering whether to pursue a claim for non-dischargeability under section 523(a)(2).



From Creditors' Rights
Posted 12 weeks 1 day ago

Fifth Circuit Holds that a Bank’s Security Interest Under Uniform Commercial Code 4-210(a) Defeats Provisions of 547(b)(5)

In its decision in Henderson v. Community Bank (In re Stinson Petroleum Company, Incorporated), 2013 WL 69716 (5th Cir. 2013), the Fifth Circuit was faced with a situation under which the chapter 7 trustee for Stinson Petroleum asserted a preference action against Community Bank, which had been a victim of the debtor’s check-kiting scheme.  Community Bank defended on the assertion that its security interest under the Uniform Commercial Code 4-210(a) on items deposited into an account for which it extended credit, created a defense to the fifth element of a preference action under 547(b).
The facts involved were straightforward.  Stinson Petroleum operated a check kiting scheme using checking accounts it held at Community Bank and Bank of Evergreen.  Stinson deposited into its
account at Community checks drawn on its account at Evergreen while simultaneously depositing into its account at Evergreen worthless checks drawn on its account at Community.  Both banks extended credit to Stinson on the checks it deposited.



From Creditors' Rights
Posted 14 weeks 1 day ago

Nevada Supreme Court Issues Opinion Denying Equitable Subrogation of a Subsequent Mortgage Over Pre-Existing Mechanics Liens

In its decision of first impression in In re Fontainebleau Las Vegas Holdings, LLC, 289 P.3d 1199 (Nev.
2012), the Nevada Supreme Court, in response to questions certified to it by the United States Bankruptcy Court for the Southern District of Florida, issued an important decision on the relative rights of mortgagees and mechanics lien holders.  The opinion reveals the strong policies in Nevada favorable to holders of mechanics liens.
The facts involved in the case are straightforward.  Fontainebleau Las Vegas Holdings, LLC ("Fontainebleau”) sought to construct a hotel and casino in Las Vegas, Nevada.  It obtained a loan from Bank of America in the amount of $150 million, securing the loan with a deed of trust
against its real property.  The credit agreement required the general contractor and subcontractors to subordinate their mechanics liens to the deed of trust. Construction commenced on the project. 
Subsequent to commencement of construction, Bank of America agreed to loan an additional $1.85 billion, a portion of which went to pay off the original $150 million secured loan.  

After construction halted, Fontainebleau filed a chapter 11 petition in the United States Bankruptcy Court for the Southern District of Florida.  Wilmington Trust succeeded Bank of America as administrative agent for the lenders. 



From Creditors' Rights
Posted 15 weeks 19 hours ago

Utah Supreme Court Holds that the Utah Consumer Credit Code does not Create a Bankruptcy Exemption on Earnings

In connection with an appeal in the bankruptcy proceedings of Dr. Douglas Reinhart, the United States Court of Appeals for the Tenth Circuit certified the following question to the Utah Supreme Court:  “Does Utah Code Ann. sec. 70C-7-103 create an exemption in bankruptcy, or does it only limit a judgment creditor’s garnishment remedy outside bankruptcy?”
In its opinion in Gladwell v. Reinhart, 723 Utah Adv. Rep. 66 (Utah 2012), the Utah Supreme Court
concluded that section 103 does not create an exemption in bankruptcy, and is expressly limited to a judgment creditor’s garnishment remedy outside of bankruptcy.



From Creditors' Rights
Posted 16 weeks 19 hours ago

Colorado Bankruptcy Court Concludes it has Jurisdiction to Adjudicate Estate Counterclaims that are “Inextricably Linked” to Creditor’s Proof of Claim

Judge Michael Romero of the United States Bankruptcy Court for the District of Colorado has issued an opinion analyzing the extent of a bankruptcy court’s ability to hear and render a final judgment in a trustee’s counterclaim against a creditor filing a proof of claim against the bankruptcy estate.
In Steinle, Trustee v. Fall River Village Communities, LLC #2 (In re CCI Funding I, LLC), 2012 WL 3070093 (Bankr. D. Colo. 2012), the CCI Funding (“CCIF”) and an affiliate, Commercial Capital, Inc. (“CCI”) were prior to their respective bankruptcy filings engaged in business as lenders and servicers of commercial real estate loans. CCI extended several loans to a borrower pre-petition, and assigned its interest in the loans to CCIF.
The borrowers and guarantors under the loan documents filed proofs of claim against the CCIF bankruptcy estate asserting that CCIF owed them substantial amounts of money. Upon her appointment, the CCIF trustee filed an adversary proceeding against the borrowers and guarantors, seeking a judgment on the loan documents as well as objecting to the proofs of claim filed by the borrowers and guarantors against the estate. The borrowers and guarantors answered the complaint, denying the trustee’s allegations and asserting affirmative defenses and counterclaims alleging fraud on the part of CCIF.



From Creditors' Rights
Posted 16 weeks 1 day ago