Category Archives: cir 6

6th Federal Circuit

Westlaw Case Updates

In re: Kleibrink (Cir. 5, Sep. 28)

In a debtor’s appeal from a district court‘s affirmance of a bankruptcy court’s ruling that a creditor held an enforceable security interest in a property of his, despite his having received a discharge in an earlier bankruptcy proceeding, the order is affirmed where the notice given to the creditor did not satisfy the due process standard for notice set forth in Mullane.

In re: NM Holdings Co., LLC (Cir. 6, Sep. 30)

In a bankruptcy trustee‘s suit against debtor-company’s former auditor, claiming that the auditor negligently performed its audits by failing to uncover and report unsound related-party transactions entered into by the company’s sole shareholder and CEO, as well as aided and abetted the CEO’s breach of his fiduciary duty to the company, district court’s grant of the auditor’s motion for summary judgment is affirmed where: 1) the trustee’s amended complaint does not allege reliance by the company or by the company’s fairness committee, and the alleged reliance by the company’s creditors cannot support a claim brought by the trustee on behalf of the company; and 2) district court did not err in holding that the residual statute of limitations applied to the trustee’s aiding-and-abetting claim.

In Re: Res. Tech. Corp. (Cir. 7, Oct. 1)

District Court affirmed Bankruptcy Court‘s rejection of Trustee’s proposed assignment of Debtor‘s contracts to a company managed by its former officers in exchange for that company paying debtor’s operating expenses because

1) Bankruptcy court carefully evaluated the assumption-and-assignment proposal under section 365(f)(2)(B), and its decision to deny the trustee’s motion was sound;

2) There was no reason to disturb Bankruptcy judge’s determination that the company failed to comply with its order requiring an escrow deposit; and

3) District Court’s contempt finding was fully supported by the record, and the court thoroughly considered and properly rejected the company’s defense to contempt.

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Westlaw Case Updates


Reed v. City of Arlington (Sep.17) (Cir. 5)

In a Chapter 7 case in which debtors omitted a pending $1 Million+ judgment from sworn statements and filings, district court’s order discharging debts and allowing the Trustee to collect on behalf of the Estate is reversed to protect the integrity of the judicial processes.

Deutsche Bank v. Tucker (Sep. 15) (Cr. 6)

Chapter 13 Debtor claims that she need only cure the amount of her mortgage default that is secured, and that all additional fees and expenses should be treated as unsecured. The bankruptcy court agreed, but the district court vacated and remanded. Following remand the bankruptcy court held that bank fees and advances allowed under the Note, Mortgage, and applicable State law, should be included in the cure amount set forth in the Chapter 13 Plan.

In re: Gebhart (Sept. 14) (Cir. 9)

Court may have property sold and any non-exempt equity distributed even if the property only rose in value after the filing date. In this case the value of debtors’ home increased during his Chapter 7 and the bankruptcy court’s order approving appointment of a broker was affirmed on appeal. The fact that the value of the debtor’s homestead exemption, plus encumbrances, had been equal to the market value of the residence at the time of filing did not prevent the trustee from taking advantage of the windfall.

filings head back up! up! up!

Almost a million bankruptcy cases were filed since last June according to UST statistics.

The Highlights

Consumer +28.4%

Business +41.6%

Ch. 7 +36.7%

Ch. 13 +16.9%

Ch. 11 +30.6%

case update: cir 5, 6, 10

5th cir

Kane v. Nat’l Union Fire Ins. Co., 07-30611 (Jul 14)
A finding of summary judgment in a PI suit, as well as judicial estoppal of the plaintiffs/debtors due to their failure to list the suit in their Chapter 7 schedules, and denial of trustee’s motion to be substituted in the case as the real party in interest, are reversed and the case is remanded because

+the PI claim became an asset of the estate upon filing of the petition
+the trustee is the real party in interest and never abandoned his right
+the debtors only benefit if a PI judgment yields a surplus to the estate

The Appellate Court also found that a prior circuit court determination in the case did not control in bankruptcy court, and the district court (which ruled that the circuit court decision controlled as a matter of law) abused its discretion.

6th cir

Phar-Mor, Inc. v. McKesson Corp.05-4525, 05-4526 (Jul 17)
Vendor’s administrative-expense priority on a reclamation claim is not extinguished when the goods to which that claim applies are sold and the proceeds used to satisfy a secured creditor’s claim. The vendor retains it’s priority in those proceeds of the estate that remain after secured creditors are satisfied.

10th cir

In re Tri-Valley Distrib., Inc., 06-4279, 06-4280 (Jul 15)
In suit alleging state claims for fraudulent transfer and negligent lending, the parties’ motions to dismiss each other’s appeals for lack of jurisdiction are granted where:

+ bankruptcy appellate panel’s order was not final and appealable
+ denial of defendant’s motion to dismiss was not a final collateral order entitled to review
+ bankruptcy appellate panel acted within its authority
+ there was no jurisdiction to review the merits of a section 1334(c)(1) abstention issue

In re: US Med., Inc., 07-1259 (Jul 15)
Creditor is not a non-statutory insider of the debtor for purposes of 547(b)(4)(B) and a transaction between that creditor and the debtor will not be avoided where

+ the transactions at issue were at arm’s length
+ there is no undue influence or control by creditor

In sum, while creditor is only a “non-statutory insider” when its transaction of business with the debtor is not at arm’s length or there is undue influence; no such requirements are needed if the creditor qualifies as an insider per statute (“statutory insider”).

case updates – hometown, cir 3, cir 8

3rd cir

Windt v. Qwest Communications, 06-4662, 06-4808 [June 10, 2008]
In a lawsuit brought by bankruptcy trustees of a Dutch company asserting various claims against defendants who were allegedly responsible for the company’s insolvency, judgment dismissing trustee-plaintiff’s complaint on forum non-conveniens grounds is affirmed where the district court did not abuse its discretion in: 1) affording low deference to plaintiffs’ choice of forum in view of Netherlands’ substantial interest in resolving a dispute concerning alleged mismanagement of a Dutch company by board members and officers of that Dutch company; 2) concluding that avoiding problems in the application of foreign law favored dismissal; 3) balancing the public and private interest factors implicated in the case; and 4) determining that the convenience of litigating the dispute in New Jersey was outweighed by the oppressive or vexatious effect on defendants.


8th cir

US v. Mitchell, 07-3136 [June 10, 2008]
Conviction upon defendant’s retrial for knowingly and fraudulently making a false statement under penalty of perjury in a bankruptcy case is affirmed where the circuit court declines to revisit a double jeopardy issue, and there was sufficient evidence to sustain his conviction.


In re Weadley, 06-1854
Bibby Financial v. Weadley, 07-683
Issued June 11, 2008
Judge A. Benjamin Goldgar

summer blockbusters

3rd cir


In Re: Mansaray-Ruffin, No. 05-4790 [June 24, 2008]

A debtor in a Chapter 13 bankruptcy case did not invalidate a lien on her property by providing for it as an unsecured claim in her confirmed plan, without initiating an adversary proceeding as required by the Federal Rules of Bankruptcy Procedure.


4th cir

Tidewater Fin. Co. v. Kenney, No. 07-1664 [June 25, 2008]

In a Chapter 13 bankruptcy proceeding, an order confirming the debtor’s Chapter 13 bankruptcy plan is reversed and the case remanded for further proceedings where: 1) the parties are left to their contractual rights and obligations and a creditor may pursue an unsecured deficiency claim under state law after a debtor satisfies the requirements for plan confirmation under section 1325(a)(5)(C) by surrendering his 910 vehicle; and 2) the circuit court joints the Seventh Circuit Court of Appeals in further recognizing that such unsecured debt need not be paid in full any more than other unsecured debts, but it cannot be written off in toto while other unsecured creditors are paid some fraction of their entitlements.


6th cir

Chase Manhattan Mortgage Corp. v. Shapiro, No. 06-1538 [June 26, 2008]

In bankruptcy proceedings, judgment rejecting a bankruptcy court’s decision that the earmarking doctrine did not apply to a new mortgage as a preferential transfer and that the estate was diminished by the perfection of the new mortgage is reversed where: 1) the trustee established the elements of an avoidable preference set forth in section 547; 2) plaintiff was not a “new creditor” which precluded it from invoking the earmarking doctrine since it refinanced its own loan with debtor; and 3) the lapsed perfection of the original mortgage and plaintiff’s late perfection of the new mortgage diminished debtor’s estate.


9th cir

Espinosa v. United Student Aid Funds, Inc., No. 06-16421 [June 24, 2008]

In a case arising from bankruptcy proceedings in which plaintiff-debtor obtained a discharge order, but was later pursued by defendant-creditor for a student loan debt that debtor argued had been discharged, the matter is remanded for consideration of whether the bankruptcy court’s discharge order in the case was entered as a result of a clerical error and, if so, whether to correct it so as to conform to debtor’s Chapter 13 plan.


Cent. Valley AG Enters. v. US, No. 05-16177 [June 25, 2008]

In a bankruptcy appeal involving debtor’s objection to a government tax claim, dismissal of the action is reversed where: 1) the district court erred in ruling that the statutory res judicata provision in 11 U.S.C. section 505(a)(2)(A) deprived it of subject matter jurisdiction to review the tax treatment of any partnership item that has been administratively determined by the IRS and has become final pursuant to the Tax Equity And Fiscal Responsibility Act of 1982 (TEFRA); and 2) 11 U.S.C. section 505(a)(1) grants the district court subject matter jurisdiction to review the tax treatment of debtor’s partnership items, notwithstanding TEFRA.


NY court of appeals


AG Capital Funding Partners v. State Street Bank and Trust Co., No. 114 [June 25, 2008]

In an action alleging breach of contract, violation of federal Trust Indenture Act, breach of fiduciary duty, and negligence based on defendant’s alleged failure to deliver debt transaction registration statements required to secure a debt, the court of appeals finds that: 1) plaintiffs’ contract and Trust Indenture Act claims were barred by a release previously executed by plaintiffs as part of a bankruptcy settlement and that no fiduciary duties existed; however; 2) because negligence claims were not barred by the release and there were issues of fact as to whether defendant owed and violated a duty of care, plaintiffs’ cause of action for negligence is reinstated.

first roundup in a while …

Cir 6

In re: Triple S Restaurants, Inc., No. 07-5452
In a tort action removed to the bankruptcy court, the dismissal of a claim for intentional infliction of emotional distress by the debtor’s general counsel , as well as the imposition of sanctions, was affirmed where: 1) the trustee acted within the scope of his authority when he stated he would refer a particular matter for criminal investigation if plaintiff would not agree to a settlement; 2) the claim of intentional infliction of emotional distress and outrage was properly dismissed; and 3) there was no abuse of discretion in imposing sanctions.

Cir 7

Maxwell v. KPMG, LLP, No. 07-2819
Where a suit by the chapter 7 trustee alleging that the debtor company was harmed by an accounting firm’s breach of its duty of care, and summary judgment in favor of the defendant was affirmed because: 1) even assuming that defendant was negligent in its statement of the company’s earnings, that statement was not the cause of an ill-fated business decision entered into by the company; and 2) the evidence presented did not support the claim for damages, the accounting firm was authorized to seek its Attorneys’ fees before the District Court (hah!).