Case Summaries — the March 2016 Bankruptcy Court Opinions

Posted

The following are summaries of the March 2016 opinions posted on the Massachusetts Bankruptcy Court’s website.

 

In re Willie D. Brown, Ch. 13 Case No. 14-12357-JNF and In re James W. Tosi, Ch. 13 Case No. 13-14017-FJB 

Four bankruptcy judges in the District of Massachusetts have split (2-2) over whether a Chapter 13 plan can vest the Debtor’s real property in a mortgagee over that mortgagee’s objection. At issue is the relationship between § 1322(b)(9), which provides that a plan may vest property of the estate in another entity and § 1325(a)(5), which requires that a plan either be accepted by the secured creditor, “cram down” the secured creditor, or surrender the property to the secured creditor.  In Brown, Judge Feeney joined Judge Hoffman (In re Sagendorph, 2015 WL 3867955) in finding that a plan vesting property in a mortgagee can be confirmed over that mortgagee’s objection.  In Tosi, Judge Bailey joined Judge Boroff (In re Weller, 2016 WL 164645) in finding that vesting property in the mortgagee does not constitute a surrender of that property under 1325(a)(5) and therefore a vesting plan cannot be confirmed over that secured creditor’s objection.  These issues are currently on appeal, and one argument worth watching may be whether vesting property in a mortgagee under 1322(b)(9) can satisfy the “cram-down” provision of 1325(a)(5).

 

In re Greco, Case No 15-12232-JNF (March 3, 2016)

The court sustained the Chapter 7 trustee’s objection to the debtor’s claimed exemption in a stream of payments stemming from a marital property settlement. The debtor was entitled to $300 per month under a judgment entered by the probate and family court that stated that the amount to be paid was on account of and in lieu of any rights the debtor would have had in the former spouse’s Massachusetts municipal retirement plan.  The debtor attempted to exempt the payments as a “right or interest…in an annuity, pension, profit sharing or other retirement plan” under Mass. Gen. Laws ch. 235, § 34A.  The court held that the payments were not exempt because the family court- ordered note and mortgage given by the former spouse, though payable from a portion of his municipal retirement benefits, “does not fall within the ambit of the plain language of [ch. 235, § 34A].”

 

Hutton v. Vasa (In re Vasa), A.P. No. 14-1173-JNF (March 8, 2016)

The Debtor’s former law partner sought a determination that certain obligations allegedly owed to him by the Debtor were nondischargeable under 11 U.S.C. § 523(a)(2)(A), (a)(4), and (a)(6). The Bankruptcy Court found a portion of the obligations in question to be non-dischargeable under 11 U.S.C. § 523(a)(4) on the basis that the Debtor’s actions constituted defalcation while acting in a fiduciary capacity.  Specifically, the Bankruptcy Court found that, while acting in a fiduciary capacity, the Debtor had transferred funds from the law firm’s IOLTA account in a grossly reckless fashion and had taken funds from the firm at the expense of the firm’s clients and creditors.  However, the Bankruptcy Court found that the fiduciary relationship between the parties had ended after 2012, and that the plaintiff had failed to establish the elements of § 523(a)(4) with respect to any debt arising after that time.  Additionally, the Bankruptcy Court found that the plaintiff had failed to carry his burden of establishing non-dischargeability under either § 523(a)(2)(A) or (a)(6).

 

Acevedo v. Bayron, AP No. 16-01011-JNF (March 15, 2016)

Approximately six weeks after the confirmation of his Chapter 13 plan, Debtor and two co-plaintiffs filed a verified complaint against thirty three named defendants. Averring that the Bankruptcy Court has jurisdiction pursuant to 28 U.S.C. § 1334 to hear matters related to the interested parties pursuant to Fed.R.Bankr.P. 7019, plaintiffs made allegations stemming from events that occurred in Puerto Rico between August 1946 and Debtor’s Chapter 13 petition date.  The claims include, amongst others, turnover of a gas station located in Puerto Rico, declaration that dividends and profits of said gas station are property of the bankruptcy estate, and several others, all related.  Defendants filed a motion seeking a transfer of venue.  Citing prevalent case law and the language of § 1334(c)(1), the Bankruptcy Court identified three criteria to determine whether sua sponte abstention is appropriate: the interests of justice, comity, and respect for state law.  In a lengthy discussion applying the complicated facts of this case to the relevant criteria, the Bankruptcy Court entered an order abstaining from ruling on this adversary proceeding.

 

Grossman v. Bonefant (In re Bonefant), A.P. No. 14-1143-JNF (March 29, 2016)

The Chapter 7 Trustee for Robert Patrick Bonefant, Jr. (“Debtor”) and Margaret Louise McClory-Bonefant filed an adversary proceeding against the Debtor’s father, Robert Patrick Bonefant, Sr. (“Defendant”) to avoid fraudulent transfers in the form of nearly $775,000 in payments made by the Debtor to his father’s bank accounts in the two years before filing for bankruptcy. At trial, the Trustee did not press his quantum meruit/unjust enrichment or resulting trust claims and the Defendant did not contest liability for fraudulent transfers pursuant to 11 U.S.C. § 548.  The issues analyzed by the Court in this Memorandum were whether the Trustee sustained his burden of proof on his claims pursuant to 11 U.S.C. §§ 548 and 550(a)(1) and calculation of damages.  Although the Trustee asked to recover all amounts voided under 11 U.S.C. § 548 as fraudulently transferred (nearly $775,000), the Court held that recovery pursuant to 11 U.S.C. § 550(a)(1) is limited to the amount that restores the estate to the same position it would have been in notwithstanding the fraudulent transfers.  The Court found that the Debtor withdrew $761,623 from his father’s accounts for his personal use, and so the estate was only entitled to recover the remaining $12,322 plus credit card charged incurred by the Defendant but paid for by the Debtor.

 

DeGiacomo v. First Call Mortg. Co. (In re Reznikov), AP No. 15-1003, 2016 WL 1238916 (Bankr. D. Mass. Mar. 29, 2016)

On cross-motions for summary judgment, the Bankruptcy Court for the District of Massachusetts recently held that there was no genuine dispute as to any material fact in finding that a certificate of acknowledgment that indicated only that the debtor “duly acknowledged” execution of a mortgage was insufficient under Massachusetts law to legally record the mortgage. Such language reflects that the debtor executed the mortgage, but does not indicate, as required under Massachusetts law, that she did so as her free act and deed.  Evidence of the parties’ intent or actual acts would not alter this conclusion, as the court is not interpreting a contract or the validity of the language, but only considering whether the language, on its face, gives notice that the requirements for a legally recorded mortgage have been met.  The phrase “duly acknowledged” does not provide such notice.  Accordingly, the chapter 7 trustee, as a hypothetical bona fide purchaser, is entitled to summary judgment and can avoid the mortgage under § 544(a)(3).  Further, as a matter of law, the mortgage is automatically preserved for the benefit of the estate under § 551, maintaining priority over the debtor’s homestead  exemption.

 

Contributions by:

Benjamin Higgins, Law Clerk to the Hon. Frank J. Bailey (Contributions are on personal behalf and should not be construed as statements by the U.S. Bankruptcy Court)

Devon MacWilliam, Partridge Snow & Hahn

Alex McGee, Ropes & Gray

Michael K. O’Neil, Murphy & King

Nathan Soucy, Soucy Law Office

Aaron Todrin, Sassoon & Cymrot, LLP

Bankruptcy Internship Position – Fall 2016

Posted

The Civil Division of the U.S. Attorney’s Office, District of Massachusetts, seeks one or two diligent and enthusiastic law students with excellent research and writing skills to serve as a bankruptcy intern for Fall 2016.  The intern will work in Boston.  Prior bankruptcy experience or completion of a bankruptcy course is required.  The intern will be assigned to work with the bankruptcy Assistant United States Attorney within the Civil Division, which represents the United States, its agencies, and its employees in all types of bankruptcy cases filed in Massachusetts.  The internship is an unpaid position.  Prior to beginning an internship, all interns must successfully complete a security process/background investigation.  Applicants must be U.S. citizens.  To apply, please send your resume, writing sample, transcript (unofficial accepted) and a cover letter describing your interest to [email protected].  Applications must be submitted by May 10, 2016.

Save the Date: Brown Bag Lunch with Chapter 13 Trustee – May 10th

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Please join us on May 10, 2016 from 12:00-1:00 p.m. for our annual brown bag lunch with Carolyn A. Bankowski, the Chapter 13 Trustee. This is a great opportunity to meet the Trustee, hear the latest filing stats, learn about new and notable cases, and discuss hot topics in Chapter 13. The Trustee encourages practitioners to come and discuss current questions, concerns and issues, so feel free to bring questions!  For more information or to sign up, please click here.

Case Summaries — The February 2016 Bankruptcy Court Opinions

Posted

The following are summaries of the February 2016 opinions posted on the Massachusetts Bankruptcy Court’s website.

 

Kimmy R. Jackson v. ING Bank et al. (In re Kimmy R. Jackson), AP Case No. No. 13-01064-MSH (February 1, 2016)

In this adversary proceeding, the Debtor claimed that one of the defendants, a law firm, violated the discharge injunction of Bankruptcy Code § 524 and the Fair Debt Collection Practices Act (“FDCPA”) and engaged in deceit, misrepresentation, breach of contract and wrongful foreclosure, all in connection with its attempt to enforce default remedies including foreclosing a mortgage on the Debtor’s condominium. The court entered judgment in favor of the law firm on the Debtor’s claims alleging wrongful foreclosure, breach of contract, deceit and misrepresentation, based in part on the court’s determination that the Debtor’s claims were not ripe for adjudication. However, the court did enter judgment in the Debtor’s favor against the law firm for violation of the discharge injunction and § 1692e(2)(A) of the FDCPA, finding that Debtor was the object of collection activity arising from a debt, that the law firm was a debt collector as defined in the FDCPA, and the law firm engaged in acts or omissions prohibited under the FDCPA by misrepresenting the legal status of the mortgage debt.

 

In re Savvas V. Gianasmidis, Ch. 11 No. 15-12119-JNF (February 11, 2016)

The Debtor filed a motion and judgment creditors filed an opposition, including a request for sanctions, against the Debtor and his attorneys for filing the motion.  The court denied the Debtor’s motion and denied the request for sanctions in the creditors’ opposition.  The creditors then filed a separate motion for sanctions.  Rule 9011 requires that a party seeking sanctions provide the opposing party with notice and a 21-day period to correct or withdraw the offending pleading.  The Court denied the motion for sanctions because (i) the creditors had not provided the 21-day safe harbor period, (ii) the offending motion was already denied, and (iii) the creditors’ initial request for sanctions was procedurally improper in that it was not made by separate motion as required by Rule 9011.

 

In re Kevin M. Rielly, Case No. 15-15003-JNF (February 11, 2016)

The Debtor sought a determination that a creditor willfully violated the automatic stay when it attached and levied on the Debtor’s checking and brokerage accounts pursuant to a state court trustee process order and refused to release the attachments on those accounts despite notice of the commencement of the bankruptcy case.  The Bankruptcy Court found that the creditor’s actions to secure and serve the trustee process order had occurred prior to the petition date, and therefore, did not constitute a violation of the automatic stay.  To the extent the Debtor complained that his account became inaccessible after the petition date, the Bankruptcy Court found that the Debtor failed to show that the creditor had exercised any control or influence over the postpetition actions of the third party financial institutions where the funds were located.  Finally, the Bankruptcy Court found that the creditor had not violated the automatic stay through its failure to take action to effectuate a release of the attachments, considering the unique circumstances of the chapter 7 case.  The creditor had refused to take action toward releasing the attachments until the Debtor provided assurance that he would not dissipate the funds once they became accessible.  Noting that the accounts in question contained both exempt and non-exempt funds, the Court found that the creditor had engaged in a reasonable, prudent and good faith effort to preserve the rights of the parties, including the rights of the chapter 7 trustee.

 

Zutrau v. Zutrau (In re Zutrau), A.P. No. 11-1183-FJB (Feb. 24, 2016)

In this Adversary Proceeding, Judge Bailey was asked to determine whether the Debtor’s debt to the plaintiff, his sister, was excepted from discharge under 11 U.S.C. §§ 523(a)(2)(A) and 523(a)(6).  The plaintiff had made a series of loans to the Debtor.  The court held that $193,000 of the unpaid debt was not dischargeable because it was “obtained by . . . a false representation,” and $80,000 was not dischargeable because it was related to “willful and malicious injury by the debtor to another entity.

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Contributions by:

Benjamin Higgins, Law Clerk to the Hon. Frank J. Bailey (Contributions are on personal behalf and should not be construed as statements by the U.S. Bankruptcy Court)

John Joy, Latham & Watkins LLP

Devon MacWilliam, Partridge Snow & Hahn

Michael K. O’Neil, Murphy & King

Case Summaries– the January 2016 Bankruptcy Court Opinions

Posted

The following are summaries of the January 2016 opinions posted on the Massachusetts Bankruptcy Court’s website.

 

In re Humphrey, Case No. 14-15511-JNF (January 6, 2016)

Three judgment creditors had objected to the Chapter 7 debtor’s claimed homestead objection on the basis that the property was not his principal residence.  The property was held as a tenancy by the entirety, though the debtor was separated (but not divorced) from his non-debtor wife and she did not reside in the house as of the petition date.  The debtor died less than a year into his case and the debtor’s personal representative filed a motion to dismiss the contested matter concerning the homestead exemption because the debtor’s interest in the property was terminated by his death.  The court granted the motion to dismiss, holding that the non-debtor surviving spouse held the property by operation of law (outside the debtor’s probate estate) and any rights that the creditors may have had had terminated.

 

In re Diane Moden, Case No. 15-10213-MSH (January 8, 2016)

The Debtor sought to avoid a judicial lien on her residence pursuant to 11 U.S.C. § 522(f) under the theory that the lien impaired her homestead exemption.  In 2009, a judgment creditor obtained a judicial lien against the Debtor’s husband’s interest in the property in question.  When the Debtor and her husband divorced in 2013, the practical effect of the divorce agreement was that the Debtor’s interest in the property became subject to the lien.  Focusing on the language in § 522(f) that a debtor may avoid “the fixing of a lien,” the Bankruptcy Court denied the Debtor’s unopposed motion to avoid the judicial lien on the basis that the lien did not impair the Debtor’s homestead exemption at the time it attached to the property in 2009.

 

In re Weller, Case No. 12-40418-HJB (January 13, 2016)

 Chapter 13 Debtors confirmed a plan in which they surrendered their single family home to Wells Fargo, the secured creditor.  For three years following confirmation, Wells Fargo declined to foreclose its mortgage on the property.  The Debtors, unable to pay for maintenance and insurance on the property, then proposed an amended plan which provided that the property would vest in Wells Fargo and the “confirmation order shall constitute a deed of conveyance” of the property to Wells Fargo.  Wells Fargo objected to the amended plan.  Section 1325(a)(5) requires that a plan either be accepted by the secured creditor, “cram down” the secured creditor, or surrender the property to the secured creditor.  In In re Cormier, 434 B.R. 222 (Bankr. D. Mass. 2010), this same court held that a secured creditor could not be compelled to take title to a property that the debtors proposed to surrender.  The issue here is whether § 1322(b)(9), which provides that a plan may provide for vesting of property of the estate in the debtor or any other entity, trumps the limitations of §1325(a)(5) and Cormier.  The court ruled that it does not.  “A plan which ‘surrenders’ property to a secured creditor fulfills the requirements of § 1325(a)(C) and may be confirmed.  A plan which ‘vests’ property in a secured creditor does not fulfill the requirements of § 1325(a)(C) and may not be confirmed over the secured creditor’s objection.”  The Debtors’ proposed amended plan could not be confirmed.  Notably, in In re Sagendorph, 2015 WL 3867955 (Bankr. D. Mass.), another court in this district, found the opposite; that decision is now on appeal to the district court.

 

Juan Juan Chen, et. al. v. Wen Jing Huang, Adversary Proceeding No. 12-01265-HJB (January 15, 2016)

A group of fifteen Plaintiffs commenced this adversary proceeding seeking a determination that either their claims are excepted from discharge pursuant to § 523(a) or that Debtor is not entitled to a discharge pursuant to § 727(a).  Plaintiffs’ allege that (1) Debtor, the principal officer and sole stockholder of their employer, Millennium Daycare, Inc. (“Daycare”), fraudulently induced them to work without compensation despite having sufficient funds; (2) Debtor made false oaths in connection with both her individual and Daycare’s bankruptcy cases; and (3) Debtor improperly transferred estate assets.  Plaintiffs had little difficulty proving all of the above.  Evidence presented at trial demonstrated that, amongst other things, Debtor failed to disclose tens of thousands of dollars of monthly income deriving from commercial real estate; failed to disclose insurance policies or postpetition proceeds collected on those policies amounting to over $50,000; and failed to disclose substantial transfers in assets to insiders, including her son.  Indeed, Debtor had enough cash flow to pay each and every Plaintiff’s claim.  In responding to Debtor’s defense that she received inadequate counsel and had hampering language barriers, the Court was unimpressed, stating “a debtor cannot, merely by playing ostrich and burying his head deeply enough in the sand, disclaim all responsibility for statements which he has made under oath.”   The Court ruled in favor of the Plaintiffs on the § 727 claim, which rendered the § 523 claim moot.

 

In re New England Compounding Pharmacy, Inc., Case No. 12-19882-HJB (Jan. 15, 2016)

Following a bankruptcy case of “inordinate complexity”, the Chapter 11 trustee sought compensation in the amount of $3.75M, which was less than the maximum trustee commission set by Bankruptcy Code § 326 but more than the “lodestar amount” of the trustee’s hours spent in the case multiplied by his hourly rate.  Objecting parties quarreled with the Trustee’s request solely to the extent that it exceeded the lodestar amount of approximately $1.14M.  In assessing the trustee’s request, the bankruptcy court first discounted arguments that a fee enhancement should not be paid where (i) creditors did not agree to pay the costs of such enhancement, (ii) creditors would not be paid in full, or (iii) the extraordinary outcome of the case was achieved through the cooperation of many professionals rather than the trustee alone.  Then, taking note of the trustee’s “exemplary” work in the case and noting that fee enhancements, when allowed, generally fall in the range of 1.1 to 2 times the lodestar amount, the court found that a reasonable fee for the Chapter 11 trustee was equal to two times the lodestar amount.

 

Lassman v. Short (In re Foley), Ch. 7 Case No. 13-14529, Adv. No. 14-1139, slip op. (Bankr. D. Mass. Jan. 22, 2016)

Judge Feeney recently joined Judge Bailey in ruling that a bankruptcy trustee does not qualify as an “individual” entitled to punitive damages for willful violations of the automatic stay under 11 U.S.C. § 362(k).  See In re Sayeh, 445 B.R. 19, 27 (Bankr. D. Mass. 2011) (finding chapter 11 trustee had no recourse under section 362(k)).

The issue came before the court in an adversary proceeding filed by the chapter 7 trustee (the “Trustee”) against a lender (the “Mortgage Lender”) with a mortgage on certain property of the estate (the “Mortgage”).  The Debtors were obligated under the Mortgage in connection with their purchase of a motel in rural Kentucky from the Mortgage Lender in March 2007 (the “Property”).  The Debtors had subsequently contracted to sell the Property to a purchaser (the “Purchaser”) in exchange for a down payment and equal monthly payments over a ten-year period. The Debtors and the Purchaser agreed that the Debtors would remain liable and continue to make payments to the Mortgage Lender until the Mortgage was paid in full.

When the Debtors filed their chapter 7 bankruptcy petition in July 2013, the Mortgage Lender instructed the Purchaser to make the monthly payments directly to them.  The Purchaser complied, making payments totaling nearly $16,000.  A year later, the Trustee filed the adversary proceeding seeking a determination that the Mortgage was invalid, requesting turnover of the $16,000 in monthly payments received, and seeking damages for willful violation of the automatic stay.  The Trustee and the Mortgage Lender subsequently filed cross-motions for summary judgment.

After determining that Kentucky law applied, the court found that the Mortgage was valid under Kentucky law.  The court then found that the Trustee had no right to the $16,000 in payments received by the Mortgage Lender from the Purchaser, reasoning that the estate had no interest in voluntary payments made between two non-debtor parties.  While the Trustee had a claim against the Purchaser, which he had asserted in a separate adversary proceeding, that claim does not translate to “an ownership in their monies or any authority to dictate how they spend their monies.”  The court further found that the Mortgage Lender was not unjustly enriched by the payments because it would have been entitled to adequate protection or relief from the automatic stay as a secured creditor.

The court then turned to the Trustee’s allegation that the Mortgage Lender owed damages under 11 U.S.C. § 362(k) for “collecting payments belonging to the Estate and threatening to dispose of Estate assets” in willful violation of the automatic stay.  The court adopted the reasoning articulated by Judge Bailey in Sayeh noting that § 362(k) only permits “an individual” injured by a willful violation of the automatic stay to obtain damages.  Although the bankruptcy code does not define “individual,” it is generally understood that “individual” is used to refer to natural persons or human beings, whereas “entity” is used when referring to a broader group.  Thus, had Congress wished to provide the estate or a trustee, as representative of the estate, the right to pursue damages for willful violations of the automatic stay, it would have used the term “entity”.  Accordingly, the Trustee was not entitled to damages under § 362(k) for the Mortgage Lender’s alleged violations of the automatic stay.

Having found against the Trustee on all counts of the adversary proceeding, the court denied the Trustee’s motion for summary judgment and granted summary judgment to the Mortgage Lender, lifting the automatic stay for cause with regard to the Property.

 

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Contributions by:

Benjamin Higgins, Law Clerk to the Hon. Frank J. Bailey (Contributions are on personal behalf and should not be construed as statements by the U.S. Bankruptcy Court)

Gina O’Neil, Mirick, O’Connell, DeMallie & Lougee, LLP

Michael K. O’Neil, Murphy & King

Nathan Soucy, Soucy Law Office

Aaron Todrin, Sassoon & Cymrot, LL

Case Summaries – the January 2016 Bankruptcy Court Opinions

Posted

The following are summaries of the January 2016 opinions posted on the Massachusetts Bankruptcy Court’s website.

 

In re Humphrey, Case No. 14-15511-JNF (January 6, 2016)

Three judgment creditors had objected to the Chapter 7 debtor’s claimed homestead objection on the basis that the property was not his principal residence.  The property was held as a tenancy by the entirety, though the debtor was separated (but not divorced) from his non-debtor wife and she did not reside in the house as of the petition date.  The debtor died less than a year into his case and the debtor’s personal representative filed a motion to dismiss the contested matter concerning the homestead exemption because the debtor’s interest in the property was terminated by his death.  The court granted the motion to dismiss, holding that the non-debtor surviving spouse held the property by operation of law (outside the debtor’s probate estate) and any rights that the creditors may have had had terminated.

 

In re Diane Moden, Case No. 15-10213-MSH (January 8, 2016)

The Debtor sought to avoid a judicial lien on her residence pursuant to 11 U.S.C. § 522(f) under the theory that the lien impaired her homestead exemption.  In 2009, a judgment creditor obtained a judicial lien against the Debtor’s husband’s interest in the property in question.  When the Debtor and her husband divorced in 2013, the practical effect of the divorce agreement was that the Debtor’s interest in the property became subject to the lien.  Focusing on the language in § 522(f) that a debtor may avoid “the fixing of a lien,” the Bankruptcy Court denied the Debtor’s unopposed motion to avoid the judicial lien on the basis that the lien did not impair the Debtor’s homestead exemption at the time it attached to the property in 2009.

 

In re Weller, Case No. 12-40418-HJB (January 13, 2016)

Chapter 13 Debtors confirmed a plan in which they surrendered their single family home to Wells Fargo, the secured creditor.  For three years following confirmation, Wells Fargo declined to foreclose its mortgage on the property.  The Debtors, unable to pay for maintenance and insurance on the property, then proposed an amended plan which provided that the property would vest in Wells Fargo and the “confirmation order shall constitute a deed of conveyance” of the property to Wells Fargo.  Wells Fargo objected to the amended plan.  Section 1325(a)(5) requires that a plan either be accepted by the secured creditor, “cram down” the secured creditor, or surrender the property to the secured creditor.  In In re Cormier, 434 B.R. 222 (Bankr. D. Mass. 2010), this same court held that a secured creditor could not be compelled to take title to a property that the debtors proposed to surrender.  The issue here is whether § 1322(b)(9), which provides that a plan may provide for vesting of property of the estate in the debtor or any other entity, trumps the limitations of §1325(a)(5) and Cormier.  The court ruled that it does not.  “A plan which ‘surrenders’ property to a secured creditor fulfills the requirements of § 1325(a)(C) and may be confirmed.  A plan which ‘vests’ property in a secured creditor does not fulfill the requirements of § 1325(a)(C) and may not be confirmed over the secured creditor’s objection.”  The Debtors’ proposed amended plan could not be confirmed.  Notably, in In re Sagendorph, 2015 WL 3867955 (Bankr. D. Mass.), another court in this district, found the opposite; that decision is now on appeal to the district court.

 

Juan Juan Chen, et. al. v. Wen Jing Huang, Adversary Proceeding No. 12-01265-HJB (January 15, 2016)

A group of fifteen Plaintiffs commenced this adversary proceeding seeking a determination that either their claims are excepted from discharge pursuant to § 523(a) or that Debtor is not entitled to a discharge pursuant to § 727(a).  Plaintiffs’ allege that (1) Debtor, the principal officer and sole stockholder of their employer, Millennium Daycare, Inc. (“Daycare”), fraudulently induced them to work without compensation despite having sufficient funds; (2) Debtor made false oaths in connection with both her individual and Daycare’s bankruptcy cases; and (3) Debtor improperly transferred estate assets.  Plaintiffs had little difficulty proving all of the above.  Evidence presented at trial demonstrated that, amongst other things, Debtor failed to disclose tens of thousands of dollars of monthly income deriving from commercial real estate; failed to disclose insurance policies or postpetition proceeds collected on those policies amounting to over $50,000; and failed to disclose substantial transfers in assets to insiders, including her son.  Indeed, Debtor had enough cash flow to pay each and every Plaintiff’s claim.  In responding to Debtor’s defense that she received inadequate counsel and had hampering language barriers, the Court was unimpressed, stating “a debtor cannot, merely by playing ostrich and burying his head deeply enough in the sand, disclaim all responsibility for statements which he has made under oath.”   The Court ruled in favor of the Plaintiffs on the § 727 claim, which rendered the § 523 claim moot.

 

In re New England Compounding Pharmacy, Inc., Case No. 12-19882-HJB (Jan. 15, 2016)

Following a bankruptcy case of “inordinate complexity”, the Chapter 11 trustee sought compensation in the amount of $3.75M, which was less than the maximum trustee commission set by Bankruptcy Code § 326 but more than the “lodestar amount” of the trustee’s hours spent in the case multiplied by his hourly rate.  Objecting parties quarreled with the Trustee’s request solely to the extent that it exceeded the lodestar amount of approximately $1.14M.  In assessing the trustee’s request, the bankruptcy court first discounted arguments that a fee enhancement should not be paid where (i) creditors did not agree to pay the costs of such enhancement, (ii) creditors would not be paid in full, or (iii) the extraordinary outcome of the case was achieved through the cooperation of many professionals rather than the trustee alone.  Then, taking note of the trustee’s “exemplary” work in the case and noting that fee enhancements, when allowed, generally fall in the range of 1.1 to 2 times the lodestar amount, the court found that a reasonable fee for the Chapter 11 trustee was equal to two times the lodestar amount.

 

Lassman v. Short (In re Foley), Ch. 7 Case No. 13-14529, Adv. No. 14-1139, slip op. (Bankr. D. Mass. Jan. 22, 2016)

Judge Feeney recently joined Judge Bailey in ruling that a bankruptcy trustee does not qualify as an “individual” entitled to punitive damages for willful violations of the automatic stay under 11 U.S.C. § 362(k).  See In re Sayeh, 445 B.R. 19, 27 (Bankr. D. Mass. 2011) (finding chapter 11 trustee had no recourse under section 362(k)).

The issue came before the court in an adversary proceeding filed by the chapter 7 trustee (the “Trustee”) against a lender (the “Mortgage Lender”) with a mortgage on certain property of the estate (the “Mortgage”).  The Debtors were obligated under the Mortgage in connection with their purchase of a motel in rural Kentucky from the Mortgage Lender in March 2007 (the “Property”).  The Debtors had subsequently contracted to sell the Property to a purchaser (the “Purchaser”) in exchange for a down payment and equal monthly payments over a ten-year period. The Debtors and the Purchaser agreed that the Debtors would remain liable and continue to make payments to the Mortgage Lender until the Mortgage was paid in full.

When the Debtors filed their chapter 7 bankruptcy petition in July 2013, the Mortgage Lender instructed the Purchaser to make the monthly payments directly to them.  The Purchaser complied, making payments totaling nearly $16,000.  A year later, the Trustee filed the adversary proceeding seeking a determination that the Mortgage was invalid, requesting turnover of the $16,000 in monthly payments received, and seeking damages for willful violation of the automatic stay.  The Trustee and the Mortgage Lender subsequently filed cross-motions for summary judgment.

After determining that Kentucky law applied, the court found that the Mortgage was valid under Kentucky law.  The court then found that the Trustee had no right to the $16,000 in payments received by the Mortgage Lender from the Purchaser, reasoning that the estate had no interest in voluntary payments made between two non-debtor parties.  While the Trustee had a claim against the Purchaser, which he had asserted in a separate adversary proceeding, that claim does not translate to “an ownership in their monies or any authority to dictate how they spend their monies.”  The court further found that the Mortgage Lender was not unjustly enriched by the payments because it would have been entitled to adequate protection or relief from the automatic stay as a secured creditor.

The court then turned to the Trustee’s allegation that the Mortgage Lender owed damages under 11 U.S.C. § 362(k) for “collecting payments belonging to the Estate and threatening to dispose of Estate assets” in willful violation of the automatic stay.  The court adopted the reasoning articulated by Judge Bailey in Sayeh noting that § 362(k) only permits “an individual” injured by a willful violation of the automatic stay to obtain damages.  Although the bankruptcy code does not define “individual,” it is generally understood that “individual” is used to refer to natural persons or human beings, whereas “entity” is used when referring to a broader group.  Thus, had Congress wished to provide the estate or a trustee, as representative of the estate, the right to pursue damages for willful violations of the automatic stay, it would have used the term “entity”.  Accordingly, the Trustee was not entitled to damages under § 362(k) for the Mortgage Lender’s alleged violations of the automatic stay.

Having found against the Trustee on all counts of the adversary proceeding, the court denied the Trustee’s motion for summary judgment and granted summary judgment to the Mortgage Lender, lifting the automatic stay for cause with regard to the Property.

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Contributions by:

Benjamin Higgins, Law Clerk to the Hon. Frank J. Bailey (Contributions are on personal behalf and should not be construed as statements by the U.S. Bankruptcy Court)

Gina O’Neil, Mirick, O’Connell, DeMallie & Lougee, LLP

Michael K. O’Neil, Murphy & King

Nathan Soucy, Soucy Law Office

Aaron Todrin, Sassoon & Cymrot, LLP

 

What’s New (and What’s Not) for Chapter 11 confirmation?

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Join the BBA Bankruptcy Section for its monthly brown bag lunch on Tuesday, March 8, 2016 at noon when Janet Bostwick will discuss recent cases on Chapter 11 plans and confirmation issues. This event will be held at the BBA, located at 16 Beacon Street, Boston, MA.

Click here to register.

Can I Live-tweet a Bankruptcy Proceeding?

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Answers to this question and more at this year’s Young Bar Meets Bench event on Wednesday, February 24, 2016 at 4:30.  For more information or to RSVP, click here.

American College of Bankruptcy to Host Consumer Debt Event

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The First Circuit Fellows of the American College of Bankruptcy are sponsoring an educational seminar at Boston College Law School this spring. This year’s program, titled “The Consumer Debt Tsunami,” will be held on Friday, April 8, 2016, from 1:00-4:00 p.m. with a reception to follow. Click here for more information on this free program and to RSVP.

 

Note: A previous version of this post incorrectly listed the date as April 4, 2016.