7 ABR 1: Ch. 7, Ponzi scheme, nunc pro tunc substantive consolidation (Ninth Circuit).
District Court reversed. Bankruptcy Court (Ross) affirmed.
RaeJean Bonham operated a Ponzi scheme via World Plus Inc. and Atlantic Pacific Funding Corp., corporations with the stated purpose of purchasing discounted frequent flier miles and using them to purchase airline tickets which were then sold to the public at substantial profit. Bonham individually, as WPI and later as APFC began issuing short term investment contracts with promised returns of 20-50%. In 12/95 investors of WPI and APFC commenced an involuntary Ch. 7 against Bonham to collect on unpaid investment contracts. Bonham contested and filed voluntary Ch. 11. The Trustee concluded the operation was a front for a Ponzi scheme and the case was converted to Ch. 7. 1111 proofs of claim have been filed for over $53 million against Bonham's debtor estate. Because minimal proceeds were expected from her personal assets and WPI & APFC had no assets, Trustee Larry Compton filed over 600 adver-sary proceedings against investors to avoid fraudulent transfers. Investors challenged the Trustee's standing and moved to dismiss. Compton moved for substantive con-solidation nunc pro tunc of Bonham's debtor estate with WPI & APFC effective 12/95, when the involuntary Ch. 7 was commenced. Bankruptcy Court (Ross) ordered nunc pro tunc substantive consolidation and specifically reserved to the Trustee the power to exercise avoidance rights of the consolidated entities.
Investors appealed the substantive consolidation order to federal district court which held the order of substantive consolidation was not an appealable final order, dismissed for lack of finality and remanded for further proceedings. Investors appealed.
Substantive consolidation orders are final and appealable. District Court erred by holding the order was not final for purposes of appellate review. The District Court order was also final and appealable.
Bankruptcy Court did not err in substantively consolidating the estates nor in doing so nunc pro tunc. The benefits were clear. Substantive consolidation would allow truly equitable distribution of assets by treating the corporate shells as a single economic unit. Bankruptcy Court has power to order less than complete substantive consolidation or place conditions on the substantive consolidation. Here, Bankruptcy Court expressly ordered the substantive consolidation to allow Compton to pursue avoidance actions against investors who received fraudulent transfers in the Ponzi scheme. Eliminating Compton's avoidance power after consolidation would have eliminated the reason for ordering it--to recover the funds transferred via the Ponzi scheme. Bankruptcy Court did not err in ordering substantive consolidation and preserving the Trustee's avoidance powers.
Bankruptcy Court did not err in ordering nunc pro tunc consolidation because absent it the Trustee would be barred from seeking the avoidance of fraudulent conveyances made through WPI & APFC prior to one year before the date of the substantive consolidation order.
Nunc pro tunc consolidation is left to the discretion of Bankruptcy Court. However, the power should be used sparingly and tailored to each particular case.
Alexander et al v. Compton [In re Bonham], 10/4/00.
Ronald Cross, Seattle, and Gerald Smith, Phoenix, for appellants Richard Alford et al.; Crant Courtney, Seattle, for appellants David Betschart et al.; Rebecca Copelmld (Koval & Feathefty), Anchorage. for appellants Terry Anderson et al.; Cabot Christianson (Bundy & Christianson), Anchorage, for appellee Larry Compton (Trustee).
7 ABR 37: Ch. 13, sanctions, frivolous filing (District Court, Singleton).
Bankruptcy Court (MacDonald) affirmed. Motion requesting order imposing sanctions be vacated denied.
Attorney James Hill appeals an order from Bankruptcy Court sanctioning him for filing a frivolous and improper Ch. 13 petition in violation of Rule 9011. See 6 ABR 316 (00). Bankruptcy Court awarded monetary sanction against Hill of $1,000 to creditors Donald & Parris Reynolds in connection with a Ch. 13 petition Hill filed for the now deceased debtor, Eldridge Sisson, and also imposed a non-monetary sanction prohibiting Hill from any future "bare bones" Ch. 13 filings.
Hill's filing of a Ch. 13 petition when the client's debt clearly exceeded the limit for eligibility warranted sanctions under Rule 9011. A sanction is limited to what is sufficient to deter repetition of such conduct including nonmonetary directives and awards of all or part of attorney fees to the moving party. Bankruptcy Court appropriately considered the amount of time that would have been saved had the moving party simply filed for dismissal on grounds of an ineligible petition rather than pursuing a claim of bad faith.
In re Sisson, 11/2/00.
James Hill, Anchorage, Barton Tiernan, Anchorage, for Reynoldses.
7 ABR 44: Ch. 7, student loans (MacDonald).
Student loans not discharged.
Pursuant to stipulation, Debtor David Townsend's student loans to several entities are not discharged and are to be repaid via significant monthly payments beginning 4/00 until 3/15 at which time any remaining balance due shall be deemed discharged. If Debtor fails to meet the payment schedule all necessary action to enforce judg-ments may be taken. Debtor is to file for each PFD, provide proof of filing and remit proceeds to creditors.Until all sums are paid Debtor is to provide annual copies of his employment contracts and tax returns to creditors. If Debtor's financial circumstances improve materially creditors have the right to increase payments due. If there is a change in circumstances that would make repayment impossible Debtor may apply directly to creditors for deferment or forbearance.
In re Townsend, 12/15/00.
Valerie Therrien, Fairbanks, for Townsend; Diane Vallentine (Jermain, Drunnagan & Owenss), Anchorage, for Educational Credit Management Corp.; Thomas Yerbich, Anchorage, for The Educational Resources Institute; AAG Mary Ellen Beardsley, Anchorage, for Alaska Commission on Post-Secondary Education.
7 ABR 52: Ch. 1 I, relief from automatic stay, share-holder claims (MacDonald).
Motion for relief from stay denied.
Kake Tribal Corp. filed Ch, 11, Prior to the filing shareholders were involved in three class action suits against Debtor. The moving shareholders have moved for relief from stay to proceed with the state court suits contending it will not prejudice nor result in loss or liability to Debtor and if successful may recover funds for Kake. Debtor opposes relief from stay contending its plan if accepted will provide for payment of shareholder claims and end all litigation.
The shareholder's litigation may become moot if Debtor's plan is confirmed. The confirmation hearing is less than 3 months away and the shareholders wil1 not be significantly prejudiced if final hearing on their motion is put over until then. Further, allowing the stay to continue will promote judicial economy and allow Debtor to focus on reorganization.
In re Kake Tribal Corp., 1/10/01
David Bundy (Bundy & Christianson),Anchorage, for Kake Tribal Corp.; Fred Triem, Petersburg, for Kake shareholders.
7 ABR 55: Ch. 7, sanctions, bad faith filing, attorney fees & costs (MacDonald).
Motion for sanctions granted.
Point Possession Inc. sold Pathfinder Properties International 4480 acres of unimproved real property for $3.9 million. Pathfinder failed to make payment and Possession initiated nonjudicial foreclosure. To stall foreclosure Pathfinder filed Ch. 11 twice and two minutes before a third foreclosure sale filed Ch. 7. Reginald Christie, attomey for Debtor, prepared and signed both Ch. 1 l's. He didn't sign the Ch. 7 but his secretary typed it and he drove Ralph Rittemart, Debtor's managing partner, to the court to file the petition. Possession seeks sanctions for Pathfinder's second and third filings. Pathfinder argues that the second and third filings were justified because they had found a source of financing.
Pathfinder's second and third petitions were filed to cause unnecessary delay. The second Ch. 11 was a bad faith filing and not warranted by existing law. The Ch. 7 filing without counsel was directly contrary to existing law. Sanctions can be imposed not only upon an attorney or parties that violate Rule 9011(b) but those responsible for the violation. Elmer Cook and Ralph Ritteman were controlling partners of Debtor. Cook, Ritteman & Christie are responsible for the filings and sanctions are imposed against them individually as well as the Debtor.
Possession is awarded $5,297 in fees & costs for the filing of the second Ch. 11, $2,648.50 against Path-finder, Ritteman & Cook, and $2,648.50 against Christie. For the third filing $3,060.50 in fees & costs is recoverable from Debtor, Ritteman & Cook. For the second and third filing Christie, or anyone employed by him, is prohibited from representing any debtor in any proceeding under Title 11 until 1/1/04.
Cook unduly prolonged proceedings and engaged in malevolent and sexist verbal attacks against Diane Vallentine, Possession's counsel. Five hours of her time at $185/hr or $925 is awarded solely against Cook.
In re Pathfinders Properties International, 1/2/01.
Reginald Christie (Jim Christie & Associates), Anchorage, for Debtor, Diane Vallentine (Jermain, Dunnagan & Owens), Anchorage, for Point Possession, Inc.
7 ABR 65: Ch. 7, violation of automatic stay, attorney fees & costs (MacDonald).
Motion for order regarding finding of and damages for violation of automatic stay granted.
United Airlines obtained a state court judgment against Good Taste, Inc. GTI filed Ch. 7. Debtor's counsel advised United's counsel of the filing and advised further litigation would violate the stay. United nonetheless filed an action in state court seeking to recover fraudulent transfers allegedly made by Debtor.
United proceeded with its state court action, even though it knew of the filing, disregarding the automatic stay. It did not seek relief from stay before pursuing its claim instate court. Debtor is awarded reasonable fees and costs.
In re Good Taste, Inc 1/2/01.
Thomas Yerbich, Anchorage, for Debtor, Williron Brattain, (Baker Brattain), Anchorage, for United Airlines, Inc.
7 ABR 67: Ch. 7, student loans (partial discharge) (co-signer), Brunner test (undue hardship) (MacDonald).
Student loans dischargeable in part.
David Townsend is 45, unmarried, no dependents and suffers from no medical conditions that prevent gainful employment. He has several degrees and certificates and works as a special ed teacher. He has several student loans including indebtedness to the Alaska Commission on Postsecondary Education and a loan serviced by USA Group with a co-signer. USA has demanded payment from the co-signer. Townsend filed Ch. 7 and seeks partial discharge of the portion of loans he cannot pay. Defendants agree to partial discharge but disagree on the amount to be discharged.Townsend offers payment of $800/mo. plus 75% of PFDs over 13 years at which time he is eligible for retirement at age 58. Creditors seek payments of $1,500/mo. for 20 years, demanding he work through age 65 before retirement.
Debtor cannot maintain a minimal standard of living and repay the loans in full, satisfying the first prong of Brunner. Second, his financial situation is likely to persist for the balance of the repayment period. Defendants concede Debtor has acted in good faith in attempting to repay the loans, the third prong of Brunner.
Debtor can pay $1,047/mo. beginning 4/1/00 and $1,252/mo. in 4/1/01. The repayment term shall be 15 years as he works in a stressful occupation with a high burn-out rate in a remote area with few amenities. The 20-year term requested by creditors is unrealistic and not feasible.
Debtor seeks to have the loan to USA Group preferred as there is a co-signer. His obligation to the co-signer was discharged in bankruptcy. Debtor's request is denied as equality of distribution is a fundamental premise underlying the Code and there is no legal basis for discriminating in favor of USA and against other creditors to fulfill a discharged obligation to a co-signer.
Alaska is not a party to the proceedings and can proceed independently against Debtor with the right to offset his PFDs against its indebtedness.
The Court requests the parties submit an agreed upon order and judgment with an appropriate mechanism for distribution of payments and PFDs. (See 7 ABR 44).
In re Townsend, 12/15/00.
Valerie Therrien, Fairbanks, for Townsend; Diane Vallentine (Jermain, Dunnagan & Owens), Anchorage, for Educational Credit Management Corp.; Thomas Yerbich, Anchorage, for The Educational Resources Institute; AAG Mary Ellen Beardsley, Anchorage, for Alaska Commission on Post-Secondary Education.
7 ABR 78: Ch. 7, estate assets, UCC, goods for sale or return (MacDonald).
Motion for release of funds denied.
Thomas & Linda Greene owned Cozy Moose Antiques & Gifts, a retail store that also sold antiques on consignment. Warren Kellicut delivered 20 pieces of furniture to be sold on consignment. Some furniture was sold with Kellicut's share being $1,750. Proceeds were placed in Greenes' general business account. Greenes filed Ch. 7 and the account was turned over to the Trustee. Kellicut moves for release of his share of the funds after the Trustee refused to voluntarily surrender them. Kellicut argues that commissions Greenes earned are estate assets but the remaining proceeds are not and should be turned over to him.
Prior to Alaska's adoption of the UCC, Kellicut's analysis would have been proper. A.S. 45.02.326 covers goods delivered for sale or return. Subsection 6 specifies that such goods are subject to claims of buyer's creditors while they are in the buyer's possession. Kellicut's arrangement with Greenes is a delivery of goods for sale or return. The goods are subject to claims of Greenes' creditors while they are in Greenes' possession, unless Kellicut can establish one of the exceptions in AS 45.09.326(c)(1)-(3), which he has failed to do. He holds a general, unsecured claim for the amounts he is owed under the commission arrangement.
In re Greene, d/b/a Cozy Moose Antiques & Gifts, 3/1/01.
Warren Kellicut, Anchorage, pro se; Ch. 7 Trustee William Barstow, Anchorage; Jane Pettigrew, Anchorage, for Trustee.
7 ABR 83: Ch. 11, administrative expenses, standard of review, insurance coverage (workers' compensation) (District Court, Singleton).
Bankruptcy Court (MacDonald) affirmed.
Kake Tribal Corporation contracted with Eagle Pacific Insurance Co. to provide workers' compensation insurance for 1 year. The premium is adjusted by an experience rating modification factor. KTC filed Ch. 11. Eagle Pacific moved to have KTC assume or reject the policy. Subsequent to filing bankruptcy but prior to rejecting the policy 3 KTC employees were injured. Eagle Pacific moved for reimbursement of $114,610 in administrative expenses. Bankruptcy Court awarded Eagle $110,076 adjudging that amount the reasonable value of Eagle's services. KTC appeals.
KTC questions whether Bankruptcy Court erred in ordering a Ch. 11 estate to pay an administrative expense for workers' compensation adjustment premiums on a rejected policy when the adjustments were based on post-petition claims and pre-petition claims had already capped the premiums. KTC contends the issues are legal rather than factual and therefore subject to de novo review. Eagle views the inquiry as solely based on the amount of expenses assessed and argues the questions at issue are factual and thus subject to the "clearly erroneous" standard.
Whether administrative expenses are proper is a legal question mandating de novo review. The question of what amount is reasonable is one of fact reviewed under the "clearly erroneous" standard.
Section 503 permits the award. While Eagle might have been limited regarding premium charges by the "premium ceiling" it is not limited regarding administrative expenses. While KTC rejected the policy, it in effect received coverage for the entire policy term. The value of post-petition coverage is reasonably assessed at $110,076.
Kake Tribal Corporation v. Eagle Pacific Insurance Company, 3/28/01.
David Bundy (Bundy & Christianson), Anchorage, for Kake; Mark Figura (Rose & Figura), Anchorage, for Eagle.
7 ABR 90: Ch. 11, relief from stay (pending state court actions), standing (MacDonald).
Relief from stay granted to Kake shareholders as to appeal of state court action Hanson v. Kake Tribal Corp., denied as to 2 other state court actions.
The appeal pertains solely to litigation costs to Fred Triem, who represented that the appeal would have no impact on Debtor. David Bundy indicated that the parties could stipulate to relief from stay provided there was appropriate language in any order precluding Triem from recovering any of his costs from Kake.
A confirmed plan would make the shareholder derivative action for damages for purported illegal dividend payments moot since it would be binding on all members of the class including the initial plaintiffs who object to Martin's intervention. While the direct claim against Kake's professionals would not be resolved by confirmation, prosecution would interfere with Kake's reorganization efforts.
Also, Triem's standing to represent these classes in this bankruptcy proceeding is in question in light of the issue of whom he represents and whether his proposed course is in accord with his clients' wishes.
In re Kake Tribal Corp., 3/21/01.
David Bundy (Bundy & Christianson), Anchorage, for Debtor; Fred Triem, Petersburg, for class action plaintiffs-creditors.
7 ABR 95: Ch. 11, confirmation (denied), cramdown (MacDonald).
Confirmation of Debtor's third amended plan denied.
Because the Hanson class, an impaired class, has not accepted the plan, the cramdown provisions of § 1129(b)(2)(B) apply. The amount due the class is not disputed; only the extent of its security. No evidence was presented which indicated the 6% interest would yield present value of the class debt. Moreover, payments are not payable over a definite term. It is impossible for the Court to make the present-value determination to ensure cramdown compliance.
In re Kake Tribal Corp., 4/26/01.
David Bundy (Bundy & Christianson), Anchorage, for Debtor; Fred Triem, Petersburg, for class action plaintiffs-creditors.
7 ABR 98: Ch. 7 (no asset), reopen (denied) (MacDonald).
Motion to reopen denied.In a no-asset case such as this, the effect of § 523(a)(3) is to discharge unscheduled debts unless they involve fraud, embezzlement, larceny, fraud by a fiduciary, or willful & malicious injury. Neither of the claims Debtors seek to include on their schedules fall within these categories. Accordingly, discharge is controlled by § 523(a)(3) rather than by whether they have been scheduled, and reopening for amendment would serve no purpose.
In re Lancaster, 5/2/01.
Valerie Therrien, Fairbanks, for Debtors.
7 ABR 100: Ch. 7, sale of estate assets (mining patents) (MacDonald).
Trustee's application to lease and sell interests in mining patents denied.
Gary Desjarlais submitted an offer to buy real property from the estate. Since his offer the Trustee has received several inquiries from other interested parties and wants to instead auction the property believing he can get a higher offer. Desjarlais objects and asks the sale to him be approved.
The Court may decline to approve a sale in cases where it is aware that there are other offers which may be better for the estate. It does not have authority to select a buyer from competing bidders. The Trustee must obtain the highest and best price for an asset of the estate.
The Trustee will be given the opportunity to fashion a fair and equitable method for marketing the property so all interested parties will have a chance to present offers for his consideration.
In re Ashbrook, 5/17/01.
Erik LeRoy, Anchorage, for Trustee Larry Compton; Michael Brain (Royce & Brain), Anchorage, for Desjarlais; Elliott Dennis, Anchorage, for Northwest Exploration
7 ABR 104: Ch. 7, notice (inquiry), lien (MacDonald).
Defendant's motion for summary judgment granted. Plaintiff/Trustee's motion for summary judgment denied.
Nicholas and Sally Troxell owned a 65' vessel in need of significant repair. Patrick Stelzer of Kodiak Boat Repair estimated the cost at no more than $90,000. Troxells couldn't pay on an ongoing basis or qualify for a loan but agreed to pay upon completion by refinancing the vessel. Stelzer borrowed the money and took a promissory note and deed of trust against Troxell's home as security. Repairs totaled $158,360. Troxells were unable to refinance and defaulted on their maritime mortgage to FNBA. Stelzer filled out and recorded a "Claim of Lien." FNBA foreclosed on the vessel and Stelzer received $22,499. Troxells filed Ch. 7. The Trustee obtained authority to sell their home and seeks to avoid Stelzer's lien. Stelzer contends his security interest cannot be avoided because his previously recorded lien was sufficient to put third parties on inquiry notice of his claim against the property.
The Trustee cannot avoid Stelzer's security interest in accordance with §544(a)(3) and 547(b) because the lien recorded by Stelzer gave inquiry notice of his claim.
Compton (Trustee) v. Stelzer [In re Troxell], 6/4/01.
Eugenia Sleeper (Jermain, Dunnagan & Owens), Anchorage, for Trustee; Melvin Stephens, Kodiak, for Stelzer.
7 ABR 113: Ch. 7, student loans, undue hardship (MacDonald).
Student loans nondischargeable.
Anthony Furneri and spouse Jeanine Salustri seek to discharge more than $230,000 in student loans claiming undue hardship. Both are highly educated and in good health. Both have graduated from law school. Anthony works as a special education teacher but is leaving public employment to work at a private Christian school which pays $17,000 less. Jeanine wants to stay at home and raise children. They plan to spend the summer working as missionaries which pays $250/mo.
Debtors have not established that repayment of their student loans would constitute an undue hardship. They have the ability, if they choose, to repay their loans.
Furneri and Salustri v. Graduate Loan Center, The Education Resources Institute, Pennsylvania Higher Education Assistance Agency, Zwicker and Associates and Sallie Mae Servicing Corp. [In re Furneri & Salustri], 6/14/01.>
Furneri & Salustri, Juneau, pro se; Diane Vallentine, Anchorage, for ECMC; Tom Yerbich, Anchorage, for TERI; John Abbott, Anchorage, for PHEAA.
7 ABR 120: Ch. 7, preferential transfer, constructive trust, ordinary course of business (District Court, Singleton).
Bankruptcy Court (MacDonald) affirmed.
MarkAir mistakenly overbilled America & Pacific Tours. MarkAir discovered the mistake and issued a refund check which was cashed 2/22/95. MarkAir filed bankruptcy 4/14/95. Bankruptcy Court entered judgment against A&P in the amount of $17,653. A&P appeals.
A&P argues the inadvertent overpayment was held in a constructive trust that was not part of the bankruptcy estate and thus its repayment could not constitute a preference. Alternately, A&P argues the refunded overpayment occurred in the ordinary course of business and was therefore not a preferential transfer. MarkAir argues that a constructive trust was never created; creating one here would violate the principles underlying federal bankruptcy law; A&P should be treated like the other creditors; and A&P did not properly trace the overpayment using the lower intermediate balance test..
The overpayment is not subject to a constructive trust as there is no evidence MarkAir retained it by unjust, unconscionable or unlawful means. Negligence would not appear to be sufficient under Alaska law.
A&P has not sustained its burden of proving the payment was made in the ordinary course of business. There was no evidence regarding how billing errors were customarily handled.
America & Pacific Tours, Inc. v. Barstow (Trustee) [In re MarkAir], 6/xx/01.
John Siemers, Anchorage, for Trustee William Barstow; George Lyle, Anchorage, for A&P Tours, Inc.; AUST Barbara Franklin, Anchorage.
7 ABR 124: Ch. 7, exception to discharge (false pretenses (MacDonald).
Judgment for Plaintiff; debt not discharged.
Johnnie & Jean Palmer operated a gift shop, occasionally buying products from Patrick Sickafus on a C.O.D. basis to sell in their store. Jean Palmer placed an order and requested terms instead of C.O.D. Sickafus refused credit and advised the order must be C.O.D. The order was mistakenly shipped priority mail with no C.O.D. designation. Palmers received and resold the goods without paying Sickafus. Palmers filed Ch. 11 which was converted to Ch. 7. Sickafus seeks to except his debt from discharge.
Jean Palmer's acceptance of the goods without immediate payment was conscious deceptive or misleading conduct intended to deprive Sickafus of his goods. She received his property under false pretenses. Her husband benefitted from her conduct and the debt is excepted from discharge as to him also.Sickafus d/b/a Sickafus Sheepskins v. Palmer d/b/a The Alaskan Emporium, 6/19/01.
Patrick Sickafus, Strausstown, PA, pro se; Michael Heiser, Ketchikan, for Palmers.
7 ABR 128: Ch. 11-7, preference , new value defense, ordinary course of business, constructive trust (Ross).
Martech USA took over the prime contract from HEBL to build housing units for the military. HEBL was in default paying subcontractors, including Brice. Martech and Brice entered into an agreement which provided for payment to Brice from Martech of $137,715 for work Brice had performed for HEBL. The second payment of $76,490 was paid 11/2/93. Martech filed Ch. 11 12/93. The Trustee seeks judgment that the $76,490 payment and 2 others were preferences as they were made within 90 days of the filing date.
The Trustee has established the prima facie elements of a preference. Brice has failed to establish a new value defense because this defense is not applicable to post-petition transfers. Brice has established that the transfers were made according to business terms, but under the facts of this proceeding has failed to establish they were made in the ordinary course of business affairs between Martech and Brice. Brice is not entitled to a constructive trust on any assets held by the Trustee, having failed to show equitable grounds for such treatment or inequitable treatment by the Trustee, or to trace the funds to be used as trust proceeds.
Battley (Trustee) v. Brice, Inc. [In re Martech USA Inc.], 7/23/01.
William Artus, Anchorage, for Trustee Kenneth Battley; Herbert Viergutz (Barokas, Martin, Ahlers & Tomlinson), Anchorage, for Brice.
7 ABR 138: Ch. 7, tax lien subordination (US District Court, Singleton). Bankruptcy Court (Ross) affirmed. §724(b) pertains to statutory tax liens and not to the contractual & judicial lien at issue.
To avoid immediate shutdown of MarkAir's operations, MarkAir and the IRS entered into a Collateral Agreement by which the IRS agreed to forgo its offset claim on MarkAir's claimed air transportation excise tax overpayment so that MarkAir could post a $1.8 million letter of credit demanded by ARC, a ticket clearinghouse. After MarkAir ceased operations, ARC released its claim against the ARC Collateral and the US moved for its distribution to the IRS pursuant to terms of the Collateral Agreement. The Trustee opposed the request and sought to subordinate the IRS' lien to pay administrative expenses and other priority creditors under §724(b). Judge Ross concluded that §724(b) was intended to apply to statutory liens, not the contractual type of lien involved in this case, and held that the IRS is entitled to recover the $1.8 million deposit and interest. MarkAir appealed.
As the parties agree that the IRS holds a contractual & judicial lien as opposed to a statutory lien, §724(b) is not applicable to this case unless the type of lien described is something other than a tax lien. Construing the statute as a whole reveals that the lien is a statutory tax lien. Various courts and scholars agree. The committee reports also reveal that Congress intended it to apply to tax liens.
Barstow (Trustee for the Bankruptcy Estate of MarkAir) v. IRS, 8/3/01.
Michael Mills (Bankston, Gronning, et al), Anchorage, for MarkAir; John Siemers (Burr, Pease & Kurtz), Anchorage, for Trustee William Barstow; AUSA Stephen Baker, Anchorage; Ron Goss (Ellis & Goss), Seattle, for Neil Bergt.
7 ABR 146: Ch. 11/7, recoupment, prejudgment interest, attorney fees (US District Court, Holland).
Judge MacDonald's $39,289 judgment in favor of Trustee is affirmed. Judgment awarding prejudgment interest reversed, remanded for determination as to date of accrual. Judgment awarding attorney fees to Trustee affirmed as to liability.
The Trustee filed an adversary action against Caudle & Associates (Chuck E. Cheese) to collect monies owed Debtor Roasters of Alaska. At the time of the bankruptcy filing CEC owed Roasters $45,000, later reduced to $39,289. This was "zeroed out" with a year-end adjustment in 1996. The Trustee claimed that the adjustment was made post-petition and violated the automatic stay. CEC asserted recoupment, claiming that the debt was zeroed-out because of a 3-way loan in 1995 between CEC, Roasters, and another restaurant company, all 3 of which were owned by the same principals (Larry Caudle and William Adair). Judge MacDonald held that CEC was not entitled to recoupment from Roasters and that the Trustee was entitled to recover on his claim. CEC appealed.
MacDonald correctly found that there was no loan plan between the 3 businesses and that Caudle simply shifted cash from one business to the other as needed. He correctly applied the "logical relationship" test discussed in Newbery (9th Cir. 1996). There was no contract and no understanding. The only evidence to tie the loans together is that the 3 companies were owned by the same 2 people. Nothing in Newbery suggests that this would be sufficient to support a finding that otherwise seemingly random events were part of the same transaction.
MacDonald did not err in using a rate of 10.5% for prejudgment interest. Although at the time judgment was entered the AS 09.30.070(a) (1997) rate would have been around 9%, the amended version does not apply to causes, including this one, accruing before 8/7/97.
MacDonald awarded prejudgment interest from the date the receivable first appeared on Roasters' books. CEC contends that the earliest it should have begun accruing was when the complaint was filed. However, the portion of AS 09.30.070(b) that provides that prejudgment interest may begin accruing from the day the defendant received notice of injury plainly applies only in PI, death, or property damage cases. For purposes of this case it provides that prejudgment interest begins accruing from when process was served unless the parties have agreed otherwise. On remand, Bankruptcy Court shall consider whether the parties had an agreement as to when interest should begin accruing. If there is no agreement, it should begin from when process was served.
MacDonald correctly awarded attorney fees to the Trustee pursuant to ARCP 82 since this case involved only state-law issues. However, the amount may require adjustment based on his decision on prejudgment interest.
Barstow (Trustee) v. Caudle & Associates (Chuck E. Cheese) [In re Roasters of Alaska], 8/7/01.
Michelle Boutin (Bundy & Christianson), Anchorage, for Trustee William Barstow; Larry Caudle, Anchorage, for Defendant.7 ABR 162: Ch. 11, fishermen's liens, packers & processors' liens, trustee's lien avoidance powers (MacDonald).
7 ABR 162 Summary judgment granted for Committee of Fisher Creditors, denied for UCC, packers & processors, and Ch. 11 Trustee.
The Fisher Creditors Committee seeks an interim distribution of cash held by the Trustee to fishermen lien holders, with none to packers & processors, tender operators, the Ch. 11 Trustee, or unsecured creditors.
The fishermen's liens are not avoidable under §545(2). Eagle Fisheries (1 ABR 200). Nor do the Trustee's lien avoidance powers trump the rights of packers & processors holding valid liens.
Fishermen's liens attach to sale proceeds. Debtor's pre-petition sale contract rights were property of the Debtor and subject to a lien from the inception of the fish sale.
Fishermen's and packers & processor lien statutes conflict and there is no Alaska precedent interpreting them. However, reason & policy lead to the conclusion that fishermen's liens take priority over processors & packers' liens. Fishermen are the vital first link in the volatile seafood industry chain. The fishermen's lien statute was enacted to avoid proration with packers & processors. It gives fishermen a clear priority over other lien creditors.
In re King Fischer Fisheries, 8/28/01.
Spencer Sneed (Dorsey & Whitney), Anchorage, for Committee of Fisher Creditors; Gary Sleeper (Jermain, Dunnagan & Owens), Anchorage, for Trustee Larry Compton; Thomas Yerbich, Anchorage, for UCC; Scott Henrie (Williams, Kastner & Gibbs), Seattle, for packers' lien claimants; Robert McFarlane, Anchorage, for Seattle-Tacoma Box Co.; Karen Bendler (Jamin, Ebell, Schmitt & Mason), Seattle, for Hugh Wisner, Tender Jacquelyn W, James Niemela, T/V American Eagle, and T/V Nor'Quest, and Sorensen's Lighterage.
7 ABR 168: Ch. 11, fishermen's lien (MacDonald).
UCC's motion for reconsideration of 7 ABR 162 denied.
Valid fishermen's liens are not avoidable on property of the debtor outside of the recording district where the fish were delivered and the liens recorded.
In re King Fischer Fisheries, 9/14/01.
See attorneys above.
7 ABR 170: Ch. 7, property of estate (QS/IFQs) (9th Circuit).
Fisherman George Schmitz's post-filing fishing quota rights based on pre-filing catch history not property of estate. Judge Ross/BAP reversed.
Schmitz filed Ch. 7 in 4/92. In 11/93 the Secretary of Commerce published regulations implementing the Alaska halibut & sablefish management plan providing for awards of Quota Shares and Individual Fishing Quotas, an annual catch limit applicable to future fishing, based on catches during 1988-90. Schmitz was issued 2 certificates which he sold to William Sliney and another party. The Trustee sought a declaration that they were property of the estate and to recover the proceeds. Judge Ross ruled that in light of the "ongoing federal activity to implement" the management plan "and the advanced stage in bringing that to fruition" at the time Schmitz filed his petition, "the IFQ/QSs were tied to Schmitz's prepetition qualifying rights from the 1988-1990 fishing seasons" and were therefore property of the estate. BAP affirmed Ross. Sliney appeals.
The QS/IFQs were not property of Schmitz's bankruptcy estate as of 4/92 when he filed his petition. "Property of the [bankruptcy] estate" is "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 USC 541(a)(1). Schmitz's 1988-90 catch history had no value as of the date of his petition. At most there was the possibility that it might be relevant if a fishing quota program were adopted in a form favorable to him, if his application for such rights were granted, and if he could successfully defend against any competing challenge. This sort of nebulous possibility is not property. Our conclusion is in accord with Vote (8th Cir. BAP) in a situation involving crop disaster payments for pre-filing years.
Silverman, Schroeder, Nelson.
Sliney v. Battley (Trustee) and Schmitz [In re Schmitz], 10/16/01.
Robert Crowther, Anchorage, for Sliney; William Artus, Anchorage, for Battley and Schmitz.
7 ABR 178: Ch. 7, pension plan proceeds, IRS levy (US District Court, Holland).
Judge Ross affirmed; Debtor's pension plan proceeds subject to IRS levy.
Ross properly concluded that Palmer (9th Cir. 2000) does not control. Debtor materially participated in Tax Court proceedings and res judicata precludes him from contesting its decision that he engaged in fraud with respect to 1976-78 taxes. Because of his fraud, taxes for those years are not discharged by virtue of §523(a)(1)(C). As to years in which he filed no return, any tax liability was not discharged pursuant to §523(a)(1)(B)(i). As to collection efforts, 26 USC 6334(a) exempts certain property from levy, but does not exempt ERISA pension plans such as here.
McCubbins v. IRS [In re McCubbins], 8/27/01.
Kevin Blair, Washington DC, for DOJ; Lawrence McCubbins, Homer, pro se.
7 ABR 183: Ch. 13, tax lien, ancillary costs (MacDonald).
Debtor's motion for correction/reconsideration granted.
Kenai Peninsula Borough asserts withholding tax claims. The parties agree that its prejudgment sales tax and prepetition interest are entitled to priority status under §507(a)(8)(C). They disagree as to whether its ancillary costs are entitled to priority treatment.
KPB's liberal reading of §507(a)(8)(C) is beyond the plain meaning of the statute and violates the Code's policy of equality of distribution. There is no policy in the Code which favors payment of its ancillary costs over Debtor's fresh start. Further, the relationship of the ancillary costs to the sales tax is so attenuated that they should not "partake" the same character as the priority taxes. Only that portion of its claim which is attributable to a tax, as defined in §507(a)(8)(C) is entitled to priority status. The balance of its claim, for ancillary costs and interest on those costs, will be disallowed as a priority claim and allowed as a general unsecured claim.
In re Kloster, 11/19/01.
John Simmons for KPB; Terry Draeger for Debtor.
7 ABR 189: Ch. 13, discharge (spousal support, property settlement) (MacDonald).
Debtor's obligations to pay certain debts and divorce attorney fees to his ex-wife are nondischargeable support obligations under §523(a)(5). Ex-wife's claim for half the net equity from the family home is a property settlement rather than a support obligation, and is thus a general unsecured claim not entitled to priority. She may reassert her 523(a)(15) claims as to this obligation if Debtor seeks a hardship discharge under §1328(b) or this case is converted to Ch. 7.
Deborah Russell v. Carl Russell [In re Carl Russell], 12/3/01.
Allan Curlee, Fairbanks, for Carl Russell; Deborah Russell, Fairbanks, pro se.
7 ABR 198: Ch. 11, confirmation (hearing continued), liquidation analysis, ballot counting, attorney fees, weighted vote, best interest of creditors, cramdown, good/bad faith (MacDonald).
Confirmation hearing continued for additional liquidation analysis evidence. Fred Triem's motion to count ballot denied. Triem's fee claim denied. Triem's motion to vote in proportion to his 1/3 aliquot of Martin class-action judgment denied. Cramdown arguments irrelevant. Bad-faith claims rejected.
Confirmation was previously denied because a proof of claim had not been filed on behalf of the Hanson impaired class of shareholders and questions of whether the class was being appropriately represented by Trien (7 ABR 95). Debtor then moved to temporarily allow the claim of the Hanson class for voting purposes and the claim allowance was granted prospectively. 90% of the Hanson class voted for confirmation. Because of significant new events, retroactive confirmation was not permitted.
Triem's claim for fees is a debt of the Hanson class, which is to be paid first out of the top third of any recovery by the class. But it is the Hanson class that is the judgment creditor and entity holding a claim against KTC. Triem is not a member of the Hanson class; he is its state-court class-action lawyer. To enforce a portion of his fee award directly against Debtor he would need to apply to the State Court for a Rule 82 fee award to allow partial reimbursement for charges against the common fund. He did not do this before Debtor's petition was filed and the stay now precludes him from doing so.
Triem's argument that he is entitled to vote in proportion to his 1/3 aliquot from the Martin class-action judgment is rejected. He is not a member of the Hanson class and not entitled to vote with that class on confirmation. His appointment as class counsel in the state court class action "is not tantamount to a blanket consent to any litigation the class counsel may wish to pursue." Reid (6th Cir. 1989). His efforts to maximize his fee at the expense of the class he represents is rejected.
Triem contends that upon liquidation the Hanson class judgment would be promptly paid in full, including accrued post-judgment interest at 10.5%, because its judicial lien encumbers the $5 million KTC received from the Land Exchange Fund. Debtor's plan will pay the class only 6.5% interest over an extended period. The liquidation analysis in Debtor's second amended disclosure statement does not resolve this issue and little testimony on the subject was submitted at the hearing. A continued hearing will be conducted solely for the liquidation analysis required by §1129(a)(7)(A)(ii).
Since all classes of claims have accepted the plan, Triem's cramdown arguments are irrelevant.
Triem's bad-faith allegations are without merit. It is not bad faith to provide for full payment of administrative expenses, including professional fees, upon confirmation. He argues that Debtor should pursue corporate claims against its directors and professionals and disallow claims of the Martin shareholders. However, a debtor has a right to propose an end to litigation and a compromise of the claims of shareholder classes.
In re Kake Tribal Corp., 1/11/02.
David Bundy (Bundy & Christianson), Anchorage, for Debtor; Spencer Sneed, Anchorage, for Unsecured Creditors Committee; Fred Odsen, Anchorage, for Fred Triem; Michael Parise, Anchorage, for Key Bank; Kent Sullivan, Juneau, for Situk Adams; Budd Simpson, Juneau, for Martin Class of Shareholders; Sara Trent, Juneau, for State of Alaska, Dept. of Law; Bernd Guetschow, Anchorage, for Hanson Class of Shareholders; Barbara Franklin, Anchorage for UST.
7 ABR 213: Ch. 11, Ch. 7, sanctions (monetary, disbarment) (US District Court, Singleton).
Monetary sanctions awarded by Judge MacDonald affirmed. Disbarment sanction reversed.
MacDonald awarded attorney fees & costs pursuant to Rule 9011 to Point Possession and against Debtor and its attorney Reginald Christie for filing 3 bankruptcy petitions to cause unnecessary delay of Possession's foreclosure sale. As a further sanction against Christie, he barred him from representing any debtors in Bankruptcy Court for 3 years. Christie appeals.
The award of monetary sanctions was not excessive and was amply supported by evidence that Christie acted in bad faith, his actions were not warranted by law and were frivolous, and he acted for an improper purpose.
A lawyer must be given fair notice and opportunity to respond before being disbarred. Poole (9th Cir. 2000). The 9th Circuit has not addressed whether a party receives due process and is properly put on notice when he is aware that he may face attorney fees but is not aware that he faces any type of nonmonetary sanction. The 3rd Circuit has held that a party is entitled to "particularized" notice. Christie should have been provided notice that he faced a sanction of such magnitude as disbarment from Bankruptcy Court for 3 years.
Christie v. Point Possession, 1/16/02.
Gregory Oczkus, Anchorage, for Christie; D. Vallentine for Point Possession.
7 ABR 222: Ch. 11, jurisdiction (core proceeding, related proceeding), abstention, settlement agreement (MacDonald).
Scope of settlement agreement a "related proceeding" over which Court has jurisdiction. Mandatory abstention provisions inapplicable. Adversary proceeding required to resolve scope of agreement.
Following the Ch. 11 filing and after prolonged negotiations, Debtor Valdez Fisheries and Sea Hawk entered into a settlement agreement which was approved by this Court. The Ch. 11 proceeding was dismissed without prejudice. Sea Hawk attempted to continue state court litigation with Alaska, which had been stayed during the bankruptcy. The State contends that the settlement agreement encompassed all claims by Sea Hawk against it. State courts found that Bankruptcy Court was the proper forum for resolving any issues regarding scope of Debtor's settlement with Sea Hawk. Sea Hawk moved to reopen the bankruptcy case and determine the scope of the settlement agreement. Sea Hawk moved to dismiss or abstain.
Sea Hawk characterizes its fraudulent conveyance claim against the State as wholly independent of its judgment against Debtor and having no connection to the bankruptcy. However, the settlement clearly released Debtor from all claims which Sea Hawk had asserted or could assert against it in the state court action. Arguably, this proceeding is a matter concerning administration of the former estate and could affect adjustment of Debtor's financial relationship with the State, §157(b)(2)(A) & (O). However, nothing in the pleadings has established that the controversy involves a cause of action created by Title 11, nor is this a proceeding that could only arise in a bankruptcy case. Debtor argues that interpretation of this Court's prior order approving the settlement gives rise to a core proceeding. However, there is nothing to interpret in that order, which merely approves the settlement. Determining the scope of the settlement is not a core bankruptcy function. However, this is a "related proceeding," because the outcome "could conceivably have [an] effect on the estate being administered in bankruptcy." Fietz (9th Cir. 1988).
Retention of jurisdiction is warranted. It would be economical and convenient to resolve the dispute in this Court, and comity would be served because the state courts have refused to decide the issue. Nor are mandatory abstention provisions of 28 USC 1334(c)(2) met.
Because this is a "related proceeding," this Court must submit proposed findings & conclusions to the District Court. The present record is insufficient for this purpose. At its core this is a proceeding to recover money or property or an action to obtain a declaratory judgment. Such proceedings are governed by Rule 7001. Sea Hawk must initiate an adversary proceeding against the State and Debtor.
In re Valdez Fisheries Development Association, 1/31/02.
Rebecca Copeland (Patton Boggs), Anchorage, for Debtor; Kevin Sullivan (Sullivan & Thoreson), Anchorage, for Sea Hawk Seafoods; Asst. AG Mary Ellen Beardsley.
7 ABR 231: Ch. 7, exemptions (homestead, wildcard, household goods, ex-husband's employment accounts, vehicle) (MacDonald).
Trustee's objections to Debtor's claim of exemptions sustained. Debtor's exemptions of following assets disallowed: excess equity of amount allowable for homestead; excess equity of amount allowable under "wildcard," household goods, pictures, artwork (Debtor may amend to more fully describe these items); interest in former husband's employment accounts awarded in divorce pre-petition and to which Debtor was entitled to immediate distribution and which are not needed for her support and may not be shielded as ERISA plans; Schwab account; excess equity of amount allowable for vehicle exemption.
In re Anagick-Walters, 2/25/02.
Chris Johansen, Anchorage, for Debtor; Gary Spraker, Anchorage, for Trustee Kenneth Battley; Jan Bolvin, Anchorage, for David Walters and the Walters children; Robert Frenz, Anchorage, pro se.
7 ABR 239: Ch. 7, Ch. 11, administrative priority claim (logging contract), attorney fees (contract, Rule 82(b)(2)) (MacDonald).
Plaintiff Skookum is awarded $11,302 from Debtor BTA with interest. Skookum's lien foreclosure claim against Citifor dismissed with prejudice. Neither BTA nor Skookum will recover attorney fees or costs. Citifor will recover Rule 82(b) attorney fees.
Citifor contracted with BTA to log in Icy Bay. BTA subcontracted with Skookum. BTA paid Skookum $234,124. Skookum alleges that it owes another $254,000 for work performed under the contract.
The felling & bucking services Skookum supplied were beneficial to BTA. Any damages from BTA's breach of the subcontract are entitled to administrative priority under §503(b). Skookum has the burden in establishing its administrative claim for $254,000.
Skookum argues that the contract calls for payment on a gross scale basis. However, "$32.50 per thousand board feet" could easily be interpreted to mean either net or gross. Based on extrinsic evidence I conclude that both BTA and Skookum intended net scale. Skookum is not entitled to any damages for the gross-net differential. BTA thoroughly rebutted Skookum's contentions on claims as to damages for logs used in road construction and for unharvested timber still on the ground.
Skookum has not met its burden on its lien foreclosure claim. Inter alia, it submitted no evidence as to whether the errors in its notice were made in good faith.
Because both Skookum and BTA breached the subcontract, neither is entitled to fees under the contract. However, Citifor is entitled to fees under Rule 82(b)(2) since it is prevailing party and not bound by the contract.
Skookum Timber v. Citifor and Browning Timber of Alaska [In re Browning Timber of Alaska], 3/7/02.
Bernd C. Guetschow, Anchorage, for Skookum Timber; Thomas Yerbich, Anchorage, for Citifor, Inc. and Browning Timber of Alaska.
7 ABR 251: Ch. 11, liens (fishermen, packers & processors) (US District Court, Sedwick).
Judge MacDonald's ruling that the Committee of Fisher Creditors is entitled to interim distribution affirmed.
Fishers contended that their liens were valid and superior to liens asserted by fish tenders as to proceeds of the sale of fish processed by Debtor. MacDonald determined that the 1949 lien provision pursuant to which Tenders' claim liens and the 1982 provision pursuant to which Fishers claim liens were in conflict and that the conflict must be resolved by recognizing the priority of Fishers' liens.
MacDonald erred in concluding that the lien statutes are in conflict and that fishermen's liens have priority. Packers' liens and fishermen's liens are subject to proration under AS 34.35.360(b).
Fishers are nevertheless entitled to summary judgment on the basis that Tenders did not acquire lien rights under AS 34.35.020 because they were not verified until after the time for recording had passed. Subsequent amendments did not cure that failure.
In re King Fischer Fisheries et al, 4/17/02.
Thomas Yerbich, Anchorage, for Unsecured Creditors Committee; Spencer Sneed, Anchorage, for Committee of Fisher Creditors; Gary Sleeper, Anchorage, for Chapter 11 Trustee Larry Compton; Robert McFarlane, Anchorage, for Seattle-Tacoma Box Company; Karen Bendler, Anchorage, for Hugh Wisner, James Niemela and Sorensens' Lighterage Company, Inc,.
In re King Fisher Fisheries, LLC (on appeal), 4/17/02.
7 ABR 261: withdrawal of reference (Ross).
The Court recommends that District Court withdrawal its reference of this adversary proceeding pursuant to the mandatory withdrawal provisions of §157(d) because resolution involves consideration of substantial and material issues of both (1) federal nonbankruptcy law involving organizations (ACE, USPS, DOT) and activities (regulation of mail and air carriers) affecting interstate commerce, some of which have not been previously addressed by any court, and (2) bankruptcy issues including violation of the automatic stay, jurisdiction over what would normally be a Tucker Act matter, and whether rights to carry bypass mail are contractual rights protectable as property of the bankruptcy estate. It is not necessary to choose between the competing theories of whether the bankruptcy issues must be substantial, since there are sufficient bankruptcy issues to comply with the more restrictive theory. The facts are substantially uncontested and the issues will probably be resolved by summary judgment; any interim or recommended ruling by this Court would certainly be appealed or contested.Alaska Central Express v. US [In re Alaska Central Express], 4/19/02.
Michael R. Mills, Anchorage, for Debtor/Plaintiff; Robert Silverberg, Washington, DC, co-counsel for Debtor; Retta-Rae Randall, Anchorage, Ass't. U.S. Atty. for Defendant; Frances M. Toole, Washington, DC, Civil Division, for Defendant.7 ABR 275: Ch. 11, post-liquidation conduct, disgorgement, accounting, attorney fees (MacDonald).
Michael and Tim King's motion for disgorgement by James King granted. Motion to hold James in contempt and compel accounting denied. Request for attorney fees denied without prejudice. Debtor James King Inc.'s motion for approval of final accounting approved with exceptions & conditions.
Bankruptcy was initiated by an involuntary Ch. 7 petition by James King Inc., a sporting goods store. The case was converted to Ch. 11. Following liquidation sale, rather than distributing funds to creditors, James took monthly draws from the liquidation prodeeds and paid his rental costs, prompting his brothers to move for an accounting and distribution.
A Ch. ll plan must disclose identity of any insider to be employed by the reorganized debtor and the nature of any compensation. There was no provision in the liquidating plan or disclosure statement that provided James with prolonged compensation. He must disgorge funds received in violation of the plan and repay them to Debtor. He must also pay Debtor the value of the corporate inventory he misappropriated for his own use. He has demonstrated inability to deal honestly with creditors and the Court. Debtor must transfer all remaining funds to Steven Hartung for distribution.
In re Gary King Inc., 4/25/02.
Cabot ChristiansonAnchorage, for Michael and Tim; John Siemers, Anchorage, for James.
7 ABR 284: Ch. 13, accounting (statute of limitations), recoupment, attorney fees/costs (MacDonald).
Phylene Gaffney's complaint dismissed with prejudice. Defendant FNB Anchorage's proof of claim allowed in the sum of $201,103 as a secured claim, with accruing interest, attorney fees, and costs. FNBA is also allowed fees in this action pursuant to the trust deed and Ak.R. Civ.P. 82(a).
FNBA filed a proof of claim for $201,103 in Gaffney's Ch. 13 case, secured by the Gaffney Hotel. The hotel was in her name only. She testified that she helped ex-husband Sam Jeffcoat, since deceased, obtain the financing because he did not have a job, and that he was to make all payments. She claims that $103,000 collected by FNBA in 1993 was impermissibly applied against other Jeffcoat obligations and thus the debt of $190,372 in the 1998 loan modification was untrue and should have been reduced to give full credit for all of FNBA's collections from the hotel in 1993. She initially sought and was denied an accounting of how FNBA applied $103,000 in hotel revenues. Her claim in this adversary proceeding for an accounting is barred by the 6-year statute. However, since it arises out of the same act or transaction, her utlization of a recoupment theory circumvents the bank's statute of limitations defense.
Gaffney bases her argument on language in the original trust deed. However, it is inapplicable because FNBA never took possession of the hotel, the funds were not generated by FNBA as a beneficiary in possession, and Gaffney did not own the hotel business in 1993. Funds collected by FNBA in 1993 were proceeds of Jeffcoat's business, which it could apply in accordance with his wishes. Gaffney owed FNBA $190,372 as of 11/98. She is not entitled to a credit against this on the theory of recoupment.
Gaffney v. FNB Anchorage [In re Gaffney], 5/31/02.
John Beard, Anchorage, for FNB; Gregory Oczkus, Anchorage, for Gaffney.
7 ABR 300: Ch. 11, appeal (standing), (US District Court, Sedwick).
ACEs motion to strike NAC's appeal granted.
Although the bankruptcy code does not define who has standing to appeal a bankruptcy court order, the courts are unanimous that standing is determined under a "person aggrieved" standard. Merck (9th Cir. BAP 1999). NAC's reliance on filing of an entry of appearance in the main case and in the hearing on the order now being appealed is insufficient to demonstrate appellate standing.
Northern Air Cargo v. Alaska Central Express, 6/26/02.
David Bundy (Bundy & Christianson), Anchorage, for NAC; Michael Mills (Bankston, Gronning, O'Hara, Sedor, Givens & Heaphy), Anchorage, for ACE; AUSA Retta-Rae Randall, Anchorage.
7 ABR 304: Ch. 7, abandonment (MacDonald).
Trustee's. motion to revoke technical abandonment denied as moot because condemnation proceeds have not been abandoned.
Although the condemnation roceeds involved real property in which Debtor had an interest, they are a separate asset, distinct from the real property, and were not formally abandoned under §554(a) or (b), which requires notice, a hearing, and a court order. Only assets which have been properly scheduled are abandoned under this subsection at the time the case is closed.
In re Wright, 7/8/02.
Terrence Thorgaard, Fairbanks, for Wright Kenneth Ringstad, Fairbanks, for Trustee Larry Compton
7 ABR 308: Ch. 11, Interlocutory appeal (US District Court, Singleton).
Sea Hawks motion seeking interlocutory appeal denied.
Judge MacDonald held that there is jurisdiction in Bankruptcy Court to determine scope of a settlement agreement between Sea Hawk and VFDA. The issue there is whether the agreement bars Sea Hawk from bringing fradulent conveyance claims against the State in State Court.
Given that Alaska Superior Court, Alaska Supreme Court, and Bankruptcy Court agree that Bankruptcy Court is the proper court to *interpret the agreement, there may not be a " substantial likelihood" of Sea Hawk prevailing on appeal, and an independent analysis suggests that it is not likely to prevail on appeal.
Bankruptcy Court has jurisdiction because Sea Hawk's fraudulent conveyance claim against the State is a related proceeing to the bankruptcy action and because Bankruptcy Court expressly retained jurisdiction in the settlement agreement to interpret the agreement and by incorporating the agreement in its dismissal order. In any event, immediate interlocutory review would not likely advance ultimate determination of the litigation
Sea Hawk Seafoods v. State of Alaska and Valdez Fisheries Development Association, 8/5/02.
John Young (Young,deNormandie & Oscarsson), Seattle, for Sea Hawk Seafoods,Inc.; Mary Ellen Beardsley, Anchorage for Alaska; Rebecca Copeland (Patron, Boggs), Anchorage; for Valdez Fisheries Development Assoc. Inc.
7 ABR 314: Ch. 7, lien avoidance, stay violation (MacDonald).
Debtor's motion to avoid judicial lien granted.
Northern Credit Services obtained a state court judgment against Debtor and levied on her PFD in 7/01. Debtor filed a pro se Ch. 7 in 8/01. Following discharge and closure of the case in 1/02 Debtor asked that her PFD be returned to her. She then retained a lawyer who moved to reopen her case.
A lien avoidance action may be brought at any time unless a creditor has been "sufficiently prejudiced so that it would be inequitable to allow avoidance of the lien." Ricks (BAP 9th Cir.1988). NCS says it has been prejudiced because Debtor delayed bringing, the action until it had already disbursed her PFD to its client. However, the act which it claims has caused it prejudice occurred before Debtor's bankruptcy case was closed, while the stay was in effect. NCS seeks to blame Debtor's delay in seeking avoidance. But a sophisticated creditor is required to exercise good faith and reasonable reliance on the debtor's failure to avoid the lien." Ricks. No reasonable reliance exists where a creditor has "jumped the gun" and enforced its lien before the bankruptcy case has closed. Further, Debtor's conduct has in no way prejudiced NCS.
In re Harris, 8/23/02.
Chris Johansen, Anchorage, for Harris; R.W. Shaffer, Ketchikan, For Northern Credit Services.
7 ABR 319: Ch. 7, appeal procedure (9th Cir. BAP).
Appellee's motion to dismiss denied, remanded for Bankruptcy Court to enter order in compliance with Rule 9021. Judge MacDonald entered an order 7/12/02 denying Trustee's motion to revoke technical abandonment (7 ABR 304) and an order 7/12/02 denying Debtor's motion for reconsideration. Debtor did not file notice of appeal until 25 days after entry of the order denying reconsideration. Also, on 8/6/02 she moved for an extension of time in which to appeal. MacDonald denied the extension motion on the basis that the notice of appeal divested him of jurisdiction. The Trustee moved to dismiss this appeal as untimely. Neither order satisfies the separate document requirement of Rule 58, made applicable to final judgments & orders in adversary proceedings and con tested matters by Rule 9021. Where the separate document requirement has not been satisfied, the appeal time does not run. Thus this appeal is not untimely, and in fact is premature. Once a final order in compliance with Rule 9021 has been entered the appeal will become effective pursuant to Rule 8002(a). It is Appellant's responsibility to ensure that Bankruptcy Court enters an order in compliance with 9021.
Appellant's second extension motion is denied. Authority is given to Bankruptcy Court to grant an extension of time to appeal. Rule 8002(c).
Klein, Perris. Montali concurred & dissented.
Wright v. Compton (Ch. 7 Trustee) [In re Wright], 9/18/02.
Kenneth Ringstad, Fairbanks, for Trustee; Terrence Thorgaard, Fairbanks, for Debtor.
7 ABR 323: Ch. 7, appeal procedure (stay pending appeal, mootness) (US District Court, Holland).
Trustee's motion to dismiss appeal pursuant to mootness doctrine granted.
Appellant has an unsecured claim against Gold King Mines. On 7/25/02 Bankruptcy Court approved sale of Gold King Claims to the US for $1 million and established its bona fide purchaser status. Appellant moved for stay pending appeal 7/12/02 and 7/31/02. Bankruptcy Court denied the motions for several reasons including failure to file a bond. Appellant renewed his motion for stay with the BAP. The Trustee asked that the appeal be referred to this Court. Appellant re-filed the motion for stay 8/27/02. On 8/26/02 the US deposited a check for $1 million with the Court and the co-owner executed a quitclaim.
Appellant has failed to obtain a stay which is critical to this appeal because a third party has intervened and purchased the property under §363(m), which protects bona fide purchasers. Appellant's argument that the only circumstance in which mootness may be found is where the Debtor could have filed for a stay but did not do so is an overbroad view of Ewell (9th Cir. 1992). While obtaining a stay is dependent on timely filing, it is only one factor in determining mootness. Bankruptcy Court denied Appellant's motion for stay and the property was sold. Thus both the motion for stay pending appeal and the appeal itself are moot.
Oliver v. Barstow (Trustee) [In re Gold King Mines], 9/25/02.
Steven Oliver, Appellant, Davis, CA; Gordon Schadt, Anchorage, for Alice & Howard Baker, Calvin & Connie Strobel, Peggy Burgen, Robert & Nella Mitchell; Dean Dunsmore, Dept. of Justice, Anchorage, for US; Cabot Christianson, Anchorage, for Trustee; Carl Bauman, Anchorage, for Marianne Pilant & Lisa Rogers; John Siemers, Anchorage, for George & James Atkinson, A&G Construction; John Ruebelmann, Anchorage, for UST; William Carroll, Hoquiam, WA, pro se; Eric Wieler and Paul Wieler, Anchorage, pro se.
7 ABR 327: Ch. 7, tax lien (subordination) (9th Circuit Court).
Trustee William Barstow's request to subordinate Creditors' tax lien claims entirely to the claims of priority unsecured creditors pursuant to §724(b) denied. Ross affirmed, Singleton reversed.
North Slope Borough and the Municipality of Anchorage held tax liens on real property formerly owned by Debtor MarkAir. They seek part of the proceeds from a sale of that property by the estate. Ross, relying on the text of §724(b) and cases and secondary authorities interpreting it, rejected Barstow's construction and awarded Creditors a share of the sale proceeds. Judge Singleton reversed, holding that 724(b) required complete subordination of tax lien claims to priority unsecured claims. Creditors appealed.
We agree with the Creditors: The express text of 724(b) subordinates the interests of tax lienholders to that of priority unsecured creditors, but only up to the total amount of the lien. Any remaining proceeds are to be distributed first to junior lien claimants, next to the tax lienholders, and finally to the debtor's estate. Because the text is clear, we need not explore legislative history. Singleton misapprehended the plain meaning of 724(b), while Ross correctly construed it.
Graber, Fletcher, Alarcon.
North Slope Borough and Municipality of Anchorage v. Barstow (Trustee) [In re MarkAir], 10/21/02.
David Clark (Clark Law Office), Robert Crowther (Crowther Law Office), and Asst. Anchorage Municipal Atty. William Greene for Creditors; John Siemers (Burr, Pease & Kurtz), Anchorage, for Trustee.
7 ABR 339: Ch. 7, tax lien (subordination) (judicial/statutory) (9th Circuit).
Trustee's request to subordinate proceeds of judicial lien securing taxes owed to IRS denied. Ross, Singleton affirmed.
When MarkAir filed Ch. 11 it owed air transportation excise taxes. However, the IRS had not filed a tax lien and therefore had no statutory tax lien. MarkAir concluded that it had overpaid certain taxes and requested a refund. The IRS asserted a right to off-set the overpayment against outstanding tax liabilities. ARC, a ticket clearinghouse, threatened to stop clearing MarkAir's tickets unless MarkAir posted a $1.8 million letter of credit. To avoid immediate shutdown, the IRS and MarkAir compromised their positions and entered into an agreement with ARC in which the IRS agreed to forego its offset claim and allow part of MarkAir's overpayment to be deposited with Bankruptcy Court as ARC collateral, and MarkAir agreed that the balance would be paid immediately to the IRS. After MarkAir ceased operations the IRS moved for distribution of the collateral. Trustee William Barstow opposed the request and, pursuant to §724(b), sought to subordinate the IRS' lien so that he could pay administrative expenses and claims of other priority creditors. Judge Ross concluded that subordination under §724(b) was intended to apply to "statutory'' tax liens, not the "contractual type of lien involved in this case." Judge Singleton affirmed Ross. The Trustee appealed.
Although the text of 724(b) is ambiguous, its context, structure, history, and purpose convince us that Congress intended "tax lien" to refer to statutory tax liens and not judicial liens securing payment of taxes. We think that Congress intended to encourage the kind of behavior that the IRS exhibited here; it left money in the estate when it was not required to do so, in the hope of assisting MarkAir to survive. That behavior furthers the over-all purpose of the Bankruptcy Code.
Graber, Fletcher, Alarcon.
Barstow (Trustee) v. IRS [In MarkAir], 10/21/02.
John Siemers (Burr, Pease & Kurtz), Anchorage, for Barstow; Theresa Clark (DOJ), DC.
William Barstow v. United States Internal Revenue Service, 10/21/02.
7 ABR 354: Ch. 11, negligence, wrongful discharge, corporate veil (MacDonald).
Debtor Kake Tribal Corp. liable to employee for $41,666 for loss of tools, $15,000 for wrongful discharge, offset by $3,050 owed to Kake.
Situk was foreman at Kake's shop building which was consumed by fire caused by an oversized burner nozzle on a newly installed waste oil heater while Kake was in Ch. 11. Adams owned Snap-On tools and testing equipment which he kept at the shop. He sued seeking damages for destruction of his tools. Kake removed to this Court. Adams objected to confirmation, wanting Kake to escrow sufficient funds to pay his claim. 7 days after his testimony regarding his contention that Kake's negligence had caused the fire Kake advised him that the shop was being closed and he was discharged a week after that. Adams's limited objection to confirmation was overruled. The shop reopened. Adams did not apply for his former position. He amended to alleged wrongful discharge. Kake counterclaimed for amounts due for purchase of a housing trailer.
Kake contends that Adams was an employee of Kake Tribal Logging & Timber, a wholly owned subsidiary of Kake Tribal Corp., and that any harm suffered by Adams should be borne by the subsidiary which is not a party to this litigation. However, a majority of the Jackson (Alaska 1973) factors weighs in favor of piercing the corporate veil. KTL&T was a mere instrumentality of Kate, and therefore Adams has named the proper party.
Damages from torts committed by the debtor while a Ch. 11 case is in progress are generally administrative expenses which must be paid in full.
Kake breached its duty of reasonable care to Adams by not maintaining insurance on Adams's tools and testing equipment because they were integral to its business regardless of who owned them and because it owned and controlled the shop. Kake was also negligent in allowing the burner to be installed by unqualified personnel. Its negligence caused Adams harm. He seeks $112,909 for replacement costs of his tools and equipment. He is entitled to 70% of the replacement of his tools, full cost of a scope which is no longer produced, and 20% of the cost of other electrical items, for a total of $69,443. However, he is allocated 40% of the total fault due to his negligence in not asking if his tools would be covered by Kake's insurance or in obtaining his own coverage, and in failing to remove his tools even though he believed that the heater installer was unqualified. He is entitled to 60% of the total loss, or $41,666.
Adams's termination was in retaliation for his opposition and testimony in Kake's bankruptcy case, rather than motivated by legitimate business concerns, and breached the covenant of good faith & fair dealing. His damages are 3 months salary in the amount of $15,000.
Kake is entitled to a setoff of $3,050 for the balance Adams owes for the trailer purchase, after setoff of unreimbursed medical expenses.
Adams v. Kake Tribal Corp. [In re Kake Tribal Corp.] , 10/22/02.
Kevin Sullivan, Juneau, for Adams; David Bundy, Anchorage, for Kake Tribal Corp.
7 ABR 381: Ch. 7, special counsel (MacDonald).
Clapp Peterson & Stowers is appointed special counsel for Trustee subject to conditions.
Debtor has been removed as guardian for incapacitated wards under allegations of, inter alia, misappropriation of funds. A number of wards are seeking recovery from CAPA and officers & employees. Ch. 7 Trustee Larry Compton has discovered an insurance policy which may fund substantial recovery. Also, he and Special Master Dan Winfree want to recover any shortfall in full payment of creditors or wards from personal assets of those they deem responsible for CAPA's downfall, including Cook, Schuhmann & Groseclose. They wish to employ Thomas Van Flein of Clapp to pursue those goals as well as to represent the bankruptcy estate for any injuries suffered directly by it. The contention is that since the facts and sources of recovery for both the wards and the estate may be the same, it did not make economic sense to have the parties fighting between themselves when allocation of any recovery could be determined after liability is established.
In re Community Advocacy Project of Alaska, 12/20/02.
James DeWitt for Ch. 7 Trustee Compton; Barbara Schuhmann and David Bundy for Cook, Schuhmann & Groseclose; Thomas Van Flein (Clapp Peterson & Stowers).
7 ABR 391: Ch. 7, Bankruptcy Petition Preparer(MacDonald).
WTP USA's motion for summary judgment denied; WTP USA's motion for dismissal of Debtor's motion for damages denied; Debtor's motion for summary judgment denied.
We The People Forms and Service Centers USA, Inc. alleges it is not a bankruptcy petition preparer because it does not receive compensation directly from a debtor It further alleges it did not produce a document for filing by Debtor Cathy Sedenquist, rather it produced a petition, statements and schedules for its franchisee We The People of Alaska, LLC. WTP Alaska prepares no documents. It sends data to WTP USA and WTP USA sends the completed documents back to WTP Alaska for a fee.
The fact that completed bankruptcy documents are first delivered to WTP Alaska before the debtor receives them is meaningless. The documents were prepared, ultimately, for filing by a debtor and are intended to be filed in bankruptcy court. WTP USA's suggested reading of § 110 is at odds with a natural reading of the statute. WTP USA is a bankruptcy petition preparer.
This proceeding involves the application of the whole of § 110 to the actions of WTP Alaska, WTP USA and Jason & Holly Skala. It involves the possible creation of a misleading impression of competence beyond simple document preparation through fraudulent, unfair or deceptive acts. Issues of control and agency must also be resolved and will be addressed at an upcoming hearing prior to certification to district court.
In re Sedenquist, 3/17/03.
Thomas Yerbich, Anchorage, for Debtor; Richard Lubetzy, Los Angeles, CA, for We The People Forms and Service Centers U.S.A., Inc.; William Engish, Anchorage, for We The People Forms and Service Centers U.S.A., Inc. Alaska.
7 ABR 396: Ch. 11, abstention (MacDonald).
Motion by John Norman and his former law firms of Hartig, Rhodes, Norman, Mahoney & Edwards and Hartig, Rhodes, Hoge & Lekisch to "clarify" an order approving class 7(b) claims (5 ABR 376) is denied without prejudice on grounds of abstention.
Norman seeks a new order stating that Stewart Petroleum shall not use allowance of the 7(b) claim for any purpose in SPC v. Norman (Alaska Superior Court). However, interests of justice and comity with state courts will not be served by this Court's retention of jurisdiction. Application of the Republic Reader's Service (Bankr. SD Tex. 1987) factors supports permissive abstention.
In re Stewart Petroleum, 4/24/03.
Spencer Sneed, Anchorage, for John Norman and Hartig, Rhodes, Norman, Mahoney & Edwards, and Hartig, Rhodes, Hoge & Lekisch; Erick LeRoy, Anchorage, for Debtor.
7 ABR 399: Ch. 7, dischargeability (federal income taxes) (MacDonald).
Robert Rowen, a physician, established a tiered trust arrangement on advice of Equitrust Consultants and Oregon attorney Richard Stradley. At about the same time he ceased filing Form 1040 tax returns and paying income taxes, and filed a Form 1040NR claiming a sizeable tax refund. He was subsequently indicted for making false claims and corrupt endeavor to impede an IRS investigation. He pled guilty to corrupt endeavor to impede. In 6/01 the IRS filed notice of intent to levy reflecting assessments of $605,438. Rowen filed Ch. 11 the same month, and seeks a determination regarding dischargeability of these taxes.
A tax debt is excepted from discharge if "the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat such tax." §523(a)(1)(C). Rowen has not filed fraudulent returns. However, the totality of his conduct establishes that he attempted to willfully evade or defeat his taxes for 1992-97. Inter alia, although he had earnings from his medical practice he failed to file returns and did everything he could to avoid tax liability. He attempted to thwart a criminal investigation and placed a house in which he lived into the trust's name to protect it from the tax collector. His efforts were not directed at legitimate tax planning, his reliance on Stradley does not justify or excuse his conduct, his arguments regarding legitimacy of the trust are immaterial, and his contention that his ultimate filing of accurate returns has somehow purged his prior behavior also fails.
Rowen v. US [In re Rowen], 5/5/03.
Ronald Offret, Anchorage, for Plaintiff; Keith Blair, for USDOJ.
7 ABR 417: Ch. 7, relief from stay, deference to divorce court (MacDonald).
Gail Scoggin's motion for relief from stay granted.
Donald Scoggin conveyed substantial sums to Magdalena Ortiz-Aguilo, who purchased a condo in Texas, and bought a BMW for her which she exchanged for a Chevy Tahoe, all without knowledge of his wife Gail. The judge in the Scoggin divorce action granted summary judgment for Gail on her claim of fraudulent conveyance of community property, but no written order was entered. 17 days later Ortiz filed Ch. 7, scheduling the condo and Tahoe as assets. Gail moved for relief from stay so she could continue prosecution of the fraudulent conveyance claim. The Trustee objects.
Under Texas law a constructive or resulting trust may be imposed on community property that has been conveyed to a mistress by one spouse without knowledge of the other. Texas law must be applied to determine who is entitled to these assets, and the Texas divorce court is in the best position to do so.
In re Ortiz-Aguilo, 7/1/03.
Thomas McDermott (Birch, Horton, Bittner & Cherot), Anchorage, for Gail; Erik LeRoy, Anchorage, for Trustee Kenneth Battley.
7 ABR 421: Ch. 7, res judicata/collateral estoppel (state court summary judgment/default judgment) (MacDonald).
Plaintiff Walter Hickel's motion for summary judgment in which he contends that a pre-petition state court judgment is res judicata denied.
Hickel sued John Curtin in a commercial lease dispute. He moved for summary judgment, which Curtin did not oppose. Summary judgment was granted in 11/00 finding Curtin liable for, inter alia, $107,036 for tortious destruction of property. Curtin filed Ch. 7 in 1/03. Hickel brought this adversary proceeding to except the tortious destruction damages from discharge under §523(a)(6) on the basis of res judicata. Curtin argues that collateral estoppel is the applicable doctrine.
The McElroy (Alaska 2003) distinction between res judicata and collateral estoppel makes clear that collateral estoppel is applicable. The "final judgment on the merits" element is not met. Hickel's summary judgment is essentially a default judgment because Curtin did not answer the complaint or oppose summary judgment. Default judgments are not given issue-preclusive effect in Alaska.
Wall (Alaska 1999).
Hickel v. Curtin [In re Curtin], 8/13/03.
Jon Dawson (Davis Wright Tremaine), Anchorage, for Hickel; Chris Johansen, Anchorage, for Curtin.
7 ABR 428: Ch. 7, exemptions (residential/income producing homestead, rents, guns, tools) (MacDonald).
Trustee's objection to Debtor's full homestead exemption in 6-plex and to exemption in rents and tools overruled; objection to exemption of 6 guns sustained, Debtor may exempt only 1 gun.
Debtor is a disabled carpenter. His primary income is from a 6-plex. He lives in one unit and collects rents from the others and maintains the premises. He claims a homestead exemption of $64,800 in his 6-plex. The Trustee, citing authorities from other states, contends that he is entitled to exempt just 1/6th of the equity since he uses just 1/6th of the property as his principal residence. However, several bankruptcy courts have concluded that a debtor is entitled to a full homestead exemption in property with dual uses as long as he actually lives on the property, and when a debtor has claimed a homestead exemption under state law his entitlement must be determined by the state law. AS 09.38.010(a) requires that one have an interest in property in Alaska and it must be his principal residence. The Legislature intended to protect property that supplies basic necessities such as shelter and keep indigent debtors off public assistance. This intent would be ill-served by limiting a disabled carpenter's homestead to 1/6th of the equity in his residence, a 6-plex. Legislative history supports the statute's plain meaning.
Debtor's rental income is a liquid asset similar to the note payments found exempt in Melin. It is less than the $1,680/mo allowed under AS 09.38.030(b) and 8 AAC 95.030(d)(2).
Debtor is entitled to exempt only 1 gun as "household goods" under AS 09.38.020(a) in accordance with Fitzgerrell.
Although Debtor no longer works as a carpenter or owner of a handyman business, his active management & maintenance of the 6-plex entitles him to claim exemption in certain hand and power tools as tools of the trade.
In re Shell, 7/1/03.
Marvin Clark, Wasilla, for Debtor; William Artus, Anchorage, for Trustee Kenneth Battley.
7 ABR 439: Ch. 7, violation of stay (eviction), sanctions (MacDonald).
Debtors are awarded sanctions for Burton & Betty Fields's willful violation of automatic stay for post-petition eviction proceedings: $722 actual damages, $200 punitives.
Fieldses instituted eviction proceedings against tenants Richard & Mary Belew. Belews filed Ch. 7 the day before the eviction hearing. Richard tried to provide the state judge a copy of his bankruptcy petition, but was told that the bankruptcy was irrelevant to the eviction because he did not have an equity interest in the property. Judgment for possession and a writ of assistance were granted and Belews were told to vacate by 6/7/03 at 5 p.m. Fieldses turned the water off at 5:15 while Belews, who thought that they had a little more time because they had filed notice of automatic stay, were still in the unit. After an officer was called Fieldses turned the water back on. Belews were out by 6/10 and stayed in a hotel for 2 weeks.
Fieldses clearly violated the automatic stay. The eviction hearing should not have been held the day after the petition was filed. This judicial proceeding was stayed in accordance with §362(a) once Belews had filed bankruptcy. Fieldses knew of the filing and should have obtained relief from stay in Bankruptcy Court before continuing with the eviction. The judgment for possession and the writ of assistance were also entered in violation of the stay and are void. Fieldses also violated the stay by turning off the water and violated state law by turning it off while Belews were still occupying the property. Finally, Betty Fields did not recall the writ of assistance until after Debtors had moved.
Fieldses' conduct is not excused by the fact that Debtors' rental agreement had been terminated prepetition or that the unit is not property of the bankruptcy estate. The stay stops initiation or continuance of all claims against a debtor. It is up to Bankruptcy Court in the first instance to modify or lift the stay.
Belews are awarded $722 for half the cost of their hotel room (Debtors likely would have incurred alternative lodging for a shorter time had Fieldses followed proper procedures) plus $100 punitives against Betty Fields for turning off the water in violation of the stay and $100 for turning it off in violation of state law.
In re Belew, 9/30/03
Richard & Mary Belew, Anchorage, pro se; Christopher Canterbury, Wasilla, for Fieldses.
7 ABR 449: Ch. 13, confirmation, impaired claim (MacDonald).
Trustee's objection to confirmation overruled.
Under Plan terms Debtors will pay arrearages on their Wells Fargo mortgage and their Alaska USA FCU car loan from Plan payments made to him. Debtors will maintain regular monthly payments on both obligations. The Trustee objects to Debtors making the monthly payments on the car loan, contending that it is an impaired claim and, where such claims involved secured debts for non-residential property, the trustee must pay both the arrearage and the monthly payments, otherwise it is difficult to monitor a debtor's performance and permits a debtor to avoid the trustee's fee. He cites Fulkrod (9th Cir. 1992). However, the car loan is not an impaired plan. A secured claim is neither modified nor impaired if, under a Ch. 13 plan, the debtor simply cures arrearages and reinstates the debt. Alaska USA does not object to treatment of its claim and Debtors are current on payments. The Plan meets §1325 requirements and will be confirmed.
In re Barocio, 10/8/03
Chris Johansen, Anchorage, for Debtors; Trustee Larry Compton, Anchorage.
7 ABR 453: Ch. 7, contempt, consent order (e-mail address, trademark, trade name) (Ross).
Ultimate Tours' motion to hold Debtor Lorraine Temple in contempt for violating a consent order regarding sale of her interest in her dog sled tour business denied.
Temple recently started a new business marketing motivational talks to school assemblies based on her experiences in starting Godwin Glacier Dog Sled Tours. Ultimate claims that she is wrongfully using the e-mail address "email@example.com" which includes the user name "lthuskys." However, the Trustee did not sell Ultimate the use of "lthuskys," but of the e-mail address "firstname.lastname@example.org." Use of "email@example.com" and listing that address on a website regarding motivational speeches to school assemblies is not forbidden by the consent order or remotely infringing on Ultimate's trademark or trade name.
Nor is Temple's use of the name "Godwin Glacier Dog Sled Tours" in her new website an unfair trade practice or infringement on Ultimate's right to exclusive use of that trade name. There is no reasonable possibility of confusion. She is entitled to say that she started and worked for Godwin Glacier Sled Dog Team as long as she does not say that she still does. She is not in competition with Ultimate's business and does not purport to currently use the name or engage in sled dog tours.
In re Temple (fdba Godwin Glacier Sled Dog Tours), 12/30/03
John Siemers (Burr, Pease & Kurtz0, Anchorage, for Ultimate Tours; Jane Pettigrew, Anchorage, for Debtor.
7 ABR 460: Ch. 7, fraudulent transfers, objection to discharge, attorney fees (MacDonald).
Judgment for Ch. 7 Trustee in the amount of $99,644 plus interest and attorney fees for fraudulent transfers by Debtor.
§544(b)(1) allows the trustee to succeed to the rights of an unsecured creditor who can avoid transfers under state law. 6 transactions from Debtor Katherine Giordano to her husband involving sale of her interest in an espresso franchise were "made with the intent to hinder, delay or defraud creditors." AS 34.40.010. The Trustee failed to prove that Mr. Giordano received additional fraudulent transfers from Debtor's credit card transactions, failing to establish a link between his apparent wealth and cash advances taken from her cards. Further, the Trustee may have no standing to raise this argument, and damages for a fraudulent conveyance scheme can only be raised if voiding the transfer as to a creditor is inadequate.
Debtor's failure to appear constitutes grounds for revocation of her discharge. Because the conduct giving rise to the revocation occurred after filing of this complaint, she is entitled to further notice and hearing.
Since the Court applied Alaska fraudulent conveyance law, Plaintiff is entitled to attorney fees under ARCivP 82. He may not recover fees for pursuing federal claims for objection and revocation of discharge.
Barstow (Trustee) v. Giordano [In re Giordano], 1/7/04.
Jane Pettigrew, Anchorage, for Plaintiff; Robert McFarlane, Anchorage, for Defendants.
7 ABR 474: Ch. 7, access easement (MacDonald).
Summary judgment for Grande Denali Properties.
Grande Denali acquired an easement for access to Kingfisher Tract A over Tract A-1-A in early 2000 which was visible and in use at the time Debtors filed Ch. 7. The Trustee's application to sell property clear of liens did not extinguish the easement. All prospective bidders at the auction of A-1-A were on notice that they should investigate condition of and title to the property. FNBA failed to do so. It has purchased A-1-A subject to the easement.
Grande Denali Properties v. FNB Alaska [In re Corry (Denali Smoke Shack)],
G. Speaker for Grande Denali Properties, LLC; J. Beard for First National Bank Alaska ; J. DeWitt for Compton (Trustee); P. Giannini for Stephen E. Jones .
7 ABR 486: Ch. 11, subject jurisdiction, settlement agreement, core proceedings (US District Judge Beistline).
Judge MacDonald affirmed; Bankruptcy Court had continued subject jurisdiction over interpretation of settlement agreement notwithstanding dismissal of underlying bankruptcy case.
Sea Hawk Seafoods obtained a $2 million judgment against Valdez Fisheries Development Association. Alaska Div. of Investments called a loan and VFDA turned over its liquid assets to the State. Sea Hawk petitioned to avoid the transfers. VFDA filed Ch. 11. During pendency of bankruptcy proceedings VFDA and Sea Hawk reached a settlement agreement which provided that jurisdiction to interpret & enforce the agreement was reserved to Bankruptcy Court. Judge MacDonald approved the settlement and the bankruptcy case was dismissed. Sea Hawk then returned to State Court to pursue its action against the State. The State asserted that the settlement agreement extinguished Sea Hawk's claims against it. Alaska Superior Court deferred to Bankruptcy Court on interpretation of the settlement agreement. MacDonald held that Bankruptcy Court did have subject jurisdiction (7 ABR 222). A stipulated order provided that if the matter were to be tried in Bankruptcy Court, that Court would find that the settlement agreement completely released the State from all further liability. It reserved to Sea Hawk its objection to Bankruptcy Court jurisdiction.
Bankruptcy Court had subject jurisdiction over the issues resolved by the settlement agreement, resolution of which were core proceedings. Unlike Kokkonen (US 1994), not only did the order refer to the settlement agreement, the Court clearly committed its authority to the process. Entry of the order was not based on the settlement agreement but upon exercise of the Court's authority to approve the agreement. If the order approving the settlement does not by necessary implication incorporate terms of the agreement it references, including specific retention of jurisdiction over its interpretation, it is impossible to divine the purpose of the order or its effect. Kokkonen and post-Kokkonen decisions of the 9th Circuit are reeds too thin to support a decision by a district court that holdings of Taylor (9th Cir. 1989) and Franklin (9th Cir. 1986) do not apply to and govern outcome of this case.
Valdez Fisheries Development Association v. Sea Haw Seafoods v. Alaska, 3/15/04.
Kevin Sullivan (Sullivan & Sorenson), Seattle, Michael Schein (Reed, Longyear, Mainati & Ahrens), Seattle, Laurel Peterson, Anchorage, and Michael Moberly (Moberly Law Offices), Anchorage, for Sea Hawk; Asst. AG Mary Ellen Beardsley.
7 ABR 500: Ch. 13, relief from stay, foreclosure sale, property of estate, eviction (Ross).
Edwin Osowski is entitled to relief from stay to bring state court action to evict Debtor.
Osowski bid in real property owned by Debtor at a nonjudicial foreclosure sale. The trust deed trustee prepared a deed transferring the property to Osowski the same day. The next day Debtor filed Ch. 13. Nonetheless, the trustee recorded the deed. Osowski moved for relief from stay to allow him to seek removal of Debtor.
The sale was completed by execution & delivery of the deed the day before Debtor filed Ch. 13. The real estate was not property of the estate at the time of the filing. Debtor had bare possession with no right to remain. The postpetition recording of the deed did not violate §362(a) since it did not continue foreclosure or assert a lien against property of the estate, but merely allowed Osowski to give notice to third parties of his ownership.
In re Macavilca, 4/7/04.
Chris Johansen, Anchorage, for Debtor; Shane Osowski for Edwin Osowski.
7 ABR 514: Ch. 11, lease, security agreement (Ross).
Motion for adequate protection in the form of requiring lease payment from 5/03 granted. ABCO is entitled to inspect the goods and Debtor shall provide proof of insurance.
Debtor leases exercise equipment and is behind on prepetition & postpetition payments. The lessor moved for adequate protection or relief from stay (commencing lease payments, proof of insurance, etc.). Debtor argues that the leases should be treated as security agreements under 1-201(37) because there is a nominal purchase option at the end of the terms.
Debtor has not established that the leases should per se be treated as security interests because Debtor has not shown that the option price is nominal. Nor has a security agreement been established under the reversionary test.
In re Sankey, 6/2/03, motion for reconsideration denied 6/13/03.
Deborah Crabbe, Seattle, for ABCO Leasing; Robert Crowther (Crowther Law Office), Anchorage, for Debtor.
7 ABR 527: Ch. 7, Ch. 13-7 conversion, security interest (mechanic's toolbox), attorney mistake, relief from stay, relief from judgment (MacDonald).
Debtor's Rule 60(b) motion for relief denied. Creditor's motion for relief from stay to foreclose granted.
Ray Wales, a mechanic, bought a Macsimizer 18 drawer toolbox from Michael Brown (Mac Tools) for $4,500 on credit. Wales granted a security interest in the toolbox but no financing statement was signed. He filed Ch. 13, represented by Chris Johansen. Brown moved for relief from stay. The parties stipulated to payment of Brown's claim in full and the Ch. 13 Trustee paid Brown $2,200. Johansen converted the case to Ch. 7, but Brown never received the balance of his claim. Wales substituted Eric LeRoy as counsel and filed a 60(b) motion alleging that Johansen and the Court applied the wrong law when determining adequate protection and setting conditions for relief from stay. While Brown had a purchase money security interest in the toolbox under Alaska law, his security interest was not perfected. The toolbox was purchased for business or commercial use and was not a consumer good exempted from the financing statement requirement. Johansen did not raise the lack of perfection as a defense. Wales is bound by Johansen's mistakes or omissions and cannot obtain relief under 60(b)(1). Nor can Wales correct legal errors made beyond the time for appeal. Nor is he entitled to relief under 60(b)(3). Brown's statement in his motion for relief from stay that “creditor is holder of a secured or statutorily secured claim against the debtor” was not a misrepresentation. Wales was a secured party at state law by virtue of the security interest granted in the sales documents. The security for the claim had value within the meaning of §506(b). Nor was there gross negligence by Johansen that would warrant relief under 60(b)(6). Johansen filed a timely objection to Brown's motion for relief from stay and participated in several hearings. No default judgment was entered against his client. It appears that he simply assumed that the toolbox was a consumer good perfected without a UCC-1 filing. He was mistaken but his conduct is not gross negligence.
Brown is entitled to relief from stay. Wales defaulted on the plan payments after receiving notice of default, and has failed to cure the default. Brown's request for attorney fees is denied as there is no legal basis for this request.
In re Wales, 7/7/04.
Erik LeRoy, Anchorage, for Debtor; P. Paslay, Anchorage, for Brown; William Barstow, Trustee.
7 ABR 533: Ch. 7, discharge (debt) (MacDonald).
Sunland's claim against Harold Cook sustained, debt excepted from discharge. Sunland's claim as to Mrs. Cook dismissed with prejudice.
Cook sought to develop a time-share resort in Homer. He needed $60,000 to close on the land. Based on a financial statement provided by Cooks, Sunland owner Phil Slabaugh loaned Cook the money and it was promptly repaid. Sunland worked on the project but none of its monthly pay requests, totaling $1.2 million, was paid. Sunland stopped work and sued Cook and others in state court. Cook then filed Ch. 7.
Cook made materially false statements in his financial statement, representing that he owned Oregon property worth $1.5 million, which was actually owned by his mother. The statement was issued to deceive & induce Sunland and Slabaugh to loan him $60,000 and enter into a construction contract. Although Slabaugh primarily relied on James Spizzirri, who had agreed to finance the project, Cook's financial statement was also a substantial factor in inducing Slabaugh to enter into the contract. Although Slabaugh was negligent in not obtaining a title report on Cook's property and in believing his fabrication, Cook had performed his promise to repay the $60,000 and Slabaugh was familiar with the area around the Oregon property and knew it to be a highly desirable area. His reliance was reasonable.
Linda Cook was not a business partner in the project and there is no evidence that she knew the statement was false or that she signed it with the intention of deceiving Slabaugh.
Sunland Development v. Cook (C&S Resort Development) [In re Cook], 7/12/04.
Robert Dickson (Atkinson, Conway & Gagnon), Anchorage, for Sunland; Harold & Linda Cook, pro se.
Sunland Development v. Cook (C&S Resort Development) [In re Cook], 7/12/04.
7 ABR 539; 543 (supplemental): Ch. 13, tax claims, proof of claim amendment (MacDonald).
IRS may amend original proof of claim to include penalty for unpaid withholding taxes imposed against a corporate officer.
Debtors object to 3 IRS claims. The third claim was filed after the bar date for government claims. Debtors contend that the penalty asserted in the late claim is unenforceable.
A creditor can file a claim after the bar date when the proof of claim is an amendment to a timely filed claim but not a separate & distinct claim. Menick (9th Cir. 1953). Osborne (Bankr. CD Ca. 1993) followed a 2-step analysis in determining whether an amendment to a timely claim was valid: whether the new claim bears a reasonable relationship to the original filing, and whether balancing of equities supports allowance of the new claim.
Debtors agree that the taxes asserted as a civil penalty in the late claim were of the same general type of withholding taxes asserted in the timely claim, but argue that allowance of a late-filed penalty for corporate withholding would be inequitable in this case. They claim reliance on the early claim because they chose not to proceed to confirmation immediately after the claims bar date. However, they were not diligent in prosecution of their Plan in which they acknowledged the penalty claim as an undisputed personal liability. Their tactics enabled the IRS to file another claim. I do not find reasonable reliance on the first claim. Their strongest equitable argument is that elements of a penalty claim for corporate withholding against a corporate officer are different from a withholding tax liability assessed against a sole proprietorship. Sims (Bankr. ND Ga. 1984) found that a late-filed penalty claim for withholding was not a timely amendment of a claim for individual income taxes. However, the initial claim here included a claim for withholding taxes.
In re Heitstuman, 6/5/03,  In re Heitstuman,6/13/03.
Robert Crowther (Crowther Law Office), Anchorage, for Debtors; Stephen Baker, Anchorage (IRS).