9 ABR 1: Ch. 11, debtor's motion for $1.5 million priming lien to complete 56 unit housing project denied as evidence did not establish that secured creditor First National Bank Alaska was adequately protected (Bankruptcy Court, MacDonald). [NOTE: the debtor's motion for reconsideration of the priming lien was granted at 9 ABR 66].
Chapter 11 debtor Lythgoe started construction on seven eight-plex apartment buildings in 2005. First National financed the project. The original loan was inadequate to complete the project. First National agreed to extend an additional loan if Lythgoe could raise $400,000. Lythgoe couldn't raise this sum. After the bank commenced foreclosure proceedings, Lythgoe filed a chapter 11 petition in December, 2007. The project sat dormant over the winter and Lythgoe moved for a priming lien in June, 2008, so work on the project could continue.
The debtor had the burden of showing that First National's lien would be adequately protected if the priming lien were permitted. Lythgoe supported his motion with portions of a year-old appraisal. The full appraisal was not admitted into evidence. Although the appraisal indicated a substantial equity cushion, even if it had been admitted, it contained limitations which would have made any conclusions as to adequate protection highly suspect. The appraisal was based on the assumption that the project would be completed by October 1, 2007, and fully occupied by August 1, 2008. Neither of those assumptions had occurred. Further, the overall market for real estate had substantially declined since the appraisal was made.
Even if Lythgoe had established adequate protection, there were no assurances that the project would be completed if the priming lien were granted. The project had a history of delays and cost overruns, raising questions about the debtor's management ability. The debtor's motion for a priming lien must be denied.
John Siemers (Burr, Pease & Kurtz), Anchorage, for Lythgoe; John Beard, Anchorage, for First National Bank of Alaska.
The same day that the debtor filed for chapter 7 relief, she closed a sale of residential real property for $65,000. She did not disclose the real estate or the sale proceeds in her bankruptcy schedules. Later, she filed amended schedules seeking to claim the proceeds of sale exempt under Alaska's homestead exemption. The trustee objected to the amended exemption.
The debtor lied repeatedly about the sales transaction to the trustee. She had not lived in the real property for years, because the trailer on that parcel was dilapidated and the septic system didn't work. Her primary dwelling place was an apartment building in Wrangel. The sales property was not the debtor's homestead.
A debtor's right to amend schedules of exemption may be disallowed upon a showing of bad faith or prejudice. The debtor had repeatedly lied about the sale of the property and disposition of the proceeds. Her conduct cost the estate at least $5,000.00 together with attorney's fees and costs. The trustee's objections to the debtor's claim of exempt property was sustained.
Gary Spraker (Christianson & Spraker), Anchorage, for trustee Compton; Brock Weidner, Juneau, for debtor Black.
Chapter 11 case converted to chapter 7. The debtor and the major secured creditor had differing views on whether conversion of the case re-triggered the automatic stay. Court concluded it did not. An order of conversion differs from a petition. A petition triggers the automatic stay; a conversion does not, under decisions from the 11th Circuit, the 9th Circuit BAP, and other jurisdictions.
Reimposition of the stay under � 105 would be inappropriate as well. To have a vacated stay re-imposed, an adversary proceeding must be filed; it cannot be accomplished by motion in the main case.
In re The Inn at Whittier, LLC, 8/28/08.
Cabot Christianson (Christianson & Spraker), Anchorage, for The Inn at Whittier; John Beard, Anchorage, for First National Bank Alaska.
California attorney Alfred Dovbish placed debtor in chapter 11. Denali State Bank was owed over $1 million and secured by all of the debtor's assets. The debtor continued in business after filing chapter 11 and kept the proceeds of the bank's collateral. Denali filed a motion to prohibit use of cash collateral. At a telephonic hearing Dovbish was advised that the debtor was prohibited from using Denali's cash collateral. The court entered an order prohibiting the use of cash collateral and requiring an accounting.
The debtor continued selling the bank's inventory and retaining the proceeds. On motion of the bank, the court issued an order to show cause for contempt of its cash collateral order. The show cause order threatened sanctions of $500.00 per day per person and was directed to the debtor's principals and Mr. Dovbish. The bank voluntarily reduced the proposed sanction to $250.00 per day per person.
Dovbish violated the cash collateral order for a period of six days. The bank would recover sanctions of $1,500.00 from Dovbish. No sanctions were imposed upon the debtor's principals, however, because they were ignorant of the cash collateral order.
Mr. Dovbish's application to be employed as counsel for the debtor was denied. He was directed to return his $5,000.00 retainer to the debtor. The debtor was authorized to employ David Bundy as its sole counsel.
In re OK Lumber Company, Inc., 9/5/08.
David Bundy, Anchorage, for debtor OK Lumber; Alfred Dovbish, Tiburon, CA, for himself; James DeWitt (Guess & Rudd P.C.), Fairbanks, for Denali State Bank.
Debtor filed reaffirmation agreements with Toyota and house loan with Wells Fargo. Debtor had shortfall in payments for both creditors but said she could "juggle" her finances to make payments. Court would not approve the agreements given her inability to service the debts. Debtor was given 20 days to file new financial information to show she could make the payments, however.
The backdoor ride-through concept may apply to the debtor. If the debtor remains current on her payments, the creditors may be prohibited from foreclosing their security interests after discharge. Creditors would be wise to get a bankruptcy court ruling on the backdoor ride-through doctrine before foreclosing and possibly violating the discharge injunction.
Paul Paslay (Anchorage), for debtor Nelson.
Chapter 11 debtor Catholic Bishop of Northern Alaska filed chapter 11 seeking to reorganize after numerous claims of sexual abuse were asserted against it. It filed a declaratory judgment action in bankruptcy court against multiple insurance companies seeking to establish coverage for the claims. Defendant Travelers filed an answer with a demand for jury trial and a motion to withdraw the reference.
The coverage action is a non-core proceeding. The parties have not consented to a jury trial before the bankruptcy court. The bankruptcy court may retain jurisdiction over the action for pre-trial matters and dispositive motions. The bankruptcy court recommended that the motion to withdraw the reference for trial be granted, with the bankruptcy court to handle all pre-trial matters, including motions for summary judgment.
Susan G. Boswell (Quarles & Brady LLP), Tucson, AZ, for Catholic Bishop of Northern Alaska; Brad E. Ambarian (Lane Powell Spears Lubersky LLP), Anchorage, and Charles R. Ekberg (Lane Powell PC), Seattle, WA, for Continental Insurance Company; John C. Wendlandt (Sedor Wendlandt Evans & Filippi LLC), Anchorage, for Catholic Mutual Relief Society of America and The Catholic Relief Insurance Company of America; A. Richard Dykstra (Stafford Frey Cooper, PC), Seattle, WA, for Alaska National Insurance Company; Clay A. Young (Delaney Wiles, Inc.), Anchorage, and Michael P. Pompeo (Drinker Biddle & Reath, LLP), Florham Park, NJ, for Travelers Casualty and Surety Company (formerly Aetna Casualty and Surety Company).
Alaska National Insurance Agency obtained a judgment against the debtors in March of 2007. It obtained writs of execution and levied against debtors' PFDs shortly thereafter. 80% of the debtors' PFDs were sent to the state court registry. The debtors filed chapter 7 petitions in early 2008 and claimed their PFDs exempt under the "wild-card" exemption in � 522(d)(5). Alaska National objected to the exemption of the PFDs and claimed it was entitled to the funds being held in state court.
The debtors' PFD proceeds were subject to a judicial lien in favor of Alaska National until the state court directed the release of funds to the judgment creditor. The fact that the proceeds were deposited into the state court registry more than 90 days before the debtors' bankruptcy filings was immaterial. Because the funds had not yet been released to Alaska National, the debtors retained an interest in the funds at the time they filed their petitions.
The debtors had avoidance powers under the Code to invalidate Alaska National's judicial lien. Further, the debtors were not confined to the 80% exemption allowed for a PFD under state law. The debtors could claim federal or state exemptions in bankruptcy, because Alaska has not opted out of the federal exemption scheme. Alaska National's lien would survive the bankruptcy, however, unless the debtors moved to avoid the judicial lien under � 522(f).
In re Tinkess; In re Hayes 9/26/08.
Michelle Boutin (Jermain, Dunnagan & Owens), Anchorage, for Alaska National Insurance Company; Debtors Tinkess and Hayes appearing pro se.
The Okrays purchased a dilapidated cabin in Salcha from the Dennises for $65,000. The Dennises provided the financing. The Okrays didn't live at the cabin, but stored miscellaneous personal property there. They got behind on their payments and the Dennises initiated a non-judicial foreclosure. Before the sale occurred, the Dennises moved a nephew and his family into the cabin. The nephew made a number of improvements to the site. He moved most of the Okrays' personal property outside of the cabin. Some items were placed under a tarp and others were bulldozed into a pit. The nephew also removed topsoil and damaged other improvements to the lot. The Okrays learned of the activity at the site and recovered possession of the cabin. After filing chapter 13, they initiated an adversary proceeding against the Dennises for conversion and damages.
The Okrays claimed damages of over $100,000. Their claim was inflated. Compensatory damages of $26,544 were awarded, plus attorneys fees of $5,144. No punitive damages were awarded. The Okrays' judgment would be credited against the secured claim which the Dennises had filed in the chapter 13 case.
Okray v. Dennis (In re Okray) 9/30/08.
Erik LeRoy, Anchorage, for the Okrays; Thomas Wickwire, Fairbanks, for the Dennises.
The debtor Rains and her mother co-owned a duplex. Rains transferred her one-half interest to her mother in October 2002. The mother refinanced the property and used a portion of the proceeds to re-roof the duplex. The debtor continued to reside in the duplex. She paid her mother below market rent and withdrew cash from rents received on the duplex. The debtor filed for chapter 7 relief on March 1, 2006. The trustee initiated an adversary proceeding to recover the duplex as a fraudulent transfer. The mother moved for summary judgment, contending the action should be dismissed because the statute of limitations had run.
Alaska is a jurisdiction that holds that a prospective purchaser is put on inquiry notice when a grantor continues in possession. The duty of inquiry is not negated because rental property is involved. At this point there are insufficient uncontested facts to determine when the trustee, standing in the shoes of a bona fide purchaser, would have discovered all the elements of a fraudulent transfer action. Under such circumstances, summary judgment was not appropriate and motion would be denied.
Barstow v. Rains (In re Rains), 10/9/08.
John Seimers (Burr, Pease & Kurtz), Anchorage, for Barstow; Robert P. Crowther, Anchorage, for Rains; David Bundy, Anchorage, for Laymon.
Chapter 11 debtor's motion for priming lien initially denied due to lack of evidence showing that First National's lien on construction project was adequately protected. Debtor moved for reconsideration. In support of the motion, debtor submitted a complete copy of an appraisal formerly done on the project and a newly performed appraisal. Both appraisals showed a substantial equity cushion of up to $1.5 million if the project were completed with the priming lien. This equity cushion supplied adequate protection to First National despite priming lien.
The court was initially concerned about the debtor's ability to complete the project on time and on budget. Also, court initially not aware of the family tragedy that had befallen debtor and son. Overall, the debtor's record on past apartment projects has been good. Court concluded the debtor deserved the opportunity to complete the project. Motion for reconsideration was granted.
John Siemers (Burr, Pease & Kurtz), Anchorage, for Lythgoe; John Beard, Anchorage, for First National Bank of Alaska.
Debtor Brown sold a trailer to creditor King for $26,000 cash knowing that the trailer was encumbered to Matanuska Valley Credit Union. Debtor didn't use the funds from King to pay off the credit union's secured claim. The credit union repossessed the trailer from King, who then sued debtor and obtained a judgment of $28,780. King recorded the judgment in the Palmer Recording District. After debtor and his wife filed chapter 13, King filed a UCC financing statement. She timely filed a secured proof of claim. Debtors objected to King's claim and moved to avoid her judicial lien against their residence in Palmer. In response, King argued that her debt was nondischargeable for fraud or willful and malicious injury.
BAPCPA has narrowed the scope of a chapter 13 discharge. While debts incurred by fraud are excepted from discharge, a creditor must seek a dischargeability determination within 60 days of the first � 341 meeting. Brown failed to meet this deadline so her claim would be discharged unless the case converted to chapter 7, in which instance a new deadline would be set. King's claim for willful and malicious injury would also be discharged in chapter 13, because it was a debt for an economic rather than a personal injury.
King's UCC financing statement was void because it was filed post-petition, in violation of the stay. Also, King did not have a valid security agreement. Her claim could not be allowed as a secured claim on the basis of the UCC financing statement.
King held a judicial lien in the debtor's residence because she recorded her judgment in the Palmer recording district before the debtors filed bankruptcy. There were also two mortgage liens against the residence. The total of the liens and King's judgment exceeded the value of the residence and impaired the debtor's homestead exemption. The debtors' motion to avoid King's judicial lien was granted. King's claim was allowed as a general unsecured claim.
Chris Johansen, Anchorage, for debtors; Lynn Levengood (Levengood and Gazewood, P.C.), Fairbanks, for King.
After a judgment was entered, the defendant's attorney filed a notice of appeal 12 days late, with a motion for extension of time to appeal. Attorney argued that late filing should be permitted under excusable neglect standard.
Defendant's attorney was ignorant of the applicable rules. The absence of prejudice and the existence of good fath do not trump an attorney's ignorance or misunderstanding of unambiguous rules of procedure. Such ignorance is not excusable neglect under Pioneer Investment Services Co. v. Brunswick Associates Limited Partnership. Motion denied.
Okray v. Dennis (In re Okray), 11/24/08.
Erik LeRoy, Anchorage, for the Okrays; Thomas Wickwire, Fairbanks, for the Dennises.
Chapter 12 debtors were commercial fishermen with substantial liabilities owed to the State of Alaska and other creditors. The State held liens against the debtors' fishing vessel and fishing permits. It filed a secured claim for $262,714.45. The debtor's plan proposed payments totaling $40,000.00 to the State in the first year and annual payments of $28,000.00 thereafter, with a final balloon payment in 10 years.
A plan must be feasible if it is to be confirmed. The debtors' income tax returns showed repeated losses from their prepetition fishing operations, and their monthly income and expense reports showed that they have lost money postpetition as well. There was no factual basis for the debtors' rosy income projections. Their plan was not feasible; it was a visionary and impracticable scheme. Confirmation denied.
David Bundy, Anchorage, for the Sines; Mary Ellen Beardsley, Anchorage, for the State of Alaska, Division of Investments; Larry Compton, trustee, pro se.
The Boyds filed their first chapter 12 petition in 1993. Vitale held a note secured by a deed of trust on the debtors' farm property. Vitale filed a claim indicating that he was fully secured, but the debtors' chapter 12 plan provided that Vitale's claim would be deemed unsecured. Vitale did not object, and the plan was confirmed. Vitale received a small plan dividend; the debtors successfully completed their plan and received a discharge.
The Boyds filed a second chapter 12 petition in June 2005. Vitale was listed as a creditor but his name was misspelled and his address was listed as "unknown." The debtors filed a liquidating plan that was confirmed by the court. Only when the farm property was listed for sale did Vitale receive notice of the second chapter 12 case. $180,000.00 of the proceeds from the sale of the farm property was escrowed pending a decision on the validity of Vitale's secured claim.
The simple statement that Vitale's claim "shall be unsecured" as set forth in the first plan was insufficient to invalidate his lien through the plan confirmation process. The Boyds' first chapter 12 failed to provide for Vitale's claim or invalidate his lien. His lien survived the first chapter 12 proceeding and still encumbered the farm property at the time the Boyds' second chapter 12 case was filed. Because Vitale received no notice of the second chapter 12 case, the provisions of the second confirmed plan were not binding upon him. He retained a valid lien against the sale proceeds.
M. Gregory Oczkus, Anchorage, for the Boyds; Vincent Vitale, Maricopa, AZ, on his own behalf; Richard L. Pomeroy, Anchorage, for the Farm Service Agency of the United States Department of Agriculture.
L.H. Construction, a corporation controlled by the debtor, made a work-out offer to its creditors, including K & W Interiors. K & W responded to the work-out offer with a request for a "personal" note. A note was subsequently issued in K&W's favor, but the maker was L.H. and the debtor signed the note as its vice-president. After the debtor filed chapter 11, K&W filed a claim in the case for the balance due on the note. The debtor objected to the claim on the basis that it was a corporate obligation.
A promise to answer for the debt of another is not enforceable unless it or some note or memorandum of it is in writing and signed by the party charged. There was no such writing here. The note was an obligation of L.H., not a personal obligation of the debtor. The note is distinguishable from the joint personal guaranty considered in Beck v. Haines Terminal and Highway Company, Inc. The debtor's objection to K&W's claim was sustained.
John Seimers (Burr, Pease & Kurtz), Anchorage, for Lythgoe; Michelle Boutin (Jermain, Dunnagan & Owens, P.C.), Anchorage, for K & W Interiors, Inc.
After filing chapter 11, debtor CBNA brought a declaratory judgment action against its insurance carriers to determine the scope of coverage under its various insurance policies. The issue to be resolved was the extent of coverage for sexual abuse claims which had been asserted against the debtor. The Unsecured Creditors' Committee (UCC) moved to intervene. CBNA concurred in the motion; the defendants opposed it.
The UCC argued that it had an unconditional right to intervene under Code � 1109(b) and FRCP 24(a). Cases on mandatory intervention under � 1109(b) are divided. The court found Fuel Oil Supply and Terminaling v. Gulf Oil Corp. to be the most persuasive and concluded � 1109(b) does not create an unconditional right to intervene. Additionally, the UCC didn't have a significantly protectable interest in the proceeding because, under Alaska law, a victim cannot maintain a direct action against the liability insurance company of the tortfeasor.
The same grounds for denying intervention under FRCP 24(a) applied to the UCC's request for permissive intervention under FRCP 24(b). Finally, the UCC's motion didn't satisfy FRCP 24(c) because its proposed complaint in intervention failed to state a claim for relief. The relief sought by the UCC was prohibited by Alaska law; a victim cannot maintain a direct action against the tortfeasor's liability insurance company. Motion for intervention denied.
Susan G. Boswell (Quarles & Brady LLP), Tucson, AZ, David A. Paige (Quarles & Brady LLP), Phoenix, AZ, and Michael R. Mills (Dorsey & Whitney LLP), Anchorage, for Catholic Bishop of Northern Alaska; David H. Bundy, Anchorage, James I. Stang (Pachulski Stang Ziehl & Jones LLP), Los Angeles, CA, Rebecca Rhodes and Paul J. Sievers (Manly & Stewart), Newport Beach, CA, for the Official Committee of Unsecured Creditors; James M. Alteri and Michael P. Pompeo (Drinker Biddle & Reath, LLP), Florham Park, NJ, for Travelers Casualty and Surety Company (formerly Aetna Casualty and Surety Company); Philip C. Stahl and Patrick T. Nash (Grippo & Elden, LLC), Chicago, IL, and Charles R. Ekberg (Lane Powell PC), Seattle, WA, for Continental Insurance Company; A. Richard Dykstra (Stafford Frey Cooper, PC), Seattle, WA, for Alaska National Insurance Company; Dennis G. LaGory and David M. Spector (Schiff Hardin LLP), Chicago, IL, for the Catholic Relief Insurance Company of America and Catholic Mutual Relief Society of America.
CBNA filed for chapter 11 relief in Alaska on March 1, 2008. An Oregon state court abuse case was pending against the Society of Jesus, Oregon Province at the time of the filing. The Oregon plaintiff wanted to depose Father Richard Case. Case had served CBNA in many capacities through the years and was also a member of the Oregon Society of Jesus.
CBNA's special counsel, Groseclose, warned counsel for the Oregon plaintiff, Manley, that the deposition of Case might violate the automatic stay. Manley's firm, Manley & Stewart, was also counsel for the unofficial tort claimants' committee in CBNA's chapter 11 case. Manley assured Groseclose that CBNA had no potential liability in the Oregon action and was not a target of the deposition. With this understanding, Groseclose agreed to let the deposition proceed. During the continued deposition of Case, which counsel for CBNA did not attend, attorney Pope of Manley & Stewart questioned Case extensively about CBNA's bankruptcy, what CBNA anticipated it would pay abuse claimants in its bankruptcy proceeding, CBNA assets and liabilities, including its endowment fund, CBNA's sources of funding, and the separation and relationship between CBNA and other entities. CBNA's counsel learned about the scope of questioning when an excerpt of Father Case's deposition was submitted in support of a motion filed by the Unsecured Creditor's Committee in CBNA's chapter 11 proceeding. CBNA sought sanctions for Manley & Stewart's violation of the stay. CBNA also asked for sanctions against Manley and Pope.
The court found that several lines of questioning pursued at the Case deposition were not relevant to the Oregon abuse case or the liability of the defendant in that case, the Oregon Province. Rather, the questions were similar to a judgment debtor or Rule 2004 examination of CBNA. The deposition violated the automatic stay because the discovery did not pertain to the non-debtor party and its property.
CBNA is not an "individual" injured by the stay violation under � 362(k), but could seek damages for violation of the stay under the bankruptcy court's civil contempt powers. Manley & Stewart knew of the automatic stay. Because the firm intended to ask the CBNA-related questions at the deposition, it intentionally violated the stay even though it may not have subjectively intended to do so. The court found that the imposition of sanctions was appropriate.
The UCC had already agreed to strike any reference to the Case deposition from its motion. The court found the deposition was void because it was taken in violation of the stay, and thus could not be used for any purpose. The court did not grant CBNA's request that Manley & Stewart's employment as special counsel in the chapter 11 case be revoked, but ordered the firm's fees cut $7,500.00 because CBNA should not have to pay for the cost of enforcing the stay. The court did not reach the question of whether sanctions should be imposed against Manley or Pope individually, however, because CBNA's motion didn't specify what sanctions should be imposed against them.
In re Catholic Bishop of Northern Alaska 4/16/09.
Susan G. Boswell (Quarles & Brady LLP), Tucson, AZ, Robert B. Groseclose (Cook, Schuhmann & Groseclose), Fairbanks, and Michael R. Mills (Dorsey & Whitney LLP), Anchorage, for debtor CBNA; John C. Manley (Manley & Stewart), Newport Beach, CA, for himself and his firm; Amy L. Pope, Newport Beach, CA, for herself; James I. Stang (Pachulski Stang Ziehl & Jones), Los Angeles, CA, for the Official Committee of Unsecured Creditors.
Debtor's principal, Weimar, entered into a settlement agreement with the trustee and the estate's major creditors in which he agreed to make a full, honest disclosure of his assets and liabilities. Post-settlement, there were instances in the bankruptcy case where Weimar was found to have breached this duty and made fraudulent disclosures as to his assets.
Weimar has convicted of a felony, post-petition and post-settlement, in district court. The trustee's counsel issued a subpoena duces tecum in the bankruptcy case and served it on Bukey, the attorney who represented Weimar in the district court criminal case. The trustee sought discovery of Weimar's presentence report and its underlying documents to see if Weimar had made further misrepresentations as to his financial condition. Bukey moved for a protective order and to quash the subpoena. The court found that the trustee had good cause for seeking disclosure of the information and that Weimar could not claim such disclosure would violate his right to privacy, given his duty under the settlement to fully disclose his assets. However, the records requested by the trustee were confidential court records under the district court's local rules. The bankruptcy court could not order the release of confidential records of the district court. The trustee's remedy was to seek discovery of the documents directly from the district court as provided under its local rules.
In re Allvest Corporation 5/19/09.
John C. Seimers (Burr, Pease & Kurtz), Anchorage, for trustee Battley; James E. Torgerson (Stoel Rives LLP), Anchorage, for Bukey.
Chapter 7 debtor filed a reaffirmation agreement with credit union for a vehicle loan after her chapter 7 case had been closed. The agreement was made after discharge was entered.
A reaffirmation agreement is binding only if it complies with � 524. Section 524 requires the agreement to be made before the granting of discharge. The debtor's agreement was void and unenforceable because it didn't satisfy this requirement. Court also found that it would be inappropriate to set aside the debtor's discharge so that the reaffirmation agreement could be considered timely filed, as this would contravene the statutory requirements of � 524.
Although the agreement was void, the credit union was not entitled to automatic repossession of the vehicle. It retained its security interest in the vehicle, but would have to enforce this interest under applicable state law. Issue of whether state law precluded enforcement of ipso facto clause in loan document, post bankruptcy, must be determined by state court. Finally, even though the debt was discharged, the debtor was still required to fulfill her obligations under the vehicle loan if she wanted to keep the vehicle.
Debtor, pro se.
Chapter 7 debtor sought approval of a reaffirmation agreement on a loan secured by real property. The agreement created an undue hardship and would not be approved. However, BAPCPA's changes, including termination of stay and ipso facto clause, do not apply to loans secured by real property, so debtor could retain the property without reaffirmation or redemption so long as payments were kept current.
Gary A. Spraker (Christianson & Spraker), Anchorage, for debtor.
In December, 2007, DIP's nondebtor corporation, LH Construction, Inc., paid a $50,000 retainer to attorneys Burr, Pease & Kurtz ("BPK") for services to be provided in the chapter 11 proceeding. K&W Interiors had a judgment against LH Construction and, in March of 2009, it executed on the BPK trust account. BPK did not release the retainer to K&W. It moved for an interim allowance of fees and K&W objected. K&W's objection was overruled. BPK acquired a possessory security interest in the retainer which primed K&W's execution lien. The funds had been fully earned by BPK by the time of the execution. BPK was entitled to the funds.
John Siemers (Burr, Pease & Kurtz), Anchorage, for debtor; Michelle Boutin (Jermain, Dunnagan & Owens, P.C.), Anchorage, for K&W Interiors, Inc.
Chapter 13 debtors filed an action for damages against deed of trust holders on property in Salcha. The debtors claimed injuries to their property while the deed of trust holders were in possession. The bankruptcy court found for the debtors on September 30, 2008. The deed of trust holders filed a tardy notice of appeal and motion to extend the time for appeal on October 22, 2008. The bankruptcy court denied the motion to extend time. It found that ignorance of the applicable rules was not excusable neglect and the deed of trust holders appealed to the district court. The district court affirmed, finding that the bankruptcy court did not abuse its discretion in denying the deed of trust holders' motion for extension of time.
Eric LeRoy, Anchorage, for the appellees; Thomas Wickwire, Fairbanks, for the appellants.
CBNA's UCC sought derivative standing to pursue an action against the Holy See to equitably apportion certain pending state court sexual abuse actions and to pursue real property avoidance claims against parishes. With regard to these claims, the UCC failed to present a cost-benefit analysis, necessary for determination of derivative standing, and that part of the committee's motion was denied. The UCC also sought derivative standing to pursue a $3 million dollar avoidance action against Catholic Trust of North America. Court estimated that costs of that action should not exceed $1 million and found that the Trust appeared to be a viable entity. The UCC was given derivative authority to pursue the $3 million transfer.
In re Catholic Bishop of North America, 9/11/2009.
James Stang and Hamid Rafatjoo (Pachulski Stang Ziehl & Jones LLP), Los Angeles, for the UCC; Susan Boswell and David Paige (Quarles & Brady LLC), Tucson, for CBNA; Ford Elsaesser, (Elsaesser Jarzabek Anderson Mark & Elliot, Chtd.), Sandpoint, Idaho, for Catholic Church Communities of Northern Alaska.
The UCC, debtor's Insurers and the future claims representative objected to CBNA's amended disclosure statement. Court agreed that the disclosure statement must be amended to reflect recent rulings on the UCC's motion for derivative standing and in the debtor's "lost policies" case against Continental Insurance Company. The UCC's and Insurers' arguments that the plan was "patently unconfirmable" had some merit but these were primarily confirmation issues. The Insurers' demand for disclosure of the proposed assignee of the debtor's insurance policies and of the settlement and litigation trusts called for by the plan were reasonable and would be granted. Further, CNBA must include the range of possible distributions to sexual abuse claimants, as well as a liquidation analysis, in an amended disclosure statement. Most of the UCC's 12 bullet point objections had merit and additional information would be required from the debtor.
In re Catholic Bishop of Northern Alaska, 9/11/2009.
Susan G. Boswell (Quarles & Brady LLP), Tucson, for debtor; Charles R. Ekberg (Lane Powell PC), Seattle, for Continental Insurance Company; David M. Spector and Dennis G. LaGory (Schiff Hardin LLP), Chicago, for Catholic Mutual Relief Society of America and the Catholic Relief Insurance Company of America; James Stang (Pachulski Stang, Ziehl & Jones LLP), Los Angeles, for the Official Committee of Unsecured Creditors; Fredrick P. Marczyk (Drinker Biddle & Reath LLP), Philadelphia, for Travelers Casualty and Surety Company; Young Kim (AlixPartners, LLC), San Francisco, present for Michael Murphy, Future Claims Representative.
CBNA, a chapter 11 debtor, moved for an extension of the exclusivity period to August 31, 2009, and for other relief. Court delayed ruling on this motion until it had ruled on the merits of the debtor's pending disclosure statement. The disclosure statement ruling was made September 11, 2009. Because the debtor's exclusivity motion had requested "other and further relief as the court deems just and necessary under the circumstances," and it would be fair and equitable, based upon factors present in the case, the court extended the exclusivity period to November 1, 2009.
In re Catholic Bishop of Northern Alaska, 9/11/2009.
Susan G. Boswell (Quarles & Brady LLP), Tucson, for CNBA; James Stang (Pachulski Stang Ziehl & Jones LLP), Los Angeles, for the UCC.
Continental sued CBNA in the "lost policies" case to establish that it had no liability for sexual abuse claims made against CBNA during a six year period from 1973 to 1979. After extensive discovery, both parties moved for summary judgment. Continental admitted issuing a policy of insurance to the debtor but CBNA could not present adequate secondary evidence as to the terms and conditions of the policy. The policy could have included both liability and casualty coverages. CBNA was unable to establish the existence of a liability policy through deposition testimony or documentary evidence. Continental's motion for summary judgment was granted and CBNA's was denied.
Continental Insurance Company v. Catholic Bishop of Northern Alaska, 9/11/2009.
Gary Zipkin (Guess & Rudd P.C.), Anchorage, and Charles R. Ekberg, (Lane Powell PC), Seattle, for Continental Insurance Company; Robert B. Groseclose, (Cook, Schuhmann & Groseclose), Fairbanks, for Catholic Bishop of Northern Alaska.
Debtor Robert Hawkins did business as Campus Photography. Alaska Employment Security Division ("ESD") filed a proof of claim indicating it held both a priority and a secured claim. The trustee objected to the claim. ESD filed a claim of tax lien in the Fairbanks recording district which named "Campus Photography - Rural Division" as the debtor. The lien did not list Robert Hawkins individually. ESD's claim of lien was insufficient to provide notice to creditors and other parties that the debtor's real and personal property was encumbered by a tax lien. The secured portion of ESD's claim was disallowed. The claim was allowed as a priority tax claim under � 507(a)(8).
Eric LeRoy, Anchorage, for trustee Larry Compton; Toby Steinberger (Alaska Office of the Attorney General), Anchorage, for the Alaska Employment Security Division.
Chapter 11 creditor Salmon Falls, Inc. sought relief from stay as to real and personal property it had sold prepetition to debtor Salmon Falls, LLC's fishing lodge. Creditor had not obtained preferred ship mortgages on four 52-passenger jet boats that were part of the sale. Debtor initiated an adversary proceeding against creditor for preferences and strong-arm relief. Because creditor had a colorable claim of lien on the jet boats and other collateral, questions debtor raised as to the validity of these liens were beyond the scope of the automatic stay hearing. Creditor was not entitled to relief from stay on adequate protection grounds because it had failed to establish that its collateral was depreciating. However, because creditor's secured claim was undersecured by $2.2 million and there was no prospect of an effective reorganization, relief from stay would be granted.
In re Salmon Falls Resort, LLC, 10/22/09.
Daniel Bruce and Marie Marx (Baxter Bruce & Sullivan PC), Juneau, for debtor; Frederick Odsen and James Gorski (Hughes Pfiffner Gorski Seedorf & Odsen, LLC), Anchorage, for Salmon Falls, Inc.
Independence Bank filed a motion for Rule 2004 examination of Aleutian Spray Fisheries, Inc., a defendant in an adversary proceeding brought by the bank. Because the adversary proceeding was pending, the bank's motion was denied. It should instead use the discovery devices provided by Fed. R. Bankr. P. 7026-7037.
In re Adak Fisheries, LLC, 10/29/09.
Arnold Willig (Hacker & Willig, Inc., P.S.), Seattle, for Independence Bank; Cabot Christianson (Christianson & Spraker), Anchorage, for debtor.
Chapter 7 joint debtors failed to schedule $48,000.00 in property on their initial schedules. They filed amended schedules and amended their claim of exemptions to exempt the previously unscheduled assets. Although a debtor may amend schedules at any time before the case is closed, bad faith by a debtor may prohibit such amendments. Debtor wife transferred property in Homer to her daughter for no consideration and filed inaccurate and misleading schedules. Looking at the totality of the circumstances, court found she engaged in efforts to conceal assets. The debtors' amended exemptions were disallowed due to wife's bad faith conduct.
Frank Cahill, Anchorage, for debtors; Gary Spraker (Christianson & Spraker), Anchorage, for William Barstow, Chapter 7 trustee.
Chapter 13 debtor filed an adversary proceeding against her housing lender, Residential Mortgage. Her rambling complaint contained several counts. The lender filed a motion for summary judgment. Motion granted in part. Count alleging violation of TILA would be dismissed because complaint was filed one year after the statute of limitations had expired. However, under the discovery rule, the debtor's state law counts for breach of contract and fraud were brought within the limitation period and would not be dismissed.
Boswell v. Residential Mortgage, LLC, 12/7/09.
Terry Boswell, pro se, Anchorage; Richard Ullstrom (Routh Crabtree Olsen, PS), Anchorage, for Residential Mortgage, LLC.
Ex-wife's proof of claim for over $40,000.00 claimed priority status as a domestic support obligation. However, divorce decree stated the obligation was in lieu of an additional personal property award. The disputed provision was in the property settlement portion of the divorce decree and no evidence was submitted to show that the claimant would have been entitled to alimony when the decree was entered. Court concluded the claim was a property settlement obligation. It would be discharged if the debtors fully performed their chapter 13 plan, but if the case converted or the debtors sought a hardship discharge, the obligation would be nondischargeable.
Jason Crawford (Crawford Law Offices, LLC), Fairbanks, for debtors; Lynn Levengood, Fairbanks, for creditor Tadlock.
Employee working for debtor contractor fell from ladder while working on a siding and roofing job for debtor in Kenai. The job was on a parcel owned by third parties. Employee became partially paralyzed and totally disabled. He had previously worked for debtor on three other lots which debtor owned in Kenai. These lots were not adjacent to the parcel on which the employee was injured, and projects were not related. Employee filed a worker's compensation lien on the three lots. Liens for wages and materials also encumbered the lots. Chapter 7 trustee netted $97,186 from the sale of the three lots free and clear of liens. He challenged employee's worker's compensation lien, arguing that it could not encumber the three lots because the injury occurred on a different lot. Worker's compensation statute is remedial and should be liberally construed. Court concluded employee had valid worker's compensation lien against the three lots and the sale proceeds. Allowance of the lien is not a penalty as to other lien claimants. Employee entitled to broad reading of statute. The fact that he was working at another job site at the time of injury does not diminish his entitlement to a lien against other assets of the debtor contractor.
Compton v. Truedell (In re Truedell), 1/19/2010.
Cabot Christianson (Christianson & Spraker), Anchorage, for Ch. 7 Trustee; Michael Flanigan (Walther & Flanigan), Anchorage, for Truedell
Catholic Bishop of Northern Alaska ("CBNA") filed ch. 11 petition on March 1, 2008. CBNA owned Pilgrim Hot Springs property 70 miles northeast of Nome through deed obtained in 1917. The property was leased to Pilgrim Springs, Ltd. in 1969 for 99 year term. CBNA moved to terminate lease in November of 2008 and lease was terminated in December. The Greens filed and then withdrew a proof of claim in CBNA's ch. 11 case. Their claim alleged that they had incurred expenses as caretakers of the property for Pilgrim Springs, Ltd. After withdrawing their claim, the Greens filed a state court quiet title action against CBNA, alleging ownership of the Pilgrim Springs property by adverse possession. CBNA's counsel wrote the Greens to advise that the suit violated the stay and requested dismissal. Attorney Bryon Collins responded for the Greens. He refused to dismiss the action, alleged the stay did not apply and stated his intent to continue with the action. Collins also said the bankruptcy court had no jurisdiction to hear the dispute. CBNA responded, disputed Collins' allegations and advised of possible sanctions. After Collins moved for entry of default against CBNA in the state court action, CBNA moved for an order to show cause and the bankruptcy court issued one against the Greens and Collins.
The Greens argue that mandatory abstention under 28 U.S.C. � 1334(c)(2) gives them a narrow exception to the automatic stay. But � 1334(d) says this subsection does not limit the applicability of the stay to property of the estate, and the Ninth Circuit has clarified this point. The Greens also argue that the automatic stay does not apply to them because they are not "creditors." They are nonetheless subject to � 362(a)(1), which prohibits all actions against the debtor. Nor does � 362(b)(3) provide an exception for the Greens. Quiet title actions are beyond the scope of this subsection, which applies to parties perfecting a security interest in property. The Pilgrim Hot Springs property is property of the estate subject to the automatic stay. Further, the Greens have not automatically acquired title to the property under state law.
A bankruptcy court may award a corporate debtor compensatory sanctions for willful violation of the automatic stay through its contempt authority. It cannot award punitive damages. Collins and the Greens willfully violated the stay. Sanctions of $1,000 per day would be imposed if the state court action was not dismissed within 14 days. CBNA was also awarded reasonable attorney's fees.
In re Catholic Bishop of Northern Alaska, 1/21/10.
Kasey Nye (Quarles & Brady LLP), Tucson, for debtor; Bryon Collins, Anchorage, for himself and the Greens.
DIP held $488,000 after sale of its fish processing plant and associated assets. The sale was free and clear of liens other than the secured claim of a bank and security interests in vehicles. Other liens against the plant, including tax liens and a fisherman's lien, attached to the sale proceeds. DIP moved to distribute approximately $122,000 of the sale proceeds to pay $42,538 in fees and costs its attorneys had incurred in connection with the sale as a 506(c) expense, plus two small senior tax liens and several priority wage claimants. DIP argued that priority wage claimants could be paid ahead of the remaining tax liens under 11 USC � 724(b). Contemporaneously, DIP's attorneys moved for allowance and payment of their fees, proposing to apply a retainer to approximately $23,000 of the fees and have the balance of the fees, $42,538, paid from the sale proceeds.
Court found that partial disbursement of the sale proceeds to pay lien creditors and wage claimants was inappropriate. First, � 724 was inapplicable to ch. 11 proceedings. Unlike a ch. 7 trustee, a ch. 11 DIP cannot subordinate tax liens. A ch. 11 debtor must either file plan, explain why it cannot do so, or seek conversion or dismissal of case; it cannot do a piecemeal distribution by straddling ch. 7 and 11. Additionally, DIP's proposed payments to the wage claimants did not match the wage amounts listed on its schedules or the proofs of claim filed by the claimants. Further, DIP proposed paying wage claimants who had not filed claims. If partial distribution were permitted and case subsequently converted, ch. 7 trustee would not be able to reconcile the payments against the claims. From court's perspective, most efficient way to pay the wage claimants would be through ch. 7 claims allowance process.
A portion of the requested attorney's fees were allowed as a � 506(c) expense. Court took conservative view of what fees would qualify as � 506(c) expense. Litigation expenses incurred in defending an adversary proceeding initiated by the bank were not proper � 506(c) expenses because the dispute was not interrelated with sale of the plant. For the same reason, fees for attending a Rule 2004 deposition and a hearing on a motion to compel would not qualify as 506(c) expenses, nor would the cost of the deposition transcript. Such services and costs would instead be allowed as attorney's fees payable from the attorneys' retainer.
In re Adak Fisheries, 1/26/2010.
Cabot Christianson (Christianson & Spraker), Anchorage, for the debtor.
Independence Bank sued Alaska National Insurance Company for breach of an insurance contract in bankruptcy court. Debtor Adak Fisheries was not a party to the action. Alaska National demanded a jury trial and moved to withdraw the reference. The breach of contract action was based upon events which occurred prepetition. It was not a core proceeding because it did not concern administration of the bankruptcy estate. Also, the action did not depend on the Bankruptcy Code for its existence and could proceed in another forum. Bankruptcy court could not conduct a jury trial absent the consent of all parties. Therefore, the bankruptcy court recommended that the reference by withdrawn.
Independence Bank v. Alaska National Insurance Company (In re Adak Fisheries, LLC), 1/27/10.
Arnold Willig (Hacker & Willig, Inc., P.S.), Seattle, for Independence Bank; Andrew Guidi (Delaney Wiles, Inc.), Anchorage, and John Siemers (Burr, Pease & Kurtz), Anchorage, for Alaska National Insurance Company.
Louis and Nancy Green claimed an interest in CBNA's Pilgrim Springs property. They sought to quiet title to the property through a post-petition action in state court. Bankruptcy court found the action void and in violation of the automatic stay. The Greens appealed that decision and filed a motion for preliminary injunction against CBNA's proposed sale of the property.
The Greens' motion was procedurally defective. It should have been brought as an adversary proceeding. Even if this defect were overlooked, the Greens would have to establish a likelihood of success on the merits to establish a right to injunctive relief. They were unlikely to obtain a reversal of the bankruptcy court's ruling on the automatic stay, which was based on well settled law. Nor did the evidence establish a claim of adverse possession. The property was leased to Pilgrim Springs, Ltd. and the Greens were simply caretakers or sharecroppers for that entity. The Greens' likelihood of success on the merits was negligible. They would not suffer irreparable injury from the sale. The balance of equities and the public interest favored CBNA. The Greens were not entitled to equitable relief.
In re Catholic Bishop of Northern Alaska, 2/26/10.
Kasey Nye (Quarles & Brady LLP), Tucson, Arizona, for CBNA; James Stang (Pachulski Stang Ziehl & Jones LLP), Los Angeles, for the Official Committee of Unsecured Creditors; Bryon Collins, Anchorage, for the Greens; Ford Elsaesser (Elsaesser Jarzabek Anderson Marks Elliot & MacDonald, Chtd.), Sandpoint, Idaho, for Catholic Church Communities of Northern Alaska.
The debtor was a custom fishing camp barge. Its principals borrowed from creditor BLX to build it. The barge never made money as a movable fishing camp despite the efforts of the debtor. After debtor defaulted on its loan, BLX arrested the barge. Debtor's chapter 11 followed. BLX sought dismissal on a variety of grounds, including bad faith filing. While some factors favored its arguments, the debtor had a 2009 appraisal of $3.4 million for the barge. BLX was owed about $1.6 million and debtor's principals honestly believed they had substantial equity in the vessel. Bad faith was not shown, nor did BLX prove any of its other grounds for dismissal.
Despite debtor's high appraisals for the barge, BLX's expert was more credible on this point. He valued the barge at $1.6 million, roughly the amount of BLX's debt. There was no equity cushion for BLX. Debtor could not show that it had a reasonable possibility of reorganization. It had defaulted on two prior work-out agreements. Further, its operation lacked the income to service BLX's debt and its projections were unrealistic. BLX was granted relief from stay.
David Bundy, Anchorage, for the debtor; Paul Hoffman (Hoffman Silver Gilman & Blasco, P.C.), Juneau, for BLX Commercial Capital, LLC.
Choy was a 60% member of debtor LLC that ran a bar and motel. Peterson and Robertson were also members with 20% each. All membership shares were pledged to secured creditor Northrim Bank. Choy sold additional membership interests to Briggs and Winters as the business struggled. All five members agreed to a chapter 11 filing for the LLC.
Debtor owed about $1.5 million to Northrim, which agreed to cap its claim at $970,000 under the plan � $300,000 in cash and a new $670,000 deed of trust. The value of the debtor's assets were less than Northrim's pre-petition claim.
Under plan, all equity interests would be eliminated and replaced by Choy's sister, Copelin, who would front $425,000 to fund the plan. Court found that all members' equity interests were subject to cramdown. No class junior to the unsecured creditor class was receiving anything under the plan and unsecured creditors would not receive more in a chapter 7. The plan was fair and equitable because all membership interests were encumbered by a prior pledge to Northrim. Members were not being deprived of any actual value other than to act as spoilers. Federal bankruptcy law trumped any purported state law rights of the members. Plan would be confirmed.
In re Allen Henry Choy, LLC, 3/3/10.
David Bundy, Anchorage, for the debtor; William Artus, Anchorage, for Robertson, Briggs and Winters; Dennis Fenerty, Groh Eggers, LLC, Anchorage for Northrim Bank; Peter Hallgrimson, Anchorage, for the Municipality of Anchorage.
Debtor Alexander was a federal felon with a $65,452.57 restitution obligation. He sued the State of Alaska for personal injuries suffered while in its custody and received a $45,000 judgment. The United States garnished the personal injury award. The debtor did not contest the garnishment and a federal district court ordered the State to pay the judgment to the Clerk of the federal court. The State did not remit the funds, however.
Debtor appealed the state court judgment, seeking pre-judgment interest. He then filed a chapter 7 petition and moved for release of all or a portion of the personal injury award as exempt property.
The parties stipulated that $7,800 in pre-judgment interest was exempt property. As to the principal amount of the judgment, the court found that the United States had properly followed the applicable garnishment statute. The debtor had no rights in the garnished funds after the district court entered the decree of garnishment. The fact that the State had delayed payment of the garnished funds did not affect the United State's interest in the funds. The debtor could not exempt the $45,000 judgment. It was no longer property of the estate.
Kenneth S. Alexander, Anchorage, pro se; Richard Pomeroy, Anchorage, for the United States; Erik LeRoy, Anchorage, for trustee Larry Compton.
In June, 2006, debtor purchased two adjacent lots in Soldotna for $950,000. One lot had highway frontage and the other had 100 feet of frontage on the Kenai River. Debtor put $200,000 down with the balance due in full in June of 2009. When it could not make the balloon payment, debtor filed chapter 11 in July, 2009. Denali Holdings moved for relief from stay under three subsections of 11 U.S.C. � 362. Its claim of $840,000 was secured by debtor's lots.
Despite debtor's optimism, the lots were valued at $1 million. After deducting transaction costs of 8%, Denali Holdings had a meager $80,000 equity cushion in the property. Court found that monthly adequate protection payments of $4,000 with a drop dead provision were appropriate. Because the debtor had equity in the lots, relief from stay under � 362(d)(2) was not justified. Further, the debtor did not fit the definition of a single asset real estate project; it was not a single property or project. The condominium project was dead and the lots were being used for a variety of purposes. Relief from stay was denied.
In re Kenai Riverfront Condomiums, LLC, 4/13/10.
Gary Spraker (Christianson & Spraker), Anchorage, for debtor; Bruce Moore, (DeLisio Moran Geraghty & Zobel, P.C.), Anchorage, for Denali Holdings, LLC.
Debtor entered into a prepetition fish freight contract with Korean shipper SeOil. Disputes arose over loading dates and the amount of fish to be shipped. Debtor shipped 2,400 tons of fish to Korea and SeOil seized $195,000 in fish sale proceeds. Debtor sued SeOil for the proceeds in federal district court. Debtor agreed to arbitration. The fish sale proceeds were placed in an escrow account pending resolution of the dispute.
Debtor filed chapter 11 and listed the $195,000 escrow in its schedules. Debtor sold its plant and other assets to Adak Seafood, LLC, for the sum of $488,000 cash plus Adak Seafood's assumption of approximately $6.7 million in debt. Debtor subsequently moved for approval of a settlement and distribution of the escrow proceeds between SeOil and the estate. The case converted to chapter 7 while this motion was pending. The chapter 7 trustee filed a memorandum in support of the settlement. Adak Seafood filed the only objection to the sale. It contended the escrow had been included in debtor's earlier sale of assets.
While certain cash balances were included in the sale, the escrow was not. Debtor's interest in the escrow remained property of the estate. The court found the settlement was reasonable. It would provide debtor with 60% of the escrow proceeds and resolve a disputed claim. Adak Seafood's objection was overruled and the settlement was approved.
In re Adak Fisheries, LLC, 5/12/2010.
Eric LeRoy, Anchorage, for trustee Kenneth Battley; Cabot Christianson (Christianson & Spraker), Anchorage for the debtor; John McDowall (Carney Badley Spellman, P.S.), Seattle, for Adak Seafood, LLC.
Secured creditor First National Bank Alaska moved to convert case on wide variety of grounds. Bank alleged debtor had failed to timely file disclosure statement and plan, but debtor had filed these documents by the deadline and had voluntarily amended these documents thereafter without additional deadlines being set. Bank alleged there had been a continuing loss to or diminution of the estate but failed to present expert accounting testimony to back up this allegation.
Bank also contended conversion was appropriate because debtor failed to pursue recovery of prepetition transfers to debtor's owners and their related companies. Court found there was no basis to convert on these grounds because, under the pending plan, the owners and a related company were to transfer to the debtor assets with a value well in excess of the prepetition transfers.
The Bank's allegations regarding owner debt forgiveness and gross mismanagement of the estate were also unsupported. There were no debt forgiveness provisions in the pending plan, nor was there any evidence of mismanagement of the estate. Motion to convert denied.
In re Alaska Fur Gallery, 5/21/10.
Cabot Christianson (Christianson & Spraker), Anchorage, for debtor; Bruce Moore and John Beard (DeLisio Moran Geraghty & Zobel, P.C.), Anchorage, for First National Bank Alaska.
Creditor First National Bank Alaska filed motion for appointment of a trustee or creditor's committee or, alternatively, for derivative authority so it could pursue avoidance claims against the debtor's owners. Court found that Bank hadn't shown that colorable claims existed which would, under a cost-benefit analysis, benefit the estate or that the debtor's inaction in pursuing the claims was unjustified.
Assuming success with the potential avoidance claims, the estate would net about $45,996 from the owners. The owners were voluntarily contributing $100,000 to the reorganization and causing another entity, Hernandez and Associates, to contribute real property worth $364,250 to the estate. Pursuit of the avoidance actions would not materially aid the debtor's reorganization effort; it would simply provide a device for Bank to irritate the owners and discourage their state court litigation against it. Bank's motion denied.
In re Alaska Fur Gallery, 5/21/10.
Cabot Christianson (Christianson & Spraker), Anchorage, for debtor; Bruce Moore and John Beard (DeLisio Moran Geraghty & Zobel, P.C. ), Anchorage, for First National Bank Alaska.
First National Bank Alaska and Export Development Canada filed objections to debtor's second amended disclosure statement. Court found that Bank's objections to the debtor's income statements and projections and to a transfer of real property were feasibility issues more properly addressed at confirmation. However, debtor would be required to make further disclosures regarding working capital, an apparent loss of assets, pending state court litigation, and treatment of equity interests. Court also agreed with Export Development Canada that debtor should make further disclosures about its real estate holdings and the treatment of its officers and directors. Court further required debtor to make additional disclosures regarding the sources of the financial information found in the disclosure statement and a summary of the debtor's 2009 federal tax return. Debtor's second amended disclosure statement was not approved; it had to be modified to include additional information.
In re Alaska Fur Gallery, Inc., 5/25/10.
Cabot Christianson (Christianson & Spraker), Anchorage, for debtor; Bruce Moore and John Beard (DeLisio Moran Geraghty & Zobel, P.C.), Anchorage, for First National Bank Alaska; David Bundy, Anchorage, and Ronald Clifford (Blakely & Blakely LLP), Irvine, California, for Export Development Canada.
Debtor operates three Chili's restaurants in Anchorage, Fairbanks and Wasilla. Initial members of the LLC were Duke, Goode, DeHaven, Kimmel.and Lange. Lange guaranteed substantial obligations of the debtor. Anderson and Wurm became LLC members at a later time. Duke managed the debtor. Debtor could not pay its substantial rental obligations, payroll and franchise fees. It borrowed high interest money from Advance Restaurant Finance and filed chapter 11 in September of 2010. Debtor's post-petition performance improved. All locations became more profitable.
Debtor was able to cut deals with its landlords to allow assumption of the three leases. Debtor made other deals with its franchisor, food vendor and equipment lessors. Lange opposed confirmation. He argued that Duke was an incompetent manager and the Fairbanks lease should be rejected.
Under plan, Duke would contribute $100,000 cash to acquire 100% ownership of the debtor. The cash was new value, substantial and necessary for a successful reorganization. It was also reasonably equivalent to the value or interest received. Court found that cramdown of the unsecured creditors and the equity interests was appropriate. There was no unfair discrimination in allowing Duke to acquire a 100% equity interest. A confirmed plan would trump State LLC governance statutes. Duke was essential to preservation of the franchise, and if Fairbanks lease was rejected Duke would probably leave and the franchise would be lost. Preservation of the franchise was key to the recovery of any value from reorganization. Plan was feasible in that there was a reasonable possibility of success. Confirmation of the plan was in the best interest of the creditors and probably in the best interest of LLC members who had guaranteed certain of the debtor's obligations. Plan would be confirmed.
In re Duke Investments, LLC, 6/1/10.
David Bundy, Anchorage, for the debtor; Eric LeRoy, Anchorage, for MCN Construction, Inc. and JCN Development, LLC; Michael Mills (Dorsey & Whitney LLP), Anchorage, for Lange; Michael Parise (Lane Powell LLC), Anchorage, for Brinker International, Inc.; Daniel Coffey (Ernouf & Coffey, P.C.), Anchorage, for John Emmi; Kathryn Black (Birch Horton Bitner & Cherot), Anchorage, for Alma Wellspring, LLC; David Oesting (Davis Wright Tremaine LLP), Anchorage, for GE Capital Franchise Finance Corporation; Gary Elmer (Pyle Sims Duncan & Stevenson), San Diego, California, for Advance Restaurant Finance, LLC; Jeffrey Misley (Sussman Shank LLP), Portland, Oregon, for Food Services of America, Inc.; Gary Sleeper (Jermain Dunnagan & Owens, PC), Anchorage, for Delta Leasing, LLC.
After plan was confirmed, trustee objected to Millet's late-filed claim. Debtor Adams failed to schedule Millett and Millett learned about Adams' bankruptcy after the deadline for filing proofs of claim had expired. Under the circumstances, the deadline for Millet to file a claim could not be extended because the court was limited to the exceptions found in Bankruptcy Rule 3002(c). Millett's claim was disallowed. Although he would not share in the plan distribution, his claim would not be discharged under the chapter 13 plan.
Larry Compton, Anchorage, for himself as Chapter 13 trustee; Clark Millett, Anchorage, pro se.
Debtor was a real estate developer in Juneau. He owned a five acre parcel that he subdivided into four lots. Lots 1 through 3 were 3/4 acre lots, and Lot 4 was roughly four acres. Lot 4 was encumbered for about $217,000. Debtor planned to develop an 18 lot subdivision on it.
The Gabors offered to purchase Lot 3 from the debtor. They obtained a permit from the Army Corps of Engineers to construct a building pad on the lot. Debtor agreed to supply the fill material for the pad. The sale to Gabors never closed but Mae Gabor, a realtor with Totem Properties, found other buyers for the lot. Debtor sold Lot 3 to the Nguyens for $105,000. The buy-sell agreement included a copy of the drawing for the pad designed by the Army Corps of Engineers. Debtor completed the pad according to the drawing. The Nguyens were dissatisfied with the result and demanded the placement of more fill on Lot 3. The buy-sell agreement provided that the pad had to be approved by the Nguyen's civil engineer. The engineer required additional fill.
At closing of the sale of Lot 3, $35,571 was placed in escrow pending debtor's completion of the pad. Disbursements to the debtor were delayed and the debtor sued the Nguyens and the realtors for damages. He reached a settlement with the Nguyens and received $24,000 of the escrowed proceeds, but continued his suit against the remaining defendants. Debtor argued that, because he didn't receive the escrow proceeds promptly, he could not make payments on Lot 4, which caused him to lose the property to foreclosure. This resulted in the loss of his real estate development business and forced him to file bankruptcy.
The state court claims were property of the bankruptcy estate. The trustee moved to settle the claims for $25,000. Debtor objected to the settlement, contending the claims were worth as much as $1.6 million. Court found that debtor's valuation was greatly inflated. Debtor ignored the express language of the Nguyen's purchase agreement that required approval of the pad by a civil engineer. His damage claims were speculative and remote, and there was no basis for a punitive damage claim. Even if the debtor had promptly received the escrowed funds, his plans for development of Lot 4 would have failed. The real estate market had collapsed and debtor was heavily leveraged. The settlement was approved.
David Bundy, Anchorage, for the debtor; Kent Sullivan (Baxter Bruce & Sullivan P.C.), Juneau, for Mae Gabor, Totem Properties and Roger Porto; Blake Chupka (Keene & Currall, P.C.), Ketchikan, for Tyler Rentals; Gary Spraker (Christianson & Spraker), Anchorage, for Larry Compton, Chapter 7 trustee.
Kimberly Reidel-Byler and her husband Darren Byler had been engaged in hardball tax litigation with the City and Borough of Yakutat for years. Reidel-Byler owned 100% of the debtor. The debtor owned two vessels which had been used for tourism and hunting in the past. The City and Borough of Yakutat sought to collect sales taxes from the debtor for business it had conducted within its boundaries. The taxes were not paid. After the City recorded a tax lien, the Bylers engaged in fraudulent transfers of the debtor's assets to Reidel-Byler and a newly formed corporation. The City obtained a judgment for $95,808 against the debtor and then filed a supplemental complaint to recover the fraudulent transfers. A jury found that Reidel-Byler had lied at judgment debtor examinations and transferred and concealed the debtor's assets in violation of a court order. The state court held the transfers of debtor's assets to Reidel-Byler and the new corporation were void.
While the tax litigation was pending, Darren Byler brought a wrongful death action against the debtor as personal representative of his father's estate. The claim had questionable validity. Reidel-Byler, as the debtor's owner, and Byler agreed to settle the claim for $2.5 million, secured by a preferred marine mortgage against one of the debtor's vessels. After the state court judgment was entered, Byler unsuccessfully sought to arrest the debtor's vessel before the City seized it.
After the City arrested the vessel, the debtor filed for chapter 11 relief. The City moved for dismissal on bad faith grounds, for adequate protection and for relief from stay. Under the totality of circumstances test, court found that the debtor's principals had engaged in bad faith conduct. The debtor had failed to pay taxes and fraudulently transferred its assets to others to avoid paying taxes. Reidel-Byler lied repeatedly about the debtor's assets and was found in civil contempt by the state court. She also lied about a $360,000 loan to the debtor and entered into a collusive agreement to mortgage the debtor's assets for $2.5 million. The debtor was not an honest but unfortunate debtor deserving of the protections offered by chapter 11. The petition would be dismissed.
In re Alaskan Adventure Tours, Inc., 6/17/10.
Gary Spraker (Christianson & Spraker), Anchorage, for debtor; Steve Shamburek, Anchorage, and James Brennan (Hedland Brennan & Heideman), Anchorage, for the City and Borough of Yakutat.
Chapter 13 debtors rejected residential lease with landlord but occupied the premises for nearly three months post-petition. Post-petition rents are entitled to administrative expense status up to the date debtors vacated the property. Landlord also had a general unsecured claim from date the debtors vacated until the premises were re-let and a claim for damage to the premises. Debtors left the home in damaged condition. Landlord entitled to set-off security deposit against the damages, with any remaining balance applied against the landlord's general unsecured claim.
Louis Breuer, Willow, for the debtors; Richard Deuser, Wasilla, for Jesse Tanner.
Debtor moved to avoid two judicial liens. Service on creditor Citibank was made by first class mail to a South Dakota street address. Rules require service by certified mail addressed to an officer of the bank. Service on creditor Alaska USA FCU was made by mail to the attention of "Enforcement." Credit union may be served by first class mail, but notice must be addressed to the attention of an officer or managing agent.
Paul Paslay, Anchorage, for the debtor.
Alaska Wildlife Properties (AWP) purchased a condominium complex in Iliamna in 1996. Campbell was AWP's sole and managing member. Ellis purchased a 50% interest in AWP in 2004 and also became a managing member. He loaned AWP $234,246, secured by a deed of trust on the project. The loan was not repaid, so Ellis sold it to Jeffries, who assigned it to Iliamna Lodge. Campbell and Ellis tried to repurchase the loan without success. AWP was involuntarily dissolved by the State of Alaska. Iliamna Lodge commenced foreclosure proceedings on the deed of trust. Campbell quitclaimed the condominium complex from AWP to new debtor Iliamna Lakeshore Condominiums two days before the scheduled foreclosure sale. Ellis refused to quitclaim his interest to the new entity. The debtor filed for chapter 11 relief and Iliamna Lodge moved for relief from stay.
Court found that this case was similar to other cases in which courts have found that the transfer of assets to a new entity on the eve of foreclosure constitutes bad faith. Other factors also indicated bad faith. The debtor had only one major asset, which was heavily encumbered. It had little or no business activity. There had been three prior attempted foreclosures on the project. There was no consideration for the transfer. The debtor had no means to service debt on the property. The other managing member of AWP had not consented to the transfer of assets to the debtor. There was no appreciable equity in the property and little prospect of reorganization. Relief from stay was appropriate.
In re Iliamna Lakeshore Condomiums, LLC, 8/25/10.
Cabot Christianson (Christianson & Spraker), Anchorage, for debtor; David Bundy, Anchorage, for Iliamna Lodge, LLC.
Debtor Sportsplex filed a motion to determine tax liabilities owed to the Municipality of Anchorage. Sportsplex was a tenant on land owned by Anchorage Community Development. ACD and Sportsplex had been engaged in a number of tax disputes with the Municipality. While Sportsplex owned the improvements to the real property, its landlord ACD was the one responsible for payment of taxes on both the land and improvements under the Anchorage Municipal Code. Under applicable Ninth Circuit precedent, a bankruptcy court cannot determine tax liabilities of non-debtors. Debtor's motion was denied.
In re Anchorage Sportsplex, Inc., 9/21/10.
David Bundy, Anchorage, for the debtor; John Siemers (Burr, Pease & Kurtz, P.C.), Anchorage, for U.S. Bank National Association as Indenture Trustee; Kathryn Black and Stanley Lewis (Birch Horton Bittner & Cherot), Anchorage, for ChangePoint, Grace Alaska and Anchorage Community Development, LLC; Deitra Ennis and Pamela Weiss (Municipal Attorney's Office), Anchorage, for the Municipality of Anchorage.
Debtor fisherman owed the State over $140,000. He executed an assignment in favor of the State for $85,000 in Exxon Valdez proceeds. In 1996, the State sent a copy of the assignment to the "Alyeska Settlement Claims Administration." Lynn Sarko, the administrator of the Exxon Qualified Settlement Fund (EQSF), acknowledged receipt of the assignment for the Alyeska settlement claims program as well as Exxon settlement proceeds.
Debtor filed a chapter 7 petition in 2000. He scheduled his Exxon claim, but indicated that it was subject to assignment/offset to the State. The State filed a secured proof of claim, along with copies of the debtor's assignment and Sarko's acknowledgment letter. Battley, the chapter 7 trustee, and his counsel tracked the Exxon claim and made demand for payment. The EQSF administrator ignored the prepetition assignment to the State and sent $57,000 in proceeds to Battley.
Battley objected to the State's proof of claim. He attacked the validity of the assignment. He also contended the estate was entitled to surcharge the State's secured claim under � 506(c) and asserted a quasi-estoppel argument against the State. Court found that the State's notice to the EQSF administrator was sufficient to perfect the assignment. State did not need to give notice of the assignment to Exxon as well because the EQSF administrator was responsible for paying all civil claims arising out of the Exxon Valdex litigation and Exxon's liability for the claims was extinguished. The Trustee's surcharge argument was inapplicable to assignments and, given the uncertainty of the Exxon litigation, there was no basis for a quasi-estoppel argument. Trustee's objection to the State's claim overruled.
Mary Ellen Beardsley (Office of the Attorney General), Anchorage, for the State of Alaska; William Artus, Anchorage, for trustee Kenneth Battley.
The debtor and Angel King had a brief marriage. During the marriage, the parties took out a $50,000 second mortgage on Angel's house primarily to pay for the debtor's credit card debts. In the divorce, the state court awarded Angel a $43,419.00 judgment against the debtor to enable her to make payments on her mortgage through garnishment of the debtor's wages. The debtor thereafter filed chapter 13. He objected to Angel's claim, alleging it was for property settlement rather than support.
Federal law determines whether a debt is a domestic support obligation. Fact that obligation was found in state court's ruling on property division was not determinative. The debt was in the nature of support because would enable Angel to keep her home and provide shelter for her and her son. A majority of federal courts considering this issue have found that mortgage payments labeled as property settlement obligations are in fact support obligations. The debtor's objection to Angel's claim was overruled.
Chris Johansen, Anchorage, for the debtor; Angel King, Anchorage, pro se.
Debtor purchased hotel, bar and restaurant in Palmer. In January of 2008 she was served with notice of 39 violations of the state fire code which required immediate correction. The business was to be closed until all corrections were made. Debtor contacted creditor Alaska Electric and Control to work on the corrections. She agreed to a time and materials contract payable on a daily basis. Alaska Electric promptly began the work and worked for three days before the business was shut down. It billed debtor for each day's work the day after the work was performed. Debtor gave Alaska Electric one bad check and never paid its invoices, even though she later poured hundreds of thousands of dollars into renovations.
The business reopened but ultimately failed. Debtor filed for chapter 7 relief. Alaska Electric filed a complaint objecting to discharge of its claim under � 523(a)(2)(A) on the basis of debtor's fraudulent representations. Court found that the debtor had knowingly and fraudulently represented that she could pay Alaska Electric on a daily basis. She knew her statement regarding prompt payment was false because, although she had the funds, she had no intention of paying "little" creditors until her business reopened. Alaska Electric's debt was excepted from discharge. It was also awarded prejudgment interest at the applicable state rate and post-judgment interest at the federal rate, plus attorney's fees as provided under the contract and its costs of suit.
Alaska Electric and Control, Inc. v. Piening, 11/8/10.
Grant Watts (Holmes Weddle & Barcott, P.C.), Anchorage, for Alaska Electric and Control, Inc.; Greg Oczkus, Anchorage, for Piening.
Debtor Alaskan Adventure Tours and its principals, Kimberly Reidel-Byler and Darren Byler, had a long-running tax dispute with the City and Borough of Yakutat (CBY). CBY eventually arrested two vessels belonging to the debtor, and debtor's chapter 11 filing followed. CBY moved to dismiss on bad faith grounds. The court granted the motion, but the dismissal was conditioned on the occurrence of certain events. Following entry of the conditional dismissal order, the debtor transported one of its vessels to the Gulf of Mexico for work on the British Petroleum oil spill. CBY received $100,000.00 in adequate protection payments while the vessel worked in the Gulf. Debtor's attorney moved for allowance and payment of his attorney's fees. CBY moved for the recovery of its attorney's fees as a sanction for the bad faith filing.
Court found that an imposition of sanctions is not mandatory when a chapter 11 petition is dismissed on bad faith grounds. The bankruptcy court has discretion to allow or disallow fees as sanctions. Here, there was conflicting evidence on the issue of filing for an improper purpose and the debtor's pleadings were not frivolous. As a result of the efforts of the debtor and its counsel, one vessel was released from arrest and sent to Louisiana where it earned $100,000 in funds for the benefit of CBY. Under such circumstances, sanctions were inappropriate. CBY's motion for sanctions was denied and debtor's counsel's motion for fees was be granted.
In re Alaskan Adventure Tours, 11/17/10.
Gary Spraker (Christianson & Spraker), Anchorage, for himself and the debtor; James Brennan (Hedland, Brennan & Heideman, P.C.), Anchorage, and Steve Shamburek, Anchorage, for the City and Borough of Yakutat.