Federal Steel Creditors’ Trust v. Federal Pipe & Steel et al. (05 A 978)

Bankruptcy: In re Federalpha Steel LLC, 03 B 43059 Opinion Issued: May 31, 2006 Judge: A. Benjamin Goldgar

stats on post-reform debtors

source: National Foundation for Credit Counseling

average income $31,255

average debts $40,673

source: Institute for Financial Literacy

44% have incomes of less than $20,000 per annum

31% say source of financial distress is "illness or injury"

source: National Association of Consumer Bankruptcy Attorneys

80% can't repay creditors at all

Opinion: Lefelstein v. Donlevy (04 A 03135)

Bankruptcy: In re Michael and Kelly Donlevy, 04 B 16320 Issued: May 25,2006 Court: Norther District of Illinois, Eastern Division

Judge: Jack B. Schmetterer

Needed: Candidates for BK Vice Chair. Act Now!

Want to be part of the fast-paced world of Bankruptcy? Wish you could do more for the legal community? Do you have trouble getting noticed at the office? Well don't despair because now there's a vacancy for next year' sVice Chair of the DCBA Bankruptcy Committee. That's right, you too can:

• host meetings and plan the annual seminar
• entertain friends and business associates
• chat knowledgably about Bankruptcy issues
• rub shoulders with luminaries throughout the county
• earn cash money (warning: no actual money paid)
• and much, much , more

And the perks? How about feeling great about yourself? How about the recognition? Did I mention that the Chairperson gets a plaque? You read that right my friend. A plaque with their ... name ... on it.

So why not apply for this prestigious position right now; only one slot left so e-mail me at mmhedayat@hotmail.com and let's get ready for your position as next year's Vice Chair of the DCBA Bankruptcy Committee.

Disclaimer: Any similarity to previous committee pitches is purely coincidental. Practice Bankruptcy Law responsibly. Offer void where prohibited. Friends don't let friends practice Bankrtupcy Law.

Another Day, Another Case Roundup!

3rd Circuit

In re: IT Group, Inc. (05/25/06 - No. 05-2191)

Dismissal of an adversary complaint filed by a bankrupt company's deferred compensation plan seeking secured, priority status for claims for benefits is affirmed over a claim that certain features of the plan obligated the corporation to fund a secular trust, outside the reach of creditors, for their exclusive benefit when a committee learned that the corporation was facing insolvency.

Seitz v. Detweiler, Hershey & Assocs., P.C. (05/26/06 - No. 05-2760)

A claim of negligence cannot sustain a deepening-insolvency cause of action. Summary judgment for defendants in an action brought by a bankruptcy trustee for an insolvent internet company against an accountant and his employer is affirmed where a malpractice claim failed since plaintiff could not establish harm or causation, and a deepening-insolvency claim failed because he could not establish a genuine factual issue to support an allegation that defendant engaged in fraudulent conduct.

4th Circuit

Duncan v. Duncan (05/24/06 - No. 05-1159)

Summary judgment in favor of defendant, in adversary proceeding brought to challenge the dischargeability of a judgment debt arising out of a state wrongful death action, is reversed where the issues decided in state court were not identical to and could not collaterally estop litigation of the controlling issue in the adversary proceeding.

Case Roundups; more fun than a bk attorney should have

7th Circuit

Peeler v. MCI, Inc. (05/08/06 - No. 01-3019)

Denial of injunctive relief to landowner is affirmed but case is remanded for determinations as to: 1) whether to certify proceeding as class action; and 2) whether claim meets the amount in controversy requirement for jurisdiction.

8th Circuit

Stallings v. Hussmann Corp. (05/12/06 - No. 05-1882)

The abuse of discretion standard applies to review of a district court's application of the judicial estoppel doctrine. Summary judgment reversed where district court abused its discretion in applying judicial estoppel and erred in granting summary judgment.

Lawsuit seeks to throw out provisions of BAPCPA

Various attorney organizations are challenging the BAPCPA in Connecticut District Court on the grounds that it "illegally restricts the advice lawyers can give and makes it harder for clients to navigate the bankruptcy system." In particular the law suit alleges that the BAPCPA forces attorneys to advise their Clients a certain way, neutralizing their discretion. The Connecticut Bar Association and the National Association of Consumer Bankruptcy Attorneys asked the Court to issue a temporary rule exempting Attorneys from the BAPCPA's rules applying to document preparers, debt consolidation agencies, and attorneys.

Trustee v. 5841 Building Corporation et al. (04 A 3438)

Bankruptcy: In re Chris Hansen, 02 B 33776 Full Adversary Caption: Joel A. Schechter v. 5841 Building Corp.; APMC Oil Co., Inc; and Richard Stiefel

Issued: May 12, 2006 Judge: A. Benjamin Goldgar

Yet another lesson for the unwary practitioner ...

One neat trick pulled off in the bapcpa is the truncation of the automatic stay. That is, if a debtor has filed a case within the past year then the automatic stay on their current filing loses its force within 30 days unless the debtor secures a continuance under § 362(c)(3)(B) and (4)(B). Before representing such debtors however, remember that:

(1) the notice and hearing must take place within 30 days of filing

(2) debtor bears the burden of showing that the new case was filed in good faith and extention of the stay is justified

See: In re Baldassaro 338, B.T. 178 (Bkrtcy.D.N.H. 2006)

(3) debtor bears the burden of showing that if the case is a 7 discharge is likely, and if a 13 the plan will succeed

See: § 362(c)(3)(C)(i)(III)

Filings returning to pre BAPCPA levels

Fun with bankruptcy cases

Unsecured claim for insurance premium is priority

Howard v. Zurich American Insurance Co. __ F.3d __ (4th Cir. 2006) Insurer's claim for unpaid premium is entitled to priority under § 507(a)(4) and therefore reverses the decision of the district court and remands the case for such further proceedings as may be appropriate. The issue in this case is whether an insurance company providing worker's compensation to a debtor who has filed bankruptcy is entitled to priority for any unpaid premiums. Howard Delivery Service, Inc. (Howard) owns a freight carrier business, with its principal place of business in West Virginia. West Virginia worker's compensation statutes required Howard either subscribe to the State's Workers' compensation fund or opt out and become a self-insurer. Howard entered into a workers' compensation agreement with Zurich American Insurance Co. (Zurich), promising to reimburse all losses under workers' compensation polices up to $250,000. Howard filed for Chapter 11 bankruptcy. Zurich filed proofs of claim for insurance premiums in an unliquidated amount. Howard asked the bankruptcy court to estimate the unliquidated claims. Zurich amended its claims to $410,215.00, changing its claim for priority treatment to contributions to an employee benefit plan under Sec. 507(a)(4) of the Bankruptcy Code. Howard filed a written objection, claiming Zurich had no priority because unpaid insurance premiums were not contributions to an employee benefit plan. The Bankruptcy Court found that Zurich was not entitled to priority. The United States District Court for the Northern District of West Virginia (District Court) affirmed. The United States Court of Appeals for the Fourth Circuit reversed, finding the plain language of the statute stated unpaid premiums constituted contributions to an employee benefits plan. A concurrence agreed with the majority's ruling but relied upon a provision in the Employee Retirement Income Security Act of 1974 (ERISA). On appeal to the United States Supreme Court Howard will argue premiums are not contributions to an employee benefit plan as defined by Sec. 507(a)(4) and should not receive priority. Additionally Howard argues that it also not appropriate to look to ERISA to define the term employee benefit plan because ERISA's definitions were specifically designed for ERISA, not the Bankruptcy Code.

===================================== Tax return filed after SFR and assessment constitutes a "return" for discharge purposes

Gary Wayne Colsen v. USA __ F.3d __ (8th Cir. 2006)

In the context of bankruptcy proceedings, the honesty and genuineness of a filer's attempt to satisfy tax laws when filing IRS tax returns should be determined from the face of the form itself, not from the filer's delinquency or the reasons for it. The United States asserts that a 1040 form filed after the IRS has gone to the trouble and expense of preparing substitute returns and assessing the relevant tax liability serves no purpose under the tax laws and thus cannot have been an "honest and genuine endeavor" to satisfy the tax laws as Beard requires. The government's essential position is that because Mr. Colsen's 1040 forms were filed after the IRS's assessment, they do not evince an honest, genuine attempt to satisfy the law and thus he has not satisfied the requirement that returns be filed in order for tax liabilities to be dischargeable. But we have no evidence to suggest that the forms appeared obviously inaccurate or fabricated; indeed, Mr. Colsen's 1040 forms contained data that allowed the IRS to calculate his tax obligation more accurately: The information contained in the forms was honest and genuine enough to result in thousands of dollars of abatements of tax and interest.

Fetla’s Trading, Inc., et al v. Granet et al (05 A 00926)

Bankruptcy:In re Fetla’s Trading Post, Inc., 04 B 12231 Issued: May 4, 2006 Judge: John H. Squires

And now a word from our sponsor ... or ... why Anna Nicole is double-d-licious

Jack Ayer ABI Resident Scholar (Visiting Prof. of Law, NYU Law School)

If you can say “bankruptcy,” “probate” and “jurisdiction” all in the same sentence without your head falling onto your chest, then you may have the makings of a bankruptcy lawyer. If you followed the Anna Nicole Smith case, you might be in that group that, according to the folks over at “The Man Show,” are among the 86 percent of all men who have watched Porky’s (while only 81 percent have actually read a book). So it is perhaps not surprising that the dullest Supreme Court case of the year received the most attention. For those who haven’t followed the case, Anna won a bankruptcy judgment against her deceased husband’s son in the bankruptcy court. The district court cut the size of the judgment, but otherwise affirmed. The Ninth Circuit reversed, holding that it was a probate matter that didn’t belong in the Federal courts to begin with. The Supreme Court on Monday reversed the Ninth Circuit. The Ninth Circuit now gets a chance to sort out the remaining issues. “Anna Nicole Smith” brought up 615 hits on Google News as of mid-morning today, the day after the decision. “Poor, dumb-as-a-stick Anna Nicole Smith,” yielded only one hit (a New York Daily News editorial), but it echoed a general sentiment. “A victory for white trash everywhere,” exulted the Boston Herald. Any way you slice it, Anna (a.k.a. Viki) Nicole (a.k.a. Lynn) Smith (a.k.a. Marshall), more famed for her strong bones and healthy complexion, was the ironic eye at the center of the paparazi-powered hurricane that surrounded her and her quest for $474 million—no, make that $88 million—no $44 million—anyway, whatever it is she is entitled to get as a chunk of the estate of her ex-husband.As a former newspaperman, I followed the slurry of media coverage to discern at least the outline of the narrow issues in the case. David G. Savage in the Los Angeles Times may have put it most precisely. Anna “won a unanimous ruling from the Supreme Court, “ he said, “that cleared the way for her to claim as much as $500 million from her late husband's estate.” Many reports made it clear that the Supreme Court’s decision was only the end of the beginning, not the beginning of the end. But Savage, better than most, pinned down the reason. He noted that that there were competing lawsuits: the Texas probate matter and the California bankruptcy case. “The Supreme Court did not decide whether the Texas court or the federal bankruptcy court handed down the first decision,” he said. “Usually, when judges are dueling over who gets to decide an issue, the first ruling is honored in the end.” Pressing the envelope, Savage went further and tied in the one concept even more forbidding than the bankruptcy/probate alliance: the Internal Revenue Code. “The Internal Revenue Service often goes to federal court to seek taxes that are owed by an estate,” Savage pointed out. “For that reason, the Justice Department entered the case of Marshall v. Marshall on the side of the billionaire's widow.” At Knight-Ridder, David Montgomery added a hint of the broader implications of the decision. He pointed out that the case “could prompt lawyers to turn increasingly to the federal courts in estate cases,” in his article in the San Jose Mercury News. From a purely technical standpoint, the case is perhaps best understood not as a bankruptcy matter at all, but rather as a chapter in the history of federal jurisdiction—a point Justice Ruth Bader Ginsburg made tolerably clear in her majority opinion, limiting the scope of the probate exception (Justice John Paul Stevens, dissenting, would have gone further and expunged the probate exception altogether). The next stage (presumably back in the Ninth Circuit, whence it came to the Supreme Court) may well turn on nothing more than an issue of the fact—which opinion, state or federal, can be counted as “first” to dispose of the underlying issue.

Let the roundup begin ...

1st Circuit

Nash v. Connecticut Student Loan Found. (04/26/06 - No. 05-2549)

Order denying discharge of education loans because of disability is affirmed where the plaintiff produced no evidence regarding her future inability to work.

5th Circuit

Int'l Interests, L.P. v. Hardy (04/26/06 - No. 04-21025) Questions of law are certified to the Supreme Court of Texas regarding: 1) choice of law issues in an action to recover a deficiency; and 2) proper application of the law governing calculation of the deficiency.

9th Circuit

Educ. Credit Mgmt. Corp. v. Nys (04/26/06 - No. 04-16007) A bankruptcy panel's reversal of a ruling against a creditor on her adversary complaint in bankruptcy court to have her student loans discharged is affirmed where the bankruptcy court erred in requiring the debtor to show exceptional circumstances beyond the inability to pay in the present and a likely inability to pay in the future.

Trustee v. Heller Financial Leasing , Inc. (05 A 1874)

Bankruptcy Caption: In re JIII Liquidating, Inc., f/k/a Jernberg Industries, Inc. et al Bankruptcy No.: 02 B 25909 Issued: April 27, 2006 Judge: John H. Squires