Tennessee Bankruptcy Blog
Opinions of E.D. Tenn. Bankruptcy Court

Not Final ... Until it’s FINAL! - Jim Moore - 10/9/08
This is a 4 page opinion of Judge John C. Cook in Pick v. Brucker, (In re Brucker), 07-1083, (Bankr. E.D. Tenn, June 26, 2008). The opinion does not reflect the lawyers involved.

Judge Cook’s opinion deals with the issue of finality of a Tennessee State court judgment. The plaintiff says the State court judgment establishes that the indebtedness is nondischargeable. The defendant says the judgment was not final when he filed his bankruptcy petition and thus res judicata and collateral estoppel are inapplicable.

Facts:
The debtor apparently lost in State Court and filed a timely Motion to Reconsider. While his Motion to Reconsider was pending the debtor filed his voluntary Chapter 7 bankruptcy petition. The plaintiffs do not want to relitigate a case they previously won and filed an MSJ.

In ruling that the State judgment is not final Judge Cook writes:

The Tennessee courts treat motions for reconsideration as motions to alter or amend governed by Rule 59.04 of the Tennessee Rules of Civil Procedure. E.g., Brewer v. Pigged, No. W2006-01788-OA-R3-CV, 2007 WL 1946632, at *5 (Tenn. Ct. App. July 3, 2007); Higgins v. White, No. M2004-00412-COA-R3-CV, 2006 WL 1763648, at *3 n.2 (Tenn. Ct. App. June 27, 2006) (citing McCracken v. Brentwood United Methodist Church, 958 S.W.2d 792, 795 n.3 (Tenn. Ct. App. 1997)). When a timely motion to alter or amend is filed, the 30-day deadline for filing a notice of appeal does not run until the entry of the order denying the motion. Tenn. R. App. P. 4(b). A notice of appeal filed before that time is premature. Tenn. R. App. P. 4(d). Accordingly, the defendant’s filing of a motion for reconsideration extended the time for filing a notice of appeal until 30 days after the denial of the motion, and the motion had not been denied (or granted) at the time the bankruptcy case was commenced.

“Tennessee cases clearly indicate that, in order to warrant the application of res judicata (of which collateral estoppel is one type), a prior adjudication must be final.” C.O. Christian & Sons Co. v. Nashville P.S. Hotel, Ltd., 765 S.W.2d 754, 756 (Tenn. Ct. App. 1988), permission to appeal denied (Tenn. 1989); accord, e.g., In re Order to Encapsulate Native Am. Indian Grave Sites in Concrete and Pave over with Asphalt, 250 S.W.3d 873, 882 (Tenn. Ct. App. 2008) (quoting Smith Mech. Contractors, Inc. v. Premier Hotel Dev. Group, 210 S.W.3d 557, 564-65 (Tenn. Ct. App. 2006) (citing Lee v. Hall,790 S.W.2d 293, 294 (Tenn. Ct. App. 1990))); Patton v. Estate of Upchurch, 242 S.W.3d 781 (Tenn. Ct. App. 2007) (quoting Beaty v. McGraw, 15 S.W.3d 819, 824 (Tenn. Ct. App. 1998)), permission to appeal denied (Tenn. 2008). “Although the principles governing the meaning of ‘final judgment’ for purposes of appeal may differ from those relevant for purposes of collateral estoppel, the Rules of Appellate Procedure should provide some guidance.” Id. Thus, in one case in which the trial court accorded res judicata effect to an order entered in separate litigation just one day earlier, the Tennessee Court of Appeals reversed because the order was not a final appealable one:

In Tennessee, it is generally considered that the judgment of a court of record is not final until the expiration of at least 30 days from its entry. A judgment of a court of record is “within the bosom of the court” for 30 days after entry, during which time it may be set aside or amended on motion of a party or upon the court's own motion.

McBurney v. Aldrich, 816 S.W.2d 30, 34 (Tenn. Ct. App. 1991) (citing Tenn. R. Civ. P. 59.02; Jerkins v. McKinney, 533 S.W.2d 275 (Tenn.1976)).

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Creditor Loses Preference Action! - Jim Moore - 10/8/08
This is a 15 page opinion of Judge Marcia Parsons in Guinn v. Tri-Core, Inc., (In re Liberty Fibers Corp.), 07-05013, (Bankr. E.D. Tenn. June 26, 2008). Tyler Huskey of Knoxville represented the Trustee, Maurice Guinn. John A. Walker of Knoxville represented the defendant, Tri-Core, Inc.

This proceeding was filed by the Trustee to collect a preference and deals with the Trustee’s Motion for Summary Judgment. The debtor loses and Judgment is entered for the Trustee. In dealing with the various defenses Judge Parsons writes:

1) § 547(b)(5); Received More than In Bankruptcy:

The Sixth Circuit Court of Appeals has stated that “[u]nless the estate is sufficient to provide a 100% distribution, any unsecured creditor . . . who receives a payment during the preference period is in a position to receive more than it would have received under a Chapter 7 liquidation.” Still v. Rossville Bank (In re Chattanooga Wholesale Antiques, Inc.), 930 F. 2d 458, 465 (6th Cir. 1991).

The Bankruptcy Code does not define the term “initial transferee,” but “[g]enerally, the party who receives a transfer of property directly from the debtor is the initial transferee.” 5 Collier on Bankruptcy ¶ 550.02[4][a] at 550-18 (15th ed. rev. 2008). According to the Sixth Circuit, “[a]n initial transferee is one who receives money from a person or entity later in bankruptcy, and has dominion over the funds.” First Nat’l Bank of Barnesville v. Rafoth (In re Baker & Getty Fin. Servs., Inc.), 974 F.2d 712, 722 (6th Cir. 1992). In contrast, parties who did not have sufficient dominion or control over the property transferred and were instead acting as mere conduits facilitating the transfer from the debtor to the third party have been held not be to be transferees. 5 Collier on Bankruptcy ¶ 550.02[4][a] at 550-18 (15th ed. rev. 2008). “[A] party is not to be considered an initial transferee if it is merely an agent who has no legal authority to stop the principal from doing what he or she likes with the funds at issue.” Taunt v. Hurtado (In re Hurtado), 342 F.3d 528, 534 (6th Cir. 2003) (applying dominion-and control test for “initial transferee” under 11 U.S.C. § 550(a); “the minimum requirement of status as a ‘transferee’ is dominion over the money or other asset, the right to put the money to one’s own purposes”)(quoting Bonded Fin. Servs., Inc. v. European Am. Bank, 838 F. 2d 890, 893 (7th Cir. 1988)).

While Tricore is correct that neither the manner nor amount of payments changed during the preference period, substantial deviations from the parties’ established practices did take place, particularly with respect to the timing of payments. Prior to the preference period, the Debtor’s checks, with one exception, were dated within the thirty-day payment period specified in the invoices. Although the dates these payments were actually received by Tricore are not in the record, the dates the checks cleared the bank indicate that Tricore received payment either before or within a few days after the 30-day payment date. As previously noted, Tricore’s customary practice was to receive payment from the Debtor and then to pay the supplier. There is no indication that during the pre-preference period Tricore was required to deviate from this established practice by paying the supplier before it received payment from the Debtor.

“The determination of whether a recovery would benefit the estate is done on a case-by case basis.” In re Furr’s Supermarkets, Inc., 373 B.R. at 699. “If the recovery will have some positive benefit to the estate or its creditors . . . recovery may be had even if such benefit is indirect.” 5 Collier on Bankruptcy ¶ 550.02[2] at 550-7 (15th ed. rev. 2008). In the present case, the Trustee is seeking recovery of the preferential transfers on behalf of the chapter 7 estate. While recovery may little benefit prepetition unsecured creditors, it will benefit the estate through the payment of administrative expenses, which is generally recognize to constitute a “benefit to the estate” within the meaning of § 550(a). See In re Sweetwater, 884 F. 2d 1323, 1327 (10th Cir. 1989); In re Furr’s Supermarkets, Inc., 373 B.R. at 699-700. Accordingly, Tricore’s argument in this regard must be rejected.

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Failed to Respond? You Lose! - Jim Moore - 10/7/08
This is a 6 page opinion of Bankruptcy Judge Marcia Parsons in In re Smith, 07-5048, (Bankr. E.D. Tenn, June 20, 2008). The plaintiff, Winco, Inc. was represented by Knoxville lawyer Frederick L. Conrad, Jr., the debtor was pro se, their lawyer having previously be allowed to withdraw. The opinion grants the plaintiff creditor’s Motion for Summary Judgment that the debtor did not respond to.

Facts:
The plaintiff alleged that the Debtor obtained goods and services from it by forging the signature of a third party, Tony Nunley, on a credit application. The debtor answered the Complaint stating that he had a business relationship with Mr. Nunley wherein the parties shared the profits from the Debtor’s flooring business, that he had the authority of Mr. Nunley to enter into credit transactions in his name, and that when he signed the credit application with Winco, he thought he was acting in furtherance of his agreement with Mr. Nunley. Winco submitted Requests for Admissions that the debtor failed to respond to. The debtor also failed to respond to Winco’s MSJ.

Most of Judge Parsons’ opinion reviews the law with regard to granting an MSJ when the defendant fails to respond. With regard to dischargeability she writes:

The dischargeability of debts is governed by 11 U.S.C. § 523, which provides in material part:

(a) A discharge under section 727 . . . of this title does not discharge an individual debtor for any debt—

(2) for money, property, services, or an extension, renewal, or refinancing of credit to the extent obtained by—

(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition

11 U.S.C. § 523(a)(2)(A). The Sixth Circuit Court of Appeals has held that in order to satisfy the requirements of this provision, a plaintiff must prove: (1) the debtor obtained an extension, renewal, or refinancing of credit through material misrepresentations that he knew were false or that he made with gross recklessness; (2) the defendant intended to deceive the plaintiff; (3) the plaintiff justifiably relied on the debtor’s false representation; and (4) the plaintiff’s reliance was the proximate cause of his losses. Rembert v. AT & T Universal Card Servs., Inc. (In re Rembert), 141 F.3d 277, 281 (6th Cir. 1998). The party seeking a determination of nondischargeability bears the burden of proving the necessary elements by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 291, 111 S. Ct. 654, 661 (1991). Further, exceptions to discharge are to be strictly construed against the creditor. In re Rembert, 141 F.3d at 281.

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Fire Destroys House AND Legal Malpractice Claim! - Jim Moore - 10/7/08
This is an 11 page opinion of Judge John C. Cook in In re Avans, 08-1054, (Bankr. E.D. Tenn, June 16, 2008). The opinion does not state who the parties lawyers were.

Facts:
This is a fight over just who is entitled to the insurance payments made under a fire insurance policy. The plaintiff, Regions Bank made a loan to the debtor secured by a Deed of Trust that probably had a defective description of the Georgia real property. The TD may or may not have withstood a challenge by a Chapter 7 bankruptcy Trustee. The debtor sold the real property that had a house on it, subject to Regions Bank’s TD. The debtor filed a Chapter 13 bankruptcy on March 31, 2005. The house burned on June 4, 2005. On July 5, 2005, Regions exercised the power of sale under the Security Deed. On August 5, 2005, State Farm issued a check for the fire loss in the amount of $65,121.07, payable jointly to the order of the plaintiff, and the debtor. The debtor objected to Regions receiving the payment because of the defective TD and its failure to go into a Georgia state court and obtain a confirmation of the foreclosure sale as required by Georgia Code § 44-14-161.

With regard to Regions being the loss payee Judge Cook finds that the fire apparently saved some lawyer from a malpractice claim:

The plaintiff’s rights as a loss payee are independent of the Security Deed. For example, in Rick Taylor Timber Co. v. Orix Credit Alliance, Inc. (In re Rick Taylor Timber Co.), No. 92-5038, 1993 WL 13003868 (Bankr. S.D. Ga. June 14, 1993), two creditors were asserting claims to the insurance proceeds with respect to a piece of equipment that was destroyed by fire. First National Bank of Alma held a perfected security interest in the collateral (and its proceeds) but was not named as a loss payee, and Orix Credit Alliance held an unperfected security interest in the collateral but was named as a loss payee. The court held that Orix had a prior claim to the proceeds:

In this case Orix has an “original” interest in the insurance policy arising out of its having been named loss payee and as such, the validity of its interest is not subject to Article 9. . . .

. . . . Orix' failure to perfect its security interest is not fatal because its
interest as loss payee is not governed by Article 9. . . . .

. . . . Orix obtained a contractual promise from Debtor’s predecessor in interest to keep the collateral insured. Debtor assumed the obligation and kept the promise by maintaining the required insurance and naming Orix as loss payee. The insurance company issued a certificate of insurance naming Orix as loss payee on the feller buncher. I conclude that Orix, named as loss payee, has a superior claim upon the insurance proceeds.

Id., 1993 WL 13003868, at *7-*8; see Palmer v. Mitchell County Fed. Sav. & Loan Ass’n, 377 S.E.2d 4, 6 (Ga. Ct. App. 1988) (“It is well settled that a ‘New York standard’ or ‘union’ mortgage clause such as the one appearing in the insurance policy at issue in this case ‘”create[s] a separate and distinct contract on the [secured lender's] interest and . . . give[s] it an independent status.”’”); see also CIT Group/Equip. Fin., Inc. v. Northbrook Prop. & Cas. Ins. Co., 515 S.E.2d 845, 846 (Ga. Ct. App. 1999) (“CIT obtained rights to the insurance proceeds as the loss payee under the insurance contract between Powell and Northbrook and also as the assignee under the terms of the sales contract and security agreement.”) (emphasis added). Thus, the plaintiff has rights in the insurance proceeds as a loss payee even if it has no such rights under the Security Deed.

The defendant contends that, because the plaintiff did not timely commence a proceeding to obtain a deficiency judgment, there is a conclusive presumption that there was no deficiency, i.e., that the collateral brought enough at foreclosure to satisfy the debt. The court does not so read the statute. As the court held in a recent decision, if the lender does not timely commence a confirmation proceeding, Section 44-14-161 merely bars it from collecting any deficiency; the statute does not establish that there was no deficiency. In re Higgins, No. 07-10654, slip op. at 8 (Bankr. E.D. Tenn. Feb. 19, 2008), notice of appeal filed (Mar. 21, 2008). “The legal effect of a failure to obtain confirmation of a foreclosure sale is that it bars a creditor from seeking a deficiency judgment. Failure to obtain confirmation does not extinguish the debt; it just limits the creditor's remedies.” Presidential Fin. Corp. v. Snead (In re Snead), 231 B.R. 823, 825 (Bankr. N.D. Ga. 1999); accord, Calvert Fire Ins. Co. v. Environs Dev. Corp., 601 F.2d 851, 854 (5th Cir. 1979); Worth v. First Nat’l Bank, 333 S.E.2d 173, 174 (Ga. Ct. App. 1985); Marler v. Rockmart Bank, 246 S.E.2d 731, 734 (Ga. Ct. App. 1978); Turpin v. N. Am. Acceptance Corp., 166 S.E.2d 588, 592 (Ga. Ct. App. 1969); see Sur. Managers, Inc. v. Stanford, 633 F.2d 709, 711 (5th Cir. 1980); Bus. Loan Ctr., LLC v. Nischal, 331 F. Supp. 2d 301, 307 (D.N.J. 2004); Citizens Bank v. Wiggins, 167 B.R. 992, 994 (M.D. Ga. 1994); First Fed. Sav. & Loan Ass’n v. Fisher, 422 F. Supp. 1, 3 (N.D. Ga. 1976), aff’d, 544 F.2d 902 (5th Cir. 1977); Powers v. Wren, 31 S.E.2d 713, 716 (Ga. 1944); Breeze v. Columbus Bank & Trust Co., 448 S.E.2d 276 (Ga. Ct. App. 1994); Turner v. Commonwealth Mortgage Assurance Co., 428 S.E.2d 398, 399 (Ga. Ct. App. 1993). Thus, the Georgia Court of Appeals has held that, even though the mortgagee failed to obtain confirmation, it may collect the debt from other collateral, Worth, 333 S.E.2d 173, or exercise a contractual setoff right to reduce the deficiency, Marler, 246 S.E.2d 731. Accordingly, the statute does not bar the plaintiff from pursuing its rights under the insurance policy for the repayment of the debt.

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BOLO!!! Marilyn Russell-Johnson, Pro Se - Jim Moore - 10/6/08
This is a 72 page opinion of Judge Stinnett in In re Marilyn Russell, 07-11374, (Bankr. E.D. Tenn, June 2, 2008). The debtor filed a Chapter 13 pro se on April 11, 2007 and disclosed two prior bankruptcy cases. [The U.S. Trustee may have found evidence of 5 more cases.] The debtor almost none of the required schedules and statements and filed to convert to a Chapter 7 on April 23, 2007. Judge Stinnett writes for 72 pages about the history of the case with quotes of the various pleadings filed by the debtor. This opinion deals with a Motion to Recuse filed by the debtor. I can’t believe I read most of it much less that Judge Stinnett wrote it. The only part of the opinion I am going to quote is:

“The bankruptcy trustee and the U. S. Trustee have not filed motions for sanctions under Rule 11. That is the typical course of action in dealing with pro se litigants. A motion for sanctions is likely to generate more pleadings with more of the same kinds of arguments that provoked the motion. The result is that a pro se litigant will often have broad leeway to abuse the legal system and anyone involved in the case on the opposing side. Nevertheless, this system generally works better than trying to hold a pro se litigant strictly to the same Rule 11 standards as a lawyer.” At pg 54.

“It is well established that Tennessee courts are to provide “fair and equal treatment” to parties who decide to represent themselves. Hessmer v. Miranda, 138 S. W. 3d 241, 244 (Tenn. Ct. App. 2003). Accordingly, we are to permit the self-represented litigant who has no legal training some leeway in drafting their pleadings, motions, and other papers and judge the writings with less stringent standards than those applied to papers prepared by members of the bar. Young v. Barrow, 130 S.W.3d 59, 63 (Tenn. Ct. App. 2003). However, we are aware of the boundary between fairness to a pro se litigant and unfairness to the pro se litigant's adversary. Thus, courts must not excuse pro se litigants from complying with the same substantive and procedural rules that represented parties are expected to observe. Whalum v. Marshall, 224 S.W.3d 169, 179 (Tenn. Ct. App. 2006). The self-represented litigants “must act within the time periods provided by the applicable statutes and rules in order to have their cases considered”, Grigsby v. Univ. of Tenn. Med. Ctr., No. E2005-01099- COA-R3-CV, 2006 WL 408053 at *3 (Tenn. Ct. App. Feb. 22, 2006). Moreover, pro se litigants cannot shift the burden of the litigation to the courts or to their adversaries, and courts cannot create claims or defenses for pro se litigants where none exist. Rampy v. ICI Acrylics, Inc., 898 S.W.2d 196, 198 (Tenn. Ct. App.1994).”

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Fighting a Claim … Out of Time & Defenses. - Jim Moore - 10/2/08
This is a 28 page opinion of Judge Stinnett in In re McIntire, 04-15864, (Bankr. E.D. Tenn, April 14, 2008). [This blog entry is out of date order because the opinion only recently appeared on the Court’s website.] David J. Fulton of Chattanooga represented the debtor. Harry R. Cash of Chattanooga represented the claimant Chattanooga Neighborhood Enterprise.

Judge Stinnett's opinion includes an extensive review of the facts. A quick summary is that in March 1999 the debtor went through Chattanooga Neighborhood Enterprise (“CNE”) [http://www.cneinc.org/] to obtain a loan to improve her home. CNE filed a claim in the debtor’s Chapter 11 with regard to the loan to which the debtor objected. The debtor objection was based on the fact that she had used a CNE approved contractor, who she alleged was a friend of a CNE employee and recommended by CNE. The contractor was later removed from the approved contractor list. The debtor alleged the contractor did more damage than improvement and that CNE had voluntarily stepped in and supervised the construction.

The debtor, pro se had previously participated in an arbitration with regard to the debt and had also filed a Chapter 13 prior to filing the present Chapter 11. The debtor’s main claim against CNE relies on Tennessee cases that have held a defendant liable for damages on either or both of two grounds: (1) negligent misrepresentation; (2) negligent performance of a duty to the plaintiff that the defendant voluntarily assumed.

Judge Stinnett’s opinion reviews the law with regard to:

1) Negligent misrepresentation:

"As to negligent misrepresentation, the Tennessee courts have adopted the principles set out in section 552 of the Restatement 2d of Torts. Tartera v. Palumbo, 224 Tenn. 262, 453 S.W.2d 780 (1970); Stinson v. Brand, 738 S.W.2d 186 (Tenn. 1987); Restatement 2d Torts § 552 (1977). The claim for negligent misrepresentation requires proof that CNE in the course of its business supplied information to the debtor to guide her in selecting a contractor and failed to exercise reasonable care or competence in obtaining or communicating the information. Bennett v. Trevecca Nazarene University, 216 S.W.3d 293 (Tenn. 2007); Ingram v. Cendant Mobility Financial Corp., 215 S.W.3d 367 (Tenn. Ct. Page 7 of 28 App. 2006). At p. 6

As to the effect of the arbitration award, CNE relies on the doctrines of res judicata and collateral estoppel that are applied to final judgments under Tennessee law. In Tennessee law the doctrine of res judicata generally prevents a person from asserting a claim in litigation after the claim was decided against the person in earlier litigation. The doctrine of collateral estoppel is similar but applies to particular issues that were decided in earlier litigation that did not necessarily involving the same claims. Richardson v. Tennessee Board of Dentistry, 913 S.W.2d 446, footnote 11 (Tenn. 1995).

a) Tolling:

The debtor contends the chapter 13 case tolled the running of the limitations or repose periods, and therefore, she was entitled to an additional eight months to file suit after the limitations or repose periods would have expired if she had not filed the chapter 13 case. The Tennessee statutes do not include a provision that suspends or tolls the time for bringing suit while the potential plaintiff is the debtor in a bankruptcy case. The Tennessee statutes also do not treat any extension of time by § 108(a) of the bankruptcy code as tolling or suspending a period of repose or limitation. Tenn. Code Ann. §§ 28-1-101–28-1-115 & 28-3-205; Weaver v. Hamrick, 907 S.W.2d 385 (Tenn. 1995); see also Danielson v. ITT Industrial Credit Co., 245 Cal.Rptr. 126 (Cal. Ct. App. 1988); Otchy v. City of Elizabeth Board of Education, 737 A.2d 1151 (N. J. Super. App. Div. 1999). As a result, the debtor’s prior chapter 13 case did not entitle the debtor to an additional eight months to file suit.

b) Tenn. Code Ann. § 28-3-105(1) & § 28-3-202:

CNE relies on two other Tennessee statutes. One provides that an action for injury to real property must be commenced within three years after the cause of action accrued. Tenn. Code Ann. § 28-3-105(1). The other statute deals with actions to recover damages arising from the construction of an improvement to real property. The statute provides:

All actions to recover damages for any deficiency in the design, planning, supervision, observation of construction, or construction of an improvement to real property, for injury to property, real or personal, arising out of any such deficiency, or for injury to the person or for wrongful death arising out of any such deficiency, shall be brought against any person performing or furnishing the design, planning, supervision, observation of construction, construction of, or land surveying in connection with, such an improvement within four (4) years after substantial completion of such an improvement.
Tenn. Code Ann. § 28-3-202.

…
In summary, the three year statute of limitations bars the debtor’s main claim against CNE for damages caused by the contractor’s defective work and CNE’s failure to supervise. The four year statute of repose bars the debtor from bringing suit on that claim or the claim for damages caused by CNE’s negligent misrepresentation.

Tennessee law distinguishes recoupment from set-off. When two parties to a lawsuit have claims against each other, one generally cannot set off a claim against the other if the claim is barred by a statute of limitations or repose. Recoupment, however, is not affected by a statute of limitations or repose because it is essentially a defensive claim. The debtor can be entitled to recoupment if she proves damages caused by CNE’s failure to comply with an obligation to her in the same transaction that gave rise to CNE’s claim or damages caused by CNE’s violation of a duty to the debtor that the law imposed in the making and performance of a contract between them. It makes no difference to recoupment that CNE’s claim is based on a contract and the debtor’s claim for damages is a tort claim. Mack v. Hugger Bros. Constr. Co., 153 Tenn. 260, 283 S.W. 448 (1926); Phoenix Iron Works Co. v. Rhea, 38 S.W. 1079 (Tenn. Ct. Chan. App. 1896)

The debtor is clearly arguing that she treated the misrepresentations as a recommendation of the contractor. Thus, the pre-contract forms signed by the debtor and the construction loan agreement include the debtor’s agreement that CNE did not recommend the contractor by means of any true or false representation. This agreement should prevent the debtor from recovering on the negligent misrepresentation claim because it prevents her from proving reliance on the misrepresentations. Ingram v. Cendant Mobility Financial Corp., 215 S.W.2d 367 (Tenn. Ct. App. 2006). Since the debtor cannot prove reliance, she cannot prove negligent misrepresentation, and the claim is not available for recoupment.
…

In the two release provisions, the debtor agreed to save harmless and release CNE from any loss, cost, expense, injury, or damage of any kind arising from the agreement or from any source whatsoever. These provisions are broad enough to release CNE from any liability to the debtor for assuming supervision of the construction. The “save harmless” wording is broad enough to prevent recoupment of a claim based on negligent supervision.

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Getting Your Fee When a Case Blows Up! - Jim Moore - 9/30/08
This is a 5 page opinion of Judge Stair in In re Holbrook, 06-032385, (Bankr. E.D. Tenn. June 13, 2008). Oak Ridge lawyer, Ann Mostoller, (who is also a Panel Trustee), represented the debtors and filed the fee request. Chapter 13 Trustee, Gwendolyn M. Kerney objected to the fee request. (I was peripherally involved in this case as attorney for the debtor wife’s parents who are creditors.)

Facts:
The actual facts are not really clear. Judge Stair admits in Footnote 1, that he’s making a presumption as to the receipt of $1,500. Basically this was a voluntary Chapter 7, (where the debtors’ lawyer, Ann Mostoller charged $1,500.00), that blew up and was forced to convert to a Chapter 13. As always happens with such cases lots of problems ensued. The debtors’ lawyer then filed to be paid for her services from the Chapter 13 plan payments.

According to the opinion Ms. Mostoller’s fee application and disclosures revealed that she:
1) received $1,500.00 prior to the filing of the Chapter 7 petition;
2) immediately after the conversion to Chapter 13 filed a disclosure stating “that she had agreed to accept $3,500.00” for representation in the Chapter 13;
3) was requesting $4,422.50 for services provided prior to the conversion to Chapter 13; and,
4) was requesting $7,951.25 for services provided after the conversion.

As set forth by Judge Stair:

Ms. Mostoller grounds her request for compensation in both the Chapter 7 and superseding Chapter 13 case on 11 U.S.C. § 330(a) (2005), and payment is sought from the Chapter 13 Trustee through the Debtors’ confirmed plan as a priority administrative expense. See 11 U.S.C. §§ 503(b)(2), 507(a)(1), and 1322(a)(2) (2005).

Upon review of the Motion and Objection thereto, the court finds that Ms. Mostoller’s request for supplemental compensation of $2,922.50 and reimbursement of $5.74 in expenses attributable to services rendered and expenses incurred in conjunction with the Debtors’ prosecution of their Chapter 7 case prior to conversion to Chapter 13 cannot be allowed. See Lamie v. United States Trustee, 124 S.Ct. 1023, 1032 (2004) (“[Section] 330(a)(1) does not authorize compensation awards to debtors’ attorneys from estate funds, unless they are employed as authorized by § 327.”).

With regard to Mr. Mostoller’s request for compensation and expenses attributable to services rendered the Debtors during the prosecution of their Chapter 13 case, the same are, to the extent allowed by the court, payable as an administrative expense pursuant to 11 U.S.C. § 330(a)(4)(B). The court finds, however, that under the terms of her agreement with the Debtors, Ms. Mostoller’s compensation and expenses are limited to $3,500.00.

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“Secured” Claim also good for Unsecured Debt! - Jim Moore - 9/1/08
This is a 13 page opinion of Judge Cook in In re Spurling, 06-14207, (Bankr. E.D. Tenn. June 12, 2008). The filed Memorandum does not reflect what lawyers are involved.

Facts:
Four creditors filed Proof of Claims for secured debts prior to the bar date. One creditor, Caterpiller, stated the value of its collateral was “to be determined”, the three others stated that their collateral’s value was “unknown”. When the Trustee sent out a final report indicating the payment of an 11% dividend to general unsecured creditors the four creditors filed amended proof of claims. Caterpiller’s amended POC was for the deficiency. The other three creditors recharacterized their claims from secured to unsecured. The Trustee objected to all four amended POCs.

Judge Cook does a very through review of the law and then rules that the amended POCs related back to the original filings. He allowed all three creditors to share in the distribution to general unsecured creditors.

“To sum up to this point, the controlling precedent in this circuit is liberal in allowing the amendment of claims, even where the bar date has run, from unsecured to secured and from unsecured to priority. The Sixth Circuit considers the underlying transaction or occurrence, within the meaning of Rule 15, to be the original transaction between the debtor and the creditor in which the debt was established. The debt is composed of the obligation and the amount due. Other features surrounding the debt, such as whether it is secured or not, are incidental and as to them claims may be amended without incurring the objection that the creditor is erecting a new claim. The Winters case adds a new requirement – reservation of the right to amend – which no Sixth Circuit case has approved. There is no law or policy in this circuit that requires creditors filing secured claims to state the contingencies under which they might be partially unsecured or to guess how unsecured they might eventually be.”

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Mechanics Lien; NEW Limitation Period Problems! - Jim Moore - 8/28/08
This is a 6 page opinion of Judge Parsons in Cherokee Millwright v. Liberty Fibers,( In re Liberty Fibers Corp.), 07-5043, (Bankr. E.D. Tenn. June 6, 2008). John Walker of Knoxville represented the plaintiff Cherokee Millwright, Inc. Tyler Huskey of Knoxville represented the Trustee, Maurice Guinn.

This fight is about whether or not the plaintiff failed to filed its complaint within the required time limit. Thus the dates are important.
1) Sep. 26, 2005 plaintiff performs last work on behalf on debtor;
2) Sep. 29, 2005, the debtor filed a chapter 11 petition;
3) Oct. 3, 2005 plaintiff filed a Notice of Lien against the debtor;
3) Mar. 7, 2007 the plaintiff filed for relief from the Stay;
4) Mar. 29, 2007 the Stay is lifted to allow the plaintiff to perfect its lien;
5) 83 days later on Jun. 20, 2007 the plaintiff files this adversary proceeding to enforce the lien.

The plaintiff asserts that a Tennessee law enacted in 2006, T.C.A. § 66-21-110, gave it 90 days after the Stay was lifted to file this proceeding. The Trustee asserts that pursuant to T.C.A. § 66-11-106 the plaintiff had within one year of Sep. 26, 2005 to enforce its lien but that this was extended by 11 U.S.C. § 108 to 30 days after the lifting of the Stay. “Trustee argues that the [new] statute is inapplicable herein because it was enacted on May 18, 2006, almost nine months after the Debtor’s bankruptcy case was filed and [plaintiff]’s rights accrued. Alternatively, the Trustee asserts that Tennessee Code Annotated § 66-21-110 (2006) is preempted by federal bankruptcy law.”

As stated by Judge Parsons:

The nonbankruptcy law that is applicable to the enforcement of Cherokee’s lien is Tennessee Code Annotated § 66-11-106,4 which specifies that an action to enforce a lien must be brought within one year after the date improvement is complete or abandoned. See Durkan Patterned Carpet, Inc. v. Premier Hotel Dev. Group (In re Premier Hotel Dev. Group), 270 B.R. 234, 237 (Bankr. E.D. Tenn. 2001). The one-year period began on the last day Cherokee performed work for the Debtor, September 26, 2005, and ended on September 26, 2006. Cherokee did not seek to enforce its lien during this one-year period by filing a motion for stay relief. Notwithstanding this failure, due to the Debtor’s bankruptcy filing, the one-year period provided by Tennessee Code Annotated § 66-11-106 is extended by § 108(c)(2) of the Bankruptcy Code until 30 days after Cherokee obtained relief from the automatic stay, or 30 days after March 29, 2007. As pointed out by the Trustee, Cherokee also failed to meet this date as it did not file the complaint commencing this adversary proceeding until June 20, 2007, 83 days after the court granted stay relief. Therefore, Cherokee’s complaint was untimely and its lien may no longer be enforced.

As noted by the Trustee, Cherokee states in its complaint that its filing is nonetheless timely. Tennessee Code Annotated § 66-21-110 (2006) provides in relevant part:

Notwithstanding any other provision of law to the contrary, if due to the filing of a bankruptcy petition under title 11 of the United States Code, compiled in 11 U.S.C., a creditor is stayed from filing the necessary documents to create or enforce a lien or security interest against the debtor’s property, then any statute of limitations created or established by law for the perfection or enforcement of a lien or security interest shall be tolled until ninety (90) days after any of the following actions occur with respect to the filing of the bankruptcy petition:

(1) the stay is lifted as to the creditor;
(2) the case is discharge; or
(3) the case is dismissed.

Tenn. Code Ann. § 66-21-110 (2006). This statute was enacted on May 18, 2006, after the Debtor filed its bankruptcy petition on September 26, 2005. “The general rule is that the rights of the parties in the debtor’s property are determined as of the time of bankruptcy.” Williams v. Weems (In re Ken Gardner Ford Sales, Inc.), 41 B.R. 105, 111 (Bankr. E.D. Tenn. 1984). Changes in state law are generally inapplicable if enacted after a bankruptcy case is filed. See Hertzberg v. Assocs. Disc. Corp., 272 F.2d 6 (6th Cir. 1959). “The Tennessee Constitution states, ‘That no retrospective law, or law impairing the obligations of contracts, shall be made.’ Statutes are presumed to operate prospectively unless the legislature clearly indicates otherwise.” Nutt v. Champion Intern. Corp., 980 S.W.2d 365, 368 (Tenn. 1998) (citations omitted). The Tennessee legislature made no provision for retroactive application of Tennessee Code Annotated § 66-21-110 (2006). Therefore, even under state law, Tennessee Code Annotated § 66-21-110 (2006) would not apply to the proceedings under the Debtor’s bankruptcy case. The court having reached this conclusion, it is unnecessary to address the Trustee’s preemption argument.

0 Comments

No Tolling of 2 Year Limitation to file 527! - Jim Moore - 8/27/08
This is a 13 page opinion of Judge Stair in In re Dill, 07-3125, (Bankr. E.D. Tenn. June 3, 2008). John Newton of Knoxville represented himself as Trustee and plaintiff. Victoria Ferraro of Nashville represented the defendant Wells Fargo Financial, Inc.

This is a case where event dates matter.
1) Debtor purchased car and financed it with the defendant on July 7, 2005;
2) Defendant perfected it’s security interest on Aug, 17, 2005;
3) Debtor filed Chapter 7 petition and Plaintiff was appointed on Oct. 2, 2005;
4) Trustee requested compliance with Local Rule and filing of POC on Nov. 16, 2005;
5) Trustee makes 2nd request for POC and threatens lawsuit on Mar. 27, 2006;
6) Defendant files a Motion for Relief from Stay on Oct. 4, 2007;
7) Trustee filed this §527 adversary proceeding on Dec. 7, 2007.

Realizing that he had a problem with the two year limitation period set forth in § 546 the Trustee requested it be “tolled due to the willful failure of the Defendant to provide proof of its security interest and to file a proof of claim.”

As set forth by Judge Stair:

“The Plaintiff Trustee was required to file an adversary proceeding to recover pre-petition transfers, including potential preferences, prior to October 1, 2007, pursuant to § 546(a) of the Bankruptcy Code.”
…

“Strictly defined, equitable tolling is [t]he doctrine that the statute of limitations will not bar a claim if the plaintiff, despite diligent efforts, did not discover the injury until after the limitations period had expired.” Tapia-Martinez v. Gonzales, 482 F.3d 417, 422 (6th Cir. 2007) (internal quotations and citations omitted). “Typically, equitable tolling applies only when a litigant’s failure to meet a legally-mandated deadline unavoidably arose from circumstances beyond that litigant’s control . . . [but a]bsent compelling equitable considerations, a court should not extend limitations by even a single day.” Graham-Humphreys v. Memphis Brooks Museum of Art, Inc., 209 F.3d 552, 561 (6th Cir. 2000) (citations omitted). When determining whether to apply the doctrine of equitable tolling, courts consider the following factors: “(1) lack of actual notice of filing requirement; (2) lack of constructive knowledge of filing requirement; (3) diligence in pursuing one’s rights; (4) absence of prejudice to the defendant; and (5) a plaintiff’s reasonableness in remaining ignorant of the notice requirement.” Nardei v. Maughan (In re Maughan), 340 F.3d 337, 344 (6th Cir. 2003) (citation omitted). Nevertheless, “[t]he propriety of equitable tolling must necessarily be determined on a case-by-case basis.” Graham-Humphreys, 209 F.3d at 561.
…

“Applying these factors, the court can readily determine that there is no basis for tolling the statute of limitations. The Plaintiff’s Complaint was untimely filed, and the Defendant is entitled to summary judgment.”
…

“There is nothing, however, within the Federal Rules of Bankruptcy Procedure or the Local Rules that affirmatively requires the filing of a proof of claim by any creditor. The only rule speaking to a filing requirement is that, in order to be allowed, “[a]n unsecured creditor or an equity security holder must file a proof of claim or interest for the claim or interest to be allowed . . . [.]” FED. R. BANKR. P. 3002(a). With respect to the Local Rules, the only thing that is required, and is also plainly stated on the Notice of Chapter 7 Bankruptcy Case served on all creditors, is that any creditor claiming a security interest in property of the Debtor is required to provide the Trustee with proof thereof prior to the meeting of creditors. Moreover, although the Local Rules require secured creditors to provide proof of perfection, the only remedy for failing to comply with E.D. Tenn. LBR 3001-1(b) is the Trustee’s entitlement to recover costs related to filing an adversary proceeding, a right potentially afforded every prevailing party in an adversary proceeding. See FED. R. BANKR. P. 7054(b).”

6 Comments

Another Rule 59 & 60 Motion Bites the Dust! - Jim Moore - 8/26/08
This 7 page opinion of Judge Stair in In re Perry, 08-3002, (Bankr. E.D. Tenn. May 30, 2008) is a follow up of his opinion entered in the same case on May 2, 2008. [Commented on below in the post titled “No jurisdiction over post-Ch 13 Mortgage demand”.] The debtor’s lawyer Cynthia Lawson makes another attempt for relief. It appears to be just a coincidence that I’ve got two blog entries in a row on Rule 59 and Rule 60. [See the April 30, 2008 opinion of Judge Parsons below.]

As Judge Stair sets forth in the Memorandum denying the Motion:

“Before the court is the Plaintiff’s Motion to Reconsider Order (Motion to Reconsider) filed by the Plaintiff on May 9, 2008, asking the court, pursuant to Rules 59 and 60 of the Federal Rules of Civil Procedure, made applicable to bankruptcy cases by Rules 9023 and 9024 of the Federal Rules of Bankruptcy Procedure, to reconsider the Order entered on May 2, 2008, granting the Defendant’s Motion to Dismiss, or in the Alternative, for Summary Judgment filed on March 13, 2008, and dismissing the Plaintiff’s Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, applicable herein by virtue of Federal Rule of Bankruptcy Procedure 7012 (Dismissal Order).
…

“A motion to reconsider a judgment is a species of petition to alter or amend that judgment under [Federal Rule of Civil Procedure] 59(e).” Huff v. Metro. Life Ins. Co., 675 F.2d 119, 122 (6th Cir. 1982). Rule 59(e) is applicable to bankruptcy cases pursuant to Rule 9023 of the Federal Rules of Bankruptcy Procedure and provides that “[a]ny motion to alter or amend a judgment shall be filed no later than 10 days after entry of the judgment.” FED. R. CIV. P. 59(e). “Motions to alter or amend [a] judgment may be granted if there is a clear error of law, newly discovered evidence, an intervening change in controlling law, or to prevent manifest injustice.” Gencorp, Inc. v. Am. Int’l Underwriters, 178 F.3d 804, 834 (6th Cir. 1998) (internal citations omitted); see also In re Barber,
318 B.R. 921, 923 (Bankr. M.D. Ga. 2004) (Rule 59(e) “can only be used in limited circumstances, and should be used sparingly.”). On the other hand, a party may not reargue his case through a motion under Rule 59(e), In re No-Am Corp., 223 B.R. 512, 514 (Bankr. W.D. Mich. 1998), “[n]or should Rule 59(e) be viewed as a means for overcoming one’s failure to litigate matters fully.” Condor One, Inc. v. Homestead Partners, Ltd. (In re Homestead Partners, Ltd.), 201 B.R. 1014, 1018 (Bankr. N.D. Ga. 1996); see also Mathis v. United States (In re Mathis), 312 B.R. 912, 914 (Bankr. S.D. Fla. 2004) (“The function of a motion to alter or amend a judgment is not to serve as a vehicle to relitigate old matters or present the case under a new legal theory . . . [or] to give the moving party another ‘bite at the apple’ by permitting the arguing of issues and procedures that could and should have been raised prior to judgment.”)). “Arguments and evidence which could have been presented earlier in the proceedings cannot be presented in a Rule 59(e) motion.” In re See, 301 B.R. 554, 555 (Bankr. N.D. Iowa 2003).
…

It is the responsibility of a plaintiff to clearly state all causes of action and provide the defendant with “a short and plain statement of the claim showing that the pleader is entitled to relief[.]” FED. R. CIV. P. 8(a)(2). Dismissal of her Complaint for failing to state a claim upon which relief could be granted, when it was her responsibility to plead the proper cause of action, does not implicate a manifest injustice under Rule 59(e). Moreover, in response to the Defendant’s motion to dismiss, instead of continuing to argue her § 524(a)(2) claims, the Plaintiff could have amended the Complaint pursuant to Rule 15 of the Federal Rules of Civil Procedure, which allows a party to amend a pleading once “as a matter of course at any time before a responsive pleading is served[.]” FED. R. CIV. P. 15(a). Since a motion to dismiss is not a responsive pleading, see FED. R. CIV. P. 12(b); Youn v. Track, Inc., 324 F.3d 409, 415 n.6 (6th Cir. 2003), any amended complaint would have related back to the date upon which the original Complaint was filed. See FED. R. CIV. P. 15(c).
…

In the Sixth Circuit, a motion under Rule 60(b)(1) is “intended to provide relief to a party in only two instances: (1) when the party has made an excusable litigation mistake or an attorney in the litigation has acted without authority; or (2) when the judge has made a substantive mistake of law or fact in the final judgment or order.” Cacevic v. City of Hazel Park, 226 F.3d 483, 490 (6th Cir. 2000) (quoting Yapp v. Excel Corp., 186 F.3d 1222, 1231 (10th Cir. 1999)). Rule 60(b)(6) “applies ‘only in exceptional or extraordinary circumstances’ . . . because ‘almost every conceivable ground for relief is covered’ under the other subsections of Rule 60(b).” Blue Diamond Coal Co. v. Trs. Of the UMWA Combined Benefit Fund, 249 F.3d 519, 524 (6th Cir. 2001) (quoting Olle v. Henry & Wright Corp., 910 F.2d 357, 365 (6th Cir. 1990)).”

0 Comments

Ever Want to go Back in Time and Enter Evidence? - Jim Moore - 8/26/08
This is a 9 page opinion of Judge Parsons in In re Liberty Fibers Corp., 05-53874, (Bankr. E.D. Tenn. April 30, 2008). Mark Dessauer of Kingsport represented MPLG, LLC and Maurice Guinn of Knoxville represented himself as Trustee.

As Judge Parsons states:
This chapter 7 case is before the court on a motion by MPLG, LLC (“MPLG”) to vacate the order entered January 30, 2008, denying MPLG’s request for payment of administrative expenses. MPLG contends that its inadvertent failure to include a letter from the chapter 7 trustee in the evidence it previously submitted provides sufficient grounds under Rules 59(e) and 60(b)(1) of the Federal Rules of Civil Procedure to vacate the court’s prior order and reopen the matter for an evidentiary hearing. For the reasons discussed hereafter, MPLG’s motion will be denied.

…

MPLG’s motion to vacate is premised on a motion to alter or amend a judgment under Rule 59(e) of the Federal Rules of Civil Procedure, made applicable to bankruptcy cases by Federal Rule of Bankruptcy Procedure 9023. The Sixth Circuit Court of Appeals has explained that a court should grant a motion to alter or amend judgment only if there is a clear error of law, newly discovered evidence, an intervening change in controlling law, or to prevent manifest injustice. GenCorp, Inc. v. Am. Int’l Underwriters Co., 178 F.3d 804, 834 (6th Cir. 1999).

…

However, Rule 59(e) is not a means to overcome a party’s failure to litigate matters fully and cannot be used to present arguments and evidence that could have been presented earlier. In re Webb Mtn, LLC, No. 07-32016, 2007 WL 3125095, at *3 (Bankr. E.D. Tenn. 2007) (citations omitted). “[C]onsideration of a motion under Rule 59(e) does not allow the party to reargue its case.” Id. (citing Sault Ste. Marie Tribe of Chippewa Indians v. Engler, 146 F.3d 367, 374 (6th Cir. 1998)). Accordingly, MPLG’s motion will be denied to the extent that it seeks relief under Rule 59(e).

Alternatively, MPLG seeks relief under Federal Rule of Civil Procedure 60(b)(1), made
applicable by Federal Rule of Bankruptcy Procedure 9024, which permits the trial court to relieve a party from a final judgment for mistake, inadvertence, surprise, or excusable neglect. Fed. R. Civ. P. 60(b)(1); Jinks v. Allied Signal, Inc., 250 F.3d 381, 385 (6th Cir. 2001). The Sixth Circuit uses a three-factor test to determine if relief is warranted under Rule 60(b)(1). Williams v. Meyer, 346 F.3d 607, 613 (6th Cir. 2003).

In deciding whether relief is warranted, three factors are relevant: (1) whether the party seeking relief is culpable; (2) whether the party opposing relief will be prejudiced; and (3) whether the party seeking relief has a meritorious claim or defense. [United Coin Meter v. Seaboard Coastline R.R., 705 F.2d 839, 845 (6th Cir. 1983)]. Culpability is “framed” by the specific language of the rule; i.e., a party demonstrates a lack of culpability by demonstrating “mistake, inadvertence, surprise, or excusable neglect.” Waifersong, Ltd. v. Classic Music Vending, 976 F.2d 290, 292 (6th Cir. 1992). And because Rule 60(b)(1) “mandates” such a demonstration, “[i]t is only when the [party seeking relief] can carry this burden that he will be permitted to demonstrate that he also can satisfy the other two factors: the existence of a meritorious defense and the absence of substantial prejudice to the [other party].” Id.; see also Weiss v. St. Paul Fire & Marine Ins. Co., 283 F.3d 790, 794 (6th Cir. 2002) (a party seeking relief “must demonstrate first and foremost that the
default did not result from his culpable conduct”).

0 Comments

Bankruptcy Court Jurisdiction over Waste Disposal! - Jim Moore - 8/25/08
This is an 8 page opinion of Judge Parsons in MPLG, LLC v. Jolley Rock Investments, LLC, 07-0539, (Bankr. E.D. Tenn. April 14, 2008). Mark Dessauer of Kingsport represented MPLG, LLC and Mark Cowan of Morristown represented Jolley Rock Investments, LLC.

MPLG purchased most of the debtor’s assets out of the bankruptcy proceeding. Jolley Rock is a company next door with connecting sewer pipes. The parties are fighting over whether the Bankruptcy Court has jurisdiction over whether Jolley Rock should pay MPLG for waste water processing.

Judge Parsons reviews the issue of the Bankruptcy Court’s jurisdiction:

“MPLG’s causes of action against Jolley Rock are not core proceedings; they were not created by the Bankruptcy Code and they could have existed outside of this bankruptcy case. Thus, this court has jurisdiction over MPLG’s claims against Jolley Rock only if they are “related to” Liberty Fibers’ bankruptcy case.

As explained by the United States Supreme Court:

Congress did not delineate the scope of “related to” jurisdiction but its choice of words suggest a grant of some breadth. . . . We agree with the views expressed by the Court of Appeals for the Third Circuit in Pacor, Inc. v. Higgins, 743 F.2d 984 (1984), that “Congress intended to grant comprehensive jurisdiction to the bankruptcy courts so that they might deal efficiently and expeditiously with all matters connected with the bankruptcy estate,” . . . and that the “related to” language of 1334(b) must be read to give district courts (and bankruptcy courts under § 157(a)) jurisdiction over more than simple proceedings involving the property of the debtor or the estate. We also agree with that court’s observation that a bankruptcy court’s “related to” jurisdiction can not be limitless.”. . .

The usual articulation of the test for determining whether a civil proceeding is related to bankruptcy is whether the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy. Thus, the proceeding need not necessarily be against the debtor or against the debtor’s property. An action is related to bankruptcy if the outcome could alter the debtor’s rights, liabilities, options, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankrupt estate.

A key word in the [related to] test is “conceivable.” Certainty, or even likelihood, is not a requirement. Bankruptcy jurisdiction will exist so long as it is possible that a proceeding may impact on “the debtor’s rights, liabilities, options, or freedom of action” or the “handling and administration of the bankruptcy estate.”

[T]he mere fact that there may be common issues of fact between a civil proceeding and a controversy involving the bankruptcy estate does not bring the matter within the scope of section 1334(b). [In re Pacor, Inc., 743 F.2d at 994] (stating also that “judicial economy itself does not justify federal jurisdiction”). Instead, “there must be some nexus between the ‘related’ civil proceeding and the title 11 case.” Id.

0 Comments

Judge Parsons conducts her own online UCC search! - Jim Moore - 8/24/08
This is a 21 page opinion of Judge Parsons in In re Silver Dollar, LLC, First Community Bank v. Jones, 07-0542, (Bankr. E.D. Tenn. April 4, 2008). Rick Bearfield of Johnson City represented the Bank and Mike Ewell represented the Trustee, David Jones.

As stated by the Court:
“At issue is whether financing statements filed by the Bank under the registered, assumed name of a debtor, “Silver Dollar Stores, LLC,” rather than its organizational name, “Silver Dollar, LLC,” sufficiently names the debtor in accordance with Tennessee Code Annotated § 47-9-503(a)(1). The issue is relevant because a seriously misleading error in naming the debtor renders the Bank’s security interest unperfected and therefore inferior to the interest of the Trustee exercising rights and powers of a lien creditor under 11 U.S.C. § 544(a). As discussed below, the court concludes that the financing statements filed by the Bank do not comply with § 47-9-503(a)(1), but that an issue of material fact remains as to whether the Bank’s error in naming the debtor is seriously misleading as defined by Tennessee Code Annotated § 47-9-506. Accordingly, the parties’ motions for summary judgment will be denied.”

Judge Parsons holds that the T.C.A. requires the use of a Debtor’s organizational name, however she quotes an opinion of Judge Cook:

On the other hand, there does appear to be a recognized exception to the rule that to be effective a financing statement must be filed in the debtor’s true name rather than the debtor’s trade name. It has been stated that even though a financing statement is erroneously filed under the debtor’s trade name, such error is not seriously misleading where the debtor’s trade name and the debtor’s true name are so substantially similar that a diligent creditor upon searching under the true name would likely discover the filing. In re Service Lawn & Power, Inc., 83 B.R. at 517-18 (citations and footnote omitted).

0 Comments

"Cut & Paste" Complaint Dismissed - Jim Moore - 8/24/08
This is a 9 page opinion of Judge Stair in Stooksbury v. FSG Bank, NA, 08-3012, (Bankr. E.D. Tenn. May 22, 2008). Cynthia T. Lawson represented the Debtor/Plaintiff. Tom Dickenson and Matt Birdwell represented the Defendant.

The Facts:
In March 2003 the Debtor executed a $21,860 Note with the Defendant that was discharged in a 2004 Chapter 7 bankruptcy. The Debtor filed a Chapter 13 bankruptcy on November 4, 2004 listing the defendant for “Notification Purposes Only/Debt Discharged in Prior C7”. The Defendant filed a Proof of Claim for $23,760 in the Chapter 13, based on the discharged Note. The Debtor filed an Adversary Proceeding on January 16, 2008 asking the court to assess damages against the Defendant for willfully filing a false proof of claim, violating the discharge injunction, and violating the Fair Credit Reporting Act. The Defendant withdrew the claim and filed a Motion to Dismiss for Failure to State a Claim Upon Which Relief can be Granded.

Judge Stair held:

The Sixth Circuit has determined that “§ 524 does not impliedly create a private right of action.” Pertuso v. Ford Motor Credit Co., 233 F.3d 417, 422-23 (6th Cir. 2000). Instead, “when a violation of the discharge injunction does occur, a debtor’s sole avenue of recourse – and the one for which is the traditional remedy for a violation of a court order – is to bring an action against the creditor for contempt.” In re Perviz, 302 B.R. 357, 370 (Bankr. N.D. Ohio 2003); see also Pertuso, 233 F.3d at 421; In re Williams, 291 B.R. 445, 452 (Bankr. E.D. Tenn. 2003).

Contempt actions may be brought pursuant to § 105(a), which imposes upon the court a duty to uphold the provisions of the Bankruptcy Code by allowing the court to “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.” 11 U.S.C. § 105(a) (2005). And yet, “§ 105(a) is not without limits, may not be used to circumvent the Bankruptcy Code, and does not create a private cause of action unless it is invoked in connection with another section of the Bankruptcy Code.” In re Rose, 314 B.R. 663, 681 n.11 (Bankr. E.D. Tenn. 2004) (citations omitted). Instead, the court may only use § 105(a)’s equitable powers “in furtherance of the goals of the [Bankruptcy] Code.” Childress v. Middleton Arms, L.P. (In re Middleton Arms, L.P.), 934 F.2d 723, 725 (6th Cir. 1991). At p. 7

…

As with violations of the discharge injunction, however, there is no private cause of action for filing a claim that is determined to be false. In re Patrick, 344 B.R. 56, 59 (Bankr. M.D. Pa. 2005); In re Simmons, 224 B.R. 879, 885 (Bankr. N.D. Ill. 1998); see also Heavrin v. Boeing Capital Corp., 246 F.Supp.2d 728, 731 (W.D. Ky. 2003) (alleging allegations of a private, civil cause of action under 18 U.S.C. § 152 (2005)); In re Martin, ___ B.R. ___, 2007 WL 5171046, at *3 (Bankr. S.D. Ga. Nov. 6, 2007) (same). Furthermore, the Debtor alleges that the Defendant fraudulently filed this claim, but she presents no facts to evidence that the Defendant’s actions were in any way fraudulent and not merely negligent. At p. 8

0 Comments

"Treasure" hunter keeps 1/3rd finder's fee! - Jim Moore - 5/22/08
Judge Stair ruled in In re Triplett, 98-31917, (Bankr. E.D. Tenn. May 20, 2008) that a company that monitors class actions can keep its one-third finders fee. In 2004 National Recovery Services, Inc. alerted Bill Hendon, (a Cayman Island scuba diving buddy of mine), the Bankruptcy Trustee of a bankruptcy case, which closed in 1999, that the debtor had a pre-bankruptcy petition class action claim. The debtor had operated an Exxon gas station and was a potential member of a class entitled to recover damages. Bill Hendon wrote on the contract that “[t]his is contingent upon approval by the US Bankruptcy court, further consideration by the Trustee and reopening the Bankruptcy Case.”

Thereafter the Exxon Lawsuit was settled for $1.075 billion; the estate was reopened; Hendon was again appointed Trustee; and the estate received $177,119.12 from the settlement. NRS filed for an administrative expense. NRS's right to receive a fee was disputed along with Bill Hendon's ability to bind the estate. After a review of the facts and law Judge Stair ruled:

"Because all of Mr. Hendon’s actions, including execution of the Recovery Services Agreement, were ratified upon his reappointment by his subsequent actions, the estate is bound by the specific terms therein, including the one-third (1/3) contingency fee. Although it could have easily resulted in no recovery at all, for which NRS would have received no commission, the Debtors’ estate has received a significant benefit as a result of its relationship with NRS, and it would be inequitable to deny NRS the fruits of providing the estate with that benefit.10 Accordingly, the Application for Administrative Expense shall be granted. NRS is entitled to receive its agreed upon contingency fee of $59,039.71 from the funds being held by the estate."

0 Comments

No jurisdiction over post-Ch 13 Mortgage demand - Jim Moore - 5/6/08
This is a 13 page opinion of Judge Stair in Perry v. EMC Mortgage Corp, 08-3002, (Bankr. E.D. Tenn. May 2, 2008). Cynthia T. Lawson represented the Debtor/Plaintiff. Thomas H. Forrester of Nashville represented the Defendant.

This is another case where the creditor holds the mortgage on the Chapter 13 debtor's home. The defendant files their claim and accepts 5 years of agreed upon plan payments while refusing to do anything about their computer which continues to add fees and late payments. A discharge was entered May 14, 2007. The Trustee’s Final Report was filed on July 18, 2007. The debtor's lawyer in an attempt to avoid the problem filed a Motion for Order Declaring Mortgage Loan Current on October 25, 2007. The defendant neither responded to the Motion nor appeared at the hearing scheduled thereon. On November 17, 2007 the Court entered the requested Order that the debtor was deemed current as of May 14, 2007.

The defendant began refusing the debtor's maintenance payment in October 2007 pursuant to its assessment that the debtor was past due for September 2007 in the amount of $484.92. On January 4, 2008 the debtor filed an adversary proceeding to hold the defendant in contempt for violating the discharge injunction. The defendant asserted that the court lacked subject matter jurisdiction. Judge Stair agreed and dismissed the proceeding.

Judge Stair reasons that:

Entry of a debtor’s discharge triggers the “discharge injunction” which “operates as an injunction against the commencement or continuation of . . . an act, to collect, recover or offset any . . . debt as a personal liability of the debtor . . . [.]” 11 U.S.C.A. § 524(a)(2). “The purpose of such an injunction is to protect the debtor from suits to collect debts that have been discharged in bankruptcy.” Hendrix v. Page (In re Hendrix), 986 F.2d 195, 199 (7th Cir. 1993).
…
The discharge injunction is limited, however, to debts that are actually discharged. Here, the Debtor’s mortgage obligation to the Defendant was not discharged and, thus, is not covered by the discharge injunction. … Because the mortgage obligation owed to the Defendant was not discharged in the Debtor’s case, the discharge injunction of § 524(a)(2) does not apply.

With respect to this adversary proceeding, the court finds that it does not possess subject matter jurisdiction to adjudicate this post-discharge dispute between these parties. The Debtor paid out her Plan according to its terms, resulting in the payment of all prepetition and postpetition arrearages owed to the Defendant prior to the entry of the Discharge Order, and she received her discharge, which expressly excludes her ongoing mortgage obligation owed to the Defendant. Because this obligation was not included within her discharge, the discharge injunction of § 524(a)(2) has no application. Furthermore, because the complained of default occurred postdischarge and post-termination of the automatic stay, the dispute between the Debtor and the Defendant does not arise under title 11, nor is it related to the Debtor’s bankruptcy case.4 Any postbankruptcy issues concerning an alleged default upon the Debtor’s ongoing mortgage obligation are subject to the jurisdiction of the state court, not the bankruptcy court. The Defendant’s Motion to Dismiss is well-taken and shall be granted.

0 Comments

Offer of Judgment Not Quite Enough. - Jim Moore - 5/6/08
This is Judge Stair's opinion of Derrick v. Biddle, 07-3086, (Bankr. E.D. Tenn., May 2, 2008). John P. Newton, Jr. represented the debtors. Daniel Kidd represented the defendant.

The decision deals with a $2,375.00 award of attorney fees resulting from stay violations for which damages of $110.70 were awarded. The defendant had made a $500 offer of judgment that was not accepted. The defendant claims that the debtors should not be awarded attorney's fees because the awarded damages of $110.70 were less than the offer. Complicating facts are that initially the debtors intentionally failed to list the defendant, their landlord, as a creditor when they filed. However, as stated in the opinion the:

"Defendant, notwithstanding his knowledge that the Debtors had filed bankruptcy, and notwithstanding that the Debtors had filed the Complaint commencing this adversary proceeding on September 24, 2007, continued his violations of the automatic stay through January 7, 2008. These violations included two appearances in the Loudon County General Sessions Court to prosecute a detainer warrant issued against the Debtors seeking possession and the entry of a default judgment against the Debtors for past due prepetition rent. As the Defendant continued his demands for payment and prosecuted an action to collect payment from the Debtors despite his acknowledged awareness of their bankruptcy case, it was reasonable for the Debtors to continue their prosecution of this adversary proceeding."

"As the Defendant continued his demands for payment and prosecuted an action to collect payment from the Debtors despite his acknowledged awareness of their bankruptcy case, it was reasonable for the Debtors to continue their prosecution of this adversary proceeding. As such, the Debtors are entitled to their attorney’s fees in the amount of $2,375.00."

0 Comments

Collection Board Overrules Attorney General - Jim Moore - 5/1/08
This is an opinion of Judge Stair in In re Rogers, 07-31186, (Bankr. E.D. Tenn.), Apr. 25, 2008. (It's a different debtor than the In re Rogers opinion issued Apr. 11, 2008.)

The debtors objected to five claims filed in their case by eCAST Settlement Corporation because eCAST was not licensed in Tennessee as a collection agency under T.C.A. § 62-20-101 et seq. eCAST had purchased all of the claimed obligations from Banks that had issued credit cards to the debtors. The debtors relied upon two Tennessee Attorney General Opinions to support their position that eCAST needed a license. Tenn. Op. Atty. Gen. No. 97-131, 1997 WL 654201 (Tenn. A.G. Sept. 23, 1997) and Tenn. Op. Atty. Gen. No. 99-224, 1999 WL 1327573 (Tenn. A.G. Dec. 1, 1999). The AG opinions clearly state that eCAST needed a license.

eCAST relied on a letter it's lawyers had obtained from Tennessee's Collection Service Board dated April 19, 2001. As stated in the letter:

Your letter of April 13, 2001 was reviewed by the Tennessee Collection Service Board Chairman on April 18, 2001. The Board Chairman determined, that in the event that “the Company” has no clients and is not soliciting accounts in Tennessee, “the Company” is not subject to the jurisdiction of the Board and therefore, will not need to be licensed in Tennessee.

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Restitution Nondischargeable ONLY IF to Government - Jim Moore - 5/1/08
This is an opinion of Judge Cook. In re Brooks, 04-15901, (Bankr. E.D. Tenn. Apr. 28, 2008).

The debtor, Nathan Edward Brooks is a lawyer who agreed to the two year suspension of his law license. He also agreed to pay costs of $2,000 and $8,500 in restitution to former clients. He then filed a bankruptcy petition. The Tennessee Board of Professional Responsibility of the Supreme Court filed an objection to the dischargeability of both obligations pursuant to 11 U.S.C. § 523(a)(7). Judge Cook entered an earlier opinion on the matter on May 10, 2005 holding both the costs and restitution nondischargeable. The debtor appealed to District Court, which relying on the 6th Circuit opinion Hughes v. Sanders, 469 F.3d 475 (6th Cir. 2006) filed after Judge Cook's earlier opinion sustained as to costs and sent back as to restitution.

As stated in Hughes v. Sanders "the plain and unambiguous language of the statute requires that the 'fine, penalty, or forfeiture [be] payable to and for the benefit of a governmental unit.' 11 U.S.C. § 523(a)(7) (emphasis added)" . Since Brooks agreement was to pay $8,500 in restitution to the victims, Judge Cook's opinion held it to be dischargeable.

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In 6th Circuit, Actions Violating Stay Voidable - Jim Moore - 4/15/08
This is the opinion of Judge Stair in In re Rogers, 05-3368, (Bankr. E.D. Tenn., Apr. 11, 2008).

The debtor filed a bankruptcy petition on October 6, 2005, seven months after his March 8, 2005 divorce trial, but before the Circuit Court for Blount County entered a final decree. (Apparently his divorce lawyer delayed its entry by refusing to sign it.) The state trial court entered the Final Decree post petition nunc pro tunc to March 8, 2005. The debtor filed this adversary proceeding to determine the dischargeability of divorce obligations, which was stayed pending the State Court appeal. The debtor had been married for 39 years and the fight is over the debtor’s military retirement pay. Since the petition was filed prior to October 17, 2005 pre-BAPCPA law applies, so the important part of the opinion deals with the entry of the Final Decree violating the Automatic Stay. A point of interest is that Judge Stair also dealt with the entry of a post-petition divorce Order, by Knox County's Judge Swann in In re Jensen, 05-3049, (Bankr. E.D. Tenn., Feb. 28, 2006).

Judge Stair held:

Nevertheless, although the automatic stay was in effect once the Debtor filed his bankruptcy petition on October 6, 2005, § 362(b)(2)(A)(ii) clearly authorized the entry of the Final Decree with respect to the granting of the divorce and the awarding of alimony, maintenance, or support.
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However, “[t]he stay may be annulled only in the presence of extraordinary circumstances, which include the debtor's bad faith filing of the bankruptcy case, a creditor's lack of ‘knowledge of the applicability of the automatic stay,’ and unfair prejudice to the creditor.” In re Burrell, 186 B.R. 230, 235 (Bankr. E.D. Tenn. 1995) (quoting In re Lipuma, 167 B.R. 522, 526 (Bankr. N.D. Ill. 1994)).
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The court finds that this is a situation where the Debtor, by not receiving a ruling to his liking on the appeal he initiated, is now attempting to unfairly use the automatic stay as a shield, to the detriment of Mrs. Rogers. Such actions fall within the scope of limited equitable circumstances, and the court, therefore, finds that cause exists to annul the stay retroactively to October 6, 2005, the date upon which the Debtor filed his petition.
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Although § 523(a) actions are generally construed strictly in favor of debtors, in order to promote Congressional policies favoring the enforcement of spousal and child support obligations, proof in § 523(a)(5) actions is strictly construed in favor of former spouses and children. See Hanjora v. Hanjora (In re Hanjora), 276 B.R. 822, 825 (Bankr. N.D. Ohio 2001) (stating that § 523(a) “implements the general bankruptcy policy of favoring domestic support obligations over the Plaintiff's need for a fresh start”). Nevertheless, the former spouse bears the burden of proof, by a preponderance of the evidence. Grogan v. Garner, 111 S. Ct. 654, 661 (1991).
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Awards of attorneys’ fees in domestic cases are generally deemed to be in the nature of support for purposes of § 523(a)(5) and are therefore nondischargeable. Macy v. Macy, 114 F.3d 1, 2-3 (1st Cir. 1997)
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The Debtor has not met his burden of proof that discharge would result in a greater benefit to him than would cause a greater detriment to Mrs. Rogers. Therefore, the award to Mrs. Rogers of one-half of the Debtor’s military retirement in the Final Decree is likewise nondischargeable.”

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Homestead Exemption for PRINCIPAL Residence only. - Jim Moore - 4/15/08
This is the opinion of Judge Stair in In re Dilbeck, 07-34108, (Bankr. E.D. Tenn., Mar. 28, 2008).

The Trustee, John Newton objected to the debtors' homestead exemption claim. The debtors' LaFollette home was worth $60,000 and secured debt of $70,000. The debtors did own land in Cumberland County with a trailer on it worth $25,000, which was lien free, where they spent the weekends. Being over over 62 the debtors claimed a $25,000 homestead exemption in the Cumberland County property. Their problem was that they had lived and worked in Campbell County since 1972. Thus no Homestead Exemption.

As stated by Judge Stair:

Although the Tennessee homestead exemption statute limits application of the homestead exemption to real property “used by” the Debtors as their “principal place of residence,” the term itself is not defined. Nevertheless, “[w]hat is the debtor’s principal residence depends both on the debtor’s use and intent.” In re Sivley, 14 B.R. 905, 908 (Bankr. E.D. Tenn. 1981). This definition encompasses “[the] place where one dwells, where a person lives in settled abode, the place where a person lives with the intention of making it his home, and to which, whenever he is absent, he has the intention of returning[,] . . . the principal domestic establishment of an individual, the place which he makes the chief seat of his affairs and interests.” McDonough v. State Farm Mut. Auto. Ins. Co., 755 S.W.2d 57, 67 (Tenn. Ct. App. 1988) (citations omitted). In summary, “a debtor’s ‘principal place of residence’ is his or her home, the place where the debtor lives with his family, inclusive of any real property acquired therewith.” In re Wilson, 347 B.R. 880, 885-86 (Bankr. E.D. Tenn. 2006). [At p. 4]
...

Nevertheless, the homestead exemption must be determined as of the date that the bankruptcy case was filed and is not based upon the Debtors’ future intentions for retirement. The court is satisfied that the Campbell County Property was “used by” the Debtors as their principal place of residence when they filed their bankruptcy petition on November 30, 2007. The evidence that the Debtors have lived on the Campbell County Property for over thirty-five years, raised their grandson and daughter, who continue to reside with them, on the Campbell County Property, maintained their driver’s licenses in Campbell County at the time they commenced their bankruptcy case, maintained their voter registration in Campbell County until three days prior to filing for bankruptcy, and Campbell County is Mrs. Dilbeck’s place of employment requires this conclusion. The court is satisfied from the testimony that the Cumberland County Property is only used during the weekends and was acquired as the place where the Debtors plan to retire when Mrs. Dilbeck quits working. This conclusion is re-enforced by Mrs. Dilbeck’s testimony that the Debtors changed their driver’s licenses to Cumberland County on January 11, 2008, because “they were,” at that time, “getting ready to transfer everything down there [to Cumberland County].” [At p. 7.]

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