The Oyez Project: Economic Activity Issues - Bankruptcy

Archer v. Warner

In 1991, Leonard and Arlene Warner sold the Warner Manufacturing Company to Elliott and Carol Archer. Subsequently, the Archers sued the Warners for fraud connected with the sale. In settling the lawsuit, the Archers executed releases except for obligations under a $100,000 promissory note and then voluntarily dismissed the lawsuit. After the Warners failed to make the first payment on the promissory note, the Archers sued in state court. The Warners filed for bankruptcy, and the Bankruptcy Court ordered liquidation under Chapter 7. The Archers then brought a claim asking the Bankruptcy Court to find the $100,000 debt nondischargeable and to order the Warners to pay the sum. The Bankruptcy Code provides that a debt shall not be dischargeable in bankruptcy "to the extent" it is "for money...obtained by...false pretenses, a false representation, or actual fraud." The Bankruptcy Court denied the Archers' claim. The District Court and the Court of Appeals affirmed.

Associates Commercial Corp. v. Rash

In 1992, Elray Rash filed a repayment plan under Chapter 13 of the Bankruptcy Code. Associates Commercial Corporation (ACC) was listed in the bankruptcy petition as a creditor holding a secured claim because it held a valid loan and lien on Rash's tractor truck. Ultimately to gain confirmation of his Chapter 13 plan and retain the truck, Rash invoked the "cram-down" provision of the Code. The cram-down provision allows a debtor to keep collateral over the objection of the creditor and requires the debtor to provide the creditor with payments that will total the present value of the collateral. At an evidentiary hearing, ACC maintained, under the "replacement-value" standard, that Rash would have to pay approximately $41,000 for a similar truck. Under the "foreclosure-value" standard, Rash maintained that the proper valuation was the net amount ACC would realize upon foreclosure and sale of the collateral, or approximately $31,875. The Bankruptcy Court adopted Rash's valuation figure and approved the plan. The District Court and the Court of Appeals affirmed.

Baker v. Gold Seal Liquors

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Bank of America v. 203 North LaSalle Partnership

Bank of America National Trust and Savings Association issued a $93 million loan to 203 North LaSalle Street Partnership. The loan was secured by a mortgage on the debtor's principal asset, part of a Chicago office building. When the debtor defaulted on the loan, the bank began foreclosure. LaSalle filed a petition for relief under Chapter 11 of the federal Bankruptcy Code. The debtor's purposed reorganization plan called for only previous equity holders to contribute new capital in exchange for the debtor's entire ownership of the reorganized entity. The Bank of America objected. The bank's objection prevented confirmation of the plan. LaSalle resorted to a judicial "cramdown" process for imposing the plan on Bank of America. The cramdown process requires a reorganization plan to be fair and equitable with respect to the creditors so a judge will authorize it. Bank of America argued the plan violated the cramdown's "absolute priority rule," which prevents debtor's equity holders from receiving ownership when claims will not be paid in full and, thus, the plan should have been denied. Nevertheless, the Bankruptcy Court approved the plan. The District Court and the Court of Appeals affirmed the decision.

Bank Of Marin v. England

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Barnhill v. Johnson, Trustee

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BFP v. Resolution Trust Corporation, As Receiver Of Imperial Federal Savings Association

BFP, a partnership formed by two private investors, bought a home in Newport Beach, CA in 1987. BFP secured the property by obtaining a deed of trust from Imperial Savings Association (Imperial). Imperial owned the property until BFP could pay off the amount borrowed. BFP defaulted on loan repayment and Imperial proceeded to sell the property for $433,000 to settle the loan (foreclosure). Before the title of ownership transferred to the buyer, BFP filed for bankruptcy under Chapter 11 of the Bankruptcy Code. BFP asked bankruptcy court to nullify the original foreclosure sale because the home was valued at over $725,000. BFP argued that the low sales price constituted a fraudulent transfer under 11 U.S.C. Section 548(a)(2)(A), which guarantees that debtors receive "reasonably equivalent value" for property foreclosed. BFP claimed "reasonably equivalent value" was equal to the market value of the property in question. The bankruptcy court denied BFP's claim, and a District Court and the U.S. Court of Appeals for the Ninth Circuit affirmed.

Brown v. Felsen

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Bruning v. United States

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Butner v. United States

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Caplin v. Marine Midland Grace Trust Co.

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Citizens Bank Of Maryland v. Strumpf

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Cohen v. De La Cruz

After the local rent control administrator ordered Edward S. Cohen to refund $31,382.50 in excessive rents he had charged Hilda de la Cruz and other tenants, Cohen sought to discharge his debts under Chapter 7 of the Bankruptcy Code. The tenants filed an adversary proceeding, arguing that the debt Cohen owed to them was nondischargeable under ?523(a)(2)(A) of the Code, which excepts from discharge "any debt ... for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by ... actual fraud." The tenants also sought treble damages, attorney's fees, and costs under the New Jersey Consumer Fraud Act. The Bankruptcy Court ruled in their favor, finding that Cohen had committed "actual fraud" within the meaning of ?523(a)(2)(A) of the Code and that his conduct violated the New Jersey law. The court, therefore, awarded the tenants treble damages totaling $94,147.50, plus attorney's fees and costs. The District Court affirmed, as did the Court of Appeals, which held that debts resulting from fraud are nondischargeable under ?523(a)(2)(A) of the Code, and that the award of treble damages (plus attorney's fees and costs) in this case was therefore nondischargeable.

Commodity Futures Trading Comm'n v. Weintraub

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Dewsnup v. Timm

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FCC v. Nextwave Communications, Inc.

After the Federal Communications Commission (FCC) auctioned off certain broadband personal communications services licenses to NextWave Personal Communications, Inc., Nextwave filed for Chapter 11 bankruptcy protection and suspended payments to all creditors, including the FCC. The FCC asserted that NextWave's licenses had been canceled automatically when the company missed its first payment-deadline and announced that NextWave's licenses were available for auction. Ultimately, when the FCC denied NextWave's petition for reconsideration of the license cancellation, the Court of Appeals for the D. C. Circuit held that the cancellation violated 11 USC section 525(a), which provides that a "governmental unit may not...revoke...a license...to...a debtor...solely because such...debtor...has not paid a debt that is dischargeable in the case." (Together with No. 01-657, Arctic Slope Regional Corp. et al. v. NextWave Personal Communications Inc. et al.)

Fidelity Financial Services, Inc. v. Fink

After purchasing a car, Diane Beasley gave Fidelity Financial Services, Inc. a promissory note for the purchase price. The car secured the note. 21 days later, Fidelity mailed Beasley the application to perfect its security interest under Missouri law. After Beasley filed for bankruptcy, Richard V. Fink, the trustee of Beasley's bankruptcy estate, moved to set aside Fidelity's security interest on the ground that the lien was a voidable preference under federal law. 11 USC section 547(c)(3)(B) prohibits the avoidance of a security interest for a loan used to acquire property if, among other things, the security interest is "perfected on or before 20 days after the debtor receives possession of such property." Fink argued that this "enabling loan" exception was inapposite because Fidelity had not perfected its interest within the 20-day period. Affirming the Bankruptcy Court and the District Court, the Court of Appeals held a transfer to be perfected when the transferee takes the last step required by state law to perfect its security interest.

Field v. Mans

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General Stores Corp. v. Shlensky

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Grogan v. Garner

Frank Garner was convicted of defrauding Coy Grogan and ordered to repay him. Garner then filed for Chapter 11 Bankruptcy, asking the Bankruptcy Court to discharge (that is, nullify) his court-ordered repayment to Grogan. Grogan argued that the debt should not be discharged because section 523(a) of the bankruptcy code exempts obligations for money obtained by "actual fraud." The Bankruptcy Court, based on portions of the fraud case, agreed and did not allow Garner to discharge the debt. The District Court affirmed, but the Eighth Circuit Court of Appeals reversed, finding that the standard of proof used in the original fraud case - the "preponderance of the evidence" standard - was lower than the standard of proof demanded under section 523(a) - a "clear and convincing evidence" standard. The Court found that most states used the "clear and convincing" standard in fraud cases and that Congress would have explicitly stated it if they used a different standard. Moreover, it argued that the intention of the bankruptcy code to provide a "fresh start" suggested that the standard most favorable to bankruptcy filers should be used (that is, the more demanding "clear and convincing" standard).

Hartford Underwriters v. Union Planters Bank NA

Hen House Interstate, Inc. filed for reorganization under Chapter 11 of the Bankruptcy Code. During the reorganization attempt, Hen House obtained workers' compensation insurance from Hartford Underwriters Insurance Company. Hen House repeatedly failed to make the monthly premium payments required by the policy. Ultimately, Hen House's reorganization failed and the court converted the case to a Chapter 7 liquidation proceeding and appointed a trustee. Hartford, learning of the bankruptcy proceedings, sought to recover its premiums as an administrative expense. Recognizing that the estate lacked unencumbered funds to pay the premiums, Hartford attempted to charge the premiums to Union Planters Bank, the secured creditor for all of the property of Hen House, by filing a claim with the Bankruptcy Court under 11 USC Section 506(c). The Bankruptcy Court ruled in favor of Hartford and the ruling was affirmed by the Court of Appeals. However, the Court of Appeals granted a rehearing en banc and reversed, on the ground that an administrative claimant could not invoke section 506(c).

Hoffman v. Connecticut Income Maint. Dept.

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Howard Delivery Service v. Zurich American Insurance Company

Under West Virginia law, employers are required to either participate in a state-run workers' compensation fund or demonstrate that they are financially capable of covering any workers' compensation claims that may arise. Howard Delivery service, a West Virginia freight carrier, chose to fulfill its obligation by purchasing insurance from Zurich American Insurance Company. In January of 2002, however, the company cancelled its policy (still owing thousands of dollars in unpaid premiums) and filed for bankruptcy.

Zurich filed for special status as a creditor, arguing that the money owed to them consisted of "contributions to an employee benefit plan arising from services rendered," and that under Chapter 11 of the Bankruptcy Code they should therefore be given priority in recovering the premiums. The bankruptcy court rejected Zurich's claims, however, finding that the provision did not apply to the workers compensation insurance premiums because they were not wage-substitute-type benefits for which the company could bargain (because Howard was required by law to have some form of insurance). A federal district court affirmed the decision, but a divided panel of the Fourth Circuit Court of Appeals reversed, holding that contributions to an employee benefit plan did not need to be voluntary to meet the Chapter 11 definition.

Johnson v. Home State Bank

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Katchen v. Landy

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Kawaauhau v. Geiger

In 1983, Margaret Kawaauhau sought treatment from Dr. Paul Geiger for a foot injury. Later, Geiger cancelled Kawaauhau's transfer, by other physicians, to an infectious disease specialist. Ultimately, Kawaauhau required that her right leg be amputated below the knee. In the subsequently malpractice suit, a jury awarded Kawaauhau approximately $355,000 in damages. Geiger, who carried no malpractice insurance, ultimately filed for bankruptcy. Kawaauhau requested the Bankruptcy Court to hold the malpractice judgment nondischargeable under 11 USC section 523(a)(6), which provides that a "discharge [in bankruptcy]... does not discharge an individual debtor from any debt... for willful and malicious injury... to another." The court held the debt nondischargeable. The District Court affirmed. In reversing, the Court of Appeals held that section 523(a)(6)'s exemption from discharge is confined to debts for an intentional tort, so that a debt for malpractice remains dischargeable because it is based on negligent or reckless conduct.

Kelly v. Robinson

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Kesler v. Dept. Of Public Safety

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King v. United States

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Kokoszka v. Belford

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Kontrick v. Ryan

Andrew Kontrick filed for bankruptcy after he and his partner, Robert Ryan, dissolved their plastic surgery practice. Ryan notified the court that Kontrick owed him money before the 60-day filing deadline set by Bankruptcy Rule 4004. More than three months later (after the deadline for filing had passed) Ryan filed an amended complaint charging that Kontrick was diverting paychecks into his wife's account so that he wouldn't have to pay Ryan. Ryan's attorneys claimed that they were not making a new claim - the diversion had been alluded to in other court documents - but that they were merely refocusing the judge's attention. Furthermore, they argued that the deadline for filing could be - and had been - waived by the judge. Kontrick's attorneys, on the other hand, argued that the amended complaint was a new filing and that the deadlines for filing could not be waived. The bankruptcy court ruled for Ryan. The district court and a Seventh Circuit Court of Appeals panel both affirmed, holding that the deadline was subject to waiver.

Lewis v. Manufacturers Nat. Bank

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Midlantic Nat. Bank v. N. J. Dept. Of E. P.

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Nobelman Et Ux. v. American Savings Bank

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Norwest Bank Worthington v. Ahlers

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Ohio v. Kovacs

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Owen v. Owen

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Patterson, Trustee v. Shumate

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Pearlman v. Reliance Ins. Co.

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Pennsylvania Public Welfare Dept. v. Davenport

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Perez v. Campbell

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Perry v. Commerce Loan Co.

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Pioneer Investment Services Co. v. Brunswick Associates Limited Partnership

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Protective Committee v. Anderson

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Railway Labor Executives' Assn. v. Gibbons

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Rake v. Wade, Trustee

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Raleigh v. Illinois Dept. of Revenue

In 1998, William Stoecker formed Chandler Enterprises, Inc., which purchased a plane out of state and moved it to Illinois. By the time the Illinois Department of Revenue, having discovered that the corporation had failed to file a use tax return or pay the tax on the plane, issued a notice of tax liability against the corporation and a notice of penalty liability against the debtor in the District Court, the corporation was defunct and Stoecker was in bankruptcy. Under Illinois law, any corporate officer who is responsible for filing tax returns and making payments, and who "willfully" fails to do so, is personally liable for a penalty "equal to the total amount of tax unpaid by the corporation." There was no proof that Stoecker was responsible for payment of the tax and the court ruled that while Chandler owed taxes on the plane, Stoecker should not be penalized. However, Illinois law shifted the burden of proof, both on production and persuasion, to the purportedly responsible officer, the trustee in bankruptcy, Thomas Raleigh, once a notice of penalty liability was issued. The Court of Appeals ruled in favor of the Department, holding that the burden of proof remained with Raleigh, just as it would have been on Stoecker had the proceedings taken place outside of bankruptcy, and finding that Raleigh had not satisfied the burden of persuasion.

Reading Co. v. Brown

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Rousey v. Jacoway

Richard and Betty Rousey filed bankruptcy and claimed their two Individual Retirement Accounts were exempt from the bankruptcy. Federal law exempted the following from bankruptcy: "a payment under a stock bonus, pension, profitsharing, annuity, or similar plan or contract." The exemption had to be "on account of illness, disability, death, age, or length of service, to the extent reasonable necessary for the support of the debtor...." The Rouseys said an IRA was a "similar plan or contract." The bankruptcy court and a bankruptcy appellate panel ruled an IRA not a "similar plan or contract." The Eighth Circuit Court of Appeals ruled that even if IRAs are "similar plans or contracts," the Rouseys' account withdrawals would not be "on account of illness, disability, death, age, or length of service." The Eighth Circuit's ruling conflicted with those of other circuits.

Sec v. American Trailer Rentals

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Segal v. Rochelle

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Simonson v. Granquist

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St. Joe Paper Co. v. Atlantic Coast Line Railroad Co.

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Taylor v. Freeland & Kranz

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Till v. SCS Credit Corp.

Lee Till owed $4,000 in payments on his truck when he filed for Chapter 13 bankruptcy. Under the Bankruptcy Code, a Chapter 13 debtor must promise each creditor future payments "not less than the [claim's] allowed amount." When a repayment plan includes a series of payments (installments), as Till's did, the installments must equal the "total present value" of the amount owed. Till proposed that he make monthly payments on the truck to SCS Credit with a 9.5 percent yearly interest rate, which was slightly higher than the average loan rate to make up for the increased risk that Till would fail to make a payment (because he had already declared bankruptcy once). SCS, however, argued that it was entitled to 21 percent interest because that was how much it would have made if it had foreclosed on the loan, taken the truck, sold it, and reinvested the proceeds. SCS argued that this 21 percent plan was necessary to ensure that the payments were equal to the "total present value" or "not less than the [claim's] allowed amount." The bankruptcy court ruled for Till. The district court reversed, imposing SCS's 21 percent rate. A divided Seventh Circuit Court of Appeals panel modified that approach slightly, ruling that the 21 percent rate was probably correct but that the parties could introduce evidence that a higher or lower rate should apply.

Toibb v. Radloff

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U.S. v. Embassy Restaurant

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Union Bank v. Walas, Chapter 7 Trustee For The Estate Of Zzzz Best Co., Inc.

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United Savings Assn. v. Timbers Of Inwood Forest

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United States v. Energy Resource Co.

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United States v. Nordic Village, Inc.

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United States v. Security Industrial Bank

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United States v. Whiting Pools, Inc.

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Wolf v. Weinstein

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Young v. United States

Cornelius and Suzanne Young failed to include payment with their 1992 income tax return, which was due and filed on October 15, 1993. Subsequently, the Internal Revenue Service (IRS) assessed a tax liability against them. After filing a Chapter 13 petition, the Youngs ultimately filed a Chapter 7 petition and were granted a discharge, meaning that Youngs had no assets available to satisfy unsecured creditors, including the IRS. If the Internal Revenue Service (IRS) has a claim for certain taxes for which the return was due within three years before the individual taxpayer files a bankruptcy petition, its claim enjoys eighth priority under 11 USC section 507(a)(8)(A)(i), and is nondischargeable in bankruptcy under section 523(a)(1)(A). When the IRS subsequently demanded that they pay the tax debt, the Youngs asked the Bankruptcy Court to reopen the Chapter 7 case and declare the debt discharged under section 523(a)(1)(A), claiming that it fell outside section 507(a)(8)(A)(i)'s "three-year lookback period" because it pertained to a tax return due more than three years before their Chapter 7 filing. The District Court held that the "lookback period" is tolled during the pendency of a prior bankruptcy petition and concluded that the 1992 debt had not been discharged when the Youngs were granted a discharge under Chapter 7. The Court of Appeals affirmed.