The Court denied the plaintiff credit card company's motion for default judgment. The Court held that, even taking together the complaint, the brief in support of the motion for default judgment, and the affidavit in support of the motion, the plaintiff had not alleged sufficient facts to demonstrate that it was entitled to the presumption of nondischargeability, nor had it alleged sufficient facts to prove a prima facie case of actual fraud.
Court Minutes and Order from hearing held on 11/28/11 -- Both parties presented oral arguments. The plaintiff first argued that the rent assignment was a separate document, and a separate agreement, from the loan agreement, and should be treated as such. If one viewed the rent assignment separate and apart from the loan agreement, the plaintiff argued, one then would have to consider what that assignment agreement accomplished. The plaintiff argued that it had enforced the assignment prior to the defendant filing bankruptcy, and that the assignment transferred all of the defendant’s rights to receive the rents to the plaintiff. Because the defendant transferred all of its rights prior to the petition date, the plaintiff argued, the rents never became property of the estate. The plaintiff argued that if the Court were to construe the rent assignment merely as security for the loan, as the defendant had urged it to do, the Court would render the rent assignment superfluous.
The defendant argued that the assignment agreement clearly indicated that it was intended simply to provide additional security for the loan. The assignment document left some of the defendant’s “bundle” of property rights with the defendant, including ownership of the real property that generated the rents, as well as the ability to resume collecting the rents once the secured debt had been paid in full. For this reason, the defendant argued–because the assignment did not constitute an “absolute assignment” of all of the defendant’s rights to the plaintiff–the rents constituted property of the estate under §541(a)(1). The defendant further argued that the rents constituted property of the estate under § 541(a)(6), because they constituted the proceeds of property of the estate. The defendant pointed to recent cases from other districts supporting that conclusion.
The Court first indicated that it did not agree with the plaintiff that it needed to determine whether the assignment document constituted a separate document from the loan agreement. The Court stated that it found the critical issue to be whether the assignment was an “absolute assignment” of all of the defendant’s rights to the plaintiff. To determine that, the Court indicated, it looked at the language of the assignment agreement itself, as had the court in In re Guardian Realty Group, LLC, 205 B.R. 1 (Bankr. D.D.C. 1997). The Court found that, upon reviewing all the relevant language of the assignment document, it was clear that the assignment was intended to provide additional security for the loan, and that the right to collect the rents was to revert back to the defendant upon payment of the secured debt. The agreement also provided that title remained with the defendant, so that the defendant retained part of the “bundle” of property rights in the property.
Given this conclusion, the Court found that the assignment did not constitute an “absolute assignment.” Accordingly, the Court held the rents did constitute property of the estate under §541(a)(1). The Court further held, however, that even if somehow one could construe the assignment language as creating an absolute assignment, it agreed with those cases which held that the rents were proceeds of estate property under §541(a)(6). The Court found persuasive the reasoning in In re Las Torres Development, LLC, 408 B.R. 876 (Bankr. S.C. Texas 2009) and In re Bryant Manor, 422 B.R. 278 (Bankr. D. Kan. 2010). The Court acknowledged that there were decisions finding otherwise, but indicated that because Wisconsin is a lien theory state, and because it found that the property which produced the rents was property of the estate, it found the Las Torres/Bryant Manor line of cases more persuasive.
For all of these reasons (stated in more detail on the record), the Court concluded that the rents constituted property of the estate under both §541(a)(1) and § 541(a)(6). Accordingly, the Court denied the plaintiff’s motion for summary judgment, and awarded summary judgment in favor of the defendant as to the assignment of rents issue.
The Court noted that in its counterclaim, the defendant also had requested an award of sanctions against the plaintiff for a willful violation of the automatic stay. The Court declined to sanction the plaintiff. The Court explained that the Code required a sanctionable violation of the stay to be willful and deliberate. The Court acknowledged that the plaintiff deliberately held on to the rents, but the Court also noted that the plaintiff did so relying on a legal position that the plaintiff believed was fully supported by case law. Although there was case law that disagreed with the plaintiff’s position, the Court concluded that this was not a situation where a party deliberately chose to act in contravention of well-settled case law. Therefore, the Court denied the defendant’s request to impose sanctions for violation of the stay.
Counsel for the defendant asked the Court to reconsider its denial of sanctions. He argued that the plaintiff’s willful act did not need to be malicious in order to be a willful and deliberate violation of the stay. He stressed that the defendant had had to fight for the rents, and reminded the Court of its comment at the emergency hearing in the underlying case that when in doubt, a creditor ought seek relief from the stay rather than assuming that it was not acting in violation of the stay. Counsel acknowledged, however, that he had not briefed the issue. He indicated that if the Court was not willing to vacate its ruling today, he would file a motion to reconsider. The Court opined that it would be more appropriate for the defendant to file a motion to reconsider, which would allow both sides to fully brief their positions.
Accordingly, the Court hereby DENIES Anchor Bank’s motion for summary judgment. The Court GRANTS summary judgment in favor of the defendant, and DISMISSES the plaintiff’s complaint. The Court DENIES the defendant’s request, raised in its counterclaim, to impose sanctions against the plaintiff for a willful violation of the automatic stay. The Court ORDERS the clerk’s office to enter judgment accordingly.
Oral ruling on creditor/landlord's motion to have its claim for the debtor's post-petition missed rent payments classified as an administrative priority claim. The debtor's original plan had proposed to assume the lease. Before the Court confirmed that plan, the creditor obtained relief from stay to evict the debtor. The debtor amended the plan to reject the lease, the creditor did not object, and the Court confirmed that plan. The Court found that the debtor never officially assumed the lease, because it was confirmation of the plan that solidified the debtor's proposed assumption or rejection. The Court found that because the debtor had not assumed the lease pre-petition, the post-petition rejection did not constitute a breach of the lease contract under section 365(g)(1), and therefore that the missed lease payments were to be characterized as a pre-petition, general, unsecured, non-priority debt.
Court's oral ruling granting the United States Trustee's motion to dismiss under section 707(b)(3)(B) on the totality of the circumstances.
In a Chapter 7 case involving married, jointly-filing debtors, the United States Trustee filed a motion to dismiss the debtor/husband under § 707(a), alleging that the fact that he was not eligible for a Chapter 7 discharge constituted "cause" for dismissal, and in the alternative, that he had filed his petition in bad faith, for the sole purpose of allowing the debtors to exempt assets that the wife, filing alone, would not have been able to exempt. The Court denied the motion to dismiss, finding that ineligibility for a discharge did not constitute "cause" under § 707(a). The Court found that bad faith was not a basis for dismissal under § 707(a), given that Congress explicitly had provided for dismissal due to bad faith in § 707(b). The Court also found insufficient evidence to conclude that the debtor/husband had filed for the purpose of allowing the wife to exempt otherwise non-exempt assets
Oral ruling sustaining Chapter 13 trustee's objection to confirmation of the plan. The Court held that debtors who would finish repaying a 401k loan before the expiration of the plan commitment period could not use the funds they had been devoting to repaying the loan to increase the amount they were contributing to the 401k plan.
Debtor who had received a Chapter 7 discharge in a case commenced within the previous 8 years filed a Chapter 13. She then filed an adversary complaint, proposing to strip off the wholly unsecured, junior mortgage lien. When the defendant did not file an answer, the plaintiff/debtor filed a motion for default judgment. On October 26, 2010, the Court denied the motion for default judgment and dismissed the adversary complaint, holding that a debtor who was not eligible for a Chapter 13 discharge could not use the Chapter 13 case to strip off the wholly unsecured, junior mortgage lien. The debtor appealed, and on April 19, 2011, Judge Randa reversed the bankruptcy court's legal conclusion. In re Sandra Lee Fair, 10-C-1128. Judge Randa held that there was nothing in the Bankruptcy Code which tied modification of an unsecured lien to obtaining a Chapter 13 discharge. He noted, however, that bankruptcy courts had an obligation to determine whether debtors filed their Chapter 13 petitions in good faith, and that filing a Chapter 13 case "solely for the purpose of the lien avoidance" suggested manipulation of the Bankruptcy Code and constituted evidence of bad faith. He thus remanded the case to the bankruptcy court for a determination regarding whether the debtor filed her Chapter 13 case in good faith. On July 6, 2011, the bankruptcy court issued an oral ruling, finding that under the specific factual circumstances in this debtor's case, she had filed her Chapter 13 case in good faith. The Court found that she had filed the case for the purpose of paying the arrearage on her first mortgage and saving her home from foreclosure, and not just for the purpose of stripping off the wholly unsecured, junior mortgage lien.
Chapter 13 debtors argued that the mortgage creditor who filed motions for relief from the automatic stay, who filed proofs of claim in the bankruptcy case, and who objected to confirmation of their Chapter 13 plan did not have standing to do any of these things. The creditor who filed the various objected-to pleadings was the trustee for a structured asset investment loan trust. The debtors argued that this creditor did not own the mortgage or the note on their home, and thus did not have standing to assert rights in the bankruptcy proceedings. At an evidentiary hearing, the creditor produced, through an employee of the company acting as custodian for the trust's records, the original note and an endorsement in blank. The Court concluded that under Article 3 of the UCC, the creditor had proven that it was the entity entitled to enforce the note, because it possessed the note and the endorsement in blank. Because the creditor was the entity entitled to enforce the note, the Court held, it had proven that it had standing to move for relief from stay (by asserting that it had not received payment on the note--a fact which the debtors did not dispute), standing to file a proof of claim (thus asserting that it was entitled to payment on the note through the bankruptcy), and standing to objection to confirmation of the plan (which did not propose to pay its claim). The Court further held that ownership of the mortgage was not relevant to the question of standing, as the mortgage followed the note, and the Court was not being asked to consider whether the creditor could foreclose on the collateral. The Court noted that the fact that the creditor had attached to its proofs of claim two signed, dated allonges which post-dated the bankruptcy court litigation seemed to indicate that the creditor had made some effort to grant itself standing after the fact, but found that because the endorsement in blank had been present in the loan file prior to the petition date, the later-signed allonges were not relevant.
"Minutes from October 25, 2010 hearing in an adversary case, inwhich the Court held that debtors who were not eligible for a Chapter 13 discharge because they'd received a Chapter 7 discharge within four years of filing the Chapter 13 petitions could not use the Chapter 13 proceeding to avoid wholly-unsecured junior mortgage liens."
While the fact that a debt is "disputed" does not make it "unliquidated" for the purposes of determining whether a debtor has exceeded the Chapter 13 debt limit, a dispute over whether the debt ever existed or will exist can render the nature of the debt "unliquidated." Even applying that test, however, the Court found that the particular debt in question was "liquidated," and needed to be included in the calculation of the debt limits.
