In In re Greater Southeast Community Hospital Foundation, 237 B.R. 518 (Bankr. D. D.C. 1999), Bankruptcy Judge S. Martin Teel Jr. addressed the issue of whether the automatic preservation of an avoided lien under §551 applies to property sold pre-petition, subject to the lien that was subsequently avoided post-petition. The debtor sold receivables prior to the filing of the bankruptcy. The purchaser asserted that the pre-petition purchase of the accounts receivable removed them from the bankruptcy estate such that §551 could not be used. After analyzing the interaction of §§541, 544, 550 and 551, the court held that the Bankruptcy Code "plainly provides that §551's exception applied to such avoided liens in property sold by the debtor pre-petition." The court then held that even if the statute was ambiguous (a position he did not adopt), bankruptcy policy as reflected in the Bankruptcy Act favored allowing an avoided lien to be preserved for the benefit of the estate. Further, the legislative history of the statute mandated that any ambiguity be resolved against the purchaser's interpretation. The court concluded that, assuming there was a pre-petition sale of the accounts receivable, §551 applied and the avoided lien was preserved for the benefit of the estate.

Computing Trustee Commissions

In In re Goido, 237 B.R. 562 (Bankr. E.D.N.Y. 1999), Bankruptcy Judge Stan B. Bernstein addressed the issue of what is included in computing a trustee's commission from settlement of a pre-petition personal injury cause of action. The action settled for $520,000 in actual and compensatory damages for permanent disability suffered by the debtor. The court-approved settlement provided for direct payment to personal injury counsel of the one-third contingency fee and reimbursable costs. In addition, the workers' compensation carrier was directly reimbursed $40,000 for medical and related expenses advanced on the debtor's behalf. The balance of $299,577.13 was remitted to the trustee. The trustee was seeking a commission of $16,705.95, calculated on the statutory formula under §326(a), excluding only the funds to be received by the debtor, but including funds distributed to the contingency fee counsel and the workers' compensation carrier. The trustee argued that it was "only as a matter of convenience" that the fees to counsel and the workers' compensation carrier were paid directly by the settling defendant. If he had known that he would not be entitled to a commission on direct payments, he never would have provided that all of the settlement proceeds be paid to the estate. The court noted that the trustee "misses the point" and further noted that while disbursements to holders of secured claims are included in a compensation base, there should not be a commission paid on proceeds that are subject to a constructive, charging or equitable lien that would include plaintiff's counsel and the insurance carrier. The court also noted that the statutory maximum is still subject to the discretion of the court. The court held that "routine oversight of the debtor's personal injury action" does not justify a large premium above computed time charges by including a distribution to counsel or workers' compensation insurance carrier.

Chapter 7 Trustee Fee Caps

In In re Arius Inc., 237 B.R. 843 (Bankr. N.D. Fla. 1999), Bankruptcy Judge Arthur B. Briskman addressed the issue of the proper method for calculating a chapter 7 trustee's fee cap when there was more than one trustee, specifically addressing whether disbursements made by the interim trustee should be used in calculating the fee cap for the elected chapter 7 trustee. The U.S. Trustee took the position that the fee cap should only apply to disbursements made by the elected trustee and should not include disbursements made by the interim trustee. The court construed the plain meaning of §326(c), which provides that the total compensation for both the interim and elected trustee "may not exceed the maximum compensation prescribed for a single trustee," and then applied the language of §326(a), which provides that the trustee cap include "all monies disbursed or turned over in a case by the trustee and that the policy of the Bankruptcy Code is to draw no distinction between interim and elected trustees." The court held that the clear intent of Congress was to establish one fee cap for each bankruptcy estate for all trustees serving in that case. "The single fee cap is not based upon the amount each trustee brought into the estate, but rather it is based upon the total disbursements in the case. It not only would be unfair, but also inequitable, to rule inconsistently with Congress's clear intent in drafting the fee cap statute."

Credit Card Dischargeability

In In re Reid, 237 B.R. 577 (Bankr. W.D.N.Y. 1999), Chief Bankruptcy Judge Michael J. Kaplan addressed the issue of whether a credit card debt was non-dischargeable as incurred under false pretenses, pursuant to §523(a)(2)(A). The court had previously held that §523(a)(2)(A) does not require that the five-prong common law test of fraud and deceit be satisfied. The debtor wife/cardholder turned over her credit cards, line of credit and PIN number to her husband to use at his discretion and judgment without limitation. She also handed over to her husband "convenience checks" endorsed in blank, "all in utter disregard of the amount of debt incurred." The court examined in detail the factual circumstances, including the fact that approximately $50,000 of the $71,000 in credit card debt was incurred in the six months prior to consultation with bankruptcy counsel. The wife had asserted that by virtue of her upbringing and choice, she had no information on the status of their financial condition. She and her husband both denied having contemplated bankruptcy until after the credit card debts had been incurred. The court found that "something short of a willful and malicious injury constitutes a false pretense or actual fraud and that something short was present in this case." The court held that "a credit card issuer does not 'assume the risk' that a cardholder will empower and assist someone else to run up the cards and then, after filing bankruptcy, be able to sustain a claim that having chosen to act deaf, dumb and blind is a complete defense to a §523(a)(2)(A) action."

Post-petition Interest for Creditor's Claims

In re Alls, 238 B.R. 914 (Bankr. M.D. Ga. 1999), addressed the co-debtor stay found in §1301(c). In this case, the debtor's chapter 13 plan proposed to pay in full the principal and all pre-petition interest, but made no provision for the payment of post-petition interest. The creditor moved for relief from the automatic stay, arguing that the plan did not propose to pay the creditor's claim in full. Bankruptcy Judge James D. Walker Jr. noted that §1322(b)(1) allows separate classification of the co-debtor's unsecured claims but does not authorize the payment of post-petition interest on such claims. The court held that the debtor's plan must propose to pay the claim in full in order to continue the co-debtor stay, because none of the three exceptions to §502(b)(2)'s prohibition against payment of post-petition interest existed. Thus, the "claim" cannot include post-petition interest and consequently cannot receive disbursements of interest from the chapter 13 trustee. Therefore, the co-debtor creditor was stayed in collection of its interest against the co-debtor until the conclusion of the case, when the claim for post-petition interest may be pursued.

Debtor Incompetency

In a case of apparent first impression, Bankruptcy Judge Jerry Venters addressed the issue of whether a guardian ad litem may be appointed by a bankruptcy court for general administration of a case (as opposed to appointment of a guardian for an adversary proceeding) in In re Moss, 239 B.R. 537 (Bankr. W.D. Mo. 1999). Noting a dearth of cases, the court looked to Fed. R. Bankr. P. 1016, which provides that the death and incompetency of the debtor shall not abate a liquidation under chapter 7. In such an event, the estate shall be administered and the case concluded "in the same manner, so far as possible as if the death or incompetency had not occurred." The court held that it must address two issues: 1) what is meant by incompetency as it applies to a bankruptcy case and not an adversary proceeding, and 2) what is meant by "in the same manner, so far as possible." Incompetency in the sense of mental incompetency is not mentioned or defined in the Bankruptcy Code. Bankruptcy Rule 7017 deals with the appointment of a guardian ad litem for adversary proceedings in the event the debtor is a minor and incompetent, but neither Bankruptcy Rule 7017 or 1016 indicates what definition of incompetency should be used. Relying on In re Moody, 105 B.R. 368, 371 (S.D. Tex. 1989), Judge Venters determined that incompetency should be made by reference to state law and found the evidence clearly supported a finding of incompetency under the Missouri standard. As to the issue of "in the same manner, so far as possible," the court found that the rule clearly contemplates that a bankruptcy court may take extraordinary steps in order to administer the estate of a debtor who has died or is incompetent. Thus, in the event of incompetency, the question was whether it was possible to proceed in the same manner as if the incompetency had not occurred. If it was not, was the appointment of a limited guardian an appropriate measure? The court found that it "would be impossible to proceed with the case in a manner that adequately protects the debtor's rights." The court then found the appointment of a limited guardian was necessary to conserve judicial resources and facilitate judicial economy, with authority for doing so under §105 and the liberal manner in which Rule 7017 has been interpreted for authorizing a guardian ad litem to file a bankruptcy petition for a minor or incompetent.

Miscellaneous

• In re Spielfogel, 237 B.R. 555 (Bankr. E.D.N.Y. 1999) (bankruptcy courts have inherent power to "depart from the letter of a local rule" regardless of whether the particular rule specifically grants the court the power to deviate from such rule);
• In re Simmons, 237 B.R. 672 (Bankr. N.D. Ill. 1999) (the official bankruptcy forms are not part of the Federal Rules of Bankruptcy Procedure and do not have the force or effect of either the Bankruptcy Code or the Bankruptcy Rules);
• In re Hayes, 183 F.3d 162 (2nd Cir. 1999) (attorney-client relationship, without more, constitutes a "fiduciary" relationship within the meaning of the discharge exception under §523(a)(4), relying upon In re Cochrane, 124 F.3d 978, 984 (8th Cir. 1997));
• In re Ginsburg, 238 B.R. 358 (Bankr. N.D. Ohio 1999) (excusable neglect, even if available to extend the deadline for filing non-dischargeability complaints, would not be permitted to allow late filing where the creditor's attorney had actual knowledge of the debtor's bankruptcy filing roughly two weeks before the bar date);
• In re Rappond, 238 B.R. 442 (Bankr. E.D. Ark. 1999) (debtor/lessee obligation in a covenant not to compete was not a debt discharged in chapter 7 and lessor could have the stay lifted to proceed with a state court lawsuit to enforce the covenant); and
• In re Mohawk Greenfield Motel Corp., 239 B.R. 1 (Bankr. D. Mass. 1999) (action by Massachusetts Commission Against Discrimination enjoining debtor from future acts of employment discrimination and entering back-pay award in favor of ex-employee was "mere enforcement of strong public policy against discrimination and protecting the public's safety and welfare" and not subject to the automatic stay).