The following case summaries appear in the Collier Bankruptcy Case Update, which is published by Matthew Bender & Company Inc., one of the LEXIS Publishing Companies.

March 17, 2003

§ 362(a) Bankruptcy court properly held debt that creditor’s refusal to return seized property of debtor violated stay.
Reliable Equip. Corp. v. Turabo Motors Co. (In re Turabo Motors Co.) (B.A.P. 1st Cir.)

§ 523(a)(8) A consolidation note combining several student loans, guaranteed by a governmental unit and made pursuant to a non-profit foundation, was nondischargeable.
Sperl v. New Hampshire Higher Educ. Assistance Found. (In re Sperl) (Bankr. D.N.H.)

2d Cir.

§ 365(a) Bankruptcy court properly authorized retroactive rejection of executory contract.
BP Energy Co. v. Bethlehem Steel Corp. (S.D.N.Y.)

§ 707(b) Case ordered dismissed or converted to chapter 13 due to 40 year-old debtor’s lack of candor regarding prebankruptcy increase in retirement contributions.
In re Aiello (Bankr. E.D.N.Y.)

§ 1101 Creditor’s appeal of plan confirmation dismissed as moot due to substantial consummation of plan and creditor’s failure to seek stay pending appeal.
Six West Retail Acquisitions, Inc. v. Loews Cineplex Entm’t Corp. (S.D.N.Y.)

3rd Cir.

§ 544(a) Where mortgage was indexed under debtor’s married name and debtor filed under different name, trustee’s search under filing name was sufficiently reasonable to allow sale of property.
Pope v. Corbett (In re Corbett) (Bankr. W.D. Pa.)

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4th Cir.

§ 548 Debtor’s motion to recover payments to creditors for which it allegedly received less than reasonably equivalent value required evidentiary hearing.
Pathnet, Inc. v. Nortel Networks, Inc. (In re Pathnet, Inc.) (Bankr. E.D. Va.)

Rule 9011 Bankruptcy court erred in sanctioning attorney as failure to report relevant state court judgment was based on reasonable belief that judgment was not yet final.
Community Mgmt. Corp. v. Weitz (In re Community Mgmt. Corp.) (D. Md.)

6th Cir.

§ 330 Bankruptcy court properly awarded reduced fee to trustee based on hourly rate rather than percentage.
Schilling v. Moore (W.D. Ky.)

7th Cir.

§ 362(d) Stay lifted to allow IRS to apply debtors’ overpayment to debtors’ tax liabilities.
In re Bare (Bankr. N.D. Ill.)

8th Cir.
§ 503 On debtor’s objection, court determined that administrative fees for several financial advisors would be based on amount of recovery achieved by each for unsecured creditors.
In re Farmland Indus., Inc. (Bankr. W.D. Mo.)

§ 541 Property purchased by debtor’s former spouse with own funds and funds given to spouse by debtor was not property of the estate.
Helena Chem. Co. v. True (In re True) (Bankr. W.D. Mo.)

§ 541(a) Funds due debtor from another state’s unclaimed property office had previously been acknowledged as debtor’s by state agency and were property of the estate.
Kroh Operating Ltd. P’ship v. Great Payback Office (In re Kroh Bros. Dev. Co.) (Bankr. W.D. Mo.)

9th Cir.

§ 523(a) Dischargeability of debtor’s liability for conversion remanded absent evidence of willful or malicious intent although liability based on fraud was clearly nondischargeable.
Thiara v. Spycher Bros. (In re Thiara) (B.A.P. 9th Cir.)

§ 525(b) Termination of employee who informed employer of imminent bankruptcy filing was not discriminatory.
Majewski v. St. Rose Dominican Hosp. (In re Majewski) (9th Cir.)

10th Cir.

§ 362 Stay of personal injury action lifted where debtor was not a defendant and subject only to actual defendants’ indemnity claims.
Teufel v. Rosenberg (D. Kan.)

§ 507(a)(7) Debtor’s obligation to pay mortgage on marital home occupied by former spouse was entitled to priority as a maintenance and support payment.
Miller v. Miller (In re Miller) (B.A.P. 10th Cir.)

11th Cir.

§ 505 Debtor did not meet evidentiary burden for adjustment of equipment valuation from that listed on earlier tax returns.
Chipman-Union, Inc. v. Greene County (In re Chipman-Union, Inc.) (Bankr. M.D. Ga.)

§ 1324 Chapter 13 plan ordered modified for failure to account for court ordered attorneys’ fees and child support.
McKenna v. Dupree (In re Dupree) (Bankr. M.D. Ga.)

D.C. Cir.

28 U.S.C. § 1927 Defendant entitled to hearing to determine amount of attorney’s fees to be reimbursed due to plaintiff’s reckless filing of claim that properly belonged to trustee.
Healey v. Labgold (D.D.C.)

Rule 1014(b) Trustee’s motion to transfer spouse’s bankruptcy to same court as debtor’s bankruptcy denied as a spouse is not an “affiliate.”
In re Feltman (Bankr. D.D.C.)

Collier Bankruptcy Case Summaries

2d Cir. Bankruptcy court properly authorized retroactive rejection of executory contract. S.D.N.Y. PROCEDURAL POSTURE: A creditor natural gas supplier appealed an order of the bankruptcy court that authorized the debtors to reject executory contracts with the creditor retroactively under 11 U.S.C. § 365(a). The creditor argued that court approval was a condition precedent to rejection, and that retroactive rejection was inconsistent with a prior order which compelled the creditor’s continued performance. OVERVIEW: The bankruptcy court was not prohibited as a matter of law from assigning a retroactive rejection date under section 365(a), when the equities demanded it. The prior “utility order” entered under 11 U.S.C. § 366 did not preclude retroactive rejection; it did not preclude a termination of service upon the debtors’ request. The utility order was a protective order from the perspective of the debtors’ estate and provided adequate assurance of payment to the creditor, but was not intended in any way to interfere with the debtor’s right to rejection under 11 U.S.C. § 365(a). Since the utility order was not intended to prevent rejection, there was no evidence suggesting that the rejection motion was an attempt to work a fraud or injustice. And, the debtor filed the motion for rejection prior to instructing the creditor to cease providing gas. Thus, the debtor was not equitably estopped from retroactive rejection. Due to a drop in gas price, the debtor was paying $15,000 more per day under its contract with the creditor. Since the rejection motion was filed prior to the requested rejection date, the creditor was placed on advance notice of the proposed effective date. BP Energy Co. v. Bethlehem Steel Corp., 2002 U.S. Dist. LEXIS 22052, — B.R. — (S.D.N.Y. November 14, 2002) (Buchwald, D.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:365.03 [back to top]

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Case ordered dismissed or converted to chapter 13 due to 40 year-old debtor’s lack of candor regarding prebankruptcy increase in retirement contributions. Bankr. E.D.N.Y. PROCEDURAL POSTURE: The United States trustee moved to dismiss the debtor’s chapter 7 case for substantial abuse under 11 U.S.C. § 707(b), arguing that the given that the debtor had the ability to repay a significant portion of his consumer prepetition debts out of his postpetition earnings under a chapter 13 plan and that the debtor quadrupled his voluntary contribution to his retirement plan on the eve of the bankruptcy and attempted to conceal that fact. OVERVIEW: The debtor’s monthly income was $2,209 and expenses were $2,170. He made retirement contributions of $576 per month, or about 27 percent of his gross income. The contributions should be reduced to, at most, $300 per month. The debtor was only 40 years old, had no dependents, and would not suffer any adverse employment conditions if the contributions were reduced. He had no obligation to buy back pension contributions if they were reduced. Before meeting with his bankruptcy attorneys, the debtor had been funding his pension plan at $140 per month, or 6 percent of his gross income. Under a chapter 13 plan, with disposable income of $315 per month, the debtor could repay over 40 percent of his unsecured debt in 36 months. Under a five-year plan, he could repay 67 percent. The debtor had quadrupled his voluntary contributions only one month before filing bankruptcy. Under the equitable “totality of circumstances” test of section 707(b), when he had contributed only one-fourth of that amount for one and one-half years before, the increase smacked of abuse. The debtor had exhibited a lack of candor when the trustee questioned him about it. There were no mitigating circumstances. In re Aiello, 2002 Bankr. LEXIS 1274, 284 B.R. 756 (Bankr. E.D.N.Y. November 4, 2002) (Craig, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 6:707.04 [back to top]

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Creditor’s appeal of plan confirmation dismissed as moot due to substantial consummation of plan and creditor’s failure to seek stay pending appeal. S.D.N.Y. PROCEDURAL POSTURE: A bankruptcy judge issued an order confirming appellee debtors’ chapter 11 plan, including a settlement agreement involving unsecured claims. The bankruptcy judge refused appellant unsecured creditor’s request to appoint an independent examiner to investigate claims against shareholders and board members of the debtors. The creditor appealed the confirmation order and the denial of its motion for an examiner. OVERVIEW: The creditor had owned or leased movie theaters that were managed by the debtors. The creditor claimed that a prepetition transfer of $417 million dollars to a shareholder of the debtors should have been investigated. The creditor also challenged the settlement, which dealt with the creditors’ committee’s concerns over the release of potential causes of action. The court found that the appeal was moot because the plan had been substantially consummated and because the creditor never sought a stay. Following confirmation, liens had been granted on substantially all of the debtors’ assets, prepetition notes and preexisting securities had been cancelled, shareholder agreements had been terminated, and new common stock had been issued, among other things. The creditor’s failure to seek a stay made it inequitable to proceed with the appeal, and it was impossible to restore the pre-consummation status quo by excising the settlement provisions. Approval of the confirmation order was not an abuse of discretion. Also, the creditor asked for an examiner too late in the proceedings, and deposition testimony offered to show reason for an investigation was properly excluded as hearsay. Six West Retail Acquisitions, Inc. v. Loews Cineplex Entm’t Corp., 2002 U.S. Dist. LEXIS 21927, 286 B.R. 239 (S.D.N.Y. November 13, 2002) (Berman, D.J.).

Collier on Bankruptcy, 15th Ed. Revised 7:1101.01 [back to top]

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3rd Cir.

Where mortgage was indexed under debtor’s married name and debtor filed under different name, trustee’s search under filing name was sufficiently reasonable to allow sale of property. Bankr. W.D. Pa. PROCEDURAL POSTURE: Debtor owned a certain parcel of real estate. Movant chapter 7 trustee filed a motion to sell the property. Respondent bank, inter alia, objected to the sale claiming that it had a valid second mortgage on the property. The debtor gave this mortgage while she was married and used her married name on the mortgage documents. When she filed bankruptcy, she used a different name. At issue was whether a title search should have found the mortgage. OVERVIEW: The land records in the county in which the property was located were indexed by name. Thus, a hypothetical purchaser, which the chapter 7 trustee was deemed to have been, who had searched the alphabetical index in the county property record on the date of the bankruptcy filing would have had no notice of the mortgage because it was indexed under the debtor’s married name. The bank argued that the county maintained a separate index by tax identification number, and the trustee had a duty to search this index as well. However, the county never adopted an ordinance that required all transactions recorded in the recorder’s office to be indexed by tax identification number. The trustee, as a hypothetical bona fide purchaser, was required to undertake reasonable steps to inquire as to the presence of liens against the debtor’s property. A search of the alphabetical index was a reasonable and complete step. The additional step of checking the tax identification number index was a duplicative effort that was not required for a search to constitute reasonable inquiry. Pope v. Corbett (In re Corbett), 2002 Bankr. LEXIS 1263, 284 B.R. 779 (Bankr. W.D. Pa. November 7, 2002) (Bentz, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 5:544.02 [back to top]

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4th Cir

Debtor’s motion to recover payments to creditors for which it allegedly received less than reasonably equivalent value required evidentiary hearing. Bankr. E.D. Va. PROCEDURAL POSTURE: Plaintiff debtor filed a chapter 11 petition. Five related companies also filed chapter 11 petitions at the same time. The debtor commenced an adversary action against defendants, two companies, seeking recovery of alleged insufficient transfers. The companies filed a motion to dismiss the complaint for failure to state a claim for relief. OVERVIEW: The adversary action sought to recover millions of dollars which the debtor had allegedly spent for the benefit of the companies without receiving anything. The companies claimed in the motion that: (1) the debtor was judicially estopped from attacking payments which had been previously represented as made in the ordinary course of business; and (2) the companies were not to be treated as parties for whose benefit the payments were made. The court held that the prior pleadings filed by the debtor could be properly considered in determining whether the debtor was judicially estopped from claiming that payments it made under the agreement or on another entity’s behalf were avoidable as constructively fraudulent transfers. The debtor’s claims were based upon 11 U.S.C. § 548 and Va. Code § 55-81. The debtor’s position was that its failure to actually receive the payment that was contractually or otherwise due effectively caused the debtor to receive less than reasonably equivalent value or consideration valuable in law. The court not resolve the issue on a Fed. R. Civ. P. 12(b)(6) motion to dismiss. Pathnet, Inc. v. Nortel Networks, Inc. (In re Pathnet, Inc.), 2002 Bankr. LEXIS 1262, — B.R. — (Bankr. E.D. Va. August 14, 2002) (Mitchell, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 5:548.01 [back to top]

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Bankruptcy court erred in sanctioning attorney as failure to report relevant state court judgment was based on reasonable belief that judgment was not yet final. D. Md. PROCEDURAL POSTURE: The Bankruptcy Court for the District of Maryland sanctioned debtor’s attorney in the amount of $33,249, which represented 50 percent of the attorney’s fees in an adversary action, under Fed. R. Bankr. P. 9011, and dismissed debtor’s complaint. The attorney appealed on the basis that any award of sanctions against him was unjustified. Creditor cross-appealed on the grounds that the award was not substantial enough. OVERVIEW: On appeal, the attorney argued that the bankruptcy court erred when it awarded sanctions against him because it was objectively reasonable for him to believe that a relevant prior state court judgment was not final when he filed the adversary proceeding. First, the state court judgment was against fewer than all parties; thus, under Md. R. 2-602(a)(1) it was not a final judgment. Second, even if debtor was somehow in privity with other parties as to the state court judgment, the attorney could have objectively reasonably believed that the fact that the judgment against the other parties was on appeal militated against the judgment for purposes of res judicata and collateral estoppel. Because the state court never entered an order under Md. R. 2-602(b), which was required under the circumstances, the attorney was correct as to the non-finality of the state court’s judgment. The same was true with regard to the appeal taken by the parties with whom debtor was supposed to be in privity. Accordingly, the bankruptcy court abused its discretion in sanctioning the attorney under Fed. R. Bankr. P. 9011. His actions under the circumstances were sufficiently reasonable to avoid that result. Community Mgmt. Corp. v. Weitz (In re Community Mgmt. Corp.), 2002 U.S. Dist. LEXIS 21951, 288 B.R. 104 (D. Md. October 10, 2002) (Messitte, D.J.).

Collier on Bankruptcy, 15th Ed. Revised 10:9011.01 [back to top]

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Bankruptcy court properly awarded reduced fee to trustee based on hourly rate rather than percentage. W.D. Ky. PROCEDURAL POSTURE: Before the court was an appeal from a decision of the bankruptcy court awarding appellant bankruptcy trustee a fee of $450 and expenses of $7.00 for work he did as chapter 7 trustee that brought certain assets to the estate. The assets were collected and distributed after the case was converted to chapter 13. OVERVIEW: The bankruptcy court was within its discretion when it based its award on an hourly rate fee rather than a percentage fee. Even if the trustee normally charged percentage based fees, he could not receive anything under 11 U.S.C. § 326 unless it met the requirements of 11 U.S.C. § 330. Also, it was not an abuse of discretion for the bankruptcy court to reduce the trustee’s hourly rate to $150 per hour. The court took judicial notice of the fact that within the local legal community, hourly rates of counsel seeking compensation in routine chapter 7 proceedings ranged from $75 to $150. The court’s determination that the trustee failed to justify an hourly rate in excess of $150 per hour was reasonable based on the record. Additionally, the bankruptcy court’s determination that the trustee had already been paid a statutory fee for attending the 11 U.S.C. § 341 meeting, and thus, was not entitled to be compensated for that time under a quantum meruit award, was not clearly erroneous. Finally, the bankruptcy court’s determination that the time the trustee spent litigating his fee award was not reasonable was not an abuse of discretion. Schilling v. Moore, 2002 U.S. Dist. LEXIS 22367, 286 B.R. 846 (W.D. Ky. November 13, 2002) (Simpson, D.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:330.01 [back to top]

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7th Cir.

Stay lifted to allow IRS to apply debtors’ overpayment to debtors’ tax liabilities. Bankr. N.D. Ill. PROCEDURAL POSTURE: Married debtors filed a chapter 13 petition and the court later confirmed the debtors’ chapter 13 plan. The federal government, on behalf of the Internal Revenue Service, filed a motion to lift the automatic stay pursuant to 11 U.S.C. § 362(d) to allow it to apply the debtors’ overpayment to the debtors’ tax liabilities. The debtors objected to the motion. OVERVIEW: The debtors’ objection to the motion claimed that the right to setoff was lost by the IRS because it waited until after confirmation. The IRS asserted that: (1) the application of a tax overpayment to reduce prebankruptcy petition debts to the IRS was not a setoff within the meaning of the Bankruptcy Code, but instead a netting, permitted under I.R.C. § 6402; (2) the IRS’ setoff rights were preserved by 11 U.S.C. § 553; and (3) IRS setoffs were protected by sovereign immunity and other special government rights. The court agreed with the IRS where the confirmed chapter 13 plan’s terms only referenced the debtors’ estimate of the allowed property claims. The debtors did not schedule the overpayment as an asset and secured claimants were not subject to the time limits imposed upon unsecured creditors under Fed. R. Bank. P. 3002(c)(1). In re Bare, 2002 Bankr. LEXIS 1267, 284 B.R. 870 (Bankr. N.D. Ill. November 12, 2003) (Squires, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 3:362.07 [back to top]

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8th Cir.

On debtor’s objection, court determined that administrative fees for several financial advisors would be based on amount of recovery achieved by each for unsecured creditors. Bankr. W.D. Mo. PROCEDURAL POSTURE: A debtor and various subsidiaries filed chapter 11 petitions, which were jointly administered. The committee of unsecured creditors moved to employ financial advisors, pursuant to 11 U.S.C. § 1103(a). The debtors objected to a proposed fee as an administrative expense under 11 U.S.C. § 503. The court allowed the retention of the advisors, but the parties were unable to agree on the payment source. OVERVIEW: All of the parties agreed that the financial advisors’ transaction fee was an administrative expense, but disagreed where the expense should be allocated. The committee argued that fee should be treated as a general administrative expense because the clear and unambiguous language of 11 U.S.C. § 1103 authorized it and allowed the committee to employ one or more attorneys, accountants, or other agents, to represent or perform services for such committee. The debtors disagreed and claimed that two separate committees had hired financial advisors and made different agreements concerning the fees. The court viewed the fee as a contingent fee that would be based on the amount of any recovery the advisors obtained for the unsecured creditors. The court believed that the fee should be paid out of the distributions made to the general unsecured creditors because the advisors were working specifically for the benefit of those creditors, and not for the benefit of all creditors or the overall benefit of the bankruptcy estate. In re Farmland Indus., Inc., 2002 Bankr. LEXIS 1632, 286 B.R. 895 (Bankr. W.D. Mo. November 27, 2002) (Venters, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:503.01 [back to top]

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Property purchased by debtor’s former spouse with own funds and funds given to spouse by debtor was not property of the estate. Bankr. W.D. Mo. PROCEDURAL POSTURE: Plaintiff creditor asserted that debtor should be denied discharge pursuant to 11 U.S.C. § 727(a)(2), (a)(4). In a second proceeding against the debtor’s spouse, defendant there, the chapter 7 trustee sought a declaratory judgment that the debtor held an interest in farm property, and sought to sell that interest. OVERVIEW: The controversy revolved around the debtor’s alleged ownership interest in a 200-acre farm property and whether he should be denied a discharge for failing to disclose that alleged ownership interest in his bankruptcy filings. The trustee claimed that the debtor acquired an ownership interest in the property because he provided part of the money required for the farm purchase when he was married to his spouse. Accordingly, the trustee asserted that his interest in the property was property of the bankruptcy estate pursuant to 11 U.S.C. § 541. However, the court found that the spouse acquired the farm property with her separate funds and with money given to her by the debtor as a gift, and that under state law, it was her separate property and not property of the bankruptcy estate. Next, addressing the creditor’s claim that the debtor concealed assets, given the court’s finding that the farm was not property of the estate, it followed that his nondisclosure of the transfer on his bankruptcy schedules was not violative of 11 U.S.C. § 727. Further, it could not have been a violation of the statute for the debtor not to list an interest in the property on his schedules. Helena Chem. Co. v. True (In re True), 2002 Bankr. LEXIS 1276, 285 B.R. 405 (Bankr. W.D. Mo. November 4, 2002) (Venters, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 5:541.01 [back to top]

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Funds due debtor from another state’s unclaimed property office had previously been acknowledged as debtor’s by state agency and were property of the estate. Bankr. W.D. Mo. PROCEDURAL POSTURE: Plaintiff, a limited partnership established to liquidate the assets of a bankruptcy estate, brought an adversary proceeding against defendants, the Unclaimed Property Division of the Colorado Department of the Treasury and two potential claimants of funds held by the Division. The limited partnership sought to recover $626,855.87 from the Division. OVERVIEW: The funds at issue resulted from a claim by the bankruptcy debtor filed with the Iowa Commissioner of Insurance as liquidator of an insurance company. The liquidator found the claim to be valid and obtained an Iowa state court’s approval to pay the debtor. However, a check mailed to the debtor at a Colorado address was returned to the liquidator, as the Colorado office was closed. The funds were turned over to the Division, which claimed that the limited partnership had not proved its ownership interest in the funds. The bankruptcy court concluded that the funds were part of the bankruptcy estate because the liquidator and the Iowa court, following Iowa law, had determined that the debtor was entitled to the funds. It was the bankruptcy court’s duty to give full faith and credit to the Iowa court’s order, and the Division was not entitled to relitigate the issue. Although the Division argued that it appeared that the check was sent to one of the potential claimants in care of the debtor, both of the potential claimants disclaimed any interest in the funds. Colorado law did not allow the limited partnership to collect interest on the funds, however. Kroh Operating Ltd. P’ship v. Great Payback Office (In re Kroh Bros. Dev. Co.), 2002 Bankr. LEXIS 1268, 284 B.R. 264 (Bankr. W.D. Mo. September 23, 2002) (Venters, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 5:541.01 [back to top]

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9th Cir.

Dischargeability of debtor’s liability for conversion remanded absent evidence of willful or malicious intent although liability based on fraud was clearly nondischargeable. B.A.P. 9th Cir. PROCEDURAL POSTURE: Chapter 11 debtor/farmer appealed from a judgment of the Bankruptcy Court for the Eastern District of California which found that the farmer’s liability for conversion concerning certain crop insurance proceeds was nondischargeable, 11 U.S.C. § 523(a)(6), and that his fraud-based debt was similarly nondischargeable under 11 U.S.C. § 523(a)(2)(A). OVERVIEW: The farmer filed a voluntary chapter 11 petition on May 9, 2000, and plaintiff, general partnership filed a timely complaint to determine nondischargeability, alleging, inter alia, that the farmer obtained crop financing under a false pretense and misrepresentation and had improperly converted insurance proceeds. The bankruptcy court held that when the farmer received the insurance check, he knew that he owed $321,111 to the partnership from the prior crop year, that he had executed documents granting the partnership a security interest, and that although he had agreed to repay the debt formally, he had every intention of not repaying it. The bankruptcy appellate panel noted that the evidence was clear that the farmer did not tell the partnership about the insurance settlement or money, but applied the money to his own use, knowing that the partnership would not be paid the full amount of its debt. However, the panel held that the bankruptcy court did not make the necessary finding regarding the farmer’s subjective intent to injure the partnership, in order to determine conclusively that the conversion was “willful and malicious” for purposes of 11 U.S.C. § 523(a)(6). Thiara v. Spycher Bros. (In re Thiara), 2002 Bankr. LEXIS 1289, 285 B.R. 420 (B.A.P. 9th Cir. November 1, 2002) (Marlar, B.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:523.01 [back to top]

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Termination of employee who informed employer of imminent bankruptcy filing was not discriminatory. 9th Cir. PROCEDURAL POSTURE: Plaintiff trustee filed suit against defendant employer under 11 U.S.C. § 525(b), alleging that the employer discriminated against the debtor by firing him after he indicated his intent to file bankruptcy. The bankruptcy court dismissed the case, and the District Court for the District of Nevada affirmed. The trustee appealed. OVERVIEW: The debtor incurred large medical expenses at the hospital where he was employed, and he did not pay them. After repayment negotiations failed, he told the employer he intended to file for bankruptcy, and the employer fired him before he did so. The trustee claimed that the firing violated section 525(b), which barred termination of an individual who “is or has been” a bankruptcy debtor solely because the individual was or had been a debtor in bankruptcy. The appeals court held that section 525(b) only applied to individuals who had already filed bankruptcy at the time of the alleged discriminatory action. This was because the reporting of statutory violations was to be encouraged, but the filing of bankruptcy was not something that should be encouraged. Section 525(b), by its plain language referred only to a debtor who “is or has been” in bankruptcy, not to someone who “has been or will be” a debtor. Since at the time of the termination, the debtor had not been fired, that section was not applicable. Majewski v. St. Rose Dominican Hosp. (In re Majewski), 2002 U.S. App. LEXIS 23426, 310 F.3d 653 (9th Cir. November 13, 2002) (Schroeder, C.J.).

Collier on Bankruptcy, 15th Ed. Revised 4:525.04 [back to top]

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