May 24, 2013

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Tenth Circuit: 11 U.S.C. § 362(a)(1) Does Not Stay Appeal from Tax Court

April 1, 2013 by Leave a Comment

The Tenth Circuit published its opinion in Schoppe v. Commissioner of Internal Revenue on Thursday, March 28, 2013.

John H. Schoppe petitioned for review of a Tax Court decision finding him liable for tax deficiencies. While the case was proceeding, Mr. Schoppe filed a bankruptcy petition. That filing prompted the Tenth Circuit to request supplemental briefing from the parties on whether the automatic bankruptcy stay in 11 U.S.C. § 362(a)(1) would apply to this appeal.

The Tenth Circuit held that § 362(a)(1) did not stay the appeal. It was an open question in the Tenth Circuit whether a proceeding is initiated by the debtor when he files a petition in Tax Court or whether the Tax Court proceeding is a continuation of the proceeding initiated against the debtor when the Commissioner begins the administrative process of determining that there is a tax deficiency. The Tenth Circuit agreed with the four circuits that have applied a bright-line rule that a petition filed in Tax Court is an independent judicial proceeding initiated by the debtor, not the continuation of an administrative proceeding. Because the underlying case originated with Mr. Schoppe commencing a judicial proceeding in Tax Court, The Tenth Circuit concluded the automatic stay did not apply.

On the merits, Mr. Schoppe did not file timely federal tax returns for the years 2002 through 2007. The IRS sent Mr. Schoppe a notice of deficiency, determining his income tax deficiencies, as well as additional amounts for failing to file returns, failing to pay tax when due, and failing to pay estimated tax. The Tax Court sustained the IRS’s determination of the deficiencies, concluding that Mr. Schoppe failed to adequately substantiate deductions he claimed for business expenses. Mr. Schoppe appealed.

Finding no clear error, the Tenth Circuit agreed with Tax Court’s determination that Mr. Schoppe failed to substantiate his claimed business expenses.

Tax Court’s decision AFFIRMED.

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Tenth Circuit: Allegedly Fraudulently Transferred Property is Not Part of the Bankruptcy Estate Until Recovered

March 14, 2013 by Leave a Comment

The Tenth Circuit issued its opinion in Rajala v. Gardner on Tuesday, March 12, 2013.

Plaintiff-Appellant Eric Rajala, Trustee of the bankruptcy estate of Generation Resources Holding Company, LLC (GRHC), appeals from the district court’s order granting motions to distribute approximately $9 million held in escrow. This amount represents part of the purchase price of a wind power project allegedly developed by GRHC. In a nutshell, the Trustee claims that the Debtor, GRHC, has been left with $5 million in debt while the individual Defendants-Appellees and their affiliated entities received some $13 million in proceeds from the sale of several wind power projects, unburdened by the debt.

At issue was what constitutes property of the bankruptcy estate and whether allegedly fraudulently transferred property is subject to the Bankruptcy Code’s automatic stay before a trustee recovers the property through an avoidance action. The district court held that allegedly fraudulently transferred property is not part of the bankruptcy estate until recovered and therefore is beyond the reach of the automatic stay. The Trustee appealed.

Under 11 U.S.C. § 362(a)(3), the filing of a Chapter 7 bankruptcy petition automatically stays “any act to obtain possession of property of the estate . . . or to exercise control over property of the estate.” Section 541(a)(1) defines property of the estate to include “all legal or equitable interests of the debtor in property as of the commencement of the case,” and § 541(a)(3) also includes in the estate “[a]ny interest in property that the trustee recovers under section . . . 550.” Under § 550, a trustee may recover transferred property, “to the extent that a transfer is avoided under section . . . 548.” In turn, § 548 enables the trustee to avoid fraudulent transfers.

After reviewing a split among the circuits on this issue, the plain meaning of the statute led the Tenth Circuit to conclude that the bankruptcy estate does not include fraudulently transferred property until that property is recovered. Interpreting § 541(a)(1) to include fraudulently transferred property would render § 541(a)(3) meaningless with respect to property recovered in a fraudulent transfer action.

The Tenth Circuit held that fraudulently transferred property is not part of the bankruptcy estate until recovered.

AFFIRMED.

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Tenth Circuit: In Case of First Impression, 2005 Amendments to Bankruptcy Code Do Not Exempt Individual Chapter 11 Debtors from the Absolute Priority Rule

January 17, 2013 by Leave a Comment

The Tenth Circuit issued its opinion in Dill Oil Company, Inc. v. Stephens on Tuesday, January 15, 2013.

Arvin E. Stephens and Karen J. Stephens, f/d/b/a/ Ninnekah Quick Mart, LLC (“Debtors”) owned a chain of convenience stores for which Dill Oil Company, LLC, and Danny and Nancy Dill (“the Dills”) were the primary supplier of gasoline and gas station products. Due to the rising price of gas and a diminishing customer base, Debtors’ stores began operating at a loss. Debtors became liable to the Dills for approximately $1.8 million.

In 2010, Debtors filed for relief under Chapter 11 of the Bankruptcy Code. Pursuant to the plan, the Dills would be paid approximately $15,000 as a secured creditor, but their remaining claim would be considered unsecured. The Debtors would retain possession and control of their property; the Dills would receive a monthly payment for five years, totaling about 1% of their unsecured claim. The Dills objected to confirmation on the ground that the proposed plan violated the absolute priority rule (“APR”), which bars junior claimants, including debtors, from retaining any interest in property when a dissenting class of senior creditors has not been paid in full.  The bankruptcy court entered an order confirming the plan and the Dills appealed.

This appeal presents an issue of first impression for the Tenth Circuit: whether the 2005 amendments to the Bankruptcy Code exempt individual Chapter 11 debtors from the absolute priority rule.

After examining the divergent interpretations among the Circuits of the statutory language and endeavoring to ascertain Congress’s intent, the Tenth Circuit refused to read the Bankruptcy Code to erode past bankruptcy practice absent a clear indication that Congress intended such a departure. Here, the statutory language and legislative history lacked any clear indication that Congress intended to erode the absolute priority rule, a pillar of creditor bankruptcy protection.

Accordingly, the Court REVERSED the bankruptcy court’s order confirming the plan and REMANDED for further proceedings.

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Tenth Circuit: Barton Doctrine Prohibited Suit Against Bankruptcy Trustee By Debtor

November 29, 2012 by Leave a Comment

The Tenth Circuit issued its opinion in Satterfield v. Malloy on Wednesday, November 28, 2012.

William Satterfield brought suit against Patrick J. Malloy III, the court-appointed trustee of Satterfield’s Chapter 7 bankruptcy estate. The district court concluded that the suit was barred by Barton v. Barbour, 104 U.S. 126 (1881), because Satterfield’s claims were based on actions Malloy took as trustee and Satterfield did not first obtain permission from the bankruptcy court. The Tenth Circuit agreed with the district court and its sister circuits and held that “Barton precludes suit against a bankruptcy trustee for claims based on alleged misconduct in the discharge of a trustee’s official duties absent approval from the appointing bankruptcy court.”

Satterfield argued that Barton did not apply because the trustee’s actions fell within Barton’s exception for ultra vires acts. The court found that even if a trustee acted with improper motives, Barton applied. The ultra vires exception applies to a trustee wrongfully seizing an outside party’s assets, not acts involving the debtor’s estate. The court also rejected Satterfield’s arguments that the Barton doctrine was inapplicable because 1) he sued the trustee in his individual capacity for tort actions, and 2) his bankruptcy proceedings had concluded. Courts applying Barton look to the substantive allegations to see if the claim is related to the trustee’s duties, not to whether the trustee is sued in his or her individual capacity. Also, the Barton doctrine continues to apply after a bankruptcy case is closed.

The Tenth Circuit  also rejected Satterfield’s claim that he was permitted to bring suit against Malloy under 28 U.S.C. § 959 as its exception to the Barton doctrine applies only to actions taken while “carrying on business.”

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Tenth Circuit: Debtor May Not Appeal from Bankruptcy Court to Both Bankruptcy Appellate Panel (BAP) and District Court

October 28, 2012 by Leave a Comment

The Tenth Circuit issued its opinion in Woodman v. Concept Construction on Thursday, October 25, 2012.

Mr. and Mrs. Woodman filed for bankruptcy in 2008. On December 1, 2009, the bankruptcy court ruled that Peter Woodman owed Concept Construction, his former employer, over $600,000, a debt not dischargeable in bankruptcy since it was obtained through embezzlement. Mr. Woodman filed two timely notices of appeal from this decision by the bankruptcy court.  One appeal was heard by the bankruptcy appellate panel (BAP), which dismissed the appeal a month later for failure to prosecute.  The other appeal was heard by the district court, which decided to consider the matter despite the prior BAP ruling, but ruled against Mr. Woodman on the merits.  Mr. Woodman appealed from the judgment of the district court.

Bankruptcy appellate panels were designed to provide an alternative, not a supplement, to an appeal to the district court. Nothing in the statutory language creating the panels suggests that Congress would tolerate the confusion and waste of resources that would result from simultaneous appeals of the same bankruptcy court decision to both the district court and a panel. To the contrary, the statute authorizing appeals from the bankruptcy court speaks in terms of alternatives, giving a party a choice—an election—between the two appellate forums.

Accordingly, The Tenth Circuit concluded that Mr. Woodman’s second notice of appeal to the district court was a nullity. He could not have filed a second appeal to the district court so long as he had a pending appeal before the BAP. His “Notice Voluntary Withdrawal of Appeal” did not comply with the bankruptcy rules.

Therefore, the district court did not have jurisdiction to review the decision of the bankruptcy court. The district court’s judgment is VACATED and the case is REMANDED to that court for dismissal of the appeal from the bankruptcy court.

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Tenth Circuit: Social Security Income Need Not be Included in Calculation of Projected Disposable Income in Chapter 13 Bankruptcy

October 26, 2012 by Leave a Comment

The Tenth Circuit issued its opinion in Anderson vs. Cranmer on Tuesday, October 23, 2012.

In 2010, Cranmer filed a petition for relief under Chapter 13 of the Bankruptcy Code. In connection with the petition, he filed a Form 22C (Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income). As allowed, he did not include his Social Security income (SSI) on the Form. Cranmer also filed Schedules I & J. On Schedule I, which represents his monthly income, Cranmer included $1940 of Social Security income. On Schedule J, which represents his monthly expenses, Cranmer deducted a portion of that Social Security income as exempt social security funds. The Chapter 13 repayment plan Cranmer ultimately proposed, therefore, allowed him to keep a portion of his SSI rather than commit it to the repayment of creditors.

The Trustee objected to the plan. While the Trustee acknowledged SSI is excluded from the calculation of current monthly income (Form 22C) he argued SSI should be included in the calculation of projected disposable income, which is based on Schedules I and J. The bankruptcy court denied confirmation of the plan, concluding that SSI must be included in calculation and Cranmer’s failure to do so meant he did not propose his plan in good faith. Cranmer appealed and the district court reversed. The Trustee appealed to the Tenth Circuit.

The Bankruptcy Code does not define “projected disposable income.” The Trustee does not dispute SSI is expressly excluded from disposable income. Instead, he insists that it should be included in the calculation of projected disposable income. Although the term “projected disposable income” is not defined, it incorporates the term “disposable income,” which is defined and which expressly excludes SSI. The mere placement of the adjective “projected” in front of the words “disposable income” does not imbue the term “disposable income” with different substantive components. Thus, the plain language of the Bankruptcy Code demonstrates SSI is excluded from the projected disposable income calculation.

The Tenth Circuit concluded that Social Security income need not be included in the calculation of projected disposable income, and that Cranmer’s failure to include it is not grounds for finding he did not propose his plan in good faith.

The district court’s order is AFFIRMED.

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Tenth Circuit: Nonrefundable Portion of Child Tax Credit is Not Exempt from Bankruptcy Under Colorado Law

October 25, 2012 by Leave a Comment

The Tenth Circuit Court of Appeals issued its opinion in In re Borgman on Tuesday, October 23, 2012.

Appellees Vernon and Elyse Dunckley (“the Dunckleys”) and Appellee Richard Borgman (“Borgman”) (collectively, the “Debtors”) each filed for Chapter 7 bankruptcy in October 2009. The Debtors listed their prospective tax refunds, including child tax credit, as exempt property on their bankruptcy petitions, citing C.R. S. § 13-54-102(1)(o). The Dunckleys received a tax refund in the amount of $4,261. Borgman received a tax refund in the amount of $3,770.

In a Chapter 7 bankruptcy, a debtor’s property is liquidated and the proceeds distributed to creditors. But a debtor may claim certain property as exempt from liquidation and sale.  Colorado has codified its own exempt property rules.  The relevant Colorado statute exempts a wide range of personal property, including, the full amount of any federal or state income tax refund attributed to an earned income tax credit or a child tax credit. C.R.S. “§ 13-54-102(1)(o).

Under the Internal Revenue Code, a taxpayer with minor children may claim a child tax credit (“CTC”) of $1,000 for each qualifying child. The Internal Revenue Code distinguishes between “nonrefundable credits,” “refundable credits.” “Nonrefundable” means it can only reduce tax liability to the extent that tax liability exists. For example, if a taxpayer had $750 of total tax liability and one qualifying child, she could use $750 of the $1,000 CTC to reduce her tax liability to zero, but she would not be entitled to have the remaining $250 paid to her. For certain taxpayers with earned income, however, a portion of the $1,000 Credit that exceeds the tax liability is refundable. This component is called the additional child tax credit. If a taxpayer in this example qualified for the Additional CTC, not only would $750 of the nonrefundable CTC reduce her tax liability, to zero, but she could also receive some or all of the $250 difference as a refund.

The Dunckleys claimed an exemption of $2,000 from the bankruptcy estate, equivalent to the $2,000 nonrefundable CTC. Likewise, Borgman sought to exempt $818 from his bankruptcy estate, corresponding to the nonrefundable portion of the CTC on his tax return. The Trustee objected to each of these claims, on the grounds that the Debtors were claiming an exemption on a child tax credit which is related to a non-refundable portion credited against the amount of tax owed. The Bankruptcy Judge disallowed both exemptions and the Debtors appealed to the Bankruptcy Appellate Panel, which reversed.  The Trustee appealed to the Tenth Circuit.

This appeal presents the question of whether the amount of a federal tax refund equivalent to the nonrefundable portion of the child tax credit of 26 U.S.C. § 24(a) is exempt from a bankruptcy debtor’s estate under Colorado Revised Statutes § 13-54-102(1)(o). That statute exempts from a bankruptcy estate the full amount of any federal or state income tax refund attributed to an earned income tax credit or a child tax credit.

The Tenth Circuit stated that it is axiomatic that a refund attributed to  a child tax credit must first be a “refund,” and that the nonrefundable portion of the Child Tax Credit — i.e., the portion claimed in the “tax and credits” section of Form 1040—never gives rise to a “refund.” A reduction in tax liability, standing alone, will never result in a refund. Accordingly, the nonrefundable portion of the CTC is outside the scope of § 13-54-102(1)(o).

Further, the disputed refunds were not “attributed to” the Child Tax Credit. In light of the fact that a refund depends first upon a payment, it cannot be said that the refunds were “attributed to” the nonrefundable portion of the CTC. The Dunckleys’ refund was “attributed to” the fact that they had $8,447 in withholding, as against total tax liability of $4,186. Borgman’s refund was “attributed to” the fact that he had $1,328 in withholding, a $400 Making Work Pay credit, a $1,860 earned income tax credit, and a $182 Additional CTC, against total tax liability of zero.

In sum, the Tenth Circuit held that the nonrefundable portion of the child tax credit cannot give rise to a “refund,” and is not included in the full amount of a federal income tax refund attributed to a child tax credit under Colorado Revised Statutes § 13-54-102(1)(o). It is therefore not exempt from the bankruptcy estate, as the Bankruptcy Court correctly held.

The order of the Bankruptcy Appellate Panel is REVERSED and the orders of the Bankruptcy Court are REINSTATED disallowing the claimed exemptions.

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Tenth Circuit: In Bankruptcy Case, Debtor Permitted to Grant Security Interest to Creditor in Economic Value of Broadcasting License, Regardless of When Sale of License is Contemplated

October 17, 2012 by Leave a Comment

The Tenth Circuit Court of Appeals issued its opinion in In re Tracy Broadcasting Corporation on Monday, October 16, 2012.

Tracy Broadcasting filed for bankruptcy under Chapter 11. Its primary creditors were Valley Bank and Spectrum Scan, which was unsecured. The most valuable asset was Tracy’s broadcasting license. The schedules stated that the “proceeds” of the license were secured to Valley Bank. Spectrum Scan brought an action to determine the extent of Valley Bank’s security interest. The bankruptcy court ruled that Valley Bank had no priority in the proceeds of the sale of the license. According to the bankruptcy court, Tracy Broadcasting lacked a sufficient prepetition property interest in the license because the Federal Communications Act (FCA) barred its transfer without FCC permission. The United States District Court for the District of Colorado affirmed.

The Tenth Circuit’s analysis on appeal involved two steps. First, it determined what, if any, interest Tracy Broadcasting could convey in its license before it filed its bankruptcy petition. The Tenth Circuit concluded that Tracy Broadcasting could grant a security interest in its right to the proceeds of the sale of the license. Under the FCA, a licensee has no ownership rights in a radio channel or frequency; the use of the channel is within the regulatory power of the FCC. But the FCA does not prohibit a licensee from making money from its license—say, when a licensee sells a license (albeit only with FCC approval) and realizes a profit because of the value of listener loyalty to the frequency. Accordingly, the Court held that federal law permitted Tracy Broadcasting to grant a security interest in the economic value of its license to Valley Bank.

Second, The Tenth Circuit determined whether such a security interest is a property interest that can attach before a sale of the license is contemplated.  Under the Bankruptcy Code, property-rights issues of this sort are a matter of state law. The Tenth Circuit held that Nebraska law recognizes that a security interest in the proceeds of a license sale attaches when the licensee enters into the security agreement, regardless of whether a sale is contemplated at that time. REVERSED.

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Tenth Circuit: 11 U.S.C. § 1322 May Allow Unsecured Lien to be Voided in Chapter 13 Bankruptcy

September 6, 2012 by Leave a Comment

The Tenth Circuit Court of Appeals published its opinion in In re Woolsey on Tuesday, September 4, 2012.

Kenneth and Stephanie Woolsey filed for Chapter 13 bankruptcy. They had a first and second mortgage on their home and, as part of their proposed repayment plan, sought to void the second mortgage’s lien because the house was worth less than the first mortgage alone. The bankruptcy court rejected the repayment plan, the Woolseys took an interlocutory appeal to the district court, which also rejected the plan and the Woolseys then appealed to the Tenth Circuit. While the appeal was pending, the bankruptcy court approved an amended plan.

The Tenth Circuit discussed whether it had jurisdiction to hear the appeal and found that it did under 28 U.S.C. § 158(d)(1), which gives courts of appeal jurisdiction of appeals from “all final decisions” in bankruptcy matters. “As applied to this case, the district court’s ‘final decision’ rejecting the Woolseys’ initial plan is enough to afford us jurisdiction: the finality of the bankruptcy court’s proceedings is immaterial.”

While the plain language of 11 U.S.C. § 506(d) allows a wholly unsecured lien to be declared void, the Supreme Court in Dewsnup v. Timm held to the contrary. Dewsnup was a Chapter 7 case and many courts have found it does not apply to Chapter 13 cases. Because the Woolseys specifically rejected the argument accepted by other circuits that 11 U.S.C. § 1322 would allow the wholly unsecured lien to be voided, the Tenth Circuit refused to consider it and decided against them based on their § 506(d) argument.

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Tenth Circuit: 11 U.S.C. § 523(a)(19) Requires a Violation of Securities Laws to Render Judgment Debt Nondischargeable

August 21, 2012 by Leave a Comment

The Tenth Circuit Court of Appeals published its opinion in Okla. Department of Securities v. Wilcox on Monday, August 20, 2012.

After the instigator of a Ponzi scheme was convicted of securities violations, the Oklahoma Department of Securities (the Department) sued several of the early investors to recoup funds. Early investors the Wilcoxes and Robert Mathews were found to have been unjustly enriched and disgorgement of their profits was required. The three investors filed for bankruptcy and each sought to discharge the approximately $500,000 of the judgment debt. The Department sought to avoid discharge of the debt and was granted summary judgment by the bankruptcy court. The debtors appealed the district court’s affirmation of the bankruptcy court’s determination that “the debts were not dischargeable because they fell under the exception in 11 U.S.C. § 523(a)(19) as judgments for violation of securities laws.”

In a 2-1 decision, the Tenth Circuit reversed. The burden is on a creditor to show the nondischargeability of  a debt under11 U.S.C. § 523(a). The court held that the plain language of the statute required a violation of the securities laws and that was not present here. The debtors had not been prosecuted by the Department for violation of the securities laws, but for unjust enrichment. Had they been convicted of securities violations, the judgment ordering them to disgorge their profits would not have been dischargeable in bankruptcy.

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Colorado Court of Appeals: Statute of Limitations Began to Run at Maturity Date of Loans and Therefore Action Was Timely Filed

July 24, 2012 by Leave a Comment

The Colorado Court of Appeals issued its opinion in Castle Rock Bank v. Team Transit, LLC on July 19, 2012.

Promissory Notes —Statute of Limitations.

Defendant Michael L. Zinna appealed the trial court’s ruling that plaintiff Castle Rock Bank’s (Bank) action was timely filed under the applicable statute of limitations. The judgment was affirmed and the case was remanded with directions.

On December 18, 1996, the Bank loaned Team Transit, LLC, $100,000 (Team Transit loan), pursuant to a promissory note signed by Zinna, president of Team Transit. Team Transit was required to pay the Bank $1,378 per month beginning one month from December 18, 1996, with “the balance of the principal and interest payable 10 years from the date [t]hereof.”

On April 9, 1998, the Bank loaned Kelly A. Spooner $75,000 (Spooner loan), pursuant to a promissory note signed by her. Spooner was to pay the Bank $1,295 per month beginning one month from April 9, 1998, with “the balance of the principal and interest payable 7 years from the date [t]hereof.”

On March 1, 2001, both loans were modified and new promissory notes were executed by Zinna and Spooner, who had married. The new principal on the Team Transit loan was $75,671.39. Zinna and Spooner were added as co-borrowers in their personal capacities and Spooner pledged additional collateral, consisting of a third deed of trust on their family home. The monthly repayment schedule was revised with a final payment on December 18, 2006. The new principal on the Spooner loan was $48,959.15. Zinna was added as a co-borrower in his personal capacity and the payment terms were revised, with a final payment due on April 9, 2005.

Zinna made two installment payments on both loans in May and July of 2001, and then stopped making payments. The Bank received a “pay-down” of $5,000 from the sale of their home, which it applied to the Team Transit loan on August 2, 2002. The Bank received no further payments, Zinna and Spooner divorced, and Spooner filed for bankruptcy.

On June 5, 2009, the Bank filed its complaint in this action, alleging two claims for breach of contract. On the Team Transit loan, the allegation was against Team Transit and Zinna, and on the Spooner loan, the allegation was against Zinna.

A clerk’s default was entered against Team Transit for failing to answer. Zinna answered and asserted the statute of limitations as an affirmative defense.

The Bank filed a motion for summary judgment, arguing it was entitled to judgment as a matter of law against Zinna for the amount due on the two notes. The Bank represented the Team Transit loan went into “default” on September 20, 1997, and the Spooner loan went into default on January 8, 2002, both for failure to make payments.

Zinna responded, alleging there were questions of material fact and attached an affidavit regarding his understanding that the loans had been paid from various sources. The Bank responded that this was correct but that there still were outstanding balances under both loans. The summary judgment motion was denied based on the dispute about material facts, and a one-day bench trial was held. The court orally denied Zinna’s motion for judgment as a matter of law based on the statute of limitations and ultimately held that Zinna owed $69,108.77 plus interest on the Team Transit loan and $45,036.60 plus interest on the Spooner loan and entered judgment.

Zinna appealed. Shortly before briefing was completed, the Supreme Court issued its opinion in Hassler v. Account Brokers of Larimer County, Inc., 274 P.3d 547 (Colo. 2012), which addressed the specific statute of limitations at issue in this case. Supplemental briefing was requested.

The trial court had found that the Bank had never called the notes in default but had pursued Zinna due to their delinquency. The Court considered what appeared to be an issue of first impression in Colorado: when does the statute of limitations begin to run on a promissory note that is to be repaid in installments; was not accelerated by the creditor; and provides that a “final payment of the unpaid principal balance plus accrued interest is due and payable” on the note’s maturity date?

The Court held that under the circumstances of the case, the statute of limitations didn’t begin to run until then notes’ maturity dates, which were December 18, 2006 for the Team Transit loan and April 9, 2005 for the Spooner loan. Therefore, the Bank timely filed suit. The Court reached this conclusion based on slightly different reasoning than the trial court.

Hasslerset forth the legal framework for evaluating how the statute of limitations applies to an installment payment security agreement that was validly accelerated by the creditor. Based on Hassler, the Court held, as a matter of law, that the Bank did not accelerate the notes when it applied funds to pay them down because it did not express a “clear, unequivocal intent” to do so. Finally, it found the plain meaning of the terms of the notes was that the statute of limitations began running when Zinna was obligated to make a “final payment of the unpaid balance plus accrued interest” on the notes’ respective maturity dates. The Court awarded the Bank its attorney fees in bringing the appeal as permitted under the terms of the notes.

Summary and full case available here.

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Tenth Circuit: Trustee Did Not Lack Standing to Prosecute Adversary Proceeding and Obtain Turnover of Domain Name

July 17, 2012 by Leave a Comment

The Tenth Circuit Court of Appeals published its opinion in Search Market Direct, Inc. v. Jubber on Monday, July 16, 2012.

The Tenth Circuit affirmed in part and reversed in part the district court’s decision. The three cases before the Court arose from bankruptcy proceedings initiated by debtor Steve Zimmer Paige in 2005. “The parties driving the litigation are Search Market Direct, Inc. (SMDI) and ConsumerInfo.com (ConsumerInfo). Both seek control of the internet domain name “freecreditscore.com” (the Domain Name), which once belonged to Paige. SMDI purchased the Domain Name from a third party shortly after Paige filed for bankruptcy. In May 2006, the estate’s trustee instituted an Adversary Proceeding to recover it. In December 2006, the bankruptcy court entered a Sale Order approving an Asset Purchase Agreement under which, inter alia, ConsumerInfo agreed to provide funds to repay the estate’s creditors and litigate the Adversary Proceeding in exchange for the estate’s promise to give ConsumerInfo the Domain Name if it was recovered.”

“In 2007, the parties proposed competing Chapter 11 plans for the estate. The bankruptcy court denied confirmation of the plan SMDI proposed, under which the Adversary Proceeding would have been settled and SMDI would have kept the Domain Name. The court instead confirmed a Joint Chapter 11 Plan supported by ConsumerInfo and the Trustee. Under the Joint Plan, the Adversary Proceeding was transferred to a Liquidating Trust which continued to litigate it for the estate and ConsumerInfo. The bankruptcy court resolved the Adversary Proceeding in the Liquidating Trustee’s favor in 2009. The Liquidating Trustee transferred the Domain Name to ConsumerInfo and the Joint Plan was otherwise substantially consummated.”

On appeal, the Court found that the “Joint Plan was properly confirmed because it was proposed in good faith and was fair and equitable.” It also held that “the bankruptcy court did not err in denying confirmation of the SMDI Plan for lack of feasibility.” Additionally, the Court held “that the issues SMDI raises in the Adversary Appeal are not moot. Nonetheless, [it rejected] SMDI’s argument that the Trustee lacked standing to prosecute the AP and obtain turnover of the Domain Name.

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