Illinois Bankruptcy Lawyer Blog

According to the American Bankruptcy Institute, interpreting the data supplied by the National Bankruptcy Research Center, the number of consumer bankruptcies filed last month was 11% lower than it was last year. That fact is also consistent with the 2011 trend of fewer new filings each month than in the same month of 2010.

All of which sounds promising until we remember that last month 113,432 Americans still had to file bankruptcy to ward off severe financial turmoil, much of it due to their upside down mortgages and ever-sinking home values: trends that have not changed in 2011.

According to ABI Executive Director Sam Gerdano, consumer bankruptcies are declining due to the deleveraging of credit card accounts by consumers and the fact that new credit is so hard to get. 

Again I ask: how is that good news? No new credit? What if you need new appliances? A new vehicle? What if you are in a once-in-a-lifetime cash crunch? I guess it's alright as long as it's some else's pain. 

But hey, at least the August filings represented a 1% decrease from July. I know, I'm not that impressed either. Hey O'Bama, where's your messiah now? But seriously... the President had better do something or he'll end up as a one-term-wonder.

Recently the 7th Circuit Court of Appeals heard a case arising from the Chapter 11 reorganization of a golf course; although their actual decision is about the application of a seldom-used cause of action known as fraud on the court

The Facts:

Principals of a golf course tried to reorganize but ran into trouble when disgruntled creditors presented evidence of their  managerial incompetence and convinced the Bankruptcy Court in the Southern District of Illinois to put a Trustee in place to operate the business.

The principals of the course decided not to cooperate and started a new entity with the intention of transferring the course into it. Of course an Automatic Stay was in effect. Not only that, but their antics amounted to a series of transfers that were both fraudulent and preferential. So when the Court found out what had happened, it enjoined the principals from taking further action of any kind.

By then the Trustee had sold the golf course for a profit. But the principals did not want the sale confirmed and objected on 2 bases: fraud (ironically), and fraud on the court. The Bankruptcy Court shot down both arguments, and the principals appealed to the District Court, and eventually the Appellate Court.

The Opinion:

The 7th Circuit spends several pages defining fraud on the court and points out that there is no statute of limitations on the action (like murder). But fraud on the court is not formally defined in the Bankruptcy Code, the Rules, or the Rules of Civil Procedure. Instead it's loosely defined as fraud that defiles the court or is committed by an officer of the court and would not be discovered even after diligent inquiry. Examples include Attorneys committing perjury or forgery, falsifying documents, tampering with a jury, or bribing a judge.

Following their analysis however, the 7th Circuit concluded that even if there had been perjury by a shareholder that was also a lawyer, it did not rise to the level of fraud on the court because the alleged wrongdoer was not acting in his capacity as an officer of the court when he lied.

The Decision:

Since the principals of the course had not alleged that the attorney-shareholder in question lied in his official capacity but rather had conspired with the Trustee to inflate the price of the course the Court of Appeals, like the District Court, that no fraud on the court had taken place.

Hole in one.

Justia.com Opinion Summary

Defendant owned companies forced into Chapter 11 bankruptcy, but was not a debtor in the proceedings. The plan was confirmed and prohibited suits against the bankruptcy professionals and certain litigation against pre-bankruptcy creditors. Years later defendant sued plaintiff, pre-judgment creditors, and the bankruptcy professionals in an Indiana state court, based on Indiana law. The creditors removed the suit to bankruptcy court (28 U.S.C. 1452(a)) rather than asking the bankruptcy judge to enforce his order. The statute authorizes removal of any claim of which that court would have jurisdiction under 28 U.S.C. 1334, which confers on the district courts original jurisdiction of all civil proceedings arising under the Bankruptcy Code, or "arising in or related to cases under" the Code. The bankruptcy judge determined that the suit against the bankruptcy professionals was barred. Defendant filed an amended complaint eliminating all defendants except plaintiff and stating that the only claims arose from alleged violations of confidentiality agreements. The bankruptcy judge ruled that, as amended, the complaint was unrelated to the bankruptcy and ordered the suit remanded to the state court. The district judge affirmed. The Seventh Circuit concluded that the dismissal was not subject to review.

Receive FREE Daily Opinion Summaries by Email

Receive FREE Daily Opinion Summaries by Email

Justia.com Opinion Summary:

Wisconsin smelting plant owed more than $1.3 million in delinquent utility charges to the local municipal utility when it filed for Chapter 11. Months later, despite the Automatic Stay, a utility company implemented a process pursuant to Wisconsin Statutes and Local Ordinances 66.0809 and 66.0627 by which the plant's unpaid utility bills became a lien against the Debtor's property. Both the Bankruptcy and District Courts found that none of the exceptions to the Automatic Stay applied to make their actions. They were, in fact, a violation of the Stay. The 7th Circuit Court of Appeals affirmed, holding that no exception to the Stay applied and the offending utility company creditor did not obtain a pre-petition security interest in the plant's property by providing services or by giving notice in the form of billing. Finally, the 7th Circuit agreed with the District Court that the utility bills produced did not amount to a "tax or special assessment" that would have exempted them from the operation of the Stay.

Click here to download this Opinion in PDF format

In re: Exide Technologies, 08-1872

Issued June 01, 2010

Heard in U.S. 3rd Circuit Court of Appeals

Summary In a Chapter 11 case, the District Court's affirmance of the Bankruptcy Court's grant of Debtor's motion to reject an agreement to sell substantially all of its industrial battery business on the ground that the agreement was an executory contract, subject to rejection under 11 U.S.C. section 365(a), and that rejection terminated the debtor's obligations under it, is vacated and remanded as: 1) the agreement is not an executory contract because it does not contain at least one ongoing material obligation for the other party; and 2) because the agreement is not an executory contract, the debtor cannot reject it. Read More

In re 2715 N. Milwaukee LLC, 09-17543

Issued January 29, 2010

Judge Jack B. Schmetterer

Summary The claims of Donald Engel and James Cappello against Debtor, 2715 North Milwaukee, are not barred by the August 17, 2009 claims bar date. Even though the claims were brought after August 17, an effective date has yet to be established by a docketed order. Therefore the claims objections of untimely filing by the Federal Deposit Insurance Corporation and Novoa, two creditors of the Debtor, are overruled.

View and download the opinion in PDF format here.

On Monday Muzak Holdings LLC announced that it has completed its financial restructuring and has emerged from bankruptcy protection.The company, which provides background music programming is heard in stores, office buildings and on-hold phone systems, filed for Chapter 11 bankruptcy protection in Delaware a year ago to refinance heavy debt. The Fort Mill, S.C., company said it has significantly improved its balance sheet, reducing its outstanding debt by more than half and realigning its organizational structure to improve its clients' experience. In a prepared statement Stephen Villa, CEO of Muzak, was hopeful for the post-reorganization future of the company, saying:

As we move into the future, our strengthened capital structure provides us with the renewed ability to invest in new talent and technology that will allow us to provide new offerings and further enhance the first class products and services that our clients have come to expect from Muzak

Insert Muzak joke here ...

Copyright 2010 The Associated Press.

Posted via email from beyond bankruptcy

In re Raymond Professional Group, 06-16748

Raymond Professional Group v. William A. Pope Company, 07-00639

Issued November 25, 2009

Judge Jack B. Schmetterer

Summary The Court denies debtor's Amended Motion for Sanctions since no basis has been found under 28 U.S.C. §1927, but grants counter-plaintiff's Motion to Compel Debtors to Pay Witness Deposition Fees in part. Counter-plaintiff is entitled to be paid fees associated with the deposition of Professor Hazard but not Professor Rapoport due to "manifest injustice" under Fed. R. Civ. P. 26(b)(4)(C)(i).

View and download the opinion in PDF format here.

In re Joseph E. Frontzak, 08-8580

Issued December 2, 2009

Judge A. Benjamin Goldgar

Summary Debtor's failure to give creditor heightened notice regarding Ch. 11 confirmed plan violates creditor's due process rights under Bk. R. 3017(d) and 2002. Therefore, the Court denies debtor's motion to enforce the confirmed plan and for sanctions against creditor.

View and download the opinion in PDF format here.

In re UAL Corporation, 02-48191

Issued November 24, 2009

Judge Eugene R. Wedoff

Summary In the absence of a compelling reason to grant the requested relief, the Court denies the EEOC motion to file its untimely amendment. The Court's reasoning is that allowing the amendment would have raised questions of finality and impeded the Debtor's efforts to reorganize under Chapter 11.

View and download the opinion in PDF format here.

Chapter 11 Trustee vs. Dominic Forte, 05-888

Issued November 24, 2009

Judge Eugene R. Wedoff

Summary The Court holds Defendant's transfer to be preference and grants Trustee's motion to avoid. Under 547(b), trustees may avoid certain payments to creditors as "preferences;" 550(a) requires creditors to turn over said payments to the bankruptcy estate.

View and download the opinion in PDF format here.

In re Tekena USA, LLC, 09-16969

Issued: November 19, 2009

Judge: Jacqueline P. Cox

Summary: The Court grants Creditor"s Motion to Dismiss. The Court agrees with Movant's allegations that Debtor's petition violated § 1112 (b) of the Bankruptcy Code's "Good Faith" requirement for Chapter 11. Movant has proven by a preponderance of the evidence that dismissal is justified.

View and download the opinion in PDF format here.

We would have accepted either C-I-T or A-D-V-A-N-T-A as a correct answer

As reported all over the Web, including this story by CNN, credit card overlord and perennial heavy-handed creditor Advanta filed for Chapter 11 bankruptcy protection a few days ago - just one week after CIT Group, a top secured lender to small business, did the same. Both lenders experienced (ha!) a sharp rise in defaults. Welcome to the world of the consumer. Personally I hope that their creditors show them no mercy. If the Bankruptcy System is to work then it must be an equal handicap for large and small. If Advanta or CIT are reconstituted through Chapter 11 I can only hope that this time the intention is to help small business and business owners - not to hound them to death as both creditors are famous for.

Chapter 7 and 11 Calls

Effective immediately new motions to be heard after Oct. 12 should be noticed for Tue or Wed at 9:30 a.m.

Effectivethe week of Oct. 5 motions and set matters to be heard that week will be set for Thu, Oct. 8.

Effective the week of Oct. 12 J. Wedoff will begin hearing cases on Tuesdays and Wednesdays [regular schedule]. New motions, status hearings, or other set matters now scheduled for a Tue or Wed after Oct. 12 will be heard on the Tue or Wed on which they are scheduled.

Any motion already noticed for a Thu after Oct. 12 will still be heard as set noticed unless movant chooses to re-notice for a Tue or Wed after Oct. 12.

Chapter 13 Call

Judge Doyle will continue to hear Judge Wedoff"s Chapter 13 call on Thursdays at the regularly scheduled times until further notice.

Thank you for your cooperation during the last month in rescheduling Judge Wedoff"s Chapter 7 and 11 matters for Thursdays

To view and download this information in pdf format click here