Westlaw Topical Highlights: Bankruptcy, August 12, 2013

August 12, 2013

BankruptcyWestlaw Topical Highlights for Bankruptcy provides summaries of significant federal and state judicial decisions and legislative and administrative activities affecting Bankruptcy law.  A Westlaw subscription is required to access the documents linked from this page.

Claims: IRS penalties for failure to file timely S corporation tax returns did not fall within § 503(b)(1)(A).  In re 800Ideas.com, Inc. 2013 WL 3878684 (9th Cir.BAP (Cal.))  Addressing an issue of first impression and reversing the bankruptcy court’s decision, the Ninth Circuit Bankruptcy Appellate Panel (BAP) held that penalties assessed by the Internal Revenue Service (IRS) under 26 U.S.C.A. § 6699 against the Chapter 7 debtor, a California S corporation, for the trustee’s failure to timely file its postpetition tax returns were not entitled to administrative expense priority under 11 U.S.C.A. § 503(b)(1)(A) as an actual and necessary cost and expense of preserving the estate. The BAP did acknowledge, however, that “priority status for the tax penalties under § 503(b)(1)(A) is a close call.” The penalties, which were not incurred in the operation of a business, because the estate was non-operating, were incurred neither to benefit the estate nor to preserve it, as required under the plain language of the Bankruptcy Code, and affording administrative expense priority to the IRS’s penalty claim would be to the detriment of unsecured creditors. In addition, the BAP reasoned, the penalties did not arise from the trustee’s postpetition tortious or active wrongdoing, but from his mistaken belief that he did not need to file informational returns while the estate remained insolvent. Accordingly, the penalty claim did not fall within the fundamental fairness doctrine espoused by the Supreme Court in Reading Co. v. Brown, 391 U.S. 471, and its progeny.  2013 WL 3878684.   (The full-text of the rest of the Topical Highlights are available within Westlaw Next, subscription required).

Bankruptcy Estate: Nonjudicial foreclosure sale conducted prepetition was invalid and served to allow property to enter estate.   In re AMRCO, Inc. 2013 WL 3933936 (Bkrtcy.W.D.Tex.)

Discharge: That debtor acted with requisite fraudulent intent could be inferred from extent of omissions and inaccuracies.  In re Berger 2013 WL 3910998 (Bkrtcy.D.N.D.)

Avoidance: Prepetition recharacterization of inter-company loans was potential transfer.  In re Bataa/Kierland LLC 2013 WL 3805143 (D.Ariz.)

Claims: Section 502(b)(7) did not limit former employee’s claim for wrongful discharge/statutory retaliation.   In re Hyman Companies 2013 WL 3866491 (Bkrtcy.E.D.Pa.)

Case Administration: Motion to convert previously unconverted Chapter 7 case could not be denied on “bad faith” grounds.  In re Miller 2013 WL 3865111 (Bkrtcy.E.D.Tenn.)

Plans: Antimodification provision of Chapter 13 did not apply to protect lender with lien on multi-use property.  In re Briseno 2013 WL 3964269 (Bkrtcy.N.D.Ill.)

Plans: Mere passive receipt of effective notice is insufficient to constitute creditor participation in a Chapter 11 reorganization.  In re S. White Transp., Inc. 2013 WL 3983343 (C.A.5 (Miss.))

Discharge: Chapter 13 debtors’ discharge extinguished their personal liability for secured creditor’s post-discharge deficiency claim.  In re Rogers 2013 WL 3422702 (Bkrtcy.E.D.N.C.)

Debtor Protections: Attorney’s inaction was in nature of willful violation of automatic stay. In re American Medical Utilization Management Corporation 2013 WL 3359301 (Bkrtcy.E.D.N.Y.)

Avoidance: Price obtained at regularly conducted sale to foreclose homeowners’ association’s lien is presumed to be “reasonably equivalent value.”   In re Roszkowski 2013 WL 3462481 (Bkrtcy.E.D.N.C.)

Debtor Protections: Stay remained in effect after bankruptcy case was closed and was violated by state court defendants’ summary judgment motion.  In re Muhlig 2013 WL 3305398 (Bkrtcy.S.D.Fla.)

 Avoidance: Debtor’s payment of negative trade-in balance was not part of “contemporaneous exchange for new value.” In re Blakely 2013 WL 3993867 (Bkrtcy.N.D.Ohio)

Bankruptcy Estate: RFRA prohibited appropriating funds in cemetery trust of bankrupt archdiocese for distribution to creditors.  In re Archdiocese of Milwaukee 2013 WL 3937021 (E.D.Wis.)

Avoidance: Check transfers did not involve “interest of the debtor in property,” as required by preference provision.  In re Freaky Bean Coffee Co. 2013 WL 3964992 (1st Cir.BAP (Me.))

Sureties: Federal statute of limitations applied to claim against trustee’s surety bond.  In re Schooler 2013 WL 4001424 (C.A.5 (Tex.))

Debtor Protections: Stay violation results in award of lost earnings, emotional distress damages, legal fees, and punitive damages.  In re Iskric 2013 WL 4011126 (Bkrtcy.M.D.Pa.)

Plans: Absolute priority rule continued to apply, at least in part, to individual Chapter 11 debtors.  In re Gerard 2013 WL 4011191 (Bkrtcy.E.D.Wis.)