N.C. Court of Appeals: Epes v. B.E. Waterhouse, L.L.C.- Bankruptcy a Default

Summary:

Epes was the guarantor of a lease on behalf of the lessee, CRC Management. CRC eventually sold its assets to Fuddruckers. In April 2010, Fuddruckers filed bankruptcy. In July 2010, Epes brought an action for a declaratory judgment that he no longer had any liability under the guaranty, however summary judgment was granted to the Defendants.

The Court of Appeals affirmed the summary judgment for the defendants, finding that the lease included the filing of bankruptcy. Epes also argued that due to the Fuddruckers bankruptcy, Defendants had to obtain relief from the automatic stay in that case before seeking a summary judgment against him. Passing over the fact that Epes, who initiated the lawsuit himself, was possibly violating the automatic stay by seeking a declaratory judgment that would have impacted the Fuddruckers bankruptcy, the Court of Appeals recognized that the automatic stay does prevent actions against guarantors of loans.

Commentary:

As Fuddruckers is not an individual, it clearly did not file a Chapter 13. It would been better, however, that the N.C. Court of Appeals had recognized that co-signer protections do exist in Chapter 13 cases. This would have been dicta, but would have provided greater clarity for future cases.

It is not clear from this opinion what treatment the lease was receiving in the Fuddruckers bankruptcy, but I would presume that it was rejected. Otherwise, the apparent failure by Epes did to challenge the validity of ipso facto provisions, which hold that bankruptcy is by itself an event of default, was a mistake. The 4th Circuit has long held that ipso facto provisions are void as against public policy, See Riggs Nat’l Bank v. Perry, 729 F.2d 982 (4th Cir.1984), and while BAPCPA did validate ipso facto provisions when it added 11 U.S.C. § 521(d), such validation was, through its reference to §§ 521(a)(6) and 362(h), only applicable to ipso facto provisions where the debtor is an individual. Accordingly, unless Fuddruckers rejected this lease, its bankruptcy was not an enforceable event of default.

For a copy of the opinion, please see:

Epes v. B.E. Waterhouse, L.L.C.- Bankruptcy a Default.pdf

About

1. Bachelor of Arts degree in English Literature from Washington University, 1993. 2. Juris Doctor degree from George Washington University, 1996. Admissions to Practice of Law: North Carolina Bar, 1996. Federal District Courts for the Eastern and Middle Districts of North Carolina. Specialty Certification: North Carolina State Bar: Certified as a Specialist in Consumer Bankruptcy. Areas of Practice: Practice limited to consumer and business debtor bankruptcy law, 1998 to present. Memberships: National Association of Consumer Bankruptcy Attorneys (NACBA). North Carolina Academy of Trial Lawyers (NCATL). North Carolina Bar Association, Bankruptcy Section. Lectures prepared and presented: North Carolina Academy of Trial Lawyers seminar on bankruptcy; Topic: Counseling the Consumer Debtor Prior to Court - C.Y.A. Forms to Help 'Gird They Loins'; 2001. Middle District Bankruptcy Seminar; Topic: Preparing Chapter 13 Plans; 2002. NACBA National Convention; Topic: Efficient Office Practices; 2003. NACBA National Convention; Topic: Chapter 7 vs. Chapter 13 Debates; 2004. Middle District Bankruptcy Seminar; Topic: Chapter 7 & 13 Hot Issues; 2004. Positions held: NACBA National Convention; Convention Chair; 2008. NACBA National Convention; Panel Moderator: Topic: Basic Bankruptcy Issues; 2008. NACBA National Convention; Panel Moderator; Topic: Chapter 13-Disposable Income and Other Issues; 2007. NACBA National Convention; Panel Moderator; Topic: Representing Members of the Military and Their Families; 2007. NACBA, Member of National Board of Directors, 2006 to present. NCATL, Chair of the Bankruptcy Section, 2003 to 2007. NACBA, Chair of the North Carolina Section, 2003 to 2007. NC Bar Association, Bankruptcy Section, Bankruptcy Council Member, 2004 to present.

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