Month: March 2013

Bankr. W.D.N.C.: In re Eagan- Absolute Priority Rule in Individual Chapter 11; Valuation of Minority Interests

Summary:

Applying principles enunciated by the United States Supreme Court in Assocs. Commercial Corp. v. Rash, 520 U.S. 953, 117 S.Ct. 1879 (1997), the Bankruptcy Court also found that it was appropriate to apply a minority discount when gauging the fair market value of the Corporate Holdings. To hold otherwise would give the best interest of the creditors a “punitive effect” on the Debtor by requiring payment of more than the fair market value of the assets in order to retain them. Accordingly, the plan which proposed to pay $923,161 to general unsecured claims, opposed to the $653,845 liquidated value, satisfied the best interest test of§1129(a)(7)(A).… Read More

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Bankr. M.D.N.C.: In re Gilley- Dischargablity of SEC Settlements under 11 U.S.C. § 523(a)(19)

Summary:

The SEC filed a complaint against the Debtor and two other individuals in 2005 alleging they had engaged in a $60 million Ponzi scheme, specifically alleging that the Debtor unlawfully sold unregistered securities, was not registered as a broker-dealer when selling certain billboards, and failed to disclose material information to investors. In 2006, the Debtor and the SEC filed a consent judgment wherein the Debtor agreed to, among other terms, disgorge nearly $2 million. In 2008, the district court imposed a $5,000 civil penalty against the Debtor as his “violations were not particularly reprehensible or egregious.”

After filing bankruptcy, the Debtor brought an adversary proceeding seeking a determination that the $2 million was dischargeable, as he had neither admitted nor denied the allegations of fraud made by the SEC.… Read More

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Bankr. E.D.N.C.: McClendon v. Walter Home Mortgage- Usury and Unfair & Deceptive Trade Practices

Summary:

The McClendons sought to purchase a home built by Jim Walters Homes (JWH) and financed by Walter Mortgage Company (WMC). Both the construction and the financing went through several permutations, with the size of the house, the amount of the loan, and the loan interest rate, increasing several times. Ultimately, the McClendons owned a home they had difficulty affording, faced foreclosure, filed bankruptcy and brought an Adversary Proceeding against WMC, alleging usury and multiple mortgage financing violations and unfair and deceptive acts and practices.

The first issue addressed was that the alleged usurious financing occurred more than two years prior to the instigation of the Adversary Proceeding.… Read More

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4th Circuit: Rogers v. River Hills- Extrinsic Evidence cannot be Used to Supplement Property Description

Summary:

The District Court determined that the contract relating to the easement did not sufficiently describe the portion or parcel of the servient estate to be affected by the easement. On appeal, Rogers argued that the property description was sufficient because River Hills owned only one parcel of land at the time the writing was executed. The Court of Appeals rejected this as such information was available only by reference to evidence extrinsic to the writing.

Commentary:

While not a bankruptcy case, this would support the position that Deeds of Trust and other documents related to land which contain defects as to property description cannot be remedied through extrinsic evidence.… Read More

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Bankr. W.D.N.C.: In re RTJJ- Confirmation of Chapter 11 Plan

Summary:

RTJJ is the largest owner of low-income housing in Gastonia. Following first the closure of area textile mills and then the housing crash, RTJJ became unable to pay its debts and faced foreclosure by Community One, its largest secured creditor. Despite proposing a Chapter 11 plan that would have paid creditors substantially more than a Chapter 7 liquidation, Community One objected to the plan and pressed for the sale of the assets. (The Bankruptcy Court found that Community One, itself in dire financial straits and under the supervision of the OCC, was under regulatory pressures to quickly obtain cash rather than greater returns over a longer period.)

The first objection raised by Community One was that the allowance of two tardy votes of unsecured creditors was improper.… Read More

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Bankr. M.D.N.C.: Schafer v. Hilliard (In re Royal Tours)- Avoidance of Payments if Not for A Debt

Summary:

Lee and Patsy Hilliard were married in 1975 and both served as officers of Royal Tours. Following their separation in 2008, the couple entered into a Separation Agreement whereby Patsy Hilliard resigned her position with Royal Tours and accepted a cash payment from Royal Tours in lieu of an Equitable Distribution consisting of 108 monthly payments of $3,500.

The Chapter 7 Trustee alleged that the twelve payments made prior to the bankruptcy filing were preferences pursuant to 11 U.S.C. § 547. A trustee may avoid any transfer of an interest of the debtor in property:
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made –
(A) on or within 90 days before the date of the filing of the petition; or
(B) between ninety days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider; and
(5) that enables such creditor to receive more than such creditor would receive if –
(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the provisions of this title.… Read More

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N.C. Court of Appeals: Inland Harbors HOA v. St. Joseph’s Marina (Inland Harbor III)- Reformation of Deed of Trust

Summary:

Following Hice v. Hi-Mil, Inc., 301 N.C. 647, 273 S.E.2d 268 (1981), the Court of Appeals (in its third opinion in this case) held that in an action for reformation of a written instrument the moving party must show by clear, cogent and convincing evidence that there was ” not just a mistake on its
own part, but a mutual mistake on the part of all parties.”

For a copy of the opinion, please see:

Inland Harbors HOA v. St. Joseph’s Marina (Inland Harbor III)- Reformation of Deed of Trust.pdf Read More

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Law Review: Gotberg, Brook- What Should We Do With Bankruptcy Judges?: A Strategic Approach

Abstract:

The Supreme Court’s ruling in Stern v. Marshall has signaled a need to alter the bankruptcy court’s jurisdictional structure. In Stern, the Supreme Court ruled that bankruptcy judges, who lack the life tenure and salary protection of Article III, cannot issue final rulings in bankruptcy proceedings previously believed to be within their core jurisdiction. In response to the constitutional challenge raised by Stern, and in recognition that bankruptcy court’s jurisdictional limits represent a long-standing problem, many argue for a long-term solution: the restructuring of the system to create specialized Article III bankruptcy courts.

This paper evaluates this proposal in light of classic principles of system restructuring, namely, that any proposed restructure should stem from the underlying goals or strategy for that system.… Read More

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Law Review: LoPucki, Lynn- House Swaps: A Strategic Bankruptcy Solution To the Foreclosure Crisis

Abstract:

Since the price peak in 2006, home values have fallen more than 30%, leaving millions of Americans with negative equity in their homes. Until the Supreme Court’s 1993 decision in Nobelman v. American Savings Bank, the bankruptcy system would have provided many such homeowners with a remedy. They could have filed bankruptcy, discharged the negative equity, committed to pay the mortgage holders the full values of their homes, and retained those homes. In
Nobelman, the Court misinterpreted reasonably clear statutory language and invented legislative history to resolve a 3-1 split of circuits in favor of the minority view. The Court ruled that debtors could not modify even the unsecured portions of the mortgages on their principal residences.… Read More

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Bankr. W.D.N.C.: In re Hatten- Res Judicata Affect of Confirmation Order as to Creditor Standing

Summary:

Following a Motion for Relief from Stay filed by ASC, the Debtor argued that ASC was not a a “party in interest” and lacked standing as there was neither an endorsement on the note nor an allonge affixed and presented in support of the Motion. \

Avoiding this issue, the Bankruptcy Court held “that a confirmed Chapter 13 plan, which represents a new contractual agreement between debtors and their creditors, is res judicata on the issue of a creditor’s rights as a party in interest with standing to seek relief from the stay.” In re Jeter, No. 08-07872-HB, 2011 WL 6014173, at *3 (Bankr.… Read More

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