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General Datacomm Indus. v. Arcara (In re General Datacomm Indus.)
11 U.S.C. § 1114 Payment of Insurance Benefits to Retired Employees.
3d Cir.
PROCEDURAL POSTURE: Appellant debtor corporation sought review of a judgment from the District Court for the District of Delaware affirming the bankruptcy court’s holding that appellees, former long-term senior executives of the debtor, were “retired employees” under 11 U.S.C. § 1114 and were therefore entitled to retiree benefits. The judgment also affirmed the denial of the debtor’s 11 U.S.C. § 365 motion to reject the employees’ benefit plan. OVERVIEW: Four years prior to filing its chapter 11 bankruptcy petition, the debtor approved an employee benefit plan for the executives that covered long term care insurance and health insurance. Within one month of filing the bankruptcy petition, the debtor notified the executives that their employment and their benefit plan would be terminated at the end of the month. The debtor then filed a motion to reject the benefit plan pursuant to 11 U.S.C. § 365. The court affirmed the judgment. The court held that the deliberate and involuntary termination of the executives, who met all qualifications for retirement and were on verge of retirement, could not deprive the executives of the procedural protections of 11 U.S.C. § 1114. Therefore, the executives were “retired employees” within the meaning of section 1114. The debtor could not escape its obligations under the benefit plan by arguing that the executives were terminated rather than retired because the debtor prevented the executives from voluntarily retiring. As a result, the executory agreement providing benefits for retirees could not be rejected pursuant to 11 U.S.C. § 365. General Datacomm Indus. v. Arcara (In re General Datacomm Indus.), .), 2005 U.S. App. LEXIS 8634, — F.3d — (3d Cir. May 23, 2005) (Garth, C.J.).
Collier on Bankruptcy, 15th Ed. Revised 7:1114.01
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Ha v. Kang (In re Kang)
11 U.S.C. § 727(a)(5) Discharge; Grounds for Denial; Failure to Explain Losses.
Bankr. E.D. Va.
PROCEDURAL POSTURE: Creditors filed a motion to determine the dischargeability of certain debt of chapter 7 debtor pursuant to 11 U.S.C. § 523(a)(4). Trustee objected to debtor’s discharge pursuant to 11 U.S.C. § 727(a)(5). OVERVIEW: Debtor organized a gae with 11 members, including creditors. A gae was a traditional Korean “savings plan” utilized by Korean women. The gae was to operate for 25 months, numbered sequentially, with one of the 11 members “owning” each month. The members were to pay to the oya, debtor, a fixed amount per month for each month she owned, plus interest beginning the month after their “owned” month was paid out to them. The total time that the oya was supposed to be in possession of the funds was approximately 1-2 days. At some point, debtor was unable to make the payments because one participant and debtor each stopped paying their share. In holding that the amounts owed to creditors were nondischargeable, the court held that an express trust had been created because money was transferred to debtor, albeit for a short time, with the intent that debtor would distribute the money to the appropriate party. The court held that debtor’s conduct constituted a defalcation while acting in a fiduciary capacity. The court also denied debtor a discharge because she was unable to account for all of the money that she received from the participants of the gae. Ha v. Kang (In re Kang), 2005 Bankr. LEXIS 971, — B.R. — (Bankr. E.D. Va. May 26, 2005) (Adams, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 6:727.08
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In re Mirant Corp.
11 U.S.C. § 1124(2) Impairment of Claims or Interests; When Default Rights Are Not Impaired.
Bankr. N.D. Tex.
PROCEDURAL POSTURE: Movants, various creditors, filed a motion to determined whether the debtors’ proposed chapter 11 plan impaired the claims of holders of a series of long-dated unsecured notes within the meaning of 11 U.S.C. § 1124(2). The notes were issued on a limited liability company (“LLC”) within the debtors’ corporate structure. The creditors asserted that the numerous purported defaults created by, or not cured under, the plan created an impairment.
OVERVIEW: The bankruptcy court first noted that the plan provided for cure of monetary defaults. The creditors alleged that the proposed substantive consolidation of the LLC and its subsidiaries under the plan resulted in the substitution of a new obligor on the notes which violated provisions of the original indenture and thus constituted a default. However, this was only a temporary consolidation of the estates for bankruptcy administration purposes. The LLC and subsidiaries were to maintain their separate corporate identities. The creditors also asserted that the LLC’s default under other bonds and its bank indebtedness constituted an incurable default under the original indenture. The creditors argued that, as those creditors were impaired under the plan, cure of the cross-defaults could not be accomplished. However, if the plan were to be confirmed, the debt in default would be replaced by the obligations undertaken in the plan. Thus, even if a cross-default could be asserted, confirmation of the plan resolved and eliminated it. Finally, the LLC’s failure to comply with the reporting requirements were not material defaults.In re Mirant Corp., 2005 Bankr. LEXIS 909, — B.R. — (Bankr. N.D. Tex. May 24, 2005) (Lynn, B.J.).
Collier on Bankruptcy, 15th Ed. Revised 7:1124.03
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Volvo Commer. Fin. LLC v. Gasel Transp. Lines, Inc. (In re Gasel Transp. Lines, Inc.)
11 U.S.C. § 503(b)(1)(A) Allowance of Administrative Expenses; Types of Expenses Allowed; Estate Expenses; Preservation of the Estate.
B.A.P. 6th Cir.
PROCEDURAL POSTURE:
Appellant creditor sought review of an order of the Bankruptcy Court for the Southern District of Ohio, which denied its application for the allowance of an administrative expense claim against appellee debtor under 11 U.S.C. § 503(b)(1)(A). OVERVIEW: The creditor financed the debtor’s purchase of tractors. The debtor sought chapter 11 relief. The creditor was granted relief from the automatic stay. The bankruptcy court entered an agreed order requiring the debtor to make adequate protection payments for the continued use of the tractors. The creditor appealed the denial of its application for administrative expenses for the debtor’s use of the tractors during the period between the commencement of the case and the onset of adequate protection payments. The court held that the bankruptcy court did not err in determining that the creditor was not entitled to an allowance of an administrative expense claim as a result of the debtor in possession’s post-petition use of the tractors. The court held that there was no postpetition transaction under section 503(b)(1)(A) with the bankruptcy estate that induced the creditor to enter the agreed order, which did not vacate the order granting relief from the automatic stay, and to allow the debtor to retain the collateral during the period for which it sought an administrative claim; rather, the agreed order occurred after the time period for which the creditor sought administrative expenses.Volvo Commer. Fin. LLC v. Gasel Transp. Lines, Inc. (In re Gasel Transp. Lines, Inc.), 2005 Bankr. LEXIS 1040, 2005 Fed. App. 0005P (B.A.P. 6th Cir. June 9, 2005) (Whipple, B.A.P.J.).
Collier on Bankruptcy, 15th Ed. Revised4:503.06
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United Airlines, Inc. v. U.S. Bank
11 U.S.C. § 1110 Aircraft Equipment and Vessels. 7th Cir. PROCEDURAL POSTURE: The Seventh Circuit Court of Appeals held that 11 U.S.C. § 1110 entitled aircraft lessors to immediate possession of their aircraft unless plaintiff airline paid the full rental or the lessors agreed to accept less. The District Court for the Northern District of Illinois failed to comply with the Seventh Circuit’s mandate. Defendant trustees filed a motion that was treated as a request for mandamus to enforce the mandate. OVERVIEW: The district court did nothing except schedule a status hearing. The Seventh Circuit court found that inaction, for which the district judge had not offered any explanation, was unjustifiable. The principal aim of the motion was to enforce a second conclusion of the opinion: that the airline’s adversary action, accusing the lessors of violating the antitrust laws by engaging in joint negotiation, was legally untenable. This was an alternative holding, and not dicta as plaintiff creditors’ committee and the bankruptcy judge characterized it. The Seventh Circuit court’s view of 11 U.S.C. § 1130 and its view of the antitrust laws were independent (and independently sufficient) grounds of decision with respect to the preliminary injunction. After the opinion issued, the airline moved to dismiss the adversary action. The bankruptcy judge denied the motion on the theory that the Seventh Circuit court’s analysis was dictum, mistaken, or both, so that the claim retained financial value. The Seventh Circuit court’s disposition was an alternative holding, not dictum. Disagreement with its substance could have furnished a basis for a petition for rehearing; it did not license defiance by a litigant or an inferior court. United Airlines, Inc. v. U.S. Bank, 2005 U.S. App. LEXIS 9898, — F.3d — (7th Cir. May 27, 2005) (per curiam). Collier on Bankruptcy, 15th Ed. Revised7:1110.01
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Cases of Interest