2007 Judge Kaplan - Opinions

Judge Michael B. Kaplan -- Opinions signed in 2007

Trembulak 2/6/2007

PROCEDURAL POSTURE: A debtor's counsel filed a certification in opposition, stating that the debtor had passed away and requesting that the Chapter 7 bankruptcy case not be closed without the issuance of a discharge.

OVERVIEW: The debtor filed a Chapter 7 petition. The court clerk issued a notice of deficiency for financial management course certificate, indicating that the case would be closed without a discharge unless the certificate were filed by January 29, 2007. The debtor's counsel filed a certification in opposition, stating that the debtor had passed away on November 16, 2006, and requesting that the case not be closed without a discharge. The court held that the deceased debtor was exempted under 11 U.S.C.S. § 109(h)(4) from the financial management course requirement under 11 U.S.C.S. § 727(a)(11) because he could not participate in an instructional course on personal financial management and such a course would not have aided him in avoiding future financial distress. The court directed the clerk to issue a discharge prior to closure of the case.

OUTCOME: The court directed the clerk to issue a discharge in the ordinary course, if warranted, prior to closure of the case.


Price 2/6/2007

PROCEDURAL POSTURE: Plaintiff bankruptcy trustee filed an action seeking recovery of attorneys' fees, interest, late fees, sheriff's fees and real estate taxes paid under 11 U.S.C.S. § 506(b) to defendant creditor upon closing on debtors' real estate. The trustee asserted causes of actions for accounting and turnover, legal fraud, equitable fraud and conversion. The creditor filed a motion for summary judgment pursuant to Fed. R. Bankr. P. 7012(b) and 7056.

OVERVIEW: The debtors executed and delivered a mortgage to the creditor. Two days prior to a sheriff's sale after the creditor foreclosed on the property, the debtors filed for bankruptcy protection. Over a three year period, the creditor sought relief from the automatic stay eight times because the debtors or the trustee failed to make timely payments. When the trustee sold the property, he claimed that the creditor's payoff statement should have been limited to the fees, costs and interest recoverable under the foreclosure judgment only. The court found that the creditor was entitled to collect the fees under quasi-estoppel. The creditor was denied an opportunity to obtain relief due to the trustee's opposition to the creditor's repeated requests for relief from the automatic stay. It was inequitable to deny the creditor's recovery of fees that it could have incorporated in the foreclosure judgment had it not been stopped in midstream. The trustee failed to prove legal or equitable fraud because the creditor did not knowingly provide false information, and the trustee did not rely on the creditor's payoff statement alone.

OUTCOME: The court granted the creditor's motion for summary judgment on the claims for legal fraud, equitable fraud, and conversion but denied the motion on the claim of accounting and turnover.


Kara - SARE 3/12/2007

PROCEDURAL POSTURE: Defendants, pre-petition secured construction lenders, filed a motion for summary judgment in Chapter 11 affiliated debtors' declaratory judgment action, which sought a declaration that affiliated debtors were not single asset real estate entities pursuant to 11 U.S.C.S. § 101(51B) and 11 U.S.C.S. § 362(d)(3). Affiliated debtors filed a cross-motion for summary judgment.

OVERVIEW: Each affiliated debtor consisted of a developable piece of land and a housing plan that rested upon it. The main debtor owned 90 percent of each affiliated debtor. Affiliated debtors claimed that they were not single asset real estate entities as defined in 11 U.S.C.S. § 101(51B) and not required to abide by the "plan or payment" deadline outlined in 11 U.S.C.S. § 362(d)(3). Affiliated debtors claimed that they were not single asset real estate entities because substantial business other than the business of operating the real estate and activities incidental thereto were conducted on the property of each affiliated debtor, including that each affiliated debtor researched and purchased developable land, conducted planning and construction of homes, marketed and sold the homes, and maintained each development. In granting the lenders' motion for summary judgment, the court held that all of the activities identified by affiliated debtors as reflective of substantial business operations were merely incidental to their efforts to sell the homes or condominium units and did not constitute substantial business.

OUTCOME: The court granted the lenders' motion for summary judgment and denied debtors' cross-motion for summary judgment. The court gave debtors 30 days from the entry of its order to either file a plan of reorganization or commence making interest payments to the lenders.


In Re Amato 3/20/2007

PROCEDURAL POSTURE: The debtors filed a voluntary Chapter 13 petition and a Chapter 13 plan which was confirmed. The debtors then filed a modified plan, seeking to limit the payments to $800 per month for 60 months, with the debtors' attorney's fees and the trustee's commissions to be paid from the $48,000 pot plan. The trustee objected to the modified plan. The court conducted a hearing.

OVERVIEW: The debtors argued that the trustee should not have added onto the debtors' original "pot plan" the amounts necessary for payments of attorney's fees and the trustee's commission. The issue was whether the claims for attorney's fees and trustee commission fell within the class of unsecured creditors under 11 U.S.C.S. § 1325(b)(1)(B). The court agreed with two recent judicial opinions that claims for attorney's fees and trustee commissions did not fall within the class of unsecured creditors found in 11 U.S.C.S. § 1325(b). Since Form B22C provided for a deduction from the debtors' disposable income for the trustee's commission, a further reduction in the amounts to be paid to general unsecured creditors for the trustee's commission would have amounted to double-counting. The fact that Form B22C did not specifically reference a deduction for attorney's fees, while unfortunate, was nonetheless binding on the court. Thus, neither the trustee's commission nor the debtors' attorney's fees should have been deducted from the projected disposable income received by the trustee during the applicable commitment period.

OUTCOME: The debtors' modified plan was denied. The case was to proceed under the original confirmed plan.


DiSpirito 7/17/2007

PROCEDURAL POSTURE: Chapter 13 debtor and the creditor holding the security interest on her motor vehicle disputed whether the adequate protection payments debtor was making to the creditor was senior or junior in priority to the claim to attorneys fees by debtor's counsel.

OVERVIEW: It was undisputed that the creditor was an undersecured creditor with respect to the subject vehicle, and that the debtor needed to retain the vehicle to maintain her employment and succeed under the plan. The debtor argued that the creditor's claim to the adequate protection payments was not entitled to administrative status because the debtor had purchased her vehicle for personal, rather than commercial, use. The court rejected that argument. If the attorney's fees were paid ahead of the adequate protection payments, then the adequate protection would be undercut, as the funds that provide the adequate protection would be paid to someone besides the protected lender. The lender's claim thus was entitled to priority.

OUTCOME: The adequate protection payments to the undersecured motor vehicle creditor had priority over the payments awarded to debtor's counsel.


Kara - Lien 8/29/2007

PROCEDURAL POSTURE: Plaintiff Chapter 11 debtors filed motions for partial summary judgment in six adversary proceedings against defendant creditors, seeking to determine the validity of the creditors' construction liens. The creditors cross moved for summary judgment.

OVERVIEW: Debtors owned real estate development projects for the construction of single family homes and condominiums. The debtors entered into subcontractor agreements with the creditors who provided goods and/or services to construct improvements to the projects. When the debtors failed to make payment for the goods and/or services, the creditors took steps to protect their rights pursuant to the requirements of the New Jersey Construction Lien Law, N.J. Stat. Ann. § 2A:44A-1 et seq. In most cases, the debtors filed their respective petitions before the creditors could fully complete all of the requirements set forth under the Lien Law. The court held that the agreements were "residential construction contracts," requiring any lien claimant to comply with N.J. Stat. Ann. § 2A:44A-21, because work done in a large scale residential construction project pursuant to a residential construction contract was residential in nature. The court also held that only those lien claimants awarded a valid lien by an arbitrator prior to the petition dates could be said to have a valid and enforceable pre-petition lien because a lien was not created until an arbitrator made such a determination.

OUTCOME: The court granted the debtors' motions for partial summary judgment and denied the cross-motions filed by the creditor.


Allserve, Stanziale v. Dalmia 11/9/2007

ROCEDURAL POSTURE: The Chapter 7 Trustee filed a motion seeking leave to file a Third Amended Complaint. The original motion sought to add additional claims against existing defendants. In addition, the Trustee sought to add additional counts against new defendants. Various defendants raised objections. Trustee's counsel was directed to circulate a modified proposed Third Amended Complaint. Additional objections were raised.

OVERVIEW: Fed. R. Civ. P. 15 applied in adversary proceedings. The court observed that it should examine whether the amendment: (1) prejudiced the opposing party, (2) was sought in bad faith, (3) produced an undue delay in litigation or (4) was futile. As there were no allegations that the Trustee brought the motion in bad faith or for improper motives, the court examined the merits of the proposed amendments by application of the remaining criteria. It initially found that there would be no prejudice to the parties having to engage in additional discovery emanating from the amended counts; nor would there be unwarranted additional costs or delays with respect to bringing the matter to trial. Next, regarding the delay factor, the court did not view the length of time in which the cases had been pending to be prejudicial to defendants, nor a sufficient basis, standing alone, to deny the Trustee's requested relief. Regarding the futility criteria, the court found that the allegations set forth by the Trustee in all of the counts at issue in the proposed Modified Amended Complaint established legally cognizable claims and satisfied the pleading requirements of Fed. R. Civ. P. 8(a), 9(b).

OUTCOME: The court granted the Trustee's motion as to the balance of the claims in the modified proposed Third Amended Complaint.