2011 Chief Judge Burns - Opinions
Chief Judge Gloria Burns -- Opinions signed in 2011
Several creditors and parties-in-interest filed motions for directed verdict arguing that the Debtors’ Third Amended Plan could not be confirmed due to, inter alia, the court’s lack of jurisdiction to consider certain non-debtor third party releases and injunctions contained in the plan. The movants also argued that, even if the Bankruptcy Court had jurisdiction, the third party releases and injunctions were impermissible under current Third Circuit case law. The third party releases and injunction were at the heart of the Debtors’ plan because without said releases, the Debtors’ principals would refuse to fund the plan and Debtors’ administrative expenses. The Bankruptcy Court held that while it had jurisdiction to consider the third party releases and injunctions; it would nevertheless find them impermissible. The Court reasoned that the affected parties restrained from proceeding against the non-debtor releasees would receive no meaningful distribution under the Plan and would be precluded from asserting their claims, if any, against the releasees. The rights of the restrained parties would be nullified without any commensurate benefit to them under the Plan and therefore, those provisions were impermissible under even the most flexible of tests pertaining to third party releases in bankruptcy. Having concluded that the Debtors’ plan could not be confirmed on those grounds, the court found it unnecessary to address the movants’ remaining arguments in their motions for directed verdict.
In re Rapid Freight Systems, Inc., the court had to determine, inter alia, the extent and validity of statutory attorney lien rights over any funds recovered by the trustee in cases commenced by the law firm pre-petition. The law firm argued that it held a statutory lien in an amount equal to one-third (1/3) of any and all funds recovered in connection with any active cases which were pending on the petition date which had been previously commenced by the law firm and which were the subject of a contingency fee arrangement between the debtor and the law firm. The law firm also argued that because there was no fee dispute between the debtor and law firm, the perfection pre-requisites under New Jersey Attorney's Lien Act ("N.J.S.A. 2A: 13-5") such as pre-action notice and a complaint/petition were unnecessary to uphold the validity of an attorney's lien. The trustee argued, and the bankruptcy court agreed, that the law firm's statutory attorney's liens were unenforceable against any funds recovered post-petition since the law firm failed to follow the procedures outlined in the N.J.S.A. 2A:13-5 and relevant case law. The trustee could therefore avoid the fixing of the liens on the debtor's property pursuant to 11 U.S.C. §545(2). The law firm was also precluded from asserting a common law charging lien because, as an equitable lien, it would only have been valid against the trustee if there were no other available legal means to perfect such lien. The law firm's retaining liens, however, were not altered by the debtor's bankruptcy and the Court determined that it would have to hold a valuation hearing in order to establish the value which the documents provided by the law firm to the trustee provided in revealing or recovering assets for the benefit of the estate.
Chapter 7 Debtor, acting pro se, sought to amend his Schedule C and elect state exemptions under Florida Constitution Article X, Section 4 and Florida Statute 222.01, 222.02 & 222.05. The Chapter 7 Trustee objected to the Debtor's Amended Schedule C based upon Debtor's failure to establish his domicile in Florida pursuant to 11 U.S.C. §522(b)(2)(A) for the requisite 730 day period. While the Debtor took certain ministerial steps to become a resident of Florida, like registering to vote and obtaining a Florida Driver's License, the weight of evidence in the record established that the Debtor was domiciled in New Jersey for the 730 days immediately preceding the Petition Date as required by §522(b)(3)(A). Thus, the Court held that the Debtor could not elect Florida state exemptions and that Debtor must elect either the federal exemptions available under §522(b)(2), or in the alternative, the exemptions available under §522(b)(3) afforded to domiciles of the State of New Jersey.