In October 2010, several important Eighth Circuit Bankruptcy Court decisions were issued. This article summarizes those decisions.
The National Benevolent Association of the Christian Church (Disciples of Christ), et. al v. Weil, Gotshal & Manges, LLP, No. 09-6084, 09-6085 (8th Cir. BAP 10/8/10)
The Eighth Circuit Bankruptcy Appellate Panel comprised of Judges Kressel, Venters, and Saladino reversed and remanded back to the bankruptcy court for remand to the state court an adversary proceeding that had been dismissed for lack of subject matter jurisdiction. The debtor, a non-profit corporation primarily located in Missouri, filed an adversary seeking damages for alleged legal malpractice in connection with the law firm’s pre-petition and post-petition services in its Chapter 11 case in Texas. The Fifth Circuit Court of Appeals affirmed the Texas bankruptcy court’s decision and dismissed the case for lack of subject matter jurisdiction due to the debtor’s lack of standing in federal court resulting from the absence of an unequivocal retention of pre-petition causes of action in the confirmed Chapter 11 plan. The debtor, joined by the State of Missouri, commenced an action in Missouri state court alleging the same causes of action against the law firm as the Texas adversary. The Missouri case was subsequently removed to Missouri bankruptcy court where it was dismissed because the state’s claims were derivative of the debtor’s claims that had already been ruled upon by the Fifth Circuit. The BAP proceeded to affirm the Missouri bankruptcy court’s decision that it lacked subject matter jurisdiction. The court evaluated 28 US § 1447(c) which requires remand if the district court lacks subject matter jurisdiction. In applying the plain language of the statute, the court found that the entire Missouri adversary should have been remanded to the state court in lieu of the dismissal. The court also acknowledged that potential judicial economy may have been better served by the dismissal but that the applicable statute required remand of the entire matter.
Fokkena v. Rodney Goodwin (In re Goodwin), No. 10-6027 (8th Cir. BAP 10/13/10)
The Bankruptcy Appellate Panel comprised of Judges Kressel, Schermer, and Nail reversed the bankruptcy court’s order allowing an extension of time to file his notice of appeal of an adversary proceeding and dismissed the debtor’s pending appeal. At issue were two adversary actions seeking dischargeability determinations by a creditor and the US Trustee. The bankruptcy court issued an oral ruling in favor of the creditor and the US Trustee in the respective adversaries. Debtor filed untimely motions in each adversary proceeding seeking an extension of the time to file an appeal due to a need to obtain a transcript. The bankruptcy court granted the debtor’s motion over the creditor’s objection. The BAP articulated that Rule 8002(c) requires a request to extend the time to be filed within the appeal period absent a showing of excusable neglect. The court then applied the standard for excusable neglect as articulated by the Supreme Court in Pioneer Investment Services in the context of 9006. The BAP found that the debtor failed to meet its burden to establish excusable neglect and that there was an absence of findings by the bankruptcy court on the required issue. The court also held that the mere issuance of an oral opinion and a need for a transcript is not sufficient to establish excusable neglect as it was not required for purposes of filing the notice or a timely motion to extend the time. The BAP also dismissed the debtor’s appeal of the creditor’s ruling as untimely which also functioned to make the issue of the appeal of the US Trustee’s ruling irrelevant to the creditor.
Marino v. Seeley (In re Marino), No. 10-6022 (8th Cir. BAP 10/25/10)
The Eighth Circuit Bankruptcy Appellate Panel comprised of Judges Nail, Venters, and Saladino affirmed the bankruptcy court’s decision dismissing a stay violation adversary with prejudice. Debtor’s adversary sought damages arising from a purported violation of the automatic stay where the opponent obtained post-petition an ex parte protection order under the Minnesota Domestic Abuse Act. The BAP held that the commencement or continuation of a proceeding regarding domestic violence is not subject to the automatic stay. The court held that the plain meaning of “domestic violence” encompassed the statutory definition of domestic abuse set forth in the Minnesota Domestic Abuse Act. No evaluation of the remaining elements of the claim under section 362(k) was performed because the court already held that the action for a protection order was not subject to the stay. But, the court noted that the cause of action still failed as debtor did not establish damages stemming from the protection order.
Lovald v. Tennyson (In re Wolk), No. 10-6050 (8th Cir. BAP 10/14/10)
Judge Kressel, Judge Federman, and Judge Saladino sat on the Eighth Circuit Bankruptcy Appellate Panel which concluded that reversed the bankruptcy court’s decision denying a motion to sell assets pursuant to 11 USC 363. The Trustee appealed the bankruptcy court’s denial of his motion to sell a residential property and the co-owner objected on the basis that the estate held no interest as she contributed the payments on the property to rebut the presumption of 50% ownership. The BAP held that the trustee's status as a bona fide purchaser under section 544 must be considered in the context of a motion under section 363(h). The BAP explained that the trustee’s failure to assert the argument at the lower level was not detrimental as he was not required to take some affirmative action to acquire bona fide purchaser status that is automatically conferred by section 544. The court further held that the trustee is not always bound to just the rights of the debtor by standing in his shoes as such rights may actually be greater as a bona fide purchaser under section 544.