DECISIONS - 1990

Irvin N. Hoyt, Chief Bankruptcy Judge

Alphabetical Listing

1990 DECISION SUMMARIES

Irvin N. Hoyt, Chief Bankruptcy Judge

1. January 5, 1989. KLEIN, KEVIN GEORGE. Case No. 89-50131, Adversary No. 89-5032. Chapter 7. ISSUE: 1) Whether a state court default judgment against debtor must be accorded res judicata or collateral estoppel effect. (2) Whether debtor's action was willful and malicious, thus preventing discharge under § 523(a). RULING: (1) Bankruptcy Court has exclusive jurisdiction to determine whether a state court judgment will not be given res judicata or collateral estoppel effect. (2) Debtor's action in remodeling house was not willful and malicious, thus state court default judgment is dischargeable.

2. February 5, 1990. BAK, ROBERT ALLEN & ELSIE J: Case No. 386-00049, Chapter 11. ISSUE: (1) Whether surety or contract assigneee is entitled to balance of defaulting debtors' segregated DIP account. (2) Whether surety or secured party was entitled to personal property of debtor, purchased prior to issuance of order establishing debtor's segregated DIP account. (3) Whether surety or secured party is entitled to personal property purchased with funds from debtors' segregated DIP account. RULING: (1) By virtue of order establishing a segregated DIP account, debtors' surety, by right of subrogation, would be entitled to those funds remaining in that account after debtor defaulted on a construction project that surety was obligated to complete. (2) Secured party is entitled to personalty of debtor that was not purchased with funds of debtors's egregated DIP account. Surety may not claim such property through subrogation. (3) Surety is entitled to personalty bought with segregated DIP account funds as such personalty would be analogous to non-cash proceeds of the DIP account.

3. February 5, 1990. REINBOLD, WILFRED: Case No. 87-10311, Chapter 12. ISSUE: Whether debtor's actions (sale of mortgaged property and hiding and substituting collateral) constituted fraud under § 1208(d). RULING: Debtor committed fraud by (1) selling mortgaged property, (2) hiding certain collateral, and (3) substituting collateral with older, less valuable machinery. Other evidence of fraud included sham sale/lease back agreements and tampering with serial numbers. Motion for relief from stay and to convert to Chapter 7 granted.

APPEAL RECORD:

REINBOLD, WILFRED. February 12, 1990. Case No. 87-10311. Notice of appeal filed by debtor from order entered February 5, 1990 converting debtor from a Chapter 12 to a Chapter 7 and granting relief from the automatic stay to Dewey County Bank. Order withdrawing appeal signed by Judge Hoyt 2-27-90. Motion to Reinstate Appeal filed by debtor 3-7-90. Order Reinstating Appeal entered 5-9-90. APPEAL STATUS: Referred to Hon. Donald J. Porter 7-10-90. Affirmed. Order entered by Judge Porter 12-18-90 affirming Bankruptcy Court's 2-5-90 order converting debtor's Chapter 12 case to a Chapter 7 (CIV. 90-1029).

January 9, 1991. Notice of appeal filed by Debtor Wilfred Reinbold appealing above to 8th Circuit Court of Appeals. APPEAL STATUS: Stay pending appeal denied by Judge Porter 4-11-91. AFFIRMED. District Court decision affirmed by 8th Circuit Court of appeals on 11-12-91.

4. March 2, 1990. ALDERSON, L.D.: Case No. 89-50106, Chapter 7. ISSUE: Whether debtor, trustee, or creditor/equitable property owner should receive the benefits of certain rents, profits and proceeds currently held by the trustee and generated by the ranch formerly possessed by the debtor. RULING: Inasmuch as the collateral of the creditor/equitable property owner was used by the debtor and converted to other proceeds, the creditor is entitled to the same. Likewise, as the creditor has re-entered the property formerly held by the debtor and has assumed certain obligations of the debtor, including the care of pastured livestock, creditors should receive the rents and profits from those obligations.

5. March 6, 1990. HOFFMAN FARMS, MILTON HOFFMAN AND JOEL AND SHEILA HOFFMAN: Case No. 87-10275, Chapter 12.ISSUE: Whether debtor may satisfy certain judgments of record prior to receiving a discharge. RULING: A debtor may not have judgments of record satisfied prior to receipt of a discharge. The Court will allow debtors to submit an order declaring the liens void. However, satisfying the judgments prior to discharge would be premature, as the liens could be reinstated in the event that the case is dismissed rather than discharged.

6. March 19, 1990. GINSBACH, WESLEY D. & JULIE A. Case No. 89-50093, Adversary No. 89-5031, Chapter 7. ISSUE: (1) Whether plaintiff's adversary complaint was timely filed, (2) whether debtors were entitled to a discharge under § 727. RULING: (1) B.R. 4004(a) requires filing an adversary complaint objecting to discharge within 60 days of the date of the § 341 meeting. Here, the complaint was timely filed with the clerk even though service to debtors' counsel may have been 2 days tardy. (2) Debtors' fraudulent activity surrounding the transfer of ownership of their horses and transfer of ownership or title to their excavating equipment was sufficient to warrant a denial of discharge under §§ 727(a)(2)(A) and 727(a)(2)(B). Their failure to account for that property on their schedules constituted making a false oath in violation of § 727(a)(4(A).

APPEAL RECORD

March 28, 1990: GINSBACH, WESLEY & JULIE. Case No. 89-50093, Adversary No. 89-5031. Notice of Appeal to District Court filed by debtors from the Judgment and Order Denying Discharge dated March 19, 1990. APPEAL STATUS: Referred to Hon. Richard H. Battey 5-25-90. AFFIRMED. Order affirming Bankruptcy Court entered 9-6-90 by Judge Battey (CIV. 90-5053). APPEALED TO 8TH CIRCUIT. AFFIRMED. 8th Circuit affirmed Judge Battey 4-4-91. (Unpublished).

7. March 28, 1990. STANGLE, LEO & ROSALIE. Case No. 88-50065. Chapter 7. ISSUE: Whether Chapter 7 trustee may settle a cause of action formerly belonging to the debtor for less than the debtor believes it is worth. RULING: The Chapter 7 trustee may settle a cause of action formerly belonging to the debtor for less than the debtor believes it is worth. The debtor may purchase the action from the trustee if he wishes to proceed with the suit.

8. March 29, 1990. GRIMES, WESLEY & DOLORES. Case No. 88-10053, Chapter 11. ISSUE: (1) Approval of professional fees and reimbursement of expenses for non-local debtors' counsel. (2) Approval of fees and expenses of farm management consultant who acts without court authorization. (3) Disgorgement of fees paid to bookkeeper and appraiser without court approval. RULING: (1) Fee application for attorney will be reduced due to the non-complexity of the case and the availability of local counsel. Excess fees will be disgorged. (2) Fee application for farm consultant will be denied and fees paid to the consultant will be disgorged due to consultant's failure to receive approval for employment. (3) Fees paid to bookkeeper without prior approval must be disgorged and fees paid to appraiser without prior approval must be disgorged. 115 B.R. 639 (BANKR. D.S.D. 1990).

APPEAL RECORD

April 9, 1990. GRIMES, WESLEY & DOLORES. Case No. 88-10053. Notice of Appeal to District Court filed by Lois A. Bellman & National Farm Management, Inc. from Order Directing Disgorgement of Excess Compensation dated March 29, 1990. APPEAL STATUS: Referred to Hon. Donald J. Porter 5-3-90. DISMISSED - Order dismissing appeal entered by Judge Porter 7-23-90.

APPEAL RECORD

April 9, 1990. GRIMES, WESLEY & DOLORES. Case No. 88-10053. Notice of Appeal to District Court filed by William F. Needler & William F. Needler & Associates, Ltd. from Order Directing Disgorgement of Excess Compensation dated March 29, 1990. APPEAL STATUS: Referred to Hon. Donald J. Porter 6-1-90. Affirmed. Memorandum Decision entered 2-25-91 by Judge Porter affirming bankruptcy court's decision. (Civ. 88-10053).

APPEAL RECORD

March 25, 1990. GRIMES, WESLEY & DOLORES. Case No. 88-10053. Notice of Appeal to 8th Circuit Court of Appeals filed by William F. Needler & William F. Needler & Associates, Ltd. from Order Affirming Disgorgement of Excess Compensation dated February 25, 1991. APPEAL STATUS: DISMISSED. Judgment from 8th Circuit Court of Appeals dismissing appeal entered 12-19-91.

9. April 5, 1990. BAK, ROBERT & ELSIE. Case No.386-00049, Adversary No. 88-3003. ISSUE: Whether sufficient cause existed to grant relief from judgment under Federal Rule of Civil Procedure 60(b). RULING: Innocent mistake in a stipulation of fact relieved the movant from binding nature of the stipulation under Rule 60(b).

10. April 27, 1990. ALDERSON, L.D. Case No. 89-50106, Chapter 7. ISSUE: (1) Whether attorney's and debtor's conduct throughout the pendency of the Chapter 7 case warranted award of sanctions against them. (2) Whether attorney's fees should be awarded and in what amount. RULING: (1) Sanctions against debtor under BR 7037 are proper due to the debtor's efforts to hinder discovery. (2) Sanctions against debtor's attorney under BR 7037 or 9011 would not be allowed, as sanctionable conduct was only that of the debtor and the attorney was not inculpated. (3) Attorney's fees and costs would be reduced to provide compensation only until the time that the attorney knew or should have known that conversion to Chapter 7 was inevitable. Cited at 114 B.R. 672 (Bkrtcy. D.S.D. 1990).

11. May 11, 1990. TRASK CHAROLAIS. Case No. 586-00015,Chapter 11. ISSUE: Whether interim attorney's fees should be awarded before the pending Chapter 11 plan of reorganization is confirmed or the trustee's motion to dismiss is resolved. RULING: Interim fees would be allowed provided the method of payment of fees and costs would not be detrimental to the debtor's chance of successful reorganization.

12. June 26, 1990, HOWE, STANFORD RAY: Case No. 586-00113, Chapter 11. ISSUE: Objection to proof of claim. RULING: Objector to proof of claim has the burden of going forward in support of his objection, but the ultimate burden of persuasion remains with the creditor filing the proof of claim.

13. June 27, 1990, EHRICH, ROBERT L. Case No. 585-00119, Chapter 11. ISSUE: Whether interim quarterly trustee fees need be paid on disbursements that are later ratified into the debtor's confirmed Chapter 11 plan. RULING: 28 USC 1930(a)(6) requires payment of interim quarterly trustee's fees on all disbursements regardless of whether such disbursements are later ratified into the debtor's Chapter 11 plan of reorganization.

14. June 27, 1990, SCHULDIES, RICHARD E. & DEANNA: Case No. 90-50001, Chapter 12. ISSUE: Whether debtors may file a Chapter 12 petition to treat the same debts as were previously treated in debtors' substantially consummated Chapter 11 plan. RULING: A debtor may not file a Chapter 12 to treat debts that were also debts in debtors' substantially consummated Chapter 11. Such would constitute an impermissible modification of the debtors' Chapter 11 plan under 11 USC § 1127(b).

APPEAL RECORD

June 27, 1990. RICHARD E. AND DEANNA SCHULDIES. Case No. 90-50001. Notice of Appeal to District court filed by Debtors from Order Granting FmHA's Motion to Dismiss entered 6-27-90. APPEAL STATUS: Referred to Hon. Richard H. Battey 9-19-90. Remanded. Order entered by Judge Battey 12-17-90 remanding matter to Bankruptcy Court for further proceedings. (CIV. 90-5091). Motion to Dismiss Chapter 12 Case filed by Debtors on 1-11-91. Order dismissing case entered 1-16-91.

15. September 6, 1990, KUHLMAN, MYRON M. & JOY F.: Case No. 88-10093, Chapter 12. ISSUE: (1) Whether the debtors are obligated to pay disposable income under the "ability to pay test" of 11 U.S.C. § 1225(b)(1) when the "best interest of creditors" test of 11 U.S.C. § 1225(a)(4) has been met? ISSUE: (2) Whether the standing Chapter 12 trustee has the burden to show the amount of disposable income the debtors should pay under 11 U.S.C. § 1225(b)(1). RULING: (1) The debtors are obligated to pay disposable income under the "ability to pay test" of 11 U.S.C. § 1225(b)(1) even though the "best interest of creditors" test of 11 U.S.C. § 1225(a)(4) has been met. RULING: (2) While the standing Chapter 12 trustee or objecting creditor has the burden to produce satisfactory evidence that the debtor is not applying all of his disposable income to the plan (if the trustee or creditor has objected to discharge or has moved for dismissal), the debtor has the ultimate burden of persuading the Court that appropriate payments have been made. Cited at 118 B.R. 731 (Bkrtcy. D.S.D. 1990).

16. September 18, 1990, ALDERSON, L.D.: Case No. 89-50106, Chapter 7. ISSUE: Whether Debtor was in civil contempt of Court for failing to fully comply with the Court's Order entered March 9, 1990, Granting Objections to Exemptions and Directing Debtor to Turnover Property. RULING: The Bankruptcy Court found Debtor was in civil contempt of Court for wilfully failing to comply with the Court's March 9, 1990, Order. The order of contempt was made effective in 10 days as required by Bankr. R. 9020.

17. September 29, 1990: KBFS, INC., Case No. 89-50239. Chapter 11. ISSUE: (1) Whether plan that proposed a non-binding contribution of capital by corporate debtor's principal in an unspecified sum met requirements of absolute priority rule as codified at 11 U.S.C. § 1129(b)? RULING: (1) A non-binding capital contribution of an unspecified sum by a corporate debtor's principal does not fulfill any "new value" or "infusion of new capital" exception to the absolute priority rule. ISSUE: (2) Whether a plan that failed to identify value of undersecured creditor's secured claim was fair and equitable as required by 11 U.S.C. § 1129(b) where undersecured creditor was paid claim in full but other unsecured creditors received nothing? RULING: (2) A debtor must justify any discriminatory treatment of similar-type claims by showing: (1) there is a reasonable basis for the discrimination; (2) the debtor cannot consummate the plan without discrimination; (3) the discrimination is proposed in good faith; and (4) the degree of discrimination is in direct proportion to its rationale.

18. October 17, 1990. MAROLF DAKOTA FARM CHEESE, INC.: Case No. 89-50045, Chapter 11. ISSUE: (1) Whether counsel's dual representation of corporate debtor and its principal shareholder created a conflict of interest sufficient to justify denial of all attorney's fees to counsel? RULING: (1) While an actual conflict of interest existed, the facts of the case did not demand that counsel's fee be denied under 11 U.S.C. § 328(c). ISSUE: (2)(a) Whether debtor's counsel may be compensated for "double billing" services, i.e., whether more than one professional may charge for the same legal service? RULING: (2)(a) In order to "double bill," fee applicant must show that more than one professional's services were necessary and that the charges for the service are reasonable. ISSUE: (2)(b) Whether debtor's counsel may be compensated for intra-office conferences? RULING: (2)(b) In order to bill for intra-office conferences, fee applicant must show that the intra-office conference was necessary and that the fees charged for it are reasonable.

19. October 25, 1990. MAAS, LYNN & BRENDA: Case No.90-10074, Chapter 13. ISSUE: Whether costs may be awarded to the prevailing party on a contested matter? RULING: Pursuant to Local Bankr. R. 402, costs are not generally awarded to the prevailing party on contested matters in the bankruptcy courts of this District.

20. October 25, 1990. MORROW, JAMES & LAURA: Case No. 90-10073, Chapter 7. ISSUE: Whether costs may be awarded to the prevailing party on a contested matter? RULING: Pursuant to Local Bankr. R. 402, costs are not generally awarded to the prevailing party on contested matters in the bankruptcy courts of this District.

21. November 19, 1990. STANFORD RAY HOWE: Case No. 586-00113, Chapter 11. ISSUE: Whether Debtor overcame a creditor's prima facie showing that its proof of claim was valid where the only evidence presented to rebut the claim was Debtor's testimony?

22. October 14, 1990. OVERBY, RICHARD & CAROL: Case No. 89-10129, Chapter 12. ISSUE: (1) Whether non-certified legal assistant may be compensated under 11 U.S.C. § 330(a) as a para-professional for legal services performed for the debtor? RULING: (1) No. Only certified legal assistants may be compensated under § 330(a) as a para-professional for legal services performed. ISSUE: (2) Whether hourly rate of $110.00 for legal services performed for the debtor was reasonable as required by 11 U.S.C. § 330(a)? RULING: (2) In consideration of the legal complexity of this case, the results obtained, the attorney's experience, reputation, and ability, the reasonable hourly rate in this case is $90.00.

22. October 14, 1990. QUALE, SHIRLEY ANN: Case No. 89-10185, Chapter 12. ISSUE: (1) Whether non-certified legal assistant may be compensated under 11 U.S.C. § 330(a) as a para-professional for legal services performed for the debtor? RULING: (1) No. Only certified legal assistants may be compensated under § 330(a) as a para-professional for legal services performed. ISSUE: (2) Whether hourly rate of $110.00 for legal services performed for the debtor was reasonable as required by 11 U.S.C. § 330(a)? RULING: (2) In consideration of the legal complexity of this case, the results obtained, the attorney's experience, reputation, and ability, the reasonable hourly rate in this case is $90.00.

23. December 11, 1990, BACHMANN, JOSEPH HENRY & MARILYNN DALE: Case No. 89-30054, Adversary No. 89-3018, Chapter 12. ISSUE: Whether certain debts created by a decree of divorce and an incorporated stipulation were non-dischargeable under 11 U.S.C. § 523(A)(5) because the debts were for alimony, support, or maintenance? RULING: Debtor agreed debts for child support were non-dischargeable. Plaintiff, Debtor's former spouse, failed to meet burden that other debts were for her support and were not property division.

24. December 11, 1990. LEPTIEN, WILLIAM & SUSAN: Case No. 90-10074, Chapter 13. ISSUE: Whether prevailing partyon motion to dismiss was entitled to costs, including attorneys' fees, under either (1) 11 U.S.C. § 105, or (2) Bankr. Rs. 9014 and 7054? RULING: (1) Prevailing party was not entitled to costs under Bankr. Rs. 9014 and 7054 since Local Bankr. R. 402 generally reserves cost awards for adversary proceedings rather than contested matters. (2) The facts and circumstances in this case did not warrant at this time an exercise of the Court's equitable powers under § 105 to award costs.

25. December 11, 1990. OLETZKE, ROGER & DELORES: Case No.186-00254, Chapter 12. ISSUE: Whether an undersecured creditor may seek modification of a confirmed Chapter 12 plan to reflect an increase in the value of property securing its claim? RULING: (a) An undersecured creditor is not authorized by 11 U.S.C. § 1229(a) to seek modification of its secured claim. (b) Section 1229 allows modification to alter repayment terms but it does not contemplate modification of the total value of the claim to be paid under the plan.

26. December 19, 1990. NEUHAUSER RANCH, INC.: Case No. 87-50123, Adversary No. 88-5005, Chapter 12. ISSUE: Whether fee and expense itemization submitted in response to Court's award of attorneys' fees to prevailing party in adversary proceeding sufficiently showed that fees and expenses sought were reasonable and that all legal services rendered were necessary. RULING: The fee and expense itemization did not sufficiently itemize and describe all services rendered nor was there a showing that all services were necessary. Counsel was ordered to submit an amended itemization.

27. December 31, 1990, BECKLER, MARVIN AND SALLY: Case No.: 90-10168, Chapter 12. ISSUE: Whether debtors timely assumed executory leases for non-residential real property. RULING: Debtors failed to timely file a motion seeking the Court's approval of debtors' assumption of two executory leases for non-residential real property so Court declined to authorize payments of cash collateral to make post-petition payments on these leases. The Court declined to rule on whether the lessors could waive the 60 day assumption period established by 11 U.S.C. § 365(d). Court also declined to rule on whether the debtors could negotiate post-petition leases for these properties.