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AVOIDANCE ACTIONS

 

Fidelity Financial Services, Inc. v. Fink, 522 U.S. 221, 118 S.Ct. 651, 139 L.Ed.2d 571 (1998). (Justice Souter) (9:0)

http://supct.law.cornell.edu:8080/supct/html/96-1370.ZO.html

certiorari to the U.S. Court of Appeals for the 8th Circuit

Twenty (20) day period during which lien is considered perfected cannot be extended by state law. Prior to filing bankruptcy, debtor purchased a new automobile and signed a promissory note secured by the automobile. The secured lender under Missouri Law had thirty days to perfect the purchase money security interest and did so on the twenty-first day. Subsequently, the debtor filed for bankruptcy and the trustee moved to avoid the lien pursuant to 11 U.S.C. 547(c)(3)(B), which allows only twenty days to perfect a purchase money security interest. The Supreme Court affirmed all the lower courts and held a security interest is perfected under 11 U.S.C. 547(c)(3)(B) on the date that the secured party has completed all the steps to perfect its interest, but the creditor must do so within the twenty day period provided for by the federal law.

 

BFP v. Resolution Trust Corp., 114 S.Ct. 1757 (1994). http://supct.law.cornell.edu/supct/html/92-1370.ZS.html

(Justice Scalia). (5:4)

certiorari to the U.S. Court of Appeals for the 9th Circuit

Petitioner who had filed bankruptcy moved to set aside a $433,000 foreclosure sale of a house as a fraudulent transfer, claiming that the house was worth over $725,000 when sold and thus was not exchanged for a "reasonably equivalent value" pursuant to 11 U.S.C. 548(a)(2).

The Supreme Court held that a "reasonably equivalent value" for foreclosed real property is the price in fact received at the foreclosure sale as long as there has been compliance with the state's foreclosure law requirements.

 

Kelly v. Armstrong, 141 F.3d 799 (1998).

http://www.wulaw.wustl.edu/8th.cir/Opinions/980401/964267.P8

Kelly, the Chapter 7 Trustee of the Armstrong bankruptcy estate, filed an adversary proceeding to set aside four pre-petition transfers as fraudulent pursuant to 11 U.S.C. 548(a). The Court, in reversing the jury verdict for the defendants, held the jury received improper instructions on the burden of proof. The Court states that common law of fraudulent conveyance, which shifted the burden of production and the burden of persuasion once multiple badges of fraud have been established, was applicable in bankruptcy and was unchanged by Federal Rule of Evidence 301. The Trustee, after establishing multiple badges of fraud, is entitled to a presumption of fraudulent intent and the burdens of production and persuasion then shift to the transferee to prove a legitimate supervening purpose for the transfer in question.

 

Nangle v. Lauer (In Re Lauer), 98 F.3d 378 (8th Cir. 1996)

http://www.wulaw.wustl.edu/8th.cir/Opinions/961018/951012.P8

The plaintiffs brought an adversary proceeding against the debtor and others alleging that the defendants had violated the Uniform Fiduciary Law (Missouri law). The bankruptcy court granted summary judgment to one of the defendants because the action was time barred. The Eighth Circuit reversed that finding, holding that the bankruptcy court had applied the incorrect statute of limitations. However, the Eighth Circuit affirmed the bankruptcy court's decision that the plaintiffs lacked standing to avoid a transfer of property under 11 U.S.C. 548(a), as only the trustee is allowed to bring such a claim.

 

Christians v. Crystal Evangelical Free Church, (8th Cir. 1996).

http://www.wulaw.wustl.edu/8th.cir/Opinions/960506/932267.P8

The Eighth Circuit held that payments made by chapter 7 debtors to their church qualified as fraudulent transfers under 11 U.S.C. 548(a)(2)(A) but that the Religious Freedom Restoration Act (RFRA), 42 U.S.C. 2000bb et seq. The Trustee was prohibited from avoiding such transfers because the recovery of the contributions would substantially burden the debtors' free exercise of religion and would not be in furtherance of a compelling governmental interest. Rehearing and req. rehearing en banc denied, 89 F.3d 494. [This case was subsequently the subject of Congressional legislation.]

 

Mead v. Mead, 974 F.2d 990 (8th Cir. 1992)

A chapter 13 debtor could not use bankruptcy code 522(f) to avoid a lien on her homestead, which lien was granted to her former spouse in a divorce decree, was released by a quitclaim deed, and was subsequently reinstated following a jury verdict declaring that the spouse had signed the deed because of fraud or misrepresentation by the debtor. The reinstatement of the lien was a recessional remedy, and the reinstated lien had to be given the same protection against 522(f) avoidance that the original lien created by the divorce decree would have had.

 

Forker v. Duenow Management Corporation (In Re Calvert), 98-6037NI (Bankr. D. IA. 1998) (Chief Judge Koger) (before Koger, Kressel, and Mahoney)

http://ls.wustl.edu/8th.cir/Opinions/BAP/981130/986037.P8

Appellate Court determined that the bankruptcy court incorrectly applied the official acts presumption to find that the chapter 7 debtors had given a valid security interest in the pickup truck to David Calvert's parents and erred in finding that the earmarking doctrine was inapplicable. Because the funds had been earmarked, the payment to Duenow was not an avoidable preference. The Court reversed the Bankruptcy Court decision and remanded for entry of judgment consistent with the opinion.

 

LaBarge v. Benda (In Re Merrifield), 214 B.R. 362 (B.A.P. 8th Cir. 1997) (Kressel, J.) (before Kressel, Hill, and Dreher)

ftp://server.wulaw.wustl.edu/8th.cir/971121/976043.P8

A chapter 13 debtor lacks standing to appeal a dismissal of a fraudulent conveyance action brought by the debtor and the trustee. 11 U.S.C. 548 expressly confers avoidance powers on the trustee and the debtors do not have the standing to bring such an action in accord with the Eighth Circuit's Nangle v. Lauer, 98 F.3d 378 (8th Cir. 1996). When the trustee fails to seek avoidance, 11 U.S.C. 522(h) confers on the debtor limited authority to pursue a lien avoidance but only where the debtor's transfer of property was involuntary, the debtor did not conceal the property, and the debtor could have exempted the property. Where the debtor voluntarily transferred the property, the debtor did not have original standing and thus could not have standing to appeal.

 

In Re Rhoads, Bk. No. 98-82850 (Bankr. D. Neb. February 19, 1999)

http://www.nebar.com/bankruptcy/Rhoads.htm

Commercial Federal Mortgage Corporation (CFMC)'s Motion for Relief was granted. Chief Bankruptcy Judge Mahoney concluded that the Nebraska Trust Deeds Act contemplates, and the Supreme Court of Nebraska has so interpreted it to mean, that once the highest bid at a trustee sale is accepted, the property has been sold and the sale is complete. This conclusion was in accord with Judge Minahan's opinion in the Chapter 7 case of In Re Jones, 214 B.R. 792 (Bankr. D. Neb. 1999). Since the sale was complete prior to the filing of the bankruptcy petition, the debtor was precluded from curing the default by virtue of the limitations in 11 U.S.C. 1322(c)(1).

 

DiBaise v. Mid-America Financial Corporation (In Re DiBaise), Bk. No. 98-80435 (Bankr. D. Neb. January 20, 1999)

http://www.nebar.com/bankruptcy/Dibaise.htm

Creditor/Defendant's motion for summary judgment was sustained, and debtor/plaintiff's adversary to avoid a Nebraska Trust Deeds sale as a fraudulent transfer pursuant to 11 U.S.C. 548 was unsuccessful. Debtor's first argument that the sale was a fraudulent transfer because it was sold for less than what the debtors asserted was its appraised values failed as a matter of law under BRP v. Resolution Trust Corp., 511 U.S.C. 531, 545, 114 S.Ct. 1757, 1765 (1994), http://supct.law.cornell.edu/supct/html/92-1370.ZS.html. Debtor's second argument that the transfer was fraudulent under Neb. Rev. Stat. 36-704 http://www.unicam.state.ne.us/statutes.htm also failed because the Nebraska section essentially mirrored the essence of BFP.

Debtor's third argument that the statute required the Trustee to personally execute and acknowledge the Notice of Default, rather than directing an attorney to do so on the Trustee's behalf. Considering the Nebraska Trust Deeds Act as a whole and giving effect to every word, or lack thereof, the Court held that "it is apparent that nothing in the statute precludes a Trustee from authorizing an attorney to prepare and file a Notice of Default on behalf of the Trustee without execution or acknowledgment by the Trustee."

 

 

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