Thanks to Jeb Howell of Auction Management Corporation for the link.

The same claims had apparently been rejected by the Bankruptcy Court in In Re Repository Tech, Inc., 363 B.R. 868 (Bankr. N.D. Ill 2007) (read this opinion here). 

The problem with Nelson's claims is that he is seeking a second chance to win the same game.Nelson made the same arguments he raises in this case to the Bankruptcy Court for the Northern District of Illinois when he sought to have Repository's bankruptcy filing dismissed as being filed in bad faith or, alternatively, due to gross mismanagement of the Company. The Bankruptcy Court, despite dismissing Repository from Bankruptcy because it could not reorganize
successfully, explicitly found that “the bankruptcy filing cannot be held to be in bad faith” and that there had not been “any mismanagement of [Repository's] assets and business.” Satisfied with the dismissal of  Repository's bankruptcy, but unhappy with the Bankruptcy Court's ruling that the bankruptcy had not been brought in bad faith, Nelson appealed to the District Court for the Northern District of Illinois and
argued that the Bankruptcy Court's findings on the bad faith issue were dicta. In essence, Nelson was attempting to preserve his ability to present his bad
faith argument to another tribunal in the hope that a new court might find the argument more substantial. The District Court rejected Nelson's argument, ruling
that the bad faith determination was an essential part of the Bankruptcy Court's holding because Nelson himself had advanced the argument that the bankruptcy filing was made in bad faith.

Francis Pileggi's more thorough review of the opinion is found here. 

The Countrywide executive told a U.S. Senate Judiciary subcommittee that the company was taking new steps to address concerns that have led to an outcry from consumer advocates and that were the catalyst for Tuesday's hearing. Bailey said Countrywide plans to hire an independent auditor to review its treatment of loans whose borrowers have filed for bankruptcy. If Countrywide made mistakes that hurt borrowers, the company will compensate them, he said.

Countrywide also plans to create a bankruptcy ombudsman to review claims of borrower abuse, and adopt a series of "best practices" issued by a national group of bankruptcy trustees.

The article also discusses the adversary filed in the Northern District against Countrywide, discussed in this post:

The subcommittee was also scheduled to hear testimony from Robin Atchley, a mother of four from Georgia and a former Countrywide borrower. Atchley, in her testimony, told the panel that her and her husband were engaged in a "tug of war" with Countrywide and its lawyers to try and stay in their house.

"It seems as if Countrywide used the bankruptcy court to gain even more opportunities to take advantage of our predicament and to profit from our struggle," Atchley said, detailing various fees and charges the company assessed.

Is Bank of America still going to buy Countrywide?

In re Allen, Ch. 7 Case No. 01-82408-MHM, 2008 Bankr LEXIS 366 (Bankr. N.D. Ga. February 14, 2008).

Debtor’s pre-petition state law cause of action was property of the Chapter 7 Estate, with a value that likely exceeded the liabilities of the Estate. The Trustee sought to conditionally abandon the cause of action as follows:

Trustee proposes to abandon the Claim on the following conditions: Debtor will pay to the estate $ 10,000, non refundable; Debtor will be substituted as Plaintiff in the lawsuit…the proceeds of any recovery on the Claim will be disbursed 40% plus litigation expenses to' Debtor's attorney; $ 25,000 to Trustee; the remainder divided equally between Debtor and Trustee up to the amount of accrued administrative expenses and filed claims; Debtor offers to waive his discharge if Debtor's share of the recovery is more than the aggregate amount of unsecured debt for which no proof of claim is filed, thereby implying that such creditors may seek and obtain payment from Debtor.

The Court denied the motion. Section 544 allows abandonment only when the trustee or the court concludes that the asset is burdensome to the estate or of inconsequential value and benefit. No such finding was possible in the case.

Abandonment" is not defined in the Bankruptcy Code. Black's Law Dictionary defines "abandonment":

The relinquishing of a right or interest with the intention of never again claiming it.
BLACK'S LAW DICTIONARY, Seventh Edition, West Publishing Co. (1999). Abandonment is an absolute term. One cannot slightly abandon, partially abandon, or conditionally abandon an asset of the estate.

No case law has been found or cited by the parties to support a proposal to "conditionally abandon" an asset, i.e., abandon the asset while retaining an interest in its proceeds. Just as Trustee could not abandon the estate's interest in a tangible asset of the estate while retaining the right to share in the proceeds from a sale, Trustee cannot abandon the Claim while retaining the right to share in the proceeds of the recovery. …

Any proposed settlement of Claim would require approval by the bankruptcy court, which, recognizing Debtor's interest in maximizing the claim, would protect Debtor from any proposal that failed to sufficiently acknowledge Debtor's interests. Therefore, the only disposition of Trustee's Motion for Conditional Abandonment is denial and direction that Trustee be substituted as Plaintiff in the state court proceeding. In that proceeding, the Trustee may consult with Debtor as respects Debtor's interest in the outcome.

The Court also noted that a Motion to Sell the cause of action previously filed by the Trustee was inappropriate -

At the hearing on the Second Motion to Sell, the court concluded that it contravened Georgia law and could not be approved. In the case of United Technologies Corp. v. Gaines, 225 Ga. App. 191, 483 S.E. 2d 357 (1997), the Georgia court concluded that when, under the Bankruptcy Code, a Chapter 7 Trustee acquires a debtor's tort claim, the Trustee becomes the real party in interest and alone possesses the right to pursue the claim. Assignment by the Trustee of the claim to the debtor would violate O.C.G.A. §44-12-24, which prohibits the assignment of such tort claims. Another Georgia case concluded that although the assignment of such claim by the Trustee to a debtor violates O.C.G.A. §44-12-24, the Trustee's abandonment of the claim, even following payment by the debtor to the estate, does not violate O.C.G.A. §44-12-24. Denis v. Delta Air Lines, Inc., 248 Ga. App. 377, 546 S.E. 2d 805 (2001).

In re Patterson,  Case No. 07-61961-MHM, 2008 Bankr. LEXIS 704 (Bankr. N.D. Ga. January 15, 2008).  After conversion of case from Chapter 11 to Chapter 7, debtor's counsel filed an application for compensation and sought to apply pre-petition retainer to fees and expenses.  However, the Chapter 7 Trustee and United States Trustee objected because the case might be administratively insolvent.  Counsel argued that the retainer was a security retainer, not subject to disgorgement pursuant to 11 U.S.C. §726(b).

The Court disagreed, and ordered counsel to turn over the retainer to the Chapter 7 Trustee. Counsel  would have an administrative claims for fees in the Chapter 7 case, according to the priorities in the Code.

In re Patterson,  Case No. 07-61961-MHM, 2007 Bankr. LEXIS 4513 (Bankr. N.D. Ga. December 11, 2007).  After the withdrawal of Chapter 11 debtor's first counsel, and the appointment of a Chapter 11 Trustee, a second attorney appeared on behalf of the debtor

On July 29, 2007, Debtor filed an application (the "Application") to employ K. A. Foreman as attorney for debtor. By order entered August 8, 2007, that Application  was denied as unnecessary because, upon conversion, the Trustee's attorney displaced the debtor's attorney. In re NRG Resources, Inc., 64 B.R. 643 (W.D.La. 1986). An attorney employed by a Chapter 11 debtor who continues to perform services after conversion and appointment of a Chapter 7 Trustee may be compensated from property of the estate only if the attorney is either retained by Trustee for a specific and limited special purpose with prior court approval or performs services that are beneficial to the administration of the estate. ...

....As set forth above, however, a debtor's attorney is entitled to compensation from the estate following conversion only under extremely limited circumstances, which are not present here. All the services  by Mr. Foreman were rendered after the Chapter 11 Trustee was appointed, and most of the services were rendered after the case was converted. Mr... Accordingly, it is hereby ORDERED that the application ... for compensation is denied.

Tax firm Caplin & Drysdale was appointed national counsel for the asbestos claimants’ committee in the bankruptcy of Babcock & Wilcox, a maker of boilers and generators. The firm sought about $6.3 million in fees and costs for it services, and charged its full hourly-rate for travel time. The bankruptcy trustee objected to paying the full hourly rate for travel time not spent working, and the bankruptcy judge agreed, awarding attorney’s fees at 50% for those hours — trimming $135,685.80 from Caplin & Drysdale’s tab. The district and appellate courts agreed.

In re Babcock & Wilcox, Inc., Case No. 07-30377 (5th Cir. May 1, 2008).

It will close stores at Perimeter Mall in Atlanta, Uptown Square Shopping Center in Fayetteville, Stonecrest Marketplace in Lithonia, Macon Mall in Macon and Southlake Pavillion in Morrow.

The company has landed $700 million in debtor-in-possession financing from General Electric Capital Corp., which Linens Holding said will ensure healthy merchandise flow as it gets ready for the back-to-school and holiday selling seasons.

From the May 2, 2008 Atlanta Journal Constitution -

Georgia ranked No. 2 nationally for its rate of consumer bankruptcy filings in the first quarter of the year. The bankruptcy courts statewide processed 12,981 consumer filings during the quarter, up 16 percent from the same period in 2007.

Only Tennessee had a higher bankruptcy rate than Georgia. In Tennessee, the rate in annual terms was 1 bankruptcy filing for every 56 households. In Georgia, 1 in every 60 households sought legal protection from creditors, according to the National Bankruptcy Research Center, a California-based data firm. ...

Indeed, the first-quarter statistics suggest that most Georgians entering bankruptcy are trying to keep their homes, not walk away. About 55 percent of Georgians who file for bankruptcy filed Chapter 13, which allows consumers to hold onto their house and car but requires that they repay a portion of their debts. A Chapter 7, chosen by 45 percent of Georgians who file for bankruptcy, is a liquidation in which most debts are wiped out, but so are all of a consumer's assets that aren't protected by exemptions.

KITTIE LAPERRIERE, Class certification, to consist of all persons who acquired the publicly traded equity securities of Vesta Insurance Group, Inc., between June 2, 1995, and June 28, 1998, inclusive (the “Class Period”). Excluded from the class, ISRAEL BURGER, RICHARD SULLIVAN, POINTERS, THE CLEANERS & CAULKERS LOCAL 1 PENSION FUND, FLORIDA STATE BOARD OF ADMINISTRATION

 versus

VESTA INSURANCE GROUP, INC., et al., TORCHMARK CORPORATION,
Defendant-Appellee.

No. 06-14524 (April 30, 2008)  (Click here for opinion).

This interlocutory appeal presents an issue of first impression in the circuit courts: whether, and to what extent, the proportionate liability scheme of section 21(D)(f) of the Securities Exchange Act of 1934 (the “Act”),1 enacted as part of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”), amends section 20(a) of the Act, under which a person who controls a violator of the Act is “liable jointly and severally with and to the same extent” as that violator.

......

We conclude that section 20(a) controlling person liability survives section 21(D)(f)’s proportionate liability scheme. Those who would have been substantively liable as controlling person under section 20(a) before the PSLRA was enacted will be substantively liable after its enactment. All that the PSLRA has changed for controlling persons is the standard for deciding whether their responsibility for damages is joint and several or proportionate. Damages are now allocated based on the proportionate liability provisions in the PSLRA, including the provision that knowing violators of the securities laws are “liable for damages jointly and severally.” The district court’s order denying Appellants’ motion to strike Torchmark’s PSLRA-based affirmative defenses is AFFIRMED.

In a prior post, I discussed Judge Massey's opinion concerning Amended Bankruptcy Rule 6003.  In re Smith, Ch. 11 Case No. 08-63990 (click here for Order). 

Catherine Vance, Vice President of Research & Policy and Associate General Counsel of Development Specialists, Inc., has subsequently written an article about the new Rule, in which she cites Judge Massey's opinion in Smith (and this Blog).

You can read the entire article, entitled The Purpose and Application (So Far) of New Bankruptcy Rule 6003, on the Bankruptcy Litigation Blog.

The Verso Tech petition lists assets of $34 million and liabilities of $36.67 million. 

According to its website -

Atlanta-based Verso Technologies, Inc. (NASDAQ:VRSO) is a global provider of leading edge IP telephony products and solutions. We enable profitable end to end IP Communications over wireline, wireless, terrestrial and satellite links. Across six continents and 38 nations, from tier 1 carriers to emerging providers and enterprises, Verso products and globally deployed resources meet challenging requirements for VoIP migration, access, transport and application delivery.

Click here for the latest Annual Report, Form 10-K.  The summary, particularly starting at pp. 17, lists many of the apparent reasons for the filings, including a default in its $3.6 million obligation to Clarent Corporation.  Verso purchased substantially all of the assets of Clarent in late 2002 for $9.8 million.

The purchase of the assets of Clarent (as opposed to a purchase of the stock, or a merger) was in conjunction with a Chapter 11 filing by Clarent. On December 13, 2002, Clarent filed a Chapter 11 petition in the United States Bankruptcy Court for the Northern District of California, Case No. 02-33504.

For unsecured creditors that have delivered goods to any of these debtor companies within 45 days prior to the bankruptcy filing date, see this post on reclamation and administrative claims.

Scott Riddle’s practice focuses on bankruptcy and litigation. Scott has represented Chapter 11 debtors, creditors, trustees and other interested parties in bankruptcy cases and bankruptcy litigation.  For more information, click here.

Updated 4/25/08 (scroll to bottom)

The disaster that is the Clayton County School Board has struck again.  On the verge of being the third school district in the United States to lose accreditation in the last 20 years (see the report here), they struck again last night.  In a non-public session, and in apparent violation of the open meetings law, they hired a "corrective superintendent."  It just happens that this candidate had previously withdrawn his name from consideration, and has been  deemed unqualified by state and accreditation officials (yes, that would be the officials who determine whether the schools are accredited).

The board voted 5-1 to hire John W. Thompson, who state and accreditation officials said is not qualified. ....  Thompson's $285,000 contract runs until to June 30, 2009, and has an option to be extended, Schwartz said. It also includes a car and security, if needed. Thompson initially requested a $275,000 salary, 24-hour access to a car and driver, 24-hour security and $2 million for consultants. It's unclear if he will have a consultant budget.

"His demands are appalling," said Winnie Thomas, whose daughter is a junior at Lovejoy High School. "The fact that Mr. Elgart from SACS and the governor's liaisons disapproved is alarming. For a board to pass an offer to this man is ridiculous. In what world do they live?"

Excellent question, Winnie!  They live in a world where they, the School Board, value their own positions and power more than the condition of the schools or welfare of their neighbors.  They apparently did not even follow the law when making this hire behind closed doors.

"Unfortunately, this is part of a continuing pattern where the board takes actions without even attempting to follow the law," said Thomas Clyde, an attorney for The Atlanta Journal-Constitution.

Even better, the attorney they hired to represent the Board during the troubling times, Glenn Brock, resigned, stating -

"I fired the school board because of deceptive and unethical behavior," said board attorney Glenn Brock. "Their behavior demonstrated last night is what SACS has been criticizing all along."

What does this have to do with a Bankruptcy Blog? The end result of losing accreditation is that students are ineligible for the Hope Scholarship, and will have a difficult time getting into a decent college.

Clayton County residents can expect plummeting home values as parents (or anyone who might be  a parent in the next few years) move out of the county so their kids get in college and they are eligible for the Hope Scholarship.   Home buyers with school-age kids, or who may have school age kids in the future (i.e, most younger couples) will avoid the county like the plague.  The housing market in Clayton County will be a disaster, and the tax base will decrease dramatically.  Refinancing will not be possible because the equity in homes will simply disappear.  Companies and industries considering Clayton County will immediately strike them off of their list because employees will not want to move there.  Some businesses will move, or perhaps even close, because of a decrease in business and an inability to keep qualified employees. 

According to a realtor association official ...

"All the board members need to resign. We need to have a special election and start over with qualified candidates," said David Barton, Vice President of the Metro South Association of Realtors. He said that during the last four years of turmoil in the Clayton County schools, property owners in the county have lost a half billion dollars in value.

This quote was in February, when there still might have been a chance for remedies.  That chance seems to be over, so expect much higher losses in value for Clayton homeowners.  If you have school-age kids, or think you might have them in the next few years, stay way from Clayton County.

If you are a homeowner in Clayton County and you find yourself in Bankruptcy, think twice before reaffirming your mortgage debt.  Even if you qualify for a reaffirmation and your home is worth the amount of debt, it might not be the case for long.  You might be signing up for post-petition personal liability for the mortgage on a home that decreases significantly in value in the coming months and years.  You could be locked into staying in Clayton because you cannot sell, selling your home at  discount and paying the difference, or a foreclosure. You will owe the full amount of your mortgage (including interest and fees) after your discharge.  Again, think twice.

Update - The latest news from the evening of April 24.  The Chairman of the board has resigned.

School board Chairman Eddie White said he decided to step down this week after finding a defamatory letter on his desk at the board meeting Wednesday. The unsigned letter, drafted by a board member, accused White of engaging in sexual conduct with a member of the school administration, he said Thursday.

"I do not approve of such conduct. It was very, very inappropriate for that to occur," White said. "It is untrue and negatively impacting my family. I was of the opinion we could meet the nine recommendations, but behavior like that from last night will not help us."

Trusted Net Media Holdings, LLC v. The Morrison Agency, Inc. (In re Trusted Net Media Holdings, LLC), No. 07-13429 (11th Cir. April 29, 2008) (click here for pdf of opinion).  The basic facts are the following -

On April 20, 2002, Morrison, as a creditor, filed an involuntary bankruptcy petition against its debtor Trusted Net, requesting liquidation of Trusted Net’s assets pursuant to Chapter 7 of the Bankruptcy Code. Morrison’s petition listed Morrison as the only petitioning creditor of Trusted Net, and described Morrison’s claim against Trusted Net as “Trade Debt/Judgment” in an amount “[n]ot less than [$]534,000.00.” …

The debtor Trusted Net, whose assets were at that time under the control of a state-court-appointed receiver, filed no response to Morrison’s involuntary petition. Accordingly, the bankruptcy court entered an Order for Relief on May 15, 2002 and appointed a Chapter 7 trustee. The trustee marshaled Trusted Net’s assets in preparation for liquidation. …

Shortly thereafter, and more than four years after commencement of the case, Trusted Net … filed a motion to dismiss the entire bankruptcy case for lack of subject matter jurisdiction. Similar to Huffman’s motion two years earlier, Trusted Net argued that § 303(b)’s requirements must be met for the bankruptcy court to have subject matter jurisdiction, and that Morrison’s petition violated § 303(b) because: (1) at the time it filed its involuntary petition, Morrison was not the holder of a non-contingent, undisputed claim, and (2) Morrison’s involuntary Chapter 7 petition was not joined by three holders of non-contingent, undisputed claims.

The Bankruptcy Court held that § 303(b)’s requirements were not subject matter jurisdictional and any defense that the debtor may have had were waived. The District Court affirmed, finding the Bankruptcy Court’s order to be “thorough, well-reasoned, and correct in every respect.”

The Eleventh Circuit reversed, with instructions to the District Court to remand to the Bankruptcy Court to find whether the requirement of § 303(b) were met. The issue was whether the requirements of the Code could be waived -

Trusted Net asserts that, at the time Morrison’s involuntary petition was filed, Morrison’s petition failed to meet the § 303(b) requirements because: (1) Morrison’s claim against Trusted Net was the subject of a bona fide dispute; and (2) Trusted Net had twelve or more non-insider holders of undisputed, non-contingent claims, yet Morrison’s petition was not filed by three petitioning creditors. In response, Morrison argues that its petition established the prima facie grounds for commencing an involuntary bankruptcy case and, in any event, Trusted Net waived any potential objections to Morrison’s petition by waiting four years to raise them. Trusted Net does not contest that its four-year delay would normally constitute a waiver; instead, it contends that the § 303(b) requirements are subject matter jurisdictional and hence incapable of being waived.

After a thorough analasys, the Eleventh Circuit held that § 303(b) were jurisdictional based upon binding precedent in In re All Media Properties, Inc., 646 F.2d 193 (5th Cir. 1981), aff’g
5 B.R. 126 (Bankr. S.D. Tex. 1980), but it stated that this holding was not necessarily the most well-reasoned position -

Under our prior panel precedent rule, holdings made or adopted by an earlier panel–including express jurisdictional holdings–must be followed. See Main Drug, Inc. v. Aetna U.S. Healthcare, Inc., 475 F.3d 1228, 1231 (11th Cir. 2007); Knight v. Columbus, Ga., 19 F.3d 579, 585 (11th Cir. 1994). And All Media’s characterization of § 303(b) as imposing non-waivable jurisdictional requirements upon the bankruptcy court is holding, rather than dictum, because a determination that § 303(b) is subject matter jurisdictional was a necessary predicate for the court’s consideration of All Media’s argument–which was raised neither in the pleadings nor at trial–that the creditor Best, Inc. did not satisfy the statutory
requirement of having an unsecured or undersecured claim. See Black v. United States, 373 F.3d 1140, 1144 (11th Cir. 2004) (“Dictum is a term that has been variously defined as a statement that neither constitutes the holding of a case, nor arises from a part of the opinion that is necessary to the holding of the case.”); see also United States v. Shields, 49 F.3d 707, 710 n.11 (11th Cir.) (interpreting United States v. Osburn, 955 F.2d 1500 (11th Cir. 1992), and stating that certain language was “holding rather than dictum because a determination that the statutory scheme in fact favored growers who have just completed their harvest over growers who have not yet harvested their marijuana plants was a necessary predicate to the Osburn court’s subsequent consideration of the defendants’ constitutional challenge to that sentencing distinction”), vacated, 65 F.3d 900 (11th Cir. 1995) (en banc).

Therefore, we conclude that we are bound by All Media’s decision that the requirements of § 303(b) must be satisfied in order for the bankruptcy court to have subject matter jurisdiction over an involuntary bankruptcy case. We recognize that the weight of authority–and, in our view, the superior reasoning–lie against that holding. Nevertheless, All Media’s holding in this regard is prior panel precedent, and therefore controls. See United States v. Steele, 147 F.3d 1316, 1317-18 (11th Cir. 1998) (en banc) (“Under our prior precedent rule, a panel cannot overrule a prior one’s holding even though convinced it is wrong.”).