Justia U.S. 8th Circuit Court of Appeals Opinion Summaries

The Educational Credit Management Corporation (ECMC) appealed from the judgment of the bankruptcy court, later affirmed by the Bankruptcy Appellate Panel (BAP), which discharged the student loan debt of debtor under the "undue hardship" provision of 11 U.S.C. 523(a)(8). The court held that it was not clear error to consider debtor's financial condition from the date of discharge to the date debtor sought undue hardship relief. The court also held that there was no clear error in not calculating debtor's husband's part time income where debtor and her husband stipulated their adjusted gross income in 2007. Even when the payroll deductions were excluded, the expenses of the debtor and her dependents outstripped her available resources. Therefore, the court held that, in light of the overall circumstances, excepting debtor's student loan debt from discharge would impose an undue hardship on her.

The trustee of Cheryl Reagan's bankruptcy estate, and Latta Bachelor, the personal representative of Ronald Reagan's probate estate, appealed from an order of the district court affirming the judgment of the bankrutpcy court in this interpleader and declaratory judgment action filed by Regions Bank. The court held that although Cheryl, acting as executrix, retained control over the assets in Ronald's estate, and she may have improperly exercised that control in her capacity as executrix, her conduct in that capacity did not invalidate the spendthrift provisions. Because the spendthrift provision was enforceable under Arkansas law, Cheryl's interest in the net income from Trust C was subject to a "restriction on... transfer" under "applicable nonbankruptcy law," the section 541(c)(2) of the Bankruptcy Code's exception applied, and Cheryl's interest in the distributions of net income from Trust C was not a part of her bankruptcy estate. Appellants have failed to establish the requisite inducement and detrimental reliance to successfully assert that Cheryl should be estopped from claiming the benefit of the spendthrift trust.

Plaintiff, the Chapter 7 trustee, appealed the bankruptcy court's entry of a judgment in favor of defendants on his complaint seeking turnover under 11 U.S.C. 542 of money allegedly owed to the bankruptcy estate. The court held that while there was no clear error in the bankruptcy court's determination that defendants were not unjustly enriched and therefore, defendants were not indebted to the bankruptcy estate, the court affirmed on the more fundamental ground that the relief sought by the trustee was beyond the scope of 11 U.S.C. 542.

This case stemmed from the replevin actions filed by Klein Bank against debtors. Klein Bank appealed from the Orders of the Bankruptcy Court denying its motions to remand its replevin actions which had been removed from the state court to the bankruptcy court. In denying the motions, the Bankruptcy Court concluded that replevin actions were core proceedings. While this appeal was pending, the United States Supreme Court clarified that core proceedings were limited to those "arising under or arising in" a bankruptcy case. Based on that, the court now concluded that the matters involved in the replevin actions were not core proceedings. Accordingly, the court reversed and remanded to the Bankruptcy Court for further findings on the question of whether the court was required to abstain under 28 U.S.C. 1334(c)(2).

Debtor reopened his Chapter 13 bankruptcy proceedings and thereafter, moved the bankruptcy court to hold in contempt his former spouse and her subrogee, West Virginia's Department of Health and Human Resources, Bureau of Child Support Enforcement (BCSE), for violating the terms of debtor's confirmed Chapter 13 repayment plan by seeking income-withholding orders against him for child and spousal support arrears. The bankruptcy court refused to hold the former spouse or BCSE in contempt but did reduce the income withholding. On appeal, the Bankruptcy Appellate Panel (BAP) reversed and reinstated the income withholdings. Debtor timely appealed. The court held that 11 U.S.C. 1327(a) did not apply to this case because the bankruptcy court confirmed debtor's plan and the plan explicitly limited the former spouse's privilege to return to family court for the sole purpose of litigating child support interest. Although the Bankruptcy Code provided that, to be confirmed, a plan must provide for the full payment of accrued interest on child support and spousal support, 11 U.S.C. 101(14A), a confirmed plan was given res judicata effect even when it violated the Code. As for debtor's claim for post-petition child and spousal support, and interests thereon, the BAP correctly ruled that these claims were beyond the purview of the plan and the bankruptcy court's jurisdiction. Therefore, the BCSE income-withholding order could exceed the monthly payment schedule provided in debtor's plan. The court further held that the former spouse's recovery of post-petition spousal and child support was permitted because they were post-petition domestic support obligations for which the Bankruptcy Code allowed no proof of claim. Accordingly, the court affirmed in part and reversed in part, remanding for further proceedings.

Following remand for consideration of the effect of 11 U.S.C. 544(a) on the trustee's motion to sell, the bankruptcy court entered judgment denying the trustee's request to sell jointly-owned real estate free and clear of defendant co-owner's interest pursuant to 11 U.S.C. 363(b) and (h). The Chapter 7 trustee appealed. The court held that the bankruptcy court did not abuse its discretion in denying the motion to sell where, based on the record before it, the bankruptcy court concluded that the trustee had not met his burden of proving that the benefit to the bankruptcy estate of the sale outweighed the detriment to defendant and where the bankruptcy court's findings of fact regarding the benefit of the estate and detriment to defendant were not clearly erroneous. Accordingly, the judgment was affirmed.

Plaintiff, the creditor, appealed from the judgment of the bankruptcy court holding that a debt of defendant, the debtor, to creditor was not excepted from the debtor's discharge pursuant to 11 U.S.C. 523(a)(6). At issue was whether collateral estoppel applied based on the criminal action or the civil action to bar relitigation of the issues of willfulness and maliciousness in the bankruptcy court. If collateral estoppel did not apply, the second issue was whether the bankruptcy court properly denied the creditor's request to except the debt owed to him from the debtor's discharge pursuant to section 523(a)(6) based on lack of finding of maliciousness. The court affirmed the bankruptcy court's decision that collateral estoppel was inapplicable and held that there was no error in the bankruptcy court's finding that the debtor did not act with maliciousness for the purposes of section 523(a)(6). Therefore, the debt owed by the debtor to creditor was not excepted from the debtor's discharge.

Appellant, the debtors' attorney, as a holder of an administrative claim for his attorney fees, appealed the Bankruptcy Court's Order denying his motion to reconsider an Order denying his Rule 60(b) motion. The court held that the Bankruptcy Court did not abuse its discretion in denying appellant's motion where the motion could not serve as a substitute for a timely appeal from orders authorizing a surcharge and where there were no exceptional circumstances or grounds establishing excusable neglect which would warrant the granting of the motion. The court also rejected appellant's claim that the motion was justified by newly discovered evidence.

Debtor appealed the bankruptcy court's order granting creditor relief from the automatic stay to proceed with arbitration of its claim against debtor's bankruptcy estate. At issue was whether the bankruptcy court erred by not ruling on the issue of whether the agreement to arbitrate between the parties was obtained by fraud and whether the bankruptcy court should have tailored its order to require creditor's claim to be arbitrated by allegedly, then-pending class action arbitration. The court held that the bankruptcy court correctly determined that debtor's challenge to the contract between the parties was subject to arbitration where debtor's failure to raise an independent challenge before the bankruptcy court to the agreement to arbitrate was basis alone to affirm the bankruptcy court's order. The court also held that debtor failed to appreciate that separately alleging that an agreement to arbitrate was obtained through fraud was different from offering a separate basis for the fraud and the only fraud debtor alleged was that creditor misrepresented that it was affiliated with Ford Motor, Co., that this fraud induced the arbitration, and that this fraud induced the contract as a whole. Consequently, there was no need for the bankruptcy court to intervene or, in this case, deny creditor's motion for relief from the stay. The court further held that the bankruptcy court was not required to tailor its order to require arbitration in the class action arbitration in Texas where the arbitration panel in Texas declined to certify the class and the issue was therefore, moot. Accordingly, the court affirmed the bankruptcy court's order granting creditor relief from the automatic stay to proceed with the arbitration of its claim against debtor's bankruptcy estate.

Debtor appealed from an order of the bankruptcy court sustaining creditor's objection to her claim of a homestead exemption as to the bank's claim. Debtor used the proceeds from the sale of her Cerromar property to build the Pleasant Hill property, in which she asserted a homestead exemption. At issue was whether the bankruptcy court properly sustained the bank's objection to debtor's homestead exemption. The court held that creditor established that its debt was incurred before debtor acquired the Pleasant Hill property, which meant the property would not be exempt from creditor's judgment and that the Cerromar property was not legally debtor's homestead and she could not avail herself to the protection of Iowa Code 561.20. Accordingly, the court affirmed the judgment because the bankruptcy court properly sustained creditor's objection to debtor's claim of homestead exemption as to creditor's preexisting debts.