Alabama Bankruptcy Lawyer Blog

In my 30+ years of practice, this is the first time I've seen this particular issue (although I suspect it occurred frequently in the past). A creditor sues and gets a judgment. He takes that judgment to the Probate Office and records it. Does the creditor have a lien under Ala. Code Section 6-9-210?

No. In BMJA, LLC v. Murphy, decided January 10, 2010, the Alabama Supreme Court held that recording a judgment accomplishes nothing. In order to create a lien pursuant to Section 6-9-210, you must record a certificate of judgment. The decision is predicated upon a strict construction of the language of Section 210.

It is common practice today for the clerk's office to generate a Certificate of Judgment in recordable form without your having to request one. In the old days, you had to ask for a certificate. But, for those who represent themselves, be warned that recording your judgment does nothing other than make the County a few dollars.

Most debtors, and debtors' counsel, are extremely cooperative. I have little difficulty with the bankruptcy bar in SE Alabama. But, there is the occasional recalcitrant debtor with an attitude, who just doesn't want to be bothered digging through boxes of records. So, they bring me the boxes and expect me to do the digging. As my wife says quite often, "I don't think so."

In In re Royce Homes, LP. 2009 WL 3052439 (Bkrtcy. S.D.Tex.), the debtor provided trustee access to the storage area where files were located, but did little more. The trustee asked for specific information which debtor declined to provide, and trustee filed a motion to compel.

Judge Bohm cited Section 521(a)(3) which requires debtors to cooperate with the trustee "as necessary to enable the Trustee to perform Trustee's duties." The court also looked to Section 704 and Bankruptcy Rule 4002(a)(4) in support of the requirement that a debtor render affirmative assistance. And finally, the court invoked its broad, inherent powers pursuant to Section 105(a) to fashion remedies it deemed necessary in furtherance of the rights and obligations created under the Bankruptcy Code.

The court then ordered the debtor to provide the specific information sought by the trustee, rather than allowing the debtor so simply grant access to documents and say "here, you find it." The debtor's obligations rise above the basic requirement of providing documents; debtor has an affirmative duty to assist by providing specific information requested.

And again, for Alabama Middle attorneys who might read this blog, I am grateful for the high degree of cooperation which I generally receive from the Bankruptcy Bar. To the debtor with the more casual attitude, however, please understand that with the benefits of bankruptcy (and they are many) comes a fairly high degree of responsibility.

A right of set-off is simply a remedy existing under state law which allows parties mutually obligated to one another to apply their mutual debts against each other. If I owe you $100, but you owe me $80, we are square if I pay you $20.

The Bankruptcy Code does not provide a right of set-off since it would be preferential on its face, favoring one creditor over others. The Bankruptcy Code does, however, provide in Section 553 that rights of set-off existing under state law are enforceable (and hence not preferential) under certain circumstances.

What about triangular set-offs? This occurs when A, B and C agree that A may set-off amounts owed by A to B against amounts owed to A by C. The case currently "in the news" is In re SemCrude, L.P., a decision handed down by the Delaware bankruptcy court in January 2009. In a carefully reasoned opinion, the court held that triangular set-offs are not permissible under Section 553 and are avoidable.

I write to this particular subject because the decision in the bankruptcy court was appealed in April of 2009. A quick PACER check today reveals that all briefs were filed back in September of 2009, so a ruling from the District Court is probably likely in the very near future. As both a trustee with a triangular set-off case pending in Alabama Middle, and a creditor's attorney with an interest in the issue, the result of the appeal strikes me as very important. I'm not aware of any 11th Circuit authority on point, but have noticed that decisions coming out of the Bankruptcy Court for Delaware seem to be highly regarded. It will be interesting to see if the District Court agrees.

The corporate debtor, WVF Acquisition, provides internet access services to customer in North America and Europe.The debtor purchases access through creditor WBS, which in turns acquires access through Sprint Nextel. Creditor, WBS, strong arms the debtor by discontinuing services and demanding a general release before agreeing to reinstate those services. Debtor is in Chapter 11, and the services are essential to its survival. The tactics of the creditor did not sit well with Judge Kimball in the Southern District of Florida.

The case is In re WVF Acquisition, LLC, --- B.R. ---, 2009 WL 4281487, Bkrtcy. S.D. Fla. 2009. The judge wasted little time in finding a stay violation, finding it to be wilful, and awarding punitive damages. The more troublesome issue for the court was whether it was empowered under Section 105 of the Bankruptcy Code to award punitive damages in a case involving a corporate debtor, and if so, what damages were appropriate on the facts of the case (turns out 50,000 dollars was a nice round figure).

The creditor argued that Jove Eng.'g., Inc. v. IRS, 92 F.2d 1539 (11th Cir. 1996) effectively precluded the bankruptcy court from awarding punitive damages to a corporate debtor for a 362(k) violation. This because Section 362(k) specifically limits its application to an individual.

Judge Kimball decided, however, that the court had the inherent authority under Section 105 of the Bankruptcy Code to enter an award of punitive damages. The court was convinced that the decision of the Eleventh Circuit in Jove was never intended to limit a bankruptcy court's contempt authority under Section 105. At this writing I don't know if the decision has been appealed, but given the amounts involved an appeal may well be forthcoming. If so, I'll follow up with subsequent posts.