Eighth Circuit Bankruptcy Monitor

EIGHTH CIRCUIT BANKRUPTCY MONITOR

In In re Thurmon, the Bankruptcy Court for the Western District of Missouri (Judge Norton) held that debtors who had ceased operation of their business and sold its assets pre-petition were not “engaged in commercial or business activities,” and therefore could not proceed under new subchapter V of chapter 11. Despite its order, the Court nonetheless signaled its willingness to confirm the debtors’ subchapter V plan with a modification, although the debtor had never sought approval of or distributed a disclosure statement as required for non-subchapter V chapter 11 debtors.

Originally published Dec. 9, 2020, on Law360.

With the COVID-19 pandemic depriving bankruptcy practitioners of our usual opportunities to meet in court and at conferences to discuss recent developments in the law, I spent time tracking developments in bankruptcy law within the U.S. Court of Appeals for the Eighth Circuit.

EIGHTH CIRCUIT BANKRUPTCY MONITOR

In Lund-Ross Constructors, Inc. v. Buchanan (In re Buchanan), the Bankruptcy Court for the District of Nebraska (Judge Saladino) denied an objection to discharge on the basis that tort claims against a non-debtor business were not enforceable against the husband-and-wife chapter 7 debtors who owned the business. The opinion warrants careful consideration by counsel representing property owners and general contractors in Nebraska, because it suggests Nebraska law limits the liability of corporate principals, even when they participate actively in allegedly actionable misrepresentations.

EIGHTH CIRCUIT BANKRUPTCY MONITOR

In Veroblue Farms USA, Inc. v. Cassels Brock & Blackwell, LLP (In re Veroblue Farms USA, Inc.), the Bankruptcy Court for the Northern District of Iowa (Judge Collins) held the Court could properly exercise personal jurisdiction over a Canadian law firm in an adversary complaint for turnover.  The law firm argued exercise of jurisdiction was improper because it had no pertinent contacts with Iowa; rather, the firm had represented a Canadian company from the firm’s offices in Canada.  The firm further argued that it did not give legal advice in Iowa or related to Iowa law.

EIGHTH CIRCUIT BANKRUPTCY MONITOR

In State of North Dakota ex rel. Stenehjem v. Bala (In re Racing Services, Inc.) the Eighth Circuit BAP (Judges Dow, Nail and Shodeen) concluded the North Dakota Attorney General lacked standing to file a chapter 7 proof of claim on behalf of eligible nonprofit organizations, but that its tardy filing of a proof of an assigned claim was not barred by laches or subject to disallowance under section 502(b)(1).

EIGHTH CIRCUIT BANKRUPTCY MONITOR

In Kelley v. Boosalis (In re Petters Company, Inc.) and Kelley v. Kanios (In re Petters Company, Inc.),^[1] the Eighth Circuit (Judges Loken and Benton, with Judge Kelly dissenting in part and concurring in part) held that federal law, not state law, determines whether pre-judgment interest may be awarded on judgments for the value of transfers avoided under section 544(b).  In so doing, the Court split with the Ninth Circuit and the First Circuit BAP.  The Court also interpreted the application of Minnesota’s Uniform Fraudulent Transfer Act (“MUFTA”) in the context of a Ponzi scheme.

EIGHTH CIRCUIT BANKRUPTCY MONITOR

In Slawson Exploration Co., Inc. v. Nine Point Energy, LLC (In re Triangle USA Petroleum Corp.), the Eighth Circuit (Judges Shepherd, Smith, Melloy) held that under North Dakota law, an O&G promote obligation does not run with the land, was not an equitable servitude, and was not a real property interest akin to an overriding royalty.  Slawson and the Debtor’s predecessor, TPC, were O&G production companies who teamed up to lease, develop and drill land in North Dakota.  Under the terms of their agreement (the “EDA”), either party that acquired an O&G leasehold in a specified area of North Dakota was required to offer the other an undivided interest at cost in the proportion specified in the EDA: 70% for Slawson and 30% for TPC.  TPC also agreed to pay “an additional 10% of its share of the drilling, completing, and equipping costs for each well in which TPC elect[ed] to participate” – the “Promote Obligation.”

Objection to IRS Proof of Claim, Filed Before Amendment to Rule 3007 Went Into Effect, Was Properly Mailed Only to IRS

In Nicolaus v. USA (In re Nicolaus), the Eighth Circuit (Judges Stras, Benton and Gras) held that a debtor’s objection to a proof of claim filed by the IRS may properly be served by mail to the IRS, rather than by service on the Attorney General and the local United States Attorney.  The Eighth Circuit’s holding is contrary to that of other courts, including the First Circuit BAP.

Eighth Circuit Bankruptcy Monitor

In Boisaubin v. Blackwell (In re Boisaubin), the Eighth Circuit BAP (Judges Sanberg, Nail, Saladino) affirmed the Bankruptcy Court’s (Judge Rendlen) orders approving a compromise and denying motions to file documents under seal.  In so doing, the Court addressed whether an asset that was estate property in a prior case by the debtor, but which was never scheduled, becomes estate property in a later case by the same debtor once the first case is reopened and the asset abandoned. The Court answered that the asset becomes part of the second bankruptcy estate even though the asset itself was not the property of the debtor at the time the second case was filed.