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Part VII Adversary Proceedings (FRBP 7001-7087)

In re St. Louis (Aug. 21, 2013)
Commencing an action, Notice, Bankruptcy Rule 7004
The chapter 11 Debtors filed a plan providing the Debtors with a 28-day period within which they could object to the secured status of a creditor’s claim, and the Debtors timely filed such an objection. However, the Debtors failed to provide notice to the one person the Debtors knew was representing the creditor’s interest, and the creditor failed to file a response. The Court then issued an order granting the objection to claim. On reconsideration, the Court held that the Debtors’ failure to provide proper notice to the creditor violated the creditor’s due process rights, which requires complying with the requirements of Bankruptcy Rule 7004(b)(3) when the relief sought was of a type – challenge to secured status - described in Bankruptcy Rule 7001. Since the Debtors did not comply with Bankruptcy Rule 7004(b)(3), the Court vacated its earlier order granting the objection to secured status.
WL Cite: In re St. Louis, No. 10-11933, 2013 WL 4498986, at *1 (Bankr. W.D. Tex. Aug. 21, 2013)
Michael Ciesla Trustee of the KLN Liquidating Trust v. Harney Management Partners (In re KLN Steel Products Co., L.L.C.) (Feb. 18, 2014)
Bankruptcy Rule 7015
The defendant argued that the liquidating trustee’s complaint failed to state a claim as to a $50,000 day-of-bankruptcy payment. In rejecting defendant’s argument, the Court first found that the complaint did not list specific payments, but rather stated that it intended to capture transfers made within ninety days of the petition date. Second, the Court noted that Federal Rule of Civil Procedure 15(b)(2) states that when an issue that is not raised by the pleadings is tried by the parties’ express or implied consent, the issue is treated in all respects as if it were raised in the pleadings. The Court also noted that a party may move at any time to amend the pleadings to conform them to the evidence at trial, but that failure to amend does not affect the result of the trial on that issue. Thirdly, the Court found that any objection to the pleadings was waived by the inclusion of the day-of-bankruptcy payments in the parties’ pre-trial orders, since both parties included the $50,000 payment as an issue to be tried.
WL Cite: Ciesla, Trustee of the KLN Liquidating Trust v. Harney Management Partners (In re KLN Steel Products Co., L.L.C.), 506 B.R. 461 (Bankr. W.D. Tex. 2014)
Fine Lumber & Plywood, Inc. v. Higgs (In re Higgs) (July 19, 2013)
Burden of proof, Bankruptcy Rule 7055
A creditor, Fine Lumber, filed an adversary complaint against the Debtor seeking determination that its claim of $4,926.11 was nondischargeable under section 523(a)(2)(a). The Debtor filed an answer to the complaint pro se and denied the allegations. After filing the answer, the Debtor filed no further pleadings with the Court and did not appear at trial. The Court held that the burden of proof is on the plaintiff in any trial. Even if a defendant does not appear at trial but filed an answer to the complaint, the plaintiff must still establish the elements of the case, citing to Bass v. Hoagland, 172  F.2d 205, 210 (5th Cir. 1949). 
WL Cite: Fine Lumber & Plywood, Inc. v. Higgs (In re Higgs), Adv. No. 12-01134, 2013 WL 3791501 (Bankr. W.D. Tex. July 19, 2013).