Commercial Banking, Collections, and Bankruptcy

Debtor in instant Chapter 11 proceeding was entitled to stay of Bankruptcy Ct. order that found that debtor’s failure to assume building leases that housed debtor’s franchise restaurants within applicable six-month limitations period under 11 USC section 365(d)(4) also meant that debtor’s franchise agreement had expired. Debtor argued that longer limitation period for assuming leases applied where leases were tied to franchise agreements, and that it was entitled to stay where it would have no way to recover franchises once they had been terminated, even if it were to prevail on appeal. As such, stay was appropriate because debtor’s loss was significantly greater if stay were not imposed than any loss to franchisor if stay were imposed.

Bankruptcy Ct. erred in finding that debtor in possession in instant Chapter 11 bankruptcy proceeding could bring Illinois fraudulent transfer action under section 544(b)(1) of Bankruptcy Code against IRS to recoup debtor’s federal tax payment. While section 544(b)(1) allows Trustee to step in shoes of actual creditor, who could have avoided transfer outside of bankruptcy using state law action, federal govt.’s sovereign immunity prevents creditors from suing IRS using state law. Moreover, while section 106(a)(1) of Bankruptcy Code abrogates govt.’s sovereign immunity with respect to certain subsections of section 544, section 106(a)(1) does not displace actual-creditor requirement in section 544(b)(1). Thus, because actual creditor could not bring Illinois fraudulent-transfer claim under section 544(b)(1) against IRS, instant debtor in possession could not bring instant action against IRS.

Dist. Ct. did not err in granting plaintiff’s motion for summary judgment in action seeking to enforce guaranty in which defendant had agreed to pay plaintiff upon default of mortgage loan by debtor, where plaintiff sought difference between what it had paid for land (that was subject of mortgage) in foreclosure sale and unpaid balance of debt. Fact that Georgia state court refused to confirm that auction used in foreclosure sale conformed to Georgia law did not require different result since plaintiff could properly enforce terms of guaranty against defendant regardless of whether plaintiff had previously proceeded against debtor.

In contract and property action by plaintiffs-land owners seeking recovery of damages for harm caused by defendants-oil companies in attempting to clean up pollution at gas stations that plaintiffs had leased to defendants, Dist. Ct. erred in dismissing breach of contract claim with respect to two properties in which complaint alleged that defendants had failed to make simple repairs to buildings that in turn caused buildings on said properties to be condemned, where parties’ contract required that defendants leave properties in condition reasonably useful for future commercial use. Moreover, Dist. Ct. erred in failing to double jury’s award for waste damages associated with four other properties, where such doubling was required under Michigan statute, and where record showed that defendants qualified as “tenants for years” for purposes of application of instant Michigan statute under provisions of relevant leases that were extended for indefinite period to allow for completion of remediation of properties.

Dist. Ct. did not err in granting defendant-debt collector’s motion to dismiss plaintiff-debtor’s Fair Debt Collection Practices Act (Act) action, alleging that defendant’s dunning letter violated notice provisions set forth in section 1692g(a)(4) of said Act. While plaintiff argued that instant letter, which informed plaintiff that “If you notify this office within 30 days from receiving this notice, this office will obtain verification of debt,” was misleading because it created risk that unsophisticated consumer might request verification of debt within applicable period and lose out on ability to dispute debt, consumer’s request for verification of debt was tantamount to registering “dispute” under Act, so that any request for verification of debt would provide plaintiff with same protections afforded under Act as if he had written to dispute debt. Ct. further rejected plaintiff’s claim that phrase “we believe you want to pay your just debt” improperly implied that judgment had already been rendered against plaintiff.