Tribune, Lehman, Visteon, Mexicana, Sea Island, Gemcraft: Bankruptcy

Publisher Tribune Co. announced yesterday that mediation resulted in agreement with some creditors on a reorganization plan along the lines proposed earlier this month by creditors Oaktree Capital Management LP and Angelo Gordon & Co.

The official creditors’ committee issued a statement saying it opposes the new plan because it “does not provide fair value to all creditors.”

Oaktree and Angelo Gordon are to be co-proponents of the plan along with Tribune. The plan would confirm the validity of the $6.6 billion in claims related to the first part of the leveraged buyout in June 2007. If not settled before the plan is approved, a lawsuit would continue after confirmation attacking the validity of $2.1 billion in secured claims that resulted from the second part of the LBO that concluded in December 2007.

Graeme Bush, a special counsel for the creditors’ panel, said in an interview that the new plan is “simply not adequate.” Bush, with the firm Zuckerman Spaeder LLP in Washington, said the “deal was reached without participation of the committee.” The committee press release says the plan was negotiated between Tribune and “certain lenders that are defendants in the litigation that the committee seeks to pursue.”

The mediator, U.S. Bankruptcy Judge Kevin Gross, filed a report with the bankruptcy court late yesterday saying he did “not consider the mediation to be closed.” Gross, a bankruptcy judge in Delaware, believes the plan will lead to “additional constructive discussions with other parties.” Gross said the mediation, conducted on Sept. 26 and 27, brought agreement between Tribune and Oaktree and Angelo Gordon. Gross did not say that other creditors are in accord with the settlement.

Before the settlement was announced, 14 lenders with $730 million in claims from the first part of the LBO filed papers in bankruptcy court contending that the Oaktree-Angelo Gordon plan from earlier this month is “neither fair nor equitable” to them. They say that the Oaktree-Angelo Gordon disclosure statement didn’t accurately describe the recovery by lenders in the first part of the LBO. They say it also wouldn’t allow the bankruptcy court to void a so-called sharing provision that would limit recovery by the step-one lenders.

The step-one lenders say the disclosure statement isn’t accurate when it says their claims would be allowed and they would recover 88 percent. Instead, the sharing provision would require them to turn 21 percent over to the lenders in the December 2007 portion of the transaction, in the process lowering their recovery to 67 percent.

Yesterday’s statement by Tribune said that the settlement would give a total distribution of $300 million to senior bondholders in the form of cash plus an interest in the trust to bring suits.

Tribune’s unsecured creditors are to have the same recovery through cash and recoveries by the trust. Unsecured creditors of operating subsidiaries will be offered 50 percent in cash.

When exclusivity expired after Tribune was in Chapter 11 for 18 months, Oaktree and Angelo Gordon filed their own plan earlier this month. At the time, Tribune said it might become the reorganization structure. For details on the creditors’ plan, click here for the Sept. 20 Bloomberg bankruptcy report.

Tribune withdrew its own Chapter 11 plan in August following a report by the examiner, who concluded that there was some likelihood that the second phase of the leveraged buyout in December 2007 could be attacked successfully as a constructively fraudulent transfer. The examiner found less likelihood that the first phase of the transaction, in June 2007, could be unraveled as a fraudulent transfer. For a summary of some of the examiner’s conclusions, click here for the July 27 Bloomberg bankruptcy report.

Tribune’s abandoned plan would have forced a settlement of the LBO claims on terms that some creditors opposed. For details on the withdrawn plan, the proposed settlement, and the parties’ arguments, click here for the April 13 Bloomberg bankruptcy report.

The $13.7 billion leveraged buyout in 2007 was led by Sam Zell.

Tribune is the second-largest newspaper publisher in the U.S. It listed $13 billion in debt for borrowed money and assets of $7.6 billion in the Chapter 11 reorganization begun in December 2008. It owns the Chicago Tribune, Los Angeles Times, six other newspapers and 23 television stations.

The case is In re Tribune Co., 08-13141, U.S. Bankruptcy Court, District Delaware (Wilmington).

Updates

Lehman Flip Clause Appeal May Be Complete This Year

There could be an appellate ruling by the year’s end on so- called flip clauses in swap agreements. U.S. District Judge Colleen McMahon wrote an opinion last week where she permitted BNY Corporate Trustee Services Ltd. to take a so-called interlocutory appeal from a January ruling by the bankruptcy court in favor of Lehman Brothers Holdings Inc.

U.S. Bankruptcy Judge James M. Peck ruled in January that the flip clause violates a provision in bankruptcy law prohibiting the loss rights simply as the result of filing in bankruptcy.

The case involved swap agreements where collateral ordinarily would go first to a Lehman subsidiary as the swap counterparty. As the result of the bankruptcy filing by the Lehman holding company, the flip clause caused collateral to go first to noteholders and only to a non-bankrupt Lehman subsidiary after the noteholders were fully paid.

In bankruptcy cases, rulings can be appealed only when they are “final.” A case not final is called interlocutory. Bankruptcy law permits an interlocutory appeal if the case involves a “controlling question of law,” there are “substantial grounds for a difference of opinion,” and an immediate appeal “may materially advance the ultimate termination” of the lawsuit, McMahon said.

McMahon concluded that the flip appeal satisfies all the requirements for an interlocutory appeal. She directed the parties to attend an Oct. 1 conference to decide on a schedule for an “expedited briefing schedule.”

McMahon said that Peck’s ruling was unique and controversial because he voided the flip clause when the triggering event was the bankruptcy of an affiliate of the swap part, not the bankruptcy of the swap party itself.

McMahon criticized Lehman for opposing an interlocutory appeal in an attempt “to insulate Judge Peck’s decision from appellate review for as long as possible.” She noted how Lehman had been using Peck’s opinion “as leverage in settlement negotiations concerning billions of dollars worth of similar transactions.”

McMahon concluded that trying to insulate Peck’s opinion “from appellate scrutiny only further demonstrates the need for immediate review.”

To read about the January decision regarding flip transactions, click here and see the Advance Sheets item in the Feb. 1 Bloomberg bankruptcy report.

The Lehman holding company and its non-brokerage subsidiaries filed a revised Chapter 11 plan and disclosure statement in April. For details, click here and here for the April 15 and 16 Bloomberg bankruptcy reports. Lehman said this month that it intends to amend the plan in the last quarter of the year and have the plan approved in a confirmation order by March.

The Lehman holding company filed under Chapter 11 in New York on Sept. 15, 2008, and sold office buildings and the North American investment banking business to London-based Barclays Plc one week later. The Lehman brokerage operations went into liquidation on Sept. 19, 2008 in the same court. The brokerage is in the control of a trustee appointed under the Securities Investor Protection Act.

The Lehman holding company Chapter 11 case is In re Lehman Brothers Holdings Inc., 08-13555, while the liquidation proceeding under the Securities Investor Protection Act for the brokerage operation is Securities Investors Protection Corp. v. Lehman Brothers Inc., 08-01420, both in U.S. Bankruptcy Court, Southern District New York (Manhattan).

Visteon Settles All Outstanding Issues with Ford

Auto parts maker Visteon Corp. is cleaning up details to allow for implementing the Chapter 11 plan on Oct. 1. The reorganization was approved in an Aug. 31 confirmation order.

Visteon reached settlement with former parent Ford Motor Co. on a variety of issues. Among them, Ford commits to purchasing $600 million in parts for models launching through 2013. Each side will drop claims against the other. Ford will withdraw $163 million in claims while terminating Visteon’s obligation for $105 million in pension expenses. Ford will reimburse Visteon for $29 million for restructuring activities around the world.

Visteon said in a court filing yesterday that the final five members of the new nine-member board of directors haven’t been officially selected. Visteon wants the bankruptcy judge to rule that the appointments need not be final before the plan is implemented.

The hearing on the Ford settlement and the board issue will be held today.

For details on Visteon’s plan, click here for the June 15 Bloomberg bankruptcy report.

Visteon filed for reorganization in May 2009, listing assets of $4.6 billion against debt totaling $5.3 billion. Sales in 2008 were $9.5 billion, including $3.1 billion to Ford Motor Co. Visteon was spun off from Ford in 2000. Van Buren Township, Michigan-based Visteon at the outset owed $2.7 billion for borrowed money, including $1.5 billion on a secured-term loan, $862 million on unsecured bonds, and $214 million on other debt obligations.

The case is In re Visteon Corp., 09-11786, U.S. Bankruptcy Court, District of Delaware (Wilmington).

American Safety Razor Declines Offer from Energizer

American Safety Razor Co., the fourth-largest maker of wet- shaving blades, began the hearing yesterday to approve the sale of the business to first-lien lenders in exchange for debt.

The company explained to the bankruptcy judge why it turned down a seemingly higher $301 million cash offer from Energizer Holdings Inc., maker of Schick shavers. According to ASR, government regulators might block an Energizer deal on antitrust grounds. Energizer wouldn’t submit a bid without an escape clause in the event regulators objected, ASR said.

The hearing continues today. For Bloomberg coverage, click here.

When ASR filed under Chapter 11 in July, it gave second- lien creditors an opportunity to devise a plan more favorable than swapping the business for the $244.4 million owing on the first-lien revolving credit and term loan. Debt on the second- lien loan is $178.1 million. Mezzanine lenders are owed another $60 million that pays in kind.

The agent for the first-lien lenders is UBS AG. ASR had revenue of $330 million in 2009.

ASR, based in Cedar Knolls, New Jersey, has U.S. plants in Virginia and Tennessee. Affiliates abroad aren’t in bankruptcy. It was acquired for $625 million in July 2006 by London-based Lion Capital LLP.

ASR has the largest market share for private-label blades, although only 8 percent when branded goods are included, according to Moody’s Investors Service.

The case is In re American Safety Razor Co., 10-12351, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Orleans Seeks More Exclusivity If Plan Doesn’t Work

In case Orleans Homebuilders Inc. doesn’t succeed in persuading the bankruptcy judge to approve the disclosure statement at a hearing today, the homebuilder for a second time is requesting an extension of the exclusive right to propose a Chapter 11 plan.

If granted by the court at a Nov. 8 hearing, the new deadline would be Nov. 26. Should the bankruptcy judge approves the disclosure statement today, Orleans says the plan may be approved at a confirmation hearing in November.

Orleans, a builder of homes and condominiums in seven states, in August filed the plan designed to give stock and new secured debt to revolving credit lenders owed $234 million. Unsecured creditors would get lawsuit recoveries and share proceeds from property sales after secured debt is paid.

The disclosure statement projects that the revolving credit lenders should recover between 67 percent and 87 percent if they vote for the plan. Unsecured creditors should see between 3.4 percent and 5.25 percent if they vote “yes” as a class.

Orleans negotiated the plan with holders of more than 80 percent of the secured debt. The plan reduces debt to less than $200 million from more than $400 million, the company said in a statement.

Orleans originally intended to sell the business for $170 million to rival homebuilder NVR Inc. Orleans dropped the sale in favor of a plan where lenders would take ownership. NVR sued for breach of contract.

The Chapter 11 filing on March 1 by Bensalem, Pennsylvania- based Orleans resulted from the maturity of the revolving credit in February. About $325 million was owing to the banks at maturity, not including $15 million on letters of credit. The March 31 balance sheet listed assets of $591 million against total liabilities of $560 million.

The case is In re Orleans Homebuilders Inc., 10-10684, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Rubicon Plan Implemented by Starwood, JPMorgan

Rubicon US REIT Inc. implemented the noteholders’ reorganization plan that was confirmed in June, according to a statement from the group that held all the bonds.

The reorganization plan for Rubicon, a Chicago-based real estate investment trust, exchanged the notes for all the new common stock plus a $50 million note. The plan reinstated $311 million in mortgages while extinguishing existing common stock. Unsecured creditors, owed $1 million, were paid in full. The Class A preferred stockholders keep their equity.

Affiliates of Starwood Capital Group Global LP, Kaufman Jacobs LLC and JPMorgan Chase & Co. owned all the bonds, the statement said.

The disclosure statement predicted a 68.7 percent recovery by noteholders who were allowed to propose a plan of their own after filing a successful motion to end so-called exclusivity when the case was only three weeks old. Noteholders wanted their own plan to avoid being cashed out involuntarily.

The Chapter 11 filing in January by Rubicon and affiliates came more than a year after the bankruptcy of the Australian parent Allco Finance Group. Rubicon was required by the parent’s liquidator to attempt to sell the assets. Bankruptcy court papers say assets and debt exceed $100 million.

The case is In re Rubicon US REIT Inc., 10-10160, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Mexicana Continues Ordering Parts from Airbus

Compania Mexicana de Aviacion SA de CV, the Mexican airline known as Mexicana, decided again to put off a hearing for approval of the Chapter 15 petition filed on Aug. 2 in New York. The new hearing date is Oct. 21. Opposition already was filed by an aircraft owner and airport authorities.

Airbus SAS, the European aircraft manufacturer, filed papers on Sept. 24 aiming to join those with limited opposition to the Chapter 15 petition.

Although Mexicana stopped flying on Aug. 28, the airline continued placing orders for parts. Airbus said it can’t determine whether the orders are for aircraft belonging to Mexicana or for aircraft owned by others where Mexicana is performing maintenance.

Airbus is likely concerned that it may not be paid if the parts are for Mexicana aircraft. If the parts are destined for aircraft owned by someone else, Airbus could have a lien on the aircraft should Mexicana not pay for the part.

Alongside the Chapter 11 case, Mexicana simultaneously began a reorganization in Mexico called a concurso mercantile.

The U.S. court gave Mexicana temporary protection from creditor actions in the U.S. on Aug. 18. The hearing now set for Oct. 21 will allow the U.S. court to rule whether Mexico is properly home to the so-called foreign main proceeding. If the U.S. judge goes along, all creditor actions in the U.S. will be halted, except to the extent the U.S. judge rules otherwise. To be eligible for Chapter 15, Mexicana must comply with some features of U.S. law.

The U.S. case is Compania Mexicana De Aviacion SA de CV, 10-14182, U.S. Bankruptcy Court, Southern District New York (Manhattan).

Sea Island Plan Set for November 4 Confirmation

Sea Island Co., a resort and real estate development company, will have a confirmation hearing on Nov. 4 now that the bankruptcy court in Savannah, Georgia, has approved the disclosure statement.

Assuming there is no higher offer at an auction on Oct. 11, a company affiliated with Oaktree Capital Management LP and Avenue Capital Group will buy the business for $197.5 million. The sale will be approved as part of confirming the plan. The properties are on or near St. Simons Island and Sea Island, Georgia.

From the sale price, Sea Island projects having $180 million remaining after paying priority claims. If unsecured creditors vote for the plan, they can split up $3 million, for a projected 3 percent recovery on their $100 million in claims.

The remaining $177 million will go to secured lenders with $566 million in claims. Their dividend is expected to be 31 percent.

Unsecured creditors who vote against the plan and don’t give releases are projected to recover nothing.

The Chapter 11 plan was negotiated before the bankruptcy petition was filed on Aug. 10.

Synovus Bank, Bank of America Corp. and Bank of Scotland are lenders.

The case is In re Sea Island Company, 10-21034, U.S. Bankruptcy Court, Southern District of Georgia (Savannah).

Gemcraft Confirms Chapter 11 Plan This Week

Gemcraft Homes Inc., a homebuilder based in Forest Hill, Maryland, secured approval of the Chapter 11 plan at a Sept. 27 confirmation hearing, court records show.

Gemcraft filed under Chapter 11 in November, owing $131 million to secured lenders. Lenders not having agreements with Gemcraft will take their collateral back under the plan.

Unsecured creditors can split up $500,000 cash plus recoveries from a litigation trust. Mechanics’ lien holders will be treated as unsecured creditors unless the bankruptcy court rules that a mechanics’ lien comes ahead of a lender’s mortgage.

Closely held Gemcraft sold 770 homes in 2006. Revenue shrank to $83 million in 2009.

The case is In re Gemcraft Homes Inc., 09-31696, U.S. Bankruptcy Court, District of Maryland (Baltimore).

Daily Podcast

Blockbuster, Thompson Publishing, CGBG Video Game: Audio

The looming valuation fight over the reorganization of Blockbuster Inc., the sale of Thompson Publishing Holding Co. to secured creditors, and the trademarks of CBGB Holdings LLC on a Guitar Hero video game are topics covered in the bankruptcy podcast on the Bloomberg terminal and Bloomberglaw.com. To listen, click here.

New Filing

Office Building in Henderson NV Files in Las Vegas

The owner of the 58,800 square-foot Mammoth Professional Building on St. Rose Parkway in Henderson, Nevada, filed for Chapter 11 protection on Sept. 27 in Las Vegas.

Court papers say the building is worth $7.35 million and has a mortgage of $11.25 million.

The case is In re Mammoth Henderson I LLC, 10-28261, U.S. Bankruptcy Court, District of Nevada (Las Vegas).

Briefly Noted

Ultimate Escapes Removes CEO Tousignant for ‘Cause’

Ultimate Escapes Inc., a destination club operator that filed for Chapter 11 protection on Sept. 20, said in regulatory filing yesterday that President and Chief Executive James M. Tousignant was “removed” by the board for “cause.” Reasons weren’t given. Although a replacement hasn’t been selected, Chief Restructuring Officer Sheon Karol will take over day-to- day operations. Karol is with CRG Partners Group LLC.

Kissimmee, Florida-based Ultimate Escapes intends to sell the business to secured lender CapitalSource Finance LLC unless there’s a better offer at auction on Oct. 20. It owns or leases 119 residences in 45 destinations and has about 1,250 members. The June 30 balance sheet had $189 million in assets against total liabilities of $222 million.

The case is In re Ultimate Escapes Holdings LLC, 10-12915, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Fraser Papers to Shut New Hampshire Plant After Sale Fails

Fraser Papers Inc., a specialty paper manufacturer based in Toronto, announced that it will close a plant in Gorham, New Hampshire in October because the prospective buyer was unable to arrange financing. Fraser said the shutdown would be indefinite, depending on whether another buyer surfaces.

Fraser’s Canadian reorganization was recognized in July 2009 as the “foreign main proceeding” in the Chapter 15 case begun the month before in U.S. Bankruptcy Court in Delaware. Recognition effectively meant that U.S. creditors must participate in the reorganization in Ontario under the Companies’ Creditors Arrangement Act.

The U.S. case is In re Fraser Papers Inc., 09-12123, U.S. Bankruptcy Court, District of Delaware (Wilmington). The case in Canada is In the Matter of the Plan of Compromise or Arrangement of Fraser Papers Inc., CV-09-8241-00CL, Ontario Superior Court of Justice (Toronto).

Accredited Home Plan Scheduled for Dec. 7 Approval

Accredited Home Lenders Holding Co., a former home mortgage originator and securitizer, arranged an Oct. 20 hearing for approval of the disclosure statement explaining the liquidating Chapter 11 plan filed Sept. 15. The company wants the confirmation hearing for approval of the plan to take place Dec. 7.

A principal feature of the plan is a settlement where the owner Lone Star Funds would pay $15.6 million cash. Lone Star is giving up its own claims.

Unsecured creditors of the holding company are expected to recover as much as 30 percent on more than $20 million in claims while unsecured creditors of the operating companies, whose claim total $106 million, might see 67 percent to 100 percent.

Accredited sold the mortgage servicing business after the Chapter 11 filing in May 2009. Most of the mortgage loans were sold later. The Chapter 11 petition for Accredited Home said assets were less than $50 million while debt exceeded $100 million.

The case is In re Accredited Home Lenders Holding Co., 09- 11516, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Cynergy Data Proposes Liquidating Chapter 11 Plan

Former credit card processor Cynergy Data LLC filed a liquidating Chapter 11 plan telling creditors that the remaining assets are insufficient to pay anything aside from lawsuit recoveries to anyone except holders of first-lien debt. A hearing to approve the disclosure statement was set for Nov. 12. The plan is based on a settlement with secured lenders.

Cynergy sold the business to private-equity investor ComVest Group for $81 million, including $14 million in subordinated debt payable by the purchaser. Long Island City, New York-based Cynergy processed $10 billion in credit charges annually for 80,000 merchants before the Chapter 11 filing in September 2009. The petition listed assets of $110 million against debt totaling $186 million. Listed debt included $39.8 million on a first-lien credit and $80.1 million on a junior secured credit. There was also $9 million owing by an affiliate that Cynergy guaranteed.

The case is In re CD Liquidation Co. Plus LLC, 09-13038, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Advance Sheets

Estate of Anna Nicole Smith Returning to Supreme Court

The lawsuit involving Playboy model Anna Nicole Smith will return to the U.S. Supreme Court. The high court will use the case to rule on whether a compulsory counterclaim is a so-called core proceeding in a bankruptcy case. When Smith’s case was previously in the Supreme Court, she won on a different issue.

Although Smith died in February 2007, her lawsuit continued against the estate of Texas billionaire J. Howard Marshall. After a loss in the U.S. Circuit Court of Appeals in San Francisco, lawyers for Smith’s estate sought an appeal to the Supreme Court. The Court decided yesterday to allow the appeal and decide a question that divides the circuit courts of appeal.

The 9th Circuit in San Francisco ruled in March that Ms. Smith’s compulsory counterclaim was not a so-called core proceeding. As a result, the bankruptcy judge could not issue a final order. Before the judgment of the bankruptcy judge passed through the U.S. district court to become a final judgment, a state court in Texas entered judgment against Smith, saying she was entitled to nothing from her deceased husband’s estate. Consequently, three judges from 9th Circuit in San Francisco said she lost the race to judgment because the district court was bound to follow the state court that was the first to issue a final judgment.

To read details about the March decision, click here to see the Advance Sheets item in the March 22 Bloomberg bankruptcy report.

The Supreme Court will review the circuit court’s ruling that a compulsory counterclaim is not a core proceeding unless it is “so closely related to the proof of claim that the resolution of the counterclaim is necessary to resolve the allowance or disallowance of the claim itself.”

Lawyers for Ms. Smith’s estate cited three circuit courts plus several lower courts that have held that there is always core jurisdiction over compulsory counterclaims. The courts of appeal ruling their way are from Boston, New York, and New Orleans.

The case will be argued in the term of the Supreme Court that begins on Oct. 4.

On other issues, the case was in the Supreme Court previously, and Smith won. Her estate lost when the case was remanded from the Supreme Court.

The case in the Supreme Court is Stern v. Marshall, 10-179, U.S. Supreme Court. The case in the circuit court was Marshall v. Stern (In re Vickie Lynn Marshall), 02-56002, 9th U.S. Circuit Court of Appeals (San Francisco).

Unemployment Benefits Part of Disposable Income, Judge Rules

Unemployment benefits must be included in determining the amount of an individual bankrupt’s “disposable income” in a Chapter 13 case. The issue has divided bankruptcy courts and commentators, according to the Sept. 24 opinion by U.S. District Judge Myron H. Thompson from Montgomery, Alabama.

If the bankrupt’s unemployment benefits weren’t part of disposable income, he would not have been required to pay unsecured creditors anything under his Chapter 13 plan. The bankruptcy judge, upheld by Thompson, ruled that unemployment compensation must be included in calculating disposable income. Consequently, he was required to pay unsecured creditors more than $5,000 under his Chapter 13 plan.

The Bankruptcy Code says that “benefits received under the Social Security Act” are not included in disposable income. The issue is complicated because contributions to states’ unemployment compensation funds go into a trust established under the Social Security Act. In addition, states are ineligible to receive federal funding for unemployment benefits if they don’t comply with regulations under the Social Security Act.

Thompson ruled against the bankrupts, saying “it cannot be reasonably argued that the common understanding of the phrase ‘Social Security Benefits’ includes unemployment benefits.”

The case is Washington v. Reding, (In re Washington), 09- 579, U.S. District Court, Middle District Alabama (Montgomery.)

Shoving Match Results in Denial of Discharge of Debt

A state court judgment for assault and battery resulted automatically in the loss of discharge of a debt in bankruptcy, a U.S. district judge in Reno, Nevada, ruled on Sept. 20.

The case is cautionary tale about unintended consequences, on both sides of a physical dispute.

A woman almost had an auto accident. The male driver of the other auto got out of his car, spit on the woman, and hurled expletives at her.

The woman called her husband, a former football player and a martial arts enthusiast, according to the Sept. 20 opinion by U.S. District Judge Kent Dawson.

The husband quickly arrived on the scene. The husband was taller, heavier and younger than the man who had cursed his wife. An altercation resulted, in which the former football player pushed the other driver, who hit his head and died two days later of “blunt head trauma.”

The widow sued and won a state court jury verdict for assault and battery. The former football player in the meantime filed bankruptcy. The bankruptcy judge ruled that the debt was not discharged.

Dawson relied on a doctrine known as collateral estoppel, sometimes also known as issue preclusion. The doctrine prevents relitigating an issue that was finally determined in a prior suit.

The debt wasn’t discharged because assault and battery by its nature is a willful and malicious injury, Dawson ruled. The jury verdict in state court prevented the former football player from arguing in bankruptcy that the injury wasn’t willful and malicious.

Dawson said it didn’t matter that the football player didn’t intend to cause serious injury. He cited principles taught to first-year law students that a person is liable for “all harm proximately caused by the individual’s intentionally wrongful action.”

The case is Shaw v. Weiss (In re Shaw), 09-01999, U.S. District Court, District of Nevada (Reno).

Gratuitous Family Transfer Brings Discharge Denial

Failing to disclose a transfer to a relative can lead automatically to a denial of discharge in bankruptcy, the U.S. Circuit Court of Appeals in New Orleans ruled last week.

An individual who filed in Chapter 13 failed to list several transfers she made to her husband in the year before bankruptcy. In one, she transferred a truck to her husband for $1, traded the truck in, and paid the remainder of the purchase price for the new truck.

The 5th Circuit in New Orleans said there is a “presumption of actual fraudulent intent” when someone transfers property to a relative for no consideration. The appeals court upheld the lower court in denying discharge on the ground that the bankrupt made a transfer within one year of bankruptcy with actual intent to hinder, delay or defraud creditors.

The case is Herman v. Jackson (In re Herman), 09-41266, 5th U.S. Circuit Court of Appeals (New Orleans).

To contact the reporter on this story: Bill Rochelle in New York at wrochelle@bloomberg.net.

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.

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