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ii. Majestic Star Casino, LLC v. Barden Development, Inc. (In re Majestic Star Casino, LLC), 716 F.3d 736 (3d Cir. 2013).
Issue: Whether a corporate debtor's status as a subchapter S corporation is property of the estate?
Holding: The Sixth Circuit, as a matter of first impression, held that a corporate debtor's tax status is not "property" of the kind included in "property of the estate" and is not a "legal or equitable interest in property" to have been brought into the estate. The corporate debtor was the subsidiary of a non-debtor subchapter S corporation. Upon debtor's bankruptcy, the parent removed its subchapter S status, thereby removing the status for its subsidiaries as qualified subsidiaries of a subchapter S corporation. The debtor's creditors brought an adversary proceeding to avoid the S-corp status revocation as "an unlawful postpetition transfer of property of the . . . bankruptcy estate." The court rejected a line of cases holding that subchapter S status is property under the Bankruptcy Code because, among other things, S-corp status is not readily valued or easily monetized, the S-corp status is not always transferrable, and the S-corp status can be revoked at any time due to circumstances beyond the corporation's control, such as the sale of stock by one stockholder to many stockholders. Additionally, the court held that a qualified subsidiary's status has a weaker claim to a property interest than the subchapter S parent corporation because the parent and its shareholders control the tax status. The court explained that even if there was a property right in a qualified subsidiary's tax status, that right belongs to the parent and not the subsidiary.
iii. In re Dale, 505 B.R. 8 (9th Cir. BAP 2014).
Issue: Whether individual debtor must turn over inheritance received more than 180 days postpetition.
Holding: In defining property of the Chapter 13 estate as "all property of the kind" specified in general definition of "property of the estate" that Chapter 13 debtor acquired after commencement of case and before case was closed, dismissed or converted, Congress meant to include, in the Chapter 13 estate, property of the types specified in general definition of "property of the estate," including bequests, devises, or inheritances, but without the temporal restrictions on whether these types of assets were included in general bankruptcy estate; only temporal restriction on whether these types of property were included in Chapter 13 estate was that they had to be acquired by debtor postpetition and prior to closure, conversion, or dismissal of case. 11 U.S.C.A. §§ 541(a) 1306(a)(1). Same wording exists in 11 U.S.C.A. §1115(a)(1).
©2014 William L. Norton III
