Cantu v. International Bank of Commerce (In re Cantu)

Summarized by Lyndel Vargas , Cavazos Hendricks Poirot, PC
13 years 11 months ago

Citation:

Cantu v International Bank of Commerce (In re Cantu) (5th Cir. S.D. Tex. Mar. 2012)(unpublished)

Tag(s):

Ruling:

Section 348(d) did not transform a lien on the Debtor's post-petition receivables, arising from a settlement approved by the Bankruptcy Court prior to conversion, into one treated as existing before the comencement of the case so as to trigger Section 552(a). The Chapter 11 settlement agreement did constitute IBC's "claim". A claim is a right of payment and under Section 101(5) this one did not "arise" at the time it was resolved in the Chapter 11. Additoinally, the security interest in the post-petition receivables was created by the order in the Chapter 11 approving the settlement and thus cannot be deemed under Section 348(d) to have arisen pre-petition. The Court also noted that the two other arguments of the Debtors: (1) that the party bound to the settlement was the Chapter 7 Trustee, not the Debtors, and (2) that is would be inequitable to hold the Cantus to the settlement agreement post-conversion, were both waived as they had failed to raise them in the District Court appeal.

Procedural context:

After conversion to a Chapter 7, Debtors filed a "Motion To Clarify" the effect of an Order entered in the Chapter 11 approving a settlement and alllowing a perfected security interest on 75% of the Debtor's future case revenues. The Southern District Bankruptcy Court denied the motion, the district court affirmed, and the Debtors appealled to the 5th Circuit.

Facts:

Debtors (the "Cantus") had originally filed a Chapter 11. Debtor, Marco Cantu, operated a law firm and International Bank of Commerce ("IBC") asserted a security interest in the receivables from his law practice. Cantus initiated an Adversary against IBC, which was settled in arbitration and said settlement was approved by an order of the Bankruptcy Court. The settlement provided that IBC had an allowed claim in excess of $2.2.mil. and that it held a first lien on the accounts of Mr. Cantu's law firm and was entitled to 75% of Cantu's future case revenues. Cantus' case was converted several months later to Chapter 7 and then it was learned that he had an interest in a settlement. Cantu had actually already received part of the funds and asserted that IBC did not have a lien on this post-conversion receivable.

Judge(s):

Higginbotham, Davis and Elrod (Per Curiam)

ABI Membership is required to access the full summary. Please Sign In using your ABI Member credentials. Not a Member yet? Join ABI now - it is absolutely worth it!