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Jaaskelainen v. Wells Fargo Bank, N.A. (In re Jaaskelainen), 391 B.R. 627,645-46 (Bankr. D. Mass. 2008) (Hillman) (Debtors in bankruptcy have no obligation to tender funds received at defective mortgage closing as condition of rescission when debtors established violations of Massachusetts Consumer Credit Cost Disclosure Act. Debtors did not receive adequate notice of right of rescission, did not receive required number of copies of right of rescission, and lender failed to establish that its violation of notice requirements was result of bona fide error. As a result of rescission by debtors, mortgagee only holds unsecured claim. Although Massachusetts statute and Truth-in-Lending Act require as condition of rescission that borrower tender money loaned back to creditor, “‘Bankruptcy . . . relieves the debtor from his obligation to pay the creditor upon rescission. Conditioning rescission upon the debtor’s payment therefore imposes an obligation from which the debtor has been legally freed. Unlike the situation absent bankruptcy, there is a legitimate, legal impediment to the debtor’s reciprocal performance. It would be palpably unfair to deny the relief to which a consumer is entitled under TIL[A] because that consumer has also availed himself of bankruptcy relief. To do so would require that the consumer choose between bankruptcy and TIL[A], something neither form of statutory relief contemplates.’” Although debtors had no actual damages, they are entitled to statutory damages under Massachusetts statute of $1,000 each.).

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Bankrupt fire truck maker American LaFrance LLC (AFL) has sued its former owner, Daimler Trucks North America LLC, alleging that Daimler breached agreements it entered into when it sold off American LaFrance’s assets, Bankruptcy Law360 reported yesterday. ALF’s complaint, filed June 19 in the U.S. Bankruptcy Court for the District of Delaware, also asks the court to disallow a claim of about $12 million filed by Daimler Trucks, formerly known as Freightliner LLC. Freightliner owned AFL from 1995 to 2005. According to the complaint, when Freightliner sold its ALF assets so that ALF could operate independently, it entered into two agreements: an asset purchase agreement and a transition services agreement in which it pledged to help ALF with the transition. During the transition, Freightliner attempted to undermine ALF by failing to disclose necessary information, interfering with ALF’s customer relationships and overcharging ALF for services, according to the complaint.

Whitehall Jewelers Holdings Inc. filed for bankruptcy yesterday, becoming the latest jewelry retailer to seek court protection as the sagging U.S. economy cuts into consumers’ discretionary spending, Reuters reported. The company, which operates stores under such names as Whitehall and Lundstrom, is seeking to sell itself by July 18, according to an affidavit from its CFO. Whitehall said that it operates 373 retail stores in 39 U.S. states, and employs 2,852 people. The company said that its store base includes 78 locations it bought in April from Friedman’s Inc, a jewelry retailer that sought bankruptcy protection earlier this year, and which later began liquidating. 

Acting U.S. Trustee Roberta A. DeAngelis objected to Linens ‘n Things Inc.’s motion for approval of a severance plan for certain noninsider store-level employees, arguing that it lacks adequate details and that the debtors have not acknowledged relevant legal precedent on severance pay, Bankruptcy Law360 reported yesterday. The debtors did not attach a copy of the severance plan to the motion, or include information about the identity of the specific individuals the plan would cover, the participants’ respective salaries, the length of their tenure with the company, or whether the participants are covered under any other bonus programs, the trustee contends. In addition to failing to provide enough information to properly evaluate the plan, the objection said that the debtors aren’t acknowledging the new limitations imposed by the Bankruptcy Code, or controlling Third Circuit law that bars or limits the debtors from paying employees severance as an administrative expense based on a length-of-service calculation, where the work that forms the basis of the payment occurred prepetition.