Wednesday, February 2, 2011

The Tort of Outrage - in attempting to collect a debt - 9th Circuit - 1-31-11

In an unpublished decision entered on January 31, 2011, the 9th Circuit briefly discussed the Tort of Outrage under Washington law as it applied to a Bankruptcy Case.  The Court stated that the elements of such tort are (1) extreme and outrageous conduct; (2) intentional or reckless infliction of emotional distress, and (3) actual result of the plaintiff of severe emotional distress.  Fortunately, the Court did not analyze such factors but did state that the Trial court could find that the defendant's conduct was "beyond all possible bounds of decency...atrocious and utterly intolerable in a civilized community".  

One has to wonder what actually occurred in this case!?!  The only indication is that the defendant was the trust deed holder on real property owned by the debtor and demanded excessive fees prior to a discontinuance of the foreclosure sale.  The Court affirmed the case except for an attorney fee provision contained within the Deed of Trust Act (i.e., the statute permitted the recovery of fees based upon a determination that such fees were excessive, but the "tort" action fell under the American Rule in that the prevailing party in a tort action is not entitled to an award of attorneys' fees.  However, the Court permitted fees but the primary action was based upon the tort action and such fees would have to be reduced to establish what fees were actually incurred under the Deed of Trust Act)

1-31-11 - Jared v.Keahey

Thursday, January 27, 2011

Sanctions - what happens if the nonfrivolous arguments dominate over the frivolous arguments

The new math...

The 9th Circuit, in an unpublished decision, was forced to face the argument that partial sanctions in the amount of the attorney fees incurred for defending a frivolous argument, should not be awarded unless the court finds that frivolous arguments predominated over nonfrivolous ones.

If I understand the argument - if you make 10 arguments and 6 are not frivolous but 4 are, you should not get sanctioned.  However what happens if it is a tie?  Is it a push?  Should you get sanctioned more based upon the for instance, if 8 out of 10 are frivolous, any sanction should only be 80% rather than 100%.  Of course, that would mean that 2 out of 10 should only be 20%.  Perhaps, the Court should have a curve?

In any scenario, the Court found that there was no authority cited for the appellants proposition regarding frivolous vs. nonfrivolous and appeared to ignore the issue.  (I digress for a moment, so was that argument then frivolous?)  However, the Court did find that one of the arguments made in the lower court was not frivolous and therefore remanded the case back to the district court for a recalculation of sanctions.   

So, the lower court now needs to calculate how much of the sanction should be reduced based upon the one argument not being frivolous.  Wait a moment, I thought there was no authority on whats the score on frivolous vs. nonfrivolous in this case?  How much should it be reduced?   The Court did not give any instruction on how to re-calculate the sanctions, but did remand for such recalculation.   

I'm thinking we need experts on this case to calculate the reduction in the sanction.  I will have to ask my kids to calculate this one. 

New Math...the New Frontier

Southern Cal. Sunbelt Developers - 1-27-11 - 9th Circuit



Thursday, January 13, 2011

Withdrawal of Settlement by Pro Se - Interesting NY Case

When is a settlement a settlement?  Can one side withdraw the settlement?  How about a pro se?  What if the party is represented by counsel? 

I have had a recent experience in which counsel for a third party entered into an agreement on behalf of his client (he signed the agreement), a motion to approve was filed, the third party paid a substantial amount of money for the settlement (yes, the money was in my hands) and at the last moment, the attorney indicated that the terms of the written settlement agreement was not what his client understood. 

The Court, despite my obvious objection, ended up denying the motion to approve based upon this alleged misunderstanding.  Although I respectfully disagreed with the Court, I am now at a loss to know when a settlement is a settlement....

I just came across the following case and it is very interesting.  In a nutshell, a consumer debtor entered into an agreement with a debt buyer.  The Court found that the debtor was intimidated into entering into this agreement.  Ok, I understand that logic and the ethics behind the decision, especially after a hearing on such issue...but the underlying case shows how far a Court could go to unwind a settlement agreement....enjoy the quick read... LR Credit 21 vs. Paryshkura (NY Dist. Court 2010)

The adversary system works fairly well in civil cases where the parties are each represented by counsel. It works less well when one side has an attorney and the other appears pro se.

In consumer debt matters, in particular, the defendant rarely has the benefit of a lawyer's help. This is not surprising. Persons who are being sued for an alleged indebtedness typically are individuals with multiple financial problems. Regardless of whether they legitimately owe the alleged debt, or not, most cannot afford to hire a lawyer. As a consequence, those who appear must typically do so, pro se.

A defendant's pro se status often makes the Court's role more difficult. On the one hand, to quote Chief Justice Roberts, Judges act as umpires; their job is “to call balls and strikes and not to pitch or bat.” On the other hand, Judges have peculiar responsibilities in cases involving pro se litigants. They include, in many cases, supervision of the settlement process, both in and out of court. If it appears that a party with counsel has taken “undue advantage” over an un-counseled litigant, Judges have the power and duty to make appropriate inquiries of the parties, and in appropriate cases, allow the defendant to withdraw from a proposed settlement.

In this assigned debt matter, precisely such a situation was presented. Plaintiff's counsel submitted a proposed “stipulation of payment” purporting to settle the action shortly in advance of a scheduled trial. At a conference respecting the proposed settlement that was held, at the Court's request, on December 3, 2010, defendant advised the Court that she has been “intimidated” into signing the stipulation. The Court determined that defendant should be allowed to withdraw her consent to the settlement. This decision explains at some length the legal basis for that determination.

The principles applied by the Court can be traced back to ancient common law. See, e.g. Becker v. Lamont, 13 How. Pr. 23 (Sup Ct N.Y. Co 1855). Well before the Civil War, our courts were granting relief from settlements “made in ignorance of material circumstances affecting the case.” Id. So, too, our state court's judges have long recognized “the common principle” that they are empowered to “protect those who are unable to protect themselves” against adversaries who might take “undue advantage” of them. Id.

Tested by time, experience, and the wisdom of ages, these common law rules still live today. Circumstances may have changed over time, but the principles remain the same. In more recent years our state's appellate courts have noted “many times” that relief from a stipulation may be granted if enforcement “would be unjust or inequitable or [would] permit the other party to gain an unconscionable advantage.” Wertz v. Murphy, 241 A.D.2d 547, 548 (2d Dept 1997). “[A]lmost any given state of facts” may justify such relief. Id.

*2 Of course, the Court's power to relieve a party from the terms of a stipulation requires “a showing of good cause.” Matter of Frutiger, 29 N.Y.2d 143, 149-50 (1971). However, “good cause” may be found even in the absence of proof of “fraud, collusion, mistake, accident, or some other ground of the same nature.” Id. As the Court of Appeals made plain in Frutiger, “[i]t is sufficient if it appears that either party has inadvertently, inadvisably, or improvidently entered into an agreement which will take the case out of the due and ordinary course of proceeding in the action, and in doing so may work to his prejudice.” Id., quoting Van Nuys v. Fitsworth, 57 Hun 5, 10 NYS 507 (1890).

Furthermore, in cases where the parties “can be restored to substantially their former position,” the Courts “as a general rule” should exercise such power “if it appears that the stipulation was entered into unadvisedly, or that it would be inequitable to hold the parties to it.” Matter of Frutiger, supra, at 150, quoting Magnolia Metal Co. v. Pound, 60 AppDiv 318 (1st Dept 1901). Through such judicial oversight, the Court properly exercises its control over the proceedings “with a view to a final disposition on the merits.” Van Nuys v. Fitsworth, supra.

The circumstances at hand presented a classic case for granting such judicial relief. The defendant, in this case, ignorant of her rights, signed an imprudent settlement, agreeing to pay plaintiff, a debt buyer, monthly sums otherwise needed for food and rent. The settlement agreement obligated her to make payments to plaintiff, monthly, for more than 4 years. Although settlements like this often benefit both debtors and creditors, the defendant told the Court, in no uncertain terms, that she had been “intimidated” into the signing of the settlement, and that plaintiff had convinced her that she had no choice but to capitulate to plaintiffs demands.

Under the circumstances presented, it was painfully obvious to the Court that plaintiff obtained the settlement outside of court by taking undue advantage of defendant. The judges of this Court, and the lawyers practicing before them, know all too well that debt buyers rarely have readily available proof to establish an assigned debt claim. The pennies paid by debt buyers for the right to pursue stale and questionable claims certainly do not justify misleading and heavy-handed collection tactics outside of Court. When such matters actually come on for trial, they are typically abandoned, dismissed or compromised for a small faction of their hypothetical value.

Equally important, when the Court scheduled a conference to address the proposed settlement, plaintiff's counsel was told that it should send an attorney with “complete knowledge of the file.” Nevertheless, the attorney appearing for plaintiff was unable to provide the Court with proof of the alleged assignment, proof of notice of assignment, or proof of the underlying debt. The absence of such proof weighs heavily in favor of allowing defendant to withdraw her consent to the settlement. Allowing her to do so has the effect of restoring the case to the status quo ante, through which plaintiff may, if able to do so, pursue its claim on the merits, while protecting the rights of a pro se defendant to insist upon competent proof before a Court can issue judgment upon the claimed indebtedness.

*3 For these reasons, as the Court previously determined in open court, and as it reiterates in this decision, this case shall proceed to trial on January 27, 2011. In the absence of a new, mutually agreeable settlement, the claims of plaintiff, pursuant to its alleged status as the assignee of a debt owed by defendant, shall be heard on the merits.


Tuesday, January 11, 2011

Long Term Incentive Compensation Plan is Not Exempt - 9th Cir. 2011 - MARIA O. SEGOVIA v. E. LYNN SCHOENMANN

The 9th Circuit in an unpublished decision held that a long term incentive compensation plan which did not comply with ERISA is not exempt.  The practical finding was that if a plan is not intended to nor designed for retirement purposes, then the plan is likely not exempt.  Something to consider for trustees and debtors!

Supreme Court Decision - Ranson v. FIA Card Services - 1-11-11

The Supreme's affirmed the 9th Circuit decision.  A link to the decision follows:

Ranson Decision - 1-11-11

Tuesday, January 4, 2011

United States Supreme Court Transcript - Chris Burke - Vegas Attorney Argument

Kudos to Chris Burke, a local Las Vegas attorney who argued in front of the United States Supreme Court in October 2010.  The question presented was whether in calculating the debtor's "projected disposable income" during the plan period, the bankruptcy court may allow an ownership cost deduction or vehicles only if the debtor is actually making payments on the vehicles." 

Transcript of Supreme Court Hearing

Monday, January 3, 2011

Vegas Snowstorm - Commercial Bankruptcy Filings Increase in December 2010


Who said it doesn't snow in Vegas - photos from Monday, January 3, 2011?  It is expected that commercial bankruptcy filings will increase in 2011.  The following commercial cases were filed in December 2010 through January 2, 2011 (there was a total of 1837 cases filed in Las Vegas during this time frame).......

5440 W Sahara LLC
Bullhead 1117, LLC