Friday, December 27, 2013

NV Supreme Court - debtor must actually reside on real property in order to claim a homestead - certified question from NV BK Court

Judge Beesley certified a question to the Nevada Supreme Court which asked:

Can a debtor properly claim a homestead exemption for his interest in real property under NRS 21.090(1)([) and NRS Chapter 115 when debtor himself does not reside on the property but his minor children do? Put another way, does a debtor have to actually reside on the property that is the subject of a claimed homestead exemption under NRS 21.090(1)([) and NRS Chapter 115, or is it sufficient that a debtor's minor children reside on the property in order to qualify for the exemption?

The Nevada Supreme Court determined that a debtor must actually reside on the real property to claim the exemption.

In Nevada, "[i]t is axiomatic there can not be a homestead

absent residence[,] ... when a declaration of homestead is filed the declarant must be residing on the premises with the intent to use and claim the property as a homestead." In re Sullivan, 200 B.R. 682, 685

(Bankr. D. Nev. 1996), affd, 163 F.3d 607 (9th Cir. 1998).

In re Nilsson

A Not So Happy Christmas for a Law Firm Violating the Discharge Injunction ($27,000 worth of coal) - 9th Cir. BAP Published

The bankruptcy court held appellants Rediger Investment Corporation (“Rediger”) and its counsel, the Duringer Law Group, PLC (“Duringer Firm” and, jointly, the “Appellants”) in civil

contempt under 11 U.S.C. § 105(a) for violation of the 
automatic stay. As a result, it awarded sanctions against the Appellants, jointly and severally, in the amount of $23,072.09.  The BAP AFFIRMED.
Quite frankly, bad facts create bad results....this is a case which should have settled.  It is worth a read to understand the 105 contempt vs. 362.

Thursday, December 12, 2013

Judicial Estoppel - 9th Cir. - Published - Distinguishing Case From Prior Decision Entitled Ah Quinn

Plaintiff had filed for Chapter 7 bankruptcy petition and failed to list this employment discrimination action on her bankruptcy schedules. The panel held that the district court applied the correct legal rule, properly weighed the factors set forth in New Hampshire v. Maine, 532 U.S. 742 (2001), and did not otherwise err in concluding that plaintiff’s omission on her bankruptcy schedule was neither inadvertent nor mistaken, and that therefore judicial estoppel barred the action. 

The main issue was Evidence - with a capital E.  The Plaintiff provided no evidence to show inadvertence nor mistake.  Accordingly, no evidentiary hearing was needed and the Ah Quinn case was distinguishable.

2013 9th Cir. Dzakula v. McHugh


Tuesday, December 3, 2013

In a Published Decision, the 9th Circuit affirmed the determination that a fraud which would have served as grounds to deny a discharge could serve as grounds for the revocation of a discharge

The 9th Circuit affirmed the district court’ judgment, the panel held that a fraud that would have served as grounds for denying a chapter 7 bankruptcy discharge if it had been known at the time of the discharge could serve as grounds for the later revocation of that discharge.

The United States Trustee moved to revoke the discharge pursuant to 11 U.S.C. §727(d)(1), which provides that a chapter 7 discharge may be revoked if it was obtained through the fraud of the debtor and the requesting party did not know of the fraud until after the granting of the discharge.  The bankruptcy court found that the debtor’ misrepresentations of the value or existence of a number of assets in the schedules he filed and in the testimony he gave during the creditors meeting amounted to a violation of §727(a)(4)(A), which provides that a bankruptcy court should deny discharge if the debtor knowingly or fraudulently, in or in connection with the case, made a false oath or account.  The bankruptcy court granted the Trustee’ motion, and the district court affirmed.

The panel rejected the debtor’ argument that the concealment of his fraud, rather than the fraud itself, procured his discharge.  Adopting the reasoning of the Bankruptcy Appellate Panel and other circuits, the panel held that a material fraud, which would have resulted in the denial of a chapter 7 discharge had it been known at the time of such discharge, can justify subsequent revocation of that discharge under §727(d)(1).

9th Cir. In re Jones - Published

Wednesday, November 27, 2013

New Bankruptcy Filing Fees for Motions to Sell Effective 12-1-13

Changes to Court Fees List, effective December 1, 2013
Document Type Prior Fee New Fee
Retrieval of one box of records from Federal Records Center, National Archives, or other storage location removed from the place of business of the court $53.00 $64.00
($39.00/each additional box)
Motion to Sell Free and Clear of Liens - NEW$176.00
Payment returned or denied for insufficient funds $53.00 $53.00
(now includes payments other than checks)

Friday, November 22, 2013

I obtained a stipulated court order...the other side is not complying ... can the Court hold them in contempt....maybe...depends...what did the Court order say?

How many times have you entered into a stipulation and the Court simply approves the stipulation?  So what does that actually mean?  The Eighth Circuit BAP was forced to analyze this situation in which a party failed to comply with the stipulation.  The Court order simply stated that the stipulation is approved except for two paragraphs.  The Debtors complied but the Bank did not (failed to timely file a release of its financing statement).

The Court stated that the stipulation imposed duties but he order did not.  The text of the order did not incorporate the terms of the stipulation nor that the parties were required to abide by the terms of the stipulation.  (In my opinion, you now had a simple breach of contract issue).

The Court further indicated that this factual situation was different than others in which Court's have enforced a stipulation.  In those situations, there was clear and unambiguous language that the terms of the stipulation are ordered by the court and enforceable by contempt.

The bottom line is if you enter into a stipulation and want to enforce it as a court order, incorporate it by reference and state that the stipulation is part of the order and enforceable by contempt.

In re Fischer - 8th Cir. BAP

Thursday, November 21, 2013

Financial Education for Elementary Students - Bonner Elementary School - A Success!

The first school chosen to take part of the F-E-E-S program was Bonner Elementary in Las Vegas.  A group of 29 Fourth Graders took part of the 6 week class.  The first three classes were amount money, savings and credit.  The following three weeks they learned about being an attorney and preparing for their day in Court.  The Class was divided into two groups and one group represented a bank and the other a debtor.  The issue was based upon fraudulent misrepresentation of a loan.  The student attorneys put on the case in front of the Honorable Nancy Allf.  The Bank prevailed but not after a hard fought battle for the debtor. 

The kids were very impressive and did a great job!! For photos and even a video of the trial, feel free to check out and click on the Bonner tab.  Keeping in mind that these are fourth graders aged 8-9, you have to be impressed.

If anyone has any comments on how the project could be better then do not hesitate to contact me.

Can a Trustee Sell Real Property if it is Claimed as Exempt and has no Equity? - least in the 4th Circuit

The 4th Circuit, in an unpublished decision, determined that a Debtor who has no equity in their home but claiming a homestead exemption, is unable to stop a sale by the Trustee when the Trustee could receive a carve out from the creditor.  In this case, the Debtors home was fully encumbered by a first and an IRS lien.  The IRS agreed to a carve out and the Trustee filed a motion to sell.  The Debtor's objected to such sale.  The Court found that the asset is still property of the estate and the Trustee had standing to sell.

Reeves v. Callaway - 4th Cir. Unpublished

Friday, November 15, 2013

Motion to Compel re: 5th Amendment Right during 341 and 2004 exam - I refuse to answer if I slept with that woman... (E.D. NC)

I take the 5th.  I refuse to answer the question if I slept with that woman.....  Who would have thought that a Bankruptcy Court would have to address issues pertaining to an alleged affair.  However, this in fact occurred in North Carolina.  As the facts are an interesting read you will get a good synopsis of case law as it applies to the 5th amendment.  By the way, in North Carolina it is apparently a Class 2 misdemeanor to "lewdly and lasciviously associate, bed and cohabit together" 

In re Welsh - 2013 North Carolina

Tuesday, November 12, 2013

Augie Landis is set to become Nevada's newest Bankruptcy Judge

Mr. Landis, the acting US Trustee for Region 17, is set to become Nevada's newest Bankruptcy Judge.  Mr. Landis is to be sworn in on November 17, 2013.  Congratulations!

9th Cir. Press Release re Augie Landis

Friday, November 8, 2013

How ordinary is ordinary for the ordinary course of business defense? (10th Cir. BAP Published)

The 10th Circuit BAP discussed the two prongs of the ordinary course defense and based upon the standard of review "clearly erroneous" determined that the bankruptcy court properly applied the ordinary course of business defense to the facts of the case.

In re C.W. Mining Company

Thursday, November 7, 2013

Failure of Secured Creditor to File a Timely Proof of Claim in a Chapter 13 does NOT void the lien (8th Cir. Published)

I thought it was common sense that you are unable to void a secured creditor's lien if they file a late proof of claim.  Moreover, there is no requirement that the secured creditor even file a claim.  Despite that, the Debtors filed bankruptcy and the secured creditor filed a proof of claim 8 months after the deadline.  The Debtors did not contest the validity of the debt or lien but asserted that the claim was not timely and could be avoided under the plain language of 506(d).  The Eighth Circuit in a short opinion rejected the Debtor's argument and affirmed the judgment of the Bankruptcy Court and the BAP.

In re Shelton 8th Cir. Published

Tuesday, November 5, 2013

Chapter 13 - Property of the Estate INCLUDES Post-Petition Assets - (4th Cir Published)

In a Chapter 13 case, post-petition assets such as a personal injury claim and even an inheritance is property of the Estate.  The 4th Circuit was faced with an inheritance which arose more than 180 days after filing.  The Debtor contended it was not property of the Estate and the Trustee argued otherwise.  The Court found that it was property of the Estate.

In re Carroll - 4th Cir. Published 13-1024

Also, see the 5th Circuit case which was mentioned in this blog

Continuing Duty to Disclose Assets in a Chapter 13

Chapter 7 Debtor Lacks Standing to File Suit Because She was not a party in interest (6th Cir. Unpublished)

As a Chapter 7 Bankruptcy Trustee I have always believed that a Debtor does not have standing to file suit to challenge a proof of claim (unless a successful prosecution would bring enough assets into the estate so that there would be a distribution to the Debtor).  I have seen numerous cases filed in Las Vegas by the Debtor but have never seen a successful challenge by a creditor in getting the case dismissed (or quite frankly the issue has never been raised).  However, in an unpublished decision in the 6th Circuit, the Court was faced with this particular issue and determined that the Debtor did not have standing to file suit and dismissed the case.  Although the case is unpublished it certainly provides creditors and debtors with the arguments which could make or break their case (as it applies to standing).

In re Khan 13a0941n-06 6th Circuit Unpublished

Monday, November 4, 2013

523(a)(2)(B) nondischargeability complaint - attorney fees and shifting of burden (9th Cir. BAP Published)

A creditor lost a § 523(a)(2)(B) nondischargeability complaint and then had to pay the debtor $70,000 in attorney fees under §523(d) because the nondischargability claim was not "substantially justified."

The creditor had purchased the claim from a mortgage originator and claimed the debtor had lied in his financial statement. But, there was no evidence that the original creditor had actually relied on the statements.  Also, the claim failed under the California antideficiency laws (it was for a sold-out second deed of trust).  The Court granted judgment in favor of the Defendant on the antideficiency law and denied the request for fees.  After a motion to reconsider was filed, the BK Court reconsidered the request for fees and awarded fees. 

A very good analysis by the Court on the shifting of the burdens.  

In re Montano 12-1579 (9th Cir. 2013) Published 

Tuesday, October 29, 2013

Actual Timely Notice of a Bankruptcy = Due Process and an Obligation to Investigate (9th Cir. BAP Unpublished)

If you know about a bankruptcy case then you are obligated to investigate to determine the dates to object to the discharge and to file a proof of claim.  Actual written notice is not necessary.  Moreover, notice to an agent of the creditors such as its attorney constitutes notice. 

In the recent 9th Cir. BAP Case the Debtor utilized the creditors wrong address but the creditor received actual notice within 3 days of the bankruptcy filing.  Despite such notice, the creditor did nothing until it was too late.  The creditor filed a motion requesting authority to file a late filed proof of claim and a late objection to discharge proceeding. The BAP determined that under 9th Cir. Law, actual notice is tantamount to notice and denied the motions.

In re Calderon - 9th Cir BAP Unpublished

Property Abandoned is Stil Subject to the Automatic Stay Until the Stay is Terminated (9th Cir. BAP Published)

Once property is abandoned the property is no longer property of the Bankruptcy Estate as it reverts in the Debtor as of the date of the filing of the petition (just like no bankruptcy was filed).  However, the property is still subject to the automatic stay under 362(a)(5).  By utilizing statutory construction, the BAP found that despite the abandonment and the Bankruptcy Court's belief that the stay is terminated upon abandonment, the property was still subject to the stay. An interesting and well developed decision.

In re Gasprom 9th Cir. BAP

Wednesday, October 16, 2013

A Christmas Tree Story - Was the Bank Secured in the Christmas Trees (I know it's only October so it is a bit early for a Christmas case) 9th Cir. BAP - Unpublished

Twas about 60 days before Christmas and all through the BAP House a decision was made finding that the UCC Financing Statement adequately described the Bank's collateral in one million Christmas Trees.

Feel free to read about descriptions of collateral....

In re Grogan

Tuesday, October 15, 2013

9th Cir Unpublished - District Court Reversed for revoking an order confirming a chapter 11 plan 3 years later

The District Court was reversed because it utilized its equitable powers to revoke a Chapter 11 plan more than 3 years after it was entered.  The Court stated in part:
Once a Chapter 11 plan is confirmed, "all questions that could have been raised pertaining to the plan are entitled to res judicata effect." Miller v. United States, 363 F.3d 999, 1004 (9th Cir. 2004)
Section 1144 of the Bankruptcy code is the only avenue for revoking a confirmed Chapter 11 plan. In re Orange Tree Assocs., 961 F.2d 1445, 1447 n.6 (1992) (citing In re Longardner & Assocs., 855 F.2d 455, 460 (7th Cir. 1988)). Under Section 1144, a party seeking revocation may only move for such relief within 180 days after "the date of the entry of the order of confirmation, and . . . the court may revoke such order if and only if such order was procured by fraud."



9th Cir. - Unpublished - reiterated the person aggrieved test for standing

The BAP correctly determined that Debtor lacked standing to appeal the

bankruptcy order authorizing the sale of an asset of the bankruptcy estate, because

he was not a "person aggrieved" by the order. Fondiller v. Robertson (In re

Fondiller), 707 F.2d 441 (9th Cir. 1983).
9th Cir. BAP - Unpublished - reiterated the person aggrieved test for standing

In re Finley

Monday, October 14, 2013

Classifications of Claims under 1122 - "substantially similar"

Judge Ross from Alaska, followed In re Barkat, 99 F.3d 1520 (9th Cir. 1996)in determining that separate classification of a deficiency claim was not warranted in the Chapter 11 case. 

In Barkat,  an apartment building worth $4,000,000, encumbered by a claim of $4,600,000. The debtor's plan proposed to classify the unsecured $600,000 deficiency claim separately from several other classes of unsecured creditors, including a class of trade debt.  While recognizing the possibility of classifying similar claims in different classes, the court also said that there  are limits to that right. One of the limits is that separate classification should not be condoned "in order to gerrymander an affirmative vote on a reorganization plan." A second is that, if claims are substantially similar, there must be a valid business or economic reason for separate classification. It approved a BAP decision saying that the right to make a § 1111(b)(2) election was not such a valid reason.

Similarly in this case, while the claim has a co-debtor, Marc Marlow, he is apparently not personally solvent and has many unpaid money judgments against him. He is not like the creditor in Johnston, which had viable guarantors to collect from, at least in part. Nor is there any other collateral than the real and personal property securing the two loans owed to AHFC, valued at no more than $2,700,000.
The claim on the second promissory note is very similar to a garden variety unsecured claim, notwithstanding its "easy terms." 11 USC § 502(b)(1) makes the claim presently allowable despite  [19] being an unmatured claim, the balance of which is due in 2037. Also, under the terms of the Second Loan Agreement, the second promissory note can be accelerated due to the default under the first promissory note. And, even if second promissory note had been nonrecourse (which it is not), in chapter 11 it is treated as a recourse claim.

United States Bankruptcy Court for the District of Alaska
October 9, 2013, Decided
Case No. A12-00421-HAR, In Chapter 11
In re Marlow Manor Downtown, LLC, 2013 Bankr. LEXIS 4270 (Bankr. D. Alaska Oct. 9, 2013)

9th Cir BAP 523(a)(4) - breach of fiduciary duty - published (pro-se case - reversed)

The court reversed a bankruptcy court ruling that a debt was nondischargeable under sec. 523(a)(4) for fiduciary defalcation.

The BAP said it would have remanded because the bankruptcy court had made its 2012 ruling under the precedent of In re Lewis, which required no fraud, or even negligence.  The Supreme Court May 2013 case reversed the holding on Lewis in Bullock v. BankChampaign:

Bullock effectively abrogated that part of In re Lewis holding that a debtor who failed to account to another need not possess any particular state of mind to except a debt from discharge based on fiduciary defalcation under § 523(a)(4). To the contrary, in Bullock, the Supreme Court interpreted § 523(a)(4) to require that, in order to except a debt for a defalcation by a fiduciary, the debtor must possess “a culpable state of mind . . . akin to that which accompanies application of the other terms in the same statutory phrase. We describe that state of mind as one involving knowledge of, or gross recklessness in respect to, the improper nature of the relevant fiduciary behavior.” Id. at 1757.

But, the BAP outright reversed the case, instead of remanding, since the agreements of the parties did no show there was a "present" formation of a partnership (or, even an LLC).  Thus there was no "present" fiduciary duty that could give rise to a defalcation:

.  .  . we conclude that the bankruptcy court erred in its determination that a partnership was formed by the Loan Agreement. At best, the parties agreed to form an LLC based upon events to occur in the future, events that never came to pass. Since no partnership existed between the parties during their dealings, we conclude that, as a matter of law, William was not a fiduciary as to Crulls for purposes of § 523(a)(4), and that the bankruptcy court erred in excepting the debt from discharge under that provision of the Bankruptcy Code.

In re Utnehmer - 9th Cir BAP 2013

Wednesday, October 9, 2013

5th Cir. Continuing Duty to Disclose - Even in a Chapter 13 - No disclosure -> Judicially Estopped!

Even in a Chapter 13 case, disclosure is the key.  In this case, the Debtor filed a Chapter 13 case and was injured after the filing.  The Debtor did not disclose the personal injury accident and proceeded to file suit.  The Defendants filed a motion asserting judicial estoppel.  The Court held in favor of the Defendants but permitted the Chapter 13 Trustee to proceed but citied to Reed which held that the Trustee can proceed, but any remaining funds after distribution to the creditors would be returned to the defendants.

In re Flugence 2013 5th Cir.

Tuesday, October 8, 2013

9th Cir. BAP 2013 - Which State Law is applicable when the debtor resides in a diffferent state...look to the state in which the judgment was obtained (not published)

The 9th Circuit BAP in In re Van Damme, examined the concept of issue preclusion.  This was a very contentious case in which the Debtor's were alleged to have trespassed onto property, thrown paint upon their neighbor and tore down a wall in order to build a pool.  To make matter's worse, counsel for the Debtors apparently stated   

At one point debtor’s counsel alleges that the state court’s FFCL were "hardly a model of judicial temperance" and make "unsupported accusations of criminal activity wholly inappropriate to a civil proceeding against Mr. Van Damme. . . ." In connection with this statement, counsel contends that the judge in the Nevada action, "has been intemperate in other contexts as well" and then points out that he received a public reprimand for driving under the influence of alcohol.

The Court examined the doctrine of issue preclusion and examined the preclusive effect of judgment not obtained in the state in which the debtor resides.  The Court found that that the proper subject of inquiry is the law of the state in which the judgment was obtained.  

In re Van Damme

Wednesday, October 2, 2013

Annulment of Stay Retroactively - Affirmed -9th Cir. BAP

The Debtor filed BK at 9:21 a.m. to prevent the foreclosure sale which took place at 10:28 a.m..  At the time of the foreclosure sale, the Borrowers were 42 months (more than 3 years!!) in default and owed over $2 million on the loan.  The Creditor filed a motion to annul the stay retroactively.  The Court affirmed the Bankruptcy Court decision. 

The Court found that the Debtors engaged in unreasonable or inequitable conduct that showed that they were utilizing the bankruptcy process to delay or hinder the creditor. 

The moral of the story is don't wait 42 months to file, don't file about an hour prior to the sale and don't be perceived to be greedy.

In re Mendaros

In Rem Relief in Prior BK Case is Binding in Subsequent Case - 9th Cir. Published

Debtors have resorted to filing tactical, serial bankruptcy cases to prevent creditors from enforcing liens against their property. In 2005, Congress fashioned special relief for creditors when § 362(d)(4) was added to the Bankruptcy Code under BAPCPA. That provision permits the bankruptcy court to grant so-called "in rem" relief from the automatic stay to the creditor to address schemes using bankruptcy to thwart legitimate
foreclosure efforts through one or more transfers of interest inreal property or, as was apparently the situation here, multiple
bankruptcy filings affecting the subject in rem property

In re Alakozai - 10-2-13 - 9th Cir. BAP - Published

Tuesday, October 1, 2013

9th Cir. BAP Mootness when Case is Dismissed

Upon being advised at oral argument that the Debtor's chapter 11 case was dismissed (but not advised by the Debtor's counsel), the Court determined that the underlying appeal was now moot.  The Court had an excellent but brief discussion on mootness.

In re Koo - 9th Cir. BAP

9th Cir. BAP Affirms Denial of Rule 60(b) Motion on Attorney Disciplinary Proceeding - Greenfield

I point this case out not for the applicable issues, but for things NOT TO DO as a bankruptcy attorney.  Without copying the entire case in this blog, the Court implied that Mr. Greenfield's actions from filing bankruptcy cases for clients in pro se so that he does not get a judge that disliked him and then making an appearance to not being competent in Chapter 11 cases was not looked upon too fondly.

It is an unpublished Ninth Circuit BAP Opinion.

Greenfield v. Anderson

Sunday, September 29, 2013

Las Vegas Bankruptcy Judge - Holds Creditor and Law Firm in Contempt

In an unpublished decision (In re Grihalva 2013 WL 5311227), Chief Bankruptcy Judge Mike K. Nakagawa held parties in contempt for violating the discharge injunction.  The creditors filed a judicial foreclosure action but in its prayer sought judgment only against the Debtor for over $584,000, costs and fees. However, within the complaint the Creditor indicated that no deficiency judgment will be sought against the Debtor. 

The Court found that the creditor and its counsel placed the debtor in an untenable position by engaging in conduct inconsistent with the discharge.  Since the creditor never amended the complaint after being put on notice, the violation of the discharge injunction was continuing. 

The Court found both counsel and the creditor jointly and severally liable for $5919.90 and a fine of $10,000.00. 

Friday, September 27, 2013 - Week 3 Completed - Credit, Credit Reports and Interest

Once again the 4th graders did excellent.  They learned about credit reports, credit and interest.  More importantly, they learned that credit cards should not be used if they can't afford to repay the debt.

A short video of some credit questions were asked and answered.  Check out the video on the link.

Credit Questions

Thursday, September 26, 2013

Be careful what you could be wrong.... be civil....

There are good reasons not to call an opponent’s argument “ridiculous,” which is what State Farm calls Barbara Bennett’s principal argument here.  The reasons include civility; the near-certainty that overstatement will only push the reader away (especially when, as here, the hyperbole begins on page one of the brief); and that, even where the record supports an extreme modifier, “the better practice is usually to lay out the facts and let the court reach its own conclusions.”  Big Dipper Entm’t, L.L.C. v. City of Warren, 641 F.3d 715, 719 (6th Cir. 2011).  But here the biggest reason is more simple:  the argument that State Farm derides as ridiculous is instead correct.

6th Cir. State Farm v. Bennett

Tuesday, September 24, 2013

No Exemption if there is No Equity - 8th Cir.

The 8th Circuit recently ruled that a Debtor could not claim property exempt if the Debtor has no equity.  Moreover 522(f)(1) would not avoid a lien on a vehicle.

A short but accurate decision.

In re Goben - 8th Cir. 9-23-13

Monday, September 23, 2013

F-E-E-S.Com - Week 2 completed - Savings, Investments and Scams

I am very proud of the 4th grade class that I am teaching under the Financial Education for Elementary Students program (  The Kids are doing great!

They learned about savings, investments and scams.  Some of the kids were asked how they save and their answers were enjoyable.  Check out the video on the link...enjoy!

Video - How do you Save?

9-23-13 - 9th Cir BAP - Lack of Jurisdiction After a Sale -

In an unpublished decision, the 9th Circuit BAP remanded a case back with instructions to dismiss the adversary proceeding for lack of subject matter jurisdiction. 

In 2009, the Debtors retained an attorney to file a Chapter 11 case.  The case floundered and it was converted to a Chapter 11.  The Debtors filed suit against counsel for malpractice.  Once the Trustee became aware, the Trustee claimed ownership of the claim.  The Trustee agreed to sell such interest back to the Debtor but the attorney made a counter-offer.  A court auction took place and the attorney was the successful bidder (the sale was without warranty as to whether the claims are property of the estate). 

Counsel filed an adversary case for declaratory relief  that such claims were property of the estate.  The Debtors moved to dismiss based upon lack of subject matter jurisdiction because the estate no longer had an interest.  The Court denied the dismissal motion and found that the property was property of the estate. 

The Court cited to several Circuit court decisions for the proposition that jurisdiction over an asset terminates once the estate relinquishes all rights and interest.  Here, the Estate sold any and all rights without warranty.  Accordingly, the Court reversed the Bankruptcy Court and remanded the case with instructions that the adversary case be dismissed.

In re Stokes - 9th Cir BAP - 9-23-13

Tuesday, September 10, 2013

9th Cir. Unpublished - In re FRB - Corporate Suspension = appeals dismissed

In an unpublished decision, the 9th Cir. affirmed the BAP in dismissing the appeals because of the corporate suspension and denied such parties motion for reconsideration. 

Traub Co. v. Coffee Break Serv., Inc., 425 P.2d 790, 792 (1967) (Under California

law, “a suspended corporation not shown to have been reinstated lacks the right or

capacity to defend an action or to appeal from an adverse decision.”).

Of important note, the Court found that equitable principles precluded a creditor at a late stage and after active participation to contest the filing of the petition as unauthorized.

In re FRB

9-10-13 - 9th Cir. Published - In re Wilshire Courtyard - reopening a confirmed chapter 11 case and the court had post-confirmation jurisdiction

Reversing the judgment of the Bankruptcy Appellate Panel, the panel held that the bankruptcy court had jurisdiction to reopen a bankruptcy proceeding to consider the tax consequences of the reorganization, pursuant to a chapter 11 plan, of the debtor, a general partnership that owned two commercial buildings in Los Angeles, into a limited liability company with a 1% ownership interest in the property.
The panel reaffirmed that a "close nexus" exists between a post-confirmation matter and a closed bankruptcy proceeding sufficient to support jurisdiction when that matter affects the "interpretation, implementation, consummation, execution, or administration of the confirmed plan."

In re Wishire Courtyard

Friday, September 6, 2013

How to get paid in a dismissed Chapter 13 case - NY Decision - utilize 503(b) - In re Garris - 9-5-13 - Published

A Debtor, in a dismissed case, sent a letter to the Court demanding that their attorney return funds that the Chapter 13 Trustee gave them, brought up the issue on how does a Chapter 13 attorney get paid in a dismissed case.  Counsel apparently had an assignment of such funds which was troubling for the Court.  The Court, in a published decision, analyzed 1326(a)(2) and found that it applies.  Having found that section 1326(a)(2) applies, the Court determined that it cannot compel payment of the funds to Debtor's counsel through operation of the assignment signed by the Debtor.  The Court noted that Counsel could have filed a fee application and obtained a 503(b) claim but that did not occur.  As a result, the Trustee was obligated to pay the money to the Debtor.    However, the Court determined that it continues to have jurisdiction over fee requests despite the dismissal and could exercise its ancillary jurisdiction.  Therefore, the Court ruled that Counsel needs to file the fee application, give notice and permit the Debtor to contest the reasonableness of the fees.

The moral of the story is... file your fee application because not all judges will be so nice!

In re Garris

F-E-E-S- Financial Education for Elementary Students


Thursday, September 5, 2013

Las Vegas Attorney Randy Goldberg - Sanctions and Fees Award Affirmed - In re Goodman 9-5-13 - 9th Cir BAP

In an unpublished decision, the 9th Cir BAP affirmed Chief Bankruptcy Judge Mike Nakagawa on his imposition of sanctions and subsequent award of attorney fees.  As a fellow attorney, I am disappointed in what occurred and this should be a good learning experience for both new and old attorneys on what you should not do.

In re Goodman

For Purposes of 11 USC 503(b)(9) - a utility is NOT a good its a service - 9-4-13

The Bankruptcy Court in Puerto Rico denied as a pre-petition administrative expense a claim by a utility service.  The Court found that the utility is a service not a good.  Therefore, the utility would only have an unsecured claim (which they never timely filed). 

The Court gave a nice breakdown on case law and analyzed such cases.  The Court even disagreed with a fellow judge in the same district which found that a utility service.

Not that this issues comes up often, but it certainly was a nice analysis of case law.

In re PMC Marketing Corp
--- B.R. ----, 2013 WL 4735736
Bkrtcy.D.Puerto Rico,2013.
September 04, 2013 (Approx. 4 pages)
(currently unpublished)

Wednesday, September 4, 2013

9th BAP - In re Weinstein - Conversion to 7 - Chapter 13 Trustee, in Las Vegas, still required to pay the Secured Creditor with Funds on Hand? Yes, especially when you don't object!

The 9th Cir BAP in an unpublished decision sustained local bankruptcy Judge Mike Nakagawa in his decision to require the Chapter 13 Trustee to disburse funds to the secured creditor. 

In a nutshell, Debtors file bankruptcy in order to stop a potential foreclose.  The Debtor's plan gets confirmed which requires adequate protection payments to be distributed by the Trustee to the Creditor while the Debtors attempt to modify their loan.  For some unknown reason as it is not stated in the motion but I am curious why... the Trustee does not distribute to the secured creditor and the Debtor does not make post-petition payments.  A motion for relief is filed with a request that the Court order the Trustee to distribute the funds.  The initial motion for relief gets continued and then taken off calendar as the parties enter into an agreed order.  On the same day as the agreed order, the Debtor converts to a Chapter 7.  Two days later the second motion for relief is filed which also  requests the Court to order the Trustee to turnover  the funds to the creditor.  No opposition is filed but the Debtor's counsel appears and apologizes for not filing an opposition and argues.  The Court grants the motion for relief but continues the request for disbursement.  At the continued hearing, the Debtor still failed to file an opposition but argues the motion.  The Court grants the motion noting that no one filed an opposition.  The Debtor files a motion to reconsider.  The BAP affirms both orders....

I point out that you should always file an opposition if your going to oppose!

In re Weinstein

Vandevort bankruptcy conviction upheld by 9th Circuit 8-29-13

Vandevort, from Bel Air, was convicted of bankruptcy fraud for concealing assets and threatening a private investigator with a golf club who was trying to serve his wife with a subpoena. After the assault, Vandervort called the police and reported a home invasion.

Vandevort “withdrew the equity in his residence, hid it in an escrow company’s bank account, purchased the Wyoming property with the equity money in his mother-in-law’s name, opened bank accounts in the name of Always There Nursing Care Associated LLC and diverted the revenue from ATNC to these accounts, used straw persons as signatories to the bank accounts and the officers of his business entities, transferred this interest in ATNC to [his wife], and filed his bankruptcy petition in Wyoming,” prosecutors said in summarizing Vandevort’s bankruptcy fraud scheme in a sentencing memo to the court.

Vandevort decision

FBI Press Release from 2011

Friday, August 30, 2013

8-27-13 - Equitable Mootness - Third Circuit - In re: SEMCRUDE, L.P.,

The Third Circuit revisited the doctrine of equitable mootness after the plan of reorganization was approved.  Assuming a party objects to the confirmation of the plan, a court could determine that the appeal is equitably moot if granting the relief would cause more harm then good.  The Court analyzed the source of such authority in this appeal. 

In re Semcrude

Thursday, August 29, 2013

8-29-13 - 9th Cir. En Banc, overrules the holding of Kagenveama - In re Flores

The 9th Circuit, sitting en banc, held that when a Chapter 13 debtor has no “projected disposable income,” 11 U.S.C. § 1325(b)(1)(B) permits plan confirmation only if the length of the proposed plan is at least equal to the applicable commitment period under § 1325(b)(4). The court overruled  the holding of Maney v. Kagenveama (In re Kagenveama), 541 F.3d 868 (9th Cir. 2008), that § 1325(b)(1)(B) does not impose a minimum duration for a Chapter 13 plan if the debtor has no projected income.

The Court also reaffirmed that 1325(b)(1)(B) acts as a temporal, as distinct from a monetary, requirement that defines a plan's duration.

In re Flores

Wednesday, August 28, 2013

9th Cir. BAP - In re Blixseth - Denial of Motion to Abstain is Not a Final Order

The 9th Cir. BAP in an unpublished decision held that the denial of a motion to abstain is not a final order under 28 USC 1334(c) as it does not "end the litigation on the merits".  Accordingly, the Court did not have jurisdiction to entertain the appeal.  As such, the appeal was dismissed.

In re Blixseth - 8-28-13 - 9th Cir. BAP

Monday, August 26, 2013

First Circuit - “intent to deceive” issue - In re O'Donnell (8-26-13)

The First Circuit examined section 523(a)(2)(B) cause of action "caused [the writing] to be made or published with intent to deceive".  The Court was faced with two issues involving agency (in that the Debtor did not actually publish the document) and intent.  The Court determined that the person who published the document was an agent of the Debtor (not the Creditor) and that recklessness can suffice to prove the intent element under section 523(a)(2)(A).

In re O'Donnell - 1st Circuit

The 9th Circuit vs. the 10th Circuit - Judicial Estoppel

The 10th Circuit recently came down with a judicial estoppel decision of their own.  When I compared the facts of the 9th Circuit case vs. the 10th Circuit case, I was shocked to see how the 10th Circuit found that judicial estoppel applied.  Considering that I am a Trustee, I found the following quote more shocking:

"[t]he [bankruptcy] Court accepted this finding and [the Queens] received a no asset discharge."  p. 15 of opinion.

For those who don't know, it is the Trustee who files a no asset report not the Court.  In any case, take a read and compare it to my prior blog on the 9th Cir decision.

10th Cir. Judicial Estoppel Case (Queen v. TA Operating)

9th Cir. Blog re Judicial Estoppel

Thursday, August 22, 2013

Stern v. Marshall analyzed by 7th Cir. - WELLNESS INTERNATIONAL NETWORK 8-21-13

Admittedly I have not fully reviewed nor analyzed the case but late yesterday I was advised of the new 7th Circuit case....check it out below:
We hold that a constitutional objection based on Stern is not waivable because it implicates
separationofpowers principles. 

We also hold that the bankruptcy judge lacked constitutional

authority to enter a final judgment on the alterego claim. In

contrast, we hold that the bankruptcy judge had constitutional

authority to enter final judgment on the first four counts of the

adversary complaint, each of which were objections to the

discharge of Sharif’s debts. Finally, we hold that the entry of

default judgment and awarding of fees were proper sanctions

under the circumstances, though we remand for a recalculation

of fees.

Wellness International

Wednesday, August 21, 2013

6th Cir. Cyberco Holdings - Finality of a Judgment 8-20-13

Another interesting read on finality of judgments.  In this case, the Court denied substantive consolidation.  Accordingly, the appellate court found that denying such motion are not final orders within 158(a)(1) but invited the parties to consider an appeal under 158(a)(3).

Cyberco Holdings

8-20-13 - 9th Cir. BAP - Community Bancorp - Settlement and Mootness Issue

In an unpublished decision, the 9th Circuit BAP ruled in favor of my fellow trustee in approving a settlement under the A&C Factors.  Despite the approval, the BAP appeared to side step an important issue which was the issue of equitable mootness.  The Court examined Constitutional mootness and equitable mootness.  The Court did conclude that the appeals are not constitutionally moot but did not decide whether the appeals were equitably moot.  Instead, they turned to the merits.  With that said, the discussion is well worth the read and gives the reader a good discussion on mootness.  As indicated above, the Court did approve the settlement but did find that the amount of the settlement may have been on the low end of the spectrum. 

Community Bancorp

Tuesday, August 20, 2013

8-20-13 Ninth Circuit - contractor's liability to pension fund for withdrawal liability was discharged

The panel affirmed the district court’s order affirming the judgment of the bankruptcy court in an adversary proceeding regarding the dischargeability in bankruptcy of a construction industry contractor’s “withdrawal liability” to a pension fund following the expiration of the collective bargaining agreement under which the fund was administered.

The Court found that the debt did not qualify as a debt created by a defalcation by a fiduciary rather, it was a statutory obligation and was different from contractual obligations under the collective bargaining agreement.

Carpenters Trust Fund v. Moxley

Monday, August 19, 2013

Alaska Supreme Court - Veil Piercing Claim - in this factual scenario - is NOT property of the Bankruptcy Estate (8-16-13 - Brown v. Knowles)

In a 3-1 decision, the Alaska  Supreme Court determined that a Trustee does not have power to bring a claim on behalf of a creditor of the estate whose claims are not property  of the estate.  In this instance, the Court was forced to examine a veil piercing claim against a corporation.  In a very good analysis of current law, the Court determined that Brown as the President of the Debtor Company entered into a bonus agreement with Knowles.  Brown put the Debtor Company in Bankruptcy and Knowles files suit against Brown in an attempt to pierce the corporate veil.  Brown asserts that the claim belongs to the Debtor company and Brown asserts it is a personal claim.  The Court found that if a veil-piercing claim alleges no injury to the corporation, then the claim belongs to the creditor.

At this time the case is unpublished but I expect that it will become a published decision.

Brown v. Knowles

Friday, August 16, 2013

Who owns the refund ...the Bank or the Holding Company under a TSA? 11th Cir. 2013

In Las Vegas we have had a variety of cases in which the BK Estate took the position that despite a tax sharing agreement (TSA), the holding company was entitled to the tax refund.  To the best of my knowledge, the case in Las Vegas was settled.  The 11th Circuit recently ruled that the FDIC as the receiver of the Bank was entitled to the funds as the funds were not property of the Estate. A well reasoned discussion on the TSA is contained within the opinion.  Based upon the opinion, the BK Court and District Court was reversed.    

BankUnited Financial Corporation 8-15-13 - 11th Cir.

Thursday, August 15, 2013

Filing 8 Bankruptcy Petitions = 5 year bar in refiling - 9th Cir. 8-13-13

The Ninth Circuit affirmed the Bankruptcy Court in barring a debtor for 5 years after filing 8 Chapter 13 petitions with 4 of them between 2008-2010 and unable to confirm any of them.

The Debtor argued the Court erred because it acted sua sponte in dismissing case with prejudice.  The 9th Cir. in citing to section 105(a) authorized the Court to sua sponte taking any action to prevent an abuse of the system and chose to apparently ignore the requirements in 1307(c). 

This was an unpublished decision.  Under In re Walls 276 F.2d. 502 (9th Cir. 2002), the 9th Cir. held that section 105(a) authorizes only such remedies as are necessary or appropriate to carry out the provisions of this tile.  As such, why 1307(c) was ignored is the unknown!?!  Perhaps the factual basis was so extreme that it warranted the use of 105(a)?  Once again, an unpublished decision. 

In re Berenice Carol Glover 8-13-13

August 22-24, 2013 - Southwest Bankruptcy Conference- AB - #SWBC13

If your signed up, I will see you there!  It should be a great convention with the ABI and a great location!!!

Here is a link for the convention if you desire to sign up now:

Southwest BK Conference - Lake Tahoe

Wednesday, August 14, 2013

The Refusal to Confirm a Reorganization Plan Create a Final Appealable Order? No - 6th Cir.

"Jurisdiction takes absolute priority over all merits questions in a case".  The parties to a Sixth  Circuit Appeal were hoping that the Court would determine if the absolute priority rule remains in full force for individual Chapter 11 cases.  However, the Court determined a different priority...jurisdiction. 

The Court joined the Ninth Circuit and three other circuits in determining that a party may appeal under 158(d)(1) because there is final decision confirming the plan or under 158(d)(2) because the court or parties successfully seek certification of a decision refusing to confirm a plan.

As this was not done, the Sixth Circuit determined that it did not have jurisdiction to hear the appeal.

In re Lindsey - 6th Circuit - 8-13-13

Monday, August 12, 2013

8-7-13 - Post-Petition Jail Time on Pre-Petition Civil Contempt = $30,000 punitive award

Commonwealth Financial Services obtained a pre-petition judgment against the Debtor.  The Debtor failed to answer and a default judgment was entered.  After obtaining a judgment CFS failed to answer interrogatories in aid of execution which resulted in CFS applying for and obtaining a bench warrant.  Such acts occurred 4 years prior to the bankruptcy.  Post-Bankruptcy, the Debtor was arrested on the bench warrant.  At issue was whether the bench warrant constituted a violation of the stay and a violation of the discharge injunction.  The Court found in the affirmative and sanctioned CFS $2,500 for violation of the discharge injunction, $1,740.00 in loss income, emotional distress of $10,000.00 and $30,000.00 for punitive damages. 

Despite such award, the Court stated ...

I am less than confident that my decision today will change CFS' course of conduct. I sincerely hope that its management will chart a new course and implement procedures which comply with the requirements of the Bankruptcy Code. It is also my earnest hope that this decision will deter other creditors from engaging in any similar course of conduct.
I should note that there is no discussion on whether CFS was represented by counsel in the State Court Litigation and if such counsel withdrew.  It seems like a small leap to hold the attorney liable if the attorney had notice of the bankruptcy and did nothing.  Accordingly, you should be aware of bankruptcy filings and any unique civil remedies that you may have. 

Iskric v. Commonwealth (2013 WL 4011126 (BANKR M.D. Pa) 8-7-13

Thursday, August 8, 2013

5th Circuit upholds claim against Chapter 7 Trustee bond for her gross negligence - Ouch!

As a an attorney and Chapter 7 Trustee I hate to see claims of malpractice and/or breaches of fiduciary duty.  However, we all know that they occur but it is only on occasion do we see an actual case that discusses the issue.  On August 6, 2013, the 5th Circuit did just that and examined the liability of a the trustee's surety bond for a Trustee's gross negligence.  I will let all of you form your own opinion on whether this Trustee committed gross negligence but based upon the facts stated in the opinion I am not totally convinced.   

In re Schooler, 8-6-13 (5th Cir)

Monday, August 5, 2013

Bankruptcy - Criminal Case - Client Intake Form Protected? - US. v. Leonard-Allen and Walter Stern III - Seventh Circuit

The Seventh Circuit was faced with several interesting evidentiary rulings pertaining to an alleged conspiracy between an attorney (Attorney Number 1), who became romantically involved after an employment discrimination lawsuit settled, and his Client. 

Factually, the Client was going through a divorce and was to obtain funds from a marital settlement.  The Client met with Attorney Number 2 and filled out an intake form in which she indicated she was referred to Attorney Number 2 by Attorney Number 1.  Prior to the marital settlement being paid, the Client filed for bankruptcy with Attorney Number 2.  The Client failed to disclose the martial settlement in her bankruptcy petition and schedules.  When she received the marital settlement funds, she cashed the check, gave the funds to Attorney Number 1 who opened several certificate of deposits.

When the ex-husband found out about his wife's (the Client) bankruptcy he reported the undisclosed asset to the Trustee.  The Trustee reopened the case and the Client's discharge was revoked and referred for criminal investigation.  The Client pleaded guilty to two counts of making a false declaration in a bankruptcy proceeding.  After doing so, the grand jury was convened to investigate Attorney Number 1.  During the grand jury testimony, the Client testified that Attorney Number 1 did NOT refer her to Attorney Number 2.  She was then charged with making a false statement to the grand jury ....because the Client intake form which she filled out stated she was referred by Attorney Number 1.

During the trial, the Client objected to the Client intake form being admitted into evidence.  However, it was admitted and she was convicted.  An appeal was taken and the Seventh Circuit analyzed that Circuit's test to determine if it was covered by the privilege.  The privilege covers "only those communications which reflect the lawyer's thinking or are made for the purpose of eliciting the lawyer's professional advice or other legal assistance."  As the intake form pertaining to the referral did neither of these, the Court found it was properly admitted.

Conversely, Attorney Number 1's conviction was overturned based upon hearsay testimony.  The Court, in dicta, also examined what the District Court should focus upon on whether the intake form was admissible under the co-conspirator exception along with a discussion on relevant evidence.

In light of the typical Bankruptcy "civil" cases, this criminal case brought back the underlying evidentiary issues which we as bankruptcy practitioners should always keep in our mind when we file motions and handle evidentiary hearings and/or trials.

US v Leonard-Allen and Walter Stern III

Sunday, August 4, 2013

Nothing about Bankruptcy - But what a Class Act by the Cleveland Browns in Helping a 5 Year Old Cancer Survivor!!

A five year old cancer survivor...scored a touchdown with the assistance of the Cleveland Browns.  In this day and age of sports stars...congrats to the five year old Ryan Encinas (and his doctors along with his family)...

5 Year Old Cancer Survivor Touchdown!

Friday, August 2, 2013

Lawyer's knowledge of a BK case is NOT imputed on a former Client - 8-2-13 Ninth Cir. In re Perle

Sometimes, you got to say phew...glad I was not the attorney in this case....

An attorney given notice of the bankruptcy on behalf of a particular client is not
called upon to review all of his or her files to ascertain whether any other client may also have a claim against the bankrupt.
In this case, the attorney obtained an arbitration award for a Creditor against a Defendant and his retention was then completed.  A new attorney then took over the case.
The Defendant files bankruptcy.  However, that same attorney who represented the original creditor now represents a different creditor against the now Defendant Debtor.  The attorney never advises the original creditor of the bankruptcy and the Defendant Debtor does not adequately notice the original creditor.  

Did the Attorney have an obligation to advise the original attorney?  The Ninth Circuit does not answer that question.  Rather, the Ninth Circuit determines that the knowledge of the original attorney is not imputed upon the former Client. 

In re Perle (9th Cir. 2013)

Thursday, August 1, 2013

Things that make you say hmmm... NV Supreme Court Seems to Hold that a Bankruptcy Proceeding without the filing of an Adversary Case is non-adversarial.... Moon v. McDonald Carano (8-1-13)

There is no litigation in bankruptcy.....unless you file an adversary proceeding. 
The Nevada Supreme Court in examining a dismissal of a malpractice claim determined that for purposes of the statute of limitations an attorney's negligence in representing a creditor in the "non-adversarial parts" of a bankruptcy proceeding does not constitute litigation malpractice causing the so called Hewitt litigation tolling rule to apply.
The Nevada Supreme Court, in a panel decision, seemed to misinterpret what constitutes litigation within a Bankruptcy Proceeding.  Anyone that practices bankruptcy has certainly litigated issues outside of an adversary proceeding... for instance, motions to lift stay, objections to exemptions, objections to plan, objections to disclosure statements, valuation hearings etc. etc.  Bankruptcy Rule 9014 described the process of a contested proceeding.
Moreover the Advisory Notes state:  Whenever there is an actual dispute, other than an adversary proceeding, before the bankruptcy court, the litigation to resolve that dispute is a contested matter. For example, the filing of an objection to a proof of claim, to a claim of exemption, or to a disclosure statement creates a dispute which is a contested matter. Even when an objection is not formally required, there may be a dispute. If a party in interest opposes the amount of compensation sought by a professional, there is a dispute which is a contested matter.
Despite this fact, the Nevada Supreme Court found that a rejection of an unexpired lease that was resolved by a stipulation is not adversarial.  However, just because someone resolved an issue, doesn't that infer that the matter was contested, but was simply resolved?
Perhaps I am reading more into the decision but as a published decision, it seems to me that the Nevada Supreme Court could have determined that the matter was not a contested proceeding because there was no dispute (assuming the facts supported such position) but clearly a contested proceeding is adversarial in nature....
Time will tell if they revisit this issue.  The link to the case follows:

Moon vs. Mcdonald Carano & Wilson 8-1-13

Whether a Creditor must comply with Article 9 if the Trustee sells the assets - Answer: NO (9th Cir BAP 7-31-13)

In an unpublished decision  entitled

RENO SNAX SALES, LLC, (9th Cir BAP 7-31-13)

A chapter 7 trustee’s sale of assets under § 363 is not a disposition of collateral by a secured creditor under N.R.S. 482.516 or Article 9. The Coffee & Coolers trustee sold the assets, including the vehicles,as part of her duty in liquidating the property of the bankruptcy estate. And she did so as representative of all the creditors of the bankruptcy estate, not as an agent of Heritage Bank. Cf. Sigmon v. Miller-Sharpe, Inc. (In re Miller), 197 B.R. 810, 815 (W.D. N.C. 1996)(stating that § 544 does not make the trustee an agent for the creditors).

In re Reno Snax Sales, LLC

Wednesday, July 31, 2013

7-22-13 - 9th Cir. BAP - IRS Penalties are Not an Administrative Expense Under 503(b)(1)(A) -

The BAP had a good idea in, Inc. to hold that the IRS did not have an administrative claim under 503(b)(1)(A) but remanded for a further determination as to whether it still could be an administrative expense on some other legal basis. 

In this case, the Court found that an IRS post-petition claim for penalties based upon the Trustee's failure to timely file a debtor's corporate tax return was NOT allowed as an administrative expense claim with first priority under 503(b)(1)(A) but the Court remanded the case for further determination if the post-petition penalty could be an administrative expense for some other reason.

In re (9th Cir. July 22, 2013)  

Tuesday, July 30, 2013

Judicial Estoppel Standard - Ninth Circuit - 7-24-13 Ah Quin v. County of Kaui

Judicial Estoppel has been argued countless times within the State and Federal Court within Nevada.  However, the standard has never been "standardized".  In a 2-1 decision, the 9th Circuit panel vacated the district court's summary judgment holding that prohibited a debtor from proceeding with her employment discrimination lawsuit which she did not list in her schedules.

Disagreeing with the test articulated by other circuits, the panel held that the district court applied the wrong legal standard in determining whether the plaintiff’s bankruptcy omission was “mistaken” or “inadvertent.”  The panel concluded that when a plaintiff-debtor has reopened the bankruptcy proceedings and has corrected the initial filing error, narrow interpretations of “mistake” and inadvertence” do not apply.  The panel stated that in these circumstances, rather than the application of a presumption of deceit, judicial estoppel requires an inquiry into whether the plaintiff’s bankruptcy filing was, in fact, inadvertent or mistaken, as those terms are commonly understood.  The panel remanded the case for application of the correct legal standard.

Ah Quin v. County of Kauai - 7-24-13 - 9th Cir.

Thursday, July 25, 2013

7-25-13 - Ninth Circuit Decision Re: Time Frame to File Nondischargeability Complaint

In Willms v. Sanderson, the 9th Circuit court held that the Bankruptcy Judge erred in sua sponte extending the time for a creditor to file a nondischargeability complaint without showing or finding cause.

In the Nevada jurisdiction, it has been common place for creditors to file a quick and easy motion to extend the time to object to the discharge of the debtor.  These motions are typically and routinely granted.  I have always been concerned about such approach because a creditor must show cause to extend.

The 9th Circuit went through the applicable case law under 11 USC 523(c) and Rule 4007(c).  The Court once again reiterated that cause must be shown to extend such time frame.  In this case, the creditor filed a two page motion which did not provide notice that they intended to have a specific debt declared nondischargeable.    Apparently it was the Bankruptcy Court that first suggested that the motion could be construed as a request to extend the 523(c) deadline.  The Court found that Bankruptcy Court erred and remanded with instructions.

With that said, if you are going to file a motion, make sure you have support and a good reason why "cause" that the time should be extended.  With our two new judges taking the bench, I got a feeling that they will strictly construe such obligation.

Willms v. Sanderson

Monday, July 22, 2013

Fraud Under 523(a)(2)(A) - Supreme Court - In re Cohen - 523 US 213 (1998) and In re Speisman - 2013

In 1998, Justice O'Connor authorized the Cohen decision.  Such decision held that a debt for purposes of 523(a)(2)(A) is not limited to the amount obtained.  "Once it is established that specific money or property has been obtained by fraud...'any debt' arising therefrom is excepted from discharge".  The Court found that the award of treble damages plus attorney fees  under the New Jersey Consumer Fraud Act was nondischargeable.

On July 19, 2013, the Bankruptcy Court in Illinois gave me a quick refresher course of the Cohen decision in In re Speisman (Bankr. N.D. ILL 2013).  The decision arose from a motion to dismiss under Rule 9(b). 

Sunday, July 21, 2013

Sanctions - It also happens outside of Vegas

Former Las Vegas Bankruptcy Judge Bruce Markell was well known for several epic decisions pertaining to sanctions.  However, as indicated in the recent Circuit decisions, he is not the only judge who has sanctioned contemptuous conduct.

The Fifth Circuit in (In re Moteagudo - 7-18-13) recently upheld Bankruptcy Judge Isgur decision in sanctioning an attorney for his refusal to comply with his routine violations of Rule 9 (a creditors attorney who refused to plead fraud with particularity,....the bankruptcy court ordered the attorney to file his "sanction" order in every adversary case he filed). 

On July 19, 2013, the Eighth Circuit in Isaacson v. Manty - (Case No. 12-2384), upheld Bankruptcy Judge Dreher's decision to sanction an individual for calling the bankruptcy judge a "black-robed bigot" and other unflattering remarks.  The Court issued a show cause order as to why the individual should not be sanctioned $500.00 for each comment and when she failed to appear, the Court made a variety of findings and sanctioned her a total of $5,000.00 ($500.00 per statement).    

Both cases are an interesting read....

Friday, July 19, 2013

Enforceability of Forum Selection Clause vs. Chapter 7 Trustee (In re Sona Mobile Holdings Corp. 2013 WL 3678856)

A Trustee steps into the shoes of the Debtor and in this case, the forum selection clause was upheld because the inclusion of the forum selection clause was the product of fraud or overreaching, or that enforcement would contravene a strong public policy. 

“[T]he trustee stands in the shoes of the bankrupt corporation and has standing to bring any suit that the bankrupt corporation could have instituted had it not petitioned for bankruptcy.” Smith v. Arthur Andersen LLP, 421 F.3d 989, 1002 (9th Cir.2005) (quotation omitted). This also means “the trustee is subject to all claims and defenses which might have been asserted against the bankrupt but for the filing of the petition,” including contractual forum selection clauses. In re Destro, 675 F.2d 1037, 1040 (9th Cir.1982) (quotation omitted); In re Mercurio, 402 F.3d 62, 66 (1st Cir.2005) (enforcing against the trustee a forum selection clause contained in a contract entered into by the debtor before the debtor filed for bankruptcy).

“The enforceability of forum selection clauses is governed by federal law.” Petersen, 715 F.3d at 280. “[W]hile courts normally defer to a plaintiff's choice of forum, such deference is inappropriate where the plaintiff has already freely contractually chosen an appropriate venue,” such as agreeing to a forum selection clause in a contract. Jumara v. State Farm Ins. Co., 55 F.3d 873, 880 (3d Cir.1995). “[F]orum selection clauses are presumptively valid, [and] they should be honored absent some compelling and countervailing reason.” Murphy v. Schneider Nat'l, Inc., 362 F.3d 1133, 1140 (9th Cir.2004) (quotation omitted).

Increased litigation costs generally are not enough to find enforcement of the forum selection clause unreasonable. In re Mercurio, 402 F.3d at 66 (“The cost of [litigating in a different forum] alone cannot be enough to meet the heavy burden imposed upon the reneging party.” (quotation marks omitted)); see also Fireman's Fund Ins. Co. v. M.V. DSR Atl., 131 F.3d 1336, 1338 (9th Cir.1997) (finding the “serious inconvenience” of an American party having to litigate in Korea based on a forum selection clause did not meet the heavy burden of proof required to render the enforcement of a forum selection clause unreasonable). However, specific evidence showing that increased litigation costs actually would deprive the party opposing enforcement of the forum selection clause from bringing suit in the contractually mandated forum may be sufficient to show the forum selection clause should not be enforced. Cf. Murphy, 362 F.3d at 1142–43 (finding the combination of a plaintiff's low monthly income, combined with his inability to work or to travel long distances due to a disability, demonstrated the plaintiff would be unable to maintain suit in the contractually mandated forum, rendering enforcement of the clause unreasonable).

Finally, whether the party seeking enforcement of the clause would obtain any benefit from enforcing the clause or bear a burden from not enforcing the clause is not a consideration in determining whether a forum selection clause is unreasonable. Rather, the party opposing enforcement has the burden to show enforcing the clause would effectively deprive that party of its day in court. See In re D.E. Frey Grp., Inc., 387 B.R. 799, 807 (D.Colo.2008) (finding the bankruptcy court improperly shifted the burden to the party seeking enforcement of the forum selection clause by finding that ignoring the forum selection clause would not detrimentally affect the party seeking enforcement). And even if neither party has a tie to the contractually mandated forum, the forum selection clause still may be enforced. In re Manchester, Inc., 417 B.R. 377, 387 (Bankr.N.D.Tex.2009) (“While the parties may have few, if any, direct ties to New York, they chose to have all disputes settled before a New York court applying New York law.”).

Tuesday, July 16, 2013

Health Savings Account (HSA) Not Exempt Under 8th Circuit Law

A HSA generally permits you to place untaxed funds into a trust account so that you may utilize them to pay medical bills with pre-tax dollars.  The Eighth Circuit was faced with a situation to determine if such funds are exempt.  The Court found that the funds are not exempt and are property of the Bankruptcy Estate.  The Court determined that the funds are held in a "trust account" and can be utilized for any purpose.  Although the primary purpose was for medical bills, an employee can utilize such funds for any purpose.  Clearly, if you utilize the funds for something besides medical bills, the individual will be taxed!

In re Leitch July 16, 2013 - Eighth Circuit

Did Zzyzx Actually File Bankruptcy?

Exit 239

For those that travel from Las Vegas to California then you should be aware of the road with the original name (Zzyzx).  This road has some unique history...check out Wikipedia...

Zzyzx via Wikipedia

Despite this unique name, a similar named company has filed bankruptcy...its not Zzyzx but it is Zyzzx a Nevada Corporation with case number 13-18520-MKN.  The company appears to be the owner of a condo which is underwater.

So the question is did the Debtor mess up and spell Zzyzx incorrectly or did they intentionally create the corporation with that name.  Quite frankly, I'd rather get some Zzzzzs instead of thinking about it.


Monday, July 15, 2013

Goretorium files for bankruptcy - Las Vegas - July 2013

Haunted Desert LLC which owns the haunted house attraction on the strip filed a Chapter 11 Bankruptcy Petition on July 1, 2013.....time will tell if the haunted attraction disappears ....

If you like haunted houses, then its time to check it out!!

Las Vegas Sun Article on Bankruptcy

Goretorium Website