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

Sunday, July 14, 2013

New Nevada Bankruptcy Judge - 7-12-13


Laurel E. Davis

Laurel Elizabeth Davis was sworn in as a Nevada Bankruptcy Judge on July 12, 2013. Prior to taking the bench, Judge Davis practiced law for 26 years in Nevada and Arizona. She represented debtors, including individuals; trustees; committees and creditors in bankruptcy proceedings and litigation, commercial litigation, mediation, arbitration, workouts and restructuring. She also served as a chapter 11 trustee. Judge Davis specialized in high net worth chapter 11 debtors as well as sensitive matters involving ethics issues, disgorgement and show cause orders issued to companies, law firms and attorneys.

Since 1993, Judge Davis has held a business bankruptcy certification from the American Board of Certification, which is accredited by the American Bar Association. Ms. Davis was Chair of the Nevada State Bar Bankruptcy Section in 2010 and 2011. In 2012 and 2013, she was recognized by Benchmark Litigation as among the Top 250 Women in Litigation in the Nation, and as a 2012 Rising Star. She was a Ninth Circuit Lawyer Representative from 2001 to 2004, and in 2004 served as co-chair of the Nevada Delegation and member of the Lawyer Representative Coordinating Committee. 

Ms. Davis is a Master with the Howard D. McKibben Inn of Court, is a Nevada Transitioning Into Practice Mentor, serves on numerous bench/bar committees for the Bankruptcy and U.S. District Courts, and is active in various professional, community and public service organizations. Ms. Davis regularly writes and speaks on topics which include ethics, litigation, real estate and bankruptcy.

Ms. Davis provides pro bono service to indigent clients through the Legal Aid Center of Southern Nevada, where she serves on the Executive Committee for the Mid Case Bankruptcy Panel. Her contributions have been recognized through several awards received from the Center, as well as an award of fees from the Nevada Supreme Court for the successful prosecution of an appeal for a pro bono client.

A native of Utah, Ms. Davis received her B.S. in Hotel Administration from the University of Nevada, Las Vegas in 1983, and her JD, magna cum laude, from the University of San Diego School of Law in 1987.