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

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

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The 9th Cir. BAP in an unpublished decision held that the denial of a motion to abstain is not a final order under 28 USC 1334(c) as it does not "end the litigation on the merits".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

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

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
separation‐of‐powers principles. 

We also hold that the bankruptcy judge lacked constitutional

authority to enter a final judgment on the alter‐ego 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

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

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

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

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.

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

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

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

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)

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

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!

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)

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