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

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 800ideas.com, 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 1800ideas.com (9th Cir. July 22, 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.

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

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).