BankruptcyProf Blog

Circuit Court of Appeals cases from Last Week

7th Circuit Court of Appeals, November 18, 2009
Boyer v. Crown Stock Distrib., Inc., --- F.3d ---, 2009 WL --------- (7th Cir. 2009)(judgment for trustee in fraudulent conveyance action is affirmed in part and reversed in part where: 1) bankruptcy court did not commit clear error in finding that the statutory condition for a fraudulent conveyance was satisfied; and 2) district court's ruling with respect to the dividend is reversed as the trustee is entitled to the dividend because it was an integral part of the leveraged buy-out)

9th Circuit Court of Appeals, November 20, 2009
Severo v. Comm'r of Int'l Rev., --- F.3d ---,  2009 WL ----------- (9th Cir. 2009)(IRS permitted to proceed with collection action relating to petitioners' 1990 tax liability because statute of limitations regarding collection was tolled during the pendency of petitioners' bankruptcy proceedings)

Thanks as always to Findlaw.com 

Financial Lawyers Conference Program with Ken Klee - December 10, 2009

(If it says Ken Klee, It's worth posting and is highly recommended)

Financial Lawyers Conference

FOR MORE INFORMATION: www.financiallawyers.org

"Current Topics in Bankruptcy Litigation: Five Causes of Action, A Theory of Damages, and a Defense"

Thursday, December 10, 2009
Ken and Matt will discuss at least five cutting-edge issues in bankruptcy litigation: equitable subordination, recharacterization, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, and deepening insolvency (including deepening insolvency as a measure of damages and the defense of in pari delicto).
Register Online

Speakers: Kenneth N. Klee, Klee, Tuchin, Bogdanoff & Stern LLP
Matthew Heyn, Klee, Tuchin, Bogdanoff & Stern LLP

Location: The Olympic Collection
11301 W. Olympic Boulevard
Los Angeles, California

Time: 6:00pm - 6:45 pm - Registration and Cocktails
6:45pm - 7:30 pm - Dinner
7:30pm - 8:30 pm - Program

Cost: $70.00 FLC Members
$85.00 Nonmembers
$40.00 Lawyers in Gov’t Svc.

9th Circuit BAP Adds to Debate on Above-Median Chapter 13 Plans, How to Compute Projected Disposable Income

American Express Bank v. Smith (In re Smith), ---- B.R. ----, 2009 WL -------- (9th Cir. BAP Oct, 2009)

Issue:   When computing the chapter 13 plan payment, can an above-median chapter 13 debtor deduct payments to secured creditors for property they intend to abandon?   

Holding:   No.   

Trial Judge:  Paul Snyder, Washington
Montali, Jury, Hollowell

Opinion by Montali (Hollowell dissenting)
These are above-median chapter 13 debtors.  Their means test net income was minus $1,789.  That included deduction for payments to secured creditors for “two houses and a vehicle” which they were surrendering.  The plan proposed to pay $889 for six months which would pay 4% to unsecured creditors.  The debtors’ I and J net was apparently (as it is not clear) about $900 to the positive.  The chapter 13 trustee and a creditor objected that the debtors were not paying their “projected disposable income” and the plan was not proposed in good faith.  If the means test did not include the secured payments and did include the housing allowance, the debtors had a positive net of $4,191 per month and could pay unsecured creditors in full in 24 months.  The bankruptcy court overruled the objections.  “The bankruptcy court held that section 1325(b)(3) supersedes -- not supplements -- subsection (b)(2) when debtors have above-median incomes.”

The BAP reversed, 2-1.  It first dealt with Kagenveama.  “The issue before the Ninth Circuit in Kagenveama did not involve either the determination of what are proper expenses (under section 1325(b)(2)) or the measurement of them (under section (b)(3)).” 

It then states:

“Subsections (b)(2) and (b)(3) of section 1325, read together, provide that if an expense is not reasonably necessary for a debtor’s and/or dependants’ maintenance and support, it is not included in the calculation of disposable income.  If the expense is reasonably necessary, and the debtor is an above median income debtor, subsection (b)(3) requires the court to determine the amount in accordance with section 707(b)(2).”
 
“If the expense is reasonably necessary for the debtor’s and/or dependants’ maintenance and support, then section 1325(b)(3) requires the court to determine the amount in accordance with section  707(b)(2).”  “Items that a debtor has surrendered or intends to surrender are not necessary for his or her support or maintenance.  The concepts -- surrender and necessity – are mutually exclusive of one another. Phantom payments for the surrendered item are not reasonably necessary for a debtor’s support and maintenance.”

Dissent of Hollowell.

“Under the guise of a plain meaning statutory analysis, the majority holds that § 1325(b)(2) and (b)(3) must be read sequentially, thereby arriving at a ‘common sense’ result which only permits an above median-income debtor to use the means test to calculate expenses after the debtor demonstrates the expense is reasonably necessary.  While I sympathize with the majority’s desire to achieve a common sense result, I cannot agree with its contorted statutory analysis.” 

“I cannot join my colleagues in an interpretation that upends the statutory inclusion of the means test in chapter 13, reverting back to the pre-BAPCPA judicial discretion as to what expenses of a debtor are reasonably necessary.”

Continue reading "9th Circuit BAP Adds to Debate on Above-Median Chapter 13 Plans, How to Compute Projected Disposable Income"

Ninth Circuit Annual Report 2008

This was completed in August, 2009.  I'm a little late in posting it but its kind of a fun read.  There is a little article on page 31 about Dennis Montali and one on Judge Richard Medick who died in 2008 on page 13.   

Circuit Court of Appeals Cases from Last Week

3rd Circuit Court of Appeals, November 12, 2009
In re Madera, --- F.3d ---, 2009 WL ----------- (3rd Cir. 2009)(summary judgment for creditor is affirmed where 1) the Rooker-Feldman precluded the bankruptcy court's jurisdiction over debtors' rescission claim because that claim was inextricably intertwined with a Court of Common Pleas' foreclosure judgment; 2) summary judgment for creditor on the Truth in Lending Act damages claim appropriate; and 3) debtor's motion to amend was untimely)

5th Circuit Court of Appeals, November 12, 2009
In re Bradley, --- F.3d ---, 2009 WL ----------- (5th Cir. 2009)(contempt of court and monetary sanctions affirmed where: 1) civil contempt power extends to defiance of a bankruptcy court injunction whose terms are known, but which has not yet been formalized as required by procedural rules; and 2) the lack of agreement between the opposing parties briefing the motion for injunction did not render the resulting ruling unclear)

6th Circuit Court of Appeals, November 13, 2009
In re Nowak, --- F.3d ---, 2009 WL ----------- (6th Cir. 2009)(informal proof of claim not allowed where 1) plaintiff had ample notice of the likelihood that it would lose its status as a secured creditor, necessitating the filing of a proof of claim; 2) plaintiff's unexplained delay weighed against allowing plaintiff's informal proof of claim; and 3) the large dilution in the distribution to other creditors in this case was an appropriate consideration weighing against allowing plaintiff's claim)

Thanks to Findlaw.com  

Supreme Court Database

I will have to add this website to my sources.

NACBA Amicus Brief in Espinosa

Another great job by Tara Twomey.  You can access it here.  Oral argument is set for December 1, 2009.   

Court of Appeals Cases from Last Week

1st Circuit Court of Appeals, November 06, 2009
In re Smith, --- F.3d ----, 2009 WL ---------- (1st Cir. 2009)(late alimony payment penalty was not a domestic support obligation, and as such, the ex-wife's claim was a general unsecured claim not entitled to priority status and consequently dischargeable) 

2nd Circuit Court of Appeals, November 05, 2009
Ogle v. Fidelity & Deposit Co. of Md., --- F.3d ----, 2009 WL ---------- (2nd Cir. 2009)(liquidating trust must pay post-petition attorneys' fees on a claim that stemmed from a pre-petition indemnity agreement where such claims are categorically allowable)

9th Circuit Court of Appeals, November 05, 2009
In re Bender, --- F.3d ----, 2009 WL ---------- (9th Cir. 2009)(appeal dismissed as BAP's order re action seeking avoidance of a transfer was not final)

10th Circuit Court of Appeals, November 03, 2009
In re Paige, --- F.3d ----, 2009 WL ---------- (10th Cir. 2009)(dismissal of the appeal as moot is reversed where: 1) the competing chapter 11 plan could theoretically be confirmed without requiring disgorgement of payments made to third-party creditors; and 2) reversal of the existing plan would not require the undoing of complex transactions)

Thanks to Findlaw.com

Central District of California Filings Break 10,000 in October, 2009

From Prof. Lawless' data base, the Bankruptcy Data Project:

Filings by chapter in the Central District of California in October, 2009:

CACB

ch 7; 7839

ch 11; 107

ch 13; 2366

total; 10314

 

This compares to 9,089 total in September, 9,740 in August, and 9,886 filings in July, 9,578 in June, 8,965 in May, 8,398 in April, 8,518 in March, 6,967 in February and 5,999 in January. 

Chapter 13s were 2,366 in October, 2,025, in September, 2,180 in August, 2,053 in July, 2,291 in June, 1,988 in May.  Chapter 13 trustees received 473 new petitions each in October.

Total Central District filings in October by the way were more than double the entire state of New York,  10,314 to 5,117 and roughly double the entire state of Texas, 10,314 to 5,274.  So about the same as the Texas and New York combined.   

Prof. Jean Braucher Leads Great Thread on In re Lanning

This is such a great thread from another list serve about In re Lanning, the chapter 13 case now before the Supreme Court which deals with the question, how do you compute the plan payment for an over-median debtor? 

From Karen Cordry,
Well, what can I say -- they decided Marrama on the "we don't believe Congress wanted this crazy result" analysis.  I think deciding all three case (Espinosa, the trustee exemption case (Reilly?) and this one) on the "anti-abuse" approach would take a much smaller stretch than that case. 

And, in going back and looking at Lanning, I had forgotten, but that is one where the Tenth Circuit opinion took the flexible view to PROTECT the debtor (she had gotten one-time income during the 6 months prebankruptcy) and using the strict calculation would have left her being required to pay far more than she was actually making.  So, I shouldn't say the latter view is necessarily "anti-debtor," as much as "pro reality."  On the whole, my guess is that upholding the Tenth Circuit approach will probably benefit more creditors than debtors, just because of the asymmetry arising from the debtor's right to choose when to file, and the fact that the means test quirks tend to go in the direction of allowing more expenses than the debtor actually pays.  But, the legal fact is that it actually works both ways and the debtor is the one trying to uphold the ruling in this instance. 

Karen Cordry, Bankruptcy Counsel
National Association of Attorneys General, Washington, DC  20036

From Prof. Jean Braucher,
The Supreme Court granted cert on this question:

“Whether, in calculating the debtor's "projected disposable income" during the plan period, the bankruptcy court may consider evidence suggesting that the debtor's income or expenses during that period are likely to be different from her income or expenses during the pre-filing period.”  The question is much broader than necessary to decide the Lanning case.

A possible answer starts with the point that the debtor in this case, whose income had an upward blip because of a one-time buyout from her former employer during the six months before filing, could simply have waited to file, that is until CMI lined up with her current income.  There is no indication she needed to rush, for example to stave off foreclosure.  Even if she did need to file immediately, section 101(10A)(A)(ii) provides for the CMI period to be moved forward by the debtor to deal with Lanning-type facts.  Several cases have so held—the debtor also needs to seek approval not to file a schedule of current income.  See notes 66 and 77 in this article of mine for the cites to cases from North Carolina and Illinois:  http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1428927 So it is unnecessary to read another mechanism for moving forward the period for measuring CMI into section 1325(b).

Continue reading "Prof. Jean Braucher Leads Great Thread on In re Lanning"

Circuit Court of Appeals Cases from Last Week

(well - a week late)

5th Circuit Court of Appeals, October 30, 2009
In the Matter of: Proeducation Int'l. Inc., --- F.3d ---, 2009 WL ------------- (5th Cir. 2009)(counsel for creditor should not have been disqualified where: 1) the bankruptcy court should have considered counsel's evidence of his lack of involvement with the debtor while at his prior law firm in making its decision; and 2) counsel presented sufficient evidence to demonstrate that he did not operate under a conflict of interest when he undertook the representation of creditor).

10th Circuit Court of Appeals, October 28, 2009
In re Riebesell, --- F.3d ---, 2009 WL ------------- (5th Cir. 2009)(debt of attorney debtor to his former client not discharged where: 1) the parties had an attorney-client relationship during the relevant period under Colorado law; 2) the loans to debtor attorney were not "standard commercial transactions" exempt from the requirements of Colo. R. Prof'l Conduct 1.8(a); and 3) the bankruptcy court's finding that defendant had the requisite intent to deceive plaintiff was not clearly erroneous)

Transcript in Schwab v. Reilly

I'm finally getting a chance to read it.  You can access it here.   

Questions to the Trustee's Counsel:

JUSTICE GINSBURG: The question is whether -- the question is whether the trustee had to make an objection, when it seems really as clear as could be that what she was seeking was to keep her equipment, not to get the -- some monetary equivalent for it.

JUSTICE KENNEDY: What -- what -- what you are doing there, you -- you argue that ambiguities are construed against the person that made the form. I think that's a little harsh when the trustee is a repeat player and knows -- and know the rules.

Questions to Debtor's Counsel:

JUSTICE BREYER: How long do these creditors meetings last? How easy are they to postpone? How -how easy is it for the trustee to get the information together during the creditors meeting, et cetera, et cetera; where do I look to find out the answer to that question?

 JUSTICE SOTOMAYOR: Counsel, in -- what's interesting is that all of the circuits or most of the majority have not address -- announced the fixed rule. The rule they said is, it depends on the circumstances. And so it appears to me that most of the courts are saying to us, we don't want a default rule, because we have to see what has happened and see what has happened between the parties to determine in one situation rather than another what the intent was. It's not an irrational rule.  Why shouldn't we be considering that as an alternative? Because once we make an announcement like the one that you're proposing, it is an inducement to undervalue your property for a debtor because -- in the hopes that an overly worked trustee won't have either the time or opportunity or wherewithal to understand that the value is off and that they're going to lose something that the estate is entitled to.

October Filings Up

Total bankruptcy filings for October, 2009 were 130,200, up 3.7% from September, 2009 of 125,500; compared to 120,000 in August; 130,500 in July; 124,800 in June; 120,400 in May; 128,700 in April, 131,000 in March, 102,000 in February and 89,000 in January.

Total filings Jan through October, 2009; 1,211,300
Total filings Jan through October, 2008;   908,700
Total filings Jan through October, 2007;   687,000

I'm not sure this means things continue to get worse.  I am getting a lot of calls from people trying to hold off hoping to get a loan modification and slowly giving up.   

Supreme Court Grants Cert in Lanning

Boy, four bankruptcy cases in one term - so far!  The 10th Circuit opinion is here.  This is about what means "projected disposable income" in chapter 13.  Doesn't sound too tough, eh?  But the code is very specific about how to compute "disposable income" and that is by looking back to income for the past six months and then subtracting amounts from a bunch of charts - that is disposable income.  Do you take that amount and "project" it into the future, i.e., the net amount computed times x months?  Or do you ignore the computations and look to the future for the result?  Lanning says you ignore the computations  Kagenveama in the 9th Circuit says you do it the way the code says even though it gets you to a ridiculous result a lot of the time.  .    

Bankruptcy Ethics Symposium

6th ANNUAL BANKRUPTCY ETHICS SYMPOSIUM

December 18, 2009
Time: 9:00 a.m. - 12:45 p.m.
Registration 8:30 a.m. - 9:00 a.m.

Topics include: Ethics of Pre-Bankruptcy Planning; Issues in Client Confidentiality: An Ethics Conversation with Professor Klee

Location:  United States Trustee 341(a) Meeting Room
725 S. Figueroa St, Los Angeles

Cost: $20.00 FBA Members; $25 CDCBAA and LABF members; $35 non-members
Please RSVP by December 14th.  At door registration is $45
Click here for registration flyer and additional information

 
E-FILING TRAINING PROGRAM
FBA approved e-filing classes are offered through an outside provider.  These classes are designed to enable attorneys and support staff to comfortably utilize the District Court's CM/ECF filing system and to satisfy the Court's mandatory training requirement for attorneys.  For more information or to schedule a class, please contact:
Patrick Watkins, Watkins Consulting, LLC
 www.traincm-ecf.com
email: watkinsconsult@yahoo.com
Tel: 213.400.0175
  

Solicitor General Supports Cert in In re Lanning

The Solicitor General has filed an invitation brief with the Supreme Court in the In re Lanning case.  Lanning presents nicely the issue of what means "projected disposable income" in chapter 13?  It reaches a contrary conclusion to Kagenveama, that is, Lanning holds that the bankruptcy court can look into the future when deciding whether or not the debtor is paying her projected disposable income into the plan, rather than the mechanical approach of Kagenveama.  Lanning is an above median debtor but only because she received a sizable one-time bonus in the previous six months.  Using the mechanical approach, she cannot make the required plan payment. The bankruptcy court took a practical approach and confirmed the plan even though the payment was below the mechanical payment approach.  Maybe we will get another Supreme Court case this year. 

McCourt Divorce Pleadings

Sorry, it's the voyeur in me.  This is the McCourt pleadings filed in Superior Court yesterday.  I got them from the L.A. Times' website.  I do intend to use the pleadings in my Business Organizations class tonight to discuss the mechanics of pitching Jamie out of the various entities and the corporate obligations of each to each other. 

Overview of Current Supreme Court Term - Georgetown Law Supreme Court Institute

Preview of this term (47 pages stolen from the Scotusbog.com which you are hereby ordered to look at every day).  . 

LACBA Bankruptcy Program - November 17, 2009 - With Yours Truly as a Speaker

Recent Bankruptcy Decisions in the Ninth Circuit: What You Need to Know 
  
11/17/2009

Presented by: Commercial Law and Bankruptcy Section

Subsection/Committee: Bankruptcy Committee

Program Information:
A distinguished panel of bankruptcy lawyers will discuss the pitfalls, problems, and detours around the bankruptcy decisions within the Ninth Circuit.

Speakers:
Bernard D. Bollinger Jr., Buchalter Nemer
M. Jonathan Hayes, Law Office of M Jonathan Hayes
Aram Ordubegian, Arent Fox LLP
Jason D. Wallach, Gladstone Michel Weisberg Willner & Sloane ALC

Location:
Los Angeles County Bar Association, 1055 West 7th Street 27th Floor , Los Angeles

Parking:
1055 W. 7th Street: $10 with validation
Other parking lots in area at prices starting at $5.00

Times:
Registration: 12:00 - 12:30 p.m.
Meal/Reception: 12:00 p.m.
Program: 12:30 - 1:30 p.m.

Continue reading "LACBA Bankruptcy Program - November 17, 2009 - With Yours Truly as a Speaker"

9th Circuit to Hold Oral Arguments at UCLA - October 28, 2009

The announcement can be accessed here.