BankruptcyProf Blog

New IRS Form for Mortgage Forgiveness Income

Here is the IRS Announcement and their new form for reporting income under the Mortgage Forgiveness Debt Relief Act of 2007.  Surprisingly, the IRS will permit the new law to apply to refinance debts even though, by its terms, the Act applies to the discharge of "qualified principal residence indebtedness" which means "acquisition indebtedness."   

Consumer Bankruptcy Program with US Trustee

Central District Consumer Bankruptcy Attorneys Association

Date:    April 26, 2008

Time:     9:00 A.M.        Board of Director’s Meeting
            10:00 A.M.        General Membership Meeting
            11:00 A.M.        Program

Place:  University of West Los Angeles School of Law
           9920 S. La Cienega Blvd., Suite 404,
           Inglewood, CA 90301-4423

“Hot topics with the U.S. Trustee: Means Test and Beyond"

Speakers from the UST:
Jill Sturtevant, Esq., Kenneth Lau, Esq.,Phil Green, Esq.

Moderator:
David Tilem, Esq.

Other Upcoming Events:

  June 19, 2008              BAP Dinner: "Volume II: Effective advocacy before the
                                       BAP: BAP Panel Judges Dennis Montali, Randall Dunn
                                       and Bruce Markell together with BAP Clerk of Court,
                                       Harold Marenus"

Foreclosures in California

The LA Times has some hard facts, at least about California foreclosures, and its pretty scary.

The first quarter of 2008 saw 47,000 foreclosures in California compared to 11,000 for the same quarter a year ago for a 327% increase.  Los Angeles County had 7,054 compared to 1,702 a year ago.  I don't think this is translating into more chapter 13 filings but I'm going to try to get some facts on that today. 

Frontier Airline's Creditor's Meeting is Tomorrow

The First Meeting of Creditors under Section 341(a) in the Frontier chapter 11 case is tomorrow in New York at 11:00 a.m. (New York time) at The Westin New York at Times Square, 270 West 43rd Street, (between 7th and 8th Avenues), New York, NY 10036, (212) 201-2700.

World Health Alternatives, Inc. - Delaware Court Confirms Fiduciary Duties of Corporate Officers

Miller v. McDonald (In re World Health Alternatives, Inc.)  ---- B.R. ----, 2008 WL 1002035 (Bkrtcy D.Del. April 2008)

Issue:   Do corporate officers owe a fiduciary duty to a corporation?  Do they breach this duty by “failing to implement an adequate monitoring system and/or the failure to utilize such system to safeguard against corporate wrongdoing”?            

Holding:      Yes - Yes

Judge Walsh

The trustee sued numerous former executives of this debtor including Brian Licastro, in house counsel and vice-president of operations, for breach of fiduciary duties, aiding and abetting breaches, corporate waste, and numerous other causes of action.  This is the ruling on Licastro’s Motion to Dismiss under FRCP 12(b)(6).  The Motion was denied in part and granted in part.   

When World Heath became a public corporation in early 2003, apparently through the promoting efforts of one Richard E. McDonald, it had $245,000 in assets and negative equity of some $90,000.  It had sustained a $400,000 loss in the previous quarter.  During the next year, it raised some $40 million to buy eight different businesses in the health care staffing industry.  The accounting systems were bad however and made worse by the misrepresentations of McDonald.  The SEC were reports were fraudulent (according to the trustee and accepted as true for 12(b)(6) purposes), and huge amounts of liabilities went unreported.  “The Trustee claims that these reports were false and misleading because World Health lacked adequate internal controls and was, therefore, unable to ascertain its true financial condition.”  The company filed chapter 11 in 2006 and that was converted to chapter 7 the same year. 

“The basis for the Trustee's claim is that Licastro breached his duty of care by failing to implement an adequate monitoring system and/or the failure to utilize such system to safeguard against corporate wrongdoing.”   Judge Walsh concluded, “[T]he Trustee appropriately asserts that Licastro as the in-house general counsel and the only lawyer in top management of World Health during the relevant period, had a duty to know or should have known of these corporate wrong doings and reported such breaches of fiduciary duties by the management.”  Licastro argued that these are proper obligations of directors but he was only an officer.  The court confirmed that duty of officers saying “It is correct that Delaware law does not impose fiduciary duty on ‘employees’ generally, but it is incorrect that it does not impose failure of oversight (fiduciary duty) as to officers.  Of course, Licastro was not just an ‘employee’; he was an officer in two respects, vice president of operations and general counsel.”