November 28, 2008
9th Circuit Rules on Requirement that a Debtor Keep Records
Sun Communities v. Caneva (In re Caneva), ---- F. 3d ----, 2008 WL -------- (9th Cir. November 2008)
Issue: Does the debtor’s admission that he did not keep business records establish a prima facie case that his discharge should be denied such that summary judgment is appropriate?
appeal from District Court Arizona
This chapter 7 debtor owned and operated “numerous business entities, recreational vehicle and mobile home parks in Florida, and an airplane.” Sun Communities filed an adversary proceeding asserting that the debtor should be denied a discharge for failure to keep sufficient books and records. Section 727(a)(3). During a 2004 exam, the debtor “admitted that he kept no records for the entities, despite the fact that some of them had business operations and others existed as holding companies for active businesses. [He] also admitted during the Rule 2004 Examination that he had no documentation regarding the payment of $500,000 to Bowden as a brokerage fee for a $20 million loan that [the debtor] stated he did not receive.” Sun filed a Motion for Summary Judgment which was granted. The district court affirmed.
The 9th Circuit affirmed also. “The statute does not require absolute completeness in making or keeping records. Rather, the debtor must ‘present sufficient written evidence which will enable his creditors reasonably to ascertain his present financial condition and to follow his business transactions for a reasonable period in the past.’ This exception to dischargeability, however, ‘should be strictly construed in order to serve the Bankruptcy Act’s purpose of giving debtors a fresh start.’ A creditor states a prima facie case under § 727(a)(3) by showing ‘(1) that the debtor failed to maintain and preserve adequate records, and (2) that such failure makes it impossible to ascertain the debtor’s financial condition and material business transactions.’ After showing inadequate or nonexistent records, ‘the burden of proof then shifts to the debtor to justify the inadequacy or nonexistence of the records.’”
The debtor argued that there was a triable issue of fact as to whether the significant records that were turned over were sufficient to meet the test. He also argued that additional records were available to Sun through at least one criminal action that had taken place prepetition. “We disagree. The Seventh Circuit has held that § 727(a)(3) ‘places an affirmative duty on the debtor to create books and records accurately documenting his business affairs.” Peterson v. Scott (In re Scott), 172 F.3d 959, 969 (7th Cir. 1999) The court also noted that when a debtor is sophisticated and carries on a business involving substantial assets, ‘creditors have an expectation of greater and better record keeping.’” “Without the records that [the debtor] admitted he did not keep, Sun cannot determine what assets his business entities held or may still hold, what assets passed through them and where they might have gone, and what their present value is, if anything. Without any documentation related to the payment to Bowden, Sun cannot determine the details of that transaction or verify that it actually took place.” Further the debtor did not provide any justification for the failure to keep records in his opposition to the MSJ.
November 27, 2008
Bainbridge on Twenty Years of Law Teaching
Professor Steven Bainbridge's article, Reflections on Twenty Years of Law Teaching can be accessed here. I have always been a "soft socratic" teacher, as Prof. Bainbridge describes it, and will remain so. Bainbridge discusses whether law school teaches students how to think like lawyers. I have no doubt about it. Even the most inattentive students who spend the minimum amount of time studying (usually at the end of the semester as panic sets in) learn the basic rules on the subject and can spew them back on the test. But ask the student in class whether or not the federal court will have jurisdiction if I sue my former client who lives in Florida, their eyes glaze over, they panic trying to find those rules on their laptop while I am waiting for some analysis. The rules on personal jurisdiction, subject matter jurisdiction and venue, which I have spent hours discussing, become a jumbled mess when finally put into a very simple fact hypothetical. A big part of that is a lack of effort, but a big part is that students have difficulty thinking like a lawyer. It is something that is learned. I tell my students to stop thinking like a law student and start thinking like a lawyer. A law student searches for "issues," usually as many as possible, or at least as many as there are rules that they remember. A lawyer trys to solve Joe's problem, the guy sitting in his office spewing out facts in random order, which must be assimilated into the rules, and a conclusion reached and advice given to help Joe solve his problem. Ah! IRAC. It works.
Having said all of that, I am mindful that professors these days are using power point more and posting recordings on blogs or school websites and assigning cases to students in advance and various other "new" teaching strategies. I'm working to learn and use these; the goal really is to prepare interested and motivated persons to become lawyers. It is a goal I enjoy.
November 26, 2008
Letter from President of cdcbaa to California Attorney General re Attack on California Wildcard Exemption
Dear Mr. Krueger,
I write to you as the President of the Central District of California Consumer Bankruptcy Attorneys Association (cdcbaa). We are the second largest organization of consumer bankruptcy attorneys in the United States, second only to the National Association of Consumber Bankruptcy Attorneys (NACBA). The cdcbaa consists of about 170 members based in the Central District of California (from San Luis Obispo, Orange, Riverside, Los Angeles, San Bernardino, Ventura and Santa Barbara Counties); the largest Federal District in the country. In the past, nearly 10% of all bankruptcy filings have originated in this District. We are also the sponsoring organization for the Southern California Bankruptcy Inn of Court, a member of the International Inn of Court; counting among its members and participants several Bankruptcy Judges, the United States Trustee for the Region, as well as attorneys from the Unites States Attorneys Office, and law professors.
We have been communicating and standing ready to assist Mr. Furlong and other Arizona and Ninth Circuit bankruptcy attorneys who find their use of the California exemptions under attack. We have been provided by Mr. Furlong with the emails that you have read. We encourage the California Attorney General to intervene in the pending matter in which Mr. Furlong is counsel, as well as examining the need to protect the "wild card" exemption for California residents and former residence who are attempting to preserve what few assets they may have left during these trying (and yet more to come) economic times. In the absence of any home equity from which to claim a $50,000 to $150,000 exemption, homeowners are relying more on the Wild Card exemption of CCP 703.140 to retain property from liquidation by hungry bankruptcy trustees. The Wild Card exemption is further important in the course of a liquidation analysis under Chapter 13, when there are nonexempt assets that may be liquidated in a Chapter 7. A Chapter 13 Trustee may move for conversion and liquidation; especially, if the debtors otherwise have insufficient income to pay claims. Clearly these are very important issues, guided by the legislative intent to preserve home ownership and stabilize our economy.
Bankruptcy, one of the oldest forms of economic recovery, dating back to Deuteronomy and the United States Constitution provisions that require Congress to enact uniform Bankruptcy laws, is the root of our capitalist form of economy. Even those former Eastern Block countries that seek membership in the Europeon Union must enact laws on Bankruptcy. Our own Central District Bankruptcy Judge, Samuel Bufford, travels the world lecturing and instructing jurists and legislators on how to interpret and devise bankruptcy laws. His latest travels are taking him to China! In California, the exemption scheme enables Californians of all economic strata to retain some semblance of economic stability. And, using either Chapter 13 or Chapter 11 to value homes and eliminate wholly undersecured second and third deeds of trust, while maintaining current payments on first deeds of trust, will enable the consumer bankruptcy attorneys and the courts to slow the spread of foreclosure and loss of home ownership. Truly, one home at a time! The Wild Card Exemption of CCP 703.140 is one of the cornerstones in that strategy, because the debtor's ability to pay based upon income, rather than the addition of nonexempt property, is taken into consideration.
We therefore encourage your office to carefully examine and support intervention in the Arizona case to preserve the California exemption scheme.
As the President of the cdcbaa, I further encourage your office to accept our invitation to send a representative to be member in 2009 in the cdcbaa, as well as the Inn of Court. It is important during these economic times that the California Attorney General Offices joins with the Bankruptcy Judges of the Central District of California to maintain an open dialogue with the consumer bankruptcy attorneys who are in the trenches, in the line of fire and in the emergency rooms of the economy. No business school or bank economist can provide you with greater access to the real economy as the 170 members of the cdcbaa. Please join our group and participate in our members only ListServ, sharing inquiries and ideas 24/7.
Should you have any questions, please do not hesitate to ask them in a further or reply email, and by all means, please do not hesitate to call.
Thank you, and best regards, Lou Esbin
Louis J. Esbin, Esq.
Law Offices of Louis J. Esbin
27201 Tourney Road, Suite 122, Valencia, CA 91355-1857
Tel: 661-254-5050 | Fax: 661-254-5252 | Web: www.Esbinlaw.com
Certified Bankruptcy Specialist - State Bar of California Board of Legal Specialization.
November 25, 2008
Leon Bayer on Your Legal Rights Radio Program
I will be interviewed on the radio show "Your Legal Rights" sponsored by the State Bar of California Committee on Legal Specialization. The program will air tomorrow (11/26), on KALW. We'll be on the air from 7:30 - 8:30 PM. In the Bay Area the program is on 91.7 FM. For the rest of the state we're on the Internet at www.kalw.org. We will take calls, live on the air from people with bankruptcy questions. Any listeners who are unable to get through can contact me via my email and through my web site.
LEON D. BAYER*
Bayer, Wishman & Leotta
888 S. Figueroa Street, Suite 1970
Los Angeles, CA 90017
Toll Free: 800-477-3111
* Certified Specialist, Bankruptcy Law, State Bar of California
Board of Legal Specialization
9th Circuit Rules that Payment to Trustee of a Preference Resurrects the Debt for Non-Dischargeability Purposes
Busseto Foods v. Laizure (In re Laizure), ---- F. 3d ----, 2008 WL ------ (9th Cir. November 2008)
Issue: When the debtor pays an otherwise non-dischargeable debt to the creditor during the prepetition preference period and the creditor is forced to return the payment later to the trustee, is the debt resurrected to the extent that the creditor can obtain a non-dischargeability judgment?
appeal from BAP
The debtor admitted prepetition to embezzling from his employer, the plaintiff here. The debtor settled with the employer and made 3 payments based on the settlement. When the debtor filed chapter 7, the trustee sued the employer to return the last the payments, $38,000, as a preference. The employer paid the trustee and then filed a non-dischargeability action against the debtor. The debtor defended saying that there was no debt when the chapter 7 was filed and repaying the payment to the trustee did not resurrect the debt so it could not be non-dischargeable. The bankruptcy court ruled for the debtor and the BAP affirmed.
The 9th Circuit reversed. “According to the language of § 502(h), the trustee, through using this § 550 recovery ability, revived Busseto’s claim to prepetition status. Consequently, Busseto has a claim against Laizure ‘the same as if . . . [it] had arisen before the date of the filing of the petition.’ 11 U.S.C. § 502(h).” Section 502(h) states that a “claim arising from the recovery of property
under section . . . 550 . . . of this title shall be determined, and shall be allowed . . . or disallowed . . ., the same as if such claim had arisen before the date of the filing of the petition.” “The BAP’s conclusion . . . conflicts with our precedent as well as the relevant statutory language. In In re Verco we stated: [T]he import of Section 502(h) is that where a claim is allowable as provided in that section, its status is as a claim in existence on the date of the filing of the petition regardless of when, after the petition, the trustee has taken the necessary action and recovered.”
November 24, 2008
3rd Circuit Rules for Lender in TILA Case
In re Sterten, ---- F.3d ----, 2008 WL 4780109 (3rd Cir. November, 2008)
Issue: Was the defendant lender in this TILA case required to assert its statutory “tolerances for accuracy” defense specifically as an affirmative defense?
This chapter 13 debtor filed an adversary proceeding against her lender “seeking recission of the loan along with various statutory penalties.” At trial, the bankruptcy court ruled in favor of the lender on numerous facts although the parties agreed that certain required disclosures had not been made. “The Court then sua sponte applied [TILA’s] tolerances for accuracy provision, 15 U.S.C. § 1605(f), concluding that, because the $57 in nondisclosed finance charges were within the tolerance range, the disclosure was ‘accurate as a matter of law.’” The debtor argued that the provision was required to be pled as an affirmative defense which it was not and therefore could not be used by the lender at trial. The bankruptcy court agreed with the debtor and entered judgment for the debtor. The district court reversed.
The 3rd Circuit affirmed the district court. “The question we face is whether [TILA’s] tolerance for error is invoked by a Rule 8(b) general denial, or whether it falls within Rule 8(c)'s catch-all ‘any other matter’ provision and therefore requires affirmative pleading.” “It is helpful to look instead at what Rule 8(c) is intended to avoid. As we have explained in a different context, ‘[t]he purpose of requiring the defendant to plead available affirmative defenses in his answer is to avoid surprise and undue prejudice by providing the plaintiff with notice and the opportunity to demonstrate why the affirmative defense should not succeed.’” “We see no reason to think that [the debtor] suffered any ‘unfair surprise’ as a consequence of Option One's failure to plead specifically the tolerances for accuracy defense.” The debtor “cannot establish that she suffered any prejudice as a result of Option One's failure to raise the issue. Cf. Cetel, 460 F.3d at 506 (holding that, even in the case of an affirmative defense, there is no waiver if there is ‘no prejudice’).” Footnote 6 of the opinion states: “Option One contends that it did raise the tolerances provision as an affirmative defense in its answer. Its argument to that effect is, however, unconvincing. Its answer included a section labeled ‘Affirmative Defenses,’ which asserted, among other defenses, that ‘Option One Mortgage Corporation acted at all times relevant hereto in full compliance with all applicable laws and acts.’ But simply contending that, as a general matter, the applicable laws were complied with is not enough to plead a true affirmative defense adequately.”
November 23, 2008
Circuit Court of Appeals Cases for Last Week
10th Circuit Court of Appeals, November 13, 2008
Mosier v. Callister, Nebeker & McCullough, --- F.3d ---- 2008 WL ------ (10th Cir. 2008)(where trustee sued debtor's attorneys for malpractice, summary judgment for atttorneys is affirmed on in pari delicto defense)
10th Circuit Court of Appeals, November 13, 2008
In re Lanning, --- F.3d ---- 2008 WL ------ (10th Cir. 2008)(projected disposable income for above-median Chapter 13 debtor computed using the "forward-looking approach")
Thanks to Findlaw.com