BankruptcyProf Blog

Update on Proposed Legislation

WASHINGTON -- House Democrats have pushed back until next week a vote on legislation to allow bankruptcy judges to reduce the principal balance of mortgage loans, after some in their party raised concerns about the measure.

Speaker Nancy Pelosi (D., Calif.) said the vote, which was scheduled for Thursday, will be postponed so that House Democrats can meet Monday evening with Housing Secretary Shaun Donovan to discuss the measure.

The vote is now likely to occur no earlier than Tuesday, though the House began debating the measure Thursday.

The postponement comes shortly after the legislation's Senate author, Sen. Dick Durbin (D., Ill.), said he would be open to limiting the measure to just subprime mortgages.

Some centrist Democrats began to waver after the remarks, balking at supporting a controversial bill amid signs that the Senate might pass a narrower version. The Obama administration, which backs the measure, also proposed tighter restrictions than are contained in the House legislation.

At a meeting of House Democrats Thursday, centrist Democrats raised concerns that the measure offered little help for troubled homeowners who don't want to turn to the bankruptcy courts for relief, Rep. Ellen Tauscher (D., Calif.), said.

The bulk of her constituents who are struggling with mortgage payments "want a quality government loan modification," Ms. Tauscher, a leader of the business-friendly New Democrat Coalition, said.

She added that she and other New Democrats would support the legislation, but wanted assurances from Donovan than the Obama administration was moving swiftly on its plan to offer incentives for mortgage servicers to modify loans. They also want to hear more details about the plan, Ms. Tausher said.

"As of now, we have a skeleton of a program and there still are some Gordian knots that need to be worked out," she said.

The administration is set to release the details of its plan next Wednesday.

Under the legislation, strapped borrowers could have the principal balance of their mortgage loan reduced by a bankruptcy judge -- known as cram down. Currently only vacation properties, and not primary residences, can be crammed down by a judge.

The banking industry has been lobbying fiercely against the measure, contending it would raise borrowing costs on all homeowners. The measure has nonetheless gained momentum in recent weeks due to the shift in power in Washington and the perception that mortgage servicers haven't done enough to help strapped borrowers.

The Obama administration has made it a central plank of its plan to prop up the housing market. However, officials say they view it as a last resort, to be used only when serious attempts at voluntary modifications fail.

Proponents have already made one major concession to the banking industry, limiting the cram down authority only to existing mortgages in exchange for Citigroup's backing. Industry lobbyists are pushing to add further restrictions.

Some House Democrats appear unlikely to support the measure unless it is narrowed. "The criteria judges use [to rework mortgages] needs to be tightened," Rep. Allen Boyd (D., Fla.), a leader of the Blue Dog group of conservative Democrats.

In the Senate, it is unclear if proponents have the 60 votes necessary to avoid procedural obstacles to a vote. Only one Republican, Sen. Arlen Specter of Pennsylvania, has backed the measure.

Mr. Durbin on Tuesday told the American Banker trade publication that he was willing to restrict the authority to subprime mortgages.

Aside from the bankruptcy measure, the House legislation includes provisions to erect a safe harbor against investor lawsuits for servicers that modify loans. It would also revamp the Hope for Homeowners program, started last fall to help refinance troubled borrowers into more affordable government-backed loans.

— Michael R. Crittenden contributed to this report.

2009 Budget - Get Your Copy Here

Well not a copy of the whole budget but you can access the official 146 page summary entitled "A New Era of Responsibility - Renewing America's Promise" here.  You can buy a copy here.  I bought the budget book, actually a 1200 page appendix, in 1981.  I wonder how big the appendix is now?

9th Circuit Court of Appeals to Sit at University of Arizona

The 9th Circuit Court of Appeals is going to hold oral arguments on March 6, 2009 at the University of Arizona.  The flyer can be accessed here.  The judges will be Marsha Berzon, Michael Hawkins, and Richard Clifton.   

Upcoming Symposium on Justice Stevens at UC Davis

Date: Friday, March 6, 2009
Time:  9 a.m.-3:30 p.m.
Location: UC Davis School of Law, Martin Luther King, Jr. Hall.
Free and open to the public

The brochure can be accessed here. 

New Book on Marbury v. Madison

An entire book on Marbury v. Madison, "joy, rapture" said the Cowardly Lion.  The book is written by Cliff Sloan, a partner at Skadden and a supreme court buff.  You can order it at http://www.amazon.com/Great-Decision-Jefferson-Marshall-Supreme/dp/1586484265 as I just did.  Let me know what you think. 

Duke Prof. Paul Carrington and Others Propose Sweeping Changes to Supreme Court

Term limits? Senior status? No certiorari?  Ain't gonna happen.  The Washington Post Article can be accessed here.  I kind of like the way it is. 

Two New 9th Circuit Cases

In re Simpson, --- F.3d ----, 2009 WL ------ (9th Cir. Feb 2009)(single-premium annuity here does not qualify as exempt property under California Code of Civil Procedure Sec. 704.100 where debtor purchased it as an individual and annuity was not established for debtor by employer)
    Full text http://www.metnews.com/sos.cgi?0209%2F0715626

McKay v. Ingleson, --- F.3d ---, 2009 WL ------ (9th Cir. Feb, 2009)(Student's financial arrangement with university allowing her to defer tuition payments until end of each semester constituted a nondischargeable educational loan under 11 U.S.C. Sec. 523(a)(8))
     Full text http://www.metnews.com/sos.cgi?0209%2F0735362

Upcoming Symposium on Clarence Thomas at NYU

Symposium by the NYU Journal of Law & Liberty

Date: Friday, March 2, 2009
Time:  9 a.m.-4 p.m.
Location: New York University School of Law, Vanderbilt Hall.
Free and open to the public

You can access the flyer here. 

New Bankruptcy Rule 2015.3 - Reporting of Non-Debtor Entities

Bankruptcy Rule 2015.3 states:

Rule 2015.3. Reports of Financial Information on Entities in Which a Chapter 11 Estate Holds a Controlling or Substantial Interest
(a) Reporting requirement.
In a chapter 11 case, the trustee or debtor in possession shall file periodic financial reports of the value, operations, and profitability of each entity that is not a publicly traded corporation or a debtor in a case under title 11, and in which the estate holds a substantial or controlling interest. The reports shall be prepared as prescribed by the appropriate Official Form, and shall be based upon the most recent information reasonably available to the trustee or debtor in possession.
(b) Time for filing; service.
The first report required by this rule shall be filed no later than five days before the first date set for the meeting of creditors under § 341 of the Code.  Subsequent reports shall be filed no less frequently than every six months thereafter, until the effective date of a plan or the case is dismissed or converted. Copies of the report shall be served on the United States trustee, any committee appointed under § 1102 of the Code, and any other party in interest that has filed a request therefor.
(c) Presumption of substantial or controlling interest; judicial determination.
For purposes of this rule, an entity of which the estate controls or owns at least a 20 percent interest, shall be presumed to be an entity in which the estate has a substantial or controlling interest.  An entity in which the estate controls or owns less than a 20 percent interest shall be presumed not to be an entity in which the estate has a substantial or controlling interest.  Upon motion, the entity, any holder of an interest therein, the United States trustee, or any other party in interest may seek to rebut either presumption, and the court shall, after notice and a hearing, determine whether the estate's interest in the entity is substantial or controlling.
(d) Modification of reporting requirement.
The court may, after notice and a hearing, vary the reporting requirement established by subdivision (a) of this rule for cause, including that the trustee or debtor in possession is not able, after a good faith effort, to comply with those reporting requirements, or that the information required by subdivision (a) is publicly available.
(e) Notice and protective orders.
No later than 14 days before filing the first report required by this rule, the trustee or debtor in possession shall send notice to the entity in which the estate has a substantial or controlling interest, and to all holders – known to the trustee or debtor in possession – of an interest in that entity, that the trustee or debtor in possession expects to file and serve financial information relating to the entity in accordance with this rule. The entity in which the estate has a substantial or controlling interest, or a person holding an interest in that entity, may request protection of the information under § 107 of the Code.
(f) Effect of request.
Unless the court orders otherwise, the pendency of a request under subdivisions (c), (d), or (e) of this rule shall not alter or stay the requirements of subdivision (a).

The Tribune Companies have sought a modification of this requirement, for one thing, for the requirement to report on the operations of the Cubs.  The request for modification can be accessed here. 

Tribune Attoneys Seek Approval of $1,100 per Hour Fees

Judge Kevin Carey has ruled that the hourly fee request of Sidley & Austin of $1,100 must be limited to $925 unless Sidley comes in with evidence of why that amount should be allowed.  Sidley has agreed for now to limit its fees to that rate.  I'm trying to track down the transcript of that hearing. 

By the way, a monthly operating report was on the docket for the 20 day period ended December 28, 2008.  You can access that report here. 

Trump Entertainment Critical Vendor Order

The Court has approved Trump's request to pay some $17 million of "critical vendors," i.e., prepetition creditors who the debtor wants to continue doing business with.  The procedure is really elaborate and includes the promise by the vendor to continue to do business with the debtor for one year.  The Order, the "critical vendor procedures," the "Trade Agreement," and related documents can be accessed here. 

Nice Treasury Summary of Emergency Economic Stablization Act

The Department of the Treasury has posted the text of the bill, a summary, a fact sheet and examples of how it will work.  You can access those here. 

Judge Positions Open in Riverside California

An email from Judge Sheri Bluebond:

The Circuit Council just approved our request to fill the two vacant bankruptcy judgeships in Riverside.  Stay tuned for official notices and application procedures if you're interested.   

-Sheri Bluebond

Trump Entertainment First Day Declaration

Speaking of first day entertainment, this Declaration is pretty interesting. 

Trump Entertainment Files Chapter 11 in New Jersey

U.S. Bankruptcy Court
District of New Jersey (Camden)
Bankruptcy Petition #: 09-13654-JHW

Assigned to: Chief Judge Judith H. Wizmur Chapter 11

Date Filed: 02/17/2009

Debtor TCI 2 Holdings, LLC 15 South Pennsylvania Avenue Atlantic City, NJ 08401 Tax ID / EIN: 20-2920526 fka Trump Casinos II, Inc.	represented by	Charles A. Stanziale, Jr. McCarter & English, LLP Four Gateway Center 100 Mulberry Street Newark, NJ 07102 (973) 622-4444 Fax : (973) 624-7070 Email: cstanziale@mccarter.com Jeffrey Thomas Testa McCarter & English Four Gateway Center 100 Mulberry Street Newark, NJ 07102 973-639-7939 Fax : 973-624-7070 Email: jtesta@mccarter.com

Texas Supreme Court Approves State Court Malicious Prosection Proceeding after Unsuccessful Bankruptcy Litigation

Graber v. Fuqua,  --- S.W. 3d ---, 2009 WL 51570 (Tex. Jan 2009)

Issue:   May a debtor file a malicious prosecution action in state court against a plaintiff who unsuccessfully prosecuted an action against the debtor in bankruptcy court or does the bankruptcy code preempt such an action?         

Holding:   Yes, the Texas Supreme Court ruled 5-4 that there is no preemption.    

The debtor sued an attorney for malicious prosecution in state court.  The attorney had filed a fraud complaint in bankruptcy court and reported the debtor to the Justice Department.  The Justice Department indicted the debtor but at trial, the debtor was found not guilty on all counts.  The bankruptcy court then dismissed the adversary proceeding.  The malicious prosecution action followed.  The attorney filed a motion to dismiss for lack of jurisdiction arguing that bankruptcy preempted the filed.  The state court granted the motion and dismissed the case. 

The Texas Supreme Court reversed 5-4.  The majority simply thought (in a lengthy opinion) that Congress did not intend that state law malicious prosecution actions were preempted by the bankruptcy code and Rule 11.      

City of Vallejo Oral Argument at the BAP This Thursday

Oral argument will take place before the BAP on Thursday, February 19, 2009, at 10:45am at the Court of Appeals in Pasadena, CA.  The panel is composed of Markell, Montali and Jury. 

The issues are 1. Was it error to enter the chapter 9 order for relief?  2. Is the order for relief a final order?  3. Do the "joining" secured creditors have standing to join/appeal?

The proceedings will be broadcast live in the courtroom of Judge McManus in Sacramento I am told.  The issue regarding the rejection of the union contracts is still pending before Judge McManus.    

Circuit Court of Appeals Cases from Last Week

4th Circuit Court of Appeals, February 11, 2009
Nat'l Gas Distributors, LLC v. E.I. du Pont de Nemours and Co. , --- F.3d ---, 2008 WL ------ (4th Cir. 2009)(bankruptcy court erred in finding that the contracts at issue were not swap agreements and construed "commodity forward agreements" too narrowly)

6th Circuit Court of Appeals, February 10, 2009
In re Swegan, --- F.3d ---, 2008 WL ------ (6th Cir. 2009)(Appeal of a BAP decision dismissed for lack of jurisdiction where the BAP decision was not a final order)

9th Circuit Court of Appeals, February 10, 2009
Sofris v. Maple-Whitworth, Inc., --- F.3d ---, 2008 WL ------ (9th Cir. 2009)(award of attorney's fees and costs after an involuntary bankruptcy petition affirmed even though against one petitioner only; reversed

Thanks to Findlaw.com

Harvard Dean Elena Kagen to be Solicitor General

The confirmation hearings of Elena Kagen for Solicitor General have begun on Capitol Hill.  From the Solicitor General's website: 

The original Statutory Authorization Act of June 22, 1870, states, "There shall be in the Department of Justice an officer learned in the law, to assist the Attorney General in the performance of his duties to be called the Solicitor General." The Office of the Solicitor General is tasked to conduct all litigation on behalf of the United States in the Supreme Court, and to supervise the handling of litigation in the federal appellate courts. The general functions of the Office can be found at 28 CFR 0.20.

The Solicitor General's budget request in FY 2008 was about $10 million.  It has about 50 employees including about 22 attorneys.  The budget request can be accessed here. 

More on 707(b)(3) - Totality of the Circumstances

In re Baeza, ---- B.R. ---, 2008 WL 5411118  (Bkrcy, E.D. Cal. Dec. 2008, Lee. J.)

Issue:   Where the debtor intends to surrender collateral which will result in substantial “net disposable income,” can that be the basis for dismissal of the case under 707(b)(3)?            

Holding:      Yes.   

These chapter 7 debtors have $436,000 of secured debt and about $54,000 of unsecured.  Based on their Statement of Intentions, they intend “to surrender the collateral for almost all of their secured debt, approximately $433,876, including their home, one vehicle, an ATV, and a travel trailer.”  Their CMI is $10,348.  The means test net is minus $1110.  The UST moved to dismiss the case as an abuse both under 707(b)(2) and (3).  As to (b)(2), the argument was that payments for secured debt for property which is going to be surrendered should not be included.  As to (b)(3), the court should look to the totality of the circumstances and once the collateral is surrendered, the debtors will have significant net disposable income to pay to creditors as part of a plan. 

Judge Richard Lee in Fresno granted the motion and dismissed the case.  He said first that he did not need to consider the (b)(2) arguments if (b)(3) applies.  He said next that ability to pay is part of the totality of the circumstances.  “It would be counterintuitive to construe this same phrase [totality of the circumstances], as used in BAPCPA, to exclude a consideration of the debtor's ability to pay.” 

“Turning now to the facts of this case, it appears that at least two of the Price factors, the first and second, are relevant. The Debtors have enjoyed an annual income that is substantially more than the applicable median family income in California.  While their income may have recently decreased, they also are no longer burdened with oppressive payments to secured creditors which consumed a large percentage of their income.  There is no showing that the Debtors filed this joint petition as a result of illness, disability, unemployment, or calamity.  The Debtors' own schedules show that the Debtors have the ability to repay a substantial portion of their unsecured debts based on their current financial situation.” 

The debtors argued that in a chapter 13 there would be no payments to unsecured creditors under the facts here.  “The Debtors' argument mischaracterizes the issue and misstates the law. The question before the court is not whether the Debtors would be required to pay anything to their unsecured creditors in a chapter 13, but rather, whether they have the ability to pay something substantial to their unsecured creditors.  The answer to that question is unequivocally yes.”  He said that this is not a chapter 13 case and therefore that is not an issue.  He concluded, “Based on the foregoing, the court finds and concludes, based on the totality of the circumstances, that the Debtors have the ability to pay a substantial portion of the debts for which they seek a discharge and that the granting of a discharge in this case would be an abuse of chapter 7.”