BankruptcyProf Blog

Earle Hagen Golf Tournament - Mark Your Calendars

Earle Hagen Memorial Golf Tournament 

June 11, 2010
 
Benefiting the Debtor Assitance Project

Contact Jim King
 
king@kingobk.com
Or call (818) 242-1100

Top Ten Parts of BAPCPA Congress Needs to Fix

Musing on the subway. 

1.  Computation of the chapter 13 plan payment for the above-median debtor.  The mechanical test or "forward-looking test"?  See 1325(b).  Congress obviously intended a mechanical test but the language leads to an absurd result. 

2.  Post-petition earnings in an individual chapter 11.  BAPCPA says they are property of the estate. Section 1115.  This is especially a disaster when a chapter 11 trustee is appointed.  The trustee, in theory, gets the debtor's paycheck each month.  Who would work then?

3.  Eligibility for chapter 13.  What is a secured debt - unsecured debt for eligibility purposes?  The courts are all over the board.  Now we have to tell prospective debtors, "I don't know if you qualify or not - depends on the judge."

4.  Small Business chapter 11s.  The additions have not helped.  We badly need a streamlined small business chapter 11.   

5.  Credit counseling.  Get rid of credit counseling! - the requirement is a joke.  No one even pretends to be counseled, "just pay the 50 bucks and get your certificate!"

6.  Debt Relief Agencies.  Lawyers should not be debt relief agencies.  It is demeaning in my opinion and misleading to the public.  The restrictions on what we call tell our clients should be removed (and will probably be removed by the Supremes in Milavetz). 

7.  The Means Test.  Get rid of it.  We had totality of the circumstances before and that weeded out the abusive filers, i.e., those who have the ability to repay their debts.  I could not fillout the means test form myself without a computer program - how do we expect pro pers to ever do it?  And it is easy to manipulate, i.e., arrange the filing so that the current monthly income is below the median.  Allmost everyone qualifies i.e., "passes" the means test, or is below the median, so it is a complicated hurdle which accomplishes nothing. 

8.  Mandatory reaffirmations on vehicles.  One judge in the Central District says she never refuses to approve a requested reaff.  One judge I know denys most on the basis that the debtor can tell the lender that he tried but the judge would not agree.  Presumably then the lender will just let the debtor keep the car and keep making the payments. 

9.    The automatic stay.  In the second case when the automatic stay is automatically lifted after 30 days, is it lifted as to the debtor only (as the code says) or as to the property as well? 

10.  Hmm - still thinking.

A few of the screw ups above will be fixed, hopefully, by the Supreme Court.  What galls me is that Congress won't just fix the screwups that the courts are struggling with.  A Supreme Court case costs us about $1 million - and that's the Supreme Court cost - not the lower courts.  The Supreme Court budget is about $75 million and it will resolve about 75 cases this year. 

For whatever all that is worth. 

Supreme Court in Recess for 3 Weeks

from Scotusblog.com

Today at the Court
Beginning of a recess until mid-February
Erin Miller | Tuesday, January 26th, 2010 10:15 am
 
Today the Court is in recess and no non-capital orders are expected.  The next session of the Court is February 19, when the Justices will meet for a private conference.  As such, we expect this to be the final Today at the Court post until then.

Nice job!  Didn't they just get back from Christmas vacation?

Circuit Court of Appeals Cases from Last Week

2nd Circuit Court of Appeals, January 22, 2010
In re: Jackson, --- F.3d ---, 2010 WL --------- (2nd Cir. 2010)(settlement payment not exempt, "future earnings" under tort law was unpersuasive given the different purposes of tort law and bankruptcy law) 

4th Circuit Court of Appeals, January 22, 2010
United Rentals, Inc. v. Angell, --- F.3d ---, 2010 WL --------- (4th Cir. 2010)(payments here are an avoidable preference regardless of whether the transfers set in motion a chain of events that resulted in the debtor's recoupment of the amounts paid, no showing that such new value was given to the debtor as part of a contemporaneous exchange)

Statute to Sue Trustee Ran Says 7th Circuit

By Lara Boyko, UWLA Law Student

CIT Communications Finance Corporation v. Maxwell (In re marchFirst, Inc), 589 F.3d 901 (7th Cir., 2009)

Issue: Was suit against the trustee here properly dismissed where the complaint was filed after the statute of limitations had run?

Holding: Yes

In 2000, CIT leased telephone equipment to marchFIRST.  On April 12, 2001, marchFIRST filed a bankruptcy petition.  Maxwell was appointed trustee.  CIT then requested the return of its equipment. “Maxwell and his agents advised CIT to contact different individuals, each of which ‘stonewalled’ CIT.”  In addition, Maxwell missed the August 12, 2001 deadline for filing an inventory of CIT’s property as required by Section 704.  Three and a half months later, Maxwell filed a Statement of Financial Affairs denying that the debtor held or controlled any of CIT’s property.  Maxwell began liquidating the debtor’s property (which presumably included CIT’s property).  CIT filed an administrative expense claim in 2002 and sued Maxwell in 2007 for breach of fiduciary duties.  The statute of limitations is five years in Illinois.  Maxwell sought dismissal based on the statute but CIT argued that it did not discover Maxwell’s breaches until some time in 2002 and therefore the statute had not run.  The bankruptcy court dismissed and the district court affirmed. 

The 7th Circuit affirmed.  The statute of limitations begins “at the time of the breach or when the plaintiff reasonably should be aware of its injury and its wrongful cause.”   Based on the timeline of events and sophistication level of CIT, it should have known that its injury was wrongfully caused during the summer and fall of 2001 during Maxwell’s refusal to cooperate and not between May 7, 2002, and December 12, 2002, as claimed.  Therefore the statute of limitations period started accruing in 2001, which is more than five years before CIT filed a complaint against the defendant.

Short Article on Justice Ginsburg

Columbia Law School Magazine. 

Mesereau Legal Clinic

Hello Students & Fellow Alums

I am a 2003 UWLA graduate and the Executive Director for the Mesereau Free Legal Clinic. The Mesereau Free Legal Clinic is a subsidary of the Mesereau Community Legal Foundation, a CA corporation.

I am extending to all students and alum the opportunity to come out and share your legal expertise, brush up on client intake or for students to obtain the opportunity to interview clients in all areas of law.

As most may know, Thomas Mesereau was Michael Jackson and Robert Blake's attorney.  However, Mr. Mesereau spends most of his time at this clinic or traveling to Alabama to represent capital offense clients "pro-bono".

Tom is very passionate about his work with the disenfranchised, working poor and the like that cannot afford top notch legal representation. He is always eager to share his knowledge with students and attorneys willing to assist in the clinic.

Our clinic offers seminars and discussions on various legal & relevant topics. For instance, this past week we had Brian T. Dunn of the Cochran firm provide a discussion on "Excessive Force Abuse Lawsuits against Police Departments."

Upcoming will be more discussions by our Judge series such as Judge Groman speaking on Dependency & Delinquency, Judge Escobedo speaking on How to present your case in court" then Judge Doyle on criminal actions. These are just a few areas that we will be covering this year in our clinics.

We also provide Criminal Record Cleaning:"Expungement" where we assist those in need of clearing their criminal record in order to get jobs and become a productive citizen. We have and will continue to provide MCLE throughout the year in various substantive areas of law to licensed attorneys.

So why don't you check out our website at www.mesereaufreelegalclinic.com which will have our various clinic dates and feel free to email me through the clinic (email address below).

If you are available come on out this Saturday January 23, 2010 otherwise we will be open again on the 30th.

Again, I invite each of you to take advantage of this great opportunity.

Best to All

Sophia E. Harris, J.D.
Executive Director
Mesereau Free Legal Clinic
Sharris@mesereaufreelegalclinic.com
8764 S. Broadway
Los Angeles, CA 90003|
(323) 751-2LAW (529)*

www.mesereaufreelegalclinic.com

State of the 9th Circuit - State of the Central District of California

Federal Bar Association 

STATE OF THE CIRCUIT/DISTRICT
March 11, 2010
Time: 11:30 a.m. Registration 12 noon Lunch
Registration 11:30 a.m.

Featuring:
Chief Judge Alex Kozinski
United States Court of Appeals, 9th Circuit
Chief Judge Audrey B. Collins
United States District Court, Central District
Judge Sheri A. Bluebond
United States Bankruptcy Court, Central District

Location: Kyoto Grand Hotel
120 S. Los Angeles St., Los Angeles, CA 90012
Cost: FBA Members $65 • Government Employees/Students $45 • Table of 9 $550
Non-Members $80 Non-Member Table of 9 $675

Please RSVP by March 4th. Reservations after that time will only be accepted on a space available basis and an additional $25 late fee will apply

Program on Lessons from Chrysler February 4, 2010

Financial Lawyers Conference
214 Main Street, #336, El Segundo, CA 90245 • (310) 322-1350 • Fax (310) 615-4581
FOR MORE INFORMATION: www.financiallawyers.org 

"Assessing The Chrysler Restructuring: Lessons Learned"

Thursday, February 4, 2010
The panel will address the continuing impact of Chrysler upon rescue and rescue finance, the evolution of the public private partnership and trying a case with the Treasury as lender.
Register Online

Speakers: Corrine Ball, Jones Day
Thomas (Tim) Cullen, Jones Day
Brett Barragate, Jones Day
  
Moderator: Richard (Rick) Wynne, Jones Day

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.

Pre-registration deadline is Tuesday, February 2nd. After Tuesday, February 2nd, the registration fee increases by $5.00. Cancellations must be received by the pre-registration deadline of Tuesday, February 2, 2010.  For information on FLC’s events and membership, go to www.financiallawyers.org

This activity has been approved for Minimum Continuing Legal Education credit by the State Bar of California in the amount of one hour. The Financial Lawyers Conference certifies that this activity conforms to the standards for approved educational activities prescribed by the rules and regulations of the State Bar of California governing minimum continuing legal education.

Chapter 13 Brown Bag in Santa Ana - January 28, 2010

January 28, 2010
Orange County Bankruptcy Forum Brown Bag Program

"Lucky" Chapter 13:
Taking the Gamble Out of Getting to Confirmation

Speaker:  Amrane Cohen, Chapter 13 Trustee

Time permitting, questions may also be posed to attending Santa Ana bankruptcy judges regarding Chapter 13 practice questions/inquiries.

Date/Time:
Thursday, January 28, 2010
Registration 11:30 a.m.
Program Commences at 12:00 p.m. SHARP
 
Location:
United States Bankruptcy Court
411 W. 4th Street, Room 5C, Santa Ana
Special Proceedings Courtroom

Check-in for the brown bag is located just past the security guards on the first floor of the courthouse.

Despite the name "Brown Bag", no food or beverages are allowed in the Courtroom.

 
Cost:
OCBF Members and Government Employees $10
Non-Members $25
No-shows and cancellations received the day of the event will be billed automatically.

In an effort to reduce paper waste, please be aware a limited number of handouts will be printed out over the number of registered individuals and handouts may not be available to all walk-on participants.

Register:
Visit OCBF.org and follow the event link.

The above activity has been approved for Minimum Continuing Legal Education by the State Bar of California in the amount of 1.0 hour. OCBF certifies that this activity conforms to the standards for the approved education activities prescribed by the rules and regulations of the State Bar of California governing MCLE.
 
Orange County Bankruptcy Forum | 6789 Quail Hill Parkway #204 | Irvine | CA | 92603

Washington Judge Rules that Debtor May Bifurcate Claim on her Home when it is also a Boarding Home

In re Reyes, 09-17532 (unpublished)  (Bkrtcy. Wash. Dec, 2009)

Issue:  Can the chapter 13 debtor here bifurcate a secured claim on property that is her residence but she also operates as a boarding home? 

Holding:  Yes

Judge Karen Overstreet

This chapter 13 debtor seeks to bifurcate a secured claim on real property.  The five bedroom property is her home but she “has been taking in boarders since 1993.”  “The boarders who live at the Property share a common kitchen and receive food and meals from Debtor as part of their rental agreement. Each boarder is entitled to a furnished room and generally three hot dinners per week. Debtor shops for the tenants’ food and makes it available in the common kitchen. She also maintains the common areas in a clean and usable fashion and otherwise helps the boarders become acclimated to the neighborhood and Seattle.”  She also works full-time and the University of Washington as a lab tech.  The judge believed her testimony that the loan agent knew of the use of the property when the loan was made.  She also was swayed by the fact the use as a boarding home was for the past 16 years. 

Judge Overstreet ruled that the loan may be bifurcated.  “Any other construction of Section 1322(b)(2) would read the word “only” out of the statute.  Accordingly, the Court finds that Creditor’s lien is not protected by the antimodification provision of Section 1322(b)(2).”  She also ruled that the creditor did not have standing because it could not establish that it “has authority to hold the Note for the account of Creditor and of a valid chain of assignments from the original holder of the Deed of Trust to Creditor.”

D.C. Judge Rules Chapter 13 Debtor may Bifurcate Secured Claim on What was Her Residence Until She Moved

In re Roemer, --- B.R. ---, 2009 WL 5101762  (Bkrtcy.D.C. Dec, 2009)

Issue:  Can the chapter 13 debtor here bifurcate a secured claim on property that was her residence until she moved out before filing her petition? 

Holding:  Yes

Judge Ronald Swartz,

This chapter 13 debtor seeks to bifurcate a secured claim on real property.  The property was her home until some unstated number of months before she filed her case.  The loan documents provide that she will live in the property for “at least one year.”   She lived there about two years before she moved.  The court ruled that the debtor is permitted to bifurcate the claim.  He said that as of the date of the filing, the property was not her home.  As to the “mortgage date test,” i.e., are courts supposed to determine the issue of residence as of the date the mortgage is executed or not, the judge said that the terms of the mortgage prevail.  The bank here by contract agreed that its anti-modification protection would last only one year.  “Here, the mortgage instrument granted a security interest in property that after one year was not required to be occupied as the debtor's principal residence, and accordingly the mortgage instrument was not limited to being a security interest in the debtor's principal residence. Section 1322(b)(2) does not protect the mortgage from modification.”

January 17, The Northridge Earthquake - How Soon We Forget

I think I posted this last year.  Today is the date of the Northridge earthquake - 4:27 a.m.  The violence was incomprehendable for about 10 seconds and it was just a giant earthquake for about a minute after that. 

By the way, it is also the birthday of Muhammad Ali, James Earl Jones, Andy Kaufman, Al Capone, Michelle Obama, Jim Carrey, Rock Hudson, Benjamin Franklin.  Just musing.  

Chapter 13 Plan Cannot Force a Sale of Property by Co-Owner to Debtor

Brief by my associate and UWLA graduate Roksana Moradi

In re Dahlgren, 418 B.R. 852 (Bkrtcy N.J. Nov. 2009)

Judge Raymond Lyons

This chapter 13 Debtor's plan proposed to treat his “former paramour's interest in their jointly owned real property as a claim to be satisfied through the plan, leaving him as the sole owner.”  Confirmation of the plan was denied. 

The debtor and his girlfriend bought a farm to board horses and “there was an agreement between the two that the [girlfriend] would manage the properties, the Debtor would contribute capital and make improvements, and the two would both benefit from any profits.”  Later they separated and the girlfriend filed a partition action in state court.  Judgment was entered ordering the sale of the Farm, with the proceeds to be held in trust until “further determination by the court of the proper distribution thereof (which was later scheduled for April 9, 2009, the day the Debtor filed for bankruptcy).”  The property was in foreclosure at the time.  The girlfriend moved for dismissal of the bankruptcy “for reasons of bad faith filing in light of the totality of the circumstances pursuant to Section 1307(c) of the Bankruptcy Code… Alternatively, the [girlfriend] contends that the Debtor's plan should not be confirmed pursuant to Sections 1325(a)(3) and 1325(a)(7) of the Bankruptcy Code because the plan was not proposed in good faith and the petition was not filed in good faith.” 

The bankruptcy court looked at the motion to dismiss first; under Section 1307(c) the facts “must be assessed on a case-by-case basis in light of the totality of the circumstances.” And “whether the filing is fundamentally fair.”  The factors are “[T]he nature of the debt, including the question of whether the debt would be nondischargeable in a Chapter 7 proceeding; the timing of the petition; how the debt arose; the debtor's motive in filing the petition; how the debtor's actions affected creditors; the debtor's treatment of creditors both before and after the petition was filed; and whether the debtor has been forthcoming with the bankruptcy court and the creditors.” 

The girlfriend argued that the Debtor was solvent and the only reason he filed for bankruptcy was to avoid the sale of the Farm.  The Debtor testified “that he has filed for relief under chapter 13 in good faith, for the purposes of saving the Farm from mortgage foreclosure and the involuntary forced sale ordered by the state court and ‘to reorganize all of his debts in a meaningful manner.’” 

The Court denied the motion pointing out that “dismissal should be saved for “those egregious cases that entail concealed or misrepresented assets and/or sources of income, lavish lifestyles, and intention to avoid a large single debt based upon conduct akin to fraud, misconduct or gross negligence.”  The Court said “the Debtor did not engage in frivolous overspending prior to filing, and he can point to a serious injury to explain his current debt situation.  Although the timing of the Debtor's bankruptcy petition and apparent forum shopping are suspicious, the circumstances do not rise to the level of bad faith.  “Additionally, the court does not find that dismissal of the Debtor's case is in the best interest of the creditors or the estate, a consideration implicit in Section 1307 analysis…If this case were dismissed, the Debtor [is] facing imminent mortgage foreclosure, in which case they are likely to realize less profit from the sale than if they were to sell the Farm to a buyer such as the one procured by the Movant prior to the filing of this motion.  This scenario would result in the unsecured creditors losing equity under the plan.”   

As to confirmation of the plan, the Court found the “Debtor's plan to be patently unconfirmable based on his proposed treatment of the [girlfriend’s] interest in the Farm….The Debtor's proposed treatment of the Movant's interest in their mutually owned property is not permitted under Section 1322 and the Debtor has provided no authority to support the proposition that a Chapter 13 debtor has the right to divest a joint property owner of her interest in the property and fix that interest as a monetary claim.”  “[T]he Debtor has not cited any authority for the remedy he proposes-that an owner of real property may force his co-owner to sell the co-owner's interest to him, rather than to a third party.  It is conceivable that a state court might order such a remedy despite the lack of precedent, but the problem here is that the Debtor had the opportunity to request such a remedy in the pending state court action, but failed to do so. Bankruptcy does not afford him a second chance to seek novel relief that he missed in state court.”

The Court denied the requested confirmation of the plan.

Circuit Court of Appeals Cases from Last Week

5th Circuit Court of Appeals, January 08, 2010
In re Blast Energy. Servs. Inc., --- F.3d ---, 2010 WL ------------ (5th Cir. 2010)(actions the debtor took to substantially consummate the chapter 11 plan before the creditor could obtain a stay did not insulate the plan from an appellate challenge)

9th Circuit Court of Appeals, January 08, 2010
In re Ormsby, --- F.3d ---, 2010 WL ------------ (9th Cir. 2010)(summary judgment for non-dischargeability proper where debtor's conduct constituted larceny within the federal meaning of the term, denial of attorneys fees also proper)

Thanks to Findlaw.com 

Oral Argument in NFL Antitrust Case

The transcript of oral argument is here.

Home Affordable Foreclosure Alternatives Program (“HAFA”)

From the California Insolvency Law Committee:

New Federal Program Effective April 10, 2010 to Streamline and Create Incentives for Short Sale Transactions for Lenders and Borrowers through 12/31/12

Summary.  On November 30, 2009, the Treasury Department released guidelines and forms for its new Home Affordable Foreclosure Alternatives Program (“HAFA”). HAFA is part of the current Home Affordable Modification Program (HAMP). HAFA provides financial incentives to loan servicers and borrowers who utilize a short sale or a deed-in-lieu of foreclosure (DIL) to avoid foreclosure on loans eligible for modification under the HAMP program.  HAFA complements HAMP by providing a viable alternative for borrowers (the current homeowners) who are HAMP eligible but nevertheless unable to keep their homes.  Click HERE to view full program details. 

Applicable Lenders.  HAFA applies to loans not owned or guaranteed by Fannie Mae or Freddie Mac.  The lender must have executed a HAMP servicer participation agreement.   Participating lenders are listed HERE.

Start Date.  April 5, 2010 (but qualifying servicers may voluntarily implement sooner).

Eligible Homeowners.  The homeowner must meet the HAMP guidelines to qualify for HAFA, which are as follows:  (1) the property is the borrower’s principal residence; (2) the mortgage loan is a first deed of trust originated prior to January 1, 2009; (3) the mortgage is delinquent, or a default is reasonably foreseeable; (4) the current loan balance is less than $729,750, and (5) the borrower’s total monthly mortgage payments exceed 31% of the borrower’s gross income.

Lenders are required to evaluate a borrower for a HAMP modification prior to any consideration being given to HAFA options.  Further, every potentially eligible borrower must be considered for HAFA before the borrower’s loan is referred to foreclosure.

Program Benefits.  The HAFA program does the following:

Minimum Net Price.  Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds).  The minimum net proceeds may be either a fixed dollar amount or percentage of the current fair market value of the property.  It cannot be increased for 120 days.
No Commission Reduction.  Prohibits lenders or their loan servicers from requiring a reduction in the real estate commission agreed upon in the listing agreement (up to 6 percent).
Release of Remaining Loan Balance.  Requires borrowers to be fully released from future liability for the first mortgage debt (no cash contribution, promissory note, or deficiency judgment is allowed).
Standardized Documents.   Uses standard processes, documents, and timeframes/deadlines.
Financial Incentives.  Provides the following financial incentives:
$1,500 for borrower relocation assistance;
$1,000 for servicers to cover administrative and processing costs; and
$1,000 for investors for allowing a total of up to $3,000 in short sale proceeds to be distributed to subordinate lien holders (on a one-for-three matching basis).
Procedure.  A borrower may request short sale approval by providing the lender with a Request for Approval of Short Sale form (RASS), a Short Sale Agreement (SSA) and a Hardship Affidavit.  The lender then has 30 days to do the following: (1) evaluate the borrower’s eligibility; (2) determine the current value of the Property; (3) establish the minimum net proceeds; and (4) review the title to evaluate subordinate liens 

Short Sale Agreement.    The lender provides the borrower with a standard form Short Sale Agreement (SSA).  The SSA creates the following obligations and benefits: (1) the borrower must list the home for sale with a licensed real estate agent; (2) the borrower has 120 days to sell the home, but the lender may extend the term; (3) the lender must postpone any pending foreclosure sale during the 120 day term; (4) the borrower must maintain the property in good condition; (5) a new, lower monthly mortgage payment is set, which cannot exceed 31% of the borrower’s monthly income; (6) the borrower must move out at close of escrow, leaving the property in good condition; (7) the borrower cannot sell the property to a family member, friend or business associate; (8) the buyer of the property must agree not to resell it for 90 days after the close of escrow; and (10) the lender has 10 business days to approve a short sale that meets or exceeds the minimum net price.

Deed-in-Lieu.  The lender and borrower may also agree that, if the property does not sell within 120 days, the borrower will execute a deed-in-lieu of foreclosure.  The borrower still  receives a waiver of the loan deficiency and a $1,500 relocation assistance.   All subordinate lenders must also agree to a release of liability for their loan.

End Date.  HAFA sunsets on December 31, 2012.

These materials were written by Mark L. Strombotne, senior partner in the Strombotne law firm in Saratoga, California, and Robert G. Harris, a partner in the Silicon Valley law firm of Binder & Malter, LLP.  Mr. Harris is presently a member of the Insolvency Law Committee.

9th Circuit Explains "Derived Quasi-Judicial Immunity" Protecting Trustees

Harris v. Wittman (In re Harris), ---- F. 3d ----, 2009 WL ------------- (9th Cir. Dec, 2009)

Issue:   Can the debtor here sue the trustee for breach of contract, that being a settlement contract approved by the court?

Holding:   No.  The trustee has “derived quasi-judicial immunity.”   
Appeal from the District Court

Judge Carlos T. Bea
The chapter 7 trustee in this case sued the debtor and his wife to avoid a fraudulent conveyance from the debtor to his wife.  The trustee then “entered into an Agreement for Use and Assignment of Interests and Prosecution of Claims with appellee Jack Swain, an unsecured creditor of the estate, which assigned to Swain the right to prosecute the adversary proceeding to set aside the alleged fraudulent conveyance.  In exchange, Swain was to be paid 68% of the net recovery he obtained, and to be reimbursed for any of his costs.”  Swain’s attorney’s fees would also be paid by the estate.  The agreement was approved by the bankruptcy court.

Two and a half years later, Swain, Harris, his wife and the trustee settled.  The property was transferred to the estate.  Mrs. Harris was to get a payment when the property was sold by the estate and everyone released everyone.  Six months later, the trustee agreed to sell the same property to Swain for $125,000 plus Swain agreed to pay the costs and attorneys fees and waive his claim.  Swain also agreed to pay Mrs. Harris when he sold the property.  “Altogether, Swain’s waiver of claims and assumption of liability totaled around $900,000.”  The bankruptcy court approved the “sale.” 

Three years later, Harris sued the trustee and Swain in state court for breach of the settlement agreement, breach of fiduciary duties etc.  Apparently he claimed that Swain’s waiver of claims etc was not worth $900,000.  The trustee removed the case to bankruptcy court.  The trustee and Swain filed a motion to dismiss.  Harris then amended the complaint to allege state law breach of contract only apparently trying to take jurisdiction away from the bankruptcy court.  The court dismissed the case saying “(1) the complaint was barred under the Barton doctrine due to Harris’s failure to obtain approval of the bankruptcy court prior to filing suit in state court, and (2) each defendant was entitled to derived quasi-judicial immunity as a result of the entry of the June 30, 2003 order, which approved the sale of the assets.”  The district court affirmed.

The 9th Circuit also affirmed although it reversed as to the Barton doctrine.  It agreed that the matter was a core proceeding and therefore the bankruptcy court had jurisdiction to dismiss the case.  “Here, although this is a state law cause of action, Harris’s claim arose in his bankruptcy case because it could not exist independently of his bankruptcy case.”  It said however that the case should not have been dismissed based on Harris failure to obtain permission to sue the trustee first.  It said that only applies where the suit is brought in another court.  “[T]he Barton doctrine is not a ground to dismiss a suit that is proceeding in the appointing bankruptcy court. As applied in the Ninth Circuit, the Barton doctrine requires ‘that a party must first obtain leave of the bankruptcy court before it initiates an action in another forum against a bankruptcy trustee or other officer appointed by the bankruptcy court for acts done in the officer’s official capacity.’” In re Crown Vantage, Inc., 421 F.3d 963, 970 (9th Cir. 2005).  “When Harris’s case was removed to the appointing bankruptcy court, all problems under the Barton doctrine vanished.”

The 9th Circuit affirmed however on the basis of immunity.  “’Bankruptcy trustees are entitled to broad immunity from suit when acting within the scope of their authority and pursuant to court order.’  Additionally, ‘court appointed officers who represent the estate are the functional equivalent of a trustee.’”  “For derived quasi-judicial immunity to apply, the defendants must satisfy the following four elements: (1) their acts were within the scope of their authority; (2) the debtor had notice of their proposed acts; (3) they candidly disclosed their proposed acts to the bankruptcy court; and (4) the bankruptcy court approved their acts.”  Those elements were all met and dismissal was therefore proper. 

ABI Law Student Writing Competition

Sponsored by the Bankruptcy Litigation Committee of the American Bankruptcy Institute ("ABI"), the Competition will take place from January 1, 2010 through March 1, 2010.  First place gets $1,000.  The submissions must be 10 to 12 pages.  The info can be accessed here.

Oral Argument Next Week in NFL Antitrust Case

Oral argument in American Needle v. NFL is set for next Wednesday.  You can acess the briefs here.