BankruptcyProf Blog

Circuit Court of Appeals Cases from Last Week

2nd Circuit Court of Appeals, May 18, 2010
Adams v. Zelotes, --- F.3d ---, 2010 WL --------- (2nd Cir. 2010)(attack on the constitutionality of section 526(a)(4), re debt relief agencies advising clients to incur additional debt in contemplation of bankruptcy reversed based on Milavetz)

2nd Circuit Court of Appeals, May 18, 2010
AmeriCredit Fin. Servs. v. Tompkins, --- F.3d ---, 2010 WL --------- (2nd Cir. 2010)(creditor has an unsecured deficiency judgment under both state law and the contract of the parties)

7th Circuit Court of Appeals, May 19, 2010
In re South Beach Sec., Inc., --- F.3d ---, 2010 WL --------- (7th Cir. 2010)(chapter 11 dismissed where: 1) debtor's argument that the U.S. Trustee lacks standing because he is not a party in interest is rejected; 2) reorganization plan had not been proposed in good faith as the debtor's disclosure statement suggests no purpose other than to beat taxes; and 3) debtors and the lawyers that appeared for them are order to show cause why they should not be sanctioned for their conduct in their frivolous appeal)

10th Circuit Court of Appeals, May 20, 2010
In re Latture, --- F.3d ---, 2010 WL --------- (10th Cir. 2010)(appeal untimely where: 1) debtor's failure to timely file the appeal deprived the BAP of jurisdiction to hear his appeal; 2) Fed. R. App. P. 6 did not govern an appeal taken from bankruptcy court to a bankruptcy appellate panel; and 3) even assuming debtor did not receive the court's judgment, the BAP could not extend the time to file a notice of appeal)

California Appellate Districts, May 20, 2010
Boyajian v. Ordoubadi, --- Cal.App. ---, 2010 WL --------- (plaintiff's claim for equitable indemnity was discharged in a bankruptcy proceeding in 1994 as bankruptcy law allows for discharges of contingent claims, including claims against the debtor for indemnity before the time the indemnity claim against the debtor can be precisely measured)

Peter Pocklington Pleads Guilty to Bankruptcy Fraud

Peter Pocklington, the guy who traded Wayne Gretzky to the LA Kings, has pleaded guilty to bankruptcy fraud.  Of course it is all his attorney's fault according to him - what a shock.  Read the article here.

Chapter 7 Cases in Houston

I am in Houston for hearings on a chapter 11 case I have here.  We did the meeting of creditors this morning at the US Trustee's Office.  There were three other small rooms where chapter 7 creditors meetings were going on.  Each room had a separate trustee and each trustee had scheduled three cases per hour.  I asked an attorney there if what I was seeing was true.  I told her that in Los Angeles the trustees do 20 cases per hour.  She laughed hysterically.  On anther note, the UST attorney told me that if I brought an order I need signed on a flash drive to the hearing tomorrow morning, Judge Marvin Isgur would load the draft from my flashdrive to his computer and do the order on the spot.  If that happens, I definitely owe him a beer.     

9th Circuit Rules that Damages Assessed Against Unlicensed Contractor under California Law Discharged Even Though Fraud is Found

Ghomeshi v. Sabban (In re Sabban), --- F. 3d ---  (9th Cir. April, 2010)

Issue:   Is a claim for disgorgement from an unlicensed contractor under Cal B&P 7031(b) dischargeable even when there is a specific finding of fraud on the basis that there were no actual damages? 
 
Holding:   Yes.  
appeal from the BAP

Judge William A. Fletcher,

The debtor operated an unlicensed home remodeling business.  He falsely told Ghomeshi that he was licensed.  “California law provides that a client who employs an unlicensed contractor may recover all compensation paid to that contractor, regardless of whether the contractor has committed fraud and regardless of whether the client has sustained actual harm. Cal. Bus. & Prof. Code § 7031(b).”  After the work was done, Ghomeshi sued the debtor in state court under B&P 7031(b).  The state court found that the debtor lied but found that Ghomeshi did not suffer any harm.  Under California law, however, the state court awarded damages of $123,000, i.e., the full amount paid to the debtor.  The debtor filed chapter 7 and Ghomeshi filed a non-dischargeability complaint.  Ghomeshi argued that in Cohen v. Dela Cruz, the Supreme Court said that damages under state law are non-dischargeable once fraud is found.   The bankruptcy court ruled that the debt was discharged and the BAP affirmed. 

The 9th Circuit also affirmed distinguishing this case from Cohen. 

“[I]n Cohen v. dela Cruz, the Supreme Court held that the reach of § 523(a)(2)(A) is not limited to the amount of benefit received by the debtor.  Rather, §523(a)(2)(A) ‘prevents the discharge of all liability arising from fraud.’  Following Cohen, we have concluded that there is no requirement that the debtor ‘have received a direct or indirect benefit from his or her fraudulent activity in order to make out a violation of § 523(a)(2)(A).’” 

“We note two ways in which the case before us is different from Cohen.  First, unlike the tenants in Cohen, Ghomeshi suffered no actual harm as a result of [the debtor’s] misrepresentation that [he] held a contractor’s license.  Actual damages are available under § 7160, but the state court specifically declined to award them, holding that Ghomeshi had suffered no harm.  Second, unlike the New Jersey Consumer Fraud Act at issue in Cohen, § 7031(b) is not premised on the commission of fraud.  In order to recover compensation paid to a contractor, a plaintiff in a §7031(b) suit need only show that the contractor was unlicensed.”

“We hold that because the award of $123,000 was made under a statute that is not premised on either fraud or actual harm, it is not a debt for money obtained by fraud within the meaning of 11 U.S.C. §523(a)(2)(A).  We therefore affirm the bankruptcy court’s determination that the award of $123,000 under § 7031(b) is dischargeable.”

Circuit Court of Appeals Cases from Last Week

2nd Circuit Court of Appeals, May 14, 2010
In re Baker, --- F.3d ---, 2010 WL ----------- (2nd Cir 2010)(proceeds of an annuity exempt under New York Debtor and Creditor Law section 282 and New York Insurance Law section 3212 where New York law permitted the debtor to exempt the annuity payments, and he gave consideration for the contract when he released a wrongful death claim)

4th Circuit Court of Appeals, May 11, 2010
US v. Boulware, --- F.3d ---, 2010 WL ----------- (4th Cir 2010)(15-month sentence affirmed for fraudulently making a declaration under penalty of perjury in a bankruptcy case is affirmed)

5th Circuit Court of Appeals, May 14, 2010
In the Matter of Tex. Comm. Energy, --- F.3d ---, 2010 WL ----------- (5th Cir 2010)(draw down a letter of credit in violation of a bankruptcy court order not violated)

8th Circuit Court of Appeals, May 10, 2010
In re Freier, --- F.3d ---, 2010 WL ----------- (8th Cir 2010)(defendant personally liable for a state-court money judgment rendered against a corporation wholly owned by defendant, where: 1) defendant's material promise to repay the debt in the future, made with the intent to defraud and without the intent to perform constituted actionable fraud; and 2) the evidence supported the bankruptcy court's finding that plaintiff relied on defendant's representation about taking draws)

11th Circuit Court of Appeals, May 12, 2010
In re Managed Care Litig., --- F.3d ---, 2010 WL ----------- (11th Cir 2010)(prior class action settlement agreement did not release the claim plaintiff pursued against defendant in the bankruptcy adversary action)

11th Circuit Court of Appeals, May 04, 2010
Old West Annuity & Life Ins. Co. v. Apollo Grp., --- F.3d ---, 2010 WL ----------- (11th Cir 2010)(allocation of surplus proceeds from the sale of real property in a foreclosure action under Florida and bankruptcy law)

Thanks to Findlaw.com

UST Report on Bankruptcy Audits

Here is the report dated March, 2010.  There were material misrepresentations in 22% of the total cases audited, 27% in the Central District.   

LACBA Program on Chapter 11 First Day Motions

Presented by the Commercial Law & Bankruptcy Section
CHAPTER 11 FOCUS: FIRST DAY MOTIONS
06/03/2010
LOS ANGELES COUNTY BAR ASSOCIATION
 
1055 WEST 7TH STREET, 27TH FL
LOS ANGELES, CA 90017
1 HR MCLE CREDIT
 
Program Description:
Judge Deborah Saltzman and experienced Chapter 11 practitioners will present selected topics for "First Day Motions", including employee wage claims, critical vendors, utilities, banking alternatives, limits on notice, immediate cash collateral issues, and how Local Bankruptcy Rules and practices make these motions more efficient.

Speakers:
Scott C. Clarkson, Clarkson Gore & Marsella APLC
Leslie A. Cohen, Leslie Cohen Law PC
Hon. Deborah Saltzman, U.S. Bankruptcy Court
Jason D. Wallach, Gladstone Michel Weisberg Willner & Sloane ALC

Times and Registration Information:
Registration: 
12:00 PM
Meal/Reception:
12:00 PM
Program:
12:30 - 1:30 PM

Registration Code:010946
Register Online:  Click here or call our Member Services Department, 9:00 a.m. - 4:00 p.m., at (213) 896-6560. For multiple registrations, call our Member Service Department. Registration closes at 12:00 noon the day before most programs.

SFVBA Program on Foreclosures

Dear Jon:

The SFVBA program has two speakers, Louis Esbin and Lewis Landau, who have been doing a lot of work in the courts on foreclosure issues.

Here is the link to the website page where the program is advertised: https://www.sfvba.org/Calendar/Signup.aspx?EventNo=1087

Event: Short Sale, Foreclosure and Post Foreclosure Strategies
Start Date: 5/26/2010 12:00 PM
End Date: 5/26/2010 1:30 PM
Location: SFVBA, 21250 Califa St. Suite 113, Woodland Hills

Event Cost:
  Member $35.00
  Non-Members $45.00
  Member at Door $45.00
  Non-Member at Door $55.00

Credits: General 1.5 hours

To register, call Linda Temkin at the Bar Office.  818 227 0590 x 105

Sincerely,
Steven R. Fox

Confirmation of an Individual Chapter 11 Plan - What a Concept!

I actually got an individual chapter 11 plan confirmed yesterday.  The plan said the debtor will pay the first on his home according to its original terms.  The second was wiped out and treated as unsecured - the "Lam Motion."  Unsecureds paid x amount per month for five years.  The unsecureds voted for the plan (only four voted).  What was interesting is that once the judge said "plan confirmed," no one was sure what to do next.  There was discussion about when the discharge should be entered (at the end of the plan payments), whether a final decree could be entered and when (when the plan is substantially consumated), whether the case could be closed on substantial consummation and then re-opened five years from now - yes.  We were all admitting that this is kind of new territory.  I am going to file a Motion for Final Decree quickly so the case can be closed and the UST fees and reporting will end.  Then reopen five years from now and seek the final decree and an order avoiding the second on the home.  We'll see what happens.  I have 10 or 12 more of these in the hopper now.     

Meet the Judges - June 2, 2010

 
UNITED STATES BANKRUPTCY JUDGES
The Honorable Sheri Bluebond - Moderator
 
The Honorable Alan M. Ahart
The Honorable Catherine E. Bauer
The Honorable Samuel L. Bufford
The Honorable Robert N. Kwan
The Honorable Richard M. Neiter
The Honorable Deborah J Saltzman
The Honorable Maureen A. Tighe
The Honorable Vincent P. Zurzolo

PRICE
$80.00 for LABF members
$100.00 for non-members
$35.00 for government
At door: Additional $10.00 
 
June 2, 2010
Doors open at 6:00 p.m. - Dinner at 6:45 p.m.
Program at 7:30 p.m.
Lights out 8:45 p.m. 
 
Omni Hotel Los Angeles
251 South Olive Street
Los Angeles
 
Click here to register and pay online: 
http://www.labankruptcyforum.org/programs/2010-06-02%20Flyer.html
 
Or click here to print the registration form:
http://www.labankruptcyforum.org/programs/2010-06-02LABFflyer.pdf

Bankruptcy Filings by District

Here is a great chart on 2010 filings by district, created by Prof. Bob Lawless.  His entire article and many others can be found at Creditslips.com.  Remember, the Central District is up 45% for this year. 

Review of Recent Developments - Financial Lawyers Conference

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

BANKRUPTCY UPDATE

This meeting is jointly sponsored by The Financial Lawyers Conference and The Los Angeles County Bar Association Commercial Law and Bankruptcy Section, Bankruptcy Committee 

FLC's annual review of recent developments in bankruptcy law including discussion of significant judicial opinions from around the country.
 

Thursday, June 3, 2010

Register Online

Speakers: Jeffrey H. Davidson, Stutman, Treister & Glatt, P.C.
K. John Shaffer, Stutman, Treister & Glatt, P.C

  
Location:  The Omni Hotel
251 S. Olive Street
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 & LACBA Members
$85.00 Nonmembers
$40.00 Lawyers in Gov’t Svc.

New Article by Prof. Mark Scarberry on Mortgage Modifications in Chapter 13

An email from Prof. Mark Scarberry:

I’ve just posted this new article to SSRN. You can read the abstract (or even improve my download stats by downloading the full text!) at http://ssrn.com/abstract=1604144. It’s a continuation of the discussion/debate that Prof. Adam Levitin and I have been having over mortgage modification in chapter 13 and in particular over his empirical studies. (Thus he is the “Empiricist” in the title.) The article, and one by Professor Levitin to which it is a reply, will be coming out soon in the Pepperdine Law Review.  (A link to his article can be found in the abstract of mine on SSRN.) 

Best wishes,

Mark Scarberry
Pepperdine

Central District Filings

In March and April, 2010 combined, there were 305,000 total bankruptcy petition filed throughout the country.  Of that total, the Central District of California had 24,950 or about one-twelfth of the total.  The Central District is one of 95 districts.  The Central District has had 43,626 petitions filed this year through April compared to 30,016 for the same four months last year or up 45%.  No wonder I'm so tired. 

Bankruptcy Filings Continue to Increase

Statistics thanks to the Bankruptcy Data Project:

	2008	2009	%	2010	%
Jan	70,300	89,000	27%	102,600	15%
Feb	79,500	102,000	28%	117,800	15%
March	90,400	131,000	45%	159,200	22%
April	93,200	128,700	38%	146,200	14%
May	89,700	120,400	34%
June	89,900	124,800	39%
July	96,400	130,500	35%
Aug	94,300	120,000	27%
Sept	96,200	125,500	30%
Oct	108,900	130,200	20%
Nov	91,400	115,500	26%
Dec	95,900	117,000	22%
	1,096,100	1,434,600	31%

It's Elena Kagan

Read all about her on ScotusBlog.com.  Here is a nice summary of her life by the Washington Post. 

Chapter 7 Hot Topics Program - May 22, 2010

CENTRAL DISTRICT CONSUMER BANKRUPTCY ATTORNEYS ASSOCIATION
 
GENERAL MEMBERSHIP ASSSEMBLY
May 22, 2010 at 10:15 a.m.
 
Southwestern Law School
3050 Wilshire Blvd., Room W329
3rd Floor in the Westmoreland Building
Los Angeles, CA 90010
 
MCLE Program 11:00 a.m. – 1:00 p.m.  Total Hours: 2 hours  
 
"Ch7 hot topics: Means Test, Audits, Conversions/Dismissals Reaffs, Redemptions, Asset Abandonment, Lien Avoidace (522 & 506) and Reopening for Resolving post-discharge matters"
 
Speakers:
Peter Lively, Esq.
Keith Higginbotham, Esq.
 
Frank Cadigan Jr., Esq.
Assistant United States Trustee, Santa Ana Office
 
Michael Hauser, Esq.
Staff Attorney, Office of the United States Trustee, Santa Ana 
 
Cost: Free to cdcbaa Members
Non-Members: $210 (which includes one year membership in cdcbaa, admission to the Annual Calvin Ashland Awards Dinner and at least four more free MCLE Programs this year)
   
 
UPCOMING EVENTS:
   
June 11, 2010    Earle Hagen Memorial Golf Tournament
    California Country Club 
    1509 South Workman Mill Road, 
    Whittier, CA 90601
    *please register at www.ehmgt.com   
 
June 19, 2010    MCLE Program
(Topic and speakers to be announced later) 
 
November 4, 2010     Calvin Ashland Awards Dinner
The Marriott Hotel
333 South Figueroa Street,
Los Angeles, CA 90071 

Circuit Court of Appeals Cases from Last Week

1st Circuit Court of Appeals, April 21, 2010
In re Sherman, --- F.3d ---, 2010 WL ----------- (1st Cir. 2010)($983,000 debt non-dischargeable as embezzlement, bankruptcy judge did not make an express finding that debtor knew the action being taken was unauthorized, but judge's conclusion leaves no doubt that he did so find)

1st Circuit Court of Appeals, April 30, 2010
In re Hundley, --- F.3d ---, 2010 WL ----------- (1st Cir. 2010)(question of whether a non-debtor spouse is entitled to a portion of a prepetition tax refund, where the parties filed a joint return and the non-debtor spouse earned no income for the tax year for which the return was filed, is certified to the Massachusetts Supreme Judicial Court)

Thanks to Findlaw.com

Bankruptcy Fees in Chapter 11 - Where do I Sign Up?

A great article in the New York Times about the fees in the Lehman case.

 

Collateral Estoppel

Students, and many attorneys, have a difficult time understanding collateral estoppel.  This is because, I believe, the student has a difficult time conceptualizing two people suing each other for the same thing a second time.  The issue of course comes up all the time in bankruptcy.  Often people have been duking it out in court for some time when a bankruptcy filing comes along.  The pre-bankruptcy court has often made rulings on who owns something, the rights and priorities of secured creditors, how much some debt is or is not, who is liable for the debt and whether money is owed because of fraud or willful and malicious injury to someone.  Is the pre-bankruptcy ruling binding on the bankruptcy court?  Yes (usually), if collateral estoppel applies. 

From bankruptcy lawyer Arnie Wurhman comes a nice summary:

The Supreme Court has held that “collateral estoppel principles do indeed apply in discharge exception proceedings pursuant to §523(a).” Grogan v. Garner, 498 U.S. 279, 285 fn. 11, 111 S.Ct. 654 (1991). In the Ninth Circuit, collateral estoppel principles are applied in nondischargeability litigation to the extent that they would apply were the litigation being held in a court of the state where the original judgment was entered. In re Nourbakhsh, 67 F.3d 798, 800 (9th Cir. 1995), citing, Marrese v. American Academy of Orthopaedic Surgeons, 470 U.S. 373, 380 (1985).  This is true, in the Ninth Circuit, even in default cases.  Nourbaksh, supra, 67 F.3d at 800.
 
To my knowledge, most states find collateral estoppel should be applied where (1) there is indentity of the parties, (2) the issues are identical, and (3) the matter has been litigated to final conclusion.  See, e.g., Trucking Employees of North Jersey Welfare Fund, Inc. v. Romano, 450 So.2d 843, 845 (Fla. 1984); Mobil Oil Corp. v. Shevin, 354 So.2d 372, 374 (Fla. 1977).  Other states sometimes add that the issue must be "necessarily" decided in the prior litigation, and also be "decisive."  See, e.g., Buechel v. Bain, 97 N.Y.2d 295, 303, 740 N.Y.S.2d 252, 766 N.E.2d 914 (2001).  [California uses a similar standard, but I happened to have the New York quote lying around in a brief].
 
In short, you need to see how your Circuit applies the doctrine of collateral estoppel in 523 actions -- does it use a single Federal standard, or rely upon the principles applied in the state where the judgment originally arose -- and then see if the requirements apply in your particular case.  I bet if you Shephardize Grogan v. Garner, you'll find some cases applicable to your jurisdiction, and can figure it out from there.

http://www.serenitylls.com/

What surprises attorneys is that collateral estoppel is not mandatory.  See Lopez v. Emergency Service Restoration, Inc. (In re Lopez),  367 B.R. 99  (9th Cir. BAP  Mar, 2007)(bankruptcy court not required to give preclusive effect to a state court ruling).  It would be a pretty weird set of facts to have a bankruptcy court refuse to apply collateral estoppel but it can happen. 

See also Pepper v Litton,  308 U.S. 295  (1939).  Pepper is probably the most often cited case in the bankruptcy world.  Justice Douglas says “Consequently this Court has held that for many purposes 'courts of bankruptcy are essentially courts of equity, and their proceedings inherently proceedings in equity'.”  In Pepper, the Supreme Court ruled that a bankruptcy court could ignore a judgment properly issued by a state court, at least in terms of claims allowance.   A few years later, thankfully the Supreme Court clarified the ruling in Heiser v. Woodruff,  327 U.S. 726 (1946) saying that "[W]e are aware of no principle of law or equity which sanctions the rejection by a federal court of the salutary principle of res judicata, which is founded upon the generally recognized public policy that there must be some end to litigation and that when one appears in court to present his case, is fully heard, and the contested issue is decided against him, he may not later renew the litigation in another court."