Albert-Sheridan v. State Bar of California, Ninth Circuit Court of Appeals, (Published), (Paez, Callahan, Bumatay), Discharge
Case no. 19-60023
A Chapter 7 discharge “releases the debtor from personal liability for her pre-bankruptcy debts.” A debtor is entitled to a discharge of all pre-petition debts except for nineteen categories of debts set forth in the Code. One of the exceptions makes nondischargeable a debt “for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss.” In this case, Albert seeks the discharge of two debts: (1) the $18,714 assessed against her for the costs of the State Bar’s disciplinary proceedings, and (2) the $5,738 in discovery sanctions ordered by a California superior court.
In Findley, we held that the costs of State Bar attorney disciplinary proceedings are non-dischargeable based on their punitive and rehabilitative nature. The Findley court concluded that California’s classification of the costs was sufficient to render them nondischargeable under § 523(a)(7). We determined that the § 6086.10 costs were not compensatory to the State Bar but rather “disciplinary costs” imposed only for “misconduct that merits public reproval, suspension or disbarment.” We thus agreed that the costs were “not compensation for actual pecuniary loss” under § 523(a)(7). Findley stands on all fours with this case. Because Findley ruled that attorney disciplinary costs under § 6086.10 are excepted from discharge, Albert’s $18,714 debt to the State Bar is non-dischargeable.
Section 523(a)(7) expressly requires three elements for a debt to be non-dischargeable. The debt must (1) be a fine, penalty, or forfeiture; (2) be payable to and for the benefit of a governmental unit; and (3) not constitute compensation for actual pecuniary costs. Here, the discovery sanctions plainly do not satisfy the last two of these elements and, thus, are not excepted from discharge. Here, Albert was ordered to pay the discovery sanctions to “Plaintiff. Furthermore, the discovery sanctions also constitute “compensation for actual pecuniary costs.” The sanctions are only available to “pay the reasonable expenses, including attorney’s fees, incurred.” Thus, the discovery sanctions enforce compliance with discovery procedures by “assessing the costs of compelling compliance against the defaulting party.” Under the plain text of § 523(a)(7), the discovery sanctions are not the type of debt protected from discharge.
Albert contends that the State Bar violated 11 U.S.C. § 525(a) by failing to reinstate her law license because of her nonpayment of dischargeable debts. Section 525(a) prohibits a governmental unit from “deny[ing], revok[ing], suspend[ing], or refus[ing] to renew” a debtor’s license “solely because” the debtor filed for bankruptcy or failed to pay a dischargeable debt. 11 U.S.C. § 525(a). Although the provision prevents discrimination against a debtor based on a dischargeable debt, the inverse is also true: “The government may take action that is otherwise forbidden when the debt in question is one of the disfavored class that is nondischargeable.” As stated above, the costs of the State Bar’s disciplinary proceedings are non-dischargeable under § 523(a)(7). Accordingly, the State Bar is within its right to condition reinstatement on the payment of that debt.
Albert-Sheridan v. State Bar of California, June 10, 2020
Barnes v. Routh Crabtree Olsen PC, Ninth Circuit Court of Appeals, (Published), (Bybee, Van Dyke, Chhabria), FDCPA, Foreclosure Deficiency
Case no. 16-35418
A “debt” is “any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment.” The primary definition of a “debt collector,” in turn, is “any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” Because the debt must be owed or due “another,” an entity that collects a debt owed itself—even a debt acquired after default—does not qualify under this definition.
We do not agree that, as a categorical matter, a person who initiates a judicial foreclosure proceeding is attempting to collect a debt. Our cases make clear that a plaintiff must identify something beyond the mere enforcement of a security interest to establish that the defendants are acting as debt collectors subject to the FDCPA’s broad code of conduct. That additional debt collection ingredient can be present for judicial foreclosure, provided that state law permits a creditor to recover money from the debtor after foreclosure if the property sells for less than the debt. That remedy, called a deficiency judgment, is often available in judicial foreclosure proceedings (but typically not in non-judicial proceedings). But unless a deficiency judgment is on the table in the proceeding, a person judicially enforcing a deed of trust is seeking only the return or sale of the security, not to collect a debt.
Oregon strictly circumscribes the availability of a deficiency judgment when a person judicially enforces a residential deed of trust. State law provides that “a judgment to foreclose a residential trust deed . . . may not include a money award for the amount of the debt against the grantor.” This provision, formerly codified at § 86.770(2), “prohibits deficiency judgments regardless whether the creditor forecloses judicially or through a trustee sale.” Beyond Fannie Mae’s compliance with the then-existing formality of requesting a money award in the complaint, Barnes did not allege any actions by the defendants that could arguably constitute debt collection. Barnes speculates that Fannie Mae could have abandoned judicial foreclosure in favor of an action on the note. Yet the hypothetical possibility that a person may change course and pursue a different remedy down the road is not enough to trigger the FDCPA. Absent a situation where a plaintiff is permitted to, and does, use a judicial proceeding as a vehicle for debt collection in addition to foreclosure, we are reluctant to construe the FDCPA in a manner that interferes with state judicial procedures for enforcing security interests in real property.
Barnes v. Routh Crabtree Olsen, PC, June 30, 2020
Berkley v. Burchard, Ninth Circuit Bankruptcy Appellate Panel, (Published), (Faris, Brand, Taylor), Chapter 13 Windfall
Case no. NC-19-1197-FBTaDebtor Stephen William Berkley neared the successful completion of his chapter 13 plan, he received an unexpected windfall: stock options he had earned for postconfirmation services became worth about $3.8 million. Berkley argues that the court could not force him to commit any of the stock proceeds to the plan because the estate terminated at confirmation and the proceeds were not property of the estate. We publish to clarify that a revesting provision in a confirmed chapter 13 plan does not prevent modification of the plan to capture increases in the debtor’s postconfirmation compensation.
Section 1329(a) provides that, “[a]t any time after confirmation of the plan but before the completion of payments under such plan, the plan may be modified” to “increase or reduce the amount of payments on claims of a particular class provided for by the plan[.]” Section 1329 specifies the ways in which confirmed chapter 13 plans may be modified, but it does not state the circumstances in which a modification is proper. We have repeatedly held that “the bankruptcy court may consider a change in circumstances in the exercise of its discretion.” An unexpected increase in income is one such change that could warrant a plan modification to increase payments.
The Ninth Circuit has held that creditors can seek increased payments from debtors whose income increases during the term of the plan. confirmation does not shield increases in the debtor’s postconfirmation income from the reach of the chapter 13 trustee or creditors. It is well accepted that § 1329 permits the trustee and creditors to modify the plan to capture postconfirmation increases in the debtor’s income. As such, the bankruptcy court did not abuse its discretion in granting the Motion to Modify.
We acknowledge that the bankruptcy court in this case, and some other bankruptcy courts within our circuit, take the view that postconfirmation windfalls become property of the estate upon receipt, even if the plan provides for revesting. Nothing in the Code provides that plan payments may only be funded by estate property. In fact, debtors are often compelled (in order to formulate a confirmable plan) to fund the plan from non-estate sources (family contributions, loans or withdrawals from pension plans, sale of exempt assets, etc.). Under § 1329, the bankruptcy court can approve a plan modification that increases the debtor’s plan payments due to a postconfirmation increase in the debtor’s income, whether or not the additional income is property of the estate. This case, however, is solely concerned with postconfirmation wages.3 Because the stock options were postconfirmation income that Mr. Berkley earned as part of his compensation package, the bankruptcy court properly committed their proceeds to the Plan. Also, as the bankruptcy court correctly observed, Mr. Berkley’s argument would effectively nullify § 1329.
Berkley v. Burchard, April 17, 2020
Black v. Leavitt, Ninth Circuit Bankruptcy Appellate Panel,
(Published), (Feris, Brand Hercher), Chapter 13 Plan, Timeliness, Homestead
Case no. NV-18-1351-FBH
Section 1329(a) provides that, “[a]t any time after
confirmation of the plan but before the completion of payments under such plan,
the plan may be modified” to “increase or reduce the amount of payments on
claims of a particular class provided for by the plan[.]”We have held that, as a
general proposition, payments are not “complete” when the debtor pays them
early, unless the debtor modifies the plan pursuant to § 1329 to shorten its
term. We have also rejected a chapter 13 plan with an indefinite duration, which
would have allowed the debtor to “complete” his plan whenever he paid off all
priority and secured claims. Construing Fridley, we stated that “payments under
a plan have to continue for the duration provided for in the initial plan,
absent modification, before being considered ‘complete’ for purposes of
modification and discharge.” Therefore, Mr. Black’s plan payments were not
“complete” when he made the lump-sum payment, because he did not modify his plan
to shorten its duration. he statute does not tie the plan modification time
limit to the “applicable commitment period.” Section 1329(a) cuts off the right
to modify a plan upon “completion of payments under such [i.e., the original]
plan.” If Congress meant to terminate the modification right upon expiration of
the applicable commitment period, it could and would have said exactly that.
The parties’ respective positions underscore the tension between § 1327 on the one hand and § 1306 and § 541(a)(6) on the other. Mr. Black relies on § 1327(b), which provides that “the confirmation of a plan vests all of the property of the estate in the debtor.” § 1327(b). Subsection (c) provides that “the property vesting in the debtor under subsection (b) of this section is free and clear of any claim or interest of any creditor provided for by the plan.” Property of the estate includes “all property of the kind specified in such section  that the debtor acquires after the commencement of the case but before the case is closed, dismissed, or converted . . . .” Similarly, the estate includes “[p]roceeds, product, offspring, rents, or profits of or from property of the estate, except such as are earnings from services performed by an individual debtor after the commencement of the case.” Burgie is on point. The Panel considered whether prepetition
property liquidated postconfirmation must be committed to the chapter 13 plan. The Panel concluded that, so long as the debtors commit all of their postpetition disposable income to the plan and meet the other plan confirmation requirements, they get to retain their capital assets and creditors cannot reach the proceeds of such. Accordingly, so long as Mr. Black satisfies the terms of his confirmed plan, he does not have to commit the excess proceeds from the sale of the Property to pay his general unsecured creditors. In our view, the revesting provision of the confirmed plan means that the debtor owns the property outright and that the debtor is entitled to any postpetition appreciation. When the bankruptcy court confirmed Mr. Black’s plan, the property revested in Mr. Black. As such, it was no longer property of the estate, so the appreciation did not accrue from estate property.
Black v. Leavitt, December 31, 2019
Blixseth v. Credit Suisse, Ninth Circuit Court of Appeals, (Published), (Paez, Berzon, Bybee), Effect of Discharge, Settlement, Equitable Mootness
Case no. 16-35304
On remand from Blixseth’s earlier appeal, the district court dismissed his case on the ground that Blixseth’s challenge to the Exculpation Clause was equitably moot. In reaching this conclusion the district court disregarded our earlier holding that “Blixseth’s appeal as to the exculpation clause is not equitably moot, because it is apparent that one or more remedies is still available.” . Our holding bound the district court, and it binds us now, as the law of the case. Because it improperly dismissed the case as equitably moot, the district court did not determine whether the Exculpation Clause is valid. We could remand the case once more, but will not do so.
The question before us is whether the bankruptcy court could release Credit Suisse, a creditor, from liability for certain potential claims against it by approving the Exculpation Clause. The liability release here is “narrow in both scope and time,” limited to releasing the parties from liability for “any act or omission in connection with, relating to or arising out of the Chapter 11 cases” or bankruptcy filing. It does not affect obligations relating to the claims filed by creditors and discharged through the bankruptcy proceedings, as it exclusively exculpates actions that occurred during the bankruptcy proceeding, not before.
Section 524(e) establishes that “discharge of a debt of the debtor does not affect the liability of any other entity on . . . such debt.” In other words, “the discharge in no way affects the liability of any other entity . . . for the discharged debt.” By its terms, § 524(e) prevents a bankruptcy court from extinguishing claims of creditors against non-debtors over the very debt discharged through the bankruptcy proceedings. That § 524(e) confines the debt that may be discharged to the “debt of the debtor”—and not the obligations of third parties for that debt—conforms to the basic fact that “a discharge in bankruptcy does not extinguish the debt itself but merely releases the debtor from personal liability. . . . The debt still exists, however, and can be collected from any other entity that may be liable.” A bankruptcy discharge thus protects the debtor from efforts to collect the debtor’s discharged debt indirectly and outside of the bankruptcy proceedings; it does not, however, absolve a non-debtor’s liabilities for that same “such” debt. the Exculpation Clause here deals only with the highly litigious nature of Chapter 11 bankruptcy proceedings.5 As one of the bankruptcy attorneys in this case stated during the bankruptcy court’s hearing on the Exculpation Clause, in bankruptcy proceedings lawyers “battle each other tirelessly . . . . oxes [sic] are gored.”
Under 11 U.S.C. § 105(a), which empowers a bankruptcy court to “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of [Chapter 11],” and 11 U.S.C. § 1123, which establishes the appropriate content of a bankruptcy plan, the bankruptcy court here had the authority to approve an exculpation clause intended to trim subsequent litigation over acts taken during the bankruptcy proceedings and so render the Plan viable. Section 524(e) constrains this power by ensuring that no third party is released from its obligation for the underlying debt.
Aside from his § 524(e) argument, Blixseth also argues he is not bound by the Plan’s settlement because there was no consideration for the settlement and he was not in privity with the parties. These arguments misunderstand the source of a bankruptcy court’s power. As Underhill explained, “When a bankruptcy court discharges the debtor, it does so by operation of the bankruptcy laws, not by consent of the creditors. . . . [T]he payment which effects a discharge is not consideration for any promise by the creditors, much less for one to release non-party obligators.” Whether or not there was consideration and privity, the bankruptcy court had the power to confirm the Plan.
Blixseth v. Credit Suisse, June 11, 2020
Bobka v. Toyota Motor Corp, Ninth Circuit Court of Appeals, Published, (Nguyen, Miller, Vitaliano), Lease Assumption, Reaffirmation, Post Discharge Collection
Case no. 18-55688
The question of statutory interpretation presented here turns on the resolution of an apparent conflict between sections 365(p) and 524(c). Normally, when a bankruptcy proceeding ends, the debtor is “discharge[d] . . . from all debts that arose before the date of the order for relief.” Section 524(c) provides for a limited exception to that rule by allowing an agreement “based on a debt that is dischargeable” to be reaffirmed and thus remain enforceable after discharge. But reaffirmation can occur only when the debtor receives certain procedural protections, including the involvement of the bankruptcy court. On the other hand, section 365(p) provides that when a lease is assumed, “the liability under the lease will be assumed by the debtor and not by the estate.”
Although the language of section 365(p) does not directly answer the question presented, three indications in the text and overall structure of the Code lead us to conclude that a lease assumption need not be reaffirmed in order to survive discharge. That interpretation is further supported by the settled understanding of assumptions under the pre-2005 version of section 365.
If lease assumptions do not survive discharge unless they are reaffirmed, then section 365(p) would be superfluous in at least two ways. Most specifically, requiring debtors to reaffirm lease assumptions would make section 365(p)’s safe-harbor provisions superfluous. Section 365(p)(2)(C) clarifies that if the parties contact each other to negotiate an assumption agreement, their communications will not violate either the “stay under section 362 [or] the injunction under section 524(a)(2).” But the section 524 injunction exists only after discharge. If a lease assumption must be reaffirmed to survive discharge—a process that must be completed “before the granting of the discharge,”—then, logically, the negotiation of a lease assumption could never violate the post-discharge injunction.
More broadly, if every lease assumption must be reaffirmed to survive discharge, then section 524(c)’s more onerous requirements would displace section 365(p)’s more informal ones. To initiate a lease assumption under section 365(p), a lessee need only write to the lessor. From there, the creditor may decide whether to agree to a lease assumption and whether to condition its agreement on cure; the debtor then has another chance to decide whether to assume the lease. In contrast, section 524(c) dictates court involvement in most cases: the reaffirmation agreement must be “filed with the court,” and under certain circumstances, the court must hold a hearing to inform the debtor that reaffirmation is not required and that the debt would otherwise be discharged. If the Code requires a separate reaffirmation agreement in order to make a lease assumption effective, it is difficult to see how section 365(p)(2) serves any purpose.
Here, that principle supports the conclusion that section 365(p), which sets out procedures specifically applicable to individual debtors’ assumptions of leases of personal property, should control over the more general reaffirmation procedures of section 524(c). Mather notes that section 524(c) “actually contains more procedural steps and more words” than section 365(p). But we do not measure specificity by the number of words in a provision. Section 524(c) is logically broader than section 365(p) because it governs many different types of agreements involving otherwise dischargeable debt, in contrast to the narrower issue of leases of personal property addressed by section 365(p).
In order to assume a lease, (1) the debtor must “notify the creditor in writing that the debtor desires to assume the lease”; (2) the creditor may then “at its option, notify the debtor that it is willing to have the lease assumed by the debtor and may condition such assumption on cure of any outstanding default”; and (3) [i]f, not later than 30 days after notice is provided . . . the debtor notifies the lessor in writing that the lease is assumed,” then “the liability under the lease will be assumed by the debtor and not by the estate.” Toyota notified Mather that it was willing to agree to Mather’s lease assumption, satisfying step two. But Mather initially requested assumption in a phone call, not in writing (contrary to step one), and she did not return the lease assumption agreement within 30 days (contrary to step three). Mather’s failure to follow section 365(p)’s requirements cannot excuse her from the lease assumption to which she agreed.
Nor do we have any difficulty concluding that the parties mutually waived section 365(p)’s writing and timing requirements here. After declaring her intent to reaffirm the Rav4 lease in her statement of intention, Mather initiated contact with Toyota by phone. The requirement that a request be in writing helps to ensure its genuineness and offers some protection against hasty or ill-considered requests. But Mather, who was represented by counsel, signed the lease assumption agreement after Toyota mailed it to her. She does not suggest that Toyota wrongfully induced her to call rather than write in the first instance, nor does she argue that she did not understand what she was agreeing to. And although Mather returned the agreement after the 30-day period, that time limit serves to protect lessors from belated agreements, so it was Toyota, not Mather, that had the right to reject the belatedly executed agreement. We will not excuse Mather from the obligations of her lease assumption agreement based on procedural defects that she created and benefited from during her bankruptcy.
Bobka v. Toyota Motor Credit Corp, August 3, 2020
Brown v. Barclay, Ninth Circuit Court of Appeals, (Published), (Schroeder,
Friedland, Nelson), Conversion, Property of the Estate
Case no. 18-60029
Section 348 comes into play when a bankruptcy proceeding is converted from Chapter 13 to Chapter 7. We therefore look first to the nature of each type of proceeding. Chapter 13 bankruptcy is a voluntary proceeding that allows a debtor to retain control over some assets while the debtor repays creditors over a three-to-five-year period. In exchange for retaining control of some assets, the property accumulated during the repayment period becomes part of the bankruptcy estate and is used to repay creditors. In contrast, Chapter 7 allows debtors to discharge their existing debts immediately without a long-term payment plan. But in exchange, the debtor must relinquish control of and liquidate all existing assets. The Chapter 7 trustee is to sell the property of the estate and then distribute the proceeds to the debtor’s creditors. Unlike in Chapter 13 proceedings, wages or other assets acquired by the debtor post-petition are not property of the estate, and therefore creditors do not have access to them.
Congress tried to resolve the issue in § 348(f)(1)(A),which effectively adopted the Chapter 7 approach, by defining the converted estate to exclude assets acquired after the initial filing. This provision limits the converted estate in two ways. First, to avoid penalizing the debtor who initially engaged in voluntary bankruptcy under Chapter 13, Congress restricted the assets of the converted estate to property “as of the date of filing of the [voluntary] petition.”This means that, after conversion to Chapter7, creditors are barred from recovering property that was acquired by the debtor after filing the Chapter 13 petition. Second, and of immediate concern here, Congress, in § 348(f)(1)(A), limited the property of the converted estate to include only property that “remains in the possession of or is under the control of the debtor on the date of conversion.”This was necessary in order to take into account the debtor’s ability to spend funds on ordinary living expenses during the Chapter 13 proceeding. This second limitation prevents creditors from seeking to recover funds that were lawfully spent during the Chapter 13 proceeding and therefore no longer property of the estate.
Here, conversion to Chapter 7 has been imposed as a sanction for fraudulent transfers. In such cases, courts have observed that a literal application of § 348(f)(1)(A) to treat assets transferred in bad faith without authorization as outside the estate could lead to an absurd result, one rewarding bad faith.
The Code reflects a firm policy of not rewarding fraud or bad-faith debtors—which it realizes in numerous provisions, including the structural relationship between Chapter 13 and Chapter 7. In both Chapter 13 and Chapter 7 proceedings, unauthorized transfers of estate property by the debtor can be recovered by the trustee. Under both, a delay of discharge may be obtained where a debtor fraudulently transfers funds. And the Code permits the bankruptcy court to order conversion to Chapter 7 when the debtor fraudulently transfers funds during a voluntary bankruptcy proceeding. Appellant concedes that had this case remained in Chapter 13, the trustee could have recovered those funds. And if the case had been filed initially in Chapter 7, the trustee could have also recovered the funds. There is thus no basis in the structure, policy, or purpose of the Bankruptcy Code for treating the fraudulent transfers as beyond the reach of the creditors merely because the estate was converted.
The debtor transferred the funds out of his actual possession to a close family member, in an effort to avoid payments to his creditors that would have otherwise been required under the Bankruptcy Code. In analogous criminal contexts, courts have consistently rejected efforts to evade the operation of the law by disguising ownership of fraudulently obtained funds or contraband. We apply the same approach here.
It is undisputed that the debtor Jason was trying to avoid the operation of the Bankruptcy Code when he transferred the funds to close relatives without first notifying either the Bankruptcy Court or the Chapter 13 trustee. The Bankruptcy Court found, and it has never been disputed on appeal, that the debtor transferred the funds with the fraudulent purpose of avoiding payments to creditors. The brothers may, for example, have intended to give the money back to the debtor Jason after the bankruptcy was over. We therefore hold that those funds remained within his constructive possession or control, and hence should be considered property of the converted estate under§ 348(f)(1)(A).
Brown v. Barclay, March 23, 2020
CitiMortgage Inc., v. Corte Madera Homeowners Association, Ninth Circuit Court of Appeals (Published), (Graber, Berzon, Christen), Nevada Foreclosure, Lien Priority, Automatic Stay, Property of the Debtor
Case no. 17-16404
Nevada Revised Statutes allows homeowners associations to pursue liens on members’ homes for unpaid assessments and charges. HOA liens are split into superpriority and subpriority components; the superpriority component is prior to all other liens, including first deeds of trust. The superpriority portion comprises nine months’ worth of common assessments and any nuisance-abatement or maintenance charges. An HOA may foreclose on its superpriority lien through a non-judicial foreclosure sale. To initiate a non-judicial foreclosure proceeding, an HOA must give notice of delinquency and wait 90 days to allow the homeowner to pay off the lien. The holder of the first deed of trust may protect its collateral by tendering the amount of the superpriority portion of the lien to the HOA. Citi argues on appeal that its tender was sufficient because its offer to pay the superpriority portion could not have been more definite given the information available. The district court did not err when it concluded that Citi was obligated to satisfy the superpriority portion of the lien in order to protect its interest.
Acts that violate the automatic stay include “any act to create, perfect, or enforce any lien against property of the estate.” § 362(a)(4). Citi’s complaint alleges that the Danborough Court property became property of the estate on the day Horton filed her chapter 7 petition, February 29, 2012, but the complaint also suggests the notices may have constituted acts to “create, perfect, or enforce” a lien against property of the debtor pursuant to § 362(a)(5). The complaint does not specify which provision—§ 362(a)(4) or § 362(a)(5)—the notices allegedly violated.
The filing of a bankruptcy petition automatically stays “actions by all entities to collect or recover on claims” against the debtor and the property of the estate. The stay is “effective against the world, regardless of notice.” We have said that “[g]enerally, the filing of bankruptcy will stay all proceedings relating to a foreclosure sale.” We have held that acts that “immediately or potentially threaten the debtor’s possession of its property” violate the stay, and at least one bankruptcy court has recognized that the stay bars recording notices of default or delinquent assessments “that would lead to foreclosure of property of the debtor’s estate,”
With some exceptions inapplicable here, § 362(a)(4) stays remain in effect “until such property is no longer property of the estate.” Citi’s complaint alleged that the Danborough Court. property remained property of the bankruptcy estate until the Trustee abandoned it on October 17, 2013. But the complaint, and Citi’s brief on appeal, both suggest that Citi contends the Danborough Court property was either property of the estate or property of the debtor. If the Danborough Court property was property of the debtor, the stay lifted on the earliest of the case closure, case dismissal, or bankruptcy discharge. See § 362(c)(2). Of those three dates, the earliest was the bankruptcy discharge on May 30, 2012, before Corte Madera filed any of its foreclosure-related notices. Under this scenario, the notices would not have violated the stay. We therefore remand for the district court to consider whether the property was property of the debtor or of the estate, to determine whether the notices violated the bankruptcy stay, and to address whether Citi has standing to challenge the alleged violation.
CitiMortgage v. Corte Madera Homeowners Association, June 19, 2020
Derham-Burk v. Mrdutt, Ninth Circuit
Bankruptcy Appellate Panel, (Published), (Brand, Taylor, Faris), Chapter 13 Plan
Case no NC-17-1256-BTaF
A plan is a contract between the debtor and the debtor's creditors. The order confirming a chapter 13 plan, upon becoming final, represents a binding determination of the rights and liabilities of the parties as specified by the plan. When the loan modification failed, the Mrdutts sought to modify the Plan to surrender the residence to Wells Fargo sixty-seven months after the first Plan payment was due and after they had made all sixty Plan payments to Trustee. Section 1329 provides that the bankruptcy court may modify a confirmed plan "[a]t any time after confirmation of the plan, but before the completion of payments under such plan[.]" When the chapter 13 plan provides for the curing of prepetition mortgage arrears and a debtor's direct postpetition maintenance payments in accordance with § 1322(b)(5), such direct payments are "payments under the plan." And if the debtor does not complete "all payments under the plan," the debtor is not entitled to a discharge.
The promise to maintain postpetition payments to a mortgage creditor is a mandatory element of the treatment of claims subject to § 1322(b)(5), and it is not severable. Failing to perform this promise is a material default of the plan, subjecting the case to dismissal under § 1307(c)(6). We have difficulty reconciling that a debtor can receive a discharge after failing to make maintenance payments under § 1322(b)(5), when that same failure is grounds for case dismissal. We join the overwhelming majority of courts holding that a chapter 13 debtor's direct payments to creditors, if provided for in the plan, are "payments under the plan" for purposes of a discharge under § 1328(a) and hold that this same
rule should apply in the context of post-confirmation plan modifications under § 1329(a).
The Mrdutts sought to modify the Plan to surrender the residence in satisfaction of the Wells Fargo debt. They argue that surrender is not a "payment" and therefore does not violate the 60-month rule in § 1329(c). We conclude that surrender is a form of payment for purposes of § 1329(c). Besides a time limitation problem, it is not clear that modification of the Plan was even appropriate. A modified plan is essentially a new plan and must be consistent with the statutory requirements for confirmation. At minimum, good faith was in question when unsecured creditors received nothing under the Plan while the Mrdutts retained over $100,000 by failing to make their required postpetition mortgage payments.
Derham-Burk v. Mrdutt, May 6, 2019
Elliott v. Pacific Western Bank, Ninth Circuit Court of Appeals, (Published), (Paez, Bea, Adelman), Lien Avoidance, Exempt Property
When a trustee does not seek avoidance of transferred property, a debtor may step into the role of the trustee under section 522(h) of the Bankruptcy Code and attempt to avoid certain transfers of exempt property. Under section 522(h), a debtor may “avoid,” i.e., undo, a transfer of exempt property made before the filing of a bankruptcy petition. We have explained that section 522(h) requires a debtor to establish five conditions to shield his property from the bankruptcy estate: (1) the transfer cannot have been a voluntary transfer of property by the debtor; (2) the debtor cannot have concealed the property; (3) the trustee cannot have attempted to avoid the transfer; (4) the debtor must exercise an avoidance power usually used by the trustee that is listed within § 522(h); and (5) the transferred property must be of a kind that the debtor would have been able to exempt from the estate if the trustee (as opposed to the debtor) had avoided the transfer pursuant to one of the statutory provisions in § 522(g).
To establish the fifth condition, Elliott argues that “the transferred property [was] of a kind that [he] would have been able to exempt from the estate,” id., because the transfer would have been avoidable by the trustee under section 547. Section 547 allows the bankruptcy trustee (or, the debtor, when he is acting in the place of the trustee) to set aside “preferential” transfers and recapture the transferred property. To establish a preferential transfer, the trustee or debtor must show that the transfer, among other things, “enables such creditor to receive more than such creditor would receive” if (A) “the case were a case under chapter 7” of the Bankruptcy Code; (B) “the transfer had not been made”; and (C) “such creditor received payment of such debt to the extent provided by the provisions” of the Bankruptcy Code.
We must evaluate, then, whether Elliott can establish that the Bank received more from the prepetition levy than it would have received from his chapter 7 liquidation. The section 547(b)(5) inquiry is called the “greater amount test.” It requires “‘the court to construct a hypothetical chapter 7 case and determine what the creditor would have received if the case had proceeded under chapter 7’ without the alleged preferential transfer.” If Elliott can indeed avoid the fixing of the lien under section 522(f), then the funds may be exempt under 547(b)(5).
We then consider whether the execution lien is avoidable under section 522(f) of the Bankruptcy Code. In relevant part, section 522(f) states that (1) . . . the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is – (A) a judicial lien, other than a judicial lien that secures a debt of a kind that is specified in section 523(a)(5);
To avoid a lien under section 522(f), the lien in question must “impair an exemption as of the bankruptcy petition date.” Whether the lien impaired an exemption as of the petition date depends in part on whether Elliott maintained any outstanding property interest in the levied funds on the date he filed for bankruptcy. Under California law, Elliott’s ownership interest in the funds either terminated when the funds were paid to the sheriff, or after Elliott’s state-court exemption claim was denied and the funds were released to the Bank. Either way, however, the lien terminated prior to the date Elliott filed for bankruptcy. Because the judicial lien was satisfied prior to the petition date, it is not voidable under section 522(f). Because it is not voidable, Elliott cannot succeed on his separate 522(f) claim nor establish that the transfer of his IRA funds was a preferential transfer under section 547 of the Bankruptcy Code. Having failed to allege the elements of a section 547 preferential transfer, the bankruptcy court correctly concluded that Elliott failed to state a claim under section 522(h).
Elliott v. Pacific Western Bank, August 12,2020
Farrell v. Boeing Employees Credit Union, Ninth Circuit Court of Appeals, (Published), (M. Smith, Hurwitz, Burgess), Federal Employee, Garnishment, FDCPA
Case no. 19-16130
Farrell is a civilian employee of the Department of Defense (“DOD”). Garnishment is a civil action brought by a creditor against a third party, seeking access to the debtor’s property in the hands of the third party. Garnishment, traditionally a creature of state law, can reach wages owed by an employer to the debtor. Because garnishment is a suit against the third-party garnishee, not the debtor, a federal employee’s wages may not be garnished absent a waiver of sovereign immunity. The Hatch Act Reform Amendments of 1993 waived the federal government’s sovereign immunity and subjected a federal employee’s pay to “legal process in the same manner and to the same extent as if the agency were a private person.” Legal process includes “any writ, order, summons, or other similar process in the nature of garnishment” authorized under state or local law that “orders the employing agency of such employee to withhold an amount from the pay of such employee” to satisfy a debt. The statute was designed to “remove federal employees’ immunity from garnishment” and treat them “the same as all other Americans. By subjecting the pay of federal employees to the process applicable to pay from private employers, the statute incorporates state law, and thus makes “federal employees’ wages subject to garnishment only to this extent,”
The issue boils down to whether the garnishment order was, as federal law requires, issued by “a court of competent jurisdiction.” A California court issuing a garnishment order need only have jurisdiction over the third party garnishee, not the debtor. Here, the garnishee is the federal government, which has designated agents to accept service of process, and has agreed to comply with state garnishment orders. Because there is no dispute that the federal government was subject to the jurisdiction of the California court and owed the wages garnished, there was no violation of federal law. Therefore, BECU did not need to domesticate the California judgment in any other state to reach Farrell’s federal wages.
Farrell v. Boeing Employees Credit Union, July 16, 2020
Harkey et al v. Grobstein, Ninth Circuit Court of Appeals, (Published), (Ikuta, Christen (partial concurrence) Marbley), Jurisdiction, Standing
Case no. 18-56398
Appellants argue that when the original deadline to assume or reject the operating agreement passed, this constituted a statutory rejection of the agreement, meaning the agreement was no longer property of the estate and, therefore, the bankruptcy court had no jurisdiction over it under § 1334(e). This Court finds that the Trustee’s failure to assume the operating agreement by the bankruptcy court’s deadline did not deprive the court of jurisdiction over matters relating to the Dillon operating agreement. Appellants’ argument that the bankruptcy court could not rule on the Trustee’s assumption motion under § 1334(e) is unavailing because the subject of that motion, the operating agreement, was not outside the bankruptcy estate. In any event, § 1334(b) provides an alternative jurisdictional basis for the bankruptcy court’s order confirming the Trustee’s election as manager and permitting him to assume the operating agreement. The Trustee’s election as manager of Dillon, acting in his capacity as Trustee of the estate, is ndoubtedly “related to” the bankruptcy proceeding under § 1334(b). And § 1334(b) also affords the district court (and thus the bankruptcy court by reference under 28 U.S.C. § 157(a)) jurisdiction over matters “arising under” the Bankruptcy Code. A proceeding “arises under” the Bankruptcy Code if it “has no independent existence outside of bankruptcy and could not be brought in another forum, but whose cause of action is not expressly rooted in the Bankruptcy Code.”
Appellants make the tenuous argument that neither “arising under” nor “related to” jurisdiction empowered the bankruptcy court to rule on the Trustee’s assumption motion after the purported rejection of the operating agreement. As this Court explains infra Section IV, however, where a bankruptcy court makes a finding of excusable neglect for the failure to seek a timely extension of a deadline pursuant to Fed. R. Bankr. P. 9006(b)(1)(2), it may retroactively extend its own deadline. And that is precisely what the bankruptcy court did in this case.
Section 157(b) clearly “is not the source of the bankruptcy court’s jurisdiction,” and it “applies only if there is jurisdiction in the first place under 28 U.S.C. § 1334.” And it may be the case post-Stern that “[w]hile a district court is authorized to refer matters to a bankruptcy court, see 28 U.S.C. § 157(a), that provision [likewise] is not jurisdictional.” But, in any event, jurisdiction resided in the district court under § 1334(b) and in the bankruptcy court by reference from the district court under § 157(a) and its general order of reference. Thus, this Court concludes the district court did not err in finding the bankruptcy court had jurisdiction to hear the assumption motion. Even if the District Court incorrectly based jurisdiction on § 157, the bankruptcy court still had jurisdiction under § 1334(b) for the reasons stated above.
This Court finds Appellants’ jurisdictional claim that the bankruptcy court lacked the ability to approve the Trustee as manager of Dillon because the operating agreement was not part of the bankruptcy estate fails. Here, the Trustee was not elected as manager in his private capacity; he was elected to manage Dillon on behalf of the bankruptcy estate, to earn a management fee for that estate. As discussed above, the question whether the Trustee, acting on behalf of the bankruptcy estate, could exercise management authority over Dillon “related to” the bankruptcy proceeding. Moreover, the bankruptcy court was within its authority to enter an order confirming the Trustee’s election as manager of Dillon. It is well established that bankruptcy courts have “considerable discretion” to approve motions authorizing resolutions appointing or removing managers of LLCs.
Our decision does not hinge on the bankruptcy court’s order confirming the Trustee’s election as manager of Dillon, however, because an alternative ground supports the district court’s judgment. Even if the Trustee had not been elected as manager, the bankruptcy court could properly extend the deadline for the Trustee to assume the operating agreement under the Federal Rules of Bankruptcy Procedure. Whether the bankruptcy court properly extended the deadline for assumption of the operating agreement is governed by Fed. R. Bankr. P. 9006(b)(1)(2). We conclude that Rule 9006(b)(1)(2)’s plain language permitted the bankruptcy court to extend the deadline.
Although 11 U.S.C. § 365(d)(1) establishes a statutory 60-day deadline for assuming or rejecting executory contracts, the bankruptcy court’s order extending the Trustee’s deadline did not run afoul of this provision. Section 365(d)(1) permits the bankruptcy court to grant a trustee “additional time . . . for cause” within that 60-day period, and the bankruptcy court did so here. Thus, when the bankruptcy court later extended the deadline again, it was extending a period specified by “order of court,” see Fed. R. Bankr. P. 9006(b)(1), not extending a deadline mandated by statute. We affirm the district court’s holding that the bankruptcy court had authority under Rule 9006(b)(1)(2) to modify its order extending the deadline to accept or reject the operating agreement upon a finding of excusable neglect. The cases Appellants rely on do not deal with a court’s ability to extend a deadline established by its own order.
Harkey et al v. Grobstein, April 29, 2020
Lane v. Bank of New York Mellon, Ninth Circuit Court of Appeals (Publsihed), (Paez, Bea, Alderman), Lien Avoidance
Case no. 18-60059
To explain § 506(d), it helps first to explain the bankruptcy claim-filing process. A “claim” is a right to payment, such as the right to payment under the promissory note at issue in this case. If a creditor wants to receive payments on a claim through the bankruptcy proceeding, it must file a proof of claim. Importantly, however, a secured creditor might decide to bypass the bankruptcy proceeding and not file a proof of claim. This is because a secured creditor has the option of enforcing its claim against the debtor in two ways: (1) against the debtor personally (in personam), or (2) against the collateral (in rem). If the secured creditor does not file a proof of claim, it will forfeit its right to proceed against the debtor personally—the creditor will receive no payments through the bankruptcy proceeding and the creditor’s right to proceed against the debtor personally will be discharged. Id. However, under a longstanding principle of bankruptcy law, the creditor may ignore the bankruptcy proceeding, in which case its lien will pass through the proceeding unaffected. If the creditor bypasses the bankruptcy proceeding, it may enforce its lien in a foreclosure proceeding outside of the bankruptcy.
Here, we note that persons other than the creditor who allegedly holds the claim may file a proof of that claim and then give notice to the creditor that a proof of claim has been filed on its behalf. For example, if a creditor does not file a proof of claim within the time permitted for doing so, the debtor or the trustee may file a proof of claim on that creditor’s behalf. If someone files a proof of claim, that claim will be “allowed” unless an objection is filed by a party in interest. If an objection is filed, the bankruptcy court must adjudicate the objection and determine whether the claim should be allowed. If the court determines that the claim should not be allowed—meaning that the creditor has no right to payment on the claim through the bankruptcy proceeding—the court enters an order disallowing the claim.
Here is where § 506(d) comes into the picture. The purpose of this provision is to allow the bankruptcy court to void a lien after it determines that the claim the lien secures is invalid. The general idea is that if a creditor does not have a good secured claim, it does not have a valid lien, and therefore the court should void the lien. In the present case, however, the second exception to § 506(d) is relevant. It preserves the lien of a secured creditor who chooses to bypass the bankruptcy and enforce its lien outside of bankruptcy. Technically, a secured creditor who does not file a proof of claim will hold “a claim against the debtor that is not an allowed secured claim” and thus would seem to be in danger of losing its lien under § 506(d). However, the second exception to § 506(d) saves the lien by providing that if the claim “is not an allowed secured claim due only to the failure of any entity to file a proof of such claim under section 501 of this title,” then the lien is not void. 11 U.S.C. § 506(d)(2). Thus, if a secured creditor does not file a proof of claim (and no other entity files a proof of claim on its behalf), its lien will pass through the bankruptcy unaffected.
The concept of “the person entitled to enforce” the note is governed by Article 3 of the Uniform Commercial Code. See id. at 908–12. Under the UCC, the maker of a note—in this case, Lane—must pay the amount of the note to the person entitled to enforce it. See, e.g., Cal. Com. Code § 3412. Thus, if the person who files the proof of claim is not the person entitled to enforce the note, then that person does not have a claim against the debtor. Essentially, a finding that the claim filer is not the person entitled to enforce the note is a finding that the filer is not the true creditor—it is a finding that someone other than the claim filer may be the person entitled to payment under the note. Importantly, such a finding does not imply that either the note or the lien securing the note is invalid. Rather, such a finding simply establishes that, to the extent there is a valid note secured by a valid lien, the person before the court is not the person entitled to prosecute the claim for payment under the note or to foreclose the lien.
Lane v. Bank of New York Mellon, June 1, 2020
Lane v. Bank of New York Mellon, June 1, 2020
Lima v. United States Department of Education, Ninth Circuit Court of
Appeals, (Published), (Graber, Milan Smith, Watford), FDCPA, Debt Collector,
Case no. 17-16299
The FDCPA “authorizes private
civil actions against debt collectors who engage in certain prohibited
practices.” To obtain damages, Plaintiff first must establish that Defendant
is a “debt collector.” As relevant here, the FDCPA defines a “debt
collector” as “any person . . . who regularly collects or attempts to
collect, directly or indirectly, debts owed or due or asserted to be owed or
due another.” Whether a lender in Defendant’s position is seeking to collect
a debt for its “own account” is a question of first impression in our
circuit. To answer that question, Henson requires us to focus on who
ultimately would receive the payments on the debt being collected. Here,
Plaintiff’s debt is owed, or asserted to be owed, to the United States. The
monies obtained from Plaintiff’s Social Security benefits through Treasury
offset belong to the Treasury, not to Defendant. Instead, the money moves
between federal agencies, and Defendant is notified of the transfers only
for record-keeping purposes. Though Defendant possesses all right, title,
and interest in the judgment against Plaintiff, Defendant was not collecting
a debt for its “own account.” Instead, Defendant was collecting a debt for
the United States.
The FDCPA exempts from the definition of debt collector “any person collecting or attempting to collect any debt . . . owed or due another to the extent such activity . . . is incidental to a bona fide fiduciary obligation.” For the fiduciary exception to apply, Defendant must have a “fiduciary obligation” and Defendant’s collection activity must be “incidental to” that fiduciary obligation. Plaintiff concedes, and we agree, that Defendant owes a fiduciary obligation to the DOE. The “incidental to” requirement prevents fiduciaries “whose sole or primary function is to collect a debt on behalf of the entity to whom the fiduciary obligation is owed” from escaping FDCPA coverage. Fiduciary relationships naturally include reasonably foreseeable responsibilities that may arise in the future. DOE’s regulations place Defendant on standby should such fiduciary activities become necessary. Accordingly, we conclude that Defendant had a broader fiduciary role with respect to Plaintiff’s debt than merely collecting the debt. Therefore, Defendant’s collection activitywas “incidental to” its fiduciary obligation to the DOE. Plaintiff alleges that Defendant violated his procedural due process rights by “arbitrarily and maliciously” garnishing his benefits. To obtain declarative and injunctive relief,6 Plaintiff must establish: (1) that he suffered a “constitutional deprivation” that was “caused by the exercise of some right or privilege created by the State or by a rule of conduct imposed by the [S]tate or by a person for whom the State is responsible,” and (2) that “the party charged with the deprivation [is] a person who may fairly be said to be a state actor.” Here, Plaintiff challenges only the district court’s conclusion that Defendant is not a state actor.
We affirm the summary judgment in Defendant’s favor because Defendant did not violate Plaintiff’s due process rights. Defendant provided Plaintiff with notice of the debt, of Defendant’s intention to seek a Treasury offset against Plaintiff’s Social Security benefits, and the means by which Plaintiff could respond. Defendant’s misstatement, that Plaintiff’s debt arose from a single loan worth $8,500 rather than three loans totaling $8,500, does not violate due process.
Lima v. United States Department of Education, January 13, 2020
Lorenzen v. Taggart, Ninth Circuit Court of Appeals, Published, (Leavy, Paez, Bea), Discharge, Return to the Fray
Case no. 16-35402
In our prior decision, we affirmed the BAP’s decision and held that a creditor’s “good faith belief that the discharge injunction does not apply to the creditor’s claim precludes a finding of contempt, even if the creditor’s belief is unreasonable.” The U.S. Supreme Court vacated our prior decision and remanded for further proceedings. The Supreme Court explained that an objective, rather than subjective, standard is more appropriate in determining whether the Creditors could be held in civil contempt for violating the bankruptcy discharge injunction. he Supreme Court held that “a court may hold a creditor in civil contempt for violating a discharge order if there is no fair ground of doubt as to whether the order barred the creditor’s conduct.” Id. (emphasis in original). “In other words, civil contempt may be appropriate if there is no objectively reasonable basis for concluding that the creditor’s conduct might be lawful.” Id. We are now tasked with revisiting this case and applying this new standard.
The Creditors agree that a discharge injunction normally covers, and thereby precludes, claims for post-petition attorney’s fees stemming from litigation that commenced pre-petition but that continued post-petition, as did the Oregon state court litigation here. But they argue that they had an objectively reasonable basis to conclude that the discharge injunction did not bar their claim for attorney’s fees because Taggart had “returned to the fray” in the Oregon state court litigation after filing his bankruptcy petition. The question for us, however, is not whether Taggart actually “returned to the fray” in the Oregon state court litigation. Nor is it whether the Creditors had an objectively reasonable basis for concluding that Taggart had “returned to the fray.” Rather, the question is whether the Creditors had some—indeed, any—objectively reasonable basis for concluding that Taggart might have “returned to the fray” and that their motion for post-petition attorney’s fees might have been lawful. That said, Taggart’s voluntary actions, arguments, and positions taken at the hearing on the proposed state court judgment constituted an objectively reasonable basis for the Creditors to conclude that Taggart might have “returned to the fray.”
Taggart advanced these arguments for his own benefit. Although Berman had already paid Taggart for his ownership stake in SPBC, the Oregon state court voided the Taggart-Berman sale, which had the effect of directing the proceeds of the forced sale to Taggart. Presumably mindful of this windfall, Taggart indicated that he intended to use the proceeds to pay off tax liabilities to the IRS and Oregon Department of Revenue—obligations that were not discharged in his bankruptcy. The Creditors were compelled to utilize their attorneys to resist Taggert’s arguments, thereby incurring additional attorney’s fees. Accordingly, the Creditors had an objectively reasonable basis to conclude that Taggart might have “returned to the fray” in the Oregon state court to obtain some economic benefit from a higher evaluation of the sale of his ownership stake in SPBC and in the amount of interest that had accrued after the date payment was due for the forced sale. In response to Taggart’s arguments at the post-trial hearing, the Creditors reasonably defended their positions. In light of the significantly high standard given to us by the Supreme Court, the Creditors should not be liable for civil contempt sanctions. We, therefore, AFFIRM the BAP’s decision to reverse the Bankruptcy Court’s finding of civil contempt and to vacate the award of civil contempt sanctions.
Taggart v. Lorenzen, November 24, 2020
Manikan v. Peters and Freidman, Niinth Circuit Court of Appeals, (Published), (Wardlaw. Cook. Hunsaker), FDCPA, Discharge Injunction
Case no. 18-55393
As a threshold matter, we address Manikan’s assertion that his pre-petition debt was never discharged because he repaid his debt before the discharge order was issued. Section 1328(a) of the Bankruptcy Code states that after the payments required under a confirmed Chapter 13 bankruptcy plan are completed, the bankruptcy court, with certain enumerated exceptions, “shall grant the debtor a discharge of all debts provided for by the plan.” The phrase “provided for” in § 1328(a) “mean[s] that a plan makes a provision for, deals with, or even refers to a claim.” Here, the HOA’s proof of claim in Manikan’s Chapter 13 bankruptcy case related only to his pre-petition arrearage. This pre-petition debt was “provided for” in Manikan’s confirmed bankruptcy plan. Because Manikan repaid this debt through operation of the confirmed plan, the bankruptcy court granted Manikan a discharge of his pre-petition arrearage. We therefore reject the assertion that Manikan’s debt was never discharged. Nonetheless, as explained below, this is not determinative of whether Walls precludes Manikan from pursuing his FDCPA claims.
Walls held that a debtor is precluded from bringing a FDCPA claim premised on a violation of a bankruptcy discharge order. This case presents a slightly (but notably) different question: Whether a debtor is precluded from bringing a FDCPA claim when the debt at issue was fully satisfied through a Chapter 13 plan before discharge was entered. We now hold that Walls does not preclude FDCPA claims in such circumstances because whether an unfair debt collection practice occurred does not depend on issuance or enforcement of the discharge order.
In Walls, the FDCPA claim depended on the discharge injunction. Stated another way, the debtor had no basis independent from the discharge order to show that the creditor acted unlawfully. The lawfulness of the creditor’s actions stood or fell on the entry of discharge and the accompanying injunction. This case is different. Manikan alleges P&F acted unlawfully because it tried to collect a debt that he fully paid nearly two years before his discharge. He could still assert P&F acted unlawfully by attempting to collect a debt that he fully satisfied.
Because Manikan’s FDCPA claims are not premised on enforcing the discharge order, they do not “necessarily entail bankruptcy-laden determinations.” The amount that Manikan paid was dictated by the terms of his contract with the HOA, not bankruptcy law. And just because he made his arrearage payments through operation of a bankruptcy plan does not render his FDCPA claims inextricably intertwined with bankruptcy issues. The resolution of Manikan’s claims does not hinge on bankruptcy-related questions. The only determination necessary is whether he fully paid his debt in 2014. This is easily resolved because Manikan’s full payment is memorialized in multiple documents publicly filed by both his creditor’s representative and the bankruptcy trustee and because P&F does not dispute that Manikan fully paid his HOA debt.
Manikan v. Peters and Freidman, November 25, 2020
Marino v. Ocwen, Ninth Circuit Court of Appeals, (Published), (Paez, Bea (Concurring), Adelman),Fair Credit Reporting Act, Credit Report
Case no. 19-15530
Under the FCRA, to show that a violation was willful, a plaintiff must show that the defendant either knowingly violated the Act or recklessly disregarded the Act’s requirements. To show that a defendant recklessly disregarded the Act’s requirements, a plaintiff must show that the defendant “ran a risk of violating the law substantially greater than the risk associated with a reading [of the Act] that was merely careless.” Because the plaintiffs seek only statutory and punitive damages, to avoid summary judgment, they must show that their evidence permitted a reasonable fact finder to reach two conclusions: (1) that Ocwen’s post-discharge credit inquiries violated the FCRA, and (2) that Ocwen’s violations were willful.
We agree with the district court that the plaintiffs cannot show that a reasonable fact finder could conclude that Ocwen’s alleged violations were willful. But before we turn to the willfulness issue, we pause to consider whether Ocwen committed violations of the FCRA in the first place. We do this is to prevent the law in this area from stagnating. As we noted above, a consumer may succeed on a claim under the FCRA only if he or she shows that the defendant’s violation was negligent or willful. To prove a willful violation, a plaintiff must show not only that the defendant’s interpretation was objectively unreasonable, but also that the defendant ran a risk of violating the statute that was substantially greater than the risk associated with a reading that was merely careless. Here, addressing whether the defendant violated the FCRA before turning to the issues of negligence or willfulness promotes the development of precedent on questions of statutory interpretation that do not frequently arise in cases in which issues of negligence or willfulness are absent. we encourage courts in this circuit to determine whether the defendant committed a violation of the FCRA before turning to questions of negligence and willfulness. However, this is not an ironclad rule, and circumstances may arise where the issues of negligence or willfulness should be resolved first.
We thus turn to the antecedent question of whether the plaintiffs have demonstrated that Ocwen lacked a permissible purpose for obtaining their credit reports after their mortgage debts had been discharged. We think the plaintiffs’ argument falters at the very first step, for they have not shown that, at the time Ocwen obtained their credit reports, Ocwen could do nothing except foreclose its liens. Although the plaintiffs’ personal liability for the mortgage debts had been discharged, Ocwen was not prohibited from inquiring whether the plaintiffs wished to explore alternatives to foreclosure, such as entering into a new loan on different terms or a payment plan that might allow the plaintiffs to keep their homes. Indeed, the discharge provisions of the bankruptcy code state that the discharge injunction does not apply to a secured creditor’s efforts to seek “periodic payments associated with a valid security interest in lieu of pursuit of in rem relief to enforce the lien.
It seems clear to us that using a credit report for this purpose fits within the scope of § 1681b(a)(3)(A): it is using the information “in connection with a credit transaction involving the consumer . . . and involving the extension of credit to, or review or collection of an account of, the consumer.” Obviously, mortgage debt is the product of a credit transaction, and that debt survived the plaintiffs’ bankruptcies, at least to the extent of the value of the collateral. Ocwen’s exploring alternatives to foreclosure would have been part of a review of, or an attempt to collect, the account associated with the surviving lien.
Because we conclude that the plaintiffs have not shown that Ocwen violated the FCRA, the issue of willfulness is essentially moot. However, for the sake of completeness, and at the risk of stating the obvious, we note our agreement with the district court that Ocwen did not willfully violate the FCRA. Because we have interpreted the FCRA to mean what Ocwen thought it means, Ocwen could not have intentionally or recklessly misinterpreted the Act.
Marino v. Ocwen, October 21, 2020
McAdory v. DNF Associates, Ninth Circuit Court of Appeals, (Published), (Farris, Bea, Christen) Fair Debt Collection Act
Case no. 18-35923
This appeal requires us to consider whether a business that buys and profits from consumer debts, but outsources direct collection activities, qualifies as a “debt collector” for purposes of the Fair Debt Collection Practices Act. In 1977, Congress enacted the FDCPA “to eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses.”Concerned that unfair debt collection tactics contribute to personal bankruptcies, family instability, job loss, and privacy intrusions, id. § 1692(a), Congress imposed affirmative requirements on debt collectors and prohibited certain debt collection practices.
DNF urges us to focus on the first prong’s use of the word “collection,” which DNF defines as “the act or process of collection.” Relying on this definition, DNF reads the first prong of § 1692a(6) to require that a business’s principal purpose must be the act of collecting debts in order to qualify as a “debt collector.” But DNF acknowledges that“collection” is also defined as “that which is collected.”It was critical to the Third Circuit’s rationale that “the ‘regularly collects’ definition employs a verb and the ‘principal purpose’ definition employs a noun.” We find this analysis of the statutory text persuasive and decline to read a direct interaction requirement into the principal purpose prong based on the phrase “the collection of any debts.”The fact that the FDCPA includes limits on direct collection activities does not require the conclusion that Congress intended to regulate only those entities that directly interact with consumers. First, the text of the principal purpose prong contains no such limitation, see § 1692a(6), and as Barbato explained, “‘[c]ollection’ by its very definition may be indirect, and that is the type of collection in which [the defendant] engages: it buys consumer debt and hires debt collectors to collect on it.” Second, the specific provisions DNF relies upon must be read in conjunction with other parts of the statute, which make plain that Congress recognized that some debt collectors do not directly interact with consumers. We know this because the “regularly collects” prong expressly applies to businesses that “directly or indirectly” collect debt. § 1692a(6) (emphasis added)McAdory recognizes, and we reiterate, that vicarious liability may be addressed on remand. We conclude that McAdory sufficiently alleged that DNF’s principal purpose is the collection of debts as defined by the principal purpose prong of § 1692a(6). The complaint alleged that DNF lacks any other business purpose besides debt collection. These allegations are sufficient to allege that DNFis a debt collector under the FDCPA, regardless of whether DNF outsources debt collection activities to a third party.
McAdory v. DNF Associates, March 9, 2020
McCallister v. Wells, United States District Court (Idaho), Vanishing Homestead Exemption
Case no. 20-cv-00086-BLW
Idaho’s homestead exemption statute allows debtors to exempt proceeds from a voluntary sale of the homestead for a one-year period but only if the sale was made “in good faith for the purpose of acquiring a new homestead . . . .” Here, the bankruptcy court held that the proceeds from the sale of Wells’ homestead were exempt under the Idaho statute. The trustee appeals, arguing that the homestead exemption vanished by operation of law when Wells sold the homestead without reinvesting the proceeds in another home and with no intent to do so. The Court agrees and will reverse.
The filing of a Chapter 13 bankruptcy petition creates a bankruptcy estate generally consisting of all of the debtor’s property. Bankruptcy Code authorizes the debtor to exempt certain kinds of property from the estate, which enables the debtor to retain those assets post-bankruptcy. Some states, including Idaho, have opted out of the federal exemptions and instead provide their citizens with different, often more generous, protections than those afforded under the Bankruptcy Code. Idaho’s homestead exemption statute, as it applies to Wells, protects up to $100,000 in home equity. The statute further provides that if the homestead is sold “in good faith for the purpose of acquiring a new homestead,” the exemption will cover the sale proceeds for up to one year as well as any new homestead purchased with the proceeds.
In In re Golden, a chapter 7 debtor sold his house before declaring bankruptcy. He claimed the proceeds from the sale were exempt under California’s homestead exemption statute, which required proceeds to be reinvested within six months. Golden did not reinvest the proceeds but nevertheless argued that proceeds were exempt. The Ninth Circuit disagreed: “Applying California law, we . . . hold that when the debtor fails to reinvest homestead proceeds within a period of six months in which the debtor has control of those proceeds, the proceeds should revert to the trustee.”
Under Golden, the proceeds from the sale of Wells’ home lost their exempt status because Wells did not sell his home for the purpose of purchasing a new home and did not, in fact, invest the proceeds in a new home within the statutory period. In In re Jacobson, chapter 7 debtors claimed a state homestead exemption and then later, post-petition, sold the home. Id. at 1198. The debtors did not reinvest the proceeds within the statutory period but nevertheless argued that the exemption should apply because, under the “snapshot rule,” exemptions are fixed at the time the petition is filed. The Ninth Circuit reversed, relying on its earlier decision in Golden. The court stated: There is no material difference between Golden and this case. The homestead exemption gave the Jacobsons clearly defined rights with respect to the . . . property. The Jacobsons had a right to $150,000 in proceeds. . . . That right was contingent on their reinvesting the proceeds in a new homestead within six months of receipt. The Jacobsons did not abide by that condition and thus forfeited the exemption.
There is no such conflict here. At the time Wells declared bankruptcy he had the right to – and did – claim a homestead exemption. But the state statute sets forth conditions to maintain that exemption when there is a sale, and Wells did not comply with those requirements and thus failed to maintain the exemption. There is nothing about that Idaho’s statutory reinvestment requirement that directly conflicts with the Bankruptcy Code. For all these reasons, the Court concludes that Wells’ homestead exemption vanished when he sold his home and did not reinvest proceeds in another home.
McCallister v. Wells, October 14, 2020
Merriman v. Fattorini, Ninth Circuit Bankruptcy Appellate Panel, (Published), Lafferty, Taylor. Faris), Retroactive Relief from Stay, Jurisdiction
Case no. CC-19-1245-LTaF
Section 362(d)(1) provides that the bankruptcy court, on request of a party in interest and after notice and a hearing, must grant relief from the automatic stay, “such as by terminating, annulling, modifying, or conditioning” the stay, upon a showing of “cause.” “What constitutes ‘cause’ for granting relief from the automatic stay is decided on a case-by-case basis.” In assessing whether relief from stay should be granted to allow state court proceedings to continue in that forum, the bankruptcy court should consider judicial economy, the expertise of the state court, prejudice to the parties, and whether exclusively bankruptcy issues are involved.
In determining whether retroactive annulment of the stay is appropriate, courts have focused on two main factors: “(1) whether the creditor was aware of the bankruptcy petition; and (2) whether the debtor engaged in unreasonable or inequitable conduct, or prejudice would result to the creditor.” The State Court Action involves exclusively state law claims, and Mr. Merriman has pointed to no prejudice to him resulting from permitting the State Court Action to proceed, other than that he lacks insurance that could fund his defense, and Mr. Merriman would face the same problem if the case were litigated in bankruptcy court. Mr. Merriman is one of six defendants in the State Court Action so the case would have to be tried in state court, with or without Mr. Merriman; judicial economy dictates that the matter be tried in one forum.
That nunc pro tunc orders may not create jurisdiction where none exists–is consistent with other Supreme Court opinions holding that jurisdiction in the federal courts must emanate from the United States Constitution or a statute and cannot be created by the actions of a court. We do not interpret Acevedo as pertaining to the bankruptcy court’s power to annul the automatic stay under § 362(d). The language of the removal statute explicitly prohibits the state court from exercising jurisdiction over the removed action. In contrast, § 362(d) does not purport to deprive the bankruptcy court of jurisdiction; rather, it explicitly grants the court the power to modify the stay to permit another court or entity to exercise control over an asset or claim. To the extent that jurisdiction describes a statutory grant of authority to adjudicate a matter or exercise a power, it is absolutely clear that Congress expressly gave such power, including the power retroactively to grant relief, to bankruptcy courts. “On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay . . . .” Congress’ decision to deploy four verbs to describe the various ways in which a bankruptcy court might grant relief from stay indicates an express decision to grant bankruptcy courts the broadest possible range of options in respect of the stay, including annulling it, which has the effect of treating it as if it had never existed.
Where the stay enjoins pursuit of litigation of a claim, such as the case before us, granting relief from stay raises even fewer jurisdictional concerns. Although district courts have original and exclusive jurisdiction over bankruptcy cases, 28 U.S.C. § 1334(a), they have original but not exclusive jurisdiction over all civil proceedings airing in or arising under or related to a bankruptcy case, 28 U.S.C. § 1334(b). Further, Congress clearly contemplated that in certain circumstances, other courts would hear and determine proceedings arising in or related to a bankruptcy case (subject to limits on enforcement), i.e., abstention, 28 U.S.C. § 1334(c), and removal.
This result is perfectly consistent with the requirement that, in the performance of its “traffic cop” role, bankruptcy courts must have broad authority to determine the appropriate forum for dispute resolution, taking into account and giving full respect to the panoply of interests to be weighed and protected in these matters, as well as to the dignity and power of other judicial processes. The statutory language, and longstanding and sound experience, make clear that the effective use of these remedies must occasionally include the option of granting retroactive relief.
Merriman v. Fattorini, July 13, 2020
Montana Department of Revenue v. Blixseth, Ninth Circuit Court of Appeals,
(Hawkins, McKeown, Bybee), Standing, Involuntary Bankruptcy
Case no. 18-15064
MDOR ultimately assessed additional taxes, penalties,
and interest in the amount of $57,017,038 for the 2002 through 2006 tax
years. Blixseth then filed a complaint before the Montana State Tax Appeals
Board disputing all audit issues with the exception of Audit Issue 4. MDOR
issued a statement of account, claiming $216,657 owed in connection with
Audit Issue 4. In April 2011, while Blixseth’s complaint was pending before
the Montana State Tax Appeals Board, MDOR, joined by the Idaho State Tax
Commission and the California Franchise Tax Board initiated involuntary
bankruptcy proceedings against Blixseth. After some initial motion practice
and an appeal regarding venue, Blixseth moved to dismiss the bankruptcy
proceedings on the ground that the petitioning creditors 'claims were the
subject of bona fide disputes.
To commence involuntary bankruptcy proceedings against a debtor, a creditor must be: a holder of a claim against [the debtor] that is not contingent as to liability or the subject of a bona fide dispute as to liability or amount. . . [and] such no contingent, undisputed claims [must] aggregate at least $10,000more than the value of any lien on property of the debtor securing such claims held by the holders of such claims. 11 U.S.C. § 303(b)(1). Consequently, a petitioning creditor’s claim must not be (1) contingent or (2) “the subject of a bona fide dispute as to liability or amount.”Both requirements “aim to prevent creditors from using the threat of an involuntary petition to bully an alleged debtor into settling a speculative or validly disputed debt.”
[I]interpretation of the Bankruptcy Code starts where all such inquiries must begin: with the language of the statute itself.”The plain language of § 303(b)(1) encompasses disputes “as to liability or amount” and requires that “such no contingent, undisputed claims aggregate” the threshold amount. Because a dispute as to liability in a sense renders the entire amount of the claim disputed, the statute’s reference to “amount” encompasses a dispute as to less than the entire amount. Furthermore, the statute’s plain language does not cabin disputes as to amount to only disputes that drop the amount of a claim below the statutory threshold. Indeed, the statutory text does not qualify the word “amount” at all. And, Congress’s inclusion of the word “amount” could be rendered superfluous if a claim validly but partially disputed in amount still qualified as a claim that is not “the subject of a bona fide dispute as to liability or amount.” We hold that a creditor whose claim is the subject of a bona fide dispute as to amount lacks standing to serve as a petitioning creditor under § 303(b)(1) even if a portion of the claim amount is undisputed. Contrary to MDOR’s contention, interpreting§ 303(b)(1)’s inclusion of “amount” to bar all claims disputed in amount, whether partially or fully disputed, does not lead to an absurd result.
Yet, MDOR’s own claim exemplifies why following the plain language is the logical interpretation that gives effect to the statute’s basic policy. MDOR initiated an audit of Blixseth and several related entities for the 2002 through 2006 tax years. Blixseth conceded that the deduction challenged by Audit Issue 4 was improper, thus potentially altering his tax liability for the 2004 tax year. By MDOR’s calculation, Audit Issue 4 gave rise to $219,258 in additional tax liability, penalties, and interest as of the petition date. In full, however, MDOR claimed more than $9 million in tax liability, penalties, and interest for the 2004 tax year stemming from multiple audit issues. And, as soon as Blixseth conceded the impropriety of the deduction challenged in Audit Issue 4, MDOR sought to leverage an approximately $200,000 concession to collect on a disputed claim totaling more than $9 million along with tens of millions of dollars in additional disputed tax liability. In doing so, MDOR engaged in the very type of conduct that § 303(b)(1)’s “bona fide dispute” limitation seeks to prohibit. Ultimately, although a portion of MDOR’s claim was undisputed on the petition date, the vast majority of its claim remained disputed. As a result, MDOR’s claim was the subject of a bona fide dispute as to amount. We hold that MDOR’s claim was the subject of a bonafide dispute as to amount on the petition date, and, therefore the bankruptcy court and district court correctly concluded that MDOR lacked standing to serve as a petitioning creditor.
Montana Department of Revenue v. Blixseth, November 26, 2019
Nichols v. Marana Stockyard & Livestock Market, Inc, Ninth Circuit Bankruptcy Appellate Panel (Published), (Taylor, Lafferty, Brand), Chapter 13 Conversion
Case no. AZ-20-10320-TaLB
Chapter 13 debtors Donald Hugh Nichols and Jane Ann Nichols appeal from the bankruptcy court’s order denying their § 1307(b) dismissal motion and granting a § 1307(c) and (e) conversion motion. Debtors contend that the bankruptcy court abused its discretion in doing so, arguing that: (1) their right to dismiss is absolute; and (2) even if the right is not absolute, there were no grounds for conversion.
In Rosson, the Ninth Circuit Court of Appeals considered the effects of Marrama in the context of a bankruptcy court’s sua sponte conversion of a chapter 13 case to chapter 7 “for cause” despite a pending § 1307(b) dismissal motion. The Rosson court held that after Marrama, “a debtor’s right to voluntarily dismiss a Chapter 13 case under § 1307(b) is not absolute, but is qualified by an implied exception for bad-faith conduct or abuse of the bankruptcy process.” Rosson also cited to § 105(a) in discussing Marrama’s bad faith and abuse of process exceptions to the rights conferred on debtors in §§ 706(a) and 1307(b). This analysis primarily centered on a holistic statutory construction of § 1307(b) and (c) to conclude that a debtor’s § 1307(b) dismissal right is fairly limited by alternative “for cause” grounds of abuse of process or bad faith for conversion under § 1307(c).
Here, we consider Rosson’s vitality; we agree with its allies—it is still good law. As aptly articulated in Brown, “[r]ather than undercutting Rosson’s analysis, Law actually confirms it.” For these reasons, we hold that Rosson remains good law; a debtor’s § 1307(b) right to dismissal is not absolute. In doing so, we acknowledge the tensions in the analysis. But given that Law merely suggests, rather than requires, consideration of a different result and given that the Ninth Circuit relied on Rosson after Law, we determine that the decision binds us here. We also observe that limiting a chapter 13 debtor’s § 1307(b) right voluntarily to dismiss a case when there is bad faith conduct or abuse of process warranting conversion is consistent with the objectives of the Bankruptcy Code and is otherwise sound statutory construction. But there is no indication in the legislative history that Congress intended to grant debtors who have abused the bankruptcy process an unqualified right to choose the means by which they exit chapter 13. After all, “the purpose of the bankruptcy code is to afford the honest but unfortunate debtor a fresh start, not to shield those who abuse the bankruptcy process in order to avoid paying their debts.
While a debtor may assert his Fifth Amendment privilege in a bankruptcy proceeding, , he cannot assert it in a blanket fashion to “impede the basic bankruptcy administration of his case” without consequence. Further, we agree with the bankruptcy court that Debtors’ requested stay would allow them to “use the Fifth Amendment as a shield, while impermissibly using the Bankruptcy Code as a sword with which to take unfair advantage of creditors.” During all of Debtors’ stalling efforts, creditors have suffered as Debtors have not met their obligations to pay creditors or to propose even a facially confirmable plan. These facts provide ample support for the bankruptcy court’s determination that conversion would prevent an abuse of process and be in the best interest of creditors.6 Therefore, we perceive no error in the bankruptcy court’s denial of Debtors’ Dismissal Motion and grant of Creditors’ Conversion Motion under § 1307(c).
Nichols v. Marana Stockyard & Livestock Market, Inc., August 12,2020
Pena, Ninth Circuit Court of Appeals, Published, (Callahan, Bumatay, Van Dyke), Unclaimed Funds
Case no. 18-1098
The trustee managed several of Pena’s rental properties under a court order, collecting rents, depositing them in the estate. These properties were purchased using a deed of trust, so the trustee passed along the rents to the security holders of the respective security interests. In the summer of 2014, she abandoned the rental parcels as part of her administration of the Chapter 7 estate. The trustee’s unsuccessful efforts to distribute the rents ended in February 2016, when she deposited almost $52,000 in remaining unclaimed funds in the bankruptcy court registry.
“Ordinarily, a [Chapter 7] debtor cannot challenge a bankruptcy court’s order unless there is likely to be a surplus after bankruptcy”. Nevertheless, this court has assumed standing where a debtor claimed entitlement to property that had allegedly been abandoned by the bankruptcy trustee. The fact that Pena’s Chapter 7 estate did not result in a surplus does not address his central claim here: that the unclaimed funds are not part of the estate because they were abandoned by the trustee. Accordingly, we find that Pena is a “person aggrieved” by the bankruptcy court’s order.
Pena contends that the trustee abandoned the rents by abandoning the properties from which they were collected, thus returning them to his possession. We disagree. As an initial matter, Pena’s argument fails because rental properties and rents collected from those properties are separate, discrete classes of estate property. Thus, in order to recover, Pena must demonstrate that the rents themselves—and not just the underlying properties— were abandoned by the trustee under § 554(a). A trustee cannot abandon property under this provision by accident. Rather, abandonment under § 554(a) is a “formal relinquishment of the property at issue from the bankruptcy estate …. [which] requires notice and a hearing.” Problematically for Pena, nothing in the record indicates any intent on the trustee’s part to abandon the rent payments. In the absence of affirmative evidence of abandonment, we find the funds remain the property of the bankruptcy estate. Pena, therefore, has no interest in the rents unless they constitute an estate surplus. He cannot recover the funds by simply alleging that other parties are not entitled to them. Second, Pena’s claim that the funds will remain in limbo indefinitely is incorrect—under 28 U.S.C. § 2042, the funds will escheat to the U.S. Treasury if left unclaimed for five years.
In re Pena, September 4. 2020
Progressive Solutions, Inc, United States Bankruptcy Court, Central District, California, (Clarkson) Subchapter V Election
Case no 18-14277
The SBRA became effective on February 19, 2020.4
During the hearing before this Court, one creditor counsel (representing the
City of Oakland) argued that applying the SBRA to pending cases was
impermissible as a retroactive application of the SBRA. During the
discussion with the learned City of Oakland counsel, the Court and counsel
entertained various issues, including those arising from the recent decision
from the Bankruptcy Court for the District of Delaware in In re Exide
Technologies, Inc., where the Office of the United States Trustee
successfully argued that the 2017 change in law, increasing and changing the
formula for U.S. Trustee Fees, applied to pending cases. The Exide
Technologies case was filed in2013 (and has confirmed its Plan), and the
quarterly fees rose from $30,000.00 to250,000.00 in 2017 due to the change
in law. The Court also discussed with Oakland’s learned counsel the
provisions of Section 5 of the SBRA (involving a change in law to all
preference actions filed under section 547 of the Bankruptcy Code) and their
applicability to pending litigation. It was pointed out, and conceded by all
parties present at the hearing, that nowhere in the SBRA are there stated
limitations to the application of the SBRA (including new preference
recovery provisions) to pending cases.
The only comprehensive objections raised at the hearing by counsel of the Office of United States Trustee were procedural in nature. The OUST made very good points regarding the practicality and scheduling issues arising from a SBRA designation of a pre-effective date pending case.7 The OUST raised, for instance, the problem of holding a timely Initial Debtor Interview (the “IDI”), and a timely Section 341(a) Meeting of Creditors that would include a Subchapter V Trustee participation. The OUST raised the good question of the required Debtor Status Conference Report and the initial Status Conference for the Subchapter V case, but again conceded that there was no statutory or rule which prohibited the Court from extending the time to hold the status conference or submit a report. The OUST raised the timing issue of the 60 day Plan filing requirement(from the Entry of Order for Relief), but then conceded that the Court may extend that time for cause, as long as the delay was not attributable the Debtor. The Court points out that all of these timing requirements could be reset in order to provide due process to all parties involved, unless vested rights of parties would be abridged or otherwise
This Court finds that while the procedural tasks of setting an IDI, a section 341(a)meeting of creditors, and a new Subchapter V Status Conference (as long as the Debtor did not object to any of these actions), might be redundant or procedurally awkward, there are no bases in law or rules to prohibit a resetting or rescheduling of these procedural matters. If any vested rights of a debtor or any other party in interest would-be in jeopardy, this Court concedes that rescheduling would likely be a violation of due process. On the other hand, if any party holding vested rights approved of a re-setting or rescheduling of such events objected, waiver of those rights could be exercised. Also, if the Debtor declined to undertake the responsibilities and duties under Subchapter V, as suggested by the OUST, the Court would not approve a resetting and rescheduling of such meetings, hearings or deadlines, and would take steps to remedy
The Court is not unmindful of the additional efforts the OUST, the newly appointed Subchapter V Trustee, the creditors, or this Court might have to undertake to administer a re-designated Subchapter V case. But, the whole, the entire whole, of the legislative history and statements of Congress teaches the Court that the primary purpose of the SBRA is to promote successful reorganizations using the tools that are now available under current law. The decision to proceed and hopefully confirm a Subchapter V plan of reorganization under the law as it exists today, after February 19,2020, is further supported by the teaching of the United States Supreme Court in Landgraf v. USI Film Products, 551, U.S. 244 (1994), which said, “The first is the rule that ‘a court is to apply the law in effect at the time it renders its decision,’ Bradley, 416U. S., at 711.” Appreciating Landgraf, it remains the Court’s duty to ensure that no vested rights have been altered by application of a changed law. In this instance, that has not occurred.
To recap, this Court has found no legal reason to
restrict a pending Chapter 11case to re-designate to a Subchapter V case, on
the facts underlying the Motion. No party has provided any legal reasoning
to support a blanket prohibition of such redesignation by the Debtor. The
arguments against pending case being designated by the Debtor as a
Subchapter V case all have to do with practicality and not legality.
However, there remains one final, procedural problem requiring denial of the
February 21, 2020
Revitch v. DIRECTV, LLC, Ninth Circuit Court of Appeals, (Published), (O’Scannlain, McKeown, Bennett), Telephone Consumer Protection Act, Compulsory Arbitration
Case no. 18-16823
According to Revitch’s complaint, DIRECTV has a history of conducting unsolicited telemarketing campaigns, for which it has been sued numerous times and has paid millions of dollars in fines to the Federal Trade Commission. He brings this class action against DIRECTV on behalf of all persons in the United States who have received prerecorded messages from the company over the last four years without prior express written consent. So how did this class action morph into a compulsory arbitration appeal? It turns out that DIRECTV was acquired in 2015 by AT&T, Inc., which is now the parent company of both DIRECTV and AT&T Mobility. Thus, DIRECTV contends that it has become an “affiliate” of AT&T Mobility within the meaning of the wireless services agreement and should therefore be able to piggyback onto the arbitration clause, notwithstanding that it was not an affiliate at the time Revitch signed the wireless services contract with AT&T Mobility four years earlier.
When a motion to compel arbitration is filed, a “court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue . . . shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement.” A federal court’s role is “limited to determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue.” If the answer to both questions is yes, then the FAA requires a court “to enforce the arbitration agreement in accordance with its terms.”
In California, “[a] contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting.” We normally determine the mutual intention of the parties “from the written terms [of the contract] alone,” so long as the “contract language is clear and explicit and does not lead to absurd results.” We must thus decide whether DIRECTV qualifies as an “affiliate” of AT&T Mobility, as the term is used in the wireless services agreement. Because the word is not elsewhere defined in the contract, we rely on the ordinary definition. Because DIRECTV and AT&T Mobility are under common ownership by AT&T, Inc. today, they are affiliates.
However, as we already mentioned, we rely on the “written terms alone” when the “contract language is clear and explicit and does not lead to absurd results.” Here, absurd results follow from DIRECTV’s preferred interpretation: Under this reading, Revitch would be forced to arbitrate any dispute with any corporate entity that happens to be acquired by AT&T, Inc., even if neither the entity nor the dispute has anything to do with providing wireless services to Revitch—and even if the entity becomes an affiliate years or even decades in the future. , when Revitch signed his wireless services agreement with AT&T Mobility so that he could obtain cell phone services, he could not reasonably have expected that he would be forced to arbitrate an unrelated dispute with DIRECTV, a satellite television provider that would not become affiliated with AT&T until years later. Accordingly, we are satisfied that a valid agreement to arbitrate between Revitch and DIRECTV does not exist. Because it was not and is not now a party to the wireless services agreement between Revitch and AT&T Mobility, DIRECTV may not invoke the agreement to compel arbitration.
We also think that DIRECTV’s preferred framework would subvert the Supreme Court’s FAA jurisprudence, which emphasizes that “[a]rbitration is strictly ‘a matter of consent . . . .’” If we were always to treat the question of who is a party to a contract as a matter of scope, then in turn, we would be required always to err on the side of accepting individuals or entities as parties who could invoke an arbitration clause, even if the other party would never have consented to such an arrangement when it entered into the contract.
Revitch v. DIRECTV, LLC, September 30, 2020
Rodriguez v. Bronitsky, Ninth Circuit Bankruptcy Appellate Panel, (Published),( Taylor, Brand, Gan), Projected Disposable Income, Monthly Vehicle Operating Expense
Case no. NC-20-1085-TaBG
Not only does our plain language interpretation of § 707(b)(2)(A)(ii)(I) not lead to absurd results, it is consistent with binding authority. While the Supreme Court in Ransom consulted the Manual when interpreting the Standards, it did so to “reinforce” its conclusion, based on sound principles of statutory construction, that taking the deduction at issue would be improper in the first instance. It did not use the Manual to interpret a straightforward numerical value in the tables. As explained above, Ransom forbids following the Manual guidelines where, as here, they depart from the clear language of the Bankruptcy Code.
We also believe our reading of § 707(b)(2)(A)(ii)(I) is in accord with the following dicta in Ransom: Although the expense amounts in the Standards apply only if the debtor incurs the relevant expense, the debtor’s out-of-pocket cost may well not control the amount of the deduction. If a debtor’s actual expenses exceed the amounts listed in the tables, for example, the debtor may claim an allowance only for the specified sum, rather than for his real expenditures. For the Other Necessary Expense categories, by contrast, the debtor may deduct his actual expenses, no matter how high they are. We treat such dicta with great deference. It strengthens our convictions that Debtors misread Ransom and that the bankruptcy court properly applied the means test. We also disagree with Debtors’ reading of our decision in Luedtke, 508 B.R. 408. In Luedtke, we reversed a bankruptcy court that allowed above-median-income debtors to augment their vehicle operation expense with the IRS’s $200 “older vehicle operating expense.” We determined that the expense was inapplicable because it is not found in the Local Standards table or the Handbook, which “identif[ies] and interpret[s] those standards.” Id. at 414. Rather, it is only mentioned in the Manual at Part 5, Chapter 8, which is not incorporated in either the Standards or the Handbook. But nothing in our decision departs from Ransom’s clear instruction that bankruptcy courts may use the Handbook as relevant and persuasive authority only to the extent it does not conflict with the language of the Bankruptcy Code. Here, conflict arises.
Likewise, we disagree with Debtors that the Supreme Court’s decision in Hamilton v. Lanning, 560 U.S. 505 (2010), required the bankruptcy court to deviate from its mechanical application of the means test. The issue before the Supreme Court in Lanning was whether projected disposable income should always be a strict calculation based on the debtor’s current monthly income and expenses during the six-month period before bankruptcy (i.e., the “mechanical” approach) or whether a bankruptcy court may take into account the particular circumstances of the debtor’s finances for which the mechanical approach would not account (i.e., the “forward-looking” approach). In adopting the forward-looking approach, the Supreme Court stated that bankruptcy courts “may account for changes in the debtor’s income or expenses that are known or virtually certain at the time of confirmation.” In so holding, the Supreme Court noted that bankruptcy courts must nevertheless “begin by calculating disposable income and that in most cases nothing more is required. It is only in the unusual cases that a court may go further and take into account other known or virtually certain information about the debtor’s future income or expenses.” Thus, under Lanning, a bankruptcy court has the discretion to adjust the projected disposable income calculation in Form 122C only when there has been changes in a debtor’s financial situation. Absent a change, Lanning has no bearing. Here, Debtors presented no evidence of such changes in their financial situations. Accordingly, Lanning is not germane to the analysis.
Rodriguez v. Bronitsky, October 16, 2020
Shaw v. Bank of America, Ninth Circuit Court of Appeals,
(Published), (Klienfeld, Callahan, Nelson), Truth in Lending Act,
Case no. 17-56706
Mr. Shaw brought this action in May 2012, seeking rescission of the loan under TILA. After several years of litigation, including an appeal to this court, U.S. Bank moved to dismiss Mr. Shaw’s claim for lack of jurisdiction, arguing he failed to exhaust administrative remedies through the FDIC as required by FIRREA. Mr. Shaw responded that FIRREA did not apply and further discovery was needed to make that showing. The district court rejected these arguments, granted U.S. Bank’s motion, and entered judgment.
“[T]o enable the federal government to respond swiftly and effectively to the declining financial condition of the nation’s banks and savings institutions,” FIRREA granted “the FDIC, as receiver, broad powers to determine claims asserted against failed banks.” To that end, FIRREA “provides detailed procedures to allow the FDIC to consider certain claims against the receivership estate.” “The comprehensive claims process allows the FDIC to ensure that the assets of a failed institution are distributed fairly and promptly among those with valid claims against the institution, and to expeditiously wind up the affairs of failed banks without unduly burdening the District Courts.” If the FDIC disallows a claim, “the claimant may request administrative review of the claim . . . or file suit on such claim” in the district court whose jurisdiction covers the depository institution. For FIRREA’s jurisdictional bar in clause (ii) of 12 U.S.C. § 1821(d)(13)(D) to apply, three elements must be met. There must be (1) a “claim” that (2) relates to “any act or omission” of (3) “an institution for which the [FDIC] has been appointed receiver.” Here, these elements are met. FIRREA’s exhaustion requirement therefore applies.
A “claim” under FIRREA is “a cause of action . . . that gives rise to a right to payment or an equitable remedy.” Mr. Shaw has a “claim” because his cause of action gives right to an equitable remedy—rescission. Where the larger statutory scheme establishes that a claim is not “susceptible of resolution through FIRREA claims procedures,” it is not a “claim” under FIRREA. However, where the statute does not so indicate, FIRREA applies and exhaustion is required.
FIRREA “does not make any distinction based on the identity of the party from whom relief is sought.” Instead, it “distinguishes claims on their factual bases.” The exhaustion provision broadly applies to “any claim relating to any act or omission of [an institution for which the FDIC has been appointed receiver],” focusing on the factual basis for the claim, not where the assets are located. Even where an asset never passes through the FDIC’s receivership estate, the FDIC should assess the claim first. It may be that the FDIC can provide relief. In this case, for example, the FDIC retained liability—including liability for “equitable” relief— for “Borrower Claims” based on WaMu’s “lending or loan purchase activities” under the Purchase and Assumption Agreement with JPMorgan Chase. We do not decide whether or not the FDIC could have provided relief to Mr. Shaw. Regardless, Mr. Shaw was required to ask the FDIC to “determine” his claim before filing suit. In short, because the FDIC can “determine,” “allow,” or “disallow,” Mr. Shaw’s TILA claim, he has a “claim” under FIRREA. This holding may seem unfair given Mr. Shaw’s uncertainty about whether the FDIC can help him rescind his loan. But it makes sense, under FIRREA, for Mr. Shaw to ask the FDIC for relief first.
Mr. Shaw further argues that even if all three elements of FIRREA are met, dismissal was still erroneous because filing a claim with the FDIC would have been futile. But FIRREA does not contain a futility exception. We therefore decline to create a futility exception to this statutory exhaustion requirement under these circumstances.
Having determined that FIRREA applies, we must decide whether Mr. Shaw has exhausted his remedies with the FDIC. We conclude he has not. Mr. Shaw’s Complaint includes no allegations that he presented his TILA claim to the FDIC before filing suit.
Shaw v. Bank of America, December 27, 2019
re Sisk, Ninth Circuit Court of Appeals, (Published), (Wardlaw, Smith,
Bumatay),Duration of Chapter 13 Plan , Good Faith
, Good Faith
Case no. 18-17445
Only two provisions of Chapter 13 expressly discuss the duration of a bankruptcy plan. First, § 1322 imposes a maximum duration for all plans. For above-median-income debtors, “the plan may not provide for payments over a period that is longer than 5 years.” Below-median debtors’ plans generally “may not provide for payments over a period that is longer than 3 years[.]” Second, § 1325(b)(4) mandates a fixed minimum duration for confirmation—but only if the plan triggered an objection by the trustee or a creditor. Under this provision, with few exceptions, a debtor’s plan must adhere to a minimum duration of three or five years, depending on the debtor’s “applicable commitment period.” Like § 1322(d), the “applicable commitment period” is tied to the debtor’s income. Once again, this fixed minimum term applies only if “the trustee or the holder of an allowed unsecured claim objects to the confirmation of the plan.” The rest of § 1325, which governs the confirmation of all plans, does not include any fixed duration requirement.
Neither § 1322 nor § 1325 point to an express fixed or minimum duration requirement for Chapter 13 plans absent an objection. Conversely, neither provision prohibits estimated term plans. Indeed, § 1325(b)(1)(B)’s explicit imposition of a minimum duration only when an objection is raised strongly suggests that the absence of such fixed terms in other sections of Chapter 13 was intentional. Read together, the Code provides for a maximum duration for all plans and a minimum duration for objected to plans. The clear implication of this framework is that, for plans with no objection, the Code provides no minimum or fixed durations. Coupled with the additional grant allowing debtors to “include any other appropriate provision not inconsistent with [Chapter 13]” in their plans, We believe the Code permits a debtor to add an estimated term provision, so long as the plan does not draw an objection. The Code’s structure also supports a debtor’s ability to include estimated terms. Section 1328 mandates that “as soon as practicable after completion by the debtor of all payments under the plan, . . . the court shall grant the debtor a discharge of all debts provided for by the plan.” Notably, § 1328(a) does not expressly condition the discharge on any time period elapsing, but solely on “completion” of “all payments under the plan.” If Congress intended to set a fixed duration for all Chapter 13 plans, it could have easily done so by predicating discharge not on completion of “payments,” but on the expiration of the plan’s duration.
First, § 1329 governs modifications of an existing, confirmed plan. 11 U.S.C. § 1329(a). While it permits changes to a plan’s “time” for payments, it says nothing about requiring fixed durations ab initio. A postconfirmation ability to modify a plan’s duration does not logically command a set plan length pre-confirmation. We see nothing wrong with a plan starting with an expected length at confirmation and then being converted to a fixed length as the plan unfolds. Second, estimated term provisions do not allow debtors to unilaterally reduce the “time” for plan payments. Third, the modification rights of creditors and trustees are not nullified by allowing a plan to be confirmed with an estimated term. Moreover, if creditors are concerned about a plan containing an estimated duration, they can object prior to confirmation or seek conversion to a fixed duration under § 1329(a). Because the text and structure of the Code do not mandate a fixed term requirement for all Chapter 13 plans, we should not add one without clear direction from the statute. Accordingly, we hold that the Code does not prevent Debtors from proposing and confirming plans with an estimated duration.
The Code compels a bankruptcy court to confirm a debtor’s plan if it “has been proposed in good faith and not by any means forbidden by law[.]”Fundamentally, the good faith inquiry assesses “whether the debtor has misrepresented facts in his plan, unfairly manipulated the Bankruptcy Code, or otherwise proposed his Chapter 13 plan in an inequitable manner.” The good faith inquiry is not a vehicle to promulgate bankruptcy requirements not already in the Code. Courts “cannot add to what Congress has enacted under the guise of interpreting good faith.” We decline to create additional mandatory provisions under the good faith inquiry because “Congress could enact, ‘if it chooses, further conditions for the confirmation of Chapter 13 plans.’” Instead, the good faith analysis should be a fact-intensive examination of the “totality of the circumstances.” Prior to 2016, Debtors’ estimated duration provision would have mirrored the provisions in the San Jose Division’s model Chapter 13 plan. We find it hard to believe that debtors who dutifully followed the Division’s previous model plan were—despite all appearances—“unfairly manipulat[ing]” the Code all along. Furthermore, as we held above, the Code does not prohibit estimated term plans. Debtors do not lack good faith “merely for doing what the Code permits them to do.”
June 22, 2020
In re Sisk, Ninth Circuit Court of Appeals, Published, (Wardlaw, M. Smith, Bumatay), Equal Access to Justice Act
Case no. 18-17448
This case first came before us from the bankruptcy court and Bankruptcy Appellate Panel (“BAP”) after Debtors appealed the denial of their initial Chapter 13 bankruptcy plans. The Debtors’ preferred plans included estimated, rather than fixed, plan durations, which no trustee or creditor had opposed. Nevertheless, the bankruptcy court and BAP rejected the proposals sua sponte. We reversed and held that the Bankruptcy Code allowed Debtors’ original plans to be confirmed. As the prevailing parties, Debtors have now filed a timely motion for attorney fees against the lower courts pursuant to the EAJA.
A bankruptcy court does not clearly fall within the EAJA’s definition of “United States.” On its face, the statute’s definition of “United States” appears to encompass bankruptcy judges: “any . . . official of the United States acting in his or her official capacity.” But, problematically for Debtors, § 2412(d)(1)(A) also uses “court” in the same sentence as “United States,” which strongly indicates that the terms “court,” “agency,” and “official” are not coterminous. Second, uncontested bankruptcy cases do not clearly constitute “civil action[s] brought by or against the United States” within the meaning of the EAJA.1 In contrast to cases where the United States plays an active, adversarial role in the adjudication, such as immigration or social security cases. The United States has no such involvement in uncontested bankruptcy matters. Nor are uncontested Chapter 13 bankruptcy cases “brought by or against” the United States—they are brought by Debtors seeking relief from their creditors.
We acknowledge that Debtors’ counsel expended considerable time and resources pursuing these ultimately successful appeals. The EAJA, however, does not clearly authorize attorney fees under these circumstances. Accordingly, Debtors’ applications for attorney fees are DENIED.
In re Sisk, September 1, 2020
Stevens v. Whitmore, Ninth Circuit Bankruptcy Appellate Panel
(Published), (Taylor, Faris, Lafferty), Abandonment , Asset
Omitted From Schedules
, Asset Omitted From Schedules
Case no. CC-19-1325-TaFL
Abandonment of an asset can occur in two ways. First, under § 554(a) and (b), after notice and a hearing, a trustee may voluntarily abandon or may be compelled to abandon specific property of the estate that is “burdensome” or “of inconsequential value and benefit to the estate.” And second, as relevant to this appeal, under § 554(c), “any property scheduled under section 521(a)(1) of this title [and] not otherwise administered at the time of the closing of a case is abandoned to the debtor . . . .” This type of abandonment is commonly referred to as a “technical abandonment.” Section 521(a)(1)(B) requires, in pertinent part, that the debtor file “a schedule of assets and liabilities” and “a statement of the debtor’s financial affairs.” Debtors submit that the term “property scheduled under section 521(a)(1),” as used in § 554(c), refers to property disclosed in the schedule of assets and liabilities (“Schedules”) or the statement of financial affairs ("SOFA").
On its face, § 554(c) provides that an asset must be “scheduled under section 521(a)(1)” to be technically abandoned. If Congress intended the “scheduled” assets referenced in § 554(c) to include assets listed only obliquely in the SOFA, then it could have, and should have, drafted § 554(c) to refer to assets “listed or scheduled under section 52l(a)(1).” This view is supported by a review of another Code provision where Congress referred to a debt “neither listed nor scheduled under section 521(a)(1).” See § 523(a)(3). If we read “scheduled” in § 554(c) as synonymous with “listed,” as Debtors urge, then “listed” in § 523(a)(3) becomes impermissibly superfluous. And if we adopt the minority interpretation, we also run afoul of the canon of statutory interpretation providing that “where Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion.”
Moreover, this narrow reading of § 554(c) is consistent with sound bankruptcy policies and reasonable expectations for a debtor’s performance of statutory duties. First, it encourages debtors to fulfill the critical § 521(a)(1) duty to carefully, completely, and accurately disclose all their property in their Schedule A/B under penalty of perjury. Accurate Schedules apprise all parties to the case of the debtor’s financial situation, including the value of the debtor’s assets. The SOFA does not similarly require valuation of assets. The bankruptcy system cannot function fairly, effectively, and efficiently unless creditors and trustees can count on debtors to scrupulously comply with their duty to disclose and value assets in the Schedules. Second, requiring debtors to properly disclose assets in the Schedules is not an undue burden. A debtor has a continuing opportunity to get the Schedules right before case closure; Rule 1009(a) permits a debtor to amend the Schedules “as a matter of course at any time before the case is closed.” Thus, a mere mistake or omission can be corrected; our statutory interpretation does not bar technical abandonment in a procrustean fashion. Third, this requirement advances the goal of a fully transparent bankruptcy process. we hold that technical abandonment requires 10 inclusion of an asset in the Schedules. Thus, the bankruptcy court did not err in concluding that the Claims were not technically abandoned. And, accordingly, it did not abuse its discretion in approving the compromise.
Stevens v. Whitmore, June 2, 2020
Stimpson v. Midland Credit Management, Ninth Circuit Court of Appeals,
(Clifton, Ikuta, Rakoff), Fair Debt Collection Practices Act, Time Barred
Case no. 18-35833
Congress enacted the FDCPA in 1977 due to finding "abundant evidence of the use of abusive, deceptive, and unfair debt collection practices by many debt collectors” and that “[e]existing laws and procedures for redressing these injuries are inadequate to protect consumers.”Congress did not intend to ban debt collection but instead intended “to eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses.”To prevail on a claim under the FDCPA, a plaintiff must establish that a debt collector, as defined in § 1692a(6), has failed to comply with a provision of the FDCPA.
Section 1692e includes a nonexclusive list of16 practices that are deemed to be “false, deceptive, or misleading.”Those practices include misrepresenting the “character, amount, or legal status of any debt,” § 1692e(2), and threatening to “take any action that cannot legally be taken”. Section 1692e(10), which has been referred to as a “catchall” provision prohibits “[t]he use of any false representation or deceptive means to collect . . . any debt, "In determining whether conduct violates § 1692e, we undertake an objective analysis of the question whether the "least sophisticated debtor would likely be misled by communication.”In short, the least sophisticated debtor is reasonable and functional, but lacks experience and education regarding financial matters.
Stimpson first identifies the letter’s statute-of-limitations disclosure as a primary example of misleading or deceptive representations. This disclosure states:
The law limits how long you can be sued on a debt and how long a debt can appear on your
credit report. Due to the age of this debt, we will not sue you for it or report payment or
non-payment of it to a credit bureau.
We disagree. A person who is unsophisticated
regarding financial matters, but is still “capable of making basic logical
deductions and inferences, "would not be deceived or misled by this
language. The phrase “[d]ue to the age of this debt, we will not sue you,”
follows immediately after the sentence explaining that “[t]he law limits how
long you can be sued on a debt.” The first sentence “draws a connection
between the legal unenforceability of debts in general and [Midland’s]
promise not to sue.”The natural conclusion is that the debt is time barred.
Nothing in the letter falsely implies that Midland could bring legal action
against Stimpson to collect the debt.
Second, Stimpson argues that Midland’s letter is deceptive or misleading because it does not warn debtors regarding the potential dangers of making a payment on time-barred debt. In some states, the statute of limitations on a debt can be revived or restarted after it has expired. Although Congress expressly required debt collectors to provide specific statements to debtors on certain issues, nothing in the FDCPA requires debt collectors to make disclosures that partial payments on debts may revive the statute of limitations in certain states.“Generally, the inclusion of certain terms in a statute implies the exclusion of others.”Stimpson does not point to any language in the FDCPA that can reasonably be interpreted as requiring debt collectors to provide legal advice on revival statutes. Nor is the failure to provide such specific legal advice misleading. Accordingly, we conclude that Midland's letter was not deceptive or misleading for not warning about the potential for revival of the statute of limitations.
Finally, Stimpson points to several statements in Midland's letter that Stimpson claims misrepresented the benefits of paying the time-barred debt, and therefore were misleading or deceptive. This argument is built on several faulty premises. Most important, it assumes that Stimpson’s debt was extinguished when the statute of limitations ran. This is untrue. In most states, a statute of limitations does not extinguish a party's rights, but merely precludes a judicial remedy.(“[M]ost courts agree that a statute of limitations bar does not actually extinguish the debt itself.”This being the case, there is nothing inherently deceptive or misleading in attempting to collect a valid, outstanding debt, even if it is unenforceable in court.
In sum, we reject Stimpson’s argument that a letter is deceptive or misleading if a debt collector tries to persuade debtors to pay what they owe. Congress could prohibit, or otherwise restrict, attempts to collect time-barred debts, but it has not done so. Instead, liability attaches under § 1692e only if a debt collection letter is “false, deceptive, or misleading.”
Stimpson v. Midland Credit Management, December 18, 2019
v. LSF8 Master Participation Trust, Ninth Circuit Court Bankruptcy Appellate
(Unpublished), (Brand, Hercher, Faris), In Rem Relief from Stay
BAP Case no. MT-18-1293-BHF
Section § 362(d)(4) permits the bankruptcy court to grant in rem relief from
the automatic stay in order to address schemes using multiple bankruptcy
filings as a means to thwart a secured creditor's legitimate foreclosure
efforts with respect to real property. By seeking such relief, the creditor
requests specific prospective protection against not only the debtor, but
also every non-debtor, co-owner, and subsequent owner of the property. If
granted, and if the order s properly recorded, such relief nullifies the
ability of the debtor and any other third party with an interest in the
property to obtain the benefits of the automatic stay as to that property in
future bankruptcy cases for a period of two years. However, to obtain
relief under § 362(d)(4), the movant must be "a creditor whose claim is
secured by an interest in such real property."
This Panel has opined in two unpublished decisions that a foreclosing lender (i.e., owner) is not "a creditor whose claim is secured by an interest in such real property," and is therefore unable to obtain in rem relief under § 362(d)(4).However, as Ramirez and Ray point out, that LSF8 was the foreclosing lender and not a third-party purchaser is a distinction without a difference. A foreclosure sale, by definition, extinguishes whatever security interest a secured creditor had in
the property. Thus, LSF8 is not a "creditor" and holds no claim secured by an interest in the Raven Way Property as contemplated by the statute.
However, LSF8 was not without other remedies which could provide similar results. LSF8 could have requested a re-filing bar in the litigation for dismissal of Stokes's bankruptcy case. Or, it could do so upon Stokes's next bankruptcy filing, assuming there is one and such relief is necessary to complete the eviction. Further, as the owner of the property, LSF8 has a much larger "bundle of rights" than a lienholder and may have other remedies under state law. Because LSF8 is the
owner of the Raven Way Property, and not a creditor whose claim is secured by the property, we conclude that the bankruptcy court applied an incorrect legal rule and thereby abused its discretion when it granted LSF8 in rem relief under § 362 (d)(4).
Stokes v. LSF8 Master Participation Trust, December 16, 2019
Urbina v. National Business Factors, Inc., Ninth Circuit Court of Appeals, (Published), Tashima, Christen, Bataillon, FDCPA, Bona Fide Error Defense
Case no. 19-16055
In this appeal, we consider whether a debt collector may invoke the “bona fide error” defense to avoid liability for violations of the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C § 1692 et seq., by contractually obligating creditor-clients to provide only accurate information regarding delinquent accounts. We conclude the FDCPA’s bona fide error defense does not allow debt collectors to avoid liability by contractually obligating creditor-clients to provide accurate information, nor by requesting that creditor-clients provide notice of any errors in the accounts assigned for collection without waiting to receive a response before instituting collection efforts.
Congress enacted the FDCPA in 1977 “to eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses.” The FDCPA prohibits debt collectors from collecting “any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.” Debt collectors are strictly liable for FDCPA violations, and a debt collector who violates the FDCPA is liable for actual damages, attorney’s fees and costs, and additional damages not to exceed $1,000 per violation. To avoid liability, debt collectors may raise the limited affirmative defense that their conduct was “not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.”
The bona fide error defense requires a showing that the debt collector: (1) violated the FDCPA unintentionally; (2) the violation resulted from a bona fide error; and (3) the debt collector maintained procedures reasonably adapted to avoid the violation. With respect to the third factor, we have said that “[a] debt collector is not entitled under the FDCPA to sit back and wait until a creditor makes a mistake and then institute procedures to prevent a recurrence.” Instead, “the debt collector has an affirmative obligation to maintain procedures designed to avoid discoverable errors, including, but not limited to, errors in calculation and itemization.” Id. Debt collectors seeking to take advantage of the bona fide error defense must explain “the manner in which [their procedures] were adapted to avoid the error,” id.; the bona fide error defense does not shield debt collectors who unreasonably rely on creditors’ representations.
Here, NBF’s collection service contract with TFC is similar to the contract the Eleventh Circuit found insufficient to qualify for the bona fide error defense in Owen. The engagement contract also stands in contrast to the procedures cited with approval in Reichert. The procedures that have qualified for the bona fide error defense were consistently applied by collectors on a debt-by-debt basis; they do not include one-time agreements committing creditor-clients to provide accurate information that are later acted upon without question. NBF fails to show that its practice of requesting account verification from its clients is genuinely calculated to catch errors of the sort that occurred here. Neither of NBF’s practices qualifies for the bona fide error defense.
Urbina v. National Business Factors, Inc., November 9, 2020
Ventura, Chapter 11, USBC, Eastern District Of New York, Subchapter V Election
Case no. 8-18-77193
issues arise in the context of objections to the Debtor’s recent amendments to
her petition to designate herself as a small business debtor and to proceed as a
subchapter V debtor. The objections require the Court to answer the following
1) Can the Debtor amend her petition to take advantage of the benefits of the SBRA where the Debtor’s case has been pending for over fifteen months and a creditor’s proposed plan of reorganization has been scheduled for a hearing on confirmation?
2) Assuming the SBRA applies to the Debtor’s case, does the Debtor qualify as a “small business debtor” within the newly amended definition of 11 U.S.C. § 101(51D)(A) where the majority of her debt consists of a mortgage encumbering the property where she both resides and operates a bed and breakfast?
3) Assuming the Debtor fits within the definition of a small business debtor, is the Debtor barred from utilizing provisions applicable to subchapter V debtors to modify the mortgage encumbering the property where she both resides and operates a bed and breakfast?
Newly amended 11 U.S.C. § 101(51D)(A) of the Bankruptcy Code defines a “small business debtor”, in part, as “…a person engaged in commercial or business activities . . . that has aggregate noncontingent liquidated secured and unsecured debts as of the date of the filing of the petition . . . in an amount not more than $2,725,625. . . not less than 50 percent of which arose from the commercial or business activities of the debtor.
According to Fed. R. Bankr. P. 1020(a), once a small business debtor designates itself in the petition, “…the status of the case as a small business case shall be in accordance with the debtor’s statement under this subdivision, unless and until the court enters an order finding that the debtor's statement is incorrect. Pursuant to Fed. R. Bankr. P. 1009(a), “[a] voluntary petition, list, schedule or statement may be amended by a debtor as a matter of course at any time before the case is closed.” However, such amendment by the debtor is not necessarily controlling. The designation by the debtor in the original petition still retains evidentiary effect as it is signed under penalty of perjury.
The SBRA imposes several requirements in subchapter V cases. First, a “SBRA trustee” is appointed by the U.S. Trustee, who is charged with development of a consensual plan. 11 U.S.C. § 1183(b)(7). Within 60 days of entry of the order for relief, the Court must hold a status conference with the SBRA trustee. 11 U.S.C. § 1188(a). Subsection (b) provides that the court may extend the 60-day deadline if “…the need for an extension is attributable to circumstances for which the debtor should not justly be held accountable.” 11 U.S.C. § 1188(a). Pursuant to 11 U.S.C. § 1189(b), the subchapter V debtor shall file a plan within 90 days of entry of the order for relief, “…except that the court may extend the period if the need for the extension is attributable to circumstances for which the debtor should not be justly held accountable.” 11 U.S.C. § 1189(b). In addition, the subchapter Vdebtor must submit a status report 14 days prior to the status conference detailing efforts to reach a consensual plan. since there is no prohibition provided by Congress, the Court finds that it is within the Court’s discretion to reset the timelines to allow the Debtor to avail herself of the newly enacted law that was not at her disposal when she filed the Current Case. Therefore, the Court overrules any objections raised by the U.S. Trustee or Gregory based on procedural or timing issues imposed by the SBRA.
Given that subchapter V was not available to the Debtor on the Petition Date and the Debtor has made very clear from the outset the nature of Property as a business, the Court will not penalize the Debtor because after careful analysis by Congress the law has been amended to address the needs of debtors that engage in the type of business she operates. These types of debtors who are willing to risk everything to start and maintain their own businesses should not be penalized, rather, they should be applauded. Gregory will retain many of the rights it had at the inception of the case, any delay caused by this ruling is not sufficiently prejudicial to Gregory, given the current economic conditions. For these reasons, the Court finds that the SBRA applies to the Debtor’s case in its totality.
amended the definition of “small business debtor”, in part, to provide that it
is “a person engaged in commercial or business activities . . . that has
aggregate noncontingent liquidated secured and unsecured debts as of the date of
the filing of the petition . . . in an amount not more than $2,725,625. . . not
less than 50 percent of which arose from the commercial or business activities
of the debtor. ” 11 U.S.C. § 101(51D)(A). The definition of “small business
debtor” excludes debtors whose primary business is owning “single asset real
estate.” Since there is no statutory definition of what constitutes “commercial
or business activities,” Gregory looks to the definition of “consumer debt” to
assist in determining what types of debt fit within this new description. A
consumer debt is a debt “…incurred by an individual primarily for a personal,
family, or household purpose “Debt” means “liability on a claim,” and “claim,”
in turn, is broadly defined as any “right to payment, whether or not such right
is ... secured, or unsecured.” While the Property is clearly the Debtor’s
primary residence, the primary purpose of
purchasing the Property appears to have been to own and operate a bed and breakfast. The Debtor’s goal was to combine her business with the needs of her life as a single parent. The fact that the Debtor resides at the Property does not control whether the Mortgage is in the nature of a debt which arose from the commercial or business activities of the Debtor. In fact, the Debtor’s affidavit in support of her opposition to the Motion indicates that the Town of Huntington will not grant a permit to run a bed and breakfast if the owner/ operator does not live inside the facility itself.
A debtor may be judicially estopped from changing its legal position when a court has adopted and relied on it and the party claiming judicial estoppel suffers an unfair detriment as a result, unless mistake or inadvertence is an applicable defense. A general test for determining when judicial estopped may be invoked has been developed, as follows: (i) a party’s later position is clearly inconsistent with its earlier position, (ii) the party former position has been accepted in some way by the court in the earlier proceeding, such that “judicial acceptance of an inconsistent position in a later proceeding would create ‘the perception that either the first or the second court was misled,’” and (iii) the “party seeking to assert an inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped.”
In applying the above factors to the Debtor’s case, the Court finds that judicial estoppel does not bar the Debtor’s change in description of the nature of her debts. First, it is not clear that her change of description of her Mortgage debt as a business debt is inconsistent with the Debtor’s prior description of her debts. The Debtor referred to the Property as a bed and breakfast in the Current Case. Second, the Court took no specific action in the Current Case or in the prior bankruptcy filings based on a description of the Mortgage debt as consumer debt. This Court was not misled about the nature of the Mortgage which encumbered the Property. Third, the Debtor cannot be said to have taken unfair advantage over Gregory by changing the description of her debts to fit within a statute that did not exist at the time of the Petition Date. It is more akin to an innocent choice by the Debtor than gamesmanship.
Prior to the effective date of the SBRA, the only statutory provision the Debtor could rely on to modify the Mortgage was 11 U.S.C. § 1123(b)(5). This section permits chapter 11 debtors to propose a plan that modifies the rights of holders of secured claims “…other than a claim secured only by a security interest in real property that is the debtor’s principal residence…” 11 U.S.C. § 1123(b)(5). The Debtor’s proposed plan sought to utilize this provision to modify the Mortgage, but this Court found that because the Debtor uses the Property for both business and residential purposes, the Property is the Debtor’s principal residence. The SBRA has given small business debtors who designate themselves as subchapter V debtors another tool to be used when proposing a plan.
Unlike 11 U.S.C. § 1123(b)(5), which precluded modifications of claims secured by mortgages on the debtor’s principal residence, 11 U.S.C. § 1190(3) specifically permits the modification of claims secured by mortgages on the debtor’s principal residence. Therefore, the plain language of the first paragraph of 11 U.S.C. § 1190(3) does not act as an impediment to the Debtor’s attempt to modify the Mortgage. Indeed, the Property falls squarely within this paragraph. Second, subparagraphs (A) and (B) do not bar the Debtor outright from using this provision to modify the Mortgage. Subparagraphs (A) and (B) further limit the application of this provision to mortgage proceeds that were: (A) not used primarily to acquire the real property; and (B) used primarily in connection with the small business of the debtor. Starting with subparagraph (A), the statute reads that the mortgage proceeds cannot have been used “primarily to acquire the real property.” As a matter of common usage, the word “primarily” means “for the most part.
In this case, the question for the Court to answer is whether the Mortgage proceeds were used primarily to purchase the Debtor’s residence. Unlike 11 U.S.C. § 1123(b)(5) which took an all-or-nothing approach to loans securing the debtor’s residence, 11 U.S.C. § 1190(3) asks the Court to determine whether the primary purpose of the mortgage was to acquire the debtor’s residence. Subparagraph (B) requires the Court to determine whether the mortgage proceeds were used primarily in connection with the debtor’s business.
The Court proposes that the following factors be considered to determine whether the mortgage in question is subject to modification under this section: 1. Were the mortgage proceeds used primarily to further the debtor’s business interests; 2. Is the property an integral part of the debtor’s business;. The degree to which the specific property is necessary to run the business; 4. Do customers need to enter the property to utilize the business; and 5. Does the business utilize employees and other businesses in the area to run its operations. Based on its interpretation of 11 U.S.C. § 1190(3), the Court finds that there is sufficient evidence to hold a full evidentiary hearing to determine whether the Debtor may use this statute to modify the Mortgage. Therefore, if the Debtor proposes a plan which provides for bifurcation of the Mortgage, the Court shall schedule a hearing to determine whether she may take advantage of this provision using the factors listed above, along with any additional evidence produced by the parties.