NEWSWORTHY CASES

 

Asphalt Professionals, Inc. v. Davis, Ninth Circuit Bankruptcy Appellate Panel (Unpublished), (Faris, Kurtz, Taylor), Discharge
Case no. CC-18-1158-FKuTa

Mental state is an element of all three of the statutes API relies upon. Section 727(a)(2) provides that the debtor is entitled to a discharge unless: (2) the debtor, with intent to hinder, delay, or defraud a creditor or an officer of the estate charged with custody of property under this title, has transferred, removed, destroyed, mutilated, or concealed, or has permitted to be transferred, removed, destroyed, mutilated, or concealed –
(A) property of the debtor, within one year before the date of the filing of the petition; or
(B) property of the estate, after the date of the filing of the petition[.]

A party seeking denial of discharge under § 727(a)(2) must prove two things: ‘(1) a disposition of property, such as transfer or concealment, and (2) a subjective intent on the debtor’s part to hinder, delay or defraud a creditor through the act [of] disposing of the property.’” “To prevail on [a § 727(a)(4)(A)] claim, a plaintiff must show, by a preponderance of the evidence, that: ‘(1) the debtor made a false oath in connection with the case; (2) the oath related to a material fact; (3) the oath was made knowingly; and (4) the oath was made fraudulently.’

Section 523(a)(2)(A) excepts from discharge debts resulting from “false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition.” A creditor seeking to except a debt from discharge based on fraud bears the burden of establishing each of five elements: (1) misrepresentation, fraudulent omission or deceptive conduct; (2) knowledge of the falsity or deceptiveness of such representation(s) or omission(s); (3) an intent to deceive; (4) justifiable reliance by the creditor on the representations or conduct; and (5) damage to the creditor proximately caused by its reliance on such representation(s) or conduct.

In the first place, the bankruptcy court correctly found that API did not even prove that all of these statements were false. More importantly, the bankruptcy court did not commit clear error when it found that Mr. Davis lacked the required intention and knowledge under § 727. Similarly, the bankruptcy court did not clearly err when it found that Mr. Davis lacked knowledge of falsity and intent to deceive under
§ 523(a)(2). Accordingly, because API failed to establish the requisite elements of knowledge and intent, the bankruptcy court did not err in rejecting API’s §§ 727(a)(2), (a)(4), and 523(a)(2) claims.

Issue preclusion prevents relitigation of all “issues of fact or law that were actually litigated and necessarily decided” in a prior proceeding, regardless of the claim to which they relate. In California, application of issue preclusion requires that: (1) the issue sought to be precluded from relitigation is identical to that decided in a former proceeding; (2) the issue was actually litigated in the former proceeding; (3) the issue was necessarily decided in the former proceeding; (4) the decision in the former proceeding is final and on the merits; and (5) the party against whom preclusion is sought was the same as, or in privity with, the party to the former proceeding. API fails to show that the state court necessarily decided the issues to be precluded.

Under Federal Rule of Evidence 612, a witness may use a writing to refresh his or her recollection only if (1) the witness requires refreshment, and (2) the writing actually refreshes the witness’s memory.” The Ninth Circuit agrees that “[t]he federal rule recognizes few if any limitations upon the kind of material that may be used to refresh recollection . . . .” API argues that Mr. Davis could not use Exhibit G to refresh his memory because it must have been a fabricated document, there was handwriting on the document, and there was no foundation as to the handwriting. But “even inadmissible evidence may be used to refresh a witness’s recollection.” Even assuming the document was fabricated (and API did not prove that it was), the bankruptcy court did not admit its contents or the handwritten notes; it only allowed Mr. Davis to use the document to refresh his recollection as to how he valued his business entities.

Asphalt Professionals, Inc. v. Davis, January 31, 2019
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 Proceeds
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 [541] 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
Brace, Ninth Circuit Court of Appeals, (Unpublished), Lafferty, Spraker, Taylor), Sanctions, Writ of Bodily Detention
Case no. CC-18-1172-LSTa

Civil contempt consists of a party’s disobedience of a specific and definite court order by failing to take all reasonable steps within the party’s power to comply. The Code grants bankruptcy courts civil contempt power through § 105(a), which provides: The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process. The party alleging contempt must show by clear and convincing evidence that the contemnor violated a specific and definite order of the court.

In determining that contempt arose from a willful stay violation, the bankruptcy court must find that the defendant knew of the automatic stay, and the defendant’s actions that violated the stay were intentional. In determining that contempt arose from a willful stay violation, the bankruptcy court must find that the defendant knew of the automatic stay, and the defendant’s actions that violated the stay were intentional. the record supports the bankruptcy court’s conclusion that Mr. Brace willfully violated specific and definite orders of the court. And even though the bankruptcy court did not specify that the evidence was clear and convincing, the declaration in support of the Contempt Motion, which outlined the terms of the relevant orders and described Mr. Brace’s conduct in violation of those orders, established that Mr. Brace was in violation of the stay, the Judgment, and the Turnover Order. At that point, the burden shifted to Mr. Brace to produce sufficient evidence of his inability to comply to raise a question of fact. He did not do so.

The bankruptcy court imposed compensatory sanctions payable to Trustee in the amount of his fees and costs incurred in connection with the Arizona Action, the Contempt Motion, and the June 5 civil contempt
hearing. An award of attorney’s fees is an appropriate component of a civil contempt sanction.

The bankruptcy court’s civil contempt authority also permits it to order the incarceration of a contemnor as a sanction to coerce compliance with the court’s orders, so long as compliance with the orders will cure the contempt. The bankruptcy court carefully crafted its order to provide that any incarceration would be terminated once Mr. Brace purged himself of his contempt. And although incarceration is a harsh sanction, the court repeatedly emphasized that in light of Mr. Brace’s stubborn refusal to comply with the court’s orders, it had no choice but to order him incarcerated to force his compliance.

Civil penalties must either be compensatory or designed to coerce compliance, while even a relatively small fine may be criminal if the contemnor has no subsequent opportunity to reduce or avoid the fine through compliance, and the fine is not compensatory. The Contempt Order does not specify to whom the $5,000 sanction must be paid, which may be a relevant factor in determining whether the fine is compensatory or punitive. Nor is there any express provision for Mr. Brace to avoid this sanction through compliance. Thus, the sanction appears to have been imposed solely to punish Mr. Brace for his repeated violations of the court’s orders As such, it is a punitive sanction that is, at least facially, beyond the scope of the bankruptcy court’s § 105 civil contempt powers. We therefore vacate the portion of the Contempt Order imposing the $5,000 sanction and remand to the bankruptcy court so that it can make additional findings and explain its conclusions regarding the basis for and amount of the award.

We do not interpret the Contempt Order as authorizing incarceration for failure to pay the monetary sanctions, which are separate from the writ of bodily detention; any contempt finding and/or further sanction arising from the failure to pay the monetary sanctions would require further notice and a hearing. But the Contempt Order should be amended to clarify this point. We therefore remand the matter to the bankruptcy court to craft an order that explicitly lays out what Mr. Brace must do to purge his contempt and avoid incarceration.

Brace v. Speier, January 11, 2019
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
Derham-Burk v. Mrdutt, Ninth Circuit Bankruptcy Appellate Panel, (Published), (Brand, Taylor, Faris), Chapter 13 Plan Term, Modification
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
Cobb v. City of Stockton, Ninth Circuit Court of Appeals, (Thomas, Gould, Friedland (Dissenting)), Equitable Mootness

Case no. 14-17269

Thus, if a creditor wishes to challenge a reorganization plan on appeal, we require the creditor to seek a stay of proceedings before the bankruptcy court. When a stay is requested, all affected parties are on notice that the plan may be subject to appellate review and have an opportunity to present evidence before the bankruptcy court of the consequences of a stay. “A confirmed reorganization plan operates as a final judgment with res judicata effect.” If the creditor does not seek a stay, then the creditor risks dismissal of the appeal on the grounds of equitable mootness. “An appeal is equitably moot if the case presents transactions that are so complex or difficult to unwind that debtors, creditors, and third parties are entitled to rely on the final bankruptcy court order.”

We have identified four factors to determine whether an appeal is equitably moot, namely: (1) whether a stay was sought; (2) whether the plan has been substantially consummated; (3) the effect of the remedy on third parties not before the court; and (4) “whether the bankruptcy court can fashion effective and equitable relief without completely knocking the props out from under the plan and thereby creatingan uncontrollable situation for the bankruptcy court.”

As to the first factor, there is no doubt. Cobb sought no stay whatsoever. It is “obligatory” that one seeking relief from plan confirmation “pursue with diligence all available remedies to obtain a stay of execution of the objectionable order.” Seeking a stay affords the bankruptcy court the opportunity to consider equitable factors, make a reasoned decision, and provide a decision and record which an appellate court can review. On the other hand, excusing a failure to seek a stay before the bankruptcy court allows a party to play possum, without consequence, while everyone else has materially changed positions in reliance on plan confirmation.

The second factor is whether the plan has been substantially consummated, and Cobb does not contest the fact that it was.

The third factor is “whether the relief sought would bear unduly on innocent third parties.” In other words, it must be “possible to [alter the plan] in a way that does not affect third party interests to such an extent that the change is inequitable.” Here, reversal of the Confirmation Order would undermine the settlements negotiated with the unions, pension plan participants and retirees, bond creditors, and capital market creditors, all of which were built into the reorganization plan.

The final factor is whether the bankruptcy court could fashion equitable relief without completely undoing the plan. Of course, undoing the plan is precisely the remedy that Cobb seeks to reverse the Confirmation Order at this stage would create chaos and undo years of carefully negotiated settlements. The fourth factor favors application of equitable mootness. The reorganization train has left the station. Cobb did not
pursue any bankruptcy stay remedies, much less pursue them with the requisite diligence. The plan has long been substantially consummated. He offers too little, too late.

Cobb v. City of Stockton, December 10, 2018
Demarest v. HSBC Bank, Ninth Circuit Court of Appeals, (Published), (Fernandez, Milan Smith, Christiansen), Diversity Jurisdiction, Trust
Case no. 17-56432

Demarest’s loan had been securitized and the deed of trust assigned to HSBC, as trustee for the Registered Holders of Nomura Home Equity Loan, Inc., Asset-Backed Certificates, Series 2006-HE2 (the Trust). Among other things, the Agreement established the Trust, enumerated its assets, and appointed HSBC as trustee, and it described the Trust as a common law trust governed by New York law. Under the Agreement, all “right, title and interest” in the assets of the Trust were conveyed to the “Trustee [HSBC] for the use and benefit of the Certificateholders,” and the trustee was given the power to hold the Trust’s assets, sue in its own name, transact the Trust’s business, terminate servicers, and engage in other necessary activities. Demarest challenges, for the first time, the court’s subject matter jurisdiction over the action.

A defendant may remove to federal court “any civil action brought in a State court of which the district courts of the United States have original jurisdiction.” where, as here, a district court disposes of an action on the merits and an appellant then challenges jurisdiction for the first time, “the relevant jurisdictional question on [] appeal . . . is ‘not whether the case was properly removed, but whether the federal district court would have had original jurisdiction in the case had it been filed in that court.’”

Decades ago, in Navarro Savings Ass’n v. Lee, the Supreme Court addressed “whether the trustees of a business trust may invoke the diversity jurisdiction of the federal courts on the basis of their own citizenship, rather than that of the trust’s beneficial shareholders.” The Court reaffirmed the proposition that “a trustee is a real party to the controversy for purposes of diversity jurisdiction when he possesses certain customary powers to hold, manage, and dispose of assets for the benefit of others. Ten years later, in Carden v. Arkoma Associates, the Court addressed the related issue of “whether, in a suit brought by a limited partnership, the citizenship of the limited partners must be taken into account to determine diversity of citizenship among the parties.” It held that “diversity jurisdiction in a suit by or against the [limited partnership] entity depends on the citizenship of ‘all the members.’” In 2016, the Supreme Court decided Americold, in which it addressed “how to determine the citizenship of a ‘real estate investment trust,’ an inanimate creature of Maryland law,” and concluded that “[w]hile humans and corporations can assert their own citizenship, other entities take the citizenship of their members.” In so ruling, the Court did not overturn Navarro, but instead distinguished it:  As we have reminded litigants before . . .“Navarro had nothing to do with the citizenship of [a] ‘trust.’” Rather, Navarro reaffirmed a separate rule that when a trustee files a lawsuit in her name, her jurisdictional citizenship is the State to which she belongs—as is true of any natural person. This rule coexists with our discussion above that when an artificial entity is sued in its name, it takes the citizenship of each of its members.

Although Demarest suggests that Americold constituted a sea change in how courts determine the citizenship of a trust, we do not find the decision to be quite so momentous. Here, HSBC—the trustee—was sued in its own name. Demarest’s complaint named “HSBC BANK USA N.A.” as a defendant, and did not mention the Trust either in the caption or in the complaint’s list of defendants. Therefore, Americold holds that, because HSBC as trustee was “sued in [its] own name, [its] citizenship is all that matters for diversity purposes.” It is undisputed that HSBC is a national banking association with its main office in McLean, Virginia. Thus, HSBC is a citizen of Virginia and Demarest is a citizen of California. The parties were therefore completely diverse, and the district court properly exercised
diversity jurisdiction over the action.

Demarest v. HSBC Bank, April 8, 2019
Easley v. Collection Service of Nevada, Ninth Circuit Court of Appeals, (Published), (Fisher, M. Smith, Piersol), Violation of Automatic Stay, Fees on Appeal
Case no. 17-16506

The relevant provision in the Code specifically authorizes attorneys’ fee awards to the debtor to remedy willful violations of the automatic stay:

Except as provided in paragraph (2), an individual injured by any willful violation of
a stay provided by this section shall recover actual damages, including costs and
attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.
11 U.S.C. § 362(k)(1) (emphasis added).

Previously, we interpreted § 362(k)(1) as limiting attorneys’ fees and costs awards to those incurred in stopping a stay violation. “Once the violation has ended, any fees the debtor incurs after that point in pursuit of a damage award would not be to compensate for ‘actual damages’ under § 362(k)(1),” and thus fees incurred pursuing damages for a stay violation were not recoverable under the statute.

Schwartz-Tallard reasoned that § 362(k)(1) operates as a fee-shifting statute, albeit where only one party, the debtor, can collect attorneys’ fees and costs. Unlike most fee-shifting statutes, the language does not explicitly refer to a “prevailing party.” Still, § 362(k)’s “phrasing signals an intent to permit, not preclude, an award of fees incurred in pursuing a damages recovery.” The statute clearly provides for damages and attorneys’ fees and costs for an injured debtor when a creditor violates the automatic stay. Section 362(k)(1) also serves a deterrent function much like many fee-shifting statutes. Imposition of damages and attorneys’ fees and costs is essential to deter creditors from violating an automatic stay and protect debtors’ assets for proper adjudication through the bankruptcy process. Recovery of attorneys’ fees and costs is especially critical in the bankruptcy context where debtors lack the means to otherwise pursue their damages.

Most fee-shifting statute cases that award appellate attorneys’ fees do so for successfully defending a judgment on appeal. If a creditor unsuccessfully appeals a bankruptcy court’s judgment in favor of a debtor, it stands to reason that the party who violated the stay should continue to pay for its harmful behavior by compensating the debtor for its appellate attorneys’ fees and costs. Notably, courts also grant appellate attorneys’ fees in fee-shifting statute cases when, as here, parties successfully challenge initial judgments on appeal. Indeed, we are not aware of any authority suggesting that, although fees may be awarded under a fee-shifting statute for defending a judgment on appeal, they are not available for successfully challenging a judgment as inadequate. As noted, the firmly established principle is that “attorneys fees may be awarded for time devoted in successfully defending appeals of or challenges to the district court’s award of attorneys fees.”

Although we are unaware of any previous case that has analyzed § 362(k)’s application of this principle, the purpose of § 362(k) strongly favors the outcome we now reach. Section 362(k) provides relief for debtors in the form of damages and attorneys’ fees and costs when a creditor willfully violates an automatic stay. And, as previously noted, the provision of attorneys’ fees and costs is critically important for “the very class of plaintiffs authorized to sue— individual debtors in bankruptcy—[who] by definition will typically not have the resources to hire private counsel.” Section 362(k) thus seeks to make debtors whole, as if the violation never happened, to the degree possible. This reasonably includes
awarding attorney’s fees and costs on appeal to a successful debtor, even when a debtor must bring the appeal.

Easley v. Collection Service of Nevada, December 20, 2018
Garvin v. Cook Investments NW, SPNWY, LLC, Ninth Circuit Court of Appeals (Published), (Graber, McKeown, Christen), Confirmation, Marijuana
Case no. 18-35119

The United States Trustee asks that the Amended Plan go up in smoke, because one of the Cook companies leases property to “Green Haven”, which uses the property to grow marijuana. The Trustee complains that, even if Green Haven’s business complies with Washington law, the lease itself violates federal drug law. The Trustee reasons that this violation proves the Amended Plan was “proposed . . . by . . . means forbidden by law” and is thus unconfirmable under 11 U.S.C. § 1129(a)(3).

To be confirmed, the Amended Plan had to satisfy § 1129(a), which provides that “[t]he court shall confirm a plan only if” sixteen enumerated requirements are met. The third requirement is that “[t]he plan has been proposed in good faith and not by any means forbidden by law.” y any means forbidden by law.” Only the second prong is at issue here. Because it appears that Cook continues to receive rent payments from Green Haven, which provides at least indirect support for the Amended Plan, the Trustee asserts that it was “proposed . . . by . . . means forbidden by law.”

Turning to the statute, the phrase “not by any means forbidden by law” modifies the phrase “[t]he plan has been proposed.” An interpretation that reads the words “has been proposed” out of the second prong of the requirement would be grammatically nonsensical, i.e., “The plan has been . . .not by any means forbidden by law.” Moving the reference to illegality to before “proposed” fares no better, i.e., “The plan, not by any means forbidden by law, has been proposed in good faith.” The Trustee’s position would require us to rewrite the statute completely, rather than resort to its clear meaning.

We do not believe that the interpretation compelled by the text will result in bankruptcy proceedings being used to facilitate legal violations. To begin, absent waiver, as in this case, courts may consider gross mismanagement issues under § 1112(b). And confirmation of a plan does not insulate debtors from prosecution for criminal activity, even if that activity is part of the plan itself.

Garvin v. Cook Investments NW, SPNWY, LLC, May 2, 2019
Gutierrez v. Pacific Gas and Electric, Ninth Circuit Bankruptcy Appellate Panel (Unpublished), Kurtz, Faris, Brand), Reconsideration
17-42410

Rule 1007(c) requires a debtor to file schedules, statements, and other documents with the petition or within fourteen days thereafter. Rule 3015 requires a chapter 13 debtor to file a plan with the petition or within fourteen days thereafter. Here, the bankruptcy court gave Ms. Gutierrez an extension of time beyond the fourteen days to file the required documents and her plan. She failed to file the required documents by the deadline stated in the Extension Order. Accordingly, the bankruptcy court was entitled to enforce the Extension Order and dismiss Ms. Gutierrez's bankruptcy case without further notice. The bankruptcy court did not err or abuse its discretion by dismissing her case.

A motion to reconsider or vacate may be treated either as a motion to alter or amend the judgment under Civil Rule 59(e) or as a motion for relief from judgment under Civil Rule 60(b). Ms. Gutierrez did not specify in her Motion to Vacate the rule under which she was proceeding. Her motion was filed within fourteen days following the date of entry of the Dismissal Order. Therefore, her motion was technically a motion to alter or amend the judgment under Civil Rule 59(e).

The test for determining "excusable neglect" is well established: it is "at bottom, an equitable one, taking account of all relevant circumstances surrounding the party's omission." Such an analysis requires the
weighing or balancing of relevant factors, including: (1) the danger of prejudice to the nonmovant, (2) the length of the delay and its potential impact on judicial proceedings, (3) the reason for the delay, including
whether it was within the reasonable control of the movant, and (4) whether the movant acted in good faith.

In Pioneer, the Supreme Court indicated that some factors may be more important than others (in particular, prejudice to the nonmovant or bad faith) in determining excusable neglect: "To be sure, were there any evidence of prejudice to petitioner or to judicial administration in this case, or any indication at all of bad faith, we could not say that the Bankruptcy Court abused its discretion in declining to find the neglect to be 'excusable.'" Here, Ms. Gutierrez's prior filings and dismissals based on her failure to comply with court orders, file documents, or file chapter 13 plans, are ample evidence of her bad faith.

Gutierrez v. Pacific Gas and Electric Company, January 31, 2019

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

 

Harms v. Bank of New York Mellon, Ninth Circuit Bankruptcy Appellate Panel, (Published), (Spraker, Taylor, Brand), Mootness, Relief from Stay, Business Records
 Case no. NC-18-1284-STaB
Once a nonjudicial foreclosure has occurred, appeals from relief fromstay orders typically are considered moot.  The relief from stay order also permitted BONYM to exercise its state law unlawful detainer rights in order to obtain possession of the property. BONYM has not submitted any evidence indicating whether it already has obtained possession of the property from Harms. Absent such evidence, we cannot find that no meaningful relief is available to Harms in the event he prevails.  Accordingly, we hold that BONYM has not met its burden to establish that this appeal is moot.
To show both a colorable claim to the subject property and to establish its standing to seek relief from the stay, the moving creditor must present at least some evidence indicating that it has a right to foreclose,either as a person entitled to enforce the underlying note or based on some other right under state law permitting it to commence foreclosure proceedings.Indeed, in California, a beneficiary under a deed of trust, or its agents, may conduct a nonjudicial foreclosure sale without establishing that they possess the original promissory note or that they have any interest in the note. Therefore, BONYM had standing to pursue foreclosure under California law and would have been entitled to relief from stay even if it had not established that it possessed the original note. In this appeal, we focus on BONYM’s noteholder status and its evidence establishing its possession of the original note because that is what the parties and the bankruptcy court focused on. But we also could affirm on the separate and independent ground of Cal. Civ. Code § 2924(a)(1) and BONYM’s status as the successor beneficiary under the deed of trust.
This evidence regarding Bank of America’s status as BONYM’s servicing agent was both admissible and sufficient. The bankruptcy court did not err in relying upon it to find that Bank of America was servicing the loan for BONYM, and using Shellpoint as a subservicer. The only other comprehensible argument Harms makes on appeal concerns the admissibility and sufficiency of the evidence BONYM submitted to establish that Bank of America possesses the original note. Harms argues that Williams’ declaration was inadmissible and insufficient to establish that BONYM, or its agents, possessed the original note. Harms insists that Williams relied on BONYM’s business records rather than on Bank of America’s. Harms therefore reasons that Williams was not a “qualifying witness” because she was speaking about BONYM’s records and not Bank of America’s records. But none of the evidence presented supports this claim. Rather, Williams’ declaration is clear that she reviewed Bank of America’s collateral file to gather the information presented. On this record, there was nothing to suggest that Williams was talking about BONYM’s records as opposed to Bank of America’s records.
To the extent that Harms challenges Williams’ ability to qualify as witness for Bank of America’s business records, such challenge also fails.Harms’ argument focuses on subdivision (D) of Fed. R. Evid. 803(6), which required Williams, as the declarant, to demonstrate that she is the custodian of the subject business records or otherwise is qualified as a witness to demonstrate the exceptions’ prerequisites, as set forth in subdivisions (A) through (C) of Fed. R. Evid. 803(6). The Ninth Circuit liberally construes what it means to be a qualified witness for purposes of the business records exception. The testifying witness need not be the custodian of the record, but only needs to demonstrate that she is familiar with, and understands, the record keeping system.  Moreover, because this evidence is foundational in nature, the personal knowledge standard does not need to be followed when the declarant is establishing his or her competency to testify regarding the business records.Williams did not need to personally know when and by whom the records actually were prepared.In the Ninth Circuit, Fed. R. Evid. 803(6) applies to records received by a business from third parties, so long as the following conditions are met: (1) the “records are kept in the regular course of that business;” (2) the business relies upon those records; and, (3) the “business has a substantial interest in the accuracy of those records.”Here, Williams’ declaration testimony established each of these three conditions.
Harms v. Bank of New York Mellon, July 9, 2019
Henderson v. United Student Aid Funds, Ninth Circuit Court of Appeals, (Published), (Nelson, Fletcher, Bybee), Telephone Consumer Protection Act
Case no. 17-55373

Although USA Funds owns billions of dollars in student loan debt, it does not interact with the borrowers directly once they stop paying back their loans. Instead, it hires companies, like Navient, to service its loans, including debt collection. In turn, Navient hires debt collectors to collect on defaulted loans. Henderson challenges the district court order granting USA Funds’ summary judgment motion on two grounds. First, Henderson argues that under an FCC order, USA Funds is per se vicariously liable for the debt collectors’ TCPA violations. Second, she argues that USA Funds is similarly liable under the federal common law agency principles of ratification and implied actual authority. Henderson’s theory of liability is that USA Funds has a principal-agent relationship with the debt collectors and that a court may hold it liable for their TCPA violations.

Under the TCPA, it is unlawful to “to make any call (other than . . . with the prior express consent of the called party) using any automatic telephone dialing system or an artificial or prerecorded voice . . . to any telephone number assigned to a . . . cellular telephone service.” Debt collectors that auto dialed Henderson on a phone number she did not provide in connection with her student loan would be liable under this section. For USA Funds to be liable under this section, Henderson must show that there is an agency relationship between USA Funds and these liable debt collectors.

A court may hold lenders, like USA Funds, vicariously liable for the TCPA violations of third party callers, like the debt collectors, “where the plaintiff establishes an agency relationship, as defined by federal common law, between the defendant and [the] third-party caller.” “Agency is the fiduciary relationship that arises when one person (a ‘principal’) manifests assent to another person (an ‘agent’) that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent manifests assent or otherwise consents so to act.”

“Ratification is the affirmance of a prior act done by another, whereby the act is given effect as if done by an agent acting with actual authority.” As an act, ratification is the principal’s assent (or conduct that justifies a reasonable assumption of assent) to be bound by the prior action of another person or entity. As a set of effects, ratification creates consequences of actual authority, including, in some circumstances, creating an agency relationship when none existed before. There are two ways to ratify a third party’s acts. The first is by a “knowing acceptance of the benefit.” To prove this form of the ratification, there must be “an objectively or externally observable indication . . . that the principal has exercised choice and has consented” to the acts of the purported agent. That means that the principal must have “knowledge of material facts.” The second way a principal can ratify the acts of a third party is through “willful ignorance.” Under the “willful ignorance” theory, the principal may not know the material facts, but has “ratified with awareness that such knowledge was lacking.”

Here, there is evidence that USA Funds communicated consent to the debt collectors through acquiescence in their calling practices that allegedly violated the TCPA. In other words, a reasonable jury could find that USA Funds ratified the debt collectors’ calling practices by remaining silent and continuing to accept the benefits of the collectors’ tortious conduct despite knowing what the collectors were doing or,
at the very least, knowing of facts that would have led a reasonable person to investigate further.

There is evidence in the record that USA Funds had actual knowledge of the debt collectors’ allegedly unlawful calling practices. “The fact that the principal had knowledge may be inferred” by circumstantial evidence. Unlike the defendant in Hodgin, which fired the retailers that had allegedly violated the TCPA, USA Funds did not direct Navient to fire the debt collectors it knew were using calling practices that allegedly violated the TCPA despite having directed Navient to fire underperforming debt collectors. Nor did USA Funds terminate its contract with Navient. USA Funds’ objective was clear—collect as much money as possible. This evidence suggests that USA Funds consented— with material knowledge—to the debt collectors’ likely unlawful calling practices. Therefore, a triable issue of fact exists as to Restatement § 4.06’s actual knowledge requirement.

The record suggests that USA Funds’ set up the collection structure between itself, Navient, and the debt collectors to remain willfully ignorant and avoid liability. For example, USA Funds directions to Navient and the debt collectors were general and open-ended. USA Funds did not set performance or operational standards for Navient or the debt collectors. Nor did USA Funds or Navient have policies or procedures in place to ensure their debt collectors’ calling practices complied with the TCPA. USA Funds did not receive information about the debt collectors’ calling practices, and it did not monitor the debt collectors’ skip tracing activities. USA Funds forwarded all consumer complaints about the debt collectors to Navient, including alleged TCPA violations. Triable issues of fact exist, therefore, as to whether USA Funds ratified the debt collectors’ actions through willful ignorance.

Henderson v. United Student Aid Funds, March 22, 2019
Holland, Chapter 12, Idaho (Meier), Surrender of Collateral
Case no. 18-40986
The Montpelier Ranch principal loan amount was $1,850,000. The purchase was 100% financed, and therefore BOI collaterized the loan with both the Malta and Montpelier Ranches, along with the Personal Property Collateral, in order to use the equity in the Malta Ranch to get the loan to value.  In general terms, Debtors’ Plan proposes to pay creditors as follows: first, Debtors will transfer the Montpelier Ranch to BOI in full satisfaction of its allowed secured claim, colloquially known as “dirt for debt,” and will then operate using only the Malta Ranch as their base.  BOI’s liens on the Malta Ranch and the Personal Property Collateral would be extinguished.
Section 1225(a)(5) requires, with respect to each allowed secured claim provided for by the plan, that (A) the holder of such claim has accepted the plan; (B) (i) the plan provides that the holder of such claim retain the lien securing such claim; and (ii) the value, as of the effective date of the plan, of property to be distributed by the trustee or the debtor under the plan on account of such claim is not less than the allowed amount of such claim; or (C) the debtor surrenders the property securing such claim to such holder. Thus, “to be confirmed, a chapter 12 plan must either be accepted by a secured creditor, the creditor must retain its lien and the value of its allowed secured claim must be paid to the creditor in deferred payments, or the debtor must relinquish possession and control of the collateral to the creditor so it may enforce its security interest under applicable law.”Considering surrender under § 1225(a)(5)(C), this Court has stated: “[w]hen a debtor elects to surrender the collateral under (C), the secured creditor takes possession of the property and sells it in accordance with non-bankruptcy law.”
While surrender appears to be what Debtors are attempting to do here, the Court finds their approach does not conform with the plain text of the statute. Section 1225(a)(5)(C) permits a debtor to “surrender[] the property securing such claim to such holder,” implying that all collateral must be turned over.. It does not permit a debtor to surrender some property securing the claim. Thus, for Debtors to surrender the Montpelier Ranch under (C), it must also surrender the Malta Ranch as well as the Personal Property Collateral.If the debtor surrenders the entire collateral to satisfy the debt, a creditor cannot be heard to complain that the security they bargained for is not greater than the value of the collateral. On the other hand, because the statute contemplates the creditor liquidating the collateral, if a debtor surrenders less than all the collateral in satisfaction of the debt and is not permitted to retain its lien, the creditor may realize less than the full amount of the allowed secured claim. Accordingly, because Debtors do not propose the surrender of all of BOI’s collateral, the Court concludes their Plan is not confirmable under § 1225(a)(5)(C). Instead, if a debtor wishes to surrender less than all of the collateral to an objecting creditor in full satisfaction of that creditor’s allowed secured claim, the debtor should seek confirmation of the plan under § 1225(a)(5)(B)'s “cramdown” provision.
The Court concludes that Debtors may not utilize the fair market value for cramdown purposes when it proposes to distribute real property in the form of ranch acreage and buildings to its lending creditor in satisfaction of secured debt. Under the facts of this case, “the possibility of forced liquidation would be assumed and a deduction for selling costswould be logical.”
BOI’s employees who testified at the confirmation hearing all spoke in terms of liquidation of the Montpelier Ranch. They also testified that prospective buyers understand that banks are not in the ranching business and do not want to own agricultural land and therefore need to sell it. Because buyers are aware of this, banks tend to receive offers below appraised value. BOI’s chief credit officer testified that the bank could expect a twenty to twenty percent loss over fair market value because he believed that prospective buyers know the bank needs to sell  As such, the Court cannot find that Debtors have met their burden to demonstrate that their proposed Plan will distribute to BOI property that is at least equal to the amount of its allowed secured claim. Accordingly, the Plan may not be confirmed.
 In re Holland, July 3, 2019
IPC, Inc. V. Ellis, Ninth Circuit Court of Appeals, (Published), (Fletcher, Bybee, Burns), Consigned Goods and Proceeds
Case no. 17-60081

As with all “true” consignments, ownership of the fuel remained with IPC until it was sold, at which time title transferred to the purchaser. Whenever a customer purchased consigned fuel, Pettit prepared an invoice and instructed the customer to remit payment to IPC directly. Despite this instruction, some customers continued to pay Pettit for their purchases of IPC fuel. Anticipating this might occur, the agreement provided that Pettit would “promptly forward such payment[s] to IPC,” and Pettit did so regularly. Nonetheless, when Pettit ultimately filed for bankruptcy, it had in its possession not just IPC fuel but also proceeds from sold fuel that had not yet been remitted to IPC. These proceeds took two forms: (1) cash and (2) accounts receivable—that is, balances owed by customers that had not yet been paid. It is undisputed that IPC never filed a financing statement or otherwise perfected its interests in the consigned fuel, the accounts receivable, or the cash.

When a debtor goes into bankruptcy, the bankruptcy trustee is automatically granted a judicial lien over all property the debtor owns as of the petition date. A creditor wishing to shield a particular asset from the reach of the trustee can do so only if the creditor can show that its interest in the asset is superior to a judicial lien, a determination governed by various statutory priority rules. Otherwise, the trustee’s judicial lien remains superior and the trustee can “avoid” (i.e., block) any transfers of the asset outside the bankruptcy estate. Section 9-319(a) of the U.C.C. provides, “for purposes of determining the rights of creditors of . . . a consignee, while the goods are in the possession of the consignee, the consignee is deemed to have rights and title to the goods identical to those the consignor had.” (emphasis added). This provision means that even though a consignee doesn’t truly own the consigned goods, the U.C.C. treats the consignee as having an ownership interest. So, here, with Pettit’s ownership interest established, the parties agree that IPC’s unperfected security interest in the fuel is subordinate to the Trustee’s judicial lien.

Although IPC argues the result should be different because it retained title to the proceeds, the U.C.C. is clear that IPC’s retention of title does not matter. Section 9-202 of the U.C.C. states that “[e]xcept as otherwise provided with respect to consignments . . . , the provisions of [Article 9] with regard to rights and obligations apply whether title to collateral is in the secured party or the debtor.” Retention of title affects the remedies IPC could employ to recover the goods in the event of default, but title is irrelevant to whether IPC or the Trustee has priority in the goods and proceeds.

Our conclusion that the term “goods” in section 9-319 includes the proceeds of those goods is bolstered by the policy rationale underlying these rules. To the outside world, goods and proceeds held by a consignee appear to be owned by the consignee, and creditors might reasonably believe as much when they decide to lend the consignee money. The perfection and priority rules—which require that the consignor publicly announce its interest in the consigned goods or else go to the back of the line when the consignee goes bankrupt—serve to protect unwary creditors and prevent “secret liens” in the goods that might otherwise dissuade such lending.

IPC, Inc. V. Ellis, March 12, 2019
Lee v. Field, Ninth Circuit Court of Appeals, (O’Scannlain, Clifton, Ikuta), Exemptions, Adversary
Case no. 15-17451

The Bankruptcy Code requires the debtor to file a list of claimed exemptions, and provides that “[u]nless a party in interest objects, the property claimed as exempt on such list is exempt.” 11 U.S.C. § 522(l). The Supreme Court has made clear that if the time period set out in the applicable bankruptcy rules expires without a qualifying objection, the exemption becomes final regardless “whether or not [the debtor] had a colorable statutory basis for claiming it.” Rule 4003 of the Federal Rules of Bankruptcy Procedure requires that a party in interest, including a trustee, “file an objection” to a claimed exemption “within 30 days after the meeting of creditors held under [11 U.S.C.] § 341(a) is concluded.” However, Rule 4003(b), unlike some other bankruptcy rules, proscribes no particular form for objections to exemption claims.”

The adversary complaint here gave Lee more than adequate notice that the trustee objected to Lee’s claimed exemptions. In this context, an adversary action and an objection under Rule 4003 are inextricably intertwined. By bringing the adversary action, the trustee attacked the basis for Lee’s exemptions in order to recover the property for the estate; the proceeding would have been pointless if Lee could retain his exemptions and therefore retain his fraudulently transferred property interests. Because it was apparent that the adversary action’s sole purpose was to prevent Lee from retaining the exemptions, Lee had adequate notice that the trustee objected to them. Accordingly, while including an express objection to the claimed exemptions in his complaint or other filing would have been a better practice, the trustee’s action in filing the adversary complaint sufficiently constituted an objection to the exemption that satisfies Rule 4003.

Lee v. Field, May 7, 2018
Lima v. United States Department of Education, Ninth Circuit Court of Appeals, (Published), (Graber, Milan Smith, Watford), FDCPA, Debt Collector, Due Process
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
Majestic Homes v. Hurt, Ninth Circuit Court of Appeals, (Unpublished), (Gould, Paez, Pregerson), Sale of Goods, Acceptance
Case no. 18-35249

Hurt contracted to purchase a modular home from Majestic. The parties dispute whether Hurt rejected or revoked acceptance of the home, and thus would not be obligated to pay for it. The
Uniform Commercial Code, as codified in Montana law, governs contracts for modular homes. Upon delivery of goods, the buyer must accept the goods and pay in accordance with the contract, Mont. Ann. Code § 30-2-507, or reject the goods, id. § 30-2-601. A buyer may accept goods by failing to make an effective rejection after a reasonable time to inspect the goods. Hurt did not reject the home.

Under certain circumstances, a “buyer may revoke acceptance” of goods. Mont. Ann. Code § 30-2-608(1). Such revocation “must occur within a reasonable time after the buyer discovers or should have discovered the ground for it.” Revocation “is not effective until the buyer notifies the seller of it.” Hurt first notified Majestic that she revoked her acceptance of the home in her
counterclaims, approximately 16 months after delivery of the home. We agree with the district court that Hurt did not revoke acceptance within a reasonable time.

Majestic Homes v. Hurt, March 26, 2019
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. 
 The FDCPA applies to debt collectors, which the statute defines in two alternative ways: (1) “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 (2) “[any person] who regularly collects or attempts to collect, directly or indirectly, debts owed or dueor asserted to be owed or due another.”We refer to the first definition as the “principal purpose” prong (those engaged in “any business the principal purpose of which is the collection of any debts”), and we refer to the second definition as the “regularly collects” prong (those “who regularly collect[] . . . debts owed or due another”).  The parties agree that the FDCPA uses the phrase “principal purpose” to refer to a business’s most important goal or objective. The relevant question in assessing a business’s principal purpose is whether debt collection is incidental to the business’sobjectives or whether it is the business’s dominant, or principal, objective. By contrast, the FDCPA’s second definition of “debt collector” depends upon a person’s regular activities—i.e., whether the person “regularly collects . . . debts.”
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
Munoz v. Bank of America, Montana Supreme Court, Negligence, Good Faith and Fair Dealing, HAMP
Case no. DA 18-0018

This case arises from the Munoz’ attempts to secure a modification of their home loan, serviced by Wells Fargo, through the federal Home Affordable Modification Program (HAMP). The Munoz filed a lawsuit against Bank of America, N.A., Wells Fargo Bank, N.A., and Wells Fargo Home Mortgage in October 2015, alleging negligence and/or breach of the duty of good faith and fair dealing, negligent misrepresentation, constructive fraud, fraud, violations of Montana’s Consumer Protection Act, and conspiracy, due to Wells Fargo’s denial of their loan modification.

Three of the Munoz’ claims are rooted in negligence. To prevail in an action for negligence, a plaintiff must demonstrate “a duty, breach of that duty, causation, and damages.” Generally, “a bank has no duty to modify or renegotiate a defaulted loan.” Moreover, the relationship between a bank and its customer generally does not give rise to a fiduciary duty; rather, it is usually “‘described as that of a debtor and creditor.’” “However, where a bank goes beyond the ordinary role of a lender of money and actively advises customers in the conduct of their affairs, the bank may owe a fiduciary duty.”

Munoz provided no evidence of this beyond their own uncertain assertions. Nor did they offer any evidence demonstrating that Wells Fargo otherwise actively advised them “in the conduct of their affairs.” Munoz could not recall whether they were directly told by Wells Fargo to miss payments—rather, the Munoz asserted that it was their “understanding” and “interpretation” that they needed to miss payments. These unsupported, conclusory statements are insufficient to raise genuine issues of material fact. Even if the Munoz could prove duty and breach, they did not establish that Wells Fargo was the cause-in-fact of their alleged injury—the denial of their loan modifications—because the Munoz did not produce evidence demonstrating that, but for Wells Fargo’s conduct, they would have been otherwise eligible for a loan modification. Wells Fargo produced an affidavit from a banking expert, explaining that the Munoz could not have qualified for a loan modification because the loan obligation exceeded HAMP program limits. Moreover, the Munoz had other debts, including a $2 million loan, which put the Munoz’ debt-to-income ratio above HAMP program limits.

While Wells Fargo could have exercised better care in answering the Munoz’ discovery requests, its oversight did not affect the outcome of the case. Montana Rule of Civil Procedure 37(c) provides for the imposition of sanctions when a party fails to disclose requested, discoverable information, or fails to timely supplement an earlier discovery response. Here, the record indicates that Wells Fargo disclosed the audio recordings and supplemented their earlier discovery responses with the audio recordings and transcripts. The Munoz’ claims that Wells Fargo intentionally withheld, destroyed, or altered responsive documents is unsupported.

Munoz v. Bank of America, January 15, 2019
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 $10,000[2]more 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
Ocwen v Marino, Ninth Circuit Court of Appeals, (Wallace, Murguia, Lasnik), Final Appealable Order, Attorneys Fees on Appeal
Case nos. 18-60005, 18-60006, 18-60040, 18-60041
Because bankruptcy cases are often complex and litigated in various discrete proceedings, BAP orders may be immediately appealed only if they “finally dispose of discrete disputes within the larger case.”However, an order from the BAP is not final if it “remands for factual determinations on a central issue[.]”We have departed from this rule only when the BAP remands for “purely mechanical or computational task[s] such that the proceedings on remand are highly unlikely to generate a new appeal.”We limit the exception to our general rule against exercising appellate jurisdiction when the BAP remands to the bankruptcy court for good reason. When the BAP “remands a case to the bankruptcy court, ‘the appellate process likely will be much shorter if we decline jurisdiction and await ultimate review on all the combined issues.’”
We apply a four-part test to determine if we have jurisdiction over an appeal from a BAP decision that remands to the bankruptcy court. We consider “(1) the need to avoid piecemeal litigation; (2) judicial efficiency; (3) the systemic interest in preserving the bankruptcy court’s role as the finder of fact; and (4) whether delaying review would cause either party irreparable harm.”We conclude that all four factors compel dismissal of Ocwen’s appeals.
As to the first two factors, dismissal serves judicial efficiency and avoids piecemeal litigation by allowing the bankruptcy court to make additional findings of fact and conclusions of law before we exercise our jurisdiction. If we were to resolve Ocwen’s appeals now, the parties would almost certainly climb back up the appellate ladder, asking us to consider the bankruptcy court’s decision on punitive damages. As to the third factor, the BAP’s decision expressly left open the possibility for the bankruptcy court to engage in additional fact-finding after remand. Dismissal preserves the bankruptcy court’s fact-finding role where, as here, the BAP’s decision remands to the bankruptcy court to determine whether punitive damages are appropriate. Finally, as to the fourth factor, other than protracted litigation costs, neither party would be irreparably harmed if we declined jurisdiction over Ocwen’s appeals. Litigation costs generally do not qualify as irreparable harm.
The Marinos point to three sources that they believe entitle them to attorney’s fees: (1) Federal Rule of Appellate Procedure 38,2 (2) the attorney’s fees provision in the deed of trust with Ocwen, and (3) section 105(a) of the Bankruptcy Code. First, under Federal Rule of Appellate Procedure 38, we may award damages and single or double costs to an appellee if we determine that an appeal is frivolous. The BAP did not clearly err in finding that the appeal was not frivolous and did not abuse its discretion by declining to sanction Ocwen under Rule 38. Second, the attorney’s fees provision in the Marino’s deed of trust with Ocwen only allows Ocwen to receive attorney’s fees for “a legal proceeding that might significantly affect [its] interest in the Property and/or rights under [the deed],” including bankruptcy. Third, and finally, the Marinos argue that they should be awarded attorney’s fees under section 105(a) of the Bankruptcy Code. But that would require us to overturn our decision, In re Del Mission Ltd., 98 F.3d 1147 (9th Cir. 1996), in which we held that section 105(a) does not authorize an award of attorney’s fees.

Ocwen v. Marino, February 10, 2019
Pena, Ninth Circuit Bankruptcy Appellate Panel (Published), (Spraker, Lafferty, Brand), Unclaimed Funds
BAP Case no. EC-18-1098-SLB

The unclaimed funds were rents his chapter 7 trustee collected from Pena’s rental properties before the trustee abandoned those properties. The trustee initially tried to pay the rents to the creditors holding security interests in the underlying rental properties, but the secured creditors never cashed the trustee’s checks. The trustee thereafter voided the checks and deposited the funds in the court’s registry in accordance with § 347(a).

When a creditor fails to cash a chapter 7 trustee disbursement check within 90 days of the final distribution, the trustee must stop payment on the check and pay the funds into the court registry as unclaimed funds. Thereafter, the “rightful owners” of the funds may claim them from the court registry. Here, the secured creditors’ rights to the rents Manfredo administered were undisputed at the time the bankruptcy court entered its final decree. Among other things, the final decree approved Manfredo’s disbursement of the unclaimed funds into the court registry (pursuant to § 347 and Rule 3011) in the name of the secured creditors to whom Manfredo had determined the funds were owed. Under 28 U.S.C. §§ 2041and 2042, the funds must remain in the court registry until their “rightful owner” with “full proof” of entitlement comes to claim them. If, after five years, the funds still remain unclaimed in the court registry, then they mustbe turned over to the United States Treasury.

Abandonment is the “formal relinquishment of the property at issue from the bankruptcy estate.” Abandonment of an estate asset is governed by § 554, and can occur in one of three ways: (1) the bankruptcy trustee can obtain bankruptcy court authority to abandon the asset (see § 554(a)); (2) another party in interest can seek to compel the trustee to abandon the asset (see § 554(b)); or (3) abandonment may occur by operation of law – also known as a “technical abandonment” (see § 554(c)). No other party has sought abandonment of the rents under § 554(b).

Before a trustee abandons property of the estate, she must give notice of the property to be abandoned. Moreover, the “intent to abandon an asset must be clear and unequivocal.” Section 541(a)(6) independently categorizes proceeds from property of the estate. As distinct property of the estate, a trustee must clearly state her intent to abandon such rents under § 554(a). Because the unclaimed rents remain property of the bankruptcy estate, the bankruptcy court did not err in denying Pena’s application to recover those funds. The designation of the bankruptcy as a no asset case is irrelevant to the question presented in this appeal and provides the debtor with no interest in the remaining rents. The fact that some additional action is required to properly administer these rents in light of Manfredo’s prior Final Account does not alter the nature of the unclaimed funds as property of the estate.

In re Pena, May 21, 2019
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
prejudiced.

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
such behavior.
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 Motion.

February 21, 2020

Ritzen Group, Inc. v. Jackson Masonry, LLC, United States Supreme Court, Relief From Stay, Final Order
Case no. 18-938

In civil litigation generally, 28 U. S. C. §1291 governs appeals from “final decisions.” Under that provision, a party may appeal to a court of appeals as of right from “final decisions of the district courts.”“final decision” within the meaning of §1291 is normally limited to an order that resolves the entire case. Accordingly, the appellant must raise all claims of error in a single appeal. This understanding of the term “final decision” precludes “piecemeal, prejudgment appeals” that would “undermine[e] efficient judicial administration and encroach[h] upon the prerogatives of district court judges.” A bankruptcy case encompasses numerous “individual controversies, many of which would exist as stand-alone lawsuits but for the bankrupt status of the debtor. "It is thus common for bankruptcy courts to resolve discrete controversies definitively while the umbrella bankruptcy case re- mains pending. The provision on appeals to U. S. district courts from decisions of bankruptcy courts is 28 U.S.C. §158(a). Under that provision, an appeal of right lies from “final judgments, orders, and decrees” entered by bankruptcy courts “in cases and proceedings.”By providing for appeals from final decisions in bankruptcy “proceedings,” as distinguished from bankruptcy “cases,” Congress made “orders in bankruptcy cases . . immediately appeal[able] if they finally dispose of discrete disputes within the larger [bankruptcy] case.”

Under the Bankruptcy Code, the filing of a bankruptcy petition automatically halts efforts to collect prepetition debts from the bankrupt debtor outside the bankruptcy forum. The stay serves to “maintain[n] the status quo and prevent[t] dismemberment of the estate” during the pendency of the bankruptcy case. Bankruptcy court a motion for an order “terminating, annulling, modifying, or conditioning” the stay, asserting in support of the motion either “cause” or the presence of specified conditions. A bankruptcy court’s order ruling on a stay-relief motion disposes of a procedural unit anterior to, and separate from, claim resolution proceedings. Adjudication of a stay relief motion, as just observed, occurs before and apart from proceedings on the merits of creditors’ claims: The motion initiates a discrete procedural sequence, including notice and a hearing, and the creditor’s qualification for relief turns on the statutory standard, i.e., “cause” or the presence of specified conditions. Resolution of stay-relief motions does not occur as part of the adversary claims-adjudication process, proceedings typically governed by state substantive law. Under Bullard, a discrete dispute of this kind constitutes an independent “proceeding” within the meaning of 28 U. S. C. §158(a). Our conclusion that the relevant “proceeding” is the stay relief adjudication is consistent with statutory text.

Because the appropriate “proceeding” in this case is the adjudication of the motion for relief from the automatic stay, the Bankruptcy Court’s order conclusively denying that motion is “final.” The court’s order ended the stay relief adjudication and left nothing more for the Bankruptcy Court to do in that proceeding. The Court of Appeals therefore correctly ranked the order as final and immediately appealable, and correctly affirmed the District Court’s dismissal of Ritzen’s appeal as untimely.
Ritzen Group, Inc. v. Jackson Masonry, LLC, January 14, 2019
Shaw v. Bank of America, Ninth Circuit Court of Appeals, (Published), (Klienfeld, Callahan, Nelson), Truth in Lending Act, Administrative Procedure
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
Stimpson v. Midland Credit Management, Ninth Circuit Court of Appeals, (Clifton, Ikuta, Rakoff), Fair Debt Collection Practices Act, Time Barred Debt
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
Stokes v. LSF8 Master Participation Trust, Ninth Circuit Court Bankruptcy Appellate Panel, (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
Ventura, Chapter 11, USBC, Eastern District Of New York, Subchapter V Election
Case no. 8-18-77193
These 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 questions:
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.
The SBRA 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.
 In re Ventura, EDNY, April 10, 2020
Vibe Micro, Inc. v. SIG Capital, LLC., Ninth Circuit Court of Appeals, (Published), (Graber, Thacker, Bennett (dissenting)), Third Party Damages in Involuntary Bankruptcy Proceeding
Case no. 17-16277

This case asks whether a 50% shareholder of an involuntary debtor may seek damages under 11 U.S.C.§ 303(I). In In re Miles, we considered whether third parties may seek damages under § 303(I). We concluded that § 303(I) limits standing to recover statutory damages resulting from an involuntary bankruptcy proceeding to the debtor. Those same factors compel a similar result here.

First, the relevant House and Senate Reports suggest that only the debtor has standing to seek § 303(I) damages. According to those reports, “if a petitioning creditor filed the petition in bad faith, the court may award the debtor any damages proximately caused by the filing of the petition.” “This specific reference to the ‘debtor’ is a strong indication that Congress intended only the debtor to have standing to seek damages.”

Second, appellate courts in this circuit have twice considered whether a non-debtor can seek damages under § 303(I), and twice those courts have decided it cannot. Appellant’s attempts to distinguish Miles on its facts are unavailing. Vibe Micro’s appearance in this case was just as voluntary as was the appearance of the third parties in Miles.

Third, reading § 303(I) to permit only the debtor to seek damages is consistent with its purpose and the policy interests underlying it. Section 303(I) is intended to alleviate the consequences that involuntary proceedings impose on the debtor. Those consequences include “loss of credit standing, inability to transfer assets and carry on business affairs, and public embarrassment.” A third party, who intervenes
freely in an involuntary action, does not face those same consequences. Even if it did, § 303(I) would still not guarantee costs, fees, or damages. An award under § 303(I) —which states that the court “may” award costs, fees, or damages—is not mandatory.

Vibe Micro, Inc. V. SIG Capital, LLC, April 29, 2019
Warner v. Experian, Ninth Circuit Court of Appeals, (Published), (Clifton, Ikuta, Friedland), Fair Credit Reporting Act
Case no 17-16910
John McIntyre hired Go Clean Credit to perform “credit repair services.” McIntyre and Go Clean Credit memorialized their agreement in a written contract that “grant[ed] GCC a limited power of attorney to write and send letters to creditors and credit bureaus on McIntyre’s behalf and in McIntyre’s name and to utilize . . . McIntyre’s electronic signature or for a GCC representative to sign the letters on McIntyre’s behalf.” Go Clean Credit sent a series of letters to Experian contending that several negative items in McIntyre’s credit file were inaccurate. The letters asked Experian to reinvestigate the disputed items.Experian responded by sending a letter to McIntyre on May 8, 2015. The letter stated that Experian had “received a suspicious request in the mail” and “determined that it was not sent by [McIntyre].” Experian informed McIntyre that it would “not be initiating any disputes based on the suspicious correspondence.” Experian also explained that McIntyre could call Experian or visit Experian’s website if he believed the information in his credit file was inaccurate or incomplete.   McIntyre did neither.
Section 1681i provides that consumer reporting agencies such as Experian must “conduct a reasonable reinvestigation” when an item in the consumer’s credit file “is disputed by the consumer and the consumer notifies the agency directly . . . of such dispute.”McIntyre hired Go Clean Credit to submit letters to credit agencies on his behalf, but he did little else. The question we must answer, therefore, is whether those letters came “directly” from McIntyre.  We conclude that they did not. “The preeminent canon of statutory interpretation requires us to presume that the legislature says in a statute what it means and means in a statute what it says there.This appeal can be resolved by considering the unambiguous meaning ofthe word “directly.” The most pertinent definition of directly is “without any intervening agency or instrumentality or determining influence.”McIntyre played almost no part in submitting the dispute letter to Experian. Indeed, his testimony was that he played no role in preparing the letters at all.
Our holding is limited to the facts before us. This case does not involve a letter sent to a consumer reporting agencyby a consumer’s attorney. Nor does it involve one family member assisting another by sending a letter on the other’s behalf. It does not even involve a letter sent by a credit repair agency that a consumer reviewed and approved before it was submitted. We do not decide whether, in any of these circumstances, a consumer reporting agency would have a duty to reinvestigate.
Section 1681e(b) states that consumer reporting agencies must “follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom [a consumer report] relates.”As the district court recognized, it would make little sense to use Section 1681e(b) to impose liability on Experian for conduct that satisfied Section 1681i. Section 1681i represents Congress’s determination that a consumer reporting agency is only required to initiate a reinvestigation if a consumer notifies the agency of a dispute directly. It cannot be unreasonable for agencies to follow that guidance.Because McIntyre did not dispute the items in his credit file directly, Experian had no duty to respond. We therefore conclude that Experian did not act unreasonably and, as a result, did not violate Section 1681e(b).
 Warner v. Experian, July 24, 2019
Washington v. Real Time Resolution Inc., Ninth Circuit Bankruptcy Appellate Panel, (Published), (Lafferty, Kurtz, Faris), Discharge, Chapter 20
Case no. CC-18-1206-LKuF
Washington obtained a chapter 71 discharge, which extinguished her personal liability on the debt secured by a junior lien on her residence. About five years later, she filed a chapter 13 case; she obtained an order valuing at zero the junior lien held by Option One Mortgage Corporation, serviced by Appellee Real Time Resolutions, Inc. (“RTR”). RTR filed an unsecured claim in the full amount of the debt it believed it was owed; Ms. Washington objected on the ground that herpersonal liability had been discharged. The bankruptcy court overruled the objection, concluding that the discharge did not fully eliminate the claim and that the plain language of § 506(a) required the allowance of RTR’s unsecured claim in the amount of $307,049.79.We REVERSE
Section 1322(b)(2) of the Bankruptcy Code prohibits a chapter 13 plan from modifying the rights of holders of secured claims when the claim is “secured only by a security interest in real property that is the debtor’s principal residence . . . .” Despite this prohibition, the Ninth Circuit Courtof Appeals has held that if such a lien is determined to be wholly unsecured, a debtor may avoid that lien in a chapter 13 proceeding without running afoul of § 1322(b)(2).
A chapter 13 debtor seeking to avoid a wholly unsecured lien on her residence must first obtain an order valuing the lien pursuant to § 506(a). If the lien is determined to be wholly unsecured (i.e., if the value of the property less senior liens leaves no equity to which the junior lien may attach), the court values the lien at zero. Under § 506(a), the valuation of that lien results in an unsecured claim for the full amount owed. Where the debtor has not previously received a discharge, the junior lienholder will ordinarily be left with an allowed unsecured claim that must be provided for in the debtor’s plan in the same manner as other general unsecured claims. But where the debtor has discharged her personal liability in a prior chapter 7 case, courts have differed in their approaches to dealing with the unsecured claim.
Importantly, this Panel has held that, for eligibility purposes, debts for which in personam liability has been discharged in a prior chapter 7 case cannot be counted toward the unsecured debt limitation of § 109(e).  We conclude that the bankruptcy court here skipped, as did the cases it relied on, a critical step in determining the status of the unsecured claim. Once the bankruptcy court valued the secured claim at zero under § 506(a), it concluded that the remaining unsecured claim was automatically an allowed claim in the chapter 13 case. But in light of Ms. Washington’s claim objection, the court was required to consider whether the unsecured claim was enforceable against the debtor. Because it was not, the claim should have been disallowed. There is simply no statutory basis for resurrecting the debtor’s personal liability or for treating the claim as a claim against the estate.And the lien claim against property of the estate was conditionally avoided through the valuation motion.
 
Washington v. Real Time Resolution Inc., July 30, 2019