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(Unpublished), (Faris, Kurtz, Taylor), Discharge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
Bondi v. Nationstar; Bank of America, Ninth
Circuit Court of Appeals, (Unpublished), (Nelson, Fletcher, Bybee), Fair Credit
Reporting Act, Fair Debt Collection Act
Case no. 17-15564
Under the FCRA, a furnisher’s statutory obligations are triggered “only after the furnisher receives notice of a dispute from a CRA; notice of a dispute received directly from the consumer” is insufficient. Bondi cites only his direct correspondence with Nationstar, arguing that he “made numerous phone calls and wrote numerous letters to Nationstar” protesting its credit reporting. But his direct correspondence with Nationstar is irrelevant; Bondi does not identify any notice of a dispute that Nationstar received from a CRA, and he certainly did not identify any such notice in the district court. Upon receiving notice of a dispute from a CRA, a furnisher is required under the FCRA to conduct a reasonable investigation and correct any errors it finds. Nothing in the FCRA obliged Nationstar to accept this assertion as true and resolve the dispute in his favor.
We have held that the FDCPA’s limitations period is subject to the “discovery rule” and thus does not begin to run until the plaintiff knows or “‘reasonably could have become aware of’” the “alleged violation.” Bondi’s only argument on appeal is that the limitations period in this case did not begin to run until he knew of the amount of “damages” that had accrued from the alleged violation. But the limitations period is triggered by the plaintiff’s knowledge of the alleged violation, not damages.
Bondi v. Nationstar, October 24, 2018
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
Derham-Burk v. Mrdutt, Ninth Circuit
Bankruptcy Appellate Panel, (Published), (Brand, Taylor, Faris), Chapter 13 Plan
Case no NC-17-1256-BTaF
A plan is a contract between the debtor and the debtor's creditors. The order confirming a chapter 13 plan, upon becoming final, represents a binding determination of the rights and liabilities of the parties as specified by the plan. When the loan modification failed, the Mrdutts sought to modify the Plan to surrender the residence to Wells Fargo sixty-seven months after the first Plan payment was due and after they had made all sixty Plan payments to Trustee. Section 1329 provides that the bankruptcy court may modify a confirmed plan "[a]t any time after confirmation of the plan, but before the completion of payments under such plan[.]" When the chapter 13 plan provides for the curing of prepetition mortgage arrears and a debtor's direct postpetition maintenance payments in accordance with § 1322(b)(5), such direct payments are "payments under the plan." And if the debtor does not complete "all payments under the plan," the debtor is not entitled to a discharge.
The promise to maintain postpetition payments to a mortgage creditor is a mandatory element of the treatment of claims subject to § 1322(b)(5), and it is not severable. Failing to perform this promise is a material default of the plan, subjecting the case to dismissal under § 1307(c)(6). We have difficulty reconciling that a debtor can receive a discharge after failing to make maintenance payments under § 1322(b)(5), when that same failure is grounds for case dismissal. We join the overwhelming majority of courts holding that a chapter 13 debtor's direct payments to creditors, if provided for in the plan, are "payments under the plan" for purposes of a discharge under § 1328(a) and hold that this same
rule should apply in the context of post-confirmation plan modifications under § 1329(a).
The Mrdutts sought to modify the Plan to surrender the residence in satisfaction of the Wells Fargo debt. They argue that surrender is not a "payment" and therefore does not violate the 60-month rule in § 1329(c). We conclude that surrender is a form of payment for purposes of § 1329(c). Besides a time limitation problem, it is not clear that modification of the Plan was even appropriate. A modified plan is essentially a new plan and must be consistent with the statutory requirements for confirmation. At minimum, good faith was in question when unsecured creditors received nothing under the Plan while the Mrdutts retained over $100,000 by failing to make their required postpetition mortgage payments.
Derham-Burk v. Mrdutt, May 6, 2019
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
Cobbs v. Nissan
Mortor Acceptance Corp, Ninth Circuit Bankruptcy Appellate Panel, (Faris,
Spraker, Kurtz) Violation of Discharge Injunction
Case no. SC-18-1064-FSKu
Section 727(a) provides that, subject to certain exceptions, “[t]he [bankruptcy] court shall grant the debtor a discharge.” The discharge order “discharges the debtor from all debts that arose before the date of the
[bankruptcy filing].” More specifically, a discharge “operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived[.] The discharge applies only to the debtor’s “personal liability.” § 524(a)(2). A creditor’s rights in the debtor’s property are not affected. The discharge is automatic and self-effectuating. Creditors must obey it, even if debtors do not assert it.
“A bankruptcy court may enforce the discharge injunction by holding a party in contempt for knowingly violating the discharge.” ). The Ninth Circuit follows a two-part test to determine whether the contemnor knowingly and willfully committed a violation of the discharge injunction: “the movant must prove that the creditor (1) knew the discharge injunction was applicable and (2) intended the actions which violated the injunction.” The first element of this test looks to the creditor’s subjective state of mind. For purposes of the second element, “[t]he focus is on whether the creditor’s conduct violated the injunction and whether that conduct was intentional; it does not require a specific intent to violate the injunction.”
Section 524(a)(2) makes clear that the discharge is an injunction against certain kinds of conduct. Put simply, when courts talk about the discharge of a claim, or the applicability of the discharge to a claim, they are using shorthand. When courts say that the discharge injunction applies to a claim, they mean that the discharge injunction bars the act of prosecuting or collecting that claim. This clarification is particularly important to this case because the discharge injunction only protects the debtor from personal liability on discharged debts, and does not bar the enforcement of a creditor’s rights in the debtor’s property. This means that the discharge injunction can apply to certain conduct by the creditor – efforts to collect the debt as a personal obligation – and not apply to other conduct – efforts to enforce the creditor’s rights in the debtor’s property, such as a lien or a lease – even though all of the conduct pertains to a single “claim.”
The bankruptcy court had to decide whether NMAC subjectively knew that its conduct violated the discharge injunction. Disputes about a person’s subjective state of mind present factual issues that courts ordinarily cannot decide without an evidentiary hearing. To prove that NMAC subjectively knew that the discharge injunction applied, Mr. Cobbs relies primarily on four communications. The fourth communication is Mr. Doan’s letter of September 6, in which he told NMAC that the billing statements of July 24 and August 22 violated the discharge injunction. He expressly demanded that NMAC “cease future statements.” The question thus becomes whether NMAC received this letter. Mr. Doan sent this letter to the Cincinnati PO Box, which, as we have noted, was an address provided on the monthly statements for payments only. The same statements said that correspondence should be directed to the Designated Correspondence Address. Mr. Doan does not explain why he chose to send this important letter to a payment lockbox address rather than an address specifically designated for correspondence (or to NMAC’s counsel, who had repeatedly corresponded with Mr. Doan about the proposed reaffirmation agreement). We join in the bankruptcy court’s criticism of counsel’s noticing practices, which were unexplained, inexplicable, and haphazard at best, and did not comply with § 342. Nonetheless, we are constrained to holdthat the bankruptcy court erred when it held, as a matter of fact and without permitting discovery and conducting an evidentiary hearing, that NMAC lacked subjective knowledge that the discharge injunction applied.
Cobbs v. Nissan Mortor Acceptance Corp, October 24, 2018
Daff v. Good, Ninth Circuit
Court of Appeals, (Published), (Wardlaw, Bybee, Bartle) Automatic Stay, Tolling
Case no. 16-60033
The question before us centers on the interplay between two sections of the bankruptcy code: the automatic stay under 11 U.S.C. § 362(a) and the tolling provision under § 108(c). Under § 362(a), the filing of a bankruptcy petition automatically triggers a stay “of actions by all entities to collect or recover on claims” against the debtor. The stay “is designed to provide breathing space to the debtor, prevent harassment of the debtor, assure that all claims against the debtor will be brought in the sole forum of the bankruptcy court, and protect creditors as a class from the possibility that one or more creditors will obtain payment to the detriment of others.” The stay’s scope is “quite broad” and “applies to almost any type of formal or informal action against the debtor or property of the estate.”
Given the fact that proceedings can span months or (as demonstrated in this case) years, claims that creditors might hold against a debtor are liable to expire before the discharge is granted or denied.
The code therefore implements a tolling provision under § 108(c), which provides in relevant part: “[I]f applicable nonbankruptcy law . . . fixes a period for commencing or continuing a civil action in a court other than a bankruptcy court on a claim against the debtor, . . . and such period has not expired before the date of the filing of the petition, then such period does not expire until . . . 30 days after notice of
the termination or expiration of the stay under section 362 . . . .” 11 U.S.C. § 108(c) (emphasis added).
Here, the applicable nonbankruptcy law is the California ORAP statute. This statute allows a judgment creditor to apply to a California court “for an order requiring the judgment debtor to appear before the court . . . to furnish information to aid in enforcement of the money judgment. A creditor’s service of the order upon the debtor “creates a lien on the personal property of the judgment debtor for a period of one year from the date of the order unless extended or sooner terminated by the court.” Whether the lien has expired depends on whether § 108(c) applies to it and thus tolled its one-year duration. Specifically, we must determine whether the period in which a creditor may execute on an ORAP lien constitutes “commencing or continuing a civil action” under the bankruptcy code’s tolling provision.
Although we signaled agreement with this reasoning in Spirtos and Hunters Run, we now expressly adopt it and hold that the period in which a creditor may enforce a judgment by executing on a lien constitutes the continuation of the original action that resulted in the judgment. We note that this understanding of the tolling provision comports with California’s own perception of the ORAP examination as part of the original civil action that gave rise to a judgment. Because California law afforded Good one year in which she could execute on her ORAP lien and a portion of that period coincided with the automatic stay, we find that § 108(c) tolled the period.
Daff v. Good, October 22, 2018
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
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
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
Equifax Information Services LLC, Ninth Circuit Court of Appeals, (Unpublished),
(Shroeder, Nguyen, Whelan) Fair Credit Reporting Act
Case no 17-55132
In conducting a reinvestigation, a consumer credit reporting agency must “review and consider all relevant information” that the consumer submits regarding the disputed information and “promptly” correct or delete from the consumer’s file any inaccurate, incomplete, or unverifiable information, Viewing the factual record in the light most favorable to Ghazaryan, Equifax’s investigation was reasonable as a matter of law. Equifax notified Discover that Ghazaryan disputed being late on her credit card payment and stated that Discover representative Jordan “confirmed . . . that she was never late.” Equifax also passed along the phone number for Jordan that Ghazaryan had provided. Equifax transmitted this information “in the manner established with” Discover, using ACDV, the “automated system” envisioned by the FCRA.
Equifax had no duty, as Ghazaryan contends, “to resolve the ultimate contradiction between Discover’s response to the ACDV versus the confirmation of inaccuracy made by [Jordan].” “[C]redit reporting agencies are not tribunals. They simply collect and report information furnished by others.” Equifax had determined Discover to be a reliable source, and Ghazaryan gave Equifax no reason to question that determination. Therefore, Equifax was entitled to rely on Discover’s confirmation that Ghazaryan had missed a payment notwithstanding that this information ultimately proved to be inaccurate.
Ghazaryan v. Equifax Information Services LLC, October 18, 2018
Gomez, Ninth Circuit
Bankruptcy Appellate Panel, (Published), (Faris, Lafferty, Spraker) Sanctions,
Case no. SC-18-1089-FLS
The basic issue on appeal is whether the bankruptcy court erred in sanctioning Mr. Aldana for recklessly and frivolously pursuing the exemption in the Malibu, in addition to repeatedly failing to respond to the court’s inquiries and the Trustee’s filings. The bankruptcy court exercised its inherent power to sanction Mr. Aldana for “recklessness . . . coupled with frivolous arguments and actions and disregard of this Court’s scheduling requirements.”
A bankruptcy court “has the inherent authority to impose sanctions for bad faith, which includes a broad range of willful improper conduct.” Before the bankruptcy court imposes sanctions under its inherent authority, it must find either bad faith, conduct tantamount to bad faith, or recklessness with an “additional factor such as frivolousness, harassment, or an improper purpose.” The bankruptcy court “must make an explicit finding . . . .”
As the Trustee explained repeatedly, if he recovers certain property prior to the debtor claiming an exemption, that property cannot be exempted. Section 522(g) provides:
(g) Notwithstanding sections 550 and 551 of this title, the
debtor may exempt under subsection (b) of this section
property that the trustee recovers under section 510(c)(2), 542,
543, 550, 551, or 553 of this title, to the extent that the debtor
could have exempted such property under subsection (b) of this
section if such property had not been transferred, if –
(1)(A) such transfer was not a voluntary transfer of such
property by the debtor;
In other words, § 522(g)(1) “allows the debtor to exempt property that the trustee recovers under [various sections of the Bankruptcy Code] as long as the transfer was involuntary and the property was not concealed by the debtor.” Conversely, a debtor may not exempt property that the trustee recovers under one of the enumerated provisions if the debtor voluntarily transferred or concealed the property.
In the present case, the bankruptcy court did not err in holding that the Trustee satisfied the two prongs of § 522(g)(1)(A). First, there was a “transfer” of estate property. The perfection of a security interest is a “transfer” within the meaning of § 101(54)(D). Second, it is also undisputed that the Trustee recovered estate property. Anayas Auto failed to perfect its lien prepetition. The Trustee avoided the lien perfection as a postpetition transfer under § 549(a) and recovered the interest in the Malibu under § 550. Therefore, because the Trustee avoided the voluntary transfer under § 550, Mr. Gomez could not claim an exemption in the Malibu under § 522(g)(1)(A).
The Appellants argue that the bankruptcy court “called the actions reckless, but that is not sufficient to sanction one’s belief in the law.” The Appellants are correct that the award of sanctions requires more than recklessness alone. The Ninth Circuit has stated that “[s]anctions are available for a variety of types of willful actions, including recklessness when combined with an additional factor such as frivolousness, harassment, or an improper purpose.” The Sanctions Order confirms: “Here his conduct appears, at best, reckless, and this recklessness appears coupled with frivolous arguments and actions and disregard of this Court’s scheduling requirements.” (Emphasis added.) The bankruptcy court did not err.
The Trustee requested by separate motion that we sanction the Appellants for filing a frivolous appeal, not following the appellate rules, and offering a “fluctuating and erratic presentation of the issues on appeal.” Rule 8020, which conforms to the language of Federal Rule of Appellate Procedure (“FRAP”) 38, provides that: “If the district court or BAP determines that an appeal is frivolous, it may, after a separately filed motion or notice from the court and reasonable opportunity to respond, award just damages and single or double costs to the appellee.” Rule 8020(a). Under FRAP 38, “a frivolous appeal is one where the result is obvious or the appellant’s arguments are wholly without merit.”
Rule 8020(a) is not susceptible to a “pure heart, empty head” defense. As we discuss above, the Appellants’ appeal from the Sanctions Order is frivolous and lacks any merit. We conclude that the Trustee is entitled to the imposition of sanctions against Mr. Aldana, who is responsible for advocating the frivolous legal arguments and positions on appeal. We exercise our discretion and award the Trustee his fees and double costs.
Gomez v. Stadtmueller, November 9, 2018
Pacific Gas and Electric, Ninth Circuit Bankruptcy Appellate Panel
(Unpublished), Kurtz, Faris, Brand), Reconsideration
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
Harms v. Bank of New York Mellon, Ninth Circuit Bankruptcy Appellate Panel, (Published), (Spraker, Taylor, Brand), Mootness, Relief from Stay, Business Records
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.
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
Brain Power America, Ninth Circuit Court of Appeals, (Unpublished) (Hawkins,
Hurwitz, Rosenthal) Stay Violation
Case no 17-15625
Appellant Debra Leigh Jacobs appeals the district court’s order affirming the bankruptcy court’s denial of her motion to hold creditor Brain Power America, Inc. and its attorney in contempt for violating a stay and discharge order. To prevail, Jacobs had to establish by clear and convincing evidence not only that Brain Power actually violated the stay or discharge order but also knew the orders applied and intended to violate them.
The majority of courts to address this issue have held that merely renewing an existing judgment lien does not “create, perfect, or enforce” a lien under the Bankruptcy Code, and it does not violate a stay. Even if we were to accept Jacobs’s argument that renewal of the judgment violates the stay, it would not establish that Brian Power knew this act would do so.1 That argument would also fail to establish that Brain Power knew that the stay applied to the lien because Jacobs did not list Brain Power as a creditor in the original bankruptcy proceeding. The
bankruptcy court did not abuse its discretion by denying the motion.
Jacobs v. Brain Power America, October 18, 2018
Lee v. Field, Ninth Circuit Court of Appeals, (O’Scannlain, Clifton, Ikuta),
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
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
McCann v. Wichot, Ninth Circuit Bankruptcy Appellate Panel, (Unpublished),
(Brand, Taylor, Lafferty), Relief from Prior Order
Case nos. NV-17-1221; 1288
Under Civil Rule 60(b)(1), as incorporated by Rule 9024, a court may relieve a party from a final order upon a finding of excusable neglect. To determine whether a party's neglect is excusable, courts must apply a four-factor equitable test, examining: (1) the danger of prejudice to the opposing party; (2) the length of the delay and its potential impact on the proceedings; (3) the reason for the delay; and (4) whether the movant acted in good faith.Here, the bankruptcy court neither cited Pioneer-Briones nor applied the four-factor test required. Generally, this would require reversal.
A motion under Civil Rule 60(b)(1) must be filed "no more than one year after the entry of the judgment or order or the date of the proceeding." Regardless of whether the sanctions order was docketed in the main case or the adversary proceeding, or the fact that Lewis Roca failed to serve him with notice of entry of the order as required, the ECF service list reflects that McCann was served with a copy of it on April 20, 2016, at his AOL email address. If McCann was no longer using that email address on that date (although he was still apparently using it eight days earlier when he filed his objection to the sanctions order), it was his responsibility to inform the court of any email change. And, if he failed to do so, service made to that account was still considered good service. Nonetheless, and what McCann fails to recognize is, Civil Rule 60(c)(1) provides, alternatively, that a motion under Civil Rule 60(b)(1) must be filed within one year "of the date of the proceeding." Assuming the "proceeding" was the April 6, 2016 hearing where the court announced its sanctions ruling, McCann certainly knew on that date that he and his client were being sanctioned $2,500 for discovery misconduct. Thus, even if no order was ever entered, McCann's request for relief under Civil Rule 60(b)(1) had to be filed by no later than one year from April 6, 2016, to be timely.
Rule 9011(b) requires parties and their attorneys to ensure papers filed before a bankruptcy court are "warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law" and that "allegations and other factual contentions have evidentiary support . . . ." Rule 9011(b) incorporates a reasonableness standard which focuses on whether a competent attorney admitted to practice before the involved court could believe in like circumstances that his actions were legally and factually justified.
Although the Wichots suggested that the court impose sanctions against McCann in their opposition to the Rule 60(b) Motion, the court invited Lewis Roca to file the fee motion for the purpose of sanctioning McCann. Certainly, Lewis Roca did not support its motion with evidence that it complied with the safe-harbor procedure under Rule 9011(c)(1). When assessing sanctions sua sponte under Rule 9011(c)(1)(B), the bankruptcy court is required to issue an order to show cause describing the specific misconduct. Although the court issued an OCS for McCann, for reasons unknown it withdrew the OSC and vacated the related hearing prior to the hearing on the fee motion. That is the first problem. The second problem is the type of sanction the court awarded. Sanctions awarded on the court's own motion may not include shifting of fees.
Alternatively, the bankruptcy court could have sanctioned McCann under its inherent authority. A bankruptcy court's inherent sanction authority is recognized under § 105(a). Under that authority, the bankruptcy court may sanction a "broad range" of conduct. Sanctionable conduct includes improper litigation tactics (e.g., delaying or disrupting litigation), bad faith, vexatious or wanton conduct, willful abuses of judicial process, or acting for oppressive reasons. In this context, bad faith or willful misconduct consists of something more egregious than mere negligence or recklessness." Before awarding sanctions under its inherent powers, however, the court must make an explicit finding that counsel's conduct 'constituted or was tantamount to bad faith.'" Therefore, in light of the bankruptcy court's findings, it could not impose sanctions under its inherent authority.
McCann v. Wichot, October 4, 2018
In re Mihranian, Ninth
Circuit Court of Appeals, (Schroeder, Graber, Watson), Substantive
Case no. 17-60090
Substantive consolidation is not provided for in the Bankruptcy Code but is considered a general equitable power of bankruptcy courts. We explained the concept and history of substantive consolidation in In re Bonham: Orders of substantive consolidation combine the assets and liabilities of separate and distinct—but related—legal entities into a single pool and treat them as though they belong to a single entity. Substantive consolidation enables a bankruptcy court to disregard separate corporate entities . . . in order to reach assets for the satisfaction of debts of a related corporation. The consolidated assets create a single fund fromwhich all claims against the consolidated debtors are satisfied . . . . Without the check of substantive consolidation, debtors could insulate money through transfers among intercompany shell corporations with impunity.
Many courts, including this court, permit the
substantive consolidation of both debtor and non-debtor entities.The sole
aim of substantive consolidation is “fairness to all creditors.”We have
adopted the Second Circuit’s two-pronged test for substantive consolidation,
but we have not yet determined whether a party moving for substantive
consolidation must give notice of the motion to creditors of a putative
consolidated non-debtor. Several considerations support such a notice
First, caselaw in this circuit regarding consolidation of two or more debtors’ estates supports extending a notice requirement to a putative consolidated non-debtor’s creditors, who should be afforded just as much—if not more—notice as a putative consolidated debtor’s creditors.
Second, if substantive consolidation is an equitable order the “sole aim” of which is “fairness to all creditors,” then notice and an opportunity to be heard must be given to creditors of the putative consolidated parties—whose claims would be equitably distributed under the consolidation order—and not just to the consolidated parties themselves. That way, the bankruptcy court can hear from any objecting creditor before issuing its decision on consolidation and can ensure that the consolidation truly is fair to all affected creditors.
Third, and in the same vein, substantive consolidation “seriously . . . ‘affects the substantive rights of the creditors of the different estates.’” It is logical to require that notice be given to the actual parties whose substantive rights will be “seriously affected” by the order so that they have an opportunity to be heard.
Fourth, the first prong of the In re Bonham test
essentially requires notice to the putative consolidated parties’ creditors,
not just the putative consolidated parties. Under that prong, substantive
consolidation is warranted where creditors dealt with the debtor and
non-debtors as a single economic unit. The burden-shifting test for this
prong places the burden on an objecting creditor to overcome a presumption
that it did not rely on the separate credit of the putative consolidated
entities. A creditor must be given notice of the motion for substantive
consolidation and an opportunity to be heard in order to meet its burden of
overcoming the presumption. For all of these reasons, the BAP correctly
concluded that a party moving for substantive consolidation must provide
notice of the motion to the creditors of a putative consolidated non-debtor.
In re Mihranian, September 9, 2019
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
Nayab v. Capital One
Bank, Ninth Circuit Court of Appeals, (Rawlinson, Bea, Rice), Fair Credit
Reporting Act, Unauthorized Credit Report
Case no. 17-55944
“The FCRA provides: A person shall not use or obtain a consumer report for any purpose unless– (1) the consumer report is obtained for a purpose for which the consumer report is authorized to be furnished under this section; and (2) the purpose is certified in accordance with section 1681e of this title by a prospective user of the report through a general or specific certification. Section 1681b(a) provides the authorized purposes for which a consumer report may be furnished: Subject to subsection (c), any consumer reporting agency may furnish a consumer report under the following circumstances and no other: (1) In response to the order of a court . . . or a subpoena issued in connection with proceedings before a Federal grand jury(2) In accordance with the written instructions of the consumer . . . . (3) To a person which it has reason to believe– (A)intends to use the information in connection with a credit transaction involving the consumer . . . and involving the extension of credit to, or review or collection of an account of, the consumer; or (B) intends to use the information for employment purposes; or (C) intends to use the information in connection with the underwriting of insurance involving the consumer; or (D)intends to use the information in connection with . . . a license or other benefit granted by a governmental instrumentality . . . ; or (E) intends to use the information, as a potential investor or servicer, or current insurer, in connection with a valuation of, or an assessment of the credit or prepayment risks associated with, an existing credit obligation; or (F) otherwise has a legitimate business need for the information; (i) in connection with a business transaction that is initiated by the consumer; or (ii) to review an account to determine whether the consumer continues to meet the terms of the account. (G) executive departments and agencies in connection with the issuance of government-sponsored individually billed travel charge cards. (4) In response to a request by the head of a State or local child support enforcement agency . . . . (5) To an agency . . . for use to set an initial or modified child support award. (6) To the Federal Deposit Insurance Corporation or the National Credit Union Administration . . Notably, § 1681b(a)(3)(A) allows a third-party to obtain a consumer’s credit report without having a previous relationship with the consumer and without the consumer initiating the transaction. See 15 U.S.C. §1681b(c)(1) (a third-party may obtain a consumer’s credit report if “the transaction consists of a firm offer of credit or insurance[,]” even if the transaction “is not initiated by the consumer”).
Nayab has standing to pursue her FCRA claim based
on Capital One’s alleged violation of 15 U.S.C. § 1681b(f)(1). First,
obtaining a credit report for a purpose not authorized under the FCRA
violates a substantive provision of the FCRA. Like the VPPA interpreted in
Eichenberger, § 1681b(f)(1)—which prohibits obtaining a credit report for a
purpose not otherwise authorized—protects the consumer’s substantive privacy
interest. The section does not merely “describe a procedure” that one must
follow. Rather, § 1681b(f)(1) is the central provision protecting the
consumer’s privacy interest: every violation invades the consumer’s privacy
right that Congress sought to protect in passing the FCRA. As such, every
violation of § 1681b(f)(1) “offends the interest that the statute protects”
and the Plaintiff “need not allege any further harm to have standing.”
Second, we have previously found the invasion of the interest at issue—the right to privacy in one’s consumer credit report—confers standing. Under the FCRA, a consumer report may be obtained for employment purposes if the prospective employer (1) provides a “document that consists solely of the disclosure” and (2) receives written authorization from the applicant. The “authorization requirement, § 1681b(b)(2)(A)(ii), creates a right to privacy by enabling applicants to withhold permission to obtain the report from the prospective employer, and a concrete injury when applicants are deprived of their ability to meaningfully authorize the credit check.”
Third, historical practice also supports a finding of standing. The harm attending a violation of § 1681b(f)(1) of the FCRA is closely related to—if not the same as—a harm that has traditionally been regarded as providing a basis for a lawsuit: intrusion upon seclusion (one form of the tort of invasion of privacy). We have also recognized that “[v]iolations of the right to privacy have long been actionable at common law” and, referencing the tort of intrusion upon seclusion, “privacy torts do not always require additional consequences to be actionable.”Nayab has standing to vindicate her right to privacy under the FCRA when a third-party obtains her credit report without a purpose authorized by the statute, regardless whether the credit report is published or otherwise used by that third-party. The district court erred in holding that Nayab, as the plaintiff, has the burden of pleading the actual purpose behind Capital One’s procurement of her credit report. A plaintiff need allege only facts giving rise to a reasonable inference that the defendant obtained his or her credit report in violation of § 1681b(f)(1) to meet their burden of pleading.
“When we are determining the burden of proof under a statutory cause of action, the touchstone of our inquiry is, of course, the statute.”Where the statute is silent as to who bears the burden of proof, we “begin with the ordinary default rule that plaintiffs bear the risk of failing to prove their claims.” Id. (citation omitted). “The ordinary default rule, of course, admits of exceptions.” Id. (citation omitted). The exceptions “owe their development partly to traditional happen-so and partly to considerations of policy.”Capital One, as the defendant, has the burden of pleading it had an authorized purpose to acquire Nayab’s credit report. First, the FCRA generally prohibits obtaining a credit report, 15 U.S.C. § 1681b(f), but then provides a numerous and diverse list of exceptions, 15 U.S.C. § 1681b(a). As such, the authorized purposes under § 1681b(a) are matters of exception that the defendant must plead as a defense. While “[o]ften the result of this approach is an arbitrary allocation of the burdens,” the distinction here is “valid [because] the exceptions to [the] statute or promise are numerous[,]” so “fairness  requires that the adversary give notice of a particular exception upon which it relies and . . . bear[s] the burden of pleading [the exception].”
Nayab has pleaded facts sufficient to give rise to a reasonable inference that Capital One obtained her credit report for an unauthorized purpose. Nayab pleaded that she did not have a credit relationship with Capital One of the kind specified in 15 U.S.C. § 1681b(a)(3)(A)–(F). Nayab specifically pleaded that, “upon review of her Experian credit report, Plaintiff discovered that Defendant submitted numerous credit report inquiries to Experian.”Here, the FCRA § 1681b(f), like the TCPA § 227(b)(1) and FDCPA § 1692b(3), uses the “telltale language” of prohibiting defendant from engaging in conduct “unless” an affirmative defense or exception applies. As with the other provisions, the exceptions to the general prohibition in § 1681b(f) are not elements of Nayab’s prima facie case which she must negative to state a claim, rather they are affirmative defenses for which Capital One bears the burden. By alleging facts giving rise to a reasonable inference that Capital One obtained her credit report for a purpose not authorized by statute, Nayab has asserted a plausible claim for relief under the FCRA.
Nayab v. Capital One Bank, October 31, 2019
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
Sterling v. Green, Ninth Circuit Court of Appeals,
(Unpublished), (Thomas, Hawkins, Bade), Compromise
Case no. 18-60015
To approve a compromise under Federal Rule of Bankruptcy Procedure 9019, the bankruptcy court must determine that it is “fair and equitable.”The Ninth Circuit instructs that in making that determination, the following factors must be considered:
 The probability of success in the litigation;  the difficulties, if any, to be encountered in the matter of
collection;  the complexity of the litigation involved, and the expense, inconvenience and delay necessarily
attending it;  the paramount interest of the creditors and a proper deference to their reasonable views in the
Here, the bankruptcy court directly addressed the interests of creditors both at the hearing on the Compromise, and in its memorandum decision. The court determined that despite the Compromise not ensuring recovery for unsecured creditors, it was in the best interest of the estate (and other creditors like administrative claimants) because of the high costs of pursuing the claims, the complexity of lender liability litigation, the refusal of the Sterlings’ state court counsel to pursue the claims on a contingency basis, delay in pursuing the litigation, and the low probability of success. The record before the bankruptcy court was sufficient to support its conclusions
Contrary to the Sterlings’ assertions, a bankruptcy court is not required to reject a proposed compromise solely because it does not benefit unsecured creditors. And “while the court must preserve the rights of the creditors, it must also weigh certain factors to determine whether the compromise is in the best interest of the bankrupt estate.”
Sterling v. Green, October 25, 2019
Todeschi v. Juarez, Ninth Circuit Bankruptcy Appellate Panel (Published) ( Faris, Lafferty, Brand), Absolute Priority Rule
Case no. AZ-19-1028-FLB
Section 1129(b) provides that the court can only confirm a chapter 11 plan that is “fair and equitable, with respect to each class of claims or interests that is impaired under, and has not accepted, the plan.” § 1129(a). In order to be “fair and equitable” to unsecured creditors, the plan must provide either (1) “that each holder of a claim of such class receive or retain on account of such claim property of a value, as of the effective date of the plan, equal to the allowed amount of such claim” or (2) that “the holder ofany claim or interest that is junior to the claims of such class will not receive or retain under the plan on account of such junior claim or interest any property, except that in a case in which the debtor is an individual, the debtor may retain property included in the estate under section 1115 . . . .” § 1129(b)(2)(B). In other words, if a class of unsecured claims does not accept a chapter 11 plan by the requisite majorities, the court can confirm it only if the plan either provides for full payment of the dissenting class or provides that no junior class will receive or retain anything under the plan. This last criterion is called the absolute priority rule.
There are two important exceptions to the absolute priority rule. First, a debtor who is an individual may retain postpetition property and income from postpetition services. § 1129(b)(2)(B)(ii). Second, a junior class can receive or retain property on account of a “new value” contribution: The new value exception to the absolute priority rule allows junior interest holders (e.g. shareholders of a corporate debtor) to receive a distribution of property under a plan if they offer “value” to the reorganized debtor that is: (1) new; (2) substantial; (3) money or money’s worth; (4) necessary for a successful reorganization; and (5) reasonably equivalent to the value or interest received.
Second, on appeal, the Creditors argue that the new value contribution must be at least equal to the value, not just of the nonexempt assets, but also of the exempt assets. They contend that “even exempt property is not beyond the reach of the absolute priority rule. ”This is a question of first impression in this circuit. The nonprecedential decisions are divided. We hold that exempt property is not properly included within the phrase “any property” under the absolute priority rule. We reach this decision for two reasons. First, the absolute priority rule only comes into play if the debtor retains “any property . . . under the plan on account of [the debtor’s interest] . . . .” We agree with the courts holding that a debtor does not retain exempt property either “under the plan” or “on account of the debtor’s interest . . . .” Rather, the debtor retains exempt property due to the exemption statutes. The debtor would be entitled to the exempt property even if no plan were confirmed; therefore, it cannot be said that the debtor retains the exempt property “under the plan” or “on account of the debtor’s interest.” Second, the Creditors’ interpretation of § 1129(b) creates a conflict between that section and §§ 522(c) and (k). Those sections provide that, with certain exceptions that do not apply here, exempt property is not liable for the payment of prepetition claims or administrative expenses. Requiring a debtor to pay for exempt assets via a new value contribution would effectively make those assets available to creditors.
Todeschi v. Juarez, August 21, 2019
Um and Price v. Spokane Rock I LLC, Ninth Circuit Court of Appeals, (Published),
(Berzon, Hurwitz Cearie) Chapter 11, Fraud, Discharge
Confirmation of a Chapter 11 plan of reorganization generally discharges a petitioner from pre-confirmation debts. But, under 11 U.S.C. § 1141(d)(3), a debt is not discharged if:
(A) the plan provides for the liquidation of allor substantially all of the property of the
(B) the debtor does not engage in business after consummation of the plan; and
(C) the debtor would be denied a discharge under section 727(a) of [the Bankruptcy
Code] if the case were a case under chapter 7 [of the Bankruptcy Code].
A. 11 U.S.C. § 1141(d)(3)(A)
The Debtors first contend that they are entitled to a discharge because the approved Plan did not provide for “the liquidation of all or substantially all of the property of the estate.” The bankruptcy and district courts correctly rejected that argument. The Plan is explicitly termed “a liquidation Plan,” under which the Administrator “shall be solely responsible for . . . liquidating or otherwise reducing the Estate’s Assets to Cash.” As the bankruptcy court noted, under the Plan, “the Debtors do not retain any of the estate assets other than those exempted.” The Debtors nonetheless contend that the Plan does not satisfy §1141(d)(3)(A) because it does not provide for the sale of their membership interests in various limited liability corporations (“LLCs”). But, as the bankruptcy court correctly observed, the Plan expressly notes that these membership interests will be worthless after consummation of the Plan, because all of the assets of the LLCs will have been sold to third parties. The Debtors provided no evidence to rebut the Trustee’s conclusion that the membership interests will be worthless after the confirmation of the Plan. Nor does the Trustee’s management of the assets of the subsidiary LLCs pending their sale render the Plan anything other than a liquidation. As the bankruptcy court aptly noted, this feature is in “the very nature of a complex chapter 11 liquidation,” which the Ninth Circuit Bankruptcy Appellate Panel has observed is designed to allow the debtor “the ability to plan for an orderly divestiture of the assets over time,” We therefore agree with the bankruptcy court’s determination that the Plan satisfies the liquidation requirement of § 1141(d)(3)(A).
The application of the “engage in business” requirement of § 1141(d)(3)(B) to corporate debtors is therefore relatively straightforward. As the district court noted, “it is easy to conclude that a business entity will not engage in business post bankruptcy when its assets are liquidated and the entity is dissolved.” How to apply § 1141(d)(3)(B) to an individual debtor is a less clear-cut inquiry, because the individual debtor continues in existence after consummation of the plan. The bankruptcy court concluded that the Debtors did not engage in business after consummation of the Plan for purposes of § 1141(d)(3)(B) because they would “no longer engage in their prepetition business, which was to manage specific LLCs and their properties.” The Debtors in this case fail to satisfy the second prong of the statute because they did not engage in any business during the relevant period. They were simply employees in businesses owned or operated by others—and Price a parttime employee at that.
As the Debtors concede, had they filed for protection under Chapter 7 of the Bankruptcy Code, 11 U.S.C. § 727(a) would have barred the discharge of the fraud judgment obtained by Spokane Rock. Interpreting § 1141(d)(3)(B) to allow a liquidating Chapter 11 debtor to obtain a discharge for debts incurred by fraud simply by accepting employment after plan consummation would effectively vitiate § 727(a). Knowing that any debts incurred through fraud would be discharged if they obtained any type of employment after
plan consummation, debtors who intended to liquidate their assets would always choose Chapter 11 over Chapter 7. Put differently, a Chapter 7 debtor would be significantly disadvantaged relative to an identically situated Chapter 11 debtor.
We hold that, assuming that § 1141(d)(3)(B) does not require that the debtor engage in a pre-petition business, it is not satisfied by mere employment in someone else’s business after consummation of a Chapter 11 plan. The Debtors are not entitled to a discharge of the Spokane Rock debt.
Um and Price v. Spokane Rock I LLC., September 14, 2018
Inc. v. SIG Capital, LLC., Ninth Circuit Court of Appeals, (Published), (Graber,
Thacker, Bennett (dissenting)), Third Party Damages in Involuntary Bankruptcy
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).
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
Wilson v. Rigby, Ninth Circuit Court of Appeals, (Published), (Bybee, N.R.
Smith, Huck (Dissenting)), Homestead, Post Petition Appreciation
Case no. 17-35716
Wilson filed her voluntary Chapter 7 petition for bankruptcy on December 18, 2013. In her initial Schedule C, Wilson elected to take the federal exemptions and listed the “wildcard” exemption. At the time the petition was filed, Wilson’s one-bedroom condominium was valued at $250,000 and was subject to a $246,440 mortgage. Accordingly, Wilson listed the value of her exemption as $3,560, equal to the equity in her home as of the petition date. During the pendency of the bankruptcy, the value of the property increased. On July 18, 2016, Wilson amended her Schedule C, claiming “100% of fair market value, up to any applicable statutory limit,” listing the value of the property at $412,500. The amended schedule listed Washington’s homestead exemption as the basis for the amended exemption. The Trustee, James Rigby, and the Bank, First-Citizens Bank & Trust Co., opposed the amendments. After oral argument, the bankruptcy court held that an amendment to update the value of an exemption in light of post-petition changes in value was not permitted. Accordingly, the court held that Wilson could not claim more than $3,560 in the property. Wilson appealed to the district court, and the district court affirmed the bankruptcy court. This appeal timely followed.
A debtor’s exemptions have long been fixed at “the date of the filing of the [bankruptcy] petition.” This rule is rooted not only in our precedent but in the bankruptcy code itself. It is expressly identified in 11 U.S.C.
§ 522(a)(2), which defines the “value” of exemptions for purposes of § 522 as “fair market value as of the date of the filing of the petition or, with respect to property that becomes property of the estate after such date, as of the date such property becomes property of the estate.” Amici assert that this definition of value applies only to the federal exemptions listed in § 522(d) and lien avoidance in § 522(f) and not to state law exemptions that may be claimed pursuant to § 522(b)(3)(A), because the term “value” is not used in § 522(b)(3)(A). We need not decide whether Amici are correct on this point, because 11 U.S.C. § 541(a)(1) makes clear that “all legal or equitable interests of the debtor in property” transfer to the bankruptcy estate “as of the commencement of the case.” (emphasis added). This transfer of interest is subject to the debtor’s exemptions under § 522(b)(1), but the reference point for such exemptions is the commencement of the bankruptcy action. Following this transfer, all “[p]roceeds, product, offspring, rents, or profits” enure to the bankruptcy estate. This includes the appreciation in value of a debtor’s home.
Wilson and Amici assert that a closer look at the facts underlying earlier Ninth Circuit precedent revealsthat we have consistently allowed debtors to benefit from the post-petition appreciation of their homestead. We have not; let us explain.
In both California and Washington, the value of the homestead must be fixed as of the date of the bankruptcy petition. In California, the value of the homestead is always a defined statutory figure. See Cal. Civ. Proc. Code § 704.730. However, in Washington, the value is tied to the equity in the debtor’s home as of the date of the filing of the petition. Accordingly, our cases (that appear to allow California debtors to obtain post-petition appreciation) have merely allowed the debtors to receive the full value of the homestead exemption that they were entitled to claim as of the petition date.
Wilson asserts that our holding will lead to debtors routinely overvaluing their homes on their bankruptcy schedules. We remind Wilson that the debtor must act in good faith, and that nothing about the debtor’s valuation of the home listed on the schedule is binding on the trustee. If the homestead exemption at issue is tied to the equity in a home, the trustee will have the burden to examine the claimed amount to make certain that the trustee need not object and establish that the claimed exemption is improper. Here, Wilson is barred from receiving a $125,000 exemption because the trustee timely opposed her amended exemption. The record is undisputed that the actual equity in her home on the petition date was $3,560. The date of the petition is the relevant time frame for valuing the exemption, and Washington law limits the homestead exemption to a debtor’s equity.
Wison v. Rigby, November 27, 2018
Wright et al, Oklahoma, Sanctions, Attorneys Fees and Costs, Disclosure
1. Counsel’s duty of disclosure pursuant to § 329
Section 329 of the Bankruptcy Code lies at the heart of these cases. Under that section, if a debtor pays or makes an agreement to pay an attorney for services related to a bankruptcy case, that attorney is required to file a statement with the Court that discloses: 1) any compensation paid to the attorney, if the payment was made after one year before the date of the filing of the petition; 2) any compensation agreed to be paid to the attorney, if such agreement was made after one year before the date of the filing of the petition; and 3) the source of such compensation paid or agreed to be paid. For Chapter 7 debtors’ counsel, § 329 is implemented by Bankruptcy Rule 2016(b). In addition to the duties specified in § 329, the Rule adds the requirement that counsel disclose “whether the attorney has shared or agreed to share the compensation with any other entity,” including “the particulars of any such sharing or agreement to share by the attorney[.]” These disclosures are required to be filed within 14 days after the case is filed, and supplemented within 14 days after any payment or agreement not previously disclosed. Counsel’s duties of disclosure apply whether or not the attorney applies for compensation from the estate.170 The disclosure requirements of § 329 are “mandatory not permissive.”
Rule 2017 directs the court to review any payments or transfers, or agreements for either, made directly or indirectly by debtors to an attorney, either before or after the filing of the bankruptcy case, to determine if those payments or transfers are excessive. If the payment or agreement is found to exceed the reasonable value of the services provided by the attorney, the Court may cancel the agreement or disgorge any such payment to its source.
The consequences of an attorney’s failure to comply with the disclosure requirements of § 329 can be severe, including forfeiting the right to receive any compensation for services rendered to the debtor.178 “Disgorgement of fees as a result of inadequate disclosure by counsel is a matter left to the sound discretion of the bankruptcy court.”179 “The imposition of a disgorgement order should be commensurate with the egregiousness of the conduct and will depend on the particular facts of each case.”180 “The Court may sanction failure to disclose ‘regardless of actual harm to the estate.’”
The Court finds Gallon’s original Disclosure of Compensation in each of these cases to be grossly misleading and indicative of a wanton disregard—to the point of negligence—for the level of candor required under § 329. Some of Gallon’s errors defy comprehension. Other errors demonsrate the general level of sloppiness evident in much of Gallon’s record keeping.
Of equal concern is that Gallon indicated in each Disclosure of Compensation that he had not shared his fee with any other person. What concerns the Court is Gallon’s rather brazen position, with no citation to
authority, that collection of a fee from his client that is split between himself and BK Billing does not constitute sufficient “sharing of compensation” that it should—at a minimum—be disclosed to the Court. Courts have found that a failure to comply with disclosure requirements is sanctionable even if proper disclosure would have shown no violation of the Code or Rules.
2. Counsel’s duty of candor to the tribunal
An attorney becomes an officer of the court upon taking an oath and meeting other requirements imposed by state law. In Oklahoma, that oath requires counsel to show complete candor toward the tribunal Rule of Professional Conduct 3.3 reinforces the requirement of candor. Such candor is vital to the integrity of the bankruptcy process itself.
The amount of Gallon’s fees designated pre- or post-petition was motivated by how much money the debtor was able to pay up front, and not related in any way to when Gallon’s services were actually performed. Valuing his time at $250 per hour, Gallon admitted that in several cases he spent much more time pre-petition than he was paid for, but then designated the remaining fee as “post-petition,” thus turning an otherwise dischargeable pre-petition claim into a nondischarged claim. Such a scheme works a fraud both on the debtor and the Court.
Of additional concern to the Court is that Gallon indicated that the source of the compensation to be paid to him was the debtor, even though Bankruptcy Form 2030 presented him with another option. Courts have consistently held that payment of funds from a third-party payor to pay a debtor’s legal fees does not alter counsel’s obligation of proper disclosure. His declaration that it simply “did not occur to him that such
disclosure was required” is both disheartening and astonishing. This Court has published no less than three opinions directly related to the failure of debtors’ counsel to properly disclose all financial dealings with their clients.198 As an officer of the Court, Gallon is expected to be aware of such rulings.
The Court will limit disgorgement to the value of fees actually collected by BK Billing from each of the debtors in the Captioned Cases after their petitions were filed.202 Such funds shall be remitted by Gallon to the debtor that made the payment. The Post-Petition Agreements in each case are found to be void, and neither Gallon nor BK Billing may enforce any claim against the debtors under those contracts.203 The Court is aware this is a harsh sanction, but anything less would minimize the serious nature of Gallon’s conduct.
His signature on the Installment Agreements is a violation of his duty of candor under both Rule 9011(b)(3) and § 526(a)(2). Gallon compounded the violation of § 526(a)(2) by advising his clients to sign the Installment Agreements and causing them to make misleading statements regarding their payment of his fees. The Court does not take these violations lightly. The bankruptcy system requires complete candor from both debtors and their engaged professionals.212 Standing alone, the Court would find cause to sanction Gallon under Rule 9011(c) or § 526(c)(5) for filing and endorsing the debtors’ misleading statements found in the Installment Agreements. The Court notes that in all eleven cases, all required Court filing fees were eventually fully paid, either by the debtors or Gallon, and each of the debtors received their discharge. Therefore, despite the authority to do so, the Court will not impose additional sanctions.
In re Wright et al, September 4, 2018
Zabriskie v. Fed. Nat’l Mortgage Ass’n, Ninth Circuit Court of Appeals,
(Wallace, Graber, Lasnik (dissenting)), Fair Credit Reporting Act
Case nos. 17-15807; 17-16000
FCRA defines a consumer reporting agency as “any
person which . . .  regularly engages in whole or in part in the practice of
assembling or evaluating consumer credit information or other information on
consumers  for the purpose of furnishing consumer reports to third parties.”
15 U.S.C. § 1681a(f). Without question, Fannie Mae is a "person" under FCRA. Id.
§ 1681a(b) (“The term ‘person’ means any individual, partnership, corporation,
trust, estate, cooperative, association, government or governmental subdivision
or agency, or other entity”). While the parties dispute both elements of the
statutory definition, we only address the second element. We therefore assume,
without deciding, that Fannie Mae assembles or evaluates consumer information.
To be a consumer reporting agency, Fannie Mae must assemble or evaluate consumer
information with “the purpose of furnishing consumer reports to third parties.”
Id. § 1681a(f). A “consumer report” is any communication by a consumer reporting
agency “bearing on a consumer’s credit worthiness, credit standing, credit
capacity, character, general reputation, personal characteristics, or mode of
living which is used or expected to be used or collected in whole or in part for
the purpose of serving as a factor in establishing the consumer’s eligibility”
for credit, insurance, employment, or other statutorily enumerated reasons.
“Purpose” means “something set up as an object or end to be attained,” or “intention.” Merriam-Webster Online Dictionary, https://www.merriam-webster.com/dictionary/ purpose (last visited Nov. 20, 2018). And “‘purpose’ corresponds loosely with the common-law concept of specific intent.” United States v. Bailey, 444 U.S. 394, 405 (1980). By its plain meaning, therefore, FCRA applies to an entity that assembles or evaluates consumer information with the intent to provide a consumer report to third parties.
Here, Fannie Mae provides DU for the same reason it provides the Selling Guide: to help lenders determine whether Fannie Mae will purchase the loans that they originate. DU’s output is exclusively based on information provided to it by lenders and credit bureaus. DU contains no evaluation or new information about the borrower’s creditworthinessthat was not already provided by the lender or credit bureau.1 There is nothing in the record to suggest that Fannie Mae assembles or evaluates consumer information—assuming that it does so—with any specific intent other than to determine a loan’s eligibility for later purchase by Fannie Mae. Fannie Mae’s purpose is not to furnish a consumer report to lenders.
Aspects of FCRA’s statutory scheme suggest that Congress intended to exclude Fannie Mae from the definition of consumer reporting agency.FCRA imposes several duties on consumer reporting agencies, one of which is to follow “reasonable procedures to assure maximum possible accuracy” of consumer information.If we were to hold that Fannie Mae is a consumer reporting agency, it would be required to comply with the other FCRA duties to borrowers. Indeed, FCRA also requires consumer reporting agencies to provide a variety of disclosures to consumers. That interpretation would contradict Congress’s design for Fannie Mae to operate only in the secondary mortgage market, to deal directly with lenders, and not to deal with borrowers themselves. FCRA itself appears to make a distinction between Fannie Mae and consumer reporting agencies. We hold that Fannie Mae is not a consumer reporting agency because, even if it assembles or evaluates consumer information through DU, it does not do so for the purpose of furnishing consumer reports to third parties.
Zabriskie v.. Fed. Nat’l Mortgage Ass’n, October 8, 2019