A special thanks to Corey Weber at Ezra Brutzkus Gubner for this.
July 28, 2015
Dear constituency list members of the Insolvency Law Committee:
The following is the first in a new series of profiles of 9th Circuit bankruptcy judges. Judge Neil W. Bason and members of the Insolvency Law Committee met in his chambers and discussed his personal and professional background, transition to the bench and other issues of interest.
Judge Bason was appointed to the bench in the Central District of California, Los Angeles Division, in October 2011. Prior to his appointment, he was special counsel at Duane Morris LLP and at Howard Rice Nemerovski Canady Falk & Rabkin, P.C., and served as law clerk to the Honorable Dennis Montali, United States Bankruptcy Judge in the Northern District of California and Chief Judge of the Bankruptcy Appellate Panel of the Ninth Circuit.
In this case, the sole shareholder, director and president of a company (all the same Individual) transferred about $8,000,000 into a secret bank account which he then used to pay personal debts. The question before the Court was whether the transfers to the bank account made the Individual, in his personal capacity, an initial transferee within the meaning of § 550.
The surprising answer (although not stated in this way) is that it depends on whether the secret bank account was opened in the name of the company or individual. In this case, the secret account was completely under the dominion and control of the Individual; the Individual’s wife was a signatory on the account and the only purpose it served was to pay personal expenses. None of that mattered. The account was opened under the company’s name. The District Court held that the Individual was not an initial transferee since the account was a company account.
We all know the general statute of limitations for suing attorneys is within after one year of discovering the facts constituting the wrongful act or within one year of when the client should have discovered the facts constituting the wrongful act through the use of reasonable diligence but never more than four years from the date of the wrongful act or omission. See Code Civ. Proc. § 437c.
The limitations period is tolled if, among other reasons, the plaintiff has not sustained an actual injury or if the attorney continues to represent the plaintiff regarding the specific subject matter in which the alleged wrongful act or omission occurred. See Code Civ. Proc. § 340.6.
In the scenario discussed today, the attorney forgets the deadline to file an objection to a bogus lien. Because of the missed deadline, the client hires a different firm and ultimately agrees to accept $1.6 million less than it would otherwise have received.
The problem is even though the client knew his former attorney missed the deadline to object to the bogus lien, he waited over a year, until after the $1.6 million hit, to file a malpractice action. So is the malpractice action timely since the client had not sustained an actual injury?
For the purpose of this blog, I am going to assume that the annuity in question would be exempt had the decedent been alive.
At first, I thought the answer was simple:
Assuming the annuity was a retirement fund to begin with, the answer is yes, it continues to be a retirement fund because under the IRC, an inherited retirement fund is NOT treated as “inherited” if the spouse is the person who inherited it. That is in 28 U.S.C. 408(d)(3)(C)(ii)(II), quoted for convenience: Read more…
The creditor here had three excuses. First, they did not have actual notice of the bankruptcy (so there was no willful violation of the stay); second, that the statute of limitations for violating the automatic stay had run; and third, that it was the former attorney’s fault.
A violation of the automatic stay is willful if a party knew of the automatic stay, and its actions in violation of the stay were intentional. Note, it is not the intent to violate the stay that is at issue; it is having knowledge of the bankruptcy and voluntarily doing something that violates the stay! Even worse, once a creditor has knowledge of the bankruptcy, it is deemed to have knowledge of the automatic stay!
The Court did not buy the creditor’s argument that the notice of the bk was sent to “Creditors Specialty Service” instead of “Creditors Specialty Services.” The Court did not allow the creditor to blame its attorney but suggested that if the creditor though its attorney was to blame, it could pursue that claim. The conduct of an attorney is attributable to the client. See Seacall Development v. Santa Monica Rent Control Bd., 86 Cal. App. 4th 201, 204-205 (Cal.Ct.App. 1999) (citing Carroll v. Abbott Labroatories, 32 Cal. 3d 892, 895, 898 (1982)).
Finally, the Court reiterated the concept that Congress did not establish any limitations period for damage claims under § 362(k).
Full opinion here.
Business and Professions Code § 6090.5 prohibits an attorney from seeking a client’s written or oral agreement not to file a State Bar complaint against that attorney. The reason for this is the discussion could produce an impermissible chilling effect on the client’s future filing of a State Bar complaint.
Even worse, if you have already done this, you can’t take it back! Withdrawal of your request does not reverse the ethical violation.
My last program as programs chair for the Los Angeles County Bar Association — Bankruptcy Section is called the Third Annual Important Supreme Court Decision from Recent Terms with legal gurus Dean Erwin Chemerinsky and Ken Klee. I’m moving on to vice chair of the section — I am sure all the judges I have been hounding/begging to participate on panels for the last two years will be happy!
I cannot even explain how cool I felt to email with them both. Program info below.
Third Annual Important Supreme Court Decisions from Recent Terms
August 4, 2015 at the Los Angeles County Bar Association
Please join us for the Commercial Law and Bankruptcy Section’s Third Annual Important Supreme Court Decisions From Recent Terms program, where experts Dean Erwin Chemerinsky and Kenneth Klee will discuss recent bankruptcy-related Supreme Court opinions. The program will be of great interest to both consumer and corporate bankruptcy practitioners alike.
Erwin Chemerinsky, Dean, UC Irvine School of Law
Kenneth N. Klee, Klee Tuchin Bogdanoff & Stern LLP
This is relevant to bankruptcy practitioners because before we can do anything, we need to know who owns what!
Short version: In California, a notice of lis pendens gives constructive notice that an action has been filed affecting title or right to possession of the real property described in the notice. Any taker of a subsequently created interest in that property takes his interest subject to the outcome of that litigation.
In 1981, the Legislature amended section 409 so as to provide for the first time that the lis pendens must be  mailed to “to all known addresses of the adverse parties AND  to all owners of record as shown by the latest county assessment roll,”
In this case, the owner’s lawyer’s address was listed on the county assessor’s roll. When contacted, the lawyer said he would refuse the lis pendens and that he did not know where the owners resided. The Court held that despite the lawyer’s statement, the lis pendens should have been mailed to the lawyer because this is a strict requirement of section 409.
Another note from Aki:
Nancy Clark’s CDCBAA Chapter 13 “Meet the Staff Attorneys” seminar is this Saturday 7/18/15 at 11:00 a.m. The seminar will cover various chapter 13 topics and have a question/answer session as well. It will be attended by Beth Schneider from Rod Danielson’s Office, Masako Okuda from Nancy Curry’s Office, Jay Chien from Amrane Cohen’s Office and Angela Gill and me from Kathy Dockery’s Office. We will be handing out a Summary Sheet for all of the chapter 13 trustees’ current policies. See you there.
I will also make available a stipulation form that you can use for OUR OFFICE ONLY to get an order ASAP to approve your RARA fees before you convert a case from 13 to 7. Please make sure that your client has some change in circumstance that has caused the decision to convert to 7.
If you are planning to convert your client’s case to chapter 7 prior to the confirmation hearing, make sure you file a fee application and have the order entered before the notice of conversion is filed if you want to be paid post petition. If you don’t, the balance on hand the trustee is holding will probably be refunded in full to your client. This is caused by the SCOTUS ruling in Harris v. Viegelahn.
The dismissal scenario is covered by LBR 3015-1 (v)(7). So long as a RARA is filed prior to dismissal of the case, any post petition fees owed pursuant to the RARA will be paid to the attorney of record. The LBRs in this scenario would have the same force and effect as a general order. In essence, the order approving your fee pursuant to the RARA is effective as soon as you file the case should the case be dismissed. Therefore, the order would precede the dismissal of the case.
The section that governs where plan payments go after dismissal is governed by 1326(a)(2) – “A payment made under paragraph (1)(A) shall be retained by the trustee until confirmation or denial of confirmation. If a plan is confirmed, the trustee shall distribute any such payment in accordance with the plan as soon as is practicable. If a plan is not confirmed, the trustee shall return any such payments not previously paid and not yet due and owing to creditors pursuant to paragraph (3) to the debtor, after deducting any unpaid claim allowed under section 503 (b).”
You’ll notice that this subsection specifically authorizes payment of administrative expenses which also cover your post petition attorneys fees. That’s why the combination of your RARA which is your fee application and the LBR authorizing payment pursuant to the RARA if a case is dismissed works so well.