Supreme Court to Review Lam Motions

The Supreme Court has accepted cert in Bank of America, N.A. v. Caulkett agreeing to review the right of a chapter 7 debtor to strip off an entirely unsecured lien. In Los Angeles we call them “Lam Motions.” I expect oral argument some time in April, 2015 and I expect to be there. Nearly every court in the country has held that the Supreme Court case of Dewsnup requires denial of the strip off in chapter 7. My briefs of the cases follow.

Bank of America, N.A. v. Caulkett, (unpublished) (11th Cir., May, 2014)

Issue: May a chapter 7 strip off a wholly unsecured lien pursuant to sections 506(a) and 506(d)?

Holding: Yes.

The bankruptcy court here “void[ed] a wholly unsecured second priority lien on residential property owned by a Chapter 7 debtor. The issue on appeal is whether a Chapter 7 debtor is allowed to ‘strip off’ a second priority lien on his home, pursuant to 11 U.S.C. § 506(a) and (d), when the first priority lien exceeds the value of the property.” The district court affirmed.

The 11th Circuit affirmed in a very short opinion saying only that it is bound by its prior ruling in McNeal v. GMAC Mortg., LLC (In re McNeal), 735 F.3d 1263 (11th Cir. 2012).

McNeal v. GMAC Mortg., LLC (In re McNeal), 735 F.3d 1263 (11th Cir. 2012)

Issue: May a chapter 7 strip off a wholly unsecured lien pursuant to sections 506(a) and 506(d)?

Holding: Yes.

Per curiam

The debtor here filed chapter 7. “In her petition, McNeal reported that her home was subject to two mortgage liens: a first priority lien in the amount of $176,413 held by HSBC and a second priority lien in the amount of $44,444 held by Homecomings Financial, LLC, a subsidiary of GMAC Mortgage, LLC (collectively, “GMAC”). McNeal also reported that her home’s fair market value was $141,416. The parties do not dispute these factual allegations.” “McNeal then sought to ‘strip off’ GMAC’s second priority lien, pursuant to sections 506(a) and 506(d).” The bankruptcy court denied the request and the district court affirmed.

The 11th Circuit reversed also in a very short opinion. “That GMAC’s junior lien is both ‘allowed’ under 11 U.S.C. § 502 and wholly unsecured pursuant to section 506(a) is undisputed. To determine whether such an allowed—but wholly unsecured—claim is voidable, we must then look to section 506(d), which provides that ‘[t]o the extent that a lien secures a claim against a debtor that is not an allowed secured claim, such lien is void.’” The court distinguished Dewsnup saying, “[b]ecause Dewsnup disallowed only a ‘strip down’ of a partially secured mortgage lien and did not address a ‘strip off’ of a wholly unsecured lien, it is not [determinative of] the facts at issue in this appeal.”

Supreme Court Sets Oral Argument in Wellness

The Supreme Court has set oral argument in the Wellness case for Wednesday January 14, 2015.  Wellness is the followup to Bellingham.  The court will resolve the issue, hopefully of whether parties can consent to have the bankruptcy court enter final judgment in a Stern type case.  A Stern type case is one where congress has designated the issue to be core but the Supremes have determined that it is “unconsitutionally core,” in other words a dispute where final judgment can be entered only be an Article III court.

In Wellness the Stern type claim is the issue of whether the debtor is the alter ego of a corporate type entity, thereby making the corporate property, property of the individual’s estate.  The 7th Circuit ruled that only an Article III court can issue a final judgment on that issue and that that cannot be waived.

I will not be able to attend as I will be in trial here in Los Angeles.  I had pretty much decided not to go anyway as I would rather attend the Lam Motion cases which will likely be set for oral argument in April, 2015.

Bankruptcy Fees to Increase Dec. 1st

Appealing a bankruptcy order directly to Court of Appeals (bypassing District Court) will go from $157 to $207. 

Motion to Redact information from previously filed records – new charge $25 per case.

See more here:  http://news.uscourts.gov/new-court-fees-take-effect-dec-1

Los Angeles Federal Bar Assoc. program: TRIBUTE TO CHIEF JUDGE KOZINSKI

To celebrate his tenure as Chief Judge of the U.S. Court of Appeals for the 9th Circuit, the FBA-LA cordially invites you to join us as we pay tribute to The Honorable Alex Kozinski.

December 2, 2014 – 5:00 p.m. – 7:00 p.m.

Location: Richard H. Chambers – U.S. Court of Appeals Building
125 South Grand Avenue Pasadena, California 91105

Complimentary parking is available across the street from the courthouse.

Flyer attached.

Financial Lawyers Conference program: Chapter 9 Comes of Age: from California to Motown

Chapter 9 Comes of Age: from California to Motown

Thursday, December 4, 2014

Speakers:
Bruce Bennett, Jones Day
Paul Glassman, Stradling Yocca Carlson & Rauth, P.C.
Gabriel MacConaill, Sidley Austin LLP

In what surely must be one of the best timed presentations in recent years – the bankruptcy court having confirmed the plan of adjustment for Detroit on November 7, 2014 and with several California municipal bankruptcies capturing headlines – a panel that includes lead counsel for Detroit, counsel for one of the major creditors in Detroit and lead counsel for San Bernardino – will lead a discussion of the key issues that affect chapter 9 bankruptcy cases. The panel will provide a brief overview of chapter 9 and then delve into such topics as eligibility for chapter 9, unique aspects of municipal finance and the liens asserted by these creditors, the treatment of pensions and collective bargaining agreements, and confirmation of a chapter 9 plan of adjustment.

Read more…

When Appealing, First Seek a Stay (In re Mortgages)

When appealing an order, remember to put on your checklist to first seek a stay of the challenged order.  If not, the appellate court will regrettably inform you “there is nothing we can do for you now”.   That is what happened in In re Mortgages Ltd., — F.3d — (9th Cir. 2014).

In a recently published Ninth Circuit Opinion, the Court held that an appeal by a group of creditors was equitably moot because they never sought a stay of the order that they were appealing from.  The debtor had already acted, and other third parties would be unfairly harmed if the panel were to side with the creditor-appellants.  The Court said, “clawing back money from those investors who already paid their full allocation would be either impossible or inequitable.”

As such, the panel dismissed the appeal citing In re Thorpe, which held that appeals can be dismissed based on mootness when a “comprehensive change of circumstances” has occurred that makes it inequitable for a court to consider the appeal’s merits.  In re Thorpe Insulation Co., 677 F.3d 869 (9th Cir. 2012).

Full Opinion Here: http://cdn.ca9.uscourts.gov/datastore/opinions/2014/11/12/12-15234.pdf

Supreme Court To Revisit In Re Dewsnup To Decide On “Strip Off’s” (Bank of America v. Caulkett and Bank of America v. Toledo-Cardona)

The Supreme Court will hear two consolidated cases to determine whether a Chapter 7 debtor may “strip off” an underwater mortgage.

From SCOTUSblog:

The Supreme Court, taking on a bankruptcy issue that grew out of the collapse of the U.S. housing market, agreed on Monday to sort out when a mortgage debt on a home that has lost its value can be completely wiped out.  At issue in a pair of cases is the so-called “strip off” in bankruptcy of a mortgage that is ranked lower than another loan when the mortgaged property is worth so little that it could not cover either debt.

The Court, in the consolidated cases of Bank of America v. Caulkett and Bank of America v. Toledo-Cardona, will be deciding whether a “strip off” of a mortgage is to be barred in the same way that a “strip down” already is, under a 1992 Supreme Court ruling (Dewsnup v. Timm).

Read more…

Annual Holiday Party

Annual Holiday Party hosted by:

-Los Angeles Bankruptcy Forum
-Central District Consumer Bankruptcy Attorney Association
-Financial Lawyers Conference
-Southern California Turnaround Management Association
-Commercial Law and Bankruptcy Section – Los Angeles County Bar Association
-Beverly Hills Bar Association – Bankruptcy Section

Flyer attached.

December 8, 2014

Read more…

Lawyer Hit With Sanctions For Filing Frivolous Motion To Compel (In re Medina, Bankr. E.D. Cal.)

A California bankruptcy judge has imposed a $500 sanction on an attorney for filing a frivolous  motion to compel his clients’ Chapter 13 trustee to close their case.  The motion included inaccurate facts, no supporting legal authority, and forced the trustee to waste time by filing an opposition. The judge determined that a $500 sanction was a “reasonable deterrent to encourage Gillis to investigate the facts of his cases, and to familiarize himself with applicable law, before he files any future motions” in Chapter 13 cases.

U.S. Trustee Proposes Rulemaking on Ch. 11 MOR’s, Deadline for Public Comments Jan. 9, 2015

U.S. Trustee Program is authorized under §602 of the BAPCPA to issue rules that require DIP’s in non-small business cases under chapter 11 to file uniform period reports.  Now, the USTP is seeking public comment on the proposed rule that was published in the Federal Register (see link below). The proposed rule only applies to non-small businesses.  As you might know, small business debtors are currently required to use Form 25C for their MOR’s. Deadline for public comments Jan. 9th 2015

Link to PDF of Proposed Rule: www.justice.gov/ust/eo/rules_regulations/docs/MOR_NPRM.PDF

Link to USTP’s site at www.justice.gov/ust/eo/rules_regulations/index.htm#proposed.