All posts in Cases

San Fernando Valley Bar Assn program this Friday on 9th Circuit BAP opinions.

Email from Steve Fox:

Dear All:

The bankruptcy program we present on Friday will look at recent, relevant and riveting Ninth Circuit BAP opinions.  Our panelists are the Honorable Deborah Saltzman, Jessica Bagdanov  and Roksana Moradi-Brovia.  The materials are good, really gook, 26 pages of detailed briefs, case by case.  So what are the topics?

  • Violation of the discharge injunction via post-discharge letters.  Where is the boundary between permissible and non-permissible communications?
  • Examining an oft-overlooked requirement of Section 523(a)(6) – the required subjective motive to inflict the injury or that the debtor believed that injury was substantially certain to occur.
  • Is jewelry property of the estate when, as of the petition the jewelry was is in the possession of a pawn shop and the redemption period had passed?
  • The really uncomfortable case where the attorney for a debtor asserts a position for the client (and exemption) without performing an adequate legal analysis and what happens to the attorney.
  • Student Loans.  The BAP considers the good faith prong of Brunner where the debtor’s financial condition was self-inflicted.
  • Chapter 11 Confirmed Plan.  This opinion considers whether an order granting a motion for reconsideration of a chapter 11 plan resets the deadline to file a complaint seeking to revoke the confirmation order?
  • We have had considerable discussion in the bankruptcy section about attorneys’ fees in bankruptcy litigation.  Here the BAP discusses the timing of seeking attorneys’ fees for “enforcement of a judgment”.
  • Here is another attorneys’ fees issue.  Is a bankruptcy court judgment that a contingent deb is nondischargeable sufficient to establish “prevailing party” for purposes of recovering attorneys’ fees where the underlying state court action has not yet concluded?
  • Where a debtor is under the influence of prescription medications which impairs his ability to give testimony at a deposition, does not take the medications the day of the depositions and then refusing to answer questions about his medical diagnosis, and the side effects of his medications, all citing a psychotherapist-patient privilege, what is a court to do?
  • A neat opinion on the interplay in chapter 11 between retention of exempt property post-confirmation and the absolute priority rule.
  • And so much more.

Come join us on Friday and learn what the BAP has been up to during the past year! Read more…

California Court of Appeals rules that settlement agreement included an unenforceable penalty

Red & White Distribution v. Osteroid Enterprises, 2019 WL 3759458 (Aug 2019)

Issue:  Did the settlement agreement here include an unenforceable penalty for non-payment of the settlement amount?

Holding: Yes.

A lender, Osteriod, sued a borrower, R&W.  The borrower cross-complained.  “The parties then settled all claims for $2.1 million pursuant to a ‘Payment Agreement.’”  They also executed a “stipulation for entry of judgment” which provided “in the event of a default on the payment plan, R&W is ‘liable to pay $2,800,000 to the Osteroid Parties, plus interest… reduced by any payments [made].’”  R&W defaulted and Osteriod sought and obtained a default judgment for $3.6 million.

The court of appeals reversed as to the amount holding that the additional sum of $700,000 upon default was an unenforceable penalty under Civil Code section 1671 and the Supreme Court of California case of Ridgley v. Topa Thrift & Loan Assn. 17 Cal.4th 970 (1998).  “In this case, the stipulated judgment for $2.8 million bears no reasonable relationship to the range of actual damages the parties could have anticipated from a breach of the agreement to settle the dispute for $2.1 million.  “[D]amages for the withholding of money are easily determinable—i.e., interest at prevailing rates ….”  “The judgment, however, provided for interest at the legal rate from the date of the execution of the stipulated judgment, attorneys’ fees to enforce the judgment, plus $700,000 more than the parties agreed to in their settlement agreement. This additional $700,000 was an unenforceable penalty.” Read more…

Bankruptcy Appeals – BAP or District Court?

The Ninth Circuit 2018 Annual Report tells us that last year there were 277 appeals from bankruptcy courts in the Central District of California.  Total appeals in the 9th Cir were 623 so we are almost half.  Of the 277 in the Central District, 131 were to the BAP and 146 to the district courts.

Every appeals program I have been to since forever spends a healthy amount of time discussing which court is “better” for the appeal – the BAP or the district court.

Here is my take on how to decide which court to appeal in:

  • If the issue is truly a bankruptcy issue, it is rarely better to appeal to the district court.  Plans and confirmation, the automatic stay and preferences befuddle most district court judges and their clerks.  One district court judge told me that he is mystified that anyone would want him to resolve a bankruptcy issue.
  • If there is BAP precedence against you, the BAP is bound by its prior rulings so you might as well go to the district court which is not bound by BAP rulings in other cases.
  • If you suspect that the matter is going to go  to the 9th Circuit irrespective of the result at the first level of appeal, go to the BAP.  It will recognize the issue and explain it to the 9th Circuit for you.
  • The BAP is ruling pretty quickly these days.  You can expect a resolution within 3-4-5 months.  The district court in my experience takes a lot longer.
  • The BAP will almost always allow oral argument.  The district court rarely does (in my experience).
  • If the matter is really heavy duty state court -non-bankruptcy court – litigation, the district court might be better.  For example, claims objections based on state law.  The district court is likely more familiar and comfortable with non-bankruptcy litigation issues.

The idea that one court or the other will “rubber stamp” the bankruptcy court is ridiculous and insulting to the judges.

9th Circuit en banc statistics

The 9th Circuit Annual Report for 2018 has some pretty interesting statistics.  One is that there were 955 petitions for rehearing en banc last year.  Of those, 17 were “called” for a vote.  Of those, 8 petitions were granted and 9 denied.  So 8 out of 955.

The way it works is that the petition for rehearing en banc is sent to all 27 “regular” or “active” 9th Circuit judges.  The “senior” status judges do not get to vote.  Any one of the 27 regular status judges can call for a vote.  If none makes the call, the petition is denied.  Once a judge makes the call, the 27 vote for rehearing and it takes a majority to grant the petition.  I’m not sure of the timing, i.e., how long it is before the petition is denied because there was no call.

The en banc panel is 11 judges consisting of the Chief Judge and 10 other judges chosen at random.  It hears oral argument and rules.  It affirms or reverses the three judge panel that it is reviewing.  A nice summary of the rules is here. 

Why en banc?  I think sometimes there is a sense that the three judge panel got it wrong.  But more often and usually, the three judge panel was bound by a prior 9th Circuit ruling that was wrong or needed to be better explained or modified.

Disclosure of tax returns in litigation: privileged or not?

It doesn’t seem as clear as it use to be that you don’t have to turnover your tax returns to your opponents in litigation.  The below quote is from a recent memorandum from one of our judges (bankruptcy judges).  I want to make sure I can find it some day when I need it.

As explained in Weingarten v. Superior Court, 102 Cal. App. 4th 268, 274, 125 Cal. Rptr. 2d 371, 375 (2002):

California courts … have interpreted state taxation statutes as creating a statutory privilege against disclosing tax returns. The purpose of the privilege is to encourage voluntary filing of tax returns and truthful reporting of income, and thus to facilitate tax collection.   But this statutory tax return privilege is not absolute. The privilege will not be upheld when (1) the circumstances indicate an intentional waiver of the privilege; (2) the gravamen of the lawsuit is inconsistent with the privilege; or (3) a public policy greater than that of the confidentiality of tax returns is involved.  This latter exception is narrow and applies only “when warranted by a legislatively declared public policy.” (Ibid.) A trial court has broad discretion in determining the applicability of a statutory privilege.

Added 8/17/2019.  See also Strawn v. Morris, Polich & Purdy, 30 Cal. App 5th 1087 (2019)(tax return protection is to facilitate tax collection); Webb v. Standard Oil, 49 Cal. 2d 509 (1957); Schnabel v. Sup. Court 5 Cal 4th 704 (1993); Weingarten v. Sup Court 102 Cal. App 4th 268 (2002).

San Fernando Valley Bar Program this Friday – March 22, 2019

Email from Steve Fox:

Dear All:

We practice law in a corner of the USA often without thinking about what the rest of the bankruptcy bar is doing.  They have a lot of good idea what we in the Valley, debtor and creditor attorneys, can use.

Judge Sandra Klein, Cassandra Richey and Roksana Moradi-Brovia will examine cases from other bankruptcy courts and appellate courts to give us some sense of what the rest of the country is doing in bankruptcy.  This is the type of program where you take notes because you get ideas which you can use in your own cases.  The cases are intended to make you think.

The panelists are well known and well respected.  Your time will be well spent.  Here are the program particulars: Read more…

Paying the mortgage in advance as prepetition exemption planning

I have asked bankruptcy attorneys many times over the years whether they think that it is okay to use non-exempt cash in the bank to prepay the mortgage before filing a petition.  It would only work of course if the mortgage payment created equity that was then exempt.  Every attorney I have ever asked has said something like, “Of course it’s okay.”  Some have looked at me strangely like “Why are you asking when the answer is obvious?” If you need to pay for debts quickly here you can learn What is a life settlement and how to work around it.

I don’t see it as obvious.  It is a transfer to delay, hinder or defraud creditors.  “But it is exchanging non-exempt assets for exempt assets which is okay,” is the usual response.  The answer to that is “sort of.”

The BAP has recently affirmed Judge Robert Kwan in an unpublished opinion, In re Ellison, who denied this guy’s discharge based on a bunch of prepetition transfers, (“But it’s allowed exemption planning says the debtor’s atty.”)  The debtor paid six months worth of his first and second mortgages.  Why you ask?  The debtor’s words, “to assure that my wife and my daughter and myself had a home to live in through the end of the year . . . I did prepay [the mortgage in the past] but not to that degree, not six months, or four months, five months, whatever it was in advance, normally.”  According to Judge Kwan, “This out of the ordinary course transaction and Defendant’s admissions are additional evidence of his intent to hinder or delay his creditors by putting these funds out of their reach for his personal benefit.”   See In re Ellison, 2:15-ap-01001-RK.  Docket No. 30.

There were other transfers to be sure which had the effect of protecting about $250,000 of equity in the debtor’s home (after the homestead exemption).  Judge Kwan concluded that the debtor “crossed over the line’ of what is permissible behavior.  See In re Beverly, 374 B.R. at 244-246 (discussing the difficulty in drawing the line between legitimate bankruptcy planning and intent to hinder, delay or defraud creditors).”

Supreme Court Grants Cert in Taggart!

Last Friday, the Supreme Court granted cert in the Taggart case.  That is the discharge violation case that says

“the creditor’s good faith belief that the discharge injunction does not apply to the creditor’s claim precludes a finding of contempt, even if the creditor’s belief is unreasonable.” [emphasis added] 888 F.3d at 444

Lorenzen v. Taggart (In re Taggart), 888 F.3d 438, (9th Cir. April, 2018)

cdcbaa 9th Circuit Review Coming Up January 12, 2019

Saturday, January 12, 2019

11:00 a.m. to 1:00 p.m.

13th Annual Review of 9th Circuit Decisions on Bankruptcy in 2018

SPEAKERS:

Hon. Neil Bason, U.S. Bankruptcy Court – Central District of California
Hon. Christopher M. Klein, U.S. Bankruptcy Court – Eastern District of California
M. Jonathan Hayes, Resnik Hayes Moradi, LLP Read more…

Can the Court Avoid a Judgment Lien under 522(f) When the Debtor Owns no Real Property?

I have seen this issue come up on numerous listserves.  Judge Mund explains why the answer is no.

In re Kenney,  1:10-bk-11635-GM (Bkrtcy, C. D. Cal. Nov, 2018)

Issue:   Is a 522(f) appropriate to avoid a prepetition judgment lien when the debtor owned no real property on the petition date?

Holding:   No.  There is no lien to avoid.

Judge Mund

The debtors filed chapter 7 and got their discharge in 2010.  At the time a creditor had a judgment against them and had recorded an abstract of judgment.  They had no real property at the time.  In 2018, they are trying to buy a house.  They reopened their case and filed a Motion to Avoid Judgment Lien under 522(f).

Judge Mund denied the motion on the basis that there is/was no lien to avoid.

Because there is no valid lien to be avoided, Debtor is not entitled to the protections of 522(f).  The Court recognizes that Debtor is trying to ensure that no encumbrance results from a pre-petition recorded abstract of judgment; such a result would have the absurd consequence of creating an unenforceable lien on property acquired post-petition, but only in the specific counties which the creditor recorded the abstract of judgment.