San Fernando Valley Bar Association; Small Business Reorg Act Program Friday, 12/13, 2019 at 12 noon

Email from Steve Fox

Dear All:

We have a really timely and good program for you.

Starting in February, 2020, small businesses (including individuals) will have a new means to reorganize under chapter 11, the Small Business Reorganization Act (or “SABRA”).  The Act packs a lot of power, a lot of issues and a lot of food for thought.  Perhaps 90% of all businesses filing under chapter 11 could be eligible to opt in to SABRA and its provisions.  SABRA may also be a means to handle oversized chapter 13 cases.

The panel has been working hard on this topic.  Lew Landau is an experienced chapter 11 practitioner.  Jeremy Rothstein of Greenberg & Bass is the author of an article about SABRA.  Judge Ahart (ret) is well known to section members as a fine speaker and thinker. Yours truly is also on the panel.  Given the amount of material and issues, the panel will speak for 2 hours instead of the normal 1 and ¼ hours.  The panel has spent hours debating the statutes, what they mean or what they could mean.  If the panel does not have definitive answers, something which happens when a new law is passed, the panel will have the right questions.

The handout materials will include a section by section analysis of the new act.  The materials include (1) highlights of the new act, (2) an analysis of whether a debtor would seek confirmation under new Section 1191(a) or (b), (3) how to seek confirmation of a plan, (3) the SABRA trustee’s powers, duties and removal and (4) what statutes do not apply to a SABRA case.  This last item, which statues do not apply to SABRA cases, is pivotal.  This is where fights will be won.

Why attend?  If you practice consumer law including chapter 13s, you will find the program important as a means to address putative chapter 13 clients whose debts are too large for chapter 13.  If you represent creditors, you need to know the new statutes.  If you do chapter 11 debtor work now or think you may, then the program is important for you.

Here are the program particulars:

  1. Where:  San Fernando Valley Bar Association, 20750 Ventura Blvd., first floor, Woodland Hills, CA 91364
  2. When: Friday, December 13, 2019 from 12 noon until about 2:15 p.m.
  3. MCLE: 2 hours MCLE; Approved for Bankruptcy Law Legal Specialization
  4. Prices: Members in advance $50:  Members at the door $60; Non-members in advance $80; Non-members at the door $90.
  5. To make reservations:  Go to SFVBA.org or contact Linda Temkin at (818) 227-0490 or at events@sfvba.org

Sincerely,

Steven R. Fox

The Fox Law Corporation

Human Error: Bank Submits Wrong Escrow Demand in Debtor’s Post-Discharge Sale and Seeks Unjust Enrichment Claim Against Debtor. Was This Postpetition Unjust Enrichment Claim Discharged? Eh, not really said the BAP.

Debtor owned a home encumbered by 3 liens and filed Chapter 7 bankruptcy and gets a discharge.  We know liens survive (“ride through”) a bankruptcy.  Eight years passed and debtor markets and sells her home.  The Bank makes a demand into escrow to get paid on its claim but due to human clerical error, the Bank submits a demand for  $3,000 when it should have been $230,000Whoops!!  Escrow relied on the demand, pays the Bank $3,000 and closes.  Debtor got $230,000 from sale proceeds that should have gone to the Bank but for that clerical error.  Windfall!  Under California law, once escrow closes — then the Bank’s rights and interests under the deed of trusts were instantly and automatically extinguished.  So, the Bank’s only Hail Marry pass is to argue the catchall – unjust enrichment!

Bank files a motion to reopen debtor’s case after 8 years to file a complaint to allege a claim for “unjust enrichment” in order to argue that it would be simply wrong (“inequitable” as lawyers say) for debtor to get to keep the all that sale proceeds.  Question is — was that “unjust enrichment” cause of action also discharged in debtor’s bankruptcy 8 years ago?  [cue suspense music]

Read more…

Prenups are Voidable Transfers says California Law

Premarital agreements between soon-to-be spouses can be an avoidable “transfer” under UFTA (now the UVTA).

In Sturm v. Moyer, defendant procured a $600,000 non-dischargeable judgment per Section 523(a).  During several rounds of debtor’s examination, the debtor said in essence, “I have nothing and will not work either, so you cannot collect against me.”  During one of the debtor’s examinations, it was discovered that the debtor got married a few years ago.  The debtor, knowing he had this judgment looming over him, entered into a prenuptial agreement with his then-wife to keep her assets and earnings separate so this judgment creditor does not try to collect on it as community property.

The judgment creditor found out about the prenup and filed a state court lawsuit to assert that the prenup was a fraudulent transfer per UFTA/UVTA.  The lower court disagreed and dismissed the case.  Judgment creditor appealed and the California appellate court, in this certified for publication case, said the prenup was a transfer based on legislative history and policy.

Read more…

Random thoughts for the week.

The 9th Circuit Court of Appeals is authorized for 29 judges. As of last week, it is finally full. Of those, eight were appointed by Trump, and seven by Obama, or slightly more than half.  Rounding out the rest, five were appointed by George Bush, and nine by Bill Clinton – so 13 republicans and 16 democrats. For completeness, there are also 18 “senior status judges,” who take a reduced load of cases. The senior status judges don’t vote on en banc petitions.  The 9th Circuit had 10,500 new case filings in 2018.

I was visiting with a couple non-bankruptcy lawyer friends who are almost as old as me, 120 years of experience at the table. I mentioned that debts go away in bankruptcy, liens don’t.  Huh?  You don’t owe the car debt anymore but if you don’t pay it they can take the car.  One said “bizarre”!  If it’s bizarre to experienced lawyers, I can understand a little better why it makes no sense to our consumer clients.

Desiree Causey is having the trip of a lifetime. She and her husband started in Rome – seems like a few weeks ago. Then to Greece, Israel, Palestine, Egypt to see the pyramids, Jordan. I see her posts on facebook everyday.

It’s really annoying to me that the two California senators are holding up confirmation of a badly needed Central District judge.  I’m a lifelong Democrat so it’s not politics to me.  But according to an article in the Daily Journal today – 11/22/2019 – the candidate Jeremy Rosen is clearly qualified and has significant “support among ideologically-diverse colleagues” but our senators are withholding approval “effectively vetoing Rosen’s candidacy, at least for now.”

By the way, November 22 is the darkest day of my life.  I was a freshman at Serra High School in Gardena in 1963 when JFK was shot down.  They announced it on the school intercom.   I still rarely watch the documentaries about that day.

Following up on Taggart

In Taggart, you may recall, the 9th Circuit said that a good faith belief that the discharge injunction doesn’t apply preempts contempt even when the “good faith belief” is “unreasonable.”  Huh?  One of the more surprising aspects of the proceeding at the Supreme Court was that both sides agreed – before oral argument – that the 9th Circuit got it wrong.  Well, thankfully the Supreme Court agreed and reversed saying that contempt is appropriate unless there is “a fair ground of doubt,” as to whether the discharge applies to the creditor or not.   The 9th Circuit test of “good faith works even if it’s not good faith,” was pitched out.  The Supremes sent it back to the 9th Circuit for further review.

Where does it stand now?

A brief history is necessary.  The creditor sought attorneys fees in state court based on post-discharge litigation involving a prepetition debt.  The creditor told the state court postpetition that the debtor was an “indispensable party” and that it needed a particular order against the debtor but otherwise was not trying to collect the debt as it knew the debt had been discharged.  This is not terribly unusual.  When the creditor later “won” and got the state court order it requested, it then asked for attorneys fees against the debtor for the postpetition litigation using the contract (which was discharged).  This is also not terribly unusual.  The creditor argues that the debtor “returned to the fray,” that is, participated in the postpetition litigation and therefore should be liable for the fees under the contract for the postpetition litigation. Read more…

David Guess joins Greenberg Traurig

Guess_David_340My friend David Guess has joined the international law firm of Greenberg Traurig, “a law firm with more than 2,100 lawyers in 41 locations,” according to the website which says:

“David M. Guess focuses on business bankruptcy cases, out-of-court workouts, and bankruptcy litigation. He represents debtors, secured and unsecured creditors, asset purchasers, trustees, committees, litigation trusts, fraudulent transfer defendants, landlords, and others. David has particular experience in real estate, hospital, skilled nursing facility, retail, and restaurant bankruptcies, bankruptcy appeals, and fraudulent transfer litigation arising from failed LBOs and spinoffs.”

cdcbaa The torch has been passed, looking forward to the new year

Hale for postLucy professional photo

We had a great time at the Calvin Ashland Awards Dinner last week, honoring Howard Ehrenberg as the Trustee of the Year.  I’ll post his remarks soon.  His best advice to other trustees was, “Never take possession of something that has to eat.”

We also recognized our outgoing President Roksana Moradi-Brovia, and swore in incoming President Hale Antico.  Hale has been involved with the cdcbaa since before I joined the group and is a great consumer lawyer.  He built our first website.  He has been there very step of the way with my partner Roksana the last two years.  We are in good hands.  He has true enthusiasm and interest in our group and in continuing the good work we do.

Our incoming Vice-President is Lucy Mavyan, attorney for Chapter 7 Trustee Wes Avery.   We are looking forward to her active involvement.

Judge Charles Novack, Northern District Judge who did the 9th Circuit Review with Judge Julia Brand and I at Loyola Law School two years ago,  told me in July at the 9th circuit Judicial Conf in Spokane that he is still shocked that we got so many people to come to the program on a Saturday.  He was clearly impressed.  Judge Chris Klein from Sacramento will be coming down again this January to do the program with Judge Brand and I on January 18, 2020. Read more…

Loyola Law Students Practicum Reception

Email from Keith Higginbotham:

To all my cdcbaa colleagues that answered the call and attended Judge Klein’s Reception for the six Loyola law students’ Practicum Reception, I wholehearted thank you.  Judge Klein was VERY pleased at cdcbaa’s response to her request for participation.  The food was excellent and there were four judges present to mingle with — including the Chief Judge herself.  A good time was had by all.

This is one of the many reasons why the Court is often turning to cdcbaa for participation and input in its various endeavors.  We are recognized as the BK Bar Association that “gets things done.”

Again, I am very proud of this organization and I thank the many cdcbaa members that attended this event yesterday.

Keith Higginbotham

Bankruptcy filings in the Central District slowly continue upward

The numbers and the increases are small in real terms but October 2019 had the highest number of petitions in October since 2015.

2019 2018 2017 2016 2015 2014
Jan 2,745 2,741 2,839 2,872 3,364 4,704
Feb 2,754 2,708 2,795 3,299 3,829 4,574
March 3,481 3,363 3,782 3,923 4,496 5,430
April 3,631 3,277 3,209 3,584 4,486 5,364
May 3,347 3,226 3,384 3,484 3,971 5,500
June 2,967 2,981 3,252 3,545 3,966 4,386
July 3,270 3,057 2,953 3,239 3,731 4,701
Aug 3,274 3,337 3,387 3,543 3,544 4,540
Sept 2,934 2,772 3,071 3,168 3,493 4,317
Oct 3,355 3,259 3,170 3,235 3,751 4,554
Nov 2,821 3,004 3,025 3,531 3,642
Dec 2,419 2,416 2,902 2,718 3,733
Total 31,758 35,961 37,262 39,819 44,880 55,445

Here is the breakdown for the year by chapter.

Non-Comm’l Commercial Chapter 7 Chapter 13 Chapter 11
28,954 2,617 24,724 6,537 310
91% 8% 78% 21% 1%

 

Judge Whitman Holt takes the bench in the Eastern District of Washington

Whitman HoltJudge Marty Barash and new Judge Whitman Holt.  This appointment is so deserved.  Whitman attended most of the cdcbaa events even though the programs had little to do with his personal practice.  He simply has a huge taste for and love of learning.   Congratulations Whit.  We are going to miss you.  Our loss is Washington’s gain.

If you’re not sure where Yakima is, look here.

Below is the notice from the 9th Circuit Court of Appeals.  

Ninth Circuit Court of Appeals Appoints New Bankruptcy Judge for Eastern District of Washington SAN FRANCISCO —

Whitman L. Holt has been appointed as the next judge of the U.S. Bankruptcy Court for the Eastern District of Washington.  He begins his 14-year term today, November 1, 2019, and will maintain chambers in Yakima.  His appointment was made by the judges of the U.S. Court of Appeals for the Ninth Circuit. Read more…