| August 2006 issue: Washington Hot News Bankruptcy Filings Continue to Slide in Third Quarter (August 29) According to the Administrative Office of the U.S. Courts, bankruptcy filings dropped nearly 67% in the third quarter and 9.3% over the last year; the lowest level in 5 years. Your Name Here! The Bankruptcy Section is looking for volunteers to write a Case Analysis for an upcoming addition. The Case Analysis is typically based on Court of Appeals or Supreme Court decisions, although you can use your discretion to discuss relevant BAP, District Court and Bankruptcy Court decisions -- especially those interpreting BAPCPA's amendments to the Code. If you are interested or would like to learn more, please send an email to the Managing Editor. You can view the archive here. Your subscription You have been subscribed to this list as part of your membership in the Bankruptcy Section of the Commercial Law League of America. CLLA 70 East Lake Street, Suite 630 Phone: 312-781-2000 Newsletter design by: |
Sua SponteIvan J. Reich YOUR BUSINESS IS OUR BUSINESS As I sit here drafting my first Sua Sponte article as the new Chair of the CLLA’s Bankruptcy Section, my first thoughts turn to how we, as the Bankruptcy Section of this League, can generate new business opportunities for our Section’s members, and maintain our relevance in the oldest and largest creditors rights organization in North America.
Case AnalysisLouis Robin Hersch v. United States, District Court, Northern District of Texas, Civil Action No. 3:05-CV-2330-N (July 26, 2006): A recent decision concerning the attorney provisions of BAPCA. District Court Judge David C. Godbey has issued a decision on the United States’ motion to dismiss where an attorney filed a complaint seeking a declaratory judgment that the BAPCPA does not apply to attorneys and challenging the constitutionality of several provisions, namely §§526(a)(4) (which prevents attorneys from giving certain advice such as incurring debt) and 527 (which requires specific disclosures by attorneys). Case Law UpdatePaula Lucas Court's inherent authority limited to the authority appropriate and necessary to carry out the BAPCPA provisions. The court held that bankruptcy courts do not have authority under section 105(a) of the Bankruptcy Code to preclude the application of the automatic stay in subsequent cases via an "in rem" order. Johnson v. TRE Holdings, LLC (In re Johnson), BAP No. CC-05-1268 (9th Cir. B.A.P. 2006). ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Sua SponteYOUR BUSINESS IS OUR BUSINESS As I sit here drafting my first Sua Sponte article as the new Chair of the CLLA’s Bankruptcy Section, my first thoughts turn to how we, as the Bankruptcy Section of the CLLA, can generate new business opportunities for our Section’s members, and maintain our relevance in the oldest and largest creditors rights organization in North America. With that in mind, there are great changes taking place throughout the CLLA, and in this Section, it is my intention to find ways to generate new leads and opportunities for those of us who do not fit into the traditional triadic system of the collection agency, collection lawyer, and law list referral system. The strength of the Bankruptcy Section of the CLLA, and what sets us apart from other similar organizations, is that we offer not only excellent bankruptcy education, but that we take an active and effective role in shaping bankruptcy, and similar state court insolvency, legislation throughout the country, and involving ourselves in the issues arising from that legislation in the courts by our active amicus brief writing campaign. At the National Conference of Bankruptcy Judges (“NCBJ”), to be held in early November in San Francisco, our Section is sponsoring a day of education programming, as we have done for many years. At our upcoming meeting in New York in November, we have a full slate of bankruptcy education programs highlighted by a joint program with the National Association of Credit Managers (“NACM”) examining the aftermath and effects over in the past year of BAPCPA, both upon the law and upon bankruptcy practitioners as a result of these sweeping changes. That program is complemented by another joint NACM program called “Bankruptcy: A 360 Degree View”, and another Section program titled “Ethics: Arrow’s in the Bankruptcy Judges’ Quiver Approach.” We are already working on separate programs for our Chicago meeting in April on hidden liens and involuntary bankruptcies. Notwithstanding the slowdown in bankruptcy legislation, our Legislative Committee has continued to remain focused on providing technical comments on the new law and Interim Rules. We have submitted amicus briefs challenging the constitutionality of certain provisions of the new act upon bankruptcy practitioners. All the while we continue to lend our support and lobbying resources by submitting Position Papers, and supporting the legislative efforts of our friends at NACM, and have actively backed the National Association of Bankruptcy Trustees’ (“NABT”) efforts at increasing compensation for panel trustees. These special skills, contacts and talents we have, make us attractive to other legal and trade organizations that have interests in these areas. My goal, as Chair of this Section, is to see to it that we do all that we can to focus on developing contacts with and partnering with those organizations in which we have similar interests, the most relevant being those in which we as bankruptcy lawyers, can generate leads and business. Our Section’s Executive Council has already met twice, at the Summer Meeting in Asheville in July, and telephonically this month, and have developed a list of those organizations that we already have ongoing relationships with, such as NACM and NABT, with whom we seek to further develop those relationships, and new organizations in which we want to partner and create and develop dialogue and new bonds. We are working to create liaisons with the following organizations, and I list our Section contacts, that I encourage you to contact if you wish to work with them in developing relationships, have existing relationships with those organizations, wish to attend those organizations meetings, or work on programming targeted to those associations needs, they are:
Again, if any of you have an interest in working with these groups, contact the appropriate Section liaison. At the same time, in order to complement these efforts we are moving forward with our Section’s online directory, which will also provide a marketing tool for our Section members. Before closing, I want to take a moment to commend my predecessor, Cathy Pike, for a job well done and laying the ground work for all the great things accomplished in the past year, and upon which I hope to build. Her guidance and leadership, along with the foundation and organizational structure she helped build, can only make my job easier and make accomplishing my goals that much more attainable. Ivan J. Reich Case AnalysisHersch v. United States, District Court, Northern District of Texas, Civil Action No. 3:05-CV-2330-N (July 26, 2006): A recent decision concerning the attorney provisions of BAPCA. District Court Judge David C. Godbey has issued a decision on the United States’ motion to dismiss where an attorney filed a complaint seeking a declaratory judgment that the BAPCPA does not apply to attorneys and challenging the constitutionality of several provisions, namely §§526(a)(4) (which prevents attorneys from giving certain advice such as incurring debt) and 527 (which requires specific disclosures by attorneys). Attorney Hersch also argued that the latter provisions violated the Fifth Amendment right to retain counsel in civil matters. The plaintiff, Attorney Hersch, is a Dallas attorney who provides debtors with legal advice – for a fee. The initial issue addressed by the Court was whether attorneys are “debt agencies.” Attorney Hersch’s principal arguments were that the definition of “debt agencies”, while broad, only specifically mentions “bankruptcy preparers.” She also argued that the requirements placed on attorneys to make certain representations under §§527(b), such as that a debtor may proceed with or without the assistance of an attorney , and that only attorneys can provide legal advice, are counterintuitive. The District Court, however, ruled that debtor attorneys were “debt relief agencies” under the statutes as it was plain when reviewing the entire statute. I would agree that the language of the statute is rather plain - - - a debt agency is “any person who provides bankruptcy assistance.” We, as attorneys, may find the use of the term “debt agency” offensive, yet that is the phrase assigned by statute (although the assignment of descriptive phrases may be wrong in certain instances). The main focus should be whether the requirements imposed as a result of this phrase are appropriate. Those requirements are what most of us find wrong. The District Court accepted the plaintiff’s argument that §526(a)(4) was unconstitutional. This section prohibits advice that a debtor may incur debt in contemplation of bankruptcy. The Court accepted the proposition; this was improper advice in many circumstances. For example, it could result in an attorney not being able to advise a debtor to refinance at a lower rate, which might act to assist a debtor in avoiding bankruptcy. Similarly, an attorney could not purchase a car so that a debtor could be assured of transportation after a bankruptcy filing (which could be essential to traveling to work). The District Court seemed to realize that these restrictions were wrong - - - “section 526(a)(4) prevents lawyer form giving clients their best advice.” It “might also work to deprive courts . . . of good counsel.” As it prevented lawyers from advising clients to take lawful actions. Judge Godbey ruled that it “extends beyond abuse.” As such, it imposed limitations on speech beyond the applicable standard of permitting speech restrictions only when “narrow and necessary.” The District Court then turned to the requirements to provide certain disclosures under §527. For those of you who are unaware of these disclosures, this is a lengthy statement that is detailed in the statute. It requires many “counterintuitive” statements, including that a prospective client may proceed with an attorney, without an attorney, or with a bankruptcy preparer. Other representations are just incorrect, such as representing that the debtor “will have to pay a filing fee to the bankruptcy court” (see 28 U.S.C. §1930(f) which permits the filing of cases in forma pauperis), or reference to the Chapter 13 debtor’s participation in a “confirmation hearing on which your plan will be before a bankruptcy judge” (in twenty-five years of bankruptcy practice I have only seen one confirmation hearing on a Chapter 13 plan). The District Court did not appear impressed by these arguments. The District Court noted that the applicable standard was that of Planned Parenthood v. Casey, 505 U.S. 833 (1992), the abortion case which recognized a substantial government interest in providing women with the risks of a procedure and a legitimate interest in ensuring a “mature and informed” decision, as long as there were no “substantial obstacle” and was not an “undue burden.” (The District Court declined to follow the standard in Riley v. Nat’l Fed’n, 487 U.S. 781 (1988), wherein the Supreme Court rejected fundraising solicitation disclosures where more benign and narrowly tailored options are available). Judge Godbey found there to be a legitimate and significant interest, as the amount of discharged debt was in the tens of billions of dollars, and that the consumer debtor was “at an informational disadvantage.” He noted that that bankruptcy was an “intricate” area (of the law) and that counsel has the opportunity to correct and to supplement any required statements; accordingly, these §527 disclosures did not violate free speech rights. I must respectfully disagree. The can be no excuse for false statements. True, we, as attorneys, have the opportunity to correct and explain these statements. However, this only creates more confusion as we are required to provide this disclosure as something the government requires us to give - - - how can we then explain that the government is requiring that we give incorrect information. Further, Casey’s standard dealt with health issues, while Riley concerned monetary issues (which, I speculate, is also in the tens of billions of dollars). Accordingly, more benign and narrowly tailored options are available. Specifically, there is the provision that attorneys must advise debtors that they can proceed under Chapter 7, 11, 12, or 13. I have always taken this requirement (which still exists), as a serious one. I constantly explain to prospective clients that I have an ethical obligation to explain the relief under each Chapter (although, for the life of me, I don’t know why I had a legal obligation to explain Chapter 12 to urban dwellers when Chapter 12 didn’t exist). Attorney Hersch also argued that the Fifth Amendment’s right to retain counsel required voiding the statute. The District Court did not reach the substance of the Fifth Amendment arguments because the plaintiff attorney could not assert the necessary injury - - - only a potential client could. Attorney Hersch was the only plaintiff. In comparison, in Connecticut Bar Association, et al., v. United States of America, et al., (which the CLLA has filed an amicus brief and on and which I have reported recently), there is a plaintiff which is a debtor. We will need to await this (and other cases). There seems to be a steady growth of cases and decisions at this early stage. There will be a balanced debate on these issues, in which I hope many of you will participate. Louis Robin Case Law UpdateCourt's inherent authority limited to the authority appropriate and necessary to carry out the BAPCPA provisions. The court held that bankruptcy courts do not have authority under section 105(a) of the Bankruptcy Code to preclude the application of the automatic stay in subsequent cases via an "in rem" order. Johnson v. TRE Holdings LLC (In re Johnson), 2006 Bankr. LEXIS 1515 (9th Cir. B.A.P. July 7, 2006). irect appeal provision applies only to bankruptcy cases commenced on or after October 17, 2005. The United States Bankruptcy Appellate Panel of the Ninth Circuit held that the direct appeal provision of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) and the Interim Rules adopted to effectuate it do not apply to appeals arising from bankruptcy cases filed before October 17, 2005. Berman v. Maney (In re Berman), 344 B.R. 612 (9th Cir. B.A.P. 2006). Proof of plaintiff’s intent to manipulate judicial system necessary under Truth in Lending Act. Summary judgment for defendants in a suit claiming violations of the Truth in Lending Act is reversed where there is a question of material fact as to whether plaintiff had the motivation and intent to manipulate the judicial system such that judicial estoppel of his claims was appropriate. Ajaka v. Brooksamerica Mortgage Corp, 2006 U.S. App. LEXIS 16303 (11th Cir. June 29, 2006). Post-petition events to be considered under 11 U.S.C. Section 707(b). The lower determined that post-petition events should not be considered where a motion to dismiss for substantial abuse under 11 U.S.C. § 707(b). The district court reversed, holding that such circumstances should be considered in determining substantial abuse. In applying BAPCPA version of the section the court found that such circumstances should in fact be considered in determining substantial abuse. US Trustee v. Cortez, 2000 U.S. App. LEXIS 8954 (5th Cir. July 20, 2006).
Solvent debtor to pay interest. The court determined that the terms of the underlying contract between debtor and creditor is to be relied on when determining whether a solvent debtor is to pay default interest to unsecured claim holders. Additionally, the court found that unsecured creditors can collect attorneys' fees, costs and expenses from solvent debtors where they are permitted to do so by the terms of their contract and applicable non-bankruptcy law. In re Dow Corning Corp., 2006 U.S. App. LEXIS 18665 (6th Cir. July 26, 2006). Actual knowledge of creditor interest proof of nondischargeable “injury” under § 523(a)(6) The court awarded statutory damages for willful copyright infringement where the debtor had actual knowledge of the creditor’s copyright interest at the time of the actual infringement. The court determined the debtors’ knowledge to be proof of their “substantial certainty” of resultant harm to be a violation under § 523(a)(6). In re Albarran, 2006 Bankr. LEXIS 1665 (9th Cir. BAP, Aug. 10, 2006). Recording of interest after bankruptcy filing not a violation of automatic stay. Finding that the bank did not transfer or attempt to perfect legal title to the debtors' property, and instead recorded only its equitable interest in the property the court found there to be no violation of the automatic stay as the bank’s interest was property which did not belong to the debtors. In re Cook, 2006 U.S. App. LEXIS 20377(6th Cir. Aug. 10. 2006). Confirmation of in Chapter 13 has res judicata effect. The court fund trustee’s failure to confirm the status of real estate liens which may have had an affect on the estate of the debtor precluded the debtor’s and the Trustee’s subsequent attempt to avoid these liens on his property. The mortgage lien had been recorded in the land records and was identified in the Chapter 13 plan. Cellie v. First Nat’l Bank (In re Layo), 2006 U.S. App. LEXIS 20839 (2d Cir. August 15, 2006). Paula Lucas Don’t Forget to Register for CLLA’s NCBJ Breakfast and Education ProgramFor over a decade, the CLLA has produced two of the most highly regarded programs at the annual National Conference of Bankruptcy Judges. The CLLA educational program is entitled "The Honorable Frank W. Koger Memorial Current Development in Hot & Emerging Areas of Bankruptcy." This program--unequaled in the industry--puts together top-ranked speakers in the field and superior educational materials in order to educate attendees on the latest issues facing bankruptcy professionals. In addition to this program, the Annual CLLA Breakfast is a must-attend during the conference. Number one bestselling author Dr. Michael F. Roizen, well-known founder of the Scientific Advisory Board of RealAge, Inc. and often featured on The Oprah Winfrey Show for his age-defying wisdom, will be the keynote speaker at the 18th Annual Commercial Law League of America Breakfast to be held on November 2, 2006. Are you interested in learning your RealAge? Visit Oprah’s website at the following link, where Dr. Roizen’s RealAge test is featured: http://www.oprah.com/health/lifestages/realage/health_real_main.jhtml Additionally, click here for more information on the CLLA NCBJ programs. Washington Hot NewsBankruptcy Filings Continue to Slide in Third Quarter (August 29) According to the Administrative Office of the U.S. Courts, bankruptcy filings dropped nearly 67% in the third quarter and 9.3% over the last year; the lowest level in 5 years. IRS Issues Taxpayer Protections for Private Debt Collection (August 29) In light of some opposition from the US Treasurer Employees Union, some members of Congress, and the public, the IRS has recently been making efforts to identify taxpayer protections under the private tax collection program. The August 23rd Announcement 2006-63, scheduled to be published September 11th in Internal Revenue Bulletin 2006-37, explains how the program will work, and two news releases, IR-2006-131 and 132, describe taxpayer protections and steps taxpayers can take to prevent scams, respectively. New Pension Bill, H.R. 4 (August 9) On July 28, 2006, the House passed the Pension Protection Act of 2006 (HR 4). The Senate passed the bill on August 3. This is a new pension bill, because the Republicans had been unhappy with the tax extender provisions that were added to HR 2830. Those tax provisions have been placed in a separate bill, HR 5970. President Bush said he will sign HR 4. Federal Trade Commission to Hold Hearings Regarding Consumer Protection Concerns (August 3) The Federal Trade Commission has made recent plans to hold hearings November 6-9th regarding consumer protection concerns related to social networking sites, data security, and new payment systems, among other Internet marketing issues. The "Consumer Protection in the Next Techade" hearings will take place at George Washington University and will be followed by a one-day, closed-door meeting between FTC and law enforcement officials.
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