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CLLA Position Papers CLLA Position on H.R. 3753
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Word Doc. Sua SponteDeborah K. Ebner With thanks to our Legislative Committee Chair Peter Califano of Cooper White & Cooper, LP and member David Leigh of Snell & Wilmer, Salt Lake City Utah for their substantial contribution to this writing and for their letters of support submitted to Congress this year. Our Nation’s Infrastructure Is Crumbling and Needs Our Help In our last issue I used my Sua Sponte to raise concerns about infrastructure problems within our bankruptcy system. I referred to the August 1, 2007 bridge collapse in Minneapolis as metaphor to suggest serious foundational problems within our system. Case Law UpdatePaula Lucas Pre-filing legal services lead to disgorgement of fees and sanctions. Attorney “pre-filing legal services” to Debtors for a $250 fee. Fee to include analysis of Debtors’ finances and preparation of bankruptcy petition. The agreement specifically disclaimed Debtors representation at the statutorily required meeting of creditors. Case AnalysisStephen Z. Starr It is a violation of the automatic stay for a bank to continue a pre-petition restraint upon a debtor’s bank account pursuant to a mandatory injunction once the debtor files bankruptcy. In re Adomah, 340 B.R. 453 (Bankr. S.D.N.Y. 2006), aff’d, 368 B.R. 134 (S.D.N.Y. 2007). NCBJ Sponsorship OpportunitiesThe Commercial Law League of America and its bankruptcy section have sponsorship opportunities available at the National Conference of Bankruptcy Judges ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Sua SponteBy Deborah K. Ebner With thanks to our Legislative Committee Chair Peter Califano of Cooper White & Cooper, LP and member David Leigh of Snell & Wilmer, Salt Lake City Utah for their substantial contribution to this writing and for their letters of support submitted to Congress this year. Our Nation’s Infrastructure Is Crumbling and Needs Our Help In our last issue I used my Sua Sponte to raise concerns about infrastructure problems within our bankruptcy system. I referred to the August 1, 2007 bridge collapse in Minneapolis as metaphor to suggest serious foundational problems within our system. Over the past several decades, the salaries of federal judges have severely eroded and failed to keep pace with the general rise in wages in this country. Between 1969 and 2006, the real pay of the average American worker, adjusted for inflation, increased by approximately 18 percent. By contrast, the real pay for federal district judges, adjusted for inflation, declined by approximately 25 percent. Federal judicial salaries have also failed to keep pace with the rise in wages in the legal profession. For example, in 1969, a federal district judge made approximately 21 percent more than a dean at a top law school and 43 percent more than senior professors at those schools. Today, however, federal district judges earn almost 50 percent less than the deans and senior professors at those top law schools. Even more telling, perhaps, beginning lawyers just out of law school in some cities actually earn more their first year than the most senior and experienced federal judges before whom those lawyers will be practicing. Low salaries threaten the independence of the federal judiciary in at least
two (2) important ways. First, today’s legal environment requires the
very best legal minds to ensure that cases are decided fairly, accurately and
efficiently. Many of today’s cases are extremely complex. The
erosion of judicial salaries in the wake of inflation, however, along with
the gross disparity in pay when compared with others in the legal profession,
discourages the best and the brightest from considering and accepting appointments
to the federal bench. U.S. District Judge Paul G. Cassell, United States District Court for the District of Utah, is the latest judge to resign from the federal bench. Judge Cassell’s resignation, effective November 5, 2007, comes just five (5) years after his appointment. Judge Cassell will be rejoining the faculty at the S.J. Quinney College of Law at the University of Utah, and has accepted an offer from the National Crime Victim Law Institute to litigate cases across the country on its behalf.
We share the concerns expressed by Chief Justice John G. Roberts, Jr. in his 2006 year-end report to Congress on the federal judiciary that the issue of low federal judicial salaries has “reached the level of a constitutional crisis that threatens to undermine the strength and independence of the federal judiciary.” We also share the concerns expressed by Associate Justice Samuel A. Alito, Jr. at the April 19, 2007 “Oversight Hearing on Federal Judicial Compensation” before the House Committee on the Judiciary that “eroding federal judicial salaries will lead, sooner or later, to less capable judges and ultimately to inferior adjudication.” Our Section and the League have, along with many other professional organizations, urged Congress to quickly pass legislation increasing federal judicial salaries. Our efforts are now found in H.R. 3753 – The Federal Judicial Salary Restoration Act of 2007. It is our wish that this Act will help the federal bench retain the best and the brightest and continue to ensure that cases are administered with the integrity and fairness that our system requires. Law Office of Deborah K. Ebner Case Law UpdatePre-filing legal services lead to disgorgement of fees and sanctions. Attorney “pre-filing legal services” to Debtors for a $250 fee. Fee to include analysis of Debtors’ finances and preparation of bankruptcy petition. The agreement specifically disclaimed Debtors representation at the statutorily required meeting of creditors. Debtors filed their bankruptcy petition pro se, and attorney did not sign the petition. The court, sua sponte, requested an itemization of the $250 fee to determine its reasonableness. Attorney failed to provide a complete itemization in compliance with the court’s order and instead moved for recusal of the judge due to alleged bias. Additionally, the United States Trustee moved for sanctions against attorney on various grounds, including that failure to sign Debtors’ petition violated the Federal Rules of Bankruptcy Procedure. The bankruptcy court denied attorney motion for recusal and ruled that he had violated the Federal Rules of Bankruptcy Procedure by failing to sign Debtor’s petition. The court then ordered 1) disgorgement of the $250 fee, 2) a $2000 monetary sanction, and 3) a non-monetary sanction preventing the attorney from preparing a bankruptcy petition unless he signs it. The attorney appealed to the district court, which affirmed the bankruptcy court on all issues. On appeal to the Ninth Circuit, the attorney limited his argument to three issues: 1) that he is entitled to a jury trial regarding his fee’s reasonableness, 2) he objected to the disgorgement of his fee, and 3) he had been improperly sanctioned. The Ninth Circuit held that 1) the Seventh Amendment does not include a right to a jury trial regarding attorney fees in bankruptcy proceedings, 2) the disgorgement of fee was within the bankruptcy court’s discretion, and 3) the bankruptcy court did not abuse its inherent power to order other sanctions. Click here for full case. In an appeal arises out of an adversary proceeding brought by a bankruptcy trustee against the bankruptcy debtors and a law firm representing them, a Bankruptcy Appellate Panel decision reversing a ruling in favor of the law firm is affirmed for the reasons stated by the BAP where: 1) funds held by the firm as a retainer for post-petition legal services were estate property; and 2) estate property could not be used to compensate the firm for post-petition legal services. In re. Wagers 2007 U.S. App. LEXIS 28805 (10th Cir. Dec. 14, 2007) In a bankruptcy trustee's action seeking to recover a $100,000 payment made to defendant as an avoidable preference under the Bankruptcy Code, a ruling in favor of the trustee is reversed where the trustee in bankruptcy failed to meet his burden of proving the elements necessary to establish that the payment to defendant was preferential, and thus avoidable under 11 U.S.C. section 547(b). In re: S. Air Transp., Inc. 2007 U.S. App. LEXIS 28896 (6th Cir. Dec. 14. 2007) An order denying a creditor's motion for relief from an automatic stay to allow for the sale of a debtor's repossessed automobile, and overruling its objection to confirmation of the debtor's Chapter 13 plan based on its "cram down" treatment of the claim secured by that automobile, is affirmed for the reasons set forth in the opinion below. In re. Curry 2007 U.S. App. LEXIS 28553 (6th Cir. Dec. 11, 2007) In an appeal brought by an attorney, arising after a bankruptcy court found he failed to honor his legal and ethical obligations in assisting certain debtors' with their bankruptcy application, an order denying his request for a jury trial on the reasonableness of his attorney fees, disgorging him of his fees, and sanctioning him is affirmed where: 1) the Seventh Amendment does not include a right to a jury trial on the reasonableness of attorney fees in bankruptcy proceedings; and 2) the bankruptcy court did not abuse its discretion in disgorging him of his attorney's fees nor in sanctioning him. Hale v. US Trustee 2007 U.S. App. LEXIS 28471 (9th Cir. Dec. 11, 2007) In a suit concerning a condominium developer's bankruptcy reorganization plan and development rights: 1) judgment of the district court concerning the developer's rights is reversed and remanded where the court's interpretation of the governing statute was in error; and 2) the bankruptcy court's affirmation of the reorganization plan is affirmed where there was no violation of the Statute of Frauds and the plaintiffs were not adversely affected by the plan. Bourne v. Northwood Props LLC 2007 U.S. App. LEXIS 27569 (1st Cir. Nov. 30, 2007) The bankruptcy court did not err in denying confirmation to a Chapter 13 plan that proposed to pay the debtor's "statutory" projected disposable income, rather than the debtor's actual projected disposable income (which was 66% higher than the "statutory income"). In re. Pak CLICKHERE for case (9th Cir. BAP Nov. 21, 2007) In a bankruptcy case involving debtor-limited liability company whose business was to derive maximum revenue from timber grown on certain lands transferred to it while maintaining sustainable forests, denial of noteholders' motion to expedite the bankruptcy proceedings is affirmed where the bankruptcy court correctly held that the bankruptcy debtor was not a "single asset real estate" (SARE) debtor under section 101(51B) of the Bankruptcy Code and was therefore not subject to expedited reorganization procedures set forth in section 362(d)(3) of the Code. In The Matter Of: Scotia Pacific Company LLC 2007 U.S. App. LEXIS 26381 (5th Cir Nov. 15, 2007) § 108(b) does not trump § 1322(b). In re Frazer (9th Cir. BAP Nov. 14, 2007) 11 U.S.C.S. § 523(a)(2)(B)requires clear proof of intent to deceive. In an appeal arising from an adversary complaint in bankruptcy proceedings alleging that a loan to debtor was not dischargeable in bankruptcy, summary judgment for the debtor is affirmed where: 1) the lower courts correctly determined that plaintiff failed to carry its burden of proof with regard to the alleged material falsity of a list of accounts receivable, which had been used in securing the loan at issue; and 2) there was no error in a conclusion that plaintiff failed to supply evidence that the debtor had an intent to deceive. In re Cohen 2007 U.S. App. LEXIS 26122 (7th Cir. Nov. 13, 2007) Judgment lien voided. In a bankruptcy case, a judgment in favor of mortgage-holder holding that appellant's judgment lien was voided during the bankruptcy proceeding is affirmed as, upon confirmation of the reorganization plan, the lien was voided under 11 U.S.C. section 1141(c). In re Ahern Enters. Inc. 2007 U.S. App. LEXIS 25847 (5th Cir. Nov. 8, 2007) Section 503(b)(4) silent as to attorney’s fees. Although section 503(b)(4) is silent as to allowability of attorney's fees to a petitioning involuntary creditor in connection with an appeal, such fees are allowable. In re Wind N' Wave 2007 U.S. App. LEXIS 27943 (9th Cir. Nov. 2, 2007) Debtor must provide creditor with accurate information to provide sufficient notice. The failure of a debtor to provide an accurate social security number to a creditor in the notice mailed to the creditor informing it of the first meeting convened under 11 U.S.C. section 341(a), does not place the creditor on sufficient notice to protect its rights in a Chapter 13 Bankruptcy proceeding despite the fact that the mailing otherwise contained the debtor's correct name and address Ellett v. Stanislaus 2007 U.S. App. LEXIS 25293 (9th Cir. Oct. 30, 2007) Following removal of a malpractice, negligence, and fraud suit brought in state court by creditors in a consolidated Chapter 11 bankruptcy proceeding against the accountants who performed work during the bankruptcy, a decision dismissing the matter is affirmed as: 1) the circuit court lacks jurisdiction to review the bankruptcy and district courts' decisions relating to alleged procedural defects in the removal process and mandatory or permissive abstention; and 2) the bankruptcy and district courts did not err with respect to claims relating to subject matter jurisdiction and the bankruptcy court's final adjudicative authority. In re Seven Fields Development Corp. 2007 U.S. App. LEXIS 24826 (3rd Circuit Oct. 25, 2007) The "necessity" standard for allowance of professional fees is whether it was likely when the services were performed that the performance of the services would result in a benefit to the estate commensurate with the expected cost of the services. Proof that a benefit actually was received (i.e., the "hindsight view") is not the benchmark. The absence of an ultimate benefit is however, a probative factor in evaluating allowance of fees. The "reasonableness" standard for allowance of professional fees is always done in hindsight. The Court reconsiders its prior ruling disallowing certain fees of Duane Morris, and: (i) allows fees related to resolution of a major claim and (ii) reduces fees due to counsel's failure to get Court approval of bid procedures before conducting an auction of the debtor's assets. In re AMP Enclosure Systems, Inc. Bankr. DE October 25, 2007 Paula Lucas Case AnalysisStephen Z. Starr It is a violation of the automatic stay for a bank to continue a pre-petition restraint upon a debtor’s bank account pursuant to a mandatory injunction once the debtor files bankruptcy. In re Adomah, 340 B.R. 453 (Bankr. S.D.N.Y. 2006), aff’d, 368 B.R. 134 (S.D.N.Y. 2007). Summary: Upon a debtor’s bankruptcy filing a bank that has subject a debtor’s account to a pre-petition restraint pursuant to a mandatory injunction, such as a restraining notice issued by a judgment creditor in New York, violates the automatic in refusing to immediately release funds in which the debtor has claimed an exemption. Factual Background: Mitsubishi Motors Credit of America obtained a money judgment against an individual debtor. As permitted under New York law, the judgment creditor’s attorney issued a restraining notice to Bank of America, N.A. A restraining notice operates as a mandatory injunction under New York law and required the bank to restrain twice the amount of the judgment (see N.Y. CPLR § 5222(b)). Disobedience of a restraining notice is punishable as contempt of court and can cause a restrained party to be liable for damages. Approximately three weeks after her account was retrained the debtor filed
a voluntary chapter 7 petition with the U.S Bankruptcy Court for the Southern
District of New York. The bank’s response was that the debtor would need to obtain the judgment creditor’s consent to lift the restraint on her bank account. Twenty one days after the debtor filed bankruptcy the bank received a letter from the judgment creditor’s attorney authorizing the bank to lift the restraint on the account. Six days after receiving the letter the bank released the restraint on the debtor’s bank account. In the meantime, two days before the restraint on the account was released the debtor filed a motion with the bankruptcy court for an order imposing damages on the bank for violation of the automatic stay of § 362 of the Bankruptcy Code. The bankruptcy court held that upon the filing of the bankruptcy petition, the restraining notice became void and of no effect and that as of the petition date the bank had no legal obligation to abide by it. The court found that the bank violated the automatic stay by continuing to freeze the debtor’s account post-petition and requiring the debtor to obtain the creditor’s consent to lift the restraint on her account. The court noted that while a judgment creditor has a responsibility to respond to a debtor’s demand that a restraint on a checking account be removed post-petition, a bank holding the restrained account has a separate independent duty to abide by the automatic stay and independently lift the restraint. The bankruptcy court indicated that a further hearing would be needed to determine the debtor’s actual damages, but declined to award punitive damages. In addition, the court indicated that the debtor’s attorney could file a separate application for attorney’s fees. On cross-appeals the U.S. District Court for the Southern District of New York affirmed the bankruptcy court’s finding that the bank had violated the automatic stay and further found that the post-petition hold the bank placed on the debtor’s account was not a temporary administrative freeze in accordance with the Supreme Court’s decision in Citizens Bank v. Strumpf, 516 IU.S. 16, 17 (1995). The District Court also affirmed the denial of a punitive damages award. Discussion: The Adomah decision is relevant to both attorneys for creditors and debtors, and not only those practicing in New York. The restraining notice that was the subject of the decision has the legal effect of a mandatory injunction. The rationale of the case accordingly applies not only to restraining notices issued in New York, but to pre-petition injunctions generally. Upon a debtor’s bankruptcy filing, debtor’s attorneys, particularly those practicing in New York, should immediately made demand upon any bank holding funds of the debtor’s subject to an injunctive freeze to immediately lift such freeze. However, in New York demand should also be made on the creditor’s attorney that issued a restraining notice to lift the restraint. Creditor’s attorneys, particularly those practicing in New York, should continue to promptly release injunctive freeze’s placed on debtor’s bank accounts. The Adomah decision does not relieve creditor’s attorneys of this obligation. For banks and credit unions those that counsel them, it is important that they develop administrative procedures to process bankruptcy notices and promptly lift any injunctive restraints subsequent to a debtor’s bankruptcy filing. However, banks and credit unions retain their rights under Strumpf to place a temporary administrative hold on debtors’ bank accounts to protect themselves from liability or loss. To protect itself a bank or credit union may wish to communicate with the chapter 7 trustee prior to releasing any funds to provide the trustee with an opportunity to advise the bank if the trustee takes a position regarding the funds, for instance if they exceed the debtor’s exemption rights. 2007 CLLA NCBJ Program Sponsors
Francis Buckley Lucius B. Dabney Jr. David Grammer Fred Luper Susan Hartman Muska David W. Ostrander Ronald Peterson Gary Weiner
Thank you to the following contributors to the 2007 Bankruptcy Section NewsletterKaren J. Porter
Abraham Brustein
Faye B. Feinstein
Melanie Rovner Cohen
Joshua D. Greene
James. W. McNeilly, Jr.
Copyright © 2007 Commercial Law League Bankruptcy Section Except as otherwise provided, the CLLA Bankruptcy Section newsletter permits any individual or organization to photocopy any article, comment, note, or other piece in this publication, provided that: (1) copies are distributed at or below cost; (2) the author and the CLLA Bankruptcy Section seal are prominently identified on the first page; (3) proper notice of copyright is affixed to each copy; and (4) all other applicable laws and regulations are followed. The CLLA Bankruptcy Section reserves all other rights. |
