Jay Welford, Chair
Jaffe, Raitt, Heuer & Weiss
Detroit, MI
jwelford@jafferaitt.com
Everything seems to be on sale today-clothing, cars, cruises, computers,
you name it. One of the best bargains going is your Bankruptcy Section
membership. For a mere $60.00 per year, what do you get?
Young v. United States: A Liberal Reading and Reliance on Equity
from an Unusual Source
Louis S. Robin
Fitzgerald, O'Brien, Robin & Shapiro
Longmeadow, MA
Email: louis.robin@prodigy.net
Summary: The United States Supreme Court recently issued a decision
on the equitable tolling of the period after which tax claims are nondischargeable
that is logical and reasonable, but a strict reading of the relevant statutes
might have produced a different result.
Catherine E. Vance, Esq.
Columbus, Ohio
Email: vance76@earthlink.net
Disallowance of Claims. Claims of claimants, whose loans to debtor
were usurious as a result of debtor’s Ponzi scheme to which claimants
fell prey, were void because they were violative of New York usury statutes.
That claimants were victims of Ponzi scheme, rather than loan sharks,
is irrelevant based on plain language of statute. In dicta, court addresses
apparent gap in statutory framework that works to void civilly usurious
claims, but not those that violate New York’s criminal usury statute.
Brodie v. Schmutz (In re Venture Mortgage Fund, L.P.), 2002 U.S. App.
LEXIS 3297 (2d Cir. Mar. 1, 2002).
Everything seems to be on sale today - clothing, cars, cruises, computers,
you name it. One of the best bargains going is your Bankruptcy Section
membership. For a mere $60.00 per year, what do you get?
Pride in being a Bankruptcy Section member.
A Bankruptcy Section membership is not to be taken for granted. It is
a resumé builder; it is a statement that you are affiliated with
an outstanding group of bankruptcy professionals who are at the top of
their game and involved in every aspect of bankruptcy practice.
Respect in the bankruptcy community.
The Bankruptcy Section is known as one of the preeminent bankruptcy organizations
in the country. I’ve yet to tell a fellow bankruptcy practitioner
that I am a member of the Bankruptcy Section of the Commercial Law League
of America, and hear a comment back such as “what is that?”
Instead, the response is, “when did you get involved?” or “has
it helped your practice?”
Opportunity for growth. The Bankruptcy
Section provides innumerable opportunities for you to promote yourself.
If you become active, you become noticed. If you become active, you will
receive referrals. If you become active, you will be better educated.
Memories which make business fun.
Activity in the League and in the Bankruptcy Section is fulfilling. As
a Bankruptcy Section member, you will look back on such activities as
visits to Capitol Hill, presentations given, awards bestowed, referrals
received, impromptu political discussions, chats on the beach, hot air
balloon rides and to come, ski jump competitions at our Winter Olympic
venue. Those who are active in the League will tell you that its members
are their extended family.
Options to set you apart from your competitors.
Whether it is pitching a creditors committee or meeting with a client
in your office, involvement in the Bankruptcy Section provides you with
the tools needed to advance your practice. Those tools, in turn, provide
you with the option to take your practice in whatever direction and to
whatever level of sophistication you desire.
Training. The Bankruptcy Section’s
educational programming is second to none. Consistently, the League’s
programming at the National Conference of Bankruptcy Judges has been revered
as the best of the event. That standard of excellence is carried forward
in our programming at the League meetings throughout the year.
Inclusion in all aspects of League activity.
The Bankruptcy Section is seeking to include you in all aspects of its
activities. From committee memberships to officerships, from being educated
to educating others, from referring work to receiving work, from watching
legislation being made to taking an active hand in its outcome, the Bankruptcy
Section offers the opportunity for your very active involvement.
Organization of your practice. As
a trade organization, we are here to help facilitate your practice of
law. Our newsletters, list serve, legislative updates, on-line library,
membership roster, web site, publications, INSOL affiliation, conventions,
programming, and networking opportunities are available to you year round.
Many of our most economically successful members have built their business
and professional development plans around their League membership.
Networking opportunities. Most importantly,
the Bankruptcy Section provides you with opportunities to network with
business referral sources, whether they be other bankruptcy practitioners
or direct credit providers. Our recent joint conference with the National
Association of Credit Management afforded our members the opportunity
to network directly with credit managers and other professionals from
around the country and abroad. The recent expansion of League membership
qualification to include equipment lessors, turnaround professionals,
CPAs and others is providing an ever-expanding referral base to our members.
PROMOTION
Taken together, the above outlined benefits of membership in the Bankruptcy
Section provide you with the tools you need to promote yourself
- in your community and within the League itself. All this for a mere
$60.00 per year.
Now, for those who are short on time but long on money, I’m here
to offer you another opportunity for promotion. We are seeking
sponsors for our League conferences and at the National Conference of
Bankruptcy Judges. If you want to make a splash, win some friends and
influence some people, sponsor an educational program, a cocktail party,
a banquet, a golf outing or the NCBJ breakfast. Whatever suits your fancy.
I offer this promotional opportunity in all seriousness, not only
to benefit the League, but as an opportunity to benefit yourself. As lawyers
we all must market, and we all spend marketing dollars. We have no salesmen
other than ourselves. To date, the League has overlooked a tremendous
member benefit - the ability for all members to promote themselves
at a League function. What better audience and what better opportunity
is there to target those professionals in a position to refer business
to you, who know you and who are already affiliated with you, than a League
event?
So, for $60.00, and some of your time, you can promote yourself.
Or, for a few more dollars, buy some promotion through a League
sponsorship.
If you are interested in a League sponsorship, just e-mail clla@clla.org
and information will be sent to you.
Mr. Jay L. Welford
Jaffe, Raitt, Heuer & Weiss
One Woodward Avenue Suite 2400
Detroit, MI 48226
Phone: 313-961-8380 Fax: 313-961-8358
Email: jwelford@jafferaitt.com
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Young v. United States: A Liberal Reading and Reliance on Equity from
an Unusual Source
Summary: The United States Supreme Court recently issued a decision
on the equitable tolling of the period after which tax claims are nondischargeable
that is logical and reasonable, but a strict reading of the relevant statutes
might have produced a different result.
Facts: In Young v. United States, ____ U.S. ____, 122 S.Ct. 1036
(2002), the Youngs failed to pay their 1992 federal income taxes in full.
After nearly two and a half years, the Youngs filed a Chapter 13 petition.
Two years into the Chapter 13, the case was dismissed on the debtors’
request, while they filed a Chapter 7 petition. The Chapter 7 was a “no
asset” case in which the Youngs timely received their discharge and
the case was closed. Subsequent to case closing, the IRS demanded payment
of the 1992 taxes. The Youngs refused and requested that the Bankruptcy
Court reopen the Chapter 7 case in or that the 1992 taxes be determined
to be discharged.
Sections 523(a)(1) and 507(a)(8)(A)(i) of the Bankruptcy Code provide
that taxes more than three years old (from the date of filing) are discharged.
The Youngs asserted that the 1992 taxes were exactly that, more than three
years old since they were filed. The IRS asserted that, although the 1992
taxes were more than three years old when compared to the Chapter 7 petition
date, these taxes were not three years old if the court considered the
three year period “tolled” during the Chapter 13 case. The Bankruptcy
Code, however, provides for no such tolling period.
The Bankruptcy Court reopened the Chapter 7 case, but agreed with the
IRS. The decision was affirmed by the Court of Appeals, 233 F.3d 56 (1st
Cir. 2000), and the Supreme Court granted certiorari, 533 U.S. 976 (2001).
Issue: The issue presented is whether the three year period after
which taxes are dischargeable is equitably tolled during the pendency
of a Chapter 13 case.
Holding: The Supreme Court affirmed. Writing for a unanimous Court,
Justice Scalia stated:
"It is hornbook
law that limitations periods are 'customarily subject to equitable tolling',
unless tolling would be 'inconsistent with the text of the relevant statute.'
Congress must be presumed to draft limitations periods in light of this
background principle. That is doubly true when it is enacting limitations
periods to be applied by bankruptcy courts, which are courts of equity
and “apply the principles and rules of equity jurisprudence.
This Court
has permitted tolling in situations 'where the claimant has actively pursued
his judicial remedies by filing a defective pleading during the statutory
period, or where the complainant has been induced or tricked by his adversary’s
misconduct into allowing the filing deadline to pass.' We have acknowledged,
however, that tolling might be appropriate in other cases, and this, we
believe, is one. The Youngs’ Chapter 13 petition erected an automatic
stay under § 362, which prevented the IRS from taking steps to protect
its claim. When the Youngs filed a petition under Chapter 7, the three-year
lookback period therefore excluded time during which their Chapter 13
petition was pending. The Youngs’ 1992 tax return was due within
that three-year period. Hence the lower courts properly held that the
tax debt was not discharged when the Youngs were granted a discharge under
Chapter 7."
In the remaining portion of the opinion, Justice Scalia rejected the
Youngs’ arguments that the applicable statutes did not provide for
equitable tolling.
Analysis: There is much logic in this opinion. Even the most generous
debtor proponent must admit that there is something wrong if a debtor
can utilize the automatic stay of Chapter 13 to delay payment of taxes
until the three year period has expired, even if the delay is innocent.
Reliance upon accepted equitable principles is consistent with finding
a tolling period.
Yet, there is nothing in the Bankruptcy Code providing for a tolling period
in this specific instance. Further, this issue has been brought to the
attention of Congress in the past, making its way into some proposals
but never in passed legislation. This was raised in oral argument by Justice
Scalia and other Justices - that it is up to Congress to correct any problem,
not the courts. Justice Scalia is well known for his position that it
is not up to the courts to expand upon the law, but to apply it as written.
Justice Scalia has applied this principle in bankruptcy cases. See, e.g.,
Patterson v. Shumate, 504 U.S. 753 (1992) (this interpretation “calls
into question whether our legal culture has so far departed from attention
to text, or is so lacking in agreed upon methodology for creating and
interpreting text, that it any longer makes sense to talk of ‘a government
of laws, not of men.’”). In Union Bank v. Wolas, 502 U.S. 151
(1991) stated that it “is regrettable that we have a legal culture
in which such arguments have to be addressed (and are indeed credited
by a Court of Appeals), with respect to a statute utterly devoid of language
that could remotely be thought to distinguish between long-term and short-term
debt. Since there was here no contention of a ‘scrivener’s error’
producing an absurd result, the plain text of the statute should have
made this litigation unnecessary and unmaintainable.” Given this
stance, it is unusual that Justice Scalia would author the Court’s
opinion favoring equitable principles over statutory construction.
Further, resort to equitable principles seems unique in this instance.
Here, equity was invoked to protect the United States, the party that
had in its control for over 20 years the ability to correct this conflict
by passing legislation. One wonders if an individual who had 20 years
to invoke protection otherwise would be worthy of “equity” in
Justice Scalia’s view.
Still, Justice Scalia has strayed from a strict interpretation of the
Bankruptcy Code in the past, such as in BFP v. Resolution Trust Corp.,
511 U.S. 531 (1994), where he found that state foreclosure law prohibited
the finding that a foreclosure sale could be a fraudulent transfer based
upon “over 400 years of peaceful coexistence in Anglo-American foreclosure
and fraudulent transfer law.” Dissenting in Dewsnup v. Timms, 502
U.S. 410 (1992), Justice Scalia provided a flexible interpretation of
§ 506, particularly in its application to Chapter 13 provisions concerning
modification of undersecured mortgages.
One cannot help but query as to whether there has been a shift in Justice
Scalia’s reading of the Bankruptcy Code, a shift that, perhaps, bodes
well for other bankruptcy issues such as the “new value exception,”
which the Court neither rejected nor adopted in Bank of America v. 203
North LaSalle Street Partnership. Without doubting the intellect Justice
Scalia brings to the Court, nor his doubtless ability to disabuse this
author of any notion that his opinions lack consistency, opinions like
that in Young v. United States, do raise questions in predicting his interpretive
future.
Louis S. Robin
Fitzgerald, O'Brien, Robin & Shapiro
1200 Converse Street
Longmeadow, MA 01106
Phone: 413-567-3131
Fax: 413-565-3131
Email: louis.robin@prodigy.net
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Disallowance of Claims. Claims of claimants, whose loans
to debtor were usurious as a result of debtor’s Ponzi scheme to which
claimants fell prey, were void because they were violative of New York
usury statutes. That claimants were victims of Ponzi scheme, rather than
loan sharks, is irrelevant based on plain language of statute. In dicta,
court addresses apparent gap in statutory framework that works to void
civilly usurious claims, but not those that violate New York’s criminal
usury statute. Brodie v. Schmutz (In re Venture Mortgage Fund, L.P.),
2002 U.S. App. LEXIS 3297 (2d Cir. Mar. 1, 2002).
Codebtors. Debtor’s bankruptcy included mortgage on
which Nelson was co-signatory. Nelson made all payments as required, but
had difficulty obtaining credit because credit reports contained notation
that mortgage was included in bankruptcy. Held, dismissal for failure
to state a claim reversed; Nelson could maintain private cause of action
against bank under Fair Credit Reporting Act. Nelson v. Chase Manhattan
Mortgage Corp. 2002 U.S. App. LEXIS 3291 (9th Cir. Mar. 1, 2002).
Subordination of Claims. Rule that Bankruptcy Code §
510 applies to claims alleging fraud in the inducement to purchase or
sell a debtor’s security also reaches claims alleging fraud in the
retention of such security. Allen v. Geneva Steel Co. (In re Geneva Steel
Co.), 2002 U.S. App. LEXIS 3046 (10th Cir. Feb. 27, 2002) aff’g 260
B.R. 517 (10th Cir. B.A.P. 2001).
Jurisdiction. Debtor challenged in bankruptcy court a state
court order creating lien on his property claiming defective service of
process rendered order void. Because of Rooker-Feldman doctrine, order
was not reviewable in federal court. There is no procedural due process
exception to doctrine. Further, court found no authority in 4th Circuit
to apply to facts of this case the limited exception to doctrine adopted
in some courts. Keeler v. Academy of American Franciscan History, Inc.
(In re Keeler), 2002 U.S. Dist. LEXIS 2411 (D. Md. Feb. 14, 2002) aff’g
Keeler v. Academy of American Franciscan History, Inc. (In re Keeler),
257 B.R. 442 (Bankr. D. Md. 2001).
Property of the Estate. Subsequent to filing Chapter 11
petition, debtor’s case was converted to Chapter 7 and debtor was
convicted of bankruptcy fraud. Debtor filed malpractice action asserting
negligence in preparation of initial filing and failure to properly advise
debtor during pendency of case. Court held malpractice action is property
of the estate; even if action had not accrued prepetiton, claims were
sufficiently rooted in pre-bankruptcy past to warrant inclusion inclusion
in estate, and estate was harmed by alleged negligence. Tomaiolo v. Rodolakis
(In re Tomaiolo), 2002 U.S. Dist. LEXIS 2038 (D. Mass. Feb. 6, 2002),
aff’g Tomaiolo v. Rodolakis (In re Tomaiolo), 205 B.R. 10 (Bankr.
D. Mass. 1997).
Timely Objection to Exemptions. Where debtor created ambiguity
with respect to property in which she claimed an exemption, time to object
to exemption did not begin to run until trustee received clarification.
Thus, objection asserted 40 days after debtor’s filing of schedules
was timely. Walsh v. Hendrickson (In re Hendrickson), 2002 Bankr. LEXIS
149 (Bankr. W.D. Pa. Feb. 26, 2002).
Fraudulent Transfers. Sale of property vacated as fraudulent
transfer where foreclosure sale was adjourned for several months, during
which time debtor paid secured lender nearly 75 percent of outstanding
balance. Because sale was not re-noticed or re-advertised, court expressed
concern that competitive nature of bidding was undermined because public
was not on notice that property valued in excess of $200,000 was encumbered
only to the extent of approximately $50,000. Ryker v. Current (In re Ryker),
2002 Bankr. LEXIS 128 (Bankr. D.N.J. Feb. 8, 2002).
Chapter 11 Disclosure Statement and Plan. Disclosure statement
and plan filed by Pacific Gas & Electric could not be approved where
debtor proposed broad preemption of applicable nonbankruptcy law. Court
concluded that there is no express preemption of nonbankruptcy law that
permits a wholesale unconditional preemption of numerous state laws, but
debtor would be given opportunity to support implied preemption of specific
authorities sought to be preempted. Court also found plan, as drafted,
to offend sovereign immunity because it sought relief against state and
state regulatory authorities. In re Pacific Gas & Electric Co., 2002
Bankr. LEXIS 122 (Bankr. N.D. Cal. Feb. 7, 2002).
Catherine E. Vance, Esq.
Columbus, Ohio
614-890-0709
Email: vance76@earthlink.net
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Nominating Committee to Select Council Candidates
The Bankruptcy Section Nominating Committee will meet in May to select
a slate of candidates for the July election. Candidates must be willing
to commit themselves to a three-year term of active involvement in Council
and Section Affairs and be able to attend Council meetings. Section members
interested in being considered for an Executive Council position should
submit a letter immediately stating their interest and indicating their
qualifications. All letters/emails must be received by May 1, 2002.
Please send letters to:
Wanda Borges Esq.
Borges Donovan LLC
575 Underhill Blvd. Suite 110
Syosset, NY 11791
Phone: 516-677-8200
Fax: 516-677-0806
Email: clla@clla.org
Please send a copy to:
Sarah A. Jolie, Staff Liaison
Commercial Law League of America
150 North Michigan Avenue, Suite 600
Chicago, IL 60601
Fax: 312-781-2010
Email: sjoli@aol.com
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March 21, 2002
Senate Democrats Offer Compromise
I. Senate Dems Counter Offer To Compromise on Reform Bill
No word yet in response to the Senate Democrats March 13th counter to
the compromise offer made last month by House Republicans on pending bankruptcy
reform legislation (H.R. 333.)
Rep. Sensenbrenner (R-WI), the conference committee chair, is on record
promising that the legislation will make it to the president's desk before
Congress adjourns for its spring recess, scheduled to begin March 25th,
but it is highly unlikely the prediction will be met.
II. On March 12th, Senator Leahy (D-VT) and Senators Daschle (D-SD),
Durbin (D-IL) and Harkin (D-IA) introduced S. 2010, to provide for criminal
prosecution of persons who alter or destroy evidence in certain federal
investigations or defraud investors of publicly traded securities, to
disallow debts incurred in violation of securities fraud laws from being
discharged in bankruptcy, to protect whistleblowers against retaliation
by their employers, and for other purposes; referred to the Judiciary
Committee.
III. Finally, today, the House Financial Services Committee's Oversight
and Investigations Subcommittee is holding a hearing on the effects of
the global crossing bankruptcy on investors, markets and employees.
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©2002, Commercial Law League
of America
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