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Not Paying a Few Creditors, After 48 months, Per Confirmed Plan is Grounds For Dismissal/Conversion (In re Warren)(Unpublished)

By | June 1, 2015 | Appeals, Cases, Chapter 11 | No comments
Debtors implemented their confirmed Plan for 52 months (8 months to go), but they  failed to pay a few unsecured creditors.   On Motion by the unpaid creditors, bankruptcy judge reopened the case, and found there was “cause” under 1112(b)(4)(N) to dismiss the case (rather than convert).
The Debtors were apologetic, and said they would immediately pay all the creditors what they are owed rather than facing the harsh consequence of a dismissal after 52 months of plan payments.  Section 1112(b)(2) allows an exception whereby if there is “unusual circumstances” to permit the court not to dismiss/convert.   Bankruptcy judge was not moved by Debtors excuses, and dismissed the case.   The B.A.P. affirmed (unpublished).
Lesson:  Road to discharge begins (not ends) at plan confirmation.
Link: http://cdn.ca9.uscourts.gov/datastore/bap/2015/05/28/Warren%20Memo%2014-1390.pdf

Postconfirmation Subject Matter Jurisdiction of Bankruptcy Courts

By | June 1, 2015 | Case Briefs, Chapter 11 | 1 Comment

A trend among Chapter 11 practitioners over the last ten years has been to use general provisions in the Plans of Reorganization they draft. They copy and paste these provisions in all their Plans, close their eyes and hope for the best.

One of those clauses is this “retention of jurisdiction” clause. Some practitioners have a bland one, “The Court shall retain jurisdiction to the maximum extent possible under the law.” To me, that means nothing. The problem is this clause is not helpful. It doesn’t tell the court specifically what it’s allowed to do and not allowed to do, inviting litigation over this issue before the merits are even considered!

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How Does the Sham Guarantor Defense Work?

By | May 27, 2015 | Case Briefs, Cases | No comments

Under California law, a lender may not pursue a deficiency judgment against a borrower where the sale of property securing a debt produces proceeds insufficient to cover the amount of the debt. Lenders may pursue deficiency judgments against guarantors, but only true guarantors. Where the borrower and the guarantor are the same, however, the guaranty is considered an unenforceable sham.

The first set of antideficiency laws were enacted during the Great Depression. They prohibited lenders from obtaining personal judgments against borrowers where the lender’s sale of real property security produces proceeds insufficient to cover the amount of the debt. These laws were expanded beginning on January 1, 2013 in response to the bursting of the housing market bubble.

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California One-Action Rule Preempted by Federal Debt Collection Improvement Act

By | May 21, 2015 | Cases | No comments

Cal. Code Civ. P. § 726, often referred to as the one-action rule, has many facets. Relevant to this article is the “security-first” rule which requires “a secured creditor to proceed against the security before enforcing the underlying debt”; the penalty for failing to do so is waiver of the security.

In practical terms, this means a creditor secured by property has to either pursue foreclosure or file a lawsuit on the debt. The aforementioned ‘or’ is an exclusive ‘or’ meaning the lender has to pick one or the other and cannot pick both options. Consequently, this is what’s typically referred to as an “election of remedies.” Read more…

Nice Discussion of Critical Vendor Motions from Chief Judge Sheri Bluebond

By | May 20, 2015 | Cases, Chapter 11 | No comments

Tentative Ruling today from Chief Judge Sheri Bluebond.  I do not know how she ultimately ruled but you can see the thought process very nicely.

2:15-17527 Redondo Brothers, Inc. Chapter 11

#106.00 Debtors Emergency First Day Motion For An Order Authorizing Debtor To Pay Pre-Petition Claims Of Certain Critical Vendors Necessary For Its Continued Operations

There is no basis upon which the Court can or should authorize the payment of prepetition claims.  The concept of a critical vendor is a very narrow one that should only be applied when there is no permissible theory under which the requested amounts can be paid and it is clear that, by using property of the estate in this manner, the value of the estate is increased by more than the amount of cash that must be spent to make the payment.  The debtor has not made a sufficient record to support such payments here.  The motion reflects a debtor who did not want to bother taking the time or effort to analyze whether there are other bases upon which payments can or should be made.

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Nice Tentative by Chief Judge Sheri Bluebond on Rejecting a Family Law Contract

By | May 20, 2015 | Cases, Chapter 11 | No comments

United States Bankruptcy Court
Central District of California
Chief Judge Sheri Bluebond, Presiding

Wednesday, May 20, 2015 Hearing Room 1475

2:15-11273 [debtor] Chapter 11
#7.00 Motion for an Order Rejecting Family Law Contract

The parties’ marital settlement agreement IS an executory contract.  The issue is whether there are unperformed obligations remaining on both sides of the contract that are sufficiently material that, if either party failed to perform these obligations, it would constitute a breach of the contract, relieving the other party of a duty of further performance.  Counsel for [the debtor] claims that [her] only remaining obligations are ministerial and therefore do not count.  This is not true.  Cooperating with transfers of title of real property is not merely a ministerial act in this context.  Refusing to cooperate in transfers of title would constitute a material breach of the contract.  The fact that the debtor would be able to compel performance and, if necessary, have a court official execute deeds on her behalf does not mean that these are not material obligations.  But there are other ongoing obligations as well that have been held sufficient to cause a given contract to be treated as executory, including the parties’ obligations to indemnify each other and hold each other harmless from and against certain obligations, the obligations with regard the payment of tax liabilities and expenses, and the like. Find more details about family laws practice here.

[The debtor] has cited to a handful of cases in which various obligations were treated as not being sufficient to make a given contract executory.  A careful review of executory contracts cases would reveal that the identical obligation has been held sufficient to cause a contract to be characterized as executory in one instance and to be insufficient in another.  This is because courts, adopting an outcome-oriented approach, have either attempted to avoid adverse results or to create desired benefits for one party or the other by manipulating the definition of executoriness.  This court rejects that approach.  Properly understood, rejection does not result in avoidance of the contract. It merely constitutes a thorough breach of the contract that is deemed to have occurred immediately prior to the petition date.  For an extensive, scholarly discussion of these issues, see M. Andrews, “Executory Contracts in Bankruptcy: Understanding ‘Rejection,'” 59 U. Colo. L. Rev. 845 (1985).

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What’s Not a Claim In Bankruptcy?

By | May 7, 2015 | Appeals, Case Briefs, Cases | No comments

Before joining his firm, I visited Professor Hayes’ Bankruptcy class which he teaches at the University of West Los Angeles. The topic of the day was “claims.”  As we parsed through the case law, I gave the students a hint, if there is any question whether something is a claim, it’s a claim! In fact, I couldn’t think of something that wasn’t a claim! Read more…

Follow Up: Supreme Court Weighs Power of BK Judges (Wellness International Network Ltd. v. Sharif)

By | January 15, 2015 | Appeals, Cases, Supreme Court | No comments

From Sara Randazzo of the Wall Street Journal

The Supreme Court appeared open Wednesday to clarifying the powers of nearly 1,000 judges in the federal court system, a group whose constitutional authority has come into question since a 2011 high-court decision involving the late Playboy playmate Anna Nicole Smith.

Depending on how the court rules in a case argued Wednesday, the bankruptcy-court system could remain mired in confusion over when it has the power to offer final judgments on certain issues. By extension, the ruling could also curtail the ability of the federal magistrate system to handle some of the work of district-court judges.

“This case is enormously important for the workload of the federal district courts,” said Erwin Chemerinsky, a constitutional scholar and dean of the law school at the University of California, Irvine.

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Supreme Court Oral Arguments Today in Wellness International Ltd. v. Sharif

By | January 14, 2015 | Appeals, Cases, Chapter 11, Chapter 13, Chapter 7, Courts, Supreme Court | No comments

Today, January 14, 2015, the Supreme Court is scheduled to hear oral arguments in the latest case before the Court regarding the bankruptcy court’s jurisdictional powers — Wellness International Network, Limited v. Sharif.  The Court was not too interested in delving into this issue since the case was on the list of cases to be considered by the Justices at five separate conferences.  Regardless, the Court finally granted certiorari to the Seventh Circuit’s decision on July 1, 2014.

The Court will address the following two issues:

(1) Whether the presence of a subsidiary state property law issue in an 11 U.S.C. § 541 action brought against a debtor to determine whether property in the debtor’s possession is property of the bankruptcy estate means that such action does not “stem[] from the bankruptcy itself” and therefore, that a bankruptcy court does not have the constitutional authority to enter a final order deciding that action; and

(2) whether Article III permits the exercise of the judicial powers of the U.S. by the bankruptcy courts on the basis of litigant consent, and if so, whether implied consent based on a litigant’s conduct is sufficient to satisfy Article III.

For more information:  www.scotusblog.com/case-files/cases/wellness-international-network-limited-v-sharif/

Great Quote from In re Sullivan, new 9th Circuit BAP Bad Faith Case

By | January 8, 2015 | Case Briefs, Chapter 11 | No comments

“Many are the judgment creditors who gnash their teeth (metaphorical or otherwise) in chagrin when their collection campaign is stayed by a bankruptcy filing.  Only slightly less frequent are the immediate post-filing threats that no quarter will be given.  Such jeremiads, however, are not a sufficient basis for a universal conclusion of plan futility.  And they certainly do not unequivocally establish the debtor’s bad faith.  Economic considerations and rationality often result in resolution.”

In re Sullivan, —BR —, (9th Cir BAP, Dec 2014)

In Sullivan, the bankruptcy court dismissed the filing as a two party dispute with no hope of ever getting a plan confirmed.  The BAP reversed.  Credit bankruptcy attorney Sean O’Keefe for the great work.

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