Wellness International Network, Limited. v. Sharif: Argument Highlights from the Briefs

The question of the power of bankruptcy judges to enter final judgment pursuant to 28 U.S.C. § 157 will soon return to the Supreme Court.  On January 14, 2015, the Justices will hear oral arguments in Wellness International Network, Limited v. Sharif.  Observers hope the court will address two questions previously unanswered in Stern v. Marshall (134 S. Ct. 2165 (2011)) and Executive Benefits Insurance Agency v. Arkison (134 S. Ct. 2165 (2014)):

  1. Does a bankruptcy judge have constitutional authority to finally determine if property in a debtor’s possession is property of the estate pursuant to 11 U.S.C. § 541 when that determination involves an issue of state property law?
  2.  May a bankruptcy judge enter final judgment with the consent of the parties on a matter that is not a core proceeding? If so, is consent implied by conduct sufficient?

To read more about Wellness, including the parties’ arguments and the amicus briefs filed in the case, please click this link:  Wellness International Network, Limited. v. Sharif. Argument Highlights from the Briefs (A2810573x7A575)

This blog post was prepared and contributed by Kathleen Bardsley.  The author is a 2014 graduate of Boston College Law School and a term law clerk to Judge William C. Hillman.  To the extent this post contains any opinions, they belong to the author alone.

Brown Bag Program on January 13 — Credit Reporting Demystified

Join us as we pry open the black box of credit reporting!

What’s the difference between a short sale and a foreclosure on your client’s credit score?  Is it better to try to settle debts over time or file a bankruptcy?  Does a bankruptcy filing always hurt one’s credit?  How does a bankruptcy filing affect the credit score of a co-signer?  And what’s the correct way for these events to be reported on a credit report, anyway?

Come hear Chi Chi Wu, attorney and consumer credit expert from the National Consumer Law Center, and Ralph Abrams, senior loan officer with NewFed Mortgage Corp., discuss the answers to these questions and more at the Consumer Bankruptcy Committee’s brown bag program at noon on January 13, 2015 at the BBA.

Case Summaries — The November Bankruptcy Court Opinions

The following are summaries of the November opinions posted on the Massachusetts Bankruptcy Court’s website.

Prime Rate Premium Fin. Corp., Inc. v. Shannon (In re Shannon), Case No. 11‐18113-FJB, Adv. P. No. 11-1337-FJB (November 4, 2014).

After a trial and submission of post-trial briefs, the court ruled that $59,771.00 in insurance premium financing advances received by the Chapter 7 Debtor were non-dischargeable under Section 523(a)(4).  The Debtor, through two insurance agencies he had controlled, obtained premium financing on behalf of his customers from the plaintiff.  The Debtor had signed premium financing agreements under which the Plaintiff advanced funds to the Debtor’s agency escrow accounts so that the Debtor could use the funds to buy specifically identified insurance policies for his customers who were financing their premiums (and who were also individually identified in each of the financing agreements).  Instead, the court found that the Debtor used the money advanced by the Plaintiff for his own personal use and never bought the policies.  The court held that, under the terms of the premium financing agreements, the money in the agency escrow accounts was held in trust for the benefit of the Plaintiff, and thus the Debtor’s unauthorized use of such funds constituted an embezzlement rendering the Debtor’s obligation to the Plaintiff for the premium advances non-dischargeable.

Brooke-Petit v. Spagnuolo (In re Spagnuolo), Case No. 11-10844-JNF, Adv. P. No. 11-1290-JNF (November 17, 2014).

This case explores the complications of discharging a state court damage award in bankruptcy. A jury verdict was entered against the Debtor in a state court action in the amount of $250,000 resulting from a home-improvement construction contract gone wrong. The jury instructions included claims for breach of contract, damages for breach of contract, fraud, damages for fraud, and violations of 93A and 142A. Despite the overwhelming evidence of fraudulent inducement and misrepresentations made by Debtor in the context of this construction contract, the Debtor claimed that the jury did not intend to attribute the verdict to the fraud claim, but instead to the breach of contract claim. Indeed, this was not specified in the state court action. If the Bankruptcy Court agreed with Debtor’s contention, the verdict would be dischargeable. However, after a lengthy case law analysis of contract breaches and fraudulent conduct, coupled with Debtor’s myriad improprieties shown in the state court transcript, the Bankruptcy Court did not agree. Conceding that the jury instructions could have been clearer, the Court concluded that there is no inconsistency in the jury’s measure of damages for breach of contract and fraud, and inferred that the jury’s award was intended to compensate the Plaintiff, Brooke-Petit, for Debtor’s fraudulent conduct in inducing her to enter into an unwritten contract that Debtor did not intend to perform, and subsequently breached. The Court therefore attributed the full $250,000 damage award to fraud and found it to be non-dischargeable.

Lemieux v. Am. Servicing Co, et al. (In re Lemieux), Case No. 12-40104-MSH, Adv. P. No. 14-04042 (November 18, 2014).

Chapter 7 Debtors surrendered and abandoned their principal residence and received a discharge of their debts.  Subsequently, Lenders holding a security interest in the Debtors’ former residence sent the Debtors various mailings concerning the loan.  The Debtors filed an adversary proceeding against the Lenders alleging that the Lenders’ communications violated the Section 542(a)(2) discharge injunction.  The Court ruled that mailings consisting of monthly statements and rate-change information that provided numerous clear disclaimers as to the Debtors’ bankruptcy and the fact that the Lenders were not attempting to collect a debt did not violate the discharge injunction.  However, the Court ruled that the Debtor had stated a claim upon which relief may be granted and denied the Lenders’ motion to dismiss with respect to the third mailing – a twelve-page document related to hazard insurance on the property, which contained only one short disclaimer in small type and was otherwise “strongly” worded and made numerous requests for payment and other action on the part of the Debtors.

 

Contributions by:

Michael K. O’Neil, Murphy & King

Nathan Soucy, Soucy Law Office

Aaron S. Todrin, Sassoon & Cymrot

 

California Standing Committee Favorably Cites BBA Ethics Opinion

The  State Bar of California Standing Committee on Professional Responsibility and Conduct has issued an advisory  opinion (accessible here) which  concludes in relevant part:  “If a potential debtor-client is adequately prescreened through a pro bono program like the one in our hypothetical  facts to ensure that a simple, no-asset Chapter 7 bankruptcy proceeding is an in rem proceeding that focuses solely on the discharge of debts, a lawyer may represent the debtor-client, without first obtaining written consent, even if the attorney  concurrently represents one or more creditors of the debtor-client in unrelated matters, so long as the proceeding remains a simple, no-asset Chapter 7 bankruptcy.”   In reaching this conclusion, the California Standing Committee cited favorably the ethics opinion issued by the BBA (as well as the Bar of the City of New York).     The BBA Bankruptcy Section is proud to have its work cited favorably by others in expanding access to pro bono legal services.

 

Case Summaries — Recent Appellate Decisions

Below are summaries of two recent appellate decisions.  In both cases, and with differing outcomes, the courts considered the scope of a notice of appeal and the requirements of Fed. R. App. P. 3.

Biltcliffe v. CitiMortgage, Inc., C.A. No. 14-1043 (1st Cir. November 25, 2014) (Stahl, J.).

After Defendant-Appellee initiated foreclosure proceedings on Plaintiff-Appellant’s house, Plaintiff filed suit, alleging breach of contract, unjust enrichment, and breach of the covenant of good faith and fair dealing. The district court granted summary judgment to Defendant on all counts, and denied Plaintiff’s motion for reconsideration. The threshold jurisdiction question for the First Circuit Court of Appeals was whether Plaintiff appealed the District Court’s order entering summary judgment for Defendant or its order denying the Plaintiff’s motion for reconsideration. Fed. R. App. P. 3(c)(1)(B) requires a party to “designate the judgment, order, or party thereof being appealed” in the notice of appeal, and appellate jurisdiction is limited to the events designated in the notice of appeal. Here, Plaintiff’s notice of appeal stated he appealed from “Final Order Denying Reconsideration of Entry of Judgment.” The Court held that Plaintiff’s notice of appeal was not sufficient to fairly put Defendant on notice of an appeal of the underlying judgment. The consequence of Plaintiff’s notice of appeal was that the First Circuit reviewed the District Court’s reconsideration decision only and under the deferential abuse of discretion standard. The Court found the District Court did not abuse its discretion in denying reconsideration, adding in a footnote that it also would have affirmed the District Court’s underlying summary judgment decision using the de novo standard of review.

 

Witkowski v. Boyajian et al. (In re Witkowski), B.A.P. No. 14-040 (November 13, 2014).

The Debtor appealed the Bankruptcy Court’s orders dismissing her chapter 13 case and denying her motion for reconsideration. Citing First Circuit precedent for liberally construing Fed. R. App. P. 3 (c)(1)(B), the BAP ruled that both the dismissal order and the reconsideration order were properly before the panel even though the Debtor only identified the reconsideration order in her notice of appeal. This part of the decision may have turned out differently had the matter been decided two weeks later (see Biltcliffe case summary above). The BAP affirmed the dismissal order, ruling that the Debtor’s “failure to make plan payments – viewed independently or in combination with her failure to attend the Section 341 meeting of creditors – easily justifies the dismissal of her chapter 13 case.” The reconsideration order was also affirmed as the Debtor failed to identify any new evidence or establish any manifest error of law or fact.

Contributed by:

Devon MacWilliam, Partridge Snow & Hahn

Christopher M. Candon, Sheehan Phinney Bass + Green

Young Bar Meets the Bankruptcy Bench

Please join the Bankruptcy Section on January 28, 2015 at 4:30 pm for the 8th annual Young Bar Meets the Bankruptcy Bench program at the Boston Bar Association.  This year’s program will include an interactive roundtable format, providing an exciting opportunity for new lawyers to participate in discussions of relevant topics with Bankruptcy Court Judges.  The program will focus on practical skills and issues particularly important for those in their first ten years of practice.

Cocktail reception to follow.

Click here to register for the program.

Join Judge Bailey and the Consumer Bankruptcy Committee on December 18th for “Lunch Bunch”!

Join Judge Bailey and the Consumer Bankruptcy Committee on December 18th for “Lunch Bunch”!

The Consumer Bankruptcy Committee’s next “Lunch Bunch”, featuring the Honorable Frank J. Bailey, will take place on Thursday, December 18th from 11:45 AM to 12:45 PM in the Law Library of the Bankruptcy Court, 12th Floor, 5 Post Office Square, Boston, MA.

The Lunch Bunch program is an excellent opportunity to discuss hot topics of the day with your fellow bankruptcy practitioners and one of our esteemed bankruptcy judges.  This month, Judge Bailey will be joining us to share his insights from the bench and answer questions from the group.  We will also take a few minutes to discuss the proposed national official form for Chapter 13 plans.

Catered box lunches will be available to those who RSVP through the BBA:  https://www.bostonbar.org/membership/events/event-details?ID=17794

Hope to see you there!

 

Case Summaries — The October Bankruptcy Court Opinions

The following are summaries of the October opinions posted on the Massachusetts Bankruptcy Court’s website.

In re Garrepy, Bankr. No. 12-44304-MSH (October 6, 2014).

In this case, the Chapter 13 trustee moved for sanctions to be imposed upon the debtors’ attorney, arising out of an amended Chapter 13 plan and amended means test statement in which the debtors took a deduction for a car payment that they no longer were obligated to make because they no longer owned the car. In response, it was argued that the debtors intend to purchase a new car when their finances improve, resulting in approximately the same obligation as the prior car payment. The court ruled that Supreme Court cases, in particular Ransom v. FIA Card Services, N.A., 562 U.S. 61 (2011), rejected this “emergency cushion for car owners” approach. As a result, the court ruled that there was no basis for the amended plan and amended means test, found that the attorney violated Rule 9011(b)(2) and, as a sanction, ordered the attorney to pay $500 to the Chapter 13 trustee and not to charge the debtors for any legal fees or costs in connection with the amended means test, amended plan or the trustee’s motion for sanctions.

Grossman v. Garabedian, Bankr. No. 11-13548-JNF, Adv. P. No. 12-1173-JNF (October 7, 2014).

Throughout the case and after six 341 hearings, it was discovered that Debtor inaccurately scheduled his income, debts and expenses; failed to accurately list his creditors; failed to account for approximately $200,000 in loans; failed to identify his interest in nine business ventures; failed to provide accurate business or personal records (or in some cases, any records at all); and had inconsistent testimonies under verbal and written oath.  Trustee sought denial of Debtor’s discharge pursuant to several sections under 11 U.S.C. § 727.  After a lengthy analysis of the case law regarding 727 discharge denials, the Court found that Debtor made multiple materially false statements with fraudulent intent, and denied his discharge.

DeGiacomo v. Tobin & Associates, P.C. et al., Bankr. No. 10-11010, Adv. P. No. 12-1091-JNF (October 17, 2014).

The Chapter 7 Trustee initiated an adversary proceeding against Tobin & Associates, P.C. (“T&A”) and obtained a judgment avoiding preferential transfers the Debtor made to T&A.  The Trustee then moved for a trustee process attachment to attach funds held in a bank account in the name of Tobin & Gonsalves, P.C. (“T&G”), on the theory that he would be reasonably likely to show that T&G was a mere continuation of T&A so as to render T&G liable for the judgment against T&A.  The Court found that, although there was continuity with respect to the clients and employees of T&A and T&G, there were significant changes to the corporate structure and the day-to-day management of the two enterprises.  The assets transferred to T&G were of inconsequential value and did not include T&A’s accounts receivable.  The Court therefore held that the Trustee had failed to satisfy his burden of proof and denied the Trustee’s motion for a trustee process attachment.

In re Thomas A. Zine, Bankr. No. 08-16984-WCH (October 22, 2014).

The matter before the court was Debtor’s Motion for Sanctions alleging that Bayview Loan Servicing, LLC (“Bayview”), as servicer of Debtor’s mortgage loan, violated the discharge injunction and M.G.L. c. 93A by continuing collection efforts post-discharge. Debtor argued that Bayview repeatedly violated the discharge injunction by reporting the mortgage loan as due and owing to the three credit reporting bureaus, repeatedly calling him seeking to collect the mortgage loan, and sending mortgage statements. The court granted the motion as to the liability of Bayview and scheduled the matter for an evidentiary hearing on damages. Additionally, the court held that Debtor’s claim under c. 93A was improper for two reasons: (1) such a claim must be brought as an adversary proceeding, and (2) “given the Debtor’s discharge and the closure of the bankruptcy estate, the Debtor’s claim was not related to a case under title 11,” therefore, the court lacked jurisdiction to hear it.

Abramov v. Movshovich (In re Movshovich), Bankr. No. 12-13772-FJB, Adv. P. No.  12-01193-FJB (October 23, 2014).

A creditor brought an adversary proceeding seeking a non-dischargeability determination for a debt stemming from an investment in the Debtor’s business.  The Debtor was found to have deliberately withheld information that would have shown he was pulling substantial amounts of cash out of the business for personal expenses (and under-reporting corporate sales and income to the taxing authorities).  Even after discovering the fraud, the Plaintiff had advanced an additional $50,000 in the hopes that this would facilitate the Debtor’s sale of the business and the repayment of the original investment.  The court found sufficient indicia that the Debtor never intended to repay the money advanced and held that the debt (including the late-advanced $50,000) was non-dischargeable under section 523(a)(2)(A).  The court also held all but the last $50,000 of the debt was non-dischargeable under section 523(a)(2)(B).  Finally, the court found that there was no fiduciary relationship between the parties, and thus refused to hold that any part of the debt was non-dischargeable under section 523(a)(4).

In re Freeman, Bankr. No. 12-10050-JNF (October 27, 2014).

In this Chapter 7 bankruptcy case (converted from Chapter 13), the Debtor sought to avoid two judicial liens because they impaired his homestead exemption. At issue was a deed from the Debtor’s father in which he granted the property to the Debtor “subject to a reserved life estate for the benefit” of the grantor’s daughter. The lien holder argued that the Debtor’s homestead was not valid because he was a remainderman and not an “owner” entitled to claim a homestead pursuant to Mass. Gen. Laws ch. 188, §§ 1, 3. At the conclusion of briefing by the parties and trial, the court concluded that 1) the deed was ambiguous, 2) extrinsic evidence demonstrated the grantor’s intent to grant the property to his son not merely as a remainderman, and 3) the Debtor was entitled to claim a homestead exemption as an “owner” of the property.

Oasis v. Fiorillo, Bankr. No. 10-44179-MSH, Adv. P. No. 11-04001-MSH (October 31, 2014).

Three plaintiffs moved for summary judgment in an action to exclude debt owed to the plaintiffs from the Debtor’s bankruptcy discharge.  The debt arose from fees and costs that a state court had previously awarded to the plaintiffs based on its finding that the Debtor had proffered false testimony during trial.  Although the Bankruptcy Court acknowledged that a liability like the Debtor’s “would seem to be a good candidate for non-dischargeability,” it determined that a court-ordered sanction like the one that the state court had imposed on the Debtor “simply does not fit” into any of the categories of nondischargeable debt set forth in Bankruptcy Code § 523(a).  Accordingly, the Bankruptcy Court (i) denied the plaintiffs’ motion for summary judgment and (ii) set a deadline for the parties to file submissions as to why summary judgment should not enter in favor of the Debtor.

 

Contributions by:

John Joy, Boston College Law School
Devon MacWilliam, Partridge Snow & Hahn
Michael K. O’Neil, Murphy & King
Nathan Soucy, Soucy Law Office
Aaron S. Todrin, Sassoon & Cymrot
Gina Barbieri O’Neil, Mirick, O’Connell, DeMallie & Lougee
Christopher M. Candon, Sheehan Phinney Bass + Green

Volunteer Attorneys Honored at Bankruptcy Court Reception

On October 30, the United States Bankruptcy Court for the District of Massachusetts honored volunteer attorneys for their service at a ceremony at the John W. McCormack Post Office and Court House in Boston. In addition to the names listed in the 2014 Court’s Pro Bono Honor Roll, the judges of the Bankruptcy Court presented five Pro Bono Publico awards to distinguished attorneys.

Justin Dion of Bacon Wilson, PC in Springfield was presented with the Western Division Award for his innovative work in representing indigent debtors. As Chair of the Legal Studies department at Bay Path University in Longmeadow, Attorney Dion has accepted cases from local legal service agencies and incorporated the preparation of those cases into his paralegal studies curriculum. This resourcefulness results in indigent debtors being connected to legal services they might otherwise be unable to find.

Paul Carey of Mirick O’Connell in Worcester received the Central Division Award for his tireless efforts in assisting debtors impacted by the abrupt closing of a large consumer bankruptcy practice. He helped hundreds of individuals transition to new attorneys, and worked with local bar leaders and the courts to minimize this unforeseen and unfortunate disruption in the lives of these debtors.

David Prentiss of New Bedford received the South Coast/Cape & Islands Award for his pro bono representation of debtors. He was also recognized for his time to mentoring new attorneys and serving on non-profit boards of agencies dedicated to helping the disadvantaged.

Susan Grossberg of Boston received the Eastern Division Award for her mentoring of attorneys of the Volunteer Lawyers Project of the Boston Bar Association. She regularly conducted lunch programs at VLP with the goal of instilling greater confidence in them to navigate the complex legal terrain of bankruptcy.

The judges also presented the first ever District Award to Donald Lassman of Needham for his development of and participation in programs throughout the District of Massachusetts that support military veterans needing access to legal services and financial education. In addition to representing indigent parties in bankruptcy matters, his service included training attorney volunteers on such topics as mortgages, foreclosures, debt management and bankruptcy, who then help service members and their families facing financial difficulties. Attorney Lassman’s service has helped improve the quality of life for Massachusetts’ veterans and service members returning from active duty to Massachusetts.

 

BBA Blog Pic

(Photo:  Judge Henry J. Boroff presented the District Award to Donald R. Lassman)

The 2014 Honor Roll is posted on the Court’s website and attorneys attending the ceremony were presented certificates. Attorneys included on this list certified to the court that they met the volunteer criteria established by the Court with the guidance of the Pro Bono Legal Services Advisory Committee.

The October 30 ceremony was attended by the honorees and their families in addition to approximately 100 guests from across the District.   A reception followed in the 12th Floor Library.

 

 

Volunteer Lawyers Project Awarded Pro Bono Innovation Grant

The Legal Services Corporation (“LSC”), which funds civil legal aid for low-income Americans by awarding grants to legal services providers, recently announced the Volunteer Lawyers Project of the Boston Bar Association as a recipient of a 24-month $158,045 Pro Bono Innovation Grant to develop new legal aid clinics and technology to provide bankruptcy legal assistance to low-income clients.  More information on the VLP’s award is available on the LSC’s web site.