Posts Categorized: Bankruptcy Court

Program Materials – Consumer Bankruptcy Case Review

On November 14, 2016, the Consumer Bankruptcy Committee of the Bankruptcy Section held a lunch program that featured a consumer case law update.  Kate Nicholson and Benjamin Higgins gave a wonderful presentation and facilitated a lively discussion. Thank you to Kate and Ben and to everyone who attended!

For those who were unable to attend, the program materials are available here:

consumer-case-review-2016

Lunch Program with Chief Judge Hoffman – Dec. 1 at 12:00 p.m.

Please join the Consumer Bankruptcy Committee on December 1 for an interactive discussion with the Honorable Melvin S. Hoffman. This will be an excellent opportunity to hear about Chief Judge Hoffman’s current concerns and to discuss hot topics of the day with your fellow bankruptcy practitioners.

This event will be held from 12:00 p.m. to 1:00 p.m. at the Library, 12th Floor, John W. McCormack Post Office and Court House, 5 Post Office Square, Boston, MA

Lunch will be provided to those who pre-register. Please RSVP using the link below.

https://www.bostonbar.org/membership/events/event-details?ID=23015

 

Case Summaries — the March 2016 Bankruptcy Court Opinions

The following are summaries of the March 2016 opinions posted on the Massachusetts Bankruptcy Court’s website.

 

In re Willie D. Brown, Ch. 13 Case No. 14-12357-JNF and In re James W. Tosi, Ch. 13 Case No. 13-14017-FJB 

Four bankruptcy judges in the District of Massachusetts have split (2-2) over whether a Chapter 13 plan can vest the Debtor’s real property in a mortgagee over that mortgagee’s objection. At issue is the relationship between § 1322(b)(9), which provides that a plan may vest property of the estate in another entity and § 1325(a)(5), which requires that a plan either be accepted by the secured creditor, “cram down” the secured creditor, or surrender the property to the secured creditor.  In Brown, Judge Feeney joined Judge Hoffman (In re Sagendorph, 2015 WL 3867955) in finding that a plan vesting property in a mortgagee can be confirmed over that mortgagee’s objection.  In Tosi, Judge Bailey joined Judge Boroff (In re Weller, 2016 WL 164645) in finding that vesting property in the mortgagee does not constitute a surrender of that property under 1325(a)(5) and therefore a vesting plan cannot be confirmed over that secured creditor’s objection.  These issues are currently on appeal, and one argument worth watching may be whether vesting property in a mortgagee under 1322(b)(9) can satisfy the “cram-down” provision of 1325(a)(5).

 

In re Greco, Case No 15-12232-JNF (March 3, 2016)

The court sustained the Chapter 7 trustee’s objection to the debtor’s claimed exemption in a stream of payments stemming from a marital property settlement. The debtor was entitled to $300 per month under a judgment entered by the probate and family court that stated that the amount to be paid was on account of and in lieu of any rights the debtor would have had in the former spouse’s Massachusetts municipal retirement plan.  The debtor attempted to exempt the payments as a “right or interest…in an annuity, pension, profit sharing or other retirement plan” under Mass. Gen. Laws ch. 235, § 34A.  The court held that the payments were not exempt because the family court- ordered note and mortgage given by the former spouse, though payable from a portion of his municipal retirement benefits, “does not fall within the ambit of the plain language of [ch. 235, § 34A].”

 

Hutton v. Vasa (In re Vasa), A.P. No. 14-1173-JNF (March 8, 2016)

The Debtor’s former law partner sought a determination that certain obligations allegedly owed to him by the Debtor were nondischargeable under 11 U.S.C. § 523(a)(2)(A), (a)(4), and (a)(6). The Bankruptcy Court found a portion of the obligations in question to be non-dischargeable under 11 U.S.C. § 523(a)(4) on the basis that the Debtor’s actions constituted defalcation while acting in a fiduciary capacity.  Specifically, the Bankruptcy Court found that, while acting in a fiduciary capacity, the Debtor had transferred funds from the law firm’s IOLTA account in a grossly reckless fashion and had taken funds from the firm at the expense of the firm’s clients and creditors.  However, the Bankruptcy Court found that the fiduciary relationship between the parties had ended after 2012, and that the plaintiff had failed to establish the elements of § 523(a)(4) with respect to any debt arising after that time.  Additionally, the Bankruptcy Court found that the plaintiff had failed to carry his burden of establishing non-dischargeability under either § 523(a)(2)(A) or (a)(6).

 

Acevedo v. Bayron, AP No. 16-01011-JNF (March 15, 2016)

Approximately six weeks after the confirmation of his Chapter 13 plan, Debtor and two co-plaintiffs filed a verified complaint against thirty three named defendants. Averring that the Bankruptcy Court has jurisdiction pursuant to 28 U.S.C. § 1334 to hear matters related to the interested parties pursuant to Fed.R.Bankr.P. 7019, plaintiffs made allegations stemming from events that occurred in Puerto Rico between August 1946 and Debtor’s Chapter 13 petition date.  The claims include, amongst others, turnover of a gas station located in Puerto Rico, declaration that dividends and profits of said gas station are property of the bankruptcy estate, and several others, all related.  Defendants filed a motion seeking a transfer of venue.  Citing prevalent case law and the language of § 1334(c)(1), the Bankruptcy Court identified three criteria to determine whether sua sponte abstention is appropriate: the interests of justice, comity, and respect for state law.  In a lengthy discussion applying the complicated facts of this case to the relevant criteria, the Bankruptcy Court entered an order abstaining from ruling on this adversary proceeding.

 

Grossman v. Bonefant (In re Bonefant), A.P. No. 14-1143-JNF (March 29, 2016)

The Chapter 7 Trustee for Robert Patrick Bonefant, Jr. (“Debtor”) and Margaret Louise McClory-Bonefant filed an adversary proceeding against the Debtor’s father, Robert Patrick Bonefant, Sr. (“Defendant”) to avoid fraudulent transfers in the form of nearly $775,000 in payments made by the Debtor to his father’s bank accounts in the two years before filing for bankruptcy. At trial, the Trustee did not press his quantum meruit/unjust enrichment or resulting trust claims and the Defendant did not contest liability for fraudulent transfers pursuant to 11 U.S.C. § 548.  The issues analyzed by the Court in this Memorandum were whether the Trustee sustained his burden of proof on his claims pursuant to 11 U.S.C. §§ 548 and 550(a)(1) and calculation of damages.  Although the Trustee asked to recover all amounts voided under 11 U.S.C. § 548 as fraudulently transferred (nearly $775,000), the Court held that recovery pursuant to 11 U.S.C. § 550(a)(1) is limited to the amount that restores the estate to the same position it would have been in notwithstanding the fraudulent transfers.  The Court found that the Debtor withdrew $761,623 from his father’s accounts for his personal use, and so the estate was only entitled to recover the remaining $12,322 plus credit card charged incurred by the Defendant but paid for by the Debtor.

 

DeGiacomo v. First Call Mortg. Co. (In re Reznikov), AP No. 15-1003, 2016 WL 1238916 (Bankr. D. Mass. Mar. 29, 2016)

On cross-motions for summary judgment, the Bankruptcy Court for the District of Massachusetts recently held that there was no genuine dispute as to any material fact in finding that a certificate of acknowledgment that indicated only that the debtor “duly acknowledged” execution of a mortgage was insufficient under Massachusetts law to legally record the mortgage. Such language reflects that the debtor executed the mortgage, but does not indicate, as required under Massachusetts law, that she did so as her free act and deed.  Evidence of the parties’ intent or actual acts would not alter this conclusion, as the court is not interpreting a contract or the validity of the language, but only considering whether the language, on its face, gives notice that the requirements for a legally recorded mortgage have been met.  The phrase “duly acknowledged” does not provide such notice.  Accordingly, the chapter 7 trustee, as a hypothetical bona fide purchaser, is entitled to summary judgment and can avoid the mortgage under § 544(a)(3).  Further, as a matter of law, the mortgage is automatically preserved for the benefit of the estate under § 551, maintaining priority over the debtor’s homestead  exemption.

 

Contributions by:

Benjamin Higgins, Law Clerk to the Hon. Frank J. Bailey (Contributions are on personal behalf and should not be construed as statements by the U.S. Bankruptcy Court)

Devon MacWilliam, Partridge Snow & Hahn

Alex McGee, Ropes & Gray

Michael K. O’Neil, Murphy & King

Nathan Soucy, Soucy Law Office

Aaron Todrin, Sassoon & Cymrot, LLP

A Bankruptcy and Family Law Roundtable and Networking Reception on June 17

How many times have you wished that your client’s divorce attorney had thought about the bankruptcy implications of their separation agreement before drafting it?  Well family law practitioners feel the same way about us!  So, on Wednesday, June 17th from 5:30pm to 7:00pm, bankruptcy and family law attorneys will be coming together at the BBA to discuss these practice areas intersect and to offer each other words to the wise.  The conversation will be led by Will Parks and Steve Striffler, on the bankruptcy side, and Cal Heinle and Cynthia Gover Hastings on the family law side.

Let’s get together, help each other be better lawyers, and drink some wine!  What could be better on a Wednesday evening in June?

Please RSVP here.

If you have any family law questions that you would like to have addressed by the panelists, please email them to Kate Nicholson ([email protected]).

 

Submitted by:

Kate E. Nicholson
Nicholson Shepard LLC
875 Mass Ave., Ste. 31
Cambridge, MA 02139
T (857) 600-0508
F (617) 812-0405

www.nicholsonshepard.com

Christopher J. Panos is Selected for the United States Bankruptcy Court in Worcester

On June 8, 2015, the First Circuit Court of Appeals issued a press release announcing that Christopher Panos has been selected to fill the upcoming vacancy in the United States Bankruptcy Court for the District of Massachusetts created by Judge William C. Hillman’s retirement and Chief Judge Hoffman’s relocation to Boston.  Attorney Panos will sit in Worcester, Massachusetts.

The full press release is available here:

BBA Blog — Panos Bankruptcy Press Release (S0581379x7A7A4)

Bankruptcy Court Announces New Pro Bono Program — Adversary Proceedings

Earlier this month, the Bankruptcy Court announced the implementation of a court‐sponsored pro bono attorney program for unrepresented indigent litigants in adversary proceedings.  The full announcement is available here.

The program will begin accepting applications from litigants on July 1, 2015.  You can obtain the program guidelines, FAQs for attorneys, FAQs for Parties, and attorneys interested in participating on the pro bono panel can find the registration form here.

New SJC Rule of Professional Responsibility: Treatment of Flat Fees

On March 15, the SJC promulgated new rules of Professional Responsibility, effective July 1, 2015 (available here).  Of interest to bankruptcy lawyers is comment 2A to Rule 1.15.  That comment provides that a lawyer is not required to deposit a “flat fee” (an all-in agreed amount for specific work) in a client trust account, and can immediately place the funds in the law firm’s operating account. The comment  originated with the SJC’s own Standing Advisory Committee on the Rules of Professional Conduct.  During the public-comment period, the BBA Bankruptcy Section championed the Advisory Committee’s proposed comment, while another Committee expressed concerns.  The BBA reported the views of the two constituencies to the SJC, which accepted the position of the Bankruptcy Section.

The new language protects lawyers who represent a chapter 7 debtor and, although more rare, counsel who represents a chapter 11 debtor—as compared with a debtor-in-possession.  The Bankruptcy Section’s concerns were that 1) any funds that were still subject to conditions at the time of a bankruptcy filing would become property of the estate, and 2) under Lamie v. U.S. Trustee, 540 U.S. 526 (2004), a debtor’s counsel is not entitled to compensation for post-petition work.  The combination of those two factors would make it impossible for a debtor’s attorney to access the funds to be paid for the services rendered once a petition for relief was filed, except to the extent that the lawyer could establish what percentage of the work had been completed pre-petition.

The comment makes clear that a lawyer must return money paid for services where the lawyer has failed to complete the anticipated work, as provided in Rule 1.16(d). Obviously this new rule does not affect the powers of the Bankruptcy Court to review fees and, where appropriate, order a lawyer to repay them or otherwise make provisions relating to fees.  Rather, the new rule removes any ethical taint from a lawyer’s election not to deposit a flat fee in a trust account.

A lawyer is still free to deposit flat fees into a trust account, in which event the lawyer must comply with all the rules applicable to such accounts.

New Standing Orders Change Local Rules for Professional Fees and Prepetition Retainers in Chapter 13 Cases

The Bankruptcy Court for the District of Massachusetts has adopted two new standing orders, which became effective on March 1, 2015. The first, Standing Order 2015-1, alters Massachusetts Local Bankruptcy Rule 13-7 on professional fees and prepetition retainers. Among other changes, counsel may use a new form, Official Local Form 17, to file an application for compensation in amounts less than $10,000 but above $3,500 prior to entry of a confirmation order or above $500 after the entry of a confirmation order. The second, Standing Order 2015-2, adds the new Form 17 to the Massachusetts Local Bankruptcy Rules.

The new Standing Orders may be viewed here: http://www.mab.uscourts.gov/mab/news/standing-orders-2015-01-2015-02

Judge William Hillman to Retire; Bankruptcy Merit Selection Panel Appointed

On January 30, 2015, the United States Court of Appeals for the First Circuit issued a Press Release:

Judge William Hillman to Retire; Bankruptcy Merit Selection Panel Appointed

Chief Judge Sandra Lynch of the United States Court of Appeals for the First Circuit has announced the formation of a Bankruptcy Merit Selection Panel to screen and review the qualifications of applicants for a forthcoming vacant bankruptcy judgeship in Worcester, Massachusetts. The Honorable William C. Hillman, who has served as a bankruptcy judge in the District of Massachusetts in Boston since 1991, has announced his retirement, effective August 14, 2015. The First Circuit Judicial Council has approved Chief United States Bankruptcy Judge Melvin S. Hoffman’s request to change his duty station from Worcester to Boston, also effective on August 14, 2015. Consequently, the bankruptcy judgeship vacancy to be filled will occur in Worcester.

Click below for the complete Press Release:

First Circuit Press Release (S0503875x7A7A4)

Applications are to be postmarked by Monday, March 16, 2015.  For more information on the application, when visiting the First Circuit’s website, go to the tab “About the Court” and then the “Employment” link.

 

Case Summaries — The December Bankruptcy Court Opinions

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

In re Angela Michaud, Case No. 14-41538-HJB (December 1, 2014).

The court struck attorney’s appearance on behalf of the Debtor, and disallowed all compensation otherwise due for failing to file an appropriate Attorney Disclosure under Section 329 and Rule 2016(b). In his three separate disclosures, the attorney failed to disclose the contingency fee agreement, the hourly rate in the event that an hourly rate would substitute for the contingent fee agreement, and the manner of payment. Upon finding the disclosures insufficient, the court stated the importance of the disclosure duties under Section 329 and Rule 2016(b) as allowing the Bankruptcy Court the opportunity to “supervise the terms of the financial agreement between debtor and counsel.”

 

Associated Receivables Funding, Inc. v. Julian O’Donnell (In re O’Donnell), Case No. 12-10038-FJB, Adv. P. No. 12-1146 (December 17, 2014).

Associated Receivables Funding, Inc. (“ARF”), the plaintiff in this adversary proceeding, filed a complaint seeking determination that debts owed to it by the Debtor are excepted from discharge pursuant to Section 523 and objects to an entry of discharge pursuant to Section 727. Debtor was a part owner of a limited liability company, Grove Electronics, LLC (“Grove”), that purchased and resold computer parts on a wholesale basis. When the business was steadily declining, Grove entered into a factoring agreement with ARF, whereby Grove would assign rights to collection of accounts receivable in exchange for an immediate payment. This allowed Debtor and Grove to continue operation and pay creditors by getting immediate payment from ARF, and not having to wait for their accounts to pay on their invoices. While this arrangement initially worked for both ARF and Grove, Debtor started to engage in suspicious activity with several accounts. For example, Debtor sent an invoice to ARF, ARF paid Grove on the invoice, but Grove never actually shipped the products. Therefore when ARF went to collect on that invoice, the account refused to pay because it never received the product. The facts are lengthy, the examples of deceit are plentiful, and the analysis is thorough. Ultimately, the Court ruled that Debtor made false representations to obtain factoring payments from ARF, the Debtor was aware of these falsities, and the Debtor made them with intent to deceive. Further, ARF relied on these false representations, this reliance was justifiable, and financial damage was a result. All of these things weigh into the Courts decision to except these debts from discharge, and to deny Debtor’s discharge in the first instance.

 

Santos et al. v. Souza (In re Souza), Case No. 14-10251-WCH, Adv. P. No. 14-01059 (December 22, 2014).

The Plaintiffs filed an action against the Debtor in superior court. The jury found the Debtor liable for misrepresentation and breach of contract and awarded a judgment to the Plaintiffs in the amount of approximately $200,000. The Court found that the Debtor had not breached Chapter 93A willfully or knowingly. The Debtor filed Chapter 7 and the Plaintiffs filed an adversary to seek a declaration that their judgments were excepted from discharge under Sections 523(a)(2), (4), and (6). Both parties moved for summary judgment on each count, each party arguing that issue preclusion from the jury verdict and Court’s finding worked in their favor. As to 523(a)(2)(A), the Court found that the jury verdict precluded him from finding in the Defendant’s favor on all but two factors: (i) the amount of damages that were potentially nondischargable under (a)(2), since the jury did not apportion its damages between the breach of contract and fraud findings; and (ii) the scienter requirement of (a)(2) since no scienter was required for the jury to find the Debtor guilty. As to those two factors, material issues of fact remained and both summary judgment motions were denied. As to (a)(2)(B), summary judgment was denied for both parties since genuine issues of fact remained as to whether the Debtor furnished the plaintiffs with a financial document. As to (a)(4), since neither the verdict found, nor did the Plaintiffs’ complaint allege, that the Debtor acted in a fiduciary capacity, embezzled, or committed larceny, summary judgment was granted to the Debtor on this count. Finally, as to (a)(6), the jury verdict made no mention of whether the Debtor caused willful and malicious injury to the Plaintiffs, so summary judgment to both parties was denied on this count.

 

Murphy v. Perry, Johnson, Anderson, Miller & Moskowitz LLP (In re Colman), Case No. 12-15855-WCH, Adv. P. No. 14-1054 (December 24, 2014).

Prior to the Petition Date, Perry, Johnson, Anderson, Miller & Moskowitz LLP (“PJAMM”) represented the Debtor in a state court action (the “Enforcement Action”) filed by his ex-wife to enforce their divorce settlement agreement (the “Settlement Agreement”). The Settlement Agreement required the Debtor to make spousal support payments and the ex-wife to convey her interest in certain New York City real estate (the “Cooperative Interests”) to the Debtor. Neither of those events occurred, and the state court ruled that the ex-wife would be required to convey her Cooperative Interests only after the Debtor paid a monetary judgment. The Debtor failed to pay his legal bills from the Enforcement Action and PJAMM filed a UCC-1 Financing Statement listing the New York City real estate as security for the debt.

PJAMM argued the Debtor agreed the New York City real estate could be subject to an attorney’s lien. Applying California law, Judge Hillman disagreed. The form engagement letter PJAMM used limited liens to those funds that were “recovered, awarded, or otherwise the proceeds of the Enforcement Action.” Here, the Debtor already had a right to the Cooperative Interests through the Settlement Agreement, and the Enforcement Action judgment did not provide “an affirmative or tangible benefit flowing to the Debtor.” Therefore, PJAMM’s lien was unenforceable.

 

In re Quincy Medical Center, Inc., Case No. 11-16394-MSH (December 29, 2014).

Two former senior executives of the Debtor had previously obtained a bankruptcy court order directing the purchaser of substantially all of the Debtor’s assets to pay their employment severance claims.  While the purchaser appealed the decision (and avoided payment pending appeal), the purchaser’s financial condition deteriorated and the former executives moved in the bankruptcy court under F.R.C.P. 64 for writs of attachment and injunctions prohibiting the purchaser from diminishing its cash accounts pending final disposition of the appeal.  The purchaser’s first argument in opposition to the motion was that the employees had no right to security because the court’s order was not a “money judgment” rendered after an adversary proceeding, but instead issued as part of a contested matter arising out of a sale order dispute.  In rejecting this argument the court noted that F.R.B.P. 9001(7) defines a judgment as “any appealable order.”  The court also rejected the purchaser’s argument that the pendency of the appeal deprived the bankruptcy court of jurisdiction to grant security for the judgment.  Finally, the court ordered as security the posting of a bond pending appeal.  In so holding the court denied the relief sought under F.R.C.P. 64, but instead invoked F.R.C.P. 62(d).  Even though F.R.B.P. 7062 (and thus F.R.C.P. 62) is not among the rules specifically incorporated into contested matters pursuant to F.R.B.P. 9014(c) (and in fact had been removed as part of the 1999 rule amendments), the court noted that it retained the power and discretion under Rule 9014(c) to invoke the non-enumerated “Part VII” bankruptcy rules.

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
Christopher M. Candon, Sheehan Phinney Bass + Green