On Monday, February 11, 2013, the American Bar Association, in light of the U.S. Supreme Court’s decision in Stern v. Marshall, 131 S. Ct. 2594 (2011), adopted a resolution supporting the position that bankruptcy judges have authority, upon the express consent of the parties, to enter final orders and judgments in proceedings that are statutorily “core,” but require the judicial power of the United States, which is exercisable only by Article III judges—so-called “Stern-type” proceedings. Stern cast doubt over bankruptcy judge authority, holding that a bankruptcy court did not have constitutional authority to enter final judgment on a bankruptcy estate’s state law counterclaim against a creditor of the estate, even though the claim was statutorily “core” under 28 U.S.C. § 157(b)(2). Notably, in Stern, the Court found that the creditor, in filing a proof of claim in the bankruptcy, “did not truly consent” to adjudication of the counterclaim against him in the bankruptcy court. The ABA’s resolution takes the view that bankruptcy judges may finally adjudicate Stern-type proceedings in the same circumstances in which they are already authorized to finally adjudicate “noncore” proceedings under 28 U.S.C. § 157(c)(2): with the express consent of all parties to the proceeding. In the report accompanying the resolution, the ABA cited substantial legal precedent supporting the proposition that parties may waive the “constitutional deficiency” of a non-Article III judge’s adjudication of proceedings requiring the exercise of the judicial power of the United States. Follow the link below to view the ABA’s resolution and report.
Meg McKenzie Feist
Choate, Hall & Stewart LLP
Two International Place
Boston, MA 02110
Surrendered real estate is a vexing problem for debtors. The First Circuit issued a decision in Canning vs. Beneficial Maine, et. al. on February 1, 2013 (– F.3. –, 2013 WL 388060) that provides some guidance for debtors and creditors alike, ruling that the holder of a first mortgage on real property owned by the debtor did not violate the discharge injunction by refusing to foreclose, release its mortgage or otherwise take title to the Cannings’ residence. The Cannings attempted to refinance their home but were unsuccessful and filed a Chapter 7 petition, vacated their residence and terminated utility service. Shortly after receiving their discharge, Beneficial sent the Cannings a letter advising them it was not going to initiate foreclosure proceedings, that the Cannings still owned their real estate and were responsible for taxes, insurance and maintenance of the real estate. In response, the Cannings requested that Beneficial either foreclose or release its mortgage. Beneficial declined but did offer a settlement or short sale option and indicated that its offer was not an effort to collect from the Cannings personally in recognition of their bankruptcy discharge.
The Cannings filed an Adversary Proceeding against Beneficial seeking damages for violations of the discharge injunction, relying exclusively on the First Circuit’s decision in In re Pratt, 462 F. 3d. 14 (1st Cir. 2006). In Pratt, the First Circuit ruled that a secured creditor, in refusing to repossess an admittedly worthless automobile, was attempting to coerce payment from the Debtor and therefore was in violation of the discharge injunction. The First Circuit disagreed with the Cannings because the Cannings had not shown that Beneficial’s actions were intended to coerce payment of a discharged debt. Unlike the secured creditor in Pratt, which conditioned release of its car lien on payment in full of its debt even though the collateral for that debt has no value whatsoever, Beneficial offered several options to the Cannings that would relieve them of the ongoing costs of property ownership and indicated that Beneficial’s intention was to collect no more than the value of its collateral.
The First Circuit concluded its decision with stern warning to debtors and creditors alike to bargain in good faith.
Contributed by Donald R. Lassman, Esq.
The Senate Judiciary Committee recently created a new subcommittee related to the nation’s bankruptcy courts and system. Senator Chris Coons (D-Del.) will become the chairman of the new Bankruptcy and the Courts Subcommittee. The subcommittee will have jurisdiction as follows: (1) federal court jurisdiction, administration and management; (2) rules of evidence and procedure; (3) creation of new courts and judgeships; (4) bankruptcy; (5) legal reform and liability issues; (6) local courts in territories and possessions.
The Administrative Oversight and the Courts Subcommittee that existed last session has been disbanded. The responsibilities of that subcommittee instead will be handled by the new bankruptcy subcommittee and a new Oversight, Federal Rights and Agency Action Subcommittee chaired by Senator Richard Blumenthal. Further information about the bankruptcy subcommittee is available here
The First Circuit Court of Appeals recently addressed a circuit split regarding whether Section 105(a) of the Bankruptcy Code “authorizes a charge against the value of otherwise exempt assets as a remedy for the debtor’s wrongful concealment” of non-exempt assets. The Tenth Circuit has held that § 105(a) does not allow for such a remedy. In re Scrivner, 535 F.3d 1258 (10th Cir. 2008). The First Circuit disagreed, finding that the surcharge power can be traced to §§ 521 and 522, requiring honest disclosure and regulating the determination of legitimate exemptions. “If § 105(a) was not meant to empower a court to issue an order like the one before us, it is hard to see what use Congress had in mind for it.” The Ninth Circuit agrees with the First Circuit on this issue. See Law v. Seigel (In re Law), 435 Fed. Appx. 697 (9th Cir. 2011). The debtor’s petition for certiorari in Law is currently pending and it looks as though the Supreme Court is seriously considering hearing the case. See
Michael K. O’Neil
Murphy & King, P.C.
One Beacon Street
Boston, MA 02108
Tel: (617) 423-0400
Direct: (617) 226-3459
Judge Hillman issued an opinion on January 30, 2013, in which he followed a 2012 decision by Judge Boroff (In re Nicole D. Gordon, Chapter 13 Case No. 11-44524 (August 28, 2012)), and held that the owner of a remainder interest is not an “owner” within the meaning of the Massachusetts homestead statute and thus cannot claim a Massachusetts homestead exemption (either declared or automatic).
Adam J. Ruttenberg
Looney & Grossman LLP
101 Arch Street, 9th Floor
Boston, MA 02110
The next Bankruptcy Lunch Bunch will be held on Thursday, February 14, 2013 from noon to 1:00 p.m. at the McCormack Post Office & Court House – 5 Post Office Square, Third Floor Cafeteria, Boston, Massachusetts.
Please join the Consumer Bankruptcy Committee for an interactive roundtable discussion with the Honorable Joan N. Feeney, United States Bankruptcy Judge for the District of Massachusetts. Judge Feeney is a long-standing member of the BBA and she was recently elected President of the National Conference of Bankruptcy Judges. Judge Feeney is also co-chair and co-founder, along with Janet E. Bostwick, of the M. Ellen Carpenter Financial Literacy Program.
Bring your questions!
Follow the link to register:
Since the Third Circuit’s seminal decision in In re Trans World Airlines, 322 F.3d 283 (3d Cir. 2003), courts in several circuits have trended toward an expansive interpretation of the term “interest” for purposes of Section 363(f) of the Bankruptcy Code, which permits bankruptcy estate property to be sold “free and clear of any interest in such property.” In general, these courts have taken the view that the “interests” that can be excluded in a Section 363 sale include not only in rem claims against the asset, but also certain in personam claims against the asset owner. A recent decision of the First Circuit B.A.P. follows the trend toward a broader “free and clear” power under Section 363. In Mass. Dep’t of Unemployment Assistance v. OPK Biotech, LLC (In re PBBPC, Inc.), the First Circuit B.A.P. affirmed an order of the U.S. Bankruptcy Court for the District of Massachusetts (Bailey, J.) enforcing the sale of the debtor’s assets free and clear of the right of the Massachusetts Department of Unemployment Assistance (“DUA”) to tax the purchaser at the debtor’s unemployment contribution rate, which the Bankruptcy Court held was an “interest” within the meaning of Section 363(f). Following the reasoning of the Bankruptcy Court, the First Circuit B.A.P. stated that the DUA’s right to tax the purchaser at the debtor’s rate was an “interest” in estate assets because it “arose from the sale of the [d]ebtor’s property.” Under the applicable Massachusetts unemployment insurance statute, the debtor’s experience rating was imposed on the purchaser “precisely because, and only because” the buyer purchased the assets from the estate. The B.A.P. decision is available at 2013 Bankr. LEXIS 247.
Meg McKenzie Feist
Choate, Hall & Stewart LLP
Two International Place
Boston, MA 02110
On January 24, 2013 the Massachusetts Attorney General’s Office issued a Guidance document regarding its revised regulations regarding debt collection practices. The revised regulations, which took effect in March 2012, were promulgated after the urging of and public testimony by, among others, the Consumer Finance Working Group of the Boston Bar Association. The Guidance can be accessed by clicking here.
United States Bankruptcy Court Judge William C. Hillman honored the Consumer Bankruptcy Committee of the Boston Bar Association by sitting down at a recent Lunch Bunch session with over twenty practicing bankruptcy attorneys. Judge Hillman is also the Chief Judge of the Bankruptcy Appellate Panel.
Judge Hillman spoke on a number of topics from the impact of electronic filing to the proposed new rules regarding filing fees. He also engaged in a helpful discussion about what he expects to see from counsel appearing before him. He believes that the vast majority of attorneys are very prepared for hearings, but suggested that there are a small few who might benefit from attending the BBA’s bankruptcy programs. Overall, it was a lively and educational discussion.
The Co-Chair of the Bankruptcy Section, John Morrier, and the Standing Chapter 13 Trustee, Carolyn Bankowski, were also in attendance.
Terrence L. Parker, Co-Chair of the Consumer Bankruptcy Committee, added in closing that “Judge Hillman was very candid and he really got into the nuts and bolts of the practice. We thank him for his participation.”
The Consumer Bankruptcy Committee regularly schedules Lunch Bunch meetings with Bankruptcy Judges and Officials. The next Lunch Bunch is scheduled for February 14, 2013 at noon with the Honorable Joan N. Feeney at the McCormack Post Office & Court House – 5 Post Office Square, Third Floor Cafeteria, Boston, Massachusetts.
Terrence L. Parker, Esq.
PARKER LAW OFFICES
185 Alewife Brook Parkway Ste. 404
Cambridge, MA 02138
877-229-7079 Toll Free/Fax
It’s challenging when a Chapter 7 (or 11) trustee employs his own firm as counsel and later faces an objection to his commission based on that demarcation. This dynamic was recently examined by Judge Feeney in In re Invent Resources, Inc., Case No. 10-14056-JNF (Nov. 5, 2012). There, the trustee litigated or settled numerous matters that enabled creditor claims to be paid in full. Examining Code sections 326 and 330, and noting case law acknowledging that the line between a trustee’s legal and non-legal services is not easy to draw, the Court stated that a trustee’s commission under section 326(a) is not a per se entitlement to the total commission calculated by using the statutory formula, but rather is a product of a reasonableness examination based on a host of factors relating to both the extent and value of the trustee’s services. However, the Court also cited favorably In re Salgado-Nava, 473 B.R. 911, 921 (B.A.P. 9th Cir. 2012), to the effect that (i) the section 326 formula reflects Congress’ relevant assessment of what is reasonable in most instances, and that (ii) the statutory commission is therefore presumptively reasonable, absent extraordinary circumstances warranting a reduction. Here, the only such circumstances were, to the contrary, positive in light of the anticipated 100% dividend and the commission was allowed as requested.
Guy B. Moss, Esq.
Riemer & Braunstein LLP
Three Center Plaza
Boston, MA 02108