Get ready: The New Official Bankruptcy Forms are Coming!

On December 1, 2015 the new (and improved?) Official Bankruptcy Forms will go into effect. Are you ready? Almost all of the forms — including the petition, schedules and statement of financial affairs — have been overhauled. In fact, now there are actually two sets of forms: one for individuals and one for businesses.

As we know, a change in process rarely comes without a change in substance. Join us at the BBA on October 13, 2015 at 12:00 p.m. to learn what to expect and start familiarizing yourself with the new forms. Attorney and bankruptcy software developer Walter Oney will guide us through the most important changes. Don’t get caught out in court not knowing how to navigate your client’s schedules!

For more information or to sign up, click here.

Case Summaries — The July/August MA Bankruptcy Court Opinions

The following are summaries of the July and August 2015 opinions posted on the Massachusetts Bankruptcy Court’s website.

 

Riley v. InstaMortgage.com, et al. (In re Smith), Case No. 07‐14013-FJB, Adv. P. No. 13‐1357 (July 15, 2015)

The court held that there was no valid mortgage on the debtor’s half interest in property because the mortgage’s granting clause referenced a “Borrower,” which was a defined term in the mortgage that included the non-debtor tenant in common, but not the debtor.  Notably, all parties in the adversary proceeding agreed that the debtor had signed the mortgage on a line above the word “Borrower” on the last page of the mortgage and on a mortgage rider.  However, the court held that this fact was insufficient to read the debtor into the term “Borrower” for purposes of the mortgage’s granting clause.  In construing this state law issue the court acknowledged there is no S.J.C. authority directly on point but noted that its holding was consistent with Judge Feeney’s decision in Agin v. South Point, Inc. (In re Kurak), 409 B.R. 259 (Bankr. D. Mass. 2009), aff’d 433 B.R. 52 (D. Mass. 2010) and with other jurisdictions.

Theresa Matthews v. Christian Nealon (In re Nealon), Adv. P. Case No. 14-4069 (July 15, 2015)

In this adversary proceeding, Plaintiff brought a motion for summary judgment asking the Bankruptcy Court to give preclusive effect to a prepetition arbitrator’s finding that the parties intended an initial deposit given to the Debtor by the Plaintiff for construction work was to be placed in an escrow account. Debtor, in turn, filed a motion for judgment on the pleadings alleging Plaintiff lacked a factual basis for her claims under §§523(a)(2)(A) and (a)(4). According to the Court, because the arbitrator’s conclusion regarding the existence of an escrow account was not essential to the award, the issue could not be given preclusive effect in the present proceeding. Absent a preclusive finding that an escrow account was created and misused by the Debtor, the Court denied Plaintiff’s motion because an undisputed issue of fact existed regarding the parties’ intentions with respect to the initial deposit. However, the Court found that Plaintiff had pled facts sufficient to support her claims under §§523(a)(2)(A) and (a)(4), and therefore, Debtor’s motion was denied.

Butler v. Wojtukun et. al. (In re Wojtkun), Case No. 13-12719-WCH, Adv. P. Case No. 15-1016 (July 20, 2015)    Chapter 7 Trustee brought claims against the Debtor, his wife, and various trusts and corporate entities associated with one or both of them, seeking, among other things, (i) declarations that resulting trusts and constructive trusts exist for the Debtor’s interest in a condominium held by an affiliate corporation and proceeds of real estate (the Debtor’s home) owned by an affiliated trust, (ii) avoidance of transfers of income from the Debtor, a dentist and owner of a dental corporation, to his wife, an office manager for the dental corporation, and (iii) a shareholder derivative action on behalf of the dental corporation.  The Defendants moved to dismiss all counts.  The court denied the Defendants’ motion to dismiss the resulting trust claim regarding the proceeds of real estate because the Debtor had claimed to own 50% of that property in various financial documents, but the court dismissed the resulting trust claim regarding the Debtor’s interest in the condominium because “merely residing in a home does not rise to the level of exercise of the indicia of ownership” (citations omitted).  The court denied the motion to dismiss all counts related to transfers of income between the Debtor and his wife because, among other things, the Trustee had alleged that the Debtor’s and his wife’s salaries from the dental corporation had increased at the same time as the Debtor’s financial liabilities increased and while litigation was imminent.  Finally, the court denied the motion to dismiss the shareholder derivative action after determining that the in pari delicto defense was not available to the wife as an insider of the owner of the dental corporation (i.e. the Debtor).

Taatjes v. Maggio (In re Maggio), Case No. 13-16257-JNF, Adv. P. No. 14-1025  (July 27, 2015)

The Debtor was a joint holder of savings bonds with a deceased relative (“Decedent”). The Debtor had assisted Decedent with the management of her affairs through a power of attorney during Decedent’s lifetime. Plaintiffs, who were relatives of Debtor and Decedent and also joint holders of savings bonds with Decedent, filed a motion for summary judgment seeking a declaration that a state court judgment of breach of fiduciary duty in favor of Plaintiffs constituted a non-dischargeable debt pursuant to 11 U.S.C. § 523(a)(4). The Bankruptcy Court held that § 523(a)(4), which excepts from discharge any debt “for fraud or defalcation while acting in a fiduciary capacity . . .,” requires: 1) a debt resulting from a fiduciary’s fraud or defalcation under an express or technical trust; 2) a debtor acting in fiduciary capacity for that trust; 3) a debt caused by fraud or defalcation within the meaning of bankruptcy law. The state court judgment included no determination that Debtor owed Plaintiffs any fiduciary duty, nor did it find that an express or technical trust existed between Debtor and Plaintiffs. The power of attorney established a fiduciary duty from Debtor to Decedent, not from Debtor to Plaintiffs. Plaintiffs failed to submit copies of the bonds or any other evidence that could establish a fiduciary duty or the existence of an express or technical trust. Accordingly, summary judgment was granted in favor of Debtor.

In re Lewis D. Siegal and Joanna Siegal, Case No. 14-13678-JNF (July 29, 2015)

The Debtor’s father, as a creditor in his individual capacity and as the trustee of a creditor trust, filed a motion to reopen the Debtor’s chapter 7 case and to vacate a discharge order.  The Debtor’s father alleged that prior to the entry of the Debtor’s discharge, the parties had entered into a settlement agreement by which the Debtor agreed that the debt he owed to his father and to the trust was non-dischargeable.  The Debtor objected to the motion arguing that the settlement agreement was not signed until after the expiration of the deadline to object to the entry of his discharge and that no motion to approve the settlement agreement had been filed with the Bankruptcy Court prior to entry of his discharge.  Although the Bankruptcy Court concluded that the Debtor’s father could not establish the elements required to vacate the Debtor’s discharge under 11 U.S.C.  § 727(d), it allowed the motion to reopen on the basis that the Debtor’s father may be able to establish that the settlement agreement constitutes an enforceable reaffirmation agreement.

Sega Auto Sales v. Flores (In re Flores), Case No. 13-16079-WCH, Adv. P. No. 13-01441 (August 13, 2015)

[Case summary to follow in later post]

Lassman v. Robinson (In re Toli), Case No. 12-19194-WCH, Adv. P. No. 12-1373 (August 14, 2015)

Prior to the Debtors’ bankruptcy filing, the Debtors purchased a commercial property from the Defendants.  The purchase and sale agreement reflected a $400,000 sale price, but the Debtors also signed a $100,000 promissory note “outside of the closing” in favor of the Defendants, which none of the parties disclosed to the institutional lenders.  The Trustee sought recovery of payments made to the Defendants as fraudulent transfers, as well as damages for fraud, misrepresentation, and Chapter 93(A) violations.  Following a two day trial, the court: (i) entered judgment in favor of the Defendants regarding the fraudulent transfer count because the parties had stipulated that the total purchase price for the property was $500,000 and therefore the Trustee did not meet his burden of showing that the Debtors did not receive “reasonably equivalent value”; (ii) entered judgment in favor of the Trustee with respect to various fraud and misrepresentation counts due to one of the Defendants’ false representations to the institutional lenders and the other Defendant’s failure to read the sale documents that she signed; and (iii) entered judgment in favor of the Defendants with respect to the Chapter 93(A) count because the Trustee had not sent the requisite demand letter.

Agin v. Green Tree Servicing, LLC et al., Case No. 14-14739-JNF, Adv. P. No. 14-1220 (August 19, 2015)

The Chapter 7 trustee sought to avoid a mortgage pursuant to 11 U.S.C. § 544 based on the absence of a proper certificate of acknowledgment in accordance with the requirements of Massachusetts law (Mass. Gen. Laws. Ch. 183, § 29).  Specifically, the trustee alleged that the form of certificate was materially defective because it failed to include language indicating that the execution of the mortgage was the voluntary act of the mortgagor.  The lender defendants asserted that the mortgage contains “proof of its due execution” in compliance Mass. Gen. Laws. Ch. 183, § 29, which permitted the mortgage’s recordation notwithstanding the absence of a certificate of acknowledgment.  On Cross-Motions for Summary Judgment filed by the trustee and the lender defendants, the Bankruptcy Court authorized the trustee’s avoidance of the mortgage based on the absence of a valid certificate of acknowledgment.  The Court noted that while Mass. Gen. Laws. Ch. 183, § 29 permits two alternatives for the recordation of a deed, the second alternative (a certificate of proof of due execution) requires evidence, the involvement of a court of record, and subscribing witnesses as set forth in Mass. Gen. Laws Ch. 183, §§  34-41.

Estate of Philip L. Lavallee by Christine Makara, Personal Representative v. Lavallee (In re Lavallee), Case No. 14-41386-MSH, Adv. P. No. 14-04088 (Aug. 20, 2015)

The defendant moved to dismiss the adversary proceeding (the “A.P.”) for lack of subject matter jurisdiction on the ground that his sister—who had filed the A.P. when she was the personal representative of their father’s estate—had been replaced.  The new estate representative declined to substitute himself for the sister in the A.P., and the defendant alleged the sister no longer had standing to sue.  In opposition, the sister moved to substitute herself in her personal capacity as a beneficiary of the estate.  The Court applied the facts in evidence to the rules for intervention set out in Fed. R. Civ. P. 24(a)(2), made applicable by Fed. R. Bankr. P. 7024, and allowed the motion to intervene.  The Court also found that Mass. Gen. Laws ch. 230, § 5 provided additional support for the conclusion that the sister had standing to sue to enforce the claims for the estate’s benefit because the new representative refused to pursue the action.

Greater Love Tabernacle Church of Boston, Massachusetts v. VFC Partners 18 LLC, Case No. 13-17099, Adv. P. No. 15-1031 (August 21, 2015)

A Chapter 11 debtor-in-possession sought to avoid a mortgage pursuant to 11 U.S.C. § 544 based on an alleged defective certificate of acknowledgment annexed to the mortgage.  Specifically, the debtor alleged that the certificate of acknowledgment failed to specify the representative capacity of the corporate officer who executed the mortgage on behalf of the corporation or that the officer’s execution of the mortgage was the voluntary act of the corporation.  The issue presented was whether the certificate of acknowledgment attached to the mortgage complies with the requirements of Massachusetts law (Mass. Gen. Laws ch. 183, § 29) and, thus, provides constructive notice of the mortgage.  On Cross-Motions for Summary Judgment filed by the parties, the Bankruptcy Court determined that the certificate of acknowledgment, read together with the signature block of the mortgage, is unambiguous and satisfies the requirements of Massachusetts law.

In re Carlo J. Genatossio, Jr., Case No. 14-40502-MSH (Aug. 31, 2015)

Debtor’s counsel filed an application seeking the allowance of fees and expenses for representing the Debtor in the chapter 13 case and in the chapter 7 case before it was converted to chapter 13.  Since debtor’s counsel was not employed under Section 327, compensation could not be awarded under Section 330(a)(1).  See Lamie v. United States Trustee, 540 U.S. 526 (2004). Counsel could therefore only be awarded compensation under Section 330(a)(4)(B), which provides that in a Chapter 13 case the court may allow reasonable compensation to a debtor’s attorney for representing the interests of the debtor in connection with the bankruptcy case based on a consideration of the benefit and necessity of the services provided.  Some courts, however, have held that, under Lamie, compensation for services performed before a chapter 7 case is converted to chapter 13 cannot be compensated in a chapter 13 case under either section.  Judge Hoffman disagreed with these courts, holding that Section 330(a)(4)(B) “permits counsel for a chapter 13 debtor to seek an award of fees and expenses ‘for representing the interests of the debtor in connection with the bankruptcy case’ even when a portion of the fees and expenses were incurred when the case was previously pending in chapter 7.”

 

Contributions by:

Kate Foley, Mirick, O’Connell, DeMallie & Lougee

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)

John Joy, Boston College Law School

Devon MacWilliam, Partridge Snow & Hahn

Gina O’Neil, Mirick, O’Connell, DeMallie & Lougee

Michael K. O’Neil, Murphy & King

Kathleen M. Ryan, Morgan, Lewis & Bockius

Nathan Soucy, Soucy Law Office

 

 

Bankruptcy Court Seeks Nominations for Pro Bono Awards

The United States Bankruptcy Court for the District of Massachusetts has requested nominations for its third annual Pro Bono Recognition Awards. The awards recognize individuals or organizations that have improved access to volunteer legal services in Massachusetts. Nominations must be submitted by September 14, 2015. Attorneys who have performed volunteer legal services that meet criteria established by the Court’s Pro Bono Legal Services Advisory Committee are invited to submit certifications by September 14, 2015. Attorneys who meet the criteria will receive recognition on the Court’s Honor Roll. A recognition ceremony for Honor Roll members and the winners of the Pro Bono Recognition Awards will be held in Springfield on October 15, 2015. For more information, please click here.

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

Thank You to John Loughnane

On behalf of the Bankruptcy Section, I would like to recognize John Loughnane as he finishes his two years as section co-chair.  John has brought his unflagging energy and tremendous people skills to keep the section running through one excellent program after another, culminating in a spectacular 25th Bench Bar Conference at the Omni Parker House and a memorable commemorative book of the Bankruptcy Section and its predecessor Bankruptcy Committee.  He has been a model to me over the past year in what a section chair should do.  I and newly appointed section co-chair Ethan Jeffery look forward to walking the path trod by John and his predecessors.

Adam J. Ruttenberg
Posternak Blankstein & Lund LLP
Prudential Tower
800 Boylston Street
Boston, MA 02199-8004
617.973.6279
857.930.4546 fax

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.

Upcoming Bankruptcy Events

A couple of exciting events are on the calendar for next week:

Brown Bag Lunch:  On Tuesday, May 12 at 12:00 p.m. at the Boston Bar Association, the Consumer Bankruptcy Committee will be hosting Proofs of Claims in Chapter 13’s: Standing Order 2015-03, New Practices, and Best Practices.  If you would like to attend this event, you can register here.

Bench Meets Bar Conference:  On Thursday, May 14 from 3:00 p.m. to 6:00 p.m., the Bankruptcy Section celebrates the 25th Annual Bankruptcy Bench Meets Bar Conference.  The Bankruptcy Section is bringing the program back to the historic Omni Parker House, the site of the first Bankruptcy Bench Meets Bar Conference.  If you would like to attend this event, you can register here.

New Standing Order Issued Regarding Amendment to Local Bankruptcy Rule 13-13

The United States Bankruptcy Court for the District of Massachusetts recently issued Standing Order 2015-03. The Standing Order sets forth changes to Massachusetts Local Bankruptcy Rule 13-13, which details the procedure for filing and objecting to claims. The amended rule includes several new subsections and applies to all cases commenced on or after May 1, 2015. To view the Standing Order and amended rule, please click 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.