Bankruptcy Appeal to Watch: Robert Murphy v. Educational Credit Management Corp.

On 9:30 A.M. on December 10, 2015, the First Circuit Court of Appeals will hear oral arguments in Robert Murphy v. Educational Credit Management Corporation (1st Cir. Docket No. 14-1691), a case which has significant implications for student loan dischargeability litigation.  To read more about this case, including summaries of the parties’ arguments and briefs, please click here:  Bankruptcy Appeal To Watch. Robert Murphy v. Educational Credit Management Corp. (A3117424x7A575)

This summary was prepared by Alex Hess, Esq. of Sassoon & Cymrot, LLP.


Upcoming Lunch Bunch with US Trustees and Brown Bag Lunch of New Proof of Claim Forms

On December 3, 2015, the Consumer Bankruptcy Committee will host a Lunch Bunch with the Office of the US Trustee. The Lunch Bunch Program is an opportunity to sit in an informal setting with the United States Trustee’s office to learn about and discuss their current concerns.

This event will be held at the Law Library, 12th Floor, John W. McCormack Post Office and Courthouse, 5 Post Office Square, Boston, MA from 11:45 a.m. – 12:45 p.m.

Lunch will be available to those who pre-register. Please register here.

Additionally, on December 8, 2015, a Brown Bag Lunch will be held at the BBA offices at 16 Beacon Street. The discussion will explore the changes to the proof of claim Forms that become effective on December 1, 2015 and what information to look for on the proof of claim form to determine total arrears. Jason Giguere, Esq. will be the featured speaker.

Lunch will be available to those who pre-register. Please register here.




Alert: Bankruptcy Court CM/ECF System to Shutdown Temporarily

Mark your calendars; the Bankruptcy Court for the District of Massachusetts has announced that the CM/ECF system will be shutdown from 4:00 p.m. on Monday, November 30 until 8:00 a.m. on Tuesday, December 1. The system will be shutdown to allow upgrades to accommodate the new Official Bankruptcy Forms. All attorneys should be prepared to use the new forms beginning December 1, 2015.

The Disclosure Statement previously posted a presentation on the new forms created by Walter Oney of Oney Law Office. The presentation is available here.

To view the full announcement from the court regarding the CM/ECF shutdown, including what to do if you need to file a document, please click here.


Case Summaries: the October 2015 Bankruptcy Court Opinions

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

Baldiga v. Golemo (In re Golemo), A.P. No. 12-04017 (Bankr. D. Mass. Oct. 23, 2015) (Boroff, J.)

Well before the involuntary bankruptcy case commenced, a 1998 divorce decree ordered the Debtor to transfer his interest in four (4) properties to Ms. Golemo.  The properties were the sole form of alimony and child support for Ms. Golemo and their children.  Because the transfer of the property was never recorded, however, the Bankruptcy Court avoided the transfers and Ms. Golemo filed a $1 million claim against the estate.  In this opinion, the Bankruptcy Court held that a claim arising under § 502(h) retains the characteristics of the underlying claim against the debtor that gave rise to the avoided transfer; accordingly, Ms. Golemo’s § 502(h) claim constituted a priority domestic support obligation.  Further, the Bankruptcy Court found that the properties should be valued as of the petition date and not the date of the divorce decree.

In re Daniel P. Corbett, Case No. 11-13667-JNF (October 26, 2015)

Goodwill Enterprises, Inc. (“Goodwill”) filed a motion to modify a sale order pursuant to Fed.R.Civ.P. 60(b) that authorized and approved the private sale of the Chapter 7 trustee’s interest in Debtor’s LLC and a realty trust of which the LLC was the sole beneficiary.  Goodwill asserted that that sale cannot be free and clear of all interests and encumbrances because, as agreed in its lease, it had an enforceable right of first refusal.  Goodwill’s motion came almost three years after the Bankruptcy Court’s order because it never received notice, nor was the lease disclosed to the Bankruptcy Court.  To seek redress, Goodwill filed a Land Court complaint against the buyer contemporaneously with this motion to enforce its alleged rights.  In a detailed discussion regarding the supporting facts and Rule 60(b), the Bankruptcy Court abstains from ruling on the issues at hand, and instead defers to the Land Court to determine the outcome.


Contributions by:

Devon MacWilliam, Esq., Partridge Snow & Hahn

Aaron Todrin, Esq., Sassoon & Cymrot, LLP


Upcoming Brown Bag Lunch: Corrected Date

The Brown Bag Lunch on Directors and Officers Liability Insurance in the Bankruptcy Context will take place on Tuesday, November 10, 2015 from noon – 1:00 p.m. at the BBA.  To sign up, please click here.

Upcoming Brown Bag Lunch: Directors and Officers Liability Insurance in the Bankruptcy Context

Please join us on November 11th from noon – 1:00 pm at the BBA for a brown bag discussion about D&O liability insurance with a particular focus on its role in the bankruptcy context.

D&O insurance expert Brian Mukherjee from Goodwin Proctor will be leading the conversation.  After discussing the key components of a D&O insurance policy, Brian will focus on matters especially relevant to bankruptcy practitioners, including side A and DIC coverage, and the insured vs. insured exclusion.  Because this co-sponsored brown bag is sure to attract lawyers from diverse practice areas, the conversation will undoubtedly be both interesting and educational.  Join us!

Co–sponsored by the Insurance & Reinsurance and Professional Liability Committees of the Insurance and Tort Litigation Section

To sign up, please click here.

Case Summaries – the September 2015 Bankruptcy Court Opinions

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

50 Patton Drive, LLC et al. v. Steven C. Fustolo (In re Fustolo) A.P. No. 14-1193 (September 11, 2015) (Feeney, J.)  The Patriot Group, LLC (“Patriot”) filed a motion for partial summary judgment against defendant/debtor (“Debtor”) pursuant to § 727(a)(4)(A) seeking denial of Debtor’s discharge for knowingly and fraudulently making a false oath in his amended Schedule B.  Specifically, Patriot asserted that Debtor improperly listed a “possible whistleblower claim” that did not exist.  Debtor opposed the motion.  Relying on prior claims filed with the IRS and SEC by Debtor, the Bankruptcy Court ruled that the record contained sufficient evidence that Debtor did in fact have a potential whistleblower claim and therefore denied Patriot’s motion.

Follo et al. v. Morency (In re Morency), Case No. 10-13666-JNF, A.P. No. 10-1133 (Sept. 18, 2015) (Feeney, J.)  Prior to the debtor’s Chapter 7, the plaintiffs had obtained a $500,000 Vermont state court judgment against the debtor for common law fraud and violations of the Vermont Consumer Fraud Act in connection with the debtor’s sale of an inn to the plaintiffs. The debtor had been found to have provided the plaintiffs with inflated revenue figures when marketing the inn.  In a 2013 decision after a section 523(a)(2) non-dischargeability trial in the Bankruptcy Court in which the plaintiffs relied exclusively on the state court judgment and collateral estoppel/issue preclusion, the Bankruptcy Court found the debt dischargeable.  This time around, on remand from the District Court, the Bankruptcy Court confirmed the dischargeability finding by denying the plaintiff’s’ post-trial motion to amend the complaint to add a more specific reference to section 523(a)(2)(B), and denying the plaintiffs’ motion to take judicial notice of state court jury instructions, which did not make it into the original dischargeability trial record and would have better dovetailed with the requisite elements for a finding under 523(a)(2)(B).

In re Morency, Case No. 10-13666-JNF (Sept. 18, 2015) (Feeney, J.)  In the debtor’s Chapter 7 bankruptcy, only three creditors filed claims, all nonpriority and unsecured, two for less than $6,000, and one for over $500,000 (the “Judgment Claim”).  One creditor objected to the Judgment Claim on the grounds that the Vermont state court judgment on which it was based was not final, had no preclusive effect in the bankruptcy, and was obtained with falsified evidence.  The issue for the bankruptcy court was whether the objecting creditor sustained its burden of proof that the Judgment Claim creditor did not have an allowed claim because of the alteration of an exhibit in the state court litigation.  Judge Feeney concluded estoppel was inapplicable because the debtor and objecting creditor were not in privity and there was no shared identity between the issues in the state court action and the objection.  After an evidentiary hearing, the court found that the objecting creditor failed to establish that the Judgment Claim creditor altered the trial exhibit and overruled the objection.

In re Blanchette, Case No. 1540788-MSH (September 22, 2015) (Hoffman, J.)  In this case, the Chapter 7 trustee filed an objection to debtor’s homestead exemption claim, asserting that the debtor did not fall under the statutory definition of “owner” under Mass. Gen. Laws. ch 188, § 1. Additionally, the trustee argued that the debtor’s former spouse’s previously recorded declaration of homestead on the shared property was automatically terminated when the debtor recorded a subsequent homestead declaration on the same property, and also because the former spouse’s declaration was terminated when she moved out of the property after the divorce. Despite the bankruptcy court’s finding that the debtor lacked an ownership interest in the property, it overruled the trustee’s objection and held that a homestead declaration when recorded does not automatically terminate a prior recorded declaration. Furthermore, the bankruptcy court held that the former spouse’s departure from the marital property terminated only her homestead rights, and not those of the debtor.

In re Henry A. Sarafin Testamentary Trust, Case No. 12-30221-HJB (September 30, 2015) (Boroff, J.)  The Debtor objected to the secured claim filed by an oversecured creditor (the “Bank”) to the extent the amount of the claim exceeded the amount set forth in the Debtor’s confirmed Chapter 12 Plan (the “Plan”).  The Debtor also questioned the reasonableness of attorney’s fees included in the Bank’s claim.  The Bank argued that its claim amount was not limited by the provisions of the Plan and that its attorney’s fees were reasonable.  The Bankruptcy Court stated that while it is well-settled that a confirmed plan has a preclusive effect with regard to the treatment of a claim (i.e., secured vs. unsecured), the same cannot be said with respect to the amount of a claim.  Noting that the total amount of the Bank’s claim in the instant case could not have been determined at the time of confirmation, the Court found that the Plan could not possibly have had a preclusive effect as to the ultimate amount of the Bank’s oversecured claim.  The Court further concluded that the attorney’s fees in question were reasonable in light of the nature of the case and the Debtor’s habitual payment arrearages.

In re GT Advanced Technologies, Inc., Ch. 11 Case No. 14-11916-HJB (Bankr. D. N.H.) (Boroff, J.)  The Bankruptcy Court, from the bench, had denied a motion to approve the Debtors’ key employee retention plan (“KERP”) and key employee incentive plan (“KEIP”) and the District Court remanded on appeal requesting that the Bankruptcy Court elucidate additional facts and analysis of the motion to approve with reference to case law.  Section 503(c)(1) of the Bankruptcy Code prohibits bonuses paid to retain insiders unless the plan meets the strict requirements of the section.  If a plan is primarily incentivizing and not retentive in nature (a KEIP instead of a KERP), the more permissive 503(c)(3) applies to the plan.  The KEIP in this case covered 9 insiders and provided bonuses in varying amounts based on performance metrics defined as threshold, target, and stretch.  The Bankruptcy Court found that the KEIP was not primarily incentivizing because the “target” performance metric aligned with estimates and projections contained in the Debtors’ business plan.  Therefore, a threshold level bonus could be achieved by the insiders even if their performance failed to reach the level estimated under the plan.  The Court also found that the repeated statements of counsel and the declarants in support of the KEIP regarding the importance of keeping the insiders on board demonstrated that the KEIP was primarily retentive and not incentivizing in nature.  Since all parties agreed that the KEIP could not meet the requirements of 503(c)(1), the motion to approve with respect to the KEIP was denied.  As to the KERP, the Court applied what have become known as the “Dana factors” and found that it could not approve the KERP. While the Debtors were properly concerned about the retention of their employees and took care to pare down to a group of 26 employees most crucial to their operations, the Court could not conclude that (i) the design of the KERP was reasonably related to the results the Debtor sought to obtain, (ii) the scope of the plan was fair and reasonable and did not discriminate unfairly, or (iii) the plan was consistent with industry standards.  The Court could also not conclude that the cost of the KERP was reasonable given the Debtors’ assets, liabilities, and earning potential.


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)

John Joy, Boston College Law School

Devon MacWilliam, Partridge Snow & Hahn

Michael K. O’Neil, Murphy & King

Nathan Soucy, Soucy Law Office

Aaron Todrin, Sassoon & Cymrot, LLP


Upcoming Lunch Bunch Program with Judge Feeney

The Consumer Bankruptcy Committee’s next Lunch Bunch Program will be held on November 5. The program is an opportunity to sit in an informal setting with Judge Feeney to learn about and discuss her current concerns.

This event will be held from 11:45 a.m. – 12:45 p.m. at the Law Library, 12th Floor, John W. McCormack Post Office and Courthouse, 5 Post Office Square, Boston, MA.

Lunch will be available to those who pre-register. Please RSVP through this link.

Scam Warning

There have been recent warnings of a scam targeting people who have filed bankruptcy: in this scam, fraudsters call debtors and, while pretending to be their lawyer, get the debtors to wire money to satisfy a debt “outside of the bankruptcy.”  An article discussing the scam is linked here.  Although the article is about Vermont debtors, the U.S. Trustee’s office notes that it has received similar reports regarding Massachusetts debtors.