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.
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