Friday, August 27, 2010

I so want to work for Allen & Overy!!!!  Attorneys get 100 paid vacation days a year!!  Unfortuantly there only US office is in NY-- yeah  I looked.

I want this shoe !

Halle  wedge by Kate Spade

I want this shoe in black size 6 -- in a C width - please!!   You can send it to my PO Box.

The New York Times proclaimed on Tuesday--in the "A" section, no less--that the new It-Shoe for women aspiring to power is a three-inch wedge by Kate Spade.

Apparently, that $300 shoe (The"Halle," on left) was caught on the feet of former Davis Polk & Wardwell associate Reshma Saujani, who's challenging congresswoman Carolyn Maloney in the New York Democratic primary.

The news media, are not supposed to ask female candidates about their hairstyle or their choice of pantsuits over skirts or their shoes. It is irrelevant. It is trivializing. It is sexist, but the shoes are cute.

The Careerist Blog asked  "And what about women lawyers--is it also risky to wear the wedge to a law firm interview? No one will say that the wedge is a career-killer, like flip-flops, Birkenstocks, or Crocs. But some do think they are a bit clunky, if not funky."   Personally I like flip flops and crocs! But then I don't work for  a big named firm.

Starving Lawyers

Even Lawyers are having a tough time of it. Check out these blogs.  i do not condone Zenovia Evans aka Ethan Haines behavior in any way.   I think it was poor tate to say the least.

Credit Report Agencies Liable if They Pass On Bad Watch List Data

Credit Report Agencies Liable if They Pass On Bad Watch List Data

Shannon P. Duffy


In a significant setback for credit reporting agencies, the 3rd U.S. Circuit Court of Appeals has ruled that consumers have the right to sue if a credit report includes inaccurate information drawn from a government watch list.

The ruling in Cortez v. Trans Union comes in the case of a woman who claimed she was falsely branded as a Colombian drug dealer when she was confused with someone on the U.S. Treasury Department's watch list of known narcotics traffickers and terrorists.

The 91-page opinion marks the first time that a federal appellate court has held that such information is regulated by the federal Fair Credit Reporting Act, and could force Trans Union and other credit reporting agencies to overhaul their policies for handling such information in order to guarantee its accuracy.

But the ruling also includes a setback for plaintiffs because the appellate court refused to consider whether the trial judge was too harsh in slashing a punitive award of $750,000 down to $100,000 on the grounds that the plaintiff had opted to "accept" the trial judge's remittitur rather than opt for a new trial.

Although the appellate court said it was "troubled" by the severity of the trial judge's reduction, the unanimous three-judge panel concluded that such remittitur orders cannot be reviewed once the plaintiff accepts the reduced award.

Lawyers for Trans Union had argued that information gleaned from the Treasury Department's watch list of known terrorists and narcotics traffickers -- known as the OFAC List, for the Office of Foreign Assets Control -- simply wasn't covered by the Fair Credit Reporting Act.

But the 3rd Circuit disagreed, saying the statutory language was explicit, broad and clear, and showed that Trans Union's "OFAC Alert," which is added to some credit reports when customers pay an added subscriber fee, is subject to the FCRA.

"Trans Union's argument that the OFAC alert somehow manages to avoid the reach of the FCRA ignores the breadth of the language that Congress used in drafting that statute," Chief Judge Theodore A. McKee wrote.

"In order to conclude that the OFAC alert is not subject to that remedial statute even though the rest of the report clearly falls within the definition of 'consumer report,' we would have to conclude that Congress did not mean what it said when it unequivocally defined 'consumer report' to include 'any ... communication of any information by a consumer reporting agency,'" McKee wrote.

Trans Union argued that since the 3rd Circuit was the first court to address the question, it should recognize that the law was not settled and therefore decline to impose liability on the first offender.

McKee was unimpressed, saying: "The credit agency whose conduct is first examined under that section of the act should not receive a pass because the issue has never been decided. The statute is far too clear to support any such license."

In the suit, plaintiff Sandra Cortez, 64, claimed that Trans Union's error created humiliating ordeals when she was trying to buy a car and later when she was renting an apartment, but that Trans Union ignored her repeated pleas to have the erroneous information taken off her credit report.

After a three-day trial, a jury found that Trans Union had violated four provisions of the FCRA and awarded Cortez $50,000 in compensatory damages and $750,000 in punitive damages.

The jury also apparently wanted to make sure that its verdict sent a clear message. On the verdict form, below the monetary awards, the jury wrote: "The Trans Union business process needs to be completely revamped with much more focus on customer service and the consumer."

Senior U.S. District Judge John P. Fullam later slashed the verdict in a remittitur order, saying Cortez must accept a punitive award of $100,000 -- double the compensatory award -- or take a new trial.

Plaintiffs attorneys James A. Francis and John Soumilas of Francis & Mailman tried to take an immediate appeal of Fullam's ruling, but the 3rd Circuit dismissed that first appeal on the grounds that Fullam's remittitur order was not a final order.

Now, in a second appeal, the plaintiffs lawyers tried again to challenge Fullam's reduction of the punitive award, but the 3rd Circuit refused to consider the arguments on the grounds that the plaintiff had accepted the remittitur and therefore forfeited any right to challenge it.

Francis, in an interview, said the ruling on the scope of the statute is a major victory for consumers and will force the credit reporting agencies to modify their procedures in order to avoid false matches between drug dealers and terrorists on the watch list and innocent consumers whose lives are "turned upside down" by such mistakes.

Significantly, Francis said, companies like Trans Union will now be forced to disclose all such information to a consumer who lodges such a complaint. In Cortez's case, Francis said, the company repeatedly provided Cortez with copies of her credit report that did not include any OFAC alert, but nonetheless continued to include the alert when potential creditors asked for the report.

Francis said he was disappointed in the ruling on the remittitur issue and was hoping that the appellate court would recognize that such remittitur orders present the plaintiff with a Hobson's choice and effectively shield a trial judge's decision from any appellate review.

In the appeal, Francis argued that Fullam's ruling was premised on his view of a constitutional question, namely the upper limit, under the Due Process clause, for an award of punitive damages, and that Fullam was too stingy when limiting the award to double the compensatory award.

Since the ruling was constitutional, Francis said, the appellate court should have had jurisdiction to reach it.

But McKee found that the U.S. Supreme Court squarely addressed and rejected that argument in its 1977 decision in Donovan v. Penn Shipping Co.

"Cortez may be correct in claiming that she was on the horns of a dilemma and that the practical result of dismissing her challenge to the court's remittitur will be to place it beyond appellate review," McKee wrote in an opinion joined by Judges Thomas M. Hardiman and Franklin S. Van Antwerpen.

"Nevertheless, the court held in Donovan that a plaintiff cannot challenge a remittitur s/he has agreed to, even if the plaintiff has only agreed under protest or pursuant to a purported reservation of rights," McKee wrote.

Trans Union spokesman Steven Katz said the company never comments on pending litigation.

In the appeal, Trans Union was represented by attorneys Bruce S. Luckman, Mark E. Kogan and Timothy P. Creech of Kogan Trichon & Wertheimer in Philadelphia.


Check out the deposition posted on this site, VERY interesting!!!!

ABI Chart of The Day

Check back often they change daily

Large Commercial Property Owners Choosing to Default

Like homeowners walking away from mortgaged houses that plummeted in value, some of the largest commercial property owners in the U.S. are defaulting on debts and surrendering buildings worth less than their loans to the lenders, Dow Jones Daily Bankruptcy Review reported today. Companies such as Macerich Co., Vornado Realty Trust and Simon Property Group Inc. have recently stopped making mortgage payments to put pressure on lenders to restructure debts, or sent lenders keys to properties whose value had fallen far below the mortgage amounts, a process known as "jingle mail." These companies all have piles of cash to make the payments; they are simply opting to default because they believe it makes good business sense. Luxury-mall owner Taubman Centers Inc., which owns properties such as Beverly Center in Los Angeles and The Mall at Short Hills, in New Jersey, earlier this year decided to stop covering interest payments on its $135 million mortgage on the Pier Shops at Caesars in Atlantic City, N.J. Taubman, which estimates the mall is now worth $52 million, gave it back to its mortgage holder. "Where it's fairly obvious that the gap is large, as it was with the Pier Shops, individual owners are making very tough decisions," Taubman said. Investors are rewarding public companies for ditching profit-draining investments. Deutsche Bank AG's RREEF, which manages $56 billion in real-estate investments, now favors companies that jettison cash-draining properties with nonrecourse debt, meaning banks cannot sue landlords personally if they default. The theory is that those companies fare better by diverting money previously spent propping up struggling properties to shareholders or more lucrative projects.

1 in 10 mortgages face foreclosure

One in 10 American households with a mortgage was at risk of foreclosure this summer as the government's efforts to help have had little impact on stemming the housing crisis, the Associated Press reported today. Nearly 9.9 percent of homeowners had missed at least one mortgage payment as of June 30, the Mortgage Bankers Association said today. More than 2.3 million homes have been repossessed by lenders since the recession began in December 2007, according to foreclosure listing service RealtyTrac. Nearly half of the 1.3 million homeowners who have enrolled in the Obama administration's main mortgage-relief program have been cut loose through July, the Treasury Department said last week. Roughly 32 percent of those who started the program have received permanent loan modifications and are making their payments on time. The news comes despite record low mortgage rates. Rates fell to the lowest level in decades for the ninth time in 10 weeks as concerns grow that the economy is weakening.


The above articles put an interesting twist on  BACAP that it has actually helped the middle class and hurt banks.   HMM... it costs more to file bankruptcy, the attorneys fees are more, you have to take 2 credit counseling classes, the credit card companies will cancel your credit cards even if you don't owe $$$.   You be the judge.
Mortgage interest rates are already at their lowest level in decades, and this week, they headed even lower. The descent was prompted largely by fears that another housing downturn could hamper the economic recovery, after July’s home sales took a deeper plunge than expected.

Long-term mortgage rates have dropped to new record lows for nine weeks out of the last 10, according to Freddie Mac. This week, the GSE reports that the average rate for a 30-year fixed-rate mortgage (FRM) came in at 4.36 percent (0.7 point), down from 4.42 percent last week.

Rates for 15-year FRMs are now averaging 3.86 percent (0.6 point) in Freddie’s study. That’s down from last week’s average of 3.90 percent.

Adjustable-rate mortgages (ARMs), too, are treading extremely low. Freddie Mac says the 5-year ARM remained tied at its low for the survey at 3.56 percent (0.6 point). One-year ARMs dropped from 3.53 percent last week to 3.52 percent (0.7 point).

Miami Area Foreclosures Reach 100K

Last Thursday, lenders reached 100,000 foreclosures in the tri-county South Florida region since the real estate crash began in 2007, according to a report from Bal Harbour-based consulting firm, which takes its figures from government records. That’s an average of 2,300 per month.

In South Florida’s real estate crash, consider that lenders have repossessed an average of 75 properties per day since January 2007, which is a span of more than 1,300 days. 

Bank-owned properties represent only about 6 percent of the 68,500 residences on the resale market in the region as of August 16 despite the sharp increase in repossessions, according to Condo Vultures Realty LLC. South Florida’s residential inventory has increased for nine of the last 11 weeks-a 5 percent jump since May 31.

Lenders have repossessed more than 33,600 properties in the area in 2010, reports That figure already surpasses the number of tri-county properties taken in 2009 and 2008 combined.

Underwater Homeowners Decline to 11M

The number of underwater homeowners has declined for the second consecutive quarter.

The research firm CoreLogic reports that 11 million borrowers owed more on the loan than their home was worth at the end of June. That equates to 23 percent of all residential properties with mortgages, and is down from 11.2 million, or 24 percent, at the end of March.

It seems like good news on the surface, but the company says foreclosures, rather than meaningful price appreciation, were the primary driver behind the change in negative equity.

In addition to the 11 million homeowners already underwater, another 2.4 million borrowers had less than five percent equity in their homes at the end of the second quarter, according to CoreLogic.

Negative equity remains concentrated in five states. Nevada had the highest percentage of negative equity in Q2 with 68 percent of all of its mortgaged properties underwater, followed by Arizona (50 percent), Florida (46 percent), Michigan (38 percent), and California (33 percent).

Credit Card Issuers Scramble for Profits

Faced with a raft of new regulations and customers who are spending less on their cards, executives at the nation's biggest issuers of plastic such as JPMorgan Chase & Co. and Citigroup Inc. are bracing for a less profitable future, the Wall Street Journal reported today. Card companies are struggling to recover from $1 billion in losses racked up last year as a result of the financial crisis. Auriemma Consulting Group, a New York firm that specializes in the payments industry, estimates that card companies could earn about $4 billion this year. That is less than a quarter of the record $18 billion earned in both 2006 and 2007, according to Auriemma, which does not include financial results from American Express Co. or Discover Financial Services Inc.

Thursday, August 26, 2010

Increase in Consumer Bankruptcy Costs

People currently filing for Chapter 7 and Chapter 13 consumer bankruptcy protection are facing as much as a 55 percent cost increase as one result of the 2005 comprehensive bankruptcy reforms, according to a new study published in the American Bankruptcy Institute Law Review. In addition, as a direct result of these increased costs, unsecured creditors are being paid a smaller percentage on the dollar today than prior to the 2005 reform.

The study, authored by New York bankruptcy attorney Lois R. Lupica of Thompson & Knight LLP and funded by the American Bankruptcy Institute (ABI) and the National Conference of Bankruptcy Judges (NCBJ), reveals that consumer bankruptcy is a "far more complicated process than it was before the 2005 amendments" based on an increased number of conditions and calculations for filers in addition to a corresponding rise in expenses.

For the sample of Chapter 13 cases, the study found that the median cost for consumers was $2,930 in 2003 and 2004, with an increase to $4,077 in 2007 and 2008. For Chapter 7 cases in the same periods, the costs increased from $900 to $1,399.

Attorney fees are just part of the required administrative expenses that may have contributed to the overall decline of consumer bankruptcies, even in the face of the public's increased debt load, foreclosures, and loan defaults.

In the Middle District of Florida, Tampa Division

An order establishing reasonable Debtor's attorney fees  in a chapter 13 was entered in Case no.  8:07-mp-00002.  This amount is adjusted annually on April 1.

The breakdown is as follows:

Amount To be Adjusted 4/1/2010

plans 36 mo or less  was $3,300 .00   now   $3,525.00

plan 60 mos was  $3,600.00  now $3,850.00

alacarte additional items 36 mo plan- with  No Hearing  $250.00  with Hearing $350.00

alacarte additional items 60 mo plan  with  No Hearing was  $275.00  with Hearing $375.00

Add Fee if if non-FL Exemptions applied was $250  now $275

The maxium amount the attorney may recieve through the plan each month was $500.00 now it is $525.00

As you can see the price of a chapter 13 has gone up everywhere.  We are still holding at 2005 prices of $2,500 (except in certain cases) with the addition of the al carte items.   Call 727-410-2705 today to schedule your free consultation ( Middle District of Florida- Tampa Division only).

Mortgage Loans Increase

The Mortgage Bankers Association's (MBA) Market Composite Index, a measure of mortgage loan application volume, increased 4.9% on a seasonally adjusted basis for the week ending Aug. 20. On an unadjusted basis, the index increased 4.5% compared with the previous week.

Cute PDF Writer---FREE

Here you go!   Now you can make pdfs no excuses! So do not send me .jpeg files. The Court, trustees ..... do not take jpeg document files onld pdf.

Los Angeles Signs On To MERS' Vacant-Property Registry

Los Angeles Signs On To MERS' Vacant-Property Registry

in News > Mortgage Servicing

by on Wednesday 25 August 2010

This month, Los Angeles joined Virginia, Massachusetts and Connecticut in accepting the MERS System as an alternative to the city's registry of foreclosed properties and property preservation contacts for vacant properties.

"Many law enforcement agencies and municipalities already use the MERS System on an informal basis to find a loan's servicer and identify the companies responsible for maintaining vacant properties in their area," explains R. K. Arnold, president and CEO of MERSCORP Inc.

Current MERS members can use the system to register the identity of the property preservation company responsible for maintaining vacant properties, which are frequently in foreclosure. The MERS System can track both residential and commercial properties.

“Maintaining residential vacant properties in foreclosure is important to prevent blight and to protect property values,” adds Doug Guthrie, general manager of the Los Angeles Housing Department. “We’re able to see these benefits more quickly while saving on the city budget by partnering with MERS, whose system is immediately available and already in use by many property preservation companies.”


Late Payments Rise on Second Mortgages, Decline for Firsts

Default rates in July declined for first mortgages, but a larger number of homeowners fell behind on their second lien payments, according to data released jointly by Standard & Poor's and Experian. The companies' credit indices show defaulting balances on first mortgages were 3.2 percent last month, down from June's 3.3 percent, demonstrating continued improvement in the performance of first lien home loans. Second mortgage defaults, however, increased to 2.8 percent from 2.4 percent the month prior.

California Home Sales

The median price paid for a home last month in California was $268,000, a 7.2 percent increase from July 2009. Following 27 months of year-over-year decline, this year-over-year increase was the ninth in a row. Bay Area home prices are up 1.8 percent, and Southern California prices are up 10.1 percent from a year ago.

However, July home sales in the state of California were down 19.9 percent from June and 21.9 percent from a year ago, MDA DataQuick reports.

In the Bay Area, home sales for that month dropped sharply to their lowest level in 15 years, down 22.8 percent from July 2009. Southern California was also pummeled with its biggest year-over-year drop in more than two years, down 21.4 percent from last year.

Stern in Criminal Contempt of Court

Jingle Mail

In many cases home owners and companies have walked away, sending keys to properties whose values had fallen far below the mortgage amounts, a process known as “jingle mail.”  These strategic defaulters simple find it good business to default.

Banking-industry officials and others have argued that homeowners have a moral obligation to pay their debts even when it seems to make good business sense to default. Individuals who walk away from their homes also face blemishes to their credit ratings and, in some states, creditors can sue them for the losses they suffer.

But in the business world, there is less of a stigma even though lenders, including individual investors, get stuck holding a depressed property in a down market. Indeed, investors are rewarding public companies for ditching profit-draining investments. Deutsche Bank AG’s RREEF, which manages $56 billion in real-estate investments, now favors companies that jettison cash-draining properties with nonrecourse debt, loans that don’t allow banks to hold landlords personally responsible if they default. The theory is that those companies fare better by diverting money to shareholders or more lucrative projects.

Schack Attack!!!

2010 NY Slip Op 51482(U)





Supreme Court, Kings County.

Decided August 19, 2010.

Melissa A Sposato, Esq., Law Offices of Jordan Katz, PC, Melville NY, Plaintiff.

No Appearances, Defendant.


In this mortgage foreclosure action, plaintiff’s motion for an order of reference for the premises located at 732 Hendrix Street, Brooklyn, New York (Block 4305, Lot 22, County of Kings) is denied with prejudice. The complaint is dismissed. The notice of pendency filed against the above-named real property is cancelled. Plaintiff’s successor in interest, AMERICAN HOME MORTGAGE SERVICING, INC. (AHMSI), lacks standing to continue this action because the instant mortgage was satisfied on April 26, 2010. Plaintiff’s counsel never notified the Court that the mortgage had been satisfied and failed to discontinue the instant action with prejudice. I discovered that the mortgage had been satisfied by personally searching the Automated City Register Information System (ACRIS) website of the Office of the City Register, New York City Department of Finance. AHMSI’s President and Chief Executive Officer or its Executive Vice President, Chief Legal Officer and Secretary Jordan D. Dorchuck, Esq., its counsel, Melissa A. Sposato, Esq. and her firm, Jordan S. Katz, P.C., will be given an opportunity to be heard as to why this Court should not sanction them for making a “frivolous motion,” pursuant to 22 NYCRR §130-1.1.

2010 NY Slip Op 51482(U)





Supreme Court, Kings County.

Decided August 19, 2010.

Melissa A Sposato, Esq., Law Offices of Jordan Katz, PC, Melville NY, Plaintiff.

No Appearances, Defendant.


In this mortgage foreclosure action, plaintiff's motion for an order of reference for the premises located at 732 Hendrix Street, Brooklyn, New York (Block 4305, Lot 22, County of Kings) is denied with prejudice. The complaint is dismissed. The notice of pendency filed against the above-named real property is cancelled. Plaintiff's successor in interest, AMERICAN HOME MORTGAGE SERVICING, INC. (AHMSI), lacks standing to continue this action because the instant mortgage was satisfied on April 26, 2010. Plaintiff's counsel never notified the Court that the mortgage had been satisfied and failed to discontinue the instant action with prejudice. I discovered that the mortgage had been satisfied by personally searching the Automated City Register Information System (ACRIS) website of the Office of the City Register, New York City Department of Finance. AHMSI's President and Chief Executive Officer David M. Friedman or its Executive Vice President, Chief Legal Officer and Secretary Jordan D. Dorchuck, Esq., its counsel, Melissa A. Sposato, Esq. and her firm, Jordan S. Katz, P.C., will be given an opportunity to be heard as to why this Court should not sanction them for making a "frivolous motion," pursuant to 22 NYCRR §130-1.1.


Defendant DAPHINE MAITLAND (MAITLAND) borrowed $392,000.00 from original plaintiff ARGENT MORTGAGE COMPANY, LLC (ARGENT), on August 4, 2006. The loan was secured by a mortgage, recorded by ARGENT, at the Office of the City Register of the City of New York, New York City Department of Finance, on August 23, 2006, at City Register File Number (CRFN) XXXXXXXXXX. Defendant MAITLAND allegedly defaulted in her mortgage loan payments with her June 1, 2007 payment. ARGENT commenced the instant action with the filing of the summons, complaint and notice of pendency with the Kings County Clerk on November 8, 2007. Plaintiff's counsel, on April 14, 2009, filed the instant motion for an order of reference with the Court'sForeclosure Department. After reviewing the papers, the Foreclosure Department forwarded the instant motion to me on August 16, 2010.

On August 16, 2010, I searched ACRIS and discovered that AHMSI, the successor in interest to plaintiff ARGENT, executed a satisfaction of the instant mortgage almost four months ago, on April 26, 2010. The satisfaction was executed in Idaho Falls, Idaho, by Krystal Hall, Vice President of "AMERICAN HOME MORTGAGE SERVICING, INC., AS SUCCESSOR TO CITI RESIDENTIAL LENDING, INC. AS SUCCESSOR TO ARGENT MORTGAGE COMPANY, LLC," and the satisfaction was recorded at the Office of the City Register of the City of New York, on May 10, 2010, at CRFN XXXXXXXXXXXXX.

Successor plaintiff AHMSI is one of several companies controlled by billionaire investor Wilbur L. Ross, Jr. through his firm, W. L. Ross & Company. Louise Story, in her April 4, 2008 New York Times article, "Investors Stalk the Wounded of Wall Street," described Mr. Ross as "a dean of vulture investing." She wrote:

Almost two centuries ago, as Napoleon marched on Waterloo, a scion of the Rothschilds is said to have declared: The time to buy is when blood is running in the streets.

Now as red ink runs on Wall Street, the figurative heirs of the Rothschilds — bankers, traders, hedge fund gurus and takeover artists — are plotting to profit from today's financial upheaval. These market opportunists — vulture investors in the Wall Street term — have begun to swoop. They are buying up mortgages of hard-pressed homeowners, the bank loans of cash-short businesses, and companies that seem to be hurtling to bankruptcy. And they are trying to buy them all on the cheap. . . .

"The only time you really know you've reached the bottom is when you're back on the other side and things are going back up," said Wilbur L. Ross, Jr., a dean of vulture investors, who made a fortune buying steel companies when no one else seemed to want them.

Such caution aside, his firm, W. L. Ross & Company, recently spent $2.6 billion for two mortgage servicers [AHMSI and Option One] and a bond insurance company. He said he planned to buy more as hedge funds and other investor sell at bargain prices.

Moreover, ACRIS revealed that defendant MAITLAND sold the premises to 732 HENDRIX STREET, LLC for $155,000.00, with the deed executed on April 5, 2010 and recorded on April 14, 2010, at the Office of the City Register of the City of New York, at CRFN XXXXXXXXXXXXX.

Plaintiff's counsel never had the courtesy or professionalism to notify the Court that the instant mortgage was satisfied and file a motion to discontinue the instant action. The Court is gravely concerned that it: expended scarce resources on an action that should have been discontinued; and, would have signed an order that could have possibly damaged the credit rating of defendant MAITLAND and put an unfair cloud on the title to the subject premises now owned by 732 HENDRIX STREET, LLC, causing both defendant MAITLAND and 732 HENDRIX STREET, LLC much time and effort to correct an error caused by the failure of successor plaintiff AHMSI and plaintiff's counsel to exercise due diligence. If successor plaintiff AHMSI is a responsible lender, not a vulture investor looking to profit "when blood is running in the streets," it should have notified the Court that the subject mortgage had been satisfied.


It is clear that successor plaintiff AHMSI lacked standing to proceed in the instant action since some time prior to April 26, 2010, when the satisfaction for defendant MAITLAND's mortgage was executed. The exact date is probably April 5, 2010, when defendant MAITLAND likely paid off the subject mortgage loan as part of her closing with 732 HENDRIX STREET, LLC, for the sale of the subject mortgaged premises. "To establish a prima facie case in an action to foreclose a mortgage, the plaintiff must establish the existence of the mortgage and the mortgage note, ownership of the mortgage, and the defendant's default in payment." (Campaign v Barba (23 AD3d 327 [2d Dept. 2005]). The instant mortgage was satisfied months before the instant motion for an order of reference was forwarded to me by the Foreclosure Department. The satisfaction, dated April 26, 2010, states that "AMERICAN HOME MORTGAGE INC. AS SUCCESSOR TO CITI RESIDENTIAL LENDING, INC. AS SUCCESSOR TO ARGENT MORTGAGE COMPANY, LLC . . . does hereby certify that a certain indenture of mortgage . . . to secure payment of the principal sum of $392,000.00, and interest, and duly recorded . . . document no. 2006000477619 on the 23rd day of August 2006, is PAID, and does hereby consent that the same be discharged of record." (See Household Finance Realty Corp. of New York v Wynn, 19 AD3d 545 [2d Dept. 2005]; Sears Mortgage Corp. v Yahhobi, 19 AD3d 402 [2d Dept. 2005]; Ocwen Federal Bank FSB v Miller, 18 AD3d 527 [2d Dept. 2005]; U.S. Bank Trust Nat. Ass'n Trustee v Butti, 16 AD3d 408 [2d Dept 2005]; First Union Mortgage Corp. v Fern, 298 AD2d 490 [2d Dept 2002]; Village Bank v Wild Oaks, Holding, Inc., 196 AD2d 812 [2d Dept 1993]).

The Court of Appeals (Saratoga County Chamber of Commerce, Inc. v Pataki, 100 NY2d 801, 812 [2003], cert denied 540 US 1017 [2003]) declared that "[s]tanding to sue is critical to the proper functioning of the judicial system. It is a threshold issue. If standing is denied, the pathway to the courthouse is blocked. The plaintiff who has standing, however, may cross the threshold and seek judicial redress."

In Caprer v Nussbaum (36 AD3d 176, 181 [2d Dept 2006]) the Court held that "[s]tanding to sue requires an interest in the claim at issue in the lawsuit that the law will recognize as a sufficient predicate for determining the issue at the litigant's request." If a plaintiff lacks standing to sue, the plaintiff may not proceed in the action. (Stark v Goldberg, 297 AD2d 203 [1st Dept 2002]).

Since AHMSI executed the satisfaction for the instant mortgage, the Court must not only deny the instant motion, but also dismiss the complaint and cancel the notice of pendency filed by ARGENT with the Kings County Clerk on November 8, 2007. CPLR § 6501 provides that the filing of a notice of pendency against a property is to give constructive notice to any purchaser of real property or encumbrancer against real property of an action that "would affect the title to, or the possession, use or enjoyment of real property, except in a summary proceeding brought to recover the possession of real property." Professor David Siegel, in NY Prac, § 334, at 535 [4th ed] observes about a notice of pendency that:

The plaintiff files it with the county clerk of the real property county, putting the world on notice of the plaintiff's potential rights in the action and thereby warning all comers that if they then buy the property or lend on the strength of it or otherwise rely on the defendant's right, they do so subject to whatever the action may establish as the plaintiff's right.

The Court of Appeals, in 5303 Realty Corp. v O & Y Equity Corp. (64 NY2d 313, 315 [1984]), commented that "[a] notice of pendency, commonly known as a lis pendens,' can be a potent shield to litigants claiming an interest in real property." The Court, at 318-320, outlined the history of the doctrine of lis pendens back to 17th century England. It was formally recognized in New York courts in 1815 and first codified in the Code of Procedure [Field Code] enacted in 1848. At 319, the Court stated that "[t]he purpose of the doctrine was to assure that a court retained its ability to effect justice by preserving its power over the property, regardless of whether a purchaser had any notice of the pending suit," and, at 320, "the statutory scheme permits a party to effectively retard the alienability of real property without any prior judicial review."

In Israelson v Bradley (308 NY 511, 516 [1955]) the Court observed that with a notice of pendency a plaintiff who has an interest in real property has received from the State:

an extraordinary privilege which . . . upon the mere filing of the notice of a pendency of action, a summons and a complaint and strict compliance with the requirements of section 120 [of the Civil Practice Act; now codified in CPLR § § 6501, 6511 and 6512] is required. Proper administration of the law by the courts requires promptness on the part of a litigant so favored and that he accept the shield which has been given him upon the terms imposed and that he not be permitted to so use the privilege granted that itbecomes a sword usable against the owner or possessor of realty. If the terms imposed are not met, the privilege is at an end. [Emphasis added]

Article 65 of the CPLR outlines notice of pendency procedures. The Court, in Da Silva v Musso (76 NY2d 436, 442 [1990]), held that "the specific statutorily prescribed mechanisms for implementing this provisional remedy . . . were designed with a view toward balancing the interests of the claimant in the preservation of the status quo against the equally legitimate interests of the property owner in the marketability of his title." The Court of Appeals, quoted Professor Siegel, in holding that "[t]he ability to file a notice of pendency is a privilege that can be lost if abused' (Siegel, New York Practice § 336, at 512)." (In Re Sakow, 97 NY2d 436, 441 [2002]).

The instant case, with successor plaintiff AHMSI lacking standing to bring this action and the complaint dismissed, meets the criteria for losing "a privilege that can be lost if abused." CPLR § 6514 (a) provides for the mandatory cancellation of a notice of pendency by:

[t]he court, upon motion of any person aggrieved and upon such notice as it may require, shall direct any county clerk to cancel a notice of pendency, if service of a summons has not been completed within the time limited by section 6512; or if the action has been settled, discontinued or abated; or if the time to appeal from a final judgment against the plaintiff has expired; or if enforcement of a final judgment against the plaintiff has not been stayed pursuant to section 5519. [Emphasis added]

The plain meaning of the word "abated," as used in CPLR § 6514 (a) is the ending of an action. Abatement is defined (Black's Law Dictionary 3 [7th ed 1999]) as "the act of eliminating or nullifying." "An action which has been abated is dead, and any further enforcement of the cause of action requires the bringing of a new action, provided that a cause of action remains' (2A Carmody-Wait 2d § 11.1)." (Nastasi v Nastasi, 26 AD3d 32, 40 [2d Dept 2005]). Further, Nastasi at 36, held that "[c]ancellation of a notice of pendency can be granted in the exercise of the inherent power of the court where its filing fails to comply with CPLR 6501 (see 5303 Realty Corp. v O & Y Equity Corp. at 320-321; Rose v Montt Assets, 250 AD2d 451, 451-452 [1st Dept 1998]; Siegel, NY Prac § 336 [4th ed])." AHMSI, as successor plaintiff, lacks standing to sue. Therefore, dismissal of the instant complaint must result in mandatory cancellation of the November 8, 2007 notice of pendency against the property "in the exercise of the inherent power of the Court."

The failure of successor plaintiff AHMSI, by its President David M. Friedman or its Executive Vice President, Chief Legal Officer and Secretary Jordan D. Dorchuck, Esq., and its counsel, Melissa A. Sposato, Esq. and her firm, Jordan S. Katz, P.C., to discontinue the instant action since the April 2010 payoff of the MAITLAND mortgage appears to be "frivolous." 22 NYCRR § 130-1.1 (a) states that "the Court, in its discretion may impose financial sanctions upon any party or attorney in a civil action or proceeding who engages in frivolous conduct as defined in this Part, which shall be payable as provided in section 130-1.3 of this Subpart." Further, it states in 22 NYCRR § 130-1.1 (b), that "sanctions may be imposed upon any attorney appearing in the action or upon a partnership, firm or corporation with which the attorney is associated."

22 NYCRR § 130-1.1 (c) states that:

For purposes of this part, conduct is frivolous if:

(1) it is completely without merit in law and cannot be supported by a reasonable argument for an extension, modification or reversal of existing law;

(2) it is undertaken primarily to delay or prolong the resolution of the litigation, or to harass or maliciously injure another; or

(3) it asserts material factual statements that are false.

It is clear that since at least April 26, 2010 the instant motion for aan order of reference "is completely without merit in law" and "asserts material factual statements that are false."

Several years before the drafting and implementation of the Part 130 Rules for costs and sanctions, the Court of Appeals (A.G. Ship Maintenance Corp. v Lezak, 69 NY2d 1, 6 [1986]) observed that "frivolous litigation is so serious a problem affecting the proper administration of justice, the courts may proscribe such conduct and impose sanctions in this exercise of their rule-making powers, in the absence of legislation to the contrary (see NY Const, art VI, § 30, Judiciary Law § 211 [1] [b] )."

Part 130 Rules were subsequently created, effective January 1, 1989, to give the courts an additional remedy to deal with frivolous conduct. These stand beside Appellate Division disciplinary case law against attorneys for abuse of process or malicious prosecution. The Court, in Gordon v Marrone (202 AD2d 104, 110 [2d Dept 1994], lv denied 84 NY2d 813 [1995]), instructed that:

Conduct is frivolous and can be sanctioned under the court rule if "it is completely without merit . . . and cannot be supported by a reasonable argument for an extension, modification or reversal of existing law; or . . . it is undertaken primarily to delay or prolong the resolution of the litigation, or to harass or maliciously injure another" (22 NYCRR 130-1.1[c] [1], [2] . . . ).

In Levy v Carol Management Corporation (260 AD2d 27, 33 [1st Dept 1999]) the Court stated that in determining if sanctions are appropriate the Court must look at the broad pattern of conduct by the offending attorneys or parties. Further, "22 NYCRR 130-1.1 allows us to exercise our discretion to impose costs and sanctions on an errant party . . ." Levy at 34, held that "[s]anctions are retributive, in that they punish past conduct. They also are goal oriented, in that they are useful in deterring future frivolous conduct not only by the particular parties, but also by the Bar at large."

The Court, in Kernisan, M.D. v Taylor (171 AD2d 869 [2d Dept 1991]), noted that the intent of the Part 130 Rules "is to prevent the waste of judicial resources and to deter vexatious litigation and dilatory or malicious litigation tactics (cf. Minister, Elders & Deacons of Refm. Prot. Church of City of New York v 198 Broadway, 76 NY2d 411; see Steiner v Bonhamer, 146 Misc 2d 10) [Emphasis added]." Since at least April 26, 2010, and probably since April 5, 2010, the instant action is "a waste of judicial resources." This conduct, as noted in Levy, must be deterred. In Weinstock v Weinstock (253 AD2d 873 [2d Dept 1998]) the Court ordered the maximum sanction of $10,000.00 for an attorney who pursued an appeal "completely without merit," and holding, at 874, that "[w]e therefore award the maximum authorized amount as a sanction for this conduct (see, 22 NYCRR 130-1.1) calling to mind that frivolous litigation causes a substantial waste of judicial resources to the detriment of those litigants who come to the Court with real grievances [Emphasis added]." Citing Weinstock, the Appellate Division, Second Department, in Bernadette Panzella, P.C. v De Santis (36 AD3d 734 [2d Dept 2007]) affirmed a Supreme Court, Richmond County $2,500.00 sanction, at 736, as "appropriate in view of the plaintiff's waste of judicial resources [Emphasis added]."

In Navin v Mosquera (30 AD3d 883 [3d Dept 2006]) the Court instructed that when considering if specific conduct is sanctionable as frivolous, "courts are required to examine whether or not the conduct was continued when its lack of legal or factual basis was apparent [or] should have been apparent' (22 NYCRR 130-1.1 [c])." The Court, in Sakow ex rel. Columbia Bagel, Inc. v Columbia Bagel, Inc. (6 Misc 3d 939, 943 [Sup Ct,

New York County 2004]), held that "[i]n assessing whether to award sanctions, the Court must consider whether the attorney adhered to the standards of a reasonable attorney (Principe v Assay Partners, 154 Misc 2d 702 [Sup Ct, NY County 1992])." In the instant action, plaintiff's Chief Legal Officer or its outside counsel is responsible for keeping track of whether the mortgage was satisfied. In Sakow at 943, the Court observed that "[a]n attorney cannot safely delegate all duties to others."

This Court will examine the conduct of successor plaintiff AHMSI and plaintiff's counsel, in a hearing, pursuant to 22 NYCRR § 130-1.1, to determine if plaintiff AHMSI, by its President, David M. Friedman, or its Executive Vice President, Chief Legal Officer and Secretary, Jordan D. Dorchuck, Esq., and plaintiff's counsel Melissa A. Sposato, Esq. and her firm Jordan S. Katz, P.C. engaged in frivolous conduct, and to allow successor plaintiff AHMSI, by its President David M. Friedman or Executive Vice President, Chief Legal Officer and Secretary Jordan D. Dorchuck, Esq., and plaintiff's counsel Melissa A. Sposato, Esq. and her firm Jordan S. Katz, P.C. a reasonable opportunity to be heard. The Court is aware that AHMSI's Chief Legal Officer, Mr. Dorchuck, is a member of the New York State Bar. (See Mascia v Maresco, 39 AD3d 504 [2d Dept 2007]; Yan v Klein, 35 AD3d 729 [2d Dept 2006]; Greene v Doral Conference Center Associates, 18 AD3d 429 [2d Dept 2005]; Kucker v Kaminsky & Rich, 7 AD3d 39 [2d Dept 2004]).


Accordingly, it is

ORDERED, that the motion of successor plaintiff, AMERICAN HOME MORTGAGE SERVICING, INC., for an order of reference for the premises located at 732 Hendrix Street, Brooklyn, New York (Block 4305, Lot 22, County of Kings), is denied with prejudice; and it is further

ORDERED, that because successor plaintiff, AMERICAN HOME MORTGAGE SERVICING, INC., lacks standing and no longer is the mortgagee in this foreclosure action, the instant complaint, Index No. 41383/07 is dismissed with prejudice; and it is further

ORDERED, that the Notice of Pendency filed with the Kings County Clerk on November 8, 2007, by original plaintiff, ARGENT MORTGAGE COMPANY, LLC, in an action to foreclose a mortgage for real property located at 732 Hendrix Street, Brooklyn, New York (Block 4305, Lot 22, County of Kings), is cancelled; and it is further

ORDERED, that it appearing that successor plaintiff AMERICAN HOME MORTGAGE SERVICING, INC., Melissa A. Sposato, Esq. and Jordan S. Katz, P.C. engaged in "frivolous conduct," as defined in the Rules of the Chief Administrator, 22 NYCRR § 130-1 (c), and that pursuant to the Rules of the Chief Administrator, 22 NYCRR § 130.1.1 (d), "[a]n award of costs or the imposition of sanctions may be made. . . upon the court's own initiative, after a reasonable opportunity to be heard," this Court will conduct a hearing affording: successor plaintiff AMERICAN HOME MORTGAGE SERVICING, INC., by its President David M. Friedman or Executive Vice President, Chief Legal Officer and Secretary, Jordan D. Dorchuck, Esq.; Melissa A. Sposato, Esq.; and, Jordan S. Katz, P.C.; "a reasonable opportunity to be heard" before me in Part 27, on Monday, September 13, 2010, at 2:30 P.M., in Room 479, 360 Adams Street, Brooklyn, NY 11201; and it is further

ORDERED, that because the headquarters of successor plaintiff AMERICAN HOME MORTGAGE SERVICING, INC. is in Irving, Texas, Mr. Friedman or Mr. Dorchuck may appear either in person or by telephone; and it is further

ORDERED, that Ronald David Bratt, Esq., my Principal Law Clerk, is directed to serve this order by first-class mail, upon: David M. Friedman, President of successor plaintiff AMERICAN HOME MORTGAGE SERVICING, INC., 4600 Regent Boulevard, Suite 200, Irving, Texas 75063; Jordan D. Dorchuck, Esq., Executive Vice President, Chief Legal Officer and Secretary of successor plaintiff AMERICAN HOME MORTGAGE SERVICING, INC., 4600 Regent Boulevard, Suite 200, Irving, Texas 75063; Melissa A. Sposato, Esq., Law Offices of Jordan S. Katz, P.C., 395 North Service Road, Suite 401, Melville, New York XXXXX-XXXX; and Jordan S. Katz, P.C., 395 North Service Road, Suite 401, Melville, New York XXXXX-XXXX.

This constitutes the Decision and Order of the Court.

WaMu Will Face Trial in November Over $4 Billion of Low-Ranking Securities

Washington Mutual Inc., the ex-owner of the biggest U.S. bank to fail, will face a November trial in an investor lawsuit over ownership of $4 billion in low-ranking debt known as trust-preferred securities, a judge said.

U.S. Bankruptcy Judge Mary F. Walrath in Wilmington, Delaware, scheduled a trial for Nov. 1, the first day of a confirmation hearing on WaMu’s reorganization plan.

Shareholders claim that the holding company’s bank should never have been seized by regulators and sold to JPMorgan Chase & Co. in 2008.

In July, a group of investors sued WaMu and JPMorgan over the way the trust-preferred securities were converted from debt- like investments into equity. The investors, who bought $1 billion of the trust-preferred securities, got preferred equity in WaMu when the exchange happened just before WaMu collapsed.

Wednesday, August 25, 2010

Average Age of Someone Filing Bankruptcy 44.9 years old

Although younger to middle-aged individuals appear to carry more debt - including student and mortgage loans, credit card balances and auto financing - a new report reveals that more older Americans are filing for bankruptcy. According the American Bankruptcy Institute Journal, individuals aged 55 and older are becoming the fastest-growing demographic to file.

The report, Aging and Bankruptcy Revisited, shows that middle-aged Americans are still the largest age group to file. However, older generations who are seeking this type of debt relief rose 61 percent between 2002 and 2007.

In addition, the report noted that the age of those filing has also increased, revealing that the median age increased from 41.4 years in 2002 to 44.9 years in 2007. While the age of those filing grew between 2002 and 2007, younger generations saw a decline in the prevalence of filings during that same period. The number of individuals under the age of 25 who filed for bankruptcy declined from 4 percent in 2002 to 1.7 percent in 2007.

HAMP in a Nose Dive

The latest performance report shows that nearly half of the homeowners approved for trial modifications have fallen out of the program. As of the end of July, 616,839 HAMP trials have been cancelled, out of the 1,307,489 trials started since the program began.

Bankruptcy Petitions on a Rise in Massachusetts

According to the Administrative Office of the U.S. Courts (AOUSC) report, the total number of bankruptcies filed during the first six months of 2010 in Massachusetts increased by approximately 19% over the same six-month period in 2009, driven by sharp increases in consumers seeking relief from debt.

The American Bankruptcy Institute noted that the first half of 2010 posted the highest number of filings recorded since the institution of new regulations in 2005.

How far off is Stern's Business model really?

 Many countries they are moving towards further corporatization of law firms as nonattorneys provide private investment capital, become shareholders and complete the MBA takeover of the profession. That movement is clearly afoot in Great Britain. Once senior partners become accountable to nonattorney boards of directors, the individual autonomy that once defined being a lawyer will have disappeared.

What Lawyers Need to Know About Search Tools

It's more of an add then telling you about search tools!  Try google scholar for case info or findlaw they are free.

Monthly Housing Costs Reach $1,000

U.S. homeowners paid a median of $1,000 in monthly housing costs in 2009, compared with $808 for renters, according to data released this week by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development (HUD). However, renters usually paid a higher percentage of their household income on these costs than did owners (31% compared with 20%).

Aurora Named In Class Action

A group of homeowners has filed a class-action lawsuit against Aurora Loan Services LLC, claiming the servicer misled them into paying to have troubled mortgages reviewed by the company, with promises of loan modifications, only to have their property foreclosed with little or no notice.

HAMP Cancellations Reach Nearly 50%

Nearly half of the borrowers who have entered the Home Affordable Modification Program (HAMP) have fallen out, with servicers having canceled more than 100,000 trial and permanent modifications in July, the Obama administration reports in its latest housing scorecard. Of the approximately 1.3 million borrowers who have enrolled in HAMP since its inception, nearly 630,000 have been canceled out of the program.

Florida's Program For Unemployed Borrowers Grows In Scale

Additional funding announced last week by the U.S. Treasury Department will enable Florida's state housing finance agency to offer mortgage payment assistance to a greater number of unemployed borrowers for a longer period of time, according to the agency. The Florida Housing Finance Corp. (FHFC), named among five state agencies in the first round of the Obama administration's HFA Hardest [read more]

Foreclosure is funny?

Hey, did you hear this joke that made its way around the Internet: "The economy is so bad that seven out of 10 houses on Sesame Street are in foreclosure"?

Or, did you see a recent issue of The New Yorker with a cartoon with a man and a woman walking from a house with a large "For Sale: Foreclosure" sign on its lawn? The woman carried two suitcases and a glum expression, while the man lugged a large crate and said, "Well, this is one way to keep the kids from moving back home."

Or were you aware of the Oregon theater company that advertised its production of Anton Chekov's "The Cherry Orchard" as "the ultimate foreclosure comedy"?

Or how about the YouTube comedy videos featuring the taglines "A touch of humor added to the foreclosure nightmare - why not?" and "Hilarious door knocking foreclosure humor"?

A strategic-default advocacy website called has a cartoon of Old Mother Hubbard leaving her celebrated shoe house while saying, "They foreclosed, so we are moving to a flip-flop."

Comic Dick Gregory joked about the foreclosure procedures he was facing. ''I'm surprised to see there's a story about somebody losing a house,'' Gregory said. ''I thought the news nowadays was when somebody can afford to buy a house.''

Thanks  Phil Hall @ Mortgageorb

Sunday, August 22, 2010

Card Act

The Credit Card Accountability Responsibility and Disclosure Act of 2009, known as the Card Act, was intended to reshape the contours of consumer finance. Among other things, it forces card issuers to give customers more notice about interest-rate increases and restricts certain controversial billing practices such as inactivity fees.

the Card Act stipulates that late-payment fees shouldn't be triggered on a Sunday or holiday, when there is no mail delivery. The Card Act also stipulates that issuers can't jack up rates on existing balances unless a cardholder is at least 60 days late. But there is a creative maneuver around that: the so-called rebate card Rebate offers aren't governed by the Card Act, and an issuer can revoke them suddenly and hit cardholders with high charges.

Shortening the billing cycle is another new tactic some banks may be using. The Card Act requires companies to provide a window of at least 21 days from when a statement is mailed and when payment is due.

Card Act rules forbid the waiving of annual fees based on "a customer's annual spending on the card." He adds, however, that "the rules will not prohibit cash-back rewards or similar incentives that encourage account usage."

Another potential trap: low-credit-limit cards, which are popular among college students.

The Card Act says a card's total annual fees can't exceed 25% of a borrower's credit line. But some issuers may be evading the fee restrictions by charging an upfront processing fee that doesn't fall under the 25% cap.

Short Sales

The hard-hit housing markets of California, Florida, and Arizona, along with Texas, are seeing the most activity, CoreLogic said in its 2010 Short Sale Research Study released Tuesday. These four states account for more than half – 55.8 percent – of short sale volume.

Lenders’ financial losses resulting from preventable and unnecessary short sale fraud are estimated to be as high as $310 million by the end of this year, CoreLogic says. According to the company’s study, the risk of ‘unnecessary losses’ occurs in one in every 53 short sales and averages about $41,500.

“By definition, short sales constitute a financial loss to lenders but will continue to be a necessary part of the mortgage industry as it seeks stabilization. The primary objective for lenders is to eliminate unnecessary loss,” said Tim Grace, SVP of fraud analytics at CoreLogic.

Wells Fargo to Pay $200 Million in Overdraft-Fee Case

U.S. District Judge William Alsup yesterday ordered Wells Fargo & Co. to pay more than $200 million to compensate customers who the judge said were improperly charged millions in overdraft fees, the Wall Street Journal reported today. Judge Alsup said that the bank improperly generated excessive overdraft fees for customers by posting transactions in an order that would generate more fees. Banks' practices in charging overdraft fees, which generate about $40 billion a year for the banking industry, have been at the heart of customers' complaints against banks since the onset of the financial crisis three years ago. To charge higher fees, banks used various methods in handling customers' accounts. In many cases, banks re-ordered customers' transactions at the end of the day, first subtracting the largest purchases from the account's balance.

Free Credit Report

You have the right to a free credit report from or 877-322-8228, the ONLY authorized source under federal law.

Elena Kagan

8/8/10, Elena Kagan was sworn in as the 112th Justice, and the fourth woman, to serve on the Supreme Court. Chief Justice John G. Roberts, Jr.,  administered the Constitutional Oath in a private ceremony in the Justices’ Conference Room, and then administered the Judicial Oath in the Court’s West Conference Room before a gathering of Kagan’s family and friends. (In the center of the photo is Jeffrey P. Minear, the Chief Justice’s principal assistant.)

The Court has indicated that a formal investiture ceremony will take place on October 1.

Thanks Scotusblog!

Unemployed Lawyers

Legal Sector Lost 800 Jobs in July

The American Lawyer

The U.S. economy as a whole lost 131,000 jobs in July, and 800 of them were in the legal trade, according to the latest report from the U.S. Bureau of Labor Statistics. Despite the losses, the industry actually fared better last month than it did in June, when it saw more than 3,000 positions evaporate. All told, there are now 17,200 fewer legal jobs in the U.S. than there were in July 2009, according to the Bureau of Labor Statistics.

Fannie Mae Closes HomeSaver Advance Program

Fannie Mae says it is retiring one of its foreclosure prevention options. The GSE’s HomeSaver Advance (HSA) program will be taken off the table on September 30.

The company introduced the HomeSaver program in 2008, to bring delinquent first-lien borrowers current when a repayment plan was not feasible. Fannie called HSA “the preferred option to a capitalization-only modification” at the time.

Under the program, servicers were allowed to extend unsecured personal loans to delinquent homeowners of up to $15,000 to cure arrearages of principal, interest, taxes, insurance, and other advances and fees. The loan was payable over 15 years at a fixed rate of 5 percent, with no payments or interest accrual for the first six months.

The HomeSaver Advance program was considered a good workout option when struggling homeowners needed a short-term fix to gain back their financial footing. But as housing woes began to spiral out of control and widespread economic factors, such as rising and elongated unemployment, pushed already distressed borrowers farther behind the mark, redefault rates on mortgages cured through the HomeSaver program began to mount and Fannie Mae turned to HSA less and less.

FHA - Principal Reducing Refis for Underwater Borrowers

Starting September 7, the federal agency will offer new FHA-insured mortgages to certain underwater, non-FHA borrowers who are current on their mortgage payments and whose lenders agree to write off at least 10 percent of the unpaid principal balance.

This last part could prove to be the caveat that leads the new FHA refi program down the same road as the federal government’s other housing programs – a road of below par results and public criticism.

Lenders are fantastically reluctant to write down mortgage principals. It would mean either they or their mortgage investors would have to eat the amount of debt that’s forgiven, and it could set a precedent that a loan contract is not a contract at all if the terms spelled out in black and white can be changed based on market nuances, such as a slump in real estate values.

To be eligible for a new loan, the homeowner must owe more on their mortgage than their home is worth, be current on their existing mortgage, and occupy the property as their primary residence. The homeowner must qualify for the new loan under standard FHA underwriting requirements and have a credit score equal of at least 500.

Participation in the program is voluntary and requires the consent of all lien holders. The borrower’s existing first lien holder must agree to write off at least 10 percent of their unpaid principal balance to bring the borrower’s combined loan-to-value ratio to no more than 115 percent.

In addition, the existing loan to be refinanced must not be an FHA-insured loan, and the refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than 97.75 percent.

Servicers planning to take part in the new program must execute a Servicer Participation Agreement (SPA) with Fannie Mae by October 3, 2010.

1st DCA

The 1st District Court, with 15 judges, is the state's largest, hearing appeals of cases from Jacksonville to Pensacola, and it hears all appeals involving the state.

The court began looking at a new building in 2006 after rejecting the possibility of expanding its existing, rent-free building in downtown Tallahassee.

Lawmakers say two 1st District judges, Chief Judge Paul Hawkes and Judge Brad Thomas, lobbied furiously for the new building. The two spent so much time walking the halls of the Legislature that some lawmakers wondered when they had time to be judges.

Florida Supreme Court Justice Fred Lewis, who was chief judge in 2007, says he was shocked to discover that the 1st District Court of Appeal judges, lawmakers and FSU had reached a "behind the scenes'' deal that approved a bond issue, gave the old courthouse to the FSU Law School and eliminated office space in the old building for the Office of State Courts Administrator.

Scheduled to be completed in November, it's a $48 million behemoth in which each judge will get a 60-inch LCD flat screen television in chambers (trimmed in mahogany), a private bathroom (featuring granite countertops) and a kitchen (complete with microwave and refrigerator). The Taj Mahal has an exercise room for the judges and COSTS $425 a square ft for the 112,000 building which will hold 112 employees (15 of them judges).

Unemployed Homeowners

Through the existing Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets, the U.S. Treasury will make $2 billion of additional assistance available to housing finance agencies (HFAs) in 17 states and the District of Columbia to implement local programs for homeowners struggling to make their mortgage payments due to unemployment.

In addition, HUD is planning to launch a complementary $1 billion Emergency Homeowners Loan Program to provide assistance – for up to 24 months – to homeowners who are at risk of foreclosure and have experienced a substantial reduction in income due to involuntary unemployment, underemployment, or a medical condition.

States that have already received money under the Hardest Hit Fund may use the additional resources to support their existing unemployment programs or they may opt to implement a new program. States that are new to the grant list must submit proposals to Treasury by September 1. Assistant Treasury Secretary Herb Allison said final approval for new programs will be made by October 3, in order to ensure program roll-outs during the fall season.

The states eligible to receive funds through this additional assistance include:

• Alabama – $60,672,471

• California – $476,257,070

• Florida – $238,864,755

• Georgia – $126,650,987

• Illinois – $166,352,726

• Indiana – $82,762,859

• Kentucky – $55,588,050

• Michigan – $128,461,559

• Mississippi – $38,036,950

• Nevada – $34,056,581

• New Jersey – $112,200,638

• North Carolina – $120,874,221

• Ohio – $148,728,864

• Oregon – $49,294,215

• Rhode Island – $13,570,770

• South Carolina – $58,772,347

• Tennessee – $81,128,260

• Washington, D.C. – $7,726,678

• Bill Apgar, HUD’s senior advisor for mortgage finance, explained that the program will work through a variety of state and non-profit entities to offer a declining balance, deferred payment “bridge loan” of up to $50,000 per eligible borrower, which can be used to make payments on their mortgage, property taxes, and insurance for up to 24 months.

• Eligible borrowers must be at least three months delinquent and have a reasonable likelihood of resuming repayment of their mortgage and related housing expenses within two years. The property must be their primary residence and the borrower cannot own a second home. They must also demonstrate a good payment record prior to the event that resulted in their reduction of income.

New Bureau of Consumer Financial Protection

New Bureau of Consumer Financial Protection

Circuit Court of Appeals Cases

Third Circuit, 07/13/2010
In re Visteon Corp.
Debtor-employer may not terminate provision of retiree health and life insurance benefits without complying with section 1114.

Sixth Circuit, 07/22/2010
In re: Darrohn
Bankruptcy court's confirmation of chapter 13 plan reversed in light of the Supreme Court's recent decision in Hamilton v. Lanning where: 1) the bankruptcy court erred when it determined that it was required to use the income calculated on Form B22C, which was derived from the six-month look-back formula, rather than debtors' current monthly income; and 2) the bankruptcy court erred in failing to account for the debtors' intent to surrender properties securing the mortgages in considering reasonable necessary monthly expenses.

Ninth Circuit, 07/16/2010
In re Penrod
Creditor does not have a purchase money security interest in the "negative equity" arising from a vehicle traded in at the time of a new vehicle purchase. (Note: I filed an Amicus Brief in this case)

Tenth Circuit, 07/20/2010
In re Roser
Chapter 7 trustee cannot avoid a creditor's lien, where Colorado Certificate of Title Act (CCTA) did not supersede Colorado UCC section 4-9-317(e) because the provision did not govern the manner or timing of the perfection of liens, and governed only the priority of a lien and was not inconsistent with the CCTA.

Eleventh Circuit, 07/19/2010
In re Tennyson
Above median income debtor, with negative disposable income, may not confirm Chapter 13 bankruptcy plan to last for less than five years when the debtor's unsecured creditors have not been paid in full.

Fifth Circuit, 07/07/2010
In re Texas Pig Stands, Inc.
Trustee liable for a tax deficiency incurred in running the debtor's business, where the trustee exceeded his authority, violated the plan, and committed willful misconduct, and therefore the Trust Agreement did not limit his liability.

Seventh Circuit, 07/09/2010
In the Matter of Solis
Under the terms of the contingent fee agreement, the attorney is entitled to a percentage of only the money he actually recovered from other parties, not a percentage of the money the debtor had received earlier.

Eighth Circuit, 07/09/2010
In re Polaroid Corp.
In a creditor's appeal of the bankruptcy court's approval of a debtor's sale, free and clear of any liens, of its assets, the appeal is dismissed where no party obtained a stay of the sale pending appeal, and thus the appeal was moot.

Ninth Circuit, 07/07/2010
Ta Chong Bank Ltd. v. Hitachi High Techs. Am., Inc.
Complaint dismissed where claims were based solely on plaintiff's interest in the third party's accounts receivable, which the bankruptcy court had determined to be property of the third party's bankruptcy estate.

Eleventh Circuit, 07/09/2010
In re Mouzon Enters., Inc.
Order resolving a claim that has been objected to, but not litigated, does not constitute an order "entered without a contest" for the purposes of Fed. R. Bankr. P. 9024.

Thanks to


Exemption Fallout from Schwab

M. Jonathan Hayes

I have filed two chapter 7 cases recently where the debtors have no equity in their home and therefore the California wild card exemption is available to them. In both cases, the debtors owned an interest in a small business or partnership or business equipment that they and I are satisfied have no value; the businesses because of the existing debt of the business and lack of buyers. So I am listing the assets on schedule B at a value of zero but the exmeptions on schedule C as the full amount of the wildcard, roughly $23,000. So schedule C says, "Asset - interest in partnership - value zero. Amount claimed exempt - $23,000." I expect to get some guff from the trustee who will say there must be some value if we are exempting it and if no value, the exemption should be zero. I will point to Schwab and I am sure I am right.

It does raise three questions, 1. why not list the exemption at zero and if the trustee goes to sell, amend the exemption? 2. why not list the exemption as "100% of value," as suggested by Clarence Thomas in Schwab? 3. why not list the value at $23,000 and the exemption the same?

Answers: 1. The trustee can seek to surcharge the exemption if the trustee does yeoman's work (according to him/her) discovering the value is actually higher than that listed on the schedules. 2. There is no exemption for 100% of the asset so you are forcing the trustee to object and that is sanctionable in my book. 3. This is the toughest question. Listing any amount, $5,000 - 10,000, 20,000 - gives the appearance that some process was used to value the asset when each of the numbers is a guess - and where "zero" is a firm belief. Clients ask me if they should get an appraisal ahead of time. I tell them no. An appraisal is expensive, a guess by the appraiser, and the trustee does not care about the appraisal - he/she cares only about the amount someone will pay her for it today in cash.

I practice, of course, in the Central District of California. We have roughly the same number of filings each month as the entire state of New York and the entire state of Texas combined. Trustees here do little more than read the schedules (that is not a knock). The message the schedules send is important. A business valued by the debtor at $20,000 is worth looking into. A business valued at zero is usually not. Given Schwab, the asset should nevertheless be exempted to the maximum.

Fammie Interactive

Fannie Mae has rolled out a new interactive online resource for homeowners struggling with their mortgage payments. It’s, and it’s designed to be a virtual one-stop-shop for anyone facing financial hardship and in need of a foreclosure prevention solution.


The latest figures from the U.S. Treasury show that 16 months in, the Home Affordable Modification Program (HAMP) has yielded just 389,198 permanent loan restructurings – results that even the government’s own special inspector general has assailed as “anemic” and not even close to putting “an appreciable dent in foreclosure filings.”

The administration has already initiated several refinancing programs in hopes of stemming the nation’s foreclosure crisis, but they too have generated tepid outcomes at best. As of the end of March, the Home Affordable Refinance Program (HARP) had allowed 291,600 homeowners to obtain new mortgages with lower rates – a mere drop in the bucket considering the program’s end-goal is 4-5 million refinancings.

And then there’s the Federal Housing Administration’s (FHA) Hope for Homeowners (H4H) effort, which was initiated under the Bush administration. Even after a program revamp in March of last year to increase flexibility for lenders and allow a broader scope of borrowers to qualify, H4H has seen virtually no pick-up in volume. In June, for example, FHA insured just seven new mortgages under its H4H program.

Bank Failures

Federal regulators said that five banks in Georgia, Florida, Washington and Oregon have failed, bringing the 2010 total to 108, Dow Jones Daily Bankruptcy Review reported today. The pace of failures so far this year far outstrips that of 2009 as there were 69 banks that closed their doors at this point last year. The Federal Deposit Insurance Corp. said that the five failures would cost its insurance fund nearly $335 million. The largest failure occurred in Oregon, where Eugene-based LibertyBank was seized by regulators. The bank had total assets of $768.2 million and total deposits of $718.5 million as of the end of March.

New Campaign Offers Educational Materials to Fight Loan Modification Scams

To help combat loan modification scams that target homeowners facing foreclosure, Congress asked NeighborWorks America® to launch a national public education campaign. Financial educators can access a variety of the campaign's educational resources that can help homeowners avoid loan modification scams and find help from legitimate counselors. The FDIC is one of many partners working with NeighborWorks America on this effort. Learn more at

E Discovery

United States: E-Discovery Duties and the Range of Sanctions for Failures to Comply with Them

29 July 2010

Article by Nelson Brestoff

Why is it that every litigator must become conversant with the language and intricacies of electronically stored information (ESI)? And why is it that they should feel highly motivated to do so in a non-negligent manner? This article addresses these questions.

Attorneys know, of course, that the discovery of potentially relevant evidence is a standard part of every lawsuit. But what is new is that, within the last five years, it has been recognized that ESI comprises most of all potentially relevant evidence. It has been noted that even the smallest fender-benders can involve ESI; for example, if the driver was texting just before the crash. In such a case, the amount of ESI might be relatively small, but then again, the existence and timing of the texting might be critical. In anti-trust, securities, fraud, mass tort or employment class actions, and in trade secret and patent cases, the amount of ESI is different and can, in fact, be prodigious.

Indeed, the hallmark of ESI is its immense volume. The larger cases can involve terabytes of ESI. For context, a megabyte is about 75 pages; a gigabyte is about 75,000 pages, if printed.1 A terabyte is a thousand times more than a gigabyte, which means 75 million pages, which is 25,000 boxes, and that's the equivalent of about 50,000 trees.

Why is there so much of it? The answer is simple. In 2003, researchers at UC Berkeley published an update to their study, How Much Information? They explained that, in 2002, each of us produced almost 800 megabytes of recorded information each year.2 There is no doubt that each of us produces even more ESI today. Because the cost of storing information electronically is cheap, ESI now goes by many names: (1) voice-mail messages and files, (2) e-mail messages and attachments, (3) deleted files, programs, or e-mails, (4) data files, (5) program files, (6) backup and archival tapes, (7) temporary files, (8) system-history files, (9) website information stored in textual, graphical, or audio format, (10) website log files, (11) cache files, and (12) cookies.

While we used to create paper one page at a time on a typewriter, ESI multiplies like rabbits. There are copies stored electronically each time we change a document, each time we send it to someone else, and each time they send it back.

ESI is everywhere these days. It can be stored in a wide variety of devices, e.g., desktop computers (office, home), laptops (office, home), cell phones, network servers, disk drives, thumb/flash drives, photocopy machines with digital memory, and backup tapes. And, still more devices continually come into the marketplace. ESI can reside in all of these devices, and when it comes to preserving ESI for possible future production, we have to gather up all of these devices in order to gather up all of the ESI they contain.

Thus, we can define electronic discovery (e-Discovery) as encompassing the duties and processes of collecting, preparing, reviewing and producing discoverable information that is stored electronically.

So the answer to the first question—why must attorneys know about ESI—has two parts: (1) ESI is the likely source of the evidence attorneys will present at trial, and (2) we now have rules governing e-Discovery. While the rules for discovery in general are well-established, the rules for e-Discovery are relatively new, if not brand new:

• Effective December 1, 2006, the Federal Rules of Civil Procedure (FRCP) were amended to cover ESI. In the FRCP, ESI is broadly intended to cover all current and future media for storing information electronically.3

• Effective June 29, 2009, California's Electronic Discovery Act amended §2031.010 et. seq. and other provisions of the Code of Civil Procedure to provide rules for the discovery of ESI. The California rules generally follow the FRCP.

• Effective August 14, 2009, Rule 3.724 of the California Rules of Court was amended to add subdivision (8), which requires attorneys on both sides of every lawsuit to discuss "any issues relating to the discovery of" ESI in a "meet and confer" preceding the Case Management Conference.

Although the rules are less than five years old, e-Discovery has quickly become a multi-billion dollar industry, and there has been sufficient time for "best practices" guidelines to be established. Best practices, recommendations and principles have been promulgated by The Sedona Conference.4 Courts often cite the Sedona Principles as a leading "industry" authority on e-Discovery.5

The Duty to Preserve ESI

Is there a rule requiring attorneys to preserve ESI? Specifically, no. Neither the Federal Rules of Civil Procedure nor California Code of Civil Procedure impose on attorneys a duty to preserve ESI, but the duty is there, no doubt because ESI is just one form of potentially relevant evidence. The duty to preserve all potentially relevant evidence is an affirmative obligation imposed on attorneys by the courts,6 and it is imposed not only on outside counsel, but on in-house attorneys and, take note, on certain high level executives as well.7

But there are several other, expressly stated sources of the duty to preserve ESI:

• Agreement or court order (or both);8

• Statutes and Regulations;9

• Last but not least, a reasonable and good faith effort to preserve ESI is required by Principle 5 of the Sedona Principles.10

When does the duty to preserve ESI arise? The duty to preserve potentially relevant evidence arises at the time when a party or one of its key employees can reasonably anticipate litigation, e.g., based on the circumstances or upon receipt of a letter requesting preservation of evidence. In certain circumstances, the duty to preserve evidence arises before a lawsuit is filed.

For example, in Doe v. Norwalk Cmty. Coll.,11 (Doe), a sex discrimination case, the duty to preserve was found to have arisen even before the employer received the intent-to-sue letter. Thus, almost any contentious job action will likely trigger the preservation duty. Depending on the circumstances, waiting for the lawsuit to be filed is simply waiting too long. When litigation can be reasonably anticipated, "[the party] must suspend its routine document retention/destruction policy and put in place a 'litigation hold' to ensure the preservation of relevant documents."12

It is vital to understand what a "hold" means. It means that attorneys are supposed to find out about his or her clients' routine document-retention-and-destruction policies and, for the key personnel, act to have those policies suspended. In Doe, the defendant employer argued that they had no option but to continue deleting information from their systems because the plaintiff was only identified as Jane Doe. That argument proved unsuccessful and sanctions were imposed.13

The scope of the duty to preserve evidence is limited to all evidence that is reasonably likely (or anticipated) to be the subject of a future discovery request, not all potential evidence.14

For how long must ESI be preserved? The answer is that the duration of the preservation duty is continuing, and it extends into the indefinite future. It requires not only monitoring but follow-up to identify still other "custodians" of ESI, should they appear.15

Thus, counsel are now required to

become fully familiar with her client's document retention policies, as well as the client's data retention architecture. This will invariably involve speaking with information technology personnel, who can explain system-wide backup procedures and the actual (as opposed to theoretical) implementation of the firm's recycling policy. It will also involve communicating with "key players" in the litigation, in order to understand how they stored information.16

So, even seasoned attorneys must learn to speak "tech." Because of their experience, they may have spotted the issues. They may understand how to deploy Requests for Admission, Interrogatories, and Requests for Production of Documents. But ESI now pervades the factual universe and so now dominates the discovery proceedings in litigation and even arbitration proceedings,17 and will do so into the indefinite future. We cannot un-ring this bell. It is fast becoming standard practice for an attorney's first deposition in a case to be the deposition of the manager of other side's IT department.


If attorneys fail to put (and keep) ESI and e-Discovery at the top of their minds, they may face a variety of serious sanctions. In the early days of e-Discovery, courts were perhaps more lenient than they are today. Those days are gone. Now the range of sanctions is worrisome indeed to litigants and their counsel. A wide range and severity of sanctions can be imposed for negligently or intentionally failing to preserve potentially relevant evidence.

Sanctions can take many forms. The most frequently imposed sanction is monetary.18 The most serious sanctions are terminating sanctions, burden-shifting orders, and adverse inference instructions.19

When a motion to compel further production of documents and for sanctions is granted, the likely penalty will be monetary, usually in the form of an award of attorney fees to the party who did not receive the documents it requested and had to go to the expense of making the successful motion. Monetary sanctions can be significant, and can range from tens of thousands of dollars to millions.20

The case of Qualcomm v. Broadcom is famous in part because it involved a sanction of $8.5 million. A sanction that high is worth some discussion. Qualcomm was a patent lawsuit where critical to the claim was whether Qualcomm participated in the Joint Video Team (JVT), an industry standard-setting body, in 2002 and early 2003. Qualcomm asserted that it had only begun to participate in the fall of 2003, after the standard had been set, and only with respect to professional extensions (or additions to) the standard. At trial, a key witness testified that she had not read e-mails indicating that she had participated in the JVT in late 2002. But Broadcom's counsel asked the right question on cross: had she received e-mails when the JVT was meeting? The answer was yes. This revelation prompted Broadcom to ask for the e-mails and, during the lunch break, Qualcomm's attorneys produced 21 of them. Qualcomm and its counsel argued that they were not responsive to Broadcom's discovery requests and did not believe that these newly discovered e-mails called their earlier search procedures into question.

Initially, the court believed that the attorneys knew better. As a result, the court levied an $8.5 million monetary sanction against Qualcomm, and imposed a court-monitored Case Review and Enforcement of Discovery Obligations (CREDO) program. As a result of the CREDO program, it was discovered that, while more than a million pages of only marginally relevant documents had been produced, 46,000 relevant documents (totaling more than 300,000 pages) had not been produced. Needless to say, the court was not pleased and, in addition to the monetary sanction, the court referred the offending attorneys to the State Bar for discipline.21

But on April 2, 2010, after substantial discovery proceedings on remand and a three-day hearing, Magistrate Judge Barbara Taylor issued an order which lifted the sanctions against the individual attorneys and relieved Qualcomm of its obligations under the CREDO program. Noting, however, that the $8.5 million sanction had not been appealed, Judge Taylor concluded:

It is undisputed that Qualcomm improperly withheld from Broadcom tens of thousand of documents that contradicted one of its key legal arguments. However, . . . there is insufficient evidence to prove that any of the Responding Attorneys engaged in the requisite "bad faith" or that (attorney) Leung failed to make a reasonable inquiry before certifying Qualcomm's discovery responses.22

As the Qualcomm case indicates, monetary sanctions are often coupled with other penalties. Besides awarding monetary sanctions and reporting offending attorneys for discipline, a court might also order additional searches, e.g., of servers and a CEO's personal laptop, at the non-moving party's expense.23

Or, as is sometimes the case when parties are having discovery disputes, a court might appoint a "special master."

Terminating Sanctions

The courts have hit both sides of a lawsuit with terminating sanctions because of willful failures to comply with ESI preservation and discovery obligations. When such case-ending sanctions are ordered, two key factors are present: (1) evidence has been destroyed intentionally and cannot be recovered and (2) without that evidence, the other side is so prejudiced that a terminating sanction is the only fair remedy.24 When a defendant is found to have engaged in such misconduct, the remedy is a default judgment.

For example, in Magana v. Hyundai Motor Am.,25 Hyundai's in-house counsel, in response to discovery requests, searched for responsive documents but only in its own legal department. As a result, the trial court found that (1) the parties did not agree to limit discovery, (2) the defendant falsely responded to plaintiff's requests for production and interrogatories, (3) the plaintiff was substantially prejudiced in preparing for trial, and (4) the potentially relevant evidence was lost forever. The trial court considered lesser sanctions, but concluded that the only just remedy was the entry of a default judgment – for $8 million. Now that is a terminating sanction with real bite. The appellate court reversed, but the Washington State Supreme Court reinstated the trial court's ruling and awarded attorney fees pertaining to the trial and appellate proceedings.

E-Discovery mishaps can impale either side of a case, and Plaintiffs and their counsel can also suffer "terminating sanctions" nightmares. In another e-Discovery case, a magistrate judge recommended dismissal of plaintiff's claims because of willful statutory violations and disobedience of court orders to produce documents. Although the district court concluded that total dismissal of all claims would be excessive, plaintiff's claims for damages arising from an alleged interruption of business were dismissed. In addition, plaintiff was ordered to pay $75,000 to defendant for its costs in bringing the sanctions motion.26

Shifting the Burden of Proof

Short of a default, could a court impose a sanction on a defendant that comes perilously close to terminating sanctions? Yes. In the Genger case,27 the court found that defendant Genger had knowingly destroyed potentially relevant evidence (emails). The court considered but declined to enter a default judgment.

But the sanctions it imposed were nevertheless severe, if not worse than a default. First, Genger was ordered to pay attorney fees estimated at $750,000 for having made and prevailed on a complicated but successful motion. In addition, Genger was ordered to produce privileged documents. But that was hardly the end of it. The court also ruled that, to prevail on any affirmative defense or counterclaim, Genger could not prevail by producing a preponderance of evidence, but would have to provide evidence sufficient to meet the "clear and convincing" threshold. And, Genger could not prevail on any material factual issue if the only evidence in support of his position was his own.

Imagine having to go to trial with those burdens. If Genger were a multi-armed God of some sort, all of his arms would be tied behind his back.

The "Adverse Inference" Instruction

Courts are understandably reluctant to impose "terminating" sanctions or their like on either side. However, when courts conclude that the e-Discovery duties have been willfully violated, and that evidence has been destroyed as a result, they have yet another fearsome weapon: the "adverse inference" instruction. An adverse inference instruction tells the jury that they may conclude that the reason some evidence was lost or destroyed is because it was arguably unfavorable to the party who lost or destroyed it. In a recent decision involving a finding by the court that e-Discovery misconduct had been intentional, the court wrote this:

The jury will receive an instruction that in and after November 2006, the defendants had a duty to preserve emails and other information they knew to be relevant to anticipated and pending litigation. If the jury finds that the defendants deleted emails to prevent their use in litigation with [plaintiff], the jury will be instructed that it may, but is not required to, infer that the content of the deleted lost emails would have been unfavorable to the defendants. In making this determination, the jury is to consider the evidence about the conduct of the defendants in deleting emails after the duty to preserve had arisen and the evidence about the content of the deleted emails that cannot be recovered.28

Courts may also give adverse inference instructions in other contexts, e.g., in cases where e-Discovery duties have been shirked due to negligence and/or gross negligence,29 as in or where lost or destroyed evidence makes it difficult to calculate damages.30

Adverse inference instructions can have a devastating impact on a jury. In Zubulake v. UBS Warburg, the plaintiff was an individual who brought a case against her former employer for sex discrimination. UBS Warburg had a duty to preserve potentially relevant evidence after Laura Zubulake complained about how she had been treated by her supervisor and others, and the company recognized that litigation was likely. This was several months before Zubulake filed a complaint with the EEOC and then filed her lawsuit. After determining that UBS had willfully destroyed potentially relevant emails after the duty to preserve them had arisen, the court decided to give an adverse inference instruction. At trial, the jury awarded $9 million in compensatory damages and $20 million in punitive damages, for a total of $29 million.

Zubulake was the "poster child" for Big Damages in a case where an e-Discovery failing was critical; that is, until Coleman (Parent) Holdings, Inc. v. Morgan Stanley & Co., Inc.31

Here's what happened in Morgan Stanley: Sunbeam Corporation retained Morgan Stanley to advise it on the merger with Coleman. After the deal closed, Sunbeam declared bankruptcy. Coleman's parent holding company sued Morgan Stanley alleging that it had intentionally misrepresented Sunbeam's true financial condition, so that the deal would close and Morgan Stanley could collect its commission. During the lawsuit, Coleman sought documents that Morgan Stanley was required to keep under the federal securities laws. But Morgan Stanley, the court found, not only did not produce a large amount of relevant records or search the attachments of many emails it did in fact produce, Morgan Stanley continued the practice of overwriting email messages for more than 12 months after it had instructed its own employees to preserve paper documents. Worse still, perhaps, was this: Morgan Stanley's litigation counsel certified that the company had complied with the court's discovery orders even though it was later discovered that the company still had not searched nearly 2,000 backup tapes that had, in fact, been located.

As a result, the court entered a partial default judgment, decided to give an adverse inference instruction, and shifted the burden of proof to Morgan Stanley. Coleman did not have to show the first few elements of fraud and needed to prove only its reliance on what happened and damages. To win, Morgan Stanley had the burden of proving that it had not defrauded Coleman, and it is notoriously difficult to prove a negative.

For Morgan Stanley, the outcome was predictably and enormously adverse. The jury awarded $600 million in compensatory damages and $850 million in punitive damages, for a total of $1.45 billion.

Avoiding Sanctions

Sanctions will not always be the order of the day. A motion for sanctions will be denied, for example, if a requesting party has been dilatory either in seeking information or in making a motion to compel and/or for sanctions. In these circumstances, a motion to compel further ESI will likely be denied and, in that circumstance, a request for sanctions will also be denied.32 In this connection, it should be remembered (when practicing in federal court) that it is the District Court who sets the discovery cut-off date. Magistrate Judges, who usually hear and decide discovery motions, will be forced to deny relief if it means changing a cut-off date they have no authority to alter.

To avoid sanctions on the merits, counsel should comply with the eight factors set forth in Zubulak V, which, along with the Sedona Principles, should be considered as basic guidelines. While law firms may engage consultants to assist them, it must be said, however, that neither counsel nor their clients can shirk their duties by engaging either consultants or e-Discovery vendors, and remain ultimately responsible for preserving and producing ESI.33


ESI is a daily tsunami of information, and many attorneys are playing "ostrich" at their peril. The rules are new, but they have been in place long enough for the courts to believe that attorneys should have received the message by now. The intelligent use of e-Discovery can help an attorney win his or her case, or mount a successful defense to a claim without merit, but e-Discovery can also be used as a trap for the unwary: to create failures that make attorneys look negligent at best.

If you haven't faced up to e-Discovery, get over it; it is here to stay.

After graduating with a B.S. in engineering systems from the University of California at Los Angeles (U.C.L.A.), Nick Brestoff earned an M.S. in environmental engineering science from the California Institute of Technology (Caltech) and graduated from the Gould School of Law at the University of Southern California (U.S.C.) in 1975. For the next 35 years, Mr. Brestoff litigated business, employment, environmental and other civil disputes in state and federal court. He is currently a consultant to attorneys as a Principal with Stonefield Josephson, Inc., a California accounting and business advisory firm,, where he focuses on matters pertaining to economic damages, ESI and e-Discovery.

Originally published by The Organization of Legal Professionals,


1. Peter Lyman and Hal Varian, How Much Information? (2003) (reviewed on April 15, 2010).

2. Ibid.

3. See Columbia Pictures, Inc. v. Bunnell, 245 F.R.D. 443, 447(C.D.Cal. 2007).

4. Sedona Principles: Best Practices, Recommendations & Principles for Addressing Electronic Document Production, Second Edition (Sedona Conference Working Group Series, 2007) (Sedona Principles). See

5. See Ford Motor Co. v. Edgewood Props., Inc., 257 F.R.D. 418, 424 (D.N.J. 2009).

6. In Green v. MClendon, 262 F.R.D. 284 (S.D.N.Y. 2009), the court held that the obligation to preserve potentially relevant evidence runs first to counsel, who then has a duty to advise the client of the type of information to be preserved and of the need to prevent its destruction.

7. See John B. v. Goetz, 531 F.3d 448, 459 (6th Cir. 2008).

8. See FRCP 16(b)(3)(B)(iii); Treppel v. Biovail Corp., 233 F.R.D. 363, 368 (S.D.N.Y. 2006) (reviewing standards for issuance of preservation orders, and applying a three-prong balancing test).

9. For example: 17 C.F.R. §240.17a-4(f) (by certain exchange members, brokers, and dealers); 29 C.F.R. §1602.14 (by employers).

10. See Martin v. Northwestern Mutual Life Ins. Co., 2006 WL 148991 (M.D.Fla. Jan. 19, 2006) (Magistrate judge rejected attorney's excuse of "computer illiteracy" as "frankly ludicrous.").

11. 248 F.R.D. 372, 377 (D.Conn. 2007).

12. Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 216-18 (S.D.N.Y. 2003) (Zubulake IV); see Covad Comms. v. Revonet, Inc., 258 F.R.D. 5, 14-15 (D.D.C. 2009) (after defendant was on notice of litigation, an e-mail server crashed and yet defendant did not try to recover lost e-mails; court ordered defendant to pay for imaging and a search of all of defendant's servers).

13. See Doe, 248 F.R.D. at 378 & fn. 9.

14. See Zubulake IV at 218.

15. See Zubulake v. UBS Warburg LLC, 229 F.R.D. 422 (S.D.N.Y. 2004) (Zubulake V).

16. Zubulake V at 431.

17. Richard Chernick, E-Discovery Threatens to Litigize Arbitration, Law Technology News, (Apr. 16, 2010). See (Reviewed on 4/19/2010).

18. If a party does not ask for metadata or otherwise specify the form of production in its first request for production, it may be ordered to bear the costs of re-producing Word and PowerPoint files a second time if metadata is desired. See Aguilar v. Immigration and Customs Enforcement Division of the U.S. Dept. of Homeland Security, 225 F.R.D. 350 (S.D.N.Y. 2008).

19. See FRCP 37(e). Other sanctions include issue and evidentiary preclusion orders, contempt proceedings, attorney discipline, and criminal penalties. They are beyond the scope of this article.

20. Monetary sanctions can range from tens of thousands of dollars, e.g., Phoenix Four, Inc. v. Strategic Resources Corp., No. 05-CIV-4837, 2006 WL 2135798 (S.D.N.Y. Aug. 1, 2006) (defendant and its law firm were sanctioned $45,161.82 for overlooking hidden server partitions containing discoverable ESI), to hundreds of thousands, e.g., See TR Investors LLC v. Genger, 2009 WL 4696062 (Del. Ch. Dec. 9, 2009) ($750,000) (Genger), and even millions of dollars, e.g., Keithley v., Inc., No. C-03-04447 SI (N.D.Cal 2008) (no pub.;8-12-08) ($1 million, because defendants did not "even come close to making reasonable efforts" to meet preservation and discovery requirements) and Qualcomm Inc. v. Broadcom Corp., No. 05 Civ. 1958-B, 2008 U.S. Dist. (S.D.Cal. Jan. 7, 2008) ($8.5 million) (Qualcomm).

21. Qualcomm, Order Granting In Part and Denying in Part Defendant's Motion for Sanctions, Etc. (Jan. 7, 2008).

22. Qualcomm, Order Declining to Impose Sanctions, Etc. (Document 998; filed Apr. 2, 2010).

23. See Treppel v. BioVail Corp., 2008 U.S. Dist. LEXIS 25867 (S.D.N.Y. Apr. 2, 2008) (to recover e-mails that may have been deleted). In Cenveo Corp. v. S. Graphic Systs., No. 08-5521 JRT/AJB (D.Minn. Nov.18, 2009), the plaintiff was ordered to re-produce documents in native format after producing documents in only .pdf format, despite requesting documents in their native format, meaning that the documents had to be produced with all of the content and functionality they had originally.

24. In OZ Optics Limited v. Hakimoglu, 2009 Cal. App. Upub. LEXIS 2952, an executive ran a "scrubbing" program on a company laptop prior to handing it over, and a $90,000 sanction was ordered. The court refused to give a terminating sanction because there was no evidence that a claim or defense had been lost as a result.

25. 2009 WL 4070952 (Wash. Nov. 25, 2009).

26. See Bray & Gillespie Mgmt., LLC v. Lexington Ins. Co., 2009 WL 5218035 (M.D. Fla Aug. 3, 2009); 2010 WL 55595 (M.D. Fla. Jan. 5, 2010).

27. See citation in footnote xv.

28. Rimkus Consulting Group, Inc. v. Cammarata, 2010 U.S. Dist. LEXIS 14573 (S.D.TEX Feb. 19, 2010).

29. See Pension Comm. of the Univ. of Montreal Pension Plan v. Banc of Am. Sec., LLC, 2010 WL 184312 (S.D.N.Y. Jan. 15, 2010) (negligence and gross negligence) (decided by the same court who ruled in the Zubulake cases).

30. See Sensonics, Inc. v. Aerosonic Corp., 81 F.3d 1566, 1572 (Fed. Cir. 1996) ("When the calculation of damages is impeded by incomplete records of the infringer, adverse inferences are appropriately drawn"), citing Lam, Inc. v. Johns-Manville Corp., 718 F.2d 1056, 1065 (Fed.Cir. 1983) (any adverse consequences rest upon the infringer when the inability to ascertain lost profits is due to the infringer's failure to keep accurate or complete records).

31. 2005 WL 679071 (Fla.Cir.Ct. Mar. 1 2005).

32. See Oracle USA, Inc. v. SAP AG, 2009 U.S. Dist. LEXIS 91432 (N.D.Cal. Sept. 17, 2009) (court denied additional discovery re new theories of damages where new theories were listed two years after the initial Rule 26 disclosures had been made) and Bellinger v. Astrue, 2009 WL 2496476 (E.D.N.Y. Aug. 14, 2009) (court denied a motion to compel production of documents in electronic format because hard copies existed, had already been produced, and were reasonably usable).

33. See Residential Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99, 113 (2d Cir. 2002) (party can be sanctioned when its vendor adds to "purposeful sluggishness" during discovery).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances