Stone V BankUnited

2013 Fla. App. Lexis 7207
May 3, 2013
2nd DCA
Case 2D12-980

Standing

1. Date of allonge
2. evidence of transfer of equitable interest
3. assignment from payee
4 receivership agreement

Mortgage foreclosure -- Standing

Stone v. Bankunited, 2013 Fla. App. LEXIS 7207

Mortgage foreclosure -- Standing -- Plaintiff had standing to foreclose mortgage where initial lender had been placed in receivership by FDIC, and plaintiff acquired all assets of initial lender by virtue of the receivership and pursuant to a purchase assumption agreement.

Case Law Update

Drummond v. Welsh (In re Welsh), Means test allows debtor to deduct from current monthly income payments on secured debts; debtor need not take into account Social Security income to satisfy § 1325.

Deutsche Bank National Trust Company v. Clarke

January 2012

The trial court entered a directed verdict in favor of the defendant, finding that the Plaintiff's failure to enter the original note and mortgage at trial was fatally defective to its case. During the course of the trial, the court inquired as to the location of the originals. "The original note had been filed with the clerk of the court and was in the court file in preparation for an earlier scheduled summary judgment hearing." The trial court stated it would accept the use of copies after being advised of the originals whereabouts. There was no objection to the use of the copies pursuant to the best evidence rule. Fla. Stat. § 90.953 (2010). The court reserved ruling and did not enter its order until the trial was concluded.

In overturning the trial court's order, the Fourth DCA not only made an evidentiary ruling, it also harmonized a series of cases addressing the need to tender the original documents to the trial court in foreclosure proceedings. Through its opinion, the Fourth DCA has held the tender of the documents to the court at any time during the foreclosure action should be sufficient.

McNeal v. GMAC Mortgage, LLC, Homecomings Financial, LLC

March 11,2012

The holding in McNeal v. GMAC Mortg., LLC (In re McNeal), 2012 U.S. App. LEXIS 9589 (11th Cir May 11, 2012) is based on the concept that Dewsnup - which involved an attempt to cramdown a partially secured mortgage - did not overrule, explicitly, the Folendore decision. Accordingly, it remains good law, and a three judge panel cannot overrule an earlier three judge panel. The undercutting of the Folendore reasoning by the Supreme Court was not sufficient to allow lower courts to disregard binding precedent of the earlier 11th Circuit decision.

At present, stripping mortgages in Chapter 7 is permitted in the 11th Circuit.

Castillo v Deutsche, June 6, 2012

The Florida Third District Court of Appeals ruled on an issue that relates to borrower claims that an investor must establish compliance with its obligations under a Securitized Trust Agreement as a condition of enforcing a note and mortgage held by the trust. The Court ruled that the borrower does not have standing. This ruling is subject to a motion for rehearing and is not final but confident it will stand. 

Consumer Cases

2nd Cir Invalidates Class Action Waiver in Amex-Merchant Antitrust Litigation

The U.S. Court of Appeals for the Second Circuit recently held that: (1) the question of the enforceability of a class action waiver provision within a merchant card acceptance contract was properly decided by a court, rather than an arbitrator; and (2) the class action waiver provision was unenforceable under the Federal Arbitration Act. A copy of the opinion is attached.

Plaintiff merchants appealed a District Court decision granting Amex’s motion to compel arbitration of a Card Acceptance Agreement pursuant to the Federal Arbitration Act (“FAA”). The agreement at issue contained a class action waiver provision which sought to preclude a signatory from either “litigating a claim in court” or “participat[ing] in a representative capacity or as a member of any class of claimants pertaining to any claim subject to arbitration.”

The Second Circuit reversed, holding that “the issue of the class action waiver's enforceability was a matter for the court, not the arbitrator” and that “the class action waiver in the Card Acceptance Agreement cannot be enforced in this case” because such enforcement would “grant Amex de facto immunity from antitrust liability by removing the plaintiffs’ only [economically] feasible means of recovery.” Amex then appealed to the Supreme Court, which vacated the appellate decision and remanded for further consideration in light of Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 130 S. Ct. 1758 (2010), which held that “a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.”

On remand, the Court declined to accept Amex’s argument that its previous decision could not stand in light of Stolt-Nielsen. Although “Stolt-Nielsen states that parties cannot be forced to engage in a class arbitration absent a contractual agreement to do so…[i]t does not follow…that a contractual clause barring class arbitration is per se enforceable,” the Court ruled.

Explaining its holding, the Second Circuit first noted that Section 2 of the FAA, 9 U.S.C. § 2, provides that an agreement to arbitrate “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract” and thus that “Section 2 ‘create[s] a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the’ FAA.” Further, “[c]lass action lawsuits are well-recognized by the Supreme Court as a vehicle for vindicating statutory rights,” particularly where “the class action device is the only economically rational alternative when a large group of individuals or entities has suffered an alleged wrong, but the damages due to any single individual or entity are too small to justify bringing an individual action.”

In Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991), the Supreme Court ruled that “statutory claims may be the subject of an arbitration agreement… unless Congress itself has evinced an intention to preclude a waiver of judicial remedies for the statutory rights at issue.” However, the Court noted, in Gilmer, “a collective and perhaps a class action remedy was…available.” Conversely, in the instant case, the question is whether a “mandatory class action waiver in the [agreement] is enforceable even if the plaintiffs are able to demonstrate that the practical effect of enforcement of the waiver would be to preclude their…claims…in either an individual or collective capacity.”

The Court noted that the Fourth Circuit previously ruled that a plaintiff could challenge “a class action waiver clause on the grounds that it would be a cost prohibitive method of enforcing a statutory right, provided that a plaintiff set forth sufficient proof to support such a finding.”

Similarly, the Court also noted that the Seventh Circuit previously ruled that “if a party could demonstrate that the prohibition on class actions likely would make arbitration prohibitively expensive, such a showing could invalidate an agreement.”

Finally, Court referenced Supreme Court dicta which states that “in the event the choice-of-forum and choice-of-law clauses operated in tandem as a prospective waiver of a party's right to pursue statutory remedies for antitrust violations,” such an agreement would be contrary to public policy.

Thus, the Second Circuit ruled that “an agreement which in practice acts as a waiver of future liability under the federal antitrust statutes is void as a matter of public policy.” Further, the Court noted, the Supreme Court has previously ruled that “an agreement which confers even ‘a partial immunity from civil liability for future violations’ of the antitrust laws is inconsistent with the public interest.”

Examining the record, the Court concluded that the “evidence before us establishes, as a matter of law, that the cost of plaintiffs’ individually arbitrating their dispute with Amex would be prohibitive, effectively depriving plaintiffs of the statutory protections of the antitrust laws.” Because “Amex has brought no serious challenge to the plaintiffs’ demonstration that their claims cannot reasonably be pursued as individual actions, whether in federal court or in arbitration,” the Court concluded, “enforcement of the class action waiver in the [agreement] ‘flatly ensures that no small merchant may challenge [Amex] under the federal antitrust laws.’”

Thus, the Second Circuit ruled that, because the “class action waiver in this case precludes plaintiffs from enforcing their statutory rights, we find the arbitration provision unenforceable.”

However, the Court noted, “two caveats… still apply.” First, “[o]ur decision relies…on the need for plaintiffs to have the opportunity to vindicate their statutory rights” – i.e., “the record demonstrates that the size of any potential recovery by an individual plaintiff will be too small to justify the expense of bringing an individual action.” Moreover, Court noted that “we do not conclude here that class action waivers in arbitration agreements are per se unenforceable [or that] they are per se unenforceable in the context of antitrust actions,” but rather that “each case which presents a question of the enforceability of a class action waiver in an arbitration agreement must be considered on its own merits, governed with a healthy regard for the fact that the FAA ‘is a congressional declaration of a liberal federal policy favoring arbitration agreements.’”

Ill App Allows 30-Day Deadline in Deposit Account Agreement for Providing Notice of Forged Check

The Illinois Appellate Court for the First District recently confirmed that the terms of a deposit account agreement between a bank and its customer supersede the UCC, and allowed the deposit account agreement’s 30-day period of time for the customer to notify the bank of a forged check before his claim is barred.

A copy of the opinion is available at:

http://www.state.il.us/court/Opinions/AppellateCourt/2011/1stDistrict/March/1101887.pdf



The plaintiff customer maintained a personal checking account with defendant Great Lakes Bank (“Great Lakes”) since 1981. In October 2007, someone stole a personal check from the customer, forged the customer’s signature, made it payable to a third-party company in the amount of $7,500, and presented it to Great Lakes for payment. Great Lakes paid the check and debited $7,500 from the customer’s checking account. Although the forged check appeared on the customer’s November 2007 monthly bank statement, the customer did not become aware of the forgery and the payment until March 2008, at which time he notified Great Lakes and asked it to credit his account in the amount of $7,500.

In May 2008, Great Lakes informed the customer that it would not credit his account because plaintiff had failed to timely notify the bank of the forgery pursuant to the terms of the Account Agreement, which provided that a customer who discovers unauthorized signatures must notify Great Lakes of the relevant facts within 30 days of the statement being available to the customer.

Additionally, the monthly statements sent to the customer also mentioned the 30-day notification requirement stating: “Please examine this statement at once. If no error is reported in 30 days, the account will be considered correct. If any discrepancies are noted, please contact our Customer Service Center ***.”

Thereafter, the plaintiff customer filed a complaint alleging conversion and breach of contract seeking reimbursement of $7,500. Great Lakes filed a motion to dismiss, arguing that the conversion claim should be dismissed because Great Lakes did not convert the $7,500 for its own use, and that the breach of contract claim should be dismissed because section 4-406(d)(1) of the UCC did not apply because it was superseded by the terms of the Account Agreement. The trial court granted the motion and the matter was appealed.

In upholding the trial court’s ruling, the appellate court first noted that the relationship between a bank and its customer is governed by the UCC. Section 4-406 of the UCC provides in relevant part that where “a bank sends or makes available a statement. . . the customer must exercise reasonable promptness in examining the statement or the items to determine whether any payment was not authorized” and “ the customer must promptly notify the bank of the relevant facts” where there is an unauthorized payment.

The UCC further provides that if the customer fails to comply with the duties imposed, he is precluded from asserting a claim against the bank related to an unauthorized signature “if the bank also proves that it suffered a loss by reason of the failure.”

However, Section 4-103(a) of the UCC also provides that “this Article may be varied by agreement.”

The customer acknowledged that, pursuant to the terms of the Account Agreement, the customer’s duty to “promptly notify” the bank of any unauthorized charges was modified to mean 30 days from the date the monthly statement was mailed to the customer. The court noted that, although there were no Illinois cases on point, “such an alteration in the notification period is clearly permissible.”

Still, the customer argued that the trial court erred in dismissing his complaint because Great Lakes failed to present evidence showing that it suffered a loss as a result of the untimely notification, as is required under Section 4-406(d)(1) of the UCC. Great Lakes argued that the UCC did not control because the parties contractually agreed, pursuant to the Account Agreement, that the customer would have no claim for reimbursement of an unauthorized check unless he notified the bank within 30 days of receiving his statement.

In ruling in favor of Great Lakes, the court again noted that there was no controlling Illinois law on the issue. Although both parties cited an unpublished federal district court case interpreting Illinois law to support their argument, the court found that “Supreme Court Rule 23(e) provides that unpublished orders are not precedential and has long prohibited their citation by any party ‘except to support contentions of double jeopardy, res judicata, collateral estoppel[,] or law of the case.’” The court noted that since none of the exceptions applied, the parties should not have cited to the unpublished federal district court case and the court did not consider the opinion in its ruling.

However, the court found a Minnesota Supreme Court case persuasive, wherein the court found that a 20-day notice provision of the draft withdrawal agreement was not manifestly unreasonable.

The appellate court agreed with the Minnesota Supreme Court’s reasoning and found that “plaintiff’s failure to notify defendant of the forgery until four months later precluded him from bringing a complaint against defendant” was consistent with precedent from other jurisdictions.

The court noted that during oral argument, the customer asserted that the case should be remanded to the trial court for a determination as to whether the bank’s conduct amounted to a lack of good faith or a failure to exercise ordinary care in violation of section 4-103(a) of the UCC, which permits the parties to vary the terms of the UCC by agreement but provides that the parties “cannot disclaim a bank’s responsibility for its lack of good faith or failure to exercise ordinary care.” However, because the customer “failed to present this issue in his initial complaint or in his briefs” the court found that it was “forfeited on appeal.”

The customer further argued that if the terms of the Account Agreement were interpreted broadly to preclude any claim by a customer who fails to timely notify the bank of an unauthorized transaction, other provisions of the UCC would be rendered meaningless. The court disagreed, finding that Illinois courts have held that “[i]t is a fundamental principle of banking law that the relationship between a bank and its depositor is created and regulated by the express or implied contracts between them.”

The court stated that “the parties agreed pursuant to the terms of the Account Agreement that plaintiff was required to timely discover any unauthorized transactions and notify the bank in order to preserve his claim,” and therefore “because plaintiff failed to notify the bank of the forgery within 30 days, the trial court did not err in finding that plaintiff had no claim against defendant.

3rd Circuit: Letters to Debtor's Lawyer May Be Actionable

Allen v. LaSalle Bank


Ruling on an issue that has splintered the circuits, the 3rd U.S. Circuit Court of Appeals has ruled that lawyer-to-lawyer communications may be actionable under the Fair Debt Collection Practices Act if the information conveyed is false.
 
In so ruling, the 3rd Circuit sided with the 4th Circuit and rejected the views of the 2nd and 9th circuits, both of which held that communications to lawyers are never actionable because a lawyer can be expected to protect a consumer from a debt collector's behavior.

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 Findlaw.com.

Matthews v. Eldridge

due process case for balancing

Alhambra v. Homeowners Association, Inc. v. Assad, 943 so. 2d 316 (Fla. 4th DCA 2006).

Plaintiff has voluntarily dismissed its complaint and now Defendants are entitled to an award for attorney’s fees. Landry v. Countrywide Home Loans, Inc., 731 So. 2d 137 (Fla. 1st DCA 1999)(award of attorney’s fees to mortgagor is mandatory when mortgagee voluntarily dismisses foreclosure action where claim was raised in answer and affirmative defenses). Defendants are entitled to such an award even if Plaintiff refilled and prevails in a subsequent action.

Circuit Court of Appeals Cases

2nd Circuit Court of Appeals, June 22, 2010
In re Delta Airlines, Inc., --- F.3d --- (2nd Cir. 2010)(sustaining of objections to claims under tax indemnification agreements reversed where: 1) court's construction of "pay" in agreement in error; and 2) the bankruptcy court effectively nullified the agreements by stripping them of their ability to protect the Owner Participant in the event of debtor's default)

5th Circuit Court of Appeals, June 21, 2010
In re Wilborn, --- F.3d --- 5th Cir. 2010)(proposed class in this case did not satisfy the requirements of FRCP 23 and FRBP 7023)

7th Circuit Court of Appeals, June 23, 2010
In re McKinney, --- F.3d --- (7th Cir. 2010)(appeal dismissed for lack of jurisdiction as, although the issue that the tax debt owner cares about may have been resolved, its basic dispute with the bankruptcy estate has not been resolved and therefore the judgment of the bankruptcy court is not final)

10th Circuit Court of Appeals, June 23, 2010
In re Trout, --- F.3d --- (10th Cir. 2010)(trustee, having successfully avoided a preferential vehicle lien under section 547, the trustee was not entitled to a money judgment equal to the value of the avoided liens under section 550(a), where the bankruptcy estate had been sufficiently returned to its pre-transfer status by avoiding the preferential lien at issue and stepping into the lien priority of the avoided creditor under section 551)

U.S. Supreme Court, June 17, 2010

Schwab v. Reilly, --- US --- (2010)(debtor gave “the value of [her] claimed exemption[s]” on Schedule C dollar amounts within the range the Code allows for what it defines as the “property claimed as exempt,” the trustee was not required to object to the exemptions in order to preserve the estate’s right to retain any value in the equipment beyond the value of the exempt interest)

1st Circuit Court of Appeals, June 15, 2010
In re Nosek, --- F.3d --- (1st Cir. 2010)(In a creditor's appeal from a $250,000 sanction issued sua sponte by the bankruptcy court, the sanction is reduced to $5,000 where: 1)creditor's claim that it was the holder of the mortgage at issue was not a deliberate falsehood or intended in any way to mislead the court or debtor or achieve anything for creditor; and 2) the bankruptcy court did not identify any actual prejudice from the inaccurate claim of holder status)(Note: David Souter sat on the panel in this appeal)

2nd Circuit Court of Appeals, June 15, 2010
SEC v. Byers, --- F.3d --- (2nd Cir 2010)(In nonparties' appeal from the district court's order holding that its jurisdiction in rem and its equitable powers provided it with sufficient authority to issue an injunction barring non-parties from filing involuntary bankruptcy petitions against any of the defendants, the order is affirmed where, while it should be sparsely exercised, district courts possess the authority and discretion to enter anti-litigation orders, including those that bar the filing of involuntary bankruptcy petitions absent the district court's permission)

9th Circuit Court of Appeals, June 09, 2010
In re Southern Cal. Sunbelt Developers, --- F.3d --- (9th Cir. 2010)(In actions seeking damages for filing of involuntary bankruptcy petitions against two alleged debtors, judgment for damages is affirmed in part where: 1) 11 U.S.C. section 303(i) permits an award of attorney's fees for a section 303 action as a whole, including fees incurred to litigate claims for fees and damages under section 303(i)(1) and (2); 2) section 303(i) permits an award of punitive damages under section 303(i)(2)(B) in the absence of an award of actual damages under section 303(i)(2)(A); and 3) award against two individual appellants jointly and severally liable for the costs and attorney's fees the debtors incurred in obtaining dismissal of the involuntary petitions is proper. However, the judgment is reversed in part where the bankruptcy court erred by holding the individual appellants liable for the debtors' costs and fees incurred on the section 303(i) motions themselves)




Thanks to Findlaw.com

Bank of the Prairie v. Picht (In re Picht),2010 WL 1768238 (10th Cir. BAP May 4, 2010) (Rasure

 A lien on an under-secured, modifiable mortgage in a “Chapter 20” case will not be released if the debtor does not receive a discharge in the Chapter 13 case.

3rd Circuit Court of Appeals

U.S. SUPREME COURT DECIDES THAT BANKRUPTCY LAWYERS ARE "DEBT RELIEF AGENCIES" UNDER BAPCPA AND SUBJECT TO THE BANKRUPTCY CODE PROVISIONS APPLICABLE TO DEBT RELIEF AGENCIES


Milavetz, Gallop & Milavetz, P.A. v. United States, 130 S.Ct. 1324, 176 L.Ed.2d 79 (3/8/2010)

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) amended the Bankruptcy Code to define a class of bankruptcy professionals termed "debt relief agencies" (DRAs). That class includes "any person who provides any bankruptcy assistance to an assisted person...for...payment...or who is a bankruptcy petition preparer." 11 U.S.C. § 101(12A). This classification is significant under BAPCPA because DRAs are subject to multiple special rules under the Bankruptcy Code.

U.S. SUPREME COURT HOLDS THAT BANKRUPTCY COURT'S LEGAL ERROR IN CONFIRMING A PLAN THAT DISCHARGED ACCRUED INTEREST ON A STUDENT LOAN DEBT ABSENT AN ADVERSARY PROCEEDING, AND A FINDING OF UNDUE HARDSHIP DID NOT RENDER THE JUDGMENT ON THE CONFIRMATION ORDER VOID

United Student Aid Funds Inc. v. Espinosa, 130 S.Ct. 1367, 176 L.Ed.2d 158 (3/23/2010)

The U.S. Supreme Court granted certiorari to resolve disagreement among the appeals court as to whether an order confirming a chapter 13 plan of reorganization that discharges student loan debt, in the absence of a finding of undue hardship pursuant to 11 U.S.C. §§ 523(a)(8) and 1328 and in the absence of an adversary proceeding as required by Federal Rule of Bankruptcy Procedure 7001(6), is a void judgment for purposes of Federal Rule of Civil Procedure 60(b)(4).

THIRD CIRCUIT COURT OF APPEALS ALLOWS BID PROCEDURES THAT PROHIBIT SECURED LENDERS FROM CREDIT BIDDING

In re Philadelphia Newspapers LLC, 599 F.3d 298 (3d Cir.) (5/7/2010) (Fisher, J.)

The Third Circuit Court of Appeals affirmed the district court's approval of chapter 11 debtors' bid procedures that precluded secured creditors from credit bidding (i.e., offsetting their bids with the value of their secured interest in the collateral) for the assets to be sold under the chapter 11 plan free of any lien pursuant to 11 U.S.C. § 1123(a)(5)(D).


THIRD CIRCUIT COURT OF APPEALS OVERRULES IN RE FRENVILLE, REJECTING THE "ACCURAL TEST" AND INSTEAD ADOPTING THE POSITION THAT A CLAIM ARISES WHEN AN INDIVIDUAL IS EXPOSED PREPETITION TO A PRODUCT OR OTHER CONDUCT GIVING RISE TO AN INJURY, WHICH UNDERLIES A "RIGHT TO PAYMENT" UNDER THE BANKRUPTCY CODE

JELD-WEN Inc., f/k/a Grossman's Inc. v. Van Brunt (In re Grossman's Inc.), --F.3d--, 2010 WL 2181291 (3d Cir.) (6/2/2010) (Sloviter, J.)

The Court of Appeals for the Third Circuit overruled precedent from In re Frenville Co., 744 F.2d 332 (3d Cir. 1984), and explicitly rejected the longstanding "accrual test" for determining when a claim arises for bankruptcy purposes. The debtor, a home improvement retailer that previously sold asbestos containing products, filed a chapter 11 bankruptcy petition. The debtor provided notice of the claims bar date, but did not suggest possible future asbestos liability.


BANKRUPTCY COURT UPHOLDS DEBTOR'S EXEMPTION OF INJURY LITIGATION PROCEEDS NOT RESULTING FROM PERMANENT IMPAIRMENT

In re Shumac, 425 B.R. 139 (Bankr. M.D. Pa.) (3/4/2010) (Thomas, J.)

The U.S. Bankruptcy Court for the Middle District of Pennsylvania allowed a debtor to claim the unliquidated proceeds from an unfiled automobile accident lawsuit as exempt. The court held that no permanent injury or impairment was required to establish an exemption pursuant to 11 U.S.C. § 522(d)(11)(D) and found that any judgment or settlement for both personal injury and loss of consortium would qualify for exemption.

UPON DEATH OF DEBTOR, TRUSTEE HAS NO CLAIM TO PROPERTY THAT THE DEBTOR OWNED WITH HER NON-DEBTOR SPOUSE AS TENANTS BY THE ENTIRETY, AS DEBTOR'S INTEREST, AND THEREFORE ESTATE'S INTEREST, IN THE PROPERTY TERMINATED UPON DEBTOR'S DEATH

Straffi v. Etoll (In re Etoll), 425 B.R. 743 (Bankr. D. N.J.) (3/5/2010) (Lyons, J.)

The U.S. Bankruptcy Court for the District of New Jersey determined that the chapter 7 trustee could not compel the sale of entireties property under 11 U.S.C. § 363(h) that the debtor-wife possessed pre-petition when the debtor-wife died post-petition. The court determined that upon the death of the debtor-wife, the nondebtor husband became the sole owner of the entireties property, thereby removing the real property from property of the estate.

BANKRUPTCY COURT RULES THAT PROCEEDS OF A DIRECTORS AND OFFICERS LIABILITY INSURANCE POLICY ARE NOT PROPERTY OF THE ESTATE, AND EVEN IF THE POLICY PROCEEDS WERE PROPERTY OF THE ESTATE, CAUSE EXISTS TO LIFT THE AUTOMATIC STAY

In re Downey Financial Corp., 2010 WL 1838565 (Bankr. D. Del.) (5/7/2010) (Sontchi, J.)



BANKRUPTCY COURT FINDS THAT DOLLAR LIMITATION VENUE PROVISION OF 28 U.S.C. § 1409(b) IS APPLICABLE TO AVOIDANCE ACTIONS

Dynamerica Mfg. LLC v. Johnson Oil Co. (In re Dynamerica Mfg. LLC), 2010 WL 1930269 (Bankr. D. Del.) (5/10/2010) (Gross, J.)

Dynamerica Manufacturing LLC (the debtor) filed an adversary proceeding pursuant to 11 U.S.C. §§ 547 and 550 to avoid and recover an allegedly preferential transfer in the amount of $6,599.85. In response, Johnson Oil Co. (the defendant) filed a Rule 12(b)(3) motion seeking to dismiss the adversary proceeding for improper venue based on 28 U.S.C. § 1409(b), which restricts venue to the district in which the defendant resides for proceedings to recover money or property from a noninsider of less than $10,950.00.

3rd Circuit

The Third Circuit correctly overruled the 1984 Frenville holding that a claim ‘arises’ for bankruptcy purposes when a ‘right to payment’ accrues under applicable non-bankruptcy law as too narrow of an interpretation of “claim” under the Bankruptcy Code. In re Grossman’s, Inc., (3rd Cir. 6/2/10)

In Re Noesk

In the now infamous In re Nosek action, the U.S. Court of Appeals for the First Circuit recently held that a sanction imposed under Bankruptcy Rule 9011 against the mortgage loan servicer in the amount of $250,000 was unreasonable where the mortgage loan servicer incorrectly stated in a filing that it was the holder of the note.


Ameriquest originated a loan to the borrower in this action, which it then assigned to an asset securitization trust for which Norwest Bank acted as trustee. When the borrower defaulted, Norwest filed a foreclosure action that was eventually stayed by the borrower’s bankruptcy. In the bankruptcy action, Ameriquest filed a proof of claim in its own name and moved for relief from the stay. Ameriquest’s motion incorrectly stated that it was the “holder of the first mortgage” on the debtor’s property when, in fact, Norwest was the holder.

When the mistake was revealed by a later filing, the bankruptcy court, sua sponte, imposed a fine of $650,000 in Rule 9011 sanctions against Ameriquest, Norwest and Ameriquest’s counsel. Ameriquest appealed to challenge the $250,000 in sanctions that were assessed against Ameriquest individually.

Ameriquest admitted that it violated Rule 9011 but contended that the sanctions were unreasonable. The First Circuit agreed with Ameriquest, finding the sanctions excessive.

First, the appellate court held that, “nothing indicates that Ameriquest’s claim that it was the holder of the mortgage was a deliberate falsehood or intended in any way to mislead the court.”

In addition to being neither intentional nor self-serving, the First Circuit also held that, “the bankruptcy court has not identified any actual prejudice from the inaccurate claim.” The First Circuit determined that while the mistake by Ameriquest could have been consequential in some cases, in this matter the false statement had no effect in this case.

The First Circuit therefore reduced the $250,000 sanction to $5,000 after taking into account legal fees incurred on appeal.

In Re Angelo Divittorio 05-20854 Eastern Div MA

The U.S. Bankruptcy Court for the District of Massachusetts, Eastern Division, recently held that: (1) a debtor failed to state a claim under the Massachusetts Consumer Credit Cost Disclosure Act (“CCCDA”) based on an alleged inaccuracy in the disclosure of an interest rate reduction feature contingent upon future timely payments; and (2) the debtor waived his CCCDA claims against a mortgage lender and its successors and assigns by signing and subsequently defaulting on a loan modification agreement which included specific waiver language.

After a debtor filed his Chapter 13 bankruptcy petition, the mortgage loan on his primary residence became the subject of a significant amount of litigation. The debtor first opposed the loan servicer’s motion for relief from stay, and the parties eventually entered a modification agreement as to the loan. The modification agreement included a release provision pursuant to which the debtor agreed that by executing the modification he "irrevocably waived and relinquished" any claims of any kind related to the loan documents in existence at the time of the modification, whether known or not known, against all prior and subsequent parties or predecessors in interest to both the loan servicer and the loan investor.


The debtor redefaulted by falling behind on his modified payments. He then sent a notice of rescission and shortly thereafter filed the instant adversary action against the loan investor for rescission of the mortgage loan under the CCCDA. The debtor sought rescission of the loan in part on the grounds that the APR disclosure provided at the closing of the loan was inaccurate because it was calculated presuming the borrower would eventually qualify for an interest rate reduction feature that would kick in only after the debtor made twenty-two timely payments, that this presumption was not clearly and conspicuously disclosed, and that the presumption was not statistically likely to come about. The bankruptcy court granted the investor’s motion to dismiss the adversary claim. The debtor appealed and the district court remanded the matter back to the bankruptcy court for reconsideration.

On remand, the investor filed a motion for summary judgment to be consolidated with its prior motion to dismiss. The investor argued in its summary judgment motion that (1) the debtor should be judicially estopped from asserting any loan origination claims because he failed to assert those claims earlier in his bankruptcy schedules; and (2) that the debtor waived his claims against the investor through the release provision of the modification agreement. This opinion followed.

The bankruptcy court first addressed the motion to dismiss, finding that the FRB's Official Staff Commentary to Regulation Z is silent as to whether a lender can factor an assumption of timely payments into an APR calculation at the time of assumption and ultimately holding that the debtor failed to state a claim under the CCCDA because the TIL disclosure was “based upon what the regulations required,” and the debtor was wrongfully attempting to re-characterize a time-barred predatory lending claim as a rescission claim in recoupment under the CCCDA.

The court next looked to the judicial estoppel claim made by the investor in its motion for summary judgment, finding that the investor “failed to satisfy one of the mandatory conditions …of judicial estoppel,” namely, that the party “succeeded in the prior proceeding.” In this matter no relief, such as a discharge, had been granted in the prior proceeding, such that application of judicial estoppel was not appropriate.

The bankruptcy court did, however, rule that the debtor had waived his CCCDA claim through his execution of the loan modification agreement. The bankruptcy court agreed with the investor’s contention that the waiver provision under TILA, 12 C.F.R. § 226.23(e)(1), which provides that a consumer may waive his or her right to rescind if the extension of credit is a bona fide personal financial emergency, applies only to the initial three-day rescission period and does not any extended period arising from the failure to provide material disclosures.

Further, the bankruptcy court found that, contrary to the debtor’s assertions, it is possible to waive the right of rescission after the expiration of the initial rescission period but before the underlying claim is raised. The bankruptcy court reviewed the few cases on this issue and disagreed with those cases that applied a hyper-technical standard with respect to TILA violations, which has been rejected by the First Circuit. The bankruptcy court applied the First Circuit’s “totality of circumstances” approach to determining the validity of waivers as "knowing and voluntary," ultimately finding that in this matter the debtor’s “possession of the loan documents put him on inquiry notice of his purported CCCDA claims.” The bankruptcy court also found that the language in the release at issue referencing claims arising in connection with the “making, closing, administration collection, or the enforcement … of the loan documents,” was clear and conspicuous and should have compelled the debtor, who was notably represented by counsel, to investigate the possibilities of such claims.

Case Update

§523 (a)(2)(A) Duncan v. Bucciarelli, Bankr. N.D. Ga. 2/22/2010

Divorce attorney fees Debtor had admitted she never intended to pay were nondischargeable.
§1322(a) In re Diaz (Bankr. S. D. Fla. 3/1/2010)
Creditor not entitled to attorneys’ fees for protection of security interest where no protection was required.

Circuit Court of Appeals Cases from Last Week

2nd Circuit Court of Appeals, May 14, 2010
In re Baker, --- F.3d ---, 2010 WL ----------- (2nd Cir 2010)(proceeds of an annuity exempt under New York Debtor and Creditor Law section 282 and New York Insurance Law section 3212 where New York law permitted the debtor to exempt the annuity payments, and he gave consideration for the contract when he released a wrongful death claim)

4th Circuit Court of Appeals, May 11, 2010
US v. Boulware, --- F.3d ---, 2010 WL ----------- (4th Cir 2010)(15-month sentence affirmed for fraudulently making a declaration under penalty of perjury in a bankruptcy case is affirmed)

5th Circuit Court of Appeals, May 14, 2010
In the Matter of Tex. Comm. Energy, --- F.3d ---, 2010 WL ----------- (5th Cir 2010)(draw down a letter of credit in violation of a bankruptcy court order not violated)

8th Circuit Court of Appeals, May 10, 2010
In re Freier, --- F.3d ---, 2010 WL ----------- (8th Cir 2010)(defendant personally liable for a state-court money judgment rendered against a corporation wholly owned by defendant, where: 1) defendant's material promise to repay the debt in the future, made with the intent to defraud and without the intent to perform constituted actionable fraud; and 2) the evidence supported the bankruptcy court's finding that plaintiff relied on defendant's representation about taking draws)

11th Circuit Court of Appeals, May 12, 2010
In re Managed Care Litig., --- F.3d ---, 2010 WL ----------- (11th Cir 2010)(prior class action settlement agreement did not release the claim plaintiff pursued against defendant in the bankruptcy adversary action)

11th Circuit Court of Appeals, May 04, 2010
Old West Annuity & Life Ins. Co. v. Apollo Grp., --- F.3d ---, 2010 WL ----------- (11th Cir 2010)(allocation of surplus proceeds from the sale of real property in a foreclosure action under Florida and bankruptcy law)



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Case Law Update

In re Strausbough, 2010 WL 1172601 (Bankr. E.D. Mich. Mar. 25, 2010) (Rhodes): A Chapter 13 plan filed on behalf of one spouse can void the lien of a totally unsecured mortgage on property owned by the debtor and his non-filing spouse as tenants by the entireties.

Case Law Update

§323(a) Solt v. Credit Prot. Ass'n, LP (In re Solt), 2010 Bankr. LEXIS 743 (W.D. Va., 3/23/2010)
FDCPA

§350(b) In re Cotnoir, 2010 Bankr. LEXIS 574 (E.D. Va., 2/23/2010)
reaffirmation agreement

§362(c)(3)(B)  In re Furlong, 2010 Bankr. LEXIS 749 (C.D. Ill., 3/19/2010)
bad faith presumption

§362(d) In re Vasquez, 2010 Bankr. LEXIS 610 (N.D. Tex., 3/3/2010)

§362(d)(1) In re Drocco, 2010 Bankr. LEXIS 593 (N.D. Cal., 2/25/2010)
Relief from stay granted ejectment action

§363 In re Blixseth, 2010 Bankr. LEXIS 585 (D. Mont., 2/23/2010)

§363(b) In re Miell, 2010 Bankr. LEXIS 603 (N.D. Iowa, 3/10/2010)
Trustee's motion to sell real estate free and clear granted

§363(b) In re Adams, 2010 Bankr. LEXIS 671 (N.D. Ill., 3/12/2010)

§502(b)(1) In re Curry, 2010 Bankr. LEXIS 726 (D. Kan., 3/16/2010)
Objections to proofs of claim overruled sufficient detail & documentation

§502(b)(9) In re Rushing, 2010 Bankr. LEXIS 613 (M.D. La., 3/3/2010)
Late-filed poc allowed as unsecured, nonpriority claims

§506 Murray v. US Bank (In re Murray), 2010 Bankr. LEXIS 735 (N.D. Ill., 3/11/2010)
Third mortgage lien on debtor's residence stripped

§522(b) In re Channon, 2010 Bankr. LEXIS 589 (D.N.M., 2/24/2010)

§522(d)(3) Moyer v. Hollinshead (In re Hollinshead), 2010 Bankr. LEXIS 566 (B.A.P. 6th Cir., 3/3/2010)

§523(a) Kashiske v. Frank (In re Frank), 2010 Bankr. LEXIS 615 (W.D. Mich., 3/5/2010)


§523(a)(6) Rodriguez v. Ramirez (In re Ramirez), 2010 Bankr. LEXIS 573 (S.D. Tex., 2/23/2010)
State court judgment against debtors for intentional shooting of creditor was nondischargeable

§523(a)(6)  Hall v. Desper (In re Desper), 2010 Bankr. LEXIS 588 (S.D. Miss., 2/19/2010)


§523(a)(8) Zygarewicz v. Educational Credit Mgmt. Corp. (In re Zygarewicz), 2010 Bankr. LEXIS 605 (E.D. Cal., 1/15/2010)
Motion for undue hardship discharge of student loan debt denied
§524 Burton v. Mouser (In re Burton), 2010 Bankr. LEXIS 675 (W.D. Ky., 3/16/2010)

§524(a)(4) Braden Trust v. Chavez (In re Chavez), 2010 Bankr. LEXIS 586 (D. Ariz., 2/23/2010)

§707(b) In re Hornung, 2010 Bankr. LEXIS 703 (M.D.N.C., 3/11/2010)
Case dismissed for bad faith where debtors purchased two vehicles on the eve of filing
§727 Wolff v. Foroutan (In re Foroutan), 2010 Bankr. LEXIS 758 (D. Md., 3/12/2010)

§727(a) Awad v. Sakalla (In re Sakalla), 2010 Bankr. LEXIS 580 (E.D. Tenn., 2/24/2010)


§727(d) In re Owens, 2010 Bankr. LEXIS 576 (E.D. Tenn., 2/25/2010)


§1129(b)(2)(B) In re Shat, 2010 Bankr. LEXIS 584 (D. Nev., 2/22/2010)
The absolute priority rule does not apply to individual chapter 11 debtors post-BAPCPA

§1307(c)(1) In re Jensen, 2010 Bankr. LEXIS 622 (S.D.N.Y., 3/17/2010)

§1325(b)(1) In re Rodger, 2010 Bankr. LEXIS 581 (D.N.H., 2/26/2010)
Below median chapter 13 debtors required to pay disposable income for full duration of plan

PRE BAPCPA CASES


§524 Bryant v. Tidewater Fin. Co. (In re Bryant), 2010 Bankr. LEXIS 672 (C.D. Ill., 3/10/2010)

Case Law Update

7th Circuit Court of Appeals, April 15, 2010

In the Matter of Altheimer & Gray, --- F.3d ---, 2010 WL ----------------- (7th Cir 2010)(In a law firm chapter 11, partner's claim not paid as the reorganization plan subordinated partners' claim to those of other creditors, and here, petitioner is a non-unit partner under the plan)


8th Circuit Court of Appeals, April 13, 2010
Bremer Bank, N.A. v. John Hancock Life Ins. Co., --- F.3d ---, 2010 WL ----------------- (8th Cir 2010)(plaintiff's equity in an aircraft and lease was not improperly extinguished by a bank, acting on defendant's instructions, where: 1) the bank properly informed plaintiff that the lease of the aircraft was in default, as required by the lease agreement; 2) given the lease's expansive language, it was reasonable to consider as a remedy the 11 U.S.C. section 1110(b) stipulations requiring the airline to maintain the aircraft and to make monthly payments despite the bankruptcy stay)

9th Circuit Court of Appeals, April 13, 2010
In re Sabban, --- F.3d ---, 2010 WL ----------------- (9th Cir 2010)(monetary award under California's unlicensed contractor statute, Cal. Bus. & Prof. Code section 7031(b), was dischargeable, since under section 523(a)(2)(A) it was not premised on either fraud or actual harm)



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