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Putative Class Actions in Bankruptcy for Violations of the Discharge Injunction and Bankruptcy Code Section 524(j)

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There has been a relatively recent uptick in plaintiffs’ counsel filing putative class actions in multiple state and federal courts for alleged violations of a debtor’s bankruptcy discharge injunction based upon the debtor’s receipt of post-discharge mortgage-related communications. These claims assert putative class action challenges to post-discharge communications alleged to be attempts at personal collection of the discharged mortgage debt.

Bankruptcy Code Section 524(j) expressly allows a secured creditor with a security interest in the debtor’s principal residence to communicate with the debtor in the ordinary course of business provided the creditor is seeking periodic payments associated with a valid security interest in lieu of pursuing in rem relief to enforce the lien. This section is under-developed in case

The A++, Super Comprehensive, Don’t Ever Start Anywhere Else Set of Opening Questions, Introductory Matters, and Document Inquiries for Taking a Deposition

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The A++, Super Comprehensive, Don’t Ever Start Anywhere Else Set of Opening Questions, Introductory Matters, and Document Inquiries for Taking a Deposition [1]

Have you ever had to press garlic for a recipe? Or put together a Swedish bookshelf, purchased from a Swedish superstore? Yes, you have – and you may have succeeded, so long as you had a garlic press, or the bag of special Swedish tools respectively. But what if you don’t? Yikes. An easy part of the job becomes hard; your likelihood of failure increases, substantially.[2]

Practicing law is often the same. Certain tasks are very complicated. Reasoning, analysis, complex drafting, making hard things simpler for busy clients to understand – not easy stuff. But with the correct tools, forms, checklists, and

The Stern Files: Evolving Jurisdiction by Consent, Wellness International Network Ltd. v. Sharif.

August 3, 2015

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In a previous post this blog addressed the Supreme Court’s 2011 ruling in Stern v. Marshall.[1] In Stern, the Court held that Article III of the Constitution limited bankruptcy courts from entering final orders on certain state law counterclaims despite such claims being designated as “core” proceedings by statute (now known as Stern Claims).

The Supreme Court left questions of great interest unanswered in Stern, but two emerged quickly: 1) can a bankruptcy court treat a “core” Stern Claim by the same procedures as “non-core” (disputes not significantly related to a bankruptcy case) under 28 U.S.C. Section 157, and thereby carry the dispute through proposed findings of fact and conclusions of law to forward to the district court; and 2) can a bankruptcy court enter a

Supreme Court Rules No Fees for Defending Fee Applications

July 20, 2015

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The Supreme Court of the United States recently addressed whether estate professionals could recover fees expended in defending fee applications. Baker Botts L.L.P. v. ASARCO LLC, 576 U.S. _____ (2015). A divided court ruled that the plain language of 11 U.S.C. § 330(a)(1) allowed compensation only for “actual, necessary services rendered[,]” and that to allow fees for defending fee applications would be contrary to the statute and the “American Rule” that each litigant pay her own attorneys’ fees unless a statute or contract provides otherwise. Procedural Background

In 2005, ASARCO, a copper mining, smelting, and refining company, filed for Chapter 11 bankruptcy protection. ASARCO obtained the Bankruptcy Court’s permission to hire two law firms, Baker Botts L.L.P. and Jordan, Hyden, Womble, Culbreth & Holzer, P.C. Among other services, the firms prosecuted fraudulent-transfer claims against ASARCO’s parent company and ultimately obtained a judgment against it worth between $7 and $10 billion.

Did the Bankruptcy Code Save Obamacare?

July 17, 2015

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Over the years, the United States Supreme Court has had to interpret ambiguous, imprecise, and otherwise puzzling language in the Bankruptcy Code, including the phrases “claim,” “interest in property,” “ordinary course of business,” “applicable nonbankruptcy law,” “allowed secured claim,” “willful and malicious injury,” “on account of,” “value, as of the effective date of the plan,” “projected disposable income,” “defalcation,” and “retirement funds.” The interpretive principles employed by the Court in interpreting the peculiarities of the Bankruptcy Code were in full view when the Court recently addressed another complex statute that affects millions of Americans each year—the Patient Protection and Affordable Care Act (“PPACA”). Both the majority opinion of Chief Justice Roberts and the dissent of Justice Scalia relied heavily on bankruptcy precedents in

Debtors Cannot Void Junior Liens on Underwater Property in Chapter 7

On June 1, 2015, the Supreme Court released its opinion in Bank of America, N.A. v. Caulkett, No. 13-1421, 575 U.S. ____ (2015), in which it held that a Chapter 7 debtor may not void a junior mortgage under Section 506(d) of the Bankruptcy Code merely because the debt owed on a senior mortgage exceeds the present value of the property and the creditor’s claim is secured by a lien and allowed under Section 502. For now, this opinion cuts off a Chapter 7 debtor’s ability to “strip off” an underwater junior lien.

In Caulkett, the debtor had two mortgage liens on his home; Bank of America held the junior lien. The amount owed on the senior mortgage exceeded the value of the home, rendering Bank of America’s junior mortgage fully “underwater,” or with no current economic value. Generally, where the value of a creditor’s interest in its collateral is

Ninth Circuit Decides Issue of First Impression, Protects Insider Guarantor from Preference Liability

In a case of first impression for any district or appellate court, the Court of Appeals for the Ninth Circuit (the “Court”) held that “when an insider guarantor has a bona fide basis to waive his indemnification rights against the debtor in bankruptcy and takes no subsequent actions that would negate the economic impact of that waiver, he is absolved of any preference liability to which he might otherwise have been subjected.” As discussed below, the case provides a list of factors for courts to consider in determining whether an indemnification waiver should be considered valid for purposes of exempting an insider guarantor’s preference liability.

In Stahl v. Simon (In re Adamson Apparel, Inc.), the Court decided whether a personal guarantor of corporate debt may be liable for preferences where that guarantor is an insider of the debtor but validly waived his rights to indemnification against the debtor. The debtor

Will your claim in bankruptcy withstand the test?

Within the past year bankruptcy courts and federal courts adjudicating bankruptcy appeals have further developed the law governing claims in bankruptcy which are generally governed by Sections 501 and 502 of Title 11 of the United States Code (the “Bankruptcy Code”) and related Federal Rules of Bankruptcy Procedure. Below is a discussion regarding two distinct cases that discuss the validity and priority of claims in bankruptcy.

Consumer Debt Buyers Beware: Think Before Filing A Proof of Claim

The Eleventh Circuit Court of Appeals held that a Chapter 13 debtor could prosecute an adversary proceeding against a consumer debt buyer for violating the Fair Debt Collections Practices Act (“FDCPA”) based on the creditor filing a proof of claim on debt which was uncollectible under the Alabama statute of limitations. Crawford v. LVNV Funding, LLC, 758 F.3d 1254 (11th Cir. 2014).

It appears the Eleventh Circuit’s decision comes in response to a

Inside The N.D. Ill.’s Broad Reading Of Section 546(e)

May 11, 2015

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In what appears to be a case of first impression, the United States Bankruptcy Court for the Northern District of Illinois has concluded that payments to a master servicer of a commercial mortgage backed securitization (a “CMBS”) could not be avoided as either allegedly constructively fraudulent transfers or as allegedly preferential transfers because the securities contract “safe harbor” under section 546(e) of the Bankruptcy Code precluded such claims. Krol v. Key Bank Nat’l Ass’n. (In re MCK Millenium Centre Parking, LLC), 2015 Bankr. LEXIS 1432 (Bankr. N.D. Ill. Apr. 24, 2015). A Bryan Cave team, led by New York partner Larry Gottesman, represented the defendants.

The background of the decision is straightforward. The chapter 7 trustee of the debtor brought an adversary proceeding against Key Bank (“Key”), as master servicer, and the related CMBS trust, alleging that the debtor had made loan payments on a loan owed by the debtor’s

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