Sua Sponte
Judith Greenstone Miller
Raymond & Prokop, P.C.
jmiller@raypro.com

The Honorable Frank M. Koger
Chief Bankruptcy Judge,
Western District of Missouri

1931 – 2003

On Friday, January 3, 2003, the bankruptcy community lost a true leader, friend and colleague. The Honorable Frank M. Koger, Chief Bankruptcy Judge of the Western District of Missouri (1990 – 2000), former President of the National Conference of Bankruptcy Judges (1996 – 1997) and former President of the Commercial Law League of America (1983 – 1984), died after a brief illness of cancer.

In addition to administering thousands of cases in the bankruptcy court, Judge Koger also oversaw bankruptcy appeals for the Eighth Circuit Court of Appeals (Chief Judge of the Eighth Circuit Bankruptcy Appellate Panel). He also served on the Bankruptcy Affairs Committee of the Judicial Conference of the United States. He was also Chairman of the Missouri Bar, Commercial Law and Bankruptcy Committee (1980 – 1983).

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Case Analysis
Bankruptcy Court Imposes Sanctions, Sets Clear Standards for Motions for Relief from Stay

Catherine E. Vance, Esq.
Email: vance76@earthlink.net
(614) 336-3861

Summary: In In re Gorshtein, 285 B.R. 118 (Bankr. S.D.N.Y. 2002), the Bankruptcy Court sanctioned secured creditors and their counsel for filing what proved to be baseless motions for relief from the automatic stay. The Court published its opinion based on its perception of an increase in the number of such motions and to advise secured creditors and their counsel “to exercise due care” in seeking such relief in the future.

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Case Law Update
Catherine E. Vance, Esq.
Email: vance76@earthlink.net
(614) 336-3861

Dismissal of Appeal for Failure to Comply with Procedural Requirements. Without addressing the merits, Court of Appeals dismissed creditor bank’s appeal based on failure to comply with appellate rules in a variety of respects. Order to be published “to remind all counsel, once again, of the potential consequences of a failure to comply.” Community Commerce Bank v. O’Brien (In re O’Brien), 312 F.3d 1135 (9th Cir. 2002).

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Sua Sponte

The Honorable Frank M. Koger
Chief Bankruptcy Judge,
Western District of Missouri

1931 – 2003

On Friday, January 3, 2003, the bankruptcy community lost a true leader, friend and colleague. The Honorable Frank M. Koger, Chief Bankruptcy Judge of the Western District of Missouri (1990 – 2000), former President of the National Conference of Bankruptcy Judges (1996 – 1997) and former President of the Commercial Law League of America (1983 – 1984), died after a brief illness of cancer.

In addition to administering thousands of cases in the bankruptcy court, Judge Koger also oversaw bankruptcy appeals for the Eighth Circuit Court of Appeals (Chief Judge of the Eighth Circuit Bankruptcy Appellate Panel). He also served on the Bankruptcy Affairs Committee of the Judicial Conference of the United States. He was also Chairman of the Missouri Bar, Commercial Law and Bankruptcy Committee (1980 – 1983).

Frank was born in Kansas City, Missouri. He attended the Sanford B. Ladd Grade School, Central Junior High School and Central High School. Thereafter, he attended the Kansas City University, where he received his B.A. in 1951, and his L.L.B. in 1953. Subsequently, he attended the University of Missouri, where he received his L.L.M. Before going into private practice as a bankruptcy, commercial and collection attorney with the firm of Reid, Koger & Reid (subsequently known as Shockley, Reid & Koger), Frank worked as an Air Force lawyer for three years. He was elevated to the federal bankruptcy bench in 1986, where he served for seventeen years, primarily as the Chief Bankruptcy Judge for Western District of Missouri.

Frank served as a bankruptcy judge at a time when the practice mushroomed and grew both in volume and prestige. In testifying before Congress on bankruptcy reform in 1997, Judge Koger stated: “I have seen the evolution of bankruptcy from a form of the law business that was less respectable than chasing ambulances to where every major law firm in this country has what they call an ‘insolvency department.’” At the same time, Judge Koger realized that in administering justice in the bankruptcy court, “[j]ust as important is making the individuals who come to our courts feel that they had a considered and adequate and courteous opportunity to present their problem and have it considered by an arbiter of justice, rather than an overworked and harried person who lacks the time to be anything other than an order signer.”

Frank was a prolific writer and teacher. He was the author of “Debtor-Creditor Relations in the State of Missouri,” “1970 – 1980 - A Decade of Change in Commercial Law,” “Missouri Foreclosure Law,” “Missouri Collection Law,” and “Representing Secured Creditors in Bankruptcy.” He served as an Adjunct Professor of Law at the University of Missouri at Columbia, teaching Chapter 11 and Chapter 12, and as an Adjunct Professor of Law at the University of Kansas City, teaching creditors’ rights and consumer bankruptcy. He also served as the Co-Editor of the Missouri Bar Handbook on Bankruptcy and Reorganization, and on the Editorial Board of the Commercial Law Journal.

Elliott Levin, Past Bankruptcy Section Chair and Chair of the Board of Associate Editors for the Commercial Law Bulletin, commented:

There are a few rare individuals in one’s lifetime whom we are blessed to know, work with and emulate their highest of standards of kindness, honesty, ability, knowledge and character, and who we may call our friend, colleague and mentor. Frank Koger was such a man, and his loss is irreplaceable and we will all miss him very much. We were blessed to have been able to spend the time with him that we have.

Frank served as the President of the Commercial Law League of America from 1983 to 1984. After his term, he remained active with the League. He served as the Chair of the League’s National Conference of Bankruptcy Judges for the last seventeen years, and in that capacity was responsible for planning and putting on the Hot and Emerging Topics Seminar and the League’s Breakfast held annually at the National Conference of Bankruptcy Judges. To honor Frank’s contribution and memory, the CLLA has renamed the annual educational program in his memory.

In 1996, Frank was awarded the League’s Field of Commerce Award for outstanding achievements in commercial law. This award is given only when an individual’s cumulative achievements merit a special honor. It is the highest honor given by the CLLA and has only been awarded a handful of times in the CLLA’s 108 year history.

Philip Hendel, past Bankruptcy Section Chair and long term past CLLA/NCBJ Committee Chair shared the following in an email to me:

There are only a few people in my life who have had a profound effect on how I have tried to conduct myself professionally and in my personal life. Frank was at the top of the list. A prestigious judgeship never affected his relationship with his friends and acquaintances. He gave of himself graciously, unselfishly and always with humility. We will miss his guidance and clairvoyance dearly.

Frank was viewed by his colleagues as a commercial genius, mentor and teacher of the law. Moreover he always had a smile on his face, and was known for his humanity, sensitivity and a wry sense of humor. In his spare time, he liked to play bridge (in fact, he was named as a life master in 1976) and to garden. His real passion, however, was the law, according to United States Bankruptcy Judge Jerry W. Venters. Even on vacations, he was often seen traveling to a legal convention or meeting to speak on a current topic.

Frank is survived by his wife Jeanine, and two daughters, Lelia Jane Post and Courtney Koger. Our sincerest condolences are extended to his family during this time of sadness and loss. We know that Frank will be missed by us all.

In an effort to express our gratitude for Judge Koger’s many years of exemplary service to the League, the CLLA is asking its members to make a donation in his memory. Donations will be used to fund both a newly-established CLLA/NCBJ Speakers’ Endowment Fund, and a scholarship fund established by Frank at the University of Missouri at Kansas City Law School. CLLA members will receive a letter about this in the mail. I encourage you to support these important memorials.

In addition, members who knew and worked with Judge Koger throughout the years are asked to send the CLLA a letter with thoughts and memories of the Judge to be included in a memory book. This will be presented to his wife, Jeanine, as a lasting tribute to our friend and colleague.

Donations and letters should be forwarded to the League office at 150 N. Michigan Ave. Suite 600, Chicago, IL 60601. Please make the check payable to: The CLLA Fund for Public Education for the Koger Endowment Fund. Contributions will qualify as a tax deductible 501 (c) (3) charitable contribution. If you should have any questions, contact the League office at 312-240-1400 or clla@clla.org.

Judith Greenstone Miller
Raymond & Prokop, P.C.
26300 Northwestern Highway
4th Floor - P.O. Box 5058
Southfield, MI 48086-5058
Phone: 248-357-3010
Fax: 248-357-2720
jmiller@raypro.com
www.raypro.com

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Case Analysis

Bankruptcy Court Imposes Sanctions, Sets Clear Standards for Motions for Relief from Stay

Summary: In In re Gorshtein, 285 B.R. 118 (Bankr. S.D.N.Y. 2002), the Bankruptcy Court sanctioned secured creditors and their counsel for filing what proved to be baseless motions for relief from the automatic stay. The Court published its opinion based on its perception of an increase in the number of such motions and to advise secured creditors and their counsel “to exercise due care” in seeking such relief in the future.

Facts: The facts presented in Gorshtein were, according to the Court, merely examples of what the court described as “an apparently increasing number” of motions for relief from stay by secured creditors holding mortgages on consumer debtors’ residences that turn out to be unsupportable by the facts.

Each of the cases discussed in Gorshtein involved allegations that the debtor’s mortgage was in arrears. The debtors then came forward with documentation proving that each had, in fact, made all required payments. When ordered to show cause why sanctions should not be imposed, various responses were elicited from the creditors. In Gorshstein’s case, the creditor offered no explanation as to why it advised outside counsel that the mortgage was six months in arrears. The creditor of debtor Abreu faulted the accounting system of its servicing agent. As to debtor Saunders, the creditor asserted the error came from an insurer that had mistakenly underwritten a policy procured by the creditor for $1 million instead of $100,000, which falsely inflated the debtor’s monthly obligation by nearly twice the amount actually owed.

Discussion: In each of the cases the Court describes, the motion was accompanied by an affidavit, affirmation or other pleading signed by the creditor’s attorney, rather than a creditor representative with personal knowledge of the actual facts. The Court acknowledged that attorney submissions of client facts is, in many cases, “more expeditious and cost effective than requiring a client affidavit and generally does not jeopardize fundamental rights or notions of fairness.”

Of concern to the Court, however, were the risks borne by the system and the debtors when those factual submissions are not accurate. The practice of the district was to hold no hearing on motions for relief from stay unless the debtor opposes the motion, and the Court was concerned that consumer debtors, especially those who filed pro se or who are no longer assisted by counsel, “may not understand the import or significance of the motion or how to respond to it.” In such circumstances, the adversary process may not be counted on to ensure the system works and “the administration of justice places a premium on the integrity and reliability of the written submissions on which important (even though routine) court orders are based.”

The Court also underscored the consequences: The debtors and their families risked losing their homes. Any equity in those homes would likewise be lost, harming other creditors of the debtors as well.

In determining that sanctions were appropriate, the Court stated that none of the motions in the exemplar cases falls “within the safe harbor of good faith mistake or zealous advocacy within the bounds of the law and ethics.” Each of the creditors had within its control the documentary evidence showing that the facts underlying the motions were not true:

Reasonable investigation of its own records could and did reveal or confirm to the movant that the payments in question had all been made or tendered. Whether the cause of the false certification should be labeled intent to deceive, gross negligence, incompetence or mere inadvertence is indeterminable and, in any event, really does not matter. It does not matter because the result is the same for the debtor and the judicial process, which will be victimized by the misstatement if for any reason the debtor fails to respond timely to a baseless motion.

Because accurate information was readily available to each of the creditors, the Court placed little emphasis on their protestations of good faith and lack of intent to harm. Internal inadequacies, like those proffered in two of the cases with respect to the servicing agent’s accounting system and an erroneously issued insurance policy, were described by the Court as of the “dog ate my homework” variety.

The Court did not discuss the specific sanctions it intended to impose in the cases before it. Instead, the Court emphasized the due care all such secured creditors and their counsel must exercise in order to avoid sanctions in the future. With clarity, the Court set forth its standards, requiring secured creditors and their counsel to examine, distinguish between and provide details of pre-petition arrears, if any, and post-petition arrears, late fees, escrow payments, attorneys’ fees or other charges; to determine whether any post-petition payments actually received by check, money order or electronic transfer have not been credited to the debtor’s account because, for example, the payments were erroneously applied to pre-petition arrears or were held or deposited in a suspense account or returned to the debtor; and to disclose all such relevant facts to the Court in an affidavit sworn to by a person certifying that he/she has personal knowledge of the facts based upon his/her personal examination of the creditor’s relevant books and records.

The Court further specified that it would impose sanctions in future cases involving similar motions. At least when appearing before Judge Hardin, author of the opinion, secured creditors and their counsel must be mindful of, and in compliance with, the Gorshtein decision.

Catherine E. Vance, Esq.
Columbus, Ohio
614-336-3861
Email: vance76@earthlink.net

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Case Law Update

January, 2003

Dismissal of Appeal for Failure to Comply with Procedural Requirements. Without addressing the merits, Court of Appeals dismissed creditor bank’s appeal based on failure to comply with appellate rules in a variety of respects. Order to be published “to remind all counsel, once again, of the potential consequences of a failure to comply.” Community Commerce Bank v. O’Brien (In re O’Brien), 312 F.3d 1135 (9th Cir. 2002).

Bankruptcy Crimes/Restitution. Restitution order reversed where harm to debtor’s niece resulting from fraudulent transfer action brought by trustee was not directly and proximately caused by debtor’s false oath or attempt to conceal assets; evidence did not show that niece would not have suffered loss even in absence of debtor’s criminal conduct. United States v. Cutter, 313 F.3d 1 (1st Cir. 2002).

Dischargeability. Unusual circumstances exception to nondischargeability of attorneys’ fees in domestic child custody and support proceedings applied where debtor was awarded custody of child and requiring her to pay attorney fees to former husband would not further the interests of the child. Lowther v. Lowther (In re Lowther), 2002 U.S. App. LEXIS 27262 (10th Cir. Dec. 31, 2002).

Trust Fund Taxes/Jurisdiction of Bankruptcy Court. Bankruptcy court exceeded its jurisdiction in approving plan provision enjoining Internal Revenue Service from collecting trust fund taxes from debtor’s responsible person while debtor made payment on taxes owed under the plan. United States v. Prescription Home Health Care, Inc. (Matter of Prescription Home Health Care, Inc.), 2002 U.S. App. LEXIS 27122 (5th Cir. Dec. 30, 2002).

Good Faith Proposal of Chapter 11 Plan. Good faith was not lacking where sole purpose of plan was to enable debtors to cure and reinstate an obligation, thereby avoiding contractual liability for default interest. Bankruptcy Code authorizes a plan to nullify all consequences of default penalties, including higher interest rate. Platinum Capital, Inc. v. Sylmar Plaza, L.P. (In re Sylmar Plaza, L.P.), 2002 U.S. App. LEXIS 27123 (9th Cir. Dec. 30, 2002).

Preferences. Escrow agent did not exercise sufficient dominion and control over funds and was not, therefore, an initial transferee, but a financial conduit; accordingly, defendant was initial transferee and could not assert good faith defense in preference action. Bailey v. Big Sky Motors, Inc. (In re Ogden), 2002 U.S. App. LEXIS 27264 (10th Cir. Dec. 30, 2002).

Chapter 13 Lien Stripping. Joining majority of courts, Ninth Circuit held that lienholder whose claim is in fact wholly unsecured does not enjoy the protections of § 1322(b)(2), which prohibits avoidance of liens on debtor’s primary residence. Zimmer v. PSB Lending Corp. (In re Zimmer), 2002 U.S. App. LEXIS 26581 (9th Cir. Dec. 24, 2002).

Employment of Attorneys. Attorney represented debtor in state court probate proceeding which began prepetition and continued after debtor filed his petition. Subsequently, the attorney sought approval from bankruptcy court to continue state court representation and for payment of fees. Held, bankruptcy court properly denied requested relief. Section 327 cannot be used to remedy failure to file proof of claim for prepetition services rendered; failure to obtain prior approval for employment was not the result of excusable neglect; and future employment was denied because motion did not comply with requirements of Rule 2014. In re Cashen, 2002 U.S. App. LEXIS 25846 (7th Cir. Dec. 12, 2002).

Catherine E. Vance, Esq.
Columbus, Ohio
614-336-3861
Email: vance76@earthlink.net

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INSOL International Representative Report

INSOL International is a worldwide federation of national associations for accountants and lawyers who specialize in turnaround and insolvency. There are currently 31 Member Associations worldwide with over 7,700 professionals participating as Members of INSOL International. The CLLA Bankruptcy Section is a founding member of INSOL.

INSOL International has been very active in the last several months.

INSOL conducted its Asia Pacific Rim Conference in Beijing in October. Over 400 professionals from throughout the world attended the conference. INSOL continues to attract attention from all parts of the world, having recently added member organizations from Uzbekistan, Sri Lanka, and Nepal.

On an organizational front, INSOL initiated a survey of small practice issues. This survey and the results of a task force charged with discussing membership issues are two key programs that INSOL has initiated to improve its relevancy to its membership.

INSOL also continued its active support of UNCITRAL, which is a model law governing cross border insolvencies. Legislation in the recently ended 107th Congress would have codified as a new chapter, Chapter 15, of the Bankruptcy Code, and this measure has enjoyed broad support, including that of the CLLA. Codification of UNCITRAL, however, was just one part of the controversial bankruptcy reform bill, which ultimately failed to pass the last Congress. We hope to see UNCITRAL reintroduced this Congress, but not as part of an overall reform of the Bankruptcy Code.

INSOL is currently planning its Americas Conference, which will take place in LasVegas in the beginning of September 2003. Reminder cards have been sent to members and brochures should be mailed in the near future. If you would like more information about this conference you can check the INSOL web site.

INSOL has other ongoing projects in which League members can become active. These include the Insolvency Practitioner Survey, Cross Border Insolvency Project, Arbitration/Mediation in Insolvency Project, Consumer Debt Project, and others.

If you are interested in getting involved in any of the INSOL projects please contact me.

INSOL continues to grow and develop its reputation as the premier international organization of insolvency professionals.

Harry W. Greenfield
Buckley King
1400 Bank One Building
600 Superior Avenue E. Cleveland, OH 44114
Phone: 216-363-1400
Fax: 216-579-7156
Email: greenfield@bucklaw.com

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Washington Hot News

January 13, 2003
The future of bankruptcy reform legislation...part I.

As has been reported, key members of both the House and Senate have committed to introducing bankruptcy reform bills in both chambers (with the early reports being the bill(s) will be remarkably similar to the conference report from the 107th Congress; maybe minus the Sen. Schumer (D-NY) abortion compromise language and with some added new items).

As possible foreshadowing of these new items, the Senate Appropriations Committee, Labor, Health and Human Services, and Education Subcommittee, will hold a hearing tomorrow on the effect of the US Airways bankruptcy on employee pension plans.

Also, as herald of how things will be done in the House (and maybe the Senate), House Republican Leaders circumvented the traditional seniority system (in committee draws), opting for a rewards based one with the plum chairman positions going to the most loyal.

How will this affect bankruptcy? There maybe far less contention on the part of Republicans (who were as responsible for the bill's derailment at the end of the 107th over the abortion language). In fact, the Speaker, Rep. Hastert (R-IL) last week privately called Rep. Smith (R-NJ), one of the driving forces behind the conservative Republicans that opposed the conference report based on the abortion compromise language, to scold him for challenging the leadership on the bankruptcy bill.

These steps may serve as a warning to the rank and file of the GOP, as it added to its majority in the House, that their leadership wants to move an agenda, one that appears to include bankruptcy reform, without "internal" opposition.

Mortgage FDCPA bill introduced.

On January 8th, Rep. Royce (R-CA), a member of the Financial Services Committee, again introduced a bill to amend the FDCPA to exempt mortgage servicers from certain requirements of the law with respect to federally related mortgage loans secured by a first lien. The bill also has several unnamed co-sponsors.

David Goch
Washington Legislative Counsel, CLLA
Webster, Chamberlain & Bean
150 North Michigan Avenue, Suite 600
Chicago, IL 60601
dgoch@wc-b.com

More Washington Hot News: click here

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