| January 2006 issue: Washington Hot News First Lawsuit Filed Against Company Selling Phone Records (January 27) The Illinois Attorney General has filed a lawsuit against 1st Source Information Specialists Inc., a Florida company accused of selling consumers’ personal phone records to almost anyone in the U.S. The lawsuit is believed to be the first of its kind in the country. Your Name Here! The Bankruptcy Section Newsletter Committee is looking for volunteers to write a Case Analysis for an upcoming edition. The Case Analysis is typically based on Court of Appeals or Supreme Court decisions, although you can use your discretion to discuss relevant BAP, District Court and Bankruptcy Court decisions -- especially those interpreting BAPCPA's amendments to the Code.. If you are interested or would like to learn more, please send an email to the Managing Editor. You can view the archive here. Your subscription You have been subscribed to this list as part of your membership in the Bankruptcy Section of the Commercial Law League of America. CLLA 205 N. Michigan, Suite 2212, Phone: 312-240-1400 Newsletter design by: |
Sua SponteCathy Pike, Chair A college education without the bad cafeteria food. On Thursday, April 27, DePaul University College of Law and the CLLA are sponsoring the 4th Annual DePaul Business and Commercial Law Journal Symposium at the Westin Hotel, the day before CLLA’s Chicago Meeting officially begins. This year’s Symposium explores the issues of deepening insolvency and ethics challenges raised by the new bankruptcy law, as well as a look at the first six months of BAPCPA. Case AnalysisErin VanValkenburg Federal Bankruptcy Law Trumps State Sovereign Immunity The Supreme Court held, in a 5-4 decision, that the adversary proceedings brought by a Chapter 11 trustee to set aside alleged preferential transfers that debtor had made to state agencies were not barred by the States’ sovereign immunity. Case Law UpdatePaula Lucas Attorney Fees Not-Recoverable. Following debtor Chapter 7 petition filing, state filed a priority claim for monies paid to worker injured while employed by debtor. Seven years of litigation later, the court found the claim to be an excise tax with no priority status. The court discharged the claim. The Year Ahead: Legislative Predictions in a Non-Presidential Election YearDave Goch Due to current scandals and the suspect dealings of Jack Abramoff, the Republicans are entering midterm elections in defensive mode. Americans are expressing concerns over the economy, cost of health care, Iraq, rising oil prices, and alleged lobbying scandals. CLLA Member SpotlightErica Henry The CLLA is proud to claim Cathy Vance as one of its own. Cathy is Vice President of Research & Policy and Associate General Counsel for Development Specialists, Inc. (DSI) and she has established herself as a leading expert on the attorney liability provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). Call for NominationsErica Henry The Bankruptcy Section Nominating Committee will meet in April 2005 to select a slate of candidates for the July election. Candidates must be willing to commit themselves to a three-year term of active involvement in Council and Section Affairs and be able to attend four Council meetings.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Sua SponteA college education without the bad cafeteria food. On Thursday, April 27, DePaul University College of Law and the CLLA are sponsoring the 4th Annual DePaul Business and Commercial Law Journal Symposium at the Westin Hotel, the day before CLLA’s Chicago Meeting officially begins. This year’s Symposium explores the issues of deepening insolvency and ethics challenges raised by the new bankruptcy law, as well as a look at the first six months of BAPCPA. I’d like to urge you to consider attending this excellent program. For the affordable fee of $75, attendees will receive CLE credit and hear some of the top speakers in the country. You can attend just the Symposium or make it an extension of a full weekend of education and networking of the Annual Chicago Conference. A Deeper Look at Deepening Insolvency Neil S. Abbott, Gowling Lafleur Henderson This program will dig beneath the surface of “deepening insolvency” as the panel of leading practitioners explore the relationship to emerging issues as well as decades-old precedent. Ethics: Challenges for Attorneys Under the New Bankruptcy Law Hon Steven W. Rhodes, Chief Judge, United States Bankruptcy Court, Eastern District of Michigan This panel, featuring the nation’s foremost experts, will explain not just the challenges attorneys face in practicing ethically, but in ethically challenging many of the new law’s provisions. BAPCPA: What Do We Know Now and When Did We Know It? Hon. Jack B. Schmetterer, United States Bankruptcy Court, Northern District of Illinois From the date the President signed the bill, until it became law, bankruptcy practitioners had months to study the new law and how have six months of practice. Were our predictions right? Did we overreact? Do we even know yet what life will really be like under BAPCPA? The Symposium begins at 11 a.m. and concludes at 5 p.m., in time for the opening event of the Chicago Conference. Please mark your calendars for Thursday, April 27. You can register online by clicking here. I look forward to seeing you at the DePaul Symposium. Cathy S. Pike Case AnalysisFederal Bankruptcy Law Trumps State Sovereign Immunity The Supreme Court held, in a 5-4 decision, that the adversary proceedings brought by a Chapter 11 trustee to set aside alleged preferential transfers that debtor had made to state agencies were not barred by the States’ sovereign immunity. Bernard Katz, the Chapter 11 trustee for Wallace’s Bookstores, Inc., commenced proceedings in the United States Bankruptcy Court for the Eastern District of Kentucky pursuant to 11 U.S.C. §§ 547(b) and 550(a) to avoid and recover alleged preferential transfers made to petitioners, Virginia institutions of higher education, by the debtor when it was insolvent. Petitioners asserted they were “arms of the State,” and therefore are entitled to sovereign immunity. Alden v. Maine, 527 U.S. 706, 756 (1999). The petitioners’ motions to dismiss the proceedings on the basis of sovereign immunity were denied by the Bankruptcy Court. The Bankruptcy Court’s decision was affirmed by the District Court and the Court of Appeals for the Sixth Circuit. This question of whether the Bankruptcy Clause of Article I, §8, cl. 4, of the Constitution gives Congress the authority to abrogate States’ immunity from private suits was first presented to the Court in Hood v. Tennessee Student Assistance Corporation (In re Hood), 541 U.S. 440 (2004), but the court sidestepped the issue and instead focused on the observation that the bankruptcy power is principally executed through in rem jurisdiction which doesn’t implicate States’ sovereignty to nearly the same degree as other types of jurisdiction. In Katz, the Court chose to address the question. The majority opinion was delivered by Justice Stevens and joined by Justices O’Connor, Souter, Ginsberg, and Breyer. Justice Stevens found that the historical and legal context surrounding the adoption of the Bankruptcy Clause indicated an intent to grant both legislative authority over bankruptcy to Congress and impose limited subordination of state sovereign immunity in the area of bankruptcy law. He stressed the concerns held by the Framers of the Constitution over the problems and injustices caused by the divergent schemes for discharging debts applied in the States and the resulting goal of harmonizing bankruptcy law. He illustrated these problems with two cases, James v. Allen, 1 Dall. 188 (C.P. Phila.Cty.1786) and Millar v. Hall, 1 Dall.229 (Pa.1788), which resulted in the imprisonment in one State of debtors who had been discharged in and by another State. Justice Thomas, joined in his dissent by Chief Justice Roberts and Justices Scalia and Kennedy, argued that history confirms only the establishment of federal power to legislate bankruptcy law and not an additional intent to limit the exercise of States’ sovereign immunity. He further stated that the concerns regarding the failure of one State to recognize another States’ discharge implicates the application of full faith and credit and has nothing to do with state sovereign immunity. Justice Stevens acknowledged that the decision was a retreat from the strong view of state sovereign immunity established in Seminole Tribe of Fla. v. Florida, 517 U.S. 44 (1996). However, the Court found to be erroneous the assumption (reflected in statements made in both the majority and dissenting opinions in Seminole Tribe) that the holding from Seminole Tribe would apply to the Bankruptcy Clause. Following the reasoning of Chief Justice Marshall in Cohens v. Virginia, 6 Wheat. 264, 5 L.Ed. 257 (1821), the majority decided it was not bound to the dicta in Seminole Tribe because the point now at issue was not fully debated. Justice Thomas suggested that the majority had essentially reversed Seminole Tribe but had obscured the issue with its opinion. This case, addressing the contentious issue of sovereign immunity, further illustrates the centrality of Justice O’Connor, who joined the majority in Katz and the majority of then Chief Justice Rehnquist, and Justices Scalia, Kennedy, and Thomas in the Seminole Tribe decision. Erin VanValkenburg Case Law UpdateAttorney Fees Not-Recoverable. Following debtor Chapter 7 petition filing, state filed a priority claim for monies paid to worker injured while employed by debtor. Seven years of litigation later, the court found the claim to be an excise tax with no priority status. The court discharged the claim. Debtor filed suit seeking attorneys’ fees incurred while litigating the claim. Lower courts denied the award. The court found that while federal law deferred to state substantive law where states provided for attorney fee awards, because the case had been litigated in federal bankruptcy and district courts denial was appropriate since attorney fees are not available for litigation of federal bankruptcy matters. DeRoche v. Arizona Industrial Commission, 2006 U.S. App. LEXIS 1030 (9th Cir. Jan. 17, 2006). All Pertinent Disclosure To Be Made by Single Creditor. Truth in Lending Act does not allow creditors to delegate disclosure responsibilities. Debtors filed class action suit against auto finance company that excluded certain debt cancellation fees from the cancellation of the finance charge without disclosing the amount of the fees and that the debt cancellation coverage was voluntary. Auto finance company instead delegated its disclosure responsibility to a non-creditor third party, which the court found to violate the Truth in Lending Act. Vallies v. Sky Bank, 432 F.3d 493 (3d Cir. Jan. 5, 2006). Judge Issues Harsh Criticism of Congress in Credit Counseling Decision. Debtors were attempting workout with lender holding mortgage on debtors' homestead, but refused payment at the last minute. To avoid foreclosure, debtors sought bankruptcy relief without having received mandatory credit counseling. Bankruptcy court dismissed the case, acknowledging that its hands were tied and that a subsequent filing by debtors could be of no avail because new serial filer provisions could limit protection of the automatic stay. The court added: "It should be obvious to the reader at this point how truly concerned Congress is for the individual consumers of this country. Apparently, it is not individual consumers of this country that make the donations to the members of Congress that allow them to be elected and re-elected and re-elected and re-elected ... The Debtors violated the [counseling] provision of the statute ... and are ineligible to be Debtors in this case. It must, therefore, be dismissed ... Congress must surely be pleased." In re Sosa, 2005 Bankr. LEXIS 2658 (Bankr. W.D. Tex. Dec. 22, 2005). Debtor Ordered to Return Property but No Reimbursement for Payments Made. Debtor, having contracted to purchase the real property of party (decedent) for whom he had power of attorney, was found to have had undue influence over decedent in transacting to purchase the property well below market price. Debtor was ordered to return the property to decedent’s estate. The bankruptcy court did not order the estate to return amount debtor had already paid toward the purchase price. The Circuit Court of Appeals found that the court erred in failing to order the estate to repay amounts because North Dakota law requires that where a transaction is voided for undue influence the court is to take such steps as needed to put the parties back in their pre-contract positions. Klesalek v. Klesalek (In re Klesalek), 2006 WL 27279 (8th Cir. Jan. 6, 2006). Federal Tax Credit for Child is Property of Bankruptcy Estate. Circuit Court affirmed lower court’s order sustaining trustee’s objection to debtors’ federal tax exemption claim for child tax credit finding the credit to be a contingent interest as of the date of the petition filing and therefore property of the bankruptcy estate. Law v. Stover (In re Law), 2006 WL 176929 (8th Cir. Jan. 26, 2006). Court Orders Debtor Payments Deposited in Court Registry. Tenth Circuit ruled that the court has the authority to order funds committed to creditors under a plan to be deposited into court registry to insure payment and non-dissipation of funds where debtor fails to properly implement plan. Lacy v. Stinky Love, Inc. (In re Lacy), 2006 WL 29150 (10th Cir. Jan. 27, 2006). Court Referral of Case Against Attorney for Disciplinary Criminal Review and Imposition of Fine, An Abuse of Discretion. Attorney failed to personally converse with client to confirm intention to file for bankruptcy as required under Rule 9011. Although sanctionable, the court found that where the attorney had acted to immediately remedy the violation, the referral of the case for disciplinary and criminal review and the imposition of a $750 fine were an abuse of discretion. In re Phillips, Case No. 05-1106 (8th Cir. 2006) Court Failure to Conduct Evidentiary Hearing on Objection to Proof of Claim, Not an Abuse of Discretion. Debtor objected to creditor’s proof of claim. Debtor’s counsel had served “negative notice” on creditor by attaching to the objection a document entitled “Notice of Opportunity to respond and Request a Hearing,.” This advised that without response and request for a hearing within thirty days, the court could enter an order without further hearing. Thereafter, without holding an evidentiary hearing, an order granting Creditor’s claim in part was entered. Creditor appealed. The Circuit Court of Appeals found that Section 102 does not require actual hearings, only that at a minimum notice be given to parties before orders are entered. Roberts v. Pierce (In re Pierce), 2006 WL 167890 (8th Cir. Jan. 25, 2006). State Court Examines Insurers' Post-confirmation Rights. Postconfirmation, state trial court ruled that bankruptcy proceedings conclusively determined insured's liability and also provided a mechanism for determining aggregate value of that liability for purposes of indemnification. Appellate court reversed and remanded for retrial. The court found that although the judgment comported with the goals of § 524(g) to ensure all asbestos claimants were treated fairly and, to the extent possible, equally, it was inconsistent with the parties' contractual rights and obligations under their insurance policies. Confirmation proceedings were not an actual trial of insured's liability triggering excess insurers' indemnification obligations. Moreover, estimations of individual and aggregate value of present and future asbestos claims served neither to affix nor to accelerate excess insurers' indemnification obligations, and did not provide a basis for coverage of those claims to be presumed. Rather, plan confirmation constituted a settlement of insured's liability, the effect of which was subject to challenge by excess insurers. Court could not conclude that § 524(g) was intended to eradicate the excess insurers' rights under their insurance policies. Fuller-Austin Insulation Co. v. Highlands Insurance Co., 2006 Cal. App. LEXIS 45 (Cal.App.Ct. Jan. 19, 2006). Refusal to Enforce Arbitration Clause Reversed. The Federal Arbitration Act does not grant to bankruptcy court the authority or discretion to deny enforcement of an arbitration provision where the debtor failed to establish Congressional intent to preclude waiver of judicial remedies for claims. In re. Mintze, 2006 U.S. App. LEXIS 564 (3d Cir. Jan. 10, 2006). Court Declares Michigan’s New Homestead Exemptions Unconstitutional Because they Conflict with the Code. Debtors, co-owners of property each claimed a homestead exemption in property they co-own. Trustee objected arguing under Michigan law debtors are only entitled to the maximum aggregate exemption. Debtors argue that each as individuals are entitled to claim homestead exemption. The court found the Michigan Homestead provision to be unconstitutional and denied the debtors their exemption. In re Vinson, Case No. 05-55599 (E.D.M.I. Jan. 27, 2006). Paula Lucas Washington Hot NewsFirst Lawsuit Filed Against Company Selling Phone Records (January 27) The Illinois Attorney General has filed a lawsuit against 1st Source Information Specialists, Inc., a Florida company accused of selling consumers’ personal phone records to almost anyone in the U.S. The lawsuit is believed to be the first of its kind in the country. The Attorney General is alleging that 1st Source is engaging in a form of identity theft known as "pretexting," by pretending to have the authority to access protected personal records and thereby misleading the carriers. "You provide the business or personal cell phone number, we will send you the outgoing calls made from the most recent (or requested) billing period, Early Results of the Bankruptcy Reform Act (January 19) Contrary to proponents expectations, while the number of bankruptcies overall have decreased, the Bankruptcy Reform Act of 2005, which took effect October 17th, has done little to encourage the use of credit counseling services and preventing people from filing for bankruptcy. According to the Washington Post, only 4.5 percent of the 14,907 debtors receiving credit counseling from an interviewed agency actually had sufficient income to consider a payment plan over a few years. Of those 669 debtors, only 42 signed up for the debt-management plan. Further, the Post's sampling of credit agencies disclosed that the people filing are people "with true hardships" and not those abusing the system (maxing out credit cards, using cash advances, etc).
Legislative Predictions in a Non-Presidential Election YearDue to current scandals and the suspect dealings of Jack Abramoff, the Republicans are entering midterm elections in defensive mode. Americans are expressing concerns over the economy, cost of health care, Iraq, rising oil prices, and alleged lobbying scandals. In the Senate, there are possibly six GOP seats at risk, but there are also potentially competitive races in states where Democrats are currently in power. Vulnerable Republican seats include Pennsylvania, Rhode Island, Tennessee, Missouri, Montana, and Ohio. Most likely, the Democrats will only pick up two to fours seats, leaving the Republicans with the majority. In the House, the Democrats would need to gain 15 seats to win the majority. Again, there are not many competitive open seats, and with the historical difficulty of defeating incumbents, it is most likely that the Republicans will retain their lead, with the Democrats gaining 4 to 9 seats. Concerning legislative issues, with those of interest to the CLLA, the bankruptcy "tension" is likely to be a considered provision for the upcoming legislative conference. The CLLA will continue to educate on the negative impact of this provision. The FDCPA language inserted into H.R. 3505 could be considered on the floor as early as mid-February (which the House is likely to pass). However, the historical sticking point for the FDCPA has been, and still remains in the Senate. The prospects are uncertain in the Senate due to the fact that some Democratic Senators have taken strong views against FDCPA reform. The outlook further suspects that it may end up being a tight year on the Senate calendar for controversial issues which aren't considered "must pass" legislation. Lastly, related to privacy issues - including access to an individual's contact information and personal identifiers, as well as placing obligations on anyone possessing such info, if disclosed-- is likely to be one of the big issues this year. Federal legislation concerning data breach notification requirements is likely. Dave Goch CLLA Member SpotlightThe CLLA is proud to claim Cathy Vance as one of its own. Cathy is Vice President of Research & Policy and Associate General Counsel for Development Specialists, Inc. (DSI) and she has established herself as a leading expert on the attorney liability provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). Cathy’s latest work in the area is the soon to be released Attorney Liability in Bankruptcy, a book that provides a comprehensive review of the requirements all attorneys must be aware of and understand when practicing under the new BAPCPA regime. Cathy is the book’s contributing editor and she authored a number of its chapters. Other authors of Attorney Liability in Bankruptcy, which will be published by the American Bar Association, include Nancy Rapoport and Ron Peterson (both CLLA members), Corinne Cooper, the book’s editor, and Thomas Yerbich and Professor Erwin Chemerinsky, among others. Attorney Liability in Bankruptcy provides comprehensive discussions of the new sanctions provisions in Chapter 7 cases, the regulation of attorneys as debt relief agencies (DRAs), and the heightened requirements for reaffirmation agreements. In addition, the book discusses constitutionality issues, bankruptcy ethics, and criminal liability in bankruptcy. Designed to allow practicing attorneys to most easily comprehend and comply with the law, the book has been endorsed by Professor Elizabeth Warren, widely acknowledged as the foremost leader in the field of bankruptcy law. Professor Warren commends the book as “comprehensive, lively, and readable... the book practitioners will reach for day in and day out.” Cathy credits the CLLA for her ascension on the attorney liability issue. “The CLLA gave me the opportunity to publish the first scholarly work on the subject back in 2001. And in April of 2005, when it was obvious BAPCPA was going to become law, I joined fellow CLLA members in presenting the very first comprehensive education program on its provisions at our annual Chicago conference.” An active member of the CLLA and its Bankruptcy Section, Cathy is a member of the Section’s Executive Council, Vice Chair of the Legislative Committee, and a member of the Marketing Committee, among other activities. Her work, along with Peter Califano and Jay Welford, on BAPCPA’s technical problems was highlighted in an interview in Bankruptcy Court Decisions last summer. Attorney Liability in Bankruptcy is available for $94.95 from www.ababooks.org, and the Commercial Law League is thrilled to be able to promote this accomplishment by one of our star members. You can’t afford to practice without this book! Click on the following links to read more about Attorney Liability in Bankruptcy: read the Table of Contents, read the Preface, purchase your copy of Attorney Liability in Bankruptcy. Erica Henry Nominating Committee to Select Council CandidatesThe Bankruptcy Section Nominating Committee will meet in April 2005 to select a slate of candidates for the July election. Candidates must be willing to commit themselves to a three-year term of active involvement in Council and Section Affairs and be able to attend four Council meetings. Section members interested in being considered for an Executive Council position should immediately submit a letter stating their interest and indicating their qualifications. All letters or emails must be received by March 15, 2006. Alan I. Nahmias As a reminder, the Section has varied opportunities for involvement. Recently, Alan Nahmias, Jeffrey Schatzman, Wanda Borges, Daniel Goldberg, and Rick Johanson were appointed to the Nominating Committee. If you are interested in a leadership position or would like to be appointed to one of the Section’s committees, please contact Cathy Pike, Bankruptcy Section Chair, at cpike@weberandrose.com. As Cathy Vance exemplifies, getting involved in the CLLA allows you to broaden your professional horizons. Also, please contact Erica Henry at the email address below if you would like to suggest or write an article for our periodic Member Spotlight. Erica Henry |