Sua Sponte

Deborah K. Ebner
Bankruptcy Section Chair
Law Office of Deborah Kanner Ebner                                     
dkebner@deborahebnerlaw.com

Those of you who were with us in Las Vegas witnessed, first hand, the excitement of Judge Eugene Wedoff when he stepped in front of our NCBJ breakfast audience to accept the League's Lawrence King Award of Excellence. You also enjoyed Paul Begala and his amazingly accurate imitations of Bill Clinton, and the cutting edge presentations at the Frank Koger Memorial Lecture Series. No exaggeration. Our events at NCBJ were a resounding success for the 1,500 plus NCBJ attendees!

Our New York Conference was also spectacular. On November 12th, we met at the Sheraton New York Hotel & Towers for the League's 89th annual convention. Our section's creative programming kicked off on Friday morning with a mock trial. The trial was staged in three parts, the first of which covered first day motions in Chapter 11 cases and the second of which addressed Chapter 11 litigation techniques, valuation of collateral and 363 sales. The judges presiding over these events were the Honorable Robert Grossman, United States Bankruptcy Judge for the Eastern District of New York and the Honorable Michael Williamson, US Bankruptcy Judge for the Middle District of Florida. The setting was intimate and the learning opportunity was fabulous!

After our Friday programming, we enjoyed a discussion with our own Honorable Judith Fitzgerald, US Bankruptcy Judge from the Western District of Pennsylvania, the Honorable Rosemary Gambardella US Bankruptcy Judge from the District of New Jersey and the Honorable Steven Rhodes from the US Bankruptcy Court for the Eastern District of Michigan. After breakfast, we continued our trial work and concluded with confirmation of a proposed plan of reorganization.

Besides the educational programming we headed off to Broadway on Saturday night to see Hair, we will attend our annual bankruptcy section dinner and we maintained our relationships and continued our business networking which is never ending!

Case Law Analysis

William H. Schorling, Esq. and Hilleary Nguyen, Esq.
Buchanan Ingersoll & Rooney, P.C.
Philadelphia, PA

On September 1, 2009, the Commercial Law League of America, as amicus curiae, submitted a brief to the United States Supreme Court in Milavetz, Gallop & Milavetz, P.A. v. U.S.  The CLLA’sbrief supported the Petitioner's challenge to the constitutionality of the Bankruptcy Abuse Prevention and Consumer Protection Act ("BAPCPA"), PL 109-08, as applied to lawyers, generally.

The term "debt relief agency" as defined in the BAPCPA does not specifically include attorneys.  The BAPCPA defines “debt relief agency” as “any person who provides any bankruptcy assistance to an assisted person” and “assisted person” as "any person whose debts consist primarily of consumer debts and the value of whose nonexempt property is less than $164,250.”  There are various restrictions and requirements for debt relief agencies, such as those found in Section 526(a)(4), which prohibits debt relief agencies from advising a client to "incur more debt in contemplation" of a bankruptcy filing, and Sections 528(a)(4) and (b)(2), which require debt relief agencies to include a statement in all bankruptcy-related advertisements disclosing their debt relief agency status.  Thus, the CLLA argued that if the United States Supreme Court interprets "debt relief agency” to include attorneys, the inclusion of attorneys who represent creditors who are "assisted persons" would produce a result that is untenable and should be rejected.

The 8th U.S. Circuit Court of Appeals affirmed the district court in part and reversed it in part in Milavetz.  It agreed that Section 526(a)(4) is unconstitutionally overbroad as applied to attorneys.  However, it found no constitutional problem with Sections 528(a)(4) and (b)(2) and held that attorneys are validly considered to be "debt relief agencies" for purposes of BAPCPA.
The court focused on the plain meaning of "debt relief agencies," stating that the broad statutory language clearly includes attorneys providing bankruptcy assistance unless they are excluded by another section.  Finding no such exclusion, it concluded that attorneys are debt relief agencies under BAPCPA.

Next, the appellate court affirmed the district court's conclusion that Section 526(a)(4) is unconstitutionally overbroad as applied to attorneys.  It found that this outcome would be the same regardless of the standard of review applied because Section 526(a)(4) prevents attorneys from fulfilling their duty to provide appropriate and beneficial advice to clients.

The CLLA contends that if the United States Supreme Court concludes that attorneys who represent creditors fall within the statutory definition of "debt relief agency," and therefore must consider whether the application of the BAPCPA provisions to attorneys can withstand constitutional scrutiny, the Court should include in its consideration the impact of those provisions on attorneys who represent creditors and hold sections 526(a)(4) and 528(a)(4) & (b)(2)(B) unconstitutional.  The CLLA argued that if section 526(a)(4) applies to creditors' attorneys who represent assisted persons, it would prohibit the attorney from providing accurate and complete counsel to his or her client concerning conduct which is not illegal.  For example, the attorney could not counsel the creditor client to incur debt to pay the filing fee to file an involuntary petition or to pay the attorney's fees to represent the client in the bankruptcy.  In addition, the CLLA argued that if section 528 applies to creditors' attorneys, it would require an attorney who represents creditors who are assisted persons to include false and misleading statements in the attorney's advertising including that the attorney is a debt relief agency and helps people file for bankruptcy relief under the Bankruptcy Code.  Oral argument in the case will be held on December 2, 2009.

Case Law Update

CLLA Staff

In re: Nowak
U.S. 6th Circuit Court of Appeals
11/13/09

In Chapter 7 bankruptcy proceedings, the Bankruptcy Appellate Panel's (BAP) denial of plaintiff-creditor's motion to allow an informal proof of claim based on its prior filings as a putative secured creditor is affirmed as the BAP did not abuse its discretion in finding that: 1) plaintiff had ample notice of the likelihood that it would lose its status as a secured creditor, necessitating the filing of a proof of claim; 2) plaintiff's unexplained delay weighed against allowing plaintiff's informal proof of claim; and 3) the large dilution in the distribution to other creditors in this case was an appropriate consideration weighing against allowing plaintiff's claim.

In re: Madera
U.S. 3rd Circuit Court of Appeals
11/12/09

In debtors' bankruptcy proceedings for defaulting on their loan, ruling upholding the bankruptcy court's grant of summary judgment to the creditors and its denial of debtors' motion to amend is affirmed where: 1) the Rooker-Feldman doctrine precluded the bankruptcy court's jurisdiction over debtors' rescission claim because that claim was inextricably intertwined with a Court of Common Pleas' foreclosure judgment; 2) there was an adequate basis for summary judgment on the Truth in Lending Act damages claim, specifically, that debtors failed to create a genuine issue of material fact as to whether they had prior title insurance in connection with the loan; and 3) the bankruptcy court did not abuse its discretion in denying debtor's motion to amend as it was untimely.

In re: Bradley
U.S. 5th Circuit Court of Appeals
11/12/09

In bankruptcy trustee's appeal from a ruling of the bankruptcy court, affirmed by the district court, holding the trustee's predecessor in contempt of court and imposing monetary sanctions, the order is affirmed where: 1) the remedial civil contempt power extends to defiance of a bankruptcy court injunction whose terms are known, but which has not yet been formalized as required by procedural rules; and 2) the lack of agreement between the opposing parties briefing the motion for injunction did not render the resulting ruling unclear.