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Innovative Thinking, Positive Results

Legal Briefs

3/17/2022

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Miller v. Fallas (In re J&M Sales Inc.)
A claim held by the Internal Revenue Service that was paid after filing cannot be used as a predicate claim to extend the statute of limitations for 10 years, according to Bankruptcy Judge John T. Dorsey of Delaware.
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For reasons Judge Dorsey explained in a footnote at the end of his February 22 opinion, a ruling the other way would expand the statute of limitations to 10 years for all avoidance actions by a corporate debtor. Miller v. Fallas (In re J&M Sales Inc.), 20-50775 (Bankr. D. Del. Feb. 22, 2022).


West Wilmington Oil Field Claimants v. Nabors Corporate Services Inc. 
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If a class has not been certified before bankruptcy, every member of the class should file an individual proof of claim before the bar date. That’s the practice point gleaned from a Fifth Circuit opinion on March 10.

If the class is so numerous that individual claims are not practicable, the opinion by Circuit Judge Edith Brown Clement counsels the attorney for the class to file a motion in bankruptcy court for authority to file a class claim, followed by a motion in bankruptcy court to approve the class.
Why go to so much trouble? Easy answer: The bankruptcy court may not approve a class claim, and a court like the Fifth Circuit might not allow individual claims after the bar date.

West Wilmington Oil Field Claimants v. Nabors Corporate Services Inc. (In re CJ Holding Co.), 21-20394 (5th Cir. March 10, 2022).

Re Vrusho 12/03/2021 BNH 006
In re Vrusho, 2021 BNH 006 (denying creditor’s motion under Fed. R. Bankr. P. 3002(c)(6)(A) for leave to file proof of claim after bar date based on insufficient notice, where: (i) creditor’s attorney in related state court collection proceeding received actual notice of commencement of case and claims bar date, (ii) sufficient nexus existed between attorney’s representation of creditor in state court proceeding and creditor’s proof of claim, (iii) creditor’s attorney informed creditor of bankruptcy case, and accordingly, (iv) actual notice of bankruptcy filing and bar date was imputed to creditor).

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Class Action Law Suits and Proof of Claim

3/17/2022

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West Wilmington Oil Field Claimants v. Nabors Corporate Services Inc. 
If a class has not been certified before bankruptcy, every member of the class should file an individual proof of claim before the bar date. That’s the practice point gleaned from a Fifth Circuit opinion on March 10.

If the class is so numerous that individual claims are not practicable, the opinion by Circuit Judge Edith Brown Clement counsels the attorney for the class to file a motion in bankruptcy court for authority to file a class claim, followed by a motion in bankruptcy court to approve the class.
​

Why go to so much trouble? Easy answer: The bankruptcy court may not approve a class claim, and a court like the Fifth Circuit might not allow individual claims after the bar date.

West Wilmington Oil Field Claimants v. Nabors Corporate Services Inc. (In re CJ Holding Co.), 21-20394 (5th Cir. March 10, 2022).
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No Foolin': Bankruptcy Code Changes Go Into Effect on April 1

3/17/2022

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​For both debtors and creditors, the numbers are important in a bankruptcy proceeding, JD Supra reported. The Judicial Conference of the United States has announced that certain dollar amounts and dollar limitations in the U.S. Bankruptcy Code will increase effective April 1, 2022. The adjustments are required to take place every three years pursuant to 11 U.S.C. §104. The new dollar amounts reflect an approximate, average 11% increase. Here is a summary of some important adjustments:

• Exemptions: The dollar amounts limiting exemptions that an individual debtor may elect to protect property from creditors and the bankruptcy trustee will increase under 11 U.S.C. § 522. As one example, an individual may exempt up to $27,900 of an interest in real property or personal property that is used as a residence (up from $25,150). Accordingly, a married couple filing for bankruptcy may exempt up to $55,800 of equity in jointly owned real property.


• Wage Claims: The cap on priority employee claims, any claim for wages, salaries, or commissions) will increase from $13,650 to $15,150. 11 U.S.C. § 507(a)(4).


• Farmers: A family farmer may file for chapter 12 with aggregate debts of less than $11,097,350 (up from $10,000,000). 11 U.S.C. § 101(18).


• Chapter 13: An individual may file for chapter 13 provided that his/her non-contingent, liquidated unsecured debts are less than $465,275 and secured debts are less than $1,395,875 (up from $419,275 and $1,257,850). 11 U.S.C. § 109(e).


• Preferences: The minimum amount that a trustee may attempt to recover in non-consumer preferential transfer cases will increase from $6,825 to $7,575. 11 U.S.C. § 547(c)(9).


• Involuntary Filings: The minimum aggregate claims threshold for an involuntary chapter 7 or chapter 11 filing by creditors will increase from $16,750 to $18,600.


A summary of all adjustments may be found in the Federal Register published Feb. 4, 2022.

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Johnson & Johnson Survives a Motion to Dismiss that Alleged a Bad Faith Filing

3/8/2022

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The Johnson & Johnson entity named LTL Management LLC survived a motion to dismiss its chapter 11 case originally filed in North Carolina, in an opinion on February 25 by Chief Bankruptcy Judge Michael B. Kaplan of Trenton, N.J.

Judge Kaplan’s 54-page opinion is a ringing endorsement of chapter 11 as the best alternative in the state and federal legal systems for dealing with mass torts. He found no fault with J&J’s use of the so-called Texas Two-Step to avoid putting the entire enterprise in chapter 11.
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Judge Kaplan said he had “little trouble finding that the chapter 11 filing serves to maximize the property available to satisfy creditors by employing the tools available under the Bankruptcy Code to ensure that all present and future tort claimants will share distributions through the court-administered claims assessment process.”
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Nord Stream 2 Owner Considers Insolvency After Sanctions

3/8/2022

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The Swiss-based company that built the Nord Stream 2 gas pipeline from Russia to Germany is considering filing for insolvency, two sources familiar with the situation said, as it attempts to settle claims ahead of a U.S. sanction deadline for other entities to stop dealings with it, Reuters reported.
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Long Island Judge Ends ‘Loss Mitigation’ in His Courtroom

3/3/2022

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Having decided that “Chapter 13 has morphed into the pursuit of loss mitigation as its sole purpose in which debtors file cases they never intend to bring to confirmation,” Bankruptcy Judge Robert E. Grossman decided it’s time to end so-called loss mitigation in his court.

In his February 28 opinion, Judge Grossman also decided it’s time to adopt a so-called no-look fee of $5,500 for chapter 13 cases in his court. Judge Grossman sits in Central Islip, N.Y.
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Although Judge Grossman ended loss mitigation in his court, the case before him resulted in a confirmed chapter 13 plan after the debtor and the home mortgage lender agreed on a loan modification. Aside from the case before him, Judge Grossman said he would no longer approve attorneys’ fees for participation in loss mitigation, “absent extraordinary circumstances.”
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CFPB Moves to Thwart Illegal Auto Repossessions

3/1/2022

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The Consumer Financial Protection Bureau (CFPB) is moving to thwart illegal repossessions in the heated auto market. A compliance bulletin issued today reveals conduct observed during CFPB examinations and enforcement actions, including the illegal seizure of cars, sloppy record keeping, unreliable balance statements, and ransom for personal property, according to a CFPB press release.
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Does Home Value Appreciation  Become Part of the Ch. 7 Estate if the Case Converts from Ch. 13?

2/15/2022

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One of the unanswered questions in consumer law these days is whether appreciation in the value of a home becomes part of the chapter 7 estate if the case converts from chapter 13. The courts are split. Affirming the bankruptcy court and the Bankruptcy Appellate Panel, the Tenth Circuit held that the appreciation in the value of a home sold after confirmation of a chapter 13 plan belongs to the debtor, not to creditors, if the case converts to chapter 7.
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In the January 19 opinion by Chief Circuit Judge Timothy Tymkovich, the appeals court was careful to say that it was not ruling on what the result would be in a chapter 13 case converted to chapter 7 before the home was sold. The pivotal statute is Section 348(f)(1), which underwent substantial amendment in 1994.

When a chapter 13 case converts to chapter 7, the section now provides that “property of the estate in the converted case shall consist of property of the estate, as of the date of filing of the petition, that remains in the possession of or is under the control of the debtor on the date of conversion.”

The amendment was intended overrule caselaw holding that property obtained after filing a chapter 13 petition becomes estate property once the case converts to chapter 7.
Narrowing his holding to cases where the home was sold before conversion, Judge Tymkovich found the answer in the plain language of the statute, without need for analysis of legislative history.

Judge Tymkovich identified proceeds as a property interest different from the home itself. On the original chapter 13 filing date, there were no proceeds, only the home itself. “Based on the plain language of Section 348(f)(1)” — that estate property in a converted case is estate property “as of the date of filing of the petition” — he held that the sale proceeds “do not enter the converted Chapter 7 estate.” Rodriguez v. Barrera (In re Barrera), 20-1376 (10th Cir. Jan. 19, 2022).
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Case Review

2/15/2022

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Alix v. McKinsey & Co. Inc., 20-2548 
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(2d Cir. Jan. 19, 2022)

The district judge believed that the injury to Alix had been caused by the debtors’ decisions not to hire AlixPartners and not by McKinsey’s alleged misconduct. The district judge also believed that the U.S. Trustee would have been the better plaintiff to remedy the alleged misconduct.
Disagreeing, Judge Parker said that the district court had “conflated proof of causation and proof of damages and that it did not draw all reasonable inferences in Alix’s favor.”
Here’s the important bankruptcy angle:
“More importantly,” Judge Parker said, “the district court gave insufficient consideration to the fact that McKinsey’s alleged misconduct targeted the federal judiciary.”
Judge Parker expanded on the idea, suggesting that litigants who can’t show direct harm to afford standing may nonetheless pursue litigation when the integrity of the process is at stake. He said:
[T]his case requires us to focus on the responsibilities that Article III courts must shoulder to ensure the integrity of the Bankruptcy Court and its processes. Litigants in all of our courts are entitled to expect that the rules will be followed, the required disclosures will be made and that the court’s decisions will be based on a record that contains all the information applicable law and regulations require. If McKinsey’s conduct has corrupted the process of engaging bankruptcy advisors, as Alix plausibly alleges, then the unsuccessful participants in that process are directly harmed.
Later, Judge Parker said that “fraud on the Bankruptcy Court committed in the manner alleged by Alix causes direct harm to litigants who are entitled to a level playing field and calls into play our unique supervisory responsibilities.”
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Judge Parker also reversed dismissal of Alix’s pay-to-play claim under 18 U.S.C 152(6), which proscribes fraudulently offering money to act or forbear from acting in a bankruptcy case. He said it was “implausible — indeed inconceivable — that any Bankruptcy Court would have approved McKinsey’s retention if Alix’s allegations were substantiated.”
Because Judge Parker was reversing a motion to dismiss, he said that “McKinsey might well prevail on summary judgment or at trial and to be sure, uncertainties at those stages might exist.”

Although not in lawsuits with Alix, the U.S. Trustee Program issued a press release in February 2019 about a settlement where McKinsey agreed to pay $15 million for inadequate disclosure in three chapter 11 cases. In December 2020, the U.S. Trustee Program issued a press release about a separate settlement made in connection with a case in Texas where McKinsey agreed to withdraw its application for retention and waive the recovery of fees for work it had performed. The press release said that the fees and expenses “likely” would have been “millions of dollars.”
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Massachusetts Federal Court Case Result

2/15/2022

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Commercial Litigation Settlement

Sometimes settlement is success. We successfully settled a commercial litigation case in Massachusetts Federal Court. See United States of America v. Trevisone, Jr., Case Number: 1:19-cv-12607-JCB wherein we represented a business owner as Personal Guarantor on an SBA Loan. The case involved issues such as Laches, Statute of Limitations, Foreclosure, failure to mitigate damages and breach of contract.
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  • Home
  • Our Team
    • Matthew R. Braucher
    • Martha L. Davidson
    • Christopher Jantzen
    • Fahelle Bonheur
    • Anna D’Avolio
    • Jess Mendes
  • Areas of Practice
    • Real Estate Law
    • Bankruptcy
    • Business Law
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