In a recent case decided by the 9th circuit (In re Defrantz), the court ruled that the debtor has an absolute right to convert his chapter 13 case to a chapter 7 case. The creditor argued that the court should have considered the creditor's motion to dismiss before converting the case and that the right to convert was not absolute. However, the court stated the plain language of section 1307(a) of the bankruptcy code allowed conversion.(10.3.11, tl)

In short the debtor is responsible for association assessments as long as the debtor is the owner of the property. In a chapter 13, the debtor who wants to keep his property must add the prepetition assessment fees into his plan if they are delinquent. The assessment is normally secured by the property. State law often creates a lien for the association when the assessment becomes due. The post petition fees have to be paid when they become due. Smart debtors (or their attorneys) made the argument that the assessments are based on a contract and are discharged (pre- and post petition assessments) through the bankruptcy. One of their supporting arguments was that the exception of discharge in a chapter 13 (section 1328) does not refer to the section 523(a)16 of the bankruptcy code that excludes assessments from discharge. However, the courts held (most recently In re Foster 435 BR 650) that the assessment is not a contract, it runs with the land and cannot be discharged through the bankruptcy.    

We learned nothing new from a recent court decision (In re Dandrum, Bankr. D.ND. August 19, 2011): The debtor must take seriously his duties to disclose transfers before filing and to list income and assets accurately seriously or risk denial of discharge (and even more severe consequences). Debtor failed to disclose assets and transfers on the schedules and statement of affairs. He also liquidated assets that he would not have been able to exempt in his bankruptcy case, and paid only debts that were beneficial to him because the debt was either on exempt property or because the debt was nondischargeable. Even though the debtor amended his schedules later and provided information about transactions to the trustee, the court found that debtor's multiple inaccuracies regarding income, assets, and transfers rose to the level of "reckless indifference to the truth" which the court considered as equal to the intent to deceive. What do we learn from it? Disclose, disclose, disclose everything that has been done before filing.

The Austin Bankruptcy Court is housed in the Homer Thornberry Judicial Building. When the building was converted from a post office to a courthouse, the designers included an elegant entryway. Alas, this was before Oklahoma City and 9/11. Now the entryway is covered by a gate and a sign directing those with business in the building to the functional entrance, the one with the metal detector. While it is sad that the vision of the architect has been overshadowed, at least we are secure.

After the debtor filed a chapter 7 bankruptcy, his mortgage company file a motion for relief in order to start foreclosure proceedings. The court denied the motion for relief because the mortgage company could not show which rights the company has in the note and the failure of properly document the transfer of both the note and the mortgage raised the questions whether the bank had standing to file the motion for relief. The Mortgage company could not show that they actually received the note or was in possession of it. (In re Lippold, 2011 Bankr. Lexis 3282)

The Southern District of Texas has proposed several local rules for public comment. One of the interesting proposals is a model plan to be used by individual chapter 11 debtors. You can find the announcement with links to related documents here.You can find the link to the proposed model plan here.

One of the legacies of the Works Progress Administration was the construction of majestic federal courthouses and courtrooms. When you walk into the en banc courtroom of the Fifth Circuit Court of Appeals in New Orleans or Judge Leif Clark's courtroom in San Antonio or any one of dozens of other courtrooms, it is hard not to be filled with reverence for the important work which goes on there. However, several recent incidents of judicial incivility prompted the Above the Law blog to ask the question:Can you enforce civility by being… uncivil? That’s the question being raised, over and over again, by federal judges from Texas these days.Above the Law's query was prompted by three incidents: an order dated August 26, 2011 from U.S. District Judge Sam Sparks inviting lawyers to a "kindergarten party," an email reprimand from Chief Judge Edith Jones dated August 30, 2011 and Chief Judge Jones's own comments telling fellow Circuit Judge Dennis to "shut up" in oral argument on September 20, 2011. Act I: An Invitation to a Kindergarten PartyThe series of highly unfortunate events began when non-parties to a civil action sought to quash deposition notices addressed to them. This prompted an order from Judge Sparks which included the following language:Greetings and Salutations!You are invited to a kindergarten party on THURSDAY, SEPTEMBER 1,2011, at 10:00 a.m. in Courtroom 2 of the United States Courthouse, 200 W. Eighth Street, Austin, Texas.The party will feature many exciting and informative lessons, including:• How to telephone and communicate with a lawyer• How to enter into reasonable agreements about deposition dates• How to limit depositions to reasonable subject matter• Why it is neither cute nor clever to attempt to quash a subpoena for technical failures of service when notice is reasonably given; and• An advanced seminar on not wasting the time of a busy federal judge and his staff because you are unable to practice law at the level of a first year law student.Invitation to this exclusive event is not RSVP. Please remember to bring a sack lunch! The United States Marshals have beds available if necessary, so you may wish to bring a toothbrush in case the party runs late.Morris v. Coker, et al, No. A-11-MC-712-SS (W.D. Tex.). The order was disturbing on several levels. First, it pre-judged the dispute as frivolous and implicitly threatened imprisonment without having heard the merits. Second, the order castigated the objecting parties for wasting the court's time when Fed.R.Civ.P. 45 dictates that failure to comply with a subpoena is punishable by contempt, thus requiring a party to act promptly to avoid waiving an objection, even a technical objection. Finally, the order gave little concern to the fact that the subpoenas were addressed to non-parties who were involuntarily drawn into the dispute.Act II: The Email Heard Round the DistrictChief Judge Edith Jones of the Fifth Circuit Court of Appeals responded promptly, critiquing Judge Sparks for his "cute" orders. Dear Sam, It has not escaped my attention, or that of my colleagues or, I am told, nationally known blog sites that you have issued several ‘cute’ orders in the past few weeks. The order attached below is the most recent. Frankly, this kind of rhetoric is not funny. In fact, it is so caustic, demeaning, and gratuitous that it casts more disrespect on the judiciary than on the now-besmirched reputation of the counsel. It suggests either that the judge is simply indulging himself at the expense of counsel or that he is fighting with counsel in what, as Judge Gee used to say, is surely not a fair contest. It suggests bias against counsel. No doubt, none of us has been consistently above reproach in our professional communications with counsel. We are all prone to human error. But no judge who writes an order should allow such rhetoric to overcome common sense. Ultimately, this kind of excess, as I noted, reflects badly on all of us. I urge you to think before you write. Sincerely, Edith Jones.When contacted by the Texas Lawyer, Judge Jones stated that she was "saddened that somebody breached the intended limited scope of the intended distribution." However, the fact that she copied all of the District Judges of the Western District of Texas on the email virtually guaranteed that it would be leaked. Act III: Judge Dennis Gets a Talking To for Talking Too MuchIn United States v. Delgado, No. 07-11401 (5th Cir. 1/19/11), a panel of the Fifth Circuit reversed a criminal conviction. Judge James L. Dennis, joined by Judge Wiener, wrote the opinion, while Judge Clement dissented. On September 20, 2011, the en banc court heard oral arguments. At 47:40 in the argument, which you can listen to here, the following exchange took place:MR. TURNER: I think the amount of drugs in that truck supports the intent to distribute. And the jury….JUDGE DENNIS: Well, we’ve said over and over that the amount…. this court, no court has said that you can infer….CHIEF JUDGE JONES: Judge Dennis….JUDGE DENNIS: … just on the basis of the amount of drugs …CHIEF JUDGE JONES: Judge Dennis!JUDGE DENNIS: Can I, can I, can I ask a question?CHIEF JUDGE JONES: You have monopolized, uh, uh, seven minutes….JUDGE DENNIS: Well, I’m way behind on asking questions in this court. I have been quiet a lot of times, and I am involved in this case….CHIEF JUDGE JONES slams her hand down on the table (loudly), stands halfway up out of her chair, and points toward the door.CHIEF JUDGE JONES: Would you like to leave?JUDGE DENNIS: Pardon? What did you say?CHIEF JUDGE JONES: I want you to shut up long enough for me to suggest that perhaps….JUDGE DENNIS: Don’t tell me to shut up….CHIEF JUDGE JONES: … you should give some other judge a chance to ask a question …JUDGE DENNIS: Listen, I have been in this courtroom many times and gotten closed out and not able to ask a question. I don’t think I’m being overbearing….CHIEF JUDGE JONES: You’ve been asking questions for the entire seven minutes….JUDGE DENNIS: Well, I happen to be through. I have no more questions.CHIEF JUDGE JONES: I just want to offer any other judge an opportunity to ask a question. Some may support your position. If nobody else chooses to ask a question, then please go forward.(I am relying on Above the Law's transcription. Please listen to the argument yourself to ensure the accuracy of the statements quoted). It is not surprising that the author of the panel opinion would take an active role in the en banc argument. Indeed, when I appeared before the en banc court earlier this year, Judge Jones engaged me in spirited questioning throughout most of my allotted time. I found that the opportunity to engage the strongest opponent of my position to be quite rewarding. Civility Begins at the TopThe media is full of images of lawyers behaving badly in court, whether it is Arthur Kirkland screaming "You're out of order, this whole trial is out of order" in "And Justice for All," Captain Harmon Rabb discharging an automatic weapon in the courtroom in the TV series JAG and Louis Litt (in my favorite new lawyer show Suits) berating a deponent who later suffers a heart attack. That is how the world of entertainment portrays us.In the real world, judges have a right to expect a high standard of conduct from the lawyers appearing in front of them. In Matter of First City Bancorporation, 282 F.3d 864 (5th Cir. 2002), the Fifth Circuit not only upheld but increased an award of sanctions against a lawyer who repeatedly abused opposing counsel and parties. The court rejected the defense that his hyper-obnoxious approach brought results.However, civility begins at the top. Serving as a federal judge (whether under Article I or Article III) is one of the highest honors an attorney can receive. Federal judges should treat the high office they hold with respect, even when attorneys engage in unnecessary discovery disputes or a colleague monopolizes oral argument. To her credit, Chief Judge Jones did apologize at the conclusion of the session's arguments. However, it would have been better if she had held her tongue in the first instance. Post-ScriptI have made intemperate remarks in the past and will, no doubt, do so again. I live in a glass house and sometimes I throw stones when I shouldn't. When that happens, please feel free to through my own words back at me.

The National Association of Consumer Bankruptcy Attorneys created an online petition for the White House to reduce foreclosures. The plan is called Principal Paydown Plan (PPP). Someone in a chapter 13 bankruptcy case would apply all of their monthly mortgage payment towards the prinicpal of the loan and nothing towards the interest. This would greatly decrease interest payments and would lead to more equity for the houseowner. A mortgage loan that is underwater, meaning you owe more on your loan that the value of your house, would change to equity for the houseowner. The mortgage payment would be lower and it would be easier for the houseowner to refinance the loan to lower interest rates. If you want to support the petition follow the link below.https://wwws.whitehouse.gov/petitions/%21/petition/help-families-avoid-foreclosure-stabilize-housing-market-and-boost-economy-adopt-principal-paydown/Yj4rq2l8

Call me crazy, but I believe that trial should be about each side presenting their case within the limits of the Rules of Evidence. I tend to be very skeptical about what I call trial by exclusion, the use of procedural rules to prevent the other guy from putting on his evidence. It does not take much legal skill to win a case when the other guy has to stand there gagged and silent. That is why I was heartened to see a recent opinion out of the Texas Third Court of Appeals which struck down an improper request for admission. Lucas v. Clark, No. 03-10-00474-CV (Tex. App.--Austin, 6/15/11). You can find the opinion here.Under the Texas Rules of Civil Procedure, a party may serve discovery requests together with the petition. In this case, the Plaintiff included a request for admission which stated:Request for Admission 2: As a proximate result of your breaching the contract made the basis of this suit, the Plaintiffs have suffered consequential damages in an amount not less than ten million dollars.The defendant did not answer the lawsuit or the requests for admissions. As a result, the Plaintiff requested a default judgment. The only evidence of damages offered was the deemed admission. The Court awarded damages of $10 million.On appeal, the Court of Appeals (in an opinion written by Justice Henson and joined by Chief Justice Jones and Justice Goodwin) said not so fast.The primary purpose of requests for admissions is to “simplify trials by eliminating matters about which there is no real controversy.” (citation omitted). They were never intended to be used as a demand upon a plaintiff or defendant to admit that he had no cause of action or ground of defense. Id. Courts have cautioned that litigants should not be allowed to use requests for admissions as a tool to trap their opposition. (citation omitted). The rule regarding requests for admissions “was designed, not as a trap to prevent the presentation of the truth in a full hearing but as a tool for the fair disposition of litigation with a minimum of delay.” (citation omitted). When a party uses deemed admissions to try to preclude presentation of the merits of a case, however, due process concerns may arise. Therefore, overly broad, merits-preclusive requests for admissions are improper and may not result in deemed admissions. (citations omitted).Opinion, pp. 6-7.As a result, the Court of Appeals found that the request for admission should not be given evidentiary effect and found that there was no evidence as to damages. The Court of Appeals reversed and remanded for a new hearing on damages.This is a good opinion, indeed a courageous opinion. I applaud the Austin Court of Appeals for their ruling.

While the paparazzi followed every move of Anna Nicole Smith during her tragically shortened life, those of us of the legal paparazzi now stalk every new development in the case which bears her legal name, Stern v. Marshall. Some commentators have asked whether the newly emphasized limitations on the jurisdiction of U.S. Bankruptcy Judges to enter final judgments will apply to U.S. Magistrates as well. The Fifth Circuit has indicated that it will soon be considering this issue.On September 9, 2011, the Fifth Circuit directed the parties to submitletter briefs of not more than six pages addressing whether the reasoning of Stern applies to magistrate judges, which, like bankruptcy judges, are not Article III judges, and whether, under Stern, a magistrate judge can enter final judgment in a case tried to a magistrate judge by consent under 28 U.S.C. § 636(c) where jurisdiction is based on diversity of citizenship and state law provides the rule of decision.Technical Automation Services Corp. v. Liberty Surplus Insurance Corporation, No. 10-20640 (5th Cir. 9/9/11), Order, p. 2.Thus, it looks like there may be a circuit-level opinion on Stern v. Marshall sooner rather than later.Hat Tip to Prof. Ken Klee.You can read the order in full below.