SCOTUS: Truck Insurance Service v. Kaiser Gypsum- Definition of Party in Interest in Bankruptcy Ed Boltz Thu, 06/06/2024 - 18:25 Summary: Truck Insurance Exchange, the primary insurer for companies facing asbestos-related lawsuits, objected to the reorganization plan proposed by Kaiser Gypsum Co. and Hanson Permanente Cement, which had filed for Chapter 11 bankruptcy. The plan created an Asbestos Personal Injury Trust under 11 U.S.C. §524(g) to handle all asbestos-related claims. Truck, responsible for defending and indemnifying up to $500,000 per claim, argued that the plan exposed it to fraudulent claims due to inadequate disclosure requirements for insured claims. The District Court confirmed the plan, deeming it "insurance neutral" and finding Truck had limited standing to object as it was not a party in interest. The Fourth Circuit affirmed, holding that Truck was not a  party in interest  because under the Doctrine of Insurance Neutrality the plan did not alter its prepetition obligations.  The Supreme Court reversed the Fourth Circuit, holding that an insurer with financial responsibility for bankruptcy claims is a  party in interest   under §1109(b) and may be heard on any issue in Chapter 11 proceedings. The Supreme Court gave a very broad Definition of a party in interest, including any  entities potentially concerned with or affected by the reorganization proceedings, not limited to those whose pre-petition obligations are altered,  citing the 3rd Circuit in holding that: Where a proposed plan “allows a party to put its hands into other people’s pockets, the ones with the pockets are entitled to be fully heard and to have their legitimate objections addressed.” In re Global Indus. Technologies, Inc., 645 F. 3d 201, 204 (CA3 2011). This included insurers like Truck, who bear significant financial responsibility for claims, and have a direct interest in the reorganization process.   The Court criticized the Doctrine of Insurance Neutrality for conflating the merits of an objection with the threshold inquiry of party in interest status,  holding that being a party in interest grants  allows insurers to voice objections but does not grant them a vote or veto in the proceedings. Commentary: The allowance in 11 U.S.C.  §1109(b) of a party in interest  "may raise and may appear and be heard on any issue" (emphasis added)  in a Chapter 11 case, with the more limited allowance in 11 U.S.C. §1324(a)  that a party in interest "may object to confirmation of the plan" in Chapter 13.  Similarly,  under §1307(c) a Chapter 13 case can be converted or dismissed "on request of a party in interest".    Elsewhere,  however,  pursuant to §1329(a),  only "the debtor, the trustee or holder of an allowed unsecured claim"  can seek a modification of a confirmed plan.  Narrower than the party in interest,  that would exclude secured creditors,  the U.S.  Trustee,  or more hypothetical or attenuated parties,  such as Truck Insurance Service. This might,  however,  mean that homeowner,  car or other insurers for consumers have the right to object to Chapter 13 cases,  requiring that they be notified of the bankruptcy filing and served with the proposed plan. I'm sure GEICO will be ecstatic about the flood of these pleadings. As is usual for bankruptcy matters from the Supreme Court,  this was a unanimous opinion, with the exception of Justice Alito who recused himself, probably because his wife's flags are made out of asbestos in order to keep them from being burned by their unpatriotic neighbors. To read a copy of the transcript, please see: Blog comments Attachment Document truck_insurance_v_kaiser_gypsum.pdf (135.47 KB) Category Law Reviews & Studies

N.C. Ct. of App.: In re White Oak Missionary Baptist Church- No Appointment of Receiver Ed Boltz Tue, 06/04/2024 - 17:52 Summary: An internal conflict within the White Oak Missionary Baptist Church arose over financial affairs and administrative authority, leading to a division among church leaders and membership. In 2018, disputes escalated when church leaders implemented accountability measures that were opposed by other leaders. An audit revealed untraceable spending of a significant donation fund. The church filed a petition for receivership in 2021, claiming substantial debts and mismanagement. The trial court denied the motion for a receiver, citing insufficient evidence of insolvency. The church appealed, arguing that the ongoing internal conflict and evidence of financial mismanagement warranted a receiver's appointment. The North Carolina Court of Appeals reviewed the case, noting that such appeals are typically interlocutory but permissible if substantial rights are affected. The Court of Appeals held that the following criteria were to be evaluated in determining whether to appoint a receiver: Whether the debtor is insolvent; Whether the debtor is not paying its debts, unless those debts are the subject of a bona fide dispute; Whether the debtor is unable to pay its debts as they become due; or  Whether the debtor is in imminent danger of insolvency. N.C. Gen. Stat. § 1-507.24(e).  The Court of Appeals found no abuse of discretion in the trial court's decision, as evidence indicated the church was not in imminent danger of insolvency. The court also addressed the church's objection to an untimely affidavit but concluded there was no prejudice as the church had been given time to respond. The trial court's decision to deny the appointment of a receiver and consider the affidavit was affirmed. Commentary: Another receivership instead of a bankruptcy.   See, for example, my post about Live Oak v. Mafic in March 2023.  The recent article in the ABI Journal,  Why State Court Receiverships Are Becoming the Norm for Smaller Companies,  begins the discussion of why this is happening,  but it would be helpful,  both on this specific topic and for the general health of the NC Bar Association Bankruptcy Section,  if some of the attorneys  making these choices would buck  the restraints  that their Tall Building Law firms seem to have against commenting or even participating in these communities. The absence of any conversation,  even in response to my most obnoxious and flawed posts,  is leading to a serious decline in the section. To read a copy of the transcript, please see: Blog comments Attachment Document in_re_white_oak_missionary_baptist_church.pdf (98.1 KB) Category NC Court of Appeals

Bankruptcy courts handle over one million cases yearly ranging from simple consumer cases to complex multi-billion dollar business cases.  Thousands of parties appear before bankruptcy courts in various capacities raising an infinite array of issues.  The courts are both needed and expected to administer these cases fairly and efficiently.   To do so, bankruptcy courts, which are courts of equity, utilize a variety of tools to manage their dockets, however, one obvious tool remains outside of their reach – the use of special masters.  Efforts are currently underway to change this. Attached is my article exploring this topic and efforts to amend Bankruptcy Rule 9031. 2024.06 - ABI Journal - 9031 Article (with reprint permission) The post It is Time to Enhance Judicial Efficiency by Amending Bankruptcy Rule 9031 appeared first on Sylvia Mayer Law.

Book Reviews Stafford Patterson Mon, 06/03/2024 - 18:36

Book Review: Jacoby, Melissa- Unjust Debts: How Our Bankruptcy System Makes America More Unequal Ed Boltz Mon, 06/03/2024 - 18:31 Available at Amazon:  Unjust Debts: How Our Bankruptcy System Makes America More Unequal But purchasing from your local bookstore is certainly better.  The first person to ask, will get my copy to read and then pass forward. Summary From the inside cover: Bankruptcy is the busiest federal court in America. In theory, bankruptcy in America exists to cancel or restructure debts for people and companies that have way too many—a safety valve designed to provide a mechanism for restarting lives and businesses when things go wrong financially. In this brilliant and paradigm-shifting book, legal scholar Melissa B. Jacoby shows how bankruptcy has also become an escape hatch for powerful individuals, corporations, and governments, contributing in unseen and poorly understood ways to race, gender, and class inequality in America. When cities go bankrupt, for example, police unions enjoy added leverage while police brutality victims are denied a seat at the negotiating table; the system is more forgiving of civil rights abuses than of the parking tickets disproportionately distributed in African American neighborhoods. Across a broad range of crucial issues, Unjust Debts reveals the hidden mechanisms by which bankruptcy impacts everything from sexual harassment to health care, police violence to employment discrimination, and the opioid crisis to gun violence. In the tradition of Matthew Desmond’s groundbreaking Evicted, Unjust Debts is a riveting and original work of accessible scholarship with huge implications for ordinary people and will set the terms of debate for this vital subject. Table of Contents: Bankruptcy for Real People Race Disparities in Bankruptcy for Real People Bankruptcy for Fake People Civil Rights in a Bankrupt City My Money, My Rules From Overindebtedness to Liability Management Beyond the Victory Lap Commentary: From the perspective of the consumer debtor's bar,  the overwhelming  benefits that Chapter 11 debtors receive compared to Chapter 13  debtors.  These include the "front-loaded"  discharge at confirmation,  the absence of a trustee,  third-party releases (contrast the Sacklers and their  modest contributions to the plan with the requirement in Chapter 13 that co-signed debts require payment in full to grant just a stay and not a discharge),  longer periods over which to pay secured and priority debts, binding creditors with misleading voting, the broad deference given to "non-standard"  plan provisions,   etc. (Many of these Chapter11 benefits would be available to consumers through the Chapter 10 envisioned in Sen. Elizabeth Warren's Consumer Bankruptcy Reform Act.) But Chapter 11 is available to individuals as well... The main reason that individuals don't file Chapter 11 cases is the expense, the lack of expertise in the consumer debtor's bar, and that  regular Chapter 11 attorneys don't want to deal with the unwashed masses.  (Otherwise you might see them handle a pro bono SLAP every now and then.) So what if, in addition to excellent public-facing scholarship such as this,   law school  professors also helped teach law students and practicing attorneys how to file simple "pre-packaged"  or "cookie cutter" Chapter 11  cases for everyday  people? Dumb it down, give consumer  form pleadings,  Best Case for Chapter 11 and call it "Chapter 24"  (11+13),  so that can churn these out,  even if we're not $2500/hr  Tall Building Lawyers. Not only would real people start to get the same advantages that fake people (i.e. corporations)  have long taken  advantage of in Chapter 11,  but the courts and Congress might,  under a sudden groaning burden of regular folks sloppily filing disclosure statements and appearing on first day orders,  start to consider rebalancing the bankruptcy system.  (Not to mention the terror-filled response that  the consumer financial services industry would have.) Heck,  for less than $10  consumers could get a Post Office Box in Wilmington, Delaware and take advantage of that court's vaunted bankruptcy expertise. Other reviews and interviews: Publisher's Weekly:  Fake People, Real Obligations: PW Talks with Melissa B. Jacoby Kirkus Reviews:  Unjust Debts- An impassioned plea for confining bankruptcy to its core purpose of resolving just debts justly. Upcoming Events:  Melissa Jacoby on Unjust Debts at Quail Ridge Books June 13, 2024, Raleigh NC Melissa Jacoby on Unjust Debts at Flyleaf Books June 18, 2024, Chapel Hill NC Melissa Jacoby on Unjust Debts at Greenlight Bookstore June 27, 2024, Brooklyn NY Blog comments Category Book Reviews

Law Review Note: Rylee Stanley, The Poor Man's Problem in Bankruptcy, 55 St. Mary's L.J. 1185 (2024). Ed Boltz Wed, 05/29/2024 - 18:39 Available at: The Poor Man's Problem in Bankruptcy Introduction: This Comment describes how bankruptcy courts operate and explores the effects of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) on indigent parties and  also discusses the unique concerns surrounding pro se bankruptcy cases compared to other proceedings and points out the inequities that currently exist between trustees and debtors.  Next, it examines the civil-criminal dichotomy and the heavily debated “Civil Gideon” movement, first highlighting the landmark case of Gideon v. Wainwright, 11 which declared the right to legal counsel is a fundamental right for indigent criminal defendants.  Second,  the comment dives further into Boddie v. Connecticut and Powell v. Alabama,  which explain the importance of the right to access the courts, as well as how the right to counsel is needed in civil and criminal proceedings.  Then the comment sets forth more details about the Civil Gideon movement and discusses its relevance in bankruptcy law,  also explaining four prevalent issues in bankruptcy law that support the need for an appointed right to counsel in bankruptcy. Most importantly, it proposes a solution to provide access to counsel in bankruptcy proceedings and addresses popular concerns with public assistance programs.  Finally, it wraps up the conversation and revisits the many reasons why the Sixth Amendment right to counsel should be extended beyond the criminal courts.   Commentary: This is an idealistic and well-intentioned law review comment, that unfortunately,  by blending the Civil Gideon  movement with bankruptcy  but without any clear experience directly bankruptcy,  misses the target.  There is neither a recognition of  how many indigent people do not actually need bankruptcy, because they are judgment proof,  nor that many debtors are able to file bankruptcy,  depending on the jurisdiction in either Chapter 7 or Chapter 13,  often paying little, if any, costs or attorneys fees in advance.  (As these are unmentioned, so too are the problems with such options,  including the heightened costs of Chapter 13 or the problems with "zero money down" Chapter 7 cases under Lamie or bifurcation schemes.) To read a copy of the transcript, please see: Blog comments Attachment Document the_poor_mans_problem_in_bankruptcy_compressed.pdf (503.07 KB) Category Law Reviews & Studies

4th Cir.: Bland v. Carolina Lease Management Group Statute of Limitations for UDTPA Ed Boltz Wed, 05/29/2024 - 00:32 Summary: Plaintiffs Hank Bland, Kendell Jackson, and Luetta Innis appealed the dismissal of their lawsuit against Carolina Lease Management Group, LLC, CTH Rentals, LLC, and Old Hickory Buildings, LLC. The case involved rent-to-own purchases of storage sheds, and Plaintiffs alleged violations of the North Carolina Retail Installment Sales Act (RISA), the North Carolina Unfair and Deceptive Trade Practices Act (UDTPA), and the North Carolina Debt Collection Act (DCA). The district court,  applying a  a three-year statute of limitations from RISA to dismiss all claims, including those under UDTPA and DCA,  dismissed the complaint on statute-of-limitations grounds. On appeal, the Plaintiffs argued that their claims, aside from RISA, were subject to a four-year statute of limitations under UDTPA and DCA.  Relying on North Carolina cases,  including  Shepard v. Ocwen Fed. Bank, FSB, 638 S.E.2d 197, 200 (N.C. 2006), , Skinner v. Preferred Credit, 616 S.E.2d 676, 680–81 (N.C. Ct. App. 2005), and Jennings v. Lindsey, 318 S.E.2d 318, 322 (N.C. Ct. App. 1984), the Fourth Circuit agreed with Plaintiffs, noting that UDTPA claims are governed by a four-year statute of limitations regardless of their basis in RISA violations, and while  affirming  the dismissal of the RISA claim,   but vacated and remanded the dismissal by the district court of the UDTPA and DCA Commentary: This is another in a chain of great decisions that Adrian Lapas (and others) has received   regarding the pernicious rent-a-shed  schemes,  which often seek to claim  to be executory  rather that retail sales contracts,  both to avoid modification in bankruptcy,  but also to skirt recordation and affixation  requirements. It is also worth noting that even if the statute of limitations has run to affirmatively raise claims against a creditor,  those can often be raised defensively as a counterclaim to attempts to collect by that creditor.  That can include as a basis for objecting to a Proof of Claim    Blog comments Attachment Document bland_v._carolina_lease_management_group.pdf (168.3 KB) Document mattox.pdf (231.07 KB) Document hargrove.pdf (389.13 KB) Document bland.pdf (893.55 KB) Category 4th Circuit Court of Appeals

N.C . Ct. of App.: Hurd v. Priority Automotive- Fraudulent Concealment Ed Boltz Wed, 05/29/2024 - 00:30 Summary: Brad W.  Hurd purchased a 2018 Honda Accord from  Priority Automotive of Huntersville, Inc.,  believing it had no accident history based on a Damage Disclosure Statement provided by Priority Automotive.   Mr. Hurd later discovered the vehicle had been involved in an accident prior to purchase and that , Priority Automotive of Huntersville, Inc. had actually filed  an insurance claim for that damage. Despite Mr.  Hurd's request, Priority Automotive of Huntersville, Inc.  did not provide a CarFax accident report , instead giving an Experian AutoCheck report without pre-purchase information and later ejecting Mr.  Hurd from the dealership when he insisted on the CarFax report.  Hurd filed an Amended Complaint alleging unfair and deceptive practices, fraud, and fraudulent concealment. The trial court dismissed the claims, leading to this appeal. The Court of Appeals reviewed the trial court's dismissal de novo, held that to state a claim under N.C. Gen. Stat. § 75-1.1 for unfair and deceptive trade practices, Mr.  Hurd needed to show an unfair or deceptive act in commerce that caused actual injury. The court found Mr.   Hurd sufficiently alleged such acts and damages for the  fraud allegation, as he  needed to show: A false representation or concealment of a material fact; Reasonably calculated to deceive; Made with intent to deceive,  Which does in fact deceive; Resulting in damage to the injured party    As to fraudulent concealment, Mr.Hurd sufficiently alleged the necessary criteria: Concealment of a past or existing material fact,  That is reasonably calculated to deceive,  Made with intent to deceive,  Which does in fact deceive, and Which results in damage to the plaintiff   Lastly, the economic loss rule, which bars recovery for purely economic loss in tort, did not apply as Hurd’s claims were for intentional torts, not negligence. Commentary: Great work by Shane Perry. To read a copy of the transcript, please see: Blog comments Attachment Document hurd.pdf (152.07 KB) Category NC Court of Appeals

Bankr. E.D.N.C.: In re Greene- Denial of Amendment of Order Deeming Mortgage Current Ed Boltz Wed, 05/29/2024 - 00:25 Summary: In the case of William and Rebecca Greene, the bankruptcy court  denied BSI Financial Services' motion to amend an order that deemed the mortgage current. The original order, issued on November 16, 2023, stated that the mortgage was current with a balance of $105,505.65, based on the amount provided by BSI itself. BSI later claimed this amount was incorrect and sought to amend it to $134,296.39. However, the court found that BSI did not provide sufficient evidence or justification for the amendment, noting multiple errors in BSI's filings and lack of witnesses at the hearing. Consequently, relying on In re Devita, Case No. 12-02549-5-SWH (Bankr. E.D.N.C. May 31, 2018), and Specialized Loan Servicing, LLC v. Devita (In re Devita), 610 B.R. 513 (E.D.N.C. 2019) the court ruled against BSI, maintaining the original order and mortgage balance as stated as it failed to demonstrate: That the motion is timely; That the moving party has a meritorious claim or defense;  That the nonmoving party will not suffer unfair prejudice; and  That exceptional circumstances justify relief.   Commentary: The amendments to Bankruptcy Rule 3002.1 become effective in December 2024,  requiring that the outstanding principal balance on a residential mortgage be determined.  The long-standing practice in the Eastern District of North Carolina  of making this determination will,  especially though this and the Devita opinions,  serve as guides for other courts that have up until now been hesitant to make this determination. There is a frequent assertion by mortgage services that it is somehow too difficult to determine that principal balance:       For the vast majority of home mortgages, excluding those with adjustable interest rates, which are slightly more complicated, and Daily Simple Interest notes, which do require an advanced accounting degree, by curing and maintaining the on-going mortgage payment, that outstanding principal balance should be exactly the amount owed as shown on the original amortization schedule for the loan. Very nice work by Jeremy Harn. To read a copy of the transcript, please see: Blog comments Attachment Document in_re_green.pdf (298.92 KB) Category NC Supreme Court Cases

SCONC: Midfirst Bank v. Brown- Equitable Subrogation Ed Boltz Wed, 05/29/2024 - 00:23 Summary: After purchasing her home In 2000, Betty J. Brown obtained a mortgage in 2004 from First Horizon Home Loan Corporation.  In 2010, a judgment  in favor of United  General Title Insurance was entered against Ms.  Brown in South Carolina, which was then domesticated and recorded in North Carolina in 2014. In 2016, Brown refinanced her mortgage  with Nationstar Mortgage (MidFirst Bank is Nationstar’s successor in interest), which paid off the  First Horizon mortgage.  In 2019, enforcement proceedings began against Ms. Brown to collect the 2010 judgment. The property was seized and sold at an execution sale, with Ms.  Brown's daughter, Michelle Anderson, placing the successful bid at the Sheriff's sale. The trial court granted summary judgment to MidFirst Bank action to quiet title, asserting that the Nationstar deed of trust still encumbered the property even after the execution sale. The court also held that the doctrine of equitable subrogation applied, allowing Nationstar to assume the rights and priorities of the First Horizon deed of trust. The Court of Appeals reversed this decision, holding that the Nationstar lien was extinguished by the execution sale and that the doctrine of equitable subrogation was not available to MidFirst Bank because it was not "excusably ignorant" of the publicly recorded judgment. The Supreme Court of North Carolina reversed the decision of the Court of Appeals, holding that it erred by applying the incorrect standard regarding equitable subrogation relying on Peek v. Wachovia Bank & Trust Co., 242N.C. 1, 15 (1955) instead of Wallace v. Benner,200 N.C. 124 (1931) The SCONC  held that the doctrine of equitable subrogation applies when: Money is advanced to pay off a prior encumbrance; The new lender is not a volunteer, defined as  one who “pays off or loans money to pay off an incumbrance without taking an assignment thereof, and without an agreement for substitution.” ; The new lender was not culpably negligent, defined as the   “[f]ailure to exercise that degree of care rendered appropriate by the particular circumstances, and which a man of ordinary prudence in the same situation and with equal experience would not have omitted”; and  It does not prejudice junior lienholders. As this requires a very fact intensive inquiry,  the SCONC directed that this case ultimately be remanded to the trial court to reassess. Commentary: The SCONC did point to multiple conflicting facts that the trial court must consider in determining whether equitable subrogation applies including that: The observance of docketing and recordation  is  so important to subsequent purchasers and mortgagees that a very strict compliance with its provisions in every respect is required. The failure by Nationstar to show that it conducted a title examination  or reviewed a credit report before refinancing the mortgage. That Ms. Brown signed an Owner's Affidavit attesting that “there is no person, firm, corporation or governmental authority entitled to any claim or lien against said property.”  That it is undisputed that the United judgment lien was publicly recorded.  That Ms.  Anderson, Brown’s daughter, purchased the subject property at the Sheriff's sale for roughly 1/3rd of the amount owed on the Midfirst mortgage; and That Ms.  Brown continues to reside in the property. All of those tend to muddy the question of who is culpably negligent. To read a copy of the transcript, please see: Blog comments Attachment Document midfirst_bank._v._brown.pdf (120.58 KB) Category NC Supreme Court Cases