Wednesday, September 28, 2011

Recent Decisions on Bankrupcy and Foreclosure Law within the First Circuit

DISCHARGE: Creditor failed to prove by a preponderance that the builder did not intend to build the house, or make false representations or intend to harm the creditor and thus the debt was discharged; thus, issues of debtor’s company being the debtor’s alter ego were not necessary to reach:

(IN RE: MCMANN) JLMA ASSET MANAGEMENT, LLC v. MCMANN, 2011 Bankr. LEXIS 3025 (Bankr. D. Mass. 8/4/11).
PROCEDURAL POSTURE: Plaintiff Florida limited liability company ("LLC") filed an adversary proceeding against defendant Chapter 7 debtor, seeking a determination that the debtor owed the LLC a debt that was nondischargeable under 11 U.S.C.S. § 523(a)(2) and (a)(6).
OVERVIEW: The debtor owned a company that built houses, and an LLC hired the debtor's company to build a house. When it appeared that the debtor's company could not complete construction within the period allowed by the parties' contract, the LLC ordered the company to stop work and it sued the debtor, his wife, and his company in a Florida court. The lawsuit was stayed as to the debtor when the debtor declared bankruptcy, and after the debtor declared bankruptcy the LLC filed an adversary proceeding against him, seeking a determination that he owed a debt that was nondischargeable under
11 U.S.C.S. § 523(a)(2) and (a)(6). The bankruptcy court found in favor of the debtor. Although the debtor was being investigated by state authorities at the time his company agreed to build the house, there was no evidence that he did not intend to build the house, made false misrepresentations to the LLC or its owners, or acted maliciously and intentionally to harm the LLC or its owners. The court refused to consider the LLC's claim that the debtor owed a debt that was nondischargeable under § 523(a)(4) because the LLC did not raise that claim in its complaint and the debtor was not asked to defend it.
OUTCOME: The court stated that it would enter judgment in favor of the debtor on all counts of the LLC's complaint. Because the court found that the debtor did not owe the LLC a debt that was nondischargeable, it did not have to address the LLC's claim that the debtor was liable under the contract his company entered with the LLC because the company was his alter ego.
JUDGE:  William Hillman, Bankruptcy Judge.

Foreclosure sale was void where foreclosing bank did not hold the mortgage, but rather the loan; failure to comply with noticing requirements for foreclosure sale will void the sale:

PROCEDURAL:  In an adversary proceeding, plaintiff debtor alleged that the foreclosure sale of her home by the defendant trustee for the bank was invalid because the trustee did not own the mortgage on the property at the relevant time.  The court considered the count to be a request for declaratory judgment that the foreclosure sale was invalid.  While he debtor’s loan passed from hand to hand, a mortgage corporation remained the mortgagee throughout.  The mortgage corporation held only bar legal title to the mortgage on behalf of the trustee, the successor to the loan originator, unit it assigned the mortgage to the trustee, only the mortgage corporation had the authority to foreclose.  The mortgage corporation and not the trustee held legal title to the mortgage on the debtor’s home when the notice of foreclosure sale was first published.  Therefore, the court found the trustee did not have the right to exercise the statutory power of sale and to foreclose the mortgage.  By publishing notice of the foreclosure sale when it was not the mortgagee, the trustee failed to comply with the law and huts it foreclosure sale was void.
OUTCOME:  The request for a declaratory judgment that the foreclosure sale was invalid was granted.
JUDGE:  Melvin S. Hoffman, Bankruptcy Judge.

Untimely briefing in bankruptcy appeal = dismissal:
(IN RE: MANTALVANOS)ERESIAN v. MANTALVANOS, 2011 U.S. Dist. LEXIS 93771 (D. Mass. 8/16/11).
JUDGE: Douglas P. Woodlock, District Judge.
PROCEDURAL:  Pro Se appellant failed to file his brief and thus the appellee filed a motion to dismiss.
Not having received from the appellant either a further motion to continue nor an opposition to the motion to dismiss, the District Court  granted the motion to dismiss and ordered the case closed.
That same day, appellant submitted a Motion to Vacate the Dismissal and also filed his initial brief with a "Motion to File Initial Brief and Record Appendix Instanter".  Although the court had some question whether the filing of the Notice of Appeal has ousted this court of jurisdiction, I will adopt the procedure now codified in Fed. R. App. P. 12.1(b) and indicate my intention by docketing rulings denying the motion to vacate and the motion to file initial brief "instanter." The District Court did so because no good cause existed to indulge appellant’s dilatory approach to the appeal he filed from the Bankruptcy Court.  While the court granted this dismissal on grounds of want of timely prosecution of the appeal, having reviewed appellant’s brief on the merits, the court indicated its view that his appeal is futile i.e. the District Court was satisfied that the Bankruptcy Judge engaged in no abuse of discretion through his rulings designed to structure Mr. Eresian's participation in the underlying bankruptcy proceeding.
OUTCOME: As a consequence, to the degree they are properly before the District Court, the Motion to File Instanter and the pending Motion to Vacate are both DENIED.

Withdrawal of the reference:

OPERATIONS, LLC, ET AL., 2011 U.S. Dist. LEXIS 86510 (D. Maine 8/5/11).
JUDGE: D. Brock Hornby, District Judge.
PROCEDURAL: In these consolidated matters, the motions to withdraw reference of (1) the adversary proceeding and (2) matters that have not yet been decided by the Bankruptcy Court on the Motion to Enforce Compliance with Utilities Order are granted. The plaintiff/debtor in the bankruptcy proceedings, United Systems Access Telecom, Inc., and the defendants who are collectively called FairPoint by the lawyers, have a dispute about amounts due between them. The debtor is a Competitive Local Exchange Carrier, doing business under the name USA Telephone. It leases network assets from FairPoint, an Incumbent Local Exchange Carrier, also a Regional Bell Operating Company.  In their dispute, the parties disagree over what written agreements are effective between them, and what they provide. Their disputes include, but are not limited to, whether Performance Assurance Plan (PAP) penalties can be used to offset amounts that the plaintiff/debtor otherwise owes the defendants. The plaintiff maintains that their dispute requires consideration of both Title 11 and "other laws of the United States regulating organizations or activities affecting interstate commerce." If that is so, 28 U.S.C. Section 157(d) mandates withdrawal of the reference to the Bankruptcy Court. The federal law in question, the plaintiff says, is the Telecommunications Act of 1996. Alternatively, the plaintiff relies upon the recent Supreme Court decision of  Stern v. Marshal, 131 S.Ct. 2594, 180 L.Ed. 2d 475 (2011), arguing that if the District Court conclude that state law rather than federal law governs these disputes, then the Constitution demands that the disputes be tried in this Article III court. The defendants disagree, arguing that no interpretation  of federal telecommunication law is required to resolve the disputes, and that under Stern, the public rights exception allows the state law issues to be adjudicated in the Bankruptcy Court. OUTCOME:  District Court held that the debtor/plaintiff is correct, telecommunication is subject to extensive FCC regulation under federal statue.  FairPoint’s predecessor, Verizon, applied to the FCC for authority to provide long-distance service in Maine per 47 U.S.C. Section 271.  As part of the Section 271 approval process,  Verizon agreed to be bound by the Maine PAP, and when FairPoint acquired Verizon’s business operations in Maine, it agreed to comply with the existing PAP.  It is true that some authority in this area is delegated to state public utilities commissions, and that parties can enter into consensual agreements, but it is all within the context of overall federal regulation, and the District Court agreed with the plaintiff/debtor that adjudication of the dispute will require "consideration" of federal telecommunications law. Withdrawal, therefore, is mandatory.
The Court need not reach the issue whether Stern would alternatively require withdrawal of the reference, and the Court did not need to decide the contours of the public rights exception.

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