Monday, April 2, 2012

Recent Decisions in the First Circuit Regarding Bankruptcy, February Cases 2012, Part 2 of 3.

Law Firm entitled to fees after conversion from Chapter 11 to 7; no basis for debtor to claim malpractice where conversion was due to the debtor:

In re ROBERT N. LUPO, 2012 Bankr. LEXIS 626 (Bankr D. Mass. 2/22/12)(Joan N. Feeney, Bankruptcy Judge).
PROCEDURAL POSTURE: Applicant, a law firm that had represented a Chapter 11 debtor whose case then was converted to a Chapter 7 case, applied for a final allowance of compensation and reimbursement of expenses. Debtor objected to the application and sought other relief including an order deferring any ruling on the application and orders relating to what debtor characterized as a malpractice claim against the firm.
OVERVIEW: Debtor was represented by a lawyer in filing the Chapter 11, but conflicts resulted in his withdrawal. The U.S. trustee then moved to convert the case to a Chapter 7 or to appoint a trustee. Debtor then hired applicant, who tried to draft a reorganization plan and asked for an extension of time to file a disclosure statement. As creditors became more alarmed by the condition of debtor’s real estate, the court appointed a Chapter 11 trustee but ultimately the court converted the case to a Chapter 7. Debtor’s relationship with applicant apparently ended a month later. When applicant sought fees, debtor claimed that applicant’s failure to file a disclosure statement had resulted in the conversion and that a malpractice claim should be filed. The court granted the application and denied any relief to debtor. After finding that the time spent and hourly rates charged by applicant were reasonable, the court held that debtor’s claim that applicant’s failure to file a disclosure statement caused the conversion to Chapter 7 was nonsensical, that there was no basis for debtor’s proposed malpractice claim, and that it was the trustee’s withdrawal of support that precipitated the conversion.
OUTCOME: The court granted the fee application and overruled debtor's objection thereto. It also denied relief on debtor's other motions.
DISCUSSION: The burden of proof in all fee applications is on the applicant. See In re Scarlet Hotels, LLC, 392 B.R. 698, 703 (B.A.P. 6th Cir. 2008). With respect to the Debtor's objection that the fees incurred were excessive, a review of the Fee Application, including the narrative of services performed and the itemization of the services rendered compiled from L&G's time records, and information on the hourly rates of the various professional persons who rendered services reveals that the time spent and hourly rates charged by L&G were reasonable.

With respect to the Debtor's claims that L&G's failure to file a disclosure statement was the cause of Judge Hillman's decision to convert his case to a case under Chapter 7, the Court unequivocally rejects that assertion. Not only is it nonsensical and illogical, the record reveals that, prior to the September 15, 2010 hearing at which the Court converted the Debtor's case to a case under Chapter 7, the Debtor had lost the support of the Chapter 11 Trustee.   The Court can find no basis for permitting the Debtor to assert a malpractice claim against L&G, particularly as those claims, were they to exist, belong to the Chapter 7 Trustee, not the Debtor. See In re Robotic Vision Sys., Inc., 343 B.R. 393, 398 (Bankr. D.N.H. 2006). The Court has determined that L&G's services were competent under the circumstances. In addition, the element of causation required to support any claim for professional malpractice simply is not present in this case. The Debtor's leap of logic that the failure to a file disclosure statement or to respond to the Court's order to show cause before the deadline had expired constituted malpractice is wholly unpersuasive in view of credible evidence presented. The Court credits Attorney Grossman's testimony that the Debtor refused to accept the advice of L&G. The myriad of problems with the Debtor's Chapter 11 case, including the lack of support for a plan of reorganization by the Chapter 11 Trustee, the Official Committee of Unsecured Creditors, and the major secured creditor, was the proximate cause of Judge Hillman's decision to convert the Debtor's Chapter 11 case to a case under Chapter 7, not the failure to file a disclosure statement for an obsolete plan of reorganization.

Failure to use ECF properly and alleged lack of candor lands attorney in hot water:

IN RE: JACQUELYN D. STALLWORTH, 2012 Bankr. LEXIS 740 (Bankr. D. Mass 2/8/12)(William C. Hillman, Bankruptcy Judge).
MEMORANDUM OF DECISION:  The matter before the Court began with the order to show cause dated October 21, 2011 (the "OSC"), directing Attorney Georgia S. Curtis ("Attorney Curtis"), counsel of record to Jacquelyn D. Stallworth (the "Debtor"), to show cause why sanctions should not be imposed against her in light of her egregious failures to comply with the procedures established by the Court for the use of the Case Management/Electronic Case Filing system ("CM/ECF"). During the course of the proceedings on the OSC, however, it became apparent that Attorney Curtis's CM/ECF difficulties were a symptom of a much larger problem as evidenced by, inter alia, her repeated misrepresentations to this Court. For the reasons set forth below, I have already suspended Attorney Curtis's CM/ECF privileges until such time as she completes additional training in its use and will now refer her to the United States District Court for the District of Massachusetts (the "District Court") for further disciplinary proceedings as may be appropriate.  I take judicial notice of the docket in the present case, as well as those of related cases before this Court. See Rodi v. Southern New England School of Law, 389 F.3d 5, 17-19 (1st Cir. 2004) (citations omitted). 

The following is a cautionary tale of what occurs when the uninitiated attempt to practice before the bankruptcy court without a firm grasp of the Bankruptcy Code and Federal Rules of Bankruptcy Procedure. Even the most well intentioned practitioners can inadvertently wreak havoc on unsuspecting clients by failing to appreciate the complexity of the bankruptcy process. It is also a prime example of how things can escalate when an attorney is less than candid with the Court about his or her mistakes. 

Attorney Curtis is a Registered User of CM/ECF, having previously completed the requisite training. To date, she has filed three bankruptcy cases before this Court, two of which were filed on behalf of the Debtor. On September 29, 2011, Attorney Curtis filed a voluntary Chapter 7 petition on behalf of the Debtor (the "First Case"). The following day, the Court issued an Order to Update directing the Debtor and Attorney Curtis to complete the petition by filing the following documents: (1) the Statement of Social Security Number by October 3, 2011; (2) the Creditor Matrix Upload 10 by October 5, 2011; (3) the Certificate of Credit Counseling by October 14, 2011; and (4) the "Attorney/Debtor Signature Page 3" 11 by October 14, 2011. On October 6, 2011, I dismissed the First Case for failure to upload timely the Creditor Matrix or file the Statement of Social Security Number.  I further note that a cursory review of these schedules reflects that they are incomplete and inconsistent in many respects. The dismissal order did not reference the Certificate of Credit Counseling or the "Attorney/Debtor Signature Page 3" as those documents were not yet due. Nonetheless, they were never filed.

On October 18, 2011, Attorney Curtis attempted to file a motion to vacate the dismissal of the First Case through the Court's electronic mail ("e-mail") system rather than through CM/ECF. On the same date, Clerk's Office personnel informed her via telephone that e-mail filing was not permitted and that all filings must be completed through CM/ECF. 13 On October 20, 2011, Attorney Curtis attempted to electronically file a motion to vacate the dismissal of the First Case. The document filed, however, contained the wrong PDF image and she was ordered to correct the filing within two business days.

Rather than correct the deficient filing, Attorney Curtis filed a second Chapter 7 petition on behalf of the Debtor on October 20, 2011 (the "Second Case"). The petition contained only Debtor's name, which was spelled incorrectly, the last four digits of her social security number, and the county of her residence, omitting her street and mailing addresses, as well as reference to her prior filings. Additionally, the schedules accompanying the Debtor's petition were blank or were otherwise incomplete, which, if taken literally, reflected that she had neither assets nor any creditors. Nevertheless, because the schedules were technically filed, the Clerk's Office did not automatically enter either an order to update or a deficiency order.

On the petition for the Second Case, the Debtor's name was spelled "Jacquellyn D. Stallworth." Though identified in the OSC, this error was ultimately corrected on February 1, 2012.  The default template of the electronic filing software used contains checked box indicating "none" on each schedule. As such, it was not immediately apparent to those performing quality control that the schedules were necessarily incomplete.  As a result of these ineffective filings, on October 21, 2011, the United States Trustee (the "Trustee") filed a request for disgorgement of any fees received by Attorney Curtis (the "Motion to Disgorge"), citing her failure to properly and timely file documents in both of the Debtor's cases and her failure to disclose the amount of fees she received. The Motion to Disgorge also referenced a third unrelated case, in which Attorney Curtis had similar electronic filing difficulties.  The Motion to Disgorge was scheduled for hearing on November 2, 2011.

The history of the Stenstrom case is nearly identical to that of the Debtor's. Attorney Curtis failed to upload the Creditor Matrix or file the Statement of Social Security Number, which resulted in the dismissal of Stenstrom's case. She then made two deficient attempts to file a motion to vacate dismissal before doing so successfully. Concurrent with those efforts, Attorney Curtis attempted to complete the debtor's bankruptcy filing, but as a result of her attempts, the Clerk of the Bankruptcy Court was required to enter sixteen corrective entries on the docket. Ultimately, Attorney Curtis never uploaded the Creditor Matrix and the case remained dismissed.

On the same date, I entered the OSC, directing Attorney Curtis to show cause why I should not impose sanctions against her, including, but not limited to, the suspension of her CM/ECF filing privileges until such time as she completes additional training in its use, in light of her repeated and egregious failures to comply with the procedures established by the Court in the Stenstrom and Stallworth cases. The OSC required Attorney Curtis to respond in writing by October 27, 2011 and stated that a hearing would be held with respect to the OSC on November 2, 2011, the same date as the Motion to Disgorge. Nevertheless, due to administrative error, the OSC was not scheduled for hearing and no notice of hearing was issued. Moreover, Attorney Curtis failed to respond to the OSC.

I am aware that the United States Court of Appeals for the First Circuit has previously held that a bankruptcy judge has only non-core jurisdiction over disciplinary proceedings that are omnibus in nature, do not arise in the context of an open bankruptcy case, are predicated upon ethical rule violations proscribed by state law, and have only a remote or overly speculative effect upon closed bankruptcy cases. Sheridan v. Michels (In re Sheridan), 362 F.3d 96, 111-112 (1st Cir. 2004). As will be explained further below, the OSC should not be misinterpreted as attorney discipline, omnibus or otherwise. The OSC did not question whether Attorney Curtis should be practicing before this Court, as that is a matter for the District Court, but simply whether her electronic filing privileges should be suspended until such time as she completed additional training. Pursuant to 11 U.S.C. § 105(a), I have the authority to issue any order necessary to enforce the rules of this Court. The purely disciplinary issues warranting referral to the District Court arose later and solely in the present case.

On November 2, 2011, Attorney Curtis appeared with Attorney Anthony Alessi ("Attorney Alessi") as her counsel. Attorney Alessi represented that Attorney Curtis had not received any fees on account of either of the Debtor's cases and, as such, there was nothing to disgorge. Citing Attorney Curtis's lack of experience with bankruptcy, Attorney Alessi stated that he would "get involved . . . to file the proper paperwork." In so stating, he recognized that there might be "[§] 362 issues" regarding the continuation of the automatic stay as a result of the Debtor's multiple filings. Based upon Attorney Alessi's representation that Attorney Curtis received no fees on account of the Debtor's case, I concluded that there was nothing to disgorge and denied the Motion to Disgorge.

In light of the administrative error regarding the scheduling of the OSC, it was not addressed on the November 2, 2011. The following day, the error was discovered and the OSC was reset for hearing on November 16, 2011. Recognizing that Attorney Curtis failed respond the first time, I entered a new response deadline of November 9, 2011. Again, Attorney Curtis failed to respond as directed.

Attorney Curtis appeared on November 16, 2011, at which time I informed her that she was now in violation of two court orders for failing to respond to the OSC. While the Trustee agreed that a suspension of her electronic filing privileges was appropriate, the Trustee expressed concern that, in light of the Debtor's blank schedules, the Chapter 7 trustee would not be able to conduct the meeting of creditors on December 7, 2011 as scheduled. As such, the Trustee requested that Attorney Curtis be directed to re-file accurate schedules on behalf of the Debtor.

I then asked Attorney Curtis if she was prepared to do so, to which she replied "I already did, Your Honor." The Trustee responded that, as of the morning of the hearing, accurate schedules had not been filed, leading to the following colloquy:
THE COURT: You don't seem to have high regard for —

MS. CURTIS: Yes, Your Honor, I do.

THE COURT: — your representations to the Court.

MS. CURTIS: No. Actually, Your Honor, I did file them and I filed them about a month ago and I filed all the documents. There were 29 documents.

And the problem, actually, was with — everything was done in PDF form and the problem was the matrix and I refiled that in Word document form and that was unacceptable to the Court. And that's what started this whole thing. And it's not like I do a lot of things. And I don't have a problem with retaking the ECF filing class.

And this is the same case, actually, with Jacquellyn Stallworth [sic], the very same case, and all those documents were filed at that juncture back —


MS. CURTIS: — at the end of, on or about October 27th. 29
In light of the Trustee's and Attorney Curtis's conflicting accounts as to whether all the proper documents were filed, I continued the matter one week to November 23, 2011.

Prior to the hearing held on November 23, 2011, I reviewed the docket of the Debtor's case and confirmed that the only schedules filed were blank, as previously noted by the OSC and the Trustee. Nevertheless, at the November 23, 2011 hearing, Attorney Curtis represented that everything had been filed the night before:
MS. CURTIS: Yes, good morning, Your Honor. I'm Attorney Georgia Curtis, as you know, and we're back here today. I have just spoken with the Trustee, who's in for Jennifer Hertz, and Attorney Alessi is going to be taking over this case. I was in his office last night and he refiled all the documents that I had done previously on or about September 29th. And as you know, we —

THE COURT: They don't show on the docket. In which case did he file documents? You filed two cases for Ms. Stallworth.
MS. CURTIS: Yeah, they're the same, actually. Unfortunately, they're the same person, the same —
THE COURT: I know they're the same person, but they're not the same case.
MS. CURTIS: Right. The one — it was 11-11919?

MS. CURTIS: The one for today. He — that's the one that he filed them in and he was just waiting for signatures. 30
This story, however, changed once I expressed confusion over Attorney Alessi filing the documents without the Debtor's signature:
THE COURT: I'm sorry. He filed it, but he hasn't got signatures?

MS. CURTIS: Right. He — we're going to meet in my office — let me explain.
We're going to meet in my office at 1300 Belmont Street at Eskenas & Kaplan where I work — I'm Of Counsel to — on, at 7:30 on Monday morning and he's going to be filing his appearance in this case. And

THE COURT: So he hasn't done anything yet?


THE COURT: I, I looked at the docket at 7:30 this morning —

MS. CURTIS: Yes, sir.

THE COURT: — and there was nothing on there.


THE COURT: So he hasn't filed the papers?

MS. CURTIS: He hasn't filed because, the reason is we were in his office and the reason is is because he has EZ- Filing and so do I and the, the copyright of the software doesn't allow filing.

Because this "explanation" contradicted her initial representation that the schedules had been filed the night before by suggesting that they would not be filed for several more days, I asked her directly:
THE COURT: So nothing has been done.

MS. CURTIS: Correct.

THE COURT: The papers have not been filed.

MS. CURTIS: Correct.

Attorney Curtis further represented that Attorney Alessi was waiting for the Debtor to sign a retainer agreement.

At this point, I noted that in addition to her failure to file the Debtor's schedules, Attorney Curtis failed to move to extend the automatic stay pursuant to 11 U.S.C. § 362(c)(3) 33 and that it had terminated with respect to the Debtor on November 21, 2011, to which she had no response, even though Attorney Alessi had recognized this issue at the November 2, 2011 hearing. In light of her representation that neither she nor Attorney Alessi had secured the Debtor's signature, I asked:
THE COURT: Does she know you filed two cases?

MS. CURTIS: Does she know that I filed two cases? Well, I paid for the second one, myself. So that —

THE COURT: I didn't ask you that. Does she know —


THE COURT: — that you filed —

MS. CURTIS: She thinks it's one case, honestly.

When I pointed out to Attorney Curtis that she had now offered three conflicting accounts regarding whether the Debtor's schedules had been filed, she maintained that she had not misrepresented facts to me at any hearing and returned to her earlier position that the schedules were, in fact, filed:

THE COURT: Just so I'm absolutely clear. Last week, you told me the papers have been filed. Today, you tell me they haven't been filed yet. You're going to meet with the client next Monday and then the papers will get filed.

So when you told me they were filed last week, you —

MS. CURTIS: They were.

THE COURT: — were lying to me.

MS. CURTIS: No, I was not. They were, they were filed.

THE COURT: Well, they're not filed yet.

MS. CURTIS: Properly filed —

THE COURT: They've not been filed —

MS. CURTIS: — the matrix, I know.

THE COURT: — yet.

As of 7:30 this morning, which is when I looked, nothing had been filed.


THE COURT: They have not been filed. You misrepresented it to me. That's a very serious thing to do.
In response Attorney Curtis provided the following explanation:
MS. CURTIS: It was a problem originally with the matrix and going from PDF form over to Word, Microsoft Word. All the documents, I had entered them myself and that was really what the initial problem was. But all the documents were, I typed those in, actually, myself, personally. I scanned in all the signatures and did all the work.

So yesterday, it only — his secretary was sick. She had mono. So that's the reason why it wasn't done for today, honestly. And I can tell you that in good conscience.

And in addition to that, that — that's, really, initially, what started the problem, but the documents are done and whether or not the EZ-Filing and it didn't go in electronically the way that the Court wanted was probably, I will take . . . responsibility for that.

Because the Debtor's schedules still had not been filed, I continued the OSC another two weeks to December 7, 2011. Despite Attorney Curtis's protestations of innocence, I reiterated my belief that she had misrepresented facts to me and indicated that I would address the matter at the continued hearing. In so doing, I expressly stated that I was considering referring her to either the District Court or the Massachusetts Board of Bar Overseers.

On November 28, 2011, Attorney Curtis finally filed amended schedules on the Debtor's behalf. At the continued hearing held on December 7, 2011, the Trustee repeated his support of the proposed suspension of Attorney Curtis electronic filing privileges. Attorney Curtis did not address the suspension of her electronic filing privileges, which I note she previously indicated a lack of objection to at the November 16, 2011 hearing, but stated the following with respect to my intention to refer her to the District Court for further disciplinary proceedings:

MS. CURTIS: Yes, Your Honor.

Actually, Jacquellyn [sic] Stallworth knew about the second filing, just to let you know.  I probably misspoke last time and I paid that filing fee from my own client fund, from my own, actually, operating account.

And today we have the 341 meeting in Brockton.

And that's it. And again, I will state for the record that I did not misrepresent to the Court my filing of documents. I did do those were amended [sic], as you know, on or about December 2nd.
At the conclusion of the hearing, I entered an order immediately suspending Attorney Curtis's electronic filing privileges until such time as she completes additional training regarding the use of CM/ECF. I further indicated that I would forward a memorandum regarding the events that had transpired at the several hearings on the OSC to the District Court for further disciplinary proceedings.

Although the order suspending Attorney Curtis's electronic filing privileges entered on December 7, 2011, a few words are necessary to explain the nature of this sanction. Pursuant to MEFR 2(g), the Court may suspend a Registered User from using CM/ECF if the user "repeated and/or  [*21] egregiously failed to comply with the procedures established by the Court . . . ." This rule is consistent with the First Circuit's prior recognition that the bankruptcy court has civil contempt powers pursuant to its inherent powers as a court and under the limited equity powers bestowed by 11 U.S.C. § 105(a).

Pursuant to Local Rule 83.6(4)(B) of the United States District Court for the District of Massachusetts, a violation of "the ethical requirements and rules concerning the practice of law of the Commonwealth of Massachusetts, shall constitute misconduct and shall be grounds for discipline. . . ." The District Court's local rules further provide that "a judge of the bankruptcy court for the District of Massachusetts is authorized as a judicial officer to make referrals for disciplinary proceedings . . . ." Indeed, this Court's own local rules echo that authorization by providing that
[i]n any matter in which a bankruptcy judge has reasonable cause to believe that an attorney has committed a violation of any canon or ethical rule, the bankruptcy judge may refer the attorney for disciplinary proceedings to the District Court pursuant to District Court Local Rule 83.6 and to any state disciplinary authority.
Under the present circumstances, I have reasonable cause to believe that Attorney Curtis has violated at least one of the Massachusetts Rules of Professional Conduct, if not  several, warranting referral to the District Court for further disciplinary proceedings.

As a final note, I recognize that referral to the District Court is not an action to be taken lightly. Unfortunately, the facts of this case warrant it. Attorney Curtis continued to dissemble even after her misrepresentations were discovered. As aptly explained by the bankruptcy court in In re Kouterick:
Those who have no problem lying to a court do not belong in the practice of law. If an attorney can lie to a court with such ease, such an individual would not have any difficulty in lying to adversaries or clients either.

Of course, the determination of whether an attorney may practice before this Court is one left to those bodies with such jurisdiction and I do not suggest otherwise.

Bankruptcy Court reluctantly denies Motion for Relief, leaving recourse to the BAP:

(IN RE: ABEL BELICE) GONSALVES v. BELICE, 2012 Bankr. LEXIS 442 (Bankr. D. Mass. 2/12/12)(William C. Hillman Bankruptcy Judge).

The matter before the Court is the "Motion for Relief From Judgment"filed by the plaintiff Gonsalves through which he seeks relief from the Court’s order granting the "Motion to Dismiss Under Rule 12b(6) [sic] Failure to State a Claim Under Which Relief Can Be Granted" filed by the debtor-defendant Belice.  Gonsalves took a timely appeal of the Order to the United States Bankruptcy Appellate Panel for the First Circuit (the "Panel"), which remains pending, but he secured a stay of that proceeding in order to seek relief here under Fed. R. Civ. P. 60(a) and (b)(1). While the filing of a notice of appeal normally divests me of jurisdiction to proceed further with matters involved in the appeal, the United States Court of Appeals for the First Circuit has articulated a narrow exception which requires me to review motions filed under Fed. R. Civ. P. 60(b) "and quickly deny those which appear to be without merit" or "issue a brief memorandum . . . indicating" if I am "inclined to grant the motion . . . ." Similarly, a "mistake" under Fed. R. Civ. P. 60(a) may only be corrected with the appellate court's leave.  In support of the Motion for Relief From Judgment, Gonsalves asserts that I was unaware that he filed an opposition to the Motion to Dismiss and failed to consider it prior to granting the Motion to Dismiss. Although it appears from the transcript that he is correct, I find that this error was harmless because he did not address the Motion to Dismiss in his opposition, but rather challenged the Panel's affirmance of my dismissal of his revocation of discharge claim. 

Nevertheless, on further review, I find that granting the Motion to Dismiss was error because the date Gonsalves alleged that he first received notice of Belice's bankruptcy preceded expiration of the deadline to file proofs of claim. Unfortunately, I am unable to grant Gonsalves any relief. Only a "clerical mistake or a mistake arising from oversight or omission" may be corrected by this Court under Fed. R. Civ. P. 60(a), not a legal one. Moreover, the First Circuit has held that Fed. R. Civ. P. 60(b)(1), which provides for relief from "mistake, inadvertence, surprise, or excusable neglect," does not apply to an error of law because it would undermine the stricter requirements set forth in Fed. R. Civ. P. 59(e). Gonsalves is not without recourse, however, as he took a timely appeal of the Order and the Panel is capable of affording him the relief he seeks, namely, the reversal of the Order.
OUTCOME:  In light of the foregoing, the Court must enter an order denying the Motion for Relief From Judgment and leave the Panel to redress the error committed in entering the Order.

Debtor's discharge challenge was denied as he intended to repay the debt, even though he did not:

(In re STINSON)USALLIANCE FEDERAL CREDIT UNION v. STINSON, 2012 Bankr. LEXIS 587 (Bankr. D. Mass. 2/2/12)(Not for Publication)(Frank J. Bailey, Bankruptcy Judge).
PROCEDURAL POSTURE: Plaintiff creditor sought a determination that the balance due on a loan it made to defendant Chapter 7 debtors was excepted from discharge as a debt for fraudulent misrepresentations under 11 U.S.C.S. § 523(a)(2)(A) and (B) and larceny under 11 U.S.C.S. § 523(a)(4).
OVERVIEW: The complaint arose out of a refinancing transaction whereby the creditor advanced funds to the debtors, mostly to refinance debt already incurred in constructing a new home. The court concluded that the debtors’ promise to pay and close certain accounts was made with the intent to honor it. The creditor did not, in making the loan rely on the debtors’ promise to close the accounts. Thus, the debt was not excepted from discharge under § 523(a)(2)(A). Allegations of fraud based on representations as to an occupancy permit were alleged by the creditor at trial without giving the debtors the required heightened pleading notice. That the fact that an estimate as to future events was not accurate did not make it a false representation. The complaint also implied that the debtors used the funds for purposes other than construction but did not put a particular allegation of fraud into the controversy or plead a basis for nondischargeability under § 523(a)(2)(A). The creditor did not show larceny § 523(a)(4) because it voluntarily advanced the loan proceeds to the debtors.
OUTCOME: The creditor failed to establish a basis for excepting any part of its debt from discharge

Reconsideration motion denied as a request for additional briefing does not constitute "new law":

ORDER ON TRUSTEE'S MOTION FOR RECONSIDERATION:  The trustee seeks reconsideration of my order of January 9, 2012 granting the defendants' motion to dismiss on the grounds that there has been a change in the law based upon the Supreme Judicial Court's solicitation of briefs in Eaton v. Fed. Nat. Mort. Ass'n, slip op. C.A. 11-1382, 2011 Mass. Super. LEXIS 211 (Mass. Superior Ct. June 17, 2011), appeal pending at SJC. The defendants oppose. The SJC's order of January 6, 2012 soliciting additional briefs in Eaton does not constitute a change in the law. Consequently the motion for reconsideration is denied.

Secured Creditor may waive its rights by failing to object to Ch. 13 plan, but a substantial change in debtor's financial circumstances and an amended plan may dictate otherwise:

In re HOPE KIRUNGE SMITH, 2012 Bankr. LEXIS 468 (Bankr. D. Mass. 2/6/12)
PROCEDURAL POSTURE: A creditor of Chapter 13 debtor filed an objection to the debtor's post-confirmation fourth amended Chapter 13 plan.
OVERVIEW: The creditor filed a proof of a secured claim arising from a purchase-money promissory note secured by a vehicle. The claim was a 910-day car claim within the meaning of the "hanging paragraph" of 11 U.S.C.S. § 1325(a)(5). The debtor filed a second plan in which she proposed to pay the creditor through her 60-month plan. The court confirmed the plan. The debtor filed a post-confirmation third amended plan through which she proposed to surrender the vehicle. The creditor did not object and instead obtained stay relief in order to repossess the vehicle. The court confirmed the third plan. The debtor filed a fourth amended plan due to the receipt of significant settlement proceeds. The court held that the creditor did not waive its right to object to the fourth plan. The court could not conclude that the creditor intentionally and voluntarily relinquished the right to assert a deficiency claim. When the third plan was proposed, there appeared to be no likelihood that it would receive a distribution on any deficiency claim which it might file. In addition, prior to confirmation of the third plan, it sought and obtained relief from the automatic stay without opposition from the debtor.
OUTCOME: The court sustained the creditor's objection and ordered the creditor to file an amended proof of claim. The court further ordered the debtor to file an amended Chapter 13 plan.

The issue to be determined is whether a secured creditor with a so-called "910-day car claim" is entitled to a unsecured claim after a surrender and sale of the vehicle which results in the a debtor's inability fully satisfy the loan. A subsidiary issue is whether GMAC is barred from objecting to the Debtor's Post-Confirmation Fourth Amended Plan because that plan's provisions regarding the treatment of GMAC's claim are identical to the treatment afforded GMAC in the Debtor's confirmed, Post-Confirmation Third Amended Plan. The material facts necessary to decide the issue are not in dispute, and neither the Debtor nor GMAC requested an evidentiary hearing.

On or about August 28, 2008, GMAC filed a proof of secured claim in the amount of $35,463.43 arising from a purchase-money promissory note secured by the vehicle.  GMAC has never amended its proof of claim to assert an unsecured deficiency claim.   On December 15, 2009, the Debtor filed a Post-Confirmation Third Amended Chapter 13 Plan through which she proposed to surrender the vehicle. Pursuant to that plan, she indicated that there would be no dividend to unsecured creditors. Specifically, in Part VI.B.1 of the plan, she provided the following treatment with respect to GMAC's claim: "The 2004 Cadillac Escalade shall be surrendered to lien holder GMAC in full satisfaction of GMAC's claim." In addition, in Part VI.C, she also provided: "2004 Cadillac Escalade to be surrendered in full satisfaction of GMAC's Claim." Additionally, in Part  [*6] V.A of her plan, the Debtor set forth the three unsecured claims that survived objections to claims, namely claim numbered 5, 11, and 16, totaling $17,793.21. GMAC was not listed as a holder of an allowed unsecured claim because, according to the Debtor, her Chapter 13 plan provided for full satisfaction of GMAC's claim through surrender of the collateral. 2

GMAC received ample notice of the proposed Post-Confirmation Third Amended Plan, as it was represented by counsel from the earliest stages of proceedings who was served electronically with all pleadings requiring such service, including the 2009 Amended Plan. In addition, the 2009 Amended Plan was also served upon GMAC via first class mail at five different addresses. GMAC did not object to confirmation of this plan within the applicable 30 day objection period, or at any time thereafter.

On January 5, 2010, GMAC moved for relief from the automatic stay. The Court granted its Motion, in the absence of any objections, on January 21, 2010.

In July of 2010, the Debtor moved to employ special counsel under a contingency fee agreement in connection with claims for wrongful termination and overtime wages against an employer. The Debtor was successful with respect to her claims. On November 16, 2010, the Debtor filed a Motion to Approve the Settlement Agreement in which she represented that the proceeds "would allow a 100% payment of all allowed claims, including a 100% dividend on the allowed claims of the general unsecured creditors, over the remaining term of the Plan." On December 17, 2010, The Court approved a settlement agreement.
On June 22, 2011, the Debtor filed her Post-Confirmation Fourth Amended Chapter 13 Plan in which she proposed to treat GMAC's claim in the same manner as under her Post-Confirmation Third Amended Chapter 13 Plan. GMAC filed an Objection to confirmation, which is now before the Court.

In her Memorandum in Support of her Opposition to GMAC's Objection to confirmation of her Post-Confirmation Fourth Amended Plan, the Debtor recognized that "[o]n April 13, 2010, a separate Chapter 13 proceeding by the co-owner of the Cadillac stayed GMAC's ability to take possession of the vehicle." As noted above, as of October 20, 2011, GMAC had still not obtained possession of the vehicle.
The Court takes judicial notice that the co-owner of the vehicle, Avery Goldman, filed a Chapter 13 petition on April 13, 2010 (Case No. 10-13923-JNF). On June 12, 2012 he withdraw his response to GMAC's objection to his Chapter 13 Plan in which he indicated that he would surrender the vehicle, which is titled in the Debtor's name. On the same day, he filed a First Amended Chapter 13 Plan, which provides:  Collateral vehicle will be surrendered pursuant to 11 USC 1325(a)(5)(C), in full satisfaction of the creditor's secured claim. Creditor shall have the right to file an amended Proof of Claim reflecting any unsecured deficiency balance owed.  The co-debtor proposes to pay unsecured creditors a zero percent dividend. GMAC obtained relief from the automatic stay in the co-debtor's case on July 5, 2011. Although in its proof of claim filed in the co-debtor's case, it asserted a secured claim in the sum of $21,425 and an unsecured claim in the sum of $14,398.76.

Prior to the deadline for submission of briefs, the Debtor, on December 15, 2011, filed an Expedited Motion for Ruling on Objection to Confirmation on Other Grounds. She asserted that GMAC either waived or is bound by the res judicata effect of the Court's May 19, 2010 order confirming her Post-Confirmation Third Amended Chapter 13 Plan. The Court denied the Debtor's Motion on grounds asserted by GMAC, namely that the Expedited Motion was a futile and a last ditch attempt to avoid briefing the issue of its entitlement to a deficiency with respect to its 910-day car claim. Although the Debtor did not appeal the denial of her Expedited Motion, she raises the issue again her brief.

The first issue before the Court is whether the so-called "hanging paragraph" of 11 U.S.C. § 1325(a)(5) deprives GMAC of an unsecured claim upon surrender of the vehicle subject to a 910-day car claim. Seven circuit courts of appeals have answered the question in the negative. No courts of appeals have answered the question in the affirmative.  In view of the weight of circuit court authority, this Court predicts that the United States Court of Appeals for the First Circuit would adopt some or all the rationales employed by its sister courts, and reject decisions from bankruptcy courts in other circuits refusing to permit the holders of 910-day vehicle claims to assert unsecured deficiency claims. Accordingly, the Court concludes that GAMC is entitled to assert its state law right to a deficiency claim pursuant to its retail installment sale contract (¶ 4.f.) and Mass. Gen. Laws ch. 106, § 9-615.

Did GMAC Waive Its Claim or Is It Barred from Objecting to the Plan? The United States Bankruptcy Appellate Panel for the First Circuit in In re Flynn, 402 B.R. 437 (B.A.P. 2009), considered the significance of a creditor's failure to object to confirmation of a Chapter 13 plan. It observed:
[T]he courts that have considered the question have overwhelmingly concluded that a secured creditor's lack of objection may constitute acceptance of the plan for purposes of § 1325(a)(5)(A).
The panel added: "We adopt the Third Circuit's view that acceptance may occur upon a secured creditor's failure to file a timely objection to a chapter 13 plan.” Id. at 444.

In other words, under the totality of the circumstances that existed in December of 2009 when the Debtor filed her Third Amended Post-Confirmation Chapter 13 Plan and the date of confirmation of that plan on May 19, 2010, this Court cannot conclude that GMAC intentionally and voluntarily relinquished the right to assert a deficiency claim. At that time, there appeared to be no likelihood that it would receive a distribution on any deficiency claim which it might file. In addition, prior to confirmation of the Debtor's Post-Confirmation Third Amended Chapter 13 Plan, it sought and obtained relief from the automatic stay without opposition from the Debtor. Finally, although the Debtor indicated an intention to surrender the vehicle and obtained confirmation of a plan predicated upon that provision, at the time of the October 20, 2011 hearing, GMAC still had not obtained possession of the vehicle. Accordingly, the Court reiterates its decision permitting GMAC to prosecute its Objection to the Debtor's Post-Confirmation Fourth Amended Chapter 13 Plan. Accordingly, the Court rejects the Debtor's assertion that GMAC waived its right to object to the present plan.
The Debtor's financial circumstances changed dramatically between the order confirming the Post-Confirmation Third Amended Chapter 13 plan on May 19, 2010 and June 22, 2011 when the Debtor filed the plan which is now before the Court. That change in circumstance resulting from her receipt of significant settlement proceeds required her to propose a plan providing for the payment of all allowed unsecured claims in order to comply with 11 U.S.C. § 1325(a)(4). See 11 U.S.C. § 1329(b)(1). Because of the Debtor's changed circumstances, as well as because of the overwhelming weight of authority permitting a creditor with a 910-day car claim to assert a deficiency claim, the Court shall permit GMAC to amend its proof of claim under 11 U.S.C. § 502(j).
In view of the foregoing, the Court sustains GMAC's Objection to the Debtor's proposed Fourth Amended Post-Confirmation Chapter 13 Plan. The Court orders GMAC to file an amended proof of claim within 30 days of the date of the sale of the vehicle. The Court further orders the Debtor to file an amended Chapter 13 plan within 30 days of the date of the filing of the amended proof of claim by GMAC, failing which the Court shall dismiss the Debtor's Chapter 13 case.

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