What Every Homeowner in Foreclosure Need to Know About Bankruptcy Appeals

27 Wednesday Dec 2017

Posted by BNG in Bankruptcy, Federal Court, Foreclosure Defense, Legal Research, Litigation Strategies

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Appeal, Bankruptcy, bankruptcy appeal, bankruptcy court, Loan, mortgage, Mortgage loan, Pro se legal representation in the United States

Every appeal requires an appellate advocate to understand and follow a series of rules. When an appeal is from a decision by a federal bankruptcy court, there is yet another layer of rules and complexity to consider. This article briefly identifies a dozen important points
about bankruptcy appeals.

1. The Time for Filing a Notice of Appeal in a Bankruptcy Appeal Is Generally Shorter Than in Other Appeals.
Under 28 U.S.C. § 158(c)(2) and Federal Rule of Bankruptcy Procedure (“Bankruptcy Rule”) 8002(a), a party seeking to appeal a decision by a bankruptcy court has 10 days to file its appeal.1 This is 20 days less than the 30 days a party generally is given under the Federal Rules of Appellate Procedure (“F.R.A.P.”) to appeal from district court to a federal appellate court.2 As with F.R.A.P. 4(a)(5), the Bankruptcy Rules permit some leeway if an appellant misses its deadline. Under the Bankruptcy Rules, a bankruptcy court may allow an appellant who fails to timely file up to 20 additional days to file where that appellant can demonstrate “excusable neglect.”3 After 30 days, however, a bankruptcy appellant loses its right to appeal even if there is excusable neglect.4 Factors to be considered in determining whether there is excusable neglect include the danger of prejudice to the appellee; the length of delay and its impact on the judicial proceeding; the reason for the delay; whether the delay was in the movant’s control; and the movant’s good faith.5

2. An Appellant May Waive an Issue Not Raised at the Outset of its Bankruptcy Appeal.
Under Bankruptcy Rule 8006, within 10 days of filing its Notice of
Appeal, an appellant must file and serve a designation of the items to be
included in the record on appeal and a statement of issues to be presented
on appeal. If an appellant fails to include an issue in this Statement, the
issue is waived even if this had been raised and/or decided by the bankruptcy
court.6

3. Those Who Ignore Deadlines and Procedural Rules May Forfeit Their Appeal.
Bankruptcy Rule 8001(a) authorizes dismissal of a bankruptcy appeal when a party fails to take any required step other than filing its Notice of Appeal. Courts adjudicating bankruptcy appeals may dismiss appeals when a party fails to take a necessary step, such as filing its record designations, statement of issues or its brief.7
While the Bankruptcy Rules permit dismissal, however, certain circuits require the appellate court to weigh a series of factors before it dismisses a case in its entirety. For example, the Third Circuit requires the balancing of six factors before a case is dismissed. These are:
• The extent of the party’s personal responsibility;
• The prejudice to the adversary caused by the failure to meet scheduling
orders;
• A history of dilatoriness;
• Whether the conduct of the party or the attorney was willful or in bad
faith;
• The effectiveness of sanctions other than dismissal, which entails an
analysis of alternative sanctions;
• The meritoriousness of the claim or defense.8

4. In Five Circuits, Bankruptcy Appeals May Be Heard in the First Instance by Two Different Types of Courts.
Under 28 U.S.C. § 158(c)(1), an appellant in an appeal from bankruptcy court may choose in the first instance to appeal either to a district court acting as an appellate court or, if the relevant circuit provides for one, to a Bankruptcy Appellate Panel (“BAP”). Even if the appellant chooses a BAP, however, any other party to the appeal may, no later than 30 days after service of the notice of appeal, ask to have the appeal heard by the relevant district court. The First, Sixth, Eighth, Ninth and Tenth Circuits each have a BAP. If an appeal is to a BAP, then the Bankruptcy judge’s decision will be reviewed by fellow sitting bankruptcy judges.

Usually a BAP consists of three sitting bankruptcy judges in the circuit who are assembled for a particular day of argument. By their very nature, BAPs will consist of judges who have special expertise regarding bankruptcy issues, while district courts may not. The BAP may sit in different places in the circuit. For example, the Eighth Circuit BAP conducts hearing in Omaha, St. Louis, Kansas City, and other locations where its bankruptcy courts sit.

5. BAP Rules Vary by Circuit.
Just like the individual federal circuit courts of appeal, the various BAPs each have their own rules. These vary between each circuit. Any party in a BAP appeal, therefore should know the specifics and particularities of the specific BAP’s rules and should follow these.
Among these specialized rules, for example, are that, in the Eighth Circuit BAP, parties are limited to opening briefs of 6500 words.9 The Ninth Circuit BAP Rules provide that only those portions of transcripts included in the excerpts of the record will be considered in an appeal and that these must include excerpts necessary for the BAP to apply the required standard of review to a matter.10 The First Circuit BAPRules generally limit argument to 15 minutes per side.11 The Tenth Circuit BAP requires that a brief include a statement of related cases—i.e., one that includes the same litigants and substantially the same fact pattern or legal issues – that are
pending in any other federal court.12 The Sixth Circuit BAP Rules provide
for a possible pre-argument conference and mediation.13

6. The Bankruptcy Rules Generally Govern Appeals to the District Court.
As noted in the prior section, BAPs have elaborate rules that govern all aspects of appeals before them. By the terms of the Bankruptcy Rules, these specific rules can supersede conflicting terms in the Bankruptcy Rules. However, when an appeal is to the district court, the Bankruptcy Rules generally apply in the absence of a local rule or district court rule specifically addressing bankruptcy appeals, which are much less common.

While not as comprehensive as the F.R.A.P., the Bankruptcy Rules have 20 provisions governing all aspects of appeals.14 These rules addresses appellate issues, including, among others, the filing and service of appellate papers;15 the filing and service of briefs and appendices;16 the form of briefs and their length;17 motions;18 oral argument;19 disposition of the appeal;20 costs;21 and rehearing,22 among others. (These rules also provide for the accelerated filing of district court appeals, as an appellant is to serve and file its brief within 15 days after entry of the appeal on the docket; the appellant is to serve its brief within 15 days after service of the appellant’s brief and the appellant is to serve its reply within 10 days after service of the appellee’s brief.)23 In the absence of rules to the contrary, opening briefs may be up to 50 pages and reply briefs up to 25 pages.
Under Bankruptcy Rule 8012, oral argument is to be generally allowed in all cases. In practice, however, oral argument is much less common before district courts. When an appeal is before district court, there is some question about whether its decision has precedential effect.24

7. Bankruptcy Appeals Often Include an Extra Tier of Review.
Generally, before an appeal reaches a federal circuit court of appeals, it is adjudicated by either a BAP or a district court. The findings of these first tier courts are not binding on the circuit court of appeals and, the appellate court owes no deference to the decisions by the BAP or district court.
Review by the circuit court of appeals is plenary.25 Nonetheless, some circuit courts have noted that the first tier of appeal acts as a helpful filter.26
An appellate court may reach issues brought up before but not decided by the district court or BAP.27

8. Direct Appeal to the Circuit Court of Appeals Is Allowed in Limited Instances.
Pursuant to Section 1233 of the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”), a circuit court of appeals has discretion to permit a direct appeal frombankruptcy court where there is uncertainty in the bankruptcy court, either due to the absence of a controlling legal decision or a conflicting decision on the issue and the issue is of great importance, or where the court finds it is patently obvious that the bankruptcy court’s decision either was correct or incorrect, such that the first tier of review in the district court or BAP is less efficient and helpful.28

9. At Each Tier of the Appeal, The Bankruptcy Court Is Given the Same Level of Deference and Same Form of Scrutiny.
Courts in bankruptcy appeals review issues of law de novo and findings of fact for clear error.29 Courts of appeal apply the same standard of review as do BAPs and district courts.30 Courts of appeal generally review issues of procedure under an abuse of discretion standard. These include motions to compromise or to lift a stay, for example.31

10. This Is a Greater Threat of Mootness in Bankruptcy Appeals Than in Other Federal Appeals.
A bankruptcy appeal may become constitutionally moot where events may occur that make it impossible for the appellate court to fashion effective relief.32 Thus, for example, if, while an appeal is pending, a plan is confirmed pursuant to which all assets are distributed, all creditors with allowed claims are paid in full, and the bankruptcy case is closed such that the debtor no longer exists, an appeal against that debtor is moot because there is no meaningful relief that may be granted.33 An appeal may also be considered “equitably moot” where a change in circumstances makes it inequitable for a court to consider the merits of an appeal.34
However, if there remains any possibility that an appeal may result in a tangible benefit to the appellant, it is not moot.35

11. Only Those Persons Aggrieved Have Standing to Bring a Bankruptcy Appeal.
Only those whose rights or interests are directly and adversely affected pecuniarily by an order of the bankruptcy court have standing to bring an appeal.36

12. Appellate Courts Take a Broader Notion of “Finality” in Bankruptcy Appeals Than in Other Appeals.
Because of the length of many bankruptcy proceedings and the waste of time and resources that may result if the court denied immediate appeals, federal courts of appeal apply a broader concept of “finality” when considering bankruptcy appeals under 28 U.S.C. § 1291 than in considering non-bankruptcy appeals.37 Courts apply a number of factors in determining whether to assert appellate jurisdiction. These include:
1) the impact on the assets of the bankruptcy estate;
2) the necessity for further fact-finding on remand;
3) the preclusive effect of the court’s decision on the merits in further litigation,
and
4) the interest of judicial economy.38
Each of these issues, of course, could justify an article in itself. I hope
these provide some helpful thoughts and issues to consider when participating
in a bankruptcy appeal.
NOTE
1 Certain types of motions toll this time for filing until the last such motion
is disposed of. See Bankruptcy Rule 8002(b).
2 See F.R.A.P.4(a).
3 Bankruptcy Rule 8002(c)(2); Bankruptcy Rule 9006(b). Of course where
an appeal is from a district court to a federal circuit court on a bankruptcy
issue, F.R.A.P. 4’s 30-day rule applies.
4 See Shareholders v. Sound Radio, Inc., 109 F.3d 873, 879 (3d Cir. 1997).
The law is unsettled as to whether bankruptcy appellate deadlines are “jurisdictional,”
such that objections to untimeliness may be waived if not promptly
made. See In re Fryer, 2007 WL 1667198 (3d Cir. June 11, 2007) (citing
Kontrick v. Ryan 540 U.S. 443 (2004), and Eberhart v United States, 546 U.S.
12 (2005)).
5 See Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P’Ship, 507 U.S. 380,
395 (1993).
6 See In re GGM, P.C., 165 F.3d 1026, 1032 (5th Cir. 1999). Of course, one
may not first raise new issues on appeal that were not presented before the
bankruptcy court. See In re Ginther Trusts, 238 F.3d 686, 689 & n.3. (5th Cir.
2001).
7 See, e.g., In re Lynch, 430 F.3d 600 (Cir. 2005); In re Braniff Airways, Inc.,
774 F.2d 1303, 1305 n.6 (5th Cir. 1985).
8 Poulis v. State Farm Fire & Cas. Co., 747 F.2d 863, 868 (3d. Cir. 1984).
See also In re Harris, 464 F.3d 263 (2d Cir. 2006) (failure to include required
transcript of oral argument did not warrant dismissal of appeal where lesser
sanctions were available); In re Beverly Mfg. Corp., 778 F.2d 666, 667 (11th
Cir. 1985) (“Dismissal typically occurs in cases showing consistently dilatory
conduct or the complete failure to take any steps other than the mere filing
of a notice of appeal.”).
9 8th Cir. BAP Rule 8010A.
10 9th Cir. BAP Rule 8006-1.
11 1st Cir. BAP Rule 8012-1.
12 10th Cir. BAP Rule 8010-1.
13 6th Cir. BAP Rule 8080-2.
14 Bankruptcy Rules 8001-8020.
15 Bankruptcy Rule 8008.
16 Bankruptcy Rule 8009.
17 Bankruptcy Rule 8010.
18 Bankruptcy Rule 8011.
19 Bankruptcy Rule 8012.
20 Bankruptcy Rule 8013.
21 Bankruptcy Rule 8014.
22 Bankruptcy Rule 8015.
23 Bankruptcy Rule 8009.
24 See In re Shattuck Cable Corp., 138 B.R. 557, 565 (Bankr. N.D. Ill. 1992).
25 See In re Best Prods. Co., 68 F.3d 26, 30 (2d Cir. 1995).
26 See Weber v. United States Trustee, 484 F.3d 154 (2d Cir. 2007) (“In many
cases involving unsettled areas of bankruptcy law, review by the district court
would be most helpful. Courts of appeal benefit immensely from reviewing
the efforts of the district court to resolve such questions”).
27 See Hartford Courant Co. v. Pellegrino, 380 F.3d 83, 90 (2d Cir. 2004).
28 See Weber, 484 F.3d at 157 (citing BAPCPA § 1233, 28 U.S.C.
§ 158(d)(2)(a)(i)-(iii)).
29 See In re ABC-Naco, Inc., 483 F.3d 470, 472 (7th Cir. 2007).
30 See In re Senior Cottages of Am., 482 F.3d 997, 1000-1001 (8th Cir. 2002)
31 See In re Martin, 222 Fed. Appx. 360, 362 (5th Cir. 2007).
32 See In re Focus Media Inc., 378 F.3d 916, 922 (9th Cir. 2004).
33 See In re State Line Hotel, Inc., 2007 WL 1961935 (9th Cir. July 5, 2007);
see also Gardens of Cortez v. John Hancock Mut. Life Ins. Co., 585 F.2d 975,
978 (10th Cir. 1978) (dismissal of bankruptcy petition moots appeal to lift
stay).
34 See Ederel Sport v. Gotcha, Int’l, L.P., 311 B.R. 250, 254 (9th Cir. BAP
2004).
35 See In re Howard’s Express, Inc., 151 Fed. Appx. 46 (Oct. 5, 2005) (conversion
from Chapter 11 to Chapter 7 did not moot appeal because liquidation
was not complete and preference actions remained to be tried, which
could generate assets to satisfy claims of appellants).
36 See In re PWS Holding Corp., 228 F.3d 224, 249 (3d Cir. 2000).
37 See In re Owens Corning, 419 F.3d 196, 203 (3d Cir. 2005).
38 Id.

What Homeowners Need to Know about Lien Stripping in Secured/Valuation of Claims in Bankruptcy & Adversary Proceeding

28 Monday Nov 2016

Posted by BNG in Bankruptcy, Federal Court, Foreclosure Defense, Judicial States, Non-Judicial States, Pro Se Litigation

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adversary proceeding, Bankruptcy, homeowners, Pro se legal representation in the United States, valuation

SECTION 506 LIEN STRIPPING & VALUATION

11 U.S.C. § 1322 (b): Subject to subsections (a) and (c) of this section, the plan may- (2) modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence… 11 U.S.C. § 506 (a)(1): An allowed claim of a creditor secured by a lien on property in which the estate has an interest, … is a secured claim to the extent of the value of such creditor’s interest in the estate’s interest in such property, … and is an unsecured claim to the extent that the value of such creditor’s interest … is less than the amount of such allowed claim. Such value shall be determined in light of the purpose of the valuation and of the proposed disposition or use of such property, and in conjunction with any hearing on such disposition or use or on a plan affecting such creditor’s interest.

I. WHAT DOES IT MEAN TO STRIP THE LIEN? 11 U.S.C. § 506 describes how to determine whether a claim is secured. Section 506(a)(1) explains bifurcation (division) of an allowed claim into secured and unsecured parts—the secured part being “secured” by the collateral’s value, the unsecured part being the remaining amount of the claim in excess of the collateral’s value. For example, an allowed claim of $200,000 with collateral valued at $170,000 is bifurcated between a secured claim of $170,000 and an unsecured claim of $30,000, resulting in “lien stripping” of $30,000. If the $170,000 collateral is related to an allowed first claim of $200,000 and an allowed second claim of $10,000, the $10,000 claim can be “stripped” as well. The distinction may be identified as “stripping down” (or a “cramdown” of) the lien to the value of the collateral or “stripping off” the lien completely.

II. CHAPTER 7 CASES – UNSECURED JUNIOR MORTGAGE MAY NOT BE STRIPPED OFF.
Dewsnup v. Timm, 502 U.S. 410 (U.S. 1987) prohibited Chapter 7 debtors from using 11 U.S.C. § 506(d) to void an undersecured lien on real property. Case law has extended Dewsnup to prohibit lien stripping on wholly unsecured liens (in Chapter 7 cases), holding that unless and until there is a claims allowance process, there is no basis for the debtor to avoid a lien under 11 U.S.C. § 506. The legislative history of Section 506 also makes it clear that lien stripping is permissible in reorganization chapters, but not in Chapter 7. See In re Talbert, 344 F.3d 555 (6th Cir. 2003), Concannon v. Imperial Capital Bank (In re Concannon), 338 B.R. 90 (Bankr.Fed.App. 2006).

III. CHAPTER 13 CASES – UNSECURED JUNIOR MORTGAGE MAY BE STRIPPED OFF.
a. Nobelman v. American Savings Bank, 508 U.S. 324 (U.S. 1993). A “strip down” or “cramdown” of claim that is secured by real property that is the debtor’s primary residence is prohibited. The United States Supreme Court held that after applying 11 U.S.C. § 1322(b)(2) and 11 U.S.C. § 506, a lien “strip down” of an undersecured home mortgage lien is impermissible in a chapter 13 case for a claim secured by the debtor’s principal residence, because it modifies the total package of rights for which such a claim holder bargained.

b. 11 U.S.C. § 1322(b), commonly known as the anti-modification clause, prevents debtors from changing the rights of creditors whose claims are secured only by a security interest in real property that is the debtor’s principal residence. Under various Circuit Court decisions interpreting Nobelman in Chapter 13 cases, §1322(b)(2) protections are no longer available to a creditor whose lien is a junior lien, and where the amount due to the senior lienholder(s) is greater than the value of the property pledged as security to that loan. Such creditor’s claims may be treated as an unsecured claim in the plan and paid consistent with other unsecured claimholders.

c. Majority view: While the anti-modification clause in § 1322(b) uses the term “claim” rather than “secured claim” and, therefore, applies to both the secured and unsecured part of a mortgage, the anti-modification clause still states that the claim must be “secured only by a security interest in … the debtor’s principal residence.” 11 U.S.C. § 1322(b)(2) (emphasis added). If valuation of the property under §506(a) determines that a junior mortgage holder’s claim is wholly unsecured, then the bank is not in any respect a “holder of a claim secured by the debtor’s residence” under §1322(b). Accordingly, the junior mortgage holder simply has an unsecured claim and the anti-modification clause does not apply. On the other hand, if any part of the mortgagee’s claim is secured, then, under Nobleman’s interpretation of the term “claim,” the entire claim, both secured and unsecured parts, cannot be modified.

The several Circuit Courts that have ruled on the issue, including the Sixth Circuit, support the majority position allowing lien stripping of wholly unsecured junior mortgage liens. See Pond v. Farm Specialist Realty (In re Pond), 252 F.3d 122 (2nd Cir. 2001); McDonald v. Master Fin., Inc.(In re McDonald), 205 F.3d 606 (3d Cir. 2000), cert. denied, 531 U.S. 822, 121 S.Ct. 66, 148 L.Ed.2d 31 (2000); Bartee v. Tara Colony Homeowners Ass’n (In re Bartee), 212 F.3d 277 (5th Cir.2000); Lane v. W. Interstate Bancorp (In re Lane), 280 F.3d 663 (6th Cir.2002); Zimmer v. PSB Lending Corp. (In re Zimmer), 313 F.3d 1220, (9th Cir. 2002); Tanner v. FirstPlus Fin., Inc. (In re Tanner), 217 F.3d 1357 (11th Cir. 2000). The only variance in this uniformity among the circuits is an Eleventh Circuit opinion, which disagrees with the In re Tanner panel that originally decided the issue, but which followed the Tanner decision as established precedent in that circuit. See In re Dickerson, 222 F.3d 924 (11th Cir.2000). See also Domestic Bank v. Mann (In re Mann), 249 B.R. 831, 833 (B.A.P. 1st Cir. 2000); Griffy v. U.S. Bank (In re Griffey), 335 B.R. 166 (B.A.P. 10th Cir. 2005); Waters v. The Money Store (In re Waters), 276 B.R. 879 (Bankr.N.D.Ill. 2002); In re King, 290 B.R. 641 (Bankr.C.D.Ill. 2003).

d. Minority view: While the Circuit Courts are nearly uniform in support of the majority view, some Bankruptcy Courts take a minority view. They hold that a properly perfected mortgage claim is literally “secured only by a security interest in real property that is the debtor’s principal residence” within the meaning of §1322(b), irrespective of whether the claim is wholly or partially secured, or totally unsecured after the application of §506(a). They reason that this view is consistent with the emphasis in the Nobelman decision on the state law contractual rights bargained for by the mortgagor and mortgagee, and with the legislative history which indicates that §1322(b) was intended to encourage the flow of capital into the home lending market and to exempt such Mortgages from valuations and bifurcations as the result of an application of § 506(a). Cases following minority view include Barnes v. American Gen. Fin. (In re Barnes), 207 B.R. 588 (Bankr.N.D.Ill.1997).

e. The Hon. Keith Lundin has expressed support for the minority view, that Nobleman was concerned about protecting the state law rights of the residential mortgagee and did not consider the issue to be a question of valuation. Lundin’s view and the minority view is there is no justification, following the Nobelman decision, for courts to focus on the value, at the date of the petition, of the real property securing a debt as the threshold of whether the rights of the mortgagee may be modified. In the majority view, a mortgagee with $1.00 in equity receives the anti-modification protection of §1322(b), while the mortgagee with no equity does not. Keith M. Lundin, Chapter 13 Bankruptcy, 3d. Ed. §14.1, p. 221 (2000 & Supp. 2004)

f. Lien stripping in the Seventh Circuit:
i. Although every circuit court of appeals that has considered the question has followed the majority view, the Seventh Circuit Court of Appeals has not directly ruled on the issue; thus, lower courts in the Seventh Circuit may follow either the majority or the minority view.
ii. In the Northern District of Illinois, the cases go both ways. Barnes v. American Gen. Fin. (In re Barnes), 207 B.R. 588 (Bankr. N.D. Ill. 1997) (follows the minority view that 11 U.S.C. §1322(b)(2) prohibits stripping off wholly unsecured mortgages.) Waters v. Money Store (In re Waters), 276 B.R. 879 (Bankr. N.D. Ill. 2002) follows the majority position after a thorough analysis of both views. Also in the Northern District of Illinois, the district court in In re Holloway v. United States, 2001 U.S. Dist. LEXIS 16898 (N.D. Ill. Oct. 16, 2001) follows the majority view.

iii. In the Central District of Illinois, In re King, 290 B.R. 641 (Bankr. C.D. Ill. 2003) adopted Waters, supra.
iv. In In re Black, 2002 Bankr. LEXIS 1752 (Bankr. N.D. Ind. 2002), the Northern District of Indiana provides a comprehensive review of cases following the majority and minority views, and decides that stripping off a wholly unsecured mortgage from the debtor’s residence “represents the most appropriate reading of both [11 U.S.C.] § 1322(b)(2) and Nobelman.”

IV. EXCEPTIONS TO ANTI-MODIFICATION: – NOBELMAN EXCEPTIONS – § 1322(b)(2) provides that the Chapter 13 plan may modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence. §1123(b)(5) says the same thing for Chapter 11 cases.

a. Debtor’s Principal Residence –
Principal Residence defined U.S.C. 101(13A) The term “debtor’s principal residence”–(A) means a residential structure, including incidental property, without regard to whether that structure is attached to real property; and (B) includes an individual condominium or cooperative unit, a mobile or manufactured home, or trailer.

b. Liens on attached property or curtilage?

c. When is the Principal Use determined?
i. Origination date or petition date?
ii. Is pre-petition “use planning allowed?”

d. “Secured Only By” – Effect of lien on residence as well as upon other assets.
i. Additional security interests in mortgage escrow accounts. A majority of courts have ruled that the grant of a security interest in an escrow fund for insurance and taxes by a Chapter 13 debtor’s second mortgage did not convey additional collateral. The anti-modification provision continues to apply. The debtor retained no interest in the funds once placed in escrow and so any grant of a security interest in such funds was meaningless and conveyed essentially no interest at all. 1st 2nd Mortgage Co. of NJ., Inc. v. Ferandos (In re Ferandos), 402 F.3d 147 (3d Cir. 2005). See also Boehmer v. Essex (In re Boehmer), 240 B.R. 837(Bankr. E.D.Pa. 1999); Rodriguez v. Mellon Bank, N.A. (In re Rodriguez), 218 B.R. 764 (Bankr. E.D. Pa. 1998); In re Abruzzo, 245 B.R. 201 (Bankr. E.D. Pa. 1999), vacated In re Abruzzo, 245 B.R. 2000 U.S. Dist. LEXIS 4936 (E.D. Pa. Apr. 7, 2000), on remand In re Abruzzo, 249 B.R. 78 (Bankr. E.D. Pa. 2000)
ii. Other view: Residential mortgage debt was not one secured “only by a security interest in real property” that was debtor’s principal home, within meaning of anti-modification provision of Chapter 13, where mortgagee had also been granted security interest in escrow for taxes and insurance premiums; mortgagee had additional security interest in escrowed funds, notwithstanding that, on petition date, that interest had not been perfected by delivery. Stewart v. U.S. Bank, 263 B.R. 728 (Bankr.W.D. Pa. 2001).
iii. Secured by additional assets other than the residence; cross collateralization clauses, overly broad security agreement?
1. Fixtures: will a security interest in fixtures destroy §1322 antimodification protection?
2. Mortgage extending mortgagee’s security interest to non-fixture appliances, as well as other personalty, removed mortgagee’s claim from category of claims secured only by residential realty, for purpose of preventing Chapter 13 debtor from modifying mortgagee’s rights. In re Caster, 77 B.R. 8 (Bankr. E.D. Pa. 1987).
iv. Valuation- Under § 506 (a)(1), “value shall be determined in light of the purpose of the valuation and of the proposed disposition or use of such property, and in conjunction with any hearing on such disposition or use or on a plan affecting such creditor’s interest”(emphasis added). If a valuation of the property under §506(a) determines that a junior mortgage holder’s claim is wholly unsecured, then the mortgagee is not in any respect a “holder of a claim secured by the debtor’s residence” and the jr. mortgage holder’s claim may be modified and treated as an unsecured claim.

Date of Valuation –
a. Loan Origination Date or Date of Bankruptcy Petition?

2. Methodology of Valuation. Market value or liquidation value? When a Chapter 11 debtor or a Chapter 13 debtor intends to retain property subject to a lien, the purpose of a valuation under section 506(a) is not to determine the amount the creditor would receive if it hypothetically had to foreclose and sell the collateral. Neither the foreclosure value nor the costs of repossession are to be considered because no foreclosure is intended. . . . The fair market value is not ‘replacement value’ because the house is not being replaced. The fair market value is the price which a willing seller under no compulsion to sell and a willing buyer under no compulsion to buy would agree upon after the property has been exposed to the market for a reasonable time. Taffi v. United States (In re Taffi), 68 F.3d 306, 309 (9th Cir. 1995)

3. Current use or highest-best use? Should not calculate the value of the property on the value such property could demand if it were converted to some other use. The purpose of the valuation is to determine how much the creditor will receive for the debtor’s continued possession . . .. The foreclosure value is not relevant because no foreclosure is intended by the Plan. . . . Consequently, the value has to be the fair market value of what the debtors are using. Taffi v. United States (In re Taffi), 68 F.3d 306, 309 (9th Cir. 1995) Cannot deduct for hypothetical costs of sale – Huntington Nat’l Bank v. Pees (In re McClurkin), 31 F.3d 401 (6th Cir. 1994)
v. When is the Lien Stripped Off? The unsecured junior lien is not stripped off at confirmation. To allow lien strip at confirmation would encourage “mischief” such as the debtor’s post-confirmation sale of the property to an unsuspecting purchaser. Under BAPCPA section 1325(a)(5)(B)(i)(I)(bb), the plan must provide that the claim holder “retain[s] the lien securing such claim until … discharge under section 1328….”
1. The junior lien is deemed satisfied and lien should be discharged or released only upon conclusion of the bankruptcy case. In re Jones, 152 B.R. 155 (Bankr. E.D. Mich. 1993).

2. The right to avoid a lien has not fully matured in a Chapter 13 context until a discharge is granted upon successful completion of the Chapter 13 Plan. Accordingly, the order confirming the Debtors’ plan will specifically provide that the Debtors’ house shall remain property of the estate, and shall not re-vest in the Debtors, until the Debtors are granted a discharge. Castle v. Parrish, 29 B.R. 869, 874 (Bankr. S.D. Ohio 1983)

3. A plan is inconsistent with the provisions of Chapter 13 when it purports to effectuate irrevocable lien avoidance on plan confirmation. In re McMillan 251 B.R. 484, 490 (Bankr.. E.D. Mich.2000)

4. If the Debtor is ineligible to receive a discharge due to prior discharge under 11 U.S.C. 1328(f) then the Debtor may not benefit from the lien stripoff. See In re Akram, 259 B.R. 371, 378-79 (Bankr.C.D.Cal.2001); In re King, 290 B.R. 641, 651(Bankr. C.D. Ill.2003)
vi. Hardship discharge? If the Debtor receives only a “hardship discharge” under 11 U.S.C. 1328(b) is the debtor entitled to the benefit of the lien strip and a discharge of the junior mortgage lien?
1. One line of cases holds that a creditor’s lien may be extinguished pursuant to the debtor’s plan. These cases use the following two lines of reasoning: First, the creditor’s lien is void upon the payment of the allowed secured claim pursuant to 11 U.S.C. § 506(d); and second, where §1322(b)(2) does not prevent a modification to the creditor’s lien rights, any concern about the debtor dismissing his case after the creditor’s lien is released, but prior to full payment under the plan, is outweighed by the policy of affording the debtor a fresh start. See, e.g., Bank One, NA v. Flowers, 183 B.R. 509 (N.D. Ill. 1995); In re Nicewonger, 192 B.R. 886 (Bankr.N.D.Ohio 1996); In re Hernandez, 175 B.R. 962 (N.D. Ill. 1994); In re Wilson, 174 B.R. 215 (Bankr. S.D. Miss. 1994); McDonough v. Plaistow Coop. Bank (In re McDonough), 166 B.R. 9 (Bankr. D. Mass. 1994); In re Cooke, 169 B.R. 662 (Bankr. W.D. Mo.1994); In re Schultz, 153 B.R. 170 (Bankr. S.D. Miss.1993); In re Lee, 156 B.R. 628 (Bankr. D. Minn.1993).

2. Another line of cases holds that a debtor may not obtain a release of a secured creditor’s lien until he successfully completes the confirmed plan and receives a §1328(a) discharge. See, e.g., In re Zakowski, 213 B.R. 1003 (Bankr. E.D. Wis.1997); In re Pruitt, 203 B.R. 134 (Bankr. N.D. Ind. 1996); In re Scheierl, 176 B.R. 498 (Bankr. D. Minn.1995);In re Jordan, 164 B.R.. 89 (Bankr. E.D. Mo.1994); In re Jones, 152 B.R. 155 (Bankr. E.D. Mich.1993); Gibbons v. Opechee Distribs. (In re Gibbons), 164 B.R. 207 (Bankr. D.N.H. 1993).

V. IS AN ADVERSARY PROCEEDING REQUIRED? Chapter 13 debtors may not need to file an adversary proceeding to strip the mortgagee’s lien. One court summarized the cases:
[I]t appears that no adversary proceeding is needed simply to value and declare void a totally unsecured claim. The majority of courts therefore hold that “the appropriate procedure for lien avoidance under Section 506 is by motion because lien avoidance is the inevitable byproduct of valuing a claim, which is accomplished by motion pursuant to Bankruptcy Rule 3012.” In re Sadala, 294 B.R. 180, 183 (Bankr. M.D. Fla. 2003) (collecting cases); see also, In re Millspaugh, 302 B.R. 90 (Bankr. D. Idaho 2003); In re Fisher, 289 B.R. 544 (Bankr. W.D.N.Y. 2003) (court allows proceedings to be prosecuted by motion in the absence of a specific objection by the mortgage holder that the proceeding be converted to an adversary proceeding); but see, e.g., In re Kressler, 252 B.R. 632 (Bankr. E.D. Pa. 2000) (espousing the minority view that an adversary proceeding is required); …Once the value of the secured claim is determined, the attendant lien is stripped off automatically under Section 506(d).” In re Sadala, 294 B.R. 180, 183 (Bankr. M.D. Fla. 2003) In re Robert, 313 B.R. 545, 549 (Bankr. N.D. N.Y. 2004).

These Courts have determined that lien stripping is a valuation issue, not a challenge to the “validity, priority, or extent of a lien” of F.R.B.P. 7001, requiring an adversary proceeding.

a. Courts have considered the “lien-stripping” effect of § 506 in the context of:
i. an adversary proceeding. See, e.g., Gaglia v. First Federal Sav. & Loan Asso., 889 F.2d 1304, 1305 (3d Cir. Pa.1989), overruled by Dewsnup v. Timm, 502 U.S. 410 (U.S. 1992); In re Lindsey, 823 F.2d 189, 191 (7th Cir. Ill. 1987); In re Cobb, 122 B.R. 22, 24(Bankr.E.D. Pa.1990); Bellamy v. Federal Home Loan Mortg. Corp., 122 B.R. 856, 857 (Bankr. D. Conn. 1991), aff’d In re Bellamy, 132 B.R. 810 (D.Conn.1991), aff’d In re Bellamy, 962 F.2d 176 (2d Cir. Conn. 1992); Goins v. Diamond Morttg. Corp., 119 B.R. 156, 157 (Bankr. N.D. Ill.1990); In re Garnett, 88 B.R. 123, 124 (Bankr. W.D. Ky.1988), aff’d United States on behalf of Farmers Home Admin. v. Garnett, 99 B.R. 757 (W.D. Ky. 1989); In re Crouch, 80 B.R. 364, 365 (Bankr. W.D. Va.1987); In re O’Leary, 75 B.R. 881, 882(Bankr. D. Or. 1987);
ii. a motion to avoid a lien. See, e.g., In re Jablonski, 88 B.R. 652, 653 (E.D. Pa. 1988); In re Chavez, 117 B.R. 733, 734 (Bankr. S.D. Fla. 1990); In re Marshall, 111 B.R. 325, 326 (Bankr. D. Mont. 1990); In re Demoff, 109 B.R. 902, 903 (Bankr. N.D. Ind.1989); In re Anderson, 88 B.R. 877, 878 (Bankr. N.D. Ind. 1988), In re Robert, 313 B.R. 545 (Bankr. N.D.N.Y. 2004) and,
iii. in an objection to a proof of claim. See, e.g., In re Jablonski, 88 B.R. 652, 653 (E.D. Pa. 1988); In re Chavez, 117 B.R .733, 734 (Bankr. S.D. Fla. 1990); In re Marshall, 111 B.R. 325, 326 (Bankr. D. Mont. 1990); In re Demoff, 109 B.R. 902, 903 (Bankr. N.D. Ind. 1989); In re Anderson, 88 B.R. 877, 878 (Bankr. N.D. Ind.1988).

b. Eastern District Court of Michigan- The Court has not to date required an adversary proceeding in any published opinion. In the case, In re Jones 152 B.R. 155 (Bankr. E.D. Mich. 1993); the Hon. Arthur Spector held that F.R.Bankr.P. 3012 permits § 506 valuations to be requested by motion, and noted that the advisory committee note relating to that rule distinguishes valuation proceedings from those subject to F.R.Bankr.P. 7001, and ruled that the debtor need not file an adversary proceeding to avoid a creditor’s lien under § 506. In re Hoskins, 262 B.R. 693(Bankr. E.D. Mich. 2001)

c. Western District of Michigan- a junior lien which is totally unsupported by any equity in property may be extinguished through Chapter 13 plan confirmation process, without need for adversary proceeding, as long as language in plan is sufficiently clear to put lienholder on notice of debtor’s intentions) (See also, In re Hoskins, 262 B.R. 693(Bankr. E.D. Mich. 2001)(Judge Spector), In re Fuller 255 B.R. 300, 306 (Bankr. W.D. Mich. 2000); In re Hudson, 260 B.R. 421 (Bankr. W.D. Mich. 2001); see also, In re Calvert, 907 F.2d 1069, 1072 (11th Cir. Ala. 1990);
i. Best Practice- Circuits have not specifically ruled. Debtors may wish to be cautious when deciding whether an adversary proceeding is required. If future appellate court decisions decide that an adversary proceeding is required, the lien strip-off may be subject to collateral attack. Cf. Ruehle v. Educ. Mgmt. Corp. (In re Ruehle), 412 F. 3d 679, 680 (6th Cir. 2005) (student loan discharge in plan void because adversary proceeding required).

VI. EFFECT OF DISMISSAL – A dismissal acts to undo bankruptcy and to restore property rights to the position in which they were found at commencement of case, as far as practicable, given facts of each case. Bankr.Code, 11 U.S.C. § 349(b).
i. Unless the court indicates otherwise, the general effect of an order of dismissal is to “restore the status quo ante; “it is as if the bankruptcy petition had never been filed. France v. Lewis & Coulter, Inc. (In re Lewis & Coulter, Inc.), 159 B.R. 188, 190 (Bankr. W.D. Pa. 1993); Lawson v. Tilem (In re Lawson), 156 B.R. 43, 45 (B.A..P. 9th Cir. Cal. 1993)).
ii. The legislative history of 11 U.S.C. § 349 states: The basic purpose of the subsection is to undo the bankruptcy case, as far as practicable, and to restore all property rights to the position in which they were found at the commencement of the case…. Where there is a question over the scope of the subsection, the court will make the appropriate orders to protect rights acquired in reliance on the bankruptcy case. H.R.Rep. No. 595, 95th Cong., 1st Sess., 338 (1977); 1978 U.S.Code Cong. & Admin.News, 5963, 6294.
iii. 11 U.S.C. § 1325(a)(5)(B)(i)(II) requires a plan to provide that if a Chapter 13 case is “dismissed or converted without completion of the plan,” the lien is retained by the lien holder “to the extent recognized by applicable nonbankruptcy law.”

VII. CREDITOR DEFENSES

a. Mortgage is not a “Junior Lien”
i. Failure to record or properly record a senior mortgage. If junior lienholder lacked notice of the prior lien, consider action to determine whether a “junior lien” has priority.
ii. Defective/invalid liens. If a senior lien has defects that render the security instrument void, consider action to determine lien priority (e.g., acknowledgment, signatures, witnesses, description of the property).
iii. Can junior lienholder compel Ch. 13 Trustee or Debtor to avoid a senior lien, thus preserving Jr. lien? No, because any such senior lien avoided would be preserved to the bankruptcy estate to prevent a junior lienholder from improving his position. 11 U.S.C. § 551

b. Valuation of property supports Junior Lien- Appraisals of property may establish that the property actually is worth more than the amount of the senior lienholder’s secured claim.
1. Claims of senior lienholder may be overstated. In a close case, it may be useful to examine the claim of the senior lienholder for components that may improperly inflate the amount of the claim.

Consider objections to the claim for:
a. Fees and costs incurred after the petition was filed;
b. Property taxes, insurance premiums, or property preservation expenses that were incurred after the petition was filed;
c. Fees and costs that are not authorized to be charged to the borrower under the note and mortgage, unless or until notice to the debtor is given;
d. Unlawful fees and costs;
e. Whether funds in escrow account should be credited.
c. Motions to convert case to chapter 7.
i. See note above, regarding §1325(a)(5)(B)(i)(II) (effect of dismissal or conversion)
ii. General grounds to convert case. Strategic reasons to convert to Chapter 7?
The borrower cannot strip lien in Ch. 7 case. Nobelman v. American Savings Bank, 508 U.S. 324 (U.S. 1993); In re Talbert, 344 F.3d 555 (6th Cir. 2003).

VIII. SETTLEMENT CONSIDERATIONS /CREDITOR CONCEDES THAT LIEN STRIP IS AUTHORIZED- WHAT NEXT?
a. Seek a judgment, plan provision, or order that protect junior lienholder until conclusion of the case.
i. Order should confirm lien is preserved until successful completion of all payments and issuance of § 1328(a) Order of Discharge.
ii. The judgment and the order confirming the plan should state that any property encumbered by liens securing an allowed secured claim shall remain property of the estate until the plan is fully performed.
iii. Seek favorable judgment provisions that protect the junior lienholder until the case is concluded, such as “Future Default” provisions , and provisions requiring maintenance of adequate hazard insurance coverage, and prompt payment of property taxes.

b. Make a close examination of Debtor’s Income and Expenses and file timely objections to under reported income, and unsubstantiated, unreasonable and luxury expenditures, to maximize dividends to unsecured creditors.

c. Consider valid objections to untimely or defective claims of other unsecured creditors to maximize junior lienholder’s pro rata share.

d. Monitor plan payments, prompt payment of property taxes, and maintenance of adequate hazard insurance and seek dismissal in appropriate circumstances.

IX. OTHER EXCEPTIONS:
a. Short Term Mortgages – First Union Mortg. Corp. v. Eubanks (In re Eubanks), 219 B.R. 468 (B.A.P. 6th Cir. 1998) (Section 1322(c)(2) creates a statutory exception to the protection from modification for “short term” home mortgages in Chapter 13 cases; debtor can bifurcate undersecured second mortgage and pay allowable secured portion in full with interest consistent with § 1325(a)(5), while paying unsecured portion with other unsecured claims.)

Home owners should wake up TODAY! before it’s too late by mustering enough courage for “Pro Se” Litigation (Self Representation – Do it Yourself) against the Lender – for Mortgage Fraud and other State and Federal law violations using foreclosure defense package found at http://www.fightforeclosure.net “Pro Se” litigation will allow Homeowners to preserved their home equity, saves Attorneys fees by doing it “Pro Se” and pursuing a litigation for Mortgage Fraud, Unjust Enrichment, Quiet Title and Slander of Title; among other causes of action. This option allow the homeowner to stay in their home for 3-5 years for FREE without making a red cent in mortgage payment, until the “Pretender Lender” loses a fortune in litigation costs to high priced Attorneys which will force the “Pretender Lender” to early settlement in order to modify the loan; reducing principal and interest in order to arrive at a decent figure of the monthly amount the struggling homeowner could afford to pay.

If you find yourself in an unfortunate situation of losing or about to lose your home to wrongful fraudulent foreclosure, and need a complete package that will show you step-by-step litigation solutions helping you challenge these fraudsters and ultimately saving your home from foreclosure either through loan modification or “Pro Se” litigation visit: http://www.fightforeclosure.net

What Homeowners Should Know About Appeals at the 9th Circuit

28 Monday Nov 2016

Posted by BNG in Appeal, Bankruptcy, Fed, Federal Court, Foreclosure Crisis, Foreclosure Defense, Fraud, Judicial States, Landlord and Tenant, Litigation Strategies, Non-Judicial States, Pleadings, Pro Se Litigation, Trial Strategies, Your Legal Rights

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9th circuit, 9th circuit court, Appeal, Law, Lawsuit, Pro se legal representation in the United States, wrongful foreclosure appeal

The Ninth Circuit uses a limited en banc system for en banc matters because of its size, with 11 judges comprising an en banc panel;

The Chief Judge is always one of the 11 en banc judges;

The Ninth Circuit currently has 29 active judges and 15 judges on senior status;

Active judges are expected to hear 32 days of oral arguments per year;

Judges are assigned to hear cases by rotation, and no preference is given for judges from those jurisdictions;

Oral argument are scheduled on certain dates;

Filings for are currently down 3% compared to last year;

Pro Se filings account for 51% of the documents filed with the court;

The largest category of pro se litigants are prisoners;

48% of all immigration appeals in the US are filed in the Ninth Circuit;

From the entry of the final order of the lower court or agency to final Ninth Circuit disposition: 32.6 months
From the filing of the law brief to oral argument or submission on briefs: 8.7 months in the Ninth Circuit (4.1 months nationally);

The court is permitted to move cases up in priority;

Priority is set by a staff attorney who assigns a number to each case based on a point system: 1, 2, 3, 5, 7, 10, and 24. Cases assigned 1 or 2 go to the screening panel for disposition. Cases assigned 24 always get oral argument, and involve matters like the death penalty. Cases assigned 3, 5, 7, or 10, will depend on the number of parties, the types of issues, etc. These cases may get oral argument, or be submitted on briefs;

The assignment of the panel of judges is separate from assignment of cases;

Panels are set 1 year in advance;

The clerk’s office assigns cases based on a formula that includes priority 99% of petitions for rehearing en banc are rejected – a judge on the court must initiate the process for en banc rehearing, and a judge may do so even if there is no petition for rehearing en banc filed;

If there is a second appeal to the court in the same case, the case is first presented to the original panel to see if they want to decide the second appeal – usually the panel will take back the case in approximately 1/4 to 1/3 of cases – if you want the same panel, file a motion to ask to have the case assigned to the same panel, but give good reasons why;

Generally, most general civil appeals where the parties are represented by attorneys will get set for oral argument – but about 20-25% that are assigned to oral argument will ultimately be submitted on briefs instead.

Home owners should wake up TODAY! before it’s too late by mustering enough courage for “Pro Se” Litigation (Self Representation – Do it Yourself) against the Lender – for Mortgage Fraud and other State and Federal law violations using foreclosure defense package found at http://www.fightforeclosure.net “Pro Se” litigation will allow Homeowners to preserved their home equity, saves Attorneys fees by doing it “Pro Se” and pursuing a litigation for Mortgage Fraud, Unjust Enrichment, Quiet Title and Slander of Title; among other causes of action. This option allow the homeowner to stay in their home for 3-5 years for FREE without making a red cent in mortgage payment, until the “Pretender Lender” loses a fortune in litigation costs to high priced Attorneys which will force the “Pretender Lender” to early settlement in order to modify the loan; reducing principal and interest in order to arrive at a decent figure of the monthly amount the struggling homeowner could afford to pay.

Why Homeowners Must Effectively Use Court Injunctions To Save Their Homes

01 Friday Apr 2016

Posted by BNG in Appeal, Bankruptcy, Case Laws, Case Study, Federal Court, Foreclosure Defense, Judicial States, Litigation Strategies, Non-Judicial States, Pro Se Litigation, Your Legal Rights

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automatic stay, injunction, injunctive relief, motion, stay, stay pending appeal

CASE STUDY: 893 F.2d 1338 Unpublished Disposition

Effective Foreclosure Defense requires timing. If you time correctly, you can save your home. Homeowners presently in litigation must use injunctions to their advantage. Ignorance will not be to your advantage.

NOTICE: Ninth Circuit Rule 36-3 provides that dispositions other than opinions or orders designated for publication are not precedential and should not be cited except when relevant under the doctrines of law of the case, res judicata, or collateral estoppel.

In re James MILLER, Jr. and Pamala F. Miller,
James MILLER, Jr. and Pamala F. Miller, Appellants,
v.
LINCOLN TITLE COMPANY, Appellee.

No. 88-5687.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Oct. 30, 1989.
Decided Jan. 12, 1990.

Before WILLIAM A. NORRIS, REINHARDT and TROTT, Circuit Judges.

I. MEMORANDUM*

1 The Millers (“Debtors”) seek reversal of an order of the Bankruptcy Appellate Panel (“BAP”) denying the Debtors’ Ex Parte Motion for Order Setting Aside Default Order and dismissing as moot the Debtors’ appeal of the dismissal of their Chapter 11 petition. The Debtors base their appeal on two arguments: (1) the BAP erred in denying the Debtors’ Rule 60(b) motion to set aside the default judgment; and (2) the BAP erred in dismissing the Debtors’ appeal of the bankruptcy court’s order dismissing their Chapter 11 case on the grounds of mootness. We affirm the BAP’s order dismissing the Debtors’ appeal insofar as it relates to the automatic stay and the sale of the property, due to the mootness of that issue, and we remand to the BAP the issues of timeliness of the Debtors’ appeal to the BAP and whether dismissal of the Debtors’ Chapter 11 petition for lack of prosecution of their earlier Chapter 13 petition was proper.

II. STATEMENT OF FACTS

2 The Debtors filed a Chapter 11 petition on June 12, 1986. On March 9, 1987, the U.S. Trustee filed a motion to dismiss the Chapter 11 case or, alternatively, to convert it to a Chapter 7 case. On March 31, 1987, Lincoln Title Company (“Lincoln”) filed a motion to join in the motion to dismiss and its own motion for dismissal. Lincoln based its motion to dismiss on the Debtors’ previous Chapter 13 case that was dismissed for failure to prosecute.1 Lincoln asked the court to take judicial notice of the fact that the Chapter 13 was dismissed pursuant to section 109(g)(1) of the Bankruptcy Code.2 On May 12, 1987, the bankruptcy court dismissed the Debtors’ Chapter 11 case based on the Debtors’ ineligibility to file the Chapter 11 case under section 109(g)(1). The order of dismissal was entered on May 15, 1987, and the Debtors filed their notice of appeal to the BAP on May 28, 1987, two days after the ten-day deadline prescribed by Bankruptcy Rule 8002. The respondent objected on the ground that the appeal was untimely and the BAP filed a conditional order of dismissal on July 22, 1987, inviting the Debtors to file a written explanation showing legal cause why the appeal should not be dismissed. On July 23, 1987, the Debtors filed a motion in opposition to the respondent’s objection. On September 9, 1987, the BAP issued an order denying the motion to dismiss. The order did not specify the BAP’s reasons for denial.
3 While the Chapter 11 case was pending, Creditway of America (“Creditway”) filed a motion for relief from the automatic stay. On September 17, 1986, the bankruptcy court entered an order modifying the automatic stay. This order denied Creditway’s motion to lift the stay subject to the following conditions to be performed by the Debtors: (1) Submission of proof of insurance on the subject property; (2) filing of schedules and statements by August 27, 1986; and (3) filing of a plan and disclosure statement on or before September 29, 1986. The order also stated that if the Debtors failed to perform any of these conditions, Creditway could file a declaration of default or order for relief from stay.
4 The Debtors complied with the first two requirements, but did not file a plan and disclosure statement by the prescribed deadline. However, the Debtors delivered a request for an extension of time to the trustee on September 26, 1986. The Trustee filed the request on September 30, 1986. On October 9, 1986, Creditway filed a document styled, “Declaration of Jeffrey A. Paris and Order Terminating Automatic Stay,” based on the Debtors’ noncompliance with the order to file a plan and disclosure statement by September 29. The Debtors claim to have received this declaration/order on October 20, 1986. On October 24, 1986, the court granted the Debtors’ request for an extension of time to file the plan and disclosure statement until October 27, 1986. On November 24, 1986, Judge Fenning signed Creditway’s proposed order terminating the automatic stay, and on December 16, 1986, entered a default order terminating the stay. The Debtors allege that neither the court nor Creditway provided them with a copy of any signed order. The Debtors did not appeal the November or December order.
5 On January 7, 1987, Creditway conducted a Trustee’s Sale of the property. The property was purchased by an independent third party. The Debtors then filed numerous papers in the state courts as well as the bankruptcy court seeking to set aside the sale. All actions were unsuccessful. In the meantime, the municipal court granted a Writ of Execution, Money Judgment for and Writ of Possession of Real Property on the foreclosed property.
6 On July 27, 1987, the bankruptcy court declined to hear the Debtors’ Complaint to Invalidate Sale of Real Property filed June 1, 1987, due to lack of subject matter jurisdiction since the bankruptcy case had been dismissed. The Debtors then filed with the BAP, on December 2, 1987, an ex parte motion to set aside the default order under Rule 60(b). The BAP denied the Debtors’ motion and dismissed their appeal as moot on January 11, 1988. The panel clarified this order at the request of the Debtors on March 11, 1988, and explained that because the order lifting the automatic stay was never appealed and the property was subsequently sold, the appeal was rendered moot. Debtors then filed a notice of appeal to the Ninth Circuit on February 10, 1988.

III. ANALYSIS

7 The court of appeals reviews a decision of the BAP de novo. Both the court of appeals and the BAP apply the same standard of review to the bankruptcy court judgment, reviewing findings of fact under the clearly erroneous standard and questions of law de novo. See In re Burley, 738 F.2d 981 (9th Cir.1984).

i. The Automatic Stay.

8 We affirm the order of the BAP denying the Debtors’ Rule 60(b) motion and dismissing their appeal insofar as it affects the automatic stay. The issue of the automatic stay and the sale of the Debtors’ residence has been rendered moot by the sale of the property to an independent third party.
9 This circuit has held that where a stay pending appeal is not requested or is not granted, a party risks losing its ability to realize the benefit of a successful appeal. See In re Combined Metals Reduction Co., 557 F.2d 179 (9th Cir.1977); In re Sun Valley Ranches, Inc., 823 F.2d 1373, 1374 (9th Cir.1987) (“We have generally held that where an automatic stay is lifted, the debtor’s failure to obtain a stay pending appeal renders an appeal moot after assets in which the creditor had an interest are sold.”). Where the property has been sold to an independent third party, this circuit has held that the appeal is moot, because the court cannot grant effective relief, at least in the absence of the third party. See In re Royal Properties, Inc., 621 F.2d 984, 987 (9th Cir.1980) (“Once the orders have been performed, an appeal attacking the order is moot. Nor may the appellants attack the validity of the sale or the deed in this appeal. The purchasers of the property have not been made parties to the appeal, and we cannot grant effective relief in their absence.”).
10 In the instant case, the default order was not appealed and a stay was not requested. The Debtors claim that they did not appeal because they were not served with the signed default order within the time period for appeal. Nonetheless, because the subject property was sold to an independent third party pursuant to a bankruptcy court order, we cannot grant effective relief in a proceeding to which the purchaser is not a party. Thus, we affirm the BAP’s denial of the Debtors’ Rule 60(b) motion and its order dismissing the Debtors’ appeal insofar as it affects the automatic stay.

ii. Dismissal of the Debtors’ Chapter 11 Petition

A. Extent of Property Involved

11 The BAP dismissed the Debtors’ appeal of the order dismissing their Chapter 11 case based on the sale of the Debtors’ residence rendering the appeal moot. However, it appears that the BAP mistakenly believed that the only property involved in the Debtors’ Chapter 11 case was the Debtors’ residence. Because other property appears to be involved, we reverse the BAP’s dismissal. On remand, the BAP should determine whether the Chapter 11 case involved other property.

B. Dismissal Under 11 U.S.C. Sec. 109(g)(1).

12 The bankruptcy court dismissed the Debtors’ Chapter 11 petition under section 109(g)(1). This section bars an individual who was a debtor in a previous Title 11 case pending in the preceding 180 days from being a debtor under Title 11 if the previous case was dismissed “for willful failure to abide by orders of the court, or to appear before the court in proper prosecution.” The Debtors’ earlier Chapter 13 case was dismissed for “failure to prosecute” and their subsequent Chapter 11 petition was filed within 180 days of that dismissal. The appellees argue that the dismissal for lack of prosecution of the Chapter 13 proceeding acts as a bar to the Debtors’ Chapter 11 filing. The appellants vigorously disagree, arguing that the Chapter 13 dismissal was not based on a willful failure to prosecute and that since section 109(g)(1) requires the element of willfulness, they are not barred from filing the Chapter 11 petition. The BAP did not consider this issue because it dismissed the appeal as moot. Thus, on remand if the BAP concludes that the appeal is timely (see section C infra ) and that property other than the house is involved, it should also consider the issue of whether the dismissal of the Debtors’ Chapter 13 case for failure to prosecute served to trigger the 180-day filing bar of section 109(g)(1).

C. Timeliness of the Appeal to the BAP.

13 The untimely filing of a notice of appeal is jurisdictional. In re Nucorp Energy, Inc., 812 F.2d 582 (9th Cir.1987). However, Bankruptcy Rule 8002 avoids potential hardship by allowing deadline extensions. If a party does not file the notice of appeal or an extension within the ten-day filing period, he may still receive an extension upon request within twenty days of the deadline if he can show “excusable neglect.” 11 U.S.C. Sec. 8002(c). The Debtors did not actually request an extension of time to file the appeal before the BAP and the BAP order did not indicate whether or not the Debtors had shown excusable neglect. Thus, on remand the BAP should reconsider the issue of the timeliness of the Debtors’ appeal or provide an explanation of the basis for its earlier determination.

AFFIRMED in part, REVERSED in part, and REMANDED for further proceedings consistent with this disposition.
*

This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by 9th Cir.R. 36-3
1 The Millers filed a Chapter 13 petition on November 7, 1985. On November 13, 1985, the court filed an order for the Millers to file a plan and statement, and an order to show cause why the case should not be dismissed. On December 2, 1985, a show cause hearing was held and the court dismissed the Chapter 13 petition for “failure to prosecute.” The Millers did not attend this hearing
2 Section 109(1)(g) states that an individual may not be a debtor under Title 11 if he has been a debtor in a Title 11 case pending at any time in the preceding 180 days if “the case was dismissed by the court for willful failure of the debtor to abide by orders of the court, or to appear before the court in proper prosecution.” 11 U.S.C. Sec. 109(g)(1)

When Homeowner’s good faith attempts to amicably work with the Bank in order to resolve the issue fails;

Home owners should wake up TODAY! before it’s too late by mustering enough courage for “Pro Se” Litigation (Self Representation – Do it Yourself) against the Lender – for Mortgage Fraud and other State and Federal law violations using foreclosure defense package found at http://www.fightforeclosure.net “Pro Se” litigation will allow Homeowners to preserved their home equity, saves Attorneys fees by doing it “Pro Se” and pursuing a litigation for Mortgage Fraud, Unjust Enrichment, Quiet Title and Slander of Title; among other causes of action. This option allow the homeowner to stay in their home for 3-5 years for FREE without making a red cent in mortgage payment, until the “Pretender Lender” loses a fortune in litigation costs to high priced Attorneys which will force the “Pretender Lender” to early settlement in order to modify the loan; reducing principal and interest in order to arrive at a decent figure of the monthly amount the struggling homeowner could afford to pay.

What Maryland Homeowners Needs to Know About Withdrawal Of The Reference Of Bankruptcy Matters From The United States Bankruptcy Court To The United States District Court In Maryland

29 Tuesday Dec 2015

Posted by BNG in Bankruptcy, Federal Court, Judicial States, Litigation Strategies, Non-Judicial States, Pro Se Litigation

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bankruptcy court, chapter 11, chapter 13, chapter 7, District Court, foreclosure defense, withdrawal of reference

This post is intended to be a useful guide to the procedures and practice involved in withdrawal of the reference of bankruptcy matters from the United States Bankruptcy Court to the United States District Court in Maryland. It is, however, not intended to be an exhaustive treatment of the subject and should not be used as a substitute for Pro se Homeowners or attorneys doing their own research and reviewing carefully all applicable statutes, rules and case law.

Background
Congress vested all original jurisdiction over bankruptcy cases in the United States District Court. 28 U.S.C. § 1334(a). Congress further provided that the District Court could refer all cases in bankruptcy and any and all proceedings arising under, in, or related to cases in bankruptcy, to the Bankruptcy Court. 28 U.S.C. § 157(a). The United States District Court for the District of Maryland has referred all cases under the Bankruptcy Code and all proceedings arising under the Bankruptcy Code or arising in or related to cases under the Bankruptcy Code to the United States Bankruptcy Court. Rule 402, Rules of the United States District Court (Maryland) (hereinafter referred to as “District Court Local Rule”). Accordingly, until and unless the reference of jurisdiction to the Bankruptcy Court is withdrawn by an Order of the District Court, all jurisdiction over bankruptcy
matters resides with the Bankruptcy Court.

Statutory and Rule Provisions With
Respect to Withdrawal of Reference

28 U.S.C. § 157(d) provides as follows:

(d) The district court may withdraw, in whole or in part, any case or proceeding referred under this section, on its own motion or on timely motion of any party, for cause shown.
The district court shall, on timely motion of a party, so withdraw a proceeding if the court determines that resolution of the proceeding requires consideration of both title 11 and other laws of the United States regulating organizations or activities affecting interstate commerce.

As set forth in § 157(d), the District Court has the authority to
withdraw the entire bankruptcy case, or any part thereof, or any proceeding in the bankruptcy case or part thereof. The District Court can exercise its authority to withdraw cases or proceedings on its own motion or on timely motion of any party, for cause shown. This authority is sometimes referred to as discretionary withdrawal of the reference.

28 U.S.C. § 157(d) also provides for what is often called mandatory
withdrawal of the reference. Pursuant to the second sentence of § 157(d), the District Court shall, on timely motion of a party, withdraw a proceeding if the court determines that resolution of the proceeding requires consideration of both the Bankruptcy Code and other federal laws regulating organizations or activities affecting interstate commerce. Note that the mandatory withdrawal of reference is only applicable to proceedings in the bankruptcy case and only on timely motion of a party, not on the District Court’s own motion.

Bankruptcy Rule 5011 (“Withdrawal and Abstention from Hearing a
Proceeding”) provides in pertinent part as follows:

(a) Withdrawal. A motion for withdrawal of a case or proceeding shall be heard by a district judge.

(c) Effect of Filing of Motion for Withdrawal or Abstention.
The filing of a motion for withdrawal of a case or proceeding or for abstention pursuant to 28 U.S.C. §1334(c) shall not stay the administration of the case or any proceeding therein before the bankruptcy judge except that the bankruptcy judge may stay, on such terms and conditions as are proper, proceedings pending disposition of the motion. A motion for a stay ordinarily shall be presented first to the bankruptcy judge. A motion for a stay or relief from a stay filed in the district court shall state why it has not been presented to or obtained from the bankruptcy judge. Relief granted by the district judge shall be on such terms and conditions as the judge deems proper.

District Court Local Rule 405 (“Rules of procedure for withdrawal of reference”) provides as follows:

1. General rule. When a case or proceeding has been referred by this Court to the Bankruptcy Court, all documents and pleadings in or related to such case or proceeding shall be filed with the Clerk in the Bankruptcy Court.

2. Withdrawal of reference of bankruptcy case or proceeding.

a. Filing of motion for withdrawal of reference with bankruptcy clerk. A motion pursuant to 28 U.S.C. § 157(d) and Bankruptcy Rule 5011 to withdraw the reference of any bankruptcy case, contested matter or adversary proceeding referred to the Bankruptcy Court pursuant to 28 U.S.C. § 157(a) and Local Rule 402 shall be filed with the Clerk in the Bankruptcy Court. If the motion requests withdrawal of only a portion of the case, a contested matter, or a portion of an adversary proceeding, the motion shall be accompanied by the filing of a designation of the documents and pleadings filed in the case or proceeding to which the motion relates.

b. Withdrawal of reference of bankruptcy cases. A motion to withdraw the reference of a case to the Bankruptcy Court must be timely filed, and in any event, before the case is closed.

c. Withdrawal of reference of adversary proceeding or contested matter. A motion to withdraw an adversary proceeding or a contested matter in a case which has been referred to the Bankruptcy Court must be filed by the earlier of eleven (11) days before the date scheduled for the first hearing on the merits; and

i. in the case of an adversary proceeding, within twenty (20) days after the last pleading is permitted to be filed pursuant to Bankruptcy Rule 7012; or
ii. in the case of a contested matter, within twenty

(20) days after the last responsive pleading or memorandum in opposition is permitted to be filed pursuant to Local Bankruptcy Rule 9013-1(b)(3).

3. Filing of pleadings after reference withdrawn.

a. If the reference of an entire case has been withdrawn from the Bankruptcy Court to the District Court, all pleadings and documents in or related to such case shall be thereafter filed with the Clerk in the District Court.

b. Where the reference of only a portion of an entire case has been withdrawn, pleadings and documents with respect to the case (including any parts thereof that have been withdrawn or transferred) shall continue to be filed with the Clerk in the Bankruptcy Court. Any pleadings and documents which relate to any parts of the case which have been withdrawn or transferred to the District Court shall also be filed with the Clerk of the District Court. The Clerk of the Bankruptcy Court
shall keep a separate docket sheet of those pleadings and documents filed in the portion of the case that has been transferred to the District Court.

c. Upon withdrawal or transfer of any complaint to the District Court, the plaintiff may forward to the defendant a notice and request to waive service of summons or the Clerk shall issue a District Court summons pursuant to Fed. R. Civ. 4(d) unless either of the aforementioned has already occurred pursuant to the Bankruptcy Rules.

d. This subsection (d) governs personal injury tort and wrongful death claims which must be tried in the District Court pursuant to 28 U.S.C. § 157(b)(5). Except for the procedures contained within this subsection, personal injury tort and wrongful death proceedings shall be filed with the Clerk in the Bankruptcy Court. However, beneath the bankruptcy number, the pleading or other document shall designate the pleading or document as a “SECTION 157(b)(5) MATTER.” When filing a complaint a completed District Court civil cover sheet (A.O. Form JS-44c) should be submitted beneath the Bankruptcy Court cover sheet required by Local Bankruptcy Rule 7003-1. No summons shall be issued until the proceeding
is transferred to the District Court. Upon filing the complaint, the Clerk in the Bankruptcy Court shall immediately transfer the proceeding to the District Court and plaintiff may send to the defendant(s) a notice and request to waive service of summons pursuant to Fed. R. Civ. P. 4(d) or the Clerk of the District Court shall issue a summons.

4. Motions concerning venue in bankruptcy cases and proceedings. All motions concerning venue in cases arising under Title 11 or arising in or related to cases under Title 11 shall be determined by the Bankruptcy Court, except in those cases to be tried in the District Court pursuant to 28 U.S.C. § 157(b)(5).

See also Local Bankruptcy Rule 5011-2, which provides in pertinent part as
follows:

A motion for withdrawal of reference is governed by Local Rule 405.2 of the United States District Court for the District of Maryland.

Filing of Pleadings Before Withdrawal of Reference

In accordance with District Court Local Rules 402 and 405.1, all papers and pleadings in, or related to a bankruptcy case or proceeding, shall be filed with the Clerk of the Bankruptcy Court. Until an Order is entered by the District Court removing the reference from the Bankruptcy Court for all or part of a matter, the Clerk of the District Court will not accept the filing of any pleadings or papers in any bankruptcy-related matter. Unless the party filing a paper or pleading in the Bankruptcy Court is exempt from electronic filing,1 all papers and pleadings should be filed in the Bankruptcy Court electronically through the CM/ECF system.

Filing of a Motion to Withdraw Reference

A party on timely motion or the District Court upon its own motion may withdraw, in whole or in part, any case or proceeding pending in the Bankruptcy Court for cause shown. The party’s motion to withdraw the reference must be filed in the Bankruptcy Court. If the motion requests withdrawal of only a portion of the case, contested matter or adversary proceeding, the motion shall be accompanied by the filing of a designation of the documents and pleadings filed in the case or proceeding to which the motion relates. After the filing of a response or the expiration of the response time period, if no response is filed, the Bankruptcy Clerk shall transmit the motion to the District Clerk’s office. The transmittal shall include copies of the motion and any response thereto and the transmittal form for a motion for withdrawal of reference. As set forth in Bankruptcy Rule 5011(a), the motion for withdrawal of reference will be decided by the District Court.

_____________________________

1 Parties who are representing themselves (pro se), other than those who are members of the Bar of the Bankruptcy Court, are exempt from the electronic filing requirements and should file their papers and pleadings with the Clerk of the Bankruptcy Court in paper format.

Unless and until the motion for withdrawal of reference is granted by Order of the District Court, the only matter over which the District Court will exercise jurisdiction is the motion for withdrawal of reference. Until the reference is actually withdrawn, the original referral of jurisdiction (District Court Local Rule 402) remains in place. Accordingly, while the motion for withdrawal of reference is pending, pleadings and papers in or related to the bankruptcy case shall continue to be filed with the Bankruptcy Court. After the motion to withdraw reference has been transmitted to the District Clerk, the Bankruptcy Clerk shall send copies of any additional filings concerning the motion to withdraw reference to the District Clerk. Until the reference is withdrawn, the Bankruptcy Court shall continue to handle all matters in the bankruptcy case including adversary proceedings and contested matters in such case.

Timeliness of Motion to Withdraw Reference

As set forth in 28 U.S.C. §157(d) and District Court Local Rule 405.2.b, a party’s motion to withdraw the reference must be timely filed. With respect to motions to withdraw the reference of the bankruptcy case itself, the District Court Local Rule further provides that the motion must be filed before the case is closed. With respect to motions to withdraw the reference of adversary proceedings or contested matters, District Court Local Rule 405.2.c provides that such motion must be filed by the earlier of eleven (11) days before the date scheduled for the first hearing on the merits and, in the case of an adversary proceeding, within twenty (20) days after the last pleading is permitted to be filed pursuant to Bankruptcy Rule 7012, or, in the case of a contested matter, within twenty (20) days after the last responsive pleading or memorandum in opposition is permitted to be filed pursuant to Local Bankruptcy Rule 9013-1(b)(3).

Mandatory and Discretionary Withdrawal of Reference

As noted above, pursuant to 28 U.S.C. § 157(d), the authority for a District Court to withdraw the reference is divided into two parts, mandatory withdrawal of the reference (“if the court determines that resolution of the proceeding requires consideration of both title 11 [the Bankruptcy Code] and other laws of the United States regulating organizations or activities affecting interstate commerce”) and discretionary withdrawal of the reference (“for cause shown”).

With respect to mandatory withdrawal of the reference, the statutory language appears to be quite broad. Nevertheless, it has been observed that “[t]he great weight of the case law interpreting § 157(d) holds that this seemingly broad language concerning mandatory withdrawal should be narrowly read. . . . The fact that resolution of the matters in question calls merely for consideration or application of both bankruptcy law and other federal laws is plainly insufficient, in that mandatory withdrawal should only be made where substantial and material consideration of non-bankruptcy statutes is necessary in the case.” In re Merryweather Importers, Inc., 179 B.R. 61, 62 (D. Md. 1995). Thus, mandatory withdrawal has been denied in cases involving “straightforward application of federal statutes to a particular set of facts. . . . By contrast, cases involving federal questions that are complex or are of first impression must be withdrawn from reference.” Id. at 62.

With respect to discretionary withdrawal of the reference (sometimes called permissive withdrawal), the statutory test is “for cause shown.” Cases have recognized that the District Court has broad discretion in deciding whether the reference should be withdrawn for cause shown. See In re Millennium Studios, Inc., 286 B.R. 300, 303 (D. Md. 2002). Among the factors to be considered by the court are whether the matter at issue between the parties is “core” within the meaning of 28 U.S.C. § 157(b)(2) and “the uniformity of bankruptcy administration, forum shopping and confusion of fora, conservation of creditor and debtor resources, expediency of the bankruptcy proceeding, and the fact that only equitable issues are posed, not requiring a jury trial but falling within the traditional equitable powers of the bankruptcy judge as chancellor.” In re Millennium Studios, Inc., 286 B.R. at 303; In re EquiMed, Inc., 259 B.R. 269, 273 (D. Md. 2001); In re Merryweather Importers, Inc., 179 B.R. at 63. Additional factors identified also include whether withdrawal “would promote judicial economy and the economic use of the parties’ resources.” In re EquiMed, Inc., 254 B.R. 347, 351 (D. Md. 2000). Finally, it has been stated that it is the movant’s burden to show cause for discretionary withdrawal of the reference. See In re Millennium Studios, Inc., 286 B.R. at 303-304.

Procedure in the Event that Entire Matter is Withdrawn

If the District Court grants the motion for withdrawal of reference, it shall enter an order providing for the same. A copy of said order shall immediately be transmitted to the Clerk of the Bankruptcy Court. If the reference of jurisdiction for the entire bankruptcy case or adversary proceeding is withdrawn by the District Court’s Order, all pleadings and papers in or related to such case or adversary proceeding shall thereafter be filed exclusively with the Clerk of the District Court. District Court Local Rule 405.3.a.

Procedure in the Event that Part of a Matter is Withdrawn

If the Order of the District Court withdraws the reference for less than the entire case or less than an entire adversary proceeding (for example, resolution of a contested matter), all pleadings and papers with respect to that bankruptcy case or adversary proceeding (specifically including those pleadings relating to the withdrawn matter) must continue to be filed with the Clerk of the Bankruptcy Court. In addition, counsel shall electronically file copies of all pleadings and documents relating to any parts of the case which have been withdrawn with the Clerk of the District Court through the CM/ECF system.2 Local District Court Rule 405.3.b.

Personal Injury and Wrongful Death Claims

Any personal injury or wrongful death claim filed in a bankruptcy case, or related to a bankruptcy case, shall be filed in the Bankruptcy Court. Local District Court Rule 405.3.d. The pleading shall contain a designation: “SECTION 157(b)(5) MATTER” and, if such pleading is a complaint, shall be accompanied by both a Bankruptcy Cover Sheet and a District Court Civil Cover Sheet. After docketing the initial pleading, the Clerk of the Bankruptcy Court shall forthwith transmit the matter to the Clerk of the District Court including a copy of the pleading, the District Court Civil Cover Sheet and a transmittal form. The Clerk of the District Court shall issue any necessary summons and the matter shall thereafter proceed in the District Court.

Final Orders of the District Court

If the District Court denies the motion to withdraw the reference, the Clerk of the District Court shall docket such order and forthwith transmit a copy of the docketed order to the Clerk of the Bankruptcy Court, after which the District Court file shall be closed. The Clerk of the Bankruptcy Court shall docket the order upon receipt from the Clerk of the District Court in the bankruptcy case or adversary proceeding in which the motion was filed.

With respect to a matter where reference has been withdrawn by the District Court, at such time as the District Court by final order decides such matter, the Clerk of the District Court shall docket the order of the District Court and forthwith transmit a copy of the docketed order to the Clerk of the Bankruptcy Court. The Clerk of the Bankruptcy Court shall docket the order in the case or adversary proceeding in which the motion to withdraw reference was filed.

__________________________________

2 The District Court also requires counsel to submit a paper courtesy copy of any document which, including attachments, is fifteen pages or longer.

Jury Adversary Proceedings That Must be
Tried by the District Court

With respect to jury trials, 28 U.S.C. § 157(e) provides as follows:

(e) if the right to a jury trial applies in a proceeding that may be heard under this section by a bankruptcy judge, the bankruptcy judge may conduct the jury trial if specially designated to exercise such jurisdiction by the district court and with the express consent of all the parties.

In addition, 28 U.S.C. § 1411 (Jury trials) provides as follows:

(a) Except as provided in subsection (b) of this section, this chapter and title 11 do not affect any right to trial by jury that an individual has under applicable nonbankruptcy law with regard to a personal injury or wrongful death tort claim.

(b) The district court may order the issues arising under section 303 of title 11 to be tried without a jury.

A discussion of the circumstances in which a right to a jury trial exists in a
particular adversary proceeding or other matter is beyond the scope of this
Memorandum.

With respect to the procedure applicable to jury trials, Bankruptcy Rule 9015(b) provides as follows:

(b) Consent to Have Trial Conducted by Bankruptcy Judge. If the right to a jury trial applies, a timely demand has been filed pursuant to Rule 38(b) F.R.Civ. P., and the bankruptcy judge has been specially designated to conduct the jury trial, the parties may consent to have a jury trial conducted by a bankruptcy judge under 28 U.S.C. § 157(e) by jointly or separately filing a statement of consent within any applicable time limits specified by local rule.

Local Bankruptcy Rule 9015-1 provides as follows:

A statement of consent to have a jury trial conducted by a bankruptcy judge under 28 U.S.C. § 157(e) must be filed before the conclusion of the initial pretrial conference.

With respect to the procedure for requesting a jury trial in a
bankruptcy proceeding, Local District Court Rule 406 (Jury trial) provides as follows:

1. Demand. In any bankruptcy proceeding any party may demand a trial by jury of any issue triable of right by jury by (1) serving upon the other parties a demand therefor in writing at any time after the commencement of the action and not later than ten days after the service of the last pleading directed to such issue, and (2) filing the demand as required by Bankruptcy Rule 9015. Such demand may be indorsed upon a pleading of the party. If the adversary proceeding is one that has been removed from another court, any demand previously made under the rules of that court shall constitute a demand for trial by jury under this rule.

2. Specification of issues. In the demand a party may specify the issues which the party wishes so tried; otherwise the party shall be deemed to have demanded trial by jury for all the issues so triable. If the party has demanded trial by jury for only some of the issues, any other party within ten days after service of the demand or such lesser time as the Court may order, may serve a demand for trial by jury of any other or all of the issues of fact in the action.

3. Waiver. The failure of a party to serve and file a demand as required by this rule constitutes a waiver by the party of trial by jury. A demand for trial by jury made as herein provided may not be withdrawn without the consent of the parties.

4. Consent to jury trial before the United States Bankruptcy Judge. Pursuant to 28 U.S.C. 157(e), with the consent of the parties, a District Judge may designate a Bankruptcy Judge to conduct a jury trial.

A. No Motion to Withdraw Filed.

When an adversary proceeding is filed in which a party rightfully claims a right to trial by jury and the bankruptcy judge is not designated, or the parties have not consented to have the jury trial conducted by the Bankruptcy Judge, unless the complaint is accompanied by a motion to withdraw the reference, all jurisdiction over the adversary proceeding remains with the Bankruptcy Court until the reference is later withdrawn.

Accordingly, all pleadings must continue to be filed with the Clerk of the
Bankruptcy Court and all matters to be resolved within the adversary
proceeding, short of trial, remain before the Bankruptcy Judge. Included in
such matters to be resolved by the Bankruptcy Court, are disputes between
the parties as to the right to trial by jury.

B. Motion to Withdraw Reference Filed, but Denied at Outset of
Adversary Proceeding.

If the complaint or answer is accompanied by a timely filed motion to
withdraw reference under District Court Local Rule 405.2.c, the procedures
discussed above shall be followed for the disposition of the motion to
withdraw reference. An early motion to withdraw the reference may be
denied without prejudice to refiling the motion when the case is trial ready.
See In re Stansbury Poplar Place, Inc., 13 F.3d 122 (4th Cir. 1993); Furniture Rentors of America v. NYNex Information Resources Co., 162 B.R. 728 (D. Md. 1994). If the motion for withdrawal of the reference is denied at an early stage in the adversary proceeding and therefore the adversary
proceeding remains for pre-trial purposes with the Bankruptcy Court, all
jurisdiction over the adversary proceeding remains with the Bankruptcy
Court until a motion is granted withdrawing the reference of the adversary
proceeding.

C. Pre-Trial Phase.

The pre-trial phase of the adversary proceeding shall encompass the
period of time allowed for discovery and the filing of and decision on all
dispositive motions. At the time that discovery has been completed, any
dispositive motions ruled upon, and the adversary proceeding is otherwise
ready to be scheduled for trial, the pre-trial phase of the adversary
proceeding is completed.

D. Withdrawal of Reference for Trial

If the reference has not been withdrawn by Order of the District Court
prior to the completion of the pre-trial phase of the adversary proceeding, at the end of the pre-trial phase of the adversary proceeding the Bankruptcy Court shall issue a summary report and recommendation to the District Court, recommending that the reference be withdrawn so that the trial by jury may go forward in the District Court. This report and recommendation shall be docketed in the adversary proceeding by the Clerk of the Bankruptcy Court and a copy transmitted to the Clerk of the District Court for action by the District Court upon the report and recommendation. If the District Court agrees that the reference should be withdrawn at that time, the District Court will enter an Order withdrawing the reference and transmit a copy of the Order to the Clerk of the Bankruptcy Court. Upon entry of an Order withdrawing the reference, all jurisdiction over the adversary proceeding shall be in the District Court and the Bankruptcy Court shall have no further authority to act in the adversary proceeding. All pleadings thereafter shall be filed with the Clerk of the District Court.

Miscellaneous

The transmission of a motion for withdrawal of the reference should not be delayed by the Clerk of the Bankruptcy Court pending the issuance of any report and recommendation by the Bankruptcy Court. Where it deems it appropriate, the Bankruptcy Court may provide such a report and recommendation to the District Court, or the District Court may request such a report and recommendation from the Bankruptcy Court, for any motion for withdrawal of the reference.

When Homeowner’s good faith attempts to amicably work with the Bank in order to resolve the issue fails;

How Homeowners Can Effectively Use Automatic Stay Provisions of the Bankruptcy Code

27 Sunday Dec 2015

Posted by BNG in Bankruptcy, Case Laws, Case Study, Foreclosure Crisis, Foreclosure Defense, Judicial States, Non-Judicial States, Pro Se Litigation, Your Legal Rights

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I. Introduction.

A. Scope.

1. Section 362(a) of the Bankruptcy Code (the “Code”) contains a broad
statutory stay of litigation and lien enforcement, effective automatically on the commencement of a bankruptcy case. 11 U.S.C. § 362(a) (“. . . a petition [commencing a case] . . . operates as a stay, applicable to all entities . . .”.).

2. Purpose – Time to Reorganize. This automatic stay gives a trustee or
chapter 11 debtor-in-possession1 a breathing spell from creditors by stopping all collection efforts, harassment, and all foreclosure actions, allowing a debtor to attempt a reorganization plan. See, e.g., In re Siciliano, 13 F.3d 748, 750 (3d Cir. 1994) (“[t]he purpose of the automatic stay provision is to afford the debtor a ‘breathing spell’ by halting the collection process. It enables the debtor to attempt a repayment or reorganization plan with an aim toward satisfying existing debt.”);
Maritime Electric Co., Inc. v. United Jersey Bank, 959 F.2d 1194, 1204 (3d Cir. 1991) (“automatic stay allows debtor breathing spell from creditors and stops collection efforts”); In re Peregrine Systems, Inc., 314 B.R. 31, 44 (Bankr. D. Del. 2004) aff’d in part, rev’d in part on other grounds, 2005 WL 2401955 (D. Del. Sept. 29, 2005) (automatic stay is a “fundamental protection provided to a debtor for the purpose of stopping all creditor collection efforts and harassment of the debtor and to provide … a fresh start.”); Shaw v. Ehrlich, 294 B.R. 260, 267 (W.D. Va. 2003), aff’d, 99 Fed. Appx. 466 (4th Cir. 2004) (“stay protects debtors, as well as creditors, by providing debtors a breathing spell from collection efforts”).

3. Policy Rationale – Debtor Asset Protection. Behind the stay is a clear
policy rationale: “to grant complete, immediate, albeit temporary relief to the debtor from creditors, and also to prevent dissipation of the debtor’s assets before orderly distribution to creditors can be effected.” S.E.C. v. Brennan, 230 F.3d 65, 70 (2d Cir. 2000) (quoting Penn Terra Ltd. v. Department of Envtl. Resources, 733 F.2d 267, 271 (3d Cir. 1984)). See also Reliant Energy Services, Inc. v. Enron Canada Corp., 349 F.3d 816, 825 (5th Cir. 2003) (“purposes of the bankruptcy stay under 11 U.S.C. § 362 ‘are to protect the debtor’s assets, provide temporary relief from creditors, and further equity of distribution among the creditors by forestalling a race to the courthouse.'”) (quoting GATX Aircraft Corp. v. M/V Courtney Leigh, 768 F.2d 711, 716 (5th Cir. 1985)); Mann v. Chase Manhattan Mortgage Corp., 316 F.3d 1, 3 (1st Cir. 2003) (“automatic stay provision is designed to forfend against the disorderly, piecemeal dismemberment of the debtor’s estate outside the bankruptcy proceedings”).

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1 Code § 1107(a) gives a chapter 11 debtor-in-possession the “rights,” “duties” and “powers” of a trustee.
See NLRB v. Bildisco & Bildisco, 465 U.S. 513, 517 n. 2 (1984). See also Fed. R. Bankr. P. 9001(10) (“‘Trustee’ includes a debtor in possession in a Chapter 11 case.”).

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4. Procedural Safeguards for Secured Creditors. The Code still imposes
procedural safeguards for the benefit of the secured creditor (e.g., “adequate protection” against erosion of collateral value; time limits on stay modification requests; limits on counterclaims against secured lender seeking stay modification). As shown below, it attempts to reconcile the rights of the secured creditor with the needs of the debtor and its unsecured creditors. See United Savings Assn. of Texas v. Timbers of Inwood Forest Associates, Ltd. (In re Timbers of Inwood Forest Associates, Ltd.), 484 U.S. 365, 376 (1988) (“ . . . lack of any realistic prospect of effective reorganization will require” modification of stay of lien enforcement”).

II. The Automatic Stay.

A. When Effective.

1. The stay is automatic upon filing of the petition commencing a case under Code chapters 7 (liquidation), 9 (municipal debt adjustment), 11 (reorganization),13 (individual debt adjustment), or chapter 15 (cross-border cases) with respect to foreign main proceedings. See e.g. Eskanos & Adler, P.C. v. Leetien, 309 F.3d 1210, 1214 (9th Cir. 2002) (“the automatic stay requires an immediate freeze of the status quo by precluding and nullifying post-petition actions”); Rexnord Holdings, Inc. v. Bidermann, 21 F.3d 522, 527 (2d Cir. 1994) (“[a]utomatic stay is effective immediately upon filing of bankruptcy petition”) (citing Shimer v. Fugazy (In re Fugazy Express, Inc., 982 F.2d 769, 776 (2d Cir. 1992));

2. The stay acts as a specific and definite court order to restrain creditors
from continuing the judicial process or collection efforts against debtor. See e.g. In re San Angelo Pro Hockey Club, Inc., 292 B.R. 118 (Bankr. N.D. Tex. 2003) (automatic stay is self-executing injunction, constituting an order issuing from bankruptcy court); In re Bottone, 226 B.R. 290, 297 (Bankr. D. Mass. 1998) (“as long as the Chapter 13 case is pending . . . the automatic stay … restrains postpetition creditors from taking action against property of the estate”) (quoting In re Woodall, 81 B.R. 17, 18 (Bankr. E.D. Ark. 1987)).

3. Unless modified by the court, the stay is effective for the duration of a
bankruptcy case, and generally cannot be waived by the debtor. Maritime Elec. Co., Inc. v. United Jersey Bank, 959 F.2d 1194 (3d Cir. 1991) (held, because automatic stay serves interests of both debtors and creditors, it may not be waived and its scope may not be limited by debtor); In re Atrium High Point Ltd. Partnership, 189 B.R. 599 (Bankr. M.D.N.C. 1995) (before enforcing a debtor’s prepetition waiver of automatic stay bankruptcy court must look at circumstancesunder which prepetition waiver arose); but see In re Excelsior Henderson Motorcycle Mfg. Co., Inc., 273 B.R. 920 (Bankr. S.D. Fla. 2002) (court enforced prepetition agreement under which chapter 11 debtor waived automatic stay).

B. Jurisdictional Basis of Injunctive Power.

1. The district court has “exclusive jurisdiction of all of the property,
wherever located, of the debtor as of the commencement of [the] case.” 28 U.S.C. § 1334(d). A bankruptcy court is a “unit of the district court.” 28 U.S.C. § 151. Section 362 implements this jurisdiction and is supplemented by § 105(a), which authorizes a court to “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of the Code.

2. The broad jurisdictional base of Section 362 confirms the court’s inherent power to protect property within its jurisdiction and to prevent any divestiture of that jurisdiction. Isaacs v. Hobbs Tie & Timber Co., 51 S. Ct. 270, 282 (1931) (held, jurisdiction of bankruptcy court respecting property of debtor’s estate having attached, actions brought in other courts could not affect it). See In re Mohawk Greenfield Motel Corp., 239 B.R. 15 (Bankr. D. Mass. 1999) (“the automatic stay protects the bankruptcy court’s exclusive jurisdiction over the debtor and its property”) (citing In re Soares, 107 F.3d 969, 975 (1st Cir. Mass. 1997)).

3. Section 362(a) stays, among other things:

a. a secured creditor from collecting accounts receivable of debtor.
Matter of Pernie Bailey Drilling Co., Inc., 993 F.2d 67 (5th Cir. 1993)
(account receivables were property of the estate; court must lift stay for
creditors to gain access to receivables);

b. a creditor’s dissolution of a debtor corporation. 11 U.S.C.
§ 362(a)(3); Hillis Motors, Inc. v. Hawaii Automobile Dealers’ Assoc.,
997 F.2d 581 (9th Cir. 1993) (held, dissolution proceeding constituted
exercise of control over debtor’s property);

c. foreclosure proceedings in other courts instituted against debtor’s
property prior to commencement of bankruptcy case. 11 U.S.C.
§ 362(a)(1); see In re Vierkant, 240 B.R. 317, 322 (B.A.P. 8th Cir. 1999)
(citing Kalb v. Feuerstein, 308 U.S. 433 (1940); In re Soares, 107 F.3d
969 (1st Cir. 1997)) (post-petition state court default order signed by judge
two weeks after bankruptcy filing violated automatic stay);

e. an IRS sale of property seized prior to commencement of case.
11 U.S.C. § 362(a)(8); United States v. Whiting Pools, Inc., 462 U.S. 198
(1983) (IRS may also be compelled to turn over levied property under
Code § 542).

f. arbitration proceedings that not only concern claims asserted
against the debtor, but also concern the debtor’s claims against a third
party. ACandS, Inc. v. Travelers Casualty and Surety Co., 425 F.3d 252
(3d Cir. 2006), cert. denied, 126 S. Ct. 2291 (2006). (although arbitration
was commenced by debtor, continuation of arbitration proceedings
violated automatic stay because, unlike trial, it is impossible in arbitration
to definitely classify arguments presented (i.e., claims and counterclaims);
arbitration award, which effectively terminated debtor’s insurance
coverage, is invalid because it diminishes estate property); In re Edwin
Epstein Jr. Operating Co., Inc., 314 B.R. 591 (Bankr. S.D. Tex. 2004)
(held, automatic stay applied, not only to prevent non-debtor party to
arbitration proceedings from asserting claims against debtor for tortious
interference and slander of title, but also to prevent arbitrators from
hearing debtor’s claims to replace this non-debtor party as operator of oil
and gas wells based on debtor’s asserted ownership interests therein).

III. Scope and Duration of Stay.

A. Scope of Section 362.

1. Property of Estate. The bankruptcy court’s injunctive power is ordinarily
limited to protecting property belonging to a debtor. Property of the estate is defined in Code § 541(a)(1) (“. . . all legal or equitable interests of the debtor in property as of the commencement of the case.”). See In re Lankford, 305 B.R. 297, 301 (Bankr. N.D. Iowa 2004) (“All recognizable interests of the debtors or the estate are afforded the protection of § 362(a)…This includes a mere possessory interest in real property without any accompanying legal interest.”). See also In re Moffett, 356 F.3d 518 (4th Cir. 2004) (held, chapter 13 debtor’s statutory right of redemption was sufficient interest in automobile that was repossessed prepetition to be included in estate property). But see In re Jasper, 325 B.R. 50, 55 (Bankr. D. Me. 2005) (credit union’s policy of revoking membership benefits of members who caused credit union a loss does not violate automatic stay); In re Santangelo, 325 B.R. 874 (Bankr. M.D. Fla. March 22, 2005) (district court did not violate automatic stay by approving class action
settlement for claims against mortgage lender; rather, court gave prospective class members, including debtor choice of remaining class members or opting out of class); In re Medex Regional Laboratories, LLC, 314 B.R. 716 (Bankr. E.D. Tenn. 2004) (proceeds of debtor’s directors’ and officers’ liability insurance policies were not property of estate and were not protected by automatic stay, even though policies also provided coverage to debtor for indemnification claims, because the debtor had not provided any indemnification to non-debtor insiders and such indemnification claims were merely hypothetical). Compare In re Arter &
Hadden, L.L.P., 335 B.R. 666 (Bankr. N.D. Ohio 2005) (proceeds of debtor’s
directors’ and officers’ liability insurance policies are property of estate because policies also provided coverage to debtor and there was no reason why direct suit against debtor is either practically or procedurally untenable).

a. Property Outside the Scope. The stay is not applicable to actions
against property that is neither the debtor’s nor the estate’s. Rodger v.
County of Munroe (In re Rodgers), 333 F.3d 64 (2d Cir. 2003) (debtor’s
mere possession of title to real property is not sufficient to find property to
be property of estate or to bar delivery of deed to purchaser by operation
of stay); Chugach Timber Corp. v. Northern Stevedoring & Handling
Corp. (In re Chugach Forest Prods., Inc.), 23 F.3d 241 (9th Cir. 1994)
(court refused to extend stay to boat that was not property of debtor’s
estate but on which assets of debtor had been transferred) (11 U.S.C.
§ 541(b)); In re Howell, 311 B.R. 173, 179 (Bankr. D. N.J. 2004)
(automatic stay does not preclude estranged spouse from seeking equitable distribution of non-estate property such as exempt property, postpetition earnings, property excluded from the estate, property abandoned by the trustee or debtor surplus); NLRB v. McDermott, 300 B.R. 40 (D. Col. 2003) (automatic stay did not protect property of debtor’s wife’s). Examples of property outside the stay’s scope are:

(i) Foreclosure. If a lender completes foreclosure before the bankruptcy filing, neither the debtor nor the estate has any interest in the property and the automatic stay does not apply. In re Theoclis, 213 B.R. 880 (Bankr. D. Mass. 1997) (held, foreclosure sale had terminated debtor’s interest in property.); In re Williams, 247 B.R. 449 (Bankr. E.D. Tenn. 2000) (when foreclosure sale of debtor’s residence became final prior to commencement of chapter 13 case, residence did not become property of estate and was not protected by automatic stay);

(ii) Abandonment. Abandonment terminates the stay as to abandoned property. In re Holly’s, Inc., 140 B.R. 643 (Bankr. W.D. Mich. 1992) (once abandonment of debtor’s property is effectuated, or foreclosure of real and personal property is completed, taxing entity is entitled to enforce its
statutory in rem rights against property.). But see In re Thompson-Mendez, 321 B.R. 814, 819 (Bankr. D. Md. 2005) (trustee’s deemed rejection of debtor’s residential lease by failure to timely assume it did constitute
abandonment such that lease was no longer protected by automatic stay).

2. Entities Affected by the Stay. Section 362(a) applies “to all entities,”
including any “person, estate, trust, governmental unit.” 11 U.S.C. § 101(15). This broad definition of “entity” eliminates the need to define who is a “creditor,” “secured creditor” or other person affected by the stay.

B. Duration of the Stay. Unless the court orders otherwise (i.e., unless creditor gets automatic stay modified), the stay “continues until such property is no longer property of the estate.” 11 U.S.C. § 362(c)(1). The stay of all other acts continues until case is closed or dismissed, or, if debtor is an individual, until debtor is granted or denied a discharge. 11 U.S.C. §§ 362(c)(2)(A), (B) and (C). See also In re Allen, 300 F.3d 1055, 1059 (9th Cir. 2002) (automatic stay “prohibits action against the bankruptcy estate only until the bankruptcy court confirms a plan reorganizing the debtor’s property”); Middle Tennessee News Co., Inc. v. Charnel of Cincinnati, Inc., 250 F.3d 1077 (7th Cir. 2001) (automatic stay remains in effect until bankruptcy court disposes of case or grants relief from stay); In re Spirtos, 221 F.3d 1079, 1081 (9th Cir. 2000) (“So long as there are assets in the estate, then, the stay remains in effect”); Eastern Refractories Co. Inc. v. Forty Eight Insulations Inc., 157 F.3d 169 (2d Cir. 1998) (order “terminating” automatic stay operates from date of order’s entry); Lomagno v. Salomon Brothers Realty Corp., 320 B.R. 473, 481 (B.A.P. 1st Cir. 2005), aff’d, 429 F.3d 16 (1st Cir. 2005) (automatic stay not retroactively imposed when dismissal order set aside on due process grounds); In re Peregrine Systems, Inc., 314 B.R. 31, 44 (Bankr. D. Del. 2004), aff’d in part, rev’d in part on other grounds, 2005 WL 2401955 (D. Del. Sept. 29, 2005) (automatic stay “continues until the bankruptcy case is closed, dismissed, or discharge is granted or denied, or until the bankruptcy court grants some relief from the stay.”) (citing Maritime Elec. Co., Inc. v. United Jersey Bank, 959 F.3d 1194, 1206 (3d Cir. 1991)); U.S. v. White, 466 F.3d 1241 (11th Cir. 2006) (debtor discharged and automatic stay terminates on date of confirmation of debtor’s reorganization plan even when plan contains a later effective date). If a case is filed by or against a debtor who is an individual and a case of the debtor was pending within the preceding one year period but was dismissed, the automatic stay “with respect to any action taken with respect to a debt or property securing such debt or with respect to any lease shall terminate with respect to the debtor on the 30th day after the filing of the later case.” 11 U.S.C. § 362(c)(3)(A). See Jumpp v. Chase Home Finance, LLC (In re Jumpp), 356 B.R. 789 (B.A.P. 1st Cir. 2006) (interpreting § 362(c)(3)(A) automatic stay terminates only in regard to debtor; stay continues, though, in regard to property of estate).

As of October 17, 2005, automatic stay terminates 60 days after a request for relief from stay unless final decision on request is rendered by court within the 60-day period or period is extended by agreement or by court for specific period of time found necessary for good cause.2

__________________________________________

2 The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was enacted on April 20, 2005, and many of its provisions became effective on October 17, 2005.

———————

IV. Acts Stayed. Section 362(a) is broad in scope, but specifically lists eight categories that are subject to its injunctive power.

1. “Commencement or continuation . . . of a judicial, administrative, or other proceeding against the debtor . . . to recover on a prepetition claim against a debtor.”3 Code § 362(a)(l) (emphasis added):

a. Appeals: stay covers all proceedings originally brought against the
debtor, regardless of whether the debtor is appellant or appellee.4 Halmar
Robicon Group, Inc. v. Toshiba Int’l Corp., 127 Fed. Appx. 501, 503 (Fed.
Cir. 2005) (automatic stay only operates as against actions in which debtor
is in defensive posture); Nielson v. Price, 17 F.3d 1276, 1277 (10th Cir.
1994) (“[t]he 362(a)(1) stay applies to actions that are ‘against the debtor’
at their inception, regardless of the subsequent appellate posture of the
case”); Ellis v. Consolidated Diesel Elec. Corp., 894 F.2d 371, 373 (10th
Cir. 1990) (operation of stay should not depend upon whether district
court finds for or against the debtor). But see In re Mid-City Parking,
Inc., 322 B.R. 798 (Bankr. N.D. Ill. 2005) (debtor may unilaterally waive
protections of automatic stay by pursuing appeal without first obtaining
bankruptcy court order lifting stay; debtor could not be held liable for
damages to creditor-appellee arising from debtor’s alleged “willful stay
violation).

b. Administrative proceedings: See In re Krystal Cadillac Oldsmobile
GMC Truck, Inc., 142 F.3d 631 (3d Cir. 1998) (postpetition
determinations by Pennsylvania’s Board of Vehicle Manufacturers,
Dealers and Salespersons, ordering termination of franchise agreement
violated automatic stay); In re Best Payphones, Inc., 279 B.R. 92 (Bankr.
S.D.N.Y. 2002) (administrative law judge’s post-petition decision in
proceeding commenced pre-petition ‘but concluded after debtor’s chapter
11 filing’ was void and without effect because it violated automatic stay).
But see Board of Governors of Federal Reserve System v. MCorp
Financial, Inc., 502 U.S. 32 (1991) (Section 362(a) does not apply to
ongoing, nonfinal administrative/regulatory proceedings, and action of
Board of Governors was excepted from the stay under Section 362(b)(4)
of the Code (the “governmental unit” exception)).

c. Partnerships. Actions against partners and their property are not
protected in first instance by the filing of a partnership petition. Bankers
Trust (Delaware) v. 236 Beltway Inv., 865 F. Supp. 1186 (E.D. Va. 1994)
(automatic stay does not protect partnership debtor’s individual general
partners); O’Neill v. Boden-Wert Real Estate USA Funds I, Ltd., 599
So.2d 1045 (Fla. App. 2d Dist. 1992) (held, automatic stay did not stop action against general partner in partnership debtor or against general
partner’s general partner).

______________________________

3 “‘[C]laim against the debtor’ includes claim against property of the debtor.” 11 U.S.C. § 102(2).
4 Actions against non-debtors and against co-defendants are not stayed. See sub-section (e) infra.

d. Shareholders of corporate debtor. Bankruptcy court has no jurisdiction
over stock of corporate debtor that belongs to third party shareholders.
See e.g. In re Marvel Entertainment Group, Inc., 209 B.R. 832, 838 (D.
Del. 1997) (“automatic stay provisions of the Bankruptcy Code are not
implicated by the exercise of shareholders’ corporate governance rights.”).

e. Actions against surety, co-debtor, or guarantor are not stayed.5 See
e.g. Reliant Energy Services, Inc. v. Enron Canada Corp., 349 F.3d 816,
825 (5th Cir. 2003) (“[by its terms the automatic stay applies only to the
debtor, not to co-debtors under Chapter 7 or Chapter 11”); In re Third
Eighty-Ninth Associates, 138 B.R. 144 (S.D.N.Y. 1992) (suit against
guarantors of chapter 11 debtor was not a “back-door” attempt to acquire
assets of debtor); In re Rohnert Park Auto Parts, Inc., 113 B.R. 610
(B.A.P. 9th Cir. 1991) (automatic stay does not prevent creditors from
suing co-debtors).

f. Actions are not stayed against non-debtor co-defendants.6 See e.g.
Queenie, Ltd. v. Nygard Intl., 321 F.3d 282, 287 (2d Cir. 2003) (debtor’s
filing of bankruptcy petition stayed his appeal and that of his wholly owned corporation7, but not that of co-defendants); 555 M Mfg., Inc. v.
Calvin Klein, Inc., 13 F. Supp. 2d 719 (N.D. Ill. 1998) (automatic stay
protection not available to debtor’s solvent co-defendant in breach of
contract case). But see Woodell v. Ormet Primary Aluminum Corp., 808
N.E.2d 402, 407 (Ohio Ct. App. 2004) (automatic stay applies to claims
against debtor’s employee co-defendants only to the extent that the causes of action against them arise from their status as employees of the debtor).

_____________________________________

5 In limited circumstances, courts have asserted their equitable powers under 11 U.S.C. § 105(a) to enjoin the continuation of litigation against non-debtors when the debtor’s trustee demonstrates that continuation of litigation against non-debtors imminently and irreparably threatens the debtor’s reorganization prospects. E.g. In re United Health Care Org., 210 B.R. 228, 233 (S.D.N.Y. 1997) (staying action against non-debtor principals and officers of debtor when enforcement of judgment imminently and irreparably threatened non-debtors’ ability to fund debtor’s plan); North Star Contracting Corp. v. McSpeedon (In re North Star Contracting Corp.), 125 B.R. 368, 370-71 (S.D.N.Y.1991) (staying action against non-debtor president of debtor when, among other things, continuation of action would distract vital non-debtor and there was no distinct cause of action against him, but merely an action commenced solely to circumvent the stay).

6 Courts may stay actions against a non-debtor third-party defendant under “unusual circumstances” when “there is such identity between the debtor and third-party defendant that the debtor may be said to be the real party defendant and that a judgment against the third-party defendant will in effect be a judgment … against the debtor.” A.H. Robins Co. v. Piccinin, 788 F.2d 994, 999 (4th Cir. 1986). See also In re Nat’l Century Fin. Enter., 423 F.3d 567 (6th Cir. 2005) (commencement of civil action to recover accounts receivable held in collection account in debtor’s name violated automatic stay even though debtor was not named as defendant because action sought to recover estate property); Global Industrial Technologies, Inc. v. Ace Prop. & Cas. Ins. Co. (In re Global Industrial
Technologies), 303 B.R. 753 (W.D. Pa. 2004), vacated in part, modified in part on other grounds, 2004 WL 555418 (Bankr. W.D.Pa. Mar. 19, 2004) (held, state court action brought by insurers for declaratory judgment regarding non-debtor’s rights in insurance policies it shared with debtor violated automatic stay even though debtor was not named as defendant in state court action because outcome of state action could affect debtor’s rights in shared insurance); Teachers Ins. & Annuity Assoc. of America v. Butler, 803 F.2d 61, 65 (2d Cir. 1986) (referred to A.H. Robins decision as case with “unusual circumstances”). Compare In re Transervice Logistics, Inc., 304 B.R. 805 (Bankr. S.D. Ohio 2004) (declining to extend automatic stay to non-debtor co-defendants because, unlike situation
in A.H. Robins, defendant-debtor only faced one suit, not thousands, and thus would not be barraged by discovery and litigation).

——————

g. Proceedings or claims arising post-petition are not subject to automatic
stay, although successful plaintiff must obtain relief from stay if it seeks to enforce judgment against estate.8 Bellini Imports, Ltd. v. Mason & Dixon Lines, Inc., 944 F.2d 199 (4th Cir. 1991) (automatic stay did not bar
institution of action arising out of alleged postpetition breach of contract);
Erickson v. Polk, 921 F.2d 200 (8th Cir. 1990) (lessor of farmland did not
violate automatic stay when it retook possession of property following
postpetition expiration of lease); In re Dominguez, 312 B.R. 499 (Bankr.
S.D.N.Y. 2004) (prepetition lapse of debtor-taxpayer’s redemption period
may constitute “cause” for lifting stay to allow tax authority to exercise its
rights in debtor’s real property; it did not relieve taxing authority’s
obligation to move first for modification of stay).

h. Automatic stay does not apply to post-petition defensive actions in a
prepetition lawsuit brought by a debtor. Stanwyck v. Beilinson, 104 Fed.
Appx. 616 (9th Cir. 2004).

2. Enforcement of prepetition judgment against debtor or its property (11
U.S.C. § 362(a)(2)). See generally Delpit v. Commissioner, 18 F.3d 768 (9th Cir. 1994) (held, appeal to enforce pre-petition judgment was subject to the automatic stay).

3. “[A]ny act” to obtain possession of debtor’s property, or to exercise
control over such property. 11 U.S.C. § 362(a)(3).

__________________________________

7 The court ignored its own precedent in coming to this bizarre result, but justified it by reasoning that adjudication of a claim against the wholly-owned corporation would have an “immediate adverse economic impact” on the debtor. But see Feldman v. Trustees of Beck Ind., Inc. (In re Beck Ind., Inc.), 725 F.2d 880 (2d Cir. 1973) (court cannot enjoin suit against solvent independent subsidiary of debtor merely because stock is held by debtor in reorganization); In re Unishops, Inc., 374 F.Supp. 424 (S.D.N.Y. 1974) (bankruptcy court lacks jurisdiction to grant
a stay of court proceedings against subsidiaries).

8 Judiciary Code, 28 U.S.C. § 959(a), provides relief to holders of postpetition claims against a debtor from having to obtain leave from bankruptcy court to pursue claims arising from “acts or transactions in carrying on business connected with [estate] property.” 28 U.S.C. § 959. Section 959’s exception to the automatic stay is limited to postpetition claims arising from operation of the debtor’s business, and does not include acts associated with liquidation or administration of the bankruptcy estate. See In re Crown Vantage, Inc., 421 F.3d 963, 971-72 (9th Cir. 2005) (postpetition claim against trustee arising from liquidation of estate not subject to § 959 because not related to business operation); Carter v. Rogers, 220 F.3d 1249, 1254 (11th Cir. 2000); In re DeLorean Motor Co., 991 F.2d 1236 (6th Cir. 1993) (malicious prosecution claims against trustee arising from avoidance actions are not based on acts arising from business operation and thus not subject to § 959).

—————————

a. A credit union that accepts and retains postpetition deductions from
chapter 13 debtor’s salary violates automatic stay. See, e.g., Town of
Hempstead Employees Federal Credit Union v. Wicks, 215 B.R. 316
(E.D.N.Y. 1997) (credit union’s four-month-long administrative hold on
chapter 13 debtors’ savings accounts violated automatic stay).

b. Letters of Credit. See, e.g., In re Kmart Corp., 297 B.R. 525 (N.D. Ill.
2003) (letters of credit are not property of debtor’s estate subject to
automatic stay; beneficiary not prevented from drawing on letter of credit
when account party is in bankruptcy); In re A.J. Lane & Co., Inc., 115
B.R. 738 (Bankr. D. Mass. 1990) (held, payment by third party on letter of
credit not stayed because it did not involve a transfer of debtor’s assets).

c. Creditors’ actions against debtor to obtain property fraudulently
transferred by debtor prior to bankruptcy are barred by the automatic stay.
See, e.g. Constitution Bank v. Tubbs, 68 F.3d 685 (3d Cir. 1995) (bank’s
action against guarantors for fraudulent conduct triggered automatic stay
when each guarantor filed a bankruptcy petition during fraud action).

d. Mortgagees’ postpetition foreclosure against real property subject to
deed naming debtor’s spouse a sole owner violated automatic stay because, although debtor only had arguable interest in the property, the
determination should be made by bankruptcy court before mortgagees
foreclosed. In re Chesnut, 422 F.3d 298 (5th Cir. 2005).

e. Debtor’s Tax Benefits. Circuits apparently are split regarding whether
a debtor’s tax benefits (e.g., net operating losses) are property of the estate, thus subject to the automatic stay. See In re UAL Corp., 412 F.3d 775
(7th Cir. 2005) (finding bankruptcy court’s injunction restricting trading in
debtor’s securities to protect tax benefits to be “problematic on the merits,” and questioning court’s reliance on Bankruptcy Code §§ 105(a) and 362 as basis for trading procedures order). Compare In Prudential Lines, Inc., 928 F.2d 565 (2d Cir. 1991) (finding debtor’s tax benefits to be estate property, and that automatic stay thus enjoined debtor’s parent from taking worthless stock deduction on parent’s tax return).

4. Any act to create, perfect, or enforce any lien against debtor’s property
(but not the perfection of mechanic’s lien9 — §§ 362(b)(3) and 546(b) — or when perfection occurs within the 10-day period after the time of effective transfer of the property, under §§ 362(b)(3), and 547(e)(2)(A)). 11 U.S.C. § 362(a)(4). See In re Fuller, 134 B.R. 945 (B.A.P. 9th Cir. 1992) (held, automatic stay prevents creation or perfection of lien, even by operation of law).

_________________________________________

9 The mechanic’s lienor will ordinarily be able to perfect its lien after bankruptcy for work performed prior to bankruptcy. See generally, In re Yobe Electric, Inc., 728 F.2d 207, 208 (3d Cir. 1984) (per curiam) (service of notice of intent to file mechanic’s lien did not violate stay since under state statute “perfection of mechanic’s lien ‘relates back’ to the installation of the first material”); In re Lionel Corp., 29 F.3d 88 (2d Cir. 1994) (held, no automatic stay violation resulted from mechanics’ lienors’ post-petition serving notice of lien upon lessors and
chapter 11 debtor lessee, when New York law permitted perfection of filed mechanics’ lien after another entity had acquired rights to the property).

—————————–

a. Sections 362(b)(3) and 546(b)(1)(A), read together, set the
boundaries of this exception.

(i) Section 362(b)(3) subjects a creditor’s right to “perfect, or
to maintain or continue the perfection of, an interest in property” to
Section 546(b) of Code. 11 U.S.C. §362(b)(3).

(ii) In turn, Section 546(b) limits the trustee’s powers to avoid statutory liens by providing that they “are subject to any generally applicable law that permits perfection of an interest in property to be effective against an entity that acquires rights in such property before the date of perfection.” 11 U.S.C. §546(b)(1)(A) (emphasis added); see, e.g., In re AR Accessories Group, Inc., 345 F.3d 454, 458 (7th Cir. 2003) (held, priming statute need not contain language expressly providing for retroactive perfection in order to trigger exception provided in 11 U.S.C. §546(b)(1)(A)); In re
Hayden, 308 B.R. 428 (B.A.P. 9th Cir. 2004) (held, towing operator did not violate automatic stay in refusing to surrender possession of debtor’s vehicle, which was towed prepetition, unless debtor first paid towing charges because towing operator was merely acting to maintain or continue possession of its lien, not to enforce it).

5. Any act to create, perfect, or enforce a lien against debtor’s property for
prepetition claims. 11 U.S.C. § 362(a)(5). See, e.g., In re Birney, 200 F.3d 225
227 (4th Cir. 1999) (Section 362(a)(5) prohibits “any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title”).

6. “Any act to collect, assess, or recover a prepetition claim against the
debtor.” 11 U.S.C. § 362(a)(6). Pertuso v. Ford Motor Credit Co., 233 F.3d 417,
423 (6th Cir. 2000) (a course of conduct violates § 362(a)(6) if it “(1) could
reasonably be expected to have a significant impact on the debtor’s determination as to whether to repay, and (2) is contrary to what a reasonable person would consider to be fair under the circumstances”) (quoting In re Briggs, 143 B.R. 438 453 (Bankr. E.D. Mich. 1992)); see also In re Diamond, 346 F.3d 224, 227-28 (1st Cir. 2003) (settlement negotiations challenging Chapter 7 debtor’s discharge do not violate the automatic stay per se, but creditor’s threat to seek revocation of debtor’s real estate license during negotiations was coercive, thus dismissal of debtor’s complaint proper); In re Optel, Inc., 60 Fed.Appx. 390 (3d Cir. March 25,
2003) (sale agreement between creditor and debtor provided that debtor either pay $6 million lump sum payment or, if creditor requested, $10 million over time; held, automatic stay prohibited creditor from requesting the $10 million deferred payment, therefore creditor was only entitled to distribution on $6 million claim); In re Jamo, 283 F.3d 392, 399 (1st Cir. 2002) (“a creditor may engage in post petition negotiations pertaining to a bankruptcy-related reaffirmation agreement so long as the creditor does not engage in coercive or harassing tactics”).

7. Setoffs of any prepetition debt owing to the debtor. 11 U.S.C. § 362(a)(7).
See Newbery Corp. v. Fireman’s Fund Ins. Co., 95 F.3d 1392 (9th Cir. 1996)
(right of setoff is subject to automatic stay provisions of chapter 11); Citizens Bank of Maryland v. Strumpf, 516 U.S. 16 (1995) (temporary administrative freeze by bank not a stay violation or setoff; intent to settle accounts permanently is required for setoff within meaning of automatic stay provisions). Compare Jimenez v. Wells Fargo Bank, N.A., 335 B.R. 450 (Bankr. D. N.M. Dec. 21, 2005) (temporary administrative freeze by bank, without right of setoff, violated automatic stay); In re Calvin, 329 B.R. 589 (Bankr. S.D. Tex. 2005) (bank’s administrative freeze of debtor’s account violated automatic stay when bank was not creditor of debtor and thus had no right of setoff); In re Cullen, 329 BR. 52 (Bankr. N.D. Iowa 2005) (bank’s administrative freeze of account jointly held by debtor and debtor’s father violated automatic stay because freeze was intended to continue indefinitely until bankruptcy case was closed; bank did not have valid
right of setoff because funds in account were property of debtor’s father and mutuality requirement for setoff thus was lacking).

a. N.B.: The automatic stay, however, does not prevent a creditor
from exercising its right of recoupment.10 See, e.g., In re Slater Health
Center, Inc., 398 F.3d 98 (1st Cir. 2005) (right of recoupment entitled
government to recoup prepetition overpayments to debtor-health care
provider by reducing postpetition payments to debtor); In re Holyoke
Nursing Home, 372 F.3d 1 (1st Cir. 2004) (same); In re Anes, 195 F.3d
177 (3d Cir. 1999) (held, doctrine of recoupment did not apply so as to
permit pension plans to deduct loan payments from debtors’ postpetition
paychecks because the payments were not part of the same transaction); In
re Delicruz, 300 B.R. 669 (Bankr. E.D. Mich. 2003) (“recoupment reduces
or extinguish[es] a debt arising from the same transaction, and is not
stayed by the bankruptcy”). But see York Linings Int’l, Inc. v. Harbison-
Walker Refractories Co., 839 N.E.2d 766 (Ind. App. 2005) (although
automatic stay does not bar creditor from exercising right of recoupment,
stay does prevent creditor from asserting counterclaim for recoupment in
litigation because such a counterclaim seeks affirmative relief).

_____________________________________

10 “Recoupment” has been defined as follows: “. . . so long as the creditor’s claim arises out of the identical transaction as the debtor’s, that claim may be offset against the debt owed to the debtor, without concern” for the Code’s setoff limitations. In re University Medical Center, 973 F.2d 1065, 1080 (3d Cir. 1992). Recoupment in bankruptcy has been narrowly construed by courts because it violates the basic bankruptcy principle of equal distribution. In re B & L Oil Co., 782 F.2d 155, 158 (10th Cir. 1986) (“[a] fundamental tenet of bankruptcy law is that . . . [once] a petition is filed, debts that arose before the petition may not be satisfied through post-petition transactions. This is seen in bankruptcy restrictions on setoffs [and recoupment].”); In re McMahon, 129 F.3d 93,
97 (2d Cir. 1997) (“in light of the Bankruptcy Code’s strong policy favoring equal treatment of creditors, recoupment . . . should be narrowly construed”).

———————-

8. Commencement or continuation of a proceeding before the United States Tax Court concerning the debtor. 11 U.S.C. § 362(a)(8). See, e.g., Halpern v. C.I., 96 T.C. 895 (U.S. Tax Ct. 1991) (held, automatic stay bars commencement or continuation of any proceeding in Tax Court, regardless of whether claim relates to prepetition or postpetition tax year deficiencies).

As of October 17, 2005, § 362(a)(8) is limited to proceedings
concerning corporate debtor’s tax liability for taxable period the
bankruptcy court may determine or, if debtor is individual, to tax
for taxable period ending before date of order for relief.

9. Only affirmative acts are stayed. Section 362 applies only to affirmative
acts against the debtor or its estate.

a. The automatic stay does not affect, and the court may not exercise
its equitable powers to stay or toll, the automatic transfer of rights such as
that occurring by the expiration of a statutory period of redemption.
Canney v. Merchants Bank (In re Frazer), 284 F.3d 362 (2d Cir. 2002)
(did not stay mortgagee’s act of recording a certificate of non-redemption;
held, expiration of statutory period is not an “affirmative act” and
automatic stay did not apply).

b. Omissions and waivers are not stayed by the Code because they
are not affirmative acts. See e.g. Mann v. Chase Manhattan Mortg. Corp.,
316 F.3d 1, 6 (1st Cir. 2003) (mortgagee’s failure to submit
preconfirmation request, pursuant to bankruptcy statute governing rights
of oversecured creditors, to have its postpetition attorney fees included in
its allowed secured claim was not sort of overt, affirmative act that
violates stay).

When Homeowner’s good faith attempts to amicably work with the Bank in order to resolve the issue fails;

Why Homeowners Must Know these Important Points of Bankruptcy Appeal

23 Wednesday Sep 2015

Posted by BNG in Appeal, Bankruptcy, Federal Court, Foreclosure Defense, Judicial States, Non-Judicial States

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Bankruptcy, bankruptcy appeal, bankruptcy court, homeowners, Plaintiff, Pro se legal representation in the United States

Every appeal requires an appellate advocate to understand and follow
a series of rules. When an appeal is from a decision by a federal
bankruptcy court, there is yet another layer of rules and complexity
to consider. This article briefly identifies a dozen important points
about bankruptcy appeals.

1. The Time for Filing a Notice of Appeal in a Bankruptcy Appeal Is Generally Shorter Than in Other Appeals.

Under 28 U.S.C. § 158(c)(2) and Federal Rule of Bankruptcy Procedure (“Bankruptcy Rule”) 8002(a), a party seeking to appeal a decision by a bankruptcy court has 14 days to file its appeal.1 This is 16 days less than the 30 days a party generally is given under the Federal Rules of Appellate Procedure (“F.R.A.P.”) to appeal from district court to a federal appellate court.2 As with F.R.A.P. 4(a)(5), the Bankruptcy Rules permit some leeway if an appellant misses its deadline. Under the Bankruptcy Rules, a bankruptcy court may allow an appellant who fails to timely file up to 20 additional days to file where that appellant can demonstrate “excusable neglect.”3 After 30 days, however, a bankruptcy appellant loses its right to appeal even if there is excusable neglect.4 Factors to be considered in determining whether there is excusable neglect include the danger of prejudice to the appellee; the length of delay and its impact on the judicial proceeding; the reason for the delay; whether the delay was in the movant’s control; and the movant’s good faith.5

2. An Appellant May Waive an Issue Not Raised at the Outset of its Bankruptcy Appeal.

Under Bankruptcy Rule 8006, within 14 days of filing its Notice of
Appeal, an appellant must file and serve a designation of the items to be
included in the record on appeal and a statement of issues to be presented
on appeal. If an appellant fails to include an issue in this Statement, the
issue is waived even if this had been raised and/or decided by the bankruptcy
court.6

3. Those Who Ignore Deadlines and Procedural Rules May Forfeit Their Appeal.

Bankruptcy Rule 8001(a) authorizes dismissal of a bankruptcy appeal when a party fails to take any required step other than filing its Notice of Appeal. Courts adjudicating bankruptcy appeals may dismiss appeals when a party fails to take a necessary step, such as filing its record designations, statement of issues or its brief.7
While the Bankruptcy Rules permit dismissal, however, certain circuits require the appellate court to weigh a series of factors before it dismisses a case in its entirety. For example, the Third Circuit requires the balancing of six factors before a case is dismissed. These are:
• The extent of the party’s personal responsibility;
• The prejudice to the adversary caused by the failure to meet scheduling
orders;

• A history of dilatoriness;
• Whether the conduct of the party or the attorney was willful or in bad
faith;
• The effectiveness of sanctions other than dismissal, which entails an
analysis of alternative sanctions;
• The meritoriousness of the claim or defense.8

4. In Five Circuits, Bankruptcy Appeals May Be Heard in the First Instance by Two Different Types of Courts.

Under 28 U.S.C. § 158(c)(1), an appellant in an appeal from bankruptcy court may choose in the first instance to appeal either to a district court acting as an appellate court or, if the relevant circuit provides for one, to a Bankruptcy Appellate Panel (“BAP”). Even if the appellant chooses a BAP, however, any other party to the appeal may, no later than 30 days after service of the notice of appeal, ask to have the appeal heard by the relevant district court. The First, Sixth, Eighth, Ninth and Tenth Circuits each have a BAP. If an appeal is to a BAP, then the Bankruptcy
judge’s decision will be reviewed by fellow sitting bankruptcy judges.
Usually a BAP consists of three sitting bankruptcy judges in the circuit who are assembled for a particular day of argument. By their very nature, BAPs will consist of judges who have special expertise regarding bankruptcy issues, while district courts may not. The BAP may sit in different places in the circuit. For example, the Eighth Circuit BAP conducts hearing in Omaha, St. Louis, Kansas City, and other locations where its bankruptcy courts sit.

5. BAP Rules Vary by Circuit.

Just like the individual federal circuit courts of appeal, the various BAPs each have their own rules. These vary between each circuit. Any party in a BAP appeal, therefore should know the specifics and particularities of the specific BAP’s rules and should follow these.
Among these specialized rules, for example, are that, in the Eighth Circuit BAP, parties are limited to opening briefs of 6500 words.9 The Ninth Circuit BAP Rules provide that only those portions of transcripts included in the excerpts of the record will be considered in an appeal and that these must include excerpts necessary for the BAP to apply the required standard of review to a matter.10 The First Circuit BAP Rules generally limit argument to 15 minutes per side.11 The Tenth Circuit BAP requires that a brief include a statement of related cases—i.e., one that includes the same litigants and substantially the same fact pattern or legal issues – that are
pending in any other federal court.12 The Sixth Circuit BAP Rules provide
for a possible pre-argument conference and mediation.13

6. The Bankruptcy Rules Generally Govern Appeals to the District Court.

As noted in the prior section, BAPs have elaborate rules that govern all aspects of appeals before them. By the terms of the Bankruptcy Rules, these specific rules can supersede conflicting terms in the Bankruptcy Rules. However, when an appeal is to the district court, the Bankruptcy Rules generally apply in the absence of a local rule or district court rule specifically addressing bankruptcy appeals, which are much less common.
While not as comprehensive as the F.R.A.P., the Bankruptcy Rules have 20 provisions governing all aspects of appeals.14 These rules addresses appellate issues, including, among others, the filing and service of appellate papers;15 the filing and service of briefs and appendices;16 the form of briefs and their length;17 motions;18 oral argument;19 disposition of the appeal;20 costs;21 and rehearing,22 among others. (These rules also provide for the accelerated filing of district court appeals, as an appellant is to serve and file its brief within 15 days after entry of the appeal on the docket; the appellant is to serve its brief within 15 days after service of the appellant’s brief and the appellant is to serve its reply within 10 days after service of the appellee’s brief.)23 In the absence of rules to the contrary, opening briefs may be up to 50 pages and reply briefs up to 25 pages.
Under Bankruptcy Rule 8012, oral argument is to be generally allowed in all cases. In practice, however, oral argument is much less common before district courts. When an appeal is before district court, there is some question about whether its decision has precedential effect.24

7. Bankruptcy Appeals Often Include an Extra Tier of Review.

Generally, before an appeal reaches a federal circuit court of appeals, it is adjudicated by either a BAP or a district court. The findings of these first tier courts are not binding on the circuit court of appeals and, the appellate court owes no deference to the decisions by the BAP or district court.
Review by the circuit court of appeals is plenary.25 Nonetheless, some circuit courts have noted that the first tier of appeal acts as a helpful filter.26
An appellate court may reach issues brought up before but not decided by the district court or BAP.27

8. Direct Appeal to the Circuit Court of Appeals Is Allowed in Limited Instances.

Pursuant to Section 1233 of the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”), a circuit court of appeals has discretion to permit a direct appeal frombankruptcy court where there is uncertainty in the bankruptcy court, either due to the absence of a controlling legal decision or a conflicting decision on the issue and the issue is of great importance, or where the court finds it is patently obvious that the bankruptcy court’s decision either was correct or incorrect, such that the first tier of review in the district court or BAP is less efficient and helpful.28

9. At Each Tier of the Appeal, The Bankruptcy Court Is Given the Same Level of Deference and Same Form of Scrutiny.

Courts in bankruptcy appeals review issues of law de novo and findings of fact for clear error.29 Courts of appeal apply the same standard of review as do BAPs and district courts.30 Courts of appeal generally review issues of procedure under an abuse of discretion standard. These include motions to compromise or to lift a stay, for example.31

10. This Is a Greater Threat of Mootness in Bankruptcy Appeals Than in Other Federal Appeals.

A bankruptcy appeal may become constitutionally moot where events may occur that make it impossible for the appellate court to fashion effective relief.32 Thus, for example, if, while an appeal is pending, a plan is confirmed pursuant to which all assets are distributed, all creditors with allowed claims are paid in full, and the bankruptcy case is closed such that the debtor no longer exists, an appeal against that debtor is moot because there is no meaningful relief that may be granted.33 An appeal may also be considered “equitably moot” where a change in circumstances makes it inequitable for a court to consider the merits of an appeal.34
However, if there remains any possibility that an appeal may result in a tangible benefit to the appellant, it is not moot.35

11. Only Those Persons Aggrieved Have Standing to Bring a Bankruptcy Appeal.

Only those whose rights or interests are directly and adversely affected pecuniarily by an order of the bankruptcy court have standing to bring an appeal.36

12. Appellate Courts Take a Broader Notion of “Finality” in Bankruptcy Appeals Than in Other Appeals.

Because of the length of many bankruptcy proceedings and the waste of time and resources that may result if the court denied immediate appeals, federal courts of appeal apply a broader concept of “finality” when considering bankruptcy appeals under 28 U.S.C. § 1291 than in considering non-bankruptcy appeals.37 Courts apply a number of factors in determining whether to assert appellate jurisdiction. These include:
1) the impact on the assets of the bankruptcy estate;
2) the necessity for further fact-finding on remand;
3) the preclusive effect of the court’s decision on the merits in further litigation,
and
4) the interest of judicial economy.38
Each of these issues, of course, could justify an article in itself. I hope
these provide some helpful thoughts and issues to consider when participating
in a bankruptcy appeal.

NOTE

1 Certain types of motions toll this time for filing until the last such motion
is disposed of. See Bankruptcy Rule 8002(b).
2 See F.R.A.P.4(a).
3 Bankruptcy Rule 8002(c)(2); Bankruptcy Rule 9006(b). Of course where
an appeal is from a district court to a federal circuit court on a bankruptcy
issue, F.R.A.P. 4’s 30-day rule applies.
4 See Shareholders v. Sound Radio, Inc., 109 F.3d 873, 879 (3d Cir. 1997).
The law is unsettled as to whether bankruptcy appellate deadlines are “jurisdictional,”
such that objections to untimeliness may be waived if not promptly
made. See In re Fryer, 2007 WL 1667198 (3d Cir. June 11, 2007) (citing
Kontrick v. Ryan 540 U.S. 443 (2004), and Eberhart v United States, 546 U.S.
12 (2005)).
5 See Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P’Ship, 507 U.S. 380,
395 (1993).
6 See In re GGM, P.C., 165 F.3d 1026, 1032 (5th Cir. 1999). Of course, one
may not first raise new issues on appeal that were not presented before the
bankruptcy court. See In re Ginther Trusts, 238 F.3d 686, 689 & n.3. (5th Cir.
2001).
7 See, e.g., In re Lynch, 430 F.3d 600 (Cir. 2005); In re Braniff Airways, Inc.,
774 F.2d 1303, 1305 n.6 (5th Cir. 1985).

8 Poulis v. State Farm Fire & Cas. Co., 747 F.2d 863, 868 (3d. Cir. 1984).
See also In re Harris, 464 F.3d 263 (2d Cir. 2006) (failure to include required
transcript of oral argument did not warrant dismissal of appeal where lesser
sanctions were available); In re Beverly Mfg. Corp., 778 F.2d 666, 667 (11th
Cir. 1985) (“Dismissal typically occurs in cases showing consistently dilatory
conduct or the complete failure to take any steps other than the mere filing
of a notice of appeal.”).
9 8th Cir. BAP Rule 8010A.
10 9th Cir. BAP Rule 8006-1.
11 1st Cir. BAP Rule 8012-1.
12 10th Cir. BAP Rule 8010-1.
13 6th Cir. BAP Rule 8080-2.
14 Bankruptcy Rules 8001-8020.
15 Bankruptcy Rule 8008.
16 Bankruptcy Rule 8009.

17 Bankruptcy Rule 8010.
18 Bankruptcy Rule 8011.
19 Bankruptcy Rule 8012.
20 Bankruptcy Rule 8013.
21 Bankruptcy Rule 8014.
22 Bankruptcy Rule 8015.
23 Bankruptcy Rule 8009.
24 See In re Shattuck Cable Corp., 138 B.R. 557, 565 (Bankr. N.D. Ill. 1992).
25 See In re Best Prods. Co., 68 F.3d 26, 30 (2d Cir. 1995).
26 See Weber v. United States Trustee, 484 F.3d 154 (2d Cir. 2007) (“In many
cases involving unsettled areas of bankruptcy law, review by the district court
would be most helpful. Courts of appeal benefit immensely from reviewing
the efforts of the district court to resolve such questions”).
27 See Hartford Courant Co. v. Pellegrino, 380 F.3d 83, 90 (2d Cir. 2004).
28 See Weber, 484 F.3d at 157 (citing BAPCPA § 1233, 28 U.S.C.
§ 158(d)(2)(a)(i)-(iii)).
29 See In re ABC-Naco, Inc., 483 F.3d 470, 472 (7th Cir. 2007).
30 See In re Senior Cottages of Am., 482 F.3d 997, 1000-1001 (8th Cir. 2002)
31 See In re Martin, 222 Fed. Appx. 360, 362 (5th Cir. 2007).
32 See In re Focus Media Inc., 378 F.3d 916, 922 (9th Cir. 2004).
33 See In re State Line Hotel, Inc., 2007 WL 1961935 (9th Cir. July 5, 2007);
see also Gardens of Cortez v. John Hancock Mut. Life Ins. Co., 585 F.2d 975,
978 (10th Cir. 1978) (dismissal of bankruptcy petition moots appeal to lift
stay).

34 See Ederel Sport v. Gotcha, Int’l, L.P., 311 B.R. 250, 254 (9th Cir. BAP
2004).
35 See In re Howard’s Express, Inc., 151 Fed. Appx. 46 (Oct. 5, 2005) (conversion
from Chapter 11 to Chapter 7 did not moot appeal because liquidation
was not complete and preference actions remained to be tried, which
could generate assets to satisfy claims of appellants).
36 See In re PWS Holding Corp., 228 F.3d 224, 249 (3d Cir. 2000).
37 See In re Owens Corning, 419 F.3d 196, 203 (3d Cir. 2005).
38 Id.

When Homeowner’s good faith attempts to amicably work with the Bank in order to resolve the issue fails;

What Homeowners Must Know About Bankruptcy Appeals

23 Wednesday Sep 2015

Posted by BNG in Appeal, Bankruptcy, Federal Court, Foreclosure Defense, Pro Se Litigation, Your Legal Rights

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Bankruptcy Appeals, bankruptcy court, homeowners, Pro se legal representation in the United States

When challenging Bankruptcy dismissals or Adversary proceeding on appeal, homeowners should bear the following in mind.
A district court may dismiss a bankruptcy appeal for any of a number of procedural reasons having nothing to do with the merits of the appeal.

Is the appeal timely?

Bankruptcy Rule 8002(a) requires that a notice of appeal be filed within
14 days of the bankruptcy court order or judgment at issue. A district court lacks
jurisdiction over an untimely appeal.

Shareholders v. Sound Radio, Inc., 109 F.3d 873, 878-79 (3d Cir. 1997).

Did the appellant refer to the order or judgment at issue in its notice of appeal?

A district court lacks jurisdiction over a bankruptcy court order or judgment that is not directly or indirectly referred to in the notice of appeal. In re Smith, WL 1716684 at *2 (3d Cir. June 22, 2006).

Is the bankruptcy court order final?

Under 28 U.S.C. § 158(a), a district court may hear appeals only from
final judgments, orders and decrees of a bankruptcy court. Although district courts liberally construe finality in bankruptcy appeals, an order in a bankruptcy case may be considered interlocutory, and hence, subject to dismissal, if the order does not implicate a discrete issue which in and of itself will determine the rights and liabilities of the parties concerned. Thus, for example, in In re Elsinore Shore Assocs., a district court lacked jurisdiction over an appeal from an order approving a disclosure statement. 82 B.R. 339, 341-42 (D.N.J. 1988). Moreover, the general antipathy toward piecemeal appeals still prevails in individual bankruptcy adversary proceedings. Thus, for example, in Natale
v. French & Pickering Creeks Conservation Trust, Inc. (In re Natale), the
Third Circuit held that an order granting summary judgment regarding the priority of competing liens, but not deciding whether the debtor could avoid a particular lien, was not a final appealable order. 295 F.3d 375, 379-80 (3d Cir. 2002).

Does the appellant meet the standard for interlocutory review?

If the appellant seeks review of an interlocutory bankruptcy court order, a district court may grant leave to hear an appeal from the order only upon the satisfaction of three elements: (i) the appeal involves a controlling question of law; (ii) the question is one on which a substantial ground for difference of opinion exists; and (iii) an immediate appeal would materially advance the ultimate termination of the litigation. Orr v. Ameriquest Mortg. Co. (In re Hollis), 2010 WL 336132 at **1-4 (D.N.J. Jan. 22, 2010).

Does the appellant have standing to appeal?

Only a party whose rights or interests are directly and adversely affected
in a pecuniary fashion by a bankruptcy court order may appeal from the order.
In re PWS Holding Corp., 228 F.3d 224, 248-49 (3d Cir. 2000).

Is the appeal constitutionally moot?

Generally, a bankruptcy appeal, like an appeal in civil litigation, is dismissed as moot when events during the pendency of the appeal prevent the appellate
court from granting any effective relief.
So, for instance, in In re Highway Truck Drivers & Helpers Local Union No. 107,
the Third Circuit held that an appeal relating to an order granting relief from the
automatic stay to permit a debtor to move for reconsideration of a decision entered by a state court was rendered moot by an intervening state court judgment relieving the debtor of its liability to the appellants. 888 F.2d 293, 297-99 (3d Cir. 1989).

Is the appeal equitably moot?

A bankruptcy appeal is equitably moot when, even if the district court has jurisdiction to grant relief, implementation of such relief would result in an inequitable outcome. The doctrine usually applies in appeals involving a confirmed Chapter 11 plan of reorganization. In Nordhoff Invs. Inc. v. Zenith Elecs. Corp., the Third Circuit found an appeal from an order confirming a Chapter 11 plan equitably moot on the following grounds: (i) the plan had required 18 months of negotiation among several parties and implicated hundreds of millions of dollars, restructured debt, assets, and management of a major corporation; (ii) the plan had successfully rejuvenated the corporation; (iii) the appellants had not offered evidence that the plan could be reversed without great difficulty and inequity; (iv) the appellants had failed to seek a stay of the order; (v) third parties had relied on the order; and (vi) reversal would be contrary to the public policy of encouraging successful reorganizations. 258 F.3d 180, 184-91 (3d Cir. 2001).

Is the appeal moot under section 363(m)?

According to Bankruptcy Code section 363(m), a sale or lease to a good-faith purchaser or lessee under section 363(b) or (c), once consummated, cannot be reversed or modified on appeal absent a stay. In Krebs Chrysler-Plymouth, Inc. v. Valley Motors, Inc., the Third Circuit dismissed as moot a buyer’s appeal from an order approving a debtor’s sale of franchises because the buyer had failed to obtain a stay of the sale pending appeal, the sale had closed, and the relief sought would have impacted the validity of the sale. 141 F.3d 490, 499-500 (3d Cir. 1998).

Is the appeal moot under section 364(e)?

Under Bankruptcy Code section 364(e), an order authorizing a trustee or debtor to obtain credit or incur debt from, or granting a priority or lien to, a good-faith lender, once implemented, cannot be reversed or modified on appeal absent a stay. In Resolution Trust Corp. v. Swedeland Dev. Group, Inc. (In re Swedeland Dev. Group, Inc.), the Third Circuit held that an appeal from a post-petition financing order was moot because the proceeds of the loan had been immediately distributed to the debtor in possession, the district court had denied a stay of the order and the debtor in possession had apparently expended the loan proceeds. 16 F.3d 552, 559-63 (3d Cir. 1994).

Did the appellant fail to timely file a designation of record and statement of issues?

Bankruptcy Rule 8006 requires an appellant to file and serve, within 14 days after filing the notice of appeal or the entry of an order granting leave to appeal, a designation of items to be included in the appellate record and a statement of issues on appeal. Local Bankruptcy Rule 8006-1 requires the clerk to file and serve a certification of any failure to comply with the requirement. Such failure constitutes cause for dismissal of the appeal. In re Mondelli, 2009 WL 3358465 at **2-3 (3d Cir. Oct. 20, 2009).

Did the appellant fail to obtain a copy of the bankruptcy court hearing transcript?

If an appellant has designated a bankruptcy court hearing transcript as part of the record, Bankruptcy Rule 8006 requires the appellant to immediately deliver to the reporter and file with the clerk a written request for the transcript and to pay its cost. Failure to comply with this requirement constitutes cause for dismissal of the appeal. Orr v. Buccolo (In re Buccolo), 2009 WL 146528 at **1-2 (3d Cir. Jan. 22, 2009).

Did the appellant fail to designate any issues in its statement of issues?

An appellant waives its right to assert an issue on appeal if it fails to designate the issue in its statement of issues. Interface Group-Nevada, Inc. v. Trans World Airlines, Inc. (In re Trans World Airlines, Inc.), 145 F.3d 124, 132 (3d Cir. 1998).

Did the appellant fail to timely file its appellate brief?

Bankruptcy Rule 8009 requires an appellant to file its brief within 14 days after entry of the appeal on the docket. Failure to comply with this requirement constitutes cause for dismissal of the appeal. Nyholm v. Israel (In re Nyholm), 2009 WL 114884 at *2 (D.N.J. Jan. 12, 2009).

Did the appellant fail to raise its argument before the bankruptcy court?

A district court generally may not consider in a bankruptcy appeal an argument that was not raised before the bankruptcy court. Buncher Co. v. Off. Comm. of Unsecured Creditors of GenFarm Ltd. P’ship IV, 229 F.3d 245, 253 (3d Cir. 2000).

Did the appellant fail to make its argument in its appellate brief?

An appellant may waive its right to raise an argument before the district court if its fails to make the argument in its appellate brief. Interface Group-Nevada, Inc. v. Trans World Airlines, Inc. (In re Trans World Airlines, Inc.), 145 F.3d 124, 132-33 (3d Cir. 1998).

As a homeowner, once you follow these pointers, you’ll have a better chance of winning your Bankruptcy Appeal.

When Homeowner’s good faith attempts to amicably work with the Bank in order to resolve the issue fails;

What Homeowners Need to Know About Bankruptcy Automatic Stay

22 Tuesday Sep 2015

Posted by BNG in Bankruptcy, Federal Court, Foreclosure Defense, Litigation Strategies, Non-Judicial States, Pro Se Litigation, Your Legal Rights

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automatic stay, Bankruptcy, bankruptcy court, chapter 13 bankruptcy, Federal Court, Foreclosure, homeowners, Pro se legal representation in the United States

A. Scope.

1. Section 362(a) of the Bankruptcy Code (the “Code”) contains a broad
statutory stay of litigation and lien enforcement, effective automatically on the commencement of a bankruptcy case. 11 U.S.C. § 362(a) (“. . . a petition [commencing a case] . . . operates as a stay, applicable to all entities . . .”.)

2. Purpose – Time to Reorganize. This automatic stay gives a trustee or
chapter 11 debtor-in-possession1 a breathing spell from creditors by stopping all collection efforts, harassment, and all foreclosure actions, allowing a debtor to attempt a reorganization plan. See, e.g., In re Siciliano, 13 F.3d 748, 750 (3d Cir. 1994) (“[t]he purpose of the automatic stay provision is to afford the debtor a ‘breathing spell’ by halting the collection process. It enables the debtor to attempt a repayment or reorganization plan with an aim toward satisfying existing debt.”);
Maritime Electric Co., Inc. v. United Jersey Bank, 959 F.2d 1194, 1204 (3d Cir. 1991) (“automatic stay allows debtor breathing spell from creditors and stops collection efforts”); In re Peregrine Systems, Inc., 314 B.R. 31, 44 (Bankr. D. Del. 2004) aff’d in part, rev’d in part on other grounds, 2005 WL 2401955 (D. Del. Sept. 29, 2005) (automatic stay is a “fundamental protection provided to a debtor for the purpose of stopping all creditor collection efforts and harassment of the debtor and to provide … a fresh start.”); Shaw v. Ehrlich, 294 B.R. 260, 267 (W.D. Va. 2003), aff’d, 99 Fed. Appx. 466 (4th Cir. 2004) (“stay protects debtors, as well as creditors, by providing debtors a breathing spell from collection
efforts”).

3. Policy Rationale – Debtor Asset Protection. Behind the stay is a clear
policy rationale: “to grant complete, immediate, albeit temporary relief to the debtor from creditors, and also to prevent dissipation of the debtor’s assets before orderly distribution to creditors can be effected.” S.E.C. v. Brennan, 230 F.3d 65, 70 (2d Cir. 2000) (quoting Penn Terra Ltd. v. Department of Envtl. Resources, 733 F.2d 267, 271 (3d Cir. 1984)). See also Reliant Energy Services, Inc. v. Enron Canada Corp., 349 F.3d 816, 825 (5th Cir. 2003) (“purposes of the bankruptcy stay under 11 U.S.C. § 362 ‘are to protect the debtor’s assets, provide temporary relief from creditors, and further equity of distribution among the creditors by forestalling a race to the courthouse.'”) (quoting GATX Aircraft Corp. v. M/V Courtney Leigh, 768 F.2d 711, 716 (5th Cir. 1985)); Mann v. Chase
Manhattan Mortgage Corp., 316 F.3d 1, 3 (1st Cir. 2003) (“automatic stay
provision is designed to forfend against the disorderly, piecemeal dismemberment of the debtor’s estate outside the bankruptcy proceedings”).

__________________________________

1 Code § 1107(a) gives a chapter 11 debtor-in-possession the “rights,” “duties” and “powers” of a trustee. See NLRB v. Bildisco & Bildisco, 465 U.S. 513, 517 n. 2 (1984). See also Fed. R. Bankr. P. 9001(10) (“‘Trustee’ includes a debtor in possession in a Chapter 11 case.”).

4. Procedural Safeguards for Secured Creditors. The Code still imposes
procedural safeguards for the benefit of the secured creditor (e.g., “adequate protection” against erosion of collateral value; time limits on stay modification requests; limits on counterclaims against secured lender seeking stay modification). As shown below, it attempts to reconcile the rights of the secured creditor with the needs of the debtor and its unsecured creditors. See United Savings Assn. of Texas v. Timbers of Inwood Forest Associates, Ltd. (In re Timbers of Inwood Forest Associates, Ltd.), 484 U.S. 365, 376 (1988) (“ . . . lack of any realistic prospect of effective reorganization will require” modification of stay of lien enforcement”).

II. The Automatic Stay.

A. When Effective.

1. The stay is automatic upon filing of the petition commencing a case under Code chapters 7 (liquidation), 9 (municipal debt adjustment), 11 (reorganization), 13 (individual debt adjustment), or chapter 15 (cross-border cases) with respect to foreign main proceedings. See e.g. Eskanos & Adler, P.C. v. Leetien, 309 F.3d 1210, 1214 (9th Cir. 2002) (“the automatic stay requires an immediate freeze of the status quo by precluding and nullifying post-petition actions”); Rexnord Holdings, Inc. v. Bidermann, 21 F.3d 522, 527 (2d Cir. 1994) (“[a]utomatic stay is effective immediately upon filing of bankruptcy petition”) (citing Shimer v. Fugazy (In re Fugazy Express, Inc., 982 F.2d 769, 776 (2d Cir. 1992));

3. Unless modified by the court, the stay is effective for the duration of a
bankruptcy case, and generally cannot be waived by the debtor. Maritime Elec. Co., Inc. v. United Jersey Bank, 959 F.2d 1194 (3d Cir. 1991) (held, because automatic stay serves interests of both debtors and creditors, it may not be waived and its scope may not be limited by debtor); In re Atrium High Point Ltd. Partnership, 189 B.R. 599 (Bankr. M.D.N.C. 1995) (before enforcing a debtor’s prepetition waiver of automatic stay bankruptcy court must look at circumstances under which prepetition waiver arose); but see In re Excelsior Henderson Motorcycle Mfg. Co., Inc., 273 B.R. 920 (Bankr. S.D. Fla. 2002) (court enforced prepetition agreement under which chapter 11 debtor waived automatic stay).

B. Jurisdictional Basis of Injunctive Power.

2. The broad jurisdictional base of Section 362 confirms the court’s inherent
power to protect property within its jurisdiction and to prevent any divestiture of that jurisdiction. Isaacs v. Hobbs Tie & Timber Co., 51 S. Ct. 270, 282 (1931) (held, jurisdiction of bankruptcy court respecting property of debtor’s estate having attached, actions brought in other courts could not affect it). See In re Mohawk Greenfield Motel Corp., 239 B.R. 15 (Bankr. D. Mass. 1999) (“the automatic stay protects the bankruptcy court’s exclusive jurisdiction over the debtor and its property”) (citing In re Soares, 107 F.3d 969, 975 (1st Cir. Mass. 1997)).

3. Section 362(a) stays, among other things:

c. foreclosure proceedings in other courts instituted against debtor’s
property prior to commencement of bankruptcy case. 11 U.S.C.
§ 362(a)(1); see In re Vierkant, 240 B.R. 317, 322 (B.A.P. 8th Cir. 1999)
(citing Kalb v. Feuerstein, 308 U.S. 433 (1940); In re Soares, 107 F.3d
969 (1st Cir. 1997)) (post-petition state court default order signed by judge two weeks after bankruptcy filing violated automatic stay);

d. a landlord’s proceeding to recover possession of leased premises.
11 U.S.C. § 363(a)(5); 48th St. Steakhouse, Inc. v. Rockefeller Group, Inc.
(In re 48th St. Steakhouse, Inc.), 835 F.2d 427 (2d Cir. 1987) (serving
notice of termination on assignee of restaurant lease rather than on debtor, which still had interest in the property, violated automatic stay); and e. an IRS sale of property seized prior to commencement of case. 11 U.S.C. § 362(a)(8); United States v. Whiting Pools, Inc., 462 U.S. 198 (1983) (IRS may also be compelled to turn over levied property under Code § 542).

III. Scope and Duration of Stay.

A. Scope of Section 362.

1. Property of Estate. The bankruptcy court’s injunctive power is ordinarily
limited to protecting property belonging to a debtor. Property of the estate is defined in Code § 541(a)(1) (“. . . all legal or equitable interests of the debtor in property as of the commencement of the case.”). See In re Lankford, 305 B.R. 297, 301 (Bankr. N.D. Iowa 2004) (“All recognizable interests of the debtors or the estate are afforded the protection of § 362(a)…This includes a mere possessory interest in real property without any accompanying legal interest.”).
See also In re Moffett, 356 F.3d 518 (4th Cir. 2004) (held, chapter 13 debtor’s statutory right of redemption was sufficient interest in automobile that was repossessed prepetition to be included in estate property). But see In re Jasper, 325 B.R. 50, 55 (Bankr. D. Me. 2005) (credit union’s policy of revoking membership benefits of members who caused credit union a loss does not violate automatic stay); In re Santangelo, 325 B.R. 874 (Bankr. M.D. Fla. March 22, 2005) (district court did not violate automatic stay by approving class action settlement for claims against mortgage lender; rather, court gave prospective class members, including debtor choice of remaining class members or opting out of class); In re Medex Regional Laboratories, LLC, 314 B.R. 716 (Bankr. E.D. Tenn. 2004) (proceeds of debtor’s directors’ and officers’ liability insurance policies were not property of estate and were not protected by automatic stay, even though policies also provided coverage to debtor for indemnification claims, because the debtor had not provided any indemnification to non-debtor insiders and such indemnification claims were merely hypothetical). Compare In re Arter & Hadden, L.L.P., 335 B.R. 666 (Bankr. N.D. Ohio 2005) (proceeds of debtor’s directors’ and officers’ liability insurance policies are property of estate because policies also provided coverage to debtor and there was no reason why direct suit against debtor is either practically or procedurally untenable).

(ii) Abandonment. Abandonment terminates the stay as to abandoned property. In re Holly’s, Inc., 140 B.R. 643 (Bankr. W.D. Mich. 1992) (once abandonment of debtor’s property is effectuated, or foreclosure of real and personal property is completed, taxing entity is entitled to enforce its statutory in rem rights against property.). But see In re Thompson-Mendez, 321 B.R. 814, 819 (Bankr. D. Md. 2005) (trustee’s deemed rejection of debtor’s residential lease by failure to timely assume it did constitute abandonment such that lease was no longer protected by
automatic stay).

____________________________________

2. Entities Affected by the Stay. Section 362(a) applies “to all entities,”
including any “person, estate, trust, governmental unit.” 11 U.S.C. § 101(15).

This broad definition of “entity” eliminates the need to define who is a “creditor,” “secured creditor” or other person affected by the stay.

B. Duration of the Stay. Unless the court orders otherwise (i.e., unless creditor gets automatic stay modified), the stay “continues until such property is no longer property of the estate.” 11 U.S.C. § 362(c)(1). The stay of all other acts continues until case is closed or dismissed, or, if debtor is an individual, until debtor is granted or denied a discharge. 11 U.S.C. §§ 362(c)(2)(A), (B) and (C). See also In re Allen, 300 F.3d 1055, 1059 (9th Cir. 2002) (automatic stay “prohibits action against the bankruptcy estate only until the bankruptcy court confirms a plan reorganizing the debtor’s property”); Middle Tennessee News Co., Inc. v. Charnel of Cincinnati, Inc., 250 F.3d 1077 (7th Cir. 2001) (automatic stay remains in effect until bankruptcy court disposes of case or grants relief from stay); In re Spirtos, 221 F.3d 1079, 1081 (9th Cir. 2000) (“So long as there are assets in the estate, then, the stay remains in effect”); Eastern Refractories Co. Inc. v. Forty Eight Insulations Inc., 157 F.3d 169 (2d Cir. 1998) (order “terminating” automatic stay operates from date of order’s entry); Lomagno v. Salomon Brothers Realty Corp., 320 B.R. 473, 481 (B.A.P. 1st Cir. 2005), aff’d, 429 F.3d 16 (1st Cir. 2005) (automatic stay not retroactively imposed when dismissal order set aside on due process grounds); In re Peregrine Systems, Inc., 314 B.R. 31, 44 (Bankr. D. Del. 2004), aff’d in part, rev’d in part on other grounds, 2005 WL 2401955 (D. Del. Sept. 29, 2005) (automatic stay “continues until the bankruptcy case is closed, dismissed, or discharge is granted or denied, or until the bankruptcy court grants some relief from the stay.”) (citing Maritime Elec. Co., Inc. v. United Jersey Bank, 959 F.3d 1194, 1206 (3d Cir. 1991)); U.S. v. White, 466 F.3d 1241 (11th Cir. 2006) (debtor discharged and automatic stay terminates on date of confirmation of debtor’s reorganization plan even when plan contains a later effective date). If a case is filed by or against a debtor who is an individual and a case of the debtor was pending within the preceding one year period but was dismissed, the automatic stay “with respect to any action taken with respect to a debt or property
securing such debt or with respect to any lease shall terminate with respect to the debtor on the 30th day after the filing of the later case.”

11 U.S.C. § 362(c)(3)(A). See Jumpp v. Chase Home Finance, LLC (In re Jumpp), 356 B.R. 789 (B.A.P. 1st Cir. 2006) (interpreting § 362(c)(3)(A) automatic stay terminates only in regard to debtor; stay continues, though, in regard to property of estate).

• As of October 17, 2005, automatic stay terminates 60 days after a request for relief from stay unless final decision on request is rendered by court within the 60-day period or period is extended by agreement or by court for specific period of time found necessary for good cause.2

2 The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was enacted on April 20, 2005, and many of its provisions became effective on October 17, 2005.

IV. Acts Stayed. Section 362(a) is broad in scope, but specifically lists eight categories that are subject to its injunctive power.

a. Appeals: stay covers all proceedings originally brought against the
debtor, regardless of whether the debtor is appellant or appellee.4 Halmar
Robicon Group, Inc. v. Toshiba Int’l Corp., 127 Fed. Appx. 501, 503 (Fed.
Cir. 2005) (automatic stay only operates as against actions in which debtor
is in defensive posture); Nielson v. Price, 17 F.3d 1276, 1277 (10th Cir.
1994) (“[t]he 362(a)(1) stay applies to actions that are ‘against the debtor’ at their inception, regardless of the subsequent appellate posture of the case”); Ellis v. Consolidated Diesel Elec. Corp., 894 F.2d 371, 373 (10th Cir. 1990) (operation of stay should not depend upon whether district
court finds for or against the debtor). But see In re Mid-City Parking,
Inc., 322 B.R. 798 (Bankr. N.D. Ill. 2005) (debtor may unilaterally waive
protections of automatic stay by pursuing appeal without first obtaining
bankruptcy court order lifting stay; debtor could not be held liable for
damages to creditor-appellee arising from debtor’s alleged “willful stay
violation).

________________________________

_______________________________

6 Courts may stay actions against a non-debtor third-party defendant under “unusual circumstances” when “there is such identity between the debtor and third-party defendant that the debtor may be said to be the real party defendant and that a judgment against the third-party defendant will in effect be a judgment … against the debtor.” A.H. Robins Co. v. Piccinin, 788 F.2d 994, 999 (4th Cir. 1986). See also In re Nat’l Century Fin. Enter., 423 F.3d 567 (6th Cir. 2005) (commencement of civil action to recover accounts receivable held in collection account in debtor’s name violated automatic stay even though debtor was not named as defendant because action sought to recover estate property); Global Industrial Technologies, Inc. v. Ace Prop. & Cas. Ins. Co. (In re Global Industrial
Technologies), 303 B.R. 753 (W.D. Pa. 2004), vacated in part, modified in part on other grounds, 2004 WL 555418 (Bankr. W.D.Pa. Mar. 19, 2004) (held, state court action brought by insurers for declaratory judgment regarding non-debtor’s rights in insurance policies it shared with debtor violated automatic stay even though debtor was not named as defendant in state court action because outcome of state action could affect debtor’s rights in shared insurance); Teachers Ins. & Annuity Assoc. of America v. Butler, 803 F.2d 61, 65 (2d Cir. 1986) (referred to A.H. Robins decision as case with “unusual circumstances”). Compare In re Transervice Logistics, Inc., 304 B.R. 805 (Bankr. S.D. Ohio 2004) (declining to extend automatic stay to non-debtor co-defendants because, unlike situation in A.H. Robins, defendant-debtor only faced one suit, not thousands, and thus would not be barraged by discovery and litigation).

g. Proceedings or claims arising post-petition are not subject to automatic stay, although successful plaintiff must obtain relief from stay if it seeks to enforce judgment against estate.8 Bellini Imports, Ltd. v. Mason & Dixon Lines, Inc., 944 F.2d 199 (4th Cir. 1991) (automatic stay did not bar institution of action arising out of alleged postpetition breach of contract); Erickson v. Polk, 921 F.2d 200 (8th Cir. 1990) (lessor of farmland did not violate automatic stay when it retook possession of property following postpetition expiration of lease); In re Dominguez, 312 B.R. 499 (Bankr. S.D.N.Y. 2004) (prepetition lapse of debtor-taxpayer’s redemption period may constitute “cause” for lifting stay to allow tax authority to exercise its
rights in debtor’s real property; it did not relieve taxing authority’s obligation to move first for modification of stay).

h. Automatic stay does not apply to post-petition defensive actions in a
prepetition lawsuit brought by a debtor. Stanwyck v. Beilinson, 104 Fed.
Appx. 616 (9th Cir. 2004).

3. “[A]ny act” to obtain possession of debtor’s property, or to exercise
control over such property. 11 U.S.C. § 362(a)(3).

_____________________________________

7 The court ignored its own precedent in coming to this bizarre result, but justified it by reasoning that adjudication of a claim against the wholly-owned corporation would have an “immediate adverse economic impact” on the debtor. But see Feldman v. Trustees of Beck Ind., Inc. (In re Beck Ind., Inc.), 725 F.2d 880 (2d Cir. 1973) (court cannot enjoin suit against solvent independent subsidiary of debtor merely because stock is held by debtor in reorganization); In re Unishops, Inc., 374 F.Supp. 424 (S.D.N.Y. 1974) (bankruptcy court lacks jurisdiction to grant a stay of court proceedings against subsidiaries).

e. Debtor’s Tax Benefits. Circuits apparently are split regarding whether
a debtor’s tax benefits (e.g., net operating losses) are property of the estate, thus subject to the automatic stay. See In re UAL Corp., 412 F.3d 775 (7th Cir. 2005) (finding bankruptcy court’s injunction restricting trading in debtor’s securities to protect tax benefits to be “problematic on the merits,” and questioning court’s reliance on Bankruptcy Code §§ 105(a) and 362 as basis for trading procedures order). Compare In Prudential Lines, Inc., 928 F.2d 565 (2d Cir. 1991) (finding debtor’s tax benefits to be estate property, and that automatic stay thus enjoined debtor’s parent from taking worthless stock deduction on parent’s tax return).

__________________________________

9 The mechanic’s lienor will ordinarily be able to perfect its lien after bankruptcy for work performed prior to bankruptcy. See generally, In re Yobe Electric, Inc., 728 F.2d 207, 208 (3d Cir. 1984) (per curiam) (service of notice of intent to file mechanic’s lien did not violate stay since under state statute “perfection of mechanic’s lien ‘relates back’ to the installation of the first material”); In re Lionel Corp., 29 F.3d 88 (2d Cir. 1994) (held, no automatic stay violation resulted from mechanics’ lienors’ post-petition serving notice of lien upon lessors and chapter 11 debtor lessee, when New York law permitted perfection of filed mechanics’ lien after another entity had acquired rights to the property).

See In re Fuller, 134 B.R. 945 (B.A.P. 9th Cir. 1992) (held, automatic stay prevents creation or perfection of lien, even by operation of law).
a. Sections 362(b)(3) and 546(b)(1)(A), read together, set the
boundaries of this exception.

(i) Section 362(b)(3) subjects a creditor’s right to “perfect, or to maintain or continue the perfection of, an interest in property” to Section 546(b) of Code. 11 U.S.C. §362(b)(3).

(ii) In turn, Section 546(b) limits the trustee’s powers to avoid statutory liens by providing that they “are subject to any generally applicable law that permits perfection of an interest in property to be effective against an entity that acquires rights in such property before the date of perfection.” 11 U.S.C. §546(b)(1)(A) (emphasis added); see, e.g., In re AR Accessories Group, Inc., 345 F.3d 454, 458 (7th Cir. 2003) (held, priming statute need not contain language expressly providing for retroactive perfection in order to trigger exception provided in 11 U.S.C. §546(b)(1)(A)); In re Hayden, 308 B.R. 428 (B.A.P. 9th Cir. 2004) (held, towing operator did not violate automatic stay in refusing to surrender possession of debtor’s vehicle, which was towed prepetition, unless debtor first paid towing charges because towing operator was merely acting to maintain or continue possession of its lien, not to enforce it).

5. Any act to create, perfect, or enforce a lien against debtor’s property for
prepetition claims. 11 U.S.C. § 362(a)(5). See, e.g., In re Birney, 200 F.3d 225 227 (4th Cir. 1999) (Section 362(a)(5) prohibits “any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title”).

6. “Any act to collect, assess, or recover a prepetition claim against the
debtor.” 11 U.S.C. § 362(a)(6). Pertuso v. Ford Motor Credit Co., 233 F.3d 417, 423 (6th Cir. 2000) (a course of conduct violates § 362(a)(6) if it “(1) could reasonably be expected to have a significant impact on the debtor’s determination as to whether to repay, and (2) is contrary to what a reasonable person would consider to be fair under the circumstances”) (quoting In re Briggs, 143 B.R. 438 453 (Bankr. E.D. Mich. 1992)); see also In re Diamond, 346 F.3d 224, 227-28 (1st Cir. 2003) (settlement negotiations challenging Chapter 7 debtor’s discharge do not violate the automatic stay per se, but creditor’s threat to seek revocation of debtor’s real estate license during negotiations was coercive, thus dismissal of
debtor’s complaint proper); In re Optel, Inc., 60 Fed.Appx. 390 (3d Cir. March 25, 2003) (sale agreement between creditor and debtor provided that debtor either pay $6 million lump sum payment or, if creditor requested, $10 million over time; held, automatic stay prohibited creditor from requesting the $10 million deferred payment, therefore creditor was only entitled to distribution on $6 million claim); In re Jamo, 283 F.3d 392, 399 (1st Cir. 2002) (“a creditor may engage in post petition negotiations pertaining to a bankruptcy-related reaffirmation agreement so long as the creditor does not engage in coercive or harassing tactics”).

7. Setoffs of any prepetition debt owing to the debtor. 11 U.S.C. § 362(a)(7). See Newbery Corp. v. Fireman’s Fund Ins. Co., 95 F.3d 1392 (9th Cir. 1996) (right of setoff is subject to automatic stay provisions of chapter 11); Citizens Bank of Maryland v. Strumpf, 516 U.S. 16 (1995) (temporary administrative freeze by bank not a stay violation or setoff; intent to settle accounts permanently is required for setoff within meaning of automatic stay provisions). Compare Jimenez v. Wells Fargo Bank, N.A., 335 B.R. 450 (Bankr. D. N.M. Dec. 21, 2005) (temporary administrative freeze by bank, without right of setoff, violated automatic stay); In re Calvin, 329 B.R. 589 (Bankr. S.D. Tex. 2005) (bank’s administrative freeze of debtor’s account violated automatic stay when bank was not creditor of debtor and thus had no right of setoff); In re Cullen, 329 BR. 52
(Bankr. N.D. Iowa 2005) (bank’s administrative freeze of account jointly held by debtor and debtor’s father violated automatic stay because freeze was intended to continue indefinitely until bankruptcy case was closed; bank did not have valid right of setoff because funds in account were property of debtor’s father and mutuality requirement for setoff thus was lacking).

a. N.B.: The automatic stay, however, does not prevent a creditor
from exercising its right of recoupment.10 See, e.g., In re Slater Health
Center, Inc., 398 F.3d 98 (1st Cir. 2005) (right of recoupment entitled
government to recoup prepetition overpayments to debtor-health care
provider by reducing postpetition payments to debtor); In re Holyoke
Nursing Home, 372 F.3d 1 (1st Cir. 2004) (same); In re Anes, 195 F.3d
177 (3d Cir. 1999) (held, doctrine of recoupment did not apply so as to
permit pension plans to deduct loan payments from debtors’ postpetition
paychecks because the payments were not part of the same transaction); In re Delicruz, 300 B.R. 669 (Bankr. E.D. Mich. 2003) (“recoupment reduces
or extinguish[es] a debt arising from the same transaction, and is not
stayed by the bankruptcy”). But see York Linings Int’l, Inc. v. Harbison-
Walker Refractories Co., 839 N.E.2d 766 (Ind. App. 2005) (although
automatic stay does not bar creditor from exercising right of recoupment,
stay does prevent creditor from asserting counterclaim for recoupment in
litigation because such a counterclaim seeks affirmative relief).

____________________________________

10 “Recoupment” has been defined as follows: “. . . so long as the creditor’s claim arises out of the identical transaction as the debtor’s, that claim may be offset against the debt owed to the debtor, without concern” for the Code’s setoff limitations. In re University Medical Center, 973 F.2d 1065, 1080 (3d Cir. 1992). Recoupment in bankruptcy has been narrowly construed by courts because it violates the basic bankruptcy principle of equal distribution. In re B & L Oil Co., 782 F.2d 155, 158 (10th Cir. 1986) (“[a] fundamental tenet of bankruptcy law is that . . . [once] a petition is filed, debts that arose before the petition may not be satisfied through post-petition transactions. This is seen in bankruptcy restrictions on setoffs [and recoupment].”); In re McMahon, 129 F.3d 93, 97 (2d Cir. 1997) (“in light of the Bankruptcy Code’s strong policy favoring equal treatment of creditors, recoupment . . . should be narrowly construed”).

• As of October 17, 2005, § 362(a)(8) is limited to proceedings
concerning corporate debtor’s tax liability for taxable period the
bankruptcy court may determine or, if debtor is individual, to tax
for taxable period ending before date of order for relief.

9. Only affirmative acts are stayed. Section 362 applies only to affirmative
acts against the debtor or its estate.

When Homeowner’s good faith attempts to amicably work with the Bank in order to resolve the issue fails;

What Homeowners Must Know About “Withrawing Reference” in Bankruptcy Proceeding

30 Saturday Aug 2014

Posted by BNG in Bankruptcy, Case Laws, Case Study, Federal Court, Foreclosure Defense, Judicial States, Litigation Strategies, Non-Judicial States, Pleadings, Pro Se Litigation, Your Legal Rights

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This post is designed to inform homeowners about withrawing reference in Bankruptcy proceedings. Simply put, when a homeowner is already pursing its foreclosure case in the Federal Court, and later files an emergency chapter 13 bankruptcy to protect his/her home from foreclosure. The homeowner in certain cases may opt to pursue the lender via bankruptcy adversary proceeding which is a seperate proceeding from the Chapter 13 automatic stay protection. What usually happens is that the homeowner may opt to use same causes of action as used in the Federal case, to pursue the Bankruptcy adversary proceeding. When this happens, the lender’s attorneys usually files what is known as “Motion for Withdrawal of reference” citing that the causes of actions in Chapter 13 adversary proceedings were the same as the ones in the Federal case, therefore that it would be better to withdraw the references in the Bankruptcy proceeding and remind them back to the Federal proceeding as that would serve best for judicial economy and to avoid multiple payment of damages from two different jusisdictions of the same material facts of causes of action. The Bankruptcy judges with their descretions can then decide, if the causes of action listed in the Bankruptcy proceeding would require the withdrawal of the either “Some of the causes of action or the Entire Adversary proceeding” as filed, since those causes of actions were already included in the Federal proceeding. Or whether some causes of actions in the Adversary proceeding were different and thus require that they remain in the Adversary proceeding for the case to continue in the Bankruptcy forum.

The number of reported cases dealing with motions for withdrawal of the reference appears to be on the rise. Practitioners need to be cognizant of this option and make an early determination as to whether to pursue withdrawal of the reference from the bankruptcy court under 28 U.S.C. §157(d). A well-considered motion to withdraw the reference is an important strategy that may result in a more favorable outcome for targets of bankruptcy litigation.

The district court may withdraw, in whole or in part, any case or proceeding referred under this section, on its own motion or on timely motion of any party, for cause shown. The district court shall, on timely motion of a party, so withdraw a proceeding if the court determines that resolution of the proceeding requires consideration of both title 11 and other laws of the United States regulating organizations or activities affecting interstate commerce. In an early case interpreting this statute, the district court in the Southern District of New York examined the historical underpinnings of §157(d) (including a review of Northern Pipeline) and stated that the statute “reflects Congress’s perception that specialized courts should be limited in their control over matters outside their areas of expertise.” American Tel. & Tel. Co. v. Chateaugay Corp., 88 B.R. 582, 583 (S.D.N.Y. 1988).

Section 157(d) has two branches. It vests discretionary (also described as permissive) authority with the district court to withdraw the reference upon a showing of “cause” by the filing of a timely motion. It also mandates the withdrawal of the reference as to proceedings that involve non-title 11 federal laws that regulate or affect interstate commerce or organizations.

A motion to withdraw the reference is filed with the bankruptcy clerk but is decided by the district court in the district where the bankruptcy case arose pursuant to Rule 5011(a). If the district court withdraws the reference, the bankruptcy court is stripped of jurisdiction over the matters for which the reference is withdrawn. Patterson v. Williamson, 153 B.R. 32, 33 (E.D. Va. 1993). Section 157(d) also entitles the district court to withdraw the reference sua sponte, but does not relieve it from the requirement that cause be present for sua sponte permissive withdrawal.

The first step in this inquiry is to determine whether there are nonbankruptcy federal laws at issue in the proceedings. Then it is necessary to determine whether to proceed under discretionary or mandatory withdrawal standards, or both.

Timeliness Is Key
Early recognition of the option of seeking withdrawal of the reference is extremely important because the motion must be “timely” under either a discretionary or mandatory standard. A motion is timely, if brought as promptly as possible, in light of the developments in the bankruptcy proceeding or at the first opportunity. Hupp v. Educational Credit Management Corp., No. 07CV1232 WQH (NLS), 2007 WL 2703151, at *3 (D. Cal. Sept. 13, 2007). A motion to withdraw the reference may be untimely when a significant amount of time has passed since the moving party had notice of the grounds for withdrawing the reference or where withdrawal would have an adverse effect on judicial economy. Id.

In an often-cited case, a district court ruled that a motion to withdraw the reference was untimely when it was filed five months after the bankruptcy petition and only one month after the filed adversary complaint. In re Mahlmann, 149 BR 866, 870 (N.D. Ill. 1993). The court noted that the “the key issue is when the moving party was first aware nonbankruptcy federal laws must be dealt with in resolving the case.” Id. at 869. Of particular significance was the fact that the federal claims existed for some time before the bankruptcy, as evidenced by the movant’s civil action against the debtor related to those claims, which was filed more than eight months before the bankruptcy. Id. at 870. One court has even held that a motion to withdraw the reference should have been filed contemporaneously with the defendant’s answer to an adversary complaint because the presence of “other laws” requiring the withdrawal of the reference was known at that time. See Securities Group 1980, 89 B.R. 192, 194 (M.D. Fla. 1988) (emphasis added). The failure to file constituted a waiver of the right to do so. Id.

The timing of the motion may also be affected by whether a jury demand is being made. A motion to withdraw the reference should generally be filed at the time of an answer containing a jury demand to avoid the outcome in In re HA-LO Industries, where the motion was deemed untimely when the proponent, who filed a jury demand on July 24, 2003, did not move to withdraw the reference until Oct. 28, 2004. 326 B.R. 116 (Bankr. D. Ill. 2005).

While some courts have focused on whether prejudice exists (see In re The Singer Co. N.V., No. 01CV0165 (WHP)), a movant cannot rely on that soft of a standard. A motion to withdraw the reference should be filed as soon as possible after the issues are known and before the bankruptcy court has dealt with those issues.

Permissive Withdrawal
Assuming the motion is timely filed, what factors will persuade a district court to exercise its discretionary authority to grant permissive withdrawal? The definition of “cause” has been left to the courts to decipher; the legislative history is of little help.

An early articulation of the standard for determining cause directed the district court to consider the goals of uniformity in the administration of bankruptcy cases, reduce forum-shopping, foster the economical use of the parties’ resources and expedite the bankruptcy process.

Holland Am. Ins. Co. v. Succession of Roy, 777 F.2d 992, 999 (5th Cir. 1985). The Holland case also cautioned that the district court “must keep one eye cocked toward the decision of the Supreme Court in [Northern Pipeline]… Whatever the precise teaching of [Northern Pipeline,] it holds, at a minimum, that Article I bankruptcy courts may not have original jurisdiction over adversary proceedings that do not intimately involve the debtor-creditor relationship and rest solely in issues of state law.”

More recent cases have added to the Holland factors with a focus on whether the proceeding is core or noncore and whether there is a right to a jury trial, while keeping an eye on judicial economy. In re County Seat Stores Inc., No. 01 CIV. 2966 (JGK), 2002 WL 141875, at *4 (S.D.N.Y. Jan. 31, 2002.) The presence of noncore issues are often central to the district court’s consideration of a motion to withdraw the reference and relates closely to judicial economy. In re Enron Corp., 317 B.R. 232, 234 (S.D.N.Y. 2004). Whether an adversary proceeding sought to be withdrawn is core or noncore has been held to be “the most important factor.” In re Coe-Truman Technologies Inc., 214 B.R. 183, 187 (N.D. Ill. 1997). While §157(b)(1) permits bankruptcy judges to hear and determine core proceedings, §157(c)(1) requires a de novo review of such matters by the district court, and only it can enter a final order. Thus, judicial economy is best served by having the district court first determine the issue.

The fact that the bankruptcy court cannot conduct a jury trial on a noncore matter is also sufficient cause for permissive withdrawal. In re Orion Pictures Corp., 4 F.3d 1095, 1101 (2d Cir. 1993). See also In re Daewoo Motor America Inc., 302 B.R. 308, 315 (C.D. Cal. 2003) (“Thus, where there is a right to jury trial in a noncore matter, that factor may weigh heavily in favor of withdrawing the reference so as to give the parties an opportunity for a jury trial in the district court.”). Where an insurance dispute was “entirely severable from the bankruptcy proceedings” and said dispute involved noncore issues, the district court withdrew the reference. In re Comdisco Inc., No. 04 C 5570, 2004 WL 2674398, at *2 (N.D. Ill. Oct. 15, 2004).¹

While cause is not defined in the statute and is a flexible concept, it is not an “empty requirement.” Holmes v. Grubman, 315 F. Supp. 2d 1376, 1381 (M.D. Ga. 2004) (reciting same factors previously described as being applicable in Eleventh Circuit). The moving party bears the burden of demonstrating that both the timeliness and cause requirements of §157(d) have been met. In re Almac’s Inc., 202 B.R. 648, 654 (D. R.I. 1996).

Mandatory Withdrawal
Most courts applying the mandatory withdrawal standard employ a “substantial and material test,” but this phrase has been given a variety of meanings. Some courts utilize this standard in interpreting the term “consideration” under §157(d) and find that mandatory withdrawal is required only if the proceedings cannot be resolved without “substantial and material consideration of nonbankruptcy laws.” In re G-I Holdings Inc., 295 B.R. 211, 221 (D. N.J. 2003).

The Seventh Circuit stated that the substantial and material test really refers to the necessary extent of interpretation of the non-title 11 statute or the court’s necessary analysis of “significant open and unresolved issues” and not the mere application of it. In the Matter of Vicars Ins. Agency Inc., 96 F.3d 949, 954 (7th Cir. 1996). Another court has found the substantial and material test to have been satisfied where the nonbankruptcy federal law at issue (domestic patent law) is central to the outcome of the case. In re Singer Co., 01 Civ. 0165 (WHP), 2002 U.S. Dist. LEXIS 2629, at *8 (S.D.N.Y. Feb. 20, 2002). On the other hand, a district court recently denied a motion to withdraw the reference where the issues of federal law presented (FDCPA and RESPA claims) were routinely considered in bankruptcy proceedings and therefore did not require the court’s substantial and material consideration. Prince v. Countrywide Home Loans, No. 1:08-0058, 2008 WL 4572545, at *2 (M.D. Tenn. Oct. 8, 2008).

The District Court for the Southern District of New York appears to use various iterations of the test. In In re Enron Corp., the court looked to whether the examination of the federal law in question would be more than de minimis in deciding to withdraw the reference. No. 04 Civ. 8177 (RCC), 2004 WL 2711101 at *4 (S.D.N.Y. Nov. 23, 2004). In another case, mandatory withdrawal was warranted where a nonbankruptcy federal statute “arguably conflicts” with the Bankruptcy Code. In re Cablevision S.A., 315 B.R. 818, 821 (S.D.N.Y. 2004). This court has also held that “novel or unsettled questions of nonbankruptcy law” do not need to be present to permit the district court to withdraw the reference. In re Enron Corp., 388 B.R. 131, 139 (S.D.N.Y. 2008). While withdrawal is not mandated when consideration of non-Code law “entails only the straightforward application of settled law to the facts of a particular case,” it is required when a significant interpretation of non-Code statute is needed, when a non-Code issue dominates, or when nonbankruptcy federal law governing the case significantly and materially conflicts with relevant bankruptcy law. In re Chateaugay Corp., 193 B.R. 669, 673 (S.D.N.Y. 1996).

As shown by the foregoing, the substantial and material test can have different meanings. The case most likely to lead to withdrawal of the reference under the mandatory withdrawal provision of §157(d) would involve a non-title 11 federal issue that is central to the determination of the case, not regularly ruled on by bankruptcy courts, and presents either an undecided issue under the non-title 11 law or conflicts with bankruptcy policies.

Conclusion
The statutory resolution under §157(d) to the Northern Pipeline constitutional crisis is less than satisfactory because it leaves much uncertainty as to the jurisdictional limits of bankruptcy courts. Uncertainty is inherent in the absence of a clear definition of “cause” and the “substantial and material” overlay attributed to the mandatory withdrawal standard. We can say that timeliness of the motion is critical and that there is much room for advocacy.

The nonanalytical factors associated with motions to withdraw the reference should be recognized but overcome and a careful judgment made as to whether such a motion is likely to succeed. Contrary to initial inclinations and depending on the issues, the bankruptcy court may be as or better equipped than the district court to decide even a noncore issue. The district court should not be concerned about taking all or part of a case from the bankruptcy court, and the bankruptcy court should not be concerned that §157(d) permits or requires a withdrawal of the reference.

¹ Interestingly, the same court ruled seven months earlier that, despite the fact that a state law insurance question at issue was noncore, withdrawing the reference was not appropriate because judicial economy and efficiency actually would have been hindered by the withdrawal. In re HA 2003 Inc., No. 3 C 9008, 2004 WL 609799, at *3 (N.D. Ill. March 22, 2004).

When Homeowner’s good faith attempts to amicably work with the Bank in order to resolve the issue fails;

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What Homeowners Must Know About “Withrawing Reference” in Bankruptcy Proceeding

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