December 2007

Personal bankruptcy filings soar

Number of cases filed in southeast Michigan jumped 63 percent through October 2007.

Nathan Hurst / The Detroit News

The number of southeast Michiganians declaring bankruptcy is skyrocketing. . . . Through October, the number of Chapter 7 personal bankruptcies filed in Detroit's federal bankruptcy court jumped 63 percent compared with the first 10 months of last year. With two months of 2007 filings still to be reported, there already are 4,700 more Chapter 7 filings this year than for all of 2006. . . . Financial experts say the reasons for the recent ramp-up in bankruptcy filings are well-known to many Michiganians. . . . "It's definitely about the bad economy and housing market," said Natasha Swoish, manager of bankruptcy counseling and education services at GreenPath Inc., a Farmington Hills-based credit counseling service. "Especially from the Detroit area, we're seeing a lot of people coming in because of foreclosure. It's a last-ditch effort to try and save their homes." . . . Swoish said GreenPath's counselors work with those in debt to set up plans with creditors, rather than defaulting or seeking bankruptcy protection. But lately, she said, that option of last resort has become necessary for those out of work and swimming in debt.

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Data-Loaded Court Forms Raise Privacy Issue

Judiciary not sold on proposal requiring debtors to use 'data tags'

By Marcia Coyle, The National Law Journal

12-12-07 -- The Executive Office for U.S. Trustees, which oversees the federal bankruptcy system, wants the federal judiciary to require debtors to file data-enabled bankruptcy forms. But the judiciary, not yet sold on the idea, is worried about privacy, costs and fairness. . . . "Data tags" mark each piece of data entered into individual fields in a data-enabled form. They permit the computer system to automatically extract and aggregate financial and other information from bankruptcy filings. The tags are invisible to the user. . . . Clifford White III, director of the executive office, recently told a House committee that the mandatory forms would make the U.S. Trustee Program's implementation of the new bankruptcy reform law "vastly more time and cost efficient" in several key areas, such as calculating the means test to determine eligibility for Chapter 7 relief and identifying cases for audit under statutory case selection standards.

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CALIFORNIA  

Trustee Says Pillsbury Should Return Fees

In the SonicBlue case, the bankruptcy trustee agrees that the conflicted-out firm should give back its fees, and possibly more

Niraj Chokshi, The Recorder 

12-12-07 -- Pillsbury Winthrop Shaw Pittman is one step closer to being forced to return about $4 million to a former client. . . . The Chapter 11 trustee for SonicBlue Inc. filed a statement on Tuesday supporting a November motion, filed by SonicBlue, asking Pillsbury to pay back the fees. . . . Tuesday's statement took the motion even further. In it, Trustee Dennis J. Connolly suggested that the judge hold off on setting an amount so that other issues such as interest or even potential damages could be considered.

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NEW JERSEY  

Lawyer in Dwek case vanishes

By James W. Prado Roberts, Staff Writer

12-12-07 -- Where in the world is Anthony T. Yeh? . . . Key players in the Solomon Dwek bankruptcy case want to find the elusive lawyer, who a new court filing claims may have helped Dwek defraud a major bank of millions of dollars. . . . Yeh is an obscure but key figure connected to the downfall of Dwek's real estate empire last year. Yeh represented HSBC Bank on four loans, totaling $78 million, that helped fuel Dwek's property-buying spree in 2005. . . . The spree ended in disaster. Dwek repaid one $20 million loan from HSBC with a bounced check, which started the unraveling of his empire. . . . Today, Dwek, 35, of Ocean Township, is facing federal bank fraud charges, bankruptcy and angry creditors who claim that he owes them $350 million. . . . Dwek's bankruptcy trustee as well as several other lawyers in the sprawling case, would like to know where Yeh is. . . . "Yeh may have been involved with the fraud," Dwek bankruptcy trustee Charles A. Stanziale Jr. stated in federal court papers filed Monday. . . . PNC Bank, which accepted Dwek's bad check last year and was unwittingly used to pay off the $20 million HSBC loan, has tried to find Yeh.

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Hospitals Need Lawyers -- Stat!

Kellie Schmitt, The Recorder

12-10-07 -- When Culver City, Calif.'s Brotman Medical Center filed for Chapter 11 bankruptcy in late October, attorneys paid attention. . . . Its financial struggles are likely to be a harbinger of hospital woes to come as the number of uninsured patients grows and hospital revenues decrease. . . . "All of those factors are forming a real storm for hospitals," said Stephen Warren, a partner in O'Melveny & Myers' L.A. office. "And this wave is going to involve sophisticated counsel." . . . That's why O'Melveny is actively targeting hospital bankruptcies, hoping to cash in on a climate of upheaval. It hopes to compete against firms more established in the health care area. Other firms, such as Buchalter Nemer, are ramping up as a hospital crisis looming in California may mean plenty of legal work to go around. . . . "It's an area in which we're putting a heavy degree of emphasis," Warren said. "Some of the hospital bankruptcies won't be big, but the aggregate will have a significant impact." . . . It's also worthwhile on the billing-rate side, he added: "These are not discounted rates. They tend to be very high margin, since these are bet-the-hospital problems."

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November 2007

Bankruptcy Trustee Suits Cause Increasing Concern for Law Firms

Anthony Lin, New York Law Journal  

11-28-07 --In April 2003, Steven Garfinkel, the chief financial officer of DVI Inc., wrote a memo to Chief Executive Officer Michael O'Hanlon about the crushing liquidity crisis facing the health care finance company and its implications for a pending stock float. The CFO urged his boss to talk as soon as possible to the company's main outside lawyer, John Healy, a partner in the New York office of Clifford Chance. . . . "John will tell you that the plans to go ahead with the exchange offer and raise capital without solving the cash problem will represent serious securities fraud," Garfinkel wrote in the memo. "Our issues now are defrauding an FDIC-insured bank, which has federal law implications as well as serious civil liability issues. The board will become enormously exposed to the securities fraud implications. In John's own words -- 'We all go to jail' -- in my words, 'This is serious shit.'"

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NEW YORK  

Big Bad Bankruptcy Trustees Aim to Blow Some BigLaw Houses Down

New York Lawyer, By Anthony Lin, New York Law Journal

11-26-07 --In April 2003, Steven Garfinkel, the chief financial officer of DVI Inc., wrote a memo to chief executive officer Michael O'Hanlon about the crushing liquidity crisis facing the health-care finance company and its implications for a pending stock float. The CFO urged his boss to talk as soon as possible to the company's main outside lawyer, John Healy, a partner in the New York office of Clifford Chance. . . . "John will tell you that the plans to go ahead with the exchange offer and raise capital without solving the cash problem will represent serious securities fraud," Mr. Garfinkel wrote in the memo. "Our issues now are defrauding an FDIC insured bank, which has federal law implications as well as serious civil liability issues. The board will become enormously exposed to the securities fraud implications. In John's own words - 'We all go to jail' - in my words, 'This is serious shit.'" **********************Law Firms as Targets . . . While securities class actions are brought on behalf of shareholders, bankruptcy trustee suits are brought for the benefit of creditors, the biggest of which are usually banks and investment funds. These creditors have grown more aggressive about recouping losses, lawyers say, with trustees acting accordingly. . . . "In the past, there was not a strong inclination on the part of trustees to sue lawyers and accountants," said Stephen F. Caley, a bankruptcy partner at Kelley Drye & Warren. "Over time that broke down and now they go after everyone."

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Will Subprime Crisis Be Impetus for Bankruptcy Reform by Congress?

Marcia Coyle, The National Law Journal

11-16-07 -- There is always some appetite in Congress for changes to the U.S. Bankruptcy Code, say those who watch that area closely, but will the subprime mortgage crisis entice enough lawmakers to the table for action this year? . . . In the past few months, the Democratic-controlled Congress has held hearings involving the bankruptcy system on four different fronts, and some of the titles of the hearings leave little doubt about the majority party's concerns. A hearing on the second anniversary of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) was entitled, "Are consumers really being protected?" And a hearing on the operation of the U.S. Trustee Program was called, "Watchdog or Attack Dog?" . . . Also, there have been two hearings on the mortgage mess and bankruptcy-related solutions, and one on medical debt and bankruptcy. . . . "Ever since BAPCPA was enacted, there have been rifle-shot efforts focused on general bankruptcy reform," said Scott Talbott, senior vice president of government affairs for the Financial Services Roundtable. "There's a perception among some congressmen that BAPCPA prevented some people from getting access to the Bankruptcy Code."

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Bankruptcy Trustees Taking Action Against Dishonest Lenders.

By Mona Lewandoski

11-6-07 -- In this New York Times article, Gretchen Morgenson reports on the bankruptcy courts’ increasing scrutiny of mortgage terms, in particular of improper fees and mathematical errors by which lenders can skim millions from America’s homeowners. According to the article, the problem is significant enough that the Chapter 13 trustee in Pittsburgh has requested that the Bankruptcy Court sanction Countrywide, a large loan servicer, for losing or destroying homeowners’ mortgage payments. Additionally, the Department of Justice’s bankruptcy office, the Office of the United States Trustee, has announced that it plans to become involved with lenders that file false claims in bankruptcy, require unreasonable fees, or fail to recognize debtors’ right to handle the debt through bankruptcy.

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South Florida Creditor Files Request For Criminal Rico Investigation Against Federal Bankruptcy Judge Paul G. Hyman, Jr. and Three South Florida Attorneys

PRESS RELEASE 11/6/07 -- On October 30, 2007, Meryl Lanson, a creditor of Baron’s Stores, Inc. filed a request for racketeering enterprise investigation into charges that Judge Paul G. Hyman, Jr. and attorneys Marc Cooper, Ronald C. Kopplow and Sonya L. Salkin have engaged in a pattern of racketeering in violation of the Racketeer Influenced and Corrupt Organizations Act.

"What has happened to me is no different than the Mafia using extortion, the only difference is this is extortion ‘under color of official right’. When a Federal Judge obstructs justice by misrepresentation, or obstructs a criminal investigation by failing to rule in accordance with the law, or allows the wrongful taking of assets, and does it because he is able to as a Federal Judge, it is no different than the Godfather in the Mafia."

The immediate purpose of a racketeering enterprise investigation is to obtain information concerning the nature and structure of the enterprise. The view is to the long range objective of detection, prevention and prosecution of the criminal activities of the enterprise.

According to the complaint filed by Meryl Lanson, criminal acts of perjury, fraud on the court, undisclosed fee arrangements, non-disclosure of criminal activity and various bankruptcy crimes have been committed over almost a ten year period by the same parties against the same victims. Large sums of money owed to Creditors were illegally transferred to attorneys from the Debtor at the direction of Judge Paul G. Hyman, Jr.

Meryl Lanson 561-488-7678 (Fax) 561-488-2861

R. Alexander Acosta 305-961-9001 (Fax) 305-530-7679

Clifford J. White, III 202-307-1391 (Fax) 202-307-0672

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October 2007

Homeowners Turn to Bankruptcy to Stay Out of Foreclosure!

It may seem counterintuitive, but many homeowners are turning to bankruptcy to stay in their homes and avoid foreclosure.

We already know from looking at Realtytrac’s data that many mortgage payment loans are in default. We have been hearing about the 100%+ increases in foreclosure rates, but what about bankruptcy rates? The WSJ reports this morning that bankruptcy filings increased 23% from one year earlier. During the first nine months of 2007? 44% increase, according to the American Bankruptcy Institute. . . . So how does filing bankruptcy keep you out of foreclosure? In some states, bankruptcy stops the foreclosure process. It is harder today than it was in 2005 to be granted a bankruptcy, but as homeowners find it harder to refinance and see their payments going up, many are turning to it earlier in the process. . . . Chapter 7 of the Federal Bankruptcy Code requires individuals to forfeit assets - including equity in their home - to pay off debts. Many who file Chapter 7 do lose their homes. . . . However, there is another option; Chapter 13. This stops the foreclosure process, and allows the homeowner to work out a play to pay debts - including your mortgage - over time. Usually this period of time is three to five years. To qualify, a person must have regular income and stay current on ther new bills. About 40% of today’s bankruptcy filings are under Chapter 13.

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July 2007

Judge Faults 'Boilerplate' Notification of Possible End to Bankruptcy Case

Beth Bar, New York Law Journal

7-11-07 -- A bankruptcy judge's dismissal of a Long Island, N.Y., doctor's Chapter 11 petition has been vacated by a federal judge who held that the doctor had not been sufficiently warned of the consequences of failure to follow court directives. . . . After debtor Florin Munteanu filed for bankruptcy, Eastern District of New York Bankruptcy Judge Stan Bernstein issued an order advising him of the fact that he "may consider and determine any motion to ... dismiss" at a scheduled conference. . . . But Eastern District of New York Judge Arthur D. Spatt held that this "boilerplate warning" did not provide Munteanu with adequate notice that the case could be dismissed. . . . "The notice by the Bankruptcy Court that it was considering dismissing the petition for cause was not provided at a meaningful time, and did not permit the appellant a meaningful opportunity to respond," Spatt wrote in In re: Florin Munteanu, 06 CV 6108.

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MASSACHUSETTS   

Orleans lawyer to stay in jail

Cape Cod Times

7-11-07 -- A United States District Court judge yesterday abruptly dismissed a bankruptcy case filed by disbarred Orleans attorney Richard Birchall, effectively keeping him in jail. . . . Birchall, 62, earned a degree of notoriety in Western Massachusetts through his association with Suzanne D'Amour, who was tried for conspiring to kill her husband, dentist Robert D'Amour. After D'Amour was shot to death in the couple's South Hadley home in 1993, Suzanne D'Amour reaped a $3.3 million life insurance settlement. . . . Prosecutors maintained that D'Amour and Alex Rankins, a Springfield bar bouncer, were lovers who hatched the plot to kill the dentist. They were tried separately. Although Rankins was convicted of first-degree murder, D'Amour was acquitted of murder but sentenced to prison for perjury.

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FLORIDA  

Rights to OJ Simpson Book Bought by Family of Alleged Victim

New York Lawyer, By Kelli Kennedy, The Associated Press

7-5-07 -- The family of Ron Goldman has purchased the rights to O.J. Simpson's canceled book, "If I Did It," from a court-appointed bankruptcy trustee in a settlement reached Monday. . . . The book rights will be held in the name of Ron Goldman LLC, Goldman family attorney David Cook said.

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April 2007

NEW HAMPSHIRE

Jailed roofer is back on job

He works for business owned by his girlfriend

By Annmarie Timmins, Monitor staff

4-23-07 -- James Moran Jr., the Concord roofer who was jailed in 2004 and ordered not to own, operate or manage a home contracting business for 10 years, has recently begun working for a contracting business established by his girlfriend. . . . Jessica Lee started All Around the House Services, a "general contracting" business, in January, according to records at the secretary of state's office. Moran's public defender has asked the court that forbid Moran, 32, to own a contracting business to let him work for his girlfriend. . . . The court has not ruled. . . . The state attorney general's office, which in the last five years has both sued and criminally charged Moran for violating consumer laws, is objecting to Moran's request. That office has received numerous complaints over the years about Moran's many businesses, whose names have included High Peaks Roofing, Exterior Solutions and Laser Pro Home Services. . . . The office has also received one complaint about his girlfriend's business, said Connie Stratton, assistant attorney general. She said the nature and status of the complaint are confidential.

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March 2007

CALIFORNIA  

Firm Faces Loss of $4 Million in Fees in Long-Running Bankruptcy

New York Lawyer, By Zusha Elinson, The Recorder

3-7-07 -- An alleged conflict of interest could cost Pillsbury Winthrop Shaw Pittman its role in a long-running bankruptcy case -- and more than $4 million in fees. . . . A San Jose, Calif., bankruptcy judge has scheduled a March 19 hearing on a motion by the U.S. Trustee's office to disqualify the firm and disgorge the fees it has racked up representing SonicBlue since the electronics maker went belly-up four years ago. . . . The motion claims that in a 2002 opinion letter, issued before the company went bankrupt, Pillsbury assured senior note holders that SonicBlue would repay a $75 million bond obligation in full. Last September, the bond holders -- three hedge funds -- threatened to sue Pillsbury unless it indemnified them.

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December 2006

Featured Article from Lawyers USA:

Bankruptcy provision violates U.S. Constitution

By Correy E. Stephenson Staff writer

12-11-06 -- Consumer bankruptcy attorneys who decried the passage of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act have something to celebrate this holiday season.

Recently, several courts across the country have found a controversial section of the Act unconstitutional.

Section 526(a)(4) provides that "[a] debt relief agency shall not. … advise an assisted person or prospective assisted person to incur more debt in contemplation of such person filing a case under this title or to pay an attorney or bankruptcy petition preparer fee or charge for services performed as part of preparing for or representing a debtor in a case under this title."

Bankruptcy attorneys argued that under the Act's broad definitions, they qualified as "debt relief agencies" and were therefore unable to advise clients to incur debt prior to filing for bankruptcy - even when doing so would be entirely legal.

A U.S.district court in Texas was first to strike down Sect. 526(a)(4) in July, followed by a federal district court in Oregon in August. (Hersh v. U.S., 347 B.R. 19; Olsen v. Gonzales, No. 05-6365-HO.)

On Nov. 7, a U.S. District Court in Connecticut followed suit. (Zelotes v. Martini, No. 3:05-cv-01591-PCD.)

Zenas Zelotes, the New London, Conn. bankruptcy attorney who successfully represented himself in the most recent case, said he filed suit last October because he was offended by the new Act.

"I proceeded to violate the law liberally, freely and with impunity," Zelotes told Lawyers USA. "It was so blatantly unconstitutional that I decided not to wait until I was a criminal defendant to challenge it."

The issue raised by Sect. 526(a)(4) "goes to the heart of the attorney client relationship," said Philadelphia bankruptcy attorney Henry Sommer. "Telling an attorney that he or she can't advise clients about all of their legal options is telling us not to do exactly what we are supposed to do."

Sommer, president of the National Association of Consumer Bankruptcy Attorneys, is waiting for a different Connecticut federal district court to rule on another lawsuit, filed on behalf of all NACBA and Connecticut bar association members, challenging the constitutionality of Sect. 526(a)(4) as well as other provisions of the Act.

Howard Marc Spector, a Dallas solo attorney who represented the plaintiff in the Texas case, said that even non-bankruptcy attorneys should be concerned by the precedent the Act set.

"This issue impacts every single lawyer," he said, because Congress effectively dictated how attorneys could counsel their clients, chilling their speech and limiting the judicial system.

Charles Miller, spokesperson for the Department of Justice, declined to comment on the general issue of Sect. 526(a)(4)'s constitutionality. But he noted that the DOJ is in various stages of appeal in each case, and has already filed a motion over the latest ruling, asking the court to reconsider its decision.

'Financially prudent actions'

In the Connecticut case, Zelotes filed suit against the local U.S. trustee, challenging the constitutionality of Sect. 526(a)(4).

He argued that the provision chilled his free speech rights because he intended to advise his clients to incur additional debt prior to filing.

The government moved to dismiss the case.

But the court found that Zelotes had standing to sue based on the threat of civil penalties and the suppression of his speech.

"Rather than changing the bankruptcy system by closing the loopholes, eliminating the incentives for opportunistic action or enacting penalties for those who take on such debt prior to filing for bankruptcy, Congress enacted Sect. 526(a)(4), a prophylactic rule which prohibits attorneys from advising their clients to take on any additional debt in contemplation of bankruptcy, even when doing so would be lawful. … [T]here are instances whereby taking on more debt in contemplation of bankruptcy would not constitute abuse of the bankruptcy system. Without delving too deep into the complexities of bankruptcy law, it is clear that the prohibition in Sect. 526(a)(4), while addressing opportunistic abuses, could also ensnare lawful, financially prudent actions," the court said.

It proceeded to give examples such as refinancing a mortgage at a lower rate to reduce payments and forestall or even prevent entering bankruptcy; taking out a loan to obtain the services of a bankruptcy attorney and/or pay the filing fee in a bankruptcy case; or borrowing money from family or friends.

"By prohibiting lawyers from advising clients to take a course of action that is lawful and in the client's best financial interest, albeit a counterintuitive one, Sect. 526(a)(4) prevents lawyers from giving clients the best and most complete advice. … By prohibiting lawyers from advising clients to take lawful, prudent actions as well as abusive ones, Sect. 526(a)(4) is overbroad and restricts attorney speech beyond what is 'narrow and necessary' to further the governmental interest," the court said.

Will other courts follow?

While each of the three decisions is still being appealed, the effect of a final judgment in any of them holding the provision unconstitutional could create an odd patchwork of jurisdictions, with Sect. 526(a)(4) enforceable in some but not others.

Further, in each appeal the government has requested that if the provision is invalidated, the decision's effect should be limited to the plaintiff at issue - meaning that other bankruptcy attorneys in that jurisdiction would still be at risk.

But Spector said he doubted a court would agree to enjoin the enforcement of an unconstitutional provision against only a single plaintiff.

He noted that he was unaware of any cases where the provision has been found enforceable, and predicted that if courts continue to invalidate Sect. 526(a)(4), the likelihood of the government seeking to enforce it will decrease.

The recent decisions have highlighted some of the problems with the Act, and the Senate Judiciary Committee has scheduled a Dec. 6 hearing to discuss its impact. In light of the recent elections and the power shift in Congress, some have speculated that a repeal of certain provisions or an amended Act might be possible.

U.S. District Court for the District of Connecticut. Zelotes v. Martini, No. 3:05cv1591(PCD). Nov. 7, 2006. Lawyers USA No. 9934619.

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October 2006

Article of the week from Massachusetts Lawyers Weekly: Bankruptcy reform: one year later With new law firmly in place, lawyers weigh the ups and downs By Barbara Rabinovitz 10-25-06 -- A year has passed since a revamped bankruptcy law ushered in a new era for debtors and creditors and their attorneys, and, to hear it from the lawyers, apocalyptic predictions about the law's impact have not been borne out. As its wordy name — the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 — implies, the law was intended to curb abuse of bankruptcy-filing options while affording debtors some relief. Statistics suggest that already the number of bankruptcy filings has been reduced dramatically. What remains a topic of some debate is whether consumers have gained a measure of security under the new act. In Massachusetts, Chapter 7 bankruptcy petitions, seeking the liquidation of assets and the cancellation of some debts, have plummeted since the new law took effect Oct. 17, 2005, although the volume of Chapter 11 business reorganizations and Chapter 13 repayment plans has held steady. Meanwhile, bankruptcy attorneys, who had been scrambling a year ago to file clients' petitions before the old law expired, acknowledge that their caseload is lighter than it was last October. However, stringent new requirements dealing with the documentation of clients' finances have meant that, in some cases, the workload for those practitioners is considerably heavier. "There is a significant amount of work that has to be done, which far exceeds what we had to do in the past," says bankruptcy lawyer Nina M. Parker, who maintains a law firm in Winchester. On the other side of the bar enclosure, bankruptcy judges in Massachusetts, according to their chief, are still feeling the effects of the filing-tsunami that swept over their courtrooms last fall as they continue to process those cases, pore over the new amendments and issue their interpretations of the changes. Volume 'way down' Among the new code changes that increase the responsibilities of bankruptcy attorneys is a means-test requirement to determine whether debtors have sufficient funds to repay some or all of their debts. The test takes into account several factors: an individual's average income during the six months previous to the filing; the median income of the state in which the individual is filing the bankruptcy petition; and his or her expenses. Documentation of that financial information, including pay stubs and tax returns, must be verified as accurate by an attorney, who could be liable for a monetary penalty if the information is not accurate. Lawyer liability is also a possibility under a provision of the code, which took effect Oct. 20, dealing with periodic auditing of filers' statements. "There's an extraordinary amount of paperwork to collect from the client [because of the means test], and the time to prepare a Chapter 7 or a Chapter 13 has more than tripled," says Parker, who serves as co-chairwoman of the Consumer Bankruptcy Committee of the Boston Bar Association. "Nobody believes they can triple their fees," which range on average between $1,500 and $3,000 for a consumer bankruptcy, "because the debtors can't afford that," Parker says. "So [lawyers] are trying to come up with procedures to collect the information so they can deliver affordable legal services." Checklists and questionnaires for clients to complete are among the measures under consideration. Attorney Steven Weiss, who heads the bankruptcy practice at the Springfield firm of Shatz, Schwartz & Fentin, reports from western Massachusetts that case volume is "way down." Still, Weiss believes that the pace of filings could quicken as consumers wrestle with the cost of living in Massachusetts and the ebb and flow of the state's economy. "I think it's really too soon to tell if filings are going to stay down totally," Weiss says. "It takes several months for an individual's finances to get to the point that they're thinking about filing [for bankruptcy]. The changes made it more difficult and onerous to file a Chapter 7 bankruptcy petition, but it didn't change the underlying financial problems people have." Asked if bankruptcy practitioners should be concerned about the drop-off in filings in the past several months, Weiss has a ready answer: "I think some are. Things have been very slow this year for attorneys filing bankruptcy petitions. But I'm also noticing things are starting to pick up. With pressures on consumers, I think we'll see more [filings]." Weiss adds that the law still will make it more difficult to file, "but if people don't have the money to make mortgage payments and pay for the basic necessities, they will eventually need to file for bankruptcy relief." Tightening deadlines for businesses Attorneys whose practices are focused on business reorganizations also report that their case volume is lower, although for reasons different from those cited by lawyers who represent individual debtors. "We do business reorganizations, primarily Chapter 11 and some Chapter 7, but in the business context," says Boston attorney Douglas B. Rosner, director of the bankruptcy group at Goulston & Storrs. "In the last couple of years, there has been a slowdown in Chapter 11s because of the economy being strong. There are significant amounts of liquidity in the marketplace that fund even the operations of weaker companies." Still, the new amendments are affecting Chapter 11 cases, according to Rosner, co-chairman of the BBA's Bankruptcy Law Section. "The amendments establish tighter deadlines for certain stages of the cases," he explains. "It used to be a Chapter 11 debtor could extend the exclusive period to file its plan indefinitely if it could establish cause for the extension; under the amendments, 18 months is the outside date." According to Rosner, the other "tightening" on time frames — for Chapter 7 or 11 — is the time the debtor has to reject or assume nonresidential real property leases (for a store, office or warehouse). "Under the old code," he says, "the debtor could extend that time indefinitely for cause; under the amendments, the outside limit is 210 days." Another major change Rosner mentions is the prohibition on employment-retention bonuses for senior business executives ensnared in a bankruptcy. "Now what we're seeing in recent [Chapter 11] cases is the struggle of companies coming up with different bonus plans," he says. "Debtors are crafting new plans where they have bonuses based on performance rather than just for staying around." Asked if business-bankruptcy lawyers welcome these changes, Rosner hedges in his response. "I think there's still a lot of ambiguity in the new language and some internal inconsistencies," he says, "but because there have been fewer Chapter 11 cases — again, I think, because of the economy — we haven't been able to flesh out the impact on the cases." As for the reaction of those lawyers' clients, Rosner says: "If there's a need to file [for bankruptcy], I don't believe that the amendments, at least on the business side, would dissuade a company from filing if it truly needs to file. ... Most companies, if they're intending to file Chapter 11, would prefer to get out as soon as they can. It's a very expensive process, and it's hard to do business in terms of getting sales and making sales." Tightening eligibility for consumers During the long-running controversy in Congress over amending the bankruptcy code, consumer advocates argued that the changes would amount to a windfall for the credit-card industry by steering debtors toward Chapter 13 repayment plans and away from asset-liquidation and debt-cancellation plans under Chapter 7. Boston bankruptcy attorney Christopher W. Parker, who oversees the bankruptcy group at the firm of Rubin & Rudman, believes that "the congressional goal of ensuring more scrutiny of bankruptcy filings" is being met and that the amendments will, "over the long run, weed out abuse." But, Parker continues, "on the down side, by putting in the means test [and other restrictions], it is going to tighten the rules of eligibility for people who might wish to seek relief in the Bankruptcy Court." The pre-enactment debate, he recalls, "was that the tightening of these rules might unfairly impact on some whose need to file is triggered, not by profligate living, but by a sudden cataclysmic event, such as loss of a job, a medical emergency or a divorce in the family. I think that the act will make it harder for some in that group." Boston attorney Paul P. Daley, a bankruptcy attorney at WilmerHale, offers an even stronger critique of the new act and its impact on individual debtors. "This is one of the worst statutes Congress ever passed; it starts with the assumption that people are really taking advantage of bankruptcy [options], and that's not really the case," Daley says, echoing Parker's comments about the personal crises that can lead to financial losses. "Maybe 90 to 95 percent of the consumer bankruptcies fall into that category; it's not someone who's used their credit cards to go on a trip around the world." Daley predicts that skepticism about the new bankruptcy law, if not outright criticism, will result in challenges of portions of the code before the U.S. Supreme Court. "And the judges will find a way to adjust the scales with some good statutes," he says. As for bankruptcy attorneys, "you'll still be able to make a good living ... and you'll still find it a satisfying way to practice," Daley says, "because you'll be helping people who are down on their luck, and there's nobody else able to do it." Christopher Parker, who serves as chairman of the Massachusetts Bar Association's Bankruptcy Practice Group, agrees that bankruptcy lawyers will remain in demand. Consumers who find themselves in dire financial straits and in need of debt relief are far more likely to seek legal advice rather than venture into bankruptcy court on their own — especially so now, he adds. "I think the overwhelming majority of folks do retain counsel," he says. "Bankruptcy is a very difficult process to navigate for a person without counsel, and, under the new changes, it would be more difficult."

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U.S. Charges 78 With Bankruptcy Fraud

By Lara Jakes Jordan, Associated Press

10-19-06 -- Nine lawyers, a former police officer and an electrician who bribed a former governor are among 78 people charged with bankruptcy fraud in the past two months, the Justice Department said. . . . Eighteen of the arrests came this week, said Deputy Attorney General Paul J. McNulty, who outlined the nationwide crackdown on people trying to conceal more than $3 million in assets, dubbed "Operation Truth or Consequences." . . . "In the end, we all wind up paying for fraud, in the form of higher interest rates and fees from companies that offer credit and loans," McNulty said. . . . Bankruptcy fraud often follows false claims on mortgages, banks and the mail, McNulty said. . . . The arrests are on track to outpace last year's estimated total of 100 bankruptcy fraud cases, the FBI said.

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ILLINOIS  

Chicago lawyers charged in bankruptcy fraud probe

By Lorene Yue
10-19-06 -- (Crain’s) — Three Chicago lawyers and a disbarred one have been accused of bilking clients out of the equity in their homes and lying in court in a nationwide federal crackdown on bankruptcy fraud. . . . Norton Helton of Chicago, Edward J. Varga of Aurora and Lorie K. Westerfield of Chicago along with disbarred lawyer William Ramon Jackson of Chicago were charged in separate cases Tuesday in U.S. District Court as part of Operation Truth or Consequences. . . . They were among 11 defendants charged in Chicago. A total of 78 defendants were charged across the nation. . . . “It is important to protect the integrity of the bankruptcy system and those who use it,” David Glockner, criminal chief for the U.S. attorney’s office in Chicago, said at a news conference Wednesday.

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EXCLUSIVE: L.A. Confidential

By Jim Edwards

On Nov. 6, Tom Rubin, the former CEO of Focus Media, is scheduled to drive to downtown Los Angeles for a 1:30 p.m. appointment at the Federal Building. He will take the elevator to the seventh floor, walk down the hall to room 740, and sit in a green leather chair facing a wall of black marble at the far end. . . . A federal judge sitting in front of that wall will likely then send Rubin to prison. Prosecutors say he potentially faces spending the rest of his life there. . . . Rubin was convicted in June of defrauding Sears and Universal Studios out of as much as $35 million, all taken from the marketers' media-buying budgets in 1999 and 2000. Put simply, Rubin booked hundreds of media buys and, instead of passing on his clients' money to pay for them, he kept it. Rubin funneled the cash into his own accounts, paid off a massive tax bill and simultaneously pitted the unpaid media outlets against his furious clients. . . . The paper trail is so complicated that no exact reckoning of Rubin's scheme has ever been reached. At its peak, Focus, the media agency Rubin ran, owed $49 million in unpaid bills, according to the company's own accounts payable list. Additionally, Sears is suing its insurance company to get $20 million in compensation—the maximum payout on its policy. Either way, Focus Media ranks among the largest corruption cases in the history of American advertising.. . .So where's the money now? . . . "Most of it is gone," said Paul Stern, an assistant U.S. attorney who prosecuted the case. "Almost nothing was recovered."

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Federal Judge's E-Mail to NPR's "Morning Edition" Triggers Inquiry

New York Lawyer, By Mary Alice Robbins, Texas Lawyer

10-15-06 -- A federal bankruptcy judge caused a stir when he sent National Public Radio an e-mail denouncing recently passed federal legislation that he says deprives suspected terrorists of rights. . . . Although she has received no complaints, 5th U.S. Circuit Court of Appeals Chief Judge Edith Jones says she is looking into U.S. Bankruptcy Judge Leif Clark's comments in the e-mail message, which was read on NPR's "Morning Edition" program on Oct. 6. . . . "It is a very novel situation," Jones says. "On the federal bench, you don't have many situations where judges are commenting on public affairs like this . . . Where the line is to be drawn on that, I just don't know." . . . But a nationally recognized judicial ethics expert says Clark did not violate the Code of Judicial Conduct when he commented on the detainee bill. . . . "In my opinion, it is a tempest in a teapot," says Jeffrey Shaman, a DePaul University College of Law professor and co-author of "Judicial Conduct and Ethics."

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THIRD CIRCUIT

Judging the Judge

By Susan Smith

A decision of the Federal Circuit Court of Appeals takes the extraordinary step of issuing a mandamus order to the U.S. Court of Claims, holding that that court erred by exercising jurisdiction over the legal challenge of a bankruptcy court judge who was not reappointed to his position, and directing that court to dismiss the case. The decision also offers interesting insight into the reappointment process for federal bankruptcy judges. (In Re United States, C.A.F.C. Miscellaneous No. 806, 9/11/06). . . . David Scholl was a bankruptcy judge in the U.S. District Court for the Eastern District of Pennsylvania. When the U.S. Court of Appeals for the Third Circuit decided not to reappoint Scholl to the bankruptcy judge position, he filed suit in the U.S. Court of Claims. The government moved to dismiss for lack of jurisdiction. But the claims court denied this motion and forged ahead in handling the suit. The government then went to the federal circuit and successfully argued that the claims court did not have jurisdiction and should be ordered to dismiss the Scholl suit.

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SIXTH CIRCUIT

A motion for relief from a judgment or order under Federal Rule of Civil Procedure 60(b) cannot properly be directed toward the decisions of a federal district court that is exercising appellate review over a bankruptcy court's ruling: A unanimous three-judge panel of the U.S. Court of Appeals for the Sixth Circuit issued this opinion decided and filed October 13, 2006 in Charlotte B. Bli V. Usa Farm Service Agency et al.

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Bankruptcy Code Question Inspires Court's Homage to Dr. Seuss

John Francis Gough, The Legal Intelligencer

10-2-06 -- Every once in a great while, a bankruptcy court opinion is published that is as entertaining as it is instructive, and therefore deserves wide circulation, with little extraneous comment. Such an opinion is that by Chief Judge Emeritus A. Jay Cristol of the United States Bankruptcy Court for the Southern District of Florida in the case of In re Hal Ray Riddle and Deloris Argelene Riddle, Chapter 7, Southern District of Florida, Miami Division, dated July 17. The opinion, in its entirety, reads as follows:

"Sua sponte order determining debtors' compliance with filing requirements of Section 521(a)(l). . . . "Pursuant to 11 U.S.C. Section 521(1), if an individual debtor in a voluntary case under Chapter 7 or 13 fails to file all of the information required under 11 U.S.C. Section 521(a)(l) within 45 days after the date of the filing of the petition, the case shall be 'automatically dismissed' effective on the 46th day after the date of the filing of the petition. . . . "The court has reviewed the docket and the papers filed by debtors in this case and believes the information required by 11 U.S.C. Section 521(a)(l), and provided by the debtors, is complete. Moreover, no party in interest has filed a request for an order of dismissal pursuant to 11 U.S.C. Section 521(i)(2). Notwithstanding, the court feels compelled to comment on the unusual and confusing language in this statutory provision.

"I do not like dismissal automatic,
It seems to me to be traumatic.
"I do not like it in this case,
I do not like it any place.
"As a judge I am most keen
to understand, What does it mean?
"How can any person know
what the docket does not show?

"What is the clue on the 46th day?
"Is the case still here, or gone away?
"And if a debtor did not do
what the Code had told him to
and no concerned party knew it,
"Still the Code says the debtor blew it.
"Well that is what it seems to say:
the debtor's case is then 'Oy vey.'

"This kind of law is symptomatic
of something very problematic.
"For if the trustee does not know
then which way should the trustee go?
"Should the trustee's view prismatic
continue to search the debtor's attic
and collect debtors' assets in his fist
for distribution in a case that stands dismissed?
"After a dismissal automatic
would this not be a bit erratic?

"The poor trustee cannot know
the docket does not dismissal show.
"What's a poor trustee to do --
except perhaps to say, 'Boo hoo!'

"And if the case goes on as normal
and debtor gets a discharge formal,
what if a year later some fanatic
claims the case was dismissed automatic?

"Was there a case, or wasn't there one?
"How do you undo what's been done?

"Debtor's property is gone as if by a thief,
and debtor is stripped but gets no relief.
"I do not like dismissal automatic.
"On this point I am emphatic!
"I do not wish to be dramatic,
but I cannot endure this static.
"Something more in 521 is needed
for dismissal automatic to be heeded.

"Dismissal automatic is not understood.
"For all concerned this is not good.
"Before this problem gets too old
it would be good if we were told:

"What does automatic dismissal mean?
"And by what means can it been seen?
"Are we only left to guess?
"Oh please Congress, fix this mess!
"Until it's fixed what should I do?
"How can I explain this mess to you?

"If the Code required an old fashioned order,
that would create a legal border,
with complying debtors' cases defended
and 521 violators' cases ended,
from the unknown status of dismissal automatic,
to the certainly of a status charismatic.
"The dismissal automatic problem would be gone,
and debtors, trustees and courts could move on.

"As to this case, how should I proceed?
"Review of the record is warranted, indeed.
"A very careful record review,
tells this court what it should do.
"Was this case dismissed automatic?
"It definitely was NOT and that's emphatic.

"Based upon the court's review, the court has determined that the debtors have complied with the information requirements of 11 U.S.C. Section 521(a)(l).

"Accordingly, it is ordered:

"1. This case is not subject to automatic dismissal under 11 U.S.C. Section 521(i)(l) or (2). . . . "2. If any party in interest has any reason to contest the Court's finding that the debtors have filed all information required by 11 U.S.C. Section 521(a)(l), that party shall file a motion for reconsideration not later than 20 days from the date of the entry of this order, and serve such motion on the trustee, the United States Trustee, debtors and debtors' counsel, if any. The motion should specifically identify the information and document(s) required by 11 U.S.C. Section 521(a)(l) that the debtors have failed to file. . . . "Nothing in this order shall excuse the debtors' duty to cooperate with the United States Trustee and the trustee assigned to this case, and shall not prevent the United States Trustee or case trustee from requesting by any authorized means, including, but not limited to motion, that the debtors supply further information." / COMMENT: It has been well said that: "To gild refined gold, to paint the lily ... is wasteful ... excess," Shakespeare, King John. So the writer will do neither.

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