S. Ct.: Pung v. Isabella County-Auction Value, Not Fair Market Value, Is the Constitutional Baseline in Tax Foreclosure Sales — And Why Bankruptcy Lawyers Should Take Notice Ed Boltz Tue, 06/23/2026 - 20:25 Summary: The Supreme Court issued an important property-rights decision today in Pung v. Isabella County, Michigan, holding that when a government forecloses on real property for unpaid taxes and conducts a properly conducted tax sale, the Constitution does not require compensation based upon the property's hypothetical fair market value. Instead, the owner is entitled to the surplus proceeds actually generated by the sale after satisfaction of the tax debt. The facts were unusually sympathetic. The Pung family lost a home assessed at approximately $194,400 over a disputed tax obligation of only $2,241.93. The county ultimately sold the property at auction for $76,008. After the Supreme Court's decision in Tyler v. Hennepin County established that governments may not simply keep surplus proceeds from tax foreclosure sales, Pung argued that the Fifth Amendment required compensation based upon the home's fair market value rather than the substantially lower auction price. The Court disagreed. Writing for the Court, Justice Alito concluded that centuries of English and American tax-sale practice have treated the sale proceeds—not hypothetical market value—as the relevant benchmark. In doing so, the Court relied heavily on both Tyler v. Hennepin County, which held that property owners are constitutionally entitled to surplus proceeds from tax foreclosure sales, and BFP v. Resolution Trust Corp., the bankruptcy case holding that a properly conducted foreclosure sale establishes the relevant value for purposes of the fraudulent transfer provisions of the Bankruptcy Code rather than some hypothetical fair market value. Drawing on those historical practices and precedents, the Court held that so long as a tax sale is fairly conducted, the Constitution requires the return of surplus proceeds, but not the difference between auction value and fair market value. The Court similarly rejected Pung's claim under the Excessive Fines Clause of the Eighth Amendment. The vote was noteworthy. Justice Alito's opinion was joined in full by Chief Justice Roberts and Justices Sotomayor, Kagan, Kavanaugh, Barrett, and Jackson. Justice Thomas,  with Justice Gorsuch, joined all but a portion of the discussion in Part II-B. Thus, all nine Justices agreed that the Constitution does not require compensation based upon hypothetical fair market value following a properly conducted tax foreclosure sale. There were two concurring opinions. Justice Sotomayor, joined by Justices Gorsuch and Jackson, emphasized that the Court was deciding only the narrow question presented. While agreeing that fair market value is not constitutionally required, she cautioned that the Court was not attempting to define the precise contours of what constitutes a "fairly conducted" tax sale. Those questions remain available for future litigation and for consideration on remand. Justice Thomas, joined by Justice Gorsuch except as to one footnote, focused on the unusual facts of the case. He expressed concern that historical tax collection practices often required governments to pursue less drastic collection methods before selling an entire parcel of real property and questioned whether the procedures employed against the Pung family were consistent with those historical limitations. Justice Thomas ultimately agreed that those issues should remain open on remand. The concurrences are important, but they should not obscure the central holding. All nine Justices agreed that fair market value is not the constitutional measure of compensation in a properly conducted tax foreclosure sale. The separate opinions simply emphasize that future disputes may arise regarding whether a particular tax sale was conducted fairly in the first place. Commentary: Why Bankruptcy Lawyers Should Care: Although Pung is a tax foreclosure case rather than a bankruptcy case, it may ultimately have significant implications for valuation disputes under the Bankruptcy Code. Consumer debtor attorneys frequently litigate the proper valuation methodology for applying the "best interests of creditors" test under 11 U.S.C. §1325(a)(4), as well as similar hypothetical liquidation analyses in Chapter 11 cases. Trustees and creditors often advocate fair market value. Debtors frequently contend that liquidation value should be substantially lower. Pung provides substantial support for the proposition that the appropriate measure under a hypothetical liquidation analysis may often be foreclosure-sale or auction-sale value rather than retail market value. The Supreme Court repeatedly emphasized that forced-sale contexts differ fundamentally from ordinary market transactions. Tax sales are designed to collect debts efficiently and are not equivalent to traditional arm's-length sales marketed over time through real estate brokers. As the Court recognized, auction values are frequently lower than values obtainable through ordinary market exposure. Indeed, one of the most striking facts in Pung was that a property assessed at approximately $194,400 sold at tax auction for only $76,008 and later resold on the open market for approximately $195,000. Yet the Court concluded that the constitutionally relevant value was the amount actually realized through the tax-sale process. That reasoning has obvious relevance to §1325(a)(4), which does not ask what a debtor's property might sell for after six months of marketing by a realtor. Rather, it asks what unsecured creditors would receive in a hypothetical Chapter 7 liquidation. Importantly, 11 U.S.C. §506(a)(2) should not dictate a different result. First, §506(a)(2) applies only to personal property securing an allowed secured claim. Congress deliberately limited that provision to personal property and did not extend replacement-value treatment to real property. Second, §506(a)(2) serves a different purpose. It addresses valuation for allowance of secured claims and cramdown treatment when a debtor retains collateral. Section 1325(a)(4), by contrast, asks what creditors would receive if the property were actually liquidated. Those are distinct statutory inquiries. The fact that replacement value may be appropriate when a debtor keeps collateral does not mean replacement value must be used when estimating what creditors would receive from a forced sale. Indeed, Pung reinforces precisely that distinction. The Court rejected reliance upon hypothetical market value and instead focused on the amount actually realized through the liquidation process itself. Practical Applications: Developing Evidence of Real-World Liquidation Value One challenge for consumer debtor attorneys is that evidence of actual liquidation value is often difficult and expensive to obtain. Unlike retail market values, which can be supported through tax assessments, broker price opinions, Zillow estimates, or traditional appraisals, reliable evidence regarding foreclosure-sale or liquidation value is rarely assembled in any systematic fashion. Pung may provide an incentive for the consumer bankruptcy bar to begin developing that evidence. Individual attorneys can often obtain useful information through public-record requests, county tax foreclosure records, sheriff's sale records, trustee's deed filings, upset-bid proceedings, and Chapter 7 sale motions and reports. Discovery in contested confirmation matters, claim objections, and adversary proceedings may also provide access to information regarding actual recovery rates achieved through foreclosure and liquidation sales. More broadly, this appears to be an area where coordinated action by consumer debtor attorneys, NACBA, state bankruptcy associations, legal aid organizations, and academic researchers could produce significant benefits. Rather than relying on anecdotal examples, the consumer bar could begin assembling large datasets comparing: Tax-assessed values; Traditional appraisal values; MLS listing prices; Actual foreclosure-sale prices; Chapter 7 trustee sale recoveries; and Subsequent resale values. Such information could be gathered through public-record requests, court filings, county foreclosure databases, trustee reports, and recorded deeds. Artificial intelligence may make this project far more feasible than it would have been even a few years ago. Modern AI tools can rapidly collect, organize, and analyze large volumes of publicly available foreclosure, tax-sale, and bankruptcy-sale data across multiple counties and jurisdictions. AI-assisted analysis could identify patterns that would otherwise be difficult to detect, including average foreclosure-sale discounts, regional variations, differences between residential and investment properties, and correlations between tax assessments and actual liquidation recoveries. Over time, consumer attorneys (perhaps supported by empirically minded law professors) could develop empirical evidence demonstrating the gap between hypothetical retail values and actual liquidation outcomes. Such data could support expert testimony, judicial notice arguments, local market studies, and even nationwide analyses regarding what unsecured creditors realistically receive when real property is liquidated. If Pung teaches anything, it is that forced-sale value and retail-market value are not necessarily the same thing. The next challenge for consumer bankruptcy attorneys may be proving, with real-world data rather than assumptions, just how large that gap can be. Conclusion: Pung is not a bankruptcy case. But it may become an important bankruptcy valuation case. The Supreme Court has now recognized that auction value and fair market value are fundamentally different concepts and that, in at least one forced-sale context involving real property, the legally relevant value is the amount actually realized through the liquidation process rather than a hypothetical retail value. For Chapter 13 debtors seeking confirmation under §1325(a)(4), and for Chapter 11 debtors facing similar liquidation analyses, Pung offers a potentially powerful new argument. If the question is what unsecured creditors would receive in a hypothetical liquidation, then the answer should be based upon realistic liquidation economics—not idealized retail pricing that a Chapter 7 trustee is unlikely to obtain. Whether bankruptcy courts ultimately extend Pung that far remains to be seen. But consumer debtor attorneys now have fresh Supreme Court language recognizing that forced-sale value and market value are not the same thing—and that distinction may prove important in future confirmation battles. To read a copy of the transcript, please see: Blog comments Attachment Document pung_v._isabella_county.pdf (180.35 KB) Category NC Supreme Court Cases

Please Empty Out Your Voice Mailbox If you’re like most people, when the financial situation starts to get out of hand and the debt collectors call day and night, you stop answering the phone. When you stop answering the phone, the bill collectors leave messages, and eventually your mailbox gets full. That’s a good strategy for a while, but it’s a problem for me as your bankruptcy lawyer because sometimes I need to reach you. If you don’t answer the phone, I need to be able to leave a message. So please, once we’ve decided to work together, go into your mailbox and delete all those old messages so your voicemail picks up when I need to get you important information about your case. Please empty your voice mailbox so I can leave you a message when you don’t answer. The post Please Empty Out Your Voice Mailbox appeared first on Robert Weed Virginia Bankruptcy Attorney.

At Shenwick & Associates, we are seeing a sharp increase in nonprofit borrowers seeking relief from COVID-19 Economic Injury Disaster Loans (EIDL). Unlike traditional commercial workouts, there is no standardized SBA workout program for nonprofit EIDL borrowers. The result is an opaque, discretionary process that requires a disciplined, well-documented approach.This post outlines the available paths: out-of-court workouts with the SBA, Treasury referral issues, and bankruptcy as a last resort.I. Statutory Framework and Loan CharacteristicsEIDL loans were issued under 15 U.S.C. § 636(b)(2). For nonprofit entities, these loans typically:Did not require personal guarantees (contrast with for-profit borrowers  with SBA EIDL loans over $200,000.00)May or may not be secured, depending on loan size and documentation.Once in default, the SBA has authority to pursue administrative collection, including referral to Treasury for offset under 31 U.S.C. § 3716.II. No Formal “Workout Program” — Practical RealityThere is no codified EIDL modification program. Instead:Borrowers must request relief directly from SBA servicing.The SBA’s institutional position is to seek full repayment.Concessions are discretionary and heavily documentation-driven.Despite this, the SBA has continued to consider hardship-based modifications prior to Treasury referral.III. Core Workout Strategy (Pre-Treasury)The primary opportunity is an out-of-court loan modification.Required submission typically includes:Current financial statements (balance sheet and P&L).Cash flow projections.Last three years of IRS Form 990.Board resolution authorizing negotiations.Narrative explaining financial distress and mission impact.Effective requests include:Temporary reduced payments.Interest-only periods.Six-month review/reset periods.Re-amortization where permitted.The key leverage point is demonstrating that enforced collection will impair a functioning public-benefit mission.IV. Distressed but Viable Nonprofits: Structured Workout PackageWhere the nonprofit is insolvent but operational, a formal workout package should be submitted:Narrative:Cause of revenue decline.Current programming and beneficiaries served.Public harm resulting from liquidation.Financials:Three years of Form 990.Current balance sheet and income statement.Cash flow projections.Settlement Proposal:Lump-sum payment (often donor-funded).Discounted payoff.Structured settlement over time.V. Treasury Referral: Escalated RiskRecent SBA activity reflects aggressive referral of delinquent EIDL loans to Treasury.Consequences include:Administrative offset (tax refunds, federal payments).Additional fees and penalties.Loss of direct negotiation access with SBA servicing.Critical objectives at this stage:Obtain and verify the Treasury balance.Challenge improper fees or accounting errors.Attempt to recall or return the loan to SBA servicing.VI. Bankruptcy ConsiderationsWhen workouts fail, bankruptcy becomes the final option.Chapter 11:Allows nonprofit reorganization and continued operations.SBA debt can be restructured through a plan.Chapter 7:Provides liquidation.EIDL obligations are dischargeable as unsecured federal debt.Secured collateral, if any, will be administered for the benefit of the SBA.Unlike for-profit borrowers, the absence of personal guarantees limits guarantor exposure.Early engagement with SBA servicing materially improves outcomes and can prevent a referral to Treasury.A structured, evidence-based submission is essential.Treasury referral significantly reduces flexibility.Bankruptcy remains a viable but last-resort tool, particularly where mission preservation is not feasible.Shenwick & Associates continues to advise nonprofit borrowers navigating these issues, with a focus on pre-Treasury resolution and strategic positioning for compromise.Jim Shenwick, Esq  917 363 3391  jshenwick@gmail.com Please click the link to schedule a telephone call with me. https://calendly.com/james-shenwick/15minWe help individuals & businesses with too much debt! & creditors in Bankruptcy cases

 Pre-Bankruptcy Planning: What's Permitted and What Will Get You in Trouble By James (Jim) Shenwick, Esq. | jshenwick@gmail.com | 917-363-3391 | Bankruptcy Attorney | Scarsdale, NY One of the most common questions I get from clients headed toward bankruptcy is: "Can I give my house to my sister before I file?" or "Can I sell my car to my brother for $1,000?"The short answer: Pre-bankruptcy planning is legal. Fraudulent transfers are not. The line between the two is where most people get into trouble.What the Bankruptcy Code PermitsDebtors may engage in pre-bankruptcy planning. Converting non-exempt assets into exempt ones — paying down a mortgage on a homestead, funding an exempt retirement account, purchasing tools of the trade — are recognized strategies courts have upheld.What the Code prohibits is transferring property for nothing, or for far less than it is worth, to put it beyond creditors' reach. Chapter 7 Trustees have powerful avoidance tools to reverse exactly those moves.Under 11 U.S.C. § 548, a Trustee can avoid transfers made within two years of filing if the debtor received less than reasonably equivalent value while insolvent. State fraudulent transfer law, incorporated through 11 U.S.C. § 544(b), can extend that look-back period to four to six years, depending on the state. A Recent Case That Draws the LineIn re Albrecht, from the United States Bankruptcy Court for the Eastern District of North Carolina, illustrates precisely where pre-bankruptcy planning crosses into fraudulent transfer territory.The FactsLucas Albrecht was insolvent and approaching a Chapter 7 filing. He co-owned a Raleigh home valued at $420,000 with his domestic partner, Kirsten Moore, held as joint tenants. His half-interest was exposed to his individual creditors.Under North Carolina law, property held as tenants by the entirety — available only to married couples — is shielded from the individual debts of either spouse. Albrecht and Moore married. The following day, they re-deeded the property from joint tenancy to tenancy by the entirety. Weeks later, Albrecht filed Chapter 7.The Chapter 7 Trustee moved to void the transaction. The court agreed — on two independent grounds.Ground One: Constructive Fraudulent TransferConstructive fraud requires no proof of bad intent. The Trustee must establish only:1.     A transfer occurred;2.     The debtor was insolvent; and3.     The debtor received less than reasonably equivalent value.The court held the transfer was constructively fraudulent as a matter of law.Ground Two: Actual Fraudulent TransferThe court also found actual fraudulent intent — that Albrecht acted with intent to hinder, delay, or defraud creditors. Because debtors rarely document that intent, courts apply the "badges of fraud" analysis.The badges present here:Transfer to an insider — a spouse married one day before the re-deedingDebtor retained possession and control after the transferSubstantially all non-exempt assets were transferredDebtor was insolvent at the time of transferLess than reasonably equivalent value was receivedWhat This Means for Pre-Bankruptcy PlanningLegitimate pre-bankruptcy planning exists and is well-established. Paying down a mortgage, contributing to a 401(k), or purchasing exempt personal property can be entirely appropriate — provided it is done in good faith, without actual intent to defraud, and as far in advance of filing as possible. Timing matters enormously.What is not permitted:Gifting property to a family member or friendSelling an asset to an insider at a steep discountRestructuring asset ownership to put it beyond creditor reach on the eve of bankruptcy, without providing reasonably equivalent value to the estate in returnAlbrecht is particularly instructive because it involved a legally recognized ownership form — tenancy by the entirety — that would have been entirely valid had it predated the financial distress. The problem was timing and purpose: the conversion occurred the day after the wedding, weeks before filing, while Albrecht was already insolvent, and the sole purpose was to remove the asset from creditor reach.The Trustee's Avoidance Powers Are BroadChapter 7 Trustees use their avoidance powers routinely. The federal look-back window is two years under § 548. State fraudulent transfer statutes — available to Trustees through § 544(b) — reach back up to six years. Trustees scrutinize real property transfers, deed changes, and asset dispositions made in the period leading up to a filing.Bottom LinePre-bankruptcy planning is a legitimate part of bankruptcy practice. But it must be done carefully and timed properly, with full understanding of the avoidance rules. Any transfer of significant value — to a family member, a friend, or a third party at below-market price — made while the debtor is insolvent and on the eve of bankruptcy is a target. A legal structure (a deed, a sale, even a marriage) does not insulate the transaction.James (Jim) Shenwick is a bankruptcy attorney in New York representing individuals and businesses in Chapter 7 and Chapter 11 proceedings, creditor/debtor disputes, and bankruptcy litigation.Jim Shenwick, Esq. | 917-363-3391 | jshenwick@gmail.comSchedule a callPlease click the link to schedule a telephone call with me.https://calendly.com/james-shenwick/15min We help individuals and businesses with too much debt — and creditors in bankruptcy cases.

Law Review (Policy Paper): Zhang, Jennifer, Deep Dive: The Hidden Costs of Delinquency: Subprime Credit, Predatory Loans, and Debt Traps (June 26, 2025). Protect Borrowers Research Paper, Ed Boltz Mon, 06/08/2026 - 18:29 Available at: https://ssrn.com/abstract=6361458 Abstract: The following Deep Dive presents an analysis indicating that one student loan in delinquency can make borrowers of every credit tier subprime, according to recent data from the Federal Reserve Bank of New York. Once a borrower becomes subprime, their interest rates for lines of credit could more than double, making it substantially more difficult—if not impossible—to buy a house or a car, open a credit card, get a personal loan, or access other loans to make ends meet. Borrowers could then be targeted with predatory loan products, some with interest rates as high as 662 percent, that can trap them in further lifelong debt. Summary: The Student Borrower Protection Center’s “Deep Dive: The Hidden Costs of Delinquency” provides a grim but unsurprising picture of what happens when federal student loan borrowers fall behind. Drawing heavily on recent Federal Reserve Bank of New York data, the article explains that a single delinquent student loan can crater a borrower’s credit score by 87 to 171 points, often instantly transforming even “superprime” borrowers into subprime consumers. The paper details how borrowers with previously solid credit scores can suddenly find themselves unable to qualify for conventional mortgages, facing doubled automobile interest rates, or paying absurdly high rates for personal loans. One chart estimates that a borrower with an average credit score of 684 could see that score collapse to approximately 519 after a delinquency, with auto loan rates jumping from 6.7% to 13.22% and personal loan costs skyrocketing. The article further explains that this damage radiates beyond borrowing. Delinquent borrowers may face difficulty renting apartments, obtaining utilities, securing insurance, getting cell phone plans, or even obtaining employment where credit checks are permitted. As the paper correctly recognizes, once borrowers are locked out of conventional credit markets, many become targets for payday loans, title lending, contracts-for-deed, and other predatory financial products carrying triple-digit interest rates. The article also notes that over 5.6 million borrowers were already reported delinquent in the first quarter of 2025, with projections that 9.2 million borrowers could become delinquent by the end of June 2025. The paper attributes much of this crisis to the collapse of affordable repayment options, the suspension of SAVE Plan implementation, massive servicing backlogs, and administrative failures within the Department of Education. Finally, the article warns that the resumption of federal collection efforts—including administrative wage garnishment and tax refund seizures—will likely intensify the broader economic fallout. Commentary: The most important insight from this article may not actually be about student loans. It is about credit reporting. For many borrowers, the real economic catastrophe is not the debt itself, but the destruction of access to ordinary financial life. A borrower who suddenly cannot refinance a vehicle, qualify for housing, obtain affordable insurance, or even secure utilities is quickly pushed into the exact cycle of desperation and predatory lending that this paper describes. And that problem is likely about to become substantially worse. With the dismissal of the SAVE Plan litigation in Missouri v. Trump, the earlier injunction against implementation of portions of the Biden-era regulations has effectively dissolved except to the extent modified by settlement terms. As a result, 34 C.F.R. § 685.209(k)(4)(iv) remains effective from July 1, 2024 through June 30, 2028. That regulation provides borrowers with credit toward Income Driven Repayment and PSLF forgiveness for periods during which the borrower is making required payments under a Chapter 13 bankruptcy plan. That is a massive development that has still not been fully appreciated by either the bankruptcy bar or student loan servicers. Chapter 13 may now frequently be the single best IDR option available. Unlike conventional repayment programs that are driven primarily by gross income formulas, Chapter 13 calculates payment obligations through the Disposable Monthly Income framework under the Bankruptcy Code. The Means Test accounts for real-world expenses including housing, taxes, transportation, healthcare, childcare, and secured debt obligations. For many borrowers, especially those already struggling with rising living costs, Chapter 13 may produce dramatically lower effective repayment obligations than any available non-bankruptcy repayment option. Hence the name: “Disposable Monthly Income.” More importantly, under the current regulations, debtors receive month-for-month progress toward forgiveness merely by remaining in a confirmed Chapter 13 plan and making required plan payments—regardless of the amount actually distributed toward student loans and without needing separate “Buchanan” plan language. A debtor in a low-dividend Chapter 13 case could therefore continue accumulating IDR or PSLF credit even while paying little directly toward student loan principal. That fundamentally changes the strategic role of Chapter 13 in student loan practice. Of course, there is an obvious problem: student loan servicers are notoriously incompetent at payment accounting. Consumer bankruptcy attorneys already know this story from mortgage servicing litigation. Mortgage servicers routinely misapply payments, assess unauthorized fees, fail to properly account for escrow obligations, or file inaccurate notices. Those systemic servicing failures became so severe that Congress enacted 11 U.S.C. § 524(i) and Bankruptcy Rule 3002.1(f)-(h) specifically to address postpetition mortgage accounting problems in Chapter 13 cases. Student loan servicers are, if anything, worse. The SBPC paper itself references erroneous delinquency reporting, duplicate tradelines, and inaccurate credit reporting by servicers. If servicers already struggle to correctly track ordinary IDR credits outside bankruptcy, there is little reason to expect they will accurately account for Chapter 13 periods where payments may be indirect, partial, or distributed through trustees. That creates a substantial opportunity for what may become an increasingly important category of litigation: a Student Loan Adversary Proceeding seeking Declaratory Judgment—a “SLAP-DJ.” Rather than seeking discharge under § 523(a)(8), debtors may increasingly seek declaratory judgments fixing the precise number of months for which they are entitled to IDR and PSLF credit under 34 C.F.R. § 685.209(k)(4)(iv). Such litigation could also seek orders requiring servicers to accurately report those credited Chapter 13 periods to consumer reporting agencies such as Experian, Equifax, and TransUnion. And that credit reporting component may ultimately matter just as much as the eventual forgiveness itself. If a debtor receives theoretical forgiveness credit while simultaneously being reported as delinquent, impaired, or in repayment limbo, then the borrower remains trapped in the exact financial collapse this article describes. The borrower may technically progress toward forgiveness while still being rendered effectively unable to obtain housing, transportation, affordable credit, or even employment. Bankruptcy courts are uniquely equipped to address these problems because they already supervise long-term payment administration systems involving mortgages, taxes, secured claims, and domestic support obligations. The same concerns that led to Rule 3002.1 mortgage accounting protections increasingly exist in the student loan context. The deeper irony is that Chapter 13—often criticized as overly complex—may now provide struggling borrowers with the most sophisticated and consumer-protective repayment framework available anywhere in federal law. To read a copy of the transcript, please see: Blog comments Attachment Document ssrn-6361458.pdf (413.96 KB) Category Law Reviews & Studies

Bankr. W.D.N.C.: Official Committee of Asbestos Personal Injury Claimants v. DBMP III: Clarification of Prior Orders and Rejection of “Preclusive Effect” Arguments, Retention of the Texas Two-Step Findings Intact Ed Boltz Mon, 06/01/2026 - 20:38 Summary: In the United States Bankruptcy Court for the Western District of North Carolina, through Judge Ashley Austin Edwards, partially granted and partially denied motions for reconsideration filed by DBMP LLC and related CertainTeed/Saint-Gobain entities regarding a prior privilege and discovery ruling in the sprawling asbestos bankruptcy litigation. The Court’s ruling focused primarily on procedural and evidentiary issues surrounding whether prior findings from the preliminary injunction proceedings had “preclusive effect” in later adversary proceedings. The Defendants argued that the Court’s earlier privilege order improperly treated findings from the preliminary injunction stage as binding merits determinations. Judge Edwards agreed only in a limited sense—clarifying that the prior Injunction Order did not have formal preclusive effect—but otherwise left the substance of the earlier rulings largely intact. The opinion provides an extended discussion of the standards under Rules 59(e), 52(b), and 60(a), emphasizing that reconsideration is an “extraordinary remedy” reserved for manifest injustice, clear legal error, or clerical clarification. Most importantly, the Court refused to retreat from its broader conclusions concerning the planning and execution of the DBMP “Texas Two-Step” restructuring. The Defendants challenged the Court’s finding that the bankruptcy filing decision had effectively been made well before the formal filing date and was part of the restructuring itself. Judge Edwards rejected that challenge outright, explaining that the Court independently reached those conclusions “based on unavoidable realities for any significant and substantial corporation transaction such as the Defendants’ Texas Two Step.” The Court also clarified that background discussion regarding asbestos litigation history and CertainTeed’s asbestos exposure did not prejudge issues for the future estimation trial. Finally, the Court did grant limited substantive relief regarding certain privilege determinations, redesignating twenty-two documents after concluding that some communications were in fact privileged or partially privileged. Commentary: This opinion feels less like a retreat and more like judicial housekeeping. The Defendants sought to transform what was essentially a clarification motion into a broader attempt to walk back some of the most damaging language from the earlier DBMP rulings. Judge Edwards declined that invitation. The Court carefully acknowledged an important procedural point: preliminary injunction findings are generally not entitled to formal preclusive effect. That is black-letter law. But the Defendants appear to have hoped that once the Court conceded that point, the entire factual architecture surrounding the Texas Two-Step restructuring might begin to unravel. That did not happen. Instead, Judge Edwards essentially said: No, the prior injunction findings are not technically binding in the res judicata or collateral estoppel sense—but the Court still agrees with them. That distinction matters enormously. The Court repeatedly emphasized that it independently reached many of the same conclusions based on the evidentiary record, the in camera review, and what it called “common sense.” In other words, the problem for the Defendants is not merely what Judge Whitley previously found during the preliminary injunction proceedings. The problem is that the current Court, after years of litigation and extensive discovery battles, appears to remain deeply skeptical of the restructuring narrative. That skepticism continues to haunt virtually every major “Texas Two-Step” bankruptcy. This blog has previously discussed DBMP and the broader asbestos divisional merger strategy multiple times, particularly in the context of: the use of divisional mergers to isolate mass tort liabilities, the effort to obtain bankruptcy-wide injunction protections for non-debtor affiliates, the role of funding agreements as purported substitutes for direct tort liability, and the increasingly strained arguments that these restructurings somehow arise organically rather than through years of prepetition strategic planning. This latest ruling reinforces another recurring theme from those prior posts: courts are becoming increasingly unwilling to pretend that massive corporate restructurings just “happen” spontaneously shortly before bankruptcy filings. Judge Edwards’ discussion of the “DBMP Filing Decision Finding” is particularly notable because the Court essentially rejected the idea that sophisticated multinational corporations engage in billion-dollar restructuring exercises without simultaneously planning for bankruptcy from the outset. That observation has implications well beyond asbestos cases. Consumer bankruptcy attorneys see analogous behavior all the time in different contexts: mortgage servicers engineering postpetition fee structures, creditors creating shell ownership transfers shortly before foreclosure, debt buyers restructuring portfolios to manipulate standing arguments, and lenders attempting to use contractual complexity as insulation from accountability. What DBMP demonstrates is that courts are increasingly willing to look through form to substance when the transactional choreography becomes too elaborate to ignore. The opinion is also significant for its extended discussion of § 105(a). Judge Edwards strongly reaffirmed that bankruptcy courts cannot use § 105(a) as a “roving commission to do equity” or to override explicit procedural rules. That discussion echoes the Fourth Circuit’s continuing emphasis in cases like David v. King that bankruptcy courts remain constrained by statutory structure even in highly equitable proceedings. Ironically, that same limitation on § 105(a) often cuts against consumer debtors in ordinary cases—particularly when debtors seek equitable relief from harsh procedural defaults. Yet in mass tort bankruptcies involving sophisticated corporate actors, courts appear increasingly cautious about allowing § 105(a) to become a mechanism for expanding protections beyond what the Bankruptcy Code expressly authorizes. That tension continues to define modern mass-tort Chapter 11 practice. At bottom, this opinion is probably best understood as a warning shot rather than a reversal. The Court clarified language, corrected some privilege rulings, and narrowed procedural ambiguity. But the fundamental judicial skepticism surrounding the DBMP restructuring strategy remains firmly in place. To read a copy of the transcript, please see: Blog comments Attachment Document official_committee_of_asbestos_personal_injury_claimants_v._dbmp_iii.pdf (607.28 KB) Category Western District

4th Cir.: Jackson v. Protas, Spivok & Collins—“Servicing” Means Mortgage-Style Loan Administration, Not Debt Collection Litigation Ed Boltz Fri, 05/29/2026 - 17:43 Summary: In , the Fourth Circuit in Jackson v. Protas, Spivok & Collins LLC held that a debt collection law firm could not enforce an arbitration clause contained in a consumer loan agreement because the firm was not “servicing” the loan within the meaning of the contract. The promissory note defined “you” broadly to include “any person servicing this Note,” along with subsequent holders of the debt. Velocity Investments, which had purchased the loan, argued it qualified as a subsequent holder, while its collection counsel, Protas, Spivok & Collins (“PSC”), contended that it was “servicing” the note through its debt collection activities. Judge Wilkinson, writing for a unanimous panel, rejected PSC’s argument and adopted the definition of “servicing” most familiar to consumer bankruptcy attorneys and mortgage litigators. Looking to dictionary definitions, industry usage, and the related borrower registration agreement, the Fourth Circuit concluded that “servicing” means the administration of a loan through activities such as collecting payments, maintaining payment schedules, handling communications, and managing escrow or records. Importantly, the Court specifically cited the definition of “Mortgage Servicing” from Black’s Law Dictionary as “[t]he administration of a mortgage loan, including the collection of payments, release of liens, and payment of property insurance and taxes.” Because PSC merely litigated collection actions and did not administer the loan in the manner of a servicer, it could not invoke the arbitration clause. The Fourth Circuit therefore affirmed denial of the motion to compel arbitration. Commentary: What makes Jackson particularly noteworthy for consumer bankruptcy attorneys is not merely the arbitration ruling, but the Fourth Circuit’s adoption of a practical and industry-standard definition of “servicing” that closely mirrors how mortgage servicing is understood in bankruptcy practice. Bankruptcy courts routinely distinguish between a creditor, a mortgage servicer, and collection counsel. Under Bankruptcy Rule 3002.1, RESPA, TILA, NCGS § 45-91, and the FDCPA, “servicing” generally refers to the ongoing administrative management of a loan account: collecting periodic payments, maintaining records, managing escrow accounts, issuing statements, applying payments, and communicating with borrowers regarding account status. That is exactly the framework the Fourth Circuit embraced here. Rather than accepting the expansive argument that any activity related to debt collection constitutes “servicing,” the Court limited the term to the sort of operational loan administration that mortgage servicers actually perform. That distinction matters. Mortgage servicers frequently attempt to blur the lines between servicing functions, default management, foreclosure operations, and debt collection litigation. Jackson reinforces that these are separate roles. A law firm filing collection suits is not transformed into a “servicer” simply because it seeks payment on behalf of a creditor. For consumer bankruptcy practitioners, this opinion may become useful well beyond arbitration disputes. The Fourth Circuit’s analysis could support arguments regarding: who qualifies as a “servicer” under contractual provisions; whether particular entities have standing to invoke servicing-related rights; distinctions between servicing conduct and debt collection conduct under the FDCPA; responsibilities for Rule 3002.1 notices and escrow administration; and whether certain litigation activities fall outside protections afforded to mortgage servicers. The opinion also reflects a broader judicial recognition that “mortgage servicing” is a specialized and distinct function within consumer finance law—one that bankruptcy attorneys deal with daily. In that sense, Jackson imports into arbitration jurisprudence the same practical understanding of servicing already familiar from Chapter 13 mortgage litigation. To read a copy of the transcript, please see: Blog comments Attachment Document jackons_v._protas_spivok_collins.pdf (188.63 KB) Category 4th Circuit Court of Appeals

Law Review: Alvin Velazquez, Bankruptcy as Presidential Resistance, 53 Fordham Urb. L.J. Online, no. 2, 2025. Ed Boltz Wed, 06/10/2026 - 15:11 Available at: https://ir.lawnet.fordham.edu/uljo Abstract: Litigation against President Trump for withholding federal funds from cities in his “war on woke” and sanctuary cities has taken place either in Article III courts under the Administrative Procedure Act or in the Court of Federal Claims under the Tucker Act. However, there is a third place to resolve these disputes and allocate who bears the consequences of Presidential action that no one has yet discussed: bankruptcy courts. Federal grants make up about one-third of the average city’s budget, and the President could render a city insolvent by swiftly cutting off a city’s federal grants, through a process scholars call “appropriations presidentialism,” before a city could seek to enjoin such an action. When federal grants are cut off, thousands of workers, vendors, and creditors who rely on those funds as a source of payment would most likely file suit against these cities within weeks to seek payment. In other words, without federal grants, a city’s financial position would be like an “ice cube” rapidly melting away in the hot summer sun. This Essay argues that cities facing “governance by extortion” can use the filing of bankruptcy as an act of political resistance to manage a city’s presidentially induced bankruptcy. In many ways, bankruptcy courts are in a better position than Article III courts to provide relief in this situation. Bankruptcy courts have expertise that Article III courts lack and that indebted cities will need to handle, including creditor coordination problems that are likely to occur when federal grant funds run out. This Essay’s exploration of bankruptcy’s relationship with administrative law expands conversations about the institutional capacity of the judicial system to manage the effects of appropriations presidentialism. Additionally, this Essay situates bankruptcy as a device for coordinating political resistance to governance by extortion. Summary: This article proposes a novel use for municipal bankruptcy under Chapter 9. Rather than viewing bankruptcy as merely a response to traditional fiscal distress, the author argues that a city could use Chapter 9 as a defensive mechanism if a President attempted to coerce political compliance by withholding federal grant funding. The article describes this phenomenon as "appropriations presidentialism"—the use of executive control over federal spending to pressure state and local governments into adopting federal policy preferences. Because federal grants constitute a substantial portion of many municipal budgets, a sudden cutoff could create an immediate liquidity crisis. The author contends that bankruptcy courts, with their expertise in coordinating competing creditor interests and managing financial distress, may be better suited than traditional Article III courts to address the practical fallout from such funding interruptions. Under this framework, Chapter 9 becomes not merely a financial restructuring tool but a form of institutional resistance. A municipality could invoke bankruptcy protection to stay creditor collection efforts, preserve public services, and create breathing room while broader constitutional and administrative-law disputes over federal funding are resolved elsewhere. Commentary: This is an intellectually interesting article, but it is built on multiple layers of hypotheticals stacked atop one another. First, it assumes that "appropriations presidentialism" is actually weaponized against a particular city in a manner severe enough to create genuine insolvency. Second, it assumes that the affected municipality is legally authorized under state law to file Chapter 9. As consumer bankruptcy attorneys know, Chapter 9 eligibility is extraordinarily restrictive. Municipalities cannot simply decide to file bankruptcy because they are unhappy with federal policy; they must satisfy the requirements of 11 U.S.C. § 109(c), including specific state authorization. Third, the article assumes the city possesses the political will to file Chapter 9. That may be the largest hypothetical of all. Municipal bankruptcy remains remarkably rare. Even when cities face severe financial distress, elected officials often resist bankruptcy because of its stigma, limitations, political consequences, potential effects on future borrowing, and the perception that local government has failed. Detroit, Stockton, San Bernardino, and Jefferson County demonstrate that municipalities generally view Chapter 9 as a last resort rather than a strategic political tool. As a result, the article's thesis requires not merely financial distress but a unique convergence of legal authority, political incentives, and fiscal necessity. The Missing Discussion of Section 525(a) One surprising omission is the absence of any discussion of 11 U.S.C. § 525(a), which provides that: "a governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to ... a person that is or has been a debtor under this title." The problem, however, is that municipalities likely receive no protection from this provision. Under 11 U.S.C. § 101(41), a "person" includes an individual, partnership, or corporation, but specifically does not include a governmental unit. Meanwhile, 11 U.S.C. § 101(27) broadly defines "governmental unit" to include municipalities. Accordingly, even if a city filed Chapter 9, § 525(a) would not appear to prohibit the federal government from denying or terminating grants on account of the municipality's bankruptcy status. Congress extended bankruptcy anti-discrimination protections to individuals and business entities, but not to governmental debtors. That omission may be entirely logical given the rarity of Chapter 9 cases, but it weakens any argument that bankruptcy itself could protect a municipality from future federal funding decisions. Strategic Bankruptcy as Political Resistance The article's broader theme—using bankruptcy as political resistance—is intriguing because bankruptcy has historically served precisely that role for ordinary Americans. Consumer bankruptcy exists largely because Congress concluded that overwhelming debt can threaten not only individual financial health but also broader economic participation and social stability. In that sense, bankruptcy has always been a mechanism through which debtors resist economic coercion. Ironically, the article may overestimate the likelihood of municipalities using bankruptcy for political resistance while underestimating the historical role consumer bankruptcy already plays in that function. The challenge, of course, is scale. A Chapter 9 filing by a major city such as San Francisco, Chicago, or New York would instantly become national news and force policymakers to confront the underlying dispute. By contrast, thousands of individual Chapter 7 and Chapter 13 filings, while collectively significant, rarely generate the same level of public attention. Moreover, municipal bankruptcies involve billions of dollars and essential public services. Individual bankruptcies generally involve much smaller debts dispersed among countless debtors. Organizing enough consumers to engage in a coordinated bankruptcy-based protest would be extraordinarily difficult, and the aggregate financial impact might still be insufficient to command the same attention as a major municipal filing. Yet there is an interesting parallel. Just as the author views Chapter 9 as a potential response to governmental pressure, many consumer debtors already use Chapters 7 and 13 to resist financial pressures imposed by circumstances beyond their control—medical debt, student loans, predatory lending, wage garnishments, or economic dislocation. Bankruptcy has long functioned as a safety valve against economic coercion, even if it rarely receives that political label. Final Thoughts The article succeeds in provoking thought about the intersection of bankruptcy, federalism, and executive power. But its practical significance may be limited because every step of the proposed path requires another unlikely condition to occur. A President must aggressively weaponize federal funding. A city must be sufficiently dependent on those funds to become insolvent. State law must authorize Chapter 9. Local officials must be willing to endure the stigma and constraints of bankruptcy. And the bankruptcy itself must meaningfully alter the political calculus. That is a lot of "ifs." Still, the article performs a valuable service by reminding bankruptcy practitioners that insolvency is not merely a financial phenomenon. Bankruptcy reallocates power. Whether the debtor is an individual, a corporation, or a municipality, bankruptcy often serves as a mechanism through which parties facing overwhelming leverage can force a collective reckoning. The question raised here is not whether bankruptcy can do that—it clearly can—but whether any city would actually be willing to pay the price necessary to use Chapter 9 as a form of political resistance. To read a copy of the transcript, please see: Blog comments Attachment Document bankruptcy_as_presidential_resistance.pdf (483.31 KB) Category Law Reviews & Studies

Law Review (Note): Abby Ponder, Comment, The Bankruptcy Code's Missing Link: How the Undefined "Executory Contract" Quandary is Leaving Land Sales and Bankruptcy Courts in Limbo, 46 N. Ill. Univ. L. Rev. 277 (2026). Ed Boltz Wed, 06/03/2026 - 16:34 Available at:  https://huskiecommons.lib.niu.edu/niulr/vol46/iss2/6/ Abstract: Arguably the most convoluted concept lurking within bankruptcy law is that of the "executory contract" which may be found within section 365 of the bankruptcy code. Since its inception in 1978, this section has been dubbed one of the most "psychedelic" areas of American jurisprudence. The phantasmagoric nature of this section largely derives from Congress declining to provide a definition within the Code for executory contracts. Already rife with confusion and contradiction, the missing definition of executory contract, which comes under section 365, represents a significant "missing link" of understanding for bankruptcy courts in ruling on land sale contracts. Bankruptcy judges nationwide have struggled to make sense of this area of law with scant jurisprudential support. Sale of land contracts within bankruptcy courts thus creates a particularly unique issue wherein circuits and bankruptcy courts alternate between concluding that such sales represent executory contracts, or that they constitute land security devices immune from the reach of section 365. While benefits exist to adopting either interpretation, on balance, treating land sale contracts as security devices presents the more equitable solution. The two camps of logic that courts rely upon, however, pose a more interesting issue. Bankruptcy is under federal jurisdiction and within our Constitution, is a power granted to Congress to create, "uniform Laws on the subject of Bankruptcies throughout the United States." Treating sale of land contracts differently depending on the state in which the bankruptcy court sits is an unsatisfactory and unsustainable strategy. It also flies in the face of what our Framers of the United States Constitution intended for bankruptcies. At the same time, though preferable to the alternative, treating land sale contracts as security devices would not wholly fix the problem but would at least take the issue out of the hands of section 365. Anything less than Congress taking back the reins on section 365 and carving out a niche within the bankruptcy code for sale of land contracts would be akin to placing a Band-Aid over a bullet hole.   Summary: Abby Ponder’s law review note argues that one of the deepest unresolved problems in bankruptcy law remains Congress’s failure to define “executory contract” in 11 U.S.C. § 365. The article focuses on installment land sale contracts—often called contracts for deed—and how courts across the country sharply disagree on whether those agreements are executory contracts subject to assumption or rejection in bankruptcy, or instead are merely security devices analogous to mortgages. The article explains that the split matters enormously for financially distressed homeowners. If a land installment contract is treated as executory, the debtor generally must either assume the contract and cure defaults or reject it and lose the property. If the agreement is instead treated as a secured financing device, the debtor may be able to modify the obligation through bankruptcy much like a mortgage loan. Ponder traces the confusion back to Congress’s decision in 1978 to enact § 365 without defining “executory contract.” Courts therefore turned to Professor Vern Countryman’s famous definition, under which a contract is executory if obligations remain sufficiently unperformed on both sides such that failure by either party would constitute a material breach. Under that analysis, many courts conclude that installment land contracts are executory because the buyer still owes payments while the seller still owes delivery of title. Other courts, however, focus less on formal contract doctrine and more on economic reality. Those courts view installment land contracts as “poor man’s mortgages” that function primarily as secured financing arrangements. Treating them as security devices better preserves debtor rehabilitation and prevents forfeiture of accumulated equity. The article ultimately argues that the lack of national uniformity undermines the constitutional purpose of federal bankruptcy law itself. A debtor’s outcome should not depend merely on geography.   Commentary: This article highlights a recurring bankruptcy problem: courts often attempt to force economically sophisticated financing arrangements into doctrinal categories that were never designed for them. Installment land contracts are a classic example. Consumer bankruptcy attorneys have long recognized that many contracts for deed operate as high-risk seller financing arrangements targeted toward borrowers who cannot qualify for conventional mortgages. Those agreements often shift taxes, insurance, repairs, and maintenance obligations onto the purchaser while allowing the seller to retain title until the final payment. In practical effect, many of these arrangements function almost identically to mortgages while providing substantially fewer protections to the purchaser. That concern is particularly important in North Carolina. In North Carolina, land sales contracts—specifically installment land contracts or “contracts for deed” involving five or more payments—are governed by Chapter 47H of the North Carolina General Statutes. Those statutes require the contract to be in writing, recorded within five business days, and to contain extensive disclosures regarding the principal balance, interest rate, taxes, insurance obligations, late fees, and the condition of title. The enactment of Chapter 47H reflects legislative recognition that these agreements are not merely casual executory agreements for future conveyance, but instead function as long-term consumer financing devices with substantial risks to purchasers. That statutory framework strongly supports the reasoning of courts that treat installment land contracts as secured transactions rather than executory contracts. North Carolina itself has effectively acknowledged that these arrangements are economically analogous to mortgage lending. The detailed disclosure requirements under Chapter 47H resemble consumer mortgage regulation far more than ordinary bilateral contract law. The article also demonstrates the continuing problems created by the Countryman definition itself. Professor Countryman attempted to clarify executory contract doctrine, but his formulation often proves so broad that nearly any ongoing contractual relationship could qualify as executory. Modern consumer finance contracts almost always impose continuing obligations on both sides. Mortgage servicers must provide statements and accountings. Borrowers must maintain insurance and make payments. Credit card issuers must continue honoring transactions. Auto lenders may have continuing title obligations. If ongoing reciprocal obligations alone define executory contracts, the concept risks becoming nearly limitless. That is why many bankruptcy courts have increasingly focused on economic substance rather than formalistic contract doctrine. The better question is not whether both sides still owe something, but whether the agreement primarily functions as a financing arrangement or as an ongoing exchange relationship requiring continuing material performance. The article correctly concludes that Congress created this confusion by failing to define “executory contract” in § 365. Bankruptcy courts are left improvising with competing theories, producing wildly different outcomes depending on jurisdiction. That lack of uniformity is particularly problematic in consumer bankruptcy cases, where losing a home under a technical characterization dispute can be catastrophic.   Tangential Commentary: The article’s analysis again raises an intriguing question about mandatory arbitration provisions in consumer contracts. Most arbitration clauses impose continuing obligations on both parties. Consumers agree to submit disputes to arbitration rather than litigation. Creditors similarly agree to arbitrate claims, follow arbitration procedures, pay certain arbitration costs, and waive judicial forums. Under a strict Countryman-style analysis, one could argue that arbitration provisions themselves are executory agreements because material obligations remain unperformed on both sides unless and until a dispute arises. If arbitration agreements are executory contracts, an even more provocative issue emerges in Chapter 13 cases: what happens if the debtor’s Chapter 13 plan does not assume the arbitration provision? Under § 365, failure to assume an executory contract generally results in rejection. That could potentially support an argument that an arbitration provision was rejected through confirmation of a Chapter 13 plan and therefore no longer governs post-confirmation disputes going forward. That argument would likely face enormous resistance from federal courts because of the Federal Arbitration Act and the Supreme Court’s extraordinarily pro-arbitration jurisprudence. Courts have repeatedly treated arbitration provisions as uniquely favored contractual terms. Nonetheless, the conceptual tension remains difficult to ignore. If bankruptcy courts insist that installment land contracts remain executory because both parties retain future obligations, then many arbitration provisions appear to fit the same logic. Arbitration agreements are not fully performed upon signing. Their central obligations arise only later if disputes occur. Under a pure Countryman framework, they arguably remain executory throughout the contractual relationship. Consumer bankruptcy practitioners may therefore eventually explore whether arbitration clauses can be rejected in Chapter 13 plans in the same manner as other executory agreements. Even if courts ultimately reject that argument, the question exposes how unstable and indeterminate executory contract doctrine has become. The problem may not simply be installment land contracts. The deeper issue may be that bankruptcy law still lacks a coherent limiting principle for what § 365 actually covers. To read a copy of the transcript, please see: Blog comments Attachment Document the_bankruptcy_codes_missing_link_how_the_undefined_executory.pdf (548.13 KB) Category Law Reviews & Studies

M.D.N.C.: Peoples v. Experian- Iqbal/Twombly Inapplicable to Affirmative Defenses but "Fair Notice" Standard does Apply Ed Boltz Thu, 06/04/2026 - 18:10 n Peoples v.  Experian , Judge Thomas D. Schroeder of the United States District Court for the Middle District of North Carolina takes up one of those procedural questions that federal litigators have been fighting over for nearly two decades after Bell Atlantic Corp. v. Twombly and Ashcroft v. Iqbal: whether defendants asserting affirmative defenses must satisfy the same “plausibility” standard imposed on plaintiffs, or whether merely providing “fair notice” remains enough. The result in Peoples v. Experian Information Solutions, Inc. is less a sweeping revolution than a careful reaffirmation that, at least in much of the Fourth Circuit, notice pleading for affirmative defenses is still alive — albeit with limits. And for consumer bankruptcy and FCRA practitioners, the opinion provides a useful reminder that boilerplate defenses are not untouchable simply because courts decline to impose full Twombly/Iqbal pleading requirements on defendants. Summary Donovan Peoples brought a claim under the Fair Credit Reporting Act alleging that Experian violated 15 U.S.C. § 1681g(a)(1) by failing to completely and accurately disclose all information in his credit file. Specifically, Peoples alleged that Experian disclosed certain accounts without full account numbers, details, or account histories, causing emotional distress, embarrassment, frustration, and credit denials. After Experian answered the amended complaint and asserted multiple affirmative defenses, Peoples moved to strike them under Rule 12(f). The central dispute became whether affirmative defenses must satisfy the Twombly/Iqbal plausibility standard or merely provide “fair notice.” Judge Schroeder rejected Peoples’s argument that Twombly and Iqbal apply wholesale to affirmative defenses. Instead, relying heavily on prior Middle District of North Carolina authority and the Fourth Circuit’s unpublished decision in Clem v. Corbeau, the court held that affirmative defenses need only provide “fair notice of the nature of the defense.” Importantly, however, the court did not treat “fair notice” as meaningless. The opinion struck Experian’s Second Affirmative Defense, which alleged that all information communicated to third parties was true, because that defense had nothing to do with the actual FCRA claim asserted — namely, incomplete disclosures to Peoples himself under § 1681g. Judge Schroeder concluded that the defense “simply does not constitute a valid defense to this action under the facts alleged.” By contrast, the court allowed defenses involving mitigation of damages, contributory negligence/comparative fault, and intervening causation to survive because those defenses at least plausibly related to damages and causation under the FCRA. So while the court rejected heightened pleading requirements for affirmative defenses, it still required enough substance and connection to the claims asserted to provide meaningful notice and avoid irrelevant clutter. Commentary This decision matters because it pushes back against two extremes that have emerged since Twombly and Iqbal. The first extreme is the argument advanced by some plaintiffs that defendants should have to plead affirmative defenses with the same factual specificity demanded of complaints. The second is the opposite assumption — often reflected in modern federal practice — that defendants can dump pages of boilerplate affirmative defenses into an answer with virtually no scrutiny whatsoever. Judge Schroeder rejects the first position, but importantly does not fully embrace the second. That distinction matters. The opinion recognizes the practical asymmetry built into federal litigation. Plaintiffs can investigate claims for months or years before filing suit, while defendants typically have only 21 days to answer. That timing problem has always been one of the strongest textual and practical arguments against importing Twombly and Iqbal into Rule 8(c). The court also correctly notes that Rule 8(a)(2) — the provision interpreted in Twombly and Iqbal — requires a “showing” that the pleader is entitled to relief, while Rule 8(c) merely requires affirmative defenses to be “affirmatively state[d].” That textual distinction has driven much of the post-Iqbal case law refusing to extend plausibility pleading to defenses. But perhaps the most important part of the decision is what comes next: “fair notice” is not treated as a free pass. Too often in federal litigation, answers become sprawling collections of generic defenses copied from old templates with little thought given to whether they actually apply. The result is unnecessary discovery disputes, confusion, and motion practice over defenses that were never viable in the first place. Judge Schroeder’s striking of Experian’s “truth/accuracy” defense demonstrates that even under a notice standard, courts can and should eliminate defenses that bear no meaningful relationship to the claims asserted. That may ultimately be the more workable middle ground. The “Heightened Pleading Standards for Defendants” Law Review Article The opinion expressly cites the law review article Heightened Pleading Standards for Defendants: A Case Study of Court-Counting Precedent by Brian Soucek and Remington Lamons. As the article explains: “In over a thousand cases, federal courts have considered whether the heightened pleading standards imposed on plaintiffs in Twombly and Iqbal also apply to the affirmative defenses raised in defendant’s answers. Courts are split, and alongside the usual textual and policy arguments they offer, a less expected consideration is often raised: the fact that a majority of other courts have decided the same way. Court-counting precedent, as we call this kind of reasoning, requires justification, not least because—as we find here—judges get their count wrong a full third of the time.” The article further found that courts refused to apply heightened pleading standards to affirmative defenses approximately 62% of the time during the first decade after Twombly. That discussion is particularly interesting because Peoples itself engages in a form of this “court-counting precedent.” Judge Schroeder surveys Middle District of North Carolina cases and concludes that “most courts in this district” have rejected Twombly/Iqbal for affirmative defenses. The Soucek/Lamons article warns that this kind of tallying exercise can become self-reinforcing. Courts begin citing each other not necessarily because the reasoning is persuasive, but because a perceived majority exists. And, as the article demonstrates, judges are often mistaken about what the majority rule actually is. That observation has real significance in federal procedural law, where district courts frequently look sideways to peer courts because appellate guidance is sparse or nonexistent. Application to Peoples’s FCRA Claims For FCRA practitioners, the more immediate lesson is how the “fair notice” standard interacts with consumer claims under § 1681g. The court effectively required Experian’s defenses to bear some logical relationship to the statutory elements of the claim. Since Peoples alleged incomplete disclosures to himself, a defense focused on the accuracy of information provided to third parties simply did not fit the case. That reasoning provides a potentially useful tool for consumer attorneys confronting the increasingly common “kitchen sink” answer strategy in FCRA litigation. Even where courts reject Twombly/Iqbal for affirmative defenses, Peoples suggests that Rule 12(f) still has teeth when: the defense has no nexus to the actual statutory claim; the defense merely recites abstract legal doctrines untethered to the allegations; or the defense risks confusing the issues rather than clarifying them. At the same time, the opinion shows how broadly courts may permit causation-related defenses in FCRA cases. Judge Schroeder allowed mitigation, comparative fault, and intervening cause defenses to survive because FCRA damages provisions require some causal connection between the statutory violation and the consumer’s injuries. That could become particularly significant in consumer reporting cases involving emotional distress damages, mixed causation, or disputes over whether inaccurate reporting actually caused a denial of credit. In that sense, Peoples is less about imposing heightened pleading standards on defendants and more about requiring at least some disciplined relationship between the affirmative defenses asserted and the claims actually being litigated. That may not be Twombly and Iqbal for defendants — but it is also not a license for meaningless boilerplate. To read a copy of the transcript, please see: Blog comments Attachment Document peoples_v._experian_information_solutions_inc.pdf (145.01 KB) Document heightened_pleading_standards_for_defendants_a_case_study_of_court-counting_precedent.pdf (766.6 KB) Category Middle District