This is a combination of two programs. One of the NCBJ plenary sessions offered a Shark Tank like program where three lawyers pitched their proposals to reform the Bankruptcy Code. Meanwhile, at the ABI luncheon, Bill Brandt and Robert Keach offered their prognostications as to what might actually change in the Code. Since both programs involved legislation, I have chosen to combine them here. As you read through this article, you should note that the first part contains the idealism of would-be reformers while the second part contains the realpolitik.  Shark Tank Student Loans In the first program, John Rao of the National Consumer Law Center offered his proposal to amend 11 U.S.C. Sec. 523(a)(8) to rollback dischargeability of student loans to the law as it existed in in 1998 when student loans could be discharged after seven years or on a showing of undue hardship.  He said that the seven-year period deals with the concern that people can come straight out of school and file bankruptcy. He said it's not a complete solution. He said we still need to deal with cost of higher education.  To make the case for change, he gave the illustration of Karen in Arkansas. She borrowed $10,000 thirty years ago. She never used her degree. Over thirty years, she paid $20,000 but still owed $106,000. Mr. Rao said that there is something fundamentally broken with a system if that is how we treat our debtors. Now the federal student loan creditors can garnish her Social Security and tax refunds and even the Earned Income Tax Credit. There is no statute of limitations on federal student loans so her debts will only disappear when she dies.  Why did Congress change the law?  (Congress changed the law in 2005 to add some private student loans to the list of non-dischargeable debts and eliminate the ability to discharge student loans after seven years). He pointed out that there was not a single Congressional hearing or GAO report on abuse. He characterized the change in law as a Congressional gimmick to balance the budget.  Mr. Rao was asked if his proposal would protect the public fisc. There are $1.7 trillion in federal student loans. Why not require payment of disposable income over period? Mr. Rao responded that most debts are performing. Only about 10% in default. There is no evidence that denying discharge increases revenues to government. Instead, the federal government can capitalize the interest and seek returns that would make a predatory lender blush. The problem with requiring debtors to complete a chapter 13 is that about 50% of Chapter 13 debtors never get a discharge. Mr. Rao was asked about his proposal to leave undue hardship in in his proposal. He was asked whether it be better to have objective criteria for undue hardship. Mr. Rao said that objective criteria would help but we already have a workable standard for undue hardship in connection with reaffirmation agreements and it would make sense to use that standard. However, he pointed out that the debtors who need relief the most can't afford to litigate.  He was asked whether his proposal would roil the markets. Wouldn't lenders increase the price to address the risk? He pointed out that the pricing only affects private lenders. When private loans were made non-dischargeable in 2005 there was either no decrease in rates or an actual increase based on different studies. President Biden has proposed cancelling some student loan debt. Doing this would be a stimulus to economy according to Moody's as more people would be able to buy homes and have children. However, requiring bankruptcy to get that cancellation would avoid the moral hazard of general cancellation.  KER Ps   Metta Kurth pitched a proposal to close loopholes to BACPA's limitations on "pay to stay." She called her proposal "stop the heist." In 2005, BAPCPA limited Key Employee Retention Programs ("KER Ps") by requiring that a company demonstrate three things: that the person receiving the KERP has received a better offer, that their services are essential and that the amount of the KERP is either not more than 10 times the mean amount paid to non-management employees for similar purposes or, if no similar amounts were paid out in the prior year, it did not exceed 25% of any similar payment made to an insider during the prior year. 11 U.S.C. Sec. 503(c).      Some companies shifted away from KER Ps and went to "keeps," incentive payments to be earned for meeting certain benchmarks. Ms. Kurth said that "keeps" had a greater sense of integrity. However, other companies made an end run around the KERP rules by simply making these payments pre-petition. She gave the example of JC Penney which paid out $7.5 million to four executive five days before the petition.  Ms. Kurth proposed to amend 11 U.S.C. Sec. 548 in three ways: (a) Existing Sec. 548(a)(1)(B)(ii)(IV) states that insider compensation given for less than reasonably equivalent value and outside of the ordinary course of business can be recovered as a fraudulent transfer. She would extend this to apply to all insider compensation given during the 90 days before bankruptcy. (b)  She would also add a provision that insider compensation would be presumed to be for less than reasonably equivalent value if it was greater than the normal pre-bankruptcy compensation and did not meet the requirement for a KERP; and (c)  Make non-dissenting directors who approve compensation in violation of this provision liable similar to state laws applicable to illegal dividends.  She was asked if companies would just give out insider bonuses 91 days before bankruptcy if her proposal was adopted. She answered that the petition date is often fluid and that 90 days will catch most abuse.  She said that her proposal would motivate companies to use a "keep" or stay within guardrails for KER Ps during the runup to the petition. She acknowledged that her proposal would not fix the imbalance in executive compensation. 20 years ago, executives earned 70 times the wage of their typical worker while today that ratio is now 200 times. She said that she was not trying to fix entire system, just the perception of abuse. (Ed.: While I admire Ms. Kurth's enthusiasm, her proposal would continue the trend of making the Bankruptcy Code resemble the Tax Code in its complexity. The problem with ever more specific prohibitions is that ever more clever lawyers will find ways around them. To be very clear, she had identified a very real and very serious problem. My quibble is with the specifics of her proposal rather than the need for it) The Means Test Eric Brunstad proposing the means test as the gateway for determining substantial abuse. He proposed going back to the standard existing before BAPCPA when Bankruptcy Judges had discretion to find substantial abuse based on the circumstances of the case rather than a statutory presumption.  He said that the means test was a solution in search of a problem that never existed and a bad solution at that. He said that judges know abuse when they see it and have ample tools to address it when it actually arises. He asked the rhetorical question of where did the means test come from? He said it came from the history of credit card underwriting. At one time, credit card underwriting was done on an individual basis. Then it went to a portfolio underwriting system. The model predicted 4% default rate. As time went on, credit cards became less profitable. He said that the credit card companies wanted to squeeze a couple more bucks out of the system by making bankruptcy more difficult and expensive to pursue. (Ed. Prof. Ronald Mann described this as the "sweatbox" in an influential paper).  He said that the means test was a very inefficient solution. If you are $1 above the test, you are deemed to be a substantial abuse.  Prof. Brunstad said that the empirical data said abuse was not out there. He also said that a one size fits all test was not useful. He quoted Tolstoy who said, "All happy families are alike; each unhappy family is unhappy in its own way.” He said that by analogy, every abusive debtor is abusive in its own way.  He stressed that there was not a problem with too many people filing bankruptcy. According to Sen. Elizabeth Warren, 43 million people were in financial distress after the Great Recession, but only 1.5 million filed bankruptcy.  He said that people do not file for bankruptcy willy-nilly He repeated the proverb that you can't get blood out of stone and then described the means test as a very expensive blood test for the stone. He said that this kind of discretionary thing (i.e., ferreting out abuse) is what bankruptcy judges are paid to do. He also said that there is a huge externality problem. He asked who gets the benefit and who bears the cost? The credit card companies reap the benefit from debtors who continue to pay because they cannot afford to file bankruptcy. The cost is borne by higher fees paid by debtors. He said that if a debtor is required to file chapter 13, it is like a 25% tax.  In the end, the audience voted to invest in all three proposals. Unfortunately, legislative reform depends on a dysfunctional Congress, not what bankruptcy judges and professionals would like to see. That offer a nice segue into the second legislative program I watched. ABI's Program on Legislative Likelihoods The three proposals contained in the Shark Tank program were each thought provoking. However, when the American Bankruptcy Institute put on a program on likely changes to legislation, it focused on different proposals altogether. Bill Brandt and Robert Keach are both ABI members who have been active in proposing legislation. Although ABI does not take positions on legislative as a group, its individual members have been active in lobbying Congress. I want to stress that the very opinionated and outspoken Mr. Brandt and Mr. Keach were speaking for themselves rather than for the ABI as an institution.  SubChapter V Mr. Brandt started the conversation off with discussion of SubChapter V. He said that when it was passed, the debt limit of $2.7 million was too low. Shortly after it was passed, they were able to increase the limit to $7.5 million but only on a temporary basis. Now he said that the goal would be to increase the limit to $20 million. However, at higher limits, SubChapter V would take on more of a hybrid nature. He said that U.S. Trustee fees would need to kick in at somewhere between $7.5 million to $10.0 million to keep the program funded. He also said that legislation would likely give courts the option to have a creditors' committee beginning at $12-$15 million. He said that if the debt limit was increase to $20 million, it would cover 95% of Chapter 11 cases. He said that this would take the wind out of the venue issue, which he described as "our abortion issue." This raises two very interesting questions. Was he assuming that mega SubChapter V cases would not be forum shopped? If the law allows forum shopping and litigants see an advantage to doing so, why would they stop? Also, it wouldn't address the problem of the large public companies seeking out favorable venues to the detriment of smaller creditors, employees, retirees and other constituencies. Also, as a Texan, I am very familiar with the emotions triggered by abortion. On the one hand are those with moral certainty about the importance of lives as yet unborn while on the other there is the moral certainty of those who want to control their own bodies. Abortion stirs the outrage of moral certainty in its combatants. Is bankruptcy venue really that divisive or was Mr. Brandt merely engaging in hyperbole?  Mr. Keach acknowledged that he had lost the debate over having a facilitating trustee in SubChapter V and that it was good that he lost. He described the trustee as one of the reasons why the Small Business Reorganization Act has worked so well. Mr. Brandt said that raising the SubV debt limit could make its way into a reconciliation bill because it would raise fees. He also explained that because the support of Sen. Grassley was critical that SubChapter V was intentionally made similar to Chapter 12. Venue Mr. Brandt had a very cynical view on venue reform. He said that with this President and Rep. Nadler chairing the House Judiciary Committee, venue would be a non-starter. He said that venue was a good way for Sen. Cornyn and Sen. Warren to raise a lot of money but that it would not be a factor for the balance of this decade. Mr. Keach said that the option to allow affiliate filings was designed to placate New York bankruptcy lawyers but "no one in New York believes that." (Ed.: Dissenting Opinion here. For the last three years, Sens. Cornyn and Warren have worked together on a venue bill. This year bills have been introduced into the Senate and House at an earlier stage with more co-sponsors than before. As cases like Purdue Pharma draw national outrage, bankruptcy venue will continue to build momentum. However, I must acknowledge that our scrappy, grass-roots crusade has very determined and well-organized opposition).  Mr. Brandt said that there was a study that concluded that the bankruptcy industry had the same effect for the Delaware economy as having a minor league baseball team would have. He also said that having increased debt limits for SubChapter V would be a pretty good second choice for the venue reformers.  Mr. Brandt noted that the fire for venue reform has weakened as the New York-Delaware duopoly has expanded to include Houston and Virginia. (Ed.: Dallas, TX, Corpus Christi, TX and Charlotte, N.C. have also been the recipients of recent attempts at forum shopping. Will forum shopping become so widespread as to draw a collective "meh" from the bar? As the blogger, I get to ask the questions, but I honestly don't have an answer). He said that 10-15% of the Senate will always oppose venue reform making it an uphill battle.  He also said that another needed reform would be to allow a single asset real estate debtor to be a SubV debtor if it was a landlord to a small business debtor. Third Party Releases Mr. Keach mentioned that when Jon Oliver did a program on third party releases, he had a researcher spend an hour with Mr. Keach. He said that Mr. Oliver gave the issue a very serious presentation. He then said that the issue was not going anywhere. He characterized it as a solution in search of a problem. He said that it was not the bankruptcy system that was broken but the tort system. He said that bankruptcy delivers money to victims faster and more efficiently than the tort system. He said that it is easy to forget that what we are about is compensating people. He said that if you want to punish people, prosecute them. "If you can't prosecute them, then shut up." Mr. Brandt said that legislation barring third party releases even with an opt out were going nowhere. He said it was a chance for Democrats to say that they voted against Darth Vader.  Student Loans Mr. Brandt said that the Fresh Start Bill proposed by Sen. Dick Durbin is the closest bill that might actually achieve passage. It would reinstate dischargeability after ten years and is close to the ABI Commission's proposal. However, he said it was "probably not a this year thing." He added that bankruptcy reform always starts out with consumer provisions. He indicated that it would not be this Congress. Probably the next Congress or the one after that and it would be part of a bill with lots of ornaments on it. He said that one problem with achieving bankruptcy reform is that there is not an association of past and future debtors but that student loan borrowers vote. Unfortunately, they cannot afford campaign contributions.  Mr. Keach said that the purveyors of private student loans hired really good lobbyists in the past but that maybe the problem is becoming too significant to ignore. Final Thought: I really appreciated the fact that Mr. Brandt and Mr. Keach didn't pull any punches. I may not have agreed with them, but they certainly gave their unvarnished opinions without resorting to polite euphemisms. 

 NAVY VETERAN’S STUDENT LOANS RULED NONDISCHARGEABLE BY A FEDERAL DISTRICT COURT JUDGE Last year, a Navy veteran’s student loans, totaling $221,000 were discharged in bankruptcy by Southern District of New York Chief Bankruptcy Judge Cecilia Morris. The citation to the case is In re Rosenberg, 610 BR 454 - Bankr. Court, SD New York 2020. The student loans resulted from the veteran attending college and law school. Judge Morris, ruled that the $221,000 of student loans were an undue “hardship”to the veteran and that they would be discharged in his chapter 7 personal bankruptcy filing. Chief Judge Morris wrote in her opinion discharging the student loans that  “she wouldn't perpetuate "myths" that it's impossible to discharge student debt through bankruptcy”.A federal court judge recently reversed that decision. A bankruptcy court decision, like those rendered by a bankruptcy judge, can be appealed to a Federal District Court. The student loan creditor appealed Judge Morris's decision, and it was reversed. The case has been remanded back to Bankruptcy Court for further hearings on the issue of undue hardship. Kevin Rosenberg, the veteran, was devastated by the decision. The Federal judge reversed that decision because Mr. Rosenberg had failed to demonstrate undue hardship using the Brunner standard. According to Brunner, "undue hardship" occurs when debtors cannot maintain a minimum standard of living, their circumstances will not improve, and they have made a good-faith effort to repay their student loans.An excellent article about this topic can be found on the Business Insider website at https://www.businessinsider.com/veteran-student-loan-debt-forgiveness-revoked-bankruptcy-discharge-2021-10. The Brunner standards are so difficult to meet and the cost of litigation is so high that most debtors do not attempt to discharge their student loans in personal bankruptcy.  In this case, Mr. Rosenberg was the exception. As shown in this case, student loan borrowers are at a disadvantage when attempting to discharge their student loans on the basis of bankruptcy. Certain lawmakers, however, are advocating for making the discharge of student debt easier in bankruptcy, and in August this year, Senate Majority Whip Dick Durbin and Texas Sen. John Cornyn introduced the FRESH START Through Bankruptcy Act of 2021. After 10 years, this bill would enable borrowers to discharge federal student loans through bankruptcy. Prior to a law change, student loans that were outstanding for 7 years could be discharged in bankruptcy. According to this author, bankruptcy is a mechanism for the discharge of many types of debt and student loans should be able to be discharged with certain limitations and conditions. The proposed FRESH START legislation is a good step in that direction. James Shenwick 212 541 6224 jshenwick@gmail.com  

This panel, including Judge Christopher Lopez from the Southern District of Texas and Josiah Lindsay from Fortress Investment Group, contained a wealth of information. The panel generally covered the economic health of the African American community, the disparate impact of Covid on the African American community and how Minority Deposit Institutions (MD Is) and Community Financial Development Institutions (CFDI) can help to alleviate those conditions.  Some Sobering Economic Facts The panelists discussed some sobering conclusions from the McKinsey Institute for Black Economic Mobility's recent report titled The economic state of Black America: What is and what could be. I have linked to the report here for those who are interested.    Their first conclusion was that if the wage gap between Black and White Americans were closed, it would help bring 2 million African Americans into middle class for the first time. African Americans are concentrated in lower paying jobs. Nearly half of Black workers are concentrated in healthcare, retail, and accommodation and food service. 35% of all nursing assistants are Black. 33% of bus drivers and security guards are Black. While the median wage in the U.S. is $42,000, 43% of Black workers earn less than $30,000 Mr. Lindsay pointed out that many Black workers were in public facing jobs that were affected the most by Covid and that many are choosing not to return to these jobs. He gave the example of going to a Best Buy and only finding maybe five people working there.  Additionally, many Black communities are consumer deserts in need of greater fresh food, affordable housing, broadband and healthcare providers. Instead of going to Costco, everybody gets their meat from the place they simply call "market" with meat of questionable provenance. The median Black household has 1/8 the net worth of median White family. This is due to lower paying jobs and a lack of intergenerational wealth transfers. African Americans could not get home loans due to redlining. As a result, they missed out on the suburbanization of America. Because Black families did not have as much access to home ownership, they were not able to pass wealth on to the next generations. The McKinsey report estimates that diminished inheritances account for 60% of the difference in wealth between White and Black Americans. Home ownership is one area where racial disparities are present. For White families, there is a 74% level of home ownership, while the figure for Black families is only 44% Mr. Lindsay emphasized that home equity is often access to capital for small businesses. If a person can't accumulate capital in the form of a house and then transfer that wealth to the next generation, he and his descendants will have fewer opportunities. Mr. Lindsay said that his grandfather fought in World War II. When he got back from the war, he didn't have access to GI Bill and didn't have access to veteran subsidized loans to buy homes because the government didn't allow minorities to access programs. (Ed.: this is an example of what people mean by systematic or structural racism).   During the PPP loan process, companies that were well banked came out ahead. The first tranche of PPP loans was to customers of large banks. Minority small business owners had to wait, by and large, for the third tranche. Judge Lopez pointed out that 80% of African Americans aspire to higher education. However, student loan debt is extremely high and interest rates are extremely high. Added to this, it's hard to discharge student loan debt. For someone trying to aspire, trying to get an undergraduate degree, if things don't work out, their options are limited. Mr. Lindsay related that he was on his school's reunion committee. He said that when he asked what it currently costed to attend, he almost fell out of his chair. He said it was literally three times the cost from when he was there.  MD Is and CDF Is The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) recognized that minority depository institutions provide important financial services to historically underserved communities and minorities To qualify as an MDI, either 51% or more of voting stock must be owned by minority individuals or a majority of the board of directors must consist of minorities and the community served must be predominantly minority.   FIRREA says there is a need to preserve MD Is. They have shrunk since 2008 from the 200s to 144. Many had to had to merge to survive Mr. Lindsay stated that "capital is the grease that allows economic activity to take place." He said that MD Is know the community and know how to evaluate borrowers in ways other financial institutions would not. MD Is are where your local church is going to get its loan for a building or individuals will get their car loan Judge Lopez told a great story about his experience with an MDI. When he went to college, there was a table where he could get a t-shirt and a credit card. The t-shirt meant that he could avoid washing clothes for another day. The credit card meant that he could go to Marshall Fields and run up his balance. This was when he learned about minimum payments. His mother told him that he got himself into the mess and he could get himself out. Later, he went to the local branch of Unity National Bank, an MDI, met with the Bank President and was provided a loan. He said that the power of MD Is is that someone believed in him.  Mr. Lindsay said that we need these institutions to provide the grease for economic activity where the president could see you and not just spit out an algorithm that says no. The primary mission of a CDFI is community development 60% of their financing activities must be targeted to low and moderate income or underserved communities Many MD Is are also CDF Is. Many CDF Is are credit unions They often offer no cost and low-cost checking and saving accounts for first time customers as well as second chance checking accounts They offer mortgage loans to encourage home ownership and commercial loans that give small businesses alternatives to predatory lenders (ed.: think Merchant Cash Advance companies). They also provide financial education. Judge Lopez said that when he went to get the car loan mentioned above, the bank also provided him with financial literature to read. Judge Lopez said that he comes from Flushing, Queens where there is a huge Asian community. He said it helps when people see a bank where someone who would want to start a small business wouldn't have to worry about language barriers. One benefit of MD Is and CDF Is is that they are in the community. They can see guy the has a food truck and wants to double his business. This guy might not be able to get a loan from JP Morgan Chase or Wells Fargo. However, the local entity in the community can know that it is a viable business if you know the person. Investing in local businesses adds revenue to the community. Judge Lopez said that many minorities will feel that you will be turned down if you go to the big bank. There is a perception about how big banks work, especially when you don't have collateral. 94% of Black small businesses are sole proprietorships, such as a barber shop or a food truck. These are the types of people who are reluctant to seek funding from a big bank.  The speakers said that the effect of Covid on minority-owned businesses was pretty scary. Mr. Lindsay said that before Covid, 1 million minority owned businesses employed 8.7 million workers and generated $1 trillion in economic output. During Covid, 41% of Black-owned businesses were wiped out, representing a lot of jobs, but also a lot of sole proprietorships. 32% of Latinx businesses faced the same fate. 26% of Asian-owned businesses were lost.  Unfortunately, the location of Covid cases coincided with the locations of Black owned businesses. This makes it harder for businesses to start over when they have a foreclosure or an eviction on their record. Mr. Lindsay said that the people who will provide capital to those businesses are likely to be MD Is and CDF Is.   Mr. Lindsay also said that the hope was that PPP loans would blunt effect of the pandemic. However, they didn't reach certain communities. If you didn't have that bank relationship, you didn't get in on round one. 42% of phase one loans went to larger businesses although they only account for 4% of total businesses. Minority owned businesses didn't get into the program until round three and by then it was too late.  The speakers said that the death of George Floyd was a wake-up call to corporate America. After Mr. Floyd's death, individuals and corporations started investing in MD Is and CDF Is, including 100,000 new customer accounts. Netflix, Yelp, Wells Fargo and Uber are all corporate entities that have moved resources into financial institutions that serve underrepresented communities. They said that the murder of George Floyd made corporate America realize that there were two Americas. Mr. Lindsay said that there was a wakeup call that we've got to change how we've been deploying capital. He said that for the first time since I have been on wall street for 20 years, senior management is paying more than lip service to minority investment. He said that they manage pension funds and a lot of those employees who contributed to pension funds are minorities.  Mr. Lindsay said that he knew maybe five people who look like him who do what he does in the whole country. He said that the biggest barrier is people's uncomfortable view of giving an individual a chance. He told the story of how he was able to break into the financial sector. His first career was as an engineer. He worked as a process engineer and a research engineer at a plant making carbon fiber. When he went to law school, his summer associate jobs were focused on intellectual property which did not interest him. He began calling alums of Virginia to pick their brain. One graduate recommended attending an investment conference where there would be 500 scions of business. However, he was a 3L and the conference cost $5,000 which he didn't have. He said that a week later the person's assistant called and said that were was a student program that only cost $500, which he could afford. When he attended, he realized that he was the only student there. He said he realized that Mr. Tucker's doing a solid; he created a student fee for one person. He said his benefactor was being mindful of helping a person interested in business who didn't even know what that business was. 

Long Beach Post reports that a federal judge froze $2.4 million in assets for Urban Commons Queensway founders, Taylor Woods and Howard Wu. This freeze in assets in based on Wu & Woods using COVID relief funds that were meant for the Queen Mary for “wrongful purposes.” U.S. Bankruptcy Court Judge Christopher Sontchi stated that Woods and Wu applied for the protection program loan without their company’s consent and that the two men “misrepresented or lied” to the United States government so they could receive money meant as a protection program loan for the Queen Mary ship, but use it for wrongful purposes instead. Woods says the loan was applied for by mistake and the two said, “There was never any intention to do anything inappropriate by any party involved”. Sontchi contradicts this statement by saying the two men knowingly made false statements in order to receive the loan from the Small Business Association, transferred the money to another company, and then made the funds essentially disappear. From the article: “The judge also noted that attorneys for Urban Commons Queensway have submitted to the bankruptcy court evidence of multiple lawsuits and judgments against Woods and Wu for ‘fraud, breach of repayment obligations, and other loan defaults.'” This fraudulent evidence includes Woods & Wu falsely promising to develop a hotel in order to recieve the lease to the Queen Mary in November 2016, ignoring warnings from a city auditor and approving a $23 million bond to jumpstart repairs on the ship, and essentially driving their company into the ground and into bankruptcy. The Urban Commons Queensway bankruptcy is due to the exorbitant losses felt by many who were connected to the company, some who poured donations and savings into the Queen Mary. Many of these investors had to resort to filing lawsuits against the company, which forced the company to file for bankruptcy. The Queen Mary is now back in the hands of the city for the first time in 40 years. The ship is still closed due to the repairs needed to the ship and the COVID-19 pandemic. Many Long Beach locals are upset by the behavior of Woods & Wu and feel it’s a betrayal of the communities trust. The post Bankruptcy Judge Freezes $2.4 Million In Assets For Ex-Operators Of Queen Mary appeared first on Allmand Law Firm, PLLC.

 https://www.wnyc.org/story/city-council-review-citys-debt-relief-program-taxi-medallion-owners/

   In remanding a case back to Arizona state court, an Arizona district court decision found that the case was never properly removed to the federal district court, and it may not have jurisdiction over the matter.   Great Western Bank v. Clear Vision Express Tucson 2 LLC, 2021 U.S. Dist. LEXIS 193166, case No CV-21-00883-PHX-MTL (Dist. Ariz. 6 October 2021).  While this is a matter that does not arise often, it illustrates the problems that can arise when proper procedures are not followed.  The case started in Arizona Superior court alleging a default on a $2.3 million promissory note secured by commercial real estate in Arizona, and included a number of guarantors as defendants.  The loan documents specified Maricopa County Arizona choice of venue.  Avery, the state court defendant then filed for relief under chapter 11 in the Southern District of Texas.  Avery filed a notice of removal in the state court action requesting removal to the Texas Bankruptcy Court, and Great Western sought to remand the case back to Superior Court, asserting that the removal did not comply with 28 U.S.C. §1452(a). Avery noted that it had tried to file the removal to the bankruptcy court for the district of Arizona, but that court refused to accept an adversary filing for a bankruptcy case pending in a bankruptcy court outside of Arizona.  The Texas bankruptcy court then transferred the adversary proceeding to the District Court of Arizona, which requested that the parties file with it the pleadings in order to create a record in the matter.  While the parties presumed that the above effected a transfer of the case and pending motions to the Arizona District Court, both the Arizona District Court and the Maricopa County Superior Court disagreed, with the Superior Court continuing to hold hearings on the matter.  The District Court first examined the removal statute.  28 U.S.C. 1452(a) permits removal of any claim or cause of action in a civil action to the district court where such civil action is pending, if the district court has jurisdiction  of such claim or action under 28 U.S.C. §1334.  Normally, to remove an action from state court to a bankruptcy court in a different district, the removing party must first remove the state court case to the federal district court within the district where the state court matter is pending,1 and then should seek to have the district court refer the matter to the bankruptcy court within that district, then seek to have the bankruptcy court transfer the matter to the district where the bankruptcy case is pending.  Failure to properly follow these procedures may create a jurisdictional issue.2  The court noted Avery should have first filed the notice of removal with the Arizona District Court, which would have then referred the matter to the Arizona Bankruptcy Court, and then Avery could have filed the motion to change venue to the Texas bankruptcy court.  Failing to follow the procedure caused confusion and slowed the proceedings in three different courts.  Since it is unclear the court has jurisdiction, the most equitable solution is to remand the matter back to the Arizona Superior Court under 28 U.S.C. 1452(b).  This statute permits remand of any action removed under §1452(a) for any equitable grounds.  The equitable basis for removal includes that the predominant issues are all issues of state law, the complaint raises only state law causes of action, the counterclaim is likewise a state law claim, the nature of the applicable law weighs in favor of remand to state court, and the loan documents provide the Maricopa County, Arizona to be the choice of venue. There also is a question of forum shopping, as only one of the ten defendants filed bankruptcy in Texas.   The only alleged jurisdictional basis for removal is 28 U.S.C. §1334.  No court has yet ruled on the relatedness of the Defendant's claims to the debtor's estate.  If the matter is core to the bankruptcy proceeding, this would weigh significantly against equitable remand, but no allegation has been made that such matter is core.  Further, remand could reduce the burden on the bankruptcy court.   Finally, comity favors removal, as the collateral and guarantors are all located in Arizona, and all claims are issues of Arizona state law.  The court thus remanded the case back to the Arizona Superior Court.1 The court cites to Roberts v. Bisno (In re Bisno), 433 B.R. 753, 757 (Bankr. C.D. Cal. 2010) for support of this proposition, however, the Bisno case actually states the first step is to refer the matter to the bankruptcy court whose district encompasses the state court where the case is pending, then have that bankruptcy court transfer to the district court where the bankruptcy is pending.  Id. at *7-8.↩2 Compare In re Bisno, Supra, finding improper procedures only resulted in a curable venue defect, to Peterson v. BMI Refractories, 124 F.3d 1386, 1388 (11th Cir. 1997) (finding a procedural defect) and Furr v. Barnett Bank (In re S & K Air Power, Inc.), 166 B.R. 193, 195 (Bankr. S.D. Fla. 1994) finding a lack of jurisdiction.↩Michael BarnettMichael Barnett, PA506 N. Armenia Ave.Tampa, FL 33609-1703813 870-3100https://hillsboroughbankruptcy.com

If you qualify for Social Security Disability benefits, your monthly payment will depend on which program. The Social Security Administration (SSA) has two distinct programs that provide monthly benefits to individuals suffering from a debilitating medical condition. If you applied under the Social Security Disability Insurance (SSDI) program, you have probably worked and paid into […] The post How Much Money Can You Get on Disability in New Jersey? appeared first on .

Larry Cohen, a lawyer from Vermont and adjunct faculty member at multiple law schools used movie clips to teach legal and judicial ethics. Trying to describe movie clips without being able to play them may be a fool's errand but I will do my best.  I am sure that I didn't capture everything possible but at least this is some ethical food for thought.In Anatomy of a Murder (1959), Jimmy Stewart is defending a serviceman accused of murder. The prosecutor effectively cross-examines Stewart's expert witness doctor, getting him to concede that the defendant may have known right from wrong. The prosecution then calls for a conference in chambers and asks Jimmy Stewart if he wants to change his client's plea from not guilty to guilty. The prosecutor is really obnoxious. However, Jimmy Stewart pulls out a law book and hands it to the judge. The opinion he wants is marked by an object which the judge recognizes as a frog gig. The judge and Jimmy Stewart talk about the joys of hunting frogs and Stewart offers to let the judge keep the frog gig. The chastened prosecutor realizes that he has been outfoxed by Stewart and says "We're hooked."MPRC 3.5(a): A lawyer shall not:(a) seek to influence a judge, juror, prospective juror or other official by means prohibited by law;While we normally think of Jimmy Stewart as the good guy, here he is improperly trying to influence the judge. In And Justice for All (1979), there is a funny scene where there is a recess in a case. The defendant, who is on trial for selling fake lottery tickets, walks over to the prosecution table and begins eating the tickets. Someone points this out to the prosecutor and pandemonium ensues. The judge walks in and fires a gun to restore order.MPRC 3.4 A lawyer shall not: (a) unlawfully obstruct another party' s access to evidence or unlawfully alter, destroy or conceal a document or other material having potential evidentiary value. A lawyer shall not counsel or assist another person to do any such act;The way the scene plays out, the defense lawyer does not notice his client eating the lottery tickets. However, if he observed this and didn't say anything, he would violate Rule 3.4(a).MPRC 8.3(b) A lawyer who knows that a judge has committed a violation of applicable rules of judicial conduct that raises a substantial question as to the judge's fitness for office shall inform the appropriate authority.Arguably the lawyers would have an obligation to report the gun-toting judge. I can't find a specific rule that says that a judge should not fire a gun in open court to maintain order. However, I have to think there must be one.In The Verdict (1982), a lawyer is examining a witness. The judge takes over and begins cross-examining the witness. The judge gets the expert to admit a point unfavorable to the plaintiff and cuts off the examination. The exasperated lawyer says something to the effect of if you're going to try my case for me, I wish you wouldn't lose it for me.Fed.R.Evid. 611- Mode and Order of Examining Witnesses and Presenting Evidence (a) Control by the Court; Purposes. The court should exercise reasonable control over the mode and order of examining witnesses and presenting evidence so as to: (1) make those procedures effective for determining the truth; (2) avoid wasting time; and (3) protect witnesses from harassment or undue embarrassment.Model Code of Judicial Conduct Canon 1A judge shall uphold and promote the independence, integrity, and impartiality of the judiciary, and shall avoid impropriety and the appearance of impropriety.The court is allowed to exercise "reasonable" control over examining witnesses. Taking over the examination does not seem to be reasonable. Certainly cutting off the examination and undercutting the lawyer's case violates the duty to maintain the integrity and impartiality of the judiciary.MRPC 3.5 is titled Impartiality and Decorum of the Tribunal. However, there is nothing in the rule which prohibits counsel from impugning the court other than Rule 3.5(d) which prohibits a lawyer from engaging in conduct designed to disrupt a tribunal. I think this one probably falls within the court's inherent ability to preserve the dignity of the proceedings.  Snow Falling on Cedars (1999) involves a murder trial. The context is an island in the Pacific Northwest where Japanese Americans were interned during World War II. The prosecutor is aggressively cross-examining the Japanese American defendant and his examination goes over the line. The defense attorney makes a mild objection which the judge sustains. The Judge then lectures the prosecutor and tells him to ask a proper question. When the prosecutor hesitates, the Judge says "Shame on you" and tells him to sit down.This would also invoke Judicial Canon 1 since the Court is making a personal attack on the prosecutor. There are so many teachable moments in My Cousin Vinny (1992). In the scene we watched, the judge calls Vincent Gambini back into chambers and tells him that the New York Bar has no record of a Vincent Gambini ever having tried a case. Vinny says that Vincent Gambino is just his stage name and that his real name is the name of a prominent lawyer. When he recounts this to Mona Lisa Vito, she asks him if he is stupid, because the lawyer's name he gave died the week before.MRPC 3.3(a) A lawyer shall not knowingly: (1) make a false statement of fact or law to a tribunal or fail to correct a false statement of material fact or law previously made to the tribunal by the lawyer;MPRC 3.5(b): A lawyer shall not:(b) communicate ex parte with (a judge) during the proceeding unless authorized to do so by law or court order;MPRC 5.5(a) A lawyer shall not practice law in a jurisdiction in violation of the regulation of the legal profession in that jurisdiction, or assist another in doing so.The interesting point here is that although Vinny Gambino has an ex parte communication with the court, he was invited to do so by the judge. Thus, he was arguably authorized to do so. Obviously, making a false representation to the judge and practicing without permission in a jurisdiction are bad. There is a scene from an episode of Law and Order where a defense lawyer attempts to do an impromptu demonstration that an Asian American witness cannot distinguish between European Americans. The judge calls the lawyers into chambers. The judge tells him he cannot do the demonstration and asks if he has an expert. The lawyer says that he does. The prosecution objects that the witness has not been disclosed. The defense lawyer says he just thought of it. The judge then tells him that he thinks he is lying and that if he can ever prove it, there will be consequences.The impromptu demonstrate may violate Rule 3.5(d) about not engaging in conduct intended to disrupt a tribunal.Under Rule 8.3 (a),  A lawyer who knows that another lawyer has committed a violation of the Rules of Professional Conduct that raises a substantial question as to that lawyer's honesty, trustworthiness or fitness as a lawyer in other respects, shall inform the appropriate professional authority." However, here it is the judge who believes the lawyer has engaged in conduct raising a substantial question about his honesty. Perhaps the prosecutor, having heard the judge's admonition might be under a duty to report his counterpart. In Inherit the Wind (1960), the jury is just about to come back in. Someone comes up to the judge and says "Let this thing simmer down. Don't forget November's not too far off." Also, there is a radio reporter broadcasting live from in front of the bench.MRPC 3.5:  A lawyer shall not:(a) seek to influence a judge, juror, prospective juror or other official by means prohibited by law;(b) communicate ex parte with such a person during the proceeding unless authorized to do so by law or court order;Assuming that the person who approaches the judge is a lawyer, he has violated Rule 3.5(a). If he is a lawyer in the proceeding, he has violated Rule 3.5(b) as well. Model Code of Judicial Conduct Canon 3:  A judge shall conduct the judge’s personal and extrajudicial activities to minimize the risk of conflict with the obligations of judicial office.In this case, the Judge has complied with Canon 3 by not letting the appeal to his re-election affect his ruling. I think there must be something wrong with letting the radio broadcaster do so from right in front of the bench but I can't find the rule. If anyone has additional suggestions for ethical violations in these scenarios, please send them to me and I will be happy to give you credit. 

 ABI Editor at Large Bill Rochelle hosted a group of three panels discussing three different legal issues. The issues included one legitimate circuit split, a dispute between lower courts and a divided state court panel.RecharacterizationIssue one was whether recharacterization of debt is an issue of state or federal law. Recharacterization is where an obligation nominally characterized as a debt is recharacterized to be an equity contribution.  Recharacterization was first recognized in the Supreme Court case of  Pepper v. Litton, 308 U.S. 295 (1938). The Third, Fourth, Sixth, Tenth and Eleventh Circuits all state that the issue is one of federal law while the Fifth and Ninth Circuits hold that it is a matter of state law.  Luke Burbank argued the minority position arguing that where there is no clear and express bankruptcy authority, that state law would control and that state law defines property rights. Additionally, while each of the circuits applying the majority rule applies a multi-factor test, none of these tests are the same.Camisha Simmons argued the majority position stating that Congress granted Bankruptcy Courts the exclusive power to establish the priority and classification of claims. Priorities are governed by both sections 507 and 726 and Bankruptcy Courts have the authority to use their equitable powers to reclassify claims.  Ms. Simmons argued that her position was supported by the fact that equitable subordination, one of the remedies allowed by Pepper v. Litton, made it into the code. The Supreme Court granted cert to resolve the split but denied the writ as improvidently granted. PEM Entities LLC v. Levin, 138 S. Ct. 41 (2017) did not. Judge Jeffrey Hopkins ruled in favor of the minority position saying that he felt like Butner v. United States, 40 U.S. 48 (1979), which announced the rule that state law controls in the absence of a clear bankruptcy statute, but said he hoped that Supreme Court would give bankruptcy judges more  equitable power. Venue for Small Preference ClaimsIssue two was whether small dollar preference claims must be brought in the defendant's home district. 28 U.S.C. Sec. 1409(b) states that:  (b)Except as provided in subsection (d) of this section, a trustee in a case under title 11 may commence a proceeding arising in or related to such case to recover a money judgment of or property worth less than $1,000 or a consumer debt of less than $15,000, or a debt (excluding a consumer debt) against a noninsider of less than $25,000, only in the district court for the district in which the defendant resides.The legislative history to this statute makes clear that it was intended to require trustees to bring small preference suits in the defendant's home district. However, Congress left out the phrase "arising under" from the statute. There are three types of bankruptcy jurisdiction: arising under, which means created by the Bankruptcy Code, "arising in" which means a type of action which could only arise in a bankruptcy case and "related to" which means matters related to a bankruptcy case which do not arise under the Code and do not "arise in" a case.  The problem is that preference claims are defined by 11 U.S.C. Sec. 547, which is clearly a part of the Code. Thus, the question is whether the omission of "arising under" from the statute means that small preference claims can be brought wherever the trustee chooses. The Ninth Circuit BAP held that the statute did limit small preference cases, Muskin, Inc. v. Strippit Inc. (In re Little Lake Indus.), 158 B.R. 478 (B.A.P. 9th Cir.1993). while a recent opinion from Judge Robert Grossman, Mendelsohn v. Central Garden & Pet Co. (In re Petland Discounts Inc.), 20-08088 (Bankr. E.D.N.Y. 1/26/21) read the statute literally to say that preference suits were not covered.  Several unpublished opinions in the Western District of Texas also state that venue of preference suits is not limited.A young couple, Alexandra Duggan and Robert Miller, argued opposite sides and traded good-natured insults with each other.  Both advocates struggled to find an example of a dispute which would arise in a case under Title 11 but did not arise under Title 11 itself. While the legislative history suggests that the statute was intended to cover preference suits, "arising under" is used in each of the other four subsections of Sec. 1409 suggesting that its omission was intentional. However, a preference suit can only arise if there is a case under Title 11. A distinction not mentioned by the parties is that the bankruptcy courts have exclusive jurisdiction over bankruptcy cases but only concurrent jurisdiction over arising under, arising in and related to matters. Thus, although a preference suit may only be brought if there is a case under Title 11, it need not be brought in that case. While the banter between the couple was amusing, the straightforward answer appears to be that Congress committed legislative malpractice not once but twice when it drafted this section and then when it amended it to raise the floor for small actions to $25,000. The net result seems to be that a small action to recover an account receivable must be brought in the defendant's home forum but a small preference action need not. Pre-emption of State Law Tortious Interference Claims Issue three was whether federal law preempts third party tortious interference claims. This was not even a split between different courts. The New York Court of Appeals rendered a decision in Sutton 58 Assocs. LLC v. Pilevsky, 36 N.Y.3d 297 (N.Y. 2020), petition for cert. filed (U.S. Apr. 20, 2021) (No. 20-1483) holding that federal law does not preempt a tortious interference suit between non-bankrupt parties arising out of actions taken in connection with a bankruptcy case. The New York Court of Appeals is New York's highest appellate court. A petition for cert was filed supported by an amicus brief from eminent law professors, but the case settled before the Supreme Court could decide whether to take the case.  In this case, the split was between the majority opinion finding that there was no preemption and the dissent holding that there was.The case involved a transaction intended to be bankruptcy proof. A housing project borrowed $150 million from a lender. The loan covenants prohibited the debtor from incurring other debt and acquiring other property. Before bankruptcy, a group of non-debtors loaned the debtor $50,000 to hire bankruptcy counsel, transferred three apartment units into the debtor and acquired an indirect 49% interest in the debtor. All of these actions violated the loan covenants. They also kept the debtor from being a single asset real estate entity with no unsecured creditors. The lender eventually got the property back but claimed that it lost value due to the bankruptcy filing. It sued the debtor's would-be white knights for tortious interference.Keith Wofford of White & Case argued very persuasively for preemption. He pointed out that there are two types of preemption,  preemption of the field and obstacle preemption. When a party can be sued for actions taken in connection with a bankruptcy case, an obstacle to bankruptcy has been created. Although Mr. Wofford did not say so, all bankruptcies involve a breach of contract. If the loan covenants say that filing bankruptcy is a default, could debtor's counsel be sued for filing the case. Shelly DeRousse of Freeborn & Peters argued (convincingly in my opinion) that bankruptcy does not preempt all actions against anyone related to a bankruptcy. This is why suits against guarantors are neither stayed nor preempted.  She also argued that the offending conduct all occurred prior to the bankruptcy being filed and thus was not a part of the bankruptcy. Next she argued the presumption against preemption.  Finally, the argued that the Bankruptcy Code does not create a remedy for bad faith filings against third parties. Therefore, if state law remedies are preempted, there is effectively no remedy. In his rebuttal, Mr. Wofford argued that being allowed to bludgeon the supporting cast of a bankruptcy under state law will undermine Congress's intent to allow the bankruptcy remedy. Who is right? We will not find out because the parties settled and the petition for cert was withdrawn. 

Judge Scott Clarkson (Bankr. C.D. Cal.) gave a fascinating talk on the art, loves and insolvency of Rembrandt van Rijn. While this talk may not have a lot of practical import, Judge Clarkson tells a great story.IntroductionRembrandt van Rijn was born in Leyden in the Dutch Republic in 1603. The Dutch Republic dates back to the late 1500s and is the oldest continuous republican government in Europe. The town of Leyden, where he was born, was besieged by the Spanish and held them off. In return, William of Orange offered them ten years free from taxes but they asked for a university instead. The young Rembrandt attended Latin school where, among other things, he learned Bible stories that would form some of his later work. He was apprenticed to an artist and also attended university. To be a painter and a printmaker, he had to understand chemistry to work with oil paints and the properties of metal to work with copper plates.As an artist, he was known as a hyper realist because he painted what he saw. It was said of him "he seeks the ugly." He learned to create depth in his art by using light and shadow in a technique called chiaobscuro. In his paintings, the light is generally shown on the left hand side of the canvas because he was right handed and didn't want to smudge the art. About 10-20% of his paintings were self portraits so that he wouldn't have to pay a model.Rembrandt was originally quite an astute businessman. He would sell an oil painting for 400 guilders plus materials, which was a years' wage for a workman. He also did commercial art. Different guilds would pay him to do a painting including their members to be hung in their guild hall. If someone didn't pay his share, he would be painted out of the picture. One of these corporate paintings might sell for 1,000 guilders.  His painting The Night Watch, done for a local militia, was controversial because it showed the figures in action instead of rigorously posed. While this made for a more exciting painting, it did not showcase his patrons who were paying for the work.He also developed printmaking as a business. Unlike other artists, he would etch directly onto the copper. A print was more affordable to the general public, going for 20-30 guilders each but he could make many copies. His etching of Christ Healing the Sick was so popular that prints went for 100 guilders a piece.  Bankruptcy of RembrandtRembrandt filed bankruptcy in 1656. One cause was his complicated tragic personal life. His first wife died from disease shortly after their son was born. Under Dutch law, he was required to pay half of his assets to his son. His lawyer convinced the wife's family to delay this payment. He brought in a wet nurse named Gertie to feed the child and she became his lover. Later, he took up with his much younger housekeeper and sent Gertie away. She took him to court and was awarded an allowance of 200 guilders per year. However, with the connivance of Gertie's family, she was sent to an asylum and he only had to pay the cost of her confinement. His house was also a cause of his downfall. While many scholars thought that buying the house caused his losses, Judge Clarkson concluded otherwise. He bought the house with a Consol or perpetual bond. He only paid one-fourth of the cost of the home down and then had to pay 5% interest on the bond without the principal ever coming due except in the event of default. This was essentially an annuity and was a common financial vehicle. Thus, although the purchase of the house did not lead to his bankruptcy, the fact that the house was sinking and tilting did. All of the neighbors agreed to jointly pay to stabilize the row of houses. However, Rembrandt did not pay his share.He also lost money as his art went out of fashion. He was sued by purchasers of his art who felt that they did not get what was promised or did not receive anything in the case of a painting lost during a time of war.  He also was a profligate spender. He would go to sales and buy up whatever he thought he could use in his paintings, such as a suit of armor.Realizing that he was in dire financial straits, he went to Orphans Court and got an order to transfer the house to his son. However, to do that, he had to clear the mortgage from the property. To do this, he borrowed 7,000 guilders from the Mayor, which he did not pay back. Facing pressure from lawsuits, his neighbors and the Mayor, he filed a cessio bonorum, which means a cessation of goods. He could not receive a discharge but he would avoid jail. Under the cessio bonorum, he surrendered his goods and agreed to pay all of his future earnings to his creditors above the amount of bare necessities. This combined the most burdensome elements of today's Chapter 7 and Chapter 13. His trustee sued his son to get the house back under Amsterdam's recently passed fraudulent transfer law. The trustee won but the judgment was reversed before the funds could be disbursed because the fraudulent transfer law was not retroactive. Although he lost the house, the money that he and his son received back was more than the total of what he had paid on the house. Thus, he achieved what many debtors today seek--a free house--although he did not get to keep it.To avoid the requirement that he pay his future earnings to his creditors, his mistress and son formed a corporation and Rembrandt worked for it, receiving only enough pay to cover his necessities. After his bankruptcy, he had new financial success. In 1658, he painted Phoenix Rising. It was said that the Phoenix represented Rembradt. He died in 1669 at the age of 63.It is clear that Judge Clarkson is passionate about art and history and he told a good yarn. It also had enough bankruptcy content to (I hope) qualify for CLE credit.