ON L A WA M O N T H L Y P U B L I C A T I O N F R O M C U M M I N G S , M C C L O R E Y , D A V I S & A C H O , P . L . C .

in thisissueOverview ofBankruptcy’sAutomatic Stay

In the Law

Attorneys MadePartners

How Are WeDoing?

Office Locations

MARCH, 2005

4

1-2

2

3

continued on page 2

AN OVERVIEW OF

BANKRUPTCY’S AUTOMATIC STAY

3

When a bankruptcy is filed, it produces aconcept called the “automatic stay.” Theautomatic stay comes into effect imme-

diately upon filing for bankruptcy, and it helps toassure all creditors are treated equally in a bank-ruptcy case. The automatic stay protects both debt-ors and creditors- it provides debtors with some“breathing room” from their creditors, and it protectsthe creditors from each another.

WHAT IS STAYED?

Once the automatic stay is in effect, a creditor can-not file a lawsuit against the debtor to recover onclaims that arose before the petition date. If a law-suit was filed against the debtor before the petitiondate, the lawsuit, at least as it relates to the debtor,must immediately halt.

The automatic stay, however, does not apply to suitsagainst the debtor based wholly on conduct thatoccurs after the bankruptcy petition is filed. Suitsbased on post-petition conduct can be filed in courtand are not implicated by the automatic stay.

The automatic stay also prohibits creditors fromenforcing pre-petition judgments, liens, foreclosureson collateral or property, terminations of contractsor taking any number of other actions against thedebtor or his/her property.

EXCEPTIONS TO THE AUTOMATIC STAY

There are exceptions to the automatic stay. Someexceptions include, actions by parties to close outopen positions on securities contracts; eviction ofa debtor by a landlord where the lease has been fullyterminated before the bankruptcy filing; action bytaxing authorities to conduct tax audits or issue de-ficiency notices; demand tax returns and make taxassessments; and, perhaps the most common of all,the right of a governmental unit to enforce its po-lice and regulatory power.

Additional exceptions arise in individual bankruptcycases, such as criminal proceedings against thedebtor and alimony and support proceedings.

IS STAY RELIEF NECESSARY?

Practitioners are often called upon to provide ad-vice on whether a contemplated action would con-stitute a violation of the automatic stay and wouldthus require “relief from the stay.” Although theanswer may be obvious in some cases, the follow-ing is a selection of some less clear-cut situations:

• A creditor believes his/her lawsuit relateswholly to post-petition conduct, but the debtor al-leges it is based on pre-petition events;

• A creditor believes he/she is exercising aright of recoupment (not subject to the stay), whilethe debtor characterizes the action as a setoff (sub-ject to the stay);

• A creditor with a contract with the debtorbelieves they have the right to terminate the con-tract based on a post-petition default without courtapproval, while the debtor takes the position thatdoing so constitutes an act “to obtain possessionof property of the estate or of property from the es-tate or to exercise control over property of the es-tate,” and is therefore subject to the automatic stay;

• A creditor with a contract to supply goodsto the debtor wants unilaterally to modify creditterms post-petition to reduce their risk, but thedebtor argues the unilateral contract modificationviolates the stay; or

• A dispute over whether a transaction be-tween the debtor and a counter party constitutes asecurities transaction of the type that is exempt fromthe stay.

In the LawCompiled by Patrick R. Sturdy

The cases featured in this section do not necessar-ily involve CMDA. They are interesting cases wethought you would enjoy reading. To read addi-tional cases, visit our website at www.cmda-law.com. Each Monday new articles are posted onour homepage.

Municipality May Impose Subscription Fee

for a subscription and does not define the term “subscription.”Turning to the dictionary, the court concluded the plain and or-dinary meaning of “subscription” implies an advance paymentof a sum certain to receive the material for a fixed period of time.Since FOIA does not provide for regulation of the price of thesubscription option, defendant was free to set a fee for a sub-scription to the minutes and require payment in advance, with-out regard to the actual cost of preparing the subscription.

In this case, the plaintiff was injured when she tripped on a por-table sign positioned on the surface of a public roadway. Theplaintiff alleged the defendant breached its duty by placing asign whose stanchions were not clearly visible on the improvedportion of the roadway and failing to warn of the presence ofthe sign.

The Court disagreed and noted that under the governmentalimmunity statute, traffic signals and signs are not part of thehighway as that term is defined by statute. The plaintiff’s injuryresulted when she tripped over a portion of a portable sign thathad been placed on the roadbed and was not caused by a defectin the roadbed itself. Therefore, the Court of Appeals concludedthat the plaintiff’s claim fell outside the scope of the highwayexception to governmental immunity.

The Court of Appeals recently held that under the Freedom ofInformation Act (FOIA) a public body may impose a flat fee pay-able in advance for a subscription to a copy of minutes from thepublic body’s meetings.

In this case, the township created a flat fee, payable in advance,of $25 for a six-month subscription or $50 for a one-year sub-scription for minutes from the public body’s meetings. Copiesof the minutes were also available at the library, the townshiphall and copies of the previous meeting’s minutes were distrib-uted at each meeting and printed in the local newspaper. WhileFOIA clearly grants the right to subscribe to a regularly createdpublic record, it does not specifically address the issue of a fee

Trip and Fall Over Barricade

2

Renee S. Coulter

ON LAW MARCH 2005

AN OVERVIEW OF BANKRUPTCY’S AUTOMATIC STAY (CONTINUED)

Renee Sophia Coulter works out of our Livonia office andconcentrates her practice on bankruptcy, taxation and gov-ernment finance. In addition to being an attorney, Ms. Coulteris a Certified Public Accountant. Please contact her at (734)261-2400 or via e-mail at rcoulter@cmda-law.com for an-swers to any questions you may have on bankruptcy.

These and other similar situations pose difficult strategicchoices. If you are in this situation, consult legal counselsince consequences for violating the automatic stay can besevere.

HOW TO GET RELIEF FROM THE AUTOMATIC STAY

If a creditor believes he/she qualifies for relief from the stay,they must seek such relief by filing a motion. There are threegrounds for granting relief from the automatic stay:

The first ground states that relief from the stay may be granted“for causes, including the lack of adequate protection of aninterest in property . . . “

The second ground for granting relief provides that a securedcreditor may obtain relief from the automatic stay with re-spect to an act against property of the bankruptcy estate if,“(a) the debtor does not have an equity in such property,and (b) such property is not necessary to an effective reor-ganization.” To meet the first requirement, the value of theproperty must not exceed the amount of all debts secured by

liens on such property. This is what is meant by “an equityin such property.” The second factor requires a finding thatthe property is not necessary to an effective reorganization.This requirement may be satisfied either by showing an ef-fective reorganization may occur without the particular pieceof property at issue or, alternatively, that the debtor is un-likely to successfully reorganize.

The third ground for granting relief is a highly specializedexception for a Chapter 11 cases.

“An Overview of Bankruptcy’s Automatic Stay is the sec-ond article in a three-part series on bankruptcy law. Look innext month’s newsletter for an article on termination of acontract based on bankruptcy.

3

ON LAW MARCH 2005

Cummings, McClorey, Davis & Acho P.L.C. is pleased toannounce attorneys Ethan Vinson and Sarah L.Overton have been made Partners.

Ethan Vinson first joined the firm in 1979 andworked out of our Livonia office until 1988.He rejoined the firm in 1996. His practice isfocused on Employment and Labor Law,Civil Rights, Municipal Defense, InsuranceDefense and is a Trial Specialist.

T. Joseph Seward, Managing Partner, ex-plains that “Ethan is not only a shrewd ne-

gotiator, but is also one of our most experienced trial lawyers.He has an excellent relationship with all his clients, and we arefortunate to have Ethan with us now as a General Partner.”

Mr. Vinson received a Bachelor of Arts degree in Political Sci-ence and History from Western Michigan University (1970) anda Juris Doctor degree from University of Detroit (1976). He can

be reached by calling our Livonia office at (734) 261-2400 or viae-mail at evinson@cmda-law.com.

Sarah L. Overton works out of the firm’sRiverside, California office. She joined thefirm last June and has done a great job mar-keting our California office. As a result ofher efforts, our firm is making headway intothat competitive market. Ms. Overton fo-cuses her practice on General Civil Defense,Insurance Defense, Public Entity Defenseand Appeals and Writs.

Ms. Overton received a Bachelor of Arts degree in Theatre fromCalifornia State University, Fullerton (1986) and a Juris Doctordegree from University of San Diego School of Law (1992). Shecan be reached by calling our Riverside office at (951) 276-4080or via e-mail at soverton@cmda-law.com.

Ethan Vinson

TWO ATTORNEYS RECENTLY

MADE PARTNERS

T. Joseph Seward, Managing Partner

M i c h i g a n ’ s P r e m i e r F u l l S e r v i c e L a w F i r m

A r e a s o f P r a c t i c eAppeals • Bankruptcy and Insolvency • Civil Litigation • Commercial Litigation • Corporate and Business Law •

Domestic Relations • Employment and Labor Law • Environmental Law • Estate Planning • Franchise Law• General Liability and Prevention • Government, Municipal and Administrative Law • Insurance and

Reinsurance Coverage, Defense and Subrogation • Mergers and Acquisitions • Personal Injury Litigation and Defense• Public Official Liability • Real Estate • School Law • Sports and Entertainment Law • Technology and Computers •

Turnaround and Financial Consulting • Workers’ Compensation Defense

Our newsletter is sent to a variety of people each month. Leaders in our community, claims adjusters at insurance companies,executives at Fortune 500 companies and clients who come in to have their wills updated all receive On Law.

Keeping that in mind, we try to write interesting and informative articles that a diverse audience will enjoy reading. How are wedoing? Do you like reading our newsletter? Is there a legal topic you would like more information on? If so, contact me at (734)261-2400 or via e-mail me at jsherman@cmda-law.com, and I’ll have an attorney write an article on that topic to be published in anupcoming newsletter.

How are we doing?

Jennifer L. Sherman

Sarah L. Overton

Riverside3801 University AvenueSuite 700Riverside, CA 92501Telephone: 951.276.4080Facsimile: 951.276.4405

Woodland Hills21031 Ventura Blvd.Suite 1200Woodland Hills, CA 91364Telephone: 818.884.6666Fascimile: 818.884.8677

ON LAW is a monthly publication fromCummings, McClorey, Davis & Acho, P.L.C.

Comments and questions regarding specific ar-ticles should be addressed to the attention of thecontributing writer. Remarks concerning miscel-laneous features or comments to the editor shouldbe addressed to the attention of Jennifer Sherman.

CUMMINGS, MCCLOREY, DAVIS & ACHO

OFFICE LOCATIONS

CALIFORNIAMICHIGAN

PRSRT STDUS POSTAGE

PAIDPERMIT NO. 665

F. HILL, MI

ON LAW is intended for informational purposes only andshould not be used as a substitute for individual legaladvice. Please consult an attorney regarding your par-ticular situation.

CUMMINGS, MCCLOREY, DAVIS & ACHO, P.L.C.33900 SCHOOLCRAFT

LIVONIA, MICHIGAN 48150

Livonia33900 SchoolcraftLivonia, MI 48150Telephone: 734.261.2400Facsimile: 734.261.4510

Grand Rapids2851 Charlevoix Drive, S.E.Suite 327Grand Rapids, MI 49546Telephone: 616.975.7470Facsimile: 616.975.7471

Marquette307 South Front StreetMarquette, MI 49855Telephone: 906.228.8263

Roseville25509 Kelly Road, Suite CRoseville, MI 48066Telephone: 586.775.5200Facsimile: 586.777.6896

Traverse City3939 M-72 EastWilliamsburg, MI 49690Telephone: 231.938.2888Facsimile: 231.938.2988

Phoenix1850 North CentralSuite 1450Phoenix, AZ 85004Telephone: 602.207.2829Facsimile: 602.207.6943

Berlin, GermanyManquen & LokauRechtsanwalteHardenbergstrasse 1910623 BerlinTelephone: +49-30-852-03-71Facsimile: +49-30-851-59-51

Accra, GhanaP.O. Box 12556Accra, GhanaTelephone: +223-21-224260Facsimile: +233-21-232262 Would you like to reference previous

issues of ON LAW?View them on-line at www.cmda-law.com

CMDA- ON LAW

33900 SchoolcraftLivonia, Michigan 481501-800-865-7222 ext. 223www.cmda-law.comE-Mail: cmda@cmda-law.com

Editor-in-Chief/Graphic Designer:Jennifer L. Sherman

GERMANY

GHANA

ARIZONA

Our Vision

To meld our legalexpertise, professionalsupport staff, technicalresources and varietyof locations to deliverfirst rate legal servicesat a fair value to a full

range of business,municipal, insurance

and individual clients.