usdc conf, bankruptcy summaries.pdf

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2011-12 Ninth Circuit Bankruptcy Year in Review

United States District Court

for the District of Nevada

DISTRICT CONFERENCE April 5, 2012

Case summaries prepared by Louis M. Bubala III

and

Gordon R. Goolsby Armstrong Teasdale LLP

Reno 775.322.7400 / Las Vegas 702.678.5070

*These summaries have been prepared by the authors and do not

necessarily reflect the views of the judges participating in the conference. Any errors in the summaries are the fault of the authors, not the judges.

District of Nevada Annual Conference 2011-12 Bankruptycy Year in Review

By Louis M. Bubala III and Gordon R. Goolsby

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About the Authors

Louis M. Bubala III, Esq., Partner, Reno Gordon R. Goolsby, Esq., Associate, Las Vegas Lou and Gordon are members of Armstrong Teasdale’s Financial Services Group. They represent creditors in all aspects of the debtor-creditor relationship, both before and after bankruptcy as part of workouts, litigation, receiverships, reorganization, and liquidation. They routinely advises lenders, landlords, vendors and other creditors on the recovery of debts and property owed to them by debtors in bankruptcy proceedings.

Lou received his law degree from the University of Oregon School of Law. He moved to Nevada to clerk for U.S. Magistrate Judge Valerie P. Cooke. He is past president of the Northern Nevada Bankruptcy Bar Association.

Gordon received his law degree from the Boyd School of Law at the University of Nevada, Las Vegas. After law school he served as a law clerk to Chief Judge Mike K. Nakagawa, Judge Bruce A. Markell and Judge Gregg W. Zive of the U.S. Bankruptcy Court for the District of Nevada.

About the Summaries Below is a summary of bankruptcy decisions since the last District Conference from the U.S. Supreme Court, the U.S. Court of Appeals for the Ninth Circuit, the U.S. Bankruptcy Appellate Panel for the Ninth Circuit, the U.S. District Court for the District of Nevada, and the U.S. Bankruptcy Court for the District of Nevada. This summary attempts to include all published decisions from the Supreme Court, Circuit Court, and Appellate Panel, and all decisions from the District Court and Bankruptcy Court. This summary covers from April 1, 2011 through March 4, 2012.

U.S. Supreme Court Stern v. Marshall, 564 U.S. ___, 131 S. Ct. 2594 (2011) (Roberts, C.J.), aff’g 600 F.3d 1037 (9th Cir. 2010) The U.S. Supreme Court held that the Bankruptcy Court lacked Constitutional jurisdiction under Article III to enter a final judgment on a counterclaim on a common law cause of action against a non-debtor. There is no public right at hand that might allow an inferior court to determine the claim. The Supreme Court also rejected the argument that the creditor consented to a final determination by the Bankruptcy Court by filing a proof of claim. His rights under Debtor’s counterclaim were independent of his claim against the estate; the resolution of his proof of claim did not require resolution of the counterclaim. This ruling overrides earlier holdings that a debtor’s counterclaims against creditor are “core” as a matter of statutory law under 28 U.S.C. § 157(b)(2)(C) (which otherwise would allow them with a final judgment from the Bankruptcy Court, save the lack of Constitutional jurisdiction). The Court also held that the statutory right to trial before the U.S. District Court for personal injury torts, 28 U.S.C. § 157(b)(5), is not jurisdictional. The right may be and was waived such that the Bankruptcy Court could enter final judgment. The Court identified other unresolved issues but declined to rule on (1) the scope of a “personal injury tort”; (2) whether the Bankruptcy Court can resolve the claim short of a trial, with the claim otherwise tried in U.S. District Court; and (3) whether the Bankruptcy Court retained (supplemental) jurisdiction over the counterclaim.



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Stern has been cited in three decisions from the Circuit, District, and BAP:

Executive Benefits Ins. Agency v. Arkison (In re Bellingham Ins. Agency, Inc.), 661 F.3d 476, 476 (9th Cir. 2011) (per curiam) A three-member panel including Chief Judge Kozinski ordered additional briefing on two questions: (1) Does Stern prohibit bankruptcy courts from entering a final, binding judgment on an action to avoid a fraudulent conveyance? (2) If so, may the bankruptcy court hear the proceeding and submit a report and recommendation to a federal district court in lieu of entering a final judgment? California Franchise Tax Bd. v. Wilshire Courtyard (In re Wilshire Courtyard), 459 B.R. 416, 424 n.10 (BAP 9th Cir. 2011) (Pappas, C.J.), vac’g & rem’g 437 B.R. 380 (Bankr. C.D. Cal. 2010) (Bufford, J.) Holding that Stern “is inapposite to the issues raised in this case involving a postconfirmation challenge to the bankruptcy court’s jurisdiction to decide the tax dispute between the Wilshire Partners and CFTB.” CirTran Corp. v. Advanced Beauty Solutions, LLC (In re Advanced Beauty Solutions, LLC), Case No. CC-11-1183-PaHPe, 2012 WL 603692 (BAP 9th Cir. Feb. 8, 2012) (mem., aff’g Mund, J.) Appellant purchased debtor/appellee’s assets in Section 363 sale. But appellant defaulted on payment terms, and debtor obtained default judgment in adversary proceeding. Debtor proceeded with several motions to enforce the judgment, to which appellant responded. While appealing the merits of one order, appellant raised for the first time the argument that the bankruptcy court lacked subject matter jurisdiction based on Stern. BAP held that appellant could not make a collateral attack on the judgment, which had become final long ago. BAP also questioned in dicta the merits of the Stern argument applied in this case. Foley v. Wells Fargo Bank, N.A., Case No. 3:10-CV-00702-RCJ, 2012 WL 75949, *3 (D. Nev. Jan 10, 2012) (Jones, C.J.) Judge Jones notes that a debtor’s wrongful foreclosure claims may be “non-core claims that a non-Article III bankruptcy court cannot finally determine absent consent of the parties” under Stern.

U.S. Circuit Court for the Ninth Circuit SS Farms, LLC v. Sharp (In re SK Foods, L.P.), ___ F.3d ___, Case No. 10-16153, 2012 WL 400421 (9th Cir. Feb. 9, 2012) (Bea, J.), dismissing Case No. 2:09-cv-02943-MCE, 2010 WL 1558682 (E.D. Cal. April 19, 2010) (England, J.) Dismissing appeal for lack of final orders, from orders (1) denying motion to remove a Chapter 11 trustee; (2) denying motion to disqualify trustee’s counsel; and (3) denying motion to compel trustee to surrender non-debtor records in debtor/trustee’s possession. otor Vehicle Cas. Co. v. Thorpe Insulation Co. (In re Thorpe Insulation Co.), ___ F.3d ___, Case No. 10-56543, 2012 WL 255231 (9th Cir. Jan. 30, 2012) (Gould, J., aff’g, rev’g & rem’g Fischer, J.)



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Circuit articulates for the first time whether an appeal is equitably moot in an appeal from a plan: (1) whether a stay was sought; (2) if it was sought and not gained, whether substantial consummation of the plan has occurred; (3) what effect a remedy has on third parties not before the court; and (4) whether the court can fashion effective and equitable relief “without completely knocking the props out from under the plan and thereby creating an controllable situation for the bankruptcy court.” Based on that standard, Circuit reversed and held that appeal was not equitably moot on dispute over non-settling insurers in asbestos bankruptcy. Circuit also reversed ruling that non-settling insurers lacked standing because the plan was termed insurance neutral, since the terms actually were not neutral. The opinion discusses a range of issues on standing. Circuit affirmed preemption under Section 524(g) of the insurer’s anti-assignment contract rights as they would stand as an obstacle to completion of the plan. Meruelo Maddux Props.-760 S. Hill St., LLC v. Bank of Am., N.A. (In re Meruelo Maddux Props., Inc.), 667 F.3d 1072 (2012) (Gould, J., aff’g Wilson, J.) Affirming District Court’s ruling that the definition of “single asset real estate” must be read literally. Circuit and District rejected the Bankruptcy Court’s determination that although debtor fell with requirements of statutory definition, it was not single asset real estate because it is “party of a whole business enterprise to which it would not be appropriate to apply the [SARE] provisions.” Circuit rejected debtor’s “arguments that the consolidated management team and cash management system to [parent debtor] and its subsidiaries allow [subsidiary debtor] to claim income generated by other [related subsidiary debtor] entities, as well as the contention that any cash transferred to [subsidiary debtor] from [parent debtor] or related entities should be characterized as ‘income’ rather than an equity investment.” Also holding matter not moot with plan already confirmed, as definition of SARE involves situation capable of repetition yet evading review. CRM Collateral II, Inc. v. TriCounty Metro. Transp. Dist., ___ F.3d ___, Case No. 10-36090, 2012 WL 164537 (9th Cir. Jan. 20, 2012) (Tallman, J.), rev’g & rem’g 715 F. Supp.2d 1143 (D. Or. 2010) (Papak, J.), and Case No. CV 08-1266-PK, 2010 WL 4705118 (D. Or. Nov. 10, 2010) In dicta, the Circuit defined a “bankruptcy remote entity” as “a type of a single purpose entity formed with the intent that it be ‘walled off’ from its corporate parent or sibling, such that if the parent files for bankruptcy, the remote entity is unaffected. See Steven Seidenberg, The Pain Spreads, 96 A.B.A. J., 53, 53 (Jan. 2010).” Father M v. Various Tort Claimants (In re Roman Catholic Archbishop), 661 F.3d 417 (9th Cir. 2011) (Ikuta, J.), amd’g 657 F.3d 1008 (9th Cir. 2011), aff’g & rev’g in part, 433 B.R. 833 (D. Or. 2010) (Aiken, C.J.), aff’g Case No. BKR 04-37154-ELP11, 2009 WL 1851010 (Bankr. D. Or. June 24, 2009) (Perris, J.) Discussing and distinguishing standards for disclosure of records from discovery in light of protective order under Rule 26 and for “scandalous” materials filed in bankruptcy court under 11 U.S.C. § 107. Amended opinion revises protection to expand from “names” to include “identifying information.”



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Sherman v. SEC (In re Sherman), 658 F.3d 1009 (9th Cir. 2011) (Bybee, J.; Fischer, J., dissenting), rev’g 406 B.R. 883 (C.D. Cal. 2009), prev. considered in 491 F.3d 948 (9th Cir. 2007), supers’g 441 F.3d 794 (9th Cir. 2006) Holding that when the debtor is not culpable for the securities violation, the debt is dischargeable under Section 523(a)(19). Debtor is an attorney who represented some entities in SEC enforcement action. The receiver obtained an order requiring debtor to disgorge unearned funds paid as a retainer on the basis that they were traceable to his clients. (SEC had failed to timely file nondischargeability action under other statutory provisions). California Franchise Tax Bd. v. Kendall (In re Jones), 657 F.3d 921 (9th Cir. 2011) (McKeown, J.), aff’g on other grounds 420 B.R. 506 (BAP 9th Cir. 2009) (Baum, J.) The Circuit affirmed that prior confirmed Chapter 13 petition did not stay time period to collect not-yet-due tax debt, and thus did not extend the three-year lookback period for nondischargeability of tax debt in new Chapter 7 case. Debtor filed Ch. 13 petition and plan was confirmed in 2002. Debtor filed Ch. 7 petition in 2007. Dispute was over ability to collection 2002 tax debt, which was due in 2003. This debt arose more than three years before new Ch. 7 petition and thus was not subject to nondischargeability. 11 U.S.C. § 507(a)(8). As a matter of first impression, Circuit distinguished postconfirmation rights in estate property under 11 U.S.C. §§ 1306(a)(1), 1327(b). Section 1306 states that the estate holds property until the case is closed, dismissed or converted; Section 1327 states that property vests with debtor upon plan confirmation. The Circuit identified three different treatments of estate property after confirmation; it declined to adopt any specific theory, but held that all allow for collection after confirmation. It rejected a fourth theory that while property “vests” with debtor at confirmation under Section 1327, it remains property of the estate not subject to collection efforts under Section 1306. Circuit also held that there was no equitable tolling due to the length of time available for collection. Circuit distinguished Young v. United States, 535 U.S. 43 (2002), where debtor had filed second petition day after dismissal of first case, thereby depriving creditor of time to collect on tax debt. The Circuit affirmed that prior confirmed Chapter 13 petition did not stay time to collect not-yet-due tax and did not extend the three-year lookback period for nondischargeability of tax debt in new Chapter 7 case. The opinion modifies the phrasing of the period during which Appellant could have collected the funds and to remove certain language regarding the nonapplicability of equitable tolling. Palmdale Hills Prop., LLC v. Lehman Commercial Paper, Inc. (In re Palmdale Hills Prop., LLC), 654 F.3d 868 (9th Cir. 2011) (N.R. Smith, J.), aff’g 423 B.R. 655 (BAP 9th Cir. 2009) (Hollowell, J.; Markell, J., on panel) Affirming that when a bankrupt debtor is a creditor in second bankruptcy case, the second bankrupt debtor must obtain relief from the automatic stay to equitably subordinate the debtor/creditor’s secured claim with transfer of lien. Appellant was debtor in California and borrower from Lehman entity that itself was debtor in New York. Circuit affirmed that Appellant’s attempt to equitable subordinate is an affirmative action that violates stay in Lehman’s bankruptcy. Claims could be subordinated, it Appellant either (1) obtains relief from Lehman’s court, or (2) prosecutes an adversary proceeding against Lehman before Lehman’s court. Grantham v. Cory (In re Flamingo 55, Inc.), 646 F.3d 1253 (9th Cir. 2011) (Fernandez, J., aff’g Jones, J.), aff’g 378 B.R. 893 (Bankr. D. Nev. 2007) (Markell, J.)



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The Circuit affirmed and adopted Judge Markell’s opinion, with one clarification and one exception. The case involved foreclosure on Debtor’s property. Appellants held an interest in the property and thus asserted that they were subrogated to the rights of the foreclosing creditor. Judge Markell found that Appellants, as co-owners of the property, did not qualify for subrogation under Section 509 since they were not secondarily liable. The Circuit clarified that because Appellants were partners or coventurers in the development enterprise, they were joint borrowers, rather than mere sureties, guarantors or accommodation comakers. The Circuit also noted one exception to Judge Markell’s opinion (which did not affect the outcome). Although Debtor’s debt was discharged by foreclosure on the property, that does not mean that Appellants did not pay the debt under Section 509(a). Appellants held an interest in the property. When the property was sold at foreclosure, Appellants had rights in part of the proceeds used to pay the creditor. Payment through foreclosure is no different than if the owners had sold the property themselves and used the proceeds to pay their creditors. Ilko v. California State Bd. of Equalization (In re Ilko), 651 F.3d 1049 (9th Cir. 2011) (per curiam), aff’g & adopting Case No. 09-1119-JuRMo, 2009 WL 7751427 (BAP 9th Cir. Oct. 15, 2009) (mem., rev’g Meyers, J.) Circuit adopted ruling that responsible officer of corporation that owes taxes is subject to nondischargeability for taxes under Section 523(a)(1), and that the California sales tax is a tax on or measured by gross receipts not dischargeable under Section 523(a)(8)(A). Additionally, Debtor’s tax liability was not assessed prepetition, but was still assessable postpetition under law in compliance with Section 523(a)(8)(A)(iii). J.J. Re-Bar Corp. v. United States (In re J.J. Re-Bar Corp.), 644 F.3d 952 (9th Cir. 2011) (McKeown, J.), aff’g 420 B.R. 496 (BAP 9th Cir. 2009) (Dunn, J., aff’g McManus, J.) The Circuit affirmed that a confirmed plan of reorganization does not preclude the IRS from assessing a statutory tax penalty against corporation officer. Debtor had failed to pay employment taxes, confirmed a plan, and made payments to the IRS. However, IRS sought to recover also from the corporate officers responsible for failure to remit trust fund taxes. Debtor moved to enforce the plan that said recovery was limited to the primary obligor. Bankruptcy Court denied the motion, and BAP affirmed, on grounds that litigation to preclude tax collection is precluded by the Anti-Injunction Act under the Revenue Code. Circuit rejected distinction that plan already was confirmed when taxation arose; prior circuit decisions involved disputes on injunctions prior to confirmation. Circuit also affirmed that officer liability is separate and distinct from the underlying tax obligation, such that the recovery from the officers is distinct from recovery from the debtor. Home Funds Direct v. Monroy (In re Monroy), 650 F.3d 1300 (9th Cir. 2011) (per curiam), aff’g & adopting Greenpoint Mortgage Funding, Inc. v. Herrera (In re Herrera), 422 B.R. 698 (BAP 9th Cir. 2010) (Pappas, J., aff’g K. Thompson, Mund, Tighe and Kaufman, J.J.) The Circuit adopted the BAP’s opinion affirming the utilization of optional Chapter 13 plan provisions approved by the U.S. Bankruptcy Court for the Central District of California, over the objection of creditors holding the mortgages on Debtors’ primary residences. The BAP affirmed the requirement that the lenders provide post-confirmation reporting and meet other obligations. The lenders asserted these requirements were inconsistent with their contract rights, violated federal law and constituted an undue burden. The



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objections were overruled by multiple judges on the Bankruptcy Court, and those opinions were affirmed by the BAP and Circuit.

U.S. Bankruptcy Appellate Panel for the Ninth Circuit Drummond v. Welsh (In re Welsh), ___ B.R. ___, Case No. MT-10-1465-PePaH, 2012 WL 603818 (BAP 9th Cir. Feb. 17, 2012) (Perris, J.; Pappas, C.J., dissenting) (appeal filed), aff’g 440 B.R. 836 (Bankr. D. Mont. 2010) (Kirscher, C.J.) Affirming that (1) Debtor can deduct from disposable income under Section 1325 the expenses for payments on secured debts, regardless of the need for the collateral (six vehicles) under Section 707(b)(2)(A); and (2) Bankruptcy Court applied correct standard of good faith in holding that debtors’ properly excluded Social Security income from their disposable income. Judge Pappas dissented on the grounds that Social Security income may be considered in determining good faith. He also dissented from holding that because debtors were current on the vehicle debt, the vehicles were necessary and the plan that continues to pay the debt was proposed in good faith. Nash v. Clark County Dist. Atty.’s Office (In re Nash), ___ B.R. ___, Case No. WW-11-1056-PaJuWa, 2012 WL 676435 (BAP 9th Cir. Feb. 7, 2012) (Pappas, C.J., aff’g Barreca, J.) Affirming denial of sanctions against the Hard Rock Casino and the Clark County D.A. following debtor’s arrest on charges arising from an unpaid, prepetition marker. Debtor was charged prepetition, listed Hard Rock but not the D.A. on his Ch. 7 schedules, received discharge, and was arrested. The D.A. offered to postpone prosecution if Debtor reached agreement with Hard Rock; Debtor contacted Hard Rock, which said it would consider an offer from Debtor. Debtor settled with D.A. to pay $500/mo. until the full amount of the debt was paid off. Debtor reopened his case and filed an adversary. Following default, hearing and briefing, bankruptcy court entered default judgment that the debt was discharged. But it declined to enter Section 105 sanctions for violation of the discharge injunction. Hard Rock had not engaged in postpetition collection efforts, and that the bankruptcy court should not interfere with state court criminal proceedings. BAP affirmed. Debtor initiated only communication with Hard Rock, and the settlement agreement was with D.A. Therefore, Hard Rock did not violate discharge injunction. Similarly, sanctions were inappropriate against D.A. because “bankruptcy courts should not interfere with the results of state criminal proceedings.” In re Gruntz, 202 F.3d 1074 (9th Cir. 2000) (en banc). The Circuit rejected arguments that if the criminal prosecution was to collect a discharged debt, then the collection violated the automatic stay. The Circuit recognized that control of a criminal prosecution rests with the state, not the creditor, and that federalism compelled unwarranted interference by the bankruptcy court. The BAP expanded that rationale to alleged violations of the discharge injunction. Searcy v. Ada County Prosecuting Atty’s Office (In re Searcy), 463 B.R. 888 (BAP 9th Cir. 2012) (Dunn, J.) (appeal filed), aff’g 448 B.R. 19 (Bankr. D. Idaho 2011) (Myers, C.J.) Affirmed nondischargeability of attorney’s fees and costs awarded against debtor/inmate, in favor of county prosecuting attorney who obtained dismissal of civil rights case as frivolous (and affirmation on appeal). § 523(a)(7). BAP rejected Debtor’s arguments his debt to the county is not a “fine, penalty or forfeiture,” and that the award constitutes “compensation for actual pecuniary loss.” de la Salle v. U.S. Bank, N.A. (In re de la Salle), 461 B.R. 593 (BAP 9th Cir. 2011) (Jury, J., aff’g Sargis, J.)



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Affirming decision that (1) appellee, as trustee for holder of note in securitized pool, was legally authorized and entitled to enforce the note and deed of trust, and (2) the deed of trust is valid. Thus, the BAP affirmed denial of confirmation of a Ch. 13 plan, and granting appellee’s motion to convert to Ch. 7. The Bankruptcy Court did not abuse its discretion in denying confirmation. Although the form plan provided for payment of the bank’s proof of claim, debtors’ plan did not provide any payment for the bank. BAP noted that Section 1322(b)(2) prohibited modification of claims secured by debtors’ residence, and Section 1325(a)(5) requires debtors to provide for payment of secured claims in an amount equal to the claim. Debtors lacked income to provide for payment of the claim, so the Bankruptcy Court properly denied confirmation. BAP also affirmed that bank was party in interest for converting the case. The fact that there was a pending claim objection and adversary proceeding against bank does not deprive it of position as a party in interest. BAP also affirmed conversion for failure to confirm plan based on denial of second amended plan and debtors’ failure to file third amended plan as authorized by court. BAP also affirming finding of failure to proposed plan in good faith, as debtors enjoyed protection of automatic stay for over a year without making any payments to secured creditors; none of the plans complied with Code with payments to secured creditors; and debtors were primarily engaged in litigation during the case. Benafel v. One W. Bank, FSB (In re Benafel), 461 B.R. 581 (BAP 9th Cir. 2011) (Pappas, C.J.) (on appeal), rev’g & rem’g Case No. BR 10-61542-FRA13, 2010 WL 5373127 (Bankr. D. Or. Dec. 22, 2010) (Alley, C.J.) Bankruptcy Court erred in ruling that the date for determination that property was Ch. 13 debtor’s principal residence for purposes of modification of loan secured by residence under Section 1322(b)(2). BAP held the proper date is the petition date, not the date of the loan transaction. In this case, debtor moved out of her residence to care for her ill mother, rented her own residence, and filed bankruptcy petition. BAP adopted the same rationale from In re Abdelgadir, 455 B.R. 896 (BAP 9th Cir. 2011), which arose from Judge Riegle’s court but was decided after briefing in this case. BAP rejected distinctions between Ch. 11 analysis in Abdelgadir, which cited extensively to Ch. 13 decisions. On remand, lender still could present arguments about whether property still constituted residence on petition date. Barnes v. Belice (In re Belice), 461 B.R. 564 (BAP 9th Cir. 2011) (Markell, J., rev’g & rem’g Bowie, C.J.) Issue of dischargeability arose as to whether debtor’s oral statements were “respecting the debtor’s … financial conditions” and thus are dischargeable under Section 523(a)(2)(A). The terminology is not statutorily defined, the Ninth Circuit has not addressed the terminology, and there is a split of authority. Some courts have continued to discharge debts arising from narrow statements about “a single asset or liability”; other courts only discharge the debt if the debtor made a statement about his or her overall financial position. Judge Markell reviewed the statutory context, the legislative history, and case law. He concluded that debtor made “isolated representations regarding various items that might ultimately be included as assets in a balance sheet.” Therefore, debtor’s “alleged misrepresentations do not amount to a statement respecting his financial condition. Judge Bowie had concluded otherwise and dismissed the complaint, so the proceeding was remanded. U.S. Trustee v. Tamm (In re Hokulani Sq., Inc.), 460 B.R. 763 (BAP 9th Cir. 2011) (Pappas, C.J., rev’g Faris, J.) (appeal filed)



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BAP reversed ruling that Ch. 7 Trustee was entitled to statutory fees by calculating “monies disbursed” as including amount credit bid by secured creditor. BAP delved into dictionary definitions of moneys and related terms to interpret calculation of fees under Section 326. BAP held that a credit bid is not a medium of exchange. Although the Ninth Circuit has not opined on the matter, the BAP held its conclusion was consistent with the only two circuit decisions considering the issue. Interpretation also supported by other uses of the term “money” in Code. BAP held it was not absurd to reduce trustee fee by omitting credit bid, particularly when credit bid provide no quantifiable return to the estate. BAP distinguished two Ninth Circuit decisions under Act as inapplicable. BAP also rejected Trustee’s distinction that the property was actually sold to third parties, since third parties were created and designated by the secured creditors. BAP also held that Bankruptcy Court has no discretion to award an amount exceeding the cap in Section 326(a). Although there was no dispute that Trustee performed admirably and his compensation as allowed under Section 326 was reasonable under Section 330, Bankruptcy Court could not consider equitable matters in increasing the compensation. Margulies Law Firm, APLC v. Placide (In re Placide), 459 B.R. 54 (BAP 9th Cir. 2011) (Kirscher, J., aff’g Ahart, J.) Affirming denial of Appellant law firm’s claim for fees. Firm had represented debtor prepetition in obtaining judgment, then in pursuing the judgment in defendant’s Chapter 7 bankruptcy. Although firm obtained judgment denying discharge, there was no recovery because defendant’s residence had been transmuted from community property to non-debtor spouse’s separate property. Discharge litigation cost $124,000. Creditors paid $39,000 before trial and $10,000 after trial. Firm incurred $6,000 more in collection efforts before clients filed Ch. 13. Bankruptcy Court affirmed Debtors’ objection to the unsecured claim as unreasonable under Section 502(b)(4) since Debtors did not obtain anything for prevailing in the objection to discharge litigation, at a cost 50% greater than judgment amount. BAP rejected the firm’s argument that the contract terms control the claim. Section 502(b)(4) controls allowance of claims and applies to services regardless of the circumstances that the attorney provided the services. The BAP also affirmed that firm had burden of proving the reasonableness once debtors objected. BAP found that Bankruptcy Court had found sufficient probative evidence to negate the sufficiency of the firm’s claim or at least question the reasonableness of the fees, thus properly shifting the burden of persuasion as to reasonableness to the firm. BAP also held that reasonableness of fees is determined by calculating lodestar. But it affirmed departure because of disproportionate nature of firms’ fees to Debtors’ reasonably expected recovery. BAP also affirmed disallowance of additional fees beyond amount already paid. Although BAP disagreed with Bankruptcy Court about risk and value in objection to discharge, and noted the excellent work done by firm, it held Bankruptcy Court did not abuse discretion.California Franchise Tax Bd. v. Wilshire Courtyard (In re Wilshire Courtyard), 459 B.R. 416 (BAP 9th Cir. 2011) (Pappas, C.J.) (appeal filed), vac’g & rem’g 437 B.R. 380 (Bankr. C.D. Cal. 2010) (Bufford, J.) BAP held the Bankruptcy Court, in reopened Chapter 11 case, lacked subject matter jurisdiction to determine state tax consequences of confirmation of debtor’s plan for its former partners. Former partners had reopened case, asserting state was attempting to collaterally attack the confirmed plan by characterizing the plan terms regarding certain property transactions. The BAP held that the bankruptcy jurisdiction is construed narrowly, and that the issue was a tax dispute between the former partners and the state. The decision provides a detailed discussion of the absence of “arising under and “arising in” jurisdiction; “related to” jurisdiction; and supplemental or ancillary jurisdiction.



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Marciano v. Fahs (In re Marciano), 459 B.R. 27 (BAP 9th Cir. 2011) (Dunn, J.; Markell, J., dissenting) (appeal filed), aff’g 446 B.R. 407 (Bankr. C.D. Cal. 2010) (Kaufman, J.) Affirming per se rules that petitioning creditors qualified under Section 303 based on unstayed California judgments on appeal following terminating sanctions for discovery abuses, and refusal to stay bankruptcy case under Section 305 pending resolution of the appeals. The opinion is lengthy, identifying 10 orders and eight issues on appeal. Judge Markell dissented on the grounds that (1) it is incorrect and bad policy to adopt a ‘per se’ rule regarding undisputed claims, and (2) the majority improperly and incorrectly limits good faith principles with respect to the commencement and conduct of involuntary cases. His dissent also is quite detailed. Winterton v. Humitech of N. Cal., LLC (In re Blue Pine Group, Inc.), 457 B.R. 64 (BAP 9th Cir. 2011) (Hollowell, J.) (appeal filed), aff’g 448 B.R. 267 (Bankr. D. Nev. 2010) (Markell, J.) BAP affirmed sanction of $109,000 against debtor’s counsel in violation of Rule 9011 for filing a corporate bankruptcy without proper authorization, failing to conduct a reasonable inquiry in client’s corporate affairs and, after being put on notice that he lacked proper authorization, continuing to advocate the improper filing. Case arose in dispute among members of entity. Debtor’s counsel filed petition based on representations of one principal of entity and corporate counsel. While the filing may have been reasonable even absent corporate resolution required under LR 1002(b), continued activity was not reasonable when alerted to inconsistencies in representations. Counsel later received corporate records but did not review them to confirm they complied with Nevada statutory requirements, erroneously relying on representations from Debtor’s corporate counsel. Counsel’s investigation only after receipt of motion to dismiss and on eve of hearing was insufficient to comply with obligations under Rule 9011. The BAP also affirmed the reasonableness of the sanction, based on the other principals’ cost to prosecute dismissal of the case. BAC Home Loans Serv’g, LP v. Abdelgadir (In re Abdelgadir), 455 B.R. 896 (BAP 9th Cir. 2011) (Hollowell, J., rev’g Riegle, J.) Holding that petition date is appropriate time to determine whether real property is Debtor’s principal residence. Debtor scheduled property as residence, and Appellant held secured claim. Postpetition, Debtor changed residence, declared former residence to be an investment property, and sought to bifurcate Appellant’s claim as secured and unsecured. Bankruptcy Court granted motion and confirmation on theory that valuation is done at confirmation. BAP reversed, holding evaluation “conflates the analysis of whether a creditor holds a claim with a determination of the value of that claim” (emphasis in original). The character of the claim—that is, whether it is secured by Debtor’s primary residence—is determined on the petition date under Section 1123(b)(5). Palmdale Hills Prop., LLC v. Lehman Commercial Paper, Inc. (In re Palmdale Hills Prop., LLC), 457 B.R. 29 (BAP 9th Cir. 2011) (Kirscher, J., aff’g Smith, E., J.; Markell, J., on panel) Affirming that when a master repurchase agreement provides that the transactions are sales and purchases, and not loans, they are in fact true sales and are not secured transactions. BAP also affirmed that an agent can file a proof of claim under a general grant of authority to act for the creditor in the case, even without express authority to file a claim.



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Pacific Res. Credit Union v. Fish (In re Fish), 456 B.R. 413 (BAP 9th Cir. 2011) (Brandt, J.; Markell, J., on panel) Creditor fell within continuing viable doctrine of informal proofs of claim, and BAP reversed bankruptcy court ruling sustaining claim objection made on ground of untimely claim. Creditor had filed motions for relief from claim, asserting debts and rights to pursue deficiencies in the event that collateral did not satisfy debts. Ten days after deadline for claims, creditor filed an amended proof of claim to further specify its claim, with briefing on informal proof of claim doctrine. Although Bankruptcy Court found claim untimely, BAP held that it related back to informal claim asserted in motions for stay relief filed by creditor. There was no evidence of prejudice to opposing parties to suggest the informal claim should not be recognized. Debtor’s statement that other creditors were prejudiced was rejected, as debtor’s standing to make such objection was questionable and the claim was speculative. Ellsworth v. Lifescape Med. Assocs., P.C. (In re Ellsworth), 455 B.R. 904 (BAP 9th Cir. 2011) (Markell, J., aff’g Case, J.) BAP affirmed dismissal of Chapter 13 debtor’s case with prejudice under Section 1307(c) and for bad faith. Spouse violated noncompete agreement and was subject to injunction and judgment. Debtors then filed Chapter 13, with five debts: home loan; vehicle loan; two student loans; and judgment. Debtors filed three plans, none confirmed. On eve of dismissal, debtors filed fourth plan with new figures. Bankruptcy court dismissed case with prejudice. Debtors “unjustifiably delayed their bankruptcy case by not promptly resolving issues concerning trustworthiness of their financial reporting.” See 11 U.S.C. § 1307(c)(1). Certain financials were only disclosed during depositions, and debtors did not timely resolve issue with financials. The late filing also prejudiced creditor at dismissal hearing. BAP also affirmed dismissal for failure to timely file a plan. 11 U.S.C. § 1307(c)(3). Debtors failed to comply with court order to file a new plan within 30 days of order denying confirmation. BAP rejected arguments that new plan was not necessary because they had no disposable income or their belief of conflicting authority, based on explicit order. BAP considered variations on the burden of proof for a motion to dismiss, but declined to decide the issue as not raised by Debtors. But dismissal on ground that lack of good faith is cause to dismiss Chapter 13 case. Debtors received sufficient notice that their bad faith was at issue prior to dismissal, and there was sufficient evidence based on uncontested facts and reasonable inferences. The legal effect of the dismissal with prejudice is that all debts are nondischargeable. Although remedy is limited to extreme circumstances, those circumstances arose in this case. Nady v. DeFrantz (In re DeFrantz), 454 B.R. 108 (BAP 9th Cir. 2011) (Jury, J., aff’g Efremsky, J.) BAP affirmed Debtor’s right to convert on notice from Chapter 13 to Chapter 7 under Section 1307(a) and Rule 1017(f)(3) even when Creditor/Appellant had a pending motion to dismiss the Chapter 13 case. Appellant asserted the conversion was improper because it avoided a determination of Debtor’s bad faith. The BAP disagreed, holding that bad faith issue still could be addressed in Chapter 7 case by complaint for denial of discharge. Edwards v. Wells Fargo Bank, N.A. (In re Edwards), 454 B.R. 100 (BAP 9th Cir. 2011) (Markell, J., aff’g P. Carroll. J.) The panel affirmed stay relief allowing Appellee to exercise state law rights against Appellant/Debtor’s former property sold to Appellee prepetition through foreclosure. Appellee recorded trustee’s deed prepetition and obtained a prepetition order enforcing its rights in an unlawful detainer action in state



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court. Appellee satisfied prudential standing with a colorable claim because it established an interest in the property. Cause also existed for relief since Appellant no longer had a right of redemption. Finally, although Appellant filed an adversary proceeding the day of the hearing on the motion for relief, the filing did not preclude the grant of relief from the stay. Additionally, Appellant was foreclosed from claims in adversary based on state court order on unlawful detainer action. Orton v. Hoffman (In re Kayne), 453 B.R. 372 (BAP 9th Cir. 2011) (Pappas, C.J.), aff’g Case No. 09-12470, 2010 WL 2757346 (Bankr. N.D. Cal. July 11, 2010) (Jaroslovsky, J.) The panel affirmed a $20,000 sanction on debtor’s counsel for violation of Rule 9011 and certification on petition that counsel has no knowledge after an inquiry that information in schedules is incorrect under Section 707. Counsel knew of existence of note due to debtor; knew that the schedules he prepared as counsel did not disclose the note; and knew the statements in the schedules were false. Amount of sanction affirmed based on legal expenses incurred by Ch. 7 trustee in investigating and prosecuting the matter. Western States Glass Corp. v. Barris (In re Bay Area Glass, Inc.), 454 B.R. 86 (BAP 9th Cir. 2011) (Pappas, C.J., aff’g S. Johnson, J.) BAP affirmed that the monetary amounts under Section 547(c)(9) serve as a threshold as to when a trustee can avoid a low-dollar preference. Decision appears to be first impression in circuit on provision added by BAPCPA. Appellant/ Creditor asserted secured claim for $5,845 and conceded it acquired judgment lien within preference period. Section 547(c)(9) states that for cases involving mostly nonconsumer debt, the trustee may not avoid preferences for less than $5,475. Appellant asserted that it held a secured claim for the statutory amount of $5,475 and an unsecured claim for the remaining $370. Bankruptcy Court and BAP rejected Appellant’s statutory analysis. Plain language of statute provides a threshold of $5,475. Claims less than that may not be avoided; claims more than may be avoided in full. Bay Fed. Credit Union v. Ong (In re Ong), 461 B.R. 559 (BAP 9th Cir. 2011) (Hollowell, J., rev’g Weissbrodt, J.) Reversing denial of reaffirmation. No presumption of undue hardship arises with a credit union, and Section 524 does not provide authority for an independent review or disapproval of an agreement between a represented debtor and a credit union. Court is limited to review of compliance with requirements of Section 524(c); otherwise, court review limited to exceptional circumstance involving violation of Rule 9011. Veal v. American Home Mortgage Serv’g, Inc. (In re Veal), 450 B.R. 897 (BAP 9th Cir. 2011) (Markell, J., rev’g, vac’g & rem’g Haines, J.) The panel held that trustee under the deed of trust had not established standing as a real party in interest. Therefore, the panel (1) reversed the order relief from the automatic stay to the bank trustee, and (2) vacated and remanded the order overruling Debtor’s objection to the proof of claim filed by the bank trustee. To have standing to obtain stay relief, the movant must have “a property interest in, or is entitled to enforce or pursue remedies related to, the secured obligation that forms the basis of its motion.” To have standing to prosecute a claim involving a promissory note secured by real property, the claimant has standing “if, under applicable law, it is a ‘person entitled to enforce the note’ as defined by the Uniform Commercial Code.” I defer to everyone to read it themselves to select the relevant points for their practices.



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Samson v. Western Capital Partners, LLC (In re Blixseth), 454 B.R. 92 (BAP 9th Cir. 2011) (Hollowell, J.; Markell, J., on panel; aff’g Kirscher, J.) (appeal filed) Individual Debtor did not file a statement of intent to surrender property. § 521(a)(2). The Chapter 7 trustee does not seek a determination that the property is of consequential value or benefit to the estate. §§ 521(a)(2)(C), 362(h)(1)-(2). The panel affirmed that the automatic stay terminated as to all of Debtor’s personal property securing a creditor claim, not just the personal property scheduled by Debtor as securing the claim. § 362(h). The panel relied on the plain language of Section 362(h) that the stay terminates as “personal property of the estate” and Section 541(a), which defines property of the estate without regard to whether it is scheduled. The panel rejected the trustee’s argument that the property must be scheduled because the statement of intention is only required “if an individual debtor’s schedule of assets and liabilities includes debts which are secured by property of the estate.” § 521(a)(2). The panel held the statute requires the debt, not the property, to be listed. The panel declined to consider argument on the ground that unscheduled assets remain property of the estate since it was not raised before the Bankruptcy Court. In re Hill, 450 B.R. 885 (BAP 9th Cir. 2011) (Markell, J.; aff’g Marlar, J.) The panel affirmed the partial disgorgement of a petition preparer’s fee. The decision discusses absence of evidence of the reasonableness of the preparer’s fee and the allowed fee, even though it has not been adjusted in 14 years. Fry v. Dinan (In re Dinan), 448 B.R. 775 (BAP 9th Cir. 2011) (Kirscher, J., aff'g, vac'g & rem'g Peterson, J., sitting by designation in Reno) Appellant/creditor sought to enforce a note in conjunction with a nondischargeability action for debt incurred to pay federal taxes. The BAP affirmed that the attorney’s fees and costs are recoverable under state law and nondischargeable under federal law. However, the panel vacated the award and remanded for determination of reasonableness of the amount under state law. The Bankruptcy Court found creditor prevailed on collection effort, but only partially prevailed on amounts nondischargeable and lost on denial of discharge. The Bankruptcy Court allowed only $2,000 of approximately $55,000 in requested fees. The panel affirmed fees as nondischargeable if they are allowed under state law. Cohen v. de la Cruz, 523 U.S. 213 (1998) (described as Travelers, except related to nondischargeability against debtor, rather than estate). BAP held that under NRS 18.010, the prevailing party in a collection action is entitled to all fees and costs. However, the panel remanded because the Bankruptcy Court did not identify Nevada-approved calculation of fees or permissible reason for reduction. As to dispute on reduced costs, BAP held Appellant did not support assertion with argument. Weinstein v. Fox (In re Fox), Case No. NV-11-1009-JoJuH (BAP 9th Cir. Oct. 7, 2011) (mem.) BAP certified question to Nevada Supreme Court: “May a judgment debtor claim exemptions under NRS 21.090 belonging not only to herself, but also to her non-debtor spouse?” Judge Riegle permitted the debtor spouse to assert the exemptions of her non-debtor spouse, relying on Judge Haines’ determination of the same under community property law in In re Perez, 302 B.R. 661 (Bankr. D. Ariz. 2003). Judge Riegle and the BAP noted a contrary, unpublished decision from Chief Judge Nakagawa in In re Rivas, Case No. 08-16253.



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U.S. District Court (bankruptcy appeals) Ground Improvement Techniques, Inc. v. The Plan Comm. (In re Washington Group Int’l, Inc.), 460 B.R. 280 (D. Nev. 2011) (Reed, J., rev’g Zive, J.) (appeal filed) Holding that although Appellant/Creditor cannot collect postpetition interest from Debtor under Section 502(b)(2), the restriction does not prohibit collection from third-party obligor under Section 524(e). Judge Reed had previously held on appeal in from the same bankruptcy case that a tort claimant cannot recover interest on its claim from debtor’s insurer. Hathaway v. Raytheon Eng’rs & Constructors, Inc. (In re Washington Group Int’l, Inc.), 432 B.R. 282 (D. Nev. 2010). The ruling below was premised at least in part on Judge Reed’s prior decision. However, Judge Reed’s new opinion effectively overrules his prior decision, currently on appeal before the Ninth Circuit. Judge Reed discusses the policy rationale to limit postpetition interest to undersecured creditors, and not to limit to oversecured creditors. Based on the creditor’s right to collect the judgment from a third-party source, he held that the creditor could collect the interest from the third-party source because such collection has no effect on the estate. California v. Villalobos, 453 B.R. 404 (D. Nev. 2011) (Reed, J., rev’g Peterson, J., sitting by designation in Reno) (appeal filed), amending 2011 WL 2532464 (June 24, 2011) Judge Reed held that the state’s civil prosecution of Debtor for securities fraud, unlicensed securities sales, and unfair competition fell within police power and is exempted from the stay. § 362(b)(4). He held that the Bankruptcy Court shall not consider the merits of the underlying litigation. The Bankruptcy Court has limited jurisdiction, and a determination of the merits should be made by the court with the litigation. Additionally, the state did not need to show either an urgent need to protect public safety, or that there is the risk of ongoing or future harm, to qualify for the exemption. Judge Reed held that because the state’s action primarily seeks to protect the public safety and welfare, it satisfies the Circuit’s pecuniary purpose test to be exempted from the automatic stay. Although the state’s action seeks civil penalties, Judge Reed held that it qualifies for the exemption because of the deterrent effect in the government’s prosecution. Finally, Judge Reed held that the litigation is not for the benefit of private rights (just for the benefit of the members of CalPERS allegedly harmed by the misconduct), but that the state seeks to protect the public by prosecuting the Debtor.



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Shapiro v. Henson (In re Henson), 449 B.R. 109 (D. Nev. 2011) (Reed, J., aff’g Riegle, J.) (appeal filed) Judge Reed affirmed that to compel a Chapter 7 debtor to turn over the value of non-exempt funds under Section 542(a), a debtor must be in possession of the funds when the motion is filed. Debtor scheduled non-exempt funds but did not turn them over in response to trustee’s demand. Appeal reflects that Debtor wrote checks prepetition. The Bankruptcy Court held that the funds were property of the estate. However, because they were cashed postpetition prior to filing of trustee’s motion, the trustee could not compel Debtor to turn over funds since Debtor was no longer in possession. The District Court noted that the Ninth Circuit has not ruled on whether Debtor must have possession to compel turnover of the value, and that other circuits are split. The District Court adopted the possession requirement, noting that a trustee can obtain recovery from the recipient under Section 549. The District Court also noted that the terms of Section 542(a) suggest that possession is required; otherwise the trustee could obtain double recovery from Debtor and the entity in possession. The court noted that double recovery is prohibited in Section 550(d) under several statutory basis of recovery, without reference to Section 542(a). Goldberg v. Pagaduan (In re Pagaduan), 447 B.R. 614 (D. Nev. 2011) (Dawson, J.), aff’g in part & rem’g in part 429 B.R. 752 (Bankr. D. Nev. 2010) (Markell, J.) Judge Markell sanctioned appellant, counsel Randolph Goldberg. Judge Dawson affirmed: (1) consideration of testimonial evidence of debtor, even after Judge Markell withdrew his subpoena for debtor, as debtor testified voluntarily; (2) finding of forgery by appellant on debtor’s signature for credit counseling, based on factual deference to trial court and appellant’s responsibility for tasks delegated to staff; and (3) sanctions of almost $5,000 due to ineffective prior sanctions. Judge Dawson vacated the extension of sanctions issued in a prior case, as there was no evidence that appellant had violated the order from the earlier case. Garmong v. Chapter 7 Trustee, Case No. 3:11-cv-0357-LRH-VPC, 2012 WL 556267 (D. Nev. Feb. 21, 2012) (Hicks, J., aff’g Zive, J.) Judge Hicks affirmed the Bankruptcy Court’s denial of the Ch. 7 trustee’s motion to sell Debtor’s limited life estate to Debtor’s former husband for $2,500. Judge Hicks held that “the trustee did not have a transferable interest in the limited life estate because the trustee inherited only that interest held by the debtor in the subject property.” As the life estate provided by the divorce decree did not permit transfer except for the former husband’s purchase for $250,000, the trustee could not sell it to him for $2,500. Zante, Inc. v. Delgado (In re Zante, Inc.), Case No. 3:10-cv-00131-RCJ-WGC, 2012 WL 75848 (D. Nev. Jan. 10, 2012) (Jones, C.J., aff’g Zive, J.) Affirming order that required plan, for confirmation, to reclassify punitive claims to be removed from a class with 100% cramdown, to the general unsecured class with 100% payment. Based on 100% plan for unsecured creditors, there were no creditor objections or policy rationale based on the dilution of other creditor rights with the payment of a punitive award against the debtor. Diminished capital of reorganized debtor does not justify treatment in 100% cramdown class. District Court also rejected arguments about uncertainty that punitive claims that had not reached judgment might produce a gift to those claimants. However, this creditor already had a judgment, so there was no uncertainty about the amount owed to him.



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IBM Lender Bus. Process Servs., Inc. v. Sloane, Case No. 2:11-cv-00712-RLH-CWH, 2011 WL 6887723 (D. Nev. Dec. 29, 2011) (Hunt, J., rev’g Markell, J.) Appellant/Lender recorded prepetition notice of default. Appellee/Debtor filed Ch. 13 petition and confirmed plan, but failed to cure arrearages or make post-confirmation payments. Bankruptcy Court granted stay relief but held that lender must rescind prior NOD and record a new one. Judge Hunt held relief from the automatic stay returns the parties to their original positions. Because debtor did not make postpetition payments and had not received his discharge with a completed plan, the prepetition arrearages were not cured or discharged. Bank of Am., N.A. v. Landis, Case No. 2:11-cv-1338-RCJ-PAL, 2011 WL 6104495 (D. Nev. Dec. 7, 2011) (Jones, C.J., aff’g & rev’g in part Markell, J.) Judge Jones affirmed that Office of the U.S. Trustee is a party in interest with standing to take a Rule 2004 examination pursuant to the broad regulatory language in 11 U.S.C. § 307. However, he reversed on the scope of the examination. The UST’s discovery extended to the bank’s policies and practices in filing proofs of claims. Bankruptcy Court had found the matter at hand exceeded the scope of the debtor-creditor relationship, and that the UST could use Rule 2004 as a regulatory tool to inquire beyond the debtor-creditor relationship. Judge Jones held that this was the incorrect standard, and that Bankruptcy Court abused its discretion in denying the motion to quash the subpoena and motion for reconsideration. Judge Jones held that UST has an interest in regulating matters in particular bankruptcy proceedings, so proper standard is whether examination will produce discoverable information in case at hand. Shapiro v. Henson (In re Henson), Case No. 2:10-cv-00726-ECR-GWF, 2011 WL 5373984 (D. Nev. Nov. 7, 2011) (Reed, J.) Judge Reed held that he had jurisdiction to decide motion for attorney’s fees on appeal, even when his appellate decision was up on appeal to the Ninth Circuit. He denied the motion as prevailing party did not identify any authority for award of fees. Prevailing property improperly attached bill of costs to motion, so court granted leave to file proper application for costs under L.R. 54-1 since the motion with bill was filed within the time permitted. Cloobeck v. Cory (In re Cloobeck), Case No. 2:10-cv-1278-GMN-PAL, 2011 WL 2550622 (D. Nev. June 23, 2011) (Navarro, J., aff’g Markell, J.) Judge Navarro affirmed Trustee’s sale of claims against Appellant, who objected on the grounds that Trustee had settled the claims with court-approved sale. Judge Navarro held that while there was a prior settlement, the current sale may encompass claims that arose from the prior settlement or accrued after it. Appellant still has the same rights under the settlement agreement should the purchaser pursue the claims. Judge Navarro also held that potential for additional litigation was speculative. Sale was within Trustee’s authority, even if subject to a settlement agreement. Cloobeck v. Cory (In re Cloobeck), Case No. 2:10-cv-1278-GMN, 2011 WL 1899306 (D. Nev. May 19, 2011) (Navarro, J.) Judge Navarro denied appellants’ motion to expand the record. Appellant sought to include a deposition transcript to rebut allegations in the answering brief. Although Judge Navarro noted “somewhat persuasive arguments” to expand the record based on other circuits’ precedents, she denied the motion under Ninth Circuit precedents. The transcript was not in the record, and it was not material because the Bankruptcy Court did not rule based on the appellee’s allegation. Judge Navarro also denied appellee’s



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motion to amend the answering brief. Appellee did not cite authority for amendment. She noted that the court is on notice on the conflicting arguments, and an amendment would only delay the appeal. Page Ventures, LLC v. Ventura-Linenko (In re Ventura-Linenko), Case No. 3:10-cv-138-RCJ-RAM, 2011 WL 1304464 (D. Nev. April 1, 2011) (Jones, J., aff’g McManus, J., sitting by designation in Reno) Debtor filed sanctions motion for violation of automatic stay. Appellant bought debtor’s house through foreclosure and initiated foreclosure, all prepetition. Debtor then filed Chapter 13 petition. Debtor twice warned owner that continued eviction violated automatic stay before owner stopped proceedings. Court awarded $350 in attorneys fees for warning actions before new owner changed course; $3,850 for debtor’s emotional distress; and $3,500 in punitive damages for new owner’s continued course of conduct. New owner appealed award of damages for emotional distress and punitives; debtor appealed amounts awarded for attorneys fees, emotional distress and punitives. Judge Jones affirmed attorneys fees are limited to costs in defending against violation, not in prosecuting claim. Sternberg v. Johnston, 595 F.3d 937 (9th Cir. 2010). He also affirmed right to emotional distress damages and amount awarded based on factual record. In re Dawson, 390 F.3d 1139 (9th Cir. 2004). He also affirmed in the award and amount of punitives based on limited conduct of owner’s counsel. Ambac Assurance Corp. v. Las Vegas Monorail Co. (In re Las Vegas Monorail Co.), Case No. 2:10-cv-678-JCM-LRL, 2011 WL 1113343 (D. Nev. March 25, 2011) (Mahan, J.) Judge Mahan previously denied Appellant’s motion to treat appeal from bankruptcy court, as a notice of appeal as a matter of right under the collateral order doctrine. He had held appealed order was not final and denied as moot a motion for certification for direct appeal to circuit. Appellant moved for reconsideration on the direct appeal, asserting District Court lacked jurisdiction based on prior orders, and the motion should be determined by the Bankruptcy Court. Judge Mahan held any court “involved” has jurisdiction to decide whether to certify a direct appeal. 28 U.S.C. § 158(d)(2)(A). He also held the matter was pending and docketed in District Court under Rules 8001, 8007.

U.S. District Court (litigation) Cannata v. Wyndham Worldwide Corp., 798 F. Supp.2d 1165 (D. Nev. 2011) (Pro, J.) When Plaintiff/Debtor failed to timely disclose her litigation claim in her bankruptcy, Judge Pro declined to judicially estop the prosecution. But he limited recovery to amounts paid to her creditors, with no funds to Plaintiff. Judge Pro discusses the still-developing standards of judicial estoppel, including their application in bankruptcy. Plaintiff knew of claims against Defendant when she filed Chapter 13 petition. Her civil counsel advised her to amend her schedules to disclose the claim. She twice contacted bankruptcy counsel to do so but was told it was not necessary. When Defendant filed motion for summary judgment based on failure to disclose asset, her bankruptcy counsel filed an amended schedule … two-and-a-half years after filing the bankruptcy case and the initial request to amend from Debtor. Plaintiff did not take enough steps to disclose the litigation claim and policy disfavored right to such a late amendment, but policy also disfavored judicial estoppel because it would only harm her creditors. In contrast, Judge Pro judicially estopped other plaintiffs from pursuing their claims undisclosed in their bankruptcy filings. They did not oppose Defendant’s motion for summary judgment. Because they filed Chapter 7 cases, they had sufficient incentive to conceal the claims. They also derived an unfair benefit, in the absence of amended bankruptcy schedules, because any award would go to them, not their creditors.



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3685 San Fernando Lenders, LLC v. Compass USA SPE LLC (In re USA Commercial Mortgage Co.), 802 F. Supp.2d 1147 (D. Nev. 2011) (Jones, J.) Judge Jones entered final judgment for plaintiffs on the management of the loan-servicing agreements acquired from Debtor USA Commercial. The decision emphasizes that when a debtor sells assets under Section 363, the buyer only acquire whatever rights were held by the debtor. In this case, the District Court held that Debtor never had the rights that the buyer/servicer exercised against the plaintiffs/lenders. Beyond that, the opinion discusses the law concerning loan servers, agency, claims related to the management of the loans, punitive damages, and attorneys fees. Burton v. Infinity Capital Mgmt, Case No. 2:11-cv-1129-RCJ-PAL, 2012 WL 607417 (D. Nev. Feb. 24, 2012) (Jones, C.J.) District Court held that creditor’s counsel violated the automatic stay by attempting to proceed in action to interplead debtor’s settlement funds owed to secured creditors. Damages are limited to attorney’s fees and costs in preparing this complaint and bringing it to court. Creditor’s counsel was not entitled to quasi judicial immunity because he volunteered in violation of the stay to prepare state court’s order to show cause; counsel had a duty not to prepare or present the order. District Court granted summary judgment for state court judge based on judicial immunity. State court acted in excess of jurisdiction by attempting to require debtor’s counsel tin interplead the funds and directing creditor to prepare an order to show cause. Immunity applied because he did not act in clear absence of jurisdiction. Adams v. Silar Advisors, LP, Case No. 3:11-cv-00120-RCJ-VPC, 2012 WL 505860 (D. Nev. Feb. 15, 2012) (Jones, C.J.) Nearly 1,200 individual lenders brought action against entities and individuals who acquired servicing rights on their loans in the USA Commercial bankruptcy case. The action follows up to another action that was originally initiated as an adversary proceeding adjunct to the bankruptcy case. Some defendants moved to dismiss for lack of personal jurisdiction. District Court held that “there is personal jurisdiction over all Defendants via the nationwide service of process rules applicable in bankruptcy jurisdiction cases, see Fed. R. Bankr. P. 7004(f), and there is related-to bankruptcy jurisdiction in this case under 28 U.S.C. § 1334(b). A federal court may consistent with due process summon any party present in the United States thereto for the determination of a matter implicated federal-question jurisdiction. E.g., Robertson v. Railroad Labor Board, 268 U.S. 619, 622 (1925).” Aniban v. IndyMack Bank, F.S.B., Case No. 2:11-cv-1912-JCM-PAL, 2012 WL 292337 (D. Nev. Jan. 31, 2012) (Mahan, J.) Granting defendants’ motion to dismiss due to judicial estoppel. Plaintiffs had filed Chapter 7 petition and did not schedule prepetition claims related to their loan origination and home foreclosure. Brinko v. Rio Props., Inc., Case No. 2:10-cv-00930-PMP-PAL, 2012 WL 275251 (D. Nev. Jan. 31, 2012) (Leen, J.) In action brought by bankruptcy trustee, court considered amount of discovery sanctions against trustee. The Court did not find persuasive the trustee’s arguments that the fees should not be allowed because the estate as extremely insolvent, with more than $2 million in professional fees approved but unpaid. The Court noted the trustee decided to file the action, requiring Defendant to incur significant costs. The Court delayed enforcement and permitted the sanction to be a setoff against any judgment against Defendant.



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Henry v. Lennar Corp., Case No. 2:09-cv-02105-PMP, 2012 WL 194408 (D. Nev. Jan. 23, 2012) (Ferenbach, J.) District Court denied motion to continue discovery deadlines filed by third-party defendant/debtor. Party had failed to answer or appear for six months before filing bankruptcy, and failed to do the same even after the bankruptcy court entered orders modifying, then terminating, the automatic stay. Grantham v. Timothy Cory & Assocs., Case No. 2:11-cv-01569-PMP-VCF, 2012 WL 174398 (D. Nev. Jan. 20, 2012) (Pro, J.) District Court granted bankruptcy trustee’s motion to refer complaint to Bankruptcy Court. Complaint alleged claims against trustee including assertions that trustee did not have rights in certain property. Judge Pro held such allegations are core proceedings arising from his administration of estate. Additionally, request to appoint a receiver over property is a de facto replacement of the trustee, and such a challenge of trustee’s authority over property is a core proceeding. Momentum Telecom, Inc. v. Peering Partners Commc’ns, LLC, Case No. 2:11-cv-01336-KJD-CWH, 2012 WL 115584 (D. Nev. Jan. 13, 2012) (Dawson, J.) Plaintiff and defendants reached agreement to purchase assets from debtor, and sale was approved by bankruptcy court. Plaintiff filed state court action, alleging breach of contract on purchase agreement. Defendant removed, and plaintiff moved for remand. Judge Dawson rejected defendants’ argument that complaint was a core proceeding or related to the bankruptcy. Defendants asserted a right or defense of recoupment for amounts due it by Plaintiff or the bankruptcy estate, based on a prior memorandum of understanding between defendants and debtor. Court held that plaintiff bought assets free and clear. If defendants had pre-sale claim against debtor, they could bring it against debtor. But current matter between non-debtors is not a core proceeding. Judge Dawson also held inapplicable arguments that the purchase agreement did not fall within the assumption and assignment of contracts under Section 365. Judge Dawson held litigation was not related to bankruptcy. Defendants erred by focusing on whether the litigation had “any conceivable effect” on the bankruptcy estate. He held it did not, since there are no claims against debtor. Judge Dawson also held that there is no “close nexus” between the litigation and the plan, since the case involves non-debtor parties to a properly assigned contract. Court rejected defendant’s claim of federal jurisdiction over core proceeding. Affirming order overruled objection to exemption. Creditor objected that IRAs were funded from plan that was not qualified under IRC, and therefore IRAs were not exempted under Arizona law. BAP held Bankruptcy Court did not err when he ordered Debtors to participate in IRS’s voluntary compliance program, which permitted retroactive corrections to certain plan deficiencies that existed on petition date. Finding no controlling law, BAP cited rulings on homesteads that recognized right on petition date and permitted recording of exemption document postpetition. Cortinas v. State of Nev. Housing, Case No. 2:11-cv-01480-KJD-RJJ, 2011 WL 6936340 (D. Nev. Dec. 30, 2011) (Dawson, J.) Holding that the docket and filings from Plaintiffs’ previous bankruptcy case in Nevada are publicly recorded documents entitled to judicial notice under FRE 201(b) and may be considered on dismissal.



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Lagos v. Monster Painting, Inc., Case No. 2:11-cv-00331-LRH-GWF, 2011 WL 6887116 (D. Nev. Dec. 29, 2011) (Hicks, J.) Automatic stay for one codefendant/debtor did not prevent District Court from ruling on motion to dismiss as to other codefendants/nondebtors. CML-NV Civic Ctr., LLC v. Gowan Ind., LLC, Case No. 2:11-cv-00120-PMP-PAL, 2011 WL 6752406 (D. Nev. Dec. 23, 2011) (Pro, J.); CML-NV Two, LLC v. Teco Commons, LLC, Case No. 2:11-cv-00121-PMP, 2011 WL 6752568 (D. Nev. Dec. 23, 2011) (Pro, J.) Judge Pro entered final judgments on default judgments against borrowers although action is stayed against co-defendants guarantors/debtors. Gonzles v. Desert Land, LLC, Case No. 3:11-cv-00613-RCJ-VPC, 2011 WL 6140671 (D. Nev. Dec. 9, 2011) (Jones, C.J.) Judge Jones interpreted plan he confirmed prior to his District Court appointment. He granted summary judgment to defendants, holding plan did not explicitly provide plaintiff with a lien or establish intent to create an equitable lien. Kaplan v. Rivera (In re Kaplan), Case No. 3:11-cv-00772-RCJ-VPC, 2011 WL 6140683 (D. Nev. Dec. 9, 2011) (Jones, C.J.) Chapter 11 DIP filed adversary proceeding asserting negligence against owners of dog that attacked him. Defendants moved to dismiss and demanded determination by Article III judge, so reference was withdrawn. Judge Jones held Plaintiff/Debtor sufficiently plead claim of negligence regardless of effect of Washoe County ordinances. Richard & Sheila J. McKnight 2000 Family Trust v. Barkett, Case No. 2:10-cv-1617-RCJ, 2011 WL 3159137 (D. Nev. July 26, 2011) (Jones, C.J.), staying in part, 2011 WL 6102956 (Dec. 7, 2011) District Court dismissed claim for declaratory relief “related to” Asset Resolution bankruptcy, when same issues are being litigated as part of concurrent state court proceeding. Although District Court has original jurisdiction, it does not have exclusive jurisdiction over “related to” claim. District Court declined to permit issues to be litigated simultaneously in state and federal courts, where the first to resolve them will be preclusive on other court. Denying motion to dismiss for lack of standing, Judge Jones surmised that plaintiffs retained their interest in notes and guaranties, but transferred rights in deed of trust securing obligation under note. Plaintiffs still had standing to sue on notes and guaranties. However, in dicta, Court noted that borrower cannot suffer a default under deed of trust since the holder of the deed does not have an interest in the note. Awarding attorney’s fees for breach of guaranty. Plaintiff trust is liable to law firm. Although principal in law firm is also beneficiary and trustee of trust, he is not sole beneficiary so it is not a true case of a pro se attorney that might not be entitled to fees. Fees reduced based on amount at issue in case. Willis v. Federal Nat’l Mortgage Assn., Case No. 2:11-cv-00777-KJD-GWF, 2011 WL 5854686 (D. Nev. Nov. 18, 2011) (Dawson, J.)



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Granting motion to dismiss former homeowner’s complaint for quiet title. Plaintiff asserted that mortgage debt was discharged in Chapter 7 case. However, bankruptcy record reflects that stay was lifted to permit foreclosure and foreclosure happened post-petition. Therefore, former homeowner did not have superior title to pursue quite title. Voga v. U.S. Bank, Case No. 3:11-cv-316-RCJ-VPC, 2011 WL 5180978 (D. Nev. Oct. 27, 2011) (Jones, C.J.) Plaintiffs moved to remand. Plaintiffs first alleged improper removal, as removing party did not obtain consent from codefendant who filed Ch. 13 petition and received summons. Judge Jones held removal still proper because service of summons on debtor was defective, and removing party did not need to obtain debtor’s consent. Judge Jones also rejected plaintiffs’ arguments that debtor’s consent was necessary because he had appeared in case by filing a notice of his bankruptcy. The notice simply notified the court that debtor need not appear. Trustees of the Construction Industry & Laborers Health & Welfare Trust v. Vasquez, Case No. 2:09-cv-02231-LRH-GWF, 2011 WL 4549228 (D. Nev. Sept. 29, 2011) (Hicks, J.) Granting motion to dismiss creditor claims against alleged alter ego of debtor, on grounds that alter ego claim belongs to debtor’s estate. Holding that estate has equitable interest in assets of its alter ego, and creditor lacks standing to pursue claim. Also granting motion to dismiss in part against principal of debtor, who had fiduciary responsibility for ERISA contributions. Judge Hicks limited liability until date of bankruptcy petition because creditor did not make any showing that principal had any control of debtor after filing of petition. Bruce v. Homefield Fin., Inc., Case No. 2:10-cv-2164-KJD-PAL, 2011 WL 4479736 (D. Nev. Sept. 23, 2011) (Dawson, J.) Plaintiff bought home in 2006, filed Chapter 7 petition in 2009 and received discharge that year. When lender pursued foreclosure on residence, Plaintiff filed action with claims of predatory lending and violations of TILA. Claims dismissed because they were not scheduled as assets in bankruptcy and cannot now be brought by debtor. Thompson v. American Family Mut. Ins. Co., Case No. 2:09-cv-905-JCM-RJJ, 2011 WL 3585478 (D. Nev. Aug. 12, 2011) (Mahan, J.), reconsideration denied, 2011 WL 4729867 (Oct. 5, 2011), granting first fee application, 2011 WL 3651367 (Aug. 18, 2011), granting in part second fee application, 2011 WL 4729873 (Oct. 5, 2011) After two years of litigation, Plaintiff disclosed that he had filed Chapter 7 bankruptcy the same day he filed lawsuit. Plaintiff failed to schedule Defendant as a creditor. But Plaintiff filed a no-asset case, and discharge injunction applies regardless of whether debt was disclosed under Ninth Circuit precedence. Therefore, District Court granted Defendant’s request to dismiss counterclaims with prejudice. District Court also denied Defendant’s motion for summary judgment as to Plaintiff’s claims, but dismissed claims with prejudice because bankrupt Plaintiff lacked standing. The District Court declined to rule on whether the trustee would be judicially estopped from pursuing claims. District Court used inherent authority to sanction Plaintiff for allowing case to proceed for two years before disclosing bankruptcy. Plaintiff ordered to pay Defendant’s fees and costs in defending claims and prosecuting counterclaims. Award of attorneys fees is not subject to automatic stay because it occurred



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after Plaintiff filed his bankruptcy petition. But Defendant/Counter-Claimant must obtain relief from automatic stay if it seeks to satisfy judgment from property of the estate. Defendant sought $257,000 in fees, which it asserted was only a third of its costs in case. The District Court was unable to review more than 200 pages of attorney invoices. But Court exercised discretion to reduce award to $125,000. He reduced the amount due to amount awarded as prior sanctions; substantial sums involving co-plaintiff not sanctioned; and overbilling and duplicative work. Plaintiff sought reconsideration of sanction order on grounds that schedules and statements were sent to Defendant’s corporate headquarters. District Court rejected assertion on grounds that an affiliate of Defendant was listed on schedules or statements, so the mailing to the affiliate at the corporate headquarters did not constitute notice. Also rejected assertion that it constitutes new evidence. Corbo v. Fidelity Fed. Fin’l Servs. Corp., Case No. 2:10-cv-316-GMN-LRL, 2011 WL 3300336 (D. Nev. Aug. 1, 2011) (Navarro, J.) Third-party defendant United Financial filed bankruptcy petition. Judge Navarro held that third-party plaintiff Fidelity Financial may file amended complaint against other third-party defendants so long as it does not alter allegations against debtor/third-party defendant. Third-party plaintiff also may respond to motion to dismiss filed by non-debtor without violating automatic stay. Foley v. Wells Fargo Bank, N.A., Case No. 3:10-cv-702-RCJ-VPC, 2011 WL 2689250 (D. Nev. July 5, 2011) (Jones, C.J.), reconsideration denied, 2011 WL 3022528 (July 22, 2011), granting summary judgment, 2012 WL 75949 (Jan. 10, 2012)

Plaintiff was collaterally estopped by prior bankruptcy decision to contest the propriety of the notice of default (“NOD”) utilized for foreclosure. Plaintiff brought action for wrongful foreclosure and sought injunction. DOT Trustee recorded NOD before Plaintiff’s bankruptcy. Judge Tchaikovsky eventually terminated the stay to allow foreclosure, specifically referencing the prepetition NOD. After foreclosure, Plaintiff brought action alleging trustee needed to record a new NOD after bankruptcy. NRS 107.080(2)(c). But Plaintiff did not challenge Judge Tchaikovsky’s order terminating the stay, such order was final, and could not be collaterally attacked in the wrongful foreclosure case. On reconsideration, Plaintiff alleged Defendant waived rights to foreclose by accepting payments. The District Court held that even if that legally constituted waiver, the payments were authorized as adequate protection by Judge Tchaikovsky’s prior to her order granting relief for foreclosure. Arguments about the payments should have been directed to her, and they constitute an impermissible collateral attack raised in the District Court. Nevada v. Bank of Am. Corp., Case No. 3:11-cv-135-RCJ-RAM, 2011 WL 2633641 (D. Nev. July 5, 2011) (Jones, C.J.) District Court denied motion to remand state action concerning Defendants’ conduct over requested mortgage modifications. Among Defendant’s arguments: There is bankruptcy “related to” jurisdiction, 11 U.S.C. § 1334(b), because some individual Nevadans affected by action have filed bankruptcy petitions. Judge Jones rejected this argument as speculative and held that the state’s enforcement action was exempt from bankruptcy jurisdiction.



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Flynn v. Liner Grode Stein Yankelevitz Sunshine Regenstreif & Taylor LLP, Case No. 3:09-cv-422-PMP-RAM, 2011 WL 2847712 (D. Nev. July 15, 2011) (Pro, J.), citing id., 2010 WL 4339368 (D. Nev. Oct. 15, 2010) (Pro, J.) Action between former and successor counsel. Former counsel obtained judgment against client for $600,000 in unpaid attorneys’ fees. Former counsel sought recovery against successor counsel for abuse of process and related causes, on theory that former counsel “lost” the judgment due to common client’s bankruptcy. District Court held that successor counsel did not cause the loss; the judgment simply was uncollectable because of bankruptcy. District Court previously struck allegations of “lost” funds, holding they did not constitute damages and were not recoverable as a matter of law against successor counsel. Hong v. McMillan, Case No. 2:11-cv-195-GMN-RJJ, 2011 WL 2160266 (D. Nev. June 1, 2011) (Navarro, J.) Granting motion to dismiss appeal for failure to file response required under District Court local rules and based on evaluation of factors, including likely dismissal due to untimely notice of appeal. Villa v. Silver State Fin. Servs., Inc., Case No. 2:10-cv-2024-LDF-LRL, 2011 WL 1979868 (D. Nev. May 19, 2011) (George, J.) Plaintiffs judicially estopped from pursuing foreclosure-related claims because they did not disclose claims or contest debts in previous bankruptcy. South Edge LLC v. JPMorgan Chase Bank, N.A., Case No. 2:11-cv-240-PMP-RJJ, 2011 WL 1626567 (D. Nev. April 28, 2011) (Pro, J.) (appeal filed) Debtor appealed after Judge Markell entered an order for relief in an involuntary with a Chapter 11 trustee. Debtor’s members moved to intervene and filed their own appeal. Judge Pro granted trustee’s motion to dismiss the appeals. In a matter of first impression in the circuit, Judge Pro held that a corporate debtor in a Chapter 11 involuntary cannot prosecute an appeal through ousted management where a trustee has been appointed and objects to the appeal. He adopted the reasoning of the only applicable circuit opinion, In re C.W. Mining Co., 636 F.3d 1257 (10th Cir. 2011). Once the trustee is appointed, management is ousted and cannot usurp the corporation’s right to appeal, which is controlled by the trustee. Although Debtor in Possession held the power to appeal prior to the appointment of the trustee, the trustee was substituted in all matters after appointment. Judge Pro rejected arguments about separation between debtor and debtor in possession; constitutional concerns; and divestment of jurisdiction by notice of appeal. As to the members’ appeal, Judge Pro held they were not aggrieved because they did not object to the motion to appoint a trustee, join in Debtor’s opposition, or participate in the hearings. Lattig v. 820 Mgmt. Trust (In re Lake at Las Vegas Jt. Venture, LLC), Case No. 2:10-cv-1679-GMN-PAL, 2011 WL 1303216 (D. Nev. March 31, 2011) (Navarro, J.) Judge Navarro denied Defendants’ motion to withdraw the reference in adversary proceedings. The creditor trust alleged Defendants received $470 million in a fraudulent conveyance from loan proceeds. Defendants argued that they are entitled to a jury trial, and there are non-core causes of action that will be subject to de novo review. The creditor trust responded that the Bankruptcy Court is familiar with the issues and has expertise to handle pretrial matters in bankruptcy cases. District Court held that the case involved claims best dealt with by the bankruptcy court. Bankruptcy Court’s jurisdiction also ensures uniformity, judicial economy and efficiency. The motion was denied without prejudice to seek withdrawal for a jury trial.



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U.S. Bankruptcy Court, District of Nevada Lattin v. Midland Mortgage Co. (In re Lattin), 461 B.R. 832 (Bankr. D. Nev. 2011) (Markell, J.) Holding that court has power under Section 105 to stay creditor actions if automatic stay has lapsed under Section 362(c)(3). Debtors’ first case was dismissed for failure to file schedules. They refilled but did not seek to extend the automatic stay. In adversary, debtors sought Section 105 injunction to prevent foreclosure. Lender opposed since automatic stay terminated. Judge Markell disagreed, noting difference between stay and Section 105 injunction; the applicability of injunction even if creditor has received stay relief; and specific nature of the requested injunction, with the protections for creditor in adversary proceeding and debtor’s requirements to satisfy equitable standards. In re Las Vegas Monorail Co., 462 B.R. 795 (Bankr. D. Nev. 2011) (Markell, J.) Judge Markell denied confirmation, holding Debtor failed to show feasibility and “drop dead” liquidation clause did not save plan. The Court noted distinct requirement of feasibility even with creditor consent. §§ 1129(a)(8), (11). Debtor called for debt still more than twice value of Debtor; annual accounting losses of at least $15 million over next seven years; and underfunded plan by $38.4 million. Court rejected Debtor’s contingencies to increase performance. Experts testified contingencies were not in the plan because they were not supported by facts at hand; the Court rejected later testimony that contingencies were more likely than not to occur. Court also considered alternative analysis of six feasibility factors from Trans Max Technologies, but held plan still failed to meet them. Court explicitly rejected feasibility based on a liquidation option. Debtor “asks the court to allow it to float along until it sinks, suggesting that when it ultimately sinks, the court need not concern itself with how creditors will make it onto the life raft—or even whether there will be a life raft available.” Finally, Court rejected Debtor’s arguments that it is a socially responsible transit system whose community contributions exceed costs; that is not standard for feasibility. In re Smith, 462 B.R. 783 (Bankr. D. Nev. 2011) (Markell, J.) Judge Markell held debtor’s counsel in civil contempt. Counsel already had history of sanctions and noncompliance, and Court already had banned counsel from filing new cases. But counsel electronically filed a new case with a third-party counsel’s electronic signature. Third-party attorney never signed papers or authorized filing with his signature. Counsel sanctioned with one-year bar on filing new cases, subject to petition after then to file new cases. Matter referred to state bar and U.S. Attorney. Herzog v. Zyen, LLC (In re Xyience Inc.), Adv. No. 09-1402-MKN, 2011 WL 5239666 (Bankr. D. Nev. Oct. 28, 2011) (King, J., sitting by designation in Las Vegas) Bankruptcy Court found Defendants engaged in willful, bad faith discovery behavior, and imposed monetary sanctions for Plaintiffs’ expenses, costs, and reasonable attorney’s fees. Bankruptcy Court exercised inherent authority because sanctions were not authorized by rule for evasive discovery conduct. In re Schivo, 462 B.R. 765 (Bankr. D. Nev. 2011) (Markell, J.) Judge Markell sanctioned debtor’s counsel for filing motions based on a bogus press release dated April 1, and therefore not supported by legal authority under Rule 9011. Debtor’s counsel had been sanctioned for failure to timely file petitions prior to the effective date of BAPCPA. Five years later, he reopened a case and moved to have it set aside based on a release stating the president altered the time to file petitions tied to



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BAPCPA. When neither counsel nor Court could find any evidence of the purported change, the Court sanctioned counsel with the publication of this opinion, limitations on counsel’s ability to practice in bankruptcy court, and referral to the State Bar. In re Franklin, 459 B.R. 463 (Bankr. D. Nev. 2011) (Markell, J.) Any amendments to a Chapter 13 plan require at least 28 days’ notice prior to confirmation to comply with the requirements of Rule 2002(b)(2). Local practice developed so that negotiations and amendments occur up to the day before the confirmation hearing, and the plan may be confirmed if there are no objections. Judge Markell held the practice does not provide due process to creditors whose distributions are affected by the amendment. Section 1323(a) permits debtor to modify plan at any time. But the Code is silent as to what notice must be given and when it must be given. Judge Markell notes that Collier, Judge Lundin’s treatise, and case law call for a new notice period following a modification to comply with Rule 2002(b) and Rule 2002(a)(5). Judge Markell also rejected arguments that the modifications are not material and do not require new notice. Although nonmaterial changes can be made in Ch. 11 under Rule 3019 with OST if necessary, same is not applicable in Ch. 13 since there is no balloting. In re Hotels Nev., LLC, 458 B.R. 560 (Bankr. D. Nev. 2011) (Markell, J.) Debtor and non-debtor affiliates received prepetition legal representation from one firm. The Ch. 7 trustee moved to compel the debtor’s then law firm to turnover information about its representation of debtor. § 542(e). The firm resisted, asserting Debtor and affiliates were joint clients entitled to attorney-client privilege. Judge Markell applied federal law under FRE 501. Judge Markell held that the privilege does not apply to prevent turnover of estate property to the trustee, as the trustee now holds the rights of Debtor. Judge Markell also held that the privilege only applies to prevent disclosure to a third party; once attorney and client (now trustee) have a dispute, there is no privilege to prevent disclosure to the client. Even if the privilege were applicable, the Bankruptcy Court found the privilege log to be fatally deficient. In re Las Vegas Monorail Co., 458 B.R. 553 (Bankr. D. Nev. 2011) (Markell, J.) Judge Markell disallowed (without prejudice) interim fees for professionals when redacted time entries did not describe the nature of services performed to allow the court to assess their reasonableness and necessity. The applications did not mention the redactions, but counsel at the hearing cited the attorney-client privilege. The redactions constituted 6% of one firm’s application for almost $10,000, and 13% of another firm’s application for $16,000. Judge Markell held Court has an independent duty to review fee application, and applicant has the burden of proving its fees are proper under Section 330. Counsel cannot meet that burden with redacted entries. The Court noted the possibility of seeking to seal the records under Section 107, Rule 9018 and FRE 104. In re Stanton, 457 B.R. 80 (Bankr. D. Nev. 2011) (Markell, J.) Judge Markell partially overruled Creditor’s objections to Debtor’s homestead exemption, but reduced the exemption. Debtor bought Nevada home in 2002 and lived there. She partially paid debt; was subject to Creditor’s judgment in 2008; sold non-exempt assets, transferred proceeds to her son, and had him pay off the home debt; and filed bankruptcy petition in 2010. Debtor recorded homestead exemptions in 2003 and in 2011. Debtor obtained Colorado driver’s license and registered to vote there in 2004; she reregistered in Nevada in 2008 and obtained license in 2009. Creditor argued Debtor didn’t qualify for Nevada exemptions because she did not reside in Nevada for 730 days before bankruptcy. Judge Markell held that exemption under Section 522 turns on the meaning of “domicile,” which involves both actual residence and intent. Although 2004 Colorado papers were signed under penalty of perjury, Judge Markell credited her testimony that she did not have actual intent to make Colorado her domicile. He further noted that the 2004



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statements were not preclusive as to the controlling date in 2008 that was 730 days prior to the bankruptcy petition; there was evidence of continued residence in Nevada from 2004-08; and Creditor conceded in state court filings that Debtor was a Nevada resident at least 730 days before the bankruptcy filing. Creditor also argued that there was no valid exemption on record because of Debtor’s departure from the state. Judge Markell overruled the objection because Debtor resided in Nevada with the necessary intent since 2002. Regardless, the Court held that the exemption recorded postpetition was valid because it was before any sale of the property. Myers v. Matley, 318 U.S. 622 (1943). The Court ruled that it was bound by that precedence, and the Bankruptcy Court had held the same in In re Zohner, 156 B.R. 288 (Bankr. D. Nev. 1993). Finally, the Court reduced the exemption by $89,000, the mortgage debt paid off in 2008 through the sale of nonexempt assets with the intent to hinder, delay or defraud her creditors. 11 U.S.C. § 522(o). Judge Markell held that Debtor could not avoid the statute by transferring the proceeds to her son to pay off the debt. He also found the timing of the liquidation to be a strong badge of fraud and discredited Debtor’s testimony since she did not reinvest the proceeds. Judge Markell held that Debtor’s claimed solvency does not absolve her of intent to defraud. Finally, her claimed reliance on professional advice did not absolve her of conduct that still hinders or delays creditors. In re Endoscopy Ctr. of S. Nev., LLC, 451 B.R. 527 (Bankr. D. Nev. 2011) (Nakagawa, C.J.) The Bankruptcy Court granted the trustee’s settlement motion between the Chapter 11 trustee and debtor’s insurance carrier. The opinion provides an extensive evaluation of settlement and insurance issues. In footnotes, the Bankruptcy Court excluded the declaration of Professor Stempel for a lack of evidence as a percipient or expert witness, suggesting he should have been retained as counsel to provide argument. The Bankruptcy Court also questioned the utility of the U.S. Trustee’s appointment of a creditor committee since it also appointed a trustee to protect creditor interests. In re Hyloft, Inc., 451 B.R. 104 (Bankr. D. Nev. 2011) (Nakagawa, C.J.) The Bankruptcy Court denied the trustee’s proposed asset sale and compromise of claims. The trustee sought to sell virtually all of debtor’s assets combined with the settlement of prepetition litigation. However, the Court held all the settling parties were insiders. In applying a heightened standard to evaluating a settlement and sale, it noted potential fraudulent conduct by the insiders prior to the bankruptcy. The court noted an absent of value for the prepetition transfer of debtor’s patent rights to another entity owned by Debtor’s principals, and that entity then licensed the rights to a third entity controlled by Debtor’s principals. Debtor’s principals also appear to have improperly acquired a security interest in Debtor’s assets. Although some factors favored settlement, an overwhelming majority of non-insider creditors opposed the settlement. The Court held that the trustee failed to identify or specify the risk factors in proceeding with the litigation; was unclear as to what claims would be released; and did not provide a financial valuation of certain assets. Given the missing information, the Bankruptcy Court held the settlement was not fair and equitable. The motion was denied without prejudice.



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In re Okosisi, 451 B.R. 90 (Bankr. D. Nev. 2011) (Markell, J.) Judge Markell confirmed a no-discharge Chapter 13 plan incorporating the avoidance of a wholly unsecured debt tied to the second deed of trust on Debtors’ primary residence. Debtors filed a Chapter 7 petition two years earlier and obtained a discharge a year before Chapter 13 petition. As a result, Debtors were not entitled to a discharge. But Judge Markell held Debtors still are entitled to lien avoidance on wholly unsecured second deed of trust, as there is no provision preventing the avoidance in the Code for a no-discharge case. Lien avoidance also remains viable because in a no-discharge case, the case is merely closed at the end of the repayment period rather than dismissed. The plan remains binding, and res judicata prevents a creditor’s collateral attack on the confirmation order. Judge Markell also held the petition was filed in good faith due to Debtors’ need to address the arrearage on their residence, tax obligations, and automotive payments.

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