Type: Amicus
Date: September 24, 2021
Description: Whether mortgage creditor committed sanctionable conduct when it engaged in “fee harvesting” practice.
Result: Pending
No Punitive Sanctions for Rule 3002.1 Violation
In a decision taking the teeth out of Rule 3002.1’s notice requirement, the Second Circuit found that the Rule does not permit imposition of punitive sanctions. PHH Mortgage Corp. v. Sensenich (In re Gravel), No. 21-1 (2d Cir. Aug. 2, 2021). In a well-reasoned dissent, Judge Bianco argued that the majority incorrectly limited the scope of sanctions available under the Rule.
These three consolidated cases (In re Gravel (21-1), In re Beaulieu (21-2), In re Knisley (21-3)) came before the bankruptcy court upon motions by the Trustee seeking sanctions against PHH for assessing fees against the debtors, in 25 statements per debtor, without complying with the requirement in Rule 3002.1(c) that a mortgage creditor “shall file and serve on . . . the trustee a notice itemizing all fees, expenses, or charges” that the creditor “asserts are recoverable against the debtor” and serve this notice “within 180 days after the date on which the fees, expenses, or charges are incurred.” The trustee also sought sanctions for violations of the court’s Current Orders in the Gravel and Beaulieu cases. Those orders stated that the debtors, who had completed their plans, were current on their mortgages, and prohibited PHH from challenging that finding in “any other proceeding.” (The Knisleys had not yet completed their plan when the trustee filed for sanctions, so there was no similar order involved in that case). [Read more…] about No Punitive Sanctions for Rule 3002.1 Violation
Sanction Against Student Loan Servicer Exceeded Court’s Civil Contempt Power
The bankruptcy court’s contempt order against a student loan servicer requiring it to pay off the entire amount of the debtor’s student loan was punitive rather than compensatory or coercive and, therefore, the award exceeded the court’s civil contempt power. Great Lakes Educ. Loan Serv. Inc. v. Leary, No. 20-8050 (S.D.N.Y. June 22, 2021). [Read more…] about Sanction Against Student Loan Servicer Exceeded Court’s Civil Contempt Power
Sanctions Against Student Loan Servicer
A student loan servicing company’s failure, over the course of five years, to respond to an adversary complaint and multiple court orders justified a finding of contempt and sanctions against the servicer, requiring it to pay off the debtor’s student loans to the DOE for $354,629.62 and pay damages to the debtor for $24,000. Leary v. Great Lakes Educational Loan Services, No. 15-11583, Adv. Proc. No. 15-1295 (Bankr. S.D.N.Y. Sept. 8, 2020).
PHH Mortgage Corp. v. Sensenich (In re Gravel), 20-1, 20-2, 20-3 (2d Cir.)
Type: Amicus
Date: August 13, 2020
Description: Whether PHH was properly sanctioned for its fee harvesting practice.
Result: Judgment vacated and reversed. August 2, 2021
Dischargeability of Sanctions Against Attorney
State law discovery sanctions owed to a non-governmental entity for compensatory purposes do not fall under Section 523(a)(7)’s exception to discharge for fines or penalties, and are therefore dischargeable. Costs related to the State Bar’s disciplinary actions are owed to a governmental agency, are punitive rather than compensatory in nature, and are therefore excepted from discharge. Where the debtor’s law license suspension was contingent upon her paying nondischargeable costs, the suspension was not discriminatory in violation of Section 525(b). Albert-Sheridan v. State Bar of Calif., No. 19-60023 (9th Cir. June 10, 2020). [Read more…] about Dischargeability of Sanctions Against Attorney
UpRight Law Not Entirely Upright
The bankruptcy court did not abuse its discretion in imposing sanctions for violation of section 526(a) against UpRight law firm for statements in its Attorney Disclosures which were prohibited by an earlier settlement agreement and were therefore misleading. Law Solutions of Chicago, LLC v. Corbett, No. 19-11405 (11th Cir. Aug. 31, 2020). [Read more…] about UpRight Law Not Entirely Upright
Cert. Denied in Stay Case Involving Passive Conduct
The Supreme Court declined cert. in Davis v. Tyson Prepared Foods, No. 18-941 (May 20, 2019), a case out of the Tenth Circuit presenting the issue of whether section 362(a) applies when a creditor passively holds or obtains an interest in property of the debtor or the estate. The case involved a lien that arose automatically out of post-petition Worker’s Compensation payments made to the debtor. The trustee sought to avoid the lien as violating the automatic stay. The Tenth Circuit found that based on WD Equip., LLC v. Cowen (In re: Cowen), 849 F.3d 943 (10th Cir. 2017), section 362(a)(4), which prohibits “any act to create, perfect, or enforce any lien,” requires affirmative conduct on the part of the creditor. Here, because the lien was created by operation of law, there was no such affirmative conduct and the Tenth Circuit found no stay violation.
7th Circuit Rules Creditor Should be Held in Contempt for Jailing Discharged Debtor but No Contempt for Creditor’s Counsel
On August 13, 2019, the Seventh Circuit Court of Appeals reversed in part and affirmed in part the lower courts. On appeal, NACBA board member Tara Twomey submitted an amicus brief on behalf of the National Consumer Bankruptcy Rights Center (NCBRC) supporting the Debtor.
The facts underlying the case started in 2001. Jacqueline M. Sterling (“Debtor”) was sued in state court for approximately $520.00 in membership fees owed to Southlake Nautilus Health & Racquet Club (“Creditor”). The Creditor was represented by the law firm Austgen, Kuiper & Associates (“Creditor’s Counsel”). After obtaining a judgment in 2002, the Creditor’s Counsel filed a “proceeding supplemental” in state court to collect on the judgment. The Debtor did not appear at the collection hearings and ultimately the state court issued a “body attachment” (bench warrant) against Debtor to show cause for violating the court’s orders.
In 2010, the Debtor filed for bankruptcy protection and listed the Creditor but not the Creditor’s Counsel. The Debtor obtained a discharge. The Creditor was notified of the discharge but did not forward the discharge to the Creditor’s Counsel. Creditor’s Counsel did not know the discharge order.
In 2011, the Debtor had a flat tire and was assisted by the local police. The police discovered the bench warrant and the Debtor was arrested and held in jail for two days.
Subsequently, the Debtor sued the Creditor and Creditor’s Counsel in Bankruptcy Court for violation of the discharge injunction found in Section 524 of the Bankruptcy Code.
The Bankruptcy Court ruled in favor of the Creditor and Creditor’s Counsel. The Bankruptcy Court found the Debtor had failed to prove that the Creditor’s Counsel knew of the discharge when it continued collection proceedings. Further, the Creditor didn’t violate the discharge injunction because it was unaware of the status of the case against the Debtor, and that it didn’t direct Creditor’s Counsel to take any particular actions. The ruling was affirmed by the District Court.
To read more click here.
Bankruptcy Court Suspends Counsel for Changing Schedules After Signing. Employing “Trust But Verify” the Court “Peeked and Shrieked.”
It’s going to be a bad opinion when the judge brings up Pandora’s Box at the beginning of the
opinion and titles the last section of the opinion “This Is The End.”
On June 25, 2019, the Bankruptcy Court for the Southern District of Florida, in a 172-page opinion (including attachments), suspended an attorney from practice for two years before the Bankruptcy Court, terminated her CM/ECF privileges, referred the attorney to District Court’s attorney review committee and the Florida Bar with recommendations to disbar, and referred the attorney to the United States attorney for investigation.
The Debtor filed a Chapter 7 bankruptcy. He was represented by the Attorney. Neither the Debtor nor the Attorney attended the 341 meeting. Subsequently, the trustee filed an adversary objecting to the Debtor’s discharge under 11 U.S.C. § 727(a)(2), (3), and (4). The basis of the Trustee’s complaint was that the Debtor’s schedules indicated virtually no detail, were not consistent with other documents the trustee received (tax returns), and that required information was missing (missing lawsuit). In addition, the Trustee cited the Debtor’s and Attorney’s failure to attend the 341 meeting. When asked by the Trustee, the Attorney said they didn’t plan on proceeding and wanted the case dismissed.
Two days after the adversary was filed, the Attorney moved to withdraw as counsel for the Debtor. The Debtor, now pro se, stated to the Trustee that the schedules were not provided to him before filing and that he did not sign the schedules that were filed.
To read more click here.