On July 24, 2025, the National Consumer Bankruptcy Rights Center (NCBRC) and the National Association of Consumer Bankruptcy Attorneys (NACBA) filed an amicus curiae brief in the U.S. Court of Appeals for the Fourth Circuit in Goldman Sachs Bank USA v. Brown, No. 25-1439. The case concerns whether consumer debtors’ claims under 11 U.S.C. § 362(k)—seeking damages for willful violations of the automatic stay—must be resolved through private arbitration, rather than in the bankruptcy courts tasked with enforcing that stay.
[Read more…] about NCBRC and NACBA File Amicus Brief in the Fourth Circuit to Preserve Enforcement of the Automatic Stay in Brown v. Goldman SachsFourth Circuit Appeal in Goddard v. Burnett Examines the Role of Good Faith in Paying Secured Debts in Chapter 13 Plans
On July 16, 2025, the National Consumer Bankruptcy Rights Center (NCBRC) and the National Association of Consumer Bankruptcy Attorneys (NACBA) filed a joint amicus brief in the U.S. Court of Appeals for the Fourth Circuit in support of the debtor-appellant in Goddard v. Burnett, Case No. 25-1303. The case presents a critical question about the interaction between the statutory “means test” and the judicially interpreted “good faith” standard in Chapter 13 bankruptcy cases.
[Read more…] about Fourth Circuit Appeal in Goddard v. Burnett Examines the Role of Good Faith in Paying Secured Debts in Chapter 13 PlansFourth Circuit Affirms Post-Discharge Protections: Koontz Decision Preserves FDCPA Rights for Bankruptcy Debtors
In a major victory for consumer bankruptcy debtors and their advocates, the U.S. Court of Appeals for the Fourth Circuit reversed a troubling lower court decision in Koontz v. SN Servicing Corporation, holding that a mortgage servicer’s post-discharge collection efforts could still be subject to the Fair Debt Collection Practices Act (FDCPA), even where the debtor’s personal liability had been extinguished. This opinion affirms that a debtor’s in rem obligations after discharge are still “debts” under the FDCPA—and that debtors remain “consumers” protected by its provisions.
[Read more…] about Fourth Circuit Affirms Post-Discharge Protections: Koontz Decision Preserves FDCPA Rights for Bankruptcy DebtorsDoes Equitable Mootness Prevent Debtors from Appealing Confirmed Chapter 13 Plans?
The Fourth Circuit is set to decide a significant issue in Cook v. Gorman, a case that could determine whether the doctrine of equitable mootness prevents debtors from appealing the confirmation of a Chapter 13 repayment plan. At the heart of the case is whether equitable mootness—commonly used to dismiss appeals in complex Chapter 11 reorganizations—should apply to a straightforward Chapter 13 consumer bankruptcy case.
[Read more…] about Does Equitable Mootness Prevent Debtors from Appealing Confirmed Chapter 13 Plans?Debtor’s Right to Propose Chapter 13 Plans Affirmed by Fourth Circuit: Flexibility Over Local Form Defaults
Holding
The Fourth Circuit Court of Appeals reversed the district court’s decision, holding that Sheila Ann Trantham had standing to appeal the bankruptcy court’s ruling and that the bankruptcy court erred in denying confirmation of her Chapter 13 plan based on a local form’s vesting provision. The court affirmed that a debtor has the right to propose a Chapter 13 plan with provisions that may deviate from local form defaults, provided they comply with the Bankruptcy Code.
Facts
Sheila Ann Trantham filed for Chapter 13 bankruptcy and proposed a plan that included a provision for the property of the estate to vest in her upon plan confirmation. The bankruptcy court, however, required adherence to the local form plan, which mandated that property vest only upon the entry of the final decree. Trantham’s plan was rejected by both the bankruptcy court and the district court, leading to her appeal.
Analysis
The Fourth Circuit first addressed the issue of standing, analyzing whether Trantham had the constitutional standing to appeal. The court found that Trantham suffered an injury in fact because the bankruptcy court’s requirement to adhere to the local form plan increased her procedural burdens and restricted her control over her property. Specifically, under the local form, her property remained encumbered by creditor claims and required court approval for certain actions, such as selling property, which resulted in tangible harms including the potential for increased costs and procedural delays. The court further held that Trantham was not required to meet the “person aggrieved” standard of prudential standing, as she was the party directly involved and affected by the bankruptcy court’s decision.
The court then focused on the debtor’s right to propose a Chapter 13 plan. The Fourth Circuit emphasized that the Bankruptcy Code grants debtors significant flexibility in designing their repayment plans, including the timing of when property vests in the debtor. The court criticized the bankruptcy court’s mandatory application of the local form’s vesting provision, arguing that it improperly constrained the debtor’s substantive right under the Bankruptcy Code to propose a plan. The court underscored that while local forms can promote efficiency, they must not abridge, modify, or enlarge the substantive rights provided by the Bankruptcy Code. The court ruled that Trantham’s plan, which called for vesting at confirmation, was permissible under the Code and should not have been rejected solely because it deviated from the local form’s default provision. The court concluded that the bankruptcy court’s decision to require adherence to the local form’s vesting schedule without considering the specifics of Trantham’s plan violated her rights under the Bankruptcy Code.
Conclusion
The Fourth Circuit reversed the district court’s ruling and remanded the case for further proceedings, instructing that Trantham’s plan should be assessed based on its compliance with the Bankruptcy Code, rather than on adherence to the local form’s default provisions.
NACBA and NCBRC submitted an amicus brief authored by Richard Cook, who also participated in the oral arguments. Additionally, NCBRC conducted a moot court session to prepare Appellant and Amici’s counsel for the oral arguments.
Trantham v. Tate 4th Cir Opinion rev dist court
4th Circuit Considers Whether the FDCPA Protects Discharged Debtors From Improper Collection
The 4th Circuit Court is considering an appeal from the District Court for the Northern District of West Virginia which dismissed the Debtor’s FDCPA complaint due to lack of standing since his debt was discharged in a prior chapter 7 bankruptcy.
Facts
John Koontz entered into a mortgage loan with CitiFinancial, which was later serviced by SN Servicing Corporation (SNSC) and then by Land Home Financial Services (LHFS). After Koontz received a Chapter 7 bankruptcy discharge in 2017, he continued to make voluntary payments on the loan. He alleged that SNSC and LHFS charged excessive late fees and failed to respond to his requests for information.
Analysis
The district court analyzed whether Koontz had standing to pursue claims under the FDCPA and WVCCPA, given his bankruptcy discharge. Under the FDCPA, the court determined that Koontz was not obligated or allegedly obligated to pay the debt because the bankruptcy discharge extinguished his personal liability. The court referenced the Fourth Circuit’s decision in Lovegrove v. Ocwen Home Loans Servicing, LLC, where post-discharge mortgage statements containing disclaimers were not considered attempts to collect a debt. The court concluded that SNSC’s and LHFS’s communications, which included similar disclaimers, were not attempts to collect a debt under the FDCPA.
For the WVCCPA claims, the court held that Koontz was not a “consumer” as defined by the statute because his personal obligation to pay the mortgage debt was discharged in bankruptcy. The court referenced its previous decision in Fabian v. Home Loan Center, Inc., which held that a discharged debtor is not a “consumer” under the WVCCPA and therefore lacks standing to bring claims under the Act. The court rejected Koontz’s reliance on other federal court cases, noting that many involved phone calls rather than written correspondence and did not alter the applicability of Fabian.
The court dismissed Koontz’s claims, reaffirming that a bankruptcy discharge eliminates personal liability for the debt, thereby negating standing under the FDCPA and WVCCPA. The court emphasized the importance of clear and unequivocal disclaimers in post-discharge communications to avoid violating debt collection laws.
NCBRC along with the National Association of Consumer Bankruptcy Attorneys and the National Consumer Law Center filed a brief in support of the Debtor.
Amici Brief in Support of Appellant – Koontz vs SN Servicing
4th Circuit Holds a Deferred Entry of Conviction by Probation Before Judgment is Non-Dischargeable as a “Conviction” Under Section 1328(a)(3)
In In re Feyijinmi, the 4th Circuit held that a debt for restitution ordered as part of a criminal conviction is nondischargeable under 11 U.S.C. § 1328(a)(3), even if the conviction was expunged or the restitution was later converted to a civil matter. Additionally, the State’s characterization of the debt on its proof of claim as “court fees” did not change its nondischargeable nature.
Facts
Dedre Feyijinmi was found guilty of welfare fraud in Maryland state court and ordered to pay $14,487 in restitution. The court deferred the entry of her conviction and placed her on probation before judgment. After completing her probation, the state expunged her criminal records but her restitution obligation remained, and it was later transferred to the State’s Central Collection Unit. Feyijinmi filed for Chapter 13 bankruptcy, and the State filed a proof of claim for the restitution debt, labeling it as “court fees.”
Analysis
The court’s legal analysis began with the interpretation of “conviction” under 11 U.S.C. § 1328(a)(3). The court applied federal law, relying on the Supreme Court’s decision in Dickerson v. New Banner Institute, Inc., which held that a guilty plea followed by probation qualifies as a conviction, even if no formal judgment is entered. The court determined that Feyijinmi’s probation before judgment, which required a guilty finding, constituted a conviction under federal law. This interpretation promotes national uniformity and prevents anomalous results that could arise from varying state definitions.
Next, the court addressed whether restitution ordered as part of a probation before judgment constitutes a “sentence” under § 1328(a)(3). The court concluded that “sentence” includes any penal consequences resulting from a determination of guilt, such as probation and restitution. The court found that Congress intended to except criminal restitution from discharge in bankruptcy to prevent federal proceedings from invalidating state-ordered restitution.
Finally, the court rejected Feyijinmi’s argument that the State’s labeling of the debt as “court fees” on its proof of claim affected its dischargeability. The court held that restitution debts are nondischargeable without any action by the creditor and that the State’s proof of claim and its characterization of the debt did not change its nature. The court also found no evidence of bad faith or unreasonable delay that could have prejudiced Feyijinmi.
NACBA filed an amicus brief in support of the Debtor/Appellant.
In re Feyijinmi – Appellants Brief
In re Feyijinmi – NACBAs Amicus Brief In Support of Appellant
In re Feyijinmi – Appellees Brief
Tips
- Accurately Characterize Claims: Ensure that proofs of claim accurately reflect the nature of the debt to avoid confusion and potential disputes in bankruptcy proceedings.
- Understand Federal Definitions: Be aware that federal law, not state law, governs definitions such as “conviction” and “sentence” in the context of bankruptcy dischargeability.
- Advising Clients on Restitution: Advise clients that restitution debts are generally nondischargeable in bankruptcy, even if labeled differently on proofs of claim or converted to civil matters.
The Fourth Circuit Rules That Parties in an Adversary Proceeding Cannot Manufacture a Final Judgment
In Kiviti v. Bhatt, No. 22-1216, 2023 U.S. App. LEXIS 24415 (4th Cir. Sep. 14, 2023), the court ruled that the parties in an adversary proceeding cannot manufacture a final judgment to appeal an otherwise interlocutory order. Further, the mootness doctrine employed by Article III courts to determine whether a case or controversy exists does not apply to bankruptcy courts as non-Article III courts.
Before filing the bankruptcy, the Chapter 7 Debtor (Bhatt) was contracted to renovate the creditor’s (Kiviti) home. Upon finding the Debtor was unlicensed, the creditor filed suit in state court to recover all funds paid ($58,770). Before judgment, the Debtor filed a Chapter 7 bankruptcy.
The creditors then filed an adversary proceeding with two counts. The first count asked the court to enter a judgment against the Debtor for the amount paid. The second count asked the court to find the debt non-dischargeable under 11 U.S.C. § 523(a)(2)(A). The creditors also filed a proof of claim despite the small bankruptcy estate.
The bankruptcy court granted the Debtor’s motion for summary judgment on the non-dischargeability count leaving only the first count asking for a money judgment. The creditors wished to appeal but needed a final judgment. Therefore, the parties agreed to dismiss the first count without prejudice.
On appeal, the court reviewed whether the case was final to review the bankruptcy court’s decision to dismiss the non-dischargeability count. The creditors argued that the adversary proceeding was moot because if they were unsuccessful in challenging the dismissal of the non-dischargeability count, their debt would be discharged and uncollectable. The court held that the parties can’t manufacture finality. Furthermore, the court held that mootness is a limitation on Article III courts (stemming from the case or controversy requirement) but not bankruptcy courts as non-Article III courts. Instead, bankruptcy courts can rule on moot proceedings
“The parties cannot manufacture finality
“The parties will be unsurprised by our holding that the bankruptcy court’s order was not final—and so not appealable—when entered. After all, that is why they agreed to dismiss Count I. They thought that, by doing so, they would make the order final because there would no longer be anything left to adjudicate in the adversary proceeding. J.A. 63 (agreeing to dismiss Count I “so as to give rise to a final order from which an appeal . . . may be taken”); J.A. 73 (“The instant appeal is from an interlocutory order that became a final order upon dispensation of the remaining cause of action below.”).
“They were wrong. They cannot “use voluntary dismissals as a subterfuge to manufacture jurisdiction for reviewing otherwise non-appealable, interlocutory orders.” See Waugh Chapel S., 728 F.3d at 359. When Congress requires finality, we must ensure that “every matter in the controversy . . . [is] decided in a single appeal.” Microsoft Corp. v. Baker, 582 U.S. 23, 36, 137 S. Ct. 1702, 198 L. Ed. 2d 132 (2017) (quoting McLish v. Roff, 141 U.S. 661, 665-66, 12 S. Ct. 118, 35 L. Ed. 893 (1891)). Yet, if we allowed the parties to appeal Count II now, there would be nothing to stop them from reinstating—and then separately appealing—Count I down the line. See J.A. 63 (agreeing that the dismissal is “without prejudice to the [Kivitis’] right to amend their pleadings to seek a finding of liability should there be an appellate remand”). Such tactics impermissibly “erode the finality principle” Congress enacted. See Microsoft, 582 U.S. at 37; see also In re AroChem Corp., 176 F.3d at 619 (explaining that the “flexible” nature of bankruptcy finality does not “overcome the general aversion to piecemeal appeals” (cleaned up)). So the voluntary dismissal did not make the bankruptcy court’s earlier, partial dismissal final.
“True, some partial dismissals are final and appealable after the parties voluntarily dismiss the remaining claims. See Affinity Living Grp., LLC v. StarStone Specialty Ins. Co., 959 F.3d 634, 638-39 (4th Cir. 2020). But that’s only when the district court dismisses some claims and, in the process, makes it legally impossible to prevail on the remaining claims, even while allowing them to limp on. Id. In this sense, the litigants do not impermissibly create finality by voluntarily dismissing the doomed claims; they merely recognize that it already effectively exists. See id. at 639 (hearing an appeal from a case that was “legally over” even before the voluntary dismissal).
“That is not what happened here. These parties set out to create finality, not recognize it. The adversary proceeding was not “legally over” after the bankruptcy court’s partial dismissal. See id. Count II’s dismissal did not mean the Kivitis could not prevail on Count I. Count I asked whether Bhatt was in debt to the Kivitis—i.e., whether Bhatt violated D.C. law by renovating the Kivitis’ house without a license and thus owed them money. Count II asked whether any such debt was dischargeable—i.e., whether Bhatt obtained such a debt through “false pretenses, a false representation, or actual fraud.” See 11 U.S.C. § 523(a)(2)(A). Just because the bankruptcy court found that Bhatt had obtained $=P13 no debt through fraud did not mean the Kivitis were wrong that he violated D.C. law. Count I was still very much alive.
“The parties agree that the Kivitis could have prevailed on Count I’s merits even after Count II’s dismissal. They maintained their proof of claim which sought the same monies. Yet the Kivitis still argue that their voluntary dismissal recognized rather than created finality because, they say, their Count II loss rendered the adversarial proceeding moot. According to them, a moot proceeding is “legally over” and so this appeal falls within Affinity Living Group‘s safe harbor.
“The root of their mootness argument is that, without Count II, any judgment they won via Count I could not be collected outside bankruptcy and their $58,770 would be recovered—if at all—only through the bankruptcy’s proof-of-claims process. So once Count II failed, they argued, Count I became legally moot. A case is moot when “a court can’t grant any effectual relief whatever” to the complaining party.5 Mission Prod. Holdings, Inc. v. Tempnology, LLC., 139 S. Ct. 1652, 1660, 203 L. Ed. 2d 876 (2019) (quoting Chafin v. Chafin, 568 U.S. 165, 172, 133 S. Ct. 1017, 185 L. Ed. 2d 1 (2013)). Recall that if a debt is discharged, it cannot be collected outside the bankruptcy proceedings. So if the bankruptcy court agreed Bhatt owed the Kivitis money (success on Count I), but determined that debt dischargeable (failure on Count II), the Kivitis could not directly use the judgment they won from Count I to force Bhatt to pay them outside of bankruptcy. Their only means of recovery would be within bankruptcy, via their already filed proof of claim. The Kivitis thus contend that they could not get “any effectual relief” from the adversary proceeding, rendering it moot. Appellant’s Supp. Br. at 10 (“[T]he Bankruptcy Court’s dismissal of Messrs. Kiviti’s claim . . . caused the remaining case to become moot, and to accordingly strip the Bankruptcy Court of Article III jurisdiction.”).
“The Kivitis’ argument is clever, but it misses at least one critical link: Mootness is an Article III doctrine, and bankruptcy courts are not Article III courts. Mootness arises out of Article III’s “case-or-controversy” requirement. The United States’s judicial Power extends only to cases or controversies. U.S. Const. art. III, § 2. To be a case or controversy, parties must have a “‘personal stake in the outcome’ of the lawsuit,” at each stage of the litigation. Lewis v. Cont’l Bank Corp., 494 U.S. 472, 478, 110 S. Ct. 1249, 108 L. Ed. 2d 400 (1990) (quoting Los Angeles v. Lyons, 461 U.S. 95, 101, 103 S. Ct. 1660, 75 L. Ed. 2d 675 (1983)); Campbell-Ewald Co. v. Gomez, 577 U.S. 153, 161, 136 S. Ct. 663, 193 L. Ed. 2d 571 (2016). If they lose that stake, their case drifts beyond the judicial Power and becomes moot. See United States v. Payne, 54 F.4th 748, 751 (4th Cir. 2022). But since bankruptcy courts are not Article III courts, [*17] they do not wield the United States’s judicial Power. Stern v. Marshall, 564 U.S. 462, 503, 131 S. Ct. 2594, 180 L. Ed. 2d 475 (2011). So they can constitutionally adjudicate cases that would be moot if heard in an Article III court.
“To be sure, a bankruptcy case must—at the start—be within the judicial Power. Section 1334 grants near-exclusive jurisdiction over bankruptcy matters to federal district courts. 28 U.S.C. § 1334(a). The district court may then refer a bankruptcy case to a bankruptcy judge (who serves as a unit of the district court). 28 U.S.C. §§ 157(a), 151.9 But, of course, a district court can only refer a case that it has jurisdiction over. See Ex parte McCardle, 74 U.S. 506, 514, 19 L. Ed. 264 (1868) (“Without jurisdiction the court cannot proceed at all in any cause.”). So before a bankruptcy case is referred to a bankruptcy court, the case must satisfy Article III. See In re Curtis, 571 B.R. 441, 447 (B.A.P. 9th Cir. 2017) (“[T]he bankruptcy court’s power to hear, or to hear and determine, as the case may be, bankruptcy cases and proceedings is entirely dependent upon the referral by the district court.”)
.“So too must Article III be satisfied after the bankruptcy court acts and the case is returned to the district court from the bankruptcy court. Every action by a district court is constrained by Article III, including reviewing a bankruptcy court order. So a district court has no authority to act without an existing constitutional case or controversy. See In re Thorpe Insulation Co., 677 F.3d 869, 880 (9th Cir. 2012); In re Croniser, No. 22-1227, 2022 U.S. App. LEXIS 28563, 2022 WL 7935991, at *1 (4th Cir. Oct. 14, 2022) (unpublished).
“But that limit on the district court’s authority does not constrain the bankruptcy court. Once a case is validly referred to the bankruptcy court, the Constitution does not require it be an Article III case or controversy for the bankruptcy court to act. See In re Technicool Sys., Inc., 896 F.3d 382, 385 (5th Cir. 2018) (“Bankruptcy courts are not Article III creatures bound by traditional standing requirements.”). That requirement comes from the Constitution’s limits on the judicial Power. Bankruptcy courts do not wield judicial Power. End of story
.“At least that is the end of the constitutional story. The statutory story—i.e., whether bankruptcy courts have statutory authority to decide a constitutionally moot matter—is more complex. Still, the tale concludes the same way: a bankruptcy court can adjudicate a constitutionally moot matter.
“Bankruptcy courts, as statutory creatures, have whatever power Congress lawfully gives them. So to see if bankruptcy courts can decide matters outside the judicial Power, we check to see if Congress has given them that power. And Congress has said that bankruptcy courts “may hear and determine all [bankruptcy] cases . . . and all core proceedings . . . referred” to them by a district court. 28 U.S.C. § 157(b)(1) (emphasis added). Not just those that could be fully adjudicated in district court. Once a bankruptcy case lands in bankruptcy court, any number of things could happen before the estate’s distribution is settled. As relevant here, the parties could embroil themselves in an adversary proceeding. But whether that proceeding could itself be adjudicated in an Article III court is of no moment. By § 157’s text, a bankruptcy court’s jurisdiction requires only that the case or core proceeding arise under Title 11 and be referred to the bankruptcy court. § 157(b)(1). Section 157 does not require every “discrete dispute[ ],” see Ritzen, 140 S. Ct. at 587, arising post-referral to satisfy Article III. Nor does any other provision.
“Against this silence, Congress has elsewhere explicitly imported some Article III type requirements onto bankruptcy courts. For example, it created so-called “bankruptcy standing” by giving “parties in interest” a right to be heard, at least in Chapter 11 bankruptcies. See 11 U.S.C. § 1109(b); In re Capital Contracting Co., 924 F.3d 890, 895 (6th Cir. 2019) (discussing § 1109(b)).11 And it also codified some version of mootness for real-property cases. See 11 U.S.C. § 363(m); In re Rare Earth Mins., 445 F.3d 359, 363 (4th Cir. 2006) (explaining that § 363(m) “creates a rule of ‘statutory mootness’”). Yet these principles are not the same as Article III’s limits and Congress has never imported all [*20] those limitations. We refuse to make that choice for it; indeed we cannot do so. See Antonin Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 96 (2012) (“[W]hat a text does not provide is unprovided.”).
“A few bankruptcy courts confronting this issue have disagreed. They point to a district court’s authority to “withdraw, in whole or in part, any case or proceeding” referred to a bankruptcy court. See 28 U.S.C. § 157(d). They also think it significant that Congress called bankruptcy courts “unit[s] of the district court,” with judges that are “judicial officer[s]” thereof. See § 151. Following these breadcrumbs, those courts have held that a bankruptcy court’s power depends on a district court’s power—and thus evaporates if the case strays outside of Article III’s bounds. See, e.g., In re Kilen, 129 B.R. 538, 542-43 (Bankr. N.D. Ill. 1991) (“In light of the derivative nature of the bankruptcy court’s power, it is obvious that the constitutional standards of Article III which bind the district court also bind the bankruptcy court.”); In re Interpictures, Inc., 86 B.R. 24, 28-29 (Bankr. E.D.N.Y. 1988); but cf. Stern, 564 U.S. at 500-01.12
“We are unconvinced. Congress requires bankruptcy courts to get cases from district courts and allows district courts to withdraw cases. And the Constitution limits the cases a district court can refer or withdraw. But these two facts do not add up to a limit on the types of matters a bankruptcy court can adjudicate after referral, nor a requirement that those matters be eligible for withdrawal. That could be how it works—if Congress said so. Yet Congress has not said so. So that is not how it works
.“In the same vein, we refuse to overread Congress’s designation of bankruptcy courts as “unit[s]” of the district court. See 28 U.S.C. § 151. Certainly, district courts oversee many aspects of bankruptcy courts. For example, when bankruptcy judges consider matters within the judicial Power, district courts can—indeed sometimes must—review those actions. § 157(a), (b)(1), (c)(1). But bankruptcy courts are not “mere adjuncts” of district courts. Stern, 564 U.S. at 487. They exercise “broad powers” under their own statutory grant of jurisdiction. See id. at 488. Congress did not impliedly limit that express grant through cryptic labelling in a separate provision
.“The argument to the contrary depends on finding something inherent about the words “cases” and “proceedings” in the bankruptcy jurisdictional provisions that brings them necessarily within the judicial Power. It assumes that when Congress gave federal courts (Article III and non-Article III alike) jurisdiction over bankruptcy “cases” and “proceedings,” it imbued those words with Article III’s limits. So that, even absent Article III, the statutes themselves would require the same level of adversariness.
“But we do not ordinarily interpret a jurisdictional statute’s constraints to be the same as the Constitution’s. In fact, we often go out of our way to create differences and draw distinctions even where—unlike here—the statute uses Article III’s precise language. See Navy Fed. Credit Union v. LTD Fin. Servs., LP, 972 F.3d 344, 352 (4th Cir. 2020) (“Unlike the constitutionally permitted ‘minimal diversity’ jurisdiction, diversity must be ‘complete’ to satisfy this Congressional grant.” (citing Strawbridge v. Curtiss, 7 U.S. 267, 267, 2 L. Ed. 435 (1806)).
“If we did, our caselaw would look very different. The constitutional-jurisdiction inquiry would often collapse into the statutory one. Yet it doesn’t. For example, litigants can have statutory jurisdiction to sue States even if the Constitution forbids it. See, e.g., Hans v. Louisiana, 134 U.S. 1, 10, 10 S. Ct. 504, 33 L. Ed. 842 (1890). More to the point, we dismiss moot cases because they are no longer Article III cases, not because they fall outside the scope of a statute. See, e.g., Eden, LLC v. Justice, 36 F.4th 166, 169-72 (4th Cir. 2022). So we refuse to read in Article III’s limits.
“To recap, bankruptcy courts are not Article III courts. So Article III constraints— such as mootness—do not apply to them as a matter of constitutional aw. They only apply if Congress said so in a statute. But it hasn’t. And that means whether Count I was constitutionally moot is beside the point. The bankruptcy court could still adjudicate it.
“Since the Kivitis cannot argue that their adversary proceeding was constitutionally moot when Count II was dismissed, they have not shown the proceeding was legally doomed when they dismissed Count I. They are thus left arguing the order was final because Count I was practically over post-dismissal. See, e.g., Appellant’s Supp. Br. at 4 (claiming there was “no judicial economy” to pursuing Count I before appealing Count II). Yet the Supreme Court rejected this exact reasoning in Microsoft. The Microsoft plaintiffs also thought it “economically irrational” to litigate their still-legally-viable claims to final judgment. Microsoft Corp., 582 U.S. at 34. Still, the Court refused to let them create finality by voluntarily dismissing those claims. Id. at 36; see also Affinity Living Grp., 959 F.3d at 639 (distinguishing between claims that are “legally” and merely “practically” over). Here too, it is irrelevant that the parties think there is “no judicial economy” in litigating Count I to final judgment before they appeal the order dismissing only Count II. Count I is legally viable, and its dismissal was without prejudice, so that dismissal did not create a final order under § 158(a). And that means the district court lacked jurisdiction to review it.”
The Fourth Circuit Examines Whether a Local Rule Can Mandate The Timing When Property Vests in Chapter 13 Cases
UPDATE: The Fourth Circuit has since decided this case. Click here to read our article discussing their ruling.
The Fourth Circuit is considering the issue whether a local bankruptcy rule can dictate the timing of vesting of estate property in chapter 13 cases. This is an appeal from the United States District Court in Trantham v. Tate, 647 B.R. 139 (W.D.N.C. 2022).
The Bankruptcy Court for the Western District of North Carolina mandates the use of a local form chapter 13 plan. This plan includes a provision that the property of the estate will not vest in the debtor until the final decree in the case. The Debtor filed a plan that strikes through this language and included a nonstandard provision that property vests in the debtor upon confirmation. The bankruptcy court sustained the trustee’s objection to this language and was affirmed by the district court.
The argument on appeal is that the determination of the date when property vests is controlled by the debtor pursuant to 11 U.S.C. § 1322(b)(9) which states “the plan may — provide for the vesting of property of the estate, on confirmation of the plan or at a later time, in the debtor or in any other entity.” Since 1322(b) contains discretionary provisions for the debtor to choose from, a local rule that mandates the timing of vesting therefore modifies the debtor’s right to choose. This is in violation of 28 U.S. Code § 2075 which states in pertinent part that “[s]uch rules shall not abridge, enlarge, or modify any substantive right.”
The District Court held “The Bankruptcy Court has determined that all chapter 13 plans should include the standard provision that property of the estate vests in the estate until the final decree is entered. An attempt to include a nonstandard provision in a plan filed in the Western District of North Carolina, that contradicts this standard provision, is inappropriate, and a plan that includes such a contradicting nonstandard provision cannot be confirmed.” Trantham v. Tate, 647 B.R. 139, 145 (W.D.N.C. 2022).
NCBRC and NACBA submitted an amici curiae brief in support of the debtor. The brief was written and submitted by NACBA member Richard P. Cook of Richard P. Cook, PLLC in Wilmington, North Carolina. The Debtor/Appellant is represented by NACBA member Todd Mosley of the Mosley Law Firm, P.C. in Asheville, North Carolina.
The briefing, in this case, is complete and an order-setting oral argument is expected shortly.
UpRight Isn’t Above the Rules: Fourth Circuit Upholds Sanctions for Ethical Violations in Bankruptcy Case
Although the complaint against him alleged violations of the Bankruptcy Code and he was ultimately sanctioned for ethical violations under Virginia Rules of Professional Conduct, a lawyer with UpRight was given due process in his sanctions hearing where the complaint specified the alleged misconduct and he was afforded the opportunity to prepare and present a defense. U.S. Trustee v. Delafield, No. 21-1632 (4th Cir. Jan. 11, 2023).
This case arose out of an adversary complaint filed by the U.S. Trustee against UpRight, a legal services company with offices and “partners” throughout the country; Delafield, an UpRight partner; and Sperro, LLC, a repossession company. The Williamses were bankruptcy clients of Delafield who were subjected to the practices challenged by the Trustee.
The complaint alleged that UpRight created a New Car Custody Program (NCCP) which was ostensibly to help UpRight’s bankruptcy clients who had to surrender their cars, but which, in fact, benefitted Sperro and UpRight. UpRight funneled clients to Sperro and Sperro, for no legitimate reason, towed the client’s cars to states where towing and mechanic’s liens took priority over first liens. Sperro earned income either by collecting excessive fees or by selling vehicles that the owners determined were not worth paying the fees for. UpRight benefitted by a deal with Sperro under which Sperro paid the client’s attorney and filing fees. The court summed it up thus: “So UpRight’s fees were paid by a company that fraudulently generated towing charges and paid them by forcing the sale of cars at the expense of the lenders who held the first liens.” With respect to Delafield, the complaint alleged that his participation in the NCCP was unethical and illegal.
At trial, the Trustee pointed to other unethical practices of UpRight and its partners involving strong-arming potential clients into entering into agreements precipitously. In this case, the evidence showed that, during the pendency of the adversary proceeding, Delafield attempted to strong-arm the Williamses into signing a conflict of interest waiver.
The bankruptcy court was unpersuaded by Delafield’s claims of ignorance. It found he was aware of the NCCP and UpRight’s unethical practices even if he did not actively create or participate in them. The court found other conduct of Delafield’s sanctionable as well, including filing an amendment to the Williamses’ petition without their signature or permission, and acting inappropriately in attempting to get them to sign a conflict of interest waiver.
The bankruptcy court found Delafield violated Virginia Rules of Professional Conduct 5.1 and 5.3. J.A. 723–24. It ordered Delafield to pay $5,000 in sanctions and suspended his license for one year. The district court affirmed.
Delafield appealed to the Fourth Circuit arguing that he was deprived of Due Process because he was not given advance notice of sanctions hearing and the hearing itself was “incomplete.” Specifically, he argued that he was sanctioned under Virginia Rules of Professional Conduct even though the complaint did not cite those Rules, and the complaint was otherwise “scattershot” and did not include specific allegations concerning the conflict of interest waiver.
The circuit court began its analysis with Nell v. United States, 450 F.2d 1090 (4th Cir. 1971). In that case, alawyer who was suspended from practice had not been provided due process where the allegations against him and the purpose of the sanctions hearing were vague. More importantly, though, the attorney had not been told that he was in danger of suspension or disbarment. Nell established a lawyer’s right to notice and an opportunity to provide a defense.
Unlike in Nell, though, Delafield was provided both. Here, the complaint included detailed allegation of misconduct, and specific provisions of the Code he was alleged to have violated. The complaint also made clear that Delafield was threatened with monetary sanctions and disbarment. Though the complaint did not point to the Virginia Rules he was ultimately found to have violated, Delafield had all the necessary notice of the conduct under scrutiny and had ample opportunity to prepare and present a defense.
With respect to Delafield’s argument that he should not have been sanctioned for his conduct surrounding the conflict of interest waivers because that conduct took place after the complaint was filed, the court disagreed. It found that conduct related to Delafield’s efforts to conceal information about the NCCP.
Judge King wrote a concurrence to congratulate the majority for reinvigorating the 1971 Nell decision.