Appellate Law & Practice

CA1: dealing with a strained reading of claimed exemptions from a bankruptcy estate

In re Barroso-Herrans v. Lugo Mender, No. 07-1757.  This is actually a fairly interesting theoretical issue.  Government contractors got into a dispute with the commonwealth of Puerto Rico.  Then didn’t get paid.  So, the contractors sued the commonwealth and simultaneously filed for bankruptcy.  In their list of assets, they listed the lawsuits as an account receivable.  The bankruptcy court authorized Barraso’s lawyer to represent both Barrasco and the estate in prosecution of the suits.  But then Barrasco started asserting that the suits were not part of the estate anyway, and objected when the bankruptcy trustee “unilaterally negotiated a settlement” for about $100,000 on a $170,000 claim, which called for payment of the funds to the estate.  The bankruptcy court held that “...Barroso had exempted not the law suits but rather only a $4,000 partial interest in each suit, so the trustee could settle the suits and simply pay a total of $8,000 to the debtors.”  There was a suggestion of bad faith.  The First says that the determination of what has been claimed as being an exception (and not part of the estate) is really a factual matter of interpreting the schedules filed by the debtors, but a legal matter of “how a reasonable trustee would have understood the filings under the circumstances.”  So, looking at the schedules, the First says that Barrasco’s reading is implausible, it can’t figure out how the debtors discounted the contract disputes from well over $100,000 to $4,000, rather than listing the value as “unknown.” 

CA1: Puerto Rican insurance liquidation fight ends

MRCo, Inc. v. Juarbe-Jimenez , No. 07-1614.  The plaintiff sued Banco Popular and the insurance commissioner of Puerto Rico as “liquidator of the Plan de Salud de la Federación de Maestros de Puerto Rico.”  The plaintiff then settled with Banco Popular. The underlying facts are fairly complicated.  I find them interesting, but they would bore most people. But, what you need to know, is that there were proceedings in Puerto Rico’s “liquidation court” and “P.R. Law Ann. tit. 26, § 4021 precluded actions against the Commissioner during the pendency of the proceeding in the Liquidation Court.”  The District Court denied a motion for summary judgment, but granted a motion to dismiss under Puerto Rican law. 

A translation of the relevant statute reads:

Upon issuance of an order appointing a liquidator of a domestic insurer or of an alien insurer domiciled in Puerto Rico, no action at law shall be brought against the insurer or the liquidator, whether in Puerto Rico or elsewhere, nor shall an action of that nature be maintained or entered after issuance of such order.

The most important thing is that the plaintiff argues that the Puerto Rican statute attempts to divest a federal court of jurisdiction.  But the First say that the statute only impacts substantive rights and not actual jurisdiction. 

The First also reproduces the statute it in the original Spanish.  The first concludes that this statute bar equitable actions as well as legal ones (it discusses the meaning of “equity” in Spanish).  It also rejects the argument that since the plaintiff claims to be seeking monies from the liquidator (rather than the proceeding), that it claims are its own, this doesn’t apply.

CA1: the interaction of sentencing, bankruptcy, collateral consequences of a non-conviction , and criminal law

Larson v. Howell, No. 07-1925.  Two homestead exemption in a row.  This one is more interesting the previous one, because “as a matter of first impression, [requires the First] to determine whether the state crime of negligent vehicular homicide qualifies as a "criminal act" which would cap a debtor's homestead exemption to $125,000 under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), Pub. L. No. 109-8, § 322(a), 119 Stat. 23, 97 (codified at 11 U.S.C. § 522(q)(1)(B)(iv)).”  While the debtor admitted facts in the above case, the case was continued for a year while a civil suit continued.  The debtor claimed the state-law-based homestead exemption of $500,000.

The First holds that after the debtor was convicted of “negligent homicide” in state court under Mass. Gen. Laws ch. 90, § 24G(b), the mental state implicit in admissions pursuant to that section trigger the cap.

People that hate America stop reading here.  Everyone else read on.

CA1: non-nondischargeable debt doesn’t pierce homestead exemption

Pasquina v. Cunningham, No. 06-2786 concludes that the proceeds from the sale of the home that was subject to a state-law homestead exemption retain the exempt status of the home itself under 11 U.S.C. § 522(c). I thought the law on this way pretty clear (though there are exceptions for certain kinds of debts).      

The subject matter is somewhat interesting because it involves lawyers getting into stupid fights with each other resulting in a judgment in an  adversary proceeding that one lawyer had caused willful and malicious financial injury to the other.  The appellant had argued that because the debtor did some things the bankruptcy court considered bad, but the First had said that these kinds of debts would be nondischargeable (as the Bankruptcy court so found), but wouldn’t have some kind of special properties that would allow the creditor to go after the proceeds of the sale of exempt property. 

CA1: Certification of pre-judgment bond after bankruptcy was improper

Lee-Barnes v. Puerto Ven Quarry, No. 06-2581.  This District Court certified an issue under Fed. R. Civ. P. 54(b).  The First Circuit doesn’t want to be bothered.

The defendant had posted a bond to avoid a pre-judgment attachment.  Then the defendants filed for bankruptcy.  The District Court entered a dismissal, which indicated that they could refile when the bankruptcy petition was completed.  The District Court then declared the bond invalid and entered an opinion and order declaring the bond null.  The plaintiff didn’t like that, and asked the court to certify the issue.  The District Court agreed.

The First doesn’t like that.  It says that because the bonding company isn’t a party to the action (it never intervened and it appeared via a “special appearance”), it doesn’t really have jurisdiction.  Therefore, “Rather than resolving a cause of action set forth in a pleading, the district court’s order exclusively pertained to the validity of the bond. Because the district court’s order fails to meet either Rule 54(b)’s “party” or “claim” requirement, our analysis need not go further.”  Hence, the certification was an abuse of discretion.

But, it might be a collateral order.  However, it isn’t, because “The issue presented in this case is highly unlikely to affect, or even be consequential to, anyone aside from the parties.”

CA1: Condo bankruptcy fight club

Bourne v. Northwood Properties, No. 07-1146.  This is a Chapter 11 bankruptcy case involving codos.  To many lawyers, condo law touches their hearts deeply, because it is one of the only injustices that remotely impacts them.  Anyway, this case holds that Massachusetts General Laws chapter 183A, section 5(b)(1) (an a condominium owner constructively consents to the addition of further units “if the master deed at the time of the recording of the unit deed . . . made possible an accurate determination of the alteration of each unit's undivided interest that would result therefrom.").  Taking an Eerie guess, the First holds that in this case Northwood successfully extended its development rights because the objecting condo-owners (that were also creditors) knew that the master deed provided for additional units.  The First rejects the idea that there must be an exact way to calculate what the new interests are, because that, would run counter to the legislature’s intent.  The court finishes by explaining the plight of the staving refugees developers by saying “Further, in practice, the district court's reading would tie the hands of developers, making it impossible for them to respond to changing market conditions. This would seriously jeopardize developers' ability to secure financing to complete projects. This in turn could have an adverse impact on present owners of units.”

If you don’t live in a condo, you are not a real American.  The material below the fold is for real Americans only.  (Details on this condo complex can be found here.  Aerial maps can be found here.)

CA1: MVRA trumps bankruptcy

US v. Hyde, No. 05-2897.  Guess what?  “A restitution order under the Mandatory Victims Restitution Act, codified in relevant part at 18 U.S.C. § 3613 ("MVRA"), allows the government to garnish the sale proceeds of a house that the debtor had attempted to exempt from the reach of creditors in a Chapter 7 federal bankruptcy proceeding.”  Basically the guy fraudulently received payments from his mother's pension fund, the fund sued him, he filed a bankruptcy petition, he was indicted.  After he was sentenced (and the bankruptcy court granted him a discharge) he sold the house he bought with the funds.  The pension moved in state court to stop it.  The US moved in federal court for the funds. 

Anyway, the “victims” (i.e. a pension and the government) will get their money.  Huzzah!

CA1: constructive trusts in bankruptcy and claim preclusion

McGarry v. Chew, No. 06-2123.  Underlying this dispute is a bitter family inheritance dispute over a home that the decedent agreed with the debtor to build for her (during her life) and him: one sibling filed for bankruptcy, and his siblings (now called creditors) tried to stop him from claiming a homestead exemption, arguing that the decedent wanted all the siblings to share in that home.  The siblings first sued in state court, arguing that a contract with the mother had been breached.  While this action was pending the debtor filed a filed a declaration of homestead with the Massachusetts Registry of Deeds.  The state court ruled that only the estate could bring such an action on the decedent’s behalf, but they could bring contract claims on their behalf against the debtor-sibling.  Based on this judgment, the siblings obtained a lien.

Then, the bankruptcy petition was filed, and the debtor invoked the homestead exemption to prevent his siblings from getting the home.  The siblings argued that there was a constructive trust   So, you see the problem: if the homestead exemption is for real, then he can wipe out the lien under 11 U.S.C. § 522(f)(1)(A).  If the constructive trust survives bankruptcy, he can’t.  The Bankruptcy court asked (in a non-evidentiary hearing) whether the siblings had a full opportunity to litigate the constructive trust claim in state court, and found that it did.  The First agrees, and finds that the constructive trust claims are precluded

CA1: never too rich to go bankrupt

In Re Capitol Food Corp, 06-2327. A corporate landlord sought to dismiss his corporate tenant’s chapter 11 petition, arguing that it wasn’t filed in good faith. The bankruptcy court held that 11 U.S.C. § 1112(b) contains no “good faith” requirement, and there was no “cause” for relief from the automatic stay. The First notes that there is a split regarding whether “good faith” is required, but concluded that the landlord didn’t even make out a case that the petition was filed in bad faith.  Apparently the best argument he had was the debtor was “Solvent.” But the First points out that there are many reasons that a debtor might seek bankruptcy protection, and then describes the economics of why other debtors might benefit. 

CA1: adventures in the Virgin Islands – a tale of receiverships and abstention

US v. Fairway Capital Corp, No. 06-2023.  The government of the Virgin Islands filed a claim with a receiver.  There were equitable and legal claims.  The District Court stated the procedures for making objections.  There were a number of objections made, including the one that the U.S. District Court for the District of Rhode Island did not have jurisdiction over the equitable claims for possession of land in the Virgin Islands.  Meanwhile, a territorial court was deciding an eviction action over the land. 

So, the first issue is abstention.  The court concludes that Colorado River Water Conservation Dist. v. United States, 424 U.S. 800 (1976) is not required, because although the territorial court was entertaining in rem jurisdiction over the land, “the importance of the Territorial Court's quasi in rem jurisdiction is diminished by the fact that 15 U.S.C. § 687c(b) gives a district court ‘exclusive jurisdiction’ over the property of an SBA receivership estate” (even if Virgin Islands law did govern the effect given to a stipulated settlement) Moreover, the Rhode Island forum was not inconvenient, nor would there be piecemeal litigation.  After going though all the eight factors, the First finds that Colorado abstention is not required, because the only one going for abstention was that the territorial court was first to obtain jurisdiction.