The U.S. Supreme Court ruled this week that homeowners who declare bankruptcy can't void second mortgages even if their homes aren't worth what they owe on their primary mortgages, the Associated Press reports. The court was unanimous in the decision.
The Floridian homeowners said their second loans were worthless.
Even though a medical marijuana dispensary violates federal law, it still has the right to recover money stolen from it by an attorney, the U.S. Court of Appeals for the Ninth Circuit ruled.
The San Francisco Chronicle's Bob Egelko reports that the now-defunct Northbay Wellness Group of Santa Rose can seek to reclaim its $25,000 stolen by now-disbarred attorney Michael Beyries. Beyries has declared bankruptcy, and the former lawyer argued that Northbay had "unclean hands" and couldn't assert its rights to recovery against Beyries' bankruptcy estate.
The unanimous panel of the Ninth Circuit disagreed. According to Egelko, the court opined that, “'Allowing Beyries to avoid through bankruptcy his responsibility for misappropriating his client’s money would undermine the public interest in holding attorneys to high ethical standards.'”
The U.S. Supreme Court has ruled that bankruptcy judges can decide issues that would normally be handled by federal district judges--if the parties involved consent, Supreme Court Brief's Marcia Coyle reports. The consent can be implied.
Sotomayor opined that it doesn't violate the separation of powers to allow bankruptcy courts, which are created by Congress under Article I of the Constitution, to decide claims submitted to them by consent so long as there is supervision by Article III courts, which are the judicial branch of the federal government as defined by Article III of the Constitution.
The U.S. Supreme Court heard argument in a couple of cases yesterday over whether homeowners can void mortgages that are completely underwater, Supreme Court Brief's Marcia Coyle reports. The U.S. Court of Appeals for the Eleventh Circuit allowed homeowners whose homes were worth less than their primary mortgage to void a second mortgage. Bank of America appealed.
At issue is whether a bankruptcy court can "strip off" those valueless mortgages. The lawyer for the homeowners told the justices that eight circuit courts allow liens to be voided in Chapter 13 bankruptcies, and that resolving subordinate liens has been the "biggest obstacle to the housing recovery." Bank of America's counsel, however, argued that properties can have real value if liens are not stripped off because the housing market is moving back up.
Current bankruptcy law mostly prohibits educational loans from being discharged in bankruptcy. But the White House is considering how to make it easier for student loans to be discharged in bankruptcy court, the Wall Street Journal's Josh Mitchell reports. President Barack Obama directed his administration to study whether bankruptcy should be expanded for all student loan borrowers.
Mitchell reports that only 713 lawsuits were filed to discharge student loans in bankruptcy in 2014.
Petitioners to discharge student-loan debt have to show they have an undue hardship and that they never could afford to pay their monthly loan payments. Both federal loans and private loans are nondischargeable.
The Seventh Circuit has ruled that a $55 million cemetery trust fund isn't off limits from the creditors of the Archdiocese of Milwaukee, the Associated Press reports. Sex abuse victims and their lawyers argue that the trust fund was created to shield money from them. The archdiocese has filed for bankruptcy because hundreds of sex-abuse victims have filed claims against the archdiocese.
The archdiocese argued that the Religious Freedom Restoration Act protected the trust fund from a court-appointed committee the represents sexual assault victims and other creditors in bankruptcy court, but the court rejected that argument because creditors aren't the government.
Detroit will emerge from insolvency proceedings after U.S. Bankruptcy Judge Steven Rhodes approved its Chapter 9 bankruptcy today as fair and feasible, the Detroit Free Press reports. The plan will give the city the authority to cut 74 percent, or $7 billion, in unsecured debt and reinvest $1.4 billion over 10 years in public services and blight removal. Pensioners will have 4.5 percent cuts to their checks and the elimination of cost-of-living increases.
Detroit's bankruptcy is the largest municipal insolvency in Ameircan history.
Here's a piece I've written for the National Law Journal:
After a protracted fight, a federal judge has ruled on Thursday that all of the evidence that led him to find misrepresentations by plaintiffs in an asbestos-related bankruptcy must be unsealed.
When U.S. Bankruptcy Judge George Hodges of the Western District of North Carolina estimated the liability of Garlock Sealing Technologies, LLC, in January, he found that Garlock likely owes $125 million to asbestos plaintiffs.
At that time, he rejected the plaintiffs' argument that Garlock's liability is around $1 billion to $1.3 billion after finding that there was evidence of misrepresentation by plaintiffs' lawyers in several cases that Garlock settled in the past or in which Garlock lost jury verdicts.
The judge in January found that some plaintiffs alleged they were exposed to asbestos from different sources in civil court than when they submitted claims to the trusts formed after companies went through bankruptcy because of asbestos-related liability.
During a hearing Thursday, Hodges ruled from the bench that the only information that should be redacted are social security numbers, birth dates, financial account numbers, names of minors and medical information except for diseases related to asbestos.
The judge said he also should not have closed some of the proceedings in January.
The judge said that the First Amendment applies to the records even though the estimation proceeding wasn’t a final adjudication of what Garlock owes to claimants who allege their exposure to Garlock’s products caused them mesothelioma cancer.
“It should have been public,” Hodges said. “This is the type of proceeding that would have been historically open. Public access would have served a positive role in the functioning of the court by enabling the public to evaluate the court’s decision based on all of the evidence rather than on simply part of it.”
Hodges overruled Garlock’s assertion of attorney-product privilege or attorney work-product privilege to keep sealed major expense authorizations forms documenting the approval of settlement decisions and the mental impressions and opinions of in-house and trial counsel. Hodges also unsealed Garlock’s trial evaluation forms with outside counsel’s trial plans and assessment of cases.
U.S. District Judge Max O. Cogburn Jr. of the Western District of North Carolina in July reversed Hodges’ decision to seal the evidence that led to his estimation of Garlock’s liability. Cogburn remanded the case for the lower court to conduct fact-finding about the public's right of access under common law or the First Amendment.
Asbestos claimants and their law firms, as well as the official committee of asbestos personal injury claimants, moved to seal questionnaires filled out by plaintiffs, information claimants submitted to the trusts formed out of the bankruptcies of other asbestos defendants, and evidence referencing settlements by asbestos claimants, among other information.
The documents were not unsealed immediately because they must still be redacted.
I'm writing several times a day about products liability for Law.com/The National Law Journal. Occasionally I cross-post a blog I find particularly interesting.
Garlock Sealing Technologies LLC and two other related defendants are opposing motions to keep sealed the names of asbestos plaintiffs and the amounts of settlements they have reached with those plaintiffs.
The judge presiding over the Garlock’s bankruptcy proceedings has set up a process to unseal evidence that led him to make findings of alleged misrepresentation by plaintiffs.
Garlock also wants to unseal questionnaires submitted by claimants in its bankruptcy case and submissions made by claimants to trusts formed out of other companies’ asbestos-related bankruptcies.
“A large portion of the asbestos claimants whose names appear in the estimation record have open claims and are therefore the putative creditors (and parties in interest) in this case,” Garlock said. “The [U.S. Court of Appeals for the Fourth Circuit] has held that parties should be allowed to litigate anonymously only in ‘extraordinary circumstances’ justifying a ‘rare dispensation.’”
Claimants’ names are routinely disclosed in asbestos tort litigation and in marketing materials disseminated by the law firms representing them, Garlock said.
In a separate motion , the official committee of asbestos personal injury claimants objected to Garlock’s request to seal some of the bankruptcy filings, including the major expense authorizations that memorialize the reasons Garlock settled mesothelioma cases for the amounts it did and trial evaluation forms completed by Garlock’s outside counsel about cases going to trial.
“Until now, the debtors have been enthusiastic advocates of disclosure, casting themselves as crusaders on the public’s behalf,” the committee said. “Now, without any sense of irony, the debtors maintain that their own documents—critical pieces of the ‘full story’—should remain sealed and shielded from public scrutiny.”
Those documents cannot be shielded by attorney-client or work-product privilege because Garlock had its attorneys testify during the proceeding held to estimate its liability to asbestos plaintiffs about why they settled cases, the committee said.
According to the committee, those “contemporaneous documents” are at odds with why Garlock says it settled its cases.
Last winter, U.S. Bankruptcy Judge George Hodges of the Western District of North Carolina estimated that Garlock likely owes $125 million to asbestos plaintiffs. He rejected the plaintiffs' argument that Garlock's liability is around $1 billion to $1.3 billion after finding evidence of misrepresentation by plaintiffs' lawyers in several cases that Garlock settled in the past or in which Garlock lost jury verdicts.
According to both sides, the parties agree that there should be redactions of most plaintiffs’ Social Security numbers, birth dates, the identities of minors, account numbers and medical information except that related to asbestos exposure.
Detroit's future is in the hands of U.S. Bankruptcy Judge Steven W. Rhodes, the New York Times reports: If the judge "approves a blueprint drawn up by Detroit officials to eliminate more than $7 billion of its estimated $18 billion in debts and to invest about $1.5 billion into the city’s now dismal services, it will mark the beginning of the end of the nation’s largest-ever municipal bankruptcy. The outcome will set this troubled city’s new course for the coming decades, perhaps longer." Rhodes must decide if the plan is equitable, feasible and in the best interests of creditors, the Times also reports.
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