By: Gary Wallace-Program Summary Committee Chair

CDCBAA Holds First Meeting and MCLE Program of 2024: "18th Annual Review of 9th Circuit Decisions on Bankruptcy in 2023”   

            On January 27, 2024, the CDCBAA held its first members meeting and MCLE program of the year.  The meeting and program were conducted as a live webinar via Zoom video.  The program topic was: "18th Annual Review of 9th Circuit Decisions on Bankruptcy in 2023."  The distinguished panel was led by our former president M. Jonathan Hayes, now back with RHM Law, LLP, along with guest speakers Honorable Julia Brand|Bankruptcy Judge, Central District of California, and member of 9th Circuit Bankruptcy Appellate Panel, and Honorable Elaine Hammond|Bankruptcy Judge, Northern District of California, San Jose Division.  CDCBAA president and current board member, Hale Andrew Antico, Esq., moderated. What follows are some of the highlights of the seminar.

            Mr. Hayes led off with a discussion of Bartenwerfer v. Buckley (In re Bartenwerfer), 143 S.Ct. 665 (2023). There the Supreme Court held that, when one partner defrauds a creditor, the liability of the other partner for the partnership debt is one “obtained by fraud,” thus making the debt non-dischargeable. The Supreme Court reasoned as follows:

“[S]ometimes a debtor is liable for fraud that she did not
personally commit—for example, deceit practiced by a partner
or an agent. We must decide whether the bar extends to this
situation too. It does. Written in the passive voice, §523(a)(2)(A)
turns on how the money was obtained, not who committed fraud
to obtain it.” It agreed that Strang was important: “The fraud of
one partner, we explained [in Strang], is the fraud of all because
‘[e]ach partner was the agent and representative of the firm with
reference to all business within the scope of the partnership.’
And the reason for this rule was particularly easy to see because
‘the partners, who were not themselves guilty of wrong, received
and appropriated the fruits of the fraudulent conduct of their
associate in business.’”

            Further, the Court noted that Congress amended 523(a)(2) 13 years after Strang. Previously the code said “[N]o debt created by the fraud or embezzlement of the bankrupt . . . shall be discharged under this act.” It amended that section to take out “of the bankruptcy” apparently agreeing with Strang.

             The discussion then turned to Chapter 13 decisions. In Castleman v. Burman (In re Castleman), 75 F.4th 1052 (9th Cir. July 2023), the Ninth Circuit held that, based on the plain language of section 348(f)(1)(A), the increase in value of the debtors’ home during the chapter 13 case does belong to the chapter 7 estate. Judge Brand noted that, in the Central District, where property revests only following plan completion, this ruling presents an additional dilemma for debtors and their counsel who are considering whether to file a Chapter 13 versus a Chapter 7. Judge Hammond noted that, in the Northern District, consumer counsel have access to a form plan that allows for revesting to occur at either plan confirmation or plan completion.

            In Pancic v. Lokan (In re Lokan), BAP OR-22-1249-CLB, 2023 WL 4014086 (9th Cir. BAP June 2023) (unpublished), the BAP held that the chapter 13 debtors did not convert to chapter 7 “in bad faith” even though the husband debtor received a large inheritance during the chapter 13 which would have easily paid all creditors in full. It was noted that, while some may view the underlying facts as clearly indicative of bad faith by the debtors, the clearly erroneous standard on review prohibits second guessing when the record shows (as here) that the bankruptcy judge held an evidentiary hearing, weighed the evidence and there was in fact some admissible evidence to support the finding of no bad faith.

            Orlansky v. Quicken Loans, LLC (In re Orlansky), 2023 WL 2947616 (9th Cir. BAP April 2023) (unpublished) concerns violations of the automatic stay under section 362(a)(6). There, the Ninth Circuit held that the creditor in this chapter 13 violated the automatic stay by including on its monthly billing statement attorney’s fees of $950 incurred “in connection with the case.”

            In the Subchapter V arena, Lafferty v. Off-Spec Solutions, LLC (In re Off-Spec Solutions, LLC), 651 B.R. 862 (9th Cir. BAP July 2023), for the time being at least, resolves a seemingly incongruous result regarding application of section 1192 which, on its face, incorporates section 523’s exceptions to discharge into corporate Subchapter V cases.  Here, BAP held that debts which are non-dischargeable under section 523(a) are not also non-dischargeable in corporate chapter 11 subchapter V cases. The BAP stated that “…the better interpretation is that § 1192 reiterates § 523(a)’s application to debtors under subchapter V, and § 523(a) limits its applicability to individuals.” The BAP further added that “[T]he suggestion that Congress incorporated 19 new exceptions to discharge for small corporations in a bill that was introduced in April 2019, and signed into law by the President in April 2019, seems not only improbable but also contradicts years of bankruptcy law and policy.”

            LVNV Funding, LLC v. Myers (In re Myers), 22-16615, 2023 WL 8047842 (9th Cir. Nov. 2023), though unpublished, addresses a very common issue and is, therefore, probably instructive for consumer attorneys when considering a challenge to certain proofs of claims. There, the Ninth Circuit held that, when the parties and the court agree that a proof of claim contains sufficient evidence to make a prima facie claim under FRBP 3001, conflicting state law shall not be applied because FRBP 3001 trumps section 502(b)(1) even though the proof of claim may not contain sufficient evidence to obtain a judgment under state law.

            Judge Hammond noted that Licup v. Jefferson Avenue Temecula, LLC (In re Licup), SC-22-2222-GBS, 2023 WL 2134975 (9th Cir. BAP, Feb 28, 2023) (unpublished) presents an important cautionary tale to debtors and their counsel in asset cases who fail to include in the schedules the names of creditors and sufficient addresses for notice to be sent to them. In Licup, the Ninth Circuit held that when the debtor fails to list a creditor on his schedules in an asset case, the entire debt becomes non-dischargeable under section 523(a)(3).

            At the bankruptcy level, In re Jeremy Taylor Johnson, 6:22-bk-11736-RB, 6:22-ap-01073-RB, 2023 WL 8679864 (Bkrtcy C.D. Cal Dec 2023) held that summary judgment by the bankruptcy court based on a previous state court judgment is appropriate when the state court judgment was entered by default. In so ruling, Judge Magdalena Reyes Bordeaux noted that “California law accords preclusive effect to default judgments, ‘at least where the judgment contains an express finding on the allegations.’" Gottlieb v. Kest, 141 Cal. App. 4th 110, 149 (Cal. Ct. App. 2006); Rodriguez v. Hotchkiss (In re Rodriguez), 649 B.R. 773 (9th Cir. BAP April 2023) was also relied upon to support the ruling.

            The final case discussed was In re Shannon Hager, 651 B.R. 873 (Bkrtcy E.D. Cal June 2023). There, the issue was as follows: When is a foreclosure final under California law, and thus is not affected by a bankruptcy filing? Holding: “If the prevailing bidder is not a prospective owner-occupant, then a 15-day window opens after the sale” which is extended under certain conditions. See CA Civil Code 2924m(c) for the details of this new development in the law.

            Other cases were discussed as well, and all presenters provided a number of candid and useful thoughts as to how practitioners might be guided by these cases in future client representations.

            As usual, a very lengthy and detailed program outline containing summaries of the cases was provided to all registered participants.

            The next CDCBAA members meeting and Zoom MCLE program will be held on February 24, 2024.  The topic will be EXAMINING STUDENT LOAN DISCHARGE: NUTS AND BOLTS OVERVIEW & TRAINING ON DOJ GUIDANCE.”  Our speakers will be Hon. Vincent Zurzolo | Judge, Central District of California, Los Angeles Division; Elan Levey | Assistant United States Attorney, United States Attorney's Office - Central District of California; John Rao | National Consumer Law Center; Raychelle Tasher | Assistant United States Attorney, United States Attorney's Office - Southern District of Florida; and Hon. Magdalena Reyes Bordeaux | Judge, Central District of California, Riverside Division |Moderator.  We hope you will join us.

Gary R. Wallace
Law Office of Gary R. Wallace
10801 National Boulevard, Suite 100
Los Angeles, CA 90064
Office: (310) 571-3511