Recently in Bankruptcy Law Category

Divorcing a Ponzi-schemer offers greater financial stability than marrying a Ponzi-schemer.

Last week, the Second Circuit Court of Appeals ordered two federal agencies to un-freeze the ill-gotten gains that an alleged-Ponzi schemer’s ex-wife received through their divorce settlement. Unlike the still-married Ruth Madoff, who forfeited $80 million following husband Bernie Madoff’s arrest, this ex-wife may have a shot at keeping the funds.

Janet Schaberg was married to Stephen Walsh for more than two decades. By the time of their separation in 2004, Walsh had amassed a substantial fortune and the two negotiated a settlement that gave Schaberg a not-insubstantial fortune of her own.

Law firms representing 200 customers cheated by Bernard L. Madoff Investment Securities Inc. (BLMIS) filed papers in the Second Circuit Court of Appeals last week requesting a full court rehearing in In Re: Bernard L. Madoff Inv. Sec., LLC.

In August, a three-judge panel affirmed a bankruptcy judge's decision to disregard the Madoff victims' falsified account statements in calculating recovery from the customer property fund.

Irving Picard, the trustee for liquidation of BLMIS, argued that the customer statements do not reflect "securities positions" that could be "liquidated" because the account statements were wholly the invention of Madoff and do not reflect actual securities positions.

Debtor's Appeal From Reversal of Attorney's Fee Award

In US v. Hudson, No. 09-3600, debtor's appeal from the district court's reversal of an award of attorney's fees in favor of the debtor after he successfully challenged a claim lodged against him in bankruptcy court by the IRS, the court affirmed where lawyers appearing pro se who prevail in administrative or court proceedings against the U.S. are ineligible for attorneys' fees under IRC section 7430.

Fair Debt Collection Practices Act Involving Inflated Proof of Bankruptcy Claim

In Simmons v. Roundup Funding, LLC, No. 09-4984, a Fair Debt Collection Practices Act action claiming that a creditor filed an inflated proof of claim in plaintiffs' bankruptcy, the court affirmed the dismissal of the complaint where a proof of claim filed in bankruptcy court cannot form the basis for a claim under the Fair Debt Collection Practices Act.

In Re: Zarnel, No. 07-0090, involved an appeal from a district court's order dismissing a bankruptcy trustee's appeal for lack of standing and in the alternative affirming the bankruptcy court's decision to strike the bankruptcy petitions filed by respondents rather than to dismiss their cases.  The court vacated the order on the grounds that 1) the U.S. Trustee's responsibility to represent and protect the public interest afforded it a substantial interest in, and therefore standing, to proceed with this appeal; 2) the court needed only assure itself that it was deciding a live case or controversy, and Article III jurisdiction existed; and 3) the restrictions of 11 U.S.C. sections 301 and 109(h) were not jurisdictional, but rather elements that must be established to sustain a voluntary bankruptcy proceeding.

Oneida Indian Nation v. Cty. of Oneida, No. 07-2430, involved an action by the Oneida Indian Nation claiming that the State of New York wrongfully appropriated its lands.  The court affirmed in part partial summary judgment for defendants, holding that was controlling, and thus all claims dependent on the assertion of a current possessory interest in the subject lands were barred by equitable defenses.  However, the court reversed in part on the grounds that 1) plaintiffs' purportedly nonpossessory claim was also barred, both by New York's sovereign immunity and by the equitable principles applied in Cayuga; and 2) on the same basis, the alternative nonpossessory claim articulated on appeal by the plaintiffs, premised on a violation of the Nonintercourse Act, was also barred.

Baker v. Simpson, No. 09-3848, concerned plaintiff's appeal from the denial of his motion to remand his legal malpractice action from a bankruptcy court to state court.  The court of appeals affirmed on the ground that claims of professional malpractice, based on services rendered pursuant to a Title 11 petition, "arise in" a bankruptcy case because they implicate the integrity of the bankruptcy process and are inseparable from that proceeding.

Mui v. US, No. 07-4963, involved petitioner's appeal from a district court's order denying habeas corpus relief from a conviction and prison sentence, and denying a motion under Federal Rule of Civil Procedure 60(b) to reopen that decision.  The Second Circuit vacated the order on the ground that a defendant who raises on direct appeal ineffective assistance claims based on the strategies, actions, or inactions of counsel that can be, and are, adjudicated on the merits on the trial record is precluded from raising new or repetitive claims based on the same strategies, actions, or inactions in a Section 2255 proceeding.  However, such a defendant is not precluded from raising new ineffective assistance claims based on different strategies, actions, or inactions of counsel in a subsequent Section 2255 proceeding.

Related Resources

• Full Text of Baker v. Simpson, No. 09-3848
• Full Text of Mui v. US, No. 07-4963

Export-Import Bank of the U.S. v. Asia Pulp & Paper Co., No. 09-2254, involved an action to collect a $144 million judgment against defendants pursuant to the Federal Debt Collection Procedures Act (FDCPA).  The Second Circuit affirmed the district court's order quashing plaintiff's writs of garnishment, holding that an electronic funds transfer (EFT) temporarily in the possession of an intermediary bank in New York may not be garnished under the FDCPA to satisfy judgment debts owed by the originator or intended beneficiary of that EFT.

In Zakrzewska v. The New School, No. 09-0611, a sexual harassment action, following the New York Court of Appeals' answer to a certified question, the court of appeals affirmed the denial of summary judgment to defendant, holding that the affirmative defense to employer liability articulated in Faragher v. City of Boca Raton, 524 U.S. 775 (1998), and Burlington Industries, Inc. v. Ellerth, 524 U.S. 742 (1998), did not apply to sexual harassment and retaliation claims under section 8-107 of the New York City Administrative Code.

Amore v. Novarro, No. 08-3150, concerned a 42 U.S.C. section 1983 action alleging a false arrest.  The court of appeals reversed the denial of summary judgment based on qualified immunity, on the ground that the district court erred in deciding that, despite the fact that a state loitering statute was still widely published as though it remained valid, it would have been clear to a reasonable officer in defendant's position that making the arrest was unlawful.

In re: Delta Airlines, Inc., No. 08-5002, involved creditors' appeal from the bankruptcy court's order upholding debtor's objections to their claims under tax indemnification agreements.  The court of appeals vacated the order, on the grounds that 1) the bankruptcy court's construction of "pay" as that term was used in an agreement at issue nullified debtor's obligation to pay the "Owner Participant" under the agreement upon the occurrence most likely to call its provisions into play - the debtor's insolvency; and 2) the bankruptcy court effectively nullified the agreements by stripping them of their ability to protect the Owner Participant in the event of debtor's default.

Related Resources

• Federal Debt Collection Procedure Act
• Full Text of Export-Import Bank of the U.S. v. Asia Pulp & Paper Co., No. 09-2254
• Full Text of Zakrzewska v. The New School, No. 09-0611
• Full Text of Amore v. Novarro, No. 08-3150
• Full Text of In re: Delta Airlines, Inc., No. 08-5002

Adams v. Zelotes, No. 07-1853, concerned an action challenging the constitutionality of a Bankruptcy Code provision, 11 U.S.C. § 526(a)(4), alleging that the provision's prohibition on debt relief agencies advising clients to incur additional debt in contemplation of bankruptcy violated plaintiff's First Amendment rights.  The Second Circuit reversed an injunction in favor of plaintiff, on the ground that the Supreme Court's decision in Milavetz directly foreclosed plaintiff's as-applied challenge by narrowly construing the Bankruptcy Abuse Prevention and Consumer Protection Act to avoid his First Amendment complaint.

AmeriCredit Fin. Servs. v. Tompkins, No. 09-0022, involved a creditor's appeal from the bankruptcy court's order expunging creditor's unsecured claim in a Chapter 13 proceeding and overruling creditor's objection to the confirmation of the plan.  The court of appeals vacated the order, on the ground that both state law and the contract of the parties gave creditor the right to an unsecured deficiency judgment.

Arrowood Indemn. Co. v. King, No. 07-5249, concerned an action by an insurer seeking a declaration that neither a homeowner's policy nor an umbrella policy provided coverage for a tort plaintiff's claimed injuries.  The Second Circuit certified the following questions to the Connecticut Supreme Court:  1) With respect to a claim for negligent entrustment under a liability policy that excludes coverage for "[a]rising out of . . . [t]he entrustment by an insured" "to any person," "of a motor vehicle" other than "[a] motorized land conveyance designed for recreational use off public roads, not subject to motor vehicle registration and . . . [o]wned by an insured and on an insured location," is the insured location a) the place where the entrustment of the vehicle took place, or b) the place where the vehicle is garaged, or c) the place where the accident occurred?  2) In the absence of a policy definition of "premises", should a private road located within a residential development owned by the insured's homeowners association be considered "premises used . . . in connection with a [residence] premises" under the terms of a homeowner's insurance policy if the portion of the road where the liability arose is not regularly used by the insured, although other portions of the road are so used?  3) Under Connecticut law, where a liability insurance policy requires an insured to give notice of a covered claim "as soon as practical," do social interactions between the insured and the claimant making no reference to an accident claim justify a delay in giving notice of a potential claim to the insurer?

Slayton v. Am. Express Co., No. 08-5442, involved a securities fraud action challenging one allegedly misleading statement made in the defendants' May 15, 2001 quarterly report.  The court of appeals affirmed the dismissal of the complaint, on the ground that the alleged misleading statement was a forward-looking statement that was protected by the safe harbor of the Private Securities Litigation Reform Act.

Related Resources

• Full Text of Adams v. Zelotes, No. 07-1853
• Full Text of AmeriCredit Fin. Servs. v. Tompkins, No. 09-0022
• Full Text of Arrowood Indemn. Co. v. King, No. 07-5249
• Full Text of Slayton v. Am. Express Co., No. 08-5442
• 11 U.S.C. section 526(a)(4)