In Bartenwerfer v. Buckley (In re Bartenwerfer), BAP No. NC-19-1178-TaFB (April 23, 2020), the Ninth Circuit Bankruptcy Appellate Panel ("BAP") held that the bankruptcy court correctly determined that all of the appellee's state court attorney's fees were non-dischargeable pursuant to 11 U.S.C. § 523(a)(2)(A).
Bankruptcy Courts Must Advise Creditors on the Scope of Discharge Injunctions
In In re John G. Moser, BAP No. NC-19-1094-FBTa (April 15, 2020), the Ninth Circuit Bankruptcy Appellate Panel ("BAP") held that the "return to the fray" doctrine requires bankruptcy courts to advise creditors on the scope of discharge injunctions.
Structuring Offers of Compromise for Multiple Defendants: The Offer Cannot be Conditioned on Acceptance by All Defendants
In Anthony v. Li, 2020 Cal. App. LEXIS 302 (April 13, 2020, the California Court of Appeal held that under Cal. Code of Civ. Pro. ("CCP") § 998, an offer of compromise ("offer") to multiple defendants must be apportioned and not conditioned on acceptance by all defendants. CCP § 998 is a cost-shifting statute which encourages the settlement of actions, by penalizing parties who fail to accept reasonable pretrial settlement offers. For example, if a defendant refuses a reasonable pretrial settlement offer and subsequently fails to obtain a "more favorable judgment," that defendant is penalized by a loss of prevailing party costs and an award of costs in the plaintiff's favor, and vice versa. Furthermore, CCP § 998 has specific requirements for the structuring and acceptance of this offer. Pursuant to CCP § 998, the written offer must contain: (1) a statement of the offer which lays out the terms and conditions of the judgment; and (2) a provision that allows the party to indicate acceptance by signing a statement that the offer is accepted. Additionally, any offer must be clear and specific and must be written with sufficient specificity because the trial court lacks the authority to adjudicate the terms of the settlement.
Summary Judgment Granted For Non-Dischargeability Based on State Court Judgment
In In re Zuckerman (Zuckerman v. Crigler), Case No. CC-19-1200-TaFS, published on April 10, 2020, the Ninth Circuit Bankruptcy Appellate Panel ("BAP") upheld the Bankruptcy Court's summary judgment for non-dischargeability under Section 523(a)(2) based on an underlying state court judgment against the debtor.
Fraudulently Transferred Property Remains Part of Estate Upon Conversion from Chapter 13 to 7
In In re Brown (Brown v. Barclay), No. 18-60029 (March 23, 2020), the Ninth Circuit Court of Appeals held that property transferred in bad faith by the Debtor during the pendency of a Chapter 13 case was property of the estate upon conversion of the case to Chapter 7. Generally, only assets that remain in the debtor's control or possession upon conversion from Chapter 13 to Chapter 7 become property of the estate. Further, pursuant to Section 348(f)(1)(A), assets acquired after the Chapter 13 filing do not become property of the estate upon conversion to Chapter 7.
Uniform Fraudulent Transfer Act May Apply to Premarital Agreement
In Sturm v. Moyer, 32 Cal. App. 5th 299 (February 15, 2019), the California Court of Appeal ("COA") addressed a question of first impression and held that, assuming fraudulent intent, the Uniform Voidable Transactions Act, formerly known as the Uniform Fraudulent Transfer Act ("UFTA"), can apply to a premarital agreement in which the prospective spouses agree that upon marriage, each spouse's earnings, income and other property acquired during marriage will be that spouse's separate property. In this case, the plaintiff had obtained a non-dischargeability judgment against the husband debtor in bankruptcy. During a judgment debtor examination, plaintiff discovered that the defendants had entered into a premarital settlement agreement after the judgment was entered providing that each party's earnings and income, and any property acquired during the marriage by either spouse, would be that spouse's separate property. Typically, pursuant to Fam. Code § 910, the community estate would be liable for debt incurred by either spouse prior to marriage (unless the spouses comply with the provisions of Fam. Code § 911). The plaintiff filed an action under UFTA to set aside the alleged transfer of the husband debtor's community property interest in his wife's earnings and income pursuant to the premarital agreement. The COA looked at (1) the statutory language of the UFTA (which suggests that a premarital agreement effects a transfer given the broad definition of transfer), (2) the legislative history of the UFTA and the relevant portions of the Family Code, and (3) public policy considerations (protecting the rights of creditors from fraudulent transfers), to determine that the UFTA applies to premarital agreements.
No Part of Creditor's Claim Can Be Disputed In Order to File an Involuntary Bankruptcy Petition
In State of Montana Dept. of Revenue v. Blixseth, No. 18-15064, the Ninth Circuit Court of Appeals held that a creditor only has standing to file an involuntary petition against a debtor if the entirety of its debt is not subject to a bona fide dispute. If the amount of the claim is even partially disputed, the creditor cannot be a petitioning creditor. Pursuant to Section 303(b)(1), a petitioning creditor's claim must not be contingent or the subject of a bona fide dispute as to liability or amount. In Blixseth, the debtor's 2004 taxes were under audit. The debtor conceded that a deduction he took was improper but there were other adjustments and deductions that were unresolved and were in the process of being tried in front of the Montana State Tax Appeals Board. While the complaint was pending, plaintiff and other creditors filed an involuntary petition against the debtor. Plaintiff's claim in the involuntary petition consisted only of the taxes owed, which flowed from the deduction issue that was resolved. Plaintiff contended, however, that it had total claims against the debtor of much more than what was asserted and that most of the additional claims were disputed. The bankruptcy court acknowledged that a taxing authority "has but one claim for each calendar year of a taxpayer's life" and that plaintiff failed to show that it was allowed to create separate claims. The bankruptcy court held that since some of the debtor's liability to the plaintiff for the 2004 tax year was disputed, plaintiff's claim was subject to a bona fide dispute and plaintiff did not have standing to be a petitioning creditor. The district court agreed and the Ninth Circuit affirmed.
Objective Test for a Creditor's Compliance with the Bankruptcy Discharge Injunction
In Taggart v. Lorenzen, 139 S. Ct. 1795, 1802 (2019), the Supreme Court overruled the Ninth Circuit by requiring an objective test for a creditor's compliance with the bankruptcy discharge injunction. The nation's highest court explained that "a party's subjective belief that she was complying with an order ordinarily will not insulate her from civil contempt if that belief was objectively unreasonable." Id. This ruling went against more recent Ninth Circuit case law that a "'good faith belief' that the discharge order 'did not apply'" to a creditor's claims would prevent a court from ordering civil contempt sanctions against such a creditor. Id. at 1801.
Employees Cannot Seek Unpaid Wages in Actions Asserting Exclusively PAGA Claims
There has long been a split of authority among California Courts of Appeal as to whether a PAGA claim seeking civil penalties and unpaid wages must be arbitrated pursuant to an employment arbitration agreement. In mid-September, the California Supreme Court issued its long-awaited decision in ZB N.A. v. Superior Court (Lawson), finally resolving the split, albeit in an unexpected manner.
Bankruptcy Courts Can Determine Tax Liability Under Section 505 if it Might Affect the Estate At the Time of Filing
In Bush v. United States of America, No. 16-3244, decided September 20, 2019, the Court of Appeals for the Seventh Circuit held that the Bankruptcy Court has jurisdiction to determine the amount of tax liability under Section 505 if it could possibly effect the creditors and the bankruptcy estate at the time the case is filed. The decision is centered on 11 U.S.C. § 505, which allows the bankruptcy court to "determine the amount or legality of any tax, any fine, or any penalty relating to a tax ...." In Bush, the debtors owed nearly $200,000 in taxes and penalties. The debtors petitioned the Tax Court for review and when trial was imminent, they stipulated to owing $100,000 in taxes but the amount of penalties were still in dispute. The debtors filed for bankruptcy on the date set for trial. The bankruptcy court declined to lift the automatic stay and the debtors then brought an adversary proceeding asking the bankruptcy court to set the penalty at 20% of their unpaid taxes pursuant to Section 505. The IRS sought to dismiss the adversary proceeding, which the bankruptcy court denied. The district court disagreed and found it did not have subject matter jurisdiction to resolve the dispute.
