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October 2019 Archives

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.

Attorney Violated Standard of Care By Failing to Raise Stern Objection

In Stevens v. Sharif, et. al., No. 15 C 1405 (N.D. Ill. August 30, 2019), Judge Durkin of the United States District Court for the Northern District of Illinois found that defendant's attorney in Wellness International Network Ltd. v. Sharif, 135 S. Ct. 1932 (2015) had not committed legal malpractice by failing to raise the Stern objection before it was deemed waived. A "Stern objection," as it is known, is the result of the ruling in Stern v. Marshall, 564 U.S. 462 (2011), where the Supreme Court held that the bankruptcy court lacked constitutional authority to issue a final and binding judgment on a state law counterclaim. Wellness International resolved a circuit split regarding whether a party could waive a Stern objection by failing to raise the objection to the bankruptcy court's power. In Wellness International, the defendant's discovery abuses in an adversary proceeding eventually led the bankruptcy court to sanction defendant by entering judgment against him. The defendant appealed to the district court and after the appeal was fully briefed, sought leave to file supplemental briefing asserting a Stern objection. The district court found the argument had been waived. The defendant appealed to the Seventh Circuit and again waited until the reply brief to assert the Stern argument. While noting that defendant waited to long to assert his argument, the Seventh Circuit held the Stern issue could not be waived. The plaintiff, Wellness International, appealed, and the Supreme Court held that the objection can be waived.

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