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Bloodthirsty Creditor Threatening Sanctions - Please Help
Mates, I plea to you for your infinite wisdom. Ive never seen a creditor as
aggressive as the one Im dealing with in this case. They are now
threatening to file a motion for sanctions against me.
Im very sorry for the long email. Heres how it all started:
Debtor signs lease with bloodthirsty landlord BLL to open a restaurant
about 5 years ago. After less than a year the business fails, debtor assigns
the lease, but then the assignee also breaches. Assignee then files for
bankruptcy and gets a discharge. Debtor sued in state court by BLL for
$500k+. BLL does not mitigate for 3 years. Eve of trial, debtor files C7
sometime in 2010. Trustee filed report of no asset but discharge challenged
by BLL. After a lengthy trial, the court denies his discharge due to
mischaracterization of payments to debtors wife as loan to officer instead
of as income. Debtor appeals decision to BAP. Stay not in effect, BLL
proceeds with state court litigation. BAP case still pending.
On the eve of status conference to set trial, I file an emergency chapter 13
on behalf of debtor (end of 2012). BLL immediately files for relief from
stay. The court sua sponte dismisses the case using a form order checking
off the box that says multiple cases pending. Days later, without stay in
effect and with the advice of bad legal counsel, debtor stipulates to a
$500k+ judgment against him in the state court action.
I file a motion to vacate dismissal first on grounds that debtor was not
afforded due process and second that there is no per se prohibition against
multiple pending bankruptcy cases, discussing the supposed discharge
requirement, single estate, rule and the lack of any statutory prohibition.
BLL opposes. I file a reply. At the hearing, the court agrees with my
procedural due process argument but the remedy is to then set an OSC re why
debtors bankruptcy case should not be dismissed due to concurrent pending
cases. Dismissal not vacated and BLL even instructed to file a reply to our
brief! Debtor not afforded opportunity to file reply either.
After the briefs were filed but before the OSC hearing, BLL conducts ORAP of
Debtor who testifies that he currently does not have income and has not had
regular income in the last 3 years. Testimony used in a supplemental brief
filed by BLL after it had already filed a reply. I then filed a reply as
well.
Interestingly, in its ruling, the Court mentions the fact I filed a reply
which wasnt part of the OSC but doesnt have anything to say about BLL
filing a supplemental reply which also wasnt part of the OSC. In fact, the
ruling actually quotes about 2 pages from the ORAP with debtors testimony
about not having regular income.
The 15 pg tentative ruling discusses how there is no statutory bar against
pending cases, there is no discharge requirement but that the case should
remain dismissed because of the single estate rule SER and bad faith under
the Leavitt factors.
SER:
Court ruled that the case cant move forward because an asset cant be a part
of two estates simultaneously. I dont believe this is a correct statement
of the rule. Court should instead determine if an asset belongs to first
estate or the second. Also, between filings over the course of 2.5 years,
debtor accumulates new property clearly part of new estate. Think about all
the cases on the Chapter 13 calendar where there is a previous bankruptcy
that has been dismissed but not closed but debtor permitted to proceed.
Think about the Chapter 20 situation where C7 not closed.
BAD FAITH:
a) Income - Court starts this section stating debtor improperly reviewed
good faith under 1325(a)(3) because that section is only for confirming a
plan. Instead, the Leavitt Factors should be analyzed. Due to the fact
debtor testified in ORAP (from state court proceeding) 2.5 months after the
C13 was filed that he receives no income and has not received regular
income, the court found debtor doesnt meet the regular income requirement
of 109(e). It also pointed to his C7 case from 2.5 years ago where debtor
had no income listed on Schedule I. Keep in mind we hadnt filed any
schedules when the case was dismissed and had not at any point discussed
income in the OSC brief because the scope was re concurrent bankruptcy cases
. Here, debtors spouse receives more than enough regular income to support
a plan and something left over for unsecureds. Also, regular income defined
under 101(30) connects it with ability to make plan payments so wifes
income is obviously relevant. The debtor also has the prospect of making
income soon. The Rutter Guide also states that a debtor does not necessarily
need to have income on the date petition filed.
b) Debt Limit - The court then finds that due to the fact that the BLL
judgment amounts to higher than the unsecured debt limit that it is beyond
dispute debtor is above debt limit. But damages from a breached lease are
capped pursuant to 502(b)(6). Court inserts a footnote with respect to cap
stating that debtor didnt cite to any authority how statute applies to the
state court judgment. We did cite to cases that applied 502b6 to breach
lease but not with respect to state court judgments from a breached lease
because the judgment was rendered after the C13 was filed. Again the OSC was
for why debtor can file concurrent cases, scope wasnt to discuss 109(e)
debt limits. Shouldnt we first wait for a POC to be filed? Doesnt debtor
get opp to object? Wheres the due process?
c) Defeat State Court Litigation - Court then finds that debtor only
intended to defeat state court litigation. But what about the thousands of
cases that are filed on eve of foreclosure? Debtor has other debts relating
to the failed business that he seeks to discharge.
What started as an OSC re concurrent cases ended up into a detailed bad
faith analysis when no schedules had been filed, sufficient information was
not before the court, and debtor wasnt instructed to discuss bad faith.
This information regarding the judgment, debtors income, status of the
state court litigation, were not before the court when it initially
dismissed the case sua sponte.
Fast forward to today, BLL started threatening me two days ago that if
debtor doesnt accept their settlement offer of $150k, with $35k due
immediately, they will file a 9011b against us both. BLL now calls me and is
threatening to file a motion for sanctions asking for more than $30k in
legal fees regardless of a settlement with debtor and are asking me to offer
them money or they file a 9011(b). (Keep in mind Ive been paid $1500
including filing fees to date. Did not take this case for the money.)
I really gave the briefing my all and did not file the case in bad faith
which is why I fought so hard to have it reinstated. The initial motion to
vacate was 22 pages. The reply brief was 12 pages. After new briefing
requested pursuant to OSC I filed a 30 page brief. My reply in the OSC was
another 8 pages. Obviously, length by itself is not indicative but if any of
you care to read the briefs you will know what Im talking about. The legal
issues at play certainly arent clear cut. Court issuing 15 page tentative
should be somewhat indicative. Im extremely shocked that BLL is threatening
sanctions. They are upset about not being able to collect from debtor all
these years and trying now to strong arm me. My gut is they will roll the
dice. I have never faced a motion for sanctions before so dont know what
to expect but completely disagree that its warranted. Ive already been
surprised by the courts ruling on this case and dont want any more
surprises.
I feel that the courts ruling should be appealed. But given how much time
Ive already put in, I cant afford to continue working pro bono. I was
initially hoping that someone else might be interested but now that BLL is
threatening sanctions against me should I consider appealing? Also, the fact
that a motion for sanctions would go in front of the same court that made
these bad faith findings makes me uneasy.
What am I supposed to do? Please help debtor attorney community.
Mates, I plea to you for your infinite wisdom. I’ve never seen a creditor as aggressive as the one I’m dealing with in this case. They are now threatening to file a motion for sanctions against me.
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