Monthly Archives: April 2014

Can A California State Court Judgment or Arbitration Award Be Used In Bankruptcy Court?

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A sequence of events that takes place is a person lends money or credit is extended and then the borrower for whatever reason cannot continue to make payments and breaches the repayment agreement. The creditor then sues them in California Superior Court. There are numbers of ways to obtain a judgment, but a judgment is entered against the borrower in state court. Or an arbitration award is entered against the borrower. Can the judgment or arbitration award be used against the borrower if the borrower chooses to file for bankruptcy protection? Can the judgment be used to make the debt owed not discharged? This is an issue of issue preclusion. Can a judgment or arbitration award be entered against the borrower in Bankruptcy Court? Will the Bankruptcy Court require litigation of the same issue already decided by the judgment or arbitration award?

Like the answer to many legal questions bankruptcy attorneys must answer, the correct answer is it depends upon the judgment or language of the arbitration award. The Bankruptcy Appellate Panel for the Ninth Circuit recently discussed this issue in Richard Scott Urban vs. BCS West, LLC; BAP No. SC-13-1047. According to California state law California courts may apply issue preclusion only if certain requirements are met and if the application of issue preclusion furthers the public policies underlying the doctrine. The doctrine of issue preclusion is the theory that issues already decided in state court should or must be recognized by federal courts pursuant the Full Faith and Credit Clause of the United States Constitution. Under California law requires that (1) whether the issue sought to be precluded from relitigation is identical to that decided in the former proceeding; (2) whether the issue was actually litigated in the former proceeding; (3) whether the issue was necessarily decided in the former proceeding is final and on the merits; and (5) whether the party against whom preclusion is sought was the same as, or in privity with, that party to the state court proceeding. If these requirements are met California courts must further consider whether any overriding concerns about the fairness of the former proceeding are present or consistent with sound public policy.

Regarding an arbitrary award Federal Bankruptcy Courts can give California arbitration awards preclusive effect if the arbitration proceeding was held in an adjudicatory manner. Arbitration awards that have been confirmed by California courts have been given preclusive effect in Bankruptcy Court too. California judgments are more likely to be given preclusive effect given that they are more likely to satisfy the actually litigated factor listed above. Many arbitrations are not held in an adjudicatory manner.

One of the most important factors is the wording of the judgment or arbitration award and the facts that came to light in the California State Court matter. One of the main areas of Bankruptcy cases that California State Court judgment are used for issue preclusion purposes area in adversary proceedings to determine whether a debt or claim is discharged or if the debtor should receive a discharge of their debts at all. A bankruptcy attorney may not have been retained to represent the creditor or debtor in the California State Court litigation. The wording of the judgment or arbitration award will be extremely important for the Bankruptcy Court’s analysis if issue preclusion can be used. In Urban case the Bankruptcy Appellate Panel held that the arbitration award was ambiguous. In Federal Bankruptcy Court the question of whether all of the requirements for a debt to be deemed not discharged is an uphill battle and any ambiguity in the California State Court case will be decided in favor of the debtor or bankruptcy filer. What is proven in the California State Court will most likely not be exactly the same as a fraud charge, breach of fiduciary duty or willful or malicious injury. If you believe a person you are suing is going to file for bankruptcy protection in the future you must carefully craft your allegations and the wording of any judgment or arbitration award so that it can be used in bankruptcy court.

Bankruptcy Appeals – Yes, If You Do Not Agree With Bankruptcy Courts Order or Judgment You May Appeal to the Bankruptcy Appellate Panel

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Yes, if you do not agree with a bankruptcy court’s order or judgment you may appeal it. Bankruptcy appeals are the process of having a bankruptcy court’s order or judgment reviewed for error by the bankruptcy appellate panel or the district court for the district of the federal bankruptcy court your case is pending. Some district courts in the United States do not have appellate panels of sitting bankruptcy judges for the district to review appeals. If that is the case there is only the district court to appeal to. The decision to appeal should not be taken lightly given the time and expenses involved. Appealing an order or judgment to stop the order or judgment from becoming effective is risky business and arguably unethical for bankruptcy attorneys to be part of. If you believe an order or judgment was appealed to stop the order of judgment from becoming effective pending appeal you should hire a bankruptcy lawyer to file a motion for the order or judgment to become effective notwithstanding the appeal and seek sanctions.

Yes, if you do not agree with a bankruptcy court’s order or judgment you may appeal it.

Yes, if you do not agree with a bankruptcy court’s order or judgment you may appeal it.

To start the process you must file a notice of appeal with 14 days of lower bankruptcy court’s entry of the judgment or order. Please see Fed.R.Bankr.P 8002(a). See Key Bar Invs., Inc. v. Cahn (In re Cahn), 188 B.R. 627, 630 (9th Cir. BAP 1995) (citing Browder v. Dir., Dep’t of Corr. of Ill., 434 U.S. 257, 264 (1978) and Slimick v. Silva (In re Slimick), 928 F.2d 304, 306 (9th Cir.1990)). If the notice of appeal is not timely filed the appellate court has no jurisdiction to hear the appeal. See Preblich v. Battley, 181 F.3d 1048, 1056 (9th Cir. 1999).

The time to file a bankruptcy appeal can be extended by filing a motion with the court. The motion to extend the time must be filed before the time for filing a notice of appeal has expired. A motion to extend the time to file an appeal can also be filed within 21 days of the expiration of the 14 day period to file notice upon a showing of excusable neglect pursuant to Fed.R.Civ.P. 60. Be careful though. A party can seek to have the district court or bankruptcy appellate panel hold that the appeal was frivolous. Depending upon how frivolous just damages can be awarded and single or double costs against the party frivolously appealing.

Normally when an order or judgment is appealed a stay takes effect stopping the order or judgment from becoming effective until the district court or bankruptcy appellate panel rules. The bankruptcy judge can order the continuation of other proceedings while the appeal is pending. A motion for relief can be made also directly to the district court or bankruptcy appellate panel, but an explanation as to why relief was not sought and obtained from the bankruptcy court must be included. Likewise, if a judgment is appealed to the court of appeals from the district court or bankruptcy appellate panel the judgment is stayed pending the appeal to the court of appeals.

How Do I Get Rid of a Judgment or Judicial Lien From My House?

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When filing for bankruptcy you may avoid a judicial or judgment lien from your house pursuant to 11 U.S.C. §522(f) if the bankruptcy filers interest in that property would be exempt but for the existence of the judgment or judicial lien. A motion must be filed with the court and given that the lien can be avoided or removed without the consent of the lien holder notice of the motion to the lien holder is extremely important.

A recent Ninth Circuit Bankruptcy Appellate Panel case discusses the service requirements for a motion to avoid a lien. See Frates v. Wells Fargo Bank, N.A.; BAP No. NC-13-1366-JuKiD Before discuss this case further there are ways to get rid of the judgment lien from your house outside of filing for bankruptcy protection. You could satisfy the judgment entered against you. The amount you will have to pay will include prejudgment interest, post-judgment interest, costs of enforcement of the judgment and attorney fees and costs. You might be able to negotiate a settlement, make the payments and then the judicial lien holder should remove the lien. A lump sum cash payment today is better than years of payments and uncertainty of when the lien holder will ever see a penny to collect on the judgment.

When filing for bankruptcy you may avoid a judicial or judgment lien from your house.

When filing for bankruptcy you may avoid a judicial or judgment lien from your house.

Back to the Frates case. In this case the Frates’ filed for bankruptcy protection under Chapter 13 of the Bankruptcy Code. They had a judgment lien recorded against their house and sought to avoid the lien pursuant to Section 522(f) by filing the appropriate motion with the court. Wells Fargo was the lien holder and never responded to the motion. So the Frates’ bankruptcy attorney sought enter of the order by default on the motion to avoid. The Bankruptcy Court denied the entry of the order by default on procedural grounds: (1) the notice of the motion failed to identify the real property and (2) the notice, motion and accompanying pleadings were not served on counsel listed on the abstract of judgment as required under Cal. Code Civ. P. (CCP) § 684.010. The Frates’ bankruptcy attorneys moved for reconsideration which the court denied. This appeal was then filed.

Notice of this motion is the issue in this case. Rule 9014(a), in turn, provides that relief shall be requested by motion and “reasonable notice and opportunity for hearing shall be afforded the party against whom relief is sought.” The Bankruptcy Court for the Northern District of California has a scream or die notice process that may be used for certain motions pursuant to LBR 9014. Notice and opportunity for a hearing is served on the opposing party and then it is incumbent on the opposing party to file a timely opposition or request for hearing. If opposition or a request for hearing is not timely filed the party that filed the motion may request entry of the order by default. “The standard for what amounts to constitutionally adequate notice, however, is fairly low; it’s ‘notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objection.’” Espinosa v. United Student Aid Funds, Inc., 553 F.3d 1193, 1202 (9th Cir. 2008) (citing Mullane, 339 U.S. at 314), aff’d, 559 U.S. 260 (2010).

Under these facts though Wells Fargo Bank, N.A. is an insured depository institution whereby service is governed by FRBP 7004(h). This rule provides service must be by certified mail addressed to an officer of the institution. In this case the debtors’ did serve Wells Fargo Bank, N.A. by certified mail and addressed the service to an officer of the institution. The other issue was whether California Civil Procedure Section 684.010 must be followed when serving a motion to avoid a lien. C.C.P. §684.010 governs judgment enforcement under California law and says notices and other papers are required to be served on the judgment creditor’s attorney of record rather than on the judgment creditor if the judgment creditor has an attorney of record. In Frates the 9th Circuit Bankruptcy Appellate Panel held that nowhere do the bankruptcy rules require compliance with C.C.P. §684.010 in lien avoidance actions and applying C.C.P. §684.010 creates confusion about where and when bankruptcy practitioners should follow state law even when they comply with applicable bankruptcy rules.