StayViolation.Com

Alito Renders On The Side Of A Strict And Vengeful Stay

New United States Supreme Court Justice, Samuel Alito, may be a lot of things, but an enemy to the broad interpretation, and strict enforcement, of the bankruptcy automatic stay is not one of them.

In a parting shot to creditors or others who would find reason to violate the automatic stay and then try to distinquish their behavior, Judge Alito wrote wrote the deciding opinion for the 3rd Circuit Court of Appeals ACandS v. Travelers Casualty, in which he overturned the United States District Court who found it expedient to overlook the bad acts of Travelers.

The facts themselves of how Travelers arrived at its troubles are rather complicated, but the decision as to the strict nature of the automatic stay is clear.

ACandS used to be known as Armstrong Contracting and Supply.  The company was one of those companies that got caught up in the asbestos litigation in this country.  Travelers was and is an insurance company that remains liable on about 45% of the potential claims against ACandS.  The extent of Travelers liability depends on what pool or classification each claim is placed.

Prior to ACandS filing bankruptcy it submitted a claim to arbitration in which it and Travelers could not agree on which classification or pool in which it belonged.  After the filing of the bankruptcy Travelers decided to go forward with the arbitration proceeding making a number of arguments with which the United States District Court agreed.  Among these was that Travelers did not willfully violate the automatic by allowing the arbitration panel to proceed in finding that it had no liability for the claim to ACandS in part because arbitration was not the same as litigation and that it proceeded with the case only in defense of ACandS's actions.

Alito and the Third Circuit would have none of this argument, and vacated the arbitration award as void in that it was taken in violation of the automatic stay.

The District Court had refused to invalidate the arbitration determination siting the long running principal that such awards will be enforced by the federal courts as long if it is rationally derived from the agreement of the parties or the issues submitted to the arbitration panel.  Judge Alito flatley stated that this decision ignores the long-standing exception to this general rule that courts may refuse to enforce arbitration awards that violate well defined public policy as embodied by federal law, and the automatic stay is one of those well defined public policies ignored by the District Court.  Stating that the automatic stay is the single most important protection afforded a debtor in bankruptcy, Judge Alito stated the automatic stay provision of the Bankruptcy Act promotes a public policy sufficient to preclude enforcement of an award that violates its terms or interferes with its purposes.

The 3rd Circuit restated what appears to be so obvious to all Courts of Appeals, but ignored by even some bankruptcy and district court judges that try to work backward from what they believe their decision would have been if the law had been properly followed, that the onus is on the party seeking to proceed to petition the Bankruptcy Court for relief from the stay. See 11 U.S.C. § 362(d).

The Court agreed with Travelers that Sub-sections 362(a)(1) and 362(a)(3) differ in that the stay of actions and proceedings provided for by § 362(a)(1) applies only to actions brought against the debtor--the statute does not address actions brought by the debtor which would inure to the benefit of the bankruptcy estate.  And the Court agreed that as a result that defenses, as opposed to counter-claims, do not violate the automatic stay because the stay does not seek to prevent defendants sued by a debtor from defending their legal rights and the defendant in the bankrupt’s suit is not, by opposing that suit, seeking to take possession of it property or money.  However, Judge Alito agreed that this argument is too simplistic. 

The 3rd Circuit theorized that in the trial context, a defendant’s failure to formally plead a counter-claim prevents the court from granting affirmative relief on the basis of the defendant’s arguments. See Fed. R. Civ. Pro. 8.  By contrast, an arbitration award will be affirmed so long as its form can be rationally derived from either the agreement between the parties or the parties’ submissions to the arbitrators and the terms of the arbitral award are not completely irrational. Therefore, the panel’s authority must yield when a dispute threatens the rights of third parties in violation of the laws of the United States, such as the automatic stay.

Finally, Travelers argued that if the automatic stay was violated that the District Court should just ignore it, first because the decision of the arbitration panel was rational, and because it has the equitable power to do so.  Although the District Court bought this argument, Judge Alito and the 3rd Circuit did not.  The 3rd Circuit ruled simply that the United States District Court does not have the equitable powers to grant relief from the automatic stay after the fact.

Is It That Obvious?

Albert Einstein dies and goes to heaven only to be informed that his room is not yet ready.  "I hope you will not mind waiting in a dormitory. We are very sorry, but it's the best we can do and you will have to share the room with others", he is told by the doorman. Einstein says that this is no problem at all and that there is no need to make such a fuss. So the doorman leads him to the dorm. They enter and Albert is introduced to all of the present inhabitants. "See, here is your first room mate. He has an IQ of 180!", says the doorman. "that's wonderful!" says Albert. "We can discuss mathematics!" "And here is your second room mate. His IQ is 150!", says the doorman. "that's wonderful!" says Albert. "We can discuss physics!" Suddenly, another man moves out to capture Albert's hand and shake it. "I'm your last room mate and I'm sorry, but my IQ is only 80." Albert smiles back at him and says, "So, where do you think interest rates are headed?"

Sign Of The Times

I was driving on the Interstate the other day, traveling past an area I see alot, when I saw, practically speaking, a strange thing.  Chase Bank had removed its sign and logo from a multistory building it occupies only to replace it with a slightly smaller version of the exact same sign and logo.  Nothing appeared wrong with the old one.  In fact it was more visable from the Interstate.  Later, I noticed other Chase branches doing the same thing, and I thought each one of these sign changes must be costing the bank thousands of dollars.  It appeared that someone at Chase had decided to make the Bank's logo less prominent in relation to its surroundings.  I guess as an international bank its a feng shui thing.  I am sure it's an artistic and stylistic thing I do not understand.  But overall, the Bank must be spending an unbelievable amount of money for what seems like an insignificant change.  Money you would think could be used in better ways because I doubt seriously that the slightly smaller logo and signage has any affect on business.

Then is occured to me that signage seems to be such a wasteful thing on which large national banks of all stripes seem to spend outrageous sums of money.  Not long ago Wachovia Bank took over SouthTrust banks where I live.  During this process of the takeover SouthTrust was in the process of building a new branch.  When the branch was completed, at approximately the same time as the takeover, the bank spent what had to be a large sum of money placing SouthTrust logo's and signs all over the bank building it just finished constructing.  Literally within a week all of the signage came down (trashed I suppose), and then thousands of dollars in Wachovia signage and logos went up.

The same thing happened just as recently when CoastalBanc was being taken over by Hibernia in my area.  New Coastal signage went up on its new branch, only to come right back down again within days when Hibernia stepped in.  Now all of the Hibernia signs are coming down for brand new CapitalOne signs.

When I lived in Tyler, Texas there was a prominent building downtown which was named after the bank that primarily occupied it.  It changed names so many times during a brief time, and the sinage was changed so many times, that the people of Tyler too to calling it "Velcro Natinal Bank" after the fasteners that must have been used on the signs.

All of this is fine and good excepts as it relates to real life.  When these banks and finance companies trample on the legal rights of one of its clients or customers, causing them damage, (intentionally or not), they bitch, howel, and argue over what in comparison is very little money, spending more in attorneys' fees and costs that what the claim is worth.  But let some artisian suggest that their sign is a couple inches too big or too small and money seems not to be an issue.  Would it not be fine if banks and finance companies concerned themselves more with their image in how it treats real people in this world, namely their customers, and what it would take to make a problem right, as they do with the porportionality of their image on just one of their branches.

Just a thought.

Can A Debtor Sue A State For Damages For Violating The Automatic Stay Or Discharge Injunction?

The answer to the question is decidedly mixed despite the fact that the 11th Circuit Court of Appeals was the last to joined five of six other circuits in ruling that 11 U.S.C. § 106 is unconstitutional and does not abrogate states’ sovereign immunity from a debtor's claim for damages arising from student loan collection actions purportedly taken in violation of the automatic bankruptcy stay. In re Crow, 394 F.3d 918 (11th Cir. 2004).

Although the Supreme Court’s decision in Tennessee Student Assistance Corp. v. Hood, 541 U.S. 440 (2004), established that adversary proceedings against states for discharge of student loan debt do not implicate Eleventh Amendment, a debtor’s claim for damages does. The 11th Circuit relied on Seminole Tribe of Florida v. Florida, 517 U.S. 44 (1996), to find that Congress did not have the power under the Bankruptcy Clause of Article I of the Constitution to abrogate states’ sovereign immunity for such damages.

The question is mixed, however, because although the decision prevents the debtor from seeking damages directly, the 11th Circuit and the other Circuits it followed failed to point out that a similar result might be achieved through the court’s power to impose monetary sanctions for violating a court order, which does not implicate the Eleventh Amendment. Frew ex rel. Frew v. Hawkins, 540 U.S. 431, 439-40 (2004).  It  would appear to be well settled law  across a large territory of cases, such as civil rights litigation, that states can be subject to injunctions issued by federal courts and may be  sanctioned for the violation of those injunctions.

 

Adam Schachter Associates With Firm

Adam Schachter has become associated with Charles Newton & Associates and practices for this firm in the area of automatic stay and discharge order violations.  Adam received his J.D. from Southern Methodist University in Dallas, Texas in 1996.  He received a B.A. in Political Science from the University of Arizona in 1992.  He has represented over 1,500 families and small business in bankruptcy court.  Adam is licensed to practice law in the State of Texas, State of Arizona, before the United States District and Bankruptcy Courts in the Southern and Northern Districts of Texas, as well as before the United States Court of Appeals for the 5th Circuit.

Recent Settlements

Each case we handle is different and has to be evaluated individually.  That said, prior settlements are helpful in understanding those cases that should be litigated.  Many of the cases we settle do not allow for the public disclosure of creditors or other parties making the settlement accept for a disclosure to the bankruptcy trustee and court.  Therefore, the creditors are not disclosed here.  Recently, we have settled a number of cases.  Here are a few of those settled:

$8,000.00 -- Mortgage lender locks down debtors' home while it is prosecuting its uncontested motion for relief from stay, but before the Court grants the motion.

$7,000.00 -- Mortgage lender begins foreclosure proceedings against debtors' home under the mistaken belief that debtors' bankruptcy had been dismissed.

$7,000.00 -- Car finance company repossesses debtor's automobile after debtor files bankruptcy.  It is uncertain if the finance company had prior notice of the bankruptcy, but the repossession company retained by the finance company refuses to return the automobile because debtor refused to sign a general release absolving the finance company and repossession company of all liability for repossession and any damage to the automobile.  As it turned out there was no damage to the automobile as a result of the repossession, but this was unknown by debtor at the time.

$5,500.00 -- Mortgage lender files and prevails on a motion for relief on debtor's home.  The lender begins foreclosure proceedings as was is right.  However, the mortgage lender also continues to send to debtor demands for the past due payments owed pre-petition.  These demands were not part of the noticed required for the lender to foreclose on debtor's home.

$5,000.00 -- Finance company who had an unsecured credit card debt owed to it at the time of bankruptcy filed and pursued a lawsuit against debtor in another state despite the fact that repeated notices had been mailed to the finance company of debtor's bankruptcy at a correct address.

$3,000.00 -- Automobile lender obtains relief from stay to repossess and sale debtor's automobile.  However, the lender sends out notices to debtor that did not recognize the bankruptcy and which would lead a least sophisticated debtor to believe that he was responsible for any arrearages on the automobile resulting from the sale.

$3,000.00 -- Automobile lender repossesses debtor's vehicle.  Returns it approximately an hour and a half later.  No damage resulted from the repossession.

Be Careful Of Party Lines

O-O-o-o-o-h SNAP!!!

Tell me the man did not say that!

A funny thing happened to me on the way to Court the other day.  The United States Bankruptcy Court for the Eastern District of Texas conducts its case management hearing by telephone conference call.  You are given a number and told to call in a few minutes before the hearing.  I did this only to find, once I was patched through, that opposing counsel and his local counsel were already connected.  I was about to tell them hi and exchange some pleasantries, but opposing counsel started talking to his local counsel about me.  It obviously did not dawn on him that I might be connected and could hear everything he was saying.  Needless to say his comments were not only not amusing, but they were personal and insulting.  His tone was condescending.  When the judge came on the line I made my announcement.  I am not sure opposing counsel opened his mouth and insert his foot at this point, but he should have.  Too me it would have been kind of like asking a lady how far along she was with her pregnancy only to be told by her she was not pregnant.

I probably should, but will not, share the name and location of this tactless person.  That might be embarrassing to him.  I am certainly embarrassed for him.

The moral of the story might be to be careful what you say in public or on the phone because you really do not know who is listening.  But, the truth of the matter, to be effective legal counsel you need to be more taciturn and mind your thoughts and your speech at all times least you stick your foot in your mouth as this attorney did.

Litigating automatic stay and discharge injunction violations can be interesting.  Financial institutions, especially small community banks and credit unions, often cannot conceive how they can be sued or found liable for simply making a mistake.  This, of course, is a discussion for another post.  I understand the sentiment and try to deal with it in our adversary proceedings and negotiations.

The problem, however, involves attorneys who somehow find themselves morally offended by these lawsuits.  Now, I have to admit, I have never understood this.  I can certainly understand attorneys advocating for their client's position, but personal moral outrage on the part of the attorney, I have often found, is (1) nothing more than an excuse to bilk his own client for fees and costs when to do so is not otherwise justified given the financial and legal consequences of the situation; and, (2) usually a substitute for not having a proper defense available in the first place.  These two usually go hand-in-hand.  All attorneys could probably trend this way if we are not careful, and I do not consider myself a saint.  We all just need to be on guard.  I have always taken the position that we are all sinners and I have tried to conduct myself and views (and mouth) accordingly.  Needless to say, there are those defense attorneys who take the position that their client is more infallible than the Pope, and they, as attorneys, are so much better than everyone else that it is beneath them to even deal with you as a mere attorney for a consumer debtor.  Their words and actions are contemptuous of the law, the debtor and the court, and they take it out on you, the debtor's attorney.  It is truly unfortunate, it happens with too much frequency, and it makes the practice of law uncomfortable.

The Great News Continues!!!

It was previously announced here that Mary Newton had been accepted to The University of Houston law school once she completes here degree in Japanese at The University of Texas in Austin in May, after only three years.  Now Mary has been accepted to Texas Tech University law school in Lubbock, Texas and Texas Southern University law school in Houston. Way to go girl!!  We are all proud of you.  Your hard work and dedication is beginning to pay off.