Thursday, April 17, 2014

Ninth Circuit Ruling Holds Wall Street Accountable For Bankruptcy Violations

By Michael FullerThe Underdog Lawyer ®

Yesterday, the Ninth Circuit Court of Appeals made it less profitable for Wall Street to violate the United States Bankruptcy Code.

The Court's opinion held that consumers are entitled to recoup expenses incurred enforcing the bankruptcy automatic stay, including attorney fees spent holding violators accountable.

Illegal Foreclosure Violates Automatic Stay

The Ninth Circuit's opinion, In re Schwartz-Tallard, requires companies to reimburse consumers for the expense of prosecuting disputed violations of the Bankruptcy Code's automatic stay provisions.

Ms. Schwartz-Tallard argued that her mortgage company, America's Servicing Company, violated the automatic stay by foreclosing on her home after she filed bankruptcy.

On appeal, America's Servicing Company maintained that it hadn't done anything wrong. 

Consumers Can Recoup Expenses to Prove Liability

The Court of Appeals ruled that while Ms. Schwartz-Tallard may not recover attorney fees spent solely pursuing damages, her expenses to prosecute and prove liability are recoverable.

The Court reasoned that the mortgage company's choice to dispute liability caused the debtor to spend money on litigation that would otherwise have been available to creditors.


National banks understand that the best strategy to defend against alleged bankruptcy violations is to always (1) deny responsibility and (2) appeal.

The national bank in the Ninth Circuit that implements this strategy most often is Wells Fargo.

America's Servicing Company is a division of Wells Fargo Home Mortgage.

Wells Fargo Strategy Part I: Deny Responsibility

Congress assigned enforcement of consumer bankruptcy protections to private individual debtors. The Department of Justice rarely, if ever, prosecutes automatic stay violations.

By always denying responsibility, Wells Fargo deters future consumers from prosecuting similar violations on their own.

For example, last week, Wells Fargo paid over $35,000 to settle a cut-and-dry bankruptcy violation. Despite the judge having previously granted an order to show cause why the bank shouldn't be held in contempt, Wells Fargo maintained its innocence until the end.

Wells Fargo Strategy Part II: Always Appeal

By always appealing, Wells Fargo forces consumers to give up, or face years of costly court battles. 

In Wells Fargo's most recent Ninth Circuit appellate victory, the consumer wasn't even represented on appeal. Wells Fargo has a rich history of appealing unfavorable consumer bankruptcy opinions in the Ninth Circuit.

See, e.g., Walls v. Wells Fargo (9th Cir. 2002), Barrientos v. Wells Fargo (9th Cir. 2011), etc.

See also, Culpepper v. Wells Fargo, a 2012 Oregon case where the bank was held in contempt of the bankruptcy rules for harassing a family with over 100 unwanted phone calls.

After the bank was held in contempt, it appealed. When it lost on appeal, it appealed again. The bank finally settled for $37,500, while still maintaining it did nothing wrong.

Sternberg v. Johnston Distinguished

In re Schwartz-Tallard is important because it frustrates the "deny and appeal" strategy.

Yesterday's ruling distinguishes a controversial 2010 opinion called Sternberg v. Johnston, where a Bush-appointed Judge limited the ability of consumers to enforce bankruptcy protections.

Whether or not Sternberg was poorly reasoned is up for debate. A majority of courts seem to think it was, including the Court of Appeals for the 5th Circuit and Bankruptcy Appellate Panels for the 1st and 6th Circuits.

What is clear is that Sternberg produced absurd results for consumers who could no longer afford to enforce the bankruptcy rules against national banks and large corporations.

In re Schwartz-Tallard evens the playing field again, by allowing consumers to recoup the expenses of holding Wall Street responsible for its bankruptcy rule violations.

Friday, March 28, 2014

Wells Fargo Can Avoid Local California Juries, Court Rules

By Michael Fuller, The Underdog Lawyer ®

Yesterday, the Ninth Circuit Court of Appeals upheld Wells Fargo's routine practice of avoiding jury trials in California state courts.

The decision is unique because it allows Wells Fargo, a California bank, to "remove" lawsuits filed against it by California residents.

Wells Fargo successfully argued that it is technically located in South Dakota, even though its principal place of business has been California since 1852.

How "Removal" Works

The law generally allow defendants to "remove" state court lawsuits of $75,000 or more to federal court.

However, removal is only allowed where the parties are citizens of different states.

The Court of Appeals reasoned that under the National Banking Act, Wells Fargo is a citizen of South Dakota, because it chooses to maintain its main office there.

South Dakota is the fifth smallest state, with less than a million consumers. By locating its main office in such a small state, Wells Fargo ensures it can avoid state court juries in California, the largest state by population.

Why Remove to Federal Court?

Wells Fargo regularly removes cases from state courts because it believes federal juries and judges are more business-friendly.

Federal jury pools often draw from rural towns which tend to vote Republican. Republicans often support tort reform and are less sympathetic towards the poor.

Federal judges are confirmed for lifetime terms by Congress. They are seen as less "activist" because they don't need to gain favor with local voters to keep their jobs.


As a commercial litigation attorney in Oregon, I generally prefer federal courts for the following reasons:

- Federal cases are accessible to the public via PACER
- Federal judges generally issue written opinions
- Written opinions provide clear legal analysis
- Federal court calendars are easily accessible
- Federal dockets can be monitored 24/7 online via CM/ECF
- Federal judges follow stare decisis
- I know the Federal Rules of Civil Procedure

As usual, Wells Fargo's appellate team did a good job of case selection (the consumer's attorney failed to file a brief).

While I respect Judge Gould's dissent in Rouse v Wachovia Mortgage (9th Cir. 2014), I think the opinion got it right on this one.

Friday, February 7, 2014

Man Sues Website for Falsely Claiming He is Educated and Wealthy

Thomas Robins sued in California federal court for violating the Fair Credit Reporting Act (FCRA).

Not a Gentlemen or a Scholar

Robins claimed the website falsely reported that he was a wealthy college graduate, when in fact, he was not.

The trial court judge dismissed Robins' lawsuit because he hadn't suffered any real injury.

Ninth Circuit Reverses Dismissal

The Court of Appeals held that under FCRA, an alleged wilful violation meets the Constitution's 'injury-in-fact' standing requirement.

What is "Standing"?

As a general rule, a federal lawsuit must be dismissed unless a consumer adequately alleges "standing."

Article III standing generally requires a consumer allege a concrete injury, caused by a defendant, that a court can make right with a favorable ruling. 

For more on standing, read the Supreme Court case Friends of the Earth v. Laidlaw (2000).


Great class representative. Unemployed. Uneducated. Litigious.

Very relatable. Reminds me of the impotent guy who wanted to sue his ex for saying he was good in bed.

The Court's holding was fairly unremarkable. The Sixth and Seventh circuits share similar holdings about the injury-in-fact requirement in the FCRA context.

Those of us hoping the Ninth Circuit would further expand the ever-relevant 'rule-of-the-case' doctrine will have to wait for another day.

Tuesday, February 4, 2014

Ninth Circuit Rules (Again) That Fee Reimbursements Cannot be Arbitrarily Reduced

By Michael FullerThe Underdog Lawyer ®

Yesterday, the Ninth Circuit Court of Appeals ruled in favor of longshoreman Rick Carter by reversing the trial court's reduction of his attorney fee reimbursement.

Judges Cannot Arbitrarily Reduce Fee Reimbursements

Carter previously filed a lawsuit under the Longshore Act and was compensated over $3,000 for his injuries.

The Act entitled Carter to recoup the reasonable amount of attorney fees he spent prosecuting his lawsuit.

Carter requested a $22,000 fee reimbursement and the trial court awarded him $14,000.

Judges Must "Show Their Work"

The Ninth Circuit reversed, holding that the district court abused its discretion by failing to adequately explain why it reduced Carter's fee reimbursement.

The Court reasoned that its prior opinions (Costa, Moreno, etc.) require trial court judges to specifically state reasons and show their work before significantly reducing a fee reimbursement.


The Carter opinion shouldn't come as a surprise to anyone.

The Ninth Circuit has made this rule clear on a half dozen occasions in the past decade. Read its opinions in:

Gonzalez (2013)
Costa (2012)
Evon (2012)
Lyon (2011)
Moreno (2008)
Camacho (2005)

It's unclear why some district court opinions continue to drastically reduce consumer reimbursement awards without explaining why.

Two types of laws regulate Wall Street and Corporate America: criminal laws and consumer protection laws. Congress funds the Department of Justice to enforce criminal laws.

Congress allows everyday Americans to enforce consumer protection laws directly, with the help of private attorneys. To fund these private attorneys, consumer protection laws generally provide for attorney fee reimbursement.

Thoughtless reductions of consumer fee reimbursements work to discourage top class attorneys from representing consumers.

Our Appellate Courts and Congress understand that most Americans can't afford to hire attorneys to enforce their rights. After Carter, hopefully more trial courts will too.

Friday, January 17, 2014

Bloggers Deserve First Amendment Protections Too, Ninth Circuit Rules

By Michael FullerThe Underdog Lawyer ®

Today, for the first time in history, the Ninth Circuit Court of Appeals conferred First Amendment protections to bloggers accused of defamation.

Powerful Portland Trustee Loses on Appeal

In 2011, Portland District Judge Marco Hernandez chose to deny blogger Crystal Cox protections under the Constitution because she was not a formal press member.

Cox had been sued for defamation after blogging about Oregon bankruptcy trustee Kevin Padrick and his investment company, Obsidian Finance Group.

Padrick retained prominent Portland lawyer David Aman of Tonkon Torp LLP, and obtained a $2.5 million verdict against Cox, who represented herself at trial.

Judge Hernandez instructed the jury that Padrick should prevail at trial, even if his lawyer failed to prove Cox acted with any degree of fault.

Today's Opinion Sets First Amendment Precedent

Today, the Ninth Circuit reversed, holding that Cox's failure to submit evidence that she was a journalist did not strip her blog of First Amendment protections.

The opinion is the first of its kind in the Ninth Circuit, which covers Washington, Oregon, California, Idaho, Nevada, Arizona, and Montana.

After Trial Loss, Blogger Gained Allies

Cox's loss at trial shocked many in the legal blogging community, and she quickly gained support from an all-star team of appellate lawyers on appeal.

After prevailing in court, Padrick took the bold legal maneuver of attempting to terminate Cox's appeal by purchasing her appellate rights at sheriff's sale.

Key among Cox's allies was UCLA First Amendment professor Eugene Volokh, who assisted Portland firm Angeli Law Group LLC pro bono in filing an initial motion to stay in district court.

On January 15, 2013, Judge Hernandez granted Cox's motion to stay the proposed sheriff's sale.

The case, Obsidian Finance Group, LLC et al v. Cox, is now remanded back to Oregon district court for a new trial.


As a free speech law blogger, I rejoiced when I read Judge Hurwitz's opinion. Thank you, thank you, thank you, professor Eugene Volokh and Benjamin Souede!

Pigs Get Fat; Hogs Get Slaughtered.

Maybe the second time around, Padrick and his lawyer will avoid going "scorched earth" on a mentally impaired judgment-proof out-of-state pro se blogger.

Had Padrick been more reasonable in his legal positions in the first instance, he might have still won a monster verdict, and avoided this embarrassing reversal.

The first I actually heard of this case was Padrick's seemingly evil attempt to liquidate Cox's right to appeal on the Volokh Conspiracy a year ago.

The "Free Speech Notice" on my website was a direct result of Judge Hernandez's holding.

Say what you will about Citizens United, I thought it interesting the panel was so heavily persuaded by it in this pro-consumer opinion.

“We have consistently rejected the proposition that the institutional press has any constitutional privilege beyond that of other speakers.”
Citizens United v. FEC, 558 U.S. 310, 352 (2010).

Friday, January 10, 2014

Court Orders Bankrupt Woman to "Turn Over" Money She Had Already Spent

By Michael FullerUnderdog Lawyer ®

Yesterday, the Ninth Circuit Court of Appeals issued an opinion ruling against a debtor who failed to turn over bank funds to the trustee in her chapter 7 bankruptcy case.

Who is Directly Affected?

Judges in Washington, Oregon, California, Idaho, Nevada, Arizona, and Montana are generally required to follow Ninth Circuit Court of Appeals opinions. For more about stare decisis, click here.

Lesson: Have No Cash On the Day of Filing

On the day Barbara Henson filed bankruptcy, she had over $6,000 in her Bank of America checking account.

By the time her trustee demanded the $6,000 a month later, she had already spent it.

Court's Ruling

The Court of Appeals ruled that Henson was required to comply with the trustee's demand, even though she didn't actually possess the bank funds on the date the demand was made.

The Court reasoned that Congress would have intended Henson to be required to pay the money, based on the plain language of bankruptcy statute 11 USC § 542(a).


This opinion creates a circuit split with the Eighth Circuit opinion in Brown v. Pyatt (In re Pyatt), 486 F.3d 423, 429 (8th Cir. 2007).

The Court of Appeals was admittedly persuaded by similar conclusions reached by the Bankruptcy Appellate Panel in its Newman v. Schwartzer (In re Newman), 487 B.R. 193, 199–200 (B.A.P. 9th Cir. 2013) opinion, which included panelist Portland Bankruptcy Judge the Honorable Randall Dunn.

Monday, January 6, 2014

Verizon Harassment Dispute With Mentally Impaired Portland Man Settles

By Michael Fuller, Underdog Lawyer

Verizon Wireless recently settled allegations that it harassed a mentally impaired Portland man to pay a bill he didn't owe.

See Prior Post: Verizon Allegedly Abuses Mentally Impaired Consumer

Verizon Publically Apologizes, Pays Fair Compensation

Without admitting liability, Verizon agreed to compensate the consumer $5,000 for his stress and apologized to him in writing.

"The way I see it, Verizon did the right thing, and did right by my client," says the consumer's pro bono attorney.

On December 6, an order closing the case was entered pursuant to the agreement of the parties.

[United States District Court Portland Division Case Number 3:13-cv-01940-MO]