Wednesday, August 5, 2015

Frivolous Ninth Circuit Bankruptcy Appeal Results in Sanctions

Yesterday the Ninth Circuit Court of Appeals sanctioned a former ski resort developer and his bankruptcy attorney for filing a frivolous appeal.

The appeal stemmed from an unsuccessful motion to disqualify the Montana judge overseeing the developer's bankruptcy case. After the motion was denied, the developer, Timothy Blixseth, and his bankruptcy attorney, Michael Flynn, appealed to the Ninth Circuit.

The Ninth Circuit denied the appeal in 2014, and subsequently issued an order to show cause why the two shouldn't be sanctioned for filing a frivolous appeal.

Federal Rule of Appellate Procedure 38 and 27 U.S.C.  § 1927 permit imposition of sanctions against appellants and their attorneys for filing meritless appeals.

The Ninth Circuit ordered the two men to pay $500 damages each, plus reimbursement of the attorney fees and costs incurred defending against their appeal.

The Court reasoned that Blixseth failed to backup his accusations "with even a shred of credible evidence" and Flynn had a "propensity for distortion" that breached his duty of candor in dealing with the Court.

Click here to read the full order.


Michael Fuller is a partner at Olsen Daines PC in Portland, Oregon and an adjunct professor of consumer law at Lewis & Clark Law School.

Tuesday, July 21, 2015

National Mortgage Settlement Not Property of Bankruptcy Estate, 9th Cir. BAP Rules

The Ninth Circuit Bankruptcy Appellate Panel recently denied a trustee's motion to seize a settlement payment received by an Arizona consumer after bankruptcy.

Almost 6 years after filing chapter 7 bankruptcy, Arizona consumer Carrie Neidorf received a $31,250 settlement check from Bank of America.

The check was part of a national mortgage servicing settlement between banking regulators and certain financial institutions reached in February 2012. The settlement concerned widespread illegal foreclosure tactics by each of the nation's largest mortgage servicers.

The bankruptcy judge ultimately denied the trustee's motion to seize Neidorf's settlement payment, and the trustee appealed. On appeal, the trustee was represented by Michael Paul Lane and the consumer was represented by her bankruptcy attorney, Neeley Law Firm PLC.

The appellate panel determined that the trustee could not meet his burden to prove the settlement payment was property of the estate. The panel reasoned that the debtor was entitled to participate in the settlement based on illegal foreclosure activities occurring only after she filed bankruptcy.

Read the entire case opinion here.


Michael Fuller is a partner at Olsen Daines PC in Portland, Oregon and an adjunct professor of consumer law at Lewis & Clark Law School.

Monday, July 13, 2015

9th Cir. Allows Second Mortgage Strip Off in Chapter 20 Bankruptcy

Last week, the Ninth Circuit Bankruptcy Appellate Panel ruled that consumers can wipe out second mortgage liens in so-called 'chapter 20' bankruptcy.

Read the full opinion, In re Boukatch, here.

The term 'chapter 20' means a consumer who files chapter 13 bankruptcy within four years after receiving a discharge of debts in chapter 7 bankruptcy.

The Bankruptcy Code generally allows consumers to strip off second mortgage liens in chapter 13 bankruptcy, so long as their homes are worth less than they owe on their first mortgages. See 11 U.S.C. §§ 506(a) and 1322(b).

However, the Arizona bankruptcy judge in the Boukatch case denied the consumers' motion to strip lien because they recently received discharge in chapter 7 and thus were not eligible for discharge in chapter 13.

The panel reversed the Arizona bankruptcy judge and held the consumers could strip their second mortgage lien in chapter 13, regardless of discharge eligibility.

After reviewing the statutory language in Title 11, the panel reasoned that chapter 20 lien stripping should be allowed because "nothing in the Bankruptcy Code prevents it."

The Ninth Circuit's Boukatch opinion joins the "growing consensus of courts" across the country to allow chapter 20 lien stripping.

The Ninth Circuit includes consumers in Alaska, Arizona, California, Idaho, Montana, Nevada, and Oregon.


Michael Fuller is a partner at Olsen Daines PC in Portland, Oregon and an adjunct professor of consumer law at Lewis & Clark Law School.

Monday, June 15, 2015

SCOTUS Denies "Fees on Fees" for Bankruptcy Estate Professionals

Today the U.S. Supreme Court decided that professionals employed by bankruptcy estates are not entitled to reimbursement for time spent defending their fee applications.

See related post: Supreme Court to Resolve Bankruptcy "Fees on Fees" Issue

Today's opinion, Baker Botts v Asarco, involved law firms hired by the estate of a bankrupt copper mining company to prosecute fraudulent transfer claims.

The law firms successfully sued various entities on behalf of the mining company and obtained several billion dollars for the estate.

The bankruptcy judge compensated the firms over $124 million for their time spent prosecuting the case, including over $5 million for time spent defending their fee applications over the mining company's objection.

The Supreme Court affirmed the Court of Appeals for the Fifth Circuit in holding that the sections 327(a) and 330 of the Bankruptcy Code do not permit compensation for time spent defending fee applications.

The Court recognized that the American Rule traditionally requires each party to pay their own attorney fees, absent specific Congressional intent to the contrary. The Court reasoned that Congress could have provided for "fees on fees" for bankruptcy professionals, as it did in section 110(i)(1)(C) for the U.S. trustee, but chose not to.

Written by Michael Fuller.


Michael Fuller is a partner at OlsenDaines in Portland, Oregon and an adjunct consumer law professor at Lewis & Clark Law School.

Fuller's boutique banking law practice focuses on bankruptcy enforcement under the automatic stay and discharge injunction.

Wednesday, May 20, 2015

9th Circuit Reverses FDCPA Judgment on Excessive Interest Claim

By Michael Fuller, The Underdog Lawyer ®

Last week the 9th Circuit Court of Appeals ruled in favor of a debt collector by reversing summary judgment against it on an FDCPA claim for allegedly collecting excessive interest.

In May 2012, a consumer received a collection letter demanding she pay a dental debt of $3,144, plus 10% interest.

The consumer sued the collector under the FDCPA, claiming the demand for 10% interest was not permitted under her contract or California law.

The district court later entered summary judgment in favor of the consumer, reasoning that California Civil Code did not allow collection of prejudgment interest without first obtaining a judgment.

The Ninth Circuit panel disagreed and reversed the district court. The panel's opinion, Diaz v. Kubler Corp., interpreted California law to allow prejudgment interest without a judgment, so long as the debt amount was calculable on a particular day.

Friday, April 3, 2015

SCOTUS Considers Overturning 1992 Pro-Creditor Bankruptcy Opinion

By Michael Fuller, The Underdog Lawyer ®

Last week, the U.S. Supreme Court heard oral argument in companion cases arising under Section 506 of the Bankruptcy Code.

The issue in both cases was whether consumers may wipe out underwater second mortgage liens in chapter 7 bankruptcy.

What is Lien Stripping?

The practice of "lien stripping" is widespread across the country in chapter 13 bankruptcy. The practice is allowed under chapter 7 of the Bankruptcy Code only in the 11th Circuit.

The Supreme Court's 1992 opinion Dewsnup v. Timm held that mortgage lien rights generally survive chapter 7 bankruptcy.

How Was the Dewsnup Opinion Reached?

The Dewsnup case was decided 6-2.

Justice Thomas took no part in the decision, and Justices Scalia and Souter dissented. Of the six justices that supported the Dewsnup opinion, only one (Kennedy) remains on the Supreme Court.


Before oral argument last week, I commented that the case seemed like a no-brainer based on Dewsnup and its progeny.

However, after oral argument, some legal experts now predict the SCOTUS could effectively overturn Dewsnup.

After reviewing the oral argument transcript, I'm updating my prediction to 6-3 in favor of Bank of America, while keeping my fingers crossed.

Thursday, March 5, 2015

Contract Claim Against FDIC Not Preempted by FIRREA, Ninth Circuit Rules

By Michael Fuller, The Underdog Lawyer ®

Yesterday, a Ninth Circuit Court of Appeals panel ruled in favor of a bank on a breach of contract claim against the FDIC.

Click here to read yesterday's opinion in Bank of Manhattan v FDIC.

FDIC Breaches Contract

The bank claimed that the FDIC took receivership of a loan participation agreement, then breached the agreement by selling the loan interest without the bank's consent.

The FDIC argued the bank's breach of contract claim was entirely preempted by federal banking law (the FIRREA).

The district court rejected the FDIC's argument and held the FIRREA doesn't permit the FDIC to breach contracts without consequence.

In a 2-1 opinion, the Ninth Circuit panel affirmed the district court's ruling.

FIRREA Preemption

The panel distinguished a prior case where the Ninth Circuit had held that the FIRREA preempted a California statute regulating asset transfers.

The court reasoned that the prior case's holding was limited to preemption of statutory regulations, as opposed to contractual entitlements to compensation.

The opinion limited its preemption analysis in part because the text of the FIRREA "allows the FDIC to disaffirm or repudiate any contract it deems burdensome and pay only compensatory damages."

Judge Rawlinson wrote a dissent, arguing that there was no principled distinction between preemption analysis of state statute and of state common law.