Saturday, July 18, 2015

Fifth Circuit Report: June 2015

This month's Fifth Circuit report doesn't have a lot of bankruptcy sizzle:  an interesting case on abstention and remand,  two unpublished cases about how not to reserve a claim under a plan and a case about suing a trustee.   However, there are some fascinating cases about lenders, liens, fraudulent transfers, the Texas Debt Collection Act and the Fair Debt Collection Practices Act.    The big news here is that the Fifth Circuit vacated its Golf Channel decision and instead certified the question to the Texas Supreme Court.   Here are June's decisions.   (Click on the style of the case to go to the actual opinions).
  
Bankruptcy; Abstention; Remand


This case is significant because it is a rare case where an appellate court considered and vacated an order for abstention and remand.    The plaintiffs were Louisiana pension funds which invested in a feeder fund in the Cayman Islands that was part of another fund which was part of a master fund entity.    The plaintiffs filed suit in state court against various parties for violations of the Louisiana securities laws.  The case was removed to U.S. District Court because it was related to the Chapter 11 bankruptcy of the master fund and based on diversity.   (In order to make the diversity allegation work, the plaintiffs had to allege that law firm Skadden Arps was improperly joined.   Because Skadden Arps is a partnership whose members include U.S. citizens living abroad, it is considered stateless and therefore non-diverse).    The plaintiffs moved for abstention and remand.    Meanwhile, the actual funds that the plaintiffs invested in filed for liquidation in the Cayman Islands and received recognition of their proceedings in chapter 15 petitions filed in New York.

The District Court granted the motions to abstain and remand without addressing the impact of the Chapter 15 proceedings.    The Court of Appeals found that it did have authority to review the remand order.   While remand decisions are generally non-reviewable, there is an exception where the remand exceeds the authority of the remand statute.   Here, 28 U.S.C. Sec. 1334(c)(1) allows permissive abstention "except with respect to a case under chapter 15."   Because Chapter 15 cases were not subject to permissive abstention, the Court of Appeals had jurisdiction to determine whether this exception applied.

In a case of first impression, the Court concluded that the reference to "a case under chapter 15" included "both the Chapter 15 case itself and cases 'arising in or related to' Chapter 15 cases."   Opinion, p. 8.    Although the remand statute does not contain a chapter 15 exception, the court read the two statutes together.
Reading §§ 1334(c)(1) and 1452(b) together, then, the prohibition against abstention from proceedings related to Chapter 15 cases also applies to bar the equitable remand of those proceedings under § 1452.  
 Opinion, p. 9.    Thus, the Court reversed the remand and abstention orders.
We hold that a district court cannot permissively abstain from exercising jurisdiction in proceedings related to Chapter 15 cases. Accordingly, we conclude that the district court erred by permissively abstaining and equitably remanding the case in the face of the Chapter 15 bankruptcies.
Opinion, p. 10.
 
Bankruptcy; Barton Doctrine


This case involves debtors who sued their trustee for violating their Fourth Amendment rights.    A couple and their corporation each filed for bankruptcy.   Abide was appointed trustee for both estates.  A dispute arose between the trustee and the individual debtors' children as to who owned certain property.   Following Stern v. Marshall, the District Court withdrew the reference on the case from the bankruptcy court.   It then entered an order for the debtors and their children to deliver all of the records and computers of the bankrupt company to the trustee.   The trustee showed up at their home and began taking things, including a computer which they contended was personal.    

The individual debtors filed a motion to compel the trustee to return their computer.   The District Court allowed the trustee to retain the computer to have a forensics expert examine it.   A year later, the District Court granted summary judgment to the trustee and ordered him to return the computer.   After the computer was returned, the individual debtors determined that it had been accessed on multiple occasions while in the possession of the trustee.    They then sued the trustee alleging that he had violated their Fourth Amendment rights by seizing and accessing their personal computer and that the trustee had conducted an unconstitutional search of their home.

The District Court dismissed the case under the Barton doctrine which says that a trustee cannot be sued without permission of the Court which appointed him.   The Court found an exception to the Barton doctrine on the basis that the claim arose from the trustee's actions pursuant to an order of the District Court.   Where the trustee was acting under the District Court's authority, the District Court "shared the strong interest in protecting Abide from personal liability for acts taken within the scope of official duties under the supervision of the district court."    

The Court distinguished the case from last month's Villegas decision.   In that case, the debtors filed suit in the District Court under the belief that the Bankruptcy Court would have lacked authority under Stern v. Marshall and that the District Court had supervisory power over the Bankruptcy Court.  Here, the District Court was not the appointing court, but it was the court that authorized the trustee to act.   This was sufficient to bring the case out from under the Barton doctrine.  

 Bankruptcy; Reservation of Claims

 Chapter 11 debtors sued their former Texas lawyers.    The lawyers moved to dismiss on the ground that the confirmed plans did not contain a "specific and unequivocal" reservation of the claims.   The District Court agreed and dismissed the case.   The Fifth Circuit held that general language reserving claims was not sufficient.   The interesting thing here is that the plans were confirmed in California.  The Ninth Circuit allows general reservations of claims.   The Court acknowledged that the result might have been different in the Ninth Circuit but followed its own precedent rather than the law that would have been applied by the California bankruptcy court.


Disbursing Agent under confirmed plan sued Debtor's former lawyers.   District Court dismissed the claims on the basis that the claims were not specifically reserved under the confirmed plan.    The Disbursing Agent argued that because the attorneys were not creditors, they were not affected by failure to specifically reserve the claims against them since they were not able to vote on the plan.   The Fifth Circuit ruled that the Disbursing Agent had waived this argument because he did not raise it until a motion for reconsideration in the District Court.    The Plan reserved certain avoidance actions.   However, the claims against the lawyers were common law tort claims.   As a result, the claims were not preserved.

Debt Collection; Fair Debt Collection Practices Act


The Fifth Circuit affirmed a summary judgment for the plaintiff finding violation of the FDCPA.   A debtor who lived in San Antonio borrowed money from a Delaware bank.    After default, a debt buyer acquired the debt and filed suit in Justice Court in Houston.   The JP suit gave the debtor's address for service as San Antonio which showed that the debt collector knew that he was filing suit in the wrong forum.
To make out a claim for venue abuse under the FDCPA, Serna must show that (1) Onwuteaka is a “debt collector”; (2) Onwuteaka brought “a legal action on a debt”; (3) Serna is a “consumer,” meaning that he is “obligated to pay [a] debt” incurred “primarily for personal, family, or household purposes”; and (4) Onwuteaka’s debt-collection suit was not brought in a venue “in which [Serna] signed the contract sued upon” or “in which [Serna] reside[d] at the commencement of the action.” 15 U.S.C. §§ 1692a, 1692i, 1692k.
Opinion, p. 8.    The Court found that the debtor met his burden to establish these elements.   In particular, his statement in his affidavit that the debt was for personal, family or household purposes was not an improper conclusionary statement that could not be considered since it was based on his personal knowledge of his purpose for incurring the debt.

The Court rejected the debt collector's bona fide error defense on the basis that mistakes of law do not qualify.    The Court stated:
Onwuteaka’s argument is not only meritless, but frivolous and sanctionable. Onwuteaka’s sole authorities for the premise that mistakes of law qualify for the bona fide error defense are Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, 538 F.3d 469 (6th Cir. 2008), and Taylor v. Luper, Sheriff & Niedenthal Co., L.P.A., 74 F. Supp. 2d 761 (S.D. Ohio 1999). The Supreme Court granted certiorari in Jerman and ultimately reversed the Sixth Circuit on precisely this point. See Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, 130 S. Ct. 1605, 1624–25 (2010) (holding that “the bona fide error defense in § 1692k(c) does not apply to a violation of the FDCPA resulting from a debt collector’s incorrect interpretation of the requirements of that statute” and reversing the contrary judgment of the court of appeals). Despite including outdated subsequent history in his citation indicating that the Supreme Court had granted certiorari in Jerman, Onwuteaka retained this citation and presented the Sixth Circuit’s now-rejected original holding to this Court as valid law. Taylor, for its part, predates both opinions in Jerman, and it pertains to a mistake about the requirements of state law rather than about the requirements of the FDCPA itself. Taylor, 74 F. Supp. 2d at 765.
Opinion, p.15.   Jerman was a big deal when it came out five years ago.  It is hard to believe that a debt collection lawyer would not know about it.   Thus, the court was right to classify this argument as sanctionable.

In one final did at the deficient debt collector, the Court stated:

In light of Onwuteaka’s persistently deficient briefing and misrepresentation of legal authority, we tax the costs of this appeal against Onwuteaka consistent with Federal Rule of Appellate Procedure 39(a)(2).
Opinion. p. 22.   

Debt Collection; Texas Debt Collection Act


This is a case where the plaintiff recovered damages for violation of the Texas Debt Collection Act (TDCA).    Allie McCaig was the mother of David McCaig.   She bought a home with financing from Wells Fargo.   When she died, David and his wife Marilyn took over the payments.    When they fell behind, Wells Fargo entered into a settlement agreement with them which recognized that David and Marilyn were not the obligors on the debt and establishing a period for curing defaults under the loan.   Wells Fargo also agreed to waive certain costs if the McCaigs completed the forebearance agreement.

The McCaigs successfully completed the terms of the agreement.   However, Wells Fargo made repeated mistakes in servicing the loan.   As a result, the McCaigs received notices of default, statements indicating that they were being charged for amounts that had been waived and at least one foreclosure notice.   The McCaigs complained to the Texas Attorney General.   In response, Wells Fargo erroneously claimed that the McCaigs had broken the agreement.    
For over two years, the McCaigs were subjected to intermittent and repeated threats of foreclosure. Their attempts to correct the problems were met with misinformation at times, non-responsiveness at times, and at times, apologies—followed by still more of the same “mistakes.” Eventually, they sued Wells Fargo in state court. Wells Fargo removed to federal court on the basis of diversity jurisdiction, and the case went to trial on breach of contract and TDCA claims. In addition to establishing the facts set forth above, the McCaigs testified that Wells Fargo’s mistakes took a toll on their mental health. David and Marilyn testified on this issue, as did their son and an expert witness.
Opinion, p. 3.    The jury ruled for the plaintiffs and awarded them $75,000 each for mental anguish, $1,900 for expenses incurred, $500 each for making incorrect statements to a third party and attorney's fees of $200,000.    

The Court rejected Wells Fargo's argument that the McCaigs lacked standing to assert a claim under the TDCA.  The Court found that anyone injured by a violation of the TDCA could bring suit even if they were not the obligor.    The Court found that the fact that Wells Fargo's conduct was also a breach of contract did not preclude liability under TDCA.   The Court stated, "A statutory offender will not be shielded from liability simply by showing its violation also violated a contract."   Opinion, p. 9.   

The Opinion contains an interesting discussion of the jury charge.   The charge consisted of a single question asking if five sections of the TDCA had been violated.   Ordinarily, the case would need to be remanded for a new trial if one of the items included was legally or factually insufficient since the reviewing court could not tell whether the jury made its decision based upon the invalid item.   However, in this case when Wells Fargo proposed multiple questions and the judge suggested a single question, Wells Fargo's counsel replied, "“If I had to draft this over again, that’s the way I’d draft it.”   Because this constituted "invited error" Wells Fargo waived the chance to complain about the broad form submission.   This shows that deference to the trial court is not a good idea when the trial court is wrong.

The Opinion contains a very good discussion of how Wells Fargo's conduct violated the TDCA.   Among other things, Wells Fargo threatened to take an action prohibited by law, attempted to collect a charge or fee not authorized and misrepresented the nature of the debt.    When a lender threatens to foreclose after it has entered into a forbearance agreement, this is a threat to take an action prohibited by law.   When a lender attempts to collect charges it agreed to waive, this is a threat to collect an unauthorized charge even if the charge was not paid.   Finally, a bank's “failure to keep accurate records” can lead to damages for misrepresenting the nature of the debt.   

The Court of Appeals affirmed the award of damages except for the out of pocket expenses.   Because the plaintiffs did not trust Wells Fargo, they sent their payments by priority mail and used cashier's checks.   The Court found that these damages were not caused by Wells Fargo's violations of TDCA and reversed the $1,900 attributable to this item of damages.  

The Opinion has an excellent discussion of the standard for awarding mental anguish damages.   

Under Texas law, to show an entitlement to mental anguish damages, the plaintiff must put on evidence showing “the nature, duration, and severity of their mental anguish, thus establishing a substantial disruption in the plaintiffs’ daily routine,” or showing “‘a high degree of mental pain and distress’ that is ‘more than mere worry, anxiety, vexation, embarrassment, or anger.’” Plaintiffs are not required to show the mental anguish resulted in physical symptoms.

“[D]amages for mental anguish are recoverable under the [TDCA].” Expert testimony is not required to show compensable mental anguish, which may be proven by the “claimants’ own testimony, that of third parties, or that of experts.”
Opinion, p. 23 (internal citations omitted).   The Court credited the following testimony in upholding the mental anguish damages:
Marilyn testified that dealing with Wells Fargo was “outrageous and angering,” that “[i]t’s like this ominous cloud over you all the time, and everything is related to this,” and that she was “very upset and angry.” She also testified she obsessed over the matter and experienced an “ongoing fear” that Wells Fargo would take the house away. Additionally, she testified she had to “try to keep [herself] calm,” when observing her husband’s related stress—stress she feared might cause him a heart attack. In her own words:
It’s just heart stopping; it’s panic; it’s fear. It’s what—what can you do? I mean, it’s like just—and hopelessness is mixed in there, as well, and then also just plain anger that—just out—that’s just outrageous. It’s just unbelievable that this could continue this way, on an on, and be ignored and be—just not—just not respected.
There is evidence David experienced anxiety and chest pain based on stress related to Wells Fargo’s misconduct. According to the testimony, he had to visit the emergency room twice as a result of this pain. David testified that the events were “extremely upsetting” and affecting his family, and also that the experience left him “very anxious” and “very fearful.” David testified that Wells Fargo’s misconduct affected him every day over a two-and-a-half-year span. Marilyn testified that David “was becoming more anxious; he was becoming more withdrawn . . . it just wasn’t his usual self. He would wake up and be thinking about this.” The McCaigs’ son also testified to a change in David—that he was “tense, stressed, frustrated, worried.”
Opinion, pp. 23-24.

The Court of Appeals also reversed the $1,000 in damages for making a false statement about a debt to a third party.   When the McCaigs complained to the Texas Attorney General, Wells Fargo's response to the complaint acknowledged that there was a dispute and told its erroneous story that the McCaigs had defaulted.    This did not constitute a statement “to any person other than the consumer that a consumer is wilfully refusing to pay a nondisputed consumer debt when the debt is in dispute and the consumer has notified in writing the debt collector of the dispute.”

The net effect of the opinion is that $2,900 in damages was subtracted from the judgment while the major portion of the award remained intact.

This opinion is significant for two reasons, one legal and one philosophical.   On the legal side, this case illustrates the use of the Texas Debt Collection Act in a case where the federal Fair Debt Collection Practices Act would not be available because the lender was not a debt collector.   While TDCA and FDCPA have many similar provisions, they are not identical and knowing the difference can be critical.

On a philosophical level, this case is heartening because it shows the small guy standing up to a big bank and being vindicated.    Banks are not evil.   However, they are frequently unable to perform their required functions in an accurate manner.   This case demonstrates that it is not acceptable for a bank to make a deal and then refuse to adhere to it whether this is through negligence, stupidity or bureaucratic ineptitude.    The complaints made by the McCaigs are very familiar to any practitioner who represents consumer debtors.    Usually the mistakes are remedied after a lot of effort and sleepless nights by the consumer.    However, the experience is distasteful.   This case demonstrates that these slights are in fact wrong.

I would be remiss if I did not add one very important caveat.  Much of this opinion turned on the fact that the McCaigs were not in default on the forbearance agreement.    In the typical case, the consumer is in fact in default and the dispute is over the extent of the default or the lender's failure to work with the borrower.   The outcome of this case turned on the fact that throughout their travails, the McCaigs continued to make their payments on time.   A borrower who becomes frustrated with the lender and stops sending payments would not be able to prove many of the violations in this case.

FDIC/RTC; Tax Sales


This is not a bankruptcy case but deals with issues relating to title to real estate and liens.   The debtor granted a deed of trust to a savings & loan.    The lender failed and was taken over the RTC.    The debtor also failed to pay its property taxes.   In 1990, the Georgetown Independent School District filed suit to foreclose its tax lien.   The RTC answered and appeared at trial.  The school district obtained a foreclosure judgment and acquired the property.   The property was sold to subsequent purchasers who developed the property.    In 1996, the FDIC (which had taken over for the RTC) sold the debt and liens to a debt buyer.   After several transfers, CAP Holdings acquired the debt.   In 2013, some 23 years after the tax sale, it filed suit for a declaration that the sale was void ab initio because it was conducted without the consent of the RTC.    

The defendants moved to dismiss based on the statute of limitations.    CAP Holdings argued that the purchasers could not assert the limitations defense because they were not in privity with the original owner.    According to CAP, if the foreclosure sale was completely void, then the purchasers never obtained title and therefore could not assert limitations.   The District Court granted the motion to dismiss based on limitations.

On appeal, the Fifth Circuit reversed and remanded.     It held that the District Court did not engage in sufficient analysis to determine whether limitations applied.  

Under 12 U.S.C. Sec. 1825(b)(2), property of the FDIC is not subject to levy or foreclosure without its consent.    The Fifth Circuit held that if the property was sold without the consent of the RTC that the sale would be completely void.    This would reinstate the property in the name of the original debtor subject to the lien of the FDIC.   The Court rejected the argument that the sale would be void only as to the lien of the FDIC.   

The Fifth Circuit remanded to the District Court to determine whether the RTC had consented to the sale by appearing at trial and not raising its immunity from foreclosure.   The Court said that if the District Court concluded that consent was lacking, it should consider whether under Texas law a purchaser at a void sale is in privity with the original owner and can assert the personal defense of limitations.   

I included this case because it is a reminder of the bad old days when I was a young lawyer.   In those days, almost all of the banks and S & Ls in the state failed and were taken over by the FDIC and the RTC.    These statutory successors claimed immunity from most defenses that would have been applicable to the original lender.    This case illustrates the broad powers granted to the government.  Hopefully the District Court will take the Fifth Circuit's hint and find that the RTC consented to the sale.   Anything else would lead to an absurd result.

Fraudulent Transfers


The Fifth Circuit drew a lot of attention when it ruled that The Golf Channel received a fraudulent transfer when it was paid for advertising purchased by the Stanford Ponzi scheme.   The Court ruled that whether value was provided must be viewed from the perspective of the debtor's creditors.   Thus, if the advertising helped perpetuate the Ponzi scheme by making it look respectable, it did not provide value.   The  Fifth Circuit rejected the Golf Channel's argument that value should be viewed from its perspective, namely that because advertising is a valuable commodity in the market, it must provide value.    The opinion was reported at Janvey v. Golf Channel, 780 F.3d 641 (5th Cir. 2015).

On June 30, the panel withdrew its opinion.   Instead, it certified the following question to the Texas Supreme Court:
Considering the definition of “value” in section 24.004(a) of the Texas Business and Commerce Code, the definition of “reasonably equivalent value” in section 24.004(d) of the Texas Business and Commerce Code, and the comment in the Uniform Fraudulent Transfer Act stating that “value” is measured “from a creditor’s viewpoint,” what showing of “value” under TUFTA is sufficient for a transferee to prove the elements of the affirmative defense under section 24.009(a) of the Texas Business and Commerce Code?
Opinion, p. 13.  

Fraudulent transfer law is codified in two different but related systems.   Most fraudulent  transfer law is based on state versions of the Uniform Fraudulent Transfer Act.   Bankruptcy trustees can either rely on the UFTA under 11 U.S.C. Sec. 544 or the Bankruptcy Code's own statute found at 11 U.S.C. Sec. 548.    Both sets of laws revolve around the concepts of transfers made with intent to hinder, delay or defraud and transfers made for lack of reasonably equivalent value while insolvent.  However, there are differences.   The main one is that the Bankruptcy Code has a two year look back while UFTA allows creditors to unravel transfers made up to four years previously.   

While the Fifth Circuit could draw on a wide range of federal fraudulent transfer decisions, the statute at issue was a state one.   This allowed the Court to send the legal question over to their brethren on the Texas Supreme Court based on the following logic:
Given the possible tension within TUFTA with respect to the perspective from which to measure “reasonably equivalent value,” that this is a question of state law that no on-point precedent from the Supreme Court of Texas has resolved, that the Supreme Court of Texas is the final arbiter of Texas’s law, and that the meaning of “reasonably equivalent value” is central to this case as well as other pending cases filed by Stanford’s receiver, we believe it is best to certify the question at issue.
 Id.     Thus, the case of the receiver and the Golf Channel is not ready to head into the clubhouse just yet.


Liens; MERS


Consumer debtor's lawyers have launched many challenges against MERS.   MERS is a private company that acts as a nominee for lenders.  Under the MERS system, debtors grant liens to MERS as nominee for the actual lender.   So long as the lender transfers its note and lien to another MERS subscriber, there is no need to record a document in the public records.   MERS simply acts as nominee for the new lienholder.    Critics of MERS argue that it subverts the public recording system by allowing lenders to conceal the actual holder of the deed of trust.   

A group of Texas counties sued MERS because they didn't like the fact that MERS was allowing lenders to skip paying recording fees by transferring title privately.    The Counties claimed that MERS violated the Texas Local Government Code and the Texas Civil Practice and Remedies Code and engaged in fraudulent misrepresentation and unjust enrichment.   It is one thing to play a shell game with home owners, but the Counties did not want MERS to mess with Texas filing fees.   

The District Court dismissed some claims and granted summary judgment on others.     The Fifth Circuit ruled that Texas law does not require lenders to record assignments of deeds of trust whenever the underlying note is transferred.    The Court also affirmed the dismissal of Dallas County's claims that MERS was recording fraudulent liens in violation of state law.   One element of this claim is that the person recording the instrument intended to harm the plaintiff.   This statute was intended to deal with militia and sovereign citizen groups that were filing fraudulent liens against government officials in support of their theory that the United States had no authority over them.   The Court held that because there was no duty to record assignments that MERS was not trying to harm the counties by not recording assignments.    Finally, the Court rejected the argument that MERS was committing a fraudulent misrepresentation when it claimed to be the beneficiary under the deed of trust.   

The take away here is that the attacks on MERS have likely run their course.   If entities as powerful as Dallas and Harris counties couldn't take MERS down, then individual property owners stand little chance of success.  MERS messed with Texas and emerged victorious.

Wednesday, July 08, 2015

Supreme Court Says Lawyers Don't Get Paid for Defending Their Fees

A Texas law firm did a great job and beat back a punitive attack on their fees.   However, the Supreme Court has ruled that they may not receive compensation for defending their work.   Baker Botts, LLP v. ASARCO, LLC, No. 14-103 (6/15/15).

Introduction

I have previously talked about the case here.   As a result, I will just give the Cliff's Notes version of the facts.  Baker Botts delivered remarkable results in their representation of ASARCO, LLC.   However, when the party they had sued gained control of the Debtor, they faced a withering attack on their fees.   In response to discovery requests, they produced 2,350 boxes of documents and 189 GB of electronic data.    The trial on their fees took six days.   All of this defense did not come cheap.   The firm spent $5 million of time litigating their fees.     

The Bankruptcy Court awarded Baker Botts $120 million in fees, an enhancement of $4.1 million and $5 million for the fee litigation.   The Fifth Circuit upheld the fees and the enhancement, but not the defense award.   Matter of ASARCO, LLC, 751 F.3d 291 (5th Cir. 2014).   

The Supreme Court granted cert to review whether 11 U.S.C. Sec. 330 allows fees for litigating a fee award.   Baker Botts was supported by the United States, the State Bar of Texas Bankruptcy Law Section, the Business Law Section of the Florida Bar, the National Association of Bankruptcy Trustees, the Committee on Bankruptcy and Corporate Reorganization of the Association of the Bar of the City of New York, the National Association of Consumer Bankruptcy Attorneys, the National Association of Chapter 13 Trustees, nine eminent law professors and two former Bankruptcy Judges.    No one filed an amicus in support of ASARCO's position (although four fee examiners filed a brief in support of neither party).   Many of the most prominent professors and practitioners in the country supported Baker Botts.    

Despite the impressive array of legal firepower arrayed in support of the Petitioners, they were done in by a combination of the American Rule and plain meaning.   In a 6-3 decision authored by Justice Thomas, the highest court of the land said firms must bear the freight for litigating their own fees.

How They Decided

The Court started with the "bedrock principle known as the American Rule" which says that each party pays its own attorney's fees "unless a statute or contract provides otherwise."   Opinion, p. 3.   The Court concluded that the Bankruptcy Code does not explicitly allow fees for defending fees.   They did this by treading the following statutory path:
  • Under 11 U.S.C. Sec. 327, professionals may be hired "to serve the administrator of the estate for the benefit of the estate."
  • 11 U.S.C. Sec. 330 allows "reasonable compensation for actual, necessary services rendered."
  • According to Webster's International Dictionary, the word "services" ordinarily refers to "labor performed for another."
  • Fees expended to defend a fee application "cannot be fairly described as 'labor performed for'--let alone 'disinterested service to'--(the) administrator (of the estate)
It is only a slight exaggeration to say that according to Justice Thomas, the Dictionary says it, therefore it is the law.

Of the amici who argued so eloquently, only one was mentioned in the opinion.   The Court unceremoniously rejected the policy arguments of the United States and critiqued the government for taking a contrary position below.    The government argued that defending the fee application was simply an extension of performing the underlying services and that a judicial exception was necessary for the proper functioning of the system.    The Court refused to decouple "reasonable compensation" from "actual, necessary services rendered."    Because the dictionary said that "services" must be performed for another, "reasonable compensation" could not encompass work done for the firm's own benefit.   Further, because section 330(a)(6) allows fees for preparing a fee application but not for defending it, such fees are necessarily disallowed.    

The Court referred to the government's request for a judicial exception as "a flawed and irrelevant policy argument."    Because no attorney in any field may be paid for litigating their own fees absent a contract or express statutory authorization, denying such fees in bankruptcy does not place bankruptcy lawyers at a disadvantage relevant to non-bankruptcy lawyers.    This is a bit disingenuous because most lawyers don't have to get a court order to get paid.   

The court referred to arguments that their opinion would lead to vexatious objections as "unsupported predictions of how the statutory scheme will operate in practice."    The Court offered a judicial zinger by pointing out that the USA had taken the opposite position below.   Justice Thomas wrote:
The speed with which the Government has changed its tune offers a good argument against substituting policy-oriented predictions for statutory text.
Opinion, p. 12.    Justice Sotomayor concurred in the judgment and in all of the opinion except for the section dismembering the government's policy arguments.

The dissent authored by Justice Breyer looked at broader language, such as "all relevant factors" and "reasonable compensation."    He also suggested that once Congress adopted section 330, it displaced the American Rule so that the presumption against fee-shifting should not apply.    

What Does It Mean?

This does not add a lot to our knowledge of section 330.    There are two types of disputes with regard to allowance of fees.   There are cases such as this one and United States v. Lamie,  540 U.S. 526 (2004) which say that a type of fees are categorically allowed or disallowed.   However, most disputes involve the application of discretionary factors to determine the amount of fees that should be allowed.   By cordoning off one small category of fees as not allowable, the Court does not affect the vast majority of fees disputes.

The impact of the case may be minimized by the fact that this was truly an unusual case.   In the typical case, the fee application hearing won't involve discovery and may involve an hour or so of court time.   In these instances, having to bear the cost of defending the application is an inconvenience but not a hardship.   Additionally, in most cases, the objector succeeds in obtaining some reduction in the fee request.   If the applying firm does not exercise good billing judgment and its fees are reduced, it can hardly insist that it be compensated for defending the portion of the fees that were disallowed.

However, there is not a good mechanism in place for protecting the small minority of cases where the decision will have a real impact.   For example, what of the truly vindictive objection, the objection filed by a disgruntled party solely for the purpose of imposing cost on a law firm which prevailed against it?    The majority suggests that Rule 9011 is an antidote for such conduct.   Unfortunately, Rule 9011 requires that the party seeking sanctions serve a proposed motion for sanctions on the offending party 21 days before filing.   By the time the firm seeking fees drafts and serves the motion, there may not be 21 days until the hearing.  As a result, this remedy may be less than helpful.

Some commentators have suggested that attorneys can build fees for defense into their fee contract with the estate.    If such provisions are approved as part of the employment application, they might be defensible under section 328.   However, including a provision in a fee contract which the Supreme Court has found to be outside the statute would probably be subject to objection.   As a result, it would only work if the U.S. Trustee was not particularly active and the vindictive party was asleep at the switch or had not yet entered the fray.

The unfortunate fact is that a few attorneys will have to pay for fee litigation with little opportunity to recoup the cost.   In order to compensate for this cost, rational attorneys could be expected to raise their rates slightly above what they charge for non-fee app clients.  

The obvious fix is to amend section 330(a)(6) to include not only the cost of preparing a fee application but the cost of litigating an application as well.    This would close the legislative loophole left open by ASARCO.    If Congress takes up the ABI Commission Report, this issue should be added to the agenda.

Tuesday, July 07, 2015

Sale Watch: Esco Marine, Inc.

Case No. 15-20107; Esco Marine, Inc.; Southern District of Texas, Corpus Christi Division

Bidding Procedures Order:   Dkt. #260; 6/26/15

Assets to be Sold:    Assets of Debtors other than Chapter 5 causes of action, claims against insiders, unscheduled or undisclosed assets, cash

Minimum Bid:    Amount of third party liens against property

Bid Deadline:    July 20, 2015 (extended from initial date of July 17, 2015)

Auction Date:    July 23, 2015, 9:00 a.m., Langley & Banack, San Antonio, TX

Debtor's Counsel:
Glen Ayers
gayers@langleybanack.com

Investment Banker:

Tom Kane
tkane@chatsworthgroup.com

Committee Counsel:

Barbara Barron
bbarron@bn-lawyers.com
Stephen Sather
ssather@bn-lawyers.com

Thursday, June 25, 2015

Sale Watch: WBH Energy, Ltd.

This is a new feature on A Texas Bankruptcy Lawyers Blog.   Whenever I hear about Section 363 sales in Texas, I will mention them here to try to get the word out.   Please feel free to send me any sales you are involved in or happen to hear about.

Case No. 15-10003; WBH Energy, Ltd.; Western District of Texas, Austin Division

Bidding Procedures Order:    Dkt. #361; 5/11/15

Assets to be Sold:   Oil and gas interests in the Barnett Combo Play of the Fort Worth Basin

Minimum Bid:   $17.5 million

Bid Deadline:  August 7, 2015, 4:00 p.m.

Auction Date:  August 18, 2015, 10:00 a.m.

 Debtor's Counsel:

 William A. Wood, III
Trey.Wood@bgllp.com

Committee Counsel:

Berry Spears
Bspears@lockelord.com






Friday, June 05, 2015

Fifth Circuit Report: April-May 2015


At the same time that the Supreme Court was busy ruling upon its bankruptcy cases for the term, the Fifth Circuit was active as well.  There were so many cases in April, that it took me two months to summarize them.    Over the course of April and May, the Court decided no less than sixteen cases with bankruptcy implications.   These include cases relating to civil contempt, post-judgment remedies being granted pre-judgment, the conclusion of the BPRE case and important opinions on property of the estate, attorney’s fees, discharge and dischargeability.  There are also four cases involving disputes between homeowners and lenders, including two where the homeowner’s claim was revived on appeal.   There is enough substance here, including in the unpublished opinions, to keep a lot of lawyers and judges reading for a long time.


This case involved a request for mandamus with regard to a civil contempt order for failure to comply with a turnover order.    The SEC obtained an order approving an ex parte temporary restraining order and a receivership order.   The receivership order required the debtor to turn over all of his assets to the receiver along with an accounting. 
  
Upon investigation, the receiver found that $500,000 had been delivered to the debtor in cash in a Dillard’s bag.  The funds were never deposited into the business account or in any other account.  The District Court entered a turnover order requiring the debtor to turn over the funds and issued an order to show cause in the event that he did not do so.   “Ramirez declined to turn over the asset or reveal where it had gone, and he has continued to do so to this day.”    The District Court held the debtor in contempt then held a second evidentiary hearing to allow the debtor to purge his contempt.   

On the writ of mandamus, the Court found that the contempt was supported by clear and convincing evidence.    The Court also rejected the argument that the debtor was being punished for exercising his Fifth Amendment right not to incriminate himself.    However, the Court noted that:
(H)e is not being punished for his refusal to answer questions; he is being punished for refusing to turn over $500,000, thereby violating the turnover order. A defendant in a contempt hearing bears the burden of production to show that he is presently unable to comply with the underlying order. (citation omitted). He bears this burden even if he claims that his own testimony regarding inability to comply would incriminate him. (citation omitted).   Moreover, as the district court repeatedly noted, Ramirez did not need to testify to show that it would be impossible to turn over the $500,000; he could call other witnesses to testify as to how he spent the money.  
Opinion, pp. 7-8.


This case involved a defendant who was ordered to provide discovery with regard to assets and to refrain from transferring funds other than to pay bills in the ordinary course of business without permission from the Court.   The defendant filed a writ of mandamus, which the Court treated as a request for interlocutory appeal.   

This case involved a hospital which used its own billing codes to allow neighboring clinics which did not have Texas hospital licenses to illicitly bill insurance companies.   The insurance company sued for money had and received, fraud, negligent misrepresentation, unjust enrichment and civil conspiracy.  The District Court granted a “partial judgment” in the amount of $8.4 million on the money had and received claim.    The hospital, which was then under the control of a receiver, filed for chapter 11 relief.   The District Court withdrew the reference and lifted the automatic stay.    The insurance company asked for post-judgment discovery which the District Court granted without a hearing.   At a later hearing, the District Court heard allegations that 2920 ER, LLC had been transferring funds to a third party.   The District Court “essentially ordered an asset freeze from the bench.”   This order was later reflected in a written order.

The Fifth Circuit held that mandamus was not proper because the remedy of an interlocutory appeal was available.   However, the Court proceeded to treat the request for mandamus as an interlocutory appeal.    It found that the request for mandamus placed the insurance company on adequate notice of its claims.    The Fifth Circuit found that a creditor is generally not entitled to post-judgment remedies prior to judgment, relying on the Supreme Court decision in Grupo Mexicano de Desarrollo SA v. Alliance Bond Fund, Inc., 527 U.S. 308 (1999).   The Court of Appeals found that the asset freeze was not available prior to entry of a final judgment unless the Plaintiff complied with Rule 65 which was not done.   The Court vacated the District Court’s orders except to the extent that the discovery was necessary to investigate pending claims.

The take-away here is straightforward.   Post-judgment remedies are generally not available pre-judgment.   If a creditor wants injunctive relief, it must follow the procedures set out in Fed.R.Civ.P. 65.


This is the coda to the second of the Fifth Circuit’s now superseded cases finding that consent was not available in Stern cases.   The Debtor filed an adversary proceeding in bankruptcy court.   After receiving a take-nothing judgment, it contended that the bankruptcy court lacked authority to enter a final judgment.   The Fifth Circuit agreed and remanded the case.   The District Court treated the Bankruptcy Court’s findings and conclusions as a report and recommendation which it adopted.    On appeal, the Debtor contended that the Bankruptcy Court should have allowed a jury trial despite the fact that its request was untimely under the local rules of the bankruptcy court.   The Fifth Circuit ruled that the right to a jury trial may be waived due to inadvertence.   It stated that “we are not convinced that BPRE’s failure to timely comply with the rule resulted from anything other than ‘mere inadvertence.’”    The Fifth Circuit also found that the evidence received in the trial before the bankruptcy court amply supported a take nothing judgment.   Thus, in this case as in Frazin, the right to request a do-over in the District Court did not change the result. 


Debtor made false statements in borrowing base certificates.   He argued that the borrowing base certificates were statements of financial condition such that reasonable reliance was required.   The Court distinguished between general statements of financial condition and “specific falsifications on the ability to repay the lender, misstatements of inventory and denial of other secured creditors with priority--as was true here.”    The Court also found reliance notwithstanding the Debtor’s argument that the bank could have investigated the statements.
This court will not impose on banking officials this requirement. Under all of these circumstances and the customary practice of lending institutions, it is necessary for them to be able to accept what Plaintiff signed as true.
The Court’s ruling with regard to financial statements is probably wrong, although it most likely did not make a difference in the specific case.


In this decision, the en banc Fifth Circuit overruled the Pro-Snax case.  I have previously written about the case here.  
 

Creditor sought to deny debtors’ discharge.    Husband was liable on debt to bank but wife was not.    Bankruptcy Court denied discharge as to both debtors.   On appeal, the Fifth Circuit held that bank was a creditor of wife and had standing to object to discharge even though she had no personal liability.   The Court concluded that because bank had a “community claim” against the wife by virtue of her interest in community property that it was a creditor and could object to her discharge. 
  
The Court also held that the Bank could show that the debtors failed to keep sufficient records without seeking discovery from them.   In this case, the Trustee had requested documents from the Debtors which they failed to provide.   Additionally, in connection with their Rule 26 disclosures, the Debtors were required to produce relevant documents.    The failure to provide documents to the Trustee or in connection with the disclosures was sufficient to show failure to keep records under 11 U.S.C. Sec. 727(a)(3).  
 
The Court’s finding with regard to standing seems surprising.   While the bank was a creditor in a technical sense due to its ability to collect from community property, this hardly seems to be the type of interest sufficient to deny discharge.   In particular, once the wife’s discharge was denied, the bank could not try to collect from her other than out of any community property she might acquire in the future.    This is certainly an argument against couples acquiring community property together.  


This case concerned whether the debtor’s interest in a malpractice claim against his bankruptcy attorney was property of the estate.   The debtor accused his attorney of mishandling his chapter 11 case with the result that confirmation of his plan was denied, the case was converted to chapter 7 and the debtor lost his discharge.   The Fifth Circuit found that at least some of the harm from the attorney’s actions occurred during the chapter 11 proceeding.   As a result, the Court found that all claims against the attorney were property of the estate.

The problem with this case is that it considers all of the different actions which caused harm to constitute a single cause of action rather than multiple claims based upon different omissions and harms.    By holding that even one harm occurring pre-conversion meant that the entire cause of action accrued pre-confirmation, the Court deprived the debtor of claims that should rightly have belonged to him.    The absurdity of the Court’s result is illustrated by the claims that the attorney’s negligence resulted in loss of the discharge.   The estate was not harmed by denial of the debtor’s discharge and the Fifth Circuit has previously held that claims for loss of the discharge belong to the debtor rather than the estate.   Nevertheless, under this opinion, the chapter 7 trustee, who was the same party who sued for denial of the discharge, could now sue the attorney for negligence leading to denial of the discharge.   This is a bizarre result and should be reconsidered.

For another take, you can read what the Weil Blog had to say here.

Disclosure:   I consulted with the Debtor and was designated as an expert witness.


The homeowners sued Bank of America following a foreclosure.   The homeowners had sought to modify their loan under HAMP.    They were initially told that they did not qualify because their loan was not in default.   Subsequently they stopped making the payments and reapplied.   Over the course of three years, they worked on their modification proposal with Bank of America.    Because they were in default, they received periodic default notices.   However, Bank of America agreed to postpone action pending review of their modification proposal.   Eventually the Bank denied the modification and foreclosed.   

The Court of Appeals ruled that the Bank did not waive its right to foreclose by delaying foreclosure multiple times.     They also claimed a violation of the Texas Debt Collection Act, alleging that the Bank had misrepresented that their modification was under review.    The District Court granted summary judgment and the Fifth Circuit affirmed.    Mere delay is not a waiver of the right to foreclose.   A statement with regard to a proposed modification is not a representation about the character, extent or amount of a consumer debt.

This case illustrates how HAMP often causes more harm than good.    On the one hand, the borrower must be in default to apply for the program.   However, the lender has no obligation to grant a modification.   Thus, by defaulting in order to apply for the program, the homeowner places themselves in jeopardy of losing the property.    This is a well-intentioned but terribly designed program.    While chapter 13 has its drawbacks, at least the automatic stay provides some protection to the debtor.


Nicholas and Stacy Barzelis had a home loan with Flagstar Bank.   Nicholas died and Stacy submitted the death certificate to the bank.   Stacy filed chapter 13 and made payments through the trustee.   The bank refused to accept any payments which did not come from Nicholas.   Stacy sent Flagstar two Qualified Written Requests.   The bank stated that it would not provide information to her unless she provided “letters of authority from a probate attorney.” 
   
When Flagstar began foreclosure proceedings, Stacy sued.    The bank removed the case to federal court.   Stacy amended to allege claims for breach of contract, negligent misrepresentation, violation of the Texas Debt Collection Act and violation of RESPA.   The District Court dismissed all of the state law claims as preempted under the Home Owners Loan Act of 1933 (HOLA) and granted summary judgment on the RESPA claim.

The Fifth Circuit found that the breach of contract claims were preempted to the extent that they relied upon the Texas Property Code, but not to the extent that they relied upon the contractual agreements between the parties.

The Court found that negligent misrepresentation claims based upon inadequacy of disclosures made were preempted by HOLA.

The Court found that the claims under the TDCA were not preempted.   It wrote:
We agree with the consensus, concluding that similar state consumer-protection laws—those “that establish the basic norms that undergird commercial transactions”—do not have more than an incidental effect on lending and thus escape preemption. The essential purpose of the TDCA is to limit coercive and abusive behavior by all those seeking to collect debts, something that does not burden lending in the same way as would a specific mandate on interest rates. Instead, it more closely resembles a generally applicable law against deceptive trade practices, governing behavior at the margins of banking and lending. Additionally, the law is consistent with “the safe and sound operation of federal savings associations.” Section 560.2(a). As a result, the statute overcomes the presumption, and the claims are not preempted under HOLA.
Opinion, pp. 8-9.

 The Court also reversed the summary judgment under RESPA.   The District Court had found that Flagstar was not required to respond because Stacy was not the borrower and had not provided proof that she was acting as representative of her husband’s estate.   However, the Fifth Circuit found that “under Texas law, Stacy, as the survivor to her husband’s interest in the property subject to their community debt, was the successor-debtor on the Note and was the legal borrower.”   As a result, Flagstar was required to respond to her QWR.

This is a rare case in the Court did not affirm dismissal of the borrower’s claims against a home lender.  As a result, it is worth reading.

The homeowners contended that the statute of limitations barred a foreclosure.    The Bank accelerated the debt in 2004.    However, it accepted payments from the homeowners in 2006.   It accelerated for a second time in 2010 and foreclosed in 2013.   The Court held that the Bank abandoned its acceleration when it subsequently accepted payments and that the foreclosure was within the four year statute of limitations. 
This is a rare case interpreting the effect of section 1111(b) in the context of a sale.    Baker Hughes and other creditors filed an involuntary petition against the debtor.   The case was converted to chapter 11.   Scott Oils filed a plan of reorganization which allowed it to purchase 90 mineral leases and several wells for $3.4 million.   Baker Hughes claimed liens on four of the leases and one of the wells.   Four other creditors had mineral liens in the same well.
Baker Hughes attempted to make a section 1111(b) election in order to treat its claim as fully secured.   Baker Hughes did not object to confirmation, appear at the confirmation hearing or appeal the confirmation order.   Apparently the sale occurred subsequent to confirmation and Baker Hughes appealed the sale order.
Baker Hughes contended that it was entitled to submit a credit bid on the properties in which it claimed a lien and that by virtue of the section 1111(b) election, it could treat its claim as fully secured.    The Fifth Circuit found that a section 1111(b) election was not available on a sale pursuant to a plan.   Additionally, the plan provided that the right to credit bid was preserved but Baker Hughes failed to show that it actually submitted a credit bid.
Judge Edith Jones submitted a concurrence to address the unusual position of Baker Hughes.   Judge Jones found that Baker Hughes waived its section 1111(b) election by failing to pursue it at the confirmation hearing.    She concurred to question the majority’s conclusion that the plan had actually preserved the right to credit bid.    She questioned whether a private bulk sale of assets burdened by multiple liens could actually protect a secured creditor’s right to credit bid regardless of whether the orders said that it did.   She went further and stated that a creditor would be entitled to make a section 1111(b) election even though the property was being sold pursuant to a plan if the sales procedures did not preserve the right to credit bid.   However, because the creditor did not pursue its section 1111(b) election at confirmation, it lost the right to protest.   Additionally, Judge Jones noted that given the other liens on the property, the creditor would have been required to satisfy the other lienholders to make a credit bid which would have rendered it impractical.  
The bottom line seems to be that Judge Jones believes that a sale pursuant to a plan which does not expressly provide for a credit bid could be subject to a section 1111(b) election.   In this case, failure to pursue the right argument at the right time waived it.   Otherwise, it could have been an interesting mess.
This is the almost a Ponzi scheme case.   Templeton invested in partnerships organized by American Housing Foundation (AHF).  The trustee sought to equitably subordinate his claims, to recover voidable preferences and to recover fraudulent transfers.    The Bankruptcy Court granted equitable subordination and preference recovery but denied the fraudulent transfer claim.   Both parties cross-appealed.
The Fifth Circuit affirmed the equitable subordination ruling.    It found that Templeton’s claims arose from the purchase of securities of AHF’s affiliates and were subject to equitable subordination.
The Bankruptcy Court rejected Templeton’s ordinary course defense on the basis that AHF was a Ponzi scheme and that payments from a Ponzi scheme are not in the ordinary course of business. 

However, the Court found that AHF was not a Ponzi scheme.   Although it engaged in some fraudulent and Ponzi-like transactions, it “engaged in substantial legitimate business.”    The Court ruled that it was improper to expand the rule against treating Ponzi scheme distributions as not in the ordinary course “to cover legitimate businesses in which there were some fraudulent or Ponzi-like transactions.”     As a result, it reversed and remanded for the Court to consider Templeton’s defense.
On the other hand, the Bankruptcy Court rejected the fraudulent transfer allegations on the basis that Templeton gave value and acted in good faith under 11 U.S.C. Sec. 548(c).    The Court found that the Bankruptcy Court’s findings on value were insufficient because they did not show that AHF appropriated Templeton’s investments in the limited partnerships.   It also found that the Bankruptcy Court applied the wrong test in determining whether Templeton acted in good faith.   The Bankruptcy Court found that Templeton acted in good faith because his transactions did not defraud other creditors.   However, this was the wrong standard.   Instead, the test is whether the claimant was “on notice of the debtor’s insolvency or the fraudulent nature of the transaction.”
As a result, the Fifth Circuit affirmed the equitable subordination but remanded the other claims for further consideration.
Jett sued American home Mortgage Servicing for negligently and willfully failing to update her credit information.    Jett became delinquent on her home mortgage and filed for chapter 13 relief.  After she completed her plan, her credit report “erroneously showed the mortgage as discharged in bankruptcy with a $0 balance.”    Jett disputed the listing and Experian sent an automatic credit dispute verification form to American Home.    American Home attempted to reply back that the loan was current with a balance of $35,000.    However, her credit report was not updated over a period of two and a half years.    
Jett sued claiming that she was denied refinancing because American Home failed to update her credit.   Apparently American Home left a field on the form blank which signaled that Experian should continue to report the original information.   The District Court granted summary judgment on Jett’s claims finding that she had not produced evidence as to American Home’s policies and procedures and that therefore she had failed to show that American Home knew that it was supposed to conform to those policies. 
  
The Fair Credit Reporting Act creates a private cause of action for both negligent and willful reporting of erroneous information.    The Court found that “regardless of the policies and procedures used to investigate the dispute, the plain language of (FCRA) makes clear that a furnisher is liable if it negligently reports the results of its investigation to the CRA.”   Thus, the fact that American Home knew that the credit was being erroneously reported and failed to correct it was sufficient to create a fact issue for purposes of summary judgment.
This was the companion case to Cantu v. Schmidt.   It involved malpractice claims against the debtor’s accountant, who was the husband of the attorney sued in the other case.   The Court found that all of the injuries occurred prior to conversion and that the creditor body was damaged.   As a result, it found that the claims belonged to the estate.
This is an important dischargeability case.   I have recently written about it in depth here.
This case involved a suit brought against a chapter 7 trustee.    (This is the third of three cases involving Michael B. Schmidt discussed in this post.   He prevailed in all three cases).   BFG Investments, Inc. filed bankruptcy and Schmidt was appointed as Trustee.    His final report was approved in 2009 and no appeal was taken.   Four years later, BFG and its president filed suit in U.S. District Court against Schmidt alleging gross negligence and breach of fiduciary duty.   The District Court dismissed the suit because the plaintiffs had failed to obtain leave from the Bankruptcy Court before filing suit against the Trustee.
The Supreme Court has held that “before suit is brought against a receiver leave of the court by which he was appointed must be obtained.”   Barton v. Barbour, 104 U.S. 126, 128 (1881).   This principle applies to bankruptcy trustees as well. 
 
The Plaintiffs argued that Stern v. Marshall created an exception to this rule because the Bankruptcy Court would lack authority to enter a final judgment.    Based on Executive Benefits Insurance Agency v. Arkison, the Court found that Stern does not “decide how bankruptcy or district courts should proceed when a ‘Stern’ claim is identified.”    It went on to state that:
We are not called upon in this case to provide all the details regarding how a party should, post-Stern, proceed under Barton. We hold only that a party must continue to file with the relevant bankruptcy court for permission to proceed with a claim against the trustee. If a bankruptcy court concludes that the claim against a trustee is one that the court would not itself be able to resolve under Stern, that court can make the initial decision on the procedure to follow. Once a bankruptcy court makes such a determination, this court can review the utilized procedure.
 Opinion, p. 4. 
 
The Court also rejected the argument that Barton is satisfied by filing suit in the District Court.
Thus, it seems clear that a suit against a trustee must originate in the Bankruptcy Court.

Those are all of the cases that I could find for April and May 2015.   I am exhausted.   How about you?