Friday, October 28, 2016

NCBJ Report 2016: Broken Bench Radio

The first plenary session of NCBJ was Broken Bench Radio, a fast-paced discussion of hot topics in the form of a radio call-in show.   It covered insights from the Caesar's Entertainment case, upcoming Supreme Court decisions, recharacterization, equitable mootness, Chapter 13 updates, the CFPB and the Husky case.  

Insights From Caesar's Entertainment

James Sprayregen was the first caller in to the show.   He talked about the Caesar's Entertainment case.    He repeatedly alluded to the interesting issues that could have been decided, such as the involuntary petition filed against the company and the section 105 injunction in favor of the parent company, if only the case hadn't settled.   His best quote was "Settlement negotiations are never over and the activities in the courtroom are an extension of the settlement negotiations.

Upcoming Supreme Court Decisions

Prof.  Erwin Chemerinsky gave a brief public service announcement about two upcoming Supreme Court cases:  Czyzewski v. Jevic Holding Corp and Midland Funding, LLC v. Johnson.   The Supreme Court has granted cert in both of these cases.   Jevic is about whether a  settlement agreement resulting in a structured dismissal can violate the priority scheme under the Bankruptcy Code.   Midland Funding deals with the question of whether it is a violation of the Fair Debt Collection Practices Act to file a proof of claim that is barred by the statute of limitations.   This is an issue where the Eleventh Circuit, which says yes, is at odds with at least three other circuits.  I have a case on this issue pending before the Fifth Circuit so it is of special interest to me.


Michael Baxter was the show's second caller responding to a question from Prof. David Epstein about whether re-characterization of debt shouldn't be the same under both state law and bankruptcy law. Baxter discussed the cases applying an equity approach under section 105(a) and those looking to state law under section 502(b) before concluding that both lines of cases generally apply the same factors.   The Fifth Circuit follows the section 502(b) approach.

Equitable Mootness

Eric Brunstad called in to discuss equitable mootness.   He distinguished equitable mootness from Article III mootness.   If there is no relief that a court can grant, there is not a live case or controversy and the case is moot under Article III.   However, equitable mootness, which generally applies to attempts to appeal a confirmation order after substantial consummation has occurred, depends on equitable discretion.   Brunstad is not a fan of equitable mootness.   He pointed out that the equitable mootness doctrine conflicts with the Stern/Wellness cases since it prevents an Article III Court from fulfilling its obligation to review the decision of an Article I Court.   However, he had to acknowledge that the Supreme Court refused to grant cert in the Chicago Tribune case in which he had filed an amicus brief arguing against the doctrine.

Chapter 13 Updates

Retired Bankruptcy Judge Gene Wedoff gave an update on the proposed new rules and forms for chapter 13 plans.    Under the rules, there would be a standard national chapter 13 plan in which issues relating to valuation, lien avoidance and allowance of claims would all be determined at confirmation.   Under the new rules, the deadline to file claims would be shortened to 70 days.   Special provisions would have to be included in a box for that purpose.   Districts could adopt their own plans but they would be required to follow the general format of the national plan and would be limited to one plan per district.    If approved, the new rules and form would go into effect on December 1, 2017.

Consumer Financial Protection Bureau

Sen. Elizabeth Warren gave a videotaped message about the Consumer Financial Protection Bureau.  She  said that the Bureau existed to protect families from fraud and that it had already recovered $13 billion for consumers.

Actual Fraud

The final caller was Debra Grassgreen who spoke about the Supreme Court decision in Husky Electronics v. Ritz.   The moderators pointed out that Husky allowed non-dischargeability based on actual fraud that did not involve reliance on a false representation or even a debtor-creditor relationship.   Her big take-away was that Husky could apply in corporate chapter 11 cases.   Under § 1141(d)(6)(A), the section 523(a) exceptions to discharge apply to a debt owed to a governmental unit.   Because the section only referred to section 523(a) and not section 523(c) (which requires certain non-dischargeability actions to be brought within a period of time), she raised the prospect that governmental units could conduct an investigation of the debtor and assert that their debts were non-dischargeable based on "actual fraud" years after confirmation.   This would be a major erosion of the value of a chapter 11 discharge.     

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