No attorney wants to see his name mentioned prominently in an opinion. However, if it has to happen, it's better if its something like this: "Chance McGhee is an experienced and competent attorney that has practiced consumer bankruptcy law for many years." Adv. No. 21-5036; Wilson v. Silva (In re Silva) (Bankr. W.D. Tex. 5/19/2022). The opinion can be found here. As the opinion lays out, Mr. McGhee demonstrated how an experienced and competent attorney should handle a potentially difficult case.
Thursday, May 26, 2022
Opinion Illustrates Distinction Between Good Practices and Sec. 727 Violation
Saturday, April 23, 2022
Alex Jones: The Bankruptcy Prequel
While Alex Jones has created a lot of controversy through his decision to play three of his entities into voluntary bankruptcy, this was not his first brush with bankruptcy. In 2020, his ex-wife, Kelly R. Jones, initiated an involuntary bankruptcy petition against him. In re Jones, Case No. 20-10118 (Bankr. W. D. Texas). Ms. Jones filed the petition pro se, meaning that she did not have a lawyer. The case was dismissed after the bankruptcy court determined that Ms. Jones was not an unsecured creditor. Only unsecured creditors are entitled to bring involuntary bankruptcy petitions. The Bankruptcy Court determined that Ms. Jones's claim of $786,861 was secured by property worth at least $1,250,000. (Dkt. #92). Although Mr. Jones could have sought to recover his legal fees incurred in defending against the petition, he did not.
Thursday, April 21, 2022
Next Phase of Alex Jones Bankruptcy Gambit Unfolds
When Alex Jones filed bankruptcy for three of his entities holding intellectual property and contract rights, it wasn't immediately clear how these filings would help him resolve his larger legal problems. Now it has unfolded that Mr. Jones is using the bankruptcy filings as a vehicle for removing state court actions against him to federal court. On April 18, 2022, attorneys for the Debtors removed eight state court lawsuits to U.S. Bankruptcy Court: five in Texas and three in Connecticut.
Tuesday, April 19, 2022
The Alex Jones Bankruptcy Gambit
In a widely misunderstood move, Alex Jones and his legal team have put three of his entities that own intellectual property assets into SubChapter V of Chapter 11. The move, if successful, will protect the domain name, infowars.com, and will delay entry of judgments against Jones personally. The move involves apparent forum shopping and clever use of SubChapter V. The cases are jointly administered under Case. No. 22-60020 in the Southern District of Texas, Victoria Division.
Monday, March 21, 2022
Southern District of Texas Conducts Spring Cleaning of Noticing
Every day bankruptcy clerks sent out millions of required notifications to creditors and parties in interest. Creditors can bypass the paper notification by designating an email address for service pursuant to Fed.R.Bankr.P. 9036. Now the Bankruptcy Court for the Southern District of Texas is seeking to compel high volume creditors to sign up for electronic noticing. On March 17, 2022, Judge Marvin Isgur instituted 328 orders requiring creditors to appear for a status conference through counsel to explain why they have not signed up for electronic noticing.
Monday, March 14, 2022
Fifth Circuit Opinion Illustrates Risks of Class Proofs of Claim
What Happened
In 2015, two former employees of an oilfield services company filed a class action in California state court. C & J Well Services, the defendant, removed the case to federal court. The defendant sought to enforce a company-wide arbitration agreement and class action waiver. The district court denied the motion. C & J appealed the case to the Ninth Circuit.
In July 2016, while the appeal was pending, C & J and several of its affiliates filed bankruptcy in the Southern District of Texas. The Court entered an order setting a bar date and the deadline was advertised in national publications as well as by notice sent to creditors. The putative class representatives filed a proof of claim on behalf of the class for over $14 million. Twenty-seven individual claimants filed their own proofs of claim. A plan was confirmed which denied and expunged all claims filed after the bar date.
The Debtor also entered into a settlement agreement with Nabors Corporate Services to indemnify it for any allowed claims and authorized Nabors to object to any claims subject to the indemnity agreement. Nabors was an affiliate of a company which had merged into the Debtor which had employed the persons bringing the employment claims.
In February 2017, the bankruptcy court issued an order allowing the parties to the Ninth Circuit appeal to prosecute the appeal. In February 2018, the Ninth Circuit reversed the District Court and held that the arbitration and class waiver provisions were enforceable. Ninety-six claimants filed individual arbitration proceedings. However, only twenty-seven of these had filed individual proofs of claim.
In October 2018, Nabors filed an omnibus objection to the various employment proofs of claim. The Bankruptcy Court ruled that the two class representatives and the twenty-seven additional creditors who had filed individual proofs of claim could proceed with the arbitrations but that the remainder could not rely on the class proof of claim.
The Bankruptcy Court advised the claimants who had not filed claims that they could request leave to file late claims. The non-filing claimants did not file their motion for late-filed claims until August 2019, nearly two years after the bar date. After a hearing the Bankruptcy Court denied the motion. The claimants appealed to the District Court which reversed. Nabors then appealed to the Fifth Circuit.
The Fifth Circuit ruled that the Bankruptcy Court was correct in denying leave to file a late claim. How a tardily filed claim treated depends on the chapter. In Chapter 7, a late-filed claim is allowed but is subordinated to all timely-filed claims. 11 U.S.C. Sec. 726(a)(3). There is no provision for late-filed claims in Chapter 13, except that a debtor or trust may file a claim for a creditor within thirty days from the original bar date. In Chapter 11, a claim may be filed after the bar date if the late filing was the result of "excusable neglect." The Supreme Court has established a four-part test for excusable neglect: (1) “the danger of prejudice to the debtor,” (2) “the length of the delay and its potential impact on judicial proceedings,” (3) “the reason for the delay, including whether it was within the reasonable control of the movant,” and (4) “whether the movant acted in good faith.” Opinion, p. 8.
The Debtors argue that the Claimants’ and their counsel’s failure to act diligently throughout the bankruptcy proceeding was so severe that it undermines their argument that they acted in good faith. We agree. To be sure, we have not held authoritatively that lack of diligence constitutes bad faith per se. Nor do we do so now. But other courts have held, in persuasive fashion, that lack of diligence can at least cast doubt on a claim of good faith.
Granted, the majority of circuits that have addressed the issue permit class proofs of claim. (citation omitted). However, this court has not spoken definitively on the issue. Yet, since 2016, the Claimants have ostensibly proceeded under the assumption that a class proof of claim would ultimately be available to them. Such is not settled law in this Circuit, and the Claimants’ reliance on unsettled law casts serious doubt on their claim of good faith.
Second, even if the Claimants had moved the bankruptcy court to apply Rule 23 to their purported class proof of claim, they had a second hurdle to overcome. Namely, the bankruptcy court would still have had to certify the class proof of claim. Only once the bankruptcy court determines, in its discretion, that Rule 23 applies does it then evaluate whether the proposed class meets Rule 23’s requirements.Opinion, pp. 20-21. There are many things that can go wrong when individual creditors rely on a putative class rep to file a class claim. First, the jurisdiction might conclude that there is no authority for class claims. The class rep might fail to seek class certification in the bankruptcy court. If class certification is sought and denied, it would likely be after the bar date.
Thursday, March 10, 2022
Trustee Who Sought Turnover of Contract Receivable Bound by Arbitration Clause
A trustee who sought "turnover" of amounts owed under a construction contract had an arbitration clause in that contract enforced against him. The Bankruptcy Court found that the bankruptcy exception to enforcement of an arbitration clause was narrow and did not apply to a construction dispute. Satija v. Kella (In re Davila General Contractors, LLC), Adv. No. 21-1047 (Bankr. W.D. Tex. 3/9/22). The order can be found on CM/ECF at Docket #23.