Mazzara v. Provencher Illustrates Dischargeability in the Era of Social Media

Written by:
Liara Aurelia Silva
Barron & Newburger, P.C.
Austin, Texas
https://bn-lawyers.com

             In a pair of decisions, the Bankruptcy Court for the Western District of Texas took on two big issues arising in a dischargeability case concerning allegations of sexual misconduct: whether defamation findings in state court are binding in bankruptcy as well as whether messages in “private” Facebook groups are discoverable.  Joseph Mazzara v. Donna Shute Provencher, Adv. No. 19-05026-cag (Bankr. W.D. Tex. Dec. 4, 2020); Joseph Mazzara v. Donna Shute Provencher, Adv. No. 19-05026-cag (Bankr. W.D. Tex. Apr. 7, 2021). The opinions can be found here and here.

 The decisions stem from a lawsuit filed by Joseph Mazzara against Donna Shute Provencher in Virginia State court.  Mazzara alleged that Provencher posted on a Christendom College Alumni Facebook page where she accused him of sexual assault and of having been investigated for it while he was a student at Christendom College.  Mazzara claimed that Provencher’s allegations were false and defamatory.  Shortly before trial, Provencher filed for relief under Chapter 7 of the Bankruptcy Code and Mazzara, in turn, initiated an adversary proceeding against Provencher to determine the dischargeability of the debt.

The Confusing Application of Sec. 362(c)(2)(C) to Dischargeability Cases

The different sections of the Bankruptcy Code should all work together for a common purpose. Sometimes a situation arises which looks like a disconnect. I had this happen in a dischargeability case I am defending. The creditor filed an action under Section 523, based on a suit pending in another state, and asked to have the stay lifted to allow the case to go forward. While the motion was pending, the debtor received his general discharge. The court asked the parties to address the impact of Section 362(c)(2)(C), which states that the automatic stay for an individual in Chapter 7 terminates upon entry of the general discharge.  

In Remembrance of Barbara M. Barron

 My close friend and colleague Barbara Barron passed away in her sleep on Thursday August 5, 2021. I first met her on a case in 1988. I got to know her well from bar activities around 2000, and then when I joined Barron & Newburger, P.C. in 2003.

Here is a look at her life and some of her most notable achievements. 

Legal Career

In 1974, Barbara was working as a young MBA for Texas Instruments in Dallas. When her mentor left the company, she realized that she qualified for in-state tuition at the University of Texas School of Law. Tuition was absurdly cheap back then, perhaps $500.00 per year.

After graduation, she went to work for the Texas Attorney General’s office.  At the AG’s office, she had many appearances before the Fifth Circuit Court of Appeals representing the state in habeas corpus proceedings. Some of these included Harryman v. Estelle, 616 F.2d 870 (5^th Cir. 1980) and Blasingame v. Estelle,  604 F.2d 893 (5^th Cir. 1979).  She also represented state agencies such as the Comptroller of Public Accounts, who would become creditors in her later bankruptcy career.

In the early 1980s, she entered private practice and formed her own firm. Women were not fully accepted into the legal profession at this time, so her decision to open a practice was a bold one.  In 1983, she hired a recent law school graduate named Manny Newburger giving rise to the firm that would ultimately become Barron & Newburger, P.C. Two early cases which brought her attention were Briarcliff Utilities and Steve Scott.

In the Briarcliff case, she was appointed Chapter 11 Trustee for a water utility near Spicewood, Texas. One of the customers of the utility who did not pay his bill was Willie Nelson. Ms. Barron sued the music legend twice. Eventually she was able to pay all the creditors with interest and return money to the company’s owner.

The Steve Scott case arose during the real estate collapse of the late 1980s and early 1990s in Texas. Mr. Scott owned an office building on Barton Springs Road in Austin. A savings & loan, which later was taken over by the Resolution Trust Corporation (“RTC”), attempted to foreclose upon the building. However, the building sat on two lots, only one of which was covered by the deed of trust. Ms. Barron filed a Chapter 11 case for Mr. Scott and sued the RTC alleging that the government entity was wrongfully using the half of the building not covered by the deed of trust. The RTC claimed that the court lacked jurisdiction over it and that its power to avoid unwritten agreements overrode the failure of the deed of trust to describe the full property. After the bankruptcy court authored an opinion finding that it did have jurisdiction, Scott v. Resolution Trust Corporation, 157 B.R. 297 (Bankr. W.D. Tex. 1993), the parties reached a settlement. Under the settlement, Mr. Scott was able to re-purchase his building on favorable terms and the prior opinion was withdrawn.  Although the opinion was formally withdrawn and cannot be accessed online, it can still be found in older copies of the Bankruptcy Reporter printed before the opinion was withdrawn.

In another one of her cases, her bankruptcy estate came to own a large quantity of wine. She obtained the necessary permits from the State of Texas to allow the wine to be sold out of the vault of a failed bank, giving rise to the Wine Vault. The novelty of the arrangement made for a successful sale.

As the firm became Barron & Newburger, Manny Newburger recognized that the Fair Debt Collection Practices Act was going to become a major source of litigation. He and Ms. Barron authored a book on the Fair Debt Collection Practice Laws of the United States. Once, when an older attorney was attempting to lecture Ms. Barron about the FDCPA, she asked him to look on his bookshelf and see if he had a certain book. Sure enough, the attorney had a copy of the book co-authored by Ms. Barron.

Throughout her career, Ms. Barron was an active member of the Commercial Law League of America and worked on many amicus briefs filed on behalf of the League. One of these was Heintz v. Jenkins, 514 U.S. 291 (1995), an early case interpreting the FDCPA. Ms. Barron and I worked together on Reed v. City of Arlington, 650 F.3d 571 (5^th Cir. 2011)(en banc). In that case, a panel of the Fifth Circuit had ruled that a trustee was bound by a debtor’s fraudulent failure to disclose an asset. We filed an amicus brief on behalf of the CLLA and all members of the court, except for the members of the original panel, agreed that the trustee was not bound by the debtor’s concealment of assets.  We also worked together on In re Woerner, 783 F.3d 266 (5^th Cir. 2015)(en banc) in which the full Fifth Circuit overruled an eighteen year old precedent which had held that an attorney’s ability to get paid in a failed Chapter 11 case depended on whether the attorney was successful. The en banc Court ruled that the proper test was whether the attorney’s actions were reasonable at the time.

Throughout her career, Barbara had a special interest in representing restaurants in bankruptcy and represented many well-known dining establishments.

Education and Charitable Work

Barbara Barron was also very involved in continuing legal education. She spoke at many courses, including a series of Ten Commandments lectures aimed at helping creditors maximize their recovery and avoid pitfalls in bankruptcy cases. She created innovative courses for the State Bar of Texas on Bankruptcy Mediation and Forensic Finance.  Ms. Barron was the co-recipient of the Constant Gardener Award from Advocacy, Inc. for her representation of a hearing-impaired debtor who stood to lose her claims under the Americans with Disabilities Act.

Ms. Barron was active in charitable activities as well. She once helped a high school student put on a concert to raise money for the Health Alliance for Austin Musicians. She helped to get several musicians from the Antone’s Records label to perform at the benefit. She also organized and executed a benefit to raise money to buy an ambulance in Israel for American Friends of Magen David Adom, the Israeli equivalent of the Red Cross. She was named the 2013 Volunteer of the Year by Jewish Family Services of Austin and served on the board of the local YMCA for many years. She developed the Patient Partners program for Jewish Family Services of Austin. She was instrumental in establishing the Debt Counseling Clinic to assist the Legal Aid Society of Central Texas, and she organized the Insolvency Support Group in Austin — one of the first groups of its kind in the United States.

Personal Life

In her personal life, she enjoyed trips to New York to watch Broadway shows. She was a supporter of the Austin Film Festival and Austin Jewish Film Festival. Her home was full of books, both serious and popular. She had recently finished Lisa Scottolini’s latest book before her death. Dim sum and bagels were two of her favorite meals for Sunday brunch.

Barbara continued to work until the end and was last in the office two days before she passed away. She will be missed.

 

Second Circuit Says Student Obligation Was Not Excepted From Discharge

Congress has made it very difficult to discharge a student loan. However, as illustrated by a recent decision from the Second Circuit, not all obligations owed by students in connection with their schooling are excepted from discharge. Homaidan v. Sallie Mae, Inc., 2021 U.S. App. LEXIS 20934 (2^nd Cir. 7/15/21).

Change in Trial Location Renders Non-Party Deposition Admissible

Depositions serve two important functions in pre-trial procedure. First, they can be used to discover what a witness or party will say and tie down the witness’s story. Second, they can be used to create testimony which can be used at trial. However, the ability to use a non-party deposition at trial differs between Texas state and federal courts, a distinction which can be important into an attorney’s trial preparation. A recent decision from the Fifth Circuit highlights this distinction. Case No. 20-50604, Spectrum Association Management of Texas, LLC v. Lifetime HOA Management, LLC. (5^th Cir. 7/13/21). A copy of the decision can be found here. 

Lessons from Lockdown

Do you remember where you were when you learned that Covid was going to change your life? I was sitting in my office. A week or so before, the Mayor cancelled the South by Southwest Festival and everyone thought he had lost his mind. Then out of the blue came the news that we would have to close the office starting the following Monday. That was in mid-March 2020. I had just been in New York a few weeks earlier and was completely oblivious to the fact that a highly contagious virus was already causing people to fall ill and would ultimately kill over 600,000 people in this country. Now, in June 2021, the threat of Covid is receding but our lives have been changed. I would like to share a few of my experiences. If you would like to share your own, email them to ssather@bn-lawyers.com and I will add them to the end of this post.

Maryland Bankruptcy Court Opinion Shows Difficulty of Applying Arbitration in Bankruptcy Setting

Bankruptcy and arbitration are both intended to provide a quick and relatively efficient resolution to disputes between a debtor and his creditors. Both allow adjudication without a jury. Both systems should be able to move more swiftly than a court of general jurisdiction because there are no competing priorities, such as in criminal cases subject to the requirement of a speedy trial. Both are recognized by federal law, specifically the Federal Arbitration Act and the Bankruptcy Code. So what happens when a party to a bankruptcy proceeding requests permission to proceed with arbitration? The Court in In re McPherson, 2021 Bankr. LEXIS 1487 (Bankr. D. Md. 6/2/21) grappled this issue with frustrating results.

What Happened

The Debtor and Camac Fund, L.P. ("Camac") entered into a Litigation Funding Agreement (the "Funding Agreement"). Under the Funding Agreement, Camac would advance money to the Debtor in return for a percentage the debtor’s interest in any recoveries from certain whistleblower lawsuits.

Under the Funding Agreement, Camac was to extend financing to the Debtor in exchange for a percentage of the Debtor's interest in certain whistleblower litigation cases. Disputes arose between the parties under the Funding Agreement, and Camac invoked its rights under the Funding Agreement's arbitration clause. The Debtor filed a response disputing, among other things, the validity of the arbitration and asserting counterclaims against Camac. A hearing was scheduled in the arbitration proceeding but was stayed by the filing of this Chapter 11 case.

Opinion, pp. 3-4.

After the bankruptcy was filed, the lawyers got busy. Camac filed a Motion for Relief from Automatic Stay seeking to proceed with the arbitration. The Debtor filed an adversary proceeding against Camac. Camac filed an adversary proceeding to determine dischargeability against the Debtor. Camac asked the Court to abstain from hearing the Debtor’s suit.

The Bankruptcy Court found that there were several types of claims involved: (i) claims concerning the parties' performance under, and alleged breaches of, the Funding Agreement (the "Contract Claims"); (ii) claims under the Fair Debt Collection Practices Act ("FDCPA") and state law allegedly governing the Funding Agreement (the "Non-Bankruptcy Claims"); and (iii) claims under sections 502, 510, 523, 543, 544, 547, and 553 of the Code (the "Bankruptcy Claims"

Who Gets to Decide?

The Bankruptcy Court is the gatekeeper which gets to decide where the ultimate issue will be decided. The automatic stay prevents actions in other forums absent bankruptcy court permission, while the broad grant of jurisdiction in 28 U.S.C. §1334 allows most disputes to be heard in the Bankruptcy Court. Thus, with limited exceptions, unless the Bankruptcy Court lifts the automatic stay and abstains from hearing the dispute itself, the matter will proceed in bankruptcy.

The Bankruptcy Court has a second gatekeeper function, which is to determine “arbitrability.” As the Bankruptcy Court explained:

[F]irst, it must determine whether the parties agree to arbitrate; second, it must determine the scope of that agreement; third, if federal statutory claims are asserted, it must consider whether Congress intended those claims to be nonarbitrable; and fourth, if the court concludes that some, but not all, of the claims in the case are arbitrable, it must then decide whether to stay the balance of the proceedings pending arbitration.

Opinion, pp. 15-16. Although the Bankruptcy Court didn’t get there until page 15 of its opinion, the decision whether to allow arbitration is really a two-step process. First, the Court decides whether the parties intended this particular dispute to be subject to arbitration. Then it decides how to exercise its discretion as to whether to allow arbitration.

The Bankruptcy Court’s position as gatekeeper should provide the debtor with an important home field advantage in keeping the dispute in the debtor’s chosen forum. However, in Shearson/American Exp., Inc. v. McMahon, 482 U.S. 220, 226 (1987), the Supreme Court found that "the party seeking to prevent enforcement of an arbitration agreement [must] show that 'Congress has evinced an intention to preclude waiver of judicial remedies for the statutory rights at issue.'” Opinion. p. 9. Therefore, the rule is that the Court should allow arbitration unless there are important bankruptcy reasons not to.

Fortunately, Congress has provided guidance on what disputes are most important to the bankruptcy process. In 28 U.S.C. §157(b)(2)(B), Congress has defined certain bankruptcy disputes as “core” proceedings. These include such matters as allowing proofs of claim, selling property and deciding whether the stay should apply. The Supreme Court has further provided that some, but not all, core proceedings are “constitutional core” proceedings meaning that the Bankruptcy Court has authority to enter a final judgment without the consent of the parties. See Stern v. Marshall, 564 U.S. 462 (2011) and the Supreme Court’s subsequent decisions. Thus, if a decision is a “constitutional core” proceeding, there are good grounds for retaining the suit.

So, is there a hard and fast rule? No. As explained by the Bankruptcy Court:

If a claim is a constitutionally core proceeding, the bankruptcy court has the discretion to retain the proceeding and not enforce the terms of the parties' arbitration agreement. See, e.g.,Taylor, 420 F. Supp. 3d at 448 ("Arbitration of constitutionally core claims 'inherently conflict[s] with the purposes of the Bankruptcy Code,' and therefore a bankruptcy court is generally well within its discretion to refuse arbitration of constitutionally core claims.") (citation omitted). Again, this discretion arises from the inherent conflict in allowing an arbitrator to resolve proceedings that are grounded in the Code itself or that are integral to the debtor's reorganization efforts. A bankruptcy court's discretion is far more limited with respect to non-constitutionally core or non-core proceedings.

Opinion, p. 12. Essentially, the Bankruptcy Court has a lot of discretion to retain a constitutionally core matter and a little bit of discretion to retain anything else. While the “constitutional core” distinction is helpful, the decision still comes down to the Bankruptcy Court’s discretion.

The Bankruptcy Court was following Fourth Circuit precedent in Moses v. CashCall, Inc., 781 F.3d 63 (4^th Cir. 2015), where the Court held that sending a constitutionally core proceeding to arbitration “would pose an inherent conflict with the Bankruptcy Code” while requiring arbitration of a claim which was not a constitutional core proceeding would not. Interestingly, the judge who wrote the opinion dissented from the court’s opinion as to the claims which were not constitutionally core. The judge found that the non-core claim was directly tied to the core claim and that it would be inefficient to have two tribunals adjudicate the identical issue. The Fifth Circuit, while relying on a similar standard, has concluded that dividing a case and sending some claims to arbitration “would be of disservice to the parties and defeat the purposes of the Bankruptcy Code.” Gandy v. Gandy (In re Gandy), 299 F.3d 489, 499 (5^th Cir. 2002).  

The Court’s Ruling

The Court found that the parties agreed to arbitrate disputes arising under the Funding Agreement. For reasons that are unclear to me, the Court found it unnecessary to resolve whether the parties had agreed to arbitrate the specific disputes at issue. After an extensive discussion, the Court decided to bifurcate the claims. The claims arising under the Bankruptcy Code would not be subject to arbitration while the contract and non-bankruptcy claims would go to arbitration. This is a very unsatisfactory answer although it mirrors the result in CashCall. How could the Bankruptcy Court determine allowance of Camac’s claim (a bankruptcy claim not subject to arbitration) without determining the parties’ performance under the Funding Agreement (a non-bankruptcy claim subject to arbitration)? The only thing that makes sense is sending the FDCPA claim to arbitration since this is an independent claim between the two parties. However, was that even covered by the arbitration clause? As I mentioned above, I don’t think that the FDCPA claim arose under the Funding Agreement and therefore should not have been subject to arbitration at all.

Another Way to Look at This Case

I found this opinion to be very confusing and the outcome to be arbitrary. I would like to suggest a simplified approach. First, decide if the contract requires arbitration. If the contract does not require arbitration, that is the end of the inquiry. If the contract does require arbitration, then consider the impact on the bankruptcy process and other parties. For example:

• If a contract requires arbitration of any attempt to restructure a debt, that interferes with the Court’s ability to confirm a plan and arbitration should not be allowed.

• If a contract requires arbitration of disputes as to lien priority and validity and there are three parties asserting a lien, two of whom do not have arbitration clauses, arbitration should not take place.

• If the bankruptcy case cannot proceed without resolution of the dispute and the arbitration clause refers disputes to the Mongolian Arbitration Forum which requires a minimum of three years and two gallons of yak milk to decide, arbitration should not be granted.

I offer impact on the bankruptcy process and other parties as an alternate test because the whole constitutional core test doesn’t really work. Most arbitration clauses are going to decide claims between the parties. The Supreme Court has said that the authority of bankruptcy courts is greatest when “the action at issue stems from the bankruptcy itself or would necessarily be resolved in the claims allowance process.” Stern v. Marshall, 564 U.S. at 499. Since most arbitration clauses apply to deciding who owes what to whom, they are always likely to involve constitutionally core claims (unless it is purely a matter of a claim by the debtor against the contract counter-party). If constitutionally core claims are the norm, it doesn’t make much sense to use this as the basis for a decision. Additionally, as shown by this case and CashCall, bifurcating claims between those that are subject to arbitration and those which are not can lead to twin forums deciding the same issues which should be a real problem. Thus, impact on the process and other parties is a much more workable test.

If I were to apply my test to the case, I would probably have denied arbitration in its entirety. The parties agreed to arbitrate claims “arising under” the Funding Agreement. The FDCPA claims do not appear to arise under the Funding Agreement since the FDCPA will only apply when a debt collector is attempting to collect a debt. In Bankruptcy Court, we know the difference between “arising under” and “relating to” and these claims do not appear to “arise under” the Funding Agreement. I would also have found that the preference and fraudulent transfer claims did not arise under the Funding Agreement, since they arise under the Bankruptcy Code.  If the parties had agreed to arbitrate disputes “related to” the Funding Agreement, the result might have been different.

The disputes concerning performance under the Funding Agreement certainly arise under the Funding Agreement. However, they are part and parcel of claims allowance process which arises under the Bankruptcy Code. That would take us to the second level of my analysis: what is the impact on the bankruptcy process and other parties? The opinion doesn’t really answer these questions, and in fairness, the parties may not have raised them.

What I would like to have learned is how long the arbitration process would last and how would the allowance or denial of claims have affected other creditors and parties in interest. This was a Chapter 11 case. The Debtor has an exclusive period to propose a plan (or if it was a SubChapter V case, an absolute deadline to propose a plan). Would arbitration interfere with that process? How would determination of who did what to whom affect other creditors? If the only issue was how much Camac would owe the Debtor, then there probably would not have been much of an impact on other creditors. Similarly, if all the other creditors were secured creditors and Camac was the only unsecured creditor, then maybe allowance of Camac’s claim would not have affected other creditors. However, if Camac was one of several unsecured creditors and the amount payable to each unsecured creditor would depend on whether Camac had a big claim or a small claim, it might have had a lot of impact on other creditors.

If there is a law professor looking for his next article, I suggest this would make a great subject.

Self-Insured Retention Poses Problem for Discrimination Plaintiff

 The intersection between bankruptcy and personal injury tort claims can be a difficult one, as shown by a new opinion from Judge Marvin Isgur in Case No. 20-33900, In re Tailored Brands, Inc. (Bankr. S.D. Tex. 5/20/21). The opinion can be found here. The case involves a man who filed an employment discrimination suit against the clothier, but found his claims discharged without any ability to collect from insurance proceeds. The case is a cautionary tale for attorneys dealing with tort claims when a bankruptcy is filed, as large companies increasingly include large self-retention amounts as part of their insurance policies.

NRA Decision Illustrates Vitality of Good Faith Doctrine

When the National Rifle Association filed for bankruptcy in Texas, some pundits speculated that the gun advocates might have been seeking a firearm friendly forum. However, on May 11, 2021, Judge Harlin "Cooter" Hale dismissed the case based on lack of good faith. In re National Rifle Association of America and Sea Girt, LLC, No. 21-30085 (Bankr. N.D. Tex. May 11, 2021). You can find the opinion here. The opinion demonstrates the vitality of the good faith doctrine, which requires debtors’ filings for relief to advance a proper bankruptcy purpose. In the NRA's case, the answer was no.

The Consent Trap

A new decision from the Fifth Circuit holds that implied consent cannot overcome a formal denial of consent to entry of a final judgment by a magistrate judge, even when the objecting party expressly consented.  PNC Bank v. Ruiz, Case No. 20-50255 (5th Cir. 3/3/2021), which can be accessed here.  The decision is of interest to bankruptcy lawyers because the issue of consent is common to the actions of both bankruptcy judges and magistrate judges.

NRA Filing Illustrates Venue Loophole for Chapter 11 Filers

The National Rifle Association likes guns. Texans like guns. Therefore, when the NRA decided to file bankruptcy, there was a certain logic to filing in Texas. Unfortunately, however, prior to November 24, 2020, the NRA had no legal right to file bankruptcy in Texas. This did not deter the gun rights advocates. They created one.

Let me explain how this works. Under the bankruptcy venue statute, 28 U.S.C. Sec. 1408(a), a debtor can file bankruptcy in its domicile, residence, principal place of business or where its principal assets in the United States were located during the preceding 180 days. The NRA did not meet any of these tests. It is incorporated in New York. Its principal place of business and presumably principal assets are located in Virginia. However Sec. 1408(b) offers a loophole. A company can file in a district where a bankruptcy by one of its affiliates is pending. An affiliate includes a company owned by the debtor.

Supreme Court Rules That Passive Retention Does Not Violate Stay

 The Supreme Court decided that a creditor which passively retains possession of estate property does not "exercise control" over such property in violation of 11 U.S.C. Sec. 362(a)(3). The Court viewed the word "exercise" to require active measures.  Case No. 19-357, Chicago v. Fulton (1/14/21), which can be found here.

In the Fulton case, the City of Chicago impounded the Debtor's vehicle over failure to pay fees. The Debtors (there were multiple consolidated cases) filed chapter 13 and demanded return of their vehicles. The City refused. The Seventh Circuit held that the refusal to relinquish possession was a violation of the automatic stay.

Fifth Circuit Resurrects Fraud Suit Based on Removal to Bankruptcy Court

 In a very convoluted case, a plaintiff learned that removal to Bankruptcy Court can result in a do-over of adverse state court rulings.  Cohen v. Gilmore (Matter of Alabama & Dunlavy), Case No. 19-20152 (5th Cir. 12/15/20).  While the Rooker-Feldman doctrine prohibits a federal court from re-examining findings in an unrelated state court case, it does not grant similar protections in a removed action for the reason that the removed action is a continuation of the original case, just with a different presiding court.

What Happened (In Brief)

The facts of the case are very complicated. Here is an overly simplified summary. Alabama & Dunlavy owned some real property in Houston.  A trust controlled by Cohen was the 80% limited partner of Alabama & Dunlavy (A & D). In 2008, the Great Recession hit and the debt matured. Dilick controlled the general partner of A & D and also controlled the remaining limited partnership interest. Abercrombie was a developer. Abercrombie and Dilick approached the trustee of Cohen's trust about selling the property for $16.7 million. The trustee said yes because the partnership would make a profit. However, Abercrombie and Dilick failed to disclose that HEB was interested in signing a ground lease which would greatly increase the value of the property.

Abercrombie signed the ground lease with HEB under an entity named TAFI that had yet to be formed. Dilick then caused A & D to sell the property to TAFI for $13.5 million.  Shortly after acquiring the property     TAFI took out a loan for $19.9 million against the property. Various people got money, including  HEB's director of real estate. 

Cohen sued Abercrombie and TAFI among others. The state court granted Abercrombie and TAFI's motion for summary judgment after it excluded most of Cohen's summary judgment evidence.  The summary judgment apparently was never severed out of the case and remained interlocutory.   Several years later in 2015, A & D filed Chapter 7 bankruptcy and Regions Bank, which was another defendant, removed the case to Bankruptcy Court. The case was referred to the U.S. District Court. The District Court entered an agreed final judgment on February 7, 2019 among the remaining parties.  Abercrombie and TAFI never participated in the District Court litigation. Abercrombie and his lawyer both died. The property was sold to a third party. 

The Issue Arrives at the Fifth Circuit

Cohen then appealed to the Fifth Circuit. So, what was the Fifth Circuit doing reviewing a summary judgment granted by a state court? Although the District Court never addressed the Abercrombie and TAFI claims, they were still part of the case.

 In this circuit, when a case is removed from state court to federal court, the federal court takes the case as it finds it and treats the state court rulings as its own. . . . Since the Fifth Circuit has eschewed legal formalities and treated cases like this one as reviewable even if the district court provided little discussion of the state court decision, this case is ready for appellate review.

Opinion, p. 7. 

What A Difference A Court Makes

Where the change in forum really made a difference was in the Fifth Circuit's review of the State District Court's ruling on the motion for summary judgment. In Texas State Court, rulings on summary judgment evidence can be very informal. In this case, the State Court signed an order which granted or denied various evidentiary objections without explanation. This is not adequate in federal court. 

Cohen contends that the state trial court abused its discretion in granting several evidentiary objections in TAFI’s and Abercrombie’s favor. We agree. The grant of these objections improperly excluded important evidence from consideration. To start, the state trial court offered no explanation as to why it granted the objections. It simply checked boxes on a form saying that the objections were sustained. Since a trial court can abuse its discretion by failing to explain the reasons for excluding evidence, the lack of a reasoned explanation weighs in favor of overturning the objections.  Courts also typically consider evidence unless the objecting party can show that it could not be reduced to an admissible form at trial.

Opinion, pp. 8-9.  

This passage illustrates a remarkable difference between the state and federal courts. In my experience, state courts rarely explain their rulings. In the unusual cases where a motion for summary judgment is taken under advisement, the typical ruling from the court is a one sentence letter stating that the motion is granted or denied. Evidentiary objections are disposed of with a simple granted or denied.

Because the Court considered it an abuse of discretion to exclude evidence without stating a reason, it considered the summary judgment evidence. Because the Court examined the summary judgment evidence, it found that there were fact issues. Because the Court found that there were fact issues, it reversed the summary judgment.  As a result, seven years and one month after the summary judgment was granted, and after both the defendant and his lawyer had passed away, the summary judgment was reversed.

Practice Tips

The obvious practice tip for a party receiving an unexplained and possibly unconsidered ruling from a state court is to get the case to federal court before the judgment is final. This won't always be possible. If the claims on which summary judgment were granted were the only claims in the case, the judgment would have been final prior to bankruptcy. Similarly, filing bankruptcy after a state court has ruled but before it has entered its order is unlikely to provide any relief. However, in a complicated suit with lots of parties and claims, a terrible, horrible ruling might face a stricter review in federal court as opposed to being rubber stamped in state court.

The practice point for the party better the terrible, horrible ruling (or the wonderful, well-thought out decision depending on where you sit) is to get the ruling severed into its own case so it can become final. While I don't know what happened (any counsel is no longer around to explain), what probably occurred was that the defendants got their take-nothing ruling and assumed the case was over. Unfortunately, it was not.   

On a final note, this case just smelled bad and that may have affected the ruling.

 

 

 

A Few Thoughts on the Opinions of Amy Coney Barrett

 This post was originally intended to be about the bankruptcy jurisprudence of Supreme Court nominee Amy Coney Barrett. That would have been a very short post. She has been on panels which issued seven per curiam unpublished opinions in bankruptcy matters, none of which were very remarkable. Instead, I will look at three of her opinions dealing with consumer financial services and cases where she did not rule for law enforcement or employers,  traditional favorites of conservatives. While most of her writing is workmanlike, she occasionally reaches for a memorable turn of phrase.

The Consumer Protection Decisions

In determining a case under the Telephone Consumer Protection Act, Judge Barrett lamented that the provision in question was "enough to make a grammarian throw down her pen." Gadelhak v. AT&T Services, 950 F.3d 458 (7th Cir. 2020).  She succinctly stated that:

We'll save the intense grammatical parsing for the body of the opinion—here, we'll just give the punchline. We hold that "using a random or sequential number generator" modifies both "store" and "produce." The system at issue in this case, AT&T's "Customer Rules Feedback Tool," neither stores nor produces numbers using a random or sequential number generator; instead, it exclusively dials numbers stored in a customer database. Thus, it is not an "automatic telephone dialing system" as defined by the Act—which means that AT&T did not violate the Act when it sent unwanted automated text messages to Ali Gadelhak.

While Judge Barrett may have wanted to throw down her pen, she did follow the grammar.

However, the statutory language did not keep her from ruling against an FDCPA plaintiff who alleged a technical notice violation. In Casillas v. Madison Ave. Associates, 926 F.3d 329 (7th Cir. 2019), a debt validation notice failed to state that any requests for validation must be made in writing. The consumer did not attempt to make a written or verbal request for validationbut did file an FDCPA class action. Judge Barrett wrote that under the Supreme Court's Spokeo decision that a plaintiff cannot claim "a bare procedural violation, divorced from any concrete harm, and satisfy the injury-in-fact requirement of Article III."

Judge Barrett also wrote an opinion affirming a summary judgment for the defense in a case under the FDCPA and FCRA in Walton v. EOS CCA, 885 F.3d 1024 (7th Cir. 2018).  This was a case about verification of a debt to ATT in the amount of $268.47. When ATT sent the debt to the debt collector, it transposed several of the digits in the account number. The clever consumer wrote to the debt collector stating that she did not "own (sic) AT&T any money under the account number listed above." The debt collector responded that it had verified that her name, address and the last four digits of her social security number matched the debt report it had received from AT&T. The debt collector reported the debt to two credit reporting agencies but indicated that it was disputed.   The consumer filed two complaints with the credit reporting agencies. In the second, she stated that the account number was incorrect. At that point, the debt collector deleted the trade line. The consumer sued under FDCPA contending that the debt collector failed to verify the debt with the original creditor and under FCRA asserting that it failed to reasonably investigate the disputed information.

Judge Barrett went to the dictionary to see what the term "verification" meant but then noted that the "question here is what the debt collector is supposed to be verifying." The consumer argued that the debt collector was required to verify the original debt while the debt collector argued that it was required to verify that the notice it provided to the consumer matched the information it had received from the creditor. Judge Barrett agreed with the debt collector.

Judge Barrett also ruled that the debt collector properly investigated the dispute made to the credit reporting agencies. The first dispute asserted that the debt was not hers. The debt collector properly verified that the information that it received from the creditor identified the account as belonging to the consumer. When she clarified that the account number was wrong, the debt collector deleted the trade line. 

These opinions demonstrate that Judge Barrett has a passing familiarity with the three major federal consumer protection statutes and that she appears to take these issues seriously.

Judge Barrett Does Not Always Rule for the Authority Figure

In the classic film, School of Rock, Jack Black's character tells his young charges that the purpose of rock and roll is to stick it to the man. Although Judge Barrett is a conservative judge, there are definitely opinions in which she has been willing to stick it to the man. This was the most interesting thing that I found in examining her slight judicial record of less than one hundred published opinions.

 Judge Barrett has ruled against the employer in several cases involving discrimination on the basis of sex. Judge Barrett affirmed a judgment against Costco for failing to prevent a hostile work environment when a customer relentlessly stalked and harassed a female employee. While Costco argued that other unsuccessful Title VII plaintiffs had alleged far worse conduct, Judge Barrett found that the evidence was sufficient for the jury to find in the EEOC's favor.  EEOC v. Costco Wholesale Corp., 903 F.3d 618 (7th Cir. 2018).  In a male on male sexual harassment case, Judge Barrett affirmed the jury verdict. Where male employees grabbed another man's buttocks and genitals and reached down his pants among other actions, there was sufficient evidence to conclude that he was harassed based on sex where there was no evidence that female employees were subject to the same treatment. (He was also told to go back to Africa which would indicate racial discrimination as well). Smith v. Rosebud Farm, Inc., 898 F.3d 747 (7th Cir. 2018). These decisions show a willingness to uphold jury verdicts based on evidence. However, they also show a lack of judicial activism to protect employers from being sued.

 Judge Barrett was also unwilling to reverse a district court's determination that a detective was not entitled to qualified immunity in a Section 1983 case. The detective contended that even though he lied in his probable cause affidavit, his lies were not material. Judge Barrett wrote that "when the lies are taken out and the exculpatory evidence is added in" there was not sufficient evidence to arrest a man for the murder of his mother.  The fact that he had a key to his mother's apartment, checked on her and stood to inherit was not enough to establish probable cause. Rainsberger v. Benner, 913 F.3d 640 (7th Cir. 2019). 

In another case, the DEA arrested a suspect and then went to search his apartment. A woman wearing a bathrobe let them in. The agents did not ask her who was or why she was there until partway through the search.  Judge Barrett reversed the trial court's decision not to suppress the evidence obtained during the search. She wrote that "A bathrobe alone does not clothe someone with apparent authority over a residence, even at 10:00 in the morning." United States v. Terry, 915 F.3d 1141 (7th Cir. 2018).

Judge Barrett also ruled that a defendant was entitled to a new sentencing hearing before a different judge after the judge refused to recuse himself.  The judge had previously been a prosecutor in the same U.S. Attorney's office which was prosecuting the defendant. It came to light that the judge had had over 100 ex parte communications with the U.S. Attorney's office about other cases. As a result, the Chief Judge removed the judge from any cases involving his former office. The defendant raised the judge's failure to recuse for the first time on appeal because the ex parte contacts were not disclosed until after sentencing. Judge Barrett wrote that "Allowing Atwood's sentence to stand would undermine the public's confidence in the fairness of this sentence and in the impartiality of the judiciary." United States v. Atwood, 941 F.3d 883 (7th Cir 2019).

There are other similar cases that I could discuss as well. To me, this second set of cases demonstrates that Judge Barrett displays judicial independence in cases where business and law and order advocates might have preferred a different result. The decisions appear to be carefully thought out and correct. If Judge Barrett is a dangerous idealogue, she has not provided her critics with evidence in this handful of cases.