Justia Bankruptcy Opinion Summaries

The United States Trustee, Region 3, appealed a district court’s reversal of sanctions originally imposed by the bankruptcy court on attorneys Mark Udren and Lorraine Doyle and HSBC for violating the Federal Rules of Bankruptcy Procedure. "This case [was] an unfortunate example of the ways in which overreliance on computerized processes in a high-volume practice, as well as a failure on the part of client and lawyers alike to take responsibility for accurate knowledge of a case, can lead to attorney misconduct before a court." At issue were two pleadings that HSBC’s attorneys filed in bankruptcy court. Both documents contained imperfect information and were filed with the court. The attorneys appealed the sanctions order arguing that the facts contained in the filed documents were "actually literally true." Upon review, the Third Circuit found that the statements therein were not wholly true, and faulted counsel for "rubber-stamping" the information taken from its computerized database without additional investigation as to their veracity: "[w]here a lawyer systematically fails to take any responsibility for seeking adequate information from her client, makes representations without any factual basis because they are included in a "form pleading" she has been trained to fill out, and ignores obvious indications that her information may be incorrect, she cannot be said to have made reasonable inquiry." The Court concluded the bankruptcy court did not abuse its discretion in imposing sanctions on Doyle or the Udren Firm itself. However, it found the lower court abused its discretion in imposing sanctions on Udren individually.

The company filed a Chapter 11 bankruptcy petition and continued to make payments to pension plans, as required by collective bargaining agreements. When the company was sold and it no longer employed individuals covered by the plans, the pension fund filed a claim for $5,890,128 (withdrawal liability) and requested that the claim be classified as an administrative expense. The bankruptcy court classified the claim as unsecured debt. The district court reversed and remanded, holding that the portion of withdrawal liability attributable to the post-petition period was entitled to priority. The Third Circuit affirmed. If entire withdrawal liability were automatically classified as a general unsecured claim, it would undercut the purpose of the Multiemployer Pension Plan Amendments Act, 29 U.S.C. 1381, amendment to the Employee Retirement Income Security Act: to secure the finances of pension funds and prevent an employer's withdrawal from negatively affecting the plan and its employee beneficiaries.

The district court denied insurance companies standing to challenge a Chapter 11 plan of reorganization for a debtor facing asbestos and silica-related injury claims and affirmed the plan. The Third Circuit vacated and remanded, holding that the companies have bankruptcy standing. The availability of hundreds of millions of dollars in insurance cover was a major assumption underlying the plan; insurance policies were assigned to specific trusts created for the injury claims, in contravention of anti-assignment clauses in the policies. The plan puts a "hand in the pocket" of the insurance companies, which, therefore, qualify as parties in interest under 11 U.S.C. 1109(b). Although the plan preserves coverage defenses, it increases the companies' pre-petition liability exposure more than 27 times over. Noting the likely increase in costs of administration and investigation, the court held that the interests are not speculative. The court stated that an allegation that the debtor "sold out" the insurers to gain approval of the plan by plaintiffs' attorneys was "not without record support."

The district court dismissed a pro se debtor's claims against creditors, a collection firm, and credit reporting agencies, holding that expiration of the limitations period on the original debt did not prohibit assignment of or attempt to collect the debt, which had not been extinguished by bankruptcy. The Third Circuit affirmed. Although the debt is unenforceable under state law, it was not extinguished; the Fair Debt Collection Practices Act, 15 U.S.C. 1692e, does not prohibit attempts to obtain voluntary payment. Communications did not include any threat to litigate and did not amount to fraud. Nor did the collection agency violate the Act by obtaining a credit report or violate RICO by any of its actions.

A Chapter 11 bankruptcy petition, filed in May 2005, was dismissed; the order was mailed on October 5, 2006. Notice of appeal was sent by first-class and electronic mail on October 16, but was not filed until October 19. Despite failure to file within 10 days as required by Fed. R. Bankr. P. 8002(a), the district court docketed the appeal. In May 2007 the court dismissed the appeal for failure to comply with another rule. While appeal of the dismissal was pending, the trustee moved for dismissal for untimely filing. The Third Circuit remanded to the district court for dismissal. Unlike other bankruptcy rules, the time for appeal is incorporated into the statute (28 U.S.C. 158(c)(2) and is jurisdictional.