NO STATE SOVEREIGN IMMUNITY IN ADVERSARY PROCEEDING TO DETERMINE DISCHARGEABILITY The Supreme Court has affirmed the Sixth Circuit (and the Bankruptcy Court) in Tennessee Student Assistance Corporation v. Hood. The issue was whether a Bankruptcy Court could overrule a state’s objection to jurisdiction based on sovereign immunity in an adversary complaint seeking discharge of a student loan. The Appellant had asserted that the Eleventh Amendment’s protection of state sovereign immunity prohibited the complaint without the assent of the state. The Supreme Court, by a 7 – 2 majority, said that the Bankruptcy Court had in rem jurisdiction to hear the adversary proceeding. Chief Justice Rehnquist, writing for the majority, stated the Eleventh Amendment does not bar federal jurisdiction over in rem admiralty actions when the State is not in possession of the property, citing California v. Deep SeaResearch, Inc., 523 U. S. 491 (1998). He also ruled that that “[t]he discharge of a debt by a bankruptcy court is similarly an in rem proceeding. Accordingly, the “[b]ankruptcy courts have exclusive jurisdiction over a debtor’s property, wherever located, and over the estate.” Further, the requirement that the debtor take action to initiate a hardship discharge was not, as the state asserted, a congressional authorization of a suit against a state, but effecting the discharge’s in rem jurisdiction. Chief Justice Rehnquist also found the statute did not prohibit a debtor from pursuing discharge relief by the filing of a motion (although the rules require it) which would also eliminate constitutional issues. The debtor was represented by Leonard Gerson, with 14-attorney Angel & Frankel in New York. TENNESSEE STUDENT ASSISTANCE CORPORATION v. HOOD (S.Ct. 2004).

FORMULA FOR INTEREST RATE FOR SECURED CLAIMS IN CHAPTER 13 The Supreme Court, in a complicated split, has ruled on the appropriate interest rate for a Chapter 13 plan for a secured claim (whose collateral is an automobile). The Court’s opinion, written by Justice Stevens and joined by Justices Souter, Ginsberg and Breyer, states that the appropriate rate is the market rate which includes an element of risk, with a likely result of the prime rate plus an additional 1% to 3%. Justice Thomas ruled that the discount rate need not include an adjustment for risk and, therefore, under the circumstances in which the case was presented, concurred with Justice Stevens. In the case at bar, the debtors purchased a truck for approximately $6,700, including taxes and charges. After a $300 down payment, the balance of just over $6,400 was financed at a rate of 21%. In the Chapter 13 case, after the parties had agreed that the vehicle was worth $4,000 (in contrast to the outstanding balance of approximately $4,900), and, after an evidentiary hearing, the Bankruptcy Court approved the debtors’ plan which included an interest rate of 9.5%. The Court of Appeals reversed, utilizing a rate that could be obtained if a new loan was obtained under the circumstances, and ruling that the “original contract rate should serve as a presumptive [cram down] rate.” TILL ET UX. v. SCS CREDIT CORP. (St. Court 2004)

Collateral Estoppel Used to Prevent Discharge Chicago Daily Law Bulletin The 7th U.S. Circuit Court of Appeals has reversed a ruling by U.S. District Judge Richard L. Young of the Southern District of Indiana. When John W. Catt II declared bankruptcy, Shirley and Gerald Hash, who had been joint venturers with Catt in a construction project and had obtained a fraud judgment against him in a default proceeding in Indiana state court for $487,045 in damages and $51,000 in punitive damages, sought a ruling from the bankruptcy court that the judgment debt to them was not dischargeable in bankruptcy. The bankruptcy judge ruled, however, that the Hashes could not use the doctrine of collateral estoppel to make the state court's finding of fraud binding in the bankruptcy proceeding and that they would have to prove fraud again in the bankruptcy proceeding to defeat discharge. The Hashes declined to do so, standing on their claim of collateral estoppel, and the district judge ruled that the debt was dischargeable. The appeals court reversed. The court said the effect of a judgment in subsequent litigation is determined by the law of the jurisdiction that rendered the judgment. In this case, the appeals court said, while ''one might suppose that findings made in default proceedings would never be given collateral estoppel effect because they are not based on a full and fair hearing,'' Indiana is one of a minority of states that allow findings made in default proceedings to collaterally estop, provided that the defaulted party could have appeared and defended if he had wanted to. ''Do these states have a deviant understanding of collateral estoppel, or, worse, are they violating due process? The answer to both questions is no,'' the court said. The appeals court said Catt had an opportunity for a hearing on the issues, and he had no valid basis for believing that the trial would not be held merely because his lawyer was quitting the case. The court said he could have sought a continuance to enable him to hire another lawyer. The appeals court added that it was apparent that Catt was determined to bypass the state-court litigation in the hope that any judgment against him in that suit would be wiped out by a discharge in bankruptcy. ''So the fact that the 'trial' which was held in the Indiana state court was a travesty of a trial, lacking as it did an adversary dimension or for that matter the kind of active judicial participation that characterizes the inquisitorial systems of the Continental European judiciaries — the fact that it was no better, really, than a default proceeding — cannot bail Catt out,'' the appeals court said. The appeals court said that while the Indiana proceedings were perfunctory, the bankruptcy judge was bound to accept the judgment entered in state court. In re John W. Catt II, No. 03-1847. Judge Richard A. Posner wrote the court's opinion with Chief Judge Joel M. Flaum and Judge Diane P. Wood concurring. Released May 19, 2004.

Number of bankruptcy filings continues to rise PATRICIA MANSON, Law Bulletin staff writer Consumers kept the courts busy over the last year, filing more than 1.6 million bankruptcy petitions as they struggled to cope in a bad business cycle. The Administrative Office of the U.S. Courts reported on Friday that consumers seeking to liquidate or restructure their debts filed 1,618,062 petitions in the year ending March 31. That figure represented a 2.8 percent increase over the number of non-business petitions filed during the previous 12-month period. The rise in the number of individuals turning to the bankruptcy courts for relief ''is related to unemployment and the length of unemployment and the general bad business cycle,'' according to Melanie Rovner Cohen, a partner at Quarles & Brady. ''Families can only hold out so long,'' Cohen said Monday. ''I think the general business cycle is still down and it's been down for quite some time, and that impacts most dramatically on the consumer.'' Cohen said the 8.6 percent increase in filings under Chapter 11 — the section of the U.S. Bankruptcy Code that allows a business to continue operating while it establishes a plan to repay creditors — was another indication that the economy is still in a down-market cycle. And Cohen said she expects the number of Chapter 11 filings to continue to rise if times become better and open up more opportunities for lenders to sell the assets backing up their loans. ''I would anticipate an increase in Chapter 11 filings when the economy does improve because the collateral which secured the lenders' obligations will begin to have value in the market, the lenders will attempt to realize on that value and debtors may be forced to file for bankruptcy,'' Cohen said. While the number of Chapter 11 petitions brought in the year ending March 31 was higher than the number brought the previous year, the overall number of business filings dropped 2 percent. Nationwide, 36,785 business petitions were filed, bringing the total number of bankruptcy filings to 1,654,847. Those filings included 167,554 brought in the three states — Illinois, Wisconsin and Indiana — that constitute the 7th Circuit. Nearly half the 7th Circuit petitions, or 83,634, were filed in Illinois. Of those petitions, 57,586 were filed in the Northern District. The filings in the 7th Circuit included 2,226 business and 165,328 non-business petitions. Illinois debtors accounted for 927 of the business and 82,707 of the non-business filings. More than two-thirds of those petitions — 656 business and 56,930 non-business — were brought in the Northern District. The largest number of the petitions filed in the year ending March 31 were brought under Chapter 7, which allows debtors to keep certain exempt assets while the remaining property is sold to repay creditors. Most of these petitions are brought by individual consumers. Nationwide, the number of Chapter 7 petitions filed rose 3.6 percent to 1,176,654. Of those petitions, 131,135 were brought in the 7th Circuit; 62,981 in Illinois; and 42,003 in the Northern District. The next largest group of petitions was filed under Chapter 13, the Bankruptcy Code section under which creditors are paid in full or part in installments over three to five years. Consumers make up the bulk of the debtors who seek Chapter 13 protection. In the year ending in March, Chapter 13 filings across the country inched up 0.3 percent over the previous 12-month period to 465,878. The 7th Circuit accounted for 35,858 of those petitions; Illinois for 20,340; and the Northern District for 15,346. Filings under Chapter 12, which is designed to address the needs of financially distressed farmers, abruptly reversed course. While such filings skyrocketed a whopping 62.5 percent from March 31, 2002 to March 31, 2003, they dropped 9.3 percent this last year. Of the 573 Chapter 12 petitions filed nationwide, 48 were brought in the 7th Circuit; 20 in Illinois; and two in the Northern District. Bankruptcy judges continued to shoulder large dockets as filings per authorized judgeship reached 5,108 at the end of March, compared to 2,965 a dozen years earlier. Chief U.S. Bankruptcy Judge Eugene R. Wedoff said jurists serving in the Northern District are no different than their counterparts around the U.S. ''The caseloads remain very, very heavy,'' Wedoff said. ''We've got a lot of work to do here in bankruptcy court.'' Statistics on bankruptcy filings are available on the U.S. judiciary's Web site at http://www.uscourts.gov under Newsroom/Bankruptcy Statistics.

Property taxes – delinquencies Trial court correctly held that county did not violate state Property Tax Code by acquiring tax-delinquent properties with 'no-cash' bids and then assigning them, without any compensation, to city. The Illinois Appellate Court, 1st District, 1st Division, has affirmed a ruling by Judge Nancy J. Arnold. In a complaint filed in April 2001, a group of plaintiffs alleged that Cook County violated the state Property Tax Code by transferring to the City of Chicago, without any compensation, properties the county acquired through no-cash bids in ''scavenger'' sales for tax-delinquent properties. The plaintiffs alleged that they are ''taxpayers and members of African-American and other minority groups residing in the City of Chicago.'' The plaintiffs alleged that their property ''has been taken or is in jeopardy of being taken pursuant to the unlawful no-cash bid program.''The plaintiffs alleged that the city asked the county to file no-cash bids for more than 5,000 properties offered for sale at the tax scavenger sales held in 1997 and 1999. The county then acquired the properties and transferred them to the city for no compensation, and the plaintiffs contended that this arrangement violated the Property Tax Code. The plaintiffs claimed that the properties are predominantly located in minority communities and that the delinquent taxpayers are predominantly black, Hispanic and other disadvantaged minorities. The plaintiffs argued that under the statute, the county was trustee for the taxing districts such as the Chicago Board of Education and Cook County Forest Preserve District and that those taxing districts needed to impose higher taxes on the plaintiffs to compensate for the revenue lost. The plaintiffs also contended that under the statute, the county, as trustee for the taxing districts, is required to obtain cash consideration sufficient to cover costs and allow for some distribution to taxing districts. In count 1 of the complaint, the plaintiffs sought to enjoin the county from acquiring properties through no-cash bids and transferring them to the city for no compensation. In count 2, the plaintiffs who own property sought just compensation from the defendants for their properties if the city acquires them through the allegedly illegal no-cash bid program. Count 3 of the complaint alleged that the program has disparate impact on racial minorities, thereby violating regulations of the Department of Housing and Urban Development. Count 4 charged that the program confers benefits on white contractors and that those benefits prove the city and county intended racial discrimination. The defendants moved to dismiss the complaint on the basis that the plaintiffs lacked standing. The trial judge dismissed counts 1, 3 and 4 with prejudice but gave the plaintiffs leave to redraft count 2. The plaintiffs elected to stand on the complaint, and the judge then dismissed the complaint with prejudice. The appeals court affirmed. The court said the statute expressly gives the county the option of either selling or assigning the tax-delinquent property and the city, as a taxing district, is expressly made a possible assignee. Therefore, the court said if it were to construe the statute to require a sale, the provision for assignment appears to be superfluous. The appeals court said the statute requires only apportionment of amounts received if the county receives any amount for the properties it acquires by no-cash bids. The statute expressly allows no-cash bids and the assignments to the city alleged in the complaint, the court said. This system was created, the court said, so the county may ''clean up a hopeless and difficult tax delinquency situation and place taxable property on the tax rolls again.'' The court said the statute expressly allows the county the flexibility to decide whether to sell the property, assign the property to a private party, assign the property to a taxing district or to retain and manage the property. Under the plaintiffs' construction of the statute, the properties most ''most desperately in need of drastic measures, the properties available at scavenger sales, would not benefit from the flexibility the legislature granted the county.'' Lucius Swilley, et al. v. County of Cook, et al., No. 1-02-2748. Justice Jill K. McNulty wrote the court's opinion with Justices Joseph Gordon and Margaret Stanton McBride concurring. Released May 10, 2004.

M&A activity on the upswing By Lisa Singhania, Associated Press writer NEW YORK — With price tags as high as $63 billion and $58 billion, the merger business is awakening from the bear-market hibernation that made corporate marriages a tough sell the last few years. Some 2,052 U.S. M&A deals were announced in the first quarter, up slightly from the 2,031 recorded in the last quarter of 2003, according to Thomson Financial. They were the first back-to-back quarters of 2,000-plus deals in nearly three years. ''It's a sign of strengthening corporate earnings and economic growth,'' said Richard Peterson, chief market strategist for Thomson Financial. ''When M&A was down in 2001 and 2002, the economy was in recession. Now that the economy is in a period of growth, M&A activity is resurging.'' The total value of M&A transactions is also climbing, to $226.8 billion in the first quarter from $216.4 billion in the final three months of 2003. The last time the quarterly tally was bigger was back in the fourth quarter of 2000, when announced deals added up to $346.3 billion. So far this quarter, there have been 770 deals worth $72.4 billion, according to Peterson's calculations. Still, the mood in the M&A business is relatively subdued as companies, facing greater scrutiny from their shareholders and boards of directors, seek to avoid a repeat of the excesses of the 1990s, when the surging stock market led to sometimes exorbitant prices. The sky-is-the-limit attitude common in investment banking four years ago is no longer a given, analysts say. ''People have gotten used to idea of low-premium deals,'' said Michael A. Plodwick, a banking analyst at Blaylock & Partners. ''Back in the 1990s, you would have assumed you would have to offer a 30 to 40 percent premium'' of a company's stock price or value ''to get the deal done'' He noted that J.P. Morgan Chase & Co.'s planned acquisition of Bank One Corp. for $58 billion in stock, gives Bank One shareholders roughly a 14 percent premium, conservative by '90s standards. Also, SunTrust Banks Inc.'s nearly $7 billion stock-and-cash acquisition of National Commerce Financial Corp. had a premium of roughly 5 percent to NCF shareholders — although that was on top of a 13 percent run-up in NCF's stock before the deal was announced. That leads some to question how long the cautiousness will last. ''Yes, there's more cautiousness to pull the trigger, because of [the scandals at] Enron and Tyco,'' said Judy Radler Cohen, editor of Thomson Media's Merger and Acquisitions Newsletter. ''But some of that bad stuff, is starting to fade in our collective memory, and companies haven't lost their desire to grow through acquisitions.'' Indeed, there have been a few, high-profile, pricey indications that suggest companies are willing to pay more. Bank of America Corp. last year agreed to a more than 40 percent premium in its $42 billion acquisition of FleetBoston Financial Corp. Cingular Wireless's decision to pay nearly $41 billion in cash to buy AT&T Wireless Services Inc. to create the nation's largest mobile phone company involved a 50 percent premium, by some measures, although that deal involved an auction format, and aggressive bidding by Vodafone PLC helped drive up the final price. Other highlights of this year's M&A activity include two health care deals: The $63.2 billion cash-and-stock planned merger of drug makers Sanofi-Synthelabo and Aventis SA and UnitedHealth Group's $4.9 billion cash-and-stock deal to acquire Oxford Health Plans Inc. Even with its more cautious tone, the merger business is gathering momentum. Not even the increasing likelihood of higher interest rates or the continued volatility in the stock market is likely to stop it, Peterson said. ''Yes, higher rates are going to raise the cost of borrowing, but I don't think it will be a significant deterrent to M&A. One of the reasons rates are going to get higher is because the economy is getting better, which is good for M&A,'' he said. Put another way, ''if you look at 2001 and 2002 when rates were declining, the economy was struggling and so was M&A.'' Credit Suisse First Boston, Morgan Stanley, Citigroup were among the financial institutions that recently reported improvements in their investment banking business. The telecommunications, health care and financial service sectors are among those most frequently mentioned as candidates for M&A activity, but experts say deals in other sectors are also possible. Of course, not all attempted mergers succeed. This year's most notable failed deal was Comcast Corp.'s $54 billion offer for Walt Disney Co. The cable TV operator withdrew the bid, rejected by Disney as insufficient, as Comcast's own investors worried that the deal would dilute the value of their shares. Still, Comcast chief executive Brian L. Roberts has said future acquisitions are a possibility, though no specifics have been offered. Even though Comcast was unsuccessful, analysts were still encouraged by its bid. ''The fact that a company the size of Disney, even if it's not at its best right now, was regarded as a plausible acquisition candidate by Comcast means there are other companies considering this kind of activity,'' said Sam Schulman, a managing director at DeSilva& Phillips, a media investment banking firm. ''Even though it didn't work out this time, Comcast was properly opportunistic.''

DEBTOR'S TAX RETURN FILED AFTER IRS SFR AND ASSESSMENT WAS NOT A "RETURN" FOR PURPOSES OF BANKRUPTCY DISCHARGE The Court concludes that the document Ehrig submitted to the IRS in 2000 for year 1990, the accuracy of which was ultimately rejected by the IRS, although it may have been as accurate as was possible after such an extended delay, was a self-serving attempt to reduce his liability after the IRS (1) prepared and fifed an SFR without the cooperation of Ehrig, (2) sent a notice of deficiency, to which Ehrig failed to respond, (3) assessed the 1990 Liability, which Ehrig [failed] to contest, and was so long belated that it cannot, as a matter of law, be deemed an honest attempt to comply with laws. Moreover, the filing served no purpose; it did not allow liability to be assessed, it did not affect the amount of liability, nor it did abate or purge penalties or other liabilities incurred on account of failing to timely file. Accordingly, the Court concludes, as a matter of law, that the document was not a "return" as that tennis given effect in Section 523(a)(1)(B)(i). Closely allied with the conclusion that the document served no purpose is the fact that a return was [not required once the IRS had filed an SFR] and therefore Ehrig's 2000 submission did not cure his filing delinquency for year 1990. Pursuant to both of these theories, the Court declares the 1990 Liability non-dischargeable. IN RE EHRIG, (N.D.Okla. 2004) ______________________ BK PETITION PREPARER WAS PRACTICING LAW WITHOUT LICENSE A bankruptcy petition preparer engaged in the unauthorized practice of law by interpreting the terms "market value" and "secured claim or exemption" in connection with completion of bankruptcy forms. Taub and the Greenwaldts disagreed about how to treat a 401(k) retirement account on the bankruptcy forms. Schedule B, an official form included with the Greenwaldts' Chapter 7 filing, required listing the "market value" of the debtors' personal property. The heading on the form read: "CURRENT MARKET VALUE OF DEBTOR'S INTEREST IN PROPERTY, WITHOUT DEDUCTING ANY SECURED CLAIM OR EXEMPTION." In their draft documents, the Greenwaldts indicated that the retirement account held approximately $80,000. The Greenwaldts also noted that they had borrowed $39,000 against the account. The Greenwaldts thus filled out draft bankruptcy forms listing what they believed was the net value of the account-$41,000. Taub, however, prepared the forms with a market value listing of $80,000. As the bankruptcy court explained: "The discrepancy was pointed out, but Taub gave no explanation. [The] Greenwaldts asked him to change the entry but he refused. They eventually relented, assuming that he knew what he was doing." Held, [A]ll personal contact between defendants and their customers in the nature of consultation, explanation, recommendation or advice or other assistance in selecting particular forms, in filling out any part of the forms, or suggesting or advising how the forms should be used in solving the particular customer's marital problems does constitute the practice of law. Taub v. Weber (9th Cir. 2004) ______________________ RIGHT TO RECEIVE FAMILY MAINTENANCE WAS NOT PROPERTY OF THE ESTATE The trustee contends that Vicki’s right to receive maintenance postpetition accrued prepetition and is, thus, an asset of the bankruptcy estate, subject to an allowed exemption of $500.00 per month. He, therefore, asks this Court to order Vicki to turn over to the trustee, each month, the sum of $750.00. But the exemption provisions only apply as to property that would have been property of the estate. So the issue is whether a debtor’s right to receive maintenance comes into the estate in the first instance. Held, maintenance is a personal statutory right analogous to income, not a property right, and that the right to receive maintenance arises each month as the payment is due. Thus, section 541(a)(5) is not applicable to the right to receive maintenance payments. I will, therefore, overrule the trustee’s objection to Vicki’s claim of exemption. In re Mitchem (Bankr. W.D. Mo. 2004)

FEDERAL TRADE COMMISSION SHUTS DOWN NATIONAL CONSUMER COUNCIL The Federal Trade Commission on Monday shut down National Consumer Council Inc., citing "misrepresentations and omissions" by the Santa Ana nonprofit credit-repair firm and its for-profit affiliates. A notice on the locked door at National Consumer's Deere Street office said a federal judge had appointed a financial guardian to take over the firm and affiliates London Financial Group, National Consumer Debt Council, Solidium, J.P. Landis and Financial Rescue Services Inc. The notice said the FTC, in an April 23 lawsuit, "alleged that the companies violated the FTC Act by misrepresentations and omissions and violated other regulations and laws." The notice also said the state Department of Corporations, which regulates financial companies, had issued a desist-and-refrain order against National Consumer. Better Business Bureau of the Southland President Bill Mitchell called National Consumer the largest and most egregious of deceptive debt-relief operations. He said the company collected high upfront fees but often left clients worse off than they started, sometimes in bankruptcy protection -- a statement disputed by a National Consumer spokeswoman. SOURCE: Los Angeles Times For the complete article click on HEADLINES below. _____________________ PROLIFERATION OF CREDIT COUNSELING AGENCIES IN RECENT YEARS The credit counseling industry has grown dramatically in recent years, as Americans increasingly file for personal bankruptcy. According to a Congressional report, 1.66 million individuals filed for bankruptcy in 2003, with many of the filers seeking debt management help from nonprofit credit counseling agencies. There are approximately 1,000 active tax-exempt credit counseling agencies in the United States the majority of which have had their tax-exempt status recognized within the past four years. According to the Washington Post, an estimated 9 million Americans seek credit counseling advice annually and "industry officials estimate that 2 million consumers are on active credit repair programs at any one time." SOURCE: Hoovers.com

Debt collectors find no refuge behind bankruptcy code By Patricia Manson, Law Bulletin staff writer Despite their differences, the U.S. Bankruptcy Code and the Fair Debt Collection Practices Act can live side by side, a federal appeals court has held. The 7th Circuit Court of Appeals on Wednesday rejected the notion that the Code trumps the FDCPA when provisions of both deal with the same matter. Instead, the FDCPA provides remedies in some circumstances for Debtors who are targets of forbidden debt-collection practices after they file, the Court held. The Court said a Debtor may ask a Bankruptcy Judge to hold a creditor or debt collector in contempt for willful violation of the Automatic Stay, and that Debtors may in certain situations seek statutory damages against debt collectors — though not creditors — that negligently violate the FDCPA's bar on false statements by demanding immediate payment of a debt that, by virtue of the Bankruptcy filing, is not due. "Overlapping statutes do not repeal one another by implication; as long as people can comply with both, then Courts can enforce both" Judge Easterbrook wrote for a 3-member panel of the Court. The panel reinstated claims accusing debt collectors of violating 15 U.S.C. §1692e(2)(A), the provision of the FDCPA that holds false statements by debt collectors to be presumptive wrongful. Those claims were brought in unrelated cases by 3 Debtors who contended they received a demand for immediate payment of a debt after filing for Bankruptcy. The panel said such a demand constitutes a false statement under the FDCPA because 2 of the provisions of the Code — 11 U.S.C. §362, the Automatic Stay provision, and 11 U.S.C. §524, the Discharge injunction — put a halt to such dunning efforts. In addition, Sections 362(h) and 524(a)(2) allow a Debtor to seek a contempt finding against creditors or debt collectors for any willful violations, according to the panel. The lower-court jurists in the three cases — U.S. District Judge Elaine E. Bucklo in 2 and U.S. Magistrate Judge Sidney I. Schenkier in the other — concluded that the Debtors could not pursue their FDCPA claims. "In these three cases, which we have consolidated on appeal, the district courts held that remedies under the bankruptcy code are the only recourse against post-bankruptcy debt-collection efforts — that the code trumps the FDCPA when they deal with the same subject, even when the two statutes are consistent" Easterbrook wrote. "On this view, negligent attempts to collect from debtors during or after bankruptcy cannot yield liability." Easterbrook and two of his colleagues disagreed. Citing Baker v. IBP Inc., 357 F.3d 685 (7th Cir. 2004), the panel did reject the notion that section 362(h) of the bankruptcy code preempts section 1692e(2)(A) of the FDCPA. "When two federal statutes address the same subject in different ways, the right question is whether one implicitly repeals the other — and repeal by implication is a rare bird indeed," Easterbrook wrote, citing Branch v. Smith, 538 U.S. 254 (2003), and J.E.M. Ag Supply Inc. v. Pioneer Hi-Bred International Inc., 534 U.S. 124 (2001). "It takes either irreconcilable conflict between the statutes or a clearly expressed legislative decision that one replace the other." The panel said the debt collectors' argument that the bankruptcy code precluded any remedy under the FDCPA ''is one based on the operational differences between the statutes.'' "These do not, however, add up to irreconcilable conflict; instead the two statutes overlap, and if the plaintiff shows a more serious transgression — the willful violation to which section 362(h) refers — then more substantial sanctions (such as punitive damages) are available" Easterbrook wrote. "It is easy to enforce both statutes, and any debt collector can comply with both simultaneously." A contrary holding would leave a debtor without a remedy for some wrongs, the panel said. "To say that only the code applies is to eliminate all control of negligent falsehoods,'' Easterbrook wrote. ''Permitting remedies for negligent falsehoods would not contradict any portion of the bankruptcy code, which therefore cannot be deemed to have repealed or curtailed section 1692e(2)(A) by implication." While reinstating the debtors' FDCPA claims, the panel declined to decide whether the debt collectors could establish a defense under another provision of that statute. Section 1692k(c) of the FDCPA allows a debt collector to show that it exercises care in conducting its dunning efforts to avoid making any false statements. Joining the opinion were Judges Michael S. Kanne and Ann Claire Williams. Jeanette Randolph v. IMBS Inc., No 03-1594; Cheryl Alexander v. Unlimited Progress Corp., Nos. 03-2185 and 03-2340; and Jennifer J. Cross v. Risk Management Alternatives Inc., No. 03-3182.

Bankruptcy Court May Hear Dispute Between 3rd Parties In re Mulder (Bankr. N.D. Ill.) A dispute between 3rd parties is related to a Bankruptcy case only if it affects the amount of property available for distribution or the allocation of property among creditors. Mere overlap between the dispute and the affairs of the Debtor is not enough to give the Bankruptcy Court jurisdiction. ____________________ Trustee May Reopen Case to Pursue Debtor's Lawsuit In re Rochester (N.D.Ga. 2004) Court finds that Debtor's conduct does not warrant the application of judicial estoppel to bar a Chapter 7 Trustee from pursuing the State Court Action and that cause exists to reopen the Bankruptcy Estate. ____________________ Chapter 7 Debtor Embezzlement is Bad Faith: Case Dismissed In re Bogan (W.D.Pa. 2003) Debtor voluntarily filed Petition. While under the protection of the Court, Debtor embezzled over $400,000 from her employer. Following conversion of the case to Chapter 7, Debtor filed amended schedules. Debtor has never disclosed in the Amended Schedules or otherwise provided an explanation of where the stolen funds went or where they are. Actions of the Debtor and the activities undertaken during the pendency of the case are exceptional circumstances in which the bad faith of the Debtor is clearly demonstrated. The allowance of any exemption in the known property of the Estate would constitute a further abuse of the Bankruptcy process. Trustee's Amended Objections to Exemptions sustained and Debtor denied any and all exemptions. ______________________ Discharge Denied and Exempt Assets Seized on Account of Debtor's Undisclosed Funds Latman v. Burdette (9th Cir. 2004) Surcharge of the Debtors' Bankruptcy exemptions by Trustee to account for funds not properly disclosed was a permissible equitable remedy under the Code and not barred by election of remedies or res judicata. On January 12, 2000 Richard and Bettina Latman filed for Chapter 13 protection. On April 14, 2000 the Latmans dismissed their Petition, and on April 18, 2000 re-filed for protection under Chapter 7. During the four-day interval the Latmans sold a 1991 Ford Explorer and 1996 Sea Ray boat, for which they received a total of $8,500 cash. The Latmans did not list all proceeds of these vehicle sales on Schedule B of their Chapter 7 Petition and instead listed only $1,500 "cash on hand." Noting this discrepancy, the Trustee requested that the Latmans account for the proceeds from the sales. In response to the Trustee's request and a subsequent Order compelling an accounting the Latmans gave inaccurate information. The Trustee commenced an adversary proceeding against the Latmans under §727 to deny discharge. On April 27, 2001 the Court granted the Trustee's motion for summary judgment, finding as a matter of law that the Latmans had failed to explain the loss of the proceeds from the sales of their car and boat, had made materially false statements on their Schedules, had not kept adequate records of their assets and expenditures, and had fraudulently concealed an option to purchase real estate. Ruling affirmed by the District Court on March 6, 2002. Trustee subsequently filed a Motion to Charge Debtors' Exemptions for Failure to Make Accounting and for Turnover of Property in June 2001. That Motion contended that the $7,000 in unaccounted proceeds from the sale of the car and boat should be surcharged against the §522(d)(5) "catch-all" or "wild card" exemption, thereby rendering non-exempt a Chrysler Town & Country minivan and engagement ring (or $7,000 of the value of these items) that the Latmans had previously exempted under §522(d)(5). The ruling on that Motion was challenged on appeal. HELD: The surcharge remedy fashioned by the Bankruptcy Court prevented what would otherwise have been a fraud on the Court and creditors caused by the Latmans' nondisclosure of monies that should have been listed on the schedules. ______________________ Sears Must Pay Debtor's Attorneys Fees for Bringing Unjustified Fraud Suit In re Dayton (N.D.Cal. 2004) In November 1997 Sears National Bank, a corporate subsidiary of Sears, issued Debtor a MasterCard. On October 10, 2002 Debtor used her Sears MasterCard to pay $1,127 to the San Francisco Department of Parking and Traffic for parking fees and fines. In the same month Debtor incurred about $700 of additional charges on the account. On December 20, 2002 Debtor filed a Chapter 7 Petition. On March 21, 2003 Sears commenced an Adversary Proceeding based on the presumption of fraud under §523(a)(2)(C). FOUND: Sears failed to provide any evidence that its actions were reasonably based in law or fact. Sears argued that it "had substantial justification for filing a complaint" without providing the Court with any support for its position. Sears based its case on the premise that the payment of parking fees and fines with a credit card was a cash advance under §523(a)(2)(C), yet did not attempt to prove liability under §523(a)(2)(A). HELD: Sears was not substantially justified in bringing the non-dischargeability action against Debtor. AWARDED: Debtor's Attorney's Fees in the amount of $4,585.00.