Case Updates Default Judgment for Fraud is Res Judicata in Bankruptcy Court In re John W. Catt, II (7th Cir. 2004) One might suppose that findings made in default proceedings would never be given collateral estoppel (issue preclusion) effect because they are not based on a “full and fair” hearing—a standard formulation of the criterion for whether findings are entitled to such effect. E.g., Extra Equipamentos e Exportação Ltda. v. Case Corp., 361 F.3d 359, 363 (7th Cir. 2004); Duferco Int’l Steel Trading v. T. Klaveness Shipping A/S, 333 F.3d 383, 390-91 (2d Cir. 2003); Richardson v. Navistar Int’l Transp. Corp., 231 F.3d 740, 743 (10th Cir. 2000). How could a hearing that is not “full and fair” comport with due process? Yet a significant minority of states, Indiana among them, allow findings made in default proceedings to collaterally estop, provided that the defaulted party could have appeared and defended if he had wanted to. _______________________ Florida S.Ct. Sanctions "We the People" for UPL Florida Bar v. We The People Forms and Service Center of Sarasota, Inc. et al. No. SC02-1675 On April 29, 2004 the Florida Supreme Court issued its opinion in The Florida State Bar v. We The People. The court found that in five cases employees of We The People had engaged in unauthorized practice law, by advising bankruptcy clients (as well as divorce and will clients) on legal remedies, which forms to prepare and how to prepare them, correcting clients' errors, and communicating with third persons such as adversary parties on behalf of the clients, notwithstanding that WTP hired a licensed Florida attorney to provide legal advice to their cusotmers. The Court enjoined WTP from any such activities, and assessed $9,000 in sanctions. ________________________ Fraud Discovered After 180-Day Deadline Cannot be Raised to deny Plan Confirmation In re Valenti (9th Cir. BAP. 2004) The 180-day period to move for revocation of confirmation for fraud is a strict deadline, even if the fraud is not discovered until after the deadline has passed. Section 105 is not a proper basis for changing the deadline. Rule 60(b) is not a basis for revocation. A timely request for revocation of confirmation cannot be amended, after the 180-day period has expired, to add new grounds not pled within the 180-day period. Where a creditor knows of a basis for challenging confirmation and fails to object, the creditor cannot be permitted to use that basis to claim fraud under after confirmation. Moreover, confirmation is res judicata as to all issues that could have or should have been litigated at the confirmation hearing. An issue "could have" been litigated at the confirmation hearing if a party in interest had the opportunity to investigate and litigate it and the debtor did not prevent it from being litigated by fraud, misrepresentation or concealment. ________________________ Foreclosure Sale after BK Filing Void for Failure to Modify Stay In re Jose D. Cueva (5th Cir. 2004) There was a foreclosure sale of property owned by Cueva that was part of a bankruptcy proceeding and therefore subject to an automatic stay pursuant to 11 U.S.C. § 362. The foreclosure sale was invalid, the stay was not modified, and therefore Bustamante was not entitled to possession or ownership of the Property. For the same reasons, Bustamante is not entitled to ownership or possession through Campbell’s interest. Additionally, Bustamante’s other claims fail. Therefore, the decision of the district court was correct and is affirmed. _______________________ Damages for Violation of Automatic Stay do not include "Emotional" Ones In re Dawson (9th Cir. 2004) "Actual damages" under 11 U.S.C. section 362(h) does not include damages for emotional distress suffered by a debtor when a creditor violates the automatic stay.