00:00:00.200 - 00:00:16.329

Good morning everyone. Uh, I'm gonna give you a quick introduction to the panelists, although I think you all know them uh on my immediate left is Professor Stephen Lubben uh of Seton Hall Law School, uh, in New Jersey. I won't try full title of your professorship,

00:00:16.559 - 00:00:32.799

but it's, it's a, it's a long titled chair. Um, Chief Judge Cecilia Morris from the Southern District of New York sits mainly in Poughkeepsie but also comes into Manhattan from time to time. Craig Goldblatt, uh, Wilmer and Hale, uh, am I correct? You were the reporter

00:00:32.799 - 00:00:52.630

for the LSTA's swat down of the, of the ABI commission's, uh, uh, report on the reform of the, uh, bankruptcy. I, I worked on the analysis of your terrific and thoughtful project. And Steve Young, a partner in Weil Gotshal's, uh, Dallas office, uh, with a long,

00:00:52.790 - 00:01:12.360

uh, a lot of experience in, in restructuring matters. Quite a term at the Supreme Court that ended last June 5 bankruptcy cases, uh, and not the kind of bankruptcy case like, uh, Pioneer, uh, from, uh, 20 years ago or so ago where it was a generally

00:01:12.360 - 00:01:30.260

applicable case to the, uh, the rules of civil procedure, the rules of bankruptcy procedure, but these cases, uh, except for one, are strictly bankruptcy law cases. I can't, I don't think I can remember, um. Any time since the code was enacted that the Supreme Court has

00:01:30.260 - 00:01:44.489

taken up 5 in 1 year I think 4 was the top before this so there's a lot to talk about and the, the panelists are uh are gonna tell you all about them. I'm gonna start in the order on the that is on the agenda, uh,

00:01:44.500 - 00:02:01.559

with discussing these cases. Uh, start with, uh, Harris against Viegelahn, um, a case involving the, uh, conversion from Chapter 13 to Chapter 7. Judge Morris, you wanna give us a quick tray of the facts in that case? Yes, thank you. Um, basically that was like a

00:02:01.559 - 00:02:19.210

debtor filed a chapter 13. Uh, the debtor was in arrears on his home mortgage and under the debtor's chapter 13 plan approved by the court, the debtor was to assume his monthly payments to the bank, um, and in addition, he was, uh, there was a $530

00:02:19.619 - 00:02:40.669

a month withdrawal from his post petition wages. Uh, he didn't pay his mortgage. It was foreclosed on. So after foreclosure, the debt, the trustee continued to receive the, uh, the, the $530 was being paid, was being pulled out to pay his mortgage, um, so the, the

00:02:40.669 - 00:02:57.990

trustee continued to receive that money. So what happened was the trustee had about a little over $5500 in his account. Let me just stop right there for a moment for all of you that practice in Chapter 11. These are huge amount of money for these people.

00:02:58.679 - 00:03:12.880

It's a really interesting thing when you look at these cases and you think oh that's not much this is a big amount of money for the people that come in front of us uh let me throw in one other little thing we had a group from

00:03:12.880 - 00:03:33.229

Princeton and Harvard that's doing a study on chapter 13 and if someone goes right before someone files for Chapter 13, they're in as much stress as they would be as if they lost a child. Now that's pretty dramatic stress. On the other side of it, they

00:03:33.229 - 00:03:52.960

have put the statistics with the Social Security Administration and found out that if someone gets a discharge in bankruptcy in a Chapter 13, they live longer. So chapter 13 is pretty important to a segment of the economy that many of you do not even see so

00:03:52.960 - 00:04:16.200

these amounts of money seem like a small amount, but to these individuals this is a pretty dramatic happening in their life. So the, the because of it was a wage garnishment or a wage payment, the trustee continued to receive the amount for the uh. Uh, uh,

00:04:16.239 - 00:04:39.160

mortgage after the case was converted to a 7 and the trustee then paid some of those funds to the debtor's council and some of the funds to herself and distributed the remainings to uh the unsecured creditors. And the Supreme Court basically says at at Chapter 7

00:04:39.160 - 00:04:57.970

conversion, the money belongs to the debtor. And that's basically the end of the story. It goes back to the debtor, uh, case strictly of statutory interpretation and the the circuits were split on this. Uh, you know, I don't know the proster going in, uh, the procedure,

00:04:58.220 - 00:05:16.029

uh, and the big one on this is one of the things that's good about Chapter 13 is the attorneys can be paid through the plan. Well, the moment it converts to 7, does that mean the attorneys can't be paid anymore? Can the administrative expenses be? So,

00:05:16.109 - 00:05:36.059

so this case came up from the, the 5th Circuit. The 5th Circuit had held, um, that upon the debtor's payment of the funds to the trustee. The underlying creditors under the plan obtained a vested right in those funds. Um, the Third Circuit, in an opinion by

00:05:36.059 - 00:05:54.839

Judge Ambro, uh, said the opposite, said that, um, essentially what the what the Supreme Court said here that upon conversion, um, the plan goes away and the money belongs to to the creditors. Now what was. You know, interesting in this case, I, I thought was, um,

00:05:55.029 - 00:06:06.809

and I, I should confess by way of disclosure we represented the Chapter 13 trustee in this case, and I, I argued in front of the Supreme Court and persuaded none of the nine justices. So let's see if I can do any better with this crowd, um,

00:06:07.149 - 00:06:33.619

um, have you repented for that? Um, so the argument was as follows, um, outside of bankruptcy when there is a trust and there is a reason when the trust dissolves, um, the non-bankruptcy common law rule is that the trustee in that circumstance should take any undistributed

00:06:33.619 - 00:06:52.640

funds and first distribute them um to the beneficiaries of the trust and only. After the the the beneficiaries are satisfied, does it return to the grand tour and so the argument that we advanced was there's nothing in the bankruptcy code that altered that sort of non-bankruptcy

00:06:52.640 - 00:07:08.269

common law set of principles now the court. Just didn't engage that argument and viewed the case as basically dispute between because they went to the uh federal rules of bankruptcy procedure 10-194 and they did find something in the code as I said this was a statutory

00:07:08.269 - 00:07:25.779

argument right now um I'm, I'm done arguing with them about that. Um Strictly a bankruptcy law case. Any implications, uh, I'm sorry, strictly a chapter 13 narrow case court took it only because of the split in the circuits or can we get any larger implications from

00:07:25.779 - 00:07:41.730

this case? Well, there are a few issues that are that are implications as Judge Morris says one of the questions has to do with um the payment of counsel in Chapter 13 cases. This is, this is just about chapter 13, but um the um. Well, it

00:07:41.730 - 00:07:56.640

could in chapter 11 if you have a conversion from 11 to a 7, which does happen for an individual, yeah, that's right. I think that that that that's fair, um, you know there are a few implications, right? 11 is, um. Uh, the, the payment of the

00:07:56.640 - 00:08:11.809

debtor's attorney's fees, it's actually common practice in many jurisdictions in the cases of conversion for funds that are held by the trustee at the time of conversion first to pay the debtor's lawyer and thereafter to be returned to the debtor administrative expenses exactly the post petition

00:08:11.809 - 00:08:28.190

fees of the chapter 13 lawyer, I think most of the courts that have looked at this decision have said that practice is inconsistent with the holding of Harris versus Viegelahn. Um, there's another related question that it has implications for which is, OK, this is what happens

00:08:28.190 - 00:08:44.729

when cases convert. What about when cases are dismissed, um, and I think there there is a recent decision in the Southern District of Illinois that basically says the same result of. The dismissal of the case under Section 349 puts everyone back in the position they would

00:08:44.729 - 00:09:00.070

have been had the case never occurred and so in that case the money goes to the debtor and there are the, the other sort of chapter 13 I think important implication of of the case and the case only hints at it is. Um, the question, you

00:09:00.070 - 00:09:17.590

know, for those of us who practice mostly in Chapter 11, we're used to thinking about the bankruptcy estate as something that exists between the petition date and the confirmation of the plan, um, and in chapter 13 there's a real long standing debate about whether the chapter

00:09:17.590 - 00:09:37.005

13 estate, um, ends upon confirmation with the property of the state revesting in the debtor. Section 1306 says or whether the funds that the debtor's post petition income that arises between the confirmation and the discharge at the end of the plan period is all property of

00:09:37.005 - 00:09:50.965

the estate that is the subject of the authority of the bankruptcy court and this case doesn't resolve that question, um, but there it's certainly lurking in the background and is an important question that's to be continued professor well, the code could have been a little clearer

00:09:50.965 - 00:10:08.200

on that point. But uh I mean that that that's thanks for that. I, I mean that's that strikes me as as the big issue in, in this case um is you know trying to wrestle with the the sort of what exactly does the estate mean in

00:10:08.210 - 00:10:21.340

in a chapter 13 context? Well, I, I can tell you that one of the hardest things for a judge are the attorney's fees in a chapter 13 because one of the chapter 13 for anyone that has never done one, they are difficult. And it is not

00:10:21.340 - 00:10:38.820

simple and it is not straightforward and you need expert counsel doing it and these some of these consumer lawyers are amazing lawyers and the idea that they wouldn't get paid is sort of difficult because if I'm discouraging them from being in the courtroom then we as

00:10:38.820 - 00:10:52.500

judges have a difficult time. Uh, in that sense. OK, let's, let's move on to the next case. I I wanna keep my eye on the clock. Um, let's talk about because there are, as I said, there are so many of them, uh, let's talk about, uh,

00:10:52.510 - 00:11:10.859

Bullard against Blue Hills Bank, um, Steve, you wanna start on that one? Sure, uh, the facts were fairly simple. It was a denial of a chapter 13 plan. Uh, there was a specific legal issue that was important to that denial that the Chapter 13 debtor wanted

00:11:10.859 - 00:11:27.099

to appeal and get a determination on that legal issue, uh, because that would drive how, uh, it could formulate its chapter 13 plan with respect to housing. Uh, what I thought was a fairly consistent decision, uh, the courts held and all the way through the Supreme

00:11:27.099 - 00:11:46.900

Court that denial of a. Plan that was left with a possibility of modifying the plan was not a final order uh such that the appellate court shouldn't hear it because uh appellate courts shouldn't do things that might end up becoming moot from their perspective uh later

00:11:46.900 - 00:12:04.020

on so they shouldn't deal with it. uh, the lesson I took away from that case, which is what I thought was sort of a uh reprimand or reminder. That if you're going to do this, at least first try to seek leave for an interlocutory appeal and

00:12:04.020 - 00:12:20.469

don't uh bother us appellate courts uh with your issue until I know I've got something really to decide. Um, does it apply in Chapter 11? Supreme Court doesn't make any distinction here between 13 and 11, but does it apply in 11? What do you think, Professor?

00:12:20.719 - 00:12:35.289

I think the the language suggests it does. I think you'd have to. I would, would also mention that this opinion, I think it contains my nominee for the most tone deaf statement, uh, of the Supreme Court's term where the Chief Justice kind of. Says, well, you

00:12:35.289 - 00:12:48.530

know, if the if the appeals wrong, the debtor will end up paying a little bit more money but yeah, and, and the numbers he can hear your comment about the $500 a month. Yes, exactly, exactly, and that and that's the thing that you see about these

00:12:48.530 - 00:13:08.419

consumer cases there at the Supreme Court, uh, quite often it sounds as if there's no one there. Actually has a reality check on these individual debtors. Uh, the dismissal of a chapter 13 is the death of a chapter 13, I mean not dismissal, the, uh, denial

00:13:08.419 - 00:13:27.619

of confirmation. The chapter 13 trustee uses the, uh, denial of confirmation to bring the motion to dismiss. And more than likely or not you're going to be dismissing that case. There is really no recourse. Excuse me, then that's the final order that can be appealed. The

00:13:27.619 - 00:13:42.005

Supreme Court says, yeah, I I think we also have to wonder how many appeals actually happened in. Well, I can tell you again I'll just go back from personal experience so you know this when I hire my law clerks, one of the things that I talked

00:13:42.005 - 00:14:00.729

to them about is we are really the final court. There is no way they can afford an appeal. So you, our job is to try to get it as right as possible for these individuals who really are trying and have themselves in a circumstance that they

00:14:00.729 - 00:14:23.070

cannot get out of without a consumer result so the uh I I think they trivialize I. This was they they basically even said the bankruptcy court or the bankruptcy court usually rules right. You know you could take that as a compliment, but you could also take

00:14:23.070 - 00:14:39.549

it as they sort of you can say oh you really have confidence in me or that they trivialize these cases. I, I took it as the former. Thank you. Well, so we'll get to wellness and just Craig, it looks like you're anxious to say something I

00:14:39.549 - 00:14:56.580

think the the implications of this are, um, are, I think quite. Important and profound, right? One of one of the landmark cases in the in our world is the Third Circuit's decision in SGL Carbon which talks about the limits of good faith filing. That case arose,

00:14:56.950 - 00:15:12.585

um, from a motion to dismiss a bankruptcy case that was denied by the bankruptcy judge and the denial of that motion. To dismiss was appealed and the Third Circuit reversed saying that a case that was filed essentially for tactical advantage was not filed in good faith.

00:15:12.684 - 00:15:30.820

Now there's a circuit split that exists to this day on the appealability of the denial of a motion to dismiss. I think the Supreme Court's reasoning. Um, uh, in this case in Bullard suggests that the Third Circuit precedent that says that that order isn't appealable order

00:15:30.820 - 00:15:45.349

is probably wrong and that that type of precedent, it had it come following Bullard we wouldn't have today, although in Bullard, the, the court did suggest that there were avenues for interlocutory appeal to the courts of appeals, yes, correct. So, so they could take it up

00:15:45.349 - 00:16:03.039

that way. Um, there have been two reported decisions at the intermediate appellate level since Bullard. Uh, in the Chapter 11 context, uh, Judge Morris, you, you, you have South Street Morrison versus South Hadley in that one it was a voluntary petition for a Chapter 11 prior

00:16:03.039 - 00:16:23.729

to a sheriff's sale. Um, the bankruptcy court denied South Street's motion to allow the state court receiver to keep control of the property, and the US trustee filed a motion to dismiss. The bankruptcy court denied both. It went to the district court, um. The uh SNH

00:16:23.729 - 00:16:39.520

South and Hedley filed uh said that the uh district court did not have jurisdiction and then the trustee argued the district court lacked jurisdiction to hear the appeal based on Bullard. And the district court agreed. The district court agreed, and there was another one in Ray

00:16:39.520 - 00:16:55.179

Woodward from the 8th Circuit back. Um, I think both of those opinions, if you look at them, uh, there's very little reasoning. They just conclude, well, Bullard, and therefore the motion denial of motion to dismiss. And here's the quote from the Eighth Circuit. The denial of

00:16:55.179 - 00:17:10.880

the confirmation of the debtor's Third Amended Chapter 11 plan is not a final order and cannot be the subject of this appeal, end quote, unlike um. Uh, say the Supreme Court's decision until on interest rates, a Chapter 13 case where they specifically called out in a

00:17:10.880 - 00:17:17.250

footnote that this might not apply in a Chapter 11, no such distinction made in, uh, in Bullard.