BANKRUPTCY Litigation News and Analysis • Legislation • Regulation • Expert Commentary VOLUME 13, ISSUE 25 / APRIL 20, 2017

Westlaw Journal BANKRUPTCY Litigation News and Analysis • Legislation • Regulation • Expert Commentary VOLUME 13, ISSUE 25 / APRIL 20, 2017

AUTOMATIC STAY WHAT’S INSIDE

FRAUDULENT TRANSFER 9 U.S. can undo man’s 3rd Circuit OKs emotional-distress damages disclaimer of inheritance as fraudulent transfer, for bankruptcy stay violations panel says By Michael Nordskog U.S. Small Business Administration v. Bensal A commercial landlord’s “egregious” violations of bankruptcy’s automatic stay (9th Cir.) through repeated attempts to intimidate a Pennsylvania couple at their day care 10 Philadelphia casino debtor’s claims against Pennsylvania business after they sought Chapter 13 protection warranted an award of emotional- denied on appeal distress damages, a federal appeals court has ruled. In re Philadelphia Entertainment & Development In re Lansaw et al.; Lansaw et al. v. Zokaites, Partners (E.D. Pa.) No. 16-1867, 2017 WL 1314884 (3d Cir. Apr. 10, EMPLOYMENT 2017). 11 Former Heller Ehrman Congress intended the Bankruptcy Code’s partner can’t collect automatic stay provision to protect both the compensation in bankruptcy financial and non-financial interests of debtors, case, 9th Circuit says the 3rd U.S. Circuit Court of Appeals said, Heller Ehrman v. Neuman resolving an issue of first impression in the circuit. (9th Cir.) The 3rd Circuit panel affirmed a bankruptcy SUBSTANTIVE court’s award of $50,000 in emotional-distress CONSOLIDATION and punitive damages to debtors Garth and 12 Archdiocese, other groups Deborah Lansaw. oppose abuse victims’ bid CONTINUED ON PAGE 21 to consolidate assets in bankruptcy case Official Committee of Unsecured Creditors v. Archdiocese of Saint Paul and EXPERT ANALYSIS EXPERT ANALYSIS Minneapolis (8th Cir.) High court rules final, Chapter 11 is on the menu INVOLUNTARY PETITION 13 Law firm can’t use Chapter 7 nonconsensual structured in the restaurant industry case to collect on big dismissals invalid judgment, federal judge affirms David L. Rosendorf of Kozyak Tropin & Wilk Auslander LLP v. Murray Cathleen C. Moore and James Wesley Throckmorton discusses the recent (S.D.N.Y.) Thurman of Bradley Arant Boult wave of Chapter 11 filings in the restaurant industry, including what is DISCHARGEABILITY Cummings LLP discuss the U.S. causing these companies to seek 14 Man can discharge $190,000 Supreme Court’s recent decision in debt to ex-girlfriend Czyzewski v. Jevic Holding Corp. and bankruptcy protection and what they over home purchase its potential effect on structured hope to accomplish by doing so. Bernacchi v. Cascio dismissals in Chapter 11 bankruptcies. (Bankr. M.D. Fla.)

SEE PAGE 3 SEE PAGE 6 41969206 TABLE OF CONTENTS Westlaw Journal Bankruptcy Published since May 2004 Automatic Stay: Lansaw v. Zokaites Director: Mary Ellen Fox 3rd Circuit OKs emotional-distress damages for bankruptcy stay violations (3d Cir.)...... 1 Editors: Donna M. Higgins Expert Analysis: By Cathleen C. Moore, Esq., and James W. Thurman, Esq., [email protected] Bradley Arant Boult Cummings LLP High court rules final, nonconsensual structured dismissals invalid...... 3 Sheryl Chernoff [email protected] Expert Analysis: By David L. Rosendorf, Esq., Kozyak Tropin & Throckmorton Managing Desk Editor: Robert W. McSherry Chapter 11 is on the menu in the restaurant industry...... 6 Desk Editors: Jennifer McCreary, Katie Pasek, Fraudulent Transfer: U.S. Small Business Administration v. Bensal Sydney Pendleton, Maggie Tacheny U.S. can undo man’s disclaimer of inheritance as fraudulent transfer, panel says (9th Cir.)...... 9 Graphic Designers: Nancy A. Dubin, Ramona Hunter Fraudulent Transfer: In re Philadelphia Entertainment & Development Partners Philadelphia casino debtor’s claims against Pennsylvania denied on appeal (E.D. Pa.)...... 10 Westlaw Journal Bankruptcy (ISSN 2155-725X) is published biweekly by Employment: Heller Ehrman v. Neuman Thomson Reuters. Former Heller Ehrman partner can’t collect compensation in bankruptcy case, Thomson Reuters 9th Circuit says (9th Cir.)...... 11 175 Strafford Avenue, Suite 140 Wayne, PA 19087 Substantive Consolidation: Official Committee of Unsecured Creditors v. 877-595-0449 Archdiocese of Saint Paul and Minneapolis Fax: 800-220-1640 Archdiocese, other groups oppose abuse victims’ bid to consolidate assets www.westlaw.com in bankruptcy case (8th Cir.)...... 12 Customer service: 800-328-4880 For more information, or to subscribe, Involuntary Petition: Wilk Auslander LLP v. Murray please call 800-328-9352 or visit Law firm can’t use Chapter 7 case to collect on big judgment, federal judge affirms (S.D.N.Y.)...... 13 west.thomson.com. Dischargeability: Bernacchi v. Cascio For the latest news from Westlaw Journals, Man can discharge $190,000 debt to ex-girlfriend over home purchase (Bankr. M.D. Fla.)...... 14 visit our blog at http://blog.legalsolutions. thomsonreuters.com/tag/westlaw-journals. Dischargeability: National Labor Relations Board v. Calvert Reproduction Authorization Business owner can discharge $437,000 back-pay judgment, Indiana federal judge says (S.D. Ind.)...... 15 Authorization to photocopy items for internal or personal use, or the internal or personal Claim Disallowance: In re Woodhaven Townhouse Association use by specific clients, is granted by Thomson Texas bankruptcy judge nixes woman’s claim for repairs to her home’s foundation (Bankr. N.D. Tex.)...... 16 Reuters for libraries or other users regis- tered with the Copyright Clearance Center Equitable Mootness: Ochadleus v. City of Detroit (CCC) for a fee to be paid directly to the High court denies review of Detroit pensioners’ objections to city’s Chapter 9 plan (U.S.)...... 17 Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923; 978-750-8400; www.copyright.com. ABI Report New bankruptcy filings edged down in first quarter 2017, ABI report says...... 18

Thomson Reuters is a commercial publisher Recent rulings in bankruptcy cases...... 19 of content that is general and educational in nature, may not reflect all recent legal Case and Document Index...... 22 developments and may not apply to the specific facts and circumstances of individual transactions and cases. Users should con- sult with qualified legal counsel before act- ing on any information published by Thomson Reuters online or in print. Thomson Reuters, its affiliates and their editorial staff are not a law firm, do not represent or advise clients in any matter and are not bound by the professional responsibilities and duties of a legal practitioner.

By Cathleen C. Moore, Esq., and James W. Thurman, Esq. Bradley Arant Boult Cummings LLP

The Bankruptcy Code contemplates that a Chapter 11 plan confirmation or a liquidation The decision reversed the 3rd U.S. Circuit Chapter 11 bankruptcy case will be concluded under Chapter 7). Court of Appeals’ holding that such in one of three ways: a confirmed Chapter 11 The structured dismissal before the Supreme dismissals may be allowed in rare cases. In plan, a conversion to Chapter 7 for liquidation Court in Jevic provided for just such final, doing so, the Supreme Court provided clarity of remaining estate assets, or a dismissal of priority-altering distributions, proposing to, in an emerging area of bankruptcy law. the case and reversion to the pre-petition among other things, pay remaining estate While holding unequivocally that parties status quo. assets to both high-priority secured creditors cannot accomplish through structured As Chapter 11 bankruptcy practice evolved over and lower-priority general unsecured dismissals the kind of nonconsensual, the past 20 years, however, a newer option creditors, while skipping entirely over certain priority-altering final distributions of estate for resolving Chapter 11 cases emerged — the intermediate-priority creditors who did not assets that are plainly prohibited under so-called structured dismissal, defined by the consent to the proposed settlement and both Chapter 11 plans and in Chapter 7 American Bankruptcy Institute as a “hybrid structured dismissal. liquidations, the Supreme Court was careful dismissal and confirmation order … that … to narrowly tailor its opinion so as to not typically dismisses the case while, among Structured dismissals, impair the ability of parties to provide for other things, approving certain distributions interim distributions of estate assets that to creditors, granting certain third-party while not defined or may violate the code’s priority rules, but releases, enjoining certain conduct by otherwise mentioned in nonetheless serve “significant Code-related creditors, and not necessarily vacating orders the Bankruptcy Code, objectives.” or unwinding transactions undertaken during have become increasingly Accordingly, certain orders relied on heavily the case.” Czyzewski v. Jevic Holding Corp., common in recent years. by reorganizing debtors in modern-day 137 S. Ct. 973, 979 (2017) (citing American Chapter 11 practice, including critical-vendor Bankruptcy Institute Commission to Study orders and first-day wages orders, are The Supreme Court concluded that parties the Reform of Chapter 11, 2012-2014 Final unaffected by Jevic. Report and Recommendations 270 (2014)). cannot use structured dismissals to circumvent the Bankruptcy Code’s priority Structured dismissals, while not defined THE FACTS rules, holding that “a distribution scheme or otherwise mentioned in the code, have ordered in connection with the dismissal of a The dispute before the Supreme Court arose become increasingly common in recent Chapter 11 case cannot, without the consent from two lawsuits filed in a bankruptcy case years, sometimes providing for a final of the affected parties, deviate from the basic resulting from the unsuccessful acquisition distribution of estate assets to creditors that priority rules that apply under the primary of the trucking company Jevic Transportation does not adhere to the Bankruptcy Code’s mechanisms the code establishes for final Corp. by Sun Capital Partners through a priority scheme (and consequently, would distributions of estate value in business leveraged buyout financed chiefly by the not be permissible in the context of either a bankruptcies.” lender, CIT Group. After struggling for two years, and facing the expiration of an agreement preventing CIT from foreclosing on Jevic’s assets, Jevic halted operations and sent termination notices to its employees. The trucking company filed for Chapter 11 protection in Delaware the next day. In the first lawsuit, the unsecured creditors committee brought a fraudulent-transfer action against Sun Capital and CIT, arguing that the leveraged buyout had hastened Cathleen C. Moore (L), counsel with Bradley Arant Boult Cummings LLP in Birmingham Alabama, Jevic’s bankruptcy by burdening the company represents creditors and debtors in state, federal and bankruptcy courts. James W. Thurman (R), with unserviceable debts. is an associate at the firm who advises clients in a variety of bankruptcy-related matters. A class of truck drivers terminated by Jevic brought the second lawsuit, alleging

© 2017 Thomson Reuters APRIL 20, 2017 n VOLUME 13 n ISSUE 25 | 3 state and federal Worker Adjustment and Chapter 11 plans must satisfy the absolute to fund their WARN Act lawsuit against Sun Retraining Notification Act violations as a priority rule, under which an impaired class — was no longer an issue after Sun won that result of their termination. of dissenting unsecured creditors must be lawsuit. The truck drivers prevailed on their state paid in full before a junior class of claimants As for the second point, the court found that law claims, and $8.3 million of their claim is paid, settlements outside the context of a the record indicated that the fraudulent- qualified as wages under Section 507(a)(4)(1) plan need not adhere to the priority rule. conveyance claims could have litigation of the Bankruptcy Code, 11 U.S.C.A. § 507(a) The court based its decision in part on the value, so if the Supreme Court unwound (4)(1), entitling them to priority over lower- assumption that without the structured the structured dismissal, the case could be ranked priority claims and general unsecured dismissal there was “no realistic prospect of converted to Chapter 7, where a trustee could claims. a meaningful distribution for anyone other pursue the claims, or dismissed by way of a than the secured creditors.” In re Jevic Holding conventional dismissal, thereby restoring the THE SETTLEMENT AND Corp., No. 08–11006, 2011 WL 4345204 pre-bankruptcy status quo and allowing the STRUCTURED DISMISSAL (Bankr. D. Del. Sept. 15, 2011). truck drivers to assert the claims themselves. In June 2012, Sun Capital, CIT Bank and the The District Court affirmed, and the truck Although the court noted that the further unsecured creditors committee sought court drivers appealed to the 3rd Circuit, which pursuit of the fraudulent-transfer claim might approval of a settlement of the fraudulent- declined to approve nonconsensual prove fruitless, the approval of the structured conveyance lawsuit and a structured structured dismissals generally but held dismissal removed all possibility for the truck dismissal, which proposed to wind up Jevic’s that a court could, “in rare instances like this drivers to recover from the suit. Accordingly, bankruptcy case on certain specified terms. one, approve structured dismissals that do the Supreme Court found that an injury in fact had occurred in that the “bankruptcy In Jevic, the Supreme Court drew a clear distinction between court’s approval of the structured dismissal cost petitioners something.” final distributions of estate assets that violate the priority rules, and interim distributions of assets that deviate from the priority It is worth noting that the court’s determination that the truck drivers had rules but further important code-related objectives. standing to object to the structured dismissal was based on its review of the particular While typically a dismissal of a bankruptcy not strictly adhere to the Bankruptcy Code’s factual record below, and not on any per se case under Section 349 of the code, priority scheme.” In re Jevic Holding Corp., rule that higher-priority creditors left out of 11 U.S.C.A. § 349, simply restores the pre- 787 F.3d 173, 180 (3d Cir. 2015). a settlement that distributes assets to lower- bankruptcy status quo and leaves parties priority creditors automatically suffer an to whatever remedies they may have under SUPREME COURT “injury in fact” for standing purposes, leaving state law, the structured dismissal sought Before reaching the merits of the case, open the possibility that under different facts, by the movants in Jevic proposed to do far the majority answered the respondents’ a standing objection might be sustained. more: Settle the fraudulent-transfer claims challenge to the petitioners’ standing. against Sun Capital and CIT, dismiss the MERITS OF THE CASE The respondents argued that the petitioners fraudulent-conveyance action with prejudice, Turning to the merits of the case, Justice suffered no harm as a result of the structured distribute settlement proceeds among Stephen Breyer noted the three possible dismissal because even if the court had not various claimants, approve mutual releases outcomes for a Chapter 11 bankruptcy case: among the settling parties, and then dismiss approved the structured dismissal, the truck the bankruptcy case upon satisfaction of drivers would still have received nothing, • A court-confirmed plan designed to these terms. and they would receive nothing now if the continue operations while providing dismissal were undone. recovery for creditors. Under the proposed settlement, the truck drivers would receive nothing on their priority The court found that this argument was • A liquidation of the business and wage claims, while general unsecured based on two faulty assumptions: “(1) that, distribution of its assets. creditors would receive distributions on their without a violation of ordinary priority • Dismissal of the bankruptcy case. lower-priority claims. rules, there will be no settlement; and (2) that, without a settlement, the fraudulent- Dismissals under Section 349(b) generally conveyance lawsuit has no value.” restore the pre-petition status quo of LOWER COURT RULINGS the parties; however, Section 349 grants The truck drivers objected to the dismissal With respect to the first point, the court discretion to a bankruptcy court to deviate because it would distribute estate assets to found that the record below supported the from the standard consequences of dismissal creditors over whom the truck drivers had conclusion that there existed a reasonable “for cause.” priority. possibility that a settlement that adhered to priority rules could have been achieved, The court’s decision turned on whether The U.S. Bankruptcy Court for the District particularly given the fact that the Congress intended the “for cause” exception of Delaware held that structured dismissals respondents’ stated reason for excluding the to be used to effectuate nonconsensual were permissible even though not expressly truck drivers from settlement — a desire not structured dismissals that reorder statutory authorized by the code, and that while priorities.

4 | WESTLAW JOURNAL n BANKRUPTCY © 2017 Thomson Reuters In analyzing whether the “for cause” — the court was not persuaded, noting that distributions of assets that deviate from the exception of Section 349 could be used to “the word ‘cause’ is too weak a reed upon priority rules but further important code- deviate from the statutory priority scheme, which to rest so weighty a power.” related objectives. the court recognized the fundamental nature Finally, the court was not persuaded by the The court noted several kinds of interim of the code’s priority system: “The code is 3rd Circuit’s “rare-case exception,” under Chapter 11 distributions that violate the ‘designed to enforce a distribution of the which priority-violating structured dismissals priority rules — but may be permissible debtor’s assets in an orderly manner … in were not permissible generally, but only in if done in furtherance of code-related accordance with established principles rather those “rare case[s] in which courts could find goals such as increasing the chances of a than on the basis of the inside influence or ‘sufficient reasons’ to disregard priority.” successful reorganization, preserving the economic leverage of a particular creditor.’” The court noted the difficulty of formulating debtor as a going concern, or maximizing the The court said these priority rules are workable criteria for evaluating “sufficient value of the estate for all creditors — such a foundational principle of bankruptcy reasons” for priority-violating distributions as first-day wage orders paying employees’ law; indeed, they are “‘the cornerstone of on a case-by-case basis, which “threaten[s] pre-petition wages; critical-vendor orders reorganization practice and theory.’” to turn a ‘rare case’ exception into a more paying suppliers whose products are critical Final distributions of assets made through general rule.” to the continued operation of the business; and roll-ups, which pay claims of lenders Chapter 11 plans and in Chapter 7 liquidations In addition to generating uncertainty, such a are expressly governed by these priority rules, who agree to finance the debtor’s operations rule risks collusion between classes of high- during bankruptcy. but, as noted by the court, the code is silent priority creditors and low-priority creditors to on the question of what (if any) priority rules squeeze out those in the middle. In contrast, the court said, a nonconsensual govern distributions made in connection with structured dismissal that orders a final, a dismissal under Section 349. Furthermore, departing from the code’s priority-violating distribution “does not priority scheme without intelligible Ultimately, the court declined to read this preserve the debtor as a going concern; it limitations could cause “changes in the does not make the disfavored creditors better silence as evidence of congressional intent to bargaining power of different classes of do an end run around the priority rules. off; it does not promote the possibility of a creditors even in bankruptcies that do not confirmable plan; it does not help to restore Given that Congress crafted a comprehensive end in structured dismissals.” the status quo ante; and it does not protect system for the orderly distribution of estate Accordingly, the court held that Congress reliance interests.” assets, with the priority scheme as its central did not authorize a “rare case” exception for As no important code-related objectives and fundamental tenet, the court said, deviating from the statutory priority scheme “we would expect to see some affirmative are served in such cases, the court found when making final distributions of estate no justification for deviating from the code’s indication of intent if Congress actually assets. meant to make structured dismissals a priority rules. backdoor means to achieve the exact kind SCOPE OF SUPREME COURT’S CONCLUSION of nonconsensual priority-violating final HOLDING distributions that the code prohibits in Jevic makes it clear that bankruptcy courts Chapter 7 liquidations and Chapter 11 plans.” Jevic holds that “bankruptcy courts may not may not order structured dismissals that approve structured dismissals that provide provide for a final distribution of estate assets The court found no evidence of such intent for distributions that do not follow ordinary in violation of the Bankruptcy Code’s priority in the text of the Bankruptcy Code. Section priority rules without the consent of affected scheme. 1112(b), which grants courts the power creditors.” to dismiss a Chapter 11 case, does not In so holding, the court recognized that the mention structured dismissals or provide for The court expressly noted, however, that priority rules are a foundational principle of distributions in contravention of the priority “we express no view about the legality the Bankruptcy Code and expressed concerns scheme. of structured dismissals in general” and that permitting deviation from these rules declined to pass judgment on the unopposed could invite collusion between parties, To the extent that the code’s dismissal structured dismissal approved by the disruption of bargaining dynamics and provisions contemplate a transfer of assets, bankruptcy court in In re Buffet Partners general uncertainty that could undermine “they seek a restoration of the pre-petition LP, No. 14–30699, 2014 WL 3735804 the goals of Chapter 11. financial status quo.” (Bankr. N.D. Tex. July 28, 2014), suggesting These concerns may very well drive the As for whether the “for cause” language that consensual structured dismissals, development of structured dismissals in in Section 349 authorizes an alternative or structured dismissals that adhere to bankruptcy going forward. But for now, outcome from the two primary paths for the code’s priority scheme, may still be interim priority-violating distributions that distribution of assets through bankruptcy permissible. serve important Chapter 11 objectives and — a Chapter 11 plan that substantially limits In addition, the court drew a clear distinction consensual structured dismissals appear deviation from the priority scheme, and a between final distributions of estate assets safe. WJ Chapter 7 liquidation that flatly forbids it that violate the priority rules, and interim

By David L. Rosendorf, Esq. Kozyak Tropin & Throckmorton

There’s something new on the menu at many $460,000 during the next 30 days of • In August, Roadhouse Holding Inc., the restaurants across the country these days: operations. parent company of Logan’s Roadhouse, Chapter 11 bankruptcy. a Nashville, Tennessee-based chain of • In February, Unique Ventures Group steakhouses with roughly 200 locations, The past year has brought a growing LLC, which owns 28 Perkins restaurants 13,000 employees and $400 million wave of restaurant businesses filing for it had purchased for $38 million, filed in debt, filed in Delaware. It confirmed reorganization in bankruptcy, which is a Chapter 11 petition in Pittsburgh. The its Chapter 11 plan and emerged from continuing to intensify. The filings range from bankruptcy court recently directed the bankruptcy in December. luxurious high-end restaurants to casual appointment of a Chapter 11 trustee budget eateries. These bankruptcies often amid a dispute among ownership • Also in August, Last Call Guarantor LLC, involve hundreds of locations, thousands factions. which owned the Fox & Hound, Bailey’s of employees and hundreds of millions of Sports Grill and Champps Kitchen • In January, Capital Pizza Huts Inc., the dollars of debt. restaurant chains, filed for Chapter 11 owner of 56 Pizza Hut stores across six protection in Delaware. The holding What is causing these bankruptcies? What do states with more than 1,400 employees, company operated 79 restaurants in they mean for creditors? And what can these filed for bankruptcy in its home state of 25 states and had 4,700 employees. businesses hope to accomplish through the Kansas, citing declining gross sales and The filing was the group’s second since Chapter 11 process? increasing food costs and listing about 2013. $20 million in debt. WHAT IS HAPPENING IN THE RESTAURANT INDUSTRY? • In October, Garden Fresh Restaurant Corp., which operated the Sweet While this wave of In the James Bond novel “Goldfinger,” author Tomatoes and Souplantation restaurant restaurant bankruptcies is Ian Fleming coins the saying: “Once is an chains, filed Chapter 11 in Delaware. hitting both the high and accident. Twice is a coincidence. Three times The group included 125 restaurants, low ends of the market, is a pattern.” And there’s certainly been a had 5,500 employees and owed recent pattern of Chapter 11 filings in the $200 million to its creditors. it may be having the restaurant industry: most dramatic impact • In September, Cosi Inc., which operates • On March 24, NYLC LLC, the owner of 72 company-owned “fast casual” on those restaurants Le Cirque, a famously posh Manhattan restaurants, plus 35 franchised situated in the middle. restaurant that opened more than locations, and employs more than 40 years ago, filed for Chapter 1,500 people, filed for Chapter 11 in 11, indicating that the filing was Boston. The company, whose stock is WHAT IS CAUSING THIS WAVE OF precipitated by a desire to preserve publicly traded, owes nearly $8 million RESTAURANT BANKRUPTCIES? its lease while facing temporary cash to noteholders and an additional The restaurant business has always been flow issues. Its first-day filings reflect $15 million to other trade creditors and a difficult one, where failure is common. a projected income shortfall of more has accumulated roughly $300 million Restaurants typically operate on very than 10 percent compared with its in losses since going public in 2002. thin margins: after paying for food, labor, anticipated expenses of more than marketing and other expenses, a restaurant’s best-case scenario may often be something around a 5 percent profit margin. Any change in revenues or expenses can work a substantial disruption in the business. Several restaurants chains are experiencing David Rosendorf, a partner in the Miami-based law firm Kozyak softening revenues over the past year. Clearly, Tropin & Throckmorton, focuses his practice on business bankruptcy some businesses just execute better than and other commercial litigation. He has over 20 years’ experience others: Sonic, the country’s largest chain of representing debtors, creditors, asset purchasers and other parties in Chapter 11 bankruptcy proceedings, including clients in the restaurant drive-in restaurants, just reported a 7 percent and hospitality industries. He may be reached at [email protected] decline in same-store sales, while Checkers, a similar style of restaurant chain, just sold

6 | WESTLAW JOURNAL n BANKRUPTCY © 2017 Thomson Reuters REUTERS/Mario Anzuoni REUTERS/Danish Siddiqui The past year year has seen several Chapter 11 filings in the restaurant industry, from a large Kansas-based Pizza Hut franchisee to Manhattan’s posh Le Cirque. for $525 million — nearly three times what it easier for time-strapped diners to have a returns on their investment, which puts sold for in 2006 — after six straight years of home-cooked meal. added pressure on the businesses to show same-store sales growth. Then there are the services like UberEats, growth. But a parallel pattern of recent bankruptcies Grubhub and Seamless, which can provide Like many other businesses, restaurant in the retail sector would seem to indicate customers with a choice from among dozens chains have essentially two options: internal that discretionary spending may be in a of local restaurants, all delivered to their growth, by increasing same-store sales or general decline, and that tougher times are doorstep. While these delivery services could profitability, or expansion, by adding more ahead for the restaurant industry. potentially represent an expanded market units. An overaggressive expansion plan that Food costs can increase as diners start to for some restaurants, they also likely have isn’t supported by underlying profitability is demand better quality ingredients: More the effect of leveling the playing field to the often a formula for business failure. and more customers may want organic detriment of the larger chains: now every And, unlike traditional bank lenders, private vegetables and cage-free eggs, but they may mom-and-pop pizza joint can deliver a pie as equity firms typically have no hesitation not necessarily want to pay more for them. effectively as Domino’s. about taking back the business they’ve Labor expenses may also be going up, While this wave of restaurant bankruptcies financed and operating it if the loan goes into between pushes to increase the minimum is hitting both the high and low ends of the default — something that can often be more wage in some states and additional health market, it may be having the most dramatic easily accomplished through Chapter 11. care costs being borne by employers. impact on those restaurants situated in the middle. WHAT HAPPENS TO A RESTAURANT The recent political environment on BUSINESS IN CHAPTER 11? immigration policy may also have an In the industry, it’s referred to as “casual The most immediate consequence of any impact going forward, as many restaurants dining,” as distinguished from “fast food” bankruptcy filing is that it gives the debtor have traditionally relied extensively on or “fast casual” on one end, and fine dining some breathing space: Creditors must stop undocumented immigrants, as have many on the other — in other words, restaurants any collection activity on pre-bankruptcy farmers who grow the crops that supply that offer table service, or sometimes buffet debts, and the company is given a window of those restaurants. service, on real plates, sometimes with a full bar, at a moderate price point. opportunity to come up with a plan to resolve The restaurant business is also a very its financial obligations. competitive one; even if you have a These types of venues bear many of the For restaurant businesses, that plan successful model, it seems like there is higher costs of operating a full-blown typically features some combination of always something new opening up to draw restaurant — lease expenses are greater three elements: termination of leases for your customers’ attention away. There are because they require more space, labor costs unprofitable locations;, sale of the business constantly new entrants into the market, are greater because they must employ hosts as a going concern and a restructuring of the and customers’ tastes can be very fickle: and servers and bussers and dishwashers, balance sheet, often by converting debt into Last month they wanted comfort foods, this not just counter workers and cooks, plus equity. month they want to eat healthy, next month their larger operations often require more it will be something else. management support — but they are often As noted above, one of the factors that often capped out at what they can charge their lead a restaurant business into Chapter 11 is And increasingly, there is even more customers. a poorly executed expansion plan. Adding competition from different angles. Grocery more locations will only increase profits if the stores offer a broader selection of prepared In addition, many of these restaurant chains restaurants themselves are profitable. foods to take home for dinner. Services like are financed through private equity firms, Blue Apron deliver prepackaged, ready- rather than traditional bank loans. These “We lose money on every sale, but we make to-cook ingredients and recipes, making it financiers typically expect to see higher it up in volume” is an old joke, but it still

© 2017 Thomson Reuters APRIL 20, 2017 n VOLUME 13 n ISSUE 25 | 7 often seems like not everyone recognizes the company needs additional financing in order secured debt agreed to convert most of that fallacy. Cosi, the sandwich chain, never had a to continue operations until it can be sold. debt into equity, reducing the company’s profitable year after going public in 2002, but Bankruptcy provides a mechanism for long-term debt to $100 million and creating it embarked on an aggressive expansion plan lenders to advance additional funds in order a $1 million fund to pay the company’s and accumulated more than $300 million in to preserve the going-concern value of the unsecured trade creditors. losses before it wound up in Chapter 11. enterprise until a sale can be completed, and Though that $1 million was only projected to Often, one of the first steps in rehabilitating then get repaid “off the top” from the sale result in about a 3 percent recovery, it was a restaurant business is paring back — proceeds. still likely a better result than if the company getting rid of unprofitable locations and With operations at least temporarily were forced to liquidate, which would have refocusing on the most successful aspects of stabilized, Chapter 11 can then serve as yielded nothing for trade creditors, and the core business. And Chapter 11 provides a a platform for marketing and selling a enabled the company to continue operating mechanism for doing so. distressed business, by providing a process nearly 200 restaurants post-emergence. In bankruptcy, a debtor is allowed to “reject,” for soliciting the highest and best offer and But Chapter 11 does not fix underlying or terminate, real property leases. Moreover, closing a sale. business issues. The restaurant chains that the landlord’s claim for damages as a result Because sales can be completed “free have made two, or sometimes even three, of the termination of the lease is capped in and clear” of the claims of creditors in a trips through Chapter 11 will attest to this bankruptcy — typically at one year’s rent, bankruptcy, a purchaser can pay full value fact. but, depending on the length of the lease, for the assets of a debtor without worry of Last Call Guarantor, which sold for no more than three years. And when that being stuck dealing with the company’s $120 million in its 2013 bankruptcy, was sold claim gets paid, it generally doesn’t get paid debts. Ideally, the purchaser, having shed at auction for only $28.6 million in its 2016 in full, but will only get its share of the funds the company’s old debts, is able to avoid bankruptcy. available for distribution, along with all of the the mistakes of its predecessor and run a other creditors. Restaurant operators still need to serve a successful operation going forward. product that people want to buy, and they Frequently, the funds to pay the company’s In other cases, the company may emerge need to avoid the mistakes that led them creditors will come from a sale of the from bankruptcy by restructuring its debts into Chapter 11 in the first place. Chapter 11 business, as existing ownership’s capital, or rather than selling its assets. provides a fresh start, but it’s still up to the appetite for ongoing losses, may be depleted. In the Logan’s Roadhouse case, for instance, company to come up with the recipe for In Chapter 11, the company’s management future success. WJ continues to run the business, but often the the holders of $400 million of long-term

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By Donna Higgins A California man who renounced an inheritance from his father and instead passed the money to his children engaged in a “fraudulent transfer” under a federal law governing the collection of debts owed to the U.S. government, a federal appeals panel has ruled.

U.S. Small Business Administration v. Bensal according to the opinion. With interest, that filed for bankruptcy, meaning her bankruptcy et al., No. 14-17404, 2017 WL 1228572 amount now stands at more than $300,000, estate had no interest in or claim to the (9th Cir. Apr. 4, 2017). the opinion said. money. The decision from the 9th U.S. Circuit Court FTB asked the SBA to honor its guaranty, and By contrast, Bensal already owed the of Appeals panel means the U.S. Small following negotiations, the agency paid FBT government money when he sought to reject Business Administration, which guaranteed just over $54,000. Later, the opinion said, his inheritance, the panel said. a loan to a business owned by defendant FBT assigned to the SBA its right to collect His case fits the factual framework of the Michael D. Bensal, can obtain the $154,000 the entire amount of the default judgment. U.S. Supreme Court’s ruling in Drye v. United in inheritance money and put it toward States, 528 U.S. 49 (1999), in which the a default judgment the agency obtained REJECTED INHERITANCE high court said Arkansas law did not bar the against Bensal and his company. In 2011 Bensal’s father died, leaving him a Internal Revenue Service from accessing a The panel said the Federal Debt Collection 40 percent share of a trust consisting of cash delinquent taxpayer’s inheritance that the Procedures Act, 28 U.S.C.A. § 3301, overrides and securities, according to the opinion. taxpayer had sought to disclaim and pass a California probate statute that says Bensal disclaimed the inheritance, and under through to his children. disclaiming an inheritance is not considered California Probate Code § 282 it passed to In distinguishing Costas from Drye, the panel a fraudulent transfer. his two children, the opinion said. said, the Costas court highlighted the fact The FDCPA, not to be confused with the Fair The SBA sued Bensal, the trust, and the that the Bankruptcy Code generally respects Debt Collection Practices Act, a consumer children in the U.S. District Court for the state laws and includes a broad range of protection law that goes by the same Northern District of California, seeking to exemptions, while the federal tax lien statute abbreviation, allows the United States to void the disclaimer under the Federal Debt at issue in Drye was primarily concerned with reclaim fraudulent transfers of money owed Collection Procedures Act. collection of tax debt and contained only to the government. narrow exemptions. The District Court granted summary Bensal’s firm, Bensal & Coburn Investments judgment to the SBA and ordered Bensal to Finally, the panel rejected Bensal’s argument LLC, took out two loans with Millennium turn his share of the trust over to the agency. that the default judgment was not a “debt” Bank in 1999 to establish a fast-food under the FDCPA because the federal Bensal appealed to the 9th Circuit, which restaurant using an airline theme and décor, government was not a party to the original affirmed. according to the 9th Circuit panel’s opinion. loan transaction. That transaction was part Millennium later assigned both loans to First Bensal argued that California’s probate of a broader deal that also included the SBA Bank & Trust. law controlled the outcome of the case and along with Millennium Bank, BCI and Bensal, overrode the FDCPA, but the panel said it BCI sought a guaranty from the SBA for one the panel said. was the other way around. of the loans. The SBA agreed to provide a “Bensal’s proposed rule — that a ‘guaranty’ guaranty for 75 percent of the $175,000 loan The FDCPA includes an “express preemption does not qualify as a ‘debt’ under the amount, the opinion said. In connection with clause” that clearly states it overrides FDCPA — would lead to disastrous practical the transaction, Bensal provided a personal inconsistent state laws, the panel said. consequences,” the panel said. “Personal guaranty to the SBA that he would repay the guarantees provide an additional level loan if BCI defaulted. OPPOSITE CONCLUSIONS of financial security, allowing the SBA to BCI did default on both loans in 2000, the Bensal then argued that the panel should extend and guarantee more loans to small opinion said, and First Bank & Trust filed follow the 9th Circuit’s ruling in In re Costas, businesses. Bensal’s argument would suit in California state court against BCI 555 F.3d 790 (2009), in which the appeals eliminate the SBA’s ability to recover from and Bensal. The bank obtained a default court said a woman in Chapter 7 bankruptcy personal guarantors, which would undermine judgment totaling $287,643, which included could disclaim an inheritance and pass it on the financial viability of the small-business both loans, attorney fees and costs. to her children under Arizona law. loan program.” WJ The amount of the default judgment for The scenario in Costas differed from Bensal’s Related Filing: Opinion: 2017 WL 1228572 the SBA-guaranteed loan was $140,906, situation, the panel said, because the debtor in Costas made her disclaimer before she See Document Section B (P. 35) for the opinion.

By Lisa Uhlman The trustee overseeing liquidation of a defunct Philadelphia casino venture has failed to revive fraudulent-transfer claims over Pennsylvania’s revocation of the debtor’s $50 million slot machine license, as a federal judge said a bankruptcy court correctly construed the claims before nixing them.

In re Philadelphia Entertainment & It then filed an adversary complaint against Judge Leeson next turned to the Development Partners LP, No. 16-cv-1992, the Commonwealth of Pennsylvania, seeking debtor’s arguments about application 2017 WL 1160790 (E.D. Pa. Mar. 29, 2017). to avoid the revocation and demanding of Rooker-Feldman, a doctrine laid out in The bankruptcy court properly found it payment of $50 million. Rooker v. Fidelity Trust Co., 263 U.S. 413 was barred from considering the state’s The suit included three fraudulent-transfer (1923), and District of Columbia Court of revocation of the license and that the claims alleging the commonwealth did not Appeals v. Feldman, 460 U.S. 462 (1983). trustee failed to state a claim as to any other provide reasonably equivalent value for the The judge agreed with the Bankruptcy Court alleged transfer, U.S. District Judge Joseph F. license after revoking it. After the debtor’s that the doctrine, which divests federal Leeson Jr. of the Eastern District of liquidation plan was confirmed, Persil courts of subject matter jurisdiction to hear Pennsylvania said. Manguer LLC was appointed trustee of the complaints about injuries caused by state liquidation trust and succeeded to PEDP’s court judgments, precluded it from reviewing LICENSE REVOCATION claims. any claim seeking to avoid the state’s According to Judge Leeson’s opinion, the The Bankruptcy Court dismissed the revocation of the license. Pennsylvania Gaming Control Board awarded complaint in April 2016. As to the fraudulent- The judge noted that the lower court found Philadelphia Entertainment & Development transfer claims, it said the Rooker-Feldman the doctrine barred it from considering only Partners LP a slot machine license in 2006 doctrine barred it from considering the revocation of the license and that, to the to develop a Foxwoods Casino location in whether to avoid the revocation of the extent the claims did not seek that, it had Philadelphia. The company was required to debtor’s license and that the trustee jurisdiction to hear them. pay $50 million for the license and open its otherwise failed to state a claim. He adopted the Bankruptcy Court’s findings casino within one year. Persil Manguer appealed the dismissal as to the remaining claims. Due to delays and a lack of funding, PEDP of the fraudulent-transfer claims to the was not able to open the casino on time, but District Court, saying the Bankruptcy Court AFFIRMING AND ADOPTING the Gaming Control Board denied its request misconstrued them as challenging the Finally, Judge Leeson rejected the trustee’s for an extension to pay the license fee, the revocation of the license and misapplied the argument that the Bankruptcy Court should opinion said. The company paid the fee in Rooker-Feldman doctrine. have considered more possible fraudulent 2007 and obtained approval to delay the transfers. casino’s opening until May 2011. CORRECT INTERPRETATION AND The court correctly found there were two In exchange for approving the delay, the APPLICATION OF ROOKER-FELDMAN transfers by the debtor of its property — the board imposed certain conditions and First finding the Bankruptcy Court construed $50 million license fee payment in 2007 and deadlines on PEDP, the opinion said. The the claims correctly, Judge Leeson cited an the transfer of the revoked license in April company failed to meet the deadlines, exchange between the bankruptcy judge 2012 — and that the first transfer was outside accumulating more than $650,000 in fines, and the debtor’s counsel at oral argument the applicable limitations period and Rooker- and in December 2010 the board revoked the in which the judge restated what the debtor Feldman barred review of the second, the slot machine license without returning the was alleging and the attorney agreed. judge said. $50 million fee. In addition, the Bankruptcy Court clearly He therefore adopted the Bankruptcy Court’s PEDP appealed the revocation order to a understood the claims because it stated in its opinion and affirmed the dismissal of the Pennsylvania state court, which affirmed it in opinion that they “may be boiled down to the complaint. WJ April 2012. debtor’s, and now the trustee’s, belief that the revocation of the license was unlawful Related Filing: Opinion: 2017 WL 1160790 BANKRUPTCY AND ADVERSARY SUIT because [it] was not accompanied by a PEDP filed for Chapter 11 protection in refund of the license fee,” the judge said. See Document Section C (P. 43) for the opinion. the U.S. Bankruptcy Court for the Eastern District of Pennsylvania in March 2014.

10 | WESTLAW JOURNAL n BANKRUPTCY © 2017 Thomson Reuters EMPLOYMENT UNCOVER Former Heller Ehrman partner can’t VALUABLE collect compensation in bankruptcy case, INFORMATION 9th Circuit says ABOUT YOUR (Reuters) – A former nonequity partner at Heller Ehrman, a San Francisco OPPOSING firm that collapsed in 2008, cannot recover $1.2 million in pay in bankruptcy proceedings because he was a shareholder and not an employee of the EXPERT now-defunct firm, a divided federal appeals court has ruled. WITNESS

Heller Ehrman v. Neuman, No. 15-17124, works as a consultant with Merlone Geier 2017 WL 1314941 (9th Cir. Apr. 10, 2017). Partners in San Francisco. In a 2-1 ruling, a panel of the 9th U.S. Circuit While at Heller, Neuman headed the firm’s Court of Appeals on April 10 held that real estate practice group and also handled U.S. Bankruptcy Judge Dennis Montali in some of its real estate operations. His San Francisco made clear errors of law and billable hours eventually dropped due to fact when he allowed William Neuman’s those administrative duties and treatment claim, especially with respect to his focus for cancer. on the fixed income element of Neuman’s Neuman and the firm reached an agreement contract with the firm. in 2007 to move him from a variable, profit- “While the Bankruptcy Court believed it sharing compensation model to a fixed to be a ‘critical fact’ that Neuman was to income arrangement of $775,000 annually be paid a fixed income, the employment for four years. agreement does not prohibit shareholders After a one-day bench trial in 2014, Judge from receiving fixed incomes,” the panel said Montali found that the contract did not in its unpublished opinion. modify his earlier partnership agreement but Although decided under California law, the instead was a new deal that made him an decision confirms the general principle that employee who was paid a salary. a fixed-income partner is still a partner, and U.S. District Judge Charles Breyer in San Expert Intelligence Reports give you not an employee, said Heller’s attorney, Francisco upheld Judge Montali’s ruling in the information you need to evaluate Christopher Sullivan of Diamond McCarthy. 2015. Heller appealed to the 9th Circuit. your opposing counsel’s expert witness. In every Expert Intelligence Report Neuman was not available for comment. In the April 10 ruling, the 9th Circuit panel you request, you’ll find comprehensive, Neuman’s lawyer, Michael St. James of majority of Circuit Judges Margaret McKeown logically organized documentation of St. James Law, declined to comment. and Jay Bybee held that the 2007 agreement an expert’s background and perform- The ruling stems from the high-profile modified how Neuman would be paid, not his ance as an expert witness: transcripts, depositions, challenges, resumes, dissolution of Heller Ehrman, once an elite employment status. There was nothing in the publications, news stories, social media law firm that had more than 730 attorneys deal that terminated the prior agreements profiles – even hard-to-get expert across the globe. The firm filed for Chapter 11 making him a shareholder, the panel said. testimony exhibits from dockets. bankruptcy in the U.S. Bankruptcy Court for In dissent, Circuit Judge Clifford Wallace Learn more at TRexpertwitness.com/ the Northern District of California in 2008, said that “the hallmark of being a partner or intelligence. and the court confirmed a liquidation plan in shareholder in a law firm is having an equity 2010. stake in the firm’s profits and losses.” Since The plan called for shareholders to receive his income was fixed, Judge Wallace said, no payments until the dissolved firm paid Neuman was a salaried employee. WJ its creditors. But Neuman, who joined Schiff (Reporting by Robert Iafolla) Hardin after Heller’s collapse, filed a claim in Related Filing: 2010 for $1.2 million in compensation under Opinion: 2017 WL 1314941 his 2007 contract with the firm. Neuman now

By Donna Higgins Catholic schools, parishes and nonprofit organizations cannot be forced into a Minnesota archdiocese’s Chapter 11 bankruptcy case because they are separate corporate entities that have adhered to Minnesota’s corporation law, the Archdiocese of Saint Paul and Minneapolis has told a federal appeals court.

Official Committee of Unsecured Creditors v. Archdiocese of Saint Paul and Minneapolis et al., No. 17-1079, appellees’ briefs filed (8th Cir. Mar. 27, 2017). Forced consolidation would violate the Bankruptcy Code’s ban on involuntary bankruptcy petitions against charitable and religious organizations, the archdiocese also argues in its March 27 opposition brief filed with the 8th U.S. Circuit Court of Appeals. The archdiocese’s filing was accompanied by four other opposition briefs from the official committee of parish creditors, the Catholic Community Foundation of Minnesota, three Catholic schools and two parish churches. All are opposing an appeal by a creditors’ committee representing alleged victims of clergy sexual abuse, who argue that lower courts improperly rejected their motion to consolidate the nonprofits’ assets REUTERS/Patrick Semansky/Pool with those of the archdiocese.

CONSOLIDATION MOTION DENIED “The assertion that the debtor somehow In May 2016 the official unsecured creditors committee, on behalf of the controls all other Catholic entities in the clergy abuse plaintiffs, filed a motion to substantively consolidate as region through the archbishop is divorced debtors more than 200 Catholic parishes, schools and other nonprofit from reality and contradicts Minnesota state entities. corporate law,” the archdiocese says. The committee urged the court to bring the entities into the bankruptcy by asserting its equitable powers under Section 105(a) of the Bankruptcy Code, 11 U.S.C.A. § 105(a). The archdiocese is using the parishes and nonprofits to hide assets that The archdiocese and the entities hold a combined $1.7 billion in assets would otherwise be available to pay the alleged victims, the committee that could be pooled through substantive consolidation to satisfy their contends. liabilities, the committee said. ’THE FAIREST WAY’ The archdiocese and many of the targeted entities moved for judgment on the pleadings or dismissal for failure to state a claim. The archdiocese filed for Chapter 11 protection in January 2015 in the U.S. Bankruptcy Court for the District of Minnesota, saying bankruptcy The Bankruptcy Court denied the committee’s motion, citing Section reorganization was “the fairest way” for it to resolve sexual abuse 303(a) of the code, 11 U.S.C.A. § 303(a), which prohibits involuntary lawsuits. bankruptcy proceedings against “a corporation that is not a moneyed, business or commercial corporation.” The filing halted the lawsuits, through the operation of bankruptcy’s automatic stay. Substantive consolidation would effectively contravene Section 303(a) by ordering the related entities into the bankruptcy process despite In its bankruptcy petition, the archdiocese estimated $10 million to their objections, U.S. Bankruptcy Judge Robert J. Kressel said. In re $50 million in assets and between $50 million and $100 million in Archdiocese of St. Paul & Minneapolis, 553 B.R. 693 (Bankr. D. Minn. liabilities. It also listed more than 20 unidentified personal injury 2016). plaintiffs as its largest unsecured creditors. The judge added that, even if he could use the court’s equitable powers More than 400 individuals have filed claims related to clergy sexual for consolidation, the committee had not sufficiently detailed the abuse in the bankruptcy, according to a Dec. 6 opinion in the case by relationships between the archdiocese and the entities. U.S. District Judge Ann D. Montgomery of the District of Minnesota.

12 | WESTLAW JOURNAL n BANKRUPTCY © 2017 Thomson Reuters The committee appealed to the District “Debtors would be able to do this by simply “The assertion that the debtor somehow Court. Judge Montgomery said granting housing material assets in interrelated, controls all other Catholic entities in the the creditors’ motion for consolidation nonprofit affiliates (over which they continue region through the archbishop is divorced would conflict with a Bankruptcy Code to maintain authority and control), and then from reality and contradicts Minnesota state provision preventing involuntary bankruptcy simply refusing to bring those nonprofit corporate law,” the archdiocese says. proceedings against charitable organizations. affiliates into their bankruptcy process Finally, the archdiocese contends that a Official Comm. of Unsecured Creditors v. voluntarily,” the abuse plaintiffs say. ruling in favor of the committee representing Archdiocese of St. Paul & Minneapolis, the alleged abuse victims would violate ’DIVORCED FROM REALITY’ 562 B.R. 755 (D. Minn. 2016). the First Amendment and the Religious The alleged victims claim the archdiocese Freedom Restoration Act, 42 U.S.C.A. ’NO RECOURSE’ exercises control over the parishes and § 2000bb. The lower courts did not reach The lower courts’ decisions will allow debtors nonprofits because the archbishop and this issue in their rulings. WJ to misuse the bankruptcy process, the abuse his chief deputy, the vicar general, occupy Related Filings: plaintiffs argue in their brief. positions on the corporate boards of those Archdiocese’s opposition brief: 2017 WL 1161755 entities, the archdiocese contends. Official Committee of Parish Creditors brief: “Specifically, the rulings would allow debtors 2017 WL 1161756 to extinguish debt in a seemingly legitimate But that alleged “disregard” of corporate Catholic Community Foundation of Minnesota’s manner, through a court-supervised process, formalities actually shows compliance brief: 2017 WL 1161753 without disclosing or administering all of with Minnesota law, which requires that a Churches’ opposition brief: 2017 WL 1161754 Schools’ opposition brief: 2017 WL 1161752 their assets,” the brief says. diocese’s bishop, vicar general and parish Appellant’s brief: 2017 WL 764676 priest make up three out of the five board members of each parish, the archdiocese argues.

INVOLUNTARY PETITION Law firm can’t use Chapter 7 case to collect on big judgment, federal judge affirms

By Donna Higgins An involuntary Chapter 7 case filed against a former securities analyst who owes a $16 million defamation judgment was properly dismissed as an abuse of the bankruptcy process, a New York federal judge has ruled.

In re Murray; Wilk Auslander LLP v. Murray, New York law, a creditor cannot force a sale No. 16-cv-771, 2017 WL 1208600 (S.D.N.Y. to satisfy a judgment against one of the Mar. 31, 2017). spouses. “New York law provides appellant with a The apartment, which is Murray’s sole remedy and that is all to which appellant asset, is worth nearly $3 million and has a is entitled,” U.S. District Judge Vernon S. mortgage of $590,000, according to the Broderick of the Southern District of New District Court’s opinion. York said. “The fact that Murray’s interest is worth less The decision affirms a bankruptcy judge’s and perhaps far less by virtue of the wife’s dismissal of the involuntary bankruptcy shared interest, and New York’s respect for petition law firm Wilk Auslander LLP filed tenancies in the entirety, does not change WESTLAW JOURNAL/Staff against alleged debtor Matthew N. Murray, a the fact that New York law has provided for R&R filed an arbitration action against securities industry whistle-blower. and defined the scope of available remedies Murray with the Financial Industry Wilk Auslander sought to use the Bankruptcy to judgment holders,” Judge Broderick said. Regulatory Authority, which ruled for R&R on Code to reach an asset that was otherwise claims for defamation and breach of contract DEFAMATION JUDGMENT unattainable — the spousal interest in a coop and ordered Murray to pay $10.7 million, the apartment Murray owns with his wife, Judge Murray, then a securities analyst, was fired opinion said. With interest, the judgment Broderick said. by investment bank Rodman & Renshaw in now stands at $16 million. 2006 after he told the U.S. Senate Finance The Murrays own the apartment as “tenants Wilk Auslander represented R&R during the Committee about alleged improprieties at by the entirety,” which means that under FINRA arbitration. R&R, according to the opinion.

© 2017 Thomson Reuters APRIL 20, 2017 n VOLUME 13 n ISSUE 25 | 13 R&R later filed for Chapter 7 bankruptcy, DISCHARGEABILITY and the Chapter 7 trustee assigned the R&R judgment to Wilk Auslander as part of a settlement of the firm’s claims for $1.5 million Man can discharge $190,000 debt in unpaid legal fees. That pact also called for R&R to pay the firm $600,000. to ex-girlfriend over home purchase

Wilk Auslander then filed the involuntary By Donna Higgins bankruptcy petition against Murray in the U.S. Bankruptcy Court for the Southern A woman who says she contributed $190,000 to the purchase of a home with District of New York in February 2014. her boyfriend, who later ended the relationship and married someone else, Murray moved to dismiss the Chapter 7 case. cannot get that money back, after a Florida bankruptcy judge ruled the debt U.S. Bankruptcy Judge Robert E. Gerber dischargeable in the man’s Chapter 7 case. tossed out the case, saying Wilk Auslander In re Cascio et al., No. 16-331; Bernacchi v. woman, Linda Steigman. The couple filed it only to gain a tactical advantage in its Cascio et al., Adv. No. 16-108, 2017 WL married Feb. 14, 2015, and filed a Chapter 7 dispute with Murray. 1273902 (Bankr. M.D. Fla. Apr. 4, 2017). bankruptcy petition in January 2016. While involuntary petitions are sometimes There was no evidence that debtor Bernacchi filed an adversary action, seeking appropriate in cases involving only a single Thomas A. Cascio intended to defraud a ruling that Cascio could not discharge his creditor, in this situation the law firm Frances R. Bernacchi, 65, when the two alleged debt to her under Section 523(a) was involved in a straightforward two- agreed to share the cost of purchasing the (2)(A) of the Bankruptcy Code, 11 U.S.C.A. party dispute that has nothing to do with home, U.S. Bankruptcy Judge Paul M. Glenn § 523(a)(2)(A). bankruptcy’s purpose, the judge said. of the Middle District of Florida said. That section bars discharge of debts “Bankruptcy is a collective remedy, with the Judge Glenn entered judgment in Cascio’s stemming from “false pretenses, a false original purpose — which continues to this favor in an adversary proceeding brought by representation, or actual fraud.” day — to address the needs and concerns Bernacchi. Judge Glenn rejected the suit, finding no of creditors with competing demands Cascio and Bernacchi met via an online evidence at trial that Cascio intended to to debtors’ limited assets, and with the dating site in November 2011 and moved into defraud Bernacchi in connection with the understandable desire that the debtor’s Bernacchi’s home together in February 2012, home purchase. assets not go to the swiftest, or the most the judge’s opinion said. aggressive, of them,” he wrote. In fact, the judge said, the evidence shows he The couple agreed to share the cost of buying intended to hold up his end of the bargain Bankruptcy’s purpose has expanded over a new home and signed a contract with a throughout the time that Bernacchi was the years to include eliminating debtor’s builder to construct a home, according to the making her contributions. prisons, giving debtors a fresh start and, in opinion. Construction began in 2012 and was the case of corporations, saving jobs, but this “The debtor testified that he thought he loved completed in 2013. case does not involve any of those concerns, the plaintiff, and there is no evidence that he he concluded. Bernacchi, who acted as Cascio’s realtor was planning to leave the relationship in 2012 for the transaction, testified at trial in the or 2013,” Judge Glenn said. “Further, there is Judge Broderick affirmed the ruling, finding adversary action that she paid $75,000 no evidence that the debtor was engaged in no abuse of discretion by the bankruptcy in deposits and $52,000 toward interior a separate relationship with Linda Steigman, judge. WJ furnishings, and made other contributions his current wife, at the time that the plaintiff Related Filing: that ultimately totaled $190,000, the opinion was making the contributions to the home in Opinion: 2017 WL 1208600 said. She testified she relied on Cascio’s 2012 and 2013.” promise to marry her and to add her name to Finally, Judge Glenn said Bernacchi’s the home’s deed later. alleged reliance on Cascio’s verbal promise The purchase closed in August 2013, with to “quitclaim” her a one-half interest in the Cascio receiving a deed to the home in only home was not reasonable. his name, according to the opinion. “In Florida, the statute of frauds provides The couple moved into the home the next that no action can be brought to enforce month, but Cascio moved out a little over a a contract for the sale of land unless the year later, in October 2014. Following a state contract is in writing,” he said. WJ court eviction proceeding, Bernacchi moved Related Filing: out Dec. 13, 2014. Opinion: 2017 WL 1273902 Within two weeks, the opinion said, Cascio moved back into the house with another

By Donna Higgins The sole owner of an electrical business can use his Chapter 7 bankruptcy case to discharge the $437,000 in back pay he owes to 16 workers he fired after an unsuccessful unionization attempt, an Indiana federal district judge has ruled.

National Labor Relations Board v. Calvert, required payment of prevailing wages, and unlawfully discriminated against the workers No. 16-cv-161, 2017 WL 1190509 (S.D. Ind. was facing audits by the Indiana Department for exercising collective bargaining rights Mar. 31, 2017). of Labor in connection with those projects. should preclude a discharge of Calvert’s The National Labor Relations Board, which By using temporary workers, ELC ensured debt. obtained the judgment on behalf of the that the outside firm that employed them The District Court explained that to prove former employees, failed to prove that debtor would have to deal with the audits, the nondischargeability under Section 523(a)(6), Edward L. Calvert acted with malice, which opinion said. the NLRB would have to show that Calvert would have made the debt nondischargeable After the workers were fired, the union filed caused the workers’ injury and that he acted under the Bankruptcy Code, U.S. District additional charges with the NLRB, alleging both willfully and with malice. Judge Sarah E. Barker of the Southern ELC discriminated against its workers for The District Court rejected the appeal, saying District of Indiana said. exercising their right to organize. the NLRB presented no evidence or analysis Judge Barker affirmed a ruling from the U.S. In April 2004 an NLRB administrative law as to whether the agency’s finding of an Bankruptcy Court for the Southern District of judge ruled that ELC had committed unfair unfair labor practice showed that Calvert Indiana that Calvert, the sole owner of ELC labor practices and ordered the company to acted with the necessary malice. Electric Inc., dismissed the workers to save pay back wages to the fired employees, and “In order to conclude that a determination of money and avoid a costly audit by Indiana the NLRB affirmed those findings in July liability under the [National Labor Relations officials, not to prevent the employees from 2005. Act] is the ‘same’ as a finding of malice unionizing. ELC ceased operations in March 2006, and under § 523(a)(6) of the Bankruptcy Code for purposes of collateral estoppel, the UNSUCCESSFUL UNION DRIVE an administrative law judge found Calvert personally responsible for the back-pay court would need to compare the methods In September 2002, workers at ELC declined award, which stood at $437,427. The 7th of analysis germane to each statute and to join the International Brotherhood of U.S. Circuit Court of Appeals later issued an determine whether the they ‘substantially Electrical Workers Local 481, following a order enforcing the ruling. NLRB v. ELC Elec., mirror’ one another,” the District Court said. two-month organizing effort. No. 13-1952, order entered (7th Cir. July 23, “It is the NLRB’s burden to make such a The union filed objections with the National 2013). showing … but the NLRB has failed to do so.” Labor Relations Board, saying ELC had Calvert filed for Chapter 7 bankruptcy Judge Barker said the Bankruptcy Court did violated federal labor law by exercising in December 2013. The NLRB filed an not ignore the NLRB’s finding that Calvert undue influence over the election’s outcome, adversary action seeking a ruling that acted out of anti-union animus, but it instead Judge Barker’s opinion said. Calvert was barred by Section 523(a)(6) of chose to credit Calvert’s testimony at trial In March 2003, before any decision from the the Bankruptcy Code, 11 U.S.C.A. § 523(a)(6) that he fired the workers to avoid the costs NLRB, the company fired 16 workers and from discharging the back-pay debt. of the audits he was facing by the Indiana promoted two others, leaving it with no rank- Department of Labor. After a trial, the Bankruptcy Court ruled and-file employees. Instead, according to the the debt was not excepted from discharge That choice was not “clearly erroneous,” the opinion, ELC relied on temporary workers under Section 523(a)(6). NLRB v. Calvert judge said, noting that an appeal court owes employed by an outside firm that would be (In re Calvert), No. 13-13079, 2017 WL 9997223 deference to a trial court’s assessment of a responsible for paying their wages, benefits WJ (Bankr. S.D. Ind. Dec. 21, 2015). witness’s credibility. and taxes. Related Filing: The NLRB appealed to the District Court, At the time, the opinion said, ELC had Opinion: 2017 WL 1190509 arguing that under the doctrine of collateral contracts to work on several projects that estoppel, the agency’s findings that Calvert

By Donna Higgins A bankrupt homeowners association is not contractually obligated to repair the foundation of a member’s townhouse, a Texas bankruptcy judge has ruled, disallowing the woman’s claim in the association’s Chapter 11 case.

In re Woodhaven Townhouse Association her townhouse, and that it failed to do so. Turning to evidence outside the documents, Inc., No. 16-34424, 2017 WL 1207529 The claim also included attorney fees Dudek the judge cited testimony from the (Bankr. N.D. Tex. Mar. 31, 2017). incurred in suing Woodhaven in a Texas state association’s president, Elena Garrett, who The bylaws and covenants of the Woodhaven court on the same breach-of-contract claim, said that since she had been president, the Townhouse Association were unclear about the opinion said. association had always taken the position who should pay for repairs to the homes’ Woodhaven objected to the claim, contending that foundation repairs are the owners’ foundations, but other evidence showed a that under its governing documents, responsibility. history of property owners being responsible the property owners are responsible for Judge Houser also pointed to testimony for such repairs, U.S. Bankruptcy Judge foundation repairs. from Garrett that when the foundation under Barbara J. Houser of the Northern District of Following a hearing, Judge Houser agreed her own building needed repair, she and Texas said. with Woodhaven and disallowed the the other owners whose homes shared the Woodhaven filed a Chapter 11 bankruptcy claim, but had to look beyond the text of foundation got together and paid for the petition in the Bankruptcy Court in November the governing documents to reach that repairs themselves. 2016. conclusion. “Moreover, Garrett credibly testified that Christina Dudek, who owns a townhouse in The documents state that the association given the low monthly dues, it was unrealistic the Woodhaven development, filed a proof is responsible for exterior repairs and of owners to think that the association was of claim for $69,000 for alleged breach that interior repairs are the homeowner’s responsible for foundation repairs,” the judge WJ of contract, according to Judge Houser’s responsibility, she said. They list numerous said. opinion. examples of specific items that fall within Related Filing: Opinion: 2017 WL 1207529 Dudek contended that Woodhaven was each category, but the foundation is not responsible for repairing the foundation of included in either list, the judge said.

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By Donna Higgins The U.S. Supreme Court will not force a federal appellate court to address an appeal from Detroit municipal workers challenging the treatment of their pension claims in the city’s bankruptcy case.

Ochadleus et al. v. City of Detroit et al., The pension claimants then appealed to the No. 16-986, cert. denied (U.S. Apr. 17, 2017). 6th Circuit, which consolidated the appeals The high court April 17 denied a petition for and affirmed the District Court in a 2-1 certiorari filed by the workers, who claimed decision last October. Ochadleus v. City of the 6th U.S. Circuit Court of Appeals Detroit, 838 F.3d 792 (6th Cir. 2016). wrongfully invoked the doctrine of equitable “This is not a close call. In fact, the doctrine mootness to avoid weighing the merits of of equitable mootness was created and their appeal. REUTERS/Rebecca Cook intended for exactly this type of scenario,” U.S. Circuit Judge Alice M. Batchelder Under the doctrine, appeals courts dismiss The city’s pension plan was underfunded wrote in an opinion joined by Judge David appeals from bankruptcy court orders by nearly $1.9 billion, a shortfall that would McKeague. approving Chapter 11 reorganization plans if have forced each retiree to take a 27 percent allowing the appeals to proceed would risk pension cut, according to the opinion. “The city of Detroit not only had numerous undoing the plans or would cause problems stakeholders and employees — on a scale The city crafted a settlement known as the for third parties that relied on a plan’s finality. equivalent to even a very large business “grand bargain” under which it obtained enterprise — it also had over 100,000 “This court has never reviewed whether $816 million in outside financing to bolster creditors and 685,000 residents relying on equitable mootness is a legitimate doctrine,” the pension plan so pensions would be its plan,” the majority said. the workers said in their petition for Supreme reduced by 4.5 percent instead of 27 percent, Court review of the 6th Circuit’s ruling. “The the opinion said. Judge Karen Nelson Moore, dissenting, said lack of this court’s guidance has led to a well- equitable mootness rests on shaky legal In addition, retiree health care coverage was recognized and deepening circuit split on the ground in Chapter 11 cases and has no place reduced and dental, vision and life insurance continued viability and applicability of the in Chapter 9. were eliminated. The settlement also doctrine.” eliminated cost-of-living increases. “Equitable mootness cordons off the most Detroit filed its case under Chapter 9, egregious decisions of Article I bankruptcy According to the opinion, 73 percent of which governs municipal bankruptcies, but courts from judicial review; constituting an pension claimants voted in favor of the grand the 6th Circuit majority said the concerns assault not only on petitioner’s right of access bargain, which was a key component of the about finality and reliance that motivate the to an Article III forum, but to core separation reorganization plan the Bankruptcy Court doctrine’s use in Chapter 11 cases are equally of powers principles,” the petition said. “If ultimately approved in November 2014. valid for Chapter 9. endorsed by this court, it would upset the Several dissatisfied pension claimants filed system of checks and balances that sustains THE ‘GRAND BARGAIN’ appeals in the U.S. District Court for the our free society.” Eastern District of Michigan, seeking to Detroit filed for bankruptcy in the U.S. The Supreme Court denied the petition restore the full amount of their pensions and Bankruptcy Court for the Eastern District of without comment. Both Detroit and the state challenging various other provisions of the Michigan in July 2013. At the time, the city of Michigan had waived their right to file a grand bargain. was $18 billion in debt and unable to provide brief opposing the petition. WJ basic services to residents, the 6th Circuit’s The District Court declined to address the Attorney: opinion said. merits of the appeals, ruling they were barred Petitioner: Jamie S. Fields, Detroit, MI by the doctrine of equitable mootness. Related Filing: Certiorari petition: 2017 WL 541439

By Lisa Uhlman Bankruptcy filings in the U.S. declined slightly — less than 1 percent — in the first three months of 2017 compared with the same period last year, although commercial filings experienced a 1 percent increase, according to an American Bankruptcy Institute report.

The overall decrease of first-quarter filings Year-over-year figures for March showed a Also in March, the ABI announced the from 195,647 in 2016 to 195,199 included a 4 percent increase in total filings over March creation of the Commission on Consumer 0.27 percent drop in noncommercial filings, 2016, from 78,372 to 81,590, and a similar Bankruptcy to “examine the consumer from 186,376 to 185,868, according to the bump in total noncommercial filings, from bankruptcy system and issue a report with report, based on data from Epiq Systems Inc. 74,988 to 77,932. recommended improvements that can Total commercial filings increased from 9,271 In addition, total commercial filings this be implemented within the existing legal to 9,331, while commercial Chapter 11 filings March were up 8 percent over March 2016, structure.” fell 11 percent, from 1,428 to 1,270. from 3,384 to 3,658, and commercial The commission will consist of 15 experts “Filing decreases are beginning to level off as Chapter 11 filings increased 4 percent, from representing different “stakeholders in the more struggling businesses and households 3,407 to 3,547. consumer bankruptcy system,” including turn to the financial relief of bankruptcy,” ABI The 2017 nationwide per capita filing rate in bankruptcy trustees, retired judges, attorneys Executive Director Samuel J. Gerdano said in the first quarter of 2017 was 2.51 filings per and law professors. It will be chaired by the report. 1,000 people, up from 2.19 for the first two retired bankruptcy judges William Houston WJ “Distress in the retail sector is pushing up months of the year, the report said. Alabama Brown and Elizabeth Perris. the total number of business filings, and we led all states with a per capita filing rate are also seeing an uptick in consumer filings of 5.92, followed by Tennessee, Georgia, from previous months,” Gerdano added. Mississippi and Illinois.

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Case Name Court Date Summary Statutes & Rules

Reverses summary judgment ruling that SMS Financial JDC v. Cope awarded yacht to bank; material fact remains 10th Cir. 4/13/2017 11 U.S.C.A. § 524(c) 2017 WL 1352076 as to whether reaffirmation agreement was void because it revived discharged debt.

Electric supply company can proceed with claim In re Castagnola Bankr. that debt owed by electrical subcontractor 4/11/2017 11 U.S.C.A. § 523(a)(4) 2017 WL 1337176 E.D.N.Y. for supplies bought for 24 projects is nondischargeable due to alleged defalcation.

Affirms denial by liquidation trustee for Bernard L. Madoff Investment Securities LLC of certain In re Madoff Bankr. 4/10/2017 customer claims on grounds they were not 15 U.S.C.A. § 78lll(2)(A) 2017 WL 1323473 S.D.N.Y. “customers” of the company as defined in Securities Investor Protection Act.

Approves proposed modification of confirmed In re Guillen Bankr. Chapter 13 plan to decrease pool to unsecured 11 U.S.C.A. §§ 1329(a) 4/10/2017 2017 WL 1323428 N.D. Ga. creditors by amount of attorney fees incurred to and (b) create basis for pool.

Money deducted from employees’ paychecks for vacation fund is nondischargeable in company In re Kern Bankr. 4/9/2017 owner’s bankruptcy, but money deducted for 11 U.S.C.A. § 523(a)(4) 2017 WL 1323419 E.D.N.Y. union assessments and political action league are dischargeable.

Denies reconsideration of ruling that defective nonjudicial foreclosure is voidable, not void, In re Ho Bankr. 4/7/2017 but court says it might certify void vs. voidable N/A 2017 WL 1323406 D. Haw. issue to state Supreme Court at later stage of litigation.

Dismisses complaints by Chapter 7 trustee to recover ParentPlus loan payments from Penn In re Lewis Bankr. State University under “relatively new” theory 4/7/2017 11 U.S.C.A. § 548(a)(1) 2017 WL 1331496 E.D. Pa. that they were fraudulent transfers from U.S. Dept. of Education; debtor never had interest in loan proceeds.

Damages from debtor’s tortious interference In re Bruce Bankr. 4/6/2017 with company’s operating agreement after he 11 U.S.C.A. § 523(a)(6) 2017 WL 1289916 N.D. Cal. was fired as CEO are nondischargeable.

The IRS can offset debtor’s $6,000 In re Benson Bankr. overpayment for 2015 against 2006 tax liability; 11 U.S.C.A. §§ 522 and 4/3/2017 2017 WL 1233824 W.D. Va. debtor cannot shield overpayment through 553 exemption claim.

Case Name Court Date Summary Statutes & Rules

Plaintiffs failed to prove nondischargeability of In re Fritz Bankr. state court judgment in business dispute that 11 U.S.C.A. § § 523(a)(2) 4/3/2017 2017 WL 1229706 N.D. Tex. did not specify the claims for which damages (A), (4) and (6) were awarded.

Trustee not entitled to debtor’s share of In re Lawson Bankr. husband’s 403(b) funds upon completion of 3/31/2017 11 U.S.C.A. § 541(c)(2) 2017 WL 1207521 N.D. Ohio divorce; debtor’s interest in plan is excluded from bankruptcy estate.

Lifts stay in AstroTurf’s bankruptcy to permit In re AstroTurf LLC Bankr. FieldTurf, which had won $30 million verdict, 3/30/2017 11 U.S.C.A. § 362(d) 2017 WL 1194649 N.D. Ga. to proceed in patent case to assert specific alter-ego claims that estate doesn’t own.

In re Health Diagnostics Liquidation trustee for clinical lab states claim Bankr. 11 U.S.C.A. §§ 105 and Laboratory Inc. 3/30/2017 against law firm for interfering with efforts to E.D. Va. 362 2017 WL 1194647 collect patient receivables owned by debtor.

Affirms disallowance of LVNV’s claim; res LVNV Funding LLC v. judicata cannot apply to bar debtor’s objections Harling 4th Cir. 3/30/2017 11 U.S.C.A. § 502 to unsecured claims after Chapter 13 plan 2017 WL 1190965 confirmation. Automatic stay arising from contractor’s In re Linear Electric Co. bankruptcy prevented supplier from filing 3d Cir. 3/30/2017 11 U.S.C.A. § 541 2017 WL 1177465 construction lien on property owned by third party.

Bankruptcy attorney who advanced Chapter In re Russell Bankr. 11 U.S.C.A. § § 503(b)(1) 3/28/2017 13 debtor’s filing fee is not entitled to 2017 WL 1173547 S.D. Ga. (A) and (b)(2) reimbursement as administrative expense.

20 | WESTLAW JOURNAL n BANKRUPTCY © 2017 Thomson Reuters 3rd Circuit In February 2007 the Lansaws again “We join a growing number of circuits by CONTINUED FROM PAGE 1 sought damages for the stay violation in a expressly concluding that ‘actual damages’ counterclaim to Zokaites’ proof of claim in under Section 362(k)(1) include damages for LANDLORD-TENANT DISPUTE the bankruptcy, but the issue again was not emotional distress resulting from a willful resolved. violation of the automatic stay,” the panel The Lansaws operated Forever Young said. Childcare in a space leased from Frank A new bankruptcy judge took over the case Zokaites, according the appeals panel’s in December 2012 and determined that the The panel also determined that the opinion. damages claim remained unsettled. The Bankruptcy Court did not clearly err in finding judge directed the debtors to file a new the debtors had demonstrated Zokaites’ In August 2006 Zokaites asserted a lien adversary proceeding. actions cause them emotional distress, against the Lansaws’ personal property for saying the evidence showed his actions to be unpaid rent after learning they had entered Following a trial, the Bankruptcy Court “patently egregious.” a new lease and were planning to vacate the determined that the stay violation was intentional and awarded the Lansaws $7,500 property. PUNITIVE DAMAGES in emotional-distress damages, $2,600 The Lansaws filed for bankruptcy protection in attorney fees and $40,000 in punitive The 3rd Circuit panel also rejected Zokaites’ the next day in the U.S. Bankruptcy Court damages. argument that the Bankruptcy Court erred by for the Western District of Pennsylvania, awarding punitive damages to the Lansaws. triggering the automatic stay against After the U.S. District Court for the Western debt-collection efforts under Section 362(a) District of Pennsylvania affirmed the ruling As long as a punitive damages award does of the Bankruptcy Code, 11 U.S.C.A. § 362(a). last year, Zokaites again appealed. not offend due process, the decision to award them is within a bankruptcy court’s STAY VIOLATIONS EMOTIONAL-DISTRESS DAMAGES discretion, the panel said, citing Solfanelli v. CoreStates Bank NA, 203 F.3d 197 (3d Cir. Despite notice to his attorney of the Section 362(k)(1) provides that a party injured 2000). bankruptcy filing, Zokaites violated the stay by “any willful violation of a stay provided by multiple times in the following weeks, the this section shall recover actual damages, To determine whether an award comports opinion said. including costs and attorney fees, and, in with due process, courts must consider the appropriate circumstances, may recover “reprehensibility” of the defendant’s actions, According to the opinion, he aggressively punitive damages.” among other factors, the panel said, citing confronted Deborah Lansaw inside the day CGB Occupational Therapy Inc. v. RHA Health care facility during business hours, entered The 3rd Circuit has never considered whether Services Inc., 499 F.3d 184 (3d Cir. 2007). the property without consent after hours and “actual damages” for Section 362(k)(1) then padlocked the doors, encouraged their purposes include damages for emotional The panel noted the bankruptcy judge’s new landlord to cancel the new lease, and distress, the panel said. finding that Zokaites’ conduct was the most engaged in other misconduct. Three circuit court opinions cited by the egregious he had ever encountered as a judge. The Lansaws filed an adversary complaint panel found such damages available under against Zokaites, seeking an injunction Section 362(k)(1), while two others left open “Although $40,000 is higher than other against further stay violations as well as the possibility under certain circumstances. awards examined by the Bankruptcy Court punitive damages and attorney fees. The The panel adopted the 9th Circuit’s approach … under the circumstances of this case, Bankruptcy Court found that Zokaites had in Dawson v. Washington Mutual Bank FA the award is not sufficiently excessive to be WJ violated the stay and granted an injunction in (In re Dawson), 390 F.3d 1139 (9th Cir. 2004), unconstitutional,” the panel concluded. December 2006, but did not rule on damages which determined that Congress intended Related Filing: Opinion: 2017 WL 1314884 or fees. Lansaw v. Zokaites (In re Lansaw), the automatic stay to protect both financial 358 B.R. 666 (Bankr. W.D. Pa. 2006). and non-financial interests. See Document Section A (P. 23) for the opinion.

Heller Ehrman v. Neuman, No. 15-17124, 2017 WL 1314941 (9th Cir. Apr. 10, 2017)...... 11

In re Cascio et al., No. 16-331; Bernacchi v. Cascio et al., Adv. No. 16-108, 2017 WL 1273902 (Bankr. M.D. Fla. Apr. 4, 2017)...... 14

In re Lansaw et al.; Lansaw et al. v. Zokaites, No. 16-1867, 2017 WL 1314884 (3d Cir. Apr. 10, 2017)...... 1 Document Section A...... 23

In re Murray; Wilk Auslander LLP v. Murray, No. 16-cv-771, 2017 WL 1208600 (S.D.N.Y. Mar. 31, 2017)...... 13

In re Philadelphia Entertainment & Development Partners LP, No. 16-cv-1992, 2017 WL 1160790 (E.D. Pa. Mar. 29, 2017)...... 10 Document Section C...... 43

In re Woodhaven Townhouse Association Inc., No. 16-34424, 2017 WL 1207529 (Bankr. N.D. Tex. Mar. 31, 2017)...... 16

National Labor Relations Board v. Calvert, No. 16-cv-161, 2017 WL 1190509 (S.D. Ind. Mar. 31, 2017)...... 15

Ochadleus et al. v. City of Detroit et al., No. 16-986, cert. denied (U.S. Apr. 17, 2017)...... 17

Official Committee of Unsecured Creditors v. Archdiocese of Saint Paul and Minneapolis et al., No. 17-1079, appellees’ briefs filed (8th Cir. Mar. 27, 2017)...... 12

U.S. Small Business Administration v. Bensal et al., No. 14-17404, 2017 WL 1228572 (9th Cir. Apr. 4, 2017)...... 9 Document Section B...... 35