Thursday, February 16, 2017

Delaware Judge Swiftly Transfers Hospital Case

By Stephen W. Sather
Barron & Newburger, P.C.
Austin, TX

I recently wrote about a case that could not escape Delaware's gravity here.   However, a new decision from Judge  Laurie Selber Silverstein shows that it is possible to gain a transfer of venue out of The First State.    Case No. 17-10201, In re LMCHH PCP, LLC (Bankr D. Del).     

The case involved two jointly administered entities.   Louisiana Medical Center and Heart Hospital, LLC operated a hospital in Lacombe, Louisiana near New Orleans.   LMCHH PCP, LLC was the entity formed as a Physicians Group.   The hospital saw a surge in business after it was spared by the surging waters of Hurricane Katrina.  Unfortunately, when the hospital underwent a $40 million expansion, it could not cover its cost of operations.  When it could not locate a buyer outside of bankruptcy, it chose to file chapter 11.

The Debtors filed their petitions on January 31, 2017.    Two days later, on February 2, 2017, McKesson Corporation filed a Motion to Transfer Venue.   The Motion stated that  
This Court should transfer venue to the Louisiana Court because it is in the best interests of patients and the other stakeholders to have the local bankruptcy court handle the wind down, closure and potential sale/liquidation of this single hospital located in Lacombe, Louisiana. In single-location hospital and healthcare bankruptcy cases, the local bankruptcy court always is the best venue to oversee the myriad of issues that arise in these types of healthcare bankruptcy cases.
 The motion identified four other healthcare cases that had been 
transferred out of Delaware as support. 

McKesson also requested that the Court shorten the time for the hearing on the motion.   The next day the Court obliged, setting a hearing for February 15, 2017.    The Debtors elected not to contest the motion and it was granted on February 14, 2017, just fifteen days after the case was filed.

This case offers several lessons for parties wishing to have a case filed in Delaware heard closer to home.   First, speed in filing the motion is essential.    McKesson was ready with its motion just two days after the case was filed.   Second, McKesson obtained an expedited hearing.   The longer a case is pending before the motion to transfer is heard, the more likely that it will put down roots and resist being moved.   Finally, McKesson succeeded in showing local concerns unique to a single location hospital and prior Delaware precedent.    

This was a good example of a case that needed to come home.  On the one hand, it was not a particularly large case nor was it unusually complicated.   On the other hand, its single location fell under the regulatory jurisdiction of the State of Louisiana.    While this was undoubtedly a good result, it does raise the question of why it was ever filed in Delaware in the first place.

California State Court Rules That Released Parties Remain Liable For A Settlement Payment That Is Later Deemed To Be A Preferential Transfer And Is Disgorged From The Creditor

By Peter Califano
Cooper, White & Cooper, LLP
San Francisco, CA

In Coles v Glaser, 2 Cal. App. 5th 384 (2016), plaintiff Kevin Coles threatened a collection action against defendant Cascade Acceptance Corporation and defendant guarantors Barney Glaser and Fred Taylor on a loan past due.  Cascade informed Coles that it could not pay and would be unlikely to pay in the foreseeable future, resulting in a lawsuit for the unpaid loan balance and other amounts.  After being served with the complaint, Cascade wired approximately $309,000 and a settlement agreement was signed where Glaser and Taylor were released on all claims "except for obligations arising under the settlement agreement."  A week after the lawsuit was dismissed, Cascade filed bankruptcy.  The bankruptcy trustee later sued Coles for the return of the settlement payment as a preferential transfer.  Eventually, the parties compromised the claim and most of the settlement was paid over to the trustee.  Coles filed a claim in Cascade's bankruptcy case but only received a small dividend, leaving him with a significant shortfall.  Coles then sued Glaser and Taylor in state court for damages and, after a one-day bench trial, the trial court ruled in Coles' favor.  Glaser and Taylor appealed, claiming that the settlement agreement was fully performed because Cascade had paid the underlying obligation and that the guarantors received a release.  

The appellate court disagreed.  The court reasoned that this was a simple breach of contract matter and that Glaser and Taylor's were co‑obligors under the settlement agreement.  Even if their prior status as guarantors under the loan was still relevant, the court noted that the liability of a guarantor was exactly the same as the liability of an obligor for the purpose of pre-bankruptcy payments later clawed back into the estate as preferences (p. 389).  In any case, the court held that the settlement agreement had been breached because (1) the payment had not been made to Coles (it had been clawed back by the bankruptcy trustee) and (2) Glaser and Taylor had not paid Coles the amount of the clawback.  The court noted that "a preference payment is deemed by law to be no payment at all," so the defendants remained liable (p. 391).  Lastly, the court noted that based on the reasonable expectations of all parties, that it would be unfair if the Cascade creditors had to bear the burden to pay for the settlement.  


Settlement payments are never "final" until at least 91 days pass (one year for situations involving insiders) after receipt of the funds. Coles is a correct decision because a party making a preferential payment should not be allowed to hide behind a release when the settlement payment is later disgorged.  Note for drafting purposes, the scope of the release was properly narrowed in the agreement to release only pre‑settlement obligations.  To further clarify the scope of the release, a prudent drafter may also want to include a springback provision that reinstates the entire obligation if it is later determined that the settlement payment constitutes a preference. This is a very helpful case for creditors when the unexpected bankruptcy occurs and ruins a multi-party settlement. 

Friday, October 14, 2016

Consumer Financial Protection Bureau Brought Down A Notch


Beverly Weiss Manne
Tucker Arensberg, P.C.
Pittsburgh, PA

Earlier this week the United States Court of Appeals for the DC Circuit issued its 110 page opinion concerning the Consumer Financial Protection Bureau (“CFPB”) and CFPB enforcement action in Case No. 15-177, PHH Corporation Et al vs Consumer Financial Protection Bureau (D.C. Cir. 10/11/16)(which can be found here).  The opening sentence of the opinion declares “This is a case about executive power and individual liberty,” which reflects the seriousness of the issues addressed.

Tuesday, September 20, 2016

Fourth Circuit Rejects FDCPA Claim Based on Stale Proof of Claim

By Gary M. Weiner
and Robert E. Girvan, III
Weiner Law Firm, PC
Springfield, MA

The Fourth Circuit recently held in Dubois v. Atlas Acquisitions, LLC, No. 15-1945 (4th Cir. August 25,2016) that the filing of a proof of claim based upon a time-barred debt does not violate the Federal Debt Collection Practices Act (FDCPA)(click on the case name to read the opinion).

Congress enacted the FDCPA to prevent debt collectors from using abusive and unfair debt collection practices.  Federal courts have consistently held that filing lawsuits or threatening to file lawsuits debts where the statute of limitations has run out is a violation of the FDCPA.  However, the Bankruptcy Code in § 502(b)(1) disallows claims, upon objection, of claims that are “unenforceable against the debtor…under any agreement or applicable law.”  Therefore, the question becomes whether the filing of a proof of claim on a time-barred debt is a violation of the FDCPA (akin to filing a lawsuit), or whether the Bankruptcy Code provides protection for Debtors for this very type of action.  The Fourth Circuit recently held in Dubois v. Atlas Acquisition, LLC, No. 15-1945 (4th Cir. August 25, 2016) that filing proofs of claim based on time-barred debts does not violate the FDCPA.

Saturday, August 20, 2016

7th Circuit Holds Section 1329 Permits Post-Confirmation Plan Modification

Randall Woolley
Askounis & Darcy, PC
Chicago, Illinois

Section 1329 of the Bankruptcy Code permits modification of a confirmed plan to increase or reduce the amount of plan payments.  However, trustees and creditors are seemingly reluctant to disturb a confirmed plan, in part because Section 1329 does not specifically set forth when modification is appropriate.  The Seventh Circuit recently held in Germeraad v. Powers, No. 15-3237 (7th Cir. June 23, 2016) that an increase in the debtor’s income after plan confirmation may serve as a basis for modifying the Chapter 13 plan in order to increase the amount paid to unsecured creditors.    

Wednesday, August 10, 2016

Crawford's Claim Defeated By . . . the Statute of Limitations

Stephen W. Sather
Barron & Newburger, P.C.
Austin, TX

When the Eleventh Circuit found that a creditor could be sued for violating the FDCPA for filing a proof of claim on a time-barred debt, it caused quite a stir.    Crawford v. LVNV Funding, LLC, 758 F.3d 1254 (11th Cir. 2014), cert den., 135 S.Ct. 1844 (2015).   However, when the case was remanded, it turned out that the suit, like the claim it sought to challenge, was beyond the statute of limitations.   Crawford v. LVNV Funding, LLC, 2016 U.S. Dist. LEXIS 104472 (M.D. Ala. 8/9/16).

Saturday, August 6, 2016

Eleventh Circuit Doubles Down on Crawford

Beau Hays
Hays, Potter & Martin, LLP
Peachtree Corners, GA

Following up on the recent post by Steve Sather reporting on the Eighth Circuit’s dismissive rejection of the Eleventh Circuit’s Crawford ruling that filing a time-barred claim in a bankruptcy case violates the FDCPA, we can report that the Eleventh Circuit recently doubled down on its position.  Johnson v Midland Funding, LLC, No. 15-11240, 2016 WL 2996372 (11th Cir. 5/24/2016)(the Nelson case, reported on by Steve, mentions this case)

What Happened

In March 2014, Aledia Johnson filed a Chapter 13 case in the Southern District of Alabama.  Midland Funding filed a claim for $1,879.71, to which Johnson objected.  On July 11, 2014, the Bankruptcy Court entered its Order granting the objection.  Coincidentally, on July 10, the Eleventh Circuit had handed down the decision in Crawford.  Entirely not coincidentally, on July 14, 2016, Johnson filed a putative class action asserting that Midland Funding had violated the FDCPA in the Southern District of Alabama, Johnson v Midland Funding, LLC, No.. 14-322-WS-C (N.D. Ala.).  Midland Funding, faced with the immovable object that is the Crawford precedent in the Eleventh Circuit moved to dismiss utilizing a new argument - that the FDCPA as applied by Crawford is in irreconcilable conflict with the Bankruptcy Code.

The trial court, in a fairly thorough opinion, agreed.  The Eleventh Circuit, however, reversed the trial court and held that there is no irreconcilable conflict that would lead to preemption of the FDCPA by the Bankruptcy Code.


Midland Funding's argument is based upon a rule of statutory construction which holds that when two statutes are in irreconcilable conflict, the newer statute is presumed to have been enacted with knowledge of the conflict and so constitutes an "implied repeal" of the earlier statute.  Since the FDCPA was enacted in 1977 and the current Bankruptcy Code dates from 1978, the Code will preempt the FDCPA in the case of a conflict.