Glass & Goldberg | Financing, Property & Bankruptcy Law

On December 7, 2016, the U.S. Supreme Court heard arguments in Czyzewski v. Jevic Holding Corporation, a case that could upset the common practice of ranking creditors in order of priority for asset recovery in bankruptcy cases.

A New York Times article this week noted that the high court’s decision “could affect how much power bankruptcy courts have to approve settlements that do not follow the conventional order of creditor priority and potentially block some parties, in this case the company’s former employees, from any financial recovery.”

Jevic and several of its affiliates filed Chapter 11 bankruptcy in May 2008, owing approximately $53 million to secured creditors (CIT Group/Business Credit Inc. and Sun Capital Partners) and $20 million to unsecured creditors.  In 2006, Sun Capital had acquired Jevic in a leveraged buyout funded by CIT.  At the time of the filing, Sun Capital and CIT held first priority liens on almost all Jevic assets.

Following the filing, a group of truck drivers that had been terminated by the company filed a class action for alleged violations of the state and federal WARN (Worker Adjustment and Retraining Notification) Acts.  Under the WARN Acts, employers are required to provide 60 days’ written notice to employees before terminating their employment.  Most of the claim damages sought by the drivers were entitled to priority status as wages under section 507(a)(4) of the Bankruptcy Code.

In addition, a second lawsuit was filed by the Creditor Committee against Sun Capital and CIT, alleging that Jevic was saddled with excessive debt because of the leveraged buyout and could not operate as a result.

All parties except the drivers reached a settlement in both suits, which the bankruptcy court approved.  The drivers and the Bankruptcy Trustee objected to the settlements and dismissal of the Chapter 11 cases that distributed Jevic’s remaining assets to lower priority creditors in violation of § 507 of the Bankruptcy Code.

Nineteen states and the U.S. Solicitor General urged the high court to accept the case following a Third Circuit ruling that affirmed a settlement over the objection of priority parties and dismissed the Chapter 11 cases of Jevic Transportation and its affiliates.  The Third Circuit’s ruling that, in rare instances, a Chapter 11 case can be resolved in a structured dismissal that deviates from the Bankruptcy Code’s priority scheme reinforced a split with the Fifth Circuit, which had ruled that a bankruptcy court cannot approve a settlement agreement with a junior creditor over the objections of a senior creditor.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services and advice for clients in all aspects of commercial compliance, business litigation and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

For years, plaintiffs with hearing and visual impairments have sued companies alleging that their business websites violate the accessibility provisions of the Americans with Disabilities Act (ADA).  Until recently, the banking industry has not been much bothered by these suits, but this is changing.

Recently, a Texas community bank received a demand letter from a mass torts law firm claiming that the bank’s website did not comply with anticipated Department of Justice accessibility standards.  The DOJ is charged with enforcing Title III of the ADA for commercial facilities and public accommodations.  Title III provides that, “No individual shall be discriminated against on the basis of a disability in the full and equal enjoyment of the goods, services, facilities, privileges, advantages, or accommodations of any place of public accommodation by any person who owns, leases (or leases to), or operates a place of public accommodation.”

The DOJ had planned to issue Title III regulations earlier this year, but announced that those regulations would not be finalized until 2018.  In its announcement, the DOJ said that it would first tackle similar regulations for government entities and federal contractors covered by Title II of the ADA.

However, it appears likely that the DOJ will expect financial institutions to make their websites accessible to disabled consumers based on the agency’s statement that “…the Internet plays a critical role in the daily personal, professional, civic, and business life of Americans. The ADA’s expansive nondiscrimination mandate reaches goods and services provided by public accommodations and public entities using Internet websites.”

In negotiated settlements with non-banking companies, the DOJ has required that the companies modify their websites to align with Level AA of the Web Content Accessibility Guidelines 2.0 as developed by the World Wide Web Consortium.  These guidelines cover a variety of recommendations for making websites accessible to disabled consumers.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services and advice for clients in all aspects of commercial compliance, business litigation and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

On October 25, 2016, the Financial Crimes Enforcement Network (FinCEN) issued an advisory to financial institutions, advising them that they must report cyber events via Suspicious Activity Reports (SARs) to fulfill their regulatory obligations under the Bank Secrecy Act (BSA).

The FinCEN advisory detailed what it considers to be a cyber event, defining it as “an attempt to compromise or gain unauthorized electronic access to electronic systems, services, resources, or information.”  The agency outlined the regulatory expectations of financial institutions in regard to cyber events and the BSA:

“A financial institution is required to report a suspicious transaction conducted or attempted by, at, or through the institution that involves or aggregates to $5,000 or more in funds or other assets.  If a financial institution knows, suspects, or has reason to suspect that a cyber-event was intended, in whole or in part, to conduct, facilitate, or affect a transaction or a series of transactions, it should be considered part of an attempt to conduct a suspicious transaction or series of transactions.”

The advisory stated that in determining whether a cyber event should be reported, financial institutions should consider the nature of the event as well as the systems and information that were the target of the event.

In addition, the agency noted that a cyber event could trigger SARs filing obligations to other financial regulatory agencies, including the Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System.

The FinCEN advisory also encouraged financial institutions “to report egregious, significant, or damaging cyber-events and cyber-enabled crime when such events and crime do not otherwise require the filing of a SAR.”

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services and advice for clients in all aspects of commercial compliance, business litigation and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

On October 31, 2016, the Consumer Financial Protection Bureau (CFPB) updated a prior Compliance Bulletin on the supervision of service providers by financial institutions.

The new Compliance Bulletin 2016-02 states:

“The Bureau is reissuing its guidance on service providers, formerly titled CFPB Bulletin 2012–03, Service Providers to clarify that the depth and formality of the risk management program for service providers may vary depending upon the service being performed—its size, scope, complexity, importance and potential for consumer harm—and the performance of the service provider in carrying out its activities in compliance with Federal consumer financial laws and regulations. This amendment is needed to clarify that supervised entities have flexibility and to allow appropriate risk management.”

The new bulletin includes new language that recognizes not every service provider will necessarily require the same level of supervision as others:

“The Bureau expects that the depth and formality of the entity’s risk management program for service providers may vary depending upon the service being performed—its size, scope, complexity, importance and potential for consumer harm—and the performance of the service provider in carrying out its activities in compliance with Federal consumer financial laws and regulations. While due diligence does not provide a shield against liability for actions by the service provider, it could help reduce the risk that the service provider will commit violations for which the supervised bank or nonbank may be liable…”

The CFPB restated its expectation that supervised banks and nonbanks must “ensure that their business arrangements with service providers do not present unwarranted risks to consumers” by putting into place policies and procedures that ensure compliance with federal consumer financial law.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services and advice for clients in all aspects of commercial compliance, business litigation and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

On October 19, 2016, the U.S. Court of Appeals for the Ninth Circuit held that a trustee seeking a non-judicial foreclosure on a deed of trust could not be classified as a debt collector under the Fair Debt Collection Practices Act (FDCPA).

In the case of Vien-Phuong Thi Ho v. Recontrust Co., N.A., the plaintiff alleged that while initiating a California non-judicial foreclosure, the defendant trustee sent her a notice of default and a notice of sale that misrepresented the debt she owed.  She alleged that the misrepresentation was a violation of the FDCPA.  In addition, the plaintiff sought to rescind her mortgage transaction under the Truth in Lending Act (TILA).

The trial court dismissed both the FDCPA and TILA claims and the plaintiff appealed, claiming that the foreclosure trustee was a debt collector under the FDCPA because the notices of default and sale were attempts to collect a debt and the foreclosure was a threat unless her debt was paid.

In its decision, the Ninth Circuit upheld the lower court’s ruling, finding that “actions taken to facilitate a non-judicial foreclosure, such as sending the notice of default and notice of sale, are not attempts to collect ‘debt’ as that term is defined by the FDCPA.”  (The FDCPA defines “debt” as an “obligation of a consumer to pay money.”) The Ninth Circuit held that the foreclosure notices were not an attempt to collect money, but instead were the enforcement of a security interest.

The Ninth Circuit’s ruling creates a potential circuit split with the Fourth and Sixth Circuits, which found that actions to enforce a security interest are subject to the FDCPA.  However, those cases did not involve non-judicial foreclosures.

The Ninth Circuit also vacated and remanded the dismissal of the plaintiff’s TILA claim to the trial court for reconsideration.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services and advice for clients in all aspects of commercial compliance, business litigation and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

Debt collectors that receive consumer claims of identity theft must meet new requirements under the new Identity Theft Resolution Act passed by the California legislature, which becomes effective January 1, 2017.

The Act significantly shortens the timeframes for debt collectors to review and report on claims of identity theft:

• Upon receipt of a police report or a written statement from the consumer or other affected parties as required by law, the debt collector has 10 business days to investigate the report.  The debt collector must review all information submitted by the debtor as well as any available information from the creditor or from its own files.
• After concluding its review, the debt collector must report the results of the investigation to the consumer within 10 business days.  If the debt is proven to be valid, the debt collector must notify the debtor in writing that he or she is still responsible for the debt and detail the basis for that determination.
• A debt collector cannot reactivate collection activities until a good faith determination has been made that the evidence does not absolve the debtor from repaying the debt.  In addition, if the debt collector has provided information to a Credit Reporting Agency (CRA) about a debt resulting from identity theft, it must notify the CRA to delete that information within 10 business days after a determination has been made to halt collection activity.
• If a debtor’s claim of identity theft is valid, the debt collector must notify the creditor within 10 business days.  A creditor is prohibited from selling the debt if the creditor has received notice that another debt collector stopped collection activity because of identity theft.

To help protect their interest, creditors should consider requiring debt collectors to provide notice as soon as the collector receives an identity theft claim so both parties can conduct an investigation into the validity of the claim.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services and advice for clients in all aspects of commercial compliance, business litigation and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

A new California law that requires commercial landlords to include in their leases certain disclosures regarding accessibility is now in effect for leases executed on or after January 1, 2017.

The law, which took effect on September 16, 2016, requires landlords leasing a commercial space to provide in the lease a disclosure about whether the property has been inspected by a Certified Access Specialist (CASp) and, if so, state whether it has been determined that the property meets the applicable accessibility standards and provide a copy of the CASp inspection report.

In addition, commercial landlords must meet the following requirements:

1. If the property has undergone a CASp inspection but, to the best of the property owner or landlord’s knowledge there have been no modifications or alterations completed or commenced before the date of the lease, the prospective tenant must be provided with a copy of the CASp inspection report with the agreement that the information in the report remains confidential.  If the report is not provided at least 48 hours prior to the execution of the lease, the prospective tenant has 72 hours to rescind the lease based on information in the report.
2. If the CASp report shows violations of construction-related accessibility standards, the repairs and/or modifications to correct those violations will be the responsibility of the commercial property owner/landlord unless mutually agreed otherwise.
3. If the CASp report shows the property meets all construction-related accessibility standards, the commercial property owner/landlord must provide a copy of the current disability access inspection certificate and any other inspection report not already provided to the tenant within seven days of the lease execution date.
4. If the space to be leased has not received a disability access inspection certificate, either because there has been no CASp inspection or because repairs/modifications are still necessary, the lease must contain the following statement:

“A Certified Access Specialist (CASp) can inspect the subject premises and determine whether the subject premises comply with all of the applicable construction-related accessibility standards under state law. Although state law does not require a CASp inspection of the subject premises, the commercial property owner or lessor may not prohibit the lessee or tenant from obtaining a CASp inspection of the subject premises for the occupancy or potential occupancy of the lessee or tenant, if requested by the lessee or tenant. The parties shall mutually agree on the arrangements for the time and manner of the CASp inspection, the payment of the fee for the CASp inspection, and the cost of making any repairs necessary to correct violations of construction-related accessibility standards within the premises.”

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services and advice for clients in all aspects of commercial compliance, business litigation and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

On October 4, 2016, the U.S. Court of Appeals for the Eleventh Circuit upheld a bankruptcy court’s decision that debtors who surrender real property in bankruptcy cannot contest a foreclosure action at a later date.

In Failla v. CitiBank, N.A., a bankruptcy court re-opened a Chapter 7 bankruptcy case after its discharge several years prior and ordered the debtors to cease their attempts to stop the bank from foreclosing on a home for which they had filed a statement of intention to surrender during the bankruptcy case.  If they failed to stop their defense of the foreclosure, the court warned it would vacate the discharge order.

The debtors appealed and a district court affirmed the bankruptcy court’s ruling.  That decision was appealed to the 11^th Circuit, which in turn upheld the bankruptcy court’s decision, invoking its 1993 ruling in In re Taylor that a Chapter 7 debtor must (1) “file a statement of intention about what he plans to do with the collateral for his debts,” and (2) “perform the option he declared.”

The 11^th Circuit then addressed the primary issue on appeal, which was to whom must a debtor surrender the property he gave up in bankruptcy?  The court answered that “a debtor who decides to surrender his collateral must surrender it to both the trustee and the creditor.”  If the debtor elects to surrender the property, it first goes to the trustee who can decide whether to administer or abandon it.  If the property is abandoned, the debtor must then surrender it to the secured creditor.

Or, as noted in a more succinct outtake from the 11^th Circuit’s decision: “In bankruptcy, as in life, a person does not get to have his cake and eat it too.”

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services and advice for clients in all aspects of commercial compliance, business litigation and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

The U.S. Supreme Court began its 2016-2017 term on October 3, 2016, with three bankruptcy issues of particular note before the Court: insider claims, structured dismissals and proofs of claim on time-barred debt.

Insider Claims

On the first day of the new term, the Court invited the Acting Solicitor General to file a brief on behalf of the U.S. on U.S. Bank N.A. v. The Village at Lakeridge — an indication the Court is considering granting certiorari.

In this case, the Ninth Circuit upheld a decision by the Bankruptcy Appellate Panel that the buyer of a bankruptcy claim was not an “insider” for purposes of confirming a Chapter 11 reorganization plan even though that buyer purchased the claim from an insider.  The controversial decision could open the door for debtors seeking to circumvent the Bankruptcy Code requirement that a Chapter 11 reorganization plan be accepted by at least one class of non-insider impaired claims.

Structured Dismissals

The Court granted certiorari during the summer in Czyzewski v. Jevic Holding Corporation, where the question is whether bankruptcy courts can authorize the distribution of settlements that violate the priority scheme established by the U.S. Bankruptcy Code.

Nineteen states and the U.S. Solicitor General urged the high court to accept the case following a Third Circuit ruling that affirmed a settlement over the objection of priority parties and dismissed the Chapter 11 cases of Jevic Transportation and its affiliates.  The Third Circuit’s ruling that, in rare instances, a Chapter 11 case can be resolved in a structured dismissal that deviates from the Bankruptcy Code’s priority scheme reinforced a split with the Fifth Circuit, which had ruled that a bankruptcy court cannot approve a settlement agreement with a junior creditor over the objections of a senior creditor.

Proofs of Claim on Time-Barred Debt

On October 11, 2016, the Court granted certiorari in Midland Funding, LLC v. Aleida Johnson, an 11th Circuit ruling that held Midland had violated the Fair Debt Collection Practices Act (FDCPA) by filing a proof of claim on a time-barred debt in the plaintiff’s bankruptcy case.  This decision conflicted with other circuits that had found filing a proof of claim on a time-barred debt is not an FDCPA violation.

The Court will weigh two issues:  (1) Whether the filing of an accurate proof of claim for an unextinguished time-barred debt in a bankruptcy proceeding violates the FDCPA; and (2) whether the Bankruptcy Code, which governs the filing of proofs of claim in bankruptcy, precludes the application of the FDCPA to the filing of an accurate proof of claim for an unextinguished time-barred debt.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services and advice for clients in all aspects of commercial compliance, business litigation and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.