The Diaz case (In re Diaz, 547 B.R. 329, 9th Cir. BAP), has not received enough love but I find it to be too fascinating not to write about because of its potential for so much advantage!

There were essentially two holdings in the case:

  1. The California homestead exemption contains a “residence” requirement which includes an “intent” component; and
  2. The burden is on the Debtor to prove intent.

The intent component of the residence requirement requires that debtors have a bona fide intention to make the premises their home or residence.

Read more

April 2016 Dollar Adjustments

You can find the complete list here.   Notable changes for consumer lawyers:

  • Assisted Person is now someone with nonexempt property worth less than $192,450.
  • Chapter 13 Debtor debt limit: $394,725  secured and $1,184,200  unsecured.

These changes apply to cases that are filed on or after April 1, 2016.

9th Circuit Applies California Law to Contract Where Parties Agreed to Apply Georgian Law

The basic facts of the case are an individual entered into an agreement with a bank located in Georgia to borrow money to purchase her home. It is not clear whether the individual even signed the contract or where the contract was signed but it ends up not mattering because the bank sued in California District Court under diversity jurisdiction. Note: in California, if a contract contains an attorney fees clause provision, both sides of the dispute get to use it. That’s not the law in Georgia. The Bank wanted to be able to enforce its attorney fee clause against litigants but to not allow other litigants to use that clause against the bank!

California law was applied to this contract in two instances.

First, the choice of law clause had to be interpreted. It would be circular logic to apply the choice of law clause in determining which states’ laws applied to the choice of law clause. The Court held that in diversity jurisdiction cases, such as this one, it would “apply the substantive law of the forum in which the court is located, including the forum’s choice of law rules.” Since the lawsuit was in California, California’s choice of law clause applied to the case.

California follows restatement second of Conflict of Laws § 187 to determine the law that applies to a contract with a choice-of-law clause. Under § 187, a California court begins its analysis by determining “whether the chosen state has a substantial relationship to the parties or their transaction, or … whether there is any other reasonable basis for the parties’ choice of law. If so, the court then determines whether California would “be the state of the applicable law in the absence of an effective choice of law by the parties.” If the chosen forum has a substantial relationship to the parties or their transaction but California law would apply in the absence of a choice-of-law provision, the court then determines whether the relevant portion of the chosen state’s law is contrary to a fundamental policy in California law.

If there is such a conflict, the court finally determines whether California has a materially greater interest than the chosen state in the determination of the particular issue.

Since California’s Supreme Court has yet to rule on the matter, the 9th Circuit had to predict whether California’s reciprocity law, § 1717, embodies a fundamental policy of the state. The 9th Circuit decided it did and thereby affirmed the lower court’s decision to award attorney fees to the individual.

The case can be found here.

A Surprising Twist on the Parol Evidence Rule!

The following is borrowed from Judge Carroll’s recent August 27, 2015 unpublished opinion on a claims objection which can be found here.

In law school, we learned that if a written instrument is valid, complete and unambiguous, extrinsic evidence is not admissible to vary, add to, or contradict the terms of the instrument. This is called the parol evidence rule. The exception to this rule is if there is an allegation of fraud, accident or mistake.

In Wilson Arlington Co. v. Prudential Ins. Co. of Am., the Ninth Circuit explained the policy behind enforcement of the parol evidence rule:

If parties to an agreement could not rely on written words to express their consent to the express terms of that agreement, those words would become little more than sideshows in a circus of self-serving declarations as to what the parties to the agreement really had in mind. The parol evidence rule thus enables parties to rely on written instruments as embodying a complete memorial of their agreement, and to avoid costly and disruptive litigation over the existence of oral and implied terms that may or may not have been contemplated by the parties.

912 F.2d 366, 370 (9th Cir. 1990).

It is surprising to me but even though the 9th Circuit but this is not California law. In California, parol evidence is admissible to construe a facially unambiguous contract if the proffered interpretation is one to which the agreement is “reasonably susceptible.” Pac. Gas & Elec. Co. v. G.W. Thomas Drayage & Rigging Co., 69 Cal.2d 33, 37 (1968).

In Pacific Gas & Electric, the California Supreme Court discussed the admissibility of extrinsic evidence to explain the meaning of a written instrument, stating:

he test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it appears to the court to be plain and unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible. . . .

Although extrinsic evidence is not admissible to add to, detract from, or vary the terms of a written contract, these terms must first be determined before it can be decided whether or not extrinsic evidence is being offered for a prohibited purpose. The fact that the terms of an instrument appear clear to a judge does not preclude the possibility that the parties chose the language of the instrument to express different terms. That possibility is not limited to contracts whose terms have acquired a particular meaning by trade usage, but exists whenever the parties’ understanding of the words used may have differed from the judge’s understanding.

69 Cal.2d at 37-39.

Pacific Gas & Electric requires the court to conditionally consider proffered extrinsic evidence to determine if it would be relevant to prove a meaning to which the language of a facially unambiguous instrument is reasonably susceptible. See George v. Automobile Club of S. Cal., 201 Cal.App.4th 1112, 1122 (2012).

New Chapter 13 MOMOD Pilot Program

This is from the master himself, Aki Koyama

Over the years, I’ve found that MOMODS are more successful and much more easier to process and comment on when I have an opportunity to discuss the terms of the MOMOD before it is filed. This way, your client’s MOMOD will reflect what the Trustee’s data base shows for delinquency, infeasibility etc. Also, we can discuss what kind of evidence the Trustee will require for a modification or suspension. Finally, there may be times when you want to propose an unusual modification and want some feedback from the Trustee before you even draft the MOMOD.

The ultimate goal of this pilot program is a more efficient system so that we can avoid unnecessary hearings, delay and frustration. I know it can be difficult to project what can be a moving target at times and to also determine what the Trustee will need to recommend approval of a MOMOD.

If you think that you will find this service useful and/or you have a particularly difficult modification proposal, please follow this procedure:

For Judge Klein, send me an email at with the following in the subject line:

Debtor Name, Case Number and the phrase “MOMOD PREFILING REVIEW REQUEST” and the preferred date and time for the teleconference.

For Judge Bason, send Angela Gill an email at with the same information in the subject line.

You don’t have to type anything into the body of the email and we will respond with a yes as to your date and time or with an alternate date and time.

In any case, please make certain that you take the initiative to call our office at the appointed time.

Comparison of Chapter 13 Plan Forms in the SD, CD and ND

Jon’s post here got me thinking about the attorney in the Southern District, who to me at least, seems to have committed malpractice by filing a bad Chapter 13 Plan.

The facts in the In re Schleger case, which you can read here, are dumb-bed down as follows: Chapter 13 Plan is filed where Debtors say they will pay 48% of unsecured claims. They know that they are about to void a 150k lien but they do not amend their plan to reduce the 48% or really do anything to deal with the claim. Five years passes and they want a discharge despite not paying anywhere close to 48% or amending their plan. That’s just a ridiculous position to take! But was it his fault or the system’s fault? This  case was an appeal from the Southern District which we will see has a confusing form.

If you look at a ND Cal. Chapter 13 plan, it has the following plan treatment for unsecured creditors:

Class 7: All other unsecured claims
.  These claims, including the unsecured portion of secured recourse claims not entitled to priority, total approximately $                .  The funds remaining after disbursements have been made to pay all administrative expense claims and other creditors provided for in this plan are to be distributed on a pro-rata basis to Class 7 claimants.

[select one of the following options:]

____     Percent Plan.  Class 7 claimants will receive no less than __% of their allowed claims through this plan.

____     Pot Plan.  Class 7 claimants are expected to receive __% of their allowed claims through this plan.

If you put a check next to Percent Plan, then you must either pay the percent or modify the plan. If you put a check next to Pot Plan, then you need to pay the Pot and not worry about the percent! Chapter 11 and 13 plans should make it clear they are pot plans whenever appropriate to do so!

Let’s look at the less clear SD Cal. Chapter 13 Plan:
Non-priority Unsecured Claims. After dividends to all other creditors pursuant to the plan, trustee may pay dividends pro-rata to claims allowed unsecured. Unsecured non-priority creditors will receive: ______________% or a pro-rata share of $_______________________, whichever is greater. (The dollar amount is the greater of (1) the nonexempt assets or (2) the applicable commitment period of 36 or 60 months multiplied by debtor’s projected disposable income).
If both the percentage and dollar amount are left blank, trustee is to pay 100% to unsecured creditors. If the percentage is left blank, trustee will pay the dollar amount to unsecured creditors. If the percentage is filled in at less than 100% and the dollar amount is left blank, trustee is authorized to increase the percentage if necessary to comply with the required applicable commitment calculation. 
I added some emphasis to this paragraph, It actually allows a pot plan or a percentage plan, the attorney has to fill int he appropriate boxes. In the BAP case, the attorney filled out the percentage portion — meaning the Debtors promised to pay the percentage. If the attorney had only filled out the second box, everything would have been okay.

Finally, looking at the CD Cal Chapter 13 Plan:
The Debtor estimates that non-priority unsecured claims total the sum of $_______________________.
My interpretation is that this is a default pot plan so the issue with respect to the percentage should not come up. Had this attorney been in the Central District of California, what amounts to, in my opinion, malpractice in the Southern District would not have been in the Central District.

The Northern District’s plan makes the most sense to me. It is abundantly clear that when a debtor puts the check mark next to “Pot Plan,” then the plan is a Pot Plan!

Pop Quiz! How Long After Entry Of Order Confirming A Plan Can The Order Be Revoked? Hint: It’s Not What You Thought!

If an order confirming a Plan of Reorganization is procured by fraud, how many days from entry of order does one have to ask the court to revoke the order?

The answer depends on which chapter of the Bankruptcy Code we’re talking about! In a Chapter 12 or Chapter 13 case, one would have up to the 180th day after the date the order was entered to seek revocation of the discharge. In a Chapter 11 case, one would have up to the 179th day after the date the order was entered to seek revocation. That is a pretty tough lesson to learn the hard way.

The District Court’s decision affirming Judge Ahart can be found here.

The basis of the decision was statutory analysis, compare §§ 1230 and 1330 with § 1144:

§ 1144 “On request of a party in interest at any time before 180 days after the date of the entry of the order of confirmation…”

§ 1230 “On request of a party in interest at any time within 180 days after the date of the entry of an order of confirmation…”

§ 1330 “On request of a party in interest at any time within 180 days after the date of the entry of an order of confirmation…”

Congress apparently intended confirmation orders in Chapter 12 and 13 cases to be revocable if revocation was sought within 180 days but reduced that time by 1 day for Chapter 11 cases.

My first thought was, why not seek revocation of the order under FRCP Rule 60(b)(3) which provides that

“On motion and just terms, the court may relieve a party or its legal representative from a final judgment, order, or proceeding for the following reasons … (3) fraud (whether previously called intrinsic or extrinsic), misrepresentation, or misconduct by an opposing party;”

The time limit under §60(b)(3) is a year:

“A motion under Rule 60(b) must be made within a reasonable time—and for reasons (1), (2), and (3) no more than a year after the entry of the judgment or order or the date of the proceeding.”

But the problem is FRBP 9024 overrides FRCP Rule 60:

“Rule 60 F.R.Civ.P. applies in cases under the Code except that …  (3) a complaint to revoke an order confirming a plan may be filed only within the time allowed by §1144,…”

In turn, FRBP 9024 is protected by FRBP 9006 which explicitly prohibits the Court from extending the time period in FRBP 9024:

“(2) Enlargement Not Permitted. The court may not enlarge the time for taking action under Rules … 9024.”

So what can be done? The Court may allow a party to seek damages caused by the fraud so long as any such award of damages is not an end run around confirmation of the plan.  The plan itself may contain provisions which allow the aggrieved party to obtain some sort of relief.

If any of you have alternate suggestions, please leave a note in the comment box.

As an aside:
The original case and adversary proceeding are: 1:13-bk-11804 | Amber Hotel Corporation; 1:14-ap-01113 | Little v. Amber Hotel Corporation.

It is a shame considering how good the Plaintiff writes, I LOVE a good statement of facts,

On the night of March 24, 2008, Mr. Martini was told by Mr. Post to drive to Malibu to meet Mr. Post in the middle of the night, at a time when there would be no other “witnesses.” When Mr. Martini arrived at Mr. Post’s offices, all the lights were off and Mr. Martini was directed to enter the premises from the rear of the building. Upon doing so, he found Mr. Post sitting in a darkened room lit by a solitary light. Mr. Post handed Mr. Martini several bundles of hundred dollar bills, totaling $100,000. Mr. Post told Mr. Martini that he could never mention this payment to Plaintiff, because—if he did—he was certain that Plaintiff would sue him.

Quick Blurb About Section 109(g)

Under 109(g), an individual (or family farmer) may not be a debtor if “(2) the debtor requested and obtained the voluntary dismissal of the case following the filing of a request for relief from the automatic stay provided by section 362 of this title

I tell my clients that if we move to voluntarily dismiss a case after a relief from stay motion is filed, there will be a 180 day bar to refiling. Something in my brain changed the word from “following” to “after.” It turns out that they do not mean the same thing.

Section 109(g) was added to prevent debtors from abusing the system by dismissing their cases right before a hearing on relief from stay could be heard and/or granted; thereby depriving the creditor from obtaining an adverse ruling. It was not designed to bar debtors from filing cases in situations where relief from stay was filed years earlier or if issues with respect to the RFS motion were handled.

The most obvious example is the case where RFS is filed and the Debtor wins. Why would there be a bar? So keep this in mind the next time the UST requests a bar because RFS had been filed!

6th Circuit Holds That FDCPA Protects Corporations

The FDCPA is a powerful piece of legislature designed to eliminate abusive debt collection practice. The teeth behind the act are an attorney fees clause and provisions that allow for emotional distress and punitive damages to be awarded.

One distinction between consumer debt collectors and commercial debt collectors is that those practicing consumer debt collections had to be very careful not to violate the FDCPA while commercial debt collectors did not have the same worries. Consumers are not as sophisticated as those engaged in business and so this additional protection makes sense.

That distinction now blurred because the 6th Circuit held that corporations may take advantage of the FDCPA.  This is a BIG deal.

You can find the case here.

Hat tip to Professor Dan Schechter, Loyola Law School, Los Angeles and the ABA’s Insolvency Law Committee.

Most Commercial Speech is Not Activity Protected by California’s Anti-SLAPP Statute.

On August 20, 2015, the Los Angeles Division District Court was presented with the issue of whether false advertising on the internet was subject to anti-SLAPP protection. The case is In L.A. Taxi Cooperative, Inc. v. The Independent Taxi Owners Association of Los Angeles and a copy can be found here.

Apparently rival cab companies are purchasing pay per click advertisements on leading search engines which purport to be the rival company but really redirect customers to their own websites and numbers. An example is:

Kia Tehrany, director of operations for Yellow Cab, stated that he conducted a search using the terms “‘Yellow Cab Los Angeles.’” The results included the following:

Yellow Cab Los Angeles – Call 800-521-8294 or Book Online!
Our Cabs get you there Fast & Safe.

Tehrany stated that neither the listed telephone number nor the website was owned or controlled by Yellow Cab. Instead, the website contained information related solely to taxi services provided by ITOA.

So the Yellow Cab Company and affiliates filed a lawsuit against ITOA and its affiliates alleging (1) violation of Business & Professions Code section 17500, which prohibits false or misleading statements when advertising one’s services, and (2) violation of Business and Professions Code section 17200, which prohibits unfair competition in the form of any unlawful, unfair or fraudulent business act or practice. The complaint was amended to include violations of the Lanham Act for false advertising and trade name infringement.

Eventually, the defendants filed an anti-SLAPP motion. As a reminder, there was a time in California where people would file lawsuits just to prevent the opposing side from voicing their opinions (often referred to as strategiclawsuit against public participation). The California legislature passed what are called anti-SLAPP statutes which are designed to quickly end these kinds of lawsuits and punish the party filing the SLAPP motion. Over time, it has become a powerful tool.

In this case, the defendants filed an anti-SLAPP motion alleging that the Yellow Cab Company was filing a lawsuit to prevent them from exercising their right to speech. They not only lost but the loss was affirmed by the appellate court and they are now liable for attorney fees.

The appellate court found that “It is well established that commercial speech that does nothing but promote a commercial product or service is not speech protected under the anti-SLAPP statute.” It then concluded that the particular advertisements were purely commercial speech. Hence the anti-SLAPP statutes wouldn’t even apply.

That’s not the end of the inquiry though. Commercial speech that involves a matter of public interest, however, may be protected by the anti-SLAPP statute. The appellate court found that in this particular case, the advertisements were not a matter of public interest. “The subject advertisements did not constitute participation in any public dialogue about public transportation via taxicabs, the taxicab industry, or taxicab licensing and regulation. Rather, the advertisements on their face were designed to further defendants’ private interest in increasing the use of their taxicab services.”

The appellate court seemed to espouse the view that consumer information that goes beyond a particular interaction between the parties and implicates matters of public concern that can affect many people is generally deemed to involve an issue of public interest for purposes of the anti-SLAPP statute.

As if all this was not enough, there is a commercial speech exception to the anti-SLAPP statute! As set forth in section 425.17, subdivision (a), the Legislature was concerned with the abuse of the anti-SLAPP statute. To curb such abuse, it placed limits on when an anti-SLAPP motion may be brought. One such limitation is set forth in section 425.17, subdivision (c), the commercial speech exemption, which provides that the anti-SLAPP statute does not apply to claims brought against a person primarily engaged in the business of selling goods or services, arising from any statement or conduct by that person, if two conditions exist:

  1. “[t]he statement or conduct consists of representations of fact about that person’s or a business competitor’s business operations, goods, or services, that is made for the purpose of obtaining approval for, promoting, or securing . . . commercial transactions in, the person’s goods or services,…”; and

  2. “[t]he intended audience is an actual or potential buyer or customer, or a person likely to repeat the statement to, or otherwise influence, an actual or potential buyer or customer….”

The appellate court then held that the exception applied to the facts of this case. Finally, the court found that the anti-SLAPP motion was frivolous and awarded attorney fees and costs to the Plaintiff.

Author’s comment: anti-SLAPP motions have teeth but sometimes they bite you! Attorneys have to be more diligent and aware of the possibility of being hit with an anti-SLAPP motion than ever before but they must be just as cognizant of the possibility that they will be sanctioned for filing frivolous anti-SLAPP motions.