On June 7th, the Eleventh Circuit affirmed the entry of summary judgment dismissing Chapter 13 debtors' claims against Wells Fargo, which holds debtors' mortgages. Debtors alleged that Wells Fargo violated the Bankruptcy Code's automatic stay provisions by recording in its internal records the fees it incurred to file its proof of claim. The Eleventh Circuit held that Wells Fargo did not violate the automatic stay because it had not collected or attempt to collect those fees. Similarly, a claim based on Wells Fargo's failure to disclose the fees was not yet ripe for action.

On May 18th, the Second Circuit, addressing the 2005 amendments to the Bankruptcy Code, held that a lender with a purchase-money security interest in a car is entitled to an unsecured claim with regard to a deficiency it incurred upon the surrender and sale of the car. The deficiency claim derives from the contract between the parties and background state law. In the absence of a Bankruptcy Code provision expressly disallowing it, such an unsecured claim may be maintained.

Nearly four years after its decision in Stern v. Marshall raised new doubts about the place of bankruptcy courts in our legal system, the Supreme Court has finally put those doubts to rest. This week, in Wellness International Network, Ltd. v. Sharif, No. 13-935, the Court held that even for claims that must otherwise be resolved by an Article III court, a bankruptcy court may still adjudicate the matter based on consent.

On September 14, the Sixth Circuit affirmed the trial court's finding that a failed bank's parent did not make a capital maintenance commitment to the bank. After the parent filed for bankruptcy, the FDIC was appointed receiver for the bank. The FDIC then sought payment from the parent under the statute requiring a party seeking reorganization to fulfill commitments to maintain the capital of an insured depository institution.

On April 12th, a federal district court addressed the in pari delicto defense, including the sole actor exception to the adverse interest exception. In the instant case, a litigation trust created in bankruptcy court to pursue the debtor's claims sued Credit Suisse for allegedly assisting the debtor's founders' looting of the debtor's subsidiaries. Credit Suisse sought summary judgment, asserting the in pari delicto defense. The Court agreed, finding that the evidence supported the conclusion that the founders so dominated the subsidiaries that the subsidiaries lacked a separate existence.

On May 18th, the Second Circuit, applying the Supreme Court's holding in Milavetz, Gallop & Milavetz, P.A. v. U.S., 130 S.Ct. 1324 (2010), reversed a trial court order finding that provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act that prohibit debt relief agencies from advising clients to incur more debt were overbroad and unconstitutional when applied to attorneys.

Swiss Investigating Magistrate Entitled to U.S. Documents

On August 20th, the U.S. Court of Appeals for the Tenth Circuit reversed a trial court's ruling finding that judgments against Ponzi scheme "net gainers" were non-dischargeable in bankruptcy. The debtors were early investors in what turned out to be a Ponzi scheme and received more money than they invested. When the Ponzi scheme was uncovered, the state State of Oklahoma sued the debtors for unjust enrichment but not for any securities violations. After the State obtained a judgment on the unjust enrichment claim, the debtors declared bankruptcy.

On April 7th, a federal bankruptcy court sanctioned Lender Processing Services, Inc., a home foreclosure service provider against whom the Federal Reserve Board and OCC have initiated enforcement action. The opinion explains LPS's business model and that model's failings, and cites case law documenting LPS's historic shortcomings. It reminds litigants that proving a default is the lender's, not counsel's, responsibility. In re Ron Wilson, Sr.  

On May 17th, a federal district court denied motions to dismiss a securities fraud lawsuit alleging that defendants failed to disclose adequately their investment in notes issued by a shell company owned by Lehman Brothers, who provided the principal protection guarantee. Defendants' knowledge regarding the notes and Lehman's insolvency contradicted their public statements, satisfying Rule 10b-5's scienter requirements. Plaintiffs also allege that their losses were exaggerated by defendants' lack of disclosure, adequately alleging loss causation.