News

Case Report: Weinstein, Pinson & Riley v. Nelson 14-56103

A strike against abusive debt collectors in Bankruptcy Court.

Authority:  9th Circuit Court of Appeals.

Why relevant:  A 9011 motion may be well taken where even one of the causes of action is without merit.

Relevant Code Section:  523(a)(2)

Note: Not Published

In this matter, Weinstein, Pinson & Riley (formally Weinstein & Riley) sued another Debtor yet again with insufficient evidence to back up their claim and were sanctioned under F.R.B.P. 9011 for meritless litigation.  Weinstein is a national law firm, renowned for filing claims against Debtors under 11 U.S.C. 523(a)(2) without a sufficient basis for alleging fraud.  Their goals are to scare the Debtors into some form of settlement by taking advantage of individual Debtors who have insufficient resources to defend themselves.  In this matter which comes out of the 9th Circuit court of appeals, the appellate court upheld a lower court ruling finding Weinstein to have filed their complaint without a sufficient legal basis even though at least one of their causes of action did have merit.

11 U.S.C. 523(a)(2) concerns debts incurred through fraud. Weinstein often sues for debts to be determined as non-dischargeable under 11 U.S.C. 523(a)(2)(c)(1) on the basis that debts incurred within the 90 days pre-petition that are incurred for the purchase of luxury goods or services with knowledge of the Debtor’s intent to discharge the debts prior to Bankruptcy should likewise be considered non-dischargeable.

In our experience, Weinstein can be scared off by an aggressive defense.  As a defending party, if the Debtor can cause Weinstein sufficient grief such that they do not want to continue litigation, they often dismiss the matter.  Further, our recommendation is to always proceed to trial.  Most Bankruptcy Judges are unfriendly to Weinstein’s tactics and the majority of Debtors will find themselves in a receptive court if they put forward a good, honest and solid defense regarding the nature of the claimed non-dischargeable debts.

Paying for attorney services during a Chapter 13: Fee Applications

By Anerio Altman

Once you are in a Chapter 13 Case in which the Chapter 13 Plan has been confirmed, you won’t pay for your attorney’s services again, at least not directly.

During a Chapter 13 case, any attorney’s fees you incur for further services after confirmation must be reviewed and approved by the Bankruptcy Judge before they can be paid.  Those fees will be paid by the Chapter 13 estate.  Specifically, the Chapter 13 Trustee will pay the attorney’s fees from the fees you pay into the Chapter 13 estate.  However all the fees will be reviewed by the court and approved by the Judge before your attorney can be paid.

Los Angeles 341A Hearings

By Anerio Altman

When you file a Chapter 7, Chapter 11 or Chapter 13 matter, you must appear at a hearing called the 341A Meeting of the Creditors. The 341A is the opportunity for the creditors, or people you owe money to, to appear and ask you questions about this Bankruptcy that you filed. You must appear at this hearing, and you must bring your picture ID and social security card.

In Los Angeles, you do not attend a 341A hearing in the court building.  Your 341A Hearing will be held at 915 Wilshire Boulevard, 9th Floor, Los Angeles, CA 90017.  This building is in downtown LA and there is parking in the building itself.  It isn’t cheap.

All meetings are held on the 9th floor.  Follow the directions when you get to the 9th floor.

There is ample parking near the courthouse on the street and in various parking structures.

GOOD PLACES TO EAT:

This is a small cafe in the building that is fine.  Several places are in walking distance but traffic can be pretty severe in this area.

Riverside Bankruptcy Court 341A Hearings

By Anerio Altman

When you file a Chapter 7, Chapter 11 or Chapter 13 matter, you must appear at a hearing called the 341A Meeting of the Creditors.  The 341A is the opportunity for the creditors, or people you owe money to, to appear and ask you questions about this Bankruptcy that you filed.  You must appear at this hearing, and you must bring your picture ID and social security card.

In Riverside, you do not attend a 341A hearing in the court building.  Your 341A Hearing will be held at 3801 University Avenue, Riverside, CA 92501.

There is no security gate to go through.

These meetings are held in meeting rooms with the appropriate Trustee.  The United States Trustee is located in this building on another floor.

All meetings are held on the first floor.

Chapter 7 Hearings are held at room 103 or 104.

Chapter 13 Hearings are held at room 101.

Chapter 11 Hearings are held in various rooms on the first floor.

There is ample parking near the courthouse on the street and in various parking structures.

GOOD PLACES TO EAT:

I recommend nothing in Riverside to eat other than Starbucks which is down the road on University Avenue.

Santa Ana 341A Hearings

By Anerio Altman

When you file a Chapter 7, Chapter 11 or Chapter 13 matter, you must appear at a hearing called the 341A Meeting of the Creditors.  The 341A is the opportunity for the creditors, or people you owe money to, to appear and ask you questions about this Bankruptcy that you filed.  You must appear at this hearing, and you must bring your picture ID and social security card.

There is a security gate to go through.  You will need to take your shoes off and walk through a metal detector.  Wear socks.

In Santa Ana, this hearing is held at 411 West Fourth Street, Santa Ana, CA 92701.

Chapter 7 Hearings are held at room 3-110.

Chapter 13 Hearings are held at room 1-154.

Chapter 11 Hearings are held in various rooms on the first floor.

There is ample parking near the courthouse on the street and in various parking structures.

GOOD PLACES TO EAT:

In case you are hungry or would like coffee, here are our recommendations:

Cafe Calacas

Mil Jugos

Chapter One

Who’s Afraid of a Recoverable Draw?

By Anerio Altman

Recoverable draws are not recoverable….at least not in Bankruptcy.

Sometimes we have to argue against the former employers of the Debtor who claim that they are entitled to be paid a recoverable draw from the Debtor’s bankruptcy case.  They will file a Proof of Claim requesting payment.  In our Firm’s experience, these efforts, so far, have never been successful.

A recoverable draw is a tool utilized by many employers for their employees who are paid as salary, or hourly, employees and who earn their income in part, or in total, upon sales commission.  These arrangements are most often witnessed in real estate and mortgage companies and are extremely popular among both the employers and employees in that industry.

A recoverable draw works as follows:  The employee, either by prompting or by its own volition, chooses to advance some of his or her compensation from their future commission.  This advance can be a sporadic event, or may be a regular part of the employee’s pay cycle, where he or she receives a recoverable draw every week or month, ultimately to be paid back or off from future commissions.This agreement is both permissible and legal so long as the employer follows certain guidelines.

However, very few employers follow these guidelines.  While there is no “brightline” test for any instance of a recoverable draw, these are the general points of analysis:

California Doesn’t Like Employers to Recover Wages:  In California, the default presumption under California Law is that any monies paid by an employer to an employee are presumed to be wages.  Wages are not recoverable once paid to the employee.  When wages are “recovered” in this instance, they are “recovered” from the employee’s future commissions.  The future commissions exist in the coffers of the employer, and are distributed to the employee. Draws can be pulled from those commissions.  However, once those wages are in the hands of the employee, they are gone.

There Better Be A Written Agreement That Is Easily Understood:  If an employer is going to rip the wages away from an employee, they need to have a written agreement that can be understood by the average consumer.  If there is any dispute as to the meaning of the written agreement, that writing created by the employer will be interpreted as against the employer because they drafted it.  The employer should not rely upon constructive language concerning the construction of the written agreement to insulate it from this interpretation.

That Agreement Needs to Function as a Loan Document:  if an employer is going to pull back these wages from commission, the recoverable draws must be addressed through a separate loan document.    The written agreement must describe this arrangement and be able to stand on its own as a loan including finance charges, applicable disclosures, balloon payments etc.

The Draw Proceeds Must be Disbursed and Addressed as Separate Loan Proceeds:  Recoverable draws must be disbursed separately from the paychecks given to the employee, may not have payroll taxes removed and may not be linked to paychecks except to the extent that commission checks are lessened by the repayments to draw proceeds.

If the Recoverable Draw is Not Repaid By The Time the Employee Quits or Is Terminated, It is Not Getting Repaid:  Recoverable draws can be paid back from commissions if these procedures are followed, but once the employee has quit or is terminated and the final checks are paid out per California Labor Law, there are no longer commissions from which the employer can draw.  As such, upon termination of the employer/employee relationship, there is almost* no chance of recovery.

As always, if you have problems in your case or a question about how something works in Bankruptcy, please do not rely upon this post and please consult our law office.

*-The employer could create a balloon payment on the note that comes due upon termination of the employer/employee relationship but best of luck to the employer who tries that.  

Payroll Taxes: “Never Steal a Fat Boy’s Candy!”*

*-Barry Robinson, “American Dad”.

By Anerio Altman

Don’t take money from the Government.

They are big, they are powerful, and they are very possessive.

If you take their money, they become very angry.

One type of fund that an employer may wrongfully withhold from the government, and for which the employer will not discharge in Bankruptcy, are Payroll Taxes that the employer was supposed to collect on behalf of the U.S. Government from the employer’s employees.

The non-dischargeability of these taxes arises under Federal Law.  All things in Bankruptcy Practice are based on the U.S. Code.  (Bankruptcy Attorneys are not a horribly imaginative bunch so everything we do is based on the U.S. Code.)  The Non-Dischargeability originates from 11 U.S.C. 523(a)(1).  Everything under the code section of 11 U.S.C. 523 et seq. lists non-dischargeable debts in Bankruptcy.

11 U.S.C. 523(a)(1)  cross-references 11 U.S.C. 507(a)(8)(c) which specifically mentions as a non-dischargeable debt:  “(C) a tax required to be collected or withheld and for which the debtor is liable in whatever capacity;”

(If that isn’t self-explanatory as to why that clause applies to payroll taxes, stop reading now and call our law office at (949) 218-2002;  You are obviously a legal danger to yourself and others.)

The Government wrote the Bankruptcy Code.  In writing the Bankruptcy Code, the Government made it very clear that taxes that are owed to the Government, that you were never supposed to touch as an employer, are still owed after your file your Bankruptcy. Keep in mind that income taxes, taxes you yourself owe as an employer on your own income may be discharged under certain conditions.  If you owe income taxes as the business owner, they can be addressed in Bankruptcy.  (But see an attorney….and for goodness sake don’t rely on this blogpost for a full legal explanation!)

Conversely, payroll taxes are taxes that the government requires an individual to deduct from the salary of their employees when the employees are paid.  The employer was supposed to hold onto them on behalf of the government. So if you “lose” these funds for some reason, the government becomes particularly distraught…and may want to talk to you. stan_smith_american_dadThey just want to talk.

If you’ve been naughty, and “lost” these funds as an employer, you can propose a Chapter 13 plan or Chapter 11 plan to payback the “lost” payroll taxes over the life of the plan. But they aren’t going away just because you would like them to.

Victory in front of the Bankruptcy Appellate Panel!

By Anerio Altman

This week, after a three year slough, Lake Forest Bankruptcy received a verdict in favor of its client.

At the heart of the case is a Creditor who committed an egregious violation of the discharge injunction and argued that he was above the law.

The facts of the case are that a creditor chose to continue trying to collect upon a discharged pre-petition debt because that creditor did not believe that the Discharge Injunction applied to him. His belief was based upon a “No-Discharge” clause inserted into a loan agreement which stated that his loan could not be discharged in the Bankruptcy Court. Such agreements are void as a matter of public policy. Bank of China v. Huang (In re Huang), 275 F.3d 1173. multiple attempts to collect a debt, and multiple warnings to stop, he was sued in the Bankruptcy Court.

The Court found in case called In Re Zilog 450 F. 3d 996 sanctions cannot be issued. Per Zilog, a creditor cannot be the subject of sanctions unless they knew that the injunction in question applied to him and and they intended the act that violated the injunction. While there was no question the Creditor intended the act, the Court found that the creditor held the subjective belief that the law did not apply to him and thus sanctions were inappropriate.

After approximately three years, the Bankruptcy Appellate Panel found in our client’s favor that while Zilog still remained the law of the land, the ruling could not be read so expansively that a Creditor could simply choose not to believe in the injunction and be ameliorated from any further liability. The Creditor was subject to sanctions.

The case has been reversed and remanded back to the Trial Court for a further determination of damages.