by Shawn P. McClure, Esq.

Under Pennsylvania law, a judgment entered against a  debtor creates a judgment lien against any real property that your debtor owns in the county where the judgment was entered. This occurs by operation of law the moment the judgment is indexed.  This is a valuable tool for creditors because now the debtor cannot sell or refinance that piece of real property without addressing your judgment. 

However, this does not mean that all a creditor must do is sit back and wait for a sale or refinance by the debtor.  As with all things collection related, it is important to be proactive.  As a judgment creditor in Pennsylvania, you should continue to monitor the judgment because it must be revived prior to the passage of five (5) years from the date it was entered in order to maintain it’s priority.  Additionally, you should keep an eye on any after acquired property by the debtor to which your lien will attach, as well as, any property acquired in other counties.  In order to place a judgment lien on property in a county outside that county where the judgment was entered, a judgment creditor must index the judgment in the other county.

Revival of a judgment is done by writ. Under applicable rules, the debtor is served with the writ and may respond in the same fashion as an answer and new matter. If another entity or person has obtained title to the real property without the judgment lien being resolved, the writ of revival can be served upon them.  Typically, if the writ is timely and procedurally correct there is no defense afforded the judgment debtor and you have maintained your judgment’s priority.

Maintaining priority is a useful collection tip as it will prevent those creditors who arrive later in time to get ahead of you in line.

by Peter Ashcroft, Esq.

In my practice at Bernstein Law Firm, I often represent creditors in consumer bankruptcy cases, whether for clients directly or as local counsel.  Most of the time, the debtor on the other side of the matter is represented by counsel, but sometimes they represent themselves Pro se – meaning they are their own attorney.

The Bankruptcy Code specifically permits people to represent themselves in bankruptcy, although an owner of a business cannot represent himself or herself if the business has filed for bankruptcy.  In that case, an attorney must appear for the business at all hearings.

Whether a person should represent themselves in their own bankruptcy is another question – the Bankruptcy Code contains many pit traps for the unwary and can even seem a tad complex at times to your average 10-year practitioner such as myself. 

Most Chapter 13s and Chapter 7s filed Pro Se fail almost immediately because the debtor neglects to file the necessary documents to get the case started – such as completed Schedules or the Certificate of Credit Counseling.

However, if the debtor clears the first few hurdles and the case survives, the case may reach the point where we would become involved on behalf of a creditor.  At that point, I have observed a modified set of rules being applied to Pro Se debtors and want to share some tips about how to approach these cases to get the desired result.

I have observed that judges will give Pro Se debtors more of a benefit of the doubt, forgive pleading deficiencies and tolerate worse behavior and appearance than from an attorney representing the debtor. 

Judges will also invariably let the debtor have his/her day in court no matter how irrational the complaint or defense.  Pro Se debtors are more likely to be allowed to proceed with an action to the conclusion and to be allowed to vent/rant their position ad infinitum.  However, at the end of the proceeding, the court will rule on the matter impartially most often against the Pro Se debtor.  I applaud judges for this approach because it allows the Pro Se debtor to feel like they were at least able to get their point off their chest.

In one infamous case in our office (where the parties will have to remain anonymous), a Pro Se debtor sought to discharge his student loans despite the fact that he was young, healthy and employed.  The Pro Se debtor’s pleadings contained insults and wild accusations against the opposing attorneys, the clerk of courts and the judge himself.  The Pro Se debtor’s behavior in court was so erratic and threatening that security staff were brought into the courtroom to ensure order was maintained.

Nevertheless, the judge involved maintained decorum in the courtroom and treated the Pro Se debtor with absolute respect.  The debtor was allowed to proceed to trial despite refusing to turn over relevant evidence to opposing counsel. At trial, the debtor did not present a witness.  The proceeding was to a degree a wasted enterprise for all involved, but the Pro Se debtor had his day in court.  In a way, the process of justice was served.

In summary, the lessons I have learned from opposing Pro Se debtors are the following:

1.  The court will indulge their often incoherent arguments and treat them with respect, even if the debtor is not returning the respect by his comments, demeanor or dress.  Opposing attorneys should do the same and avoid patronizing or insulting the debtor.  If that occurs, the court will be upset with the creditor’s attorney.

2.  The court will often forgive pleading errors that would be more important if made by an attorney, including timing and service errors.  It is not always useful to concentrate on the debtor’s procedural mistakes.  The best approach is to address the merits.

3.  The court will want the creditor’s attorney to address the debtor’s concerns, no matter how confusingly presented.  The court will appreciate goodwill gestures by the creditors such as small compromises or offers to consider the debtor’s concerns outside of the bankruptcy process.

By Arthur Zamosky, Esq.

In Pennsylvania, ejectment is an action by a party who does not posses certain land but has a right to do so.  The action is brought against a Defendant who has actual possession of the land.  An ejectment action can also be used to determine a question of title to real property. 

Such an action can be distinguished from a quiet title action because an ejectment is used to determine the immediate rights between a Plaintiff and Defendant while a quiet title action is used to determine the relative and respective rights of all potential titleholders.  It should also be noted that an ejectment action is a separate and distinct action from an eviction.  An eviction is used to terminate a leaseholder’s interest before the end of the term for a breach of a lease while an ejectment is used to remove a (former) leaseholder from the property after the lease has expired.

A suit for ejectment should be brought in the county in which the property involved in the dispute is located.  As with most actions in Pennsylvania State Court, the action can be instituted by the filing of a praecipe for writ of summons or a complaint.  The only indispensible party to an ejectment action is the party or parties who possess the land.  An interesting twist to naming parties is that when a person in possession of the property, who is not named as a party to an ejectment action, is served with original process, that person becomes a Defendant in the action.

The Pennsylvania Rules of Civil Procedure requires that the Plaintiff in an ejectment action specifically describe the land and describe an abstract of title upon which the Plaintiff relies.  The Plaintiff must also plead that they have a right to immediate possession of the land.  Some of the possible defenses to an ejectment action can be adverse possession, estoppel, res judicata or by proving that title exists as to a third person.

A judgment in an ejectment action should describe the land to be recovered with reasonable certainty.  This description is necessary so that execution or a writ of possession may be issued upon the judgment.  Judgment can be obtained by default, confession or on the pleadings.  It should be noted that judgment on the pleadings can be requested by either party.  

As with all areas of law, the specific facts of any scenario could change the manner in which to proceed.  The preceding was intended to give a basic outline of an ejectment action in Pennsylvania.  For a more specific analysis of an actual claim or dispute, you should consult an attorney.

by Lara E. Shipkovitz, Esq.

A trade-for-debt equity swap offered by a debtor to a large creditor can provide a viable alternative to liquidation while offering that creditor potential more value on its debt and a role in the company’s future growth.  Specifically, where a failing business is in need of capital, it can offer a trade creditor to convert its existing debt into equity in the company – i.e., the creditors will forgive the debt owed to them by the failing business in exchange for a share in the business.  This might pose the question – why would a creditor want a share in a failing business?  In fact, such a swap can work to the advantage of both the creditor and the business.  If the creditor does not make the trade, the Debtor may become insolvent and forced to liquidate and the creditor in turn may get pennies on the dollar for its debt.  If however the trade debt is reduced, the failing business can pull itself up and the value of its equity can grow.

A debt for equity swap may be appropriate where a company is having solvency issues but is still ultimately viable, is over geared and/or is unable to obtain finance.  One example of where this proved to be a success was in the furniture retailer, Jennifer Convertibles, Inc., bankruptcy cases.  Prior to filing for bankruptcy, the company owed almost half of its total unsecured debt to a foreign furniture supplier.  This foreign furniture supplier was the debtor’s sole supplier for many of its products.  The supplier entered into an agreement with the Debtor prior to the filing of the bankruptcy agreeing to convert the debt into a controlling stake (90%)in the reorganized debtor’s new common stock.  Significantly, the Supplier also recovered more than 87% of its claim. See, ABI Journal, July/August 2011, “Converting Trade Debt to a Controlling Stake: The Pragmatic Path to Jennifer Convertibles’ Unique Reorganization”, Neiger, Edward E.

Obviously, the debt for equity swap works best when dealing with parties who are otherwise indispensable to a debtor’s reorganization.  An equity interest may be used such as ordinary shares, fixed coupon ordinary shares, preference shares and equity warrants.  It is important to recognize this swap also helps the debtor by reducing corporate debt, which in turn strengthens the balance sheet improving their borrowing position and status with customers, suppliers and other investors.  The swap however also is based on an inherent risk- that the reorganized business will be successful.  In the event the business cannot become solvent or the reorganization is impractical (and results in a liquidation), the creditor would lose its investment.  If successful however, this allows the debtor to substantially de-lever its balance sheet and significantly reduce its debt.  In sum, the pre-arranged swap for debt to equity prior to a business filing for bankruptcy can provide a creditor with potential for great recovery and opportunity if they are willing to take that risk.

I’m thrilled to be working with Shawn on a Legal Perspectives on Collection Utility Accounts seminar through NACM.  See the link for more information.

“Legal Perspectives on Collection Utility Accounts from Businesses: Methods, Philosophies and Opportunities. Bob Bernstein, Esq. and Shawn McClure, Esq. will be discussing the separation of distribution and transmission of electricity and natural gas. They will cover basic and not-so-basic information about recovery techniques and opportunities.”

http://www.nacm.org/calendar/details/412-webinar-legal-perspectives-on-collection-utility-accounts.html

by Peter J. Ashcroft, Esq.

An interesting question was addressed by the Supreme Court in June of 2011 regarding the limits of bankruptcy court jurisdiction.  In the case of Stern v. Marshall, the Supreme Court held that Section 157(b)(2)(c) of the Bankruptcy Code unconstitutionally violates Article III of the Constitution because it allowed non-tenured judges to render final judgments on state common law tort claims. 

Bankruptcy court judges were created by statute under Article I of the Constitution.  Bankruptcy judges are appointed for 14-year terms.  Federal court judges have lifetime tenure and are given their powers pursuant to Article III of the Constitution.  The Supreme Court determined that only Article III judges were given the power under the Constitution to enter final judgments on state court issues.  Bankruptcy judges are limited to decisions on bankruptcy related matters.

Section 157(b)(2) gives the bankruptcy court jurisdiction over “core proceedings” related to the bankruptcy.  One of the “core proceedings” was subsection (c) which included “counterclaims by the estate against persons filing claims against the estate.”  This meant that if the debtor filed a counterclaim related to a proof of claim filed by a creditor the bankruptcy court could judge the entire matter.  However, the Supreme Court has now said that if the counterclaim is a common law tort claim, the bankruptcy court can only issue proposed findings of fact and proposed conclusions of law and the actual action will have to be adjudicated by an Article III federal court judge or state court judge.

The actual facts of the Stern v. Marshall case were quite interesting in their own right. The case involved Anna Nicole Smith’s battle for the estate of her deceased elderly Texas oil millionaire husband against the millionaire’s son.  Ms. Smith filed for bankruptcy while litigation was pending regarding the legitimacy of the estate’s gift to Ms. Smith.  The son, Mr. Marshall, filed a proof of claim for damages for defamation and Ms. Smith filed a counterclaim for tortious interference with her gift.  The bankruptcy court awarded Ms. Smith $400 million on her counterclaim.  However, the Supreme Court nullified the decision because it said the bankruptcy court did not have jurisdiction over the common law tort counterclaim.

The future result of this decision will be extended and bifurcated litigation unless all parties involved consent to bankruptcy court jurisdiction.

by Jennifer L. Tis, Esq.

Many times a matter involving breach of contract will come down to who has the best documentation. You could be completely in the right but if you haven’t kept proper records of all activity with customers you may have no way to prove it. In order to bolster your stance and put yourself in the best position for success in a breach of contract case I recommend the following:

1.  Be certain that you have clear protocol for all orders placed and deliveries made so that all employees understand and are able to articulate the process.

 2.  If you deliver goods, be sure to get a signed delivery slip from every customer, every time.

3.  If possible, require signed purchase orders from customers in order to effectively eliminate any dispute based upon denial of placing an order.

4.  Require a written contract. I know that many businesses operate on a purchase order/invoice basis which is not out of the ordinary, however, if you want to make it easier to also claim interest and attorneys’ fees in a breach of contract matter it’s a good idea to have each customer sign a written contract providing for interest on overdue balances and the recovery of reasonable collection costs, including reasonable attorneys’ fees, prior to beginning a business relationship.

Finally, make sure to provide ALL documentation regarding the business relationship with the Defendant to your attorney. It is not necessary to wait until the Defendant has served discovery requests upon you before you hand over all of those emails that you’ve saved and each individual invoice to your attorney. Don’t worry that you’re providing too much information…there is no such thing. By supplying your attorney with every bit of documentation regarding your claim you will be supplying him/her with the ability to see the big picture right from the start. This will allow your attorney to more efficiently and more effectively litigate your claim.

by Jodi L. Hause, Esq.

A recent bankruptcy decision out of the Third Circuit Court of Appeals hit home for lots of law firms and creditors alike.  In the wake of higher scrutiny of mortgage companies and lenders and the enforcement of strict Proof of Claim standards, the case of In re Taylor is a cautionary tale. 

Much like the Nosek case a few years ago in the 1^st Circuit, Taylor involved a bankruptcy court issuing Rule 9011 sanctions against a mortgagee, the law firm acting on the creditors’ behalf, and individual attorneys at the law firm.  Taylor highlights the problems inherent in high volume practices and mortgage servicing where too much emphasis is placed upon computerized practices.   Like many large mortgage companies, the creditor in this case used a third-party vendor to service its loans and to provide financial information and payment records to its law firms in bankruptcy and foreclosure proceedings. 

The Taylors filed a Chapter 13 bankruptcy case in the Eastern District of Pennsylvania.   Their mortgage company filed a proof of claim and subsequently filed a motion for relief from the automatic stay in the Debtor’s Chapter 13 case, alleging that the Debtors were not current on their post-petition contractual mortgage payments.   Prior to the commencement of the bankruptcy case and after the filing date, the Debtors made only partial mortgage payments because they disputed the need for flood insurance on the property.   In disputing this, the Debtors paid the amount of their mortgage payment minus the component of the payment for flood insurance.  One law firm filed the proof of claim, while another law firm filed the motion for relief from the automatic stay.   The vendor did not convey the payment dispute to either firm.  Unfortunately, the proof of claim and the motion for relief contained glaring inconsistencies with regards to the amount of the monthly payment and the value of the real estate.  The Bankruptcy Court found (and the 3^rd Circuit ultimately agreed) that a reasonable inquiry by the filing attorney would have identified those inconsistencies and remedied them before making misleading representations in the pleadings.     To make matters worse, the attorneys who appeared on behalf of the creditor at the hearings made misleading and inaccurate verbal representations to the Court.   The Court was not impressed by the attorneys’ exclusive reliance on information provided by the mortgage company’s vendor.    The misrepresentations and the inaccurate pleadings caused the Bankruptcy Judge to investigate the practices employed by the creditor and its agents and attorneys in this case to determine whether Rule 9011 sanctions were warranted.

Rule 9011 of the Federal Rules of Bankruptcy Procedures require that representations and allegations made to the court are based on evidentiary support or are likely to have evidentiary support.   In making this conclusion, the party must conduct an “inquiry reasonable under the circumstances.”  It is not necessary that a party act in bad-faith to violate Rule 9011.  Rather Rule 9011 sanctions are implicated when a party makes representations without having taken reasonable steps to inquire into the truth of the allegations.  The 3^rd Circuit in Taylor recognized that lawyers “constantly and appropriately rely on information provided by their clients, especially when the facts are contained in the client’s computerized records.”   In this opinion the Court did not suggest that lawyers must independently verify and investigate all factual allegations made by their clients.  However, the Court found that the law firm’s actions in this case were unreasonable in light of the circumstances.

Essentially, the law firm should have investigated the cause of the delinquency and should have identified the inconsistencies between the information it received from the vendor when it was assigned the task of filing a motion for relief and that which was already contained in the Proof of Claim.   These errors were warning signs that should have caused the attorney to contact the client to clarify and provide accurate information.   Instead, the law firm did not take the steps to review the referral information and ask necessary questions.  It essentially continued with the automation and filed the motion for relief in autopilot.    Computerized databases may be appropriate, but the ultimate responsibility and accountability when the information derived from the database is inaccurate falls to the attorney.   Material misrepresentations are made when a law firm relies on inaccurate records contained in a database which may have been inaccurately transmitted by the creditor.   The fact of the matter is that it is the attorneys who certify to the court that the representations are grounded in law and fact.  

Courts want accountability and rightfully so.  This decision is unsettling for lawyers because we must rely on the information that is provided to us by our clients.   We usually do not have access to our client’s internal records that would allow us to somehow independently audit their records, nor would we be equipped to do such an audit in most cases.   On the other hand, creditors’ lawyers are on egg-shells right now because we know that our clients are heavily scrutinized in bankruptcy and foreclosure cases.    

At the Bernstein Law Firm, we are fortunately ahead of the game in this regard.   We are on heightened alert in that we take the time to review our pleadings before they are filed to ensure that they are accurate.   For example, we are careful to file proofs of claim with accurate figures and complete supporting documentation.   Correct and accurate pleadings are important because material errors will cause deeper scrutiny.  We have a reputation for zealous representation and we are well-respected for our attention to detail.   (A sloppy reputation is like wearing a target on your back).

In the end, we can take away several lessons from Taylor.         First, do it right the first time.  Take the necessary steps to ask additional questions and get clarifications before a pleading is filed to avoid even an inadvertent material misrepresentation.  Second, creditors and attorneys must be prepared to adjust their own procedures and systems to fit the rules and requirements of the courts.   One cannot simply rely on “screen prints” as the firm did in the Taylor case when a reasonable inquiry would reveal a material inaccuracy.  Third, when mistakes happen correct them.  Errors will occur because no system is infallible.  Taking responsibility for the error and taking the steps to correct it immediately will go a long way in both the specific case where an inaccurate representation is discovered and in maintaining a reputation that will enable the courts and adverse parties to give you the benefit of the doubt in future cases.          

The citations for the opinions discussed are below:

In re Nosek, 406 B.R. 434 (D. Mass. 2009) aff’d in part, modified in part, 609 F.3d 6 (1st Cir. 2010)

In re Taylor, 655 F.3d 274 (3d Cir. 2011)

by Lara Shipkovitz, Esq.

An interesting article on the effect preferences and state law fraud statutes can have on recovery for the estate through analysis of the Madoff bankruptcy.

The Madoff trustee, Irving H. Picard, had sought to recover fictional profits paid out in the six years before the collapse, citing provisions of New York State law that allow for a six-year recovery window. The judge also threw out the trustee’s bid to recover so-called preference claims, the cash paid out to the NY Met’s owners in the final 90 days of the fraud.
 
By reducing the time window and eliminating preference claims ­ actions that lawyers said would most likely apply to all the lawsuits the trustee has pending in Federal Bankruptcy Court in Manhattan ­ the decision still “has significant potential ramifications that could affect recoveries as well as distributions” in the legal efforts to unwind Mr. Madoff’s Ponzi scheme, Mr. Picard said in a written statement released on Thursday.
 
Read the details of this action at:
http://www.nytimes.com/2011/09/30/business/madoff-trustee-says-mets-ruling-wont-be-as-bad-as-first-thought.html?_r=1
and
http://tech.mit.edu/V131/N41/long4.html

by Kit F. Pettit, Esq.

As the leases for the Marcellus and Utica shale gases are now aggressively being developed by the exploration and production companies, some of our client inquiries are starting to shift from various leasing questions and concerns to pipeline right of way matters.

As is the case with a natural gas lease, a pipeline right of way agreement is an important legal document that should not be signed without the advice of counsel as it is a transfer of certain rights in the land to the pipeline operator. Once the right of way or easement has been granted, the rights of the landowner in the right of way become limited while the rights of the operator generally become permanent. The landowner is limited in that he or she cannot build or install any structures over the right of way, plant trees or engage in any activity that would obstruct the right of way.

As with most any agreement, proper negotiation of the document is very important as the rights granted to the operator are long-term and run with the land. There are numerous matters that should be considered and negotiated in the negotiation process, some of the which I have listed below.

1.   Payment. As the pipeline operator is going to be occupying your land indefinitely, a landowner should be compensated properly. The payment methods vary depending on the nature of the pipeline and there are also different basis for compensation. In addition to being paid by the foot, rod or square foot, there are often additional payments which can be negotiated into the agreement. An example of other compensation may include the payment for any timber that is cleared or any crops that are lost or disturbed as a result of the pipeline construction.

2.    Location. The old saying “location, location, location” does not only apply to the value of real estate or the success of a business, but it is a key element with respect to pipeline easements. As pipeline right-of-ways are indefinite in time and restrict the landowner as to his or her use of the easement area, the location of the pipeline is very important. The location should be agreed upon by the landowner and pipeline operator in advance and then specifically defined by metes and bounds in a properly prepared and sealed survey. A landowner should not agree to a simple sketch or general references or landmarks as to the location of the easement.           

3.   Construction Guidelines. A pipeline agreement should address and govern numerous matters related to the construction of the pipeline. In addition to the location, the width of the easement during and after construction should be defined. A landowner should know that the width of the construction easement is going to be wider than the width of the permanent easement. Other considerations should include the time for restoration of the surface, depth of the buried pipeline, surface identification and marking of the pipeline and even a list of the names of the contractors and subcontractors that will be working on your property.

4.   The Pipeline. A pipeline agreement should limit the number of pipelines permitted in the easement or require compensation for each and every pipeline to be constructed. The pipeline agreement should govern what is permitted to be transported in the pipeline and the size of the pipeline. It should also govern rights with respect to increasing the diameter of the pipeline at a later date.

5.   Other Facilities. A landowner should be aware that some pipeline agreements provide for the installation of certain facilities within the easement area. A properly negotiated pipeline agreement should identify and limit what above-ground facilities, if any, are permitted to be placed upon the land.

6.   Termination or Abandonment. At some point, the Marcellus and Utica shale gases may be exhausted and the pipeline agreement should address what will happen to the pipeline if gas is no longer being transported through it. The landowner should want the pipeline to be removed and the easement to be terminated and released so this should be negotiated into the pipeline agreement.

In addition to these key issues outlined above, there are many more issues that should be considered when negotiating and drafting additional terms of a pipeline agreement. As with the natural gas lease, the pipeline agreement is a negotiable document and the landowner should not sign the document that has been prepared by the pipeline operator without seeking the assistance of counsel.