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.

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 Arthur W. Zamosky, Esq.

Are you looking to end a controversy with another party?  Or do you have uncertainty as to how an adverse situation will pan out?  If so, you may want to consider a declaratory judgment action – often called a “Dec” action. 

The Pennsylvania Declaratory Judgment Act (hereinafter “Act”) permits a party to bring a Dec action for a number of reasons.  Dec actions are permitted to determine the construction or validity of a contract (often, but not always, an insurance contact), statute or ordinance.  A Dec action can also be filed regarding a deed, will or lease as well.  Once properly filed and prosecuted, a Court will render a judgment or decree as to an interested party’s rights, status or legal relations with respect to the above.

 A Court will only hear a declaratory judgment action if it will end a controversy or uncertainty between the parties.  However, there is no requirement that a Dec action must settle all issues that may exist between the parties.  The party bringing the action has the burden to demonstrate the existence of an actual controversy.  The controversy must be related to an invasion or threatened invasion of one’s legal rights.  Further, a Dec action is not proper for the determination of future rights which may never occur, for moot cases or for a purely academic determination.

Under the Act, a Dec action can be brought in a Pennsylvania State Court within its respective jurisdiction, including Courts of Common Pleas.  The Court must also have subject matter jurisdiction over the case.  It should be noted that State Courts do not have jurisdiction to hear a Dec action for a matter within the jurisdiction of the Federal Government or which is before an administrative agency.  It is also improper for a party to bring a declaratory judgment action when a contract has an arbitration clause.

A  Dec action is instituted by filing a complaint in the proper jurisdiction. Selecting the proper parties to include in the suit should always be carefully considered.  The Act sets forth that the parties must include all who have or claim any interest which would be affected by the declaration and no declaration shall prejudice the rights of persons not parties to the proceeding. 

A  judgment in a Dec action may be either affirmative or negative and has the effect of a final decree.  Keep in mind that declaratory judgments are subject to the general rules regarding conclusiveness of judgments, collateral attacks and res judicata. 

This is a brief overview of a declaratory judgment action and not intended to be legal advice.   There are many nuances to properly bringing or defending such an action.  For more information, the Act is contained at 42 Pa. §§7531 through 7541.  As always, for a more detailed analysis of a specific claim or dispute, you should consult an attorney. 

by Peter J. Ashcroft

As an attorney at Bernstein Law Firm who often represents secured creditors in consumer bankruptcies, the rules that apply to Chapter 13 plans are of great interest.  One Bankruptcy Code provision that provides a crucial protection to mortgage holders is 11 U.S.C. § 1322(b)(2) which provides that debtors cannot modify the terms of a mortgage relating to the debtor’s primary residence.  This means that the debtor cannot modify the principal balance or interest rate.

This rule applies to first mortgages and also to second or later mortgages so long as there is any equity in the property to support the second or later mortgage.  For example, if the debtor has a first mortgage in the amount of $100,000 and a second mortgage in the amount of $50,000, the debtor will not be able to modify the terms of the second mortgage if the property is worth even $1 more than the $100,000 owed on the first mortgage.

A recent opinion from the Bankruptcy Court for the Western District of Pennsylvania written by the Honorable Judge Jeffery A. Deller, however, details one situation where a debtor may modify the interest rate on even a first mortgage on the debtor’s primary residence.  In the case of Mary Ellen Golash – WD PA 09-27973 – Judge Deller found that a debtor could modify the interest rate on a first mortgage down to 0% in the special circumstance where the mortgage fully matured before the expiration of the Chapter 13 plan term (normally 60 months from the date of the bankruptcy filing).

The Court noted that 11 U.S.C. § 1322(c)(2) provides an exception to 1322(b)(2) where the mortgage term matures before the end of the plan term.  So long as the debtor complies with the rules for modifying a secured claim set forth in Section 1325(a)(5)(B)(ii) which require that the debtor provide for full payment of the claim and propose equal monthly payments to the creditor in the plan, the debtor can reduce the interest rate owed to the mortgage holder to 0%.

I found this case to be interesting because it reminded me of the generally strong protections given to primary residence mortgage holders in bankruptcies, but also pointed out one situation where the creditor’s secured claim could be modified.

To see the In re: Golash memorandum, click here.

by Jodi L. Hause, Esq.

             Having practiced in bankruptcy court in both consumer and commercial cases for the last eight years, I have seen a variety of pleadings crafted with varying degrees of creativity and skill.    On one hand, there are those that are so short and cryptic that it’s difficult to ascertain how exactly the party’s argument gets them from point A to point B.   Others are so painstakingly technical that the argument itself is lost in the monotony of citations, references, and legalese.    In my opinion, neither of these extremes do much to further your client’s interests.    Simply stated, the best pleading is the one that tells the most convincing story and makes the most sense to the adjudicator.   Too much or too little factual detail will only confuse and frustrate the reader (i.e. the Judge).   A winning pleading clearly states what relief is being sought and explains how the law applies to the relevant facts of the case.

           The Federal Rules of Civil Procedure are based upon the concept of notice pleadings.  The general rules of pleadings under the FRCP require that the pleading must contain (1) a short and plain statement addressing the Court’s jurisdiction; (2) a short and plain statement of the claim asserted in the pleading; and (3) a demand for the relief sought.  

            The notice pleading requirement is intended to be less formal and intended to simply provide notice to parties of the general issues in a case without having to allege detailed facts in support of the claims.   It is a general notice of asserted claims, the details of which can be fleshed out as the case progresses.  

            The result of the notice pleading requirement is sometimes the filing of bare bones motions and responses.   In some cases the factual details may not be available to supplement the pleading or response, but more often than not a bare bones pleading in a contested matter is a poorly drafted pleading.   The issues in contested bankruptcy matters are often complex, particularly in complex commercial matters.   Even the relatively straightforward matters often contain potentially mitigating facts and circumstances.   Every opportunity should be taken within reason to make clarity out of chaos.  

            In my experience, Bankruptcy Judges tend to be learned and prepared individuals.  They will take the time in advance of the scheduled hearing to read and understand the pleadings filed in the matters before them.   Accordingly, your filed pleading is the very first opportunity for you to present your side of the story to the Judge.   If you have written it in a way that clearly and concisely explains your client’s position and how the law supports that position, then you are on the right path.   The benefits of a well-written pleading are far out-weighed by the additional time it takes to draft it.     A well-written pleading will lay the foundation for a solid argument and will make your job at the hearing that much easier.   It will enable you to more effectively and efficiently argue in support of your client’s position at the hearing and will enable you to be a better advocate overall.

By Lara Shipkovitz, Esq.

Recently in Pennsylvania a Westmoreland County Judge ruled that landowner gas leases need not have both parties signatures to be valid in Snyder v. Rex Energy., Case No. 09CI06332.  Local landowners brought suit against Rex alleging the company reneged on a deal to lease their properties for Marcellus Shale drilling.  Rex maintained the leases were unenforceable because they never signed the leases.  Accordingly, the Company argued no contract existed.  The landowners argued that a contract was entered when they signed the leases that were prepared by the company without making any changes to the lease; meaning, this constituted a valid acceptance of the terms offered by Rex.  Judge Caruso agreed stating that the leases, unlike those in other cases, did not contain the express requirement that the company sign them to be valid. The issue was considered early on in the pleadings and later, the parties settled.  Ultimately, Rex agreed to five year leases, including bonus payments and royalties for the landowners.   In light of the increasing rulings and considerations of Marcellus Shale issues, it is more than ever for a landowner to understand  his/her legal rights and obtain experienced counsel for any transaction affecting these rights.

 Check out our Marcellus Shale website and feel free to contact us (news@bernsteinlaw.com) if you have any questions.