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 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 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 Shawn P. McClure, Esq.

At the end of June 2011, the Third Circuit Court of Appeals, in the case of Leshner v. The Law Offices of Mitchell N. Fay, F.3d, 2011 WL 2450964 (3d Cir. 2011), found that settlement letters sent on a law firm’s letterhead implied that there was forthcoming legal action, and therefore were “false and misleading” under section 1692e of the FDCPA, because the firm was not acting in a “legal capacity” when the letters were sent.  This ruling was made despite the existence of a disclaimer on the letters concerning the attorney involvement in the case.  

Section 1692e of the FDCP prevents, “false, deceptive or misleading representation or means in connection with the collection of any debt.”  The use of attorney letterhead and an attorney signature on a letter is enough to find that letter “false and misleading” if the attorney is not sufficiently involved in the sending of the letter so that the court finds that the letter is not actually “from” an attorney.

The leading case on debt-collection letters from attorneys is Clomon v. Jackson, 988 F.2d 1314 (2d Cir. 1993).  In Clomon, the court found that collection letters on attorney letterhead with mechanically reproduced signatures were “false and misleading” under the FDCPA.  Even though the attorney approved the form of the letters and the procedures by which the letters were sent, the court still found that the attorney had no direct personal involvement in the mailing of the letters.  The court in Clomon expressly stated that several factors were taken into account when determining whether the letters violated the FDCPA, including: the attorney did not review each debtor file; the attorney did not determine when particular letters should be sent; the attorney did not approve the sending of particular letters based on the recommendation of others; the attorney did not see particular letters before they were sent; and the attorney did not know the identities of the persons to whom the letters were issued.   

That being said, debt-collection letters from law firms do not necessarily require attorney review. If the letter has a clear disclaimer explaining the limited extent of the law firm’s involvement in the collection action, then the letter does not “mislead” the debt with respect to the attorney involvement and will not be in violation of 1692e of the FDCPA.  For example, a debt-collection letter with the following disclaimer, “[a]t this time, no attorney with this firm has personally reviewed the particular circumstances of your account,” was found not to be in violation of the FDCPA because the court found there to be no false representation or implication that the letter was from an attorney or that an attorney had meaningful involvement in the case at that point. 

The fact that the letters in the Leshner case contained a disclaimer, but were nonetheless found to be in violation of the FDCPA is why this ruling is so impactful on creditors.  The disclaimer language in the present case stated, “[a]t this point in time, no attorney with this firm has personally reviewed the particular circumstances of your account.”  The disclaimer was also located on the backside of the letter.  The Third Circuit found that the language and location of this disclaimer insufficient to ensure that the “least sophisticated debtor” (the applicable standard when viewing potential FDCPA violations) wouldn’t have reasonably believed that an attorney had reviewed the file and determined that the debtor was a candidate for legal action.

This ruling by the Third Circuit emphasizes how important it is for creditors to be knowledgeable of the FDCPA and be aware of what seems to be its ever expanding landscape.    

I also believe that a couple of years ago, the Third Circuit handed down a decision involving “safe harbor” language on consumer debt collection letters (i.e., saying “may take legal action” instead of “will take legal action.”)  I believe the case caption was Brown v. Credit Card Services, but I do not recall the citation.  In any event, I believe the decision supported the proposition that even the use of such “safe harbor” language in consumer debt collection letters, MAY be deceptive or misleading if the record shows that the debt collector has a history of NOT taking legal action despite regularly saying only that legal action “may be taken.”  Here again, however, I think we actually have sued on enough retail claims that we would not be vulnerable under this standard either.  But still something to keep in mind.

by Arthur W. Zamosky, Esq.

In the United States, the concept of replevin dates back to the late Nineteenth Century and has been available in most jurisdictions to the present day. 

A replevin action is used to regain possession of chattels that are being wrongfully detained by another party.  The action allows a Court the ability to order that the property be returned to the party asserting rightful ownership prior to a final judgment on the merits. 

Historically, a replevin action could only be sustained by a party that had full ownership of the property sought.  However, Pennsylvania Courts have held that a security interest coupled with a right of immediate possession is sufficient to maintain an action.  Since the Pennsylvania UCC allows a secured party to take immediate possession of the collateral, an action for replevin is appropriate even if the moving party does not have full ownership.

As a prerequisite to bringing a claim for replevin, the moving party must make a demand for return of the property.  Assuming the moving party has either 1) full ownership or 2) a security interest and an immediate right to possession, if the party with possession at the time of the demand refuses to return the property, he or she will have satisfied the “wrongful detention” requirement for replevin.

Actions for replevin must be brought in the County in which the property is located or in any County that the wrongful possessor can be sued under the Rules of Civil Procedure.  An action for replevin is brought by filing a Complaint in the appropriate County. 

After the filing of the Complaint in replevin, in order to take immediate possession of the property, the party seeking the property can seek a writ of seizure from the Court.  The writ must be prepared and served in accordance with the Pennsylvania Rules of Civil Procedure.  The moving party must also post a bond with the Court of double the value of the property at issue.  A hearing on the writ of seizure is then held and a judgment on the disposition of the chattel is made.

The case then goes to trial in a fashion similar to most matters before the Court of Common Pleas.  The parties can opt to have the trial before a Judge only (instead of before a jury) if they like.  The issues in a replevin trial are typically limited to the plaintiff’s ownership or security interest in the chattel and the plaintiff’s right to immediate possession of the chattel.  Those matters need to be proven by a preponderance of the evidence to be successful.  A successful plaintiff in a replevin action also has the right to recover costs and damages, however, exemplary damages are awarded very rarely.   

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 a replevin action in Pennsylvania.  For a more specific analysis of a specific claim or dispute, you should consult an attorney.

by Shawn P. McClure, Esq.

It is a very common situation for a creditor to be owed a large sum of money from a debtor who continues to operate by paying other creditors or parties. Naturally, this is very frustrating. It can also be very disturbing because at the same time there are rumblings of the debtor’s financial instability. At this point, the creditor must decide on a course of action.

Certainly, the creditor has the option of filing a state court breach of contract action and working toward obtaining a judgment. However, litigating a lawsuit takes time and even more time is spent to execute on the judgment. The passage of time affords the debtor the opportunity to continue paying others and ultimately wind down the business.

There is another option, which is often overlooked. Force the debtor into bankruptcy. This is done by filing an involuntary bankruptcy petition. The reason for an involuntary bankruptcy is to prevent and protect creditors from unfair activities and treatment by debtors. The greatest advantage to an involuntary bankruptcy is that it forces bankruptcy upon the debtor rather than allowing the debtor to ultimately file on its own terms. This is extremely important because of the ability to recover payments or wrongful transfers by the debtor within certain time frames leading up to the filing of the bankruptcy petition. These payments and transfers can be brought back into the bankruptcy estate to be properly distributed by the bankruptcy court.

In sum, bankruptcy is not always a bad thing for unsecured creditors. It just simply depends upon whose terms the bankruptcy is filed.

If you are interested in reading more about involuntary bankruptcy click here

by Shawn P. McClure, Esq.

While I subscribe to the belief that a secured lien holder should always know the location of its collateral, I understand that is essentially impossible to practice. Which is why a secured lien holder may some day find themselves in a position where they find their collateral in the possession of a third party. Often that third party is a garage looking to be paid for repairs, towing or storage with respect to the collateral.

Under Pennsylvania law, the secured lien holder is generally on the hook for repairs and towing charges. The theory being that the secured lien holder receives any benefit bestowed upon the collateral. However, a dispute often arises over storage fees. Particularly, where a garage stores the collateral and then makes no effort to inform the secured lien holder of the collateral’s location.

With typical charges of $25.00-$35.00 per day, these storage fees can quickly accumulate. A garage is entitled to any storage fees incurred after the secured lien holder gave “consent” to storing the collateral. Obviously, if the secured lien holder gave express consent to store the collateral, there is no issue. The problem arises in instances of implied consent. Implied consent will be found when the garage has sent notice to the secured lien holder that they have the collateral and the secured lien holder does not pick up the collateral.

However, most problems arise when express consent is not given and notice is not sent. The secured lien holder after months of contacting the Debtor about delinquent payments finally hears from the Debtor that the collateral has been at the local garage for months. So what does a secured lien holder do?

1. Immediately contact the garage and find out exactly what amount of money they are demanding. Obtain a break down of the charges identifying what is for repairs, towing, storage, etc. Also, find out what they are charging per day to store the collateral.

2. Immediately make a reasonable offer, in writing, to the garage to resolve the matter. Pennsylvania case law provides that if a garage declines a reasonable offer to a secured lien holder, then the garage cannot seek any storage fees if it is later found consent to storage did not exist.

3. It is usually best to settle. However, if the garage is unreasonable, then immediate legal action should be taken by contacting your creditors’ rights attorney.

A while back, Nick Krawec wrote an excellent article by this name (see original here). I was just having a conversation with Jennifer Tis about how we could improve our client’s position in a case by agreeing to a proposed payment schedule which we know the debtor won’t keep but, in exchange, asking for additional “credit enhancements” of the kind Nick refers to. For instance, in this case, we know the principal asset is owned by the debtor and his wife. So, in exchange for the payment plan he proposes, we want a guarantee by his wife, or at least a lien on the jointly-held asset. Prompted me to re-post this link and to refer to his terrific article.