Recent Court Ruling Prevents Bankruptcy Claims to Avoid Court-Ordered Restitution By Michael Papuc, Attorney-at-Law

A recent decision by the United States Second Court of Appeals bars criminal offenders from accessing bankruptcy protection as a means of avoiding repayment of court-ordered restitution. The ruling stems from a case in New York in which a defendant’s prison sentence was reduced from approximately four years to one day in exchange for restitution payments to the United States Internal Revenue Service totaling more than $780,000. Despite his conviction for underpaying payroll taxes for a period of years, judges later shortened the defendant’s incarceration period because of his poor health.

After failing to pay restitution for more than a year, the defendant declared bankruptcy without notifying his probation officers or the district court in which he had been sentenced. He later claimed that the protections offered by Chapter 7 of the United States Bankruptcy Code established a stay of his restitution obligations without subjecting him to probation revocation for non-payment. The appeals court, however, determined that restitution payments qualify as an exception to bankruptcy protections because they represent the continuation of administration of criminal court proceedings.

About Michael Papuc: With considerable expertise in the areas of insurance, bankruptcy, and litigation, attorney Michael Papuc facilitates successful outcomes in litigation and other legal matters. The owner of a busy practice in San Francisco, he pursues client objectives through diligent, experienced counsel. Michael Papuc earned his Juris Doctor at the University of California Hastings College of the Law.

San Francisco Attorney Michael Papuc represents Debtors and Creditors in Bankruptcy Proceedings seeking Denial of Discharge for False Statements under oath

by Michael Papuc

Attorney at Law

44 Montgomery St., Suite 2405

San Francisco, CA 94104

415-773-1755

 

San Francisco Attorney Michael Papuc has been practicing law in California since 1987.  Michael Papuc represents debtors and creditors in bankruptcy matters, including adversarial proceedings seeking denial of discharge for false statements under oath

The statutory authority which would support an adversarial proceeding seeking denial of discharge in bankruptcy is 11 U.S.C., sec.1127 (a)(4), which provides in pertinent part as follows:

(a) The court shall grant the debtor a discharge, unless—
…

(4) the debtor knowingly and fraudulently, in or in connection with the case—
(A) made a false oath or account;
(B) presented or used a false claim;
(C) gave, offered, received, or attempted to obtain money, property, or advantage, or a promise of money, property, or advantage, for acting or forbearing to act; or
(D) withheld from an officer of the estate entitled to possession under this title, any recorded information, including books, documents, records, and papers, relating to the debtor’s property or financial affairs; ….

The term “in connection with the case” is very broad.  Any false statement in the bankruptcy papers, at the meeting of creditors, in deposition, qualifies as being in connection with the case.

In order to deny a debtor’s discharge under section 1127 (a)(4), the plaintiff must prove by a preponderance of the evidence that the debtor made a false statement under penalty of perjury, that it was made knowingly and fraudulently, and that it was with respect to a material fact. Materiality is broadly interpreted under this statute:

“A false statement is material if it bears a relationship to the debtor’s business transactions or estate, or concerns the discovery of assets, business dealings, or the existence and disposition of the debtor’s property.” (In re Wills, 243 B.R. 58, 62 (9th Cir. BAP 1999).)

The statute is intended to insure that “the trustee and creditors have accurate information without having to conduct costly investigations.” (Cusano v. Klein, 264 F.3d 936, 946 (9th Cir. 2001).) The focus of the inquiry is not upon the value of the assets that are the subject of an omission or misrepresentation, but whether the false statement interferes with the trustee’s or creditors’ ability to fully investigate the debtor’s pre-bankruptcy financial condition or otherwise adversely affects the administration of the estate. (In re Wills, supra at 63.)

Although discharge provisions must be liberally construed in favor of the debtor and against the complaining party, that does not alter the preponderance of the evidence standard. “Rather, it has been held to mean that actual, rather than constructive, intent is required.” (In re Khalil, CC-07-1164, 2007 WL 4302728, at *6 (9th Cir. BAP Nov. 28, 2007)  For purposes of this statute, a debtor acts knowingly if he acts “deliberately and consciously.” (Khalil, at *7.)  A statement or omission is made fraudulently if the debtor knew it was false at the time it was made and he made the statement “with the intention and purpose of deceiving the creditors.” (In re Roberts, 331 B.R. 876, 884 (9th Cir. BAP 2005), aff’d, 2007 WL 2089041 (9th Cir. 2007).)  As is true of fraud in other contexts, “intent usually must be proven by circumstantial evidence or inferences drawn from the debtor’s course of conduct.” (Khalil, at *9.) Although a pattern of recklessness alone will not suffice to establish fraud, recklessness combined with other circumstances (such as the “badges of fraud”) can support an inference that the debtor acted knowingly and fraudulently. (Khalil, at *12.)

A discharge in bankruptcy is not a right.  It is something which provides a debtor relief from debilitating debt, and provides the debtor with a fresh   Fraud in the bankruptcy case will subject the debtor to denial of discharge, and very often criminal prosecution.  The debtor must be very astute and careful with regard to every statement made in the bankruptcy papers, and all testimony provided.  If the debtor does not know the answer to questions, he or she should say so, and undertake to find the best information possible to respond truthfully and accurately.

Insurer cannot Subrogate against Tenant who pays premiums for Landlord’s insurance policy

by Michael Papuc

Attorney at Law

44 Montgomery Street

Suite 2405

San Francisco, California 94104

415-773-1755

San Francisco Attorney Michael Papuc represents policy holders in lawsuits against insurance companies.

Very often, a landlord will require in a lease that the tenant will pay insurance premiums for the Landlord to purchase insurance for the property the tenant occupies.  When the tenant does this, the tenant becomes an implied co-insured with the landlord under the insurance policy.  If a loss occurs to the property negligently caused by the tenant, the landlord’s insurer will pay for the loss.  Typically the insurer would be entitled to subrogate against the person responsible for the loss.  However, the landlord’s insurer will not be able to subrogate against the tenant, who paid the premiums on the policy, through payments required in the lease.

“No right of subrogation can arise in favor of an insurer against its own insured since, by definition, subrogation exists only with respect to rights of the insurer against third persons to whom the insurer owes no duty.” (St. Paul Fire & Marine Ins. Co. v. Murray Plumbing & Heating Corp. (1976) 65 Cal.App.3d 66, 75.)

Where a loss is caused by the tenant’s activities, no subrogation right exists against the tenant because the tenant be is treated as an implied in law co-insured.   (Liberty Mutual Fire Ins. Co. v. Auto Spring Supply Co. (1976) 59 Cal.App.3d 860, 865.)

Even if not named in the policy, the tenant is treated as an implied in law coinsured: “It is quite obvious … that the parties to the lease … all intended that the proceeds of … the fire insurance policy, maintained at [tenant’s] expense, were to constitute the protection of all parties to the lease document … It would also be inequitable to allow [insurance company] to transfer the risk wholly to [tenant]–the entity which paid [insurance company’s] premiums … to avoid this very risk.” (Liberty Mut. Fire Ins. Co. v. Auto Spring Supply Co., supra, 59 CA3d at 865.)

Evictions of Section 8 Tenants in San Francisco for Nuisance

by Michael Papuc

Attorney at Law

44 Montgomery Street, Suite 2405

San Francisco, CA 94104

415-773-1755

 

Michael Papuc represents landlords and tenants in San Francisco eviction proceedings.

Landlords in San Francisco who enter agreements with the San Francisco Housing Authority to provide a tenancy to low income tenants have to go through specified procedures to evict the tenant for nuisance. 

The landlord must serve a three day notice to quit, specifying the reasons for the eviction, provide a copy to the San Francisco Rent Control Board, and a copy to the San Francisco Housing Authority. 

After the three day period following service, the Landlord must bring an unlawful detainer action against the tenant, and again serve the tenant with the lawsuit.  The tenant has 5 days to respond to the Complaint.  If tenant fails to timely respond, the landlord can obtain a default judgment for possession, and begin eviction proceedings with the Sheriff.   If the tenant timely responds to the complaint, the landlord must submit a memorandum to set the case for trial, and trial is set within 20 days thereafter.  

It is often less expensive and less risky for the landlord and tenant to settle the case, providing the tenant a specified time to move out, with the landlord being able to enforce the settlement agreement as a judgment if the tenant does not leave pursuant to time-table agreed upon.

San Francisco Administrative Code, sec, 37.9(a)(3) states:

(a) A landlord shall not endeavor to recover possession of a rental unit unless:

(3) The tenant is committing or permitting to exist a nuisance in, or is causing substantial damage to, the rental unit, or is creating a substantial interference with the comfort, safety or enjoyment of the landlord or tenants in the building, and the nature of such nuisance, damage or interference is specifically stated by the landlord in the writing as required by Section 37.9(c).

These cases will need to be proven with testimony from other tenants, police reports, testimony from police officers, and anyone with knowledge of the conduct of the tenant causing the nuisance.  If the landlord cannot prove his or her case, the landlord can be subject to wrongful eviction proceedings under the San Francisco Rent Control Ordinance.

 

Constitutional Guarantee of Mechanics Lien

by Michael Papuc

Attorney at Law

44 Montgomery Street, Suite 2405

San Francisco, CA 94104

415-773-1755

        San Francisco Attorney Michael Papuc represents clients in mechanics lien, stop notice, notice of completion, notice of cessation, and similar matters.

The right to a mechanics lien is guaranteed by Cal. Const., art. XIV, sec. 3.  It provides that mechanics, persons furnishing materials, artisans, and laborers have a lien on property on which they bestowed labor or furnished materials.  The lien is for the value of the labor done and materials furnished.  (Cal. Const., art. XIV, sec. 3.)

Since the legislature must provide for the speedy and efficient enforcement of such a lien (Cal. Const., art. XIV, sec. 3), the constitutional right to a mechanics lien is not self-executing and must be supplemented by legislative action.  (Spinney v. Griffith (1893) 98 Cal. 149, 151-152.)  The constitutional guarantee is a two way street: the Legislature must balance the interests of both the lien claimants to receive their money as soon as possible after supplying labor or for materials.  At the same time, it must arrange for property owners, whose interests must also be protected, to have their titles cleared as soon as possible so that they will have some marketability.  (Borchers Bros. V. Buckeye Incubator Co. (1963) 59 Cal.2d. 234, 239.)  The Legislature is empowered to adopt legislation that will relieve the owner of the burden of the lien while at the same time affording the lien claimant reasonable assurance that the claim, if valid, will be paid in full.  (Frank Curran Lumber Co. v. Eleven Co. (1969) 271 Cal.App.2d 175, 183-184 (constitutionality of release bonds freeing property subject to mechanics lien.)

A statute exempting certain property from legal process (i.e., Govt. Code, sec. 31452 (county employees’ retirement association’s property) may not be applied so as to interfere with the constitutional right to mechanics liens (Parsons Brinckerhoff Quade & Douglas, Inc. v. Kern County Employees Ret. Assn. (1992) 5 Cal.App.4th 1264, 1269-1270.)

Assignment of Future Payments as a tool to Enforce Judgments

by Michael Papuc

Attorney at Law

44 Montgomery Street, Suite 2405

San Francisco, California 94104

415-773-1755

 

San Francisco Attorney Michael Papuc represents clients in collection and bankruptcy matters.

Very often judgment debtors will do all they can to hide their assets, and prevent collection efforts.  A judgment creditor can take a debtor’s examination to find out the types of assets the debtor has, and if the debtor has money coming to him or her from any source, the court can issue an order assigning future payments owed the debtor to the judgment creditor.   This works well if the debtor owns rental property or has accounts receivables.

Code Civ. Proc. § 708.510 states that the court may order the judgment debtor to assign rights to payments due (Code Civ. Proc. § 708.510(a)).   Other provisions of the statutory scheme indicate the assignment may be ordered directly by the court. For example, the statutes contain language such as “order an assignment,” “right to payment may be assigned,” “assignment of payments,” “order assigning the right to payments” and “reassignment of the right to payments” (see Code Civ. Proc.§§ 708.510(c),(d),(e) & (f), 708.530, 708.540, 708.560(b)).

Inter-related Acts Exclusion in Directors and Officers Liability Insurance Policies

by Michael Papuc

Attorney at Law

44 Montgomery Street, Suite 2405

San Francisco, California 94104

415-773-1755

email: Michel.Papuc

San Francisco Attorney Michael Papuc represents policyholders on insurance claims.

Directors and Officers in corporations sometimes get sued for a series of acts which occur during a course of time.  These acts are often covered by Directors and Officers Liability Policies, issued to the corporation.  These policies are usually “Claims Made” policies, which would cover the inter-related acts within the policy period, usually one year.  Sometimes, the interrelated acts sued upon occur during several years, placing different carriers are on the risk depending on the language of the varius policies.  Th directors or officers being sued has an incentive to bring in as much insurance coverage from different carriers as possible.  The carriers, on the other hand, have an incentive to limit the insurance to a single carrier on the risk during a single policy period.

A typical insuring clause, would state:

“1.  Insurer shall pay on behalf of the Directors and Officers Loss resulting from any Claim first made against the Directors and Officers during the policy period.”

The D&O policy would likely define wrong ful acts as follows:

“9.  Wrongful Act means any actual or alleged error, omission, misleading statement, neglect, breach of duty to act by:

“a) any of the Directors and Officers, while acting in their capacity as:

“(i) a director, officer or employee of the Company or the functional equivalent to a director or officer of the Company in the event the Company is incorporated or domiciled outside the United States; …”

For an interrelated claim to be deemed made during a prior policy period, all interrelated claims must have been made to the insured during the same prior policy period. (Homestead Ins. Co. v. American Empire Surplus Lines Ins. Co. (1996) 44 Cal.App.4th 1297, 1306.)

\

The Homestead court stated:

“This policy definition of ‘claim’ remains subordinate to, and does not vary, the requirement in the insuring agreements that American Empire agrees to pay for loss which the insured shall become legally obligated to pay ‘from any claim made against the Insured during the Policy Period[.]’ To be covered by the policy, a claim-or a group or series of claims ‘treated as a single claim’-must still be made ‘during the Policy Period.’”(Id. at 1306; emphasis added.) 

Thus, even when there are different actions by directors during a course of time, during different insurance policy periods, each carrier on the risk during the separate policy period must pickup the liability claim and undertake its duty to defend the officer or director.

 

　

 

 

 

 

 

Insurer cannot Subrogate against its own insured

by Michael Papuc

Attorney at Law

44 Montgomery Street

Suite 2405

San Francisco, California 94104

415-773-1755

Fax: 415-723-9703

email:

Subrogation is an insurance company’s right to go after a person or entity responsible for a loss that the insurance company paid to its insured.  For example, when an insured is involved in a car accident, the insurance company pays for the damage to the insured’s car.  Under the insurance policy, the insurance company is entitled to stand in the shoes of its insured to attempt to recover the amount the insurance company paid to the insured against the person responsible for the accident.

Sometimes Homeowner Associations (“HOA”) vote to require the owners of the various condominiums to purchase liability insurance to cover property damage losses to the common areas of the complex, which are covered by the insurance policy issued to the HOA, which the owner/members pay a premium for through HOA dues, and who are beneficiaries under the policy.  The request or requirement by the HOA in such a case provides duplicative coverage, which is unnecessary, because the HOA policy will usually cover the property damage loss, and the insurer who issues the policy to the HOA cannot subrogate against the homeowners who are its own insureds.  

An insurer who has also issued liability insurance to the person responsible for causing an insured loss cannot enforce subrogation rights against its own insured: “For the insurer to recover from its insured for an insured loss or liability would undermine the insured’s coverage and would be inequitable.” (Truck Ins. Exch. v. County of Los Angeles (2002) 95 Cal.App.4th 13, 21; see McKinley v. XL Specialty Ins. Co. (2005) 131 Cal.App.4th 1572, 1575.)

Where an insurance policy expressly covers more than one insured, the insurer cannot subrogate against any insured covered by the policy: “No right of subrogation can arise in favor of an insurer against its own insured since, by definition, subrogation exists only with respect to rights of the insurer against third persons to whom the insurer owes no duty.” (St. Paul Fire & Marine Ins. Co. v. Murray Plumbing & Heating Corp. (1976) 65 Cal.App.3d 66, 75.)

The paradigm case is where Tenant, named as an additional insured under Landlord’s property insurance policy, negligently causes the property to burn down. The insurer paying the fire loss acquires no right of subrogation against Tenant because Tenant is insured under the policy.

To allow subrogation in such cases would permit the insurer to pass on the loss from itself to its own insured, and thus avoid the coverage which the insured purchased. (St. Paul Fire & Marine Ins. Co. v. Murray Plumbing & Heating Corp., supra, 65 Cal.App.3d at 76)

Renewal of Judgments in California where Debtor files for Bankruptcy Protection

by Michael Papuc

Attorney at Law

44 Montgomery Street, Suite 2405

San Francisco, California 94104

415-773-1755

Michael.Papuc@gmail.com

San Francisco Attorney Michael Papuc represents clients in collection and  bankruptcy proceedings. 

Under California law, a judgment can be enforced for 10 years from date of judgment, and can be renewed for subsequent 10 year periods, so long the judgment is renewed prior to expiration.  (Code Civ. Proc. secs. 683.120(b), 683.150(a).)

When a judgment debtor files for bankruptcy protection, the automatic stay applicable to bankruptcy proceedings enjoins “commencement or continuation” of most debt enforcement proceedings, including “any act to create, perfect or enforce any lien” against the debtor’s estate.  Since federal bankruptcy law supersedes conflicting state law, judgment renewals are automatically stayed upon the debtor’s filing of a bankruptcy petition. Thus, absent an applicable exception to or termination of the automatic stay (e.g., bankruptcy case is closed), the judgment creditor must obtain relief from the automatic stay before proceeding. (11 USC § 362; In re Lobherr (BC CD CA 2002) 282 BR 912, 915–916 (judgment renewal was continuation of proceeding against debtor under 11 USC § 362(a)(1).)

Where the 10–year enforcement period would otherwise expire during the automatic stay, the period is extended until 30 days after notice of termination or expiration of the automatic stay. (11 USC § 108(c); In re Spirtos (9th Cir. 2000) 221 F3d 1079, 1080–1082; In re Hunters Run Ltd. Partnership (9th Cir. 1989) 875 F2d 1425, 1428–1429.)  Thus, if the 10 year period to renew the judgment expired during the course of the bankruptcy proceedings, the judgment creditor has only 30 days after termination of the automatic stay in bankruptcy re-new the judgment.

Good Faith Reliance on Advice of Counsel is a High Risk Defense Available to a Debtor who is Challenged on his or her Bankruptcy Filing

San Francisco Attorney Michael Papuc represents debtors and creditors in bankruptcy proceedings.

A debtor’s goal in filing for bankruptcy is to obtain a discharge of his or her debts. It is very important that the debtor be honest and forthright in completing bankruptcy papers, including the Petition, Schedules of Property Owned or Leased, Statement of Financial Affairs, including providing complete and accurate information of all Income and Expenses. The Debtor will be questioned under oath at the meeting of creditors. Failure to provide honest answers to questions posed in writing or orally under oath may result in denial of discharge, and possible criminal prosecution. Very often, the debtor will rely on his or her attorney’s advice in providing answers. When doing so, the debtor must act in good faith in dealing with his or her attorney, by providing complete information to the attorney, so that the attorney may properly advise the debtor on how to answer anticipated questions.

Under 11 U.S.C. § 727(a)(4), a debtor can be denied a discharge if it is proven by a preponderance of the evidence that the debtor made a false statement under penalty of perjury, that it was made knowingly and fraudulently, and that it was with respect to a material fact.

Sometimes the debtor will rely on the defense of good faith reliance on advice of counsel, in an attempt to negate the claim that the debtor knowingly and fraudulently made false statement under penalty of perjury. This is a high risk move, because the entire file of the debtor’s attorney, including all confidential communications between the attorney and client (debtor), becomes discoverable by the trustee or creditor bringing the adversarial proceeding.

The case of In re Adeeb, 787 F.2d 1339, 1343 (9th Cir. 1986) states:”Generally, a debtor who acts in reliance on the advice of his attorney lacks the intent required to deny him a discharge . . . However, the debtor’s reliance must be in good faith.”

Thus, for a debtor to prevail on this defense, he or she must provide all information in debtor’s possession, custody or control which would be sufficient for the attorney to provide appropriate advice on what to write in the bankruptcy papers, or provide appropriate advice on what to testify to during the course of proceedings. If the debtor fails to provide complete information to his attorney, the defense good faith reliance on advice of counsel will fail.