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Posts Tagged ‘real estate’

A Dishonorable Discharge – Debt Collection, Contempt, and Efforts to Loosen the Bankruptcy Discharge

Posted on: May 23rd, 2019

By: Matthew Weiss

On April 24, 2019, the United States Supreme Court held oral argument in Taggart v. Lorenzen (In re Taggart), 888 F.3d 438 (9th Cir. 2018), cert. granted, 139 S. Ct. 782 (2019), a case addressing the standard for contempt where a creditor attempts to collect against a debtor whose pre-petition bankruptcy debts have been discharged. At issue is whether a creditor who violates a bankruptcy discharge injunction can avoid contempt where it had a good faith belief that the discharge was inapplicable to it. While the facts in that case are narrow, the Supreme Court’s decision in Taggart could have far-reaching implications for creditors who attempt to collect on debts following a bankruptcy.

The case began when real estate developer Bradley Taggart transferred his 25% interest in Sherwood Park Business Center, LLC (SPBC) to his attorney John Berman. Terry Emmert and Keith Jehnke, who also owned 25% of SPBC, filed suit against Taggart and Berman in Oregon state court asserting that the transfer breached SPBC’s operating agreement because Taggart failed to provide the required notice to Emmert and Jehnke so that they could exercise their right of first refusal. The lawsuit sought attorneys’ fees as permitted under the operating agreement.

Taggart subsequently filed a chapter 7 bankruptcy petition, staying the state court action. Following Taggart’s discharge, the state court action proceeded during which time Taggart was deposed.  The state court ultimately entered a judgment against Taggart and Berman and unwound the transfer of Taggert’s interest. Emmert and Jehnke then filed an application for attorneys’ fees against both Berman and Taggart, specifically seeking fees from Taggart arising after the date of Taggart’s bankruptcy discharge. In response, Taggart moved for the bankruptcy court to reopen his case and then filed a motion seeking to hold Jehnke, Emmert, and SPBC (collectively “Taggart’s creditors”) in contempt.

The bankruptcy court held Taggert’s creditors in contempt after finding that they had knowingly violated the discharge injunction by seeking attorneys’ fees even though they had a subjective good faith belief that the injunction did not apply to them. On appeal, the Ninth Circuit reversed the decision of the bankruptcy court, noting that “the creditor’s good faith belief that the discharge injunction does not apply to the creditor’s claim,” because Taggert had “returned to the fray,” precluded a finding of contempt “even if the creditor’s belief is unreasonable.”  Therefore, the bankruptcy court abused its discretion when it found that Taggart’s creditors knowingly violated the discharge injunction. Taggert’s petition for writ of certiorari with the United States Supreme Court was granted in January, and oral argument was held last month.

Taggart is significant because, if the Supreme Court affirms the Ninth Circuit, creditors will have significantly more leeway to pursue debts following a bankruptcy discharge without fear of being held in contempt so long as they have a “good faith” belief that the injunction does not apply to them, even when their sincerely held belief is unreasonable. While watering down the protections of the Bankruptcy Code’s discharge injunction may provide relief to creditors, it will surely create headaches for discharged bankruptcy debtors who may see increased efforts at collection activity.

If you have any questions or would like more information, please contact Matthew Weiss at [email protected].

Trends in Real Estate Claims

Posted on: March 5th, 2019

By: Peter Catalanotti

In representing real estate brokers through their Errors & Omissions insurance for over a decade, I often get asked what types of claims are trending. What follows is my experience regarding real estate broker claim trends.

Real estate broker claims tend to track the economy.

In increasing and level markets, the claims against real estate brokers often include equitable relief such as specific performance. Often times the plaintiff/buyer will be a plaintiff/attempted buyer. With increasing or level markets, sellers may receive multiple offers. The decision of which offer a seller should take is sometimes a close call. When something goes wrong during the transaction or delays the close of escrow, the seller often prefers to get out of the purchase contract and sell to a backup buyer. Sellers may think that the backup buyer will be less trouble. Occasionally, the seller will offer to repurchase the property.

In decreasing markets and recessions, we see more claims for misrepresentation, failure to disclose, and fraud cases. Sometimes, these cases often involve buyer’s remorse. Plaintiff/buyer then sues for damages. The property they purchased is worth less than they paid for it, so the buyer has an interest in recouping this loss. At least in California, there is almost always a defect in a transaction that an expert can exploit. A buyer who was marginally able to afford a property may be looking for a way out. Buyers behind on mortgage payments may sue the lender, mortgage broker, and real estate broker in an attempt to renegotiate the terms of their mortgage.

One of the reasons that real estate broker claims are hard to track is that the cases that make it to an appellate court or state supreme court were most likely filed years earlier. Therefore, when analyzing a real estate broker claim, it is important to take note of the economy at the time of purchase and the motivations of the plaintiff. Understanding the plaintiff’s motivation can at times help bring the case close to an early resolution.

If you have any questions or would like more information, please contact Peter Catalanotti at [email protected].

Court Rules No Coverage For Pa. Law Firm’s Malpractice Suit

Posted on: November 26th, 2018

By: Barry Brownstein

An insurer does not have to cover a Pennsylvania law firm in a professional malpractice suit that a client filed after the firm allegedly used privileged information to benefit its attorneys’ side business in a real estate development.

The United States District Court for the Western District of Pennsylvania granted Westport Insurance Corp.’s motion for summary judgment in its case against Hippo Fleming & Pertile Law Offices (“HFP”) and attorney Charles Wayne Hippo Jr., agreeing with the insurer that the dispute over a shopping center development was exempted from coverage by the outside businesses exclusion in the firm’s professional liability policy.

Gregory Morris and Morris Development, one of HFP’s longtime clients, alleged that HFP had used information disclosed to the firm under attorney-client privilege to benefit a project by its side businesses, Templar Development and Templar Elmerton. Westport’s insurance policy contained a clear and unambiguous exclusion for lawsuits stemming from any of the policyholders’ outside businesses, and Hippo had not disclosed his involvement in the Templar companies when applying for the policy.

HFP argued that since the underlying lawsuit’s first two allegations of legal malpractice and breach of contract stemmed from the firm’s attorney-client relationship to Morris, Westport had a duty to defend them under the professional liability policy. The court, however, said it was Hippo’s dual role that gave rise to the claims against him.

The court emphasized that the plain language of the complaint in the underlying suit entirely discredits defendants’ argument that counts I and II are based solely on HFP’s role as Morris’s attorney. Counts I and II of the complaint allege that Hippo committed legal malpractice and breach of contract by simultaneously acting as Morris’s attorney and a competing real-estate developer. Therefore, the court held that Westport has no duty to defend because each claim in the underlying suit falls unambiguously within the policy’s outside business exclusion.

If you have any questions or would like more information, please contact Barry Brownstein at [email protected].

Closings Gone Bad

Posted on: October 25th, 2018

By: Dana Maine

Nathan Hardwick IV was convicted by a Northern District of Georgia federal jury on October 12, 2018 of embezzling $26 million from the accounts of his former firm, Morris Hardwick Schneider.  $20 million of this amount was from the firm’s escrow accounts.  The good news for clients of the firm is that firm’s insurer, Fidelity National Finance, stepped in to cover most of the escrow shortfall.  All parties to real estate closings were watching this trial and trying to understand how this scheme could have gone on for as long as it did and involve this amount of money. There are lots of lessons to be learned, and policies to be implemented.  Doubtless, attorneys for escrow agents and their insurers are scurrying to draft these new policies and put them in place.  Hardwick’s sentencing is set for December 19.  He will remain in custody until sentencing.

If you have any questions or would like more information, please contact Dana Maine at [email protected].