The Fourth Circuit recently found that class proofs of claim are permissible subject to certification under Bankruptcy Rule 7023 (incorporating Civil Rule 23) and Rule 9014. Gentry v. Seigel, No. 10-2418 (4th Cir. Feb. 2, 2012). NACBA and NACA filed an amicus brief seeking reversal of the bankruptcy court’s decision that the bankruptcy process is always superior to class actions. The Fourth Circuit agreed. It held that certification of a creditor class is fact specific issue to be determined on a case-by-case basis. The court further held that a motion for class certification need not be filed before the expiration of the claims bar date. While the court ultimately affirmed the denial of class certification, it made clear that its decision was based on the specific facts of the case rather than on a bright line rule disfavoring class proofs of claim.
Gentry 4th Cir opinion
Sidestepping the 544 Standing Issue
Two weeks ago the Fourth Circuit Court of Appeals side-stepped the issue of whether a chapter 13 debtor has standing under section 544 to avoid a pre-petition transfer. In re Lee, 2012 WL 29185, No. 10-1772 (Jan. 6, 2012) (per curiam). The bankruptcy court had previously ruled against the debtor on the standing issue and the district court affirmed. In the case, involving a family dispute over real property, the Fourth Circuit held that the debtor was collaterally estopped from asserting the existence of an avoidable transfer or interest in the property on the date of filing.
Whether a debtor has standing to exercise section 544 avoidance powers has long been a contentious issue that has divided bankruptcy courts and bankruptcy appellate panels. Most recently, in U.S. Bank Nat’l Ass’n v. Barbee, No. 10-8074 (B.A.P. 6th Cir., Dec. 12, 2011), the Bankruptcy Appellate Panel for the Sixth Circuit concluded that a debtor had derivative standing to seek avoidance of an unperfected lien on his manufactured home under section 544. The court identified certain economic realities that supported its finding: the trustee’s lack of resources to pursue every legitimate avoidance claim, the requirement that the plan conform to section 1325(a)(4), and the possibility of the debtor’s being accused of bad faith if he proposes a plan that does include avoidance of a clearly avoidable lien. (U.S. Bank filed a notice of appeal to the Sixth Circuit Court of Appeals on Jan. 10, 2012.)
Oklahoma Requires Proof of Standing at Time of Foreclosure Petition
The Oklahoma Supreme Court recently held Deutsche Bank’s feet to the fire when the debtor challenged Deutsche Bank’s (DB) standing to bring a foreclosure action against him. Deutsche Bank v. Brumbaugh, No. 109223 (January 17, 2012). DB attached the note, mortgage, and loan modification papers to its foreclosure petition but Mr. Brumbaugh denied that the papers were the ones he had signed. He argued that DB had not proved that it was the proper party to bring a foreclosure action. DB filed for summary judgment supported by an affidavit by the servicer averring that DB was the current holder of the note and mortgage. However, the affidavit failed to state when DB became the holder. In its response to debtor’s brief DB attached a copy of the note with an undated indorsement to DB. The trial court granted summary judgment and the Oklahoma Supreme Court reversed and remanded, finding that “It is a fundamental precept of the law to expect a foreclosing party to actually be in possession of its claimed interest in the note, and have the proper supporting documentation in hand when filing suit.” Because the indorsed note finally presented to the court was undated, there was insufficient proof that DB was the holder at the time the foreclosure petition was filed. See also Patterson v. GMAC Mortgage, No. 2100490 (Ala. Ct. Civ. App., Jan. 20, 2012) (mortgage assigned to GMAC after it initiated foreclosure proceedings therefore GMAC lacked standing for ejectment action).