Commercial Banking, Collections, and Bankruptcy

Dist. Ct. erred in finding that defendant-bank was not on "inquiry notice" of debtor’s wrongful pledging of its customers’ assets that debtor used to secure loans from defendant so as to defeat Trustee’s attempt to strip defendant of its secured creditor status under 11 USC section 548(a)(1)(A) after debtor filed for bankruptcy. While Dist. Ct. found that defendant lacked knowledge that debtor had actually pledged its customers’ assets without their permission, inquiry notice requires only knowledge that would lead reasonable person to inquire further for possible wrongdoing. Moreover, email from one of defendant’s Directors, who questioned amount of debtor’s proposed collateral when compared to its significantly lower amount of capital, was sufficient to place defendant on notice so as to require further inquiry on source of collateral. As such, Trustee’s request should have been granted so as to render defendant as unsecured creditor with respect to repayment of loan proceeds. Doctrine of equitable subordination did not apply so as to reduce defendant’s priority with respect to other creditors since defendant was only negligent with respect to its failure to uncover true status of debtor’s proposed collateral.

Bankruptcy Ct. did not abuse its discretion in denying creditor/employee’s 2013 motion to reopen debtor/employer’s Chapter 11 bankruptcy proceeding that had been closed in 2009 so that creditor could pursue his 2004 California state-court discrimination claim against debtor that had been transferred to Bankruptcy Ct. prior to said closing. Instant three-plus year delay in seeking reopening justified denial of creditor’s request. Moreover, fact that Bankruptcy Ct. failed to timely docket creditor’s discrimination claim while bankruptcy proceeding was still open did not require different result, where creditor’s counsel had ample opportunity to bring such error to Bankruptcy Ct.'s attention. Also, creditor could not rely on alleged misstatement from debtor’s counsel that portion of creditor’s claim had already been paid to justify instant delay, where creditor would have known one way or another whether his claim had been paid.

Bankruptcy Ct. erred in denying debtor’s request under section 105(a) for 60-day stay of guaranty lawsuits totaling $12 billion against debtor’s owner (who had guarantied certain loans issued to debtor) to allow for issuance of bankruptcy examiner’s report concerning potential settlement of all claims in bankruptcy proceeding, where creditors who had received said guaranties challenged in state and federal court owner’s attempts to repudiate said guaranties, and where basis for denial of stay request was Bankruptcy Ct.’s belief that it lacked authority to enter such stay. While instant guaranty lawsuits are not same claims that gave rise to disputes in instant bankruptcy proceeding that challenged owner’s attempt to transfer assets from debtor in order for owner to get out of said guaranties, section 105(a) grants Bankruptcy Ct. ability to stay said lawsuits, where they were sufficiently related to instant disputes, and where guaranty lawsuits could have effect on how much money is left in bankruptcy estate to satisfy all creditors' claims against debtor. Ct. rejected argument that decisions in Fischer, 155 F.3d 876 and Teknek, 563 F.3d 639, precluded such stay, where instant stay could facilitate prompt windup of bankruptcy estate.

In action alleging violation of Fair Debt Collection Practices Act (FDCPA), Dist. Ct. erred in denying plaintiff’s motion for certification of class action under circumstances where plaintiff alleged that defendants sent misleading dunning letter that led consumers to believe that subject debt was legally enforceable, when in fact debt was not legally enforceable because statute of limitations had run. While Dist. Ct. found that issues common to proposed class did not predominate over issues affecting individual class members since factual questions remained as to whether class members actually paid on debt because of language in letter, Ct. of Appeals found that Dist. Ct. should have certified proposed class, where proposed class met numerosity, commonality, typicality and adequacy requirements of Rule 23(a), and where issues of causation and damages could have been bifurcated from case. Moreover, because FDCPA is strict liability statute, all members of proposed class would be entitled to statutory damages regardless of whether class members had made any payments following receipt of dunning letter.

Dist. Ct. did not err in granting plaintiff-debtor’s motion for summary judgment in action alleging that defendant-debt collector violated section 1692g(b) of Fair Debt Collection Practices Act (FDCPA) by attempting to collect debt from plaintiff. Section 1692g(b) required defendant to cease collection efforts until it had verified that instant debt was plaintiff’s, and record showed that plaintiff had disputed that he owed instant medical debt during telephone call from plaintiff seeking to collect on debt, and that defendant had not verified said debt at time it subsequently sent letter to plaintiff declaring that plaintiff owed on debt and instructing plaintiff to return portion of letter with appropriate payment. Fact that plaintiff did not believe he owed debt even after receiving instant letter did not require different result. Also, defendant failed to establish that it qualified for “bona fide error” exception under section 1692k(c), where: (1) although defendant’s employee stated that while she intentionally sent letter, she did not intend to violate FDCPA, said declaration did not establish existence of either clerical or factual mistake; and (2) although defendant stated that sending of instant letter was against its policy, defendant failed to present evidence about what its policy instructed employee to do once debtor contested debt.

Dist. Ct. erred in entering judgment in favor of plaintiff in breach of contract action alleging that defendant’s failure to confirm or ship plaintiff’s orders for carbon black sold by defendant violated parties’ contract that Dist. Ct. construed as requirements contract calling for defendant to sell as much carbon black to plaintiff as plaintiff needed. While contract stated that intent of parties was for defendant to sell 1.8 million pounds of carbon black to plaintiff annually, such contract could not be viewed as requirements contract, where plaintiff was not obligated to purchase any amount of carbon black from defendant and was not prohibited from buying carbon black from any other seller.