Expanding upon its decision in Matter of Zibman, 268 F.3d 298 (5th Cir. Fifth Circuit has ruled that the proceeds from sale of a Texas homestead lose their exempt character if they are not reinvested within six months–even when the sale takes place post-petition. Viegelahn v. Frost (In re Frost), No. 12-50811 (5th Cir. The opinion can be found here. The opinion creates a malpractice trap and arguably conflicts with this week’s Supreme Court decision in Law v. Siegel. These provisions should make it pretty clear that once property is allowed as exempt, it is not liable for pre-petition debts or administrative claims with very limited exemptions. However, Texas has a vanishing exemption. While Texas has one of the most generous homestead exemptions in the country, proceeds from sale of a homestead only remain exempt so long as they are reinvested within six months. Texas Property Code Sec. In Matter of Zibman, the Fifth Circuit held that the Texas Property Code grants only a provisional exemption to homestead proceeds. Where the homestead was sold prior to bankruptcy and the debtor held proceeds on the petition date, the exemption would be allowed subject to the reinvestment provision.
Zibman can be reconciled with section 522(c) and (k) for the reason that the limitation on the exemption existed on the petition date. In other words, the debtor had an exemption in a fund of money so long as he used that money to purchase a new homestead within six months. This is contrasted with the exemption in the homestead itself which was not subject to defeasance. Mark Frost filed a chapter 13 petition on November 30, 2009. At that time, he owned a home in Cibolo, Texas. On March 26, 2010, the Bankruptcy Court entered an order allowing him to sell his home. The Trustee objected to the sale on the basis that the Debtor should be required to re-invest the proceeds within six months. The Debtor subsequently proposed a plan that would pay creditors 1% on their claims. On December 5, 2010, which was about seven months after the sale, the Trustee objected to the plan.
The Trustee argued that the proceeds from sale of the homestead should be paid to creditors because they had not been reinvested within six months. Of course, the proceeds could NOT have been reinvested within six months because the Trustee had been holding them. 40,000 to the Debtor. On January 27, 2011, the Court conducted a hearing on the Trustee’s Objection to the Motion to Sell Property Free and Clear of Liens. This was odd because the prior order entered on March 26, 2010 did not indicate that the Court was reserving a ruling upon the Trustee’s objection. At this hearing, the Court ruled that the Debtor would be given six months in which to reinvest the proceeds. 23,000.00 of the funds previously distributed to him for purposes other than buying a new homestead, that these funds had lost their exempt character and would have to be paid to creditors under the plan. Thus, the Court gave and the Court gave away.
The Debtor appealed to the District Court which affirmed. 23,000 which was not reinvested. While the record is not clear, apparently the other funds released to the Debtor were reinvested in a homestead since they were not mentioned again. 18,000 was held in trust for the Debtor to purchase a new homestead and the remaining funds were paid to creditors. This does not appear to accurately describe what transpired below. The facts listed above are taken from my review of the Bankruptcy Court docket and orders rather than the Fifth Circuit’s opinion. The Fifth Circuit affirmed. It held that Zibman applied to the post-petition sale of the homestead. Frost’s homestead was exempted from the estate—when the rest of his assets were not—by virtue of its character as a homestead. As in Zibman, this “essential element of the exemption must continue in effect even during the pendency of the bankruptcy.” Id. Once Frost sold his homestead, the essential character of the homestead changed from “homestead” to “proceeds,” placing it under section 41.001(c)’s six month exemption.
Because he did not reinvest those proceeds within that time period, they are removed from the protection of Texas bankruptcy law and no longer exempt from the estate. The Fifth Circuit also ruled that the timing of the sale, whether pre or post-petition did not affect the analysis. This temporal distinction is insufficient to escape the holding of Zibman. The Court also rejected the argument that Schwab v. Reilly, 560 U.S. 770 (2010) preempted the Texas law. Schwab v. Reilly divided exemptions into those which consist of a dollar amount versus those which attach to the thing itself. The Debtor argued that because the thing was exempt that it remained exempt. The Fifth Circuit might want to take another look at this one. For one thing, the opinion completely fails to appreciate the case’s unique procedural posture which could have provided a more coherent basis for the Court’s ruling. It also seems to fumble the intersection between the Bankruptcy Code and Texas exemption law. This could result in major mayhem in future cases. This was a chapter 13 case. As a result, property acquired post-petition is included in the estate.
11 U.S.C. Sec. 1306. The proceeds from sale of the homestead could have been analogized to property acquired post-petition which would only be exempt if re-invested in a new homestead within six months. As a result, the timing that would matter is whether the homestead was sold during the case or subsequently. The expanded definition of property of the estate in a chapter 13 case could justify the result in the Frost case. However, this was not discussed by the Court. How would it be applied in a chapter 7 case? Judge Tony Davis rejected the application of Zibman to a post-petition sale of a homestead in a chapter 7 case in a well-reasoned opinion in In re D’Avila, 498 B.R. 150 (Bankr. W. D. Tex. Hopefully the Circuit would agree with Judge Davis when faced with a Chapter 7 case. However, like I said, the Frost decision does not make this clear.
I also think the Court was incorrect on the temporal issue. When the Debtor filed bankruptcy on November 30, 2009, he owned a homestead. By the time that he filed the Motion to Sell Property Free and Clear of Liens, the exemption on that property was final. As a result, the property left the estate. In the words of Neil Young, “once you’re gone, you can’t come back.” That applies to property of the estate as well. Would the court hold that property sold free and clear of liens or abandoned could revert back to the estate after the debtor and third parties had acted in reliance? I don’t think so. Additionally, the factual application of the case is contrary to Texas law. Under Texas law, proceeds from a homestead remain exempt for six months. The Debtor can do whatever he wants with the money during those six months. If the Debtor spends the proceeds of the homestead on fine dining and poor investments, creditors can’t get the money back.
However, the Bankruptcy Court held (and the reviewing courts agreed) that spending part of the homestead proceeds during the six month exemption period meant that a similar portion of the unexpended homestead proceeds lost their exempt character. That does not seem to make sense. I think that the Debtor was on the right track. Exempt is exempt with one caveat. I would agree that if a debtor sells a homestead during a chapter 13 and has proceeds left over six months later, that the unexpended money would constitute property of the estate. However, if the Debtor uses the money to buy a new home or spends it on wild living, it is simply not there to become property of the estate. The Court might also want to think about how Law v. Siegel affects this case. In Law, the Ninth Circuit held that a Bankruptcy Court could surcharge a debtor’s exempt property based on bad behavior.
The Supreme Court reversed, holding that the clear language of section 522(k) prevented the Court from using exempt property to pay administrative expenses regardless of the reason. Section 522(c) says the same thing with regard to pre-petition claims. Granted, Law v. Siegel was about the abuse of section 105 to override a clear statutory provision while the Court did not rely on section 105 in this case. However, the result of undermining the statutory protection is the same and should make a difference. If the Frost case remains good law, the only good advice to a debtor with a Texas homestead is plan to hold on to it indefinitely or be ready to buy a new homestead within six months. Any other advice will place your client and your malpractice insurance at risk. The other take away is never let the trustee hold the money from sale of your homestead. Here, the trustee held on to the funds for six months and then tried to claim that the debtor had forfeited his exemption altogether. Then when the Bankruptcy Court allowed some of the funds to be released to the Debtor without stating any conditions, the Court clawed that money back when it wasn’t used for purchase of a homestead. What the Debtor should have done in this case was to file his bankruptcy to get the benefit of the automatic stay and then dismissed or converted the case once the sale went through. While this may seem like an abuse of chapter 13, it is a rational response to an irrational result.
A “Constitutional Convention” to address further reform? The President of the Supreme Court of the United Kingdom (Lord Neuberger) has delivered a couple of rather interesting speeches. Please read them in full. The Conkerton Lecture is essentially Lord Neuberger’s look back at the first 5 years of the Supreme Court of the UK. He looks at several of the cases the court has decided and appeared keen to put the record straight in some areas where there has perhaps been misrepresentation of the decisions of the court. ] UKSC 41, Lord Neuberger pointed out that the claimant’s criticism about provision of equipment for the armed forces was aimed at civil servants in the Ministry and not at battlefield commanders. For Lord Neuberger, rights such as those embodied in the European Convention on Human Rights are fundamental to the rule of law, particularly in a time of ever-increasing government powers. However, Lord Neuberger commented that reliance on the convention has rather hampered the development of the common law which was (and is) open to receive new ideas and concepts.
Lawyers are trained to litigate and negotiate. Investigators are trained to investigate. The New Hampshire Supreme Court also recognized the value of a professional investigation in a child custody matter. There are a few laws that directly apply to investigators. Most, but not all, investigators are aware of these laws, the attorney should be too. Any investigation, for a fee, requires a license in New Hampshire. The statute governing these activities is RSA 106-f: 4. It is the activity that is regulated, not the title of the provider. There are various entities performing various investigations in New Hampshire, without license. 50,000.00 bond is on file with the State. The New Hampshire Supreme Court stated that investigators can be held liable for the actions of their clients, even if the action is a crime. 110, 00.00 in profit she made after obtaining telephone toll records by pretext. For a longtime this was a gray area.
Recent Federal Legislation makes this illegal, but there are still services offering to do it, they just leave out the pretext part in their advertising. The GLB (Gramm-Leach-Bliley Act) is one law that governs activities in accessing certain data sources which are used in doing backgrounds or skip tracing for law firms. A person must have a permissible purpose under the GBL to access data, like credit headers. It cannot be resold to the public. The GLB also restricts pretexting to obtain financial information, but it does leave room for work what involves recovering funds from deadbeat dads. Accessing DMV information is harder here than in other States. Federal Law, the Driver Privacy Protection Act, allows for access “in anticipation of litigation.” Sadly we did not follow that and RSA 260:14 is far more restrictive. Not only do you need a docket number but a letter of explanation describing what you need and why you need it.
Intrusive, but it is the law. Clandestine Surveillance is allowed under RSA 106-f. Note the statutory term “clandestine.” Theoretically, stalking should not be an issue, but it became one in the Miller V. Blackden decision. Surveillance is an exception to the stalking law, if done properly. Clearly a clandestine surveillance is protected here and this is what the Legislature intended. It is an ‘in your face’, not so clandestine, surveillance that is prohibited under certain circumstances. The burden is on the investigator to prove he or she has a lawful purpose. The attorney must be aware of this when assigning surveillance to an investigator. 1. Identifies himself or herself as a representative of the defendant. 2. Acknowledges the existence of the protective order. 3. Informs the plaintiff that he or she has no obligation to speak. 4. Terminates contact with the plaintiff if the plaintiff expresses an unwillingness to talk.
The Supreme Court ruled in a 5-4 decision to make it easier for manufacturers to require retailers to honor manufacturer assigned Minimum Advertised Price (MAP). Dissenting justices said that the ruling would likely drive up retail prices. What will be the ruling of the consumers? The high court’s decision overrules an existing anti-trust statute that made MAP agreements illegal. In the future, courts will evaluate each individual case to determine if it violates anti-trust laws. With this ruling, new lines for measuring anti-trust will be determined by judges on a case by case basis. Each case will document and establish boundaries for future reference. One possible outcome of the ruling is that it creates an opportunity to level the playing field between major retail enterprise like Best Buy, Circuit City and Wal-Mart with the locally owned independent dealers. If a manufacturer requires all locations to honor the manufacturer imposed Minimum Advertised Price, then it is feasible that a product may have exactly the same price regardless of the sales channel.
For end-user consumers, if there is sudden consistency in retail pricing from every location, then different considerations would become more important in the decision making process. If there is no competitive price advantage between online options and brick-and-mortar neighborhood retail stores, then consumers may be swayed by convenience, installation options, service or speed of delivery. Service and Solutions could begin to take precedence over price and performance. Although the move could create competitive consistency for the Minimum Advertised Price for consumers, it does not imply that the same will apply to the purchasing power of the large retail chains. Even if the retail price is the same to consumer, companies like Costco, Wal-Mart and Best Buy will still have significantly stronger purchasing power in comparison to the smaller chains or resellers. Although the price to big retail would not go up, the margin and profit could benefit from consistent retail pricing.
Increased margin would enable big buyers to become more competitive in other areas of the business. The Supreme Court has removed a large stone from the center or the rapidly moving stream of Consumer Electronics business. With time, there will be a series of smaller stones placed in the stream as various advocates challenge and test the boundaries of reasonableness in court. Despite the expense of litigation and the inevitable stones that will be placed in it’s path, business and commerce will adjust the flow just as fast flowing water continues to find a way downstream. The ruling itself is an acknowledgement of a significant change in the marketplace for technology in commerce. The number of brands and manufacturers competing on Consumer Electronics is much larger and more diverse today than in the past. It is mush easier to establish new brands with direct access to dealer channels for original equipment manufacturers.
How will the up and coming brands respond to the ability to designate Minimum Advertised Price in comparison to the desire for a bigger piece of the market share pie? Price and demand can not be dictated locally in a global market. The advent of personal media that can be downloaded from the Internet and stored on personal devices has virtually wiped out an entire market of retail music stores in the blink of an eye. Record Stores are now few and far between, primarily relegated to small sections inside of consumer electronics retail stores or bookstores. Online music venues offer easy options for artists, albums or single tracks. It was not a Supreme Court ruling that imposed such a dramatic change to the industry, but rather the fast flowing course of business as determined by consumer demand. Have you tried to use a public pay phone lately? Could you find one now if you needed it? Cell phones are not free to manufacture, but they can be free from a carrier if you sign-up for service. If the cell phone manufacturers impose a Minimum Advertised Price for the product, will it be the carrier or the consumer who pays the price? Ultimately, the individual or entity that pays the price may determine which product is in stock and which product sells. Will it be a court ruling that determines the future of satellite radio, or will it ultimately be defined by consumer demand? Did satellite dishes replace cable networks or merely create an alternative in an existing market that was once ruled by radio waves and rabbit ear antennas? It was not necessary for the courts to require competing alternatives between VHS and BETA, or to interfere with the format war between Blu-Ray and HD DVD. Business finds a way. We salute the Supreme Court for a ruling that acknowledges a fundamental rule of business. The Courts will not determine preservation or pricing, consumers will.
May 18, 2018: Ten killed, 13 wounded, in a shooting at Santa Fe High School in Santa Fe, Texas. May 25, 2018: Two injured, happily none killed, in a shooting at Noblesville West Middle School in Noblesville, Indiana. According to CNN, this was the 23rd school shooting of 2018 – just 22 weeks into the year. Well, you know what? I don’t want to hear it. I don’t want to hear anything they have to say, now or ever again. I don’t want to hear the gobbledygook, the nonsense, the lies, the garbage. I don’t want hear any of the noxious venom spewing from the fangs of the snakes at the NRA. I don’t want to hear the slimy excuses, the shopworn slogans, the stale talking points. There have been well over 60 mass killings in US over last 30 years. One every couple of months for 30 years. In the vast majority of those cases, the guns involved were obtained legally. Of the weapons used nearly three-fourths were either assault weapons or semiautomatic handguns. So I don’t want to hear it. I don’t want to hear anything from the gun nuts or their bought off lackeys in Congress.
I don’t want to hear their lies, I won’t tolerate their distractions, I won’t abide their trickery, I won’t fall for their attempts to talk about anything other than the damn guns. And that’s nothing new. Even Mr. Nobel Peace Prize himself, President Hopey-Changey, talked big about “meaningful action” on guns while the only thing he did was to expand the areas where people can legally carry them. Thanks to legislation approved and actively defended in court by the glorious Mr. O’s administration, you can transport a gun via Amtrak train, which you couldn’t before. Even better, you can now carry a loaded, concealed gun around in a national park, which you couldn’t before. Over the past five years, on average, 13,000 people in US are killed, murdered, every year by gun. Over the past five years, on average, nearly 22,000 commit suicide by gun every year. Over 35,000 gun deaths a year – 96 a day – including seven children and teenagers.