MACDONALD | FERNANDEZ LLP

www.macfern.com

221 Sansome Street
San Francisco, CA 94104
Telephone: (415) 362-0449
Facsimile: (415) 394-5544
914 Thirteenth Street
Modesto, CA 95354
Telephone: (209)549-7949
Facsimile: (209) 236-0172

Friday, August 29, 2014

Involuntary Bankruptcy: It's Somewhere Debtors Do Not Want To Be

Reno Fernandez is pleased to host a panel of bankruptcy judges and attorneys to speak on involuntary bankruptcy cases over lunch at the City Club for the BASF Commercial Law & Bankruptcy Section on Tuesday, September 9, 2014.  For more information, click here and see below.

INVOLUNTARY BANKRUPTCY
It's Somewhere Debtors Do Not Want To Be

Tuesday, September 9, 2014
Noon to 1:30 pm

City Club of San Francisco
155 Sansome Street
San Francisco, California

Speakers

Honorable Roger L. Efremsky
United States Bankruptcy Judge
Scott H. McNutt
McNutt Law Group, LLP
David M. Wiseblood
Wiseblood Law 

Topics

• Standing to Commence the Involuntary Case
• Joinder of Additional Petitioning Creditors
• Motions for Appointment of an Interim Trustee During the “Gap Period”
• How to Obtain and Defeat an Order for Relief
• Dismissal of An Involuntary Case and Related Potential Consequences

Chairperson:  Reno F.R. Fernandez III

Walk-ins are welcome, but you are encouraged to RSVP here as space may be limited.

Monday, July 21, 2014

Bankruptcy Appellate Panel Luncheon

This Thursday, July 24, 2014, Reno Fernandez is pleased to host a panel of sitting judges of the Bankruptcy Appellate Panel for the United States Court of Appeals for the Ninth Circuit, who will speak over lunch at the City Club for the BASF Commercial Law & Bankruptcy Section.  Please RSVP here.

Bankruptcy Appellate Panel Luncheon

Thursday, July 24, 2014
Noon to 1:30 pm

City Club of San Francisco
155 Sansome Street
San Francisco, California

Speakers

Chief Judge Randall Dunn
Ninth Circuit Bankruptcy Appellate Panel

Judge Meredith Jury
Ninth Circuit Bankruptcy Appellate Panel

Judge Frank Kurtz
Ninth Circuit Bankruptcy Appellate Panel

Share lunch with the Judges of the Bankruptcy Appellate Panel of the United States Court of Appeal for the Ninth Circuit and discuss bankruptcy appeals, procedures and recent developments.
Chairperson:  Reno F.R. Fernandez III

Walk-ins are welcome, but you are encouraged to RSVP here as space will be limited.

Sunday, June 29, 2014

Military, Veterans and Other Overlooked Exemptions

Did you know that a military soldier's deposits to savings accounts while on permanent duty abroad are fully exempt?  10 U.S.C. §1035(d) provides that:
An amount deposited under this section, with interest thereon, is exempt from liability for the member’s debts, including any indebtedness to the United States or any instrumentality thereof, and is not subject to forfeiture by sentence of a court-martial.
Did you know that a creditor can only recover $1.00 from a seaman on a voyage?  46 U.S.C. § 11111 provides that:
When a seaman is on a voyage on which a written agreement is required under this part, not more than $1 is recoverable from the seaman by a person for a debt incurred by the seaman during the voyage for which the seaman is signed on until the voyage is ended.
There are many miscellaneous non-bankruptcy federal exemptions that are often overlooked but can be of critical importance to military personnel, sailors, veterans, civil servants, railroad workers, Native American tribes and others.  The following chart of such miscellaneous exemptions is provided for your education and convenience.

Miscellaneous Non-Bankruptcy Federal Exemptions
Asset
Exemption
Amount
Civil service employees’ retirement benefits
5 U.S.C. § 8346
Unlimited
Foreign service employees’ retirement benefits
22 U.S.C. § 4060(c)
Unlimited
Military service employees’ retirement benefits
10 U.S.C. § 1440
Unlimited
Railroad workers’ retirement benefits
45 U.S.C. § 231m
Unlimited
Social Security benefits
42 U.S.C. § 407
Unlimited
Veteran's benefits
38 U.S.C. § 5301
Unlimited
Central Intelligence Agency (CIA) employees’ retirement benefits
50 U.S.C. § 2094
Unlimited
Military Medal of Honor Roll pensions
38 U.S.C. § 1562(c)
Unlimited
Military service survivor’s benefit
10 U.S.C. § 1450(i)
Unlimited
Survivor’s benefits for federal judges and certain other judicial employees
28 U.S.C. § 376(n)
Unlimited
Lighthouse workers survivor’s benefits
33 U.S.C. § 775
Unlimited
Government employees’ death and disability benefits
5 U.S.C. § 8130
Unlimited
Longshoremen, harbor workers’ death and disability benefits
33 U.S.C. § 916
Unlimited
War, risk, hazard, death, or injury compensation
42 U.S.C. § 1717
Unlimited
Military deposits to savings accounts while on permanent duty abroad
10 U.S.C. § 1035(d)
Unlimited
Wages (with exceptions for domestic support, bankruptcy and taxes)
15 U.S.C. § 1673
Greater of 75% of earned but unpaid wages; or

30 times the federal minimum wage
Indian [sic] land sale or lease proceeds (Secretary of the Interior can consent to exceptions)
25 U.S.C. § 410
Unlimited
Klamath tribe judgment funds (with exceptions for debts owed to U.S.)
25 U.S.C. §§ 543 & 545
Unlimited
Military group life insurance (with certain exceptions for taxes)
38 U.S.C. § 1970(g)
Unlimited
Railroad workers' unemployment benefits
45 U.S.C. § 352(e)
Unlimited
Seamen's clothing (fine for person detaining a seaman’s clothing)
46 U.S.C. § 11110
Unlimited
Debts of a seaman incurred while on a voyage (amount recoverable is limited to $1.00)
46 U.S.C. § 11111
Unlimited
Seamen & fishermen wages (with exceptions for spousal or child support)
46 U.S.C. § 11109
Unlimited
Serviceman's Group Life Insurance or Veteran's Group Life Insurance
38 U.S.C. § 1970(g)
Unlimited

Wednesday, June 25, 2014

What is Congress Doing?! Insolvency Legislation and Rules

Reno Fernandez is pleased to be hosting Peter Califano, Diana Herman and Adam Lewis, who will speak to the Commercial Law & Bankruptcy Section of the Bar Association of San Francisco on insolvency legislation and rules updates over a white-linen lunch to be held at the City Club on Tuesday, July 8, 2014.  Please RSVP here.

Tuesday, July 8, 2014
Noon to 1:30 pm

City Club of San Francisco
155 Sansome Street
San Francisco, California

Speakers

Peter C. Califano
Cooper, White & Cooper LLP

Diana D. Herman
McKenna Long & Aldridge LLP

Adam A. Lewis
Morrison & Foerster LLP

Topics
• Taking the “fraud” out of fraudulent transfers. Changes to California’s Uniform Fraudulent Transfer Act.
• Will there be a “chapter 14” bankruptcy? Dodd-Frank and bank reorganizations.
• Bankruptcy Venue Bill in 2015 and Small Business Reorganizations.
• Proposed and pending rules changes.
• ABC Desk Guide.
Chairperson:  Reno F.R. Fernandez III

Walk-ins are welcome, but you are encouraged to RSVP here as space will be limited.

Monday, June 23, 2014

Can Bitcoin be Used as Collateral to Secure a Loan?

Problems arise when a lender attempts to accept Bitcoin as collateral to secure a loan.  More problems arise when Bitcoin makes up a portion of the lender's collateral without the lender's knowledge.  It is best to address these issues in advance and avoid surprise.

Secured transactions are governed by Uniform Commercial Code Article 9, which does not clearly provide a way for a lender to perfect its security interest in Bitcoin as collateral.  Perfection by possession appears to be unavailable because Bitcoin is intangible and cannot be put into the hands of the lender without making a transfer.  Perhaps a form of control agreement will emerge similar to arrangements involving traditional bank accounts. For now, a Bitcoin wallet appears to be a method of transmitting Bitcoin and not a deposit account against which a lien can be perfected by control pursuant to Uniform Commercial Code Section 9-104.
Perhaps more importantly, Bitcoin is not a form of money under Uniform Commercial Code Section 1-201(24) because it has not been "authorized or adopted by a domestic or foreign government."  Moreover, the Internal Revenue Service considers Bitcoin to be property, not money, and therefore subject to capital gains taxes.
If Bitcoins are treated as general intangibles, the lender must perfect its lien by filing a UCC-1 Financing Statement.  However, without possession or control, it may be difficult to prevent a Bitcoin user to transfer assets after default.  Although all Bitcoin transactions are posted to a public ledger, the users are anonymous.  

A typical UCC-1 Financing Statement perfecting a blanket lien and covering "inventory, goods, equipment, accounts, and general intangibles" might be enough to cover Bitcoin, but it would be better to require the borrower to disclose all Bitcoin identification and wallets.  If possible, lenders should consider requiring borrowers to agree to turn over control of Bitcoin wallets upon default, to provide records of transactions or to share control during the loan term.  Query whether institutional lenders want to be in possession of their borrowers' passwords.  Lenders may also wish to simply require borrowers not to transact in Bitcoin or significant amounts of Bitcoin.
There may be problems for those who take payments in Bitcoin as well.  A transferee of money ordinarily takes free of a pre-existing lien pursuant to Uniform Commercial Code Section 9-332.  Moreover, goods sold in the ordinary course of business generally pass free of liens (including properly perfected liens known to the buyer) pursuant to Uniform Commercial Code Section 9-320(a).  By contrast, such protections to not apply to transfers of general intangibles, and a lien "continues in collateral notwithstanding sale, lease, license, exchange, or other disposition thereof unless the secured party authorized the disposition free of the" lien pursuant to Uniform Commercial Code Section 9-315.  The lien remains through subsequent transfers pursuant to Uniform Commercial Code Section 9-325.
This is a tough problem to solve as buyers are likely unable to represent that their Bitcoin is free and clear of liens that may have attached in previous transactions.  Presumably, Bitcoin generated directly from "mining" will be free and clear of liens, and the miner can make representations as to the liens he or she has granted, but dealing only with miners would be a significant limitation.  An indemnity agreement may provide transferees with some comfort.  However, given Bitcoin users' preference for streamlined, anonymous transactions with little outside interference, such paperwork is unlikely to be attractive.




Also seen on Legal By the Bay, blog of the Bar Association of San Francisco.

Tuesday, June 17, 2014

License Assumed While Related Agreements Rejected

In In re Physiotherapy Holdings, Inc., 506 B.R. 619 (Bankr. D. Del. 2014), the bankruptcy court permitted the debtor to assume a license agreement but reject other related agreements.

In Physiotherapy Holdings, the debtor licensed software under several agreements.  Pursuant to Bankruptcy Code Section 365(a), the debtor moved to assume the software license and reject the other agreements, including the master agreement under which the debtor to indemnify the licensor for post-confirmation litigation.  

The licensor opposed and argued that the the agreements together formed an integrated contract and must be assumed together.

On the contrary, the court ruled that the agreements were not a single contract because:  (1) the agreements were executed at different times; (2) they provided the license agreement controlled in the event of conflicting languag;, and (3) the integration clause only dealt with parol evidence and did not render the license agreement a component of the master agreement.  Moreover, the court held that the license agreement contained a more limited indemnity clause than the master agreement, which would have been unnecessary if the agreements were one.

On the basis of these differences, the court ruled that the agreements were independent.

Wednesday, June 4, 2014

THERE AND BACK AGAIN: Delaware Bankruptcy Venue, Procedure and Law

Reno Fernandez is pleased to be hosting "There and Back Again:  Delaware Bankruptcy Venue, Procedure and Law," a program discussing Delaware procedures for California lawyers, for BASF's Commercial Law & Bankruptcy Section over a white-linen lunch to be held at the City Club on Tuesday, June 10, 2014.

Tuesday, June 10, 2014
Noon to 1:30 pm

City Club of San Francisco
155 Sansome Street
San Francisco, California

Speakers

Richard Barkasy
Schnader Harrison Segel & Lewis LLP

Mette Kurth
Arent Fox LLP
Hon. Randall J. Newsome (Ret.)
JAMS

Topics

• Turf war: changing venue back to California.
• Overview of Delaware procedure, including first day motions, “negative” notice, omnibus hearing calendars
and evidence.
• A polite discussion of individual judges’ preferences.
• Circuit-level differences in substantive law (for example, Montgomery Ward and administrative claims of
landlords).

Program Organizer:  Kevin Coleman, Schnader Harrison Segel & Lewis LLP

Walk-ins are welcome, but you are encouraged to RSVP here as space will be limited.