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Business Law Legal Research Blog

BANKRUPTCY: Reluctant Judicial Enforcement of Prepetition Automatic Stay Waivers

Posted by Anne B. Hemenway on Thu, Dec 13, 2018 @ 12:12 PM

Anne Hemenway—Senior Attorney, National Legal Research Group

 

Courts are reluctant to enforce prepetition automatic stay waivers, but will not rule out the possibility of enforcement. Often found as a clause in a forbearance agreement, prepetition automatic stay waivers are therefore not per se unenforceable, notwithstanding the fact that their close relative, prepetition waivers of bankruptcy filings, are per se unenforceable. See In re Simpson, Case No. 17-10442, 2018 WL 1940378 (Bankr. D. Vt. Apr. 23, 2018). Generally, courts will hold that the debtor must carry the burden of proving that such contractual waivers should not be enforced. In re A. Hirsch Realty, LLC, 583 B.R. 583 (Bankr. D. Mass. 2018). 

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Topics: bankruptcy, Anne Hemenway, prepetition automatic stay waivers, preclusive effect, forebearance waiver

CREDITOR’S RIGHTS: IRS Form 1099-C—Reporting Requirement or Debt Extinguishment Trap?

Posted by Charlene J. Hicks on Thu, Dec 13, 2018 @ 12:12 PM

Charlene Hicks—Senior Attorney, National Legal Research Group 

       

            To date, no consensus has been reached among courts throughout the United States on the question as to whether a creditor’s issuance of an IRS Form1099-C results in the extinguishment of the reported debt in favor of the debtor. Form 1099-C bears the title “Cancellation of Debt,” and, according to the IRS, a creditor should issue this form to the debtor for any year in which a debt is cancelled. Depending on the state in which the debtor resides, a creditor’s issuance of a Form 1099-C may have the effect of barring further collection efforts and of completely discharging the reported debt.

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Topics: creditor's rights, Charlene J. Hicks, IRS Form 1099-C, extinguishment of debt, discharge of debt

CONTRACTS: The Importance of Distinguishing a Contracting Party from a Stranger

Posted by Charlene J. Hicks on Thu, Jul 19, 2018 @ 10:07 AM

Charlene Hicks—Senior Attorney, National Legal Research Group

     Although the law generally does not allow a contracting party to bring a tort claim against another party to the same contract, this protection does not extend to persons or entities that are classified as "strangers" to the contract. Thus, a contracting party may maintain a viable claim for tortious interference with contractual relations against a stranger to the agreement. In practice, however, the performance of a contract is often contingent on the acts and approval of persons or entities that did not formally enter into the agreement. This makes it difficult to distinguish between a protected contracting "party" and an unprotected "stranger."

     The popular Trader Joe's grocery chain recently found itself pushed into the murky realm of being classified as a "stranger" to a contract between two parties to which Trader Joe's had close business ties. In Redfearn v. Trader Joe's Co., 20 Cal. App. 5th 989, ___ Cal. Rptr. 3d ___ (2018), the evidence showed that Caliber Sales and Marketing Corporation, a food broker, entered into contracts with various manufacturers of food products and attempted to place those food products in Trader Joe's stores. Trader Joe's worked with Caliber in finding new products for its stores. Caliber's assignee alleged that a Trader Joe's executive falsely accused Caliber of spreading a rumor that the store's employees were soliciting bribes from brokers and that this false accusation tarnished Caliber's professional reputation to such an extent as to cause two food suppliers to terminate their contracts with Caliber to supply food products to Trader Joe's. Read More

Topics: contracts, stranger to a contract, tortious interference with contract, intentional and negligent interference

CONTRACTS: Like Oil and Water: Contract and Tort Claims Don't Mix in Virginia

Posted by Emily Abel on Wed, May 9, 2018 @ 10:05 AM

Emily Abel—Senior Research Attorney, National Legal Research Group

            The Virginia Supreme Court recently reiterated its position that in Virginia, the source-of-duty rule prohibits suing in tort when the only basis for the duty breached lies in contract. In MCR Federal, LLC v. JB&A, Inc., 294 Va. 446, 808 S.E.2d 186 (2017), decided on December 14, 2017, the seller of a government contracting business brought breach of contract and fraud claims against the buyer of their firm. As part of the parties' agreement, the buyer warranted that there were no adverse suits, investigations, or government actions against it at the time the parties signed the contract. The contract also required that the buyer deliver to the seller a "bring down certificate" reaffirming those warranties at closing.

            While the warranties were accurate at the time of contracting, they were no longer accurate at the time of closing. In the period between contracting and closing, the United States Air Force launched an investigation into the buyer for their actions pertaining to a contract unrelated to the contract between seller and buyer and suspending the buyer from government contracting. Because of this investigation, the business did not meet earnings thresholds set forth in the contract, which resulted in the seller not receiving additional payments. The seller sued the buyer, claiming the "bring down certificate" produced at closing was a breach of contract and fraud because it did not reveal the Air Force investigation. After a lengthy bench trial, the circuit court found in favor of the seller on both the fraud and breach of contract claims.

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Topics: contracts

CONTRACTS: Obligation to Support Parent Under Taiwanese Law

Posted by James P. Witt on Wed, May 9, 2018 @ 09:05 AM

Jim Witt—Senior Attorney

            There is no question that law of a particular country develops in the context of the country's culture, religion, and customs.  A case recently decided by the Supreme Court of Taiwan illustrates this point.  See https://www.taiwannews.com.tw/en/

news/3332521.  The plaintiff, identified as Luo (surname), brought a contract action against her second son, Chu, alleging that he owed her nearly US$1  million for raising him and financing his training at dental school (Chu's brother also completed dental training; he settled a similar claim with the plaintiff).  She claimed that she and her husband had run a dental clinic but that, after the couple's divorce, she raised her sons as a single mother.  As she was concerned that her sons would not provide for her in her old age, she had each son, at age 20, sign a written agreement, providing that her sons would pay her 60% of their net profits until the total reached 50 million new Taiwanese dollars (nearly US$1.7 million).  It is implicit in the Confucian tradition of filial piety that children support their aging parents.

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Topics: contracts

CREDITORS RIGHTS/CONTRACTS LAW: Revoking Contractual Consent to Receive Creditor Phone Calls

Posted by Charlene J. Hicks on Wed, Jan 24, 2018 @ 12:01 PM

Charlene Hicks, Senior Attorney, National Legal Research Group

            In what has been termed a groundbreaking opinion, the Second Circuit recently held that the federal Telephone Consumer Protection Act (“TCPA”), 47 U.S.C. § 227(b), bars a consumer-buyer from revoking his or her contractual consent to receive creditor calls concerning the underlying contract or account.  The case, Reyes v. Lincoln Automotive Financial Services, 861 F.3d 51 (2d Cir. 2017), provides creditors with a strong defense against consumers who issue complaints about the creditors’ debt collection processes.

            In the case, Alberto Reyes Jr. (“Reyes”) leased a new Lincoln MKZ luxury sedan from a Ford dealership. The lease was financed by Lincoln. One provision of the lease stated that Reyes expressly consented to electronic or verbal contact from Ford and Lincoln and their agents, affiliates, and representatives. Id. at 53-54. This contact included manual calling methods, prerecorded voice messages, texts, and emails to any email or telephone number that Reyes provided, “now or in the future, including a number for a cellular phone or wireless device[.]” Id. at 54. In his lease application, Reyes provided Lincoln with his cell phone number.

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Topics: contracts, creditor's rights, contractual consent, Telephone Consumer Protection Act

PATENT LAW: Laches Defense No Longer Available in Patent Infringement

Posted by Anne B. Hemenway on Thu, Jul 20, 2017 @ 14:07 PM

Anne Hemenway, Senior Attorney, National Legal Research Group

            In SCA Hygiene Products Aktiebolag v. First Quality Baby Products, LLC, 137 S. Ct. 954 (2017), the United States Supreme Court held that the defense of laches is not proper in a patent infringement case when suit is brought within the six-year statute of limitations period for patent infringement cases, set forth in 35 U.S.C. § 286. This decision abrogated decisions in numerous federal circuit courts which allowed the laches defense.

            Under federal law, damages are limited in patent infringement cases by the statute of limitations set forth in § 286 to cover only infringement that occurred within the six-year period prior to the filing of the complaint. This six-year period is counted backward from the filing of the complaint, not forward to the time of the patent infringement event.

            A laches defense is considered to be an equitable defense used to limit damages when a suit is filed after an unwarranted delay.  In SCA Hygiene Products Aktiebolag, First Quality Baby Products argued that the Federal Circuit properly recognized that the laches defense was necessary, notwithstanding § 286, to protect alleged infringers who are prejudiced by a patent owner's unnecessary delay in bringing suit. Because the Patent Act had a statutory limit to the award of damages, the Supreme Court held that a laches defense would override this statutory limit imposed by Congress.

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Topics: patent law, laches defense, patent infringement, six-year statute of limitations period

CONTRACTS—Arbitration: Nonexistence of Designated Arbitral Institution at Time of Dispute May Void Mandatory Arbitration Requirement

Posted by Charlene J. Hicks on Thu, Jul 20, 2017 @ 13:07 PM

Charlene Hicks, Senior Attorney, National Legal Research Group

            Despite the federal policy favoring arbitration, prospective plaintiffs continue to push courts to reexamine the enforceability parameters of arbitration agreements. These efforts have met with some success in cases where the arbitration agreement designates a particular arbitral institution to resolve a dispute between the parties, and the designated institution no longer exists at the time an actual dispute arises.

            This factual scenario has unveiled a degree of uncertainty in the meaning of the Federal Arbitration Act ("FAA"). The FAA provides that if "there shall be a lapse in the naming of an arbitrator . . . or in filling a vacancy, then upon the application of either party to the controversy the court shall designate and appoint an arbitrator[.]" 9 U.S.C. § 5. It is unclear from the statute whether the nonexistence of an arbitral institution designated in an arbitration agreement to resolve disputes between the parties constitutes a "lapse in the naming of an arbitrator" such that the court is authorized to appoint a substitute arbitrator. If the designated institution's nonexistence does not fall within the dictates of 9 U.S.C. § 5, then the court does not have the power to appoint a substitute. To do so would violate the long-established contractual principle that a party cannot be compelled to arbitrate a dispute that he or she has not agreed to submit to arbitration.

            No definitive answer to this question has yet been reached. Some circuits have ruled that the choice of a designated arbitral forum is a material part of the agreement to arbitrate and, therefore, the court cannot legitimately appoint a replacement. See Flagg v. First Premier Bank, 644 F. App'x 893, 897 (11th Cir. 2016); Ranzy v. Tijerina, 393 F. App'x 174, 176 (5th Cir. 2010). Other circuits have reached the opposite conclusion and ruled that the unavailability of a named arbitral institution constitutes a lapse within the meaning of 9 U.S.C. § 5, and the court may, therefore, appoint a substitute. See Green v. U.S. Cash Advance Ill., LLC, 724 F.3d 787, 793 (7th Cir. 2013); Khan v. Dell Inc., 669 F.3d 350, 356 (3d Cir. 2012).

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Topics: contracts, enforceability, arbitration, arbitral institution

CONTRACTS: Statute of Frauds No Bar to Parent’s Claim for Student Loan Repayment

Posted by Paul A. Ferrer on Thu, Jan 12, 2017 @ 17:01 PM

Paul Ferrer, Senior Attorney, National Legal Research Group

      All states have a statute of frauds, based on the original Statute of Frauds enacted in England in 1677, barring actions upon some types of promises unless evidenced by a writing signed by the party to be charged with the promise. The promises typically covered by a state’s statute of frauds include "any promise to answer for the debt, default, or misdoing of another," and "any agreement that is not to be performed within one year from the making thereof." Ky. Rev. Stat. Ann. § 371.010(4), (7). In Chin v. Chin, 494 S.W.3d 517 (Ky. Ct. App. 2016), the Kentucky Court of Appeals held that neither of these provisions barred a claim by parents ("the Chins") against their son ("Raymond") for breach of an oral contract to repay a college loan that the parents had taken out for his benefit.

     In that case, Raymond attended college at the Rose-Hulman Institute of Technology, a top-ranked engineering college that carried a price tag of about $54,000 per year in 1999. At the time, Raymond’s father was making $55,000 per year as a teacher, while his mother was making $18,000 per year as an aide. The Chins obtained a Parent PLUS loan to pay for Raymond’s college expenses, which ultimately totaled more than $58,000 (Raymond received a partial scholarship). Although the Chins signed for the loan, Raymond orally agreed that he would be responsible for paying the loan, and would repay any amounts the Chins had already paid, as soon as he had a job.

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Topics: contracts, statute of frauds, breach of oral contract, verbal agreement

GOVERNMENT CONTRACTS: Supreme Court Decision Aids Veteran-Owned Business

Posted by Charlene J. Hicks on Tue, Nov 1, 2016 @ 13:11 PM

Charlene Hicks, Senior Attorney, National Legal Research Group

     In Kingdomware Technologies, Inc. v. United States, 136 S. Ct. 1969 (2016), the United States Supreme Court recently declared that the Department of Veterans Affairs (the "VA") is required to give priority to veteran-owned businesses in the bidding process for government contracts as long as two or more veteran-owned small businesses may reasonably be expected to submit fair and reasonable bids. This unanimous decision should provide a boon to veteran-owned businesses and should also give government agencies pause in assessing bids for contract work.

     The Kingdomware dispute originated shortly after the enactment of the Veterans Benefits, Health Care, and Information Technology Act of 2006 (the "VA Act"). The VA Act provides that the VA must restrict bid competitions to veteran-owned companies as long as the "rule of two" is satisfied. Specifically, 38 U.S.C. § 8127(d) states:

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Topics: Charlene J. Hicks, VA priority, government contracts, veteran-owned business

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