Monday, November 21, 2011

How should I prepare before filing a lawsuit?

21 November 2011

Most people that become plaintiffs in a civil suit do so for the first time in their lives. They are unsure what to expect and may underestimate the costs, risks, and time involved. They may think, “I was wronged, therefore I will eventually get the justice I deserve.”

A recent publicized case in United States District Court in Boston is an example of what could happen in a civil case that may help a prospective plaintiff have a better idea of what can happen. Diaz v. Jiten Hotel Mgmt., Inc., No. 2008 cv 10143 (D. Mass. May 5, 2011). The plaintiff pursued a discrimination claim against a former employer for wrongful firing. Along the way, three of the claims were dropped. The defendant filed a motion for summary judgment, and persuaded the court to dismiss another claim. This left an age discrimination claim under both federal and state law. Diaz v. Jiten Hotel Mgmt., Inc., 762 F. Supp. 2d. 319 (D. Mass. 2011).

Before trial, the defendant made a settlement offer of $75K, the plaintiff countered with $100K. Then it appears the negotiations stopped and the defendant walked away from the bargaining table. The parties went to trial and the plaintiff won, but it was approximately an award of less than $8K. The defendant appealed the verdict on various grounds, which is still pending. After the ruling, in a separate motion after the trial, the plaintiff’s attorney who took the case on a contingency basis, asked the court to also award the plaintiff her attorney’s fees. In doing so, she found an unsympathetic judge.

The law generally is that regardless of the amount of the award, when a statute provides the prevailing party to be awarded attorney’s fees, the attorney is entitled to reasonable fees. See Farrier v. Hobby, 506 U.S. 103, 113 (1992). (Please understand that attorney fees are not normally awarded, but only when a statute that provides the same is involved.) To illustrate, if the plaintiff was awarded $10,000 for basic damages, the attorney fees awarded could be $100,000 provided they were reasonable.

In this case, the judge initially reduced the fees sought by 1/3 due to the claims that were dropped or dismissed. Then the judge did something unusual: he considered the facts pertaining to the settlement negotiations. Specifically, the judge (apparently by being informed by the defendant) found that the $75K settlement offer made by the defendant was reasonable. He further decided that the attorney should not get more than what he would have if the settlement went through. The important part of the decision is that the judge considered the facts pertaining to the settlement and the amounts that would have been realized. In doing so, the judge lowered the amount of attorney’s fees even more to the amount that would have been obtained in the settlement amount. Diaz v. Jiten Hotel Mgmt., Inc., No. 2008 cv 10143 (D. Mass. Nov. 8, 2011).

Some observations from this case that likely did not meet the plaintiff’s expectations are in order. First, the plaintiff brought three claims and then dropped them, possibly because they were not as strong when subjected to adversarial scrutiny and/or upon further investigation and discovery. Second, one claim was dismissed by the court. Third, the defendant left the bargaining table after offering $75K and getting a (seemingly reasonable considering the amount of the original offer) counteroffer of $100K. (One would think the parties could have reached settlement based on their level of interest in doing so that was evidenced by the amount of their respective offers .) Fourth, the jury awarded an amount much less than the plaintiff expected (I imagine). Fifth, attorney fees awarded were much less than what was expected, due in large part to the judge taking an unusual position by considering the facts pertaining to the settlement negotiations. Sixth, the failure of the plaintiff to accept the settlement offer, although possibly a bit lower than the plaintiff may have thought she could negotiate for, made a significant difference in the amount both the plaintiff and the plaintiff’s lawyer may receive. Lastly, after a number of years of litigation and a jury trial, the case is still not over, but is on appeal.

One saving grace for the plaintiff is that if the decision is upheld, she has won. She will have a formal decision that states she was wronged. This may mean a great deal to her, but likely the case did not reap the rewards and was significantly more costly in many ways than was expected.

From the defendant’s perspective it may not feel like a big victory. We do not know what the defendant has spent and expects to continue to pay in attorney’s fees. The defendant corporation may feel like it has endured a significant financial penalty of its own in the form of its attorney’s fees already. Also, it has a decision, although on appeal, finding that it broke the law that is public and will affect their reputation, especially concerning its employees. The executives that are responsible for the matter may feel like they have a mark on their professional resume, so to speak.

The lessons to be learned are many. Since this is written for prospective plaintiffs, we will mention a few take-aways from that perspective. First is to be emotionally, mentally, and financially prepared for the ups and downs and duration of litigation, and second, take reasonable offers very seriously. Overall, this is just one story that shows from whatever perspective one may have had in the case that man’s justice is imperfect.

Tuesday, November 1, 2011

Will I be able to keep all of my assets if I file for chapter 7 bankruptcy?

2 November 2011

The answer is maybe. But in most cases you will not know for sure that you will keep your assets until the case is closed. For a better understanding, please read on.

This question is common for people to have and for bankruptcy blogs to address. Usually the truth is told that it is impossible to give an informed opinion until a thorough financial analysis by a competent bankruptcy attorney is completed. But overall there is an overwhelming tone of confidence in these blogs that convey the message in all likelihood you will be like most debtors and keep everything. “Don’t worry, you’re all set” these blogs seem to say. It is most likely true that in the end you will keep everything, but what will technically/legally occur during the bankruptcy with regard to the debtor’s assets usually escapes most potential debtors. What will really happen sounds scary to the typical person, which is the following.

When you file, everything you have becomes part of the bankruptcy estate, with very few exceptions that may not apply to you. In other words, generally you legally give up your right to the assets when you file for bankruptcy and (almost always) will not retain your full rights until the case is closed. This also means you cannot do what you want with your assets during the bankruptcy. This concept is typically hard for a debtor to digest and understand. The usual way to try and keep your assets is to claim that they are exempt. If they aren’t, the trustee can take them and sell them to pay your creditors (and himself) and give you the amount of your exemption, if you claimed one and it was not disallowed.

Even if you do claim that the entire amount of value of an asset is exempt, the trustee may disagree with your valuation and could get the right to try and sell it. If the trustee is successful in attaining more than what you said was exempt upon sale, again, you will get the amount of any valid exemption you claimed. This is the new law as of March 2010. Schwab v. Reilly, 130 S. Ct. 2652 (2010). There are cases that illustrate this. If you would like to read about a case involving few different debtors where the trustee obtained the right to sell their houses despite the fact the debtors each claimed a valid exemption in the amount of the equity of their homes, you can read Gebhart v. Gaughan. 621 F.3d 1206 (9th Cir. 2010).

There is a way that might ensure that you could keep one hundred percent of the fair market value of your asset ("100% of FMV") while your case is still pending that will be addressed in a future blog. And there is a way one can try and make sure an asset is retained without having to wait until the case is closed. However, as stated, there are no guarantees. The bottom line is, with rare exception, you will not be absolutely sure you will keep your assets until the case is closed.

These facts would tend to scare the typical person contemplating filing for bankruptcy. Should you be scared? No. But you should understand that very little is guaranteed in life, and if you hear an attorney guarantee that you will keep all your assets in a future bankruptcy under chapter 7, find another attorney.