I was sued in federal court and learned a default has been entered against me, what do I do?

6 February 2012

Technically, a defaulted party must address the default before anything else significant can be done with the case.  A default is sort of like forfeiting a sports game for not showing up.  In practical terms, you have either already lost the case, or you are in jeopardy of losing the case if you wait.  There is not way of knowing until you try.  So, the bottom line is that you need to move fast, and unless you understand federal procedure, hire an attorney.

It is uncertain if you can get back in the game, but for sure, you should not delay.  Once you get an attorney on board, most likely, initially, the attorney will have to assess the situation and discern exactly what stage the case is in.  There could be just a default entered, or it may be default judgment has entered.   If it is just a default, which is what will be addressed in this blog, what an attorney will likely do is seek to have the default vacated.  They will need to move the court pursuant to Fed. R. Civ. P. 55(c), which states:

For good cause shown the court may set aside an entry of default and, if a judgment by default has been entered, may likewise set it aside in accordance with Rule 60(b).

What the first phrase of the rule provides, and what is necessary to meet to remove a default is commonly referred to as, is the “good cause” standard.  The burden of persuading the court to remove the default is on the person seeking to have the default set aside.  Indigo America, Inc. v. Big Impressions, LLC, 597 F.3d 1, 3 (1st Cir. 2010).  Good cause is a flexible standard, but the flexibility is “not so elastic as to be devoid of substance.”  Coon v. Grenier, 867 F.2d 73, 76 (1st Cir. 1989).  The factors that a court typically considers are: 1) whether the default was willful; 2) whether setting the default aside would prejudice the adversary; and 3) whether a meritorious defense is presented.  Indigo America, Inc. v. Big Impressions, LLC, 597 F.3d at 3.  Some other factors that could be considered are: 4) the nature of the defendant’s explanation of the default; 5) the good faith of the parties; 6) the amount of money involved; and 7) the timing of the motion to set aside the default.  Id.

Before taking the above factors and running off to pursue the matter, further study is necessary.  Each of these factors have important legal interpretations; they are each almost their own “legal phrase of art” if you will, that differ than an interpretation derived from a cursory review of the language.  For instance, willfulness does not mean that you had some sort of evil intent.  Another is that simply delay in the action does not constitute prejudice, but some other facts do.  Also, some factors seem to receive more weight than others.  All in all, significant effort must be put into this endeavor, which is best done by an experience litigator. 

In the event you are facing a default, especially in federal court, please feel free to contact us to discuss what we can do for you.

What can happen if I do not comply with a court order?

19 January 2012


In some instances, failure to comply with a court order is a criminal violation in and of itself. For example, if you violate a restraining order, that alone is a criminal act and carries with it criminal penalties. Mass. Gen. Laws. ch 209A § 7.

In other instances, failure to comply is not a criminal violation, but it is contempt of court. This is known as civil contempt. The purpose of civil contempt is different than criminal contempt. Civil contempt is focused on the harm to the adversarial litigant (the other party or parties in civil litigation). Civil contempt’s has two purposes. The first is to coerce a party to comply with the court order. For instance, an order that includes a dollar amount to be assessed for every day of non-compliance or simply holding a party in jail until he complies (remember Susan McDougel?). The second purpose is to compensate the opposing party or parties for harm for the violation.

So what is the result if the person violating the order (referred to as the “contemptor”) complies with the court order belatedly, can he argue that there is no basis for contempt now that he has complied? For both criminal contempt and civil contempt, the answer is no. Because the purpose of criminal contempt is punitive, the belated performance does not cure or absolve the violation. Civil contempt too can still be found, but not to coerce the person to comply because this has already happened, but to compensate the contemptor’s adversary for damages that flow from the violation.

This post does not address discovery sanctions that could arise for violation of a court’s order related to discovery (the process of gathering information in a civil suit). In those instances, there are many different sanctions a court can impose, the most drastic sanction usually being dismissal of a plaintiff’s case or issuing judgment against a defendant.

A common difficulty for people is being unsure exactly what you are supposed to do to comply with the court order. Sometimes the details emerge as you attempt to comply with the order, or what seems clear in court to all the parties did not consider certain circumstances that have arose later. These issues can cause doubt and confusion at a time when severe consequences could be encountered if you make the wrong choice. If there is any doubt, get legal counsel on board immediately.

Another even more complicated issue is whether you and the opposing party, usually the party the order was intended to benefit, can agree to change (usually relax) the terms of the order. Or can the opposing party waive performance of the order, either partially or entirely? This is another instance that calls for legal advice you can have confidence in.

The two main points of this post generally are that you should comply with court orders and you should obtain quality legal advice if there is any uncertainty or doubt with respect to compliance with a court order. If you would like assistance with any of these issues, feel free to give us a call.

How long does the IRS have to collect taxes owed?

4 January 2012

The answer is, generally, 10 years from the date the tax is assessed. For taxes assessed prior to 6 November 1990, this period was 6 years. However, if the tax was assessed prior to 6 November 1990 and the six year limitations period did not expire before that date, the ten year period applies. See Foutz v. United States, 860 F. Supp. 788 (D. Utah 1994).

When is the tax considered assessed? The tax is considered assessed once the assessment list containing the tax is signed by the appropriate IRS official. IRC §6203; Treasury Regulations §301.6203-1. Even if you may think that the bell has rung and you are home free because ten years has passed since the tax was assessed, you must consider if any of the many instances that toll the 10 year period have occurred. There are many. For instance, if the return is considered a fraudulent return or filed with intent to evade taxes (false return). In that instance, it is considered that an assessment of the tax (sought to be avoided) has not been made. MICHAEL I. SALTZMAN, IRS PRACTICE AND PROCEDURE, §5.07[1] (2nd ed. 2002). So in effect there is no limitation period in that instance. Id. Another instance that will toll the period is if there is an offer in compromise made. Another is if an appeal of the IRS’s assessment occurs. IRC § 6503(a)(1). The time a taxpayer’s assets are in custody of a court is another. IRC § 6503(b). The situation of a taxpayer being outside the US for a continuous period of at least six months is on the list. IRC § 6503(c). Keep in mind voluntary agreement may also toll the limitations period. In addition, the IRS can commence a collection action in court prior to the expiration of the limitations period, which will allow for more time.

There are many more instances that can toll the limitations period, and there are more details to even those mentioned above. So, obtain an opinion about your specific circumstances with all pertinent facts being considered to be more certain about whether the statute of limitations has expired.

Keep in mind, the collection of a tax is post-assessment. Collection is not to be confused with how long the IRS has to assess a tax once a return if filed. The answer to that is 3 years. IRC §6501(a); Treasury Regulations 301.6501(a)-1(a).

Overall, if you are trying to calculate when the statute of limitations has expired, it is tricky business. We encourage you to obtain an opinion from a qualified tax or business attorney before taking action.

Will I be able to keep all of my assets if I file for chapter 7 bankruptcy? (Part 2)

3 December 2011

As stated in the prior blog posted on 2 November 2011, we are addressing a debtor’s ability to keep his assets upon the filing of a chapter 7 bankruptcy. We stated that once the case is filed, generally your assets become part of the bankruptcy estate and are subject to liquidation. We also stated that once the case is over, whatever asset declared that was not liquidated now is the debtor’s again. So we know the date when uncertainly begins, and we know the date that certainty arrives. But how can a debtor have more assurance while the case is still open? This is the question we address now.

There are only a few options to take. Initially, one must understand that there are exemption statutes that exempt an asset in its entirety, and other exemption statutes that only provide a (maximum) dollar amount. So, one way to increase the certainly you may retain an asset is to claim an exemption in the asset under an exemption statute that exempts the asset in its entirety. There is no magic here because there has to be such a statute that applies to the particular asset.

Another way is to declare an exemption of “100% of FMV” under a statute, even if that statute has a maximum dollar amount. This way, the theory goes, if the trustee or someone else does not object, you are ensured 100% of the value of the asset even if there is a sale of the asset. Some people argue that if these is no objection that the asset itself is fully exempt and it cannot be sold. Either way, you are much more likely to keep the asset. The use of “100% of FMV” gained much attention when it was described, or some would say created, by the United States Supreme Court in its Schwab v. Reilly decision in 2010. 130 S. Ct. 2652, 2668 (2010).

However, the pro se debtor, or even experienced counsel, must beware. There are (presently) great dangers in claiming “100% of FMV.” Some trustees recently seem to be taking the position that it is improper and objecting to it as a matter of course, despite its apparent endorsement by the United States Supreme Court. And the first group of cases that have been decided indicate that the trustees are winning that battle. (That means the debtor is losing.) The war is far from over though, and it is expected by this author and others that this legal conflict will be decided on the circuit level throughout the country within the next few years.

One may think that there may not be much down side to giving it a try and seeing if the trustee objects. Keep in mind that one significant detriment to drawing an objection is that the case remains open longer. This means the closing of the case and the time (of certainty) that a debtor is guaranteed to keep his assets is delayed, which is contrary to the debtor’s initial goal.

In addition to the chance of drawing an objection from the trustee or someone else just on the basis of claiming “100% of FMV,” the propriety of the exemption statute used, its maximum amount in relation to the value of the asset, and the case as a whole, are all given more attention. Although a debtor in bankruptcy pays the price of giving up his privacy and should have nothing to hide, it is still generally not a good move to cause more scrutiny of your exemptions, and your case overall, when in bankruptcy.

So, this raises the question of whether it is worth it to claim “100% of FMV.” The answer to that question can really only be provided by a competent bankruptcy attorney who fully understands the benefits, and if those benefits outweigh the risks, after having had the chance to assess the debtor’s entire financial picture and his goals and desires.

One other option used in this overall topic of keeping assets in bankruptcy will be addressed in yet another post.

If you are contemplating bankruptcy and have an asset that is near and dear to you, or just want to know more about how to keep assets in bankruptcy, feel free to give us a call.

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.

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.

What can I do if a debt collector is reporting a debt to credit bureaus that I dispute?

5 October 2011

Especially in cases involving incorrect names, identity theft, and prior settled accounts, debt collectors unfortunately collect debts that are not valid or owed. If it happens to you, you should dispute it. A dispute can be made orally to invoke the law. Brady v. Credit Recovery Co., 160 F.3d 64 (1st Cir. 1998); Palmer v. I.C. Sys., Inc., 2005 WL 30001877 (N.D. Cal. Nov. 8, 2005). However, it would be best to communicate the dispute in writing and be able to establish when the debt collector learned of the dispute. Initially, understand that despite disputing the debt, it most likely will not stop debt collectors from continuing to attempt to collect the debt from you. At this stage, you may want to contact a lawyer to discuss the nature of your dispute to see if you have grounds to take legal action.

If you are concerned about your credit score, the fact that the item is disputed should help. When a consumer disputes a debt in some fashion, the debt collector is required by law to communicate the fact it is disputed, if they are reporting the item to credit bureaus. The Fair Debt Collection Practices Act (“FDCPA”) prohibits:

Communicating or threatening to communicate to any person credit information which is known or which should be known to be false, including the failure to communicate that a disputed debt is disputed.

15 U.S.C. § 1692e(8).

It is also not uncommon for the debt collector to fail to follow this law. This is why after you dispute a debt you may want to check your credit report to see if indeed the debt is being reported correctly. If not, you again may want to consider contacting an attorney to pursue legal action under the FDCPA and maybe the Fair Credit Reporting Act (“FCRA’). The FCRA is another federal law designed to help consumers.

If you feel you have good grounds for your dispute and are not making progress with the debt collector or original creditor, you may also want to dispute the item with the credit bureaus. In that case, there are a number of possibilities that can happen. For one, if the wrongful reporting continues after a certain length of time, you could have a claim under the FCRA.

This post just skims the surface of the FDCPA and FCRA. These are federal statutes that are lengthy, have been in place for many years, and have hundreds of reported cases speaking to their interpretation. So, it is best to proceed with the advice of a lawyer familiar with these laws, even before taking any action with respect to a debt you dispute. In the event that you believe that a debt collector or creditor is collecting or reporting a debt wrongfully, or would like to discuss how to proceed after learning about an invalid debt, feel free to give us a call.