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Mortland v. Aughney Bankruptcy Appeal

Mortland v. Aughney Bankruptcy Appeal

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Published by: Northern District of California Blog on Oct 25, 2011
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11/30/2012

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   U  n   i   t  e   d   S   t  a   t  e  s   D   i  s   t  r   i  c   t   C  o  u  r   t
   F  o  r   t   h  e   N  o  r   t   h  e  r  n   D   i  s   t  r   i  c   t  o   f   C  a   l   i   f  o  r  n   i  a
12345678910111213141516171819202122232425262728IN THE UNITED STATES DISTRICT COURTFOR THE NORTHERN DISTRICT OF CALIFORNIAJAMES ROBERT MORTLAND III, JOHNCURRY, MONROE TIMOTHYSONNENBERG, ROBERTSONNENBERG, TYLER JENSEN, RYANWALKER, and SEA WALKER,Appellants,v.PATRICK J. AUGHNEY and SORAYAAUGHNEY,Appellees.No. C 11-00743 WHA
ORDER AFFIRMINGRULINGS OFBANKRUPTCY COURTINTRODUCTION
In this Chapter 13
 
action, appellants appeal the bankruptcy court’s expungement of theirclass claim and confirmation of the Chapter 13 plan. For the reasons below, the bankruptcycourt’s decision is
A
FFIRMED
.
STATEMENT
Plaintiffs filed a putative class action in Superior Court in 2009. James RobertMortland III, John Curry, Monroe Timothy Sonnenberg, Sean Walker, Ryan Walker, RobertSonnenberg, Jr., and Tyler Jensen are the named and opt-in plaintiffs in the class action againstCertified Parking Attendants, LLC, and its owners, Patrick Aughney, Soraya Aughney, andElizabeth Van Lohuizen. CPA and its owners ran a valet parking business. The class actionconcerned unpaid wages and other state and federal labor law violations.
Case3:11-cv-00744-WHA Document8 Filed07/06/11 Page1 of 5
 
   U  n   i   t  e   d   S   t  a   t  e  s   D   i  s   t  r   i  c   t   C  o  u  r   t
   F  o  r   t   h  e   N  o  r   t   h  e  r  n   D   i  s   t  r   i  c   t  o   f   C  a   l   i   f  o  r  n   i  a
123456789101112131415161718192021222324252627282In July 2010, CPA filed a Chapter 11 bankruptcy claim. Soon thereafter the Aughneysfiled for Chapter 13 bankruptcy. In the process of filing for bankruptcy, the debtors listed all theircurrent and former employees from 2005 to the date of their filing. The Bankruptcy NotificationCenter mailed those listed employees notice of the Chapter 13 claim, how to make claims, and theclaims-bar date. The bankruptcy notification did not contain information about the pending classaction. Mortland, Curry, and Sonnenberg filed a “proof of claim” for a priority claim on behalf of themselves and the uncertified class. No other current or former employees filed a “proof of claim” for the Chapter 13 process.On January 14, the court heard appellees’ motion to expunge the class claims and, as asimilar decision had been made regarding the Chapter 11 class claim, all objections werewithdrawn and the motion was granted. Later, to memorialize its decision, the court issued amemorandum explaining its reasons for expunging the class claim. A couple weeks after thehearing on the motion to expunge, the court confirmed the Chapter 13 plan, which did not includethe class claim. Without a claim in the Chapter 13 plan, the putative class will not benefit fromits distribution. So, the appellants timely appealed both decisions (Appellees’ Br. 5–7,Appellants’ Br. 15).
ANALYSIS
The appeal raises two issues.
First,
did the bankruptcy court err in expunging the classclaim? And if so,
second 
, did the court err in confirming the Chapter 13 plan because the plan didnot take into account the claims of the absent putative class?
1.S
TANDARD OF
R
EVIEW
.
In deciding an appeal from a bankruptcy court, a district court reviews questions of factfor clear error while conclusions of law are reviewed
de novo
. A bankruptcy court’s findings of fact are accepted unless the reviewing court has a “definite and firm conviction that a mistake hasbeen committed. Mixed questions of law and fact are reviewed
de novo
.”
 In re JTS Corp.
,617 F.3d 1102, 1109 (9th Cir. 2010) (internal citations omitted).
Case3:11-cv-00744-WHA Document8 Filed07/06/11 Page2 of 5
 
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   F  o  r   t   h  e   N  o  r   t   h  e  r  n   D   i  s   t  r   i  c   t  o   f   C  a   l   i   f  o  r  n   i  a
123456789101112131415161718192021222324252627283
2.C
REDITORS
 
R
IGHTS IN THE
C
HAPTER
13
 
P
ROCESS
.
Individuals, rather than corporations, file for Chapter 13 bankruptcy. 11 U.S.C. 109(e).When a debtor files, he must list all his creditors. Then, his creditors have the opportunity to opt-in by showing a “proof of claim.” 11 U.S.C. 501. From these claims, the debtor creates aChapter 13 plan to payback his creditors. Once the bankruptcy court confirms the plan, thedistribution process can begin. F
ED
.
 
R.
 
B
ANKR
.
 
P. 3015.There are multiple tiers of creditors. Priority creditors get full payment before anydistribution is made to other non-prioritized creditors. Even the priorities are prioritized.Employees who claim wage and benefit payments fall into the fourth and fifth priority groups,respectively. In order for an employee to recoup lost wages under a priority claim, he must haveearned those wages within 90 days before the filing for bankruptcy or cessation of the debtor’sbusiness. In order for an employee to recoup from an employment-benefit plan under a priorityclaim, the claims must have arisen from his work within 180 days before the date of filing thepetition or cessation of the business. 11 U.S.C. 507.
3.C
LASS
A
CTION IN THE
B
ANKRUPTCY
F
ORUM
.
Our court of appeals has held that FRCP 23 is available to bankruptcy claims.
 In re Birting Fisheries, Inc.
, 92 F.3d 939, 939–40 (9th Cir. 1996). It is not, however, applied often.Many of the policy factors supporting class actions are absent in bankruptcy proceedings. Asproof-of-claim forms are free, accessible, and easy to fill out, the costly barriers to litigation —which deter many small claims — are reduced. Furthermore, the bankruptcy process is alreadyefficient; it consolidates claims just as a class action does.Here, appellants claim that many putative class members did not know they were entitledto or feared retaliation from speaking out about lack of overtime pay and compensation for work-related activities and purchases. So, they argue that a class claim would be substantivelyappropriate in the bankruptcy forum.
 In re
 
 Birting Fisheries
, 92 F.3d at 940, our court of appeals concurred with the othercircuits and held that Bankruptcy Rule 7023 allows Rule 23 to be applied in adversaryproceedings.
See, e.g.
,
 In re American Reserve Corp.
, 840 F.2d 487, 488 (7th Cir. 1988);
 Reid v.
Case3:11-cv-00744-WHA Document8 Filed07/06/11 Page3 of 5

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A valet parking business is a tough way to make a living during a recession. http://www.youtube.com/watch?v=AOdN8W...

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