Wednesday, April 25, 2007

In Re Harbin (9th Cir. - April 25, 2007)

I think the Ninth Circuit comes out looking good on this one.

It's a bankruptcy case, and the question is whether the bankruptcy court should have approved the debtor's plan of reorganization. The case is particularly interesting because the debtor here is an attorney: John Allen Harbin (of Torrance). Moreover, the potential sticking part in Harbin's bankruptcy is the interesting fact that Harbin had been previously sued by another attorney, Jeffrey Adam Sherman (formerly of Beverly Hills), for breach of contract arising out of Harbin's 1996 purchase of Sherman's law practice; in particular, Sherman's "Tax Consulting Group". Harbin stopped paying Sherman, Sherman sued Harbin, Harbin defended the suit on grounds (inter alia) that Harbin wasn't personally liable for the judgment, Harbin lost, and a judgment of over $400,000 was entered against Harbin. At which point Harbin filed for bankruptcy.

Thereafter, however, the trial court vacated the judgment against Harbin, and Sherman appealed. And since there wasn't a judgment, Harbin proposes to pay off all his creditors with his assets and discharge the "debt" to Sherman (which, remember, is zero at this point, but subject to appeal) by paying nothing. Sherman says this isn't permissible because he'll get diddley if the plan is approved and he subsequently prevails on appeal. But the bankruptcy court approves the plan, holding (1) that the court had no discretion or ability to consider the pending appeal because the current value was zero, (2) the Rooker-Feldman doctrine would probhit the court from considering the merits of the pending appeal, and (3) that Sherman can always move to reconsider the approval of the plan in the event he prevails on appeal.

Shortly thereafter, the California Court of Appeal reinstates the judgment against Hardin personally. And the district court then vacates the bankruptcy court's approval of the plan. Hardin then appeals.

The Ninth Circuit, however, affirms. Correctly, in my mind. Judge Ikuta writes an opinion that makes very good sense to me. And even though Judge Cudahy, sitting by designation from the Seventh Circuit, partially dissents, I think that Judge Ikuta pens much better arguments than Judge Cudahy.

So Ninth Circuit 1, Seventh Circuit 0. At least for today.

P.S. -- There's lots of other interesting stuff about the participants in this lawsuit that Judge Ikuta leaves out of her opinion. To give but one example, the fact that Jeffrey Sherman has been repeatedly suspended from the California Bar, resigned from the Bar with charges pending, and not only pled guilty to conspiracy to commit bankruptcy fraud and tax evasion, but was sentenced to 32 months in prison as a result. Nice.