1 Secured Transactions Assignment 1 Remedies of Unsecured Creditors under State Law

2 Basic concepts: time and money

3

4 Civil procedure (time line)

5 Basic concepts: time and money Civil procedure Complaint

6 Basic concepts: time and money Civil procedure Complaint Service

7 Basic concepts: time and money Civil procedure Complaint Service Answer

8 Basic concepts: time and money Civil procedure Complaint Service Answer Motion for summary judgment...

9 Basic concepts: time and money Civil procedure Complaint Service Answer Motion for summary judgment... or trial

10 Basic concepts: time and money Civil procedure Complaint Service Answer Motion for summary judgment... or trial Judgment

11 Basic concepts: time and money Civil procedure Complaint Service Answer Motion for summary judgment... or trial Judgment Levy

12 Basic concepts: time and money Civil procedure Complaint Service Answer Motion for summary judgment... or trial Judgment Levy 30 days (default) to one year or more (with resistance)

13 Basic concepts: time and money Civil procedure Complaint Service Answer Motion for summary judgment... or trial Judgment Levy 30 days (default) to one year or more (with resistance) 10 day minimum

14 Basic concepts: time and money Summary procedure (small claims courts) Complaint

15 Basic concepts: time and money Summary procedure (small claims courts) Complaint Service by mail

16 Basic concepts: time and money Summary procedure (small claims courts) Complaint Service by mail Hearing

17 Basic concepts: time and money Summary procedure (small claims courts) Complaint Service by mailJudgment Hearing

18 Basic concepts: time and money Summary procedure (small claims courts) Complaint Service by mailJudgment 60 days Hearing

19 Basic concepts: time and money Summary procedure (small claims courts) Complaint Service by mailJudgment Levy 60 days 10 day minimum Post judgment proceedings are generally the same as Civil Procedure Hearing

20 Some rough estimates of the cost of legal services “Commercial” (collection) lawyers (on debts as small as utility bills) for big clients Contingency fees Basic concepts: time and money

21 Some rough estimates of the cost of legal services Partner in a Wall Street firm$ ,000/hour “Commercial” (collection) lawyers (on debts as small as utility bills) for big clients Contingency fees Basic concepts: time and money

22 Some rough estimates of the cost of legal services Partner in a Wall Street firm$ ,000/hour Associate in a Wall Street firm$250 - $600/hour “Commercial” (collection) lawyers (on debts as small as utility bills) for big clients Contingency fees Basic concepts: time and money

23 Some rough estimates of the cost of legal services Partner in a Wall Street firm$ ,000/hour Associate in a Wall Street firm$250 - $600/hour “Corporate” lawyers/litigator, small city$170 - $600/hour “Commercial” (collection) lawyers (on debts as small as utility bills) for big clients Contingency fees Basic concepts: time and money

24 Some rough estimates of the cost of legal services Partner in a Wall Street firm$ ,000/hour Associate in a Wall Street firm$250 - $600/hour “Corporate” lawyers/litigator, small city$170 - $600/hour “Commercial” (collection) lawyers (on debts as small as utility bills) for big clients Contingency fees Basic concepts: time and money

25 Some rough estimates of the cost of legal services Partner in a Wall Street firm$ ,000/hour Associate in a Wall Street firm$250 - $600/hour “Corporate” lawyers/litigator, small city$170 - $600/hour “Commercial” (collection) lawyers (on debts as small as utility bills) for big clients Contingency fees Legal services and pro bonoZero Basic concepts: time and money

26 Some rough estimates of the cost of legal services Partner in a Wall Street firm$ ,000/hour Associate in a Wall Street firm$250 - $600/hour “Corporate” lawyers/litigator, small city$170 - $600/hour “Commercial” (collection) lawyers (on debts as small as utility bills) for big clients Contingency fees Legal services and pro bonoZero Basic concepts: time and money For a bank to file complaint seeking foreclose on a $1 million business loan?

27 Some rough estimates of the cost of legal services Partner in a Wall Street firm$ ,000/hour Associate in a Wall Street firm$250 - $600/hour “Corporate” lawyers/litigator, small city$170 - $600/hour “Commercial” (collection) lawyers (on debts as small as utility bills) for big clients Contingency fees Legal services and pro bonoZero Basic concepts: time and money For a bank to file complaint seeking foreclose on a $1 million business loan? 12 hours at $450/hour = $5,400.

28 Some rough estimates of the cost of legal services Partner in a Wall Street firm$ ,000/hour Associate in a Wall Street firm$250 - $600/hour “Corporate” lawyers/litigator, small city$170 - $600/hour “Commercial” (collection) lawyers (on debts as small as utility bills) for big clients Contingency fees Legal services and pro bonoZero Basic concepts: time and money For a bank to file complaint seeking foreclose on a $1 million business loan? 12 hours at $450/hour = $5,400. For your memorandum in Legal Research & Writing?

29 Basic concepts: remedies Money judgment: “Defendant owes plaintiff $5,000, for all of which let execution issue.” Issued at “end” of the case Does not order Defendant to pay Plaintiff enforces by other procedures Execution: Sheriff seizes and sells the debtor’s property to satisfy the judgment (five steps) 1. Clerk of court issues the writ 2. Sheriff levies on the debtor’s property (no self help) 3. Sheriff sells the property 4. Sheriff applies proceeds to pay down the debt 5. Sheriff files a “return,” which reduces the judgment

30 Basic concepts: remedies Levy: Seizure of property pursuant to execution Sheriff must take physical possession (majority rule) Sheriff follows creditors’ “instructions for levy” Sheriff has liability for amercement / conversion Sheriff requires creditor to indemnify sheriff Exemptions (from execution): Property the sheriff cannot seize on a writ of execution “Necessities” specified by state statute Often limited by use or dollar amount Usually claimed at levy

31 Basic concepts: remedies Prejudgment attachment Sheriff seizes property, as on execution Creditor must prove “extraordinary circumstances” Rare -- few creditors entitled California: Available after hearing on a business debt Self-help repossession: Creditor takes physical possession of debtor’s property Unsecured creditors are not entitled to self-help Conversion: “The wrongful exercise of dominion or control over the property of another.” Self-help is conversion. Wrongful execution is conversion. Remedy: Money judgment for market value. “You bought it.”

32 Basic concepts: remedies AB $100 Setoff: If –

33 Basic concepts: remedies AB $100 Setoff: If – either can “setoff” the debt it owes against the debt owing to it

34 Basic concepts: remedies AB Setoff: If – No debt either can “setoff” the debt it owes against the debt owing to it

35 Basic concepts: remedies AB $100 $36 Setoff: If the amounts owing are not equal –

36 Setoff: If the amounts owing are not equal – a portion of the larger debt will survive Basic concepts: remedies AB $100 $36

37 Setoff: If the amounts owing are not equal – a portion of the larger debt will survive Basic concepts: remedies $64 AB

38 Basic concepts: remedies Setoff example: Debtor owes Bank for $30,000 loan Debtor has $1,637 in an account at Bank DebtorBank $30,000 $1,637 Loan Bank account

39 Basic concepts: remedies Setoff example: Debtor owes Bank for $30,000 loan Debtor has $1,637 in an account at Bank On default, Bank can “set off” the bank account by changing the account balance to zero, then sending notice to debtor. DebtorBank $30,000 $1,637 Loan Bank account

40 Basic concepts: remedies Setoff example: Debtor owes Bank for $30,000 loan Debtor has $1,637 in an account at Bank On default, Bank can “set off” the bank account by changing the account balance to zero, then sending notice to debtor. DebtorBank $28,363 0 Loan Bank account

41 Basic concepts: remedies Fraudulent Transfers: §4(a)(1). A transfer... is fraudulent... if the debtor made the transfer... with actual intent to hinder, delay, or defraud any creditor.... §8(a) A transfer is not avoidable under Section 4(a)(a) against a person who took in good faith and for a reasonably equivalent value.... Example: George sells his property to Alice for $1, so that his creditors can’t take it. Fraudulent transfer (4)(a), Alice has no defense (8)(a). Alice has a defense if she paid reasonably equivalent value.

42 Basic concepts: remedies §5(a). A transfer... is fraudulent... if the debtor made the transfer... without receiving a reasonably equivalent value in exchange... and the debtor was insolvent... or became insolvent as a result of the transfer. Example: George is desperate for cash. He sells assets worth $1 million to Alice for $500,000 (best price he can get now). The transfer is fraudulent, reversible, regardless of intent. Debtors can’t make bad deals. Even with strangers! BP Deepwater Horizon spill. Difficulty selling assets. §3(a). Value is given for a transfer... if, in exchange for the transfer... an antecedent debt is... satisfied.... Example: Bernie Madoff uses his last billion to pay the management fees owing to his sons’ brokerage.

43 Problem constraints Legal strategy is subject to constraints – chess board 1.Law (delivered). What officials will actually do. 2.Procedural rules 3.Costs 4.Client goals 5.Attitudes and personalities of people involved 6.Media pressures “Basic concepts” – how the chess pieces move

44 Problem 1.1, page19 Benning lends $50,000 to Knopf, payable in quarterly installments, with interest at prime plus five points. Loan is not currently in default Conditions now are worse than at time of the loan, Knopf is behind on rent and utility payments What do you advise?

45 Problem 1.2, page 20 Complaint Service Default $12,000 Judgment

46 Problem 1.2, page 20 What happens now? What do we need to know? How do we collect? Complaint Service Default $12,000 Judgment

47 Problem 1.2, page 20 What happens now? What do we need to know? How do we collect? Should we send the sheriff to levy on the day care equipment now? Complaint Service Default $12,000 Judgment

48 Problem 1.3, page 20 Jeff plans to take the lawn furniture. Can he do that? If Jeff can’t take the furniture, what can he do? Jeff Lisa $1K Loan

49 Problem 1.4, page 20 Kostandin owes Look $30,000 LookKostandin $30,000

50 Problem 1.4, page 20 Kostandin owes Look $30,000 So Look defrauds Kostandin of $30,000 in lobsters LookKostandin $30,000

51 Problem 1.4, page 20 Kostandin owes Look $30,000 So Look defrauds Kostandin of $30,000 in lobsters LookKostandin $30,000

52 Problem 1.4, page 20 Kostandin owes Look $30,000 So Look defrauds Kostandin of $30,000 in lobsters, thinking he will set off LookKostandin 0 0

53 Problem 1.4, page 20 Kostandin owes Look $30,000 So Look defrauds Kostandin of $30,000 in lobsters, thinking he will set off But the lobsters bring only $19,000. LookKostandin $19,000 $30,000 $19,000

54 Problem 1.4, page 20 Kostandin owes Look $30,000 So Look defrauds Kostandin of $30,000 in lobsters, thinking he will set off But the lobsters bring only $19,000. Setoff LookKostandin 0 $11,000 $19,000

55 Problem 1.4, page 20 Kostandin owes Look $30,000 So Look defrauds Kostandin of $30,000 in lobsters, thinking he will set off But the lobsters bring only $19,000. What now? LookKostandin 0 $11,000 $19,000

56 Problem 1.4, page 20 Kostandin owes Look $30,000 So Look defrauds Kostandin of $30,000 in lobsters, thinking he will set off But the lobsters bring only $19,000. What now? Convicted! LookKostandin 0 $11,000 $19,000

57 Problem 1.4, page 20 Kostandin owes Look $30,000 So Look defrauds Kostandin of $30,000 in lobsters, thinking he will set off But the lobsters bring only $19,000. What now? Convicted! Court fines Look $15,000 and orders payback of $19,000. LookKostandin 0 $30,000 $19, , ,000

58 Problem 1.5, page 21

59 Problem 1.5, page 21 Knopf owns the following property. What is exempt? 1.Toyota automobile worth $15,000 §815.18(3)(g), (d), exempt 2.Inherited house worth $35,000 §815.20, exempt 3.Day care equipment worth $10,000 §815.18(3)(b), may be exempt 4.Bank account, balance $2, §815.18(3)(k), partially exempt Is there any hurry? Can we move fast enough?

60 Problem 1.5, page 21 Knopf owns the following property. What is exempt? 1.Toyota automobile worth $15,000 §815.18(3)(g), (d), exempt 2.Inherited house worth $35,000 §815.20, exempt 3.Day care equipment worth $10,000 §815.18(3)(b), may be exempt 4.Bank account, balance $2, §815.18(3)(k), partially exempt Is there any hurry? Can we move fast enough?

61 Problem 1.5, page 21 Knopf owns the following property. What is exempt? 1.Toyota automobile worth $15,000 §815.18(3)(g), (d), exempt 2.Inherited house worth $35,000 §815.20, exempt 3.Day care equipment worth $10,000 §815.18(3)(b), may be exempt 4.Bank account, balance $2, §815.18(3)(k), partially exempt Is there any hurry? Can we move fast enough?

62 Problem 1.5, page 21 Knopf owns the following property. What is exempt? 1.Toyota automobile worth $15,000 §815.18(3)(g), (d), exempt 2.Inherited house worth $275,000, subject to $225,000 mortgage §815.20, exempt 3.Day care equipment worth $10,000 §815.18(3)(b), may be exempt 4.Bank account, balance $2, §815.18(3)(k), partially exempt Is there any hurry? Can we move fast enough?

63 Problem 1.5, page 21 Knopf owns the following property. What is exempt? 1.Toyota automobile worth $15,000 §815.18(3)(g), (d), exempt 2.Inherited house worth $275,000, subject to $225,000 mortgage §815.20, exempt if he lives in it 3.Day care equipment worth $10,000 §815.18(3)(b), may be exempt 4.Bank account, balance $2, §815.18(3)(k), partially exempt Is there any hurry? Can we move fast enough?

64 Problem 1.5, page 21 Knopf owns the following property. What is exempt? 1.Toyota automobile worth $15,000 §815.18(3)(g), (d), exempt 2.Inherited house worth $275,000, subject to $225,000 mortgage §815.20, exempt if he lives in it 3.Day care equipment worth $25,000 §815.18(3)(b), may be exempt 4.Bank account, balance $2, §815.18(3)(k), partially exempt Is there any hurry? Can we move fast enough?

65 Problem 1.5, page 21 Knopf owns the following property. What is exempt? 1.Toyota automobile worth $15,000 §815.18(3)(g), (d), exempt 2.Inherited house worth $275,000, subject to $225,000 mortgage §815.20, exempt if he lives in it 3.Day care equipment worth $25,000 §815.18(3)(b), may be partially exempt ($15,000) 4.Bank account, balance $2, §815.18(3)(k), partially exempt Is there any hurry? Can we move fast enough?

66 Problem 1.5, page 21 Knopf owns the following property. What is exempt? 1.Toyota automobile worth $15,000 §815.18(3)(g), (d), exempt 2.Inherited house worth $275,000, subject to $225,000 mortgage §815.20, exempt if he lives in it 3.Day care equipment worth $25,000 §815.18(3)(b), may be partially exempt ($15,000) 4.Bank account, balance $2, §815.18(3)(k), partially exempt Is there any hurry? Can we move fast enough?

67 Problem 1.5, page 21 Knopf owns the following property. What is exempt? 1.Toyota automobile worth $15,000 §815.18(3)(g), (d), exempt 2.Inherited house worth $275,000, subject to $225,000 mortgage §815.20, exempt if he lives in it 3.Day care equipment worth $25,000 §815.18(3)(b), may be partially exempt ($15,000) 4.Bank account, balance $2, §815.18(3)(k), partially exempt Is there any hurry? Can we move fast enough?

68 Problem 1.5, page 21 Knopf owns the following property. What is exempt? 1.Toyota automobile worth $15,000 §815.18(3)(g), (d), exempt 2.Inherited house worth $275,000, subject to $225,000 mortgage §815.20, exempt if he lives in it 3.Day care equipment worth $25,000 §815.18(3)(b), may be partially exempt ($15,000) 4.Bank account, balance $2, §815.18(3)(k), partially exempt Is there any hurry? Can we move fast enough?

69 Problem 1.5, page 21 Knopf owns the following property. What is exempt? 1.Toyota automobile worth $15,000 §815.18(3)(g), (d), exempt 2.Inherited house worth $275,000, subject to $225,000 mortgage §815.20, exempt if he lives in it 3.Day care equipment worth $25,000 §815.18(3)(b), may be partially exempt ($15,000) 4.Bank account, balance $2, §815.18(3)(k), partially exempt Is there any hurry? Can we move fast enough?

70 Problem 1.6, page 20 We have a judgment against Knopf We think someone owes Knopf money. How do we get Knopf to tell us the truth? (Strategy) Set up a perjury charge? With what questions? Do you own any interest in any bank account, in your own name or in any other name?

71 Problem 1.6, page 20 Have you lent any money to anyone who has not yet repaid in full? Have you sold any property for which you have not yet received payment? Have you performed any services for which you have not yet been paid? Does anyone owe you wages, salary or commissions? Have you suffered any injuries to yourself or your property for which anyone might be liable to you? Have your legal rights been violated by anyone? Have you considered filing suit against anyone? For what? Have you deposited money with a utility company? With anyone else? Have you deposited money with a lessor or landlord? Have you paid any rent in advance? Have you prepaid for any goods or services? Have you paid bills for which you expect to be reimbursed by insurance?