Court Roundup


Court rules bankruptcy lawyer can be fined for 'unreasonable reliance'

BOSTON (Daily Record Newswire) -- A lawyer could be sanctioned for unreasonably relying on information provided by her client in pursuing creditor claims in a bankruptcy case, the 3rd Circuit has ruled in reversing judgment.

The lawyer represented a bank that held a mortgage on homeowners who filed for Chapter 13 protection. Rather than being contacted directly by the bank, the lawyer was retained through NewTrak, a third-party computer service designed to handle high-volume foreclosure work.

Using information provided by the NewTrak database, the lawyer filed a motion to lift the automatic stay in the homeowners' bankruptcy case so that the bank could proceed with foreclosure.

The bankruptcy court sanctioned the lawyer for making false declarations in support of the motion to lift the automatic stay. In particular, the lawyer mistakenly asserted that the homeowners had failed to make any payments on their mortgage since the filing of their bankruptcy petition. Moreover, the filing ignored the fact that the homeowners had withheld certain payments in a dispute with the bank over flood insurance.

The lawyer argued that she could not be sanctioned because she reasonably relied on information about the homeowners' account that was available in the NewTrak database.

But the court concluded that her reliance on the database was unreasonable.

The court explained that "a reasonable attorney would not file a motion for relief from stay for cause without inquiring of the client whether it had any information relevant to the alleged cause, that is, the debtor's failure to make payments. Had [the lawyer] made even that most minimal of inquiries, [the bank] presumably would have provided her with the information in its files concerning the flood insurance dispute, and [the lawyer] could have included that information in her motion for relief from stay -- or, perhaps, advised the client that seeking such a motion would be inappropriate under the circumstances."

New Jersey

Bankruptcy stay doesn't block attorney's suspension

BOSTON (Daily Record Newswire) -- The automatic stay in an attorney's bankruptcy case does not preclude the imposition of a suspension for failing to pay fee arbitration awards to clients, the New Jersey Supreme Court has ruled.

A fee arbitration panel issued awards to three former clients of the attorney and directed that he pay the awards by a date certain. When the attorney failed to pay the awards, a disciplinary panel recommended that he be suspended.

The attorney filed for Chapter 7 protection and argued that the automatic stay in his bankruptcy case barred the state supreme court from imposing the recommended discipline.

But the court concluded that a suspension from the practice of law for failure to comply with a fee arbitration panel's determinations qualifies as an exception to the automatic stay provision of the Bankruptcy Code.

"[W]here the financial benefit, if any, will be passed on to defrauded clients rather than the governmental unit itself, courts have permitted the regulatory action to be excepted from the automatic stay," the court said.


Court rules posthumously conceived child can't get Social Security

BOSTON (Daily Record Newswire) -- A child conceived through artificial insemination more than a year after her father's death did not qualify for Social Security benefits as the dependent child of a deceased worker, the 8th Circuit has ruled in reversing judgment.

The plaintiff's husband banked his semen after he was diagnosed with leukemia and began chemotherapy. He later died from the cancer.

More than a year after her husband's death, the plaintiff conceived a child using his frozen semen. After her daughter was born, the plaintiff filed a claim on her behalf for Social Security benefits.

The Social Security Administration denied the claim, concluding that the plaintiff's daughter did not qualify as the dependent child of a deceased worker.

The plaintiff sued over the denial of benefits.

But the 8th Circuit concluded that the plaintiff's daughter was not a "child" of her deceased husband for purposes of the Social Security Act and under applicable Iowa law.

"As the [Social Security Act] now stands, it resolves the question of eligibility for child's insurance benefits by reference to state intestacy law, and Iowa law did not provide [the plaintiff's daughter] with intestacy rights at the time of the agency's final decision in this litigation," the court said.

It noted a similar decision from the 4th Circuit, as well as contrary decisions from the 3rd and 9th Circuits.


Mental health parity law requires anorexia coverage

BOSTON (Daily Record Newswire) -- A state mental health parity law required a health insurance company to pay for the residential care of an insured who suffered from anorexia nervosa, the 9th Circuit has ruled in reversing judgment.

The California Mental Health Parity Act generally requires that health insurance plans cover all "medically necessary" treatment for certain mental illnesses.

In this case, the plaintiff is 37 years old and has suffered from anorexia nervosa for more than 20 years. When her condition worsened, her doctors told her that she needed a higher level of care than the intensive outpatient treatment she had been receiving.

The plaintiff is insured under an ERISA plan administered by Blue Shield. The health insurer refused to cover the residential care recommended by the plaintiff's doctors, invoking a specific exclusion in the plan.

The plaintiff sued to establish coverage for her residential care.

The court agreed that the plaintiff's residential care was not covered under the terms of the plan, but determined that coverage arose by operation of the state mental health parity law.

"[W]e conclude that the Mental Health Parity Act requires that a plan within the scope of the Act provide all 'medically necessary treatment' for 'severe mental illnesses,' and that [the plaintiff's] residential care ... was medically necessary," the court said.

It explained that Blue Shield had forfeited the right to dispute medical necessity in the plaintiff's lawsuit by failing to raise it as a ground for denying her claim when it was being administratively reviewed.

Published: Tue, Sep 6, 2011


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