In the wake of the recent high profile bankruptcies of companies such as Linens 'n Things and Boscov's more and more companies are feeling the need to file for bankruptcy protection. Mr. Onder discusses the steps companies can take in order to retain key suppliers and employees in uncertain economic conditions. You can read the full article here. (PDF)

You can download the full podcast here. (10.3 MB)
 

Pre-Petition Shipments Of Goods. BAPCPA created substantial additional rights for suppliers that sold goods to a debtor prior to the bankruptcy filing.  Section 503(b) of the Bankruptcy Code allows administrative-expense status to all claims for "the value of any goods" received in the ordinary course of business by a debtor within 20 days before the bankruptcy filing. The supplier must request administrative-expense status. By doing this, the supplier is in a better position than unsecured creditors to be paid, since a Chapter 11 plan of reorganization cannot be confirmed unless administrative claims are fully paid in cash on the effective date of the plan. Unsecured creditors typically receive only a fraction of their claims.

Reclamation Claims.Suppliers may now exercise their right to reclaim goods 45 days after the debtor's receipt of the goods under Section 546(c) of the Bankruptcy Code. Prior law limited the period for reclamation to 10 days after receipt of the goods. A written demand for reclamation of such goods must be made not later than 45 days after delivery. Suppliers must move quickly or their right to reclaim will be lost. If the 45-day period has not expired as of the filing of a bankruptcy case, a supplier will have an additional 20 days after the filing of the case to demand reclamation of the goods sold. A reclamation demand is "subject to the prior rights" of a holder of a security interest in the goods sold.

Preferences:  Small Claim Threshold and Venue. Creditors of a debtor who received small payments during the 90-day pre-bankruptcy preference look-back period are protected by BAPCPA.  Aggregate payments received by a creditor not exceeding $5,000 are now exempt from preference liability.  Also, creditors who have received potential preference payments in an amount less than $10,000 will no longer have to defend themselves in the home bankruptcy court of the debtor, which could be located in another state.  Instead, such preference actions must now be commenced in the creditor's home district.  

Preferences: Ordinary Course Defense. Prior to BAPCPA, to avoid preference liability, a creditor had to prove that the payment it received from the debtor was made in the ordinary course of business of both parties and that the payment was made in accordance with "ordinary" industry terms.  In other words, a creditor had to establish both defenses to prevail.  BAPCPA made it easier to defend a preference action, since a creditor now has to prove only one of the two defenses, thereby reducing the creditor's burden of proof.

Recently, the Appellate Division of the State of New Jersey in Hodges v. Feinstein, Raiss, Kelin & Booker, LLC declared that law firms that regularly file summary dispossess action (aka “evictions”) for non-payment of rent are subject to the Fair Debt Collection Practices Act (“FDCPA”). Additionally, the Appellate Division held residential evictions for failure to pay rent must now be made by verified complaint. 

This decision is very important for landlords and their attorneys since failure to comply with the FDCPA’s collection procedures could subject the landlord and the law firm to attorneys fees, costs and damages.

Hodges involved two sisters, Renita Hodges and Rochelle Hodges. The sisters resided in separate apartments in Newark’s Sotnas Garden Apartments operated by the Sasil Corporation. The rent was subsidized by the United States Department of Housing and Urban Development, (“HUD”). The HUD regulations define rental obligations as a percentage of the adjusted monthly household income. However, the landlord’s lease defined additional rent as late charges, reasonable attorneys fees and court costs.

Due to the Hodges sisters regular arrearages, the landlord directed the law firm to file an eviction action. In the complaint, the firm listed non-payment of rent, which encompassed the lease’s defined arrears for all rent, including late charges, attorneys fees and costs. 

The sisters counterclaimed for, among other things, violating the FDCPA. They claimed that the lease requirement did not circumvent the federal HUD definitions of rent. Further, the landlord did not inform the Hodges that they were required to pay “only” the statutory defined rent as provided under HUD to avoid eviction. The trial court granted the landlord’s eviction action and dismissed all counts by the Hodges. The Hodges then filed a motion for leave to appeal. 

The Appellate Division held that the law firm was a debt collector under the FDCPA, citing:

Whether the available remedy in a summary dispossess action is possession, damages, both, or some other result, is of little consequence. The nature of the threat employed to garner payment does not alter the fundamental fact–the reality–that debt collection is attempted, held that in practice eviction proceedings are a powerful debt collection mechanism.

The Appellate Division then referred the matter to the Special Civil Part Practices Committee to draft for the court’s consideration proposed rules to harmonize the FDCPA with the state’s eviction proceedings. In the interim, the Appellate Division has required that all summary dispossess complaint to be verified and expressly state that creditor’s identify and the amount of the rent that must be paid to the landlord or the clerk before 4:30 p.m. on the day of trial.

This opinion is important to both residential and commercial landlords. Before attempting to evict tenants, the landlord should confirm with their attorney the correct amounts owed. As in Hodges, a contractual obligation in a lease for additional rent will not simply override the Federal law that limits the rent.   Although this case is directed to residential landlords, commercial landlords should take heed as well in reviewing their leases and accountings. 

Following are some questions to consider before proceeding with an eviction:

1. Has a New Jersey Attorney Reviewed the Lease? It is important to have an attorney licensed to practice law in the State of New Jersey review the lease to make sure that it complies with State and Federal law ;
2. Do any Federal or State statutes preempt? Your attorney should be able to advise if any Federal or State statutes specifically define rent, which would only allow a certain portion to be collected. If so, then you may need to re-inform the tenant of the amount due and owing before commencing suit;
3. Does the lease provide for collection of attorney fees as additional rent? To collect attorney fees, generally there must be either a contractual arrangement or a statute that provides for such collection. For eviction actions, to include attorneys fees as rent, it must be specifically defined as additional rent;
4. Who will testify to the amount owed? If the matter is contested, you will need to submit proofs and testimony to show the amounts due and owing. It’s a good idea to have your attorney review the lease and accounting with whomever is to testify. Further, its important that the person testifying have actual knowledge of the books and records, as well as authority to testify; and
5. Have all notice provisions been complied with? Before your file the eviction action, make sure you’ve complied with all notice provisions. Your attorney should advise of the specific notice provisions that need to be followed under the lease, as well as the Fair Debt Collection Practices Act and New Jersey Anti- Eviction Act, if applicable.

The New Jersey Construction Lien Law (the “Lien Law”) replaced the old Mechanic's Lien Law in 1994. Neither of these laws is applicable to public projects. The new Lien Law (N.J.S.A. 2A:44A-1 et seq.) eliminated the filing of a Mechanic's Notice of Intent. Instead, it is necessary to file certain information within 90 days following the date of the last work, services, materials or equipment provided with the Clerk of the county in which the property is located.

A lien claim may only be filed if there is a written contract between the lien claimant and its customer (whether it be the owner, contractor or subcontractor). A lien claimant will lose any rights that it may have to enforce the lien, and the lien itself, if legal action is not instituted within one year of the date of the last work under the contract. The one-year time period starts from the time of last work or services provided, not from the date of the filing of the lien.

If the project is “commercial”, as opposed to “residential”, a lien claimant is entitled to, but is not required to, file a "Notice of Unpaid Balance and Right to File Lien" (NUB). A NUB is also filed with the Clerk of the county in which the property is located.

A lien claimant must take additional steps on a residential project. The Lien Law includes the following under the definition of residential: a one- or two-family dwelling; a condominium; a housing cooperative; and a townhouse development. However, the distinction between residential and commercial is not clear under the law, particularly with respect to work performed on common elements such as drainage and streets.

If work is done under a residential construction contract, the lien claimant must do more to insure that the lien is properly filed and perfected. These steps include: filing a NUB; serving a Demand for Arbitration under the American Arbitration Association program created for residential construction lien claims, and then, if successful in the Arbitration, filing the lien claim with the Clerk in the county in which the property is located. All of these steps must be completed within 90 days from the date of the last work, services, material or equipment provided.

You can read the story here.

You can read the article here.

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