Chapter 11 and Relief from Stay: Special Rules for Single Asset Real Estate Debtor

As discussed in a previous post, the automatic stay prevents creditors from pursuing a debtor for payment or from foreclosing on a debtor's property.

However, the automatic stay is not full proof.  Creditors may file a motion with the bankruptcy court for relief from the automatic stay.  If the motion is granted, the stay will not longer apply to that particular creditor and as such the creditor may resume collection efforts against the debtor, including foreclosure.

In a Chapter 11 case, if the debtor's only asset is a single piece of real property, there are special rules which apply.  This type of Chapter 11 case is terms a Single Asset Real Estate case.

One of the special rules in these types of cases is that, within 90 days of the filing of the case, the debtor must either propose a Plan of reorganization (that is, propose how it will handle its debts) or begin paying its secured creditors at least the interest owed to them.  If the debtor fails to do so within the 90 days, the secured creditor (the mortgage company, for example) has a right to relief from stay.  These rules are provided in 11 USC §362(d)(3).

As you can see, Chapter 11 cases are complex.  It is therefore extremely important for a debtor to have experienced Chapter 11 counsel.  An attorney that only handles Chapter 7 and Chapter 13 cases will likely not know these, and other special rules which apply to Chapter 11 cases.  An oversight of §362(d)(3) by an inexperienced attorney can be very costly to a debtor trying to reorganize his debts.

Shalem Shem-Tov
Netzah & Shem-Tov,
www.netshemlaw.com
818-995-4200

Bankruptcy and the Automatic Stay

When a debtor files any type of bankruptcy, a “automatic stay” is created which prevents all creditors from pursuing the debtor.  That is, creditors cannot call or otherwise contact the debtor to ask for payment, they cannot sue the debtor (and any pending lawsuits are immediately halted), they cannot collect on a judgment and they cannot foreclose on any property of the debtor.  As the description implies, this “stay” of the creditors is automatic.  The filing of the bankruptcy case alone, and nothing else, creates the stay.  So, even if a creditor does not know of the bankruptcy filing, any action the creditor takes against a debtor can be cancelled.

For example, let us assume that there is a lawsuit pending against a debtor who has not yet filed for bankruptcy.  The debtor decides not to file an Answer in the lawsuit and therefore the creditor requests that a default be entered against the debtor.  Before the default is entered, however, the debtor files for bankruptcy.  The next day, before the debtor has a chance to inform either the creditor or the court in which the lawsuit is pending of the bankruptcy filing, the court enters the default against the debtor.  Sometime later, for whatever reason, the bankruptcy gets dismissed and the debtor now wants to file an Answer in the lawsuit.  Normally, once a default is entered, the debtor (or defendant) can no longer file an Answer.  However, in this case, since the bankruptcy was filed prior to the default being entered, the automatic stay prevented the default from being effective.  Although neither the court nor the creditor knew of the bankruptcy, the default must be set aside.

Some time ago, our office represented a client in this exact situation.  We filed a motion to set aside the default entered against our client after the client had filed for bankruptcy.  Although the creditor opposed our motion, the Judge recognized that due to the automatic stay being in effect on the date the default was entered, the default was ineffective.  We won the motion, and our client was able to file his Answer and defend the lawsuit.

Shalem Shem-Tov

Netzah & Shem-Tov,

www.netshemlaw.com

818-995-4200

The Origami Lawsuit

Swan by Akira Yoshizawa, the father of modern origami techniques.

Origami, the art of folding paper into various three-dimensional shapes, has been around for centuries. It started in Japan sometime in the 17th Century, and has developed into a modern art form.  Over the past several years the folding patters have gotten so complex that schematics, called crease patterns, are used as a blueprint for folding.

Recently, one artist — Sarah Morris — has taken some crease patters created by Origami artists — such as Robert J. Lang — and has created her own art from these patterns.  Lang, along with five other artists from Japan, Italy and Spain, have filed a copyright infringement lawsuit against Morris.  Lang claims that the crease patterns are independent works of art protected by the Copyright Act, and thus any derivative works are also protected from copying.  While the Copyright Act does protect derivative works (a work of art which is based upon a prior work), the question here is whether the crease patters are protected by copyright laws in the first place.  If they are, Morris may have infringed on such rights.

The list of categories which are protected by the Copyright Act are provided in 17 USC §102, and includes pictorial and graphic works (§102(a)(5)).  It is important to note that copyright laws do not protect “any idea, procedure [or] process.”  (§102(b)).  So, are the crease patterns merely “procedures” for folding, or are they independent “pictorial or graphic works”?  One way to look at it is to see whether other types of blueprints are protected by copyright.  In fact, they are.  Architectural works are specifically listed as a category of protected work (§102(a)(8)).  However, these architectural works must be drawings or blueprints for the construction of a building.  Whatever the definition of a “building” is, it certainly does not cover folded pieced of paper.

Crease patterns on the left, Morris’s artwork on the right.

Lang and his fellow artists argue that the crease patterns are works of art and that the copyright laws protect these patterns as they do any other work of pictorial or graphic art.  Lang: “Crease patterns have a beauty and interest far beyond their role within origami. I have exhibited and sold my original crease patterns as standalone artworks for nearly a decade in venues ranging from commercial galleries to the Museum of Modern Art.” (Lang’s website.)

It will be interesting to see how this case develops and, if it goes to trial, how the court will rule on the applicability of the copyright laws to these crease patterns.

Shalem Shem-Tov

Netzah & Shem-Tov,

www.netshemlaw.com

818-995-4200