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Bankruptcy BulletsMartha E. HulleyLearning the LingoWelcome to the latest installment ofBankruptcy Bullets, a quick-referenceguide intended to assist attorneys in navigating the sometimes intimidating andoften confusing arena of bankruptcy law.This article is the second installment providing some elementary explanations forwords unique to the bankruptcy process.Remember that what is presented hereare merely the most basic of descriptions. A SSUMPTION: If a lease or executorycontract is assumed in a bankruptcycase, then the debtor must bring thelease or executory contract current, andthat creditor is then treated as a priority creditor for all obligations owed onthe assumed lease/executory contract.Further discussion of the requirementsand consequences of assumption canbe found at 11 U.S.C. § 365.court, and is often held at an alternative location, such as the U.S. Trustee’s REJECTION: If a debtor opts to “reject”the lease or executory contract, he givesoffice.1 The debtor is deposed by theup the benefits of the contract, andtrustee and any creditors in attendance.the other party to the lease becomes aMany creditors use this meeting as anpre-petition unsecured creditor for anyopportunity to gain valuable informadamages under the contract. Dependingtion regarding collateral, the debtor’son the type of contract/lease, certainintentions to reorganize, and the likedamages caps are articulated in thelihood of distributions on claims. TheBankruptcy Code. Further discussion ofmeeting is often referred to as the “341the requirements and consequences ofMeeting” because it is governed by 11rejection can be found at 11 U.S.C. § 365.U.S.C. § 341 of the Bankruptcy Code. ADVERSARY PROCEEDING: An adversary proceeding is a separate proceeding P REFERENCE: Probably one of the mostfrom the main bankruptcy case and is CONFIRMATION: In bankruptcy caseshated and confusing concepts of thecommenced by the filing of a complaint.where a debtor must file a plan of reorgabankruptcy code is the concept thatAlthough it is separate from the mainnization (or liquidation), the bankruptcycreditors who are paid by debtors imbankruptcy case, it is related and thecourt must confirm a debtor’s plan in ormediately prior to the bankruptcy filingresults of such a proceeding impact theder for a debtor to successfully navigateare required to pay that money “back”main bankruptcy case. The procedureshis bankruptcy case and receive his disto the debtor, or face a lawsuit (an “admirror those of standard federal courtcharge. The debtor first files his plan ofversary proceeding” for those payingproceedings. For a technical definitionreorganization, which describes how heattention!) The concept here is that ofof what disputes are brought as adverintends to reorganize his debts and payten a debtor on the brink of bankruptcysary proceedings, see Federal Rule ofhis creditors. The plan is then subject towill choose to pay certain creditors overBankruptcy Procedure 7001.voting by all eligible creditors, and thenothers. Because one of the main tenetsmust be “confirmed” by the bankruptcy CONTESTED MATTER: A contested matof the bankruptcy system is to promotejudge. A confirmed plan receives theter is similar to an adversary proceeding,fairness among creditors, the trustee issame treatment as a final order, and resexcept that it occurs wholly within thegranted the power to recover transfersjudicata applies.main bankruptcy case, and does notpaid to a “preferred” creditor, so thathave the same due process requirements E XECUTORY CONTRACT: An exthe funds may be distributed among allof a separate adversary proceeding.ecutory contract is a contract wherecreditors in similar positions. There are,Contested matters are evidentiary hearperformance by the debtor and/or theof course, many statutory defenses thatings, and discovery is often permitted.other party/creditor to the contract ismay be raised in a “preference action,”Generally contested matters cover thosestill remaining following the filing ofand further discussion can be found insubject areas not included under FRBPthe bankruptcy petition. In other words,11 U.S.C. § 547.7001. Some examples of common confailure to perform by either party would1. T he chapter under which the case has been filedtested matters are motions to lift theresult in a breach of contract. Examplesdetermines which trustee presides. For example,automatic stay and objections to proofsof executory contracts include leasthe Chapter 7 trustee will preside over Chapter 7of claim.es, intellectual property licenses, and341 meetings, whereas the U.S. Trustee will presideover Chapter 11 341 meetings.employment contracts. A debtor can 341MEETINGOFCREDITORS:choose to assume or reject an executoryFollowing the commencement of aMartha E. Hulley practices bankruptcycontract in bankruptcy. Be forewarned,bankruptcy case, a debtor is required tolaw at LeClairRyan, P.C. in Alexandria.however: executory contract issues canappear and testify before a meeting ofShe may be reached at martha.hulget messy quickly.all his creditors. The meeting is presidedley@leclairryan.com.over by the trustee, not the bankruptcypage 4 Docket Call

If you’ve spent any time in the hallways of a courthouse during a criminaldocket call, chances are you have heardthe name “Hernandez”. In January, theSupreme Court of Virginia decided thecase of Hernandez v. Commonwealth, 281Va. 222 (2011). Since then, defense attorneys, prosecutors, and judges alike havebeen consumed with speculation aboutthe implications of Hernandez, the properuse of the Court’s decision, and whetheror not the General Assembly will react.In Hernandez, the Supreme Court ofVirginia held that until a court enters afinding to hold a defendant guilty of acrime, the court retains inherent authority to take the matter under advisementor to continue the case for disposition ata later date. Id. This decision draws intosharp focus a debate which has ragedwithin the defense and prosecution barsregarding the power of Moreau v. Fuller,276 Va. 127 (2008). In Moreau, the Court held that the actof rendering final judgment was a discretionary, not ministerial, act, andthus not subject to compulsion by acourt to fashion creative and individualized dispositions in criminal cases. TheHernandez decision touches on an oftdebated issue previously sparked by theSupreme Court’s decision in mandamus.Id. at 138-39. That holding followed thequestion of whether a court, having taken a criminal case under advisement fordeferred disposition, may be forced to enter final judgment as a ministerial dutyenforceable by mandamus.Two years later, Rafael Hernandez wasindicted for felony assault of a policeofficer. Under the relevant statute, aconviction requires the imposition of“a mandatory minimum term of confinement of six months.” Va. Code §18.2-57(c). Following the close of evidence at a bench trial, Hernandez askedthe court to defer disposition of the casefor a period of time and continue hisbond for the same period, while subjectto any conditions the court proscribed,and consider dismissal of the case if thedefendant complied with the court’sCriminal CornerAmy L. Bradleyorder. The trial court found that it didnot have the inherent authority to defera disposition where the Commonwealthdid not agree and the evidence was sufficient to support a finding of guilt.Hernandez challenged the trial court’sruling in the Court of Appeals, but to noavail. The Court of Appeals held that thecircuit court had neither statutory nor inherent authority to defer disposition ofthe case. Hernandez v. Commonwealth, 55Va. App. 190 (2009).The Supreme Court of Virginia awardedHernandez an appeal on the single assignment of error. The Court agreed withthe Court of Appeals’ observation thatonce a court has entered a judgment ofconviction of a crime, the question of thepenalty to be imposed is entirely withinthe province of the legislature and thecourt has no inherent authority to departfrom the range of punishment legislatively proscribed. 281 Va. at 225 (citing 55Va. App. at 196-97). However, the Courtdisagreed with the Court of Appeals’holding that the mere statement by ajudge that the evidence was sufficient tosupport a conviction amounts to a judgment of conviction. 281 Va. at 225-26(citing 55 Va. App. at 202). In sum, theCourt found that until a written order isentered finding a defendant guilty of acrime, the court has the inherent authority to take a matter under advisement orcontinue the case for final disposition ata later date. 281 Va. at 226.Prior to the Hernandez ruling, only tenstatutes authorized a court to defer and/or dismiss a criminal case: § 4.1-305 – Purchasing or possessingalcoholic beverages § 16.1-278.8 – Delinquent juveniles § 16.1-278.9 – Delinquent juveniles;loss of driving privileges for alcohol,firearm, and other drug offenses § 18.2-57.3 – First offense assault andbattery against a family or householdmember § 18.2-61 – Spousal rape § 18.2-67.1 – Spousal sodomy § 18.2-67.2 – Spousal object sexualpenetration § 18.2-251 – First offender drugpossession § 18.2-258.1 – Prescription fraud § 19.2-303.2 – First offender misdemeanor property offenseFollowing the Hernandez ruling, AssistantCommonwealth’s Attorney and DelegateC. Todd Gilbert, R-Woodstock, introduced House Bill 2513, to effectivelyrevoke the new common law authorityof Virginia courts to defer disposition incriminal cases. The bill sought passage ofa new Code section which would haveread: “No court shall have the authority,upon a plea of guilty or nolo contendereor after a plea of not guilty, when thefact found by the court would justify afinding of guilt, to defer proceedings orto defer entry of a final order of guiltyor to dismiss the case upon completionof terms and conditions except as provided by statute.” The Bill passed theHouse (76 to 22) with an amendmentlimiting the time for entering final orderto 60 days from the conclusion of evidence. The Bill never made it out of theSenate after being referred to the Courtsof Justice Committee.The scope of cases where a Hernandezdisposition could be requested is seemingly unlimited. As of now, the GeneralAssembly has not acted. However, thelikelihood of future legislation to limitHernandez is almost certain. Until then,the limits of Hernandez rest within thediscretion of Virginia’s courts.Amy L. Bradley practices criminal lawat the firm of Greenspun, Shapiro,Davis & Leary, P.C. in Fairfax. She maybe reached at ab@greenspunlaw.com.Spring 2011 page 5

Ethics CornerEmily F. HedrickA Lawyer’s Duty to Disclose Error to a ClientA lawyer who makes an error in the representation of a client must determinewhether she has a duty to disclose thaterror to the client. The primary source ofany duty to disclose is Rule 1.4, whichrequires the lawyer to “keep a client reasonably informed about the status of amatter” and to “explain a matter to theextent reasonably necessary to permit theclient to make informed decisions regarding the representation.” Further, Rule 1.7requires disclosure, and possibly withdrawal, in any case in which the lawyer’serror creates a conflict between the lawyerand client, such as when the lawyer’s representation of the client will be materiallylimited by the lawyer’s interest in avoid-ing malpractice liability or otherwiseavoiding responsibility for the error.These rules will not require disclosureof every error the lawyer makes. An error that does not affect the client’s caseor that is easily remedied will not requirethe client to make an informed decisionregarding the representation, nor will itcreate a conflict between the lawyer andher client. On the other hand, if the mistake creates a possible malpractice claimagainst the lawyer, then the lawyer isrequired to disclose that mistake, andto advise the client that he has a potential malpractice claim against the lawyer.LEO 1817. The rationale of LEO 1817also appears to require the disclosure ofany substantial violation of the Rules ofProfessional Conduct affecting the lawyer’s representation of the client, eventhough not all such violations will giverise to a civil claim against the lawyer.The fact that the lawyer has a clear personal interest in not admitting mistakessuggests that she should err on the side ofdisclosing the error in any close case.If the lawyer determines that she mustdisclose her error to the client, then sheshould provide a relatively broad disclosure. The disclosure must be sufficient toallow the client to make an informed decision about whether to change lawyers,whether to waive any conflict of interestand continue with the current lawyer,and to what extent corrective actions arepossible. Additionally, if the error is onethat she reasonably expects will give riseto a malpractice claim, the lawyer’s malpractice insurance policy likely requiresthat she immediately notify her insurerof the claim.Emily F. Hedrick is Assistant EthicsCounsel for the Virginia State Bar inRichmond. She may be reached athedrick@vsb.orgThe VSB’s 73rd Annual Meetingwill be held June 16–19, 2011. Goonline to ndex.php/ to keep up-to-date on allAnnual Meeting events.photo courtesy of Virginia Beach Convention and Visitors Bureaupage 6 Docket Call

What Today’s Real Estate Investors Need to KnowAbout Foreclosure-Related Lawsuits in Virginia(Part One of Two)John C. CowherdIf a borrower defaults on a mortgage inVirginia, the lender does not need to file alawsuit in a court in order to foreclose onthe real estate. In December 2010, a billwas introduced in the Virginia GeneralAssembly requiring court approval forforeclosure on all new mortgage loans.See S.B. 798 (Va. 2011). In February 2011,the Senate Courts of Justice Committeedecided not to move the bill forward.Given the General Assembly’s disinterestin transforming Virginia into a judicialforeclosure state, lenders and borrowersshould not expect a radical transformation of foreclosure law in 2011. While alender is not required to file suit in order to sell a distressed property, courts inVirginia can become involved in disputesover real estate loans at the parties’ request. If your client is investing in realestate in the current economic environment, he must be aware of how the courtsystem may become involved in the foreclosure process.In a non-judicial foreclosure state such asVirginia, the lender secures the PromissoryNote made by the borrower by filing aDeed of Trust in the local land records.The Deed of Trust authorizes a Trustee tosell the property at a public sale in theevent of a default by the borrower on thePromissory Note. See Va. Code § 55-59(7).Default is most often due to non-payment. The bank-appointed Trustee mustfollow the foreclosure terms of the Deedof Trust and the Code of Virginia, whichincludes giving certain notices. See Va.Code §§ 55-59.1 to 55-59.4.Short SalesMany investors today consider investing in real estate where the currentowner has a past-due loan. Sometimesthe owner tries to avoid foreclosure bynegotiating with the lender to sell theproperty for which the sum owing underthe loan documents exceeds the currentsale price. This scenario is called a “shortsale.” Short sales are attractive to investors because the property tends to be inbetter shape than those that have beenthrough foreclosure. However, few shortsales actually close. Short sales frustrateloan servicers, borrowers, and Realtorsbecause it is difficult to persuade thefinancial institutions that hold the promissory notes to agree that a short sale willreduce the lender’s losses. For this reason,investors tend to avoid short sales unlessthe property is of unique interest.Foreclosure SalesSome investors buy homes at foreclosuretrustees’ public sales. Normally the onlybidding party is the mortgagee bank itself. However, foreclosure sale propertiesare attractive to some investors seekingto acquire the property at the lowestpossible price. Unfortunately, buyers atforeclosure sales do not enjoy the typicalbenefits of purchasing real property, including many warranties and disclosuresthat give investors peace of mind concerning their investment. If a problemarises with property purchased at a foreclosure sale after settlement, the investormay lose months of rental income pending resolution of the issue, regardless ofwho is responsible for the problem.Post-Foreclosure SalesAlternatively, investors may seek to purchase properties already foreclosed uponby the lender. Most financial institutionsholding the promissory note secured bythe deed of trust are not in the businessof holding foreclosure homes as longterm investments. Sales of bank-ownedproperties to investors do not possess thepeculiarities of short sales or foreclosuretrustee’s sales.Part Two of this article will discuss thecommon types of legal actions arisingout of the foreclosure process. Wise investors, and their attorneys, take intoaccount the pendency or threat of sucha suit in weighing a potential purchase.John C. Cowherd is an AssociateAttorney at Culin, Sharp, Autry & Day,P.L.C. in Fairfax. He can be reached atjcowherd@csadlawyers.com.Free Mental Health Law CLEOn Friday, May 27th from 10 a.m. to 1 p.m. the Mental Health Law Committee will be hosting a free CLE (including one hour ofethics) on the campus of the George Mason University School of Law in Arlington regarding recent developments in mental healthlaw. Learn about recent developments in Mental Health Law in Virginia with an emphasis on involuntary civil commitment, whythese developments affect lawyers in every area of practice, and why every lawyer needs to be educated on these issues.For more information or to register, please contact one of the Committee’s co-chairs, Lara Jacobsat jacobs.lara@gmail.com or Ron Page at rpage@rpagelaw.com, or the Committee’s Board liaison,Nathan Veldhuis, at nathan.veldhuis@allenandallen.com.Spring 2011 page 7

A Day in the Life of a Judicial Law ClerkChristopher G. FindlaterThe jurors file down the halls of thechambers peering into our office as theypass by, the cannonade of feet clashingwith the classical music cascading fromour radio. They disappear into CourtRoom 1.Thereafter, a booming “Good Morning!”follows. Judge Nolan Dawkins, glasses in his left hand, stands tall at theoffice doorway. “Good Morning,” we reply. “Ready, sir?” his deputy asks. JudgeDawkins turns, slips on his glasses and replies, “Yeah. Let’s go render some justice.”The deputy opens the courtroom doorand ushers in the judge. “All rise. Court isin session. The Honorable ,” the deputybellows, until the slowly shutting doorsilences the pronouncement.I turn my focus back to my illuminatedwindow from which I view the world,nine to five, when Judge Haddock strollsin, wearing brown loafers, khakis, awhite dress shirt with a colorful bow tie,cupping his

Law Conference. Sponsored by the Young Lawyers Conference, the day-long confer- . to our new Mental Health Law CLE, vol-unteers all over the Commonwealth have been doing so much for the Bar and their . by the YLC and Fidelity National Title Group, will start at 1 p.m