1. Crime
    A wrong committed against society, as defined in a statute and punishable by fines, imprisonment or death. Classified as felonies, misdemeanors or treason.

    • 2 Requirements of Criminal Liability
    • 1)performed some prohibited act (or failed to perform some legally required act, "actus reus"
    • 2)with a specified state of mind or intest ("mens rea")

    The burden of proof in a criminal case is beyond a reasonable doubt.
  2. Criminal Liability
    • 2 elements normally must exist for a person to be convicted of a crime:
    • 1) the performance of a prohibited act and
    • 2) a specified state of mind, or intent,on the part of the actor.
    • Additionally to establish criminal liability, there usually must be a concurrence between the act and the intent. In other words, these 2 elements must occur together.
  3. Corporate Criminal Liability
    • A corporation may be criminally liable if:
    • 1) an agent or employee of the corporation
    • -commits a criminal act within the scope of her employment and
    • -the corporation could have prevented the crime or a supervisory employee authorized, requested, or recklessly tolerated the crime; or
    • 2) the corporation fails to perform a specific duty imposed on it by law

    • A corporation officer or director may be criminally liable for
    • 1) her own criminal acts, regardless of whether she committed them for her own benefit or the benefit of the corporation, as well as
    • 2) crimes committed by those under her supervision

    A responsible corporate officer may be criminally liable even if she did not participate in, direct, or even know of the criminal violation.

    Many prosecuters proceed against corporations with great discretion, punishing the corporation ends up punishing innocent shareholders. The passage of Sarbanes-Oxley (SOX) has increased criminal exposure for corporations. Most prosecutors have targeted the criminal wrogdoing of individual officers instead of the corporation. Teh Department of Justice (DOJ) insists the prosecutors seek indictments against companies if a federal investigation has been obstructed.
  4. For corporations to be held liable under an agency theory, the individual must:
    • 1) have acted within scope and nature of his employment
    • 2) acted, at least in part, to benefit the corporation
    • 3) the act and intent can be imputed to the corporation.

    Model Penal Code allows a corporation to avoid liability only if it demonstrates that supervisory agents with power over the area in which the offense took place acted with due diligence to prevent the commission of a crime

    Under Federal Law, corporations are punished pursuant to Organizational Sentencing Guidelines (monetary fines/loss of license). The United States Supreme Court has held that the Guidelines are advisory only, but the federal District Courts must consult the guidelines and take them into account.
  5. In 2002, the DOJ directed government prosecutors to weigh the following factors in deciding whether to prosecute a corporation:
    • 1) the company's history of wrongdoing
    • 2) its response to regulatory actions
    • 3) its reaction to the criminal acts of its employees
    • 4) the level within the corporation at which the crimes were committed or condoned
    • 5) the pervasiveness of the criminal behavior within the organization.
    • In 2004, the Commission added a guideline treating compliance and ethics programs.
  6. Liability of corporate officers and directors
    can be held liable for crimes committed under her supervision. Under the responsible corporate officer doctrine, a corporate officer may be held criminally liable even if he did not participate in, direct, or even know of the criminal violation. (U.S. v. Park) Responsible Corporate Officer Doctrine
  7. Crimes of theft:
    • Robbery: Forcefully and unlawfully taking personal property of any value from another; force or threat of force is typically required for an act of theft to be treated as robbery
    • Aggravated Robbery-robbery with the use of a deadly weapon-is the most serious form of theft.
    • Burglary: Unlawful entry into a building with the intent to commit a felony (or, in some states, the intent merely to commit any crime).
    • Aggravated Burglary occurs when a deadly weapon is used or when the building entered is a dwelling.
    • Larceny: wrongfully taking and carrying away another person’s personal property with the intent to permanently deprive the owner of the property.
    • Common law distinguished between grand and petit (or “petty”) larceny, depending on the value of property taken. In those states that retain the distinction, grand larceny is a felony, and petit larceny is a misdemeanor.
    • Arson: Willfully and maliciously burning a building (and, in some states, personal property) owned by another.
    • Arson for Profit: Every state has a special statute that prohibits burning one’s own building or other property in order to collect insurance benefits on the property.
    • Receiving Stolen Goods: Not only is theft a crime (e.g. robbery, burglary, larceny), it is also a crime to receive goods one knows or has reason to know are stolen.
    • Forgery: Fraudulently making or altering a writing (e.g., a check) in a way that changes the legal rights or obligations of another.
    • False Pretenses: Obtaining goods by deceiving the person from whom they are obtained (e.g., writing a check knowing there are insufficient funds to cover it, buying goods using someone else’s credit card number without authorization).
  8. White Collar Crime:
    • Embezzlement: Fraudulently appropriating money or other property one has been entrusted to handle.
    • Mail Fraud: Mailing or causing someone to mail something written, printed, or photocopied in furtherance of a scheme to defraud by false pretenses.
    • Wire Fraud: Defrauding the public through the use of telephone, fax, radio, or television.
    • Case in point p.145
    • Bribery: Unlawfully offering, giving, receiving, or soliciting money or other thing of value in order to influence a public decision or action or to gain a personal or business advantage.
    • Bankruptcy Fraud: Knowingly attempting to evade the effect of federal bankruptcy law.
    • Insider Trading: Buying or selling publicly –traded securities on the basis of information that has not been made available to the public (i.e., inside information) in violation of a duty owed to the company whose stock is being traded.
    • Theft of Trade Secrets: The Economic Espionage Act of 1996 makes theft of trade secrets, as well as knowingly buying or possessing another’s trade secrets without the other’s authorization, a federal crime.
  9. Organized Crime:
    • Money Laundering: Falsely reporting income that has been obtained through criminal activity as income obtained through a legitimate business enterprise.
    • RICO: It is a federal crime to
    • (1) use any income obtained from racketeering activity to purchase any interest in an enterprise.
    • (2) acquire or maintain an interest in an enterprise through racketeering activity,
    • (3) conduct or participate in the affairs of an enterprise through racketeering activity, or
    • (4) conspire to do any of the foregoing.
    • A person or entity engages in “a pattern of racketeering activity” by committing 2 or more offenses recited in the text of the RICO statute.
    • Because of the broad reach of the RICO statute, any type of business fraud involving 2 or more persons may constitute “racketeering activity.”

    Violation of the acts subjects any property involved in or traceable to the offense to forfeiture to the government.
  10. RICO:
    • Congress passed the act in 1980, very broad language. Now used against organized and non-organzied crime. Criminal RICO-federal crime to acquire, maintain an interest in, use income from, or conduct or participate in the affairs of an enterprise through a pattern of racketeering activity. Patter-at least 2 acts must be committed by the defendant within a 10 year period. RICO also provides for forfeiture property or business interest that were gained because of RICO violations.
    • Civil RICO- PErsons injured by a RICO violation can bring a private civil suit against the violator to recover injury to business or property. Successful plaintiff can recover treble damage 3 times actual loss, plus attorneys fees.
  11. Liens
    A lien creditor has priority over an unperfected secured party. Mechanic's and artisan's liens also have priority over a perfected secured party unless a statute provides otherwise.
  12. Mechanic's liens
    Mechanic's liens are fairly simple to understand (an may even be within the experience of some students). Generally, a lienholder must file written notice of the lien within 60 to 120 days from the last date on which work was provided.
  13. Artisan's Liens
    An artisan's lien, too is a fairly simple device. Normally, the lienholder must have retained possession of the property and have agreed to provide services on a cash, not a credit, basis. To protect a lien and surrender possession simultaneously, a lienholder must record notice of the lien under state lien law.
  14. Judicial Liens
    • These liens help ensure that a judgement is collectible.
    • -Writ of Attachment: Prejudgement attachment requires notic to the debtor and a hearing (under the 14th amendment's due process clause). The creditor must have an enforceable right to payment, file an affidavit, and post a bond. The court issues a writ of attachment. The sheriff seizes the debtor's property, whcih can be sold to satisfy the judgment.
    • -Writ of Execution: If a debtor does not or cannot pay an adverse judgment, the creditor can go back to court for a writ of execution. The sheriff seizes the debtor's property, whcih can be sold to satisfy the judgment. Before the property is sold, the debtor can pay the judgment and redeem the property.
  15. Garnishment
    • is a collection remedy directed at a debtor's property or rights held by a 3rd person (typically, an employer or a bank).
    • -Garnishment is a state law remedy and the procedures differ from state to state. In some states, a separate order may be required for, for example, each pay period to garnish wages.
    • -Federal and state laws limit the amount that can be garnished from wages. State laws often proved for larger exemptions, and state and federal statutes can be applied together to reduce the amount that may be garnished.
  16. Creditors' composition agreements
    A composition agreement discharges only those debts of creditors who agree.
  17. Surety
    A surety is primarily liable: the creditor can hold the surety responsible for payment of debt when the debt is due, without first exhausting all remedies against the debtor. A surety agreement does not have to be in writing to be enforceable (but it usually is).
  18. Guaranty
    A guarantor is secondarily liable-the principal must 1st default. The contract between guarantor and creditor must be in writing to be enforceable unless the "main purpose" exception applies. A guaranty can cover a single transaction or a series of transactions.
  19. actions releasing the surety and the guarantor
    Any material change in the contract between principal and creditor without prior consent of the surety (or guarantor) may discharge the surety, even if the change does not affect the risk. If the debt is paid, or tender of payment is made and rejected, the surety is discharged.
  20. Defenses of the surety and the guarantor
    A surety can assert his or her own defenses or use any defenses available to the principal (except personal defenses). This is the most important concept in suretyship, because most defenses available to a surety are those of the principal.
  21. Rights of the surety and the guarantor
    The rights of the surety and the guarantor discussed in the text include the right of subrogation, the right of reimbursement, and the right of contribution among co-sureties.
  22. Exempt real property
    Each state allows a homestead exemption, whcih permits a debtor to retain all or part of the family home free from the claims of unsecured creditors or trustees in bankruptcy.
  23. Exempted personal property
    • Personal property that is most often exempt (up to at least a specified dollar amount) includes-
    • -household furniture
    • -clothing and certain personal possessions
    • -a vehicle (or vehicles) for transportaion
    • -certain animals
    • -equipment the debtor uses in a business or trade
  24. Bankruptcy law
    Bankruptcy proceedings are rooted in federal law. This law is based in the Bankruptcy Reform Act of 1978 and the Bankruptcy Abuse and Consumer Protection Act (BACPA) of 2005. Bankruptcy law attempts to protect the rights of debtor and creditor.

    Bankruptcy Courts- Bankruptcy proceedings are held in federal bankruptcy courts under the authority of the federal district courts, to which rulings can be appealed.

    Types of Bankruptcy Relief- The Bankruptcy Code is in Title 11 of the U.S.C and has 8 chapters. Chp 1, 3, and 5 include definitions and provisions governing case administration, creditors, debtors, and estates. Chp 7 provides for liquidation. Chp 9 governs the adjustment of municipal debts. Chp 11 governs reorganizations. Chp 12 and 13 provide for the adjustment of debts by parties with regular incomes (family farmers under Chp 12).

    Special Requirements for Consumer Debtors- a clerk of court must provide consumer-debtors (those whose debts arise primarily from purchases of goods for personal or household use) with certain information (details in the text).
  25. Liquidation Proceedings
    In Chp 7 liquidation (an ordinary or "straight" bankruptcy), a debtor states his or her debts and turns his or her assets over to a trustee, who sells nonexempt assets and distributes the proceeds to creditors. With exceptions, the rest of the debts are discharged.
  26. Voluntary Bankruptcy
    within 180 days of receiving credit counseling from an approved nonprofit agency, a debtor can file a voluntary petition. The debtor's attorney must verify the information in the petition. A debtor does not have to be insolvent-anyone liable to a creditor can file. A husband and wife can file jointly.
  27. Chp 7 schedules: A volunarty petition must contain-
    • -A schedule of secured and unsecured creditors and what is owed to each.
    • -A statement of the debtor's financial affairs.
    • -A list of the debtor's property.
    • -A statement of the debtor's current income and expenses.
    • -A certificate of credit counseling.
    • -Copies of evidence of payments from employers within 60 days.
    • -A statement of monthly income
    • -A copy of the debtor's most reent federal income tax return.

    Additional info may be required- a photo ID and copies of other tax returns must be submitted if the U.S. trustee requires. The schedules and other documents must be filed within 45 days of the petition (except for the tax return, which can be filed up to 7 days before the 1st creditors' meeting).

    Tax returns during bankruptcy- a tax return must be filed each year while a case is pending, with a copy provided to the court.

    Substantial Abuse-Means test- A grant of relief cannot be substantial abuse of Chp 7. If a debtor's family income is greater than the median family income in the state in which the petition is filed, the petition may be dismissed on a presumption of abuse. If the income is below the median, bad faith or another factor is the test.

    Additional grounds for dismissal- A petition may be dismissed for a conviction of a violent or drug related crime, or a failure to file the necessary documents or to pay post-petition domestic support.

    Order for relief- the filling of the petition constitutes an order for relief (a discharge of debts). Creditors must be notified within 20 days.
  28. Involuntary Bankruptcy
    • Creditors can force most debtors (not farmers or charitable institutions) into involuntary bankruptcy. If the debtor challenges the petition, the court will enter an order for relief if it finds:
    • 1) the debtor is generally not paying debts as they become due, or
    • 2) a general receiver, assignee, or custodian took possession of or was appointed to take charge of substantially all of the debtor's property within 120 days before the petition was filed. If the petition is dismissed, creditors may be assessed costs and attorneys' fees. IF a petition is filed in bad faith, a debtor may be awarded damages for injury to reputation and punitive damages.
  29. Automatic Stay
    The automatic stay protects a debtor's property from creditor's willful violation of the stay may entitle a party to recover compensatory and punitive damages, costs, and attorneys' fees.
  30. The adequate protection doctrine
    Secured creditors can ask the court to protect them from losing the value of their security as a result of the stay. Debtors can be required to make cash [payments or provide additional collateral to offset any loss in value].
  31. Exceptions to the Automatic Stay
    Exceptions include domestic support obligations and related proceedings, securities-regulation investigations, tax liens, prior evictions, and wage withholding for retirement-account loan repayments.
  32. Limitations on the Automatic Stay
    A creditor may be granted relief form the stay 60 days after requesting it. A stay on a secured debt may be lifted 30 days after the petition is filed (the text explains), or 45 days after the 1st creditors' meeting unless the debtor reaffirms the debt. If the debtor has filed bankruptcy petitions within the previous year, the stay may not take effect.
  33. Bankruptcy estate
    Commencent of a Chp 7 proceeding creates an estate in property, whcih consists of all the debtor's legal and equitable interest in property.
  34. The Trustee
    A trustee's principal duty is to collect and reduce to money the property of the debtor's estate and to close up the estate as fast as is compatible with the parties' best interests.

    Duties for Means Testing- within 10 days of the 1st creditors' meeting, the trustee must review the debtor's filing and determine whether it is abuse under the means test, and if so, notify all creditors. Within 40 days of the meeting, the trustee must file a motion to dismiss the petition, convert it to a Chp 13 case, or state why not.
  35. The Trustee's powers
    The right to possession of the debtor's property- the trustee also can require persons holding a debtor's property when a petition is filed to give the property to the trustee.

    The strong-arm power- the trustee's position is equivalent in rights to that of certain other parties. A trustee has strong-arm power-the same right as a lien creditor who could have levied execution on the debtor's property.

    Avoidance powers- a trustee has specific powers to set aside a transfer of the debtor's property. These powers include any voidable rights and the power to avoid preferences, certain statutory liens, and fraudulent transfers.

    Liens on the Debtor's Property- a trustee can avoid the fixing of certain statutory liens on a debtor's property.

    The Debtor shares most of the avoidance powers- if a trustee does not act to enforce a right, the debtor can.
  36. Voidable Rights
    A trustee can use any ground-including fraud, duress, incapacity, and mutual mistake-that a debtor can use to obtain return of the debtor's property.
  37. Preferences
    A trustee can recover a debtor's payment or transfer of property made to a creditor within 90 days before the petition in preference to others.
  38. Preferences to Insiders
    Transfers to insiders within a year of the petition can be recovered, but the debtor's insolvency at the time of the transfer must be proved.
  39. What constitutes a preference?
    Generally, payment for services rendered within 10 to 15 days before payment is not considered a preference. A consumer-debtor can transfer any property to a creditor up to a certain amount without it constituting a preference. Domestic-suppost debts and transfers under a credit-counseling service's negotiated schedule are expected.
  40. Fradualent Transfers
    A trustee may avoid fraudulent transfers made within 2 years of the filing of the petition or made with intent to hinder, delay, or defraud a creditor. Transfers made for less than reasonably equivalent consideration are vulnerable if by making them the debtor became insolvent, was left in business with a small amount of capital, or intended to incur debts that he or she could not pay.
  41. Exemptions
    A debtor can exempt certain property from bankruptcy, choosing between exemptions provided under state law and federal law. (States may bar the use of federal exemptions.) The Bankruptcy Code's exemptions are set out in the text. The Bankruptcy Abuse and Consumer Protection Act (BACPA, or 2005 act) of 2005 lowered the dollar amounts and set out specific items that qualify as household goods and other personal property.
  42. Homestead Exemption
    To claim a state's homestead exemption, the debtor must have lived in the state for 2 years before filing the petition. Certain other residency and dollar limits may apply. Home equity may not be protected if a debt arose form a crime or tort indicating substantial abuse.
  43. Creditors' meeting and claims
    The U.S. trustee calls a creditors' meeting within 45 days of the petition. The debtor must attend and submit to exam under oath. At the meeting, the trustee ensures that the debtor is advised of the potential consequences of bankruptcy and of his or her ability to file for bankruptcy under a different chapter. Normally, creditors must file proof fo their claims within ninety days of the meeting. If a creditor does not file, the court or trustee can do soon his or her behalf.
  44. Distribution of property
    Distribution to secured creditors- if collateral is surrendered, a secured party can accept it in full satisfaction of the debt or sell it, apply the proceeds to the debt, and become an unsecured creditor for the difference.

    Distribution to unsecured creditors- the text indicated the order in which unsecured debts are paid (domestic-support debts have the highest prioristy). Each class must be paid before the next class. If proceeds are insufficient to pay all creditors in a class, payment is proportional, and classes lower in priority receive nothing. Any amount remaining goes to the debtor.
  45. Discharge
    With certain exceptions, any debts not satisfied by the liquidation proceeds are discharged, meaning that the debtor is no longer obligated to repay them.
  46. Discharge Exceptions
    There are a number of nondischargeable debts, including back taxes, alimony and child support, student loans, and consumer credit obtained within 90 days of filing. The BAPCPA most notably lowered the dollar amounts and extended the time periods for certain consumer debts that are not dischargeable.
  47. Objections to Discharge
    • concealing or destroying property or financial records with the intent to hinder, delay , or defraud a creditor;
    • having been previously discharged within 8 years of filing the present petition;
    • failing to complete madatory credit counseling; and
    • proceedings that might result in a felony convition

    As grounds to deny a discharge, the BAPCPA increased from 6 to 8 years the period within which a discharge can prevent a later discharge, and added the requirement of a completed consumer financial education course.
  48. Effect of Discharge
    The effect of a discharge is to void any judgemnt on a discharged debt and enjoin any action to collect a discharged debt (but not against a co-debtor).
  49. Revocation of Discharge
    A debtor may lose his or her discharge by revocataion on petition by the trustee or a creditor. The court may within a year revoke a discharge if a debtor acted fraudulently or dishonestly during bankruptcy proceedings.

    • The bankruptcy court may revoke the debtor’s discharge within one year if it is discovered that the debtory has commited fraud or dishonestly during the bankruptcy proceedings. The revocation renders the discharge void, allowing creditors not satisfied by the distribution of the debtor’s estate to proceed with their claims against the debtor.
  50. Reaffirmation of debt
    A reaffirmation agreement must be filed with the court before a discharge is granted. Court approval may be required, and a reaffirmation will be denied if it would create undue hardship on the debtor. If the debtor's income minus expenses is less than the payments would be on the reaffirmed debt, undue hardship is presumed.

    Creditors must disclose to the debtor certain information (examples are in the text) to "[b]e sure you can afford the payments." A debtor can rescind the agreement any time before discharge or within 60 days of filing the agreement, whichever is later.
  51. Reorganizations
    Corporations commonly use Chp 11, but any debtor (except a stockbroker or a commodities broker) eligible for Chp7 is eligible for Chp 11. Under Chp 11, creditors and debtor plan for the debtor to pay some debts, be discharged of the rest, and continue in business. The same principles cover Chp 7 and Chp 11 proceedings (a case may be voluntary or involuntary, the automatic stay and adequate protection rules apply, and so on). The BAPCPA added new rules and limitations for individual debtors.
  52. Workouts
    A formal contract between a debtor and his or her creditors in which the parties agree to negotiate a payment plan for the amount due on the loan instead of proceeding to foreclosure.

    The text notes that workouts are sometimes used in place of bankruptcies.
  53. Creditors' best interest
    After notice and a hearing, a court may dismiss a case "for cause".
  54. Debtor in possession
    A debtor generally continues in business as a debtor in possession. The court may appoint a trustee to operate the business if gross mismanagement is shown or if appointing a trustee is ohterwise in the estate's best interest
  55. Creditors' committee
    A committee of unsecured creditors is appointed to consult with the debtor (or the trustee) about administration of the case or formulation of the plan. Additional committees may be appointed to represent special-interest creditors. In most cases, orders affecting the estate are not entered without the committees' input.
  56. The reorganization plan
    Filing the plan- the text sets out the deadlines, purposes, and details of a Chp 11 plan.

    Acceptance and confirmation of the plan- once developed, a plan is submitted to each class of creditors, who must accept it unless the class is not adversely affected by it. For an individual, confirmation must occur within 45 days. Even if all classes accept a plan, the court may not confirm it if it is not "in the best interests of the creditors." If only one class accepts a plan, the court may still confirm it under the Code's cram down provision.

    Discharge- a plan is binding on confirmation. Claims are not discharged if they would be denied in a liquidation proceeding. An individual debtor is not discharged until a plan's completion.
  57. Chp 13- Individuals' Repayment Plans
    Individuals (not partnerships or corporations) with regular income who owe fixed unsecured debts or fixed secured debts of less than certain statutorily specified amounts may use Chp 13.

    Filing the petition- only a debtor can initiate a Chp 13 case. Certain Chp 7 and Chp 11 cases may be converted to Chp 13 cases. The automatic stay applies in Chp 13 cases to consumer debt but not business debt or domestic-support obligations.

    Good faith requirement- a debtor must act in good faith at the time of the filing of the plan and the filing of the petition.

    Plan provisions...
  58. Chp 13 Plan Provisions
    Filing the plan- only a debtor may file a plan. Subject to the means test for family median income, the time for payment may not exceed 3 years unless the court extends it to 5 years.

    • Confirmation of the plan- a plan will be confirmed in a hearing within 20 to 45 days after the creditors' meeting if-
    • -secured creditors accept it
    • -it provides the creditors retain their liens
    • -the debtor surrenders property securing the claims to the creditors
    • -creditors who exxtend credit for part or all of the purchase price for (a) motor vehicles bought within 910 days of a petition retain their liens until they are paid in full and (b) other personal property bought within 1 year are covered by the plan.

    Discharge- most debts are dischargeable, except taxes, domestic-support obligations, student loans, fraudulently incurred debt, claims resulting from malicious or willful injury, and others listed in the text. A discharge can be revoked within 1 year if it was obtained by fraud.
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