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AP's in Rochester Way Down in 2010 (not so Buffalo); Big Drop in Exceptions to Discharge Lawsuits

At the annual holiday luncheon of the Bankruptcy Committee of the Monroe County Bar Association in December, Rochester Judge John C. Ninfo asked the attorneys present why bankruptcy filings in the Western District of New York were down in 2010 compared to 2009. I will review that question in a later blog, but perhaps the judge should have asked why bankruptcy litigation - adversary proceeds - was waaaay down in Rochester - but not Buffalo - this past year.

I did a quick scratch-pad analysis of all adversary proceedings filed in Rochester 2007 through 2010. According to my analysis, only 67 adversary proceedings (AP's) were filed in the Rochester division of the Western District of New York in 2010 (an adversary proceeding is a federal lawsuit filed in connection with a bankruptcy case.) In 2009, 119 AP's were filed in Rochester, so AP's dropped by more than one-third this past year.

In 2008, there were 100 AP's in Rochester, and in 2007 the number was 164. The 2007 figure was distorted by 45 AP's filed in the Empire Beef chapter 11 case, but even without those, the average number of AP's filed in the previous three years in Rochester was 113 per year, so any way you look at it, the adversary proceeding litigation in Rochester dropped significantly this past year.

The Buffalo division of our court did not see a similar drop. In 2010, 127 AP's were filed in Buffalo. In 2009 there were 294 AP's in Buffalo, but 167 of those were related to one chapter 11 case - Performance Transportation Services. Subtract those cases and Buffalo had the same number of general AP's in 2010 as in 2009: 127. Approximately two-thirds of bankruptcy filings in the Western District of New York are filed in the Buffalo Division, and Buffalo had about two-thirds of the AP filings in 2010. In 2009, there were approximately the same number of AP's filed in each division, excluding the Performance Transportation Services cases.

Why the drop in Rochester AP's in 2010? You can't blame our trustees. In 2010, Rochester trustees filed 32 AP's to recover property (avoid preferences, reverse fraudulent transfers, void liens etc.) and 19 AP's asking to object to or revoke the debtor's discharge (there was some overlap; eight AP's sought both to recover property and object/revoke a discharge.) So Rochester trustees filed 43 of the 67 AP's filed in 2010.

In 2009, Rochester Trustees filed 42 AP's to recover property, revoke discharge, or both (the breakdown in 2009: 19 AP's to recover property, 18 AP's to object/ revoke discharge, 5 asking for both.) The U.S. Trustee filed six of these object/revoke AP's in 2009. In 2008, Rochester trustees filed 15 AP's to recover property, 19 object/revoke discharge, and one asking for both, a total of 35. The figures for 2007 are 15 to recover property, 25 object/revoke discharge (including 10 by the UST), and five asking for both, totaling 45. So the toital number of trustee AP's has been remarkable consistent the past four years.

Rochester practitioners will not be astonished to learn that Trustee Ken Gordon filed the highest number of trustee AP's in 2010: 21. Interestingly, Bruce Lawrence came in second in trustee AP filings, at 9, followed by Doug Lustig (6) and Lou Morin (3).

Buffalo trustees filed 59 AP's in 2010 to recover property and 11 to object/revoke discharge, or a little over half of all AP filings. Among Buffalo trustees, John Ring filed the most AP's in 2010, at 23, followed by Mark Wallach (16) and Morris Horwitz (14.)

As a category, the biggest drop in Rochester AP's in 2010 was lawsuits by banks or credit unions asking for their claim to be excepted from discharge. In 2010, only 10 exception to discharge AP's were filed by banks or credit unions in Rochester, seven by local institutions and three by national banks. In comparison, there were 42 such lawsuits in Rochester in 2009 (29 local and 13 national), 45 in 2008 (28 local, 28 national) and 45 also in 2007 (27 local, 18 national.) So exceptions-to-discharge AP's in Rochester fell in 2010 to less than one quarter of the average number filed 2007-2009.

Among local institutions, filings by ESL Federal Credit Union dropped significantly, from 19 in 2009 to four in 2010. The drop-off in national bank filings in Rochester is underscored by the relative lack of filings by Seattle-based law firm Weinstein & Riley. That firm filed nine exception-to-discharge AP's in Rochester in 2009, mostly for FIA Card, but only one in 2010.

Far more local than national banks or credit unions filed exception to discharge AP's in Rochester the past four years. 91 such lawsuits were filed by local institutions 2007-2010 while 51 were filed by national banks, a two-to-one ratio. The ESL effect may explain this, as 62 of the 91 local AP's 2007-2010 were filed by that institution alone.

The ratio of local-to-national banks or credit unions filing exceptions to discharge is the reverse in Buffalo, at least for the past two years (I did not review Buffalo AP's for 2007 and 2008.) The ratio in 2009-2010 was about two-to-one national institutions over local. The law firm of Weinstein & Riley filed 14 Buffalo exceptions-to-discharge AP's in 2010 and 12 in 2009, for a two year total of 26, compared to 10 in Rochester that same period.

Over the past four years in Rochester, FIA Cards filed the most exception-to-discharge AP's among national banks, filed closely by Chase and the Discover Card (however, the filings in Rochester by Chase have dropped way off the past two years.) The same pattern holds up for Buffalo in 2009-2010, with FIA leading the filings, followed by Chase and Discover. Rochester attorneys may be interested to note that attorney Robert Cooper, former Rochester trustee, filed five AP's in past two years in Buffalo on behalf of the First National Bank of Omaha, so keep an eye out for that creditor.

Among local banks and credit unions, no one institution stands out in either Rochester or Buffalo, other than ESL. A dozen different institutions filed an exception-to-discharge AP in Rochester the past three years, and nearly the same number filed such AP's in Buffalo since 2009. Most of these institutions only file one or two in the recent past, so practitioners should assume that any local bank or credit union, no matter how small, is capable of bringing an exception-to-discharge AP if the facts are appropriate.

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