May 10, 2013 4th Circuit published opinions

Branigan and TD Bank, N.A. v Davis (In re Davis and Moore)

Davis and Moore were granted chapter 7 discharges. Less than four years later, each field a chapter 13 petition and moved to strip off second and third priority liens on their real property arguing there was no value securing these liens. The bankruptcy court agreed and granted their petitions. The district court affirmed. The panel, 2-1, affirmed. The majority held that under sections 506(a) and 1322(b) of the bankruptcy code, liens on real property which are not secured by value above and beyond the claim of prior creditors are unsecured and may be modified. The majority then held that the code allows the stripping of valueless liens as was done here as the 4th Circuit previously held that debtors in the chapter 13 filing after a chapter 7 discharge may strip of valueless liens when eligible for relief short of discharge. Thus, the same relief was available here. The majority emphasized that Davis and Moore had been personally discharged and the lien strip off was an in rem matter. The dissent argued that 506(a0 did not govern. Instead 1325 and 1328 applied and required that mortgage liens remain on the property until the debt is paid off or is discharged. Given Congress’ intent to favor creditors in 2005 amendments, it is anomalous to allow unsecured creditors to be better off after the chapter 13 filing than secured creditors.

K.C. through Africa H. v Shipman

K.C. and other Medicaid recipients had their benefits reduced. They sued the North Carolina Department of Health and Social Services, its contractor and Shipman, the contractor’s CEO, for restoration of benefits. The district court granted a preliminary injunction requiring notice and a hearing before any cuts could be made. Shipman and the contractor appealed, but, the Department did not. The panel dismissed the appeal. It held that under 42 USC 1396a(a)(5) and 42 CFR 431.10(e)(3) the secretary of the Department is North Carolina’s sole administrator of Medicaid. As such, her decision not appeal is the decision of North Carolina and the contractor is prohibited from trying to overturn the decision. The decision not to appeal was held to be “administrate” as it reflects the policy choice to provide the original level of benefits until the injunction is overturned or notice and hearing rights are provided. The panel also held that pursuant to Rule of Civil Procedure 65(d)(2), the contractor is bound to comply with the injunction against department and thus any decision in contractor’s favor would be an advisory opinion. The panel finally rejected the Departments efforts to join the appeal as it waited several months after the issue was fully briefed, was represented by a sophisticated repeat litigator in the 4th Circuit and the rule applicable, sign the joint notice of appeal, is easy to understand and easy to follow. The panel specifically rejected the argument that a change in political administration should excuse earlier failures to appeal.

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