brief in support of application to retain neil garfield as expert witness

8/7/2019 BRIEF IN SUPPORT OF APPLICATION TO RETAIN NEIL GARFIELD AS EXPERT WITNESS

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Ronald RyanAttorney for Debtors1413 E. Hedrick DriveTucson, AZ 85719(520)298-3333 ph 743-1020 [email protected]

AZ Bar #018140 Pima Cty #65325

UNITED STATES BANKRUPTCY COURTDISTRICT OF ARIZONA, TUCSON DIVISION

In re:

HECTOR FEDERICO

Debtor/Respondent

Case No.: 09-28397-TUC-EWH

BRIEF IN SUPPORT OFAPPLICATION TO APPROVE

EMPLOYMENT ANDCOMPENSATION OFPROFESSIONAL AS ALITIGATION EXPENSE WITHUNPAID BALANCE PAID IN PLANAS AN ADMINISTRATIVEEXPENSE TO ASSIST DEBTOR'SATTORNEY IN SOME OR ALL OFTHE FOLLOWING: EXPERTWITNESS, INVESTIGATION,CONSULTING AS WELL AS

SUMMARIZATION OFVOLUMINOUS TECHNICALWRITTEN AND FINANCIALMATERIALS

Chapter 13

Comes now Hector Federico, Debtor, and Ronald Ryan, Attorney for Debtors

(“Counsel”), and file this Brief in Support of Application to Approve Employment and

Compensation of Professional As A Litigation Expense with Unpaid Balance Paid in Plan As

An Administrative Expense to Assist Debtor's Attorney in Some Or All of the Following: Expert

Witness, Investigation, Consulting As Well As Summarization of Voluminous Technical Written

and Financial Materials. Said professional is Neil Garfield, J.D., M.B.A., Foreclosure Defense

Group (“FDG”), and present unto the Court as follows:

In Chapter 13 Debtors are entitled to manage their own affairs, including business



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affairs, without all of the technical requirements that are present in Chapters 7 and 11. The

administrative priority recognition asked for pertains to litigation expenses for litigation that

Debtor is pursuing in this very Court. The actions involved here pertain to Debtor’s exempt

primary residence, though the estate may very well benefit as well by making more funds

available through the monthly budget and/or possibly because of benefit that exceeds

Debtor’s homestead exemption. It is common for Debtors to retain accountants,

appraisers, expert witnesses, real estate brokers and other professionals, and litigation

expenses, such as deposition costs, without asking the Court for approval. All of the

litigation in this case is being performed in Bankruptcy Court in this case, and the related

adversary proceeding attacking the validity of the primary mortgage. No special counsel

is necessary as Debtor’s attorney is handling representation pertaining to one or

more mortgages and has disclosed the fact that such litigation was contemplated

in the Disclosure of Compensation, and could involve two adversary proceedings.

It is nearly inconceivable that serious litigation could be without litigation expenses.

Debtor’s motion in this case was done for the purpose of disclosure out of caution and to

keep the Court apprised of the largest litigation expense. Debtor’s Motion before the Court

at this time pertains to the litigation commenced regarding Debtor’s exempt primary

residence, which is the largest of the two adversaries. It is not uncommon for an attorney

retained by a Debtor in a bankruptcy case, whose employment has been approved as in

this case, to wait for approval of any litigation expenses, rather than asking for their

approval in advance. The Court in In re Babcock Dairy Co. of Ohio, Inc ., 70 B.R. 691

(Bankr. N.D. Ohio, 1987), recognized that retention of experts and incurring litigation

expenses is largely within the sound discretion of the attorney handling the litigation, in a

case in which a Chapter 7 Trustee’s Attorney’s decisions were challenged.

First, there is a clear magnitude of difference between the duties andresponsibilities of an expert witness and those of the Attorney for the Trustee.



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1 See case law below, showing how the bankruptcy code is applicable to

hiring of expert witnesses (and consultants).

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Second, it appears that the approval of the Court is required to employ theAttorney for the Trustee, in part, because the position carries with it a largedegree of discretion and responsibility. Such discretion and responsibilitybeing used in the litigation of claims, and decisions on the methods andtactics of litigation. It appears to the Court that engaging expert witnesses is

within that discretion, and that these expenditures are necessary if theTrustee is to do his or her job.

Id . at 693.

Neil Garfield and FDG are not being retained as Attorneys, although Garfield’s legal

training and experience are important to his qualifications. He was retained as a

consultant,1 as (an invaluable) aid in investigation, and as an expert witness. The terms

of the retention with FDG specifically state that it is not being hired to render legal services

and that all actions they perform are under the supervision of Debtor’s Attorney. But even

if he were being retained as a special counsel, application for appointment thereof is not

required in Chapter 13, as held by the 9th Circuit BAP in In re Encinas , AZ-02-1479 (9th Cir.

BAP 2002), where the Court cited the French case, although it is a common misconception

that it is required.

In In re French , 111 B.R. 391, 392 (Bankr. N.D.N.Y. 1989), the court reachedthe same conclusion. In that case, the court allowed fees to an attorney thatrepresented a chapter 13 debtor both pre and postpetition in a "state courtmatrimonial action" despite the fact that the attorney failed to obtain courtapproval for his employment. The case began in chapter 13 but laterconverted to chapter 7. Id . at 393. The court determined that "because thereis no reference in Code § 327 to Chapter 13. . there is no requirement forcourt ordered appointment of a professional as a condition precedent to theaward of a fee in a case filed under that Chapter." Id .

Id. at 7.

The hiring and compensation of expert witnesses in general is not governed by the

bankruptcy code. It is governed by Federal Rule of Evidence (FRE) 706, which itself has

application limited to situations where the expert is appointed by the Court.



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The Expert Witness shall be entitled to compensation and reimbursement ofexpenses in accordance with FRE 706(b). . .

The court reiterates that payment of compensation and expenses to theExpert Witness is pursuant to FRE 706. Compensation under these

circumstances is not governed by any provision of the Bankruptcy Codeincluding, but not limited to, 11 U.S.C. §§ 327, 328, 330 or 331.

The court recognizes that the Expert Witness may require the services of anattorney to conduct direct examination and redirect examination at thecontested final cash collateral hearing. To reduce expenses, the ExpertWitness may request the Committee's attorney to prepare for and conductthe examination. If the Committee's attorney declines to do so, whetherbecause of a perceived conflict or any other reason, or if the Expert Witnessbelieves that an independent attorney shall be beneficial to the preparationand presentation of evidence, the Expert Witness may request that the court

permit the retention of an attorney solely to prepare for and participate at thefinal cash collateral hearing. Such a written request, which may be made bysending this court a letter, shall also be served upon the attorneys for theDebtors, the Banks, the Committee, and the UST. If retention of a trialattorney for the Expert Witness is warranted, and approved by the court,payment of that attorney shall be made directly by the Expert Witness andconstitute an actual expense governed by FRE 706(b) and not governed byany provision of the Bankruptcy Code.

In re Gainey Corp ., 400 B.R. 576, 580-581 (Bankr. W.D. Mich., 2008).

Court appointment of experts is something it may due on its own motion or may due

by motion of any party. Court appointment of experts is not a “shall” matter. And this is not

a case where Court appointment is relevant, since the Debtor has retained their own

expert.

The Gainey court also recognized that expert witnesses services for consulting may

be very valuable.

The court recognizes that the available funds may constitute the Banks' cashcollateral because of the replacement lien that was granted to the Banks inthe court's prior orders.. . However, . . . the court finds that the Debtorspaying a retainer to the Expert Witness' restructuring firm, whether the fundsare cash collateral or not, is proper and necessary.. . After examining itsdocket and pleadings, reviewing prior findings of fact and conclusions of law,considering arguments and issues raised by the parties thus far, andrealizing the nature and complexities of the financial records to be reviewedand the requisite opinion testimony to be given, the court finds the Debtorsshould forthwith pay the Expert Witness' restructuring firm $100,000 as a



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retainer.

Id . at 580. Accord In re Cyrus II Partnership , Case No: 05-39857 (Bankr. S.D. Tex.

7/31/2008) (Bankr. S.D. Tex., 2008), p 2-3.

On July 1, 2008, the Trustee filed a Notice of Trustee's Retention ofTestifying expert Witnesses. In the Notice, the Trustee lists seven purportedexpert witnesses. The Trustee asserted in the Notice that he need not file anapplication to employ these expert witnesses as "professional persons" under§ 327.

The Court, therefore, must answer the following question: Are testifyingexperts employed by the Trustee "professional persons" under 11 U.S.C. §327?. . .

11 U.S.C. § 327. Bankruptcy Rule 2014 implements § 327. Fed. R.BANKR. P. 2014. The Trustee does not dispute that the expert witnesses are"professionals." Rather, the Trustee argues that to trigger § 327,professionals must "undertake duties that are `central' to the administrationof the estate." Tr. Rsp at ¶ 16 (citing In re Seiling Assoc. Ltd. P'ship , 128 B.R.721, 723 (Bankr. E.D. Va. 1991)). The Trustee argues that because theseexpert witnesses are retained only to present evidence at trial, their work istangentially related to the administration of the estate. Therefore, approvalunder § 327 is not required.

P 2-3. The holding is this case was:

. . . The experts in the Trustee's notice are testifying as to non-centralmatters. Accordingly, the Court finds the Trustee need not file an applicationunder § 327 to retain the testifying experts set forth in docket number 794 forthe purposes set forth therein. A separate order will issue.

Id. at 10. In re Napoleon , 233 B.R. 910 (Bankr.N.J., 1999), cites in footnote 1:

See In re Argus Group 1700, Inc ., 199 B.R. 525 (Bankr.E.D.Pa.1996) ("[I]t isthe person's duties, not his status, that is determinative"); In re First Am.

Health Care of Ga., Inc ., 208 B.R. 996 (Bankr.S.D.Ga.1996) ("[A]naccountant who is retained solely as an expert witness in collateral litigationdoes not assume a central role in the administration of the bankruptcy");Elstead v. Nolden (In re That's Entertainment Marketing Group, Inc.), 168B.R. 226 (N.D.Cal.1994) ("While one could argue that the litigation involvesan attempt to ̀ acquire assets of (sic) behalf of the estate,' the expert witnessplays only a tangential role in this process, and thus under thesecircumstances the accountants were not `professionals' within the meaningof § 327."); In re Sieling Assoc. Ltd. Partnership , 128 B.R. 721(Bankr.E.D.Va.1991) (environmental toxicology consultant, although amember of a profession, is not a professional person as used in Section



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2 Though there is the possibility of filing a motion for additional fees

based on quality of result, should an excellent result be obtained such as

establishing that the primary mortgage is invalid and obtaining quiet title, or

something less in settlement if the result is surprisingly beneficial. The

possibility of asking for an additional amount later is present based on an

extraordinary amount of work that has been made necessary, but although this is

the rule rather than the exception, Counsel has not asked for additional on this

basis.

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leading attorneys in the Tucson area in this practice area at the present time. But this is not

saying much because this practice area is new and cutting edge. Being in the lead only

means that there have been more hours of study and research invested, and more such

litigation commenced and progressed to this point in time. Counsel has been to national

seminars on the subjects involved. Counsel has been working himself to practically to death

by investing endless hours because of this and has been doing so for almost a year, working

all through the night two or three times a week. Counsel needed and needs help, particularly

of the type that FDG has and can provide. Counsel has gone months at a time not taking on

new clients so that work on the cases that are ongoing can be kept up with. In the past three

months, Counsel has probably turned down 30 bankruptcy cases, which would have led to

approximately $105,000.00 in fees. Many of those attorneys that are challenging the validity

of primary mortgages that are doing so outside of bankruptcy are doing so based on a

contingency fee of 20-33% of the amount saved on the principal of the primary mortgage and

are in addition taking advance fees before beginning of $2,500.00 to $5,000.00. Debtor’s

counsel has only charged about an additional $2,000.00 to $2,500.00 inside the plan when this

litigation is undertaken.2 This is being done out of a high level of passion for keeping

individuals and families in their home at a payment they can afford. Extra efforts go back even

further than a year, which is the time Counsel became aware that securitized mortgages were

susceptible to attack under the law. In January of 2008, Counsel went to Washington DC with

a national group of consumer bankruptcy attorneys from NACBA to lobby members of

Congress on the proposed amendment to Chapter 13 to allow modification of primary

mortgages. As the Court is aware, this amendment came close to passing earlier this year,



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3 JOSEFA S. LOPEZ, JOSE TRINIDAD CASAS, MARIA C. CASAS, LYNDON B.GRAVES,

TYRONE EVENSON,MICHELLINA EVENSON, BRYAN GRAY, HELEN GRAY, PATRICK FRANKOSKI, and

CHRISTOPHER PETERNELL, individually and on behalf of a class of similarly situated

individuals, Plaintiffs vs. EXECUTIVE TRUSTEE SERVICES, LLC.; COUNTRYWIDE HOME

LOANS, INC., a New York corporation; MERSCORP, INC., a Virginia corporation;

MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., a subsidiary of MERSCORP, Inc., a

Delaware corporation; RECONTRUST, SAXON MORTGAGE SERVICES, INC., GALE GROUP dbaT.D. FINANCIAL SERVICES dba T.D. SERVICE COMPANY, SECURITY UNION TITLE INSURANCE

COMPANY, CAPITAL ONE dba CHEVY CHASE BANK, NATIONAL DEFAULT SERVICING CORPORATION,

FEDERAL HOME LOAN MORTGAGE CORPORATION, a Virginia corporation; FEDERAL NATIONAL

MORTGAGE ASSOCIATION, a District of Columbia corporation; GMAC MORTGAGE, L.L.C., a

Delaware corporation; NATIONAL CITY MORTGAGE, a foreign company and a division of

NATIONAL CITY BANK, a subsidiary of National City Corporation; NATIONAL CITY

CORPORATION, a Delaware corporation and a subsidiary of PNC Financial Services,

Inc.; PNC FINANCIAL SERVICES, INC., a Pennsylvania corporation; J.P. MORGAN CHASE

BANK, N.A., a New York corporation; CITIMORTGAGE, INC., a New York corporation;

HSBC MORTGAGE CORPORATION, U.S.A., a Delaware corporation; AIG UNITED GUARANTY

CORPORATION, a foreign corporation; WELLS FARGO BANK, N.A., a California

corporation, dba WELLS FARGO HOME EQUITY and dba WELLS FARGO HOME MORTGAGE, a

division of WELLS FARGO BANK, N.A., a California corporation; BANK OF AMERICA,

N.A., a Delaware corporation, and GE MONEY BANK, an Ohio corporation; JOHN AND

JANE DOES I-X; BLACK AND WHITE PARTNERSHIP I-X.

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when it passed through the House, but only received 45 affirmative votes in the Senate.

The litigation Counsel is pursuing is more than merely consumer actions such as

predatory lending, and violations of federal statutes, such as under the FDCPA, FCRA,

HOEPA, TILA and RESPA. Though such allegations are often included in Complaints, this

aspect of the litigation is really a minor part of the goals sought and strategies employed.

In cases in which the home has a value of over $150,000.00, which is the value of the

homestead exemption, the estate could be benefited by more funds going to unsecured

creditors. This might also the case if mortgage payments are eliminated or greatly reduced,

because it would leave more funds available on a monthly basis to pay unsecured creditors.

This benefit would far exceed that amount being paid to FDG.

Neil Garfield, with FDG, recently testified as an expert in the class action suit in Case

No.: 3:09-cv-180-ECR-VPC, United States District Court District of Nevada,3 to render

opinions in the topic areas related to the securitization of mortgage loans, derivative securities,

the securities industry; real property law, Uniform Commercial Code practices, predatory

lending practices, Truth in Lending Act requirements, loan origination and underwriting,

accounting in the context of securitization and REMIC entities, Special Purpose Vehicles,

Structured Investment Vehicles, pooling and servicing of securitized loans, assignment and



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understood by ordinary persons without technical expertise in this area. Now that Counsel has

become more knowledgeable due in large part to the consulting aspect of the FDG services

provided, less of the FDG contribution to cases will be in the way of preliminary work to help

in obtaining essential basic information about the true nature of the mortgage loans, and will

be devoted to evaluation of large amounts of materials and providing expert testimony.

It is Debtor’s position that the processes involved in securitized mortgages have

involved massive and widespread fraud that was so sophisticated that it went undetected long

enough to almost destroy the entire world economy. It is no small task to unravel the facts,

circumstances and conditions well enough to find and show in Court how and where this is

relevant to Debtors’ primary residence mortgage claims. Ryan is of the opinion that retaining

Neal Garfield and FDG has been the least expensive and will continue to be the most cost

effective way to investigate, prepare and present these cases to the Court, almost all of which

will involve adversary proceedings.

Dated this November 20, 2009.

LAW OFFICE OF RONALD RYAN

/s/ Ronald RyanRonald Ryan

The foregoing emailed to: Chapter 13 Trustee; Neil Garfield; FDG; and Debtor on November20, 2009.

Dated this November 20, 2009.

LAW OFFICE OF RONALD RYAN/s/ Ronald RyanRonald Ryan

brief in support of application to retain neil garfield as expert witness

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