1 Ronald Ryan

Attorney for Debtors

2 1413 E. Hedrick Drive
Tucson, AZ 85719
(520)298-3333 ph 743-1020 fax
3 ronryanlaw@cox.net
AZ Bar #018140 Pima Cty #65325
4
UNITED STATES BANKRUPTCY COURT
5 DISTRICT OF ARIZONA, TUCSON DIVISION

6
In re: Case No.: 09-28397-TUC-EWH
7 HECTOR FEDERICO BRIEF IN SUPPORT OF
8 APPLICATION TO APPROVE
Debtor/Respondent
EMPLOYMENT AND
COMPENSATION OF
9 PROFESSIONAL AS A
LITIGATION EXPENSE WITH
10 UNPAID BALANCE PAID IN PLAN
AS AN ADMINISTRATIVE
11 EXPENSE TO ASSIST DEBTOR'S
ATTORNEY IN SOME OR ALL OF
12 THE FOLLOWING: EXPERT
WITNESS, INVESTIGATION,
CONSULTING AS WELL AS
13
SUMMARIZATION OF
VOLUMINOUS TECHNICAL
14 WRITTEN AND FINANCIAL
MATERIALS
15
Chapter 13
16

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

18 (“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

19
An Administrative Expense to Assist Debtor's Attorney in Some Or All of the Following: Expert
20
Witness, Investigation, Consulting As Well As Summarization of Voluminous Technical Written
21
and Financial Materials. Said professional is Neil Garfield, J.D., M.B.A., Foreclosure Defense

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

23 In Chapter 13 Debtors are entitled to manage their own affairs, including business
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1 affairs, without all of the technical requirements that are present in Chapters 7 and 11. The

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

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

4 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
5
Debtor’s homestead exemption. It is common for Debtors to retain accountants,
6
appraisers, expert witnesses, real estate brokers and other professionals, and litigation
7
expenses, such as deposition costs, without asking the Court for approval. All of the
8
litigation in this case is being performed in Bankruptcy Court in this case, and the related
9 adversary proceeding attacking the validity of the primary mortgage. No special counsel

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

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

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

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

13
Debtor’s motion in this case was done for the purpose of disclosure out of caution and to
14
keep the Court apprised of the largest litigation expense. Debtor’s Motion before the Court
15
at this time pertains to the litigation commenced regarding Debtor’s exempt primary
16
residence, which is the largest of the two adversaries. It is not uncommon for an attorney
17
retained by a Debtor in a bankruptcy case, whose employment has been approved as in

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

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

20 (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
21
case in which a Chapter 7 Trustee’s Attorney’s decisions were challenged.
22
First, there is a clear magnitude of difference between the duties and
23 responsibilities of an expert witness and those of the Attorney for the Trustee.
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1 Second, it appears that the approval of the Court is required to employ the
Attorney for the Trustee, in part, because the position carries with it a large
2 degree of discretion and responsibility. Such discretion and responsibility
being used in the litigation of claims, and decisions on the methods and
3 tactics of litigation. It appears to the Court that engaging expert witnesses is
within that discretion, and that these expenditures are necessary if the
4 Trustee is to do his or her job.

Id. at 693.
5
Neil Garfield and FDG are not being retained as Attorneys, although Garfield’s legal
6
training and experience are important to his qualifications. He was retained as a
7
consultant,1 as (an invaluable) aid in investigation, and as an expert witness. The terms
8
of the retention with FDG specifically state that it is not being hired to render legal services
9
and that all actions they perform are under the supervision of Debtor’s Attorney. But even

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

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

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

that it is required.
13
In In re French, 111 B.R. 391, 392 (Bankr. N.D.N.Y. 1989), the court reached
14 the same conclusion. In that case, the court allowed fees to an attorney that
represented a chapter 13 debtor both pre and postpetition in a "state court
15 matrimonial action" despite the fact that the attorney failed to obtain court
approval for his employment. The case began in chapter 13 but later
16 converted to chapter 7. Id. at 393. The court determined that "because there
is no reference in Code § 327 to Chapter 13. . there is no requirement for
court ordered appointment of a professional as a condition precedent to the
17
award of a fee in a case filed under that Chapter." Id.

18 Id. at 7.

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

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

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

22
1
See case law below, showing how the bankruptcy code is applicable to
23 hiring of expert witnesses (and consultants).
Page 3 of 10
1 The Expert Witness shall be entitled to compensation and reimbursement of
expenses in accordance with FRE 706(b). . .
2
The court reiterates that payment of compensation and expenses to the
3 Expert Witness is pursuant to FRE 706. Compensation under these
circumstances is not governed by any provision of the Bankruptcy Code
4 including, 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 an
5
attorney to conduct direct examination and redirect examination at the
contested final cash collateral hearing. To reduce expenses, the Expert
6 Witness may request the Committee's attorney to prepare for and conduct
the examination. If the Committee's attorney declines to do so, whether
7 because of a perceived conflict or any other reason, or if the Expert Witness
believes that an independent attorney shall be beneficial to the preparation
8 and presentation of evidence, the Expert Witness may request that the court
permit the retention of an attorney solely to prepare for and participate at the
9 final cash collateral hearing. Such a written request, which may be made by
sending this court a letter, shall also be served upon the attorneys for the
Debtors, the Banks, the Committee, and the UST. If retention of a trial
10 attorney for the Expert Witness is warranted, and approved by the court,
payment of that attorney shall be made directly by the Expert Witness and
11 constitute an actual expense governed by FRE 706(b) and not governed by
any provision of the Bankruptcy Code.
12
In re Gainey Corp., 400 B.R. 576, 580-581 (Bankr. W.D. Mich., 2008).
13
Court appointment of experts is something it may due on its own motion or may due
14
by motion of any party. Court appointment of experts is not a “shall” matter. And this is not
15 a case where Court appointment is relevant, since the Debtor has retained their own

16 expert.

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

18 be very valuable.

The court recognizes that the available funds may constitute the Banks' cash
19 collateral because of the replacement lien that was granted to the Banks in
the court's prior orders.. . However, . . . the court finds that the Debtors
20 paying a retainer to the Expert Witness' restructuring firm, whether the funds
are cash collateral or not, is proper and necessary.. . After examining its
21 docket and pleadings, reviewing prior findings of fact and conclusions of law,
considering arguments and issues raised by the parties thus far, and
22 realizing the nature and complexities of the financial records to be reviewed
and the requisite opinion testimony to be given, the court finds the Debtors
should forthwith pay the Expert Witness' restructuring firm $100,000 as a
23
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1 retainer.

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

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

4 On July 1, 2008, the Trustee filed a Notice of Trustee's Retention of

Testifying expert Witnesses. In the Notice, the Trustee lists seven purported
expert witnesses. The Trustee asserted in the Notice that he need not file an
5
application to employ these expert witnesses as "professional persons" under
§ 327.
6
The Court, therefore, must answer the following question: Are testifying
7 experts employed by the Trustee "professional persons" under 11 U.S.C. §
327?
8 ...

9 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,
10 professionals must "undertake duties that are `central' to the administration
of the estate." Tr. Rsp at ¶ 16 (citing In re Seiling Assoc. Ltd. P'ship, 128 B.R.
11 721, 723 (Bankr. E.D. Va. 1991)). The Trustee argues that because these
expert witnesses are retained only to present evidence at trial, their work is
12 tangentially related to the administration of the estate. Therefore, approval
under § 327 is not required.
13
P 2-3. The holding is this case was:
14
. . . The experts in the Trustee's notice are testifying as to non-central
matters. Accordingly, the Court finds the Trustee need not file an application
15 under § 327 to retain the testifying experts set forth in docket number 794 for
the purposes set forth therein. A separate order will issue.
16
Id. at 10. In re Napoleon, 233 B.R. 910 (Bankr.N.J., 1999), cites in footnote 1:
17
See In re Argus Group 1700, Inc., 199 B.R. 525 (Bankr.E.D.Pa.1996) ("[I]t is
18 the 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]n
accountant who is retained solely as an expert witness in collateral litigation
19 does not assume a central role in the administration of the bankruptcy");
Elstead v. Nolden (In re That's Entertainment Marketing Group, Inc.), 168
20 B.R. 226 (N.D.Cal.1994) ("While one could argue that the litigation involves
an attempt to `acquire assets of (sic) behalf of the estate,' the expert witness
21 plays only a tangential role in this process, and thus under these
circumstances the accountants were not `professionals' within the meaning
22 of § 327."); In re Sieling Assoc. Ltd. Partnership, 128 B.R. 721
(Bankr.E.D.Va.1991) (environmental toxicology consultant, although a
member of a profession, is not a professional person as used in Section
23
Page 5 of 10
1 327(a)); In re D'Lites of Am., Inc., 108 B.R. 352 (Bankr.N.D.Ga.1989) ("a
`professional person' is one who takes a central role in the administration of
2 the bankruptcy estate and in the bankruptcy proceedings, as opposed to one
who provides services to the debtor that are necessary whether the petition
3 was filed or not"); In re Babcock Dairy Co. of Ohio, 70 B.R. 691
(Bankr.N.D.Ohio.1987) ("it seems that an expert witness is in a more
4 `tangential relationship' with the administration of the estate. It cannot
reasonably be inferred how such testimony can be construed to have
measurably `affected the administration' of the estate."); In re Johns-Manville
5
Corp., 60 B.R. 612 (Bankr.S.D.N.Y.1986) ("The penumbra of the § 327(a)
term `other professional persons' is quite obviously not intended to cover
6 without limitation all those persons of education, ability and accomplishment
in any calling who may be regarded as professionals based upon
7 considerations of societal, governmental or academic accreditation, or their
own self-esteem.") and In re Seatrain Lines, Inc., 13 B.R. 980 (Bankr.
8 S.D.N.Y.1981) ("For the purposes of section 327(a), `professional person' is
limited to persons in those occupations which play a central role in the
9 administration of the debtor proceedings.").

The work involved in this case that Ryan requires such assistance is well beyond that
10
traditionally pursued by consumer advocate attorneys. The practice involves completely
11
challenging of the validity of the primary mortgage. Nearly all of those entered into between
12
2001 and 2007, are susceptible to such challenges due the securitization process. This can
13 completely succeed if pursued to the end, but can result in settlements that end with Debtors

14 obtaining a modified mortgage at a payment they can afford. The type of litigation is taking

15 place throughout the nation, mostly outside of bankruptcy court, and is perhaps the hottest

area of law at the present time. This practice of law is cutting edge. The circumstances and
16
conditions that make this possible have never been present at any time in history and was set
17
in motion by widespread fraud and abuse on Wall Street that was planned years in advance
18
and placed in motion by Wall Street lobbyists in the 1990's, which included the deregulation
19 of credit default swaps (“CDS”) as well as the deregulation of aspects of subprime mortgages

20 and the institution and selling of mortgage backed securities (“MBS”).

21 Counsel is of the opinion that he is in the best position to determine whether retaining

Garfield and FDG is a wise expenditure of litigation expense funds and is the last one that
22
would have the slightest interest in incurring unnecessary expense. Counsel is one of the
23
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1 leading attorneys in the Tucson area in this practice area at the present time. But this is not

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

3 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
4
seminars on the subjects involved. Counsel has been working himself to practically to death
5
by investing endless hours because of this and has been doing so for almost a year, working
6
all through the night two or three times a week. Counsel needed and needs help, particularly
7
of the type that FDG has and can provide. Counsel has gone months at a time not taking on

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

9 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
10
of primary mortgages that are doing so outside of bankruptcy are doing so based on a
11
contingency fee of 20-33% of the amount saved on the principal of the primary mortgage and
12
are in addition taking advance fees before beginning of $2,500.00 to $5,000.00. Debtor’s
13
counsel has only charged about an additional $2,000.00 to $2,500.00 inside the plan when this

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

15 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
16
susceptible to attack under the law. In January of 2008, Counsel went to Washington DC with
17
a national group of consumer bankruptcy attorneys from NACBA to lobby members of
18
Congress on the proposed amendment to Chapter 13 to allow modification of primary
19
mortgages. As the Court is aware, this amendment came close to passing earlier this year,

20
2
Though there is the possibility of filing a motion for additional fees
21 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
22 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
23 basis.
Page 7 of 10
1 when it passed through the House, but only received 45 affirmative votes in the Senate.

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

3 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
4
aspect of the litigation is really a minor part of the goals sought and strategies employed.
5
In cases in which the home has a value of over $150,000.00, which is the value of the
6
homestead exemption, the estate could be benefited by more funds going to unsecured
7
creditors. This might also the case if mortgage payments are eliminated or greatly reduced,

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

9 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
10
No.: 3:09-cv-180-ECR-VPC, United States District Court District of Nevada,3 to render
11
opinions in the topic areas related to the securitization of mortgage loans, derivative securities,
12
the securities industry; real property law, Uniform Commercial Code practices, predatory
13
lending practices, Truth in Lending Act requirements, loan origination and underwriting,

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

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

16 3
JOSEFA S. LOPEZ, JOSE TRINIDAD CASAS, MARIA C. CASAS, LYNDON B.GRAVES,
TYRONE EVENSON,MICHELLINA EVENSON, BRYAN GRAY, HELEN GRAY, PATRICK FRANKOSKI, and
17 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;
18 MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., a subsidiary of MERSCORP, Inc., a
Delaware corporation; RECONTRUST, SAXON MORTGAGE SERVICES, INC., GALE GROUP dba
T.D. FINANCIAL SERVICES dba T.D. SERVICE COMPANY, SECURITY UNION TITLE INSURANCE
COMPANY, CAPITAL ONE dba CHEVY CHASE BANK, NATIONAL DEFAULT SERVICING CORPORATION,
19 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
20 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
21 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
22 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
23 JANE DOES I-X; BLACK AND WHITE PARTNERSHIP I-X.
Page 8 of 10
1 assumption of securitized residential mortgage loans, creation of trusts under deeds of trust,

2 pooling agreements, and issuance of asset backed securities and specifically

3 mortgage-backed securities by special purpose vehicles in which an entity is named as trustee

for the holders of certificates of mortgage backed securities, the economics of securitized
4
residential mortgages during the period of 2001-2008, appraisal fraud and its effect on APR
5
disclosure, usury, exceeding the legal limit for interest charged, non-judicial foreclosure of
6
securitized and non-securitized residential mortgages, and judicial foreclosure of securitized
7
and non-securitized residential mortgages, all particularly as to the laws of the State of

8 Arizona, California, Florida and Ohio, based upon the credentials in the Resume attached

9 hereto.

Examples of ways in which the Assistance of FDG has been invaluable to Counsel in
10
helping Debtors to retain their homes, has been in cases in which the mortgage creditor has
11
appeared before the Court and originally presented to a Note as being held and owned by said
12
party. After investigation it has been discovered that the Note was held and owned by a MBS
13
Trust and that the mortgage creditor had been misleading the Court and Debtor, and that said

14 creditor was really one of the Servicers for the Trust. It has been found that this and similar

15 scenarios have been the rule rather than the exception. When documents are obtained in

discovery that pertain to MBS Trusts, they normally include approximately 1000 pages of
16
materials that use technical language. And this is not including more detailed discovery that
17
includes specific facts about an individual mortgages included in Pools, nor of the accounting
18
records which detail payments made into the Trusts from Debtor payments, foreclosure
19
proceeds and 3rd party sources, such as credit default swaps, over-collateralization, cross-

20 collateralization, government bail-out funds and other forms of insurance, and how those

21 payments were applied. As an Attorney with knowledge of MBS Trusts, Mr. Garfield’s expert

testimony will be essential to save massive hours of Court time, such as by the ability to
22
summarize such voluminous documents into usable testimony in language that can be
23
Page 9 of 10
1 understood by ordinary persons without technical expertise in this area. Now that Counsel has

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

3 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
4
be devoted to evaluation of large amounts of materials and providing expert testimony.
5
It is Debtor’s position that the processes involved in securitized mortgages have
6
involved massive and widespread fraud that was so sophisticated that it went undetected long
7
enough to almost destroy the entire world economy. It is no small task to unravel the facts,

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

9 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
10
effective way to investigate, prepare and present these cases to the Court, almost all of which
11
will involve adversary proceedings.
12
Dated this November 20, 2009.
13
LAW OFFICE OF RONALD RYAN

14 /s/ Ronald Ryan

Ronald Ryan
15
The foregoing emailed to: Chapter 13 Trustee; Neil Garfield; FDG; and Debtor on November
20, 2009.
16

17 Dated this November 20, 2009.

18
LAW OFFICE OF RONALD RYAN
/s/ Ronald Ryan
19 Ronald Ryan

20

21

22

23
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