Justia Bankruptcy Opinion Summaries

Lewis Patrick and Michele Sivertson owned and managed Laughing Dog Brewing, Inc. (LDB), which faced financial difficulties in 2017. To address these issues, they, along with affiliated entities AHR, LLC and Fetchingly Good, LLC, engaged attorney Ford Elsaesser to restructure their debt. Elsaesser drafted a promissory note and facilitated the transfer of LDB’s assets to AHR and Fetchingly Good, allegedly without disclosing conflicts of interest or legal risks. After the asset transfer, Fetchingly Good assumed LDB’s operations, and LDB filed for bankruptcy. Acorn Investments, LLC, a creditor with a judgment against LDB, sued the Original Plaintiffs under various theories, including the Idaho Uniform Voidable Transactions Act and racketeering statutes.The litigation between Acorn and the Original Plaintiffs was resolved through a settlement agreement. The Original Plaintiffs stipulated to a judgment in favor of Acorn, but Acorn agreed not to execute on the judgment. Instead, Acorn received an assignment of the Original Plaintiffs’ claims against Elsaesser, including legal malpractice, breach of contract, and breach of fiduciary duty. Acorn substituted as plaintiff in the malpractice case. Elsaesser moved for summary judgment, arguing that the malpractice claim was not assignable. The District Court of the First Judicial District, Bonner County, agreed and dismissed the case without prejudice, finding the assignment did not meet the exception for assignability established in St. Luke’s Magic Valley Regional Medical Center v. Luciani.The Supreme Court of the State of Idaho reviewed the case and affirmed the district court’s judgment. The Court held that the assignment of the legal malpractice claim to Acorn did not fall within the Luciani exception, which allows assignment only when such claims are transferred as part of a larger commercial transaction involving other business assets and liabilities. Here, only the claims were assigned, not any business assets or obligations. The Court also declined to award attorney fees to either party, but awarded costs to Elsaesser. View "Acorn Investments, LLC v. Elsaesser" on Justia Law

In August 2019, a company filed for Chapter 11 bankruptcy, with its only assets being three properties occupied by its sole member and two affiliates. Arrowhead Capital Finance, Ltd. obtained judgments against these affiliates and initiated an adversary proceeding against the debtor, seeking to hold it liable for the affiliates’ obligations. During this process, the bankruptcy trustee filed a separate adversary proceeding to recover unpaid rent from one affiliate. A settlement was reached in which Arrowhead received assignment of claims against the affiliates in exchange for releasing its own claims. The bankruptcy court approved this settlement, retaining jurisdiction over the assigned claims. Arrowhead then intervened and obtained a final judgment against the affiliates, including Royal Street Bistro, LLC (RSB).After the bankruptcy court entered judgment, RSB and another affiliate filed a notice of appeal but failed to attach a copy of the judgment as required by the bankruptcy rules. The bankruptcy court clerk issued a deficiency notice, and the corrected notice was filed ten days after the deadline. Arrowhead moved to dismiss the appeal, arguing that the failure to timely attach the judgment deprived the district court of jurisdiction. The United States District Court for the Eastern District of Louisiana dismissed the appeal, holding that the defect was jurisdictional and, alternatively, that dismissal was warranted as a discretionary sanction for noncompliance.The United States Court of Appeals for the Fifth Circuit reviewed the case. It held that failure to attach the judgment to the notice of appeal is not a jurisdictional defect under the bankruptcy rules, and that the district court abused its discretion by dismissing the appeal without considering lesser sanctions or the absence of prejudice. The Fifth Circuit reversed the district court’s dismissal and remanded the case for further proceedings. View "Royal Street Bistro v. Arrowhead Capital" on Justia Law

After Dallas Commodity Company obtained a $1.5 million state court judgment against Joseph F. Langston, Jr. and the Langston Family Limited Partnership, Langston filed for Chapter 7 bankruptcy. He claimed exemptions for two Individual Retirement Accounts (IRAs) worth over $500,000. The bankruptcy trustee repeatedly continued the creditors’ meeting (the “341 meeting”) to allow Langston to provide additional documents. The final 341 meeting occurred on May 26, 2021, after which the trustee failed to file a statement specifying the adjourned date and time as required by Bankruptcy Rule 2003(e). Despite this, the parties continued to communicate and negotiate, with Langston amending his bankruptcy schedules and entering into an agreed order with the trustees to abate related litigation until exemption objections were resolved.The United States Bankruptcy Court for the Northern District of Texas overruled Langston’s objection that Dallas Commodity’s challenge to his claimed exemptions was untimely, even though the objection was filed more than 30 days after the last 341 meeting. The bankruptcy court found that Langston had agreed to the continuance and had not objected to the process until after the objection was filed. The United States District Court for the Northern District of Texas affirmed, applying the Fifth Circuit’s prior case law and finding the objection timely under a case-by-case approach.The United States Court of Appeals for the Fifth Circuit reviewed the case and held that, although the trustee failed to comply with the procedural requirements of Bankruptcy Rule 2003(e), Langston had waived his right to object to the timeliness of Dallas Commodity’s exemption challenge by agreeing to the continuance and benefiting from the additional time. The Fifth Circuit affirmed the district court’s judgment, holding that the bankruptcy court properly overruled Langston’s timeliness objection on the basis of waiver. View "Langston v. Dallas Commodity Co." on Justia Law

A group of companies that are frequently sued in asbestos litigation brought an action against several settlement trusts and a claims processing facility. These trusts were established as part of bankruptcy reorganizations by former asbestos manufacturers to handle and pay out current and future asbestos-related claims. The plaintiffs rely on information held by these trusts—specifically, data about claimants’ other asbestos exposures—to defend themselves in ongoing and anticipated lawsuits. In January 2025, the trusts announced new document retention policies that would result in the destruction of most existing claims data after one year, which the plaintiffs argued would severely impair their ability to defend against asbestos claims and seek contribution or indemnification from the trusts.Previously, the trusts notified claimants of the impending data destruction, and the plaintiffs, upon learning of this, requested that the trusts not implement the new policies. When the trusts refused, the plaintiffs filed suit in the Court of Chancery of the State of Delaware, seeking a declaratory judgment that the trusts have a duty to preserve the claims data and a permanent injunction to prevent the destruction of this information. The trusts moved to dismiss, arguing that the court lacked subject matter jurisdiction, that the plaintiffs lacked standing, and that the complaint failed to state a claim.The Court of Chancery denied the motions to dismiss. It held that it had subject matter jurisdiction because the plaintiffs sought injunctive relief and because the case fit within the court’s traditional equitable powers, including the authority to grant a bill of discovery to preserve evidence for use in litigation. The court found that the plaintiffs had standing, as they faced a concrete and imminent injury from the threatened destruction of data essential to their defense and contribution claims. The court also held that the complaint stated a claim for relief, allowing the case to proceed beyond the pleading stage. View "DBMP LLC v. Delaware Claims Processing Facility, LLC" on Justia Law

Sanchez Energy Corporation, a gas producer, underwent Chapter 11 bankruptcy in 2019 due to significant debt, with its reorganization plan confirmed in April 2020. The company, later renamed Mesquite Energy, Inc., owned valuable fossil fuel reserves in the Comanche Field, Texas, and had several high-cost contracts for gathering, processing, transporting, and marketing natural gas and natural gas liquids. Carnero G&P, L.L.C., a midstream services provider, had a contract with Sanchez to serve as a backup provider. After Sanchez’s reorganization, Mesquite entered into new agreements with other parties to lower its midstream costs, which Carnero claimed breached its surviving contract.Following the bankruptcy, Carnero filed a state court lawsuit against Mesquite and other parties, asserting state law claims based on the new agreements. The suit was removed to the United States Bankruptcy Court for the Southern District of Texas, which denied Carnero’s request to remand and ultimately dismissed the case on the pleadings, finding it had “related-to” jurisdiction under 28 U.S.C. § 1334. The bankruptcy court reasoned that the dispute pertained to the implementation of the reorganization plan and that Carnero was barred from challenging the new agreements due to its failure to object during the bankruptcy proceedings. The United States District Court for the Southern District of Texas affirmed the bankruptcy court’s decision.On appeal, the United States Court of Appeals for the Fifth Circuit reviewed the jurisdictional question de novo. The Fifth Circuit held that the bankruptcy court lacked post-confirmation “related-to” jurisdiction over Carnero’s state law contract claims, as the dispute did not pertain to the implementation or execution of the reorganization plan. The court found that the new agreements were not executory contracts under the plan and that Carnero was not barred from pursuing its claims. The Fifth Circuit reversed the lower courts’ judgments and remanded the case with instructions to remand to state court. View "Carnero G&P v. SN EF Maverick" on Justia Law

A married couple, Carlos Del Amo and his wife, opened a joint checking account at TD Bank in Florida. The account’s signature card listed both their names and, in small print, stated that “joint accounts are owned as joint tenants with right of survivorship.” When Mr. Del Amo filed for Chapter 7 bankruptcy, he claimed the account as exempt property, arguing it was owned as a tenancy by the entirety—a form of ownership that protects the account from creditors of only one spouse under Florida law. Storey Mountain, a creditor, objected, contending that the account was not exempt because the signature card’s language created a joint tenancy with right of survivorship, not a tenancy by the entirety.The United States Bankruptcy Court for the Southern District of Florida found the statutory language unclear as to what constitutes “otherwise specified in writing” under Florida Statutes § 655.79(1). Relying on the Florida Supreme Court’s decision in Beal Bank, SSB v. Almand and Associates, the bankruptcy court held that, absent an express disclaimer of tenancy by the entirety on the signature card, the account was presumed to be held as a tenancy by the entirety. The court overruled Storey Mountain’s objection. The United States District Court for the Southern District of Florida affirmed, agreeing that the 2008 amendment to § 655.79(1) did not abrogate Beal Bank’s requirement for an express disclaimer.On further appeal, the United States Court of Appeals for the Eleventh Circuit affirmed the lower courts. The Eleventh Circuit held that, under Florida law, a joint bank account held by a married couple is presumed to be a tenancy by the entirety unless there is an explicit written disclaimer of that form of ownership. The court found that the language on the signature card was insufficient to constitute such a disclaimer, and thus the account was exempt property in the bankruptcy proceedings. View "Storey Mountain v. Del Amo" on Justia Law

Pro-Mark Services, Inc., a general contracting construction company, obtained payment and performance bonds from Hartford Accident and Indemnity Company as required by the Miller Act. To facilitate this, Pro-Mark and other indemnitors entered into a General Indemnity Agreement (GIA) with Hartford, assigning certain rights related to bonded contracts. Later, Pro-Mark entered into two substantial business loan agreements with Capital Credit Union (CCU), secured by most of Pro-Mark’s assets, including deposit accounts. Recognizing potential conflicts over asset priorities, Hartford and CCU executed an Intercreditor Collateral Agreement (ICA) to define their respective rights and priorities in Pro-Mark’s assets, distinguishing between “Bank Priority Collateral” and “Surety Priority Collateral,” and specifying how proceeds should be distributed.After Pro-Mark filed for chapter 7 bankruptcy in the United States Bankruptcy Court for the District of North Dakota, CCU placed an administrative freeze on Pro-Mark’s deposit accounts and moved for relief from the automatic stay to exercise its right of setoff against the funds in those accounts. Hartford objected, claiming a superior interest in the funds based on the GIA and ICA. The bankruptcy court held hearings and, after considering the parties’ briefs and stipulated facts, granted CCU’s motion, allowing it to set off the funds. The bankruptcy court found CCU had met its burden for setoff and determined Hartford did not have a sufficient interest in the deposited funds, focusing on the GIA and North Dakota’s Uniform Commercial Code, and not the ICA.On appeal, the United States Bankruptcy Appellate Panel for the Eighth Circuit held that while the bankruptcy court had authority to adjudicate the priority dispute, it erred by failing to analyze the parties’ respective rights under the ICA, which governed the priority of distributions. The Panel reversed the bankruptcy court’s order and remanded the case for further proceedings consistent with its opinion. View "Hartford Accident and Indemnity Company v. Capital Credit Union" on Justia Law

Carol Rose, a prominent figure in the American Quarter Horse industry, entered into a series of agreements with Lori and Philip Aaron in 2013. The Aarons agreed to purchase a group of Rose’s horses at an auction, lease her Gainesville Ranch with an option to buy, and employ her as a consultant. The relationship quickly soured after the auction, with both sides accusing each other of breaches. Rose locked the Aarons out of the ranch and asserted a stable keeper’s lien for charges exceeding those related to the care of the Aarons’ horses. The Aarons paid the demanded sum and removed their horses. Litigation ensued, including claims by Jay McLaughlin, Rose’s former trainer, for damages related to the value of two fillies.The bankruptcy filings by Rose and her company led to the removal of the ongoing state-court litigation to the United States Bankruptcy Court. After trial, the bankruptcy court ruled in favor of the Aarons on their breach of contract and Texas Theft Liability Act (TTLA) claims, awarding damages and attorneys’ fees, and in favor of McLaughlin on his claim. The United States District Court for the Eastern District of Texas reversed the bankruptcy court’s rulings on the Aarons’ claims and McLaughlin’s claim, vacating the damages and fee awards.On appeal, the United States Court of Appeals for the Fifth Circuit affirmed the district court’s reversal of the damages award for the Aarons’ breach of contract claim, holding that the Aarons failed to prove damages under any recognized Texas law measure. The Fifth Circuit reversed the district court’s judgment on the TTLA claim, holding that Rose’s threat to retain the Aarons’ horses for more than the lawful amount could constitute coercion under the TTLA, and remanded for further fact finding on intent and causation. The court also reversed and remanded the judgment regarding McLaughlin’s claim, finding his damages testimony legally insufficient. The court left the issue of attorneys’ fees for further proceedings. View "Rose v. Equis Equine" on Justia Law

A Minnesota resident filed for chapter 7 bankruptcy, listing her former live-in partner as a disputed creditor. After the discovery of a nonexempt interest in a lake cabin, creditors were invited to file claims. The former partner, initially acting pro se and later with counsel, filed several claims seeking reimbursement for property and funds allegedly provided to the debtor. These claims were reduced and ultimately settled for $9,000, with the debtor withdrawing her objections. Shortly thereafter, the creditor filed a new claim for $400,000, alleging personal injury torts such as assault, battery, and emotional distress, supported by a draft complaint. The debtor objected, arguing the claim was untimely, unsupported, and barred by various defenses.The United States Bankruptcy Court for the District of Minnesota sustained the debtor’s objection and disallowed the personal injury claim. The court applied the narrowest test for “personal injury tort” under 28 U.S.C. § 157(b)(5), finding the claim did not involve bodily injury and thus was not a personal injury tort. The court also found the claim barred by res judicata and judicial estoppel, reasoning that the prior settlement and proceedings precluded relitigation of the same issues.On appeal, the United States Bankruptcy Appellate Panel for the Eighth Circuit reviewed the bankruptcy court’s factual findings for clear error and its legal conclusions de novo. The panel held that, under any of the three recognized tests, the creditor’s claim was for damages for a “personal injury tort.” Therefore, the bankruptcy court erred in determining it had jurisdiction to finally adjudicate the claim. The panel reversed the bankruptcy court’s order disallowing the claim and remanded for further proceedings consistent with its opinion, directing that the district court must try the personal injury tort claim as required by statute. View "Arrieta v. Smith" on Justia Law

A debtor filed for Chapter 7 bankruptcy in the United States Bankruptcy Court for the District of Arizona, initially claiming exemptions for real property and a recreational vehicle under Arizona’s homestead law. The trustee objected, and the debtor amended his schedule to claim the same exemptions under Washington law. After the trustee objected again and the bankruptcy court sustained both objections, the debtor amended his schedule a second time, this time electing federal exemptions under 11 U.S.C. § 522(d), specifically claiming a homestead exemption for the real property and a wildcard exemption for the recreational vehicle.The bankruptcy court granted the debtor’s federal homestead exemption for the real property and the wildcard exemption for the recreational vehicle, even though the debtor had listed the RV under the homestead exemption rather than the wildcard exemption. The trustee appealed to the United States District Court for the District of Arizona, which reversed the bankruptcy court’s decision. The district court held that claim preclusion barred the debtor from asserting federal exemptions after his state law exemptions were denied and that the bankruptcy court lacked authority to grant the wildcard exemption for the RV because the debtor had not specifically claimed it.On appeal, the United States Court of Appeals for the Ninth Circuit reversed the district court’s judgment. The Ninth Circuit held that claim preclusion did not bar the debtor from amending his schedule to claim federal exemptions after the bankruptcy court ruled that state exemptions were unavailable, because bankruptcy procedure prohibits simultaneous claims of state and federal exemptions. The court also held that the bankruptcy court did not exceed its authority by granting the wildcard exemption for the RV, as the debtor’s claim was sufficient under the federal statutory scheme. The case was remanded to the district court with instructions to vacate its decision and remand to the bankruptcy court. View "WARFIELD V. NANCE" on Justia Law