Justia Bankruptcy Opinion Summaries

Joseph and Jo-Lynn Jenkins Parrott filed for Chapter 13 bankruptcy in 2018, committing to a payment plan. After several amendments to their plan, the bankruptcy trustee moved to dismiss the case due to missed payments. The bankruptcy court ordered the Parrotts to catch up on payments or face dismissal. Despite extensions, the Parrotts failed to comply, leading to a dismissal order on January 29, 2020, effective February 13, 2020. The Parrotts filed a pro se notice of appeal on February 5, 2020, which was struck for lacking their attorney’s signature. They filed a second notice on February 18, 2020, after their attorney withdrew.The United States District Court for the Middle District of Florida dismissed the Parrotts' appeal, ruling it untimely and citing their failure to comply with procedural rules. The court noted the Parrotts' noncompliance with local rules and their inadequate response to an order to show cause regarding jurisdiction. The district court concluded it lacked jurisdiction and, alternatively, dismissed the case as a sanction for procedural noncompliance.The United States Court of Appeals for the Eleventh Circuit reviewed the case. It held that the Parrotts' initial notice of appeal, though defective, was timely and that the second notice cured the defect, thus conferring jurisdiction on the district court. The appellate court also found that the district court abused its discretion by dismissing the case as a sanction, noting that dismissal is a last resort and should only be used in extreme circumstances, which were not present here. The Eleventh Circuit vacated the district court's dismissal and remanded the case for consideration on the merits. View "Parrott v. Neway" on Justia Law

Debra Stevenson and Eugene Smith co-own a property for which Stevenson initially took out a loan from Wells Fargo. After defaulting, she refinanced with Fremont Investment & Loan, which paid off the Wells Fargo loan. Stevenson defaulted again and filed for bankruptcy. HSBC Bank, as Fremont's successor, sought to enforce its interest in the property through equitable subrogation, claiming the right to stand in Wells Fargo's position.In bankruptcy court, HSBC was found to be the holder of the note and entitled to equitable subrogation for the amount used to pay off the Wells Fargo loan. The federal district court adopted this decision, and the D.C. Circuit affirmed, holding that HSBC could enforce its interest despite Fremont's knowledge of Smith's co-ownership and refusal to sign the loan documents.The District of Columbia Court of Appeals reviewed the Superior Court's grant of summary judgment to HSBC. The court held that Stevenson and Smith were collaterally estopped from relitigating issues decided in federal court, including HSBC's standing and entitlement to equitable subrogation. The court also rejected their Truth in Lending Act (TILA) rescission argument, as it had been previously litigated and decided against them. The court affirmed the Superior Court's ruling, finding no genuine issues of material fact and that HSBC was entitled to judgment as a matter of law. View "Stevenson v. HSBC Bank USA" on Justia Law

Jason Powell filed a Chapter 13 bankruptcy petition, certifying that he met the eligibility requirements. TICO Construction Company, a creditor, opposed the dismissal of Powell’s case and moved to convert it to a different chapter, arguing that Powell was ineligible for Chapter 13 relief and had filed in bad faith. The bankruptcy court granted Powell’s motion to dismiss without resolving TICO’s eligibility challenge.The Bankruptcy Appellate Panel (BAP) affirmed the bankruptcy court’s decision, holding that Powell had an absolute right to dismiss his Chapter 13 case under 11 U.S.C. § 1307(b), as interpreted by Nichols v. Marana Stockyard & Livestock Mkt., Inc. (In re Nichols). The BAP also noted that the bankruptcy court had other tools to address potential abuse, such as imposing conditions on dismissal.The United States Court of Appeals for the Ninth Circuit reviewed the case and affirmed the BAP’s decision. The court held that under the plain text of § 1307(b), a debtor has an absolute right to dismiss a Chapter 13 case if the case has not been converted to another chapter. The court rejected TICO’s argument that the bankruptcy court must determine a debtor’s eligibility before granting a dismissal request. The court explained that a debtor’s certification of eligibility in the petition presumptively establishes that the debtor may be a debtor under Chapter 13, and the filing of the petition commences a Chapter 13 case under 11 U.S.C. § 301(a).The Ninth Circuit concluded that the bankruptcy court correctly dismissed Powell’s Chapter 13 case without further inquiry into his eligibility, affirming that Powell had an absolute right to dismiss under § 1307(b). View "IN RE: POWELL V. VAN METER" on Justia Law

Highland Capital Management, L.P. (Highland) was an investment fund managed by James Dondero, who also managed several of its subsidiaries. Highland had a practice of lending money to its subsidiaries and to Dondero personally. During Highland's bankruptcy proceedings, Dondero was removed, and a court-appointed board took over. The board attempted to collect on promissory notes executed in Highland's favor by the subsidiaries and Dondero. When they refused to pay, Highland initiated adversary actions in bankruptcy court.The United States Bankruptcy Court for the Northern District of Texas handled the initial proceedings. Highland filed several adversary actions against Dondero and the subsidiaries, seeking enforcement of the promissory notes. The cases were consolidated, and the bankruptcy court recommended granting summary judgment in favor of Highland. The United States District Court for the Northern District of Texas adopted the recommendations and entered judgment against all defendants.The United States Court of Appeals for the Fifth Circuit reviewed the case. The court affirmed the district court's decision, holding that Highland had established a prima facie case for the validity and enforceability of the promissory notes. The court found that the defendants' arguments, including claims of oral agreements to forgive the loans, lack of authority to sign the notes, mutual mistake, prepayment, and Highland's responsibility to make payments, were unsupported by credible evidence. The court concluded that there were no genuine disputes of material fact and that Highland was entitled to judgment as a matter of law. View "Highland Capital v. NexPoint Asset" on Justia Law

The case involves International Petroleum Products and Additives Company (IPAC), a California-based company, which entered into sales and distribution agreements with Black Gold S.A.R.L., a Monaco-based company. Black Gold breached these agreements by using IPAC’s confidential information to develop competing products. IPAC won an arbitration award of over $1 million against Black Gold. However, Black Gold declared bankruptcy in Monaco, complicating IPAC’s efforts to collect the award.The United States District Court for the Northern District of California confirmed the arbitration award and entered judgment against Black Gold. During post-judgment discovery, Black Gold engaged in misconduct, leading the district court to sanction Black Gold and add Lorenzo and Sofia Napoleoni, Black Gold’s owners, as judgment debtors on the grounds that they were Black Gold’s alter egos. Black Gold’s petition for recognition of its Monaco bankruptcy proceedings was initially denied by the bankruptcy court, but this decision was later reversed by the Bankruptcy Appellate Panel (BAP), which mandated recognition of the Monaco proceedings.The United States Court of Appeals for the Ninth Circuit reviewed the case. The court held that the automatic bankruptcy stay under 11 U.S.C. § 1520 did not retroactively apply to the date of the bankruptcy court’s initial denial of Black Gold’s petition. The court also held that the automatic stay did not extend to IPAC’s alter ego claim against the Napoleonis. The court affirmed the district court’s judgment and the award of attorneys’ fees and costs in favor of IPAC, concluding that the alter ego claim was not the property of Black Gold’s estate under California law. View "International Petroleum Products and Additives Co, Inc. v. Black Gold S.A.R.L." on Justia Law

Thomas Petters orchestrated a Ponzi scheme through his company, Petters Company, Inc. (PCI), which collapsed in 2008. Following Petters' arrest and conviction, PCI was placed into receivership, and Douglas Kelley was appointed as the receiver. Kelley later filed for bankruptcy on behalf of PCI and was appointed as the bankruptcy trustee. As trustee, Kelley initiated an adversary proceeding against BMO Harris Bank, alleging that the bank aided and abetted the Ponzi scheme.The bankruptcy court and the district court both ruled that the equitable defense of in pari delicto, which prevents a plaintiff who has participated in wrongdoing from recovering damages, was unavailable due to PCI's receivership status. The case proceeded to trial, and a jury awarded Kelley over $500 million in damages, finding BMO liable for aiding and abetting a breach of fiduciary duty. BMO appealed, challenging the availability of the in pari delicto defense, among other issues.The United States Court of Appeals for the Eighth Circuit reviewed the case and concluded that the doctrine of in pari delicto barred Kelley’s action against BMO. The court reasoned that while a receiver might not be bound by the fraudulent acts of a corporation's officers under Minnesota law, a bankruptcy trustee stands in the shoes of the debtor and is subject to any defenses that could have been raised against the debtor. Since PCI was a wrongdoer, the defense of in pari delicto was available to BMO in the adversary proceeding. The court reversed the district court's judgment and remanded the case with directions to enter judgment in favor of BMO. The cross-appeal was dismissed as moot. View "Kelley v. BMO Harris Bank N.A." on Justia Law

Nine Black, female, low- to moderate-income first-time homebuyers purchased condominium units at the RiverEast at Grandview Condominium complex through the District of Columbia’s Housing Purchase Assistance Program. Shortly after moving in, they encountered severe habitability issues, including foundation problems, sewage, and mold. Their attempts to resolve these issues were unsuccessful, leading them to file a thirteen-count lawsuit against the developers, the District of Columbia Department of Housing and Community Development (DHCD), and the RiverEast at Grandview Condominium Owner’s Association. The developers later filed for bankruptcy, and the plaintiffs were forced to evacuate their units.The Superior Court of the District of Columbia granted motions to dismiss the plaintiffs’ claims against the District and the Association for failure to state a claim. The court found that DHCD, as a District agency, was non sui juris and thus incapable of being sued. It also concluded that the plaintiffs failed to state a claim under the District of Columbia Consumer Protection Procedures Act (CPPA) because the District could not be considered a “merchant” under the statute. The court dismissed other claims, including violations of the District of Columbia Human Rights Act (DCHRA), breach of contract, intentional infliction of emotional distress (IIED), and negligence.The District of Columbia Court of Appeals reversed the trial court’s dismissal of the CPPA claim, holding that the District could be considered a merchant under the statute. The case was remanded for further consideration of whether the District’s trade practices were unfair or deceptive. The appellate court affirmed the dismissal of the DCHRA, breach of contract, IIED, and negligence claims, finding that the plaintiffs failed to sufficiently allege facts to support these claims. The court also upheld the trial court’s denial of the plaintiffs’ request to amend their complaint. View "May v. River East at Grandview" on Justia Law

George Wagner III filed for Chapter 7 bankruptcy, omitting a show horse he had purchased for his daughter from his bankruptcy petition. Wagner claimed he believed the horse belonged to his daughter, as it was registered under her name with the United States Equestrian Federation. The bankruptcy court held a bench trial and found Wagner, his wife, and his daughter credible in their belief that the horse was the daughter’s property. Consequently, the bankruptcy court granted Wagner a discharge of his debts.The United States District Court for the Southern District of Florida vacated the bankruptcy court’s order, concluding that Wagner knowingly and fraudulently omitted the horse from his bankruptcy case. The district court pointed to Wagner’s email communications during his divorce proceedings, the timing of the insurance policy transfer, and the handling of lease proceeds as evidence of fraudulent intent. The district court remanded the case to the bankruptcy court to enter judgment denying discharge.The United States Court of Appeals for the Eleventh Circuit reviewed the case and reversed the district court’s order. The appellate court emphasized the need to defer to the bankruptcy court’s credibility determinations, which were supported by the testimony and documentary evidence. The appellate court found that the bankruptcy court did not clearly err in concluding that Wagner did not possess fraudulent intent in omitting the horse from his bankruptcy case. Therefore, the appellate court affirmed the bankruptcy court’s order of discharge. View "OHI Asset (VA) Martinsville SNF, LLC v. Wagner" on Justia Law

The case involves the Hertz Corporation and its affiliates, which filed for Chapter 11 bankruptcy protection in May 2020 due to financial difficulties exacerbated by the COVID-19 pandemic. Hertz emerged from bankruptcy a year later with a reorganization plan that promised to leave all creditors unimpaired, meaning their rights would not be altered. However, the plan paid unsecured noteholders post-petition interest at the federal judgment rate rather than the higher contract rate and did not include certain make-whole fees (Applicable Premiums) for early redemption of the notes.The United States Bankruptcy Court for the District of Delaware initially ruled that the noteholders were not entitled to the contract rate of interest or the make-whole fees, considering the latter as unmatured interest disallowed under § 502(b)(2) of the Bankruptcy Code. The court also ruled that the noteholders were not entitled to early redemption fees on the 2024 notes. The noteholders appealed, arguing that as creditors of a solvent debtor, they were entitled to post-petition interest at the contract rate and the make-whole fees.The United States Court of Appeals for the Third Circuit reviewed the case and determined that the make-whole fees (Applicable Premiums) must be disallowed as they fit the definition of unmatured interest under § 502(b)(2). However, the court agreed with the noteholders that they were entitled to post-petition interest at the contract rate because Hertz was solvent. The court emphasized the absolute priority rule, which requires that creditors be paid in full before equity holders receive any distribution. The court concluded that the Bankruptcy Code incorporates this rule, and thus, the noteholders must receive contract rate interest, including the Applicable Premiums, to comply with the absolute priority rule and fulfill the plan's promise to leave their rights unaltered. The court affirmed in part and reversed in part the Bankruptcy Court's decisions. View "The Hertz Corporation v. Wells Fargo Bank, N.A." on Justia Law

Debbie O'Gorman, facing foreclosure by creditor Grant Reynolds, transferred her property to the Lovering Tubbs Trust for no consideration. This transfer was intended to hinder Reynolds' foreclosure efforts. The Lovering Tubbs Trust and other entities involved in the transfer argued that the Chapter 7 Trustee lacked Article III standing to bring a claim under 11 U.S.C. § 548 because O'Gorman's creditors were not harmed by the transfer.The Bankruptcy Court granted summary judgment to the Trustee, finding that O'Gorman's transfer was fraudulent under § 548(a)(1)(A). The Bankruptcy Appellate Panel (BAP) affirmed this decision, noting that the Trustee had established a prima facie case of fraudulent transfer and that the appellants failed to present any admissible evidence to create a genuine dispute of material fact.The United States Court of Appeals for the Ninth Circuit affirmed the BAP's decision. The court held that the Trustee had Article III standing because the transfer depleted the estate's assets, causing an injury-in-fact that was redressable by the avoidance sought. The court also clarified that actual harm to creditors is not an element of a fraudulent transfer claim under § 548. The court found that the bankruptcy court properly granted summary judgment, as the Trustee provided direct and circumstantial evidence of O'Gorman's fraudulent intent, and the appellants failed to present any evidence to dispute this.The Ninth Circuit also upheld the bankruptcy court's denial of the appellants' request for a continuance to conduct discovery, noting that the appellants did not comply with the requirements of Rule 56(d) by failing to submit an affidavit or declaration specifying the facts they hoped to elicit through further discovery. The court concluded that the bankruptcy court did not abuse its discretion in this regard. View "IN RE: THE LOVERING TUBBS TRUST V. HOFFMAN" on Justia Law