Justia Bankruptcy Opinion Summaries

A debtor filed for bankruptcy in 2017 and retained an attorney to serve as counsel in the Chapter 11 proceedings. The bankruptcy court appointed the attorney as counsel for the estate. In early 2018, a trustee was appointed due to concerns about liens on the debtor’s properties, and the trustee began liquidating assets. Following these events, the debtor sued her former bankruptcy attorney and his law firm in California state court for legal malpractice related to the bankruptcy representation.In state court, the attorney moved to dismiss the malpractice suit, arguing that the Barton doctrine, res judicata, and lack of standing barred the action. The Los Angeles County Superior Court dismissed the suit solely based on the Barton doctrine, which requires leave from the bankruptcy court before suing court-appointed officers in another forum. On appeal, the California Court of Appeal for the Second District held that the Barton doctrine applied to claims arising from the attorney’s actions while serving as debtor-in-possession counsel but not to actions taken after the trustee’s appointment. The appellate court allowed leave to amend for certain post-trustee claims if standing was established.The debtor then moved in bankruptcy court for leave to continue her malpractice suit under the Barton doctrine. The bankruptcy court granted leave for certain time periods but did not precisely tailor its order to the state appellate decision. The attorney appealed to the Ninth Circuit Bankruptcy Appellate Panel (BAP), which vacated the bankruptcy court’s order, holding it violated the Rooker-Feldman doctrine by modifying state court judgments. On further appeal, the United States Court of Appeals for the Ninth Circuit held that granting Barton leave does not violate Rooker-Feldman, and the bankruptcy court may cure a jurisdictional defect after state court proceedings have begun. However, the Ninth Circuit found the bankruptcy court abused its discretion by not aligning its order with the state appellate decision and by granting Barton approval for claims not subject to the doctrine. The Ninth Circuit reversed the BAP, vacated in part, and remanded with instructions for the bankruptcy court to issue a tailored order consistent with the California appellate decision. View "Akhlaghpour v. Orantes" on Justia Law

Vista-Pro Automotive, LLC initiated bankruptcy proceedings in 2014 and brought an adversary action against Coney Island Auto Parts Unlimited, Inc. to recover $50,000 in unpaid invoices. Vista-Pro attempted to serve Coney Island by mail but allegedly did not comply with the required service rules. Coney Island did not respond, leading the Bankruptcy Court to enter a default judgment in 2015. Over the next six years, the bankruptcy trustee sought to enforce the judgment, including notifying Coney Island’s CEO of the judgment in 2016. In 2021, a marshal seized funds from Coney Island’s bank account to satisfy the judgment, prompting Coney Island to seek relief from the judgment, alleging it was void due to improper service.The United States Bankruptcy Court denied Coney Island’s motion to vacate the judgment, finding that Coney Island failed to meet the requirement under Federal Rule of Civil Procedure 60(c)(1) that such motions be brought within a “reasonable time.” The United States District Court and the United States Court of Appeals for the Sixth Circuit both affirmed this decision, agreeing that the reasonable-time limit applied to motions alleging a void judgment.The Supreme Court of the United States reviewed the case to resolve a split among lower courts over whether the reasonable-time requirement of Rule 60(c)(1) applies to motions under Rule 60(b)(4) claiming a judgment is void. The Court held that the plain language and structure of Rule 60 make the reasonable-time requirement applicable to all Rule 60(b) motions, including those asserting voidness. The Supreme Court affirmed the judgment of the Sixth Circuit, concluding that motions for relief from allegedly void judgments must be made within a reasonable time. View "Coney Island Auto Parts Unlimited, Inc. v. Burton" on Justia Law

MTG, Inc., a company specializing in tooling for the auto industry, filed for Chapter 11 bankruptcy in 1995, which was later converted to a Chapter 7 proceeding in 1996. Charles Taunt was appointed as the Chapter 7 trustee and, during his tenure, entered into a fee agreement with Comerica Bank, MTG's largest secured creditor. Taunt failed to disclose this agreement to the bankruptcy court, despite rules requiring disclosure of such connections. Several orders were issued during this time that benefited Comerica, including allowance of its claim, relief from stay, and settlement of pre-petition lender liability claims. After Taunt's undisclosed conflict of interest was revealed, litigation ensued over whether the resulting orders should be set aside and whether Taunt, his law firms, and Comerica were liable for fraud, conversion, and unauthorized transfers.Following discovery of Taunt's conflict, the United States Bankruptcy Court for the Eastern District of Michigan vacated the orders benefitting Comerica and found Taunt and his law firm had committed fraud on the court. Taunt was disqualified as trustee, his firm was denied fees, and Guy Vining was appointed as successor trustee. Vining initiated an adversary proceeding with multiple claims, primarily post-petition claims alleging fraud on the court, avoidable transfers, and conversion. The bankruptcy court granted summary judgment for defendants on most claims, awarding only limited attorney’s fees for exposing the fraud. The United States District Court for the Eastern District of Michigan affirmed these rulings.The United States Court of Appeals for the Sixth Circuit reviewed the case and affirmed the district court’s decision. The court held Comerica was not directly or vicariously liable for fraud on the court, as it was not an officer of the court and did not control Taunt. The court also ruled that the challenged post-petition transfers were authorized by valid court orders and thus not avoidable under bankruptcy law. Finally, the court found Taunt’s actions as trustee were authorized, rejecting the conversion claim. The limited attorney’s fees award and denial of punitive damages were upheld as within the bankruptcy court’s discretion. View "Vining v. Plunkett Cooney, P.C." on Justia Law

TAJ Graphics Enterprises, LLC, a Michigan limited liability company controlled by Robert Kattula, twice filed for bankruptcy—first in 2003 under Chapter 11, and again in 2009, with the case later converted to Chapter 7. Prime Financial, Inc., an unsecured creditor owned by Aaron Jade, asserted a claim based on unpaid sums from the 2004 bankruptcy plan. Disputes arose over several assets, including rights under assignments, claims in pending litigation, and a significant debt owed by Kattula to TAJ. Ownership and value of these assets, particularly interests under a Memorandum of Understanding (MOU) for a Kentucky landfill, were contested. The bankruptcy estate lacked funds to litigate asset ownership or liquidation.The United States Bankruptcy Court for the Eastern District of Michigan approved a settlement proposed by the Chapter 7 trustee. The settlement involved Kattula waiving certain claims and paying $50,000 to the estate in exchange for ownership of the disputed assets. The IRS, the estate's senior secured creditor, supported the settlement. Prime Financial objected, arguing the trustee failed to maximize the estate’s value and that its own offer to purchase assets for $100,000 was overlooked. The bankruptcy court found Prime Financial’s offer contingent and unworkable, and determined that litigation over asset ownership would be costly and uncertain. The bankruptcy court approved the settlement, citing the estate’s lack of resources, the speculative asset value, and the interests of creditors. The United States District Court for the Eastern District of Michigan affirmed this decision.On appeal, the United States Court of Appeals for the Sixth Circuit affirmed the district court's order. The Sixth Circuit held that the bankruptcy court did not abuse its discretion, applying the correct standard for settlement approval and reasonably assessing the merits, complexity, and creditor interests. Prime Financial’s procedural and substantive objections were rejected. View "Prime Financial, Inc. v. Shapiro" on Justia Law

HRT Enterprises pursued a takings claim against the City of Detroit after losing a jury verdict in state court in 2005. Subsequently, HRT filed suit in federal court in 2008, alleging a post-2005 violation under 42 U.S.C. § 1983. The United States District Court for the Eastern District of Michigan dismissed the federal action, citing the requirement from Williamson County Regional Planning Commission v. Hamilton Bank of Johnson City, 473 U.S. 172 (1985), to exhaust state remedies first. HRT then returned to state court, where its claim was dismissed on claim preclusion grounds, a decision affirmed by the Michigan Court of Appeals. After the state court denied compensation, HRT initiated a federal § 1983 action in 2012. The case was stayed when the City filed for bankruptcy, prompting HRT to participate in bankruptcy proceedings to protect its compensation rights. Ultimately, the bankruptcy court excepted HRT’s takings claim from discharge, allowing the federal case to proceed. After two jury trials, the district court entered judgment for HRT in September 2023.Following its success, HRT moved for attorney fees under 42 U.S.C. § 1988, presenting billing records that included work from related state and bankruptcy proceedings. The district court applied a 33% discount to the claimed hours due to commingled and poorly described entries, set an average hourly rate, and awarded $720,486.25, which included expert witness fees. Both parties appealed aspects of the fee award to the United States Court of Appeals for the Sixth Circuit.The Sixth Circuit held that the district court erred by concluding it had no discretion to award fees for work performed in the related state-court and bankruptcy proceedings, as such fees are recoverable when the work is necessary to advance the federal litigation. The court also found the district court erred in awarding expert witness fees under § 1988(c) in a § 1983 action, as the statute does not authorize such fees for § 1983 claims. The appellate court vacated the fee award and remanded for recalculation consistent with its opinion. View "HRT Enterprises v. City of Detroit" on Justia Law

Jet Oilfield Services was formed in 2018 by three individuals, with Brian Owen later acquiring a substantial membership interest. Jet’s governing agreement required Owen to obtain consent from at least one other member before entering transactions on Jet’s behalf. In 2022, Owen signed an agreement with Spin Capital, L.L.C., under which Jet would sell $4,500,000 of future receivables for $3,000,000. Spin attempted to confirm Owen’s authority by reviewing Jet’s bank statements and tax returns, noting Owen’s access to the company’s accounts and his designation as “Partnership Representative” and “General Partner or LLC member-manager,” though the tax return was unsigned by a member-manager. Jet subsequently filed for bankruptcy, and Spin filed a proof of claim based on this agreement and pursued related litigation.The United States Bankruptcy Court for the Western District of Texas held a trial on Jet’s counterclaims against Spin. The court found that Owen lacked both actual and apparent authority to bind Jet in the Spin Agreement and that Jet received no consideration for the contract. As a result, the bankruptcy court determined Spin’s claim was unenforceable. Spin appealed to the United States District Court for the Western District of Texas. Initially, the district court dismissed the appeal for an insufficient record but later reinstated it, allowing supplemental briefing. When Spin declined to submit further briefing, the district court dismissed the appeal with prejudice.On review, the United States Court of Appeals for the Fifth Circuit applied clear error review to the bankruptcy court’s factual findings and de novo review to its legal conclusions. The Fifth Circuit held that Owen did not have apparent authority to bind Jet, as Jet’s member-managers did not hold him out as an agent, and Spin’s reliance on Owen’s asserted authority was unreasonable. The court thus affirmed the judgment, holding that Spin’s claim against Jet was unenforceable. View "Spin Capital v. Jet Oilfield" on Justia Law

A fire at a property in Washington, D.C. in 2015 resulted in the deaths of two tenants. The parents of the tenants sued both the property’s record owner, Len Salas, and his father, Max Salas, who managed the property, for wrongful death in a D.C. trial court. The jury found both defendants jointly and severally liable and awarded multimillion-dollar verdicts. After the verdict, both Len and Max filed for bankruptcy in different jurisdictions. In Max’s bankruptcy case, the court held he was entitled to an unlimited homestead exemption in the property. Subsequently, in Len’s bankruptcy case in Tennessee, the estate’s interest in certain avoidance and recovery rights under the Bankruptcy Code was sold at auction, with the plaintiffs purchasing those rights.The plaintiffs then filed an adversary proceeding in the United States Bankruptcy Court for the Middle District of Tennessee, seeking to avoid transfers and recover property. The bankruptcy court denied their motion for summary judgment and granted partial summary judgment to Max on the fraudulent conveyance claims. Plaintiffs sought and received leave from the United States District Court for the Middle District of Tennessee to pursue an interlocutory appeal. The district court affirmed the bankruptcy court’s partial grant and denial of summary judgment and remanded the case for further proceedings, but did not certify the order for appeal or designate it as a final order.On appeal, the United States Court of Appeals for the Sixth Circuit found that it lacked jurisdiction. The court determined that because the district court’s order was neither final nor properly certified for interlocutory appeal, it could not exercise appellate jurisdiction under the relevant statutes. As a result, the Sixth Circuit dismissed the appeal for lack of jurisdiction. View "Brekelmans v. Salas" on Justia Law

The case involves a Florida-based title insurer that suffered significant financial setbacks, prompting a series of business restructurings and asset transfers. In 2009, the company entered a joint venture with another title insurance group, forming a new entity to handle certain business functions. Over subsequent years, the original company retained substantial assets and continued operations, but further financial decline led to a 2015 agreement in which it transferred assets and liabilities to its business partner, in exchange for the assumption of its policy liabilities. The Florida insurance regulator scrutinized and ultimately approved the transaction after requiring additional commitments from the acquiring party.The United States Bankruptcy Court for the Middle District of Florida later oversaw the company’s Chapter 11 proceedings. The appointed Creditor Trustee brought an adversary proceeding against the acquiring parties and related entities, alleging that the asset transfer constituted a fraudulent transfer under federal bankruptcy law and Florida statutes, and sought to impose successor liability and alter ego claims. The bankruptcy court held a bench trial, excluding portions of the Trustee’s expert valuation as unreliable, and found that the company had received reasonably equivalent value in the transaction. The court also rejected the successor liability and alter ego theories, finding insufficient evidence of continuity of ownership, improper purpose, or harm to creditors.The United States District Court for the Middle District of Florida affirmed the bankruptcy court’s rulings. On appeal, the United States Court of Appeals for the Eleventh Circuit reviewed the record and affirmed the district court’s order. The Eleventh Circuit held that the bankruptcy court did not err in excluding the Trustee’s expert, that the asset transfer was for reasonably equivalent value and not fraudulent, and that the successor liability and alter ego claims failed for lack of evidence and legal sufficiency. View "Stermer v. Old Republic National Title Insurance Company" on Justia Law

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