Justia Bankruptcy Opinion Summaries

Santoasha Harris endured five years of sexual harassment at her job with the City of Milwaukee. When she reported the harassment in 2017, the City separated her from the harasser, conducted an investigation, compelled the harasser’s resignation, and restored Harris to her position within a month. Harris sued the City, alleging it knew about the harassment for years, failed to act, and retaliated against her for reporting it. Due to Harris’s bankruptcy filing, her estate was substituted as the plaintiff.The United States District Court for the Eastern District of Wisconsin granted summary judgment to the City. The court concluded that Harris’s Estate had not shown the City unreasonably failed to prevent the harassment or that she suffered a tangible employment action as a consequence of reporting it. The court found no evidence supporting the Title VII and Section 1983 claims against the City.The United States Court of Appeals for the Seventh Circuit reviewed the case and affirmed the district court’s judgment. The appellate court agreed that the evidence did not support the claims of quid pro quo harassment, hostile work environment, or retaliation under Title VII. The court found that Harris did not suffer a tangible employment action and that the City acted promptly and reasonably once the harassment was reported. Additionally, the court found no basis for employer liability under Section 1983, as there was no evidence of intentional discrimination by the City. The court concluded that no reasonable jury could find for the Estate on its claims against the City. View "Bankruptcy Estate of Harris v City of Milwaukee" on Justia Law

Jacqueline Sterling failed to pay $500 in gym membership fees to Southlake Nautilus Health and Racquet Club, leading to a default judgment against her in the Superior Court of Lake County, Indiana. Despite a bankruptcy court discharging her debt, Southlake continued to enforce the judgment. Sterling did not notify the Lake County court of her bankruptcy or appear at a hearing, resulting in a bench warrant for her arrest. A year later, she was arrested during a traffic stop and spent a weekend in jail, missing work and suffering emotional distress.The bankruptcy court found Southlake in civil contempt for violating the discharge order and contributing to Sterling's arrest and resulting damages. The court also found Sterling partially at fault for not notifying the Lake County court of her bankruptcy. Applying comparative fault principles, the court allocated half the liability for Sterling's lost wages, emotional distress, and attorney’s fees to each party. Sterling was awarded $9,724.50 in compensatory damages and $99,355 in attorney’s fees.The United States Court of Appeals for the Seventh Circuit reviewed the case. The court held that while compensatory damages in civil contempt proceedings must be awarded if the complainant proves the defendant's actions caused the injury, the court has broad discretion in awarding attorney’s fees. The bankruptcy court erred by not recognizing this distinction and improperly applied comparative fault principles to reduce the attorney’s fees award. The Seventh Circuit vacated the judgment in part and remanded the case to the bankruptcy court to reassess the attorney’s fees in light of its broad discretion. The court also clarified that costs should be allowed and directed the bankruptcy court to set a deadline for Sterling to file a bill of costs. View "Sterling v Southlake Nautilus Health & Racquett Club, Inc." on Justia Law

Casey Cotton rear-ended Caleb Crabtree, causing significant injuries. Cotton, insured by Allstate, faced potential liability exceeding his policy limit. Allstate allegedly refused to settle with Crabtree and failed to inform Cotton of the settlement negotiations or his potential liability, giving Cotton a potential bad-faith claim against Allstate. The Crabtrees sued Cotton, who declared bankruptcy. The bankruptcy court allowed the personal-injury action to proceed, resulting in a $4 million judgment for the Crabtrees, making them judgment creditors in the bankruptcy proceeding. Cotton’s bad-faith claim was classified as an asset of the bankruptcy estate. The bankruptcy court allowed the Crabtrees to purchase Cotton’s bad-faith claim for $10,000, which they financed through Court Properties, Inc.The Crabtrees sued Allstate, asserting Cotton’s bad-faith claim. The United States District Court for the Southern District of Mississippi dismissed the action for lack of subject matter jurisdiction, holding that the assignments of Cotton’s claim to Court Properties and then to the Crabtrees were champertous and void under Mississippi law. Consequently, the court found that the Crabtrees lacked Article III standing as they had not suffered any injury from Allstate.The United States Court of Appeals for the Fifth Circuit reviewed the case. The court certified a question to the Supreme Court of Mississippi regarding the validity of the assignments under Mississippi’s champerty statute. The Supreme Court of Mississippi held that the statute prohibits a disinterested third party engaged by a bankruptcy creditor from purchasing a cause of action from a debtor’s estate. Based on this ruling, the Fifth Circuit held that the assignment of Cotton’s claim to Court Properties was void, and thus, the Crabtrees did not possess Cotton’s bad-faith claim. Therefore, the Crabtrees lacked standing to sue Allstate, and the district court’s dismissal was affirmed. View "Crabtree v. Allstate Property" on Justia Law

Petitioner Dudley King and eight other individuals consigned their recreational vehicles (RVs) to Music City RV, LLC (MCRV), an RV dealer, for sale. On August 28, 2008, an involuntary Chapter 7 bankruptcy petition was filed against MCRV in the United States Bankruptcy Court for the Middle District of Tennessee. The issue before the bankruptcy court was whether the consigned RVs were part of the bankruptcy estate. The parties stipulated that MCRV was not primarily engaged in selling consigned vehicles, was a merchant under UCC § 9-102(20), and performed the services of a consignee. None of the consignors filed a UCC-1 financing statement.The Bankruptcy Trustee argued that the consigned RVs were governed by Article 2 of the Uniform Commercial Code (UCC) and were subordinate to the rights of perfected lien creditors, including the Trustee. Mr. King contended that the consignment was a true consignment of "consumer goods" and not a sale, thus not covered by the UCC, and the RVs should not be part of the estate. The bankruptcy court certified a question to the Supreme Court of Tennessee regarding whether such a consignment is covered under Tennessee Code Annotated section 47-2-326.The Supreme Court of Tennessee reviewed the statutory language and the Official Comments to the UCC. The court concluded that the 2001 amendment to Tennessee Code Annotated section 47-2-326 removed consignment transactions from the scope of Article 2. The court held that the consignment of an RV by a consumer to a Tennessee RV dealer for the purpose of selling the RV to a third person is not covered under section 47-2-326 of the UCC as adopted in Tennessee. The court assessed the costs of the appeal to the respondent, Robert H. Waldschmidt, Trustee. View "State of Tennessee v. Brown" on Justia Law

Steven Zinnel was convicted of bankruptcy fraud, money laundering, and other financial crimes. He was sentenced to 152 months in prison and ordered to pay over $2.5 million in restitution and fines. The government sought to garnish funds from Zinnel's TD Ameritrade Individual Retirement Account to satisfy the unpaid restitution and fines. Zinnel objected to the garnishment and requested that the proceedings be transferred to the District of Oregon, where he claimed to reside.The United States District Court for the Eastern District of California denied Zinnel's motion to transfer the proceedings, ruling that venue was proper in the Eastern District of California. The court overruled Zinnel's objections to the writ of garnishment and ordered TD Ameritrade to disburse funds to cover the unpaid restitution, fines, and a litigation surcharge. Zinnel appealed the final garnishment order.The United States Court of Appeals for the Ninth Circuit reviewed the case and held that the district court erred in denying Zinnel's motion to transfer the garnishment proceedings. The Ninth Circuit agreed with the Sixth and Eleventh Circuits that the plain language of the Federal Debt Collection Procedures Act (FDCPA) imposes a mandatory obligation on the district court to transfer the proceedings upon the debtor's timely request. The court also held that the district court's failure to transfer the proceedings was not subject to harmless error analysis, as it necessarily affected the debtor's substantial rights.The Ninth Circuit vacated the district court's final order of garnishment and remanded the case, allowing Zinnel to litigate the proceedings in the district where he now resides. The court concluded that the appeal was not moot, as a partial remedy could still be fashioned by directing the United States to return the funds to TD Ameritrade. View "United States v. Zinnel" on Justia Law

Fraunhofer-Gesellschaft zur Förderung der angewandten Forschung e.V. (Fraunhofer) is a non-profit research organization that developed and patented multicarrier modulation (MCM) technology used in satellite radio. In 1998, Fraunhofer granted WorldSpace International Network, Inc. (WorldSpace) an exclusive license to its MCM technology patents. Fraunhofer also collaborated with XM Satellite Radio (XM) to develop a satellite radio system, requiring XM to obtain a sublicense from WorldSpace. XM later merged with Sirius Satellite Radio to form Sirius XM Radio Inc. (SXM), which continued using the XM system. In 2010, WorldSpace filed for bankruptcy, and Fraunhofer claimed the Master Agreement was terminated, reverting patent rights to Fraunhofer. In 2015, Fraunhofer notified SXM of alleged patent infringement and filed a lawsuit in 2017.The United States District Court for the District of Delaware initially dismissed the case, ruling SXM had a valid license. The Federal Circuit vacated this decision and remanded the case. On remand, the district court granted summary judgment for SXM, concluding Fraunhofer's claims were barred by equitable estoppel due to Fraunhofer's delay in asserting its rights and SXM's reliance on this delay to its detriment.The United States Court of Appeals for the Federal Circuit reviewed the case and reversed the district court's summary judgment. The Federal Circuit agreed that Fraunhofer's delay constituted misleading conduct but found that SXM did not indisputably rely on this conduct in deciding to migrate to the high-band system. The court noted that SXM's decision was based on business pragmatics rather than reliance on Fraunhofer's silence. The case was remanded for further proceedings to determine if SXM relied on Fraunhofer's conduct and if it was prejudiced by this reliance. View "Fraunhofer-Gesellschaft v. Sirius XM Radio Inc." on Justia Law

Cashman Equipment Corporation, Inc. (Cashman) was contracted by Cardi Corporation, Inc. (Cardi) to construct marine cofferdams for the Sakonnet River Bridge project. Cashman then subcontracted Specialty Diving Services, Inc. (SDS) to perform underwater aspects of the cofferdam installation. Cardi identified deficiencies in the cofferdams and sought to hold Cashman responsible. Cashman believed it had fulfilled its contractual obligations and sued Cardi for breach of contract, unjust enrichment, and quantum meruit. Cardi counterclaimed, alleging deficiencies in Cashman's construction. Cashman later added SDS as a defendant, claiming breach of contract and seeking indemnity and contribution.The Superior Court denied SDS's motion for summary judgment, finding genuine disputes of material fact. The case proceeded to a jury-waived trial, after which SDS moved for judgment as a matter of law. The trial justice granted SDS's motion, finding Cashman failed to establish that SDS breached any obligations. SDS then moved for attorneys' fees, which the trial justice granted, finding Cashman's claims were unsupported by evidence and lacked justiciable issues of fact or law. The trial justice ordered mediation over attorneys' fees, resulting in a stipulated amount of $224,671.14, excluding prejudgment interest.The Rhode Island Supreme Court reviewed the case and affirmed the Superior Court's amended judgment. The Supreme Court held that the trial justice did not err in granting judgment as a matter of law, as Cashman failed to provide specific evidence of justiciable issues of fact. The Court also upheld the award of attorneys' fees, finding no abuse of discretion. Additionally, the Court determined that the attorneys' fees were not barred by the Bankruptcy Code, as they arose post-confirmation and were not contingent claims. View "Cashman Equipment Corporation, Inc. v. Cardi Corporation, Inc." on Justia Law

Sanchez Energy Corporation filed for Chapter 11 bankruptcy protection in 2019 due to a downturn in the oil and gas industry caused by the COVID-19 pandemic. The bankruptcy court approved a reorganization plan in April 2020, which aimed to compensate creditors with equity in a new entity. Disputes arose between secured and unsecured creditors over the allocation of this equity. The bankruptcy court sided with the unsecured creditors, awarding them a dominant stake in the new entity after hypothetically valuing various avoidance actions preserved by the reconstituted debtor.The United States District Court for the Southern District of Texas initially reviewed the case. The bankruptcy court held that the secured creditors' pre-petition liens on valuable oil and gas interests were avoidable preferential transfers. The court then proceeded to value the avoidance actions and allocated the equity shares in the new entity, Mesquite Energy, Inc., based on this valuation. The secured creditors appealed the decision, arguing that the bankruptcy court's valuation and allocation contravened the Bankruptcy Code.The United States Court of Appeals for the Fifth Circuit reviewed the case. The court held that the bankruptcy court's equity allocation violated the Bankruptcy Code, specifically 11 U.S.C. §§ 550(a) and (d), because it incorrectly approved more than a "single satisfaction" as a remedy for the avoided secured creditors' liens. The Fifth Circuit vacated the bankruptcy court's judgment and remanded the case for further proceedings consistent with its opinion. The court emphasized that the Plan did not permit a hypothetical valuation process that disregarded the proper application of Sections 550(a) and (d) and that the secured creditors were entitled to a single satisfaction for their liens. View "Sr Secured Noteholders v. DE Trust Co" on Justia Law

Debtors Jason Lee and Janice Chen filed for Chapter 13 bankruptcy, listing their residence as their sole collateral. They proposed a plan to bifurcate and "cram down" creditor Mission Hen, LLC's junior secured claim to its secured portion. Mission Hen objected on grounds of eligibility, feasibility, and legality under 11 U.S.C. § 1322(b)(2). The bankruptcy court resolved all objections in favor of the debtors and confirmed the plan.The Bankruptcy Appellate Panel (BAP) affirmed the bankruptcy court's decision. The BAP held that the debtors were eligible for Chapter 13 bankruptcy under 11 U.S.C. § 109(e), which sets a noncontingent, liquidated, unsecured debt limit. The bankruptcy court reasonably relied on its own valuation of the property in determining eligibility, given the timing and procedural setting of Mission Hen's objection. The BAP also found the Chapter 13 plan feasible under § 1325(a)(6), as a renter's declaration showed that a rent increase would cover the shortfall in the debtors' reported monthly income.The United States Court of Appeals for the Ninth Circuit reviewed the case and affirmed the BAP's decision. The court held that the debtors were eligible for Chapter 13 bankruptcy based on the bankruptcy court's valuation of the property. The court also found the plan feasible, as the increased rent payments would allow the debtors to make all payments under the plan. Additionally, the court held that the plan did not violate § 1322(b)(2) because § 1322(c)(2) creates an exception for short-term claims that mature during the term of a Chapter 13 plan. The court agreed with other circuits that § 1322(c)(2) allows for the modification of an entire claim, permitting the debtors to bifurcate Mission Hen's claim.The Ninth Circuit affirmed the BAP's decision, confirming the bankruptcy court's order. View "Mission Hen, LLC v. Lee" on Justia Law

Ross Shaun Adair hired Stutsman Construction to repair his flood-damaged home. Adair claimed the repairs were substandard and refused to pay the final installment. Stutsman obtained a default judgment against Adair in Louisiana state court. Adair then filed for bankruptcy, and Stutsman sought to have its judgment declared nondischargeable. Adair argued that Stutsman’s regulatory violations barred this relief under the unclean hands doctrine. The bankruptcy court ruled that the Louisiana judgment precluded Adair’s unclean hands defense.The bankruptcy court held that Adair willfully and maliciously injured Stutsman by not paying the final installment and denied dischargeability of the judgment. The district court affirmed both the preclusion of Adair’s unclean hands defense and the merits of Stutsman’s complaint.The United States Court of Appeals for the Fifth Circuit reviewed the case. The court held that the bankruptcy court erred in finding Adair’s unclean hands defense precluded, as the default judgment did not indicate the issue was actually litigated. Additionally, the court noted that Adair’s unclean hands defense was not available in the Louisiana litigation, which only allowed a narrower legal defense under the Louisiana Civil Code. The appellate court vacated the bankruptcy court’s judgment and remanded the case for consideration of Adair’s unclean hands defense. View "Adair v. Stutsman Construction" on Justia Law