Justia Bankruptcy Opinion Summaries

Steven Andrew Clem, the former owner of a defunct homebuilding company, appealed a judgment regarding the nondischargeability of a debt incurred from a failed home construction project. An arbitration panel had found Clem personally liable to LaDainian and LaTorsha Tomlinson for breach of contract and violations of the Texas Deceptive Trade Practices Act (DTPA). Clem subsequently filed for Chapter 7 bankruptcy, and the Tomlinsons initiated an adversary proceeding. The bankruptcy court determined that Clem had obtained over $660,000 from the Tomlinsons through false representation or false pretenses, making the debt nondischargeable under 11 U.S.C. § 523(a)(2)(A).The bankruptcy court's decision was based on findings that Clem had committed fraud by nondisclosure during the performance of the contract, including failing to inform the Tomlinsons about the switch from concrete piers to helical steel piers, failing to disclose the puncturing of a water line, and misrepresenting the purchase of a Builder’s Risk insurance policy. The court also found that Clem failed to provide proper accounting for the Tomlinsons' funds. The district court affirmed the bankruptcy court's decision.The United States Court of Appeals for the Fifth Circuit reviewed the case. The court concluded that the bankruptcy court erred in not applying collateral estoppel to the arbitration findings, which had already determined that Clem's actions did not constitute knowing violations of the DTPA or fraud. The appellate court found that the issues of fraudulent misrepresentation and nondisclosure had been fully litigated in the arbitration, and the arbitration panel had explicitly found no fraud or knowing DTPA violations.The Fifth Circuit reversed the bankruptcy court's judgment and rendered judgment in favor of Clem, holding that the Tomlinsons were collaterally estopped from relitigating the fraud claims and that Clem's conduct did not meet the criteria for nondischargeability under Section 523(a)(2)(A). View "Clem v. Tomlinson" on Justia Law

Chapter Kris Jackson, the debtor, appeals the bankruptcy court’s order denying her motion for sanctions, damages, and other relief against Rachel Gosset and Jordan Beswick, co-trustees of the Jackson Family Trust. Jackson sought an evidentiary hearing on these issues, an order requiring the co-trustees to post a bond, an order barring them from filing any involuntary bankruptcy petition without court approval, and a declaration that the case is void ab initio.The United States Bankruptcy Court for the Western District of Missouri initially held a status hearing and decided to bifurcate Jackson’s motion to dismiss from her other motions. The court dismissed the involuntary petition under 11 U.S.C. § 305 but denied Jackson’s requests for sanctions and damages, citing minimal potential damages, lack of authority to award damages under 11 U.S.C. § 303(i) when dismissing under § 305, and Jackson’s litigation tactics.The United States Bankruptcy Appellate Panel for the Eighth Circuit reviewed the case. The panel noted that the Eighth Circuit Court of Appeals in Stursberg v. Morrison Sund PLLC clarified that damages under 11 U.S.C. § 303(i) are available even when a case is dismissed under § 305. The panel found that the bankruptcy court should have held an evidentiary hearing to allow Jackson to present evidence supporting her claims for damages and other relief. The panel remanded the case to the bankruptcy court for such a hearing.The panel also denied Jackson’s various motions, including her motion to strike the appellees' brief and her motion for sanctions, as they were outside the scope of the appeal. The panel emphasized that its role was to review the bankruptcy court’s decisions, not to make initial determinations on issues the bankruptcy court abstained from deciding. View "Jackson v. Gosset" on Justia Law

Hamzah Ali, a legal immigrant from Yemen and Dubai, retained Azhar Chaudhary as his attorney in February 2017 and paid him $810,000 over three months. Chaudhary claimed this was a nonrefundable retainer, while Ali asserted it was for hourly billing. The bankruptcy court found that Chaudhary did little work of value for Ali and that much of his testimony was false. Ali fired Chaudhary in October 2017 and later learned from another attorney that most of Chaudhary’s advice was misleading or false.Ali sued Chaudhary and his law firm in Texas state court in 2018 for breach of contract, quantum meruit, breach of fiduciary duty, fraud, negligence, and gross negligence. In October 2021, Riverstone Resort, an entity owned by Chaudhary, filed for Chapter 11 bankruptcy. In May 2022, Ali sued Chaudhary, his law firm, and Riverstone in bankruptcy court, alleging breach of fiduciary duty and unjust enrichment, and seeking a constructive trust over Riverstone’s property. The bankruptcy court dismissed Ali’s claims against Chaudhary and his firm, citing lack of jurisdiction or abstention, and granted a take-nothing judgment for Riverstone based on the statute of limitations.The United States District Court for the Southern District of Texas dismissed all appeals and affirmed the bankruptcy court’s judgment. Ali appealed to the United States Court of Appeals for the Fifth Circuit, arguing that the bankruptcy court erred in not equitably tolling the statute of limitations and that Chaudhary had fraudulently concealed his cause of action.The Fifth Circuit dismissed the appeals of Chaudhary, his law firm, and Riverstone, as they were not aggrieved parties. The court reversed the district court’s judgment in favor of Riverstone and remanded the case to the bankruptcy court to consider whether equitable tolling should apply due to Chaudhary’s alleged misconduct. View "Azhar Chaudhary Law v. Ali" on Justia Law

Jorden Marie Saldana voluntarily filed for Chapter 13 bankruptcy to reorganize her finances and seek relief from unpaid taxes and other unsecured debts. In calculating her disposable income, she excluded her voluntary contributions to employer-managed retirement plans. The Chapter 13 Trustee objected to Saldana’s plan, arguing that these contributions should be included in her disposable income. Saldana filed several amended plans, but the Trustee continued to object, leading to a confirmation hearing.The Bankruptcy Court for the Northern District of California sustained the Trustee’s objection, finding that voluntary retirement contributions are disposable income in a Chapter 13 bankruptcy, based on the Bankruptcy Appellate Panel for the Ninth Circuit’s decision in Parks v. Drummond. Saldana then filed an amended plan excluding only her retirement loan repayments, which the bankruptcy court confirmed. Saldana appealed the confirmation order and the earlier order sustaining the Trustee’s objection to the district court.The United States District Court for the Northern District of California affirmed the bankruptcy court’s decision, agreeing that voluntary retirement contributions are disposable income. Saldana then appealed to the United States Court of Appeals for the Ninth Circuit.The Ninth Circuit reversed the district court’s judgment, holding that voluntary contributions to employer-managed retirement plans do not constitute disposable income in a Chapter 13 bankruptcy. The court concluded that the plain language of 11 U.S.C. § 541(b)(7) allows debtors to exclude any amount of their voluntary retirement contributions from their disposable income calculation. The court found this interpretation consistent with the canons of statutory construction and the conclusions of the majority of bankruptcy courts that have considered this issue. The case was remanded for further proceedings consistent with this opinion. View "SALDANA V. BRONITSKY" on Justia Law

A Puerto Rico agency, the Milk Industry Regulatory Office (ORIL), revoked a dairy farmer's license and ordered him to sell his milk production quota rights. When the farmer, Luis Manuel Ruiz Ruiz, failed to comply, ORIL planned to auction the quota rights. Ruiz, who had filed for Chapter 12 bankruptcy in 2015, argued that the auction violated the automatic stay provision of the Bankruptcy Code.The bankruptcy court enjoined ORIL from auctioning the quota without court permission, finding that the planned auction violated the automatic stay. The court granted partial summary judgment to Ruiz, determining that ORIL's actions were not protected by the police power exception. ORIL appealed to the United States District Court for the District of Puerto Rico, which affirmed the bankruptcy court's decision, agreeing that the police power exception did not apply.The United States Court of Appeals for the First Circuit reviewed the case. The court held that ORIL's plan to auction Ruiz's milk quota fell within the police power exception to the automatic stay under 11 U.S.C. § 362(b)(4). The court reasoned that the auction was part of enforcing a judgment obtained in an action to enforce ORIL's regulatory power, which is not a money judgment. The court emphasized that ORIL's actions were aimed at protecting public health and welfare by regulating milk production and distribution, rather than advancing a pecuniary interest.The First Circuit reversed the judgments of the bankruptcy and district courts, directing judgment in favor of ORIL. The court concluded that ORIL's planned auction did not violate the automatic stay and was protected by the police power exception. View "Milk Industry Regulatory Office v. Ruiz Ruiz" on Justia Law

Hertz Corporation and its affiliates filed for Chapter 11 bankruptcy protection in May 2020 due to financial difficulties exacerbated by the COVID-19 pandemic. Despite initial bleak prospects, Hertz's financial situation improved significantly, allowing it to emerge from bankruptcy in June 2021 with a confirmed reorganization plan. This plan proposed to pay off Hertz's pre-petition debt, including unsecured bonds, but only at the federal judgment rate of interest for the bankruptcy period, rather than the higher contract rate. Additionally, Hertz did not pay certain make-whole fees, termed "Applicable Premiums," which were designed to compensate lenders for early repayment.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, classifying the latter as disallowed unmatured interest under § 502(b)(2) of the Bankruptcy Code. The Noteholders appealed, arguing that as creditors of a solvent debtor, they were entitled to full payment, including contract rate interest and the Applicable Premiums.The United States Court of Appeals for the Third Circuit reviewed the case. The court held that the Applicable Premiums were indeed disallowed as unmatured interest under § 502(b)(2). However, it also determined that the Noteholders, as creditors of a solvent debtor, were entitled to post-petition interest at the contract rate, not the lower federal judgment rate. The court emphasized that the absolute priority rule, a fundamental principle of bankruptcy law, requires that creditors be paid in full, including contract rate interest, before any distribution to equityholders. Consequently, the court reversed the Bankruptcy Court's decision regarding the post-petition interest rate, affirming the Noteholders' right to contract rate interest and the Applicable Premiums. View "In re: The Hertz Corporation v." on Justia Law

The case involves William Phillip Jackson, who owes unpaid federal taxes to the United States. Following a jury trial and post-trial proceedings, the United States District Court for the Western District of Missouri entered a judgment against Jackson for $2,396,800.47 and ordered the foreclosure and sale of four properties owned by Jackson and his wife. Jackson filed multiple motions to amend or vacate the sale, which were denied, and his appeals to the Eighth Circuit Court of Appeals were unsuccessful. Jackson then filed for Chapter 13 bankruptcy relief, but the United States proceeded with evictions and seized personal property before being notified of the bankruptcy filing.The United States Bankruptcy Court for the Western District of Missouri heard Jackson's motion for contempt and turnover of property and the United States' motion to lift the automatic stay nunc pro tunc. The bankruptcy court denied Jackson's motion and granted the United States' motion, annulling the automatic stay retroactively to the date of Jackson's bankruptcy filing. Jackson appealed this decision but did not seek a stay of the order pending appeal. While the appeal was pending, the United States sold the properties at auction, and the district court confirmed the sales and approved the disbursement of proceeds.The United States Bankruptcy Appellate Panel for the Eighth Circuit reviewed the case and determined that the appeal was constitutionally moot. The court held that since the properties had been sold and Jackson did not obtain a stay pending appeal, there was no effective relief that could be granted. Consequently, the appeal of the bankruptcy court's order annulling the stay and denying Jackson's motion for contempt and turnover was dismissed for lack of jurisdiction. View "Jackson v. United States" on Justia Law

Eric Gilbert filed for Chapter 7 bankruptcy, listing his interest in retirement accounts worth approximately $1.7 million. The issue was whether these accounts could be accessed by creditors due to alleged violations of federal law governing retirement plans. The Bankruptcy Court ruled that the accounts were protected from creditors, and the District Court affirmed this decision.The Bankruptcy Court dismissed the trustee John McDonnell's complaint, which sought to include the retirement accounts in the bankruptcy estate, arguing that the accounts violated ERISA and the IRC. The court found that the accounts were excluded from the estate under § 541(c)(2) of the Bankruptcy Code, which protects interests in trusts with enforceable anti-alienation provisions under applicable nonbankruptcy law. The District Court upheld this ruling, agreeing that ERISA's anti-alienation provision applied regardless of the alleged violations.The United States Court of Appeals for the Third Circuit reviewed the case and affirmed the lower courts' decisions. The court held that the retirement accounts were excluded from the bankruptcy estate under § 541(c)(2) because ERISA's anti-alienation provision was enforceable, even if the accounts did not comply with ERISA and the IRC. The court also dismissed McDonnell's claims regarding preferential transfers and fraudulent conveyances, as the transactions in question did not involve Gilbert parting with his property. Additionally, the court found no abuse of discretion in the Bankruptcy Court's decisions to dismiss the complaint with prejudice, shorten the time for briefing, and strike certain items from the appellate record. View "In re: Gilbert" on Justia Law

The case involves debtors Jason and Leah Wylie, who faced financial difficulties in 2018 due to Mr. Wylie's health issues. As they prepared to file for bankruptcy, they delayed filing their 2018 and 2019 tax returns. Their accountant prepared the 2018 returns, showing significant overpayments, which the Wylies elected to apply to their 2019 tax liabilities instead of receiving refunds. This decision was repeated for their 2019 returns, which were filed shortly after they submitted their Chapter 7 bankruptcy petition.The United States Bankruptcy Court for the Eastern District of Michigan found that the Wylies transferred their anticipated 2019 tax refunds with the intent to hinder the trustee and denied them a discharge under 11 U.S.C. § 727(a)(2)(B). However, the court dismissed other counts alleging similar intent for their 2018 tax overpayments and false statements in their bankruptcy filings. The Wylies appealed the decision on Count II to the United States District Court for the Eastern District of Michigan, which reversed the bankruptcy court’s decision, holding that the finding of intent was clearly erroneous.The United States Court of Appeals for the Sixth Circuit reviewed the case and agreed with the district court. The appellate court found that the bankruptcy court’s intent findings were inconsistent and unsupported by the evidence. Specifically, the bankruptcy court had found that the Wylies’ intent in both the 2018 and 2019 tax elections was to ensure their taxes were paid, not to hinder the trustee. The appellate court emphasized that § 727(a)(2) requires specific intent to hinder the trustee, which was not demonstrated in this case. Consequently, the Sixth Circuit affirmed the district court’s decision and remanded the case to the bankruptcy court to enter a discharge for the Wylies. View "Miller v. Wylie" on Justia Law

The case involves Western Robidoux, Inc. (WRI), which filed for Chapter 11 bankruptcy while involved in federal litigation. Attorney Daniel Blegen, initially representing WRI and its controlling family members, moved to Spencer Fane LLP. The Chapter 7 Trustee, Jill Olsen, sought to employ Spencer Fane as special counsel for ongoing appeals in the federal litigation. Appellants TooBaRoo, LLC and InfoDeli, LLC, controlled by Breht Burri, opposed this, citing potential conflicts of interest and disproportionate legal fees.The United States Bankruptcy Court for the Western District of Missouri approved the employment of Spencer Fane as special counsel, finding no actual conflicts of interest and emphasizing procedural safeguards for potential future conflicts. The court noted Spencer Fane's expertise and cost-effectiveness. Appellants appealed this decision, arguing that the employment order was improper due to adverse interests and fee concerns.The United States Bankruptcy Appellate Panel for the Eighth Circuit reviewed the appeal. The panel first examined its jurisdiction, determining whether the bankruptcy court's order was final under 28 U.S.C. § 158(a)(1) or reviewable under 28 U.S.C. § 158(a)(3). The panel concluded that the order was not final, as the bankruptcy court retained ongoing responsibilities regarding Spencer Fane's employment and fee applications. Additionally, the panel found that delaying review would not prevent effective relief for the appellants, and a later reversal would not necessitate recommencement of the entire proceeding.The panel also declined to treat the appeal as an interlocutory appeal under 28 U.S.C. § 158(a)(3), agreeing with both parties that the criteria for such review were not met. Consequently, the appeal was dismissed for lack of jurisdiction. View "TooBaRoo, LLC v. Olsen" on Justia Law