Justia Bankruptcy Opinion Summaries

After the bankruptcy court allowed Chapter 12 debtors – several years in a row – to modify their confirmed plan over the objection of their primary secured creditor, that creditor appealed. The issues are whether the bankruptcy court abused its discretion by confirming the debtors’ fourth modified plan under 11 U.S.C. Section 1229 without requiring the debtors to show an “unanticipated and substantial change in circumstances” and whether, under whatever standard applicable to plan modifications, the court’s factual findings were clearly erroneous.   The Eighth Circuit affirmed. The court held that, at a minimum, a substantial change in circumstances is required to justify modification of a plan under Section 1229. The bankruptcy court’s alternate ruling that the debtors met their burden of showing an unanticipated, substantial change in circumstances is not clearly erroneous, nor is the bankruptcy court’s finding that the fourth modified plan was feasible and confirmable. View "Farm Credit Services v. Steven L. Swackhammer" on Justia Law

Clifton Capital Group (“Clifton”) was chair of an official committee of unsecured creditors appointed by the Office of the United States Trustee to monitor the activities of debtor East Coast Foods, Inc., manager of Roscoe’s House of Chicken & Waffles. The bankruptcy court appointed Bradley D. Sharp as Chapter 11 trustee. Clifton objected to Sharp’s fee application, but the bankruptcy court awarded the statutory maximum fee. Clifton appealed. The district court concluded that Clifton had standing to appeal, and it remanded. On remand, the bankruptcy court again awarded the statutory maximum. Clifton again appealed, and the bankruptcy court, this time, affirmed.   The Ninth Circuit reversed l reversed the district court’s order affirming the bankruptcy court’s enhanced fee award to the trustee. the panel wrote that the Ninth Circuit historically bypassed the Article III inquiry in the bankruptcy context, instead analyzing whether a party is a “person aggrieved” as a principle of prudential standing. The court, however, has returned emphasis to Article III standing following Susan B. Anthony List v. Driehaus, 573 U.S. 149 (2014), in which the Supreme Court questioned prudential standing. The panel held that Clifton lacked Article III standing to appeal the fee award because it failed to show that the enhanced fee award would diminish its payment under the bankruptcy plan, and thus it failed to establish an “injury in fact.” The panel also concluded that Clifton did not suffer injury to the timing of its payment because Clifton’s alleged harms were conjectural, and it remained possible that Clifton would be paid within the plan’s initial estimated window. View "IN RE: CLIFTON CAPITAL GROUP, LLC, ET AL V. BRADLEY SHARP" on Justia Law

Appellant Texxon Petrochemicals, LLC (“Texxon”) filed for bankruptcy. In that proceeding, Texxon filed a motion to assume executory contract, alleging that it entered into a contract with Getty Leasing in 2018 to purchase the property. Getty Leasing objected to the motion. After an evidentiary hearing, the bankruptcy court denied the motion on the grounds that, for multiple reasons, there was no valid contract to assume. The district court affirmed, finding there was insufficient evidence to show that, as required under Texas law, the alleged contract was sufficient as to the property identity or comprised an unequivocal offer or acceptance. Texxon appealed. Getty Leasing primarily contends that the appeal is mooted by the dismissal of the underlying bankruptcy proceeding.   The Fifth Circuit affirmed. The court held that the brief email exchange did not demonstrate an offer or acceptance, as required for a contract to be binding under Texas law. Texxon fails to show that the email exchange satisfied any of the three required elements of an offer. A statement that a party is “interested” in selling a property is not an offer to sell that property—it is an offer to begin discussions about a sale. Nor were the terms of the offer clear or definite. Finally, the alleged offer failed to identify the property to be conveyed. For these reasons, Texxon is unable to show the existence of a binding contract. View "Texxon v. Getty Leasing" on Justia Law

Jelena filed for Chapter 7 bankruptcy. The Trustee sued her mother, Jorgovanka, in a “turnover” proceeding, 11 U.S.C. 542, to recover a stake in a company registered in Jorgovanka’s name. The Trustee successfully argued before the bankruptcy court that Jorgovanka served as Jelena’s nominee—a party who holds title for another’s benefit. The court ruled that equitable ownership of the stake in the company belonged to Jelena, and was subject to turnover to the bankruptcy estate.The district court and Seventh Circuit affirmed, rejecting Jorgovanka’s argument that the bankruptcy court incorrectly applied a preponderance of the evidence standard of proof, rather than clear and convincing evidence. A preponderance standard applies unless particularly important individual interests are involved or the estate’s theory for property turnover imposes a higher standard of proof. Neither situation exists here. The bankruptcy court did not clearly err in finding that the Trustee had met his burden of establishing Jelena’s equitable ownership. The court properly considered the close personal relationship, the consideration given for the property, the anticipation of collection activity, the failure to record the conveyance, and the transferor’s continued control over the property. Because Jorgovanka presented a colorable legal argument, the court declined to award sanctions. View "Dordevic v. Paloian" on Justia Law

Defendants challenged the civil division’s order granting plaintiff Sharond Hill’s request to vacate its previous order dismissing her complaint. In February 2019, plaintiff filed a complaint against defendants Springfield Hospital (Springfield) and Emergency Services of New England, Inc. (Emergency Services) alleging that defendants were negligent in failing to timely diagnose her with appendicitis when she went to the Springfield emergency department in April 2016. Both defendants filed answers denying plaintiff’s claims. In July 2019, Springfield notified the civil division and the parties that it had filed a voluntary petition of bankruptcy in the U.S. Bankruptcy Court and that pursuant to § 362(a) of the Bankruptcy Code, plaintiff’s claims against it were automatically stayed. In response, the civil division issued an order dismissing plaintiff’s case without prejudice. The civil division held a status conference in September 2020; plaintiff’s counsel indicated at the conference that Springfield Hospital may have emerged from bankruptcy and, if not, he might seek relief from the bankruptcy stay. The bankruptcy court issued an order closing Springfield’s bankruptcy case in July 2021. In October 2021, plaintiff moved to vacate the dismissal and reopen her malpractice case. In her motion, plaintiff asserted that none of the conditions set forth in the dismissal order had technically occurred. Alternatively, plaintiff argued that even if one of the conditions had occurred, she should be excused for failing to file her motion to reopen within thirty days because she did not receive timely notice of the occurrence from defense counsel. Finally, she argued that her claim against Emergency Services should never have been dismissed because Emergency Services was not part of the bankruptcy proceeding. In March 2022, the civil division granted plaintiff’s motion, stating that it was “persuaded that there was no legal or equitable basis to dismiss the action simply because one of the two defendants filed a bankruptcy petition.” The court stated that it had intended to simply stay the action and that dismissal would be unjust. "The record is clear that plaintiff’s own lack of diligence, not the 2019 dismissal order or defendants’ conduct, is the reason for her situation." The Vermont Supreme Court agreed with defendants that there was no legal basis for the court to grant such relief, and therefore reversed. View "Hill v. Springfield Hospital, et al." on Justia Law

In Chapter 11 bankruptcy, Sears, as a debtor in possession, exercised its rights under 11 U.S.C. 363(b)(1) and sold most of its assets to Transform, including the right to designate to whom a lease should be assigned. Section 365 prohibits the assignment of an unexpired lease without “adequate assurance of future performance by the assignee,” and establishes special criteria related to “shopping center[s],” Transform designated the Mall of America lease for assignment. The landlord, MOAC, objected, arguing that Sears had failed to provide adequate assurance. The Bankruptcy Court approved the assignment.Section 363(m) states that the reversal or modification on appeal of a 363(b) authorization of a sale or lease does not affect the validity of a sale or lease to an entity that purchased or leased the property in good faith, even if the entity knew of the pendency of the appeal unless the court entered a stay pending appeal. The Bankruptcy Court denied MOAC’s request for a stay. Sears assigned the lease. The Second Circuit affirmed the dismissal of the appeal, treating 363(m) as jurisdictional.The Supreme Court vacated. Section 363(m) is not jurisdictional and is not, therefore, impervious to excuses like waiver or forfeiture. The Court noted the consequences of deeming the section jurisdictional–even egregious conduct by a litigant could permit the application of judicial estoppel against a jurisdictional rule. Courts should only treat a provision as jurisdictional if Congress “clearly states” as much. Nothing in 363(m) purports to govern a court’s adjudicatory capacity; it plainly contemplates that appellate courts might reverse or modify any covered authorization, with a limitation on the consequences. Congress separated 363(m) from jurisdictional provisions. The Court rejected Transform’s argument that the transfer to a good-faith purchaser removes the property from the bankruptcy estate, and so from the court’s in rem jurisdiction. View "MOAC Mall Holdings LLC v. Transform Holdco LLC" on Justia Law

SR Construction held a lien on real property owned by RE Palm Springs II. The property owner is a corporate affiliate of Hall Palm Springs LLC, who had financed the original undertaking for a separate real estate developer. The latter requested leave of the bankruptcy court to submit a credit bid to purchase the property from its affiliate, which the bankruptcy court granted. The bankruptcy court later approved the sale and discharged all liens. The construction company appealed the bankruptcy court’s credit-bid and sale orders. Finding that the lender was a good faith purchaser, the district court affirmed the bankruptcy court and dismissed the appeal as moot under Bankruptcy Code Section 363(m).   The Fifth Circuit affirmed. The court explained that the pandemic dramatically changed not only the lender’s plans for the Property but it also severely impacted the affiliate’s ability to market and sell a hotel, particularly an unfinished one. In sum, these two factors must also be weighed in considering whether any of the actions or procedures, particularly with regard to pricing or timing issues, were performed in bad faith or as a result of sub-optimal external forces beyond the lender’s control. The court explained that the record facts, framed by the external context and circumstances, make plain that there is no error in the judgments of the able bankruptcy and district courts. Accordingly, the court held that the lender did not engage in fraud and was a “good faith purchaser.” View "SR Construction v. Hall Palm Springs" on Justia Law

SE Property Holdings, LLC (“SEPH”) obtained a deficiency judgment against Neverve LLC (“Neverve”) after Neverve defaulted on loans secured by a mortgage on its property. Following this judgment, Neverve received the proceeds from an unrelated settlement. But Neverve transferred those proceeds to attorneys representing Neverve’s principal in payment of attorney’s fees relating to the principal’s personal bankruptcy proceedings. SEPH then sued Neverve based on Neverve’s allegedly fraudulent transfer of those settlement proceeds. The district court granted summary judgment in favor of Neverve, finding that the Florida Uniform Fraudulent Transfer Act’s (“FUFTA”) “catch-all” provision did not allow for (1) an award of money damages against the transferor, (2) punitive damages, or (3) attorney’s fees. The court also granted summary judgment in favor of Neverve on SEPH’s equitable lien claim, as Neverve no longer possessed the settlement proceeds at issue.   The Eleventh Circuit affirmed. The court held that based on the narrow interpretation of FUFTA in Freeman v. First Union National Bank, 865 So. 2d 1272 (Fla. 2004), the court believes the Florida Supreme Court would determine that FUFTA’s catch-all provision does not allow for an award of money damages against the transferor, an award of punitive damages, or an award of attorney’s fees. Thus, the district court was correct in granting summary judgment in favor of Neverve on SEPH’s FUFTA claims. And the court concluded that the district court did not err in granting summary judgment in favor of Neverve on SEPH’s equitable lien claim. View "SE Property Holdings, LLC v. Neverve LLC" on Justia Law

Plaintiff Tutor Perini Building Corp. appealed from the district court’s order affirming an order of the United States Bankruptcy Court, which held that Plaintiff may not use 11 U.S.C. Section 365(b)(1)(A) to assert a “cure claim” against the Trustee for the Trustee’s assumption of an unexpired lease to which Plaintiff was neither a party nor a third-party beneficiary.   The Second Circuit affirmed. The court held that a creditor who seeks to assert a “cure claim” under Section 365(b)(1)(A) must have a contractual right to payment under the assumed executory contract or unexpired lease in question, and the court agreed that Plaintiff is not a third-party beneficiary of the assumed lease. The court explained that Tutor Perini’s expansive view of the priority rights conferred by 11 U.S.C. Section 365(b)(1)(A) is inconsistent with applicable principles of Bankruptcy Code interpretation, and its third-party beneficiary argument is inconsistent with controlling principles of New York contract law. View "In re: George Washington Bridge" on Justia Law

Attorney and his law firm, Pesner Kawamato Conway, P.C. (collectively, Conway), appealed the district court’s order rejecting the bankruptcy court’s report and recommendation to enjoin Smith Development, Inc.’s legal malpractice suit against Conway and to impose sanctions for violating the Barton doctrine and the automatic stay.   The Fourth Circuit dismissed the appeal, finding that it lacks subject-matter jurisdiction because the district court’s decision rests on the abstention principles. The court explained that Conway suggests the district court had no authority to enter an abstention order because, under Barton, the district court itself lacked jurisdiction over Smith Development’s malpractice claims. However, the court wrote that this argument fares no better than the first. Barton concerns subject-matter jurisdiction over a separate action, not jurisdiction over the proceedings in which a party seeks Barton protection in the first place. And even if the court accepted the argument’s doubtful premise, it fails on its own logic because the bankruptcy court issued a report and recommendation to the district court, thereby authorizing the district court to rule on the matter. Further, the court found that even if it recognized a narrow exception to Section 1334(d)’s clear jurisdictional bar, the district court’s order would not fall within it. View "Martin Conway v. Smith Development, Inc." on Justia Law