Justia Bankruptcy Opinion Summaries

This case arose out of a dispute between two sets of lawyers who provided legal work for a mutual client. Thomas Tufts and the Tufts Law Firm, PLLC appealed the district court's order granting a motion to dismiss on grounds of subject matter jurisdiction. Edward Hay and Pitts, Hay & Hugenschmidt, P.A. also filed a second motion to dismiss Tufts's action against them on the additional ground that the district court lacked personal jurisdiction over them. After the district court found personal jurisdiction, Hay and his firm cross appealed.The Eleventh Circuit held that the district court erred by dismissing the action for lack of subject matter jurisdiction under the Barton Doctrine. In this case, Tufts counsel initiated their action against Hay—court-approved counsel—and Tufts did not obtain leave of the bankruptcy court before doing so. The court held that the Barton doctrine has no application when jurisdiction over a matter no longer exists in the bankruptcy court. Thus, the bankruptcy court was properly vested with jurisdiction to consider this action if it could conceivably have an effect on the client's bankruptcy estate. Here, the action could not conceivably have an effect on the client's bankruptcy estate and thus the Barton doctrine does not apply. The court also held that the district court properly exercised personal jurisdiction over Hay. The court reversed the district court's ruling on subject matter jurisdiction and remanded. View "Tufts v. Hay" on Justia Law

The United States Bankruptcy Court for the Western District of Oklahoma certified two questions of state law to the Oklahoma Supreme Court. White Star Petroleum, LLC, along with its wholly-owned subsidiary, White Star Petroleum II, LLC were engaged in the business of exploring, acquiring, drilling, and producing oil and natural gas, either as an operator or non-operating working interest owner of various leaseholds across Oklahoma. In 2019, several of White Star's unpaid vendors filed an involuntary bankruptcy petition against White Star. White Star and its affiliates filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. During the bankruptcy proceedings, 78 unpaid vendors filed adversary proceedings seeking adjudication of statutory lien claims under 42 O.S. 144 against White Star's interests in various wells and establishment of trust fund claims under 42 O.S. 144.2. These proceedings were stayed when White Star initiated two adversary proceedings of its own. The first sought adjudication of the priority, validity, and value of approximately 2,000 mechanic's and materialman's liens ("M&M liens") asserted by the 78 unpaid vendors over various interests held by White Star. The second sought an order of the Bankruptcy Court directing several first purchasers of oil and gas to turn over to White Star approximately 2 million dollars, which were being held in suspense after the purchasers received statutory lien notices from the M&M lien claimants. The Bankruptcy Court certified the questions to the Oklahoma Supreme Court to aid in the resolution of these two adversary proceedings. The federal court asked: (1) were the "trust funds" created by Title 42 O.S. 144.2 limited to obligations due non-operator joint working interest owners, or did such funds include payments due holders of mechanic's and materialmen's liens arising under and perfected by Title 42 O.S. 144?; and (2) did the Oil and Gas Owners' Lien Act of 2010, grant an operator and non-operator working interest owners a lien in proceeds from purchasers of oil and gas which is prior and superior to any claim of the holder of a mechanic's and materialmen's lien asserted under Title 42 O.S. 144? The Supreme Court found that answering both questions would have been dispositive of issues pending in the underlying bankruptcy proceedings and that there was then no controlling law on the subject matter of either question. The Court answered both questions in the negative: funds which must be held in trust for payment of lienable claims pursuant to 42 O.S. 144.2 were not exclusively limited to joint-interest billing payments received by operators for services rendered by the lienholders; the Oil and Gas Owners' Lien Act did not grant operators and non-operating working interest owners a lien in proceeds from the sale of oil and gas which is prior and superior to any claim of the holder of a mechanic's and materialman's lien asserted under 42 O.S. 144. View "White Star Petroleum v. MUFG Union Bank" on Justia Law

Summary judgment was awarded to Fulton County, Georgia on Sandra Ward-Poag’s civil whistleblower claims on the ground of judicial estoppel. Specifically, the superior court concluded judicial estoppel barred Ward-Poag’s claims because she took an inconsistent position regarding the nature of those claims when she failed to disclose her claims in her bankruptcy case, and then amended her bankruptcy petition to value her claims against the County as worth far less than alleged here. The Court of Appeals reversed the superior court’s decision, concluding that Ward-Poag’s amendment to her bankruptcy petition to list the claim in fact showed that she did not take an inconsistent position in the superior court. In making that determination, the Court of Appeals relied on its case law that created a bright-line rule that a party takes consistent positions, and thus lacks an intent to deceive the court system, when the party successfully amends a bankruptcy schedule to include a previously undisclosed asset. The Georgia Supreme Court disapproved the Court of Appeals’s analysis and its previous case law to the extent it created that bright-line rule, because "such rules have no place in the application of judicial estoppel." The Supreme Court nevertheless affirmed the Court of Appeals’s ultimate conclusion that the superior court abused its discretion in applying the doctrine at this procedural stage because there were genuine issues of material fact that precluded summary judgment to Fulton County. View "Fulton County v. Ward-Poag" on Justia Law

The First Circuit affirmed the order of the bankruptcy court granting creditor Schleicher & Stebbins Hotels, LLC (S&S) relief from an automatic stay imposed by section 362 of the Bankruptcy Code, holding that the bankruptcy court properly granted relief from the automatic stay.In the bankruptcy proceedings of debtor Old Cold, LLC, Old Cold listed S&S as the only secured creditor and Mission Product Holdings, Inc. as an unsecured creditor. Eventually, S&S filed a motion for relief from the automatic stay imposed in the bankruptcy proceedings, arguing that it had valid, first-priority, perfected liens on the debtor's assets, that the debtor lacked equity in its remaining property, and that the property was not needed to effect a reorganization. The bankruptcy court granted the stay relief motion. Mission appealed. The First Circuit affirmed, holding that the bankruptcy court did not commit clear error in granting relief from the automatic stay. View "Mission Product Holdings, Inc. v. Schleicher & Stebbins Hotels" on Justia Law

SEPH brought an adversary proceeding in debtor's Chapter 7 bankruptcy, requesting that the bankruptcy court declare the debt to SEPH exempt from discharge under 11 U.S.C. 523(a)(2)(A) and (a)(6) because debtor fraudulently conveyed his property, thwarting SEPH's efforts to collect the debt. The bankruptcy court rejected SEPH's claims, granted debtor's motion for judgment on the pleadings, and dismissed the adversary proceeding. The district court affirmed the bankruptcy court's dismissal.The Eleventh Circuit affirmed, holding that the Water's Edge judgment debt is not exempt from discharge under section 523(a)(2)(A), because the debt existed long before debtor began transferring his assets and that debt is an ordinary contract debt that did not arise from fraud of any kind. Furthermore, SEPH presents no binding authority that supports its assertion that a debtor's fraudulent conveyance of assets in an attempt to avoid collection of a preexisting debt renders that preexisting debt exempt from discharge under section 523(a)(2)(A). The court also held that the Water's Edge debt is not exempt from discharge under section 523(a)(6), because the debt was not "for willful and malicious injury" to SEPH or its property. Finally, the court held that the bankruptcy court correctly denied leave to amend because of the futility of SEPH's proposed amendment under the Alabama Uniform Fraudulent Transfer Act. View "SE Property Holdings, LLC v. Gaddy" on Justia Law

Boardman, LLC, a custom heavy metal fabricator, employed Debtor Eddie Joe Adams as a sales representative for approximately 33 years. Adams and his employer entered into an Employment Agreement in 2013 (Original Agreement). The Original Agreement covered a period of ten years (until January 1, 2023) and compensated Adams through regular salary, bonuses, and severance. On January 1, 2014, Adams and his employer entered into the First Amendment to the Original Agreement (First Amendment) that included an additional performance incentive in the form of a "Deferred Bonus." In 2017, Adams executed an Amended and Restated Employment Agreement (Restated Agreement), which had a term until January 1, 2020. On January 1, 2019, the Deferred Bonus fully vested, and on October 31, 2019, Adams filed a voluntary chapter 7 bankruptcy petition. Boardman, LLC did not renew the Restated Agreement, and it expired on January 1, 2020. Adams received his first payment of $41,634.14, less withholding tax, under the Deferred Bonus on January 2, 2020. In his bankruptcy filings, Adams claimed the Deferred Bonus (payable over 5 years) as exempt under 31 O.S.2011, section 1(A)(20). The Bankruptcy Trustee Susan Manchester (Trustee) objected to the exemption. The United States Bankruptcy Court for the Western District of Oklahoma certified a question of law to the Oklahoma Supreme Court concerning whether the Deferred Bonus was exempt. The Supreme Court determined this was a question of first impression, and concluded the deferred bonus was not exempt as "retirement plan or arrangement qualified for tax exemption or deferment purposes" as required to be exempt under 31 O.S.2011, section 1(A)(20). View "In re: Adams" on Justia Law

The Eleventh Circuit dismissed bankruptcy appeals filed by attorney Breuer of Moffa & Breuer, who purported to represent the Trust. The bankruptcy court disqualified attorney Moffa and Moffa & Breuer from representing the Trust. Because the Trust was a 50 percent shareholder of the debtor created to ensure that Moffa & Breuer would collect its legal fees, the bankruptcy court concluded that Moffa & Breuer’s representation of a shareholder in which it had a business interest conflicted with its simultaneous representation of the debtor. Moffa & Breuer repeatedly ignored the disqualification order. Moffa, purportedly pro se in his capacity as trustee of the Trust and as an attorney for related entities, filed a competing plan of reorganization that would have released the debtor’s claims against his firm and made him president of the reorganized debtor.There has been no indication of an intent to appeal from any qualified agent of the Trust, only from disqualified attorneys. Moffa had no authority to act pro se in the bankruptcy court, so his filings do not suggest that the Trust intended to appeal. There is no justification for excusing these defective notices of appeal. When an appeal is taken on behalf of an artificial entity by someone without legal authority to do so, the appeal should be dismissed. View "J.J. Rissell, Allentown PA, Trust v. Kapila" on Justia Law

Years of litigation resulted from Debtor's spouse's personal guarantee of a lease of real property from Lariat. One suit resulted in a state court judgment holding Debtor and Debtor's spouse jointly and severally liable for fraudulent transfers from Debtor's spouse to Debtor. In Debtor's subsequent chapter 11 bankruptcy, Lariat asserted a claim for $1,030,916.74 based on that judgment. The bankruptcy court overruled Debtor's objection but found Lariat's claim was for damages resulting from the termination of a lease of real property (the lease Debtor's spouse had personally guaranteed) and was subject to 11 U.S.C. 502(b)(6)'s cap on such claims. The Eighth Circuit held that Lariat held a claim for $308,805.00 (plus interest). Lariat filed a complaint under 11 U.S.C. 523(a)(2)(A); the bankruptcy court excepted the Lariat claim from discharge, finding seven badges of fraudThe Eighth Circuit Bankruptcy Appellate Panel affirmed. The evidence supported findings that the transfer was to an insider; the debtor retained possession or control of the property after the transfer; before the transfer was made, the debtor had been sued or threatened with suit; the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred; the debtor was insolvent or became insolvent shortly after the transfer; the transfer occurred shortly before or shortly after a substantial debt was incurred. View "Lariat Companies, Inc. v. Wigley" on Justia Law

After the Bernie Madoff Ponzi scheme collapsed, Picard was appointed under the Securities Investor Protection Act, 15 U.S.C. 78aaa (SIPA), as the liquidation trustee for Bernard L. Madoff Investment Securities LLC (BLMIS). The Act established a priority system to make customers of failed brokerages whole before other general creditors. Where customer property is insufficient to satisfy customers' claims, the trustee may recover property transferred by the debtor that would have been customer property but for the transfer if and to the extent that the transfer is void or voidable under the Bankruptcy Code. 15 U.S.C. 78fff–2(c)(3). The provisions of the Bankruptcy Code apply only to the extent that they are consistent with SIPA.Picard attempted to recover transfers of money that the defendants had received from BLMIS in excess of their principal investments. The defendants are BLMIS customers who were unaware of the fraud but profited from it by receiving what they thought were legitimate profits; the funds were actually other customers' money. The Second Circuit affirmed summary judgment in favor of Picard. The Bankruptcy Code affirmative defense that permits a transferee who takes an interest of the debtor in property "for value and in good faith" to retain the transfer to the extent of the value given does not apply in this SIPA liquidation. The transfers were not "for value" and recovery would not violate the two-year limitation. View "In re: Bernard L. Madoff Investment Securities LLC" on Justia Law

Two business owners executed a series of transactions to sell a regional airline business. Within two years of the sale, one of the buyer-controlled business entities declared bankruptcy, and the seller commenced litigation to resolve disputes over their agreements. The parties settled before trial. But another buyer-controlled entity later defaulted and declared bankruptcy, and the seller reinitiated litigation. The issue presented to the Alaska Supreme Court was the extent to which the buyers personally guaranteed the obligations of the second bankrupt entity. The superior court granted summary judgment in favor of the seller and held the buyers personally liable for those obligations. The Supreme Court held that whether the parties intended the buyers to personally guarantee the bankrupt entity’s obligations was a disputed material fact, making the issue inappropriate for summary judgment. Judgment was reversed and the matter remanded for further proceedings. View "Beardsley v. Jacobsen" on Justia Law