Justia Bankruptcy Opinion Summaries

As special counsel, the law firm of Silverman & Morris recovered $38,000 for the estate in the Village Apothecary bankruptcy proceeding and requested $37,063 in fees. The bankruptcy court, finding that the benefit of the services did not warrant awarding the full amount, halved the award.The Sixth Circuit affirmed. Bankruptcy courts can consider “results obtained” when determining whether fees are reasonable under 11 U.S.C. 330(a)(3) and the bankruptcy court did not abuse its discretion in reducing the fees by half. In determining the amount of reasonable compensation to be awarded to a professional person, the court shall consider the nature, the extent, and the value of such services; section 330(a)(3) instructs the courts to “tak[e] into account all relevant factors, including” the time spent, rates charged, “whether the services were necessary . . . or beneficial at the time at which the service was rendered,” as well as other factors, including “results obtained.” Here, the “results obtained” were minimal. The law firm’s efforts to recover $1.6 million dollars resulted in only $38,000. Had the bankruptcy court awarded the law firm all its fees, it would have left virtually nothing for the estate. View "In re: Village Apothecary, Inc." on Justia Law

After the bankruptcy court confirmed Falcon V’s reorganization plan, Argonaut Insurance Company asked the court to interpret the plan, arguing primarily that a $10.5 million suretyship agreement was an “executory contract” and that the reorganized Falcon V had therefore assumed the agreement under the reorganization plan’s express terms. The bankruptcy court concluded that Falcon V had not assumed the agreement and disallowed Argonaut’s $7.3 million unsecured claim against Falcon V. The district court affirmed the judgment of the bankruptcy court.On appeal, Argonaut primarily argues that the bankruptcy and district courts erred in determining that the Surety Bond Program was not assumed under the Plan. The Fifth Circuit affirmed. The court explained that the Surety Bond Program does not satisfy the Countryman test’s second requirement. Accordingly, it is not an executory contract, and the bankruptcy and district courts correctly determined that it was not assumed under the Plan. View "Argonaut Insurance v. Falcon V" on Justia Law

In 2014, Helmstetter filed a state court lawsuit against his former employer, Kingdom. Kingdom filed counterclaims and a separate lawsuit. Helmstetter's 2019 bankruptcy petition automatically stayed the state court litigation. Helmstetter filed schedules of assets and liabilities under penalty of perjury, valuing his total assets at $8.5 million, which included his projected state court recovery at between $5-7.5 million. Helmstetter valued his liabilities at $6.5-$10.5 million. After Helmstetter filed his first amended schedules, bankruptcy trustee Herzog obtained approval of a settlement with Kingdom, which agreed to pay the estate $550,000. Subsequently, Helmstetter filed amended schedules, valuing his total assets at $43 million and his liabilities at $20 million; he included $16 million for the state court litigation. Helmstetter provided no evidence to support the estimates, and his accountants’ report did not explain the methodologies they used.The bankruptcy court approved the settlement agreement over Helmstetter’s objection. Without seeking a stay of the order, Helmstetter appealed. The district court dismissed. Herzog and Kingdom executed the settlement agreement and dismissed the state court litigation. The Seventh Circuit affirmed. Helmstetter failed to show how it is likely, not merely speculative, that his purported injury would be redressed by a favorable decision; he lacks Article III standing to appeal the decision. View "Helmstetter v. Herzog" on Justia Law

Appellant a Chapter 7 debtor, was disbarred by the California Supreme Court in 2014 for violations of the State Bar Rules of Professional Conduct and the California Business and Professions Code. The California Supreme Court ordered Appellant to pay restitution to 56 former clients, costs for his disciplinary proceedings, and any funds that would eventually be paid out by the State Bar’s Client Security Fund (CSF) to victims of his conduct. Appellant subsequently filed for Chapter 7 bankruptcy and received a discharge.   The Ninth Circuit affirmed in part and reversed in part the bankruptcy court’s judgment. Reversing in part, the court held that the indebtedness arising from the attorney’s obligation to reimburse the State Bar for the payments made to victims of his misconduct was not excepted from discharge under 11 U.S.C. Section 523(a)(7), which provides that a debtor is not discharged from any debt that “is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss.” Considering the totality of the Client Security Fund program, the court concluded that any reimbursement to the Fund was payable to and for the benefit of the State Bar and was compensation for the Fund’s actual pecuniary loss in compensating the victims for their actual pecuniary losses. Affirming in part the court held that, pursuant to In re Findley, 593 F.3d 1048 (9th Cir. 2010), the costs associated with the attorney’s disciplinary proceedings were nondischargeable under Section 523(a)(7). View "ANTHONY KASSAS V. STATE BAR OF CALIFORNIA" on Justia Law

Appellant appealed from a judgment of the district court affirming an order of the bankruptcy court denying the Appellant’s statutory discharge under 11 U.S.C. Section 727(a)(2). Appellant argued that the bankruptcy court erred by finding that he had an interest in Soroban, Inc., that was concealed to hinder creditors, and, in the alternative, that denying discharge was improper because the concealment began prior to the statutory one-year period set forth in Section 727(a)(2)(A).   The Second Circuit affirmed, holding that the bankruptcy court did not err in finding that Appellant had a valid interest in Soroban that was concealed to hinder creditors, and properly denied the discharge because the acts of concealment continued throughout the one-year period prior to his filing the bankruptcy petition. The court explained that the record evidence fully supports the bankruptcy court’s findings that Appellant concealed his interest in Soroban, and that the concealment was done with an intent to hinder his creditors. View "Gasson v. Premier Capital, LLC" on Justia Law

In this bankruptcy action, the First Circuit vacated the judgment of the district court affirming the order of the bankruptcy court granting summary judgment against Oriental Bank on all of the claims asserted against it, holding that remand was required for further proceedings in which remaining issues could be addressed.Builders Holding Company filed for bankruptcy and then filed an adverse action against the Puerto Rico Infrastructure Financing Authority and Oriental Bank. Builders's surety intervened in the adverse action and filed claims against Oriental Bank. Oriental Bank, in turn, filed counterclaims. All claims in the adverse action pertained to funds that the Financing Authority had directly deposited in Builder's account with Oriental Bank that the bank had taken to set off a debt that Builders owed to it. The bankruptcy court granted summary judgment against Oriental Bank on all claims against it, and the district court affirmed. The First Circuit vacated and remanded the summary judgment against Oriental Bank as to all claims, holding that the bankruptcy court was wrong to find that Article 1795 of the Puerto Rico Civil Code compelled the return of funds Oriental Bank set off against Builders's debt to it. View "Oriental Bank v. Builders Holding Co., Corp." on Justia Law

IImerys sought Chapter 11 bankruptcy protection in response to mounting asbestos and talc personal injury claims. Many of the claimants who will suffer harm from asbestos exposure traceable to the debtor will not manifest those injuries until long after the reorganization process has concluded. Cases involving asbestos liability, therefore, use trusts designed to compensate present and future asbestos claimants, coupled with an injunction against future asbestos liability to allow the debtor to emerge from bankruptcy without the uncertainty of future asbestos liabilities while ensuring claimants would not be prejudiced just because they had not yet manifested injuries at the time of the bankruptcy, 11 U.S.C. 524(g), The provision requires the appointment of a legal representative (FCR) to protect the rights of future claimants. The FCR participates in the negotiation of the reorganization plan and objects to terms that unfairly disadvantage future claimants.A group of insurance companies appealed the appointment of an FCR in the Ilmerys bankruptcy, arguing that the FCR had a conflict of interest because the FCR’s law firm also represented two of the insurance companies in a separate asbestos-related coverage dispute. The Third Circuit affirmed the appointment. The Bankruptcy Court did not abuse its discretion in appointing the FCR. it gave due consideration to the purported conflict and correctly determined that the interests of both the insurance companies and the future claimants were adequately protected. View "In re: Imerys Talc America, Inc" on Justia Law

Capital held tens of millions of dollars for a sole investor, with Stevanovich as its sole director. Capital invested in the multi-billion-dollar Petters Ponzi scheme, getting out before the scheme collapsed in 2008. Some investors lost everything[ Capital earned tens of millions. The Petters bankruptcy court entered a $578,366,822 default judgment against Capital in 2015, but it had dissolved. In 2018, the Trustee filed a post-judgment supplementary proceeding in the Northern District of Illinois against Stevanovich, an Illinois resident. Under Illinois law, a judgment creditor may recover assets from a third party if the judgment debtor has an Illinois state law claim of embezzlement against the third party. In his turnover motion, the Trustee argued that Stevanovich embezzled Capital’s funds to purchase high-end wine for his personal use and transferred the goods to Stevanovich’s personal wine cellar in Switzerland. The Trustee submitted ample evidence to support his claim for $1,948,670.79. The district court granted the turnover order without conducting an evidentiary hearing and found that Stevanovich embezzled the funds. The Seventh Circuit affirmed, rejecting Stevanovich’s claims that the wine purchases were an investment strategy for Capital and that the five-year statute of limitations for embezzlement applied, accruing from the dates of the wine purchases. The court applied the seven-year statute of limitations for supplementary proceedings accruing from the date of the bankruptcy court judgment. Stevanovich failed to present any evidence creating an issue of fact that necessitated a hearing. View "Kelley v. Stevanovich" on Justia Law

Plaintiff sued three defendants under 11 U.S.C. Section 362 for violating a bankruptcy stay by their participation in the foreclosure and sale of her home while her bankruptcy petition was pending. The district court dismissed the claims against the first defendant but not the other two, and Plaintiff appealed the dismissal order, even though it was interlocutory. While her appeal was pending before the Fourth Circuit, however, the district court dismissed the claims against the other two defendants and entered a final judgment in the case. That final judgment saved her appeal from dismissal in our court under the doctrine of “cumulative finality,” as the district court had at that point adjudicated all claims as to all parties in the case.   The Fourth Circuit reviewed the order dismissing the first defendant and remanded the case for further proceedings against that defendant. Because Plaintiff never appealed the dismissal of the other two defendants, however, the court never had those defendants before it. Thus the court concluded that it lacks jurisdiction over Plaintiff’s appeal of the final judgment in favor of the other two defendants, as it was untimely. The court explained the fact that the February 2014 judgment was a final judgment sufficient to grant cumulative finality means that Plaintiff’s appeal of that judgment was subject to the time requirements of Section 2107(a), which she failed to satisfy. View "Diana Houck v. LifeStore Bank" on Justia Law

The Federal Energy Regulatory Commission (“FERC”), anticipating Petitioner Gulfport Energy Corporation’s (“Gulfport”) insolvency, issued four orders purporting to bind the petitioner to continue performing its gas transit contracts even if it rejected them during bankruptcy. Petitioner asked the Fifth Circuit to vacate those orders. The court granted the petitions and vacated the orders holding that FERC cannot countermand a debtor’s bankruptcy-law rights or the bankruptcy court’s powers.   Gulfport attacked attacks FERC’s orders on two fronts. Gulfport first says that FERC lacked authority to issue them. It then contends that the orders are unlawful because they violate the Bankruptcy Code and purport to restrain Gulfport’s bankruptcy-law rights and the powers of the bankruptcy court. The court explained that FERC did have authority to issue the orders. But because the orders rested on an inexplicable misunderstanding of rejection, the court must vacate them all. The court wrote that each order rests on the incorrect premise that rejecting a filed-rate contract in bankruptcy is something more than a breach of contract.   The court further wrote that FERC can decide whether actual modification or abrogation of a filed-rate contract would serve the public interest. It even may do so before a bankruptcy filing. But rejection is just a breach; it does not modify or abrogate the filed rate, which is used to calculate the counterparty’s damage. So FERC cannot prevent rejection. It cannot bind a debtor to continue paying the filed rate after rejection. And it cannot usurp the bankruptcy court’s power to decide Gulfport’s rejection motions. View "Gulfport Energy Corporation v. FERC" on Justia Law