Justia Bankruptcy Opinion Summaries

The IRS recorded liens for unpaid taxes, interest, and penalties against the debtors’ residence. After debtors filed for bankruptcy, the IRS filed a proof of claim. The portion of the claim that was secured by liens on the residence and attributable only to penalties was $162,000. The debtors filed an adversary proceeding, asserting that the IRS’s claim for penalties was subject to avoidance by the trustee and that because the trustee had not attempted to avoid this claim, debtors could do so under 11 U.S.C. 522(h). The trustee cross-claimed to avoid the liens and alleged their value should be recovered for the benefit of the bankruptcy estate.The bankruptcy court dismissed the adversary complaint. The trustee and the IRS agreed that the penalty portions of the liens were avoided under 11 U.S.C. 724(a). The Bankruptcy Appellate Panel and Ninth Circuit affirmed. Section 522(h) did not authorize the debtors to avoid the liens that secured the penalties claim to the extent of their $100,000 California law homestead exemption. Section 522(c)(2)(B), denies debtors the right to remove tax liens from their otherwise exempt property. Under 11 U.S.C. 551, a transfer that is avoided by the trustee under 724(a) is preserved for the benefit of the estate; this aspect of 551 is not overridden by 522(i)(2), which provides that property may be preserved for the benefit of the debtor to the extent of a homestead exemption. View "Hutchinson v. Internal Revenue Service" on Justia Law

While their state suit against their mortgage service company was pending, the debtors filed for bankruptcy. On a schedule that asked about claims against third parties, they stated they had none. They listed the mortgage servicing company as a non-priority creditor and disclosed the lawsuit in their Statement of Financial Affairs. They discussed the state lawsuit with the bankruptcy trustee. The trustee determined there were no scheduled assets that would benefit the estate. The bankruptcy court discharged the trustee and closed the case. Later, the mortgage servicing company contacted the bankruptcy trustee, offering to settle the lawsuit. The trustee was reappointed, took over the state lawsuit, settled it, and got the settlement approved by both the state court and the bankruptcy court. The settlement proceeds went to the bankruptcy estate, not the debtors.The Bankruptcy Appellate Panel and Ninth Circuit affirmed. Under 11 U.S.C. 554(c), at the end of bankruptcy proceedings, property that has not been otherwise administered can generally be abandoned to the debtor only if it has been “scheduled.” Section 554(c) requires property to be disclosed on a literal schedule under 11 U.S.C. 521(a). Without trustee or court action, property disclosed only on a statement, such as a Statement of Financial Affairs, cannot be abandoned under section 554(c). The debtors did not meet the requirements of section 544(c), and their interest was not abandoned. View "Stevens v. Whitmore" on Justia Law

The Eighth Circuit affirmed the bankruptcy appellate panel's decision affirming the bankruptcy court's determination that debtor's debt to Lariat is excepted from discharge because it was obtained by actual fraud. The court explained that, although Lariat's claim was partially disallowed against debtor's bankruptcy estate under 11 U.S.C. 502(b)(6), the landlord cap does not foreclose Lariat's argument that the claim should be excepted from discharge under section 523(a)(2)(A). Therefore, Lariat's claim is excepted from discharge under section 523(a)(2)(A) to the extent that it was obtained by actual fraud. In this case, the bankruptcy court did not clearly err in finding that debtor had received a fraudulent transfer from her husband, and the record supports the bankruptcy court's finding that debtor participated in the scheme with the requisite wrongful intent. View "Lariat Companies, Inc. v. Wigley" on Justia Law

Berkovich filed California state tax returns as required for 2003-2005. In 2008, the IRS assessed about $145,000 of additional federal income taxes against Berkovich for those years. He did not notify the California Franchise Tax Board (FTB) of the increased federal assessments as required. (Cal. Rev. & Tax Code 18622(a)). The FTB learned of the federal assessments from the IRS. It assessed Berkovich additional state income taxes, approximately $45,000 plus penalties and interest. Berkovich did not challenge the assessments nor pay the additional state taxes. In 2012, Berkovich filed a chapter 13 bankruptcy petition. After the bankruptcy discharge, the FTB filed a complaint, alleging that the state tax debts were nondischargeable under 11 U.S.C. 523(a)(1)(B)(i) because Berkovich failed to report the increased federal tax assessments to the FTB and failed to challenge the FTB’s notices of proposed tax assessment. The Bankruptcy Appellate Panel held that Berkovich’s tax debt was not discharged.The Ninth Circuit affirmed. Berkovich’s tax debt was not discharged in bankruptcy because the debt derived from a “report or notice” “equivalent” to a tax return. Section 523(a)(1)(B) provides that, if a taxpayer fails to file a required “return, or equivalent report or notice,” the relevant tax debt is not discharged. California law requires a taxpayer to “report” to the FTB if the IRS changes the taxpayer’s federal income tax liability. View "Berkovich v. California Franchise Tax Board" on Justia Law

Appellants, seventy-six Chapter 11 debtors associated with John Q. Hammons Hotels & Resorts (Debtors), argued they incurred more than $2.5 million of quarterly Chapter 11 disbursement fees from January 2018 through December 2020. Debtors faulted the bankruptcy court’s statutory interpretation, arguing that it applied the quarterly fees retroactively to pending cases against Congress’s intent. Alternatively, Debtors faulted Congress, arguing that charging different Chapter 11 disbursement fees depending on the location of the bankruptcy filing violated the uniformity requirement of the Bankruptcy Clause, U.S. Const. art I, sec. 8, cl. 4. The Tenth Circuit concluded the presumption against retroactivity did not apply here, because Congress increased the quarterly bankruptcy fees prospectively. On Debtors' second point, the Court concluded that Debtors had to prevail: the 2017 Amendment’s fee disparities failed under the uniformity requirement of the Bankruptcy Clause. The Amendment imposed higher quarterly fees on large debtors in Trustee districts. Judgment was reversed and the matter remanded for a determination of Debtors' quarterly Chapter 11 fees and a refund of overpayment. View "In re: John Q. Hammons Fall, et al." on Justia Law

In this appeal arising out of an adversary action filed in a Chapter 11 proceeding in the Bankruptcy Court for the District of Massachusetts the First Circuit affirmed the judgment of the bankruptcy court allowing the debtor to avoid a mortgage, holding that there was no error in the bankruptcy court's judgment.After Debtor filed for Chapter 11 bankruptcy Debtor commenced an adversary proceeding against U.S. Back seeking to "avoid" the mortgage because her name was missing from the certificate of acknowledgment. The district court granted Debtor's motion. The district court affirmed. The First Circuit affirmed, holding that summary judgment was properly granted for Debtor because the omission of Debtor's name from the certificate of acknowledgment was a material defect under Massachusetts law. View "U.S. Bank, N.A. v. Desmond" on Justia Law

A California court awarded Elie a $14,814,107.48 judgment against his former partner, Cutuli. Separately, Cutuli pleaded guilty to conspiracy to fraudulently transfer or conceal property in contemplation of bankruptcy. Cutuli filed for Chapter 7 bankruptcy in Florida. His agreement with counsel did not include “defense of adversary proceedings.” Elie filed an adversary proceeding, seeking a declaration that the California Judgment debt was non-dischargeable. Cutuli was personally served with the summons and complaint in prison within FRCP 4(m)’s 90-day limit and the 28-day local limit.Cutuli failed to respond. Elie moved for default. Cutuli’s attorney appeared and objected. Elie then served the summons and complaint on Cutuli’s attorney on December 14. The summons Elie mailed had been issued in September; Federal Rule of Bankruptcy Procedure 7004(e) requires service within seven days after the summons issues. The bankruptcy court denied a motion to dismiss, citing the fee disclosure indication that counsel would not represent Cutuli in adversary proceedings and noting that Cutuli’s counsel had received a copy of the complaint. Cutuli declined to answer the complaint and stated he did not intend to object to the entry of default. The bankruptcy court granted Elie default judgment.The district court reversed. On remand, the bankruptcy court granted Elie’s motion to extend the time for service of process, finding that good cause existed and citing its discretion under Rule 4(m). Elie obtained a fresh summons and properly served Cutuli and his attorney. Again, Cutuli did not answer or defend. The district court and Eleventh Circuit affirmed the extension. Cutuli’s failure to defend the action suggests that the initial failure to serve a fresh summons upon Cutuli’s attorney did not cause Cutuli any prejudice. View "Cutuli v. Elie" on Justia Law

Stergiadis, Dimas, and Theo formed 1600 South LLC, executed an operating agreement, purchased land on which to build a fruit market, and began construction. The 2008 recession stopped construction and eventually led to the LLC’s 2009 dissolution. The partners disagreed about whether they impliedly agreed to equalize their capital contributions. The operating agreement provided that the three each held a one-third membership interest in the LLC; each member agreed to make an initial capital contribution on the date of execution but the amount was left blank. In 2008 Stergiadis sued Dimas in state court seeking to equalize the capital contributions. Dimas filed for bankruptcy, triggering the automatic stay. Dimas ultimately filed seven such petitions and received a discharge in 2016. The U.S. Trustee moved to reopen the bankruptcy to recover the value of an undisclosed property. The bankruptcy court agreed. Stergiadis filed a proof of claim in Dimas’s reopened bankruptcy seeking the same amount he was seeking in state court. The partners disputed the amounts of their respective contributions.The bankruptcy court allowed Stergiadis’s claim, awarding $618,974, finding that the members had an implied equalization agreement. The district court and Seventh Circuit affirmed, rejecting an argument that the LLC’s operating agreement precluded an implied equalization contract. The bankruptcy court properly relied on extrinsic evidence in finding such a contract. View "Dimas v. Stergiadis" on Justia Law

The First Circuit dismissed Appellant's appeal of an order issued by the Bankruptcy Appellate Panel for the First Circuit (BAP) that found Appellant, a Chapter 7 debtor, had no standing to appeal a bankruptcy court order overruling his objection to a proof of claim filed by Scotiabank de Puerto Rico, holding that this Court lacked jurisdiction.The BAP concluded that Appellant did not have appellate standing to challenge the subject order because he had failed to demonstrate that the order had directly or adversely affected his pecuniary interests. Accordingly, the BAP entered judgment dismissing the appeal. The First Circuit dismissed Appellant's appeal, holding that Appellant failed to establish that the challenged order had a direct and immediate impact on his pecuniary interests. View "Neira Rivera v. Scotiabank de Puerto Rico" on Justia Law

The Supreme Court affirmed the judgment of the district court exercising jurisdiction over the underlying fraudulent conveyance action and avoiding all of Paul Morabito's transfers to Superpumper, Inc., Sam Morabito, Snowshoe Petroleum, Inc., and Edward Bayer, individually and as trustee of the Bayuk Trust (collectively, Superpumper) and awarding Paul Morabito's bankruptcy trustee (Trustee) the subject property or the value thereof, holding that the district court did not err.Paul and Consolidated Nevada Corporation entered into a settlement agreement with JH Inc., Jerry Herbst, and Berry-Hinckley Industries (collectively, the Herbsts) for $85 million and later defaulted on the agreement. After a bankruptcy court adjudicated Paul as a Chapter 7 debtor the Herbsts filed a fraudulent transfer action against Paul and Superpumper, the transferees of Paul's assets. The state district court avoided all of Morabito's transfers to Superpumper and awarded the Trustee the subject property or the value thereof. The Supreme Court affirmed, holding (1) the district court had subject matter jurisdiction over the fraudulent conveyance action; (2) Superpumper waived its in rem jurisdiction argument; and (3) the district court did not abuse its discretion in allowing attorney-client communications to be admitted into evidence at trial. View "Superpumper, Inc. v. Leonard" on Justia Law