Justia Bankruptcy Opinion Summaries
Sylvester v. Chaffe McCall, LLP
The Fifth Circuit vacated the award of attorney's fees in this bankruptcy action and remanded for further proceedings. The court held that a court may compensate an attorney under 11 U.S.C. 330(a) only for services requiring legal expertise that a trustee would not generally be expected to perform without an attorney's assistance. In this case, the bankruptcy court failed to apply the proper legal standard in two respects. First, the bankruptcy court appeared to permit Chaffe to recover for the performance of ordinary trustee duties because of the successful result of the bankruptcy proceeding. Second, the bankruptcy court ignored that the burden rests on the attorney requesting compensation under section 330(a) to justify the services rendered. View "Sylvester v. Chaffe McCall, LLP" on Justia Law
United States Trustee Region 21 v. Bast Amron LLP
Fees are collected under 28 U.S.C. 1930 in each quarter of a chapter 11 bankruptcy based on the amount of disbursements made. The U.S. Trustee collects the fees in most districts in the country, while an arm of the Judicial Conference does so in six. In 2017, 28 U.S.C. 1930(a)(6) increased the quarterly fee chargeable for the largest chapter 11 bankruptcies, those distributing $1 million or more in a given quarter.The bankruptcy court concluded that the increase applied to disbursements in a case pending at the time the law was enacted. The Eleventh Circuit agreed that the 2017 legislation applied to pending bankruptcy cases without a due process violation and without offending the Bankruptcy Uniformity Clause. Congress expressly prescribed the temporal reach of the 2017 Amendment and included disbursements in pending cases. The quarterly fees are assessed against the users of the chapter 11 bankruptcy trustee systems to reimburse the government for its costs; the fees are not subject to the constitutional uniformity requirement applicable to taxes. The 2017 Amendment is uniform in the sense contemplated by the Bankruptcy Clause. View "United States Trustee Region 21 v. Bast Amron LLP" on Justia Law
North Dakota v. Bala
Debtor, licensed under North Dakota’s pari-mutuel wagering system, filed for bankruptcy in 2004. Ten years later, the district court ruled that the state was not authorized to collect certain taxes from the Debtor. North Dakota agreed to pay the estate $15 million. Creditors asserted claims. Although the state constitution provides that “the entire net proceeds of such games of chance are to be devoted to educational, charitable, patriotic, fraternal, religious, or other public-spirited uses,” North Dakota did not raise the rights of any charities.In 2018, the bankruptcy court ruled on the claims. North Dakota filed a new proof of claim. The court concluded that the state lacked parens patriae authority to assert claims on behalf of charities. The Eighth Circuit Bankruptcy Appellate Panel (BAP) remanded. On remand, the state attempted to add a breach of contract claim. The bankruptcy court denied that motion and concluded that the contract claim had no merit. The court also rejected a constitutional-statutory claim.The BAP affirmed, rejecting arguments that North Dakota law requires that charities, not Debtor, recover the remaining tax settlement funds and that the court erred when it disallowed the contract claim. The state constitution concerns the legislature and does not govern the actions of private parties such as Debtor. Debtor paid the taxes originally; the reimbursement of those improperly-paid taxes should inure to the benefit of Debtor after distribution under the bankruptcy priority scheme. View "North Dakota v. Bala" on Justia Law
5200 Enterprises Ltd. v. City of New York
In the early 1900s, New York City used a Brooklyn powerhouse to provide electricity for its trolley system. In 1940, the City took ownership of the power plant and removed a smokestack, placed it in the building's basement, on top of a mechanical system that was insulated with friable asbestos-containing material, and buried it under a concrete slab. Enterprises acquired the property in 1986. An asbestos inspection by the city revealed that the property was contaminated with PCBs. The property was placed on New York’s Registry of Inactive Hazardous Waste Disposal Sites, rendering it effectively worthless. The state began remediation in 2015. The discovery of the buried smokestack and friable asbestos-containing material postponed the project indefinitely. New York City continued to tax the property according to its “best intended use” as a warehouse. Rather than paying the taxes or properly challenging their validity, Enterprises ignored them. The taxes became liens.In 2018, Enterprises filed for Chapter 11 bankruptcy and initiated an adversary proceeding against the city, alleging “continuous trespass,” and seeking a declaratory judgment that the city is responsible for the hazardous waste and resulting damage and improperly taxed the property. The bankruptcy court dismissed the adversary proceeding. The Eleventh Circuit affirmed. Even assuming the latest possible date of discovery, Enterprises’ trespass claim is time-barred. The Bankruptcy Abuse Prevention and Consumer Protection Act, 11 U.S.C. 505(a)(2)(C), prohibited the court from redetermining the tax assessments. View "5200 Enterprises Ltd. v. City of New York" on Justia Law
Long v. Piercy
Long and the Piercys operated a Tennessee quarry. Their agreement was silent as to whether their division of “profit” would be based on gross profit after payment of a royalty or net profit after payment of the royalty plus other costs. Based on the division of labor and respective contributions, Long believed that the four individuals should receive equal shares of the gross profit. When Long complained, the Piercys padlocked him off the property and threatened to call the sheriff, then stopped paying Long. A state court chancellor found that Long was entitled to the difference between what the Piercys had paid him and what Long should have received ($151,670.87) but rejected Long’s claim for lost anticipated profits, declining to find that the Piercys breached the partnership agreement but assessing costs against the Piercys.The Piercys sought Chapter 7 bankruptcy relief. Long initiated adversary proceedings, seeking a declaration that the judgment was nondischargeable under 11 U.S.C. 523(a)(4) for debts incurred by embezzlement, or through defalcation while acting in a fiduciary capacity. The Sixth Circuit reversed the bankruptcy court and district court. Long’s state-court judgment may be declared nondischargeable if Long can produce evidence of wrongful intent. The state-court judgment is unclear as to the basis for its relief and does not preclude a finding of fraud. Under the Tennessee Revised Uniform Partnership Act, partners owe each other fiduciary duties. View "Long v. Piercy" on Justia Law
In re Jack Warren Harang
In the Bankruptcy Court, Harang sought a declaration that his tax debts were dischargeable, notwithstanding 11 U.S.C. 523(a)(1). The IRS answered the complaint, served discovery requests, moved to compel answers, and eventually sought discovery sanctions, which the Bankruptcy Court imposed, stating that “[f]or all purposes in this case ... the Court will presume ... that the Debtor had sufficient income to pay his tax liabilities ... but consciously chose not to do so.” Later, after holding that a witness “refused to appear for his deposition at the direction of” Harang, the Court entered a second sanctions order with additional factual findings. The Court scheduled the trial for February 16, 2021; on January 21, Harang moved to dismiss the adversary proceeding under Rule 41.The Bankruptcy Court entered an Order of Dismissal with Prejudice, stating: Given the protracted and tortious [sic] history of this case, the court finds it proper to condition the dismissal ... upon the inclusion of its prior factual findings ...[and] that the dismissal should be with prejudice because that was the request of the Plaintiff ... the United States was ready to proceed to trial. The Sixth Circuit Bankruptcy Appellate Panel affirmed. A bankruptcy court has the duty and the discretion to address the misbehavior of parties appearing before it. Rule 41(a)(2) creates needed latitude for courts to exercise that discretion. The Bankruptcy Court did not abuse its discretion by restating earlier, unchallenged factual findings. View "In re Jack Warren Harang" on Justia Law
Persinger v. Southwest Credit Systems, L.P.
In 2017, a bankruptcy court discharged Persinger’s debts, under 11 U.S.C. 727. A few months later, Southwest Credit began collection efforts on a pre‐petition debt of Persinger’s, including by acquiring a type of credit information called her “propensity‐to‐pay score.” Alleging that this information had been secured without a permissible purpose, Persinger sued Southwest under the Fair Credit Reporting Act (FCRA), 15 U.S.C. 1681.The district court granted Southwest summary judgment, holding that Southwest’s compliance procedures were reasonable and met FCRA’s requirements. The Seventh Circuit affirmed, first holding that Persinger has standing to sue. Southwest invaded her privacy when it reviewed her credit information but no reasonable juror could conclude that the inquiry into Persinger’s propensity‐to‐pay score resulted in actual damages. If a plaintiff cannot prove actual damages, she may still recover statutory or punitive damages by proving that the defendant willfully violated FCRA. Viewed as a whole, Southwest’s procedures for handling bankruptcy notifications and for ordering bankruptcy scrubs from LexisNexis were reasonable compliance efforts, not willful violations of the FCRA. At the time Southwest ordered the credit score, it was unaware that the debt at issue had been discharged. View "Persinger v. Southwest Credit Systems, L.P." on Justia Law
Lenois v. Lukman
In 2017, the Delaware Court of Chancery held that Plaintiff Robert Lenois had pled with particularity that the controlling stockholder of Erin Energy Corporation (“Erin” or the “Company”) had acted in bad faith. It further held that Lenois had pled either “very serious claims of bad faith” or “a duty of care claim” against the remainder of Erin’s board in connection with two integrated transactions. In those transactions, the controller allegedly obtained an unfair windfall by selling certain Nigerian oil assets to Erin. The trial court dismissed the derivative claims on standing grounds (i.e., holding that demand was not excused). Lenois appealed that decision. During the pendency of the appeal, Erin voluntarily filed for bankruptcy. The Chapter 7 Trustee obtained the permission of the Bankruptcy Court to pursue, on a direct basis, the claims that had been asserted in the Lenois action in the Court of Chancery. As a result of the bankruptcy proceedings, which vested the Trustee with control over the claims, the Delaware Supreme Court determined that the sole issue on appeal was moot. The case was remanded to the Court of Chancery to resolve two pending motions — a Rule 60(b) motion and the Trustee’s motion pursuant to Rule 25(c) to be substituted for nominal defendant Erin and then realigned as plaintiff (the “Realignment Motion”). The Court of Chancery denied the Rule 60(b) motion and summarily denied the Rule 25(c) motion. Here, the Supreme Court reversed, holding the Court of Chancery should have granted the Trustee’s Substitution and Realignment Motion. View "Lenois v. Lukman" on Justia Law
1944 Beach Boulevard, LLC v. Live Oak Banking Co.
Beach, a debtor in possession, sought to avoid Live Oak’s blanket lien on all of its assets. In Florida, a creditor’s financing statement that does not list the debtor’s correct name is “seriously misleading” and ineffective to perfect the creditor’s security interest. Fla. Stat. 679.5061(2). Live Oak asserted that abbreviating “Boulevard” to “Blvd.” did not render the financing statements defective or seriously misleading. Florida Statute 679.5061(3), establishes a safe harbor for defective financing statements. The bankruptcy court granted Live Oak summary judgment.Noting that lower courts, applying Florida law, have reached different conclusions regarding the application of the statutory safe harbor, the Eleventh Circuit certified to the Florida Supreme Court the questions: (1) Is the “search of the records of the filing office under the debtor’s correct name, using the filing office’s standard search logic,” as provided for by Florida Statute 679.5061(3), limited to or otherwise satisfied by the initial page of twenty names displayed to the user of the Registry’s search function? (2) If not, does that search consist of all names in the filing office’s database, which the user can browse to using the command tabs displayed on the initial page? (3) If the search consists of all names in the filing office’s database, are there any limitations on a user’s obligation to review the names and, if so, what factors should courts consider when determining whether a user has satisfied those obligations? View "1944 Beach Boulevard, LLC v. Live Oak Banking Co." on Justia Law
Davis v. CitiMortgage, Inc.
The Davises took out a mortgage on their residence in 2005. After they defaulted on the loan and filed for bankruptcy, Jerome Davis, a licensed attorney who represented himself, received a bankruptcy discharge. The bankruptcy court later held that the discharge did not extend to the debt Davis owed CitiMortgage. Rather than appeal, Davis first attempted to remove CitiMortgage’s foreclosure action to federal court, alleging that CitiMortgage’s efforts to obtain a personal deficiency judgment contravened his bankruptcy discharge. He then filed a separate suit alleging unfair debt collection practices against CitiMortgage. Davis lost in each of those proceedings. CitiMortgage was awarded attorney fees and costs, 28 U.S.C. 1447(c) when the court remanded the foreclosure proceeding for lack of federal question jurisdiction.The Seventh Circuit dismissed Davis’s appeal, stating that it lacked jurisdiction to review the remand order. Davis waived his arguments challenging the attorney fees and costs award. The court upheld the dismissal of Davis’s suit against CitiMortgage; all of Davis’s claims center on his contention that the debt owed CitiMortgage was subject to his 2018 discharge. The court took judicial notice that the bankruptcy court had held the opposite in Davis’s adversary proceeding. View "Davis v. CitiMortgage, Inc." on Justia Law