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Tempnology licensed Mission to use Tempnology’s trademarks in connection with the distribution of clothing. Tempnology filed for Chapter 11 bankruptcy and sought to reject its agreement with Mission as an “executory contract” under 11 U.S.C. 365, which provides that rejection “constitutes a breach of such contract.” The Bankruptcy Court approved Tempnology’s rejection, holding that the rejection terminated Mission’s rights to use Tempnology’s trademarks. The Bankruptcy Appellate Panel reversed, holding that rejection does not terminate rights that would survive a breach of contract outside bankruptcy. The First Circuit reinstated the Bankruptcy Court’s decision. The Supreme Court reversed, first holding that the case is not moot. Mission presented a plausible claim for damages, sufficient to preserve a live controversy. A debtor’s rejection of an executory contract under Bankruptcy Code Section 365 has the same effect as a breach of that contract outside bankruptcy and cannot rescind rights that the contract previously granted. A licensor’s breach cannot revoke continuing rights given under a contract (assuming no special contract term or state law) outside of bankruptcy; the same result follows from rejection in bankruptcy. Section 365 reflects the general bankruptcy rule that the estate cannot possess anything more than the debtor did outside bankruptcy. The distinctive features of trademarks do not mandate a different result. In delineating the burdens a debtor may and may not escape, Section 365’s edict that rejection is breach expresses a more complex set of aims than facilitating reorganization. View "Mission Product Holdings, Inc. v. Tempnology, LLC" on Justia Law

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This dispute between the bankruptcy court and Chapter 13 debtor's attorneys involved no-money-down business models where the debtor's attorney agrees to advance the costs of filing fees, credit counseling course fees, and credit report fees on behalf of the debtor. The bankruptcy court concluded that these fees were non-reimbursable under the district's no-look fee order and that counsel could never be reimbursed by statute. The Fifth Circuit held that debtor's counsel in this case was not entitled to additional reimbursement for advancing the costs of the filing fees, credit counseling fees, and credit report fees as administrative expenses necessary for preserving the estate under 11 U.S.C. 503(b)(1). However, 11 U.S.C. 503(b) and 330 provide bankruptcy courts with the discretion to compensate debtor's counsel for advancing the costs of filing fees, credit counseling fees, and credit report fees if they choose to do so. Therefore, the court held that the bankruptcy court did not err in interpreting its own standing order on no-look fee compensation, but that it did err in its conclusion that bankruptcy courts lack the discretion to ever award reimbursement of those fees. Accordingly, the court affirmed in part and vacated in part. View "McBride v. Riley" on Justia Law

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42 U.S.C. 405(h)—which states that no claim arising under the Social Security Act can be brought under 28 U.S.C. 1331 and 1346—does not bar bankruptcy courts from exercising their jurisdiction under section 1334 to hear Social Security claims. The Fifth Circuit reversed the district court's holding otherwise and, joining the Ninth Circuit, held that the plain text of section 405(h)'s third sentence only bars actions under section 1331 and 1346, not section 1334. In this case, the bankruptcy court should examine debtor's claims and determine if they were channeled by section 405(h)'s second sentence into section 405(g). If they are, the district court must determine if jurisdiction under section 405(g) exists. If not, then the bankruptcy court has jurisdiction under section 1334 to hear debtor's claims. View "Benjamin v. United States" on Justia Law

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The Fourth Circuit reversed the district court's decision affirming the bankruptcy court's conclusion that Alaska's award of damages to TKCA necessarily meant that debtor willfully and maliciously injured TKCA for purposes of section 523(a)(6) of the Bankruptcy Code. The Supreme Court, in Kawaauhau v. Geiger, 523 U.S. 57, 61 (1998), held that section 523(a)(6) requires "a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury." The court held that, because neither the Alaska district court, nor the bankruptcy court, determined the precise issue of whether debtor intended to injure TKCA, collateral estoppel and summary judgment were inappropriate. Therefore, the court remanded to the district court with instructions to remand to the bankruptcy court for further proceedings. View "TKC Aerospace Inc. v. Muhs" on Justia Law

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A chapter 7 trustee sought a declaration that a refinanced mortgage only encumbered the interest of the person specifically defined within the body of the mortgage as a “Borrower/Mortgagor.” The mortgage instrument listed the co-debtor's wife as a “Borrower” in the signature block but the mortgage did not specifically name her as a “Borrower” within the text of document other than in the signature block. The bankruptcy court regarded the mortgage as ambiguous under these circumstances, considered extrinsic evidence, and concluded that the property was fully encumbered by the mortgage. Pending appeal, the Ohio Supreme Court answered certified questions, stating that the failure to identify a signatory by name within the body of the mortgage instrument did not render the agreement unenforceable against the signatory’s in rem rights as a matter of law and that when a mortgage is properly signed, initialed and acknowledged by a signatory who is not named within the document itself, the mortgage is not invalid as a matter of law. The Bankruptcy Appellate Panel affirmed, concluding that the mortgage encumbered the rights of both husband and wife. View "In re Perry" on Justia Law

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Plaintiff filed a whistleblower action under Section 806 of the Sarbanes-Oxley Act against CGI, alleging that he was unlawfully fired in retaliation for his complaints about and objections to an allegedly fraudulent scheme developed by CGI's executives. The district court held that the Sarbanes-Oxley claim survived summary judgment, but later dismissed plaintiff for lack of standing due to his parallel bankruptcy proceeding. After the bankruptcy case closed, plaintiff moved to be substituted in as the proper party-in-interest. The district court granted plaintiff's motion and then dismissed the case on grounds of judicial estoppel. The Second Circuit held that the district court exceeded its discretion by invoking the judicial estoppel doctrine. The court held that where, as here, a pro se debtor has listed his pending litigation on the Statement of Financial Affairs (SOFA), rather than the Schedule B as it was constituted at the time of plaintiff's filing, and then disclosed it to the trustee and the bankruptcy court prior to discharge of his debt, and the trustee and the bankruptcy court were on sufficient notice to take steps to protect the creditors' interests, the debtor is not estopped from pursuing that litigation by virtue of the doctrine of judicial estoppel. The court explained that, for estoppel to apply, there must be greater indicia than presented here of an intent to deceive the court for the debtor's benefit. Accordingly, the court vacated the judgment and remanded for further proceedings. The court affirmed the district court's grant of partial summary judgment to CGI on the state-law breach of contract claim, holding that the dismissal order was rendered moot by virtue of later developments. View "Ashmore v. CGI Group" on Justia Law

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In 2013 Chlad and her husband, Vehovc, filed a joint Chapter 7 bankruptcy petition seeking to discharge about $5 million of debt. After Chlad and Vehovc filed financial disclosures, two creditors brought an adversary proceeding objecting to the discharge, alleging that the filings omitted information material to the debtors’ financial condition, 11 U.S.C. 727(a)(4). Chlad and Vehovc failed to disclose the existence of particular real estate, a significant creditor, bank accounts, a shareholder loan, certain sources of income, and an alternate first name used by Chlad. The bankruptcy court denied the discharge, finding that the omissions reflected material false statements made with fraudulent intent. The district court and the Seventh Circuit affirmed. The omissions and misstatements were material and reflected false statements made under oath that the debtors knew or should have known to be false; taken together, the omissions and misstatements demonstrated a reckless disregard for the truth, which was sufficient to support a finding of fraudulent intent necessary to deny discharge under section 727(a)(4). View "Chlad v. Chapman" on Justia Law

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The Ninth Circuit affirmed the district court's decision affirming the bankruptcy court's order confirming a second amended Chapter 11 plan of five real estate holding companies. The panel held that 11 U.S.C. 1129(a)(3) directs bankruptcy courts to police the means of a reorganization plan's proposal, not its substantive provisions. Therefore, the panel affirmed confirmation of the Amended Plan over the trustee's objection that the lease violated federal drug law because one of the debtors leased property to a company that used the property to grow marijuana. View "Garvin v. Cook Investments NW" on Justia Law

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The Fifth Circuit affirmed the district court's judgment affirming the bankruptcy court's decision to grant the Chapter 7 trustee's motion to approve auction and for authority to sell certain real property of the bankruptcy estate of VCR I. The court held that the trustee fully complied with the Agreed Order and Gluckstadt failed to address the court's precedent in In re Moore, the requirement under 11 U.S.C. 363(b) for the sale of a debtor's assets outside the ordinary course of business, or the trustee's fiduciary duty to maximize the assets of the bankruptcy estate. The court denied the trustee's motion to dismiss as moot. View "Gluckstadt Holdings, LLC v. VCR I, LLC" on Justia Law

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LSI's bankruptcy trustee filed suit against several of LSI's corporate officers, directors, and investors for breaches of fiduciary duty. At issue was a contract LSI entered into with Jabil Inc., one of LSI's bankruptcy creditors. A jury found appellants liable and assessed compensatory and exemplary damages. The Fifth Circuit held that Appel, Bartlett, and DeJoria were entitled to judgment rendered in their favor: in DeJoria's case because of the lack of proof of a recoverable injury and the corresponding vacatur of exemplary damages; in Appel's case because there was no evidence of individual liability and the corresponding vacatur of exemplary damages; and in Bartlett's case because there was no evidence of individual liability. Accordingly, the court reversed and rendered judgment for these appellants. In regard to Cohen, the court vacated the damages award in part, affirmed in part, and remanded. View "Ebert v. DeJoria" on Justia Law