The First Circuit affirmed the decision of the bankruptcy court dismissing an involuntary bankruptcy petition filed by one bank and joined by another against Defendant, a licensed plastic surgeon, holding that dismissal of the involuntary petition was proper because the Banks failed to meet the requirement that there be at least three petitioning creditors under 11 U.S.C. 303(b)(1). Under section 303(b), fewer than three petitioning creditors cannot force a debtor into bankruptcy unless the debtor has fewer than twelve creditors in total. The bankruptcy court granted Defendant's motion for summary judgment, concluding that Defendant had fifteen qualified creditors at the time the involuntary petition was filed and that the court did not have the equitable power to override the provisions of section 303(b)(1). The First Circuit affirmed, holding that the bankruptcy court did not err by (1) not placing on Defendant the burden of proving that he had twelve or more eligible creditors; (2) not finding that the Banks presented evidence sufficient to show that Defendant did not have twelve or more eligible creditors; and (3) not employing equitable discretion to allow the petition. View "Banco Popular de Puerto Rico v. Reyes-Colon" on Justia Law

Appellants asserted claims for child support arrearages against debtor. Although debtor filed for bankruptcy, appellants claimed that they never received notice of debtor's bankruptcy case. Therefore, appellants argued that they were denied the opportunity to timely file proofs of claim. The Fifth Circuit affirmed the district court's decision affirming the bankruptcy court's finding that the Illinois Department of Healthcare and Family Services, from which appellants had sought child support enforcement services, had received timely notice and ultimately afforded their claims distribution status under 11 U.S.C. 726(a)(2). In this case, the Department was properly the creditor for the purposes of debtor's child support obligations and the Department's proofs of claim were untimely. View "Pate v. Tow" on Justia Law

The Debtors filed a chapter 7 bankruptcy petition in 2008. Creditor CJV was granted derivative standing on behalf of the bankruptcy estate and sought a declaratory judgment that personal property located at the Debtors' home was property of the bankruptcy estate. The Debtors asserted that the personal property is held in trust or belongs to other people, such as their children and that the complaint was barred by the statute of limitations. After discovery was completed, the Trustee moved to abandon the action, arguing that, even if the personal property was property of the bankruptcy estate, it was only worth approximately $200,000, as opposed to more than one million dollars as CJV had asserted and that the IRS had a tax lien in far excess of its value, so that the litigation could result in a loss to the estate. CJV asserted that the cause of action was no longer property of the bankruptcy estate. The bankruptcy court granted the motion for abandonment and dismissed the adversary proceeding. The Bankruptcy Appellate affirmed. The action remained property of the estate; Section 554(a) of the Bankruptcy Code allows a trustee, after notice and a hearing, to abandon property that is of inconsequential value and benefit to the estate. The Trustee’s determination was based on sound business judgment and within his discretion. View "In re Blasingame" on Justia Law

The Debtors filed their bankruptcy petition in 2008. Grusin provided them legal advice before the filing and at the beginning of the bankruptcy case. Fullen filed the petition and represented them in the chapter 7 case. In 2011, the bankruptcy court granted the Trustee summary judgment in an adversary proceeding seeking to deny the Debtors’ discharge and disqualified both lawyers from further representation of the Debtors in that case. The Debtors hired new counsel, who obtained relief from the summary judgment order. Following a trial, in 2015, the bankruptcy court again denied the Debtors’ discharge. The Bankruptcy Appellate Panel affirmed. In 2012, the bankruptcy court granted CJV derivative standing to pursue a malpractice action on behalf of the estate against Grusin and Fullen. Malpractice complaints were filed in the bankruptcy court and in Tennessee state court. In 2014, CJV filed another adversary proceeding, seeking declaratory relief that the malpractice claims constituted property of Debtors’ estate. The Bankruptcy Appellate Panel affirmed the bankruptcy court in holding that the malpractice action for denial of debtors’ discharges based on errors and omissions contained in a bankruptcy petition, as well as pre and post-petition legal advice, was not property of the debtors’ bankruptcy estate. There was no pre-petition injury; the Debtors were injured by that negligence when their discharges in bankruptcy were denied. View "In re Blasingame" on Justia Law

Over a decade ago, the Blasingames filed for bankruptcy, seeking to discharge $7.7 million in debt, claiming they made $900 per month and owned less than $6,000 worth of assets. Their creditor, Church,allegedly discovered that the Blasingames made over $300,000 per year and had at least $18 million in assets, including “a 28-acre, gated residence compound,” 1,700 acres of “prime farmland,” and hundreds of thousands of dollars in financial assets that belonged to trusts and corporations under the Blasingames’ control. The Blasingames’ bankruptcy trustee initially tried to recover the assets by authorizing Church to sue derivatively on its behalf in bankruptcy court but later decided to sell the cause of action to Church. Since the sold cause of action could no longer affect the bankruptcy estate's value, the bankruptcy court dismissed. Church filed a new lawsuit against the Blasingames and their trusts, alleging “alter-ego.” The district court dismissed, concluding that Tennessee would not recognize that theory outside of the corporate context. Church filed another adversary proceeding on behalf of the trustee, against the Blasingame Family Investment Trust, which was self-settled; the settlors, trustees, and beneficiaries were all the same. The bankruptcy court concluded that the was just a subset of the cause of action that was sold and dismissed. Church filed another adversary proceeding on behalf of the trustee, targeting the Blasingame Family Residence Trust, which granted the Blasingames a life estate. The bankruptcy court dismissed, finding that the Blasingames’ interest was equitable, not legal, and beyond their creditor’s reach. The Bankruptcy Appellate Panel and the Sixth Circuit affirmed, adopting the bankruptcy court reasoning. View "In re Earl Blasingame" on Justia Law

HSBC obtained a foreclosure judgment against the Lisses. To extend the time for appeal of that judgment, attorney Nora filed two bankruptcy petitions and multiple appeals, accusing HSBC and its attorney of federal crimes and seeking sanctions. The district court ultimately ordered Nora and her client to pay damages and costs related to the bankruptcy litigation and suspended her from the practice of law in the Western District of Wisconsin. The Seventh Circuit affirmed, noting that this was not Nora’s first encounter with attorney discipline. Nora’s attempt to relitigate HSBC’s foreclosure judgment in bankruptcy court was frivolous; her stall tactics were “blatant.” Such litigation behavior—even assuming pure motives—constitutes objective bad faith warranting sanctions under 28 U.S.C. 1927. The court noted “her serial dilatory, vexatious, and unprofessional litigation practices” and frivolous motion practice and legal arguments in her appeals. Flippant, unfounded accusations of misconduct and fraud by opposing counsel and court officials demean the profession and impair the orderly operation of the judicial system. View "Nora v. HSBC Bank USA, N.A." on Justia Law

After debtor sought Chapter 7 discharge, the trustee requested and received an extension to file a complaint objecting to the discharge after the trustee became aware of debtor's ties to business entities that were under a Florida receivership due to allegations of fraud. The Eighth Circuit affirmed the district court's decision affirming the bankruptcy court's order granting the trustee's request for an extension of time and its judgment denying discharge. The court held that the bankruptcy court did not abuse its discretion by extending the deadline for the trustee to object to the discharge under Rule 4004(b)(2) without an evidentiary hearing. In this case, there was no clear error in its determination that six days would be insufficient for the trustee to investigate further and compose allegations with sufficient particularity to satisfy the applicable pleading standard. View "Hill v. Snyder" on Justia Law

The First Circuit affirmed the decision of the district court dismissing the complaint brought by the plan administrator of R&G Financial Corporation (Administrator) alleging that negligence and breach of fiduciary duties owed to R&G Financial (the Holding Company) caused the failure of R-G Premier Bank of Puerto Rico (the Bank) and the Holding Company's resultant loss of its investment in the Bank, holding that the complaint must be dismissed because the claims the Administrator asserted for the Holding Company were the Federal Deposit Insurance Corporation's (FDIC) under 12 U.S.C. 1821(d)(2)(A). R&G Financial entered Chapter 11 bankruptcy after the Bank, its primary subsidiary, failed. Previously, Puerto Rican regulators had closed the Bank and named the FDIC as the Bank's receiver. After the Bank failed, the Administrator filed this suit against six of the Holding Company's former directors and officers and their insurer. The FDIC intervened. The district court dismissed the complaint. The First Circuit affirmed on different grounds, holding that, under section 1821(d)(2)(A), the FDIC succeeded to the Administrator's claims. View "Zucker v. Rodriguez" on Justia Law

The First Circuit affirmed the decision of the district court dismissing Appellants' amended complaint in an adversary proceeding arising within the debt adjustment proceeding that the Financial Oversight and Management Board (Board) commenced on behalf of the Puerto Rico Highway and Transportation Authority (PRHTA) under Title III of the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), 48 U.S.C. 2161-2177, holding that Appellants were not entitled to the relief they sought. Appellants were financial guarantee insurers that had insured bonds from PRHTA. After the enactment of PROMESA, the Board certified a financial plan by which the PRHTA pledged special revenues to be diverted into the general revenues of Puerto Rico. Payments to the PRHTA bondholders continued, but after the PRHTA defaulted on a scheduled bond payment, the funds ceased to be distributed. Appellants initiated adversary proceedings claiming, among other things, that sections 922(d) and 928 of the Bankruptcy Code required PRHTA to remit payment of special revenues to bondholders during the pendency of the Title III proceedings. The district court dismissed the complaint. The First Circuit affirmed, holding that sections 922(d) and 928(a) permit, but do not require, continued payment during the pendency of the bankruptcy proceedings, and therefore, the district court properly dismissed the complaint. View "Assured Guaranty Corp. v. Commonwealth of Puerto Rico" on Justia Law

The First Circuit reversed the order of the district court ruling that the automatic stay provision of the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) did not apply to proceedings to determine the amount of federal court-ordered payments that the Commonwealth owed to several federally qualified health centers (FQHCs) per a 2010 injunction, holding that the automatic stay applied in this case. In 2003, several FQHCs sought to enjoin the Secretary of the Department of Health of Puerto Rico from failing to reimburse them for their reasonable costs of providing services to Medicaid patients. In 2018, the Commonwealth filed a motion notifying the district court that the Commonwealth had filed for bankruptcy under Title III of PROMESA and, therefore, the litigation was subject to the automatic stay. The district court ruled that the automatic stay did not apply. The First Circuit reversed, holding that certain provisions of PROMESA did not preclude the automatic stay’s application in this case. View "Migrant Health Center, Inc. v. Commonwealth of Puerto Rico" on Justia Law