Justia Bankruptcy Opinion Summaries

Two individuals filed Chapter 13 bankruptcy petitions, each proposing repayment plans that prioritized payment of their attorneys’ fees before distributing funds to nonpriority unsecured creditors, such as the City of Chicago. Both debtors had below-median incomes and lived in Illinois. One plan proposed to pay secured and priority creditors, the trustee, and attorneys’ fees, with any leftover funds distributed pro rata to nonpriority unsecured creditors. The other plan left no remaining funds for nonpriority unsecured creditors after paying attorneys’ fees.The City of Chicago objected to both plans in the United States Bankruptcy Court for the Northern District of Illinois. The City argued that these plans violated 11 U.S.C. § 1325(b)(1)(B) because they allocated projected disposable income to attorneys’ fees, claiming that bankruptcy attorneys are not unsecured creditors, and thus should not receive such payments. Alternatively, the City argued that even if attorneys are unsecured creditors, they were ineligible for payment because they had not filed proofs of claim. The bankruptcy court overruled the City’s objections, confirming both plans. The court adopted its reasoning from previous cases, finding that attorneys’ fees could be paid during the commitment period and that attorneys did not need to file proofs of claim for payment.On appeal, the United States Court of Appeals for the Seventh Circuit affirmed the bankruptcy court’s decision. The Seventh Circuit held that Chapter 13 plans may provide for the payment of attorneys’ fees before or at the same time as payments to nonpriority unsecured creditors during the commitment period, as required by other sections of the Bankruptcy Code. The court also held that bankruptcy attorneys, as holders of administrative priority claims, are not required to file proofs of claim to receive payment under the plan. View "City of Chicago v Falkner" on Justia Law

Milton Thomas filed for Chapter 13 bankruptcy in 2004, listing the City of Philadelphia as a creditor for liens on several properties. Thomas used a lawful process to reduce (“cram down”) the value of the City’s claims and had a bankruptcy plan confirmed in 2005, after which a discharge order was issued in 2009. Despite receiving notice of the proceedings and participating in them by filing claims, the City later sought to collect on liens relating to two properties, the 1618 Property and the 1620 Property, which Thomas argued violated the discharge order.After the discharge, the City began collection actions in state court for these properties. Thomas sought relief in federal court, claiming the City’s actions violated the bankruptcy discharge. The U.S. District Court for the Eastern District of Pennsylvania initially found for Thomas, but the U.S. Court of Appeals for the Third Circuit vacated that decision, instructing that only the Bankruptcy Court could address contempt allegations. On remand, the Bankruptcy Court declined to hold the City in contempt, relying on its earlier 2013 sua sponte ruling that the City had not received constitutionally adequate notice. The District Court affirmed this decision.The United States Court of Appeals for the Third Circuit reviewed the case. The Third Circuit held that the City had actual notice of the bankruptcy and discharge orders and that the 2013 Bankruptcy Court ruling did not provide a reasonable basis for the City’s subsequent conduct. The court found that civil contempt sanctions were warranted as to the 1618 Property, but not the 1620 Property, because Thomas had not shown he met his payment obligations for the latter. The court affirmed in part, vacated in part, and remanded for further proceedings to determine damages for the 1618 Property. View "Thomas v. City of Philadelphia" on Justia Law

A robotics company, whose primary product is a well-known robot vacuum, agreed in August 2022 to be acquired by a major online retailer. Over the next eighteen months, the companies sought approval for the merger from regulatory authorities in the United States and Europe. In January 2024, facing significant regulatory obstacles, the parties abandoned the merger. Following this, shareholders of the robotics company, led by an investment fund, brought a securities fraud class action against the company’s CEO and CFO. They alleged that during the merger’s review period, company statements misrepresented or omitted material information regarding the likelihood of regulatory approval, particularly concerning the company’s expectation of approval and the acquirer’s cooperation with regulators.The United States District Court for the District of Massachusetts dismissed the amended complaint with prejudice. The court found that the plaintiffs failed to identify any actionable material misrepresentation or omission and did not adequately allege scienter (the intent or knowledge of wrongdoing). During the appeal, the robotics company entered Chapter 11 bankruptcy, resulting in its dismissal from the appeal, which continued as to the individual defendants.The United States Court of Appeals for the First Circuit reviewed the case. It agreed with the district court that the complaint failed to state a claim for most of the statements challenged by the plaintiffs, affirming dismissal as to those. However, the court found that the amended complaint plausibly alleged that an August 24, 2023, proxy statement expressed an opinion about expected regulatory approval while omitting important contrary information regarding European regulatory concerns and the acquirer’s refusal to cooperate. This omission, in the circumstances, was sufficient to state a claim as to that statement. The dismissal was reversed in part and affirmed in part, and the case was remanded for further proceedings. View "Premca Extra Income Fund LP v. Angle" on Justia Law

An employee was injured at his workplace by a forklift operated by someone he believed worked for his employer, but later learned was employed by a staffing agency. Shortly after the accident, he filed a workers’ compensation claim and entered Chapter 13 bankruptcy, disclosing only the workers’ compensation claim and not any potential third-party claim related to the injury. The bankruptcy case was eventually dismissed without discharge. Over a year after the dismissal, the injured employee initiated a personal injury lawsuit against the staffing agency and the forklift operator in state court.The Circuit Court of DeSoto County granted summary judgment to the staffing agency, finding that the plaintiff was judicially estopped from pursuing the personal injury claim because he failed to disclose it during bankruptcy proceedings. The court found all elements of judicial estoppel satisfied, including the court’s acceptance of the plaintiff’s prior position. The Mississippi Court of Appeals reversed this decision, relying on federal precedent from the United States Court of Appeals for the Fifth Circuit, specifically Wells Fargo Bank, N.A. v. Oparaji (In re Oparaji), which holds that dismissal of a bankruptcy case without discharge revokes the bankruptcy court’s acceptance of any inconsistent position.The Supreme Court of Mississippi reviewed the case on certiorari. The Court held that the Court of Appeals correctly applied the law and followed Fifth Circuit precedent. The Supreme Court determined that dismissal without discharge returns the parties to their pre-bankruptcy positions, revoking any judicial acceptance of the plaintiff’s representations. Therefore, the acceptance element of judicial estoppel was not met, and the plaintiff is not barred from pursuing his personal injury claim. The Supreme Court affirmed the Court of Appeals’ judgment, reversed the Circuit Court’s summary judgment, and remanded the case for further proceedings. View "Strong v. Acara Solutions, Inc." on Justia Law

Members of the rap group 2 Live Crew, including Mark Ross, created five albums between 1986 and 1989. Through a written agreement, the group assigned the sound recording copyrights to Luke Records, a company owned by one of the group’s members. In 1995, following Luke Records’ bankruptcy, these copyrights were sold to Lil’ Joe Records. In 2000, Mark Ross filed for Chapter 7 bankruptcy; his termination interests in these copyrights were never listed or addressed in his bankruptcy proceedings. Years later, within the statutory window, Ross, another group member, and heirs of a third served a notice attempting to terminate the copyright grants to Luke Records, as permitted by the Copyright Act.The United States District Court for the Southern District of Florida initially concluded that Ross’s termination interests did not enter his bankruptcy estate, interpreting the Copyright Act and Bankruptcy Code to exclude them. The court denied both parties’ motions for summary judgment on the effectiveness of the termination notice, and the case proceeded to trial. After the jury’s factual findings, the district court concluded the termination notice was valid. Lil’ Joe Records appealed the district court’s final judgment, the denial of its motion for summary judgment, and the denial of its motion for reconsideration.The United States Court of Appeals for the Eleventh Circuit held that Ross’s termination interests were property of his bankruptcy estate under the Bankruptcy Code, notwithstanding the Copyright Act’s inalienability restriction. Because these interests were never scheduled or administered by the bankruptcy court, they remained with the bankruptcy estate when Ross attempted to exercise them. As a result, Ross could not validly sign the termination notice, and the group did not have the required majority to terminate the copyright grants. The Eleventh Circuit reversed the district court’s judgment and remanded the case for further proceedings. View "Lil' Joe Records, Inc. v. Won" on Justia Law

Donald Smith owned and operated a company called No Rust Rebar, along with four other related entities. All these entities were controlled by Smith, shared business locations, and had overlapping operations and assets. No Rust Rebar filed for Chapter 11 bankruptcy, which was later converted to Chapter 7 liquidation after a creditor's motion. During the bankruptcy proceedings, the court found that Smith routinely commingled the assets of No Rust Rebar with those of the other entities, failed to observe corporate formalities, and treated the businesses as a single operation subject to his personal discretion.Following these findings, the bankruptcy court appointed a trustee, who moved to substantively consolidate the assets and liabilities of the four non-debtor entities with No Rust Rebar’s bankruptcy estate. All entities received notice of this motion and objected, arguing that substantive consolidation required a separate adversary proceeding and an additional evidentiary hearing. However, they did not challenge the merits of consolidation or the findings that led to it, focusing solely on procedural issues. The United States District Court for the Southern District of Florida affirmed the bankruptcy court’s consolidation order after the non-debtor entities appealed, again raising only procedural arguments.The United States Court of Appeals for the Eleventh Circuit reviewed the bankruptcy court’s decision de novo for legal conclusions and for clear error as to factual findings. The Eleventh Circuit held that the bankruptcy court had the authority to order substantive consolidation based on its findings that the entities were alter egos with a substantial identity. The court also concluded that any procedural errors related to the style or process of the motion were harmless, as all parties had notice and an opportunity to be heard. The substantive consolidation order was affirmed. View "Smith v. Slott" on Justia Law

Leonard and Pauline Cortellino executed a promissory note and mortgage in 2006 for the purchase of property in Maine. The mortgage, originally granted to Mortgage Electronic Registration Systems (MERS) as nominee for Mortgage Lenders Network USA, Inc. (MLN), was later assigned multiple times, ultimately to Wilmington Savings Fund Society, FSB, as Trustee for Brougham Fund I Trust in 2016. However, MLN filed for bankruptcy in 2007 and ceased operations after the bankruptcy concluded in 2012. Due to deficiencies in prior assignments following the Maine Supreme Judicial Court’s decision in Bank of America, N.A. v. Greenleaf, parties sought to cure the assignment defects. In 2021, a receiver for MLN, appointed by the Delaware Court of Chancery, assigned the Cortellino mortgage to Wilmington Savings, which was recorded in 2022.After the Cortellinos defaulted on their mortgage payments in 2014, Wilmington Savings sent them a notice of default and right to cure in August 2022. Wilmington Savings filed a foreclosure action in the Maine Superior Court (Androscoggin County) in October 2022. Following a trial in October 2024 and post-trial submissions, the Superior Court entered a judgment of foreclosure and sale in April 2025. The court found Wilmington Savings owned the mortgage and denied the Cortellinos’ motion for additional findings. The Cortellinos appealed.The Maine Supreme Judicial Court reviewed the Superior Court’s factual findings for clear error and its legal conclusions de novo. The Court held that Wilmington Savings was the rightful owner of the mortgage due to the valid receiver’s assignment, but found that the right-to-cure notice was legally defective. The notice overstated the amount required to cure the default and contained numerical inconsistencies, failing to strictly comply with Maine’s statutory requirements. The Court vacated the judgment and remanded for entry of dismissal. View "Wilmington Savings Fund Society v. Cortellino" on Justia Law

A property owner in Bay County, Michigan, failed to pay property taxes in 2019, resulting in the county initiating a foreclosure process under Michigan’s General Property Tax Act (GPTA). After a three-year timeline, a Michigan circuit court entered a foreclosure judgment in February 2022, which would vest absolute title in the county treasurer if the tax debt was not paid by March 31, 2022. The owner did not pay, and the county received title. Shortly after, the owner filed for Chapter 13 bankruptcy and sought to avoid the transfer of title as a preferential transfer under the Bankruptcy Code. The county treasurer withdrew the property from auction due to the bankruptcy filing. The parties stipulated to key facts, including the amount of debt, estimated property value, and minimum bid, but disputed whether the transfer met the requirements for avoidance under 11 U.S.C. § 547(b).The United States Bankruptcy Court for the Eastern District of Michigan granted summary judgment to the county treasurer, finding that although the transfer occurred within the 90-day lookback period, the owner failed to satisfy the "more than" test under § 547(b)(5). The United States District Court for the Eastern District of Michigan affirmed, agreeing that the owner could not show the transfer enabled the treasurer to receive more than he would in a hypothetical Chapter 7 liquidation.Upon appeal, the United States Court of Appeals for the Sixth Circuit reviewed the legal conclusions de novo and factual findings for clear error. The Sixth Circuit held that the transfer occurred within the 90-day lookback period, and that the owner established the transfer was preferential under § 547(b)(4) and § 547(b)(5), specifically because the treasurer would receive a 5% sales commission not available in Chapter 7 liquidation. The district court’s judgment was reversed. View "Reinhardt v. Prince" on Justia Law

Décor Holdings, Inc. and its affiliates, sellers of decorative fabric, filed for Chapter 11 bankruptcy in February 2019. Sumec Textile Company Limited, a Chinese manufacturer, was listed as a major unsecured creditor. After filing an insurance claim with Sinosure (China Export & Credit Insurance Corporation) for Décor’s unpaid debt, Sumec authorized Sinosure to collect the full amount owed. Sinosure then hired Brown & Joseph, LLC (B&J), a U.S. collection agency, which filed Sumec’s proof of claim in the bankruptcy proceeding, listing itself as the recipient of notices to the creditor. In August 2020, Bryan Ryniker, as litigation administrator, commenced an adversary proceeding against Sumec to recover alleged preferential payments. Service of process was made on B&J as Sumec’s agent.The United States Bankruptcy Court for the Eastern District of New York entered a default judgment against Sumec, finding service on B&J sufficient. Sumec moved to vacate, claiming B&J lacked authority to accept service. The bankruptcy court denied the motion, relying on the agency relationship. On appeal, the United States District Court for the Eastern District of New York vacated the default judgment, ruling that Sumec had not expressly or impliedly authorized B&J to accept service of process. On remand, the bankruptcy court dismissed the adversary proceeding with prejudice.The United States Court of Appeals for the Second Circuit reviewed the dismissal. It held that the record established Sumec had conferred actual authority on Sinosure and B&J, both to file the proof of claim and to act to collect the full amount owed, implicitly authorizing B&J to accept service of process in the adversary proceeding. The Second Circuit vacated both the district court’s and bankruptcy court’s orders, reinstated the default judgment, and remanded for further proceedings. View "Ryniker v. Sumec Textile Co." on Justia Law

Whittaker, Clark & Daniels, Inc. and three affiliates, with a history of manufacturing, storing, and distributing asbestos-containing talc, faced thousands of personal injury and environmental claims. After a $29 million verdict against Whittaker in South Carolina, a state court there appointed a receiver to administer Whittaker’s assets. Whittaker’s board, without consulting the receiver, authorized and filed a Chapter 11 bankruptcy petition in the United States Bankruptcy Court for the District of New Jersey. The Debtors’ estates were largely depleted by a 2004 asset sale to Brenntag, which expressly excluded liability for pre-sale asbestos and environmental claims. The Debtors, now essentially shells, sought to settle successor liability claims against Brenntag for $535 million, but some talc claimants had already asserted such claims against Brenntag in state courts.The South Carolina receiver and the Official Committee of Talc Claimants challenged the bankruptcy filing’s validity, arguing that only the receiver could authorize such a filing under the South Carolina court's order. The receiver’s motion to dismiss the bankruptcy petition as unauthorized was denied by the Bankruptcy Court, which found the South Carolina order did not divest Whittaker’s board of its authority. The United States District Court for the District of New Jersey affirmed. In parallel, the Committee contested whether certain “product-line” successor liability claims belonged to the Debtors’ estates or to individual creditors. The Bankruptcy Court, referencing Third Circuit precedent, held that such claims were property of the bankruptcy estates.The United States Court of Appeals for the Third Circuit affirmed both lower court decisions. It held that Whittaker’s Chapter 11 filing was valid, as the South Carolina court’s receivership order did not displace the board’s authority under New Jersey law, which governs corporate internal affairs. The court further held that successor liability claims based on product-line theory, even if nominally assertable by creditors outside bankruptcy, are property of the bankruptcy estate when they address a general injury to the debtor that results in secondary harm to all creditors. Accordingly, the judgments below were affirmed. View "In re Whittaker, Clark & Daniels Inc" on Justia Law