Justia Bankruptcy Opinion Summaries

The Second Circuit affirmed the district court's orders affirming the bankruptcy court's award of monetary sanctions pursuant to its inherent power. Appellant filed a Chapter 7 petition in bankruptcy court for his client but ultimately failed to prosecute the case. The bankruptcy court then issued multiple orders to show cause, which appellant failed to comply with, and then the bankruptcy court ultimately sanctioned him. The court held, as a matter of first impression, that bankruptcy courts possess inherent power to sanction attorneys in appropriate circumstances. In this case, appellant's challenges to the bankruptcy court's exercise of that power failed for the reasons set forth in a separately-filed summary order. View "In re: Alba Sanchez" on Justia Law

The First Circuit affirmed the decision of the district court adopting bankruptcy court orders arising out of the bankruptcies of TelexFree, LLC, TelexFree, Inc., and Telexfree Financial, Inc. (collectively, TelexFree), one of the biggest Ponzi-pyramid schemes in United States history, holding that the bankruptcy court did not err in ruling that Appellant's unjust enrichment claims were stayed pursuant to 11 U.S.C. 362(a)(3). At issue in this case was who would be allowed to seek to recover payments made by new participants in the scheme to the existing participants who recruited them (the contested funds). While Trustee Stephen Darr attempted to recoup the contested funds through avoidance actions, victims represented by the Plaintiffs' Interim Executive Committee (PIEC) asserted unjust enrichment claims to recover the same amounts. The district court stayed the unjust enrichment claims under section 362(a)(3), thus permitting the trustee to pursue the contested funds and to stop PIEC's efforts to pursue those funds. The First Circuit affirmed, holding that the arguments the PIEC raised on appeal were not persuasive. View "Darr v. Plaintiffs' Interim Executive Committee" on Justia Law

Plaintiffs filed suit against Rushmore, seeking class certifications on claims arising under the Fair Debt Collection Practices Act (FDCPA) and the Florida Consumer Protection Practices Act (FDCCPA). Plaintiffs alleged that Rushmore made false, deceptive, and misleading representations when it sent mortgage statements and attempted to collect on their mortgage debt after they received a Chapter 7 discharge. The district court denied class certification. The Eleventh Circuit held that the district court abused its discretion because at the first step of the predominance analysis it erroneously classified the question of whether the Bankruptcy Code precluded or preempted the FDCPA and FCCPA claims as raising an individual, rather than common, issue. Therefore, the court vacated the district court's judgment and remanded for the district court to reconsider plaintiffs' class certification motion in light of the court's conclusion that this question was common to all class members. View "Sellers v. Rushmore Loan Management Services, LLC" on Justia Law

Hub Partners XXVI, Ltd. filed a foreclosure action against Thomas Barnett. The district court granted Hub a money and foreclosure judgment. Barnett filed for bankruptcy. During the bankruptcy, Barnett made court-approved payments to Hub. Barnett failed to pay the debt in full, and the bankruptcy court dismissed his bankruptcy. Over a month after the dismissal, Hub issued an execution on the pre-bankruptcy judgment. Barnett objected to the execution arguing the judgment was dormant pursuant to 12 O.S. 735, since more than five years had passed and Hub had not renewed the judgment. The district court agreed and granted Barnett's motion to release the dormant judgment and vacate the execution and sale order. Hub appealed, and the Court of Civil Appeals affirmed the district court's judgment. The Oklahoma Supreme Court granted certiorari to resolve: (1) whether Hub's foreclosure judgment was dormant; and (2) whether the mortgage at issue merged with the foreclosure judgment. The Supreme Court held the 2011 foreclosure judgment was dormant, but the mortgage lien did not merge into the foreclosure judgment and continues to secure Barnett's obligation owed to Hub. View "Hub Partners XXVI, Ltd. v. Barnett" on Justia Law

Denby-Peterson purchased a Chevrolet Corvette. Several months later, the Corvette was repossessed by creditors after Denby-Peterson defaulted on her car payments. Denby-Peterson subsequently filed an emergency voluntary Chapter 13 petition, notified the creditors of the bankruptcy filing, and demanded that they return the Corvette to her. They did not comply with her demand. Denby-Peterson filed a motion in the Bankruptcy Court, seeking to require the creditors to return the Corvette and sanctions for alleged violation of the Bankruptcy Code’s automatic stay. The court ordered turnover of the Corvette to Denby-Peterson but denied her request for sanctions. The district court and Third Circuit affirmed. As a matter of first impression, the Third Circuit held that a secured creditor’s failure to return collateral that was repossessed pre-bankruptcy petition upon notice of the debtor’s bankruptcy is not a violation of the automatic stay. A secured creditor does not have an affirmative obligation under the automatic stay to return a debtor’s collateral to the bankruptcy estate immediately upon notice of the debtor’s bankruptcy because failure to return the collateral received pre-petition does not constitute “an[] act . . . to exercise control over property of the estate,” 11 U.S.C. 362(a)(3). View "In re: Denby-Peterson" on Justia Law

Healthcare managed investment funds. Investors filed an involuntary bankruptcy petition with the intention of seeking Healthcare's removal as the fund manager. Healthcare was not served with process; the petition was uncontested. The bankruptcy court entered an order for relief. Healthcare was removed as the fund manager. The investors installed Summit as the new manager. Summit then dissolved the funds. About a month later, having learned what had transpired, Healthcare successfully moved to vacate the order for relief. Healthcare opposed dismissal asserting that it had claims for damages under 11 U.S.C. 303(i) because the investors filed the petition in bad faith. The bankruptcy court granted the investors’ motion for voluntary dismissal but retained jurisdiction, stating that “nothing herein shall limit [Healthcare’s] right to seek damages, including without limitation, fees and costs.” Healthcare sought section 303(i) damages and instituted an adversary proceeding against the investors asserting section 362(k) claims for violation of the automatic stay by the removal of Healthcare as the fund manager and the installation of Summit without court orders. The district court affirmed the dismissal of the 362(k) action. The Third Circuit reversed and remanded for reinstatement of the claim. The bankruptcy court had jurisdiction over Healthcare’s 362(k) adversary action. A section 362(k) action, no matter when instituted, is a case under title 11. The bankruptcy court lacked authority to limit what claims Healthcare could bring in the bankruptcy court after the dismissal of the bankruptcy petition. View "In re: Healthcare Real Estate Partners LLC" on Justia Law

A bankruptcy court does not have authority to enforce the discharge injunctions entered in other districts. Plaintiffs sought to certify a nationwide class of those who claim their education-loan debts were validly discharged but from whom the lender continues to demand payment. The Fifth Circuit held that the bankruptcy court erred in holding that it could address contempt for violations of injunctions arising from discharges by bankruptcy courts in other districts. Therefore, the court held that, as to Shahbazi and at least those debtors whose discharges were entered by courts in other districts, the bankruptcy court in these proceedings has no authority to enforce the resulting injunction. However, the court agreed with the bankruptcy court that the particular education loans involved here, although they were obtained in order to pay expenses of education, did not qualify as an obligation to repay funds received as an educational benefit, scholarship, or stipend because their repayment was unconditional. Therefore, they were dischargeable. The court remanded for further proceedings. View "Crocker v. Navient Solutions, LLC" on Justia Law

Debtor filed an adversary proceeding in bankruptcy court raising the issue of whether her bankruptcy discharge applied to a student loan. The Fifth Circuit affirmed the bankruptcy court's denial of Wells Fargo's motion to compel arbitration. The court held that its holding In re Nat'l Gypsum Co., 118 F.3d 1059, 1069 (5th Cir. 1997), -- that bankruptcy courts have discretion to refuse to compel arbitration in proceedings seeking enforcement of a discharge injunction -- remains good law following the Supreme Court's decision in Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018). The court held that Epic Systems shows that National Gypsum's doctrinal foundation remains sound. View "Henry v. Educational Financial Service" on Justia Law

Ex-wife filed suit against her ex-husband, a Chapter 7 debtor, in bankruptcy court over a debt of $32,500 plus interest. The Fifth Circuit affirmed the district court's decision reversing the bankruptcy court's ruling in favor of the ex-husband. The court held that the ex-husband's payment to the ex-wife's former attorney did not terminate his obligation to the ex-wife because the attorney was no longer authorized to transact on the ex-wife's behalf. In this case, the attorney did not have actual or apparent authority to collect on the ex-wife's behalf. View "Russell v. Russell" on Justia Law

The Eleventh Circuit affirmed the bankruptcy court's order revoking the discharge of debtors' debt. Debtors claimed that the trustee had pre-discharge knowledge of the alleged conduct that resulted in the revocation. The court held that the "lack-of-knowledge" requirement that is explicitly contained in one subsection of the bankruptcy statute, 11 U.S.C. 727(d)(1), cannot be read into the adjacent subsection of the same statute, 11 U.S.C. 727(d)(2), thereby barring revocation. The court need not reach the factual determination of whether the trustee had prior knowledge of the fraud issue, because it would be inappropriate to rewrite section 727(d)(2) to include that requirement. Therefore, the court held that the bankruptcy court and district court correctly interpreted section 727(d)(2). View "Thompson v. Gargula" on Justia Law