Justia Bankruptcy Opinion Summaries

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Defendant and her then-husband bought a condo for $525,000 with the intention of making it their primary residence. To finance the purchase, the couple took out a mortgage with the Plaintiff bank. Defendant did not sign the note but consented to her husband doing so. The mortgage contained a "future advances" clause, which granted Plaintiff a security interest in the Mortgage covering future funds Defendant's husband might borrow.Four years later, Defendant's husband borrowed additional funds from Plaintiff to keep his business afloat. Defendant did not sign the note. A few months later, Defendant's husband filed for Chapter 7 bankruptcy and the condo was sold for $650,000, approximately $250,000 of which was deposited in escrow. The couple divorced and Defendant moved out of the state.In Defendant's husband's bankruptcy case, the court held a portion of the escrowed sale proceeds must pay down his business notes pursuant to the mortgage’s future advances clause and that he could not claim a homestead exemption. Plaintiff was granted summary judgment on its claims that Defendant's proceeds were also subject to the future advances clause and that Plaintiff could apply those proceeds to Defendant's husband's business note.Defendant appealed on several grounds, including unconscionability, contract formation, and public policy, all of which the court rejected, affirming the district court's granting of summary judgment to Plaintiff. View "Sanborn Savings Bank v. Connie Freed" on Justia Law

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JPMorgan loaned the debtors $1.3 million on the security of a Cook County restaurant. After the debtors stopped paying real estate taxes, Wheeler paid on their behalf and received the right to a tax deed once a redemption period expired. JPMorgan did not pay the taxes or redeem from Wheeler. The debtors filed a bankruptcy petition. They listed some tax debts but did not identify Cook County or Wheeler as creditors. Neither was served with notice or a summons. JPMorgan knew about the unpaid taxes but failed to ensure that the County or Wheeler was served. The bankruptcy judge approved a plan of reorganization. The debtors did not pay; Wheeler got the judge to lift the automatic stay in order to get a tax deed. A state judge issued the requested deed. The federal district court held that the stay should have been left in place because the confirmed plan superseded Wheeler’s unpaid lien. On remand, the bankruptcy court declared the tax deed “void” and approved a revised plan of reorganization, calling for JPMorgan to pay Wheeler $65,000.In a second appeal, the district court concluded that the order approving the revised plan and knocking out Wheeler’s lien was valid. The Seventh Circuit affirmed. Wheeler is a party, the plan has been confirmed, and Wheeler has bypassed its principal opportunities to contest the plan. View "Wheeler Financial, Inc. v. J.P. Morgan Chase Bank, N.A." on Justia Law

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Appellant defaulted under her Chapter 11 bankruptcy plan by refusing to pay Appellee Bank of New York Mellon (Bank of NYM) after she lost her adversary proceeding challenging the bank’s secured claim. As a result, the bankruptcy court granted Bank of NYM’s motion to convert the bankruptcy case from Chapter 11 to Chapter 7 and ordered Appellant to turn over undistributed assets in her possession to the Chapter 7 bankruptcy estate. Appellant challenged these two decisions in separate appeals.   The Ninth Circuit affirmed the bankruptcy court’s orders converting Appellant’s bankruptcy case from Chapter 11 to Chapter 7 and ordering her to turn over undistributed assets in her possession to the Chapter 7 bankruptcy estate. The court held the bankruptcy court properly exercised its discretion in converting the case to Chapter 7 for cause under 11 U.S.C. Section 1112(b)(1). The court held that the party seeking relief under Section 1112(b)(1) has the initial burden of persuasion to establish that cause exists for granting such relief. The court held that failing to make required payments can be a material default of a Chapter 11 plan, even if the debtor has made payments for an extended period before the default or taken other significant steps to perform the plan. The court concluded that the bankruptcy court did not err in finding that Appellant’s default in paying Bank of New York Mellon’s secured claim was cause for conversion because both the amount and duration of this default were significant. View "ALLANA BARONI V. DAVID SEROR" on Justia Law

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When Cleary Packaging, LLC, filed a petition in bankruptcy under Subchapter V of Chapter 11 as a “small business debtor,” seeking to discharge a $4.7 million judgment that Cantwell-Cleary Co., Inc. had obtained against it for intentional interference with contracts and tortious interference with business relations, Cantwell-Cleary opposed the effort. It argued that 11 U.S.C. Section 1192(2), provides that small business debtors are not entitled to discharge any debt of the kind specified in section 523(a). And that Section 523(a) in turn lists 21 categories of debt that are non-dischargeable, including debts “for willful and malicious injury by the debtor to another entity or to the property of another entity.”   The bankruptcy court agreed with Cleary Packaging and concluded that its $4.7 million debt was dischargeable. The Fourth Circuit disagreed with the bankruptcy court and reversed the court’s ruling and remanded. The court found more harmony from following a close textual analysis and contextual review of Section 1192(2) and thus concluded that it provides discharges to small business debtors, whether they are individuals or corporations, except with respect to the 21 kinds of debts listed in Section 523(a). Finally, the court concluded that its interpretation serves fairness and equity in circumstances where a small business corporate debtor, in particular, is given greater priority over creditors than would ordinarily apply and thus should not especially benefit from the discharge of debts incurred in circumstances of fraud, willful and malicious injury, and the other violations of public policy reflected in Section 523(a)’s list of exceptions. View "Cantwell-Cleary, Co., Inc. v. Cleary Packaging, LLC" on Justia Law

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Bear Creek Trail, LLC, filed for Chapter 11 reorganization. The bankruptcy court granted a motion to convert the proceeding to a Chapter 7 liquidation and appointed a trustee. Bear Creek’s attorney in the bankruptcy proceedings asked the district court to review the bankruptcy court’s conversion order. The district court dismissed, holding that only the trustee could seek review. The Tenth Circuit concluded Bear Creek's former management and the attorney lacked authority to challenge the conversion order in district court on behalf of the Debtor. Accordingly, the district court's judgment dismissing the appeal was affirmed. View "Bear Creek Trail, et al. v. BOKF, et al." on Justia Law

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Under the Trustee Program, administrative functions previously handled by bankruptcy judges are handled by U.S. Trustees, within the Department of Justice. Six judicial districts in North Carolina and Alabama opted out of the Trustee Program; those bankruptcy courts continue to appoint bankruptcy administrators. Both programs handle the same administrative functions. The Trustee Program is funded entirely by user fees, largely paid by Chapter 11 debtors, 28 U.S.C. 589a(b)(5). The Administrator Program is funded by the Judiciary’s general budget. Under a Judicial Conference standing order, all districts nationwide charged similarly-situated debtors uniform fees. A 2017 fee increase was made applicable to currently pending and newly-filed cases in the Trustee Program and only to newly-filed cases in Administrator Program districts. Reversing the bankruptcy court, the Fourth Circuit held that the fee increase did not violate the Bankruptcy Clause uniformity requirement.A unanimous Supreme Court reversed, holding that the enactment of a significant fee increase that exempted debtors in two states violated the uniformity requirement. Nothing in the Bankruptcy Clause suggests a distinction between substantive and administrative laws; its language, embracing “laws on the subject of Bankruptcies,” is broad. Congress cannot evade the affirmative limitation of the uniformity requirement by enacting legislation pursuant to other grants of authority such as the Necessary and Proper Clause. The 2017 Act does not confer discretion on bankruptcy districts to set regional policies based on regional needs but exempts debtors in two states from a fee increase that applied to debtors in 48 states, without identifying any material difference between debtors across those states. The Bankruptcy Clause does not permit arbitrary geographically disparate treatment of debtors. View "Siegel v. Fitzgerald" on Justia Law

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Penn Line filed six proofs of claim seeking an administrative expense priority related to services provided to specific debtors in jointly administered bankruptcy cases. Debtors objected, asserting that “[t]he reclassified amounts are on account of labor and service charges listed on the claim which do not constitute a good under section 503(b)(9) and goods listed on the claim which were received outside of the proscribed 20-day receipt period under section 503(b)(9) thus not entitled to administrative priority.” The Plan Administrator responded in opposition to Penn Line’s Claims Objection Response and Administrative Expense Application. Penn Line offered no witnesses at the hearing, restating its primary argument that it was a critical vendor based on a theory of “implied assumption.” Penn Line also raised a new argument: that the work for which it filed its proofs of claim was performed post-petition.The bankruptcy court ruled that the “implied assumption” theory is not a valid basis for allowing an administrative expense claim, rejected Penn Line’s new argument that the work had been performed post-petition, and sustained the debtors’ objections. The court subsequently denied a motion for reconsideration. The Sixth Circuit Bankruptcy Appellate Panel affirmed, holding that the bankruptcy court did not abuse its discretion in denying Penn Line’s motion for reconsideration; Penn Line did not appeal the original order denying its administrative expense or the order sustaining the objection to claims. View "In re Murray Energy Holdings" on Justia Law

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Ernest Jones appealed a circuit court’s grant of summary judgment in favor of the Board of Trustees of the State of Institutions of Higher Learning of the State of Mississippi (IHL) because the doctrine of judicial estoppel barred his claims. Jones became the head football coach at Alcorn State University. Subsequently, he filed a breach of contract action against the IHL on in 2008. Jones was fired in January 2009. In October 2015, Jones petitioned a bankruptcy court in Florida for protection from his creditors. Jones failed to disclose the breach of contract suit against the IHL in the bankruptcy schedule’s “list of suits and administrative proceedings to which the debtor was a party within one year immediately preceding the filing of this bankruptcy case.” A jury returned a verdict in Jones’ favor in his breach of contract suit. On the day of the verdict, he voluntarily dismissed his bankruptcy proceeding. IHL moved for a judgment notwithstanding the verdict, and the circuit court set aside the verdict. Then in April 2017, while Jones’s appeal was pending before the Court of Appeals, he filed a second bankruptcy petition, this time, Jones proposed and filed a Chapter 13 plan. Despite the pending appeal, Jones again failed to disclose the IHL suit to the bankruptcy court, attesting under oath that no such claims existed. The Court of Appeals reversed and remanded the IHL suit. Back at the circuit court, IHL moved for summary judgment, arguing judicial estoppel barred Jones from recovery. Within ten days of the IHL’s seeking dismissal, Jones moved to amend his bankruptcy plan and for the first time disclosed the IHL lawsuit. Thereafter, the circuit court held a hearing on the IHL’s motion for summary judgment. The Mississippi Supreme Court found no abuse of the circuit court’s discretion in applying judicial estoppel to the facts found in this record. View "Jones v. Alcorn State University, et al." on Justia Law

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Century issued insurance to BSA and purchased reinsurance. After BSA made claims related to sexual abuse litigation, Century sought to collect on those policies and hired the Sidley’s Insurance Group. The representation did not extend to the underlying direct insurance; BSA was not a party to the reinsurance disputes. BSA later retained Sidley to explore restructuring; the engagement letter specified that Sidley would not “advis[e] [BSA] on insurance coverage.” Sidley filed BSA’s bankruptcy petition.Through Haynes, its insurance counsel, BSA engaged in substantive discussions with its insurers, including Century. Sidley attorneys were present at some meetings. Century did not object. When Century later objected, Sidley implemented a formal ethics screen between its restructuring team and its reinsurance team. Ultimately, the Bankruptcy Court recognized Sidley’s withdrawal. Century is separately pursuing its grievances about Sidley’s representation in arbitration.The Bankruptcy Court concluded that while Sidley may have received confidential information in the reinsurance matter relevant to BSA’s bankruptcy, no privileged or confidential information was shared between the Sidley's legal teams; it approved Sidley’s retention nunc pro tunc, finding no violation of 11 U.S.C. 372(a). The district court and Third Circuit affirmed. Century continued to have standing and the matter is not moot. Because Sidley’s representation of BSA did not prejudice Century, but disqualifying it would have been a significant detriment to BSA, it was well within the Court’s discretion to determine that the drastic remedy of disqualification was unnecessary. View "In re: Boy Scouts of America" on Justia Law

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A wrongful-death suit ended in default when a trucking company went bankrupt. That left two plaintiffs who both claimed to be the decedent’s common-law wife. The district court awarded damages to just one of them because Texas does not allow bigamy. The other putative wife maintains that the district court had to award damages to both plaintiffs.The Fifth Circuit affirmed the district court’s decision holding that a defaulting defendant is deemed to admit a plaintiff’s factual allegations, but the district court still may inquire whether those allegations demonstrate legal liability. In the putative wife’s amended complaint, she failed to make specific allegations regarding any of the elements of common-law marriage.The court reasoned that the statements she made were too “bare and conclusory” to be considered a well-pleaded factual allegation. After reviewing the putative wife’s complaint, the district court concluded that she and the decedent had agreed to be married, had cohabited, and had held themselves out as married. The court did not reject any of her factual allegations—it merely rejected the legal conclusion that she was married to the decedent. That rejection was proper in light of the other woman’s factual allegations.Moreover, where a plaintiff, but for the defendant’s default, would never have been able to show legal entitlement to a judgment, denial of that judgment is not itself a miscarriage of justice. There is nothing inequitable about allowing a district court to consider the facts alleged by all plaintiffs and award default judgment to only those whose claims are not precluded. View "Escalante v. Lidge" on Justia Law