Justia Bankruptcy Opinion Summaries

The Fifth Circuit denied the petitions for panel rehearing and rehearing en banc, and substituted the following opinion in place of the prior opinion. The Port filed an adversary proceeding against debtors, seeking to invalidate the bankruptcy sale and regain its easement. The court affirmed the district court's judgment upholding the bankruptcy court's decision rejecting the Port's sovereign immunity and fraud claims. In Tennessee Student Assistance Corporation v. Hood, the Supreme Court held that a bankruptcy court’s discharge of an individual's debt to the state of Tennessee did not violate the Eleventh Amendment. For purposes of the Eleventh Amendment, the court reasoned that the Port's easement was like Tennessee's debt claim against the estate: the state holds an interest burdening the bankruptcy res. Hood holds that a bankruptcy court's exercise of in rem jurisdiction over the debtor's estate can extinguish the state's interest burdening that res without implicating the Eleventh Amendment. Therefore, the court held that there was no Eleventh Amendment violation here. The Port's further argument to the contrary was foreclosed. The court also held that the Port failed to allege any intentional false representation under Bankruptcy Code section 1144. View "Port of Corpus Christi Authority v. Sherwin Alumina Co." on Justia Law

The IRS allows affiliated corporations to file a consolidated federal return, 26 U.S.C. 1501, and issues any refund as a single payment to the group’s designated agent. If a dispute arises, federal courts normally turn to state law to resolve the question of distribution of the refund. Some courts follow the “Bob Richards Rule,” which initially provided that, absent an agreement, a refund belongs to the group member responsible for the losses that led to it. The Rule has evolved, in some jurisdictions, into a general rule that is always followed unless an agreement unambiguously specifies a different result. Soon after the bank suffered huge losses, its parent, Bancorp, was forced into bankruptcy. When the IRS issued a $4 million tax refund, the bank’s receiver, the FDIC, and Bancorp’s bankruptcy trustee each claimed it. The Tenth Circuit examined the parties’ allocation agreement, applied the more expansive version of Bob Richards, and ruled for the FDIC. The Supreme Court vacated. The Rule is not a legitimate exercise of federal common lawmaking. Federal judges may appropriately craft the rule of decision in only limited areas; claiming a new area is subject to strict conditions. Federal common lawmaking must be necessary to protect uniquely federal interests. The federal courts applying and extending Bob Richards have not pointed to any significant federal interest sufficient to support the rule, nor have these parties. State law is well-equipped to handle disputes involving corporate property rights, even in cases involving bankruptcy and a tax dispute. Whether this case might yield a different result without Bob Richards is a matter for the court of appeals on remand. View "Rodriguez v. Federal Deposit Insurance Corp." on Justia Law

The latency period for some asbestos-related diseases may last 40 years In bankruptcy, most classes of asbestos plaintiffs are divided between those who have already contracted an asbestos-related disease and those who have been exposed and are at risk but may not realize the fact of their exposure. Normally, a bankruptcy court sets a bar date before which proofs of claim against the estate must be filed; upon confirmation of a plan, all claims for which proofs are not filed are discharged. Under 11 U.S.C. 524(g) a court can deal with latent claims by establishing a trust and appointing a representative of future claimants’ interests. EFH, a holding company, and its subsidiaries filed a Chapter 11 bankruptcy petition. EFH’s holdings included Oncor, the largest electricity company in Texas. EFH could not sell Oncor alone without triggering massive tax liability; a buyer would need to acquire EFH’s other properties, including the Asbestos Debtors. A potential buyer proposed avoiding section 524(g) by relegating discharged claimants to the post-confirmation process. Federal Rule of Bankruptcy Procedure 3003(c)(3) provides that a bankruptcy court “shall fix and for cause shown may extend” the time within which proofs of claim may be filed; claimants may file after the bar date if they show “excusable neglect.” Latent asbestos claimants unsuccessfully argued that the plan would violate their due process rights. EFH implemented a notice plan for potential claimants. The bankruptcy court confirmed the plan, discharging claims that were not filed before the bar date. The Federal Circuit affirmed. Rule 3003(c)(3) is capable of affording latent claimants a fair opportunity post-confirmation to seek reinstatement of their claims The court noted the flaw in debtors attempting to circumvent section 524(g). This alternative route has produced a similar result as a section 524(g) trust but with unnecessary back-end litigation. View "In re: Energy Future Holdings Corp." on Justia Law

The bankruptcy appellate panel dismissed debtor's appeal based on lack of jurisdiction, because debtor failed to show that she was a person aggrieved by the bankruptcy court's order overruling her objection to the trustee's final report. Therefore, debtor did not have standing to appeal the bankruptcy court's order. In this case, debtor did not challenge in her objection, nor on appeal, the amount the trustee reported had been returned to her following dismissal of her case. Furthermore, debtor has not demonstrated that the bankruptcy court's order directly and adversely affected her pecuniarily. View "Marshall v. McCarty" on Justia Law

The Garvens contracted with Debtor and DRMP for home repairs and improvements. Unhappy with the results, the Garvens sued Debtor and DRMP in state court and obtained a default judgment against them. At the Garvens' request, the sheriff levied a writ of execution on Debtor's ownership interest in DRMP and scheduled an execution sale. At the execution sale, the Garvens purchased Debtor's ownership interest and became the sole owners of DRMP. Upon learning of the execution sale, Debtor allegedly began withdrawing assets from DRMP and transferring them to a different entity. Debtor then filed a chapter 7 bankruptcy petition. The bankruptcy court lifted the automatic stay to allow the Garvens and DRMP to commence a state court action against Debtor and related third parties to avoid the allegedly fraudulent transfers. The Eighth Circuit Bankruptcy Appellate Panel dismissed an appeal. The Garvens and DRMP filed their motion for relief from the automatic stay on June 5, 2019. The bankruptcy court rendered its final decision on September 19, 2019, more than 60 days after the motion was filed. The 60-day period was not extended, so the automatic stay was terminated by operation of law on August 5, 2019, rendering the order lifting the stay superfluous. View "Paczkowski v. Garven" on Justia Law

Zurich filed suit against Trend after Trend purchased workers' compensation insurance from Zurich and then eventually went with a new insurance provider. Trend then filed for bankruptcy and the bankruptcy court allowed Zurich's claims for various unpaid invoices, estimated future losses, and unpaid fee schedule write-down fees. The Fifth Circuit affirmed the district court's decision upholding the bankruptcy court's allowance of Zurich's unpaid-invoices and future-losses claims. The court applied federal bankruptcy law and held that there was no legal error due to unintentionality; Zurich's unpaid-invoices claim was a cognizable bankruptcy claim because the underlying invoices were enforceable rights to payment under New York law; the bankruptcy court did not clearly err in its assessment of the evidence by concurrently allowing Zurich's claims such that the total allowance was $4,674,629 for "future losses." The court also held that there was no error in the bankruptcy court's allowance of Zurich's claim for unpaid fee schedule write-down fees. In this case, Zurich has a cognizable claim to the unpaid fee schedule write-down fees, and the bankruptcy court did not clearly err by concluding that the "25% of Total Savings" fee, as applied to fee schedule write-downs, was not unconscionable. View "Trendsetter HR LLC v. Zurich American Insurance Co." on Justia Law

Mostoller owned the Debtor, a business that serviced oil and gas wells. The Debtor owed the Trust $3 million, secured by a blanket lien on most of the Debtor’s assets and a personal guarantee by Mostoller. The Debtor petitioned for Chapter 11 reorganization. To entice the Trust to lend more money, Mostoller agreed to assign his anticipated federal tax refund. The taxable income and losses of the Debtor, an S Corporation, passed through to Mostoller, who had paid millions of dollars in federal taxes on that income. He could file amended 2013 and 2014 tax returns to carry back the Debtor’s 2015 losses, which would offset his taxable income for those two years and trigger a refund. 26 U.S.C. 172(a), (b)(1)(A)(i). Mostoller pledged “any rights or interest in the 2015 Federal tax refund due to him individually, but attributable to the operating losses of the Debtor. The bankruptcy court approved the agreement The Debtor defaulted on the emergency loan and converted to a Chapter 7 liquidation. Mostoller first refused to file the tax returns. When the tax refund came, Mostoller tried to keep it. The district court and Third Circuit affirmed in favor of the Trust, rejecting Mostoller’s argument that he pledged his refund on taxes that he paid for 2015 alone, excluding any refund on his 2013 and 2014 taxes. That reading would make the collateral worthless, so the Trust would never have made the loan. View "In re: Somerset Regional Water Resources, LLC" on Justia Law

In 2011 Wells Fargo entered into a loan and security agreement with hhgregg to provide the retailer with operating credit. Wells Fargo had a perfected first-priority, floating lien on nearly all of hhgregg’s assets. In 2017, hhgregg petitioned for Chapter 11 bankruptcy, owing Wells Fargo $66 million. Wells Fargo agreed to provide debtor-in-possession (DIP) financing in return for a priming, first-priority security interest on substantially all of hhgregg’s assets, including existing and after-acquired inventory and its proceeds. The bankruptcy judge approved the DIP financing agreement and the super-priority security interest. Whirlpool had long delivered home appliances to hhgregg on credit for resale. Three days after the approval of the DIP financing, Whirlpool sent a reclamation demand seeking the return of $16.3 million of unpaid inventory delivered during 45 days before the petition date and filed an adversary complaint, seeking a declaration that its reclamation claim was first in priority as to the reclaimed goods. Reorganization proved unsuccessful. The bankruptcy judge authorized hhgregg to sell its inventory—including the Whirlpool goods—in going-out-of-business sales and entered summary judgment for Wells Fargo. The Seventh Circuit affirmed. Reclamation is a limited remedy that permits a seller to recover possession of goods delivered to an insolvent purchaser, subject to significant restrictions, 11 U.S.C. 546(c). A seller’s right to reclaim goods is “subject to the prior rights of a holder of a security interest in such goods or the proceeds thereof.” Whirlpool’s later-in-time reclamation demand is “subject to” Wells Fargo’s prior rights as a secured creditor; its reclamation claim is subordinate to the DIP financing lien. View "Whirlpool Corp. v. Wells Fargo Bank, N.A." on Justia Law

The Ninth Circuit dismissed Ocwen's appeal of the Bankruptcy Appellate Panel's (BAP) decision affirming the bankruptcy court's contempt orders, holding that the panel lacked appellate jurisdiction. The panel held that the BAP's decision remanding the matter to the bankruptcy court was not final and appealable. The panel considered the need to avoid piecemeal litigation, judicial efficiency, the systemic interest in preserving the bankruptcy court's role as the finder of fact, and whether delaying review would cause any party irreparable harm, and ultimately concluded that all factors compelled dismissal of Ocwen's appeal. However, the panel held that it had jurisdiction over debtors' appeal and affirmed the BAP's conclusion that they were not entitled to attorney's fees for their appeal to the BAP. Therefore, the panel rejected debtors' claims that they were entitled to attorney's fees under Federal Rule of Appellate Procedure 38, the attorney's fee provision in the deed of trust with Ocwen, and section 105(a) of the Bankruptcy Code. View "Ocwen Loan Servicing, LLC v. Marino" on Justia Law

The Eighth Circuit affirmed the bankruptcy appellate panel's judgment upholding the bankruptcy court's determination that debtor's interest in his ex-wife's IRA and 401(k) retirement accounts that were awarded to him after the dissolution of marriage were not exempt as retirement funds. The court explained that debtor's interest in his ex-wife's IRA and 401(k) accounts lacked most of the legal characteristics of ordinary "retirement funds." View "Lerbakken v. Sieloff and Associates, P.A." on Justia Law