by
The Fifth Circuit treated appellant's motion to amend its opinion as a petition for panel rehearing and granted the petition. The court withdrew the prior opinion and substituted the following opinion. This appeal stemmed from a bankruptcy court order approving a trustee's application to employ special counsel. The court held that appellant lacked standing to object to the trustee's application to employ SBPC because his indirect interest in the order failed to meet the strict requirements for a "person aggrieved" under the exacting test for bankruptcy standing or a creditor under 11 U.S.C. 327(c). Accordingly, the court affirmed the judgment. View "Furlough v. Cage" on Justia Law

by
The First Circuit reversed the judgment of the bankruptcy court allowing The Patriot Group, LLC to amend its pleadings in its adversary complaint requesting denial of the discharge in bankruptcy of Steven Fustolo’s debt and denying Fustolo’s discharge pursuant to the newly added claim, holding that the allowance of this belated amendment failed to satisfy the prescripts of due process underlying Fed. R. Civ. P. 15(b)(2) and was therefore an abuse of discretion. Specifically, the Court held that Appellant did not receive adequate notice of an unpleaded claim and did not provide his implied consent. Therefore, the bankruptcy court’s order must be reversed and the case remanded for further proceedings. View "Fustolo v. Patriot Group LLC" on Justia Law

by
The Ninth Circuit reversed the district court's decision affirming the bankruptcy court's summary judgment in favor of a condominium association. The panel held that condominium association assessments that become due after a debtor has filed for bankruptcy under Chapter 13 were dischargeable under 11 U.S.C. 1328(a). In this case, debtor's personal obligation to pay the assessments was not the result of a separate, post-petition transaction but was created when she took title to the condominium unit. Therefore, the debt for the assessments arose pre-petition and was dischargeable under section 1328(a), unless the Bankruptcy Code provided an exception to discharge. The panel held that the personal debt arising from the assessments was not excepted from discharge under section 1328(a). Finally, the Takings Clause was not implicated and equitable arguments did not override the express provisions of the Bankruptcy Code. View "Goudelock v. Sixty-01 Association of Apartment Owners" on Justia Law

by
The bankrupt businesses had debts that far exceeded the value of their assets. Bankruptcy courts authorized the sale of their principal assets (gasoline stations and a movie theater and café). Under Illinois law, the Illinois Department of Revenue (IDOR) may pursue the purchaser in a bulk sale for state taxes owed by the seller. To facilitate sales of the debtors’ properties, the bankruptcy court (11 U.S.C. 363(f)) allowed the sales to proceed free of any interests other than the bankruptcy estate's. Under section 363(e), a party whose interest has been removed is entitled to “adequate protection,” typically payment from the sale proceeds to compensate for the decrease in value of the party's interest. Each bankruptcy court assumed that IDOR was entitled to adequate protection but concluded that, because the sale proceeds were insufficient to satisfy the claims of the senior-most creditors (mortgages holders), IDOR was entitled to no portion of the sale proceeds. There were no other assets available. The Seventh Circuit affirmed. While the removal of IDOR’s interest likely increased the price bidders were willing to pay for the properties, IDOR has not given a realistic assessment of the value of its interest. The court rejected an argument that IDOR would have recovered 100 percent of the tax delinquency from an informed purchaser; IDOR’s claims were properly denied for want of evidence enabling the bankruptcy court to assign a reasonable value under section 363(e). View "Illinois Department of Revenue v. First Community Financial Bank" on Justia Law

by
The Bankruptcy Appellate Panel held that it may not consider on appeal the merits of a matter for which there would not have been jurisdiction in the bankruptcy court and thus the panel did not consider the merits of the McDougalls' (defendants) arguments on appeal. In this case, the McDougalls did not bring a counterclaim or cross-claim and could not challenge a judgment in favor of defendant AgCountry and against debtors. The McDougalls only sought to determine whether they held title to a parcel of land free of AgCountry's lien and did not seek anything from the bankruptcy court on behalf of or from debtors or their estate. Therefore, the panel remanded with instruction to dismiss the claim regarding the validity of AgCountry's lien against the Home Quarter. View "McDougall v. Ag Country Farm Credit Services" on Justia Law

by
Debtor filed a chapter 7 bankruptcy petition, seeking the discharge of his student loan debt as an “undue hardship,” 11 U.S.C. 523(a)(8). Debtor graduated with an architectural drafting certification in 2008 and, since then, the loan has been in forbearance, deferment or an income-driven repayment plan. The U.S. Department of Education intervened as a Party-Defendant and sought dismissal or summary judgment. Debtor filed an objection, not refuting the facts alleged in the motion, but arguing undue delay. The bankruptcy court allowed Debtor to amend his complaint, which did not state sufficient facts to meet the second prong of the Brunner test: “that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans.” Debtor filed an amended complaint with exhibits showing proof of the Debtor’s status as a parolee, but did not otherwise correct the deficiencies. The court dismissed, finding that Debtor “only [made] conclusory statements about his inability to pay, without offering facts that may support these conclusions” and that status as a parolee, alone, was not “beyond the debtor’s control” as required under the third prong of the Brunner test. The Bankruptcy Appellate Panel affirmed, concluding that Debtor did not plead sufficient facts to support a discharge of his student loan debt notwithstanding the exception to discharge that would otherwise apply. View "In re Chenault" on Justia Law

by
The Eighth Circuit affirmed the bankruptcy appellate panel's ruling affirming the bankruptcy court's order determining that Starion Financial was entitled to $83,122.95 in attorney fees and costs incurred to collect on its secured debt in the course of debtors' bankruptcy proceedings. The court held that the parties had an agreement for fees within the meaning of 11 U.S.C. 506(b), and the bankruptcy court did not err in finding that Starion Financial's application for attorney fees, while untimely, was not abusively so. Because no prejudice to debtors resulted, the fee application was properly allowed. View "McCormick v. Starion Financial" on Justia Law

by
In this consolidated appeal, plaintiff alleged that the district court abused its discretion by dismissing his two lawsuits based on the doctrine of judicial estoppel as a result of his failure to disclose them in his bankruptcy proceeding. Applying a two-part test to guide district courts in applying judicial estoppel, the court held that plaintiff took an inconsistent position under oath in a separate proceeding and the inconsistent positions were calculated to make a mockery of the judicial system. In this case, plaintiff not only failed to include the two lawsuits in his initial bankruptcy filings but he also failed to include them in any of the six separate amendments that he made to his schedules and filings during the bankruptcy proceeding. Plaintiff only disclosed the lawsuits after defendants had relied on plaintiff's failure to disclose as grounds for dismissal. View "Weakley v. Eagle Logistics" on Justia Law

by
Fallon Family, as part of a settlement agreement with Goodrich, executed a ratification of a previously disputed mineral lease in favor of Goodrich. Goodrich then filed a Chapter 11 bankruptcy proceeding. The Fallon Family argued that because the bankrupt Goodrich failed to make payments under the promissory note made part of the settlement agreement, the Fallon Family had the right to dissolve the settlement agreement on grounds of non-payment, thus divesting Goodrich of its interest in the lease. The Fifth Circuit affirmed the bankruptcy court's holding that when Goodrich filed for bankruptcy, the debtor-in-possession became vested under 11 U.S.C. 544(a) with all the rights and powers of a bona fide purchaser of the real property rights of Goodrich, including the ratified lease. The court held that the lease as ratified may not be dissolved for nonpayment of the obligations in the settlement agreement because the public record reflects that consideration had been fully paid, and a third party was not placed on notice of the remaining payments. View "Fallon Family, L.P. v. Goodrich Petroleum Corp." on Justia Law

by
NOV purchased industrial-strength "desert-proof" air conditioners from Technicool for use on specialty oil-and-gas rigs, for more than $3 million. After multiple units failed, NOV, represented by SBPC, sued Technicool in Texas state court. Technicool filed for Chapter 7 bankruptcy. NOV sought relief from the automatic stay and was allowed to join Technicool’s owner, Furlough, to its state suit. NOV, again represented by SBPC, filed a claim in the bankruptcy case, representing 93 percent of the total claims. After learning that Furlough had formed other companies, the Trustee sought to consolidate the businesses and pierce the corporate veil and to employ SBPC as special counsel under 11 U.S.C. 327(a). Furlough objected, arguing that SBPC’s representation of NOV was a disqualifying “interest adverse to the estate.” In an engagement letter, signed by SBPC, NOV agreed to transfer to the bankruptcy estate funds it recovered from Furlough in state court. The bankruptcy court, district court, and Fifth Circuit held that Furlough lacked standing to object. Furlough cannot show that he was “directly and adversely affected pecuniarily by the order of the bankruptcy court.” SBPC’s appointment does not directly affect whether the bankruptcy court approves NOV’s claim. Under section 327(c), “a person is not disqualified for employment . . . solely because of such person’s employment by or representation of a creditor, unless there is objection by another creditor or the United States trustee, [and] an actual conflict of interest.” View "Furlough v. Cage" on Justia Law