Justia Bankruptcy Opinion Summaries

Casey Cotton was involved in a car collision with Caleb and Adriane Crabtree, resulting in severe injuries to Caleb. The Crabtrees filed a lawsuit against Cotton and his insurer, Allstate, alleging that Allstate refused early settlement offers and failed to inform Cotton of these offers. While the claims against Allstate were dismissed, the claims against Cotton proceeded in the Lamar County Circuit Court. During the personal injury suit, Cotton declared bankruptcy, and his bankruptcy estate included a potential bad faith claim against Allstate. The Crabtrees, as unsecured creditors, petitioned the bankruptcy court to allow the personal injury suit to proceed to trial.The bankruptcy court directed that the suit against Cotton be liquidated by jury trial to pursue claims against Allstate for any resulting excess judgment. The Crabtrees sought an assignment of Cotton’s bad faith claim as a settlement of their unsecured claims in Cotton’s bankruptcy estate. Unable to afford the $10,000 up-front cost, they engaged Court Properties, LLC, to assist with financing. Court Properties paid the trustee $10,000 to acquire the bad faith claim, then assigned it to the Crabtrees in exchange for $10,000 plus interest, contingent on successful recovery from Allstate. Cotton was discharged from bankruptcy, and a jury verdict awarded the Crabtrees $4,605,000 in the personal injury suit.The Crabtrees filed an action in the United States District Court for the Southern District of Mississippi, which dismissed the case for lack of subject matter jurisdiction, finding the assignments champertous and void under Mississippi Code Section 97-9-11. The Crabtrees appealed to the United States Court of Appeals for the Fifth Circuit, which certified a question to the Supreme Court of Mississippi.The Supreme Court of Mississippi held that Mississippi Code Section 97-9-11 prohibits a creditor in bankruptcy from engaging a disinterested third party to purchase a cause of action from a debtor. The court clarified that solicitation of a disinterested third party to prosecute a case in which it has no legitimate interest violates the statute. View "Crabtree v. Allstate Property and Casualty Insurance Company" on Justia Law

Petitioners were defrauded by a now-defunct corporation that sold them long-term health care and estate planning services they never received. Unable to obtain compensation directly from the corporation, petitioners secured a federal bankruptcy court judgment against the corporation and applied for restitution from the Victims of Corporate Fraud Compensation Fund. The Secretary of State, who administers the Fund, denied their applications, leading petitioners to file a verified petition in the superior court for an order directing payment from the Fund. The superior court granted the petition, and the Secretary appealed.The superior court found that the bankruptcy court judgment was a qualifying judgment for compensation under the Fund. The court noted that the complaint contained allegations of fraud and requested a judgment finding the elements of fraud under California law were satisfied. The superior court also found that the administrative record contained ample evidence supporting the bankruptcy court’s default judgment against the corporation for fraud.The California Court of Appeal, Second Appellate District, reviewed the case. The court concluded that the bankruptcy court’s final judgment, which expressly adjudged petitioners as victims of intentional misrepresentation, met the Fund’s requirement for a judgment based on fraud. The court affirmed the superior court’s judgment regarding petitioners' entitlement to payment from the Fund. However, it reversed and remanded the case for the superior court to specify the amount the Secretary shall pay each petitioner, as the original order did not account for the statutory limit of $50,000 per claimant and the need to consider spouses as a single claimant. View "Alves v. Weber" on Justia Law

The case involves the Boy Scouts of America (BSA) and Delaware BSA, LLC, which filed for bankruptcy in 2020 due to numerous sexual abuse claims. The bankruptcy plan, confirmed by the Bankruptcy Court, includes the creation of a Settlement Trust funded by the sale of certain assets and contributions from BSA and other nondebtors to pay abuse claimants. The plan also includes nonconsensual third-party releases, which release claims against nondebtors without the claimants' consent.The District Court for the District of Delaware affirmed the Bankruptcy Court's confirmation order, and the plan became effective in April 2023. Four groups of appellants, including abuse claimants and insurers, appealed the decision. The Lujan and Dumas & Vaughn (D&V) Claimants, representing 140 abuse victims, sought to reverse the confirmation order and invalidate the plan, arguing that the nonconsensual third-party releases are impermissible under the Bankruptcy Code. The Certain Insurers and Allianz Insurers sought narrower relief, requesting modifications to the plan to preserve their rights and defenses under their insurance policies.The United States Court of Appeals for the Third Circuit reviewed the case. The court dismissed the Lujan and D&V Claimants' appeals as statutorily moot under 11 U.S.C. § 363(m), which protects good-faith purchasers of estate assets from reversal or modification on appeal if the sale was not stayed. The court found that the nonconsensual third-party releases were integral to the insurance policy buyback, and reversing the confirmation order would affect the validity of the sale.The court also considered the appeals of the Certain Insurers and Allianz Insurers. It concluded that the Certain Insurers' rights and defenses under their insurance policies were adequately preserved by the plan and confirmation order. However, the court found that the judgment reduction clause in the confirmation order impermissibly released the Allianz Insurers' claims without their consent, violating the Supreme Court's decision in Purdue Pharma L.P. v. Harrington. The court reversed the District Court's judgment regarding the Allianz Insurers' claims and remanded for further proceedings to modify the judgment reduction clause. View "In re: Boy Scouts of America and Delaware BSA LLC" on Justia Law

Debtor-Appellant Julia Soussis filed for Chapter 13 bankruptcy, proposed a repayment plan, and made $362,100 in pre-confirmation payments to the standing trustee. Before the court could confirm the plan, Soussis requested the dismissal of her case. The standing trustee returned most of the payments but retained $20,592 as his percentage fee. Soussis moved for disgorgement of this fee, arguing that the trustee should return all pre-confirmation payments if no plan is confirmed.The Bankruptcy Court denied Soussis’s motion, concluding that the trustee was entitled to keep the percentage fee regardless of plan confirmation. The District Court affirmed this decision, agreeing with the Bankruptcy Court’s interpretation of the relevant statutes.The United States Court of Appeals for the Second Circuit reviewed the case de novo. The court held that a standing trustee cannot keep any percentage fee collected from the debtor’s pre-confirmation payments if no plan is confirmed. The court interpreted Section 1326(a)(2) of title 11, which directs the trustee to return the “payments . . . proposed by the plan” if no plan is confirmed. The court reasoned that since the percentage fee is collected from these payments, it must also be returned. The court noted that Congress explicitly allowed for the deduction of the trustee’s fee in Chapter 11 (Subchapter V) and Chapter 12 bankruptcies but did not include similar language for Chapter 13 plans.The Second Circuit concluded that the trustee may collect the percentage fee from pre-confirmation payments but must return it if no plan is confirmed. The court reversed the District Court’s judgment and remanded the case for further proceedings consistent with this opinion. View "In re: Soussis" on Justia Law

Mesabi Metallics Company LLC (Mesabi) filed for Chapter 11 bankruptcy in 2016 and emerged successfully in 2017. During the bankruptcy proceedings, Mesabi initiated an adversary proceeding against Cleveland-Cliffs, Inc. (Cliffs), alleging tortious interference, antitrust violations, and other claims. Mesabi sought to unseal certain documents obtained from Cliffs during discovery, which had been filed under seal pursuant to a protective order. Cliffs opposed the motion, arguing that the documents should remain sealed under Bankruptcy Code § 107, not the common law right of access.The United States Bankruptcy Court for the District of Delaware applied the common law standard from In re Avandia Marketing, Sales Practices & Products Liability Litigation, concluding that Cliffs had not met the burden to keep the documents sealed. The court recognized the potential for a different interpretation and certified the question for direct appeal to the United States Court of Appeals for the Third Circuit.The Third Circuit held that the sealing of documents in bankruptcy cases is governed by § 107 of the Bankruptcy Code, not the common law right of access. The court clarified that § 107 imposes a distinct burden for sealing documents, requiring protection of trade secrets or confidential commercial information if disclosure would cause competitive harm. The court vacated the Bankruptcy Court's order and remanded for application of the correct standard.Additionally, the Third Circuit addressed a separate motion by Greg Heyblom to intervene and unseal the documents. The court concluded that the Bankruptcy Court lacked jurisdiction to grant Heyblom's motions while the appeal was pending, as it would interfere with the appellate court's jurisdiction. The orders granting Heyblom's motions were vacated. View "In re: ESML Holdings Inc v. Mesabi Metallics Company LLC" on Justia Law

Chenault-Vaughan Family Partnership ("Chenault"), a royalty interest holder in a Texas mineral estate, sued Centennial Resources Operating, LLC ("Centennial"), the site operator, for wrongly withholding royalties. The Bankruptcy Court awarded summary judgment to Centennial. Chenault appealed to the District Court, where the parties consented to proceed before a Magistrate Judge. The Magistrate Judge affirmed the Bankruptcy Court’s judgment, and Chenault appealed to the United States Court of Appeals for the Third Circuit.The Third Circuit first addressed whether the Magistrate Judge had jurisdiction to enter final judgment in the bankruptcy appeal. The court concluded that, with the consent of the parties and a referral by the district court, a magistrate judge may enter final judgment in a bankruptcy appeal. This conclusion was supported by the broad consent authority granted to magistrate judges under 28 U.S.C. § 636(c), the repeal of the statutory provision that previously prohibited such referrals, and the supervisory authority retained by Article III judges.On the merits, the Third Circuit reviewed the Bankruptcy Court’s summary judgment on two claims: trespass to try title and royalties under the Texas Natural Resources Code ("TNRC"). The court affirmed the summary judgment for Centennial on the trespass-to-try-title claim, finding that Centennial did not unlawfully enter the land and dispossess Chenault, as Luxe, a cotenant, had the right to extract minerals and permit Centennial to operate.However, the court vacated the summary judgment on the TNRC claim. The court found that there were genuine disputes of material fact regarding whether Centennial was obligated to pay Unit B royalties to Chenault, particularly concerning the Division Order and Centennial’s knowledge of MDC’s non-signature on the Unit B JOA. The case was remanded to the Magistrate Judge with instructions to remand to the Bankruptcy Court for further proceedings on the TNRC claim. View "In re: MTE Holdings LLC" on Justia Law

Western Robidoux, Inc. (WRI) filed for bankruptcy and initiated adversary proceedings against Boehringer Ingelheim Animal Health USA, Inc. (BIVI) and CEVA Animal Health, LLC (CEVA). BIVI and CEVA counterclaimed, seeking $1.9 million in damages. The parties mediated and reached a settlement, which was objected to only by TooBaRoo, LLC, a creditor. The bankruptcy court overruled TooBaRoo’s objections and approved the settlement. The district court affirmed this decision, and TooBaRoo appealed.The United States Bankruptcy Court for the Western District of Missouri initially reviewed the case. The court found that WRI’s indemnity payments to BIVI and CEVA were made to maintain business relationships, which generated significant revenue for WRI. The court concluded that WRI received reasonably equivalent value for these payments, making it unlikely that the Trustee would succeed in proving fraudulent transfers. The court also noted that key witnesses for the estate were unavailable, further diminishing the likelihood of success. The bankruptcy court approved the settlement, finding it fair and in the best interest of the estate.The United States District Court for the Western District of Missouri affirmed the bankruptcy court’s decision. The district court agreed that the settlement was reasonable and that the Trustee had met the burden of proving it was in the best interest of the estate. The court found no abuse of discretion in the bankruptcy court’s approval of the settlement.The United States Court of Appeals for the Eighth Circuit reviewed the case and affirmed the lower courts' decisions. The court held that the bankruptcy court did not abuse its discretion in approving the settlement, considering the likelihood of success in litigation, the complexity and cost of continued litigation, and the interests of all creditors. The settlement was deemed fair, equitable, and in the best interest of the estate. View "TooBaRoo, LLC v. Western Robidoux, Inc." on Justia Law

Barbara McNally sued Debbie-Ann Bromfield and her husband Everald Thompson in the Superior Court for multiple claims related to a property dispute. After Thompson filed for bankruptcy, McNally and Thompson reached a settlement agreement, which included dismissing McNally's pending lawsuit. McNally filed a motion for voluntary dismissal with prejudice under Super. Ct. Civ. R. 41(a)(2), which Bromfield opposed, seeking a decision on the merits through her own summary judgment motion. The trial court granted McNally’s motion to dismiss with prejudice and denied Bromfield’s summary judgment motion as moot, reasoning that Bromfield would not suffer any legal detriment from the dismissal.Bromfield appealed, arguing that the trial court abused its discretion in granting McNally’s motion for voluntary dismissal, claiming it caused her legal prejudice. The District of Columbia Court of Appeals reviewed the case. The court noted that Bromfield was not "aggrieved" by the dismissal with prejudice of the claims against her, as she had effectively prevailed in all relevant respects. The court emphasized that it has an independent obligation to ensure its jurisdiction and that Bromfield did not suffer an infringement or denial of legal rights.The court held that Bromfield’s desire for vindication did not constitute a cognizable legal injury and that her potential future claims, such as a malicious prosecution suit, did not provide grounds for appeal. The court concluded that Bromfield had secured an unmitigated victory in the underlying proceedings and dismissed her appeal for lack of jurisdiction. View "Bromfield-Thompson v. McNally" on Justia Law

The appellants, Robin and Louie Joseph Aquilino, filed for Chapter 7 bankruptcy in April 2020 and retained the law firm Spector Gadon Rosen & Vinci P.C. (Spector Gadon) as their counsel. They agreed to pay a flat fee of $3,500 and a $335 filing fee, which Spector Gadon disclosed to the Bankruptcy Court. However, due to the complexity of the case, Spector Gadon billed the Aquilinos for additional post-petition services, resulting in a fee agreement of $113,000, which was not disclosed to the Bankruptcy Court as required by 11 U.S.C. § 329(a) and Bankruptcy Rule 2016(b).The Bankruptcy Court for the District of New Jersey found that Spector Gadon violated the disclosure requirements and sanctioned the firm by ordering the disgorgement of collected fees and cancellation of the remaining fee agreement. Spector Gadon appealed, and the United States District Court for the District of New Jersey reversed the Bankruptcy Court's decision, concluding that Spector Gadon was entitled to a jury trial under the Seventh Amendment.The United States Court of Appeals for the Third Circuit reviewed the case and determined that the Bankruptcy Court had "core" jurisdiction over the fee disclosure issue under 28 U.S.C. § 157(b)(1). The Third Circuit held that the Seventh Amendment did not entitle Spector Gadon to a jury trial in the § 329(a) proceeding because the sanctions imposed were equitable in nature, designed to restore the status quo, and did not involve legal claims. The Third Circuit also found that the Bankruptcy Court did not abuse its discretion in imposing sanctions, as it considered all relevant factors, including the Debtors' misconduct.The Third Circuit reversed the District Court's judgment and reinstated the Bankruptcy Court's sanctions order. View "In re Aquilino" on Justia Law

A bankruptcy trustee objected to the treatment of student-loan debt under two proposed Chapter 13 plans filed by Victoria Florita Durand-Day and Lavonda Latrece Evans. Durand-Day listed $113,560.65 in nonpriority unsecured claims, including two student loans totaling $54,195.00, but her plan only accounted for $71,580.65 in scheduled unsecured claims. Evans listed $106,402.00 in nonpriority unsecured claims, including twelve student loans totaling $73,927.00, but her plan only accounted for $32,475.00 in scheduled unsecured claims. Both debtors proposed to pay their student loans directly to the lenders rather than through the Chapter 13 trustee.The bankruptcy court overruled the trustee's objections and confirmed the plans, concluding that the plans satisfied 11 U.S.C. § 1325(b)(1)(A) because the student-loan obligations would be paid in full according to their contractual terms under § 1322(b)(5). The trustee appealed, and the district court affirmed the bankruptcy court's decision, holding that the payments toward the student-loan obligations were still "under the [Plans]" per § 1325(b)(1)(A) even if they continued beyond the end of the plans.The United States Court of Appeals for the Fifth Circuit reviewed the case and determined that the plans did not satisfy 11 U.S.C. § 1325(b)(1). The court held that "under the plan" means that all allowed, unsecured claims, including student-loan obligations, must be paid in full within the life of the Chapter 13 plan. The court vacated the confirmation of the plans and remanded the case for further proceedings, allowing the debtors to file new plans consistent with this decision. View "Bassel v. Durand-Day" on Justia Law