Justia Bankruptcy Opinion Summaries

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Patricia Lee, a debtor, defaulted on her mortgage held by U.S. Bank on a 43-acre property in Georgia, which she used as her principal residence and also leased to a farming company. In an attempt to restructure her debts, Lee filed a voluntary bankruptcy petition under Chapter 11 of the Bankruptcy Code. She proposed a reorganization plan that included payments to U.S. Bank. However, U.S. Bank moved for relief from the automatic stay that had been triggered by Lee's bankruptcy filing, arguing that the anti-modification provision in Chapter 11 prevented the bankruptcy court from approving a plan that modified U.S. Bank's claim.The bankruptcy court agreed with U.S. Bank, concluding that the anti-modification provision applied because the property was Lee's principal residence, regardless of its additional use as farmland. The court granted U.S. Bank's motion for relief from the automatic stay, effectively allowing the bank to foreclose on Lee's property. Lee appealed this decision to the district court, which affirmed the bankruptcy court's order.The United States Court of Appeals for the Eleventh Circuit affirmed the lower courts' decisions. The appellate court held that the anti-modification provision in Chapter 11 has three requirements: the security interest must be in real property; the real property must be the only security for the debt; and the real property must be the debtor's principal residence. The court found that all three requirements were met in this case, as U.S. Bank's claim was secured by Lee's real property, which was the only security for the debt and was used by Lee as her principal residence. The court rejected Lee's argument that the property's additional use as farmland should exempt it from the anti-modification provision. View "Lee v. U.S. Bank National Association" on Justia Law

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The case revolves around Tiffany Smith, who filed a voluntary petition for a Chapter 13 bankruptcy proceeding in May 2019. Smith owned a two-unit rental property in Newark, New Jersey, secured by a mortgage held by Freedom Mortgage Corporation. Smith filed a Chapter 13 payment plan in the Bankruptcy Court, which included a motion to partially void Freedom’s mortgage lien on the property and to reclassify Freedom’s underlying claim as partially secured and partially unsecured. Freedom objected to the plan, particularly the cramdown of its secured claim, the property's listed valuation, the property's rents being applied to reduce its secured claim, and the feasibility of the overall plan.The Bankruptcy Court held a hearing to address Freedom’s objections. During the hearing, Freedom clarified that it was not disputing the listed value of the property. The parties resolved their differences and filed a consent order, in which they agreed to the terms. The Bankruptcy Court confirmed the First Modified Plan, which reflected the terms of the Consent Order.Smith later filed a third modified plan, seeking to extend the payment term due to delinquent tenants and pandemic-related eviction moratoriums. Freedom objected to the Third Modified Plan, arguing among other things, that the plan was not feasible. The Bankruptcy Court held a hearing and concluded that the objections raised by Freedom were precluded by res judicata. The Bankruptcy Court then confirmed the Third Modified Plan in a written order. Freedom appealed the Bankruptcy Court’s order to the District Court, which affirmed it. Freedom then appealed to the United States Court of Appeals for the Third Circuit.The Court of Appeals affirmed the District Court’s decision, holding that res judicata precluded Freedom’s objections to Smith’s use of rental income to pay its secured claim, to the valuation of the property, and to the plan’s stepped-up payment schedule. The Court also concluded that the Bankruptcy Court did not clearly err when it determined the Third Modified Plan to be feasible. View "In re: Smith" on Justia Law

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During the 2008 financial crisis, Highland Capital Management, L.P., an investment manager, faced numerous redemption requests from investors of the Highland Crusader Fund. The Fund was placed in wind-down, and a dispute arose over the distribution of assets. This led to the adoption of a Joint Plan of Distribution and the appointment of a Redeemer Committee to oversee the wind-down. The Committee accused Highland Capital of breaching its fiduciary duty by purchasing redemption claims of former investors. An arbitration panel ruled in favor of the Committee, ordering Highland Capital to pay approximately $3 million and either transfer or cancel the redemption claims.Before the Committee could obtain a judgment for the award, Highland Capital filed for Chapter 11 bankruptcy. CLO HoldCo, a creditor, filed a claim for approximately $11 million, asserting it had purchased interests in the redemption claims. However, after a settlement agreement between Highland Capital and the Committee led to the cancellation of the redemption claims, CLO HoldCo amended its claim to zero dollars.After the bankruptcy court confirmed Highland Capital's reorganization plan, CLO HoldCo filed a second amended proof of claim, asserting a new theory of recovery. It argued that the cancellation of the redemption claims resulted in a credit for Highland Capital, which it owed to CLO HoldCo. The bankruptcy court denied the motion to ratify the second amended proof of claim, a decision affirmed by the district court.The United States Court of Appeals for the Fifth Circuit affirmed the lower courts' decisions. It held that post-confirmation amendments require a heightened showing of "compelling circumstances," which CLO HoldCo failed to provide. The court found that the bankruptcy court did not abuse its discretion in denying CLO HoldCo's motion to ratify the second amended proof of claim. View "CLO Holdco v. Kirschner" on Justia Law

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Abigail Fricke filed a Chapter 13 bankruptcy petition, which required her to disclose all her assets, including any lawsuits. Three years later, she filed a lawsuit against Red Lobster, alleging she was injured due to the restaurant's negligence. However, she did not update her bankruptcy asset schedule to include this lawsuit until after Red Lobster moved for summary judgment based on standing and judicial estoppel. The trial court denied Red Lobster's summary judgment motion, and the Court of Appeals affirmed.Red Lobster argued that Fricke lacked standing to sue because her personal injury claim was an asset that belonged to her bankruptcy estate rather than to her. The Indiana Supreme Court disagreed, stating that Fricke had standing to sue because she alleged a demonstrable injury allegedly caused by Red Lobster. The court clarified that while Fricke was improperly pursuing the claim on her own behalf rather than on behalf of the bankruptcy estate, this meant she was not the real party in interest, not that she lacked standing.Red Lobster also argued that judicial estoppel barred Fricke's claim. The court disagreed, stating that judicial estoppel did not apply when the bankruptcy court permits a plaintiff-debtor to cure their omission by amending their asset schedule to include a previously omitted lawsuit. The court found that Fricke did not mislead the bankruptcy court and did not prevail on a position in her bankruptcy proceedings that contradicts her claim in this state court negligence action. Therefore, her representations to the bankruptcy court did not judicially estop her from pursuing her personal injury claim against Red Lobster. The court affirmed the trial court's decision. View "Red Lobster Restaurants, LLC v. Fricke" on Justia Law

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The case involves the Roman Catholic Archdiocese of New Orleans ("Archdiocese") which sought Chapter 11 bankruptcy relief due to numerous lawsuits alleging sexual abuse by priests. The United States Trustee appointed an Official Committee of Unsecured Creditors ("Committee"), which included the appellants. The appellants' attorney, Richard Trahant, violated a protective order by disclosing confidential information related to abuse allegations against a priest. The bankruptcy court found Trahant's breach to be a disruption to the bankruptcy process and ordered the removal of Trahant's clients, the appellants, from the Committee.The appellants appealed their removal from the Committee to the district court, arguing that the district judge who was originally assigned their appeal should have recused himself earlier. The district court dismissed the appeal, concluding that the appellants lacked standing to appeal their removal from the Committee. The appellants then appealed to the United States Court of Appeals for the Fifth Circuit.The Fifth Circuit affirmed the district court's decision. It found that the district court did not err in declining to vacate the judgment, and the appellants lacked standing under Article III to prosecute this appeal. The court held that the appellants failed to demonstrate an injury to any legally protected interest. Their substantive rights as creditors in the bankruptcy case were not impaired by their removal from the Committee. The court also noted that the bankruptcy court's order did not amount to a personal sanction against the appellants, but was a consequence of the conduct of their attorney. View "Adams v. Roman Catholic Church" on Justia Law

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Edward Johnson filed for bankruptcy relief under Chapter 13 and made payments to the bankruptcy trustee, Marilyn O. Marshall, under his proposed repayment plan. However, the bankruptcy court never confirmed his plan due to his inability to address an outstanding loan and his domestic support obligations, and ultimately dismissed his case for unreasonable delay. Before returning Johnson's undisbursed payments, the trustee deducted a percentage fee as compensation. Johnson filed a motion requesting that the trustee disgorge her fee, which the bankruptcy court granted, reasoning that the trustee did not have statutory authority to deduct her fee because Johnson's plan was not confirmed. The trustee appealed this decision.The United States Court of Appeals for the Seventh Circuit reviewed the case de novo. The court analyzed the statutory text and agreed with the Ninth and Tenth Circuits that the United States Bankruptcy Code requires the Chapter 13 trustee to return her fee when the debtor's plan is not confirmed. The court found that neither of the two exceptions in § 1326(a)(2) of the Bankruptcy Code applied to the trustee's fee. The court also rejected the trustee's argument that § 1326(b) authorized her to keep her fee when making pre-confirmation adequate protection payments to creditors, as this provision only addresses payments made after a plan has been confirmed. The court further found that the trustee had no right to keep her fee under 28 U.S.C. § 586(e)(2), which only addresses the source of funds that may be accessed to pay standing trustee fees.The court concluded that the Chapter 13 trustee must return her fee when the debtor's plan is not confirmed, affirming the decision of the bankruptcy court. View "Marshall v. Johnson" on Justia Law

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A group of retirement and pension funds filed a consolidated putative securities class action against PG&E Corporation and Pacific Gas & Electric Co. (collectively, PG&E) and some of its current and former officers, directors, and bond underwriters (collectively, Individual Defendants). The plaintiffs alleged that all the defendants made false or misleading statements related to PG&E’s wildfire-safety policies and regulatory compliance. Shortly after the plaintiffs filed the operative complaint, PG&E filed for Chapter 11 bankruptcy, automatically staying this action as against PG&E but not the Individual Defendants. The district court then sua sponte stayed these proceedings as against the Individual Defendants, pending completion of PG&E’s bankruptcy case.The district court for the Northern District of California issued a stay of the securities fraud action against the Individual Defendants, pending the completion of PG&E's Chapter 11 bankruptcy case. The court reasoned that the stay would promote judicial efficiency and economy, as well as avoid the potential for inconsistent judgments. The plaintiffs appealed this decision, arguing that the district court abused its discretion by entering the stay.The United States Court of Appeals for the Ninth Circuit held that it had jurisdiction over this interlocutory appeal under the Moses H. Cone doctrine because the stay was both indefinite and likely to be lengthy. The appellate court found that the district court abused its discretion in ordering the stay as to the Individual Defendants. The court held that when deciding to issue a docket management stay, the district court must weigh three non-exclusive factors: the possible damage that may result from the granting of a stay, the hardship or inequity that a party may suffer in being required to go forward, and judicial efficiency. The appellate court vacated the stay and remanded for the district court to weigh all the relevant interests in determining whether a stay was appropriate. View "PUBLIC EMPLOYEES RETIREMENT ASS'N OF NEW MEXICO V. EARLEY" on Justia Law

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The case involves a dispute arising from the financial fallout of Winter Storm Uri, which severely impacted Texas's electrical grid in 2021. The Electric Reliability Council of Texas (ERCOT), responsible for managing the grid, took measures including manipulating energy prices to incentivize production. This resulted in Entrust Energy, Inc., receiving an electricity bill from ERCOT of nearly $300 million, leading to Entrust's insolvency and subsequent bankruptcy filing. ERCOT filed a claim seeking payment of the invoice, which was challenged by Anna Phillips, the trustee of the Entrust Liquidating Trust. The trustee argued that ERCOT's price manipulation violated Texas law, that ERCOT was grossly negligent in its handling of the grid during the storm, and that ERCOT's transitioning of Entrust’s customers to another utility was an uncompensated taking in violation of the Fifth Amendment.The bankruptcy court declined to abstain from the case and denied ERCOT’s motion to dismiss all claims except for the takings claim. ERCOT appealed to the United States Court of Appeals for the Fifth Circuit, arguing that the bankruptcy court should have abstained under the Burford doctrine, which allows federal courts to abstain from complex state law issues to avoid disrupting state policies.The Fifth Circuit found that the bankruptcy court erred in refusing to abstain under the Burford doctrine. The court reversed the bankruptcy court's denial of ERCOT’s motion to abstain and its denial of ERCOT’s motion to dismiss the trustee’s complaint. The court also vacated the bankruptcy court’s order dismissing the takings claim with prejudice. The court remanded the case with instructions to dismiss certain counts and stay others pending the resolution of related state proceedings. View "Electric Reliability Council of Texas v. Phillips" on Justia Law

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The case involves Bestwall, LLC, a company that filed for Chapter 11 bankruptcy in November 2017. The company sought to establish a trust to pay current and future asbestos-related claims against it. As part of this process, Bestwall requested all persons with pending mesothelioma claims against it to complete a personal injury questionnaire. Several individual claimants and the Official Committee of Asbestos Claimants objected to this request. The bankruptcy court granted Bestwall's motion and ordered all current mesothelioma claimants to complete the questionnaire. Some claimants, represented by the law firm of Maune, Raichle, Hartley, French & Mudd, LLC, filed a lawsuit in Illinois seeking an injunction to prevent Bestwall from enforcing the questionnaire order. In response, Bestwall moved in the bankruptcy court to enforce the order.The bankruptcy court held the claimants and their law firm in contempt for violating the questionnaire order. The court later sanctioned them jointly and severally in the amount of $402,817.70 for fees and expenses Bestwall incurred in defending the Illinois lawsuit and enforcing the questionnaire order. The claimants and their law firm appealed both the contempt order and the sanctions order to the district court, which dismissed the appeals for lack of jurisdiction.The United States Court of Appeals for the Fourth Circuit affirmed the district court's judgment. The court held that the contempt and sanctions orders were not final appealable orders because they did not terminate a procedural unit separate from the remaining bankruptcy case. The court noted that in normal civil litigation, a party may not immediately appeal a civil contempt order or attendant sanctions but must wait until final judgment to appeal. The same rule applies in bankruptcy, except the relevant final judgment may be a decree ending the entire case or a decree ending a discrete proceeding within the bankruptcy case. The court concluded that the contempt and sanctions orders did not terminate a procedural unit separate from the remaining bankruptcy case, and therefore, they were not final appealable orders. View "Blair v. Bestwall, LLC" on Justia Law

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The case revolves around a dispute between Sanofi-Aventis U.S. LLC and Mallinckrodt PLC. Sanofi sold its rights in a drug to Mallinckrodt for $100,000 and a perpetual annual royalty. The drug was successful, but Mallinckrodt filed for bankruptcy and sought to convert Sanofi's right to royalties into an unsecured claim. Mallinckrodt aimed to discharge all future royalty payments and continue selling the drug without paying royalties, leaving Sanofi with only an unsecured claim.The bankruptcy court approved Mallinckrodt's discharge, ruling that since Sanofi had fully transferred ownership years ago, the contract was not executory. It also held that Sanofi's remaining contractual right to future royalties was an unsecured, contingent claim, which Mallinckrodt could discharge. The District Court affirmed these rulings.The United States Court of Appeals for the Third Circuit reviewed these rulings de novo. The court held that Sanofi's right to payment arose before Mallinckrodt filed for bankruptcy, making its royalties dischargeable in bankruptcy. The court rejected Sanofi's argument that the future royalties were too indefinite to be a claim, stating that the Bankruptcy Code allows for claims that are both contingent and unliquidated. The court also disagreed with Sanofi's assertion that bankruptcy cannot resolve its royalties claim because it will not exist until Mallinckrodt hits the sales trigger each year. The court ruled that a claim can arise before it is triggered, and most contract claims arise when the parties sign the contract. The court affirmed the lower courts' decisions, ruling that Sanofi's contingent claim arose before Mallinckrodt went bankrupt and is therefore dischargeable in bankruptcy. View "In re Mallinckrodt PLC" on Justia Law