Justia Bankruptcy Opinion Summaries

Eric Rajala, the bankruptcy trustee for Generation Resources Holding Company, LLC, initiated separate adversary proceedings against Spencer Fane LLP and Husch Blackwell LLP (collectively, “the firms”) to recover legal fees he alleged were proceeds of a fraudulent transfer. The bankruptcy court denied the firms’ motions to dismiss, but then certified the decisions for immediate appeal. The Tenth Circuit consolidated the appeals and agreed to hear them on an interlocutory basis. The Tenth Circuit concluded that because the firms were not “transferees,” as that term is used in 11 U.S.C. 550, the Court reversed and remanded with instructions to dismiss Rajala’s adversary complaints. Consequently, Rajala may not recover the fees from the firms. View "Rajala v. Spencer Fane" on Justia Law

In 2005, U.S. Home Corporation entered into a contract to purchase two contiguous tracts of land, one of which was owned by West Pleasant-CPGT, Inc. Under the contract, West Pleasant and the other landowner were to gain certain approvals permitting development of the properties. Pursuant to the contract, U.S. Home paid advances to the landowners totaling over $1.5 million. As security for the advances, West Pleasant executed a mortgage and note on its property; the other landowner did not. When a contract dispute arose in 2006, U.S. Home sought to terminate the contract and get a return of its total advance. U.S. Home prevailed in arbitration and was awarded a judgment in the full amount of the advance, plus interest. The Appellate Division affirmed the judgment in 2009. When the judgment was not satisfied, U.S. Home commenced foreclosure actions against the properties. The foreclosure proceedings were stayed when West Pleasant and the other property owner filed for bankruptcy. In West Pleasant’s bankruptcy action, U.S. Home moved to dismiss and for relief from the automatic stay. West Pleasant and U.S. Home executed a Consent Order, in which West Pleasant dismissed its bankruptcy proceeding, waived a fair market valuation and its right to object to a sheriff’s sale of its property, and released U.S. Home from any claims in law or equity. U.S. Home never proceeded with any deficiency action against either landowner. Nonetheless, the landowners commenced the affirmative litigation that gave rise to this appeal, seeking a declaration that the arbitration award was fully satisfied, as well as compensation “in the amount of the excess fair market value of the properties obtained by defendant[] U.S. Home over the amount of its outstanding judgment.” The second property owner then assigned its rights to West Pleasant. After trial, the court valued the second property as worth almost $2.4 million and West Pleasant’s property as worth almost $2 million. The court ordered U.S. Home to pay the fair market value of the West Pleasant property, plus interest, and extinguished the arbitration award on the second property. On appeal, the Appellate Division determined that West Pleasant had waived its right to a fair market valuation on its property but that it was owed a fair market value credit for the second property. The Appellate Division remanded the matter to the trial court for recalculation of damages. The New Jersey Supreme Court reversed, finding use of fair market value credit by this debtor to obtain a money judgment against a creditor, in the absence of a deficiency claim threatened or pursued or any objection being raised at the time of the sheriff’s sales, was "inconsistent with sound foreclosure processes and, moreover, inequitable in the circumstances presented." The judgment of the Appellate Division was reversed and the matter remanded for further proceedings. View "West Pleasant-CPGT, Inc. v. U.S. Home Corporation" on Justia Law

Chicago assesses fines for parking and other vehicular offenses against the owner. If the owner filed bankruptcy, keeping the car in the estate meant that the automatic stay prevented the city from using collection devices such as towing or booting. The Seventh Circuit previously held 11 U.S.C. 1327(b), which provides that “confirmation of a plan vests all of the property of the estate in the debtor” precludes debtors from avoiding such fines by keeping the car in the estate except when a court enters a case-specific order, supported by good case-specific reasons. Bankruptcy judges then changed their form confirmation order, adding a checkbox through which debtors could elect a departure from the statutory presumption. The Seventh Circuit then held that vehicular fines are administrative expenses that bankruptcy estates must pay even though not listed on debtors’ 11 U.S.C.507(a)(2) schedules. Whether a car’s title returns to the owner on confirmation of the plan or remains in the estate, vehicular fines must be paid. The Seventh Circuit then reversed confirmation orders that were based only on the debtor’s choice. Immunity from traffic laws is not an outcome plausibly attributed to the Bankruptcy Code. A bankruptcy court must confirm any plan that satisfies 11 U.S.C. 1325(a) and "other applicable provisions of this title”; section 1327(b) is an applicable provision. A bankruptcy court may confirm a plan that holds property in the estate only after finding good case-specific reasons for that action. View "City of Chicago v. Kiera Cherry" on Justia Law

At issue in this case is whether a debtor must object to a proof of claim filed by the IRS by serving it on the Attorney General and the local United States Attorney? Or is it good enough to simply mail it directly to the IRS? The Eighth Circuit held that, according to the plain language of Bankruptcy Rule 3007, an objection need only be mailed to the "claimant." In this case, once debtor fulfilled this requirement, he did enough to bring the United States within the jurisdiction of the bankruptcy court. Therefore, the bankruptcy court and the district court erred by finding that debtor needed to serve the objection on both the Attorney General and the local United States Attorney. The court remanded for further proceedings. View "Nicolaus v. United States" on Justia Law

Hidalgo, which is in Chapter 11 bankruptcy, alleged that it was denied a Paycheck Protection Program (PPP) loan under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) based on its status as a bankruptcy debtor. The bankruptcy court ruled in favor of Hidalgo and issued a preliminary injunction mandating that the SBA handle Hidalgo's PPP application without consideration of its ongoing bankruptcy. The Fifth Circuit held, under well-established circuit precedent, that the bankruptcy court exceeded its authority when it issued an injunction against the SBA Administrator. The court explained that the issue at hand is not the validity or wisdom of the PPP regulations and related statutes, but the ability of a court to enjoin the Administrator, whether in regard to the PPP or any other circumstance. Accordingly, the court vacated the preliminary injunction. View "Hidalgo County Emergency Service Foundation v. Carranza" on Justia Law

The Bankruptcy Code does not prevent debtors from proposing and confirming plans with an estimated duration. After determining that it had jurisdiction over debtors' appeal, the Ninth Circuit held on the merits that the text and structure of the Code do not mandate a fixed term requirement for all Chapter 13 plans and that the panel should not add one without clear direction from the statute. The panel also held that none of the reasons given by the bankruptcy appellate panel justify the finding that debtors proposed their initial plans in bad faith. Finally, the panel held that the bankruptcy court did not fail to hold a confirmation hearing within the timeframe prescribed by the Code and properly exercised its discretion by deferring consideration of debtors’ estimated-duration provisions until it could adequately address them. Accordingly, the panel affirmed in part, reversed and vacated in part, and remanded for further consideration. View "In re Nanette Marie Sisk" on Justia Law

Violation of a bankruptcy court discharge order is not an arbitrable dispute. The Second Circuit affirmed the district court's order denying appellants' motions to compel arbitration of a dispute with two debtors who previously held credit card accounts managed by appellants. Appellants argued that debtors were obliged to arbitrate the dispute concerning whether appellants violated the bankruptcy court's discharge orders when they failed to correct the status of debtors' credit card debt on their credit reports. Though the text and history of the Bankruptcy Code are ambiguous as to whether Congress intended to displace the Federal Arbitration Act in this context, the court held that circuit precedent is clear that the two statutes are in inherent conflict on this issue. In Anderson v. Credit One Bank, N.A., 884 F.3d 382 (2d Cir.), cert. denied, 139 S. Ct. 144 (2018), the court refused to enforce the parties' arbitration agreement, finding that Congress did not intend for disputes over the violation of a discharge order to be arbitrable. View "Belton v. GE Capital Retail Bank" on Justia Law

The Ninth Circuit affirmed, although on different grounds, the district court's dismissal of appellant's challenge to an exculpation clause approved by the bankruptcy court as part of a settlement and confirmation plan in Chapter 11 proceedings. As a preliminary matter, the panel declined to dismiss the appeal because of appellant's failure to reply to the show cause order. The panel remained bound by its earlier decision that appellant's challenge to the exculpation clause is not equitably moot. On the merits, the panel held that 11 U.S.C. 524(e) does not prohibit the exculpation clause at issue, because the clause covers only liabilities arising from the bankruptcy proceedings and not the discharged debt. View "Blixseth v. Credit Suisse" on Justia Law

After the State Bar of California suspended one of its members for misconduct, it conditioned her reinstatement of the payment of court-ordered discovery sanctions and costs associated with its disciplinary proceedings. The suspended attorney sought to discharge the payment in bankruptcy. The Ninth Circuit held that, while a debtor may not discharge the costs of the State Bar's attorney disciplinary proceedings imposed under California Business and Professions Code 6086.10, the discovery sanctions under California Procedure Code 2023.030 were dischargeable. Under the plain text of 11 U.S.C. 523(a)(7), they were not payable to and for the benefit of a governmental unit and were compensation for actual pecuniary losses. Finally, the panel rejected the attorney's claim that the State Bar violated 11 U.S.C. 525(a) by failing to reinstate her law license because of her nonpayment of dischargeable debts. Accordingly, the panel affirmed in part and reversed in part. View "Albert-Sheridan v. State Bar of California" on Justia Law

After debtor filed for bankruptcy under Chapter 13, the trustee objected to confirmation of the plan. The bankruptcy court agreed to confirm the plan only if debtor chose one of two non-statutory conditions. The first option would require debtor to agree to divert all his disposable income for the first seven months to pay the unsecured creditors, and the second would incorporate into the confirmation order what is known as the Molina language. Debtor chose the Molina language. The court held that, unless debtor's plan fell short of the 11 U.S.C. 1325(a) criteria, the court was required to confirm the plan, subject to subsection 1325(b). The court analyzed the claimed shortcomings under section 1325(a) and rejected them. On de novo review, the court held that debtor's plan complied with 1325 (b)(1)(A), and the bankruptcy court was not prohibited by that section from confirming the plan. The court further held that imposing the Molina language was not necessary or appropriate to carry out any part of the Bankruptcy Code identified in the appeal. Finally, the court held that the Molina language violates section 1329. Accordingly, the court vacated the confirmation order and remanded to the bankruptcy court for further proceedings. View "Brown v. Viegelahn" on Justia Law