Justia Bankruptcy Opinion Summaries
In re: WR Grace & Co
Grace operated a Montana asbestos facility, 1963-1990. Facing thousands of asbestos-related suits, Grace filed for Chapter 11 bankruptcy. Its reorganization plan provided for a several-billion-dollar asbestos personal-injury trust to compensate existing and future claimants. All asbestos-related personal injury claims were to be channeled through the trust (“Grace Injunction,” 11 U.S.C. 524(g)(4)). CNA provided Grace's general liability, workers’ compensation, employers’ liability, and umbrella insurance policies, 1973-1996 and had the right to inspect the operation and to make loss-control recommendations. After 26 years of litigation regarding the scope of CNA’s coverage of Grace’s asbestos liabilities, a settlement agreement ensured that CNA would be protected by Grace’s channeling injunction. CNA agreed to contribute $84 million to the trust.The “Montana Plaintiffs,” who worked at the Libby mine and now suffer from asbestos disease, sued in state court, asserting negligence against CNA based on a duty to protect and warn the workers, arising from the provision of “industrial hygiene services,” and inspections. The Bankruptcy Court initially concluded that the claims were barred by the Grace Injunction but on remand granted the Montana Plaintiffs summary judgment.The Third Circuit vacated. Section 524(g) channeling injunction protections do not extend to all claims brought against third parties. To conform with the statute, these claims must be “directed against a third party who is identifiable from the terms of such injunction”; the third party must be “alleged to be directly or indirectly liable for the conduct of, claims against, or demands on the debtor”; and “such alleged liability” must arise “by reason of” one of four statutory relationships, including the provision of insurance to the debtor. The Bankruptcy Court erred in anlyzing the “derivative liability” and “statutory relationship” requirements. While the claims meet the derivative liability requirement, it is unclear whether they meet the statutory relationship requirement. View "In re: WR Grace & Co" on Justia Law
Bash v. Textron Financial Corp.
The Sixth Circuit affirmed the district court's decision rejecting the bankruptcy trustee's efforts seeking to avoid payments from Fair Finance to Textron as fraudulent transfers under Ohio's Uniform Fraudulent Transfer Act (OUFTA).The court concluded that the district court correctly rejected the trustee's bad-faith-invalidation argument at summary judgment. In this case, Textron's actions did not render its perfected interest ineffective against the holder of a judicial lien subsequently obtained in a hypothetical UCC priority contest. Therefore, Textron enjoyed a valid lien under OUFTA. The court explained that its conclusion is grounded in the nature of the UCC's priority test as well as critical distinctions between normal priority disputes and the OUFTA valid-lien test. The court also concluded that loan payments encumbered by the perfected 2002 security interest are not transfers under OUFTA and thus cannot be avoided as fraudulent transfers. The court disagreed with the trustee that the jury erred in determining that the 2004 changes did not amount to a novation and concluded that, to the extent there was an error in the jury instruction, it was harmless. The court rejected the trustee's additional argument to the contrary. View "Bash v. Textron Financial Corp." on Justia Law
In re: Aleckna
When Aleckna filed for Chapter 13 bankruptcy, she still owed the University (CCU) tuition. The filing of her bankruptcy petition imposed an “automatic stay” of all collection actions against her. While her case was pending, Aleckna, who had completed her coursework, asked CCU for a copy of her transcript. The University would only provide her with an incomplete transcript that did not include her graduation date, explaining that a “financial hold” had been placed on her account. Aleckna filed a counterclaim in the Bankruptcy Court arguing that CCU violated the automatic stay by refusing to provide her with a complete certified transcript, 11 U.S.C. 362(a)(6).The Bankruptcy Court found in Aleckna’s favor, concluding that she was entitled to receive her complete transcript, plus damages and attorneys’ fees because CCU’s violation was “willful.” The district court and Third Circuit affirmed. Section 362(k) provides that an individual who commits a willful violation is liable for damages and attorneys’ fees unless “such violation is based on an action taken by an entity in the good faith belief” that the stay had terminated. Precedent establishes a “willfulness” defense that is distinct from one of good faith but CCU failed to show that the law regarding the transcript issue was sufficiently unsettled to establish a lack of willfulness within the meaning of that precedent. View "In re: Aleckna" on Justia Law
Sandton Rail Company LLC v. San Luis & Rio Grande Railroad, Inc.
Big Shoulders sued the railroads (SLRG), with federal jurisdiction ostensibly based on diversity of citizenship, and requested that the district court appoint a receiver to handle SLRG’s assets. That court did so, which brought the case to the attention of several creditors. One of them, Sandton, intervened and challenged the appointment of the receiver and the district court’s jurisdiction. Sandton alleged that Big Shoulders failed to join necessary parties who, if added, would destroy diversity of citizenship. Meanwhile, other creditors (Petitioning Creditors) filed an involuntary bankruptcy petition on behalf of SLRG in federal bankruptcy court in Colorado. The receiver objected. Because the judicially approved receivership agreement contained an anti-litigation injunction, the district court initially concluded that the bankruptcy petition was void. On reconsideration, however, the district court determined that it did not have the authority to enjoin the bankruptcy. The bankruptcy continued. After Big Shoulders refused to continue to fund the receivership, the district court approved its termination.The Seventh Circuit consolidated several appeals, each of which involved questions of standing or mootness. The court concluded that those justiciability questions required the dismissal of all but Sandton’s appeal. As for Sandton’s argument that diversity jurisdiction is lacking, the court remanded to the district court for an application in the first instance of the “nerve center test” to determine if SLRG and Mt. Hood are citizens of Illinois. View "Sandton Rail Company LLC v. San Luis & Rio Grande Railroad, Inc." on Justia Law
NLG, LLC v. Horizon Hospitality Group, LLC
In 2007, NLG sold a Fisher Island home to Hazan for $5,100,000, receiving a purchase money note and mortgage in return. The Property was then the subject of years of protracted litigation in two states, resulting in various orders addressing the rights of NLG, Hazan, and Selective, a company owned and controlled by Hazan’s husband. One day before the property was to be sold, Hazan filed for Chapter 11 bankruptcy relief. NLG filed a proof of claim. Hazan and Selective began adversary proceedings asserting that NLG no longer retained any rights or claims to the Property; the bankruptcy court agreed.The district court rejected an argument that the Rooker-Feldman doctrine prevented the bankruptcy court from considering any of the issues raised during the adversary proceedings and dismissed NLG’s claims on the ground of equitable mootness. The Eleventh Circuit affirmed. The bankruptcy court had jurisdiction to consider the issues raised by Hazan and Selective The parties in the state court foreclosure action and the bankruptcy case were not the same. Neither Hazan nor Selective sought to have the bankruptcy court overturn the foreclosure judgment but only asked the bankruptcy court to determine the rights of NLG, Hazan, and Selective based on the previously rendered judgments. NLG’s delay in seeking a stay was unreasonable and the Plan has been substantially consummated. View "NLG, LLC v. Horizon Hospitality Group, LLC" on Justia Law
Nichols v. Marana Stockyard & Livestock Market, Inc.
The Nichols filed a Chapter 13 bankruptcy petition and later were indicted on federal charges for their alleged participation in a scheme to defraud Marana Stockyard. To avoid disclosure of information that might compromise their position in the criminal proceedings, the Nicholses declined to complete steps required by the Bankruptcy Code to advance their case. They refused to hold a meeting with creditors, to file outstanding tax returns, or to propose an appropriate repayment plan. Marana, which had filed a claim in the Nicholses’ bankruptcy case, moved (11 U.S.C. 1307(c)) for the case to be converted to a Chapter 7 liquidation. The Nicholses unsuccessfully requested a stay of the bankruptcy case during the pendency of the criminal proceedings. The bankruptcy court determined that conversion to a Chapter 7 liquidation was justified by the Nicholses’ “unwarranted” delays and would have been proper, in the alternative, under section 1307(e), because the Nicholses failed to file tax returns for several years.The Nicholses did not comply with the bankruptcy court’s requirements but moved to dismiss voluntarily their bankruptcy case under section 1307(b). The Ninth Circuit’s Bankruptcy Appellate Panel affirmed the denial of the dismissal motion and conversion of the case. The Ninth Circuit reversed. A bankruptcy court may not invoke equitable considerations to contravene section 1307(b)’s express language fiving Chapter 13 debtors an absolute right to dismiss their case. View "Nichols v. Marana Stockyard & Livestock Market, Inc." on Justia Law
In Re Bernard L. Madoff Investment Securities, LLC
Picard was appointed as the trustee for the liquidation of Bernard L. Madoff Investment Securities LLC (BLMIS) pursuant to the Securities Investor Protection Act, 15 U.S.C. 78aaa, to recover funds for victims of Bernard Madoff’s Ponzi scheme. SIPA empowers trustees to recover property transferred by the debtor where the transfers are void or voidable under the Bankruptcy Code, 11 U.S.C. 548, 550, to the extent those provisions are consistent with SIPA. Under Sections 548 and 550, a transferee may retain transfers it took “for value” and “in good faith.” Picard sued to recover payments the defendants received either directly or indirectly from BLMIS. The district court held that a lack of good faith in a SIPA liquidation requires that the defendant-transferee has acted with “willful blindness” and that the trustee bears the burden of pleading the transferee’s lack of good faith. Relying on the district court’s legal conclusions, the bankruptcy court dismissed the actions, finding Picard did not plausibly allege the defendants were willfully blind to the fraud at BLMIS.The Second Circuit vacated. Nothing in SIPA compels departure from the well-established rule that the defendant bears the burden of pleading an affirmative defense. The district court erred by holding that the trustee bears the burden of pleading a lack of good faith under Sections 548(c) and 550(b)(1). View "In Re Bernard L. Madoff Investment Securities, LLC" on Justia Law
Ellis v. Westinghouse Electric Co LLC
Westinghouse filed for Chapter 11 bankruptcy. In June 2017, the Bankruptcy Court set a “General Bar Date” of September 1, 2017—the deadline by which creditors had to file proofs of claims for most prepetition claims. The Bankruptcy Court confirmed a Reorganization Plan on March 28, 2018, 11 U.S.C. 1129. The effectiveness of the confirmed Plan was delayed to August 1, 2018, pending the closing of a transaction that required approval from government agencies. Westinghouse gave notice that, under the confirmed Plan, August 31, 2018, was the deadline for filing administrative expense claims.In May 2018, Westinghouse terminated Ellis’s employment, explaining that his department was being restructured. Ellis, age 67, believed he was unlawfully fired due to his age. He filed an EEOC charge in July 2018. The discrimination claim “arose” when he was terminated, so it is a claim after confirmation of the Plan but before its Effective Date. Ellis never took any action in the Bankruptcy Court. In October 2018, Ellis filed suit against Westinghouse, which moved for summary judgment, arguing that Ellis’s claim, as an administrative expense claim not timely filed by the Administrative Claims Bar Date, was discharged. The Third Circuit reversed summary judgment in favor of Ellis. As a matter of first impression, the court reasoned that the holder of a post-confirmation administrative expense claim cannot choose to bypass the bankruptcy process, so if the claim is not timely filed by the bar date, it faces discharge like a preconfirmation claim. View "Ellis v. Westinghouse Electric Co LLC" on Justia Law
In re: Tribune Company Fraudulent Conveyance Litigation
The bankruptcy litigation trustee appeals the district court's orders dismissing claims arising out of the leveraged buyout of the Tribune Company in 2007 and its bankruptcy filing in 2008. The trustee contends that the district court erred in dismissing his claims against the Tribune Company's shareholders and financial advisors for fraudulent transfer, breach of fiduciary duty, and related causes of action. The trustee also contends that the district court erred in denying leave to amend his complaint.The Second Circuit affirmed the district court's dismissal of the intentional fraudulent conveyance claims against the shareholders based on the buy-back of their shares; affirmed the district court's dismissal of the breach of fiduciary duty and aiding and abetting breach of fiduciary claims against the allegedly controlling shareholders; affirmed the district court's dismissal of the aiding and abetting breach of fiduciary duty and professional malpractice claims against the Financial Advisors; affirmed the district court's dismissal of the actual fraudulent conveyance claims as to Morgan Stanley, Citigroup, and Merrill Lynch, but vacated as to VRC; affirmed the district court's dismissal of the constructive fraudulent conveyance claims as to Morgan Stanley and VRC, but vacated as to Citigroup and Merrill Lynch; affirmed the district court's denial of the trustee's motion for leave to amend to amplify his intentional fraudulent conveyance claim against the shareholders and to add a constructive fraudulent conveyance claim against the shareholders; and remanded for further proceedings. View "In re: Tribune Company Fraudulent Conveyance Litigation" on Justia Law
Insurance Co of the State of Pennsylania v. Giuliano
Before filing for bankruptcy, the Debtors provided general contracting services for large construction projects, including many projects for departments of the federal government. To enter into contracts with the United States, contractors are generally required to post both a performance bond and a payment bond signed by the contractor and a qualified surety (such as ICSP), 40 U.S.C. 3131. When the Debtors defaulted on the contract at issue, ICSP stepped in to make sure that the work was completed. ICSP claims that it is subrogated to the United States’ rights to set off a tax refund (owed to one or more of the Debtors) against the losses that ICSP covered. However, to settle various claims in the Debtors’ Chapter 7 bankruptcy proceedings, the United States and the Trustee agreed that the United States would waive its setoff rights.The Bankruptcy Court, district court, and Third Circuit held that ICSP is not entitled to the tax refund. The United States had not yet been “paid in full,” within the meaning of 11 U.S.C. 509(c), when the Bankruptcy Court approved the settlement, so ICSP’s subrogation rights were subordinate to the remaining and superior claims of the United States at the time of the settlement. The United States was entitled to waive its setoff rights in order to settle its remaining and superior claims; the waiver of its setoff rights extinguished ICSP’s ability to be subrogated to those rights. View "Insurance Co of the State of Pennsylania v. Giuliano" on Justia Law