Justia Bankruptcy Opinion Summaries

A mother and son, both debtors, repeatedly filed for bankruptcy under Chapter 13 after a lender, Milestone Financial, LLC, foreclosed on a property for which they had not made any mortgage payments. After foreclosure, Milestone sought to evict them, but local eviction moratoria delayed the process. As the unlawful detainer action approached trial, both debtors filed new Chapter 13 petitions, which triggered an automatic stay and halted eviction. Their bankruptcy petitions were incomplete, lacking required schedules and documents. Despite receiving an extension to file the missing documents, the debtors did not comply, but instead filed motions for voluntary dismissal under 11 U.S.C. § 1307(b) on the final day of the extension.The United States Bankruptcy Court for the Northern District of California dismissed both cases for failure to comply with its order to file the missing documents, rather than on the debtors’ request for voluntary dismissal. It also imposed a one-year bar prohibiting the debtors from refiling for bankruptcy. The debtors’ motions for reconsideration were denied, and they appealed. The Bankruptcy Appellate Panel (BAP) affirmed the imposition of the one-year refiling bar but certified the question of the length of such a bar for direct appeal to the United States Court of Appeals for the Ninth Circuit.The United States Court of Appeals for the Ninth Circuit held that under 11 U.S.C. § 1307(b), a debtor has an absolute right to voluntarily dismiss a Chapter 13 case, even if the case was filed in bad faith, and the bankruptcy court erred by dismissing for failure to comply with a court order instead of granting the voluntary dismissal request. However, the Ninth Circuit affirmed the one-year refiling bar, concluding that the bankruptcy court had authority under 11 U.S.C. § 349(a) to impose such a sanction for cause, and that the statutory 180-day bar in § 109(g) does not limit the court’s authority to impose a longer bar for repeated bad faith filings. View "SRINIVASAN V. MILESTONE FINANCIAL, LLC" on Justia Law

In this matter, Logan Riffenburg and Vanessa Roper, formerly married, jointly acquired property in Arkansas. After their divorce, each retained a half-interest in the property. Roper subsequently remarried and, with her new husband, filed for Chapter 7 bankruptcy. The bankruptcy trustee sought court approval to sell Roper’s interest in the property to Blue Sun Capital LLC. Riffenburg objected to the sale, but his objection was overruled by the bankruptcy court, which authorized the sale. The court focused on the trustee’s good faith and the fairness of the process but did not address whether Blue Sun Capital was a good-faith purchaser.Following the bankruptcy court’s approval, Riffenburg appealed to the United States Bankruptcy Appellate Panel for the Eighth Circuit (BAP) and requested a stay pending appeal, which was denied. The sale was completed. The trustee then moved to dismiss the appeal as statutorily moot under 11 U.S.C. § 363(m), arguing that the completed sale to a good-faith purchaser could not be unwound in the absence of a stay. The BAP, with one judge dissenting, agreed and dismissed the appeal, finding that Riffenburg had not raised the issue of the purchaser’s good faith in the bankruptcy court.The United States Court of Appeals for the Eighth Circuit reviewed the case and affirmed the BAP’s dismissal. The court held that under its precedent, in order to avoid mootness under § 363(m), an objector must challenge the good faith of the purchaser before the bankruptcy court. Because Riffenburg did not do so, the issue was not preserved for appeal, and the appeal was dismissed as statutorily moot. The Eighth Circuit explicitly stated that this precedent remained binding, even after the Supreme Court’s decision in MOAC Mall Holdings LLC v. Transform Holdco LLC. View "Riffenburg v. Rice" on Justia Law

A married couple acquired a residential property in Maine, building their home on a subdivided lot. In 2005, the husband alone obtained a mortgage on the property to pay off an earlier joint mortgage, but the wife did not sign the new note. After their divorce, the husband quitclaimed his interest in the property to the wife, then filed for bankruptcy. The mortgage lender and its successors initiated multiple foreclosure actions over the years. In a 2012 foreclosure judgment, only the husband was held liable, as the wife had been dismissed from the suit. The wife later obtained a declaratory judgment in state court: although not personally liable on the debt, her property interest was found to be subject to the mortgage. No payments were made on the mortgage after 2010, and the loan fully matured before the current foreclosure attempt.The lender, U.S. Bank, sent both spouses a statutorily required notice under Maine law before foreclosing, but the notice incorrectly labeled the principal as "Payments" and failed to strictly comply with statutory requirements. When U.S. Bank sued for foreclosure in the U.S. District Court for the District of Maine, the wife argued that the notice was deficient. The District Court agreed, granting summary judgment for her based on the notice's noncompliance. The court also found that the wife was entitled to notice as a "mortgagor," even though she had not signed the note, and rejected arguments that the earlier foreclosure judgment against the husband precluded her from raising defenses.On appeal, the United States Court of Appeals for the First Circuit affirmed the District Court's judgment. The First Circuit held that Maine’s statutory notice requirement applies even after a loan has matured, to a spouse whose property interest is subject to the mortgage but who did not sign the note, and after a prior foreclosure judgment against the signing spouse. The court also held that a noncompliant notice mandates judgment for the mortgagor under the law applicable to this case. View "U.S. Bank Trust, N.A. v. Bowden" on Justia Law

A Florida limited liability company owned commercial property in Louisville and was advised by its attorneys to lock out a tenant for unpaid rent and sell the tenant’s property to satisfy a lien. The tenant subsequently sued for conversion and other claims, resulting in a multimillion-dollar judgment against the company and its principals. During the litigation, a second, similarly named Kentucky LLC was formed, but it was never made a defendant in the original suit. While appeals were pending, the Kentucky LLC filed for Chapter 11 bankruptcy, and a settlement agreement was reached, contingent upon approval by the bankruptcy court. The bankruptcy court confirmed a plan that substantively consolidated the two LLCs for purposes of the bankruptcy, after which the property was sold to satisfy creditors.In the Jefferson Circuit Court, the Kentucky LLC brought malpractice claims against the attorneys, alleging negligent advice and mishandling of the defense. The Florida LLC and its principal later filed similar claims. The circuit court granted summary judgment, finding the Kentucky LLC was not the client and had no claim, and that the Florida LLC had surrendered its claim through bankruptcy proceedings. The Kentucky Court of Appeals agreed the Kentucky LLC could not maintain the claim, but held the Florida LLC retained the claim since assignment was prohibited; however, it found the claims time-barred because the statute of limitations began at settlement execution.The Supreme Court of Kentucky affirmed the dismissal of all claims. It held that the Kentucky LLC was not owed a client-based duty and did not own the malpractice claim. The court determined that the statute of limitations for malpractice began when the bankruptcy court’s confirmation order made the settlement binding, not at the earlier settlement execution. Because the operative complaint was filed more than a year after this accrual date, all claims were time-barred. The cross-appeals were dismissed as moot. View "MILLERS LANE CENTER, LLC V. MORGAN & POTTINGER, P.S.C." on Justia Law

A mortgage issuer, Reverse Mortgage Funding, LLC (RMF), participated in a federal program allowing it to securitize reverse mortgages. When RMF entered bankruptcy, Texas Capital Bank provided debtor-in-possession financing, secured by RMF’s interests in certain collateral, specifically incremental balances on the mortgages known as “tails.” After RMF defaulted on its agreement, the Government National Mortgage Association (Ginnie Mae), under its statutory and contractual authority, extinguished RMF’s interests in the underlying mortgages and assumed ownership of the loans, also extinguishing Texas Capital’s lien interest in the mortgage tails. Texas Capital argued that Ginnie Mae’s actions violated federal law and Texas tort law.The United States District Court for the Northern District of Texas initially allowed Texas Capital’s claims for statutory authority under the Administrative Procedure Act (APA) and tortious interference to proceed, but dismissed the promissory estoppel claim due to sovereign immunity. Later, the district court granted summary judgment to Ginnie Mae, finding it acted within its statutory authority and concluding that the extinguishment of RMF’s interests necessarily eliminated Texas Capital’s derivative interest in the mortgage tails. The court also dismissed Texas Capital’s tortious interference claim, citing sovereign immunity and a lack of legal basis, and refused to consider Texas Capital’s arbitrary-and-capricious APA theory because it was not sufficiently pled.The United States Court of Appeals for the Fifth Circuit reviewed the case de novo. It held that Ginnie Mae acted within its statutory and contractual authority under 12 U.S.C. § 1721(g)(1) in extinguishing both RMF’s and Texas Capital’s interests in the mortgages. The court affirmed the district court’s summary judgment, finding Texas Capital’s tortious interference claim barred by sovereign immunity and ruling that Texas Capital’s failure to plead an arbitrary-and-capricious APA theory justified the district court’s refusal to consider it. The judgment of the district court was affirmed. View "Texas Captl Bank v. Govt Natl Mtge" on Justia Law

An airline operating among the Hawaiian Islands faced severe financial difficulties over several years, leading to its abrupt shutdown in November 2017. The airline had previously been owned by a trust affiliated with a prominent individual, then partially sold to entities controlled by other businessmen. When the airline closed, employees received only one day's notice and did not receive their final paychecks. Following the closure, a Chapter 7 bankruptcy trustee was appointed. Together with two unions representing affected employees, the trustee initiated adversary proceedings against the airline’s former owners, directors, and lenders, alleging violations of Hawaii’s Dislocated Workers Act (DWA) and the federal WARN Act for failure to provide the required notice and compensation. Additional claims included breach of fiduciary duties and requests for equitable remedies such as veil piercing and equitable subordination.The proceedings began in the United States Bankruptcy Court for the District of Hawaii, but the District Court for the District of Hawaii withdrew the reference, consolidated the cases, and conducted a jury trial. The district court granted judgment as a matter of law for some claims and allowed others to proceed. The jury returned mixed verdicts, finding some defendants liable for statutory and fiduciary duty violations, but the court denied punitive damages and limited recovery to avoid double compensation. The court also ruled on equitable remedies, including piercing the corporate veil and equitably subordinating certain loans, and ordered contribution from a third-party defendant.The United States Court of Appeals for the Ninth Circuit reviewed the district court’s judgment. It held that it had jurisdiction under 28 U.S.C. § 1291. The panel affirmed the trustee’s and unions’ Article III standing. It reversed in part on fiduciary duty claims, concluding that minority stakeholders and affiliated entities could owe fiduciary duties and be deemed “employers” under the DWA. The court clarified the statutory definition of “employer” and the scope of the DWA’s safe harbor defense, ruling it was unavailable absent a binding divestiture. The panel affirmed evidentiary rulings, vacated the nominal damages award due to erroneous jury instructions, affirmed the prohibition of punitive damages, and upheld the equitable remedies and contribution order. The judgment was affirmed in part, reversed in part, and remanded for further proceedings. View "KANE V. PACAP AVIATION FINANCE, LLC" on Justia Law

A financial trustee acting on behalf of bondholders filed a proof of claim for $8.5 billion in the Commonwealth of Puerto Rico’s bankruptcy-like restructuring proceedings. The claim was based on allegations that the Commonwealth had impaired statutory and constitutional rights that were intended to protect bondholders in connection with revenue bonds issued by the Puerto Rico Electric Power Authority (PREPA), a public utility corporation. The Commonwealth had enacted laws that, according to the trustee, limited PREPA’s ability to set rates and satisfy its bond obligations, thereby breaching a statutory covenant not to impair PREPA’s ability to repay the bonds. The trustee characterized these statutory protections as a material inducement for investors to purchase the bonds.The United States District Court for the District of Puerto Rico, acting as the Title III court under the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), had previously confirmed the Commonwealth’s Plan of Adjustment. This Plan created separate classes of claims, including one (Class 64) for claims subordinated under 11 U.S.C. § 510(b), which covers damages “arising from the purchase or sale” of a debtor’s security. The trustee’s claim was classified in Class 64, which receives no distribution, rather than as a general unsecured claim (Class 58), which would have allowed a partial recovery. The district court held that the trustee’s claim was properly subordinated under § 510(b).The United States Court of Appeals for the First Circuit reviewed the case. It affirmed the district court’s judgment, holding that § 510(b) applies to the trustee’s claim because the damages sought arose from the purchase of PREPA’s revenue bonds, induced by the alleged statutory protections. The court also rejected procedural and constitutional avoidance arguments, and found that any challenge to the level of subordination was waived. View "FOMB v. SIG Structured Products, LLC" on Justia Law

After the collapse of Silicon Valley Bank (SVB) in March 2023, the Federal Deposit Insurance Corporation (FDIC) was appointed as receiver for the failed bank. SVB Financial Group, the parent company of SVB, had substantial deposits at the bank and, after the collapse, sought to recover its funds. The FDIC, however, asserted that it had setoff rights under California law, allowing it to offset SVB Financial’s deposits against debts allegedly owed by SVB Financial to the FDIC due to mismanagement. While the bankruptcy proceedings for SVB Financial were ongoing in the Southern District of New York, SVB Financial pursued a separate lawsuit in the Northern District of California to recover its deposits, where the FDIC asserted its setoff rights as a defense.The United States Bankruptcy Court for the Southern District of New York addressed whether the FDIC had forfeited its setoff rights by failing to file a proof of claim in the bankruptcy case, as required for “claims” under the Bankruptcy Code. The court determined that the FDIC’s defensive setoff rights, as asserted under California law, were not “claims” requiring the filing of a proof of claim. Therefore, the FDIC’s omission did not eliminate its setoff rights.On direct appeal, the United States Court of Appeals for the Second Circuit reviewed the Bankruptcy Court’s legal conclusions de novo. The Second Circuit held that the FDIC was not required to file a proof of claim in the bankruptcy proceeding to preserve its defensive setoff rights in the California litigation. The court concluded that, under California law, the FDIC’s setoff rights operated purely as an affirmative defense and did not entitle the FDIC to affirmative recovery from the bankruptcy estate. As such, these rights did not constitute “claims” within the meaning of the Bankruptcy Code, and the FDIC’s failure to file a proof of claim did not preclude it from asserting setoff. The order of the Bankruptcy Court was affirmed. View "In Re: SVB Fin. Grp." on Justia Law

A dispute arose between two parties over a residential lease agreement in Mountain Home, Idaho, which included an option to purchase the property after the underlying Wells Fargo mortgage was satisfied. The lessee paid $8,000 for the purchase option and began residing at the property. Eighteen months later, the lessee filed for Chapter 7 bankruptcy, listing the lessor as a creditor and rent as an expense but denying any legal or equitable interest in real property and failing to disclose the lease agreement or the purchase option in the bankruptcy schedules. The bankruptcy trustee closed the case without distributing any assets, and the lessee received a discharge of debts. Four years after discharge, the lessee attempted to exercise the purchase option, but the lessor refused.The lessee filed suit in the District Court of the Fourth Judicial District, seeking specific performance and declaratory relief, while the lessor counterclaimed for breach of contract. Both parties moved for summary judgment. The district court initially denied both motions, finding factual disputes, and declined to apply judicial estoppel. Upon reconsideration, the district court ruled for the lessor, holding that the lessee’s claims were barred by judicial estoppel and, in the alternative, that the lessee lacked standing because the undisclosed purchase option remained property of the bankruptcy estate. The district court denied the lessee’s request to stay the proceedings to reopen the bankruptcy case.On appeal, the Supreme Court of the State of Idaho affirmed the district court’s judgment, holding that the lessee lacked standing to enforce the purchase option. The court reasoned that the purchase option was property of the bankruptcy estate, was not properly disclosed in the bankruptcy schedules, and thus remained with the estate after the bankruptcy case closed. Only the bankruptcy trustee, not the lessee, had standing to enforce the option. Costs on appeal were awarded to the lessor. View "Conger v. Clark" on Justia Law

A medical institution in Puerto Rico borrowed over $10 million from a bank in 1984 to build a hospital, but soon disputes arose regarding the loan. The bank claimed the institution defaulted, while the institution asserted the bank failed to disburse funds as required. Litigation and bankruptcy proceedings followed. In 1991, the parties settled, but the terms of that settlement—whether the debt was split into interest-bearing and non-interest-bearing portions—remained contested. Over the next decades, the loan changed hands, and in 2013 the institution filed for Chapter 11 bankruptcy again. The current loan-holder claimed a significantly higher outstanding balance than the institution believed was owed, due in part to differing interpretations of the 1991 agreement and subsequent bankruptcy plan.The United States Bankruptcy Court for the District of Puerto Rico previously addressed these disputes. It issued orders requiring the institution to demonstrate, with evidence, that the 1991 agreement created a non-interest-bearing note and that it had made payments in accordance with the bankruptcy plan. The court denied discovery, required summary judgment briefing, and ultimately issued an order with minimal analysis, granting the loan-holder’s motion to dismiss and denying the institution’s motion for summary judgment. The court’s reasoning was ambiguous, referencing both summary judgment and pleading standards, and did not clearly identify the basis for its decision.On appeal, the United States District Court for the District of Puerto Rico affirmed, concluding the bankruptcy plan did not incorporate the 1991 bifurcated note arrangement. The United States Court of Appeals for the First Circuit, reviewing the case, found the bankruptcy court’s order insufficiently reasoned to permit meaningful appellate review. The First Circuit vacated the lower courts’ decisions and remanded for further proceedings, instructing the bankruptcy court to clarify its reasoning, identify the applicable legal standards, and consider whether summary judgment or further fact-finding is appropriate. View "Instituto Medico del Norte, Inc. v. Greengift Capital, LLC" on Justia Law