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After plaintiff filed an employment discrimination case against US Steel, she filed a Chapter 7 bankruptcy petition that did not disclose the employment-discrimination claims. The Chapter 7 Trustee was treating the bankruptcy as a “no asset” case. U.S. Steel moved the district court for dismissal. An Eleventh Circuit panel initially affirmed the district court in holding that judicial estoppel required dismissal of the bankruptcy case. Upon rehearing en banc, the Eleventh Circuit overruled precedent “that permitted the inference that a plaintiff intended to make a mockery of the judicial system simply because he failed to disclose a civil claim” and remanded for a determination of whether a plaintiff’s inconsistent statements were calculated to make a mockery of the judicial system. When the plaintiff’s inconsistent statement is an omission in bankruptcy disclosures, the court may consider such factors as the plaintiff’s level of sophistication, whether and under what circumstances the plaintiff corrected the disclosures, whether the plaintiff told his bankruptcy attorney about the civil claims before filing the bankruptcy disclosures, whether the trustee or creditors were aware of the claims before the plaintiff amended the disclosures, whether the plaintiff identified other lawsuits to which he was party, any findings or actions by the bankruptcy court after the omission was discovered, and any other fact relevant to the intent inquiry.” View "Slater v. United States Steel Corp." on Justia Law

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After plaintiff filed an employment discrimination case against US Steel, she filed a Chapter 7 bankruptcy petition that did not disclose the employment-discrimination claims. The Chapter 7 Trustee was treating the bankruptcy as a “no asset” case. U.S. Steel moved the district court for dismissal. An Eleventh Circuit panel initially affirmed the district court in holding that judicial estoppel required dismissal of the bankruptcy case. Upon rehearing en banc, the Eleventh Circuit overruled precedent “that permitted the inference that a plaintiff intended to make a mockery of the judicial system simply because he failed to disclose a civil claim” and remanded for a determination of whether a plaintiff’s inconsistent statements were calculated to make a mockery of the judicial system. When the plaintiff’s inconsistent statement is an omission in bankruptcy disclosures, the court may consider such factors as the plaintiff’s level of sophistication, whether and under what circumstances the plaintiff corrected the disclosures, whether the plaintiff told his bankruptcy attorney about the civil claims before filing the bankruptcy disclosures, whether the trustee or creditors were aware of the claims before the plaintiff amended the disclosures, whether the plaintiff identified other lawsuits to which he was party, any findings or actions by the bankruptcy court after the omission was discovered, and any other fact relevant to the intent inquiry.” View "Slater v. United States Steel Corp." on Justia Law

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An employee of the Internal Revenue Service (IRS) “willfully violates” an order from the bankruptcy court discharging the debts of a debtor-taxpayer, as that term is used in 26 U.S.C. 7433(e), when the employee knows of the discharge order and takes an intentional action that violates the order. William Murphy filed a Chapter 7 petition in the bankruptcy court seeking primarily to discharge his tax obligations. The bankruptcy court granted Murphy a discharge. Murphy later successfully filed an adversarial proceeding seeking a declaration that his relevant tax obligations had been discharged. Murphy then filed a complaint against the IRS alleging that one of its employees willfully violated the bankruptcy court’s discharge order by issuing levies against the insurance companies with which he did business in an attempt to collect on his discharged tax obligations. The bankruptcy court granted summary judgment for Murphy. The parties eventually entered into a settlement agreement whereby the IRS accepted the summary judgment ruling. After final judgment was entered against the IRS, the IRS appealed. The First Circuit affirmed, holding that the IRS’s reasonable and good faith belief that the discharge injunction did not apply to its collection efforts was not relevant to determining whether it “willfully violate[d]” the discharge order. View "Internal Revenue Service v. Murphy" on Justia Law

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In 2003, Williams, behind on paying SCCA condominium association fees, filed the first of five, Chapter 13 Bankruptcy petitions so that creditors were stayed from initiating collection. Her scheme was to not make payments required by her Chapter 13 plan so that the court would dismiss the case; SCCA would file eviction and collection suits; Williams would then file a new Chapter 13 petition. After voluntarily dismissing her second bankruptcy petition, Williams signed a deed transferring the condominium to Wilke. A deed recorded weeks later returned title to Williams. Wilke paid nothing and never occupied the condominium but obtained loans secured by the condominium. In her subsequent bankruptcy petitions, Williams failed to disclose the transfers but stated, falsely, that Wilke was a co‐debtor and would contribute toward the mortgage. After dismissing Williams’s fifth petition, the court barred Williams from filing a new petition for 180 days. She again deeded the condominium to Wilke, who filed a bankruptcy petition stating it was his property. The court dismissed the case. Both were charged with bankruptcy fraud, 18 U.S.C. 157. Wilke pled guilty and cooperated. The court limited the defense’s cross-examination of SCCA's board member and attorney about a class action lawsuit Williams had filed against SCCA and about SCCA’s treatment of Williams relative to other tenants, reasoning that the topics were an irrelevant attack on the underlying debt. Williams was convicted. With enhancements for causing a loss of $193, 291 and because the offense involved 10 or more victims, her Guidelines Range was 51–63 months’ imprisonment. The court sentenced her to 46 months. The Seventh Circuit affirmed, rejecting challenges to the court’s limitation on cross-examination and to the sentencing enhancements. View "United States v. Williams" on Justia Law

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Trustee and Creditor filed an adversary complaint against Debtors and NonDebtor Defendants, including BIT, seeking a declaration that Debtors were not entitled to a discharge, and to recover assets from the Non-Debtors. Creditor and Trustee later entered into an agreement; Creditor purchased the bankruptcy estate’s claims, except Trustee’s objection to discharge, for $100,000 and a reduction to Creditor’s proof of claim. The court authorized the sale and dismissed the purchased claims for lack of subject matter jurisdiction because Trustee no longer owned and lacked standing to assert them but did not dismiss the 2009 Complaint. Creditor then filed the dismissed claims in the Western District of Tennessee, alleging that the BIT was an alter ego of Debtors, such that its assets should be made available to satisfy claims. The district court dismissed the claims because Tennessee law does not recognize reverse-veil-piercing outside of parent-subsidiary corporate relationships. In 2017, Creditor filed a new bankruptcy court complaint, invoking derivative standing and seeking a declaration that the BIT is a self-settled trust so that its assets are not excluded from bankruptcy estate by 11 U.S.C. 541(c)(2). The Sixth Circuit Bankruptcy Appellate Panel affirmed dismissal. The bankruptcy court did not abuse its discretion in interpreting the Sale Order to include the claims asserted in the 2017 Complaint or in concluding that Creditor could not pursue the claims asserted in the 2017 Complaint derivatively on Trustee’s behalf. View "In re Blasingame" on Justia Law

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Under 11 U.S.C. 1126(e), a bankruptcy court may not designate claims for bad faith simply because (1) a creditor offers to purchase only a subset of available claims in order to block a plan of reorganization, and/or (2) blocking the plan will adversely impact the remaining creditors. At a minimum, there must be some evidence that a creditor is seeking "to secure some untoward advantage over other creditors for some ulterior motive." In this case, the Ninth Circuit reversed the district court's order affirming the bankruptcy court and vacated the bankruptcy court's order granting a chapter 11 debtor's motion to designate claims for bad faith and preclude the claims from being voted against a plan of reorganization. The panel held that the bankruptcy court erred when it refused to analyze whether Pacific Western acted under an "ulterior motive," beyond its "mere enlightened self interest" in protecting its secured claim. The panel remanded for further proceedings. View "Pacific Western Bank v. Fagerdala USA" on Justia Law

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Appling owed about $60,000 to his law firm (Lamar), which threatened to withdraw representation and place a lien on its work product. Appling told Lamar that he could cover owed and future legal expenses with an expected tax refund, so Lamar continued representation. Appling used the refund, which was much less than he had stated, for business expenses, but told Lamar he was still waiting for the refund. Lamar completed pending litigation. Appling never paid. Lamar obtained a judgment. Appling filed for Chapter 7 bankruptcy. Lamar initiated an adversary proceeding, arguing that Appling’s debt was nondischargeable under 11 U.S.C. 523(a)(2). Section 523(a)(2)(A) bars discharge of debts arising from “false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s . . . financial condition.” Subparagraph (B) bars discharge of debts arising from a materially false “statement . . . respecting the debtor’s . . . financial condition” if that statement is “in writing.” The Eleventh Circuit found that Appling made a statement “respecting” his “financial condition,” which was not in writing. The Supreme Court affirmed. A statement about a single asset can be a “statement respecting the debtor’s financial condition” under section 523(a)(2). A statement is “respecting” a debtor’s financial condition if it has a direct relation to or impact on the debtor’s overall financial status. A single asset has a direct relation to and impact on aggregate financial condition, so a statement about that asset bears on a debtor’s overall financial condition and can help indicate whether a debtor is solvent or insolvent. View "Lamar, Archer & Cofrin, LLP v. Appling" on Justia Law

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Giese claimed that HNRC paid royalties derived from coal mining into an escrow account. After buying the property on which the mining occurred, Giese sued, asserting a right to the escrowed royalties. Lexington Coal disputed Giese’s claim, arguing it purchased all cash and accounts of HNRC and HNRC’s parent company during a bankruptcy case involving those entities. Lexington had been a defendant in an interpleader action before the Bankruptcy Court to determine the rightful owner of the funds at issue. Giese’s state court action was removed to the Bankruptcy Court, which declined to abstain from adjudicating two counts of Giese’s Kentucky state court complaint and dismissed his complaint. The Bankruptcy Appellate Panel affirmed. Giese’s claims were inextricably intertwined with the bankruptcy case and would not exist but for the bankruptcy, so the Bankruptcy Court was right to adjudicate them. Sending two claims (breach of contract and royalty claims) to a court that cannot, under any circumstance, adjudicate the other related claims, would pose a great risk to important policy concerns. Upholding the dismissal, the court stated that an order confirming a plan of reorganization constitutes a final judgment in a bankruptcy proceeding, and res judicata bars relitigation of any issues that could have been raised during the confirmation proceeding. View "In re HNRC Dissolution Co." on Justia Law

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Two individuals obtained unemployment benefits from the Michigan Unemployment Insurance Agency to which they were not entitled because they were being paid wages. Each was ordered to pay restitution and a penalty; each subsequently filed for Chapter 13 bankruptcy. The debtors argued that the penalties assessed were dischargeable in a Chapter 13 bankruptcy. Each district court disagreed. The Sixth Circuit affirmed, finding the penalties nondischargeable under 11 U.S.C. 523(a)(2). That section reflects a congressional decision that those who commit fraud are not to be given the same “fresh start” as “honest but unfortunate debtor[s].” A finding that the debt here arises from fraud perpetrated against the Agency makes section 523(a)(2) applicable, regardless of whether the debt could also fit under section 523(a)(7), which applies to government penalties. View "Kozlowski v. Michigan Unemployment Insurance Agency" on Justia Law

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An appellant's failure to attend and object at a bankruptcy court hearing has no bearing on the question of whether that appellant has standing to appeal a bankruptcy court order. The Ninth Circuit reversed the district court's dismissal of an appeal from the bankruptcy court's order authorizing a Chapter 7 trustee to assume the operating agreement of an LLC whose interests were implicated in the bankruptcy proceedings. The district court dismissed the appeal on the ground that appellants lacked standing to challenge the bankruptcy court order. The panel held that appellants' attendance and objection were not prerequisites for satisfying the "person aggrieved" requirement for prudential standing. Therefore, the panel remanded to the district court. View "In re Point Center Financial, Inc." on Justia Law