Justia Bankruptcy Opinion Summaries

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Berkovich filed California state tax returns as required for 2003-2005. In 2008, the IRS assessed about $145,000 of additional federal income taxes against Berkovich for those years. He did not notify the California Franchise Tax Board (FTB) of the increased federal assessments as required. (Cal. Rev. & Tax Code 18622(a)). The FTB learned of the federal assessments from the IRS. It assessed Berkovich additional state income taxes, approximately $45,000 plus penalties and interest. Berkovich did not challenge the assessments nor pay the additional state taxes. In 2012, Berkovich filed a chapter 13 bankruptcy petition. After the bankruptcy discharge, the FTB filed a complaint, alleging that the state tax debts were nondischargeable under 11 U.S.C. 523(a)(1)(B)(i) because Berkovich failed to report the increased federal tax assessments to the FTB and failed to challenge the FTB’s notices of proposed tax assessment. The Bankruptcy Appellate Panel held that Berkovich’s tax debt was not discharged.The Ninth Circuit affirmed. Berkovich’s tax debt was not discharged in bankruptcy because the debt derived from a “report or notice” “equivalent” to a tax return. Section 523(a)(1)(B) provides that, if a taxpayer fails to file a required “return, or equivalent report or notice,” the relevant tax debt is not discharged. California law requires a taxpayer to “report” to the FTB if the IRS changes the taxpayer’s federal income tax liability. View "Berkovich v. California Franchise Tax Board" on Justia Law

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Appellants, seventy-six Chapter 11 debtors associated with John Q. Hammons Hotels & Resorts (Debtors), argued they incurred more than $2.5 million of quarterly Chapter 11 disbursement fees from January 2018 through December 2020. Debtors faulted the bankruptcy court’s statutory interpretation, arguing that it applied the quarterly fees retroactively to pending cases against Congress’s intent. Alternatively, Debtors faulted Congress, arguing that charging different Chapter 11 disbursement fees depending on the location of the bankruptcy filing violated the uniformity requirement of the Bankruptcy Clause, U.S. Const. art I, sec. 8, cl. 4. The Tenth Circuit concluded the presumption against retroactivity did not apply here, because Congress increased the quarterly bankruptcy fees prospectively. On Debtors' second point, the Court concluded that Debtors had to prevail: the 2017 Amendment’s fee disparities failed under the uniformity requirement of the Bankruptcy Clause. The Amendment imposed higher quarterly fees on large debtors in Trustee districts. Judgment was reversed and the matter remanded for a determination of Debtors' quarterly Chapter 11 fees and a refund of overpayment. View "In re: John Q. Hammons Fall, et al." on Justia Law

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In this appeal arising out of an adversary action filed in a Chapter 11 proceeding in the Bankruptcy Court for the District of Massachusetts the First Circuit affirmed the judgment of the bankruptcy court allowing the debtor to avoid a mortgage, holding that there was no error in the bankruptcy court's judgment.After Debtor filed for Chapter 11 bankruptcy Debtor commenced an adversary proceeding against U.S. Back seeking to "avoid" the mortgage because her name was missing from the certificate of acknowledgment. The district court granted Debtor's motion. The district court affirmed. The First Circuit affirmed, holding that summary judgment was properly granted for Debtor because the omission of Debtor's name from the certificate of acknowledgment was a material defect under Massachusetts law. View "U.S. Bank, N.A. v. Desmond" on Justia Law

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A California court awarded Elie a $14,814,107.48 judgment against his former partner, Cutuli. Separately, Cutuli pleaded guilty to conspiracy to fraudulently transfer or conceal property in contemplation of bankruptcy. Cutuli filed for Chapter 7 bankruptcy in Florida. His agreement with counsel did not include “defense of adversary proceedings.” Elie filed an adversary proceeding, seeking a declaration that the California Judgment debt was non-dischargeable. Cutuli was personally served with the summons and complaint in prison within FRCP 4(m)’s 90-day limit and the 28-day local limit.Cutuli failed to respond. Elie moved for default. Cutuli’s attorney appeared and objected. Elie then served the summons and complaint on Cutuli’s attorney on December 14. The summons Elie mailed had been issued in September; Federal Rule of Bankruptcy Procedure 7004(e) requires service within seven days after the summons issues. The bankruptcy court denied a motion to dismiss, citing the fee disclosure indication that counsel would not represent Cutuli in adversary proceedings and noting that Cutuli’s counsel had received a copy of the complaint. Cutuli declined to answer the complaint and stated he did not intend to object to the entry of default. The bankruptcy court granted Elie default judgment.The district court reversed. On remand, the bankruptcy court granted Elie’s motion to extend the time for service of process, finding that good cause existed and citing its discretion under Rule 4(m). Elie obtained a fresh summons and properly served Cutuli and his attorney. Again, Cutuli did not answer or defend. The district court and Eleventh Circuit affirmed the extension. Cutuli’s failure to defend the action suggests that the initial failure to serve a fresh summons upon Cutuli’s attorney did not cause Cutuli any prejudice. View "Cutuli v. Elie" on Justia Law

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Stergiadis, Dimas, and Theo formed 1600 South LLC, executed an operating agreement, purchased land on which to build a fruit market, and began construction. The 2008 recession stopped construction and eventually led to the LLC’s 2009 dissolution. The partners disagreed about whether they impliedly agreed to equalize their capital contributions. The operating agreement provided that the three each held a one-third membership interest in the LLC; each member agreed to make an initial capital contribution on the date of execution but the amount was left blank. In 2008 Stergiadis sued Dimas in state court seeking to equalize the capital contributions. Dimas filed for bankruptcy, triggering the automatic stay. Dimas ultimately filed seven such petitions and received a discharge in 2016. The U.S. Trustee moved to reopen the bankruptcy to recover the value of an undisclosed property. The bankruptcy court agreed. Stergiadis filed a proof of claim in Dimas’s reopened bankruptcy seeking the same amount he was seeking in state court. The partners disputed the amounts of their respective contributions.The bankruptcy court allowed Stergiadis’s claim, awarding $618,974, finding that the members had an implied equalization agreement. The district court and Seventh Circuit affirmed, rejecting an argument that the LLC’s operating agreement precluded an implied equalization contract. The bankruptcy court properly relied on extrinsic evidence in finding such a contract. View "Dimas v. Stergiadis" on Justia Law

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The First Circuit dismissed Appellant's appeal of an order issued by the Bankruptcy Appellate Panel for the First Circuit (BAP) that found Appellant, a Chapter 7 debtor, had no standing to appeal a bankruptcy court order overruling his objection to a proof of claim filed by Scotiabank de Puerto Rico, holding that this Court lacked jurisdiction.The BAP concluded that Appellant did not have appellate standing to challenge the subject order because he had failed to demonstrate that the order had directly or adversely affected his pecuniary interests. Accordingly, the BAP entered judgment dismissing the appeal. The First Circuit dismissed Appellant's appeal, holding that Appellant failed to establish that the challenged order had a direct and immediate impact on his pecuniary interests. View "Neira Rivera v. Scotiabank de Puerto Rico" on Justia Law

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The Supreme Court affirmed the judgment of the district court exercising jurisdiction over the underlying fraudulent conveyance action and avoiding all of Paul Morabito's transfers to Superpumper, Inc., Sam Morabito, Snowshoe Petroleum, Inc., and Edward Bayer, individually and as trustee of the Bayuk Trust (collectively, Superpumper) and awarding Paul Morabito's bankruptcy trustee (Trustee) the subject property or the value thereof, holding that the district court did not err.Paul and Consolidated Nevada Corporation entered into a settlement agreement with JH Inc., Jerry Herbst, and Berry-Hinckley Industries (collectively, the Herbsts) for $85 million and later defaulted on the agreement. After a bankruptcy court adjudicated Paul as a Chapter 7 debtor the Herbsts filed a fraudulent transfer action against Paul and Superpumper, the transferees of Paul's assets. The state district court avoided all of Morabito's transfers to Superpumper and awarded the Trustee the subject property or the value thereof. The Supreme Court affirmed, holding (1) the district court had subject matter jurisdiction over the fraudulent conveyance action; (2) Superpumper waived its in rem jurisdiction argument; and (3) the district court did not abuse its discretion in allowing attorney-client communications to be admitted into evidence at trial. View "Superpumper, Inc. v. Leonard" on Justia Law

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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

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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

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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