Justia Bankruptcy Opinion Summaries

Chapter 11 debtor Redondo Construction Corporation brought an adversary proceeding against the Puerto Rico Highway and Transportation Authority (Authority) in the United States Bankruptcy Court for the District of Puerto Rico, claiming amounts due for work performed on five construction projects. Following a lengthy trial, the bankruptcy court awarded Redondo a total of nearly $10,250,000 in damages, plus interest at six percent per annum from the "payment due" date for each project. The district court affirmed the judgment in all respects. The Authority appealed the award of interest. The First Circuit Court of Appeals vacated the district court's judgment primarily with regard to the interest and (1) remanded for assessment of postjudgment interest for the period between the entry of judgment and the date of deposit; (2) vacated the award of prejudgment interest and remanded for a determination of whether an award of prejudgment interest was appropriate; and (3) remanded for modification of the judgment awarding Redondo an excess amount for one claim. View "Redondo Constr. Corp. v. P.R. Highway and Transp." on Justia Law

Defendant filed for bankruptcy. Defendant was later charged with bankruptcy fraud on the basis that she failed to include in the bankruptcy petition information related to her past fraudulent use of credit cards that she obtained under the names of two acquaintances, one of whom was Susan Blake. Defendant was subsequently convicted of two counts of bankruptcy fraud. The First Circuit Court of Appeals reversed the conviction as to Count One, which alleged that Debtor had knowingly and fraudulently failed and refused to disclose debts to three card issuers. The First Circuit held that Count One failed for lack of proof because the prosecution failed to establish that at the time the bankruptcy petition was filed, there were still extant claims held by the issuers against Defendant for merchandise or services Defendant secured through her use of the cards she procured using Blake's name. View "United States v. Marston" on Justia Law

Malley’s former marital house sold shortly before filing his Chapter 7 bankruptcy petition and netted more than $250,000, from which he declared under oath that he had received nothing. The trustee believed that $27,000, allegedly going to the ex-wife, were to be used to discharge Malley’s credit card debt. In taking action against Malley's ex-wife to avoid that disposition, the trustee determined that Malley had hidden his secret receipt of $25,000. Malley claimed he was unable to turn over the money to the trustee when ordered to do so. Malley’s willful concealment of the funds violated 11 U.S.C. 521. When the trustee moved for sanctions, the court denied discharge, under 11 U.S.C. 727, and charged the concealed amount, plus the cost of untangling the fraud, against the value of an asset claimed as exempt, Malley’s truck. The First Circuit affirmed. Fraudulent concealment of non-exempt assets is an exceptional circumstance in which an offsetting surcharge against otherwise exempt property interests is reasonably necessary to protect the integrity of the bankruptcy process and to ensure that a debtor exempts an amount no greater than the Code permits.View "Malley v. Agin" on Justia Law

Sharfarz hired Goguen to build an addition to his house. Despite taking full payment, Goguen never finished the job. Sharfarz had to pay another to finish the work and sued consumer-protection laws, Mass. Gen. Laws ch. 93A; Mass. Gen. Laws ch. 142A. Sharfarz obtained a default judgment of $272,745. After an evidentiary hearing to assess damages, the state judge wrote that Goguen was "both deceptive and unfair, almost from the beginning and to the end," and that his "violations" had been "willful and knowing." Goguen filed for Chapter 7 bankruptcy. Sharfarz sought to have his judgment declared nondischargeable, under a provision that bars discharge of "any debt ... for money ... to the extent obtained by ... false pretenses, a false representation, or actual fraud" 11 U.S.C. 523(a)(2)(A). The bankruptcy judge denied the petition. The First Circuit vacated and remanded for determination of the nondischargeable amount. Goguen’s false statements were both the legal and factual cause of Sharfarz’s loss. View "Sharfarz v. Goguen" on Justia Law

During the early 1990s, debtor Redondo entered into three construction contracts with the Authority: the Patillas project, construction of a bridge and access road; the Dorado project, replacement of a different bridge; the Mayguez project, highway improvements. The Authority retained the right to modify the plans; Redondo had the right to seek extra compensation. Redondo also could claim extra compensation for certain contingencies requiring substantial additional work. Each project encountered unanticipated problems, including unforeseen site conditions and flawed design plans. Redondo completed all three projects and submitted claims for additional amounts owed under the contracts, including claims for two subcontractors on the Mayaguez project. With the claims unresolved, Redondo filed for bankruptcy protection, 11 U.S.C. 1101-1174, and served the Authority with adversary complaints. The bankruptcy court awarded the debtor a total of $12,028,311.92 plus prejudgment interest at 6.5 percent, later reduced by $69,792.26. The district court affirmed. The First Circuit affirmed in part, rejecting claims concerning timely notice on one project and Redondo's standing to assert subcontractor claims. The court vacated and remanded calculation of extended overhead damages and the award of prejudgment interest. View "PR Highway and Transp. Auth. v. Redondo Constr. Corp." on Justia Law

While engaged in a Chapter 7 bankruptcy action, the debtor brought claims against government officials and a police officer, seeking damages for an allegedly illegal search of his property. He did not amend his bankruptcy schedules, as required, to disclose the existence of his claims as newly acquired assets prior to obtaining a discharge from bankruptcy. The court granted summary judgment in favor of the government defendants, on the basis of judicial estoppel. Although failure to disclose his claims did not give debtor an unfair advantage in the civil proceeding, he had successfully adopted a position in the bankruptcy proceeding inconsistent with the position he took in the damages claim. The First Circuit affirmed. To allow debtor to rely on a belated report of the claims, which he had repeatedly denied, "would neither serve the equities of this case nor create the proper incentive for future debtors to disclose assets in a bankruptcy proceeding completely and accurately."View "Guay v. Burack" on Justia Law

Debtor had unsecured liabilities of almost $15,000 and anticipated disposable income of about $100 per month. He visited an attorney, who indicated that he would not file a Chapter 7 proceeding until the debtor paid the anticipated legal fee ($2,300). If debtor chose the Chapter 13 alternative, he could pay over time as part of the Chapter 13 plan. The attorney estimated that fees associated with a Chapter 13 proceeding would total $4,100. Not having fees for a Chapter 7 filing, the debtor opted for Chapter 13 and paid $500 on account. The attorney submitted a “fee only” Chapter 13 plan that called for payment of $100 per month for 36 months to the bankruptcy estate. Of the total $3,600, only about $300 would be available to general creditors. The bankruptcy court rejected the plan as not submitted in good faith. The debtor opted to convert to Chapter 7; the attorney moved for an award of $2,872. The bankruptcy court awarded $299, which required him to disgorge more than $200. The district court affirmed. Noting a division in the circuits, the First Circuit reversed, holding that fee-only plans are not per se in bad faith.View "Berliner v. Pappalardo" on Justia Law

Debtors engaged the attorney to represent them in bankruptcy proceedings. They owed more than $115,000 in unsecured debt with no realistic prospect of payment. In a retainer agreement, he estimated that legal fees plus court costs would total around $4,000. Debtors paid $3,684 on account. Their Chapter 13 plan, 11 U.S.C. 1321-1322, was approved by the bankruptcy court and the lawyer filed an application requesting an additional $8,173.36 in attorneys' fees and expenses. The trustee objected. The bankruptcy court set the total fee and expense figure at $3,684, finding that the case was relatively uncomplicated. The district court and First Circuit affirmed, agreeing that the attorney billed an excessive number of hours. View "Sullivan v. Pappalardo" on Justia Law

Mortgage deeds executed by the debtors three years earlier were still pending recordation when they filed for Chapter 11 bankruptcy. Debtors sought to avoid the mortgages and to prevent any post-petition actions that would perfect them 11 U.S.C. 362(a)(5), 544(a), 547(b). The bankruptcy court ruled in favor of the lender. The district court and First Circuit affirmed. Debtors failed to establish the necessary elements of a preferential transfer.

In 2005 the debtor business purchased a business and signed a promissory note. The business failed, allegedly because the seller continued to compete, in violation of the contract. The debtor listed a breach of contract claim as an asset. The trustee was unable to retain an attorney to pursue the claim and, with the limitations period running out, the court approved abandonment of the claim. The seller then offered to buy the claim and stock in the debtor company. The First Circuit affirmed the district court holdings that the claim had been abandoned (11 U.S.C. 554(c)), but that the stock had not been abandoned. Although the debtor did not identify eery possible theory of recovery in listing the claim as an asset, the trustee was on notice of tort theories. The transfer of the claim was not a violation of the automatic stay.