Justia Bankruptcy Opinion Summaries

Debtor, a waste disposal firm, borrowed from FFC, giving FFC a security interest before filing a Chapter 11 petition in 2003. In 2005 a trustee, appointed to run the business, moved to convert to a Chapter 7 proceeding and assented to having Allied service debtor's customers. The court granted the motion and lifted the equitable stay to allow FFC to sell secured equipment. FFC later foreclosed against additional property, which it sold to City Sanitation. A consultant who had been retained by the trustee to assist in operating the business went to work for Allied. In 2007 City Sanitation sued Allied and the consultant, purportedly as the debtor's successor in interest, alleging conversion. The bankruptcy court reopened the bankruptcy case to allow the trustee to take over the case against Allied. The district court and First Circuit affirmed. The right to pursue commercial tort claims cannot be passed to a secured creditor as proceeds of original collateral. The court rejected an argument that FFC's security interest conferred the right to prosecute claims arising from interference with the collateral. The alleged wrongdoing occurred while the consultant was in debtor's employ; any harm was to debtor and belongs to the estate.

Following a remand from the First Circuit, the bankruptcy court approved the Chapter 7 trustee's decision to give priority to holders of senior unsecured debt with respect to principal and pre-petition interest. The priority did not extend to payment of post-petition interest ahead of junior unsecured debt. The district court affirmed. The First Circuit affirmed. The Code provides that a subordination agreement is enforceable to the same extent that such agreement is enforceable under applicable nonbankruptcy law, (11 U.S.C. 510(a)). The bankruptcy court findings as to the intent of the parties were sufficient to support the conclusion, under New York law, that the parties did not intend to subordinate the junior noteholders to post-petition interest.

In 2003 the owner executed a second mortgage with a stated term of four months, in favor of defendant to secure performance of a guaranty. The owner later executed a separate mortgage and defaulted. The lender foreclosed and took possession subject to senior mortgages. In 2007 defendant published notice of foreclosure. The then-owner filed bankruptcy under 11 U.S.C. 362(a), triggering a stay before the deadline under the Massachusetts Obsolete Mortgages Statute, which requires the holder of a mortgage to take action to enforce it within five years after the end of its stated term (September 9, 2008). The bankruptcy court held that defendant's failure to record an extension rendered the mortgage void. The district court reversed. The First Circuit affirmed, holding that the bankruptcy statute tolls the limitations period of the state law. Defendant was not required to choose between filing an extension and foreclosure and still had the right to foreclose at the time the stay became effective.

While the recording of the deed to mortgaged property was in "limbo" because of a defect, the borrowers declared bankruptcy, resulting in a stay under 11 U.S.C. 362. The lender nonetheless presented a corrected deed for registration. The borrowers filed suit and the court ordered that the deed be withdrawn, but denied damages and fees. The bankruptcy appellate panel affirmed. The First Circuit reversed and remanded, stating that there was no justification for disregarding the statutory language concerning awards of damages and fees for willful violation of a stay.

Homeowners fell behind on their mortgage and the bank initiated foreclosure. The homeowners filed a Chapter 13 bankruptcy. The judge denied their motion for rescission of the mortgage and for damages, based on noncompliance with state laws. The district court and First Circuit affirmed. The homeowners signed right-to-cancel forms required under the Massachusetts Consumer Credit Cost Disclosure Act, modeled after the federal Truth in Lending Act (15 U.S.C. 1635); technical flaws in the form cannot serve as a basis for invalidating a transaction five years later. Similarly, a slight delay in receipt of a required high-cost loan disclosure did not justify rescission five years later.

In 2009 the bankruptcy court revoked a 2000 Chapter 7 discharge, finding fraud with respect to a 1997 divorce settlement. The district court and First Circuit affirmed. While the debtor "largely avoided explicit false statements," the debtor allowed the trustee and the court to believe that he was turning over whatever he received to secured creditors, which was not true, and he withheld information about accelerated payments under the divorce settlement.