Justia Bankruptcy Opinion Summaries

Articles Posted in U.S. 3rd Circuit Court of Appeals
by
ABC is an Australian company that provided child care and educational services in several countries through 38 subsidiaries. RCS contracted with an ABC subsidiary to develop U.S. child care facilities and ABC guaranteed the subsidiary’s loan obligations. RCS won a $47 million breach of contract verdict against the subsidiary in Arizona state court. ABC and the subsidiary brought suit in Nevada against RCS, seeking $30 million. ABC entered into insolvency proceedings in Australia. ABC was entirely leveraged, so its directors voted to enter liquidation. Before the Arizona verdict became a judgment, the liquidators petitioned the Bankruptcy Court of Delaware for recognition of the Australian insolvency proceedings under Chapter 15 of the Bankruptcy Code. The focus of the stay was ABC’s Nevada suit against RCS. The bankruptcy court found the liquidation was a foreign main proceeding that met the recognition requirements and did not manifestly contravene U.S. public policy and ordered recognition and an automatic stay. The court granted RCS’s motion to lift the stay for the purpose of rendering its Arizona verdict to judgment, and applying the judgment against the Nevada action. The District Court of Delaware upheld the orders, noting that RCS was granted all the relief it initially sought. The Third Circuit affirmed, citing 11 U.S.C. 1520. View "In Re: RCS Capital Dev." on Justia Law

by
In 1999, I-4 leased Florida land to Lazy Days, with an option to purchase, prohibiting assignment without written consent. In 2008, Lazy Days notified I-4 of its intention to file for Chapter 11 bankruptcy and assign the lease to LDRV. The parties negotiated a settlement agreement in 2009. I-4 consented to assignment. Lazy Days agreed not to “argue against the Bankruptcy Court abstaining from consideration of Lease interpretation issues ... except to the extent necessary in connection with the assumption and assignment of the Lease.” The agreement provided that “there is no intent to, nor is the Lease modified in any respect,” but did not state whether the purchase option survived. The Bankruptcy Court confirmed a reorganization plan incorporating the agreement and closed the case in 2010. In 2011, LDRV attempted to exercise the option. The parties each filed state court lawsuits and LDRV moved to reopen in Bankruptcy Court, which held that the anti-assignment provision was unenforceable and that refusal to honor the option violated the agreement. The district court vacated. The Third Circuit reversed, holding that the Bankruptcy Court properly exercised jurisdiction; the agreement’s exception applied because the proceeding was “in connection with ... assignment of the Lease.” The court rejected arguments that the parties agreed to waive application of 11 U.S.C. 365(f)(3) and that the Bankruptcy Court committed an unconstitutional taking and denied I-4 due process. View "In Re: Lazy Days' RV Ctr., Inc." on Justia Law

by
BDI elected under I.R.C. 1362(a) to be treated as an S-corporation, not subject to federal taxation because its profits and losses passed through to Barden, its sole shareholder. MSC owns the Majestic Star Casino and Hotel. BDI acquired MSC in 2005. BDI elected to treat MSC as a QSub (I.R.C. 1361(b)(3)(B), not as a separate tax entity. MSC, therefore, paid no federal taxes. In 2009, MSC and its affiliates filed voluntary bankruptcy petitions. Barden and BDI were not debtors. After the petition, Barden caused revocation of BDI’s status as an S-corporation; MSC’s QSub status automatically terminated because it was no longer wholly owned by an S-corp. Neither BDI nor Barden sought authorization from the debtors or from the Bankruptcy Court. MSC allegedly was unaware that it had a new obligation to pay income taxes. As of first date federal taxes would have been due, the debtors had paid no federal income taxes. The Bankruptcy Court permitted conversion of MSC to a limited liability company, so that MSC would no longer qualify for QSub status, even if the Revocation had not occurred. The debtors sought to avoid the Revocation, which, they alleged, caused an unlawful post-petition transfer of property. The Bankruptcy Court granted summary judgment to the debtors. The Third Circuit vacated and directed that the petition be dismissed for lack of jurisdiction. View "In Re:Majestic Star Casino LLC" on Justia Law

by
In 2007, Tellado heard a Spanish-language radio advertisement for mortgage refinancing, called the number, and spoke in Spanish to arrange refinancing of an existing mortgage. Bloom, a closing agent acting as a representative of IndyMac, conducted the closing at the Tellados’ home. The loan documents, including the notice of the right to cancel, were in English. Oral communications between Bloom and the Tellados, were conducted through the Tellados’ daughter, who served as an interpreter for verbal instructions and Bloom’s explanations of the loan documents. IndyMac subsequently failed and was placed in FDIC receivership. In 2009, the Tellados sent a notice of cancellation under Pennsylvania’s Unfair Trade Practices and Consumer Protection Law, 73 P.S. 201-7. The district court held that IndyMac had failed to provide proper notice and that the three-day cancellation period had never begun; it ordered refund to the Tellados of all payments, termination of the security interest, and payment of a $10,000 penalty. The Third Circuit reversed; the claim is precluded by the Financial Institutions Reform, Recovery, and Enforcement Act, 12 U.S.C. 1821(d)(13)(D) because the claim is predicated upon an act or omission of IndyMac. Tellados failed to exhaust their administrative remedies under FIRREA. View "Tellado v. Indymac Mortg. Serv." on Justia Law

by
The nursing care facility faced financial difficulties and ceased to admit new patients; it filed a Chapter 11 bankruptcy petition in 2005. The Bankruptcy Court appointed a Committee of Unsecured Creditors, approved closure, and authorized the Committee to commence adversary proceedings against officers and directors. The Committee did so, alleging breach of fiduciary duties of care and loyalty. The district court granted defendants summary judgment, based on the business judgment rule and the doctrine of in pari delicto. On remand, the court scheduled a jury trial. Before pretrial conference, the parties identified 400 proposed exhibits. The Committee intended to call up to 51 witnesses; defendants intended to call up to 34 witnesses. Descriptions of intended testimony were similar. Frustrated with the failure to “streamline [the] case,” the court limited each side’s witness testimony to 7.5 hours and limited opening and closing statements. Defendants sought to appeal under 28 U.S.C. 1292(b) and a writ of mandamus. The Third Circuit dismissed the appeal because the district court did not certify that the time-limit order “involve[d] a controlling question of law as to which there is substantial ground for difference of opinion” and denied mandamus, holding that direct appeal was an adequate means of challenge. View "In Re: Baldwin" on Justia Law

by
Michael filed a Chapter 13 voluntary petition and the Bankruptcy Court confirmed his reorganization plan, providing that Michael would pay $277 monthly to the trustee, for 53 months; the trustee would direct the monies to creditors, including GMAC, which held a mortgage on Michael‘s residence. Michael would make regular mortgage payments to GMAC outside of the Plan. To the extent funds were available, unsecured creditors would be paid pro rata. Michael’s wages were attached and paid directly to the trustee. Michael was unable to make mortgage payments outside of the Plan. The Bankruptcy Court granted GMAC relief from the automatic stay to allow foreclosure. Because Michael did not move to amend the Plan or modify the wage attachment, the trustee continued to receive payments. GMAC refused to accept payments to avoid an estoppel or waiver defense to its mortgage foreclosure. The funds accumulated until Michael converted his case to Chapter 7 and moved for return of the $9,181.62. The trustee objected, arguing that the funds should be distributed to unsecured creditors. The bankruptcy and district courts, noting that the Code does not clearly address the issue, concluded that the funds must be returned to Michael. The Third Circuit affirmed.View "In Re: Michael" on Justia Law

by
In 2002 Glover entered into a mortgage with WaMu. After being injured Glover fell behind on her mortgage in 2005 and requested a work-out agreement to reduce her payments. WaMu initially threatened to foreclose, but subsequently agreed to postpone her payments until the request had been evaluated. Eventually, WaMu denied the request. Murray, an attorney with Udren Law Offices, called Glover and informed her that she owed WaMu missed payments, attorney’s fees and costs, totaling $3,397.28. WaMu then filed a foreclosure complaint. After communications between Glover and WaMu‘s assignee, Wells Fargo, Glover entered into a loan modification agreement with Wells Fargo. Glover filed a putative class-action against WaMu, Wells Fargo, and the Udren firm, alleging violations of the Pennsylvania Fair Credit Extension Uniformity Act, premised on violations of the Fair Debt Collection Practices Act, 15 U.S.C. 1692. The district court dismissed. The Third Circuit affirmed. An FDCPA claim was not timely because Glover’s amended pleadings did not provide the fair notice required for relatation back to her original filing View "Glover v. Fed. Deposit Ins. Corp." on Justia Law

by
In connection with a loan, Bayonne provided Nuveen with an audit report authored by accounting firm, Withum and an opinion letter from Bayonne’s counsel, Lindabury. Soon after the transaction, Bayonne filed a Chapter 11 bankruptcy petition, 11 U.S.C. 101. Nuveen claimed that the audit report and opinion letter concealed problems with Bayonne’s financial condition and that, had it known about these financial issues, it would not have entered into the transaction. The district court dismissed claims of fraud (Withum), negligent misrepresentation, and malpractice (Lindabury) based on Nuveen’s noncompliance with New Jersey’s Affidavit of Merit statute, N.J. Stat. 2A:53A-26, which requires an affidavit of merit for certain actions against professionals. The Third Circuit remanded for reconsideration of diversity jurisdiction. On remand, the court accepted an argument that the action was “related to” Bayonne’s bankruptcy proceeding, establishing jurisdiction under 28 U.S.C. 1334(b), and again dismissed. The Third Circuit affirmed as to jurisdiction and held that the AOM Statute can be applied by a federal court without conflicting with FRCP 8. If the AOM Statute applies, noncompliance requires dismissal. The court certified to the New Jersey Supreme Court questions relating to the “nature of the injury” and “cause of action” elements of the statute. View "Nuveen Mun. Trust v. Withumsmith Brown PC, et al" on Justia Law

by
Debtors took a mortgage and a second mortgage on their residence. They later filed a voluntary Chapter 7 petition. They claimed exemptions for their residence, citing 11 U.S.C. 522(d)(1) and 11 U.S.C. 522(d)(5). Amounts claimed on Schedule D and Schedule F were not referenced or listed on Schedule C. There were no objections to exemptions within the within the 30-day limit. After the selling the house, the trustee moved to value the exemption in the former residence at zero or to declare that the exemption did not extend to sales proceeds, because debtors had no equity in their home to which the homestead exemption could attach. The district court reversed the bankruptcy court and ruled in favor of debtors, holding that the trustee’s late objection to claimed exemptions was barred. On remand, in light the Supreme Court in decision Schwab v. Reilly,(2010), the district court held that the trustee has no duty to object to to claimed exemptions within the 30-day limit under Fed. R. Bankr. P. 4003(b). The Third Circuit affirmed. The Trustee’s objection was timely and valid. Debtors did not provide sufficient notice through their disclosure in Schedule C that they intended to exempt the property’s full value. View "In Re: Messina" on Justia Law

by
Philadelphia Inquirer (debtors) published print and online articles discussing the CSMI‘s contract management of the Chester Community Charter School. After CSMI filed a defamation action, the Inquirer filed for relief under Chapter 11, 11 U.S.C. 101. CSMI alleged that post-petition, debtors published an article that links to and endorses earlier articles and filed the administrative expense requests: $1,800,000 for alleged post-petition defamation and $147,140 in alleged damages for post-petition conduct and prosecution of claims against CSMI. The Bankruptcy Court denied the requests. Debtors conducted an auction of substantially all assets, and the sale was consummated under a plan that provided that the purchaser would assume certain administrative expense claims, not including claims arising from the CSMI’s administrative expense requests. The district court held that an appeal was equitably moot: the plan had been substantially consummated and no stay was sought. The court also stated that merely posting a link to the charter school webpage that contained the original articles was not distinct tortious conduct upon which a defamation claim can be grounded. The Third Circuit affirmed. While the appeal was not equitably moot, CSMI cannot advance a sustainable cause of action to support the requests. View "In Re: Philadelphia Newspapers" on Justia Law