Justia Bankruptcy Opinion Summaries

After the Underhills received their discharge under a voluntary Chapter 7 petition in May 2010, Golf Chic, an LLC in which Beth Underhill was the sole member, filed a claim for tortious interference against several entities in October 2010. The lawsuit was settled and $80,000 was awarded to the LLC, but the settlement check was made payable to Beth Underhill and her attorney, rather than to the LLC. Huntington Bank successfully moved to reopen the case so that the settlement proceeds could be administered as an asset of the bankruptcy estate. The Bankruptcy Appellate Panel affirmed. The settlement proceeds received after the discharge were sufficiently rooted in the debtors’ pre-bankruptcy past to be property of the estate, 11 U.S.C. 541(a)(1) and the claims were not abandoned by the trustee when the bankruptcy case was closed. The claim was known to Beth Underhill and affected the value of her membership interest. Placing a value of zero on the membership interest with that knowledge constituted failure to disclose the asset and warrants reopening and a determination by the bankruptcy court of the value of the interest in the LLC. View "In re: Underhill" on Justia Law

Aleris supplied aluminum to Behr under a requirements contract until a labor dispute forced Aleris to close its Quebec factory in 2008. After learning of the closure, Behr took delivery of aluminum worth $2.6 million from Aleris without paying for it and scrambled to obtain aluminum from other suppliers, which Behr says increased its costs by $1.5 million. Behr filed suit in Michigan state court. That suit was stayed in 2009 when Aleris’s parent company filed for bankruptcy in the U.S. Aleris filed for bankruptcy in Canada. Aleris sued Behr in federal court seeking recovery of $2.6 million for the aluminum delivery. Behr asserted numerous defenses and counterclaims including a setoff for its increased costs after the factory closure. The district court abstained from adjudication of Behr’s counterclaim, characterizing it as “part and parcel of the stayed state-court proceedings,” then granted summary judgment to Aleris in the amount of $1.1 million and closed the case. Behr satisfied the judgment. The state court declined to lift the stay. The Sixth Circuit reversed, stating that the decision gave Behr full value for its untested counterclaim and has the impact of depriving the Canadian estate of monies to which it might be entitled. View "RSM Richter, Inc. v. Behr America, Inc." on Justia Law

Greektown, the owner of a Detroit casino, and affiliates filed for Chapter 11 bankruptcy. The bankruptcy court confirmed a reorganization plan and named a trustee. Before the plan became effective, the bankruptcy court authorized unsecured creditors to file a fraudulent transfer action under 11 U.S.C. 544 and 550 and the Michigan Uniform Fraudulent Transfer Act, alleging that Greektown incurred $185 million dollars of debt and simultaneously transferred approximately $177 million to several transferees, including the Tribe. The complaint alleged that the Tribe directly received $6 million and that $145 million transferred to others indirectly benefitted the Tribe because the Michigan Gaming Control Board had required the Tribe to pay this amount to those others if Greektown failed to do so. The Trustee and the Tribe later agreed to a settlement, under which the Tribe would pay $2.75 million and relinquish approximately $2.58 million in claims it had filed, conditioned upon the bankruptcy court’s entering a bar on further claims “arising out of or reasonably flowing from” either the fraudulent transfer proceeding or the allegedly fraudulent transfers themselves. The district court approved the settlement and entered the bar order over objections. Finding the order overly broad, the Sixth Circuit remanded for the court to consider whether the outcome of the actions covered by the bar order would affect the bankruptcy estate. View "Papas v. Buchwald Capital Advisors, LLC" on Justia Law

Watson’s companies, Cyberco and Teleservices, defrauded lending institutions and other businesses that provided funding for Cyberco to purchase computer equipment from Teleservices. Cyberco never actually received any equipment, but the lending institutions forwarded funds to Teleservices based on phony invoices Watson arranged. Watson packed Cyberco’s computer room with fake servers and swapped serial numbers among those servers to deceive the victims when they attempted to audit their collateral. Teleservices “funneled” the funds back to Cyberco, which used them to make payments to allow the fraud to continue and to pay Watson and others substantial salaries. The payments were made through Huntington Bank, which also facilitated payments through its cash management services, but Cyberco owed Huntington more than $16 million. Teleservices, which had no banking relationship with Huntington, made payments so that Huntington could reduce its exposure to about $600,000 in a few months, just weeks before the FBI raided Cyberco. After that raid, creditors commenced an involuntary Chapter 7 proceeding against Cyberco. A state-appointed receiver filed a voluntary Chapter 7 bankruptcy petition for Teleservices. The bankruptcy court dismissed Huntington’s motions for substantive consolidation of the Chapter 7 petitions. The Bankruptcy Appellate Panel determined that the denials were not final appealable orders. The Sixth Circuit affirmed. View "In re: Cyberco Holdings, Inc." on Justia Law

American loaned $429,991 to Saberline to pay an insurance premium; Saberline agreed that, if it defaulted on the loan, American could cancel the policy and obtain return of any unearned premiums. USIG brokered the deal. American would deliver funds to USIG’s account at Cornerstone; USIG would forward the money to the insurer. Instead of placing the money in a trust account for Saberline, USIG told American to deposit the funds in USIG’s general operating account at Cornerstone. USIG was indebted to Cornerstone and had authorized it to sweep the operating account and apply anything over $50,000 to the debt. As a result, when American deposited Saberline’s premiums, Cornerstone reduced USIG’s debt. Saberline defaulted. American canceled the policy and attempted to recover the premium. USIG repaid American with funds drawn from a different bank, but then filed for bankruptcy, turning that transfer into a preference payment. American settled with the bankruptcy trustee, reserving its right to pursue a conversion claim against Cornerstone. A magistrate judge issued a declaratory judgment that American had a superior security interest in the disputed funds and that Cornerstone was liable for conversion. The Sixth Circuit affirmed. The Premium Finance Company Act, Tenn. Code 56-37-101, gave American a senior perfected security interest in the contested funds. View "American Bank, FSB v. Cornerstone Cmty. Bank" on Justia Law

Lindsey filed a voluntary Chapter 11 petition for bankruptcy relief. His reorganization plan identified 12 classes of creditors. Lindsey sought to retain most of his assets, including several pieces of real estate, so three banks, all impaired creditors, opposed the plan, 11 U.S.C. § 1129(b)(1) as not complying with the absolute priority rule, which bars debtors from retaining any property unless the reorganization plan pays all dissenting creditors in full. Lindsey argued that the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 abrogated the absolute priority rule with respect to individual debtors. The bankruptcy court refused to confirm the plan. The district court affirmed. The Sixth Circuit dismissed an appeal for lack of jurisdiction. Rejection of a reorganization plan did not create a final appealable order. View "Lindsey v. Pinnacle Nat'l Bank" on Justia Law

The Weixels filed a Chapter 7 petition; they were not eligible for relief under Chapter 13 due to the amount of their debt. The bankruptcy court dismissed, 11 U.S.C. 707(b)(1), (2) and (3), after considering bank statements, showing that when the Weixels’ bank account had been repeatedly overdrawn, they continued to spend money on entertainment and the trustee’s conclusion that the Weixels, with budget adjustments, had monthly disposable income of $2,308. The, Bankruptcy Appellate Panel affirmed, rejecting arguments that the bankruptcy court failed to consider the Weixels’ scheduled priority tax debt and their household’s future housing expense. View "In re: Weixel" on Justia Law

Daley opened an IRA with Merrill Lynch, rolling over $64,646 from another financial institution. He signed a contract with a "liens" provision that pledged the IRA as security for any future debts to Merrill Lynch. No such debts ever arose. Daley never withdrew money from his IRA, borrowed from it or used it as collateral. Two years later, Daley filed a Chapter 7 bankruptcy petition and sought protection for the IRAs, 11 U.S.C. 522(b)(3)(C). The trustee objected, contending that the IRA lost its exempt status when Daley signed the lien agreement. The bankruptcy court and the district court ruled in favor of the trustee. The Sixth Circuit reversed. An IRA loses its tax-exempt status if the owner "engages in any transaction prohibited by section 4975 of the tax code. There are six such transactions, including “any direct or indirect” “lending of money or other extension of credit” between the IRA and its owner, 26 U.S.C. 4975(c)(1)(B). Daley never borrowed from the IRA, and Merrill Lynch never extended credit to Daley based on the existence of the IRA. View "Daley v. Mostoller" on Justia Law

The debtor worked Saylor’s nightclub and for another entity owned by Saylor, scouting for commercial properties. Debtor obtained loans ($1,018,350) to purchase four Michigan car washes. The loan closings were conducted by another company controlled by Saylor, acting as agent for the title company, which never released loan proceeds to complete the purchases. After the debtor defaulted, Bayview, assignee of the notes, discovered that he did not hold title to the properties securing the notes. Bayview filed claims under the title commitments. The title company claimed that the loan applications contained false statements and denied the claim for failure to exercise due diligence in approving the loans. Bayview sued and the parties settled; Bayview assigned an interest in the notes to the title company, which obtained a default judgment of $10,172,840 against Saylor. The debtor filed a Chapter 7 bankruptcy petition. The title company filed an adversary complaint claiming that the Bayview notes were undischargeable under 11 U.S.C. 523(a)(2)(B). The bankruptcy court rejected the argument, holding that under Michigan law, claims for fraud cannot be assigned and that the title company had the right to pursue Saylor, but not the debtor. The district court reversed. The Sixth Circuit affirmed, holding that the title company can seek nondischargeability under section 523(a)(2) View "Pazdzierz v. First Am. Title Ins. Co." on Justia Law

In 2009, Epling purchased a manufactured home, borrowing funds from Vanderbilt secured by a security interest in her manufactured home. Epling resided in Magoffin County, Kentucky. Vanderbilt filed an application for first title and an application for a title lien statement in Bell County, Kentucky and later filed the Certificate of Title for the manufactured home, which listed Vanderbilt’s lien, in Bell County. In 2010, Epling filed a voluntary Chapter 7 bankruptcy petition. The trustee initiated a strong-arm proceeding to avoid Vanderbilt’s lien on the manufactured home, under 11 U.S.C. 544, because the lien was not properly perfected under the Kentucky law. The bankruptcy court granted the trustee summary judgment, concluding that Vanderbilt had failed to perfect its lien because it had filed the required title lien statement in its county of residence, rather than in Epling’s county of residence. The district court and Sixth Circuit affirmed. View "Vanderbilt Mortg. & Fin., Inc. v. Westenhoefer" on Justia Law