Justia Bankruptcy Opinion Summaries

A medical provider filed proofs of claim in about 3,200 bankruptcy cases, 2003-2008, listing the debtors' medical treatment information. The filings were public and available on the docket. Debtors filed class action suits under a statute that allows individuals to sue if their health care records are disclosed without permission, Wis. Stat. 146.84. The bankruptcy judge granted the provider summary judgment. The Seventh Circuit dismissed and remanded for lack of jurisdiction. Bankruptcy judges lack authority under Article III of the Constitution to enter final judgments on claims that constitute "the stuff of the traditional actions at common law." The debtors' claims are based on a state law that is "independent of the federal bankruptcy law" and not necessarily resolvable by a ruling on the creditor’s proof of claim in bankruptcy. View "Ortiz v. Aurora Health Care, Inc." on Justia Law

Under the Multiemployer Pension Plan Amendments Act of 1980, all "trades or businesses" under "common control" are treated as a single employer for purposes of determining withdrawal liability. 29 U.S.C. 1301(b)(1). SCOFBP incurred withdrawal liability for unfunded pension benefits in 2001 when it ceased operations and paying into a union pension fund. The district court held that the solvent MCRI and MCOF, which were part of a complex set of entities and trusts under control of a single businessman (who went through personal bankruptcy in 1999), were both trades or businesses that were under common control with insolvent SCOFBP at the relevant times, so that both are liable for SCOFBP's withdrawal liability. The Seventh Circuit affirmed, rejecting arguments that MCRI and MCOF were only passive investment vehicles rather than trades or businesses and that the businessman's personal bankruptcy disrupted what had been common control of the three entities. View "Central States SE and SW Areas Pension Plan v. SCOFBP, LLC, " on Justia Law

Plaintiff had filed a state suit against the corporation, which owned and operated a shopping center, alleging that he was entitled to a percentage of profits under a written agreement. After the bankruptcy petition, a stay automatically issued against the state-court litigation, 11 U.S.C. 362(a). Plaintiff filed a notice of claim with the bankruptcy court; he argued that a lis pendens that he filed in connection with his state-court lawsuit made his claim a secured one. The bankruptcy court disagreed and later disallowed the claim in its entirety, reasoning that plaintiff could have nothing more than an equity interest, which would necessarily be subordinate to all other creditors' claims and thus worthless. The Seventh Circuit dismissed an appeal, noting plaintiff's failure to obtain a stay of the sale of the debtor's property pending appeal, as required under 11 U.S.C. 363(m), and his failure to file a notice of appeal that challenged the bankruptcy court order approving the joint liquidation plan that distributed the sales proceeds. View "In re: River West Plaza-Chicago, L.L.C." on Justia Law

Plaintiff sued individual defendants and a bank alleging violations of Wisconsin Statute section 134.01, which prohibits conspiracies to willfully or maliciously injure the reputation, trade, business or profession of another. Defendants had caused appointment of a receiver for plaintiff's business and had sued, claiming that plaintiff "looted" the business. A jury verdict against plaintiff was reversed. The receivership is still on appeal. The district court dismissed plaintiff's subsequent suit for failure to state a claim. The Seventh Circuit affirmed. While plaintiff did plead malice adequately to support a claim, the claim was barred by issue preclusion. Plaintiff was attempting to relitigate whether the imposition and ends of the receivership were proper. View "Virnich v. Vorwald" on Justia Law

When the debtor voluntarily declared bankruptcy under Chapter 7 its petition was signed only by its president, not a lawyer. The next day the company filed an amended petition signed by a lawyer. Before the filing, the bank had sued debtor for fraud; the suit was automatically stayed, 11 U.S.C. 362(a)(1), so the bank refiled as a claim in the bankruptcy proceeding. The trustee in bankruptcy moved to rescind payments of pre-petition debts that the debtor had made to the bank, on the ground that the payments were voidable preferences because they had been made within 90 days before the filing, 11 U.S.C. 547(b), (f). The parties settled the claim conditional on a determination that the bankruptcy court had had jurisdiction over it. The bank's argument that the signature on the original petition made the proceeding void was rejected by the bankruptcy and district judges. The Seventh Circuit affirmed, finding that the rule was not jurisdictional and that application of relation-back was "obvious." View "First Chicago Bank & Trust v. Liebowitz" on Justia Law

Indiana University had an Instructional Television Fixed Service license, issued by the FCC, that authorized broadcast on specified frequencies. A not-for-profit ITFS licensee can lease unused frequencies to a for-profit entity. The university was contemplating assigning frequencies to PBS, but before it did, PBS quitclaimed its rights to the debtor. Thinking that the transfer was final, debtor modified equipment at a cost of $350,000. The bankruptcy trustee filed a claim against the university, contending that it had promised PBS the license, that debtor had reasonably relied on the promise, and that the doctrine of promissory estoppel entitled debtor to damages of $116,000. The claim settled for $100,000. Because the settlement left the estate with insufficient assets to pay unsecured creditors, a creditor challenged it. The bankruptcy court, district court, and Seventh Circuit affirmed. The trustee decided that pursuing a claim for the license was hopeless and made a reasonable decision.

Claimant owned a hotel adjoining the CDC landfill. CDC hired debtor to build a system for dealing with gases generated in the landfill. In 1999, debtor was forced into bankruptcy. The landfill's gas control system failed; debtor lacked funds to fix it. The failure released foul odors that, traveling underground, entered the hotel through electrical outlets and cracks, sickening guests and employees. Claimant's hotel declared bankruptcy in 2005. The landfill was permitted to terminate its contract with debtor. Claimant filed a bankruptcy claim for the loss in value in selling the hotel, characterizing it as an administrative claim, superior to others, and brought a tort action in state court, which settled. The bankruptcy judge and district judge rejected characterization as an administrative claim. The Seventh Circuit affirmed. Administrative claims have priority because they are claims for reimbursement of expenses incurred after the declaration of bankruptcy, in order to preserve the value of the bankrupt estate for the benefit of creditors. A tort victim is a creditor, whose actions do not benefit the debtor-tortfeasor. Tort liability is an expense of doing business, like labor or material costs, and should be treated the same way.

The same day that debtor discharged his debts in a Chapter 7 bankruptcy, his mother, died, leaving debtor and his brother equal shares in an estate. Debtor signed a disclaimer of his interest, but never told the trustee about his inheritance. Following a series of transactions between the brothers and various accounts, the U.S. Attorney's office launched an investigation, and the brothers were charged with bankruptcy fraud (18 U.S.C. 157(3)). Debtor was also charged with impeding a bankruptcy trustee in the course of his duties (18 U.S.C. 152(1)) and fraudulently concealing assets. The Seventh Circuit affirmed. The circumstantial evidence was sufficient for a reasonable jury to find that the brothers engaged in a fraudulent scheme. The court also rejected a claim of ineffective assistance of counsel.

Debtor, a limited liability company, was formed by five members, who made up a Board of Managers. Forte had a 12% interest. After his requests to inspect of business records were denied, Forte sued Lynch, the member with the highest percentage interest. In the six months before filing for Chapter 11 bankruptcy, the company paid Forte $215,000 as part of the settlement. The bankruptcy court found that Forte qualified as an "insider" (11 U.S.C. 547(b)(4)(B)) and that the trustee could void and recover the transfers. The district court and Seventh Circuit affirmed. Insider status is not just a matter of title; Forte retained voting rights in the company, held a formal position on the Board, and did not resign until after he received the transferred funds.

Plaintiff, a plastics manufacturer, dealt with a container company that filed for bankruptcy in 2002, filed a creditor's claim for more than $7 million, and objected to the sale of assets and lien priorities. The debtor had pledged all of its assets as security for a line of credit with ANB, its primary lender. Plaintiff claimed that there was a fraudulent scheme under which the debtor would produce containers and not pay for them, so that that they would be part of inventory when a successor company, let by insiders, purchased the assets in bankruptcy. After its claims were rejected in the bankruptcy proceedings, plaintiff sued ANB and Gateway alleging violation of RICO (18 U.S.C. 1961) and common-law fraud. The district court dismissed as "res judicata" but denied Rule 11 sanctions. The Seventh Circuit affirmed the dismissal, citing collateral estoppel, issue preclusion. The court did not find that the claims were frivolous or designed to harass.