Justia Bankruptcy Opinion Summaries

Pro-Mark Services, Inc., a general contracting construction company, obtained payment and performance bonds from Hartford Accident and Indemnity Company as required by the Miller Act. To facilitate this, Pro-Mark and other indemnitors entered into a General Indemnity Agreement (GIA) with Hartford, assigning certain rights related to bonded contracts. Later, Pro-Mark entered into two substantial business loan agreements with Capital Credit Union (CCU), secured by most of Pro-Mark’s assets, including deposit accounts. Recognizing potential conflicts over asset priorities, Hartford and CCU executed an Intercreditor Collateral Agreement (ICA) to define their respective rights and priorities in Pro-Mark’s assets, distinguishing between “Bank Priority Collateral” and “Surety Priority Collateral,” and specifying how proceeds should be distributed.After Pro-Mark filed for chapter 7 bankruptcy in the United States Bankruptcy Court for the District of North Dakota, CCU placed an administrative freeze on Pro-Mark’s deposit accounts and moved for relief from the automatic stay to exercise its right of setoff against the funds in those accounts. Hartford objected, claiming a superior interest in the funds based on the GIA and ICA. The bankruptcy court held hearings and, after considering the parties’ briefs and stipulated facts, granted CCU’s motion, allowing it to set off the funds. The bankruptcy court found CCU had met its burden for setoff and determined Hartford did not have a sufficient interest in the deposited funds, focusing on the GIA and North Dakota’s Uniform Commercial Code, and not the ICA.On appeal, the United States Bankruptcy Appellate Panel for the Eighth Circuit held that while the bankruptcy court had authority to adjudicate the priority dispute, it erred by failing to analyze the parties’ respective rights under the ICA, which governed the priority of distributions. The Panel reversed the bankruptcy court’s order and remanded the case for further proceedings consistent with its opinion. View "Hartford Accident and Indemnity Company v. Capital Credit Union" on Justia Law

A Minnesota resident filed for chapter 7 bankruptcy, listing her former live-in partner as a disputed creditor. After the discovery of a nonexempt interest in a lake cabin, creditors were invited to file claims. The former partner, initially acting pro se and later with counsel, filed several claims seeking reimbursement for property and funds allegedly provided to the debtor. These claims were reduced and ultimately settled for $9,000, with the debtor withdrawing her objections. Shortly thereafter, the creditor filed a new claim for $400,000, alleging personal injury torts such as assault, battery, and emotional distress, supported by a draft complaint. The debtor objected, arguing the claim was untimely, unsupported, and barred by various defenses.The United States Bankruptcy Court for the District of Minnesota sustained the debtor’s objection and disallowed the personal injury claim. The court applied the narrowest test for “personal injury tort” under 28 U.S.C. § 157(b)(5), finding the claim did not involve bodily injury and thus was not a personal injury tort. The court also found the claim barred by res judicata and judicial estoppel, reasoning that the prior settlement and proceedings precluded relitigation of the same issues.On appeal, the United States Bankruptcy Appellate Panel for the Eighth Circuit reviewed the bankruptcy court’s factual findings for clear error and its legal conclusions de novo. The panel held that, under any of the three recognized tests, the creditor’s claim was for damages for a “personal injury tort.” Therefore, the bankruptcy court erred in determining it had jurisdiction to finally adjudicate the claim. The panel reversed the bankruptcy court’s order disallowing the claim and remanded for further proceedings consistent with its opinion, directing that the district court must try the personal injury tort claim as required by statute. View "Arrieta v. Smith" on Justia Law

A debtor filed for Chapter 7 bankruptcy and sought to discharge student loan debts owed to both the Department of Education and a private lender, the Bank of North Dakota. The debtor, a 50-year-old woman with degrees in physics, education, communication, and mechanical engineering, had a history of mental health challenges and an unconventional work history, including periods of unemployment and underemployment. She consistently sought employment in her fields of study but often had to accept lower-paying or unrelated jobs. At the time of the proceedings, she was employed as an engineer earning $78,000 annually, with modest assets, minimal retirement savings, and reasonable living expenses.The United States Bankruptcy Court for the Northern District of Iowa held a trial and a supplemental evidentiary hearing. The court found that the debtor’s federal student loan debt was not dischargeable, but the private student loan debt owed to the Bank of North Dakota was dischargeable under 11 U.S.C. § 523(a)(8), concluding that repayment of the Bank’s loan would impose an undue hardship. The court based its decision on the debtor’s financial resources, reasonable expenses, lack of significant assets, ongoing mental health needs, and the inflexibility of the Bank’s repayment terms. The Bank of North Dakota appealed the dischargeability determination.The United States Bankruptcy Appellate Panel for the Eighth Circuit reviewed the bankruptcy court’s legal conclusions de novo and its factual findings for clear error. The panel affirmed the bankruptcy court’s decision, holding that the debtor met her burden of proving undue hardship under the totality-of-the-circumstances test. The panel agreed that the Bank’s student loan was dischargeable, while the Department of Education loan was not, and found no error in the bankruptcy court’s analysis or application of the law. View "Duncanson v. Bank of North Dakota" on Justia Law

Twelve days before filing for bankruptcy, the debtors purchased a new property in New Hampton, Iowa, but did not list this property in their bankruptcy schedules. Instead, they listed their Waucoma property, consisting of three contiguous parcels totaling just under 30 acres, as their residence and claimed it as fully exempt under Iowa’s homestead laws. No objections were filed to this exemption. The debtors later sold two of the three Waucoma parcels, retaining only a vacant lot (Parcel A). After their bankruptcy discharge, a creditor, AgVantage, sought to execute a pre-petition judgment lien against Parcel A, ultimately acquiring it at a sheriff’s sale.The United States Bankruptcy Court for the Northern District of Iowa denied the debtors’ motion to avoid AgVantage’s judicial lien, finding that the debtors had abandoned the Waucoma property as their homestead by purchasing and using the New Hampton property. The court also dismissed the debtors’ adversary complaint seeking contempt sanctions against AgVantage for violating the discharge injunction, concluding that AgVantage held a valid lien and was enforcing in rem rights, not collecting a discharged debt. The bankruptcy court further denied the debtors’ motion to amend the judgment.On appeal, the United States Bankruptcy Appellate Panel for the Eighth Circuit found that the bankruptcy court’s factual findings regarding the debtors’ homestead status on the petition date were not supported by the record. The panel held that the debtors’ exemption claim was presumptively valid and that AgVantage had not met its burden to rebut this presumption. The panel also determined that the bankruptcy court erred in granting a motion to dismiss the adversary proceeding without affording the debtors the procedural presumptions required at that stage. The panel reversed the bankruptcy court’s decision and remanded for further proceedings, including an evidentiary hearing. View "Jencks v. AgVantage FS" on Justia Law

Sammie Smith, Jr. and Elizabeth Smith filed for Chapter 13 bankruptcy three times within approximately two and a half years. Their first case was voluntarily dismissed. In their second case, they changed attorneys multiple times, filed several amended plans, and ultimately had their case dismissed for failure to make plan payments. Shortly after, they filed a third Chapter 13 case, again changing attorneys and submitting multiple amended plans and schedules. The Smiths also filed objections to creditor claims and requested several continuances. They failed to appear at a scheduled hearing on one of their objections, leading the bankruptcy court to issue an order to show cause regarding dismissal for failure to appear.The United States Bankruptcy Court for the Eastern District of Arkansas dismissed the Smiths’ third bankruptcy case, citing unreasonable delay prejudicial to creditors under 11 U.S.C. § 1307. The court also barred the Smiths from filing another bankruptcy case in any jurisdiction for one year. The Smiths appealed, arguing they were denied due process and a fair hearing, particularly objecting to the lack of notice regarding the possibility of a refiling bar.The United States Bankruptcy Appellate Panel for the Eighth Circuit reviewed the case. It held that the bankruptcy court did not abuse its discretion in dismissing the Smiths’ case, as the record supported dismissal for unreasonable delay and failure to appear. However, the appellate panel found that imposing a one-year bar on refiling without prior notice or an opportunity for the Smiths to be heard on that sanction was an abuse of discretion and violated due process. The panel affirmed the dismissal of the bankruptcy case but reversed and vacated the one-year refiling bar. View "Smith v. Gooding" on Justia Law

Absolute Pediatric Therapy, owned by Anthony Christopher, hired LaDonna Humphrey in May 2018 but terminated her four months later. In October 2018, Absolute and Christopher sued Humphrey in Arkansas state court, alleging various tort claims and accusing her of stealing information and making false accusations. Humphrey counterclaimed under the False Claims Act, alleging her termination was for reporting illegal activities. The litigation was contentious, and in August 2019, the state court found Humphrey in contempt and liable on all counts, awarding $3.57 million in damages to the plaintiffs.Following the state court's decision, Humphrey filed for Chapter 7 bankruptcy in September 2019. The Trustee of her bankruptcy estate proposed selling her claims, including her counterclaim and defensive appellate rights, to Absolute for $12,500. Humphrey objected to the sale of her defensive appellate rights. The bankruptcy court approved the sale, finding it reasonable and negotiated at arm's length. Humphrey did not obtain a stay of the sale but did secure a stay of the state court appeal.Humphrey appealed the bankruptcy court's order to the United States District Court for the Western District of Arkansas, which reversed the bankruptcy court's decision. The district court held that defensive appellate rights are not property of the estate under Arkansas law and found the sale not in the best interest of the estate. The district court also rejected the argument that the appeal was moot under 11 U.S.C. § 363(m) because Humphrey had obtained a stay of the state court proceedings.The United States Court of Appeals for the Eighth Circuit reviewed the case and concluded that the absence of a stay of the sale itself rendered the appeal statutorily moot under 11 U.S.C. § 363(m). The court vacated the district court's order and dismissed Humphrey's appeal from the bankruptcy court. View "Humphrey v. Christopher" on Justia Law

The Debtor-Appellant filed a chapter 13 voluntary petition on August 16, 2024, and was allowed to pay the filing fee in installments. The Debtor claimed to have received credit counseling within 180 days before filing, but failed to submit the required credit counseling certificate within the statutory deadline. The bankruptcy court issued an order compelling the Debtor to file the certificate by October 11, 2024, but the Debtor did not comply. Additionally, the Debtor failed to make the required installment payments on September 27 and October 11, 2024.The United States Bankruptcy Court for the District of South Dakota dismissed the Debtor’s case on October 15, 2024, due to the failure to pay the installment payments and the failure to submit the credit counseling certificate. The Debtor appealed the dismissal, arguing that the failure to pay the filing fee installment was due to unintentional delay and that the payment for the September 27 installment was sent but not received. The Debtor also attempted to submit two payments on October 14, which were delivered late.The United States Bankruptcy Appellate Panel for the Eighth Circuit reviewed the case. The court found that the Debtor’s appeal did not comply with Federal Rule of Bankruptcy Procedure 8014, as the brief lacked necessary components such as citations and a proper argument. Additionally, the court held that the bankruptcy court did not abuse its discretion in dismissing the case for failure to file a credit counseling certificate and for failure to make required installment payments. The court emphasized that compliance with the credit counseling requirement is mandatory and that the bankruptcy court had no choice but to dismiss the case. The order of the bankruptcy court was affirmed. View "Rivett v. Carlson" on Justia Law

In December 2020, Robert and Kristina Shoults filed for Chapter 7 bankruptcy in the United States Bankruptcy Court for the Eastern District of Missouri. In June 2021, they amended their schedule to claim a pre-petition, contingent, unliquidated personal injury tort claim as exempt under Missouri common law and Missouri Revised Statutes § 513.427. The Chapter 7 Trustee, Tracy A. Brown, objected to this exemption.The bankruptcy court disallowed the exemption, and the United States District Court for the Eastern District of Missouri affirmed this decision. The Debtors then appealed to the United States Court of Appeals for the Eighth Circuit. The district court and the bankruptcy court both concluded that the Eighth Circuit's decisions in In re Benn and In re Abdul-Rahim were controlling precedents, which held that Missouri debtors could only exempt property explicitly identified by Missouri statutes as exempt.The United States Court of Appeals for the Eighth Circuit reviewed the case and affirmed the lower courts' decisions. The court held that the Supreme Court's decision in Rodriguez v. FDIC did not overrule or abrogate the Eighth Circuit's precedents in Benn and Abdul-Rahim. The court emphasized that Benn and Abdul-Rahim required a state statutory basis for bankruptcy exemptions and that Missouri Revised Statute § 513.427 did not create new exemptions but merely opted out of the federal exemption scheme. Consequently, the court concluded that the Debtors' unliquidated personal injury tort claim was not exempt under Missouri law and affirmed the district court's order denying the exemption. View "Shoults v. Brown" on Justia Law

On July 6, 2013, a train carrying crude oil derailed in Lac-Mégantic, Quebec, causing explosions that killed forty-seven people and destroyed the town center. Joe R. Whatley, Jr., as trustee for the wrongful death claimants, sued Canadian Pacific Railroad Company and related entities, alleging liability for the value of the train’s crude oil cargo.The United States District Court for the District of North Dakota found Canadian Pacific liable under the Carmack Amendment for the value of the crude oil cargo and awarded Whatley $3,950,464 plus prejudgment interest. However, the court declined to address whether the judgment reduction provision from the Montreal Maine & Atlantic Railway (MMA) bankruptcy plan applied, stating that it was a matter for the Bankruptcy Court. Canadian Pacific's motion for reconsideration was denied, leading to this appeal.The United States Court of Appeals for the Eighth Circuit reviewed the case. The court found that the district court abused its discretion by setting aside part of the joint stipulation between the parties, which required the court to decide whether the judgment reduction provision applied. The Eighth Circuit determined that the judgment reduction provision from the MMA bankruptcy plan should apply, reducing Canadian Pacific’s liability to zero, as MMA was solely responsible for the derailment.The Eighth Circuit reversed the district court’s decision and remanded the case for a complete reduction of the judgment against Canadian Pacific, ensuring that Canadian Pacific would not be held liable for more than its proportionate share of the damages, which in this case was zero due to MMA's sole liability. View "Whatley v. Canadian Pacific Railway Co." on Justia Law

Western Robidoux, Inc. (WRI) filed for bankruptcy and initiated adversary proceedings against Boehringer Ingelheim Animal Health USA, Inc. (BIVI) and CEVA Animal Health, LLC (CEVA). BIVI and CEVA counterclaimed, seeking $1.9 million in damages. The parties mediated and reached a settlement, which was objected to only by TooBaRoo, LLC, a creditor. The bankruptcy court overruled TooBaRoo’s objections and approved the settlement. The district court affirmed this decision, and TooBaRoo appealed.The United States Bankruptcy Court for the Western District of Missouri initially reviewed the case. The court found that WRI’s indemnity payments to BIVI and CEVA were made to maintain business relationships, which generated significant revenue for WRI. The court concluded that WRI received reasonably equivalent value for these payments, making it unlikely that the Trustee would succeed in proving fraudulent transfers. The court also noted that key witnesses for the estate were unavailable, further diminishing the likelihood of success. The bankruptcy court approved the settlement, finding it fair and in the best interest of the estate.The United States District Court for the Western District of Missouri affirmed the bankruptcy court’s decision. The district court agreed that the settlement was reasonable and that the Trustee had met the burden of proving it was in the best interest of the estate. The court found no abuse of discretion in the bankruptcy court’s approval of the settlement.The United States Court of Appeals for the Eighth Circuit reviewed the case and affirmed the lower courts' decisions. The court held that the bankruptcy court did not abuse its discretion in approving the settlement, considering the likelihood of success in litigation, the complexity and cost of continued litigation, and the interests of all creditors. The settlement was deemed fair, equitable, and in the best interest of the estate. View "TooBaRoo, LLC v. Western Robidoux, Inc." on Justia Law