Justia Bankruptcy Opinion Summaries

Matthew Kerns, the sole member and manager of Glade Creek Livestock, LLC, personally guaranteed a loan from First State Bank of Ben Wheeler (FSBBW) using equipment and cattle as collateral. When Glade Creek faced financial difficulties, Kerns sold some of the cattle, leading FSBBW to demand full repayment. Kerns filed for Chapter 7 bankruptcy, and during the automatic stay, FSBBW reported the sale of the collateral to a special ranger with the Texas and Southwestern Cattle Raisers Association (TSCRA). This led to Kerns' indictment and arrest for hindering a secured creditor.The bankruptcy court granted summary judgment in favor of FSBBW, holding that FSBBW's actions fell within the safe harbor provision of the Annunzio-Wylie Money Laundering Act, which protects financial institutions from liability for reporting possible violations of law. Kerns appealed to the district court, which affirmed the bankruptcy court's decision. Kerns then appealed to the United States Court of Appeals for the Fifth Circuit.The Fifth Circuit reviewed the case de novo and affirmed the lower courts' decisions. The court held that FSBBW's report to the special ranger was protected under the safe harbor provision of the Annunzio-Wylie Act, as the special ranger qualified as law enforcement under Texas law. The court also found that Kerns had forfeited his argument for the recusal of the bankruptcy judge by not raising it earlier, despite knowing the basis for recusal since 2021. The court concluded that FSBBW's conduct was shielded from liability, and the summary judgment in favor of FSBBW was affirmed. View "Kerns v. First State Bank" on Justia Law

Kehinde Adeyemi Elebute challenged the foreclosure sale of his property in bankruptcy court but was unsuccessful. Years later, he attempted to challenge the foreclosure again in state court. To prevent duplicative litigation, the suit was removed to the bankruptcy court, which reopened and subsequently dismissed Elebute’s case for want of prosecution after he failed to appear at a hearing.The United States District Court for the Southern District of Texas dismissed Elebute’s challenge to the reopening and affirmed the bankruptcy court’s dismissal. Elebute then appealed both rulings.The United States Court of Appeals for the Fifth Circuit reviewed the case. The court found that it lacked jurisdiction to review the bankruptcy court’s order reopening the proceedings, as it was a non-final, interlocutory order. The court agreed with the defendants, Village Capital & Investment, L.L.C., and Michael Weems, that the reopening order was only a preliminary step and did not resolve substantive issues. Therefore, the court dismissed this portion of Elebute’s appeal.Regarding the dismissal for lack of prosecution, the court found that the bankruptcy court had jurisdiction over Elebute’s claims. The court noted that the bankruptcy court’s jurisdiction extends to all civil proceedings related to bankruptcy cases. Since Elebute’s state action challenged Village Capital’s interest in the property central to the earlier bankruptcy case, the actions were related. Consequently, the bankruptcy court had jurisdiction to dismiss the adversary proceeding.The Fifth Circuit dismissed Elebute’s challenge to the reopening order for lack of jurisdiction and affirmed the district court’s judgment in all other respects. The defendants’ amended motion to dismiss a portion of Elebute’s appeal was denied as moot. View "Elebute v. Village Capital" on Justia Law

The Fifth Circuit affirmed the bankruptcy court's holding that a promissory note debtor gave to appellee was a nondischargeable debt under 11 U.S.C. 523(a)(2)(A). Appellee had retained debtor to represent her in bringing a malpractice claim against another attorney. Debtor failed to properly file the malpractice suit and the case was ultimately dismissed. The Fifth Circuit held that the promissory note that debtor executed had its intended effect of giving him more time to pay back appellee, and therefore debtor received an extension of credit from appellee when she agreed to accept the promissory note. The Fifth Circuit also held that debtor obtained the extension of credit from appellee by actual fraud because debtor made a false representation, intended to deceive appellee, and appellee sustained loss as a proximate result of debtor's false representation. View "Selenberg v. Bates" on Justia Law

The Trustee filed suit against Officers of NRMC alleging that the Officers breached their fiduciary duty of care, loyalty, and good faith. The district court has not been able to identify clear controlling precedents from the Supreme Court of Mississippi that would resolve this case. Therefore, the court certified the following questions of law to the Supreme Court of Mississippi regarding the Mississippi Tort Claims Act (MTCA), Miss. Code Ann. 11-46-1, et seq. 1) Does the MTCA furnish the exclusive remedy for a bankruptcy trustee standing in the shoes of a public hospital corporation against the employees or directors of that public corporation? 2) If the answer to the foregoing question is affirmative, does the MTCA permit the trustee to pursue any of the claims identified in his complaint against the officers and directors of NRMC in their personal capacity? View "Lefoldt, Jr. v. Rentfro" on Justia Law

After KFA filed suit against Hallmark for copyright infringement, Hallmark commenced a "no asset" bankruptcy case. KFA, relying on its "deemed allowed" claim, 11 U.S.C. 502(a), as a final judgment, subsequently filed suit against Mid-Continent, debtor's liability insurer, arguing that the unobjected-to claim constituted a final judgment and was res judicata as to Mid-Continent. The court concluded that the text and structure of the Bankruptcy Code, Rules and Official Forms, and relevant case law all support affirming the district court's grant of summary judgment to KFA. The court held that KFA did not have a "deemed allowed" claim that constituted res judicata against Mid-Continent because in this no asset bankruptcy case, nothing in the court proceedings required claims allowance, no notice was provided to parties in interest to object to claims, and no bankruptcy purpose would have been served by the bankruptcy court's adjudicating KFA's claim. Accordingly, the court affirmed the judgment. View "Kipp Flores Architects, LLC v. Mid-Continent Casualty Co." on Justia Law

After William Douglas Carroll and Carolyn K. Carroll filed for bankruptcy in 2008, RedPen Properties, whose membership consisted solely of the Carrolls, filed for bankruptcy in the same year. The trustee in both these bankruptcy cases sought relief against the Carrolls and their daughters based on their conduct in the bankruptcy case. The bankruptcy court granted the trustee's motion in part and detailed a series of notable actions taken by the Carrolls in bad faith, including seeking to frustrate the sale of property, filings related to movables adversary brought by the Carroll daughters, orders of contempt, attempts to frustrate the sale of the Carrolls' residence and movables, and two attempts to remove the trustee that were wholly unsupported by evidence. The court concluded that the record fully supported the bankruptcy court's determination of bad faith, and the Carrolls have not established that any of the bankruptcy court's findings were clearly erroneous. Therefore, the court affirmed the judgment as well as the attorney fee award. View "Carroll v. RedPen Properties" on Justia Law

After debtor filed for Chapter 7 bankruptcy in 2012, the bankruptcy court appointed a trustee to debtor's estate. In 2014, the trustee initiated this adversary proceeding, seeking to void the garnishments collected by Tower Credit within ninety days prior to debtor's filing for bankruptcy as preferential transfers pursuant to 11 U.S.C. 547(b). The bankruptcy court ultimately granted summary judgment to the trustee and the district court affirmed. The court explained that the combination of Supreme Court precedent and the overwhelming weight of persuasive authority applying section 547(e)(3) make clear that a debtor's wages cannot be transferred until they are earned. Therefore, the court held that a creditor's collection of garnished wages earned during the preference period was an avoidable transfer made during the preference period even if the garnishment was served prior to that period. Accordingly, the court affirmed the judgment. View "Tower Credit v. Schott" on Justia Law

Appellants Raul Galaz and Segundo Suenos, LLC challenged the district court's award of actual and exemplary damages to debtor. Raul partly founded Artist Rights Foundation (ARF). When debtor divorced Raul, she obtained a 25% economic interest in the company. Raul then transferred ARF's royalty rights to Segundo Suenos without notifying anyone. After debtor filed for Chapter 13 bankruptcy, she brought this adversary proceeding against appellants, alleging the fraudulent transfer of assets. The court affirmed the district court's holding that the purported transfer of the music rights from ARF to Segundo by Raul was fraudulent under the Texas Uniform Fraudulent Transfers Act (TUFTA), Tex. Bus. & Com. Code 24.001 et seq. The district court concluded that TUFTA allowed a court to set aside a fraudulent transfer under 24.008(a)(1), and adopted the bankruptcy court's finding that Raul acted with actual intent to defraud debtor. Therefore, the district court did not err in awarding debtor exemplary damages against both Raul and Segundo. View "Galaz v. Galaz" on Justia Law

Before debtor and his wife received the purchase offer on their home, the couple executed and filed a Partition Agreement, which sought to recharacterize their home from community property to separate property, one half belonging to each spouse. Then debtor filed for bankruptcy under Chapter 7, claiming an exemption for his separate interest in the home under Texas law. Debtor's wife subsequently initiated an adversary proceeding seeking a declaratory judgment recognizing that the Partition Agreement gave her a one-half separate property interest in the net proceeds from the sale. The Trustee counterclaimed to avoid the Partition Agreement and for a declaration that the remaining proceeds from the sale were property of the estate. The bankruptcy court declared the Partition Agreement avoidable as a fraudulent transfer, leaving the amount of the net sale proceeds in excess of debtor's exemption to be nonexempt property of the estate, and determined that debtor's wife had no right or interest in the Homestead Net Sale Proceeds by virtue of the Partition Agreement. The court affirmed the bankruptcy court's judgment. In this case, the court explained that allowing the wife to sidestep the statutory limits for homestead exemptions and obtain approximately $500,000 in proceeds that otherwise are for creditors would lay waste to the provisions of the Bankruptcy Code involved here. View "Wiggains v. Reed" on Justia Law

After the bankruptcy court enjoined Alfred Galaz from pursuing any claims related to Worldwide Subsidy Group (WSG) against his former daughter-in-law, Lisa Katona, Galaz appealed to the district court. The district court affirmed. The court concluded that Galaz’s suit in state court is arguably a violation of Katona’s discharge rights, directly implicating the bankruptcy court’s “arising under” jurisdiction; the bankruptcy court’s interpretation of the 2011 Settlement Agreement is determinative of Katona’s claim, and the bankruptcy court’s order was within its statutory authority; the bankruptcy court did not abuse its discretion in refusing to abstain because the proceeding at issue is “core” under 28 U.S.C. 157(b); Galaz’s claims are barred by res judicata, compromise and settlement, and accord and satisfaction; the bankruptcy court did not abuse its discretion in applying judicial estoppel; and the district court did not err in denying his motion for summary judgment. Accordingly, the court affirmed the judgment. View "Galaz v. Katona" on Justia Law