Justia Bankruptcy Opinion Summaries

In this case, the plaintiff, a Chapter 11 Trustee for BK Racing, LLC, initiated an adversary proceeding against multiple defendants, including Ronald and Brenda Devine, various family trusts, and corporate entities. The defendants were accused of obstructing the bankruptcy process by failing to comply with discovery obligations, including not producing required financial documents and records, despite multiple court orders.The bankruptcy court found that the defendants willfully disregarded their discovery obligations and engaged in a pattern of obstruction and delay. As a result, the court entered a default judgment against the defendants as a discovery sanction, awarding the plaintiff $31,094,099.89. The district court affirmed this decision, noting the defendants' repeated noncompliance and the necessity of deterrence.The United States Court of Appeals for the Fourth Circuit reviewed the case. The court upheld the lower courts' decisions, finding no abuse of discretion in the entry of default judgment. The court applied the Wilson factors, determining that the defendants acted in bad faith, caused significant prejudice to the plaintiff, necessitated deterrence, and that lesser sanctions would be ineffective. The court also affirmed the decision to pierce the corporate veil, holding the defendants jointly and severally liable, based on evidence that the corporate entities were mere instrumentalities of the Devines, lacking proper corporate formalities and used to siphon funds.The Fourth Circuit concluded that the bankruptcy court's findings were not clearly erroneous and that the default judgment and the amount awarded were appropriate given the defendants' egregious conduct. The decision of the district court was affirmed. View "Smith v. Devine" on Justia Law

This appeal arose out of two separate Chapter 13 bankruptcy proceedings that followed a similar pattern. On appeal, LVNV argued that the bankruptcy court's Chapter 13 plan confirmation orders barred the objections to LVNV's claims because those objections were filed after entry of the Confirmation Orders. The court held that debtors' objections to LVNV's proofs of claim as an unsecured creditor were not barred by the doctrine of res judicata; when the bankruptcy court confirmed debtors' Chapter 13 plans, it only considered treatment of unsecured creditors as a single class; there was no adjudication of the claim of any individual unsecured creditor as part of plan confirmation; determining the validity of individual unsecured claims was a distinctly separate process under section 502 both in procedure and timing; and thus an essential element of application of res judicata was simply absent from the Chapter 13 plan confirmation as to unsecured creditors like LVNV. Because res judicata did not apply in the bankruptcy court's later determination of contested unsecured claims under section 502, the court affirmed the judgment of the bankruptcy court. View "LVNV Funding, LLC v. Harling" on Justia Law

In 2003, a group of doctors filed a nationwide class action against Blue Cross and Blue Shield Association and its member entities, including Blue Cross NC (Love v. Blue Cross and Blue Shield Ass'n). The doctors alleged that the Blue Cross companies used several underhanded business practices to deny, delay, and reduce payments for medical treatments based solely on considerations of cost. After Blue Cross NC filed suit against debtor and his clinic in 2006, debtor filed for Chapter 11 bankruptcy for himself and on behalf of his clinic. Debtor then removed Blue Cross NC's suit to the bankruptcy court, asserting affirmative defenses and nine counterclaims that were essentially the same as in Love. In 2007, the Love parties entered into a settlement and enjoined the doctors from litigating any released claims. It was undisputed that debtor was a putative member of the Love class and that this injunction applied to his first seven counterclaims. Ten months after the Love court had issued its injunction, Blue Cross NC informed the bankruptcy court of the injunction. In 2009, after a nearly two-year hiatus in the North Carolina bankruptcy proceedings, debtor filed a motion for sanctions against Blue Cross NC. The bankruptcy court granted the motion, finding that Blue Cross NC purposefully avoided informing the court and debtor about the Love settlement and the injunction, causing the lost of counterclaims worth potentially millions, delayed litigation, and attorneys fees and costs. The bankruptcy court dismissed Blue Cross NC's claims with prejudice and ordered it to pay debtor a total of $1.29 million in attorneys' fees and costs. The court concluded that the bankruptcy court did not err in finding that Blue Cross NC acted in bad faith. However, the court explained that the sanctions were excessive and based on a faulty premise: that Blue Cross NC bore the responsibility for debtor's lack of diligence. Accordingly, the court vacated and remanded for further proceedings. View "Blue Cross Blue Shield of North Carolina v. Jemsek Clinic, P.A." on Justia Law

The bankruptcy court denied debtor discharge under the false oath provision of 11 U.S.C. 727(a)(4), after it found that debtor intentionally undervalued his interest in a real estate investment company. The court concluded that the undervaluation of the company constituted a false oath considering the magnitude of the undervaluation debtor's distinguished training and experience. The court further concluded that debtor's misstatement was material, and denial of discharge was appropriate in this case. Accordingly, the court affirmed the judgment. View "Robinson v. Worley" on Justia Law

The Chapter 7 trustee of James Edwards Whitley's estate challenges the district court's affirmance of the bankruptcy court's grant of summary judgment for the Bank on the trustee’s claim that certain deposits and wire transfers to Whitley’s personal checking account at the Bank are avoidable as fraudulent transfers. The court found that the transactions at issue do not constitute transfers within the meaning of the Bankruptcy Code. The court explained that when a debtor deposits or receives a wire transfer of funds into his own unrestricted checking account in the regular course of business, he has not transferred those funds to the bank that operates the account. When the debtor is still free to access those funds at will, the requisite “disposing of” or “parting with” property has not occurred; there has not been a “transfer” within the meaning of 11 U.S.C. 101(54). Accordingly, the court affirmed the judgment. View "Ivey v. First Citizens Bank & Trust Co." on Justia Law

Debtor filed a voluntary Chapter 13 petition that included a mortgage claim held by PNC and secured by a deed of trust on debtor's primary residence. The anti-modification clause in 11 U.S.C. 1322(b)(2) of the Bankruptcy Code protects a mortgagee from having its claim in a Chapter 13 bankruptcy proceeding modified, if the mortgage is secured “only by a security interest in real property that is the debtor’s principal residence.” The court held that reference in the Deed of Trust to escrow funds, insurance proceeds, or miscellaneous proceeds constitute incidental property, rather than additional collateral, which entitles debtor to anti-modification protection under section 1322(b)(2). In this case, the Deed of Trust on debtor's residence is secured only by real property that is also his principal residence. Escrow funds, insurance proceeds, and miscellaneous proceeds do not constitute additional collateral. The court affirmed the judgment. View "Birmingham v. PNC Bank, N.A." on Justia Law

After debtors filed for bankruptcy relief, the Bankruptcy Administrator, Marjorie Lynch, moved to dismiss the case as an abuse because debtors used the National and Local Standard amounts for certain categories of expenses rather than the actual amount of their expenses, which were less than the standardized amounts. The bankruptcy court denied the motion to dismiss. The court granted the appeal as to the issue of whether 11 U.S.C. 707(b)(2) permits a debtor to take the full National and Local Standard amounts for expenses even though the debtor incurs actual expenses that are less than the standard amounts. The court concluded that debtors are entitled to the full National and Local Standard amount for a category of expenses if they incur an expense in that category. Accordingly, the court affirmed the judgment of the bankruptcy court. View "Lynch v. Jackson" on Justia Law

After Kimberly Adkins and Chaille Dubois filed separate Chapter 13 bankruptcy petitions in the Bankruptcy Court, Atlas filed proofs of claim in their bankruptcy cases based on debts that were barred by Maryland’s statute of limitations. At issue is whether Atlas violated the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. 1692 et seq., by filing proofs of claim based on time-barred debts. The court held that Atlas’s conduct does not violate the FDCPA because filing a proof of claim in a Chapter 13 bankruptcy based on a debt that is time-barred does not violate the FDCPA when the statute of limitations does not extinguish the debt. Accordingly, the court affirmed the judgment. View "Dubois v. Atlas Acquisitions LLC" on Justia Law

Debtors purchased a home from creditors. The purchase was financed via a loan from creditors. In exchange for the loan, debtors granted creditors a deed of trust on the property and executed a promissory note requiring monthly payments. Where the rate of interest on debtors’ residential mortgage loan was increased upon default, at issue was whether a “cure” under section 1322(b) of the Bankruptcy Code allows their bankruptcy plan to bring post-petition payments back down to the initial rate of interest. The court held that the statute does not allow this, as a change to the interest rate on a residential mortgage loan is a “modification” barred by the terms of section 1322(b)(2). The court affirmed the judgment of the district court insofar as it required that post-petition interest payments be calculated using the seven percent default rate of interest, but reversed that part of the judgment which applied only a five percent rate of interest to payments calculated “for the period between September 16, 2013 and the December 2013, effective date of the plan.” The court remanded the case to the district court for further proceedings. View "Anderson v. Hancock" on Justia Law

PHA filed suit against Wells Fargo, alleging that Wells Fargo falsely represented that it would forbear collection of the principal balance of a line of credit, ultimately causing PHA to default and enter bankruptcy. PHA subsequently filed suit in Virginia state court, which Wells Fargo removed to federal court. Along with repeating the claims made in the bankruptcy adversary complaint, PHA alleged new theories of lender liability. The district court dismissed the suit. The court rejected PHA's contention that the district court erroneously gave res judicata effect to various sale orders issued during PHA’s Chapter 11 bankruptcy, concluding that the elements of res judicata are satisfied. Accordingly, the court affirmed the judgment. View "Providence Hall Assoc. v. Wells Fargo Bank, N.A." on Justia Law