Justia Bankruptcy Opinion Summaries

SDVF, LLC registered a default judgment against Cozzia USA LLC in the U.S. District Court for the Central District of California to enforce and collect the judgment. This judgment was originally entered by the U.S. Bankruptcy Court for the District of Delaware. However, the Delaware Bankruptcy Court later vacated the default judgment.The U.S. District Court for the Central District of California dismissed SDVF's action to enforce the judgment, reasoning that the registered judgment was no longer valid after the underlying judgment had been set aside.The United States Court of Appeals for the Ninth Circuit reviewed the case and affirmed the district court's dismissal. The Ninth Circuit held that a registered judgment under 28 U.S.C. § 1963 is not valid if the underlying judgment has been vacated. The court explained that the registered judgment relies on the existence of the original final judgment, and once the original judgment is vacated, the registered judgment cannot be enforced. The court also noted that neither Rule 60 of the Federal Rules of Civil Procedure nor the court's inherent equitable power allows SDVF to challenge the Delaware Bankruptcy Court's ruling in the Central District of California. Thus, the district court's dismissal of the case was affirmed. View "SDVF, LLC V. COZZIA USA LLC" on Justia Law

The Social Security Administration (SSA) overpaid a debtor, Cooper, before his Chapter 7 no-asset discharge in bankruptcy. Two years after his discharge, SSA recouped the overpayment by reducing his monthly benefits. Cooper moved to hold SSA in contempt for violating the bankruptcy discharge injunction.The bankruptcy court denied Cooper's motion, finding that equitable recoupment allowed SSA to recover the overpayment. The Bankruptcy Appellate Panel (BAP) affirmed, concluding that the overpayment and ongoing benefits were logically related as they arose from the same disability period and statutory scheme.The United States Court of Appeals for the Ninth Circuit reviewed the case. The court held that the logical relationship test for equitable recoupment requires consideration of the equities, including the purpose of the Bankruptcy Code. The court found that recoupment was impermissible where SSA sought to recoup overpayments from a bankrupt beneficiary who engaged in no malfeasance. The court emphasized that recoupment should only apply when it would be inequitable for the debtor to enjoy the benefits of a transaction without meeting its obligations.The Ninth Circuit reversed the BAP's decision and remanded the case for further proceedings, instructing the BAP to remand to the bankruptcy court. The court clarified that the logical relationship test demands consideration of the equities and the purpose of the Bankruptcy Code in each individual case. View "COOPER V. SOCIAL SECURITY ADMINISTRATION" on Justia Law

In Associates Commercial Corp. v. Rash, 520 U.S. 953, 956 (1997), the Supreme Court adopted a replacement-value standard for 11 U.S.C. 506(a)(1) cram-down valuations, holding that replacement value, rather than a foreclosure sale that will not take place, is the proper guide under a prescription hinged to the property's disposition or use. In this case, the en banc court held that, because foreclosure would vitiate covenants requiring that the secured property—an apartment complex—be used for low-income housing, foreclosure value in this case exceeds replacement value, which is tied to debtor’s actual use of the property in the proposed reorganization. The en banc court held, as Rash teaches, that section 506(a)(1) requires the use of replacement value rather than a hypothetical value derived from the very foreclosure that the reorganization was designed to avoid. The bankruptcy court did not err here by approving debtor's plan of reorganization and valuing the collateral assuming its continued use after reorganization as low-income housing. Accordingly, the en banc court affirmed the district court's judgment affirming the bankruptcy court's affirmance of debtor's Chapter 11 plan of reorganization. View "First Southern National Bank v. Sunnyslope Housing Ltd. Partnership" on Justia Law

Movant-Appellee Nabors Drilling USA, L.P. filed for reorganization under Chapter 11 of the Bankruptcy Code. That filing triggered the automatic stay under 11 U.S.C. 362(a)(1), which generally applied to protect a debtor after it has filed for bankruptcy protection. The question presented in this case was whether that stay applied to a lawsuit filed by appellant-plaintiff Jeremy Porter, who has asserted a claim under California’s Private Attorney General Act of 2004 (“PAGA”). Porter contended the exception established in 11 U.S.C. 362(b)(4) applied to exempt his PAGA claim from the automatic stay. The Ninth Circuit concluded that the exception does not apply to a claim brought by a private party under PAGA, and therefore granted Nabors’s motion to recognize the automatic stay. View "Porter v. Nabors Drilling USA, L.P." on Justia Law

In this bankruptcy appeal, the issue presented for the Ninth Circuit’s review was one of first impression regarding some key provisions of 11 U.S.C. 1111(b) that apply to Chapter 11 proceedings for those who hold non-recourse liens on real property who are granted recourse against the bankruptcy estate upon the filing of the bankruptcy petition. Those protected are creditors who have “a claim secured by a lien on property of the estate.” The issue before the Court was whether the creditor continues to have a right of recourse after there has been a non-judicial foreclosure, so that the property is no longer part of the estate and the liens have been extinguished. The Bankruptcy Appellate Panel (“BAP said no and the Ninth Circuit affirmed. View "Mastan v. Salamon" on Justia Law

When debtors filed for bankruptcy in 2013, PNC Bank filed a claim based on a 2007 note. Debtors objected, contending that the claim was barred by California's applicable four-year statute of limitations. PNC argued, however, that the claim was timely because the promissory note's choice of Ohio law incorporated Ohio's six-year limitations period. The bankruptcy judge agreed that Ohio's six-year limitations applied to this case. The Bankruptcy Appellate Panel reversed. The court concluded that where a choice-of-law provision does not expressly include the statute of limitations, the court has construed it as silent on the issue. The court explained that where no statute of limitations is provided for a federal cause of action, the law of limitations of the forum state is followed. However, in this case, the court reasoned that the application of Section 142 of the Restatement (Second) of Conflict of Laws compels the conclusion that California's shorter statute of limitations does not apply, because this case presents the sort of "exceptional circumstances" under which the 1988 version of the Second Restatement looks past the law of the forum, and applies a longer foreign limitations period. Accordingly, the court reversed and remanded to the bankruptcy court for further proceedings. View "PNC Bank v. Sterba" on Justia Law

Debtor was the former owner and operator of two towing companies, Yellow Logistics and Yellow Express. In this case, the bankruptcy court sanctioned the companies for violating the automatic stay by pursuing civil contempt proceedings against debtor based on his failure to pay discovery sanctions in a state court action. The court held that under In re Berg, civil contempt proceedings are exempted from the automatic stay under the Bankruptcy Code's government regulatory exemption, when, as here, the contempt proceedings are intended to effectuate the court's public policy interest in deterring litigation misconduct. Therefore, the court concluded that the bankruptcy court erred, and affirmed the decision of the Bankruptcy Appellate Panel (BAP), though on a different basis than that discussed by the BAP. View "Dingley v. Yellow Logistics, LLC" on Justia Law

This case stemmed from the FTC's successful enforcement action against debtor and his former company, Commerce Planet, for violation of the FTC Act, 15 U.S.C. 45(a). On appeal, debtor challenged the district court's order reversing the bankruptcy court's grant of summary judgment and remanding for further fact-finding. The court concluded that it lacked jurisdiction under 28 U.S.C. 1291 because the district court's order did not end the litigation on the merits and leave nothing for the district court to do but execute the judgment; the court lacked jurisdiction under 28 U.S.C. 1292 because the district court did not certify its decision for interlocutory review; the court lacked jurisdiction under 28 U.S.C. 158(d)(1) where the district court's ruling did not end the discrete proceeding before it, namely the FTC's adversary action; and the court explained that Bullard v. Blue Hills Bank compelled the conclusion that rulings in bankruptcy cases that neither end a case nor a discrete dispute, but rather remand for further fact-finding on a central issue, were not final for purposes of section 158(d). Accordingly, the court dismissed the appeal based on lack of jurisdiction. View "Gugliuzza v. FTC" on Justia Law

The bankruptcy trustee sought to recover for the bankruptcy estate a $190,595.50 loan payment debtor Tenderloin made to BOTW within ninety days of the filing of Tenderloin's chapter 7 bankruptcy. The "greater amount test" in 11 U.S.C. 547(b)(5) requires that the trustee demonstrate that by virtue of that payment BOTW received more than it otherwise would have in a hypothetical chapter 7 liquidation where the challenged transfer had not been made. The district court granted summary judgment for BOTW and found that the trustee could not satisfy section 547(b)(5) because BOTW had a right of setoff, and Tenderloin's account contained at least $190,595.50 on the petition date. The trustee asserted that in the hypothetical liquidation, the trustee would avoid a $526,402.05 deposit, leaving less than $190,595.50 in Tenderloin's account, even allowing for BOTW's right of setoff. The court concluded that courts may account for hypothetical preference actions within a hypothetical chapter 7 liquidation when such an inquiry was factually warranted, was supported by appropriate evidence, and the action would not contravene an independent statutory provision. In this case, the court was satisfied that the $526,402.05 deposit would constitute an avoidable preference in the hypothetical liquidation at issue here. Accordingly, the court reversed and remanded for further proceedings. View "Schoenmann v. Bank of the West" on Justia Law

Debtors challenged the Bankruptcy Appellate Panel's (BAP) judgment affirming the bankruptcy court's decision that the claim of Kenneth Barton was not subordinated pursuant to the provisions of 11 U.S.C. 510(b), and converted debtors’ Chapter 13 bankruptcy proceedings to Chapter 7 proceedings. The court disagreed with BAP and Khan I. See Liquidating Tr. Comm. of the Del Biaggio Liquidating Tr. v. Freeman (In re Del Biaggio), holding that section 510(b) does apply when debtors are individuals. Nevertheless, the court concluded that the bankruptcy court did not err when it refused to subordinate Barton’s claims pursuant to section 510(b). In this case, Barton sought and obtained damages. Even though his damage award for conversion was based on the value of the securities at the time of conversion, his action did not arise out of the purchase of the securities and the risks that the purchase might entail. Rather, his actions arose out of debtors' conversion of the securities many years later. The court rejected debtors arguments that the bankruptcy court clearly erred when it found bad faith, and abused its discretion when it converted their Chapter 13 proceedings to Chapter 7 proceedings. Accordingly, the court affirmed the judgment. View "Khan v. Barton" on Justia Law