Justia Bankruptcy Opinion Summaries

Marilyn Scheer, an attorney with a suspended California law license, contends that the district court erred when it held that her debt to a former client was nondischargeable under 11 U.S.C. 523(a)(7). In this case, there were no costs or fees assessed for disciplinary reasons. Rather, the debt at issue was effectively the amount that Scheer improperly received from a client, but did not pay back. At its core, the $5775 at issue is not a fine or penalty, but compensation for actual loss. The court concluded that the the debt to her client does not fall within the section 523(a)(7) nondischargeability exception. Accordingly, the court reversed and remanded. View "Scheer v. State Bar of CA" on Justia Law

Sunnyslope, as the debtor of a chapter 11 bankruptcy plan, exercised the cram down option pursuant to section 506(a) of the Bankruptcy Code and elected to retain the property at issue. Sunnyslope argued that the value of First Southern’s secured interest should be calculated with the affordable housing restrictions remaining in place. The bankruptcy court and the district court both agreed. First Southern appeals. The court denied Sunnyslope’s motion to dismiss the appeals as equitably moot. The court concluded that valuing First Southern’s secured interest as if the affordable housing restrictions related to subordinated positions still applied was not appropriate under section 506(a). All of the restrictive covenants and other provisions that Sunnyslope seeks to invoke to limit the project to affordable housing and to the reduced rental income that would be collected as a result are derived from positions that were junior and expressly subordinated to First Southern's interest. As a result, the plan of reorganization confirmed by the bankruptcy court and affirmed by the district court must be set aside, because it was based on an improper valuation of First Southern's interest. Accordingly, the court reversed and remanded for further proceedings. View "First Southern Nat'l Bank v. Sunnyslope Housing" on Justia Law

Sunnyslope, as the debtor of a chapter 11 bankruptcy plan, exercised the cram down option pursuant to section 506(a) of the Bankruptcy Code and elected to retain the property at issue. Sunnyslope argued that the value of First Southern’s secured interest should be calculated with the affordable housing restrictions remaining in place. The bankruptcy court and the district court both agreed. First Southern appeals. The court denied Sunnyslope’s motion to dismiss the appeals as equitably moot. The court concluded that valuing First Southern’s secured interest as if the affordable housing restrictions related to subordinated positions still applied was not appropriate under section 506(a). All of the restrictive covenants and other provisions that Sunnyslope seeks to invoke to limit the project to affordable housing and to the reduced rental income that would be collected as a result are derived from positions that were junior and expressly subordinated to First Southern's interest. As a result, the plan of reorganization confirmed by the bankruptcy court and affirmed by the district court must be set aside, because it was based on an improper valuation of First Southern's interest. Accordingly, the court reversed and remanded for further proceedings. View "First Southern Nat'l Bank v. Sunnyslope Housing" on Justia Law

Debtor appealed the bankruptcy appellate panel's (BAP) denial of his petition for a writ of mandamus. The court overruled In re Salter and held that the BAP is not a court established by Act of Congress under subsection (a) of the All Writs Act, 28 U.S.C. 1651(a), so it does not have jurisdiction to entertain a mandamus petition. Accordingly, the court vacated the decision of the BAP and remanded with instructions to dismiss the petition for lack of jurisdiction. View "Ozenne v. Chase Manhattan Bank" on Justia Law

Lakeridge has one member, MBP. MBP is managed by a board of five members, one of whom is Kathie Bartlett. Bartlett shares a close business and personal relationship with Dr. Robert Rabkin. Lakeridge filed for bankruptcy and US Bank held a fully secured claim worth about $10 million and MBP held an unsecured claim worth $2.76 million. After MBP's board decided to sell its unsecured claim, Rabkin purchased the claim for $5000. US Bank subsequently moved to designate Rabkin's claim and disallow it for plan voting purposes. The bankruptcy court held Rabkin was not a non-statutory insider and that Rabkin did not purchase MBP's claim in bad faith. However, the bankruptcy court designated Rabkin’s claim and disallowed it for plan voting, because it determined Rabkin had become a statutory insider by acquiring a claim from MBP. Lakeridge and Rabkin both appealed, and US Bank cross-appealed. The BAP reversed the finding that Rabkin had become a statutory insider as a matter of law by acquiring MBP’s claim and affirmed the findings that Rabkin was not a non-statutory insider and that the claim assignment was not made in bad faith. The BAP held that insider status cannot be assigned and must be determined for each individual “on a case-by-case basis, after the consideration of various factors.” Finally, the BAP held Rabkin could vote to accept the Lakeridge plan under 11 U.S.C. 1129(a)(10), because he was an impaired creditor who was not an insider. The court affirmed the BAP's decision. View "US Bank v. The Village at Lakeridge, LLC" on Justia Law

Debtors filed a joint voluntary individual chapter 11 petition and debtors' operative plan of reorganization placed their largest unsecured creditor, California Bank, into its own class of unsecured creditors and proposed to pay it $5,000 on its claim of nearly $2,000,000. California Bank objected because its claim was thus “impaired under the plan.” The court overruled In re Friedman and joined its sister circuits in adopting the "narrow view", holding that the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), 11 U.S.C. 541(a)(, (a)(1), 1115(a), 1129(b)(2)(B)(ii), amendments merely have the effect of allowing individual Chapter 11 debtors to retain property and earnings acquired after the commencement of the case that would otherwise be excluded under section 541(a)(6) & (7). The court further concluded that, under this view, an individual debtor may not cram down a plan that would permit the debtor to retain prepetition property that is not excluded from the estate by section 541, but may cram down a plan that permits the debtor to retain only postpetition property. Accordingly, the court affirmed the bankruptcy court's order. View "Zachary v. California Bank & Trust" on Justia Law

Eden Place appealed the BAP's decision affirming the bankruptcy court’s determination that Eden Place violated the automatic stay provisions of the Bankruptcy Code by evicting debtor from a residential property. After considering the court's applicable precedent, SS Farms, LLC v. Sharp, and the clear language of the statute, the court held that the bankruptcy court’s order that Eden Place violated the automatic stay was final and appealable. On the merits, the court concluded that the unlawful detainer judgment and writ of possession entered pursuant to California Code Civil Procedure 415.46 bestowed legal title and all rights of possession upon Eden Place. Accordingly, the court concluded that the bankruptcy court erred when it ruled that Eden Place violated the automatic stay provisions of the Bankruptcy Code and reversed the bankruptcy court order. In this case, debtor had no legal or equitable interest remaining in the property after issuance of the unlawful detainer judgment and writ of possession in state court. View "Eden Place v. Perl" on Justia Law

The purchaser of viatical settlements paid approximately $507,000 for life settlements with the debtor and received $9,000,000 in death benefits when he died shortly thereafter. The bankruptcy trustee filed an adversary proceeding to recover the market value of the life settlements. The court held that debtor's interests in the term life insurance policies, including the secondary market value of the policies and resulting life settlements, constitute a recoverable “interest of the debtor in property” pursuant to 11 U.S.C. 548(a)(1). In this case, debtor had a legal and equitable interest in the property at issue within the meaning of section 541(a), the property was not excluded from the estate under section 541(b), and the property was not the subject of a proper exemption in this case. The court further concluded that the district court properly held that the trustee's avoidance action was not time-barred because debtor's fraudulent concealment equitably tolled the statute of limitations from commencing. Finally, the district court correctly concluded that the bankruptcy court should have granted the trustee leave to amend her avoidance action. View "Gladstone v. U.S. Bancorp" on Justia Law