Justia Bankruptcy Opinion Summaries

Santoasha Harris endured five years of sexual harassment at her job with the City of Milwaukee. When she reported the harassment in 2017, the City separated her from the harasser, conducted an investigation, compelled the harasser’s resignation, and restored Harris to her position within a month. Harris sued the City, alleging it knew about the harassment for years, failed to act, and retaliated against her for reporting it. Due to Harris’s bankruptcy filing, her estate was substituted as the plaintiff.The United States District Court for the Eastern District of Wisconsin granted summary judgment to the City. The court concluded that Harris’s Estate had not shown the City unreasonably failed to prevent the harassment or that she suffered a tangible employment action as a consequence of reporting it. The court found no evidence supporting the Title VII and Section 1983 claims against the City.The United States Court of Appeals for the Seventh Circuit reviewed the case and affirmed the district court’s judgment. The appellate court agreed that the evidence did not support the claims of quid pro quo harassment, hostile work environment, or retaliation under Title VII. The court found that Harris did not suffer a tangible employment action and that the City acted promptly and reasonably once the harassment was reported. Additionally, the court found no basis for employer liability under Section 1983, as there was no evidence of intentional discrimination by the City. The court concluded that no reasonable jury could find for the Estate on its claims against the City. View "Bankruptcy Estate of Harris v City of Milwaukee" on Justia Law

Jacqueline Sterling failed to pay $500 in gym membership fees to Southlake Nautilus Health and Racquet Club, leading to a default judgment against her in the Superior Court of Lake County, Indiana. Despite a bankruptcy court discharging her debt, Southlake continued to enforce the judgment. Sterling did not notify the Lake County court of her bankruptcy or appear at a hearing, resulting in a bench warrant for her arrest. A year later, she was arrested during a traffic stop and spent a weekend in jail, missing work and suffering emotional distress.The bankruptcy court found Southlake in civil contempt for violating the discharge order and contributing to Sterling's arrest and resulting damages. The court also found Sterling partially at fault for not notifying the Lake County court of her bankruptcy. Applying comparative fault principles, the court allocated half the liability for Sterling's lost wages, emotional distress, and attorney’s fees to each party. Sterling was awarded $9,724.50 in compensatory damages and $99,355 in attorney’s fees.The United States Court of Appeals for the Seventh Circuit reviewed the case. The court held that while compensatory damages in civil contempt proceedings must be awarded if the complainant proves the defendant's actions caused the injury, the court has broad discretion in awarding attorney’s fees. The bankruptcy court erred by not recognizing this distinction and improperly applied comparative fault principles to reduce the attorney’s fees award. The Seventh Circuit vacated the judgment in part and remanded the case to the bankruptcy court to reassess the attorney’s fees in light of its broad discretion. The court also clarified that costs should be allowed and directed the bankruptcy court to set a deadline for Sterling to file a bill of costs. View "Sterling v Southlake Nautilus Health & Racquett Club, Inc." on Justia Law

Mains executed a mortgage on his home with WAMU in 2006 and made timely payments for about two years. WAMU failed in 2008; the FDIC became its receiver. Chase purchased Mains’s mortgage. Mains fell behind on his payments. He requested loan modifications from Chase three times and discontinued making payments in March 2009. Chase sent Mains a default and acceleration notice in June. In April 2010, Citibank (Chase’s successor) filed for foreclosure in Clark County, Indiana. That court granted Citibank summary judgment in 2013. Mains unsuccessfully appealed, contending that Citibank had committed fraud because it was not the real party in interest but instructed its employees fraudulently to sign documents. In 2015, Mains filed a “rambling, 90‐page” federal court complaint, alleging that he had discovered new evidence that he could not have presented to the state court—undisclosed consent judgments, parties in interest, and evidence of robo‐signing. He claimed to have rescinded his mortgage. He alleged state law claims and violations of: the Real Estate Settlement Procedures Act, 12 U.S.C. 2601; the Truth in Lending Act, 15 U.S.C. 1631; the Fair Debt Collection Practices Act, 15 U.S.C. 1692; and the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. 1961. The district court found that a decision for Mains would effectively nullify the state‐court judgment and dismissed for lack of subject matter jurisdiction under the Rooker‐Feldman doctrine. The Seventh Circuit agreed, but modified so that the dismissal was without prejudice. View "Mains v. Citibank, N.A." on Justia Law

Netzer, a debtor in bankruptcy, asked the court to discharge a $9,200 debt to Wisconsin’s Office of Lawyer Regulation, imposed as costs in a disciplinary proceeding. The bankruptcy court concluded that the debt is a “fine, penalty, or forfeiture” under 11 U.S.C. 2 and not dischargeable. Netzer had 14 days to appeal, but 41 days later he asked the district judge to excuse his tardiness, contending that until a few days earlier he had not known of the bankruptcy court’s decision. The district court dismissed the appeal as untimely, reasoning that the 14-day period is jurisdictional and that there cannot be equitable exceptions to jurisdictional rules. The Seventh Circuit affirmed, stating that whether or not a given rule is “jurisdictional” it is still a rule and must be enforced. Courts lack an “equitable” power to contradict the bankruptcy statutes and rules. Litigants need only check the court’s electronic docket once a month in order to protect their interests. View "Netzer v. Office of Lawyer Regulation" on Justia Law

Cox, the trustee in the Central Illinois Energy Cooperative bankruptcy, appealed a bankruptcy court ruling after it was affirmed by the district court. In the meantime, the parties mediated a settlement and the bankruptcy court stated that it would approve that settlement, subject to the disposition of any objection filed by a creditor or Cox. Cox then moved for dismissal of the appeal. The Seventh Circuit denied the motion. When, as in this case, an appeal is from the district court’s affirmance of a bankruptcy court order, a remand to the bankruptcy court for approval of settlement requires coordination between three courts. Rules 12.1 and 57 both authorize relief only after the district court has said that it is inclined to grant a motion barred by the pending appeal. Although the parties obtained an indicative ruling from the bankruptcy court, there is no record that they sought or obtained an indicative ruling from the district court. The proper procedure is to obtain an indicative ruling from both courts that will need to act. View "Cox v. Nostaw, Inc." on Justia Law

In the first case in “a long‐running and acrimonious business dispute,” Lardas claimed fraudulent inducement and breach of contract, arising from a settlement agreement, which Lardas argued was intended to deprive her nephew (Christofalos) of his ownership interest in Wauconda Shopping Center (WSC). The Seventh Circuit affirmed dismissal of Lardas’s case without prejudice, finding that Lardas lacked standing. Lardas had transferred her ownership in a predecessor entity to Christofalos. The second case involves Christofalos’s bankruptcy, in which the court authorized the sale of his interest in WSC (11 U.S.C. 363(b)). The Seventh Circuit dismissed an appeal as moot because the sale has been consummated and third parties have acted in reliance. Christofalos also challenged the denial of a discharge, based on a bankruptcy court finding under 11 U.S.C. 727(a)(4)(A), which authorizes denial of discharge where the debtor has “knowingly and fraudulently … made a false oath or account.” The Seventh Circuit affirmed, noting that Christofalos made a “host of false statements and omissions.” The court also affirmed denial of Christofalos’s “Motion to Reopen Case and Assign a Receiver” in Lardas’s case. View "Christofalos v. Grcic" on Justia Law

Margaret’s husband, Bart, was general counsel for a Chicago-area real estate developer. He embezzled $1.2 million from his employer while the two were married. To evade detection, he attempted to replenish the stolen funds, borrowing $400,000 from his friend Farley on the ruse that the money would be used for a real-estate development. Bart gave Farley a third-priority lien on the couple’s home, forging Margaret’s signature on the note and mortgage. Bart’s employer discovered the embezzlement. Bart was convicted of felony theft. Margaret divorced him; the couple’s home went into foreclosure. Farley filed a cross-claim, seeking to enforce his lien, but the sale of the home did not yield nearly enough to cover even the first mortgage. Margaret filed for bankruptcy while the foreclosure was pending, which stayed Farley’s claim. Farley then filed an adversary complaint challenging Margaret’s eligibility for a Chapter 7 discharge. He claimed that she made a fraudulent transfer after filing her bankruptcy petition and made multiple false statements in her bankruptcy schedules. Margaret testified at trial that these were innocent mistakes. The bankruptcy judge credited her testimony and rejected each of Farley’s contentions. The district court and Seventh Circuit affirmed, describing Farley’s as “ill-considered” and noting that credibility determinations are almost never disturbed on appeal. View "Farley v. Kempff" on Justia Law

BMS provides administrative services to bankruptcy trustees. It uses Rabobank as the depositary for banking services that BMS provides through its software. Crane, the trustee in the Integrated bankruptcy, hired BMS; the contract required Crane to hire Rabobank for banking services in the proceeding. In a separate contract, Crane authorized Rabobank to withdraw its monthly fee. The plaintiff, a law firm, was a creditor of Integrated and filed a bankruptcy claim, ultimately receiving a distribution of $12,472.55. It would have received $12,666.90, but for its part of Rabobank’s fee, and more had Rabobank paid interest on the estate’s deposits. Plaintiff sued under the Bank Holding Company Act, 12 U.S.C. 1972(1)(E), which states that a bank shall not "extend credit, lease or sell property of any kind, or furnish any service, or fix or vary the consideration for any of the foregoing, on the condition … that the customer shall not obtain some other credit, property, or service from a competitor of such bank … other than a condition … to assure the soundness of the credit.” The Seventh Circuit affirmed dismissal. Had Rabobank conditioned its provision of services on the trustee never hiring any other bank in any bankruptcy proceeding, it would constitute exclusive dealing. No one forced Crane to deal with BMS and Rabobank and there was no argument that the fee was exorbitant, or would have been lower with a different bank. View "McGarry & McGarry, LLC v. Rabobank, N.A." on Justia Law

Smith’s husband obtained a Capital One credit card that he used for family consumer debts. Smith subsequently filed for bankruptcy. Smith’s husband did not join Smith’s petition and was not listed as a co‐debtor. The bankruptcy court confirmed Smith’s Chapter 13 plan. During Smith’s repayment period, Capital One, through attorney Kohn, sued Smith’s husband and obtained a Wisconsin state court judgment for amounts owed on his credit card; it has not attempted to enforce the judgment. Smith initiated a successful bankruptcy court adversary proceeding, arguing that Smith’s husband’s credit card debt was covered by the co‐debtor stay due under Wisconsin marital law and alleging violations of the co‐debtor stay, 11 U.S.C. 1301(a); the Wisconsin Consumer Act; and the Fair Debt Collection Practices Act, 15 U.S.C. 1692(d)(e). The district court reversed, holding that “consumer debt of the debtor” does not include a debt for which the debtor is not personally liable but that may be satisfied from the debtor’s interest in marital property. The Seventh Circuit affirmed. Smith’s suggested expansion of the co‐debtor stay is contrary to its plain meaning and purpose, which is to prevent undue pressure that creditors could otherwise exert by threatening action against third-parties who have co‐signed the debtor’s debts. View "Smith v. Capital One Bank (USA), N.A." on Justia Law

Mrs. Edelson filed a Chapter 13 bankruptcy petition. She and her husband, who did not join her petition or file his own, held their Chicago home as “tenants by the entirety,” until seven months before the petition, when they conveyed it to the husband’s living trust. The conveyance states that “the beneficial interest” in the trust is held by the Edelsons, “husband and wife, as tenant[s] by the entirety.” The bankruptcy petition named Loventhal, Mrs. Edelson’s former husband, as an unsecured creditor for $92,000. Mrs. Edelson proposed a payment plan that would give Loventhal $16,000 over five years and designated the residence as exempt. Loventhal argued that the transfer to the husband’s trust eliminated the tenancy by the entirety. The bankruptcy judge, district court, and Seventh Circuit rejected his argument, citing 11 U.S.C. 522(b)(3)(B): “any interest in property in which the debtor had, immediately before the commencement of the case, an interest as a tenant by the entirety” is exempted “to the extent that such interest … is exempt from process under applicable nonbankruptcy law,” and Illinois law, which exempts tenancies by the entirety from process to satisfy judgment “against only one of the tenants.” While the trust instrument includes provisions inconsistent with tenancy by the entirety, the Joint Tenancy Act forbids any construction that would sever the tenancy by the entirety. View "Loventhal v. Edelson" on Justia Law