Justia Bankruptcy Opinion Summaries

TAJ Graphics Enterprises, LLC, a Michigan limited liability company controlled by Robert Kattula, twice filed for bankruptcy—first in 2003 under Chapter 11, and again in 2009, with the case later converted to Chapter 7. Prime Financial, Inc., an unsecured creditor owned by Aaron Jade, asserted a claim based on unpaid sums from the 2004 bankruptcy plan. Disputes arose over several assets, including rights under assignments, claims in pending litigation, and a significant debt owed by Kattula to TAJ. Ownership and value of these assets, particularly interests under a Memorandum of Understanding (MOU) for a Kentucky landfill, were contested. The bankruptcy estate lacked funds to litigate asset ownership or liquidation.The United States Bankruptcy Court for the Eastern District of Michigan approved a settlement proposed by the Chapter 7 trustee. The settlement involved Kattula waiving certain claims and paying $50,000 to the estate in exchange for ownership of the disputed assets. The IRS, the estate's senior secured creditor, supported the settlement. Prime Financial objected, arguing the trustee failed to maximize the estate’s value and that its own offer to purchase assets for $100,000 was overlooked. The bankruptcy court found Prime Financial’s offer contingent and unworkable, and determined that litigation over asset ownership would be costly and uncertain. The bankruptcy court approved the settlement, citing the estate’s lack of resources, the speculative asset value, and the interests of creditors. The United States District Court for the Eastern District of Michigan affirmed this decision.On appeal, the United States Court of Appeals for the Sixth Circuit affirmed the district court's order. The Sixth Circuit held that the bankruptcy court did not abuse its discretion, applying the correct standard for settlement approval and reasonably assessing the merits, complexity, and creditor interests. Prime Financial’s procedural and substantive objections were rejected. View "Prime Financial, Inc. v. Shapiro" on Justia Law

HRT Enterprises pursued a takings claim against the City of Detroit after losing a jury verdict in state court in 2005. Subsequently, HRT filed suit in federal court in 2008, alleging a post-2005 violation under 42 U.S.C. § 1983. The United States District Court for the Eastern District of Michigan dismissed the federal action, citing the requirement from Williamson County Regional Planning Commission v. Hamilton Bank of Johnson City, 473 U.S. 172 (1985), to exhaust state remedies first. HRT then returned to state court, where its claim was dismissed on claim preclusion grounds, a decision affirmed by the Michigan Court of Appeals. After the state court denied compensation, HRT initiated a federal § 1983 action in 2012. The case was stayed when the City filed for bankruptcy, prompting HRT to participate in bankruptcy proceedings to protect its compensation rights. Ultimately, the bankruptcy court excepted HRT’s takings claim from discharge, allowing the federal case to proceed. After two jury trials, the district court entered judgment for HRT in September 2023.Following its success, HRT moved for attorney fees under 42 U.S.C. § 1988, presenting billing records that included work from related state and bankruptcy proceedings. The district court applied a 33% discount to the claimed hours due to commingled and poorly described entries, set an average hourly rate, and awarded $720,486.25, which included expert witness fees. Both parties appealed aspects of the fee award to the United States Court of Appeals for the Sixth Circuit.The Sixth Circuit held that the district court erred by concluding it had no discretion to award fees for work performed in the related state-court and bankruptcy proceedings, as such fees are recoverable when the work is necessary to advance the federal litigation. The court also found the district court erred in awarding expert witness fees under § 1988(c) in a § 1983 action, as the statute does not authorize such fees for § 1983 claims. The appellate court vacated the fee award and remanded for recalculation consistent with its opinion. View "HRT Enterprises v. City of Detroit" on Justia Law

A fire at a property in Washington, D.C. in 2015 resulted in the deaths of two tenants. The parents of the tenants sued both the property’s record owner, Len Salas, and his father, Max Salas, who managed the property, for wrongful death in a D.C. trial court. The jury found both defendants jointly and severally liable and awarded multimillion-dollar verdicts. After the verdict, both Len and Max filed for bankruptcy in different jurisdictions. In Max’s bankruptcy case, the court held he was entitled to an unlimited homestead exemption in the property. Subsequently, in Len’s bankruptcy case in Tennessee, the estate’s interest in certain avoidance and recovery rights under the Bankruptcy Code was sold at auction, with the plaintiffs purchasing those rights.The plaintiffs then filed an adversary proceeding in the United States Bankruptcy Court for the Middle District of Tennessee, seeking to avoid transfers and recover property. The bankruptcy court denied their motion for summary judgment and granted partial summary judgment to Max on the fraudulent conveyance claims. Plaintiffs sought and received leave from the United States District Court for the Middle District of Tennessee to pursue an interlocutory appeal. The district court affirmed the bankruptcy court’s partial grant and denial of summary judgment and remanded the case for further proceedings, but did not certify the order for appeal or designate it as a final order.On appeal, the United States Court of Appeals for the Sixth Circuit found that it lacked jurisdiction. The court determined that because the district court’s order was neither final nor properly certified for interlocutory appeal, it could not exercise appellate jurisdiction under the relevant statutes. As a result, the Sixth Circuit dismissed the appeal for lack of jurisdiction. View "Brekelmans v. Salas" on Justia Law

A businessman in the coal industry, John Siegel, used a network of family-owned companies to finance a project to develop a coal shipping terminal in Oakland, California. Over several years, Siegel directed one family company, Cecelia Financial Management, to advance funds to another, Insight Terminal Solutions, which was developing the terminal. These advances were documented as loans through promissory notes, but Siegel was involved on both sides of the transactions. After Insight filed for bankruptcy in 2019, Cecelia filed a claim as a creditor for over $6 million, asserting the advances were loans. However, the new owner of Insight, Autumn Wind, argued these were actually equity contributions, not loans, and sought to have the bankruptcy court recharacterize them as such, which would subordinate Cecelia’s claim.The United States Bankruptcy Court for the Western District of Kentucky held a trial to determine the nature of the advances. During the proceedings, Siegel died, and his deposition—taken before his death but without cross-examination by the opposing party—became central. The bankruptcy court excluded Siegel’s deposition, reasoning that the lack of cross-examination opportunity rendered it inadmissible, and ultimately ruled in favor of Bay Bridge Exports (which had acquired Cecelia’s claim), declining to recharacterize the advances as equity. The Bankruptcy Appellate Panel of the Sixth Circuit affirmed this decision.The United States Court of Appeals for the Sixth Circuit reviewed the case de novo. It held that the bankruptcy court committed legal error by categorically excluding Siegel’s deposition solely due to the absence of cross-examination, misinterpreting Federal Rule of Civil Procedure 32(a). The Sixth Circuit clarified that courts have discretion, not an absolute bar, in such circumstances. The court reversed the bankruptcy court’s decision and remanded for further proceedings, instructing the lower court to reconsider the admissibility of the deposition and, if admitted, its impact on the recharacterization analysis. View "Insight Terminal Solutions v. Cecelia Fin. Mgmt." on Justia Law

A group of former managers of Ruby Tuesday, Inc. participated in two top-hat retirement plans administered by Regions Bank. These plans were unfunded and designed for high-level employees, meaning they were exempt from certain ERISA fiduciary duties. When Ruby Tuesday filed for bankruptcy, the managers lost their benefits and sued Regions Bank, alleging breaches of state-law fiduciary, trust, contract, and tort duties. They also sought equitable relief under ERISA to recover their lost benefits.The United States District Court for the Eastern District of Tennessee dismissed the state-law claims, ruling that ERISA preempted them. The court also granted summary judgment to Regions Bank on the ERISA claim, concluding that the requested monetary relief did not qualify as equitable relief under ERISA.The United States Court of Appeals for the Sixth Circuit reviewed the case. The court affirmed the district court's decision, holding that ERISA preempted the state-law claims because they related to an ERISA-covered plan. The court emphasized that allowing state-law claims would undermine ERISA's uniform regulatory scheme. Additionally, the court held that the monetary relief sought by the plaintiffs did not qualify as equitable relief under ERISA. The court reasoned that the plaintiffs' request for an "equitable surcharge" was essentially a request for legal damages, which ERISA does not permit under its equitable relief provision.Thus, the Sixth Circuit affirmed the district court's judgment in favor of Regions Bank, concluding that the plaintiffs could not pursue their state-law claims or obtain the requested monetary relief under ERISA. View "Aldridge v. Regions Bank" on Justia Law

The case involves a Chapter 11, Subchapter V debtor, Human Housing Henrietta Hyatt, LLC, whose owners and a related third-party, Clearview Eastern Fund, LLC, appealed orders approving the sale of the debtor’s real property. The confirmed plan allowed the plan trustee wide discretion in conducting the sale. The owners did not participate meaningfully in the sale proceedings, and Clearview, a competing bidder, lacked standing to appeal the orders as it did not preserve its appeal rights and failed to obtain a stay of the sale orders.The United States Bankruptcy Court for the Western District of Kentucky approved the sale of the debtor’s real property. The bankruptcy court found that the buyers were purchasing the properties in good faith and entitled to the protections of 11 U.S.C. § 363(m). Clearview filed a motion for reconsideration and a motion for a stay pending appeal, both of which were denied by the bankruptcy court. Clearview then filed an affidavit claiming pre-existing purchase contracts, but this was not timely presented to the bankruptcy court.The Bankruptcy Appellate Panel of the Sixth Circuit reviewed the case. The panel determined that the appellants were limited on appeal to challenging the purchasers’ good faith due to the mootness rule codified in 11 U.S.C. § 363(m). The panel found that the appellants had waived their arguments on appeal by not raising them in the bankruptcy court proceedings. The panel affirmed the bankruptcy court’s orders approving the sale of the debtor’s assets and the orders denying the motion for reconsideration and the motion for a stay pending appeal. The panel also affirmed the orders approving compensation for the real estate broker, as the appellants had not objected to the compensation applications in the bankruptcy court. View "In re Human Housing Henrietta Hyatt, LLC" on Justia Law

Debtor-landlord did not retain sufficient rights in rents assigned to lender for those rents to be included in landlord's bankruptcy estate. Town Center owns a 53-unit Shelby Township residential complex; its construction was financed by a $5.3 million loan owned by ECP. The mortgage included an assignment of rents to the creditor in the event of default. Rents from the complex are Town Center’s only income. Town Center defaulted. ECP sent notice to tenants in compliance with the agreement and with Mich. Comp. Laws 554.231, which allows creditors to collect rents directly from tenants of certain mortgaged properties. ECP recorded the notice documents as required by the statute. ECP filed a foreclosure complaint. A week later, Town Center filed for Chapter 11 bankruptcy relief, then owing ECP $5,329,329 plus fees and costs. The parties reached an agreement to allow Town Center to collect rents, with $15,000 per month to pay down the debt to ECP and the remainder for authorized expenses. Town Center’s bankruptcy petition resulted in an automatic stay on the state-court case, 11 U.S.C. 362(a). ECP unsuccessfully moved to prohibit Town Center from using rents collected after the petition was filed. The district vacated. The Sixth Circuit reversed; Town Center did not retain sufficient rights in the assigned rents under Michigan law for those rents to be included in the bankruptcy estate. View "In re: Town Center Flats, LLC" on Justia Law

The Sixth Circuit affirmed the Bankruptcy Court’s order in Conco’s Chapter 11 bankruptcy, interpreting Conco’s Confirmed Plan to prohibit the sale of the Employee Stock Ownership Plan (ESOP)-held Conco stock (Equity Interests) and enjoining any such sale through December 31, 2018. The creditor’s committee had agreed to support the Plan, which provided both defined distributions and contingent distributions, to be funded by the operation of the Conco’s business, to continue through December 31, 2018. The Plan guaranteed the creditors a higher recovery than if the business were sold. ESOP participants sued Conco, its Board of Directors, the ESOP, and ESOP Trustees (ERISA Litigation) claiming breach of fiduciary duties by not evaluating and responding to offers by to purchase the Equity Security Interests. The Bankruptcy Court found, and the Sixth Circuit agreed, that the four corners of the Confirmed Plan, and the creditors’ abandonment of an objection under the absolute priority rule of 11 U.S.C. 1129(b)1 to the ESOP’s retention of the Equity Interests, evidenced an intent for the Equity Interests not to be sold through December 31, 2018. View "In re: Conco, Inc." on Justia Law

In his 2010 Chapter 7 petition, the debtor listed a claim against Simms based on an injury while under Simms’ employ, but did not claim an exemption on Schedule C. In 2011, a complaint was filed against Simms; in 2012, a companion action was filed against BWC. The debtor filed amended schedules, valuing the Simms claim at $21,625, but claiming no exemption. The debtor never listed the BWC claim. In 2013, the certified that the estate had been fully administered except for the Simms claim, stating: The ... settlement shall remain property of the bankruptcy estate upon the entry of a final decree; if money becomes available ... the case will be re-opened. The bankruptcy court closed the case; the order contained no reservations regarding the claim. In 2015, the trustee was notified of a settlement offer and moved to reopen the case. The debtor argued that the trustee had abandoned any interest in the personal injury litigation and that the settlement encompassed the claim against BWC in which the trustee had no interest. The court approved a settlement of $180,000. At a hearing, without evidence or testimony, the bankruptcy court found that the claims were not abandoned. The Sixth Circuit Bankruptcy Appellate Panel reversed in part. The court made no findings to support approval of the settlement over the debtor’s objections. Because no court order preserved the personal injury claim as an asset, the bankruptcy court erred by holding that the trustee did not abandon that claim under 11 U.S.C. 554(c); the unscheduled BWC claim was not abandoned. View "In re: Wayne Wright" on Justia Law

In 2014, Brown filed a voluntary Chapter 7 bankruptcy petition, disclosing her ownership of a residence in Ypsilanti, Michigan, valued at $170,000 and subject to $219,000 in secured mortgage claims held by two separate creditors. Brown’s initial petition stated her intent to surrender her residence to the estate and did not claim any exemptions for the value of her redemption rights under Michigan law. The Trustee sought the court’s permission to sell the house for $160,000 and to distribute the proceeds among Brown’s creditors and professionals involved in selling the home. Brown objected and sought to amend her initial disclosures to claim exemptions for the value of her redemption rights (about $23,000) under Mich. Comp. Laws 600.3240, citing 11 U.S.C. 522(d). The bankruptcy court granted the Trustee permission to sell the property and denied Brown’s requested exemptions. The district court and Sixth Circuit affirmed, reasoning that Brown lacked any equity in the property after it sold for substantially less than the value of the secured claims. View "Brown v. Ellmann" on Justia Law