Justia Bankruptcy Opinion Summaries

Rosenberg is the “principal architect” NMI and NMI Holding, which are affiliated with limited partnerships (LPs) that operate medical imaging centers. To finance the purchase of medical imaging equipment, the LPs entered into leases with DVI entities. DVI Financial was the initial servicer of the leases and U.S. Bank acted as trustee. When DVI Financial entered bankruptcy in 2004, Lyon acquired the servicing contracts. During state court litigation over money owed under the leases, DVI filed involuntary bankruptcy petitions against Rosenberg, NMI, and NMI Holding. The bankruptcy court dismissed the petitions because the DVI entities were not Rosenberg’s creditors. Rosenberg then filed an adversary action under 11 U.S.C. 303(i), alleging bad faith filing. Rosenberg obtained awards of fees and costs, $1.1 million in compensatory damages, and $5 million in punitive damages. Rosenberg’s wife, the Rosenberg Trust, and other Rosenberg Affiliates then sought damages based on the involuntary bankruptcy petitions, alleging tortious interference with contracts and business relationships. NMI Real Estate Partnerships owned the medical imaging facilities subject to mortgages. Rosenberg Affiliates alleged that the involuntary bankruptcy filings were intended to cause those Partnerships to default on their underlying mortgages; all but one of the properties have been lost. The district court dismissed, finding the claim preempted by the Bankruptcy Code. The Third Circuit reversed, stating that section 303(i) does not preempt the state law claims of nondebtors predicated on the filing of an involuntary bankruptcy petition. View "Rosenberg v. DVI Receivables XVII LLC" on Justia Law

Net Pay managed clients’ payrolls and handled their employment taxes pursuant to a “Payroll Services Agreement,” which required clients to provide their employee payroll information and gave clients the option of authorizing Net Pay to transfer funds from their bank accounts into Net Pay’s account and to remit those funds to the clients’ employees, the IRS, and other taxing authorities. The Agreement established an independent contractor relationship between Net Pay and its clients. About three months before it filed its Chapter 7 petition, Net Pay transferred $32,297 on behalf of Altus; $5,338 on behalf of HealthCare Systems; $1,143 on behalf of Project Services; $352.84 for an unknown client; and $281.13 for another unknown client. The next day, Net Pay informed its clients that it was ceasing operations. The trustee for Net Pay sought to recover the five payments, arguing that they were avoidable preferential transfers, 11 U.S.C. 547(b). The district court concluded that four of the transfers were not subject to recovery, being below the minimum amount established by law ($5,850), and that distinct transfers may be aggregated only if “‘transactionally related’ to the same debt.” Because the IRS applied the entire $32,297 toward Altus’s trust fund tax obligations, the court held that the payment was not avoidable. The Third Circuit affirmed. Net Pay lacked an equitable interest in the Altus funds by operation of 26 U.S.C. 7501(a). View "In Re: Net Pay Solutions Inc" on Justia Law

WI buys furniture wholesale. OEC provided WI with non-vessel-operating common carrier transportation services. WI signed an Application for Credit that granted a security interest in WI property in OEC’s possession, custody or control or en route. As required by federal law, OEC also publishes a tariff with the Federal Maritime Commission, which provides for a Carrier’s lien. WI filed voluntary Chapter 11 bankruptcy petitions. OEC sought relief from the automatic stay, arguing that it was a secured creditor with a possessory maritime lien. OEC documented debts of $458,251 for freight and related charges due on containers in OEC’s possession and $994,705 for freight and related charges on goods for which OEC had previously provided services. The estimated value of WIs’ goods in OEC’s possession was $1,926,363. WI filed an adversary proceeding, seeking release of the goods. The bankruptcy court ruled in favor of WI, citing 11 U.S.C. 542. The district court affirmed, holding that OEC did not possess a valid maritime lien on Pre-petition Goods. The Third Circuit reversed, noting the strong presumption that OEC did not waive its maritime liens on the Prepetition Goods, the clear documentation that the parties intended such liens to survive delivery, the familiar principle that a maritime lien may attach to property substituted for the original object of the lien, and the parties’ general freedom to modify or extend existing liens by contract. View "In re: World Imports LTD" on Justia Law

Wettach was a partner at theTitus law firm, which rented space from Trizec under a long-term lease. After the firm's 1999 dissolution, Trizec filed suit against Titus’s former partners for unpaid rent. The Pennsylvania court found the partners jointly and severally liable for more than $2,700,000. Before that court entered final judgment Wettach filed a voluntary Chapter 7 bankruptcy petition, listing $3,551,500 in assets, including $2,951,500 in personal property, retirement accounts, insurance, and a checking account held by the entireties with his wife. Wettach claimed all of this property as exempt, primarily relying on the exemption for property held by the entireties, 11 U.S.C. 522(b)(1), (3)(B). Wettach joined another law firm and earned wages that the firm directly deposited into the entireties account. The Trustee claimed that these deposits constituted recoverable fraudulent transfers. Before the bankruptcy court could rule, the case was reassigned. The parties consented to the court issuing findings without a new trial. The court ruled in favor of the Trustee, awarding $428,868.12, plus $37,139.01 in interest. The district court and Third Circuit affirmed, rejecting challenges to allocation of the burdens of persuasion and production on the fraudulent transfer claims; evidentiary findings; and a legal determination that the deposit of wages into an account held by the entireties constituted “transfer” of an “asset” under Pennsylvania state law. View "In re: Wettach" on Justia Law

The Debtors own the Atlantic City Trump Taj Mahal casino. The union represents 1,136 employees. The 2011 collective bargaining agreement was to remain in effect through September 14, 2014 and continue in full force and effect from year to year thereafter, unless either party served 60 days written notice of its intention to terminate, modify, or amend. In March 2014, the Debtors gave notice of their “intention to terminate, modify or amend” and sought to begin negotiations. The Union initially declined. On August 20 the parties met. The Debtors emphasized their critical financial situation. No agreement was reached. The Debtors filed for Chapter 11 bankruptcy. On September 11, the Debtors asked the Union to extend the term of the CBA. The Union refused. The CBA expired. On September 17, the Debtors sent the Union a proposal with supporting documentation. After meetings, the Debtors successfully moved, under section 1113, to reject the CBA and implement the terms of the Debtors’ last proposal, asserting that rejection of the CBA was necessary to the reorganization.While 11 U.S.C. 1103 allows a debtor to terminate a CBA under certain circumstances, the National Labor Relations Act prohibits an employer from unilaterally changing CBA terms even after its expiration; key terms of an expired CBA continue to govern until the parties reach a new agreement or bargain to impasse. The Third Circuit affirmed, finding section 1113 does not distinguish between the terms of an unexpired CBA and terms that continue to govern after the CBA expires. View "In re: Trump Entm't Resorts" on Justia Law

Day’s company, Forever Green, sells artificial turf playing fields. It sued its competitor, ProGreen, for $5 million for diversion of corporate assets (Bucks County Action). Dawson, an owner of ProGreen and a former Forever Green sales representative, would be liable if damages are awarded. Dawson sued Forever Green for unpaid commissions and wages (Louisiana Action). Years later, the Louisiana court entered a consent judgment ( about $300,000) in favor of Dawson, which was not paid. Meanwhile, the Bucks County parties agreed to arbitrate. Weeks after the consent judgment entered, ProGreen moved to terminate arbitration, arguing that Forever Green was insolvent and that Day lacked “ability or desire to pay the Arbitrator’s fees and expenses.” Dawson obtained a writ of execution against the arbitrator. Recognizing that he was adverse to Dawson, the arbitrator suspended the arbitration until the fee issue was resolved. Forever Green sued to reinstate the arbitration. Dawson and a law firm that was owed $206,000 from Forever Green, filed an involuntary Chapter 7 bankruptcy petition against Forever Green, which satisfied the statutory criteria, 11 U.S.C. 303(b). The Bankruptcy Court dismissed the filing as being in bad faith. The Third Circuit affirmed, finding that bad faith provides a basis for dismissal independent of the statutory criteria for filing. View "Forever Green Athletic Fields, Inc. v. Dawson" on Justia Law