Justia Bankruptcy Opinion SummariesArticles Posted in US Court of Appeals for the Eleventh Circuit
SuVicMon Development, Inc. v. Morrison
Plaintiffs sued Morrison in Alabama state court in 2006, alleging common-law fraud and Alabama Securities Act violations, later adding claims under the Alabama Uniform Fraudulent Transfer Act, alleging that Morrison had given property to his sons to defraud his creditors. Morrison filed for Chapter 7 bankruptcy. The bankruptcy court allowed the Alabama case to proceed but stayed the execution of any judgment. Plaintiffs initiated a bankruptcy court adversary proceeding, seeking a ruling that their state-court claims were not dischargeable. The bankruptcy court entered Morrison’s discharge order with the adversary proceeding still pending. In 2019, the Alabama trial court entered judgment ($1,185,176) against Morrison on the common-law fraud and Securities Act claims but rejected the fraudulent transfer claims.In the adversary proceeding, the bankruptcy court held that the state-court judgment was excepted from discharge, 11 U.S.C. 523(a)(19), as a debt for the violation of state securities laws, and later ruled that the discharge injunction barred appeals against Morrison on the fraudulent transfer claims. The court found the "Jet Florida" doctrine inapplicable because Morrison would be burdened with the expense of defending the state-court suit. The district court and Eleventh Circuit affirmed, rejecting arguments that the fraudulent transfer suit is an action to collect a non-dischargeable debt (securities-fraud judgment) or that Plaintiffs should be allowed to proceed against Morrison as a nominal defendant, to seek recovery from the fraudulent transferees. The bankruptcy court has discretion in deciding whether to allow a suit against a discharged debtor under Jet Florida. View "SuVicMon Development, Inc. v. Morrison" on Justia Law
Breland v. United States
After debtor voluntarily filed for Chapter 11 bankruptcy, the bankruptcy court determined that he was transferring assets and defrauding creditors. The bankruptcy court removed him as the debtor-in-possession and appointed a trustee to administer the estate. Debtor appealed, arguing that the trustee's appointment violated his Thirteenth Amendment right to be free from "involuntary servitude"—because, he said, under the trustee's direction, all of his post-petition earnings would be put into the bankruptcy estate for the benefit of his creditors. The bankruptcy court dismissed debtor's Thirteenth Amendment claim as unripe, and the district court similarly held that debtor could not show an injury-in-fact sufficient to confer Article III standing.The Eleventh Circuit reversed and held that debtor's loss of authority and control over his estate, which he suffered as a result of his removal as the debtor-in-possession, constitutes an Article III-qualifying injury-in-fact that is both traceable to the bankruptcy court's appointment of the trustee and redressable by an order vacating that appointment. Therefore, debtor has standing to pursue his Thirteenth Amendment claim. The court left it to the district court on remand to consider the merits of debtor's arguments. View "Breland v. United States" on Justia Law
Reynolds v. Behrman Capital IV L.P.
The Chapter 7 trustee for the bankruptcy estates of Atherotech Inc. and Atherotech Holdings, appeals the dismissal of his complaint for lack of personal jurisdiction. After removal from Alabama state court, the district court applied the doctrine of derivative jurisdiction articulated in Lambert Run Coal Co. v. Baltimore & O.R. Co., 258 U.S. 377, 382 (1922), and ruled that because the state court did not have personal jurisdiction over defendants under Alabama's long-arm statute, it too lacked personal jurisdiction. The district court concluded that the trustee could not rely on Bankruptcy Rule 7004(d) (which looks to a defendant's national contacts and permits nationwide service of process) to establish personal jurisdiction. The district court also denied as futile the trustee's motion to transfer the case.The Eleventh Circuit reversed and concluded that the trustee did not waive his right to appeal the district court's dismissal of MidCap for lack of personal jurisdiction by failing to name MidCap in the amended complaint because amendment would have been futile. Under the circumstances of this case, the trustee did not waive his right to appeal the district court's dismissal of Mid Cap from the original complaint for lack of personal jurisdiction.The court also concluded that the doctrine of derivative jurisdiction does not apply to removed cases in which the state court lacked personal jurisdiction over the defendants. The court explained that the district court could exercise jurisdiction following removal notwithstanding the state court's lack of personal jurisdiction over defendants under Alabama's long-arm statute. The court reasoned that the district court could look to Bankruptcy Rule 7004(d) to decide whether personal jurisdiction existed. Furthermore, the district court could consider the trustee's alternative request for a transfer to the Southern District of New York pursuant to 28 U.S.C. 1406 even if there was no personal jurisdiction over defendants under Alabama's long-arm statute. The court remanded for further proceedings. View "Reynolds v. Behrman Capital IV L.P." on Justia Law
Rohe v. Wells Fargo Bank, N.A.
Petitioner filed suit alleging that, after she filed for bankruptcy, Wells Fargo violated the automatic bankruptcy stay by continuing with foreclosure proceedings against her in the Florida state courts. Furthermore, Wells Fargo and the state courts acted contrary to federal law governing removal by continuing with the same state court proceedings after petitioner sought to remove the state case to the bankruptcy court. Petitioner filed a petition for a writ under the All Writs Act in the district court, seeking an order declaring that certain actions of the state courts were void and granting her damages against Wells Fargo and its counsel.The Eleventh Circuit affirmed the district court's dismissal of plaintiff's complaint, finding that this case is not the kind of case in which an order under the Act could properly be issued because there is no underlying proceeding over which the district court has jurisdiction and the integrity of which the district court would be in an appropriate position to protect by making such an order. In this case, dismissal was proper because the Act does not empower the district court to issue the order sought by the petition. View "Rohe v. Wells Fargo Bank, N.A." on Justia Law
USF Federal Credit Union v. Gateway Radiology Consultants, P.A.
Gateway is a small business debtor in an active Chapter 11 bankruptcy proceeding seeking a loan under the Paycheck Protection Program (PPP). Gateway applied for a PPP loan and falsely stated that it was not in bankruptcy in order to be eligible for the program. When Gateway filed a motion for approval in the bankruptcy court, the SBA objected that Gateway was ineligible for a PPP loan because it was in bankruptcy. The bankruptcy court granted Gateway's motion anyway, concluding that the SBA's rule rendering bankruptcy debtors ineligible for PPP loans was an unreasonable interpretation of the statute, was arbitrary and capricious under the Administrative Procedure Act, and as a result was unlawful and unenforceable against Gateway.The Eleventh Circuit vacated the bankruptcy court's approval order, concluding that the SBA's rule is neither an unreasonable interpretation of the relevant statute nor arbitrary and capricious. The court concluded that the SBA did not exceed its authority in adopting the non-bankruptcy rule for PPP eligibility; the rule does not violate the CARES Act, is based on a reasonable interpretation of the Act, and the SBA did not act arbitrarily and capriciously in adopting the rule; and the bankruptcy court committed an error of law in concluding otherwise in its approval order and its preliminary injunction order. Accordingly, the court remanded for further proceedings. The court dismissed the appeal from the memorandum opinion for lack of jurisdiction. View "USF Federal Credit Union v. Gateway Radiology Consultants, P.A." on Justia Law
Tufts v. Hay
This case arose out of a dispute between two sets of lawyers who provided legal work for a mutual client. Thomas Tufts and the Tufts Law Firm, PLLC appealed the district court's order granting a motion to dismiss on grounds of subject matter jurisdiction. Edward Hay and Pitts, Hay & Hugenschmidt, P.A. also filed a second motion to dismiss Tufts's action against them on the additional ground that the district court lacked personal jurisdiction over them. After the district court found personal jurisdiction, Hay and his firm cross appealed.The Eleventh Circuit held that the district court erred by dismissing the action for lack of subject matter jurisdiction under the Barton Doctrine. In this case, Tufts counsel initiated their action against Hay—court-approved counsel—and Tufts did not obtain leave of the bankruptcy court before doing so. The court held that the Barton doctrine has no application when jurisdiction over a matter no longer exists in the bankruptcy court. Thus, the bankruptcy court was properly vested with jurisdiction to consider this action if it could conceivably have an effect on the client's bankruptcy estate. Here, the action could not conceivably have an effect on the client's bankruptcy estate and thus the Barton doctrine does not apply. The court also held that the district court properly exercised personal jurisdiction over Hay. The court reversed the district court's ruling on subject matter jurisdiction and remanded. View "Tufts v. Hay" on Justia Law
SE Property Holdings, LLC v. Gaddy
SEPH brought an adversary proceeding in debtor's Chapter 7 bankruptcy, requesting that the bankruptcy court declare the debt to SEPH exempt from discharge under 11 U.S.C. 523(a)(2)(A) and (a)(6) because debtor fraudulently conveyed his property, thwarting SEPH's efforts to collect the debt. The bankruptcy court rejected SEPH's claims, granted debtor's motion for judgment on the pleadings, and dismissed the adversary proceeding. The district court affirmed the bankruptcy court's dismissal.The Eleventh Circuit affirmed, holding that the Water's Edge judgment debt is not exempt from discharge under section 523(a)(2)(A), because the debt existed long before debtor began transferring his assets and that debt is an ordinary contract debt that did not arise from fraud of any kind. Furthermore, SEPH presents no binding authority that supports its assertion that a debtor's fraudulent conveyance of assets in an attempt to avoid collection of a preexisting debt renders that preexisting debt exempt from discharge under section 523(a)(2)(A). The court also held that the Water's Edge debt is not exempt from discharge under section 523(a)(6), because the debt was not "for willful and malicious injury" to SEPH or its property. Finally, the court held that the bankruptcy court correctly denied leave to amend because of the futility of SEPH's proposed amendment under the Alabama Uniform Fraudulent Transfer Act. View "SE Property Holdings, LLC v. Gaddy" on Justia Law
J.J. Rissell, Allentown PA, Trust v. Kapila
The Eleventh Circuit dismissed bankruptcy appeals filed by attorney Breuer of Moffa & Breuer, who purported to represent the Trust. The bankruptcy court disqualified attorney Moffa and Moffa & Breuer from representing the Trust. Because the Trust was a 50 percent shareholder of the debtor created to ensure that Moffa & Breuer would collect its legal fees, the bankruptcy court concluded that Moffa & Breuer’s representation of a shareholder in which it had a business interest conflicted with its simultaneous representation of the debtor. Moffa & Breuer repeatedly ignored the disqualification order. Moffa, purportedly pro se in his capacity as trustee of the Trust and as an attorney for related entities, filed a competing plan of reorganization that would have released the debtor’s claims against his firm and made him president of the reorganized debtor.There has been no indication of an intent to appeal from any qualified agent of the Trust, only from disqualified attorneys. Moffa had no authority to act pro se in the bankruptcy court, so his filings do not suggest that the Trust intended to appeal. There is no justification for excusing these defective notices of appeal. When an appeal is taken on behalf of an artificial entity by someone without legal authority to do so, the appeal should be dismissed. View "J.J. Rissell, Allentown PA, Trust v. Kapila" on Justia Law
Whaley v. Guillen
The trustee objected to the modification of debtor's Chapter 13 modification plan, arguing that the doctrine of res judicata barred debtor's modification. The bankruptcy court confirmed the modified plan, finding that 11 U.S.C. 1329 creates an exception to the finality of confirmed Chapter 13 plans, and that debtor's modified plan satisfied the express requirements of section 1329.The Eleventh Circuit affirmed and held that section 1329 does not impose a change-of-circumstances requirement on debtors. Therefore, debtor need not make any threshold showing of a change in circumstances before proposing a modification to a confirmed plan under section 1329. View "Whaley v. Guillen" on Justia Law
Law Solutions of Chicago, LLC v. Corbett
The Eleventh Circuit affirmed the bankruptcy court's finding that UpRight, a debt relief agency that represented assisted persons, violated several applicable provisions and rules, and upheld the bankruptcy court's imposition of sanctions against it.The court held that the bankruptcy court had subject matter jurisdiction to impose sanctions; because adequate notice came from both the bankruptcy administrator and the bankruptcy court, and UpRight had a reasonable opportunity to respond both orally and in writing, the fundamental fairness of due process was met; UpRight's contention that the bankruptcy court applied the wrong legal standard in imposing the suspensions pursuant to 11 U.S.C. 105 is moot; the totality of the circumstances support a finding of a "clear and consistent pattern or practice" under 11 U.S.C. 526(c)(5); and the monetary sanctions that were imposed were not grossly excessive and did not fall outside the reasonable "range of choice" that was available to the bankruptcy court. View "Law Solutions of Chicago, LLC v. Corbett" on Justia Law