Justia Bankruptcy Opinion Summaries

Beaulieu Group, LLC (“Beaulieu”), was “engaged in the distribution of carpet and hard surface flooring products in both residential and commercial markets in the United States and many foreign countries.” Beaulieu added new members to its board of directors but had insufficient borrowing power and liquidity to complete its turnaround efforts. Beaulieu and its affiliates each filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code.   The bankruptcy court subsequently approved a plan of liquidation that involved transferring all of Beaulieu’s assets to a liquidating trust. PMCM 2, LLC (the “Trustee”), is the liquidating trustee for the Beaulieu Liquidating Trust. The creditor is Auriga Polymers Inc. (“Auriga”), which sold Beaulieu polyester resins and specialty polymers used in a range of products, including textiles, before the bankruptcy.   At issue was whether post-petition transfers made under 11 U.S.C. Section 503(b)(9) will reduce the creditor’s new value defense. The Eleventh Circuit held that, for purposes of Section 547(c)(4)(B), “otherwise unavoidable transfers” made after the debtor has filed for bankruptcy do not affect a creditor’s new value defense. Thus, the court affirmed in part and reversed in part the bankruptcy court’s order on appeal.   The court wrote that the Bankruptcy Code empowers a trustee to claw back “preferences”. But the creditor who gives new value to the debtor after receiving a preference may use that new value to offset its preference liability. This “new value” defense, however, is itself offset to the extent that the debtor later makes an “otherwise unavoidable transfer” to the creditor on account of the value received. View "Auriga Polymers Inc. v. PMCM2, LLC" on Justia Law

The Eleventh Circuit addressed whether a bankruptcy plan of reorganization confirmed in 1995 discharged the obligation of three debtor companies to provide future health-care benefits to retired employees of a coal company that was once part of the same corporate family. After the coal company’s future obligations to the retirees were discharged, the trustees of two healthcare benefit funds sued to compel the related companies to pay for the benefits. The bankruptcy court and district court ruled that the 1995 plan of reorganization did not discharge the claims for future benefits.   On appeal, the parties dispute whether the companies’ Coal Act obligations were discharged by the 1995 order confirming the companies’ plan of reorganization.  The Eleventh Circuit reversed the district court’s holding and found that because the companies’ obligations to provide health-care benefits were fixed before the bankruptcy court confirmed the plan of reorganization, the Trustees’ claims for future retiree benefits were discharged in 1995. The court reasoned that the Trustees held a “claim” in 1995 because they had a “fixed” “right to payment.” Further, the Trustees’ claim under Section 9711 and resulting claims for 1992 plan premiums were discharged in 1995. View "United States Pipe and Foundry Company LLC, et al. v. Michael H. Holland, et al." on Justia Law

Debtor executed a security deed for a piece of property. She acknowledged the deed to her closing attorney who certified the acknowledgment on the deed’s final page.Under Georgia law, a deed must be attested by two witnesses, and at least one of them needs to be an official such as a notary or court clerk. Here, the deed was invalid because the attorney was a notary, but he failed to attest to the deed. The error was discovered a few years later when the debtor filed for Chapter 7 bankruptcy. Under federal law, a bankruptcy trustee may void a deed if it is voidable by a bona fide purchaser. The managing trustee noticed the problem and sued the loan companies to keep the property in the bankruptcy estate. The loan companies argue that they have produced what the statute requires to save a problematic deed: an affidavit from a “subscribing witness.” Here, the court reasoned that a person becomes a subscribing witness only when she attests a deed, and the closing attorney did not do so. Therefore, the loan companies’ interest in the real property is voidable. View "Pingora Loan Servicing, LLC, et al. v. Cathy L. Scarver" on Justia Law

The Eleventh Circuit reversed the district court's decision affirming the bankruptcy court's order granting the Bank's objection to plaintiff's claimed bankruptcy estate exemptions. The court concluded that Roth IRAs are excluded from Georgia debtors' bankruptcy estates pursuant to federal law. The court found that the development of the caselaw in this area and the subsequent amendments to the Georgia Code reflect the Georgia Assembly's intention to clarify that both traditional IRAs as defined in 26 U.S.C. 408 and Roth IRAs as defined in section 408A are exempt from garnishment, thus subjecting IRAs to a restriction on transfer by state statute, and making both types of IRAs eligible for exclusion under the Bankruptcy Code. Accordingly, the court remanded so that the district court may reverse the order of the bankruptcy court. View "Hoffman v. Signature Bank of Georgia" on Justia Law

Fees are collected under 28 U.S.C. 1930 in each quarter of a chapter 11 bankruptcy based on the amount of disbursements made. The U.S. Trustee collects the fees in most districts in the country, while an arm of the Judicial Conference does so in six. In 2017, 28 U.S.C. 1930(a)(6) increased the quarterly fee chargeable for the largest chapter 11 bankruptcies, those distributing $1 million or more in a given quarter.The bankruptcy court concluded that the increase applied to disbursements in a case pending at the time the law was enacted. The Eleventh Circuit agreed that the 2017 legislation applied to pending bankruptcy cases without a due process violation and without offending the Bankruptcy Uniformity Clause. Congress expressly prescribed the temporal reach of the 2017 Amendment and included disbursements in pending cases. The quarterly fees are assessed against the users of the chapter 11 bankruptcy trustee systems to reimburse the government for its costs; the fees are not subject to the constitutional uniformity requirement applicable to taxes. The 2017 Amendment is uniform in the sense contemplated by the Bankruptcy Clause. View "United States Trustee Region 21 v. Bast Amron LLP" on Justia Law

In the early 1900s, New York City used a Brooklyn powerhouse to provide electricity for its trolley system. In 1940, the City took ownership of the power plant and removed a smokestack, placed it in the building's basement, on top of a mechanical system that was insulated with friable asbestos-containing material, and buried it under a concrete slab. Enterprises acquired the property in 1986. An asbestos inspection by the city revealed that the property was contaminated with PCBs. The property was placed on New York’s Registry of Inactive Hazardous Waste Disposal Sites, rendering it effectively worthless. The state began remediation in 2015. The discovery of the buried smokestack and friable asbestos-containing material postponed the project indefinitely. New York City continued to tax the property according to its “best intended use” as a warehouse. Rather than paying the taxes or properly challenging their validity, Enterprises ignored them. The taxes became liens.In 2018, Enterprises filed for Chapter 11 bankruptcy and initiated an adversary proceeding against the city, alleging “continuous trespass,” and seeking a declaratory judgment that the city is responsible for the hazardous waste and resulting damage and improperly taxed the property. The bankruptcy court dismissed the adversary proceeding. The Eleventh Circuit affirmed. Even assuming the latest possible date of discovery, Enterprises’ trespass claim is time-barred. The Bankruptcy Abuse Prevention and Consumer Protection Act, 11 U.S.C. 505(a)(2)(C), prohibited the court from redetermining the tax assessments. View "5200 Enterprises Ltd. v. City of New York" on Justia Law

Beach, a debtor in possession, sought to avoid Live Oak’s blanket lien on all of its assets. In Florida, a creditor’s financing statement that does not list the debtor’s correct name is “seriously misleading” and ineffective to perfect the creditor’s security interest. Fla. Stat. 679.5061(2). Live Oak asserted that abbreviating “Boulevard” to “Blvd.” did not render the financing statements defective or seriously misleading. Florida Statute 679.5061(3), establishes a safe harbor for defective financing statements. The bankruptcy court granted Live Oak summary judgment.Noting that lower courts, applying Florida law, have reached different conclusions regarding the application of the statutory safe harbor, the Eleventh Circuit certified to the Florida Supreme Court the questions: (1) Is the “search of the records of the filing office under the debtor’s correct name, using the filing office’s standard search logic,” as provided for by Florida Statute 679.5061(3), limited to or otherwise satisfied by the initial page of twenty names displayed to the user of the Registry’s search function? (2) If not, does that search consist of all names in the filing office’s database, which the user can browse to using the command tabs displayed on the initial page? (3) If the search consists of all names in the filing office’s database, are there any limitations on a user’s obligation to review the names and, if so, what factors should courts consider when determining whether a user has satisfied those obligations? View "1944 Beach Boulevard, LLC v. Live Oak Banking Co." on Justia Law

In 1999, Kristina drugged her sons and put them, and herself, in a running car in a closed garage. Matthew died; Adam and Kristina survived. Kristina was convicted of second-degree murder and remained in prison until 2016. In 1999, Kristina had State Farm automobile and homeowners insurance policies. In 2001, Matthew’s estate, Adam, and their father (the Rotells) sued Kristina for wrongful death and bodily injury.Kristina tendered her defense to State Farm, which filed state court declaratory judgment actions, seeking determinations that her policies did not cover the incident. The Rotells allege that State Farm rejected a settlement offer even though Kristina wished to accept it. The state court then held that the policies did not cover the incident. State Farm withdrew from the wrongful-death lawsuit. The state court entered a default judgment against Kristina; a jury entered a $505 million verdict. Kristina was insolvent, so the Rotells petitioned for involuntary Chapter 7 bankruptcy. The bankruptcy court entered an order subjecting Kristina’s assets (claims against State Farm for bad faith and malpractice) to its control and appointed Carapella as trustee. The verdict is Kristina’s only liability. Carapella sued State Farm in Florida state court. State Farm then sought to intervene, post-judgment, in the wrongful-death action and moved to vacate the judgment, arguing that the Rotells’ fifth amended complaint was untimely and that the default judgment was void.The district court and the Eleventh Circuit affirmed the denial of the motion. The Bankruptcy Code’s “automatic stay” provision, 11 U.S.C. 362(a), precluded State Farm’s motion to intervene. View "State Farm Florida Insurance Co. v. Carapella" on Justia Law

Jackson was traveling in his wheelchair along a street near the Louisville Embassy Suites Hotel when he was hit by a hotel valet driver. He suffered severe injuries. Jackson sued, in Kentucky state court, several entities connected to the hotel, including Le Centre, the owner of the hotel property. Le Centre had filed for Chapter 11 bankruptcy protection before the suit was filed; its reorganization disclosure statement explained that Le Centre’s Chapter 11 plan included the release not only of Le Centre but also of related non-debtor parties. Jackson's attorney received an amended version of the disclosure statement and a copy of the plan. Le Centre did not serve Jackson with a specific form of notice required by the Federal Rules of Bankruptcy Procedure, however.After the approved Chapter 11 plan went into effect, Le Centre and two other released entities moved to dismiss in the state court action as barred by the confirmation order. Jackson sought to proceed nominally against these entities to reach their insurers. The bankruptcy court denied this request. The district court and Eleventh Circuit affirmed. Jackson received sufficient notice to satisfy due process and the bankruptcy court did not abuse its discretion by ruling that Jackson could not pursue the nominal claims. View "Jackson v. Le Centre on Fourth, LLC" on Justia Law

The Stanfords, the debtors in Chapter 11 bankruptcy proceedings, owned APC, another Chapter 11 debtor. Each had borrowed money from ServisFirst; each served as guarantor for the other’s debt. The Stanfords owed ServisFirst $5 million; APC owed $7.2 million. APC obtained a “roll-up loan” from ServisFirst to consolidate the debt and obtain working capital. The Stanfords had secured their loans from ServisFirst with real property. The bankruptcy court approved the sale of the property to ServisFirst “via a credit bid of $3.5 million,” 11 U.S.C. 363(k), stating that ServisFirst was “a good faith purchaser” and that the consideration “exceeds the liquidation value” of the property. The Stanfords then argued that APC’s roll-up loan converted ServisFirst’s pre-petition claims into post-petition administrative expense claims against APC alone and that because ServisFirst never required them to execute a guaranty of the roll-up loan, they had no remaining pre-petition obligations to ServisFirst, which no longer held a lien and could not make a credit bid.The bankruptcy court rejected their arguments, citing equitable estoppel, judicial estoppel, and law of the case but granted a stay conditioned on posting a $1.5 million supersedeas bond, which the Stanfords did not do. Ultimately, the Stanfords delivered an executed deed to ServisFirst, which was recorded. The Eleventh Circuit affirmed the dismissal of the Stanfords’ appeal as moot under 11 U.S.C. 363(m), citing its inability to undo a completed sale to a good faith purchaser under Section 363(m). View "Reynolds v. ServisFirst Bank" on Justia Law