Justia Bankruptcy Opinion Summaries

Articles Posted in US Court of Appeals for the First Circuit
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In this case concerning the potential liability of two private equity funds for pension fund withdrawal owed by a company owned by the two funds when the company went bankrupt, the First Circuit reversed the judgment of the district court holding the two funds jointly and severally responsible for the company's withdrawal liability, holding that summary judgment should be granted to the two funds. At issue was whether two private equity funds, Sun Capital Partners III, LP (Sun Fund III) and Sun Capital Partners IV, LP (Sun Fund IV), were liable for $4.5 million in pension fund withdrawal liability owed by a brass manufacturing company that was owned by the Sun Funds when the manufacturing company went bankrupt. Under the Multiemployer Pension Plan Amendments Act, the issue of liability depended on whether the two funds had created an implied partnership-in-fact that constituted a control group. That question, in turn, depended on the application of the partnership test in Luna v. Commissioner, 42 T.C. 1067 (1964). The district court that there was an implied partnership-in-fact constituting a control group. The First Circuit reversed, holding that the Luna test was not met in this case and that there was no firm indication of congressional intent to impose liability on the private investors. View "Sun Capital Partners III, LP v. New England Teamsters & Trucking Industry Pension Fund" on Justia Law

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The First Circuit reversed the judgment of the district court dismissing these appeals brought by Appellant seeking to keep money owed to the Commonwealth of Massachusetts based on the fugitive disentitlement doctrine, holding that the district court dismissed the appeal prematurely and that the early dismissal was an abuse of discretion. Thomas Sheedy bought Carol Thibodeau's house and gave it to Appellant Donald Kupperstein, an attorney licensed in Massachusetts. The state court reversed the sale, but Appellant kept collecting rent. Appellant fought to keep the money, and by the time these appeals reached the First Circuit Appellant had defied seven state court orders, four arrest warrants, and numerous contempt sanctions. Appellant filed for bankruptcy in hopes that the Bankruptcy Code's automatic stay would stop the state court from enforcing its orders. The bankruptcy court subsequently lifted the stay, then Appellant "went AWOL." The district court dismissed Appellant's appeal based on the rule that a fugitive forfeits the right to appeal the judgment he's fleeing. The First Circuit held that reversal was required because the district court's inherent power to protect its own proceedings was not implicated in this case. The Court then remanded the case for the district court to decide the merits of Appellant's appeals. View "Kupperstein v. Schall" on Justia Law

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The First Circuit reversed the judgment of the bankruptcy court granting summary judgment in favor of Sacred Heart University and allowing the university to retain tuition payments made by Steven and Lori Palladino for their adult child's college education, payments that were made while the Palladinos were legally insolvent, holding that none of the classes of transactions that confer value were present in this case. The Palladinos paid $64,565 in tuition to Sacred Heart before pleading guilty to fraud in connection with operating a Ponzi scheme. The Palladinos and their closely held company later filed chapter 7 bankruptcy petitions. The bankruptcy trustee for the bankrtupcy estate filed a four-count adversary complaint against Sacred Heart seeking to claw back the Palladinos' tuition payments to Sacred Heart. The bankruptcy court granted summary judgment in Sacred Heart's favor on all counts of the complaint, including the constructive fraud claim. Specifically, the court found that the Palladinos paid their daughter's tuition because "they believed that a financially self-sufficient daughter offered them an economic benefit," which satisfied 11 U.S.C. 548(a)(1)(B)(I)'s reasonably equivalent value standard. The First Circuit reversed, holding the law did not allow the payments, which were not for value by insolvent creditors, to be clawed back by the trustee. View "DeGiacomo v. Sacred Heart University, Inc." on Justia Law

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The First Circuit affirmed the decision of the district court adopting bankruptcy court orders arising out of the bankruptcies of TelexFree, LLC, TelexFree, Inc., and Telexfree Financial, Inc. (collectively, TelexFree), one of the biggest Ponzi-pyramid schemes in United States history, holding that the bankruptcy court did not err in ruling that Appellant's unjust enrichment claims were stayed pursuant to 11 U.S.C. 362(a)(3). At issue in this case was who would be allowed to seek to recover payments made by new participants in the scheme to the existing participants who recruited them (the contested funds). While Trustee Stephen Darr attempted to recoup the contested funds through avoidance actions, victims represented by the Plaintiffs' Interim Executive Committee (PIEC) asserted unjust enrichment claims to recover the same amounts. The district court stayed the unjust enrichment claims under section 362(a)(3), thus permitting the trustee to pursue the contested funds and to stop PIEC's efforts to pursue those funds. The First Circuit affirmed, holding that the arguments the PIEC raised on appeal were not persuasive. View "Darr v. Plaintiffs' Interim Executive Committee" on Justia Law

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The First Circuit affirmed the judgment of the Title III court refusing to lift the automatic stay in PROMESA to allow the Municipality of Ponce to secure specific performance by the Commonwealth of Puerto Rico of public works projects required under a Puerto Rico Commonwealth court judgment, holding that the Title III court did not plainly abuse its discretion. In 2017, the Commonwealth filed a petition for debt adjustment relief under Title III of the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), 48 U.S.C. 2101-2241. In 2018, Ponce moved for relief from the automatic stay to secure specific performance by the Commonwealth of public works projects required under a Puerto Rico Commonwealth court judgment. The Title III court refused to lift the automatic stay. The First Circuit affirmed, holding that where Ponce essentially sought priority over the claims of other communities and creditors of the Commonwealth, the Title III court clearly did not abuse its discretion in declining to give Ponce this priority. View "Autonomous Municipality of Ponce v. Commonwealth of Puerto Rico" on Justia Law

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In this PROMESA action the First Circuit affirmed in part and vacated in part the decision of the the lower court denying Plaintiffs' petition for relief from an automatic stay of collection actions against the Commonwealth of Puerto Rico to allow them to bring an enforcement action against the Commonwealth, holding that remand was required to determine whether the contested funds were Plaintiffs'. Plaintiffs, motor vehicle owners and operators who paid duplicate premiums to the Commonwealth in accordance with the Commonwealth's compulsory automobile-insurance law, entered into a settlement agreement pursuant to which the Commonwealth agreed to establish a notice and claim-resolution process for the motorists. Thereafter, the Financial Oversight and Management Board for Puerto Rico initiated Title III debt-adjustment proceedings on behalf of the Commonwealth pursuant to the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), triggering an automatic stay of collection actions against the Commonwealth. The Commonwealth subsequently halted its implementation of the settlement agreement's notice and claim resolution process. Plaintiffs unsuccessfully petitioned the Title III court for relief from the automatic stay. The First Circuit remanded the case, holding that the Title III court abused its discretion by not first addressing Plaintiffs' claim that the contested funds were their personal property and were merely being held in trust by the Commonwealth. View "Gracia-Gracia v. Commonwealth of Puerto Rico" on Justia Law

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The First Circuit affirmed the decision of the bankruptcy court dismissing an involuntary bankruptcy petition filed by one bank and joined by another against Defendant, a licensed plastic surgeon, holding that dismissal of the involuntary petition was proper because the Banks failed to meet the requirement that there be at least three petitioning creditors under 11 U.S.C. 303(b)(1). Under section 303(b), fewer than three petitioning creditors cannot force a debtor into bankruptcy unless the debtor has fewer than twelve creditors in total. The bankruptcy court granted Defendant's motion for summary judgment, concluding that Defendant had fifteen qualified creditors at the time the involuntary petition was filed and that the court did not have the equitable power to override the provisions of section 303(b)(1). The First Circuit affirmed, holding that the bankruptcy court did not err by (1) not placing on Defendant the burden of proving that he had twelve or more eligible creditors; (2) not finding that the Banks presented evidence sufficient to show that Defendant did not have twelve or more eligible creditors; and (3) not employing equitable discretion to allow the petition. View "Banco Popular de Puerto Rico v. Reyes-Colon" on Justia Law

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The First Circuit affirmed the decision of the district court dismissing the complaint brought by the plan administrator of R&G Financial Corporation (Administrator) alleging that negligence and breach of fiduciary duties owed to R&G Financial (the Holding Company) caused the failure of R-G Premier Bank of Puerto Rico (the Bank) and the Holding Company's resultant loss of its investment in the Bank, holding that the complaint must be dismissed because the claims the Administrator asserted for the Holding Company were the Federal Deposit Insurance Corporation's (FDIC) under 12 U.S.C. 1821(d)(2)(A). R&G Financial entered Chapter 11 bankruptcy after the Bank, its primary subsidiary, failed. Previously, Puerto Rican regulators had closed the Bank and named the FDIC as the Bank's receiver. After the Bank failed, the Administrator filed this suit against six of the Holding Company's former directors and officers and their insurer. The FDIC intervened. The district court dismissed the complaint. The First Circuit affirmed on different grounds, holding that, under section 1821(d)(2)(A), the FDIC succeeded to the Administrator's claims. View "Zucker v. Rodriguez" on Justia Law

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The First Circuit affirmed the decision of the district court dismissing Appellants' amended complaint in an adversary proceeding arising within the debt adjustment proceeding that the Financial Oversight and Management Board (Board) commenced on behalf of the Puerto Rico Highway and Transportation Authority (PRHTA) under Title III of the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), 48 U.S.C. 2161-2177, holding that Appellants were not entitled to the relief they sought. Appellants were financial guarantee insurers that had insured bonds from PRHTA. After the enactment of PROMESA, the Board certified a financial plan by which the PRHTA pledged special revenues to be diverted into the general revenues of Puerto Rico. Payments to the PRHTA bondholders continued, but after the PRHTA defaulted on a scheduled bond payment, the funds ceased to be distributed. Appellants initiated adversary proceedings claiming, among other things, that sections 922(d) and 928 of the Bankruptcy Code required PRHTA to remit payment of special revenues to bondholders during the pendency of the Title III proceedings. The district court dismissed the complaint. The First Circuit affirmed, holding that sections 922(d) and 928(a) permit, but do not require, continued payment during the pendency of the bankruptcy proceedings, and therefore, the district court properly dismissed the complaint. View "Assured Guaranty Corp. v. Commonwealth of Puerto Rico" on Justia Law

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The First Circuit reversed the order of the district court ruling that the automatic stay provision of the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) did not apply to proceedings to determine the amount of federal court-ordered payments that the Commonwealth owed to several federally qualified health centers (FQHCs) per a 2010 injunction, holding that the automatic stay applied in this case. In 2003, several FQHCs sought to enjoin the Secretary of the Department of Health of Puerto Rico from failing to reimburse them for their reasonable costs of providing services to Medicaid patients. In 2018, the Commonwealth filed a motion notifying the district court that the Commonwealth had filed for bankruptcy under Title III of PROMESA and, therefore, the litigation was subject to the automatic stay. The district court ruled that the automatic stay did not apply. The First Circuit reversed, holding that certain provisions of PROMESA did not preclude the automatic stay’s application in this case. View "Migrant Health Center, Inc. v. Commonwealth of Puerto Rico" on Justia Law