Justia Bankruptcy Opinion Summaries

Jorden Marie Saldana voluntarily filed for Chapter 13 bankruptcy to reorganize her finances and seek relief from unpaid taxes and other unsecured debts. In calculating her disposable income, she excluded her voluntary contributions to employer-managed retirement plans. The Chapter 13 Trustee objected to Saldana’s plan, arguing that these contributions should be included in her disposable income. Saldana filed several amended plans, but the Trustee continued to object, leading to a confirmation hearing.The Bankruptcy Court for the Northern District of California sustained the Trustee’s objection, finding that voluntary retirement contributions are disposable income in a Chapter 13 bankruptcy, based on the Bankruptcy Appellate Panel for the Ninth Circuit’s decision in Parks v. Drummond. Saldana then filed an amended plan excluding only her retirement loan repayments, which the bankruptcy court confirmed. Saldana appealed the confirmation order and the earlier order sustaining the Trustee’s objection to the district court.The United States District Court for the Northern District of California affirmed the bankruptcy court’s decision, agreeing that voluntary retirement contributions are disposable income. Saldana then appealed to the United States Court of Appeals for the Ninth Circuit.The Ninth Circuit reversed the district court’s judgment, holding that voluntary contributions to employer-managed retirement plans do not constitute disposable income in a Chapter 13 bankruptcy. The court concluded that the plain language of 11 U.S.C. § 541(b)(7) allows debtors to exclude any amount of their voluntary retirement contributions from their disposable income calculation. The court found this interpretation consistent with the canons of statutory construction and the conclusions of the majority of bankruptcy courts that have considered this issue. The case was remanded for further proceedings consistent with this opinion. View "SALDANA V. BRONITSKY" on Justia Law

Rose Court, LLC's predecessor defaulted on a mortgage loan secured by real property. Rose Court filed and voluntarily dismissed multiple lawsuits in state and federal courts challenging the lender's foreclosure efforts. After the foreclosure sale, Rose Court initiated an adversary proceeding in bankruptcy court against U.S. Bank, Select Portfolio Servicing, Inc. (SPS), and Quality Loan Service Corporation (Quality), alleging fraudulent transfer of the property.The bankruptcy court dismissed Rose Court's claims and denied its motion to amend the complaint to assert a fraud-based wrongful-foreclosure claim, citing the two-dismissal rule under Federal Rule of Civil Procedure 41(a)(1)(B). This rule applies when a plaintiff voluntarily dismisses the same claim twice, making any subsequent dismissal an adjudication on the merits. The court found that Rose Court had previously dismissed similar claims in state and federal court actions.The United States District Court for the Northern District of California affirmed the bankruptcy court's decision. Rose Court then appealed to the United States Court of Appeals for the Ninth Circuit, challenging the denial of leave to amend.The Ninth Circuit affirmed the district court's order. The court held that the two-dismissal rule barred Rose Court from asserting the same fraud-based wrongful-foreclosure claim for a third time. The court adopted a transactional approach, determining that a subsequent claim is the same as a previously dismissed claim if it arises from the same set of facts. The court also declined to address Rose Court's new argument, raised for the first time on appeal, that it should be allowed to amend to assert a new wrongful-foreclosure claim based on interference with its right to reinstate the loan. View "ROSE COURT, LLC V. SELECT PORTFOLIO SERVICING, INC." on Justia Law

Jason Powell filed a Chapter 13 bankruptcy petition, certifying that he met the eligibility requirements. TICO Construction Company, a creditor, opposed the dismissal of Powell’s case and moved to convert it to a different chapter, arguing that Powell was ineligible for Chapter 13 relief and had filed in bad faith. The bankruptcy court granted Powell’s motion to dismiss without resolving TICO’s eligibility challenge.The Bankruptcy Appellate Panel (BAP) affirmed the bankruptcy court’s decision, holding that Powell had an absolute right to dismiss his Chapter 13 case under 11 U.S.C. § 1307(b), as interpreted by Nichols v. Marana Stockyard & Livestock Mkt., Inc. (In re Nichols). The BAP also noted that the bankruptcy court had other tools to address potential abuse, such as imposing conditions on dismissal.The United States Court of Appeals for the Ninth Circuit reviewed the case and affirmed the BAP’s decision. The court held that under the plain text of § 1307(b), a debtor has an absolute right to dismiss a Chapter 13 case if the case has not been converted to another chapter. The court rejected TICO’s argument that the bankruptcy court must determine a debtor’s eligibility before granting a dismissal request. The court explained that a debtor’s certification of eligibility in the petition presumptively establishes that the debtor may be a debtor under Chapter 13, and the filing of the petition commences a Chapter 13 case under 11 U.S.C. § 301(a).The Ninth Circuit concluded that the bankruptcy court correctly dismissed Powell’s Chapter 13 case without further inquiry into his eligibility, affirming that Powell had an absolute right to dismiss under § 1307(b). View "IN RE: POWELL V. VAN METER" on Justia Law

The case involves International Petroleum Products and Additives Company (IPAC), a California-based company, which entered into sales and distribution agreements with Black Gold S.A.R.L., a Monaco-based company. Black Gold breached these agreements by using IPAC’s confidential information to develop competing products. IPAC won an arbitration award of over $1 million against Black Gold. However, Black Gold declared bankruptcy in Monaco, complicating IPAC’s efforts to collect the award.The United States District Court for the Northern District of California confirmed the arbitration award and entered judgment against Black Gold. During post-judgment discovery, Black Gold engaged in misconduct, leading the district court to sanction Black Gold and add Lorenzo and Sofia Napoleoni, Black Gold’s owners, as judgment debtors on the grounds that they were Black Gold’s alter egos. Black Gold’s petition for recognition of its Monaco bankruptcy proceedings was initially denied by the bankruptcy court, but this decision was later reversed by the Bankruptcy Appellate Panel (BAP), which mandated recognition of the Monaco proceedings.The United States Court of Appeals for the Ninth Circuit reviewed the case. The court held that the automatic bankruptcy stay under 11 U.S.C. § 1520 did not retroactively apply to the date of the bankruptcy court’s initial denial of Black Gold’s petition. The court also held that the automatic stay did not extend to IPAC’s alter ego claim against the Napoleonis. The court affirmed the district court’s judgment and the award of attorneys’ fees and costs in favor of IPAC, concluding that the alter ego claim was not the property of Black Gold’s estate under California law. View "International Petroleum Products and Additives Co, Inc. v. Black Gold S.A.R.L." on Justia Law

Debbie O'Gorman, facing foreclosure by creditor Grant Reynolds, transferred her property to the Lovering Tubbs Trust for no consideration. This transfer was intended to hinder Reynolds' foreclosure efforts. The Lovering Tubbs Trust and other entities involved in the transfer argued that the Chapter 7 Trustee lacked Article III standing to bring a claim under 11 U.S.C. § 548 because O'Gorman's creditors were not harmed by the transfer.The Bankruptcy Court granted summary judgment to the Trustee, finding that O'Gorman's transfer was fraudulent under § 548(a)(1)(A). The Bankruptcy Appellate Panel (BAP) affirmed this decision, noting that the Trustee had established a prima facie case of fraudulent transfer and that the appellants failed to present any admissible evidence to create a genuine dispute of material fact.The United States Court of Appeals for the Ninth Circuit affirmed the BAP's decision. The court held that the Trustee had Article III standing because the transfer depleted the estate's assets, causing an injury-in-fact that was redressable by the avoidance sought. The court also clarified that actual harm to creditors is not an element of a fraudulent transfer claim under § 548. The court found that the bankruptcy court properly granted summary judgment, as the Trustee provided direct and circumstantial evidence of O'Gorman's fraudulent intent, and the appellants failed to present any evidence to dispute this.The Ninth Circuit also upheld the bankruptcy court's denial of the appellants' request for a continuance to conduct discovery, noting that the appellants did not comply with the requirements of Rule 56(d) by failing to submit an affidavit or declaration specifying the facts they hoped to elicit through further discovery. The court concluded that the bankruptcy court did not abuse its discretion in this regard. View "IN RE: THE LOVERING TUBBS TRUST V. HOFFMAN" on Justia Law

The case involves Michael Leite and Andrea Carvalho, who filed for Chapter 7 bankruptcy in 2019. The IRS had a federal tax lien on their property for unpaid taxes from 2009, totaling $81,174.13, which included $45,938.99 in taxes and interest, and $24,991.14 in penalties. The property was sold, netting $38,640.80. The Bankruptcy Trustee sought to avoid the penalty portion of the lien under 11 U.S.C. § 724(a) and proposed a pro rata allocation of the sale proceeds between the IRS and the Bankruptcy Estate.The Bankruptcy Court allocated the proceeds on a pro rata basis, reasoning that the IRS and the Estate shared the same lien priority after the penalty portion was avoided. The District Court affirmed this decision, holding that the bankruptcy court had the authority to apply the pro rata method under its equitable powers in 11 U.S.C. § 105(a), and that this method was not inconsistent with the Bankruptcy Code.The United States Court of Appeals for the Ninth Circuit reviewed the case and reversed the District Court's order. The Ninth Circuit held that the pro rata method was inconsistent with the Bankruptcy Code. The court found that the pro rata method improperly reduced the value of the unavoidable tax portion of the lien and disturbed the Code’s order of priorities. The court emphasized that the Bankruptcy Code prioritizes tax claims over penalty claims and that the pro rata method violated the express limitations of 11 U.S.C. §§ 724(a) and 551.The Ninth Circuit remanded the case to the District Court with instructions to further remand to the Bankruptcy Court to determine the final allocation amounts using a tax-first method. This method requires that the sale proceeds first pay the unavoidable tax portion of the lien before any payment to the Estate for the avoided penalty portion. View "IN RE: USA V. MACKENZIE" on Justia Law

The case involves EPD Investment Co., LLC (EPD) and its owner, Jerrold S. Pressman, who were found to have operated a Ponzi scheme. EPD was forced into Chapter 7 bankruptcy by its creditors, and the Trustee, Jason M. Rund, filed an adversary proceeding against Poshow Ann Kirkland and her husband, John Kirkland, seeking to avoid fraudulent transfers made by EPD to John. John had assigned his interest in EPD to the Bright Conscience Trust, for which Ann is the trustee.The United States District Court for the Central District of California bifurcated the trial, separating the claims against John and Ann. A jury trial was conducted for the claims against John, resulting in a verdict that EPD was a Ponzi scheme but that John received payments in good faith and for reasonably equivalent value. The bankruptcy court ruled that the jury's findings would be binding in the Trustee's claims against Ann. Ann appealed the judgment, particularly challenging the jury's finding that EPD was a Ponzi scheme.The United States Court of Appeals for the Ninth Circuit reviewed the case. The court held that Ann had standing to appeal due to her significant involvement in the case and her interest in the issues presented. The court rejected Ann's argument that the district court erred by not including a mens rea instruction requiring the jury to find that Pressman knew he was operating a Ponzi scheme that would eventually collapse. The court held that fraudulent intent could be inferred from the existence of a Ponzi scheme established through objective criteria. The court also rejected Ann's argument that the district court erred by instructing the jury that lenders are investors for purposes of a Ponzi scheme.The Ninth Circuit affirmed the district court's order affirming the judgment of the bankruptcy court and remanded the case for further proceedings. View "In re: EPD INVESTMENT COMPANY V. KIRKLAND" on Justia Law

An attorney, Jeffrey Cogan, filed a federal lawsuit challenging an Arizona state court judgment against him for malicious prosecution. The state court judgment arose from Cogan's actions during a federal bankruptcy proceeding involving Arnaldo Trabucco. Cogan sought a declaration that the state court lacked jurisdiction over the malicious prosecution claim because it involved conduct exclusively within federal jurisdiction.The Arizona state court had granted partial summary judgment against Cogan, finding him liable for malicious prosecution and awarding $8 million in damages. Cogan appealed, and the Arizona Court of Appeals affirmed the liability finding but vacated the damages award, remanding for a new trial on damages. Cogan then filed the federal lawsuit before the retrial, arguing that the state court lacked jurisdiction. The district court dismissed Cogan's federal complaint under the Rooker-Feldman doctrine, which bars federal courts from reviewing state court judgments.The United States Court of Appeals for the Ninth Circuit reviewed the case. The court held that the Rooker-Feldman doctrine did not apply because the malicious prosecution claim was completely preempted by federal law, falling within the exclusive jurisdiction of the federal courts. The court reasoned that state courts lack jurisdiction over malicious prosecution claims arising from federal bankruptcy proceedings, as established in MSR Exploration, Ltd. v. Meridian Oil, Inc. Therefore, the state court judgment was subject to collateral attack in federal court.The Ninth Circuit reversed the district court's dismissal and remanded the case for further proceedings, allowing Cogan's challenge to the state court judgment to proceed in federal court. View "COGAN V. TRABUCCO" on Justia Law

Timothy Blixseth, a debtor, faced an involuntary bankruptcy petition filed by the State of Montana Department of Revenue (State) along with other state tax agencies. The bankruptcy court dismissed the petition, finding the State's claim was subject to a bona fide dispute. Blixseth then filed an adversary proceeding under 11 U.S.C. § 303(i) seeking costs and damages from the State for the dismissed petition.The bankruptcy court denied the State's motion to dismiss the adversary proceeding, ruling that the State had waived its sovereign immunity by filing the involuntary petition and through statements made by its counsel. The State appealed to the Bankruptcy Appellate Panel (BAP), which dismissed the appeal, stating that the collateral order doctrine did not apply.The United States Court of Appeals for the Ninth Circuit reviewed the case and reversed the BAP's dismissal, holding that the collateral order doctrine did apply, allowing for immediate appeal. The Ninth Circuit also reversed the bankruptcy court's denial of sovereign immunity. The court held that the State did not waive its sovereign immunity by filing the involuntary petition or through its counsel's statements. Additionally, the court found that 11 U.S.C. § 106, which addresses sovereign immunity in bankruptcy proceedings, was unconstitutional.Applying the analysis from Central Va. Cmty. Coll. v. Katz, the Ninth Circuit concluded that Blixseth's § 303(i) claim was not necessary to effectuate the bankruptcy court's in rem jurisdiction. The court determined that the adversary proceeding did not further the core functions of bankruptcy jurisdiction, such as the equitable distribution of the debtor's property or the debtor's fresh start. Consequently, the Ninth Circuit reversed the bankruptcy court's denial of sovereign immunity and remanded with instructions to dismiss Blixseth's § 303(i) claim against the State. View "Montana Department of Revenue v. Blixseth" on Justia Law

The case involves debtors who filed a Chapter 11 bankruptcy petition, claiming a homestead exemption for their residence. They listed the exemption as "100% of FMV" (fair market value) on their bankruptcy schedule. No party in interest objected to this exemption within the 30-day period following the creditors' meeting. Later, the case was converted to Chapter 7 after one of the debtors passed away and the remaining debtor failed to meet Chapter 11 obligations. The Chapter 7 trustee sought to sell the residence, arguing that the exemption should be limited to the statutory cap.The Bankruptcy Court for the Eastern District of Washington ruled that the homestead exemption was limited to the statutory cap of $45,950, with the remaining value of the home belonging to the bankruptcy estate. The debtor appealed, and the Bankruptcy Appellate Panel (BAP) reversed the bankruptcy court's decision. The BAP held that because no objection was made within the 30-day period, the debtor was entitled to the full fair market value of the home, not limited by the statutory cap.The United States Court of Appeals for the Ninth Circuit reviewed the case. The court distinguished this case from Taylor v. Freeland & Kronz and Schwab v. Reilly, noting that the case began as a Chapter 11 bankruptcy, where the debtors owed fiduciary duties to their creditors. The court emphasized that within the 30-day objection period, the debtors made specific representations in their Chapter 11 documents indicating that they were not claiming an above-limit exemption and that creditors would be paid in full before any above-limit exemptions were allowed.The Ninth Circuit held that the initial failure to object did not mean the debtor could exempt more than the statutory limit. The court concluded that the homestead exemption was limited to the statutory cap, and the remaining proceeds from the sale of the home were part of the bankruptcy estate. The decision of the BAP was reversed, and the case was remanded for further proceedings consistent with this opinion. View "IN RE: MASINGALE" on Justia Law