Justia Bankruptcy Opinion Summaries

Articles Posted in US Court of Appeals for the Ninth Circuit
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Appellant a Chapter 7 debtor, was disbarred by the California Supreme Court in 2014 for violations of the State Bar Rules of Professional Conduct and the California Business and Professions Code. The California Supreme Court ordered Appellant to pay restitution to 56 former clients, costs for his disciplinary proceedings, and any funds that would eventually be paid out by the State Bar’s Client Security Fund (CSF) to victims of his conduct. Appellant subsequently filed for Chapter 7 bankruptcy and received a discharge.   The Ninth Circuit affirmed in part and reversed in part the bankruptcy court’s judgment. Reversing in part, the court held that the indebtedness arising from the attorney’s obligation to reimburse the State Bar for the payments made to victims of his misconduct was not excepted from discharge under 11 U.S.C. Section 523(a)(7), which provides that a debtor is not discharged from any debt that “is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss.” Considering the totality of the Client Security Fund program, the court concluded that any reimbursement to the Fund was payable to and for the benefit of the State Bar and was compensation for the Fund’s actual pecuniary loss in compensating the victims for their actual pecuniary losses. Affirming in part the court held that, pursuant to In re Findley, 593 F.3d 1048 (9th Cir. 2010), the costs associated with the attorney’s disciplinary proceedings were nondischargeable under Section 523(a)(7). View "ANTHONY KASSAS V. STATE BAR OF CALIFORNIA" on Justia Law

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Appellant defaulted under her Chapter 11 bankruptcy plan by refusing to pay Appellee Bank of New York Mellon (Bank of NYM) after she lost her adversary proceeding challenging the bank’s secured claim. As a result, the bankruptcy court granted Bank of NYM’s motion to convert the bankruptcy case from Chapter 11 to Chapter 7 and ordered Appellant to turn over undistributed assets in her possession to the Chapter 7 bankruptcy estate. Appellant challenged these two decisions in separate appeals.   The Ninth Circuit affirmed the bankruptcy court’s orders converting Appellant’s bankruptcy case from Chapter 11 to Chapter 7 and ordering her to turn over undistributed assets in her possession to the Chapter 7 bankruptcy estate. The court held the bankruptcy court properly exercised its discretion in converting the case to Chapter 7 for cause under 11 U.S.C. Section 1112(b)(1). The court held that the party seeking relief under Section 1112(b)(1) has the initial burden of persuasion to establish that cause exists for granting such relief. The court held that failing to make required payments can be a material default of a Chapter 11 plan, even if the debtor has made payments for an extended period before the default or taken other significant steps to perform the plan. The court concluded that the bankruptcy court did not err in finding that Appellant’s default in paying Bank of New York Mellon’s secured claim was cause for conversion because both the amount and duration of this default were significant. View "ALLANA BARONI V. DAVID SEROR" on Justia Law

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Plaintiffs alleged that the energy companies’ extraction of fossil fuels and other activities were a substantial factor in causing global warming and a rise in the sea level, bringing causes of action for public and private nuisance, strict liability, strict liability, negligence, negligent failure to warn, and trespass.The court held that the district court lacked federal question jurisdiction under Sec. 1331 because, at the time of removal, the complaints asserted only state-law tort claims against the energy companies. The court held that Plaintiffs’ global-warming claims did not fall within the Grable exception to the well-pleaded complaint rule. In addition, Plaintiffs’ state law claims did not fall under the “artful-pleading” doctrine, another exception to the well-pleaded complaint rule, because they were not completely preempted by the Clean Air Act.Further, the court found Plaintiffs’ claims were not removable under the Outer Continental Shelf Lands Act. The court also held that the district court did not have subject matter jurisdiction under the federal-officer removal statute, Sec. 1442(a)(1), because the energy companies were not “acting under” a federal officer’s directions. The court then rejected the energy companies’ argument that the district court had removal jurisdiction over the complaints under Sec. 1452(a) because they were related to bankruptcy cases involving Peabody Energy Corp., Arch Coal, and Texaco, Inc. Finally, the court held that the district court did not have admiralty jurisdiction because maritime claims brought in state court are not removable to federal court absent an independent jurisdictional basis. View "COUNTY OF SAN MATEO V. CHEVRON CORP." on Justia Law

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The Ninth Circuit reversed the district court's denial of debtor's motion for leave to appeal the bankruptcy court's order denying without prejudice a creditor's request for relief from the automatic stay. In Ritzen Group, Inc. v. Jackson Masonry, LLC, 140 S. Ct. 582 (2020), the Supreme Court addressed the finality of a bankruptcy court order denying a creditor's request for relief from the automatic stay. The panel concluded that, under the circumstances presented here and the considerations set forth in Ritzen and court precedent, the bankruptcy court's order was final and appealable because the bankruptcy court's denial of the creditor's motion conclusively resolved the request for stay relief. View "Harrington v. Mayer" on Justia Law

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The Ninth Circuit reversed the district court's decision reversing the bankruptcy court's order allowing creditor's claim in the bankruptcy proceedings of Rejuvi, a chapter 11 debtor. Creditor seeks recognition and enforcement of a default money judgment for personal injuries against Rejuvi granted by an Australian district court. The panel held that Rejuvi waived any objection to personal jurisdiction by voluntarily appearing in the South Australian district court when it sought relief from the default judgment. Accordingly, the panel remanded to the district court for further proceedings. The panel granted creditor's motion to take judicial notice of Rules 230 and 242 of the 2006 Civil Rules of the District Court of South Australia. View "Corso v. Rejuvi Laboratory, Inc." on Justia Law

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Sienega failed to file required California state income tax returns in the 1990-1992, and 1996 tax years. The IRS made upward adjustments in Sienega’s federal tax liability for those years. For each of the four tax years, Sienega’s counsel faxed to California's Franchise Tax Board (FTB) a cover sheet and IRS Form 4549-A, listing the adjustments to Sienega’s income, the corrected taxable income and tax liability, interest, and penalties. The FTB issued a notice of proposed assessment for each tax year; each stated that the FTB had “no record of receiving [Sienega’s] personal income tax return.” The notices proposed to assess state taxes based upon the federal audit report and specified that if Sienega disagreed with any of the calculations, he would need to submit a formal protest. Sienega did not file any belated tax returns or protests. The assessments became final in 2009. In 2014, Sienega filed a bankruptcy petition. The FTB filed am adversary complaint seeking to have Sienega’s outstanding state tax debts declared nondischargeable under 11 U.S.C. 523(a)(1)(B), based on the fact that he had not filed a formal state tax return in any of the relevant years. Sienega contended that he had filed state tax returns by faxing information about the adjustments.The bankruptcy court granted the FTB summary judgment. The Bankruptcy Appellate Panel and Ninth Circuit affirmed. The faxes did not constitute a return under the “hanging paragraph” in section 523(a) because the California state law process with which his faxes complied was not “similar” to 26 U.S.C. 6020(a), which authorizes the IRS to prepare a tax return when a taxpayer does not. View "Sienega v. State of California Franchise Tax Board" on Justia Law

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The IRS recorded liens for unpaid taxes, interest, and penalties against the debtors’ residence. After debtors filed for bankruptcy, the IRS filed a proof of claim. The portion of the claim that was secured by liens on the residence and attributable only to penalties was $162,000. The debtors filed an adversary proceeding, asserting that the IRS’s claim for penalties was subject to avoidance by the trustee and that because the trustee had not attempted to avoid this claim, debtors could do so under 11 U.S.C. 522(h). The trustee cross-claimed to avoid the liens and alleged their value should be recovered for the benefit of the bankruptcy estate.The bankruptcy court dismissed the adversary complaint. The trustee and the IRS agreed that the penalty portions of the liens were avoided under 11 U.S.C. 724(a). The Bankruptcy Appellate Panel and Ninth Circuit affirmed. Section 522(h) did not authorize the debtors to avoid the liens that secured the penalties claim to the extent of their $100,000 California law homestead exemption. Section 522(c)(2)(B), denies debtors the right to remove tax liens from their otherwise exempt property. Under 11 U.S.C. 551, a transfer that is avoided by the trustee under 724(a) is preserved for the benefit of the estate; this aspect of 551 is not overridden by 522(i)(2), which provides that property may be preserved for the benefit of the debtor to the extent of a homestead exemption. View "Hutchinson v. Internal Revenue Service" on Justia Law

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While their state suit against their mortgage service company was pending, the debtors filed for bankruptcy. On a schedule that asked about claims against third parties, they stated they had none. They listed the mortgage servicing company as a non-priority creditor and disclosed the lawsuit in their Statement of Financial Affairs. They discussed the state lawsuit with the bankruptcy trustee. The trustee determined there were no scheduled assets that would benefit the estate. The bankruptcy court discharged the trustee and closed the case. Later, the mortgage servicing company contacted the bankruptcy trustee, offering to settle the lawsuit. The trustee was reappointed, took over the state lawsuit, settled it, and got the settlement approved by both the state court and the bankruptcy court. The settlement proceeds went to the bankruptcy estate, not the debtors.The Bankruptcy Appellate Panel and Ninth Circuit affirmed. Under 11 U.S.C. 554(c), at the end of bankruptcy proceedings, property that has not been otherwise administered can generally be abandoned to the debtor only if it has been “scheduled.” Section 554(c) requires property to be disclosed on a literal schedule under 11 U.S.C. 521(a). Without trustee or court action, property disclosed only on a statement, such as a Statement of Financial Affairs, cannot be abandoned under section 554(c). The debtors did not meet the requirements of section 544(c), and their interest was not abandoned. View "Stevens v. Whitmore" on Justia Law

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Berkovich filed California state tax returns as required for 2003-2005. In 2008, the IRS assessed about $145,000 of additional federal income taxes against Berkovich for those years. He did not notify the California Franchise Tax Board (FTB) of the increased federal assessments as required. (Cal. Rev. & Tax Code 18622(a)). The FTB learned of the federal assessments from the IRS. It assessed Berkovich additional state income taxes, approximately $45,000 plus penalties and interest. Berkovich did not challenge the assessments nor pay the additional state taxes. In 2012, Berkovich filed a chapter 13 bankruptcy petition. After the bankruptcy discharge, the FTB filed a complaint, alleging that the state tax debts were nondischargeable under 11 U.S.C. 523(a)(1)(B)(i) because Berkovich failed to report the increased federal tax assessments to the FTB and failed to challenge the FTB’s notices of proposed tax assessment. The Bankruptcy Appellate Panel held that Berkovich’s tax debt was not discharged.The Ninth Circuit affirmed. Berkovich’s tax debt was not discharged in bankruptcy because the debt derived from a “report or notice” “equivalent” to a tax return. Section 523(a)(1)(B) provides that, if a taxpayer fails to file a required “return, or equivalent report or notice,” the relevant tax debt is not discharged. California law requires a taxpayer to “report” to the FTB if the IRS changes the taxpayer’s federal income tax liability. View "Berkovich v. California Franchise Tax Board" on Justia Law

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The Nichols filed a Chapter 13 bankruptcy petition and later were indicted on federal charges for their alleged participation in a scheme to defraud Marana Stockyard. To avoid disclosure of information that might compromise their position in the criminal proceedings, the Nicholses declined to complete steps required by the Bankruptcy Code to advance their case. They refused to hold a meeting with creditors, to file outstanding tax returns, or to propose an appropriate repayment plan. Marana, which had filed a claim in the Nicholses’ bankruptcy case, moved (11 U.S.C. 1307(c)) for the case to be converted to a Chapter 7 liquidation. The Nicholses unsuccessfully requested a stay of the bankruptcy case during the pendency of the criminal proceedings. The bankruptcy court determined that conversion to a Chapter 7 liquidation was justified by the Nicholses’ “unwarranted” delays and would have been proper, in the alternative, under section 1307(e), because the Nicholses failed to file tax returns for several years.The Nicholses did not comply with the bankruptcy court’s requirements but moved to dismiss voluntarily their bankruptcy case under section 1307(b). The Ninth Circuit’s Bankruptcy Appellate Panel affirmed the denial of the dismissal motion and conversion of the case. The Ninth Circuit reversed. A bankruptcy court may not invoke equitable considerations to contravene section 1307(b)’s express language fiving Chapter 13 debtors an absolute right to dismiss their case. View "Nichols v. Marana Stockyard & Livestock Market, Inc." on Justia Law