Justia Bankruptcy Opinion Summaries

Articles Posted in US Court of Appeals for the Second Circuit
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After plaintiff filed for Chapter 7 bankruptcy, the discharge order was ambiguous as to whether plaintiff's private educational loans were discharged. The lender maintains that 11 U.S.C. 523(a)(8)(A)(ii) prevented the loans from being discharged in plaintiff's bankruptcy.The Second Circuit affirmed the bankruptcy court's denial of the lender's motion to dismiss after concluding that section 523(a)(8)(A)(ii)—which excepts from discharge "an obligation to repay funds received as an educational benefit, scholarship, or stipend"—does not cover private student loans. View "Homaidan v. Sallie Mae, Inc." on Justia Law

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Debtors appealed the bankruptcy court's order rejecting their constitutional challenge to quarterly fees imposed during the pendency of their bankruptcy proceeding. Congress passed in 2017 an amendment to the statute setting forth quarterly fees in bankruptcy cases, 28 U.S.C. 1930. The 2017 Amendment increased quarterly fees in judicial districts in which the United States Trustee Program oversees bankruptcy administration (UST Districts). In 2020, Congress passed the Bankruptcy Administration Improvement Act of 2020, which requires that UST Districts and BA Districts, judicial districts in which judicially appointed bankruptcy administrators perform the same function, charge equal fees.The Second Circuit held that the 2017 Amendment is a bankruptcy law subject to the uniformity requirement of the Bankruptcy Clause. The court also held that, under the version of section 1930 in effect prior to the 2020 Act, the 2017 Amendment violated the uniformity requirement. In this case, the court concluded that debtors have standing to bring its constitutional challenge and to seek reimbursement because it filed for bankruptcy in a UST District prior to October 1, 2018; qualified for and paid a fee increase pursuant to the 2017 Amendment due to the size of its disbursements; and paid more than a similarly situated debtor (with the same filing date and disbursement size) would owe in a BA District, where the increased fee schedule had not yet been implemented by the Judicial Conference. The court explained that, prior to the 2020 Act, the 2017 Amendment was unconstitutionally nonuniform on its face because it mandated a fee increase in UST Districts but only permitted a fee increase in BA Districts. Accordingly, the court reversed the bankruptcy court's judgment and directed the bankruptcy court to provide debtors with a refund of the amount of quarterly fees paid in excess of the amount debtors would have paid in a BA District during the same time period. View "In re: Clinton Nurseries" on Justia Law

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The Second Circuit affirmed the district court's order affirming the bankruptcy court's denial of debtor's request to discharge her educational loans pursuant to 11 U.S.C. 523(a)(8). On appeal, debtor argues that she was deprived of due process because the bankruptcy court accepted the joint pretrial memorandum as agreed to and approved by all parties on July 31, 2018 and ultimately adopted it as the bankruptcy court's Pretrial Order, while declining to adopt other versions of the pretrial memorandum submitted unilaterally by debtor in the interim.The court held that the bankruptcy court did not abuse its discretion in basing its Pretrial Order on the joint pretrial memorandum edited by both parties; it was not an abuse of discretion to disallow debtor from unilaterally modifying that joint pretrial memorandum, as the interests of justice in this case did not so require; and debtor failed to make the factual showing to establish "undue hardship" under Brunner v. N.Y. State Higher Educ. Servs. Corp., 831 F.2d 395, 396 (2d Cir. 1987), in order to discharge her educational loans. View "Tingling v. Educational Credit Management Corp." on Justia Law

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The Second Circuit affirmed the district court's judgment affirming the bankruptcy court's order granting debtor's motion to avoid a judicial lien. Debtor seeks, pursuant to 11 U.S.C. 522(d)(1) and (f)(1)(A), to exempt her interest in, and avoid a judicial lien upon, a property that her dependent son uses as a non-primary residence.The court held that the term "residence" in the so-called homestead exemption of section 522(d)(1) includes both primary and nonprimary residences. In this case, the ordinary meaning of the word "residence" does not exclude non-primary residences. Furthermore, Congress's deliberate choice of terminology, the text of the statute, and the legislative history weigh in favor of the court's conclusion. View "Donovan v. Maresca" on Justia Law

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After the Bernie Madoff Ponzi scheme collapsed, Picard was appointed under the Securities Investor Protection Act, 15 U.S.C. 78aaa (SIPA), as the liquidation trustee for Bernard L. Madoff Investment Securities LLC (BLMIS). The Act established a priority system to make customers of failed brokerages whole before other general creditors. Where customer property is insufficient to satisfy customers' claims, the trustee may recover property transferred by the debtor that would have been customer property but for the transfer if and to the extent that the transfer is void or voidable under the Bankruptcy Code. 15 U.S.C. 78fff–2(c)(3). The provisions of the Bankruptcy Code apply only to the extent that they are consistent with SIPA.Picard attempted to recover transfers of money that the defendants had received from BLMIS in excess of their principal investments. The defendants are BLMIS customers who were unaware of the fraud but profited from it by receiving what they thought were legitimate profits; the funds were actually other customers' money. The Second Circuit affirmed summary judgment in favor of Picard. The Bankruptcy Code affirmative defense that permits a transferee who takes an interest of the debtor in property "for value and in good faith" to retain the transfer to the extent of the value given does not apply in this SIPA liquidation. The transfers were not "for value" and recovery would not violate the two-year limitation. View "In re: Bernard L. Madoff Investment Securities LLC" on Justia Law

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The Second Circuit affirmed the district court's judgment affirming the bankruptcy court's grant of defendants' motion to dismiss in an action arising out of the Chapter 11 bankruptcy of Lehman Brothers Holdings Inc. The bankruptcy court held that, in the context of synthetic collateralized debt obligations, certain "Priority Provisions" that subordinated LBSF's payment priority to claims of the Noteholder defendants are enforceable by virtue of section 560 of the Bankruptcy Code, which exempts "swap agreements" from the Code's prohibition of "ipso facto clauses."Like the district court, the court held that, even if the Priority Provisions were ipso facto clauses, their enforcement was nevertheless permissible under the section 560 safe harbor. The court explained that the Priority Provisions are incorporated by reference into the swap agreements and thus, for the purposes of section 560, are considered to be part of a swap agreement; the contractual right to liquidate included distributions made pursuant to Noteholder priority; the Trustees exercised a contractual right to effect liquidation when they distributed the proceeds of the sold Collateral; and, in doing so, the Trustees exercised the rights of a swap participant. Because the Priority of Payments clauses are enforceable under the Code, the court held that LBSF's state-law claims also fail. Finally, the district court and bankruptcy court correctly concluded that LBSF is not entitled to declaratory relief. View "Lehman Brothers Special Financing Inc. v. Bank of America N.A." on Justia Law

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The Second Circuit affirmed the bankruptcy court's order capping appellant's claim for certain incentive payments promised by his former employer pursuant to 11 U.S.C. 502(b)(7), which limits employee claims for damages "resulting from the termination of an employment contract."The court held that appellant's right to receive the payments was accelerated as a result of his termination, and thus section 502(b)(7) applied to his claim. In this case, pursuant to appellant's contract, portions of the incentive bonuses were not in fact due prior to termination, but were accelerated as the contract expressly provides. Therefore, the court held that the plain language of section 502(b)(7) requires that the court apply it to cap appellant's claim for accelerated payments. View "In Re: 21st Century Oncology Holdings, Inc." on Justia Law

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Violation of a bankruptcy court discharge order is not an arbitrable dispute. The Second Circuit affirmed the district court's order denying appellants' motions to compel arbitration of a dispute with two debtors who previously held credit card accounts managed by appellants. Appellants argued that debtors were obliged to arbitrate the dispute concerning whether appellants violated the bankruptcy court's discharge orders when they failed to correct the status of debtors' credit card debt on their credit reports.Though the text and history of the Bankruptcy Code are ambiguous as to whether Congress intended to displace the Federal Arbitration Act in this context, the court held that circuit precedent is clear that the two statutes are in inherent conflict on this issue. In Anderson v. Credit One Bank, N.A., 884 F.3d 382 (2d Cir.), cert. denied, 139 S. Ct. 144 (2018), the court refused to enforce the parties' arbitration agreement, finding that Congress did not intend for disputes over the violation of a discharge order to be arbitrable. View "Belton v. GE Capital Retail Bank" on Justia Law

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The Second Circuit affirmed the district court's decision vacating the bankruptcy court's determination concerning whether General Motors assumed liability, through a judicial admission, for claims like appellant's. Appellant filed a wrongful death lawsuit against New GM after his wife was involved in an accident that left her incapacitated. She was driving a 2004 Pontiac Grand Am, a vehicle manufactured by Old GM, which allegedly had a faulty ignition switch.The Second Circuit held that for a statement to constitute a judicial admission, it must be intentional, clear, and unambiguous. In this case, the court held that the inadvertent inclusion of language from an outdated, non-operative version of a sale agreement was not intentional, clear, and unambiguous, and thus was not a judicial admission. Therefore, General Motors was not bound by the language. View "In re Motors Liquidation Co. (Pillars)" on Justia Law

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Representatives of certain unsecured creditors of the Chapter 11 debtor Tribune Company appealed the district court's grant of a motion to dismiss their state law, constructive fraudulent conveyance claims brought against Tribune's former shareholders. The district court held that appellants lacked statutory standing under the Bankruptcy Code.The Second Circuit affirmed the dismissal of appellants' state law, constructive fraudulent conveyance claims on preemption grounds rather than standing grounds. The court held that appellants were not barred by the Bankruptcy Code's automatic stay provision from bringing claims while avoidance proceedings against the same transfers brought by a party exercising the powers of a bankruptcy trustee on an intentional fraud theory are ongoing, because appellants have been freed from its restrictions by orders of the bankruptcy court and by debtors' confirmed reorganization plan. However, the court held that appellants' claims were preempted by section 546(e) of the Bankruptcy Code, because this section shields certain transactions from a bankruptcy trustee's avoidance powers, including, inter alia, transfers by or to a financial institution in connection with a securities contract, except through an intentional fraudulent conveyance claim. View "In re: Tribune Company Fraudulent Conveyance Litigation" on Justia Law