Justia Bankruptcy Opinion Summaries

Articles Posted in US Court of Appeals for the Second Circuit
by
Appellant appealed from a judgment of the district court affirming an order of the bankruptcy court denying the Appellant’s statutory discharge under 11 U.S.C. Section 727(a)(2). Appellant argued that the bankruptcy court erred by finding that he had an interest in Soroban, Inc., that was concealed to hinder creditors, and, in the alternative, that denying discharge was improper because the concealment began prior to the statutory one-year period set forth in Section 727(a)(2)(A).   The Second Circuit affirmed, holding that the bankruptcy court did not err in finding that Appellant had a valid interest in Soroban that was concealed to hinder creditors, and properly denied the discharge because the acts of concealment continued throughout the one-year period prior to his filing the bankruptcy petition. The court explained that the record evidence fully supports the bankruptcy court’s findings that Appellant concealed his interest in Soroban, and that the concealment was done with an intent to hinder his creditors. View "Gasson v. Premier Capital, LLC" on Justia Law

by
Appellee held a 99% interest in 72 Grandview LLC, which in turn owned a residential property that Appellee occupied as her primary residence. Appellant Bayview Loan Servicing LLC  (“Bayview”) initiated a foreclosure action in which both 72 Grandview LLC and Appellee were named as defendants. After Bayview obtained a judgment that authorized it to proceed with a foreclosure sale, Appellee a Chapter 7 bankruptcy petition and notified Bayview that, in her view, proceeding with the foreclosure sale would violate the automatic stay that took effect when she filed her bankruptcy petition. Nonetheless, Bayview proceeded with the foreclosure sale without relief from the automatic stay from the bankruptcy court.   Appellee then sought sanctions against Bayview, arguing that Bayview willfully violated the automatic stay. The bankruptcy court denied Appellee’s motion, but the district court reversed that decision and remanded for the calculation of fees and other damages that would be charged as sanctions.   Bayview appealed and the Second Circuit affirmed the district court’s order. The court held that two of the Bankruptcy Code’s automatic stay provisions, 11 U.S.C. Sections 362(a)(1) and (a)(2), are violated by an entity that proceeds with the foreclosure sale of a property when the debtor is a named party in the foreclosure proceedings, even if the debtor holds only a possessory interest in the property. Bayview willfully violated the automatic stay when it proceeded with the foreclosure sale while knowing that Appellee had filed a bankruptcy petition. View "In re: Eileen Fogarty" on Justia Law

by
Plaintiffs owned a home in Ontario County, New York. Following foreclosure, the couple filed for protection under Chapter 13 of the Bankruptcy Code and filed a complaint seeking to avoid the loss of their home on the grounds that it was a fraudulent conveyance. The Bankruptcy Court set aside the transfer, and the County appealed, raising two questions. The first is whether the Plaintiffs had standing to bring the avoidance proceeding. The second is whether the transfer effected by Ontario County in foreclosing on the lien was entitled to the presumption of having yielded “reasonably equivalent value” under Section 548 of the Bankruptcy Code.   The Second Circuit affirmed the district court’s judgment finding that the district court correctly held that the transfer of Plaintiffs’ home to the County was not entitled to the presumption of having provided “reasonably equivalent value” under Section 548.   The court explained that the County incorrectly interprets Section 522(c)(2)(B) as barring Plaintiffs from claiming the federal homestead exemption when it merely provides that exempt property remains liable for a tax lien. They are not attempting to avoid paying the tax lien; they are attempting to avoid a transfer of the property. Accordingly, Section 522(c)(2)(B) does not deprive the Plaintiffs of standing under Section 522(h).   The court further wrote that the County’s position would produce results that are fundamentally at odds with the goals of bankruptcy law. Here, it would give the County a windfall at the expense of the estate, the other creditors, and the debtor which is precisely what the Code’s fraudulent conveyance provisions are intended to prevent. View "Gunsalus v. County of Ontario" on Justia Law

by
Appellant, a law firm, challenged the district court’s order affirming the bankruptcy court’s denial of the firm’s request for appellate attorneys’ fees. The bankruptcy court determined that it lacked the authority to award appellate attorneys’ fees, and the district court agreed.The Second Circuit vacated the order of the district court with instructions to remand to the bankruptcy court to consider whether appellate fees ought to be awarded. The court held that a bankruptcy court’s traditional power to impose contempt sanctions carries with it the authority to award damages and attorneys’ fees – including appellate attorneys’ fees. The court reasoned that it is well settled that a bankruptcy court may compensate a debtor for a creditor’s violation of its discharge order. Further, the failure to compensate the victim of contempt with appellate fees could leave the victim worse off for seeking to enforce a discharge order and would, at the very least, discount any compensatory damages award. Thus, the court found that the bankruptcy court’s denial of Appellant’s request for appellate fees was based on an erroneous view of the law and was, therefore, an abuse of discretion. View "In re: DiBattista" on Justia Law

by
Springfield, debtors in bankruptcy who applied for and were denied Paycheck Protection Program (PPP) funds pursuant to the CARES Act solely due to their bankruptcy status, initiated this adversary proceeding in bankruptcy court against the Administrator of the SBA, in her official capacity. Springfield challenges the SBA's administration of PPP funds and asks that the bankruptcy court enjoin the SBA from denying its PPP application on the basis of its bankruptcy status.The Second Circuit held that, based upon the plain language of Section 525(a) of the Bankruptcy Code, that the PPP is a loan guaranty program and not an "other similar grant," and Section 525(a) does not apply to the PPP. Therefore, the bankruptcy court incorrectly ruled that Springfield was entitled to summary judgment and a permanent injunction. Rather, the court concluded, as a matter of law, that summary judgment in the SBA's favor is warranted on the Section 525(a) claim, reversing the judgment and vacating the permanent injunction. The court remanded to the bankruptcy court for further proceedings. View "Springfield Hospital, Inc. v. Guzman" on Justia Law

by
The Second Circuit vacated the district court's dismissal of plaintiff's amended complaint against McKinsey and others under the Racketeer Influenced and Corrupt Organizations Act (RICO). The complaint alleged that McKinsey filed false and misleading disclosure statements in the bankruptcy court to obtain lucrative consulting appointments and that, as a result, AlixPartners LLP lost business and profits it otherwise would have secured. The court concluded that the amended complaint plausibly alleges proximate cause with respect to all 13 bankruptcies in which McKinsey filed false statements as well as the pay-to-play scheme. Accordingly, the court remanded for further proceedings. View "Alix v. McKinsey & Co., Inc." on Justia Law

by
Picard was appointed as the trustee for the liquidation of Bernard L. Madoff Investment Securities LLC (BLMIS) pursuant to the Securities Investor Protection Act, 15 U.S.C. 78aaa, to recover funds for victims of Bernard Madoff’s Ponzi scheme. SIPA empowers trustees to recover property transferred by the debtor where the transfers are void or voidable under the Bankruptcy Code, 11 U.S.C. 548, 550, to the extent those provisions are consistent with SIPA. Under Sections 548 and 550, a transferee may retain transfers it took “for value” and “in good faith.” Picard sued to recover payments the defendants received either directly or indirectly from BLMIS. The district court held that a lack of good faith in a SIPA liquidation requires that the defendant-transferee has acted with “willful blindness” and that the trustee bears the burden of pleading the transferee’s lack of good faith. Relying on the district court’s legal conclusions, the bankruptcy court dismissed the actions, finding Picard did not plausibly allege the defendants were willfully blind to the fraud at BLMIS.The Second Circuit vacated. Nothing in SIPA compels departure from the well-established rule that the defendant bears the burden of pleading an affirmative defense. The district court erred by holding that the trustee bears the burden of pleading a lack of good faith under Sections 548(c) and 550(b)(1). View "In Re Bernard L. Madoff Investment Securities, LLC" on Justia Law

by
The bankruptcy litigation trustee appeals the district court's orders dismissing claims arising out of the leveraged buyout of the Tribune Company in 2007 and its bankruptcy filing in 2008. The trustee contends that the district court erred in dismissing his claims against the Tribune Company's shareholders and financial advisors for fraudulent transfer, breach of fiduciary duty, and related causes of action. The trustee also contends that the district court erred in denying leave to amend his complaint.The Second Circuit affirmed the district court's dismissal of the intentional fraudulent conveyance claims against the shareholders based on the buy-back of their shares; affirmed the district court's dismissal of the breach of fiduciary duty and aiding and abetting breach of fiduciary claims against the allegedly controlling shareholders; affirmed the district court's dismissal of the aiding and abetting breach of fiduciary duty and professional malpractice claims against the Financial Advisors; affirmed the district court's dismissal of the actual fraudulent conveyance claims as to Morgan Stanley, Citigroup, and Merrill Lynch, but vacated as to VRC; affirmed the district court's dismissal of the constructive fraudulent conveyance claims as to Morgan Stanley and VRC, but vacated as to Citigroup and Merrill Lynch; affirmed the district court's denial of the trustee's motion for leave to amend to amplify his intentional fraudulent conveyance claim against the shareholders and to add a constructive fraudulent conveyance claim against the shareholders; and remanded for further proceedings. View "In re: Tribune Company Fraudulent Conveyance Litigation" on Justia Law

by
The Second Circuit vacated and reversed the bankruptcy court's order imposing punitive sanctions in three chapter 13 cases. In this case, PHH sent monthly mortgage statements listing fees totaling $716 that had not been properly disclosed in the three cases. PHH was sanctioned $75,000 for violation of Bankruptcy Rule of Procedure 3002.1 and $225,000 for violation of bankruptcy court orders.The court agreed with PHH that Rule 3002.1 does not authorize punitive monetary sanctions, and that PHH did not violate the court orders as a matter of law. The court explained that a broad authorization of punitive sanctions is a poor fit with Rule 3002.1's tailored enforcement mechanism and limited purpose. Therefore, punitive sanctions do not fall within the "appropriate relief" authorized by Rule 3002.1. View "In re: Gravel" on Justia Law

by
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