Articles Posted in US Court of Appeals for the Sixth Circuit

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Trucking, owned by Bourdow, his wife, and their sons, sold and transported dirt, stone, and sand throughout lower Michigan and engaged in construction site preparation and excavation. Trucking employed other members of the Bourdow family. Trucking executed collective bargaining agreements (CBAs), under which it made fringe benefit payments to the Union’s pension fund (Fund). Experiencing financial difficulties, Trucking terminated its CBA. In 2012, the Fund informed Trucking that it had incurred withdrawal liability ($1,163,279) under the Employee Retirement Income Security Act (ERISA), 29 U.S.C 1381(a). Trucking missed its first withdrawal liability payment. The Fund filed suit, which was stayed when Trucking filed for Chapter 7 bankruptcy. The Fund filed a proof of claim. Trucking did not object; the claim was allowed, 11 U.S.C. 502(a). The Fund received $52,034. Contracting was incorporated the day after Trucking missed its first withdrawal payment; it bid on its first project two days before Trucking's bankruptcy filing. Contracting engages in construction site preparation and excavation in lower Michigan. Contracting is owned by the Bourdow sons; it employs other family members and retains the services of other professionals formerly retained by Trucking. The Fund sought to recover the outstanding withdrawal liability, alleging that Contracting was created to avoid withdrawal liability, and is responsible for that liability under 29 U.S.C 1392(c), and that Contracting is the alter ego of Trucking. The Sixth Circuit affirmed summary judgment in favor of the Fund, applying the National Labor Relations Act’s alter-ego test and citing the factors of business purpose, operations, customers, supervision, ownership, and intent to evade labor obligations. View "Trustees of Operating Engineers Local 324 v. Bourdow Contracting, Inc." on Justia Law

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Oakes filed a Chapter 7 bankruptcy petition in 2013, including Franklin, Ohio real property, valued at $160,000. PNC holds a mortgage lien on the property, which was filed in 2003. That mortgage lien was not executed in accordance with the Ohio law; Oakes’ signatures were not acknowledged before a notary public. In 2013, Ohio Rev. Code 1301.401(C) was enacted, providing that “Any person contesting the validity or effectiveness of any transaction referred to in a public record is considered to have discovered that public record and any transaction referred to in the record as of the time that the record was first filed with the secretary of state or tendered to a county recorder for recording.” The Chapter 7 Bankruptcy Trustee sought to avoid the PNC mortgage because it was not properly recorded. In the meantime, the Ohio Supreme Court held that O.R.C. 1301.401 applied to all recorded mortgages and acts to provide constructive notice of a recorded mortgage, even if that mortgage was deficiently executed. The bankruptcy court denied PNC’s motion for judgment, finding that the statutory constructive notice had no effect on a trustee’s avoidance powers as a judicial lien creditor. The Bankruptcy Appellate Panel and Sixth Circuit affirmed. A bankruptcy trustee may avoid a deficiently executed mortgage when acting as a judicial lien creditor. View "Harker v. PNC Mortgage Co." on Justia Law

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After a settlement in his divorce proceeding, Debtor filed a Chapter 13 bankruptcy petition. Debtor was subsequently confined to jail for failure to pay the court-approved settlement. Debtor filed an adversary complaint seeking damages under 11 U.S.C. 362(k) for violations of the automatic stay by his former wife, Skurko, and her attorney, Gentile, by allowing the post-petition sentencing portion of a pre-petition contempt proceeding to continue despite knowing that the automatic stay was in effect. The bankruptcy court found no violation because the two did not take affirmative action post-petition to try to collect the debt, and there was no affirmative action they could take to prevent the domestic relations judge from jailing Debtor for nonpayment because the contempt motion was already ruled upon. The Sixth Circuit Bankruptcy Appellate Panel reversed. Upon the filing of Debtor’s bankruptcy, it was incumbent upon Gentile and Skurko to seek relief from the stay or to obtain a bankruptcy court determination that the stay did not apply. A creditor cannot sit idly by, appear at a collection proceeding, and allow the debtor to be jailed because he did not pay the judgment creditor’s dischargeable debt. The burden was on the creditor and her attorney to stop the proceeding once the bankruptcy was filed. View "In re Lawrence Wohleber, Jr." on Justia Law

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In 2000, the Tribe had agreed to pay Monroe $265 million for Monroe’s 50% ownership interest in the Casino, giving the Tribe a 100% ownership interest. In 2002, the Tribe agreed to another $200 million debt in exchange for a continued gaming license from the Michigan Gaming Control Board (MGCB). In 2005, the Tribe created a new entity (Holdings), which became the Casino’s owner; pre-existing entities owned by the Tribe became Holdings' owners to allow the Tribe to refinance and raise capital to meet its financial obligations. The restructuring was approved by the MGCB, conditioned on the Tribe’s adherence to strict financial covenants. In 2005, Holdings transferred approximately $177 million to various entities. At least $145.5 million went to the original owners of Monroe. At least $6 million went to the Tribe. For three years, the Tribe unsuccessfully attempted to raise additional capital to meet its financial obligations. In 2008, the related corporate entities) filed voluntary petitions for Chapter 11 bankruptcy. The Trustee alleged that the 2005 transfers were fraudulent and sought recovery under 11 U.S.C. 544, 550. The district court and Sixth Circuit affirmed the bankruptcy court’s dismissal of the complaint on the basis of tribal sovereign immunity. The court rejected arguments that Congress intended to abrogate the sovereign immunity of Indian tribes in 11 U.S.C. 106, 101(27). View "Buchwald Capital Advisors LLC v. Sault Ste. Marie Tribe" on Justia Law

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Fulson owned Nicole Gas, which entered bankruptcy proceedings, and became dissatisfied with the Trustee’s handling of claims that Nicole Gas held against its competitors. With the help of attorneys Sanders and Lowe, Fulson sought relief in state court under the Ohio Corrupt Practices Act (Ohio civil RICO) against the competitors that allegedly put his business into bankruptcy. The Trustee alleged that he had appropriated claims and filed a claim, alleging that Fulson, Sanders, and Lowe violated the automatic stay. The Bankruptcy Court agreed, held the three in contempt, and entered a judgment for roughly $91,000. The Bankruptcy Appellate Panel and the Sixth Circuit affirmed. The court explored the principles of the derivative suit in corporate law, the function of the automatic stay in bankruptcy, and the extent and construction of a specific state’s RICO laws to conclude that the Ohio RICO statute does not give the sole shareholder of a bankrupt corporation standing to circumvent the automatic stay and individually sue a competitor. Fulson and his attorneys should have sought either the trustee’s cooperation or relief from the automatic stay in order to file the complaint. View "In re Nicole Gas Production, Ltd." on Justia Law

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Attorney Boland was an expert witness and defense counsel in child pornography cases. To demonstrate that pornographic images may be altered to appear that minors were engaged in sexual conduct when they were not, Boland purchased innocent stock images of minors and "morphed" them into pornographic images for use in criminal proceedings. The issue of whether Boland committed a crime in creating and displaying these images of child pornography was raised and Boland eventually voluntarily entered into a Pretrial Diversion Agreement, explaining and apologizing for creating the images. Two of the minors, depicted in the images Boland created, won awards under 18 U.S.C. 2252A(f), which provides civil damages for victims of child pornography. Boland filed a Chapter 7 bankruptcy petition; the minors filed an unsuccessful adversary proceeding, asserting their awards were non-dischargeable debts for willful and malicious injury under 11 U.S.C. 523(a)(6). The Sixth Circuit Bankruptcy Appellate Panel remanded. Collateral estoppel did not apply on the issue of whether Boland intended to injure the minors since intent was not actually litigated or necessary to the outcome of the prior litigation, but stipulations made through Boland's Diversion Agreement and judicial decisions concerning his liability to the minors established that Boland knowingly created and possessed pornographic images involving images of real children. The bankruptcy court did not consider the legal injury suffered by the minors as a result of the invasion of their privacy and reputational interests. Boland acted without justification, maliciously injuring the minors under 11 U.S.C. 523(a)(6). View "In re Boland" on Justia Law

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Mining’s Chapter 11 bankruptcy proceeding allowed it to continue operating with the goal of restructuring. Its Lenders asserted liens on assets, including cash collateral, 11 U.S.C. 362(c), but consented to the use of cash collateral for operating funds. A “Cash Collateral Order” granted the Lenders super-priority claims and adequate protection liens; it authorizes the use of cash collateral for the costs and expenses of administering the bankruptcy case. The agreement included a "Carve-Out" to give attorneys and other professionals hired for the reorganization priority for payment from cash collateral in case of insolvency. Restructuring failed. The Lenders moved to terminate the use of cash collateral. the bankruptcy court ordered amounts to be budgeted for professional fees to complete asset sales. The Lenders supported asset sales rather than immediate conversion to Chapter 7, agreeing that the cash collateral budgets would be modified to ensure that professionals working on those sales would be paid. The case was converted to Chapter 7. The professionals filed Final Fee Applications for approximately $2.5 million, citing the Carve-Out. The Lenders argued that the sums comprising the Carve-Out did not extend to Lenders’ prepetition liens and cash collateral, but could come only from post-petition liens now that the case had converted. The Sixth Circuit affirmed the bankruptcy court's rejection of their arguments. The Lenders’ reasoning is not supported by the terms of the cash collateral order, their conduct during the proceeding, or precedent. View "In re: Licking River Mining, LLC" on Justia Law

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In 2014, Lane sold her residence to the Deans. They subsequently discovered mold and sued her. The state court submitted the dispute to binding arbitration. The arbitrator awarded the Deans $126,895.57. A Kentucky court entered judgment on the award. The Deans filed their judgment lien against Lane’s current residence in May 2017. Lane filed a voluntary chapter 13 petition in July, proposing to avoid the Deans’ judgment lien as impairing her exemption rights. The Deans filed an Objection, asserting that the judgment lien was not avoidable under 11 U.S.C. 522(f) and that, under section 1322(b), Lane was not entitled to “modify” their rights as holders of a claim secured by her residence. The Bankruptcy Court overruled the Objection and confirmed the Debtor’s Plan. The Deans did not appeal. In November, the Deans, as pro se creditors, filed a dismissal motion, which the court denied. The Sixth Circuit Bankruptcy Appellate Panel dismissed an appeal. The order denying the Deans’ motion to dismiss is not a final order and the record presents no grounds for granting leave to appeal under well-settled Sixth Circuit case law, even treating the pro se notice of appeal as a motion for leave to appeal under Federal Rule of Bankruptcy Procedure 8004(d). View "In re: Lane" on Justia Law

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Ritzen Group contracted to buy a piece of property from Jackson Masonry. The sale never went through. Ritzen claimed Jackson breached by providing error-ridden documentation on the eve of the closing deadline, while Jackson claimed Ritzen breached by failing to secure funding by that deadline. After the deal failed, Ritzen sued Jackson for breach of contract in Tennessee state court. The case progressed for nearly a year-and-a-half until Jackson filed for bankruptcy. As a result of the bankruptcy, the litigation was automatically stayed. Ritzen moved to lift the stay, which the bankruptcy court denied. Ritzen did not appeal, instead, brought a claim against the bankruptcy estate. The bankruptcy court found that Ritzen, not Jackson, breached the contract. Ritzen subsequently filed two appeals to the district court. The first targeted the bankruptcy court’s order denying relief from the automatic stay. The second targeted the breach-of-contract determination. The district court found that the first appeal was untimely and rejected the second on the merits. Ritzen appealed again. Finding no reversible error in the district or bankruptcy courts' judgments, the Sixth Circuit affirmed. View "Ritzen Group, Inc. v. Jackson Masonry" on Justia Law

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Seven Counties, a nonprofit provider of mental health services, attempted to file for Bankruptcy Code Chapter 11 reorganization. For decades, Seven Counties has participated in Kentucky’s public pension plan (KERS). Because the rate set for employer contributions has drastically increased in recent years, Seven Counties sought to reject its relationship with KERS in bankruptcy. The bankruptcy court and the district court both held that Seven Counties is eligible to file under Chapter 11 and that the relationship between Seven Counties and KERS is based on an executory contract that can be rejected. The Sixth Circuit affirmed in part. Seven Counties is only eligible to be a Chapter 11 debtor if it is a “person” under 11 U.S.C. 109(a); a “governmental unit” is generally excluded from the category of “person.” Because the Commonwealth does not exercise the necessary forms of control over Seven Counties for it to be considered an instrumentality of the Commonwealth, Seven Counties is eligible to file. Seven Counties characterized its relationship with KERS as contractual, such that, to the extent it is executory, it may be rejected in bankruptcy, 11 U.S.C. 365. KERS argued the relationship is purely statutory, similar to an assessment, such that it cannot be rejected. The Sixth Circuit certified the question of the nature of the relationship to the Kentucky Supreme Court. View "Kentucky Employees. Retirement System v. Seven Counties.Services, Inc." on Justia Law