Justia Bankruptcy Opinion Summaries

Articles Posted in US Court of Appeals for the Sixth Circuit

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Debtor sold her home to the Deans; they discovered mold in the basement. A court entered judgment on an arbitration award to the Deans: $28,172.99, plus attorney fees of $98,722.58. The Deans filed a lien against the Debtor’s current residence. Debtor filed a bankruptcy petition, listing the Deans as secured creditors. The Bankruptcy confirmed the Debtor’s chapter 13 plan. Debtor is paying the Deans’ claim in full, with interest. The Deans filed an Adversary Proceeding, claiming damages for Sarah Dean’s respiratory problems. The Bankruptcy Court dismissed that Proceeding; the Deans did not appeal. After the confirmation of Debtor’s Plan, the Deans unsuccessfully moved to dismiss the bankruptcy case. Meanwhile, Debtor sent the Deans a letter offering a proposed payout. The letter explained that it was not admissible as evidence (Rule 408). The Deans filed the letter on the docket, unaccompanied by any pleading or explanation, then designated the letter as part of the record on appeal for their unsuccessful motion to dismiss. Debtor sought sanctions for rules violations by filing the letter and moved to strike the letter. The Bankruptcy Court granted those motions, sanctioned the Deans $5,000, and awarded Debtor attorney fees. The Deans filed another Adversary Proceeding, seeking revocation of the confirmation order (11 U.S.C. 1330(a)). Debtor filed another sanctions motion, for “meritless pleadings.” The Bankruptcy Court dismissed the second adversary proceeding and ordered the Deans to pay $2,641 in attorney’s fees for their frivolous filing. The Sixth Circuit Bankruptcy Appellate Panel affirmed. Not understanding the purpose of Chapter 13 and without legal guidance, the Deans increased expenses and delayed payment of their own claim. View "In re: Lane" on Justia Law

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Debtor is the sole member of REN, a Kentucky limited liability company that owns Louisville real estate. The Chapter 7 Trustee sought authority to sell that property, asserting that Debtor’s interest in REN was estate property under 11 U.S.C. 541(a)(1), deemed to have been assigned to Trustee. The bankruptcy court held two hearings, both times explaining that Trustee stands in Debtor’s shoes as the sole member of REN and has whatever authority Debtor would have to sell the property, then granted Trustee’s motion. The Sixth Circuit Bankruptcy Appellate Panel dismissed an appeal. There is no evidence that Debtor is a “person aggrieved” by the Sale Order. REN—not Debtor—owns the real estate. Debtor failed to explain how its sale would diminish his property, increase his burdens, or impair his rights and lacks the requisite pecuniary interest in the real estate sale contemplated in the Sale Order. Debtor did not claim an exemption in his membership interest in REN and failed to demonstrate that his success on appeal would otherwise entitle him to a distribution of surplus assets from his chapter 7 estate. View "In re Pasley" on Justia Law

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Schier represented Capital in a state court suit filed by Longhorn. Capital was hit with a $5-million judgment and landed in bankruptcy. Its Chapter 7 proceedings stayed the Longhorn litigation with post-trial motions pending. Longhorn filed a bankruptcy claim. When Schier filed a claim for Capital’s unpaid legal fees, the bankruptcy trustee countered with a malpractice suit against Schier, which eventually settled. Schier agreed to pay the estate $600,000 and to withdraw its attorney’s fees claim. The bankruptcy court approved this settlement. Schier withdrew its claim. When the trustee filed a final report, Schier alleged that Capital’s right to appeal Longhorn’s state-court judgment qualified as an “asset” that the trustee should have administered or abandoned. The bankruptcy court overruled Schier’s objection, reasoning that Schier should have raised this issue while Schier had a pending fees request and was a “creditor” with “standing.” The district court dismissed an appeal, stating that “[i]n order to have standing to appeal a bankruptcy court order, an appellant must have been directly and adversely affected pecuniarily by the order,” a more demanding standard than Article III standing. The Sixth Circuit affirmed, noting the Supreme Court’s 2014 “Lexmark” decision, which jettisoned the label “prudential standing.” Citing “the post-Lexmark uncertainty about various standing concepts,” the court held that Schier lacked the type of standing that Lexmark did not affect: Article III standing. View "In re Capital Contracting Co." on Justia Law

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A chapter 7 trustee sought a declaration that a refinanced mortgage only encumbered the interest of the person specifically defined within the body of the mortgage as a “Borrower/Mortgagor.” The mortgage instrument listed the co-debtor's wife as a “Borrower” in the signature block but the mortgage did not specifically name her as a “Borrower” within the text of document other than in the signature block. The bankruptcy court regarded the mortgage as ambiguous under these circumstances, considered extrinsic evidence, and concluded that the property was fully encumbered by the mortgage. Pending appeal, the Ohio Supreme Court answered certified questions, stating that the failure to identify a signatory by name within the body of the mortgage instrument did not render the agreement unenforceable against the signatory’s in rem rights as a matter of law and that when a mortgage is properly signed, initialed and acknowledged by a signatory who is not named within the document itself, the mortgage is not invalid as a matter of law. The Bankruptcy Appellate Panel affirmed, concluding that the mortgage encumbered the rights of both husband and wife. View "In re Perry" on Justia Law

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Three years before filing her bankruptcy petition, Lane sold her residence to the Deans. They subsequently discovered mold in the basement and filed a civil complaint against her. The state court submitted the dispute to binding arbitration. The arbitrator awarded the Deans $126,895.57. A Kentucky trial 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 on July 14. The Bankruptcy Court confirmed Lane’s Plan over the Deans’ objection. The Deans did not appeal the confirmation order but filed adversary proceedings and appeals to avoid its effect. The Bankruptcy Court sanctioned the Deans, awarding Lane attorney fees for their contemptuous behavior. The Deans filed objections to the Lane’s counsel’s Interim Fee Application. The Bankruptcy Court conducted a hearing and ultimately allowed the interim fees. The Sixth Circuit Bankruptcy Appellate Panel dismissed the Deans’ appeal, finding that the interim orders are not final orders, 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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The Debtors filed a chapter 7 bankruptcy petition in 2008. Creditor CJV was granted derivative standing on behalf of the bankruptcy estate and sought a declaratory judgment that personal property located at the Debtors' home was property of the bankruptcy estate. The Debtors asserted that the personal property is held in trust or belongs to other people, such as their children and that the complaint was barred by the statute of limitations. After discovery was completed, the Trustee moved to abandon the action, arguing that, even if the personal property was property of the bankruptcy estate, it was only worth approximately $200,000, as opposed to more than one million dollars as CJV had asserted and that the IRS had a tax lien in far excess of its value, so that the litigation could result in a loss to the estate. CJV asserted that the cause of action was no longer property of the bankruptcy estate. The bankruptcy court granted the motion for abandonment and dismissed the adversary proceeding. The Bankruptcy Appellate affirmed. The action remained property of the estate; Section 554(a) of the Bankruptcy Code allows a trustee, after notice and a hearing, to abandon property that is of inconsequential value and benefit to the estate. The Trustee’s determination was based on sound business judgment and within his discretion. View "In re Blasingame" on Justia Law

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The Debtors filed their bankruptcy petition in 2008. Grusin provided them legal advice before the filing and at the beginning of the bankruptcy case. Fullen filed the petition and represented them in the chapter 7 case. In 2011, the bankruptcy court granted the Trustee summary judgment in an adversary proceeding seeking to deny the Debtors’ discharge and disqualified both lawyers from further representation of the Debtors in that case. The Debtors hired new counsel, who obtained relief from the summary judgment order. Following a trial, in 2015, the bankruptcy court again denied the Debtors’ discharge. The Bankruptcy Appellate Panel affirmed. In 2012, the bankruptcy court granted CJV derivative standing to pursue a malpractice action on behalf of the estate against Grusin and Fullen. Malpractice complaints were filed in the bankruptcy court and in Tennessee state court. In 2014, CJV filed another adversary proceeding, seeking declaratory relief that the malpractice claims constituted property of Debtors’ estate. The Bankruptcy Appellate Panel affirmed the bankruptcy court in holding that the malpractice action for denial of debtors’ discharges based on errors and omissions contained in a bankruptcy petition, as well as pre and post-petition legal advice, was not property of the debtors’ bankruptcy estate. There was no pre-petition injury; the Debtors were injured by that negligence when their discharges in bankruptcy were denied. View "In re Blasingame" on Justia Law

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Over a decade ago, the Blasingames filed for bankruptcy, seeking to discharge $7.7 million in debt, claiming they made $900 per month and owned less than $6,000 worth of assets. Their creditor, Church,allegedly discovered that the Blasingames made over $300,000 per year and had at least $18 million in assets, including “a 28-acre, gated residence compound,” 1,700 acres of “prime farmland,” and hundreds of thousands of dollars in financial assets that belonged to trusts and corporations under the Blasingames’ control. The Blasingames’ bankruptcy trustee initially tried to recover the assets by authorizing Church to sue derivatively on its behalf in bankruptcy court but later decided to sell the cause of action to Church. Since the sold cause of action could no longer affect the bankruptcy estate's value, the bankruptcy court dismissed. Church filed a new lawsuit against the Blasingames and their trusts, alleging “alter-ego.” The district court dismissed, concluding that Tennessee would not recognize that theory outside of the corporate context. Church filed another adversary proceeding on behalf of the trustee, against the Blasingame Family Investment Trust, which was self-settled; the settlors, trustees, and beneficiaries were all the same. The bankruptcy court concluded that the was just a subset of the cause of action that was sold and dismissed. Church filed another adversary proceeding on behalf of the trustee, targeting the Blasingame Family Residence Trust, which granted the Blasingames a life estate. The bankruptcy court dismissed, finding that the Blasingames’ interest was equitable, not legal, and beyond their creditor’s reach. The Bankruptcy Appellate Panel and the Sixth Circuit affirmed, adopting the bankruptcy court reasoning. View "In re Earl Blasingame" on Justia Law

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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