Justia Bankruptcy Opinion Summaries

Articles Posted in US Court of Appeals for the Sixth Circuit
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Insight Terminal Solutions, LLC ("ITS") appealed against a decision by the Bankruptcy Appellate Panel of the Sixth Circuit. The dispute centered on a claim originally filed by Cecelia Financial Management, LLC ("Cecelia"), and later transferred to Bay Bridge Exports, LLC ("Bay Bridge"), in ITS's chapter 11 bankruptcy. ITS sought to disallow or reduce the claim, recharacterize the debt as an equity contribution, and hold John J. Siegel, Jr., the non-member manager of both ITS and Cecelia, liable for fraud. The Bankruptcy Court allowed the claim, rejecting ITS's arguments. On appeal, ITS argued that the Bankruptcy Court erred in refusing to admit incomplete deposition testimony from Siegel, who died before cross-examination could take place. ITS also contended that the court erred in applying the presumption of validity to the claim and in refusing to recharacterize the claim as equity. The Appellate Panel upheld the Bankruptcy Court's decision, finding no reversible error. It ruled that the Bankruptcy Court was within its discretion to exclude Siegel's incomplete testimony and found no error in the court's decision to allow the claim and refusal to recharacterize it as equity. View "In re Insight Terminal Solutions, LLC" on Justia Law

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In this case, Autumn Wind Lending, LLC (Autumn Wind) had lent money to Insight Terminal Solutions, LLC (Insight) under an agreement that Insight would not incur any further debt without Autumn Wind's consent. However, Insight defaulted on the loan and filed for bankruptcy, during which it was revealed that it had taken on additional debt from other parties, including John J. Siegel and three family enterprises. Autumn Wind, which had become the parent company of Insight, then filed a lawsuit against these parties, alleging fraud and tortious interference. The United States Court of Appeals for the Sixth Circuit was asked to decide whether the doctrine of res judicata, which bars relitigation of a claim that has been adjudicated, prevented Autumn Wind from bringing these claims. The court held that the doctrine of res judicata did not bar Autumn Wind from bringing its claims. The court reasoned that the claims had not been "actually litigated" because they were dismissed by stipulation in the bankruptcy court, not decided on the merits. Furthermore, Autumn Wind could not have litigated these claims in the bankruptcy court because it was not a party to the bankruptcy proceedings. The court therefore reversed the district court's dismissal of Autumn Wind's claims and remanded the case for further proceedings. View "Autumn Wind Lending, LLC v. Siegel" on Justia Law

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The United States Court of Appeals for the Sixth Circuit considered whether a debtor who successfully defended a motion to dismiss her bankruptcy petition filed by the United States Trustee was entitled to attorneys' fees under the Equal Access to Justice Act (EAJA). The debtor, Megan Teter, had filed for Chapter 7 bankruptcy due to nearly $100,000 in debt. The United States Trustee filed a motion to dismiss her petition, alleging that Teter was abusing the bankruptcy system. Teter successfully defended this motion and sought attorneys' fees from the Trustee under the EAJA. The bankruptcy court denied her request, with the district court affirming this decision. The Court of Appeals also affirmed these decisions. The Court held that Teter's defense against the Trustee's motion to dismiss did not constitute a "civil action" under the EAJA and as such, she was not entitled to attorneys' fees. The Court also expressed doubt that the EAJA applies in bankruptcy proceedings when a debtor successfully defends a motion to dismiss filed by the Trustee. The Court did not, however, make a definitive ruling on this matter. View "Teter v. Baumgart" on Justia Law

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Ohio revoked the operating license for Ricci's company, Palms, which operated a substance abuse treatment center. The Department of Justice (DOJ) seized $600,000 from Palms for alleged fraud. Pender was attempting to terminate Palms's building lease. Palms sued Ohio to recover its license, sued the DOJ to recover the $600,000, and filed for Chapter 11 bankruptcy, 11 U.S.C. 1187–95. Its plan for reorganization depended on the success of its pending lawsuits. Concerned that the litigation would consume the estate, the Trustee sought conversion to a proceeding under Chapter 7 for liquidation. Weeks later, the seized assets lawsuit was put on hold while the DOJ pursued a criminal indictment. Palms failed to meet the bankruptcy court's deadline for an accounting of post-petition transactions. Two days before a hearing on the conversion, Palms’s attorney (Vitullo) moved to withdraw, citing a conflict of interest. Minutes before the hearing, Rucci (also a lawyer) filed an objection to the motion to convert. Rucci did not object to Vitullo’s withdrawal.The bankruptcy court granted Vitullo’s motion and converted the proceedings to Chapter 7. Pender successfully evicted Palms. An Ohio court upheld the revocation of its license. A Sixth Circuit panel denied Palms’s petition to return the seized $600,000. The district court and Sixth Circuit affirmed the conversion order as a final, appealable order. Considering the substantial, continuing losses and the unlikelihood of rehabilitation, the court did not abuse its discretion in finding cause to convert. View "In re: California Palms Addiction Recovery Campus, Inc. v." on Justia Law

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From 2014-2018, the Affordable Care Act’s individual mandate instructed most Americans to purchase health insurance, 26 U.S.C. 5000A(a) Juntoff opted not to buy the minimum health insurance and failed to make his Shared Responsibility Payment of 2.5% of the taxpayer’s income, subject to a floor and a ceiling. After he declared bankruptcy, the IRS tried to collect the Payment from him and filed a proof of claim in bankruptcy court. The agency asked for priority above other debtors under a provision that covers bankruptcy “claims” by “governmental units” for any “tax on or measured by income,” 11 U.S.C. 507(a)(8)(A). The bankruptcy court denied the request, reasoning that the Shared Responsibility Payment was not a “tax on or measured by income” but was a penalty. The Bankruptcy Appellate Panel reversed.The Sixth Circuit ruled in favor of the government. The Shared Responsibility Payment is a “tax” under section 507(a)(8) and is “measured by income.” View "In re: Juntoff" on Justia Law

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Appellant obtained a judgment against his employer after the employer made also accusations that Appellant committed embezzlement and forgery. Shortly thereafter, Appellant's employer filed for Chapter 7 Bankruptcy, both individually and on behalf of his business. Appellant appealed the bankruptcy court's ruling, arguing that he received an insufficient amount as an unsecured creditor.The court explained that "the doctrine of equitable mootness has no place in Chapter 7 liquidations." View "Said Taleb v. Wendy Lewis" on Justia Law

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The Debtor filed a chapter 13 bankruptcy petition. The chapter 13 trustee moved to convert the Debtor’s case to chapter 7 or to dismiss the case with a bar to refiling. The Debtor requested that the motion be denied. After the Conversion Hearing, while the matter was still pending, the Debtor filed chapter 13 plan amendments, amended schedules, and an amended bankruptcy petition, all seeking relief under chapter 13. The bankruptcy court entered a Conversion Order. The Debtor subsequently unsuccessfully sought reconsideration, dismissal, withdrawal, suspension, abstention, or other relief and did not cooperate with the Trustee as required (11 U.S.C. 521), resulting in civil contempt, sanctions, and default judgments.Two years after conversion, the Debtor filed a “Motion to Withdraw Pursuant to [sic] U.S.C. 1307(b) and Debtor’s Request to Dismiss Prior to Conversion,” claiming for the first time that she had orally moved to dismiss her case during the Conversion Hearing. Instead of filing a brief or other information as requested by the court, the Debtor sought various forms of relief. The bankruptcy court denied the Debtor’s Motion for Injunctive and Other Relief as a “delay tactic.” The Debtor continued to seek various relief. The Sixth Circuit Bankruptcy Appellate Panel affirmed; the Debtor’s assertion that she requested dismissal of the chapter 13 case before conversion is false and 11 U.S.C. 1307 does not grant a debtor an absolute right to dismiss a case post-conversion. View "In re: Skandis" on Justia Law

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Gold was the trustee of Biondo’s Chapter 7 bankruptcy estate. Before the bankruptcy filing, Biondo experienced an automobile accident. Biondo sought exemptions for that claim totaling $35,648.74, to prevent that sum from being distributed to her creditors. The statutory maximum exemption for “payment[s]” received “on account of personal bodily injury, not including pain and suffering or compensation for actual pecuniary loss,” 11 U.S.C. 522(d)(11)(D) was then $23,675. Gold did not object to the exemptions and retained the Ratton law firm, which sued Biondo’s insurer, Progressive, and the other driver, Peterson. Progressive settled its case for $48,500 to cover Biondo’s medical expenses, attorney’s fees, “lost wages,” and all “other forms of economic or non-economic loss.” Peterson's $70,000.settlement covered “pain and suffering.”Gold opposed Biondo's motion to compel Gold to release $23,675. The parties settled. Gold’s law firm sought $2,880 in fees for its work opposing the motion. Biondo objected. The bankruptcy court awarded the fees. The district court dismissed her appeal. The Sixth Circuit affirmed. The fees compensated the attorneys for services reasonably likely to benefit Biondo’s bankruptcy estate, 11 U.S.C. 330(a)(1)(A). The Peterson settlement was outside section 522(d)(11)(D)'s exemption as covering pain and suffering; the Progressive settlement was also open to attack because it covered Biondo’s medical bills, her attorney’s fees, and lost wages. Gold did not act unreasonably in asking whether 522(d)(11)(D) covered Biondo’s settlements. View "Biondo v. Gold, Lange, Majoros & Smalarz" on Justia Law

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Dream purchased university systems with locations across the country: South University, Argosy University, and the Art Institutes. States had recently brought consumer-protection lawsuits against the seller. Dream had to close 30 campuses. Unpaid creditors filed multiple lawsuits. Students at the Illinois Institute of Art brought a class-action fraud suit.Dream feared that filing bankruptcy would cut off its access to federal student loans. In 2019 Digital sued Dream for $252,737. The court appointed a receiver to manage Dream’s property and stayed pending lawsuits. The Receiver decided that potential claims greatly exceeded potential assets. The federal government had discharged the student-loan debts of many of Dream's students.Existing suits had already depleted the payout available from Dream's insurance policies covering its directors and officers. The policies did not protect Dream itself. The Receiver believed that Dream had legal claims against the directors and officers and eventually brought the proceeds from the policies into Dream’s receivership estate ($8.5 million). The settlement hinged on the entry of an order that would “bar” third parties (including the Art Students) from pursuing claims against Dream, its parent, the directors and officers, and the insurer. The district court approved the settlement and Bar Order. The Sixth Circuit reversed. The district court lacked authority to issue the bar order. Historical principles of equity do not allow a court to issue an injunction that protects the non-receivership assets of non-receivership parties; that type of non-debtor relief amounts to a remedy “previously unknown to equity jurisprudence.” View "Digital Media Solutions, LLC v. South University of Ohio, LLC" on Justia Law

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Before his daughter (Julie) filed her chapter 7 bankruptcy petition, Wood opened bank accounts in her name with himself as custodian or joint account holder. He, his wife (Margaret), Julie, and another daughter, Jennifer, also held interests in a real estate joint venture. Wood admitted that the transferred money out of the accounts he controlled because Julie’s ex-mother-in-law and principal creditor (Gerstenecker), wanted to collect on a judgment. He removed Julie from the Joint Venture.The bankruptcy court denied Julie's motion to convert to Chapter 13. The trustee filed a complaint against Wood, Jennifer, and Margaret seeking to avoid and recover the transfers on preference and fraudulent conveyance theories. The bankruptcy court refused to approve a settlement of that proceeding, citing the paltry recovery for Gerstenecker, The defendants failed to raise a genuine issue as to any material fact regarding Julie’s ownership in the bank accounts, her share of the Joint Venture, and other elements of various claims under 11 U.S.C. 544, 547, 548, 550. The Sixth Circuit Bankruptcy Appellate Panel affirmed. The bankruptcy court properly entered summary judgment regarding the transfers of the bank accounts and the Joint Venture on the theory of actual intent to hinder, delay, and defraud Gerstenecker. View "In re: Wood" on Justia Law