Justia Bankruptcy Opinion Summaries

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

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

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

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

Stanley filed for Chapter 13 bankruptcy, indicating there was no money owed to him, including “Claims against third parties, whether or not you have filed a lawsuit or made a demand for payment.” The question provided examples of possible claims: “Accidents, employment disputes, insurance claims, or rights to sue.” Stanley’s bankruptcy plan provided that there would be “no future modification of dividend to unsecured creditors below 100%.” Before and after filing for bankruptcy, Stanley had problems with his employment at FCA. Stanley claims FCA violated the Family and Medical Leave Act (FMLA), resulting in the termination of his employment one week after his bankruptcy filing. The Union filed grievances on Stanley’s behalf—one before he filed for bankruptcy and one after. Both were withdrawn.Stanley filed an FMLA interference lawsuit several months after the approval of his bankruptcy case. In response to FCA’s settlement letter, which raised the issue of disclosure in bankruptcy, Stanley updated his bankruptcy asset disclosure to include: Employment terminated post-petition in violation of FMLA with “unknown” value. The Sixth Circuit affirmed summary judgment for FCA; judicial estoppel barred Stanley’s claim. Stanley had motives for concealing his employment suit although his bankruptcy plan did not provide for a discharge of his debts. Stanley’s creditors did not have a complete, accurate picture of Stanley’s assets when considering whether to object to his plan, 11 U.S.C. 1324. View "Stanley v. FCA US, LLC" on Justia Law

Richards sold her home six days before filing a chapter 7 bankruptcy petition, netting $36,793.60, which Richards placed into escrow with the Wilkey law firm, which represents Richards in her bankruptcy proceeding. Richards disclosed the sale of her residence on her Statement of Financial Affairs and provided a copy of the escrow ledger to the Trustee. Richards claimed that the proceeds from the sale were exempt under 11 U.S.C. 522(d)(1) as proceeds from the sale of Richards’s residence. The chapter 7 Trustee filed an objection, which the bankruptcy court sustained, finding no language in section 522(d)(1) that would permit the exemption of the proceeds from the prepetition sale of the Richards’s homestead.The Sixth Circuit Bankruptcy Appellate Panel affirmed. The proceeds were not being “used as a residence” at the time the petition was filed. Section 522(d)(1) provides for an exemption in “the debtor’s aggregate interest, not to exceed $25,150 in value, in real property or personal property that the debtor or a dependent of the debtor uses as a residence.” The language of the Code is unambiguous, vesting no exemption power in the proceeds arising out of the prepetition sale of a debtor’s homestead. View "In re: Richards" on Justia Law

As special counsel, the law firm of Silverman & Morris recovered $38,000 for the estate in the Village Apothecary bankruptcy proceeding and requested $37,063 in fees. The bankruptcy court, finding that the benefit of the services did not warrant awarding the full amount, halved the award.The Sixth Circuit affirmed. Bankruptcy courts can consider “results obtained” when determining whether fees are reasonable under 11 U.S.C. 330(a)(3) and the bankruptcy court did not abuse its discretion in reducing the fees by half. In determining the amount of reasonable compensation to be awarded to a professional person, the court shall consider the nature, the extent, and the value of such services; section 330(a)(3) instructs the courts to “tak[e] into account all relevant factors, including” the time spent, rates charged, “whether the services were necessary . . . or beneficial at the time at which the service was rendered,” as well as other factors, including “results obtained.” Here, the “results obtained” were minimal. The law firm’s efforts to recover $1.6 million dollars resulted in only $38,000. Had the bankruptcy court awarded the law firm all its fees, it would have left virtually nothing for the estate. View "In re: Village Apothecary, Inc." on Justia Law

Gayle died in 2006. Attorney Johnston filed Chapter 13 bankruptcy petitions on behalf of Gayle in 2016 and 2018 at the request of Gayle’s daughter, Elizabeth, the Administratrix of her mother’s probate estate. After the dismissal of the 2018 petition, Elizabeth, pro se, filed three Chapter 13 petitions on Gayle’s behalf. The Chapter 13 Trustee sought sanctions against Bagsby after she filed yet another Chapter 13 petition.The bankruptcy court ordered Johnston to show cause why he should not be subject to sanctions for filing the two Chapter 13 petitions on behalf of a deceased person. After a hearing, the bankruptcy court reopened the first two cases and issued sanctions sua sponte against Johnston and Bagsby. The bankruptcy court determined that Johnston failed to conduct any inquiries or legal research, there was no basis in existing law to support a reasonable possibility of success, and the cases were filed for the express purpose of delaying foreclosure actions. The bankruptcy court concluded Johnston violated Rule 9011 of the Federal Rules of Bankruptcy Procedure. The Bankruptcy Appellate Panel and the Sixth Circuit affirmed the sanctions order. Johnson had admitted to the factual findings. The bankruptcy court was not required to find that Johnson acted in bad faith, in a manner “akin to contempt of court,” or with a specific mens rea but only whether Johnston’s conduct was reasonable. View "Johnston v. Hildebrand" on Justia Law

Penn Line filed six proofs of claim seeking an administrative expense priority related to services provided to specific debtors in jointly administered bankruptcy cases. Debtors objected, asserting that “[t]he reclassified amounts are on account of labor and service charges listed on the claim which do not constitute a good under section 503(b)(9) and goods listed on the claim which were received outside of the proscribed 20-day receipt period under section 503(b)(9) thus not entitled to administrative priority.” The Plan Administrator responded in opposition to Penn Line’s Claims Objection Response and Administrative Expense Application. Penn Line offered no witnesses at the hearing, restating its primary argument that it was a critical vendor based on a theory of “implied assumption.” Penn Line also raised a new argument: that the work for which it filed its proofs of claim was performed post-petition.The bankruptcy court ruled that the “implied assumption” theory is not a valid basis for allowing an administrative expense claim, rejected Penn Line’s new argument that the work had been performed post-petition, and sustained the debtors’ objections. The court subsequently denied a motion for reconsideration. The Sixth Circuit Bankruptcy Appellate Panel affirmed, holding that the bankruptcy court did not abuse its discretion in denying Penn Line’s motion for reconsideration; Penn Line did not appeal the original order denying its administrative expense or the order sustaining the objection to claims. View "In re Murray Energy Holdings" on Justia Law

Attorney Romanzi referred a personal injury case to his employer, the Fieger law firm; meanwhile, creditors were winning default judgments against Romanzi. The case settled for $11.9 million; about $3.55 million was awarded as attorney’s fees after Romanzi quit the firm. Romanzi’s employment at the firm entitled him to a third of the fees. Before Romanzi could claim his due, his creditors forced him into Chapter 7 bankruptcy. The trustee commenced an adversary proceeding against the firm to recover Romanzi’s third of the settlement fees for the bankruptcy estate. The parties agreed to arbitration.Two of the three arbitrators found for the trustee in a single-paragraph decision that was not "reasoned" to the firm’s satisfaction. The district court remanded for clarification rather than vacating the award. On remand, the panel asked for submissions from both parties, which the trustee provided; the firm refused to participate. The arbitrators’ subsequent supplemental award, approved by the district court, awarded the trustee the fees plus interest. The Sixth Circuit affirmed, rejecting arguments that the arbitrators’ original award was compromised according to at least one factor allowing vacation under the Federal Arbitration Act, 9 U.S.C. 10(a); that the act of remanding and the powers exercised by the arbitrators on remand violated the doctrine of functus officio; and that the supplemental award should have been vacated under the section 10(a) factors. The district court’s and panel’s actions fall under the clarification exception to functus officio. View "In re: Romanzi" on Justia Law