Justia Bankruptcy Opinion Summaries

Articles Posted in US Court of Appeals for the Sixth Circuit
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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 Both were withdrawn.Stanley filed an FMLA interference lawsuit several months after the approval of his bankruptcy case.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

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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

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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

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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

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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

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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

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McDonald worked as an Ohio bank examiner and a loan officer. As a loan officer, McDonald obtained funds by fraudulently making loans to others. Some of the loans were unknown to the “borrowers.” McDonald filed for individual Chapter 7 bankruptcy. The U.S. Trustee argued that 11 U.S.C. 727(a)(5) prevented the discharge of his debts because McDonald had failed to satisfactorily explain the dissipation of many of his assets. McDonald produced bank statements, brokerage account statements, canceled checks, and his tax returns for 2012-2015. He did not produce his 2010-2011 tax returns, bank account records covering January-March 2010, or many canceled checks, which the court requested. More than $250,000 of McDonald’s assets were unaccounted for. At the Rule 2004 Exam, McDonald refused to testify about one loan, exercising his Fifth Amendment right against self-incrimination. He later confessed to the scheme.The bankruptcy court granted the Trustee summary judgment. The district court and Sixth Circuit affirmed. Section 727(a)(5) contains no intent requirement; it “imposes strict liability” when the debtor fails to provide a satisfactory explanation for the deficiency in assets. McDonald's threadbare recitation from memory is not enough. His testimony throughout the bankruptcy proceedings was rife with unclear, uncertain statements often couched with “likely,” “I think,” or “I don’t know.” View "Vara v. McDonald" on Justia Law

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Debtor and Creditor have three children. Their decree of dissolution was entered in 2008. Domestic support and child custody issues have continued to be litigated. In 2017, Creditor obtained primary custody of the children; he filed a Motion for Child Support and Motion for Contempt in Family Court. A monthly support amount was determined. Pre-petition, the Family Court established that the parties would split the cost of the childrens' medical care and extra-curricular activities. Creditor was seeking reimbursement for Debtor’s share of incurred expenses when Debtor’s bankruptcy petition was filed. The Family Court, post-petition, found Debtor in contempt of a prior order.Debtor filed a motion with the Bankruptcy Court requesting sanctions for violation of the automatic stay for the post-petition hearing and Creditor’s collection efforts made pursuant to Family Court orders. The Bankruptcy Court found that some actions violated the automatic stay and awarded attorneys’ fees as actual damages and punitive damages. The Sixth Circuit Bankruptcy Appellate Panel affirmed. The Family Court hearing was conducted to modify a domestic support obligation; the hearing and subsequent garnishment order were excepted from the automatic stay, 11 U.S.C. 362(b)(2)(A)(ii); 362(b)(2)(C). The Family Court Judgment finding Debtor in civil contempt violated the stay and is void. An order of payment, directly to Creditor, toward a pre-petition debt, also violated the stay. View "In re: Dougherty-Kelsay" on Justia Law

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Under the “individual mandate” within the Patient Protection and Affordable Care Act of 2010, non-exempt individuals must either maintain a minimum level of health insurance or pay a “penalty,” 26 U.S.C. 5000A, the “shared responsibility payment” (SRP). The McPhersons did not maintain health insurance for part of 2017, and Juntoff did not maintain health insurance in any month in 2018. They did not pay their SRP obligations. In each of their Chapter 13 bankruptcy cases, the IRS filed proofs of claim and sought priority treatment as an “excise/income tax”: for Juntoff, $1,042.39, and for the McPhersons, $1,564.The bankruptcy court confirmed their plans, declining to give the IRS claims priority as a tax measured by income. The Bankruptcy Appellate Panel reversed. DIstinguishing the Sebelius decision in which the Supreme Court determined that the SRP constituted a “penalty” for purposes of an Anti-Injunction Act analysis and a “tax” under a constitutionality analysis, the Panel concluded that the SRP is not a penalty but a tax measured by income. It is “calculated as a percentage of household income, subject to a floor based on a specified dollar amount and a ceiling based on the average annual premium the individual would have to pay for qualifying private health insurance.” View "In re: Juntoff" on Justia Law

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Long and the Piercys operated a Tennessee quarry. Their agreement was silent as to whether their division of “profit” would be based on gross profit after payment of a royalty or net profit after payment of the royalty plus other costs. Based on the division of labor and respective contributions, Long believed that the four individuals should receive equal shares of the gross profit. When Long complained, the Piercys padlocked him off the property and threatened to call the sheriff, then stopped paying Long. A state court chancellor found that Long was entitled to the difference between what the Piercys had paid him and what Long should have received ($151,670.87) but rejected Long’s claim for lost anticipated profits, declining to find that the Piercys breached the partnership agreement but assessing costs against the Piercys.The Piercys sought Chapter 7 bankruptcy relief. Long initiated adversary proceedings, seeking a declaration that the judgment was nondischargeable under 11 U.S.C. 523(a)(4) for debts incurred by embezzlement, or through defalcation while acting in a fiduciary capacity. The Sixth Circuit reversed the bankruptcy court and district court. Long’s state-court judgment may be declared nondischargeable if Long can produce evidence of wrongful intent. The state-court judgment is unclear as to the basis for its relief and does not preclude a finding of fraud. Under the Tennessee Revised Uniform Partnership Act, partners owe each other fiduciary duties. View "Long v. Piercy" on Justia Law