Justia Bankruptcy Opinion Summaries

In 2008, the Blasingames met with attorneys Fullen and Grusin to discuss their financial situation and signed engagement agreements. The Blasingames filed a Chapter 7 bankruptcy petition with Fullen as the attorney of record. Fullen constructed the bankruptcy schedules, obtaining the Blasingames’ financial information from Grusin. The Blasingames claimed less than $6,000 in assets. The bankruptcy court later found the Blasingames failed to disclose millions of dollars in assets that they controlled through a complex web of family trusts, shell companies, and shifting “clearing accounts.”In 2011, the bankruptcy court granted the Trustee summary judgment, denying the Blasingames’ discharge and disqualified the attorneys from further representation of the Blasingames. Although the Blasingames’ new counsel was able to obtain relief from the summary judgment order, their discharge was again denied in 2015. The Bankruptcy Appellate Panel (BAP) affirmed.A major creditor, CJV1, obtained derivative standing from the bankruptcy court to file a malpractice claim against the filing attorneys on behalf of the estate. CJV, in the bankruptcy court, and the Blasingames, in Tennessee state court, filed malpractice complaints. The bankruptcy court refused to approve the Blasingames’ settlement with the attorneys; the BAP and Sixth Circuit dismissed the Blasingame’s appeal for lack of jurisdiction. CJV asserted that the malpractice claims are property of the bankruptcy estate. The bankruptcy court, the BAP, and the Sixth Circuit ruled in favor of the Blasingames. Under Tennessee law, the legal malpractice claims accrued arose post-petition. View "Church Joint Venture, L.P. v. Blasingame" on Justia Law

In 2007, GM sold a power plant to DTEPN, which leased the land under the plant for 10 years. DTEPN agreed to sell utilities produced at the plant to GM, to maintain the plant according to specific criteria, and to address any environmental issues. DTEPN’s parent company, Energy, guaranteed DTEPN’s utility, environmental, and maintenance obligations. Two years later, GM filed for bankruptcy. GM and DTEPN agreed to GM’s rejection of the contracts. DTEPN exercised its right to continue occupying the property. An environmental trust (RACER) assumed ownership of some GM industrial property, including the DTEPN land. DTEPN remained in possession until the lease expired. RACER then discovered that DTEPN had allowed the power plant to fall into disrepair and contaminate the property.The district court dismissed the claims against Energy, reasoning that RACER’s allegations did not support piercing the corporate veil and Energy’s guaranty terminated after GM rejected the contracts in bankruptcy.The Sixth Circuit reversed. Michigan courts have held that a breach of contract can justify piercing a corporate veil if the corporate form has been abused. By allegedly directing its wholly-owned subsidiary to stop maintaining the property, Energy exercised control over DTEPN in a way that wronged RACER. DTEPN is now judgment-proof because it was not adequately capitalized by Energy. RACER would suffer an unjust loss if the corporate veil is not pierced. Rejection in bankruptcy does not terminate the contract; the contract is considered breached, 11 U.S.C. 365(g). The utility services agreement and the lease are not severable from each other. Energy guaranteed DTEPN’s obligations under the utility agreement concerning maintenance, environmental costs, and remediation, so Energy’s guaranty is joined to DTEPN’s section 365(h) election. View "EPLET, LLC v. DTE Pontiac North, LLC" on Justia Law

Conti attended the University of Michigan, 1999-2003, obtaining a bachelor’s degree in musical arts. Conti obtained private loans from Citibank totaling $76,049. Conti’s loan applications are all expressly “[f]or students attending 4-year colleges and universities.” They request information regarding the school’s identity and the academic year and specify that the student may “borrow up to the full cost of education less any financial aid.” The applications include a section where the school financial aid office can certify the applicant’s year, enrollment status, and recommended disbursement dates. Each application incorporates by reference an attached promissory note, stating that “the proceeds of this loan are to be used for specific educational expenses.” Citibank apparently disbursed each loan to Michigan directly. None of the loan amounts exceeded the cost of attendance at Michigan for the relevant enrollment period minus the maximum sum of Conti's federal Pell grant for the same period. In 2011-2016, Conti made payments on the loans, which were assigned to Arrowood.In 2017, Conti filed for voluntary Chapter 7 bankruptcy, listing the Citibank loans as dischargeable. Conti filed an adversary proceeding seeking to determine that they were not excepted “qualified education loan[s]” under 11 U.S.C. 523(a)(8). The bankruptcy court granted Arrowood summary judgment. The district court and Sixth Circuit affirmed. The plain language of the loan documents demonstrated they were qualified education loans. View "Conti v. Arrowood Indemnity Co." on Justia Law

Glenview, a Glasgow, Kentucky nursing home, jointly owned by Bush and Howlett for over 30 years, filed a voluntary chapter 11 bankruptcy petition. The Official Creditors Committee was formed and filed an application to retain DBG, with a declaration from DGB's managing partner, disclosing that DBG had previously represented Howlett in estate planning matters, unrelated to the Chapter 11 case, that the representation concluded in 2017, and that the professionals who represented Howlett would not represent the Committee. Glenview filed an objection, although Howlett did not, asserting that DBG assisted Glenview and Howlett with the preparation of a buy-sell agreement for Glenview and all its assets, attaching an invoice from DBG for a period in 2016. DBG asserted that no buy-sell agreement was consummated, and that the representation related only to estate planning. The bankruptcy court heard arguments but did not conduct an evidentiary hearing, then denied the Committee’s application to employ DBG.The Sixth Circuit Bankruptcy Appellate Panel vacated, finding that the court abused its discretion under 11 U.S.C. 1103. State and federal courts jealously guard the attorney-client relationship and that solicitude extends to a committee’s choice of counsel in bankruptcy. View "In re Glenview Health Care Facility, Inc." on Justia Law

After Tennial’s mortgage company foreclosed on her home, she filed a Chapter 13 bankruptcy petition. Her petition triggered an automatic stay of any further action against her home, allowing her to continue living there, 11 U.S.C. 362. The next year, REI bought Tennial’s home from the mortgage company and, on REI’s motion, the bankruptcy court terminated the stay on September 12, 2019. Tennial’s attorney received electronic notice of the order the same day, and the court mailed a copy to Tennial by first class mail on September 14.Under Rule 8002(a)(1) of the Federal Rules of Bankruptcy Procedure, Tennial had 14 days—through September 26—to appeal the order. Tennial filed her notice of appeal on October 9. At the bottom of her notice, she wrote, “I did not receive a copy of the order until September 26, 2019, via U.S. Postal Service.” The court dismissed, concluding that it lacked jurisdiction to review the order because Tennial waited too long to file the appeal and failed to move for an extension under Bankruptcy Rule 8002(d).The Sixth Circuit affirmed. While the deadline does not create a limitation on subject matter jurisdiction, Tennial missed the deadline and the deadline is mandatory. View "Tennial v. REI Nation, LLC" on Justia Law

Title IV of the Employee Retirement Income Security Act of 1974 (ERISA) creates an insurance program to protect employees’ pension benefits. The Pension Benefit Guaranty Corporation (PBGC)—a wholly-owned corporation of the U.S. government—is charged with administering the pension-insurance program. PBGC terminated the “Salaried Plan,” a defined-benefit plan sponsored by Delphi by an agreement between PBGC and Delphi pursuant to 29 U.S.C. 1342(c). Delphi had filed a voluntary Chapter 11 bankruptcy petition and had stopped making contributions to the plan. The district court rejected challenges by retirees affected by the termination.The Sixth Circuit affirmed. Subsection 1342(c) permits termination of distressed pension plans by agreement between PBGC and the plan administrator without court adjudication. Rejecting a due process argument, the court stated that the retirees have not demonstrated that they have a property interest in the full amount of their vested, but unfunded, pension benefits. PBGC’s decision to terminate the Salaried Plan was not arbitrary and capricious. View "Black v. Pension Benefit Guaranty Corp." on Justia Law

The Harrises filed a voluntary Chapter 13 bankruptcy petition. The bankruptcy court issued an automatic stay. The Harrises’ neighbors, the Cooleys, subsequently filed a lawsuit, seeking removal of an encroaching fence. While the state court case remained pending, the Harrises filed an adversary proceeding against the Cooleys, alleging violation of the bankruptcy court order by filing the state court complaint and that the Cooleys “continue to pursue to take control of" property of the bankruptcy estate (the fence) to which, the Harrises alleged, they were entitled by adverse possession.The bankruptcy court dismissed the Harrises’ adversary proceeding on abstention grounds. The district court and Sixth Circuit affirmed. The bankruptcy court did not abuse its discretion: the adverse possession claim is governed by state law, and in Ohio, such a claim is “disfavored.” The property at issue is not a part of the bankruptcy estate and the disposition of the Harrises’ adverse possession claim will not impact the administration of the bankruptcy proceeding. Rejecting an argument that the Cooleys knowingly violated the bankruptcy court order, the court noted that they are not creditors of the bankruptcy estate and the Harrises do not allege that they were injured by the state court action. The automatic stay provision provides that only “an individual injured by any willful violation of a stay” may recover damages, 11 U.S.C. 362(k)(1). View "In re Harris" on Justia Law

Davis sought relief under Chapter 13 of the Bankruptcy Code. She had fewer than $39,000 in assets but more than $200,000 in debt--more than $189,000 was unsecured. Chapter 13 allows Davis to satisfy her unsecured debts by paying all her disposable income to her unsecured creditors during a 60-month period, 11 U.S.C. 1325(b)(1)(B). Davis proposed to pay her unsecured creditors a total of $19,380—60 monthly payments of $323. To obtain court approval, her plan needed to provide for payment of all her “projected disposable income” to her unsecured creditors. Although she reported gross monthly income of $5,627, Davis claimed $5,304 in allowable monthly expenses, including a $220.66 monthly 401(k) retirement contribution withheld from her monthly wages. The bankruptcy court concluded that wages withheld as voluntary 401(k) contributions are considered disposable income, even if the debtor began making those contributions before bankruptcy. Davis filed an amended bankruptcy plan that would pay her unsecured creditors $519 each month. The bankruptcy court confirmed the amended plan over Davis’s objection. The Seventh Circuit vacated and remanded. The statutory text excludes voluntary retirement contributions from disposable income View "In re: Davis" on Justia Law

In 2010, Hill, a principal of Meridian and the other principals sold Meridian to CMCO; the former Meridian principals were to work for CMCO. In 2012, Hill accepted employment with CMCO’s competitor, Peoples. CMCO filed suit, alleging that he breached his contract and shared trade secrets. CMCO settled its claims against Peoples. Hill proceeded pro se. Hill failed to attend a pretrial conference. The state court granted a default judgment. Hill also declined to appear for the damages trial. Hill asserts that he never received the order scheduling a pretrial conference but admits that he was initially aware of the date. Hill further acknowledged that he knew of the trial date because he spoke with the judge by phone and was warned that if he did not appear “adverse things [were] likely [to] happen.” He contends that a bankruptcy attorney he was consulting advised him that he need not participate because any judgments would “go away” in bankruptcy. The court granted CMCO judgment, finding Hill’s actions willful, intentional, in bad faith, egregious, and done with malice. The court awarded $3,417,477.Hill then filed his Chapter 7 bankruptcy petition. The bankruptcy court lifted the automatic stay, 11 U.S.C. 362(d), with respect to CMCO’s judgment.CMCO filed an adversary proceeding. The court found the damages judgment nondischargeable, 11 U.S.C. 523(a)(2)(A), (a)(4), (a)(6), applying collateral estoppel based on the state court finding that Hill’s actions caused “willful and malicious injury.” Hill unsuccessfully sought to vacate the state court judgment. The district and Sixth Circuit affirmed the bankruptcy court’s grant of summary judgment to CMCO. ” The state court damages judgment provided preclusive effect to the determination of the nondischargeability of Hill’s debt. View "In re: Hill" on Justia Law

David and his parents, Don and Martha, were named as defendants in an unfair competition lawsuit brought by MarketGraphics, a company with which Don had previously been associated. Before MarketGraphics could proceed to judgment, Don and Martha filed for Chapter 7 bankruptcy. When MarketGraphics obtained a judgment against David, he filed his own Chapter 7 proceedings. The MarketGraphics judgment included findings that the defendants “willfully or knowingly” violated the Tennessee Consumer Protection Act, willfully infringed upon MarketGraphics’s copyrighted works, acted in concert with Don to violate Don’s non-compete agreement with MarketGraphics, and wrongfully impaired goodwill among Memphis customers.In David’s bankruptcy proceeding, MarketGraphics initiated adversary proceedings, asserting that its claim should be exempted from discharge under 11 U.S.C. 523(a)(6), which prevents a debtor from discharging claims for injuries he willfully and maliciously caused. The bankruptcy court denied MarketGraphics’s request. The Sixth Circuit affirmed. Nothing in the record of these proceedings or the proceedings for the underlying judgment supports a finding that David acted with the requisite intent under section 523(a)(6) to harm MarketGraphics. The court rejected MarketGraphics’s contention that it was precluded from reviewing that issue in the first instance. Even assuming that the common law claims facially demonstrate “willful and malicious” injury, the underlying judgment is too vague to carry preclusive effect. View "MarketGraphics Research Group, Inc. v. Berge" on Justia Law