Justia Bankruptcy Opinion Summaries

In 2005, Studio entered into a commercial lease with LFLP. The debtor signed the lease as Studio's president and signed a separate personal guaranty. In 2008, the debtor filed a Chapter 7 petition, listing LFLP as a creditor; LFLP received notice of the filing and of the discharge. In 2011, the debtor, on behalf of Studio, exercised a five-year lease extension option. Studio vacated the premises before the end of the extended term. LFLP sued in Ohio state court, based on the personal guaranty. The debtor included “Discharge in Bankruptcy” as an affirmative defense. The bankruptcy court reopened the bankruptcy; the debtor filed this adversary proceeding, asserting that the personal guaranty was discharged and that LFLP willfully violated the discharge injunction by filing the state court action. The defendants argued that the lease extension resurrected the personal guaranty and that the original lease and the extension contained a survivability clause that superseded the bankruptcy.The bankruptcy court concluded that the 2008 discharge meant that the debtor was no longer liable under the Guaranty and that filing and continuing the state court action were willful violations of the discharge injunction. The Sixth Circuit Bankruptcy Appellate Panel affirmed in part. A pre-petition personal guaranty is a contingent debt that is discharged in bankruptcy. The court reversed the holding that the defendants willfully violated the discharge injunction and an award of damages in light of the Supreme Court’s 2019 Taggert decision. View "In re: Orlandi" on Justia Law

Attorney Boland was a technology expert for defendants charged with possessing child pornography. Boland started with innocuous online stock photographs of young girls (Doe and Roe) and manipulated the photographs on his computer to create images of the girls engaged in sex acts, to support arguments that it was possible the pornography his clients downloaded was also doctored. An Oklahoma federal prosecutor claimed that the exhibits were actionable. The judge told Boland to delete the images. Boland instead shipped his computer to Ohio and continued using the exhibits in court although 18 U.S.C. 2256(8)(C) defines “child pornography” as any image which is morphed to make it appear that a real minor is engaging in sexually explicit conduct. Ohio federal prosecutors offered Boland pre-trial diversion in lieu of prosecution; Boland admitted he violated federal law. Federal prosecutors identified the girls and told their parents what Boland had done. They sued Boland under 18 U.S.C. 2255, which provides minimum damages of $150,000 to child pornography victims. They won a combined $300,000 judgment. Boland filed for Chapter 7 bankruptcy. The Sixth Circuit reversed the discharge of the debt, citing 11 U.S.C. 523(a)(6). The debt arose from “willful and malicious injury by the debtor.” The court rejected Boland’s “implausible pleas of ignorance.” The act itself is the injury. Doe and Roe had to prove only that Boland knew he was dealing with child pornography and knew the girls' images depicted real minors. View "In re: Boland" on Justia Law

FES distributes electricity, buying it from its fossil-fuel and nuclear electricity-generating subsidiaries. FES and a subsidiary filed Chapter 11 bankruptcy. The bankruptcy court enjoined the Federal Energy Regulatory Commission (FERC) from interfering with its plan to reject certain electricity-purchase contracts that FERC had previously approved under the Federal Power Act, 16 U.S.C. 791a or the Public Utilities Regulatory Policies Act, 16 U.S.C. 2601, applying the ordinary business-judgment rule and finding that the contracts were financially burdensome to FES. The counterparties were rendered unsecured creditors to the bankruptcy estate. The Sixth Circuit agreed that the bankruptcy court has jurisdiction to decide whether FES may reject the contracts, but held that the injunction was overly broad (beyond its jurisdiction) and that its standard for deciding rejection was too limited. The public necessity of available and functional bankruptcy relief is generally superior to the necessity of FERC’s having complete or exclusive authority to regulate energy contracts and markets. The bankruptcy court exceeded its authority by enjoining FERC from “initiating or continuing any proceeding” or “interfer[ing] with [its] exclusive jurisdiction,” given that it did not have exclusive jurisdiction. On remand, the bankruptcy court must reconsider and decide the impact of the rejection of these contracts on the public interest—including the consequential impact on consumers and any tangential contract provisions concerning such things as decommissioning, environmental management, and future pension obligations—to ensure that the “equities balance in favor of rejecting the contracts.” View "In re: FirstEnergy Solutions Corp." on Justia Law

In March 2017, Debtor purchased a vehicle with Creditor-provided financing. In July 2018, Debtors filed a chapter 13 bankruptcy petition and proposed plan. The proposed plan did not treat any claims in Section 3.2 (Request for valuation of security, payment of fully secured claims, and modification of under-secured claims), but treated Creditor’s “910” claim (a claim relating to a vehicle loan initiated less than 910 days earlier) in Section 3.3 (Secured claims excluded from 11 U.S.C. 506). The plan listed the claim as secured by the vehicle, valued it at $10,000, and provided for monthly plan payments to Creditor. Unlike Section 3.2, Section 3.3 does not discuss lien retention for claims. The plan did not have a nonstandard plan provision in Section 8.1 concerning the retention of Creditor’s lien. Creditor filed its Claim and objected to the confirmation of Debtors’ proposed plan, contending that it did not provide that Creditor would retain its lien on the vehicle until Debtors either paid their debt in full under nonbankruptcy law or received their discharge under section 1328. The bankruptcy court overruled the objection. The Sixth Circuit Bankruptcy Appellate Panel reversed. An objection to confirmation must be sustained when a chapter 13 plan fails to provide that the holder of a 910 claim retains the lien securing its claim until the earlier of payment of the underlying debt determined under nonbankruptcy law or discharge under section 1328. View "In re Donnadio" on Justia Law

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

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

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

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

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

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