Justia Bankruptcy Opinion Summaries

Reid founded Capitol, which owned commmunity banks, and served as its chairman and CEO. His daughter and her husband served as president and general counsel. Capitol accepted Federal Reserve oversight in 2009. In 2012, Capitol sought Chapter 11 bankruptcy reorganization and became a “debtor in possession.” In 2013, Capitol decided to liquidate and submitted proposals that released its executives from liability. The creditors’ committee objected and unsuccessfully sought derivative standing to sue the Reids for breach of their fiduciary duties. The Reids and the creditors continued negotiation. In 2014, they agreed to a liquidation plan that required Capitol to assign its legal claims to a Liquidating Trust; the Reids would have no liability for any conduct after the bankruptcy filing and their pre-petition liability was limited to insurance recovery. Capitol had a management liability insurance policy, purchased about a year before it filed the bankruptcy petition. The liquidation plan required the Reids to sue the insurer if it denied coverage. The policy excluded from coverage “any claim made against an Insured . . . by, on behalf of, or in the name or right of, the Company or any Insured,” except for derivative suits by independent shareholders and employment claims (insured-versus-insured exclusion). The Liquidation Trustee sued the Reids for $18.8 million and notified the insurer. The Sixth Circuit affirmed a declaratory judgment that the insurer had no obligation with respect to the lawsuit, which fell within the insured-versus-insured exclusion. View "Indian Harbor Insurance Co. v. Zucker" on Justia Law

The Debtor owned nonresidential real estate that FNB sold in a pre-petition foreclosure sale. Before Debtor's bankruptcy filing, FNB obtained a deficiency judgment and filed two judicial liens. During her chapter 7 case, Debtor moved, under 11 U.S.C. 522(f)(1)(A), to avoid those liens as impairing Debtor’s Ohio homestead exemption in her residence. The bankruptcy court denied Debtor’s motion, ruling that section 522(f)(2)(C) specifically prohibits the avoidance of a deficiency judgment lien because it is a lien based on a judgment arising out of a mortgage foreclosure. The Sixth Circuit Bankruptcy Appellate Panel reversed, finding that section 522(f)(2)(C) is not ambiguous, so reference to either state law or legislative history is not required to interpret it. Section 522(f)(2)(C) does not preclude avoidance of mortgage deficiency judgment liens but “clarifi[es] that the entry of a foreclosure judgment does not convert the underlying consensual mortgage into a judicial lien which may be avoided.” The court noted that most courts hold that mortgage deficiency liens are not "judgments [that] aris[e] out of a mortgage foreclosure" and are therefore avoidable. View "In re: Pace" on Justia Law