Justia Bankruptcy Opinion Summaries

Peralta bought a house by an installment contract with the seller, Recon. He stopped making payments. Recon sued. To obtain a second chance, Peralta agreed that if he breached again, Recon could get a judgment for possession and immediately evict him. Another breach would extinguish any rights that Peralta had in the house. Peralta stopped paying. Recon obtained a judgment for possession. Peralta stayed in the house and filed for Chapter 13 bankruptcy. Peralta argued that Chapter 13 lets a bankrupt homebuyer “cure[]” a “default” on a mortgage during the bankruptcy process until the home “is sold at a foreclosure sale” 11 U.S.C. 1322(c)(1). Pennsylvania treats foreclosed installment contracts like mortgages, so Peralta argued that cure gave him an interest in his property.Reversing the bankruptcy court, the district court and Third Circuit ruled in favor of Rencon. An installment contract never has a “foreclosure sale.” The property's title stays with the seller until the contract is paid off. For installment contracts, the closest analog to a foreclosure sale is a judgment for possession. Recon got a judgment before Peralta tried to cure, so that remedy was unavailable. That judgment was entered before Peralta filed for bankruptcy, so his home was not part of his bankruptcy estate. Mere possession without a good-faith claim to it did not change that. View "In re: Peralta" on Justia Law

ESML filed for Chapter 11 bankruptcy. Chippewa funded ESML’s exit from bankruptcy. The plan and confirmation order discharged all claims against ESML arising before the plan’s effective date and enjoined actions against ESML and Chippewa by holders of those claims. The Court retained jurisdiction over matters arising under the Bankruptcy Code or arising in or related to the Chapter 11 cases or plan. ESML emerged from bankruptcy as Mesabi. During the bankruptcy case, Chippewa sought to acquire ESML. Its affiliate, ERPI, agreed to engage Riley as its exclusive financial advisor. Riley would receive a “Restructuring Fee” if ERPI successfully acquired ESML. One day before the plan’s effective date, Riley, ERPI, and Chippewa entered an amendment that purported to bind ERPI, Chippewa, and the post-effective date Mesabi. After a debt financing transaction closed, Riley sought payment from Chippewa and Mesabi of a $16 million "success fee." Mesabi refused to pay, Riley filed suit and a FINRA arbitration. Mesabi filed a Bankruptcy Court adversary complaint, maintaining the fee had been discharged.The Bankruptcy Court dismissed the adversary proceeding for lack of jurisdiction. The Third Circuit reversed. The Bankruptcy Court had jurisdiction to interpret and enforce the discharge and injunction provisions of its plan and confirmation order. This matter falls within the category of “core proceedings.” Executing the relevant amendment a day before the plan’s effective date may hint that Chippewa and ERPI tried to circumvent the bankruptcy process. View "Mesabi Metallics Co. LLC v. B. Riley FBR Inc." on Justia Law

In its North Carolina bankruptcy proceedings, Bestwall wanted access to data owned by 10 trusts created to process asbestos-related claims against other companies. Bestwall was facing asbestos liability and wanted the data in order to calculate a settlement trust authorized by 11 U.S.C. 524(g). The data is held by the trusts’ claims processing agent, located in Delaware, which opposed Bestwall’s request. The Bankruptcy Court authorized the issuance of subpoenas. Once Bestwall served those subpoenas, the trusts asked the District Court for the District of Delaware to quash the subpoenas, repeating the same arguments that had been made in the Bankruptcy Court. Asbestos claimants whose information was in the database also joined in the motion to quash. The district court quashed the subpoenas.The Third Circuit reversed and remanded with instructions to enforce the subpoenas as originally ordered. Allowing litigants to invoke issue preclusion on a motion to quash is also consistent with the doctrine’s “dual purposes” of “protect[ing] litigants from the burden of relitigating an identical issue with the same party or his privy” and “promot[ing] judicial economy by preventing needless litigation.” Bestwall may invoke collateral estoppel as a counter to arguments previously litigated in the North Carolina Bankruptcy Court. View "In re: Bestwall LLC" on Justia Law

IImerys sought Chapter 11 bankruptcy protection in response to mounting asbestos and talc personal injury claims. Many of the claimants who will suffer harm from asbestos exposure traceable to the debtor will not manifest those injuries until long after the reorganization process has concluded. Cases involving asbestos liability, therefore, use trusts designed to compensate present and future asbestos claimants, coupled with an injunction against future asbestos liability to allow the debtor to emerge from bankruptcy without the uncertainty of future asbestos liabilities while ensuring claimants would not be prejudiced just because they had not yet manifested injuries at the time of the bankruptcy, 11 U.S.C. 524(g), The provision requires the appointment of a legal representative (FCR) to protect the rights of future claimants. The FCR participates in the negotiation of the reorganization plan and objects to terms that unfairly disadvantage future claimants.A group of insurance companies appealed the appointment of an FCR in the Ilmerys bankruptcy, arguing that the FCR had a conflict of interest because the FCR’s law firm also represented two of the insurance companies in a separate asbestos-related coverage dispute. The Third Circuit affirmed the appointment. The Bankruptcy Court did not abuse its discretion in appointing the FCR. it gave due consideration to the purported conflict and correctly determined that the interests of both the insurance companies and the future claimants were adequately protected. View "In re: Imerys Talc America, Inc" on Justia Law

A group of insurance companies appealed an order appointing a representative for the interests of unidentified future asbestos and talc claimants in an ongoing bankruptcy proceeding. According to these insurers, who fund the asbestos claims trust established under 11 U.S.C. 524(g), this “future claimants’ representative” (FCR) has a conflict of interest precluding him from serving in this role because the FCR’s law firm also represented two of the insurance companies in a separate asbestos-related coverage dispute.The Third Circuit held that the Bankruptcy Court did not abuse its discretion in appointing the FCR. The court gave due consideration to the purported conflict, and correctly determined that the interests of both the insurance companies and the future claimants were adequately protected. View "In re: Imerys Talc America, Inc." on Justia Law

Century issued insurance to BSA and purchased reinsurance. After BSA made claims related to sexual abuse litigation, Century sought to collect on those policies and hired the Sidley’s Insurance Group. The representation did not extend to the underlying direct insurance; BSA was not a party to the reinsurance disputes. BSA later retained Sidley to explore restructuring; the engagement letter specified that Sidley would not “advis[e] [BSA] on insurance coverage.” Sidley filed BSA’s bankruptcy petition.Through Haynes, its insurance counsel, BSA engaged in substantive discussions with its insurers, including Century. Sidley attorneys were present at some meetings. Century did not object. When Century later objected, Sidley implemented a formal ethics screen between its restructuring team and its reinsurance team. Ultimately, the Bankruptcy Court recognized Sidley’s withdrawal. Century is separately pursuing its grievances about Sidley’s representation in arbitration.The Bankruptcy Court concluded that while Sidley may have received confidential information in the reinsurance matter relevant to BSA’s bankruptcy, no privileged or confidential information was shared between the Sidley's legal teams; it approved Sidley’s retention nunc pro tunc, finding no violation of 11 U.S.C. 372(a). The district court and Third Circuit affirmed. Century continued to have standing and the matter is not moot. Because Sidley’s representation of BSA did not prejudice Century, but disqualifying it would have been a significant detriment to BSA, it was well within the Court’s discretion to determine that the drastic remedy of disqualification was unnecessary. View "In re: Boy Scouts of America" on Justia Law

The Debtors filed a Chapter 13 bankruptcy petition. The IRS filed a proof of claim for unpaid taxes and interest, including a $927.00 shared responsibility payment the Debtors owed for failing to maintain health insurance in 2018 as required by the Patient Protection and Affordable Care Act’s (ACA) “Individual Mandate,” 26 U.S.C. 5000A(a). The IRS’s proof of claim characterized the payment as an “EXCISE” tax entitled to priority. The Debtors argued that the shared responsibility payment was a penalty not entitled to priority. The Bankruptcy Court confirmed the Debtors’ repayment plan and subsequently held that the shared responsibility payment is a tax, not a penalty, for bankruptcy purposes and is entitled to priority under 11 U.S.C. 507(a)(8), as either an income or an excise tax.The district court and Third Circuit affirmed. The shared responsibility payment is a tax “measured . . . by income” entitled to priority under Section 507(a)(8)(A). The court noted that the statute describes the payment as a “penalty,” but it is collected by the IRS along with one’s federal income tax return. In 2012, the Supreme Court held that the shared responsibility payment is a tax for constitutional purposes but is not a tax for purposes of the Anti-Injunction Act. View "In re: Szczyporski" on Justia Law

Grace operated a Montana asbestos facility, 1963-1990. Facing thousands of asbestos-related suits, Grace filed for Chapter 11 bankruptcy. Its reorganization plan provided for a several-billion-dollar asbestos personal-injury trust to compensate existing and future claimants. All asbestos-related personal injury claims were to be channeled through the trust (“Grace Injunction,” 11 U.S.C. 524(g)(4)). CNA provided Grace's general liability, workers’ compensation, employers’ liability, and umbrella insurance policies, 1973-1996 and had the right to inspect the operation and to make loss-control recommendations. After 26 years of litigation regarding the scope of CNA’s coverage of Grace’s asbestos liabilities, a settlement agreement ensured that CNA would be protected by Grace’s channeling injunction. CNA agreed to contribute $84 million to the trust.The “Montana Plaintiffs,” who worked at the Libby mine and now suffer from asbestos disease, sued in state court, asserting negligence against CNA based on a duty to protect and warn the workers, arising from the provision of “industrial hygiene services,” and inspections. The Bankruptcy Court initially concluded that the claims were barred by the Grace Injunction but on remand granted the Montana Plaintiffs summary judgment.The Third Circuit vacated. Section 524(g) channeling injunction protections do not extend to all claims brought against third parties. To conform with the statute, these claims must be “directed against a third party who is identifiable from the terms of such injunction”; the third party must be “alleged to be directly or indirectly liable for the conduct of, claims against, or demands on the debtor”; and “such alleged liability” must arise “by reason of” one of four statutory relationships, including the provision of insurance to the debtor. The Bankruptcy Court erred in anlyzing the “derivative liability” and “statutory relationship” requirements. While the claims meet the derivative liability requirement, it is unclear whether they meet the statutory relationship requirement. View "In re: WR Grace & Co" on Justia Law

When Aleckna filed for Chapter 13 bankruptcy, she still owed the University (CCU) tuition. The filing of her bankruptcy petition imposed an “automatic stay” of all collection actions against her. While her case was pending, Aleckna, who had completed her coursework, asked CCU for a copy of her transcript. The University would only provide her with an incomplete transcript that did not include her graduation date, explaining that a “financial hold” had been placed on her account. Aleckna filed a counterclaim in the Bankruptcy Court arguing that CCU violated the automatic stay by refusing to provide her with a complete certified transcript, 11 U.S.C. 362(a)(6).The Bankruptcy Court found in Aleckna’s favor, concluding that she was entitled to receive her complete transcript, plus damages and attorneys’ fees because CCU’s violation was “willful.” The district court and Third Circuit affirmed. Section 362(k) provides that an individual who commits a willful violation is liable for damages and attorneys’ fees unless “such violation is based on an action taken by an entity in the good faith belief” that the stay had terminated. Precedent establishes a “willfulness” defense that is distinct from one of good faith but CCU failed to show that the law regarding the transcript issue was sufficiently unsettled to establish a lack of willfulness within the meaning of that precedent. View "In re: Aleckna" on Justia Law

Westinghouse filed for Chapter 11 bankruptcy. In June 2017, the Bankruptcy Court set a “General Bar Date” of September 1, 2017—the deadline by which creditors had to file proofs of claims for most prepetition claims. The Bankruptcy Court confirmed a Reorganization Plan on March 28, 2018, 11 U.S.C. 1129. The effectiveness of the confirmed Plan was delayed to August 1, 2018, pending the closing of a transaction that required approval from government agencies. Westinghouse gave notice that, under the confirmed Plan, August 31, 2018, was the deadline for filing administrative expense claims.In May 2018, Westinghouse terminated Ellis’s employment, explaining that his department was being restructured. Ellis, age 67, believed he was unlawfully fired due to his age. He filed an EEOC charge in July 2018. The discrimination claim “arose” when he was terminated, so it is a claim after confirmation of the Plan but before its Effective Date. Ellis never took any action in the Bankruptcy Court. In October 2018, Ellis filed suit against Westinghouse, which moved for summary judgment, arguing that Ellis’s claim, as an administrative expense claim not timely filed by the Administrative Claims Bar Date, was discharged. The Third Circuit reversed summary judgment in favor of Ellis. As a matter of first impression, the court reasoned that the holder of a post-confirmation administrative expense claim cannot choose to bypass the bankruptcy process, so if the claim is not timely filed by the bar date, it faces discharge like a preconfirmation claim. View "Ellis v. Westinghouse Electric Co LLC" on Justia Law