Justia Bankruptcy Opinion Summaries

In this case before the United States Court of Appeals for the First Circuit, five groups of current and former public employees in the Commonwealth of Puerto Rico (the "Commonwealth") appealed an order by the court overseeing the Commonwealth-wide debt restructuring litigation (the "Title III court") on their motions to secure administrative-expense priority for their back pay claims. The back pay claims arose from allegations that their public employers failed to adjust their wages upward, a violation of Puerto Rico law. The Title III court had previously rejected efforts to assert administrative-expense priority for back pay for work performed before the commencement of the Commonwealth's debt restructuring case under Title III of the Puerto Rico Oversight, Management, and Economic Stability Act ("PROMESA").The appellate court affirmed the Title III court's decision. The appellate court agreed that the pre-petition work claims did not qualify for administrative-expense priority under § 503(b)(1)(A)(ii) of the Bankruptcy Code, which is incorporated into PROMESA, because they were not "wages and benefits awarded pursuant to a judicial proceeding . . . as back pay attributable to any period of time occurring after commencement of the case under this title." The appellate court also held that the Title III court did not abuse its discretion in deferring its decision on administrative-expense status for back pay claims concerning work performed post-petition but for which there has not yet been any judgment in the underlying commonwealth court and agency proceedings. View "Abraham Gimenez Plaintiff Group v. FOMB" on Justia Law

In this case, Steven and Mary Drummond, who resided in their 2017 Tiffin Allegro motor home, filed for Chapter 7 bankruptcy and claimed that their motor home was subject to the homestead exemption as a "mobile home" under Arizona law. The trustee objected, arguing that the Drummonds' motor home was not a mobile home under Arizona law. The United States Bankruptcy Court for the District of Arizona certified the question to the Supreme Court of the State of Arizona: “Whether a motor home in which a person over 18 years of age resides qualifies as a mobile home for the purpose of claiming an Arizona homestead exemption pursuant to A.R.S. § 33-1101(A)(3).” The Supreme Court of the State of Arizona held that a motor home does not qualify for an exemption under A.R.S. § 33-1101(A)(3). The court reasoned that the statutory context of A.R.S. § 33-1101(A)(3) suggests that a "mobile home" under the statute describes a dwelling that is not intended to be moved once placed and physically attached to property. Thus, a "motor home" is not a "mobile home" under the homestead statute because it is readily movable and not anchored to land. View "In re: DRUMMOND" on Justia Law

Cobalt International Energy partnered with three Angolan companies to explore and produce oil and gas off the coast of West Africa. Later, the federal Securities and Exchange Commission announced it was investigating Cobalt for allegations of illegal payments to Angolan government officials and misrepresentation of the oil content of two of its exploratory wells. This led to a significant drop in Cobalt’s stock price and prompted a class action lawsuit from Cobalt's investors, led by GAMCO, a collection of investment funds that held Cobalt shares. Prior to these events, Cobalt had purchased multiple layers of liability insurance from a number of insurance companies, collectively referred to as the Insurers in this case. When the allegations surfaced, Cobalt notified the Insurers, who denied coverage on the grounds that Cobalt's notice was untimely and certain policy provisions excluded the claims from coverage.In 2017, Cobalt filed for bankruptcy and began settlement negotiations with GAMCO. Eventually, a settlement agreement was reached, which stipulated that Cobalt would pay a settlement amount of $220 million to GAMCO, but only from any insurance proceeds that might be recovered. Cobalt and GAMCO then jointly sought approval of the settlement from the federal court and the bankruptcy court, both of which granted approval.The Insurers then filed a petition for a writ of mandamus, arguing that the settlement agreement was not binding or admissible in the coverage litigation, that Cobalt had not suffered a "loss" under the policies, and that GAMCO could not sue the Insurers directly.The Supreme Court of Texas held that (1) Cobalt had suffered a “loss” under the policies because it was legally obligated to pay any recoverable insurance benefits to GAMCO, (2) GAMCO could assert claims directly against the Insurers, and (3) the settlement agreement was not binding or admissible in the coverage litigation to establish coverage or the amount of Cobalt’s loss. The court reasoned that the settlement was not the result of a "fully adversarial proceeding," as Cobalt bore no actual risk of liability for the damages agreed upon in the settlement. The court conditionally granted the Insurers' petition for a writ of mandamus in part, ordering the trial court to vacate its previous orders to the extent they relied on the holding that the settlement agreement was admissible and binding to establish coverage under the policies and the amount of any covered loss. View "IN RE ILLINOIS NATIONAL INSURANCE COMPANY" on Justia Law

In this case, Fieldwood Energy LLC, and its affiliates, who were previously among the largest oil and gas exploration and production companies operating in the Gulf of Mexico, filed for Chapter 11 bankruptcy in 2020 due to declining oil prices, the COVID–19 pandemic, and billions of dollars in decommissioning obligations. In the ensuing reorganization plan, some companies, referred to as the "Sureties", who had issued surety bonds to the debtors, were stripped of their subrogation rights. The Sureties appealed this loss in district court, which held their appeal to be statutorily and equitably moot. The Sureties appealed again to the United States Court of Appeals for the Fifth Circuit, contending that a recent Supreme Court decision altered the landscape around statutory mootness and that the district court treated Section 363(m) as jurisdictional. However, the appellate court affirmed the district court’s decision, concluding that the Supreme Court’s recent decision did not change the application of Section 363(m) in this case, the district court did not treat the statute as jurisdictional, and the Sureties’ failure to obtain a stay was fatal to their challenge of the bankruptcy sale. The court also determined that the provisions stripping the Sureties of their subrogation rights were integral to the sale of the Debtors’ assets, making the challenge on appeal statutorily moot. View "Swiss Re Corporate Solutions America Insurance Co. v. Fieldwood Energy III, L.L.C." on Justia Law

In this case, Autumn Wind Lending, LLC (Autumn Wind) had lent money to Insight Terminal Solutions, LLC (Insight) under an agreement that Insight would not incur any further debt without Autumn Wind's consent. However, Insight defaulted on the loan and filed for bankruptcy, during which it was revealed that it had taken on additional debt from other parties, including John J. Siegel and three family enterprises. Autumn Wind, which had become the parent company of Insight, then filed a lawsuit against these parties, alleging fraud and tortious interference. The United States Court of Appeals for the Sixth Circuit was asked to decide whether the doctrine of res judicata, which bars relitigation of a claim that has been adjudicated, prevented Autumn Wind from bringing these claims. The court held that the doctrine of res judicata did not bar Autumn Wind from bringing its claims. The court reasoned that the claims had not been "actually litigated" because they were dismissed by stipulation in the bankruptcy court, not decided on the merits. Furthermore, Autumn Wind could not have litigated these claims in the bankruptcy court because it was not a party to the bankruptcy proceedings. The court therefore reversed the district court's dismissal of Autumn Wind's claims and remanded the case for further proceedings. View "Autumn Wind Lending, LLC v. Siegel" on Justia Law

The United States Bankruptcy Appellate Panel for the Eighth Circuit reversed and remanded a decision from the bankruptcy court in a case involving unpaid child support. The debtor, Justin Gary LaMonda, petitioned for bankruptcy relief under Chapter 7. He was married to Natalia LaMonda, and after they divorced, he was ordered to pay child support. The case has been converted multiple times, from Chapter 7 to Chapter 13, and then back to Chapter 7 again. Natalia LaMonda filed an unsecured priority claim for unpaid child support, which the Chapter 7 Trustee objected to. The bankruptcy court sustained the Trustee's objection, leading to this appeal.The Appellate Panel found that Natalia LaMonda's claim for unpaid child support arose after the order for relief and before the case was converted under section 1307 of the Bankruptcy Code. According to the Panel, her claim should therefore be treated as if it arose before the petition date, making it eligible for treatment as a priority unsecured claim. Thus, the Panel held that the bankruptcy court erred by disallowing Natalia LaMonda's claim based on the Trustee's objection. The case was reversed and remanded for further proceedings consistent with this opinion. View "LaMonda v. Harder" on Justia Law

This case involves Vertiv, Inc., Vertiv Capital, Inc., and Gnaritis, Inc., Delaware corporations, who sued Wayne Burt, PTE Ltd., a Singaporean corporation, for defaulting on a loan. Vertiv sought damages and a declaratory judgment. Later, Wayne Burt informed the court that it was in liquidation proceedings in Singapore and moved to vacate the judgments against it. The District Court granted the motion and vacated the judgments, reopening the cases. Wayne Burt then moved to dismiss Vertiv’s claims, either on international comity grounds in deference to the ongoing liquidation proceedings in Singapore, or due to a lack of personal jurisdiction. The District Court granted Wayne Burt’s motion to dismiss, concluding that extending comity to the Singaporean court proceedings was appropriate.On appeal, the United States Court of Appeals for the Third Circuit vacated the District Court's decision and remanded the case. The court clarified the standard to apply when deciding whether to abstain from adjudicating a case in deference to a pending foreign bankruptcy proceeding. The court held that a U.S. civil action is “parallel” to a foreign bankruptcy proceeding when: (1) the foreign bankruptcy proceeding is ongoing in a duly authorized tribunal while the civil action is pending in the U.S. court; and (2) the outcome of the U.S. civil action may affect the debtor’s estate. The court also held that a party seeking the extension of comity must show that (1) “the foreign bankruptcy law shares the U.S. policy of equal distribution of assets,” and (2) “the foreign law mandates the issuance or at least authorizes the request for the stay.” If a party makes a prima facie case for comity, the court should then determine whether extending comity would be prejudicial to U.S. interests. If a U.S. court decides to extend comity to a foreign bankruptcy proceeding, it should ordinarily stay the civil action or dismiss it without prejudice. View "Vertiv Inc. v. Wayne Burt PTE Ltd" on Justia Law

In this case, Louisiana Pellets (LAP) built a wood processing facility but encountered financial issues that led to bankruptcy. LAP pursued Chapter 11 bankruptcy and a bankruptcy judge confirmed a Chapter 11 plan along with a liquidating trust agreement. Under the agreement, LAP transferred its remaining assets and causes of actions to the trust. More than a year after the creation of the trust, third parties assigned certain legal claims to the trust that the trustee, Craig Jalbert, pursued in state court. The claims involved misstatements made by Raymond James & Associates in its efforts to raise funds to construct LAP's facility. In response to Jalbert's filing, Raymond James asserted affirmative defenses, citing a pre-bankruptcy indemnity agreement it made with LAP.The United States Court of Appeals for the Fifth Circuit held that Raymond James could not maintain those defenses against the assigned claims. The court reasoned that the express language of the confirmation plan enjoined Raymond James's defensive maneuver. Also, the post-confirmation trust is not the appropriate entity against whom to invoke LAP's indemnity obligation. The court affirmed the bankruptcy court's ruling. View "Raymond James & Assoc v. Jalbert" on Justia Law

The United States Court of Appeals for the Fifth Circuit addressed an unprecedented issue in its circuit regarding the sale of preference claims arising under 11 U.S.C. § 547, in the context of Chapter 11 bankruptcy proceedings. The court was required to decide whether such claims could be sold and if the purchaser had the standing to pursue them.The case was initiated by South Coast Supply Company (South Coast), which filed for Chapter 11 bankruptcy after experiencing financial difficulties. During the proceedings, the company borrowed funds from its then-CFO, Robert Remmert. South Coast later filed a lawsuit against Remmert to avoid more than $300,000 of allegedly preferential transfers made before the bankruptcy proceedings. The company's sole secured lender, Briar Capital Working Fund Capital, L.L.C. (Briar Capital), eventually acquired South Coast's interest in this pending preference action against Remmert.Upon acquiring the lawsuit, Briar Capital was substituted as the assignee of South Coast. Remmert argued that Briar Capital lacked standing to prosecute the preference action. The district court agreed, holding that since a successful recovery would not benefit South Coast’s estate or its unsecured creditors, Briar Capital lacked standing to bring the preference claim against Remmert as a representative of the estate under 11 U.S.C. § 1123(b)(3)(B) of the Bankruptcy Code.On appeal, the Fifth Circuit reversed the district court's decision. The court held that preference actions can be sold pursuant to 11 U.S.C. § 363(b)(1) because they are property of the estate under 11 U.S.C. §§ 541(a)(1) and (7). Furthermore, even if Briar Capital does not qualify as a representative of the estate, it has standing to pursue the preference claim as it validly purchased the claim outright. Therefore, the court remanded the case for further proceedings. View "Briar Capital Working Fund v. Remmert" on Justia Law

In this case, the United States Court of Appeals for the First Circuit considered an appeal from a ruling by the United States District Court for the District of Puerto Rico concerning the restructuring of debts of the Commonwealth of Puerto Rico's public power company (PREPA) under Title III of the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA). The appellants, GoldenTree Asset Management and Syncora Guarantee (the "Bondholders"), held around $1 billion of PREPA's roughly $8 billion in bonds and sought relief from the automatic stay on actions against PREPA's estate, hoping to appoint a receiver for PREPA.The Bondholders argued that the automatic stay lifted by operation of law, because the district court denied their latest motion for relief without first noticing and holding a hearing within the timeframe prescribed by 11 U.S.C. § 362(e)(1). However, the appellate court held that the Bondholders waived their right to a prompt notice and hearing on that motion for relief. The court reasoned that the Bondholders accepted a litigation schedule that postponed any hearing on their request for leave to seek the appointment of a receiver until after a parallel proceeding about whether—and to what extent—the Bondholders had any collateral to protect in the first place. The court therefore affirmed the judgment of the Title III court. View "GoldenTree Asset Management LP v. Financial Oversight and Management Board" on Justia Law