Justia Bankruptcy Opinion Summaries

Mains executed a mortgage on his home with WAMU in 2006 and made timely payments for about two years. WAMU failed in 2008; the FDIC became its receiver. Chase purchased Mains’s mortgage. Mains fell behind on his payments. He requested loan modifications from Chase three times and discontinued making payments in March 2009. Chase sent Mains a default and acceleration notice in June. In April 2010, Citibank (Chase’s successor) filed for foreclosure in Clark County, Indiana. That court granted Citibank summary judgment in 2013. Mains unsuccessfully appealed, contending that Citibank had committed fraud because it was not the real party in interest but instructed its employees fraudulently to sign documents. In 2015, Mains filed a “rambling, 90‐page” federal court complaint, alleging that he had discovered new evidence that he could not have presented to the state court—undisclosed consent judgments, parties in interest, and evidence of robo‐signing. He claimed to have rescinded his mortgage. He alleged state law claims and violations of: the Real Estate Settlement Procedures Act, 12 U.S.C. 2601; the Truth in Lending Act, 15 U.S.C. 1631; the Fair Debt Collection Practices Act, 15 U.S.C. 1692; and the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. 1961. The district court found that a decision for Mains would effectively nullify the state‐court judgment and dismissed for lack of subject matter jurisdiction under the Rooker‐Feldman doctrine. The Seventh Circuit agreed, but modified so that the dismissal was without prejudice. View "Mains v. Citibank, N.A." on Justia Law

In 2005, the Rhode Island Supreme Court found that title to the Regatta Club in Newport and the parcel of land on which it was constructed belonged to a group of condominium associations. Thereafter, the operator of the Regatta Club (Operator) voluntarily filed for Chapter 11 bankruptcy. Two of the title-holding associations (together, Associations) filed proofs of claim seeking relief for the Operator’s alleged trespass on their property between 1998 and 2005. The First Circuit affirmed the bankruptcy court’s finding that the Associations had impliedly consented to the Operator’s use and occupancy of the Regatta Club and remanded on the issue of whether there was an implied obligation that the Operator pay the Associations for its use and occupancy of the Club. On remand, the bankruptcy court found (1) there was no such implied-in-fact contract between the parties, and (2) the Associations were not entitled to relief under a theory of unjust enrichment. The First Circuit affirmed, holding (1) no implied-in-fact contract existed between the parties; and (2) the bankruptcy court did not abuse its discretion in concluding that inequity would not result if the Operator did not pay the Associations for the use and occupancy of the Regatta Club during the claim period. View "Goat Island South Condominium Ass’n v. IDC Clambakes, Inc." on Justia Law

This case stemmed from the FTC's successful enforcement action against debtor and his former company, Commerce Planet, for violation of the FTC Act, 15 U.S.C. 45(a). On appeal, debtor challenged the district court's order reversing the bankruptcy court's grant of summary judgment and remanding for further fact-finding. The court concluded that it lacked jurisdiction under 28 U.S.C. 1291 because the district court's order did not end the litigation on the merits and leave nothing for the district court to do but execute the judgment; the court lacked jurisdiction under 28 U.S.C. 1292 because the district court did not certify its decision for interlocutory review; the court lacked jurisdiction under 28 U.S.C. 158(d)(1) where the district court's ruling did not end the discrete proceeding before it, namely the FTC's adversary action; and the court explained that Bullard v. Blue Hills Bank compelled the conclusion that rulings in bankruptcy cases that neither end a case nor a discrete dispute, but rather remand for further fact-finding on a central issue, were not final for purposes of section 158(d). Accordingly, the court dismissed the appeal based on lack of jurisdiction. View "Gugliuzza v. FTC" on Justia Law

After KFA filed suit against Hallmark for copyright infringement, Hallmark commenced a "no asset" bankruptcy case. KFA, relying on its "deemed allowed" claim, 11 U.S.C. 502(a), as a final judgment, subsequently filed suit against Mid-Continent, debtor's liability insurer, arguing that the unobjected-to claim constituted a final judgment and was res judicata as to Mid-Continent. The court concluded that the text and structure of the Bankruptcy Code, Rules and Official Forms, and relevant case law all support affirming the district court's grant of summary judgment to KFA. The court held that KFA did not have a "deemed allowed" claim that constituted res judicata against Mid-Continent because in this no asset bankruptcy case, nothing in the court proceedings required claims allowance, no notice was provided to parties in interest to object to claims, and no bankruptcy purpose would have been served by the bankruptcy court's adjudicating KFA's claim. Accordingly, the court affirmed the judgment. View "Kipp Flores Architects, LLC v. Mid-Continent Casualty Co." on Justia Law

Under the terms of a spendthrift trust established by his parents, Defendant was entitled to receive over one million dollars, all to be paid out of trust principal. Before the trust’s first payment, Defendant filed for bankruptcy. The bankruptcy trustee sought a declaratory judgment on the extent of the bankruptcy trustee’s interest in the trust. The bankruptcy court concluded that the bankruptcy trustee, standing as a hypothetical lien creditor, could reach twenty-five percent of Defendant’s interest in the trust. The bankruptcy appellate panel affirmed. On appeal, the Court of Appeals for the Ninth Circuit asked the Supreme Court to clarify the relevant provisions of the California Probate Code. The Supreme Court held (1) where a spendthrift trust pays the beneficiary entirely out of principal, the California Probate Code does not limit a bankruptcy estate’s access to the trust to twenty-five percent of the beneficiary’s interest; and (2) with limited exceptions, a general creditor may reach a sum up to the full amount of any distributions that are currently due and payable to the beneficiary even though they are still in the trustee’s hands and separately may reach a sum up to twenty-five percent of any payments that are anticipated to be made to the beneficiary. View "Carmack v. Reynolds" on Justia Law

Jevic filed for Chapter 11 bankruptcy after its purchase in a leveraged buyout. Former Jevic drivers were awarded a judgment for violations of state and federal Worker Adjustment and Retraining Notification (WARN) Acts, part of which was a priority wage claim under 11 U.S.C. 507(a)(4), entitling them to payment ahead of general unsecured claims. In another suit, a court-authorized committee representing unsecured creditors sued Sun Capital and CIT for fraudulent conveyance in the buyout; the parties negotiated a structured dismissal of Jevic’s bankruptcy, under which the drivers would receive nothing on their WARN claims, but lower-priority general unsecured creditors would be paid. The Bankruptcy Court reasoned that the proposed payouts would occur under a structured dismissal rather than an approved plan, so failure to follow ordinary priority rules did not bar approval. The district court and Third Circuit affirmed. The Supreme Court reversed. The drivers have standing, having “suffered an injury in fact,” or “likely to be redressed by a favorable judicial decision.” A settlement that respects ordinary priorities remains a reasonable possibility and the fraudulent-conveyance claim could have litigation value. Bankruptcy courts may not approve structured dismissals that provide for distributions that do not follow ordinary priority rules without the consent of affected creditors. Section 349(b), which permits a bankruptcy judge, “for cause, [to] orde[r] otherwise,” gives courts flexibility to protect reliance interests, not to make general end-of-case distributions that would be impermissible in a Chapter 11 plan or Chapter 7 liquidation. Here, the priority-violating distribution is attached to a final disposition and does not preserve the debtor as a going concern, nor make the disfavored creditors better off, promote the possibility of a confirmable plan, help to restore the status quo ante, or protect reliance interests. There is no “rare case” exception, permitting courts to disregard priority in structured dismissals for “sufficient reasons.” View "Czyzewski v. Jevic Holding Corp. " on Justia Law

In 2014, Brown filed a voluntary Chapter 7 bankruptcy petition, disclosing her ownership of a residence in Ypsilanti, Michigan, valued at $170,000 and subject to $219,000 in secured mortgage claims held by two separate creditors. Brown’s initial petition stated her intent to surrender her residence to the estate and did not claim any exemptions for the value of her redemption rights under Michigan law. The Trustee sought the court’s permission to sell the house for $160,000 and to distribute the proceeds among Brown’s creditors and professionals involved in selling the home. Brown objected and sought to amend her initial disclosures to claim exemptions for the value of her redemption rights (about $23,000) under Mich. Comp. Laws 600.3240, citing 11 U.S.C. 522(d). The bankruptcy court granted the Trustee permission to sell the property and denied Brown’s requested exemptions. The district court and Sixth Circuit affirmed, reasoning that Brown lacked any equity in the property after it sold for substantially less than the value of the secured claims. View "Brown v. Ellmann" on Justia Law

Netzer, a debtor in bankruptcy, asked the court to discharge a $9,200 debt to Wisconsin’s Office of Lawyer Regulation, imposed as costs in a disciplinary proceeding. The bankruptcy court concluded that the debt is a “fine, penalty, or forfeiture” under 11 U.S.C. 2 and not dischargeable. Netzer had 14 days to appeal, but 41 days later he asked the district judge to excuse his tardiness, contending that until a few days earlier he had not known of the bankruptcy court’s decision. The district court dismissed the appeal as untimely, reasoning that the 14-day period is jurisdictional and that there cannot be equitable exceptions to jurisdictional rules. The Seventh Circuit affirmed, stating that whether or not a given rule is “jurisdictional” it is still a rule and must be enforced. Courts lack an “equitable” power to contradict the bankruptcy statutes and rules. Litigants need only check the court’s electronic docket once a month in order to protect their interests. View "Netzer v. Office of Lawyer Regulation" on Justia Law

After William Douglas Carroll and Carolyn K. Carroll filed for bankruptcy in 2008, RedPen Properties, whose membership consisted solely of the Carrolls, filed for bankruptcy in the same year. The trustee in both these bankruptcy cases sought relief against the Carrolls and their daughters based on their conduct in the bankruptcy case. The bankruptcy court granted the trustee's motion in part and detailed a series of notable actions taken by the Carrolls in bad faith, including seeking to frustrate the sale of property, filings related to movables adversary brought by the Carroll daughters, orders of contempt, attempts to frustrate the sale of the Carrolls' residence and movables, and two attempts to remove the trustee that were wholly unsupported by evidence. The court concluded that the record fully supported the bankruptcy court's determination of bad faith, and the Carrolls have not established that any of the bankruptcy court's findings were clearly erroneous. Therefore, the court affirmed the judgment as well as the attorney fee award. View "Carroll v. RedPen Properties" on Justia Law

After debtor filed for Chapter 7 bankruptcy in 2012, the bankruptcy court appointed a trustee to debtor's estate. In 2014, the trustee initiated this adversary proceeding, seeking to void the garnishments collected by Tower Credit within ninety days prior to debtor's filing for bankruptcy as preferential transfers pursuant to 11 U.S.C. 547(b). The bankruptcy court ultimately granted summary judgment to the trustee and the district court affirmed. The court explained that the combination of Supreme Court precedent and the overwhelming weight of persuasive authority applying section 547(e)(3) make clear that a debtor's wages cannot be transferred until they are earned. Therefore, the court held that a creditor's collection of garnished wages earned during the preference period was an avoidable transfer made during the preference period even if the garnishment was served prior to that period. Accordingly, the court affirmed the judgment. View "Tower Credit v. Schott" on Justia Law