Justia Bankruptcy Opinion Summaries

In February 2012, Sheryl Ricketts was involved in a motor vehicle accident. Ricketts underwent surgery for her injuries. In January 2014, Ricketts filed a complaint alleging that Charlie Strange’s negligence was the direct and proximate cause of the accident. Strange moved to summary judgment, alleging that Ricketts lacked standing to pursue her claim because, in September 2012, she had filed a Chapter 7 bankruptcy petition in the bankruptcy court. Strange argued that because Ricketts failed to properly exempt her negligence claim from the bankruptcy estate, the claim was assertable only by the trustee in bankruptcy. The circuit court agreed and granted summary judgment in favor of Strange. The circuit court subsequently denied Ricketts’s motions to correct a misnomer in her complaint or substitute the bankruptcy trustee as the proper plaintiff. The Supreme Court affirmed, holding that the circuit court (1) properly granted Strange’s motion for summary judgment because Ricketts did not properly exempt her negligence claim from the bankruptcy estate, and therefore, Ricketts lacked standing to pursue it; and (2) did not err by denying Ricketts’s motions for leave to amend her complaint. View "Ricketts v. Strange" on Justia Law

After Process Technologies obtained a judgment in state court against debtor for violations of state securities laws, debtor filed for bankruptcy. Process Technologies then filed an adversary proceeding, arguing that 11 U.S.C. 523(a)(19)(A) barred debtor from discharging the debt. The court concluded that debtor cannot discharge his debt because the bankruptcy court made a finding of fact that debtor violated securities laws and, in the alternative, section 523(a)(19)(A) applies irrespective of whether debtor violated securities laws. The court also concluded that debtor is not entitled to leave to amend his complaint. Accordingly, the court affirmed the bankruptcy court's order that excepted the debt from discharge and denied leave to amend. View "Lunsford, Sr. v. Process Technologies Services" on Justia Law

Debtor made false oral statements to his lawyers, Lamar, Archer & Cofrin, LLP, that he expected a large tax refund that he would use to pay his debt to the firm. Debtor filed for bankruptcy after Lamar obtained a judgment for the debt. Lamar then initiated an adversary proceeding to have the debt ruled nondischargeable. The bankruptcy court and the district court determined that the debt could not be discharged under 11 U.S.C. 523(a)(2)(A) because it was incurred by fraud. The court reversed and remanded, concluding that debtor's debt to Lamar can be discharged in bankruptcy. In this case, because a statement about a single asset can be a "statement respecting the debtor's . . . financial condition," and because debtor's statements were not in writing, his debt can be discharged under section 523(a)(2)(B). View "Appling v. Lamar, Archer & Cofrin, LLP" on Justia Law

Before debtor and his wife received the purchase offer on their home, the couple executed and filed a Partition Agreement, which sought to recharacterize their home from community property to separate property, one half belonging to each spouse. Then debtor filed for bankruptcy under Chapter 7, claiming an exemption for his separate interest in the home under Texas law. Debtor's wife subsequently initiated an adversary proceeding seeking a declaratory judgment recognizing that the Partition Agreement gave her a one-half separate property interest in the net proceeds from the sale. The Trustee counterclaimed to avoid the Partition Agreement and for a declaration that the remaining proceeds from the sale were property of the estate. The bankruptcy court declared the Partition Agreement avoidable as a fraudulent transfer, leaving the amount of the net sale proceeds in excess of debtor's exemption to be nonexempt property of the estate, and determined that debtor's wife had no right or interest in the Homestead Net Sale Proceeds by virtue of the Partition Agreement. The court affirmed the bankruptcy court's judgment. In this case, the court explained that allowing the wife to sidestep the statutory limits for homestead exemptions and obtain approximately $500,000 in proceeds that otherwise are for creditors would lay waste to the provisions of the Bankruptcy Code involved here. View "Wiggains v. Reed" on Justia Law

Watson, the chairman of Cyberco, created Teleservices as a “paper company” to run a Ponzi scheme. Teleservices had no separate officers, directors, or employees. Watson borrowed money and instructed lenders to send the money to Teleservices to pay for computer equipment. Watson then moved the money from Teleservices account to Cyberco’s account at Huntington. He used that money to pay salaries and earlier debts. By 2004, Cyberco owed Huntington $16 million. In September 2003, Cyberco tried to deposit a $2.3 million Teleservices check; the check bounced. Huntington employees became suspicious. In January 2004, Huntington asked Cyberco to find a new bank, noting “‘red flags.” As Huntington investigated, Cyberco paid its debt to Huntington. Later, the FBI raided Cyberco’s offices. Watson committed suicide. Cyberco’s creditors commenced an involuntary Chapter 7 proceeding; an appointed receiver filed for Teleservices’s bankruptcy. Teleservices’s bankruptcy trustee sought to recover from Huntington all direct and indirect loan repayments and excess deposits. The bankruptcy court concluded that the trustee could recover $72 million; that Huntington had received transfers in good faith until April 2004; but that Huntington gained inquiry notice of Cyberco’s fraud on September 2003. The district court affirmed. The Sixth Circuit reversed, in part. Cyberco, free to withdraw money from its account, retained “dominion and control,” despite Huntington’s security interest. Huntington gained dominion and control only over money that it received in satisfaction of Cyberco’s debt to it; Huntington was a transferee of direct and indirect loan repayments, but not of the excess deposits. Huntington failed to prove that it received transfers from Teleservices in good faith after April, but precedent does not require recoverability of earlier transfers, just because Huntington had earlier inquiry notice. View "Meoli v. Huntington National Bank" on Justia Law

Cox, the trustee in the Central Illinois Energy Cooperative bankruptcy, appealed a bankruptcy court ruling after it was affirmed by the district court. In the meantime, the parties mediated a settlement and the bankruptcy court stated that it would approve that settlement, subject to the disposition of any objection filed by a creditor or Cox. Cox then moved for dismissal of the appeal. The Seventh Circuit denied the motion. When, as in this case, an appeal is from the district court’s affirmance of a bankruptcy court order, a remand to the bankruptcy court for approval of settlement requires coordination between three courts. Rules 12.1 and 57 both authorize relief only after the district court has said that it is inclined to grant a motion barred by the pending appeal. Although the parties obtained an indicative ruling from the bankruptcy court, there is no record that they sought or obtained an indicative ruling from the district court. The proper procedure is to obtain an indicative ruling from both courts that will need to act. View "Cox v. Nostaw, Inc." on Justia Law

The Department challenges the bankruptcy court's determination that debtor's student loans are dischargeable based on undue hardship under 11 U.S.C. 523(a)(8). The bankruptcy appellate panel concluded that there is no error in the bankruptcy court's determination where the evidence supports the bankruptcy court's conclusion that debtor's income has been consistent and is unlikely to improve in the future; debtor's monthly expenses are reasonable, necessary, modest and commensurate with her income; and debtor's emotional burden related to the student loan obligations, the continued accrual of interest on the loans, the negative credit effect of the loans, and the potential tax obligation when the repayment plan expires were in error also weigh in favor of discharging the student loans for undue hardship. Accordingly, the panel affirmed the bankruptcy court's judgment. View "Fern v. FedLoan Servicing" on Justia Law

In the first case in “a long‐running and acrimonious business dispute,” Lardas claimed fraudulent inducement and breach of contract, arising from a settlement agreement, which Lardas argued was intended to deprive her nephew (Christofalos) of his ownership interest in Wauconda Shopping Center (WSC). The Seventh Circuit affirmed dismissal of Lardas’s case without prejudice, finding that Lardas lacked standing. Lardas had transferred her ownership in a predecessor entity to Christofalos. The second case involves Christofalos’s bankruptcy, in which the court authorized the sale of his interest in WSC (11 U.S.C. 363(b)). The Seventh Circuit dismissed an appeal as moot because the sale has been consummated and third parties have acted in reliance. Christofalos also challenged the denial of a discharge, based on a bankruptcy court finding under 11 U.S.C. 727(a)(4)(A), which authorizes denial of discharge where the debtor has “knowingly and fraudulently … made a false oath or account.” The Seventh Circuit affirmed, noting that Christofalos made a “host of false statements and omissions.” The court also affirmed denial of Christofalos’s “Motion to Reopen Case and Assign a Receiver” in Lardas’s case. View "Christofalos v. Grcic" on Justia Law

The United States District Court for the Western District of Washington certified two questions to the Washington Supreme Court about the application of RCW 49.52.050, the wage rebate act (WRA), in circumstances of chapter 7 bankruptcy: (1) whether an officer, vice principal, or agent of an employer liable for a deprivation of wages under RCW 49.52.050 when his or her employment with the employer (and his or her ability to control the payment decision) was terminated before the wages became due and owing; and (2) whether an officer, vice principal, or agent's participation in the decision to file the Chapter 7 bankruptcy petition that effectively terminated his or her employment and ability to control payment decisions alter the analysis. The Washington Supreme Court answered both questions in the affirmative: (1) officers, vice principals, or agents may be held personally liable under the WRA, even if the payday date for those wages came after the employer filed for chapter 7 bankruptcy; and (2) an officer's participation in the decision to file the chapter 7 bankruptcy petition tends to show a willful withholding of wages-the second element required by the WRA. View "Allen v. Dameron" on Justia Law

The Chapter 7 trustee of James Edwards Whitley's estate challenges the district court's affirmance of the bankruptcy court's grant of summary judgment for the Bank on the trustee’s claim that certain deposits and wire transfers to Whitley’s personal checking account at the Bank are avoidable as fraudulent transfers. The court found that the transactions at issue do not constitute transfers within the meaning of the Bankruptcy Code. The court explained that when a debtor deposits or receives a wire transfer of funds into his own unrestricted checking account in the regular course of business, he has not transferred those funds to the bank that operates the account. When the debtor is still free to access those funds at will, the requisite “disposing of” or “parting with” property has not occurred; there has not been a “transfer” within the meaning of 11 U.S.C. 101(54). Accordingly, the court affirmed the judgment. View "Ivey v. First Citizens Bank & Trust Co." on Justia Law