Justia Bankruptcy Opinion Summaries

Timothy Blixseth and his wife, Edra, developed the Yellowstone Mountain Club, an exclusive ski and golf resort in Montana that caters to the “ultra-wealthy.” Edra subsequently filed for bankruptcy on behalf of the Yellowstone entities, and the U.S. Trustee appointed nine individuals to serve as the Unsecured Creditors' Committee (UCC). Blixseth suspected that his attorney, Stephen Brown, used confidential information to Blixseth’s detriment in the bankruptcy proceedings. Brown was one of the UCC members. Blixseth filed suit against Brown, but the district court held that it lacked jurisdiction because Blixseth did not first obtain the bankruptcy court’s permission to sue, as required by Barton v. Barbour. No court of appeals has held that Barton applies to suits against UCC members, but some have extended Barton to actors who are not bankruptcy trustees or receivers. Because creditors have interests that are closely aligned with those of a bankruptcy trustee, the court explained that there is good reason to treat the two the same for purposes of the Barton doctrine. Therefore, the court concluded that Barton applies to UCC members like Brown who are sued for acts performed in their official capacities. The court also concluded that Blixseth does not need permission from the bankruptcy court before bringing his pre-petition claims in district court. In this case, Blixseth's claims of misconduct are so intertwined with and dependent upon Brown's actions as a member of the UCC that it is impossible to separate the pre-petition claims from Brown’s activities on the UCC. However, the court concluded that Blixseth needed the bankruptcy court’s permission before bringing claims challenging conduct related to Brown's actions after he was appointed UCC chair in district court. Finally, the court concluded that the district court’s order did not afford Blixseth anything close to an independent decision by an Article III adjudicator; Stern v. Marshall does not preclude bankruptcy courts from adjudicating Barton claims; and the court remanded for the bankruptcy court to consider whether Brown is entitled to derived judicial immunity for Blixseth’s post-petition claims. Accordingly, the court affirmed in part, vacated in part, and remanded in part. View "Blixseth v. Brown" on Justia Law

The government appeals the bankruptcy court's decision regarding the interest due from defendant for the taxable year 1998. In this case, the tax court never reached the issue of defendant's interest owed on the 1998 tax deficiency. Therefore, the bankruptcy court erred in deferring to the tax court for its calculation of the interest on defendant's underpayment for 1998. Accordingly, the court reversed the district court's judgment affirming the bankruptcy court. The court remanded for further proceedings. View "United States v. Beane" on Justia Law

The Eleventh Circuit Court of Appeals certified two questions of Georgia law to the Georgia Supreme Court, centering on whether Georgia exempts the funds in a health savings account (HSA) from inclusion in a bankruptcy estate. Debtor Denise Mooney filed for Chapter 7 bankruptcy protection, listing a HSA on her petition, but exempting the entire amount in the account. Georgia law exempts the debtor’s right to receive “[a] disability, illness, or unemployment benefit,” and and “payment[s] under a pension, annuity, or similar plan or contract on account of illness, disability, death, age, or length of service, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor.” The Chapter 7 trustee in this case objected to the HSA exemption. The Georgia Supreme Court held that an HSA did not constitute a right to receive a "disability, illness or unemployment benefit" under Georgia law, nor did it constitute a right to receive a "payment under a pension, annuity or similar plan or contract." View "Mooney v. Webster" on Justia Law

Debtor appealed from the bankruptcy court's order denying his motion to reinstate his dismissed Chapter 13 bankruptcy case and an order denying his motion to reconsider that order. The panel concluded that the bankruptcy court did not clearly err in concluding that debtor had no meritorious defense to the UST’s motion to dismiss. Therefore, the panel affirmed the bankruptcy court's order denying debtor's motion to reinstate the dismissed case and denying his motion to reconsider. View "Paulson v. McDermott" on Justia Law

In 2010, EFIH borrowed $4 billion at a 10% interest rate, issuing notes secured by its assets; the Indenture states that EFIH may redeem the notes for the principal amount plus a “make-whole premium” and accrued, unpaid interest. It contains an acceleration provision that makes “all outstanding Notes . . . due and payable immediately” if EFIH files for bankruptcy. Interest rates dropped. Refinancing outside of bankruptcy would have required EFIH to pay the make-whole premium. EFIH disclosed to the Securities and Exchange Commission a “proposal [whereby] . . . EFIH would file for bankruptcy and refinance the notes without paying any make-whole amount.” EFIH later filed Chapter 11 bankruptcy petitions, seeking leave to borrow funds to pay off the notes and to offer a settlement to note-holders who agreed to waive the make-whole. The Trustee sought a declaration that refinancing would trigger the make-whole premium and that it could rescind the acceleration without violating the automatic stay. The Bankruptcy Court granted EFIH’s motion to refinance. EFIH paid off the notes and refinanced at a much lower interest rate; the make-whole would have been approximately $431 million. The Bankruptcy Court and district court concluded that no make-whole premium was due and that the noteholders could not rescind acceleration. The Third Circuit reversed. The premium, meant to give the lenders the interest yield they expect, does not fall away because the full principal amount becomes due and the noteholders are barred from rescinding acceleration of debt. View "In re: Energy Future Holdings Corp." on Justia Law

Debtor appealed the bankruptcy court's order denying his third motion to reconsider the order dismissing his chapter 7 case. The Bankruptcy Appellate Panel (BAP) concluded that, although debtor argues in his brief that the dismissal order was erroneous, he failed to file a timely notice of appeal from that order and the panel lacked jurisdiction to review it. The BAP also concluded that the bankruptcy court did not abuse its discretion when it denied his third motion for reconsideration. Accordingly, the BAP affirmed the judgment. View "Lee v. Edwards" on Justia Law

Debtor filed for Chapter 7 bankruptcy and claimed a $15,000 exemption in a homestead he owned as a tenant in the entirety with his wife. The bankruptcy court granted debtor's motion to avoid CRP's judicial lien and the BAP affirmed. CRP appealed. The court vacated and remanded to the bankruptcy court for it to determine whether CRP has a judicial lien on the property that is either enforceable or unenforceable. View "CRP Holdings v. O'Sullivan" on Justia Law

In 2013, the City of Detroit filed for chapter 9 bankruptcy protection, facing problems “run[ning] wide and deep”—including the affordable provision of basic utilities. In 2014, plaintiffs, customers, and the purported representatives of customers, of the Detroit Water and Sewerage Department (DWSD), filed an adversary proceeding, based on DWSD’s termination of water service to thousands of residential customers. Citing 42 U.S.C. 1983 and the Supreme Court holding in Monell v. Department of Social Services, plaintiffs sought injunctive relief. The Sixth Circuit affirmed dismissal. Section 904 of the Bankruptcy Code explicitly prohibits this relief. Whether grounded in state law or federal constitutional law, a bankruptcy court order requiring DWSD to provide water service at a specific price, or refrain from terminating service would interfere with the City’s “political [and] governmental powers,” its “property [and] revenues,” and its “use [and] enjoyment of . . . income-producing property,” 11 U.S.C. 904. Plaintiffs’ due process and equal protection claims were inadequately pled. View "Lyda v. City of Detroit" on Justia Law

Debtors filed a voluntary Chapter 7 bankruptcy petition in 2008, signed by Fullen as the attorney of record. The original petition, schedules, and statement of financial affairs (SoFA), did not disclose Debtors’ interests in several trusts and corporations, annuities, property held for others, bank accounts, and an assignment to Grusin. The Trustee required both Debtors to submit an affidavit, affirming that they had read and signed their documents; that they were personally familiar with the information contained in the documents; and that, to the best of their knowledge, that information was true and correct. During the section 341 Meeting, Debtors testified under oath that they had helped prepare, had read, and had signed their bankruptcy petition; that it listed all of their assets and liabilities; that the information contained in their schedules and SoFA was true; and that the statements in their Affidavits were true. The SoFA and schedules were amended multiple times. The Trustee and creditors conducted extensive discovery and filed an adversary proceeding, seeking denial of discharges. The bankruptcy court removed Fullen and Grusin as counsel for Debtors, imposed sanctions on the attorneys, and, after a trial with new counsel, denied discharges pursuant to Bankruptcy Code sections 727(a)(2)(A) and (B) and 727(a)(4). The Sixth Circuit Bankruptcy Appellate Panel affirmed the denial of discharges under section 727(a)(4) for making false oaths. Separately, the Panel vacated sanctions against Grusin. View "In re: Blasingame" on Justia Law

The bankruptcy court imposed Rule 9011 sanctions against attorneys stemming from their representation of debtors in an adversary proceeding in which a creditor and the trustee sought denial of discharge. The attorney filed notice of appeal regarding the sanctions order. The bankruptcy court subsequently set the amount of sanctions and, days later, amended that order and imposed additional sanctions under 28 U.S.C. 1927. The Sixth Circuit Bankruptcy Appellate Panel first denied motions to dismiss an appeal, holding that it had jurisdiction because the amount of sanctions was set forth in a final order. Notice of appeal was timely filed. Resolution of the sanctions issue will have no discernable impact on the pending discharge issue. The Panel subsequently vacated the sanctions order. In seeking the sanctions, the creditor did not comply with Rule 9011’s “safe harbor” notice requirement and the exception to that requirement did not apply. The bankruptcy court also erred as a matter of law in concluding that the attorney’s “shadow representation” of the debtors vexatiously and unreasonably multiplied the proceedings. In a separate opinion, the Panel upheld the bankruptcy court's ultimate denial of discharges.. View "In re: Blasingame" on Justia Law