Justia Bankruptcy Opinion Summaries

For six decades, the Fair family operated Fair Finance Company in Ohio. In 2002, Durham and Cochran purchased the Company in a leveraged buyout and transformed its factoring operation into a front for a Ponzi scheme, to fund their extravagant lifestyles and struggling business ventures. Textron allegedly assisted in the concealment and perpetuation of the Ponzi scheme. In 2009, the scheme collapsed. Durham, Cochran, and the Company’s CFO, were indicted for wire fraud, securities fraud, and conspiracy. The Company entered involuntary bankruptcy. The Chapter 7 Trustee brought adversary proceedings on behalf of the estate for the Ponzi scheme’s unwitting investors. The district court granted Textron’s motion to dismiss. The Sixth Circuit reversed with respect to a claimed actual fraudulent transfer, holding that the Trustee sufficiently alleged facts to demonstrate an ambiguity in a 2004 financing and funding contract between the Company and Textron. The court held that the Trustee was not required to plead facts in anticipation of Textron’s potential in pari delicto affirmative defense to survive a motion to dismiss a civil conspiracy claim. In light of the reinstatement of those claims, the court reversed the dismissal of equitable subordination and disallowance claims. The court affirmed the dismissal of the Trustee’s constructive fraudulent transfer claim as time barred. View "Bash v. Textron Fin. Corp." on Justia Law

David Freeman and his cohort of investors, including William Del Biaggio, III, purchased the Nashville Predators, a National Hockey League (NHL) team in Nashville, Tennessee. As a result of the sale, the Predators became wholly owned and operated by Nashville Hockey Club Limited Partnership, LLC, which is in turn wholly owned by Predators Holdings, LLC (Holdings). Several months after the sale, Freeman learned that Del Biaggio never had the funds to support his guarantees and that the $25 million Del Biaggio already invested was in fact money he had embezzled from his clients. Del Biaggio filed for Chapter 11 bankruptcy which gave rise to the current proceeding. Freeman filed a general unsecured claim against Del Biaggio’s bankruptcy estate seeking damages of an undetermined amount arising from his fraud in the Holdings transaction. In response, the Liquidating Trust Committee of the Del Biaggio Liquidating Trust, the entity charged with prosecuting claims objections in Del Biaggio’s bankruptcy, filed a counterclaim against Freeman and sought summary judgment. The bankruptcy court granted the Committee’s motion for summary judgment, finding Freeman’s claim was subject to mandatory subordination under 11 U.S.C. 510(b). The court concluded that Freeman's claim is a damages claim, and the district court did not err in applying section 510(b) to his claim against Del Biaggio because his claim is one "arising from the purchase or sale" of Holdings. Furthermore, Freeman's claim is not limited to corporate debtors. The court rejected Freeman's remaining claims and affirmed the judgment. View "Liquidating Trust Comm. v. Freeman" on Justia Law

Robert Harris sought to recover in federal bankruptcy court a real estate broker’s commission that he alleged he was owed by Rosa Scarcelli and Oak Knoll Associates, LP (together, Oak Knoll). The bankruptcy court granted Oak Knoll’s motion for summary judgment, concluding, as a matter of law, that Harris was not owed a commission. The First Circuit affirmed, holding that the bankruptcy court correctly granted summary judgment in favor of Oak Knoll, as (1) Harris’s proof of claim for his unpaid commission was unenforceable against Oak Knoll; and (2) Harris failed to identify a right that would entitle him to equitable relief. View "Harris v. Scarcelli" on Justia Law

Almost three years after her involvement in a motor vehicle accident with Petitioner, Respondent brought a personal injury action against Petitioner and his employer (together, Petitioners). Between the time of the accident and the filing of this action, Respondent filed personal bankruptcy and was discharged from her debts. By operation of bankruptcy law, Respondent’s claim became the property of her bankruptcy estate. Issues regarding the claim were litigated in both the circuit court and the bankruptcy court. Eventually, the bankruptcy court granted Respondent’s request to re-open and re-vested her with the claim as of the filing of the bankruptcy petition. Meanwhile, the circuit court awarded summary judgment to Petitioners, ruling that Respondent lacked standing. The court of special appeals reversed, concluding that, because of the bankruptcy court’s ruling, Respondent was an appropriate plaintiff on a timely-filed complaint. The Court of Appeals affirmed, holding (1) summary judgment was inappropriate where the circuit court failed to take into account the legal effect of the bankruptcy court’s decision to re-vest Respondent with her claim against Petitioners; and (2) as a result of the bankruptcy court’s decision, Respondent had standing to prosecute the complaint. View "Morton v. Schlotzhauer" on Justia Law

Tower Homes, LLC retained William Heaton and his law firm (collectively, Heaton) for legal guidance in developing a residential common ownership project. The project eventually failed, and Tower Homes entered Chapter 11 bankruptcy protection. The plan of reorganization and confirmation order stated that the trustee and bankruptcy estate retained all legal claims. The trustee subsequently entered into a stipulation with a group of creditors (collectively, the Creditors) permitting the Creditors to pursue any legal malpractice claims in the Tower Homes’ name. The bankruptcy court then entered an order authorizing the trustee to permit the Creditors to pursue Tower Homes’ legal malpractice claim in Tower Homes’ name. The Creditors subsequently filed a legal malpractice lawsuit against Heaton, naming Tower Homes as plaintiff. The district court granted summary judgment in favor of Heaton, concluding that the stipulation and order constituted an impermissible assignment of a legal malpractice claim to the Creditors. The Supreme Court affirmed, holding (1) the stipulation and order constituted an assignment, which is prohibited under Nevada law; and (2) the Creditors may bring a debtor’s legal malpractice claim pursuant to 11 U.S.C. 1123(b)(3)(B) when certain conditions are met, but those conditions were not met in this case. View "Tower Homes, LLC v. Heaton" on Justia Law

After confirmation of debtor's Chapter 13 bankruptcy plan, he received notice that his work-related travel reimbursement would be withheld at the request of the DOR for the payment of a domestic support obligation (DSO). Because the DOR attempted to intercept a payment to debtor after confirmation of his plan, the bankruptcy court found the DOR in contempt for violating the bankruptcy court’s confirmation order and awarded attorney’s fees to debtor as a result. The district court affirmed the bankruptcy court’s order of contempt and award of attorney’s fees. This case involves the interplay between two sections of the Bankruptcy Code: 11 U.S.C. 362 and 1327. The court concluded that, while the text of section 326(b)(2)(C) appears to permit DSO collection efforts post-petition, the legislative history lacks any suggestion that Congress intended the exception to abrogate the binding effect of section 1327(a). Rather, a plain reading of section 1327(a) makes clear that the binding effect of a confirmed plan encompasses all issues that could have been litigated in debtor's case - including whether the DOR could intercept debtor's reimbursement payment. Accordingly, because debtor's plan fell silent on the issue of whether the DOR could intercept debtor's reimbursement payment, the DOR was prohibited from taking such action. Therefore, the court affirmed the judgment. View "FL Dep't of Revenue v. Gonzalez" on Justia Law

Coles sued to recover an overdue loan that he had extended to a real estate investment company, Cascade. The loan was guaranteed by Glaser and Taylor. That case was settled when Cascade ostensibly paid off the loan, and Coles, in return, executed a release. Shortly after the settlement, Cascade filed for bankruptcy. Coles was forced to surrender most of the settlement proceeds to the bankruptcy trustee as a preferential payment. In a second suit, against Glaser and Taylor, the trial court found that the defendants had breached the settlement agreement and entered judgment in favor of Coles. The court of appeal affirmed, holding that a debt of a contractual co-obligor is not extinguished by another co- obligor's​ pre-bankruptcy payment to a creditor that is later determined to be a bankruptcy preference. View "Coles v. Glaser" on Justia Law

The creditors of a Chapter 7 bankruptcy debtor filed an adversary complaint, arguing that assets held by the debtor’s wife and business (defendants) rightfully belonged to the estate under 11 U.S.C. 542(a). The bankruptcy court recommended, and the district court granted, judgment on the pleadings, saying that the defendants were alter egos of the debtor and the corporate veils should be pierced and the assets “brought into the Debtor’s bankruptcy estate.” Three weeks later, the defendants, having failed to timely appeal the bankruptcy court’s turnover order, appealed the district court’s order remanding the case to the bankruptcy court to implement the district court’s ruling requiring that the defendants’ assets be turned over to the debtor’s estate. The defendants cited 28 U.S.C. 157(c)(1), arguing that the turnover claim was not a “core proceeding,” so only the district court could enter a final order resolving the claim. The Seventh Circuit dismissed their appeal. Core proceedings involve bankruptcy law; non‐core proceedings are proceedings that relate to a bankruptcy but arise under some other body of law. The turnover of the defendants’ assets to the debtor’s estate and their liquidation for the benefit of the defendants is a core proceeding; the limitations on the bankruptcy court’s authority are irrelevant. View "Gemini Int'l, Inc. v. BCL-Burr Ridge, LLC" on Justia Law

Debtor is the mother of a minor who was held in juvenile detention in Orange County for more than a year. At issue is whether a mother’s debt to Orange County arising from her son’s involuntary juvenile detention is a “domestic support obligation” (DSO) and thus excepted from discharge in bankruptcy. The court concluded that it is not. Debtor's debt is not in the nature of domestic support simply because it represents in part the costs of her son’s basic needs. Where the principal purpose of the County’s custody over debtor’s son is public safety, not the son’s domestic well-being or welfare, the debt does not qualify as a DSO. Accordingly, the court reversed the bankruptcy appellate panel's decision. View "Rivera v. Orange Cnty. Prob. Dept." on Justia Law

In each of three cases, a debtor filed for Chapter 13 bankruptcy, represented by counsel. During the bankruptcy proceedings, a debt collector submitted a proof of claim for a “stale” debt, for which the statute of limitations had expired. As required by Bankruptcy Rule 3001, the proof of claim filed by the debt collector accurately noted the origin of the debt, the date of the last payment, and the date of the last transaction. Each debtor objected to the claim; each was disallowed and eventually discharged. Each debtor brought a separate suit against the debt collector, alleging that the act of filing a proof of claim on a time‐barred debt constituted a false, deceptive, misleading, unfair, or unconscionable means of collecting a debt in violation of the Fair Debt Collection Practices Act, 15 U.S.C. 1692. The Seventh Circuit affirmed dismissal of the cases. The debt collectors’ conduct was not deceptive or misleading. The information contained in the proof of claim was not misleading, but set forth accurate and complete information about the status of the debts. View "Owens v. LVNV Funding, LLC" on Justia Law