Justia Bankruptcy Opinion Summaries

GT owed its bank, Comerica, $7.8 million, secured by a lien on all of GT’s assets. GT filed for bankruptcy. Its assets were auctioned off. If the assets sold for more than $7.8 million, the excess would go to the estate. If the assets sold for less than $7.8 million, all of the purchase money would go to Comerica, which would have an unsecured claim for the difference. The successful bidder would take the assets free of Comerica’s lien. Arlington's $2.7 million bid was successful. The bankruptcy trustee believed that Arlington had colluded with GT insiders to keep the price down, and hired the Law Firms to pursue claims under 11 U.S.C. 363(n) to undo the sale or recover the difference. The trustee contended that GT’s assets had been worth $5 million. The GT insiders settled, but Arlington won at trial and was awarded costs. Arlington became a general unsecured creditor for about $5,000. The Law Firms asked the bankruptcy court to approve their fees. Arlington objected, contending that the Firms’ services had not been reasonably likely to benefit the estate, 11 U.S.C. 330(a)(4)(A)(ii)(I).), reasoning that the trustee did not allege that GT’s assets were worth more than $7.8 million. The bankruptcy court and district court agreed with the Law Firms and approved the fee petitions. The Seventh Circuit remanded with instructions to dismiss for lack of standing. Arlington did not show that it stands to benefit if the fees are denied. View "Arlington Capital, LLC v. Bainton McCarthy, LLP" on Justia Law

Attorney James Robinson, Attorney Elbert Walton, and Critique Services, LLC appealed the district court's affirmance of the bankruptcy court's judgment on debtor's motion to disgorge attorney's fees. The court concluded that the district court did not clearly err in determining that, assuming that debtor's claim was property of her Chapter 7 bankruptcy estate, the Trustee abandoned the property. The court also concluded that Appellant's motion to recuse was untimely pursuant to 28 U.S.C. 455(a); even if the motions to recuse were timely, Appellants have not demonstrated that Judge Rendlen’s impartiality might reasonably be questioned; the bankruptcy court did not err in docketing debtor's pro se complaint as a motion to disgorge attorney's fees; Critique Services had been properly served and discovery requests were properly directed to it; debtor's claim is not moot; because settlement in this case was never completed, the bankruptcy court retained authority to order debtor to accept discovery and to sanction Appellants for failing to comply with the court’s orders; and Appellants were not entitled to benefit from the doctrine of unclean hands. Finally, the court concluded that the bankruptcy court did not abuse its discretion by imposing significant sanctions on Appellants, including civil penalties and suspension. Accordingly, the court affirmed the judgment. View "Critique Services, LLC v. Steward" on Justia Law

As an individual and doing business as Halloween Costume World, Appellant filed a voluntary petition for bankruptcy under Chapter 11 of the Bankruptcy Code. The Trustee filed a motion to dismiss or convert the case to a liquidation proceeding under Chapter 7 of the Bankruptcy Code. The district court granted the motion. The district court affirmed, concluding that cause existed to convert the case to Chapter 7 under section 11 U.S.C. 1112(b)(4)(A). The First Circuit affirmed, holding that there was no error of law or abuse of discretion by the bankruptcy court in converting Appellant’s Chapter 11 bankruptcy case to Chapter 7. View "Hoover, III v. Harrington" on Justia Law

This appeal as of right arose from defendants' alleged breach of a settlement agreement executed by defendants and one of the plaintiffs in this action, Globe Motor Company (Globe), to resolve prior litigation between the parties. Shortly after defendants sent two checks totaling $75,000 to plaintiffs to settle the earlier action, a Trustee appointed to represent the estate of an insolvent Minnesota entity brought an adversary proceeding against plaintiffs. The Trustee demanded that plaintiffs disgorge the settlement funds, on the ground that those funds had belonged to the bankrupt entity, not to defendants, and that the transactions were therefore voidable under provisions of the United States Bankruptcy Code, 11 U.S.C.A. 544 and 548. Plaintiffs paid $22,500 to resolve the bankruptcy Trustee's claim. Plaintiffs filed this action against defendants, seeking to recover the money that they paid to settle the bankruptcy proceeding as well as attorneys' fees and costs. The motion judge entered summary judgment for plaintiffs on their breach of contract claim. An Appellate Division panel affirmed that determination, with one judge dissenting. After its review, the New Jersey Supreme Court held that the motion judge improperly granted summary judgment in plaintiffs' favor. The Court concluded that the record did not establish plaintiffs' right to judgment as a matter of law. The case was remanded for further proceedings. View "GlobeMotor Company v. Igdalev" on Justia Law

Stoller, the beneficiary of a trust that holds title to a house, assigned his beneficial interest to his daughter but reserved a “power of direction” with the right to obtain loans for himself, secured by the property. He directed the trust to rent out the property; he received the income. IStoller filed for bankruptcy. None of his filings mentioned the property. A question specifically asked about “all property owned by another person that [he] [held] or control[led].” Under penalty of perjury, he answered “none.” Stoller was charged with two counts of knowingly and fraudulently concealing property that belonged to a bankruptcy estate, 18 U.S.C. 152(1), and seven counts of knowingly and fraudulently making a false statement in a bankruptcy proceeding, 18 U.S.C. 152(3). Represented by an appointed lawyer, he pled guilty to one count of making a false statement; the government dismissed the remaining counts. Before sentencing, Stoller considered moving to withdraw his plea on the ground that he was not mentally competent. A new lawyer was appointed. Stoller was examined by a board‐certified neuropsychologist, who concluded that Stoller was competent to plead guilty. Stoller’s lawyer then unsuccessfully moved to withdraw the plea based on alleged defects in the plea colloquy. Stoller was sentenced to 20 months’ imprisonment. The Seventh Circuit affirmed. Stoller was competent to plead guilty, his plea was not coerced, the colloquy included most of the basics, and Stoller was not prejudiced by any deficiency. View "United States v. Stoller" on Justia Law

In 2011, the bankruptcy court confirmed a Chapter 13 plan, under which the debtors were to pay $660 per month to the trustee for seven months, and then, for 53 months, $758 per month, later reduced to $670 per month. From these payments, the trustee would pay the claims of secured creditors and distribute approximately $22,000 to general unsecured creditors. In 2013, the trustee received the debtors’ 2012 income tax return, showing that their income had increased by $50,000. The trustee moved to modify the plan under 11 U.S.C. 1329, to increase the monthly payments to $1,416 per month for the 23 remaining months. The bankruptcy court denied the motion, stating that the Code did not allow modification of a Chapter 13 plan for the cited reasons, and that, even if the court had the power to modify the plan, the facts did not support the request. The district court upheld the bankruptcy court’s determination that it lacked authority to grant the motion. The Seventh Circuit vacated. While section 1329 does not explicitly identify the circumstances under which modification is appropriate and no Code provision expressly permits modification when a change in financial circumstances makes an increase affordable, it does not follow that modification in this circumstance is forbidden. View "Germeraad v. Powers" on Justia Law

Debtors challenged the district court’s judgment that adopted in part the bankruptcy court’s proposed findings of fact and conclusions of law. The court concluded that the district court need not sustain debtors’ objections merely because they are unopposed; it may overrule the objections if they lack merit, as the district court indeed found. In this case, the district court overruled debtors’ objection to the bankruptcy court’s proposed finding that they must have realized there was no equity in the Thoroughbred Property. Under the circumstances, the court could not say that the district court clearly erred in concluding that debtors knew or should have known, by the closing date, that defendants would receive no equity in the Thoroughbred Property. Accordingly, the court affirmed the district court's adoption of the bankruptcy court's finding. The court also concluded that debtors' claim that the district court erred in overruling their objection to the bankruptcy court’s proposed finding that defendants did not misrepresent to debtors that defendants expected to make their rental payments solely from the equity received through the sale of the Thoroughbred Property was both meritless and waived. The court rejected debtors' remaining claims and affirmed the judgment. View "Monge v. Rojas" on Justia Law

Claimants appealed from the bankruptcy court's orders where the bankruptcy court found the division in contempt and imposed sanctions against the division for willful violation of the discharge injunction in attempting to collect on a support debt after the debtors obtained a discharge. The BAP concluded that this case does not fall within the domestic relations exception to federal jurisdiction and thus the bankruptcy court had jurisdiction to determine the division’s claim; the BAP declined to consider the comity issue because it was raised for the first time on appeal; and the bankruptcy court erred in holding the division in contempt for willful violation of the discharge injunction because the discharge injunction does not apply to domestic support obligations under 11 U.S.C. 523(a)(5) and 1328(a). Accordingly, the BAP reversed the judgment. View "Missouri v. Spencer" on Justia Law

Dells Hospitality borrowed $12,600,000 to purchase the Lake Delton Hilton Garden Inn. Dells’ owner and president, Sobsczak-Slomczewski, agreed to indemnify the lender against all losses.. Dells defaulted. The lender filed a foreclosure action. Sobsczak‐Slomczewski directed the hotel’s independent management company to transfer $677,000 to a corporate entity he owned. After a foreclosure sale, the lender amended the complaint to add claims for theft and conversion. The district court found that Sobsczak-Slomczewski had converted and embezzled the $677,000. Sobsczak‐Slomczewski then petitioned for bankruptcy. The lender filed an adversary proceeding seeking to have the $677,000 debt found non‐dischargeable. The bankruptcy court granted the lender summary judgment, citing 11 U.S.C. 523(a)(4) and (a)(6). The district court dismissed Sobsczak‐Slomczewski’s appeal, filed 15 days after the bankruptcy court order, holding that Rule 8002(a)’s 14‐day deadline was jurisdictional. Rejecting Sobsczak‐Slomczewski’s assertion that he did not receive notice until the day of the deadline, the court explained that there are no equitable exceptions to a mandatory jurisdictional rule. The Seventh Circuit affirmed after considering recent Supreme Court pronouncements The court joined other circuits in holding that the 14‐day deadline to file a notice of appeal is rooted in the jurisdiction statute, 28 U.S.C. 158, which expressly includes a timeliness condition. Sobsczak‐Slomczewski did not timely seek additional time from the bankruptcy court. View "In re: Sobczak-Slomczewski" on Justia Law

Parts of the Puerto Rico Public Corporation Debt Enforcement and Recovery Act. mirrored Chapters 9 and 11 of the Federal Bankruptcy Code and enabled Puerto Rico’s public utility corporations to restructure their debt. The First Circuit affirmed an injunction, concluding that the Act is preempted by 11 U.S.C. 903(1). The Supreme Court affirmed, analyzing three federal municipal bankruptcy provisions. The “gateway” provision, section 109(c), requires a Chapter 9 debtor to be an insolvent municipality that is “specifically authorized” by a state “to be a debtor.” The pre-emption provision, 903(1), expressly bars states from enacting municipal bankruptcy laws. The definition of “State,” 101(52), “includes . . . Puerto Rico, except for the purpose of defining who may be a debtor under chapter 9.” The definition excludes Puerto Rico for the single purpose of defining who may be a Chapter 9 debtor, an unmistakable reference to the gateway provision. The definition of “State” does not exclude Puerto Rico from all of Chapter 9’s provisions. Puerto Rico is bound by the pre-emption provision, even though Congress removed its gateway provision authority to authorize its municipalities to seek Chapter 9 relief. An argument that the Recovery Act is not a “State law” that can be pre-empted is based on technical amendments to the terms “creditor” and “debtor” that are too “subtle” to support such a “[f]undamental chang[e] in the scope” of Chapter 9’s pre-emption provision. View "Puerto Rico v. Franklin Cal. Tax-Free Trust" on Justia Law