Justia Bankruptcy Opinion Summaries

The Company was organized as a limited liability company in 2007; its sole managing member was another LLC, whose sole members were the Ngs, who controlled and managed the Company. Defendant was one of the Company’s lawyers. The Company’s stated purpose was to serve as an investment company making secured loans to real estate developers. The Managers actually created the Company to perpetrate “a fraudulent scheme” by which the Company transferred the money invested in it to another entity the Managers controlled. Defendant knew that the Managers intended to and did use the Company for this fraudulent purpose and, working with the Managers, helped the Company conceal the nature of its asset transfers. The Company was eventually rendered insolvent and its investors filed an involuntary bankruptcy petition. The bankruptcy trustee filed suit against Defendant, alleging tort claims based on Defendant’s involvement in the Company’s fraud. Defendant argued that the claims are barred by the in pari delicto doctrine. The court of appeal affirmed dismissal, finding that the in pari delicto applies to the trustee and rejecting an argument that the doctrine should not bar her claims because the wrongful acts of the Managers should not be imputed to the Company. View "Uecker v. Zentil" on Justia Law

Robinson filed a Chapter 7 bankruptcy petition, seeking to discharge unsecured debt of $23,834.00. Among her scheduled personal property, Robinson listed an “old Morm[o]n bible.” At the creditors’ meeting, the trustee inquired about the Book of Mormon. Robinson confirmed that it was an 1830 first edition and that she possessed several additional copies in print or digital form. In 2003, while employed at the local library, she made an agreement with the director that, if she cleaned out a storage area, she could use the area as an office and keep any books she found. She found the Book of Mormon and had it authenticated one of only 5,000 copies printed by Joseph Smith, then valued at $10,000.00. The trustee objected to the claimed exemption, acknowledging an exemption in 735 ILCS 5/12-1001(a) for a “bible,” but arguing that, given that Robinson owned many copies, the valuable edition should be used for the benefit of the creditors. The bankruptcy court believed that allowing the exemption would violate the statutory purpose, “to protect a bible of ordinary value so as not to deprive a debtor of a worship aid.” The district court vacated. The Seventh Circuit affirmed, finding that the statute's plain language allows the exemption without respect to value. View "Robinson v. Hagan" on Justia Law

Debtors appealed the Bankruptcy Appellate Panel's (BAP) holding that Starion Financial is entitled to recover the attorney's fees it incurred while collecting on its secured debt in the course of debtors' proceedings. The BAP remanded to the bankruptcy court. The court dismissed the appeal for lack of jurisdiction because resolution of the timeliness and reasonableness of the fee application affect the merits of the underlying dispute over the fee request and thus the bankruptcy court on remand is left with more than a "purely mechanical or ministerial task." View "Starion Fin. v. McCormick" on Justia Law

Debtors filed a joint voluntary individual chapter 11 petition and debtors' operative plan of reorganization placed their largest unsecured creditor, California Bank, into its own class of unsecured creditors and proposed to pay it $5,000 on its claim of nearly $2,000,000. California Bank objected because its claim was thus “impaired under the plan.” The court overruled In re Friedman and joined its sister circuits in adopting the "narrow view", holding that the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), 11 U.S.C. 541(a)(, (a)(1), 1115(a), 1129(b)(2)(B)(ii), amendments merely have the effect of allowing individual Chapter 11 debtors to retain property and earnings acquired after the commencement of the case that would otherwise be excluded under section 541(a)(6) & (7). The court further concluded that, under this view, an individual debtor may not cram down a plan that would permit the debtor to retain prepetition property that is not excluded from the estate by section 541, but may cram down a plan that permits the debtor to retain only postpetition property. Accordingly, the court affirmed the bankruptcy court's order. View "Zachary v. California Bank & Trust" on Justia Law

The Trustee filed suit against Knoll, seeking to avoid transfers from Tusa Office, the debtor, to Knoll, its creditor as preferences under section 547 of the Bankruptcy Code, 11 U.S.C. 547(b). The court concluded that, because the Trustee did not satisfy the source aspect of the El Paso Refinery analysis, testing under the hypothetical Chapter 7 liquidation analysis is unnecessary. The court held that the Trustee failed to establish the requirement of section 547(b)(5) because the source aspect of the El Paso Refinery analysis demonstrates that the transfer from Tusa Office to Knoll was made from the proceeds of Knoll’s own collateral. Further, the exception to avoidance under section 547(c)(5) is inapplicable in this case. Accordingly, the court affirmed the judgment. View "Garner v. Knoll, Inc." on Justia Law

Village Green owes FNMA $8.6 million under loan agreements executed when it purchased a Memphis apartment building. Village missed its $55,000 payment in December 2009; four months later it filed for Chapter 11 bankruptcy. The bankruptcy court stayed creditor actions, 11 U.S.C. 362(a), preventing FNMA from foreclosing on the building, which is worth $5.4 million and is Village’s only bankruptcy. Village’s only other creditors are its former lawyer and accountant. (minor claims) Village’s proposed reorganization plan called for paying down FNMA’s claim slowly, leaving a balance of $6.6 million after 10 years (foreclosure would reduce its balance to $3.2 million immediately) The plan would strip FNMA of protections in the loan agreements: requirements that Village properly maintain and insure the building. Village would pay the minor claims in full, but in two payments ($1,200 each) over 60 days. That 60-day delay, the court held, meant that those claims were “impaired,” so that the minor claimants’ acceptance would satisfy the requirement that “at least one class of claims that is impaired under the plan has accepted the plan,” 11 U.S.C. 1129(a)(10). The bankruptcy court confirmed the plan. The district court vacated. Following a second remand, the bankruptcy court dismissed the case and lifted the automatic stay. The Sixth Circuit agreed that the plan was an artifice to circumvent the Code requirement and was not proposed in good faith. View "Village Green I, GP v. Fed. Nat'l Mortgage Assoc." on Justia Law

Stubbs is owed approximately $200,000 in legal fees from representing debtor in bankruptcy proceedings. Debtor is subject to nearly $1 million in secured tax claims, and the estate has insufficient funds to pay both Stubbs’ fees and the tax claim. At issue is which of these claims takes priority in a Chapter 7 liquidation under the Bankruptcy Code. Under the version of section 724(b)(2) of the Bankruptcy Code, 11 U.S.C. 724(b)(2), in effect when the bankruptcy court rendered its decision, the court concluded that it is clear that debtor is not entitled to subordinate the IRS’s secured tax claim in favor of its unsecured claim to Chapter 11 administrative expenses. The court need not reach the issue of whether the same result would have been obtained under the pre-Bankruptcy Technical Corrections Act of 2010, Pub. L. No. 111-327, 124 Stat. 3557, version of section 724(b)(2). Accordingly, the court affirmed the judgment. View "Angell v. Stubbs & Perdue, P.A." on Justia Law

Plaintiff filed suit against his employer, Bob Evans, alleging employment discrimination in violation of federal and Missouri law. The district court granted summary judgment in favor of Bob Evans. The court concluded that the district court did not abuse its discretion in applying judicial estoppel to bar plaintiff's claims where, pursuant to the New Hampshire v. Maine factors, plaintiff took inconsistent positions between his bankruptcy case and this case; the bankruptcy court, by discharging plaintiff's unsecured debts, adopted the position that his discrimination claims did not exist; and plaintiff could have derived an unfair advantage in the bankruptcy proceedings by concealing his claims. Accordingly, the court affirmed the judgment. View "Jones v. Bob Evans Farms, Inc." on Justia Law

In 2007, Thomas and Mari Grabanski and John and Dawn Keeley formed Keeley Grabanski Land Partnership for the purpose of purchasing land in Texas. In 2008 the Grabanskis and Keeleys formed G & K Farms for the purpose of farming the Texas land. G & K was insured under the Supplemental Revenue Assistance Payments Program ("SURE"), which was administered by the Farm Service Agency of the United States Department of Agriculture. In 2007 and 2008 Choice Financial Group made a series of loans totaling more than $6.75 million to the Grabanskis and the Keeleys on behalf of G & K. Choice entered into a number of security agreements with G & K and its principals to secure the debt. In 2008 PHI Financial Services, Inc. loaned $6.6 million to G & K, the Grabanskis and their various other business entities. PHI entered into security agreements with the debtors which included a provision granting it a security interest in certain "General Intangibles." The Grabanskis and their business entities eventually defaulted on their loans. Johnston Law Office, P.C. represented the Grabanskis in personal bankruptcy proceedings initiated in 2010, and represented them and their business entities during the following two years in numerous lawsuits stemming from the bankruptcy. In March 2011, PHI obtained a judgment against the Grabanskis and G & K in the United States District Court for the District of North Dakota. G & K received a SURE payment from the federal government for 2009 crop losses. The Grabanskis did not deposit the disaster payment in G & K's North Dakota bank account with Choice because Johnston advised them that Choice would offset the funds against G & K's debt to Choice. Instead, G & K deposited the SURE payment in a new Texas bank account. The Grabanskis then transferred a portion of the SURE payment from the Texas bank account to Johnston's law office trust account through two transactions: one to pay Johnston's attorney fees, and the other for Tom Grabanski's father, Merlyn Grabanski, to indemnify him for monies paid on behalf of G & K the previous year. PHI brought this action against Johnston seeking to recover additional monies based on theories of conversion and fraudulent transfer. PHI later added Choice as a defendant to determine priority of the competing security interests. The district court granted summary judgment ruling PHI's security interest had priority over the security interest held by Choice. Following a bench trial the court ruled the money transferred to Tom Grabanski's father was a fraudulent transfer and PHI was entitled to recover that amount from Johnston. The court also found that a $150,000 payment was fraudulent, but found G & K received reasonably equivalent value for the transfer. The court allowed Johnston to retain $35,000 of the remaining funds, which the court found equaled the value of legal services provided to G & K, but voided the remaining $115,000. A judgment with interest totaling $167,203.24 was entered in favor of PHI. Johnston argued on appeal that the district court erred in holding it liable for any part of the $170,400 the law firm received from G & K's Texas bank account. Upon review, the Supreme Court reversed the award of prejudgment interest and remanded for recalculation. The Court affirmed in all other respects. View "PHI Financial Services, Inc. v. Johnston Law Office, P.C." on Justia Law

O&S challenged the Bankruptcy Appellate Panel's (BAP) dismissal of its appeal after the bankruptcy court confirmed a reorganization plan proposed by O&S. The BAP concluded that O&S did not have standing to challenge the bankruptcy court’s order confirming its proposed plan. The court found that, in light of the strong policy favoring finality in bankruptcy proceedings, the language in the confirmed plan was not sufficient to reserve O&S’s right to appeal from the plan confirmation or to place the bankruptcy court and creditors on notice that O&S would seek such relief. Accordingly, the court concluded that the BAP correctly held that O&S failed to carry its burden to demonstrate standing. The court affirmed the judgment. View "O&S Trucking, Inc. v. Mercedes Benz Fin. Serv." on Justia Law