Justia Bankruptcy Opinion Summaries

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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

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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

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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

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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

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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

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Debtor filed a chapter 7 bankruptcy petition seeking to discharge nearly $3,500,000 in unsecured debt. The bankruptcy court denied Debtor a discharge, concluding that Debtor had not satisfactorily explained the disposition of his assets during the period leading up to the filing of his bankruptcy petition. The Bankruptcy Appellate Panel upheld the denial of the discharge on the grounds that Debtor had violated both 11 U.S.C. 727(a)(3) and 11 U.S.C. 727(a)(5). The First Circuit affirmed, holding that because Debtor failed, without any objectively reasonable justification, to keep and preserve records, and because Debtor failed to submit any information resembling a satisfactory explanation for his apparent losses and deficiencies, the bankruptcy court did not err in denying Debtor a discharge. View "Harrington v. Simmons" on Justia Law

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The Smiths lived in a Joliet home, title to which passed to wife in 2004 as an inheritance. Real estate taxes had gone unpaid in 2000, resulting in a tax lien. At a 2001 auction, SIPI purchased the tax lien and paid the delinquent taxes—$4,046.26—plus costs and was awarded a Certificate of Purchase. Smith did not redeem her tax obligation. SIPI recorded its tax deed in 2005 and sold the property to Midwest for $50,000. In 2007, the Smiths filed for Chapter 13 bankruptcy relief and sought to avoid the tax sale. The bankruptcy judge and the Seventh Circuit found a fraudulent transfer (11 U.S.C. 548(a)(1)(B)) because the property was not transferred for reasonably equivalent value, but found Midwest a subsequent transferee in good faith. The 1994 Supreme Court decision, BFP v. Resolution Trust, that a mortgage foreclosure sale that complies with state law is deemed for “reasonably equivalent value” as a matter of law, does not apply in Illinois. Unlike mortgage foreclosure sales and some other states’ tax sales, Illinois tax sales do not involve competitive bidding where the highest bid wins. Instead, bidders bid how little money they are willing to accept in return for payment of the owner’s delinquent taxes. The lowest bid wins; bid amounts bear no relationship to the value of the real estate. View "Smith v. Sipi, LLC" on Justia Law

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Wettach was a partner at theTitus law firm, which rented space from Trizec under a long-term lease. After the firm's 1999 dissolution, Trizec filed suit against Titus’s former partners for unpaid rent. The Pennsylvania court found the partners jointly and severally liable for more than $2,700,000. Before that court entered final judgment Wettach filed a voluntary Chapter 7 bankruptcy petition, listing $3,551,500 in assets, including $2,951,500 in personal property, retirement accounts, insurance, and a checking account held by the entireties with his wife. Wettach claimed all of this property as exempt, primarily relying on the exemption for property held by the entireties, 11 U.S.C. 522(b)(1), (3)(B). Wettach joined another law firm and earned wages that the firm directly deposited into the entireties account. The Trustee claimed that these deposits constituted recoverable fraudulent transfers. Before the bankruptcy court could rule, the case was reassigned. The parties consented to the court issuing findings without a new trial. The court ruled in favor of the Trustee, awarding $428,868.12, plus $37,139.01 in interest. The district court and Third Circuit affirmed, rejecting challenges to allocation of the burdens of persuasion and production on the fraudulent transfer claims; evidentiary findings; and a legal determination that the deposit of wages into an account held by the entireties constituted “transfer” of an “asset” under Pennsylvania state law. View "In re: Wettach" on Justia Law

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After debtor flagrantly and repeatedly abused bankruptcy and court processes to retain assets for himself and defeat the legitimate claims of his business partners, the bankruptcy and district courts dismissed the bankruptcy case under 11 U.S.C. 707(a). The court concluded that the bankruptcy rules permitted this matter to be pursued as a contested motion, and the bankruptcy court conducted the proceeding appropriately. Moreover, any error by the bankruptcy court in hearing this matter as a contested motion was harmless. The court also concluded that debtor's right to due process was more than vindicated by the court’s processes. Further, this circuit joins those courts that have held a debtor’s bad faith in the bankruptcy process can serve as the basis of a dismissal “for cause,” even if the bad faith conduct is arguably encompassed by other provisions of the Code. In this case, there is no clear error in the bankruptcy court's findings. The record is replete with evidence that debtor filed bankruptcy for illegitimate purposes, misled the court and other parties, and engaged in bare-knuckle litigation practices, including lying under oath and threatening witnesses. Accordingly, the court affirmed the judgment. View "Krueger v. Torres" on Justia Law

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Creditor appealed the bankruptcy court's order granting debtor's motion to avoid its judgment lien. Creditor concedes that its judgment lien attached to the residence, but argues that its judgment lien did not fix upon debtor’s tenant by the entirety property interest in the residence, because debtor did not have an interest to which its judgment lien could fix. The panel concluded that, under Missouri law, even if it conceded that the residence was not subject to Creditor’s lien and that the lien was therefore unenforceable, the panel would still find that an unenforceable judgment lien arose, so that it is possible for debtor to avoid it under 11 U.S.C. 522(f). Further, even if the docketing and registration of Creditor’s judgment lien did not attach an enforceable judgment lien to the residence, at a minimum, the judgment lien creates a cloud on the title to the residence. View "CRP Holdings A-1, LLC v. O'Sullivan" on Justia Law