Justia Bankruptcy Opinion Summaries

Plaintiff Jeffrey Weinman was the Chapter 7 Trustee for Adam Aircraft Industries (“AAI”). Defendant Joseph Walker was an officer of AAI and served as its president and as a member of its Board of Directors. Throughout his employment, Walker had neither a written employment contract nor a severance agreement with AAI. In February 2007, the Board decided it wanted to replace Walker as both president and as a board member. Since AAI did not want Walker’s termination to disrupt its ongoing negotiations for debt financing, AAI suggested that Walker could voluntarily “resign” in lieu of termination and could also continue to support the company publicly. Subsequently, Walker agreed, and the parties executed a Memorandum of Understanding (“MOU”) outlining the terms of Walker’s separation, and they also embodied these terms in two Separation Agreements and Releases. About a year after terminating Walker, AAI declared bankruptcy. It then sued in bankruptcy court to avoid further transfers to Walker, to recover some transfers previously made to Walker, and to disallow Walker’s claim on AAI’s bankruptcy. The bankruptcy court denied AAI’s claims. The Bankruptcy Appellate Panel (“BAP”) affirmed this ruling in its entirety. AAI appealed part of the ruling, arguing that its obligations and transfers to Walker were avoidable under the Code on two alternative bases. Finding no reversible error, the Tenth Circuit affirmed the BAP's decision. View "Weinman v. Walker" on Justia Law

In 1997, Player and his wife established EAR, purportedly to refurbish high-tech machinery . In 2005-2009, EAR defrauded creditors and the couple obtained $17 million in fraudulent transfers from EAR. Before the fraud was detected, they used funds for their personal benefit and spent large amounts at the Horseshoe Casino, Player was known to “walk with chips,” rather than cashing them in, and giving chips to a third party to cash in. Neither is illegal, but are potentially indicative of “structuring” transactions to avoid triggering the $10,000 reporting requirement, a federal crime, 31 U.S.C. 5324. When the fraud was discovered, EAR filed for Chapter 11 bankruptcy. The plan administrator sought to avoid transfers to Horseshoe, alleging that Horseshoe had reasons to believe that Player’s money came from EAR. Horseshoe objected to a motion to compel under 31 C.F.R. 1021.320(e), which governs Suspicious Activity Reports filed by financial institutions, including casinos, to detect money laundering and other violations of the Bank Secrecy Act. The district court ordered an ex parte filing by Horseshoe, which was inaccessible to EAR. The Seventh Circuit affirmed denial of the motion, finding that Horseshoe accepted the transfers without knowledge of the fraud at EAR and could not have uncovered the fraud if it had investigated. View "Brandt v. Horseshoe Hammond, LLC" on Justia Law

MERV, an LLC formed to purchase and operate an antique mall, encountered difficulties paying its mortgage loan and entered into a forbearance agreement with the Bank. MERV later defaulted and filed a Chapter 11 Bankruptcy Petition. Although a plan of reorganization was confirmed, MERV again defaulted. The Bank foreclosed its mortgage on the property. Before the bankruptcy case closed, MERV retained special counsel and filed an adversary proceeding against some of its founders and the Bank. The claims against the Bank alleged breach of contract, “facilitation of fraud and theft”, and equitable subordination of the Bank’s claim. MERV sought punitive damages. The bankruptcy court granted summary judgment, agreeing with the Bank that MERV had executed a release of all of the claims as part of the forbearance agreement. The Sixth Circuit Bankruptcy Appellate Panel affirmed, finding that the Bank offered prima facie evidence of a complete affirmative defense to the complaint by showing that MERV executed a Release of all claims. MERV did not demonstrate a genuine issue of material fact as to the validity of that Release. MERV did not file a motion or a Rule 56(d) affidavit or declaration with the bankruptcy court requesting more time for discovery. View "In re: MERV Props., LLC" on Justia Law

Debtor filed a motion in the bankruptcy court seeking to recover from AmeriCredit all of the attorney’s fees she incurred in opposing AmeriCredit’s objection to confirmation of her Chapter 13 plan. The court noted that a claim secured by property worth less than the amount of the claim is “bifurcated” into two claims: a secured claim equal to the value of the property and an unsecured claim for the balance. The hanging paragraph creates a special rule for auto lenders by prohibiting bifurcation of claims that are secured by a “purchase money security interest” in a motor vehicle recently acquired for the debtor’s personal use. The bankruptcy court ruled that the purchase money security interest protected by the hanging paragraph does not include amounts attributable to the negative equity from a trade-in vehicle. The bankruptcy court denied debtor’s motion for attorney’s fees on the ground that she did not prevail “on the contract” because her success in the litigation with AmeriCredit turned on a question of federal bankruptcy law. The district court affirmed. California Civil Code 1717 makes reciprocal an otherwise unilateral contractual obligation to pay attorney’s fees. The court held that the hanging-paragraph litigation was an “action on a contract” in which debtor prevailed. The court concluded that, as the “party prevailing on the contract,” debtor is entitled to recover reasonable attorney’s fees under section 1717. Accordingly, the court reversed and remanded. View "Penrod v. AmeriCredit Fin. Serv." on Justia Law

Debtors are "Chapter 20 debtors" who filed for Chapter 7 and then Chapter 13 relief. The court concluded that the bankruptcy court properly voided HSBC’s lien under section 506(d) of the Bankruptcy Code, confirmed debtors' Chapter 13 plan offering permanent voidance of HSBC’s lien upon successful plan completion, and found no due process violation or bad faith purpose in filing the Chapter 13 petition. Therefore, the court affirmed the bankruptcy court’s lien-voidance order, plan confirmation order, and plan implementation order. In regards to debtors' cross-appeal for attorneys' fees, the court concluded that the district court lacked jurisdiction to determine whether debtors were entitled to attorneys’ fees because this issue was not addressed, in the first instance, by the bankruptcy court. Therefore, the court vacated the district court's denial o fees and instructed the district court to remand to the bankruptcy court for a determination of debtors' entitlement to attorneys’ fees in the first instance. View "HSBC Bank v. Blendheim" on Justia Law

Revel opened an Atlantic City resort-casino, costing $2.4 billion. Revel entered into a 10-year lease with IDEA to run two nightclubs and a beach club. IDEA contributed $16 million of the projected cost of construction in addition to monthly rental payments. The Casino did not turn a profit. Revel filed a “Chapter 22” bankruptcy, seeking permission to sell its assets free of all liens and interests (including leases). The Bankruptcy Court approved and set an auction date. IDEA, concerned that the proposed sale would eliminate the value of its lease notwithstanding its $16 million investment, filed objections. No qualified buyer appeared. The court postponed the auction. A month later, Revel closed the Casino’s doors and barred tenants, IDEA gave notice that it intended to continue operating its beach club and nightclub and expected Revel to honor its obligations to provide uninterrupted utility service. In the meantime Polo agreed to buy the Casino for $90 million. Days before the sale hearing, Revel replied to IDEA’s objections. IDEA appealed an unfavorable order and sought a stay pending appeal, noting that, if the decision were not stayed, its appeal would be moot under 11 U.S.C. 363(m) once the sale closed. The district court denied the motion. The Third Circuit reversed, staying that part of the order that allowed Revel to sell the Casino free of IDEA’s lease. View "In re: Revel AC Inc" on Justia Law

Plaintiff appealed the bankruptcy court's order approving a settlement agreement in the Chapter 11 bankruptcy of debtor. At issue was whether a beneficiary of a trust who disagrees with the way the trust was administered by former trustees is a “party in interest” with standing to object to the bankruptcy court’s approval of a settlement agreement between a debtor, creditor entities held by the trust, and the former trustees. The court held that the trust beneficiary does not have party-in-interest standing under 8 U.S.C. 1109(a) to object to the settlement, at least where his interests are adequately represented by a party-in-interest trustee. Accordingly, the court affirmed the district court's dismissal for lack of standing. View "Hughes v. Tower Park Props." on Justia Law

W. Steve Smith, trustee of a complex Chapter 7 estate, appealed the bankruptcy court's removal of him as trustee. Smith also appealed his removal from all of his other pending cases. Smith had traveled with his wife and children to New Orleans for an oral argument related to his work as trustee, billing the the firm for work that included estate funds for trip expenses. The district court affirmed. The court concluded that the bankruptcy court applied a proper legal standard, and its determination that Smith’s conduct violated that standard was not clearly erroneous. Therefore, the bankruptcy court did not abuse its discretion in finding cause sufficient to remove Smith as trustee. The court rejected Smith's notice argument as well as his as-applied constitutional argument to section 324(b) of the Bankruptcy Code. Finally, the court's ruling moots the issue of whether the bankruptcy and district courts wrongly refused to stay his removal pending appeal. Accordingly, the court affirmed the judgment. View "Smith v. Robbins" on Justia Law

In 2008 the Seymours filed a Chapter 13 bankruptcy petition. In 2010 the Seymours filed a personal injury action, based on a 2010 automobile accident that occurred while Seymour was being transported in an ambulance. A 2010 plan modification entailed a reduction in the Seymours’s monthly payment amount based on an allegation that Seymour was unable to work and was only receiving workers’ compensation payments. The Seymours never apprised the bankruptcy court that their circumstances had changed after the 2010 modification. Defendants in the injury action successfully obtained summary judgment, based on estoppel because the Seymours failed to disclose their personal injury action in the bankruptcy proceeding. The Illinois Supreme Court reversed,The fact that the Seymours had a legal duty to disclose this suit and failed to do so does not establish intent to deceive or manipulate the bankruptcy court. The 2010 motion to modify the bankruptcy plan did not evince their awareness of the need to disclose the personal injury cause of action. View "Seymour v. Collins" on Justia Law

A Chapter 7 petition was filed against Connolly in 2001. Shapiro, then the bankruptcy trustee, initiated an adversary proceeding. In 2007, the bankruptcy court concluded that Shapiro and his attorney had breached their discovery obligations due to gross negligence and dismissed Shapiro’s claims with prejudice. Connolly’s unsecured creditors, including Coface, successfully sought to remove Shapiro as trustee. French, Shapiro’s successor, then commenced an adversary proceeding against Shapiro, his law firm, and his professional-liability insurer. The parties reached a court-approved settlement. The bankruptcy court recognized that at least some of the work that Coface paid its attorneys to do substantially benefitted the bankruptcy estate and the unsecured creditors, and contributed greatly to a significant increase in funds that unsecured creditors would receive. Coface sought reimbursement of $164,336.28 in attorney fees and costs under 11 U.S.C. 503(b). The bankruptcy court denied Colface’s motion. The district court agreed. The Sixth Circuit reversed, holding that administrative expenses are allowable in these circumstances under section 503(b) in a Chapter 7 case. Denying creditors reimbursement of administrative expenses in such circumstances would disincentivize participation in the bankruptcy process and would impugn the fundamental notion of bankruptcy as equitable relief View "Coface Argentina v. McDermott" on Justia Law