Justia Bankruptcy Opinion Summaries

This litigation stems from the bankruptcy of Imperial Petroleum Recovery Corporation (“IPRC”). IPRC once marketed microwave separation technology (“MST”) machines, which purported to recover usable oil from various emulsions. The Carmichael parties held security interests in IPRC’s assets—including its MST units. The Carmichaels filed an involuntary Chapter 7 liquidation proceeding against IPRC. After various proceedings, the amended judgment cut the actual damages owed to the Carmichaels to $4,000, cut the fee and cost award to around $92,000, and made no provision for post-judgment interest. All told, the sum due to the Carmichael parties declined roughly 96%, from over $2.3 million to approximately $96,000. The Carmichaels appealed to the district court. The district court affirmed.   The Fifth Circuit affirmed in part, vacated in part, and remanded. The court wrote that the bankruptcy court’s factual findings related to the assigned assets were not clearly erroneous. The court wrote that the district court’s damages award nevertheless rested on clearly erroneous factual findings. The court explained that the Carmichaels are entitled to post-judgment interest pursuant to 28 U.S.C. Section 1961. Finally, the court disposed of the Carmichaels’ contention that the bankruptcy court’s judgment did not provide adequate declaratory relief. The court wrote that applying a preponderance standard and viewing the record holistically, it is persuaded that the Carmichaels’ damages for reassembly exceed $4,000. But the court wrote that it does not attempt to specify the Carmichaels’ reassembly damages here. Instead, the court remanded so that the bankruptcy court may consider the Carmichaels’ asserted damages under the correct standard of proof. View "Carmichael v. Balke" on Justia Law

The First Circuit affirmed the judgment of the bankruptcy court denying Debtor a discharge pursuant to 11 U.S.C. 727(a)(3) for Debtor's failure to keep or preserve records and declined to decide whether a denial was warranted under 11 U.S.C. 727(a)(4) holding that the bankruptcy court properly denied a discharge under section 727(a)(3).Plaintiff filed a Chapter 7 bankruptcy petition. Defendant, who held an unsatisfied judgment against Plaintiff, commenced an adversary proceeding seeking to deny Plaintiff a discharge on five separate grounds. The bankruptcy court denied Plaintiff a discharge pursuant to section 727(a)(3) and also found that the discharge should be denied under section 727(a)(4). The First Circuit affirmed, holding that the bankruptcy court properly denied a discharge pursuant to section 727(a)(3). View "Hernandez v. Shove" on Justia Law

After a fatal truck accident claimed the lives of members of two families, the victims' families filed a personal injury action against the trucking company. The trucking company's insurer ultimately transferred $1 million to the law firm representing one of the families. The insurer then notified the other family that the policy limits had been exhausted. That same day, the insurer submitted two checks: one to the victim's family and one to the law firm.The family that was not party to the settlement filed an involuntary bankruptcy petition against the trucking company. The trustee brought an adversary proceeding against the other victim's family and their law firm, seeking to avoid and recover the transfer of the policy proceeds pursuant to 11 U.S.C. Secs. 547 and 550 of the Bankruptcy Code. The bankruptcy court denied the law firm's motion to dismiss.On appeal, the family that settled and the law firm argued that the district court erred in determining that the trucking company held an equitable property interest in the policy proceeds. The Fifth Circuit affirmed, finding that these facts fit the "limited circumstances" under which the policy proceed are considered the property of the estate. View "Law Office of Rogelio Solis v. Curtis" on Justia Law

The First Circuit dismissed as moot the appeal brought by the Milk Industry Regulatory Office of the Commonwealth of Puerto Rico (ORIL) challenging two bankruptcy court orders, holding that the action became moot prior to the judgment of the Bankruptcy Appellate Panel (BAP) for the First Circuit affirming the bankruptcy court orders on the merits.The first order at issue granted Luis Manuel Ruiz Ruiz permission to enter a lease in the course of his bankruptcy proceedings, and the second order denied ORIL's motion for reconsideration of that permission. The BAP affirmed the orders on the merits. The First Circuit dismissed ORIL's appeal as moot, vacated the judgment of the BAP, and remanded the case to the BAP with instructions to dismiss ORIL's appeal as moot, holding (1) this case was moot, and there was no exception to the mootness doctrine to save this appeal from dismissal; and (2) the balance of the equities weighed against vacated of the bankruptcy court orders at issue. View "Milk Industry Regulatory Office v. Ruiz Ruiz" on Justia Law

Plaintiff filed a Chapter 13 bankruptcy petition. In her bankruptcy schedules, Plaintiff disclosed that she was the beneficiary of an annuity and claimed the annuity as exempt from the bankruptcy estate. The County failed to object to the claimed exemption within the timeframe prescribed by Federal Rule of Bankruptcy Procedure 4003(b). Plaintiff filed an adversary proceeding against the County seeking to avoid the tax foreclosure as a constructively fraudulent conveyance under 11 U.S.C. Section 548. The Bankruptcy Court held that the foreclosure amounted to a constructively fraudulent transfer of property, and it avoided the transfer. The district court affirmed. The County argues that it was not subject to the deadline prescribed by Rule 4003(b).   The Second Circuit affirmed. The court concluded that the Bankruptcy Court correctly applied Rule 4003(b). The court also found no error in the Bankruptcy Court’s choice of remedy. The court explained the Bankruptcy Code permits a trustee to avoid a transfer that occurred within two years of the filing of a bankruptcy petition. Here, because the Property was transferred within two years of Plaintiff’s bankruptcy petition, that transfer may be avoided if Plaintiff did not receive reasonably equivalent value for it and was insolvent on the date of transfer or rendered insolvent by the transfer on March 7, 2017. The Bankruptcy Court was compelled to exclude from its calculation of Plaintiff’s assets “property that may be exempted from property of the estate under section 522.” The plain text of the Code thus contemplates that insolvency is determined based on the debts and properties of and exemptions from the bankruptcy estate. View "DuVall v. County of Ontario" on Justia Law

The district court appointed a receiver to claw back profits received by investors in a Ponzi scheme that was the subject of a Securities and Exchange Commission enforcement action. The receiver filed suit against certain investors, alleging fraudulent transfers from the receivership entities to the investors. The district court concluded that the receiver was bound by arbitration agreements signed by the receivership company, which was the instrument of the Ponzi scheme. The district court relied on Kirkland v. Rune.   The Ninth Circuit reversed the district court’s order denying a motion to compel arbitration. The panel held that EPD did not control because it addressed whether a bankruptcy trustee, not a receiver, was bound by an arbitration agreement. Unlike under bankruptcy law, there was no explicit statute here establishing that the receiver was acting on behalf of the receivership entity’s creditors. The panel held that a receiver acts on behalf of the receivership entity, not defrauded creditors, and thus can be bound by an agreement signed by that entity. But here, even applying that rule, it was unclear whether the receiver was bound by the agreements at issue. The panel remanded for the district court to consider whether the defendant investors met their burden of establishing that the fraudulent transfer claims arose out of agreements with the receivership entity, whether the investors were parties to the agreements and any other remaining arbitrability issues. View "GEOFF WINKLER V. THOMAS MCCLOSKEY, JR., ET AL" on Justia Law

Plaintiffs Matthew and Melanie Nelson (collectively Nelsons) married in 2020. The following year, defendant Puget Sound Collections Inc. (PSC), a debt collection agency, garnished Matthew’s wages in an attempt to satisfy a 2014 default judgment against him and his former wife, stemming from her medical expenses. The Nelsons argued RCW 26.16.200 required any eligible debt be reduced to judgment within the three years before and the three years after the marriage. In their view, the marital bankruptcy statute barred PSC from garnishing Matthew’s wages because the 2014 judgment was entered too soon and not “within three years” of their 2020 marriage. In contrast, PSC argued “within three years of the marriage” simply meant “not later in time than three years after the marriage.” Under this interpretation, PSC lawfully garnished Matthew’s wages because it reduced the debt to judgment not later than three years after the Nelsons’ marriage. The federal appellate court certified questions of Washington law in this case about the so-called marital bankruptcy statute, RCW 26.16.200. The Washington Supreme Court found that while the Nelsons’ interpretation might hold “some logical appeal, and their situation is certainly sympathetic, only PSC’s interpretation of RCW 26.16.200 effectuates the purpose of the statute to provide limited debt collection relief to diligent creditors.” The Court answered the first and second certified questions based on the statute’s plain language and held that “within” in this context means “not later in time than” three years of the marriage. “This interpretation permits wage garnishment where, as here, the creditor had reduced the debt to judgment more than three years before the marriage.” As to the additional certified question, which asked whether Washington law placed any limitation on the amount of wages subject to garnishment, the Nelsons correctly conceded this issue. The Supreme Court held that where other statutory requirements are met, RCW 26.16.200 permitted a creditor to garnish the entirety of the debtor spouse’s wages. View "Nelson v. P.S.C., Inc." on Justia Law

The bankruptcy proceeding underlying this case was initiated by Wilkes & McHugh, P.A. (“Wilkes”), for relief against Fundamental Long Term Care, Inc. (“FLTCI”) on behalf of the Estate of Juanita Jackson. The Jackson Estate had obtained judgments of $55 million against Trans Health, Inc. (“THI”) and Trans Health Management, Inc. (“THMI”). The trustee of the Debtor’s estate (the “Trustee”) employed Steven M. Berman and Shumaker, Loop & Kendrick, LLP (“Shumaker”) as special litigation counsel. According to Wilkes, when the Trustee employed Shumaker it was not disinterested as required by Section 327(a). On remand, the Bankruptcy Court held that Berman’s omissions did not warrant sanctions under Rule 2014. The Probate Estates appealed the District Court’s decision.   The Eleventh Circuit affirmed. The court wrote that Wilkes, in representing the Probate Estates, sought huge sums in the form of damages in state court against the companies affiliated with the decedents’ nursing homes. After having received one multimillion-dollar judgment in Jackson, Wilkes realized that the powers that be in the THI corporate structure had executed a bust-out scheme to separate THMI’s liabilities from its assets and to hide those assets to avoid paying the Jackson judgment. Once the Bankruptcy Court appointed a trustee for FLTCI, Wilkes could then use the Trustee and the Trustee’s strongarm power to enhance its own discovery and pursue causes of action that it would not be able to pursue alone, attempting to get at THMI’s assets through FLTCI. The court wrote that it is clear that the idea that Shumaker had a bias against Wilkes and the Probate Estates is baseless. View "Estate of Arlene Townsend, et al v. Steven Berman, et al" on Justia Law

Plaintiffs hired Defendant o renovate their home in Washington, D.C. Because Defendant told Plaintiffs he was properly licensed, they thought everything was above board. Yet, delayed and defective, the renovations did not go well. And, as it turned out, Defendant was not properly licensed. So the Plaintiff sued him in D.C.’s Superior Court. But then Defendant filed for Chapter 7 bankruptcy. Plaintiffs pursued him, filing a two-claim complaint against him in bankruptcy court. The bankruptcy court rejected Count II, finding that, if a debt existed, it was dischargeable. So it partially dismissed the adversary proceeding. But it allowed Count I to proceed toward trial to determine whether Defendant owed the Plaintiffs any money. Plaintiffs then voluntarily dismissed the surviving claim without prejudice. They could then immediately appeal the court-dismissed claim and decide afterward whether it was worth further litigating the party-dismissed claim. Plaintiffs appealed their Count II loss to the district court, who affirmed it.   The Fourth Circuit vacated the district court’s order. The court explained that bankruptcy courts are not Article III courts. So Article III constraints do not apply to them. They only apply if Congress said so in a statute. But it hasn’t. And that means whether Count I was constitutionally moot is beside the point. The bankruptcy court could still adjudicate it. Since Plaintiffs cannot argue that their adversary proceeding was constitutionally moot when Count II was dismissed, they have not shown the proceeding was legally doomed when they dismissed Count I. They are thus left arguing the order was final because Count I was practically over post-dismissal. View "Roee Kiviti v. Naveen Bhatt" on Justia Law

Creditor Clifton Capital Group, LLC Clifton was chair of an official committee of unsecured creditors appointed by the Office of the United States Trustee to monitor the activities of debtor East Coast Foods, Inc., manager of Roscoe’s House of Chicken & Waffles. The bankruptcy court appointed Bradley D. Sharp as Chapter 11 trustee. Clifton objected to Sharp’s fee application, but the bankruptcy court awarded the statutory maximum fee. Clifton appealed. The district court concluded that Clifton had standing to appeal. On remand, the bankruptcy court again awarded the statutory maximum. Clifton again appealed, and the bankruptcy court affirmed. Clifton challenged the district court’s order affirming the bankruptcy court’s enhanced fee award of over $1 million dollars to the trustee in a funded bankruptcy.   The Ninth Circuit reversed the district court’s order affirming the bankruptcy court’s enhanced fee award. The panel wrote that the Ninth Circuit historically bypassed the Article III inquiry in the bankruptcy context, instead analyzing whether a party is a “person aggrieved” as a principle of prudential standing. The court, however, has returned emphasis to Article III standing following Susan B. Anthony List v. Driehaus, 573 U.S. 149 (2014), in which the Supreme Court questioned prudential standing. The panel held that Clifton lacked Article III standing to appeal the fee award because it failed to show that the enhanced fee award would diminish its payment under the bankruptcy plan, and thus it failed to establish an “injury in fact.” The panel concluded that Clifton did not show that the fee award impaired the likelihood or delayed the timing of its payment. View "IN RE: CLIFTON CAPITAL GROUP, LLC, ET AL V. BRADLEY SHARP" on Justia Law