Justia Bankruptcy Opinion Summaries

Utica’s subsidiary, Republic, hired Sheppard’s law firm to pursue a subrogation action. Settlement proceeds totaling $145,000.00 were entrusted to the law firm; Sheppard was the managing partner. Republic was entitled to $130,740.03; that award was not distributed. Republic retained the Lewis, law firm to recover the money. The parties reached a settlement agreement; $60,000.00, was due in November 2013 and $70,740.03, was to be paid in December 2013. Payments were to be made to the Utica Atlanta regional office, which had originally worked with Sheppard and handles claims relating to member companies, including Republic. Sheppard’s portion, $30,000.00, was not received. In February 2014, Sheppard filed Chapter 7 bankruptcy. UTICA is listed as a creditor,with the address of its New York home office. The Bankruptcy Court mailed notice to all creditors of the May 30, 2014 date by which creditors had to file a complaint or challenge the dischargeability of certain debts. No notice was sent to Lewis or Republic. On May 21, 2014 Lewis sued Sheppard in Tennessee State Court, unaware of the pending bankruptcy. Lewis received notice of the bankruptcy on May 28, and, on May 29, filed a timely motion to extend the deadline. The Bankruptcy Appellate Panel reversed denial of the motion, finding sufficient “cause” to justify extension under Fed. R. Bankr. P. 4004 and 4007(c). View "In re: Sheppard" on Justia Law

Puerto Rico may not authorize its municipalities, including public utilities, to seek federal bankruptcy relief under Chapter 9 of the U.S. Bankruptcy Code. In 2014, the Commonwealth attempted to allow its utilities, which were at risk of becoming insolvent, to restructure their debt by enacting its own municipal bankruptcy law, the Puerto Rico Public Corporation Debt Enforcement and Recovery Act (Recovery Act). Plaintiffs, investors who collectively held nearly two billion dollars of bonds issued by one of the distressed utilities, brought suit to challenge the Recovery Act’s validity and to enjoin its implementation. The district court entered judgment in favor of Plaintiffs and permanently enjoined the Recovery Act on the ground that it was preempted under 11 U.S.C. 903(1), which ensures the uniformity of federal bankruptcy laws by prohibiting state municipal debt restructuring laws that bind creditors without their consent. The First Circuit affirmed, holding that section 903(1) preempts the Recovery Act, as the statute does not read that Puerto Rico is outside the reach of its prohibitions and the Recovery Act would frustrate the precise purpose underlying the enactment of section 903(1). View "Franklin California Tax-Free v. Commonwealth of Puerto Rico" on Justia Law

The debtors owned a house in Michigan; in 2007, it was foreclosed and sold at a sheriff’s sale. In 2008, they filed for chapter 13 bankruptcy, but did not disclose any interest in the house or any related cause of action. The redemption period for the house expired after the bankruptcy petition date. The case was converted to a chapter 7 proceeding. The debtors received a discharge. The bankruptcy case closed in February 2009. In March, the debtors filed suit in state court, alleging that the foreclosure was defective, but never sought to reopen their bankruptcy case to amend their schedules. Learning about the case, the trustee claimed that the cause of action was bankruptcy estate property. The bankruptcy court reopened in 2013. The debtors filed an amended schedule that disclosed the claim, stating a value of $3 million. Each debtor claimed a “wildcard” exemption of $5,300.00, 11 U.S.C. 522(d)(5). The bankruptcy court approved settlement of the case and denied the trustee’s objection to the exemptions. The district court affirmed. The Sixth Circuit affirmed, citing the Supreme Court’s 2014 decision that a bankruptcy court may not use equitable powers to deny an exemption as a sanction for debtor misconduct, and noting that the trustee’s objection to timeliness was waived. View "Ellmann v. Baker" on Justia Law

Lender challenged the district court's denial of Lender's appeal from the bankruptcy court's order confirming a Chapter 11 plan of reorganization based on equitable mootness grounds. At issue was whether a lender that made colorable objections to a plan of reorganization in bankruptcy court and then diligently sought a stay in order to litigate those objections may obtain review of its objections on appeal even though the plan has been implemented. The court held that the lender’s objections are not equitably moot and should be considered on appeal because it would be possible to devise an equitable remedy to at least partially address the lender’s objections without unfairly impacting third parties or entirely unraveling the plan. Accordingly, the court reversed and remanded for further proceedings. View "JPMCC 2007-C1 Grasslawn Lodging v. Transwest Resort Properties" on Justia Law

Sauer Incorporated alleged that Carrie Lawson incurred a debt by knowingly receiving a fraudulent conveyance from her father that was designed to prevent Sauer from collecting a judgment against him. After Lawson filed for chapter 13 bankruptcy Sauer initiated this adversary proceeding objecting to the discharge of this debt under 11 U.S.C. 523(a)(2)(A) as being for money “obtained by…actual fraud.” The bankruptcy court dismissed Sauer’s adversary proceeding, determining that because Sauer could not allege that Lawson had made a misrepresentation, Sauer could not establish that section 523(a)(2)(A) barred discharge of Lawson’s debt. The First Circuit vacated the bankruptcy court’s grant of Lawson’s motion to dismiss, holding that a debt that is not dischargeable in Chapter 13 bankruptcy as a debt for money or property “obtained by…actual fraud” extends beyond debts incurred through fraudulent misrepresentations to also include debts incurred as a result of knowingly accepting a fraudulent conveyance that the transferee knew was intended to hinder the transferor’s creditors. View "Sauer Inc. v. Lawson" on Justia Law

Debtors, limited liability companies, own pools of commercial and industrial real estate, subject to mortgages held by the Trust. The promissory notes for the loans provided that upon default, the interest rate on the remaining principal would be 5% in addition to the non-default rate of 5.04%. Debtors defaulted and later filed for Chapter 11 bankruptcy relief. The Trust filed proof of claim for $1,516,739.80 in default interest. The assigned asset manager for the loans testified about expenses associated with default and said that the 5% rate was consistent with the rate for similar loans. According to the Debtors’ chief manager, the additional interest duplicated costs associated with default that Debtors were already paying, including attorneys’ fees, late fees, and costs of administration and enforcement. The bankruptcy court allowed the claim, finding that Debtors failed to rebut the Minnesota law presumption that the default-interest provision was a valid liquidated-damages provision. The district court and the Eighth Circuit affirmed, rejecting arguments that the bankruptcy court misapplied Minnesota law because it did not require the Trust to prove actual damages; that actual damages for breach of a promissory note are always ascertainable; and that many of the costs the default rate purportedly covers are otherwise covered. View "Bowles Sub Parcel A, LLC v. CW Capital Asset Mgmt. LLC" on Justia Law

Plaintiffs claimed they were lured into making investments from which their money was “appropriated” and sued Nathan and Vertical Group. The district court entered an order of default against Vertical, but did not award damages at that time. Nathan filed for Chapter 11 bankruptcy. The district court closed the matter during the bankruptcy. Nathan proposed a Chapter 11 plan. The plaintiffs objected and brought an adversary proceeding, restating their allegations and asserting that their claims were non-dischargeable. The bankruptcy court agreed, rejected Nathan’s plan, awarded actual and punitive damages, and determined that Nathan’s bankruptcy estate acquired his interest in the Kathleen Trust, into which Nathan and his wife had transferred assets before his bankruptcy, but did not identify a specific value of Nathan’s interest. The court converted Nathan’s bankruptcy to a Chapter 7 bankruptcy. The trustee tried to reach Trust assets. The court concluded that Nathan’s powers as a co-trustee were property of his bankruptcy estate, but Nathan lacked authority to act as trustee without Kathleen’s consent and only Kathleen could revoke the trust. Plaintiffs reopened the original action to determine damages and to collect the Vertical judgment from Trust assets. The district court referred the matter to the bankruptcy court, which recommended awarding actual damages, punitive damages, and attorneys’ fees in the amount awarded in the bankruptcy adversary proceeding. The district court adopted the findings and entered a default judgment against Vertical. The Eighth Circuit dismissed Nathan’s appeal for lack of standing and affirmed as to Kathleen. View "Cutcliff v. Reuter" on Justia Law

Michael and Rebecca Gordon filed a voluntary petition for bankruptcy. In their petition, they sought to treat $2,051 in a savings account as an exempt asset under the Colorado exemption for “[p]roperty . . . held in or payable from any pension or retirement plan or deferred compensation plan.” The Trustee objected on the ground that the exemption did not apply to funds once paid out from a retirement plan. The bankruptcy court sustained the Trustee’s objection and denied the Gordons’ motion for reconsideration. The United States District Court for the District of Colorado affirmed, and finding no reversible error, the Tenth Circuit also affirmed. View "In re: Gordon" on Justia Law

The Kawaharas loaned the Allisons $400,000. The Allisons executed a note to the Kawaharas in that amount secured by a deed of trust on a Reno property. The note was delivered in 2009 but was not recorded until 2011. When the Allisons’ car dealership became delinquent in taxes, the State Department of Taxation recorded certificates of tax lien against the Allisons. The lien was created and recorded in 2010. The Allisons filed for bankruptcy in 2011. The U.S. Bankruptcy Court for the District of Nevada approved the sale of the Reno property. The bankruptcy court certified two questions to the Nevada Supreme Court concerning the priority of the competing liens on the Reno property. The Supreme Court concluded (1) a recorded tax lien cannot be recognized as a mortgage lien, and therefore, the Department cannot claim to have recorded a mortgage lien when it filed a tax lien certificate; (2) the deed of trust had priority over a tax lien levied under Nev. Rev. Stat. 360.473; and (3) the Department’s tax lien is considered a judgment lien under section 360.473(2), and Nevada recording statutes do not protect judgment creditors against prior unrecorded conveyances. View "State, Dep't of Taxation v. Kawahara" on Justia Law

William Plise, a judgment debtor, did not attend his scheduled debtor’s examinations in the district court. Eliot Alper, the judgment creditor, sought an order to show cause why Plise should not be held in contempt of court. Before the hearing on that motion, Plise filed a bankruptcy petition. Alper participated in the bankruptcy proceeding and obtained an order from the bankruptcy court granting relief from the automatic stay and allowing the district court to conduct a hearing and enter an order with regard to Plise’s alleged criminal contempt. The district court found Plise guilty of contempt of court and sentenced him to twenty-one days incarceration. The court, however, conditionally allowed Plise to avoid criminal contempt punishment. Alper filed this petition seeking a writ of prohibition arguing that the district court exceeded the scope of the bankruptcy court’s order granting relief from the automatic stay when it allowed him to avoid incarceration by participating in a debtor’s examination. The Supreme Court granted the writ of prohibition, concluding that the district court’s order exceeded the scope of the bankruptcy court’s lift stay order because a contempt order that permits a judgment debtor to purge incarceration is civil, rather than criminal, in nature. View "Alper v. Eighth Judicial Dist. Court" on Justia Law