Justia Bankruptcy Opinion Summaries

Jane O’Donnell paid for a minority membership interest in Tristar Esperanza Properties, LLC. O’Donnell later withdrew from the LLC, and Tristar elected the purchase her membership interest. The parties disagreed on the proper valuation of O’Donnell’s membership interest, and O’Donnell brought a contractual arbitration action. When Tristar failed to pay O’Donnell the amount an arbitrator awarded, O’Donnell sought and received a money judgment for that amount in state court. Tristar subsequently filed a chapter 11 bankruptcy petition. O’Donnell filed a claim against Tristar based on her state-court judgment. Tristar, in turn, filed an adversary proceeding against O’Donnell seeking to subordinate her claim under 11 U.S.C. 510(b) and (c) or to avoid her claim as a preference. The bankruptcy court entered summary judgment in favor of Tristar on the section 510(b) claim and in favor of O’Donnell on all other claims. The Bankruptcy Appellate Panel (BAP) affirmed, concluding that O’Donnell’s claim was subject to mandatory subordination under the Bankruptcy Code. The Ninth Circuit affirmed, holding that because the claim was for “damages arising from the purchase or sale” of a “security of the debtor,” the bankruptcy court properly subordinated it. View "Pensco Trust Co. v. Tristar Esperanza Props." on Justia Law

The United States Bankruptcy Court for the Western District of Washington certified a question of Washington law to the Washington Supreme Court. The question centered on Washington's homestead exemption law, chapter 6.13 RCW, and whether it applied extraterritorially to real property located in other states. The Supreme Court responded in the negative: Washington's homestead exemption law did not apply to real property outside of Washington. View "In re Bankr. Pet. of Wieber" on Justia Law

The Glenns, real estate developers, asked a loan broker (Chung) to find them a loan. Attorney Sullivan agreed to lend the Glenns $250,000 repayable in two weeks with interest of $5,000 per week. They needed the money for longer, but Chung told them and Sullivan that a bank had agreed to give the Glenns a $1 million line of credit that would be available in a few weeks. The Glenns and Chung signed promissory notes. There was no line of credit. The loan was never repaid. Chung declared bankruptcy. Sullivan filed an adversary complaint, claiming that Chung was not entitled to discharge the debt created by her note because it was her fraudulent assurance that the line of credit had been approved that had induced him to make the loan. The Bankruptcy Code bars discharge of a debt “obtained by … false pretenses, a false representation, or actual fraud,” 11 U.S.C. 523(a)(2)(A). The court denied Chung her discharge. The Glenns also declared bankruptcy. Sullivan filed adversary complaints. The bankruptcy judge found that the Glenns had not committed fraud and refused to impute Chung’s fraud to them under an agency theory. The district court and Seventh Circuit affirmed. If a debt is the result of fraud, the debtor can discharge it in bankruptcy if he was not complicit in the fraud, even if the fraud was created by his agent. View "Sullivan v. Glenn" on Justia Law

John Stokes appealed the judgment against him in a defamation case and retained attorney Greg Duncan to advise him on how to maintain his appeal while discharging his obligation in bankruptcy. After Duncan filed a bankruptcy petition on Stokes’ behalf, the bankruptcy court granted Duncan’s motion to withdraw. While the bankruptcy action was pending, Stokes filed the present action in state court against Duncan and his paralegal (collectively, Duncan) seeking damages for legal malpractice. The bankruptcy trustee intervened in the malpractice action, arguing that the action was an asset of the bankruptcy estate. The district court stayed all proceedings in the malpractice action. The bankruptcy court concluded that the malpractice action was an asset of the bankruptcy estate and subsequently sold the action to Duncan. After Stokes’ bankruptcy proceeding was discharged, the bankruptcy court entered an order concluding that Stokes’ claims against Duncan were property of the bankruptcy estate that had been purchased by Duncan. The state district court subsequently lifted the stay and granted Duncan’s motion for summary judgment, concluding that Stokes’ malpractice claims were property of the bankruptcy estate and had been purchased by Duncan. The Supreme Court affirmed, holding that Stokes’ claims were part of the bankruptcy estate. View "Stokes v. Duncan" on Justia Law

McCready's husband sold his business, Billy Bags, to Whorf before he died. Whorf failed to make payments. McCready sued and obtained a judgment of $134,927.36 that provided, "McCready is awarded an equitable lien on the assets and profits of [Billy Bags]." Whorf filed a Chapter 7 bankruptcy petition, showing an average net monthly income of $10,487.72 from Billy Bags. Whorf named McCready as a creditor. Personal liability on Whorf's debts was discharged in bankruptcy. The lien, however, remained on the assets and profits of Billy Bags. McCready sued for money had and received, claiming that Whorf had been receiving $10,487.72 per month profit from Billy Bags; that McCready has a lien against those profits; and that profits received from the filing of the bankruptcy petition to the time of trial were monies belonging to McCready. The complaint sought $134,927.36. The court ruled in favor of for Whorf, stating: "[McCready's] remedy, if any, was to seek to enforce the judgment that created the lien through the use of laws applicable to the enforcement of judgments.” The court of appeal reversed. A separate action on a judgment is expressly authorized by Code of Civil Procedure section 683.050. View "McCready v. Whorf" on Justia Law

Matichak was injured at work in 2009 and filed a workers’ compensation claim. Matichak filed a Chapter 7 bankruptcy petition in 2010, disclosing the claim, valued at $7,500. About a year after the discharge, Matichak filed a tort suit against firms that, he maintained, had contributed to his injury, seeking substantial damages. Defendants sought summary judgment, because Matichak had not listed any tort claim in his bankruptcy assets. Matichak then notified the Trustee, who reopened the bankruptcy and moved to replace Matichak as the plaintiff in the tort suit. The district court allowed the substitution but held that recovery could not exceed the value of debts that had not been paid in 2010. The Seventh Circuit reversed. The judge did not find that Matichak deliberately hid the tort claim; he claims that he thought that the workers’ compensation claim was his only potential source of compensation. Allowing the tort suit to proceed without a damages cap will allow the Trustee to hire counsel to take the suit on a contingent fee. If Matichak was trying to deceive his creditors, the bankruptcy judge may decide to give the creditors a bonus, or to return any excess to the tort defendants. View "Metrou v. M.A. Mortenson Co." on Justia Law

Debtor filed for Chapter 7 bankruptcy protection and listed an insurance policy with Northwestern Mutual as an asset on his bankruptcy schedules. Debtor claimed the policy’s entire cash surrender value as exempt property because his son (Son) was the beneficiary. The bankruptcy Trustee objected because Son was an adult and not “dependent upon” Debtor within the meaning of Ind. Code 27-1-12-14(e). That statute exempts life insurance policies from debtors’ bankruptcy estates when the named beneficiary is the “spouse, children, or any relative dependent upon” the debtor. Because bankruptcy courts in the Northern and Southern Districts of Indiana had issued conflicting opinions about the proper interpretation of the statute, the Bankruptcy Court for the Northern District of Indiana certified to the Supreme Court the question of whether, under section 27-1-12-14(e), the phrase “dependent upon such person” modifies only “any relative” or modifies “spouse,” “children,” and “any relative.” The Court concluded that the phrase “dependent upon such person” does not modify “spouse” or “children,” but only “any relative” named as beneficiary of a life-insurance policy. View "In re Howell" on Justia Law

George Russell Curtis, Betty Curtis, and the George Russell Curtis, Sr., Living Trust, who are the defendants in this adversarial proceeding, appeal the bankruptcy court’s judgment, which allowed the bankruptcy trustee to avoid a $200,000 transfer from the debtor, International Management Associates (IMA), to the defendants. Kirk Wright ran IMA and its affiliates, which he claimed was a hedge fund but which looked like a Ponzi scheme. The defendants invested $500,000 with IMA from 2002 to 2006. Over that same period, they received $621,000 in disbursements from IMA. The last of those disbursements took place on January 10, 2006, when IMA transferred $200,000 to the defendants. On March 16, 2006, the bankruptcy trustee, whom a Georgia state court had appointed as IMA’s receiver,1 filed a voluntary petition to place IMA in bankruptcy. As part of that bankruptcy action, the trustee filed a series of adversary proceedings against IMA’s investors, including the defendants. In those proceedings, he sought to avoid transfers that IMA had made to those investors shortly before being placed in bankruptcy. Based on the evidence presented at that consolidated hearing, the bankruptcy court found that IMA was a Ponzi scheme. Finding no reversible error, the Eleventh Circuit affirmed. View "George Russell Curtis, Sr. Living Trust v. Perkins" on Justia Law

In 2008, Allen Ginn was injured while delivering a truck load of logs to a mill owned by Smurfit Stone Container Enterprises, Inc. In 2009, Smurfit filed voluntary petitions for bankruptcy relief under Chapter 11. In 2011, Ginn and his wife (the Ginns) and Smurfit stipulated an agreement in which Smurfit agreed not to enforce the claim bar date set by the bankruptcy court. The Ginns subsequently served Smurfit with a complaint, summons, and related document. When the Ginns received no reply or acknowledgement of service, they requested entry of default from the district court. The district court entered default against Smurfit. Smurfit filed a motion to vacate the entry of default. The court concluded that the default would stand with regard to Smurfit’s liability but that a jury would be allowed to consider the issues of causation and damages. Thereafter, a jury awarded Allen Ginn $3,470,899 in damages plus an additional $500,000 to his wife. The Supreme Court affirmed, holding that the district court did not abuse its discretion, even slightly, in denying Smurfit’s motion to vacate the entry of default, as good cause did not exist to vacate the entry of default. View "Ginn v. Smurfit Stone Container Enters., Inc." on Justia Law

Debtors filed a Chapter 7 bankruptcy petition. The Credit Union sought Relief from Stay regarding a 2008 Chrysler van, which had been owned by Debtor’s father (Neale), but was in the Debtors’ possession. The van’s Certificate of Title lists Neale as the sole owner, but Neale had died and Debtor was the sole designee under his will, which was submitted to the court. The Bankruptcy Court found that Debtor had at least an equitable interest in the van, which interest was property of the estate, and granted the Motion. The Eighth Circuit affirmed, rejecting arguments that the Credit Union did not have a perfected security interest in the van, or that the loan could not be enforced against Debtors. The interest was evidenced by a Security Agreement signed by Neale; the lien was noted on the Certificate of Title, which issued in Texas. Texas law provides that, except for vehicles held as inventory, a person may perfect a security interest in a motor vehicle by recording the security interest on the certificate of title. The fact that Neale is now deceased, and that the Debtors may not be personally liable on the loan, does not affect the Credit Union’s security interest in the van. View "Gess v. Randolph Brooks Credit Union" on Justia Law