Justia Bankruptcy Opinion Summaries

Debtors filed a petition for relief under chapter 11 in 1999. Debtors proposed several plans of reorganization, but none were confirmed. On the Trustee's motion, the bankruptcy court dismissed Debtors' case in 2004. Debtors did not appeal and the case was closed on the bankruptcy clerk's docket in 2005. In 2014, Debtors moved to reopen their case "to pursue Confirmation of their current Plan[.]" The Trustee and Agrifinance objected, and, without first holding a hearing, the bankruptcy court entered a text order denying Debtors' motion. The Eighth Circuit affirmed. There is no requirement in 11 U.S.C. 350 that the court provide a hearing on a motion to reopen and nothing would have been gained by holding a hearing. View "Bowman v. Casamatta" on Justia Law

Oteria Moses borrowed $1,000 under a loan agreement that was illegal under North Carolina law. When Moses filed for Chapter 13 bankruptcy protection, CashCall, Inc., the loan servicer, filed a proof of claim. Moses subsequently filed an adversary proceeding against CashCall seeking a declaration that the loan was illegal and also seeking money damages for CashCall’s allegedly illegal debt collection activities. CashCall filed a motion to compel arbitration. The bankruptcy court denied CashCall’s motion to compel arbitration and retained jurisdiction over both Moses’ first claim for declaratory relief and second claim for damages. On appeal, the district court affirmed. The Fourth Circuit affirmed in part and reversed in part, holding that the district court (1) did not err in affirming the bankruptcy court’s exercise of jurisdiction to retain in bankruptcy Moses’ first claim; but (2) erred in retaining in bankruptcy Moses’ claim for damages and denying CashCall’s motion to compel arbitration of that claim, as this claim was not constitutionally core. Remanded with instruction to grant CashCall’s motion to compel arbitration on Moses’ second claim for damages. View "Moses v. CashCall, Inc." on Justia Law

SE Property Holdings, LLC, and affiliated entity Vision-Park Properties, LLC, (collectively “Vision”) appealed a district court’s order upholding decisions in the bankruptcy restructuring proceedings of Seaside Engineering and Surveying, LLC. Seaside was a civil engineering and surveying firm whose principal shareholders prior to all bankruptcy litigation were John Gustin, James Mainor, Ross Binkley, James Barton, and Timothy Spears. The principals branched out from their work as engineers and entered the real estate development business, forming Inlet Heights, LLC, and Costa Carina, LLC. These wholly separate entities borrowed money from Vision with personal guaranties from the principals. Inlet Heights and Costa Carina defaulted on the loans, and Vision filed suit to recover amounts under the guaranties. Gustin filed for Chapter 7 bankruptcy protection for himself. Mainor and Binkley followed suit. All were appointed Chapter 7 trustees. Gustin, Mainor, and Binkley listed their Seaside stock as non-exempt personal property in their required filings. The Chapter 7 trustee in the Gustin case conducted an action to sell Gustin’s shares of Seaside stock. Gustin bid $95,500.00, and Vision defeated the bid with a purchase price of $100,000.00. Seaside attempted to block sale of Gustin’s stock to Vision, but the bankruptcy court confirmed the sale. Following the sale of Gustin’s stock, Seaside filed for Chapter 11 bankruptcy protection. Seaside proposed to reorganize and continue operations as the entity Gulf Atlantic, LLC (“Gulf”), an entity managed by Gustin, Mainor, Binkley, and Bowden, and owned by four members, the respective irrevocable family trust of each manager. The outside equity holders would receive promissory notes with interest accruing at a rate of 4.25% in exchange for their interest in Seaside and thus be excluded from ownership in Gulf. The bankruptcy court approved the Second Amended Plan of Reorganization over Vision's objection. The district court affirmed the bankruptcy court. After careful review of the record, the Eleventh Circuit affirmed. View "SE Property Holdings, LLC v. Seaside Engineering & Surveying, Inc." on Justia Law

Michael's brother, Kevin, purchased a lakefront lot. Michael was to cover expenses and ultimately purchase the lot. A dispute arose and Kevin put the lot up for sale. Kevin offered to reimburse Michael $54,049.10 and directed Michael to stop tampering with “For Sale” signs. Michael recorded a lien. Although Michael had about a 5% interest in the lot, the lien stated that Kevin “acquired title for convenience only.” Kevin sought a declaration of quiet title, and alleged slander of title, partition, and breach of contract. The jury was instructed, based on Wis. Stat. 706.13(1), which defines slander of title as submitting, entering, or recording, claim of lien, lis pendens, writ of attachment, financing statement or other instrument relating to a security interest in or the title to property, if the submitter “knows or should have known” that any part of the instrument was false, a sham, or frivolous. An interlocutory judgment of $281,000 was entered for Kevin. Michael filed a bankruptcy petition. Kevin asserted that their judgment was precluded from discharge under 11 U.S.C. 523(a)(6) as a “willful and malicious injury.” The bankruptcy court concluded that the issue was preclusively decided and entered judgment for Kevin. The district court affirmed. The Seventh Circuit reversed. The state court jury’s slander of title findings did not preclusively established that Michael acted “willfully.” The verdict could have been based on negligence. View "Gerard v. Gerard" on Justia Law

Petters purported to purchase and resell electronics. His operations were a Ponzi scheme. In 2005, Petters purchased Polaroid and become Chairman of Polaroid’s board of directors. Polaroid continued to engage in legitimate business. Petters took several million dollars from Polaroid. In 2007-2008, Petters’s companies, including Polaroid, experienced major financial difficulty. Ritchie made short term loans of more than $150 million, with annual interest rates of 80 to 362.1%. Polaroid was not a signatory, although some proceeds were used to repay a Polaroid debt. When the loans were past due, Ritchie demanded collateral. Petters executed a Trademark Security Agreement (TSA) giving Ritchie liens on Polaroid trademarks. Polaroid’s CEO objected to the TSA as impeding Polaroid’s ability to raise needed capital. The TSA did allow Polaroid to grant first-priority trademark liens to secure $75 million in working capital. After the FBI raid, which resulted in Petters’s convictions for mail fraud, wire fraud, and money laundering, and sentence of 50 years in prison, Ritchie accelerated all of the loans. Polaroid filed for bankruptcy and challenged the TSA as an actual fraudulent transfer under federal and Minnesota bankruptcy law, citing the “Ponzi scheme presumption.” The bankruptcy court presumed Petters executed the liens with fraudulent intent, found Ritchie had not received them in good faith and for value, and granted summary judgment. The district court upheld the admission of expert testimony and application of the Ponzi scheme presumption. The Eighth Circuit affirmed. View "Ritchie Capital Mgmt., LLC v. Stoebner" on Justia Law

At issue in this case was the extent to which a bankruptcy estate may reach a beneficiary’s interest in a spendthrift trust that consists entirely of payments from principal under the Probate Code of the state of California. The beneficiary claimed that Cal. Prob. Code 15306.5 caps the bankruptcy estate’s access at twenty-five percent of his trust interest. The bankruptcy trustee sought to reach more than twenty-five percent of the beneficiary’s interest under Cal. Prob. Code 15301(b) and 15307, which it argued was not subject to the section 15306.5 cap. The bankruptcy court ruled in favor of the beneficiary, concluding that section 15306.5 establishes an “absolute maximum cap on what is recoverable by a judgment creditor at 25 percent.” The Ninth Circuit Bankruptcy Appellate Panel (BAP) affirmed. To resolve the issue as to whether a bankruptcy estate may access more than twenty-five percent of a beneficiary’s interest in a spendthrift trust such as the one in this case under other sections of the Probate Code, the Ninth Circuit requested that the California Supreme Court exercise its discretion to accept a certified question addressing the issue. View "Frealy v. Reynolds" on Justia Law

Facing financial problems and lawsuits from victims of sexual abuse, the Catholic Archdiocese of Milwaukee filed for Chapter 11 bankruptcy in 2011. A Creditors’ Committee composed of abuse victims sought to void a one-time transfer of $55 million from the Archdiocese’s general accounts to a trust, created after the settlement with victims and earmarked for maintaining cemeteries in accordance with Canon Law, as fraudulent or preferential. The district court found that the application of the Bankruptcy Code to that transfer would violate the Archbishop’s free exercise rights under the Religious Freedom Restoration Act (RFRA) and the First Amendment. The Seventh Circuit reversed in part. RFRA is not applicable. The government is not a party; the Committee does not act under “color of law” and is not the “government” for RFRA purposes. It is composed of non-governmental actors, owes a fiduciary duty to the creditors and no one else, and has other nongovernmental traits. Although the Free Exercise Clause is implicated, but does not bar application of the Code to the $55 million. The Code and its relevant provisions are generally and neutrally applicable and represent a compelling governmental interest in protecting creditors that is narrowly tailored to achieve that end. View "Official Comm. of Unsecured Creditors v. Listecki" on Justia Law

Collection Associates garnished a total of $858.98 in wages Brandon earned during six pay periods. Brandon’s employer sent the first four garnishments, $562.78, to the state court that issued the garnishment order. That court delivered the payments to Collection Associates, under Neb. Rev. Stat. 25-1056(2). Brandon and his wife filed a bankruptcy petition and notified the state court they had done so. When the state court received the final two garnishments, totaling $296.20, instead of delivering those funds to Collection Associates, it returned the money to Brandon’s employer, which refunded the money to Brandon. The debtors then sought to avoid and recover the funds garnished during the preference period. The bankruptcy court found the preference action barred by the defense for consumer debtor payments under $600. The Bankruptcy Appellate Panel affirmed. The Eighth Circuit agreed that the defense applies because the Pierces sought to avoid the transfer of less than $600. View "Pierce v. Collection Assocs., Inc." on Justia Law

Five individuals (collectively, “Plaintiffs”) each filed a petition for individual bankruptcy under Chapter 13 in the Bankruptcy Court for the District of Maryland. LVNV Funding, LLC and its affiliated companies (collectively, “Defendants”) filed a proof of unsecured claim based on defaulted debts it had acquired against each plaintiff. Each Chapter 13 plan was approved. Defendants’ claims were allowed, and they received payments from the Chapter 13 trustees on these claims. Plaintiffs subsequently filed this putative class action lawsuit in the District of Maryland alleging that Defendants violated the federal Fair Debt Collection Practices Act (FDCPA) and various Maryland laws by filing proofs of claim without a Maryland debt collection license. The district court dismissed the action, concluding (1) the state common law claims were barred by res judicata, and (2) the federal and state statutory claims failed to state a claim. The Fourth Circuit affirmed but on res judicata grounds, holding (1) Plaintiffs’ claims were based on the same cause of action as Defendants’ claims in the confirmed bankruptcy plans and were thus barred by res judicata; and (2) Plaintiffs’ statutory claims were subject to the normal principles of res judicata and were thus precluded by the confirmation of the Chapter 13 plans. View "Covert v. LVNV Funding, LLC" on Justia Law

In this bankruptcy case, Bank of America obtained a junior foreclosure judgment and received the Debtor’s equity of redemption for a senior mortgage. Bank of America did not sell this interest within the specified time period, nor did it appear in the senior foreclosure to assert its interest in redeeming the senior mortgage within the redemption period. Peoples United Bank, the holder of the senior mortgage, then filed a foreclosure complaint. Bank of America and the Debtor failed to appear in the action and were defaulted. Thereafter, Peoples United was granted a foreclosure judgment. Bank of America was not named as a distributee in the resulting judgment. Bank of America subsequently purchased Peoples United’s interest in the Debtor’s senior mortgage debt, and Peoples United postponed the foreclosure sale. Bank of America successfully moved to substitute itself in place of Peoples United as the plaintiff in the senior foreclosure. The Trustee then moved to sell the premises free of liens, interests, and encumbrances. Bank of America objected. The bankruptcy court entered judgment in favor of Bank of America. The federal district court disagreed with the bankruptcy court and certified an unsettled state law question to the Maine Supreme Court. The Court answered that Bank of America, who failed to appear in the senior foreclosure and was not named as a distributee in the resulting judgment, did not have any rights to the excess proceeds from that foreclosure sale. View "Bankruptcy Estate of Everest v. Bank of Am., N.A." on Justia Law