Justia Bankruptcy Opinion Summaries

France had a Chicago dental business and fraudulently billed insurers for city employees. France closed his practice after being injured in an accident and started collecting benefits from a disability income policy. In 1999, he exchanged monthly payments, for a limited time, for a lump sum of $300,000. He transferred this money to other people, including his wife, Duperon, before filing a Chapter 7 bankruptcy petition. He failed to disclose the payment or transfers. He later pleaded guilty to mail fraud, 18 U.S.C. 1341, and to knowingly making a false declaration under penalty of perjury, 18 U.S.C. 152(3). The district court sentenced France to 30 months in prison and ordered him to pay $800,000 in restitution. The bankruptcy trustee obtained title to ongoing disability insurance payments. France and Duperon divorced. A California court approved a settlement with payments for child support from the disability payments. France’s insurance company sued in California to resolve conflicting claims. The parties reached an agreement, which the bankruptcy court approved, purporting to control all other judgments, but did not mention the criminal restitution lien. The government filed Illinois citations to discover assets. France moved to quash, but the insurance company responded and began withholding $9,296 that had been going to France. The government moved to garnish the entire distribution under the Mandatory Victims Restitution Act (MVRA), 18 U.S.C. 3613(a). The Seventh Circuit affirmed a ruling allowing the government to garnish the entire disability payment. View "United States v. France" on Justia Law

Debtor is a talented singer. Wilson agreed to help manage the Debtor’s career. The two entered into a series of agreements. Wilson claims to have spent significant funds to advance Debtor’s career, but did not identify any related debts in his own 2008 bankruptcy. Debtor filed a Chapter 7 petition in 2012. Wilson filed an adversary proceeding and appealed bankruptcy court rulings denying his requests for: a judgment of nondischargeability under 11 U.S.C. 523; a money judgment; enforcement of a money judgment against Debtor’s non-filing spouse or her company; and denial of the Debtor’s discharge under 11 U.S.C. 727. The Eighth Circuit Bankruptcy Appellate Panel affirmed, finding that Debtor owed no debt to Wilson. Two contracts between the Debtor and Wilson were void as unconscionable; Wilson had no claim for a lost investment in the Debtor or his career. Wilson had no cause of action under section 523 and there was no basis upon which to deny the Debtor’s discharge, View "Wilson v. Walker" on Justia Law

Debtor filed a voluntary chapter 11 petition. Debtor had a program under which independent contractor drivers could lease and acquire ownership of trucks. Trucks were financed or leased from creditors, including Daimler. At the time of filing, Daimler was the lessor of 14 trucks and held security interests in 99 others and in driver lease payments and other proceeds generated by the use of such trucks. Daimler sought sequestration to prevent unauthorized use of that money. The parties submitted an agreed order, providing that Daimler would sell 21 trucks and credit the net proceeds. Debtor would retain 80 trucks subject to Daimler’s security interest and would make adequate protection payments. The order was silent about Daimler’s security interest in proceeds from the use of the trucks. The bankruptcy court confirmed a plan. The debtor appealed with respect to application of excess adequate protection payments, claiming it overpaid for erosion in the value of the trucks and argued that the court erred when it supplemented the secured portion of Daimler’s claim with an award of $51,909.40 as proceeds from the use of Daimler’s trucks. The Eighth Circuit dismissed for lack of jurisdiction. The orders were interlocutory. The debtor now possesses no trucks; no meaningful relief could be granted. Debtor did not propose a plan that was denied, so it is not an aggrieved party, and does not have standing. View "O&S Trucking, Inc. v. Mercedes Benz Fin. Servs., USA" on Justia Law

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