Justia Bankruptcy Opinion Summaries

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

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