Justia Bankruptcy Opinion Summaries

Debtor appealed from the Bankruptcy Appellate Panel's decision affirming the bankruptcy court's dismissal of her voluntary Chapter 12 petition. The court affirmed the dismissal of debtor's petition because her "aggregate debts" exceeded $3,792,650, the statutory limitation for Chapter 12 eligibility in effect at the time debtor filed her petition pursuant to 11 U.S.C. 101(18)(A). The court concluded that a creditor's claims remains a "debt" so long as it is enforceable against either the debtor or the debtor's property. Accordingly, the debtor's "aggregate debts" include the amount of that claim, even after a prior discharge from personal liability under Chapter 7. In this case, debtor's schedules lists claims totaling $4.1 million, which is above the cap for Chapter 12 eligibility in effect at the time of her petition. View "Davis v. U.S. Bank" on Justia Law

Sterling Development Group Three, LLC, and Sterling Development Group Eight, LLC, appealed a judgment dismissing their action against James Carlson to collect on two personal guarantees, and an order awarding Carlson costs and disbursements. In 1983, Carlson founded PRACS Institute, Ltd., a medical research facility which began operating in East Grand Forks, Minnesota. In 1999, Sterling Development Group Three entered into a 15-year lease agreement with PRACS for a building located in East Grand Forks. Carlson signed the lease agreement as the president of PRACS. Carlson also signed a personal guaranty. When PRACS expanded in 2004, Sterling Development Group Eight built an expansion to the Sterling Three building, and PRACS entered into a lease agreement with Sterling Eight for a term running simultaneously with the Sterling Three lease. Carlson signed a similar personal guaranty for the Sterling Eight lease. In January 2006, Carlson sold PRACS to Contract Research Solutions, Inc., which the parties refer to as Cetero. The Sterling companies consented to this "change of control." Carlson's daily involvement in PRACS ceased at that point. Carlson received Cetero stock in the sale and became a member of Cetero's seven-member board of directors. In 2010, Cetero suspended its East Grand Forks operations, but continued to pay rent to the Sterling companies. In the spring of 2012, Cetero filed for bankruptcy. The bankruptcy trustee eventually rejected the East Grand Forks Cetero leases with the Sterling companies and stopped paying rent. The Sterling companies then brought this action against Carlson to collect more than $600,000 for unpaid rent under his personal guarantees. Following a bench trial, the district court dismissed the action. The court found Carlson was exonerated from liability under the personal guarantees because the original lease agreements had been altered in three respects by the Sterling companies and Cetero or PRACS without Carlson's knowledge or consent. The Sterling companies argued on appeal to the Supreme Court that the district court erred in finding the original lease agreements were contractually altered without Carlson's knowledge or consent, resulting in exoneration of his personal guaranty obligations. Because the district court's finding that the principal's contractual obligations were altered without Carlson's knowledge or consent was not clearly erroneous, and the court did not abuse its discretion in awarding costs and disbursements, the Supreme Court affirmed the judgment and order. View "Sterling Development Group Three, LLC v. Carlson" on Justia Law

Miller purchased an annuity from Minnesota Life Insurance, with a lump-sum “Purchase Payment” of $267,319.48, consisting of funds from his individual retirement account. Minnesota Life agreed to make an annual “Income Payment” of $40,497.95 to Miller for the next eight years. Miller later filed for Chapter 7 bankruptcy and claimed that the annuity was exempt under 11 U.S.C. 522(b)(3)(C), as “retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under section . . . 408 . . . of the Internal Revenue Code.” Section 408 provides that an individual retirement account and an individual retirement annuity are exempt from taxation as qualified retirement plans, 26 U.S.C. 408(a), (b), (e)(1). The Eighth Circuit affirmed. The exemption generally applies even if the debtor transferred the retirement funds to the qualified retirement plan from another qualified retirement plan. There is no dispute that the funds used to purchase Miller’s annuity were retirement funds that came from Miller’s individual retirement account, which was a qualified individual retirement account. The court rejected the trustee’s argument that Miller’s annuity is not a qualified individual retirement annuity. View "Running v. Miller" on Justia Law

HSBC initiated a Wisconsin foreclosure action on the Rinaldi’s mortgage. The Rinaldis counterclaimed, alleging that the mortgage paperwork had been fraudulently altered and that HSBC lacked standing to enforce the mortgage. The Rinaldis lost at summary judgment and did not appeal. The court later vacated its foreclosure judgment after HSBC agreed to modify the loan. The Rinaldis filed a new state lawsuit reasserting their counterclaims. Before the court ruled on the defendants’ motion to dismiss, the Rinaldis filed for bankruptcy. In those proceedings, HSBC filed a proof of claim for the mortgage. The Rinaldis objected and filed adversary claims, alleging fraud, abuse of process, tortious interference, breach of contract, and violations of RICO and the Fair Debt Collection Practices Act. The bankruptcy court found in favor of HSBC and recommended denial of the adversarial claims. The district court agreed, noting the Rinaldis’ failure to comply with Federal Rules. The court dismissed the Rinaldis’ adversary claims as meritless and warned that the Rinaldis would face sanctions if they filed additional frivolous filings because their tactics had “vexatious and time- and resource-consuming” and their filings “nigh-unintelligible.” After additional filings of the same type, the Rinaldis voluntarily dismissed their bankruptcy. Their attorney filed additional frivolous motions. The court ordered the attorney to pay $1,000. The Seventh Circuit upheld the sanction. View "Nora v. HSBC Bank USA, N.A." on Justia Law

T&N Limited (T&N), an asbestos manufacturer, chose to address the liability it faced after the deadly qualities of asbestos were discovered through a Chapter 11 bankruptcy reorganization plan (the Plan). Then Plan transferred to a Trust certain of T&N’s assets and rights, with which the Trust was to pay asbestos claims brought by persons who could have sued T&N but for T&N's bankruptcy. The Plan provided that T&N’s asbestos liability would continue after plan confirmation and that the Trust would bring asbestos suits against T&N as the agent of the actual claimants. In this lawsuit, the Trust brought an asbestos claim that had accrued a decade earlier. The district court dismissed the Trust’s suit on statute of limitations grounds, thus rejecting the Trust’s argument that it was allowed to bring asbestos claims that had not become stale prior to T&N’s filing for bankruptcy protection whenever it wished to do so. The First Circuit affirmed, holding that the Trust’s argument failed because the Plan unambiguously terminated the automatic stay and contained no provision that provided for any further tolling of the limitations period beyond that granted by the Bankruptcy Code. View "Barraford v. T&N Ltd." on Justia Law

Appellant and her law firm appealed the bankruptcy court's contempt order holding them in civil contempt for failing to pay sanctions imposed for prior misconduct. The misconduct stemmed from appellant's misconduct in her legal representation of debtor during bankruptcy proceedings. The court concluded that the bankruptcy court retained jurisdiction to enforce the sanctions orders through any appropriate means, including a civil contempt order; the court rejected appellant's contention that she was "threatened" with imprisonment and concluded that the order does not violate the prohibition on imprisonment for a debt; and the order was not an abuse of the bankruptcy court's discretion because appellant is not protected by her alleged membership in her LLC where she was found in civil contempt for failure to pay sanctions that she owed because of her own misconduct in prior bankruptcy proceedings. Accordingly, the court affirmed the order. View "Garrett v. Coventry II DDR" on Justia Law

The Chapter 7 bankruptcy trustee appealed the district court's holding that the bankruptcy court did not have jurisdiction to order that he and his retained professionals be compensated for their services using the assets of a 401(k) plan pursuant to the Employee Retirement Income Security Act of 1974, 29 U.S.C. 1001 et seq. The court concluded that, in this case, no "arising under" jurisdiction exists and no "related to" jurisdiction exists. Accordingly, the court concluded that bankruptcy courts do not have jurisdiction to award compensation to the trustee in these circumstances and affirmed the judgment of the district court. View "Kirschenbaum v. U.S. Dept. of Labor" on Justia Law

Claimants filed a $2,142,000 non-priority unsecured proof of claim in jointly administered Chapter 11 bankruptcy cases. That claim was disallowed by the bankruptcy court; the district court and the Sixth Circuit affirmed. As a result of the multitude of filings, strategies employed and positions taken over a six year period, the bankruptcy court sanctioned the attorney, Grossman, the sum of $207,004 pursuant to 28 U.S.C. 1927 and the court’s inherent authority under 11 U.S.C. 105, representing the attorney fees expended by counsel for the Official Committee of Unsecured Creditors and, post-confirmation, the Liquidation Trustee and his counsel, directly or indirectly related to the claim litigation. Grossman appealed the sanction and an order denying a motion which sought the recusal of the bankruptcy judge pursuant to 28 U.S.C. 455. In a separate appeal, Grossman challenged the retention of special counsel to collect the judgment against him and an order requiring him to submit to a debtor’s examination and provide written discovery. Consolidating the appeals, the Sixth Circuit Bankruptcy Appellate Panel affirmed. Grossman vexatiously pursued arguments and filed documents throughout the litigation that were frivolous; his claims about the judge were misstatements. View "In re: Royal Manor Mgmt., Inc." on Justia Law

The Borrower defaulted on a nonrecourse Commercial Mortgage-Backed Securities (CMBS) loan secured by property located in Detroit. CMBS loans are packaged as a trust to attract investors; in return for nonrecourse liability, CMBA borrowers promise to refrain from certain financial behavior likely to increase the risk of default and bankruptcy; the loan at issue included a solvency clause. Michigan’s 2012 Nonrecourse Mortgage Loan Act applies retroactively to render solvency covenants in nonrecourse loans unenforceable, declaring them “an unfair and deceptive business practice . . . against public policy [that] should not be enforced.” The lender foreclosed. Purchaser bought the property at auction with a winning bid of $756,000, and, standing in the lender’s shoes and citing the solvency clause, sued Borrower and its guarantor to collect a $6 million deficiency. The district court granted summary judgment in favor of Borrower. The Sixth Circuit affirmed, agreeing that that the NMLA: rendered the solvency covenant in Borrower’s CMBS loan unenforceable; violated neither the Contract nor Due Process Clauses of the United States and Michigan Constitutions; and comported with Michigan’s constitutional provision mandating the separation of governmental powers. View "Borman, LLC v. 18718 Borman, LLC" on Justia Law

Stephens, an attorney, is controlling principal of Southwest Medical, the Debtor, and has an interest in Southeast, the debtor in a separate bankruptcy. The Chapter 7 Trustee filed an adversary proceeding against Southeast and Stephens based on assets that were transferred post-petition by the Debtor to Southeast, and sought imposition of a constructive trust. By joint stipulation, Stephens was dismissed from the Adversary Proceeding. In 2013, following a trial, the Bankruptcy Court denied Stephens’ Motion to Intervene in the Adversary Proceeding; entered an order that allowed the Trustee an unsecured claim against Southeast ($1,190,000); and denied a constructive trust against Southeast’s assets. While Stephens’ appeal was pending, and on the last day of the one-year limitation period under FRCP 60(b), Stephens moved for Relief from Judgment or Order, alleging that the Trustee’s attorney had colluded with Southeast’s attorneys, amounting to a “fraud on the court.” The court denied Stephens’ Rule 60 Motion because, he was not a party in the Adversary Proceeding; held that Stephens’ allegations of fraud on the court violated Rule 9011(b)(2) and (b)(3); and ordered Stephens to pay $19,188.42 in attorney fees plus $1,659.10 as a sanction under Rule 9011(c)(2). The Eighth Circuit affirmed. View "Williams v. Stephens" on Justia Law