Justia Bankruptcy Opinion Summaries

Plaintiffs filed a qui tam action against their bankruptcy trustee and others under the False Claims Act (FCA), 31 U.S.C. 3729-3733, alleging that the trustee presented fraudulent claims to the bankruptcy court in order to obtain payment of the $60 trustee's fee. The court held that the deposition of the trustee's realtor, James Grace, constitutes a public disclosure as to plaintiffs where plaintiffs were outsiders to the administrative investigation conducted by the Trustee's Office, which was entirely independent of plaintiffs' own investigation. Subject matter jurisdiction did not exist because plaintiffs were not the original source of the information under section 3730(e)(4)(B). Accordingly, the court affirmed the district court's dismissal. View "Malhotra v. Steinberg" on Justia Law

In 2005 Greene and his wife had filed for Chapter 7 bankruptcy and obtained a discharge from all their debts except federal student loan debt of $207,000. As part of the bankruptcy case they sought an order that the Department of Education cancel their debt on the ground that having to repay it would inflict undue hardship. The Greenes claimed that the statute of limitations prohibited collection of their loans, penalties and interest on the loans were caused by the DOE’s negligence, and the loans should be discharged as reparations for slavery and discrimination.” The Seventh Circuit rejected the undue hardship defense on the ground that “the Greenes initiated this case and the DOE has not counterclaimed or sought any judgment … there is no actual controversy.” In 2010 the Department began to garnish Greene’s wages and he sought an injunction. The DOE counterclaimed. The district court ordered Greene to pay the debt. The Seventh Circuit affirmed, holding that DOE’s counterclaim was not barred by res judicata, collateral estoppel, or failure to make a compulsory counterclaim in the bankruptcy proceeding. View "Greene v. U.S. Dep't of Educ." on Justia Law

Debtor appealed the bankruptcy court's ruling denying her request for discharge of her student loan obligations to ECMC based on undue hardship pursuant to 11 U.S.C. 523(a)(8). The bankruptcy appellate panel concluded that the bankruptcy court made detailed findings to support its decision that debtor's evidence was insufficient to substantiate a disability that would qualify as undue hardship. The bankruptcy court determined that the evidence regarding debtor and her family's alleged medical conditions concerning allergies related to mold and toxic mold exposure was insufficient to show that any of them suffered from a disability. Further, the bankruptcy court properly found and considered debtor's income limitations, future employment, and Income Contingent Repayment Plan as part of the totality-of-the-circumstances analysis. Accordingly, the panel affirmed the judgment. View "Nielsen v. ACS, Inc." on Justia Law

Steve Conway appealed the Bankruptcy Appellate Panel's (BAP) dismissal of his appeal from an adverse ruling of the bankruptcy court. The court concluded that Conway, who has not claimed to be a licensed attorney, cannot relitigate on behalf of LorCon, his company, and Conway has no standing in this bankruptcy appeal to litigate his derivative interest in LorCon's claim. Accordingly, the court dismissed the appeal and denied the motions to supplement the record. The court granted the motion to strike. View "Conway v. Heyl" on Justia Law

Noel Bisges represented debtor in her Chapter 7 bankruptcy case. United States Trustee Nancy Gargula moved to reopen the case after it was closed because she learned that debtor possibly failed to disclose in her bankruptcy petition that she owns horses. On appeal, Bisges challenged the district court's decision upholding the bankruptcy court's denial of Bisges's motion to dismiss and the imposition of sanctions against him. The court concluded that the bankruptcy court did not abuse its discretion in denying the motion where there is insufficient evidence of bad faith by Gargula. Further, the court saw no clear error in the bankruptcy judge's findings that Bisges advised debtor to omit from her bankruptcy petition a payment to her mother and Bisges violated 11 U.S.C. 707(b)(4)(C) by attaching to the bankruptcy petition schedules that significantly differed from the schedules that debtor had signed. Accordingly, the court affirmed the judgment. View "Bisges v. Gargula" on Justia Law

Plaintiff filed suit against defendant, a plastic surgeon, for medical malpractice. Defendant failed to answer the complaint but notified plaintiff that he filed a bankruptcy proceeding. Plaintiff then obtained an order from the bankruptcy court granting her relief from the automatic stay of proceedings against debtor. In this appeal, defendant challenged the subsequent default judgment entered against him. Defendant argued that plaintiff's failure to serve him with a statement of damages prior to entry of his default denied him a last opportunity to plead the complaint and avoid a default. The court found no error in the trial court's proceedings where, under these circumstances, service of the statement of damages on defendant was not necessary or permitted by the bankruptcy stay, would have served no useful purpose, and did not open up the default and allow defendant to answer the complaint. Accordingly, the court affirmed the judgment of the district court. View "Weakly-Hoyt v. Foster" on Justia Law

The dispute pending before the United States Court of Appeals for the Second Circuit centered on the effect of a UCC termination statement – a “UCC-3 termination statement” – filed with the Delaware Secretary of State on behalf of General Motors Corporation. That termination statement, by its plain terms, purported to extinguish a security interest on the assets of General Motors held by a syndicate of lenders, including JPMorgan Chase Bank, N.A. But neither JPMorgan nor General Motors subjectively intended to terminate the term loan security interest when General Motors filed the termination statement. General Motors’ counsel for a separate “synthetic lease” financing transaction, Mayer Brown LLP, had inadvertently included the term loan security interest on the termination statement that it filed in the process of unwinding the synthetic lease. According to JPMorgan, no one at General Motors, Mayer Brown, or Simpson Thatcher Bartlett LLP (JPMorgan’s counsel for the synthetic lease transaction) noticed this error, even though individuals at each organization reviewed the filing statement before the termination statement was filed. After General Motors filed for reorganization under Chapter 11 of the Bankruptcy Code, JPMorgan informed the unofficial committee of unsecured creditors that a UCC-3 termination statement relating to the term loan had been inadvertently filed. The Creditors Committee commenced a proceeding against JPMorgan in the United States Bankruptcy Court for the Southern District of New York seeking, among other things, a determination that the filing of the UCC-3 termination statement was effective to terminate the term loan security interest and thus render JPMorgan an unsecured creditor on par with the other General Motors unsecured creditors. JPMorgan contested that argument, asserting that it had not authorized the termination statement releasing the term loan security interest, and that the statement was erroneously filed because no one at General Motors, JPMorgan, or the law firms working on the synthetic lease transaction recognized that the unrelated term loan security interest had been included on the statement. On cross-motions for summary judgment, the Bankruptcy Court found for JPMorgan on various grounds, including that JPMorgan had not empowered Mayer Brown to act as its agent in releasing the term loan security interest in the sense that it had only authorized Mayer Brown to file an accurate termination statement that released security interests properly related to the synthetic lease transaction. The Second Circuit certified a question of Delaware law to the Supreme Court in order to resolve the appeal of this case before it: "Under UCC Article 9(as adopted into Delaware law by Del. Code Ann. tit. 6, art. 9), for a UCC-3 termination statement to effectively extinguish the perfected nature of a UCC-1 financing statement, is it enough that the secured lender review and knowingly approve for filing a UCC-3 purporting to extinguish the perfected security interest, or must the secured lender intend to terminate the particular security interest that is listed on the UCC-3?" The Delaware Supreme Court answered under the assumption that the term "effectively extinguish" as used by the Second Circuit centered on whether reviewing the termination statement and knowingly approving it for filing had the effect specified in section 9-513 of the Delaware’s version of the Uniform Commercial Code (UCC), which is that “the financing statement to which the termination statement relates ceases to be effective." On that assumption, the Delaware Court answered that "the unambiguous provisions of Delaware’s UCC dictate that the answer is that 'it [is] enough that the secured lender review and knowingly approve for filing a UCC-3 purporting to extinguish the perfected security interest.'" Under the Delaware UCC, parties in commerce are entitled to rely upon a filing authorized by a secured lender and assume that the secured lender intends the plain consequences of its filing. View "Official Committee of Unsecured Creditors of Motors Liquidation Co. v. JP Morgan Chase Bank" on Justia Law

Debtors filed a pro se Chapter 13 bankruptcy in order to stop a pending foreclosure of their residential unit. On appeal, debtors challenged the bankruptcy court's order denying their motion for violation of an automatic stay, violation of a homestead exemption, violation of discharge, and creditor misconduct. Debtors also challenged the order dismissing their case and imposing a 180-day refiling. The panel concluded that debtors failed to provide the panel with transcripts of the relevant hearings pursuant to Federal Rules of Bankruptcy Procedure 8006 and 8009(b). Even if the panel were able to ascertain from debtors' briefs on appeal what factual errors, if any, they assert the bankruptcy court committed, the panel was unable to review the bankruptcy court's orders where debtors failed to provide an adequate record of the bankruptcy court's decision. To the extent the panel can consider debtors' legal arguments without having been provided with their factual basis, none of those legal arguments have merit. Accordingly, panel affirmed the orders. View "Carlson v. U.S. Bank, N.A." on Justia Law

In 2012 Schmidt, a former shareholder in Genaera, a biotechnology company that dissolved in 2009 and liquidated its assets, brought suit on behalf of himself and other former shareholders against the liquidating trustee (Argyce); the Genaera Liquidating Trust; Argyce’s CEO and Genaera’s former CFO; former major Genaera shareholders Xmark and BVF; former Genara directors and officers (D&O defendants); and the purchasers of certain Genaera assets. The complaint alleged that the liquidating trustee and the D&O defendants breached their fiduciary duties by disposing of promising drug technologies in tainted insider deals for far less than their true value and that Xmark and BVF aided and abetted this behavior so that companies they controlled could acquire Genaera’s assets at fire sale prices. Schmidt did not dispute the applicability of the two-year statute of limitations and that he filed suit more than two years after the assets were sold, but argued that the limitations period should be tolled under Pennsylvania’s discovery rule because he could not have been aware of the insider nature of the sales or that the assets were sold for below actual value until he learned the details of the sales, and subsequent market events suggested to him that the assets were quite valuable. The district court dismissed. The Third Circuit reversed in part, stating that it was premature to determine whether Schmidt exercised reasonable diligence. View "Schmidt v. Skolas" on Justia Law

Debtor filed for bankruptcy under Chapter 7 and the bankruptcy court refused to apply collateral estoppel to a state judgment, finding all the debt dischargeable. The district court reversed, finding all the debt nondischargeable, but remanded the attorney-fee debt. Debtor appealed. The court dismissed the appeal for lack of jurisdiction under 28 U.S.C. 158(d) because the district court's order was not final. In this case, the district court remanded to the bankruptcy court to determine whether the operating agreement connects the attorney fees to the nondischargeable fiduciary debt, delay does not harm the aggrieved party, and a later reversal would not require a new proceeding. View "Clear Sky Properties, LLC, et al. v. Roussel" on Justia Law