Justia Bankruptcy Opinion Summaries

Holt and TAUG, subcontractors of the bankrupt Seiber, appealed the district court's affirmance of a prior bankruptcy court order, holding that the funds of an interpleader action, filed by EnCana, were property of the bankruptcy estate of Seiber, not EnCana, because the interpleader action extinguished the earlier construction liens of Holt and TAUG. The court upheld the validity of TAUG's chapter 56 lien where TAUG had a valid mineral lien against EnCana's property at the time EnCana was discharged from further liability to Seiber; as to Holt, the district court did not err in holding EnCana's interpleader and its deposited funds automatically satisfied its liability to Seiber, thus transferring legal possession of the funds to Seiber and the bankruptcy estate; the district court and bankruptcy courts erred in failing to draw the distinction between the act of depositing funds into the district court registry and the judicial act of discharging the depositor of any further liability; simply depositing interpleader funds does not automatically mean that the funds have been legally accepted, ownership thereof transferred, and the interpleader relieved of further duty to the court or further obligation to the parties of the dispute; the court need not address whether chapter 56 allows the liens to extend to the funds because the bankruptcy court entered an order, separate from this appeal, ruling on the interpleader and discharging EnCana; and, therefore, the court vacated and remanded for further proceedings. View "Holt Texas, Ltd., et al. v. Zayler" on Justia Law

Dynegy filed a voluntary Chapter 11 bankruptcy petition. Charles Silsby then filed a securities class action complaint against Dynegy and others alleging dissemination of false and misleading information and failure to disclose material facts about Dynegy's financial performance and prospects, in violation of securities laws. Stephen Lucas was appointed lead plaintiff in Silsby v. Icahn, the securities class action litigation. In this appeal, Lucas challenged the district court's conclusion that he lacked standing to opt out of or object to the joint reorganization plan on behalf of the putative class in the securities litigation. The court concluded that Lucas' status as lead plaintiff of the putative class in the district court securities litigation did not automatically extend to the bankruptcy proceedings; because Lucas did not seek application of Rule 23 in bankruptcy court, he represented no one but himself; and since he opted out of the release in his individual capacity, Lucas lacks standing to appeal the order confirming the Plan. Accordingly, the court affirmed the judgment. View "In re: Dynegy, Inc.," on Justia Law

In these consolidated appeals, holders of unredeemed consumer gift cards issued by the former book retailer (Borders or Debtors) seek to vacate the district court's dismissal as equitably moot appellants' challenges to three Bankruptcy Court orders. The court held that the analysis outlined in Frito-Lay, Inc. v. LTV Steel Co., which governs the Circuit's equitable mootness analysis in Chapter 11 reorganizations - also governs the court's mootness analysis in Chapter 11 liquidations; appellants are subject to the presumption of mootness created by the liquidation Plan's substantial consummation, and have failed to satisfy the five Chateaugay factors, as would be necessary to rebut that presumption; and the district court acted within its discretion in dismissing the appeals as equitably moot. Accordingly, the court affirmed the judgment of the district court. View "In re: BGI, Inc." on Justia Law

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