Justia Bankruptcy Opinion Summaries

Joseph G. Wortley, interested party, appealed the district court's affirmance of the bankruptcy court's summary denial of his motion for relief from judgment under Rule 60(b). Wortley and two others shared ownership in Global Energies before its bankruptcy. The court concluded that the bankruptcy court abused its discretion by clearly erring in its application of Rule 60(b)(2) under the facts of this case. The court remanded with instructions to grant Wortley's Rule 60(b)(2) motion and vacated its order approving the sale of Global assets to Chrispus. View "Wortley v. Chrispus Venture Capital, LLC" on Justia Law

Plaintiff obtained a default judgment against Red Willow Dairy, LLC, and Jim and Ann Huffman. The day before the order granting the default judgment was signed and file stamped, Red Willow Dairy and the Huffmans filed for chapter 7 bankruptcy. Plaintiff settled her claim in return for an assignment of rights to any causes of action Red Willow Dairy and the Huffmans might have against Fireman’s Fund Insurance Company with respect to the underlying lawsuit. Plaintiff then sued Fireman’s for breach of its duty to defend Red Willow Dairy and Huffmans. The district court found that the filing of the default judgment violated the automatic stay of the U.S. Bankruptcy Court and therefore granted summary judgment in favor of Fireman’s. The Supreme Court affirmed, holding the the filing of the bankruptcy stayed any further proceedings in the underlying action, preventing the rendition and entry of the default judgment. View "Doe v. Firemen's Fund Ins. Co." on Justia Law

Andrew J. Gentry III ("Drew Gentry") appealed a circuit court judgment dismissing his claims against Daniel Lindsey, Sr., Jackson Thornton & Co., P.C. ("Jackson Thornton"), Daniel Lindsey, Jr., Justin M. Parnell ("Matt Parnell"), Parnell & Crum, and Wilbur Investments, LLC ("Wilbur Investments"). In 1992, Andrew J. Gentry, Jr. ("Andy Gentry") petitioned for Chapter 11 bankruptcy protection. Andy Gentry hired Charles N. Parnell III ("Nick Parnell"), an attorney at Parnell & Crum, to represent him in the bankruptcy proceedings. Nick Parnell hired Daniel Lindsey, Sr., a certified public accountant with Jackson Thornton, to assist him. According to Drew Gentry, who (Andy Gentry's son), Andy Gentry suffered from a mental illness throughout his life, which, Drew Gentry argued, was not controllable by medication at the time of the bankruptcy proceedings. Drew Gentry argues that, at the time of the bankruptcy proceedings, Nick Parnell and Daniel Lindsey, Sr., knew of Andy Gentry's reduced mental capacity and also knew that Andy Gentry was terminally ill with AIDS. Andy Gentry died in 1995, while the bankruptcy proceedings were pending. During the bankruptcy proceedings and prior to Andy Gentry's death, Nick Parnell and Daniel Lindsey, Sr., incorporated LeeCo Properties, Inc. ("LeeCo"), in the names of their minor sons, Matt Parnell and Daniel Lindsey, Jr. Nick Parnell and Daniel Lindsey, Sr., persuaded Andy Gentry and the bankruptcy court to allow the transfer of certain real estate owned by Andy Gentry to LeeCo in return for either payment of the debts owed on those properties or the assumption of those debts. The bankruptcy proceedings concluded in 1997. In 2010, Nick Parnell and Matt Parnell acquired the interests of Daniel Lindsey, Sr., and Daniel Lindsey, Jr., in LeeCo. LeeCo's assets were later transferred to Wilbur Investments, and LeeCo was dissolved in December 2010. Drew Gentry sued over the transfer of his father's assets to LeeCo. In March 2013, the circuit court entered a certification, pursuant to Rule 54(b), making final the dismissal of the claims against Daniel Lindsey, Jr., the Jackson Thornton defendants, Matt Parnell, Parnell & Crum, and Wilbur Investments. The circuit court did not make final the dismissal of the claims in an amended complaint against Nick Parnell, presumably because claims remained pending against him in the original complaint. Drew Gentry appealed the circuit court's judgment to the Court of Civil Appeals. In August 2013, the Court of Civil Appeals transferred the appeal to the Supreme Court, citing a lack of subject-matter jurisdiction. Daniel Lindsey, Jr., and Nick Parnell separately moved this Court to dismiss them from the appeal. Daniel Lindsey, Jr., argued that Drew Gentry had not listed him on the notice of appeal and that the notice of appeal did not "give[] any indication of an intent to appeal the judgment in favor of [Daniel] Lindsey, Jr." Nick Parnell argued that claims remained pending against him in the circuit court, that "there ha[d] been no final judgment against him," and that "the [circuit] court's [March 20 judgment] did not include him." The Supreme Court denied the motion filed by Daniel Lindsey, Jr., but granted Nick Parnell's motion and dismissed him from the appeal. Because the Rule 54(b) certification was improper, Drew Gentry's appeal was dismissed. View "Gentry III v. Lindsey, Sr., et al. " on Justia Law

KDC had cash flow problems and, in 2004, hired Johnson. Johnson retained the law firm (GPM) of his acquaintance, Tenenbaum. GPM sent KDC an engagement letter that included conflict‐waiver language regarding Johnson and a company affiliated with Johnson. Johnson soon resigned and joined First Products. GPM resigned as KDC’s counsel. KDC filed for Chapter 11 bankruptcy. Its assets were purchased at auction by First Products. No other bids were received; the bankruptcy court approved the sale. The bankruptcy was later converted to a Chapter 7 liquidation proceeding. The bankruptcy trustee hired Sullivan as special counsel. Sullivan had filed a shareholder derivative action before KDC filed for bankruptcy, alleging that directors and officers of KDC had conspired to defraud the company of its intellectual property by driving KDC out of business and purchasing its assets at bargain prices. In 2010, a Wisconsin state judge entered judgment, finding some defendants, including Johnson, had engaged in a civil conspiracy to defraud KDC and steal its assets. In 2012, KDC, through its bankruptcy trustee, brought claims against GPM, alleging involvement in the scheme to defraud KDC orchestrated by Johnson. On summary judgment, the district court determined that the remaining claims were barred by the six‐year Wisconsin statute of limitations because KDC was on notice of GPM’s alleged fraud by 2006, when Sullivan received KDC’s client file. The Seventh Circuit affirmed. View "KDC Foods, Inc. v. Gray, Plant, Mooty, Mooty & Bennett, P.C." on Justia Law

Between 2009 and 2012, Sunshine and Purdy, a Kentucky dairy farmer, entered into “Dairy Cow Leases.” Purdy received 435 cows to milk, and, in exchange, paid monthly rent to Sunshine. Purdy’s business faltered in 2012, and he sought bankruptcy protection. Sunshine moved to retake possession of the cattle. Citizens First Bank had a perfected purchase money security interest in Purdy’s equipment, farm products, and livestock, and claimed that its perfected security interest gave Citizens First priority over Sunshine with regard to the cattle. Citizens argued that the “leases” were disguised security agreements, that Purdy actually owned the cattle, and that the subsequently-acquired livestock were covered by the bank’s security interest. The bankruptcy court ruled in favor of Citizens, finding that the leases were per se security agreements. The Sixth Circuit reversed, noting that the terms of the agreements expressly preserve Sunshine’s ability to recover the cattle. Whether the parties strictly adhered to the terms of these leases is irrelevant to determining whether the agreements were true leases or disguised security agreements. Neither the bankruptcy court nor the parties sufficiently explained the legal import of Purdy’s culling practices or put forward any evidence that the parties altered the terms of the leases making them anything but leases. View "In re: Purdy" on Justia Law

Irwin, a holding company, entered bankruptcy when its two subsidiary banks failed. The FDIC closed both in 2009. Their asset portfolios were dominated by mortgage loans, whose value plunged in 2007-2008. Irwin’s trustee in bankruptcy sued its directors and officers (Managers). The FDIC intervened because whatever Irwin collects will be unavailable to satisfy FDIC claims. Under 12 U.S.C. 821(d)(2)(A)(i), when taking over a bank, the FDIC acquires “all rights, titles, powers, and privileges of the insured depository institution, and of any stockholder, member, accountholder, depositor, officer, or director of such institution with respect to the institution and the assets of the institution.” The claims assert that the Managers violated fiduciary duties to Irwin by not implementing additional financial controls; allowing the banks to specialize in kinds of mortgages that were especially hard-hit; allowing Irwin to pay dividends (or repurchase stock) so that it was short of capital; “capitulating” to the FDIC and so that Irwin contributed millions of dollars in new capital to the banks. The district judge concluded that all claims belong to the FDIC and dismissed. The Seventh Circuit affirmed in part, but vacated with respect to claims that concern only what the Managers did at Irwin: supporting the financial distributions, informing Irwin about the banks’ loan portfolios, and causing Irwin to invest more money in the banks after they had failed. View "Levin v. Miller" on Justia Law

The Liquidating Trustee filed a federal income tax refund claim in bankruptcy court. The bankruptcy court ruled that the Liquidating Trustee was entitled to a $3.8 million tax refund, and that the reorganization extinguished the government's setoff rights. The district court affirmed the refund but reversed the setoff rights. On appeal, the Liquidating Trustee sought a mandate directing affirmance of the final order of the bankruptcy court in toto, and argued that the issue of the bankruptcy court's subject matter jurisdiction over the refund claim was waived when the government withdrew its own appeal in this case. The court held that the bankruptcy court lacked jurisdiction over the Liquidating Trustee's refund claim and that the jurisdictional defense was not waived by the government's withdrawal of its appeal. The bankruptcy court lacked jurisdiction to award the refund because Congress authorized a bankruptcy estate, not a plan-appointed estate representative, to administratively exhaust a refund claim before bringing that claim in bankruptcy court, and because the refund claim here was not filed with the IRS by a bankruptcy trustee. View "United States v. Bond" on Justia Law

Thomas Hale filed for bankruptcy in 2005. During the course of that bankruptcy, he allegedly lied under oath and attempted to conceal from the bankruptcy trustee an agreement to sell property. After his relationship with the trustee became antagonistic, Hale sent her a package with unidentified material and a note that said, "Possible Haz-mat? Termites or Hanta virus [sic] from mice?" In 2013, Hale was convicted of making a materially false statement under oath in a bankruptcy case, concealing a contract from the bankruptcy trustee and creditors, and perpetrating a hoax regarding the transmission of a biological agent. Upon review of Hale's appeal, the Tenth Circuit affirmed in part and reversed in part: "instead of charging Hale with 'making a false declaration, certificate, verification, or statement under penalty of perjury' with regard to his representations in [his bankruptcy petition,] Hale was charged with falsely answering a temporally ambiguous question that inquired about numerous filings and was asked nearly a year after the documents were submitted. We do not think it proper to condone the prosecution’s creation of this ambiguity. We thus conclude that the error 'seriously affects the fairness, integrity, or public reputation of judicial proceedings.'" The Court reversed the conviction with regard to the false statement, but affirmed in all other respects. View "United States v. Hale" on Justia Law

Debtor, a managing member of Twister's Iron Horse Saloon, appealed the bankruptcy court's order determining that a debt arising from a civil judgment in favor of appellees for copyright infringement was excepted from discharge under 11 U.S.C. 523(a)(6). Some of the music played or performed at Twister's was in the repertoire of the American Society of Composers, Authors, and Publishers (ASCAP). Appellees granted ASCAP a nonexclusive right to license public performance rights of their works. Twister's did not hold a public performance license. In this case, the court agreed with the bankruptcy court that debtor had willfully failed to obtain an ASCAP license and maliciously disregarded the rights of ASCAP's members and Federal copyright law. Therefore, the debt was excepted from discharge and the court affirmed the judgment. View "Sailor Music, et al. v. Walker" on Justia Law

The Trustee for the liquidation of Bernard L. Madoff Investment Securities LLC (BLMIS) and the bankruptcy estate of Bernard L. Madoff, initiated adversary proceedings seeking to block the settlement of three lawsuits, none of which involved BLMIS or the Madoff estate as a party. The Trustee argued that the settlements in these cases would hinder his ability to recoup fraudulent transfers he alleged BLMIS made to the settling defendants. The court affirmed the district court's dismissal of the Trustee's claims because the Trustee was not entitled to declaratory and injunctive relief and the district court did not abuse its discretion in denying his requests for injunctive relief. View "Picard v. Fairfield Greenwich Ltd." on Justia Law