Justia Bankruptcy Opinion Summaries

The companies supplied oil and gas to SemCrude on credit. After SemCrude petitioned for bankruptcy, the companies filed a complaint contending that they retained property and statutory lien rights in those commodities and asserted that their claims could not be discharged without affording them the opportunity to litigate their claims in an adversary proceeding. They were not given that opportunity. The court instead established global procedures that entitled the companies to file one representative proceeding for each state in which they supplied oil and gas. All interested parties had the right to brief, and present oral argument on, their claims. Regardless whether a company participated, however, the rulings from the representative action would be binding on it. After such proceedings, the court rejected the companies’ claims that that they retained property and statutory lien rights. Following confirmation of Semcrude’s reorganization plan, the companies appealed to the district court, which rejected their claims as equitably moot. The Third Circuit reversed. The record did not support SemCrude’s claims that granting the companies relief would collapse its plan of reorganization or undermine the justifiable reliance of third parties to their significant harm. View "In re: SemCrude LP" on Justia Law

ABC is an Australian company that provided child care and educational services in several countries through 38 subsidiaries. RCS contracted with an ABC subsidiary to develop U.S. child care facilities and ABC guaranteed the subsidiary’s loan obligations. RCS won a $47 million breach of contract verdict against the subsidiary in Arizona state court. ABC and the subsidiary brought suit in Nevada against RCS, seeking $30 million. ABC entered into insolvency proceedings in Australia. ABC was entirely leveraged, so its directors voted to enter liquidation. Before the Arizona verdict became a judgment, the liquidators petitioned the Bankruptcy Court of Delaware for recognition of the Australian insolvency proceedings under Chapter 15 of the Bankruptcy Code. The focus of the stay was ABC’s Nevada suit against RCS. The bankruptcy court found the liquidation was a foreign main proceeding that met the recognition requirements and did not manifestly contravene U.S. public policy and ordered recognition and an automatic stay. The court granted RCS’s motion to lift the stay for the purpose of rendering its Arizona verdict to judgment, and applying the judgment against the Nevada action. The District Court of Delaware upheld the orders, noting that RCS was granted all the relief it initially sought. The Third Circuit affirmed, citing 11 U.S.C. 1520. View "In Re: RCS Capital Dev." on Justia Law

Appellant, an experienced real estate developer, defaulted on his personal-guaraty obligations after obtaining a loan for his limited liability company with a "materially false" personal financial statement (PFS). Appellee, the lendor, successfully sued O'Donnell in state court on the personal guaranty. Thereafter, Appellant filed for Chapter 7 bankruptcy protection. Appellee responded by initiating this adversary proceeding in the bankruptcy court, alleging that Appellant's debt to him was nondischargeable under 11 U.S.C. 523(a)(2)(B), which makes debts for money procured by use of a written statement nondischargeble if the statement was "materially false" related to the debtor's "financial condition" and the debtor made it with "intent to deceive." The bankruptcy judge refused to discharge Appellant's debt to Appellee, and the bankruptcy appellate panel (BAP) affirmed. The First Circuit Court of Appeals affirmed, holding that the BAP did not clearly err in its finding that Appellant's act of willfully turning "a blind eye" to the accuracy of the PFS proved his intent to deceive. View "Toye v. O'Donnell " on Justia Law

Before its 2007 bankruptcy, Sentinel was an investment manager. Its customers were not typical investors; most were futures commission merchants (FCMs), which operate in the commodity industry like to the securities industry’s broker‐dealers. Through Sentinel, FCMs’ client money could, in compliance with industry regulations, earn a decent return while maintaining the liquidity FCMs need. To accept capital from FCM customers, Sentinel had to register as an FCM, but it did not solicit or accept orders for futures contracts; it received a no‐action letter from the Commodity Futures Trading Commission (CFTC) exempting it from certain requirements applicable to FCMs. Sentinel represented that it would maintain customer funds in segregated accounts as required under the Commodity Exchange Act, 7 U.S.C. 1. In reality, Sentinel pledged hundreds of millions of dollars in customer assets to secure an overnight loan at the Bank of New York. Sentinel’s bankruptcy trustee claimed fraudulent transfer, equitable subordination, and illegal contract, in an effort to dislodge the Bank’s secured position. The district court rejected all of the claims. The Seventh Circuit reversed, rejecting a finding that Sentinel’s failure to keep client funds properly segregated was insufficient to show actual intent to hinder, delay, or defraud. View "In re Sentinel Mgmt. Grp., Inc." on Justia Law

Greektown, the owner of a Detroit casino, and affiliates filed for Chapter 11 bankruptcy. The bankruptcy court confirmed a reorganization plan and named a trustee. Before the plan became effective, the bankruptcy court authorized unsecured creditors to file a fraudulent transfer action under 11 U.S.C. 544 and 550 and the Michigan Uniform Fraudulent Transfer Act, alleging that Greektown incurred $185 million dollars of debt and simultaneously transferred approximately $177 million to several transferees, including the Tribe. The complaint alleged that the Tribe directly received $6 million and that $145 million transferred to others indirectly benefitted the Tribe because the Michigan Gaming Control Board had required the Tribe to pay this amount to those others if Greektown failed to do so. The Trustee and the Tribe later agreed to a settlement, under which the Tribe would pay $2.75 million and relinquish approximately $2.58 million in claims it had filed, conditioned upon the bankruptcy court’s entering a bar on further claims “arising out of or reasonably flowing from” either the fraudulent transfer proceeding or the allegedly fraudulent transfers themselves. The district court approved the settlement and entered the bar order over objections. Finding the order overly broad, the Sixth Circuit remanded for the court to consider whether the outcome of the actions covered by the bar order would affect the bankruptcy estate. View "Papas v. Buchwald Capital Advisors, LLC" on Justia Law

In this case, the parties disagreed about the nature of their dissolution agreement after one of them experienced a change in circumstances. Patriot Coal and Heritage Coal sought declaratory relief under 28 U.S.C. 2201 and Fed. R. Civ. P. 57, and requested a declaration that Peabody Holding's obligations with respect to the healthcare benefits owed to the Assumed Retirees would not be affected by modification of the benefits of retirees of Heritage or Eastern Associated under 11 U.S.C. 1114. The bankruptcy court denied relief and Patriot and Heritage appealed. While Heritage's rejection of its collective bargaining agreement relieved it of its contractual obligation to pay benefits, it still has a statutory obligation to pay those same benefits, at least until all of the steps of section 1114 are complied with. Therefore, the bankruptcy appellate panel (BAP) held that upon rejection of the "me too" agreement under section 1113, absent modification under section 1114, Heritage was still required to comply with the terms of the individual employer plan and provide its retirees those plan defined benefits; neither Heritage or United Mine Workers of America requested a modification; Peabody Holding's obligation under the liabilities assumption agreement remains undisturbed upon grant of the sections 1113 and 1114 motion; and Peabody Holding's remaining arguments lacked merit. Accordingly, the BAP reversed the decision of the bankruptcy court. View "Patriot Coal Corp., et al. v. Peabody Holding Co., et al." on Justia Law

Plaintiff appealed the bankruptcy court's finding that her student loan obligations to NCT and its loan servicer were nondischargeable. The bankruptcy appellate panel (BAP) concluded that the record revealed that plaintiff's past, present, and reasonably reliable future resources were not sufficient to meet all of the monthly payment obligations to NCT while maintaining a minimum standard of living. Accordingly, the BAP concluded on de novo review that excepting all of the obligations to NCT from discharge would be an undue hardship on plaintiff and, therefore, the BAP reversed and remanded for further proceedings. View "Conway v. National Collegiate Trust, et al." on Justia Law

After entry of a judgment of $650,000 in the Northern District of Texas as a sanction for failure to engage in discovery, Sharif filed for Chapter 7 bankruptcy in the Northern District of Illinois. WIN, a judgment creditor, filed an adversary complaint, seeking to prevent discharge of Sharif’s debts under 11 U.S.C. 727, and a declaratory judgment that a trust of which Sharif was trustee was actually Sharif’s alter ego. Sharif failed to respond to WIN’s and the bankruptcy trustee’s discovery requests. Sharif eventually tendered some discovery, far short of full compliance. The bankruptcy judge entered default judgment in WIN’s favor and awarded attorney’s fees. After entry of judgment but before briefing on an appeal, the Supreme Court held that a bankruptcy court lacked constitutional authority to enter final judgment on a state‐law counterclaim against a creditor, even though Congress had granted it statutory authority to do so. When Sharif finally raised the issue, the district judge held that Sharif’s failure to raise it earlier constituted waiver. The Seventh Circuit reversed, holding that the constitutional objection is not waivable because it implicates separation‐of‐powers principles. The bankruptcy judge lacked constitutional authority to enter a final judgment on the alter‐ego claim but had constitutional authority to enter final judgment on objections to discharge of Sharif’s debts. View "Sharif v. Wellness Int'l Network" on Justia Law

Plaintiffs Richard and Susan Queen sued Defendant TA Operating, LLC for an injury Mr. Queen sustained when he slipped and fell in a parking lot operated by TA. During the court of the proceedings, the Queens filed for Chapter 7 bankruptcy, but did not disclose this case in its bankruptcy pleadings. TA learned of the omission and brought it to the attention of the bankruptcy trustee. The Queens amended their bankruptcy petition, providing an estimate of the value of its litigation with TA for the slip and fall. The Queens were ultimately granted a no-asset discharge in bankruptcy. TA then moved the district court to dismiss on the grounds of judicial estoppel because the Queens did not disclose the lawsuit in their bankruptcy proceedings. The district court granted TA summary judgment, and the Queens appealed, arguing the district court erred in applying judicial estoppel. Because the Queens adopted an inconsistent position that was accepted by the bankruptcy court, and because the Queens would receive an unfair advantage if not estopped from pursuing the district court action, the Tenth Circuit concluded it was not an abuse of discretion to grant TA summary judgment. View "Queen, et al v. TA Operating, LLC" on Justia Law

Debtor was required to make contributions to the Carpenters Pension Trust Fund pursuant to a multiemployer bargaining agreement (the Agreement). When the Agreement expired, debtor no longer was a signatory to a collective bargaining agreement and stopped making payments. The Fund subsequently filed suit because debtor was still doing work covered by the Agreement and was subject to withdrawal liability under 29 U.S.C. 1381. Debtor then filed for bankruptcy and sought a discharge of his debt to the Fund. The Fund filed a complaint under 11 U.S.C. 523(c) to prevent discharge, seeking to establish that the debt qualified as one created via defalcation by a fiduciary under section 523(a)(4). The court concluded that the Bankruptcy Court had jurisdiction to adjudicate the dischargeability of the Fund's claim against debtor; debtor was not a fiduciary of the Fund because the unpaid withdrawal liability was not an asset of the Fund; and debtor's failure to challenge the withdrawal liability amount in arbitration did not act as a waiver of his right to discharge the debt. Accordingly, the court affirmed the judgment. View "Carpenters Pension Trust Fund v. Moxley" on Justia Law