Justia Bankruptcy Opinion Summaries

Grace has manufactured and sold specialty chemicals and construction materials for more than 100 years. The company began facing asbestos-related lawsuits in the 1970s, based on several products and activities, including operation of a Montana vermiculite mine that released asbestos-containing dust into the atmosphere and sale of Zonolite Attic Insulation (ZAI). Montana and the Crown (Canada) have been sued for alleged failure to warn citizens of the risks posed by Grace’s products and activities. Montana settled its cases for $43 million in 2011. The Crown is a defendant in lawsuits arising from the use of ZAI. Montana and the Crown sought indemnification from Grace. Grace sought protection under the Bankruptcy Code, 11 U.S.C. 524(g), which allows a company to establish a trust to handle such liabilities. Montana and the Crown objected to confirmation of a Plan of Reorganization that will send all asbestos claims to two trusts, allowing protected parties to be “unconditionally, irrevocably and fully released.” The personal injury trust is funded by $ 1.5 billion from settlements with Grace’s insurers and former affiliates, an initial payment from Grace of $ 450 million, a warrant to acquire 10 million shares of Grace common stock at $ 17 per share, and annual cash payments from Grace of $100-110 million through 2033. The property damage trust is funded by an initial payment of 180 million dollars, and a subsequent payment of 30 million dollars. The two trusts have separate mechanisms for resolving claims. The bankruptcy court, the district court, and the Third Circuit confirmed the plan. View "In re: W.R. Grace & Co." on Justia Law

The bankruptcy court held that appellants violated 11 U.S.C. 527 and 528(a)(1), Florida Rules of Professional Conduct 4-3.3(a)(1), and 4-8.4(c), and possibly 18 U.S.C. 157(3) by helping appellee file an "ostensibly pro se [Voluntary Chapter 13] bankruptcy petition in bad faith to stall a foreclosure sale." The bankruptcy court held that appellants prepared the Chapter 13 petition as ghostwriters and consequently made false and fraudulent representations to the court. The court concluded that the bankruptcy court erred in its determination that appellants committed fraud when they contracted with appellee to provide foreclosure defense services, took appellee's money, had appellee sign documents, and then filed an ostensibly "pro se," bad faith bankruptcy petition on appellee's behalf. At bottom, the court concluded that appellants did not "draft" a document within the scope of Rule 4-1.2(c) and did not commit fraud in violation of the Florida Rules of Professional Conduct or 18 U.S.C. 157(3). Accordingly, the court reversed and remanded. View "Torrens, et al. v. Hood, Jr." on Justia Law

After defendants, Wendell O. Maness and Carolyn H. Maness, filed for bankruptcy, Legendary Stone sought a determination from the bankruptcy court that the indebtedness due from Top Shop, the company defendants owned, was nondischargeable under 11 U.S.C. 523(a)(2)(A), and that defendants were liable for such amounts under Missouri's lien fraud statute, Mo. Rev. Stat. 429.014. Two days before defendants filed for bankruptcy, Legendary Stone filed a criminal complaint against Wendell. Wendell was charged with theft under the lien fraud statute and subsequently was arrested, booked, and released on signature bond. The prosecutor eventually dismissed the charges against Wendell. Defendants then filed a counterclaim against Legendary Stone in the adversary proceeding asserting that Legendary Stone's actions in regards to the criminal complaint were attempts to collect a debt and willful violations of the automatic stay. The bankruptcy appellate panel affirmed the bankruptcy court's dismissal of defendants' counterclaim where Legendary Stone met its burden of presenting detailed evidence that its representatives were not attempting to use the criminal prosecution to collect a debt and where defendants failed to prove otherwise. View "Legendary Stone Arts, LLC v. Maness, et al." on Justia Law

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