Justia Bankruptcy Opinion Summaries

The IRS challenged the district court's judgment upholding the bankruptcy court's decision to grant the objection of the reorganized Worldcom debtors to the IRS's proof of claim for taxes owed and the debtors' refund motion for the taxes WorldCom had already paid. At issue was whether WorldCom must pay federal excise taxes on the purchase of a telecommunications service that connected people using dial-up modems to the Internet. The court held that WorldCom purchased a "local telephone service" when it paid for the telecommunications service and that WorldCom must therefore pay federal communication excise taxes on those transactions. Accordingly, the court reversed and remanded for further proceedings. View "In Re: WorldCom, Inc." on Justia Law

Plaintiff appealed the bankruptcy court's imposition of sanctions on her for making factually unsupported and harassing statements in documents filed with the court. The court concluded that Federal Rule of Bankruptcy Procedure 9011 did not authorize the sanctions imposed in this case; even if Rule 9011 was inapplicable, it did not mean that the bankruptcy court lacked authority to sanction plaintiff; the court had jurisdiction over the appeal where the penalty imposed was criminal in nature because the monetary penalty was punitive, payable to the court, and non-compensatory; plaintiff did not move for recusal or object to the judge's participation and she therefore forfeited any objection; the bankruptcy court did not commit an obvious error by failing to recuse sua sponte and there was no showing of prejudice or miscarriage of justice; there was no reasonable probability of a different outcome before a different judge where the evidence of plaintiff's contempt was undisputed and aggravated; and plaintiff's remaining claims about the contempt process were without merit. Accordingly, the court affirmed the judgment. View "Isaacson v. Manty" on Justia Law

ROK Builders LLC (ROK) constructed a hotel for Moultonborough and had a mechanic's lien on the property. 2010-1 SFG Venture LLC (SFG) was the assignee of the construction lender and had a mortgage on the hotel. After Moultonborough filed for bankruptcy, SFG initiated an adversary proceeding against ROK in bankruptcy court, seeking a declaration that its mortgage was senior to ROK's lien to the extent the construction lender had disbursed loan funds to ROK. ROK, in turn, asserted that its lien was senior to SFG's mortgage. The New Hampshire bankruptcy court and district court entered judgment in favor of SFG. The First Circuit Court of Appeals affirmed, holding that the bankruptcy court did not err in concluding that N.H. Rev. Stat. Ann. 447:12-a established the seniority of SFG's mortgage over ROK's mechanic's lien to the extent of the amount of money the construction lender disbursed to ROK. View "ROK Builders, LLC v. 2010-1 SFG Venture, LLC" on Justia Law

Plaintiff David Newsome, a litigation trustee appointed by the bankruptcy court, administered the legal claims of Mahalo Energy (USA), Inc. He brought suit against the corporation's former directors and officers for alleged breaches of fiduciary duty. All defendants are Canadian citizens. The defendants moved to have the case dismissed for lack of personal jurisdiction. The district court granted that motion. At issue before the Tenth Circuit was whether or not the district court erred in granting that motion. The Tenth Circuit concluded that defendants cultivated sufficient contacts with the US (specifically, Oklahoma) to justify getting sued there. Furthermore, the Court held that the "fiduciary shield doctrine" did not apply in this case. The Court reversed as to individual defendants, and remanded the case for further proceedings. However, the Court affirmed dismissal with regard to the company's law firm: as an out-of-state firm that performed all of its relevant services out-of-state on an out-of-state transaction, it did not meet the minimum threshold of contact with the forum state to justify personal jurisdiction there. View "Newsome, et al v. Gallacher, et al" on Justia Law

Debtor appealed a bankruptcy court order holding that the funds in his health savings account (HSA) were not excluded from the bankruptcy estate pursuant to 11 U.S.C. 541(b)(7)(A)(ii) and were not exempt. The bankruptcy appellate panel (BAP) held that an HSA was not a health insurance plan regulated by state law and, therefore, the HSA was not excluded from the bankruptcy estate by section 541(b)(7)(A)(ii). The BAP also concluded that section 522(d)(10)(C) and (11)(D) exemptions did not apply in this instance where the funds in the HSA could be used for purposes other than "disability, illness, or unemployment" and also could be used for purposes other than "personal bodily injury." Further, these exemptions applied only to a debtor's "right to receive" the stated benefits but, in this instance, debtor had already received the money from his employer and there was no longer a "right to receive" the funds that are already in the account. Accordingly, the BAP affirmed the judgment of the bankruptcy court. View "Leitch v. Christians" on Justia Law

Debtors filed a Chapter 13 bankruptcy petition and later, in an amended schedule, claimed as exempt an unliquidated personal injury claim. On appeal, debtors challenged the Bankruptcy Appellate Panel's (BAP) decision affirming the bankruptcy court's ruling that the holding in In re Benn compelled the conclusion that debtors' unliquidated personal injury claim could not be exempted from their bankruptcy schedules. The court concluded, however, that unless In re Benn was overruled en banc or by the Supreme Court, it remained binding precedent, and was directly applicable to the issues in this case. Accordingly, the court affirmed the judgment. View "Abdul-Rahim, et al. v. LaBarge, Jr." on Justia Law

The Palomars filed for bankruptcy under Chapter 7. The trustee reported that the estate contained nothing that could be sold to obtain money for unsecured creditors. A discharge of dischargeable debts was entered and the bankruptcy case was closed. The day before the trustee issued his report, the Palomars had filed an adversary action against the bank that held a second mortgage on their home. The balance on their first mortgage, but the house was valued at $165,000. The Palomars argued that the second mortgage should be dissolved under 11 U.S.C. 506(a). Deciding that the adversary action was meritless, the judge refused to reopen the bankruptcy proceeding. The district court and Seventh Circuit affirmed, noting that the only debts normally extinguished are those for which a claim was rejected. The bank made no claim; this was a no-asset bankruptcy. Failing to extinguish the lien only deprives the debtors of the chance to make money should the value of their home ever exceed the balance on the first mortgage. View "Palomar v. First Am. Bank" on Justia Law

This case stemmed from a dispute involving a Master Services Agreement (MSA) between BHP and Deep Marine. At issue on appeal was whether Underwriters could enforce BHP's contractual insurance, defense, and indemnity obligations to Deep Marine after Deep Marine's bankruptcy discharge. The court concluded that, even assuming arguendo that the MSA required indemnification against liability and that Deep Marine will eventually be held liable, Underwriters still could not prevail because BHP's indemnification obligation runs only to Deep Marine; Deep Marine would not, and could not, incur any loss in the Duval action, so Underwriters could not seek indemnification from BHP; because BHP had agreed to continue providing Deep Marine with a nominal defense, Underwriters would not have a breach of contract claim against BHP; the additional insured and primary insurance requirements do not apply BHP's self-insurance; BHP's only obligation was an indemnification obligation to Deep Marine; unlike Underwriters, it had no secondary liability to injured tort victims, like Duval; and Duval had no claim against BHP and, therefore, tender under Federal Rule of Civil Procedure 14(c) was improper. Accordingly, the court affirmed the judgment. View "Duval v. Northern Assurance Co." on Justia Law

Debtor filed for chapter 7 bankruptcy and then converted her case to one under chapter 13. J&M objected to debtor's homestead exemption in her chapter 7 case, but did not similarly object after she converted to chapter 13. The bankruptcy court entered an order confirming debtor's chapter 13 plan and debtor filed a motion to avoid J&M's judicial lien. The court affirmed, holding that debtor was entitled to claim her homestead exempt in her bankruptcy case; that J&M's judicial lien impaired her exemption; and that the bankruptcy court properly applied Kolich v. Antioch Laurel Veterinary Hospital in computing the extent to which the lien impaired debtor's exemption. View "J&M Securities, LLC v. Moore" on Justia Law

Ryan failed to pay federal income taxes 2006-2010 and owed $136,898.93. In 2011, the IRS recorded a tax lien, 26 U.S.C. 6326. Ryan filed a voluntary Chapter 13 bankruptcy petition, 11 U.S.C. 1301. He had personal possessions worth $1,625. He admitted to the tax liabilities, and alleged that his residence had been sold for delinquent real estate taxes and that he did not own a bank account, vehicle, or retirement account. In an adversary proceeding, he alleged that the secured claim for 2009 taxes was limited $1,625 and that the remaining claim was unsecured, 11 U.S.C. 506(a), and void, 11 U.S.C. 506(d). The bankruptcy court held that section 506(d), as interpreted by the Supreme Court, did not allow Ryan to void, or “strip down” the lien. The Seventh Circuit affirmed. Section 506(d) provides: To the extent that a lien secures a claim that is not an allowed secured claim, such lien is void, unless such claim was disallowed only under section 502(b)(5) or 502(e) or such claim is not an allowed secured claim due only to failure to file a proof of such claim. “Allowed secured claim” in 506(d) is not defined by 506(a), but means a claim that is allowed under 502 and secured by a lien enforceable under state law. View "Ryan v. United States" on Justia Law