Justia Bankruptcy Opinion Summaries

The Trustee in bankruptcy of ESA appealed from the affirmance by the district court of the award of summary judgment by the bankruptcy court to Hanover. The bankruptcy court concluded that ESA's transfer of $1.375 million to Hanover within 90 days of ESA's filing a petition for bankruptcy was not an avoidable preference under 11 U.S.C. 547(b). The court held that, although the bankruptcy court erred in finding that the earmarking defense applied in this case, the court found no error in its determination that Hanover was entitled to the new value defense under section 547(c) to the Trustee's claim of a preferential transfer. Therefore, the court affirmed the judgment of the bankruptcy court awarding summary judgment to Hanover. View "ESA Environmental Specialists, Inc. v. The Hanover Ins. Co." on Justia Law

In 2000 the SEC charged violation of securities law. The court appointed a receiver to distribute assets among victims of the $31 million fraud. The receiver found that assets had been used to acquire oil and gas leases. SonCo claimed an interest in the leases. In 2010, the district court issued an “agreed order,” requiring SonCo to pay $600,000 for quitclaim assignment of the leases and release of claims in Canadian litigation. Alco operated the wells and had posted a $250,000 cash bond with the Texas Railroad Commission. Alco could get its $250,000 back if replaced by new operator that posted an equivalent bond. The $250,000 had come, in part, from defrauded investors. Alco was incurring environmental liabilities, with little prospect of offsetting revenues. SonCo was to replace Alco, but failed to so, after multiple extensions. The district judge held SonCo in civil contempt, ordered it to return the leases, and allowed the receiver to keep the $600,000. The Seventh Circuit upheld the finding of civil contempt. Following remand, the Seventh Circuit affirmed the sanction; considering additional environmental compliance costs and receivership fees, a plausible estimate of the harm would be $2 million. ”SonCo will be courting additional sanctions, of increasing severity, if it does not desist forthwith from its obstructionist tactics.” View "Sec. & Exch. Comm'n v. First Choice Mgmt Servs., Inc." on Justia Law

Canopy Financial developed and marketed software for banks and health-care payers to handle health-related savings accounts and administered the health-care funds of almost 2,000 entities. When Canopy entered bankruptcy in 2009, it came to light that Banas and Blackburn had misappropriated more than $90 million from Canopy’s investors and the customers. Each was sentenced to more than 10 years’ imprisonment. Blackburn committed suicide. The Trustee for the benefit of Canopy’s creditors has recovered about $50 million by seizing assets from Blackburn’s mansion and is attempting to recover from recipients of fraudulent conveyances, transfers made while Canopy was insolvent, not in exchange for reasonably equivalent value, 11 U.S.C. 544(b), 548, 550; 740 ILCS 160/1 to 160/12. According to the Trustee, Banas and Blackburn spent more than $80,000 of Canopy’s money at a Nevada nightclub. After obtaining default judgment, the Trustee began to collect from its assets in Nevada. The owner sought to vacate the default under Rule 60(b)(1) for excusable neglect by its agent for service of process. The bankruptcy judge declined. The Seventh Circuit affirmed, noting that the owner had the burden of proof, but chose not to present any evidence about whether the agent received the essential documents. View "Buddha Entm't, LLC v. Paloian" on Justia Law

Debtor appealed from the bankruptcy court's order granting summary judgment in favor of the Chapter 7 Trustee on his objection to debtor's claimed homestead exemption. The Bankruptcy Appellate Panel affirmed the bankruptcy court's conclusion that debtor had abandoned the property at issue as his homestead by removing himself from the property with no fixed or actual intent to return, and was not, therefore, permitted to claim a homestead exemption. View "Paul, Jr. v. Allred" on Justia Law

In this appeal, appellant principally argued that, because the judgments obtained by the Petitioning Creditors were on appeal when the involuntary petition was filed, the bankruptcy court should have dismissed the petition as not meeting the requirements of section 303(b)(1) of the Bankruptcy Code. First, the court held that the bankruptcy court did not err in denying appellant's motion to dismiss for defective service of process. The court then held that an unstayed non-default state judgment was not subject to bona fide dispute for purposes of section 303(b)(1). Therefore, the bankruptcy court did not err in finding that the Petitioning Creditors held claims meeting the requirements of section 303(b)(1). Finally, the bankruptcy court did not abuse its discretion in concluding that further discovery would have been unlikely to produce any evidence material to the pending summary judgment motions. Accordingly, the court affirmed the judgment. View "In re: Georges Marciano, et al v. Steven Chapnick, et al" on Justia Law

Appellants, investors who lost money in the multi-billion dollar Ponzi scheme perpetrated by BLMIS, appealed from the district court's judgment affirming the bankruptcy court order affirming the trustee's denial of appellants' claims against BLMIS under the Securities Investor Protection Act (SIPA), 15 U.S.C. 78aaa et seq., based on the trustee's determination that appellants did not qualify as BLMIS "customers" under SIPA. The court agreed and affirmed the judgment, concluding that appellants could not reasonably have thought that the Feeder Funds deposited their money with or established accounts for them at BLMIS. The bankruptcy court did not err in concluding that the Feeder Funds were not BLMIS agents. View "In Re: Bernard L. Madoff Investment Securities LLC" on Justia Law

This case stemmed from the fallout from the failure of the Fountainebleau development in Las Vegas, Nevada and involved the contract dispute between the Term Lenders, the Revolving Lenders, and the Borrowers. The district court dismissed the Term Lenders' claims against the Revolving Lenders, finding that the Term Lenders lacked standing to sue. The district court also denied the Borrowers' motion for summary judgment against the Revolving Lenders, rejecting the Borrowers' argument that the Revolving Lenders had breached the contract as a matter of law and alternatively finding there were material issues of fact about whether the Revolving Lenders breached the contract. The court held that the Term Lenders lacked standing to enforce section 2.1(c) of the Credit Agreement promise and affirmed the district court's dismissal of the breach of contract claims. The court could not conclude as a matter of law that the Revolving Lenders broke their promise to fund the Borrowers under section 2 of the Credit Agreement and affirmed the district court's denial of the Borrowers' request for turnover of the loan proceeds and specific performance. View "Avenue CLO Fund, Ltd., et al v. Bank of America, NA, et al" on Justia Law

The debtor owns a shopping center. Broadbent owns 98 percent of equity directly and two percent indirectly. EL-SNPR is its only secured lender; its note (interest at 8.37%) matured in 2010. The debtor did not pay, but commenced bankruptcy and proposed reorganization under which $300,000 of the $10 million secured debt would be paid and the balance written down to $8.2 million, with the difference unsecured. The loan would be extended and the interest rate cut to 6.25%. Unpaid creditors normally receive equity in a reorganized business. The plan cut creditors out of equity. Since the plan pays EL-SNPR less than its contractual entitlement, 11 U.S.C. 1129(b)(2)(B)(ii) provides that Broadbent cannot retain equity interest on his old investment; precedent requires an auction before he could receive equity on new investment. The plan nominally omitted Broadbent, but gave all equity to his wife for $375,000. Wife owns the company that manages the shopping center; Broadbent is CEO. The management contract would continue. The bankruptcy judge held that open competition was unnecessary because wife did not hold an equity interest. The Seventh Circuit reversed, stating that a new-value plan bestowing equity on a spouse can be as effective at evading the absolute-priority rule as a plan bestowing equity on the original investor. View "In the Matter of: Castleton Plaza, L.P." on Justia Law

For more than 20 years, Kurlemann built and sold luxury homes in Ohio. In 2005-2006 he borrowed $2.4 million to build houses in Mason. When neither sold, he enlisted realtor Duke, who found two straw buyers, willing to lie about their income and assets on loan applications that Duke submitted to Washington Mutual. Both buyers defaulted. Duke pled guilty to seven counts, including loan fraud and making false statements to a lending institution, and agreed to testify at Kurlemann’s trial. A jury convicted Kurlemann of six counts, including making false statements to a lending institution, 18 U.S.C. 1014; and bankruptcy fraud, 18 U.S.C. 157. The district court sentenced Kurlemann to concurrent 24-month sentences and ordered him to pay $1.1 million in restitution. The district court sentenced Duke to 60 months. The Sixth Circuit affirmed the bankruptcy fraud conviction, based on Kurlemann’s concealment of his interest in property, but reversed and remanded his false statements conviction, finding that the trial court improperly instructed the jury that concealment was sufficient to support conviction. The court also reversed Duke’s sentence, finding that the court failed to explain the sentence it imposed. View "United States v. Kurlemann" on Justia Law

In 2007, Tellado heard a Spanish-language radio advertisement for mortgage refinancing, called the number, and spoke in Spanish to arrange refinancing of an existing mortgage. Bloom, a closing agent acting as a representative of IndyMac, conducted the closing at the Tellados’ home. The loan documents, including the notice of the right to cancel, were in English. Oral communications between Bloom and the Tellados, were conducted through the Tellados’ daughter, who served as an interpreter for verbal instructions and Bloom’s explanations of the loan documents. IndyMac subsequently failed and was placed in FDIC receivership. In 2009, the Tellados sent a notice of cancellation under Pennsylvania’s Unfair Trade Practices and Consumer Protection Law, 73 P.S. 201-7. The district court held that IndyMac had failed to provide proper notice and that the three-day cancellation period had never begun; it ordered refund to the Tellados of all payments, termination of the security interest, and payment of a $10,000 penalty. The Third Circuit reversed; the claim is precluded by the Financial Institutions Reform, Recovery, and Enforcement Act, 12 U.S.C. 1821(d)(13)(D) because the claim is predicated upon an act or omission of IndyMac. Tellados failed to exhaust their administrative remedies under FIRREA. View "Tellado v. Indymac Mortg. Serv." on Justia Law