Justia Bankruptcy Opinion Summaries

LSQ provides invoice-factoring services to other businesses, including Engstrom. Weeks before Engstrom declared bankruptcy, its CEO, Campion orchestrated a payoff agreement between LSQ and a new lender, Millennium. Pursuant to the agreement, Millennium paid Engstrom’s debt to LSQ, replacing LSQ as Engstrom’s creditor. In exchange, LSQ released all of its interest in Engstrom’s accounts, which immediately went to Millennium. Once Engstrom filed for bankruptcy, the Trustee of its estate sued LSQ in an attempt to avoid the payoff, alleging that the accounts Millennium purchased were worthless and that LSQ conspired with Engstrom to leave Millennium with the phony accounts when Engstrom’s business fell apart. The Trustee claims Engstrom used the new financing from Millennium to pay off LSQ, keep LSQ quiet about the Debtor having fake accounts, and keep its Ponzi scheme running. The Trustee argued that the payoff agreement was avoidable as both a preferential and a fraudulent transfer.The bankruptcy court dismissed the suit, holding that the payoff agreement was not avoidable because it did not qualify as a transfer of “an interest of the debtor in property,” 11 U.S.C. 547, 548. The district court and Seventh Circuit agreed. Because the transaction had no effect on Engstrom’s bankruptcy estate, the Bankruptcy Code’s avoidance provisions play no role. View "Mann v. LSQ Funding Group LC" on Justia Law

The district court affirmed a bankruptcy court order that entered a preliminary injunction preventing thousands of third-party asbestos claims from proceeding against debtor Bestwall LLC’s affiliates, including affiliate and non-debtor Georgia-Pacific LLC (“New GP”). The Official Committee of Asbestos Claimants (“Committee”) and Sander L. Esserman, in his capacity as Future Claimants’ Representative (“FCR”) (collectively “Claimant Representatives”), appealed. They argued that the bankruptcy court lacked jurisdiction to enjoin non-bankruptcy proceedings against New GP and, alternatively, that the bankruptcy court erred in entering the preliminary injunction because it applied an improper standard.   The Fourth Circuit affirmed. The court agreed with the district court that the bankruptcy court had “related to” jurisdiction to issue the preliminary injunction and applied the correct standard in doing so. The court explained that the Claimant Representatives asserted that, under the first prong of the preliminary injunction test, the district court should have determined whether Bestwall would ultimately be able to obtain permanent injunctive relief. The court wrote that requiring a party to show entitlement to a permanent channeling injunction this early in the bankruptcy proceeding puts the cart before the horse; Section 524(g) does not require such proof until the plan confirmation stage. Contrary to the express intent of Congress as shown through the Bankruptcy Code, the position of Claimant Representatives would effectively eliminate reorganization under Chapter 11 as 27, an option for many debtors. Therefore, the court rejected the Claimant Representatives’ argument that the bankruptcy court needed to find that it would likely enter a permanent injunction in order to grant a preliminary injunction. View "Bestwall LLC v. Official Committee of Asbestos Claimants" on Justia Law

The United States Bankruptcy Court for the Northern District of Illinois ruled that all assets held by the Soad Wattar Revocable Living Trust—including the Wattar family home—were part of the bankruptcy estate of Richard Sharif. Sharif was the son of Soad Wattar, now de‐ ceased. As the sole trustee of the Wattar trust. Sharif’s sisters, Haifa and Ragda Sharifeh, soon launched an effort to keep the trust proceeds out of their brother’s bankruptcy estate. At issue in these appeals are the bankruptcy court’s rulings on three motions: (1) Haifa’s 2015 motion to vacate the court’s decision that all trust assets belonged to the bankruptcy estate; (2) the sisters’ joint 2016 motion for leave to sue the Chapter 7 trustee assigned to Sharif’s bankruptcy for purported due process violations; and (3) Ragda’s motion seeking both reimbursement of money she allegedly spent on the family home and the proceeds from Wattar’s life insurance policy, which the court had found to be an asset of the trust and therefore part of the bankruptcy estate.   The Seventh Circuit affirmed. The court held that even if Haifa were really the executor, she simply waited too long to assert the estate’s rights. In the bankruptcy and district courts, the trustee raised the equitable defense of laches, which cuts off the right to sue when (1) the plaintiff has inexcusably delayed bringing suit and (2) that delay harmed the defendant. Next, the court held that the bankruptcy court correctly concluded that the motion did not set forth a prima facie case for a right to relief against the trustee. View "Estate of Soad Wattar v. Horace Fox, Jr." on Justia Law

Appellant obtained a judgment against his employer after the employer made also accusations that Appellant committed embezzlement and forgery. Shortly thereafter, Appellant's employer filed for Chapter 7 Bankruptcy, both individually and on behalf of his business. Appellant appealed the bankruptcy court's ruling, arguing that he received an insufficient amount as an unsecured creditor.The court explained that "the doctrine of equitable mootness has no place in Chapter 7 liquidations." View "Said Taleb v. Wendy Lewis" on Justia Law

The Lac du Flambeau Band of Lake Superior Chippewa Indians is a federally recognized Indian tribe. One of its businesses extended Coughlin a payday loan. After receiving the loan, Coughlin filed for Chapter 13 bankruptcy, triggering an automatic stay under the Bankruptcy Code against further collection efforts by creditors. The lender allegedly continued attempting to collect Coughlin’s debt. The First Circuit reversed the Bankruptcy Court's dismissal of Coughlin’s subsequent suit on tribal sovereign immunity grounds.The Supreme Court affirmed. The Bankruptcy Code unambiguously abrogates the sovereign immunity of all governments, including federally recognized Indian tribes; 11 U.S.C. 106(a), expressly abrogates the sovereign immunity of “governmental unit[s]” for enumerated purposes. Section 101(27) defines “governmental unit” as “United States; State; Commonwealth; District; Territory; municipality; foreign state; department, agency, or instrumentality of the United States.... a State, a Commonwealth, a District, a Territory, a municipality, or a foreign state; or other foreign or domestic government.” The sections cannot plausibly be read to preserve sovereign immunity. The definition of “governmental unit” exudes comprehensiveness and includes a broad catchall phrase, sweeping in “other foreign or domestic government[s].” Reading the statute to carve out certain governments from the definition of “governmental unit” would risk upending the Code’s policy choices. Federally recognized tribes are indisputably governments. Congress need not use any particular words to make its abrogation intent clear. View "Lac du Flambeau Band of Lake Superior Chippewa Indians v. Coughlin" on Justia Law

Appellees filed a voluntary petition under Chapter 13 of the Bankruptcy Code. Appellees calculated their disposable income using Official Form 122C-2. As the form instructs, Appellees entered the relevant “National and Local Standards” for their monthly costs for food, clothing, utilities, out-of-pocket healthcare, and vehicles. The bankruptcy trustee objected to Appellees’ proposed Chapter 13 plan. The trustee acknowledged the Cooks followed the instructions on Official Form 122C-2. The trustee maintained, however, that the form was wrong because the Bankruptcy Code only allowed Appellees to claim the relevant Local Standards amount for their “Mortgage/Rent” deduction ($1,098) rather than their actual monthly payment ($2,233.34). The trustee asked the bankruptcy court to certify an appeal directly to the Fourth Circuit under 28 U.S.C. Section 158(d)(2)(A).   The Fourth Circuit affirmed. The court explained disposable income, in turn, means “current monthly income received by the debtor” minus “amounts reasonably necessary to be expended.” Clause Three says the Appellees’ “average monthly payments on account of ” that mortgage “shall be calculated” based on the amounts “contractually due to secured creditors,” that is, what Appellees owe under their mortgage agreement. Performing that calculation, the Appellees reached an average monthly payment of $2,233.34. Then, Clause One tells Appellees to “reduce” their “current monthly income” “by the amount determined under” Clause Three. Thus, Appellees subtracted $2,233.34 (and other uncontested amounts) from their current monthly income to reach a disposable income of $253.27. Accordingly, the court concluded Appellees were entitled to use their average monthly mortgage payments when calculating their disposable income. View "Joseph Bledsoe, III v. Cheryl Cook" on Justia Law

The Ninth Circuit reversed the district court’s judgment reversing the bankruptcy court’s order requiring a standing Chapter 13 trustee to return her percentage fee when the case was dismissed prior to confirmation. Joining the Tenth Circuit, the panel held that the trustee was not entitled to a percentage fee of plan payments as compensation for her work in the Chapter 13 case. 28 U.S.C. Section 586(e)(2) provides that the trustee shall “collect” the percentage fee from “payments . . . under plans” that she receives. 11 U.S.C. Section 1326(a)(1) provides for the debtor to make payments in the amount “proposed by the plan to the trustee.” Section 1326(a)(2) provides that the trustee shall retain these payments “until confirmation or denial of confirmation.” This section further provides that if a plan is not confirmed, the trustee shall return to the debtor any payments not previously paid to creditors and not yet due and owing to them. Section 1326(b) provides that, before or at the time of each payment to creditors under the plan, the trustee shall be paid the percentage fee under Section 586(e)(2).   The panel held that, reading these statutes together, “payments . . . under plans” in § 586 refers only to payments under confirmed plans. Prior to confirmation a trustee does not “collect” or “collect and hold” fees under Section 586 but instead “retains” payments “proposed by the plan” pursuant to Section 1326(a)(2). If a plan is not confirmed, then Section 1326(a)(2) requires a return to the debtor of payments “proposed by the plan.” View "IN RE: ROGER EVANS, ET AL V. KATHLEEN MCCALLISTER" on Justia Law

Ritchie Capital Management, LLC fell victim to a massive Ponzi scheme. Ritchie sought recovery outside the receivership. But settlement agreements and bar orders prevent recovery. The district court approved the receivership’s final accounting and a previous bar order. Claiming abuses of discretion, Ritchie appealed.   The Eighth Circuit affirmed. The court explained that the district court ordered the receiver to prepare and file a final accounting. The district court established the requirements that, in its sound discretion, the receiver satisfied in the final accounting. Ritchie fails to identify a clear abuse of discretion in the district court’s approval of the final accounting and, regardless, waived its right to do so. Further, the court held that because bankruptcy-standing doctrine independently prevents Ritchie from bringing claims related to the bankruptcy estate, and because Ritchie can still pursue personal claims against JPMorgan, Ritchie cannot identify a protected right that is deprived here. View "United States v. Ritchie Capital Management, L.L.C." on Justia Law

On emerging from Chapter 11 reorganization effective February 9, 2021, Chesapeake Energy Corporation tested the limits of the bankruptcy court’s post-confirmation jurisdiction by asking it to settle two prebankruptcy purported class actions covering approximately 23,000 Pennsylvania oil and gas leases. The Fifth Circuit consolidated the Proof of Claim Lessors’ appeal from the preliminary approval order with the appeal from the final approval order. At issue is whether the bankruptcy and district courts had jurisdiction under 28 U.S.C. Section 1334 to hear and decide these “class” claims.   The Fifth Circuit vacated and remanded the bankruptcy and district court judgments with instructions to dismiss. The court explained that no proofs of claim were filed for class members, and every feature of the settlements conflicts with Chesapeake’s Plan and Disclosure Statement. Handling these forward-looking cases within the bankruptcy court, predicated on 28 U.S.C. Section 1334(a) or (b), rather than in the court where they originated, exceeds federal bankruptcy post-confirmation jurisdiction. View "Sarnosky v. Chesapeake" on Justia Law

Debtor filed a petition under Chapter 13 of the United States Bankruptcy Code. Debtor’s recent history of prior bankruptcy filings implicated 11 U.S.C. Section 362(c)(4)(A)(i), which provides that—by operation of law— the automatic stay shall not go into effect upon the filing of a bankruptcy case if a debtor had two or more bankruptcy cases that were pending but dismissed in the previous year. Debtor timely filed a motion to impose the stay in accordance with Section 362(c)(4)(B), which the standing trustee opposed and which the bankruptcy court denied. Debtor timely appealed. While the appeal was pending, Debtor’s bankruptcy case was dismissed.   The Bankruptcy Appellate Panel of the Eighth Circuit dismissed the appeal for lack of jurisdiction. The court explained that an appeal is considered constitutionally moot where there is no longer any live case or controversy to be decided. In ordinary parlance, an appeal is considered equitably moot and will be dismissed if implementation of the judgment or order that is the subject of the appeal renders it impossible or inequitable for the appellate court to give effective relief to an appellant. With the dismissal of Debtor’s bankruptcy case, this appeal is constitutionally moot. View "Timothy Davies v. Diana S. Daugherty" on Justia Law