Justia Bankruptcy Opinion Summaries

The United States Bankruptcy Appellate Panel for the Eighth Circuit reversed and remanded a decision from the bankruptcy court in a case involving unpaid child support. The debtor, Justin Gary LaMonda, petitioned for bankruptcy relief under Chapter 7. He was married to Natalia LaMonda, and after they divorced, he was ordered to pay child support. The case has been converted multiple times, from Chapter 7 to Chapter 13, and then back to Chapter 7 again. Natalia LaMonda filed an unsecured priority claim for unpaid child support, which the Chapter 7 Trustee objected to. The bankruptcy court sustained the Trustee's objection, leading to this appeal.The Appellate Panel found that Natalia LaMonda's claim for unpaid child support arose after the order for relief and before the case was converted under section 1307 of the Bankruptcy Code. According to the Panel, her claim should therefore be treated as if it arose before the petition date, making it eligible for treatment as a priority unsecured claim. Thus, the Panel held that the bankruptcy court erred by disallowing Natalia LaMonda's claim based on the Trustee's objection. The case was reversed and remanded for further proceedings consistent with this opinion. View "LaMonda v. Harder" on Justia Law

This case involves Vertiv, Inc., Vertiv Capital, Inc., and Gnaritis, Inc., Delaware corporations, who sued Wayne Burt, PTE Ltd., a Singaporean corporation, for defaulting on a loan. Vertiv sought damages and a declaratory judgment. Later, Wayne Burt informed the court that it was in liquidation proceedings in Singapore and moved to vacate the judgments against it. The District Court granted the motion and vacated the judgments, reopening the cases. Wayne Burt then moved to dismiss Vertiv’s claims, either on international comity grounds in deference to the ongoing liquidation proceedings in Singapore, or due to a lack of personal jurisdiction. The District Court granted Wayne Burt’s motion to dismiss, concluding that extending comity to the Singaporean court proceedings was appropriate.On appeal, the United States Court of Appeals for the Third Circuit vacated the District Court's decision and remanded the case. The court clarified the standard to apply when deciding whether to abstain from adjudicating a case in deference to a pending foreign bankruptcy proceeding. The court held that a U.S. civil action is “parallel” to a foreign bankruptcy proceeding when: (1) the foreign bankruptcy proceeding is ongoing in a duly authorized tribunal while the civil action is pending in the U.S. court; and (2) the outcome of the U.S. civil action may affect the debtor’s estate. The court also held that a party seeking the extension of comity must show that (1) “the foreign bankruptcy law shares the U.S. policy of equal distribution of assets,” and (2) “the foreign law mandates the issuance or at least authorizes the request for the stay.” If a party makes a prima facie case for comity, the court should then determine whether extending comity would be prejudicial to U.S. interests. If a U.S. court decides to extend comity to a foreign bankruptcy proceeding, it should ordinarily stay the civil action or dismiss it without prejudice. View "Vertiv Inc. v. Wayne Burt PTE Ltd" on Justia Law

In this case, Louisiana Pellets (LAP) built a wood processing facility but encountered financial issues that led to bankruptcy. LAP pursued Chapter 11 bankruptcy and a bankruptcy judge confirmed a Chapter 11 plan along with a liquidating trust agreement. Under the agreement, LAP transferred its remaining assets and causes of actions to the trust. More than a year after the creation of the trust, third parties assigned certain legal claims to the trust that the trustee, Craig Jalbert, pursued in state court. The claims involved misstatements made by Raymond James & Associates in its efforts to raise funds to construct LAP's facility. In response to Jalbert's filing, Raymond James asserted affirmative defenses, citing a pre-bankruptcy indemnity agreement it made with LAP.The United States Court of Appeals for the Fifth Circuit held that Raymond James could not maintain those defenses against the assigned claims. The court reasoned that the express language of the confirmation plan enjoined Raymond James's defensive maneuver. Also, the post-confirmation trust is not the appropriate entity against whom to invoke LAP's indemnity obligation. The court affirmed the bankruptcy court's ruling. View "Raymond James & Assoc v. Jalbert" on Justia Law

The United States Court of Appeals for the Fifth Circuit addressed an unprecedented issue in its circuit regarding the sale of preference claims arising under 11 U.S.C. § 547, in the context of Chapter 11 bankruptcy proceedings. The court was required to decide whether such claims could be sold and if the purchaser had the standing to pursue them.The case was initiated by South Coast Supply Company (South Coast), which filed for Chapter 11 bankruptcy after experiencing financial difficulties. During the proceedings, the company borrowed funds from its then-CFO, Robert Remmert. South Coast later filed a lawsuit against Remmert to avoid more than $300,000 of allegedly preferential transfers made before the bankruptcy proceedings. The company's sole secured lender, Briar Capital Working Fund Capital, L.L.C. (Briar Capital), eventually acquired South Coast's interest in this pending preference action against Remmert.Upon acquiring the lawsuit, Briar Capital was substituted as the assignee of South Coast. Remmert argued that Briar Capital lacked standing to prosecute the preference action. The district court agreed, holding that since a successful recovery would not benefit South Coast’s estate or its unsecured creditors, Briar Capital lacked standing to bring the preference claim against Remmert as a representative of the estate under 11 U.S.C. § 1123(b)(3)(B) of the Bankruptcy Code.On appeal, the Fifth Circuit reversed the district court's decision. The court held that preference actions can be sold pursuant to 11 U.S.C. § 363(b)(1) because they are property of the estate under 11 U.S.C. §§ 541(a)(1) and (7). Furthermore, even if Briar Capital does not qualify as a representative of the estate, it has standing to pursue the preference claim as it validly purchased the claim outright. Therefore, the court remanded the case for further proceedings. View "Briar Capital Working Fund v. Remmert" on Justia Law

In this case, the United States Court of Appeals for the First Circuit considered an appeal from a ruling by the United States District Court for the District of Puerto Rico concerning the restructuring of debts of the Commonwealth of Puerto Rico's public power company (PREPA) under Title III of the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA). The appellants, GoldenTree Asset Management and Syncora Guarantee (the "Bondholders"), held around $1 billion of PREPA's roughly $8 billion in bonds and sought relief from the automatic stay on actions against PREPA's estate, hoping to appoint a receiver for PREPA.The Bondholders argued that the automatic stay lifted by operation of law, because the district court denied their latest motion for relief without first noticing and holding a hearing within the timeframe prescribed by 11 U.S.C. § 362(e)(1). However, the appellate court held that the Bondholders waived their right to a prompt notice and hearing on that motion for relief. The court reasoned that the Bondholders accepted a litigation schedule that postponed any hearing on their request for leave to seek the appointment of a receiver until after a parallel proceeding about whether—and to what extent—the Bondholders had any collateral to protect in the first place. The court therefore affirmed the judgment of the Title III court. View "GoldenTree Asset Management LP v. Financial Oversight and Management Board" on Justia Law

This case involves the bankruptcy of FTX Trading Ltd., a multibillion-dollar cryptocurrency company that suffered a severe financial collapse. The collapse triggered criminal investigations revealing fraud and embezzlement of customers' funds, leading to the conviction of Samuel Bankman-Fried, FTX's primary owner. Following the financial collapse, the United States Trustee requested the appointment of an examiner to investigate FTX's management as per 11 U.S.C. § 1104(c)(2). The Bankruptcy Court denied the motion, interpreting the appointment of an examiner as discretionary under the statute.The United States Court of Appeals for the Third Circuit reversed the lower court's decision. The Appellate Court held that the appointment of an examiner under 11 U.S.C. § 1104(c)(2) is mandatory when requested by the U.S. Trustee or a party in interest, and if the debtor's total fixed, liquidated, unsecured debt exceeds $5 million. The Court based its decision on the plain text of the statute, ruling that the word "shall" in the statute creates an obligation impervious to judicial discretion. The Court also held that the phrase "as is appropriate" in Section 1104(c) refers to the nature of the investigation and not the appointment of the examiner. The case was remanded with instructions to order the appointment of an examiner. View "FTX Trading, Ltd. v. Vara" on Justia Law

The Supreme Court of Mississippi examined whether a school district was entitled to funds recovered by a county from the bankruptcy proceedings of a delinquent taxpayer. The taxes, if collected normally, would have been used to fund the school district. However, the county board of supervisors had anticipated the delinquency and adjusted the levy of ad valorem taxes to compensate, ensuring the school district did not experience a shortfall. The school district argued it was entitled to its original portion of the recovered bankruptcy funds, but the county claimed that this would result in a double recovery outside the statutory scheme for public school funding. The Supreme Court of Mississippi found in favor of the county, ruling that the recovery of delinquent taxes through bankruptcy proceedings is outside the statutory funding scheme for public school districts in Mississippi. The court found that the school district was not entitled to receive delinquent taxes recovered years later in bankruptcy proceedings and reversed and remanded the lower court's award to the school district. View "Clarke County, Mississippi v. Quitman School District" on Justia Law

The case concerns the dischargeability of debts under the Bankruptcy Code. The debtor, Lee Andrew Hilgartner, physically assaulted Yasuko Yagi, resulting in two settlement agreements. When Hilgartner failed to pay the agreed amount, Yagi sued to enforce the agreement. Hilgartner filed for bankruptcy, arguing that the debts were dischargeable since they arose from a breach of the settlement agreement, not the underlying tort of assault. The United States Court of Appeals for the Fourth Circuit, however, ruled that the debts were non-dischargeable under section 523(a)(6) of the Bankruptcy Code, which excepts from discharge debts “for willful and malicious injury” to another. The court held that the debt from the settlement agreement, which arose from a willful and malicious injury, retained the character of the underlying tort. Therefore, the debt, including the principal amount owed, interest on late payments, and attorney's fees incurred in enforcing the agreement and contesting the bankruptcy proceedings, was non-dischargeable. The court reasoned that the entire settlement arose from the same willful and malicious injuries and that the settlement agreement didn't disrupt the causal chain. View "Yagi v. Hilgartner" on Justia Law

The case in review involves Michele McKee, who claimed a homestead exemption for a property in Palm Springs where she formerly lived with her partner, Laura O’Kane. McKee argued that she should qualify for California’s homestead exemption, which partially protects the debtor’s home from creditors. However, she didn't physically reside in the property when she filed her bankruptcy petition and the court determined she didn't have the intent to return.The United States Court of Appeals for the Ninth Circuit affirmed the decision of the Bankruptcy Appellate Panel, which affirmed the bankruptcy court's order denying McKee the homestead exemption. The court held that McKee did not meet her burden of proving that she either physically occupied the property or intended to return to it. The court did not accept McKee's argument that because her partner's abuse made it impossible for her to return to the property, her testimony that she wished to do so should be enough to establish a homestead. The court noted that McKee had demonstrated no signs of intent to return, such as leaving her personal belongings at the property or retaining its address on her driver's license, therefore she did not show entitlement to a homestead exemption. View "MCKEE V. ANDERSON" on Justia Law

In this case heard by the United States Court of Appeals for the Eleventh Circuit, the appellant, Kai Hansjurgens, contested the revival of a bankruptcy judgment against him in favor of Donald Bailey. More than a decade earlier, Bailey had obtained a bankruptcy judgment against Hansjurgens for tortious interference with a contract, which Hansjurgens had not paid. To prevent the judgment from expiring under Georgia law, Bailey filed a motion to revive the judgment, which was granted by the bankruptcy court. Hansjurgens argued that the revival proceedings violated his due process rights and did not strictly comply with Georgia's scire facias procedures, which are used to revive dormant judgments.The court found that the Federal Rules of Civil Procedure, specifically Rule 69(a), only require the revival proceedings to "accord with" or substantially comply with state procedures, rather than strictly comply. The court further noted that the purpose of scire facias, providing notice to the party and an opportunity to present objections, had been served through mailed notices to Hansjurgens at several addresses. The court also observed that Georgia's scire facias procedures did not fit squarely within the federal court system, and requiring strict compliance would be impractical.Therefore, the court held that the bankruptcy court had properly revived the judgment and that the proceedings did not violate due process. It affirmed the district court's revival order. View "Hansjurgens v. Bailey" on Justia Law