Justia Bankruptcy Opinion Summaries

Debtor filed for protection under Chapter 7 of the Bankruptcy Code. The United States Trustee subsequently filed a complaint seeking a denial of Debtor's discharge under 11 U.S.C. 727(a)(3) and (a)(5) based on Debtor's alleged failure to maintain adequate financial records and to satisfactorily explain a loss of assets. After Debtor filed his answer, the bankruptcy court granted the Trustee's motion for judgment on the pleadings to deny Debtor's discharge. The Eighth Circuit Court of Appeals reversed, holding (1) the pleadings contained insufficient facts to deny Debtor's discharge under section 727(a)(3) and (a)(5), and accordingly, the judgment on the pleadings motion should have been denied; and (2) collateral estoppel did not bar Debtor from denying the Trustee's allegations. View "McDermott v. Swanson" on Justia Law

In connection with a loan, Bayonne provided Nuveen with an audit report authored by accounting firm, Withum and an opinion letter from Bayonne’s counsel, Lindabury. Soon after the transaction, Bayonne filed a Chapter 11 bankruptcy petition, 11 U.S.C. 101. Nuveen claimed that the audit report and opinion letter concealed problems with Bayonne’s financial condition and that, had it known about these financial issues, it would not have entered into the transaction. The district court dismissed claims of fraud (Withum), negligent misrepresentation, and malpractice (Lindabury) based on Nuveen’s noncompliance with New Jersey’s Affidavit of Merit statute, N.J. Stat. 2A:53A-26, which requires an affidavit of merit for certain actions against professionals. The Third Circuit remanded for reconsideration of diversity jurisdiction. On remand, the court accepted an argument that the action was “related to” Bayonne’s bankruptcy proceeding, establishing jurisdiction under 28 U.S.C. 1334(b), and again dismissed. The Third Circuit affirmed as to jurisdiction and held that the AOM Statute can be applied by a federal court without conflicting with FRCP 8. If the AOM Statute applies, noncompliance requires dismissal. The court certified to the New Jersey Supreme Court questions relating to the “nature of the injury” and “cause of action” elements of the statute. View "Nuveen Mun. Trust v. Withumsmith Brown PC, et al" on Justia Law

Malley’s former marital house sold shortly before filing his Chapter 7 bankruptcy petition and netted more than $250,000, from which he declared under oath that he had received nothing. The trustee believed that $27,000, allegedly going to the ex-wife, were to be used to discharge Malley’s credit card debt. In taking action against Malley's ex-wife to avoid that disposition, the trustee determined that Malley had hidden his secret receipt of $25,000. Malley claimed he was unable to turn over the money to the trustee when ordered to do so. Malley’s willful concealment of the funds violated 11 U.S.C. 521. When the trustee moved for sanctions, the court denied discharge, under 11 U.S.C. 727, and charged the concealed amount, plus the cost of untangling the fraud, against the value of an asset claimed as exempt, Malley’s truck. The First Circuit affirmed. Fraudulent concealment of non-exempt assets is an exceptional circumstance in which an offsetting surcharge against otherwise exempt property interests is reasonably necessary to protect the integrity of the bankruptcy process and to ensure that a debtor exempts an amount no greater than the Code permits.View "Malley v. Agin" on Justia Law

Sharfarz hired Goguen to build an addition to his house. Despite taking full payment, Goguen never finished the job. Sharfarz had to pay another to finish the work and sued consumer-protection laws, Mass. Gen. Laws ch. 93A; Mass. Gen. Laws ch. 142A. Sharfarz obtained a default judgment of $272,745. After an evidentiary hearing to assess damages, the state judge wrote that Goguen was "both deceptive and unfair, almost from the beginning and to the end," and that his "violations" had been "willful and knowing." Goguen filed for Chapter 7 bankruptcy. Sharfarz sought to have his judgment declared nondischargeable, under a provision that bars discharge of "any debt ... for money ... to the extent obtained by ... false pretenses, a false representation, or actual fraud" 11 U.S.C. 523(a)(2)(A). The bankruptcy judge denied the petition. The First Circuit vacated and remanded for determination of the nondischargeable amount. Goguen’s false statements were both the legal and factual cause of Sharfarz’s loss. View "Sharfarz v. Goguen" on Justia Law

At issue in this case was whether the Supreme Court's decision in Perdue v. Kenny A. ex rel Winn, which curtailed the authority of district courts to award fee enhancements in federal fee-shifting cases, unequivocally overruled the Fifth Circuit Court of Appeals' precedent in the bankruptcy arena. Here Debtors filed for chapter 11 bankruptcy protection. Debtors retained Appellee to assist in their restructuring process. After Debtors' bankruptcy plan was confirmed by the bankruptcy court, Appellee requested approval of a $1 million fee enhancement. The bankruptcy court denied the request because Appellee failed to satisfy the strict requirements of the Supreme Court's holding in Perdue. The district court reversed, holding that the bankruptcy court erred in treating the federal fee-shifting decision in Perdue as binding authority in a bankruptcy proceeding. On remand, the bankruptcy court awarded Appellee the $1 million fee enhancement. The Fifth Circuit Court of Appeals affirmed, holding that Perdue did not unequivocally, sub silentio overrule the Fifth Circuit's prior precedent. View "CRG Partners Group, LLC v. Neary" on Justia Law

Ariz. Rev. Stat. 33-1126(A)(6) and (7) allow a debtor in bankruptcy proceedings to exempt the cash surrender value of life insurance policies and proceeds of annuity contracts from the bankruptcy estate if the debtor names certain beneficiaries. Ronda Hummel and Joan Tober separately filed Chapter 7 petitions. Hummel claimed the three life insurance policies she owned were exempt, and Tober claimed the annuity she owned as exempt. Both debtors named their adult, non-dependent daughters as beneficiaries. The Chapter 7 Trustees in both cases objected to the claimed exemptions, arguing they did not apply because the named beneficiaries were not dependents of the debtors. The bankruptcy court overruled the Trustees' objection. On appeal, the bankruptcy appellate panel filed a single order for both cases and reversed, holding that the statutes required the named beneficiaries to be dependents for the exemption to apply. The Ninth Circuit Court of Appeals reversed, holding that as a matter of first impression in Arizona, the statutory text does not require a debtor's child to be a "dependent" to qualify for the exemption. Remanded. View "Tober v. Lang" on Justia Law

Polar Holding was sole shareholder of PMC, a company engaged in the petroleum-additive business. PMC was in default on a loan for which it had pledged valuable intellectual property as collateral, and Polar Holding was in the midst of an internal dispute between members of its board of directors regarding business strategy for PMC. One of the directors, Socia, formed a competing company, Petroleum, for the purpose of acquiring PMC’s promissory note and collateral from the holder of PMC’s loan. Petroleum brought suit against Woodward, an escrow agent in possession of PMC’s collateral, alleging that PMC was in default on the payment of its promissory note. Polar Holding and PMC intervened and filed counterclaims against Petroleum and a third-party complaint against additional parties, including Socia. Polar Holding and PMC allleged breach of fiduciary duty, civil conspiracy, and tortious interference. After PMC filed for bankruptcy, its claims became the property of the bankruptcy trustee. Polar Holding’s claims were later dismissed. The Sixth Circuit affirmed dismissal of a tortious interference claim as addressed by the district court, but reversed dismissal of a breach-of-fiduciary-duty claim against Socia and a civil-conspiracy claim against individual third-party defendants. View "Petroleum Enhancer, L.L.C. v. Woodward" on Justia Law

EAR, a seller of manufacturing equipment, defrauded creditors by financing non-existent or grossly overvalued equipment and pledging equipment multiple times to different creditors. After the fraud was discovered, EAR filed for bankruptcy. As Chief Restructuring Officer, Brandt abandoned and auctioned some assets. Five equipment leases granted a secured interest in EAR’s equipment; by amendment, EAR agreed to pay down the leases ($4.6 million) and give Republic a blanket security interest in all its assets. Republic would forebear on its claims against EAR. The amendment had a typographical error, giving Republic a security interest in Republic’s own assets. Republic filed UCC financing statements claiming a blanket lien on EAR’s assets. After the auction, Republic claimed the largest share of the proceeds. The matter is being separately litigated. First Premier, EAR’s largest creditor, is concerned that Republic, is working with Brandt to enlarge Republic’s secured interests. After the auction, EAR filed an action against its auditors for accounting malpractice, then sought to avoid the $4.6 million transfer to Republic. The bankruptcy court approved a settlement to end the EAR-Republic adversary action, continue the other suit, divvy proceeds from those suits, and retroactively modify the Republic lien to correct the typo. First Premier objected. The district court affirmed. The Seventh Circuit affirmed. First Premier was not prejudiced by the settlement. View "First Premier Capital, LLC v. Republic Bank of Chicago" on Justia Law

The collapse of investment manager Sentinel in 2007 left its customers in a lurch. Instead of maintaining customer assets in segregated accounts as required by the Commodity Exchange Act, 7 U.S.C. 1, Sentinel pledged customer assets to secure an overnight loan at the Bank of New York, giving the bank in a secured position on Sentinel’s $312 million loan. After filing for bankruptcy, Sentinel’s liquidation trustee brought attempted to dislodge the bank’s secured position. After extensive proceedings, the district court rejected the claims. Acknowledging concerns about the bank’s knowledge of Sentinel’s business practices, the Seventh Circuit affirmed. The essential issues were whether Sentinel had actual intent to hinder, delay, or defraud and whether the bank’s conduct was sufficiently egregious to justify equitable subordination, and the district court made the necessary credibility determinations. Even if the contract with the bank enabled illegal activity, the provisions did not themselves cause the segregation violations. View "Grede v. Bank of NY Mellon Corp." on Justia Law

Debtors took a mortgage and a second mortgage on their residence. They later filed a voluntary Chapter 7 petition. They claimed exemptions for their residence, citing 11 U.S.C. 522(d)(1) and 11 U.S.C. 522(d)(5). Amounts claimed on Schedule D and Schedule F were not referenced or listed on Schedule C. There were no objections to exemptions within the within the 30-day limit. After the selling the house, the trustee moved to value the exemption in the former residence at zero or to declare that the exemption did not extend to sales proceeds, because debtors had no equity in their home to which the homestead exemption could attach. The district court reversed the bankruptcy court and ruled in favor of debtors, holding that the trustee’s late objection to claimed exemptions was barred. On remand, in light the Supreme Court in decision Schwab v. Reilly,(2010), the district court held that the trustee has no duty to object to to claimed exemptions within the 30-day limit under Fed. R. Bankr. P. 4003(b). The Third Circuit affirmed. The Trustee’s objection was timely and valid. Debtors did not provide sufficient notice through their disclosure in Schedule C that they intended to exempt the property’s full value. View "In Re: Messina" on Justia Law