Justia Bankruptcy Opinion Summaries

The bankruptcy Trustee of MBS Management Services, Inc. (MBS), a management company for dozens of apartment complexes, appealed judgments rejecting his claim that payments made by the debtor to MXEnergy Electric, Inc (MX) to reimburse MX for supplying electricity to the complexes were avoidable preferences. The bankruptcy court and district court found that the payments were made on a "forward contract" expressly exempt from the Bankruptcy Code's preference provision. The Fifth Circuit Court of Appeals affirmed, holding that because the agreement was a forward contract within the meaning of 11 U.S.C. 546(e), and because expert testimony from the President and CEO of MX was admissible, the bankruptcy and district court's correctly rejected the Trustee's avoidance action. View "Lightfoot v. MXenergy Elec., Inc. " on Justia Law

In late 2008, Lou Ann Cassell inherited $220,000 from her aunt. At that time, both Cassell and her wholly owned company, J&L Arborists, LLC, were insolvent. After consulting with attorneys and accountants, she used her $220,000 inheritance to purchase a single-premium fixed annuity. She began receiving monthly payments, and under the annuity contract she is scheduled to receive those payments for the rest of her life. The contract also guarantees the payments for ten years regardless of when Cassell dies. She designated her children as the beneficiaries of the payments if she dies within the ten-year guarantee period. A year after she had purchased the annuity, Cassell and her company filed a Chapter 7 bankruptcy petition. She included the annuity as an asset in her Schedule B disclosures, and listed it as exempt under Georgia law on Schedule C. The trustee objected, contending that Cassell's annuity is nonexempt because it does not meet the requirements of the statute. The bankruptcy court held that Cassell's annuity was an "annuity" within the meaning of the Georgia bankruptcy exemption statute. The district court affirmed as to the issues that the bankruptcy court had addressed but remanded the case, leaving it for the bankruptcy court to decide in the first instance whether the annuity payments were reasonably necessary for Cassell's support. Upon review, the Eleventh Circuit certified the question pertaining to the Georgia exemption to the Georgia Supreme Court. View "Silliman v. Cassell" on Justia Law

Joseph Terry, who received long-term disability benefits, filed a Chapter 7 bankruptcy petition. Terry later sued the bankruptcy trustee, seeking a declaration that his disability insurance provider, Standard Insurance Company, should not have reduced his benefits by the amount of certain "voidable" payments. The bankruptcy court ruled that Standard was precluded from recouping the payments. The bankruptcy appellate panel (BAP) reversed, holding that recoupment was subject to a a "balancing of the equities." On remand, the bankruptcy court found that the equities prevented Standard from recouping the payments. The Eighth Circuit Court of Appeals reversed, holding that the BAP (1) erred by introducing a balancing of the equities test into the doctrine of recoupment and by invoking these equitable principles to deny Standard a right of recoupment; and (2) abused its discretion in how it weighed the equities. View "Terry v. Standard Ins. Co." on Justia Law

Plaintiff rented commercial property to AGC under a lease to expire February 28, 2007. In 2006, AGC stopped paying rent and plaintiff obtained a warrant of eviction in state court. On February 2, 2007, before plaintiff could execute the warrant, AGC filed for Chapter 7 bankruptcy; the automatic stay halted eviction efforts. Plaintiff successfully moved to lift the stay and executed the warrant on April 24, 2007. Plaintiff sought, under Section 365(d)(3) of the Bankruptcy Code, post-petition rent, attorneys’ fees, and interest for the period between the Chapter 7 filing date and the date the warrant of eviction was executed. The Bankruptcy Court denied the motion, concluding that the pre-petition issuance of the warrant of eviction terminated the relationship such that there was no “unexpired” lease, the presence of which is necessary to obtain administrative expenses under Section 365(d)(3). The district court affirmed. The Second Circuit vacated. A lease is “unexpired” for purposes of the Code where the tenant has the power to revive the lease under applicable state law. In New York it is the execution, and not the issuance, of the warrant of eviction that extinguishes the tenant’s interest in a lease, so, until the warrant is executed, the lease is “unexpired.” View "In re: Assoc. of Graphic Commc'n, Inc." on Justia Law

Debtor appealed the bankruptcy court's order denying Debtor's claim of an exemption for limited partnership units that she received from her employer, Kwik Trip, Inc. The Eighth Circuit Court of Appeals reversed the decision of the bankruptcy court, holding that the Kwik Trip benefit plan was similar to the plans listed in Minn. Stat. 550.37, 24, and the right to payments thereunder were on account of Debtor's length of service at Kwik Trip. Therefore, the Court held Debtor may properly claim her interests in the limited partnership units distributed under the Kwik Trip employee benefit plan as exempt. Remanded to determine whether the amount of Debtor's interest in the partnership and benefit plan over the statutory limit was reasonably necessary for her support. View "Foellmi v. Ries" on Justia Law

Contractor contracted to build a restaurant in Minnesota, promising to pay each subcontractor, upon receipt of payment from the owner, the amount to which the subcontractor was entitled. Appellant became the subcontractor for carpentry and drywall work. Upon completing its work, Appellant was not paid the full amount owed. After Contractor settled a dispute with the restaurant, it offered Appellant a smaller sum, claiming it was Appellant's pro rata share of the settlement proceeds. Appellant rejected the offer and sued Contractor and its Owner in state court. Owner and his wife subsequently filed a petition for Chapter 7 bankruptcy relief, with the debt to Appellant unsatisfied. Appellant commenced this adversary proceeding to have the debt declared nondischargeable. The bankruptcy appellate panel (BAP) determined that neither 11 U.S.C. 523(a)(4) nor 11 U.S.C. 523(a)(6) barred discharge of the debt. The Eighth Circuit Court of Appeals affirmed, holding (1) Owner was not a section 523(a)(4) fiduciary by reason of a Minnesota statute or Owner's Minnesota common law duties, nor did Contractor's use of its own property amount to embezzlement; and (2) the BAP did not err in finding no malicious injury, which resolved the section 523(a)(6) issue. View "Reshetar Sys., Inc. v. Thompson" on Justia Law

Theodore Wolk filed for Chapter 7 bankruptcy, and the trustee sought an order from the bankruptcy court authorizing the sale of the home Wolk owned as a tenant in common with his wife, Kathryn Tennyson. After several proceedings the bankruptcy court denied the motion to sell the home, concluding that the detriment of such a sale to Tennyson outweighed the benefit to the bankruptcy estate. Wolk appealed, and the bankruptcy appellate panel affirmed. The trustee appealed. The Eighth Circuit Court of Appeals affirmed, holding that the bankruptcy court had not abused its discretion in denying the trustee's motion to sell the home, as (1) the court's findings with respect to the benefit to the estate and the detriment to Tennyson were not clearly erroneous, and (2) the court carefully balanced the equities in its judgment. View "Lovald v. Tennyson" on Justia Law

Philadelphia Inquirer (debtors) published print and online articles discussing the CSMI‘s contract management of the Chester Community Charter School. After CSMI filed a defamation action, the Inquirer filed for relief under Chapter 11, 11 U.S.C. 101. CSMI alleged that post-petition, debtors published an article that links to and endorses earlier articles and filed the administrative expense requests: $1,800,000 for alleged post-petition defamation and $147,140 in alleged damages for post-petition conduct and prosecution of claims against CSMI. The Bankruptcy Court denied the requests. Debtors conducted an auction of substantially all assets, and the sale was consummated under a plan that provided that the purchaser would assume certain administrative expense claims, not including claims arising from the CSMI’s administrative expense requests. The district court held that an appeal was equitably moot: the plan had been substantially consummated and no stay was sought. The court also stated that merely posting a link to the charter school webpage that contained the original articles was not distinct tortious conduct upon which a defamation claim can be grounded. The Third Circuit affirmed. While the appeal was not equitably moot, CSMI cannot advance a sustainable cause of action to support the requests. View "In Re: Philadelphia Newspapers" on Justia Law

Chapter 11 Debtor, an LLC, held certain parcels of undeveloped land that were included within property-owners' improvement districts (the Districts) formed in accordance with Arkansas law. After Debtor entered into bankruptcy, secured creditor National Bank of Arkansas (the Bank) filed a motion with the bankruptcy court seeking a ruling that a proposed state court action against the Districts would not violate the automatic stay. The bankruptcy court determined (1) the automatic stay applied to the Bank's proposed action and that relief from the stay was unwarranted, and (2) the Bank's motion was barred by laches. The bankruptcy appellate panel (BAP) affirmed. The Eighth Circuit Court of Appeals reversed, holding (1) the automatic stay did not apply to the Bank's proposed action against the Districts because the Districts were neither property of the Debtor nor debtors themselves, the Bank's action would only impact the value of the estate in some undetermined and indirect manner, and the action would not divest the Debtor of its property; and (2) the doctrine of laches did not apply in this situation because there was no showing of detrimental reliance by the Debtor upon the Bank's failure to raise this particular challenge in a more timely fashion. View "Nat'l Bank of Ark. v. Panther Mtn. Land Dev. " on Justia Law

From the 1930s through the 1970s, Skinner manufactured ship engines and parts, allegedly containing asbestos. Merchant mariners began bringing injury claims in the 1980s. In 1998, AC acquired all of Skinner’s common stock. Based on lack of cash flow to maintain operations or service secured debt, Skinner and AC filed petitions for Chapter 11 bankruptcy in 2001; more than 29,000 asbestos claims were pending against Skinner. The Bankruptcy Court converted to Chapter 7 on the basis that the plan was patently unconfirmable. Insurers, legal representative for future asbestos claimants, Maritime Asbestosis Legal Clinic, and the Trustee, joined an appeal. The Third Circuit affirmed. The court properly found, based on the disclosure statement hearing, that the fifth plan was patently unconfirmable under 11 U.S.C. 1129(a)(3) because its success is entirely contingent on speculative future litigation, and because it asks third-party asbestos claimants, who were not a cause of the bankruptcy, to serve as the sole funding source for attorneys and other creditors, under circumstances involving inherent conflict of interest and inequitable procedural provisions. Given the futility of pursuit of a Chapter 11 plan and mounting liabilities, the court acted within its discretion by converting the case. View "In Re: Am. Capital" on Justia Law