Justia Bankruptcy Opinion Summaries

Stokes owned 1Point, which managed employee-benefits plans and 401(k) retirement plans as a third-party administrator (TPA). Most were governed by the Employee Retirement Income Security Act, 29 U.S.C. 1002. TPAs generally provide record-keeping and assist in transferring money, but do not handle money or securities. Stokes directed clients to send funds to accounts he had opened in 1Point’s name. Cafeteria plan clients deposited $45 million and 401(k) clients deposited $5.7 million in accounts at Regions. Because the accounts bore 1Point’s name, Stokes was able to transfer money. Between 2002 and 2006, Stokes stole large sums. Regions failed to comply with the Bank Secrecy Act, 31 U.S.C. 3513, requirements to report large currency transactions, file suspicious-activity reports, verify identities for accounts, and maintain automated computer monitoring. In 2004, the U.S. Financial Crimes Enforcement Network assessed a $10 million fine against Regions. In 2006, Stokes and 1Point filed for bankruptcy. The Trustee filed suit against Regions in bankruptcy court on behalf of victimized plans for which he assumed fiduciary status. The suit was consolidated with plaintiffs’ suit. The district court withdrew the Trustee’s case from bankruptcy court, dismissed ERISA claims, and found that ERISA preempted state law claims. The Sixth Circuit affirmed. View "McLemore v. Regions Bank" on Justia Law

Debtor borrowed from Arvest to purchase a newly-constructed home, executing a promissory note and mortgage. After debtor filed a voluntary petition for Chapter 13 bankruptcy relief, Arvest then purchased the mortgaged property at a foreclosure sale for substantially less than what debtor owed on the promissory note and filed this adversary proceeding, seeking a judgment declaring the mortgage debt nondischargeable under 11 U.S.C. 523(a)(2) and (4). At trial, the bankruptcy court directed a verdict for debtor on the section 523(a)(2) claim but concluded that $65,000 of the remaining debt was nondischargeable under section 523(a)(4) because debtor held that amount of settlement proceedings in a fiduciary capacity created by section 4-58-105(b)(2) of the Arkansas Code. The BAP reversed and Arvest appealed. The court agreed with the BAP that the statute did not create the requisite fiduciary relationship, and that debtor was not guilty of embezzlement within the meaning of section 523(a)(4), affirming the judgment. View "Arvest Mortgage Co. v. Nail" on Justia Law

In 2007, Debtor purchased a manufactured home, borrowing the funds from Creditor and granting a security interest. Creditor filed an application for first title and a title lien statement in Whitley County, Kentucky. The seller of the manufactured home is located in Whitley County. Debtor resided at the time in Laurel County, Kentucky. Later, the Kentucky Transportation Cabinet issued a Certificate of Title for the Manufactured Home showing the lien as being filed in Whitley County. In 2010, Debtor filed his voluntary Chapter 7 bankruptcy petition. The Chapter 7 Trustee initiated an adversary proceeding. The Bankruptcy Court avoided the lien, 11 U.S.C. 544. The Sixth Circuit affirmed. The statute requires that title lien statements be filed in the county of the debtor’s residence even if the initial application for certificate of title or registration is filed in another county under KRS 186A.120(2)(a). View "In re: Pierce" on Justia Law

This case stemmed from a debt which consisted of claims of tort liability possessed by relatives of people buried in a cemetery called Graceland. Creditors alleged that debtors were liable to them and the members of their class for damages because, due to inadequate record keeping, debtors were unable to locate upon request the grave sites of family members or close relatives buried in Graceland. At issue was whether a bankruptcy court in one federal district had jurisdiction to determine whether a debt was discharged in a bankruptcy case litigated in another federal district. The court held that the court lacked jurisdiction and therefore did not reach the other issues on appeal. View "Alderwoods Group, Inc., et al. v. Garcia, et al." on Justia Law

Debtors obtained a secured loan from an investment fund, for which the Bank served as trustee. Debtors ultimately became insolvent, seeking relief under 11 U.S.C. 1129(b)(2)(A), where debtors sought to confirm a "cramdown" bankruptcy plan over the Bank's objection. The Bankruptcy Court denied debtors' request, concluding that the auction procedures did not comply with section 1129(b)(2)(A)'s requirements for cramdown plans and the Seventh Circuit affirmed. The Court held that debtors could not obtain confirmation of a Chapter 11 cramdown plan that provided for the sale of collateral free and clear of the Bank's lien, but did not permit the Bank to credit-bid at the sale. Accordingly, the Court affirmed the judgment of the Court of Appeals. View "RadLAX Gateway Hotel, LLC v. Amalgamated Bank" on Justia Law

Plaintiffs installed shingles manufactured by Owens Corning (debtor). They discovered leaks in 2009; shingles had cracked. Each sent warranty claims, which were rejected. They filed a class action alleging fraud, negligence, strict liability, and breach of warranty. In 2000, the debtors had filed Chapter 11 bankruptcy petitions; the Bankruptcy Court set a claims bar date in 2002 and approved a notice that appeared in multiple publications. Notices of the confirmation hearing for the Plan, in 2006, included generic notice to unknown claimants. At the time they filed the class action plaintiffs did not hold “claims” under 11 U.S.C. 1101. The Third Circuit subsequently established a rule that a claim arises when an individual is exposed pre-petition to a product or other conduct giving rise to an injury, which underlies a right to payment under the Bankruptcy Code. Based on that holding, the district court held that plaintiffs’ claims were discharged. The Third Circuit affirmed in part and remanded, agreeing that plaintiffs had “claims.” Both were “exposed” to the product before confirmation of the plan. Plaintiffs were not afforded due process by published notice, however, because they could not have known they had claims at the time of confirmation. View "Wright v. Owens Corning" on Justia Law

This bankruptcy appeal involved a transfer of liens by subsidiaries of TOUSA, Inc., to secure the payment of a debt owed only by their parent, TOUSA. This appeal by the Committee of Unsecured Creditors presented two issues: (1) whether the bankruptcy court clearly erred when it found that the Conveying Subsidiaries did not receive reasonably equivalent value in exchange for the liens to secure loans used to pay a debt owed only by TOUSA; and (2) whether the Transeastern Lenders were entities "for whose benefit" the Conveying Subsidiaries transferred the liens. The court held that the bankruptcy court did not clearly err when it found that the Conveying Subsidiaries did not receive reasonably equivalent value for the liens and that the bankruptcy court correctly ruled that the Transeastern Lenders were entities "for whose benefit" the liens were transferred. The court reversed the judgment of the district court, affirmed the liability findings of the bankruptcy court, and remanded for further proceedings. View "Senior Transeastern Lenders, et al. v. Official Committee of Unsecured Creditors" on Justia Law

The Debtor filed a voluntary petition for relief under Chapter 7, listing no student loan debts. Notice of filing was sent to listed creditors. Weeks later, Debtor filed an amended Schedule F which listing a creditor holding a student loan in the amount of $76,654.86. One week later, the bankruptcy court issued a general Chapter 7 discharge. No adversary proceedings were commenced during the case and no determination of undue hardship was requested or made. About six months later, the Chapter 7 Trustee filed a no asset report, and the bankruptcy court entered a final decree and closed the case. Seven years later, the Debtor sought to pursue sanctions and damages against the holder of her student loans for an alleged violation of the discharge injunction. The bankruptcy court denied a motion to reopen. The Sixth Circuit. Student loans are not discharged in bankruptcy absent determination of undue hardship in an adversary proceeding, 11 U.S.C. 523(a)(8). View "In re:Smyth" on Justia Law

Debtors began development of a subdivision and entered into a construction loan agreement with Bank Lenders, who retained a lien on substantially all of Debtors' assets. Debtors subsequently borrowed from Cornerstone, which similarly received liens and later agreed to subordinate the claims to that of Bank Lenders. After selling approximately a quarter of the planned units, Debtors filed petitions for relief under Chapter 11. The final plan of reorganization, confirmed by the court, specified that claims of Cornerstone would be secured to the extent determined by the court and included a budget that anticipated full payment of both Bank Lenders and Cornerstone; unsecured claimants would receive about 45 percent. The court valued Cornerstone's claims, using fair market value of the project on the plan confirmation date, rather than potential use and disposition value. Because the amount due Bank Lenders exceeded that value plus the value of other assets, no collateral remained to secure Cornerstone's claims; Cornerstone was treated as unsecured. The district court and Third Circuit affirmed. The Bankruptcy Court properly accepted the valuation because it overcame the presumed validity and amount of the Cornerstone’s secured claims. Cornerstone did not prove that secured claims were worth more than the valuation indicated. View "In re: Heritage Highgate Inc." on Justia Law

This case arose when petitioners filed for Chapter 12 bankruptcy and then sold their farm. Under Chapter 12 of the Bankruptcy Code, farmer debtors could treat certain claims owed to a governmental unit resulting from the disposition of farm assets as dischargeable, unsecured liabilities. 11 U.S.C. 1222(a). The Court held that federal income tax liability resulting from petitioners' post-petition farm sale was not "incurred by the estate" under 11 U.S.C. 503(b) of the Bankruptcy Code and thus was neither collectible nor dischargeable in the Chapter 12 plan. Therefore, the Court affirmed the judgment of the Ninth Circuit. View "Hall v. United States" on Justia Law