Justia Bankruptcy Opinion Summaries

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The Eleventh Circuit affirmed the denial of the Chapter 7 Trustee's request to use his powers under the bankruptcy code to avoid Wells Fargo's security interest in debtor's real property. The court rejected the Trustee's argument that, under Georgia law, security deeds in land were required to be attested at least by two witnesses. Rather, the court stated that the deed (1) must be attested by or acknowledged before an officer and (2) must also be attested or acknowledged by one additional witness. The court explained that the use of the word "or" in "attested or acknowledged" plainly contemplates these two acts as alternative methods of authenticating a security deed. In this case, where the language of the statute is plain and unambiguous, the court stated that judicial construction was not only unnecessary but forbidden. Furthermore, this common-sense reading of the statute was reflected in Supreme Court of Georgia precedent. View "Gordon v. Wells Fargo Bank, NA" on Justia Law

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Veritex filed an adversary proceeding requesting that debtor's debt not be discharged because he furnished the bank with a materially false written financial statement. The bankruptcy court found that the statement was false and submitted with the intent to deceive, but discharged the debt because Veritex did not rely on the statement. The district court affirmed the bankruptcy court's judgment. The Fifth Circuit reversed and held that the bankruptcy court's finding that Veritex did not reasonably rely on debtor's 2013 financial statement is clearly erroneous. In this case, Veritex looked to debtor to guarantee the loan, and it relied heavily on his financial statement; the alleged red flags were not significant enough to alert Veritex to debtor's dishonesty; and the bankruptcy court erred in focusing on the soundness of the loan rather than the truthfulness of debtor's representations. The court also held that a fraudulent statement by a debtor's partner or agent may be imputed to the debtor under 11 U.S.C. 523(a)(2)(B). Therefore, the bankruptcy court did not err in finding that debtor's wife was his agent. The court rendered judgment in favor of Veritex. View "Veritex Community Bank v. Osborne" on Justia Law

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The Eighth Circuit reversed the Bankruptcy Appellate Panel's (BAP) conclusion that Lariat's claim against debtor no longer exists because her husband discharged his liabilities in an earlier bankruptcy. Rather, the court affirmed the bankruptcy court's allowance of Lariat's claim based on the fraudulent-transfer judgment. The court held that the husband's discharge did not extinguish debtor's liability because it did not cover all the money owed, and that Lariat's claim against debtor is capped under 11 U.S.C. 502(b)(6). View "Lariat Companies, Inc. v. Wigley" on Justia Law

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In 2005, Studio entered into a commercial lease with LFLP. The debtor signed the lease as Studio's president and signed a separate personal guaranty. In 2008, the debtor filed a Chapter 7 petition, listing LFLP as a creditor; LFLP received notice of the filing and of the discharge. In 2011, the debtor, on behalf of Studio, exercised a five-year lease extension option. Studio vacated the premises before the end of the extended term. LFLP sued in Ohio state court, based on the personal guaranty. The debtor included “Discharge in Bankruptcy” as an affirmative defense. The bankruptcy court reopened the bankruptcy; the debtor filed this adversary proceeding, asserting that the personal guaranty was discharged and that LFLP willfully violated the discharge injunction by filing the state court action. The defendants argued that the lease extension resurrected the personal guaranty and that the original lease and the extension contained a survivability clause that superseded the bankruptcy. The bankruptcy court concluded that the 2008 discharge meant that the debtor was no longer liable under the Guaranty and that filing and continuing the state court action were willful violations of the discharge injunction. The Sixth Circuit Bankruptcy Appellate Panel affirmed in part. A pre-petition personal guaranty is a contingent debt that is discharged in bankruptcy. The court reversed the holding that the defendants willfully violated the discharge injunction and an award of damages in light of the Supreme Court’s 2019 Taggert decision. View "In re: Orlandi" on Justia Law

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The Fifth Circuit denied the petitions for panel rehearing and rehearing en banc, and substituted the following opinion in place of the prior opinion. The Port filed an adversary proceeding against debtors, seeking to invalidate the bankruptcy sale and regain its easement. The court affirmed the district court's judgment upholding the bankruptcy court's decision rejecting the Port's sovereign immunity and fraud claims. In Tennessee Student Assistance Corporation v. Hood, the Supreme Court held that a bankruptcy court’s discharge of an individual's debt to the state of Tennessee did not violate the Eleventh Amendment. For purposes of the Eleventh Amendment, the court reasoned that the Port's easement was like Tennessee's debt claim against the estate: the state holds an interest burdening the bankruptcy res. Hood holds that a bankruptcy court's exercise of in rem jurisdiction over the debtor's estate can extinguish the state's interest burdening that res without implicating the Eleventh Amendment. Therefore, the court held that there was no Eleventh Amendment violation here. The Port's further argument to the contrary was foreclosed. The court also held that the Port failed to allege any intentional false representation under Bankruptcy Code section 1144. View "Port of Corpus Christi Authority v. Sherwin Alumina Co." on Justia Law

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The IRS allows affiliated corporations to file a consolidated federal return, 26 U.S.C. 1501, and issues any refund as a single payment to the group’s designated agent. If a dispute arises, federal courts normally turn to state law to resolve the question of distribution of the refund. Some courts follow the “Bob Richards Rule,” which initially provided that, absent an agreement, a refund belongs to the group member responsible for the losses that led to it. The Rule has evolved, in some jurisdictions, into a general rule that is always followed unless an agreement unambiguously specifies a different result. Soon after the bank suffered huge losses, its parent, Bancorp, was forced into bankruptcy. When the IRS issued a $4 million tax refund, the bank’s receiver, the FDIC, and Bancorp’s bankruptcy trustee each claimed it. The Tenth Circuit examined the parties’ allocation agreement, applied the more expansive version of Bob Richards, and ruled for the FDIC. The Supreme Court vacated. The Rule is not a legitimate exercise of federal common lawmaking. Federal judges may appropriately craft the rule of decision in only limited areas; claiming a new area is subject to strict conditions. Federal common lawmaking must be necessary to protect uniquely federal interests. The federal courts applying and extending Bob Richards have not pointed to any significant federal interest sufficient to support the rule, nor have these parties. State law is well-equipped to handle disputes involving corporate property rights, even in cases involving bankruptcy and a tax dispute. Whether this case might yield a different result without Bob Richards is a matter for the court of appeals on remand. View "Rodriguez v. Federal Deposit Insurance Corp." on Justia Law

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The latency period for some asbestos-related diseases may last 40 years In bankruptcy, most classes of asbestos plaintiffs are divided between those who have already contracted an asbestos-related disease and those who have been exposed and are at risk but may not realize the fact of their exposure. Normally, a bankruptcy court sets a bar date before which proofs of claim against the estate must be filed; upon confirmation of a plan, all claims for which proofs are not filed are discharged. Under 11 U.S.C. 524(g) a court can deal with latent claims by establishing a trust and appointing a representative of future claimants’ interests. EFH, a holding company, and its subsidiaries filed a Chapter 11 bankruptcy petition. EFH’s holdings included Oncor, the largest electricity company in Texas. EFH could not sell Oncor alone without triggering massive tax liability; a buyer would need to acquire EFH’s other properties, including the Asbestos Debtors. A potential buyer proposed avoiding section 524(g) by relegating discharged claimants to the post-confirmation process. Federal Rule of Bankruptcy Procedure 3003(c)(3) provides that a bankruptcy court “shall fix and for cause shown may extend” the time within which proofs of claim may be filed; claimants may file after the bar date if they show “excusable neglect.” Latent asbestos claimants unsuccessfully argued that the plan would violate their due process rights. EFH implemented a notice plan for potential claimants. The bankruptcy court confirmed the plan, discharging claims that were not filed before the bar date. The Federal Circuit affirmed. Rule 3003(c)(3) is capable of affording latent claimants a fair opportunity post-confirmation to seek reinstatement of their claims The court noted the flaw in debtors attempting to circumvent section 524(g). This alternative route has produced a similar result as a section 524(g) trust but with unnecessary back-end litigation. View "In re: Energy Future Holdings Corp." on Justia Law

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The bankruptcy appellate panel dismissed debtor's appeal based on lack of jurisdiction, because debtor failed to show that she was a person aggrieved by the bankruptcy court's order overruling her objection to the trustee's final report. Therefore, debtor did not have standing to appeal the bankruptcy court's order. In this case, debtor did not challenge in her objection, nor on appeal, the amount the trustee reported had been returned to her following dismissal of her case. Furthermore, debtor has not demonstrated that the bankruptcy court's order directly and adversely affected her pecuniarily. View "Marshall v. McCarty" on Justia Law

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The Garvens contracted with Debtor and DRMP for home repairs and improvements. Unhappy with the results, the Garvens sued Debtor and DRMP in state court and obtained a default judgment against them. At the Garvens' request, the sheriff levied a writ of execution on Debtor's ownership interest in DRMP and scheduled an execution sale. At the execution sale, the Garvens purchased Debtor's ownership interest and became the sole owners of DRMP. Upon learning of the execution sale, Debtor allegedly began withdrawing assets from DRMP and transferring them to a different entity. Debtor then filed a chapter 7 bankruptcy petition. The bankruptcy court lifted the automatic stay to allow the Garvens and DRMP to commence a state court action against Debtor and related third parties to avoid the allegedly fraudulent transfers. The Eighth Circuit Bankruptcy Appellate Panel dismissed an appeal. The Garvens and DRMP filed their motion for relief from the automatic stay on June 5, 2019. The bankruptcy court rendered its final decision on September 19, 2019, more than 60 days after the motion was filed. The 60-day period was not extended, so the automatic stay was terminated by operation of law on August 5, 2019, rendering the order lifting the stay superfluous. View "Paczkowski v. Garven" on Justia Law

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Zurich filed suit against Trend after Trend purchased workers' compensation insurance from Zurich and then eventually went with a new insurance provider. Trend then filed for bankruptcy and the bankruptcy court allowed Zurich's claims for various unpaid invoices, estimated future losses, and unpaid fee schedule write-down fees. The Fifth Circuit affirmed the district court's decision upholding the bankruptcy court's allowance of Zurich's unpaid-invoices and future-losses claims. The court applied federal bankruptcy law and held that there was no legal error due to unintentionality; Zurich's unpaid-invoices claim was a cognizable bankruptcy claim because the underlying invoices were enforceable rights to payment under New York law; the bankruptcy court did not clearly err in its assessment of the evidence by concurrently allowing Zurich's claims such that the total allowance was $4,674,629 for "future losses." The court also held that there was no error in the bankruptcy court's allowance of Zurich's claim for unpaid fee schedule write-down fees. In this case, Zurich has a cognizable claim to the unpaid fee schedule write-down fees, and the bankruptcy court did not clearly err by concluding that the "25% of Total Savings" fee, as applied to fee schedule write-downs, was not unconscionable. View "Trendsetter HR LLC v. Zurich American Insurance Co." on Justia Law