Justia Bankruptcy Opinion Summaries

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The Bankruptcy Appellate Panel reversed the bankruptcy court's order confirming the Chapter 12 plan of debtors. The panel held that the plain language of Bankruptcy Code 1232 does not allow a Chapter 12 plan to compel a taxing authority to disgorge pre-petition withholdings. In this case, contrary to debtors' position, section 1232 provides no basis to magically reverse the application of the pre-petition withheld funds when calculating the IDR's claim. View "Iowa Department of Revenue v. DeVries" on Justia Law

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The Court of Appeals held that federal bankruptcy law did not preempt Plaintiff's state law claims asserted against non-debtor third parties for tortious interference with a contract.Plaintiff loaned $147,250,000 to nonparties "Mezz Borrower" and "Mortgage Borrower" (collectively, Borrowers). Borrowers later defaulted, and Plaintiff sought to conduct a foreclosure sale of Mezz Borrower's 100 percent membership interest in Mortgage Borrower pursuant to the pledge and security agreement. Mezz Borrower and Mortgage Borrower subsequently filed separate voluntary petitions for chapter 11 bankruptcy in federal court. Plaintiff then commenced this action in state court alleging that Defendants had tortiously interfered with the loan agreements between Plaintiff and the nonparty borrowers. Defendants - various affiliated persons and entities - moved for summary judgment on the ground that the action was preempted by the Bankruptcy Code. Supreme Court denied the motion, holding that the action was not preempted because it did not involve the bankruptcy. The Appellate Division reversed, concluding that Plaintiff's claims were preempted by federal law because damages arose only because of the bankruptcy filings. The Court of Appeals reversed, holding that Defendants failed to meet their burden of establishing that federal bankruptcy law preempted Plaintiff's tortious interference claims. View "Sutton 58 Associates LLC v. Pilevsky" on Justia Law

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On remand from the Supreme Court, the Ninth Circuit affirmed the Bankruptcy Appellate Panel's decision reversing the bankruptcy court's finding of civil contempt and vacating its award of civil contempt sanctions against a debtor's former business partners for violation of the discharge injunction.The Supreme Court explained that an objective, rather than subjective, standard is more appropriate in determining whether the Creditors could be held in civil contempt for violating the bankruptcy discharge injunction. Furthermore, "a court may hold a creditor in civil contempt for violating a discharge order if there is no fair ground of doubt as to whether the order barred the creditor's conduct." Applying this standard, the panel held that the Creditors had an objectively reasonable basis to conclude that debtor might have "returned to the fray" in the Oregon state court to obtain some economic benefit from a higher evaluation of the sale of his ownership stake in SPBC and in the amount of interest that had accrued after the date payment was due for the forced sale. View "Lorenzen v. Taggart" on Justia Law

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Chapter 7 debtor and his wife (collectively, "appellants") appealed the bankruptcy appellate panel's order affirming the bankruptcy court's judgment in an adversary proceeding brought by the Chapter 7 trustee. At issue is the characterization of two properties acquired by appellants during their marriage but before debtor individually filed for bankruptcy protection.The panel certified to the Supreme Court of California the question whether, in Chapter 7 bankruptcy proceedings, Cal. Evid. Code 662, which affords a presumption based on the property's form of title, supersedes Cal. Fam. Code 760, which applies a presumption in favor of community property for property purchased during the marriage with community property. The California Supreme Court determined that for joint tenancy property acquired during marriage before 1975, each spouse's interest is presumptively separate in character. For such property acquired with community funds on or after January 1, 1975, the property is presumptively community in character. For property acquired before 1985, the parties can show a transmutation from community property to separate property by oral or written agreement or a common understanding. For joint tenancy property acquired with community funds on or after January 1, 1985, a written declaration is required.In light of the Supreme Court of California's opinion answering the panel's certified question, the panel held that the bankruptcy courts properly applied California law to the characterization of the Redlands Property. In this case, the community property presumption applied because the property was acquired with community funds on or after January 1, 1975. However, the panel held that the bankruptcy courts did not make the necessary factual finding regarding when the San Bernardino Property was purchased to apply the proper presumptions when characterizing that property. Finally, the panel saw no clear error in the bankruptcy courts' finding that appellants failed to meet the requirements for a transmutation of either property. Accordingly, the panel affirmed in part and vacated and remanded in part. View "Brace v. Speier" on Justia Law

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Glenview, a Glasgow, Kentucky nursing home, jointly owned by Bush and Howlett for over 30 years, filed a voluntary chapter 11 bankruptcy petition. The Official Creditors Committee was formed and filed an application to retain DBG, with a declaration from DGB's managing partner, disclosing that DBG had previously represented Howlett in estate planning matters, unrelated to the Chapter 11 case, that the representation concluded in 2017, and that the professionals who represented Howlett would not represent the Committee. Glenview filed an objection, although Howlett did not, asserting that DBG assisted Glenview and Howlett with the preparation of a buy-sell agreement for Glenview and all its assets, attaching an invoice from DBG for a period in 2016. DBG asserted that no buy-sell agreement was consummated, and that the representation related only to estate planning. The bankruptcy court heard arguments but did not conduct an evidentiary hearing, then denied the Committee’s application to employ DBG.The Sixth Circuit Bankruptcy Appellate Panel vacated, finding that the court abused its discretion under 11 U.S.C. 1103. State and federal courts jealously guard the attorney-client relationship and that solicitude extends to a committee’s choice of counsel in bankruptcy. View "In re Glenview Health Care Facility, Inc." on Justia Law

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This case concerns challenges to a 2017 law imposing a temporary but substantial increase in quarterly fees for large Chapter 11 debtors. The Fifth Circuit held that the fee increase is constitutional and applies in this case. The court agreed with the bankruptcy court and its sister circuits that "disbursements" includes all payments a debtor makes. The court explained that, because "disbursements" include all the payments Buffets made in 2018, its roughly $60 million of quarterly disbursements qualify for the heightened fees. The court concluded that the Amendment applies to cases like Buffets' that were pending when the Amendment took effect. The court explained that the 2017 Amendment is prospective and the court found no uniformity problem.The court held that the fee increase easily survives rational basis review where it addresses a shortfall in the U.S. Trustee System Fund, the fee increase is directly tied to the deficit, and it is reasonable to have large debtors shore up the system's finances as their cases typically place greater burdens on the system. Furthermore, taxes and user fees are not takings under the Fifth Amendment. In this case, Buffets had disbursements exceeding $1 million for each of the first three 2018 quarters. The court concluded that the fee increase applies to those disbursements even though the case was pending before the increase became law and the fee increase is constitutional. Accordingly, the court reversed and remanded for modification of the fee orders. View "Hobbs v. Buffets, LLC" on Justia Law

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The Fifth Circuit reversed the district court's decision affirming the bankruptcy court's denial of plaintiff's motion for leave to amend. In this case, plaintiff sought to amend his complaint to include allegations that the Brewer & Pritchard attorneys assured him during a brief recess during bankruptcy proceedings that they would treat the bankruptcy court's proposed fees as part of plaintiff's "Gross Recovery" under his written agreement with Brewer & Pritchard.The court held that had plaintiff been granted leave to amend his complaint, his proposed claims—whatever their merit—would not have been subject to dismissal under the doctrine of res judicata. The court explained that the "conduct" plaintiff seeks to challenge is the alleged breach of fiduciary duty—the failure to follow through on the new representations supposedly made to him during the November 2017 hearing. Furthermore, at the time of the hearing, plaintiff could not have even known that the attorneys' assurances were misrepresentations, let alone that he should challenge them as such. The court remanded with instructions that plaintiff's motion for leave to amend be granted. View "Rohi v. Brewer" on Justia Law

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After Tennial’s mortgage company foreclosed on her home, she filed a Chapter 13 bankruptcy petition. Her petition triggered an automatic stay of any further action against her home, allowing her to continue living there, 11 U.S.C. 362. The next year, REI bought Tennial’s home from the mortgage company and, on REI’s motion, the bankruptcy court terminated the stay on September 12, 2019. Tennial’s attorney received electronic notice of the order the same day, and the court mailed a copy to Tennial by first class mail on September 14.Under Rule 8002(a)(1) of the Federal Rules of Bankruptcy Procedure, Tennial had 14 days—through September 26—to appeal the order. Tennial filed her notice of appeal on October 9. At the bottom of her notice, she wrote, “I did not receive a copy of the order until September 26, 2019, via U.S. Postal Service.” The court dismissed, concluding that it lacked jurisdiction to review the order because Tennial waited too long to file the appeal and failed to move for an extension under Bankruptcy Rule 8002(d).The Sixth Circuit affirmed. While the deadline does not create a limitation on subject matter jurisdiction, Tennial missed the deadline and the deadline is mandatory. View "Tennial v. REI Nation, LLC" on Justia Law

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The Fifth Circuit held that the Bankruptcy Court had the equitable power emanating from 11 U.S.C. 105(a) to correct any error it may have committed in changing the date of the first creditors' meeting after the case was transferred out of the Eastern District. In this case, the Objectors reasonably relied on the issuance by the Northern District Bankruptcy Court's Clerk of a second, later date for the section 341(a) initial creditors' meeting and a corresponding new, later deadline for filing objections to discharge. The court also held that the Bankruptcy Court correctly denied debtor's discharge under section 727(a)(4)(A), and that the Bankruptcy Court was correct in finding that debtors' discharge could also be denied under section 727(a)(5). View "Yaquinto v. Ward" on Justia Law

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This case arose out of a dispute between two sets of lawyers who provided legal work for a mutual client. Thomas Tufts and the Tufts Law Firm, PLLC appealed the district court's order granting a motion to dismiss on grounds of subject matter jurisdiction. Edward Hay and Pitts, Hay & Hugenschmidt, P.A. also filed a second motion to dismiss Tufts's action against them on the additional ground that the district court lacked personal jurisdiction over them. After the district court found personal jurisdiction, Hay and his firm cross appealed.The Eleventh Circuit held that the district court erred by dismissing the action for lack of subject matter jurisdiction under the Barton Doctrine. In this case, Tufts counsel initiated their action against Hay—court-approved counsel—and Tufts did not obtain leave of the bankruptcy court before doing so. The court held that the Barton doctrine has no application when jurisdiction over a matter no longer exists in the bankruptcy court. Thus, the bankruptcy court was properly vested with jurisdiction to consider this action if it could conceivably have an effect on the client's bankruptcy estate. Here, the action could not conceivably have an effect on the client's bankruptcy estate and thus the Barton doctrine does not apply. The court also held that the district court properly exercised personal jurisdiction over Hay. The court reversed the district court's ruling on subject matter jurisdiction and remanded. View "Tufts v. Hay" on Justia Law