Justia Bankruptcy Opinion Summaries

Plaintiff, in these related appeals, was the Trustee in the Chapter 7 bankruptcy cases of LGI Energy Solutions, Inc. and LGI Data Solutions Company, LLC, which were in the business of providing utility-management and billing services to restaurants and other customers. These consolidated appeals involved seven adversary proceedings by the Trustee to avoid payments made by LGI Energy to defendant utilities prior to the bankruptcy. The Trustee contended that such payments were preferential and/or fraudulent transfers under the Bankruptcy Code and applicable state law. The Bankruptcy Court granted summary judgment in favor of defendants based on its conclusion that the payments they received for the utilities were not an asset of either debtor. The court held that the bankruptcy court's ruling was inconsistent with Minnesota law and Eighth Circuit precedent. If a trust or agency relationship was intended to be created by the agreements between LGI Energy and its customers, then defendants were nevertheless required to prove that LGI Energy honored that relationship and treated the funds accordingly. Therefore, the court reversed and remanded. View "Stoebner v. Consumers Energy Company, et al." on Justia Law

When the debtor voluntarily declared bankruptcy under Chapter 7 its petition was signed only by its president, not a lawyer. The next day the company filed an amended petition signed by a lawyer. Before the filing, the bank had sued debtor for fraud; the suit was automatically stayed, 11 U.S.C. 362(a)(1), so the bank refiled as a claim in the bankruptcy proceeding. The trustee in bankruptcy moved to rescind payments of pre-petition debts that the debtor had made to the bank, on the ground that the payments were voidable preferences because they had been made within 90 days before the filing, 11 U.S.C. 547(b), (f). The parties settled the claim conditional on a determination that the bankruptcy court had had jurisdiction over it. The bank's argument that the signature on the original petition made the proceeding void was rejected by the bankruptcy and district judges. The Seventh Circuit affirmed, finding that the rule was not jurisdictional and that application of relation-back was "obvious." View "First Chicago Bank & Trust v. Liebowitz" on Justia Law

In 2008 debtor purchased a 2003 auto, financed the purchase, and granted the dealership a security interest that was transferred to a finance company and noted on the title. The security interest was later transferred to WFB, which did not record the assignment or note it on the title. Debtor defaulted in 2010 and WFB repossessed the vehicle on January 4, 2011. Debtor filed her chapter 7 petition on January 28, 2011. WFB filed a motion for relief from stay, claiming that debtor did not have equity in the vehicle and it was entitled to relief pursuant to 11 U.S.C. 361, 362, 363 and 554. The court concluded that WFB did not have a perfected security interest. The Sixth Circuit reversed and remanded. Ohio law does require that assignment of a security interest in a motor vehicle be noted on the certificate of title for that interest to remain properly perfected. WFB has a properly perfected security interest in the vehicle and is the party entitled to enforce the security interest. View "In re: Rice" on Justia Law

Plaintiff sued in state court challenging the validity of both the foreclosure of his home by Chase and the redemption of his home by a junior lienholder, National. The district court subsequently granted Chase's and National's respective motions for summary judgment. Plaintiff contended that Minnesota law required Chase to hold both the mortgage and the promissory note at the time of the foreclosure, and genuine issues of material fact remained as to whether Chase held the note. Plaintiff also contended that National's redemption was invalid because the foreclosure itself was invalid. The court held that Chase was the party entitled to commence a foreclosure by advertisement under Minnesota law, even if the promissory note had been transferred to someone else. Assuming arguendo Minnesota law required Chase to possess the note, the district court correctly granted Chase's motion for summary judgment in any event because plaintiff did not raise any genuine issues of material fact showing Chase was not the holder of the note at the time of the foreclosure. The court declined to address plaintiff's argument regarding redemption because plaintiff never challenged it in the district court. View "Stein v. Chase Home Finance, LLC, et al." on Justia Law

Appellant appealed the district court's affirmation of the bankruptcy court's order that partially overruled appellant's objection to confirmation of the Chapter 13 bankruptcy plan. Appellant contended that under Section 506(b) of the Bankruptcy Code, debtor must pay interest on its claim at the contract rate of 10.5% because appellant was an oversecured creditor. The bankruptcy and district courts found that appellant could only recover post-petition interest at the contract rate from the date of filing until confirmation of the bankruptcy plan. The court affirmed the judgment of the district court affirming the bankruptcy court's order. View "First United Security Bank v. Garner, Sr." on Justia Law

This case stemmed from debtors' voluntary petition for bankruptcy relief under Chapter 13 of the Bankruptcy Code. When the Chapter 13 trustee moved to dismiss the case or to convert it to a Chapter 7 case, debtors filed a motion to convert their case to a Chapter 7 case, which the bankruptcy court granted. Thereafter, the U.S. Trustee filed a motion to dismiss the Chapter 7 case. At issue was whether an order denying the U.S. Trustee's motion to dismiss a debtor's Chapter 7 bankruptcy case as abusive under 11 U.S.C. 707(b) was a final order appealable under 28 U.S.C. 158(a). The district court dismissed the trustee's appeal, ruling that the bankruptcy court's order was interlocutory and therefore not appealable to the district court. The court held that because of the particular effect that an order denying a motion to dismiss a Chapter 7 bankruptcy case as abusive had on the bankruptcy proceedings, a bankruptcy court's order denying such a motion was appealable to the district court. Accordingly, the court vacated the district court's order dismissing the trustee's appeal and remanded for further proceedings. View "McDow, Jr. v Dudley, et al." on Justia Law

From 2005 to 2008, debtor, the owner of Waffle House Ffranchises, periodically failed to make all federal income tax withholding, social security, and unemployment payments due to the IRS and to timely file returns. The IRS assessed penalties in excess of $1.5 million; debtor made payments of $637,000 toward the penalty. In 2009 a chapter 11 reorganization plan was confirmed; the business continued to operate until its assets were sold. In 2010 debtor sued the IRS under 11 U.S.C. 548, 550 and the Tennessee Uniform Fraudulent Transfer Act, Tenn. Code Ann. 66-3-301, asserting that the penalty payments provided no value to debtor and were made at a time when the debtor was incurring debt beyond its ability to pay. The bankruptcy court dismissed. The Sixth Circuit affirmed, noting that the payments resulted in a dollar-for-dollar reduction of debtor's undisputed tax debt. Payment of a fine or penalty is not an avoidable transfer, regardless of whether the penalty is a noncompensatory penalty.View "In re: Southeast Waffles, LLC" on Justia Law

SMF appealed from a bankruptcy court order finding that three payments totaling $54,778.46 received by SMF from IBC in the 90-day preference period preceding IBC's chapter 11 filing were preferential payments under 11 U.S.C. 547(b) and were thus subject to avoidance by U.S. Bank in its capacity as trustee for the IBC Creditors Trust. The court affirmed the order and held that the bankruptcy court did not abuse its discretion by extending the time for service of process.

Mortgage deeds executed by the debtors three years earlier were still pending recordation when they filed for Chapter 11 bankruptcy. Debtors sought to avoid the mortgages and to prevent any post-petition actions that would perfect them 11 U.S.C. 362(a)(5), 544(a), 547(b). The bankruptcy court ruled in favor of the lender. The district court and First Circuit affirmed. Debtors failed to establish the necessary elements of a preferential transfer.

Indiana University had an Instructional Television Fixed Service license, issued by the FCC, that authorized broadcast on specified frequencies. A not-for-profit ITFS licensee can lease unused frequencies to a for-profit entity. The university was contemplating assigning frequencies to PBS, but before it did, PBS quitclaimed its rights to the debtor. Thinking that the transfer was final, debtor modified equipment at a cost of $350,000. The bankruptcy trustee filed a claim against the university, contending that it had promised PBS the license, that debtor had reasonably relied on the promise, and that the doctrine of promissory estoppel entitled debtor to damages of $116,000. The claim settled for $100,000. Because the settlement left the estate with insufficient assets to pay unsecured creditors, a creditor challenged it. The bankruptcy court, district court, and Seventh Circuit affirmed. The trustee decided that pursuing a claim for the license was hopeless and made a reasonable decision.