Justia Bankruptcy Opinion Summaries

In 2005 the debtor business purchased a business and signed a promissory note. The business failed, allegedly because the seller continued to compete, in violation of the contract. The debtor listed a breach of contract claim as an asset. The trustee was unable to retain an attorney to pursue the claim and, with the limitations period running out, the court approved abandonment of the claim. The seller then offered to buy the claim and stock in the debtor company. The First Circuit affirmed the district court holdings that the claim had been abandoned (11 U.S.C. 554(c)), but that the stock had not been abandoned. Although the debtor did not identify eery possible theory of recovery in listing the claim as an asset, the trustee was on notice of tort theories. The transfer of the claim was not a violation of the automatic stay.

Claimant owned a hotel adjoining the CDC landfill. CDC hired debtor to build a system for dealing with gases generated in the landfill. In 1999, debtor was forced into bankruptcy. The landfill's gas control system failed; debtor lacked funds to fix it. The failure released foul odors that, traveling underground, entered the hotel through electrical outlets and cracks, sickening guests and employees. Claimant's hotel declared bankruptcy in 2005. The landfill was permitted to terminate its contract with debtor. Claimant filed a bankruptcy claim for the loss in value in selling the hotel, characterizing it as an administrative claim, superior to others, and brought a tort action in state court, which settled. The bankruptcy judge and district judge rejected characterization as an administrative claim. The Seventh Circuit affirmed. Administrative claims have priority because they are claims for reimbursement of expenses incurred after the declaration of bankruptcy, in order to preserve the value of the bankrupt estate for the benefit of creditors. A tort victim is a creditor, whose actions do not benefit the debtor-tortfeasor. Tort liability is an expense of doing business, like labor or material costs, and should be treated the same way.

International Management Associates, LLC, and several related entities (Debtors) were operated as the instruments of a Ponzi scheme. A receiver ultimately filed voluntary petitions in the bankruptcy court seeking relief for each of the Debtors under Chapter 11 of the Bankruptcy Code. A consolidated plan of liquidation was approved and a plan trustee appointed. The trustee then instituted a number of adversary proceedings in the bankruptcy court seeking to avoid and to recover distributions that had been made to the investors in the Debtors. The trustee claimed that transfers to the investors prior to the collapse of the Ponzi scheme were fraudulent transfers under 11 U.S.C. 548(a)(1)(A) and applicable state law. The investors asserted an affirmative defense under section 548(c), claiming that the transfers were for value. The trustee moved for partial summary judgment. The bankruptcy court denied the motion, effectively upholding the availability of the investors' affirmative defense. The trustee appealed. The court held that, under In re AFI Holdings, Inc. and the general rule, later transfers from the Debtors up to the amount of the investment satisfied the investor defendants' restitution or fraud claims and provided value to the Debtors. Accordingly, the bankruptcy court's judgment was affirmed.

Trustee appealed a summary judgment order from the bankruptcy court in favor of Judgment Holders. The court held that the bankruptcy court correctly concluded the subject liens were not avoidable under 11 U.S.C. 547. The court held, however, that the district court erred in concluding Judgment Holders' post-petition registration of their judgments and the attendant creation of judgment liens against Northridge were not avoidable post-petition transfers of property of the bankruptcy estate under Section 549(a), and it did not fully assess whether the bankruptcy estate was entitled to a recovery under section 550(a) because section 551's automatic preservation of the avoidable judgment liens would not restore the bankruptcy estate's financial condition to what it was before Judgment Holders' judgments were registered on Northridge's certificate of title. Accordingly, the court affirmed in part, reversed in part, and remanded for further proceedings.

This case stemmed from SL Management's Chapter 11 bankruptcy petition where Texas Capital appeared as a creditor in SL Management's bankruptcy suit. During the pendency of SL Management's bankruptcy case, Texas Capital filed an action in Texas state court to enforce guarantee agreements between it and plaintiff, a member of SL Management. The Texas state court entered a default judgment against plaintiff and Texas Capital initiated collection proceedings against plaintiff in Louisiana state court and registered the Texas judgment. In response to the collection action, plaintiff filed the instant action seeking a declaration that SL Management's debt to Texas Capital was fully satisfied by the surrender of collateral. The court subsequently held that the Rooker-Feldman doctrine was not implicated and proceeded to consider whether plaintiff's claim for declaratory relief was barred by res judicata. The court held that res judicata barred the assertion of plaintiff's claims for declaratory judgment. Accordingly, the court reversed the judgment of the district court and rendered judgment in favor of Texas Capital.

Spencer Committee appealed two orders of the district court: (1) the denial of the Spencer Committee's appeal of the bankruptcy court's confirmation order of the reorganization plan (Plan) by Idearc on the grounds of equitable mootness and (2) denial of the Spencer Committee's motion for a trial de novo of its fraud claims. The court held that the Spencer Committee appeared before the bankruptcy court and did not obtain a stay; the Plan had been substantially consummated; and the Spencer Committee's requested relief would adversely impact the success of the Plan or the rights of third parties not before the court. Accordingly, on the grounds of equitable mootness, the court affirmed the district court's order granting Idearc's motion to dismiss the Spencer Committee's appeal of the Confirmation Order of the Plan.

In the Chapter 13 case of appellees, Countrywide sought the recovery of attorney's fees incurred in connection with the bankruptcy as well as a determination that compliance with Federal Bankruptcy Procedure 2016 was not necessary for the recovery of such fees. The bankruptcy court held that Countrywide was not entitled to recover its attorney's fees and determined that there was no justiciable issue to resolve regarding the applicability of Bankruptcy Rule 2016 because Countrywide had already complied with the rule. The district court affirmed. The court held that the bankruptcy court and district court misconstrued the provision of the contract governing the availability of attorney's fees and that Countrywide was entitled to recover the fees sought in its Fee Application. Like the bankruptcy and district courts, however, the court declined to address whether Bankruptcy Rule 2016 applied. Accordingly, the court reversed and remanded for further proceedings.

The Chapter 7 Trustee appealed from the Bankruptcy Court's judgment in favor of debtor's parents on a fraudulent transfer action, holding that debtor could not fraudulently transfer property that would have been exempt. Because the court concluded that the Bankruptcy Court erred in applying Minnesota fraudulent transfer law to the count seeking relief under section 548(a)(1)(B) of the Bankruptcy Code, the court reversed and remanded for further findings.

Debtors, owners and operators of a farm and ranch, appealed from the judgment of the bankruptcy court denying their discharge pursuant to 11 U.S.C. 727(a)(5). The court held that the bankruptcy court did not clearly err in finding that debtors failed to adequately explain the loss of cattle. Accordingly, the judgment denying debtors' discharge was affirmed.

Debtors appealed the bankruptcy court's entry of summary judgment in favor of defendant in debtors' adversary action seeking, inter alia, to avoid defendant's mortgage lien on debtors' residence. The court held that summary judgment was improper in this case because there was a material issue of fact regarding whether defendant had possession of the original promissory note.