Justia Bankruptcy Opinion Summaries

The same day that debtor discharged his debts in a Chapter 7 bankruptcy, his mother, died, leaving debtor and his brother equal shares in an estate. Debtor signed a disclaimer of his interest, but never told the trustee about his inheritance. Following a series of transactions between the brothers and various accounts, the U.S. Attorney's office launched an investigation, and the brothers were charged with bankruptcy fraud (18 U.S.C. 157(3)). Debtor was also charged with impeding a bankruptcy trustee in the course of his duties (18 U.S.C. 152(1)) and fraudulently concealing assets. The Seventh Circuit affirmed. The circumstantial evidence was sufficient for a reasonable jury to find that the brothers engaged in a fraudulent scheme. The court also rejected a claim of ineffective assistance of counsel.

Debtor appealed the bankruptcy court's order converting its Chapter 11 bankruptcy case to one under Chapter 7. The court affirmed the order of the bankruptcy court and held that an abuse of process was an appropriate ground for conversion under 11 U.S.C. 1112(b). Moreover, debtor had had its day in court four times where debtor was substantially the same entity as Midwest Oil, an entity that the judge barred from filing pleadings or a petition in the bankruptcy court. Therefore, the bankruptcy court's finding was not erroneous.

Bankruptcy trustee and nondebtor spouse appealed the bankruptcy court's grant of summary judgment to H.D. Smith. The trustee and spouse argued that the bankruptcy court erred in holding that H.D. Smith had an enforceable lien against the proceeds of the sale of the debtor's homestead property in excess of the homestead exemption. The court held that, regardless of whether the lien attached prior to the bankruptcy proceedings, the trustee took the property with the state-law character it had in the debtor's hands: a property with an unenforceable lien. Therefore, the court reversed the district court's grant of summary judgment. The court also held that because it concluded that H.D. Smith's lien was unenforceable, it need not consider whether enforcing the lien would violate 11 U.S.C. 362 or 11 U.S.C. 549. The court also did not consider the issues that the spouse argued in her briefing regarding homestead rights.

Debtor owned one parcel in Wisconsin and three in Michigan. Permanently disabled and unemployed, he obtained and defaulted on mortgages. The bank began foreclosure. Debtor sold one Michigan property and gave all proceeds to the bank, which continued its Wisconsin foreclosure. In the Michigan foreclosure, the bank bid the full amount of the loan (likely more than value) and obtained a deed. Debtor filed a chapter 13 petition before the Wisconsin foreclosure sale. The bank filed a proof of claim and motion for relief from the automatic stay to reverse foreclosure on the Michigan property and proceed with the Wisconsin sale. The bankruptcy court concluded that Debtor owed the bank nothing, so there was no reason to continue the Wisconsin foreclosure. The Sixth Circuit affirmed. The bank made a unilateral mistake by bidding the entire amount of the debt at the Michigan foreclosure sale. The sale may not be invalidated, absent fraud. The bank is required by Michigan law to pay, or credit, Debtor the full amount of its bid and has been paid in full. Pursuant to 11 U.S.C. 558, Debtor is entitled to offset the Michigan sale credit bid against the Wisconsin judgment, satisfying the Wisconsin judgment so that Debtor no longer owes the bank any money.

Reshetar Systems, Inc. appealed a judgment of the bankruptcy court determining that the debt owed to Reshetar by debtor was not excepted from discharge. The court held that the debt was not excepted from discharge as the trustee of a constructive trust was not a fiduciary within the meaning of Code. Sec. 523(a)(4) and Minnesota law did not create the fiduciary relationship required by the section. The court also held that nothing in the statute, the contract, or the subcontract gave Reshetar specific property rights in the payments Construction 70 received from Applebee's. Those payments belonged to Construction 70, and Construction 70's use of its own property did not amount to embezzlement. The court also held that Construction 70's use of its own property did not amount to larceny where the payments from Applebee's to Construction 70 belonged to Construction 70. The court finally held that, giving due regard to the bankruptcy court's opportunity to judge debtor's credibility, the court could not say that the bankruptcy court's finding was clearly erroneous.

The debtor filed a voluntary petition under Chapter 11. Prior to expiration of the 120-day deadline to assume or reject nonresidential real property leases provided for under 11 U.S.C. 365, debtor obtained a 90-day extension of time to assume or reject leases, making August 30, 2010, the deadline. On August 13, 2010, the debtor filed a second motion for an extension. The landlord would not consent and, on August 27, the trustee filed a motion to assume the lease. The bankruptcy court held that the deadline set forth in 11 U.S.C. 365(d)(4) for assuming a nonresidential real property lease is satisfied upon the debtor filing a motion to assume the lease. The Sixth Circuit affirmed.

The nonprofit corporation was founded as a home for elderly African-Americans in 1883. In the 1980s its financial condition began to deteriorate and, in 2004, the administrator recommended bankruptcy. The board opted to take a $1 million loan, after which there were two unusual patient deaths; the board and administration fell into disarray. When the board eventually filed Chapter 11 bankruptcy, a committee of unsecured creditors filed claims against directors and officers for breach of the fiduciary duties of care and loyalty and for deepening insolvency. The district court rejected the claims. The Third Circuit vacated, finding genuine disputes of material facts. The court noted evidence that the board and officers had reason to know that its administrators were not reliable and competent and did not act with reasonable diligence. There was evidence that breaches of fiduciary duties benefited defendants' individual interests and that defendants contributed to the deepening insolvency.

This case was related to certain documents produced in discovery and filed in the bankruptcy court, containing allegations that Father M and D, two priests who were not parties to the Portland Archdiocese's bankruptcy case, had sexually abused children. The bankruptcy court held that the discovery documents at issue could be disclosed to the public, because the public's interest in disclosure of these discovery documents outweighed the priests' privacy interest under Rule 26(c) and that the documents filed in court could be disclosed because they did not contain "scandalous" allegations for purposes of 11 U.S.C. 107(b). The court affirmed the bankruptcy court's ruling as to the release of discovery documents disclosing Father M's name under Rule 26(c), because the public's serious safety concerns could not be addressed if Father M's name was redacted. But because the record did not reflect the existence of any similar significant public interest that required the disclosure of Father D's name, the court held that Father D's name must be redacted from any discovery documents that were released. Finally, because of the mandatory duty to keep scandalous material confidential at the request of a party under section 107(b), the court reversed the decision to release the punitive damages memorandum and attached documents.

This case arose when the SEC instituted an enforcement action against several companies, which, among other things, led to the court appointment of a receiver. Debtor was an attorney who represented some of the defendants in this enforcement action. At issue was whether the exception to discharge in 11 U.S.C. 523(a)(19) applied when the debtor himself was not culpable for the securities violation that caused the debt. The bankruptcy court held that the debt was subject to discharge; the district court disagreed and held that the debt was excepted from discharge in bankruptcy. The court held that section 523(a)(19) prevented the discharge of debts for securities-related wrongdoings only in cases where the debtor was responsible for that wrongdoing and debtors who could have received funds derived from a securities violation remained entitled to a complete discharge of any resulting disgorgement order. Therefore, the court reversed the judgment of the district court.

Debtor appealed from the bankruptcy court's grant of summary judgment to creditor, holding a debt in the amount of $400,000, nondischargeable pursuant to section 523(a)(2)(A) of Title 11 of the United States Code (Bankruptcy Code). The court held that summary judgment was improper because there existed fact issues regarding whether (1) the financing arrangement should be treated as if it was between the debtor and creditor, or between Imports Plus, Inc. and the creditor; and (2) whether the debtor obtained the majority of funds from the creditor at the time of the alleged misrepresentation.