Justia Bankruptcy Opinion Summaries

In 2006 creditors forced the corporation, which owned a golf course, into Chapter 11 bankruptcy and the trustee approved sale of the course to the local recreation district over the objections of the corporation's owners. The sale, at a price higher than market value, closed in 2007 and creditors were paid in full. The bankruptcy court rejected multiple allegations of fraud and closed the case in 2010. The Seventh Circuit affirmed and awarded damages and costs, calling the allegations and multiple motions, not only groundless, but "obsessive, a form of harassment, unprofessional, and an abuse of the bankruptcy court, the district court, and this court."

Defendant owned companies forced into Chapter 11 bankruptcy, but was not a debtor in the proceedings. The plan was confirmed and prohibited suits against the bankruptcy professionals and certain litigation against pre-bankruptcy creditors. Years later defendant sued plaintiff, pre-judgment creditors, and the bankruptcy professionals in an Indiana state court, based on Indiana law. The creditors removed the suit to bankruptcy court (28 U.S.C. 1452(a)) rather than asking the bankruptcy judge to enforce his order. The statute authorizes removal of any claim of which that court would have jurisdiction under 28 U.S.C. 1334, which confers on the district courts original jurisdiction of all civil proceedings arising under the Bankruptcy Code, or "arising in or related to cases under" the Code. The bankruptcy judge determined that the suit against the bankruptcy professionals was barred. Defendant filed an amended complaint eliminating all defendants except plaintiff and stating that the only claims arose from alleged violations of confidentiality agreements. The bankruptcy judge ruled that, as amended, the complaint was unrelated to the bankruptcy and ordered the suit remanded to the state court. The district judge affirmed. The Seventh Circuit concluded that the dismissal was not subject to review.

Texas Wyoming Drilling, Inc. (TWD) filed a voluntary petition for bankruptcy under Chapter 11 and filed its disclosure statement and plan, which eliminated all of TWD's shareholders' stock interests in TWD. Central to this dispute were the terms of the plan and statement; namely, whether the terms preserved TWD's claims against Laguna Madre Oil & Gas II, LLC et al. A few months after confirmation of the plan, TWD sued 32 of its former shareholders, including appellants here, for pre-petition dividend payments that were allegedly fraudulent transfers under 11 U.S.C. 544, 548, and 550, and the Texas Business and Commerce Code, alleging that the former shareholders had received dividends and other transfers equaling millions of dollars while TWD was insolvent (Avoidance Actions). Laguna subsequently appealed the bankruptcy court's denial of its motion for summary judgment. The court held that the bankruptcy court properly denied Laguna's motion for summary judgment because the plan adequately preserved the Avoidance Actions and the claims were not barred by judicial estoppel or res judicata. Accordingly, the court affirmed the judgment.

Debtor reopened his Chapter 13 bankruptcy proceedings and thereafter, moved the bankruptcy court to hold in contempt his former spouse and her subrogee, West Virginia's Department of Health and Human Resources, Bureau of Child Support Enforcement (BCSE), for violating the terms of debtor's confirmed Chapter 13 repayment plan by seeking income-withholding orders against him for child and spousal support arrears. The bankruptcy court refused to hold the former spouse or BCSE in contempt but did reduce the income withholding. On appeal, the Bankruptcy Appellate Panel (BAP) reversed and reinstated the income withholdings. Debtor timely appealed. The court held that 11 U.S.C. 1327(a) did not apply to this case because the bankruptcy court confirmed debtor's plan and the plan explicitly limited the former spouse's privilege to return to family court for the sole purpose of litigating child support interest. Although the Bankruptcy Code provided that, to be confirmed, a plan must provide for the full payment of accrued interest on child support and spousal support, 11 U.S.C. 101(14A), a confirmed plan was given res judicata effect even when it violated the Code. As for debtor's claim for post-petition child and spousal support, and interests thereon, the BAP correctly ruled that these claims were beyond the purview of the plan and the bankruptcy court's jurisdiction. Therefore, the BCSE income-withholding order could exceed the monthly payment schedule provided in debtor's plan. The court further held that the former spouse's recovery of post-petition spousal and child support was permitted because they were post-petition domestic support obligations for which the Bankruptcy Code allowed no proof of claim. Accordingly, the court affirmed in part and reversed in part, remanding for further proceedings.

Plaintiff appealed from a judgment granting defendant's motion to dismiss as untimely plaintiff's complaint, which alleged breach of fiduciary duty, intentional misrepresentation, negligent misrepresentation, and conspiracy to commit those three offenses. At issue was whether the district court properly ruled that tolling of the untimely claims, on the basis of defendant's continuing concealment, was unwarranted. The court affirmed and held that the lawsuit, commenced on April 2004, arose from an injury suffered no later than June 2000 and therefore, was barred by the applicable statute of repose, Conn. Gen. Stat. 52-577. The court also held that plaintiff could not seek the safe harbor of equitable estoppel due to its failure to recognize that it was required to pursue its action. Accordingly, the court affirmed the judgment of the district.

Following remand for consideration of the effect of 11 U.S.C. 544(a) on the trustee's motion to sell, the bankruptcy court entered judgment denying the trustee's request to sell jointly-owned real estate free and clear of defendant co-owner's interest pursuant to 11 U.S.C. 363(b) and (h). The Chapter 7 trustee appealed. The court held that the bankruptcy court did not abuse its discretion in denying the motion to sell where, based on the record before it, the bankruptcy court concluded that the trustee had not met his burden of proving that the benefit to the bankruptcy estate of the sale outweighed the detriment to defendant and where the bankruptcy court's findings of fact regarding the benefit of the estate and detriment to defendant were not clearly erroneous. Accordingly, the judgment was affirmed.

After a chapter 11 case was converted to a chapter 7 case, the bankruptcy court entered orders granting fees for the chapter 7 trustee's counsel, denying fees requested by chapter 11 counsel, and requiring chapter 11 counsel to disgorge its pre-petition retainer so that administrative expenses from the chapter 7 case could be paid. The Sixth Circuit vacated the denial of fees and disgorgement order and remanded for determination of whether a pre-petition retention letter between the firm and the debtor established a valid lien under Ohio law, securing payment of fees for necessary and reasonable services provided while the firm served as counsel to the debtor as debtor in possession. The bankruptcy court erred in basing its denial on 11 U.S.C. 726, which is a priority scheme for distribution on allowed claims; 11 U.S.C. 330 governs analysis of whether to allow compensation.

The Wisconsin smelting plant owed more than $1.3 million in delinquent utility charges to the local municipal utility when it filed for Chapter 11 bankruptcy. Months later, despite the automatic stay, the utility implemented a process pursuant to sections 66.0809 and 66.0627, Wisconsin Statutes and local ordinance, under which unpaid utility bills become a lien against the property. The bankruptcy court and district court found that none of the exceptions to the automatic stay applied to the debt, which constituted more than one-third of the utility's operating revenue. The Seventh Circuit affirmed, holding that no exception to the stay applied. The utility did not obtain a pre-petition security interest in the plant property by providing service or billing. The utility bills were not a tax or special assessment.

This case stemmed from a bankruptcy appeal of a tax debt owed by debtor to the California Franchise Tax Board (FTB). The bankruptcy court and the Bankruptcy Appellate Panel (BAP) found that the debt was not excepted from discharge in debtor's Chapter 7 bankruptcy proceeding. At issue was whether, as a consequence of debtor's prior Chapter 13 Bankruptcy case, the lookback period was suspended and the tax debt was not discharged. The court held that when the bankruptcy court confirmed debtor and debtor's husband's Chapter 13 plan, the estate property revested in debtor and became debtor's property, thus lifting the applicable stay provisions. Since this revesting occurred before the tax debt became due, no stay precluded the FTB from collection on the debt under 11 U.S.C. 362. Consequently, the tax debt was not excepted from the Chapter 7 discharge, and the principles of equitable tolling did not apply to extend the lookback period as the FTB was neither precluded from collecting on the tax debt nor did it actively try to protect its claim. Accordingly, the court held that the debt was discharged and affirmed the BAP.

A citizen of Illinois brought personal-injury claims against the driver of a tractor-trailer and his employer, citizens of Indiana, shortly before expiration of the limitations period. Service of process on the employer occurred eight months later. After the driver notified the district court that he had filed for Chapter 13 bankruptcy, the district court stayed the case as to the driver, as required by the Bankruptcy Code, then dismissed the case against the employer with prejudice, finding that plaintiff failed to exercise reasonable diligence in serving process. The Seventh Circuit dismissed for lack of jurisdiction; dismissal of claims against the employer was not a final judgment because plaintiff continues to seek adjudication of his claims against the driver. The court noted that plaintiff has taken different positions with respect to the viability of the claim against the driver and has filed a state court suit against the driver.