Justia Bankruptcy Opinion Summaries

This case stemmed from the long-running dispute between Vickie Lynn Marshall and E. Pierce Marshall over the fortune of J. Howard Marshall II, a man believed to have been one of the richest people in Texas. Vickie married J. Howard, Pierce's father, approximately a year before his death. Shortly before J. Howard died, Vickie filed a suit against Pierce in Texas state court asserting that J. Howard meant to provide for Vickie through a trust, and Pierce tortiously interfered with that gift. The litigation worked its way through state and federal courts in Louisiana, Texas, and California, and two of those courts, a Texas state probate court and the Bankruptcy Court for the Central District of California, reached contrary decisions on its merits. The Court of Appeals subsequently held that the Texas state decision controlled after concluding that the Bankruptcy Court lacked the authority to enter final judgment on a counterclaim that Vickie brought against Pierce in her bankruptcy proceeding. At issue was whether the Bankruptcy Court Judge, who did not enjoy tenure and salary protections pursuant to Article III of the Constitution, had the statutory authority under 28 U.S.C. 157(b) to issue a final judgment on Vickie's counterclaims and, if so, whether conferring that authority on the Bankruptcy Court was constitutional. The Court held that the Bankruptcy Court had the statutory authority to enter judgment on Vickie's counterclaim as a core proceeding under section 157(b)(2)(C). The Court held, however, that the Bankruptcy Court lacked the constitutional authority under Article III to enter final judgment on a state law counterclaim that was not resolved in the process of ruling on a creditor's proof claim. Accordingly, the judgment of the Court of Appeals was affirmed.

Appellant defaulted on his mortgage payments and filed for bankruptcy under Chapter 13 of the Bankruptcy Code in order to prevent foreclosure on his home. In his proposed Chapter 13 bankruptcy plan, appellant sought to "modify" the Internal Revenue Service's secured claims for long-overdue tax deficiencies into long-term debt payable over a period of fifteen years. The court held that appellant could not do so because those tax deficiencies were not debts whose pre-bankruptcy payment terms included a final payment date that fell beyond the five-year term of appellant's Chapter 13 plan. Accordingly, the court affirmed the challenged portion of the order of the bankruptcy court denying confirmation and remanded for further proceedings.

"The Dawses' struggle with the IRS has a lengthy provenance." Decades ago, Donald and Phyllis Dawes pled guilty for failing to file their 1981 through 1983 tax returns. They also failed to pay their taxes from 1986 through 1988, and 1990. All this led to the IRS to seek and win a declaratory judgment that the Dawses fraudulently conveyed certain assets in an effort to avoid their creditors and that those conveyances were null and void. The IRS proceeded to execute this judgment to take possession of these assets, but before it could do so, the Dawses filed for Chapter 12 bankruptcy protection. "And that brings us to the latest installment of this epic": with permission of the bankruptcy court, the Dawses sold several tracts of land. The sale created income tax liabilities. The Dawses submitted a bankruptcy reorganization plan in which they proposed to treat their newly incurred tax liabilities as general unsecured claims. The IRS opposed the plan "vigorously" but was unsuccessful at the bankruptcy and federal district court. The IRS brought its complaint to the Tenth Circuit, asking to "undo its earlier losses." Upon careful consideration of the lengthy record below, the Tenth Circuit found that the taxes at issue here were incurred by the Dawses after they petitioned for bankruptcy. "So it is that the Dawses must pay the tax collector his due." The post-petition income tax liabilities at issue were not eligible for treatment as unsecured claims under the Bankruptcy Code. The Tenth Circuit reversed the lower courts’ decisions and remanded the case for further proceedings.

The trustee in Chapter 7 proceedings sought to avoid the mortgage, recorded in 2006, asserting that the words "see EXHIBIT A," in the spot for the legal description on the signature page did not satisfy the statutory requirement found in Ky. Rev. Stat. 440.060(1). The Bankruptcy Court rejected the argument and the Sixth Circuit affirmed, holding that the practice of incorporating an exhibit containing the legal description is common and satisfies the statute.

This case stemmed from the Chapter 11 bankruptcy filing of a family-owned oil and gas drilling business. The Nancy Sue Davis Trust ("Trust") filed a motion to revoke a confirmation order from the Chapter 11 bankruptcy filing for fraud and alleged that it had recently become aware that former advisers of the family and various representatives of the purchasing entities had engaged in fraud that enabled them to buy out the family's interests far below market value. At issue was whether the plan of reorganization and confirmation order barred the assertion of fraud claims against defendants. The court held that all family members, including the Trust, were continuously represented by sophisticated counsel and could have elected zealously to pursue their remedies under Chapter 11 rather than succumb to the hasty process that occurred. Accordingly, the judgment of the bankruptcy court denying the Trust's motion to pursue its claims against appellees was affirmed.

The company filed a Chapter 11 bankruptcy petition and continued to make payments to pension plans, as required by collective bargaining agreements. When the company was sold and it no longer employed individuals covered by the plans, the pension fund filed a claim for $5,890,128 (withdrawal liability) and requested that the claim be classified as an administrative expense. The bankruptcy court classified the claim as unsecured debt. The district court reversed and remanded, holding that the portion of withdrawal liability attributable to the post-petition period was entitled to priority. The Third Circuit affirmed. If entire withdrawal liability were automatically classified as a general unsecured claim, it would undercut the purpose of the Multiemployer Pension Plan Amendments Act, 29 U.S.C. 1381, amendment to the Employee Retirement Income Security Act: to secure the finances of pension funds and prevent an employer's withdrawal from negatively affecting the plan and its employee beneficiaries.

Debtor filed for Chapter 7 bankruptcy protection, having never made any withdrawals from a trust with a spendthrift provision that was created by his grandmother. Appellee, debtor's bankruptcy trustee, sought to bring funds of the trust into the bankruptcy estate, free of trust. At issue was whether debtor was entitled to acquire any of the trust's assets by virtue of its withdrawal provision. The court held that debtor's grandmother was the sole settlor of the trust; that the grandmother was living on debtor's 30th birthday, so his withdrawal right "at age 30" never accrued; that the grandmother's death after debtor's 30 birthday, but before his 35th birthday, satisfied the condition precedent to the accrual of debtor's withdrawal right "at age 35"; even though debtor never exercised his age-35 withdrawal right before he filed for bankruptcy protection at age 37, he remained entitled to withdraw assets worth one-half of the value of all trust principal on hand, calculated as of his 35th birthday; and debtor's bankruptcy trustee was therefore entitled to withdraw the trust principal that remained in trust on trustor's 35th birthday. Therefore, the court affirmed the judgment of the district court to the extent it reversed the bankruptcy court and authorized appellee to exercise debtor's right to withdraw a portion of the trust's principal and remanded for further proceedings.

The Chapter 7 debtors' federal tax return listed: withholding of $6,777; total tax liability of $2,934, a non-refundable child tax credit of $2,903, an additional child tax credit of $1,097, and a total federal tax refund of $8,542. The credit allows some taxpayers to claim a tax credit of $1,000 for each qualifying child. If the taxpayers have tax liability, the non-refundable portion is applied to satisfy the tax liability. If the taxpayer qualifies, a portion of the refundable amount of the credit, not used to offset tax liability, is sent as an income tax refund. The refundable portion, unlike the non-refundable portion, is treated as an overpayment. The bankruptcy court sustained the trustee's objection that the $2,903 credit was not exempt. The Sixth Circuit affirmed. Under 26 U.S.C. 24(a) and (d), the non-refundable portion of the credit is not property of the estate cannot be exempted as a payment under Ohio Rev. Code 2329.66(A)(9)(g). The entire tax refund of $8,542 is property of the estate from which the debtors may exempt $1,097 as the refundable portion of the credit.

When the debtors filed for Chapter 7 relief they listed the residence in which they had lived since 1995 as having fair market value of $205,000.00 with secured debt of $164,978.92. Pursuant to Ohio Revised Code 2329.66(A)(1), they claimed a homestead exemption of $40,400.00. They did not disclose a pending contract to sell the house for $205,000. After the sale closed, the debtors moved to an apartment and told creditors that they were using the proceeds for living expenses. The bankruptcy court sustained the trustee's objection to the homestead exemption and ordered turn over of the proceeds. The Sixth Circuit reversed and remanded. Exemptions are determined on the date a bankruptcy petition is filed. The debtors were using the property as their principal residence on the date they filed their petition; their intention to leave was irrelevant and does not defeat their claim to the homestead exemption.

Appellant appealed the district court's affirmance of the bankruptcy court's decision that certain deeds appellant held were legal nullities. The panel certified a question to the Mississippi Supreme Court which stated: "When a minority member of a Mississippi limited liability company prepares and executes, on behalf of the LLC, a deed to substantially all of the LLC's real estate, in favor of another LLC of which the same individual is the sole owner, without authority to do so under the first LLC's operating agreement, is the transfer of real property pursuant to the deed: (i) voidable, such that it is subject to the intervening rights of a subsequent bonafide purchaser for value and without notice, or (ii) void ab initio, i.e., a legal nullity?" The Mississippi Supreme Court explained that the deed was neither voidable nor void ab initio, but "void and of no legal effect" because the minority member (" Michael Earwood"), as an agent of Kinwood Capital Group, L.L.C. ("Kinwood"), lacked actual or apparent authority to convey Kinwood's 520-acre tract of land and Kinwood never ratified the purported transfer.