Justia Bankruptcy Opinion Summaries

Plaintiff, the creditor, appealed from the judgment of the bankruptcy court holding that a debt of defendant, the debtor, to creditor was not excepted from the debtor's discharge pursuant to 11 U.S.C. 523(a)(6). At issue was whether collateral estoppel applied based on the criminal action or the civil action to bar relitigation of the issues of willfulness and maliciousness in the bankruptcy court. If collateral estoppel did not apply, the second issue was whether the bankruptcy court properly denied the creditor's request to except the debt owed to him from the debtor's discharge pursuant to section 523(a)(6) based on lack of finding of maliciousness. The court affirmed the bankruptcy court's decision that collateral estoppel was inapplicable and held that there was no error in the bankruptcy court's finding that the debtor did not act with maliciousness for the purposes of section 523(a)(6). Therefore, the debt owed by the debtor to creditor was not excepted from the debtor's discharge.

Plaintiff filed a motion to avoid defendant's judicial lien under 11 U.S.C.A. 522(f) after plaintiff filed a voluntary petition for Chapter 7 bankruptcy. At issue was whether the district court erred in ruling that the Bankruptcy Code did not require a debtor to claim an exemption in the property subject to the judicial lien sought to be avoided under section 522(f). The court affirmed the district court's reversal of the bankruptcy court's denial of plaintiff's motion to avoid defendant's judicial lien because the district court correctly concluded that a debtor was not required to list her property as exempt in order to avoid a judicial lien that was impairing that exemption.

Appellee, trustee for the Chapter 7 bankruptcy estate of debtor, brought suit against various defendants to avoid a series of transfers of an 11.8 acre parcel of real property in Maryland originally owned by the debtor. By consent orders, the trustee accomplished avoidance of the property's initial and second transfers but trial proceeded against the third transferee, appellant. The bankruptcy court entered judgment in favor of the trustee and avoided the transfer pursuant to 11 U.S.C. 550(b). At issue was whether appellant took in good faith and without knowledge of the voidability of the transfer, thereby satisfying the section 550(b)(1) defense. The court held that the bankruptcy court applied the correct legal standard of objective good faith and affirmed its findings that facts known to appellant would have lead a lender under the circumstances to inquire as to the public record. The court found that appellant did not have knowledge of the voidability of the transfer because it was willfully ignorant in the face of facts which cried out for investigation and such a transferee could not have taken in good faith. Accordingly, the bankruptcy court's order was affirmed.

Appellant, the debtors' attorney, as a holder of an administrative claim for his attorney fees, appealed the Bankruptcy Court's Order denying his motion to reconsider an Order denying his Rule 60(b) motion. The court held that the Bankruptcy Court did not abuse its discretion in denying appellant's motion where the motion could not serve as a substitute for a timely appeal from orders authorizing a surcharge and where there were no exceptional circumstances or grounds establishing excusable neglect which would warrant the granting of the motion. The court also rejected appellant's claim that the motion was justified by newly discovered evidence.

In 2003 the owner executed a second mortgage with a stated term of four months, in favor of defendant to secure performance of a guaranty. The owner later executed a separate mortgage and defaulted. The lender foreclosed and took possession subject to senior mortgages. In 2007 defendant published notice of foreclosure. The then-owner filed bankruptcy under 11 U.S.C. 362(a), triggering a stay before the deadline under the Massachusetts Obsolete Mortgages Statute, which requires the holder of a mortgage to take action to enforce it within five years after the end of its stated term (September 9, 2008). The bankruptcy court held that defendant's failure to record an extension rendered the mortgage void. The district court reversed. The First Circuit affirmed, holding that the bankruptcy statute tolls the limitations period of the state law. Defendant was not required to choose between filing an extension and foreclosure and still had the right to foreclose at the time the stay became effective.

Plaintiffs filed a purported class action as an adversary proceeding before the bankruptcy court alleging that their mortgage lender, Wells Fargo Bank N.A. ("Wells Fargo"), violated various provisions of the Bankruptcy Code and Bankruptcy Rules by failing to disclose certain fees on the proof of claim it filed in plaintiffs' Chapter 13 bankruptcy case. At issue was whether the district court erred in affirming the bankruptcy court's grant of summary judgment in favor of Wells Fargo on plaintiffs' claims that Wells Fargo violated the automatic stay provisions in 11 U.S.C. 362; their claims that Wells Fargo violated 11 U.S.C 506(b) and Bankruptcy Rule 2016 by failing to disclose the fees; and their objection to the proof of claim. The court considered each of plaintiffs' automatic stay violations under section 362 and held that Wells Fargo was entitled to summary judgment on each claim. The court concluded that bankruptcy courts have not uniformly reached a conclusion supporting the proposition that pursuant to section 506(b), Rule 2016, or both of these provisions, a secured creditor must disclose and obtain court approval of post-petition legal expenses. Therefore, the court held that these provisions were not violated when a creditor merely recorded costs it had incurred in association with a mortgagee's bankruptcy for internal bookkeeping purposes and made no attempt to collect the fees or otherwise add them to the debtor's balance. Accordingly, to the extent plaintiffs' disclosure claims relied on events that have occurred during the course of their Chapter 13 case, the district court did not err in affirming the bankruptcy court's order granting summary judgment. The court further held that Wells Fargo's failure to include the proof of claim fees on the proof of claim did not provide a valid basis for an objection; and as to this amount, plaintiffs have identified no reason why such amount was unenforceable. Therefore, Wells Fargo was entitled to summary judgment on this claim.

Debtor appealed the bankruptcy court's order granting creditor relief from the automatic stay to proceed with arbitration of its claim against debtor's bankruptcy estate. At issue was whether the bankruptcy court erred by not ruling on the issue of whether the agreement to arbitrate between the parties was obtained by fraud and whether the bankruptcy court should have tailored its order to require creditor's claim to be arbitrated by allegedly, then-pending class action arbitration. The court held that the bankruptcy court correctly determined that debtor's challenge to the contract between the parties was subject to arbitration where debtor's failure to raise an independent challenge before the bankruptcy court to the agreement to arbitrate was basis alone to affirm the bankruptcy court's order. The court also held that debtor failed to appreciate that separately alleging that an agreement to arbitrate was obtained through fraud was different from offering a separate basis for the fraud and the only fraud debtor alleged was that creditor misrepresented that it was affiliated with Ford Motor, Co., that this fraud induced the arbitration, and that this fraud induced the contract as a whole. Consequently, there was no need for the bankruptcy court to intervene or, in this case, deny creditor's motion for relief from the stay. The court further held that the bankruptcy court was not required to tailor its order to require arbitration in the class action arbitration in Texas where the arbitration panel in Texas declined to certify the class and the issue was therefore, moot. Accordingly, the court affirmed the bankruptcy court's order granting creditor relief from the automatic stay to proceed with the arbitration of its claim against debtor's bankruptcy estate.

Debtor appealed from an order of the bankruptcy court sustaining creditor's objection to her claim of a homestead exemption as to the bank's claim. Debtor used the proceeds from the sale of her Cerromar property to build the Pleasant Hill property, in which she asserted a homestead exemption. At issue was whether the bankruptcy court properly sustained the bank's objection to debtor's homestead exemption. The court held that creditor established that its debt was incurred before debtor acquired the Pleasant Hill property, which meant the property would not be exempt from creditor's judgment and that the Cerromar property was not legally debtor's homestead and she could not avail herself to the protection of Iowa Code 561.20. Accordingly, the court affirmed the judgment because the bankruptcy court properly sustained creditor's objection to debtor's claim of homestead exemption as to creditor's preexisting debts.

While the recording of the deed to mortgaged property was in "limbo" because of a defect, the borrowers declared bankruptcy, resulting in a stay under 11 U.S.C. 362. The lender nonetheless presented a corrected deed for registration. The borrowers filed suit and the court ordered that the deed be withdrawn, but denied damages and fees. The bankruptcy appellate panel affirmed. The First Circuit reversed and remanded, stating that there was no justification for disregarding the statutory language concerning awards of damages and fees for willful violation of a stay.

A debtor, his wife, and sister ("appellants") sought to reopen debtor's Chapter 7 bankruptcy case for the purpose of pursuing an adversary proceeding against the trustee of debtor's estate and one of the trustee's bondholders. At issue was whether the district court properly determined that the bankruptcy court did not abuse its discretion in denying appellants' motion to reopen and properly dismissed appellants' complaint. The court held that the bankruptcy court acted well within its discretion in denying the motion where the adversary claims against the trustee were entirely without merit. The court also held that, in light of the meritless appeal, appellants and their counsel were ordered to show cause as to why they should not be sanctioned.