Justia Bankruptcy Opinion Summaries

Sheehan emigrated from Ireland decades ago and currently lives in Winfield, Illinois. Sheehan obtained loans from an Irish bank to buy interests in an Irish medical company (Blackrock), and to purchase property located in Ballyheigue, Sheehan defaulted on both loans. Breccia, an Irish entity, acquired the loans and took steps to foreclose on the underlying collateral. Sheehan sued but an Irish court authorized Breccia to enforce its security interest in the Blackrock Shares and the Ballyheigue property. Breccia registered the Blackrock Shares in its name and appointed a receiver, Murran, to take possession of the Ballyheigue property. Sheehan filed a petition for Chapter 11 bankruptcy, triggering an automatic stay, 11 U.S.C. 362 (a)(3). Sheehan notified the Irish receiver, Murran, and Breccia of the automatic stay. Breccia continued, through Murran, to take the necessary steps toward selling the collateral, entering into a contract with IADC (another Irish company) to sell the Blackrock Shares.The bankruptcy court dismissed Sheehan's subsequent adversary complaint for lack of personal jurisdiction over the Irish defendants, as none of them conducted any activity related to the adversary claims in the U.S.; the only link between the defendants and the forum was the fact that Sheehan lived in Illinois. The email notice Sheehan provided the defendants was not sufficient process under the Hague Convention on the Service Abroad. The district court and Seventh Circuit affirmed. None of the defendants had minimum contacts with the United States. View "Sheehan v. Breccia Unlimited Co." on Justia Law

Appellant Spring Valley Produce, Inc. (SVP) is a creditor of Chapter 7 debtors Nathan and Marsha Forrest (the Forrests). The Forrests owe a pre-petition debt for produce which they are seeking to discharge. SVP initiated this adversary proceeding, seeking a declaration that the debt was nondischargeable under Section 523(a)(4). The bankruptcy court granted the Forrests’ motion to dismiss and held that Section 523(a)(4) does not apply to Perishable Agricultural Commodities Act (PACA) related debts. At issue on appeal is whether the Bankruptcy Code’s exception to discharge in 11 U.S.C. Sections 523(a)(4) applies to debts incurred by a produce buyer who is acting as a trustee under PACA.   The Eleventh Circuit affirmed the bankruptcy court’s order dismissing SVP’s claims because Section 523(a)(4) does not accept debts incurred by a PACA trustee from discharge. The court explained debts incurred by a produce buyer acting as a PACA trustee are not excepted from discharge under Section 523(a)(4). While a PACA trust does identify a trustee, beneficiary, and trust res, thus satisfying the first step of our analysis, it does not impose sufficient trust-like duties to fit the narrow definition of a technical trust under Section 523(a)(4). PACA does not impose the duties to segregate trust assets and refrain from using trust assets for a non-trust purpose, which are strong indicia of a technical trust. Instead, a PACA trust more closely resembles a constructive or resulting trust, which do not fall within Section 523(a)(4)’s exception to discharge. View "Spring Valley Produce, Inc., et al v. Nathan Aaron Forrest, et al" on Justia Law

Pacific Gas & Electric Company (“PG&E”), sought chapter 11 protection in a bid to proactively address massive potential liabilities related to a series of wildfires in Northern California. But PG&E was solvent. Its assets at the time of the bankruptcy filing exceeded its known liabilities by nearly $20 billion. As a result, several creditors—including Plaintiffs, the Ad Hoc Committee of Holders of Trade Claims—claimed PG&E must pay post-petition interest at the rates required by their contracts in order for their claims to be “unimpaired” by the reorganization plan   The Ninth Circuit reversed the district court’s order. The panel held that under the “solvent-debtor exception,” the creditors possessed an equitable right to receive post-petition interest at the contractual or default state rate, subject to any other equitable considerations before PG&E collected surplus value from the bankruptcy estate. The solvent-debtor exception is a common-law exception to the Bankruptcy Act’s prohibition on the collection of post-petition interest as part of a creditor’s claim.   The panel concluded that Cardelucci merely interpreted 11 U.S.C. Section 726(a)(5), which requires that creditors of a solvent debtor receive post-petition interest at “the legal rate.” Section 726(a)(5), however, applies only to impaired chapter 11 claims, and the panel concluded that Cardelucci, therefore, did not address what rate of post-petition interest must be paid on the Ad Hoc Committee’s unimpaired claims. The panel reversed and remanded to the bankruptcy court to weigh the equities and determine what rate of interest the creditors were entitled to. View "PG&E CORPORATION V. AD HOC COMMITTEE OF HOLDERS" on Justia Law

Richards sold her home six days before filing a chapter 7 bankruptcy petition, netting $36,793.60, which Richards placed into escrow with the Wilkey law firm, which represents Richards in her bankruptcy proceeding. Richards disclosed the sale of her residence on her Statement of Financial Affairs and provided a copy of the escrow ledger to the Trustee. Richards claimed that the proceeds from the sale were exempt under 11 U.S.C. 522(d)(1) as proceeds from the sale of Richards’s residence. The chapter 7 Trustee filed an objection, which the bankruptcy court sustained, finding no language in section 522(d)(1) that would permit the exemption of the proceeds from the prepetition sale of the Richards’s homestead.The Sixth Circuit Bankruptcy Appellate Panel affirmed. The proceeds were not being “used as a residence” at the time the petition was filed. Section 522(d)(1) provides for an exemption in “the debtor’s aggregate interest, not to exceed $25,150 in value, in real property or personal property that the debtor or a dependent of the debtor uses as a residence.” The language of the Code is unambiguous, vesting no exemption power in the proceeds arising out of the prepetition sale of a debtor’s homestead. View "In re: Richards" on Justia Law

ESML filed for Chapter 11 bankruptcy. Chippewa funded ESML’s exit from bankruptcy. The plan and confirmation order discharged all claims against ESML arising before the plan’s effective date and enjoined actions against ESML and Chippewa by holders of those claims. The Court retained jurisdiction over matters arising under the Bankruptcy Code or arising in or related to the Chapter 11 cases or plan. ESML emerged from bankruptcy as Mesabi. During the bankruptcy case, Chippewa sought to acquire ESML. Its affiliate, ERPI, agreed to engage Riley as its exclusive financial advisor. Riley would receive a “Restructuring Fee” if ERPI successfully acquired ESML. One day before the plan’s effective date, Riley, ERPI, and Chippewa entered an amendment that purported to bind ERPI, Chippewa, and the post-effective date Mesabi. After a debt financing transaction closed, Riley sought payment from Chippewa and Mesabi of a $16 million "success fee." Mesabi refused to pay, Riley filed suit and a FINRA arbitration. Mesabi filed a Bankruptcy Court adversary complaint, maintaining the fee had been discharged.The Bankruptcy Court dismissed the adversary proceeding for lack of jurisdiction. The Third Circuit reversed. The Bankruptcy Court had jurisdiction to interpret and enforce the discharge and injunction provisions of its plan and confirmation order. This matter falls within the category of “core proceedings.” Executing the relevant amendment a day before the plan’s effective date may hint that Chippewa and ERPI tried to circumvent the bankruptcy process. View "Mesabi Metallics Co. LLC v. B. Riley FBR Inc." on Justia Law

In this case involving the interpretation of Fla. Stat. 679.5061(3) the Supreme Court held that a financing statement that fails correctly to name the debtors, as required by Florida law, is seriously misleading and therefore ineffective because Florida's filing office does not apply a "standard search logic."Section 679.5061(3) creates a safe harbor for financing statements that are otherwise ineffective to perfect a security interest due to their failure correctly to name the debtor. The safe harbor applies when a financing statement that fails correctly to name the debtor is disclosed by a search of the filing office's records under the debtor's correct name "using the filing office's standard search logic, if any." The United States Court of Appeals for the Eleventh Circuit asked the Supreme Court to delineate the proper scope of the "search" of the filing office's records, as the term is used in the safe harbor provision. The Supreme Court answered that the filing office's use of a "standard search logic" is necessary to trigger the safe harbor protection of section 679.5061(3). View "1944 Beach Boulevard, LLC v. Live Oak Banking Co." on Justia Law

In its North Carolina bankruptcy proceedings, Bestwall wanted access to data owned by 10 trusts created to process asbestos-related claims against other companies. Bestwall was facing asbestos liability and wanted the data in order to calculate a settlement trust authorized by 11 U.S.C. 524(g). The data is held by the trusts’ claims processing agent, located in Delaware, which opposed Bestwall’s request. The Bankruptcy Court authorized the issuance of subpoenas. Once Bestwall served those subpoenas, the trusts asked the District Court for the District of Delaware to quash the subpoenas, repeating the same arguments that had been made in the Bankruptcy Court. Asbestos claimants whose information was in the database also joined in the motion to quash. The district court quashed the subpoenas.The Third Circuit reversed and remanded with instructions to enforce the subpoenas as originally ordered. Allowing litigants to invoke issue preclusion on a motion to quash is also consistent with the doctrine’s “dual purposes” of “protect[ing] litigants from the burden of relitigating an identical issue with the same party or his privy” and “promot[ing] judicial economy by preventing needless litigation.” Bestwall may invoke collateral estoppel as a counter to arguments previously litigated in the North Carolina Bankruptcy Court. View "In re: Bestwall LLC" on Justia Law

Highland Capital Management, L.P., a Dallas-based investment firm, managed billion-dollar, publicly traded investment portfolios for nearly three decades. By 2019, however, myriad unpaid judgments and liabilities forced Highland Capital to file for Chapter 11 bankruptcy. This provoked a breakup between Highland Capital and its co-founder. The bankruptcy court successfully mediated with the largest creditors and ultimately confirmed a reorganization plan amenable to most of the remaining creditors. The co-founder and other creditors unsuccessfully objected to the confirmation order and then sought review. In turn, Highland Capital moved to dismiss their appeal as equitably moot.The Fifth Circuit denied Highland Capital’s motion to dismiss the appeal as equitably moot. The court held that equitable mootness does not bar our review of any claim. Second, the court affirmed the confirmation order in large part. The court reversed only insofar as the plan exculpates certain non-debtors in violation of 11 U.S.C. Section 524(e), strikes those few parties from the plan’s exculpation, and affirm on all remaining grounds. View "NexPoint v. Highland Capital Management" on Justia Law

In 2019, Laney financed a Ford Edge from Second Chance, agreeing to pay attorney’s fees in the event of default. Four months later, Laney filed a Chapter 13 bankruptcy petition. The bankruptcy court ordered Laney to amend his original plan to account for Chance's “Claim 3” for the Edge as a “910 claim” (debts for personal vehicles purchased less than 910 days before the filed bankruptcy petition must be paid in full, 11 U.S.C. 1325(a)). Laney amended the plan but failed to provide for full payment. Chance again objected and requested attorney’s fees for filing the same objection twice. The bankruptcy court again ordered Laney to amend the plan and allowed Chance to file an affidavit of attorney’s fees. Laney’s second amended plan accounted for the full outstanding principal and interest but not for attorney’s fees.The bankruptcy court confirmed the plan, which listed the Edge claim to be paid in full with interest. At the court’s request, Second Chance amended Claim 3 to include attorney’s fees, but labeled it as “Claim 9,” which led Laney to object. The court concluded that Claim 9 would be treated as an amendment to Claim 3. Laney unsuccessfully argued that the claim violated 11 U.S.C. 1327(a). The district court and Seventh Circuit affirmed. The bankruptcy court provided compelling reasons for allowing the post-confirmation amendment; the attorney’s fees were reasonable and necessary. View "Laney v. Second Chance Auto, Inc." on Justia Law

As special counsel, the law firm of Silverman & Morris recovered $38,000 for the estate in the Village Apothecary bankruptcy proceeding and requested $37,063 in fees. The bankruptcy court, finding that the benefit of the services did not warrant awarding the full amount, halved the award.The Sixth Circuit affirmed. Bankruptcy courts can consider “results obtained” when determining whether fees are reasonable under 11 U.S.C. 330(a)(3) and the bankruptcy court did not abuse its discretion in reducing the fees by half. In determining the amount of reasonable compensation to be awarded to a professional person, the court shall consider the nature, the extent, and the value of such services; section 330(a)(3) instructs the courts to “tak[e] into account all relevant factors, including” the time spent, rates charged, “whether the services were necessary . . . or beneficial at the time at which the service was rendered,” as well as other factors, including “results obtained.” Here, the “results obtained” were minimal. The law firm’s efforts to recover $1.6 million dollars resulted in only $38,000. Had the bankruptcy court awarded the law firm all its fees, it would have left virtually nothing for the estate. View "In re: Village Apothecary, Inc." on Justia Law