Justia Bankruptcy Opinion Summaries

The First Circuit affirmed the order of the bankruptcy court determining that Donald Kupperstein knowingly and fraudulently omitted and misrepresented material facts in his Chapter 7 bankruptcy petition and related schedules, requiring that Kupperstein be denied a discharge, holding that there was no error.Kupperstein filed in bankruptcy court a voluntary petition for relief under Chapter 7. Appellees commenced adversary proceedings seeking the denial of Kupperstein's bankruptcy discharge under 11 U.S.C. 523, 727(a)(4)(A) on the grounds that Kupperstein had engaged in clear and blatant misconduct. The bankruptcy court denied a discharge and granted summary judgment for Appellees. The district court affirmed. The First Circuit affirmed, holding (1) the bankruptcy court did not err in denying Kupperstein's motion for leave to file a belated response to Appellees' joint statement of facts in support of their motion for summary judgment; and (2) the bankruptcy court did not err in granting Appellees' joint motion for summary judgment. View "Kupperstein v. Schall" on Justia Law

Kate and David Bartenwerfer remodeled the house they jointly owned. David oversaw the project. Kate remained largely uninvolved. They sold the house to Buckley, attesting that they had disclosed all material facts. Buckley discovered undisclosed defects and won a California state court judgment, leaving the Bartenwerfers jointly responsible for more than $200,000. The Bartenwerfers filed for Chapter 7 bankruptcy. Buckley filed an adversary complaint, alleging that the state-court judgment debt was non-dischargeable as “any debt . . . for money . . . to the extent obtained by . . . false pretenses, a false representation, or actual fraud,” 11 U.S.C. 523(a)(2)(A).The Bankruptcy Court imputed David's fraudulent intent to Kate, citing their legal partnership to renovate and sell the property. The Bankruptcy Appellate Panel held that section 523(a)(2)(A) barred Kate from discharging the debt only if she knew or had reason to know of David’s fraud. The Ninth Circuit reversed.The Supreme Court affirmed. Section 523(a)(2)(A) precludes Kate from discharging a debt obtained by fraud, regardless of her own culpability. The passive voice in section 523(a)(2)(A) removes the actor; fraud liability is not limited to the wrongdoer. The fraud of one partner should be imputed to other partners, who “received and appropriated the fruits of the fraudulent conduct.” Section 523(a)(2)(A) takes the debt as it finds it, so if California did not extend liability to honest partners, it would have no role. Fraud liability generally requires a special relationship with the wrongdoer and, even then, defenses are available. View "Bartenwerfer v. Buckley" on Justia Law

Plaintiffs commenced this adversary proceeding in the United States Bankruptcy Court for the Southern District of Florida against UBS Financial Services Inc. and UBS Credit Corp. (together, “UBS”), to recover funds UBS had frozen in one of its accounts to satisfy debts owed by Plaintiffs. After the bankruptcy court granted partial summary judgment in favor of Plaintiffs on all of the claims but one – Plaintiffs’ unjust enrichment claim -- UBS appealed to the district court, which affirmed. UBS appealed to the Eleventh Circuit urging it to apply a more “flexible” interpretation of finality in the bankruptcy arena.   The Eleventh Circuit dismissed the appeal. The court wrote it is bound to dismiss this appeal because the same concepts of finality apply in appeals taken from adversary proceedings as in appeals taken from standard civil actions. The bankruptcy court left Plaintiffs’ unjust enrichment claim open and awaiting trial, so we cannot assert jurisdiction based on the finality of the bankruptcy court’s order. Further, the court wrote, it cannot find that any of the three recognized exceptions to the final judgment rule -- the collateral order doctrine, the practical finality doctrine, or the marginal finality doctrine -- allows the court to reach the merits of UBS’s appeal. While, under the doctrine of cumulative finality, the subsequent entry of final judgment may cure a premature notice of appeal, the parties’ effort to finally resolve the underlying proceeding, in this case, falls flat. View "Lorenzo Esteva, et al v. UBS Financial Services Inc., et al" on Justia Law

Colorado Bankers is a life, accident, and health insurance company. Colorado Bankers made several interrelated agreements with Academy Financial Assets (Academy). After Academy failed to pay the still outstanding balance in full by the June 30 maturity date, Colorado Bankers filed an amended complaint adding a second breach of contract claim. At issue on appeal is whether the district court erred in granting summary judgment for Colorado Bankers Life Insurance Company in its suit against Academy Financial Assets for violating a loan agreement? Second, did the district court err in concluding a North Carolina statute requires Academy to pay 15% of the outstanding loan balance as attorneys’ fees?   The Fourth Circuit affirmed. The court acknowledged various federal district and bankruptcy courts have adopted this view, we decline to do so. The court wrote that while perhaps appealing as a policy matter, Academy’s argument has scant basis in the statutory text, and Academy has identified no compelling reason for concluding the Supreme Court of North Carolina would interpret the statute in such an atextual manner. The court thus held the district court did not err in following the plain language of the statute and imposing a 15% fee award without requiring evidence of “the attorney’s actual billings or usual rates.” View "Colorado Bankers Life Insurance Company v. Academy Financial Assets, LLC" on Justia Law

The First Circuit affirmed the judgment of the Title III court dismissing this adversary proceeding for lack of jurisdiction, holding that the district court properly dismissed the action.The Financial Oversight and Management Board for Puerto Rico determined that the the University of Puerto Rico (UPR) Retirement System - the entity that administers the university's pension plan - was heading toward insolvency and therefore issued fiscal plans for UPR that, inter alia, identified the options UPR had for adjusting its continuing accrual of obligations to the Retirement System. Plaintiffs filed this adversary proceeding seeking to block any pension changes. The Title III court dismissed the complaint for lack of jurisdiction. The First Circuit affirmed, holding that the district court did not err in granting dismissal pursuant to Fed. R. Civ. P. 12(b)(1). View "Asociacion Puertorriquena de Profesores Univ. v. University of Puerto Rico" on Justia Law

This bankruptcy appeal involves a primary insurer’s attempts to block its insureds’ Chapter 11 reorganization plan (the “Plan”), which establishes a trust under 11 U.S.C. Section 524(g) for current and future asbestos personal-injury liabilities. In adopting the bankruptcy court’s recommendation to confirm the Plan, the district court concluded in relevant part that the primary insurer was not a “party in interest” under 11 U.S.C. Section 1109(b) and thus lacked standing to object to the Plan.   The Fourth Circuit affirmed, but on both Section 1109(b) grounds and Article III grounds. The court explained that as an insurer, Plaintiff fails to show that the Plan impairs its contractual rights or otherwise expands its potential liability under the subject insurance policies, so it is not a party in interest under Section 1109(b) with standing to challenge the Plan in that capacity. Similarly, as a creditor, Plaintiff objects to parts of the Plan that implicate only the rights of third parties, which fails to allege an injury in fact sufficient to confer Article III standing. Accordingly, none of Plaintiff’s objections to the Plan can survive. View "Truck Insurance Exchange v. Kaiser Gypsum Company, Inc." on Justia Law

Gold was the trustee of Biondo’s Chapter 7 bankruptcy estate. Before the bankruptcy filing, Biondo experienced an automobile accident. Biondo sought exemptions for that claim totaling $35,648.74, to prevent that sum from being distributed to her creditors. The statutory maximum exemption for “payment[s]” received “on account of personal bodily injury, not including pain and suffering or compensation for actual pecuniary loss,” 11 U.S.C. 522(d)(11)(D) was then $23,675. Gold did not object to the exemptions and retained the Ratton law firm, which sued Biondo’s insurer, Progressive, and the other driver, Peterson. Progressive settled its case for $48,500 to cover Biondo’s medical expenses, attorney’s fees, “lost wages,” and all “other forms of economic or non-economic loss.” Peterson's $70,000.settlement covered “pain and suffering.”Gold opposed Biondo's motion to compel Gold to release $23,675. The parties settled. Gold’s law firm sought $2,880 in fees for its work opposing the motion. Biondo objected. The bankruptcy court awarded the fees. The district court dismissed her appeal. The Sixth Circuit affirmed. The fees compensated the attorneys for services reasonably likely to benefit Biondo’s bankruptcy estate, 11 U.S.C. 330(a)(1)(A). The Peterson settlement was outside section 522(d)(11)(D)'s exemption as covering pain and suffering; the Progressive settlement was also open to attack because it covered Biondo’s medical bills, her attorney’s fees, and lost wages. Gold did not act unreasonably in asking whether 522(d)(11)(D) covered Biondo’s settlements. View "Biondo v. Gold, Lange, Majoros & Smalarz" on Justia Law

Dream purchased university systems with locations across the country: South University, Argosy University, and the Art Institutes. States had recently brought consumer-protection lawsuits against the seller. Dream had to close 30 campuses. Unpaid creditors filed multiple lawsuits. Students at the Illinois Institute of Art brought a class-action fraud suit.Dream feared that filing bankruptcy would cut off its access to federal student loans. In 2019 Digital sued Dream for $252,737. The court appointed a receiver to manage Dream’s property and stayed pending lawsuits. The Receiver decided that potential claims greatly exceeded potential assets. The federal government had discharged the student-loan debts of many of Dream's students.Existing suits had already depleted the payout available from Dream's insurance policies covering its directors and officers. The policies did not protect Dream itself. The Receiver believed that Dream had legal claims against the directors and officers and eventually brought the proceeds from the policies into Dream’s receivership estate ($8.5 million). The settlement hinged on the entry of an order that would “bar” third parties (including the Art Students) from pursuing claims against Dream, its parent, the directors and officers, and the insurer. The district court approved the settlement and Bar Order. The Sixth Circuit reversed. The district court lacked authority to issue the bar order. Historical principles of equity do not allow a court to issue an injunction that protects the non-receivership assets of non-receivership parties; that type of non-debtor relief amounts to a remedy “previously unknown to equity jurisprudence.” View "Digital Media Solutions, LLC v. South University of Ohio, LLC" on Justia Law

ResCap Liquidating Trust (“ResCap”) pursued indemnification claims against originator Primary Residential Mortgage, Inc. (“PRMI”), a Nevada corporation. ResCap asserted breach of contract and indemnification claims, seeking to recover a portion of the allowed bankruptcy claims for those holding units in the liquidating trust. The district court concluded that ResCap had established each element of its contractual indemnification claim. The district court awarded ResCap $10.6 million in attorney’s fees, $3.5 million in costs, $2 million in prejudgment interest, and $520,212 in what it termed “post-award prejudgment interest” for the period between entry of judgment and the order awarding attorney’s fees, costs, and prejudgment interest. Defendant appealed.   The Eighth Circuit remanded for a recalculation of postjudgment interest but otherwise affirmed. The court explained that the district court held that, as a matter of Minnesota law governed by Section 549.09, a final judgment was not “finally entered” until its Judgment in a Civil Case resolving attorney’s fees, costs, and interest was entered on April 28, 2021, and therefore Minnesota’s ten percent prejudgment rate applied in the interim period. But Section 1961(a) does not say “final judgment,” it says “money judgment.” The district court, on August 17, 2020, entered a “money judgment.” Thus, the district court erred in applying Minnesota law to calculate interest after August 17, 2020, rather than 28 U.S.C. Section 1961(a). View "ResCap Liquidating Trust v. Primary Residential Mortgage" on Justia Law

“Old Consumer,” a wholly owned subsidiary of J&J, sold healthcare products such as Band-Aid, Tylenol, Aveeno, and Listerine, and produced Johnson’s Baby Powder for over a century. The Powder’s base was talc. Concerns that the talc contained asbestos resulted in lawsuits alleging that it has caused ovarian cancer and mesothelioma. With mounting payouts and litigation costs, Old Consumer, through a series of intercompany transactions, split into LTL, holding Old Consumer’s liabilities relating to talc litigation and a funding support agreement from LTL’s corporate parents, and “New Consumer,” holding virtually all the productive business assets previously held by Old Consumer. J&J’s goal was to isolate the talc liabilities in a new subsidiary that could file for Chapter 11 without subjecting Old Consumer’s entire operating enterprise to bankruptcy proceedings.Talc claimants moved to dismiss LTL’s subsequent bankruptcy case as not filed in good faith. The Bankruptcy Court denied those motions and extended the automatic stay of actions against LTL to hundreds of non-debtors, including J&J and New Consumer. In consolidated appeals, the Third Circuit dismissed the petition. Good intentions— such as to protect the J&J brand or comprehensively resolve litigation—do not suffice. The Bankruptcy Code’s safe harbor is intended for debtors in financial distress. LTL was not. Ignoring a parent company’s safety net shielding all foreseen liability would create a legal blind spot. View "In re: LTL Management LLC" on Justia Law