Justia Bankruptcy Opinion Summaries

Duniver, lost his leg during a 2017 workplace accident. In 2019, Duniver filed a personal injury lawsuit seeking recovery from multiple defendants. Weeks later, Duniver filed for Chapter 13 bankruptcy protection and failed to disclose the personal injury lawsuit, answering “no” when asked whether he was suing anyone. He then checked “[y]es” in response to a question asking if he had “Other contingent or unliquidated claims of every nature, including counterclaims of the debtor and rights to set off claims.” Duniver listed: Workman’s Comp. On another form, he checked “[y]es” in response to: “Within 1 year before you filed for bankruptcy, were you a party in any lawsuit, court action, or administrative proceeding,” A collections action filed against Duniver was listed, but the personal injury case was not included.The defendants argued judicial estoppel prohibited Duniver from pursuing his personal injury lawsuit and that Duniver lacked standing to sue them where the injury claim belonged to the bankruptcy estate. Duniver then filed amended bankruptcy schedules disclosing his personal injury case. The bankruptcy case was dismissed. The circuit court granted the defendants summary judgment, finding Duniver “blatantly deceived” the bankruptcy trustee and that any claim would have to be pursued on behalf of the bankruptcy estate. The appellate court reversed. The Illinois Supreme Court agreed. Duniver had standing and the evidence failed to show an intent to deceive or mislead. View "Duniver v. Clark Material Handling Co." on Justia Law

When the ACA’s mandate and SRP were still in effect, a husband and wife (“Taxpayers”) did not maintain the minimum insurance coverage required by the ACA. The taxpayers did not include their $2409 SRP when they filed their 2018 federal tax return. The Taxpayers filed for Chapter 13 bankruptcy protection in the Eastern District of North Carolina. The IRS filed a proof of claim for the unpaid SRP and asserted that its claim was entitled to priority as an income or excise tax under Section 507 of the Bankruptcy Code. The Taxpayers objected to the government’s claim of priority. The bankruptcy court granted the objection, concluding that, for purposes of the Bankruptcy Code, the SRP is a penalty, not a tax, and therefore is not entitled to priority under Section 507(a)(8). The government appealed to the district court, which affirmed the bankruptcy court’s decision. The district court held that even if the SRP was generally a tax, it did not qualify as a tax measured by income or an excise tax and thus was not entitled to priority. The government thereafter appealed.   The Fourth Circuit reversed and remanded. The court concluded that that the SRP qualifies as a tax under the functional approach that has consistently been applied in bankruptcy cases and that nothing in the Supreme Court’s decision in NFIB requires the court to abandon that functional approach. Because the SRP is a tax that is measured by income, the government’s claim is entitled to priority under 11 U.S.C. Section 507(a)(8)(A). View "US v. Fabio Alicea" on Justia Law

A Chapter 13 debtor makes payments to a trustee who then disburses those payments to creditors according to a confirmed reorganization plan. A Chapter 13 standing trustee is compensated through fees he collects by taking a percentage of these payments the trustee receives from the debtor. The question presented in this appeal was: If a plan is not confirmed, can the standing trustee deduct and keep his fee before returning the rest of the pre-confirmation payments to the debtor or must the trustee instead return the entire amount of pre-confirmation payments to the debtor without deducting his fee? The Tenth Circuit concluded that, read together, 28 U.S.C. § 586(e)(2) and 11 U.S.C. § 1326(a)(2) unambiguously require the trustee to return the pre-confirmation payments to the debtor without deducting the trustee’s fee when a plan is not confirmed. View "Doll, et al. v. Goodman" on Justia Law

The case arises out of the insolvency of the Crescent Bank and Trust Company (“Crescent”) and the conduct of its customer lawyer, a manager of his law firm, Morris Hardwick Schneider, LLC (“Hardwick law firm”). In 2009, Crescent, a Georgia bank, made the lawyer a loan for $631,276.71. The lawyer, as his law firm’s manager, signed a security agreement that pledged, as collateral, his law firm’s certificate of time deposit (“CD”) for $631,276.71. When Crescent failed, the Federal Deposit Insurance Corporation (“FDIC”), as receiver, took over and sold the lawyer’s loan and CD collateral to Renasant Bank. The lawyer then made loan payments to Renasant, and Renasant held the CD collateral. Landcastle sued Renasant (as successor to the FDIC and Crescent), claiming Renasant was liable for $631,276.71, the CD amount. Landcastle’s lawsuit seeks to invalidate the Hardwick law firm’s security agreement.   The Eleventh Circuit reversed the district court’s ruling. The court explained that Landcastle’s lack-of-authority claims are barred under D’Oench because they rely on evidence that was outside Crescent’s records when the FDIC took over and sold the lawyer’s loan and CD collateral to Renasant. The court concluded that the lawyer’s acting outside the scope of his authority did not render the security agreement void but, at most, only voidable. A voidable interest is sufficient to pass the CD security agreement to the FDIC and to trigger the D’Oench shield View "Landcastle Acquisition Corp. v. Renasant Bank" on Justia Law

Following the bankruptcy court’s confirmation of its reorganization plan, Highland Capital Management, L.P. filed a motion with the bankruptcy court seeking entry of an order authorizing the creation of an indemnity subtrust. Over several objections, the bankruptcy court entered an order approving the motion. Several objectors appealed, arguing that the order impermissibly modified the plan. Dugaboy, NexPoint, and HCMFA (collectively, “Appellants”), as well as Dondero, objected to the motion, arguing that it was a modification to the Plan requiring solicitation, voting, and confirmation under § 1127(b) of the Bankruptcy Code. The bankruptcy court disagreed and granted the motion in an order authorizing the creation of the Indemnity Sub-Trust on July 21, 2021 (the “Order”). The district court affirmed the bankruptcy court’s order and dismissed several of Appellants from the appeal. Appellants then sought review in this court.   The Fifth Circuit dismissed in part and affirmed in part the district court’s judgment. The court explained that Appellants’ statement of the issues on appeal includes the district court’s affirmance of the Order; however, it does not include the district court’s partial dismissal of the appeal on the basis that HCMFA and Dugaboy lacked standing. Therefore, Appellants did not preserve for appeal a challenge to the district court’s partial dismissal below for lack of standing. The appeals of HCMFA and Dugaboy remain dismissed below and, for this reason, they must be dismissed from the current appeal as well. View "Highland Captl v. Highland Captl Mgmt" on Justia Law

A bankruptcy court imposed sanctions against Defendant. The sanctions arose from an adversary proceeding in the bankruptcy court brought by the United States Trustee against Defendant, UpRight Law LLC, Sperro LLC and other defendants. UpRight is a Chicago-based bankruptcy legal services company that operates through a nationwide network of “local partners.” After Defendant signed a partnership agreement with UpRight, he filed more than 30 bankruptcy cases as a partner. The bankruptcy court also found that Delafield violated Virginia Rules of Professional Conduct 5.1 and 5.3. After the district court affirmed sanctions, Defendant appealed, asserting the sanctions order violated his due process rights.   The court explained that to be sure, a lawyer facing suspension or disbarment is entitled to notice of the charges for which such discipline is sought and an opportunity to be heard on those issues. The court explained that the complaint did not cite to the Virginia Rules of Professional Conduct that Defendant was ultimately found to have violated. Identifying such rules is certainly preferred in an action seeking suspension or disbarment. But this omission did not violate Defendant’s due process rights. The complaint adequately notified Defendant of the conduct for which he was being accused and the sanctions that were being sought. View "U. S. Trustee v. Darren Delafield" on Justia Law

Appellee’s confirmed bankruptcy plan purported to modify the rights of Appellant Creditor Mortgage Corporation of the South’s (“MCS”) mortgage on Appellee’s residence. In fact, her plan purported to eradicate all remaining outstanding payments on her mortgage, beyond MCS’s claims for past-due arrearages. The bankruptcy court had confirmed Appellee’s Plan without objection and that 11 U.S.C. Section 1327 (the “finality” provision) renders confirmed plans final, the bankruptcy court granted Appellee’s motion, and the district court affirmed. On appeal, at issue was which provision wins— antimodification or finality—when the two clash in the scenario this case presents.   The Eleventh Circuit reversed and remanded the district court’s ruling holding that release of MCS’s lien before its loan had been repaid in full violates Section 1322(b)(2)’s antimodification clause. The court held that under Supreme Court and Eleventh Circuit precedent, it read the antimodification provision as an ironclad “do not touch” instruction for the rights of holders of homestead mortgages. So a bankruptcy plan cannot modify the rights of a mortgage lender whose claim is secured by the debtor’s principal residence by providing for release of the homestead-mortgagee’s lien before the mortgagee has recovered the full amount it is owed. View "Mortgage Corporation of the South v. Judith Lacy Bozeman" on Justia Law

Bankruptcy trustees can recover some transfers made to outside parties during the 90 days before the debtor files a petition, 11 U.S.C. 547(b)(4)(A). Warsco, the trustee in the Harris bankruptcy, discovered that about $3,700 had been paid to Creditmax during those 90 days under a garnishment order, which was issued by an Indiana state court more than 90 days before Harris filed his bankruptcy petition. Warsco began an adversary proceeding to recover the $3,700Creditmax argued that the definition of a “transfer” under section 547 depends on state law and that under Indiana law a “transfer” occurs when a garnishment order is entered, not when money is paid. The bankruptcy court denied the Trustee’s application. The Seventh Circuit overruled and remanded the decision, citing a 1992 Supreme Court holding that federal rather than state law defines the meaning of “transfer.” The “transfer” occurs when money changes hands. View "Warsco v. Creditmax Collection Agency, Inc." on Justia Law

Electric Reliability Council of Texas, Inc. (“ERCOT”) determines market-clearing prices unless otherwise directed by the Public Utility Commission of Texas (“PUCT”). ERCOT is the sole buyer and seller of all energy in Texas. According to the operative complaint, during winter storm Uri ERCOT and the PUCT allegedly “intervened in the market for wholesale electricity by setting prices [that were] orders of magnitude higher than what market forces would ordinarily produce.”   Just Energy, a retail energy provider, purports that after the storm, ERCOT “floored” it with invoices totaling approximately $335 million. Just Energy commenced bankruptcy proceedings in Canada and filed this Chapter 15 case in the United States Bankruptcy Court for the Southern District of Texas, Houston Division. Just Energy challenges its invoice obligations. At the hearing on ERCOT’s motion to dismiss, the bankruptcy court stated that it would strike various language like, “subject to reduction only after a finding by the Court concerning a legally appropriate energy price per megawatt hour as proven by expert testimony, if appropriate, but in no event greater than the price per megawatt hour in effect after market forces took effect.” By striking this and similar language sprinkled throughout the complaint, the court concluded that “this change solves the abstention problem.”    The Fifth Circuit disagreed and vacated the bankruptcy court’s order and remanded with instructions to determine the appropriate trajectory of this case after abstention. The court explained that abstention under Burford6\ is proper because: (1) the doctrine applies in the bankruptcy context; and (2) four of the five Burford factors counsel in favor of abstention. View "Electric Reliability v. Just Energy" on Justia Law

Just before the Chapter 11 reorganization plans of Caribevision Holdings, Inc. and Caribevision TV Network, LLC was set to be confirmed, the debtors filed an emergency motion to modify the plans under 11 U.S.C. Section 1127(a). The initial plans called for equity in the reorganized companies to be split between four shareholders: R.D.B., Pegaso Television Corp., E.B., and Vasallo TV Group. The modification, after being approved by the bankruptcy court, stripped the first three of their equity and allocated full ownership to the fourth—a company controlled by the debtors’ Chief Executive Officer. the three ousted shareholders, who collectively call themselves the Pegaso Equity Holders, now challenge the bankruptcy court’s order granting the debtors’ emergency motion to modify the reorganization plans. They contend that they were entitled to a revised disclosure statement and a second opportunity to vote on the plans under Federal Rule of Bankruptcy Procedure 3019(a)—a procedural protection the bankruptcy court did not provide them.   The Eleventh Circuit reversed the order granting the debtor’s emergency motion to modify the reorganization plans, reversed in part the bankruptcy court’s order confirming the reorganization plans to the extent that it adopts the modification, and remanded to the bankruptcy court to fashion an equitable remedy. The court held that the bankruptcy court erred in granting the debtor’s modification without first requiring that the debtor provide the Pegaso Equity Holders with a revised disclosure statement and a second opportunity to cast a ballot. View "Emilio Braun, et al. v. America-CV Station Group, Inc., et al." on Justia Law