Justia Bankruptcy Opinion Summaries

The case involves the Hertz Corporation and its affiliates, which filed for Chapter 11 bankruptcy protection in May 2020 due to financial difficulties exacerbated by the COVID-19 pandemic. Hertz emerged from bankruptcy a year later with a reorganization plan that promised to leave all creditors unimpaired, meaning their rights would not be altered. However, the plan paid unsecured noteholders post-petition interest at the federal judgment rate rather than the higher contract rate and did not include certain make-whole fees (Applicable Premiums) for early redemption of the notes.The United States Bankruptcy Court for the District of Delaware initially ruled that the noteholders were not entitled to the contract rate of interest or the make-whole fees, considering the latter as unmatured interest disallowed under § 502(b)(2) of the Bankruptcy Code. The court also ruled that the noteholders were not entitled to early redemption fees on the 2024 notes. The noteholders appealed, arguing that as creditors of a solvent debtor, they were entitled to post-petition interest at the contract rate and the make-whole fees.The United States Court of Appeals for the Third Circuit reviewed the case and determined that the make-whole fees (Applicable Premiums) must be disallowed as they fit the definition of unmatured interest under § 502(b)(2). However, the court agreed with the noteholders that they were entitled to post-petition interest at the contract rate because Hertz was solvent. The court emphasized the absolute priority rule, which requires that creditors be paid in full before equity holders receive any distribution. The court concluded that the Bankruptcy Code incorporates this rule, and thus, the noteholders must receive contract rate interest, including the Applicable Premiums, to comply with the absolute priority rule and fulfill the plan's promise to leave their rights unaltered. The court affirmed in part and reversed in part the Bankruptcy Court's decisions. View "The Hertz Corporation v. Wells Fargo Bank, N.A." on Justia Law

Debbie O'Gorman, facing foreclosure by creditor Grant Reynolds, transferred her property to the Lovering Tubbs Trust for no consideration. This transfer was intended to hinder Reynolds' foreclosure efforts. The Lovering Tubbs Trust and other entities involved in the transfer argued that the Chapter 7 Trustee lacked Article III standing to bring a claim under 11 U.S.C. § 548 because O'Gorman's creditors were not harmed by the transfer.The Bankruptcy Court granted summary judgment to the Trustee, finding that O'Gorman's transfer was fraudulent under § 548(a)(1)(A). The Bankruptcy Appellate Panel (BAP) affirmed this decision, noting that the Trustee had established a prima facie case of fraudulent transfer and that the appellants failed to present any admissible evidence to create a genuine dispute of material fact.The United States Court of Appeals for the Ninth Circuit affirmed the BAP's decision. The court held that the Trustee had Article III standing because the transfer depleted the estate's assets, causing an injury-in-fact that was redressable by the avoidance sought. The court also clarified that actual harm to creditors is not an element of a fraudulent transfer claim under § 548. The court found that the bankruptcy court properly granted summary judgment, as the Trustee provided direct and circumstantial evidence of O'Gorman's fraudulent intent, and the appellants failed to present any evidence to dispute this.The Ninth Circuit also upheld the bankruptcy court's denial of the appellants' request for a continuance to conduct discovery, noting that the appellants did not comply with the requirements of Rule 56(d) by failing to submit an affidavit or declaration specifying the facts they hoped to elicit through further discovery. The court concluded that the bankruptcy court did not abuse its discretion in this regard. View "IN RE: THE LOVERING TUBBS TRUST V. HOFFMAN" on Justia Law

The case involves Michael Leite and Andrea Carvalho, who filed for Chapter 7 bankruptcy in 2019. The IRS had a federal tax lien on their property for unpaid taxes from 2009, totaling $81,174.13, which included $45,938.99 in taxes and interest, and $24,991.14 in penalties. The property was sold, netting $38,640.80. The Bankruptcy Trustee sought to avoid the penalty portion of the lien under 11 U.S.C. § 724(a) and proposed a pro rata allocation of the sale proceeds between the IRS and the Bankruptcy Estate.The Bankruptcy Court allocated the proceeds on a pro rata basis, reasoning that the IRS and the Estate shared the same lien priority after the penalty portion was avoided. The District Court affirmed this decision, holding that the bankruptcy court had the authority to apply the pro rata method under its equitable powers in 11 U.S.C. § 105(a), and that this method was not inconsistent with the Bankruptcy Code.The United States Court of Appeals for the Ninth Circuit reviewed the case and reversed the District Court's order. The Ninth Circuit held that the pro rata method was inconsistent with the Bankruptcy Code. The court found that the pro rata method improperly reduced the value of the unavoidable tax portion of the lien and disturbed the Code’s order of priorities. The court emphasized that the Bankruptcy Code prioritizes tax claims over penalty claims and that the pro rata method violated the express limitations of 11 U.S.C. §§ 724(a) and 551.The Ninth Circuit remanded the case to the District Court with instructions to further remand to the Bankruptcy Court to determine the final allocation amounts using a tax-first method. This method requires that the sale proceeds first pay the unavoidable tax portion of the lien before any payment to the Estate for the avoided penalty portion. View "IN RE: USA V. MACKENZIE" on Justia Law

Two whistleblowers, John M. Barr and John McPherson, challenged the Securities and Exchange Commission’s (SEC) calculation of their award amounts under the Dodd-Frank Wall Street Reform and Consumer Protection Act. The case involves Life Partners Holdings, Inc., which was found guilty of extensive securities fraud from 1999 to 2013. In 2012, the SEC filed a civil action against Life Partners, resulting in a $38.7 million judgment. Life Partners subsequently filed for Chapter 11 bankruptcy to avoid the appointment of a receiver. The bankruptcy court appointed a Chapter 11 trustee, and a reorganization plan was confirmed in 2016.The SEC posted a Notice of Covered Action in 2015, inviting whistleblowers to apply for awards. Barr and McPherson submitted applications. The SEC’s Claims Review Staff initially recommended denying Barr an award and granting McPherson 23% of the collected sanctions. After objections, the SEC revised its decision, granting Barr 5% and McPherson 20% of the collected amounts. The SEC argued that the bankruptcy proceedings did not qualify as a “covered judicial or administrative action” or a “related action” under the Dodd-Frank Act.The United States Court of Appeals for the Fifth Circuit reviewed the case. The court held that the SEC’s motion to appoint a Chapter 11 trustee did not constitute “bringing an action” under the Dodd-Frank Act. The court found that the ordinary meaning of “action brought” refers to initiating a lawsuit or legal proceedings, which did not apply to the SEC’s involvement in the bankruptcy case. The court also rejected the argument that the SEC’s actions in the bankruptcy case were a continuation of its enforcement strategy. Consequently, the court denied the petitions for review, upholding the SEC’s award calculations. View "Barr v. SEC" on Justia Law

The case involves the valuation of a bitcoin mining property owned by Michael Oken, who had invested millions in infrastructure upgrades to support bitcoin mining. The property, located in College Park, Georgia, included a Power Sales Agreement with the city for low-cost electricity, which was crucial for the mining operation. After Oken's death in 2019, his businesses filed for Chapter 11 bankruptcy, and the property was sold along with an adjacent data center for $4.9 million. The deeds indicated a $2.45 million value for each property based on transfer taxes. Two creditors, Thomas Switch Holding and Bay Point Capital, sought to recover on liens against the property.The bankruptcy court held a bench trial to determine the property's value. Switch's appraiser, Michael Easterwood, valued the property at $830,000 using the cost approach, considering the infrastructure improvements. Bay Point's appraiser, Jeff Miller, valued it at $48,000 using the sales comparison approach, comparing it to other light industrial properties. The bankruptcy court adopted Easterwood's valuation, finding the property to be a special purpose property with bitcoin mining as its highest and best use. The court valued the property at over $700,000, awarding the full escrow amount to Switch.The United States District Court for the Northern District of Georgia affirmed the bankruptcy court's decision. On appeal, the United States Court of Appeals for the Eleventh Circuit reviewed the case. The appellate court upheld the bankruptcy court's findings, agreeing that the property was a special purpose property with bitcoin mining as its highest and best use. The court also affirmed the use of the cost approach for valuation and found no clear error in considering the tax stamp value as supporting evidence. The judgment of the lower courts was affirmed. View "In re: VIRTUAL CITADEL, INC." on Justia Law

The case involves EPD Investment Co., LLC (EPD) and its owner, Jerrold S. Pressman, who were found to have operated a Ponzi scheme. EPD was forced into Chapter 7 bankruptcy by its creditors, and the Trustee, Jason M. Rund, filed an adversary proceeding against Poshow Ann Kirkland and her husband, John Kirkland, seeking to avoid fraudulent transfers made by EPD to John. John had assigned his interest in EPD to the Bright Conscience Trust, for which Ann is the trustee.The United States District Court for the Central District of California bifurcated the trial, separating the claims against John and Ann. A jury trial was conducted for the claims against John, resulting in a verdict that EPD was a Ponzi scheme but that John received payments in good faith and for reasonably equivalent value. The bankruptcy court ruled that the jury's findings would be binding in the Trustee's claims against Ann. Ann appealed the judgment, particularly challenging the jury's finding that EPD was a Ponzi scheme.The United States Court of Appeals for the Ninth Circuit reviewed the case. The court held that Ann had standing to appeal due to her significant involvement in the case and her interest in the issues presented. The court rejected Ann's argument that the district court erred by not including a mens rea instruction requiring the jury to find that Pressman knew he was operating a Ponzi scheme that would eventually collapse. The court held that fraudulent intent could be inferred from the existence of a Ponzi scheme established through objective criteria. The court also rejected Ann's argument that the district court erred by instructing the jury that lenders are investors for purposes of a Ponzi scheme.The Ninth Circuit affirmed the district court's order affirming the judgment of the bankruptcy court and remanded the case for further proceedings. View "In re: EPD INVESTMENT COMPANY V. KIRKLAND" on Justia Law

Keith Edward Myers posted a negative online review about the legal services provided by Jerry M. Blevins. Blevins, representing himself, sued Myers in the Elmore Circuit Court for defamation per se, invasion of privacy, wantonness, and negligence, seeking damages and injunctive relief. The court sealed the case record and, after unsuccessful attempts to serve Myers, allowed service by publication. Myers did not respond, leading to a default judgment awarding Blevins $500,000 in compensatory damages, $1.5 million in punitive damages, and a permanent injunction against Myers.Myers later appeared in court, filing motions to unseal the record and set aside the default judgment, arguing improper service and venue, among other issues. The trial court unsealed the record but did not rule on the motion to set aside the default judgment. Myers filed for bankruptcy, temporarily staying proceedings, but the bankruptcy case was dismissed. Myers then filed a notice of appeal and a renewed motion to stop execution on his property, which the trial court granted, staying execution pending the appeal.The Supreme Court of Alabama reviewed the case. The court dismissed Myers's direct appeal as untimely regarding the default judgment and premature concerning the Rule 60(b) motion, which remained pending in the trial court. The court also dismissed Myers's challenge to the sealing of the record, noting that the trial court had already unsealed it, rendering the issue moot.Blevins's petition for a writ of mandamus to vacate the trial court's order quashing writs of execution was also dismissed as moot. The Supreme Court's resolution of the direct appeal allowed trial court proceedings, including Blevins's execution efforts, to resume, thus granting Blevins the relief he sought. View "Myers v. Blevins" on Justia Law

Plaintiff-Appellant Sonya Porretto owns Porretto Beach in Galveston, Texas. After filing for bankruptcy in 2009, her case was converted to a Chapter 7 proceeding. In 2020, the bankruptcy trustee abandoned the Porretto Beach property back to her. In 2021, Porretto filed a lawsuit against the City of Galveston Park Board of Trustees, the City of Galveston, the Texas General Land Office (GLO), and its Commissioner, alleging that their actions constituted takings without just compensation in violation of the Fifth Amendment.The U.S. District Court for the Southern District of Texas dismissed Porretto’s lawsuit. The court concluded that Porretto lacked standing to sue the GLO and its Commissioner because her complaint did not establish a causal link between their actions and her alleged injuries. The court also found that it lacked bankruptcy jurisdiction under 28 U.S.C. § 1334 and federal question jurisdiction under 28 U.S.C. § 1331, as Porretto did not invoke 42 U.S.C. § 1983 for her constitutional claims. Additionally, the court denied Porretto leave to amend her complaint and her motion for recusal of the presiding judge.The United States Court of Appeals for the Fifth Circuit reviewed the case. The court affirmed the district court’s dismissal of Porretto’s claims against the GLO and its Commissioner without prejudice, agreeing that Porretto lacked standing. However, the appellate court vacated the district court’s dismissal of Porretto’s claims against the Park Board and the City of Galveston, finding that the district court does have federal question jurisdiction over her constitutional claims despite her failure to cite § 1983. The case was remanded for the district court to consider alternative arguments for dismissal and the issue of supplemental jurisdiction over state law claims. The appellate court also affirmed the district court’s denial of Porretto’s motion for recusal and her request for reassignment to a different judge. View "Porretto v. City of Galveston" on Justia Law

An attorney, Jeffrey Cogan, filed a federal lawsuit challenging an Arizona state court judgment against him for malicious prosecution. The state court judgment arose from Cogan's actions during a federal bankruptcy proceeding involving Arnaldo Trabucco. Cogan sought a declaration that the state court lacked jurisdiction over the malicious prosecution claim because it involved conduct exclusively within federal jurisdiction.The Arizona state court had granted partial summary judgment against Cogan, finding him liable for malicious prosecution and awarding $8 million in damages. Cogan appealed, and the Arizona Court of Appeals affirmed the liability finding but vacated the damages award, remanding for a new trial on damages. Cogan then filed the federal lawsuit before the retrial, arguing that the state court lacked jurisdiction. The district court dismissed Cogan's federal complaint under the Rooker-Feldman doctrine, which bars federal courts from reviewing state court judgments.The United States Court of Appeals for the Ninth Circuit reviewed the case. The court held that the Rooker-Feldman doctrine did not apply because the malicious prosecution claim was completely preempted by federal law, falling within the exclusive jurisdiction of the federal courts. The court reasoned that state courts lack jurisdiction over malicious prosecution claims arising from federal bankruptcy proceedings, as established in MSR Exploration, Ltd. v. Meridian Oil, Inc. Therefore, the state court judgment was subject to collateral attack in federal court.The Ninth Circuit reversed the district court's dismissal and remanded the case for further proceedings, allowing Cogan's challenge to the state court judgment to proceed in federal court. View "COGAN V. TRABUCCO" on Justia Law

The case involves a Chapter 7 bankruptcy proceeding where the United States Bankruptcy Court for the Southern District of New York approved a settlement agreement among the trustee of the bankruptcy estate, the debtor, and other parties. The settlement released claims that appellants Richard and Marisa Stadtmauer had originally asserted in a New York state court action. The Stadtmauers alleged that the debtor, Mark Nordlicht, and others engaged in a scheme to conceal Nordlicht’s assets to avoid paying his debts. When Nordlicht filed for bankruptcy, the state court proceedings were stayed, and the trustee took possession of the Stadtmauers’ claims. The settlement included a $2.5 million payment to the estate by Nordlicht’s mother, Barbara Nordlicht, and provisions for indemnification and reimbursement of legal fees.The Stadtmauers objected to the settlement and appealed the bankruptcy court’s decision to the United States District Court for the Southern District of New York. They argued that the state court had granted them valid liens on two of Nordlicht’s properties, giving them secured property rights. They contended that the trustee lacked the authority to settle their claims, that the settlement violated due process and bankruptcy principles, and that the bankruptcy court abused its discretion in approving the settlement. The district court rejected these arguments and affirmed the approval of the settlement agreement.The United States Court of Appeals for the Second Circuit reviewed the case and agreed with the district court. The court held that the trustee had the authority to settle the Stadtmauers’ claims because they were general claims that were property of the bankruptcy estate. The court also found that the settlement did not violate the principles of creditor priority as articulated in Czyzewski v. Jevic Holding Corp. because the validity of the Stadtmauers’ liens was in bona fide dispute. The court concluded that the bankruptcy court did not abuse its discretion in approving the settlement and affirmed the district court’s judgment. View "In re Nordlicht" on Justia Law