Justia Bankruptcy Opinion Summaries

Petitioners Scott Black, George Smith, and Jerome Nadal were directors of Globe Photos, Inc., a company that owned a valuable portfolio of celebrity and musician images. In 2020, Globe filed for Chapter 7 bankruptcy, leading to the liquidation of its assets, which left nothing for unsecured creditors or shareholders. In 2023, shareholders Sean Goodchild, Mike Meader, David Morton, and Klaus Moeller sued the petitioners in Nevada state court, alleging that they breached their fiduciary duties by mismanaging Globe's assets and approving a "sham bankruptcy."The district court denied the petitioners' motion to dismiss, concluding that the shareholders had pleaded a direct cause of action rather than a derivative one. The court found that the shareholders had standing to sue and that the complaint sufficiently stated a claim for breach of fiduciary duty.The Supreme Court of Nevada reviewed the case and determined that the shareholders' claim was derivative, not direct. Under Delaware law, which governs because Globe was incorporated in Delaware, a claim is derivative if the corporation suffered the harm and would benefit from any recovery. The court found that the alleged harm was to Globe, as its assets were wasted and sold cheaply, and any recovery would benefit Globe, not the shareholders directly. Consequently, the claim belonged to Globe's bankruptcy estate, and only the bankruptcy trustee had standing to assert it.The Supreme Court of Nevada granted the petition for a writ of prohibition, instructing the district court to vacate its order denying the motion to dismiss and to enter an order granting the motion to dismiss the shareholders' claim against the petitioners. View "BLACK VS. DIST. CT." on Justia Law

Mesabi Metallics Company LLC (Mesabi) filed for Chapter 11 bankruptcy in 2016 and emerged successfully in 2017. During the bankruptcy proceedings, Mesabi initiated an adversary proceeding against Cleveland-Cliffs, Inc. (Cliffs), alleging tortious interference, antitrust violations, and civil conspiracy. Mesabi claimed Cliffs engaged in anti-competitive conduct to impede Mesabi's business operations. To facilitate discovery, the parties entered a stipulated protective order allowing documents to be designated as confidential. Mesabi later moved to unseal certain documents filed under seal to support a petition in the Minnesota Court of Appeals.The United States Bankruptcy Court for the District of Delaware, applying the common law right of access, held that Cliffs had not met the burden to keep the documents sealed. The court relied on the Third Circuit's precedent in In re Avandia, which requires a showing that disclosure would cause a clearly defined and serious injury. Recognizing potential ambiguity in the law, the Bankruptcy Court certified the question for direct appeal to the United States Court of Appeals for the Third Circuit.The Third Circuit clarified that the sealing of documents in bankruptcy cases is governed by 11 U.S.C. § 107, not the common law right of access. Section 107 imposes a distinct burden, requiring protection of trade secrets or confidential commercial information without the need for balancing public and private interests. The court vacated the Bankruptcy Court's decision and remanded for application of the correct standard under § 107. Additionally, the Third Circuit held that the Bankruptcy Court lacked jurisdiction to grant a third party's motion to intervene and unseal documents while the appeal was pending, vacating those orders as well. View "ESML Holdings Inc v. Mesabi Metallics Compay LLC," on Justia Law

John Koontz received two letters from SN Servicing Corporation (SNSC) regarding his residential mortgage loan. Koontz had previously filed for Chapter 7 bankruptcy, and his debts were discharged. The letters from SNSC stated that they were attempting to collect a debt and mentioned late fees assessed to Koontz's loan account. Koontz filed a lawsuit claiming that SNSC's actions violated the Fair Debt Collection Practices Act (FDCPA) and a similar West Virginia law.The United States District Court for the Northern District of West Virginia dismissed Koontz's complaint. The court concluded that Koontz was no longer a "consumer" with a "debt" under the FDCPA due to his Chapter 7 bankruptcy discharge. The court also found that the letters did not constitute attempts to collect a consumer debt and that Koontz failed to adequately plead a "false, deceptive, or misleading representation" under the FDCPA. Consequently, the court dismissed both the federal and state claims.The United States Court of Appeals for the Fourth Circuit reviewed the case and reversed the district court's decision in part. The appellate court held that Koontz remained a "consumer" with a "debt" under the FDCPA despite his Chapter 7 discharge, as the mortgage lien remained an enforceable obligation. The court also determined that the letters from SNSC constituted attempts to collect a debt. However, the court agreed with the district court that Koontz failed to state a claim under 15 U.S.C. § 1692e but found that he adequately stated a claim under 15 U.S.C. § 1692f. The appellate court reversed the dismissal of the state-law claim for the same reasons. The case was remanded for further proceedings. View "Koontz v. SN Servicing Corporation" on Justia Law

Fatima Shaw-McDonald filed a medical malpractice lawsuit against Eye Consultants of Northern Virginia, P.C. after suffering vision loss following cataract surgery. While the lawsuit was pending, she filed for Chapter 7 bankruptcy but did not initially disclose the lawsuit in her bankruptcy filings. Eye Consultants moved to dismiss the lawsuit, arguing that Shaw-McDonald no longer had standing to pursue it because her interest in the lawsuit had transferred to the bankruptcy trustee. Shaw-McDonald later amended her bankruptcy filings to include the lawsuit and obtained a discharge from the bankruptcy court.The circuit court dismissed the medical malpractice case, concluding that Shaw-McDonald lost standing when she filed for bankruptcy. The court relied on the precedent set by Kocher v. Campbell, which held that a plaintiff loses standing when a cause of action becomes part of the bankruptcy estate. Shaw-McDonald appealed the decision.The Court of Appeals of Virginia reversed the circuit court's decision, holding that Shaw-McDonald had standing to maintain her medical malpractice action. The court reasoned that once the bankruptcy trustee abandoned the claim, it reverted to Shaw-McDonald as if no bankruptcy petition had been filed.The Supreme Court of Virginia reviewed the case and affirmed the Court of Appeals' decision. The court held that Shaw-McDonald did not lose standing permanently when she filed for bankruptcy; rather, her standing was temporarily suspended. The court concluded that the appropriate remedy was to hold the medical malpractice case in abeyance until the bankruptcy proceedings were resolved, rather than dismissing it. The case was remanded to the Court of Appeals for further proceedings consistent with this opinion. View "Eye Consultants of Northern Virginia P.C. v. Shaw-McDonald" on Justia Law

Mary E. Buscone, a Chapter 13 debtor, appealed an order rejecting her objection to a proof of claim for a Massachusetts state-court judgment owed to Ann Tracy Botelho. In a previous Chapter 7 bankruptcy, Botelho sought a determination that her judgment against Buscone was excepted from discharge under 11 U.S.C. § 523(a)(2)(A) and (a)(4). Due to discovery abuse by Buscone and her counsel, the bankruptcy court entered a default judgment for Botelho. In her current Chapter 13 bankruptcy, Buscone objected to Botelho's proof of claim on the same grounds as before and argued that the interest rate and accrual date prescribed by Massachusetts state law should not apply to the judgment.The bankruptcy court overruled Buscone's objection, and the district court affirmed. Buscone then appealed to the United States Court of Appeals for the First Circuit. The appellate court reviewed the bankruptcy court's findings of fact for clear error and its conclusions of law de novo. The court also reviewed the application of issue preclusion and determinations of post-judgment interest rates without deference.The First Circuit rejected Buscone's arguments. It held that she was precluded from raising the same affirmative defense to Botelho's proof of claim that she asserted in her motion to dismiss Botelho's adversary proceeding in the Chapter 7 bankruptcy. The court applied an exception to the actual-litigation requirement for issue preclusion, noting that the default judgment in the Chapter 7 proceeding was entered as a sanction for Buscone's misconduct. The court also held that the post-judgment interest on the state-court judgment debt should accrue at the rate set by Massachusetts law from the date of the state-court judgment's entry. The appellate court affirmed the lower court's decision. View "Buscone v. Botelho" on Justia Law

The case involves the Central States, Southeast and Southwest Areas Pension Fund (the "Fund") seeking to collect withdrawal liability payments from several companies (the "Related Employers") that were commonly controlled with Borden Dairy Company of Ohio, LLC and Borden Transport Company of Ohio, LLC (the "Borden Ohio entities"). The Borden Ohio entities had previously withdrawn from the Fund and entered into a settlement agreement with the Fund during an arbitration process, which revised their withdrawal liability payments. The Borden Ohio entities later went bankrupt and ceased making payments, prompting the Fund to seek payment from the Related Employers.The United States District Court for the District of Delaware dismissed the Fund's suit under Federal Rule of Civil Procedure 12(b)(6), ruling that the Multiemployer Pension Plan Amendments Act (MPPAA) does not provide a statutory cause of action to enforce a private settlement agreement. The District Court also concluded that the Fund failed to meet the procedural requirements for notice and demand outlined in 29 U.S.C. § 1399(b)(2).The United States Court of Appeals for the Third Circuit reviewed the case and concluded that the settlement agreement is properly understood as a revision to the withdrawal liability assessment under the MPPAA. Since no employer began an arbitration with respect to the revised assessment, the Fund has a cause of action under 29 U.S.C. § 1401(b)(1). The Court also determined that the Fund met the procedural requirements for notice and demand under 29 U.S.C. § 1399(b)(1). Consequently, the Third Circuit reversed the District Court's order dismissing the Fund's suit and remanded the case for further proceedings. View "Central States Southeast & Southwest Areas Pension v. Laguna Dairy S.de R.L. de C.V." on Justia Law

SDVF, LLC registered a default judgment against Cozzia USA LLC in the U.S. District Court for the Central District of California to enforce and collect the judgment. This judgment was originally entered by the U.S. Bankruptcy Court for the District of Delaware. However, the Delaware Bankruptcy Court later vacated the default judgment.The U.S. District Court for the Central District of California dismissed SDVF's action to enforce the judgment, reasoning that the registered judgment was no longer valid after the underlying judgment had been set aside.The United States Court of Appeals for the Ninth Circuit reviewed the case and affirmed the district court's dismissal. The Ninth Circuit held that a registered judgment under 28 U.S.C. § 1963 is not valid if the underlying judgment has been vacated. The court explained that the registered judgment relies on the existence of the original final judgment, and once the original judgment is vacated, the registered judgment cannot be enforced. The court also noted that neither Rule 60 of the Federal Rules of Civil Procedure nor the court's inherent equitable power allows SDVF to challenge the Delaware Bankruptcy Court's ruling in the Central District of California. Thus, the district court's dismissal of the case was affirmed. View "SDVF, LLC V. COZZIA USA LLC" on Justia Law

A Utah-based transportation business, All Resort Group, became insolvent in 2013 due to poor management and financial malfeasance. Two shareholders misappropriated $145,000 in company funds to pay their personal federal tax liabilities. In 2017, the company filed for bankruptcy, and the trustee sought to recover the misappropriated funds under §544(b) of the Bankruptcy Code, invoking Utah’s fraudulent-transfer statute as the applicable law.The Bankruptcy Court ruled in favor of the trustee, holding that §106(a) of the Bankruptcy Code waived the Government’s sovereign immunity for the state-law cause of action nested within the §544(b) claim. The District Court adopted this decision, and the Tenth Circuit affirmed, concluding that §106(a) abolished the Government’s sovereign immunity in an avoidance proceeding under §544(b)(1).The Supreme Court of the United States reviewed the case and reversed the Tenth Circuit’s decision. The Court held that §106(a)’s sovereign-immunity waiver applies only to the §544(b) claim itself and not to the state-law claims nested within that federal claim. The Court emphasized that waivers of sovereign immunity are jurisdictional and do not create new substantive rights or alter pre-existing ones. The Court concluded that §106(a) does not modify the substantive requirements of §544(b) and that the trustee must still identify an actual creditor who could have voided the transaction under applicable law outside of bankruptcy proceedings. View "United States v. Miller" on Justia Law

The Social Security Administration (SSA) overpaid a debtor, Cooper, before his Chapter 7 no-asset discharge in bankruptcy. Two years after his discharge, SSA recouped the overpayment by reducing his monthly benefits. Cooper moved to hold SSA in contempt for violating the bankruptcy discharge injunction.The bankruptcy court denied Cooper's motion, finding that equitable recoupment allowed SSA to recover the overpayment. The Bankruptcy Appellate Panel (BAP) affirmed, concluding that the overpayment and ongoing benefits were logically related as they arose from the same disability period and statutory scheme.The United States Court of Appeals for the Ninth Circuit reviewed the case. The court held that the logical relationship test for equitable recoupment requires consideration of the equities, including the purpose of the Bankruptcy Code. The court found that recoupment was impermissible where SSA sought to recoup overpayments from a bankrupt beneficiary who engaged in no malfeasance. The court emphasized that recoupment should only apply when it would be inequitable for the debtor to enjoy the benefits of a transaction without meeting its obligations.The Ninth Circuit reversed the BAP's decision and remanded the case for further proceedings, instructing the BAP to remand to the bankruptcy court. The court clarified that the logical relationship test demands consideration of the equities and the purpose of the Bankruptcy Code in each individual case. View "COOPER V. SOCIAL SECURITY ADMINISTRATION" on Justia Law

Highland Capital Management, L.P., a Dallas-based investment firm, filed for Chapter 11 bankruptcy in 2019 due to numerous unpaid judgments and liabilities. During the bankruptcy proceedings, James Dondero, a co-founder, stepped down as a director and officer but continued as an unpaid portfolio manager. The unsecured creditors' committee and independent directors opposed Dondero's reorganization plans, leading to his resignation in October 2020. The bankruptcy court held Dondero in civil contempt and sanctioned him for obstructing the proceedings. The proposed reorganization plan included provisions to shield Highland Capital and associated entities from liability, including an Exculpation Provision and an Injunction Provision with a Gatekeeper Clause.The bankruptcy court confirmed the plan, but on direct appeal, the United States Court of Appeals for the Fifth Circuit reversed the plan in part, striking certain non-debtors from the Exculpation Provision. The investment fund parties requested clarification on whether the same entities should be removed from the Gatekeeper Clause. The bankruptcy court conformed the plan by narrowing the definition of "Exculpated Parties" but did not change the definition of "Protected Parties" in the Gatekeeper Clause, leading to the current appeal.The United States Court of Appeals for the Fifth Circuit reviewed the case and concluded that the bankruptcy court failed to implement its instructions properly. The court held that the definition of "Protected Parties" in the Gatekeeper Clause must be narrowed to include only the Debtor, the Independent Directors for conduct within their duties, the Committee, and the members of the Committee in their official capacities. The court reversed the bankruptcy court's decision in part and remanded the case for the plan to be revised accordingly. View "Highland Capital Fund Advisors v. Highland Capital Management" on Justia Law