Justia Bankruptcy Opinion Summaries

Kehinde Adeyemi Elebute challenged the foreclosure sale of his property in bankruptcy court but was unsuccessful. Years later, he attempted to challenge the foreclosure again in state court. To prevent duplicative litigation, the suit was removed to the bankruptcy court, which reopened and subsequently dismissed Elebute’s case for want of prosecution after he failed to appear at a hearing.The United States District Court for the Southern District of Texas dismissed Elebute’s challenge to the reopening and affirmed the bankruptcy court’s dismissal. Elebute then appealed both rulings.The United States Court of Appeals for the Fifth Circuit reviewed the case. The court found that it lacked jurisdiction to review the bankruptcy court’s order reopening the proceedings, as it was a non-final, interlocutory order. The court agreed with the defendants, Village Capital & Investment, L.L.C., and Michael Weems, that the reopening order was only a preliminary step and did not resolve substantive issues. Therefore, the court dismissed this portion of Elebute’s appeal.Regarding the dismissal for lack of prosecution, the court found that the bankruptcy court had jurisdiction over Elebute’s claims. The court noted that the bankruptcy court’s jurisdiction extends to all civil proceedings related to bankruptcy cases. Since Elebute’s state action challenged Village Capital’s interest in the property central to the earlier bankruptcy case, the actions were related. Consequently, the bankruptcy court had jurisdiction to dismiss the adversary proceeding.The Fifth Circuit dismissed Elebute’s challenge to the reopening order for lack of jurisdiction and affirmed the district court’s judgment in all other respects. The defendants’ amended motion to dismiss a portion of Elebute’s appeal was denied as moot. View "Elebute v. Village Capital" on Justia Law

Gary D. LeClair, a founding member of the now-defunct law firm LeClairRyan PLLC, attempted to withdraw from the firm in July 2019. He announced his immediate withdrawal and resignation effective July 31, 2019. However, on July 29, 2019, the firm's other members voted to dissolve the firm and established a Dissolution Committee. The firm filed for Chapter 11 bankruptcy on September 3, 2019, which was later converted to Chapter 7. The bankruptcy trustee listed LeClair as an equity holder, making him liable for some of the firm's tax obligations. LeClair contested this, arguing that he had effectively withdrawn before the bankruptcy filing.The bankruptcy court ruled that LeClair's withdrawal was ineffective because it occurred after the dissolution vote, interpreting the firm's operating agreement to prohibit member withdrawal after a dissolution event. The district court largely affirmed this decision but reversed on a minor point regarding the date of the equity holders list.The United States Court of Appeals for the Fourth Circuit reviewed the case. The court found that the bankruptcy and district courts misinterpreted the operating agreement. The agreement did not prohibit members from withdrawing after a dissolution event; it only barred withdrawal while a member held shares and the firm was still operational. Since LeClair's employment ended on July 31, 2019, his shares were automatically transferred back to the firm, and he ceased to be a member.The Fourth Circuit vacated the district court's judgment and remanded the case for further proceedings, instructing the bankruptcy court to determine if any equitable considerations might still warrant denying LeClair's motion to amend the equity holders list. View "LeClair v. Tavenner" on Justia Law

Debtor-Appellant Avianca Holdings S.A. agreed to pay additional rental payments to Creditors-Appellees Burnham Sterling and Company LLC and Babcock & Brown Securities LLC under 20 aircraft leases. Avianca failed to make certain payments that were due more than 60 days after filing for bankruptcy but before the leases were assumed or rejected. The creditors moved to compel payment under 11 U.S.C. § 365(d)(5), which requires timely performance of obligations arising from or after 60 days post-bankruptcy filing under an unexpired lease of personal property until the lease is assumed or rejected.The bankruptcy court granted the creditors' motion, concluding that Avianca's obligation to pay arose when the payments came due under the lease terms. Avianca appealed, arguing that the obligation arose pre-petition when the leases were executed. The district court affirmed the bankruptcy court's decision, agreeing that the obligations arose as the payments came due.The United States Court of Appeals for the Second Circuit reviewed the case and affirmed the lower courts' decisions. The court held that under 11 U.S.C. § 365(d)(5), a debtor's obligation to make payments arises when the payments come due according to the lease terms, not when the lease was executed. The court emphasized that the statutory language requires the debtor to perform obligations that originate from or after 60 days post-petition, aligning with the "billing date" approach rather than the "accrual" approach. The court also noted that this interpretation is consistent with the broader statutory scheme and bankruptcy policy, which aims to balance creditor protection with the debtor's ability to reorganize. View "In re Avianca Holdings S.A." on Justia Law

The case involves a Chapter 11, Subchapter V debtor, Human Housing Henrietta Hyatt, LLC, whose owners and a related third-party, Clearview Eastern Fund, LLC, appealed orders approving the sale of the debtor’s real property. The confirmed plan allowed the plan trustee wide discretion in conducting the sale. The owners did not participate meaningfully in the sale proceedings, and Clearview, a competing bidder, lacked standing to appeal the orders as it did not preserve its appeal rights and failed to obtain a stay of the sale orders.The United States Bankruptcy Court for the Western District of Kentucky approved the sale of the debtor’s real property. The bankruptcy court found that the buyers were purchasing the properties in good faith and entitled to the protections of 11 U.S.C. § 363(m). Clearview filed a motion for reconsideration and a motion for a stay pending appeal, both of which were denied by the bankruptcy court. Clearview then filed an affidavit claiming pre-existing purchase contracts, but this was not timely presented to the bankruptcy court.The Bankruptcy Appellate Panel of the Sixth Circuit reviewed the case. The panel determined that the appellants were limited on appeal to challenging the purchasers’ good faith due to the mootness rule codified in 11 U.S.C. § 363(m). The panel found that the appellants had waived their arguments on appeal by not raising them in the bankruptcy court proceedings. The panel affirmed the bankruptcy court’s orders approving the sale of the debtor’s assets and the orders denying the motion for reconsideration and the motion for a stay pending appeal. The panel also affirmed the orders approving compensation for the real estate broker, as the appellants had not objected to the compensation applications in the bankruptcy court. View "In re Human Housing Henrietta Hyatt, LLC" on Justia Law

In this case, the plaintiff, a Chapter 11 Trustee for BK Racing, LLC, initiated an adversary proceeding against multiple defendants, including Ronald and Brenda Devine, various family trusts, and corporate entities. The defendants were accused of obstructing the bankruptcy process by failing to comply with discovery obligations, including not producing required financial documents and records, despite multiple court orders.The bankruptcy court found that the defendants willfully disregarded their discovery obligations and engaged in a pattern of obstruction and delay. As a result, the court entered a default judgment against the defendants as a discovery sanction, awarding the plaintiff $31,094,099.89. The district court affirmed this decision, noting the defendants' repeated noncompliance and the necessity of deterrence.The United States Court of Appeals for the Fourth Circuit reviewed the case. The court upheld the lower courts' decisions, finding no abuse of discretion in the entry of default judgment. The court applied the Wilson factors, determining that the defendants acted in bad faith, caused significant prejudice to the plaintiff, necessitated deterrence, and that lesser sanctions would be ineffective. The court also affirmed the decision to pierce the corporate veil, holding the defendants jointly and severally liable, based on evidence that the corporate entities were mere instrumentalities of the Devines, lacking proper corporate formalities and used to siphon funds.The Fourth Circuit concluded that the bankruptcy court's findings were not clearly erroneous and that the default judgment and the amount awarded were appropriate given the defendants' egregious conduct. The decision of the district court was affirmed. View "Smith v. Devine" on Justia Law

Alice Guan and her homeowners association (HOA), Ellingsworth Residential Community Association, Inc., were involved in a dispute after Guan failed to conform her yard to the HOA’s covenants. Ellingsworth sued Guan in state court, and Guan countersued for various state-law claims. The state court awarded Guan costs and fees, but before she could collect, Ellingsworth filed for subchapter V bankruptcy.In the Bankruptcy Court, Guan filed several motions, including objections to Ellingsworth’s subchapter V eligibility and reorganization plan, and a motion for relief from the automatic stay. The Bankruptcy Court overruled Guan’s objections, confirming Ellingsworth’s subchapter V status and reorganization plan, and denied her motion for relief from the stay. Guan appealed these decisions to the District Court.The District Court affirmed the Bankruptcy Court’s orders, finding that Ellingsworth was eligible for subchapter V as it was engaged in business activities, and that the reorganization plan was fair and equitable. The court also upheld the denial of Guan’s motion for relief from the stay, concluding that the Bankruptcy Court did not abuse its discretion and had jurisdiction over Guan’s claims.Guan also appealed the Bankruptcy Court’s denial of her motion to abstain from ruling on state law issues. The District Court dismissed this appeal for lack of jurisdiction, stating that the abstention order was not a final appealable order.The United States Court of Appeals for the Eleventh Circuit affirmed the District Court’s decisions on subchapter V eligibility, the reorganization plan, and the denial of stay relief. However, it vacated the dismissal of Guan’s abstention appeal, remanding it to the District Court for further consideration, as the denial of mandatory abstention is immediately appealable. View "Guan v. Ellingsworth Residential Community Association, Inc." on Justia Law

Payroll Management, Inc. filed for chapter 11 bankruptcy and received $1,070,330.23 from British Petroleum, Inc. for economic losses due to the Deepwater Horizon Oil Spill. Sunz Insurance Company claimed a first-priority security interest in these funds, asserting that its security interest attached and perfected before any other creditor. The Internal Revenue Service (IRS) contended that its federal tax lien had first priority as it attached and perfected first. Both parties filed cross motions for summary judgment.The bankruptcy court granted summary judgment in favor of the IRS, determining that Payroll’s BP claim was a commercial tort claim when the IRS filed its tax lien notice. The court found that the IRS’s tax lien attached and perfected first, while Sunz’s security interest did not attach to commercial tort claims. The district court affirmed this decision.The United States Court of Appeals for the Eleventh Circuit reviewed the case and affirmed the lower courts' decisions. The court held that Payroll’s BP claim remained a commercial tort claim in March 2017 when the IRS filed its tax lien notice. The settlement agreement did not automatically convert the tort claim into a contract, as it did not create an automatic obligation for BP to pay Payroll a certain amount. Therefore, the IRS’s tax lien, which attached and perfected first, took priority over Sunz’s security interest. The court concluded that the IRS was entitled to the $1,070,330.23 payment. View "Sunz Insurance Company v. Treasury Department" on Justia Law

Matthew A. LeFande, a suspended member of the District of Columbia Bar, was found by the Board on Professional Responsibility to have committed seven violations of the District of Columbia and Maryland Rules of Professional Responsibility. These violations stemmed from his involvement in several legal matters, including the District Title litigation, the Warren bankruptcy matter, the Carvalho bankruptcy matter, and his own personal bankruptcy. LeFande's misconduct included orchestrating a transfer of funds to conceal assets, filing frivolous bankruptcy petitions, making false statements to tribunals, and failing to comply with court orders.In the District Title litigation, LeFande represented Anita Warren and her son, Timothy Day, after District Title erroneously wired funds to Warren. LeFande directed the transfer of $82,051.81 to a New Zealand bank account, which was seen as an attempt to conceal assets. He later refused to comply with court orders to sit for a deposition, resulting in criminal and civil contempt findings. In the Warren bankruptcy matter, LeFande filed a petition to avoid deposition, which was deemed frivolous, leading to sanctions. In the Carvalho bankruptcy matter, LeFande's actions were found to be in bad faith, resulting in sanctions for frivolous filings and misrepresentations.The District of Columbia Court of Appeals reviewed the case and agreed with the Board's findings of misconduct. The court noted that LeFande's actions were part of a prolonged pattern of dishonesty and interference with the administration of justice. Given the severity and persistence of his misconduct, along with his lack of remorse and failure to participate in the disciplinary process, the court concluded that disbarment was the appropriate sanction. The court ordered that Matthew A. LeFande be disbarred from the practice of law in the District of Columbia. View "In re LeFande" on Justia Law

Serta Simmons Bedding, LLC, an American mattress manufacturer, executed financing deals in 2016 and 2020 with various lenders. Following financial struggles exacerbated by the COVID-19 pandemic, Serta filed for bankruptcy. The 2020 financing deal, known as the "uptier" transaction, involved Serta and some lenders (Prevailing Lenders) exchanging existing debt for new super-priority debt, which was controversial and led to multiple legal disputes.The bankruptcy court in the Southern District of Texas reviewed the case. Serta and the Prevailing Lenders sought a declaratory judgment that the 2020 uptier transaction was valid under the 2016 agreement's "open market purchase" exception. The bankruptcy court granted partial summary judgment in their favor, ruling that the term "open market purchase" was unambiguous and that the 2020 uptier was valid under this exception. The Excluded Lenders and LCM Lenders, who did not participate in the uptier, appealed this decision.The United States Court of Appeals for the Fifth Circuit reviewed the case. The court held that the 2020 uptier transaction was not a permissible "open market purchase" under the 2016 agreement. The court found that an "open market purchase" refers to transactions on a specific market generally open to various buyers and sellers, such as the secondary market for syndicated loans. The 2020 uptier, conducted privately with individual lenders, did not meet this definition. The court reversed the bankruptcy court's ruling on this issue.Additionally, the court addressed the inclusion of an indemnity provision in Serta's bankruptcy reorganization plan, which aimed to protect the Prevailing Lenders from losses related to the 2020 uptier. The court found that this indemnity was an impermissible end-run around the Bankruptcy Code's disallowance of contingent claims for reimbursement and violated the Code's requirement of equal treatment for creditors. The court reversed the bankruptcy court's confirmation of the plan insofar as it included this indemnity. View "Excluded Lenders v. Serta" on Justia Law

Steven Andrew Clem, the former owner of a defunct homebuilding company, appealed a judgment regarding the nondischargeability of a debt incurred from a failed home construction project. An arbitration panel had found Clem personally liable to LaDainian and LaTorsha Tomlinson for breach of contract and violations of the Texas Deceptive Trade Practices Act (DTPA). Clem subsequently filed for Chapter 7 bankruptcy, and the Tomlinsons initiated an adversary proceeding. The bankruptcy court determined that Clem had obtained over $660,000 from the Tomlinsons through false representation or false pretenses, making the debt nondischargeable under 11 U.S.C. § 523(a)(2)(A).The bankruptcy court's decision was based on findings that Clem had committed fraud by nondisclosure during the performance of the contract, including failing to inform the Tomlinsons about the switch from concrete piers to helical steel piers, failing to disclose the puncturing of a water line, and misrepresenting the purchase of a Builder’s Risk insurance policy. The court also found that Clem failed to provide proper accounting for the Tomlinsons' funds. The district court affirmed the bankruptcy court's decision.The United States Court of Appeals for the Fifth Circuit reviewed the case. The court concluded that the bankruptcy court erred in not applying collateral estoppel to the arbitration findings, which had already determined that Clem's actions did not constitute knowing violations of the DTPA or fraud. The appellate court found that the issues of fraudulent misrepresentation and nondisclosure had been fully litigated in the arbitration, and the arbitration panel had explicitly found no fraud or knowing DTPA violations.The Fifth Circuit reversed the bankruptcy court's judgment and rendered judgment in favor of Clem, holding that the Tomlinsons were collaterally estopped from relitigating the fraud claims and that Clem's conduct did not meet the criteria for nondischargeability under Section 523(a)(2)(A). View "Clem v. Tomlinson" on Justia Law