Justia Bankruptcy Opinion Summaries

Anne and Donald divorced in 1996 after 25 years of marriage. They later reconciled but did not re‐marry, then separated again. Because divorce laws no longer applied, Anne sued Donald in Indiana state court under equitable theories to seek redress for her contributions to the relationship during their second period together. They agreed to binding arbitration. The arbitrator awarded Anne $435,000, half the increase in value of Donald’s retirement savings during their unmarried cohabitation. Donald declared bankruptcy and sought to discharge the arbitrator’s award as a money judgment. Anne argued that the arbitrator had awarded her an interest in specific property so that the award could not be discharged in Donald’s bankruptcy.The bankruptcy court sided with Anne. The district court reversed. The Seventh Circuit affirmed, in favor of Donald. Anne was awarded a money judgment, not a property interest. The award does not identify a required source of funds or manner of payment but only lists options for satisfying the obligation. The payment of cash would suffice; the award provided for post-judgment interest. The arbitrator’s award said that “this judgment should not be dischargeable in bankruptcy” but that language is not controlling. View "Harshaw v. Harshaw" on Justia Law

The bankruptcy court authorized the Chapter 11 trustee to sell the debtor’s Bourbon Street, New Orleans property free and clear of all claims, liens, and interests under 11 U.S.C. Sec. 363(f). Two lessees of the property, together with the sole owner of the debtor, filed objections to the sale and an alternative request seeking either adequate protection under Section 363(e) or rejection of the leases, all of which the bankruptcy court denied. The lessees, insiders of the debtor company, executed and recorded leases(for below-market rates) junior to the rights of the mortgagee AMAG. Had there been no bankruptcy, AMAG could have foreclosed under state law and wiped out the junior interests.The Fifth Circuit denied the objectors’ petition for mandamus relief. Bankruptcy Code sections 363(f)(1) and 365(h)(1)(A)(ii), qualify what a debtor can do. The Code recognizes and defers to state law. The essential state law rights of the tenants, in this case, are limited by the senior mortgagee’s prior lien on the property; neither Section 363(e) nor 365(h)(1)(A)(ii) offers protection. View "In Re: Royal Street Bistro, L.L.C." on Justia Law

In an action arising from the bankruptcy of CISH, the Fifth Circuit affirmed the bankruptcy court's sanction of appellants. Appellants had filed an adversary proceeding asserting causes of action that the bankruptcy court had placed in trust for CISH's creditors, but the bankruptcy court concluded that by attempting to seize control of trust property, appellants had knowingly violated its order confirming the liquidation plan.The court concluded that it lacked jurisdiction to review the dismissal order because appellants did not file a notice of appeal on the adversary docket and the notice of appeal did not comply with the requirements of the bankruptcy rules for appealing the adversary proceeding. In regard to the punitive sanctions, appellants failed to allege an injury-in-fact and the court lacked jurisdiction. Finally, because the bankruptcy court had jurisdiction over the Cleveland Imaging bankruptcy case, it had jurisdiction to enter the sanctions order, too; likewise, the court has jurisdiction to consider appellants' appeal; appellants have standing to appeal the sanctions order; the bankruptcy court did not err in finding that appellants violated its confirmation order by filing their adversary proceeding and contentions to the contrary lack merit; and clear and convincing evidence supported the bankruptcy court's finding of bad faith. View "Kreit v. Quinn" on Justia Law

The Fifth Circuit affirmed the district court's judgment affirming the bankruptcy court's orders in these consolidated cases arising out of the bankruptcy of PFO and a dispute over the validity and scope of the bankruptcy court's orders prohibiting one non-debtor, VSP, from asserting claims against two non-debtors, Hillair Capital Investments L.P. and Hillair Capital Management L.L.C.The court found that the bankruptcy court had jurisdiction to enter the Lift Stay Order and it retained jurisdiction to interpret and enforce its orders, as it did in the 2019 orders. The court concluded that the bankruptcy court would not have abused its discretion in refusing to abstain under 28 U.S.C. 1334(c)(2) as there was no timely motion for abstention. The court also concluded that the district court correctly interpreted the Lift Stay Order as prohibiting VSP's assertion of claims against Hillair in the California Action. Finally, the court affirmed the award of attorneys' fees and the earlier bankruptcy court's orders. View "VSP Labs v. Hillair Capital Investments, LP" on Justia Law

The Seventh Circuit upheld the bankruptcy court's ruling that the costs of plaintiff's attorney disciplinary proceedings imposed by the Wisconsin Supreme Court were not dischargeable under a provision of the Bankruptcy Code, 11 U.S.C. 523(a)(7). The court explained that, although there are several types of proceedings in which the Wisconsin Supreme Court may order costs, see Wis. S.C.R. 22.24(1), attorney discipline uniquely requires a "finding of misconduct" as a precondition for doing so. The court stated that the structure of Rule 22.24(1m) unambiguously singles out attorney discipline as a penal endeavor, and that conclusion has a statutory consequence under section 523(a)(7). Furthermore, the cost order amounts to compensation for actual pecuniary loss under section 523(a)(7). Finally, the court's conclusion that plaintiff's disciplinary costs are nondischaregable under section 523(a)(7) finds firm support in Supreme Court precedent and the court's own case law. View "Osicka v. Office of Lawyer Regulation" on Justia Law

After Xurex filed for Chapter 7 bankruptcy, the trustee filed suit against defendant and others for breach of fiduciary duty and civil conspiracy. The jury returned a verdict for the trustee against defendant for conspiracy to breach fiduciary duties.The Eighth Circuit affirmed the jury's verdict and the district court's denial of defendant's motions for judgment as a matter of law, a new jury trial, the entries of judgment, and all adverse rulings. The court concluded that the evidence was sufficient to support the jury's verdict finding that defendant breached a fiduciary duty and there was no error in denying defendant's Federal Rule of Civil Procedure 50(d) motion; defendant waived several arguments he now raises about the language of the verdict director and the inconsistency of the verdict; because plaintiff's damage theories for civil conspiracy and breach of fiduciary duty were the same, the district court properly entered judgment on the larger of the two amounts; and the district court did not plainly err as to the jury instructions. View "Olsen v. Kraus" on Justia Law

The Supreme Court held that a recorded judgment lien attaches to homestead property where the judgment debtor has equity in excess of the amount exempt under Arizona law.Pacific Western Bank (PWB) obtained a California judgment against Todd McLauchlan that was domesticated and recorded in Arizona. McLauchlan later filed a Chapter 7 bankruptcy petition identifying an ownership interest in a residence and claiming the statutory homestead exemption in the residence. PWB filed a proof of claim, $552,497 of which was secured by the recorded judgment lien. The remaining $115,985 was unsecured. After McLauchlan received his discharge he sold the residence and realized $56,852 in excess of the $150,000 homestead exemption. PWB filed a motion seeking a determination that McLauchlan's bankruptcy discharge did not affect its interest secured by its recorded judgment. At issue was whether, under Ariz. Rev. Stat. 33-964(B), judgment liens attach to homestead property. The Supreme Court answered in the affirmative. View "In re McLauchlan" on Justia Law

The Eleventh Circuit reversed the district court's decision affirming the bankruptcy court's order granting the Bank's objection to plaintiff's claimed bankruptcy estate exemptions. The court concluded that Roth IRAs are excluded from Georgia debtors' bankruptcy estates pursuant to federal law. The court found that the development of the caselaw in this area and the subsequent amendments to the Georgia Code reflect the Georgia Assembly's intention to clarify that both traditional IRAs as defined in 26 U.S.C. 408 and Roth IRAs as defined in section 408A are exempt from garnishment, thus subjecting IRAs to a restriction on transfer by state statute, and making both types of IRAs eligible for exclusion under the Bankruptcy Code. Accordingly, the court remanded so that the district court may reverse the order of the bankruptcy court. View "Hoffman v. Signature Bank of Georgia" on Justia Law

Debtors Julio Barrera and Maria de La Luz Moro filed for bankruptcy under Chapter 13 of the Bankruptcy Code hoping to reorganize their assets and finances. Instead of selling most of their assets to obtain an immediate discharge of their debts, they opted to keep their assets, try a reorganization plan to repay creditors, and receive a discharge later. For some time they continued to meet the terms of their reorganization plan. But they changed their minds following the sale of their home, which had appreciated in value significantly since they filed for bankruptcy. Barrera and Moro converted their Chapter 13 bankruptcy to a liquidation of their estate under Chapter 7. The Chapter 7 trustee (Trustee) claimed a right to a portion of the proceeds from the sale of the home, including the appreciation that occurred after their Chapter 13 petition was filed. The issue this case presented for the Tenth Circuit Court of Appeals' review centered on who was entitled to the proceeds from the sale of the home. Specifically, did the sale proceeds from the real property of the estate belong to the Chapter 7 estate or to the debtors? The Court concluded that under 11 U.S.C. 348(f)(1)(A), the sale proceeds from the home belonged to the debtors. View "Rodriguez v. Barrera, et al." on Justia Law

The Second Circuit vacated the district court's dismissal of plaintiff's amended complaint against McKinsey and others under the Racketeer Influenced and Corrupt Organizations Act (RICO). The complaint alleged that McKinsey filed false and misleading disclosure statements in the bankruptcy court to obtain lucrative consulting appointments and that, as a result, AlixPartners LLP lost business and profits it otherwise would have secured. The court concluded that the amended complaint plausibly alleges proximate cause with respect to all 13 bankruptcies in which McKinsey filed false statements as well as the pay-to-play scheme. Accordingly, the court remanded for further proceedings. View "Alix v. McKinsey & Co., Inc." on Justia Law