Justia Bankruptcy Opinion Summaries

ESML filed for Chapter 11 bankruptcy. Chippewa funded ESML’s exit from bankruptcy. The plan and confirmation order discharged all claims against ESML arising before the plan’s effective date and enjoined actions against ESML and Chippewa by holders of those claims. The Court retained jurisdiction over matters arising under the Bankruptcy Code or arising in or related to the Chapter 11 cases or plan. ESML emerged from bankruptcy as Mesabi. During the bankruptcy case, Chippewa sought to acquire ESML. Its affiliate, ERPI, agreed to engage Riley as its exclusive financial advisor. Riley would receive a “Restructuring Fee” if ERPI successfully acquired ESML. One day before the plan’s effective date, Riley, ERPI, and Chippewa entered an amendment that purported to bind ERPI, Chippewa, and the post-effective date Mesabi. After a debt financing transaction closed, Riley sought payment from Chippewa and Mesabi of a $16 million "success fee." Mesabi refused to pay, Riley filed suit and a FINRA arbitration. Mesabi filed a Bankruptcy Court adversary complaint, maintaining the fee had been discharged.The Bankruptcy Court dismissed the adversary proceeding for lack of jurisdiction. The Third Circuit reversed. The Bankruptcy Court had jurisdiction to interpret and enforce the discharge and injunction provisions of its plan and confirmation order. This matter falls within the category of “core proceedings.” Executing the relevant amendment a day before the plan’s effective date may hint that Chippewa and ERPI tried to circumvent the bankruptcy process. View "Mesabi Metallics Co. LLC v. B. Riley FBR Inc." on Justia Law

In this case involving the interpretation of Fla. Stat. 679.5061(3) the Supreme Court held that a financing statement that fails correctly to name the debtors, as required by Florida law, is seriously misleading and therefore ineffective because Florida's filing office does not apply a "standard search logic."Section 679.5061(3) creates a safe harbor for financing statements that are otherwise ineffective to perfect a security interest due to their failure correctly to name the debtor. The safe harbor applies when a financing statement that fails correctly to name the debtor is disclosed by a search of the filing office's records under the debtor's correct name "using the filing office's standard search logic, if any." The United States Court of Appeals for the Eleventh Circuit asked the Supreme Court to delineate the proper scope of the "search" of the filing office's records, as the term is used in the safe harbor provision. The Supreme Court answered that the filing office's use of a "standard search logic" is necessary to trigger the safe harbor protection of section 679.5061(3). View "1944 Beach Boulevard, LLC v. Live Oak Banking Co." on Justia Law

In its North Carolina bankruptcy proceedings, Bestwall wanted access to data owned by 10 trusts created to process asbestos-related claims against other companies. Bestwall was facing asbestos liability and wanted the data in order to calculate a settlement trust authorized by 11 U.S.C. 524(g). The data is held by the trusts’ claims processing agent, located in Delaware, which opposed Bestwall’s request. The Bankruptcy Court authorized the issuance of subpoenas. Once Bestwall served those subpoenas, the trusts asked the District Court for the District of Delaware to quash the subpoenas, repeating the same arguments that had been made in the Bankruptcy Court. Asbestos claimants whose information was in the database also joined in the motion to quash. The district court quashed the subpoenas.The Third Circuit reversed and remanded with instructions to enforce the subpoenas as originally ordered. Allowing litigants to invoke issue preclusion on a motion to quash is also consistent with the doctrine’s “dual purposes” of “protect[ing] litigants from the burden of relitigating an identical issue with the same party or his privy” and “promot[ing] judicial economy by preventing needless litigation.” Bestwall may invoke collateral estoppel as a counter to arguments previously litigated in the North Carolina Bankruptcy Court. View "In re: Bestwall LLC" on Justia Law

Highland Capital Management, L.P., a Dallas-based investment firm, managed billion-dollar, publicly traded investment portfolios for nearly three decades. By 2019, however, myriad unpaid judgments and liabilities forced Highland Capital to file for Chapter 11 bankruptcy. This provoked a breakup between Highland Capital and its co-founder. The bankruptcy court successfully mediated with the largest creditors and ultimately confirmed a reorganization plan amenable to most of the remaining creditors. The co-founder and other creditors unsuccessfully objected to the confirmation order and then sought review. In turn, Highland Capital moved to dismiss their appeal as equitably moot.The Fifth Circuit denied Highland Capital’s motion to dismiss the appeal as equitably moot. The court held that equitable mootness does not bar our review of any claim. Second, the court affirmed the confirmation order in large part. The court reversed only insofar as the plan exculpates certain non-debtors in violation of 11 U.S.C. Section 524(e), strikes those few parties from the plan’s exculpation, and affirm on all remaining grounds. View "NexPoint v. Highland Capital Management" on Justia Law

In 2019, Laney financed a Ford Edge from Second Chance, agreeing to pay attorney’s fees in the event of default. Four months later, Laney filed a Chapter 13 bankruptcy petition. The bankruptcy court ordered Laney to amend his original plan to account for Chance's “Claim 3” for the Edge as a “910 claim” (debts for personal vehicles purchased less than 910 days before the filed bankruptcy petition must be paid in full, 11 U.S.C. 1325(a)). Laney amended the plan but failed to provide for full payment. Chance again objected and requested attorney’s fees for filing the same objection twice. The bankruptcy court again ordered Laney to amend the plan and allowed Chance to file an affidavit of attorney’s fees. Laney’s second amended plan accounted for the full outstanding principal and interest but not for attorney’s fees.The bankruptcy court confirmed the plan, which listed the Edge claim to be paid in full with interest. At the court’s request, Second Chance amended Claim 3 to include attorney’s fees, but labeled it as “Claim 9,” which led Laney to object. The court concluded that Claim 9 would be treated as an amendment to Claim 3. Laney unsuccessfully argued that the claim violated 11 U.S.C. 1327(a). The district court and Seventh Circuit affirmed. The bankruptcy court provided compelling reasons for allowing the post-confirmation amendment; the attorney’s fees were reasonable and necessary. View "Laney v. Second Chance Auto, Inc." on Justia Law

As special counsel, the law firm of Silverman & Morris recovered $38,000 for the estate in the Village Apothecary bankruptcy proceeding and requested $37,063 in fees. The bankruptcy court, finding that the benefit of the services did not warrant awarding the full amount, halved the award.The Sixth Circuit affirmed. Bankruptcy courts can consider “results obtained” when determining whether fees are reasonable under 11 U.S.C. 330(a)(3) and the bankruptcy court did not abuse its discretion in reducing the fees by half. In determining the amount of reasonable compensation to be awarded to a professional person, the court shall consider the nature, the extent, and the value of such services; section 330(a)(3) instructs the courts to “tak[e] into account all relevant factors, including” the time spent, rates charged, “whether the services were necessary . . . or beneficial at the time at which the service was rendered,” as well as other factors, including “results obtained.” Here, the “results obtained” were minimal. The law firm’s efforts to recover $1.6 million dollars resulted in only $38,000. Had the bankruptcy court awarded the law firm all its fees, it would have left virtually nothing for the estate. View "In re: Village Apothecary, Inc." on Justia Law

After the bankruptcy court confirmed Falcon V’s reorganization plan, Argonaut Insurance Company asked the court to interpret the plan, arguing primarily that a $10.5 million suretyship agreement was an “executory contract” and that the reorganized Falcon V had therefore assumed the agreement under the reorganization plan’s express terms. The bankruptcy court concluded that Falcon V had not assumed the agreement and disallowed Argonaut’s $7.3 million unsecured claim against Falcon V. The district court affirmed the judgment of the bankruptcy court.On appeal, Argonaut primarily argues that the bankruptcy and district courts erred in determining that the Surety Bond Program was not assumed under the Plan. The Fifth Circuit affirmed. The court explained that the Surety Bond Program does not satisfy the Countryman test’s second requirement. Accordingly, it is not an executory contract, and the bankruptcy and district courts correctly determined that it was not assumed under the Plan. View "Argonaut Insurance v. Falcon V" on Justia Law

In 2014, Helmstetter filed a state court lawsuit against his former employer, Kingdom. Kingdom filed counterclaims and a separate lawsuit. Helmstetter's 2019 bankruptcy petition automatically stayed the state court litigation. Helmstetter filed schedules of assets and liabilities under penalty of perjury, valuing his total assets at $8.5 million, which included his projected state court recovery at between $5-7.5 million. Helmstetter valued his liabilities at $6.5-$10.5 million. After Helmstetter filed his first amended schedules, bankruptcy trustee Herzog obtained approval of a settlement with Kingdom, which agreed to pay the estate $550,000. Subsequently, Helmstetter filed amended schedules, valuing his total assets at $43 million and his liabilities at $20 million; he included $16 million for the state court litigation. Helmstetter provided no evidence to support the estimates, and his accountants’ report did not explain the methodologies they used.The bankruptcy court approved the settlement agreement over Helmstetter’s objection. Without seeking a stay of the order, Helmstetter appealed. The district court dismissed. Herzog and Kingdom executed the settlement agreement and dismissed the state court litigation. The Seventh Circuit affirmed. Helmstetter failed to show how it is likely, not merely speculative, that his purported injury would be redressed by a favorable decision; he lacks Article III standing to appeal the decision. View "Helmstetter v. Herzog" on Justia Law

Appellant a Chapter 7 debtor, was disbarred by the California Supreme Court in 2014 for violations of the State Bar Rules of Professional Conduct and the California Business and Professions Code. The California Supreme Court ordered Appellant to pay restitution to 56 former clients, costs for his disciplinary proceedings, and any funds that would eventually be paid out by the State Bar’s Client Security Fund (CSF) to victims of his conduct. Appellant subsequently filed for Chapter 7 bankruptcy and received a discharge.   The Ninth Circuit affirmed in part and reversed in part the bankruptcy court’s judgment. Reversing in part, the court held that the indebtedness arising from the attorney’s obligation to reimburse the State Bar for the payments made to victims of his misconduct was not excepted from discharge under 11 U.S.C. Section 523(a)(7), which provides that a debtor is not discharged from any debt that “is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss.” Considering the totality of the Client Security Fund program, the court concluded that any reimbursement to the Fund was payable to and for the benefit of the State Bar and was compensation for the Fund’s actual pecuniary loss in compensating the victims for their actual pecuniary losses. Affirming in part the court held that, pursuant to In re Findley, 593 F.3d 1048 (9th Cir. 2010), the costs associated with the attorney’s disciplinary proceedings were nondischargeable under Section 523(a)(7). View "ANTHONY KASSAS V. STATE BAR OF CALIFORNIA" on Justia Law

Appellant appealed from a judgment of the district court affirming an order of the bankruptcy court denying the Appellant’s statutory discharge under 11 U.S.C. Section 727(a)(2). Appellant argued that the bankruptcy court erred by finding that he had an interest in Soroban, Inc., that was concealed to hinder creditors, and, in the alternative, that denying discharge was improper because the concealment began prior to the statutory one-year period set forth in Section 727(a)(2)(A).   The Second Circuit affirmed, holding that the bankruptcy court did not err in finding that Appellant had a valid interest in Soroban that was concealed to hinder creditors, and properly denied the discharge because the acts of concealment continued throughout the one-year period prior to his filing the bankruptcy petition. The court explained that the record evidence fully supports the bankruptcy court’s findings that Appellant concealed his interest in Soroban, and that the concealment was done with an intent to hinder his creditors. View "Gasson v. Premier Capital, LLC" on Justia Law