Justia Bankruptcy Opinion Summaries

The IRS held a secured claim on the debtor’s real property arising from a tax penalty lien. The debtor claimed a $150,000 homestead exemption in the property under Arizona law. The trustee sought to avoid the tax penalty lien on the debtor’s exempt property and preserve it for the benefit of the estate pursuant to 11 U.S.C. Sections 724(a) and 551.   The Ninth Circuit reversed the district court’s decision affirming the bankruptcy court’s summary judgment in favor of a Chapter 7 trustee who brought an adversary proceeding seeking to avoid an Internal Revenue Service tax lien on property subject to a homestead exemption and to preserve the value of the lien for the benefit of the bankruptcy estate.   The panel held that Section 724(a) concerns the trustee’s avoidance of qualifying liens attached to the property of the estate at the time of distribution. When a debtor exempts a property interest under 11 U.S.C. Section 522, the exemption withdraws that property interest from the bankruptcy estate and, thus, from the reach of the trustee for distribution to creditors. Accordingly, because exempt property is not “property of the estate” which may be “distributed,” a trustee may not avoid a lien under Section 724(a) attached to exempt property which is no longer part of the estate. The panel held that it follows that a trustee is not permitted to preserve the tax lien for the benefit of the estate under Section 551, which provides for automatic preservation of certain avoided liens, including liens avoided under Section 724(a). View "IN RE: SANDRA TILLMAN, ET AL V. LAWRENCE WARFIELD, ET AL" on Justia Law

Pocket Plus, LLC, sued Pike Brands, LLC (“Running Buddy”) for trade-dress infringement of Pocket Plus’s portable pouch. The district court granted summary judgment to Running Buddy and awarded it a portion of its requested attorney fees. Pocket Plus appealed the summary judgment, and both parties appeal the attorney fees award.   The Eighth Circuit affirmed. The court wrote there is no genuine dispute that Pocket Plus’s trade dress is functional and thus not protected by trademark law. To grant trade-dress protection for Pocket Plus would be to hand it a monopoly over the “best” portable-pouch design. Trademark law precludes that. Further, Running Buddy argued that the district court abused its discretion in awarding only a portion of the requested fees. The court found no abuse of discretion in finding that this was an exceptional case. It considered the appropriate law, reviewed the litigation history, held a hearing, and explained its decision. View "Pocket Plus, LLC v. Pike Brands, LLC" on Justia Law

=This appeal arises from Appellee’s efforts to avoid, in bankruptcy, a judgment lien recorded in 2014 against his Carlsbad, California home. The Ninth Circuit affirmed the bankruptcy court’s judgment in favor of Appellee and against the Chapter 7 Trustee. The panel was called upon to decide how the Bankruptcy Code’s procedure for avoiding judgment liens that “impair[] an exemption to which the debtor would have been entitled,” 11 U.S.C. Section  522(f)(1), interacts with California’s homestead exemption, which allows a debtor to claim a limited exemption in bankruptcy in connection with his primary residence.   The issue gained complexity here because the amount of California’s homestead exemption increased significantly between the time the lien on Appellee’s home was recorded in 2014 and the time he filed for bankruptcy in 2021. Under California law, the exemption Appellee could claim would be fixed at the 2014 amount. Appellee argued that the Bankruptcy Code requires looking to the exemption he could have claimed, but for the lien, at the time he filed his bankruptcy petition. The panel held that in deciding whether a judgment lien impairs a debtor’s California homestead exemption, the Bankruptcy Code requires courts to determine the amount of the exemption to which the debtor would have been entitled in the absence of the lien at issue. Thus, the bankruptcy court correctly applied the $600,000 homestead exemption available in 2021, which, consequently, allowed Appellee to avoid the entirety of the judgment lien placed on his home. View "CHRISTOPHER BARCLAY V. DEJAN BOSKOSKI" on Justia Law

In 2017, Congress passed an amendment to the statute setting forth quarterly fees in bankruptcy cases, 28 U.S.C. Sec. 1930. The 2017 Amendment increased quarterly fees in judicial districts in which the United States Trustee Program oversees bankruptcy administration.Debtors challenged the Bankruptcy Court's ruling rejecting their constitutional challenge to quarterly fees imposed during the pendency of their bankruptcy proceeding. The Bankruptcy Court rejected Debtors’ argument that the 2017 Amendment violated the uniformity requirement of the Bankruptcy Clause of the United States Constitution.The Second Circuit reversed, finding the 2017 Amendment is a bankruptcy law subject to the uniformity requirement of the Bankruptcy Clause. The court also held that, under the version of Sec. 1930 in effect prior to the 2020 Act, the 2017 Amendment violated the uniformity requirement. View "In re Clinton Nurseries" on Justia Law

In this installment of a series of cases before the Court regarding the Puerto Rico Oversight, Management, and Economic Stability Act, 48 U.S.C. 2101-2241, the First Circuit dismissed the appeal, holding that this Court lacked jurisdiction over the appeal.After the court overseeing Title III proceedings confirmed a plan of adjustment for the Commonwealth's debts, Appellants challenged the Title III court's findings of fact and conclusions of law, making arguments focused on obtaining retirement benefits that Appellants believed they were entitled to. The First Circuit dismissed the appeal, holding that the arguments offered by Appellant to support the First Circuit's jurisdiction in this appeal were unavailing. View "Financial Oversight & Management Bd. v. Cooperativa de Ahorro y Credito" on Justia Law

Appellant Smart Capital Investments1 leased several floors of a commercial building in downtown Los Angeles to Appellee Hawkeye Entertainment, LLC. After a rocky relationship developed, Smart Capital took steps to terminate the lease alleging that Hawkeye had committed numerous breaches. Hawkeye failed to resolve Smart Capital’s concerns and filed for Chapter 11 bankruptcy, seeking to assume the lease under 11 U.S.C. Section 365 to prevent eviction. The bankruptcy court allowed Hawkeye to assume the lease over Smart Capital’s objection, and the district court affirmed. Smart Capital now appeals, arguing that the bankruptcy court erred by not requiring Hawkeye to provide “adequate assurances of future performance” of the lease, as required under 11 U.S.C. Section 365.   The Ninth Circuit affirmed the district court’s order affirming the bankruptcy court’s order allowing Hawkeye Entertainment, LLC, a Chapter 11 debtor, to assume an unexpired commercial lease under 11 U.S.C. Section 365. The panel held that Section 365(b)(1) applies where a default has occurred, regardless of whether that default has been resolved or is ongoing. The panel also held that “default” was not limited to material defaults that would trigger forfeiture of the lease under California landlord-tenant law. The panel concluded, therefore, that Section 365(b)(1) was triggered in this case. The panel further held, however, that the bankruptcy court’s failure to analyze Section 365(b)(1)’s curative requirements was harmless error. View "IN RE: SMART CAPITAL INVS. I, LLC, ET AL V. HAWKEYE ENTERTAINMENT, LLC, ET AL" on Justia Law

Stanley filed for Chapter 13 bankruptcy, indicating there was no money owed to him, including “Claims against third parties, whether or not you have filed a lawsuit or made a demand for payment.” The question provided examples of possible claims: “Accidents, employment disputes, insurance claims, or rights to sue.” Stanley’s bankruptcy plan provided that there would be “no future modification of dividend to unsecured creditors below 100%.” Before and after filing for bankruptcy, Stanley had problems with his employment at FCA. Stanley claims FCA violated the Family and Medical Leave Act (FMLA), resulting in the termination of his employment one week after his bankruptcy filing. The Union filed grievances on Stanley’s behalf—one before he filed for bankruptcy and one after. Both were withdrawn.Stanley filed an FMLA interference lawsuit several months after the approval of his bankruptcy case. In response to FCA’s settlement letter, which raised the issue of disclosure in bankruptcy, Stanley updated his bankruptcy asset disclosure to include: Employment terminated post-petition in violation of FMLA with “unknown” value. The Sixth Circuit affirmed summary judgment for FCA; judicial estoppel barred Stanley’s claim. Stanley had motives for concealing his employment suit although his bankruptcy plan did not provide for a discharge of his debts. Stanley’s creditors did not have a complete, accurate picture of Stanley’s assets when considering whether to object to his plan, 11 U.S.C. 1324. View "Stanley v. FCA US, LLC" on Justia Law

Ultra Petroleum Corp. (HoldCo) and its affiliates, including its subsidiary Ultra Resources, Inc. (OpCo), entered Chapter 11 bankruptcy deep in the hole. But during the bankruptcy process, these debtors (collectively, Ultra) hit it big—as natural gas prices soared, they became supremely solvent. Ultra proposed a $2.5 billion bankruptcy plan. It provided that OpCo’s creditors would be paid—in full and in cash—their outstanding principal and all interest that had accrued before bankruptcy, plus interest on both at the Federal Judgment Rate for the duration of the bankruptcy proceeding. Two groups of creditors complain that the plan falls some $387 million short.   The issue on appeal is whether the Bankruptcy Code precludes the creditors’ claims for the Make-Whole Amount; second, even if it does, whether the traditional solvent-debtor exception applies; and third, whether post-judgment interest is to be calculated at the contractual or Federal Judgment rate.   The Fifth Circuit affirmed the bankruptcy court’s judgment. The court held the Bankruptcy Code disallows the Make-Whole Amount as the economic equivalent of unmatured interest. But because Congress has not clearly abrogated the solvent-debtor exception, the court held that it applies to this case. And the solvent-debtor exception demands that Ultra pay what it promised now that it is financially capable. The court further held, given Ultra’s solvency, post-petition interest is to be calculated according to the agreed-upon contractual rate. View "Ultra Petro Corp v. Ad Hoc Com" on Justia Law

The Sears Holdings Corporation and its affiliates (collectively, the “Debtors” or “Sears”) carried approximately $2.68 billion of first- and second-lien secured debt at the time of its bankruptcy petition. The holders of the second-lien debt alleged that they were paid less than the value of the collateral that secured their claims. To recoup the difference, the second-lien holders sought relief under section 507(b) of the Bankruptcy Code, arguing that the value of their collateral decreased during the course of the bankruptcy proceeding, which entitled them to priority payment of the difference. The bankruptcy court disagreed, finding that the value of the second-lien holders’ collateral had not decreased since the date the Debtors filed for bankruptcy and that, in fact, the second-lien holders had received more than the value of their collateral.   On appeal, the second-lien holders raise a number of objections to the bankruptcy court’s valuation methodology, as well as to its valuation of several specific categories of collateral. The Second Circuit affirmed. The court explained that the bankruptcy court committed no legal or factual error in its decision to value the collateral based on NOLV. The bankruptcy court reasonably concluded that the second-lien holders failed to meet their burden of demonstrating the NBB’s value, and therefore did not err by valuing the NBB at zero. Similarly, the bankruptcy court did not err by deducting their full face value from the value of the collateral. Accordingly, the bankruptcy court did not commit clear error by denying the second-lien holders’ section 507(b) claims. View "In re Sears Holdings Corp." on Justia Law

Appellant in his capacity as Litigation Trustee for the Erickson Litigation Trust, appeals the dismissal of his avoidance and recovery claims under the bankruptcy laws. In broad terms, these claims seek avoidance of settlement releases approved in Delaware state court, as well as two payments related to Erickson Air-Crane, Inc.’s acquisition of Evergreen Helicopters, Inc. (EHI) (the “Evergreen Transaction”).   The Fifth Circuit affirmed the dismissal of the claims relating to the settlement releases and reversed in part the dismissal of the payments relating to the Evergreen Transaction itself. The court concluded that consistent with Besing and Erlewine, there was reasonable equivalence as a matter of law. The Delaware settlement “should not be unwound by the federal courts merely because of its unequal division of [settlement proceeds].” Further, the court wrote that Appellant’s attempt to attack the Delaware releases as actually fraudulent transfers also fails. The court wrote it saw no error in the lower court's conclusion that Appellant failed to adequately plead actual fraud, and his arguments on appeal do not convince the court otherwise. Moreover, the court found that acting in his specific capacity, Appellant is not enjoined by the Delaware settlement from asserting creditor claims that arose only under the Bankruptcy Code. View "Ogle v. Morgan, et al" on Justia Law