Justia Bankruptcy Opinion Summaries

The Federal Energy Regulatory Commission (“FERC”), anticipating Petitioner Gulfport Energy Corporation’s (“Gulfport”) insolvency, issued four orders purporting to bind the petitioner to continue performing its gas transit contracts even if it rejected them during bankruptcy. Petitioner asked the Fifth Circuit to vacate those orders. The court granted the petitions and vacated the orders holding that FERC cannot countermand a debtor’s bankruptcy-law rights or the bankruptcy court’s powers.   Gulfport attacked attacks FERC’s orders on two fronts. Gulfport first says that FERC lacked authority to issue them. It then contends that the orders are unlawful because they violate the Bankruptcy Code and purport to restrain Gulfport’s bankruptcy-law rights and the powers of the bankruptcy court. The court explained that FERC did have authority to issue the orders. But because the orders rested on an inexplicable misunderstanding of rejection, the court must vacate them all. The court wrote that each order rests on the incorrect premise that rejecting a filed-rate contract in bankruptcy is something more than a breach of contract.   The court further wrote that FERC can decide whether actual modification or abrogation of a filed-rate contract would serve the public interest. It even may do so before a bankruptcy filing. But rejection is just a breach; it does not modify or abrogate the filed rate, which is used to calculate the counterparty’s damage. So FERC cannot prevent rejection. It cannot bind a debtor to continue paying the filed rate after rejection. And it cannot usurp the bankruptcy court’s power to decide Gulfport’s rejection motions. View "Gulfport Energy Corporation v. FERC" on Justia Law

Gayle died in 2006. Attorney Johnston filed Chapter 13 bankruptcy petitions on behalf of Gayle in 2016 and 2018 at the request of Gayle’s daughter, Elizabeth, the Administratrix of her mother’s probate estate. After the dismissal of the 2018 petition, Elizabeth, pro se, filed three Chapter 13 petitions on Gayle’s behalf. The Chapter 13 Trustee sought sanctions against Bagsby after she filed yet another Chapter 13 petition.The bankruptcy court ordered Johnston to show cause why he should not be subject to sanctions for filing the two Chapter 13 petitions on behalf of a deceased person. After a hearing, the bankruptcy court reopened the first two cases and issued sanctions sua sponte against Johnston and Bagsby. The bankruptcy court determined that Johnston failed to conduct any inquiries or legal research, there was no basis in existing law to support a reasonable possibility of success, and the cases were filed for the express purpose of delaying foreclosure actions. The bankruptcy court concluded Johnston violated Rule 9011 of the Federal Rules of Bankruptcy Procedure. The Bankruptcy Appellate Panel and the Sixth Circuit affirmed the sanctions order. Johnson had admitted to the factual findings. The bankruptcy court was not required to find that Johnson acted in bad faith, in a manner “akin to contempt of court,” or with a specific mens rea but only whether Johnston’s conduct was reasonable. View "Johnston v. Hildebrand" on Justia Law

The First Circuit affirmed the order of the Title III court confirming a plan of adjustments for the debts of the Commonwealth and two of its instrumentalities in this action brought under the Title III of the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), holding that otherwise valid Fifth Amendment takings claims arising pre-petition cannot be discharged in Title III bankruptcy proceedings without payment of just compensation.After the court charged with overseeing Title III proceedings confirmed the plan of adjustment at issue several stakeholders brought appeals challenging aspects of the court's confirmation order. At issue was the appeal of the Financial Oversight and Management Board of Puerto Rico challenging the Title III court's conclusion that claimants owed just compensation for the taking of real property by debtors were entitled to receive satisfaction in full for on their claims. The First Circuit affirmed the Title III court's order confirming the plan, holding that discharging valid, pre-petition takings claims for less than just compensation would violate the Fifth Amendment and render a plan providing for such discharge unconfirmable under PROMESA. View "Financial Oversight & Management Board v. Cooperativa de Ahorro y Credito" on Justia Law

During a decade as a member of USA Gymnastics, J.J. was one of the hundreds of gymnasts sexually assaulted by Larry Nassar, the organization’s physician. In response to the claims based on Nassar’s conduct, USA Gymnastics filed for bankruptcy. The bankruptcy court set a deadline for filing proofs of claim. USA Gymnastics mailed notices to all known survivors who had filed or threatened to file lawsuits, had reported abuse, had entered into a settlement agreement, or had received payment as a result of an allegation of abuse--more than 1,300 individuals. USA Gymnastics also emailed copies of the notice to more than 360,000 current and former USA Gymnastics members, and placed information about the bar date on its website, social media pages, in USA Today, and in gymnastics journals, podcasts, and websites J.J. did not receive actual notice and filed her proof of claim five months late.The bankruptcy court treated her claim as untimely. The district court and Seventh Circuit affirmed. J.J. argued that she was entitled to actual notice; she claimed USA Gymnastics should have known that she was a potential claimant because it needed to retain medical records under Michigan law and should have known that she had seen Nassar for medical care. The court found no evidence that USA Gymnastics had these records; J.J.’s argument that Michigan law required retention of any relevant documents “is dubious.” View "Jane Doe JJ v. USA Gymnastics" on Justia Law

Beaulieu Group, LLC (“Beaulieu”), was “engaged in the distribution of carpet and hard surface flooring products in both residential and commercial markets in the United States and many foreign countries.” Beaulieu added new members to its board of directors but had insufficient borrowing power and liquidity to complete its turnaround efforts. Beaulieu and its affiliates each filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code.   The bankruptcy court subsequently approved a plan of liquidation that involved transferring all of Beaulieu’s assets to a liquidating trust. PMCM 2, LLC (the “Trustee”), is the liquidating trustee for the Beaulieu Liquidating Trust. The creditor is Auriga Polymers Inc. (“Auriga”), which sold Beaulieu polyester resins and specialty polymers used in a range of products, including textiles, before the bankruptcy.   At issue was whether post-petition transfers made under 11 U.S.C. Section 503(b)(9) will reduce the creditor’s new value defense. The Eleventh Circuit held that, for purposes of Section 547(c)(4)(B), “otherwise unavoidable transfers” made after the debtor has filed for bankruptcy do not affect a creditor’s new value defense. Thus, the court affirmed in part and reversed in part the bankruptcy court’s order on appeal.   The court wrote that the Bankruptcy Code empowers a trustee to claw back “preferences”. But the creditor who gives new value to the debtor after receiving a preference may use that new value to offset its preference liability. This “new value” defense, however, is itself offset to the extent that the debtor later makes an “otherwise unavoidable transfer” to the creditor on account of the value received. View "Auriga Polymers Inc. v. PMCM2, LLC" on Justia Law

After filing for bankruptcy, the Terrells proposed a plan that classified about $30,000 they owed to Wisconsin as a “priority debt,” 11 U.S.C. 507(a)(1)(B) based on an overpayment of public assistance. The existence of a priority debt meant that the Chapter 13 plan had to continue for 60 months, after which unpaid debts would be discharged. After the plan was confirmed, the Seventh Circuit held that public assistance debts are not entitled to priority status, which raised the possibility of cutting the duration of the Terrell plan to 36 months and reducing the amount they paid. The bankruptcy court eventually amended the plan accordingly.The Seventh Circuit reversed, noting that the Terrells waited almost two years after the confirmation of their plan to seek a modification. A bankruptcy court needs authority from a statute, a rule, or the litigants’ consent to modify a confirmed plan. The Terrells acted too late to use Rule 60(b), the best and possibly the only source of authority for the relief they sought. View "State of Wisconsin Department of Children and Families v. Terrell" on Justia Law

Appellee held a 99% interest in 72 Grandview LLC, which in turn owned a residential property that Appellee occupied as her primary residence. Appellant Bayview Loan Servicing LLC  (“Bayview”) initiated a foreclosure action in which both 72 Grandview LLC and Appellee were named as defendants. After Bayview obtained a judgment that authorized it to proceed with a foreclosure sale, Appellee a Chapter 7 bankruptcy petition and notified Bayview that, in her view, proceeding with the foreclosure sale would violate the automatic stay that took effect when she filed her bankruptcy petition. Nonetheless, Bayview proceeded with the foreclosure sale without relief from the automatic stay from the bankruptcy court.   Appellee then sought sanctions against Bayview, arguing that Bayview willfully violated the automatic stay. The bankruptcy court denied Appellee’s motion, but the district court reversed that decision and remanded for the calculation of fees and other damages that would be charged as sanctions.   Bayview appealed and the Second Circuit affirmed the district court’s order. The court held that two of the Bankruptcy Code’s automatic stay provisions, 11 U.S.C. Sections 362(a)(1) and (a)(2), are violated by an entity that proceeds with the foreclosure sale of a property when the debtor is a named party in the foreclosure proceedings, even if the debtor holds only a possessory interest in the property. Bayview willfully violated the automatic stay when it proceeded with the foreclosure sale while knowing that Appellee had filed a bankruptcy petition. View "In re: Eileen Fogarty" on Justia Law

Fountain of praise, a church, leased space to Central Care Integrated Health Services. Shortly after the execution of the lease, the relationship soured when the parties disagreed on the frequency and amount of rent payments. Eventually, Fountain of Praise terminated the lease and successfully evicted Central Care from the premises.Subsequently, Central Care filed for Chapter 11 reorganization. Central Care then sued Fountain of Praise in state court, claiming breach of contract and unjust enrichment. Fountain of Praise then removed the case to bankruptcy court as an adversary proceeding. The bankruptcy court entered judgment in favor of Fountain of Praise, finding that any breach was excusable due to Central Care's failure to make timely rent payments and that Central Care lacked the requisite interest in the property for an unjust enrichment claim.Central Care appealed, and the district court judge assigned to the case reassigned the case to a magistrate judge who affirmed the bankruptcy court's judgment.On appeal, the Fifth Circuit vacated the magistrate judge's order, finding that the district court improperly authorized referral of the appeal from a bankruptcy court decision to a magistrate judge. Under 28 U.S.C. Section 158, appeals from a bankruptcy court must be heard either by the district court or a panel of bankruptcy court judges. View "South Central v. Oak Baptist" on Justia Law

A group of insurance companies appealed an order appointing a representative for the interests of unidentified future asbestos and talc claimants in an ongoing bankruptcy proceeding. According to these insurers, who fund the asbestos claims trust established under 11 U.S.C. 524(g), this “future claimants’ representative” (FCR) has a conflict of interest precluding him from serving in this role because the FCR’s law firm also represented two of the insurance companies in a separate asbestos-related coverage dispute.The Third Circuit held that the Bankruptcy Court did not abuse its discretion in appointing the FCR. The court gave due consideration to the purported conflict, and correctly determined that the interests of both the insurance companies and the future claimants were adequately protected. View "In re: Imerys Talc America, Inc." on Justia Law

Plaintiffs owned a home in Ontario County, New York. Following foreclosure, the couple filed for protection under Chapter 13 of the Bankruptcy Code and filed a complaint seeking to avoid the loss of their home on the grounds that it was a fraudulent conveyance. The Bankruptcy Court set aside the transfer, and the County appealed, raising two questions. The first is whether the Plaintiffs had standing to bring the avoidance proceeding. The second is whether the transfer effected by Ontario County in foreclosing on the lien was entitled to the presumption of having yielded “reasonably equivalent value” under Section 548 of the Bankruptcy Code.   The Second Circuit affirmed the district court’s judgment finding that the district court correctly held that the transfer of Plaintiffs’ home to the County was not entitled to the presumption of having provided “reasonably equivalent value” under Section 548.   The court explained that the County incorrectly interprets Section 522(c)(2)(B) as barring Plaintiffs from claiming the federal homestead exemption when it merely provides that exempt property remains liable for a tax lien. They are not attempting to avoid paying the tax lien; they are attempting to avoid a transfer of the property. Accordingly, Section 522(c)(2)(B) does not deprive the Plaintiffs of standing under Section 522(h).   The court further wrote that the County’s position would produce results that are fundamentally at odds with the goals of bankruptcy law. Here, it would give the County a windfall at the expense of the estate, the other creditors, and the debtor which is precisely what the Code’s fraudulent conveyance provisions are intended to prevent. View "Gunsalus v. County of Ontario" on Justia Law