Justia Bankruptcy Opinion Summaries

The case involves a Chapter 7 bankruptcy proceeding where the United States Bankruptcy Court for the Southern District of New York approved a settlement agreement among the trustee of the bankruptcy estate, the debtor, and other parties. The settlement released claims that appellants Richard and Marisa Stadtmauer had originally asserted in a New York state court action. The Stadtmauers alleged that the debtor, Mark Nordlicht, and others engaged in a scheme to conceal Nordlicht’s assets to avoid paying his debts. When Nordlicht filed for bankruptcy, the state court proceedings were stayed, and the trustee took possession of the Stadtmauers’ claims. The settlement included a $2.5 million payment to the estate by Nordlicht’s mother, Barbara Nordlicht, and provisions for indemnification and reimbursement of legal fees.The Stadtmauers objected to the settlement and appealed the bankruptcy court’s decision to the United States District Court for the Southern District of New York. They argued that the state court had granted them valid liens on two of Nordlicht’s properties, giving them secured property rights. They contended that the trustee lacked the authority to settle their claims, that the settlement violated due process and bankruptcy principles, and that the bankruptcy court abused its discretion in approving the settlement. The district court rejected these arguments and affirmed the approval of the settlement agreement.The United States Court of Appeals for the Second Circuit reviewed the case and agreed with the district court. The court held that the trustee had the authority to settle the Stadtmauers’ claims because they were general claims that were property of the bankruptcy estate. The court also found that the settlement did not violate the principles of creditor priority as articulated in Czyzewski v. Jevic Holding Corp. because the validity of the Stadtmauers’ liens was in bona fide dispute. The court concluded that the bankruptcy court did not abuse its discretion in approving the settlement and affirmed the district court’s judgment. View "In re Nordlicht" on Justia Law

Mark Nordlicht, founder and chief investment officer of Platinum Partners, defrauded Black Elk Energy Offshore Operations' creditors of nearly $80 million, transferring the funds to his hedge fund’s investors, including Shlomo and Tamar Rechnitz, who received about $10.3 million. Nordlicht was later convicted of securities fraud. Black Elk declared bankruptcy, and the Trustee initiated an adversary proceeding against the Rechnitzes to recover the transferred funds.The bankruptcy court ruled that the Trustee could recover the money from the Rechnitzes under 11 U.S.C. §§ 544, 548(a)(1), and 550(a), rejecting their defense under 11 U.S.C. § 550(b)(1) that they were good faith transferees. The court imputed Nordlicht’s knowledge of the fraudulent scheme to the Rechnitzes, as he acted as their agent. The court also found that the funds transferred to the Rechnitzes were traceable to the fraudulent scheme. The district court affirmed the bankruptcy court’s decision.The United States Court of Appeals for the Fifth Circuit reviewed the case and affirmed the lower courts' rulings. The court held that the knowledge of an agent (Nordlicht) is imputed to the principal (the Rechnitzes) under 11 U.S.C. § 550(b)(1), and thus, the Rechnitzes could not claim to be good faith transferees. The court also found that Nordlicht’s actions were within the scope of his authority as the Rechnitzes’ agent. Additionally, the court upheld the bankruptcy court’s tracing methodology, which assumed that tainted funds were used first, finding it appropriate under the circumstances. The court concluded that the Trustee could recover the $10.3 million from the Rechnitzes. View "Rechnitz v. Schmidt" on Justia Law

Timothy Blixseth, a debtor, faced an involuntary bankruptcy petition filed by the State of Montana Department of Revenue (State) along with other state tax agencies. The bankruptcy court dismissed the petition, finding the State's claim was subject to a bona fide dispute. Blixseth then filed an adversary proceeding under 11 U.S.C. § 303(i) seeking costs and damages from the State for the dismissed petition.The bankruptcy court denied the State's motion to dismiss the adversary proceeding, ruling that the State had waived its sovereign immunity by filing the involuntary petition and through statements made by its counsel. The State appealed to the Bankruptcy Appellate Panel (BAP), which dismissed the appeal, stating that the collateral order doctrine did not apply.The United States Court of Appeals for the Ninth Circuit reviewed the case and reversed the BAP's dismissal, holding that the collateral order doctrine did apply, allowing for immediate appeal. The Ninth Circuit also reversed the bankruptcy court's denial of sovereign immunity. The court held that the State did not waive its sovereign immunity by filing the involuntary petition or through its counsel's statements. Additionally, the court found that 11 U.S.C. § 106, which addresses sovereign immunity in bankruptcy proceedings, was unconstitutional.Applying the analysis from Central Va. Cmty. Coll. v. Katz, the Ninth Circuit concluded that Blixseth's § 303(i) claim was not necessary to effectuate the bankruptcy court's in rem jurisdiction. The court determined that the adversary proceeding did not further the core functions of bankruptcy jurisdiction, such as the equitable distribution of the debtor's property or the debtor's fresh start. Consequently, the Ninth Circuit reversed the bankruptcy court's denial of sovereign immunity and remanded with instructions to dismiss Blixseth's § 303(i) claim against the State. View "Montana Department of Revenue v. Blixseth" on Justia Law

Sheila Ann Trantham filed a Chapter 13 bankruptcy plan proposing that the property of the bankruptcy estate vest in her at the time of plan confirmation. The Trustee objected, arguing that the local form plan required the property to vest only when the court entered a final decree. The bankruptcy court agreed with the Trustee, holding that a debtor could not propose a plan that contradicted the local form’s default vesting provision. Trantham amended her plan to conform with the local form but reserved her right to appeal.The United States District Court for the Western District of North Carolina affirmed the bankruptcy court’s decision. The district court reasoned that vesting property in the debtor at confirmation could lead to various risks and practical problems, such as the property being vulnerable to creditors and the trustee lacking sufficient oversight. The court also held that Trantham lacked standing to appeal because she had not shown any injury from having to conform to the local form’s default vesting provision.The United States Court of Appeals for the Fourth Circuit reviewed the case and reversed the district court’s order. The Fourth Circuit held that Trantham had standing to appeal because the bankruptcy court’s order diminished her property and increased her procedural burdens. The court also found that the bankruptcy court erred in requiring Trantham to conform to the local form’s default vesting provision. The court emphasized that the Bankruptcy Code allows debtors to propose nonstandard provisions, including vesting provisions, and that the bankruptcy court’s decision to reject Trantham’s proposed vesting provision was not supported by the Code.The Fourth Circuit reversed the district court’s order and remanded the case for further proceedings, instructing the bankruptcy court to assess whether Trantham’s proposed vesting provision should be confirmed or rejected for a reason permitted by the Code. View "Trantham v. Tate" on Justia Law

Henry Stursberg, a financial consultant, sued Morrison Sund PLLC, a Minnesota law firm, for allegedly running up legal fees without achieving results. After Stursberg decided to change counsel, Morrison Sund filed an involuntary bankruptcy petition against him. Stursberg sought to dismiss the petition, which the bankruptcy court granted under 11 U.S.C. § 305(a)(1), noting the petition was used improperly to collect fees. Stursberg then filed a diversity action in Pennsylvania, asserting state law tort claims against Morrison Sund.The Eastern District of Pennsylvania dismissed Stursberg’s claims due to lack of personal jurisdiction and improper venue, transferring the case to the District of Minnesota. The Minnesota district court dismissed the state law claims, ruling they were preempted by the Bankruptcy Code, specifically 11 U.S.C. § 303(i), which provides remedies for bad faith filings of involuntary bankruptcy petitions.The United States Court of Appeals for the Eighth Circuit reviewed the case. The court affirmed the district court’s dismissal, holding that the federal court that dismisses an involuntary bankruptcy case has exclusive jurisdiction to enforce debtor remedies under § 303(i). The court concluded that Stursberg’s state law claims were preempted by the federal statute, and his failure to appeal the bankruptcy court’s denial of his motion for attorney’s fees and costs under § 303(i)(1) precluded him from seeking further damages. The court emphasized that § 303(i) provides an exclusive remedy for bad faith filings, precluding state law tort claims in this context. View "Stursberg v. Morrison Sund PLLC" on Justia Law

Robert Allen Stanford operated a billion-dollar Ponzi scheme through various entities in Texas and Antigua. In 2009, a federal district court appointed an equity receiver (the "Receiver") to manage the assets of the Stanford entities, handle claims from defrauded investors, and pursue claims against third parties. This appeal concerns a settlement with Societe Generale Private Banking (Suisse) S.A. ("SGPB"), which included a bar order preventing future Stanford-related claims against the Swiss bank. Two individuals appointed by an Antiguan court to liquidate one of the Stanford entities argued that the bar order should not apply to their claims against SGPB.The United States District Court for the Northern District of Texas approved the settlement and issued the bar order. The Joint Liquidators objected, arguing that the district court lacked personal jurisdiction over them. They filed their objection in a related Chapter 15 proceeding rather than the main SEC action, leading to a jurisdictional dispute. The district court held a hearing, during which it indicated that any participation by the Joint Liquidators' counsel would be considered a waiver of their jurisdictional objection. The court approved the settlement and entered the bar order, prompting the Joint Liquidators to appeal.The United States Court of Appeals for the Fifth Circuit reviewed the case. The court held that the district court did not have the necessary personal jurisdiction to bind the Joint Liquidators with its bar order. The court emphasized that injunctions require in personam jurisdiction, which the district court lacked over the Joint Liquidators. The court vacated the district court's scheduling order and the bar order as it applied to the Joint Liquidators, and remanded the case for further proceedings consistent with its opinion. View "Dickson v. Janvey" on Justia Law

Andrew Delaney, a lawyer acting pro se, filed a Chapter 7 bankruptcy petition in the Eastern District of New York, listing $1,110 in assets and $44,434 in liabilities. He later sought to dismiss his petition, arguing that he was not a debtor as defined by 11 U.S.C. § 109(a) and that venue was improper. The bankruptcy court denied his motion, stating that dismissal would not be in the interest of all parties, particularly his creditors, and that the trustee had made progress in achieving a modest settlement.Delaney appealed the bankruptcy court's denial to the United States District Court for the Eastern District of New York. The district court dismissed his appeal for lack of appellate jurisdiction, concluding that the denial of a motion to dismiss a bankruptcy petition is not a final order that can be appealed as of right under 28 U.S.C. § 158(a)(1). The district court also treated Delaney's notice of appeal as a motion for leave to appeal under 28 U.S.C. § 158(a)(3) and denied it.The United States Court of Appeals for the Second Circuit reviewed the case and determined that it too lacked jurisdiction over Delaney’s appeal. The court held that the bankruptcy court's order denying Delaney's motion to dismiss was nonfinal because it did not finally dispose of any discrete disputes within the larger bankruptcy case. Consequently, the district court's dismissal of the appeal left significant further proceedings in the bankruptcy court. As a result, the Second Circuit dismissed Delaney’s appeal for lack of appellate jurisdiction. View "Delaney v. Messer" on Justia Law

The case involves a court-appointed receiver tasked with distributing funds recovered from a Ponzi scheme orchestrated by Kevin Merrill, Jay Ledford, and Cameron Jezierski. The scheme defrauded over 230 investors of more than $345 million. The appellants, comprising institutional and individual investors, were among the victims. The institutional investors, known as the Dean Investors, frequently withdrew and reinvested their funds, while the individual investors, known as the Connaughton Investors, invested through a third-party fund and later received settlements from that fund.The United States District Court for the District of Maryland approved the receiver's distribution plan, which used the "Rising Tide" method to allocate funds. This method ensures that no investor recovers less than a certain percentage of their principal investment, but it deducts pre-receivership withdrawals from the recovery amount. The Dean Investors objected to this method, arguing that their reinvested withdrawals should not be counted against them. The Connaughton Investors objected to the plan's "Collateral Offset Provision," which counted third-party settlements as withdrawals, reducing their distribution from the receiver.The United States Court of Appeals for the Fourth Circuit reviewed the case and affirmed the district court's decision. The court found no abuse of discretion in the district court's approval of the distribution plan. It held that the Rising Tide method without the Maximum Balance approach was appropriate, as it ensured a fair distribution to more claimants. The court also upheld the Collateral Offset Provision, reasoning that it prevented the Connaughton Investors from receiving a disproportionately higher recovery compared to other victims. The court emphasized the need for equitable distribution and the administrative feasibility of the receiver's plan. View "CCWB Asset Investments, LLC v. Milligan" on Justia Law

An affiliate of Cambrian Holding Company held a lease to mine coal on land owned by Hazard Coal Corporation. During Cambrian's bankruptcy, it proposed selling its lease interest to American Resources Corporation, which falsely warranted it could obtain a mining permit. The bankruptcy court approved the lease assignment based on this false understanding. Hazard Coal later discovered American Resources could not lawfully mine coal and repeatedly tried to unwind the assignment, but the bankruptcy court rejected these attempts.The United States Bankruptcy Court for the Eastern District of Kentucky initially approved the sale of Cambrian's lease interest to American Resources. Hazard Coal did not object before the sale but later moved to reconsider the sale order, citing American Resources' permit-blocked status. The bankruptcy court denied this motion, stating Hazard Coal could have raised its objections earlier. Hazard Coal did not appeal this decision. Subsequently, Hazard Coal moved to compel American Resources to restore power to the mine or rescind the assignment, but the court again denied the motion, reiterating that Hazard Coal had forfeited its objections by not acting timely.The United States Court of Appeals for the Sixth Circuit reviewed the case. Hazard Coal appealed the bankruptcy court's declaration that Cambrian had validly assigned the lease to American Resources. The Sixth Circuit affirmed the bankruptcy court's decision, finding no abuse of discretion. The court held that the bankruptcy court reasonably interpreted its prior orders as barring Hazard Coal's challenge to the lease assignment due to its failure to timely assert its rights. The court emphasized that Hazard Coal's objections were forfeited because they were not raised in a timely manner. View "In re Cambrian Holding Co., Inc." on Justia Law

The case involves Edgar Reyes-Colón, who was subjected to an involuntary Chapter 11 bankruptcy petition filed by Banco Popular de Puerto Rico in 2006. The bankruptcy court dismissed the petition in 2016, finding that Banco Popular failed to join the requisite number of creditors. Reyes-Colón subsequently filed a motion for attorney's fees and costs under 11 U.S.C. § 303(i)(1) and initiated an adversary proceeding alleging bad faith under 11 U.S.C. § 303(i)(2).The bankruptcy court denied Reyes-Colón's motion for attorney's fees, ruling it lacked subject-matter jurisdiction as the motion was filed after the case was closed. Reyes-Colón appealed to the District Court for the District of Puerto Rico, which affirmed the bankruptcy court's decision, adding that the motion was untimely under local rules requiring such motions to be filed within fourteen days after the issuance of the mandate. Reyes-Colón then appealed to the United States Court of Appeals for the First Circuit.The First Circuit held that the bankruptcy court had jurisdiction over post-dismissal § 303(i) motions, as such motions necessarily require post-dismissal jurisdiction. However, the court affirmed the denial of the attorney's fees motion on the grounds that it was untimely, as it was filed 365 days after the mandate issued, far exceeding the fourteen-day limit set by local rules.Regarding the adversary proceeding, Reyes-Colón filed a motion for withdrawal of reference to have the district court adjudicate the case. The district court denied the motion as untimely, conflating the timeliness of the motion for withdrawal with the timeliness of the § 303(i) motion. The First Circuit vacated this decision, clarifying that the timeliness of the motion for withdrawal should be measured from the filing of the adversary proceeding, not the dismissal of the involuntary petition. The case was remanded for further consideration of whether there is cause to withdraw the reference. View "Reyes-Colon v. Banco Popular de Puerto Rico" on Justia Law