Justia Bankruptcy Opinion Summaries

Georgia-Pacific LLC, a large corporation in the pulp and paper industry, acquired Bestwall Gypsum Co. in 1965, inheriting significant asbestos-related liabilities. By 2017, Bestwall faced around 64,000 pending asbestos claims, prompting Georgia-Pacific to implement a divisional merger known as the Texas two-step. This maneuver split Georgia-Pacific into two entities: Georgia-Pacific retained most assets, while Bestwall assumed the asbestos liabilities and filed for Chapter 11 bankruptcy to manage these claims through a § 524(g) trust.The United States Bankruptcy Court for the Western District of North Carolina granted Bestwall's motion for an injunction to prevent asbestos claimants from pursuing claims outside the bankruptcy process. The Official Committee of Asbestos Claimants opposed this and moved to dismiss the bankruptcy case, arguing it was filed in bad faith since Bestwall was solvent. The bankruptcy court denied the motion, stating that filing for Chapter 11 to resolve asbestos claims is a valid purpose, even for solvent debtors.The Committee later moved to dismiss the case for lack of subject-matter jurisdiction, arguing that the Constitution does not grant jurisdiction over bankruptcy cases involving solvent debtors. The bankruptcy court rejected this argument, holding that Congress has the authority to define bankruptcy jurisdiction, which includes cases filed by solvent debtors.The United States Court of Appeals for the Fourth Circuit reviewed the case and affirmed the bankruptcy court's decision. The Fourth Circuit held that federal courts have subject-matter jurisdiction over bankruptcy cases involving solvent debtors because the Bankruptcy Code is a federal law, and petitions for relief under it arise under the laws of the United States. The court clarified that challenges to a debtor's eligibility for bankruptcy protection are not jurisdictional issues. View "Bestwall LLC v. Official Committee of Asbestos Claimants" on Justia Law

Absolute Pediatric Therapy, owned by Anthony Christopher, hired LaDonna Humphrey in May 2018 but terminated her four months later. In October 2018, Absolute and Christopher sued Humphrey in Arkansas state court, alleging various tort claims and accusing her of stealing information and making false accusations. Humphrey counterclaimed under the False Claims Act, alleging her termination was for reporting illegal activities. The litigation was contentious, and in August 2019, the state court found Humphrey in contempt and liable on all counts, awarding $3.57 million in damages to the plaintiffs.Following the state court's decision, Humphrey filed for Chapter 7 bankruptcy in September 2019. The Trustee of her bankruptcy estate proposed selling her claims, including her counterclaim and defensive appellate rights, to Absolute for $12,500. Humphrey objected to the sale of her defensive appellate rights. The bankruptcy court approved the sale, finding it reasonable and negotiated at arm's length. Humphrey did not obtain a stay of the sale but did secure a stay of the state court appeal.Humphrey appealed the bankruptcy court's order to the United States District Court for the Western District of Arkansas, which reversed the bankruptcy court's decision. The district court held that defensive appellate rights are not property of the estate under Arkansas law and found the sale not in the best interest of the estate. The district court also rejected the argument that the appeal was moot under 11 U.S.C. § 363(m) because Humphrey had obtained a stay of the state court proceedings.The United States Court of Appeals for the Eighth Circuit reviewed the case and concluded that the absence of a stay of the sale itself rendered the appeal statutorily moot under 11 U.S.C. § 363(m). The court vacated the district court's order and dismissed Humphrey's appeal from the bankruptcy court. View "Humphrey v. Christopher" on Justia Law

The Debtor-Appellant filed a chapter 13 voluntary petition on August 16, 2024, and was allowed to pay the filing fee in installments. The Debtor claimed to have received credit counseling within 180 days before filing, but failed to submit the required credit counseling certificate within the statutory deadline. The bankruptcy court issued an order compelling the Debtor to file the certificate by October 11, 2024, but the Debtor did not comply. Additionally, the Debtor failed to make the required installment payments on September 27 and October 11, 2024.The United States Bankruptcy Court for the District of South Dakota dismissed the Debtor’s case on October 15, 2024, due to the failure to pay the installment payments and the failure to submit the credit counseling certificate. The Debtor appealed the dismissal, arguing that the failure to pay the filing fee installment was due to unintentional delay and that the payment for the September 27 installment was sent but not received. The Debtor also attempted to submit two payments on October 14, which were delivered late.The United States Bankruptcy Appellate Panel for the Eighth Circuit reviewed the case. The court found that the Debtor’s appeal did not comply with Federal Rule of Bankruptcy Procedure 8014, as the brief lacked necessary components such as citations and a proper argument. Additionally, the court held that the bankruptcy court did not abuse its discretion in dismissing the case for failure to file a credit counseling certificate and for failure to make required installment payments. The court emphasized that compliance with the credit counseling requirement is mandatory and that the bankruptcy court had no choice but to dismiss the case. The order of the bankruptcy court was affirmed. View "Rivett v. Carlson" on Justia Law

In December 2021, the United States District Court for the District of Massachusetts partially recognized a multi-million-dollar foreign judgment obtained by PCC Rokita, S.A. against HH Technology Corp. (HHT). Shortly thereafter, HHT executed a trust agreement and an assignment for the benefit of creditors to wind itself down. About two months later, PCC Rokita petitioned the United States Bankruptcy Court for the District of Massachusetts to involuntarily place HHT into Chapter 7 bankruptcy. The Assignee moved to dismiss the involuntary petition, submitting a list of fifteen creditors of HHT that were allegedly qualified under section 303(b) of the Bankruptcy Code.The bankruptcy court issued an order setting a deadline for additional creditors to join the involuntary petition. Only one additional creditor, Shanghai Morimatsu Chemical Equipment Co., joined before the deadline. The court denied PCC Rokita's motion for an extension and subsequently denied DFT Properties, LLC's motion to join the petition after the deadline. The bankruptcy court held an evidentiary hearing and concluded that the Petitioning Creditors failed to prove that any of the twelve challenged creditors were unqualified, leading to the dismissal of the involuntary petition.The Petitioning Creditors appealed to the Bankruptcy Appellate Panel for the First Circuit, which affirmed the bankruptcy court's decision. They then appealed to the United States Court of Appeals for the First Circuit. The First Circuit held that the bankruptcy court may set a deadline for creditors to join a pending involuntary petition and that a putative debtor need not plead defenses to the avoidability of a pre-petition preferential transfer in its answer to the involuntary petition. The court also found that any error in requiring the creditors to disprove defenses to avoidability was harmless. Consequently, the First Circuit affirmed the dismissal of the involuntary petition. View "PCC Rokita, S.A. v. HH Technology Corp." on Justia Law

The case involves a Chapter 7 bankruptcy proceeding for debtors Theodore William White, Jr., and Porscha Shiroma. White and Lynn E. Wardley had previously started a business that failed. The Chapter 7 Trustee initiated an adversary proceeding against Wardley, alleging a constructively fraudulent obligation and transfer under federal bankruptcy statutes and the Utah Uniform Fraudulent Transfer Act (UFTA). The Trustee sought to avoid a $750,000 obligation and transfer made by White to Wardley.The United States Bankruptcy Court for the District of Utah granted summary judgment in favor of Wardley, rejecting the Trustee’s claims. The court found that White received reasonably equivalent value for both the guaranty obligation and the $750,000 transfer. The Trustee appealed to the Tenth Circuit Bankruptcy Appellate Panel (BAP), which affirmed the bankruptcy court’s decision.The United States Court of Appeals for the Tenth Circuit reviewed the case. The court affirmed the bankruptcy court’s summary judgment orders, agreeing that White received reasonably equivalent value for the guaranty obligation and the $750,000 transfer. The court found that White’s benefits, including employment, a 15% equity stake in the business, cash and equity incentives, and a business opportunity, were approximately equivalent to the value of the debt he took on. The court also held that the guaranty obligation was unconditional, making the $750,000 transfer a dollar-for-dollar exchange that constituted reasonably equivalent value. View "White v. Wardley" on Justia Law

A group of former managers of Ruby Tuesday, Inc. participated in two top-hat retirement plans administered by Regions Bank. These plans were unfunded and designed for high-level employees, meaning they were exempt from certain ERISA fiduciary duties. When Ruby Tuesday filed for bankruptcy, the managers lost their benefits and sued Regions Bank, alleging breaches of state-law fiduciary, trust, contract, and tort duties. They also sought equitable relief under ERISA to recover their lost benefits.The United States District Court for the Eastern District of Tennessee dismissed the state-law claims, ruling that ERISA preempted them. The court also granted summary judgment to Regions Bank on the ERISA claim, concluding that the requested monetary relief did not qualify as equitable relief under ERISA.The United States Court of Appeals for the Sixth Circuit reviewed the case. The court affirmed the district court's decision, holding that ERISA preempted the state-law claims because they related to an ERISA-covered plan. The court emphasized that allowing state-law claims would undermine ERISA's uniform regulatory scheme. Additionally, the court held that the monetary relief sought by the plaintiffs did not qualify as equitable relief under ERISA. The court reasoned that the plaintiffs' request for an "equitable surcharge" was essentially a request for legal damages, which ERISA does not permit under its equitable relief provision.Thus, the Sixth Circuit affirmed the district court's judgment in favor of Regions Bank, concluding that the plaintiffs could not pursue their state-law claims or obtain the requested monetary relief under ERISA. View "Aldridge v. Regions Bank" on Justia Law

In December 2020, Robert and Kristina Shoults filed for Chapter 7 bankruptcy in the United States Bankruptcy Court for the Eastern District of Missouri. In June 2021, they amended their schedule to claim a pre-petition, contingent, unliquidated personal injury tort claim as exempt under Missouri common law and Missouri Revised Statutes § 513.427. The Chapter 7 Trustee, Tracy A. Brown, objected to this exemption.The bankruptcy court disallowed the exemption, and the United States District Court for the Eastern District of Missouri affirmed this decision. The Debtors then appealed to the United States Court of Appeals for the Eighth Circuit. The district court and the bankruptcy court both concluded that the Eighth Circuit's decisions in In re Benn and In re Abdul-Rahim were controlling precedents, which held that Missouri debtors could only exempt property explicitly identified by Missouri statutes as exempt.The United States Court of Appeals for the Eighth Circuit reviewed the case and affirmed the lower courts' decisions. The court held that the Supreme Court's decision in Rodriguez v. FDIC did not overrule or abrogate the Eighth Circuit's precedents in Benn and Abdul-Rahim. The court emphasized that Benn and Abdul-Rahim required a state statutory basis for bankruptcy exemptions and that Missouri Revised Statute § 513.427 did not create new exemptions but merely opted out of the federal exemption scheme. Consequently, the court concluded that the Debtors' unliquidated personal injury tort claim was not exempt under Missouri law and affirmed the district court's order denying the exemption. View "Shoults v. Brown" on Justia Law

BenShot, LLC, a family-owned business, sells a unique drinking glass design featuring a bullet "penetrating" the side. 2 Monkey Trading, LLC and Lucky Shot USA, LLC (the Debtors) sell similar glasses imported from China, falsely advertised as "Made in the United States." BenShot sued the Debtors in the Eastern District of Wisconsin for Lanham Act violations and Wisconsin common law. A jury found in favor of BenShot, awarding punitive damages and determining the Debtors acted maliciously or in intentional disregard of BenShot's rights.Following the jury verdict, the Debtors filed for bankruptcy under Subchapter V of Chapter 11. BenShot argued that the jury award was a non-dischargeable debt for willful and malicious injury under 11 U.S.C. §§ 523(a)(6) and 1192(2). The Debtors moved to dismiss, claiming § 523(a)(6) only applied to individual debtors, not corporate debtors like themselves. The United States Bankruptcy Court for the Middle District of Florida agreed with the Debtors and dismissed BenShot's complaint, relying on similar interpretations by other bankruptcy courts.The United States Court of Appeals for the Eleventh Circuit reviewed the case. The court held that under § 1192, both individual and corporate debtors cannot discharge any debts of the kind listed in § 523(a). The court found the plain language of § 1192 unambiguous, applying to both individual and corporate debtors, and that "debt" as defined in the Bankruptcy Code does not distinguish between individual or corporate debtors. The court reversed the bankruptcy court's order and remanded the case for further proceedings consistent with this opinion. View "Benshot, LLC v. 2 Monkey Trading, LLC" on Justia Law

Rajesh Patel filed for bankruptcy in 2016, which triggered an automatic stay on all creditor actions against him. Despite this, Patel participated in an arbitration proceeding and lost. After a state court affirmed the arbitration award, Patel sought to stay the enforcement of the award in bankruptcy court, arguing that the arbitration violated the automatic stay. The bankruptcy court annulled the stay, finding that Patel had engaged in gamesmanship by participating in the arbitration without raising the stay and then attempting to use it to void the unfavorable outcome.The bankruptcy court's decision was appealed to the United States District Court for the Northern District of Georgia. The district court affirmed the bankruptcy court's annulment of the stay, rejecting Patel's argument that the annulment was contrary to the Supreme Court's decision in Roman Catholic Archdiocese of San Juan v. Acevedo Feliciano. The district court found that Acevedo, which dealt with the jurisdiction of a district court after a case was removed to federal court, did not affect the bankruptcy court's statutory authority to annul the automatic stay for cause.The United States Court of Appeals for the Eleventh Circuit reviewed the case and affirmed the lower courts' decisions. The Eleventh Circuit held that the bankruptcy court had the authority under 11 U.S.C. § 362(d)(1) to annul the automatic stay for cause. The court distinguished the case from Acevedo, noting that Acevedo addressed the removal jurisdiction of a district court and did not impact the bankruptcy court's power to annul a stay. The court also rejected Patel's procedural objections, finding that any error in the process was harmless as Patel had sufficient notice and opportunity to oppose the requested relief. View "Patel v. Patel" on Justia Law

On July 6, 2013, a train carrying crude oil derailed in Lac-Mégantic, Quebec, causing explosions that killed forty-seven people and destroyed the town center. Joe R. Whatley, Jr., as trustee for the wrongful death claimants, sued Canadian Pacific Railroad Company and related entities, alleging liability for the value of the train’s crude oil cargo.The United States District Court for the District of North Dakota found Canadian Pacific liable under the Carmack Amendment for the value of the crude oil cargo and awarded Whatley $3,950,464 plus prejudgment interest. However, the court declined to address whether the judgment reduction provision from the Montreal Maine & Atlantic Railway (MMA) bankruptcy plan applied, stating that it was a matter for the Bankruptcy Court. Canadian Pacific's motion for reconsideration was denied, leading to this appeal.The United States Court of Appeals for the Eighth Circuit reviewed the case. The court found that the district court abused its discretion by setting aside part of the joint stipulation between the parties, which required the court to decide whether the judgment reduction provision applied. The Eighth Circuit determined that the judgment reduction provision from the MMA bankruptcy plan should apply, reducing Canadian Pacific’s liability to zero, as MMA was solely responsible for the derailment.The Eighth Circuit reversed the district court’s decision and remanded the case for a complete reduction of the judgment against Canadian Pacific, ensuring that Canadian Pacific would not be held liable for more than its proportionate share of the damages, which in this case was zero due to MMA's sole liability. View "Whatley v. Canadian Pacific Railway Co." on Justia Law