Justia Bankruptcy Opinion Summaries

Beach, a debtor in possession, sought to avoid Live Oak’s blanket lien on all of its assets. In Florida, a creditor’s financing statement that does not list the debtor’s correct name is “seriously misleading” and ineffective to perfect the creditor’s security interest. Fla. Stat. 679.5061(2). Live Oak asserted that abbreviating “Boulevard” to “Blvd.” did not render the financing statements defective or seriously misleading. Florida Statute 679.5061(3), establishes a safe harbor for defective financing statements. The bankruptcy court granted Live Oak summary judgment.Noting that lower courts, applying Florida law, have reached different conclusions regarding the application of the statutory safe harbor, the Eleventh Circuit certified to the Florida Supreme Court the questions: (1) Is the “search of the records of the filing office under the debtor’s correct name, using the filing office’s standard search logic,” as provided for by Florida Statute 679.5061(3), limited to or otherwise satisfied by the initial page of twenty names displayed to the user of the Registry’s search function? (2) If not, does that search consist of all names in the filing office’s database, which the user can browse to using the command tabs displayed on the initial page? (3) If the search consists of all names in the filing office’s database, are there any limitations on a user’s obligation to review the names and, if so, what factors should courts consider when determining whether a user has satisfied those obligations? View "1944 Beach Boulevard, LLC v. Live Oak Banking Co." on Justia Law

The Davises took out a mortgage on their residence in 2005. After they defaulted on the loan and filed for bankruptcy, Jerome Davis, a licensed attorney who represented himself, received a bankruptcy discharge. The bankruptcy court later held that the discharge did not extend to the debt Davis owed CitiMortgage. Rather than appeal, Davis first attempted to remove CitiMortgage’s foreclosure action to federal court, alleging that CitiMortgage’s efforts to obtain a personal deficiency judgment contravened his bankruptcy discharge. He then filed a separate suit alleging unfair debt collection practices against CitiMortgage. Davis lost in each of those proceedings. CitiMortgage was awarded attorney fees and costs, 28 U.S.C. 1447(c) when the court remanded the foreclosure proceeding for lack of federal question jurisdiction.The Seventh Circuit dismissed Davis’s appeal, stating that it lacked jurisdiction to review the remand order. Davis waived his arguments challenging the attorney fees and costs award. The court upheld the dismissal of Davis’s suit against CitiMortgage; all of Davis’s claims center on his contention that the debt owed CitiMortgage was subject to his 2018 discharge. The court took judicial notice that the bankruptcy court had held the opposite in Davis’s adversary proceeding. View "Davis v. CitiMortgage, Inc." on Justia Law

Dean filed a Chapter 7 voluntary petition. The trustee for the estate did not have sufficient unencumbered funds to retain counsel to pursue claims for the estate. Reticulum, a creditor, agreed to fund the trustee’s litigation in exchange for a share of any of litigation proceeds. The bankruptcy court approved the agreement. The district court affirmed. Dean appealed, contending that the agreement undermined the statutory ranking system for distribution of the estate’s property by allowing Reticulum to move ahead of other creditors.The Fifth Circuit dismissed the appeal for lack of standing. Bankruptcy standing may be addressed even when it was not raised below. The court employed the “person aggrieved” test, a “more exacting standard than traditional constitutional standing.” The appellant must show that he is “directly, adversely, and financially impacted by” the exact order being appealed as opposed to the proceedings more generally. In a Chapter 7 bankruptcy, the debtor-out-of-possession typically has no concrete interest in how the bankruptcy court divides up the estate. A debtor may retain bankruptcy standing by showing that defeat of the order on appeal would affect his bankruptcy discharge. The approval of the litigation funding agreement did not affect whether Dean’s debts will be discharged. View "Dean v. Seidel" on Justia Law

Sienega failed to file required California state income tax returns in the 1990-1992, and 1996 tax years. The IRS made upward adjustments in Sienega’s federal tax liability for those years. For each of the four tax years, Sienega’s counsel faxed to California's Franchise Tax Board (FTB) a cover sheet and IRS Form 4549-A, listing the adjustments to Sienega’s income, the corrected taxable income and tax liability, interest, and penalties. The FTB issued a notice of proposed assessment for each tax year; each stated that the FTB had “no record of receiving [Sienega’s] personal income tax return.” The notices proposed to assess state taxes based upon the federal audit report and specified that if Sienega disagreed with any of the calculations, he would need to submit a formal protest. Sienega did not file any belated tax returns or protests. The assessments became final in 2009. In 2014, Sienega filed a bankruptcy petition. The FTB filed am adversary complaint seeking to have Sienega’s outstanding state tax debts declared nondischargeable under 11 U.S.C. 523(a)(1)(B), based on the fact that he had not filed a formal state tax return in any of the relevant years. Sienega contended that he had filed state tax returns by faxing information about the adjustments.The bankruptcy court granted the FTB summary judgment. The Bankruptcy Appellate Panel and Ninth Circuit affirmed. The faxes did not constitute a return under the “hanging paragraph” in section 523(a) because the California state law process with which his faxes complied was not “similar” to 26 U.S.C. 6020(a), which authorizes the IRS to prepare a tax return when a taxpayer does not. View "Sienega v. State of California Franchise Tax Board" on Justia Law

The Bankruptcy Appellate Panel dismissed debtors' appeal of the bankruptcy court's orders based on lack of standing. In this case, debtors challenged the bankruptcy court's orders (1) granting in part and denying in part the chapter 7 trustee's application to pay her law firm as attorney for the trustee, and (2) denying debtors' motion to remove the trustee, among other findings not at issue here. The court concluded that debtors are not personally aggrieved by the orders and therefore lack standing to appeal them. View "Levitt v. Jacoway" on Justia Law

In 1999, Kristina drugged her sons and put them, and herself, in a running car in a closed garage. Matthew died; Adam and Kristina survived. Kristina was convicted of second-degree murder and remained in prison until 2016. In 1999, Kristina had State Farm automobile and homeowners insurance policies. In 2001, Matthew’s estate, Adam, and their father (the Rotells) sued Kristina for wrongful death and bodily injury.Kristina tendered her defense to State Farm, which filed state court declaratory judgment actions, seeking determinations that her policies did not cover the incident. The Rotells allege that State Farm rejected a settlement offer even though Kristina wished to accept it. The state court then held that the policies did not cover the incident. State Farm withdrew from the wrongful-death lawsuit. The state court entered a default judgment against Kristina; a jury entered a $505 million verdict. Kristina was insolvent, so the Rotells petitioned for involuntary Chapter 7 bankruptcy. The bankruptcy court entered an order subjecting Kristina’s assets (claims against State Farm for bad faith and malpractice) to its control and appointed Carapella as trustee. The verdict is Kristina’s only liability. Carapella sued State Farm in Florida state court. State Farm then sought to intervene, post-judgment, in the wrongful-death action and moved to vacate the judgment, arguing that the Rotells’ fifth amended complaint was untimely and that the default judgment was void.The district court and the Eleventh Circuit affirmed the denial of the motion. The Bankruptcy Code’s “automatic stay” provision, 11 U.S.C. 362(a), precluded State Farm’s motion to intervene. View "State Farm Florida Insurance Co. v. Carapella" on Justia Law

BVS, a company owned by Palasota, and Palasota separately filed voluntary Chapter 11 bankruptcy petitions. An amended 2015 “joint” reorganization plan described the amounts BVS owed a secured creditor, Prosperity, and provided that Prosperity would have an Allowed Secured Claim of $1,812,472.43, to be paid based upon a 120-month amortization with interest at 5% per annum. Commencing on November 8, 2015, BVS was to make 59 equal payments of $19,224.72; the 60th payment would be of all outstanding principal and interest. Palasota, individually and on behalf of BVS, signed the 2015 Plan, which was confirmed. For 38 consecutive months, BVS made payments, which Prosperity applied to BVS’s principal and interest obligations.BVS then stopped making its monthly payments and, in 2019, again filed for bankruptcy. In the second bankruptcy, Prosperity filed a proof of claim for $1,333,695.84. After a hearing, the bankruptcy court allowed Prosperity’s claim. The district court and Fifth Circuit affirmed. BVS’s claim objection is barred by res judicata because Prosperity’s claim in the second bankruptcy—as it relates to whether Prosperity’s claim in the 2015 Plan was correct—arises out of the same transaction that was the subject of the 2015 Plan and BVS could have made this argument in the first bankruptcy but did not. View "BVS Construction, Inc. v. Prosperity Bank" on Justia Law

Jackson was traveling in his wheelchair along a street near the Louisville Embassy Suites Hotel when he was hit by a hotel valet driver. He suffered severe injuries. Jackson sued, in Kentucky state court, several entities connected to the hotel, including Le Centre, the owner of the hotel property. Le Centre had filed for Chapter 11 bankruptcy protection before the suit was filed; its reorganization disclosure statement explained that Le Centre’s Chapter 11 plan included the release not only of Le Centre but also of related non-debtor parties. Jackson's attorney received an amended version of the disclosure statement and a copy of the plan. Le Centre did not serve Jackson with a specific form of notice required by the Federal Rules of Bankruptcy Procedure, however.After the approved Chapter 11 plan went into effect, Le Centre and two other released entities moved to dismiss in the state court action as barred by the confirmation order. Jackson sought to proceed nominally against these entities to reach their insurers. The bankruptcy court denied this request. The district court and Eleventh Circuit affirmed. Jackson received sufficient notice to satisfy due process and the bankruptcy court did not abuse its discretion by ruling that Jackson could not pursue the nominal claims. View "Jackson v. Le Centre on Fourth, LLC" on Justia Law

After a grocery went bankrupt, a creditor filed a proof of claim for about $325,000, the balance on a loan it had made to the grocery. In the business's Chapter 11 plan, the bankruptcy court awarded the creditor the grocery store and the land where it was located. After assessing the value of the property at $225,000, the bankruptcy plan reduced the outstanding balance on the loan to $100,000, which the owners of the grocery remained liable for. The owners then filed for bankruptcy and the creditor again filed a proof of claim for the entire debt. The creditor argued that the $225,000 credit against the guaranteed loans should not apply in the owners' personal bankruptcy, because the store had not yet been transferred and the vacant property had declined in value.The Fifth Circuit concluded that the terms of the first bankruptcy are binding in the second bankruptcy. The court explained that, under section 1141(a) of the Bankruptcy Code, the provisions of a confirmed bankruptcy plan bind both the debtor and its creditors. Therefore, the creditor is bound by the provision of the first bankruptcy plan awarding it the grocery store in exchange for a fixed-value credit against the guaranteed debt. Accordingly, the court affirmed the district court's judgment upholding the bankruptcy court's orders sustaining the owners' objection and confirming their individual bankruptcy plan. View "New Falls Corp. v. LaHaye" on Justia Law

The Stanfords, the debtors in Chapter 11 bankruptcy proceedings, owned APC, another Chapter 11 debtor. Each had borrowed money from ServisFirst; each served as guarantor for the other’s debt. The Stanfords owed ServisFirst $5 million; APC owed $7.2 million. APC obtained a “roll-up loan” from ServisFirst to consolidate the debt and obtain working capital. The Stanfords had secured their loans from ServisFirst with real property. The bankruptcy court approved the sale of the property to ServisFirst “via a credit bid of $3.5 million,” 11 U.S.C. 363(k), stating that ServisFirst was “a good faith purchaser” and that the consideration “exceeds the liquidation value” of the property. The Stanfords then argued that APC’s roll-up loan converted ServisFirst’s pre-petition claims into post-petition administrative expense claims against APC alone and that because ServisFirst never required them to execute a guaranty of the roll-up loan, they had no remaining pre-petition obligations to ServisFirst, which no longer held a lien and could not make a credit bid.The bankruptcy court rejected their arguments, citing equitable estoppel, judicial estoppel, and law of the case but granted a stay conditioned on posting a $1.5 million supersedeas bond, which the Stanfords did not do. Ultimately, the Stanfords delivered an executed deed to ServisFirst, which was recorded. The Eleventh Circuit affirmed the dismissal of the Stanfords’ appeal as moot under 11 U.S.C. 363(m), citing its inability to undo a completed sale to a good faith purchaser under Section 363(m). View "Reynolds v. ServisFirst Bank" on Justia Law