Justia Bankruptcy Opinion Summaries

Before filing for bankruptcy, the Debtors provided general contracting services for large construction projects, including many projects for departments of the federal government. To enter into contracts with the United States, contractors are generally required to post both a performance bond and a payment bond signed by the contractor and a qualified surety (such as ICSP), 40 U.S.C. 3131. When the Debtors defaulted on the contract at issue, ICSP stepped in to make sure that the work was completed. ICSP claims that it is subrogated to the United States’ rights to set off a tax refund (owed to one or more of the Debtors) against the losses that ICSP covered. However, to settle various claims in the Debtors’ Chapter 7 bankruptcy proceedings, the United States and the Trustee agreed that the United States would waive its setoff rights.The Bankruptcy Court, district court, and Third Circuit held that ICSP is not entitled to the tax refund. The United States had not yet been “paid in full,” within the meaning of 11 U.S.C. 509(c), when the Bankruptcy Court approved the settlement, so ICSP’s subrogation rights were subordinate to the remaining and superior claims of the United States at the time of the settlement. The United States was entitled to waive its setoff rights in order to settle its remaining and superior claims; the waiver of its setoff rights extinguished ICSP’s ability to be subrogated to those rights. View "Insurance Co of the State of Pennsylania v. Giuliano" on Justia Law

The First Circuit affirmed the judgment of the Bankruptcy Appellate Panel for the First Circuit (BAP) dismissing this appeal as moot, holding that this appeal was moot.In 2019, Appellant refiled for chapter 13 bankruptcy protection. Briry, LLC filed a motion in the bankruptcy case seeking payment to it of certain insurance funds. The bankruptcy court granted the motion and ordered the trustee to pay over the insurance funds to Briry. Thereafter, Appellant's bankruptcy was dismissed. Appellant appealed to the BAP challenging the bankruptcy court's order releasing the insurance funds to Briry. The BAP dismissed the appeal, concluding that it had been rendered moot by the dismissal of the bankruptcy case. The First Circuit affirmed, holding that when the bankruptcy case was dismissed, this appeal became moot. View "Sundaram v. Briry, LLC" on Justia Law

The First Circuit affirmed the judgment of the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) Title III court allowing certain expenses incurred by the Puerto Rico Electric Power Authority (PREPA) under a contract entered into with LUMA Energy, LLC and LUMA Energy ServCo, LLC (collectively, LUMA) as entitled to administrative expense priority pursuant to section 503(b)(1)(A) of the Bankruptcy Code, holding that there was no error.In 2017, the Financial Oversight and Management Board for Puerto Rico (FOMB) filed for bankruptcy on behalf of PREPA. In 2020, PREPA entered into a contract with LUMA, a private consortium, to transfer the operations and management of PREPA to LUMA. At issue was whether the Title III court erred in allowing expenses incurred by PREPA under the contract as entitled to administrative expense priority. The First Circuit affirmed, holding (1) section 503(b)(1)(A) applies in Title III cases; (2) the Title III court did not abuse its discretion in applying the requirements of section 503(b)(1)(A); and (3) the Title III court correctly held that 48 U.S.C. 2126(e) prevents it from reviewing challenges to FOMB's certification decision. View "Union de Trabajadores de la Industria Eléctrica y Riego v. Puerto Rico Electric Power Authority" on Justia Law

In 1993-2017, Penfound worked for a company that provided its employees with a 401(k) plan and voluntarily contributed a portion of his wages to the plan. In 2017, Penfound transitioned to a new company, Protodesign, which did not offer a 401(k) plan. Penfound was unable to make further contributions to his retirement account. He left Protodesign in March 2018 and, weeks later started working for Laird, which offered a 401(k) plan. Penfound eventually resumed making contributions. In June 2018, Penfound and his wife filed for Chapter 13 bankruptcy, seeking to deduct $1,375.01 per month from their disposable income as voluntary contributions to John’s 401(k) retirement plan. The Trustee objected.The bankruptcy court found that the Penfounds could “not exclude their voluntary contributions . . . from the calculation of disposable income.” The district court affirmed. In the meantime, the Sixth Circuit held that 11 U.S.C. 541(b)(7) “is best read to exclude from disposable income a debtor’s post-petition monthly 401(k) contributions so long as those contributions were regularly withheld from the debtor’s wages prior to her bankruptcy.” Rejecting a “good faith” argument, the Sixth Circuit affirmed as to Penfound, who had made no contributions within the six months pre-petition. View "Penfound v. Ruskin" on Justia Law

The First Circuit affirmed the judgment of the Bankruptcy Appellate Panel for the First Circuit (BAP) affirming the summary judgment entered by the bankruptcy court against the bankruptcy trustee (the Trustee) for an estate of two individuals, holding that an unrecorded mortgage in Puerto Rico is not a transfer of the debtor's property that is voidable by a bona fide purchaser that triggers the bankruptcy trustee's authority to avoid and preserve the lien.Jose Antonio Lopez Cancel and Carmen Nereida Medina Gonzalez acquired a property in Puerto Rico that they used as their primary residence. Banco Popular de Puerto Rico held the mortgage, but the mortgage was never recorded. The bankruptcy court treated the mortgage as a general unsecured claim covered by an earlier discharge order. The Trustee then filed this action to avoid the mortgage and preserve it on behalf of the bankruptcy estate, arguing that the unrecorded mortgage was a transfer of the debtor's property that was voidable by a bona fide purchaser. The bankruptcy court concluded that the Trustee could not avoid and preserve an unrecorded mortgage because, under Puerto Rican law, an unrecorded mortgage is not a property interest. The BAP affirmed. The First Circuit affirmed, holding that there was no error. View "Segarra Miranda v. Banco Popular de Puerto Rico" on Justia Law

A VeroBlue preferred shareholder, FishDish appeals the district court's order granting appellees' motions to dismiss FishDish's appeal of the bankruptcy court order confirming debtors' Chapter 11 plan of reorganization over FishDish's objections, and certain pre-confirmation orders.After determining that the district court and this court have statutory subject matter jurisdiction, the Eighth Circuit concluded that the district court erred in limiting the mandatory but non-jurisdictional timeliness requirements of Bankruptcy Rule 8002 to appeals from final bankruptcy court orders. Because FishDish has conceded that its appeal from the preconfirmation Claim Objection Order was untimely under Rule 8002, the court affirmed the grant of appellees' Partial Motion to Dismiss Appeal on this alternative ground. In regard to the equitable mootness claim, the court concluded that the district court did not apply a sufficiently rigorous test to determine when bankruptcy equities and pragmatics justify foregoing Article III judicial review of a bankruptcy court order confirming a Chapter 11 plan. Therefore, the court remanded for further district court proceedings. View "FishDish, LLP v. VeroBlue Farms USA, Inc." on Justia Law

In 2015, Ralph Isom filed for bankruptcy. Ultimately, a bankruptcy trustee for the estate settled with Isom’s primary creditor, Farms, LLC (“Farms”). As part of the settlement, the bankruptcy trustee conveyed a ten-acre parcel from the bankruptcy estate to Farms. Isom was living on the ten-acre parcel at the time. When Isom refused to vacate the ten-acre parcel, Farms initiated this forcible detainer action. The magistrate court entered judgment for Farms and ordered Isom to vacate the ten-acre parcel. Isom appealed to the district court, but also vacated the property as the magistrate court had ordered. Because Isom had vacated, and thus no longer occupied or owned the ten-acre parcel, the district court held that Isom’s appeal was moot. Further, the district court rejected the merits of Isom’s appeal. Isom appealed the district court’s decision on the merits, but failed to appeal the district court’s holding that his appeal was moot. The Idaho Supreme Court found that because Isom failed to raise, let alone argue against, the district court’s decision as it related to mootness, the issue was considered waived."Isom’s waiver is dispositive. As a result, we will not reach the merits of his appeal as it relates to the sufficiency of proof regarding the forcible detainer action." Judgment was thus affirmed. View "Farms, LLC v. Isom" on Justia Law

The Second Circuit vacated and reversed the bankruptcy court's order imposing punitive sanctions in three chapter 13 cases. In this case, PHH sent monthly mortgage statements listing fees totaling $716 that had not been properly disclosed in the three cases. PHH was sanctioned $75,000 for violation of Bankruptcy Rule of Procedure 3002.1 and $225,000 for violation of bankruptcy court orders.The court agreed with PHH that Rule 3002.1 does not authorize punitive monetary sanctions, and that PHH did not violate the court orders as a matter of law. The court explained that a broad authorization of punitive sanctions is a poor fit with Rule 3002.1's tailored enforcement mechanism and limited purpose. Therefore, punitive sanctions do not fall within the "appropriate relief" authorized by Rule 3002.1. View "In re: Gravel" on Justia Law

While Appvion was in financial distress, 2012-2016, the defendants allegedly fraudulently inflated stock valuations to enrich the directors and officers, whose pay was tied to the valuations of its ERISA-covered Employee Stock Ownership Plan (ESOP). They allegedly carried out this scheme with knowing aid from the ESOP trustee, Argent, and its independent appraiser, Stout. Appvion directors allegedly provided unlawful dividends to its parent company by forgiving intercompany notes. Appvion filed for bankruptcy protection. Appvion’s bankruptcy creditors were given authority to pursue certain corporation-law claims on behalf of Appvion to recover losses from the defendants’ alleged wrongs against the corporation; they brought state law claims against the directors and officers for breaching their corporate fiduciary duties; alleged that Argent and Stout aided and abetted those breaches, and asserted state-law unlawful dividend claims. The defendants argued that their roles in Appvion’s ESOP valuations were governed by the Employee Retirement Income Security Act (ERISA), which preempted state corporation-law liability and that, despite their dual roles as corporate and ERISA fiduciaries, they acted exclusively under ERISA when carrying out ESOP activities, 29 U.S.C. 1002(21)(A). The district court agreed and dismissed.The Seventh Circuit reversed in part. ERISA does not preempt the claims against directors and officers. ERISA expressly contemplates parallel corporate liability against those who serve dual roles as both corporate and ERISA fiduciaries. ERISA preempts the claims against Argent and Stout. Corporation-law aiding and abetting liability against these defendants would interfere with the cornerstone of ERISA’s fiduciary duties—Section 404's exclusive benefit rule. View "Halperin v. Richards" on Justia Law

The Bankruptcy Appellate Panel dismissed debtor's appeal as moot where he challenged the bankruptcy court's order denying his motion for relief from a previous order denying his request for a waiver of the Bankruptcy Code's credit counseling requirement. The court concluded that the bankruptcy case was subsequently dismissed, and thus a reversal of the waiver denial order would be of no benefit to debtor. View "Lincoln v. Snyder" on Justia Law