Justia Bankruptcy Opinion Summaries

Big Shoulders sued the railroads (SLRG), with federal jurisdiction ostensibly based on diversity of citizenship, and requested that the district court appoint a receiver to handle SLRG’s assets. That court did so, which brought the case to the attention of several creditors. One of them, Sandton, intervened and challenged the appointment of the receiver and the district court’s jurisdiction. Sandton alleged that Big Shoulders failed to join necessary parties who, if added, would destroy diversity of citizenship. Meanwhile, other creditors (Petitioning Creditors) filed an involuntary bankruptcy petition on behalf of SLRG in federal bankruptcy court in Colorado. The receiver objected. Because the judicially approved receivership agreement contained an anti-litigation injunction, the district court initially concluded that the bankruptcy petition was void. On reconsideration, however, the district court determined that it did not have the authority to enjoin the bankruptcy. The bankruptcy continued. After Big Shoulders refused to continue to fund the receivership, the district court approved its termination.The Seventh Circuit consolidated several appeals, each of which involved questions of standing or mootness. The court concluded that those justiciability questions required the dismissal of all but Sandton’s appeal. As for Sandton’s argument that diversity jurisdiction is lacking, the court remanded to the district court for an application in the first instance of the “nerve center test” to determine if SLRG and Mt. Hood are citizens of Illinois. View "Sandton Rail Company LLC v. San Luis & Rio Grande Railroad, Inc." on Justia Law

In 2007, NLG sold a Fisher Island home to Hazan for $5,100,000, receiving a purchase money note and mortgage in return. The Property was then the subject of years of protracted litigation in two states, resulting in various orders addressing the rights of NLG, Hazan, and Selective, a company owned and controlled by Hazan’s husband. One day before the property was to be sold, Hazan filed for Chapter 11 bankruptcy relief. NLG filed a proof of claim. Hazan and Selective began adversary proceedings asserting that NLG no longer retained any rights or claims to the Property; the bankruptcy court agreed.The district court rejected an argument that the Rooker-Feldman doctrine prevented the bankruptcy court from considering any of the issues raised during the adversary proceedings and dismissed NLG’s claims on the ground of equitable mootness. The Eleventh Circuit affirmed. The bankruptcy court had jurisdiction to consider the issues raised by Hazan and Selective The parties in the state court foreclosure action and the bankruptcy case were not the same. Neither Hazan nor Selective sought to have the bankruptcy court overturn the foreclosure judgment but only asked the bankruptcy court to determine the rights of NLG, Hazan, and Selective based on the previously rendered judgments. NLG’s delay in seeking a stay was unreasonable and the Plan has been substantially consummated. View "NLG, LLC v. Horizon Hospitality Group, LLC" on Justia Law

The Nichols filed a Chapter 13 bankruptcy petition and later were indicted on federal charges for their alleged participation in a scheme to defraud Marana Stockyard. To avoid disclosure of information that might compromise their position in the criminal proceedings, the Nicholses declined to complete steps required by the Bankruptcy Code to advance their case. They refused to hold a meeting with creditors, to file outstanding tax returns, or to propose an appropriate repayment plan. Marana, which had filed a claim in the Nicholses’ bankruptcy case, moved (11 U.S.C. 1307(c)) for the case to be converted to a Chapter 7 liquidation. The Nicholses unsuccessfully requested a stay of the bankruptcy case during the pendency of the criminal proceedings. The bankruptcy court determined that conversion to a Chapter 7 liquidation was justified by the Nicholses’ “unwarranted” delays and would have been proper, in the alternative, under section 1307(e), because the Nicholses failed to file tax returns for several years.The Nicholses did not comply with the bankruptcy court’s requirements but moved to dismiss voluntarily their bankruptcy case under section 1307(b). The Ninth Circuit’s Bankruptcy Appellate Panel affirmed the denial of the dismissal motion and conversion of the case. The Ninth Circuit reversed. A bankruptcy court may not invoke equitable considerations to contravene section 1307(b)’s express language fiving Chapter 13 debtors an absolute right to dismiss their case. View "Nichols v. Marana Stockyard & Livestock Market, Inc." on Justia Law

Picard was appointed as the trustee for the liquidation of Bernard L. Madoff Investment Securities LLC (BLMIS) pursuant to the Securities Investor Protection Act, 15 U.S.C. 78aaa, to recover funds for victims of Bernard Madoff’s Ponzi scheme. SIPA empowers trustees to recover property transferred by the debtor where the transfers are void or voidable under the Bankruptcy Code, 11 U.S.C. 548, 550, to the extent those provisions are consistent with SIPA. Under Sections 548 and 550, a transferee may retain transfers it took “for value” and “in good faith.” Picard sued to recover payments the defendants received either directly or indirectly from BLMIS. The district court held that a lack of good faith in a SIPA liquidation requires that the defendant-transferee has acted with “willful blindness” and that the trustee bears the burden of pleading the transferee’s lack of good faith. Relying on the district court’s legal conclusions, the bankruptcy court dismissed the actions, finding Picard did not plausibly allege the defendants were willfully blind to the fraud at BLMIS.The Second Circuit vacated. Nothing in SIPA compels departure from the well-established rule that the defendant bears the burden of pleading an affirmative defense. The district court erred by holding that the trustee bears the burden of pleading a lack of good faith under Sections 548(c) and 550(b)(1). View "In Re Bernard L. Madoff Investment Securities, LLC" on Justia Law

Westinghouse filed for Chapter 11 bankruptcy. In June 2017, the Bankruptcy Court set a “General Bar Date” of September 1, 2017—the deadline by which creditors had to file proofs of claims for most prepetition claims. The Bankruptcy Court confirmed a Reorganization Plan on March 28, 2018, 11 U.S.C. 1129. The effectiveness of the confirmed Plan was delayed to August 1, 2018, pending the closing of a transaction that required approval from government agencies. Westinghouse gave notice that, under the confirmed Plan, August 31, 2018, was the deadline for filing administrative expense claims.In May 2018, Westinghouse terminated Ellis’s employment, explaining that his department was being restructured. Ellis, age 67, believed he was unlawfully fired due to his age. He filed an EEOC charge in July 2018. The discrimination claim “arose” when he was terminated, so it is a claim after confirmation of the Plan but before its Effective Date. Ellis never took any action in the Bankruptcy Court. In October 2018, Ellis filed suit against Westinghouse, which moved for summary judgment, arguing that Ellis’s claim, as an administrative expense claim not timely filed by the Administrative Claims Bar Date, was discharged. The Third Circuit reversed summary judgment in favor of Ellis. As a matter of first impression, the court reasoned that the holder of a post-confirmation administrative expense claim cannot choose to bypass the bankruptcy process, so if the claim is not timely filed by the bar date, it faces discharge like a preconfirmation claim. View "Ellis v. Westinghouse Electric Co LLC" on Justia Law

The bankruptcy litigation trustee appeals the district court's orders dismissing claims arising out of the leveraged buyout of the Tribune Company in 2007 and its bankruptcy filing in 2008. The trustee contends that the district court erred in dismissing his claims against the Tribune Company's shareholders and financial advisors for fraudulent transfer, breach of fiduciary duty, and related causes of action. The trustee also contends that the district court erred in denying leave to amend his complaint.The Second Circuit affirmed the district court's dismissal of the intentional fraudulent conveyance claims against the shareholders based on the buy-back of their shares; affirmed the district court's dismissal of the breach of fiduciary duty and aiding and abetting breach of fiduciary claims against the allegedly controlling shareholders; affirmed the district court's dismissal of the aiding and abetting breach of fiduciary duty and professional malpractice claims against the Financial Advisors; affirmed the district court's dismissal of the actual fraudulent conveyance claims as to Morgan Stanley, Citigroup, and Merrill Lynch, but vacated as to VRC; affirmed the district court's dismissal of the constructive fraudulent conveyance claims as to Morgan Stanley and VRC, but vacated as to Citigroup and Merrill Lynch; affirmed the district court's denial of the trustee's motion for leave to amend to amplify his intentional fraudulent conveyance claim against the shareholders and to add a constructive fraudulent conveyance claim against the shareholders; and remanded for further proceedings. View "In re: Tribune Company Fraudulent Conveyance Litigation" on Justia Law

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