Justia Bankruptcy Opinion Summaries

This case involves a dispute that arose after a divorce between Greg Grengs and Lisa Genareo (formerly Lisa Grengs). As part of the divorce settlement, the Supreme Court of North Dakota ordered that property owned by GLG Farms, LLC, a company established by Grengs to hold ownership of his farm property and equipment, be mortgaged to provide Genareo with security for a property settlement payment valued at $1,300,000. Following the court order, two new members were added to GLG Farms, LLC, and the company filed for bankruptcy protection. Grengs and GLG Farms, LLC, then entered into a stipulation agreement in bankruptcy court, agreeing to mortgage terms and payment terms. However, GLG Farms, LLC, later argued that the two new members of the company were not required to execute the mortgage and that the agreement in bankruptcy court had little impact on the court's decision.The Supreme Court of North Dakota affirmed the district court's order, holding that Grengs acted as an ostensible agent of GLG Farms, LLC, with apparent authority. The court found that Genareo was right to believe that GLG Farms, LLC, consented to Grengs acting as its agent, thus binding the company to the stipulation agreement. The court concluded that GLG Farms, LLC, ratified Grengs' actions by embracing their advantages and using them in judicial proceedings and did not timely disavow Grengs' actions.The court also rejected GLG Farms, LLC's argument that the district court failed to adequately describe the terms of the required mortgage, pointing out that a statutory mortgage form exists and that the amounts due by Grengs were plainly provided in the stipulation. The court further found GLG Farms, LLC's argument that North Dakota law does not provide a standard mortgage to be frivolous, awarding Genareo $1,000 as a sanction. View "Grengs v. Grengs" on Justia Law

The United States Court of Appeals for the Tenth Circuit decided in favor of a debtor, Chuza Oil Company, and its related parties, who were alleged to have made fraudulent transfers during bankruptcy proceedings. The court affirmed the bankruptcy court's decision that the transfers were not fraudulent, rejecting the trustee's argument that the transfers depleted the bankruptcy estate by replacing subordinated debt with unsubordinated debt. The court held that Chuza Oil Company did not have an interest in the transferred funds as they were earmarked for a specific creditor and were not part of the bankruptcy estate. The court further held that the earmarked funds did not diminish the estate, finding that the bankruptcy court's conclusion that the estate was not diminished by the combination of payments into and out of Chuza Oil Company was not clearly erroneous. The court also found that the statutory exceptions to the trustee's preferential transfer and constructive fraudulent transfer claims were satisfied, as Chuza Oil Company received much more in loans from the defendants than it paid to the specific creditor. View "Montoya v. Goldstein" on Justia Law

In this case, the United States Court of Appeals for the Eleventh Circuit dealt with the question of when an order finding contempt becomes a final, appealable order. The case arose from a dispute between Robert A. Sweetapple and Asset Enhancement, Inc., in which Sweetapple was found in contempt by a bankruptcy court for violating an automatic stay. The bankruptcy court awarded Asset Enhancement attorney's fees and costs for filing and prosecuting its motion for contempt, but did not specify the amount. The amount was later determined in a subsequent order. Sweetapple appealed the contempt order to the district court, but the district court dismissed his appeal as untimely, reasoning that the contempt order was a final, appealable order when it was issued, not when the amount of the attorney's fees was later determined. Sweetapple then appealed to the Eleventh Circuit.The Eleventh Circuit held that the contempt order did not become a final, appealable order until the bankruptcy court issued the later order setting the amount of attorney's fees to be awarded. The court reasoned that this rule avoided the risk of disrupting ongoing proceedings and was consistent with its precedent. Accordingly, since Sweetapple filed his appeal within fourteen days of the bankruptcy court's issuance of the later order, his appeal of the contempt order was timely and the district court had jurisdiction over the appeal. The court vacated the district court's dismissal of Sweetapple's appeal and remanded the case to the district court for further proceedings. View "Sweetapple v. Asset Enhancement, Inc." on Justia Law

In this case, the Supreme Court of the State of Alaska was tasked with determining whether a judgment against a self-represented litigant, Jon Buchholdt, was void due to improper service of process. Jeremy Nelson, Buchholdt's former client, had sued him for legal malpractice and won a judgment of $200,000, but Buchholdt argued that he was not properly served and therefore the court lacked personal jurisdiction over him.The main issue in this case was whether Buchholdt was properly served with the summons and complaint by certified, restricted mail sent to his law office, which was rerouted to his home and signed by his alleged agent, "Suz Miller." Buchholdt contended that he was not properly served as he never personally signed for the service, and therefore the court lacked personal jurisdiction over him.The court held that Buchholdt failed to meet his burden of demonstrating that the judgment was void. Despite his claims, Buchholdt did not provide any evidence to contradict Nelson's evidence of service or to show that Suz Miller was not authorized to receive service on his behalf. Additionally, Buchholdt had listed Nelson's lawsuit as a contingent liability when he filed for bankruptcy, indicating he had knowledge of the suit.Therefore, the court affirmed the denial of Buchholdt's motions to set aside the judgment and for reconsideration. The court did not find that the judgment was void due to a lack of personal jurisdiction resulting from improper service of process. View "Buchholdt v. Nelson" on Justia Law

Ohio revoked the operating license for Ricci's company, Palms, which operated a substance abuse treatment center. The Department of Justice (DOJ) seized $600,000 from Palms for alleged fraud. Pender was attempting to terminate Palms's building lease. Palms sued Ohio to recover its license, sued the DOJ to recover the $600,000, and filed for Chapter 11 bankruptcy, 11 U.S.C. 1187–95. Its plan for reorganization depended on the success of its pending lawsuits. Concerned that the litigation would consume the estate, the Trustee sought conversion to a proceeding under Chapter 7 for liquidation. Weeks later, the seized assets lawsuit was put on hold while the DOJ pursued a criminal indictment. Palms failed to meet the bankruptcy court's deadline for an accounting of post-petition transactions. Two days before a hearing on the conversion, Palms’s attorney (Vitullo) moved to withdraw, citing a conflict of interest. Minutes before the hearing, Rucci (also a lawyer) filed an objection to the motion to convert. Rucci did not object to Vitullo’s withdrawal.The bankruptcy court granted Vitullo’s motion and converted the proceedings to Chapter 7. Pender successfully evicted Palms. An Ohio court upheld the revocation of its license. A Sixth Circuit panel denied Palms’s petition to return the seized $600,000. The district court and Sixth Circuit affirmed the conversion order as a final, appealable order. Considering the substantial, continuing losses and the unlikelihood of rehabilitation, the court did not abuse its discretion in finding cause to convert. View "In re: California Palms Addiction Recovery Campus, Inc. v." on Justia Law

Fliss, Wojciak, and Barr took out a $200,000 bank loan for their jointly owned companies. Each man personally guaranteed the loan. When the borrowers defaulted, the bank obtained a state court $208,639.95 consent judgment, holding the guarantors jointly and severally liable. Wojciak then entered into an agreement with the bank, through his company, Capital I, to purchase the promissory note and judgment debt for $240,000, then entered into a settlement agreement with the bank, agreeing to pay $240,000. Wojciak's other company, Capital II wired the bank $240,000. The state court substituted Capital I for the bank as the plaintiff. Wojciak moved to enforce the judgment: Capital I commenced a supplemental proceeding and sought property turnovers. Fliss and Barr unsuccessfully argued that the debt was extinguished when the Wojciaks paid $240,000 in exchange for settlement.Fliss filed a Chapter 13 bankruptcy petition. Wojciak had Capital I file a secured claim, seeking to enforce the judgment–$359,967.69 including post-judgment interest. The bankruptcy court disallowed that claim, finding that Wojciak used Capital I as his alter ego and became both the creditor and debtor, which extinguished the debt. The district court and Seventh Circuit affirmed. The bankruptcy court had subject matter jurisdiction to consider the claim objection—the Rooker-Feldman doctrine posed no obstacle. Capital I failed to demonstrate the existence of a final judgment as required by res judicata and collateral estoppel. View "Generation Capital I, LLC v. Fliss" on Justia Law

Plaintiffs-appellants Marc Kirschner, as the Litigation Trustee for the Nine West Litigation Trust representing unsecured creditors, and Wilmington Savings Fund, FSB, as successor Indenture Trustee for various notes issued by Nine West (together, the "Trustees"), brought seventeen actions in different states against Jones Group's former directors and officers for unjust enrichment and against its former public shareholders for fraudulent conveyance. Both the public shareholders and the directors and officers moved to dismiss the claims against them, arguing that payments made to them in connection with the merger are shielded by the Bankruptcy Code's Section 546(e) safe harbor. The district court granted both motions to dismiss, holding that the payments were shielded by the safe harbor. Plaintiffs appealed.   The Second Circuit affirmed in part, vacated in part, and remanded. The court explained that Congress enacted Section 546(e) safe harbor to promote finality and certainty for investors by limiting the circumstances under which securities transactions could be unwound by, for example, a successful fraudulent conveyance action. The court wrote that to further expand the scope of Section 546(e) and Section 101(22)(A) and immunize transactions in which a bank took only purely ministerial action, made no payments, and had no discretion would not further Congress's purpose. Accordingly,  the court vacated the district court's judgment to the extent it dismissed the Payroll Transfer claims. View "In re: Nine West LBO Sec. Litig." on Justia Law

The Supreme Court reversed the judgment of the district court granting summary judgment by substituting other remedies in place of an equitable lien placed by the bankruptcy court on real property located at 10512 Loma Portal Avenue, holding that, based on the preclusive effect of prior court orders, an equitable lien was the only available remedy to satisfy Respondent's interest concerning the property.At issue before the Supreme Court was the preclusive effect of the multiple court orders in this case and the equitable remedies available under those orders. The Supreme Court remanded the case for further proceedings, holding (1) an equitable lien placed on property to satisfy a debt permits the lien holder to enforce the value of the equitable lien against the debtor's property even where that property has been subsequently transferred to a nondebtor spouse during divorce proceedings; (2) the district court erred by substituting other remedies in place of the equitable lien; and (3) genuine issues of material fact remained as to the value of the equitable lien placed on the property, as well as the value of the property itself. View "Holland v. Barney" on Justia Law

Plaintiff, in his capacity as Litigation Administrator of the post-confirmation estates (the “Litigation Administrator”) of Post-Confirmation Debtor Décor Holdings, Inc. (“Décor Holdings”), appeals the district court’s order, vacating the bankruptcy court’s entry of default judgment against Defendant Sumec Textile Company Limited (“Sumec”) and remanding the case for further proceedings. The district court’s order re-opened an adversary proceeding that the Litigation Administrator initiated against Sumec to avoid preferential payments of $694,048.84 that Décor Holdings and its affiliated debtors (collectively, the “debtors”) made to Sumec in the ninety-day period before it filed for bankruptcy.   The Second Circuit dismissed for lack of jurisdiction. The court explained that notwithstanding the Litigation Administrator’s practical concerns regarding his ability to effectuate service on Sumec and ultimately collect on any judgment, the court sees no basis to apply the collateral order doctrine to hear an appeal challenging the vacatur of a default judgment which can be reviewed, if necessary, upon the entry of a final judgment in the adversary proceeding. Further, the court explained that this is not a situation where the only remaining questions involve relief and enforcement of the holding; rather, the adversary proceeding is at its infancy, with issues of service of process and the actual merits of the action (assuming service is effectuated) still to be resolved on remand. Thus, the dicta in Stone regarding the general rules of appealability has no application to the circumstances in this appeal. View "In re: Décor Holdings, Inc., et al." on Justia Law

Defendant, petitioned for Chapter 7 bankruptcy and listed PRN Real Estate & Investments, Ltd. (“PRN”) as his primary creditor. PRN sought to exempt debts that Defendant owes PRN from being discharged. The bankruptcy court granted judgment for Defendant on all of PRN’s claims and fully discharged Defendant’s debt. The district court affirmed.   The Eleventh Circuit affirmed in part and reversed the bankruptcy court’s rulings and remanded for further proceedings. The court explained that it agrees with each of the bankruptcy court’s rulings except one: that PRN pleaded a viable discharge exception in Count 3. The court explained that Congress gave PRN the right to request an exception of COLP’s contribution debt, if PRN can prove that Defendant fraudulently obtained COLP’s money and, as a result, became responsible for COLP’s contribution debt. PRN has pleaded facts that, if proven, meet these requirements. The Trustee’s action to avoid the same fraudulent transfer does not preempt PRN’s right to seek a discharge exception. Because the bankruptcy court dismissed PRN’s claim based on non-viability and lack of standing, the bankruptcy court did not rule on the merits of Defendant’s motion for summary judgment. Thus, the court remanded the case for the bankruptcy court to determine in the first instance whether any facts material to Count 3 are genuinely disputed and, if not, whether Defendant is entitled to judgment on Count 3. See Fed. R. Civ. P. 56(a). View "PRN Real Estate & Investments, Ltd. v. William W. Cole, Jr." on Justia Law