Justia Bankruptcy Opinion Summaries

Years of litigation resulted from Debtor's spouse's personal guarantee of a lease of real property from Lariat. One suit resulted in a state court judgment holding Debtor and Debtor's spouse jointly and severally liable for fraudulent transfers from Debtor's spouse to Debtor. In Debtor's subsequent chapter 11 bankruptcy, Lariat asserted a claim for $1,030,916.74 based on that judgment. The bankruptcy court overruled Debtor's objection but found Lariat's claim was for damages resulting from the termination of a lease of real property (the lease Debtor's spouse had personally guaranteed) and was subject to 11 U.S.C. 502(b)(6)'s cap on such claims. The Eighth Circuit held that Lariat held a claim for $308,805.00 (plus interest). Lariat filed a complaint under 11 U.S.C. 523(a)(2)(A); the bankruptcy court excepted the Lariat claim from discharge, finding seven badges of fraudThe Eighth Circuit Bankruptcy Appellate Panel affirmed. The evidence supported findings that the transfer was to an insider; the debtor retained possession or control of the property after the transfer; before the transfer was made, the debtor had been sued or threatened with suit; the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred; the debtor was insolvent or became insolvent shortly after the transfer; the transfer occurred shortly before or shortly after a substantial debt was incurred. View "Lariat Companies, Inc. v. Wigley" on Justia Law

After the Bernie Madoff Ponzi scheme collapsed, Picard was appointed under the Securities Investor Protection Act, 15 U.S.C. 78aaa (SIPA), as the liquidation trustee for Bernard L. Madoff Investment Securities LLC (BLMIS). The Act established a priority system to make customers of failed brokerages whole before other general creditors. Where customer property is insufficient to satisfy customers' claims, the trustee may recover property transferred by the debtor that would have been customer property but for the transfer if and to the extent that the transfer is void or voidable under the Bankruptcy Code. 15 U.S.C. 78fff–2(c)(3). The provisions of the Bankruptcy Code apply only to the extent that they are consistent with SIPA.Picard attempted to recover transfers of money that the defendants had received from BLMIS in excess of their principal investments. The defendants are BLMIS customers who were unaware of the fraud but profited from it by receiving what they thought were legitimate profits; the funds were actually other customers' money. The Second Circuit affirmed summary judgment in favor of Picard. The Bankruptcy Code affirmative defense that permits a transferee who takes an interest of the debtor in property "for value and in good faith" to retain the transfer to the extent of the value given does not apply in this SIPA liquidation. The transfers were not "for value" and recovery would not violate the two-year limitation. View "In re: Bernard L. Madoff Investment Securities LLC" on Justia Law

Two business owners executed a series of transactions to sell a regional airline business. Within two years of the sale, one of the buyer-controlled business entities declared bankruptcy, and the seller commenced litigation to resolve disputes over their agreements. The parties settled before trial. But another buyer-controlled entity later defaulted and declared bankruptcy, and the seller reinitiated litigation. The issue presented to the Alaska Supreme Court was the extent to which the buyers personally guaranteed the obligations of the second bankrupt entity. The superior court granted summary judgment in favor of the seller and held the buyers personally liable for those obligations. The Supreme Court held that whether the parties intended the buyers to personally guarantee the bankrupt entity’s obligations was a disputed material fact, making the issue inappropriate for summary judgment. Judgment was reversed and the matter remanded for further proceedings. View "Beardsley v. Jacobsen" on Justia Law

After Gardens Regional filed for bankruptcy, the State deducted certain "fees"—which Gardens Regional had failed to pay to the State—from various payments that the State was obligated to make to Gardens Regional under its Medicaid program. The bankruptcy court and the Ninth Circuit Bankruptcy Appellate Panel (BAP) both agreed that the deductions were permissible recoupments rather than impermissible setoffs.Although the bankruptcy court and the BAP held that all of the State's withholdings of unpaid Hospital Quality Assurance Fee (HQAF) amounts constituted legitimate instances of equitable recoupment rather than setoff, the Ninth Circuit held that the bankruptcy court and BAP's holding rested on an overly generous conception of what qualifies as "the same transaction or occurrence" for purposes of recoupment. The test remains whether the relevant rights being asserted against the debtor are sufficiently logically connected to the debtor's countervailing obligations such that they may be fairly said to constitute part of the same transaction.The panel affirmed the judgment of the BAP insofar as it holds that California's deduction of unpaid HQAF assessments from the supplemental payments made to Gardens Regional was permissible under the doctrine of equitable recoupment, but the panel reversed its judgment as to the fee-for-service payments. The panel remanded to the BAP with instructions to remand to the bankruptcy court for further proceedings. View "Gardens Regional Hospital & Medical Center Liquidating Trust v. California" on Justia Law

The Bankruptcy Court denied the State's claim filed on behalf of unnamed charities for lack of standing, and denied the State's claim on behalf of Team Makers on the equitable doctrine of laches.The Bankruptcy Appellate Panel (BAP) held that the State failed to show the requisite injury to a substantial segment of North Dakota's population, and affirmed its ruling that the State did not have parens patriae standing to file a claim on behalf of Team Makers and other charities. While the panel agreed with the Bankruptcy Court that finality is a very important interest, particularly in a case of this duration, the panel held that laches does not apply to tardily-filed claims that are filed in time to permit distribution under Section 726(a) of the Bankruptcy Code. Accordingly, the panel affirmed in part, reversed in part, and remanded for reconsideration. View "North Dakota v. Bala" on Justia Law

This case arose from a Ponzi scheme perpetrated by Thomas Petters from 1994 to 2008 through his company, PCI. These appeals involve the Trustee’s separate claw back claims against defendants. The Trustee asserted claims under 11 U.S.C. 544(b)(1), which permits a trustee to "avoid any transfer of an interest of the debtor . . . that is voidable under applicable law by a creditor holding an unsecured claim." In this case, the applicable law is the Minnesota Uniform Fraudulent Transfers Act (MUFTA).The Eighth Circuit held that the district court erred in applying the Supreme Court of Minnesota's controlling MUFTA decision in Finn v. Alliance Bank, 860 N.W.2d 638 (Minn. 2015), and the Minnesota law of void contracts. Therefore, the court reversed summary judgment against Papadimos and Kanios. The court also reversed and remanded in the Boosalis case because the district erred in instructing the jury on the MUFTA elements of "good faith" and "reasonably equivalent value." In both cases, the court held that the district court erred in concluding that Minnesota rather than federal law governed the award of prejudgment interest. The court rejected defendants' other arguments. View "Kelley v. Boosalis" on Justia Law

Pena filed for Chapter 11 bankruptcy in 2012, then owning 30 parcels of real estate. After Pena used cash collateral in an unauthorized manner, the bankruptcy court converted his case to a Chapter 7 bankruptcy and appointed a trustee, who managed Pena’s California rental properties. The trustee tendered the rents as cash collateral to the security holders of the respective security interests. The security holders did not accept the funds. In 2014, the trustee abandoned the rental parcels as part of her administration of the bankruptcy estate; her unsuccessful efforts to distribute the rents ended in 2016. She deposited $52,000 in unclaimed funds in the bankruptcy court registry and closed Pena’s bankruptcy case, listing the unclaimed funds (and their rightful owners) in her final account. Pena did not object to the court’s decree approving the trustee’s actions.In 2018, Pena unsuccessfully sought to recover the funds without reopening the bankruptcy. The bankruptcy court noted that when the bankruptcy closed, Pena still had $411,000 in unpaid, unsecured debt. The Bankruptcy Appellate Panel affirmed. The Ninth Circuit affirmed, finding that Pena had prudential standing and was a “person aggrieved” and that the absence of an opposing party, due to the trustee’s dismissal did not prevent it from exercising jurisdiction. The trustee did not abandon the rents by abandoning the properties from which they were collected; the funds remained the property of the bankruptcy estate and did not constitute an estate surplus. View "In re: Pena" on Justia Law

In 2001-2013, Ridgeway worked for Stryker, which believed that Ridgeway intended to use its confidential business information at his next job. Stryker sued Ridgeway. A jury found that Ridgeway had breached his contractual obligations, breached his fiduciary duty, and violated Michigan’s Uniform Trade Secrets Act (MUTSA) and that the MUTSA violation was willful and malicious for purposes of an award of attorney’s fees. Ridgeway filed a Chapter 11 bankruptcy. The automatic stay caused by the filing of the petition prevented Stryker from making an attorney’s fee request in the Michigan proceedings. Stryker filed a proof of claim for $2,272,369.54, supported by hundreds of pages of time entries; the amount claimed and the corresponding time entries do not just relate to the lawyers’ work on the MUTSA claim. Stryker argued that, under the “Common Core” doctrine, its win on the MUTSA claim entitles it to attorney’s fees for all of its claims. Ridgeway argued that fee recovery under the Common Core doctrine “is reserved for fee awards in civil rights cases.”The bankruptcy court allowed Stryker’s proof of claim, including fees claimed under the Common Core doctrine. The district court and Fifth Circuit affirmed. Ridgeway has not shown that Michigan law requires statutory attorney’s fees to be “proved at trial.” The court upheld the striking of Ridgeway's "Common Core" objection as a sanction. Ridgeway did not comply with a court order to specify to which charges his objection applied. View "Ridgeway v. Stryker Corp." on Justia Law

Title IV of the Employee Retirement Income Security Act of 1974 (ERISA) creates an insurance program to protect employees’ pension benefits. The Pension Benefit Guaranty Corporation (PBGC)—a wholly-owned corporation of the U.S. government—is charged with administering the pension-insurance program. PBGC terminated the “Salaried Plan,” a defined-benefit plan sponsored by Delphi by an agreement between PBGC and Delphi pursuant to 29 U.S.C. 1342(c). Delphi had filed a voluntary Chapter 11 bankruptcy petition and had stopped making contributions to the plan. The district court rejected challenges by retirees affected by the termination.The Sixth Circuit affirmed. Subsection 1342(c) permits termination of distressed pension plans by agreement between PBGC and the plan administrator without court adjudication. Rejecting a due process argument, the court stated that the retirees have not demonstrated that they have a property interest in the full amount of their vested, but unfunded, pension benefits. PBGC’s decision to terminate the Salaried Plan was not arbitrary and capricious. View "Black v. Pension Benefit Guaranty Corp." on Justia Law

The Ninth Circuit previously reversed, in part, bankruptcy appellate panel decisions. The court subsequently denied the debtors’ applications, as prevailing parties, for attorney fees under the Equal Access to Justice Act, 28 U.S.C. 2412(d). The EAJA did not authorize attorney fees because a bankruptcy court does not fall within the EAJA’s definition of “United States,” and uncontested Chapter 13 bankruptcy cases are not “civil actions brought by or against the United States.” The EAJA is a limited waiver of the government’s sovereign immunity; it must be strictly construed in favor of maintaining immunity not specifically and clearly waived. View "In re: Sisk" on Justia Law