Justia Bankruptcy Opinion Summaries

After the State Bar of California suspended one of its members for misconduct, it conditioned her reinstatement of the payment of court-ordered discovery sanctions and costs associated with its disciplinary proceedings. The suspended attorney sought to discharge the payment in bankruptcy.The Ninth Circuit held that, while a debtor may not discharge the costs of the State Bar's attorney disciplinary proceedings imposed under California Business and Professions Code 6086.10, the discovery sanctions under California Procedure Code 2023.030 were dischargeable. Under the plain text of 11 U.S.C. 523(a)(7), they were not payable to and for the benefit of a governmental unit and were compensation for actual pecuniary losses. Finally, the panel rejected the attorney's claim that the State Bar violated 11 U.S.C. 525(a) by failing to reinstate her law license because of her nonpayment of dischargeable debts. Accordingly, the panel affirmed in part and reversed in part. View "Albert-Sheridan v. State Bar of California" on Justia Law

After debtor filed for bankruptcy under Chapter 13, the trustee objected to confirmation of the plan. The bankruptcy court agreed to confirm the plan only if debtor chose one of two non-statutory conditions. The first option would require debtor to agree to divert all his disposable income for the first seven months to pay the unsecured creditors, and the second would incorporate into the confirmation order what is known as the Molina language. Debtor chose the Molina language.The court held that, unless debtor's plan fell short of the 11 U.S.C. 1325(a) criteria, the court was required to confirm the plan, subject to subsection 1325(b). The court analyzed the claimed shortcomings under section 1325(a) and rejected them. On de novo review, the court held that debtor's plan complied with 1325 (b)(1)(A), and the bankruptcy court was not prohibited by that section from confirming the plan. The court further held that imposing the Molina language was not necessary or appropriate to carry out any part of the Bankruptcy Code identified in the appeal. Finally, the court held that the Molina language violates section 1329. Accordingly, the court vacated the confirmation order and remanded to the bankruptcy court for further proceedings. View "Brown v. Viegelahn" on Justia Law

After filing a Chapter 13 bankruptcy petition, Bastani asked the judge to stay a pending state court foreclosure procedure. Bastani’s previous bankruptcy petition had been dismissed less than a year earlier, creating a presumption that the new filing was not in good faith, 11 U.S.C. 362(c)(3)(C)(i), and meaning that the automatic stay would end 30 days after the new proceeding began. The bankruptcy and district courts denied Bastani’s motion.The Seventh Circuit denied relief and also denied Bastani’s motion for leave to file in forma pauperis under 28 U.S.C. 1915. Chapter 13 is designed for people who can pay most of their debts; someone eligible for Chapter 13 relief cannot establish that she cannot pay judicial fees in the absence of extraordinary circumstances. The court further concluded that Bastani’s second bankruptcy petition was filed in actual bad faith; Bastani appeared to be trying to achieve a Chapter 13 benefit (keeping her home) without the detriment of having to pay her debts. View "Bastanipour v. Wells Fargo Bank, N.A." on Justia Law

The Court of Appeals reversed the judgment of the Court of Special Appeals reversing the judgment of the circuit court quashing Respondent's writ of garnishment, holding that Md. Code Ann. Cts. & Jud. Proc. (CJ) 5-102(a)(3) does not operate to toll the statute of limitations on claim against a bankruptcy debtor that does not result in a dismissal of the petition.Petitioner was an insolvent debtor participating in an active bankruptcy case. Respondent was an unsecured creditor of Petitioner who held a claim in Petitioner's bankruptcy case arising from a judgment he obtained against her. Respondent sought to garnish the proceeds of a settlement Petitioner received that the bankruptcy court, but Petitioner argued that Respondent's judgment had expired under Md. Code Ann. Cts. & Jud. Proc. (CJ) 5-102(a)(3) because it had not renewed it. The circuit court quashed the writ of garnishment. The Court of Special Appeals reversed, holding that CJ 5-202 tolled the statute of limitations. The Court of Appeals reversed, holding that under the plain language of section CJ 5-202, the statute does not operate to toll the statute of limitations on a claim against a bankruptcy debtor that does not result in a dismissal of the petition. View "Hoang v. Lowery" on Justia Law

In 2005, revelations surfaced that Body Armor—a publicly-traded company—was manufacturing its body armor, which it sold to law enforcement agencies and the U.S. military, using substandard materials. Its stock price plummeted, prompting shareholders to bring numerous actions that were consolidated into a shareholders’ class action and a derivative action on behalf of Body Armor against specified officers and directors. Since then, the matter has traveled, through bankruptcy, trial, and appellate courts throughout three U.S. jurisdictions. In its second review of the case, the Third Circuit affirmed a 2015 Bankruptcy Court for the District of Delaware order, approving a settlement entered in the Chapter 11 bankruptcy case of S.S. Body Armor I. The court reversed in part the Bankruptcy Court’s order that granted the objector fees on a contingent basis and remanded for a determination of the appropriate amount of the fee award. The court affirmed the part of that order that denied the objector’s claim to attorneys’ fees and expenses under the Bankruptcy Code and an order awarding fees to counsel in one of the underlying lawsuits. View "In re: SS Body Armor I Inc." on Justia Law

The language of 11 U.S.C. 365(p)(1) is crystal clear: "If a lease of personal property is rejected or not timely assumed by the trustee . . . the leased property is no longer property of the estate."The Eleventh Circuit affirmed the district court's decision upholding the bankruptcy court's denial of Microf's claim for administrative-expense priority. Where, as here, it is undisputed that the trustee did not assume the Microf lease, section 365(p)(1) means that the Microf lease dropped out of the bankruptcy estate upon confirmation of debtor's Chapter 13 plan. Because Microf has not otherwise shown that the lease confers a benefit on the estate, the court held that its claim of administrative-expense priority was properly denied. View "Microf LLC v. Cumbess" on Justia Law

Davis sought relief under Chapter 13 of the Bankruptcy Code. She had fewer than $39,000 in assets but more than $200,000 in debt--more than $189,000 was unsecured. Chapter 13 allows Davis to satisfy her unsecured debts by paying all her disposable income to her unsecured creditors during a 60-month period, 11 U.S.C. 1325(b)(1)(B). Davis proposed to pay her unsecured creditors a total of $19,380—60 monthly payments of $323. To obtain court approval, her plan needed to provide for payment of all her “projected disposable income” to her unsecured creditors. Although she reported gross monthly income of $5,627, Davis claimed $5,304 in allowable monthly expenses, including a $220.66 monthly 401(k) retirement contribution withheld from her monthly wages. The bankruptcy court concluded that wages withheld as voluntary 401(k) contributions are considered disposable income, even if the debtor began making those contributions before bankruptcy. Davis filed an amended bankruptcy plan that would pay her unsecured creditors $519 each month. The bankruptcy court confirmed the amended plan over Davis’s objection. The Seventh Circuit vacated and remanded. The statutory text excludes voluntary retirement contributions from disposable income View "In re: Davis" on Justia Law

A bankruptcy court may not void a lien under 11 U.S.C. 506(d) when a claim relating to the lien is disallowed because the creditor who filed the proof of claim did not prove that it was the person entitled to enforce the debt the lien secures.The Ninth Circuit affirmed the bankruptcy appellate panel's opinion reversing the bankruptcy court's summary judgment for the Chapter 13 debtor in the debtor's adversary proceeding seeking a declaration that a lien securing a disallowed claim was void. Because debtor conceded that if the panel affirmed the BAP on this issue, then the order reversing the fee award should also be affirmed. Therefore, the panel affirmed the BAP's decision to reverse the fee award. View "Lane v. The Bank of New York Mellon" on Justia Law

The court-appointed receiver filed suit against JPMC, seeking to recover funds that were fraudulently diverted from the Receivership Entities' bank accounts in connection with a Ponzi scheme. The complaint sought to avoid the fraudulent transfers and recover the diverted funds on behalf of the Receivership Entities under the Florida Uniform Fraudulent Transfer Act (FUFTA), and to collect damages from JPMC for JPMC's alleged aiding and abetting of three torts: breach of fiduciary duty, conversion, and fraud.The Eleventh Circuit affirmed the district court's dismissal of the complaint, holding that the receiver failed to state a claim under FUFTA because he failed to allege an applicable conveyance or fraudulent transfer. The court also held that the receiver lacked standing to assert, on behalf of the Receivership Entities, claims against JPMC for allegedly aiding and abetting the Ponzi schemers' breach of fiduciary duties, conversion, and fraud. Finally, the court noted that the district court did not abuse its discretion in staying discovery pending resolution of JPMC's motion to dismiss. View "Isaiah v. JPMorgan Chase Bank, N.A." on Justia Law

Appellant Tom Connolly, the trustee for the Chapter 7 case of Appellee Samuel Morreale, sought compensation based upon moneys disbursed in Morreale’s Chapter 7 case and in a related Chapter 11 case. Morreale owned the sole membership interest in Morreale Hotels, LLC (Hotels LLC), which in turn owned two properties in Denver, Colorado. Morreale also acted as Hotels LLC’s manager and personally guaranteed certain loans that Hotels LLC obtained on the properties it owned. In 2012, Hotels LLC filed a petition for Chapter 11 bankruptcy protection and pursued reorganization. In 2013, Morreale filed his own Chapter 11 bankruptcy petition, which the bankruptcy court later converted to Chapter 7. The U.S. Trustee appointed Connolly as the Chapter 7 trustee in the Chapter 7 Case. As trustee, Connolly assumed Morreale’s membership interest in Hotels LLC. Exercising that interest, Connolly appointed himself the new manager of Hotels LLC, thereby replacing Morreale. The bankruptcy court approved this replacement. Connolly abandoned reorganization of Hotels LLC and decided instead to liquidate Hotels LLC’s properties. In his application for compensation, Connolly sought $260,000, an amount based on the moneys disbursed in both the Chapter 7 Case and to creditors who also held claims in the Chapter 11 Case. The bankruptcy court and the Tenth Circuit’s bankruptcy appellate panel (the BAP) both rejected Connolly’s request, concluding that the language of 11 U.S.C. section 326(a) did not support it. After review, the Tenth Circuit Court of Appeals agreed that the plain language of section 326(a) permitted awarding compensation to a Chapter 7 trustee based only on moneys disbursed in the case in which that trustee served, and not on moneys disbursed in a related Chapter 11 case in which the trustee did not serve. View "Connolly v. Morreale" on Justia Law