Justia Bankruptcy Opinion Summaries

The case revolves around Dedre Feyijinmi, who filed for Chapter 13 bankruptcy and sought to discharge a restitution debt. In 2006, Feyijinmi was found guilty of welfare fraud in Maryland state court and was sentenced to three years' probation. The court also ordered $14,487 in restitution, which was recorded as a civil judgment. After Feyijinmi's probation ended, the outstanding balance was transferred to the State's Central Collection Unit. Later, Feyijinmi's criminal records were expunged, but her restitution obligation remained, leading to the garnishment of her wages.The bankruptcy court and the district court both rejected Feyijinmi's arguments that her restitution debt was dischargeable. Feyijinmi argued that the Bankruptcy Code's provision excluding a debt "for restitution...included in a sentence on the debtor's conviction of a crime" did not apply to her because she was not formally convicted under Maryland law. She also contended that the debt was discharged because the state of Maryland identified the debt as dischargeable court fees on its proof of claim.The United States Court of Appeals for the Fourth Circuit affirmed the lower courts' decisions. The court held that Feyijinmi's probation before judgment qualified as a conviction under federal law, as it was based on a finding of guilt. The court also ruled that the restitution was part of a sentence, even without a formal judgment. The court rejected Feyijinmi's claim that the State waived its right to collect the debt post-discharge by labeling it as "Court Ordered Fees" on its proof of claim. The court also dismissed Feyijinmi's claim of prejudice, finding no evidence of bad faith or unreasonable delay in filing the amendment, impact on other claimants, reliance by the debtor or creditors, or change of the debtor's position. View "Feyijinmi v. State of Maryland Central Collection Unit" on Justia Law

Between 1999 and 2019, Purdue Pharma, owned and controlled by the Sackler family, was at the center of the opioid crisis in the United States. After earning billions from the sale of OxyContin, Purdue faced thousands of lawsuits. In response, the Sacklers withdrew approximately $11 billion from Purdue, leaving the company in a weakened financial state. In 2019, Purdue filed for Chapter 11 bankruptcy. During the bankruptcy process, the Sacklers proposed to return approximately $4.3 billion to Purdue’s bankruptcy estate in exchange for a judicial order releasing the family from all opioid-related claims and preventing victims from bringing such claims against them in the future.The bankruptcy court approved Purdue’s proposed reorganization plan, including its provisions concerning the Sackler discharge. However, the district court vacated that decision, holding that nothing in the law authorizes bankruptcy courts to extinguish claims against third parties like the Sacklers, without the claimants’ consent. A divided panel of the Second Circuit reversed the district court and revived the bankruptcy court’s order approving a modified reorganization plan.The Supreme Court of the United States held that the bankruptcy code does not authorize a release and injunction that, as part of a plan of reorganization under Chapter 11, effectively seek to discharge claims against a nondebtor without the consent of affected claimants. The Court found that the Sacklers sought to pay less than the code ordinarily requires and receive more than it normally permits. The Court reversed the Second Circuit's judgment and remanded the case for further proceedings consistent with its opinion. View "Harrington v. Purdue Pharma L.P." on Justia Law

Ricky Hughes, a railroad employee, was injured twice at work during his Chapter 13 bankruptcy proceedings. He did not disclose these potential personal injury lawsuits to the bankruptcy court. About 19 months after his bankruptcy closed, Hughes filed a personal injury lawsuit against his employer and other defendants. The district court granted summary judgment against Hughes based on standing and judicial estoppel, as he had not disclosed the potential lawsuit in his bankruptcy.The United States Court of Appeals for the Eighth Circuit found that Hughes had standing to bring the lawsuit. The court reasoned that the claims vested with Hughes, as per Section 1327 of the Bankruptcy Code, which provides that estate assets vest with the debtor. The court rejected the defendants' argument that Section 554(d), which provides that undisclosed estate assets that have not been expressly abandoned remain property of the estate, should control.The court also applied the doctrine of judicial estoppel, which prevents a party from asserting a position in a case that is clearly inconsistent with a position it took in a previous case. The court found that judicial estoppel applied to claims arising from the first incident but not the second. The court reasoned that when Hughes was injured for the second time, he had already made all of the payments required under his five-year plan, and there was no permissible statutory basis to modify the plan. Therefore, the bankruptcy court did not rely on the second nondisclosure, and there was no risk of inconsistent court determinations or threats to judicial integrity. The court affirmed in part, reversed in part, and remanded the case for further proceedings. View "Hughes v. Wisconsin Central, Ltd." on Justia Law

The case revolves around Windstream Holdings, Inc. ("Windstream"), a telecommunications provider that filed for Chapter 11 reorganization. During Windstream's bankruptcy, Charter Communications Inc. and Charter Communications Operating, LLC (collectively, "Charter"), a competitor, launched an advertising campaign targeting Windstream's customers. Windstream alleged that Charter's advertising campaign was an attempt to exercise control over Windstream's customer contracts and goodwill, thereby violating the automatic stay provision of the Bankruptcy Code.The United States Bankruptcy Court for the Southern District of New York agreed with Windstream, holding Charter in civil contempt for its actions and imposing sanctions against Charter. However, the United States District Court for the Southern District of New York reversed the bankruptcy court's decision, finding that a fair ground of doubt existed as to whether Charter violated the automatic stay.The United States Court of Appeals for the Second Circuit affirmed the district court's judgment. The court found that while Windstream's customer contracts and goodwill were property of the estate, Charter's advertising campaign did not exercise control over those assets. The court concluded that there was a fair ground of doubt as to whether Charter's actions violated the automatic stay, and therefore, the district court did not err by refraining from holding Charter in civil contempt. View "In re: Windstream Holdings, Inc." on Justia Law

The case involves the Office of the United States Trustee and a group of Chapter 11 debtors, John Q. Hammons Fall 2006, LLC, et al. The issue at hand is the remedy for a constitutional violation identified in a previous case, Siegel v. Fitzgerald, where a statute was found to violate the Bankruptcy Clause’s uniformity requirement as it allowed different fees for Chapter 11 debtors depending on the district where their case was filed. The government argued for prospective parity as the appropriate remedy, while the debtors argued for a refund.The Bankruptcy Court found no constitutional violation and did not address the remedial question. The Tenth Circuit reversed this decision, finding that the fee statute permitting nonuniform fees violated the Bankruptcy Clause and ordered a refund of the debtors’ quarterly fees. The U.S. Trustee sought certiorari, which was granted by the Supreme Court.The Supreme Court reversed the Tenth Circuit's decision. The Court agreed with the government that the appropriate remedy for the constitutional violation is prospective parity. The Court held that requiring equal fees for otherwise identical Chapter 11 debtors going forward aligns with congressional intent, corrects the constitutional wrong, and complies with due process. The Court rejected the debtors' argument for a refund, stating that such a remedy would require undercutting congressional intent and transforming a program that Congress designed to be self-funding into a significant bill for taxpayers. The Court concluded that neither remedial principles nor due process requires such an outcome. View "United States Trustee v. John Q. Hammons Fall 2006, LLC" on Justia Law

The case involves a dispute over the rights of parties holding certain revenue bonds issued by the Puerto Rico Electric Power Authority ("PREPA") before it entered reorganization proceedings under Title III of the Puerto Rico Oversight, Management, and Economic Stability Act ("PROMESA"). The Financial Oversight and Management Board for Puerto Rico ("the Board") filed an adversary proceeding within the Title III restructuring proceeding to define the rights and remedies that bondholders had against PREPA. The United States District Court for the District of Puerto Rico held that the bondholders only had a secured claim on moneys deposited into the Sinking and Subordinate Funds, and that the bondholders had an unsecured claim on PREPA's Net Revenues.The United States Court of Appeals for the First Circuit disagreed with the district court's findings. The appellate court held that the bondholders have a lien on PREPA's present and future Net Revenues, and that the bondholders' lien is not avoidable. The court also held that the proper amount of the bondholders' claim is the face value (i.e., principal plus matured interest) of the Revenue Bonds. The court affirmed the district court's dismissal of the bondholders' breach of trust claim, but reversed the dismissal of the bondholders' accounting claim. The case was remanded for further proceedings consistent with the appellate court's opinion. View "Financial Oversight and Management Board v. U.S. Bank National Assn." on Justia Law

The case revolves around a former coal miner, Richard McLain, who developed a serious lung condition after working underground for nearly two decades. McLain filed a claim under the Black Lung Benefits Act, alleging that his years of mine work had left him totally disabled from a pulmonary perspective. His former employer, Old Ben Coal Company, had been liquidated through bankruptcy, so Liberty Mutual Insurance Company, the surety guaranteeing Old Ben’s debts under the Act, contested liability on the coal company’s behalf.The case was initially heard by an administrative law judge (ALJ), who determined that McLain was disabled within the meaning of the Black Lung Benefits Act. The ALJ's decision was based on a thorough review of the medical record and a set of medical findings regarding how to distinguish between lung disorders arising from coal dust and those arising from tobacco smoke. Old Ben appealed the ALJ’s decision to the Benefits Review Board, arguing that the ALJ erroneously treated the 2001 preamble as if it were binding law and made factual findings unsupported by the medical record. The Review Board affirmed the benefits decision in full.The case was then brought before the United States Court of Appeals for the Seventh Circuit. The court affirmed the decision of the Benefits Review Board, emphasizing the broad discretion ALJs enjoy when evaluating competing medical theories, the weight ALJs may properly attribute to the perspective of the Department of Labor on such issues, and the significant deference owed to ALJs’ medical findings and scientific judgments on appeal. The court found no error in the ALJ's application of a regulatory preamble or in the factual findings that were challenged by Old Ben. View "Safeco Insurance/Liberty Mutual Surety v. OWCP" on Justia Law

Jan Kowalski, an attorney, was accused of using her position to hide her brother's assets during his bankruptcy proceedings. She allegedly concealed around $357,000 in her attorney trust account and made false statements under oath to cover up the concealment. Kowalski was charged with four counts of bankruptcy fraud and one count of concealing assets from the bankruptcy trustee. She pleaded guilty to the charge of concealing assets.Prior to her trial, Kowalski had been involved in her brother's bankruptcy proceedings, where she used her attorney trust account to hide her brother's assets from his creditors and the bankruptcy trustee. She also made false statements under oath and fabricated documents to cover up her actions. The bankruptcy trustee confronted Kowalski with inconsistencies between her personal bank records and her earlier testimony, but she continued to lie under oath.Kowalski was sentenced to 37 months' imprisonment by the United States District Court for the Northern District of Illinois, Eastern Division. The court applied two sentencing enhancements: the § 2B1.1(b)(10)(C) sophisticated-means enhancement, and the § 3B1.3 abuse of position of trust enhancement. Kowalski appealed her sentence, arguing that the district court erred in applying these enhancements and that her sentence was substantively unreasonable.The United States Court of Appeals for the Seventh Circuit affirmed the district court's decision. The court found that Kowalski had indeed used sophisticated means to commit the offense and had abused her position of trust. The court also found her sentence to be substantively reasonable. View "United States v. Kowalski" on Justia Law

The case involves Truck Insurance Exchange (Truck), the primary insurer for companies that manufactured and sold products containing asbestos. Two of these companies, Kaiser Gypsum Co. and Hanson Permanente Cement (Debtors), filed for Chapter 11 bankruptcy after facing thousands of asbestos-related lawsuits. As part of the bankruptcy process, the Debtors proposed a reorganization plan that created an Asbestos Personal Injury Trust (Trust) to handle all present and future asbestos-related claims. Truck, contractually obligated to defend each covered asbestos personal injury claim and to indemnify the Debtors for up to $500,000 per claim, opposed the Plan, arguing that it exposed them to millions of dollars in fraudulent claims due to different disclosure requirements for insured and uninsured claims.The District Court confirmed the Plan, concluding that Truck had limited standing to object to the Plan because it was “insurance neutral,” meaning it did not increase Truck’s prepetition obligations or impair its contractual rights under its insurance policies. The Fourth Circuit affirmed this decision, agreeing that Truck was not a “party in interest” under §1109(b) of the Bankruptcy Code because the plan was “insurance neutral.”The Supreme Court of the United States reversed the Fourth Circuit's decision, holding that an insurer with financial responsibility for bankruptcy claims is a “party in interest” under §1109(b) of the Bankruptcy Code and may raise and appear and be heard on any issue in a Chapter 11 case. The Court reasoned that §1109(b)’s text, context, and history confirm that an insurer such as Truck with financial responsibility for a bankruptcy claim is a “party in interest” because it may be directly and adversely affected by the reorganization plan. The Court also rejected the “insurance neutrality” doctrine, stating that it conflates the merits of an objection with the threshold party in interest inquiry. The case was remanded for further proceedings consistent with the Supreme Court's opinion. View "Truck Insurance Exchange v. Kaiser Gypsum Co." on Justia Law

The case revolves around Lee Hofmann, who controlled multiple businesses, including Games Management and International Supply. Games Management borrowed approximately $2.7 million from Citizens Equity First Credit Union (the Lender), with Hofmann guaranteeing payment. When Games Management defaulted and Hofmann failed to honor his guarantee, the Lender obtained a judgment against Hofmann. In 2013, Hofmann arranged for International Supply to pay the Lender $1.72 million. By 2015, International Supply was in bankruptcy, and a trustee was appointed to distribute its assets to creditors.The bankruptcy court held a trial, during which expert witnesses disagreed on whether International Supply was solvent in 2013. The Trustee's expert testified that it was insolvent under two of three methods of assessing solvency, while the Lender's expert testified that it was solvent under all three methods. The bankruptcy judge concluded that International Supply was insolvent in August 2013 and directed the Lender to pay $1.72 million plus interest to the Trustee. The district court affirmed this decision.The case was then brought before the United States Court of Appeals for the Seventh Circuit. The Lender argued that the only legally permissible approach to defining solvency is the balance-sheet test. However, the court disagreed, stating that the Illinois legislation does not support this view. The court also noted that the Lender had not previously argued for the balance-sheet test to be the exclusive approach, which constituted a forfeiture. The court concluded that the bankruptcy judge was entitled to use multiple methods to determine solvency. The court affirmed the district court's decision, requiring the Lender to pay $1.72 million plus interest to the Trustee. View "Stone v. Citizens Equity First Credit Union" on Justia Law