Justia Bankruptcy Opinion Summaries

The First Circuit affirmed the judgment of the Title III court granting summary judgment against Bondholders, who owned bonds issued in 2008 by the Employees Retirement System of the Government of the Commonwealth of Puerto Rico (the System), and in favor of the Financial Oversight and Management Board for Puerto Rico (the Board), holding that the Bondholders did not have security interest in certain of the System's assets.In 2016, the System filed Title III petitions for bankruptcy protections offered under the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), 48 U.S.C. 2101-2241, and PROMESA's Title III, 2161-2177. The System subsequently filed two lawsuits against the Bondholders seeking declaratory relief on the validity, priority, extent and enforceability of the Bondholders' asserted security interest in the System's postpetition assets, including employer contributions to the System received postpetition. The Title III court granted summary judgment against the Bondholders. The First Circuit affirmed, holding (1) 11 U.S.C. 552(a) prevents the Bondholders' security interest from attaching to postpetition employers' contributions; (2) the Bondholders did not have special revenue bonds under 11 U.S.C. 902(2)(A) or (D); and (3) Congress intended section 552 to apply retroactively. View "Employees Retirement System v. Andalusian Global Designated, Employees Retirement System" on Justia Law

In this appeal of a bankruptcy court's decision on the merits of all the claims before it the First Circuit dismissed in part Appellant's appeal from the district court's decision affirming the bankruptcy court rulings and awards on the merits, holding that Appellant's appeal of the damages award was untimely and that the amount of attorneys' fees awarded by the bankruptcy court was appropriate.After the bankruptcy court issued its decision, Appellant waited 237 days - after the bankruptcy court decided a motion for attorneys' fees and costs incurred by the prevailing party - to file a notice of appeal. The district court affirmed the bankruptcy court rulings and awards on the merits. The First Circuit dismissed in part Appellant's appeal and affirmed in part the district court's decision, holding (1) Appellant's notice of appeal from the bankruptcy court's order of damages was untimely and therefore must be dismissed; and (2) the bankruptcy court's determination as to attorneys' fees was not an abuse of discretion. View "PC Puerto Rico, LLC v. Empresas Martinez Valentin Corp." on Justia Law

The Eleventh Circuit affirmed the district court's determination that debtor's Massachusetts income tax return debt is dischargeable in bankruptcy. The court held that 11 U.S.C. 523 does not incorporate a mandatory precondition that a tax return must be timely filed to be dischargeable; under Massachusetts tax law, a late-filed tax return does not automatically cease having the status of a "return" merely because it was filed late; and, whether or not section 523 incorporates the Beard test or Massachusetts state law, the bankruptcy court's discharge order included debtor's tax debt. View "Massachusetts Department of Revenue v. Shek" on Justia Law

Ritzen sued Jackson in Tennessee state court for breach of contract. Jackson filed for Chapter 11 bankruptcy. Under 11 U.S.C. 362(a), filing a bankruptcy petition automatically “operates as a stay” of creditors’ debt-collection efforts outside the bankruptcy case. The Bankruptcy Court denied Ritzen’s motion for relief from the automatic stay. Ritzen did not appeal but filed a proof of claim, which was disallowed. Ritzen then challenged the denial of relief from the automatic stay. The district court rejected Ritzen’s appeal as untimely under 28 U.S.C. 158(c)(2) and Federal Rule of Bankruptcy Procedure 8002(a), which require appeals from a bankruptcy court order to be filed “within 14 days after entry of [that] order.”The Sixth Circuit and a unanimous Supreme Court affirmed. A bankruptcy court’s order unreservedly denying relief from the automatic stay constitutes a final, immediately appealable order under section 158(a). Adjudication of a creditor’s motion for relief from the stay is a discrete “proceeding” that disposes of a procedural unit anterior to, and separate from, claim-resolution proceedings. The order can have large practical consequences, including whether a creditor can isolate its claim from those of other creditors and proceed outside bankruptcy. Rather than disrupting the efficiency of the bankruptcy process, an immediate appeal may permit creditors to establish their rights expeditiously outside the bankruptcy process, affecting the relief awarded later in the bankruptcy case. View "Ritzen Group, Inc. v. Jackson Masonry, LLC" on Justia Law

Attorney Boland was a technology expert for defendants charged with possessing child pornography. Boland started with innocuous online stock photographs of young girls (Doe and Roe) and manipulated the photographs on his computer to create images of the girls engaged in sex acts, to support arguments that it was possible the pornography his clients downloaded was also doctored. An Oklahoma federal prosecutor claimed that the exhibits were actionable. The judge told Boland to delete the images. Boland instead shipped his computer to Ohio and continued using the exhibits in court although 18 U.S.C. 2256(8)(C) defines “child pornography” as any image which is morphed to make it appear that a real minor is engaging in sexually explicit conduct. Ohio federal prosecutors offered Boland pre-trial diversion in lieu of prosecution; Boland admitted he violated federal law. Federal prosecutors identified the girls and told their parents what Boland had done. They sued Boland under 18 U.S.C. 2255, which provides minimum damages of $150,000 to child pornography victims. They won a combined $300,000 judgment. Boland filed for Chapter 7 bankruptcy. The Sixth Circuit reversed the discharge of the debt, citing 11 U.S.C. 523(a)(6). The debt arose from “willful and malicious injury by the debtor.” The court rejected Boland’s “implausible pleas of ignorance.” The act itself is the injury. Doe and Roe had to prove only that Boland knew he was dealing with child pornography and knew the girls' images depicted real minors. View "In re: Boland" on Justia Law

HomeBanc, in the residential mortgage loan business, obtained financing from Bear Stearns under 2005 repurchase agreements and transferred multiple securities to Bear Stearns. In 2007 HomeBanc failed to repurchase the securities or pay for an extension of the due date. Bear Stearns issued a notice of default. HomeBanc filed voluntary bankruptcy petitions. Bear Stearns, claiming outright ownership of the securities, auctioned them to determine their fair market value. After the auction closed, Bear Stearns’s finance desk determined that Bear Stearns’s mortgage trading desk had won. Bear Stearns allocated the $60.5 million bid across 36 securities. HomeBanc believed itself entitled to the August 2007 principal and interest payments from the securities. HomeBanc claimed conversion, breach of contract, and violation of the automatic bankruptcy stay. Following multiple rounds of litigation, the district court found that Bear Stearns acted reasonably and in good faith. The Third Circuit affirmed. A bankruptcy court’s determination of good faith regarding an obligatory post-default valuation of collateral subject to a repurchase agreement receives mixed review. Factual findings are reviewed for clear-error while the ultimate issue of good faith receives plenary review. Bear Stearns liquidated the securities at issue in good faith compliance with the Repurchasing Agreement. Bear Stearns never claimed damages; 11 U.S.C. 101(47)(A)(v) “damages,” which may trigger the requirements of 11 U.S.C. 562, require a non-breaching party to bring a legal claim for damages. The broader safe harbor protections of 11 U.S.C. 559 were relevant. View "Wells Fargo, N.A. v. Bear Stearns & Co., Inc." on Justia Law

In this adversary proceeding, the Fifth Circuit held that appellant received fraudulently transferred funds and had an obligation to return the transferred funds to debtor, the transferor, for the benefit of his creditors. The court explained that appellant could satisfy that obligation by transferring the funds back to him prior to his bankruptcy filing, and nothing required her to hold onto the funds until after he filed for bankruptcy. Furthermore, if appellant had satisfied her obligation, there was nothing left for the trustee to recover. Accordingly, the court vacated the district court's judgment holding otherwise and remanded for further proceedings. View "Whitlock v. Lowe" on Justia Law

Rumsey Land Company, LLC (“Rumsey”) owned a property subject to a first deed of trust held by Pueblo Bank & Trust Company, LLC (“PBT”). In 2010, Rumsey filed for bankruptcy. Resource Land Holdings, LLC (“RLH”) offered to purchase the property, but the bankruptcy court did not approve the sale. Shortly thereafter, PBT purchased the property at a bankruptcy auction. PBT then transferred the land to RLH. In 2015, Rumsey discovered that during the bankruptcy proceedings, RLH had entered a loan purchase agreement to purchase PBT’s interest in the property. The agreement eventually led to litigation in state court between RLH and PBT, which culminated with a settlement agreement allowing RLH to purchase Rumsey’s property from PBT for $4.75 million. Rumsey believed the loan agreement, lawsuit, and settlement influenced the price at its bankruptcy auction. It initiated this adversarial proceeding in bankruptcy court against RLH and PBT (collectively “Defendants”), alleging: (1) fraudulent concealment in violation of state law; and (2) collusive bidding activities in violation of 11 U.S.C. 363(n). The case was transferred to federal district court, which granted summary judgment to defendants on both claims. The Tenth Circuit affirmed finding: (1) Rumsey forfeited its arguments about PBT’s duty to disclose its transaction with RLH and did not argue plain error on appeal; and (2) in the section 363(n) collusive bidding claim, it was time-barred by a one-year limitations period in Federal Rule of Civil Procedure 60(c)(1), and Rumsey failed to demonstrate a genuine dispute of material face as to whether Defendants intended to control the sale price at the bankruptcy auction. View "Rumsey Land Company v. Resource Land Holdings" on Justia Law

Millennium provides laboratory-based diagnostic services. In 2014, it entered into a $1.825 billion credit agreement with several lenders, including Voya. Millennium refinanced existing financial obligations and paid a $1.3 billion special shareholders dividend. The U.S. Department of Justice, which had been investigating since 2012, then filed a False Claims Act complaint; Millennium’s Medicare billing privileges were revoked. Millennium agreed to pay the government entities $256 million to settle. Millennium lacked adequate liquidity to pay both its debt and the settlement and began working with the lenders, including Voya, to restructure its obligations. The lenders suggested that there were potential claims based on Millenium's lack of disclosure regarding the government’s investigation. Millennium, its equity holders, and the lenders, except Voya, entered into an agreement that required Millennium’s equity holders to transfer their equity interests to the lenders, including Voya. The equity holders were to “receive full releases.”Millennium filed a petition for bankruptcy with a “Prepackaged Joint Plan of Reorganization” that contained broad releases that would bind even non-consenting lenders. Voya objected, stating that it intended to assert claims for material misrepresentations in connection with the 2014 credit agreement against Millennium and Millennium’s equity holders and that the Bankruptcy Court lacked authority to approve the releases. The Bankruptcy Court overruled Voya’s objections and confirmed the plan. Voya filed suit, asserting RICO and other claims. The district court affirmed the Bankruptcy Court’s ruling on constitutional authority. The Third Circuit affirmed. On these facts, the Bankruptcy Court can, without running afoul of Article III of the Constitution, confirm a Chapter 11 reorganization plan containing nonconsensual third-party releases and injunctions. The releases and injunctions were “integral to the restructuring of the debtor-creditor relationship.” View "In re: Millennium Lab Holdings II LLC" on Justia Law

The bankruptcy appellate panel affirmed the bankruptcy court's grant of debtor's motion to avoid a judicial lien. The panel upheld the bankruptcy court's determination that the value of the real estate at issue was fixed on the date that the petition was filed and thus the pre-restoration value of the property was the appropriate value to use in the avoidance analysis. The panel rejected the creditor's claims of unjust enrichment and laches. View "Waltrip v. Sawyers" on Justia Law