Justia Bankruptcy Opinion Summaries

Healthcare managed investment funds. Investors filed an involuntary bankruptcy petition with the intention of seeking Healthcare's removal as the fund manager. Healthcare was not served with process; the petition was uncontested. The bankruptcy court entered an order for relief. Healthcare was removed as the fund manager. The investors installed Summit as the new manager. Summit then dissolved the funds. About a month later, having learned what had transpired, Healthcare successfully moved to vacate the order for relief. Healthcare opposed dismissal asserting that it had claims for damages under 11 U.S.C. 303(i) because the investors filed the petition in bad faith. The bankruptcy court granted the investors’ motion for voluntary dismissal but retained jurisdiction, stating that “nothing herein shall limit [Healthcare’s] right to seek damages, including without limitation, fees and costs.” Healthcare sought section 303(i) damages and instituted an adversary proceeding against the investors asserting section 362(k) claims for violation of the automatic stay by the removal of Healthcare as the fund manager and the installation of Summit without court orders. The district court affirmed the dismissal of the 362(k) action. The Third Circuit reversed and remanded for reinstatement of the claim. The bankruptcy court had jurisdiction over Healthcare’s 362(k) adversary action. A section 362(k) action, no matter when instituted, is a case under title 11. The bankruptcy court lacked authority to limit what claims Healthcare could bring in the bankruptcy court after the dismissal of the bankruptcy petition. View "In re: Healthcare Real Estate Partners LLC" on Justia Law

A bankruptcy court does not have authority to enforce the discharge injunctions entered in other districts. Plaintiffs sought to certify a nationwide class of those who claim their education-loan debts were validly discharged but from whom the lender continues to demand payment.The Fifth Circuit held that the bankruptcy court erred in holding that it could address contempt for violations of injunctions arising from discharges by bankruptcy courts in other districts. Therefore, the court held that, as to Shahbazi and at least those debtors whose discharges were entered by courts in other districts, the bankruptcy court in these proceedings has no authority to enforce the resulting injunction. However, the court agreed with the bankruptcy court that the particular education loans involved here, although they were obtained in order to pay expenses of education, did not qualify as an obligation to repay funds received as an educational benefit, scholarship, or stipend because their repayment was unconditional. Therefore, they were dischargeable. The court remanded for further proceedings. View "Crocker v. Navient Solutions, LLC" on Justia Law

Debtor filed an adversary proceeding in bankruptcy court raising the issue of whether her bankruptcy discharge applied to a student loan. The Fifth Circuit affirmed the bankruptcy court's denial of Wells Fargo's motion to compel arbitration.The court held that its holding In re Nat'l Gypsum Co., 118 F.3d 1059, 1069 (5th Cir. 1997), -- that bankruptcy courts have discretion to refuse to compel arbitration in proceedings seeking enforcement of a discharge injunction -- remains good law following the Supreme Court's decision in Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018). The court held that Epic Systems shows that National Gypsum's doctrinal foundation remains sound. View "Henry v. Educational Financial Service" on Justia Law

Ex-wife filed suit against her ex-husband, a Chapter 7 debtor, in bankruptcy court over a debt of $32,500 plus interest. The Fifth Circuit affirmed the district court's decision reversing the bankruptcy court's ruling in favor of the ex-husband. The court held that the ex-husband's payment to the ex-wife's former attorney did not terminate his obligation to the ex-wife because the attorney was no longer authorized to transact on the ex-wife's behalf. In this case, the attorney did not have actual or apparent authority to collect on the ex-wife's behalf. View "Russell v. Russell" on Justia Law

The Eleventh Circuit affirmed the bankruptcy court's order revoking the discharge of debtors' debt. Debtors claimed that the trustee had pre-discharge knowledge of the alleged conduct that resulted in the revocation.The court held that the "lack-of-knowledge" requirement that is explicitly contained in one subsection of the bankruptcy statute, 11 U.S.C. 727(d)(1), cannot be read into the adjacent subsection of the same statute, 11 U.S.C. 727(d)(2), thereby barring revocation. The court need not reach the factual determination of whether the trustee had prior knowledge of the fraud issue, because it would be inappropriate to rewrite section 727(d)(2) to include that requirement. Therefore, the court held that the bankruptcy court and district court correctly interpreted section 727(d)(2). View "Thompson v. Gargula" on Justia Law

In this homeowners' association (HOA) foreclosure case, the Supreme Court reversed the district court's grant of summary judgment to U.S. Bank, N.A. and remanded for entry of summary judgment for SFR Investments Pool 1, LLC, holding that the mere fact that a foreclosure sale was held in violation of a bankruptcy stay is not by itself evidence of unfairness.The homeowner filed for bankruptcy under Chapter 11, which imposed an automatic stay on actions against her real property. In violation of the stay, the HOA sold the property at a foreclosure sale. SFR, the purchaser, sought to quiet title. The bankruptcy court issued a limited order retroactively annulling the bankruptcy stay of the stay, which has the legal effect of validating the sale. The district court, however, set aside the sale and granted summary judgment for U.S. Bank finding that the HOA's foreclosure sale being conducted in violation of the bankruptcy stay was evidence of unfairness and that the sale price was inadequate. The Supreme Court reversed, holding that U.S. Bank failed to produce any evidence showing how the sale's violation of the automatic stay constituted unfairness and that SFR met its burden of showing that the HOA foreclosure sale complied with the procedures in Nev. Rev. Stat. Chapter 116. View "SFR Investments Pool 1 v. U.S. Bank, N.A." on Justia Law

Appellant, Joseph Petrick, contracted with a homeowner, Donna Sabia, to perform remodeling work. Sabia paid Appellant a deposit of $1,750.00 plus $300.00 to cover the cost of city permits. Appellant began some of the contracted work at which time Sabia paid an additional $1,750.00 to Appellant. That same day, Appellant and Sabia’s son, Carmen Fazio, who also resided in the home, entered into a second contract for Appellant to do some painting in the home. As consideration, Fazio purchased a $600.00 saw for Appellant. Appellant and Fazio entered into a third contract to install siding on the exterior of the home. Fazio paid Appellant $2,300.00 to purchase materials. Appellant did not finish the work; Appellant eventually advised Sabia and Fazio that he could not complete the jobs but would refund $4,950.00 within a week. Appellant never refunded any money or the saw, nor did he ever purchase the siding materials or obtain the permits from the city. Appellant filed for Chapter 7 bankruptcy. In his petition, Appellant listed Sabia and Fazio as creditors. The bankruptcy court issued a discharge order in March 2016. In October 2015, a City of Scranton Police Detective filed a criminal complaint charging Appellant with theft by deception and deceptive business practices. After a bench trial, the court found Appellant guilty of theft by deception and not guilty of deceptive business practices. The court sentenced Appellant to a term of incarceration of three to eighteen months. Appellant was also ordered to pay $6,700.00 in restitution. Appellant filed a motion for reconsideration of his sentence, which the trial court denied. On appeal, the Superior Court affirmed the trial court’s judgment of sentence. On appeal to the Pennsylvania Supreme Court, Appellant argued that the portion of his sentencing order requiring him to pay restitution was illegal because the debt was discharged in bankruptcy. Appellant argued that the Bankruptcy Code specified that the filing of a petition operated as an automatic stay of any action to recover a debt that preceded the filing. The Supreme Court found the mandatory restitution order served criminal justice goals, and were distinct from civil debt liability with respect to discharge in bankruptcy. “This distinction is unaffected by the temporal relationship between the proceedings in the bankruptcy court and the criminal prosecution. Additionally, it is unaffected by a creditor’s participation in the bankruptcy proceedings.” The Court determined there was no indication in this case the restitution award was improperly sought by the prosecutor or awarded by the sentencing court. Accordingly, it affirmed the Superior Court. View "Pennsylvania v. Petrick" on Justia Law

The First Circuit affirmed the judgment of the Title III court refusing to lift the automatic stay in PROMESA to allow the Municipality of Ponce to secure specific performance by the Commonwealth of Puerto Rico of public works projects required under a Puerto Rico Commonwealth court judgment, holding that the Title III court did not plainly abuse its discretion.In 2017, the Commonwealth filed a petition for debt adjustment relief under Title III of the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), 48 U.S.C. 2101-2241. In 2018, Ponce moved for relief from the automatic stay to secure specific performance by the Commonwealth of public works projects required under a Puerto Rico Commonwealth court judgment. The Title III court refused to lift the automatic stay. The First Circuit affirmed, holding that where Ponce essentially sought priority over the claims of other communities and creditors of the Commonwealth, the Title III court clearly did not abuse its discretion in declining to give Ponce this priority. View "Autonomous Municipality of Ponce v. Commonwealth of Puerto Rico" on Justia Law

In this PROMESA action the First Circuit affirmed in part and vacated in part the decision of the the lower court denying Plaintiffs' petition for relief from an automatic stay of collection actions against the Commonwealth of Puerto Rico to allow them to bring an enforcement action against the Commonwealth, holding that remand was required to determine whether the contested funds were Plaintiffs'.Plaintiffs, motor vehicle owners and operators who paid duplicate premiums to the Commonwealth in accordance with the Commonwealth's compulsory automobile-insurance law, entered into a settlement agreement pursuant to which the Commonwealth agreed to establish a notice and claim-resolution process for the motorists. Thereafter, the Financial Oversight and Management Board for Puerto Rico initiated Title III debt-adjustment proceedings on behalf of the Commonwealth pursuant to the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), triggering an automatic stay of collection actions against the Commonwealth. The Commonwealth subsequently halted its implementation of the settlement agreement's notice and claim resolution process. Plaintiffs unsuccessfully petitioned the Title III court for relief from the automatic stay. The First Circuit remanded the case, holding that the Title III court abused its discretion by not first addressing Plaintiffs' claim that the contested funds were their personal property and were merely being held in trust by the Commonwealth. View "Gracia-Gracia v. Commonwealth of Puerto Rico" on Justia Law

The Bushes owed $100,000 in taxes. The IRS sought a 75% fraud penalty (26 U.S.C. 6663(a)); the Bushes proposed a 20% negligence penalty (section 6662(a)). On the date set for Tax Court trial, the Bushes filed for bankruptcy. The automatic stay prevented the Tax Court from proceeding. The government filed a proof of claim, proposing that the tax debt be given priority over other unsecured debts and that the penalty was nondischargeable. The Bushes initiated an adversary proceeding, asking for a 20% penalty, citing 11 U.S.C. 505(a)(1), which states that the court may determine the amount or legality of any tax, any fine or penalty relating to a tax ... whether or not contested before … [an] administrative tribunal. The IRS argued that section 505 does not grant subject-matter jurisdiction to bankruptcy judges and that only a potential effect on creditors’ distributions justifies a decision by a bankruptcy judge about any tax dispute. The Seventh Circuit held that a bankruptcy court can determine the amount of a debtor’s tax obligations. Section 505 does not address jurisdiction bu simply sets out a task for bankruptcy judges. Whether the judge should exercise that authority to determine tax liability is a distinct question. The bankruptcy is apparently done; the estate’s available assets have been used to pay debts and the stay has expired. This residual dispute should not remain with the bankruptcy judge but should be left to the Tax Court. View "Bush v. United States" on Justia Law