Justia Bankruptcy Opinion Summaries

Gordon Green filed for Chapter 7 bankruptcy on May 11, 2021, listing his "Sun Life: Life Income Fund," a Canadian Registered Retirement Savings Plan, as an asset. Green sought to exempt the fund under Illinois statute 735 ILCS 5/12-1006, which exempts assets intended in good faith to qualify as a retirement plan under applicable provisions of the Internal Revenue Code (IRC). The bankruptcy trustee objected, arguing that the fund, organized under Canadian law, did not qualify for the exemption. The bankruptcy court agreed, holding that a retirement plan must be organized under IRC § 401(a), which requires the trust to be created or organized in the United States.Green appealed to the United States District Court for the Northern District of Illinois. The district court rejected the bankruptcy court's country-of-origin requirement but still found that the Sun Life Fund was not a tax-qualified retirement plan under the IRC. Consequently, the district court affirmed the denial of the exemption.The United States Court of Appeals for the Seventh Circuit reviewed the case de novo. The court examined whether the Sun Life Fund qualified as a retirement plan under applicable provisions of the IRC. The court noted that the IRC does not specifically define "retirement plan" for this purpose and that Illinois law requires the plan to qualify under applicable IRC provisions. The court found that the Sun Life Fund did not meet the criteria for tax-qualified retirement plans under the IRC, as it was not governed by any specific IRC provision that regulates retirement plans. The court affirmed the district court's decision, holding that the Sun Life Fund was not exempt under Illinois statute 735 ILCS 5/12-1006. View "Green v. Leibowitz" on Justia Law

Demona Freeman secured a loan to purchase her home, which was assigned to the Bank of New York Mellon (BNY Mellon) and serviced by Ocwen Loan Servicing, LLC. After falling behind on her mortgage payments, BNY Mellon initiated a foreclosure action. Freeman filed for bankruptcy and eventually cured her mortgage default through bankruptcy payments. Despite this, Ocwen inaccurately reported her loan as delinquent and began rejecting her monthly payments, leading BNY Mellon to file a second foreclosure action, which was later dismissed. Freeman sued Ocwen and BNY Mellon, alleging violations of the Fair Credit Reporting Act (FCRA) and the Fair Debt Collection Practices Act (FDCPA).The United States District Court for the Southern District of Indiana dismissed Freeman’s FCRA claim and granted summary judgment on her FDCPA claim, citing lack of standing. Freeman appealed both rulings. She argued that Ocwen failed to conduct a reasonable investigation after being notified by consumer reporting agencies (CRAs) of her dispute over the delinquent loan reporting. She also claimed that Ocwen’s erroneous reporting and collection practices caused her various injuries.The United States Court of Appeals for the Seventh Circuit reviewed the case. The court affirmed the district court’s dismissal of the FCRA claim, finding that Freeman failed to specify which CRA she notified, thus not providing Ocwen fair notice of the claim. The court also upheld the summary judgment on the FDCPA claim, concluding that Freeman lacked standing. The court determined that Freeman did not provide sufficient evidence of concrete injuries, such as monetary harm or intangible injuries closely related to common law analogues like defamation or invasion of privacy. Consequently, the court affirmed the district court’s rulings. View "Freeman v. Ocwen Loan Servicing, LLC" on Justia Law

The case revolves around a dispute between SR Construction (SRC), a construction company, and RE Palm Springs II, L.L.C. (RPS), a company formed to take title to a hotel property. SRC was hired to build a hotel in California but was terminated before completion, leaving it with a demand for $14 million in unpaid work. After several failed attempts to recover its dues, SRC held onto certain personal property left over from the hotel project. The bankruptcy court ordered SRC to turn over the personal property, which SRC appealed.The lower courts had a series of interactions with this case. The bankruptcy court initially ordered SRC to turn over the personal property. SRC appealed this decision, challenging the bankruptcy court's power to order the turnover and the validity of the most recent hotel owner's claim to the personal property. The district court affirmed the bankruptcy court's decision, concluding that the bankruptcy court had jurisdiction to interpret and enforce the Sale Order. It also affirmed the bankruptcy court's conclusion that Hall had obtained title to the Personal Property and had not waived its right to the Personal Property by taking it "as is."The United States Court of Appeals for the Fifth Circuit affirmed the lower courts' decisions. The court concluded that the bankruptcy court's order was part of its undisputed power to order the sale of a bankruptcy debtor's assets. It also rejected SRC's arguments about ownership of the assets in this case. The court found that the bankruptcy court had jurisdiction to enter the Turnover Order because that order interpreted and enforced the Sale Order. It also concluded that because the Turnover Order is integral to and inseparable from RPS's bankruptcy, it is a core matter. Therefore, issuing the Turnover Order was entirely within the bankruptcy court's authority. The court also affirmed the conclusion that title to the Personal Property passed from SRC to Palm Springs, then to RPS, and finally to Hall. View "SR Construction v. RE Palm Springs II" on Justia Law

The case revolves around James Dondero, co-founder and former CEO of Highland Capital Management, L.P., a global investment advisor that filed for bankruptcy in 2019. Highland filed an adversary proceeding against Dondero due to a dispute over the disposition of its assets in bankruptcy. The bankruptcy court issued a temporary restraining order (TRO) against Dondero, which he was later found to have violated, leading to a contempt order and compensatory damages awarded to Highland.The bankruptcy court's decision was affirmed by the district court. The court found that Dondero had violated the TRO by communicating with Highland's employees outside of the Shared Services Exception and interfering with Highland's trading activities. The court imposed a $450,000 compensatory monetary sanction to be paid to Highland, as well as a $100,000 sanction for each level of rehearing, appeal, or petition for certiorari unsuccessfully pursued. The district court affirmed all aspects of the bankruptcy court’s contempt order except for the $100,000 sanction for unsuccessful appeals, which Highland did not contest.The United States Court of Appeals for the Fifth Circuit affirmed the lower courts' decisions. The court found that the bankruptcy court did not err in concluding that Dondero violated both Section 2(c) and Section 3 of the TRO. The court also found that the bankruptcy court did not abuse its discretion in awarding a $450,000 sanction. The court rejected Dondero's arguments that the TRO was vague and ambiguous, that there was not clear and convincing evidence of a TRO violation, and that the bankruptcy court erred in awarding the sanction. View "Dondero v. Highland Capital Management, L.P." on Justia Law

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