Justia Bankruptcy Opinion Summaries

Brooks, Debtor's CEO, was charged with financial crimes. In class action and derivative lawsuits, Debtor proposed a global settlement that indemnified Brooks for liability under the Sarbanes Oxley Act (SOX), 15 U.S.C. 7243. Cohen, Debtor’s former General Counsel and a shareholder, claimed that the indemnification was unlawful. The district court approved the settlement, Cohen, represented by CLM, appealed. The Second Circuit vacated, noting that the EDNY would determine CLM’s attorneys’ fees award. Debtor initiated Chapter 11 bankruptcy proceedings. The Bankruptcy Court confirmed Debtor’s liquidation plan, with a trustee to pursue Debtor’s interest in recouping its losses from the ongoing actions.Brooks died in prison. Because his appeal had not concluded, some of his convictions and restitution obligations were abated. Stakeholders negotiated a second global settlement agreement, under which $142 million of Brooks’ restrained assets were to be distributed to his victims; $70 million has been remitted to Debtor. The Bankruptcy Court awarded CLM fees for the SOX 304 claim; the amount would be determined if Debtor received any funds on account of the claim. CLM’s Fee Appeal remains pending at the district court.CLM requested a $25 million reserve for payment of its fees. The Bankruptcy Court ordered Debtor to set aside $5 million. CLM’s Fee Reserve Appeal remains pending. CLM then moved, unsuccessfully, for a stay of Second Settlement Agreement distributions. In its Stay Denial Appeal, CLM’s motion requesting a stay of distributions was denied. The Third Circuit affirmed. The $5 million reserve is sufficient. A $5 million attorneys’ fees award for 1,502.2 hours of legal work totaling $549,472.61 of documented fees would yield an hourly rate of $3,328.45 and a lodestar multiplier of over nine. In common fund cases where attorneys’ fees are calculated using the lodestar method, multiples from one to four are the norm. View "SS Body Armor I, Inc. v. Carter Ledyard & Milburn, LLP" on Justia Law

Great Plains Royalty Corp. appealed the dismissal of its complaint and deciding ownership of certain real property in favor of Earl Schwartz Co. (“ESCO”); Basin Minerals, LLC; SunBehm Gas, Inc.; and other defendants. In 1968, Great Plains’ creditors initiated a bankruptcy case by filing an involuntary petition under Chapter 11 of the Bankruptcy Code. The bankruptcy court ruled Great Plains was “a bankrupt,” and the case was converted to a liquidation proceeding under Chapter 7 of the Bankruptcy Code. The trustee received permission to sell the estate’s assets, an auction sale was held, and Earl Schwartz was the winning bidder. An order confirming sale of the assets was entered; the order stated Schwartz entered into an agreement with SunBehm to purchase certain properties in the bankruptcy estate, and title was transferred on those properties directly from the estate to SunBehm. The trustee did not collect sufficient funds from the auction to pay all creditors in full. The bankruptcy case was closed in 1974. In 2013, the bankruptcy case was reopened, and a successor trustee was appointed. The successor trustee collected funds sufficient to pay “a 100 percent dividend” to the estate’s creditors, and he attempted to disburse the funds to the unpaid creditors. While the case was open various adversary proceedings were brought, including some to determine ownership of certain properties. Some of the adversary proceedings were decided, and others were dismissed for lack of jurisdiction. The bankruptcy court discharged the trustee and closed the bankruptcy case in May 2016. In December 2016, Great Plains sued ESCO, Basin, and SunBehm to quiet title to oil, gas, and other minerals in and under three properties located in McKenzie County, North Dakota. ESCO and Basin were successors in interest to Schwartz. Great Plains argued the district court erred by finding the bankruptcy trustee intended to sell all of Great Plains’ assets, including those not listed in the auction sale notice, to Earl Schwartz. The North Dakota Supreme Court concluded the district court’s decision to quiet title in favor of the defendants was based on its misapplications of the law and findings that were not supported by the evidence. The Court considered the remaining issues and arguments and concluded they were either without merit or are unnecessary to its decision. Because the court’s findings were clearly erroneous, the Supreme Court reversed the district court’s judgment deciding ownership of certain properties and dismissing Great Plains’ complaint with prejudice. The matter was remanded for further proceedings to determine the parties’ claims and ownership of the properties. View "Great Plains Royalty Corporation v. Earl Schwartz Company, et al." on Justia Law

The Fifth Circuit reversed the district court's holding that the bankruptcy court erred in dismissing a post-confirmation attempt by the Oklahoma State Treasurer to obtain the right to unclaimed royalty payments owed by the oil and gas debtor. The court held that res judicata barred the claim because the Treasurer sat on its rights during the entire Chapter 11 process. In this case, the Treasurer failed to participate in the bankruptcy case and object to or appeal the plan's disposition of the Oklahoma unclaimed property in the normal course. Accordingly, the court reinstated the bankruptcy court's dismissal of the Treasurer's case. View "Linn Operating, Inc. v. Oklahoma State Treasurer" on Justia Law

Chicago's Code permits the city to immobilize and impound a vehicle if its owner has three or more “final determinations of liability,” or two final determinations that are over a year old, “for parking, standing, compliance, automated traffic law enforcement system, or automated speed enforcement system violation[s].” Fines range from $25 to $500. Failure to pay the fine within 25 days automatically doubles the penalty. After a vehicle is impounded, the owner is further subjected to towing and storage fees and to the city’s costs and attorney’s fees. A 2016 amendment created a possessory lien in favor of the city in the amount required to obtain the vehicle's release. Chicago began refusing to release impounded vehicles to debtors who had filed Chapter 13 petitions. In each of four consolidated cases, the bankruptcy courts each held that Chicago violated the automatic stay by “exercising control” over bankruptcy estate property and that none of the exceptions to the stay applied. The courts ordered the city to return debtors’ vehicles and imposed sanctions for violating the stay. The Seventh Circuit affirmed, noting that it addressed the issue in 2009 and held that a creditor must comply with the automatic stay and return a debtor’s vehicle upon her filing of a bankruptcy petition. View "City of Chicago v. Fulton" on Justia Law

Debtors sought sanctions against Kreisler, alleging that the law firm violated the automatic stay arising from their bankruptcy petition by filing a lien against Lorraine’s home. The couple had voluntarily dismissed a prior bankruptcy petition just a few months earlier, so the bankruptcy judge denied their motion based on 11 U.S.C. 362(c)(3), which lifts the automatic stay after 30 days in the case of a successive petition. Bankruptcy courts are divided over the proper interpretation of section 362(c)(3), so the judge certified her order for direct appeal but the Debtors never filed a petition for permission to appeal as required by Rule 8006(g) of the Federal Rules of Bankruptcy Procedure. The Seventh Circuit dismissed the appeal. Rule 8006(g) is a mandatory claim-processing rule, and if properly invoked, it must be enforced. Because Kreisler properly objected, the appeal must be dismissed. View "Wade v. Kreisler Law, P.C." on Justia Law

The Fifth Circuit affirmed the district court's denial of Linn Lender's post-petition default interest and held that a reasonable person would not understand the reference to Linn Lender Claims in Article III.B.3 of the bankruptcy plan and the definition of the term "Linn Lender Claims" in Article I.A.114 to incorporate by reference the post-default interest rates set forth in the proofs of claim and credit agreement. The court held that, given the availability of post-petition default interest was specifically reserved when the Final Cash Collateral Order was entered, and that the bankruptcy plan itself contained an Article entitled "No Postpetition or Default Interest on Claims," failure to make specific mention of "default interest" in Article III.B.3 indicated that the parties intended the omission. View "UMB Bank, NA v. Linn Energy, LLC" on Justia Law

Taggart owned an interest in an Oregon company. That company and its other owners (respondents) sued, claiming that Taggart had breached the company’s operating agreement. Before trial, Taggart filed for Chapter 7 bankruptcy. The Bankruptcy Court issued a discharge order that released Taggart from liability for most pre-bankruptcy debts. The Oregon state court subsequently entered judgment against Taggart in the pre-bankruptcy suit and awarded attorney’s fees to respondents. The Bankruptcy Court found respondents in civil contempt for collecting attorney’s fees in violation of the discharge order. The Bankruptcy Appellate Panel and the Ninth Circuit applied a subjective standard to hold that a “creditor’s good faith belief” that the discharge order does not apply to the claim precludes a finding of contempt, even if that belief was unreasonable. The Supreme Court vacated. Neither a standard akin to strict liability nor a purely subjective standard is appropriate. A court may hold a creditor in civil contempt for violating a discharge order if there is no fair ground of doubt as to whether the order barred the creditor’s conduct. Civil contempt principles apply to the bankruptcy statutes, which specify that a discharge order “operates as an injunction,” 11 U.S.C. 524(a)(2), and that a court may issue any “order” or “judgment” that is “necessary or appropriate” to “carry out” other bankruptcy provisions. A party’s subjective belief that she was complying with an order ordinarily will not insulate her from civil contempt if that belief was objectively unreasonable. The Court remanded, noting that subjective intent is not always irrelevant. Civil contempt sanctions may be warranted when a party acts in bad faith, and a party’s good faith may help to determine an appropriate sanction. View "Taggart v. Lorenzen" on Justia Law

This case arose from the Chapter 11 bankruptcies of Life Partners Holdings, LPI, and LPI Financial Services (collectively, the LP Entities). The LP Entities operated an investment business through which they defrauded investors and violated securities laws by using a multi-level marketing structure to sell their life insurance investments and contracting with individuals and entities they called "Licensees" to refer potential investors in exchange for sales commissions. The district court granted the Licensees' motions to dismiss all of the creditors' trust's claims and declined to allow repleading.Count 1 alleged actual fraudulent transfer under the Texas Business & Commerce Code, Count 2 alleged constructive fraudulent transfer under the Texas Business & Commerce Code, Count 3 alleged actual fraudulent transfer under 11 U.S.C. 548(a)(1)(A), Count 4 alleged constructive fraudulent transfer under 11 U.S.C. 548(a)(1)(B), Count 5 alleged preferences under 11 U.S.C. 547, Count 6 alleged recovery of avoided transfers under 11 U.S.C. 550, County 7 alleged breach of contract, Count 8 alleged equitable subordination of the Licensees' claims against the LP Entities' bankruptcy estates; Count 9 alleged disallowance of the Licensees' claims, Count 10 alleged negligent misrepresentation, Count 11 alleged breach of the Texas Securities Act, and Count 12 alleged breach of fiduciary duties.The Fifth Circuit affirmed as to Counts 5, 8, 11, and 12, but reversed the dismissal of Counts 1-4, 6, 9, and 10, holding that these claims were adequately pleaded. Accordingly, the court remanded for further proceedings. View "Life Partners Creditors' Trust v. Cowley" on Justia Law

The plain text of 11 U.S.C. 1322(c)(2) authorizes modification of covered homestead mortgage claims, not just payments, including bifurcation of undersecured homestead mortgages into secured and unsecured components. The Fifth Circuit overruled Witt v. United Cos. Lending Corp., 113 F.3d 508 (4th Cir. 1997), which held that Chapter 13 debtors may not bifurcate a narrow subset of undersecured home mortgage loans into separate secured and unsecured claims and cram down the unsecured portion of such loans. Accordingly, the court reversed and remanded for further proceedings. View "Hurlburt v. Black" on Justia Law

Schier represented Capital in a state court suit filed by Longhorn. Capital was hit with a $5-million judgment and landed in bankruptcy. Its Chapter 7 proceedings stayed the Longhorn litigation with post-trial motions pending. Longhorn filed a bankruptcy claim. When Schier filed a claim for Capital’s unpaid legal fees, the bankruptcy trustee countered with a malpractice suit against Schier, which eventually settled. Schier agreed to pay the estate $600,000 and to withdraw its attorney’s fees claim. The bankruptcy court approved this settlement. Schier withdrew its claim. When the trustee filed a final report, Schier alleged that Capital’s right to appeal Longhorn’s state-court judgment qualified as an “asset” that the trustee should have administered or abandoned. The bankruptcy court overruled Schier’s objection, reasoning that Schier should have raised this issue while Schier had a pending fees request and was a “creditor” with “standing.” The district court dismissed an appeal, stating that “[i]n order to have standing to appeal a bankruptcy court order, an appellant must have been directly and adversely affected pecuniarily by the order,” a more demanding standard than Article III standing. The Sixth Circuit affirmed, noting the Supreme Court’s 2014 “Lexmark” decision, which jettisoned the label “prudential standing.” Citing “the post-Lexmark uncertainty about various standing concepts,” the court held that Schier lacked the type of standing that Lexmark did not affect: Article III standing. View "In re Capital Contracting Co." on Justia Law