Justia Bankruptcy Opinion Summaries

A chapter 7 trustee sought a declaration that a refinanced mortgage only encumbered the interest of the person specifically defined within the body of the mortgage as a “Borrower/Mortgagor.” The mortgage instrument listed the co-debtor's wife as a “Borrower” in the signature block but the mortgage did not specifically name her as a “Borrower” within the text of document other than in the signature block. The bankruptcy court regarded the mortgage as ambiguous under these circumstances, considered extrinsic evidence, and concluded that the property was fully encumbered by the mortgage. Pending appeal, the Ohio Supreme Court answered certified questions, stating that the failure to identify a signatory by name within the body of the mortgage instrument did not render the agreement unenforceable against the signatory’s in rem rights as a matter of law and that when a mortgage is properly signed, initialed and acknowledged by a signatory who is not named within the document itself, the mortgage is not invalid as a matter of law. The Bankruptcy Appellate Panel affirmed, concluding that the mortgage encumbered the rights of both husband and wife. View "In re Perry" on Justia Law

Plaintiff filed a whistleblower action under Section 806 of the Sarbanes-Oxley Act against CGI, alleging that he was unlawfully fired in retaliation for his complaints about and objections to an allegedly fraudulent scheme developed by CGI's executives. The district court held that the Sarbanes-Oxley claim survived summary judgment, but later dismissed plaintiff for lack of standing due to his parallel bankruptcy proceeding. After the bankruptcy case closed, plaintiff moved to be substituted in as the proper party-in-interest. The district court granted plaintiff's motion and then dismissed the case on grounds of judicial estoppel.The Second Circuit held that the district court exceeded its discretion by invoking the judicial estoppel doctrine. The court held that where, as here, a pro se debtor has listed his pending litigation on the Statement of Financial Affairs (SOFA), rather than the Schedule B as it was constituted at the time of plaintiff's filing, and then disclosed it to the trustee and the bankruptcy court prior to discharge of his debt, and the trustee and the bankruptcy court were on sufficient notice to take steps to protect the creditors' interests, the debtor is not estopped from pursuing that litigation by virtue of the doctrine of judicial estoppel. The court explained that, for estoppel to apply, there must be greater indicia than presented here of an intent to deceive the court for the debtor's benefit. Accordingly, the court vacated the judgment and remanded for further proceedings.The court affirmed the district court's grant of partial summary judgment to CGI on the state-law breach of contract claim, holding that the dismissal order was rendered moot by virtue of later developments. View "Ashmore v. CGI Group" on Justia Law

In 2013 Chlad and her husband, Vehovc, filed a joint Chapter 7 bankruptcy petition seeking to discharge about $5 million of debt. After Chlad and Vehovc filed financial disclosures, two creditors brought an adversary proceeding objecting to the discharge, alleging that the filings omitted information material to the debtors’ financial condition, 11 U.S.C. 727(a)(4). Chlad and Vehovc failed to disclose the existence of particular real estate, a significant creditor, bank accounts, a shareholder loan, certain sources of income, and an alternate first name used by Chlad. The bankruptcy court denied the discharge, finding that the omissions reflected material false statements made with fraudulent intent. The district court and the Seventh Circuit affirmed. The omissions and misstatements were material and reflected false statements made under oath that the debtors knew or should have known to be false; taken together, the omissions and misstatements demonstrated a reckless disregard for the truth, which was sufficient to support a finding of fraudulent intent necessary to deny discharge under section 727(a)(4). View "Chlad v. Chapman" on Justia Law

The Ninth Circuit affirmed the district court's decision affirming the bankruptcy court's order confirming a second amended Chapter 11 plan of five real estate holding companies. The panel held that 11 U.S.C. 1129(a)(3) directs bankruptcy courts to police the means of a reorganization plan's proposal, not its substantive provisions. Therefore, the panel affirmed confirmation of the Amended Plan over the trustee's objection that the lease violated federal drug law because one of the debtors leased property to a company that used the property to grow marijuana. View "Garvin v. Cook Investments NW" on Justia Law

The Fifth Circuit affirmed the district court's judgment affirming the bankruptcy court's decision to grant the Chapter 7 trustee's motion to approve auction and for authority to sell certain real property of the bankruptcy estate of VCR I. The court held that the trustee fully complied with the Agreed Order and Gluckstadt failed to address the court's precedent in In re Moore, the requirement under 11 U.S.C. 363(b) for the sale of a debtor's assets outside the ordinary course of business, or the trustee's fiduciary duty to maximize the assets of the bankruptcy estate. The court denied the trustee's motion to dismiss as moot. View "Gluckstadt Holdings, LLC v. VCR I, LLC" on Justia Law

LSI's bankruptcy trustee filed suit against several of LSI's corporate officers, directors, and investors for breaches of fiduciary duty. At issue was a contract LSI entered into with Jabil Inc., one of LSI's bankruptcy creditors. A jury found appellants liable and assessed compensatory and exemplary damages. The Fifth Circuit held that Appel, Bartlett, and DeJoria were entitled to judgment rendered in their favor: in DeJoria's case because of the lack of proof of a recoverable injury and the corresponding vacatur of exemplary damages; in Appel's case because there was no evidence of individual liability and the corresponding vacatur of exemplary damages; and in Bartlett's case because there was no evidence of individual liability. Accordingly, the court reversed and rendered judgment for these appellants. In regard to Cohen, the court vacated the damages award in part, affirmed in part, and remanded. View "Ebert v. DeJoria" on Justia Law

Three years before filing her bankruptcy petition, Lane sold her residence to the Deans. They subsequently discovered mold in the basement and filed a civil complaint against her. The state court submitted the dispute to binding arbitration. The arbitrator awarded the Deans $126,895.57. A Kentucky trial court entered judgment on the award. The Deans filed their judgment lien against Lane’s current residence in May 2017. Lane filed a voluntary chapter 13 petition on July 14. The Bankruptcy Court confirmed Lane’s Plan over the Deans’ objection. The Deans did not appeal the confirmation order but filed adversary proceedings and appeals to avoid its effect. The Bankruptcy Court sanctioned the Deans, awarding Lane attorney fees for their contemptuous behavior. The Deans filed objections to the Lane’s counsel’s Interim Fee Application. The Bankruptcy Court conducted a hearing and ultimately allowed the interim fees. The Sixth Circuit Bankruptcy Appellate Panel dismissed the Deans’ appeal, finding that the interim orders are not final orders, and the record presents no grounds for granting leave to appeal under well-settled Sixth Circuit case law, even treating the pro se notice of appeal as a motion for leave to appeal under Federal Rule of Bankruptcy Procedure 8004(d). View "In re: Lane" on Justia Law

JJF appealed the district court's denial of its third party claim to funds in certain deposit accounts that plaintiff, owner of a Rent-a-Wreck (RAWA) franchise, sought to garnish in his effort to satisfy a contempt award against RAWA for engaging in a pattern of bad faith conduct. JJF argued that it had priority over plaintiff's claims to the accounts.The court affirmed and held that the district court did not err in concluding that Maryland law permitted a trial court to require a third party movant to establish a bona fide claim of ownership. Therefore, the court declined to grant preclusive effect to the debtor-in-possession order and gave effect to the district court's authority to ensure compliance with its contempt orders. View "Schwartz v. J.J.F. Management Services, Inc." on Justia Law

A 50% shareholder of an involuntary debtor may not seek damages under 11 U.S.C. 303(i). The Ninth Circuit affirmed the district court's decision affirming the bankruptcy court's denial of a request for statutory damages made by a 50% shareholder, holding that it did not have standing under section 301(i) because it was not the debtor. In this case, relevant House and Senate Reports suggest that only the debtor has standing to seek section 303(i) damages; appellate courts in this circuit have twice considered whether a non-debtor can seek damages under section 303(i), and twice those courts have decided it cannot; and reading section 303(i) to permit only the debtor to seek damages is consistent with its purpose and the policy interests underlying it. View "Vibe Micro, Inc. v. SIG Capital, LLC" on Justia Law

The First Circuit affirmed the decision of the bankruptcy court dismissing an involuntary bankruptcy petition filed by one bank and joined by another against Defendant, a licensed plastic surgeon, holding that dismissal of the involuntary petition was proper because the Banks failed to meet the requirement that there be at least three petitioning creditors under 11 U.S.C. 303(b)(1).Under section 303(b), fewer than three petitioning creditors cannot force a debtor into bankruptcy unless the debtor has fewer than twelve creditors in total. The bankruptcy court granted Defendant's motion for summary judgment, concluding that Defendant had fifteen qualified creditors at the time the involuntary petition was filed and that the court did not have the equitable power to override the provisions of section 303(b)(1). The First Circuit affirmed, holding that the bankruptcy court did not err by (1) not placing on Defendant the burden of proving that he had twelve or more eligible creditors; (2) not finding that the Banks presented evidence sufficient to show that Defendant did not have twelve or more eligible creditors; and (3) not employing equitable discretion to allow the petition. View "Banco Popular de Puerto Rico v. Reyes-Colon" on Justia Law