Justia Bankruptcy Opinion Summaries

In 2006 Trinity borrowed about $2 million from a bank, secured by a mortgage. The bank sold the note and mortgage to ColFin, which relied on Midland to collect the payments. In 2013, Midland recorded a “satisfaction,” stating that the loan had been paid and the mortgage released. The loan was actually still outstanding. Trinity continued paying. In 2015, ColFin realized Midland’s mistake and recorded a document canceling the satisfaction. Trinity stopped paying. ColFin filed a state court foreclosure action. Trinity commenced a bankruptcy proceeding, which stayed the foreclosure, then filed an adversary action against ColFin, contending that the release extinguished the debt and security interest. The bankruptcy court, district court, and Seventh Circuit rejected that argument and an argument that the matter was moot because the property had been sold under the bankruptcy court’s auspices. There is a live controversy about who should get the sale proceeds; 11 U.S.C. 363(m), which protects the validity of the sale, does not address the disposition of the proceeds. Under Illinois law, Trinity did not obtain rights from the 2013 filing, which was unilateral and without consideration; no one (including Trinity) detrimentally relied on the release, so ColFin could rescind it. ColFin caught the problem before Trinity filed its bankruptcy petition, so a hypothetical lien perfected on the date of the bankruptcy would have been junior to ColFin’s interest. View "Trinity 83 Development LLC v. Colfin Midwest Funding LLC" on Justia Law

The Bankruptcy Appellate Panel affirmed the bankruptcy court's order granting the Chapter 13 trustee's motion to dismiss debtor's bankruptcy case. The panel held that the record supported the trustee's contention that debtor did not satisfy the requirements of 11 U.S.C. 109(h) and thus could not be a debtor under the bankruptcy code. In this case, despite checking the box on her petition to represent she had received credit counseling within the 180 days before she filed her petition, debtor did not claim–much less offer any proof–she actually received such counseling within the time allowed. Petitioner failed to submit the required certification to obtain a temporary waiver of the credit counseling requirement due to exigent circumstances, and did not file the required request that the bankruptcy court determine she was unable to complete credit counseling due to incapacity, disability, or active military duty in a military combat zone. Finally, the bankruptcy court did not abuse its discretion in barring debtor from refiling for 180 days. View "Marshall v. McCarty" on Justia Law

The Bankruptcy Appellate Panel affirmed the bankruptcy court's holding that 11 U.S.C. 1322(b)(2)'s anti-modification provision did not apply to the Paddock's claim in debtors' manufactured home. Debtors' plan proposed that The Paddock's secured claim in their manufactured home would be bifurcated into secured and unsecured parts.The panel held that the bankruptcy court did not clearly err in finding that the home did not meet Iowa's fixture test and was therefore not real property. In this case, the home sits on piers and blocks, and the bankruptcy court found nothing in the record to show The Paddock's intent to make the manufactured home a fixture. View "The Paddock, LLC v. Bennett" on Justia Law

Anderson and Kaiser jointly borrowed about $700,000 from the Bank, secured by a mortgage. They did not pay; the Bank filed a foreclosure action in state court. That action was put on hold when Anderson commenced a bankruptcy proceeding. The Bank obtained relief from the automatic stay, 11 U.S.C. 362, to proceed with the foreclosure litigation. In state court, the Bank obtained approval to put the property up for auction. The sale was confirmed. The Bank then obtained a state court deficiency judgment against Kaiser; it did not appeal the omission of a deficiency judgment against Anderson. The state litigation ended in 2015. In the bankruptcy court, the Bank made a claim against Anderson for the same $650,000 shortfall that the state judge had awarded against Kaiser. On interlocutory appeal, the district court held that the absence of a deficiency judgment against Anderson in the state case blocks any further proceedings against him related to this loan. The Seventh Circuit affirmed, citing claim preclusion. The court rejected the Bank’s argument that the automatic bankruptcy stay deprived the state court of “jurisdiction” to make any decision at all, except to the extent allowed by the bankruptcy judge. View "BMO Harris Bank N.A. v. Anderson" on Justia Law

In 2000, the Tribe had agreed to pay Monroe $265 million for Monroe’s 50% ownership interest in the Casino, giving the Tribe a 100% ownership interest. In 2002, the Tribe agreed to another $200 million debt in exchange for a continued gaming license from the Michigan Gaming Control Board (MGCB). In 2005, the Tribe created a new entity (Holdings), which became the Casino’s owner; pre-existing entities owned by the Tribe became Holdings' owners to allow the Tribe to refinance and raise capital to meet its financial obligations. The restructuring was approved by the MGCB, conditioned on the Tribe’s adherence to strict financial covenants. In 2005, Holdings transferred approximately $177 million to various entities. At least $145.5 million went to the original owners of Monroe. At least $6 million went to the Tribe. For three years, the Tribe unsuccessfully attempted to raise additional capital to meet its financial obligations. In 2008, the related corporate entities) filed voluntary petitions for Chapter 11 bankruptcy. The Trustee alleged that the 2005 transfers were fraudulent and sought recovery under 11 U.S.C. 544, 550. The district court and Sixth Circuit affirmed the bankruptcy court’s dismissal of the complaint on the basis of tribal sovereign immunity. The court rejected arguments that Congress intended to abrogate the sovereign immunity of Indian tribes in 11 U.S.C. 106, 101(27). View "Buchwald Capital Advisors LLC v. Sault Ste. Marie Tribe" on Justia Law

The trustee for the Liquidation of Bernard L. Madoff Investment Securities LLC alleged that Madoff Securities transferred property to foreign entities that subsequently transferred it to other foreign entities, including the hundreds of appellees. The trustee claimed that the Madoff Securities' transfers were avoidable as fraudulent under 11 U.S.C. 548(a)(1)(A), and sought to recover the property from appellees under section 550(a)(2). The district court dismissed the actions based on the presumption against extraterritoriality and international comity principles.The Second Circuit vacated and held that neither the presumption against extraterritoriality nor international comity principles barred recovery. In this case, the focus of section 550(a) was on debtor's fraudulent transfer of property to the initial transferee, and these actions involved domestic applications of the Bankruptcy Code because section 550(a) focused on regulating domestic conduct. Therefore, the lower courts erred by dismissing these actions under the presumption against extraterritoriality. The court also held that the district court erroneously dismissed these actions on international comity grounds where the United States' interest in applying its law to these disputes outweighed the interest of any foreign state and prescriptive comity posed no bar to recovery. View "In re: Picard" on Justia Law

Fulson owned Nicole Gas, which entered bankruptcy proceedings, and became dissatisfied with the Trustee’s handling of claims that Nicole Gas held against its competitors. With the help of attorneys Sanders and Lowe, Fulson sought relief in state court under the Ohio Corrupt Practices Act (Ohio civil RICO) against the competitors that allegedly put his business into bankruptcy. The Trustee alleged that he had appropriated claims and filed a claim, alleging that Fulson, Sanders, and Lowe violated the automatic stay. The Bankruptcy Court agreed, held the three in contempt, and entered a judgment for roughly $91,000. The Bankruptcy Appellate Panel and the Sixth Circuit affirmed. The court explored the principles of the derivative suit in corporate law, the function of the automatic stay in bankruptcy, and the extent and construction of a specific state’s RICO laws to conclude that the Ohio RICO statute does not give the sole shareholder of a bankrupt corporation standing to circumvent the automatic stay and individually sue a competitor. Fulson and his attorneys should have sought either the trustee’s cooperation or relief from the automatic stay in order to file the complaint. View "In re Nicole Gas Production, Ltd." on Justia Law

In 1999, the Titus & McConomy law firm dissolved and, apparently, abandoned its commercial lease. Titus joined the Schnader firm, which deposited Titus’s wages into a bank account he owned jointly with his wife. The landlord sued the former Titus & McConomy partners and secured a multimillion-dollar judgment, then brought a fraudulent-transfer action in Pennsylvania state court against Mr. and Mrs. Titus. This triggered an involuntary bankruptcy. After two Bankruptcy Court trials and two appeals, the Third Circuit concluded that the Tituses are liable for a fraudulent transfer. When the wages of an insolvent spouse are deposited into a couple’s entireties account, both spouses are fraudulent transferees. The bankruptcy trustee waived any challenge to the method used to calculate their liability but the Third Circuit clarified how future courts should measure liability when faced with an entireties account into which deposits consist of both (fraudulent) wages and (non-fraudulent) other sources, and from which cash is spent on both (permissible) household necessities and (impermissible) other expenditures. Until now, a trustee had to show that wage deposits were impermissibly spent on non-necessary expenditures, even though wage and nonwage deposits had become commingled in the account. Rather than expect a trustee to trace the untraceable, future courts should generally presume that wage deposits were spent on non-necessary expenditures in proportion to the overall share of wages in the account as a whole. View "In re: Titus" on Justia Law

Attorney Boland was an expert witness and defense counsel in child pornography cases. To demonstrate that pornographic images may be altered to appear that minors were engaged in sexual conduct when they were not, Boland purchased innocent stock images of minors and "morphed" them into pornographic images for use in criminal proceedings. The issue of whether Boland committed a crime in creating and displaying these images of child pornography was raised and Boland eventually voluntarily entered into a Pretrial Diversion Agreement, explaining and apologizing for creating the images. Two of the minors, depicted in the images Boland created, won awards under 18 U.S.C. 2252A(f), which provides civil damages for victims of child pornography. Boland filed a Chapter 7 bankruptcy petition; the minors filed an unsuccessful adversary proceeding, asserting their awards were non-dischargeable debts for willful and malicious injury under 11 U.S.C. 523(a)(6).The Sixth Circuit Bankruptcy Appellate Panel remanded. Collateral estoppel did not apply on the issue of whether Boland intended to injure the minors since intent was not actually litigated or necessary to the outcome of the prior litigation, but stipulations made through Boland's Diversion Agreement and judicial decisions concerning his liability to the minors established that Boland knowingly created and possessed pornographic images involving images of real children. The bankruptcy court did not consider the legal injury suffered by the minors as a result of the invasion of their privacy and reputational interests. Boland acted without justification, maliciously injuring the minors under 11 U.S.C. 523(a)(6). View "In re Boland" on Justia Law

The Supreme Court reversed in part the district court's judgment granting JLC Wyoming LLC a deficiency judgment against Stanley Thomas for the unpaid amount of a judgment against Fourth Quarter Properties 86 (FQP) and Thomas, holding that the district court did not credit Thomas with all payments made against an earlier judgment.FQP and Thomas obtained a $30 million loan from MetLife Insurance (MLIC) with a ranch as collateral, but when they could no longer make the payments, MLIC obtained a judgment against them for the outstanding balance plus interest (the judgment). Before the foreclosure sale, FQP filed for bankruptcy protection. MLIC purchased the ranch at a foreclosure sale. MLIC then sold its rights to the ranch and the remaining balance on the judgment to JLC. JLC obtained a deficiency judgment against Thomas for the unpaid amount of the judgment. The Supreme Court held (1) Thomas, a non-party to FQP’s bankruptcy case, was not entitled to the reduced amount FQP negotiated with MLIC in the bankruptcy case for the outstanding judgment; and (2) the district failed properly to credit Thomas for prior payments he and FQP made against the judgment. View "Thomas v. JLC Wyoming, LLC" on Justia Law