Justia Bankruptcy Opinion Summaries

The case revolves around a former coal miner, Richard McLain, who developed a serious lung condition after working underground for nearly two decades. McLain filed a claim under the Black Lung Benefits Act, alleging that his years of mine work had left him totally disabled from a pulmonary perspective. His former employer, Old Ben Coal Company, had been liquidated through bankruptcy, so Liberty Mutual Insurance Company, the surety guaranteeing Old Ben’s debts under the Act, contested liability on the coal company’s behalf.The case was initially heard by an administrative law judge (ALJ), who determined that McLain was disabled within the meaning of the Black Lung Benefits Act. The ALJ's decision was based on a thorough review of the medical record and a set of medical findings regarding how to distinguish between lung disorders arising from coal dust and those arising from tobacco smoke. Old Ben appealed the ALJ’s decision to the Benefits Review Board, arguing that the ALJ erroneously treated the 2001 preamble as if it were binding law and made factual findings unsupported by the medical record. The Review Board affirmed the benefits decision in full.The case was then brought before the United States Court of Appeals for the Seventh Circuit. The court affirmed the decision of the Benefits Review Board, emphasizing the broad discretion ALJs enjoy when evaluating competing medical theories, the weight ALJs may properly attribute to the perspective of the Department of Labor on such issues, and the significant deference owed to ALJs’ medical findings and scientific judgments on appeal. The court found no error in the ALJ's application of a regulatory preamble or in the factual findings that were challenged by Old Ben. View "Safeco Insurance/Liberty Mutual Surety v. OWCP" on Justia Law

Jan Kowalski, an attorney, was accused of using her position to hide her brother's assets during his bankruptcy proceedings. She allegedly concealed around $357,000 in her attorney trust account and made false statements under oath to cover up the concealment. Kowalski was charged with four counts of bankruptcy fraud and one count of concealing assets from the bankruptcy trustee. She pleaded guilty to the charge of concealing assets.Prior to her trial, Kowalski had been involved in her brother's bankruptcy proceedings, where she used her attorney trust account to hide her brother's assets from his creditors and the bankruptcy trustee. She also made false statements under oath and fabricated documents to cover up her actions. The bankruptcy trustee confronted Kowalski with inconsistencies between her personal bank records and her earlier testimony, but she continued to lie under oath.Kowalski was sentenced to 37 months' imprisonment by the United States District Court for the Northern District of Illinois, Eastern Division. The court applied two sentencing enhancements: the § 2B1.1(b)(10)(C) sophisticated-means enhancement, and the § 3B1.3 abuse of position of trust enhancement. Kowalski appealed her sentence, arguing that the district court erred in applying these enhancements and that her sentence was substantively unreasonable.The United States Court of Appeals for the Seventh Circuit affirmed the district court's decision. The court found that Kowalski had indeed used sophisticated means to commit the offense and had abused her position of trust. The court also found her sentence to be substantively reasonable. View "United States v. Kowalski" on Justia Law

The case involves Truck Insurance Exchange (Truck), the primary insurer for companies that manufactured and sold products containing asbestos. Two of these companies, Kaiser Gypsum Co. and Hanson Permanente Cement (Debtors), filed for Chapter 11 bankruptcy after facing thousands of asbestos-related lawsuits. As part of the bankruptcy process, the Debtors proposed a reorganization plan that created an Asbestos Personal Injury Trust (Trust) to handle all present and future asbestos-related claims. Truck, contractually obligated to defend each covered asbestos personal injury claim and to indemnify the Debtors for up to $500,000 per claim, opposed the Plan, arguing that it exposed them to millions of dollars in fraudulent claims due to different disclosure requirements for insured and uninsured claims.The District Court confirmed the Plan, concluding that Truck had limited standing to object to the Plan because it was “insurance neutral,” meaning it did not increase Truck’s prepetition obligations or impair its contractual rights under its insurance policies. The Fourth Circuit affirmed this decision, agreeing that Truck was not a “party in interest” under §1109(b) of the Bankruptcy Code because the plan was “insurance neutral.”The Supreme Court of the United States reversed the Fourth Circuit's decision, holding that an insurer with financial responsibility for bankruptcy claims is a “party in interest” under §1109(b) of the Bankruptcy Code and may raise and appear and be heard on any issue in a Chapter 11 case. The Court reasoned that §1109(b)’s text, context, and history confirm that an insurer such as Truck with financial responsibility for a bankruptcy claim is a “party in interest” because it may be directly and adversely affected by the reorganization plan. The Court also rejected the “insurance neutrality” doctrine, stating that it conflates the merits of an objection with the threshold party in interest inquiry. The case was remanded for further proceedings consistent with the Supreme Court's opinion. View "Truck Insurance Exchange v. Kaiser Gypsum Co." on Justia Law

The case revolves around Lee Hofmann, who controlled multiple businesses, including Games Management and International Supply. Games Management borrowed approximately $2.7 million from Citizens Equity First Credit Union (the Lender), with Hofmann guaranteeing payment. When Games Management defaulted and Hofmann failed to honor his guarantee, the Lender obtained a judgment against Hofmann. In 2013, Hofmann arranged for International Supply to pay the Lender $1.72 million. By 2015, International Supply was in bankruptcy, and a trustee was appointed to distribute its assets to creditors.The bankruptcy court held a trial, during which expert witnesses disagreed on whether International Supply was solvent in 2013. The Trustee's expert testified that it was insolvent under two of three methods of assessing solvency, while the Lender's expert testified that it was solvent under all three methods. The bankruptcy judge concluded that International Supply was insolvent in August 2013 and directed the Lender to pay $1.72 million plus interest to the Trustee. The district court affirmed this decision.The case was then brought before the United States Court of Appeals for the Seventh Circuit. The Lender argued that the only legally permissible approach to defining solvency is the balance-sheet test. However, the court disagreed, stating that the Illinois legislation does not support this view. The court also noted that the Lender had not previously argued for the balance-sheet test to be the exclusive approach, which constituted a forfeiture. The court concluded that the bankruptcy judge was entitled to use multiple methods to determine solvency. The court affirmed the district court's decision, requiring the Lender to pay $1.72 million plus interest to the Trustee. View "Stone v. Citizens Equity First Credit Union" on Justia Law

The plaintiff, Rhita Bercy, filed a hostile work environment claim against her employer, the City of Phoenix, alleging a single course of conduct that continued over a period of nearly two years. She filed her bankruptcy petition within that two-year period. The claim was based on conduct that occurred both before and after she filed her bankruptcy petition. The parties agreed that a claim based on conduct before the petition, and any damages resulting from that conduct, belonged to the bankruptcy estate. The question was whether Bercy could recover damages on that claim for alleged harm arising from discriminatory conduct that occurred after she filed for bankruptcy.The United States District Court for the District of Arizona granted the City's motion for summary judgment, holding that Bercy lacked standing to pursue her claim. The court reasoned that because Bercy could have brought her claim at the time of her bankruptcy petition, and any subsequent damages were sufficiently rooted in prebankruptcy incidents, the entire claim belonged to the bankruptcy estate under 11 U.S.C. § 541(a)(1).On appeal, the United States Court of Appeals for the Ninth Circuit affirmed the district court's decision. The appellate court held that Bercy's hostile work environment claim was sufficiently rooted in the prebankruptcy past and thus belonged to the bankruptcy estate. Therefore, only the bankruptcy trustee had standing to sue on the claim. The court clarified that the Bankruptcy Code provides a “fresh start” to the debtor at discharge, but not “a continuing license to violate the law.” View "Bercy v. City of Phoenix" on Justia Law

Patricia Lee, a debtor, defaulted on her mortgage held by U.S. Bank on a 43-acre property in Georgia, which she used as her principal residence and also leased to a farming company. In an attempt to restructure her debts, Lee filed a voluntary bankruptcy petition under Chapter 11 of the Bankruptcy Code. She proposed a reorganization plan that included payments to U.S. Bank. However, U.S. Bank moved for relief from the automatic stay that had been triggered by Lee's bankruptcy filing, arguing that the anti-modification provision in Chapter 11 prevented the bankruptcy court from approving a plan that modified U.S. Bank's claim.The bankruptcy court agreed with U.S. Bank, concluding that the anti-modification provision applied because the property was Lee's principal residence, regardless of its additional use as farmland. The court granted U.S. Bank's motion for relief from the automatic stay, effectively allowing the bank to foreclose on Lee's property. Lee appealed this decision to the district court, which affirmed the bankruptcy court's order.The United States Court of Appeals for the Eleventh Circuit affirmed the lower courts' decisions. The appellate court held that the anti-modification provision in Chapter 11 has three requirements: the security interest must be in real property; the real property must be the only security for the debt; and the real property must be the debtor's principal residence. The court found that all three requirements were met in this case, as U.S. Bank's claim was secured by Lee's real property, which was the only security for the debt and was used by Lee as her principal residence. The court rejected Lee's argument that the property's additional use as farmland should exempt it from the anti-modification provision. View "Lee v. U.S. Bank National Association" on Justia Law

The case revolves around Tiffany Smith, who filed a voluntary petition for a Chapter 13 bankruptcy proceeding in May 2019. Smith owned a two-unit rental property in Newark, New Jersey, secured by a mortgage held by Freedom Mortgage Corporation. Smith filed a Chapter 13 payment plan in the Bankruptcy Court, which included a motion to partially void Freedom’s mortgage lien on the property and to reclassify Freedom’s underlying claim as partially secured and partially unsecured. Freedom objected to the plan, particularly the cramdown of its secured claim, the property's listed valuation, the property's rents being applied to reduce its secured claim, and the feasibility of the overall plan.The Bankruptcy Court held a hearing to address Freedom’s objections. During the hearing, Freedom clarified that it was not disputing the listed value of the property. The parties resolved their differences and filed a consent order, in which they agreed to the terms. The Bankruptcy Court confirmed the First Modified Plan, which reflected the terms of the Consent Order.Smith later filed a third modified plan, seeking to extend the payment term due to delinquent tenants and pandemic-related eviction moratoriums. Freedom objected to the Third Modified Plan, arguing among other things, that the plan was not feasible. The Bankruptcy Court held a hearing and concluded that the objections raised by Freedom were precluded by res judicata. The Bankruptcy Court then confirmed the Third Modified Plan in a written order. Freedom appealed the Bankruptcy Court’s order to the District Court, which affirmed it. Freedom then appealed to the United States Court of Appeals for the Third Circuit.The Court of Appeals affirmed the District Court’s decision, holding that res judicata precluded Freedom’s objections to Smith’s use of rental income to pay its secured claim, to the valuation of the property, and to the plan’s stepped-up payment schedule. The Court also concluded that the Bankruptcy Court did not clearly err when it determined the Third Modified Plan to be feasible. View "In re: Smith" on Justia Law

During the 2008 financial crisis, Highland Capital Management, L.P., an investment manager, faced numerous redemption requests from investors of the Highland Crusader Fund. The Fund was placed in wind-down, and a dispute arose over the distribution of assets. This led to the adoption of a Joint Plan of Distribution and the appointment of a Redeemer Committee to oversee the wind-down. The Committee accused Highland Capital of breaching its fiduciary duty by purchasing redemption claims of former investors. An arbitration panel ruled in favor of the Committee, ordering Highland Capital to pay approximately $3 million and either transfer or cancel the redemption claims.Before the Committee could obtain a judgment for the award, Highland Capital filed for Chapter 11 bankruptcy. CLO HoldCo, a creditor, filed a claim for approximately $11 million, asserting it had purchased interests in the redemption claims. However, after a settlement agreement between Highland Capital and the Committee led to the cancellation of the redemption claims, CLO HoldCo amended its claim to zero dollars.After the bankruptcy court confirmed Highland Capital's reorganization plan, CLO HoldCo filed a second amended proof of claim, asserting a new theory of recovery. It argued that the cancellation of the redemption claims resulted in a credit for Highland Capital, which it owed to CLO HoldCo. The bankruptcy court denied the motion to ratify the second amended proof of claim, a decision affirmed by the district court.The United States Court of Appeals for the Fifth Circuit affirmed the lower courts' decisions. It held that post-confirmation amendments require a heightened showing of "compelling circumstances," which CLO HoldCo failed to provide. The court found that the bankruptcy court did not abuse its discretion in denying CLO HoldCo's motion to ratify the second amended proof of claim. View "CLO Holdco v. Kirschner" on Justia Law

Abigail Fricke filed a Chapter 13 bankruptcy petition, which required her to disclose all her assets, including any lawsuits. Three years later, she filed a lawsuit against Red Lobster, alleging she was injured due to the restaurant's negligence. However, she did not update her bankruptcy asset schedule to include this lawsuit until after Red Lobster moved for summary judgment based on standing and judicial estoppel. The trial court denied Red Lobster's summary judgment motion, and the Court of Appeals affirmed.Red Lobster argued that Fricke lacked standing to sue because her personal injury claim was an asset that belonged to her bankruptcy estate rather than to her. The Indiana Supreme Court disagreed, stating that Fricke had standing to sue because she alleged a demonstrable injury allegedly caused by Red Lobster. The court clarified that while Fricke was improperly pursuing the claim on her own behalf rather than on behalf of the bankruptcy estate, this meant she was not the real party in interest, not that she lacked standing.Red Lobster also argued that judicial estoppel barred Fricke's claim. The court disagreed, stating that judicial estoppel did not apply when the bankruptcy court permits a plaintiff-debtor to cure their omission by amending their asset schedule to include a previously omitted lawsuit. The court found that Fricke did not mislead the bankruptcy court and did not prevail on a position in her bankruptcy proceedings that contradicts her claim in this state court negligence action. Therefore, her representations to the bankruptcy court did not judicially estop her from pursuing her personal injury claim against Red Lobster. The court affirmed the trial court's decision. View "Red Lobster Restaurants, LLC v. Fricke" on Justia Law

The case involves the Roman Catholic Archdiocese of New Orleans ("Archdiocese") which sought Chapter 11 bankruptcy relief due to numerous lawsuits alleging sexual abuse by priests. The United States Trustee appointed an Official Committee of Unsecured Creditors ("Committee"), which included the appellants. The appellants' attorney, Richard Trahant, violated a protective order by disclosing confidential information related to abuse allegations against a priest. The bankruptcy court found Trahant's breach to be a disruption to the bankruptcy process and ordered the removal of Trahant's clients, the appellants, from the Committee.The appellants appealed their removal from the Committee to the district court, arguing that the district judge who was originally assigned their appeal should have recused himself earlier. The district court dismissed the appeal, concluding that the appellants lacked standing to appeal their removal from the Committee. The appellants then appealed to the United States Court of Appeals for the Fifth Circuit.The Fifth Circuit affirmed the district court's decision. It found that the district court did not err in declining to vacate the judgment, and the appellants lacked standing under Article III to prosecute this appeal. The court held that the appellants failed to demonstrate an injury to any legally protected interest. Their substantive rights as creditors in the bankruptcy case were not impaired by their removal from the Committee. The court also noted that the bankruptcy court's order did not amount to a personal sanction against the appellants, but was a consequence of the conduct of their attorney. View "Adams v. Roman Catholic Church" on Justia Law