Justia Bankruptcy Opinion Summaries

Younge, an African-American man, was fired by WPHL, a Tribune television station. Younge claims WPHL subjected him to a hostile work environment because it scheduled him to train under a white co-worker who used racial epithets and that he was wrongfully terminated because of his race and/or color. Younge filed a complaint with the Pennsylvania Commission on Human Relations but chose to litigate in Bankruptcy Court after Tribune filed a Chapter 11 bankruptcy petition. That court disallowed his claims. In the district court, Younge challenged, for the first time, the Bankruptcy Court’s jurisdiction. The district court held he impliedly consented to jurisdiction and that the court correctly disallowed his claims. The Third Circuit affirmed. Younge voluntarily submitted to the Bankruptcy Court's jurisdiction: he filed a proof of claim, a response to Tribune’s objection, and a supplemental response, and appeared at a hearing. The Bankruptcy Court’s proceedings did not abridge his right to procedural due process, his right to a jury trial, or his right to counsel. The court rejected Younge’s Commerce Clause argument that the Bankruptcy Court’s local-counsel requirement inures to the disadvantage of out-of-state litigants. The lower courts correctly decided Younge’s hostile work environment claim. Younge did not prove respondeat superior liability. The record did not touch on WPHL’s knowledge of racial animus—a key facet of Younge’s claim-- and WPHL offered a legitimate, nondiscriminatory reason for his termination. Younge failed to demonstrate pretext. View "Tribune Media Co. v. Younge" on Justia Law

Sovereign immunity does not preclude an award of emotional distress damages against the United States for willful violation of an automatic stay. The Ninth Circuit reversed the district court's judgment reversing the bankruptcy court's award of damages to debtors for the IRS's violation of the Bankruptcy Code's automatic stay. The panel held that Congress waived sovereign immunity for a "money recovery" under certain bankruptcy provisions, including 11 U.S.C. 362(k), which allows an individual to recover "actual damages" for a willful violation of the automatic stay. The panel remanded with instructions to consider the government's challenges on the merits. View "Hunsaker v. United States" on Justia Law

The Ninth Circuit affirmed the district court's decision affirming the bankruptcy court's dismissal of a Chapter 11 petition filed by the former board members of Sino. The panel held that the bankruptcy court properly dismissed the action because plaintiffs lacked corporate authority under Nevada law when they filed the petition where a receiver appointed by the Nevada state court already had removed them from the corporation's board of directors. Therefore, plaintiffs were not authorized to file the petition on behalf of the corporation. View "Sino Clean Energy, Inc. v. Seiden" on Justia Law

The Fifth Circuit affirmed the bankruptcy court's finding that proceeds of debtor's liability police were property of the bankruptcy estate. The court held that, in limited circumstances such as the one here, where a siege of tort claimants threaten debtor's estate over and above the policy limits, the proceeds are property of the estate. In this case, over $400 million in related claims threatened debtor's estate over and above the $5 million insurance policy limit, giving rise to an equitable interest of debtor in having the proceeds applied to satisfy as much of those claims as possible. View "Martinez v. OGA Charters, LLC" on Justia Law

Seven Counties, a nonprofit provider of mental health services, attempted to file for Bankruptcy Code Chapter 11 reorganization. For decades, Seven Counties has participated in Kentucky’s public pension plan (KERS). Because the rate set for employer contributions has drastically increased in recent years, Seven Counties sought to reject its relationship with KERS in bankruptcy. The bankruptcy court and the district court both held that Seven Counties is eligible to file under Chapter 11 and that the relationship between Seven Counties and KERS is based on an executory contract that can be rejected. The Sixth Circuit affirmed in part. Seven Counties is only eligible to be a Chapter 11 debtor if it is a “person” under 11 U.S.C. 109(a); a “governmental unit” is generally excluded from the category of “person.” Because the Commonwealth does not exercise the necessary forms of control over Seven Counties for it to be considered an instrumentality of the Commonwealth, Seven Counties is eligible to file. Seven Counties characterized its relationship with KERS as contractual, such that, to the extent it is executory, it may be rejected in bankruptcy, 11 U.S.C. 365. KERS argued the relationship is purely statutory, similar to an assessment, such that it cannot be rejected. The Sixth Circuit certified the question of the nature of the relationship to the Kentucky Supreme Court. View "Kentucky Employees. Retirement System v. Seven Counties.Services, Inc." on Justia Law

The Bankruptcy Appellate Panel affirmed the bankruptcy court's order denying debtor's request for discharge of her student loan obligations to the DOE. The panel held that the bankruptcy court applied the correct totality of the circumstances standard and properly held that debtor failed to meet her burden of proving an undue hardship under 11 U.S.C. 523(a)(8). In this case, debtor had no problem making (and did make) full student loan payments when she was employed as a full-time bank branch manager, she voluntarily left that employment and chose part time work; no medical evidence was presented to indicate that debtor was unable to work on a full time basis; and debtor's financial restraints were the result of choices she made and were not long term. View "Kemp v. U.S. Department of Education" on Justia Law

Arctic, an income trust, filed for bankruptcy under Canada’s analog of Chapter 11 and received recognition under 11 U.S.C. 1521(a). Its bankruptcy Plan imposed few limits on the Monitor (trustee) and insulated Arctic and its officers from any claim related to the bankruptcy with limited exceptions. The Monitor sold Arctic’s assets and repaid creditors in full. On December 11, 2014, Arctic issued notices announcing that the shareholders as of December 18 would be entitled to the initial distribution without specifying how much Arctic would distribute or when. Arctic did not notify the Financial Industry Regulatory Authority (FINRA) of its plans. FINRA regulates distributions on the U.S. Over-the-Counter Market. Nor did the Plan refer to FINRA’s rules. Arctic’s share price held steady until January 22, 2015, although its shares no longer traded with the right to the dividend and should have lost value. Brodskis bought 12,600,000 Arctic shares on the Over-the-Counter Market. On January 21, the Monitor announced that the next day it would distribute a dividend of 15.5557 cents per share to shareholders as of December 18. Brodskis argue FINRA would have set a date of January 23, 2015, so their shares would have entitled them to the dividend. On January 23, Canadian and American regulators froze trading. When trading resumed, Arctic's share price plunged from 21 to 5 cents, reflecting the paid-out dividend. Brodskis sued Arctic. The Bankruptcy Court dismissed the complaint as barred by the releases and res judicata. The Third Circuit affirmed. Brodskis bought shares subject to the Plan’s terms, including terms that governed post-confirmation acts taken to carry out the Plan, and were on notice. View "In re: Arctic Glacier International, Inc." on Justia Law

The Social Security Administration (SSA) reduced the payment of a back-award that it owed Berg by the amount of an earlier overpayment that Berg owed to SSA. Berg contested this setoff because it was taken during the 90-day period before the filing of her bankruptcy petition. The bankruptcy court concluded that SSA permissibly recovered $17,385 of overpayment but impermissibly improved its position by $2,015. The Seventh Circuit affirmed. Under 11 U.S.C. 553(b)(2), a debtor (Berg) may recover from a creditor (SSA) an amount set off by the creditor in the 90 days preceding the filing of the bankruptcy petition only to the extent that the creditor improved its position during that 90-day period. The bankruptcy court correctly calculated the accrual of Berg’s benefits as occurring on the dates that she had a right to benefits--the last day of each month that she was eligible for benefits and survived to the end of the month. On May 9, 2014, 90 days before the filing of the petition, that amount was $17,385. Because Berg then owed SSA $19,400, the insufficiency on that date was $2,015. On July 30, the date the SSA took the setoff, Berg still owed SSA $19,400, but SSA owed her $20,307; SSA improved its position by $2,015 during the 90-day preference period. That is the amount that Berg may now recover. View "Berg v. Social Security Administration" on Justia Law

Irwin is a holding company for two banks. When the 2007–2008 financial crisis began, regulators and Irwin’s outside legal counsel advised the company to buoy up its sinking subsidiaries. Irwin’s Board of Directors instructed the officers to save the banks. Private investors showed little interest and federal regulators indicated that a bailout was unlikely. In 2009, Irwin received a $76 million tax refund. The Board authorized Irwin’s officers to transfer the refund to the banks, believing that the refund legally belonged to the banks. The banks ultimately failed. Irwin filed for bankruptcy. Levin, the Chapter 7 trustee, sued Irwin’s former officers, alleging that they breached their fiduciary duty to provide the Board with material information concerning the tax refund. Levin claimed the officers should have known the banks were going to fail and should have investigated alternatives to transferring the tax refund; had the officers done so, they would have discovered that Irwin might be able to claim the $76 million as an asset in bankruptcy, so that the Board would have declared bankruptcy earlier, maximizing Irwin's value for creditors. The Seventh Circuit rejected the argument. Corporate officers have a duty to furnish the Board of Directors with material information, subject to the Board’s contrary directives. On the advice of government regulators and expert outside legal counsel, the Board had prioritized saving the banks. The officers had no authority to second-guess the Board’s judgment with their own independent investigation. View "Levin v. Miller" on Justia Law

The doctrine of equitable mootness, which permits courts sitting in bankruptcy appeals to dismiss challenges when effective relief would be impossible, applies in the Chapter 9 context. The Eleventh Circuit held that it would be appropriate to note federalism concerns when deciding whether the doctrine should bar an appeal in a particular bankruptcy case. In this case, equitable mootness barred the ratepayers' appeal because they have never asked any court to stay the implementation of the plan that the bankruptcy court confirmed and thus no court has ever stayed the implementation of the plan. Furthermore, the County and others have taken significant and largely irreversible steps in reliance on the unstayed plan confirmed by the bankruptcy court. Finally, after considering notions of fairness by looking at the merits and the public interest, the court held that dismissing the ratepayers' appeal was appropriate. Therefore, the court reversed the district court's order and remanded for dismissal of the ratepayers' appeal from the plan confirmed by the bankruptcy court. View "Bennett v. Jefferson County" on Justia Law