Justia Bankruptcy Opinion Summaries

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

The Supreme Court revoked certification in this case certified to it by a bankruptcy court to answer a question of state law because the issues were not adequately briefed and because of the potential impact of the automatic stay on the property settlement at issue in this case.The bankruptcy court certified two questions of Utah law concerning the overlap of family and bankruptcy law. The Court noted that the parties failed to provide the briefing needed to answer the questions here and that the martial property division at issue in this case may have violated the automatic stay that accompanies a bankruptcy petition’s filing. Accordingly, because of the insufficient briefing and the problematic procedural posture, the Supreme Court declined to answer the questions and revoked certification. View "In re Deborah Michelle Kiley" on Justia Law

After debtor filed for bankruptcy under Chapter 11, the trustee filed an adversary proceeding against Blue Bell to recover from Blue Bell more than $500,000 in a series of payments that Blue Bell had received from debtor during the 90-day period preceding debtor's bankruptcy filing. Blue Bell acknowledged that the payments it received from debtor constituted preferences under 11 U.S.C. 547(b), but that it had a new-value defense.The Eleventh Circuit vacated the bankruptcy court's judgment and held that the language in Charisma Investment Company, N.V. v. Airport Systems, Inc. (In re Jet Florida System, Inc.), 841 F.2d 1082 (11th Cir. 1988), relied on by the bankruptcy court was dictum and, as such, it did not bind the court. The court construed section 547(c)(4) anew, and held that it did not require new value to remain unpaid. Therefore, the court remanded for a new calculation of Blue Bell's preference liability. View "Kaye v. Blue Bell Creameries, Inc." on Justia Law

Plaintiffs suffer from asbestos disease as a result of exposure to Grace's Montana mining and processing operations and sought to hold Grace’s insurers (CNA), liable for negligence. CNA sought to enforce a third-party claims channeling injunction entered under Grace’s confirmed plan of reorganization to bar the claims. Bankruptcy Code section 524(g) allows an injunction that channels asbestos mass-tort liability to a trust set up to compensate persons injured by the debtor’s asbestos; channeling injunctions can also protect the interests of non-debtors, such as insurers.The Third Circuit rejected the Plaintiffs’ argument that the Plan and Settlement Agreement’s terms preserved all of CNA’s duties as a workers’ compensation insurer in order to avoid preempting the state’s workers’ compensation laws. The court then applied a three-part analysis: Section 524(g)(4)(A)(ii) allows injunctions to “bar any action directed against a third party who is identifiable . . . and is alleged to be directly or indirectly liable for the conduct of, claims against, or demands on the debtor [that] . . . arises by reason of one of four statutory relationships between the third party and the debtor.” CNA is identified in the Injunction, satisfying the first requirement. Analysis of the second factor requires review of the law to determine whether the third-party’s liability is wholly separate from the debtor’s liability or instead depends on it. The Bankruptcy Court must make that determination, and, with respect to the “statutory relationship” factor, should review the law and determine whether CNA’s provision of insurance to Grace is relevant legally to the Montana Claims. View "W.R. Grace & Co. v. Carr" on Justia Law

Debtor Mark Taylor sought to avoid a set of liens that the William F. Sandoval Irrevocable Trust (the “Trust”) recorded on his home, which Taylor jointly owned with his former wife. The Bankruptcy Code provided that a debtor may avoid certain liens that impair an exemption, and set forth a formula to determine the extent to which an exemption is impaired. At issue before the Tenth Circuit Court of Appeals was how that formula applied to a homestead exemption when a home is jointly owned with a non-debtor. Based on the plain language of 11 U.S.C. 522(f) and the structure of the Bankruptcy Code as a whole, the Court concluded the impairment calculation had to use the value of other liens on the home corresponding to the debtor’s percentage of ownership, rather than the full amount of the liens. View "William F. Sandoval Trust v. Taylor" on Justia Law

The Second Circuit affirmed the district court's decision affirming the bankruptcy court's dismissal of a Chapter 7 involuntary bankruptcy petition creditor filed under 11 U.S.C. 303(a) against debtor. The bankruptcy court dismissed for cause under 11 U.S.C. 707(a) after concluding that the petition was simply a judgment enforcement tactic. The court held that creditor was not substantially prejudiced by being denied access to bankruptcy remedies and that the interests of debtor and of the bankruptcy system as a whole were advanced by dismissal. View "Wilk Auslander LLP v. Murray" on Justia Law