Justia Bankruptcy Opinion Summaries

Lester and William Lee created LIA in 1974 as a public company. William’s sons (Lester's nephews) later joined the business. LIA subsequently bought out the public shareholders, leaving Lester owning 516 shares; William owned 484. William created the Trust to hold his shares. The nephews served as trustees. Lester encountered difficulties with another company he owned, Maxim. He proposed that Maxim merge with LIA; William rejected this idea. Lester told the nephews, “I will screw you at every opportunity,” and made other threats, then, as majority shareholder, approved a merger of LIA and another company. The Trust asserted its rights under Indiana’s Dissenters’ Rights Statute. Lester gutted LIA to prevent the Trust from collecting the value of its LIA shares. He bought property from LIA on terms favorable to him and realized substantial profits. LIA subsidiaries were transferred for little or no consideration to Lester’s immediate family. Lester also perpetrated a collusive lawsuit, resulting in an agreed judgment that all LIA assets should be transferred to him and his companies. Lester did not disclose these actions to the nephews. In 2008, the Jennings Circuit Court conducted an appraisal in the dissenters’ rights action. Between the trial and the judgment, Lester dissolved LIA. The court entered a $7,522,879.73 judgment for the Trust. In 2012, Lester petitioned for Chapter 7 bankruptcy. The Trust initiated a successful adversary proceeding to pierce LIA’s corporate veil and hold Lester personally liable for the judgment. The Seventh Circuit affirmed, noting the facts were undisputed. View "William R. Lee Irrevocable Trust v. Lee" on Justia Law

The DOL obtained a pre-bankruptcy judgment against debtor, providing that debtor breached his fiduciary duty under the Employee Retirement Income Security Act (ERISA). The DOL filed an adversary proceeding in debtor's Chapter 7 bankruptcy to have that judgment debt declared nondischargeable as a debt for defalcation while acting in a fiduciary capacity under 11 U.S.C. 523(a)(4).The Eighth Circuit affirmed the grant of summary judgment for the DOL. The court held that debtor had fiduciary obligations regarding the funds that had been withheld from wages for payment to HealthPartners. The court also held that the undisputed facts and unchallenged factual findings supported the conclusion that debtor committed defalcation in late March 2009 when he chose to use plan assets to pay himself and other corporate expenses instead of remitting those assets to HealthPartners. View "U.S. Department of Labor v. Harris" on Justia Law

Both the text of the bankruptcy statute and precedent support the conclusion that homestead proceeds that debtors acquire post-petition generally revest in them upon voluntary dismissal of their Chapter 13 case. The Fifth Circuit reversed the district court's judgment as to the disbursement of proceeds from the sale of a homestead. In this case, debtors sold their Texas homestead and did not use the sale proceeds to purchase another home. The bankruptcy court determined that debtors were entitled to the return of the homestead proceeds because they voluntarily dismissed their case, but the district court concluded that the proceeds should remain with the trustee for distribution to creditors in the dismissed bankruptcy proceeding. The court affirmed the district court's judgment regarding debtors' motion to dismiss and the trustee's motion to modify. Finally, the court reinstated the bankruptcy court's order directing the trustee to return the homestead proceeds to debtors. View "Viegelahn v. Lopez" on Justia Law

The Fifth Circuit affirmed the district court's judgment in favor of Fifth Third in an action brought by plaintiffs, alleging that the bank foreclosed on a property in violation of the automatic stay imposed during Plaintiff Ricardo's Chapter 13 bankruptcy. The court held that plaintiffs were judicially estopped from claiming a stay violation because Ricardo failed to amend his bankruptcy schedules to disclose the quitclaim deed or his putative claims against Fifth Third. Likewise, the district court did not abuse its discretion in denying plaintiffs' motion for a new trial. Finally, plaintiffs failed to show that the district court abused its discretion in excluding several of their exhibits. View "Fornesa v. Fifth Third Mortgage Co." on Justia Law

The Bankruptcy Appellate Panel affirmed the bankruptcy court's judgement revoking debtor's discharge. The panel held that the bankruptcy court did not clearly err in finding that debtor knowingly and fraudulently failed to surrender his income tax refunds to the trustee. In this case, the bankruptcy court's view that the evidence demonstrated that debtor acted knowingly and fraudulently was permissible, even assuming debtor's view was also permissible. The panel held that debtor's remaining arguments did not persuade it otherwise. View "Velde v. Thiel" on Justia Law

In this consolidated bankruptcy appeal, two law firms challenged the bankruptcy court's order approving a settlement for an involuntary Chapter 11 bankruptcy. The Ninth Circuit affirmed the district court's dismissal of the appeals, holding that the firms forfeited their objection to the settlement agreement because neither firm explicitly objected to the settlement or entered an appearance. Furthermore, the evidence on the record regarding the bankruptcy court and trustee's understanding that the firms were implicitly objecting was not clear enough to overcome such failures. The panel assumed without deciding that the law firms' challenge should be reviewed for plain error, rather than dismissed without reaching the merits, and found that the bankruptcy court did not err in approving the settlement agreement. View "Reid and Hellyer, APC v. Laski" on Justia Law

The Eleventh Circuit affirmed the district court's decision affirming the bankruptcy court's denial of debtors' motion to convert their Chapter 7 case to a Chapter 11 proceeding and approving a compromise agreement between the trustee and a judgment creditor (72 Partners, LLC). The court held that the bankruptcy court properly denied the request to convert to Chapter 11 because cause existed to either dismiss the case or convert it back to a Chapter 7, based on substantial or continuing loss to or diminution of the estate and the absence of a reasonable likelihood of rehabilitation under 11 U.S.C. 1112(b)(4)(A). Furthermore, other section 1112(b)(4) causes for denying conversion to Chapter 11 existed, such as failure to comply with an order of the court, failure timely to provide information or attend meetings reasonably requested by the United States trustee, and inability to effectuate substantial consummation of a confirmed plan. Another cause not listed in the statute was debtors' lack of good faith. View "Daughtrey v. Rivera" on Justia Law

On July 11, 2013, the Idaho Department of Labor (“IDOL”) mailed an eligibility determination for unemployment benefits (the “2013 determination”) to William Wittkopf. This determination found Wittkopf underreported his wages for several weeks, which resulted in an overpayment in unemployment benefits. As a result, Wittkopf was: (1) ordered to repay the overpayment; (2) ineligible for any unemployment benefits for a fifty-two week period; and (3) assessed a civil penalty. Additionally, Wittkopf was told that he would remain ineligible for unemployment benefits until all amounts were repaid. Pursuant to Idaho Code section 72– 1368(3) the last day for Wittkopf to file a protest to the 2013 determination was July 25, 2013, which he failed to do. IDOL attempted to collect on the 2013 determination over the next year without success. Subsequently in early 2016, Wittkopf filed for Chapter 7 bankruptcy. The debt he owed to the state of Idaho was included in his bankruptcy and was discharged by order of the Bankruptcy Court. In September 2016, Wittkopf began filing new claims for unemployment benefits with IDOL because he worked a seasonal job and was not receiving any income in the winter months. After not receiving benefits for several weeks, Wittkopf called IDOL which informed him he was ineligible for unemployment benefits because he had failed to pay back his overpayment, civil penalty, and interest he owed IDOL, even though those amounts were discharged in bankruptcy. Wittkopf mailed a letter to IDOL protesting the denial of his unemployment benefits. Wittkopf claimed in this letter that he was eligible for unemployment benefits because his bankruptcy discharged any amount he owed to IDOL. An Appeals Examiner construed Wittkopf’s 2016 letter as a protest of the 2013 determination. Two days later the Appeals Examiner issued a written decision finding there was no jurisdiction to hear Wittkopf’s protest because it was not filed within fourteen days of when it was issued on July 25, 2013, as required by Idaho Code section 72-1368. On November 3, 2016, Wittkopf appealed the Appeals Examiner’s decision to the Industrial Commission. On January 27, 2017, the Industrial Commission affirmed the Appeals Examiner’s decision. The Idaho Supreme Court determined the Industrial Commission erred in affirming the examiner without having determined first whether: (1) the bankruptcy discharge voided IDOL's 2013 determination; (2) whether the discharge operated as an injunction against any effort to collect, recover or offset the 2013 debt; and if yes, (3) why the Department's denial of current benefits on the basis of the 2013 debt wasn't a violation of the injunction. The matter was remanded back to the Industrial Commission for further proceedings. View "Wittkopf v. Idaho Dept of Labor" on Justia Law

The Isaacs took out a home-equity loan, secured by a mortgage on their home. GMAC did not immediately record the mortgage. While the mortgage remained unrecorded, the Isaacs filed for Chapter 7 bankruptcy. GMAC recorded the mortgage after the automatic bankruptcy stay was in effect, without obtaining an order modifying or lifting the stay. The mortgage was listed as a secured claim. In 2004, the bankruptcy court entered a discharge order; the case closed. A decade later, the mortgage's new owner (DBI’s predecessor) obtained a Kentucky state court foreclosure order. Before the sale, Linda Isaacs filed a voluntary Chapter 13 petition, with an adversary complaint seeking to avoid the mortgage through the “strong-arm” power (11 U.S.C. 544(a)), which permits the trustee to “avoid transfers of property that would be avoidable by certain hypothetical parties,” arguing that it was never properly perfected and would lose under state priority law to the hypothetical parties. Isaacs alternatively argued that the lien had never attached because it contained conflicting language: one clause indicated that the lien attached once the Isaacs signed the mortgage another section stated the lien would attach upon recording. DBI contended that the bankruptcy court lacked jurisdiction under the Rooker-Feldman doctrine because Isaacs was effectively asking it to sit as an appellate court over the state court’s foreclosure judgment. The bankruptcy court granted Isaacs summary judgment. The Bankruptcy Appellate Panel reversed, holding that the bankruptcy court lacked jurisdiction under the Rooker-Feldman doctrine. The Sixth Circuit agreed but remanded. The primary claim, seeking avoidance under the strong-arm provision, was independent of the validity of the state-court judgment. View "Isaacs v. DBI-ASG Coinvestor Fund, III, LLC" on Justia Law

The Fifth Circuit treated appellant's motion to amend its opinion as a petition for panel rehearing and granted the petition. The court withdrew the prior opinion and substituted the following opinion.This appeal stemmed from a bankruptcy court order approving a trustee's application to employ special counsel. The court held that appellant lacked standing to object to the trustee's application to employ SBPC because his indirect interest in the order failed to meet the strict requirements for a "person aggrieved" under the exacting test for bankruptcy standing or a creditor under 11 U.S.C. 327(c). Accordingly, the court affirmed the judgment. View "Furlough v. Cage" on Justia Law