Justia Bankruptcy Opinion Summaries

Under 11 U.S.C. 1126(e), a bankruptcy court may not designate claims for bad faith simply because (1) a creditor offers to purchase only a subset of available claims in order to block a plan of reorganization, and/or (2) blocking the plan will adversely impact the remaining creditors. At a minimum, there must be some evidence that a creditor is seeking "to secure some untoward advantage over other creditors for some ulterior motive." In this case, the Ninth Circuit reversed the district court's order affirming the bankruptcy court and vacated the bankruptcy court's order granting a chapter 11 debtor's motion to designate claims for bad faith and preclude the claims from being voted against a plan of reorganization. The panel held that the bankruptcy court erred when it refused to analyze whether Pacific Western acted under an "ulterior motive," beyond its "mere enlightened self interest" in protecting its secured claim. The panel remanded for further proceedings. View "Pacific Western Bank v. Fagerdala USA" on Justia Law

Appling owed about $60,000 to his law firm (Lamar), which threatened to withdraw representation and place a lien on its work product. Appling told Lamar that he could cover owed and future legal expenses with an expected tax refund, so Lamar continued representation. Appling used the refund, which was much less than he had stated, for business expenses, but told Lamar he was still waiting for the refund. Lamar completed pending litigation. Appling never paid. Lamar obtained a judgment. Appling filed for Chapter 7 bankruptcy. Lamar initiated an adversary proceeding, arguing that Appling’s debt was nondischargeable under 11 U.S.C. 523(a)(2). Section 523(a)(2)(A) bars discharge of debts arising from “false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s . . . financial condition.” Subparagraph (B) bars discharge of debts arising from a materially false “statement . . . respecting the debtor’s . . . financial condition” if that statement is “in writing.” The Eleventh Circuit found that Appling made a statement “respecting” his “financial condition,” which was not in writing. The Supreme Court affirmed. A statement about a single asset can be a “statement respecting the debtor’s financial condition” under section 523(a)(2). A statement is “respecting” a debtor’s financial condition if it has a direct relation to or impact on the debtor’s overall financial status. A single asset has a direct relation to and impact on aggregate financial condition, so a statement about that asset bears on a debtor’s overall financial condition and can help indicate whether a debtor is solvent or insolvent. View "Lamar, Archer & Cofrin, LLP v. Appling" on Justia Law

Giese claimed that HNRC paid royalties derived from coal mining into an escrow account. After buying the property on which the mining occurred, Giese sued, asserting a right to the escrowed royalties. Lexington Coal disputed Giese’s claim, arguing it purchased all cash and accounts of HNRC and HNRC’s parent company during a bankruptcy case involving those entities. Lexington had been a defendant in an interpleader action before the Bankruptcy Court to determine the rightful owner of the funds at issue. Giese’s state court action was removed to the Bankruptcy Court, which declined to abstain from adjudicating two counts of Giese’s Kentucky state court complaint and dismissed his complaint. The Bankruptcy Appellate Panel affirmed. Giese’s claims were inextricably intertwined with the bankruptcy case and would not exist but for the bankruptcy, so the Bankruptcy Court was right to adjudicate them. Sending two claims (breach of contract and royalty claims) to a court that cannot, under any circumstance, adjudicate the other related claims, would pose a great risk to important policy concerns. Upholding the dismissal, the court stated that an order confirming a plan of reorganization constitutes a final judgment in a bankruptcy proceeding, and res judicata bars relitigation of any issues that could have been raised during the confirmation proceeding. View "In re HNRC Dissolution Co." on Justia Law

Two individuals obtained unemployment benefits from the Michigan Unemployment Insurance Agency to which they were not entitled because they were being paid wages. Each was ordered to pay restitution and a penalty; each subsequently filed for Chapter 13 bankruptcy. The debtors argued that the penalties assessed were dischargeable in a Chapter 13 bankruptcy. Each district court disagreed. The Sixth Circuit affirmed, finding the penalties nondischargeable under 11 U.S.C. 523(a)(2). That section reflects a congressional decision that those who commit fraud are not to be given the same “fresh start” as “honest but unfortunate debtor[s].” A finding that the debt here arises from fraud perpetrated against the Agency makes section 523(a)(2) applicable, regardless of whether the debt could also fit under section 523(a)(7), which applies to government penalties. View "Kozlowski v. Michigan Unemployment Insurance Agency" on Justia Law

An appellant's failure to attend and object at a bankruptcy court hearing has no bearing on the question of whether that appellant has standing to appeal a bankruptcy court order. The Ninth Circuit reversed the district court's dismissal of an appeal from the bankruptcy court's order authorizing a Chapter 7 trustee to assume the operating agreement of an LLC whose interests were implicated in the bankruptcy proceedings. The district court dismissed the appeal on the ground that appellants lacked standing to challenge the bankruptcy court order. The panel held that appellants' attendance and objection were not prerequisites for satisfying the "person aggrieved" requirement for prudential standing. Therefore, the panel remanded to the district court. View "In re Point Center Financial, Inc." on Justia Law

The Fourth Circuit reversed and remanded the bankruptcy court's dismissal of debtor's case, holding that the plain language of 11 U.S.C. 1307 required a hearing. The court held that Local Bankruptcy Rule 3070-1(C)'s procedure for dismissal of a voluntary bankruptcy case conflicted with the notice and hearing requirement of section 1307. Therefore, Local Bankruptcy Rule 3070-1(C) was invalid to the extent that it was inconsistent with section 1307's hearing requirement. View "No v. Gorman" on Justia Law

The Fourth Circuit reversed and remanded the bankruptcy court's dismissal of debtor's case, holding that the plain language of 11 U.S.C. 1307 required a hearing. The court held that Local Bankruptcy Rule 3070-1(C)'s procedure for dismissal of a voluntary bankruptcy case conflicted with the notice and hearing requirement of section 1307. Therefore, Local Bankruptcy Rule 3070-1(C) was invalid to the extent that it was inconsistent with section 1307's hearing requirement. View "No v. Gorman" on Justia Law

Federal law does not prevent a bona fide shareholder from exercising its right to vote against a bankruptcy petition just because it is also an unsecured creditor. The Fifth Circuit affirmed the bankruptcy court's dismissal of the bankruptcy petition as unauthorized. The court held that, under these circumstances, the issue of corporate authority to file a bankruptcy petition was left to state law. In this case, the debtor was a Delaware corporation, governed by that state's General Corporation Law, and the court found nothing that would nullify the shareholder's right to vote against the bankruptcy petition. View "Franchise Services of North America, Inc. v. United States Trustee" on Justia Law

In 2013, Jackson filed a voluntary Chapter 7 bankruptcy petition. The bankruptcy court lifted the automatic stay on Jackson’s residence. The bank foreclosed on Jackson’s residence in May 2014. Jackson’s right to redeem the property expired six months later. In October 2014, the Chapter 7 Trustee filed a no-asset report; in February 2015, Jackson obtained a discharge. Jackson submitted letters to the bankruptcy court in December 2016, stating that the account number for a creditor had changed; requesting “reconsideration of House being exempt in the bankruptcy case”; requesting a “sign[ed] court Order stating that the amended Scheduled have been listed, dismissed and entered”; and requesting reconsideration of an order denying her request to transfer the case. After a hearing, the bankruptcy court denied all of Jackson’s request and directed the Clerk to “prepare and enter a final decree discharging the trustee and closing the case promptly but not earlier than twenty-eight days after the entry” of that January 26, 2017 order. Jackson filed her Notice of Appeal 28 days later on February 23. On February 24, the Clerk docketed a “Text Order of Final Decree” which referenced the discharge and closed the case. The Sixth Circuit Bankruptcy Appellate Panel, sua sponte, raised the issue and found that the appeal was filed late under 28 U.S.C. 158(c)(2), Supreme Court precedent indicates that the statutory time requirements are jurisdictional in nature. View "In re Jackson" on Justia Law

Charles Erwin appeals from an amended judgment entered in favor of Alerus Financial, N.A., for $5,265,653.09. Starting in 2012 Alerus made a series of loans totaling more than $15 million to Diverse Energy Systems, LLC. The loan agreement specified "Events of Default," including the failure to pay the indebtedness, the insolvency of the borrower or guarantor or the commencement of bankruptcy proceedings. Erwin was Diverse's chief executive officer, and he signed multiple personal guaranties, promising to be personally responsible for payment of up to $4 million of Diverse's debt owed to Alerus. In September 2015 Diverse filed for bankruptcy. In May 2016 Alerus sued Erwin for breach of contract and unjust enrichment, alleging Diverse was in default under the loan agreement and Erwin failed to make payment on the amount due under the guaranties. Alerus alleged Diverse's indebtedness exceeded $12 million and under the guaranties Erwin was liable for at least $4 million in principal and interest. On September 6, 2016, Erwin filed an answer to Alerus' complaint. Alerus moved for summary judgment, arguing Diverse defaulted on its loan obligations and Erwin breached the guaranty contracts by failing to pay the amounts due under the guaranties. Alerus also filed an affidavit in support of its motion from an Alerus employee, which it claimed showed the total outstanding principal and interest on the loans to Diverse. Erwin argued on appeal to the North Dakota Supreme Court the district court abused its discretion by failing to rule on his motion to amend his answer and entering judgment without allowing him to conduct discovery on Alerus' damage claims. Finding no reversible error, the Supreme Court affirmed the amended judgment. View "Alerus Financial, N.A. v. Erwin" on Justia Law