Justia Bankruptcy Opinion Summaries

After a Montana state court issued a series of judgments against Donald Tangwall and his family, the family members transferred two pieces of property to the “Toni 1 Trust,” a trust allegedly created under Alaska law. A Montana state court and an Alaska bankruptcy court found that the transfers were made to avoid the judgments and were therefore fraudulent. Tangwall, the trustee of the Trust, then filed this suit, arguing that Alaska state courts have exclusive jurisdiction over such fraudulent transfer actions under AS 34.40.110(k). The Alaska Supreme Court concluded this statute could not unilaterally deprive other state and federal courts of jurisdiction, therefore it affirmed dismissal of Tangwall’s complaint. View "Toni 1 Trust v. Wacker" on Justia Law

Valley agreed to purchase Bedford Downs’ stock for $55 million if it got the last harness-racing license in Pennsylvania, Valley got the license and arranged for Credit Suisse to wire $55 million to third-party escrow agent Citizens Bank. Bedford Downs shareholders, including Merit, deposited their stock certificates into escrow. Citizens disbursed the $55 million according to the agreement. Merit received $16.5 million. Valley was unable to achieve its goal of opening a racetrack casino and, with its parent company, Centaur, filed for Chapter 11 bankruptcy. FTI, the trustee, sought to avoid the transfer to Merit for the sale of Bedford stock, arguing that it was constructively fraudulent under 11 U.S.C. 548(a)(1)(B). Merit contended that the section 546(e) safe harbor barred FTI from avoiding the transfer because it was a “settlement payment . . . made by or to (or for the benefit of)” two “financial institutions,” Credit Suisse and Citizens Bank. The Seventh Circuit held that section 546(e) did not protect transfers in which financial institutions served as mere conduits. A unanimous Supreme Court affirmed. The only relevant transfer for purposes of the 546(e) safe harbor is the transfer that the trustee seeks to avoid and not its component parts. FTI sought to avoid the Valley-to-Merit transfer; neither Valley or Merit is a covered entity, so the transfer falls outside of the 546(e) safe harbor. View "Merit Management Group, LP v. FTI Consulting, Inc." on Justia Law

The Fourth Circuit affirmed the bankruptcy court's denial of the receiver's motion to dismiss creditor's bankruptcy petition for cause under 11 U.S.C. 707(a). The court held that the bankruptcy court did not abuse its discretion in denying the motion to dismiss where creditor's decision to file for bankruptcy did not arise to the level of bad faith. The court noted that the standard of review was of paramount importance here where the court did not ask whether it necessarily would have reached the same result as the bankruptcy court, but did note the bankruptcy court's greater familiarity with creditor's case and the fact that the bankruptcy court gave good and sound reasons for ruling as it did. View "Janvey v. Romero" on Justia Law

SPV, the assignee of Optimal Strategic, filed suit against UBS and its affiliated entities and individuals (collectively, Access), alleging that UBS and Access aided and abetted the Bernard L. Madoff Investment Securities LLC and Bernard L. Madoff by sponsoring and providing support for two European-based feeder funds. The district court subsequently denied SPV's motion to remand the matter to state court and then granted separate motions to dismiss the complaint. The Second Circuit held that it had jurisdiction over this appeal; this litigation was "related to" the Madoff/BLMIS bankruptcies; the USB defendants lacked sufficient contacts with the United States to allow the exercise of general jurisdiction; the connections between the USB Defendants, SPV's claims, and its chosen New York forum were too tenuous to support the exercise of specific jurisdiction; and the court rejected SPV's two different theories of proximate cause. View "SPV OSUS Ltd. v. UBS AG" on Justia Law

Debtors filed a Chapter 7 bankruptcy petition. They included their interest in Franklin, Ohio real property with three mortgages. PNC held the first two. The home was “underwater.” The Trustee filed an adversary proceeding to avoid PNC’s alleged first mortgage under 11 U.S.C. 544(a)(1) and 544(a)(3) and Ohio law. The bankruptcy court stayed the proceeding pending resolution of questions of law that had been certified to the Ohio Supreme Court in another matter. The Ohio Supreme Court ultimately responded that O.R.C. 1301.401 applies to all recorded Ohio mortgages and acts to provide constructive notice to the world of a recorded mortgage that was deficiently executed under O.R.C. 5301.01. Although the parties agreed that the mortgage's acknowledgment clause was defective and did not substantially comply with section 5301.01, PNC asserted that section 1301.401 vitiates the Trustee’s power to avoid recorded mortgages based on defects in their execution as either a hypothetical bona fide purchaser under 11 U.S.C. 544(a)(3) or hypothetical judicial lien creditor under 11 U.S.C. 544(a)(1). The bankruptcy court denied a motion to dismiss. The Sixth Circuit Bankruptcy Appellate Panel affirmed, finding the Ohio Supreme Court did not address the Trustee’s avoidance powers as a hypothetical judicial lien creditor, and the Ohio Legislature did not make its amendments retroactive. View "In re Oakes" on Justia Law

Timothy and Belva Thorpe bought an Illinois house as joint tenants in 1987. They lived in that home until after Belva filed for divorce in October 2012. Timothy filed for bankruptcy protection in June 2013. A month later, an Illinois divorce court awarded Belva the marital home. At the moment Belva filed for divorce, section 503(e) of the Illinois Marriage and Dissolution of Marriage Act granted Timothy and Belva contingent rights in the entire house. The bankruptcy estate acquired Timothy’s half-interest in the marital home at the moment he declared bankruptcy. The district court held that Timothy’s estate took his half-interest subject to Belva’s contingency so that the divorce court’s award divested the estate of any right to the house. The Seventh Circuit affirmed, rejecting the trustee’s argument based on the second sentence of section 503(e), which provides that contingent interests in marital property “shall not encumber that property so as to restrict its transfer, assignment or conveyance.” The plain statutory text demonstrates that the bankruptcy estate took Timothy’s half-interest in the marital home subject to Belva’s contingent interest. View "Reinbold v. Thorpe" on Justia Law

The Fifth Circuit affirmed the district court's decision vacating and remanding the bankruptcy court's order calling for a reduction in the trustee's requested fee. Determining that creditors have standing, the court held that the percentage amounts listed in 8 U.S.C. 326 are presumptively reasonable for Chapter 7 trustee awards. The court found the reasoning in Mohns, Inc. v. Lanser, 522 B.R. 594, 601 (E.D. Wis.), persuasive in addressing the statutory provisions at issue. Therefore, the court remanded for redetermination of the award. View "Caillouet v. JFK Capital Holdings, LLC" on Justia Law

Plaintiffs Adrian and Angela Lee asked the bankruptcy court to declare that the automatic stay in Adam and Jennifer Peeples’ bankruptcy case applied to a separate lawsuit Adrian Lee filed in state court against defendant Scott McCardle. The Lees also asserted that the automatic stay prevented McCardle from collecting attorney’s fees levied against Adrian Lee in that state-court lawsuit. The Lees sought damages against McCardle for willfully violating the automatic stay. The bankruptcy court found, and the district court agreed, that the automatic stay didn’t apply to the state-court lawsuit, thus granting summary judgment to McCardle. The Lees appealed, arguing that the district court erred in ruling that the automatic stay didn’t apply. The Tenth Circuit did not reach that question; instead, the Court vacated the district court’s judgment against Angela Lee because she lacked Article III standing to bring this lawsuit, and affirm summary judgment against Adrian Lee because his claims didn’t fall within the Bankruptcy Code’s “zone of interests.” View "Lee v. McCardle" on Justia Law

An election under 11 U.S.C. 1111(b)(2) does not require that a due-on-sale clause be included in a reorganization plan. 11 U.S.C. 1129(a)(10), which requires that at least one impaired class accept a cramdown plan, applies on a per plan basis, rather than a per debtor basis. In this case, the Ninth Circuit affirmed the district court's decision affirming the bankruptcy court's order that approved the Chapter 11 cramdown reorganization plan of five related entities (debtors). View "In the Matter of Transwest Resort Properties, Inc." on Justia Law

The First Circuit affirmed the sale of Debtor’s remaining finished goods inventory to Schleicher and Stebbins Hotels LLC (S&S) after Debtor auctioned of its assets pursuant to section 363 of the Bankruptcy Code. Debtor and S&S completed the sale with the bankruptcy court’s approval. Mission Product Holdings, Inc. (Mission), an unsuccessful bidder at the auction, appealed, challenged the inventory sale. The bankruptcy court ultimately approved the sale of the inventory to S&S. The Bankruptcy Appellate Panel (BAP) concluded that the bankruptcy court applied the correct legal standards and that S&S was a good faith purchaser. The First Circuit affirmed, holding (1) S&S was a good faith purchaser entitled to the protection of section 363(m); and (2) Mission’s remaining challenges to the sale order were therefore rendered statutorily moot. View "Mission Product Holdings, Inc. v. Old Cold, LLC" on Justia Law