Justia Bankruptcy Opinion Summaries

The Supreme Court reversed the order of the district court granting Burlington Northern and Santa Fe Railway Company’s (BNSF) motion for summary judgment on Kelly Watson’s asbestos-related disease claim, brought under the Federal Employers’ Liability Act, holding that the bankruptcy court’s order enjoining claims against W.R. Grace and other “affiliated entities,” including BNSF, tolled the statute of limitations on Watson’s claim. Thus, the district court erred in concluding that the bankruptcy court’s order expanding a previous injunction barring the commencement or filing of new claims to include BNSF as a nondebtor affiliate did not bar the commencement of new actions against BNSF. View "Watson v. BNSF Railway Co." on Justia Law

Fadden earned over $100,000 per year but did not submit tax returns. After an audit, the IRS garnished his wages. Fadden filed for bankruptcy, triggering an automatic stay. Fadden claimed that he had no interest in any real property nor in any decedent’s life insurance policy or estate. Fadden actually knew that he would receive proceeds from the sale of his mother’s home (listed by the executor of her estate for $525,000) and would receive thousands of dollars as a beneficiary on his mother’s life insurance policies. A week later, Fadden mentioned his inheritance to a paralegal in the trustee’s office and asked to postpone his bankruptcy. When Fadden finally met with his bankruptcy trustee and an attorney, he confirmed that his schedules were accurate and denied receiving an inheritance. The Seventh Circuit affirmed his convictions under 18 U.S.C. 152(1) for concealing assets in bankruptcy; 18 U.S.C. 152(3) for making false declarations on his bankruptcy documents; and 18 U.S.C. 1001(a)(2) for making false statements during the investigation of his bankruptcy. Counts 1 and 2 required proof of intent to deceive. Fadden proposed a theory-of-defense instruction based on his assertion that his conduct was “sloppiness.” The Seventh Circuit upheld the use of pattern instructions, including that “knowingly means that the defendant realized what he was doing and was aware of the nature of his conduct and did not act through ignorance, mistake or accident.” View "United States v. Fadden" on Justia Law

Pursuit, managed by its founders, Schepis and Canelas, created and was the general partner in two funds to “acquire securities for trading and investment appreciation.” They invested in offshore entities formed in the Cayman Islands. Pursuit voluntarily petitioned for Chapter 7 bankruptcy in 2014, after it became liable for legal judgments of $5 million. Pursuit listed no assets but indicated that it had a “[p]otential indemnification claim” against one of the funds it managed and claims connected to other cases. Financial statements revealed that Pursuit’s 2011 gross income, $645,571.22 from one fund, was transferred to Pursuit’s members in 2013. Creditors Group claimed Schepis and Canelas enriched themselves at the expense of creditors and sought avoidance, 11 U.S.C. 544, 547, 548. The Trustee obtained court approval of an agreement to “settle, transfer and assign” the avoidance claim and other potential claims. The Pursuit Parties objected, seeking to purchase the claims themselves. The Trustee sold the claims to Creditors Group for $180,001. The Bankruptcy Court approved the sale. The Pursuit Parties did not seek a stay. Creditors Group sued on the claims in the Bankruptcy Court. The Third Circuit affirmed the district court’s dismissal of an appeal as moot under 11 U.S.C. 363(m), because the Pursuit Parties the requested remedy, if entered, would affect the validity of the sale. View "In re: Pursuit Capital Management" on Justia Law

Pursuit, managed by its founders, Schepis and Canelas, created and was the general partner in two funds to “acquire securities for trading and investment appreciation.” They invested in offshore entities formed in the Cayman Islands. Pursuit voluntarily petitioned for Chapter 7 bankruptcy in 2014, after it became liable for legal judgments of $5 million. Pursuit listed no assets but indicated that it had a “[p]otential indemnification claim” against one of the funds it managed and claims connected to other cases. Financial statements revealed that Pursuit’s 2011 gross income, $645,571.22 from one fund, was transferred to Pursuit’s members in 2013. Creditors Group claimed Schepis and Canelas enriched themselves at the expense of creditors and sought avoidance, 11 U.S.C. 544, 547, 548. The Trustee obtained court approval of an agreement to “settle, transfer and assign” the avoidance claim and other potential claims. The Pursuit Parties objected, seeking to purchase the claims themselves. The Trustee sold the claims to Creditors Group for $180,001. The Bankruptcy Court approved the sale. The Pursuit Parties did not seek a stay. Creditors Group sued on the claims in the Bankruptcy Court. The Third Circuit affirmed the district court’s dismissal of an appeal as moot under 11 U.S.C. 363(m), because the Pursuit Parties the requested remedy, if entered, would affect the validity of the sale. View "In re: Pursuit Capital Management" on Justia Law

Three groups of creditors appealed MPM's substantially consummated plan of reorganization under Chapter 11 of the Bankruptcy Code. The Subordinated Notes holders challenged the lower courts' conclusions that their claims were subordinate to the Second-Lien Notes holders' claims; the Senior-Lien Notes holders contended that the lower courts erroneously applied a below-market interest rate to their replacement notes; the Senior-Lien Notes holders challenge the lower courts' rulings that they were not entitled to a make-whole premium; and debtors argued that the court should dismiss these appeals as equitably moot. The Second Circuit found merit only in the Senior-Lien Notes holders' contention with respect to the method of calculating the appropriate interest rate for the replacement notes. The court held that the Second-Lien Notes stand in priority to the Subordinated Notes; held that the Senior-Lien Notes holders were not entitled to the make-whole premium; declined to dismiss any of the appeals as equitably moot; and remanded to the bankruptcy court to assess whether an efficient market rate could be ascertained, and if so, applied to the replacement notes. View "In re MPM Silicones, LLC" on Justia Law

Represented by Folkenflik, Plaintiffs, victims of Bressman’s manipulation of stock prices, brought civil securities fraud and RICO claims against Bressman and others. Bressman filed for Chapter 11 bankruptcy. Plaintiffs then filed the adversary complaint. The civil securities fraud and RICO claims continued against Bressman’s co-defendants. In 1998, some of those claims were settled for $6,250,000. Folkenflik received the funds. The approved Settlement Agreement included a confidentiality order. Months later, Plaintiffs sought a default judgment against Bressman. Folkenflik submitted an affidavit that indicated that the damages totaled $5,195,081, provided a comprehensive account of the underlying proceedings, but did not mention the settlement. The bankruptcy court entered a default judgment against Bressman. Plaintiffs later sought RICO damages and attorneys’ fees, again not mentioning the settlement. The bankruptcy court entered a RICO judgment for treble damages: $15,585,243 plus $910,855.93 in attorneys’ fees. More than 10 years later, Folkenflik learned that Bressman might receive $10 million, and filed ex parte applications on behalf of Plaintiffs to appoint a receiver to search for and seize Bressman’s assets. Searches and seizures were executed. Flolkenflik did not disclose the settlement and made misleading representations to the courts and Bressman’s attorney. When the courts learned about the settlement, the orders were vacated and the seized materials returned. The bankruptcy court found that Folkenflik’s conduct constituted fraud on the court, vacated the default judgment, and dismissed the adversary complaint with prejudice. The Third Circuit affirmed. Bressman’s motion was not barred by laches. Folkenflik’s failure to disclose the settlement constituted intentional fraud. Even if he believed that the confidentiality order prohibited him from disclosing the existence of the Agreement, he could have so stated in his affidavit and asked the courts for guidance. View "In re: Bressman" on Justia Law

A housing loan, made by an employer to an employee as a key part of a compensation package, qualified as a non-consumer debt. The Ninth Circuit affirmed the Bankruptcy Appellate Panel's decision affirming the bankruptcy court's denial of creditor's motion to dismiss debtor's Chapter 7 bankruptcy petition for abuse under 11 U.S.C. 707(b)(1). As a preliminary matter, the panel held that the bankruptcy court's order denying creditor's motion to dismiss under section 707(b) was final and appealable. On the merits, the panel held that the bankruptcy court did not err by finding that the housing loan was a non-consumer debt. The panel agreed with the bankruptcy court that debtor incurred the housing loan primarily for a non-consumer purpose connected to furthering his career. View "Aspen Skiing Co. v. Cherrett" on Justia Law

The Ninth Circuit affirmed the district court's reversal of the bankruptcy court's grant of summary judgments for defendants in two adversary proceedings seeking recovery of fraudulent transfers. The panel applied the dominion test and held that defendants were initial transferees under 11 U.S.C. 550(a)(1) and thus not entitled to the safe harbor under section 550(b)(1) for subsequent transferees. Therefore, the Committee could recover the funds from both the corporate cheat and those parties to whom he first made payments from the corporate account. The panel remanded for further proceedings. View "In the Matter of WallDesign" on Justia Law

Petitioner Ann Hardegger filed a complaint in the district court seeking contribution from respondents Daniel and Cheryl Clark, for their proportionate share of a payment she made to the Internal Revenue Service (“IRS”) in full satisfaction of the parties’ joint and several tax liabilities. In October 2010, the Clarks filed a joint voluntary Chapter 7 bankruptcy petition and gave notice to their creditors, including the Hardeggers. The Hardeggers did not file a proof of claim in the bankruptcy proceeding, and the bankruptcy court granted the Clarks a discharge. In Hardegger’s case, the district court found the Clarks responsible for one-half of the IRS indebtedness and entered summary judgment in Hardegger’s favor. A division of the court of appeals reversed, however, concluding that Hardegger’s contribution claim constituted a pre-petition debt that had been discharged in the Clarks’ bankruptcy case. Applying the “conduct test,” under which a claim arises for bankruptcy purposes at the time the debtor committed the conduct on which the claim is based, the Colorado Supreme Court concluded that Hardegger’s claim for contribution arose when the parties’ jointly owned company incurred federal tax withholding liability between 2007 and 2009, rendering Hardegger and Clark potentially responsible for that debt. Because this conduct occurred before the Clarks filed their bankruptcy petition in 2010, Hardegger’s claim constituted a pre-petition debt that was subject to discharge. View "Hardegger v. Clark" on Justia Law

J&S sought Chapter 7 bankruptcy protection. The estate's largest asset was an Altoona, Pennsylvania building, in which Phoenician previously operated a restaurant. Trustee Swope rejected Phoenician’s lease to facilitate the building's sale. Phoenician attempted to remove property from the closed restaurant; Swope objected. After learning that Phoenician had canceled its insurance and that heating could be an issue with anticipated frigid weather, Swope met with Phoenician’s principal, Obeid and a contractor. Obeid gave Swope a key to the premises; the contractor recommended that the thermostat be set to 60 degrees. Obeid did not do so, the pipes burst, and the property flooded. A disaster restoration company refused to work on the property. Swope asked for another meeting to assess the damage. Obeid demanded that the meeting be rescheduled and held without J&S's principal, Focht; Swope declined, tried to inspect the premises, and discovered the key Obeid had given her did not work. Focht then had the locks changed. Swope retained the only key and provided both parties with only “supervised access.” Phoenician unsuccessfully sought to regain possession. The court indicated that Swope was protected by the automatic stay, which precluded Phoenician from interfering with the property, and dismissed Phoenician’s suit against Swope under 42 U.S.C. 1983 for wrongful eviction, claiming Fourth and Fourteenth Amendment violations. The Third Circuit agreed that Swope was entitled to qualified immunity and took appropriate action to preserve the Estate Property without violating clearly-established law. View "J & S Properties, LLC v. Phoenician Meditteranean Villa, LLC" on Justia Law