Justia Bankruptcy Opinion Summaries

The Fifth Circuit affirmed the district court's determination that it lacked jurisdiction to consider debtor's appeal of the bankruptcy court's decision in debtor's adversary proceeding. The court also affirmed the bankruptcy court's decision to reopen his main bankruptcy proceeding to allow the DOE and ECMC to file proofs of claim. In this case, the amended statement of issues and designation of record could not fairly be called a notice of appeal within the meaning of Federal Rule of Bankruptcy Procedure 8003(3). Furthermore, allowing DOE and ECMC to reopen the main bankruptcy proceeding served to establish their standing in the adversary proceeding and enabled debtor, should he have prevailed, to obtain a discharge against the correct entities. Likewise, the bankruptcy court did not err by allowing DOE and ECMC to file proofs of claim. View "Dorsey v. US Department of Education" on Justia Law

11 U.S.C. 106(a)(1)'s abrogation of sovereign immunity "with respect to" 18 U.S.C. 544(b)(1) extends to the derivative “applicable law.” In this case, the Trustee invoked Idaho's Uniform Fraudulent Transfer Act (UFTA) as the "applicable law" to bring an 11 U.S.C. 544(b)(1) adversary action to avoid $17 million in tax payments that debtor fraudulently transferred to the IRS. The panel held that the government could not rely on sovereign immunity to prevent the avoidance of the tax payments at issue. The panel addressed the Trustee's cross-appeal in a concurrently filed memorandum disposition. View "In re DBSI, Inc." on Justia Law

In 2008, Purdy borrowed from Citizens First, using his dairy cattle as collateral. Purdy refinanced in 2009, executing an “Agricultural Security Agreement" that granted Citizens a purchase money security interest in “all . . . Equipment, Farm Products, [and] Livestock (including all increase and supplies) . . . currently owned [or] hereafter acquired.” Citizens perfected this security interest by filing with the Kentucky Secretary of State. Purdy and Citizens executed two similar security agreements in 2010 and 2012, which were perfected. After the 2009 refinancing, Purdy increased the size of his herd, entering into “Dairy Cow Lease” agreements with Sunshine. The parties also executed security agreements and Sunshine filed financing statements. In 2012, milk production became less profitable. Purdy sold off cattle, including many bearing Sunshine’s brand, and filed a voluntary Chapter 12 bankruptcy petition. Both Citizens and Sunshine sought relief from the stay preventing the removal of the livestock. In 2014, the Sixth Circuit held that Citizens failed to demonstrate that the "Leases” were actually security agreements in disguise. On remand, the bankruptcy court determined that all cattle sold at a 2014 auction were subject to Citizens’ security interest. The district court affirmed, awarding Citzens $402,354.54. The Sixth Circuit affirmed; the bankruptcy court did not contravene its mandate by holding a hearing on the question of ownership. View "Sunshine Heifers, LLC v. Citizens First Bank" on Justia Law

DZ Bank filed an adversary action against the Meyers in bankruptcy court, alleging that the Meyers had fraudulently transferred assets in order to place them out of the bank's reach. The Ninth Circuit reversed the district court's decision affirming the bankruptcy court's judgment in favor of the bank. The panel held that, although the bankruptcy court correctly found that the Meyers engaged in fraudulent transfers under the Washington Uniform Fraudulent Transfer Act and thus committed fraud to the bank's detriment, the bankruptcy court erred by limiting relief to the amount of the collateralized debt. The panel explained that the bankruptcy court should have granted relief for the full $385,000 that the bank would have recovered. View "DZ Bank AG Deutsche Zentral-Genossenschaft Bank v. Meyer" on Justia Law

After debtors filed for Chapter 13 bankruptcy, MDSS filed a proof of claim for an unsecured domestic support obligation (DSO) to pay spousal and child support arrears to one of the debtor's prior spouses. MDSS then filed an amended proof of claim in a higher amount and debtors objected. The Eighth Circuit held that the BAP correctly ruled that the disallowed portion of MDSS's DSO claim was not subject to the discharge injunction imposed when the bankruptcy court granted debtors a discharge. The court explained that that ruling eliminated the basis for the bankruptcy court's sanctions order. The court also held that the district court did not abuse its discretion by declining to address the bankruptcy court's contempt order sanctions. Finally, the court declined to render an advisory opinion on the additional issues raised in MDSS's cross-appeal. View "Missouri v. Spencer" on Justia Law

Rose bought $120,000 of products on credit from Caudill and did not pay. Before a district court ruled for Caudill, Rose gave 440 acres of land to his son Matt, then filed for bankruptcy. Caudill began an adversary proceeding, asking the judge to pull the land into the estate under 11 U.S.C. 548. The bankruptcy trustee's similar request was settled for payment of $100,000. The bankruptcy judge approved that settlement over Caudill’s objection. To get a discharge, Rose reaffirmed his debt to Caudill. He promised to pay $100,000, with an immediate $15,000; failure to pay entitles Caudill to a judgment for $300,000. Rose paid the $15,000 but nothing more. Caudill might have sought to rescind the discharge, but filed a new suit based on the reaffirmation agreement, obtaining a $285,000 default judgment. Rose failed to pay. Caudill commenced supplemental proceedings, contending that, under Indiana law, it can execute on the land that was fraudulently conveyed to Matt. Rose and Matt did not deny that the transfer was a fraudulent conveyance but argued that the settlement of the Trustee’s claim precluded further action to collect Rose’s debts from the value of the land. The district court and Seventh Circuit rejected that argument, observing that issue preclusion depends on an actual decision, by a judge, that is necessary to the earlier litigation. Whether the transfer of the land was a fraudulent conveyance was not actually litigated; the Trustee’s claim was settled. View "Caudill Seed & Warehouse Co. v. Rose" on Justia Law

Debtors appealed the district court's order vacating the bankruptcy court's confirmation of their chapter 13 plan. The Ninth Circuit dismissed the appeal, holding that, under Bullard v. Blue Hills Bank, 135 S. Ct. 1686 (2015), the district court's order vacating confirmation was not a final appealable order because the district court did not finally dispose of a discrete dispute. The panel also held that debtors had other opportunities to seek circuit court review pursuant to the certification methodologies in the general interlocutory appeals statute, 28 U.S.C. 1292(b), and the bankruptcy-specific certification procedures, 28 U.S.C. 158(d)(2). View "Bank of New York Mellon v. Watt" on Justia Law

A bankruptcy estate is entitled to the full amount of spendthrift trust distributions due to be paid as of the petition date. But the estate may not access any portion of that money the beneficiary needs for his support or education, as long as the trust instrument specifies that the funds are for that purpose. The estate may also reach 25 percent of expected future payments from the spendthrift trust, reduced by the amount the beneficiary needs to support himself and his dependents. In this case, the Ninth Circuit reversed the Bankruptcy Appellate Panel's decision after the California Supreme Court's answer to a certified question regarding whether the creditors of the beneficiary of a spendthrift trust may reach the trust distributions. The panel remanded so that the bankruptcy court could apply the teachings of Carmack v. Reynolds, 391 P.3d 625, 628 (Cal. 2017). View "Frealy v. Reynolds" on Justia Law

Sentinel managed investments for futures commission merchants (FCMs) like FCStone, which act as financial intermediaries between investors and futures markets. Sentinel itself was an FCM. Sentinel organized its customers into “SEGs.” FCM customer assets were held in SEG 1. SEG 1 and SEG 3 customers have special protections under the Commodity Exchange Act, the Investment Advisers Act, and SEC regulations, which required Sentinel to hold customer funds separately. Sentinel, however, routinely used securities it had allocated to customers as collateral for Sentinel’s own borrowing and trading. In 2007, Sentinel’s scheme collapsed. Sentinel halted redemptions and sold a large portfolio of SEG 1 securities, depositing the proceeds in a SEG 1 Bank of New York (BNY) cash account. The next day, Sentinel filed for Chapter 11 bankruptcy. The bankruptcy court authorized BNY to disburse funds to SEG 1 customers, less a five percent holdback ($25,000,000). The trustee waited a year before challenging that transfer but the district court allowed its avoidance under 11 U.S.C. 549. The Seventh Circuit reversed. rejecting the trustee's argument that an after-the-fact “clarification” by the bankruptcy judge was entitled to preclusive effect. “Whether the property belonged to the estate or not,” the Seventh Circuit reasoned, the disbursal order “ended any discussion ... the disputed property cannot later be clawed back.” The $25 million held in reserve under the confirmed bankruptcy plan was not estate property subject to pro rata distribution. FCStone and similarly situated customers preserved their right to recover their trust property. View "Grede v. FCStone LLC" on Justia Law

A creditor appealed a bankruptcy court’s decision to deny a creditor’s motion to appoint a trustee for the bankruptcy estate to replace the debtor in possession of that estate. The Bankruptcy Appellate Panel affirmed the bankruptcy court’s ruling. The First Circuit also affirmed, holding (1) the bankruptcy court did not err in determining that appointment of a trustee was not justified under 11 U.S.C. 1104(a)(1); and (2) the bankruptcy court did not err in finding that the appointment of a trustee would not be in the interests of creditors - the standard for appointment of a trustee under 11 U.S.C. 1104(a)(2). View "United Surety & Indemnity Co. v. Lopez-Munoz" on Justia Law