Justia Bankruptcy Opinion Summaries

General Mills filed an adversary proceeding to determine the dischargeability of a debt in debtor's Chapter 7 bankruptcy. Applying Minnesota law to its preclusion analysis, the Eighth Circuit affirmed the bankruptcy court's rejection of debtor's claim preclusion defense. In this case, because all claims between codefendants were dismissed without prejudice by stipulation, there was no final adjudication on the merits. Furthermore, because General Mills' adversary claim arose from its rights and remedies with respect to debtor's execution of a promissory note secured by the property at issue, there was no final adjudication of that issue. The court affirmed the bankruptcy court as to issue preclusion as well. The court rejected debtor's claim of judicial estoppel where General Mills did not take inconsistent positions. The court also held that General Mills' fraud claims were not barred by the statute of limitations; rejected debtor's challenges to the bankruptcy court's evidentiary rulings; and affirmed the bankruptcy court's finding that debtor's debt was not dischargeable. Accordingly, the court affirmed the judgment. View "Hernandez v. General Mills Federal Credit Union" on Justia Law

A group of hotel-related businesses, as well as investors and guarantors, filed suit alleging claims of fraud against the Royal Bank and two of its subsidiaries. The district court dismissed the claims because plaintiffs had failed to list their cause of action in a schedule of assets in their now-concluded bankruptcy proceeding, they lacked standing to bring the claim, and were barred by judicial estoppel. The claims of the investor and guarantors were dismissed as untimely and barred by the law of the case. The Second Circuit affirmed on the grounds of judicial estoppel and timeliness. The court held that, under Fifth Circuit law, the kind of LIBOR-fraud claim that BPP wanted to assert was "a known cause of action" at the time of confirmation, so that BPP's failure to list it in the schedule of assets was equivalent to a representation that none existed; the bankruptcy court "adopted" BPP's position; and BPP's assertion of the claims now would allow it to enjoy an unfair advantage at the expense of its former creditors. Furthermore, plaintiffs have not shown good cause for an untimely amendment, and the district court properly denied leave to amend. View "BPP Illinois v. Royal Bank of Scotland Group PLC" on Justia Law

The bankruptcy trustee filed suit against Pennie Glasser, seeking to recover from her, as a preference, a payment made by debtor to her. Glass is the former wife of an insider of debtor, as well as a minor investor and employee of debtor at the time of payment. The Bankruptcy Appellate Panel held that Glasser was not an insider of debtor and the payment was not an avoidable preference under 11 U.S.C. 547(b) and Minnesota Statute 513.45(b). In this case, Glasser did not have sufficient closeness to be treated as an insider. View "Seaver v. Glasser" on Justia Law

Raymond and Sandra have lived in their Ambler, Pennsylvania home since 1993. They took on a mortgage from AmeriChoice. They fell behind on their payments. In 2012, AmeriChoice filed a foreclosure action; AmeriChoice obtained a default judgment. AmeriChoice scheduled a sheriff’s sale. The day before that sale, Raymond, acting alone, filed a Chapter 13 bankruptcy petition, triggering the automatic stay and preventing the sale. The case was dismissed six months later after Raymond failed to make payments. AmeriChoice rescheduled the sale. On the rescheduled date, Raymond filed a second Chapter 13 petition. The Bankruptcy Court granted relief from the stay. On the second rescheduled date, Sandra filed her Chapter 13 petition. Days later the court dismissed Sandra’s petition for failure to obtain prepetition credit counseling. In Raymond’s second case, AmeriChoice moved (11 U.S.C. 1307(c)) to either convert Raymond’s case to Chapter 7 or dismiss, arguing bad faith use of bankruptcy. Raymond unsuccessfully moved to postpone a hearing and the day before the hearing sought dismissal under section 1307(b). Raymond did not appear at the hearing. The court dismissed Raymond’s case, stating that he was “not permitted to file another bankruptcy case without express permission.” Sandra was subsequently enjoined from filing bankruptcy for 180 days. The Third Circuit vacated. While a bankruptcy court may issue a filing injunction while approving a section 1307(b) voluntary dismissal, the injunction against Raymond, beyond what had been requested, was not supported by reasoning. View "In re: Ross" on Justia Law

Debtors filed voluntary petitions under chapter 11 of the Bankruptcy Code and a motion seeking bankruptcy court approval of an asset purchase agreement (APA), whereby they agreed to seek substantially all of their assets to Buyer. The bankruptcy court approved the APA through a sale order and confirmed Debtors’ proposed plan of reorganization. Appellants, senior executives of Debtor, were then informed that their employment was terminated the day the sale closed. The bankruptcy court found Buyer liable to Appellants under the APA for their severance pay. The district court vacated the judgment against Buyer, finding that Appellants’ claims against Buyer fell outside the bankruptcy court’s statutorily granted jurisdiction. The First Circuit affirmed, holding that the bankruptcy court had no jurisdiction over Appellants’ claims for severance pay from Buyer because the claims were not proceedings which “arise in” the chapter 11 bankruptcy such that they fell within the grant of jurisdiction contained in 28 U.S.C. 1334. View "Quincy Medical Center v. Gupta" on Justia Law

ASARCO filed suit against MRI, challenging MRI's refusal to bring ASARCO back into a partnership in a Montana copper mine. MRI argued that ASARCO's decisions during its Chapter 11 bankruptcy filing prevent it from suing for reinstatement. The Fifth Circuit affirmed the district court's denial of MRI's motion for summary judgment on preclusion and estoppel grounds. The court held that the district court correctly determined that ASARCO was not precluded from bringing its breach of contract claim and the claim was not barred by res judicata. The court explained that the claim was contingent on future events and thus ASARCO could not have brought it during the adversary proceeding. The court also held that ASARCO's disclosure of the right to reinstate, though scant, was sufficient. Finally, the court left it to the district court to decide in the first instance the nature of the provision and whether, if it is executory, the ride-through doctrine applies. View "ASARCO v. Montana Resources" on Justia Law

Debtors filed a voluntary Chapter 13 petition. The Bankruptcy Court confirmed a plan that required payments of $2,485 each month for 60 months. Later, because of an increase in mortgage payments, the plan was amended to increase the payments to $3,017 for the remainder of the 60-month period. Debtors made consistent payments and, after 60 months, had paid $174,104, slightly exceeding their projected plan base. The Trustee subsequently moved to dismiss the case under 11 U.S.C. 1307(c), alleging that Debtors still owed $1,123 to complete their plan base. Debtors cured the arrears within 16 days. The motion had been joined by an unsecured creditor, who claimed that the plan and the Code required completion within 60 months. The Bankruptcy Court agreed that the failure to completely fund the plan base within 60 months was a material default constituting cause for dismissal, but found that the default was not the result of Debtors' unreasonable delay, that Debtors promptly corrected the deficiency, and that the delay did not significantly alter the timing of distributions. The district court and Third Circuit affirmed and rejected an adversary proceeding, objecting to the discharge. Bankruptcy courts have discretion to grant a brief grace period and discharge debtors who cure an arrearage in their plan shortly after the expiration of the plan term. View "In re: Klaas" on Justia Law

In Associates Commercial Corp. v. Rash, 520 U.S. 953, 956 (1997), the Supreme Court adopted a replacement-value standard for 11 U.S.C. 506(a)(1) cram-down valuations, holding that replacement value, rather than a foreclosure sale that will not take place, is the proper guide under a prescription hinged to the property's disposition or use. In this case, the en banc court held that, because foreclosure would vitiate covenants requiring that the secured property—an apartment complex—be used for low-income housing, foreclosure value in this case exceeds replacement value, which is tied to debtor’s actual use of the property in the proposed reorganization. The en banc court held, as Rash teaches, that section 506(a)(1) requires the use of replacement value rather than a hypothetical value derived from the very foreclosure that the reorganization was designed to avoid. The bankruptcy court did not err here by approving debtor's plan of reorganization and valuing the collateral assuming its continued use after reorganization as low-income housing. Accordingly, the en banc court affirmed the district court's judgment affirming the bankruptcy court's affirmance of debtor's Chapter 11 plan of reorganization. View "First Southern National Bank v. Sunnyslope Housing Ltd. Partnership" on Justia Law

The Bankruptcy Appellate Panel (BAP) concluded the bankruptcy court correctly declined to apply the doctrine of marshaling in favor of a secured creditor, because the common debtor requirement imposed by Colorado law was not satisfied. This appeal arose out of an adversary proceeding brought by the trustee of a Chapter 7 bankruptcy estate to determine how to divide the proceeds from the sale of the debtor’s real property. The BAP concluded the bankruptcy court did not err in determining the bankruptcy estate was entitled to retain the proceeds from the sale of the property subject to a home equity line of credit lien, or in determining the amount due under that lien. But the BAP found the bankruptcy court erred under 11 U.S.C. 506(c) by surcharging the secured collateral (and thereby reducing a secured creditor’s share) for expenses incurred contesting the validity of that secured creditor’s lien. The Tenth Circuit conducted a complete and independent review, and with several caveats, affirmed the BAP’s judgment and formally adopted its opinion. View "Bryan v. Clark" on Justia Law

On remand to the Bankruptcy Appellate Panel, debtors challenged the bankruptcy court's order granting in part and denying in part Starion's motion to compel payment of fees under the confirmed plan of reorganizations, and granting in part and denying in part debtors' motion to disallow attorneys' fees and costs claimed by Starion. The panel affirmed the bankruptcy court's judgment and held that its prior opinion was not clearly erroneous nor did it work a manifest injustice in this case. Therefore, it is law of the case and will not be reopened. The panel also held that the relatively short delay in submitting the requests for attorneys' fees did not prejudice debtors and was not a material breach of the plan that should prohibit Starion's right to collect its fees and costs under the plan. Finally, the bankruptcy court did not abuse its discretion by reducing the fees instead of denying all fees. View "McCormick v. Starion Financial" on Justia Law