Justia Bankruptcy Opinion Summaries

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The case involves a dispute between the Trustee for the bankrupt company BWGS, LLC and BMO Harris Bank N.A. and Sun Capital Partners VI, L.P. The Trustee sought to avoid a payment made by BWGS to BMO Harris, which was used to finance the acquisition of BWGS by Sun Capital's subsidiary. The Trustee argued that the payment constituted a constructively fraudulent transfer under the U.S. Bankruptcy Code and Indiana state law.The United States Court of Appeals for the Seventh Circuit had to address two novel issues: whether Section 546(e) of the Bankruptcy Code, which protects certain transactions made “in connection with a securities contract,” applies to transactions involving private securities; and, if so, whether it also preempts state law claims seeking similar relief.The Court held that Section 546(e) does apply to transactions involving private securities and does preempt state law claims seeking similar relief. Consequently, the Trustee's attempt to avoid the payment under the Bankruptcy Code and Indiana law was barred by Section 546(e). The Court also rejected the Trustee's argument that he could recover the value of the payment from Sun Capital under a different provision of the Bankruptcy Code, holding that this claim was also preempted by Section 546(e). The Court thus affirmed the lower court's decision to dismiss the Trustee's complaint with prejudice. View "Petr v. BMO Harris Bank N.A." on Justia Law

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Creditors obtained a $1.6 million default judgment against Rodney Dorand and sought to satisfy the judgment with funds from Dorand's individual retirement account, held by Morgan Stanley. An Alabama court approved the transfer of funds, but before the transfer occurred, Dorand filed for Chapter 7 bankruptcy, asserting that the retirement account was exempt property of his bankruptcy estate. The bankruptcy court agreed with Dorand. The United States Court of Appeals for the Eleventh Circuit affirmed this decision, stating that the Alabama judgment did not extinguish Dorand’s interest in his account before he filed his bankruptcy petition.Rodney Dorand had been sued by creditors for damages arising from a failed condominium development. After the state court issued a writ of garnishment to Morgan Stanley, Dorand argued that the retirement account was exempt from garnishment, but the state court rejected this argument. However, before the funds were transferred, Dorand filed for bankruptcy. The bankruptcy court determined that the retirement account was Dorand’s exempt property and that the Alabama judgment against garnishee Morgan Stanley “does not affect the [retirement account’s] exempt status.”The Alabama judgment did not terminate all of Dorand's interests in his property. While the judgment had given Morgan Stanley a limited right to transfer Dorand’s funds, it had not exercised that right before Dorand filed for bankruptcy. The Court of Appeals affirmed that the retirement account was part of Dorand’s bankruptcy estate, as Dorand had an interest in the retirement account when he filed for bankruptcy. View "The Alabama Creditors v. Dorand" on Justia Law

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The Supreme Court of the State of Montana affirmed a lower court decision that granted Dr. Gregory S. Tierney's motion to dismiss a medical malpractice lawsuit filed by Janice M. Dodds for insufficient service of process. Dodds initially filed the suit against Dr. Tierney and Benefis Health System in 2013, alleging medical malpractice related to a knee replacement surgery. She failed to serve the defendants in time. Dr. Tierney later filed for bankruptcy, which invoked an automatic stay, halting the lawsuit. After his bankruptcy discharge, Dodds attempted to serve Dr. Tierney but failed to do so within the required 30-day timeframe following the discharge.Dodds further sought to join Dr. Tierney's malpractice insurance company as the real party in interest, but the court denied the motion. Upon review, the Supreme Court found that Dodds had not proven Dr. Tierney's liability, thus the insurer had no duty to indemnify him. The court also rejected Dodds' argument that Dr. Tierney lacked standing after his Chapter 7 discharge. The court held that Dr. Tierney maintained a personal stake in demonstrating he was not liable for medical malpractice and that his insurer would only have a duty to indemnify him once Dodds proved her malpractice claims. View "Dodds v. Tierney" on Justia Law

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In this case, Aquila Alpha LLC (Aquila) appealed against a judgment from the United States District Court for the Eastern District of New York, affirming a bankruptcy court’s decision to deny Aquila’s motion to vacate a default judgment. The default judgment was obtained by Howard M. Ehrenberg, as the liquidating trustee of several debtors, and granted the debtors the ownership of a $23.7 million mortgage purchased by Aquila.Aquila argued that the default judgment should be vacated due to lack of personal jurisdiction and misapplication of the relevant Rule 60(b) factors. Aquila posited that it was improperly included in the First Amended Complaint without leave from the bankruptcy court and was not correctly served.However, the United States Court of Appeals for the Second Circuit affirmed the judgment of the district court. The appellate court concurred with the district court that the bankruptcy court had personal jurisdiction over the parties and had correctly applied the Rule 60(b) factors to deny Aquila’s motion to vacate default.The appeals court ruled that Aquila was correctly added to the First Amended Complaint as of right pursuant to Rule 15(a). The court also concluded that Aquila was properly served. It was further determined that Aquila’s default was willful, and the district court did not abuse its discretion in declining to set aside the default judgment. View "In re Orion HealthCorp, Inc." on Justia Law

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In August 2020, Machele Goetz filed a Chapter 13 bankruptcy petition and plan. She owned a residence worth $130,000 and claimed a $15,000 homestead exemption under Missouri law. It was agreed that if the trustee liquidated the residence on the date of the petition, the estate would have received nothing net of the exemption, the lien, and the sale expenses. On April 5, 2022, the bankruptcy court granted Goetz’s motion to convert her case from Chapter 13 to Chapter 7. Between the Chapter 13 filing and the date of the conversion order, Goetz’s residence had increased in value by $75,000, and she had paid down a further $960.54 on the mortgage.Goetz moved for the bankruptcy court to compel the trustee to abandon the property, arguing that the residence was of “inconsequential value and benefit to the estate” under 11 U.S.C. § 554(b). The trustee resisted Goetz’s motion, asserting that the bankruptcy estate in a converted case includes post-petition, pre-conversion increase in equity. The bankruptcy court agreed with the trustee, and this decision was affirmed by the Bankruptcy Appellate Panel for the Eighth Circuit.On appeal to the United States Court of Appeals for the Eighth Circuit, the court held that the post-petition, pre-conversion increase in equity in Goetz’s residence is property of the converted Chapter 7 estate. The court reasoned that, under the plain text of 11 U.S.C. § 348(f)(1)(A) and § 541, the equity in Goetz’s residence was property of her converted estate because it was property of the estate that she owned on the date of her petition and which she retained at conversion. The court rejected Goetz's arguments that this result punishes the good-faith debtor who attempts a Chapter 13 plan, pays down their mortgage, and then converts to Chapter 7. Instead, the court held that the Code’s values are not monolithic and balance multiple, often competing interests. View "Goetz v. Weber" on Justia Law

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In this case, the Supreme Court of Arizona was asked to clarify whether Proposition 209, a voter initiative, repealed or affected the validity of a particular portion of the Arizona Revised Statutes (A.R.S. § 33-1126(A)(11)). The Court held that Proposition 209 neither expressly nor implicitly repealed A.R.S. § 33-1126(A)(11), which was enacted by the Arizona legislature after the drafting of Proposition 209 but before it was voted on.The case arose when Erica Riggins filed for Chapter 7 bankruptcy and claimed an exemption under A.R.S. § 33-1126(A)(11), which was an exemption for certain types of federal and state tax credits. The Chapter 7 Trustee objected, arguing that Proposition 209, which amended a number of debt collection statutes and was passed by voters after the enactment of A.R.S. § 33-1126(A)(11), repealed the tax credit exemption.Upon review, the Court found that the voters did not expressly repeal A.R.S. § 33-1126(A)(11) by passing Proposition 209, as the proposition did not contain any language suggesting such a repeal. The Court also found that Proposition 209 did not implicitly repeal A.R.S. § 33-1126(A)(11) because the two did not conflict with each other. Both sought to enhance debtor protections, with Proposition 209 increasing the value of certain exemptions while A.R.S. § 33-1126(A)(11) added a new exemption for tax credits. As such, the Court declared A.R.S. § 33-1126(A)(11) to be still operative. View "In re: RIGGINS" on Justia Law

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The case in question pertains to a dispute over the enforceability of dragnet clauses within mortgages used to secure loans funding Frank Welte’s farming operations. The Vera T. Welte Testamentary Trust, of which Frank Welte is the sole beneficiary, pledged its property as security for these loans, which were provided by Roger Rand, another Iowa farmer. The Trust's primary asset is 160 acres of farmland that were leased to Frank. Upon Rand's death, his estate initiated a foreclosure action against the Trust's farmland. The Trust subsequently filed for chapter 12 bankruptcy, which led to a stay of the foreclosure action against the Trust.The Estate filed a proof of claim and a motion to dismiss the Trust’s bankruptcy petition, alleging that the Trust was not a business trust as required by chapter 12. The Trust objected to the Estate’s proof of claim. The Iowa state court ruled that the dragnet clauses in the mortgage documents secured the loans made to Frank in excess of the face amount of the promissory notes.The United States Bankruptcy Court for the Northern District of Iowa, however, held that the dragnet clauses were not enforceable, thereby concluding that the Trust no longer owed a debt to the Estate. Following this, the United States District Court for the Northern District of Iowa gave preclusive effect to the judgment of the Iowa Court of Appeals concerning the enforceability of the clauses and the amounts owed thereunder.The Trust and the Estate both appealed the district court’s order. The United States Court of Appeals for the Eighth Circuit dismissed the appeal and cross-appeal due to lack of jurisdiction, as the district court's order was not final and required further proceedings in the bankruptcy court. View "The Security National Bank of Sioux City, IA v. Vera T. Welte Testamentary Trust" on Justia Law

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Insight Terminal Solutions, LLC ("ITS") appealed against a decision by the Bankruptcy Appellate Panel of the Sixth Circuit. The dispute centered on a claim originally filed by Cecelia Financial Management, LLC ("Cecelia"), and later transferred to Bay Bridge Exports, LLC ("Bay Bridge"), in ITS's chapter 11 bankruptcy. ITS sought to disallow or reduce the claim, recharacterize the debt as an equity contribution, and hold John J. Siegel, Jr., the non-member manager of both ITS and Cecelia, liable for fraud. The Bankruptcy Court allowed the claim, rejecting ITS's arguments. On appeal, ITS argued that the Bankruptcy Court erred in refusing to admit incomplete deposition testimony from Siegel, who died before cross-examination could take place. ITS also contended that the court erred in applying the presumption of validity to the claim and in refusing to recharacterize the claim as equity. The Appellate Panel upheld the Bankruptcy Court's decision, finding no reversible error. It ruled that the Bankruptcy Court was within its discretion to exclude Siegel's incomplete testimony and found no error in the court's decision to allow the claim and refusal to recharacterize it as equity. View "In re Insight Terminal Solutions, LLC" on Justia Law

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The case in question originated in the United States Court of Appeals for the Seventh Circuit. The dispute arose after the dissolution of a business partnership between Gregory Kleynerman and Scott Smith, which resulted in Smith obtaining a state court judgment of $499,000 against Kleynerman. This judgment was secured by Kleynerman's membership interest in Red Flag Cargo Security Systems LLC. Following this, Kleynerman filed for bankruptcy and valued his interest in Red Flag at $0. Smith argued in the bankruptcy court that the state court's judgment was a result of Kleynerman's fraud and thus could not be discharged. However, the bankruptcy court rejected this argument.After the bankruptcy case was closed, Kleynerman asked the state court to deem the $499,000 judgment discharged. Smith contended that under Wisconsin law, only debts secured by real property can be avoided. The state court agreed with Smith, which led Kleynerman to request the bankruptcy court to reopen the case and clearly state that both the $499,000 debt and the lien on Kleynerman’s interest in Red Flag no longer existed.The bankruptcy court reopened the case and the district court affirmed the decision. The appellate court agreed with the lower courts, stating that the bankruptcy judge had authority to reopen the case, and that Kleynerman had cause for reopening.Furthermore, the court held that the value of Kleynerman’s interest in Red Flag was a matter for the bankruptcy judge to decide before the discharge. Smith had an opportunity to object to Kleynerman's valuation of his interest in Red Flag but failed to do so until after the bankruptcy court had entered its discharge order. The court concluded that Smith's post-discharge subpoenas seeking information about the value of Kleynerman’s interest in Red Flag were a fishing expedition and an exercise in harassment, which was properly rejected by the bankruptcy judge. Therefore, the court affirmed the decision of the lower courts. View "Smith v. Kleynerman" on Justia Law

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In this case before the United States Court of Appeals for the First Circuit, five groups of current and former public employees in the Commonwealth of Puerto Rico (the "Commonwealth") appealed an order by the court overseeing the Commonwealth-wide debt restructuring litigation (the "Title III court") on their motions to secure administrative-expense priority for their back pay claims. The back pay claims arose from allegations that their public employers failed to adjust their wages upward, a violation of Puerto Rico law. The Title III court had previously rejected efforts to assert administrative-expense priority for back pay for work performed before the commencement of the Commonwealth's debt restructuring case under Title III of the Puerto Rico Oversight, Management, and Economic Stability Act ("PROMESA").The appellate court affirmed the Title III court's decision. The appellate court agreed that the pre-petition work claims did not qualify for administrative-expense priority under § 503(b)(1)(A)(ii) of the Bankruptcy Code, which is incorporated into PROMESA, because they were not "wages and benefits awarded pursuant to a judicial proceeding . . . as back pay attributable to any period of time occurring after commencement of the case under this title." The appellate court also held that the Title III court did not abuse its discretion in deferring its decision on administrative-expense status for back pay claims concerning work performed post-petition but for which there has not yet been any judgment in the underlying commonwealth court and agency proceedings. View "Abraham Gimenez Plaintiff Group v. FOMB" on Justia Law