Justia Bankruptcy Opinion Summaries

The case involves Dr. Euna McGruder, who was terminated from her position as the Executive Officer of Priority Schools for the Nashville public school system, operated by Metro Nashville, after she investigated allegations of racial discrimination at a Nashville middle school. McGruder sued Metro Nashville in 2017, alleging that her termination constituted illegal retaliation in violation of Title VII. In 2021, a jury awarded McGruder $260,000 for her claim, and the district court ordered Metro Nashville to reinstate her to her previous position.After the trial, Metro Nashville discovered that McGruder had failed to disclose the existence of her Title VII claim to the bankruptcy court when she filed for Chapter 7 bankruptcy in 2018. Metro Nashville argued that McGruder's claims should be barred by judicial estoppel due to her failure to disclose her cause of action against Metro Nashville in her bankruptcy filing. The district court concluded that it could not exercise jurisdiction over Metro Nashville’s judicial estoppel claim, given that Metro Nashville’s earlier notice of appeal had divested the court of jurisdiction over the case.The United States Court of Appeals for the Sixth Circuit affirmed the district court's reinstatement order and dismissed Metro Nashville's appeal for lack of jurisdiction. The court held that judicial estoppel does not bar McGruder's reinstatement. The court also found that the district court did not abuse its discretion in ordering McGruder's reinstatement. The court did not have jurisdiction to apply judicial estoppel to the non-final and therefore non-appealable jury award, forthcoming back pay trial, or award of attorneys’ fees. View "McGruder v. Metro. Gov't of Nashville" on Justia Law

The case revolves around Ronald Lee Morgan, who filed for Chapter 7 bankruptcy in North Carolina. Morgan owned a home jointly with his wife as tenants by the entirety. He sought to exempt this home from the bankruptcy estate to the extent of his outstanding tax debt to the Internal Revenue Service (IRS). However, the bankruptcy court disallowed the exemption. Morgan's wife did not jointly owe the debt to the IRS and did not file for bankruptcy. The trustee of the bankruptcy estate objected to Morgan's claim for an exemption, arguing that under North Carolina state law, tenancy by the entireties property is generally exempt from execution by creditors of only one spouse, but this rule does not apply to tax obligations owing to the United States.The bankruptcy court sustained the trustee's objection, and on appeal, the district court affirmed this decision. Morgan then appealed to the United States Court of Appeals for the Fourth Circuit, arguing that for his IRS debt to override the entireties exemption, the IRS must have obtained a perfected tax lien on the property prior to the filing of the bankruptcy petition.The Court of Appeals for the Fourth Circuit affirmed the district court's ruling. The court concluded that Morgan's interest in his home as a tenant by the entirety is not "exempt from process" under "applicable nonbankruptcy law." The court rejected Morgan's argument that the IRS must have actually obtained a lien prior to the bankruptcy filing, stating that the absence of a judgment or lien has no bearing on the hypothetical issue of whether the debtor's interest would be exempt from process. The court also dismissed Morgan's contention that the IRS must perfect a lien against his property before he filed for bankruptcy. The court concluded that nothing in the Supreme Court's decision in United States v. Craft limits its holding to instances where the IRS has perfected a tax lien against the property. View "Morgan v. Bruton" on Justia Law

GFS Industries, a Texas limited liability corporation, entered into an agreement with Avion Funding to receive $190,000 in exchange for $299,800 of GFS’s future receivables. GFS stated it had not filed, nor did it anticipate filing, any Chapter 11 bankruptcy petition. However, two weeks after signing the agreement, GFS petitioned for voluntary Chapter 11 bankruptcy in the Western District of Texas and elected to proceed under Subchapter V, a 2019 addition to the Bankruptcy Code designed to streamline the Chapter 11 reorganization process for certain small business debtors. Avion filed an adversary complaint in GFS’s bankruptcy, claiming GFS obtained Avion’s financing by misrepresenting whether it anticipated filing for bankruptcy. Avion sought a declaration that GFS’s debt to Avion was therefore nondischargeable.The bankruptcy court agreed with GFS, ruling that in the Subchapter V context, only individuals, not corporations, can be subject to § 523(a) dischargeability actions. The court followed the reasoning of four bankruptcy courts and declined to follow the Fourth Circuit’s recent decision in Cantwell-Cleary Co. v. Cleary Packaging, LLC (In re Cleary Packaging, LLC), which held that the Subchapter V discharge exceptions apply to both individual and corporate debtors. The bankruptcy court ruled GFS’s debt to Avion was dischargeable and dismissed Avion’s complaint. Avion timely appealed to the district court.The United States Court of Appeals for the Fifth Circuit disagreed with the bankruptcy court's interpretation of the interplay between § 523(a) and § 1192(2). The court found that § 1192 governs discharging debts of a “debtor,” which the Code defines as encompassing both individual and corporate debtors. The court also noted that other Code provisions explicitly limit discharges to “individual” debtors, whereas § 1192 provides dischargeability simply for “the debtor.” The court concluded that 11 U.S.C. § 1192(2) subjects both corporate and individual Subchapter V debtors to the categories of debt discharge exceptions listed in § 523(a). Therefore, the court reversed the judgment of the bankruptcy court and remanded for further proceedings. View "Avion Funding v. GFS Industries" on Justia Law

A group of individuals, including D&T Partners LLC and ACET Global LLC, alleged that Baymark Partners Management LLC and others attempted to steal the assets and trade secrets of their e-commerce company through shell entities, corrupt lending practices, and a fraudulent bankruptcy. The plaintiffs claimed that Baymark had purchased D&T's assets and then defaulted on its payment obligations. According to the plaintiffs, Baymark replaced the company's management, caused the company to default on its loan payments, and transferred the company's assets to another entity, Windspeed Trading LLC. The plaintiffs alleged that this scheme violated the Racketeer Influenced and Corrupt Organizations Act (RICO).The case was initially heard in the United States District Court for the Northern District of Texas. The district court dismissed all of the plaintiffs' claims with prejudice, finding that the plaintiffs were unable to plead a pattern of racketeering activity, a necessary element of a RICO claim.The case was then taken to the United States Court of Appeals for the Fifth Circuit. The appellate court agreed with the district court, holding that while the complaint alleges coordinated theft, it does not constitute a "pattern" of racketeering conduct sufficient to state a RICO claim. This is because the alleged victims were limited in number, and the scope and nature of the scheme was finite and focused on a singular objective. Therefore, the appellate court affirmed the district court’s judgment. View "D&T Partners v. Baymark Partners" on Justia Law

Highland Capital Management, L.P., a firm co-founded by James Dondero, filed for bankruptcy in 2019 due to litigation claims. As part of a settlement agreement, Dondero relinquished control of Highland to three independent directors, one of whom, James P. Seery, was appointed as Highland’s Chief Executive Officer, Chief Restructuring Officer, and Foreign Representative by the bankruptcy court. To protect Seery from vexatious litigation, the bankruptcy court issued an order that no entity could commence or pursue a claim against Seery relating to his role without the bankruptcy court's prior approval. Despite this, two entities founded by Dondero, the Charitable DAF Foundation and its affiliate CLO Holdco, filed a lawsuit against Highland in district court, alleging that Highland, through Seery, had withheld material information and engaged in self-dealing related to a settlement with one of its largest creditors, HarbourVest.The bankruptcy court held the appellants in civil contempt for violating its order and ordered them to pay $239,655 in compensatory damages. The district court affirmed the bankruptcy court's decision, concluding that the award was compensatory and therefore civil. The appellants appealed to the United States Court of Appeals for the Fifth Circuit, arguing that the sanction was punitive and thus exceeded the scope of the bankruptcy court’s civil contempt powers.The United States Court of Appeals for the Fifth Circuit vacated the district court's decision and remanded the case. The appellate court found that the bankruptcy court had abused its discretion by imposing a punitive sanction that exceeded its civil contempt powers. The court held that the sanction was not compensatory because it was not based on the damages Highland suffered due to the appellants' decision to file the motion in the wrong court. The court instructed the bankruptcy court to limit any sanction award to the damages Highland suffered because of this error. View "Charitable DAF Fund v. Highland Captl Mgmt" on Justia Law

The case involved an appeal from the United States District Court for the Middle District of Florida by Talal Qais Abdulmunem Al Zawawi, a citizen of Oman. Al Zawawi was seeking to overturn the bankruptcy court's decision that recognized foreign proceedings in a Chapter 15 bankruptcy case. The main question was whether 11 U.S.C. § 109(a), which limits the class of persons and entities that could constitute a “debtor,” applied to cases brought under Chapter 15 of the Bankruptcy Code.The United States Court of Appeals for the Eleventh Circuit, in reviewing the case, found that a plain reading of the Bankruptcy Code indicated that § 109(a) did apply to Chapter 15 cases. However, the Court was bound by prior precedent that stated that Chapter 1’s debtor eligibility language did not apply to cases ancillary to a foreign proceeding.The Court found that the former § 304 and Chapter 15 had sufficiently similar purposes such that their decision in a previous case, In re Goerg, controlled their analysis in this case. Based on this reasoning, the Court held that debtor eligibility under Chapter 1 was not a prerequisite for the recognition of a foreign proceeding under Chapter 15. The Court therefore affirmed the bankruptcy court's decision to recognize the foreign proceeding. View "Al Zawawi v. Diss" on Justia Law

In this case, the Supreme Court of Montana reversed and remanded a decision of the Thirteenth Judicial District Court, Yellowstone County. The case involved Saddlebrook Investments (Saddlebrook), assignee of Stuart Simonsen, and Krohne Fund, L.P. (Krohne Fund). Saddlebrook appealed against the district court’s order granting summary judgment in favor of Krohne Fund on Saddlebrook’s claims of malicious prosecution and abuse of process.The Supreme Court found that the district court had erred in applying the doctrine of judicial estoppel to bar Saddlebrook from pursuing its claims. The court noted that a party is not judicially estopped from asserting a cause of action not raised in a reorganization plan or otherwise mentioned in the debtor’s schedules or disclosure statements. However, this does not apply when the bankruptcy trustee is pursuing the action for the benefit of creditors. Once substituted, a bankruptcy trustee is free to pursue the debtor’s nondisclosed claim.In this case, the Trustee had knowledge of Simonsen’s claims and authorized the state court suit. The Supreme Court concluded that because the Trustee had control of Simonsen’s abuse of process claim through the bankruptcy estate, the District Court erred when it estopped Saddlebrook from pursuing that claim. Therefore, Saddlebrook is not judicially estopped from pursuing its malicious prosecution and abuse of process claims against Krohne Fund. View "Saddlebrook Investments v. Krohne Fund" on Justia Law

The case under review centers around certain Chapter 7 debtors and their creditor. The debtors filed for Chapter 7 bankruptcy relief, but provided an incorrect mailing address for their creditor's attorney in their schedule of creditors. As a result, the creditor didn't file a claim in the bankruptcy case. The creditor later sought a determination that its default judgment in an unlawful detainer case wasn't discharged due to lack of notice of the bankruptcy.The bankruptcy court ruled in favor of the creditor, stating that no portion of the unlawful detainer judgment was dischargeable. This decision was affirmed by the Bankruptcy Appellate Panel. The debtors argued that all but a certain amount of the judgment, which they calculated to be what the creditor would have received had it filed a timely claim, was discharged. They also contended that the creditor seeking to recover the full amount would constitute a windfall.However, the United States Court of Appeals for the Ninth Circuit affirmed the lower courts' decisions. It concluded that a debtor’s failure to properly schedule a debt renders that debt nondischargeable in its entirety, rejecting the debtors' arguments. The court clarified that the issue of whether the debt could be enforced against the debtors is a matter of state law and interpretation of the prior state court judgment, and should be resolved by the state court. View "In re Licup v. Jefferson Avenue Temecula LLC" on Justia Law

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

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