Illinois Bankruptcy Lawyer Blog

The SEC filed a complaint. The court appointed a receiver to handle defendants' assets for distribution among victims of the $31 million fraud. Assets included oil and gas leases. SonCo filed a claim. The parties came to terms; the court entered an agreed order that required SonCo to pay $580,000 for assignment of the leases. The wells were unproductive, because of freeze orders entered to prevent dissipation of assets; the lease operator, ALCO, had posted a $250,000 bond with the Texas Railroad Commission. The bond was, in part, from defrauded investors. SonCo was ordered to replace ALCO as operator and to obtain a bond. More than a year later, SonCo had not posted the bond or obtained Commission authorization to operate the wells, but had paid for the assignment. The judge held SonCo in contempt and ordered it to return the leases, allowing the receiver to keep $600,000 that SonCo had paid. SonCo returned the leases. The Seventh Circuit affirmed that SonCo willfully violated the order, but vacated the sanction. The judge on remand may: reimpose the sanction, upon demonstrating that it is a compensatory remedy for civil contempt; impose a different, or no sanction; or proceed under rules governing criminal contempt.

Download the Opinion in .pdf format.

Justia.com Opinion Summary

Defendant owned companies forced into Chapter 11 bankruptcy, but was not a debtor in the proceedings. The plan was confirmed and prohibited suits against the bankruptcy professionals and certain litigation against pre-bankruptcy creditors. Years later defendant sued plaintiff, pre-judgment creditors, and the bankruptcy professionals in an Indiana state court, based on Indiana law. The creditors removed the suit to bankruptcy court (28 U.S.C. 1452(a)) rather than asking the bankruptcy judge to enforce his order. The statute authorizes removal of any claim of which that court would have jurisdiction under 28 U.S.C. 1334, which confers on the district courts original jurisdiction of all civil proceedings arising under the Bankruptcy Code, or "arising in or related to cases under" the Code. The bankruptcy judge determined that the suit against the bankruptcy professionals was barred. Defendant filed an amended complaint eliminating all defendants except plaintiff and stating that the only claims arose from alleged violations of confidentiality agreements. The bankruptcy judge ruled that, as amended, the complaint was unrelated to the bankruptcy and ordered the suit remanded to the state court. The district judge affirmed. The Seventh Circuit concluded that the dismissal was not subject to review.

Receive FREE Daily Opinion Summaries by Email

7th Circuit Opinion Summaries courtesy of Justia.com

United States v. Rogan

Bankruptcy, Criminal Law, Government, White Collar Crime

River Road Hotel Partners, LLC v. Amalgamated Bank

Bankruptcy

Bloomfield State Bank v. United States

Bankruptcy, Real Estate & Property Law, Tax Law

Costello v. Grundon

Bankruptcy, Commercial Law, Securities Law

CDX Liquidating Trust v. Venrock Assocs., et al

Bankruptcy, Business Law, Securities Law

Reedsburg Util. Comm'n v. Grede Foundries, Inc.

Bankruptcy, Utilities Law

Kimbrell v. Brown

Bankruptcy, Injury Law

In re: Exide Technologies, 08-1872

Issued June 01, 2010

Heard in U.S. 3rd Circuit Court of Appeals

Summary In a Chapter 11 case, the District Court's affirmance of the Bankruptcy Court's grant of Debtor's motion to reject an agreement to sell substantially all of its industrial battery business on the ground that the agreement was an executory contract, subject to rejection under 11 U.S.C. section 365(a), and that rejection terminated the debtor's obligations under it, is vacated and remanded as: 1) the agreement is not an executory contract because it does not contain at least one ongoing material obligation for the other party; and 2) because the agreement is not an executory contract, the debtor cannot reject it. Read More

In re Robinson v. Tyson Foods, Inc., 08-14991

Issued February 8, 2010

Heard in U.S. 11th Circuit Court of Appeals

Summary In an employment discrimination action brought by plaintiff during her Chapter 13 proceedings, summary judgment for defendant on the ground of judicial estoppel is affirmed where plaintiff failed to disclose her employment discrimination suit to the bankruptcy court, and thus took inconsistent positions under oath with the intent of misleading the court.

Source: FindLaw.com

In re TransTexas Gas Corp, 08-41128

Issued February 10, 2010

Heard in U.S. 5th Circuit Court of Appeals

Summary In two related cases involving a bankrupt corporate debtor, rulings rejecting (i) a claim by corporate debtor's former CEO that the severance payments he received from the company were not fraudulent transfers, and (ii) a claim by a trustee in a related matter that the estate was covered under a policy issued by appellee-insurer, are affirmed where: 1) the severance payments made to the CEO after his dismissal were obligations incurred by debtor within two years of its petition date and thus constituted fraudulent transfers; 2) debtor did not receive reasonably equivalent value for the payments to the CEO; and 3) the CEO's repayment of the amounts received did not constitute an insurable "Loss" under the insurance policy.

Source: FindLaw.com

From the ABA Journal article

Written by Debra Cassens Weiss

In Republic v. Doyle, 3D09-2405, the Florida 3rd District Court of Appeal ruled that "benevolence and compassion" are not grounds for delaying a foreclosure sale and stated that the decision byMiami-Dade Circuit Judge Valerie Manno Schurr to delay a foreclosure sale long enough to allow the owners of the house to file bankruptcy and attempt to save their interest was "an abuse of discretion." To quote the Appellate Court

Although granting continuances and postponements are, generally speaking, within the discretion of the trial court, the "ground' of benevolence and compassion ... does not constitute a lawful, cognizable basis for granting relief to one side to the detriment of the other.

Just one more reason I'm glad I don't live in Florida. Yikes.

cir 1

In Re Weaver, 08-8046 [Sep. 17, 2008]
In a decision involving an attempted appeal from a decision under the BAPCPA, a petition for leave to appeal is denied and appeal is terminated where 1) without resolving the jurisdictional question the court exercised its discretion under section 158(d)(2)(A) to deny leave to appeal; and 2) allowing the appeal to proceed may not have served the purposes of section 158(d)(2), i.e. a rapid and definitive resolution of the underlying legal question.

Richmond v. NH S.Ct. Comm. on Prof. Conduct, 07-2671 [Sep. 19, 2008]
In a bankruptcy case involving an underlying obligation relating to attorney disciplinary proceedings, the holding that an order to pay costs of bringing disciplinary proceedings cannot be discharged in Chapter 7 bankruptcy is affirmed because the award of costs qualified as a non-dischargeable discretionary penalty under the terms of 523(a)(7).

5th cir

Kane v. Nat'l Union Fire Ins. Co., 07-30611 (Jul 14)

A finding of summary judgment in a PI suit, as well as judicial estoppal of the plaintiffs/debtors due to their failure to list the suit in their Chapter 7 schedules, and denial of trustee's motion to be substituted in the case as the real party in interest, are reversed and the case is remanded because

+the PI claim became an asset of the estate upon filing of the petition

+the trustee is the real party in interest and never abandoned his right

+the debtors only benefit if a PI judgment yields a surplus to the estate

The Appellate Court also found that a prior circuit court determination in the case did not control in bankruptcy court, and the district court (which ruled that the circuit court decision controlled as a matter of law) abused its discretion.

6th cir

Phar-Mor, Inc. v. McKesson Corp., 05-4525, 05-4526 (Jul 17)

Vendor's administrative-expense priority on a reclamation claim is not extinguished when the goods to which that claim applies are sold and the proceeds used to satisfy a secured creditor's claim. The vendor retains it's priority in those proceeds of the estate that remain after secured creditors are satisfied.

10th cir

In re Tri-Valley Distrib., Inc., 06-4279, 06-4280 (Jul 15)

In suit alleging state claims for fraudulent transfer and negligent lending, the parties' motions to dismiss each other's appeals for lack of jurisdiction are granted where:

+ bankruptcy appellate panel's order was not final and appealable

+ denial of defendant's motion to dismiss was not a final collateral order entitled to review

+ bankruptcy appellate panel acted within its authority

+ there was no jurisdiction to review the merits of a section 1334(c)(1) abstention issue

In re: US Med., Inc., 07-1259 (Jul 15)

Creditor is not a non-statutory insider of the debtor for purposes of 547(b)(4)(B) and a transaction between that creditor and the debtor will not be avoided where

+ the transactions at issue were at arm's length

+ there is no undue influence or control by creditor

In sum, while creditor is only a "non-statutory insider" when its transaction of business with the debtor is not at arm's length or there is undue influence; no such requirements are needed if the creditor qualifies as an insider per statute ("statutory insider").

3rd cir

Windt v. Qwest Communications, 06-4662, 06-4808 [June 10, 2008]

In a lawsuit brought by bankruptcy trustees of a Dutch company asserting various claims against defendants who were allegedly responsible for the company's insolvency, judgment dismissing trustee-plaintiff's complaint on forum non-conveniens grounds is affirmed where the district court did not abuse its discretion in: 1) affording low deference to plaintiffs' choice of forum in view of Netherlands' substantial interest in resolving a dispute concerning alleged mismanagement of a Dutch company by board members and officers of that Dutch company; 2) concluding that avoiding problems in the application of foreign law favored dismissal; 3) balancing the public and private interest factors implicated in the case; and 4) determining that the convenience of litigating the dispute in New Jersey was outweighed by the oppressive or vexatious effect on defendants.

8th cir

US v. Mitchell, 07-3136 [June 10, 2008]

Conviction upon defendant's retrial for knowingly and fraudulently making a false statement under penalty of perjury in a bankruptcy case is affirmed where the circuit court declines to revisit a double jeopardy issue, and there was sufficient evidence to sustain his conviction.

ND IL ED

In re Weadley, 06-1854

Bibby Financial v. Weadley, 07-683

Issued June 11, 2008

Judge A. Benjamin Goldgar

3^rd cir

In Re: Mansaray-Ruffin, No. 05-4790 [June 24, 2008]

A debtor in a Chapter 13 bankruptcy case did not invalidate a lien on her property by providing for it as an unsecured claim in her confirmed plan, without initiating an adversary proceeding as required by the Federal Rules of Bankruptcy Procedure.

4^th cir

Tidewater Fin. Co. v. Kenney, No. 07-1664 [June 25, 2008]

In a Chapter 13 bankruptcy proceeding, an order confirming the debtor's Chapter 13 bankruptcy plan is reversed and the case remanded for further proceedings where: 1) the parties are left to their contractual rights and obligations and a creditor may pursue an unsecured deficiency claim under state law after a debtor satisfies the requirements for plan confirmation under section 1325(a)(5)(C) by surrendering his 910 vehicle; and 2) the circuit court joints the Seventh Circuit Court of Appeals in further recognizing that such unsecured debt need not be paid in full any more than other unsecured debts, but it cannot be written off in toto while other unsecured creditors are paid some fraction of their entitlements.

6^th cir

Chase Manhattan Mortgage Corp. v. Shapiro, No. 06-1538 [June 26, 2008]

In bankruptcy proceedings, judgment rejecting a bankruptcy court's decision that the earmarking doctrine did not apply to a new mortgage as a preferential transfer and that the estate was diminished by the perfection of the new mortgage is reversed where: 1) the trustee established the elements of an avoidable preference set forth in section 547; 2) plaintiff was not a "new creditor" which precluded it from invoking the earmarking doctrine since it refinanced its own loan with debtor; and 3) the lapsed perfection of the original mortgage and plaintiff's late perfection of the new mortgage diminished debtor's estate.

9^th cir

Espinosa v. United Student Aid Funds, Inc., No. 06-16421 [June 24, 2008]

In a case arising from bankruptcy proceedings in which plaintiff-debtor obtained a discharge order, but was later pursued by defendant-creditor for a student loan debt that debtor argued had been discharged, the matter is remanded for consideration of whether the bankruptcy court's discharge order in the case was entered as a result of a clerical error and, if so, whether to correct it so as to conform to debtor's Chapter 13 plan.

Cent. Valley AG Enters. v. US, No. 05-16177 [June 25, 2008]

In a bankruptcy appeal involving debtor's objection to a government tax claim, dismissal of the action is reversed where: 1) the district court erred in ruling that the statutory res judicata provision in 11 U.S.C. section 505(a)(2)(A) deprived it of subject matter jurisdiction to review the tax treatment of any partnership item that has been administratively determined by the IRS and has become final pursuant to the Tax Equity And Fiscal Responsibility Act of 1982 (TEFRA); and 2) 11 U.S.C. section 505(a)(1) grants the district court subject matter jurisdiction to review the tax treatment of debtor's partnership items, notwithstanding TEFRA.

NY court of appeals

AG Capital Funding Partners v. State Street Bank and Trust Co., No. 114 [June 25, 2008]

In an action alleging breach of contract, violation of federal Trust Indenture Act, breach of fiduciary duty, and negligence based on defendant's alleged failure to deliver debt transaction registration statements required to secure a debt, the court of appeals finds that: 1) plaintiffs' contract and Trust Indenture Act claims were barred by a release previously executed by plaintiffs as part of a bankruptcy settlement and that no fiduciary duties existed; however; 2) because negligence claims were not barred by the release and there were issues of fact as to whether defendant owed and violated a duty of care, plaintiffs' cause of action for negligence is reinstated.

cir 1

In Re: Barroso-Herrans, 07-1757 [May 07, 2008]

Bankruptcy court's approval of settlement presented by trustee is affirmed where trustee's reading of certain of debtors' claimed exemptions as limited to a $4,000 share of proceeds from each of 2 underlying lawsuits was objectively reasonable.

cir 9

In re: Slatkin, 06-56334 [May 06, 2008]

Summary judgment in favor of bankruptcy trustee, avoiding certain transfers by the debtor during his operation of a Ponzi scheme under sec. 548(a) of the Code and California Civil Code sec. 3439.04(a) is affirmed where:

1) bk court did not abuse its discretion in denying appellants-investors' motion for a continuance to conduct further discovery;

2) investors' right to a jury trial was not violated by grant of summary judgment;

3) bk court properly determined that debtor acted with "actual intent to hinder, delay, or defraud" creditors;

4) determination that debtor was not a "stockbroker" under the Code was proper; and

5) prejudgment interest was properly awarded.

In re: Straightline Invs., Inc., 05-15979 [May 08, 2008]

A judgment under Code sec. 549(a) avoiding the transfer to appellant of corporate bankruptcy debtor's accounts receivable which had a face value of approximately $200,600 is affirmed over appellant's claims that: 1) the transfer of accounts receivable was not an avoidable transfer because there was no depletion or diminution of debtor's estate; 2) the transfer was an outright sale of receivables in the ordinary course of business, and the defenses of recoupment and earmarking should apply to bar recovery by the trustee; and 3) even if it was avoidable, the wrong measure of recovery was awarded.

Reusser v. Wachovia Bank, N.A., 06-35850 [May 08, 2008]

In an action against a bank involving allegations that plaintiffs' were wrongfully evicted and their property improperly foreclosed upon, dismissal of plaintiffs' claims is affirmed where: 1) plaintiffs' sec. 1983 claims constituted a de facto appeal of a state court decision and were therefore barred by the Rooker-Feldman doctrine; and 2) plaintiffs' collateral attack on a bankruptcy court's jurisdiction was unavailing, and thus, defendant-bank did not violate sec. 362 in foreclosing on plaintiffs' property.

4th cir

Smith v. Jordan, 06-2154

Revocation of discharge affirmed in part. District court correctly determined that a Trustee seeking revocation of discharge under 727(a)(6)(A) must establish that debtor wilfully and intentionally refused to obey the court's order, but incorrectly concluded that debtor's failure to comply in this case was "willful" within the meaning of the statute.

5th cir

In the Matter Of: Seven Seas Petroleum Inc., 07-20301

Secured creditor of bankrupt corporation sued in state court by an unsecured creditor of the corporation. Secured creditor had the claims against it removed to federal court and unsecured creditor sought to have the dispute remanded back to state court. Unsecured creditor's motion was denied and case was dismissed. Ruling is vacated by the Appellate Court, which determined that the claims were not property of the bankruptcy estate and did belong in state court (motion to remand must be granted).