Justia U.S. Supreme Court Opinion Summaries

Articles Posted in Bankruptcy
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The Lac du Flambeau Band of Lake Superior Chippewa Indians is a federally recognized Indian tribe. One of its businesses extended Coughlin a payday loan. After receiving the loan, Coughlin filed for Chapter 13 bankruptcy, triggering an automatic stay under the Bankruptcy Code against further collection efforts by creditors. The lender allegedly continued attempting to collect Coughlin’s debt. The First Circuit reversed the Bankruptcy Court's dismissal of Coughlin’s subsequent suit on tribal sovereign immunity grounds.The Supreme Court affirmed. The Bankruptcy Code unambiguously abrogates the sovereign immunity of all governments, including federally recognized Indian tribes; 11 U.S.C. 106(a), expressly abrogates the sovereign immunity of “governmental unit[s]” for enumerated purposes. Section 101(27) defines “governmental unit” as “United States; State; Commonwealth; District; Territory; municipality; foreign state; department, agency, or instrumentality of the United States.... a State, a Commonwealth, a District, a Territory, a municipality, or a foreign state; or other foreign or domestic government.” The sections cannot plausibly be read to preserve sovereign immunity. The definition of “governmental unit” exudes comprehensiveness and includes a broad catchall phrase, sweeping in “other foreign or domestic government[s].” Reading the statute to carve out certain governments from the definition of “governmental unit” would risk upending the Code’s policy choices. Federally recognized tribes are indisputably governments. Congress need not use any particular words to make its abrogation intent clear. View "Lac du Flambeau Band of Lake Superior Chippewa Indians v. Coughlin" on Justia Law

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In Chapter 11 bankruptcy, Sears, as a debtor in possession, exercised its rights under 11 U.S.C. 363(b)(1) and sold most of its assets to Transform, including the right to designate to whom a lease should be assigned. Section 365 prohibits the assignment of an unexpired lease without “adequate assurance of future performance by the assignee,” and establishes special criteria related to “shopping center[s],” Transform designated the Mall of America lease for assignment. The landlord, MOAC, objected, arguing that Sears had failed to provide adequate assurance. The Bankruptcy Court approved the assignment.Section 363(m) states that the reversal or modification on appeal of a 363(b) authorization of a sale or lease does not affect the validity of a sale or lease to an entity that purchased or leased the property in good faith, even if the entity knew of the pendency of the appeal unless the court entered a stay pending appeal. The Bankruptcy Court denied MOAC’s request for a stay. Sears assigned the lease. The Second Circuit affirmed the dismissal of the appeal, treating 363(m) as jurisdictional.The Supreme Court vacated. Section 363(m) is not jurisdictional and is not, therefore, impervious to excuses like waiver or forfeiture. The Court noted the consequences of deeming the section jurisdictional–even egregious conduct by a litigant could permit the application of judicial estoppel against a jurisdictional rule. Courts should only treat a provision as jurisdictional if Congress “clearly states” as much. Nothing in 363(m) purports to govern a court’s adjudicatory capacity; it plainly contemplates that appellate courts might reverse or modify any covered authorization, with a limitation on the consequences. Congress separated 363(m) from jurisdictional provisions. The Court rejected Transform’s argument that the transfer to a good-faith purchaser removes the property from the bankruptcy estate, and so from the court’s in rem jurisdiction. View "MOAC Mall Holdings LLC v. Transform Holdco LLC" on Justia Law

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Kate and David Bartenwerfer remodeled the house they jointly owned. David oversaw the project. Kate remained largely uninvolved. They sold the house to Buckley, attesting that they had disclosed all material facts. Buckley discovered undisclosed defects and won a California state court judgment, leaving the Bartenwerfers jointly responsible for more than $200,000. The Bartenwerfers filed for Chapter 7 bankruptcy. Buckley filed an adversary complaint, alleging that the state-court judgment debt was non-dischargeable as “any debt . . . for money . . . to the extent obtained by . . . false pretenses, a false representation, or actual fraud,” 11 U.S.C. 523(a)(2)(A).The Bankruptcy Court imputed David's fraudulent intent to Kate, citing their legal partnership to renovate and sell the property. The Bankruptcy Appellate Panel held that section 523(a)(2)(A) barred Kate from discharging the debt only if she knew or had reason to know of David’s fraud. The Ninth Circuit reversed.The Supreme Court affirmed. Section 523(a)(2)(A) precludes Kate from discharging a debt obtained by fraud, regardless of her own culpability. The passive voice in section 523(a)(2)(A) removes the actor; fraud liability is not limited to the wrongdoer. The fraud of one partner should be imputed to other partners, who “received and appropriated the fruits of the fraudulent conduct.” Section 523(a)(2)(A) takes the debt as it finds it, so if California did not extend liability to honest partners, it would have no role. Fraud liability generally requires a special relationship with the wrongdoer and, even then, defenses are available. View "Bartenwerfer v. Buckley" on Justia Law

Posted in: Bankruptcy
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Under the Trustee Program, administrative functions previously handled by bankruptcy judges are handled by U.S. Trustees, within the Department of Justice. Six judicial districts in North Carolina and Alabama opted out of the Trustee Program; those bankruptcy courts continue to appoint bankruptcy administrators. Both programs handle the same administrative functions. The Trustee Program is funded entirely by user fees, largely paid by Chapter 11 debtors, 28 U.S.C. 589a(b)(5). The Administrator Program is funded by the Judiciary’s general budget. Under a Judicial Conference standing order, all districts nationwide charged similarly-situated debtors uniform fees. A 2017 fee increase was made applicable to currently pending and newly-filed cases in the Trustee Program and only to newly-filed cases in Administrator Program districts. Reversing the bankruptcy court, the Fourth Circuit held that the fee increase did not violate the Bankruptcy Clause uniformity requirement.A unanimous Supreme Court reversed, holding that the enactment of a significant fee increase that exempted debtors in two states violated the uniformity requirement. Nothing in the Bankruptcy Clause suggests a distinction between substantive and administrative laws; its language, embracing “laws on the subject of Bankruptcies,” is broad. Congress cannot evade the affirmative limitation of the uniformity requirement by enacting legislation pursuant to other grants of authority such as the Necessary and Proper Clause. The 2017 Act does not confer discretion on bankruptcy districts to set regional policies based on regional needs but exempts debtors in two states from a fee increase that applied to debtors in 48 states, without identifying any material difference between debtors across those states. The Bankruptcy Clause does not permit arbitrary geographically disparate treatment of debtors. View "Siegel v. Fitzgerald" on Justia Law

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The debtors each filed a bankruptcy petition and requested that the city return his vehicle, which had been impounded for failure to pay fines. The filing of a bankruptcy petition automatically “creates an estate,” 11 U.S.C. 541(a), that is intended to include any property made available by other provisions of the Bankruptcy Code. Section 542 provides that an entity in possession of bankruptcy estate property “shall deliver to the trustee, and account for” that property. The filing of a petition also automatically “operates as a stay, applicable to all entities,” of efforts to collect prepetition debts outside the bankruptcy forum, section 362(a), including “any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate.”Vacating a Seventh Circuit holding, the Supreme Court held that the mere retention of estate property after the filing of a bankruptcy petition does not violate section 362(a). That section prohibits affirmative acts that would disturb the status quo of estate property as of the time when the bankruptcy petition was filed. Reading section 362(a)(3) to cover mere retention of property would contradict section 542, which carves out exceptions to the turnover command. Under the debtors’ reading, an entity would be required to turn over property under section 362(a)(3) even if that property were exempt from turnover under section 542. View "Chicago v. Fulton" on Justia Law

Posted in: Bankruptcy
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The IRS allows affiliated corporations to file a consolidated federal return, 26 U.S.C. 1501, and issues any refund as a single payment to the group’s designated agent. If a dispute arises, federal courts normally turn to state law to resolve the question of distribution of the refund. Some courts follow the “Bob Richards Rule,” which initially provided that, absent an agreement, a refund belongs to the group member responsible for the losses that led to it. The Rule has evolved, in some jurisdictions, into a general rule that is always followed unless an agreement unambiguously specifies a different result. Soon after the bank suffered huge losses, its parent, Bancorp, was forced into bankruptcy. When the IRS issued a $4 million tax refund, the bank’s receiver, the FDIC, and Bancorp’s bankruptcy trustee each claimed it. The Tenth Circuit examined the parties’ allocation agreement, applied the more expansive version of Bob Richards, and ruled for the FDIC.The Supreme Court vacated. The Rule is not a legitimate exercise of federal common lawmaking. Federal judges may appropriately craft the rule of decision in only limited areas; claiming a new area is subject to strict conditions. Federal common lawmaking must be necessary to protect uniquely federal interests. The federal courts applying and extending Bob Richards have not pointed to any significant federal interest sufficient to support the rule, nor have these parties. State law is well-equipped to handle disputes involving corporate property rights, even in cases involving bankruptcy and a tax dispute. Whether this case might yield a different result without Bob Richards is a matter for the court of appeals on remand. View "Rodriguez v. Federal Deposit Insurance Corp." on Justia Law

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Ritzen sued Jackson in Tennessee state court for breach of contract. Jackson filed for Chapter 11 bankruptcy. Under 11 U.S.C. 362(a), filing a bankruptcy petition automatically “operates as a stay” of creditors’ debt-collection efforts outside the bankruptcy case. The Bankruptcy Court denied Ritzen’s motion for relief from the automatic stay. Ritzen did not appeal but filed a proof of claim, which was disallowed. Ritzen then challenged the denial of relief from the automatic stay. The district court rejected Ritzen’s appeal as untimely under 28 U.S.C. 158(c)(2) and Federal Rule of Bankruptcy Procedure 8002(a), which require appeals from a bankruptcy court order to be filed “within 14 days after entry of [that] order.”The Sixth Circuit and a unanimous Supreme Court affirmed. A bankruptcy court’s order unreservedly denying relief from the automatic stay constitutes a final, immediately appealable order under section 158(a). Adjudication of a creditor’s motion for relief from the stay is a discrete “proceeding” that disposes of a procedural unit anterior to, and separate from, claim-resolution proceedings. The order can have large practical consequences, including whether a creditor can isolate its claim from those of other creditors and proceed outside bankruptcy. Rather than disrupting the efficiency of the bankruptcy process, an immediate appeal may permit creditors to establish their rights expeditiously outside the bankruptcy process, affecting the relief awarded later in the bankruptcy case. View "Ritzen Group, Inc. v. Jackson Masonry, LLC" on Justia Law

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Taggart owned an interest in an Oregon company. That company and its other owners (respondents) sued, claiming that Taggart had breached the company’s operating agreement. Before trial, Taggart filed for Chapter 7 bankruptcy. The Bankruptcy Court issued a discharge order that released Taggart from liability for most pre-bankruptcy debts. The Oregon state court subsequently entered judgment against Taggart in the pre-bankruptcy suit and awarded attorney’s fees to respondents. The Bankruptcy Court found respondents in civil contempt for collecting attorney’s fees in violation of the discharge order. The Bankruptcy Appellate Panel and the Ninth Circuit applied a subjective standard to hold that a “creditor’s good faith belief” that the discharge order does not apply to the claim precludes a finding of contempt, even if that belief was unreasonable. The Supreme Court vacated. Neither a standard akin to strict liability nor a purely subjective standard is appropriate. A court may hold a creditor in civil contempt for violating a discharge order if there is no fair ground of doubt as to whether the order barred the creditor’s conduct. Civil contempt principles apply to the bankruptcy statutes, which specify that a discharge order “operates as an injunction,” 11 U.S.C. 524(a)(2), and that a court may issue any “order” or “judgment” that is “necessary or appropriate” to “carry out” other bankruptcy provisions. A party’s subjective belief that she was complying with an order ordinarily will not insulate her from civil contempt if that belief was objectively unreasonable. The Court remanded, noting that subjective intent is not always irrelevant. Civil contempt sanctions may be warranted when a party acts in bad faith, and a party’s good faith may help to determine an appropriate sanction. View "Taggart v. Lorenzen" on Justia Law

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Tempnology licensed Mission to use Tempnology’s trademarks in connection with the distribution of clothing. Tempnology filed for Chapter 11 bankruptcy and sought to reject its agreement with Mission as an “executory contract” under 11 U.S.C. 365, which provides that rejection “constitutes a breach of such contract.” The Bankruptcy Court approved Tempnology’s rejection, holding that the rejection terminated Mission’s rights to use Tempnology’s trademarks. The Bankruptcy Appellate Panel reversed, holding that rejection does not terminate rights that would survive a breach of contract outside bankruptcy. The First Circuit reinstated the Bankruptcy Court’s decision.The Supreme Court reversed, first holding that the case is not moot. Mission presented a plausible claim for damages, sufficient to preserve a live controversy. A debtor’s rejection of an executory contract under Bankruptcy Code Section 365 has the same effect as a breach of that contract outside bankruptcy and cannot rescind rights that the contract previously granted. A licensor’s breach cannot revoke continuing rights given under a contract (assuming no special contract term or state law) outside of bankruptcy; the same result follows from rejection in bankruptcy. Section 365 reflects the general bankruptcy rule that the estate cannot possess anything more than the debtor did outside bankruptcy. The distinctive features of trademarks do not mandate a different result. In delineating the burdens a debtor may and may not escape, Section 365’s edict that rejection is breach expresses a more complex set of aims than facilitating reorganization. View "Mission Product Holdings, Inc. v. Tempnology, LLC" on Justia Law

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Appling owed about $60,000 to his law firm (Lamar), which threatened to withdraw representation and place a lien on its work product. Appling told Lamar that he could cover owed and future legal expenses with an expected tax refund, so Lamar continued representation. Appling used the refund, which was much less than he had stated, for business expenses, but told Lamar he was still waiting for the refund. Lamar completed pending litigation. Appling never paid. Lamar obtained a judgment. Appling filed for Chapter 7 bankruptcy. Lamar initiated an adversary proceeding, arguing that Appling’s debt was nondischargeable under 11 U.S.C. 523(a)(2). Section 523(a)(2)(A) bars discharge of debts arising from “false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s . . . financial condition.” Subparagraph (B) bars discharge of debts arising from a materially false “statement . . . respecting the debtor’s . . . financial condition” if that statement is “in writing.” The Eleventh Circuit found that Appling made a statement “respecting” his “financial condition,” which was not in writing. The Supreme Court affirmed. A statement about a single asset can be a “statement respecting the debtor’s financial condition” under section 523(a)(2). A statement is “respecting” a debtor’s financial condition if it has a direct relation to or impact on the debtor’s overall financial status. A single asset has a direct relation to and impact on aggregate financial condition, so a statement about that asset bears on a debtor’s overall financial condition and can help indicate whether a debtor is solvent or insolvent. View "Lamar, Archer & Cofrin, LLP v. Appling" on Justia Law

Posted in: Bankruptcy