Justia U.S. 6th Circuit Court of Appeals Opinion Summaries

The Borrower defaulted on a nonrecourse Commercial Mortgage-Backed Securities (CMBS) loan secured by property located in Detroit. CMBS loans are packaged as a trust to attract investors; in return for nonrecourse liability, CMBA borrowers promise to refrain from certain financial behavior likely to increase the risk of default and bankruptcy; the loan at issue included a solvency clause. Michigan’s 2012 Nonrecourse Mortgage Loan Act applies retroactively to render solvency covenants in nonrecourse loans unenforceable, declaring them “an unfair and deceptive business practice . . . against public policy [that] should not be enforced.” The lender foreclosed. Purchaser bought the property at auction with a winning bid of $756,000, and, standing in the lender’s shoes and citing the solvency clause, sued Borrower and its guarantor to collect a $6 million deficiency. The district court granted summary judgment in favor of Borrower. The Sixth Circuit affirmed, agreeing that that the NMLA: rendered the solvency covenant in Borrower’s CMBS loan unenforceable; violated neither the Contract nor Due Process Clauses of the United States and Michigan Constitutions; and comported with Michigan’s constitutional provision mandating the separation of governmental powers. View "Borman, LLC v. 18718 Borman, LLC" on Justia Law

The bankruptcy court imposed sanctions against attorneys stemming from their representation of Debtors in an adversary proceeding in which a creditor and the Trustee sought denial of discharge. The attorney filed notice of appeal regarding the July 16 sanctions order on July 30. On August 1, the bankruptcy court entered an Order Setting Amount of Additional Sanctions. On August 5, the bankruptcy court amended its August 1, order and imposed additional sanctions under 28 U.S.C. 1927, covering attorney fees and expenses incurred by the Trustee and creditor in the adversary proceeding. An August 27 motion to dismiss asserted that the July 16 order was not final and that cause did not exist to allow appeal from an interlocutory order. A September 8 amended motion for leave to appeal and corrected notice of appeal indicated an appeal of all three sanctions orders. In response, a motion to strike asserted failure to timely perfect appeal from the August 1 or August 5 orders. The Sixth Circuit Bankruptcy Appellate panel denied the motions to dismiss and to strike, holding that it had jurisdiction because the amount of sanctions was set forth in a final order. Notice of appeal was timely filed. Resolution of the sanctions issue will have no discernable impact on the pending discharge issue. View "In re: Blasingame" on Justia Law

Under a 2007 “Purchase Agreement – Public Sale” Eagle agreed to pay $4,812,874.65 to purchase Louisville property owned by the Kentucky Transportation Cabinet. Eagle paid a good faith deposit of $962,574.93 to “KY STATE TREASURER.” The Agreement was assigned by Eagle to Shelbyville Road Shoppes, the debtor. Two days before the expiration of an 18-month extension to close the transaction, the debtor filed a voluntary Chapter 7 petition. The bankruptcy trustee unsuccessfully sought return of the good faith deposit from the Cabinet. The bankruptcy court found that neither the Agreement nor state law granted the debtor the right to have the deposit returned. The district court affirmed, finding: that the debtor had no right to possess or use the deposit prior to filing for relief, so the trustee had no right to request turnover under section 542; that the deposit was not held in escrow; that the transaction was not a contract for deed; and that the debtor did not retain an equitable right to the deposit as a vendee. The Sixth Circuit affirmed. The debtor did not possess either a legal or an equitable property interest in the deposit at the time of the Chapter 7 petition. View "Lawrence v. Kentucky" on Justia Law

Debtor had significant financial problems. Morris, Debtor's principal, formed ECM on January 1, 2010, had the Debtor grant him a security interest in its assets, and recorded the financing statement on January 5. On January 10, Morris executed a bill of sale transferring his security interest to ECM. On July 27, 2010, the Debtor, through Morris, voluntarily surrendered its assets to ECM. Before the bankruptcy, the creditors filed state court actions, alleging successor liability, fraudulent transfer, fraud, and breach of fiduciary duty. The Debtor filed a voluntary Chapter 7 petition in 2012. The Chapter 7 Trustee filed an adversary proceeding to avoid fraudulent transfers. The Bankruptcy Court approved a settlement and dismissed “without prejudice.” The Trustee filed his Final Account and Distribution Report. The Debtor, as a corporation, did not receive a discharge. After the bankruptcy proceedings were completed, creditors reactivated their state court litigation. The Bankruptcy Court declined to enjoin the state proceedings. The Sixth Circuit Bankruptcy Appellate Panel affirmed. There is no reason the state court should not determine the preclusive effect of the Bankruptcy Court’s order, just as bankruptcy courts are regularly called upon to determine the preclusive effect of state court judgments in bankruptcy. View "In re: E.C. Morris Corp.." on Justia Law

Debtors filed their bankruptcy petition on July 30, 2013. The first date set for the meeting of creditors was August 29, 2013. Under 11 U.S.C. 523(c), the deadline for objecting to discharge was October 28. On October 29, Creditor filed an Extension Motion, alleging that his counsel had suffered a disabling brain injury in a car wreck on September 4 and had hired a newparalegal “on or about” the week of the deadline. Following a hearing, the bankruptcy court “agreed” that it “does not have the discretion to grant the requested extension” but also stated that “the deadline governing the filing of dischargeability complaints is not jurisdictional in nature, but rather, is subject to the court’s equitable authority.” In denying the Extension Motion, it found that there was “no allegation that the Debtor engaged in any conduct which prevented the Creditor from filing a timely motion to extend the time within which to file a dischargeability complaint.” After the Creditor filed deficient briefing, the Bankruptcy Appellate Panel affirmed denial of the Extension Motion. The court noted that Creditor’s counsel had not provided any facts to support his claims. View "In re: Doyne" on Justia Law

Bavelis sought Chapter 11 bankruptcy relief in 2010, based on debts that he had accumulated from numerous business ventures. Bavelis subsequently brought an adversary proceeding against his friend and business associate Doukas, and businesses owned and controlled by Doukas. One Doukas company responded by filing a proof of claim against the Bavelis bankruptcy estate. The Doukas defendants argued that Doukas had a claim for rescission against Bavelis based on purported violations of Florida’s securities laws related to stock that Doukas had purchased from a Bavelis-run bank holding company. The bankruptcy court concluded that Doukas did not have a viable claim against Bavelis under Florida law. The Bankruptcy Appellate Panel affirmed. The Sixth Circuit affirmed, rejecting an argument that the bankruptcy court acted beyond its constitutional authority in interpreting Florida law and that the interpretations by the bankruptcy court and the BAP were in error. View "Bavelis v. Doukas" on Justia Law

The bankruptcy court avoided a the transfer of real property to Blackwell pursuant to 11 U.S.C. 548 and ordered recovery of the transferred property from Blackwell pursuant to 11 U.S.C. 550; the court denied Blackwell a claim pursuant to 11 U.S.C. 550(e). The Bankruptcy Appellate Panel affirmed.View "in re: Lineback" on Justia Law

In 1996, Robinson pleaded guilty to mail fraud and aiding and abetting. The district court sentenced Robinson to 97.5 months of imprisonment and ordered him to pay criminal restitution of $286,875. A year later, Robinson pleaded guilty to a second set of criminal violations, resulting in convictions of wire fraud and aiding and abetting. The district court imposed a 24-month term of imprisonment and again ordered Robinson to pay restitution, this time $100,000. Robinson paid only $7,779.44 of the first judgment and $200 of the second before filing for bankruptcy under Chapter 13. The government, under the criminal restitution judgments, is a lien creditor. Filing for bankruptcy triggered the automatic stay, which suspends all activities related to the collection and enforcement of prepetition debts, 11 U.S.C. 362(a). The bankruptcy court denied the government’s motion to bypass the stay under 18 U.S.C. 3613(a), which provides that the government may enforce a judgment imposing restitution “notwithstanding any other Federal law.” The district court reversed, reasoning that it did not matter whether the debtor or the bankruptcy estate holds nominal title to the property because section 3613(a) allows the government to enforce a restitution order against all property of the person ordered to pay. The Sixth Circuit affirmed; section 3613 supersedes the automatic stay and allows the government to enforce restitution orders against property included in the bankruptcy estate. View "Robinson. v. United States" on Justia Law

Between 2009 and 2012, Sunshine and Purdy, a Kentucky dairy farmer, entered into “Dairy Cow Leases.” Purdy received 435 cows to milk, and, in exchange, paid monthly rent to Sunshine. Purdy’s business faltered in 2012, and he sought bankruptcy protection. Sunshine moved to retake possession of the cattle. Citizens First Bank had a perfected purchase money security interest in Purdy’s equipment, farm products, and livestock, and claimed that its perfected security interest gave Citizens First priority over Sunshine with regard to the cattle. Citizens argued that the “leases” were disguised security agreements, that Purdy actually owned the cattle, and that the subsequently-acquired livestock were covered by the bank’s security interest. The bankruptcy court ruled in favor of Citizens, finding that the leases were per se security agreements. The Sixth Circuit reversed, noting that the terms of the agreements expressly preserve Sunshine’s ability to recover the cattle. Whether the parties strictly adhered to the terms of these leases is irrelevant to determining whether the agreements were true leases or disguised security agreements. Neither the bankruptcy court nor the parties sufficiently explained the legal import of Purdy’s culling practices or put forward any evidence that the parties altered the terms of the leases making them anything but leases.View "In re: Purdy" on Justia Law

Debtors developed and sold property in “The Village of Arcadian Springs,” in Anderson, Tennessee. Plaintiffs alleged that they were fraudulently induced to purchase waterfront lots by misrepresentations concerning construction of a lake and other amenities which were never completed. After a hearing on noncompliance with discovery orders, the state court entered default judgment, stating: Plaintiffs are entitled to a Judgment pursuant to ... their Complaint including ... violation of the Tennessee Consumer Protection Act ... negligence; misrepresentation; fraud; conversion; negligent and intentional infliction of emotional distress; outrageous conduct; and deceit. The Debtors filed a Chapter 7 bankruptcy petition before a scheduled state court hearing on damages. In an adversary proceeding, the bankruptcy court compared the elements of 11 U.S.C. 523(a)(2)(A) to those of a cause of action for fraud in Tennessee, found that the fraud claims were actually litigated in the state court, that the finding of fraud was necessary to support the state judgment, and that collateral estoppel applied to the state court fraud claims, rendering them non-dischargeable under 11 U.S.C. 523(a)(2)(A). The Bankruptcy Appellate Panel affirmed, noting that the Debtors retained an attorney, filed an answer, and participated in discovery so that their repeated failures to respond properly resulted in default judgment. The fraud issues were, therefore, actually litigated. View "In re: Anderson" on Justia Law