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

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

Schwab filed a chapter 11 bankruptcy petition in 2010. HLP was appointed as bankruptcy counsel. Schwab’s individual directors/shareholders filed an adversary proceeding against Attorney Oscar and HLP, asserting malpractice arising from an allegedly undisclosed conflict of interest with Bank of America. The bankruptcy court dismissed, holding that the directors lacked standing to bring the claim directly or derivatively and that the claim was barred by res judicata. They did not appeal. One year after the dismissal, the directors sought to reopen the adversary proceeding on the basis of asserted newly discovered evidence of failure to disclose a conflict with Huntington National Bank. The bankruptcy court denied the motion for relief from judgment, reasoning that the directors had not challenged the prior ruling that they lacked standing and that, although other arguments were immaterial in light of lack of standing, the proffered evidence was neither new nor newly discovered. The directors “had knowledge of the specific conflict at least three years earlier than they’ve claimed in their motion for relief.” The Sixth Circuit Bankruptcy Appellate Panel affirmed. Because the directors lacked standing to be a party in the underlying complaint, they lack standing to bring a motion for relief from judgment. View "In re: SII Liquidation Co." on Justia Law

Circuit affirmed. When real estate taxes are not paid, a tax lien attaches to the property, annually, including interest, penalties, and fees accrued until paid, O.R.C. 323.11. Summit and other Ohio counties sell tax lien certificates that entitle the certificate holder to the first lien on the property. Property owners may redeem and remove the lien by paying the holder the purchase price plus interest, penalties, and costs, O.R.C. 5721.32. The certificate holder may initiate foreclosure proceedings after one year. Plymouth Park purchased Certificate 1, showing a purchase price of $4,083.73 with a negotiated interest rate of 0.25%, and Certificate 2, showing a purchase price of $2,045.44 with a negotiated interest rate of 18.00%. Summit County filed a foreclosure complaint following a request by Plymouth Park. The complaint stated that “as provided by Section 5721.38(b) of the Ohio Revised Code” the “redemption price” calculated was $10,585.82. A month later, the Debtors filed their Chapter 13 plan and petition; they did not file any notice to “redeem” their property during the bankruptcy action. The Chapter 13 payment plan (11 U.S.C. 1321) proposed to pay the interest rates listed on the certificates. , Plymouth Park filed a proof of claim based on both certificates for $10,521.46, including $2,120.00 in fees and the principal balance of $7,781.19 plus 18% interest. The Bankruptcy Court agreed that Plymouth Park’s claim was a tax claim under 11 U.S.C. 511 and that state law governed the interest rate, but rejected a claim that the 18% statutory rate, rather than the negotiated rate, should apply. The Bankruptcy Appellate Panel and Sixth View "Plymouth Park Tax Servs, LLC v. Bowers" on Justia Law

Debtors filed a Chapter 7 petition and received a discharge in February 2008. On July 3, 2008, Debtors filed a Chapter 13 case to pay an auto loan and tax obligations, to cure the default on a first mortgage, and to avoid a wholly unsecured second home mortgage. The Amended Chapter 13 Plan was confirmed in September 2008 and provided: Debtors will avoid the mortgage and/or judgment liens of Amerifirst Finance, Squires Construction, and the Ohio Department of Taxation, which are wholly unsecured under 11 U.S.C. 506(a), 1322(b)(2) and 1325(a)(5)(B), and which impair Debtors’ exemption in their home (11 U.S.C. 522(f)); those unsecured claim shall be disallowed as discharged in Debtors’ Chapter 7 Bankruptcy unless otherwise allowed by separate order. Because Debtors had received a Chapter 7 discharge within the preceding four years, they were ineligible for discharge under Chapter 13, 11 U.S.C. 1328(f)(1). Upon completion of plan payments, the Chapter 13 Trustee sought an Order Releasing Wages and Closing Case Without Discharge, which was granted on May 6, 2013. The Debtors sought to avoid Amerifirst’s lien to effectuate the confirmed Chapter 13 Plan. The residence was valued at not more than $100,800 and was encumbered by a first mortgage of $106,306.38 and by Amerifirst’s second mortgage of $9,415.28. No party objected, but the Bankruptcy Court denied the motion, stating that the lien stripping power of 11 U.S.C. 506 was unavailable. The Sixth Circuit Bankruptcy Appellate Panel reversed and remanded, holding that the wholly unsecured status of Amerifirst’s claim, rather than eligibility for a discharge is determinative. View "In re: Cain" on Justia Law

In 2006, the Affiliated Group, including AmTrust, entered into a tax-sharing agreement (TSA) to allocate tax liability. In 2009, AFC, the parent of AmTrust, filed for Chapter 11 bankruptcy. The Office of Thrift Supervision closed AmTrust and placed it into FDIC receivership. AFC filed a consolidated 2008 tax return for the Affiliated Group showing a net operating loss of $805 million, with AmTrust’s losses accounting for $767 million of that total. After AFC claimed that any refund would belong to its bankruptcy estate, the parties agreed to deposit refunds in a segregated account pending adjudication. The IRS issued the Affiliated Group’s $194,831,455 refund to AFC. The FDIC claimed that $170,409,422, plus interest, belonged to AmTrust because that portion resulted from offsetting AmTrust’s 2008 net operating loss against its income in prior years. AFC concedes that AmTrust’s tax situation generated the refund. The FDIC sought a declaratory judgment. The district court granted AFC summary judgment, stating that the TSA’s use of terms such as “reimbursement” and “payment” established a debtor-creditor relationship between AFC and its subsidiaries as to tax refunds. The FDIC offered extrinsic evidence that the parties intended to create an agency or trust relationship under Ohio law with respect to tax refunds, but the district court rejected those arguments without analysis. The Sixth Circuit reversed and remanded for consideration of the FDIC’s evidence. View "Fed. Deposit Ins. Corp. v. AmFin Financial Corp." on Justia Law

In 2005 Detroit created not-for-profit corporations and issued debt instruments through those corporations, which passed the proceeds from sales of certificates on to the city, to fund pensions. The city covered the principal and interest payments. Some of the certificates had floating interest rates. To hedge that risk, the service corporations executed interest-rate swaps with banks. When interest rates fell below a threshold, the city had to pay the banks, which was offset by low interest rates owed to investors. If interest rates rose, the city would owe debtholders more interest, but received swap payments. Investors were unwilling to buy certificates and banks were unwilling to execute swaps unless an insurer guaranteed the obligations. Syncora insured the city’s obligations ($176 million in certificates; $100 million in swaps). A 2009 credit downgrade gave the banks the right to terminate the swaps and demand payment ($300 million). To avoid that, the city agreed (Syncora consented) to give the banks an optional early termination right, effectively ending the hedge protection, and established a “lockbox” system, under which the city would place excise taxes it receives from casinos into an account to be held until the city deposits its swap obligations (about $4 million per month). The agreement authorized the banks to “trap” the funds in the event of default or termination. In 2013 Syncora served notice that default had occurred. The city obtained a restraining order requiring release of the funds. The city filed for bankruptcy under Chapter 9 one week later. The bankruptcy court held that Syncora had no right to trap tax revenues, which were protected by the automatic stay under 11 U.S.C. 362(a)(3). The district court declined to consider an appeal, pending appeal of a determination that the city was an eligible debtor. The Sixth Circuit granted a petition for mandamus, requiring the court to rule. View "In re: Syncora Guar. Inc." on Justia Law

Thomas and Jennifer married and purchased a family home with a first mortgage, then obtained a second mortgage. In a 2003 divorce consent decree, Thomas agreed to relinquish any interest in the home. Jennifer agreed to assume and hold him harmless from the obligation to pay both mortgages. Thomas agreed to pay child support. The couple remarried in 2004, but, in 2007, this marriage also ended in divorce. The 2007 consent decree waived spousal support; Thomas again agreed to give up any interest in the house, which he had never conveyed under the 2003 decree. Jennifer agreed to assume the first mortgage. Thomas's child support obligation was reduced and they agreed to split the second mortgage obligation. Thomas deeded his interest in the house. A $8,082.37 judgment lien was not addressed in the 2007 decree although it attached to the property before the second divorce. Jennifer sold the house in 2008. The first and second mortgage debts were satisfied. Jennifer negotiated release of the judgment lien for $5,000.00 and paid $836.14 to close the transaction. The state court entered an order in the 2007 divorce proceeding, requiring Thomas to reimburse Jennifer $7,500.00 for the second mortgage and $5,000.00 for the judgment lien. Thomas filed a petition for Chapter 13 bankruptcy relief, listing an unsecured priority claim for child support and a $15,000.00 unsecured claim on Schedule F. Jennifer asserted a priority unsecured claim for “[a]limony, maintenance, or support” of $12,500.00 for the second mortgage and judgment lien debts. Thomas objected, arguing that the claim was “satisfied when the real estate was sold,” and not a domestic support obligation. The bankruptcy court applied the Calhoun test and found Jennifer’s claim was in the nature of “alimony, maintenance or support.” The Sixth Circuit Bankruptcy Appellate Panel affirmed. View "In re: Thomas" on Justia Law