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

The bankruptcy court held that real property transferred in error to the debtor by his father pre-petition was impressed with a constructive trust as a matter of law, and that the bankruptcy estate had no interest in the real property. The Sixth Circuit Bankruptcy Appellate Panel affirmed.View "In re: Thomas III" on Justia Law

The bankruptcy court voided the transfer of $74,102.60 to 1st National Cash Refund pursuant to 11 U.S.C. 549 and ordered recovery of transferred property from 1st National Cash Refund and Woodford pursuant to 11 U.S.C. 550. The Sixth Circuit Bankruptcy Appellate Panel affirmed, upholding determinations that the statutes of limitation found in sections 549 and 550 were equitably tolled and that the trustee had power to avoid and recover the transferred property. View "In re: Anderson" on Justia Law

Ice House manufactures ice-vending machines. Cardin’s machines generated about $264,000 in income in 2012. In 2004, Cardin also agreed to be the exclusive distributor of Ice House’s machines in Tennessee. Four years later Ice House sued for breach, obtaining judgments totaling $1,301,900, without interest. Cardin filed for bankruptcy as an individual debtor under Chapter 11. A Chapter 11 plan of reorganization must identify any claims it will “impair,” 11 U.S.C. 1123(a)(3). The bankruptcy court generally cannot confirm a plan if any impaired creditor votes to reject it. Section 1129(b) permits confirmation of nonconsensual plans (cramdown plan) if the plan is fair and equitable with respect to each class of claims or interests that is impaired and has not accepted the plan. To be “fair and equitable” a plan must satisfy the absolute-priority rule, which provides that every unsecured creditor must be paid in full before the debtor can retain “any property.” The rule was not satisfied with respect to Cardin. Cardin’s plan allowed him to retain several assets after paying off loans they secured, to make a single payment of $124,000 towards Ice House’s unsecured claim of $1.545 million, and to “remit” to Ice House any disposable income that he earns during the five years following confirmation. The bankruptcy court confirmed the plan, construing the 2005 Bankruptcy Code amendments to eliminate the absolute-priority rule for individual debtors. The Sixth Circuit reversed, agreeing with other circuits that the absolute priority rule continues to apply to pre-petition property of individual debtors in Chapter 11 cases. View "Ice House Am., LLC v. Cardin" on Justia Law

Pontiac has experienced significant economic difficulties. In 2011 Michigan’s Governor appointed Schimmel as Pontiac’s emergency manager under then-existing law (Public Act 4), in 2011, Schimmel modified the collective bargaining agreements of retired city employees and severance benefits, including pension benefits, for retirees not covered by collective bargaining agreements. Retired employees sued under the Contracts Clause, the Due Process Clause, and the Bankruptcy Clause. The district court denied an injunction. In 2013, the Sixth Circuit vacated and remanded for expedited consideration of state law issues. Michigan voters later rejected Public Act 4 by referendum. Following rehearing, en banc, the Sixth Circuit again vacated and remanded for consideration of whether, under section 903(1) of the Bankruptcy Code, Public Act 4 prescribed a method of composition of indebtedness that binds the retirees without their consent and, if so, whether principles of state sovereignty preclude application of section 903(1) in this case; whether the emergency manager’s orders were legislative acts under the Contract Clause; whether the reductions and eliminations of health care benefits were “necessary and reasonable” under the Contract Clause; whether the retirees’ procedural due process claim is viable; and, assuming the Due Process Clause’s procedural protections apply, whether the collective bargaining agreements, considered in their entireties, establish protected property rights. View "City of Pontiac Retired Emps. Ass'n v. Schimmel" on Justia Law

Debtor and his wife sought relief under chapter 7 of the Bankruptcy Code. Debtor owns Bradley Machinery, which sells and rents construction equipment. Bradley did not file a bankruptcy petition. Some of Bradley’s equipment was subject to security interests in favor of Lender; Debtor had personally guaranteed payment of the loans. Lender filed an adversary proceeding asserting that Debtor caused Bradley to sell equipment “out of trust,” without remitting the proceeds of the sale of collateral to Lender, constituting embezzlement under 11 U.S.C. 523(a)(4) and willful and malicious injury under section 523(a)(6). Pursuant to section 523(a)(2)(A). Lender asserted that Debtor obtained an extension of credit through false representations to Lender regarding the status of certain pieces of collateral. The Bankruptcy Court held that Lender had failed to show that the debt was nondischargeable. The Sixth Circuit Bankruptcy Appellate Panel affirmed on alternate grounds and remanded for determination of damages. Lender suffered a loss due to Debtor’s misrepresentations regarding the status of the collateral. Debtor’s subjective intent to repay is not a factor under section 523(a)(2)(A) when there is a separate specific false material misrepresentation. Debtor knew that Lender would rely on these misrepresentations when determining whether to continue to extend credit. View "In re: Bradley" on Justia Law

In 2011 Rizzo filed a voluntary petition for personal Chapter 7 bankruptcy and received a general discharge. Despite his discharge, the Michigan Department of Treasury sent collection letters demanding that he pay $72,286.39 in delinquent Single Business Tax that had been assessed against a company, for which Rizzo had been an officer. Rizzo filed an adversary action, contending that his personal liability for the unpaid SBT had been discharged in bankruptcy. Treasury claimed that liability for the SBT deficiency is a nondischargeable “excise tax” debt under 11 U.S.C. 507(a)(8)(E). The bankruptcy court agreed and dismissed. The district court and Sixth Circuit affirmed, rejecting Rizzo’s argument that the debt was derivative, not primary, and therefore not an excise tax. Rizzo conceded that the unpaid SBT was an “excise tax” deficiency as to the company and did not dispute that he was personally liable for the company’s unpaid tax under state law. Michigan law simply confers derivative liability upon Rizzo for precisely the same excise tax deficiency that was assessed against the company. View "Rizzo v. MI Dep't of Treasury" on Justia Law

McKenzie’s creditors filed an involuntary Chapter 7 bankruptcy petition in 2008. McKenzie filed a voluntary Chapter 11 petition a month later. The cases were consolidated and converted to a Chapter 7 bankruptcy. Several weeks before the involuntary petition was filed, McKenzie executed a promissory note and a pledge in favor of GKH for unpaid legal fees. The pledge listed several entities in which McKenzie held an interest, ranging from an “auto mall” to a farm. GKH filed a proof of claim for $750,000, describing the collateral as “Real Estate” and “Other” and sought relief from the automatic stay. The Trustee opposed relief on the ground that the pledge constituted a preferential transfer. The bankruptcy court granted relief with respect to certain real estate, but denied relief as to equity interests. The bankruptcy court held that McKenzie had not validly conveyed his equity interests in certain entities to GKH, that the Trustee could use his hypothetical lien-creditor status and avoidance powers defensively to defeat GKH’s security interest, and that the statute of limitations should be equitably tolled because of GKH’s conduct. The district court affirmed. The Sixth Circuit affirmed, holding that GKH had the burden of establishing the validity of its claimed security interest and that a trustee may use his hypothetical lien-creditor status and avoidance powers to oppose relief from the automatic stay after expiration of the statutory limitation on avoidance actions under 11 U.S.C. 546(a)(1)(A).View "In re: Grant, Konvalinka & Harrison v. Still" on Justia Law

In 2009, Debtor had received an IRS Notice of Deficiency for tax year 2004, claiming additional taxes of $143,445.00, plus penalties of $28,689.00. Debtor filed a voluntary Chapter 7 petition in 2011. In 2011, Debtor received a Notice of Deficiency for tax years 2007 and 2008 claiming that $138,907.00 in additional taxes for 2007, plus penalties of $27,781.40, and an additional $109,648.00 in taxes for 2008, plus penalties of $21,929.60. Debtor challenged the notices. The Tax Court dismissed with respect to the notices for 2007-2008 because of the automatic stay. Post-petition, the Debtor received a $86,512.32 tax refund, based on his 2005 tax return. The Trustee claimed the refund, but Debtor returned the check to the IRS. The Trustee sought turnover of the refund; Debtor objected. The IRS tendered a check for $32,555.15 to Debtor, relating to 2005 taxes, which was received by the Trustee. Debtor sought a determination of tax liability pursuant to 11 U.S.C. 505(a)(1) and turnover of funds if the IRS’s claim was disallowed. The bankruptcy court held that the IRS’s claim of $226,142.85, pertaining to 2004 taxes, was nondischargeable and that the tax refund check for $86,512.32, which erroneously issued to the Debtor, was not property of the estate. The Sixth Circuit Bankruptcy Appellate Panel reversed as to priority and nondischargeability, because the lower court did not address the limitations period. View "In re: Winter" on Justia Law

Debtors owed delinquent real estate taxes to Summit County, Ohio, which sells outstanding tax obligations to investors as tax lien certificates. An investor purchasing such a certificate obtains a lien against the property and the right to pursue the taxpayer for the unpaid taxes, O.R.C. 5721.30-43. Plymouth filed a certificate showing its purchase of the Debtors’ tax obligation for $4,083.73 with a negotiated interest rate of 0.25%, “offered, sold, and delivered on November 3, 2010.” On October 3, 2011, Plymouth filed a second certificate, with a price of $2,045.44 and a negotiated interest rate of 18.00%. On April 17, 2012, Summit County filed a tax lien foreclosure complaint against the Debtors pursuant to pursuant to Plymouth's request for foreclosure. In May, 2012, the Debtors filed a chapter 13 plan and petition, proposing to pay interest on the tax certificates at the interest rates listed on the certificates. Plymouth filed a proof of claim based on both certificates in the amount of $10,521.46, including $2,120.00 in fees and the principal balance of $7,781.19 plus 18% interest from June 1, 2012 on both certificates. The Bankruptcy Court held that under Ohio law the appropriate interest rate for Plymouth’s tax claim was 0.25%. The Bankruptcy Appellate Panel affirmed. View "In re: Bowers" on Justia Law

The bankruptcy court held that a district court judgment entered against the Debtor was nondischargeable under 11 U.S.C. 523(a)(6). The Sixth Circuit Bankruptcy Appellate Panel affirmed, holding that the bankruptcy court properly gave the district court’s findings preclusive effect as to whether the judgment was the result of the Debtor’s willful and malicious injury. View "In re: Barlow" on Justia Law