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

In 2004, Lampe won a $25,000 judgment against Kash. Kash could not pay his debts and sought bankruptcy protection in 2012. When he submitted a list of creditors, under Bankruptcy Rule 1007(a) Kash omitted Lampe’s residential address, listing her in care of the law firm that represented her eight years earlier. The firm stopped working for Lampe in 2004, and the notice never reached Lampe, who did not participate in the bankruptcy case, which discharged the judgment debt. After the discharge, Lampe returned to the district court, seeking to revive her judgment. The district court rejected her claim. The Sixth Circuit reversed. A debt is a creditor’s property, and the Due Process Clause entitles her to service of notice “reasonably calculated” to reach her before she is deprived of that property. Notification to a former attorney provides little assurance that the notice will reach the creditor. Lawyers have “no general continuing obligation” to pass information along to people they no longer represent. Nothing in the record suggested that the search for Lampe’s address would have imposed an unreasonable burden on Kash; without further investigation, any belief that the firm still worked for Lampe in 2012 was unreasonable. View "Lampe v. Kash" on Justia Law

Beginning in 2004, 1st Source Bank entered into secured transactions with the debtors for the sale or lease of tractors and trailers. The agreements granted 1st Source a security interest in the tractors and/or trailers, accounts, and in proceeds from that collateral. 1st Source filed financing statements that identified the collateral as including the specified tractors/and or trailers, and “all proceeds thereof, including rental and/or lease receipts.” The financing statements did not refer to “accounts,” “accounts receivable,” or any similar language. Later, defendant banks also entered into secured transactions with the debtors and filed financing statements that specifically referred to a security interest in “all accounts receivable now outstanding or hereafter arising.” In 2009, the debtors defaulted. 1st Source undertook repossession of the collateral securing the agreements and attempted to claim a perfected security interest and first priority in debtors’ accounts, arguing that the term “and all proceeds thereof” included accounts receivable. The district court granted defendants summary judgment, finding that 1st Source’s financing statements were not sufficient to put defendants on notice that 1st Source claimed a security interest in accounts receivable, and holding, as a matter of Tennessee law, that “proceeds,” as used in a company’s financing statement, does not include its accounts receivable. The Sixth Circuit affirmed. View "1st Source Bank v. Wilson Bank & Trust" on Justia Law

In 2009, Tyler had accumulated $1,041 of debt on his Chase credit card. DHC, assignee of the debt, filed suit in Kentucky, seeking collection of the debt, plus 21% interest, and attorney’s fees. The complaint had not been served when Tyler filed for Chapter 7 bankruptcy, three months after the suit was filed. Tyler did not list this suit as debt or his potential Fair Debt Collection Practices Act counterclaims as assets on the bankruptcy schedules. Tyler did list a debt owed on a Chase credit card, of “Unknown” amount. Chase did not participate and Tyler was granted a discharge. Eight days later, DHC served process on Tyler. DHC filed a voluntary Notice of Dismissal without prejudice after it learned of Tyler’s bankruptcy, but Tyler filed a purported federal class action, alleging violations of the FDCPA and Kentucky’s usury laws. The district court dismissed, finding that Tyler “elected to forego filing compulsory counterclaims” and that Tyler’s claims were “rooted in the allegations in DHC’s state court complaint” and thus part of the bankruptcy estate. The Sixth Circuit affirmed. While the claim was not barred under res judicata principles, the claim was based on a pre-petition violation and, thus, property of the bankruptcy estate.View "Tyler v. DH Capital Mgmt., Inc." on Justia Law

Debtor was married to Plaintiff’s son, John. Plaintiff and John had an extensive model train collection. After John died, Plaintiff sued, seeking $25,000 for Debtor’s alleged conversion of the collection. Debtor was appointed administratrix of John’s probate estate. After completion of an inventory, Plaintiff and Debtor, individually and as administratrix, entered into a settlement resolving the state court litigation and matters in Probate Court, identifying parts of the collection as belonging to Plaintiff and requiring Debtor to surrender possession of those parts. The remainder of the collection was to be sold at auction and the proceeds were to be split. The court subsequently entered multiple orders directing Debtor to turn over certain trains and accessories to Plaintiff and imposed penalty of $100.00 per day. Finally, the court entered judgment in the amount of $32,186.90 plus interest based on Debtor’s “willful contempt.” Debtor then filed a bankruptcy petition and Plaintiff sought to except from discharge the entire debt owed to him pursuant to 11 U.S.C. 523(a)(2)(A) and (a)(7). The bankruptcy court held that the entire amount ($32,186), not just $9,386.90, was nondischargeable under 523(a)(2)(A). The bankruptcy appellate panel affirmed. View "In re: Nicodemus" on Justia Law

After the Underhills received their discharge under a voluntary Chapter 7 petition in May 2010, Golf Chic, an LLC in which Beth Underhill was the sole member, filed a claim for tortious interference against several entities in October 2010. The lawsuit was settled and $80,000 was awarded to the LLC, but the settlement check was made payable to Beth Underhill and her attorney, rather than to the LLC. Huntington Bank successfully moved to reopen the case so that the settlement proceeds could be administered as an asset of the bankruptcy estate. The Bankruptcy Appellate Panel affirmed. The settlement proceeds received after the discharge were sufficiently rooted in the debtors’ pre-bankruptcy past to be property of the estate, 11 U.S.C. 541(a)(1) and the claims were not abandoned by the trustee when the bankruptcy case was closed. The claim was known to Beth Underhill and affected the value of her membership interest. Placing a value of zero on the membership interest with that knowledge constituted failure to disclose the asset and warrants reopening and a determination by the bankruptcy court of the value of the interest in the LLC. View "In re: Underhill" on Justia Law

Aleris supplied aluminum to Behr under a requirements contract until a labor dispute forced Aleris to close its Quebec factory in 2008. After learning of the closure, Behr took delivery of aluminum worth $2.6 million from Aleris without paying for it and scrambled to obtain aluminum from other suppliers, which Behr says increased its costs by $1.5 million. Behr filed suit in Michigan state court. That suit was stayed in 2009 when Aleris’s parent company filed for bankruptcy in the U.S. Aleris filed for bankruptcy in Canada. Aleris sued Behr in federal court seeking recovery of $2.6 million for the aluminum delivery. Behr asserted numerous defenses and counterclaims including a setoff for its increased costs after the factory closure. The district court abstained from adjudication of Behr’s counterclaim, characterizing it as “part and parcel of the stayed state-court proceedings,” then granted summary judgment to Aleris in the amount of $1.1 million and closed the case. Behr satisfied the judgment. The state court declined to lift the stay. The Sixth Circuit reversed, stating that the decision gave Behr full value for its untested counterclaim and has the impact of depriving the Canadian estate of monies to which it might be entitled. View "RSM Richter, Inc. v. Behr America, Inc." on Justia Law

Greektown, the owner of a Detroit casino, and affiliates filed for Chapter 11 bankruptcy. The bankruptcy court confirmed a reorganization plan and named a trustee. Before the plan became effective, the bankruptcy court authorized unsecured creditors to file a fraudulent transfer action under 11 U.S.C. 544 and 550 and the Michigan Uniform Fraudulent Transfer Act, alleging that Greektown incurred $185 million dollars of debt and simultaneously transferred approximately $177 million to several transferees, including the Tribe. The complaint alleged that the Tribe directly received $6 million and that $145 million transferred to others indirectly benefitted the Tribe because the Michigan Gaming Control Board had required the Tribe to pay this amount to those others if Greektown failed to do so. The Trustee and the Tribe later agreed to a settlement, under which the Tribe would pay $2.75 million and relinquish approximately $2.58 million in claims it had filed, conditioned upon the bankruptcy court’s entering a bar on further claims “arising out of or reasonably flowing from” either the fraudulent transfer proceeding or the allegedly fraudulent transfers themselves. The district court approved the settlement and entered the bar order over objections. Finding the order overly broad, the Sixth Circuit remanded for the court to consider whether the outcome of the actions covered by the bar order would affect the bankruptcy estate. View "Papas v. Buchwald Capital Advisors, LLC" on Justia Law

Watson’s companies, Cyberco and Teleservices, defrauded lending institutions and other businesses that provided funding for Cyberco to purchase computer equipment from Teleservices. Cyberco never actually received any equipment, but the lending institutions forwarded funds to Teleservices based on phony invoices Watson arranged. Watson packed Cyberco’s computer room with fake servers and swapped serial numbers among those servers to deceive the victims when they attempted to audit their collateral. Teleservices “funneled” the funds back to Cyberco, which used them to make payments to allow the fraud to continue and to pay Watson and others substantial salaries. The payments were made through Huntington Bank, which also facilitated payments through its cash management services, but Cyberco owed Huntington more than $16 million. Teleservices, which had no banking relationship with Huntington, made payments so that Huntington could reduce its exposure to about $600,000 in a few months, just weeks before the FBI raided Cyberco. After that raid, creditors commenced an involuntary Chapter 7 proceeding against Cyberco. A state-appointed receiver filed a voluntary Chapter 7 bankruptcy petition for Teleservices. The bankruptcy court dismissed Huntington’s motions for substantive consolidation of the Chapter 7 petitions. The Bankruptcy Appellate Panel determined that the denials were not final appealable orders. The Sixth Circuit affirmed. View "In re: Cyberco Holdings, Inc." on Justia Law

American loaned $429,991 to Saberline to pay an insurance premium; Saberline agreed that, if it defaulted on the loan, American could cancel the policy and obtain return of any unearned premiums. USIG brokered the deal. American would deliver funds to USIG’s account at Cornerstone; USIG would forward the money to the insurer. Instead of placing the money in a trust account for Saberline, USIG told American to deposit the funds in USIG’s general operating account at Cornerstone. USIG was indebted to Cornerstone and had authorized it to sweep the operating account and apply anything over $50,000 to the debt. As a result, when American deposited Saberline’s premiums, Cornerstone reduced USIG’s debt. Saberline defaulted. American canceled the policy and attempted to recover the premium. USIG repaid American with funds drawn from a different bank, but then filed for bankruptcy, turning that transfer into a preference payment. American settled with the bankruptcy trustee, reserving its right to pursue a conversion claim against Cornerstone. A magistrate judge issued a declaratory judgment that American had a superior security interest in the disputed funds and that Cornerstone was liable for conversion. The Sixth Circuit affirmed. The Premium Finance Company Act, Tenn. Code 56-37-101, gave American a senior perfected security interest in the contested funds. View "American Bank, FSB v. Cornerstone Cmty. Bank" on Justia Law

Lindsey filed a voluntary Chapter 11 petition for bankruptcy relief. His reorganization plan identified 12 classes of creditors. Lindsey sought to retain most of his assets, including several pieces of real estate, so three banks, all impaired creditors, opposed the plan, 11 U.S.C. § 1129(b)(1) as not complying with the absolute priority rule, which bars debtors from retaining any property unless the reorganization plan pays all dissenting creditors in full. Lindsey argued that the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 abrogated the absolute priority rule with respect to individual debtors. The bankruptcy court refused to confirm the plan. The district court affirmed. The Sixth Circuit dismissed an appeal for lack of jurisdiction. Rejection of a reorganization plan did not create a final appealable order. View "Lindsey v. Pinnacle Nat'l Bank" on Justia Law