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

Between 1982 and 1997, Alfes took out student loans funded by FFELP. Alfes consolidated his student-loan debt; SunTrust was the lender and obligee on the consolidated note and the Pennsylvania Higher Education Assistance Agency was the guarantor. Alfes sought relief under Chapter 7 of the Bankruptcy Code. The bankruptcy court entered a general discharge in 2005. Subsequently, Alfes sought a declaration that the debt under the consolidated note had been discharged, arguing that the consolidated note no longer constituted an “educational loan” under 11 U.S.C. 523(a)(8)(A) and had been discharged with his ordinary debt. The bankruptcy court initially entered a default judgment against the defendants. Following a series of transfers, reopening, and various motions, the bankruptcy court ultimately held that a holder of consolidated student loans is an educational lender and that the consolidated loan was, therefore, not dischargeable absent a showing of undue hardship. The district court and Sixth Circuit affirmed. View "Alfes v. Educ. Credit Mgmt. Corp." on Justia Law

For more than 20 years, Kurlemann built and sold luxury homes in Ohio. In 2005-2006 he borrowed $2.4 million to build houses in Mason. When neither sold, he enlisted realtor Duke, who found two straw buyers, willing to lie about their income and assets on loan applications that Duke submitted to Washington Mutual. Both buyers defaulted. Duke pled guilty to seven counts, including loan fraud and making false statements to a lending institution, and agreed to testify at Kurlemann’s trial. A jury convicted Kurlemann of six counts, including making false statements to a lending institution, 18 U.S.C. 1014; and bankruptcy fraud, 18 U.S.C. 157. The district court sentenced Kurlemann to concurrent 24-month sentences and ordered him to pay $1.1 million in restitution. The district court sentenced Duke to 60 months. The Sixth Circuit affirmed the bankruptcy fraud conviction, based on Kurlemann’s concealment of his interest in property, but reversed and remanded his false statements conviction, finding that the trial court improperly instructed the jury that concealment was sufficient to support conviction. The court also reversed Duke’s sentence, finding that the court failed to explain the sentence it imposed. View "United States v. Kurlemann" on Justia Law

The DeGroots divorced; Joel was ordered to pay child support. The court awarded Joy the residence and ordered Joy to pay $48,000 for Joel’s equity in installments. Joy paid $10,000.00. Joel later filed a no-asset chapter 7 petition, listing Joy’s claim of $10,336.33 for unpaid support and medical bills, but not listing the receivable or the lien as assets. Following negotiations, of which the trustee was aware, Joy waived claims to support and Joel released his lien. Neither sought relief from the stay. The Trustee filed notice claiming ownership of the lien for the estate (11 U.S.C. 541(a)(1)). Joy did not receive notice and, when the trustee notified creditors that there might be assets, did not file a claim because she believed it extinguished by the settlement. The trustee later reported no assets and the case closed. Joy attempted to refinance her mortgage and discovered the assignment of lien. The case was reopened (11 U.S.C. 350(b)). The Trustee agreed to subordinate his lien to that of the mortgage company in exchange for $5,000.00. The bankruptcy court concluded that, while the trustee may administer the $5,000.00, the balance should be deemed abandoned under 11 U.S.C. 554(c) and (d). The Bankruptcy Panel of the Sixth Circuit affirmed. View "In re: DeGroot" on Justia Law

SEW operated 113 franchise Waffle House restaurants when it filed its Chapter 11 petition in 2008. From January, 2005, to the Petition Date, SEW did not pay federal income tax withholding, social security (FICA), or unemployment (FUTA) taxes or timely file returns. During four years before the Petition Date, the IRS assessed penalties of more than $1,500,000. SEW subsequently made payments that were applied to its tax obligations and also made undesignated prepetition payments that were applied in partial satisfaction of the assessed penalties. SEW later sought recovery of prepetition tax penalty payments of $637,652.07 or an offset against the tax amounts still owed. SEW alleged that payment of these penalties provided no value to SEW; that SEW did not receive reasonably equivalent value in exchange for the Penalty Payments; that at the time that of the payments, SEW was insolvent; and cited 11 U.S.C. 548 and 544. The government argued that dollar-for-dollar reduction in SEW’s antecedent tax-penalty liabilities constituted reasonably equivalent value. SEW did not allege that the penalty obligations were themselves avoidable. The Bankruptcy court dismissed SEW’s adversary petition for failure to state a clam. The Bankruptcy Appellate Panel and Sixth Circuit affirmed. View "SE Waffles, LLC v. U.S. Dep't of Treasury" on Justia Law

The bankruptcy court held that fees owed to a court-appointed guardian ad litem constitute a “domestic support obligation” under Section 101(14A) of the Bankruptcy Code and are, therefore, a nondischargeable debt under Section 523(a)(5) of the Code. The Sixth Circuit Bankruptcy Appellate Panel affirmed. View "In re: Kassicieh" on Justia Law

In 2000-2001Alioto spent several hundred thousand dollars of his own money on expenses relating to a new business (BRT) involving use of “celebrity talent” to create internet advertising. Alioto became involved in BRT after being approached by the actor, John Ratzenberger, and claims that he believed he would be reimbursed by Ratzenberger for funds expended on behalf of the business, but was never fully repaid. Alioto filed a Chapter 7 bankruptcy petition, listing $341,363 outstanding loans owed to him from BRT as part of his assets. Alioto sought to deduct the unreimbursed funds as losses for tax year 2005 and to carry forward some of these losses as deductions for tax years 2006 and 2007. The IRS denied the deductions and issued notices of deficiency. The Tax Court agreed. The Sixth Circuit affirmed, upholding determinations that any business losses occurred prior to 2005, 26 U.S.C. 165(a) and that the losses did not amount to theft under section 165 (e). View "Alioto v. Comm'r of Internal Revenue" on Justia Law

Al-Mansoob filed a lawsuit concerning a traffic accident in July 2009. When he instituted Chapter 7 bankruptcy proceedings two months later, he did not list his claims against Malloy and Wilburn Archer Trucking, Inc. (Defendants), among his assets, but did list a suit against State Farm, arising out of the same accident. Upon learning of the omission, Defendants sought summary judgment, arguing that Al-Mansoob was judicially estopped from pursuing the claims. Relying on a Sixth Circuit case decided a few days before Al-Mansoob filed his response, the district court granted the motion. The Sixth Circuit reversed, reasoning that judicial estoppel should not apply to the trustee, who had been substituted as real party in interest, and that Al-Mansoob’s failure to disclose the case was inadvertent in any event. View "Al-Mansoob v. Malloy" on Justia Law

Stone owned STM, which owed Fifth Third about $1 million, secured by liens on business assets and on Stone’s house. Stone’s attorney, Atherton, introduced Stone to Waldman, a potential investor. Stone did not know that Atherton was indebted to Waldman and had given Waldman STM’s proprietary business data. Atherton filed STM’s Chapter 11 bankruptcy petition to preserve assets so that Waldman could acquire them. Atherton allowed the automatic stay to expire. Fifth Third foreclosed, obtaining judgments and a lien on Stone’s house. Waldman paid Fifth Third $900,000 for the bank’s rights. Waldman and Atherton offered to pay off Stone’s debts and employ him in exchange for STM’s assets and told Stone to sign documents without reading them, to meet a filing deadline. The documents actually transferred all STM assets exchange for a job. Ultimately, Waldman owned all STM assets and Stone’s indebtedness, with no obligation to forgive it. Waldman filed garnishment actions; Stone filed a Chapter 11 bankruptcy petition, alleging that Waldman had fraudulently acquired debts and assets. Atherton was disbarred. The bankruptcy court found that Waldman and Atherton had perpetrated “egregious frauds,” invalidated Stone’s obligations, and awarded Stone $1,191,374 in compensatory and $2,000,000 in punitive damages. The district court affirmed. The Sixth Circuit affirmed the discharge, but vacated the award of damages as unauthorized. View "Waldman v. Stone" on Justia Law

In 2008, Auday, age 47, started work at a Wet Seal store. In 2009, Wet Seal fired her. She claimed that the termination was unlawful and discriminatory. Days later, Auday filed for Chapter 7 bankruptcy, listing $510,725 in liabilities and $204,370 in assets, without mention of the age-discrimination claim, required by 11 U.S.C. 521(a)(1)(B)(i). Three months later, her lawyer (Pinchak) asked the trustee how to be hired to pursue the claim. Neither the trustee nor Pinchak informed the bankruptcy court, which discharged Auday in January 2010. In February, the trustee applied for authority to hire, Pinchak to pursue the claim against Wet Seal. The court granted the application, but the trustee did not hire Pinchak nor was the schedule amended. Auday later sued Wet Seal, seeking $500,000 in damages. The district court granted Wet Seal judgment, holding that failure to list a potential claim on her bankruptcy petition barred her from bringing the claim. The Sixth Circuit vacated and remanded. When Auday filed for bankruptcy, her estate became the owner of all of her property, including tort claims that accrued before filing, 11 U.S.C. 541(a)(1) The trustee may bring the claim or abandon it, returning it to Auday, which would require notice to creditors View "Auday v. Wet Seal Retail, Inc." on Justia Law

Debtor paid off a line of credit and a $28,000 loan from her parents and transferred her interest in the marital residence to her husband, Bruno. In a separation agreement, Debtor waived any claim to equity in the residence, about $27,500. Bruno agreed to pay the mortgage and retained four vehicles (marital property) plus three other vehicles and tracts totaling 60 acres, non-marital property. Debtor retained a 1999 Pontiac. Both waived claims to support and retirement accounts. Debtor later filed her chapter 7 no-asset petition, listing an $11,000.00 lien on the Pontiac and $60,763.48 credit card debt (both incurred during marriage). The Trustee filed an adversary complaint to recover the value of alleged fraudulent transfers, 11 U.S.C. 548(a)(1)(B), 544, 550. Bruno argued that in a contested divorce, he would have likely received support, insurance and part of Debtor’s pension. The bankruptcy court concluded that Debtor did not receive reasonably equivalent value and entered a judgment of $47,635.27. The Sixth Circuit affirmed that Debtor did not receive reasonably equivalent value, but remanded to amend the judgment to $4,532.98. It was unnecessary to consider the likely outcome of a contested divorce; the issue was comparison of the value Debtor received with the value Debtor transferred. View "In re: Neal" on Justia Law