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

When AFC filed for bankruptcy in 2009, the FDIC was appointed receiver for AFC’s subsidiary, AmTrust and sought payment from AFC under 11 U.S.C. 365(o), which requires that a party seeking Chapter-11 bankruptcy fulfill “any commitment . . . to maintain the capital of an insured depository institution.” The FDIC argued that AFC made such a commitment by agreeing to entry of a cease-and-desist order requiring AFC’s board to “ensure that [the Bank] complies” with the Bank’s own obligation to “have and maintain” capital ratios of 7 percent (Tier 1) and 12 percent (total). The district court found that the order was not a capital-maintenance commitment under section 365(o). The Sixth Circuit affirmed. The cease-and-desist order is ambiguous and could reasonably be read as establishing either an oversight role or a capital-maintenance commitment and the bulk of the extrinsic evidence favored the “oversight” reading. View "Fed. Deposit Ins. Corp. v. Amtrust Fin. Corp." on Justia Law

Plaintiffs delivered artifacts from a famous shipwreck to Debtor for display and, according to Debtor, sale in Debtor’s jewelry store. The store went out of business. When Debtor returned the artifacts, an emerald pendant and musket balls were missing. Plaintiffs filed a complaint alleging breach of fiduciary duty, common law conversion, and statutory conversion or negligence. A Michigan state court found that Debtor’s failure to respond to any written discovery requests, file a response to the Motion for Summary Disposition, and appear at the hearing were sufficient basis for entry of summary disposition and awarded $42,706.10. The judgment did not specify the claim upon which it was based. Debtor filed a voluntary Chapter 7 bankruptcy petition. Plaintiffs filed an adversary complaint seeking to have the debt declared nondischargeable under 11 U.S.C. 523(a)(4), stating that Debtor’s actions constituted “fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.” The bankruptcy court granted Plaintiffs summary judgment. The Sixth Circuit reversed. The bankruptcy court erred when it held that the issue of fraud was “necessarily determined” by the state court; the state court judgment cannot have issue preclusive effect as to this element for nondischargeability under the embezzlement portion of section 523(a)(4). View "In re: Dantone" on Justia Law

GTI went bankrupt after it purchased OAI, a subsidiary of Onkyo for $13 million in cash and $12 million in three-year promissory notes. Onkyo filed a proof of claim for $12 million. GTI responded by suing Onkyo under the theory that the OAI purchase was a fraudulent, voidable transaction. The bankruptcy court agreed, finding that OAI was worth $6.9 million at the time of the transaction, not $25 million. The court voided GTI’s obligation to pay the remainder of the purchase price and ordered Onkyo to repay GTI $6.1 million. The district court and Sixth Circuit affirmed. The bankruptcy court’s determination that the indirect benefits were insubstantial was valid without the necessity of providing calculations; its adoption of GTI’s expert’s value based on the comparable transactions method was not clearly erroneous. Once the bankruptcy court determined that the sale of OAI had been a fraudulent transfer and Onkyo was a good-faith transferee, awarding GTI relief was a simple matter of subtraction. View "Onkyo Europe Elec., GMBH v. Global Technovations Inc." on Justia Law

In 1998, Harchars filed a Chapter 13 petition. The government was a creditor because of a tax arrearage. A reorganization plan was confirmed, requiring that they pay in full priority tax claims and pay five cents on the dollar, over 43 months, unsecured, nonpriority claims by the government and similarly-situated creditors. In 2000, Harchars pursued an adversary proceeding, alleging injury caused by the government’s practice of “freezing” computer-automated refunding of tax overpayments to Chapter 13 debtors and refusal to issue a refund for their 1999 return until after the bankruptcy court resolved its motion to modify the plan to include the refund in plan funding. Harchars opposed the motion, explaining that they had separated, husband was no longer employed, and the refund was needed for living expenses. After Harchars filed amended schedules, the IRS withdrew its motion and issued the refund with interest. The bankruptcy court concluded that the IRS had not violated the automatic stay by manually processing or withholding the tax refund. The district court affirmed and held that a due-process claim was barred by sovereign immunity and that Harchars did not identify any provision of the plan that had been violated. The Sixth Circuit affirmed and dismissed the claims. View "Harchar v. United States" on Justia Law

An involuntary Chapter 11 bankruptcy petition was filed against Quality Stores, which eventually closed operations and terminated all employees. Under the Pre-Petition Plan, severance pay was based on job grade. Payments were made on the normal payroll schedule, not tied to receipt of unemployment compensation, and not attributable to particular services. The Post-Petition Plan was designed to encourage employees to defer their job searches; the lump-sum payments were not tied to receipt of unemployment compensation, nor attributable to provision of particular services. Quality reported the payments as wages and withheld income tax, paid the employer’s share of FICA tax, and withheld each employee’s share of FICA. Of $1,000,125 at issue, $382,362 is attributed to the Pre-Petition Plan, $214,000 for the employer share and $168,362 for the employee share; $617,763 is attributed to the Post- Petition Plan, $357,127 for the employer share and $260,636 for the employee share. Quality argued that the payments were not wages but supplemental unemployment compensation benefits, not taxable under FICA, and sought a refund of the employer share and the shares of consenting employees. When the IRS did not act, Quality filed an adversary action in the bankruptcy court, which ordered a full refund. The district court and Sixth Circuit affirmed.View "United States v. Quality Stores, Inc." on Justia Law

Barbara, an analyst at the Cleveland Clinic, and Anthony, a stay-at-home father for two-year-old triplets and ten-year-old, filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code, 11 U.S.C. 701. On Schedule B listing assets, they included a joint interest in “Anticipated 2009 Income Tax Refund,” value “unknown.” On their joint returns for 2009, they listed: adjusted gross income: $59,402; total tax liability: $2,934; total credits: $2,934; payroll taxes withheld: $6,777; and total federal tax refund: $8,542. On line 51, “Tax and Credits,” they listed $2,903 for the Child Tax Credit (CTC). On line 65, “Payments,” they listed $1,097 for additional CTC. They amended Schedule B, changing the unknown value of their tax refund. They specified $4,000 as the portion of their refund due to the CTC and $4,542 for the portion not due to the CTC. They amended Schedule C of the bankruptcy petition, to list the $4,000 portion as exempt pursuant to Ohio Rev. Code 2329.66(A)(9)(g). The Trustee objected, arguing that $2,903 of the CTC, the so-called “non-refundable portion,” was not exempt. The bankruptcy court sustained the Trustee’s objection, reducing the exemption to $1,907. The Bankruptcy Appellate Panel affirmed. The Sixth Circuit affirmed View "Zingale v. Rabin" on Justia Law

In 2009, the debtor filed a voluntary Chapter 7 bankruptcy petition. Michigan law permits debtors in bankruptcy to choose exemptions from: 11 U.S.C. 522(d); a set of general exemptions available to all Michigan residents irrespective of bankruptcy status, Mich. Comp. Laws 600.6023; or a list of exemptions available solely to debtors in bankruptcy, Mich. Comp. Laws 600.5451. The debtor chose a homestead exemption under the last option, which permits only bankruptcy debtors to exempt up to $30,000 of the value of the home, or up to $45,000 if the debtor is over the age of 65 or disabled. The figures are adjusted for inflation triennially, such that the debtor, who is disabled, claimed a total exemption of $44,695 in the value of his home; the federal exemption would be $21,625 and the Michigan general homestead exemption was $3,500. The trustee filed an objection. The Bankruptcy Court upheld the exemption. The Sixth Circuit affirmed. The phrase “uniform Laws” in the Bankruptcy Clause permits states to act in the arena of bankruptcy exemptions, without violation of the Supremacy Clause, even if they do so by making certain exemptions available only to debtors in bankruptcy .View "State of MI v. Schafer" on Justia Law

Polar Holding was sole shareholder of PMC, a company engaged in the petroleum-additive business. PMC was in default on a loan for which it had pledged valuable intellectual property as collateral, and Polar Holding was in the midst of an internal dispute between members of its board of directors regarding business strategy for PMC. One of the directors, Socia, formed a competing company, Petroleum, for the purpose of acquiring PMC’s promissory note and collateral from the holder of PMC’s loan. Petroleum brought suit against Woodward, an escrow agent in possession of PMC’s collateral, alleging that PMC was in default on the payment of its promissory note. Polar Holding and PMC intervened and filed counterclaims against Petroleum and a third-party complaint against additional parties, including Socia. Polar Holding and PMC allleged breach of fiduciary duty, civil conspiracy, and tortious interference. After PMC filed for bankruptcy, its claims became the property of the bankruptcy trustee. Polar Holding’s claims were later dismissed. The Sixth Circuit affirmed dismissal of a tortious interference claim as addressed by the district court, but reversed dismissal of a breach-of-fiduciary-duty claim against Socia and a civil-conspiracy claim against individual third-party defendants. View "Petroleum Enhancer, L.L.C. v. Woodward" on Justia Law

In 1957, Dominic opened an Italian restaurant, “Dominic’s.” It closed in 2007, but daughter-in-law, Anne, continues to market “Dominic’s Foods of Dayton.” In 2007, Christie, a granddaughter, contracted to operate a restaurant with Powers and Lee, a former Dominic’s chef. In pre-opening publicity, they promised to bring back original Dominic’s recipes. They named the business “Dominic’s Restaurant, Inc.” and registered with the Ohio Secretary of State. Anne brought claims of trademark infringement, trademark dilution, unfair practices, unfair competition, tortious interference with contract, conversion, misappropriation of business property, breach of contract, fraudulent and/or negligent misrepresentation, and breach of implied covenant of good faith and fair dealing. The district court concluded that defendants had engaged in infringing behavior before and after entry of a TRO. Powers and Lee later closed the restaurant and withdrew registration of the name, but motions continued, arising out of efforts to open under another name. The district court eventually granted default judgment against defendants, rejecting a claim that proceedings were automatically stayed by Powers’ bankruptcy filing. The Sixth Circuit affirmed. The stay does not protect a debtor’s tortious use of his property and, while the stay would bar assessment of damages, it would not bar injunctive relief. View "Dominic's Rest. of Dayton, Inc. v. Mantia" on Justia Law

The debtors are limited partnerships that own real estate on which they operate low-income housing. In their Chapter 11 cases, the bankruptcy court concluded that, for purposes of determining the value of the secured portion of the bank’s claims under 11 U.S.C. 506(a), determination of the fair market value of various apartment complexes included consideration of the remaining federal low-income housing tax credits. The court also concluded that various rates and figures used by the bank’s appraiser were more accurate. The Sixth Circuit affirmed. A major component of the value of the bank’s claims was determination was whether the value of the remaining tax credits would influence the price offered by a hypothetical willing purchaser of the property that serves as collateral for the claims. View "In re: Creekside Senior Apts" on Justia Law