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

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

As one of the largest developers in Cincinnati, Erpenbeck defrauded buyers and banks out of nearly $34 million. Erpenbeck pled guilty to bank-fraud in 2003, received a 300-month sentence, and was ordered to forfeit proceeds: $33,935,878.02, 18 U.S.C. 982(a). The FBI later learned that Erpenbeck had given a friend more than $250,000 in cash. The friend put the cash in a cooler and buried it on a golf course. Agents unearthed the cooler. The government sought forfeiture of the cash and posted online notice in 2009. Three months later, the trustee of Erpenbeck’s bankruptcy estate contacted an Assistant U.S. Attorney, told her the estate had an interest in the cash and asked about the government's plans. The attorney did not mention the forfeiture proceedings. Because no one asserted an interest, the district court entered an order vesting title to the cash in the government, 21 U.S.C. 853(n)(7). The trustee sought to stay the order in November 2010. The district court denied the motion because the trustee did not file a timely petition. The Sixth Circuit vacated. Even though the trustee’s interest in the cash was "far from a mystery," the government did not take even the "modest step" of sending a certified letter. View "United States v. Erpenbeck" on Justia Law

In the 1990s debtors owned a business that failed and incurred liabilities from unpaid taxes. They had a monthly payment obligation to the IRS. Husband obtained employment; 2003 to 2009, his yearly gross income was between $53,000 and $59,000. In addition, he receives $1,300 per month from a settlement annuity. Wife was employed as a bookkeeper until 1999. In 2000, she pled guilty to felony embezzlement of funds from her former employer and was sentenced to probation and required to pay restitution of $800 per month. Before her indictment wife obtained employment as a bookkeeper for plaintiff, began embezzling, and deposited stolen funds to Debtors’ joint bank accounts. By 2006, she had embezzled $283,391.88 from plaintiff and forged credit card purchases of $2,821.43. In 2007, she embezzled $328,516.10. In 2008, she embezzled $11,230.21. She stole goods valued at $127,156 from her employer. Debtors spent accordingly. The Bankruptcy Court entered an order excepting debt owed to plaintiff from discharge under 11 U.S.C. 523(a)(6), finding that husband conspired with wife to convert embezzled funds and other property. The Sixth Circuit affirmed, holding that Debtors’ conduct constituted willful and malicious injury to plaintiff. View "In re: Cottingham" on Justia Law

Stokes owned 1Point, which managed employee-benefits plans and 401(k) retirement plans as a third-party administrator (TPA). Most were governed by the Employee Retirement Income Security Act, 29 U.S.C. 1002. TPAs generally provide record-keeping and assist in transferring money, but do not handle money or securities. Stokes directed clients to send funds to accounts he had opened in 1Point’s name. Cafeteria plan clients deposited $45 million and 401(k) clients deposited $5.7 million in accounts at Regions. Because the accounts bore 1Point’s name, Stokes was able to transfer money. Between 2002 and 2006, Stokes stole large sums. Regions failed to comply with the Bank Secrecy Act, 31 U.S.C. 3513, requirements to report large currency transactions, file suspicious-activity reports, verify identities for accounts, and maintain automated computer monitoring. In 2004, the U.S. Financial Crimes Enforcement Network assessed a $10 million fine against Regions. In 2006, Stokes and 1Point filed for bankruptcy. The Trustee filed suit against Regions in bankruptcy court on behalf of victimized plans for which he assumed fiduciary status. The suit was consolidated with plaintiffs’ suit. The district court withdrew the Trustee’s case from bankruptcy court, dismissed ERISA claims, and found that ERISA preempted state law claims. The Sixth Circuit affirmed. View "McLemore v. Regions Bank" on Justia Law