Justia U.S. 9th Circuit Court of Appeals Opinion Summaries

Articles Posted in Bankruptcy

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Debtors challenged the Bankruptcy Appellate Panel's (BAP) judgment affirming the bankruptcy court's decision that the claim of Kenneth Barton was not subordinated pursuant to the provisions of 11 U.S.C. 510(b), and converted debtors’ Chapter 13 bankruptcy proceedings to Chapter 7 proceedings. The court disagreed with BAP and Khan I. See Liquidating Tr. Comm. of the Del Biaggio Liquidating Tr. v. Freeman (In re Del Biaggio), holding that section 510(b) does apply when debtors are individuals. Nevertheless, the court concluded that the bankruptcy court did not err when it refused to subordinate Barton’s claims pursuant to section 510(b). In this case, Barton sought and obtained damages. Even though his damage award for conversion was based on the value of the securities at the time of conversion, his action did not arise out of the purchase of the securities and the risks that the purchase might entail. Rather, his actions arose out of debtors' conversion of the securities many years later. The court rejected debtors arguments that the bankruptcy court clearly erred when it found bad faith, and abused its discretion when it converted their Chapter 13 proceedings to Chapter 7 proceedings. Accordingly, the court affirmed the judgment. View "Khan v. Barton" on Justia Law
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The second appeal in this bankruptcy proceeding involved Augustine Bustos’s efforts to pursue an exception-to-discharge claim pursuant to 11 U.S.C. 523(c) against Steven Molasky, who filed for chapter 11 bankruptcy. Bustos moved to intervene in a section 523 adversary proceeding initiated by OneCap Funding Corporation, which represented Bustos’s interest under a loan-servicing agreement. The bankruptcy court allowed Bustos to intervene but prohibited him from filing his own complaint. OneCap was later dismissed from the proceeding for failure to prosecute. The bankruptcy court dismissed the adversary proceeding in its entirety, concluding that because Bustos failed to assert a timely separate objection to dischargeability, Bustos could not continue to prosecute the action. The Bankrtupcy Appellate Panel (BAP) affirmed. The Fourth District reversed, holding that Bustos was entitled to continue prosecuting the section 523 claim originally filed by OneCap. View "Bustos v. Molasky" on Justia Law
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Timothy Blixseth and his wife, Edra, developed the Yellowstone Mountain Club, an exclusive ski and golf resort in Montana that caters to the “ultra-wealthy.” Edra subsequently filed for bankruptcy on behalf of the Yellowstone entities, and the U.S. Trustee appointed nine individuals to serve as the Unsecured Creditors' Committee (UCC). Blixseth suspected that his attorney, Stephen Brown, used confidential information to Blixseth’s detriment in the bankruptcy proceedings. Brown was one of the UCC members. Blixseth filed suit against Brown, but the district court held that it lacked jurisdiction because Blixseth did not first obtain the bankruptcy court’s permission to sue, as required by Barton v. Barbour. No court of appeals has held that Barton applies to suits against UCC members, but some have extended Barton to actors who are not bankruptcy trustees or receivers. Because creditors have interests that are closely aligned with those of a bankruptcy trustee, the court explained that there is good reason to treat the two the same for purposes of the Barton doctrine. Therefore, the court concluded that Barton applies to UCC members like Brown who are sued for acts performed in their official capacities. The court also concluded that Blixseth does not need permission from the bankruptcy court before bringing his pre-petition claims in district court. In this case, Blixseth's claims of misconduct are so intertwined with and dependent upon Brown's actions as a member of the UCC that it is impossible to separate the pre-petition claims from Brown’s activities on the UCC. However, the court concluded that Blixseth needed the bankruptcy court’s permission before bringing claims challenging conduct related to Brown's actions after he was appointed UCC chair in district court. Finally, the court concluded that the district court’s order did not afford Blixseth anything close to an independent decision by an Article III adjudicator; Stern v. Marshall does not preclude bankruptcy courts from adjudicating Barton claims; and the court remanded for the bankruptcy court to consider whether Brown is entitled to derived judicial immunity for Blixseth’s post-petition claims. Accordingly, the court affirmed in part, vacated in part, and remanded in part. View "Blixseth v. Brown" on Justia Law
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After New Investments defaulted on a note borrowed from Pacifica, Pacifica commenced non-judicial foreclosure proceedings. New Investments then filed for Chapter 11 bankruptcy. The bankruptcy court confirmed New Investments’s plan of reorganization proposing to cure the default by selling the property to a third party and using the proceeds of the sale to pay the outstanding amount of the loan at the pre-default interest rate. In Great W. Bank & Tr. v. Entz-White Lumber & Supply, Inc., the court held that a debtor who cures a default “is entitled to avoid all consequences of the default— including higher post-default interest rates.” At issue is whether Entz-White’s rule that a debtor may nullify a loan agreement’s requirement of post-default interest remains good law in light of 11 U.S.C. 1123(d), a provision that Congress enacted after Entz-White. The court held that Entz-White’s rule of allowing a curing debtor to avoid a contractual post-default interest rate in a loan agreement is no longer valid in light of section 1123(d). In this case, the court concluded that Pacifica is entitled to receive payment of the loan at the post-default interest rate. Accordingly, the court reversed and remanded for further proceedings. View "Pacifica L 51 LLC v. New Investments Inc." on Justia Law
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Barker filed a Chapter 13 bankruptcy petition; the bankruptcy court issued a notice that the deadline for creditors to file a proof of claim was January 8, 2013. On September 8, 2012, the Bankruptcy Noticing Center sent the notice to the Credit Union by first class mail. In September 2012, Barker filed her Chapter 13 plan, which was sent to the Credit Union that day via first class mail. Barker’s schedules of assets and liabilities listed the Credit Union as a secured creditor holding a $6,646.00 purchase money security interest in a Ford F-150 and as an unsecured creditor holding a $47,402.00 claim. Barker amended the plan several times over the next few months. Each time, Barker sent a notice to the Credit Union; the Bankruptcy Noticing Center notified the Credit Union of each court order. More than four months after the deadline expired, the Credit Union filed claims. The Trustee sent a “Notice of Late Filed Claims” to the Credit Union, which requested a hearing, asserting that a “disgruntled employee” failed to timely file the claims. The court disallowed the claims. The Ninth Circuit Bankruptcy Appellate Panel and the Ninth Circuit affirmed. If a creditor wishes to participate in the distribution of assets under a Chapter 13 plan, it must file a timely proof of claim. The debtor’s acknowledgment of debt in a bankruptcy schedule does not relieve the creditor of this affirmative duty. View "Spokane Law Enforcement Federal Credit Union v. Barker" on Justia Law
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The City of Vallejo petitioned for Chapter 9 bankruptcy in 2008. Two years after the bankruptcy court confirmed Vallejo's debt-adjustment plan, a federal jury found that two police officers employed by Vallejo used constitutionally excessive force when they arrested Jason Eugene Deocampo. The district court entered a judgment for money damages against the officers in their personal capacities, and awarded Deocampo his attorney’s fees. The court noted that, under California law, Vallejo is generally obligated to indemnify its employees for claims against them arising from their employment. The court held that where, as here, the plan confirmed by the bankruptcy court did not expressly encompass claims or judgments against the city’s employees, the indemnification statutes do not subject such claims or judgments to adjustment by operation of law nor by the fact of the public employment itself. The court affirmed the district court’s denial of the officers’ Rule 60 motion for relief from judgment, and agreed with the district court that neither the judgment nor attorney’s fee award was discharged by Vallejo’s bankruptcy proceedings. View "Deocampo v. Potts" on Justia Law
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After the County Treasurer and Tax Collector conducted tax sales of the properties debtor owned, debtor filed for Chapter 11 bankruptcy relief. Debtor filed an adversary complaint against the County Treasurer and the purchasers of the two properties, alleging that because the County sold the properties for a price that was too low, the tax sales were fraudulent transfers voidable under 11 U.S.C. 548(a). The bankruptcy court dismissed the complaint with prejudice, and the Ninth Circuit Bankruptcy Appellate Panel affirmed. In BFP v. Resolution Trust Corp., the Supreme Court held that the price received at a mortgage foreclosure sale “conclusively satisfies” the Bankruptcy Code’s requirement that transfers of an insolvent debtor’s property be in exchange for a “reasonably equivalent value,” so long as the mortgagee complied with the relevant foreclosure laws of the state in question, which in that case was also California. Because California tax sales have the same procedural safeguards as the California mortgage foreclosure sale at issue in BFP, the court agreed with the BAP and held that the price received at a California tax sale conducted in accordance with state law conclusively establishes “reasonably equivalent value” for purposes of 11 U.S.C. 548(a). Accordingly, the court affirmed the judgment. View "In re Tracht Gut, LLC" on Justia Law
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Castellino hired Picerne, a general contractor, to construct an apartment complex on Castellino's property. After Castellino defaulted on its obligations and failed to pay Picerne and its subcontractors, Picerne filed a demand for arbitration and a mechanic’s lien against the apartment complex. The parties eventually entered into arbitration and, on the same day the superior court confirmed the arbitration award, Castellino filed a Chapter 11 petition for bankruptcy. On appeal, Picerne contends that the bankruptcy court erred in denying its motion for post-discharge attorneys’ fees. The court concluded that, under the circumstances of this case, Picerne could “fairly or reasonably contemplate” that it would have a claim for attorneys’ fees if it prevailed in the state litigation before Castellino filed its petition for bankruptcy. Therefore, the district court correctly determined that the claim was discharged when the bankruptcy court confirmed Castellino’s plan. Accordingly, the court affirmed the judgment. View "Picerne Constr. v. Castellino Villas" on Justia Law
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Plaintiff appealed the bankruptcy court's approval of a settlement agreement regarding a parcel of land in Berkeley, California, but failed to seek a stay of the sale order. The district court dismissed the appeal as moot. The court concluded that the bankruptcy court had the discretion to apply 11 U.S.C. 363 to the settlement involving a sale of the estate’s potential claims, and did not clearly err in determining that First-Citizens was a good faith purchaser of those claims. Therefore, under section 363(m), the court concluded that the sale may not be modified or set aside on appeal unless it was stayed pending appeal. Because plaintiff failed to seek a stay, the appeal is moot. The court did not reach plaintiff's challenges to the propriety of the sale of claims under section 363, as such an analysis would require the court to impermissibly reach the underlying merits of the settlement. View "Adeli v. Barclay" on Justia Law
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David Freeman and his cohort of investors, including William Del Biaggio, III, purchased the Nashville Predators, a National Hockey League (NHL) team in Nashville, Tennessee. As a result of the sale, the Predators became wholly owned and operated by Nashville Hockey Club Limited Partnership, LLC, which is in turn wholly owned by Predators Holdings, LLC (Holdings). Several months after the sale, Freeman learned that Del Biaggio never had the funds to support his guarantees and that the $25 million Del Biaggio already invested was in fact money he had embezzled from his clients. Del Biaggio filed for Chapter 11 bankruptcy which gave rise to the current proceeding. Freeman filed a general unsecured claim against Del Biaggio’s bankruptcy estate seeking damages of an undetermined amount arising from his fraud in the Holdings transaction. In response, the Liquidating Trust Committee of the Del Biaggio Liquidating Trust, the entity charged with prosecuting claims objections in Del Biaggio’s bankruptcy, filed a counterclaim against Freeman and sought summary judgment. The bankruptcy court granted the Committee’s motion for summary judgment, finding Freeman’s claim was subject to mandatory subordination under 11 U.S.C. 510(b). The court concluded that Freeman's claim is a damages claim, and the district court did not err in applying section 510(b) to his claim against Del Biaggio because his claim is one "arising from the purchase or sale" of Holdings. Furthermore, Freeman's claim is not limited to corporate debtors. The court rejected Freeman's remaining claims and affirmed the judgment. View "Liquidating Trust Comm. v. Freeman" on Justia Law
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