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

Articles Posted in Bankruptcy
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The IRS held a secured claim on the debtor’s real property arising from a tax penalty lien. The debtor claimed a $150,000 homestead exemption in the property under Arizona law. The trustee sought to avoid the tax penalty lien on the debtor’s exempt property and preserve it for the benefit of the estate pursuant to 11 U.S.C. Sections 724(a) and 551.   The Ninth Circuit reversed the district court’s decision affirming the bankruptcy court’s summary judgment in favor of a Chapter 7 trustee who brought an adversary proceeding seeking to avoid an Internal Revenue Service tax lien on property subject to a homestead exemption and to preserve the value of the lien for the benefit of the bankruptcy estate.   The panel held that Section 724(a) concerns the trustee’s avoidance of qualifying liens attached to the property of the estate at the time of distribution. When a debtor exempts a property interest under 11 U.S.C. Section 522, the exemption withdraws that property interest from the bankruptcy estate and, thus, from the reach of the trustee for distribution to creditors. Accordingly, because exempt property is not “property of the estate” which may be “distributed,” a trustee may not avoid a lien under Section 724(a) attached to exempt property which is no longer part of the estate. The panel held that it follows that a trustee is not permitted to preserve the tax lien for the benefit of the estate under Section 551, which provides for automatic preservation of certain avoided liens, including liens avoided under Section 724(a). View "IN RE: SANDRA TILLMAN, ET AL V. LAWRENCE WARFIELD, ET AL" on Justia Law

Posted in: Bankruptcy
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=This appeal arises from Appellee’s efforts to avoid, in bankruptcy, a judgment lien recorded in 2014 against his Carlsbad, California home. The Ninth Circuit affirmed the bankruptcy court’s judgment in favor of Appellee and against the Chapter 7 Trustee. The panel was called upon to decide how the Bankruptcy Code’s procedure for avoiding judgment liens that “impair[] an exemption to which the debtor would have been entitled,” 11 U.S.C. Section  522(f)(1), interacts with California’s homestead exemption, which allows a debtor to claim a limited exemption in bankruptcy in connection with his primary residence.   The issue gained complexity here because the amount of California’s homestead exemption increased significantly between the time the lien on Appellee’s home was recorded in 2014 and the time he filed for bankruptcy in 2021. Under California law, the exemption Appellee could claim would be fixed at the 2014 amount. Appellee argued that the Bankruptcy Code requires looking to the exemption he could have claimed, but for the lien, at the time he filed his bankruptcy petition. The panel held that in deciding whether a judgment lien impairs a debtor’s California homestead exemption, the Bankruptcy Code requires courts to determine the amount of the exemption to which the debtor would have been entitled in the absence of the lien at issue. Thus, the bankruptcy court correctly applied the $600,000 homestead exemption available in 2021, which, consequently, allowed Appellee to avoid the entirety of the judgment lien placed on his home. View "CHRISTOPHER BARCLAY V. DEJAN BOSKOSKI" on Justia Law

Posted in: Bankruptcy
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Appellant Smart Capital Investments1 leased several floors of a commercial building in downtown Los Angeles to Appellee Hawkeye Entertainment, LLC. After a rocky relationship developed, Smart Capital took steps to terminate the lease alleging that Hawkeye had committed numerous breaches. Hawkeye failed to resolve Smart Capital’s concerns and filed for Chapter 11 bankruptcy, seeking to assume the lease under 11 U.S.C. Section 365 to prevent eviction. The bankruptcy court allowed Hawkeye to assume the lease over Smart Capital’s objection, and the district court affirmed. Smart Capital now appeals, arguing that the bankruptcy court erred by not requiring Hawkeye to provide “adequate assurances of future performance” of the lease, as required under 11 U.S.C. Section 365.   The Ninth Circuit affirmed the district court’s order affirming the bankruptcy court’s order allowing Hawkeye Entertainment, LLC, a Chapter 11 debtor, to assume an unexpired commercial lease under 11 U.S.C. Section 365. The panel held that Section 365(b)(1) applies where a default has occurred, regardless of whether that default has been resolved or is ongoing. The panel also held that “default” was not limited to material defaults that would trigger forfeiture of the lease under California landlord-tenant law. The panel concluded, therefore, that Section 365(b)(1) was triggered in this case. The panel further held, however, that the bankruptcy court’s failure to analyze Section 365(b)(1)’s curative requirements was harmless error. View "IN RE: SMART CAPITAL INVS. I, LLC, ET AL V. HAWKEYE ENTERTAINMENT, LLC, ET AL" on Justia Law

Posted in: Bankruptcy
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The bankruptcy court found nondischargeable (1) indebtedness arising from a disbarred attorney’s obligation to reimburse the State Bar for payments made by the Bar’s Client Security Fund to victims of his misconduct while practicing law and (2) the costs for the disciplinary proceedings conducted against the attorney, a Chapter 7 debtor.   The Ninth Circuit filed (1) an order denying Appellant’s petition for panel rehearing, granting Appellee’s petition for panel rehearing, and denying, on behalf of the court, the parties’ petitions for rehearing en banc; and (2) an amended opinion affirming in part and reversing in part the bankruptcy court’s judgment in an adversary proceeding.   Reversing in part, the panel held that the indebtedness arising from the attorney’s obligation to reimburse the State Bar for the payments made to victims of his misconduct was not excepted from discharge under 11 U.S.C. Section 523(a)(7), which provides that a debtor is not discharged from any debt that “is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss.” Considering the totality of the Client Security Fund program, the panel concluded that any reimbursement to the Fund was payable to and for the benefit of the State Bar and was compensation for the Fund’s actual pecuniary loss in compensating the victims for their actual pecuniary losses. View "ANTHONY KASSAS V. STATE BAR OF CALIFORNIA" on Justia Law

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Pacific Gas & Electric Company (“PG&E”), sought chapter 11 protection in a bid to proactively address massive potential liabilities related to a series of wildfires in Northern California. But PG&E was solvent. Its assets at the time of the bankruptcy filing exceeded its known liabilities by nearly $20 billion. As a result, several creditors—including Plaintiffs, the Ad Hoc Committee of Holders of Trade Claims—claimed PG&E must pay post-petition interest at the rates required by their contracts in order for their claims to be “unimpaired” by the reorganization plan   The Ninth Circuit reversed the district court’s order. The panel held that under the “solvent-debtor exception,” the creditors possessed an equitable right to receive post-petition interest at the contractual or default state rate, subject to any other equitable considerations before PG&E collected surplus value from the bankruptcy estate. The solvent-debtor exception is a common-law exception to the Bankruptcy Act’s prohibition on the collection of post-petition interest as part of a creditor’s claim.   The panel concluded that Cardelucci merely interpreted 11 U.S.C. Section 726(a)(5), which requires that creditors of a solvent debtor receive post-petition interest at “the legal rate.” Section 726(a)(5), however, applies only to impaired chapter 11 claims, and the panel concluded that Cardelucci, therefore, did not address what rate of post-petition interest must be paid on the Ad Hoc Committee’s unimpaired claims. The panel reversed and remanded to the bankruptcy court to weigh the equities and determine what rate of interest the creditors were entitled to. View "PG&E CORPORATION V. AD HOC COMMITTEE OF HOLDERS" on Justia Law

Posted in: Bankruptcy
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Appellant a Chapter 7 debtor, was disbarred by the California Supreme Court in 2014 for violations of the State Bar Rules of Professional Conduct and the California Business and Professions Code. The California Supreme Court ordered Appellant to pay restitution to 56 former clients, costs for his disciplinary proceedings, and any funds that would eventually be paid out by the State Bar’s Client Security Fund (CSF) to victims of his conduct. Appellant subsequently filed for Chapter 7 bankruptcy and received a discharge.   The Ninth Circuit affirmed in part and reversed in part the bankruptcy court’s judgment. Reversing in part, the court held that the indebtedness arising from the attorney’s obligation to reimburse the State Bar for the payments made to victims of his misconduct was not excepted from discharge under 11 U.S.C. Section 523(a)(7), which provides that a debtor is not discharged from any debt that “is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss.” Considering the totality of the Client Security Fund program, the court concluded that any reimbursement to the Fund was payable to and for the benefit of the State Bar and was compensation for the Fund’s actual pecuniary loss in compensating the victims for their actual pecuniary losses. Affirming in part the court held that, pursuant to In re Findley, 593 F.3d 1048 (9th Cir. 2010), the costs associated with the attorney’s disciplinary proceedings were nondischargeable under Section 523(a)(7). View "ANTHONY KASSAS V. STATE BAR OF CALIFORNIA" on Justia Law

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Appellant defaulted under her Chapter 11 bankruptcy plan by refusing to pay Appellee Bank of New York Mellon (Bank of NYM) after she lost her adversary proceeding challenging the bank’s secured claim. As a result, the bankruptcy court granted Bank of NYM’s motion to convert the bankruptcy case from Chapter 11 to Chapter 7 and ordered Appellant to turn over undistributed assets in her possession to the Chapter 7 bankruptcy estate. Appellant challenged these two decisions in separate appeals.   The Ninth Circuit affirmed the bankruptcy court’s orders converting Appellant’s bankruptcy case from Chapter 11 to Chapter 7 and ordering her to turn over undistributed assets in her possession to the Chapter 7 bankruptcy estate. The court held the bankruptcy court properly exercised its discretion in converting the case to Chapter 7 for cause under 11 U.S.C. Section 1112(b)(1). The court held that the party seeking relief under Section 1112(b)(1) has the initial burden of persuasion to establish that cause exists for granting such relief. The court held that failing to make required payments can be a material default of a Chapter 11 plan, even if the debtor has made payments for an extended period before the default or taken other significant steps to perform the plan. The court concluded that the bankruptcy court did not err in finding that Appellant’s default in paying Bank of New York Mellon’s secured claim was cause for conversion because both the amount and duration of this default were significant. View "ALLANA BARONI V. DAVID SEROR" on Justia Law

Posted in: Bankruptcy
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Plaintiffs alleged that the energy companies’ extraction of fossil fuels and other activities were a substantial factor in causing global warming and a rise in the sea level, bringing causes of action for public and private nuisance, strict liability, strict liability, negligence, negligent failure to warn, and trespass.The court held that the district court lacked federal question jurisdiction under Sec. 1331 because, at the time of removal, the complaints asserted only state-law tort claims against the energy companies. The court held that Plaintiffs’ global-warming claims did not fall within the Grable exception to the well-pleaded complaint rule. In addition, Plaintiffs’ state law claims did not fall under the “artful-pleading” doctrine, another exception to the well-pleaded complaint rule, because they were not completely preempted by the Clean Air Act.Further, the court found Plaintiffs’ claims were not removable under the Outer Continental Shelf Lands Act. The court also held that the district court did not have subject matter jurisdiction under the federal-officer removal statute, Sec. 1442(a)(1), because the energy companies were not “acting under” a federal officer’s directions. The court then rejected the energy companies’ argument that the district court had removal jurisdiction over the complaints under Sec. 1452(a) because they were related to bankruptcy cases involving Peabody Energy Corp., Arch Coal, and Texaco, Inc. Finally, the court held that the district court did not have admiralty jurisdiction because maritime claims brought in state court are not removable to federal court absent an independent jurisdictional basis. View "COUNTY OF SAN MATEO V. CHEVRON CORP." on Justia Law

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The Ninth Circuit reversed the district court's denial of debtor's motion for leave to appeal the bankruptcy court's order denying without prejudice a creditor's request for relief from the automatic stay. In Ritzen Group, Inc. v. Jackson Masonry, LLC, 140 S. Ct. 582 (2020), the Supreme Court addressed the finality of a bankruptcy court order denying a creditor's request for relief from the automatic stay. The panel concluded that, under the circumstances presented here and the considerations set forth in Ritzen and court precedent, the bankruptcy court's order was final and appealable because the bankruptcy court's denial of the creditor's motion conclusively resolved the request for stay relief. View "Harrington v. Mayer" on Justia Law

Posted in: Bankruptcy
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The Ninth Circuit reversed the district court's decision reversing the bankruptcy court's order allowing creditor's claim in the bankruptcy proceedings of Rejuvi, a chapter 11 debtor. Creditor seeks recognition and enforcement of a default money judgment for personal injuries against Rejuvi granted by an Australian district court. The panel held that Rejuvi waived any objection to personal jurisdiction by voluntarily appearing in the South Australian district court when it sought relief from the default judgment. Accordingly, the panel remanded to the district court for further proceedings. The panel granted creditor's motion to take judicial notice of Rules 230 and 242 of the 2006 Civil Rules of the District Court of South Australia. View "Corso v. Rejuvi Laboratory, Inc." on Justia Law