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

In this bankruptcy appeal, the issue presented for the Ninth Circuit’s review was one of first impression regarding some key provisions of 11 U.S.C. 1111(b) that apply to Chapter 11 proceedings for those who hold non-recourse liens on real property who are granted recourse against the bankruptcy estate upon the filing of the bankruptcy petition. Those protected are creditors who have “a claim secured by a lien on property of the estate.” The issue before the Court was whether the creditor continues to have a right of recourse after there has been a non-judicial foreclosure, so that the property is no longer part of the estate and the liens have been extinguished. The Bankruptcy Appellate Panel (“BAP said no and the Ninth Circuit affirmed. View "Mastan v. Salamon" on Justia Law

When debtors filed for bankruptcy in 2013, PNC Bank filed a claim based on a 2007 note. Debtors objected, contending that the claim was barred by California's applicable four-year statute of limitations. PNC argued, however, that the claim was timely because the promissory note's choice of Ohio law incorporated Ohio's six-year limitations period. The bankruptcy judge agreed that Ohio's six-year limitations applied to this case. The Bankruptcy Appellate Panel reversed. The court concluded that where a choice-of-law provision does not expressly include the statute of limitations, the court has construed it as silent on the issue. The court explained that where no statute of limitations is provided for a federal cause of action, the law of limitations of the forum state is followed. However, in this case, the court reasoned that the application of Section 142 of the Restatement (Second) of Conflict of Laws compels the conclusion that California's shorter statute of limitations does not apply, because this case presents the sort of "exceptional circumstances" under which the 1988 version of the Second Restatement looks past the law of the forum, and applies a longer foreign limitations period. Accordingly, the court reversed and remanded to the bankruptcy court for further proceedings. View "PNC Bank v. Sterba" on Justia Law

Debtor was the former owner and operator of two towing companies, Yellow Logistics and Yellow Express. In this case, the bankruptcy court sanctioned the companies for violating the automatic stay by pursuing civil contempt proceedings against debtor based on his failure to pay discovery sanctions in a state court action. The court held that under In re Berg, civil contempt proceedings are exempted from the automatic stay under the Bankruptcy Code's government regulatory exemption, when, as here, the contempt proceedings are intended to effectuate the court's public policy interest in deterring litigation misconduct. Therefore, the court concluded that the bankruptcy court erred, and affirmed the decision of the Bankruptcy Appellate Panel (BAP), though on a different basis than that discussed by the BAP. View "Dingley v. Yellow Logistics, LLC" on Justia Law

This case stemmed from the FTC's successful enforcement action against debtor and his former company, Commerce Planet, for violation of the FTC Act, 15 U.S.C. 45(a). On appeal, debtor challenged the district court's order reversing the bankruptcy court's grant of summary judgment and remanding for further fact-finding. The court concluded that it lacked jurisdiction under 28 U.S.C. 1291 because the district court's order did not end the litigation on the merits and leave nothing for the district court to do but execute the judgment; the court lacked jurisdiction under 28 U.S.C. 1292 because the district court did not certify its decision for interlocutory review; the court lacked jurisdiction under 28 U.S.C. 158(d)(1) where the district court's ruling did not end the discrete proceeding before it, namely the FTC's adversary action; and the court explained that Bullard v. Blue Hills Bank compelled the conclusion that rulings in bankruptcy cases that neither end a case nor a discrete dispute, but rather remand for further fact-finding on a central issue, were not final for purposes of section 158(d). Accordingly, the court dismissed the appeal based on lack of jurisdiction. View "Gugliuzza v. FTC" on Justia Law

The bankruptcy trustee sought to recover for the bankruptcy estate a $190,595.50 loan payment debtor Tenderloin made to BOTW within ninety days of the filing of Tenderloin's chapter 7 bankruptcy. The "greater amount test" in 11 U.S.C. 547(b)(5) requires that the trustee demonstrate that by virtue of that payment BOTW received more than it otherwise would have in a hypothetical chapter 7 liquidation where the challenged transfer had not been made. The district court granted summary judgment for BOTW and found that the trustee could not satisfy section 547(b)(5) because BOTW had a right of setoff, and Tenderloin's account contained at least $190,595.50 on the petition date. The trustee asserted that in the hypothetical liquidation, the trustee would avoid a $526,402.05 deposit, leaving less than $190,595.50 in Tenderloin's account, even allowing for BOTW's right of setoff. The court concluded that courts may account for hypothetical preference actions within a hypothetical chapter 7 liquidation when such an inquiry was factually warranted, was supported by appropriate evidence, and the action would not contravene an independent statutory provision. In this case, the court was satisfied that the $526,402.05 deposit would constitute an avoidable preference in the hypothetical liquidation at issue here. Accordingly, the court reversed and remanded for further proceedings. View "Schoenmann v. Bank of the West" on Justia Law

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

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

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

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

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