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

Appian was created by the Enea brothers, who were its only shareholders and officers. Appian managed real estate development projects, including Monticello, of which Appian was a General Partner, and Monterrosa, of which Appian was the Managing Member. Double Bogey invested approximately $4 million in Monticello as its Limited Partner, and $1 million in Monterrosa as a non-managing member. Double Bogey never recovered any of its investment in Monterrosa and did not receive profits from either investment. After Appian failed to provide an accounting of its investments, Double Bogey filed suit. The Eneas and Appian separately filed for Chapter 7 bankruptcy. Double Bogey brought an adversary proceeding, claiming that: Appian was Double Bogey’s fiduciary with respect to the investments; Appian was liable for lost principal and profits; the liabilities were created by Appian’s “defalcation;” and the Eneas were also liable for such non-dischargeable debt either because of their own defalcation or as alter egos of Appian. Liabilities created by a fiduciary’s defalcation are not dischargeable in bankruptcy under Bankruptcy Code Section 523(a)(4). The bankruptcy court rejected the claims. The Ninth Circuit affirmed, agreeing that merely finding the Eneas were alter egos of Appian under California law was insufficient to hold that they were Double Bogey's “fiduciaries” under Section 523(a)(4). View "Double Bogey LP v. Enea" on Justia Law

ASARCO appealed the district court's grant of summary judgment for CNA in ASARCO's suit for contribution under section 113(f)(3)(B) of the Comprehensive Environmental Response,Compensation, and Liability Act (CERCLA), 42 U.S.C. 9613(f)(3)(B). The district court dismissed the complaint. The court held that a judicially approved settlement agreement between private parties to a CERCLA cost-recovery suit starts the clock on the three-year statute of limitations in section 113(g)(3)(B), and that a later bankruptcy settlement that fixes the costs of such a cost recovery settlement agreement does not revive a contribution claim that has otherwise expired. The court's holding that a later bankruptcy settlement with the government cannot revive an otherwise expired contribution claim ensures that a party does not receive a benefit that it had not paid for in the bankruptcy settlement. In this case, the court concluded that ASARCO's time to file contribution claims pursuant to the Wickland Agreement has expired, and that the Wickland Agreement covered all response costs at the Selby Site and the 2008 bankruptcy settlement merely fixed costs. Accordingly, the court affirmed the judgment. View "ASARCO v. Celanese Chem. Co." on Justia Law

Lender challenged the district court's denial of Lender's appeal from the bankruptcy court's order confirming a Chapter 11 plan of reorganization based on equitable mootness grounds. At issue was whether a lender that made colorable objections to a plan of reorganization in bankruptcy court and then diligently sought a stay in order to litigate those objections may obtain review of its objections on appeal even though the plan has been implemented. The court held that the lender’s objections are not equitably moot and should be considered on appeal because it would be possible to devise an equitable remedy to at least partially address the lender’s objections without unfairly impacting third parties or entirely unraveling the plan. Accordingly, the court reversed and remanded for further proceedings. View "JPMCC 2007-C1 Grasslawn Lodging v. Transwest Resort Properties" on Justia Law

The chapter 7 trustee paid the 2005 federal income taxes of a bankruptcy estate without first providing notice to a creditor of the estate, requesting a hearing to determine the appropriate amount of those taxes, or obtaining an order of the bankruptcy court authorizing the payment of those taxes. At issue was whether section 503 of the Bankruptcy Code, 11 U.S.C. 503(b), requires a chapter 7 trustee to provide notice to creditors, and obtain a hearing, before paying taxes incurred by the estate. The court held that the plain language of section 503 requires that notice and a hearing be provided before the payment of taxes as administrative expenses, and that this requirement does not impose inconsistent obligations on trustees under other provisions of the Bankruptcy Code or the Internal Revenue Code. Accordingly, the court remanded with directions for the bankruptcy court to determine the amount of 2005 federal income taxes due from the estate and to conduct other appropriate proceedings. View "Dreyfuss v. Cory" on Justia Law

After attorney Michael Beyries stole $25,000 from his client, Northbay, he filed for bankruptcy and Northbay sought a determination that the debt was nondischargeable. The bankruptcy court applied the doctrine of unclean hands and held that Northbay's illegal marijuana sales prevented it from obtaining relief. The court reversed, concluding that Beyries's wrongdoing outweighed Northbay's and that application of the unclean hands doctrine to absolve an attorney of responsibility for stealing for his client would be contrary to the public interest. View "Northbay Wellness v. Beyries" on Justia Law

Adamson manufactures and sells clothing and accessories. Arnold H. Simon, Adamson's president and CEO, entered into two separate agreements with CIT to guarantee a loan. Adamson subsequently filed for bankruptcy and a Committee was appointed to represent the interests of Adamson's unsecured creditors. The Committee filed this adversary action against Simon under a preference-liability theory. The bankruptcy court entered judgment in favor of Simon, holding that he was exempt from preference liability because he was not a creditor of Adamson. The district court affirmed. The court affirmed, holding that a corporate insider who personally guaranteed his corporation’s loan is absolved of any preference liability to which he might otherwise have been subjected, where he had previously waived his indemnification rights against the corporation, he had a bona fide basis for doing so, and he took no subsequent actions to negate the economic impact of that waiver. The court declined to join several bankruptcy courts in stepping away from the plain language of the Bankruptcy Code and subjecting an insider guarantor to preference liability where a transfer works to his benefit, even if he had unconditionally waived all claims against the debtor. View "In re Adamson Apparel, Inc." on Justia Law

Jane O’Donnell paid for a minority membership interest in Tristar Esperanza Properties, LLC. O’Donnell later withdrew from the LLC, and Tristar elected the purchase her membership interest. The parties disagreed on the proper valuation of O’Donnell’s membership interest, and O’Donnell brought a contractual arbitration action. When Tristar failed to pay O’Donnell the amount an arbitrator awarded, O’Donnell sought and received a money judgment for that amount in state court. Tristar subsequently filed a chapter 11 bankruptcy petition. O’Donnell filed a claim against Tristar based on her state-court judgment. Tristar, in turn, filed an adversary proceeding against O’Donnell seeking to subordinate her claim under 11 U.S.C. 510(b) and (c) or to avoid her claim as a preference. The bankruptcy court entered summary judgment in favor of Tristar on the section 510(b) claim and in favor of O’Donnell on all other claims. The Bankruptcy Appellate Panel (BAP) affirmed, concluding that O’Donnell’s claim was subject to mandatory subordination under the Bankruptcy Code. The Ninth Circuit affirmed, holding that because the claim was for “damages arising from the purchase or sale” of a “security of the debtor,” the bankruptcy court properly subordinated it. View "Pensco Trust Co. v. Tristar Esperanza Props." on Justia Law

At issue in this case was the extent to which a bankruptcy estate may reach a beneficiary’s interest in a spendthrift trust that consists entirely of payments from principal under the Probate Code of the state of California. The beneficiary claimed that Cal. Prob. Code 15306.5 caps the bankruptcy estate’s access at twenty-five percent of his trust interest. The bankruptcy trustee sought to reach more than twenty-five percent of the beneficiary’s interest under Cal. Prob. Code 15301(b) and 15307, which it argued was not subject to the section 15306.5 cap. The bankruptcy court ruled in favor of the beneficiary, concluding that section 15306.5 establishes an “absolute maximum cap on what is recoverable by a judgment creditor at 25 percent.” The Ninth Circuit Bankruptcy Appellate Panel (BAP) affirmed. To resolve the issue as to whether a bankruptcy estate may access more than twenty-five percent of a beneficiary’s interest in a spendthrift trust such as the one in this case under other sections of the Probate Code, the Ninth Circuit requested that the California Supreme Court exercise its discretion to accept a certified question addressing the issue. View "Frealy v. Reynolds" on Justia Law

Debtor appealed from the Bankruptcy Appellate Panel's decision affirming the bankruptcy court's dismissal of her voluntary Chapter 12 petition. The court affirmed the dismissal of debtor's petition because her "aggregate debts" exceeded $3,792,650, the statutory limitation for Chapter 12 eligibility in effect at the time debtor filed her petition pursuant to 11 U.S.C. 101(18)(A). The court concluded that a creditor's claims remains a "debt" so long as it is enforceable against either the debtor or the debtor's property. Accordingly, the debtor's "aggregate debts" include the amount of that claim, even after a prior discharge from personal liability under Chapter 7. In this case, debtor's schedules lists claims totaling $4.1 million, which is above the cap for Chapter 12 eligibility in effect at the time of her petition. View "Davis v. U.S. Bank" on Justia Law

Plaintiff was appointed the chapter 7 trustee when Hokulani Square filed for bankruptcy. The trustee moved to auction Hokulani's principal assets and two groups of secured creditors jointly submitted the winning bid at $1.5 million. The secured creditors exercised their right to credit bid under 11 U.S.C. 363(k) and the trustee subsequently petitioned the bankruptcy court for compensation. The UST objected on the ground that including the value of the credit bid was not authorized under section 326(a). The court agreed with its sister circuits and held that section 326(a) does not permit a trustee to collect fees on a credit bid transaction in which the trustee disburses only property, not "moneys," to the creditor. Accordingly, the court affirmed the bankruptcy appellate panel's reversal of the bankruptcy court's award of compensation to the trustee. View "Tamm v. UST" on Justia Law