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

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

Mano appealed the district court's holding, under 11 U.S.C. 550, that Mano was the initial transferee of $311,065.25 paid by debtor in connection with the sale of a six-acre shopping plaza in Raymondville, Texas. Applying the proper standard in the In re Incomnet dominion test, the court concluded that the district court did not err in determining that Mano was the initial transferee of the disputed funds and in declining to address Mano's alternative argument because it was waived. The court held that In re Presidential is no longer good law in this Circuit insofar as it conflicts with the pure dominion test articulated in In re Incomnet. Accordingly, the court affirmed the judgment of the district court. View "MANO-Y&M, Ltd. v. Field" on Justia Law

Mortgages Ltd. filed for Chapter 11 bankruptcy and ML Manager subsequently managed and operated the loans left in Mortgages Ltd.'s portfolio. After confirmation of the plan, Rev Op Group, a group of pass-through investors, moved for an order in the bankruptcy court ruling that ML Manager could not act as agent for their interests, and that objecting investors like Rev Op Group should not be obligated to pay any share of the exit financing loan. The bankruptcy court rejected these arguments in its Clarification Order and Rev Op Group appealed. ML Manager subsequently filed a notice of its intent to distribute proceeds according to an allocation model and a motion to approve distributions. Rev Op Group objected, but the bankruptcy court issued a Distribution Order overruling the objections and granting ML Manager's motion to approve the distributions. The district court affirmed both orders and Rev Op Group appealed. The court concluded, pursuant to In re Roberts Farms, that Rev Op Group's appeals are moot because it never moved to stay the appealed orders before the bankruptcy court or district courts. Even if the court were to extend its analysis beyond Roberts Farms, Rev Op Group would still not prevail. Any relief the court granted to Rev Op Group would require overturning previous distributions and allocations to third parties not before this court. Further, Rev Op Group's appeals must be dismissed under the four considerations from In re Thorpe Insulation Co. Accordingly, the court dismissed the appeals. View "In the Matter of: Mortgages Ltd." on Justia Law

Mortgages Ltd. filed for Chapter 11 bankruptcy and ML Manager subsequently managed and operated the loans left in Mortgages Ltd.'s portfolio. After the bankruptcy court confirmed the bankruptcy plan, ML Manager sought to sell some of the loans in Mortgages Ltd.'s portfolio. Rev Op Group, pass-through investors, objected to the sales. The bankruptcy court ruled that Rev Op Group's denials of allegations in ML Manager's complaint were implausible and held that Rev Op Group investors had executed the agency agreement at issue with ML Manager. The bankruptcy court denied Rev Op Group's motion for partial summary judgment, ruling that ML Manager had an agency coupled with an interest and that ML Manager was properly assigned the agency agreements at issue. ML Manager subsequently moved to sell two other properties and the bankruptcy court overruled Rev Op Group's objections, approving the property sales. Rev Op Group appealed and the district court affirmed. The court concluded that the Declaratory Judgment is not equitably moot where Rev Op Group diligently pursued its rights by seeking a stay of the Declaratory Judgment Order, even though it was unable to obtain the stay. Modification of the order would not inequitably affect innocent third parties although substantial consummation of the bankruptcy plan has occurred. The court also concluded that both the bankruptcy and district court erred by effectively resolving factual allegations in Rev Op Group's denials on the merits, instead of reviewing them for legal sufficiency. Accordingly, absent bad faith, the court reversed the bankruptcy court's determination in its Declaratory Judgment that each member of the Rev Op Group had executed the agency agreements, and was to be bound to those agreements. View "In the Matter of: Mortgages Ltd." on Justia Law

Plaintiffs filed a qui tam action against their bankruptcy trustee and others under the False Claims Act (FCA), 31 U.S.C. 3729-3733, alleging that the trustee presented fraudulent claims to the bankruptcy court in order to obtain payment of the $60 trustee's fee. The court held that the deposition of the trustee's realtor, James Grace, constitutes a public disclosure as to plaintiffs where plaintiffs were outsiders to the administrative investigation conducted by the Trustee's Office, which was entirely independent of plaintiffs' own investigation. Subject matter jurisdiction did not exist because plaintiffs were not the original source of the information under section 3730(e)(4)(B). Accordingly, the court affirmed the district court's dismissal. View "Malhotra v. Steinberg" on Justia Law