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

Timothy Blixseth, a debtor, faced an involuntary bankruptcy petition filed by the State of Montana Department of Revenue (State) along with other state tax agencies. The bankruptcy court dismissed the petition, finding the State's claim was subject to a bona fide dispute. Blixseth then filed an adversary proceeding under 11 U.S.C. § 303(i) seeking costs and damages from the State for the dismissed petition.The bankruptcy court denied the State's motion to dismiss the adversary proceeding, ruling that the State had waived its sovereign immunity by filing the involuntary petition and through statements made by its counsel. The State appealed to the Bankruptcy Appellate Panel (BAP), which dismissed the appeal, stating that the collateral order doctrine did not apply.The United States Court of Appeals for the Ninth Circuit reviewed the case and reversed the BAP's dismissal, holding that the collateral order doctrine did apply, allowing for immediate appeal. The Ninth Circuit also reversed the bankruptcy court's denial of sovereign immunity. The court held that the State did not waive its sovereign immunity by filing the involuntary petition or through its counsel's statements. Additionally, the court found that 11 U.S.C. § 106, which addresses sovereign immunity in bankruptcy proceedings, was unconstitutional.Applying the analysis from Central Va. Cmty. Coll. v. Katz, the Ninth Circuit concluded that Blixseth's § 303(i) claim was not necessary to effectuate the bankruptcy court's in rem jurisdiction. The court determined that the adversary proceeding did not further the core functions of bankruptcy jurisdiction, such as the equitable distribution of the debtor's property or the debtor's fresh start. Consequently, the Ninth Circuit reversed the bankruptcy court's denial of sovereign immunity and remanded with instructions to dismiss Blixseth's § 303(i) claim against the State. View "Montana Department of Revenue v. Blixseth" on Justia Law

The case involves debtors who filed a Chapter 11 bankruptcy petition, claiming a homestead exemption for their residence. They listed the exemption as "100% of FMV" (fair market value) on their bankruptcy schedule. No party in interest objected to this exemption within the 30-day period following the creditors' meeting. Later, the case was converted to Chapter 7 after one of the debtors passed away and the remaining debtor failed to meet Chapter 11 obligations. The Chapter 7 trustee sought to sell the residence, arguing that the exemption should be limited to the statutory cap.The Bankruptcy Court for the Eastern District of Washington ruled that the homestead exemption was limited to the statutory cap of $45,950, with the remaining value of the home belonging to the bankruptcy estate. The debtor appealed, and the Bankruptcy Appellate Panel (BAP) reversed the bankruptcy court's decision. The BAP held that because no objection was made within the 30-day period, the debtor was entitled to the full fair market value of the home, not limited by the statutory cap.The United States Court of Appeals for the Ninth Circuit reviewed the case. The court distinguished this case from Taylor v. Freeland & Kronz and Schwab v. Reilly, noting that the case began as a Chapter 11 bankruptcy, where the debtors owed fiduciary duties to their creditors. The court emphasized that within the 30-day objection period, the debtors made specific representations in their Chapter 11 documents indicating that they were not claiming an above-limit exemption and that creditors would be paid in full before any above-limit exemptions were allowed.The Ninth Circuit held that the initial failure to object did not mean the debtor could exempt more than the statutory limit. The court concluded that the homestead exemption was limited to the statutory cap, and the remaining proceeds from the sale of the home were part of the bankruptcy estate. The decision of the BAP was reversed, and the case was remanded for further proceedings consistent with this opinion. View "IN RE: MASINGALE" on Justia Law

The plaintiff, Rhita Bercy, filed a hostile work environment claim against her employer, the City of Phoenix, alleging a single course of conduct that continued over a period of nearly two years. She filed her bankruptcy petition within that two-year period. The claim was based on conduct that occurred both before and after she filed her bankruptcy petition. The parties agreed that a claim based on conduct before the petition, and any damages resulting from that conduct, belonged to the bankruptcy estate. The question was whether Bercy could recover damages on that claim for alleged harm arising from discriminatory conduct that occurred after she filed for bankruptcy.The United States District Court for the District of Arizona granted the City's motion for summary judgment, holding that Bercy lacked standing to pursue her claim. The court reasoned that because Bercy could have brought her claim at the time of her bankruptcy petition, and any subsequent damages were sufficiently rooted in prebankruptcy incidents, the entire claim belonged to the bankruptcy estate under 11 U.S.C. § 541(a)(1).On appeal, the United States Court of Appeals for the Ninth Circuit affirmed the district court's decision. The appellate court held that Bercy's hostile work environment claim was sufficiently rooted in the prebankruptcy past and thus belonged to the bankruptcy estate. Therefore, only the bankruptcy trustee had standing to sue on the claim. The court clarified that the Bankruptcy Code provides a “fresh start” to the debtor at discharge, but not “a continuing license to violate the law.” View "Bercy v. City of Phoenix" on Justia Law

A group of retirement and pension funds filed a consolidated putative securities class action against PG&E Corporation and Pacific Gas & Electric Co. (collectively, PG&E) and some of its current and former officers, directors, and bond underwriters (collectively, Individual Defendants). The plaintiffs alleged that all the defendants made false or misleading statements related to PG&E’s wildfire-safety policies and regulatory compliance. Shortly after the plaintiffs filed the operative complaint, PG&E filed for Chapter 11 bankruptcy, automatically staying this action as against PG&E but not the Individual Defendants. The district court then sua sponte stayed these proceedings as against the Individual Defendants, pending completion of PG&E’s bankruptcy case.The district court for the Northern District of California issued a stay of the securities fraud action against the Individual Defendants, pending the completion of PG&E's Chapter 11 bankruptcy case. The court reasoned that the stay would promote judicial efficiency and economy, as well as avoid the potential for inconsistent judgments. The plaintiffs appealed this decision, arguing that the district court abused its discretion by entering the stay.The United States Court of Appeals for the Ninth Circuit held that it had jurisdiction over this interlocutory appeal under the Moses H. Cone doctrine because the stay was both indefinite and likely to be lengthy. The appellate court found that the district court abused its discretion in ordering the stay as to the Individual Defendants. The court held that when deciding to issue a docket management stay, the district court must weigh three non-exclusive factors: the possible damage that may result from the granting of a stay, the hardship or inequity that a party may suffer in being required to go forward, and judicial efficiency. The appellate court vacated the stay and remanded for the district court to weigh all the relevant interests in determining whether a stay was appropriate. View "PUBLIC EMPLOYEES RETIREMENT ASS'N OF NEW MEXICO V. EARLEY" on Justia Law

The case under review centers around certain Chapter 7 debtors and their creditor. The debtors filed for Chapter 7 bankruptcy relief, but provided an incorrect mailing address for their creditor's attorney in their schedule of creditors. As a result, the creditor didn't file a claim in the bankruptcy case. The creditor later sought a determination that its default judgment in an unlawful detainer case wasn't discharged due to lack of notice of the bankruptcy.The bankruptcy court ruled in favor of the creditor, stating that no portion of the unlawful detainer judgment was dischargeable. This decision was affirmed by the Bankruptcy Appellate Panel. The debtors argued that all but a certain amount of the judgment, which they calculated to be what the creditor would have received had it filed a timely claim, was discharged. They also contended that the creditor seeking to recover the full amount would constitute a windfall.However, the United States Court of Appeals for the Ninth Circuit affirmed the lower courts' decisions. It concluded that a debtor’s failure to properly schedule a debt renders that debt nondischargeable in its entirety, rejecting the debtors' arguments. The court clarified that the issue of whether the debt could be enforced against the debtors is a matter of state law and interpretation of the prior state court judgment, and should be resolved by the state court. View "In re Licup v. Jefferson Avenue Temecula LLC" on Justia Law

The case in review involves Michele McKee, who claimed a homestead exemption for a property in Palm Springs where she formerly lived with her partner, Laura O’Kane. McKee argued that she should qualify for California’s homestead exemption, which partially protects the debtor’s home from creditors. However, she didn't physically reside in the property when she filed her bankruptcy petition and the court determined she didn't have the intent to return.The United States Court of Appeals for the Ninth Circuit affirmed the decision of the Bankruptcy Appellate Panel, which affirmed the bankruptcy court's order denying McKee the homestead exemption. The court held that McKee did not meet her burden of proving that she either physically occupied the property or intended to return to it. The court did not accept McKee's argument that because her partner's abuse made it impossible for her to return to the property, her testimony that she wished to do so should be enough to establish a homestead. The court noted that McKee had demonstrated no signs of intent to return, such as leaving her personal belongings at the property or retaining its address on her driver's license, therefore she did not show entitlement to a homestead exemption. View "MCKEE V. ANDERSON" on Justia Law

The district court appointed a receiver to claw back profits received by investors in a Ponzi scheme that was the subject of a Securities and Exchange Commission enforcement action. The receiver filed suit against certain investors, alleging fraudulent transfers from the receivership entities to the investors. The district court concluded that the receiver was bound by arbitration agreements signed by the receivership company, which was the instrument of the Ponzi scheme. The district court relied on Kirkland v. Rune.   The Ninth Circuit reversed the district court’s order denying a motion to compel arbitration. The panel held that EPD did not control because it addressed whether a bankruptcy trustee, not a receiver, was bound by an arbitration agreement. Unlike under bankruptcy law, there was no explicit statute here establishing that the receiver was acting on behalf of the receivership entity’s creditors. The panel held that a receiver acts on behalf of the receivership entity, not defrauded creditors, and thus can be bound by an agreement signed by that entity. But here, even applying that rule, it was unclear whether the receiver was bound by the agreements at issue. The panel remanded for the district court to consider whether the defendant investors met their burden of establishing that the fraudulent transfer claims arose out of agreements with the receivership entity, whether the investors were parties to the agreements and any other remaining arbitrability issues. View "GEOFF WINKLER V. THOMAS MCCLOSKEY, JR., ET AL" on Justia Law

Creditor Clifton Capital Group, LLC Clifton was chair of an official committee of unsecured creditors appointed by the Office of the United States Trustee to monitor the activities of debtor East Coast Foods, Inc., manager of Roscoe’s House of Chicken & Waffles. The bankruptcy court appointed Bradley D. Sharp as Chapter 11 trustee. Clifton objected to Sharp’s fee application, but the bankruptcy court awarded the statutory maximum fee. Clifton appealed. The district court concluded that Clifton had standing to appeal. On remand, the bankruptcy court again awarded the statutory maximum. Clifton again appealed, and the bankruptcy court affirmed. Clifton challenged the district court’s order affirming the bankruptcy court’s enhanced fee award of over $1 million dollars to the trustee in a funded bankruptcy.   The Ninth Circuit reversed the district court’s order affirming the bankruptcy court’s enhanced fee award. The panel wrote that the Ninth Circuit historically bypassed the Article III inquiry in the bankruptcy context, instead analyzing whether a party is a “person aggrieved” as a principle of prudential standing. The court, however, has returned emphasis to Article III standing following Susan B. Anthony List v. Driehaus, 573 U.S. 149 (2014), in which the Supreme Court questioned prudential standing. The panel held that Clifton lacked Article III standing to appeal the fee award because it failed to show that the enhanced fee award would diminish its payment under the bankruptcy plan, and thus it failed to establish an “injury in fact.” The panel concluded that Clifton did not show that the fee award impaired the likelihood or delayed the timing of its payment. View "IN RE: CLIFTON CAPITAL GROUP, LLC, ET AL V. BRADLEY SHARP" on Justia Law

Appellant, former Chief Financial Officer of Convergence Ethanol, Inc., and former employee of Convergence and its subsidiary California MEMS USA, Inc., challenged his liability for the unpaid payroll taxes of California MEMS. The bankruptcy court denied both sides’ motions for summary judgment on the issue of whether Appellant was a “responsible person” regarding the payroll taxes under 26 U.S.C. Section 6672. Rather than proceed to trial, Appellant agreed to a stipulated judgment allowing the Internal Revenue Service’s claim, but he made clear on the record that his consent was subject to his stated intention to appeal that judgment on the grounds that his motion for summary judgment should have been granted.   The Ninth Circuit affirmed the district court’s order affirming the bankruptcy court’s judgment in favor of the United States. The panel concluded that the bankruptcy court’s judgment was sufficiently “final” under Section 158(d)(1) because it fully disposed of the claims raised by Appellant’s adversary complaint. The panel held that jurisdiction was not precluded by the holding of Ortiz v. Jordan, 562 U.S. 180 (2011), and Dupree v. Younger, 598 U.S. 729 (2023), that, on appeal from a final judgment after a trial on the merits, an appellate court may not review a pretrial order denying summary judgment if that denial was based on the presence of a disputed issue of material fact. The panel held that the bankruptcy court correctly concluded that Appellant failed to show that, viewing the summary judgment record in the light most favorable to the IRS, a rational trier of fact could not reasonably find in the IRS’s favor. View "IN RE: RICHARD YORK, ET AL V. USA" on Justia Law

USA Sales, a California tobacco distributor, filed for Chapter 11 bankruptcy in 2016. As a Chapter 11 debtor in a UST district, federal law required USA Sales to pay quarterly fees to the UST. 28 U.S.C. Section 1930(a)(6). USA Sales sued for a refund of all excess fees paid, arguing that the 2017 Act violated the Bankruptcy Clause and also that the 2017 Act did not apply because USA Sales had filed for bankruptcy before the Act took effect. The district court agreed with both arguments and ordered a refund.   The Ninth Circuit affirmed the district court’s refund order, the panel held that USA Sales, Inc., was entitled to a refund for the unconstitutional statutory fees it paid as a bankruptcy debtor under the Bankruptcy Judgeship Act of 2017. The panel held that the 2017 Act applied to USA Sales’s bankruptcy proceeding, even though its case was already pending when the Act took effect. Turning to the remedy, and agreeing with other circuits, the panel held that U.S. Trustee district debtors are entitled to a refund of excess fees paid during the nonuniform period of statutory rates. Accordingly, USA Sales was entitled to a refund of the unconstitutional fees it paid in excess of those it would have paid in a Bankruptcy Administrator district from January 2018, when the 2017 Act fee provision took effect, to November 2019, when the bankruptcy court approved a structured dismissal of USA Sales’s case. View "USA SALES, INC. V. OFFICE OF THE U.S. TRUSTEE" on Justia Law