Justia U.S. 5th Circuit Court of Appeals Opinion Summaries

Articles Posted in Bankruptcy
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The Fifth Circuit reversed the district court's decision affirming the bankruptcy court's denial of plaintiff's motion for leave to amend. In this case, plaintiff sought to amend his complaint to include allegations that the Brewer & Pritchard attorneys assured him during a brief recess during bankruptcy proceedings that they would treat the bankruptcy court's proposed fees as part of plaintiff's "Gross Recovery" under his written agreement with Brewer & Pritchard.The court held that had plaintiff been granted leave to amend his complaint, his proposed claims—whatever their merit—would not have been subject to dismissal under the doctrine of res judicata. The court explained that the "conduct" plaintiff seeks to challenge is the alleged breach of fiduciary duty—the failure to follow through on the new representations supposedly made to him during the November 2017 hearing. Furthermore, at the time of the hearing, plaintiff could not have even known that the attorneys' assurances were misrepresentations, let alone that he should challenge them as such. The court remanded with instructions that plaintiff's motion for leave to amend be granted. View "Rohi v. Brewer" on Justia Law

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The Fifth Circuit held that the Bankruptcy Court had the equitable power emanating from 11 U.S.C. 105(a) to correct any error it may have committed in changing the date of the first creditors' meeting after the case was transferred out of the Eastern District. In this case, the Objectors reasonably relied on the issuance by the Northern District Bankruptcy Court's Clerk of a second, later date for the section 341(a) initial creditors' meeting and a corresponding new, later deadline for filing objections to discharge. The court also held that the Bankruptcy Court correctly denied debtor's discharge under section 727(a)(4)(A), and that the Bankruptcy Court was correct in finding that debtors' discharge could also be denied under section 727(a)(5). View "Yaquinto v. Ward" on Justia Law

Posted in: Bankruptcy
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In 2001-2013, Ridgeway worked for Stryker, which believed that Ridgeway intended to use its confidential business information at his next job. Stryker sued Ridgeway. A jury found that Ridgeway had breached his contractual obligations, breached his fiduciary duty, and violated Michigan’s Uniform Trade Secrets Act (MUTSA) and that the MUTSA violation was willful and malicious for purposes of an award of attorney’s fees. Ridgeway filed a Chapter 11 bankruptcy. The automatic stay caused by the filing of the petition prevented Stryker from making an attorney’s fee request in the Michigan proceedings. Stryker filed a proof of claim for $2,272,369.54, supported by hundreds of pages of time entries; the amount claimed and the corresponding time entries do not just relate to the lawyers’ work on the MUTSA claim. Stryker argued that, under the “Common Core” doctrine, its win on the MUTSA claim entitles it to attorney’s fees for all of its claims. Ridgeway argued that fee recovery under the Common Core doctrine “is reserved for fee awards in civil rights cases.”The bankruptcy court allowed Stryker’s proof of claim, including fees claimed under the Common Core doctrine. The district court and Fifth Circuit affirmed. Ridgeway has not shown that Michigan law requires statutory attorney’s fees to be “proved at trial.” The court upheld the striking of Ridgeway's "Common Core" objection as a sanction. Ridgeway did not comply with a court order to specify to which charges his objection applied. View "Ridgeway v. Stryker Corp." on Justia Law

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The Fifth Circuit held that section 4.1 of the Local Plan, which requires debtors in the Western District of Texas turn over to the bankruptcy trustee any tax refund amounts they receive in excess of $2,000, is invalid because it abridges debtors' substantive rights and conflicts with the Supreme Court's guidance on 11 U.S.C. 1325(b)(2).In this case, the bankruptcy court confirmed debtor's revised Chapter 13 plan which did not strike Section 4.1 or contain any nonstandard provision in Section 8. Therefore, the court vacated the bankruptcy court's confirmation of debtor's revised plan and remanded to allow her to file a new plan. View "Diaz v. Viegelahn" on Justia Law

Posted in: Bankruptcy
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The Fifth Circuit affirmed the bankruptcy court's ruling that the Coal Act obligations may be modified by Section 1114 of the Bankruptcy Code, which requires a debtor to keep paying benefits unless those benefits are modified through either an agreement between the debtor and the retirees' representative or a court order. The court also held that a Section 1114 modification is allowed only if the debtor and the retirees’ representative agree or the bankruptcy court orders changes after finding that the equities favor modification. The court clarified that a court must find that the principal purpose of the transaction is not to avoid liability under the Act.In this case, Westmoreland proposed modifying its obligations under the Coal Act pursuant to Section 1114. The Trustees of the Combined Plan and the 1992 Plan responded by filing a complaint for a declaratory judgment that Coal Act obligations are not "retiree benefits" and thus cannot be modified under Section 1114. View "Holland v. Westmoreland Coal Co." on Justia Law

Posted in: Bankruptcy
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After debtor filed for Chapter 7 bankruptcy, SEPH sought a judgment of nondischarge for $41 million that debtor owed. SEPH argued that debtor violated 11 U.S.C. 523(a) through two improper transactions: 1. intentionally diverting funds from SEPH by making disguised distributions to himself via sham real estate investments; and 2. purposefully withholding the Livingston Parish receivables from SEPH. The district court granted summary judgment in favor of debtor.The Fifth Circuit held that SEPH has raised a genuine dispute of material fact as to the impropriety of the Livingston Parish transaction. The court held that the bankruptcy court erred in assessing the evidence, and the issue of who to believe -- debtor (that he did receive consent) or SEPH (that no such consent was given) -- is a credibility determination for a finder of fact, not a query for summary judgment review. However, the court held that the bankruptcy court was correct to grant summary judgment in debtor's favor as to the disguised distribution transaction. Accordingly, the court affirmed in part, reversed in part, and remanded in part. View "SE Property Holdings, LLC v. Green" on Justia Law

Posted in: Bankruptcy
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This case involved an investor, Elbar, that wired money to Defendant Todd Prins, a former attorney, after the owner of a foreclosed property had declared bankruptcy. In this case, United hired Prins to conduct a foreclosure sale; Elbar wired funds to Prins; Prins stole those funds and used them to reimburse other clients.The Fifth Circuit held that the bankruptcy court properly found that Elbar violated the automatic stay thrice, and twice willfully. Furthermore, the court agreed with the bankruptcy court that Elbar is an extremely knowledgeable and sophisticated litigant that understands perfectly that its actions were a direct violation of the Bankruptcy Code. Therefore, the bankruptcy court was correct to weigh those violations against Elbar in its decision. The court also agreed with the bankruptcy court that neither Elbar's claim for equitable subrogation nor its claim for fraud in a real estate transaction warrant relief. Finally, the court rejected Elbar's claims against TransWorld and Industry including money had and received, unjust enrichment, and conversion. Because the district court failed to explain the exceptional circumstances justifying its denial of prejudgment interest, the court remanded with instructions to explain the exceptional circumstances, if any, that justify denial of prejudgment interest or to order prejudgment interest. View "Elbar Investments, Inc. v. Prins" on Justia Law

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Hidalgo, which is in Chapter 11 bankruptcy, alleged that it was denied a Paycheck Protection Program (PPP) loan under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) based on its status as a bankruptcy debtor. The bankruptcy court ruled in favor of Hidalgo and issued a preliminary injunction mandating that the SBA handle Hidalgo's PPP application without consideration of its ongoing bankruptcy.The Fifth Circuit held, under well-established circuit precedent, that the bankruptcy court exceeded its authority when it issued an injunction against the SBA Administrator. The court explained that the issue at hand is not the validity or wisdom of the PPP regulations and related statutes, but the ability of a court to enjoin the Administrator, whether in regard to the PPP or any other circumstance. Accordingly, the court vacated the preliminary injunction. View "Hidalgo County Emergency Service Foundation v. Carranza" on Justia Law

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After debtor filed for bankruptcy under Chapter 13, the trustee objected to confirmation of the plan. The bankruptcy court agreed to confirm the plan only if debtor chose one of two non-statutory conditions. The first option would require debtor to agree to divert all his disposable income for the first seven months to pay the unsecured creditors, and the second would incorporate into the confirmation order what is known as the Molina language. Debtor chose the Molina language.The court held that, unless debtor's plan fell short of the 11 U.S.C. 1325(a) criteria, the court was required to confirm the plan, subject to subsection 1325(b). The court analyzed the claimed shortcomings under section 1325(a) and rejected them. On de novo review, the court held that debtor's plan complied with 1325 (b)(1)(A), and the bankruptcy court was not prohibited by that section from confirming the plan. The court further held that imposing the Molina language was not necessary or appropriate to carry out any part of the Bankruptcy Code identified in the appeal. Finally, the court held that the Molina language violates section 1329. Accordingly, the court vacated the confirmation order and remanded to the bankruptcy court for further proceedings. View "Brown v. Viegelahn" on Justia Law

Posted in: Bankruptcy
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Veritex filed an adversary proceeding requesting that debtor's debt not be discharged because he furnished the bank with a materially false written financial statement. The bankruptcy court found that the statement was false and submitted with the intent to deceive, but discharged the debt because Veritex did not rely on the statement. The district court affirmed the bankruptcy court's judgment.The Fifth Circuit reversed and held that the bankruptcy court's finding that Veritex did not reasonably rely on debtor's 2013 financial statement is clearly erroneous. In this case, Veritex looked to debtor to guarantee the loan, and it relied heavily on his financial statement; the alleged red flags were not significant enough to alert Veritex to debtor's dishonesty; and the bankruptcy court erred in focusing on the soundness of the loan rather than the truthfulness of debtor's representations. The court also held that a fraudulent statement by a debtor's partner or agent may be imputed to the debtor under 11 U.S.C. 523(a)(2)(B). Therefore, the bankruptcy court did not err in finding that debtor's wife was his agent. The court rendered judgment in favor of Veritex. View "Veritex Community Bank v. Osborne" on Justia Law

Posted in: Bankruptcy