Justia U.S. 5th Circuit Court of Appeals Opinion SummariesArticles Posted in Bankruptcy
Veritex Community Bank v. Osborne
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
Port of Corpus Christi Authority v. Sherwin Alumina Co.
The Fifth Circuit denied the petitions for panel rehearing and rehearing en banc, and substituted the following opinion in place of the prior opinion.The Port filed an adversary proceeding against debtors, seeking to invalidate the bankruptcy sale and regain its easement. The court affirmed the district court's judgment upholding the bankruptcy court's decision rejecting the Port's sovereign immunity and fraud claims.In Tennessee Student Assistance Corporation v. Hood, the Supreme Court held that a bankruptcy court’s discharge of an individual's debt to the state of Tennessee did not violate the Eleventh Amendment. For purposes of the Eleventh Amendment, the court reasoned that the Port's easement was like Tennessee's debt claim against the estate: the state holds an interest burdening the bankruptcy res. Hood holds that a bankruptcy court's exercise of in rem jurisdiction over the debtor's estate can extinguish the state's interest burdening that res without implicating the Eleventh Amendment. Therefore, the court held that there was no Eleventh Amendment violation here. The Port's further argument to the contrary was foreclosed. The court also held that the Port failed to allege any intentional false representation under Bankruptcy Code section 1144. View "Port of Corpus Christi Authority v. Sherwin Alumina Co." on Justia Law
Trendsetter HR LLC v. Zurich American Insurance Co.
Zurich filed suit against Trend after Trend purchased workers' compensation insurance from Zurich and then eventually went with a new insurance provider. Trend then filed for bankruptcy and the bankruptcy court allowed Zurich's claims for various unpaid invoices, estimated future losses, and unpaid fee schedule write-down fees.The Fifth Circuit affirmed the district court's decision upholding the bankruptcy court's allowance of Zurich's unpaid-invoices and future-losses claims. The court applied federal bankruptcy law and held that there was no legal error due to unintentionality; Zurich's unpaid-invoices claim was a cognizable bankruptcy claim because the underlying invoices were enforceable rights to payment under New York law; the bankruptcy court did not clearly err in its assessment of the evidence by concurrently allowing Zurich's claims such that the total allowance was $4,674,629 for "future losses." The court also held that there was no error in the bankruptcy court's allowance of Zurich's claim for unpaid fee schedule write-down fees. In this case, Zurich has a cognizable claim to the unpaid fee schedule write-down fees, and the bankruptcy court did not clearly err by concluding that the "25% of Total Savings" fee, as applied to fee schedule write-downs, was not unconscionable. View "Trendsetter HR LLC v. Zurich American Insurance Co." on Justia Law
Whitlock v. Lowe
In this adversary proceeding, the Fifth Circuit held that appellant received fraudulently transferred funds and had an obligation to return the transferred funds to debtor, the transferor, for the benefit of his creditors. The court explained that appellant could satisfy that obligation by transferring the funds back to him prior to his bankruptcy filing, and nothing required her to hold onto the funds until after he filed for bankruptcy. Furthermore, if appellant had satisfied her obligation, there was nothing left for the trustee to recover. Accordingly, the court vacated the district court's judgment holding otherwise and remanded for further proceedings. View "Whitlock v. Lowe" on Justia Law
Henry v. Educational Financial Service
The Fifth Circuit withdrew its previously filed opinion and substituted the following opinion.The court held that its holding in In re Nat'l Gypsum Co., 118 F.3d 1059, 1069 (5th Cir. 1997), that bankruptcy courts have discretion to refuse to compel arbitration in proceedings seeking enforcement of a discharge injunction, remains good law following the Supreme Court's decision in Epic Sys., 138 S. Ct. at 1623-24. In this case, the court affirmed the bankruptcy court's denial of Wells Fargo's motion to compel arbitration of a dispute over whether debtor's discharge applied to a student loan. View "Henry v. Educational Financial Service" on Justia Law
Rose v. Select Portfolio Servicing, Inc.
Plaintiff filed suit against defendants, asserting a claim to quiet title and separately seeking a declaratory judgment that the statute of limitations had expired on defendants' power to foreclose on certain real property. Defendants counterclaimed for judicial foreclosure. The district court denied plaintiff's motion for summary judgment, granted summary judgment for defendants, and entered a final judgment and order of foreclosure.The Fifth Circuit affirmed, holding that 11 U.S.C. 362(c)(3)(A) terminates the automatic stay only with respect to the debtor; it does not terminate the stay with respect to the property of the bankruptcy estate. The court also held that Texas's statute of limitations does not bar defendants' claim for judicial foreclosure. Under the interpretation of section 362(c)(3)(A) that the court adopted, plaintiff's successive filings did not terminate the action with respect to the property of the bankruptcy estate. Therefore, the court held that the stay with respect to the property at issue in this case lasted the duration of the bankruptcy proceedings (269 days), and the statute of limitations was tolled for at least the same. Accordingly, defendants' counterclaim for judicial foreclosure was filed within the 269-day tolling period. View "Rose v. Select Portfolio Servicing, Inc." on Justia Law
Ultra Petroleum Corp. v. Ad Hoc Committee of Unsecured Creditors of Ultra Resources, Inc.
The Fifth Circuit treated the appellees' and the intervenors' joint petition for rehearing en banc as a petition for panel rehearing, granted the petition, withdrew its prior opinion, and substituted the following opinion.The court held that a creditor is not impaired by a reorganization plan simply because it incorporates the Bankruptcy Code's disallowance provisions. Because the bankruptcy court found otherwise and never reached the issue of whether the Bankruptcy Code disallows the creditors' claims for the Make-Whole Amount and the creditors' request for post-petition interest at the contractual default rates specified in the Note Agreement and the Revolving Credit Facility, the court remanded for the bankruptcy court to consider these issues. View "Ultra Petroleum Corp. v. Ad Hoc Committee of Unsecured Creditors of Ultra Resources, Inc." on Justia Law
Crocker v. Navient Solutions, LLC
A bankruptcy court does not have authority to enforce the discharge injunctions entered in other districts. Plaintiffs sought to certify a nationwide class of those who claim their education-loan debts were validly discharged but from whom the lender continues to demand payment.The Fifth Circuit held that the bankruptcy court erred in holding that it could address contempt for violations of injunctions arising from discharges by bankruptcy courts in other districts. Therefore, the court held that, as to Shahbazi and at least those debtors whose discharges were entered by courts in other districts, the bankruptcy court in these proceedings has no authority to enforce the resulting injunction. However, the court agreed with the bankruptcy court that the particular education loans involved here, although they were obtained in order to pay expenses of education, did not qualify as an obligation to repay funds received as an educational benefit, scholarship, or stipend because their repayment was unconditional. Therefore, they were dischargeable. The court remanded for further proceedings. View "Crocker v. Navient Solutions, LLC" on Justia Law
Henry v. Educational Financial Service
Debtor filed an adversary proceeding in bankruptcy court raising the issue of whether her bankruptcy discharge applied to a student loan. The Fifth Circuit affirmed the bankruptcy court's denial of Wells Fargo's motion to compel arbitration.The court held that its holding In re Nat'l Gypsum Co., 118 F.3d 1059, 1069 (5th Cir. 1997), -- that bankruptcy courts have discretion to refuse to compel arbitration in proceedings seeking enforcement of a discharge injunction -- remains good law following the Supreme Court's decision in Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018). The court held that Epic Systems shows that National Gypsum's doctrinal foundation remains sound. View "Henry v. Educational Financial Service" on Justia Law
Russell v. Russell
Ex-wife filed suit against her ex-husband, a Chapter 7 debtor, in bankruptcy court over a debt of $32,500 plus interest. The Fifth Circuit affirmed the district court's decision reversing the bankruptcy court's ruling in favor of the ex-husband. The court held that the ex-husband's payment to the ex-wife's former attorney did not terminate his obligation to the ex-wife because the attorney was no longer authorized to transact on the ex-wife's behalf. In this case, the attorney did not have actual or apparent authority to collect on the ex-wife's behalf. View "Russell v. Russell" on Justia Law