Caselaw Update - Saxton

Bankruptcy Case Law Update

Northern District of Florida

Bankruptcy Bar Association

Annual Seminar

September 16, 2016

A compilation of recent cases from the United States Supreme Court, the United States Court of Appeals for the Eleventh Circuit, and the Bankruptcy Court for the Northern District of Florida

(covering cases from September, 2015 through September, 2016)

Presented by Bradley M. Saxton, Esq.

Winderweedle, Haines, Ward & Woodman, P.A.

390 N. Orange Ave., Suite 1500

Orlando, FL 32801

(407) 246-8672

These materials were prepared and compiled by Bradley M. Saxton and C. Andrew Roy. We wish to thank the following members of the Florida Bar's Business Law Section Bankruptcy/UCC Committee who assisted with the monthly case summaries during the past year: Adam Seuss, Jay Brown, Kathleen DiSanto, Chris Thompson, Jennifer Morando, Joel Zwemer, Susan Sharp, Chris Broussard, Tom Messena, Nicolette Vilmos, Mark Mitchell, Mindy Mora

Supreme Court Opinions

June, 2016

Puerto Rico v. Franklin California Tax-Free Trust

136 S. Ct. 1938 (June 13, 2016)

  • Section/Rule/Keywords: Preemption: Who may be a Debtor
  • Summary: While in the midst of a financial crisis, Puerto Rico enacted the Puerto Rico Public Corporation Debt Enforcement and Recovery Act, which in part mirrored chapters 9 and 11 of the Bankruptcy Code. Employing a "plain language" analysis, the Supreme Court held that Section 903(1) of the Bankruptcy Code preempts the Recovery Act, because Puerto Rico is not a "State" under the definitional section of the Code in Section 101(52) and may not be a debtor under the "gateway" provision of Section 109(c) which governs "who me be a debtor".

May, 2016

Husky Intern. Electronics, Inc. v. Ritz

136 S. Ct. 1581 (May 16, 2016)

  • Section/Rule/Keywords: Exception to discharge; meaning of "actual fraud"
  • Summary: Creditor sought to collect its debt owed from Husky, by pursuing an

Eleventh Circuit Opinions

August, 2016

Gowdy v. Mitchell (In re Ocean Warrior, Inc.)

2016 WL 4490489 (11th Cir. August 26, 2016)

  • Section/Rule/Keywords: Civil Contempt
  • Summary: The Eleventh Circuit upholds the Bankruptcy Court’s authority under §105 to impose sanctions for civil contempt. In a case which spanned over 25 years, the Court upheld the Bankruptcy Court’s civil contempt sanction against the president of the Debtor for failing to turn over a vessel that was property of the estate. The civil contempt sanctions must be either compensatory or designed to coerce compliance.

In re Gonzalez

2016 WL 4245422 (11TH Cir. August 11, 2016)

  • Section/Rule/Keywords : Chapter 13, contempt and sanctions for violating confirmation order
  • Summary: After Chapter 13 debtor confirmed a plan of reorganization, the State of Florida Department of Revenue (DOR), which had filed a proof of claim for $2,400 for arrearages related to a domestic support obligation (DSO), sought to intercept a work-related travel reimbursement check to apply to the DSO. The DOR contended it was entitled to take the action because of the exception to the automatic stay related to domestic support obligations found in §362(b)(2)(c). The Court disagreed and instead held that §1327(a) which provides that the provisions of a confirmed plan are binding, is controlling, and upheld the bankruptcy court’s ruling that the DOR was in contempt for violating the confirmation order and awarded attorney’s fees to the debtor as a sanction.

July, 2016

JMC Memphis, LLC v. Kapila

2016 WL 3923833 (11th Cir. July 21, 2016)

  • Section/Rule/Keywords: Equitable Mootness
  • Summary: Prior to the Chapter 7 filing by an individual who was a member of an LLC, the LLC entered into a contract to sell an apartment complex owned by the LLC. At the time of the contract, the LLC had claims against its insurer as a result of several fires on the property. A separate fire occurred after the contract was entered into, but before the bankruptcy filing by the member of the LLC. The purchaser therefore had certain rights against the insurer as a result of this later fire. The bankruptcy trustee reached a settlement with the insurer which provided $750,000 to the bankruptcy estate in exchange for a settlement of all claims and included a bar order from any claims against the insurer. The purchaser objected and the Court resolved the objection by requiring $100,000 of the proceeds held in escrow pending a resolution of the purchaser’s claims related to the last fire. Upon appeal by the purchaser, the District Court dismissed the appeal as equitably moot. The Eleventh Circuit affirmed that decision, stating that equitable mootness applies where no effective judicial relief can be granted. Here, the settlement agreement was approved, the insurer paid the $750,000 and the Trustee had already made several disbursements from the funds. Therefore, unwinding the settlement would be impossible. The Court was also persuaded by the fact that the purchaser failed to exercise diligence by failing to pursue the insurance on its own and by failing to seek a stay of the bankruptcy court’s order.

DiMaria Properties, LLC v. 3400 Atlantic LLC (In re DiMaria Properties, LLC)

2016 WL 3688946 (11th Cir. July 12, 2016)

  • Section/Rule/Keywords: Motion for Reconsideration; Rule 9023
  • Summary: Eleventh Circuit affirms the decisions below holding that bankruptcy court did not commit error in denying a motion for reconsideration. The only basis for such a motion is newly discovered evidence or manifest errors of law or fact. Here, the arguments asserted by the debtor in the motion for reconsideration were arguments that the debtor had every opportunity to make earlier.

In re Bayou Shores SNF, LLC

2016 WL 3675462 (11th Cir. July 11, 2016)

  • Section/Rule/Keywords: Jurisdiction; Medicare provider agreements, mootness
  • Summary: In a Chapter 11 case involving a skilled nursing facility, the bankruptcy court enjoined the Secretary of Department of Health and Human Services from terminating the debtor’s Medicare and Medicaid provider agreements, which accounted for over ninety percent of the debtor’s revenue. HHS argued that the Bankruptcy Court lacked jurisdiction to enjoin the termination. After the District Court reversed the Bankruptcy Court, the Eleventh Circuit affirmed the District Court, concluding that as a result of a codification error, the operative statute, 42 U.S.C. §405(h), does not refer to §1334, and that the proper construction of the statute requires the exhaustion of administrative remedies before a Medicare claim is properly before a district court. Therefore, the bankruptcy court lacked jurisdiction over the termination of the provider agreements. The Court also rejected the debtor’s arguments that constitutional mootness and equitable mootness compel the reversal of the district court’s order.

May, 2016

Johnson v. Midland Funding, LLC

2016 WL 2996372 (11th Cir. May 24, 2016)

  • Section/Rule/Keywords: Claims; FDCPA
  • Summary: The Eleventh Circuit again dealt with the issue of filing time-barred claims in bankruptcy cases and the overlap of the FDCPA. The Court discussed its prior holding in Crawford and recognized that the Bankruptcy Code does allow for the filing of a proof of claim that appears time- 6 barred on its face. However, when a specific type of creditor, a "debt collector" under the FDCPA, files a claim it knows to be time-barred, that creditor can be vulnerable to a claim under the FDCPA.

April, 2016

Rosenberg v. DVI Receivables XIV, LLC

818 F. 3d 1283 (11th Cir. April 8, 2016)

  • Section/Rule/Keywords: Fed. R. Bankr. P. 9015(c), Fed. R. Civ. P. 50(b), motion for judgment as a matter of law
  • Summary: Creditors filed an involuntary Chapter 7 petition against a putative debtor that was ultimately dismissed with prejudice. When the bankruptcy court dismissed the petition, it maintained jurisdiction to award the debtor his costs, reasonable attorney's fees, and damages. The putative debtor then filed an adversary complaint under 11 U.S.C. §303(i) seeking attorneys' fees, compensatory and punitive damages against the petitioning creditors, which was subsequently moved to district court upon a motion to withdraw the reference. After a jury trial and entry of final judgment against the creditors, the creditors moved for judgment as a matter of law under Federal Rule of Civil Procedure 50(b). The district court held the motion was timely under Rule 50(b), which requires such motions to be filed no later than 28 days after entry of judgment. The Eleventh Circuit Court of Appeals reversed, holding a district court overseeing a case arising under title 11 must apply the filing deadline under Federal Rule of Bankruptcy Procedure 9015(c), which requires a motion for judgment as a matter of law to be filed no later than 14 days after entry of the judgment. Because the motion was filed more than 14 days after entry of final judgment, the Court of Appeals held the motion was untimely under Rule 9015(c).

March, 2016

In re Justice

817 F.3d 738 (11th Cir. March 30, 2016)

  • Section/Rule/Keywords: Dischargeability of tax returns
  • Summary: Delinquent tax returns which were filed by Chapter 7 debtor/tax payer many years late, without justification, and filed only after IRS issued notices of deficiency and assessed tax liability, are not "returns" under 523(a)(1)(B)(i). The Bankruptcy Court should assess the totality of the debtor's actions with the IRS in deciding whether a document filed by the debtor represents an honest and reasonable attempt to satisfy the requirements of the tax law.

In re Transbrasil S.A. Linhas Aereas

644 Fed. Appx. 959, 2016 WL 827521 (11th Cir. March 3, 2016)

  • Section/Rule/Keywords: 11 U.S.C. 107(b)(1); sealed documents; confidential research
  • Summary: Appeal from a district court order affirming in part and reversing in part a bankruptcy court order denying a motion to unseal documents. In order to prevent public dissemination of the trustee’s ongoing investigation, the bankruptcy court sealed certain motions and orders which enabled the trustee to conduct discovery into misappropriated assets. Upon learning that they were the subject of several of the trustee’s discovery requests to third parties, the appellants appeared in the underlying action and moved to unseal the documents. The 11th Circuit’s review was limited to the issue of whether the bankruptcy court abused its discretion by denying the appellant’s request to unseal the previously sealed documents. The appellants argued that the seal was improper because (i) the sealed documents did not constitute commercial confidential research and (ii) the trustee had not identified a compelling interest to seal the documents. The 11th Circuit rejected the appellant’s arguments and upheld the bankruptcy court’s decision because Section 107(b)(1) does not limit confidential research to commercial confidential research, nor does it require a compelling interest.

February, 2016

Slater v. U.S. Steel Corporation

2016 WL 723012 (11th Cir. Feb. 24, 2016)

  • Section/Rule/Keywords: Judicial estoppel
  • Summary: In employment discrimination case, plaintiff was judicially estopped from pursuing action because she failed to disclose the claim in her Chapter 7 case. Even after amending her schedules and SOFA, the district court still granted summary judgment in favor of the defendant based on judicial estoppel. Eleventh Circuit affirmed based on its past precedent.

December, 2015

In re Herman

2015 WL 941756 (11th Cir. Dec. 28, 2015)

  • Section/Rule/Keywords: Attorneys; bad faith; sanctions
  • Summary: Bankruptcy court did not abuse discretion in imposing sanctions and suspension of former debtor attorney who filed false statement of compensation, failing to report all fees received pre-petition, and for suborning false testimony from debtor that attorney knew was 8 false. The bankruptcy court did not make an explicit finding of bad faith, but relied on its inherent power under §105(a).

Ulricht v. Welt (In re Nica Holdings, Inc.)

801 F.3d 781 (11th Cir. Dec. 17, 2015)

  • Section/Rule/Keywords: Equitable mootness; assignment for benefit of creditors
  • Summary: Appeal of issue whether assignee under Florida assignment for benefit of creditors (ABC) had authority to initiate Chapter 7 bankruptcy case without explicit and plain authorization by assignor was not equitably moot, as numerous motions to stay pending appeal had been filed and it was not clear whether settlements had been substantially consummated and interested parties paid money into estate. Assignee under Florida assignment for benefit of creditors (ABC) cannot initiate Chapter 7 bankruptcy proceedings without explicit and plain authorization by the assignor. The power-of attorney paragraphs in the ABC agreement gave assignee broad power to act on behalf of assignor but only in furtherance of the ABC.

In re Parker

2015 WL 9240495 (11th Cir. Dec. 17, 2015)

  • Section/Rule/Keywords: stay violation; sanctions
  • Summary: Punitive damages, attorney’s fees and costs were awarded to debtor when creditor willfully violated automatic stay by continuing to prosecute a small claims action after receiving notice of the bankruptcy case and filing a proof of claim. Debtor had to file an adversary proceeding to force creditor to desist from further violating automatic stay, and the fees and costs incurred by debtor constitutes injury.

Oswalt v. Sedgwick Claims Management Services, Inc.

624 Fed. Appx. 740 (11th Cir. December 9, 2015)

  • Section/Rule/Keywords: standing; failure to disclose assets
  • Summary: Debtor’s pre-petition employment discrimination claims (which were not listed on the debtor’s schedule of assets) became part of bankruptcy estate when debtor’s Chapter 7 was filed, and bankruptcy trustee became the sole person with standing to bring the cause of action. Even if debtor re-opens bankruptcy case to amend list of assets to properly include the lawsuit that does not remedy debtor’s lack of standing.

In re Rodriguez

633 Fed. Appx. 524 (11th Cir. Dec. 2, 2015)

  • Section/Rule/Keywords: standing; pro se parties; default
  • Summary: Creditor’s pro se pleadings were struck, relating to a claimed mechanic’s lien held by a corporation, as the corporation could not proceed without an attorney. Assignment of the mechanic’s lien claim to an individual could not be used to circumvent the requirement that corporation be represented by an attorney to litigate the claim. Entry of default and default judgment in adversary proceeding were not set aside because pro se creditor did not demonstrate good cause for the failure to obtain counsel to represent creditor corporation and the claims raised in the proceeding related solely to the mechanic’s lien held by creditor corporation and creditor corporation failed to appear or answer.

November, 2015

U.S. v. Freeman

631 Fed. Appx. 784 (11th Cir. Nov. 16, 2015)

  • Section/Rule/Keywords: bankruptcy crime; concealment of assets; evidence
  • Summary: A criminal defendant appealed a conviction for concealment of assets in a bankruptcy proceeding, under 18 U.S.C. § 152(a). The basis for the conviction was premised on the defendant’s (a forensic certified public account) sale of real property (which the defendant co-owned with his mother) one day prior to the petition date, and use of those sale funds during the course of the defendant’s bankruptcy case without ever disclosing such proceeds to the trustee or on bankruptcy 10 schedules. The defendant appealed the conviction based on three theories: (1) the indictment was barred by the five-year statute of limitations; (2) the evidence presented at trial was insufficient for conviction; and (3) newly discovered evidence warranted a new trial. With regard to the statute of limitations, the Court held that the limitations period begins to run when the debtor is discharged, or, when a discharge is no longer possible, when the discharge became impossible. Because the defendant voluntarily dismissed his underlying bankruptcy case, the calculation date was not based on the day the defendant filed his notice of voluntary dismissal, but instead the day the bankruptcy court entered its written order of dismissal on the docket. As to the sufficiency of evidence, the Court found that to prove concealment of assets, there must be proof of a knowing and fraudulent concealment from a trustee, inter alia, of any property belonging to the debtor’s estate. Given the aforementioned facts, it was reasonable for the jury to conclude the defendant knowingly concealed assets of the estate. Lastly, the fact that the defendant discovered a brain tumor, which his expert testified likely effected his judgment, was insufficient to warrant a new trial as there was no evidence the tumor existed at the time of the concealment, or that the tumor effected his judgment. In addition, the doctor’s conclusions regarding the defendant’s condition did not satisfy Daubert in that the conclusions were based entirely on reports from the defendant and his friends and family, instead of based on scientific evidence.

In re Tobkin

638 Fed. Appx. 822 (11th Cir. Nov. 16, 2015)

  • Section/Rule/Keywords: Florida "earnings" exemption
  • Summary: Debtor appealed bankruptcy court order requiring turnover of funds to Chapter 7 trustee, as he claimed the funds were "earnings" under Fla. Stat. § 222.11. Debtor also claimed the trustee failed to property object to his exemption of the funds. Debtor is an attorney who ran his own law practice, and filed for relief under Chapter 13. The funds that debtor claimed exempt as earnings were contingency fees he was expecting to receive after the petition date. The Chapter 13 trustee timely objected to the debtor’s exemption, and then the case was converted to Chapter 7. Post-conversion, debtor filed a motion to deem the funds exempt as earnings, which the bankruptcy court denied. The bankruptcy court found the funds were proceeds from debtor’s business, which, in accordance with Florida law, do not constitute earnings absent an arms-length employment agreement, which debtor did not have. Debtor appealed that decision, which was eventually dismissed for want of prosecution. As to the Chapter 7 trustee’s failure to timely object to debtor’s exemption, the Court found res judicata barred such argument because debtor’s original appeal was dismissed for want of prosecution. Because that argument was originally presented then, the dismissal of the appeal constitutes a decision on the merits.

October, 2015

Mantiply v. Horne (In re Horne)

630 Fed. Appx. 908, 2015 WL 65000754 (11th Cir. Oct. 28, 2015)

  • Section/Rule/Keywords: Recusal
  • Summary: The Eleventh Circuit addressed the federal judge recusal statute, 28 U.S.C. §455(a). The case involved a motion seeking damages for violating the automatic stay and the discharge injunction against a creditor. The Bankruptcy Court awarded damages to the debtor. The creditor later learned that a witness, a paralegal for the debtor’s bankruptcy attorney who offered testimony by affidavit which contradicted the creditor’s testimony, was the sister of the judge’s courtroom deputy. Apparently, the creditor believed the judge credited the paralegal’s testimony over the creditor’s. The Eleventh Circuit affirmed the district court’s finding that recusal was not warranted where there was no evidence in the record that the courtroom deputy had a role in the judge’s substantive decision-making process. A mere connection or relationship to chambers is not enough to invoke recusal.

Wallace v. McFarland (In re McFarland)

619 Fed. Appx. 962 (11th Cir. Oct. 16, 2015)

  • Section/Rule/Keywords: Fraudulent transfer
  • Summary: Trustee sought to avoid a transfer of real property from the debtor to his wife which occurred after a personal injury lawsuit had been filed against the debtor. The debtor and his wife contended that the wife was the equitable owner of one-half of the property which the debtor and his wife together had owned for approximately forty years and the deed was simply to correct the legal title and reflect the wife’s existing ownership. The Bankruptcy Court rejected this argument and the District Court affirmed. The Eleventh Circuit thoroughly analyzed the defendant’s arguments, concluding that they failed to establish the existence of either a "purchase money resulting trust" or a constructive trust under Georgia law, and found that the bankruptcy court did not err in avoiding the transfer.

Northern District of Florida Opinions (from the Bankruptcy Court and the District Court)

June, 2016

In re Hamrick

551 B.R. 860 (Bankr. N.D. Fla. June 23, 2016 (Specie, J.)

  • Section/Rule/Keywords: Civil Contempt; failure to produce records
  • Summary: Debtor failed to produce documents in response to a subpoena, and did not file Schedules or a Statement of Financial Affairs. He also refused to answer questions at his 341 meeting. The Court admonished the debtor regarding the very serious nature of the issues and emphasized the importance of complying with Court Orders. When the debtor failed to appear or offer any evidence of a good faith effort to produce documents, the Court ordered the debtor in contempt and further provided the actions that would purge the contempt, and that if the debtor failed to purge the contempt that a bench warrant would be issued and he would be incarcerated.

April, 2016

In re Britt

551 B.R. 522 (Bankr. N.D. Fla. April 21, 2016) (Specie, J.)

  • Section/Rule/Keywords: Attorney’s fees; fee applications
  • Summary: Secured creditor in individual Chapter 11 case sought $43,090.50 in fees to be added to its over-secured claim. Debtor objected and urged the Court to limit the fees to $10,000.The Bankruptcy Court, in a very thorough analysis, reviewed the fees in detail and responded to each objection by the debtor. The Court concluded that the fees should be allowed in the amount of $32,021.00, reductions which resulted from problems with the fee application which included a lack of specificity in the description of services, some instances of "block billing", duplication of effort, and charges for clerical work.

March, 2016

Thacker v. Venn

--- -B.R. ---, 2016 WL 1271485 (N.D. Fla. March 31, 2016) (Hinkle, J.)

  • Section/Rule/Keywords: 11 U.S.C. 544; property of the estate; collateral estoppel
  • Summary: The debtors, a husband and wife, appealed a judgment in favor of the chapter 7 trustee finding that certain transfers avoided pre-petition by a Florida state court created a property interest in the husband and that those interests were part of the bankruptcy estate. The Florida state court action at issue involved a judgment against the husband. Subsequent to the entry of the judgment against the husband, the judgment creditor initiated proceedings supplementary against the husband and the wife to avoid the transfer of millions of dollars in assets to a revocable living trust. The state court found that the transfers were fraudulent and ordered that certain property revert back to the sole ownership and possession of the husband "in his personal and individual name." The debtors subsequently filed bankruptcy. The district court upheld the bankruptcy court’s summary judgment in favor of the trustee, determining that the state court judgment created a property right in the debtor husband prior to the filing of the bankruptcy, and, therefore, the property at issue was pretty of the estate. The district court also rejected the debtors’ position that they were entitled to an evidentiary hearing on the issue. The crux of the debtors’ argument was that the debtor wife was not a party to the state court action in her individual capacity but rather only in her capacity as trustee of the family revocable trust. However, the district court found that the wife, individually had been served with an order to show cause and had appeared at a hearing in both her individual capacity and in her capacity as trustee. Accordingly, the district court held that collateral estoppels precluded an evidentiary hearing on the issue.

January, 2016

In re Baker

544 B.R. 461 (Bankr. N.D. Fla. Jan. 29, 2016) (Specie, J.)

  • Section/Rule/Keywords: Chapter 13; dismissal
  • Summary: Chapter 13 case was dismissed after pro se debtor failed to file schedules or a mailing matrix, and following Court order to show cause and the clerk’s issuance of a "Section 521 Final Deficiency Notice". The Court then received a letter, purportedly from the Debtor’s "Family", not signed by the debtor, which recited a series of health and family issues which have impacted the Debtor. The Court ruled that the letter should be stricken, stating that to obtain the benefits of bankruptcy, a debtor must comply with the requirements of the Bankruptcy Code, the Bankruptcy Rules, and the rules and procedures of the Bankruptcy Court.