Justia Civil Procedure Opinion Summaries

Highland Capital Management, L.P., a Dallas-based investment firm, filed for Chapter 11 bankruptcy in 2019 due to numerous unpaid judgments and liabilities. During the bankruptcy proceedings, James Dondero, a co-founder, stepped down as a director and officer but continued as an unpaid portfolio manager. The unsecured creditors' committee and independent directors opposed Dondero's reorganization plans, leading to his resignation in October 2020. The bankruptcy court held Dondero in civil contempt and sanctioned him for obstructing the proceedings. The proposed reorganization plan included provisions to shield Highland Capital and associated entities from liability, including an Exculpation Provision and an Injunction Provision with a Gatekeeper Clause.The bankruptcy court confirmed the plan, but on direct appeal, the United States Court of Appeals for the Fifth Circuit reversed the plan in part, striking certain non-debtors from the Exculpation Provision. The investment fund parties requested clarification on whether the same entities should be removed from the Gatekeeper Clause. The bankruptcy court conformed the plan by narrowing the definition of "Exculpated Parties" but did not change the definition of "Protected Parties" in the Gatekeeper Clause, leading to the current appeal.The United States Court of Appeals for the Fifth Circuit reviewed the case and concluded that the bankruptcy court failed to implement its instructions properly. The court held that the definition of "Protected Parties" in the Gatekeeper Clause must be narrowed to include only the Debtor, the Independent Directors for conduct within their duties, the Committee, and the members of the Committee in their official capacities. The court reversed the bankruptcy court's decision in part and remanded the case for the plan to be revised accordingly. View "Highland Capital Fund Advisors v. Highland Capital Management" on Justia Law

David Levine, former CEO of Geostellar Inc., was accused of defrauding and bankrupting the company. Geostellar had a directors and officers insurance policy from Philadelphia Indemnity Company, which began providing Levine's defense. The policy had a $3 million coverage limit. Levine and his wife later filed for personal bankruptcy, which stayed the Geostellar adversary action. The Geostellar Trustee moved to lift the stay to proceed against Levine to the extent of the insurance coverage, admitting that Levine's debt to Geostellar was uncollectable beyond the insurance coverage.The bankruptcy court granted the motion to lift the stay. The Trustees then filed an adversary action for declaratory judgment, seeking to establish that the right to settlement under the policy was an asset of the Levine Bankruptcy Estate, for which the Levine Trustee was the exclusive representative. The bankruptcy court dismissed the action, and the district court affirmed, finding that neither Trustee had standing to sue the insurer.The United States Court of Appeals for the Fourth Circuit reviewed the case and affirmed the district court's decision. The court held that the Geostellar Trustee had no standing because West Virginia law did not permit a direct action against the insurer under the circumstances, and the policy only provided coverage to Levine, not Geostellar. The Levine Trustee also lacked standing because any judgment in the Geostellar adversary action would not impact the Levine Bankruptcy Estate, as Levine's debt to Geostellar was discharged and uncollectable beyond the insurance coverage. The court concluded that the right to consent to settlement under the policy was not the property of either Trustee. View "Fluharty v. Philadelphia Indemnity Insurance Co." on Justia Law

Michael Chapman, an Alabama inmate, sued prison officials and staff for deliberate indifference to his medical needs, violating the Eighth Amendment. Chapman alleged that an untreated ear infection led to severe injuries, including mastoiditis, a ruptured eardrum, and a brain abscess. He also claimed that the prison's refusal to perform cataract surgery on his right eye constituted deliberate indifference. The district court granted summary judgment for all defendants except the prison’s medical contractor, which had filed for bankruptcy.The United States District Court for the Middle District of Alabama found Chapman’s claim against nurse Charlie Waugh time-barred and ruled against Chapman on other claims, including his request for injunctive relief against Commissioner John Hamm, citing sovereign immunity. The court also concluded that Chapman’s claims against other defendants failed on the merits and dismissed his state-law claims without prejudice.The United States Court of Appeals for the Eleventh Circuit reviewed the case. The court reversed the district court’s determination that Chapman’s claim against Waugh was time-barred, finding that Chapman’s cause of action accrued within the limitations period. The court vacated the district court’s judgment for Waugh and remanded for reconsideration in light of the recent en banc decision in Wade, which clarified the standard for deliberate indifference claims. The court also vacated the judgment for Hamm on Chapman’s cataract-related claim for injunctive relief, as sovereign immunity does not bar such claims. Additionally, the court vacated the summary judgment for all other defendants due to procedural errors, including inadequate notice and time for Chapman to respond, and remanded for further consideration. View "Chapman v. Dunn" on Justia Law

In this case, the plaintiff, a Chapter 11 Trustee for BK Racing, LLC, initiated an adversary proceeding against multiple defendants, including Ronald and Brenda Devine, various family trusts, and corporate entities. The defendants were accused of obstructing the bankruptcy process by failing to comply with discovery obligations, including not producing required financial documents and records, despite multiple court orders.The bankruptcy court found that the defendants willfully disregarded their discovery obligations and engaged in a pattern of obstruction and delay. As a result, the court entered a default judgment against the defendants as a discovery sanction, awarding the plaintiff $31,094,099.89. The district court affirmed this decision, noting the defendants' repeated noncompliance and the necessity of deterrence.The United States Court of Appeals for the Fourth Circuit reviewed the case. The court upheld the lower courts' decisions, finding no abuse of discretion in the entry of default judgment. The court applied the Wilson factors, determining that the defendants acted in bad faith, caused significant prejudice to the plaintiff, necessitated deterrence, and that lesser sanctions would be ineffective. The court also affirmed the decision to pierce the corporate veil, holding the defendants jointly and severally liable, based on evidence that the corporate entities were mere instrumentalities of the Devines, lacking proper corporate formalities and used to siphon funds.The Fourth Circuit concluded that the bankruptcy court's findings were not clearly erroneous and that the default judgment and the amount awarded were appropriate given the defendants' egregious conduct. The decision of the district court was affirmed. View "Smith v. Devine" on Justia Law

Alice Guan and her homeowners association (HOA), Ellingsworth Residential Community Association, Inc., were involved in a dispute after Guan failed to conform her yard to the HOA’s covenants. Ellingsworth sued Guan in state court, and Guan countersued for various state-law claims. The state court awarded Guan costs and fees, but before she could collect, Ellingsworth filed for subchapter V bankruptcy.In the Bankruptcy Court, Guan filed several motions, including objections to Ellingsworth’s subchapter V eligibility and reorganization plan, and a motion for relief from the automatic stay. The Bankruptcy Court overruled Guan’s objections, confirming Ellingsworth’s subchapter V status and reorganization plan, and denied her motion for relief from the stay. Guan appealed these decisions to the District Court.The District Court affirmed the Bankruptcy Court’s orders, finding that Ellingsworth was eligible for subchapter V as it was engaged in business activities, and that the reorganization plan was fair and equitable. The court also upheld the denial of Guan’s motion for relief from the stay, concluding that the Bankruptcy Court did not abuse its discretion and had jurisdiction over Guan’s claims.Guan also appealed the Bankruptcy Court’s denial of her motion to abstain from ruling on state law issues. The District Court dismissed this appeal for lack of jurisdiction, stating that the abstention order was not a final appealable order.The United States Court of Appeals for the Eleventh Circuit affirmed the District Court’s decisions on subchapter V eligibility, the reorganization plan, and the denial of stay relief. However, it vacated the dismissal of Guan’s abstention appeal, remanding it to the District Court for further consideration, as the denial of mandatory abstention is immediately appealable. View "Guan v. Ellingsworth Residential Community Association, Inc." on Justia Law

Hamzah Ali, a legal immigrant from Yemen and Dubai, retained Azhar Chaudhary as his attorney in February 2017 and paid him $810,000 over three months. Chaudhary claimed this was a nonrefundable retainer, while Ali asserted it was for hourly billing. The bankruptcy court found that Chaudhary did little work of value for Ali and that much of his testimony was false. Ali fired Chaudhary in October 2017 and later learned from another attorney that most of Chaudhary’s advice was misleading or false.Ali sued Chaudhary and his law firm in Texas state court in 2018 for breach of contract, quantum meruit, breach of fiduciary duty, fraud, negligence, and gross negligence. In October 2021, Riverstone Resort, an entity owned by Chaudhary, filed for Chapter 11 bankruptcy. In May 2022, Ali sued Chaudhary, his law firm, and Riverstone in bankruptcy court, alleging breach of fiduciary duty and unjust enrichment, and seeking a constructive trust over Riverstone’s property. The bankruptcy court dismissed Ali’s claims against Chaudhary and his firm, citing lack of jurisdiction or abstention, and granted a take-nothing judgment for Riverstone based on the statute of limitations.The United States District Court for the Southern District of Texas dismissed all appeals and affirmed the bankruptcy court’s judgment. Ali appealed to the United States Court of Appeals for the Fifth Circuit, arguing that the bankruptcy court erred in not equitably tolling the statute of limitations and that Chaudhary had fraudulently concealed his cause of action.The Fifth Circuit dismissed the appeals of Chaudhary, his law firm, and Riverstone, as they were not aggrieved parties. The court reversed the district court’s judgment in favor of Riverstone and remanded the case to the bankruptcy court to consider whether equitable tolling should apply due to Chaudhary’s alleged misconduct. View "Azhar Chaudhary Law v. Ali" on Justia Law

Eric Gilbert filed for Chapter 7 bankruptcy, listing his interest in retirement accounts worth approximately $1.7 million. The issue was whether these accounts could be accessed by creditors due to alleged violations of federal law governing retirement plans. The Bankruptcy Court ruled that the accounts were protected from creditors, and the District Court affirmed this decision.The Bankruptcy Court dismissed the trustee John McDonnell's complaint, which sought to include the retirement accounts in the bankruptcy estate, arguing that the accounts violated ERISA and the IRC. The court found that the accounts were excluded from the estate under § 541(c)(2) of the Bankruptcy Code, which protects interests in trusts with enforceable anti-alienation provisions under applicable nonbankruptcy law. The District Court upheld this ruling, agreeing that ERISA's anti-alienation provision applied regardless of the alleged violations.The United States Court of Appeals for the Third Circuit reviewed the case and affirmed the lower courts' decisions. The court held that the retirement accounts were excluded from the bankruptcy estate under § 541(c)(2) because ERISA's anti-alienation provision was enforceable, even if the accounts did not comply with ERISA and the IRC. The court also dismissed McDonnell's claims regarding preferential transfers and fraudulent conveyances, as the transactions in question did not involve Gilbert parting with his property. Additionally, the court found no abuse of discretion in the Bankruptcy Court's decisions to dismiss the complaint with prejudice, shorten the time for briefing, and strike certain items from the appellate record. View "In re: Gilbert" on Justia Law

The case involves Western Robidoux, Inc. (WRI), which filed for Chapter 11 bankruptcy while involved in federal litigation. Attorney Daniel Blegen, initially representing WRI and its controlling family members, moved to Spencer Fane LLP. The Chapter 7 Trustee, Jill Olsen, sought to employ Spencer Fane as special counsel for ongoing appeals in the federal litigation. Appellants TooBaRoo, LLC and InfoDeli, LLC, controlled by Breht Burri, opposed this, citing potential conflicts of interest and disproportionate legal fees.The United States Bankruptcy Court for the Western District of Missouri approved the employment of Spencer Fane as special counsel, finding no actual conflicts of interest and emphasizing procedural safeguards for potential future conflicts. The court noted Spencer Fane's expertise and cost-effectiveness. Appellants appealed this decision, arguing that the employment order was improper due to adverse interests and fee concerns.The United States Bankruptcy Appellate Panel for the Eighth Circuit reviewed the appeal. The panel first examined its jurisdiction, determining whether the bankruptcy court's order was final under 28 U.S.C. § 158(a)(1) or reviewable under 28 U.S.C. § 158(a)(3). The panel concluded that the order was not final, as the bankruptcy court retained ongoing responsibilities regarding Spencer Fane's employment and fee applications. Additionally, the panel found that delaying review would not prevent effective relief for the appellants, and a later reversal would not necessitate recommencement of the entire proceeding.The panel also declined to treat the appeal as an interlocutory appeal under 28 U.S.C. § 158(a)(3), agreeing with both parties that the criteria for such review were not met. Consequently, the appeal was dismissed for lack of jurisdiction. View "TooBaRoo, LLC v. Olsen" on Justia Law

Rose Court, LLC's predecessor defaulted on a mortgage loan secured by real property. Rose Court filed and voluntarily dismissed multiple lawsuits in state and federal courts challenging the lender's foreclosure efforts. After the foreclosure sale, Rose Court initiated an adversary proceeding in bankruptcy court against U.S. Bank, Select Portfolio Servicing, Inc. (SPS), and Quality Loan Service Corporation (Quality), alleging fraudulent transfer of the property.The bankruptcy court dismissed Rose Court's claims and denied its motion to amend the complaint to assert a fraud-based wrongful-foreclosure claim, citing the two-dismissal rule under Federal Rule of Civil Procedure 41(a)(1)(B). This rule applies when a plaintiff voluntarily dismisses the same claim twice, making any subsequent dismissal an adjudication on the merits. The court found that Rose Court had previously dismissed similar claims in state and federal court actions.The United States District Court for the Northern District of California affirmed the bankruptcy court's decision. Rose Court then appealed to the United States Court of Appeals for the Ninth Circuit, challenging the denial of leave to amend.The Ninth Circuit affirmed the district court's order. The court held that the two-dismissal rule barred Rose Court from asserting the same fraud-based wrongful-foreclosure claim for a third time. The court adopted a transactional approach, determining that a subsequent claim is the same as a previously dismissed claim if it arises from the same set of facts. The court also declined to address Rose Court's new argument, raised for the first time on appeal, that it should be allowed to amend to assert a new wrongful-foreclosure claim based on interference with its right to reinstate the loan. View "ROSE COURT, LLC V. SELECT PORTFOLIO SERVICING, INC." on Justia Law

Joseph and Jo-Lynn Jenkins Parrott filed for Chapter 13 bankruptcy in 2018, committing to a payment plan. After several amendments to their plan, the bankruptcy trustee moved to dismiss the case due to missed payments. The bankruptcy court ordered the Parrotts to catch up on payments or face dismissal. Despite extensions, the Parrotts failed to comply, leading to a dismissal order on January 29, 2020, effective February 13, 2020. The Parrotts filed a pro se notice of appeal on February 5, 2020, which was struck for lacking their attorney’s signature. They filed a second notice on February 18, 2020, after their attorney withdrew.The United States District Court for the Middle District of Florida dismissed the Parrotts' appeal, ruling it untimely and citing their failure to comply with procedural rules. The court noted the Parrotts' noncompliance with local rules and their inadequate response to an order to show cause regarding jurisdiction. The district court concluded it lacked jurisdiction and, alternatively, dismissed the case as a sanction for procedural noncompliance.The United States Court of Appeals for the Eleventh Circuit reviewed the case. It held that the Parrotts' initial notice of appeal, though defective, was timely and that the second notice cured the defect, thus conferring jurisdiction on the district court. The appellate court also found that the district court abused its discretion by dismissing the case as a sanction, noting that dismissal is a last resort and should only be used in extreme circumstances, which were not present here. The Eleventh Circuit vacated the district court's dismissal and remanded the case for consideration on the merits. View "Parrott v. Neway" on Justia Law