Justia Civil Procedure Opinion Summaries

Articles Posted in Bankruptcy
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Barbara McNally sued Debbie-Ann Bromfield and her husband Everald Thompson in the Superior Court for multiple claims related to a property dispute. After Thompson filed for bankruptcy, McNally and Thompson reached a settlement agreement, which included dismissing McNally's pending lawsuit. McNally filed a motion for voluntary dismissal with prejudice under Super. Ct. Civ. R. 41(a)(2), which Bromfield opposed, seeking a decision on the merits through her own summary judgment motion. The trial court granted McNally’s motion to dismiss with prejudice and denied Bromfield’s summary judgment motion as moot, reasoning that Bromfield would not suffer any legal detriment from the dismissal.Bromfield appealed, arguing that the trial court abused its discretion in granting McNally’s motion for voluntary dismissal, claiming it caused her legal prejudice. The District of Columbia Court of Appeals reviewed the case. The court noted that Bromfield was not "aggrieved" by the dismissal with prejudice of the claims against her, as she had effectively prevailed in all relevant respects. The court emphasized that it has an independent obligation to ensure its jurisdiction and that Bromfield did not suffer an infringement or denial of legal rights.The court held that Bromfield’s desire for vindication did not constitute a cognizable legal injury and that her potential future claims, such as a malicious prosecution suit, did not provide grounds for appeal. The court concluded that Bromfield had secured an unmitigated victory in the underlying proceedings and dismissed her appeal for lack of jurisdiction. View "Bromfield-Thompson v. McNally" on Justia Law

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The appellants, Robin and Louie Joseph Aquilino, filed for Chapter 7 bankruptcy in April 2020 and retained the law firm Spector Gadon Rosen & Vinci P.C. (Spector Gadon) as their counsel. They agreed to pay a flat fee of $3,500 and a $335 filing fee, which Spector Gadon disclosed to the Bankruptcy Court. However, due to the complexity of the case, Spector Gadon billed the Aquilinos for additional post-petition services, resulting in a fee agreement of $113,000, which was not disclosed to the Bankruptcy Court as required by 11 U.S.C. § 329(a) and Bankruptcy Rule 2016(b).The Bankruptcy Court for the District of New Jersey found that Spector Gadon violated the disclosure requirements and sanctioned the firm by ordering the disgorgement of collected fees and cancellation of the remaining fee agreement. Spector Gadon appealed, and the United States District Court for the District of New Jersey reversed the Bankruptcy Court's decision, concluding that Spector Gadon was entitled to a jury trial under the Seventh Amendment.The United States Court of Appeals for the Third Circuit reviewed the case and determined that the Bankruptcy Court had "core" jurisdiction over the fee disclosure issue under 28 U.S.C. § 157(b)(1). The Third Circuit held that the Seventh Amendment did not entitle Spector Gadon to a jury trial in the § 329(a) proceeding because the sanctions imposed were equitable in nature, designed to restore the status quo, and did not involve legal claims. The Third Circuit also found that the Bankruptcy Court did not abuse its discretion in imposing sanctions, as it considered all relevant factors, including the Debtors' misconduct.The Third Circuit reversed the District Court's judgment and reinstated the Bankruptcy Court's sanctions order. View "In re Aquilino" on Justia Law

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Mesabi Metallics Company LLC (Mesabi) filed for Chapter 11 bankruptcy in 2016 and emerged successfully in 2017. During the bankruptcy proceedings, Mesabi initiated an adversary proceeding against Cleveland-Cliffs, Inc. (Cliffs), alleging tortious interference, antitrust violations, and civil conspiracy. Mesabi claimed Cliffs engaged in anti-competitive conduct to impede Mesabi's business operations. To facilitate discovery, the parties entered a stipulated protective order allowing documents to be designated as confidential. Mesabi later moved to unseal certain documents filed under seal to support a petition in the Minnesota Court of Appeals.The United States Bankruptcy Court for the District of Delaware, applying the common law right of access, held that Cliffs had not met the burden to keep the documents sealed. The court relied on the Third Circuit's precedent in In re Avandia, which requires a showing that disclosure would cause a clearly defined and serious injury. Recognizing potential ambiguity in the law, the Bankruptcy Court certified the question for direct appeal to the United States Court of Appeals for the Third Circuit.The Third Circuit clarified that the sealing of documents in bankruptcy cases is governed by 11 U.S.C. § 107, not the common law right of access. Section 107 imposes a distinct burden, requiring protection of trade secrets or confidential commercial information without the need for balancing public and private interests. The court vacated the Bankruptcy Court's decision and remanded for application of the correct standard under § 107. Additionally, the Third Circuit held that the Bankruptcy Court lacked jurisdiction to grant a third party's motion to intervene and unseal documents while the appeal was pending, vacating those orders as well. View "ESML Holdings Inc v. Mesabi Metallics Compay LLC," on Justia Law

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SDVF, LLC registered a default judgment against Cozzia USA LLC in the U.S. District Court for the Central District of California to enforce and collect the judgment. This judgment was originally entered by the U.S. Bankruptcy Court for the District of Delaware. However, the Delaware Bankruptcy Court later vacated the default judgment.The U.S. District Court for the Central District of California dismissed SDVF's action to enforce the judgment, reasoning that the registered judgment was no longer valid after the underlying judgment had been set aside.The United States Court of Appeals for the Ninth Circuit reviewed the case and affirmed the district court's dismissal. The Ninth Circuit held that a registered judgment under 28 U.S.C. § 1963 is not valid if the underlying judgment has been vacated. The court explained that the registered judgment relies on the existence of the original final judgment, and once the original judgment is vacated, the registered judgment cannot be enforced. The court also noted that neither Rule 60 of the Federal Rules of Civil Procedure nor the court's inherent equitable power allows SDVF to challenge the Delaware Bankruptcy Court's ruling in the Central District of California. Thus, the district court's dismissal of the case was affirmed. View "SDVF, LLC V. COZZIA USA LLC" on Justia Law

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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

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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

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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

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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

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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

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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