Justia Civil Procedure Opinion Summaries

Debtors, husband and wife filed for Chapter 13 bankruptcy. They listed their home among their assets with a value of $500,000, a mortgage with an outstanding balance of $375,077, and a homestead exemption of $124,923. The bankruptcy court confirmed a Chapter 13 plan, but after roughly twenty months, which included a temporary job loss and deferral of mortgage payments due to the pandemic, the husband contracted Parkinson’s Disease, and the couple could no longer make their required payments. Debtors exercised their right to convert to Chapter 7. In the interim, their home had risen in value by an estimated $200,000. The Chapter 7 trustee (“Trustee”) filed a motion to sell Debtors home to recover the value for creditors.   The Ninth Circuit affirmed the district court’s order which affirmed the bankruptcy court’s order, the panel held that post-petition, pre-conversion increases in the equity of an asset belonging to the bankruptcy estate rather than to debtors who, in good faith, convert their Chapter 13 reorganization petition into a Chapter 7 liquidation. The panel held that the plain language of Section 348(f)(1)(A), coupled with the Ninth Circuit’s previous interpretation of 11 U.S.C. Section 541(a), compelled the conclusion that any appreciation in the property value and corresponding increase in equity belonged to the estate upon conversion. The panel looked to the definition of “property of the estate” in Section 541(a), which addresses the contents of the bankruptcy estate upon filing under either Chapter 7 or Chapter 13, and the court’s prior opinions holding that the broad scope of Section 541(a) means that post-petition appreciation inures to the bankruptcy estate, not the debtor. View "IN RE: JOHN CASTLEMAN, SR., ET AL V. DENNIS BURMAN" on Justia Law

Petitioners moved to quash trial subpoenas issued by the United States Bankruptcy Court for the Central District of California, requiring them to testify via contemporaneous video transmission from their home in the U.S. Virgin Islands. The bankruptcy court denied their motions, and the Petitioners sought mandamus relief from this court. Petitioners argued that Federal Rule of Civil Procedure 45(c)(1) prohibits the bankruptcy court from compelling them to testify, even remotely, where they reside out of state over 100 miles from the location of the trial.   The Ninth Circuit granted the petition. The panel held that the bankruptcy court erred in refusing to quash the trial subpoenas because, under the plain meaning of the text of the Rules, the geographic limitations of Rule 45(c) apply even when a witness is permitted to testify by contemporaneous video transmission. The panel concluded that Rule 45(c) governs the court’s power to require a witness to testify at trial and focuses on the location of the proceeding, while Rule 43(a) governs the mechanics of how trial testimony is presented. Weighing the Bauman factors to determine whether issuance of a writ of mandamus was appropriate, the panel concluded that the third factor, clear error, weighed in favor of granting mandamus relief. The panel concluded that the fifth Bauman factor also weighed in favor because the petition presented an important issue of first impression. The panel held that the third and fifth Bauman factors were sufficient on their own to warrant granting mandamus relief in this case. View "IN RE: JOHN KIRKLAND, ET AL V. USBC, LOS ANGELES" on Justia Law

Bouchard Transportation Company and its affiliates (collectively “Bouchard”)—debtors in bankruptcy—prepared to sell some of their assets at an auction. Fearing the auction would go poorly, Bouchard solicited a “stalking horse bidder” to start the auction and set a floor price. In exchange, Bouchard agreed to pay the stalking horse bidder a $3.3 million break-up fee and to reimburse expenses up to $1.5 million. The question is whether those payments were a permissible use of estate funds. As the bankruptcy and district courts found, the stalking horse payments were lawful under both applicable provisions of the Bankruptcy Code—they provided an actual benefit to the estate and were issued in the reasonable exercise of business judgment.
The Fifth Circuit affirmed the district court’s judgment affirming the bankruptcy court’s order that Bouchard pay Hartree a break-up fee and a capped expense reimbursement. The court explained that Bouchard’s payment to the stalking horse bidder is justified under either the stringent administrative-expense standard or the more relaxed business judgment rule. The court further wrote that there is “no basis to conclude that the board did not thoroughly review the presentation and make a well-reasoned, careful decision to designate Hartree as the stalking-horse bidder.” In signing the Hartree purchase agreement, Bouchard acted well within the bounds of reasonable business judgment. Section 363(b) does not require more. View "Official Committee v. Hartree" on Justia Law

Gary and Jeanette Merritt own four residential properties in Marysville, Washington. Between 2005 and 2007, the Merritts opened five home equity lines of credit (HELOCs), executing five five promissory notes (notes or HELOC agreements) in favor of USAA Federal Savings Bank. The Merritts secured these loans by executing deeds of trust on the properties with USAA as the beneficiary. In November 2012, the Merritts filed for Chapter 7 bankruptcy. The Merritts stopped making their monthly payments on the USAA loans prior to the November 2012 bankruptcy filing. USAA never accelerated any of the loans or acted to foreclose on the properties. In 2020, the Merritts filed four quiet title complaints seeking to remove USAA’s liens on each of the properties. Relying on Edmundson v. Bank of America, NA, 378 P.3d 272 (2016), the Merritts argued that the six-year statute of limitations to enforce the deeds of trust expired six years after February 12, 2013, the day before their bankruptcy discharge. In October 2020, the Merritts moved for summary judgment in each case. In November 2020, the trial court denied each of these motions. In February 2021, USAA moved for summary judgment in each case. USAA argued that the plaintiffs were not entitled to quiet title because the statute of limitations to foreclose on the deeds of trust would not begin to run until the maturity date of each loan, the earliest of which will occur in 2025. The Court of Appeals affirmed the trial court, holding that the the six-year statute of limitations had not begun to run on enforcement of the deeds of trust since none of the loans had yet matured. The issue this case presented for the Washington Supreme Court's review was whether a bankruptcy discharge triggered the statute of limitations to enforce a deed of trust. The Court affirmed the Court of Appeals and the trial court and hold that bankruptcy discharge did not trigger the statute of limitations to enforce a deed of trust. View "Merritt v. USAA Federal Savings Bank" on Justia Law

The property at issue in this case was a residential home that was purchased in 2007 by Shawn and Stephanie Kurtz. The house was located in a subdivision, which required property owners to pay homeowners association (HOA) assessments to petitioner Copper Creek (Marysville) Homeowners Association. If the assessments were not paid, then Copper Creek was entitled to foreclose on its lien. However, Copper Creek’s lien was “subordinate to any security interest perfected by a first deed of trust or mortgage granted in good faith and for fair value upon such Lot.” The Kurtzes stopped paying their HOA assessments and the home loan in varying times in 2010. The Kurtzes (in the process of divorcing) individually filed for bankruptcy. Neither returned to the house, nor did they make any further payments toward their home loan or their HOA assessments. However, there was no attempt to foreclose on the deed of trust. As a result, the house sat vacant for years and fell into disrepair. The Kurtzes remained the property owners of record and HOA assessments continued to accrue in their names. In 2018, Copper Creek recorded a notice of claim of lien for unpaid HOA assessments, fees, costs, and interest. In January 2019, Copper Creek filed a complaint against the Kurtzes seeking foreclosure on the lien and a custodial receiver for the property. The issue this case presented concerned the statute of limitations to foreclose on a deed of trust securing an installment loan after the borrower receives an order of discharge in bankruptcy. As detailed in Merritt v. USAA Federal Savings Bank, No. 100728-1 (Wash. July 20, 2023), the Washington Supreme Court held that a new foreclosure action on the deed of trust accrues with each missed installment payment, even after the borrower’s personal liability is discharged. Actions on written contracts are subject to a six-year statute of limitations. Therefore, the nonjudicial foreclosure action on the deed of trust in this case was timely commenced as to all unpaid installments within the preceding six years, regardless of the borrowers’ bankruptcy discharge orders. In addition, the Court held the trial court properly exercised its discretion to award fees as an equitable sanction for respondents’ litigation misconduct. View "Copper Creek (Marysville) Homeowners Ass'n v. Kurtz" on Justia Law

From 2003 to 2007, Plaintiff took out ten student loans to attend college in Washington state. Defendants National Collegiate Student Loan Trusts (collectively, “the Trusts”) ultimately purchased Plaintiff’s loans. The Trusts appointed Defendant U.S. Bank as their special servicer. The Trusts also hired Defendant Transworld Systems, Inc. (“Transworld”), to collect the defaulted loans, and hired Defendant Patenaude & Felix (“Patenaude”), a law firm specializing in debt collection, to represent them in debt collection actions. Several years after taking out the loans, Plaintiff filed for Chapter 13 bankruptcy relief.   The Ninth Circuit affirmed in part and reversed in part the district court’s dismissal for failure to state a claim, Plaintiff’s action alleging that Defendants’ attempts to collect debts that were discharged in bankruptcy violated the Fair Debt Collection Practices Act and the Bankruptcy Code. Affirming the dismissal of Plaintiff’s claims that were based on a violation of his bankruptcy discharge order, the panel reiterated that Walls v. Wells Fargo Bank, 276 F.3d 502 (9th Cir. 2002), precludes FDCPA claims and other claims based on violations of Bankruptcy Code Section 524. The panel reversed the district court’s dismissal, as barred by the one-year statute of limitations, of Plaintiff’s remaining FDCPA claim based on the theory that Defendants knowingly brought a meritless post-discharge debt collection lawsuit because they knew they could not prove ownership of Plaintiff’s debts. The panel concluded that Plaintiff sufficiently alleged one post-filing FDCPA violation in the filing of an affidavit that presented a new basis, not contained in the complaint, to show that Defendants owned the debts. View "OSURE BROWN V. TRANSWORLD SYSTEMS, INC., ET AL" on Justia Law

Appellee won a multi-million-dollar arbitration award (the “Award”) against his former attorney and son-in-law, Appellant. Appellant soon filed for bankruptcy and sought to discharge the amounts awarded against him. Appellee objected under 11 U.S.C. Section 523(a) (“Exceptions to Discharge”) and sought summary judgment, arguing that (i) the Award is entitled to preclusive effect based on the doctrine of collateral estoppel and (ii) the Award found that all the elements of Section 523(a) were met. The bankruptcy court granted summary judgment with respect to the bulk of the Award. The district court affirmed, and Appellant appealed.   The Fifth Circuit affirmed. The court explained that Appellant argued that the court should recognize a fourth requirement that has no basis in our precedent, to the effect that collateral estoppel is inappropriate where an arbitration award contains a “disclaimer” like the one in the Award. The court reasoned that it need not decide whether a “disclaimer” could ever render collateral estoppel inappropriate. The court held merely that this “disclaimer” does not do so. Further, the court wrote that at no place in his 53-page, single-spaced award does the arbitrator provide an “express instruction” to future tribunals not to grant the Award preclusive effect. View "Amberson v. McAllen" on Justia Law

Baker Sales, Inc. (“BSI”) obtained two loans from Newtek Small Business Finance, Inc. (“Newtek”) which were secured by mortgages on BSI’s commercial property. Robert and Elsa Baker (collectively “the Bakers”) executed agreements unconditionally guaranteeing payment of all amounts owed on the loans. These agreements were secured by conventional mortgages on the Bakers’ home. BSI filed for bankruptcy approximately two years later. Newtek filed a proof of claim in the bankruptcy proceeding for the total amount of the outstanding balance of the loans. The bankruptcy court granted Newtek’s motion to lift the automatic bankruptcy stay. Newtek then filed a petition for executory process in state court against BSI and the Bakers requesting seizure and sale of BSI’s commercial property without the benefit of appraisal. Newtek purchased the seized property at a sheriff’s sale; the bankruptcy case was subsequently closed. Newtek filed the suit at issue here, seeking to foreclose on the Bakers’ home. The trial court issued a judgment preliminarily enjoining the sale of the Bakers’ home and converted the proceeding from executory to ordinary. The Bakers filed a petition seeking a declaration under the Louisiana Deficiency Judgment Act (“LDJA”) that as the underlying debt was extinguished, Newtek could no longer pursue them as sureties. The Louisiana Supreme Court granted certiorari review to determine whether a creditor’s recovery in a deficiency judgment action was barred against a surety when a creditor forecloses on property through a judicial sale without appraisal. Harmonizing the LDJA with the law of suretyship, the Supreme Court agreed with the court of appeal that such recovery was barred. View "Newtek Small Business Finance, LLC v. Baker" on Justia Law

The district court affirmed a bankruptcy court order that entered a preliminary injunction preventing thousands of third-party asbestos claims from proceeding against debtor Bestwall LLC’s affiliates, including affiliate and non-debtor Georgia-Pacific LLC (“New GP”). The Official Committee of Asbestos Claimants (“Committee”) and Sander L. Esserman, in his capacity as Future Claimants’ Representative (“FCR”) (collectively “Claimant Representatives”), appealed. They argued that the bankruptcy court lacked jurisdiction to enjoin non-bankruptcy proceedings against New GP and, alternatively, that the bankruptcy court erred in entering the preliminary injunction because it applied an improper standard.   The Fourth Circuit affirmed. The court agreed with the district court that the bankruptcy court had “related to” jurisdiction to issue the preliminary injunction and applied the correct standard in doing so. The court explained that the Claimant Representatives asserted that, under the first prong of the preliminary injunction test, the district court should have determined whether Bestwall would ultimately be able to obtain permanent injunctive relief. The court wrote that requiring a party to show entitlement to a permanent channeling injunction this early in the bankruptcy proceeding puts the cart before the horse; Section 524(g) does not require such proof until the plan confirmation stage. Contrary to the express intent of Congress as shown through the Bankruptcy Code, the position of Claimant Representatives would effectively eliminate reorganization under Chapter 11 as 27, an option for many debtors. Therefore, the court rejected the Claimant Representatives’ argument that the bankruptcy court needed to find that it would likely enter a permanent injunction in order to grant a preliminary injunction. View "Bestwall LLC v. Official Committee of Asbestos Claimants" on Justia Law

The United States Bankruptcy Court for the Northern District of Illinois ruled that all assets held by the Soad Wattar Revocable Living Trust—including the Wattar family home—were part of the bankruptcy estate of Richard Sharif. Sharif was the son of Soad Wattar, now de‐ ceased. As the sole trustee of the Wattar trust. Sharif’s sisters, Haifa and Ragda Sharifeh, soon launched an effort to keep the trust proceeds out of their brother’s bankruptcy estate. At issue in these appeals are the bankruptcy court’s rulings on three motions: (1) Haifa’s 2015 motion to vacate the court’s decision that all trust assets belonged to the bankruptcy estate; (2) the sisters’ joint 2016 motion for leave to sue the Chapter 7 trustee assigned to Sharif’s bankruptcy for purported due process violations; and (3) Ragda’s motion seeking both reimbursement of money she allegedly spent on the family home and the proceeds from Wattar’s life insurance policy, which the court had found to be an asset of the trust and therefore part of the bankruptcy estate.   The Seventh Circuit affirmed. The court held that even if Haifa were really the executor, she simply waited too long to assert the estate’s rights. In the bankruptcy and district courts, the trustee raised the equitable defense of laches, which cuts off the right to sue when (1) the plaintiff has inexcusably delayed bringing suit and (2) that delay harmed the defendant. Next, the court held that the bankruptcy court correctly concluded that the motion did not set forth a prima facie case for a right to relief against the trustee. View "Estate of Soad Wattar v. Horace Fox, Jr." on Justia Law