Justia U.S. 2nd Circuit Court of Appeals Opinion Summaries

Articles Posted in Bankruptcy
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Representatives of certain unsecured creditors of the Chapter 11 debtor Tribune Company appealed the district court's grant of a motion to dismiss their state law, constructive fraudulent conveyance claims brought against Tribune's former shareholders. The district court held that appellants lacked statutory standing under the Bankruptcy Code. The Second Circuit affirmed the dismissal of appellants' state law, constructive fraudulent conveyance claims on preemption grounds rather than standing grounds. The court held that appellants were not barred by the Bankruptcy Code's automatic stay provision from bringing claims while avoidance proceedings against the same transfers brought by a party exercising the powers of a bankruptcy trustee on an intentional fraud theory are ongoing, because appellants have been freed from its restrictions by orders of the bankruptcy court and by debtors' confirmed reorganization plan. However, the court held that appellants' claims were preempted by section 546(e) of the Bankruptcy Code, because this section shields certain transactions from a bankruptcy trustee's avoidance powers, including, inter alia, transfers by or to a financial institution in connection with a securities contract, except through an intentional fraudulent conveyance claim. View "In re: Tribune Company Fraudulent Conveyance Litigation" on Justia Law

Posted in: Bankruptcy
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This case arose out of the 2009 bankruptcy of Old GM, which resulted in a sale under 11 U.S.C. 363 of the bulk of its assets to a new entity that has continued the business (the new General Motors). The New General Motors assumed the liability of Old GM with respect to post‐Sale accidents involving automobiles manufactured by Old GM. The claims assumed included those by persons who did not transact business with Old GM, such as individuals who never owned Old GM vehicles and persons who bought Old GM cars after the Sale. At issue was whether the New General Motors was liable for punitive damages with respect to such claims. The Second Circuit held that the new General Motors did not contractually assume liability for punitive damages in its predecessor's bankruptcy sale, and thus the Post-Closing Accident Plaintiffs may not assert claims for punitive damages based on the predecessor's conduct. Accordingly, the court affirmed the district court's decision affirming the bankruptcy court's decision on the issue of punitive damages. View "In re Motors Liquidation Co." on Justia Law

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The Second Circuit affirmed the district court's orders affirming the bankruptcy court's award of monetary sanctions pursuant to its inherent power. Appellant filed a Chapter 7 petition in bankruptcy court for his client but ultimately failed to prosecute the case. The bankruptcy court then issued multiple orders to show cause, which appellant failed to comply with, and then the bankruptcy court ultimately sanctioned him. The court held, as a matter of first impression, that bankruptcy courts possess inherent power to sanction attorneys in appropriate circumstances. In this case, appellant's challenges to the bankruptcy court's exercise of that power failed for the reasons set forth in a separately-filed summary order. View "In re: Alba Sanchez" on Justia Law

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Debtors appealed the district court's decision affirming the bankruptcy court's order deeming nondischargeable a prior default judgment against debtors in favor of plaintiffs in the Eastern District Judgment. The lower courts had relied in part on the preclusive effect of the Eastern District Judgment, which arose from a dispute between the families regarding two real estate projects. While a default judgment generally lacks preclusive effect because the underlying merits of the case are not actually litigated, the Second Circuit held that where, as here, the default judgment is entered as a sanction, it may be afforded preclusive effect. The court also held that the lower courts erred in treating the Eastern District Judgment as a whole, rather than analyzing each of the two underlying debts for nondischargeability separately. Accordingly, the court affirmed in part, vacated in part, and remanded in part. View "In re: Stuart Scott Snyder" on Justia Law

Posted in: Bankruptcy
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The Second Circuit affirmed the district court's decision affirming the bankruptcy court's order requiring the law firm to remit $59,432 to the trustee of debtor's bankruptcy estate. The amount the law firm was ordered to remit was part of the proceeds of an unauthorized post-petition transfer by the debtor of the estate's property. The court held that the trustee's recovery of a portion of the Thompson Loan from the law firm did not constitute a double recovery in violation of 11 U.S.C. 550(d). View "In re: Alice Phillips Belmonte" on Justia Law

Posted in: Bankruptcy
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Plaintiff filed a whistleblower action under Section 806 of the Sarbanes-Oxley Act against CGI, alleging that he was unlawfully fired in retaliation for his complaints about and objections to an allegedly fraudulent scheme developed by CGI's executives. The district court held that the Sarbanes-Oxley claim survived summary judgment, but later dismissed plaintiff for lack of standing due to his parallel bankruptcy proceeding. After the bankruptcy case closed, plaintiff moved to be substituted in as the proper party-in-interest. The district court granted plaintiff's motion and then dismissed the case on grounds of judicial estoppel. The Second Circuit held that the district court exceeded its discretion by invoking the judicial estoppel doctrine. The court held that where, as here, a pro se debtor has listed his pending litigation on the Statement of Financial Affairs (SOFA), rather than the Schedule B as it was constituted at the time of plaintiff's filing, and then disclosed it to the trustee and the bankruptcy court prior to discharge of his debt, and the trustee and the bankruptcy court were on sufficient notice to take steps to protect the creditors' interests, the debtor is not estopped from pursuing that litigation by virtue of the doctrine of judicial estoppel. The court explained that, for estoppel to apply, there must be greater indicia than presented here of an intent to deceive the court for the debtor's benefit. Accordingly, the court vacated the judgment and remanded for further proceedings. The court affirmed the district court's grant of partial summary judgment to CGI on the state-law breach of contract claim, holding that the dismissal order was rendered moot by virtue of later developments. View "Ashmore v. CGI Group" on Justia Law

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The trustee for the Liquidation of Bernard L. Madoff Investment Securities LLC alleged that Madoff Securities transferred property to foreign entities that subsequently transferred it to other foreign entities, including the hundreds of appellees. The trustee claimed that the Madoff Securities' transfers were avoidable as fraudulent under 11 U.S.C. 548(a)(1)(A), and sought to recover the property from appellees under section 550(a)(2). The district court dismissed the actions based on the presumption against extraterritoriality and international comity principles. The Second Circuit vacated and held that neither the presumption against extraterritoriality nor international comity principles barred recovery. In this case, the focus of section 550(a) was on debtor's fraudulent transfer of property to the initial transferee, and these actions involved domestic applications of the Bankruptcy Code because section 550(a) focused on regulating domestic conduct. Therefore, the lower courts erred by dismissing these actions under the presumption against extraterritoriality. The court also held that the district court erroneously dismissed these actions on international comity grounds where the United States' interest in applying its law to these disputes outweighed the interest of any foreign state and prescriptive comity posed no bar to recovery. View "In re: Picard" on Justia Law

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Plaintiffs brought an adversary proceeding in bankruptcy court, alleging that defendants wrongfully failed to pay debtor for produce held in trust for plaintiffs, in violation of the Perishable Agricultural Commodities Act. The Second Circuit agreed with the bankruptcy judge and district court and affirmed summary judgment for plaintiffs, but held that defendants should receive a pro rata share of assets of the trust established under the Act. Because assets subject to the Act are held in a ʺfloatingʺ trust for the benefit of unpaid produce suppliers and never become part of a bankruptcy estate, when a purchaser of produce files for bankruptcy under Chapter 7, a creditor covered by the Actʹs provisions is entitled to a pro rata share of trust assets, but not to a complete offset of mutual debts between it and the bankrupt. In this case, although defendants did not file a proof of claim after the district court issued a claims process order under the Act, they preserved their claims by providing statutorily required notice to debtor in connection with each pre‐bankruptcy sale of fresh produce; filed a proof of claim with the bankruptcy court before the district court had issued the claims process order; and reasonably, although mistakenly, thought that they could vindicate their rights as creditors using a bankruptcy offset. View "The PACA Trust Creditors v. Genecco Produce Inc." on Justia Law

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The Second Circuit affirmed the district court's decision affirming the bankruptcy court's dismissal of a Chapter 7 involuntary bankruptcy petition creditor filed under 11 U.S.C. 303(a) against debtor. The bankruptcy court dismissed for cause under 11 U.S.C. 707(a) after concluding that the petition was simply a judgment enforcement tactic. The court held that creditor was not substantially prejudiced by being denied access to bankruptcy remedies and that the interests of debtor and of the bankruptcy system as a whole were advanced by dismissal. View "Wilk Auslander LLP v. Murray" on Justia Law

Posted in: Bankruptcy
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The Second Circuit vacated the district court's dismissal of plaintiff's personal injury claims against more than fifty corporate defendants, holding that the district court abused its discretion in invoking the equitable doctrine of judicial estoppel to dismiss her claims. In this case, Defendant Boeing argued that plaintiff's failure to disclose her husband's mesothelioma diagnosis during bankruptcy barred the personal injury claims related to the diagnosis. Plaintiff's husband passed away during the pendency of the appeal. The court held that the principles of equity required the courts to entertain plaintiff's personal injury claims where nothing in the record suggested that she withheld her husband's diagnosis from the bankruptcy court in an effort to game the bankruptcy system. View "Clark v. Advanced Composites Group" on Justia Law

Posted in: Bankruptcy