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

Plaintiffs, unsuccessful bidders in a bankruptcy proceeding, appealed the district court's dismissal of their suit alleging claims for breach of fiduciary duty, tortious interference, and common law fraud against the law firm K&L Gates, LLP and two of its former partners. Plaintiffs alleged that defendants used their prior representation of plaintiffs to undermine plaintiffs' attempt to acquire assets in a bankruptcy sale.  The district court granted defendants' motion to dismiss based on res judicata. The court agreed with plaintiffs that they could not have brought their claims during the bankruptcy proceedings, and that this present action would not disturb the orders of the bankruptcy court. The court explained that the circumstances in this case did not demand that plaintiffs raise their claim in the bankruptcy proceeding, and noted that the relevant issues were not litigated through an adversary proceeding or otherwise. Accordingly, the court reversed and vacated, remanding for further proceedings. View "Brown Media Corp. v. K&L Gates, LLP" on Justia Law

After Old GM filed for bankruptcy, New GM emerged. This case involves one of the consequences of the GM bankruptcy. Beginning in February 2014, New GM began recalling cars due to a defect in their ignition switches. Many of the cars in question were built years before the GM bankruptcy. Where individuals might have had claims against Old GM, a ʺfree and clearʺ provision in the bankruptcy courtʹs sale order barred those same claims from being brought against New GM as the successor corporation. Various individuals nonetheless initiated class action lawsuits against New GM, asserting ʺsuccessor liabilityʺ claims and seeking damages for losses and injuries arising from the ignition switch defect and other defects. The bankruptcy court enforced the Sale Order to enjoin many of these claims against New GM. The court concluded that the bankruptcy court had jurisdiction to interpret and enforce the Sale Order; the ʺfree and clearʺ provision covers pre‐closing accident claims and economic loss claims based on the ignition switch and other defects, but does not cover independent claims or Used Car Purchasersʹ claims; the court found no clear error in the bankruptcy court's finding that Old GM knew or should have known with reasonable diligence about the defect, and individuals with claims arising out of the ignition switch defect were entitled to notice by direct mail or some equivalent, as required by procedural due process; because enforcing the Sale Order would violate procedural due process in these circumstances, the bankruptcy court erred in granting New GMʹs motion to enforce and these plaintiffs cannot be bound by the terms of the Sales Order; and the bankruptcy courtʹs decision on equitable mootness was advisory. Accordingly, the court affirmed in part, reversed in part, vacated in part, and remanded. View "In re Motors Liquidation Co." on Justia Law

Appellants, representatives of certain unsecured creditors of the Chapter 11 debtor Tribune Company, appealed the grant of a motion to dismiss their state law, constructive fraudulent conveyance claims brought against Tribune’s former shareholders. The court held that appellants are not barred by the Bankruptcy Code’s automatic stay because they have been freed from its restrictions by orders of the bankruptcy court and by the debtors’ confirmed reorganization plan. The court also held that appellants’ claims are preempted by Bankruptcy Code Section 546(e), where that section shields from avoidance proceedings brought by a bankruptcy trustee transfers by or to financial intermediaries effectuating settlement payments in securities transactions or made in connection with a securities contract, except through an intentional fraudulent conveyance claim. Accordingly, the court affirmed the judgment. View "In re: Tribune Co. Fraudulent Conveyance Litig." on Justia Law

Plaintiff appealed the district court's judgment in favor of Ocwen and dismissal of plaintiff's complaint alleging various causes of action under the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. 1692. At issue is whether a debtor who has received a claim on a debt that has been discharged in a bankruptcy proceeding can sue the claimant in a district court under the FDCPA. The court concluded that the Bankruptcy Code does not broadly repeal the FDCPA for purposes of FDCPA claims based on conduct that would constitute alleged violations of the discharge injunction; none of plaintiff's individual FDCPA claims conflicts with the discharge injunction under the Bankruptcy Code; and, in regard to the claim of piecemeal litigation, the court concluded that the remote possibility of a need for clarification provides no basis for routing all FDCPA claims exclusively into the bankruptcy court. Accordingly, the court reversed and remanded with instructions to reinstate plaintiff's FDCPA claims against Ocwen. View "Garfield v. Ocwen Loan Servicing, LLC" on Justia Law

Statek appealed the district court's affirmance of the bankruptcy court's order, on remand, denying reconsideration. In denying Statekʹs latest motions for reconsideration, the bankruptcy courtʹs decisions relied on a prior alternative holding - that Statekʹs argument was a ʺnew argumentʺ not proper for a motion for reconsideration - which this Court did not explicitly address in Coudert I.  In Coudert I, the court instructed the bankruptcy court ʺto apply Connecticutʹs choice of law rules in deciding Statekʹs motion to reconsider.ʺ The bankruptcy court did not follow that instruction, as the Connecticut choice‐of‐law rules did not bear on the bankruptcy courtʹs ultimate decision. Instead, the bankruptcy court ordered further briefing on whether it could adhere to its prior alternative holding that Statekʹs argument was a new argument not available on reconsideration. Because the bankruptcy court's decisions do not comply with the court's mandate in Coudert I, the court reversed and remanded with further instructions. View "Statek Corp. v. Development Specialists, Inc." on Justia Law

This appeal concerns the proper application of Section 510(b) of the Bankruptcy Code in the Lehman bankruptcies. LBI, the debtor, was lead underwriter of unsecured notes issued by Lehman Holdings, its affiliates. After the bankruptcy of both the Lehman entity that issued the notes, Lehman Holdings, and the Lehman entity that was lead underwriter on the issuances, LBI, the Junior Underwriters were held to account for the noteholders' losses, and incurred loss for defense and settlements. The Junior Underwriters filed suit asserting claims for contribution or reimbursement against the liquidation estate of Debtor LBI. The bankruptcy court construed the statute to require subordination of the Junior Underwriters’ contribution claims. The court, however, adopted the district court's construction of section 510(b), holding that in the affiliate securities context, “the claim or interest represented by such security” means a claim or interest of the same type as the affiliate security. Claims arising from securities of a debtor’s affiliate should be subordinated in the debtor’s bankruptcy proceeding to all claims or interests senior or equal to claims in the bankruptcy proceeding that are of the same type as the underlying securities. Accordingly, the court affirmed the judgment of the district court. View "ANZ Securities v. Giddens" on Justia Law

The City filed timely proofs of claim for property taxes owed by a Chapter 11 debtor with respect to quarters of the 2009 tax year that had been billed pre‐petition, but did not file proofs of claim with respect to property tax bills for later quarters that were billed during the bankruptcy proceedings.  A single lien secured payment of the entire tax burden - both taxes that were the subject of claims and those that were not. The bankruptcy court ruled that the now-confirmed plan extinguished the lien and the district court affirmed. The court held that a lien is extinguished by a Chapter 11 plan if: (1) the text of the plan does not preserve the lien; (2) the plan is confirmed; (3) the property subject to the lien is “dealt with” by the terms of the plan; and (4) the lienholder participated in the bankruptcy proceedings. The court concluded that all four requirements are satisfied when applied to the facts of this case. Accordingly, the court affirmed the judgment. View "City of Concord, N.H. v. Northern New England Telephone Operations" on Justia Law

The Creditors filed suit to recover losses incurred when subsidiaries of Hellas defaulted on notes valued at 1.3 billion euros. On appeal, the Creditors challenged the district court's affirmance of the bankruptcy court dismissing the Chapter 7 involuntary bankruptcy petitions filed by the Creditors against the Troy Entities; denying the Creditors’ motion to withdraw the reference to bankruptcy court; and affirming the July 18, 2013 opinion by the same bankruptcy court awarding the Troy Entities $513,427.16 in attorneys’ fees and costs pursuant to 11 U.S.C. 15 303(i)(1). Determining that the court had jurisdiction, the court concluded that the Creditors knowingly and voluntarily consented to the bankruptcy court exercising its jurisdiction to award attorneys' fees and costs; the court rejected the Creditors' arguments challenging the bankruptcy court's conclusion that there is a bona fide dispute requiring dismissal of the involuntary petitions solely for the purpose of deciding whether there was a basis for the award of attorneys’ fees and costs; and the bankruptcy court did not abuse its discretion in awarding fees here. Accordingly, the court affirmed the judgment. View "Crest One SpA v. TPG Troy" on Justia Law

Debtor, a New York City tenant, filed for Chapter 7 bankruptcy and listed the value of her apartment lease on Schedule B as personal property exempt from the bankruptcy estate as a "local public assistance benefit." At issue was whether the value inherent in debtor's rent-stabilized lease as a consequence of the protections afforded by New York's Rent Stabilization Code, N.Y. Comp. Code R. & Regs. tit. 9, 2520.1, made the lease, or some portion of its value, exempt from debtor's bankruptcy estate as a "local public assistance benefit" within the meaning of New York Debtor and Creditor Law 282(2). The court certified this unsettled issue to the New York Court of Appeals, which held that a rent‐stabilized lease qualified as a local public assistance benefit. Rejecting the Trustee’s argument that “benefits” should be limited to cash payments, the court noted that the rent‐stabilization program had “all of the characteristics of a local 10 public assistance benefit” under the statute and that an exemption was consistent with the purpose of protecting a debtor’s essential needs, including housing. The Second Circuit then reversed and remanded to allow Debtor to claim the exemption from her bankruptcy estate. View "Santiago-Monteverde v. Pereira" on Justia Law

The Chapter 7 bankruptcy trustee appealed the district court's holding that the bankruptcy court did not have jurisdiction to order that he and his retained professionals be compensated for their services using the assets of a 401(k) plan pursuant to the Employee Retirement Income Security Act of 1974, 29 U.S.C. 1001 et seq. The court concluded that, in this case, no "arising under" jurisdiction exists and no "related to" jurisdiction exists. Accordingly, the court concluded that bankruptcy courts do not have jurisdiction to award compensation to the trustee in these circumstances and affirmed the judgment of the district court. View "Kirschenbaum v. U.S. Dept. of Labor" on Justia Law