Justia U.S. 3rd Circuit Court of Appeals Opinion Summaries

SemGroup purchased oil from producers and resold it to downstream purchasers. It also traded financial options contracts for the right to buy or sell oil at a fixed price on a future date. At the end of the fiscal year preceding bankruptcy, SemGroup’s revenues were $13.2 billion. SemGroup’s operating companies purchased oil from thousands of wells in several states and from thousands of oil producers, including from Appellants, producers in Texas, Kansas, and Oklahoma. The producers took no actions to protect themselves in case 11 of SemGroup’s insolvency. The downstream purchasers did; in the case of default, they could set off the amount they owed SemGroup for oil by the amount SemGroup would owe them for the value of the outstanding futures trades. When SemGroup filed for bankruptcy, the downstream purchasers were paid in full while the oil producers were paid only in part. The producers argued that local laws gave them automatically perfected security interests or trust rights in the oil that ended up in the hands of the downstream purchasers. The Third Circuit affirmed summary judgment in favor of the downstream purchasers; parties who took precautions against insolvency do not act as insurers to those who took none. View "In re: SemCrude LP" on Justia Law

The creditors shipped goods via common carrier from China to World Imports in the U.S. “free on board” at the port of origin. One shipment left Shanghai on May 26, 2013; World took physical possession of the goods in the U.S. on June 21. Other goods were shipped from Xiamen on May 17, May 31, and June 7, 2013, and were accepted in the U.S. within 20 days of the day on which World filed its Chapter 11 petition. The creditors filed Allowance and Payment of Administrative Expense Claims, 11 U.S.C. 503(b)(9), allowable if: the vendor sold ‘goods’ to the debtor; the goods were "received" by the debtor within 20 days before the bankruptcy filing; and the goods were sold in the ordinary course of business. Section 503(b)(9) does not define "received." The Bankruptcy Court rejected an argument that the UCC should govern and looked to the Convention on Contracts for the International Sale of Goods (CISG). The CISG does not define “received,” so the court looked to international commercial terms (Incoterms) incorporated into the CISG. Although no Incoterm defines “received,” the incoterm governing FOB contracts indicates that the risk transfers to the buyer when the seller delivers the goods to the common carrier. The Bankruptcy Court and the district court found that the goods were “constructively received” when shipped and denied the creditors’ motions. The Third Circuit reversed; the word “received” in 11 U.S.C. 503(b)(9) requires physical possession. View "In re: World Imports Ltd" on Justia Law

Raymond and Sandra have lived in their Ambler, Pennsylvania home since 1993. They took on a mortgage from AmeriChoice. They fell behind on their payments. In 2012, AmeriChoice filed a foreclosure action; AmeriChoice obtained a default judgment. AmeriChoice scheduled a sheriff’s sale. The day before that sale, Raymond, acting alone, filed a Chapter 13 bankruptcy petition, triggering the automatic stay and preventing the sale. The case was dismissed six months later after Raymond failed to make payments. AmeriChoice rescheduled the sale. On the rescheduled date, Raymond filed a second Chapter 13 petition. The Bankruptcy Court granted relief from the stay. On the second rescheduled date, Sandra filed her Chapter 13 petition. Days later the court dismissed Sandra’s petition for failure to obtain prepetition credit counseling. In Raymond’s second case, AmeriChoice moved (11 U.S.C. 1307(c)) to either convert Raymond’s case to Chapter 7 or dismiss, arguing bad faith use of bankruptcy. Raymond unsuccessfully moved to postpone a hearing and the day before the hearing sought dismissal under section 1307(b). Raymond did not appear at the hearing. The court dismissed Raymond’s case, stating that he was “not permitted to file another bankruptcy case without express permission.” Sandra was subsequently enjoined from filing bankruptcy for 180 days. The Third Circuit vacated. While a bankruptcy court may issue a filing injunction while approving a section 1307(b) voluntary dismissal, the injunction against Raymond, beyond what had been requested, was not supported by reasoning. View "In re: Ross" on Justia Law

Debtors filed a voluntary Chapter 13 petition. The Bankruptcy Court confirmed a plan that required payments of $2,485 each month for 60 months. Later, because of an increase in mortgage payments, the plan was amended to increase the payments to $3,017 for the remainder of the 60-month period. Debtors made consistent payments and, after 60 months, had paid $174,104, slightly exceeding their projected plan base. The Trustee subsequently moved to dismiss the case under 11 U.S.C. 1307(c), alleging that Debtors still owed $1,123 to complete their plan base. Debtors cured the arrears within 16 days. The motion had been joined by an unsecured creditor, who claimed that the plan and the Code required completion within 60 months. The Bankruptcy Court agreed that the failure to completely fund the plan base within 60 months was a material default constituting cause for dismissal, but found that the default was not the result of Debtors' unreasonable delay, that Debtors promptly corrected the deficiency, and that the delay did not significantly alter the timing of distributions. The district court and Third Circuit affirmed and rejected an adversary proceeding, objecting to the discharge. Bankruptcy courts have discretion to grant a brief grace period and discharge debtors who cure an arrearage in their plan shortly after the expiration of the plan term. View "In re: Klaas" on Justia Law

IRS Form 1040, filed after the IRS made an assessment of the taxpayer’s liability, did not constitute “returns” for purposes of determining the dischargeability in bankruptcy of tax debts under 11 U.S.C. 523(a)(1)(B). Giacchi filed his tax returns on time for the years 2000, 2001, and 2002 years after they were due and after the IRS had assessed a liability against him. In 2010, Giacchi filed for Chapter 7 bankruptcy; in 2012 he filed a Chapter 13 petition and brought an adversary proceeding seeking a judgment that his tax liability for the years in question had been discharged in the Chapter 7 proceeding. The district court and Third Circuit affirmed the bankruptcy court’s order denying the discharge. The tax debt was nondischargeable under 11 U.S.C. 523(a)(1)(B) because Giacchi had failed to file tax returns for 2000, 2001, and 2002, and Giacchi’s belatedly filed documents were not “returns” within the meaning of section 523(a)(1)(B) and other applicable law. View "Giacchi v. United States" on Justia Law

The Lansaws operated a daycare in space leased from Zokaites. After they entered into a new lease with a different landlord, but before they moved, Zokaites served them with a Notice for Distraint, claiming a lien against personal property for unpaid rent. The following day, the Lansaws filed for bankruptcy, triggering the automatic stay, 11 U.S.C. 362(a). Zokaites’s attorney was notified of the filing on August 17, 2006. On August 21, Zokaites and his attorney entered the daycare during business hours, by following a parent, and photographed the Lansaws’ personal property. On August 27, Zokaites entered after business hours, using his key, then padlocked the doors, leaving a note stating that Zokaites would not unchain the doors unless Mrs. Lansaw’s mother agreed that she had not been assaulted by Zokaites, the Lansaws reaffirmed their lease with Zokaites, and the Lansaws ceased removing property from the daycare. The Lansaws removed the chains and slept in the building. Zokaites locked the door from the outside and left with the Lansaws’ keys. The Lansaws called the police. Meanwhile, Zokaites attorney communicated by phone and letter with the new landlord, stating that, if the new lease was not terminated, Zokaites would sue the new landlord. In an adversary proceeding, the Bankruptcy Court awarded the Lansaws attorney fees ($2,600), emotional-distress damages ($7,500) and punitive damages ($40,000) under 11 U.S.C. 362(k)(1). The district court and Third Circuit affirmed. Section 362(k)(1) authorizes the award of emotional-distress damages; the Lansaws presented sufficient evidence to support the award. View "In re: Lansaw" on Justia Law

Suppliers sold electrical materials to Linear, which Linear incorporated into construction projects. The developers did not pay Linear for its work and Linear did not pay Suppliers. In July 2015, Linear filed a voluntary Chapter 11 bankruptcy petition; two weeks later, Suppliers filed construction liens on the developments into which Linear had incorporated the materials purchased from Suppliers. The bankruptcy court discharged the liens as violating the automatic stay that resulted from the bankruptcy petition. Linear then collected the full amounts owed by the developers. The bankruptcy court held that the construction liens were void ab initio for violation of the automatic stay. The district court and Third Circuit affirmed. Under New Jersey law, if a supplier sells materials on credit to a construction contractor and the contractor incorporates those materials into property owned by a third party without paying the supplier, the supplier can file for a lien on the third-party property. The courts rejected Suppliers’ argument that the liens attached to the third-party properties, not to the property of the bankruptcy estate. The courts reasoned that, under state law, the ability to create and the value of the liens depend on the amount that the contractor owes the suppliers--the value of the contractor’s accounts receivable--and fall within the definition of property of the estate, 11 U.S.C. 541. View "In re: Linear Electric Co., Inc." on Justia Law

In 2010, EFIH borrowed $4 billion at a 10% interest rate, issuing notes secured by its assets; the Indenture states that EFIH may redeem the notes for the principal amount plus a “make-whole premium” and accrued, unpaid interest. It contains an acceleration provision that makes “all outstanding Notes . . . due and payable immediately” if EFIH files for bankruptcy. Interest rates dropped. Refinancing outside of bankruptcy would have required EFIH to pay the make-whole premium. EFIH disclosed to the Securities and Exchange Commission a “proposal [whereby] . . . EFIH would file for bankruptcy and refinance the notes without paying any make-whole amount.” EFIH later filed Chapter 11 bankruptcy petitions, seeking leave to borrow funds to pay off the notes and to offer a settlement to note-holders who agreed to waive the make-whole. The Trustee sought a declaration that refinancing would trigger the make-whole premium and that it could rescind the acceleration without violating the automatic stay. The Bankruptcy Court granted EFIH’s motion to refinance. EFIH paid off the notes and refinanced at a much lower interest rate; the make-whole would have been approximately $431 million. The Bankruptcy Court and district court concluded that no make-whole premium was due and that the noteholders could not rescind acceleration. The Third Circuit reversed. The premium, meant to give the lenders the interest yield they expect, does not fall away because the full principal amount becomes due and the noteholders are barred from rescinding acceleration of debt. View "In re: Energy Future Holdings Corp." on Justia Law

In 2010, Free, as the sole proprietor of Electra Lighting, filed a voluntary bankruptcy petition. He also owns Freedom Firearms, selling WWII-era guns. After Free fell behind on payments on business-related properties, the lender purchased them in foreclosure; Free purportedly filed for bankruptcy in an effort to “stay” the sale and “work out an agreement.” He had sufficient assets to pay his debts. He then hid assets worth hundreds of thousands of dollars from the Bankruptcy Court. Free was eventually convicted for multiple counts of bankruptcy fraud. His creditors received 100 cents on the dollar. The Sentencing Guidelines increase a fraudster’s recommended sentence based on the amount of loss he causes, or intends to cause. The district court treated the estimated value of the assets that Free concealed and the amount of debt sought to be discharged as the relevant “loss” under the Guidelines. The Third Circuit vacated. On remand, the court must determine whether Free intended to cause a loss to his creditors or what he sought to gain from committing the crime. Free will not necessarily receive a lower sentence on remand. Free’s repeated lying to the Bankruptcy Court and his manifest disrespect for the judicial system may merit an upward variance from the Guidelines. View "United States v. Free" on Justia Law

Rosenberg is the “principal architect” NMI and NMI Holding, which are affiliated with limited partnerships (LPs) that operate medical imaging centers. To finance the purchase of medical imaging equipment, the LPs entered into leases with DVI entities. DVI Financial was the initial servicer of the leases and U.S. Bank acted as trustee. When DVI Financial entered bankruptcy in 2004, Lyon acquired the servicing contracts. During state court litigation over money owed under the leases, DVI filed involuntary bankruptcy petitions against Rosenberg, NMI, and NMI Holding. The bankruptcy court dismissed the petitions because the DVI entities were not Rosenberg’s creditors. Rosenberg then filed an adversary action under 11 U.S.C. 303(i), alleging bad faith filing. Rosenberg obtained awards of fees and costs, $1.1 million in compensatory damages, and $5 million in punitive damages. Rosenberg’s wife, the Rosenberg Trust, and other Rosenberg Affiliates then sought damages based on the involuntary bankruptcy petitions, alleging tortious interference with contracts and business relationships. NMI Real Estate Partnerships owned the medical imaging facilities subject to mortgages. Rosenberg Affiliates alleged that the involuntary bankruptcy filings were intended to cause those Partnerships to default on their underlying mortgages; all but one of the properties have been lost. The district court dismissed, finding the claim preempted by the Bankruptcy Code. The Third Circuit reversed, stating that section 303(i) does not preempt the state law claims of nondebtors predicated on the filing of an involuntary bankruptcy petition. View "Rosenberg v. DVI Receivables XVII LLC" on Justia Law