Justia U.S. 4th Circuit Court of Appeals Opinion Summaries

Sheila Ann Trantham filed a Chapter 13 bankruptcy plan proposing that the property of the bankruptcy estate vest in her at the time of plan confirmation. The Trustee objected, arguing that the local form plan required the property to vest only when the court entered a final decree. The bankruptcy court agreed with the Trustee, holding that a debtor could not propose a plan that contradicted the local form’s default vesting provision. Trantham amended her plan to conform with the local form but reserved her right to appeal.The United States District Court for the Western District of North Carolina affirmed the bankruptcy court’s decision. The district court reasoned that vesting property in the debtor at confirmation could lead to various risks and practical problems, such as the property being vulnerable to creditors and the trustee lacking sufficient oversight. The court also held that Trantham lacked standing to appeal because she had not shown any injury from having to conform to the local form’s default vesting provision.The United States Court of Appeals for the Fourth Circuit reviewed the case and reversed the district court’s order. The Fourth Circuit held that Trantham had standing to appeal because the bankruptcy court’s order diminished her property and increased her procedural burdens. The court also found that the bankruptcy court erred in requiring Trantham to conform to the local form’s default vesting provision. The court emphasized that the Bankruptcy Code allows debtors to propose nonstandard provisions, including vesting provisions, and that the bankruptcy court’s decision to reject Trantham’s proposed vesting provision was not supported by the Code.The Fourth Circuit reversed the district court’s order and remanded the case for further proceedings, instructing the bankruptcy court to assess whether Trantham’s proposed vesting provision should be confirmed or rejected for a reason permitted by the Code. View "Trantham v. Tate" on Justia Law

The case involves a court-appointed receiver tasked with distributing funds recovered from a Ponzi scheme orchestrated by Kevin Merrill, Jay Ledford, and Cameron Jezierski. The scheme defrauded over 230 investors of more than $345 million. The appellants, comprising institutional and individual investors, were among the victims. The institutional investors, known as the Dean Investors, frequently withdrew and reinvested their funds, while the individual investors, known as the Connaughton Investors, invested through a third-party fund and later received settlements from that fund.The United States District Court for the District of Maryland approved the receiver's distribution plan, which used the "Rising Tide" method to allocate funds. This method ensures that no investor recovers less than a certain percentage of their principal investment, but it deducts pre-receivership withdrawals from the recovery amount. The Dean Investors objected to this method, arguing that their reinvested withdrawals should not be counted against them. The Connaughton Investors objected to the plan's "Collateral Offset Provision," which counted third-party settlements as withdrawals, reducing their distribution from the receiver.The United States Court of Appeals for the Fourth Circuit reviewed the case and affirmed the district court's decision. The court found no abuse of discretion in the district court's approval of the distribution plan. It held that the Rising Tide method without the Maximum Balance approach was appropriate, as it ensured a fair distribution to more claimants. The court also upheld the Collateral Offset Provision, reasoning that it prevented the Connaughton Investors from receiving a disproportionately higher recovery compared to other victims. The court emphasized the need for equitable distribution and the administrative feasibility of the receiver's plan. View "CCWB Asset Investments, LLC v. Milligan" on Justia Law

Byron David filed for Chapter 7 bankruptcy in July 2018, and Donald King was appointed as the Chapter 7 Trustee. King applied to retain a law firm, which was approved by the bankruptcy court. The case was converted to Chapter 11 in April 2019, and King became the Chapter 11 Trustee but did not reapply to retain the law firm. The case was later converted to Chapter 13 in May 2020, terminating King’s role as trustee. King then applied for retroactive approval to retain the law firm for work done during the Chapter 11 phase, which the bankruptcy court initially denied but later approved.The bankruptcy court approved the law firm’s fees for the Chapter 7 phase but denied fees for the Chapter 11 phase due to the lack of a proper retention application. King was granted leave to file a nunc pro tunc application, which he did in October 2020. The bankruptcy court approved this retroactive application, but David objected, arguing that King, as a former trustee, could not employ professionals. The district court vacated the bankruptcy court’s denial of David’s motion to amend but left open the issue of retroactive employment for the Chapter 11 phase.The United States Court of Appeals for the Fourth Circuit reviewed the case and held that § 327(a) of the Bankruptcy Code does not permit a former trustee to file a post-hoc application to retroactively employ professionals. The court emphasized that the statute’s language refers to the current trustee, and upon conversion, the trustee’s services are terminated. Therefore, King, as a former trustee, could not apply for retroactive approval to employ the law firm. The court reversed the district court’s decision and remanded the case for further proceedings consistent with this opinion. View "David v. King" on Justia Law

The case revolves around Dedre Feyijinmi, who filed for Chapter 13 bankruptcy and sought to discharge a restitution debt. In 2006, Feyijinmi was found guilty of welfare fraud in Maryland state court and was sentenced to three years' probation. The court also ordered $14,487 in restitution, which was recorded as a civil judgment. After Feyijinmi's probation ended, the outstanding balance was transferred to the State's Central Collection Unit. Later, Feyijinmi's criminal records were expunged, but her restitution obligation remained, leading to the garnishment of her wages.The bankruptcy court and the district court both rejected Feyijinmi's arguments that her restitution debt was dischargeable. Feyijinmi argued that the Bankruptcy Code's provision excluding a debt "for restitution...included in a sentence on the debtor's conviction of a crime" did not apply to her because she was not formally convicted under Maryland law. She also contended that the debt was discharged because the state of Maryland identified the debt as dischargeable court fees on its proof of claim.The United States Court of Appeals for the Fourth Circuit affirmed the lower courts' decisions. The court held that Feyijinmi's probation before judgment qualified as a conviction under federal law, as it was based on a finding of guilt. The court also ruled that the restitution was part of a sentence, even without a formal judgment. The court rejected Feyijinmi's claim that the State waived its right to collect the debt post-discharge by labeling it as "Court Ordered Fees" on its proof of claim. The court also dismissed Feyijinmi's claim of prejudice, finding no evidence of bad faith or unreasonable delay in filing the amendment, impact on other claimants, reliance by the debtor or creditors, or change of the debtor's position. View "Feyijinmi v. State of Maryland Central Collection Unit" on Justia Law

The case involves Bestwall, LLC, a company that filed for Chapter 11 bankruptcy in November 2017. The company sought to establish a trust to pay current and future asbestos-related claims against it. As part of this process, Bestwall requested all persons with pending mesothelioma claims against it to complete a personal injury questionnaire. Several individual claimants and the Official Committee of Asbestos Claimants objected to this request. The bankruptcy court granted Bestwall's motion and ordered all current mesothelioma claimants to complete the questionnaire. Some claimants, represented by the law firm of Maune, Raichle, Hartley, French & Mudd, LLC, filed a lawsuit in Illinois seeking an injunction to prevent Bestwall from enforcing the questionnaire order. In response, Bestwall moved in the bankruptcy court to enforce the order.The bankruptcy court held the claimants and their law firm in contempt for violating the questionnaire order. The court later sanctioned them jointly and severally in the amount of $402,817.70 for fees and expenses Bestwall incurred in defending the Illinois lawsuit and enforcing the questionnaire order. The claimants and their law firm appealed both the contempt order and the sanctions order to the district court, which dismissed the appeals for lack of jurisdiction.The United States Court of Appeals for the Fourth Circuit affirmed the district court's judgment. The court held that the contempt and sanctions orders were not final appealable orders because they did not terminate a procedural unit separate from the remaining bankruptcy case. The court noted that in normal civil litigation, a party may not immediately appeal a civil contempt order or attendant sanctions but must wait until final judgment to appeal. The same rule applies in bankruptcy, except the relevant final judgment may be a decree ending the entire case or a decree ending a discrete proceeding within the bankruptcy case. The court concluded that the contempt and sanctions orders did not terminate a procedural unit separate from the remaining bankruptcy case, and therefore, they were not final appealable orders. View "Blair v. Bestwall, LLC" on Justia Law

The case revolves around Ronald Lee Morgan, who filed for Chapter 7 bankruptcy in North Carolina. Morgan owned a home jointly with his wife as tenants by the entirety. He sought to exempt this home from the bankruptcy estate to the extent of his outstanding tax debt to the Internal Revenue Service (IRS). However, the bankruptcy court disallowed the exemption. Morgan's wife did not jointly owe the debt to the IRS and did not file for bankruptcy. The trustee of the bankruptcy estate objected to Morgan's claim for an exemption, arguing that under North Carolina state law, tenancy by the entireties property is generally exempt from execution by creditors of only one spouse, but this rule does not apply to tax obligations owing to the United States.The bankruptcy court sustained the trustee's objection, and on appeal, the district court affirmed this decision. Morgan then appealed to the United States Court of Appeals for the Fourth Circuit, arguing that for his IRS debt to override the entireties exemption, the IRS must have obtained a perfected tax lien on the property prior to the filing of the bankruptcy petition.The Court of Appeals for the Fourth Circuit affirmed the district court's ruling. The court concluded that Morgan's interest in his home as a tenant by the entirety is not "exempt from process" under "applicable nonbankruptcy law." The court rejected Morgan's argument that the IRS must have actually obtained a lien prior to the bankruptcy filing, stating that the absence of a judgment or lien has no bearing on the hypothetical issue of whether the debtor's interest would be exempt from process. The court also dismissed Morgan's contention that the IRS must perfect a lien against his property before he filed for bankruptcy. The court concluded that nothing in the Supreme Court's decision in United States v. Craft limits its holding to instances where the IRS has perfected a tax lien against the property. View "Morgan v. Bruton" on Justia Law

The case concerns the dischargeability of debts under the Bankruptcy Code. The debtor, Lee Andrew Hilgartner, physically assaulted Yasuko Yagi, resulting in two settlement agreements. When Hilgartner failed to pay the agreed amount, Yagi sued to enforce the agreement. Hilgartner filed for bankruptcy, arguing that the debts were dischargeable since they arose from a breach of the settlement agreement, not the underlying tort of assault. The United States Court of Appeals for the Fourth Circuit, however, ruled that the debts were non-dischargeable under section 523(a)(6) of the Bankruptcy Code, which excepts from discharge debts “for willful and malicious injury” to another. The court held that the debt from the settlement agreement, which arose from a willful and malicious injury, retained the character of the underlying tort. Therefore, the debt, including the principal amount owed, interest on late payments, and attorney's fees incurred in enforcing the agreement and contesting the bankruptcy proceedings, was non-dischargeable. The court reasoned that the entire settlement arose from the same willful and malicious injuries and that the settlement agreement didn't disrupt the causal chain. View "Yagi v. Hilgartner" on Justia Law

Plaintiffs hired Defendant o renovate their home in Washington, D.C. Because Defendant told Plaintiffs he was properly licensed, they thought everything was above board. Yet, delayed and defective, the renovations did not go well. And, as it turned out, Defendant was not properly licensed. So the Plaintiff sued him in D.C.’s Superior Court. But then Defendant filed for Chapter 7 bankruptcy. Plaintiffs pursued him, filing a two-claim complaint against him in bankruptcy court. The bankruptcy court rejected Count II, finding that, if a debt existed, it was dischargeable. So it partially dismissed the adversary proceeding. But it allowed Count I to proceed toward trial to determine whether Defendant owed the Plaintiffs any money. Plaintiffs then voluntarily dismissed the surviving claim without prejudice. They could then immediately appeal the court-dismissed claim and decide afterward whether it was worth further litigating the party-dismissed claim. Plaintiffs appealed their Count II loss to the district court, who affirmed it.   The Fourth Circuit vacated the district court’s order. The court explained that bankruptcy courts are not Article III courts. So Article III constraints do not apply to them. They only apply if Congress said so in a statute. But it hasn’t. And that means whether Count I was constitutionally moot is beside the point. The bankruptcy court could still adjudicate it. Since Plaintiffs cannot argue that their adversary proceeding was constitutionally moot when Count II was dismissed, they have not shown the proceeding was legally doomed when they dismissed Count I. They are thus left arguing the order was final because Count I was practically over post-dismissal. View "Roee Kiviti v. Naveen Bhatt" on Justia Law

Plaintiff appealed the district court’s grant of summary judgment to PHH Mortgage Corporation on numerous federal and state law claims. The two primary issues on appeals are whether the Bankruptcy Code preempts state law causes of action for a creditor’s improper collection efforts related to debt that has been discharged in bankruptcy. Second, are there genuine disputes of material fact with respect to Guthrie’s federal and state claims?   The Fourth Circuit affirmed in part, vacated in part, and remanded. The court held that the Bankruptcy Code does not preempt Plaintiff’s state law claims arising from alleged improper collection attempts of a discharged debt.  The court also held that Plaintiff has established a genuine dispute of material fact with respect to his NCDCA and FCRA claims. However, he has failed to establish a genuine dispute of material fact with respect to his TCPA claim. View "Mark Guthrie v. PHH Mortgage Corporation" 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