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

Articles Posted in Bankruptcy
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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

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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

Posted in: Bankruptcy, Tax Law
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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

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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

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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

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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

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Appellees filed a voluntary petition under Chapter 13 of the Bankruptcy Code. Appellees calculated their disposable income using Official Form 122C-2. As the form instructs, Appellees entered the relevant “National and Local Standards” for their monthly costs for food, clothing, utilities, out-of-pocket healthcare, and vehicles. The bankruptcy trustee objected to Appellees’ proposed Chapter 13 plan. The trustee acknowledged the Cooks followed the instructions on Official Form 122C-2. The trustee maintained, however, that the form was wrong because the Bankruptcy Code only allowed Appellees to claim the relevant Local Standards amount for their “Mortgage/Rent” deduction ($1,098) rather than their actual monthly payment ($2,233.34). The trustee asked the bankruptcy court to certify an appeal directly to the Fourth Circuit under 28 U.S.C. Section 158(d)(2)(A).   The Fourth Circuit affirmed. The court explained disposable income, in turn, means “current monthly income received by the debtor” minus “amounts reasonably necessary to be expended.” Clause Three says the Appellees’ “average monthly payments on account of ” that mortgage “shall be calculated” based on the amounts “contractually due to secured creditors,” that is, what Appellees owe under their mortgage agreement. Performing that calculation, the Appellees reached an average monthly payment of $2,233.34. Then, Clause One tells Appellees to “reduce” their “current monthly income” “by the amount determined under” Clause Three. Thus, Appellees subtracted $2,233.34 (and other uncontested amounts) from their current monthly income to reach a disposable income of $253.27. Accordingly, the court concluded Appellees were entitled to use their average monthly mortgage payments when calculating their disposable income. View "Joseph Bledsoe, III v. Cheryl Cook" on Justia Law

Posted in: Bankruptcy
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Attorney and his law firm, Pesner Kawamato Conway, P.C. (collectively, Conway), appealed the district court’s order rejecting the bankruptcy court’s report and recommendation to enjoin Smith Development, Inc.’s legal malpractice suit against Conway and to impose sanctions for violating the Barton doctrine and the automatic stay.   The Fourth Circuit dismissed the appeal, finding that it lacks subject-matter jurisdiction because the district court’s decision rests on the abstention principles. The court explained that Conway suggests the district court had no authority to enter an abstention order because, under Barton, the district court itself lacked jurisdiction over Smith Development’s malpractice claims. However, the court wrote that this argument fares no better than the first. Barton concerns subject-matter jurisdiction over a separate action, not jurisdiction over the proceedings in which a party seeks Barton protection in the first place. And even if the court accepted the argument’s doubtful premise, it fails on its own logic because the bankruptcy court issued a report and recommendation to the district court, thereby authorizing the district court to rule on the matter. Further, the court found that even if it recognized a narrow exception to Section 1334(d)’s clear jurisdictional bar, the district court’s order would not fall within it. View "Martin Conway v. Smith Development, Inc." on Justia Law

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Colorado Bankers is a life, accident, and health insurance company. Colorado Bankers made several interrelated agreements with Academy Financial Assets (Academy). After Academy failed to pay the still outstanding balance in full by the June 30 maturity date, Colorado Bankers filed an amended complaint adding a second breach of contract claim. At issue on appeal is whether the district court erred in granting summary judgment for Colorado Bankers Life Insurance Company in its suit against Academy Financial Assets for violating a loan agreement? Second, did the district court err in concluding a North Carolina statute requires Academy to pay 15% of the outstanding loan balance as attorneys’ fees?   The Fourth Circuit affirmed. The court acknowledged various federal district and bankruptcy courts have adopted this view, we decline to do so. The court wrote that while perhaps appealing as a policy matter, Academy’s argument has scant basis in the statutory text, and Academy has identified no compelling reason for concluding the Supreme Court of North Carolina would interpret the statute in such an atextual manner. The court thus held the district court did not err in following the plain language of the statute and imposing a 15% fee award without requiring evidence of “the attorney’s actual billings or usual rates.” View "Colorado Bankers Life Insurance Company v. Academy Financial Assets, LLC" on Justia Law

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This bankruptcy appeal involves a primary insurer’s attempts to block its insureds’ Chapter 11 reorganization plan (the “Plan”), which establishes a trust under 11 U.S.C. Section 524(g) for current and future asbestos personal-injury liabilities. In adopting the bankruptcy court’s recommendation to confirm the Plan, the district court concluded in relevant part that the primary insurer was not a “party in interest” under 11 U.S.C. Section 1109(b) and thus lacked standing to object to the Plan.   The Fourth Circuit affirmed, but on both Section 1109(b) grounds and Article III grounds. The court explained that as an insurer, Plaintiff fails to show that the Plan impairs its contractual rights or otherwise expands its potential liability under the subject insurance policies, so it is not a party in interest under Section 1109(b) with standing to challenge the Plan in that capacity. Similarly, as a creditor, Plaintiff objects to parts of the Plan that implicate only the rights of third parties, which fails to allege an injury in fact sufficient to confer Article III standing. Accordingly, none of Plaintiff’s objections to the Plan can survive. View "Truck Insurance Exchange v. Kaiser Gypsum Company, Inc." on Justia Law