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

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

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

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

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

When the ACA’s mandate and SRP were still in effect, a husband and wife (“Taxpayers”) did not maintain the minimum insurance coverage required by the ACA. The taxpayers did not include their $2409 SRP when they filed their 2018 federal tax return. The Taxpayers filed for Chapter 13 bankruptcy protection in the Eastern District of North Carolina. The IRS filed a proof of claim for the unpaid SRP and asserted that its claim was entitled to priority as an income or excise tax under Section 507 of the Bankruptcy Code. The Taxpayers objected to the government’s claim of priority. The bankruptcy court granted the objection, concluding that, for purposes of the Bankruptcy Code, the SRP is a penalty, not a tax, and therefore is not entitled to priority under Section 507(a)(8). The government appealed to the district court, which affirmed the bankruptcy court’s decision. The district court held that even if the SRP was generally a tax, it did not qualify as a tax measured by income or an excise tax and thus was not entitled to priority. The government thereafter appealed.   The Fourth Circuit reversed and remanded. The court concluded that that the SRP qualifies as a tax under the functional approach that has consistently been applied in bankruptcy cases and that nothing in the Supreme Court’s decision in NFIB requires the court to abandon that functional approach. Because the SRP is a tax that is measured by income, the government’s claim is entitled to priority under 11 U.S.C. Section 507(a)(8)(A). View "US v. Fabio Alicea" on Justia Law

A bankruptcy court imposed sanctions against Defendant. The sanctions arose from an adversary proceeding in the bankruptcy court brought by the United States Trustee against Defendant, UpRight Law LLC, Sperro LLC and other defendants. UpRight is a Chicago-based bankruptcy legal services company that operates through a nationwide network of “local partners.” After Defendant signed a partnership agreement with UpRight, he filed more than 30 bankruptcy cases as a partner. The bankruptcy court also found that Delafield violated Virginia Rules of Professional Conduct 5.1 and 5.3. After the district court affirmed sanctions, Defendant appealed, asserting the sanctions order violated his due process rights.   The court explained that to be sure, a lawyer facing suspension or disbarment is entitled to notice of the charges for which such discipline is sought and an opportunity to be heard on those issues. The court explained that the complaint did not cite to the Virginia Rules of Professional Conduct that Defendant was ultimately found to have violated. Identifying such rules is certainly preferred in an action seeking suspension or disbarment. But this omission did not violate Defendant’s due process rights. The complaint adequately notified Defendant of the conduct for which he was being accused and the sanctions that were being sought. View "U. S. Trustee v. Darren Delafield" on Justia Law

Plaintiff sued three defendants under 11 U.S.C. Section 362 for violating a bankruptcy stay by their participation in the foreclosure and sale of her home while her bankruptcy petition was pending. The district court dismissed the claims against the first defendant but not the other two, and Plaintiff appealed the dismissal order, even though it was interlocutory. While her appeal was pending before the Fourth Circuit, however, the district court dismissed the claims against the other two defendants and entered a final judgment in the case. That final judgment saved her appeal from dismissal in our court under the doctrine of “cumulative finality,” as the district court had at that point adjudicated all claims as to all parties in the case.   The Fourth Circuit reviewed the order dismissing the first defendant and remanded the case for further proceedings against that defendant. Because Plaintiff never appealed the dismissal of the other two defendants, however, the court never had those defendants before it. Thus the court concluded that it lacks jurisdiction over Plaintiff’s appeal of the final judgment in favor of the other two defendants, as it was untimely. The court explained the fact that the February 2014 judgment was a final judgment sufficient to grant cumulative finality means that Plaintiff’s appeal of that judgment was subject to the time requirements of Section 2107(a), which she failed to satisfy. View "Diana Houck v. LifeStore Bank" on Justia Law

When Cleary Packaging, LLC, filed a petition in bankruptcy under Subchapter V of Chapter 11 as a “small business debtor,” seeking to discharge a $4.7 million judgment that Cantwell-Cleary Co., Inc. had obtained against it for intentional interference with contracts and tortious interference with business relations, Cantwell-Cleary opposed the effort. It argued that 11 U.S.C. Section 1192(2), provides that small business debtors are not entitled to discharge any debt of the kind specified in section 523(a). And that Section 523(a) in turn lists 21 categories of debt that are non-dischargeable, including debts “for willful and malicious injury by the debtor to another entity or to the property of another entity.”   The bankruptcy court agreed with Cleary Packaging and concluded that its $4.7 million debt was dischargeable. The Fourth Circuit disagreed with the bankruptcy court and reversed the court’s ruling and remanded. The court found more harmony from following a close textual analysis and contextual review of Section 1192(2) and thus concluded that it provides discharges to small business debtors, whether they are individuals or corporations, except with respect to the 21 kinds of debts listed in Section 523(a). Finally, the court concluded that its interpretation serves fairness and equity in circumstances where a small business corporate debtor, in particular, is given greater priority over creditors than would ordinarily apply and thus should not especially benefit from the discharge of debts incurred in circumstances of fraud, willful and malicious injury, and the other violations of public policy reflected in Section 523(a)’s list of exceptions. View "Cantwell-Cleary, Co., Inc. v. Cleary Packaging, LLC" on Justia Law

Appellants filed for Chapter 11 bankruptcy in 2009. The bankruptcy court approved a repayment plan which allowed Appellants to retain possession of a beach house, with the creditor retaining a secured claim for the total outstanding mortgage balance. Several years later, Appellees took as loan servicer for the mortgage. Despite Appellant's timely payments, Appellees mistakenly believed that the account was past due. Eventually, Appellees initiated foreclosure proceedings. Appellants filed an emergency motion for content, which the bankruptcy court granted. However, the district court reversed under Taggart v. Lorenzen, 139 S. Ct. 1795 (2019), finding Appellees acted in good faith because the error involved the previous loan servicer and Appellees based their actions on the advice of counsel.The Fourth Circuit found that both the bankruptcy court and district court erred. The standard announced in Taggart applies to an action to hold a creditor in civil contempt for violating a plan of reorganization of debts entered under Chapter 11. Nothing in the Taggart decision limits the case to Chapter 7 bankruptcy proceedings. While there are differences between Chapter 7 and Chapter 11 bankruptcies, the power of a bankruptcy court in either type of case derives from the same statutes and the same general principles.However, the Fourth Circuit also held that the district court erred in its application of Taggart. Thus, the court remanded the case for further proceedings. View "Gordon Beckhart, Jr. v. Newrez, LLC" on Justia Law

The Fourth Circuit concluded on the merits that, under the Bankruptcy Code and the applicable state fraudulent transfer statutes, tax penalty obligations are not voidable, and relatedly, tax penalty payments are not recoverable. Accordingly, the court affirmed the district court's decision upholding the bankruptcy court's dismissal of the trustee's claims seeking to void tax penalty obligations owed by the debtor to the IRS and to recover prior payments made by the debtor to the IRS upon such obligations.The court found the Sixth Circuit's decision in In re Southeast Waffles, LLC, 702 F.3d 850 (6th Cir. 2012), persuasive and concluded that tax penalties do not fit within the obligations contemplated in the North Carolina Uniform Voidable Transactions Act. Because tax penalties are not obligations incurred as contemplated by the Act, it cannot be the "applicable law" required for the trustee to bring this action under 11 U.S.C. 544(b)(1). If there is no applicable law for the trustee's section 544(b)(1) claim, the court concluded that the claim must be dismissed. The court noted that its conclusion about the tax penalty payments turns on the legitimacy of the underlying tax penalty obligation; not the fact that the payments reduced the amount of the tax penalty obligations dollar for dollar. Since the underlying tax penalty obligation is not voidable, neither are Yahweh Center’s payments on that obligation. View "Cook v. United States" on Justia Law