Justia U.S. 1st Circuit Court of Appeals Opinion Summaries

Sharfarz hired Goguen to build an addition to his house. Despite taking full payment, Goguen never finished the job. Sharfarz had to pay another to finish the work and sued consumer-protection laws, Mass. Gen. Laws ch. 93A; Mass. Gen. Laws ch. 142A. Sharfarz obtained a default judgment of $272,745. After an evidentiary hearing to assess damages, the state judge wrote that Goguen was "both deceptive and unfair, almost from the beginning and to the end," and that his "violations" had been "willful and knowing." Goguen filed for Chapter 7 bankruptcy. Sharfarz sought to have his judgment declared nondischargeable, under a provision that bars discharge of "any debt ... for money ... to the extent obtained by ... false pretenses, a false representation, or actual fraud" 11 U.S.C. 523(a)(2)(A). The bankruptcy judge denied the petition. The First Circuit vacated and remanded for determination of the nondischargeable amount. Goguen’s false statements were both the legal and factual cause of Sharfarz’s loss. View "Sharfarz v. Goguen" on Justia Law

During the early 1990s, debtor Redondo entered into three construction contracts with the Authority: the Patillas project, construction of a bridge and access road; the Dorado project, replacement of a different bridge; the Mayguez project, highway improvements. The Authority retained the right to modify the plans; Redondo had the right to seek extra compensation. Redondo also could claim extra compensation for certain contingencies requiring substantial additional work. Each project encountered unanticipated problems, including unforeseen site conditions and flawed design plans. Redondo completed all three projects and submitted claims for additional amounts owed under the contracts, including claims for two subcontractors on the Mayaguez project. With the claims unresolved, Redondo filed for bankruptcy protection, 11 U.S.C. 1101-1174, and served the Authority with adversary complaints. The bankruptcy court awarded the debtor a total of $12,028,311.92 plus prejudgment interest at 6.5 percent, later reduced by $69,792.26. The district court affirmed. The First Circuit affirmed in part, rejecting claims concerning timely notice on one project and Redondo's standing to assert subcontractor claims. The court vacated and remanded calculation of extended overhead damages and the award of prejudgment interest. View "PR Highway and Transp. Auth. v. Redondo Constr. Corp." on Justia Law

While engaged in a Chapter 7 bankruptcy action, the debtor brought claims against government officials and a police officer, seeking damages for an allegedly illegal search of his property. He did not amend his bankruptcy schedules, as required, to disclose the existence of his claims as newly acquired assets prior to obtaining a discharge from bankruptcy. The court granted summary judgment in favor of the government defendants, on the basis of judicial estoppel. Although failure to disclose his claims did not give debtor an unfair advantage in the civil proceeding, he had successfully adopted a position in the bankruptcy proceeding inconsistent with the position he took in the damages claim. The First Circuit affirmed. To allow debtor to rely on a belated report of the claims, which he had repeatedly denied, "would neither serve the equities of this case nor create the proper incentive for future debtors to disclose assets in a bankruptcy proceeding completely and accurately."View "Guay v. Burack" on Justia Law

Debtor had unsecured liabilities of almost $15,000 and anticipated disposable income of about $100 per month. He visited an attorney, who indicated that he would not file a Chapter 7 proceeding until the debtor paid the anticipated legal fee ($2,300). If debtor chose the Chapter 13 alternative, he could pay over time as part of the Chapter 13 plan. The attorney estimated that fees associated with a Chapter 13 proceeding would total $4,100. Not having fees for a Chapter 7 filing, the debtor opted for Chapter 13 and paid $500 on account. The attorney submitted a “fee only” Chapter 13 plan that called for payment of $100 per month for 36 months to the bankruptcy estate. Of the total $3,600, only about $300 would be available to general creditors. The bankruptcy court rejected the plan as not submitted in good faith. The debtor opted to convert to Chapter 7; the attorney moved for an award of $2,872. The bankruptcy court awarded $299, which required him to disgorge more than $200. The district court affirmed. Noting a division in the circuits, the First Circuit reversed, holding that fee-only plans are not per se in bad faith.View "Berliner v. Pappalardo" on Justia Law

Debtors engaged the attorney to represent them in bankruptcy proceedings. They owed more than $115,000 in unsecured debt with no realistic prospect of payment. In a retainer agreement, he estimated that legal fees plus court costs would total around $4,000. Debtors paid $3,684 on account. Their Chapter 13 plan, 11 U.S.C. 1321-1322, was approved by the bankruptcy court and the lawyer filed an application requesting an additional $8,173.36 in attorneys' fees and expenses. The trustee objected. The bankruptcy court set the total fee and expense figure at $3,684, finding that the case was relatively uncomplicated. The district court and First Circuit affirmed, agreeing that the attorney billed an excessive number of hours. View "Sullivan v. Pappalardo" on Justia Law

Mortgage deeds executed by the debtors three years earlier were still pending recordation when they filed for Chapter 11 bankruptcy. Debtors sought to avoid the mortgages and to prevent any post-petition actions that would perfect them 11 U.S.C. 362(a)(5), 544(a), 547(b). The bankruptcy court ruled in favor of the lender. The district court and First Circuit affirmed. Debtors failed to establish the necessary elements of a preferential transfer.

In 2005 the debtor business purchased a business and signed a promissory note. The business failed, allegedly because the seller continued to compete, in violation of the contract. The debtor listed a breach of contract claim as an asset. The trustee was unable to retain an attorney to pursue the claim and, with the limitations period running out, the court approved abandonment of the claim. The seller then offered to buy the claim and stock in the debtor company. The First Circuit affirmed the district court holdings that the claim had been abandoned (11 U.S.C. 554(c)), but that the stock had not been abandoned. Although the debtor did not identify eery possible theory of recovery in listing the claim as an asset, the trustee was on notice of tort theories. The transfer of the claim was not a violation of the automatic stay.

Debtor, a waste disposal firm, borrowed from FFC, giving FFC a security interest before filing a Chapter 11 petition in 2003. In 2005 a trustee, appointed to run the business, moved to convert to a Chapter 7 proceeding and assented to having Allied service debtor's customers. The court granted the motion and lifted the equitable stay to allow FFC to sell secured equipment. FFC later foreclosed against additional property, which it sold to City Sanitation. A consultant who had been retained by the trustee to assist in operating the business went to work for Allied. In 2007 City Sanitation sued Allied and the consultant, purportedly as the debtor's successor in interest, alleging conversion. The bankruptcy court reopened the bankruptcy case to allow the trustee to take over the case against Allied. The district court and First Circuit affirmed. The right to pursue commercial tort claims cannot be passed to a secured creditor as proceeds of original collateral. The court rejected an argument that FFC's security interest conferred the right to prosecute claims arising from interference with the collateral. The alleged wrongdoing occurred while the consultant was in debtor's employ; any harm was to debtor and belongs to the estate.

Following a remand from the First Circuit, the bankruptcy court approved the Chapter 7 trustee's decision to give priority to holders of senior unsecured debt with respect to principal and pre-petition interest. The priority did not extend to payment of post-petition interest ahead of junior unsecured debt. The district court affirmed. The First Circuit affirmed. The Code provides that a subordination agreement is enforceable to the same extent that such agreement is enforceable under applicable nonbankruptcy law, (11 U.S.C. 510(a)). The bankruptcy court findings as to the intent of the parties were sufficient to support the conclusion, under New York law, that the parties did not intend to subordinate the junior noteholders to post-petition interest.

In 2003 the owner executed a second mortgage with a stated term of four months, in favor of defendant to secure performance of a guaranty. The owner later executed a separate mortgage and defaulted. The lender foreclosed and took possession subject to senior mortgages. In 2007 defendant published notice of foreclosure. The then-owner filed bankruptcy under 11 U.S.C. 362(a), triggering a stay before the deadline under the Massachusetts Obsolete Mortgages Statute, which requires the holder of a mortgage to take action to enforce it within five years after the end of its stated term (September 9, 2008). The bankruptcy court held that defendant's failure to record an extension rendered the mortgage void. The district court reversed. The First Circuit affirmed, holding that the bankruptcy statute tolls the limitations period of the state law. Defendant was not required to choose between filing an extension and foreclosure and still had the right to foreclose at the time the stay became effective.