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

As an individual and doing business as Halloween Costume World, Appellant filed a voluntary petition for bankruptcy under Chapter 11 of the Bankruptcy Code. The Trustee filed a motion to dismiss or convert the case to a liquidation proceeding under Chapter 7 of the Bankruptcy Code. The district court granted the motion. The district court affirmed, concluding that cause existed to convert the case to Chapter 7 under section 11 U.S.C. 1112(b)(4)(A). The First Circuit affirmed, holding that there was no error of law or abuse of discretion by the bankruptcy court in converting Appellant’s Chapter 11 bankruptcy case to Chapter 7. View "Hoover, III v. Harrington" on Justia Law

Appellant filed for Chapter 13 bankruptcy protection, and the bankruptcy court set July 19, 2012 as the deadline for creditors to file unsecured claims. The case was dismissed on June 13, 2012 and reinstated on August 1, 2012. On August 7, 2012, Appellee, Appellant’s creditor, sought leave to file an untimely unsecured claim, explaining that it had assumed the July 19 deadline was no longer operative after the case’s dismissal. The bankruptcy court reset the filing deadline to September 6, 2012 and accepted Appellee’s claim. The district court affirmed. The First Circuit affirmed, holding that because the initial statutory ninety-day deadline for Appellee to file an unsecured claim fell in a period between the case’s dismissal and subsequent reinstatement, the claim was timely. View "Gil-De La Madrid v. Bowles Custom Pools & Spa" on Justia Law

Steven Fustolo’s affiliate companies issued four promissory notes to Patton Drive, LLC. Fustolo personally guaranteed two of the notes. When the principal debtors defaulted on all four notes, Patton drive sued Fustolo. The Massachusetts state court found Fustolo liable for breach of contract and entered judgment against Fustolo. Fustolo appealed, challenging the interest due. Meanwhile, Patton Drive joined with two of Fustolo’s other creditors to file a petition seeking to place Fustolo into involuntary Chapter 7 bankruptcy. Fustolo, in turn, asserted that Patton Drive was not qualified it to serve as a petitioning creditor because his pending state court appeal subjected Patton Drive’s judgment to “bona fide dispute as to liability or amount.” The bankruptcy court allowed Patton Drive to join in initiating involuntary bankruptcy proceedings against Fustolo. The district court affirmed, finding that Fustolo’s state court appeal could not raise a bona fide dispute as to Patton Drive’s claim. The First Circuit affirmed, holding that because the amount of Fustolo’s liability on the guaranteed notes was not subject to bona fide dispute, and because Patton Drive’s claim on the guaranteed notes could be considered separately from Patton Drive’s claim on the judgment within which its underlying contract claims were submerged, Patton Drive qualified as a petitioning creditor. View "Fustolo v. 50 Thomas Patton Dr., LLC" on Justia Law

Redondo Construction Corporation filed for Chapter 11 bankruptcy. Through the proceedings, Redondo filed three complaints against the Puerto Rico Highway and Transportation Authority for money owed under construction contracts, alleging that it was entitled to damages and prejudgment interest. The bankruptcy court ruled in Redondo’s favor and found that Redondo was entitled to prejudgment interest. The First Circuit vacated the award of prejudgment interest and remanded. On remand, the bankruptcy court awarded Redondo prejudgment interest on its contract claims under Article 1061 of the Puerto Rico Civil Code, accruing through the payment of principal. The Authority moved to amend the judgment. The bankruptcy court denied the Authority’s motion, and the district court affirmed. The First Circuit vacated the judgment, holding (1) Redondo did not forfeit its claim to prejudgment interest under Article 1061; but (2) 28 U.S.C. 1961 exclusively controls awards of postjudgment interest in federal court, and therefore, the bankruptcy court should not have extended the prejudgment interest accrual period past the entry of judgment. Remanded for a calculation of section 1961 interest and a recalculation of Article 1061 interest. View "P.R. Highway & Transp. v. Redondo Constr. Corp." on Justia Law

Debtor filed a chapter 7 bankruptcy petition seeking to discharge nearly $3,500,000 in unsecured debt. The bankruptcy court denied Debtor a discharge, concluding that Debtor had not satisfactorily explained the disposition of his assets during the period leading up to the filing of his bankruptcy petition. The Bankruptcy Appellate Panel upheld the denial of the discharge on the grounds that Debtor had violated both 11 U.S.C. 727(a)(3) and 11 U.S.C. 727(a)(5). The First Circuit affirmed, holding that because Debtor failed, without any objectively reasonable justification, to keep and preserve records, and because Debtor failed to submit any information resembling a satisfactory explanation for his apparent losses and deficiencies, the bankruptcy court did not err in denying Debtor a discharge. View "Harrington v. Simmons" on Justia Law

In 2004, Laura Sheedy refinanced property she owned. For the transaction, Sheedy executed a promissory note and mortgage in favor of Washington Mutual Bank (WAMU). The mortgage was eventually assigned to Deutsche Bank National Trust Company. JPMorgan Chase National Association (Chase) serviced the loan. Deutsche Bank subsequently commenced foreclosure proceedings. Thereafter, in 2010, Sheedy filed for protection under Chapter 13 of the Bankruptcy Code. As part of her plan, Sheedy raised a series of allegations of lender liability. In 2011, Sheedy filed this adversary proceeding to have the bankruptcy court resolve her lender liability claims, adding that Deutsche Bank and Chase (together, the Secured Creditors) were liable for fraud deceit, and misrepresentation on the basis that WAMU provided her with inaccurate or false information concerning the terms of the note and the mortgage. The bankruptcy court granted summary judgment in favor of the Secured Creditors. The district court affirmed. The First Circuit affirmed, holding that all of Sheedy’s claims were either time-barred or without merit. View "Sheedy v. Deutsche Bank Nat’l Trust Co." on Justia Law

Creditor extended to Debtor a line of credit, and Debtor granted Creditor, pursuant to an agreement, a security interest in payments due to Debtor under an insurance policy. The agreement provided that Maine law governed all rights under the agreement. Insurer subsequently issued a commercial property insurance policy to Debtor. After a freight train owned by Debtor derailed, Creditor filed a claim under the policy, which Insurer denied. Debtor then filed for Chapter 11 bankruptcy. Creditor instituted an adversary proceeding seeking a declaration regarding the priority of its asserted security interest in any payments due under the policy. Insurer subsequently settled with Debtor and the trustee requiring Insurer to pay $3,800,000 to Debtor in satisfaction of all claims under the policy. Creditor objected to approval of the proposed settlement, arguing that the agreement granted it a first-priority security interest in the settlement. The bankruptcy court concluded that Debtor was entitled to the settlement proceeds free and clear of Creditor’s asserted interest because Creditor had failed to perfect its interest under Maine law. The bankruptcy appellate panel affirmed. The First Circuit affirmed, holding that the courts below did not err in concluding that Debtor was entitled to the proposed settlement payment free and clear of Creditor’s asserted security interest. View "Wheeling & Lake Erie Ry. v. Keach" on Justia Law

In this Chapter 7 bankruptcy proceeding, Appellants filed a complaint in a Puerto Rico superior court against the Trustee in bankruptcy and other defendants. The Trustee removed the state case to the bankruptcy court. Thereafter, Appellants filed a motion for a jury trial and a motion requesting remand to state court. The bankruptcy denied both motions. Appellants appealed. The district court dismissed the appeal on the grounds that the bankruptcy court’s orders were not final. The First Circuit dismissed Appellants’ subsequent appeal, holding that it lacked jurisdiction over the district court’s dismissal of Appellants’ appeal of the bankruptcy court orders because the bankruptcy court’s orders were not final. View "Sitka Enters., Inc. v. Segarra Miranda" on Justia Law

Puerto Rico may not authorize its municipalities, including public utilities, to seek federal bankruptcy relief under Chapter 9 of the U.S. Bankruptcy Code. In 2014, the Commonwealth attempted to allow its utilities, which were at risk of becoming insolvent, to restructure their debt by enacting its own municipal bankruptcy law, the Puerto Rico Public Corporation Debt Enforcement and Recovery Act (Recovery Act). Plaintiffs, investors who collectively held nearly two billion dollars of bonds issued by one of the distressed utilities, brought suit to challenge the Recovery Act’s validity and to enjoin its implementation. The district court entered judgment in favor of Plaintiffs and permanently enjoined the Recovery Act on the ground that it was preempted under 11 U.S.C. 903(1), which ensures the uniformity of federal bankruptcy laws by prohibiting state municipal debt restructuring laws that bind creditors without their consent. The First Circuit affirmed, holding that section 903(1) preempts the Recovery Act, as the statute does not read that Puerto Rico is outside the reach of its prohibitions and the Recovery Act would frustrate the precise purpose underlying the enactment of section 903(1). View "Franklin California Tax-Free v. Commonwealth of Puerto Rico" on Justia Law

Sauer Incorporated alleged that Carrie Lawson incurred a debt by knowingly receiving a fraudulent conveyance from her father that was designed to prevent Sauer from collecting a judgment against him. After Lawson filed for chapter 13 bankruptcy Sauer initiated this adversary proceeding objecting to the discharge of this debt under 11 U.S.C. 523(a)(2)(A) as being for money “obtained by…actual fraud.” The bankruptcy court dismissed Sauer’s adversary proceeding, determining that because Sauer could not allege that Lawson had made a misrepresentation, Sauer could not establish that section 523(a)(2)(A) barred discharge of Lawson’s debt. The First Circuit vacated the bankruptcy court’s grant of Lawson’s motion to dismiss, holding that a debt that is not dischargeable in Chapter 13 bankruptcy as a debt for money or property “obtained by…actual fraud” extends beyond debts incurred through fraudulent misrepresentations to also include debts incurred as a result of knowingly accepting a fraudulent conveyance that the transferee knew was intended to hinder the transferor’s creditors. View "Sauer Inc. v. Lawson" on Justia Law