Sacramento Bankruptcy and Divorce Attorneys Blog

June 28, 2024

Supreme Court Discusses Discharge of Non-Debtor Parties in Bankruptcy Claims

Bankruptcy is an important tool that allows people to regain control of their finances and alleviate overwhelming debt obligations that they are unable to pay. Not all claims are dischargeable in bankruptcy, however. For example, the United States Supreme Court recently held that judgments against non-debtor cannot be discharged. If you are mired in debt, you may be able to seek relief by filing for bankruptcy, and it is smart to confer with a California bankruptcy lawyer.

Factual and Procedural History

It is alleged that the owner-family, known for their ownership of the debtor drug company, significantly influenced the company’s strategy and the development of OxyContin, a drug initially touted as having a low risk of addiction. However, mounting evidence of widespread abuse led to extensive legal battles involving individuals, state governments, and federal agencies suing the debtor. In 2004, the debtor board entered into a sweeping Indemnity Agreement to shield its directors and officers from financial liabilities arising from these lawsuits, providing broad protection even beyond their tenure, albeit with exceptions for bad faith actions. Beginning in 2007, the owner-family preemptively shielded assets in anticipation of personal litigation. By 2019, the debtors faced severe financial strain, prompting the debtor family to resign from the company’s board.

Reportedly, simultaneously, the Department of Justice (DOJ) filed criminal and civil charges against the debtor, resulting in a 2020 plea agreement that prioritized DOJ claims in the debtor’s bankruptcy proceedings. The agreement included a $2 billion forfeiture judgment, with $1.775 billion potentially released if certain conditions were met. While the debtors declared bankruptcy in 2019, the owner-family did not, temporarily halting litigation against both parties. The debtor’s estate was valued at approximately $1.8 billion, yet claims against the debtor and the owner-family exceeded $40 trillion. Continue reading

May 27, 2024

Court Discusses Double Recoveries Under the Bankruptcy Code

by Matthew D. Roy

In bankruptcy actions, creditors will often seek to recover some or all of the debts they are owed. While they have the right to do so, the Bankruptcy Code prohibits them from recovering the same debt twice. As discussed by the Ninth Circuit Court of Appeals in a recent case, though, payments and transfers that may seem like double recovery often are not recoveries at all. If you have debt obligations you cannot meet, you may be eligible to file for bankruptcy, and you should speak to a California bankruptcy lawyer.

History of the Case

It is alleged that in February 2018, the defendants entered into an agreement with the plaintiffs for the sale of a warehouse in California for $8 million. The plaintiffs’ company, a California business, transferred a down payment of approximately $2.4 million, with the remaining amount financed through a loan secured by the warehouse. The title of the warehouse was transferred to a special purpose entity created by the plaintiffs. This transaction was later discovered to be part of an extensive Ponzi scheme.

Reportedly, in December 2018, federal authorities raided the plaintiffs’ business operations, uncovering substantial fraud, which led to the plaintiffs and several related entities filing for Chapter 11 bankruptcy. The warehouse, owned by a non-debtor entity, was included in federal forfeiture actions against the plaintiffs’ properties. Despite an attempt by one trustee to enforce an automatic stay against the forfeiture, the sale of the warehouse proceeded, and the loan was repaid from the sale proceeds.

April 29, 2024

California Court Discusses Grounds for Vacating a Default Judgment in Bankruptcy Actions

by Matthew D. Roy

People with all-consuming debt will often seek financial relief by filing for bankruptcy. Bankruptcy can help many people regain control of their finances, but if they do not proceed carefully, they may incur additional debt. This was demonstrated in a recent California bankruptcy case in which the court sanctioned debtors for filing an inappropriate pleading. If you have debts you are unable to pay, it is wise to talk to a California bankruptcy lawyer about whether bankruptcy may be right for you.

Factual and Procedural Background

It is reported that the petitioner filed an adversary proceeding and was awarded a default judgment against the debtors by the Bankruptcy Court. Over a year later, the debtors filed a motion with the Bankruptcy Court under Rule 60(b) of the Federal Rules of Civil Procedure seeking relief from the default judgment. Their motion was based on Rule 60(b)(4) (relief from a void judgment) and Rule 60(b)(1) (relief from judgment due to mistake).

Allegedly, in response, the petitioner moved for sanctions under. The Bankruptcy Court denied the debtors’ motion to vacate and granted the petitioner’s motion for sanctions. The Bankruptcy Appellant Panel affirmed the decision. The debtors, representing themselves, appealed.

March 23, 2024

California Court Discusses Grounds for Vacating a Bankruptcy Conversion Order

by Matthew D. Roy

Businesses grappling with debts they are unable to pay can often seek relief via bankruptcy. The United States Bankruptcy Code sets forth the requirements and relief available for debtors under various chapters. Many businesses choose to file Chapter 11 bankruptcy actions, as it allows them to maintain operations and assets. In some instances, though, the court will convert a Chapter 11 bankruptcy case to a Chapter 7 case despite the debtor’s protests. In a recent California opinion issued in a bankruptcy matter, the court discussed the grounds for entering and vacating a conversion order. If you need assistance seeking bankruptcy relief, it is advisable to speak with a California bankruptcy lawyer as soon as you can.

Procedural History of the Case and Factual Setting

It is alleged that the debtor filed a Chapter 11 bankruptcy action. The bankruptcy court subsequently entered a Conversion Order, which converted the case from Chapter 11 to Chapter 7 bankruptcy. At the hearing on the matter, the debtor contends that it was not provided with sufficient notice of the hearing on the motion to convert and that it was not timely served with notice of the motion.

February 28, 2024

California Court Discusses Grounds for Dismissing Bankruptcy Cases

by Matthew D. Roy

People saddled with unbearable debts are often able to take advantage of the United States bankruptcy laws and seek relief by filing a petition for bankruptcy. If they do, however, they must be cognizant of any procedural rules; otherwise, their bankruptcy petitions may be dismissed. For example, the Bankruptcy Code provides, among other things, that people cannot seek simultaneous relief for the same debt in different courts by filing multiple bankruptcy petitions. This principle was highlighted in a recent ruling issued by a California court in a bankruptcy case, in which the court ultimately affirmed the dismissal of the debtor’s bankruptcy petition filed in California court. If you have substantial debt and you have questions about what relief may be available, it is in your best interest to contact a California bankruptcy lawyer to discuss your options.

History of the Case

It is reported that the debtor initiated a voluntary Chapter 11 petition in the United States Bankruptcy Court for the Central District of California in June 2023. Five days later, the Bankruptcy court issued an order dismissing the case on the grounds that the debtor had another bankruptcy action pending in Oregon. The debtor then appealed.

Grounds for Dismissing Bankruptcy Cases

On appeal, the court considered the Supreme Court ruling in Freshman v. Atkins, which established that a debtor cannot have concurrent bankruptcy cases involving the same debts. The court cited precedent supporting this principle, emphasizing that only one bankruptcy case may be pending for a debtor at a given time. Consequently, the court found that the Bankruptcy court properly dismissed the case because the debtor already had an open Chapter 7 bankruptcy proceeding in the United States Bankruptcy Court for the District of Oregon.

January 30, 2024

California Court Discusses Demonstrating a Legal Error in a Bankruptcy Case

by Matthew D. Roy

The filing of a bankruptcy action triggers an automatic stay in litigation against the debtor, which, in many instances, helps them protect their assets. If a bankruptcy action is dismissed, the stay will be lifted, though, leaving property vulnerable to credits. A debtor can argue that an action was dismissed in error, but they must do so in a timely manner; otherwise, they may waive their right appeal, as demonstrated in a recent California bankruptcy case. If you have unmanageable debts and are interested in learning more about what relief you may be able to obtain by filing for bankruptcy, it is prudent to speak to a California bankruptcy lawyer as soon as possible.

Case Setting

It is reported that the plaintiff deemed a vexatious litigant, filed multiple bankruptcy cases between 2011 and 2020. The focal point of the cases was a property co-owned by the plaintiff’s business partner. The defendant held a deed of trust on the property. Fractional interests in the property were granted to the plaintiff and his wife, who then participated in the aforementioned filing scheme to trigger the automatic stay and prevent foreclosure.

Allegedly, despite an in rem order favoring the defendant until July 2021, the plaintiff’s Chapter 11 case was dismissed in February 2021. Subsequently, the defendant foreclosed on the property, obtained an unlawful detainer judgment, and evicted the plaintiff. The plaintiff filed an adversary complaint alleging a violation of the automatic stay and fraudulent transfer, seeking damages and a restraining order. The bankruptcy court issued an order to show cause and later dismissed the plaintiff’s complaint, citing insufficient service, lack of jurisdiction, and untimeliness. The plaintiff moved to vacate the dismissal order under Civil Rule 60(b), asserting hospitalization during the order to show cause hearing. The court denied the motion, prompting the plaintiff’s appeal.

December 23, 2023

California Court Explains the Approval of Sales and Settlements in Bankruptcy Actions

by Matthew D. Roy

In bankruptcy actions, trustees will often manage the estate, which may include selling any assets that can be liquidated. The bankruptcy courts will generally approve such sales, as long as they comply with the procedural requirements, as illustrated in a recent California ruling. If you have would like to hear more about whether you may be eligible for bankruptcy relief, it is wise to contact a California bankruptcy attorney.

Factual and Procedural History of the Case

It is reported that the debtor’s husband and debtor wife, who were legally separated, filed separate petitions in September 2021, during their legal separation. Their bankruptcy cases were then consolidated. The trustee, who oversaw the consolidated bankruptcy estates, moved for the approval of two settlement and sale agreements. “Agreement A” encompassed the sale of a single business entity that was owned by the debtor husband and the settlement of three related legal matters the debtor husband, formerly legal counsel for the creditor, had been involved in. The trustee advocated for the approval of the settlement and sale, contending that they were in the estate’s best interest. The debtor husband objected to Agreement A however. The bankruptcy court ultimately approved the agreement, and debtor husband appealed.

Approval of Sales and Settlements in Bankruptcy Actions

On appeal, the court evaluated the bankruptcy court’s approval of Agreement A, encompassing both a sale and a compromise, under § 363 and Rule 9019. To approve a § 363(b)(1) sale, the trustee must establish a sound business purpose, fair sale price, proper notice to creditors, and good-faith negotiation. Rule 9019(a) allows the court to approve compromises or settlements, considering factors such as the probability of success, collection difficulties, litigation complexity, and creditor interests. The court may make general findings supporting the settlement if the record indicates favorability. The trustee bore the burden of proving these elements.

November 29, 2023

California Court Discusses Grounds for Dismissing an Adversary Complaint in a Bankruptcy Case

by Matthew D. Roy

In bankruptcy actions, there is an automatic stay preventing parties from pursuing any claims against the debtor. If a person violates the automatic stay, the debtor may be able to pursue an adversary complaint against the person. Such complaints must be adequately specific, however, otherwise, they will most likely be dismissed, as illustrated in a recent California bankruptcy case. If you have questions about whether bankruptcy is right for you, it is advisable to contact a California bankruptcy lawyer as soon as possible.

Facts of the Case

It is alleged that in 2017, the debtor filed a suit against her neighbors regarding a property line dispute, which was later dismissed. In 2019, she filed a second suit, adding additional defendants. After several legal actions in both federal and state courts, the debtor filed for Chapter 7 bankruptcy on the eve of a libel action filed against her by one of the defendants. The debtor did not inform the state court of her bankruptcy during the proceedings.

Reportedly, the debtor later filed an adversary complaint in the bankruptcy court, asserting various claims, including willful violations of the automatic stay, fraud, RICO violations, and quiet title. The bankruptcy court denied the debtor’s motion for contempt against the neighbor, and subsequently, Appellees filed a motion to dismiss the adversary complaint with prejudice, arguing insufficiency of factual allegations. The court granted the motion, stating that the debtor failed to state a claim and that any amendment would be futile. The debtor appealed.

October 29, 2023

California Court Discusses Review of Proposed Compromises in Bankruptcy Cases

by Matthew D. Roy

In bankruptcy cases, it is not uncommon for the debtor and the trustee to propose a compromise to the bankruptcy court. The court will generally review a proposed compromise to determine if it is fair and equitable, in consideration of numerous factors, as discussed in a recent California case. If you need assistance with a bankruptcy matter, it is in your best interest to consult a California bankruptcy lawyer.

History of the Case

It is alleged that the bankruptcy court considered a proposed compromise between the debtor and the Chapter 7 trustee of a medical institute. The terms of the proposed compromise included the debtor subordinating his $1.35 million proof of claim in the medical institute’s bankruptcy to the allowed claims of all non-insiders.

Reportedly, his company would purchase the medical institute’s rights to pursue certain claims against two creditors for $200,000 in cash and a share of the potential net recovery on those claims. In return, the trustee agreed to settle all of the medical institute’s claims against the debtor and two of the debtor’s companies and withdraw the medical institute’s claim in the debtor’s bankruptcy with prejudice.

September 29, 2023

California Court Discusses Standing to Challenge Fee Awards in Bankruptcy Cases

by Matthew D. Roy

In Chapter 11 bankruptcy cases, trustees are typically entitled to receive compensation for their services, which is subject to approval by the bankruptcy court. These fees can vary but are typically determined based on the complexity of the case and the extent of the trustee’s responsibilities. To ensure fairness and transparency, the Bankruptcy Code sets certain guidelines and fee caps to prevent excessive compensation. If a party involved in the case feels the fees are excessive, however, they can object. Their objection will only be considered if they have standing, however, as demonstrated in a recent California case. If you cannot pay your debts and are considering filing for bankruptcy, it is smart to talk to a California bankruptcy lawyer.

Factual and Procedural Background

It is reported that the debtor, a renowned Los Angeles restaurant chain known for its historic menu and celebrity endorsements, filed for Chapter 11 bankruptcy in 2016 when faced with a $3.2 million judgment in a racial discrimination lawsuit. A committee of unsecured creditors, chaired by the Creditor, was appointed to oversee ECF’s activities. The bankruptcy court later appointed the Trustee for ECF. A Chapter 11 bankruptcy plan was approved, guaranteeing full payment to creditors, including the Creditor, with interest secured by ECF’s assets and contributions from its founder.

Allegedly, the Trustee filed a final fee application seeking the maximum allowable fee in excess of $1 million under the Bankruptcy Code’s fee cap. This amount included the lodestar plus a 65% enhancement for exceptional services. The Creditor objected to this fee request. The bankruptcy court awarded the trustee the statutory maximum fees, which the Creditor appealed. The district court upheld the bankruptcy court’s decision, and the Creditor appealed again.