Justia U.S. 8th Circuit Court of Appeals Opinion Summaries

Western Robidoux, Inc. (WRI) filed for bankruptcy and initiated adversary proceedings against Boehringer Ingelheim Animal Health USA, Inc. (BIVI) and CEVA Animal Health, LLC (CEVA). BIVI and CEVA counterclaimed, seeking $1.9 million in damages. The parties mediated and reached a settlement, which was objected to only by TooBaRoo, LLC, a creditor. The bankruptcy court overruled TooBaRoo’s objections and approved the settlement. The district court affirmed this decision, and TooBaRoo appealed.The United States Bankruptcy Court for the Western District of Missouri initially reviewed the case. The court found that WRI’s indemnity payments to BIVI and CEVA were made to maintain business relationships, which generated significant revenue for WRI. The court concluded that WRI received reasonably equivalent value for these payments, making it unlikely that the Trustee would succeed in proving fraudulent transfers. The court also noted that key witnesses for the estate were unavailable, further diminishing the likelihood of success. The bankruptcy court approved the settlement, finding it fair and in the best interest of the estate.The United States District Court for the Western District of Missouri affirmed the bankruptcy court’s decision. The district court agreed that the settlement was reasonable and that the Trustee had met the burden of proving it was in the best interest of the estate. The court found no abuse of discretion in the bankruptcy court’s approval of the settlement.The United States Court of Appeals for the Eighth Circuit reviewed the case and affirmed the lower courts' decisions. The court held that the bankruptcy court did not abuse its discretion in approving the settlement, considering the likelihood of success in litigation, the complexity and cost of continued litigation, and the interests of all creditors. The settlement was deemed fair, equitable, and in the best interest of the estate. View "TooBaRoo, LLC v. Western Robidoux, Inc." on Justia Law

Chapter Kris Jackson, the debtor, appeals the bankruptcy court’s order denying her motion for sanctions, damages, and other relief against Rachel Gosset and Jordan Beswick, co-trustees of the Jackson Family Trust. Jackson sought an evidentiary hearing on these issues, an order requiring the co-trustees to post a bond, an order barring them from filing any involuntary bankruptcy petition without court approval, and a declaration that the case is void ab initio.The United States Bankruptcy Court for the Western District of Missouri initially held a status hearing and decided to bifurcate Jackson’s motion to dismiss from her other motions. The court dismissed the involuntary petition under 11 U.S.C. § 305 but denied Jackson’s requests for sanctions and damages, citing minimal potential damages, lack of authority to award damages under 11 U.S.C. § 303(i) when dismissing under § 305, and Jackson’s litigation tactics.The United States Bankruptcy Appellate Panel for the Eighth Circuit reviewed the case. The panel noted that the Eighth Circuit Court of Appeals in Stursberg v. Morrison Sund PLLC clarified that damages under 11 U.S.C. § 303(i) are available even when a case is dismissed under § 305. The panel found that the bankruptcy court should have held an evidentiary hearing to allow Jackson to present evidence supporting her claims for damages and other relief. The panel remanded the case to the bankruptcy court for such a hearing.The panel also denied Jackson’s various motions, including her motion to strike the appellees' brief and her motion for sanctions, as they were outside the scope of the appeal. The panel emphasized that its role was to review the bankruptcy court’s decisions, not to make initial determinations on issues the bankruptcy court abstained from deciding. View "Jackson v. Gosset" on Justia Law

The case involves William Phillip Jackson, who owes unpaid federal taxes to the United States. Following a jury trial and post-trial proceedings, the United States District Court for the Western District of Missouri entered a judgment against Jackson for $2,396,800.47 and ordered the foreclosure and sale of four properties owned by Jackson and his wife. Jackson filed multiple motions to amend or vacate the sale, which were denied, and his appeals to the Eighth Circuit Court of Appeals were unsuccessful. Jackson then filed for Chapter 13 bankruptcy relief, but the United States proceeded with evictions and seized personal property before being notified of the bankruptcy filing.The United States Bankruptcy Court for the Western District of Missouri heard Jackson's motion for contempt and turnover of property and the United States' motion to lift the automatic stay nunc pro tunc. The bankruptcy court denied Jackson's motion and granted the United States' motion, annulling the automatic stay retroactively to the date of Jackson's bankruptcy filing. Jackson appealed this decision but did not seek a stay of the order pending appeal. While the appeal was pending, the United States sold the properties at auction, and the district court confirmed the sales and approved the disbursement of proceeds.The United States Bankruptcy Appellate Panel for the Eighth Circuit reviewed the case and determined that the appeal was constitutionally moot. The court held that since the properties had been sold and Jackson did not obtain a stay pending appeal, there was no effective relief that could be granted. Consequently, the appeal of the bankruptcy court's order annulling the stay and denying Jackson's motion for contempt and turnover was dismissed for lack of jurisdiction. View "Jackson v. United States" on Justia Law

The case involves Western Robidoux, Inc. (WRI), which filed for Chapter 11 bankruptcy while involved in federal litigation. Attorney Daniel Blegen, initially representing WRI and its controlling family members, moved to Spencer Fane LLP. The Chapter 7 Trustee, Jill Olsen, sought to employ Spencer Fane as special counsel for ongoing appeals in the federal litigation. Appellants TooBaRoo, LLC and InfoDeli, LLC, controlled by Breht Burri, opposed this, citing potential conflicts of interest and disproportionate legal fees.The United States Bankruptcy Court for the Western District of Missouri approved the employment of Spencer Fane as special counsel, finding no actual conflicts of interest and emphasizing procedural safeguards for potential future conflicts. The court noted Spencer Fane's expertise and cost-effectiveness. Appellants appealed this decision, arguing that the employment order was improper due to adverse interests and fee concerns.The United States Bankruptcy Appellate Panel for the Eighth Circuit reviewed the appeal. The panel first examined its jurisdiction, determining whether the bankruptcy court's order was final under 28 U.S.C. § 158(a)(1) or reviewable under 28 U.S.C. § 158(a)(3). The panel concluded that the order was not final, as the bankruptcy court retained ongoing responsibilities regarding Spencer Fane's employment and fee applications. Additionally, the panel found that delaying review would not prevent effective relief for the appellants, and a later reversal would not necessitate recommencement of the entire proceeding.The panel also declined to treat the appeal as an interlocutory appeal under 28 U.S.C. § 158(a)(3), agreeing with both parties that the criteria for such review were not met. Consequently, the appeal was dismissed for lack of jurisdiction. View "TooBaRoo, LLC v. Olsen" on Justia Law

Thomas Petters orchestrated a Ponzi scheme through his company, Petters Company, Inc. (PCI), which collapsed in 2008. Following Petters' arrest and conviction, PCI was placed into receivership, and Douglas Kelley was appointed as the receiver. Kelley later filed for bankruptcy on behalf of PCI and was appointed as the bankruptcy trustee. As trustee, Kelley initiated an adversary proceeding against BMO Harris Bank, alleging that the bank aided and abetted the Ponzi scheme.The bankruptcy court and the district court both ruled that the equitable defense of in pari delicto, which prevents a plaintiff who has participated in wrongdoing from recovering damages, was unavailable due to PCI's receivership status. The case proceeded to trial, and a jury awarded Kelley over $500 million in damages, finding BMO liable for aiding and abetting a breach of fiduciary duty. BMO appealed, challenging the availability of the in pari delicto defense, among other issues.The United States Court of Appeals for the Eighth Circuit reviewed the case and concluded that the doctrine of in pari delicto barred Kelley’s action against BMO. The court reasoned that while a receiver might not be bound by the fraudulent acts of a corporation's officers under Minnesota law, a bankruptcy trustee stands in the shoes of the debtor and is subject to any defenses that could have been raised against the debtor. Since PCI was a wrongdoer, the defense of in pari delicto was available to BMO in the adversary proceeding. The court reversed the district court's judgment and remanded the case with directions to enter judgment in favor of BMO. The cross-appeal was dismissed as moot. View "Kelley v. BMO Harris Bank N.A." on Justia Law

Henry Stursberg, a financial consultant, sued Morrison Sund PLLC, a Minnesota law firm, for allegedly running up legal fees without achieving results. After Stursberg decided to change counsel, Morrison Sund filed an involuntary bankruptcy petition against him. Stursberg sought to dismiss the petition, which the bankruptcy court granted under 11 U.S.C. § 305(a)(1), noting the petition was used improperly to collect fees. Stursberg then filed a diversity action in Pennsylvania, asserting state law tort claims against Morrison Sund.The Eastern District of Pennsylvania dismissed Stursberg’s claims due to lack of personal jurisdiction and improper venue, transferring the case to the District of Minnesota. The Minnesota district court dismissed the state law claims, ruling they were preempted by the Bankruptcy Code, specifically 11 U.S.C. § 303(i), which provides remedies for bad faith filings of involuntary bankruptcy petitions.The United States Court of Appeals for the Eighth Circuit reviewed the case. The court affirmed the district court’s dismissal, holding that the federal court that dismisses an involuntary bankruptcy case has exclusive jurisdiction to enforce debtor remedies under § 303(i). The court concluded that Stursberg’s state law claims were preempted by the federal statute, and his failure to appeal the bankruptcy court’s denial of his motion for attorney’s fees and costs under § 303(i)(1) precluded him from seeking further damages. The court emphasized that § 303(i) provides an exclusive remedy for bad faith filings, precluding state law tort claims in this context. View "Stursberg v. Morrison Sund PLLC" on Justia Law

Ricky Hughes, a railroad employee, was injured twice at work during his Chapter 13 bankruptcy proceedings. He did not disclose these potential personal injury lawsuits to the bankruptcy court. About 19 months after his bankruptcy closed, Hughes filed a personal injury lawsuit against his employer and other defendants. The district court granted summary judgment against Hughes based on standing and judicial estoppel, as he had not disclosed the potential lawsuit in his bankruptcy.The United States Court of Appeals for the Eighth Circuit found that Hughes had standing to bring the lawsuit. The court reasoned that the claims vested with Hughes, as per Section 1327 of the Bankruptcy Code, which provides that estate assets vest with the debtor. The court rejected the defendants' argument that Section 554(d), which provides that undisclosed estate assets that have not been expressly abandoned remain property of the estate, should control.The court also applied the doctrine of judicial estoppel, which prevents a party from asserting a position in a case that is clearly inconsistent with a position it took in a previous case. The court found that judicial estoppel applied to claims arising from the first incident but not the second. The court reasoned that when Hughes was injured for the second time, he had already made all of the payments required under his five-year plan, and there was no permissible statutory basis to modify the plan. Therefore, the bankruptcy court did not rely on the second nondisclosure, and there was no risk of inconsistent court determinations or threats to judicial integrity. The court affirmed in part, reversed in part, and remanded the case for further proceedings. View "Hughes v. Wisconsin Central, Ltd." on Justia Law

In August 2020, Machele Goetz filed a Chapter 13 bankruptcy petition and plan. She owned a residence worth $130,000 and claimed a $15,000 homestead exemption under Missouri law. It was agreed that if the trustee liquidated the residence on the date of the petition, the estate would have received nothing net of the exemption, the lien, and the sale expenses. On April 5, 2022, the bankruptcy court granted Goetz’s motion to convert her case from Chapter 13 to Chapter 7. Between the Chapter 13 filing and the date of the conversion order, Goetz’s residence had increased in value by $75,000, and she had paid down a further $960.54 on the mortgage.Goetz moved for the bankruptcy court to compel the trustee to abandon the property, arguing that the residence was of “inconsequential value and benefit to the estate” under 11 U.S.C. § 554(b). The trustee resisted Goetz’s motion, asserting that the bankruptcy estate in a converted case includes post-petition, pre-conversion increase in equity. The bankruptcy court agreed with the trustee, and this decision was affirmed by the Bankruptcy Appellate Panel for the Eighth Circuit.On appeal to the United States Court of Appeals for the Eighth Circuit, the court held that the post-petition, pre-conversion increase in equity in Goetz’s residence is property of the converted Chapter 7 estate. The court reasoned that, under the plain text of 11 U.S.C. § 348(f)(1)(A) and § 541, the equity in Goetz’s residence was property of her converted estate because it was property of the estate that she owned on the date of her petition and which she retained at conversion. The court rejected Goetz's arguments that this result punishes the good-faith debtor who attempts a Chapter 13 plan, pays down their mortgage, and then converts to Chapter 7. Instead, the court held that the Code’s values are not monolithic and balance multiple, often competing interests. View "Goetz v. Weber" on Justia Law

The case in question pertains to a dispute over the enforceability of dragnet clauses within mortgages used to secure loans funding Frank Welte’s farming operations. The Vera T. Welte Testamentary Trust, of which Frank Welte is the sole beneficiary, pledged its property as security for these loans, which were provided by Roger Rand, another Iowa farmer. The Trust's primary asset is 160 acres of farmland that were leased to Frank. Upon Rand's death, his estate initiated a foreclosure action against the Trust's farmland. The Trust subsequently filed for chapter 12 bankruptcy, which led to a stay of the foreclosure action against the Trust.The Estate filed a proof of claim and a motion to dismiss the Trust’s bankruptcy petition, alleging that the Trust was not a business trust as required by chapter 12. The Trust objected to the Estate’s proof of claim. The Iowa state court ruled that the dragnet clauses in the mortgage documents secured the loans made to Frank in excess of the face amount of the promissory notes.The United States Bankruptcy Court for the Northern District of Iowa, however, held that the dragnet clauses were not enforceable, thereby concluding that the Trust no longer owed a debt to the Estate. Following this, the United States District Court for the Northern District of Iowa gave preclusive effect to the judgment of the Iowa Court of Appeals concerning the enforceability of the clauses and the amounts owed thereunder.The Trust and the Estate both appealed the district court’s order. The United States Court of Appeals for the Eighth Circuit dismissed the appeal and cross-appeal due to lack of jurisdiction, as the district court's order was not final and required further proceedings in the bankruptcy court. View "The Security National Bank of Sioux City, IA v. Vera T. Welte Testamentary Trust" on Justia Law

The United States Bankruptcy Appellate Panel for the Eighth Circuit reversed and remanded a decision from the bankruptcy court in a case involving unpaid child support. The debtor, Justin Gary LaMonda, petitioned for bankruptcy relief under Chapter 7. He was married to Natalia LaMonda, and after they divorced, he was ordered to pay child support. The case has been converted multiple times, from Chapter 7 to Chapter 13, and then back to Chapter 7 again. Natalia LaMonda filed an unsecured priority claim for unpaid child support, which the Chapter 7 Trustee objected to. The bankruptcy court sustained the Trustee's objection, leading to this appeal.The Appellate Panel found that Natalia LaMonda's claim for unpaid child support arose after the order for relief and before the case was converted under section 1307 of the Bankruptcy Code. According to the Panel, her claim should therefore be treated as if it arose before the petition date, making it eligible for treatment as a priority unsecured claim. Thus, the Panel held that the bankruptcy court erred by disallowing Natalia LaMonda's claim based on the Trustee's objection. The case was reversed and remanded for further proceedings consistent with this opinion. View "LaMonda v. Harder" on Justia Law