Justia Contracts Opinion Summaries

Articles Posted in Bankruptcy
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Fountain of praise, a church, leased space to Central Care Integrated Health Services. Shortly after the execution of the lease, the relationship soured when the parties disagreed on the frequency and amount of rent payments. Eventually, Fountain of Praise terminated the lease and successfully evicted Central Care from the premises.Subsequently, Central Care filed for Chapter 11 reorganization. Central Care then sued Fountain of Praise in state court, claiming breach of contract and unjust enrichment. Fountain of Praise then removed the case to bankruptcy court as an adversary proceeding. The bankruptcy court entered judgment in favor of Fountain of Praise, finding that any breach was excusable due to Central Care's failure to make timely rent payments and that Central Care lacked the requisite interest in the property for an unjust enrichment claim.Central Care appealed, and the district court judge assigned to the case reassigned the case to a magistrate judge who affirmed the bankruptcy court's judgment.On appeal, the Fifth Circuit vacated the magistrate judge's order, finding that the district court improperly authorized referral of the appeal from a bankruptcy court decision to a magistrate judge. Under 28 U.S.C. Section 158, appeals from a bankruptcy court must be heard either by the district court or a panel of bankruptcy court judges. View "South Central v. Oak Baptist" on Justia Law

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Ernest Jones appealed a circuit court’s grant of summary judgment in favor of the Board of Trustees of the State of Institutions of Higher Learning of the State of Mississippi (IHL) because the doctrine of judicial estoppel barred his claims. Jones became the head football coach at Alcorn State University. Subsequently, he filed a breach of contract action against the IHL on in 2008. Jones was fired in January 2009. In October 2015, Jones petitioned a bankruptcy court in Florida for protection from his creditors. Jones failed to disclose the breach of contract suit against the IHL in the bankruptcy schedule’s “list of suits and administrative proceedings to which the debtor was a party within one year immediately preceding the filing of this bankruptcy case.” A jury returned a verdict in Jones’ favor in his breach of contract suit. On the day of the verdict, he voluntarily dismissed his bankruptcy proceeding. IHL moved for a judgment notwithstanding the verdict, and the circuit court set aside the verdict. Then in April 2017, while Jones’s appeal was pending before the Court of Appeals, he filed a second bankruptcy petition, this time, Jones proposed and filed a Chapter 13 plan. Despite the pending appeal, Jones again failed to disclose the IHL suit to the bankruptcy court, attesting under oath that no such claims existed. The Court of Appeals reversed and remanded the IHL suit. Back at the circuit court, IHL moved for summary judgment, arguing judicial estoppel barred Jones from recovery. Within ten days of the IHL’s seeking dismissal, Jones moved to amend his bankruptcy plan and for the first time disclosed the IHL lawsuit. Thereafter, the circuit court held a hearing on the IHL’s motion for summary judgment. The Mississippi Supreme Court found no abuse of the circuit court’s discretion in applying judicial estoppel to the facts found in this record. View "Jones v. Alcorn State University, et al." on Justia Law

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Stergiadis, Dimas, and Theo formed 1600 South LLC, executed an operating agreement, purchased land on which to build a fruit market, and began construction. The 2008 recession stopped construction and eventually led to the LLC’s 2009 dissolution. The partners disagreed about whether they impliedly agreed to equalize their capital contributions. The operating agreement provided that the three each held a one-third membership interest in the LLC; each member agreed to make an initial capital contribution on the date of execution but the amount was left blank. In 2008 Stergiadis sued Dimas in state court seeking to equalize the capital contributions. Dimas filed for bankruptcy, triggering the automatic stay. Dimas ultimately filed seven such petitions and received a discharge in 2016. The U.S. Trustee moved to reopen the bankruptcy to recover the value of an undisclosed property. The bankruptcy court agreed. Stergiadis filed a proof of claim in Dimas’s reopened bankruptcy seeking the same amount he was seeking in state court. The partners disputed the amounts of their respective contributions.The bankruptcy court allowed Stergiadis’s claim, awarding $618,974, finding that the members had an implied equalization agreement. The district court and Seventh Circuit affirmed, rejecting an argument that the LLC’s operating agreement precluded an implied equalization contract. The bankruptcy court properly relied on extrinsic evidence in finding such a contract. View "Dimas v. Stergiadis" on Justia Law

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In March 2018, following sexual misconduct allegations against TWC’s co-founder Harvey Weinstein, TWC sought bankruptcy protection. TWC and Spyglass signed the Asset Purchase Agreement (APA). The sale closed in July 2018. Spyglass paid $287 million. Spyglass agreed to assume all liabilities associated with the Purchased Assets, including some “Contracts.” The APA identifies “Assumed Contracts,” as those Contracts that Spyglass would designate in writing, by November 2018.In May 2018, TWC filed an Assumed Contracts Schedule, with a disclaimer that the inclusion of a contract did not constitute an admission that such contract is executory or unexpired. A June 2018 Contract Notice, listed eight Investment Agreements as “non-executory contracts that are being removed from the Assumed Contracts Schedule.” The Investment Agreements, between TWC and Investors, had provided funding for TWC films in exchange for shares of future profits. Spyglass’s November 2018 Contract Notice listed nine Investment Agreements as “Excluded Contracts,”In January 2019, the Investors requested payments from Spyglass--their asserted share of a film’s profits. The Bankruptcy Court rejected the Investors’ claim that Spyglass bought all the Investment Agreements under the APA. The district court and Third Circuit affirmed. The Investment Agreements are not “Purchased Assets” and the associated obligations are not “Assumed Liabilities.” The Investment Agreements are not executory contracts under the Bankruptcy Code. View "The Weinstein Co. Holdings, LLC v. Y Movie, LLC" on Justia Law

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The United States Court of Appeals for the Eleventh Circuit certified to three questions of law to the Georgia Supreme Court relating to a lawsuit brought in federal district court by Fife Whiteside, the trustee of the bankruptcy estate of Bonnie Winslett. Whiteside sued GEICO to recover the value of Winslett’s failure-to-settle tort claim against GEICO so that the bankruptcy estate could pay creditor Terry Guthrie, who was injured in an accident caused by Winslett. The certified questions certified asked the Supreme Court to analyze how Georgia law applied to an unusual set of circumstances that implicated both Winslett’s duty to give GEICO notice of suit and GEICO’s duty to settle the claim brought against Winslett. The Supreme Court was unable to give unqualified “yes” or “no” answers to two of the certified questions as they were posed; rather, the Court answered the questions only in the context of the circumstances of this particular case. "Winslett remains liable to Guthrie, even if her bankruptcy trustee succeeds on the failure-to-settle claim against GEICO; therefore, if the bankruptcy estate does not recover enough from GEICO to satisfy Guthrie’s judgment, the estate would not be fully compensated for Winslett’s damages, and GEICO would escape responsibility for breaching its settlement duty to Winslett. Such an outcome would deny Winslett the full measure of compensatory damages allowed under Georgia law." View "GEICO Indemnity Co. v. Whiteside" on Justia Law

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In 2007, GM sold a power plant to DTEPN, which leased the land under the plant for 10 years. DTEPN agreed to sell utilities produced at the plant to GM, to maintain the plant according to specific criteria, and to address any environmental issues. DTEPN’s parent company, Energy, guaranteed DTEPN’s utility, environmental, and maintenance obligations. Two years later, GM filed for bankruptcy. GM and DTEPN agreed to GM’s rejection of the contracts. DTEPN exercised its right to continue occupying the property. An environmental trust (RACER) assumed ownership of some GM industrial property, including the DTEPN land. DTEPN remained in possession until the lease expired. RACER then discovered that DTEPN had allowed the power plant to fall into disrepair and contaminate the property.The district court dismissed the claims against Energy, reasoning that RACER’s allegations did not support piercing the corporate veil and Energy’s guaranty terminated after GM rejected the contracts in bankruptcy.The Sixth Circuit reversed. Michigan courts have held that a breach of contract can justify piercing a corporate veil if the corporate form has been abused. By allegedly directing its wholly-owned subsidiary to stop maintaining the property, Energy exercised control over DTEPN in a way that wronged RACER. DTEPN is now judgment-proof because it was not adequately capitalized by Energy. RACER would suffer an unjust loss if the corporate veil is not pierced. Rejection in bankruptcy does not terminate the contract; the contract is considered breached, 11 U.S.C. 365(g). The utility services agreement and the lease are not severable from each other. Energy guaranteed DTEPN’s obligations under the utility agreement concerning maintenance, environmental costs, and remediation, so Energy’s guaranty is joined to DTEPN’s section 365(h) election. View "EPLET, LLC v. DTE Pontiac North, LLC" on Justia Law

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Two business owners executed a series of transactions to sell a regional airline business. Within two years of the sale, one of the buyer-controlled business entities declared bankruptcy, and the seller commenced litigation to resolve disputes over their agreements. The parties settled before trial. But another buyer-controlled entity later defaulted and declared bankruptcy, and the seller reinitiated litigation. The issue presented to the Alaska Supreme Court was the extent to which the buyers personally guaranteed the obligations of the second bankrupt entity. The superior court granted summary judgment in favor of the seller and held the buyers personally liable for those obligations. The Supreme Court held that whether the parties intended the buyers to personally guarantee the bankrupt entity’s obligations was a disputed material fact, making the issue inappropriate for summary judgment. Judgment was reversed and the matter remanded for further proceedings. View "Beardsley v. Jacobsen" on Justia Law

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In 2005, U.S. Home Corporation entered into a contract to purchase two contiguous tracts of land, one of which was owned by West Pleasant-CPGT, Inc. Under the contract, West Pleasant and the other landowner were to gain certain approvals permitting development of the properties. Pursuant to the contract, U.S. Home paid advances to the landowners totaling over $1.5 million. As security for the advances, West Pleasant executed a mortgage and note on its property; the other landowner did not. When a contract dispute arose in 2006, U.S. Home sought to terminate the contract and get a return of its total advance. U.S. Home prevailed in arbitration and was awarded a judgment in the full amount of the advance, plus interest. The Appellate Division affirmed the judgment in 2009. When the judgment was not satisfied, U.S. Home commenced foreclosure actions against the properties. The foreclosure proceedings were stayed when West Pleasant and the other property owner filed for bankruptcy. In West Pleasant’s bankruptcy action, U.S. Home moved to dismiss and for relief from the automatic stay. West Pleasant and U.S. Home executed a Consent Order, in which West Pleasant dismissed its bankruptcy proceeding, waived a fair market valuation and its right to object to a sheriff’s sale of its property, and released U.S. Home from any claims in law or equity. U.S. Home never proceeded with any deficiency action against either landowner. Nonetheless, the landowners commenced the affirmative litigation that gave rise to this appeal, seeking a declaration that the arbitration award was fully satisfied, as well as compensation “in the amount of the excess fair market value of the properties obtained by defendant[] U.S. Home over the amount of its outstanding judgment.” The second property owner then assigned its rights to West Pleasant. After trial, the court valued the second property as worth almost $2.4 million and West Pleasant’s property as worth almost $2 million. The court ordered U.S. Home to pay the fair market value of the West Pleasant property, plus interest, and extinguished the arbitration award on the second property. On appeal, the Appellate Division determined that West Pleasant had waived its right to a fair market valuation on its property but that it was owed a fair market value credit for the second property. The Appellate Division remanded the matter to the trial court for recalculation of damages. The New Jersey Supreme Court reversed, finding use of fair market value credit by this debtor to obtain a money judgment against a creditor, in the absence of a deficiency claim threatened or pursued or any objection being raised at the time of the sheriff’s sales, was "inconsistent with sound foreclosure processes and, moreover, inequitable in the circumstances presented." The judgment of the Appellate Division was reversed and the matter remanded for further proceedings. View "West Pleasant-CPGT, Inc. v. U.S. Home Corporation" on Justia Law

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The Second Circuit affirmed the district court's decision vacating the bankruptcy court's determination concerning whether General Motors assumed liability, through a judicial admission, for claims like appellant's. Appellant filed a wrongful death lawsuit against New GM after his wife was involved in an accident that left her incapacitated. She was driving a 2004 Pontiac Grand Am, a vehicle manufactured by Old GM, which allegedly had a faulty ignition switch.The Second Circuit held that for a statement to constitute a judicial admission, it must be intentional, clear, and unambiguous. In this case, the court held that the inadvertent inclusion of language from an outdated, non-operative version of a sale agreement was not intentional, clear, and unambiguous, and thus was not a judicial admission. Therefore, General Motors was not bound by the language. View "In re Motors Liquidation Co. (Pillars)" on Justia Law

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This case arose out of the 2009 bankruptcy of Old GM, which resulted in a sale under 11 U.S.C. 363 of the bulk of its assets to a new entity that has continued the business (the new General Motors). The New General Motors assumed the liability of Old GM with respect to post‐Sale accidents involving automobiles manufactured by Old GM. The claims assumed included those by persons who did not transact business with Old GM, such as individuals who never owned Old GM vehicles and persons who bought Old GM cars after the Sale. At issue was whether the New General Motors was liable for punitive damages with respect to such claims.The Second Circuit held that the new General Motors did not contractually assume liability for punitive damages in its predecessor's bankruptcy sale, and thus the Post-Closing Accident Plaintiffs may not assert claims for punitive damages based on the predecessor's conduct. Accordingly, the court affirmed the district court's decision affirming the bankruptcy court's decision on the issue of punitive damages. View "In re Motors Liquidation Co." on Justia Law