Justia Contracts Opinion Summaries

EAR, a seller of manufacturing equipment, defrauded creditors by financing non-existent or grossly overvalued equipment and pledging equipment multiple times to different creditors. After the fraud was discovered, EAR filed for bankruptcy. As Chief Restructuring Officer, Brandt abandoned and auctioned some assets. Five equipment leases granted a secured interest in EAR’s equipment; by amendment, EAR agreed to pay down the leases ($4.6 million) and give Republic a blanket security interest in all its assets. Republic would forebear on its claims against EAR. The amendment had a typographical error, giving Republic a security interest in Republic’s own assets. Republic filed UCC financing statements claiming a blanket lien on EAR’s assets. After the auction, Republic claimed the largest share of the proceeds. The matter is being separately litigated. First Premier, EAR’s largest creditor, is concerned that Republic, is working with Brandt to enlarge Republic’s secured interests. After the auction, EAR filed an action against its auditors for accounting malpractice, then sought to avoid the $4.6 million transfer to Republic. The bankruptcy court approved a settlement to end the EAR-Republic adversary action, continue the other suit, divvy proceeds from those suits, and retroactively modify the Republic lien to correct the typo. First Premier objected. The district court affirmed. The Seventh Circuit affirmed. First Premier was not prejudiced by the settlement. View "First Premier Capital, LLC v. Republic Bank of Chicago" on Justia Law

The bankruptcy Trustee of MBS Management Services, Inc. (MBS), a management company for dozens of apartment complexes, appealed judgments rejecting his claim that payments made by the debtor to MXEnergy Electric, Inc (MX) to reimburse MX for supplying electricity to the complexes were avoidable preferences. The bankruptcy court and district court found that the payments were made on a "forward contract" expressly exempt from the Bankruptcy Code's preference provision. The Fifth Circuit Court of Appeals affirmed, holding that because the agreement was a forward contract within the meaning of 11 U.S.C. 546(e), and because expert testimony from the President and CEO of MX was admissible, the bankruptcy and district court's correctly rejected the Trustee's avoidance action. View "Lightfoot v. MXenergy Elec., Inc. " on Justia Law

Contractor contracted to build a restaurant in Minnesota, promising to pay each subcontractor, upon receipt of payment from the owner, the amount to which the subcontractor was entitled. Appellant became the subcontractor for carpentry and drywall work. Upon completing its work, Appellant was not paid the full amount owed. After Contractor settled a dispute with the restaurant, it offered Appellant a smaller sum, claiming it was Appellant's pro rata share of the settlement proceeds. Appellant rejected the offer and sued Contractor and its Owner in state court. Owner and his wife subsequently filed a petition for Chapter 7 bankruptcy relief, with the debt to Appellant unsatisfied. Appellant commenced this adversary proceeding to have the debt declared nondischargeable. The bankruptcy appellate panel (BAP) determined that neither 11 U.S.C. 523(a)(4) nor 11 U.S.C. 523(a)(6) barred discharge of the debt. The Eighth Circuit Court of Appeals affirmed, holding (1) Owner was not a section 523(a)(4) fiduciary by reason of a Minnesota statute or Owner's Minnesota common law duties, nor did Contractor's use of its own property amount to embezzlement; and (2) the BAP did not err in finding no malicious injury, which resolved the section 523(a)(6) issue. View "Reshetar Sys., Inc. v. Thompson" on Justia Law

In this core adversary proceeding, a Chapter 7 bankruptcy Trustee appealed an order of the Bankruptcy Appellate Panel (BAP) denying his turnover action on the ground that an unjust enrichment claim exceeds the scope of 11 U.S.C. 542(a), a remedy limited to recovering property of the bankruptcy estate in the possession, custody, or control of a third party. The Eighth Circuit Court of Appeals affirmed, holding (1) the BAP correctly concluded that the Court's In re NWFX decisions did not recognize unjust enrichment as a basis for collecting a debt under section 542(a); and (2) thus, the Trustee's claim for unjust enrichment based upon a debt owed was beyond the scope of section 542(a).

Plaintiffs commenced an arbitration proceeding against Defendant pursuant to terms of a written agreement between the parties. Eber subsequently filed for Chapter 7 bankruptcy protection, and the arbitration was automatically stayed. Plaintiffs then filed a complaint for determination that debts are nondischargeable and for damages. Thereafter, Plaintiffs filed a motion for relief from automatic stay in the bankruptcy court proceeding and a motion to compel arbitration in the adversary proceeding. Both motions were denied. The bankruptcy court found that Plaintiffs' claims were discharged. The Ninth Circuit Court of Appeals affirmed, holding (1) the district court did not abuse its discretion in denying Plaintiffs' motion to compel arbitration because granting the motion would have conflicted with the underlying purposes of the Bankruptcy Code; and (2) the Court did not need address the denial of Plaintiffs' motion for relief from the automatic stay because the stay had already dissolved before the bankruptcy judge ruled on the motion.

Losing money on every box fan it sold, Lakewood authorized CAM to practice Lakewood’s patents and put its trademarks on completed fans. Lakewood was to take orders; CAM would ship to customers. CAM was reluctant to gear up for production of about 1.2 million fans that Lakewood estimated it would require during the 2009 season. Lakewood provided assurance by authorizing CAM to sell the 2009 fans for its own account if Lakewood did not purchase them. Months later, Lakewood’s creditors filed an involuntary bankruptcy petition against it. The court-appointed trustee sold Lakewood’s business. Jarden bought the assets, including patents and trademarks. Jarden did not want Lakewood-branded fans CAM had in inventory, nor did it want CAM to sell them in competition with Jarden’s products. Lakewood’s trustee rejected the executory portion of the CAM contract, 11 U.S.C. 365(a). CAM continued to make and sell Lakewood fans. The bankruptcy judge found the contract ambiguous, relied on extrinsic evidence, and concluded that CAM was entitled to make as many fans as Lakewood estimated for the 2009 season and sell them bearing Lakewood’s marks. The Seventh Circuit affirmed, rejecting an argument that CAM had to stop making and selling fans once Lakewood stopped having requirements.

The United States Bankruptcy Appellate Panel of the Court of Appeals for the Ninth Circuit ("the BAP") certified a question to the Alabama Supreme Court: "In Alabama, is a 'default' judgment premised upon discovery sanctions or other post-answer conduct of the defendant sufficient to support the application of issue preclusion in a later proceeding?" Debtor-Defendant Anthony Malfatti was one of three principals of TA Financial Group ('TAF') purportedly designed to assist credit card holders in arbitration of disputes with the card issuers. The arbitration providers were selected by the card holders from a list provided by TAF. Among the arbitration providers was Arbitration Forum of America, Inc. ('AFOA'). AFOA was not conducting legitimate arbitrations; every arbitration resulted in an award in favor of the card holder, which was then reduced to judgment. Malfatti claims he was unaware that AFOA's practices and the judgments stemming therefrom were illegitimate. At some time after the banks involved learned of the judgments, they filed cross-complaints against the card holders to set aside the judgments as fraudulently obtained. In September 2005, the banks, including Bank of America, N.A. (USA) filed Amended Third Party Complaints against, among others, Malfatti and TAF, alleging tortious interference with contract, abuse of process, wantonness, and civil conspiracy, and sought an injunction against further arbitrations. The Banks moved for default judgments against Malfatti and TAF for failing to comply with discovery orders, repeated failures to appear for depositions, and failure to respond to written discovery. Malfatti and TAF filed a motion to set aside the defaults. The court found Malfatti and TAF to be jointly and severally liable for compensatory damages, awarded punitive damages against Malfatti, and found Malfatti to be liable for punitive damages awarded against TAF under the alter ego doctrine. Malfatti filed for Chapter 7 bankruptcy the Banks filed an adversary proceeding alleging the debt owed to them by Malfatti was nondischargeable. Upon review, the Alabama Supreme Court answered the certified question in the negative: "[f]or purposes of determining whether an issue is precluded by the doctrine of collateral estoppel, Alabama law makes no distinction between a simple default and a penalty default."

Plaintiff-Appellant Randy Kramer initiated a breach of contract action against Mike D. Murphy and the William F. Murphy Self-Declaration of Trust (Trust). Tri-State Ethanol, LLC owned an ethanol plant in Rosholt, South Dakota. Kramer was one of the members and managers of Tri-State Ethanol. Kramer was also a member of White Rock Pipeline, LLC, which owned a pipeline that supplied natural gas to Tri-State Ethanol. In order to comply with various federal regulations, Tri-State Ethanol determined it was necessary to purchase the membership interests of Kramer, Murphy, Woods, and the Trust. To accomplish this, Tri-State Ethanol entered into a loan agreement (Loan Agreement) with Murphy and the Trust. Tri-State Ethanol was unable to meet its financial obligations and eventually filed for Chapter 11 bankruptcy. During the course of the bankruptcy proceedings, Murphy and the Trust reached a settlement agreement regarding payment of the Loan Agreement and the Disbursement Agreement. Murphy and the Trust, through its trustee, represented to the bankruptcy court that they would use the settlement proceeds to pay Kramer the amounts owed under the Disbursement Agreement. The bankruptcy court approved the settlement agreement. After the settlement proceeds from Tri-State Ethanol’s bankruptcy estate were distributed, Murphy and the Trust refused to pay Kramer the full amount listed in the Disbursement Agreement. Kramer then filed a complaint against Murphy and the Trust for breach of the Disbursement Agreement. Murphy filed a motion to dismiss on the grounds of improper venue. He claimed that the forum-selection clauses contained in the Loan Agreement, the Balloon Note, and the Promissory Note controlled for any suit brought on the Disbursement Agreement. The circuit court agreed and dismissed the case. It found that while the Disbursement Agreement itself had no forum-selection clause, the other three agreements contained forum-selection clauses providing that the Fourteenth Judicial District in Rock Island County, Illinois was the proper forum. The circuit court reasoned that the agreements must be considered as a whole. After examining each of documents collectively as one contract, the Supreme Court held that the trial court did not err in finding that the parties intended the venue for any suit on the Disbursement Agreement to be the Fourteenth (14th) Judicial District in Rock Island County, Illinois. The circuit court’s dismissal of this case was affirmed.

Debtor appealed an order of the Bankruptcy Court directing that a third party receive a portion of a check made payable jointly to the third party and debtor for rent of debtor's property. At issue was whether the third party had a right to funds for rent of debtor's property when the rent check was made payable jointly to debtor and the third party. The court held that the third party had an interest in the funds by virtue of a contract between the parties and, therefore, the third party was entitled to the portions of the funds that the bankruptcy court required debtor to remit to him.

Appellants David and Barbara Moore defaulted on the Note to their mortgage in 2008. U.S. Bank, National Association, commenced foreclosure proceedings later that year, not in its individual capacity, but solely as trustee on behalf of GSAA Home Equity Trust 2006-6 (Appellee). According to the verified petition, the Appellee was "the present holder of said Note and Mortgage having received due assignment through mesne assignments of record or conveyance via mortgaging servicing transfer." The original petition did not attach a copy of the note in question sued upon. Appellants answered, pro se in 2009, disputing all allegations and requesting that the Appellee "submit additional documentation to prove [its] claims including the representation that they were the "present holder of said Note." Appellee subsequently filed an amended petition and a second amended petition to add additional defendants. Neither of these amendments included a copy of the note. Appellee submitted its Motion for Summary Judgment to the court, again representing that it was the holder of the Note. Documentation attached to the Motion attempted to support this representation: including the Mortgage, the Note, an Assignment of Mortgage, and an Affidavit in Support of Appellee's Motion for Summary Judgment. For the first time, Appellee submitted the Note and Mortgage to the trial court. The note was indorsed in blank and contained no date for the indorsement. Appellants did not respond to Appellee's Motion, and the trial court entered a default judgment against them. The trial court entered a final judgment in favor of the Appellee. Upon review, the Supreme Court found no evidence in the record establishing that Appellee had standing to commence its foreclosure action: “[t]he trial court's granting of a default judgment in favor of Appellee could not have been rationally based upon the evidence or Oklahoma law.” The Court vacated the trial court’s judgment and remanded the case for further proceedings.