Justia Contracts Opinion Summaries

Appellants, Robert A. Sears and Korley B. Sears, appealed from the June 8th, 2011 order of the bankruptcy court overruling their objections to claims that were filed by the Sears Family Members in the bankruptcy case of the debtor and disallowing Claim No. 26 of Korley. The court held that the bankruptcy court correctly disallowed Claim No. 26 where Korley's proof of claim provided no legal basis for liability by the debtor. The court also agreed with the bankruptcy court's determination that Robert and Korely failed to overcome the presumptive validity of the proofs of claim filed by the Sears Family Members. The court finally held that there was no need for the bankruptcy court to allow Robert and Korley more time to develop the record or a hearing with testimony and cross-examination of witnesses, before it ruled on the claim objections.

A casino-hotel filed for bankruptcy. Appellant, the administrative agent for a syndicate of lenders that loaned money to the casino's developers, and Respondents, contractors, subcontractors, and suppliers who asserted statutory liens against the property, entered into a dispute over the priority of their respective liens on the property. The Supreme Court accepted questions certified to it from the bankruptcy court regarding the application of contractual subordination, equitable subordination, and equitable subrogation in the context of a mechanic's lien. Appellant moved to strike Respondents' appendix, contending that the included documents contained information beyond the facts certified to the Court by the bankruptcy court. Respondents opposed the motion, arguing that the additional information was necessary for the Court's understanding of the certified legal questions. The Supreme Court granted the motion to strike after determining that Respondents' appendix was filed solely to contradict the certification order and the complaint, holding that while an appendix may be filed to assist the Court in understanding the matter, it may not be used to controvert the facts as stated in the certification order.

When Rita Fix's son and daughter-in-law, Jeff and Marie, secured a loan from the First State Bank of Roscoe by obtaining a warranty deed for the property, the Bank assured Fix she could retain possession of the house. After Jeff and Marie conveyed the house and property to the Bank, the Bank sold the property and sought to remove Fix from the house. Fix sued the Bank for, inter alia, intentional infliction of emotional distress (IIED). Meanwhile, Fix, Jeff, and Marie were indicted on multiple criminal counts. The State attorney who brought the charges and who represented the Bank civilly offered to dismiss the criminal charges against Fix if she would deed the house back to the Bank. Fix then amended her complaint to include a claim of abuse of process against the Bank. The trial court granted summary judgment against Fix on her IIED claim. A jury then returned a verdict finding the Bank liable for abuse of process but awarded no damages to Fix. The Supreme Court reversed on the abuse of process claim, holding that the trial court provided the jury with the incorrect legal standard for the recovery of emotional damages. Remanded for a new trial.

In the Chapter 13 case of appellees, Countrywide sought the recovery of attorney's fees incurred in connection with the bankruptcy as well as a determination that compliance with Federal Bankruptcy Procedure 2016 was not necessary for the recovery of such fees. The bankruptcy court held that Countrywide was not entitled to recover its attorney's fees and determined that there was no justiciable issue to resolve regarding the applicability of Bankruptcy Rule 2016 because Countrywide had already complied with the rule. The district court affirmed. The court held that the bankruptcy court and district court misconstrued the provision of the contract governing the availability of attorney's fees and that Countrywide was entitled to recover the fees sought in its Fee Application. Like the bankruptcy and district courts, however, the court declined to address whether Bankruptcy Rule 2016 applied. Accordingly, the court reversed and remanded for further proceedings.

Appellants, PNH Inc. and Ronald Creatore, filed an action against Alfa Laval Flow, Inc., which manufactures equipment for sanitary processing of food and beverages, for abuse of process and tortious interference with a contract. Appellants asserted that Alfa Laval Flow misused an involuntary-bankruptcy case it filed against its distributor in an effort to eliminate Creatore as a competitor in the sale of equipment for sanitary processing of food and beverages. The trial court dismissed the claims. The Seventh District affirmed, holding that federal law preempts state-law causes of action alleging the abuse of bankruptcy proceedings. The Supreme Court affirmed, holding that the United States Bankruptcy Code preempts state-law claims that allow the recovery of damages for misconduct committed by a litigant during bankruptcy proceedings.

This case involved a fallout of a $3.65 billion Ponzi scheme perpetrated by Minnesota businessman Thomas J. Petters. Appellants, investment funds (collectively, Ritchie), incurred substantial losses as a result of participating in Petters' investment scheme. Ritchie subsequently sued two officers of Petters' companies, alleging that they assisted Petters in getting Ritchie to loan over $100 million to Petters' company. Ritchie's five-count complaint alleged violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. 1962(a), (c)-(d), common law fraud, and tortious inference with the contract. The court held that the district court erred in concluding that Ritchie's action was barred by a Receivership Order. The court also rejected arguments challenging the sufficiency of Ritchie's pleadings in the common law fraud count and did not to address other arguments related to abstention, lack of causation, and absolute privilege. Accordingly, the court reversed the judgment of the district court and remanded for further proceedings.

This case concerned the bankruptcy estate of Qualia Clinical Service, Inc. The estate's Chapter 7 Trustee sought to avoid as a preferential transfer a security interest recorded by one of Qualia's creditors shortly before the bankruptcy petition. The bankruptcy court and the Bankruptcy Appellate Panel (BAP) held the security interest voidable. The court held that the bankruptcy court and the BAP properly applied 11 U.S.C. 547(c)(5)(A) to conclude that the preferential transfer in this case, though it concerned an interest in accounts receivable, improved Inova Capital Funding, LLC's position as against Qualia's other creditors and so was not exempt from avoidance under that subsection. The court found Inova's remaining arguments unpersuasive.

In May 2002, Respondent Eagle Windows & Doors, Inc.âs predecessor purchased Eagle & Taylor Companyâs assets (Eagle I) from Eagle I's bankruptcy estate. In 2000, homeowners constructed a residence using defective windows manufactured by Eagle I. In 2006, homeowners settled their construction claims against the Appellant contractor. The contractor and its insurer (Appellants) then brought this contribution suit against Respondent as successor to Eagle I. The circuit court granted respondent's motion to dismiss, holding (1) dismissal was required under Rule 12(b)(6) because a bankruptcy order expressly precluded any state law successor liability actions since the sale was "free and clear" under 11 U.S.C. 363(f) of the Bankruptcy Code; and (2) that dismissal was proper under Rule 12(b)(1) of the state rules of civil procedure because the bankruptcy court in Ohio which issued the Eagle I order retained jurisdiction over any claims against respondent for successor liability. Upon review, the Supreme Court found that Appellants' claim did not arise under either the settlement agreement or the order, nor did their claim relate to Eagle I. Rather, it was predicated upon Respondent's post-sale conduct which, Appellants contended, exposed it to successor liability under South Carolina state law. The Supreme Court concluded the court erred in dismissing this suit, and remanded the case for further proceedings.

Appellant appealed the bankruptcy court's approval of a multi-million dollar, global settlement in one of the largest Ponzi scheme bankruptcies in American history. The settlement had been substantially consummated and the appeal had been rendered largely moot. The court held that the bankruptcy court did not abuse its discretion in approving the settlement where the record upon which the bankruptcy court based its approval of the settlement was sufficient and where the settlement satisfied the Flight Transportation/Drexel factors. Accordingly, the order of the bankruptcy court approving the settlement was affirmed.

This case arose out of a sale-leaseback transaction that occurred in 2001. On July 10, 2011, the seller-lessees' parent company announced plans for a proposed transaction whereby it would seek a new credit facility and undergo an internal reorganization. As part of a subsequent reorganization, substantially all of its profitable power generating facilities would be transferred from existing subsidiaries to new "bankruptcy remote" subsidiaries, except for two financially weakened power plants. On July, 22, 2011, plaintiffs brought this action seeking to temporarily restrain the closing of the proposed transaction on the grounds that it violated the successor obligor provisions of the guaranties and would constitute a fraudulent transfer. The court found it more appropriate to analyze plaintiffs' motion for a temporary restraining order under the heightened standard for a preliminary injunction. Having considered the record, the court held that plaintiffs have failed to show either a probability of success on the merits of their breach of contract and fraudulent transfer claims or the existence of imminent irreparable harm if the transaction was not enjoined. Therefore, the court denied plaintiffs' application for injunctive relief.