Justia Contracts Opinion Summaries

In the first case in “a long‐running and acrimonious business dispute,” Lardas claimed fraudulent inducement and breach of contract, arising from a settlement agreement, which Lardas argued was intended to deprive her nephew (Christofalos) of his ownership interest in Wauconda Shopping Center (WSC). The Seventh Circuit affirmed dismissal of Lardas’s case without prejudice, finding that Lardas lacked standing. Lardas had transferred her ownership in a predecessor entity to Christofalos. The second case involves Christofalos’s bankruptcy, in which the court authorized the sale of his interest in WSC (11 U.S.C. 363(b)). The Seventh Circuit dismissed an appeal as moot because the sale has been consummated and third parties have acted in reliance. Christofalos also challenged the denial of a discharge, based on a bankruptcy court finding under 11 U.S.C. 727(a)(4)(A), which authorizes denial of discharge where the debtor has “knowingly and fraudulently … made a false oath or account.” The Seventh Circuit affirmed, noting that Christofalos made a “host of false statements and omissions.” The court also affirmed denial of Christofalos’s “Motion to Reopen Case and Assign a Receiver” in Lardas’s case. View "Christofalos v. Grcic" on Justia Law

In 2010, EFIH borrowed $4 billion at a 10% interest rate, issuing notes secured by its assets; the Indenture states that EFIH may redeem the notes for the principal amount plus a “make-whole premium” and accrued, unpaid interest. It contains an acceleration provision that makes “all outstanding Notes . . . due and payable immediately” if EFIH files for bankruptcy. Interest rates dropped. Refinancing outside of bankruptcy would have required EFIH to pay the make-whole premium. EFIH disclosed to the Securities and Exchange Commission a “proposal [whereby] . . . EFIH would file for bankruptcy and refinance the notes without paying any make-whole amount.” EFIH later filed Chapter 11 bankruptcy petitions, seeking leave to borrow funds to pay off the notes and to offer a settlement to note-holders who agreed to waive the make-whole. The Trustee sought a declaration that refinancing would trigger the make-whole premium and that it could rescind the acceleration without violating the automatic stay. The Bankruptcy Court granted EFIH’s motion to refinance. EFIH paid off the notes and refinanced at a much lower interest rate; the make-whole would have been approximately $431 million. The Bankruptcy Court and district court concluded that no make-whole premium was due and that the noteholders could not rescind acceleration. The Third Circuit reversed. The premium, meant to give the lenders the interest yield they expect, does not fall away because the full principal amount becomes due and the noteholders are barred from rescinding acceleration of debt. View "In re: Energy Future Holdings Corp." on Justia Law

Coles sued to recover an overdue loan that he had extended to a real estate investment company, Cascade. The loan was guaranteed by Glaser and Taylor. That case was settled when Cascade ostensibly paid off the loan, and Coles, in return, executed a release. Shortly after the settlement, Cascade filed for bankruptcy. Coles was forced to surrender most of the settlement proceeds to the bankruptcy trustee as a preferential payment. In a second suit, against Glaser and Taylor, the trial court found that the defendants had breached the settlement agreement and entered judgment in favor of Coles. The court of appeal affirmed, holding that a debt of a contractual co-obligor is not extinguished by another co- obligor's​ pre-bankruptcy payment to a creditor that is later determined to be a bankruptcy preference. View "Coles v. Glaser" on Justia Law

The adversary action comprises the claims, counterclaims, and affirmative defenses between two sides of a business scheme to buy, renovate, and operate a Days Inn. This appeal stems from the district court’s order affirming a bankruptcy court judgment rendered after trial in the adversary action. Appellant and his brother formed the plan to buy the hotel, and appellees are the investors that the brothers convinced to buy a fifty-percent stake in the scheme and the company that the three investors formed to hold their membership interest. The court concluded that appellant's res judicata argument fails where the release claim at issue was filed in the original action while summary judgment was still interlocutory. Thus, the claim was properly preserved through the severance order for later adjudication, and res judicata does not bar it. The court also concluded that the district court did not err in affirming the bankruptcy court judgment that appellant breached the settlement agreement. Further, the district court properly affirmed the bankruptcy court's dismissal of appellant's breach-of-guaranty claim against the investors, but not as to the company. The court affirmed in part and vacated in part, remanding for additional proceedings, including a determination of what percentage of the attorney’s fees were attributable to the breach-of-contract claim. View "Pirani v. Baharia" on Justia Law

In 2005, Water's Edge, LLC purchased lots 62-69 of "Re-Subdivision A" in Baldwin County, commonly referred to as Gulf Shores Yacht Club and Marina ("the property"). Fairfield Financial Services, Inc. loaned Water's Edge $12.8 million of the $13 million needed to purchase the property. In 2006, Fairfield notified Water's Edge that it would not renew Water's Edge's loan. The members of Water's Edge authorized the managers to seek new financing. In December 2006, Vision Bank agreed to loan Water's Edge $14.5 million. Vision Bank later merged with SE Property Holdings, LLC ("SEPH"). Certain members of Water's Edge signed agreements guaranteeing all of Water's Edge's debt to SEPH. In October 2008, SEPH notified Water's Edge that the loans were in default. In October 2010, SEPH sued Water's Edge and 28 individuals, including the guarantors, based on the promissory notes and guaranty agreements pertaining to the various loans issued over the years. The trial took place in late 2014. The trial court did not submit the case to the jury, but instead discharged the jury and entered an order granting SEPH's motion for a JML. The trial court found the guarantors and the other defendants jointly and severally liable on continuing unlimited guaranty agreements. The trial court found each of them individually liable for differing amounts based on continuing limited guaranty agreements they had signed. A month later, the trial court revised its earlier order, taking into account settlements and declarations of bankruptcy that certain guarantors had declared. The guarantors timely filed a motion to alter, amend, or vacate the judgment, which the trial court denied. The guarantors then appealed. The Alabama Supreme Court dismissed the appeals, finding that the trial court's judgment was not final because the trial court did not have jurisdiction to dismiss SEPH's claims against one of the guarantors, and the trial court did not certify its order as final pursuant to Rule 54(b). "An order entered in violation of the automatic bankruptcy stay is void as to the debtor, thus leaving the claims against [one of the guarantors] pending and rendering the judgment nonfinal. A nonfinal judgment will not support an appeal." View "Gaddy v. SE Property Holdings, LLC" on Justia Law

Steven Fustolo’s affiliate companies issued four promissory notes to Patton Drive, LLC. Fustolo personally guaranteed two of the notes. When the principal debtors defaulted on all four notes, Patton drive sued Fustolo. The Massachusetts state court found Fustolo liable for breach of contract and entered judgment against Fustolo. Fustolo appealed, challenging the interest due. Meanwhile, Patton Drive joined with two of Fustolo’s other creditors to file a petition seeking to place Fustolo into involuntary Chapter 7 bankruptcy. Fustolo, in turn, asserted that Patton Drive was not qualified it to serve as a petitioning creditor because his pending state court appeal subjected Patton Drive’s judgment to “bona fide dispute as to liability or amount.” The bankruptcy court allowed Patton Drive to join in initiating involuntary bankruptcy proceedings against Fustolo. The district court affirmed, finding that Fustolo’s state court appeal could not raise a bona fide dispute as to Patton Drive’s claim. The First Circuit affirmed, holding that because the amount of Fustolo’s liability on the guaranteed notes was not subject to bona fide dispute, and because Patton Drive’s claim on the guaranteed notes could be considered separately from Patton Drive’s claim on the judgment within which its underlying contract claims were submerged, Patton Drive qualified as a petitioning creditor. View "Fustolo v. 50 Thomas Patton Dr., LLC" on Justia Law

Redondo Construction Corporation filed for Chapter 11 bankruptcy. Through the proceedings, Redondo filed three complaints against the Puerto Rico Highway and Transportation Authority for money owed under construction contracts, alleging that it was entitled to damages and prejudgment interest. The bankruptcy court ruled in Redondo’s favor and found that Redondo was entitled to prejudgment interest. The First Circuit vacated the award of prejudgment interest and remanded. On remand, the bankruptcy court awarded Redondo prejudgment interest on its contract claims under Article 1061 of the Puerto Rico Civil Code, accruing through the payment of principal. The Authority moved to amend the judgment. The bankruptcy court denied the Authority’s motion, and the district court affirmed. The First Circuit vacated the judgment, holding (1) Redondo did not forfeit its claim to prejudgment interest under Article 1061; but (2) 28 U.S.C. 1961 exclusively controls awards of postjudgment interest in federal court, and therefore, the bankruptcy court should not have extended the prejudgment interest accrual period past the entry of judgment. Remanded for a calculation of section 1961 interest and a recalculation of Article 1061 interest. View "P.R. Highway & Transp. v. Redondo Constr. Corp." on Justia Law

Appellants and the company they own filed suit against David Fisher and other defendants, alleging claims arising from an unfulfilled real estate purchase agreement. Fisher filed an answer and counterclaim. Three years later, Fisher filed for Chapter 7 bankruptcy. Appellants filed an adversary proceeding in the bankruptcy case, requesting a determination that their claims against Fisher were not dischargeable in bankruptcy. The district court subsequently dismissed Appellants’ claims. Thereafter, the bankruptcy court ruled that Appellants’ claims against Fisher were dischargeable in bankruptcy. Appellants then filed a motion to modify the district court’s order dismissing the action and a renewed motion for summary judgment. The district court denied both post-dismissal motions, noting that the matter had already been dismissed. On appeal, the Supreme Court treated Appellants’ motions as motions for relief from the dismissal order pursuant to Wyo. R. Civ. P. 60(b) and affirmed, holding that, under the circumstances of this case, the district court did not abuse its discretion in denying Appellants’ motions. View "Bartel v. West" on Justia Law

MERV, an LLC formed to purchase and operate an antique mall, encountered difficulties paying its mortgage loan and entered into a forbearance agreement with the Bank. MERV later defaulted and filed a Chapter 11 Bankruptcy Petition. Although a plan of reorganization was confirmed, MERV again defaulted. The Bank foreclosed its mortgage on the property. Before the bankruptcy case closed, MERV retained special counsel and filed an adversary proceeding against some of its founders and the Bank. The claims against the Bank alleged breach of contract, “facilitation of fraud and theft”, and equitable subordination of the Bank’s claim. MERV sought punitive damages. The bankruptcy court granted summary judgment, agreeing with the Bank that MERV had executed a release of all of the claims as part of the forbearance agreement. The Sixth Circuit Bankruptcy Appellate Panel affirmed, finding that the Bank offered prima facie evidence of a complete affirmative defense to the complaint by showing that MERV executed a Release of all claims. MERV did not demonstrate a genuine issue of material fact as to the validity of that Release. MERV did not file a motion or a Rule 56(d) affidavit or declaration with the bankruptcy court requesting more time for discovery. View "In re: MERV Props., LLC" on Justia Law

The Lapideses renewed a loan from Venture Bank secured by a third mortgage on their home. Howard subsequently filed for Chapter 7 bankruptcy. After Howard’s personal debts were discharged, the Lapideses executed two “Change in Terms Agreements,” each of which extended the maturity date of the loan for six months. When Howard ceased making payments under these agreements, Venture Bank sought a declaratory judgment that the agreements were valid and enforceable. Howard counterclaimed that Venture Bank’s efforts to obtain payments after his discharge violated the discharge injunction under 11 U.S.C. 524(a)(2). The bankruptcy court denied Venture Bank’s claim for a declaratory judgment and awarded Howard damages and attorney’s fees. The district court and Eighth Circuit affirmed, upholding a finding that Howard’s payments were not voluntary within the meaning of section 524(f) and did not comply with the requirements of a reaffirmation agreement under section 524(c). The post-discharge agreements served no purpose other than reaffirmation agreements in which Howard agreed to repay all of his discharged personal debt and lacked consideration. View "Venture Bank v. Lapides" on Justia Law