Justia U.S. 7th Circuit Court of Appeals Opinion Summaries

Investors in Central Sleep filed suit against the company, Dachman, its promoter, and others, claiming fraud, RICO violations, conversion, fraudulent conveyance, civil conspiracy, and securities fraud. Dachman was also convicted for his fraudulent conduct. He spent the funds he stole from investors on a tattoo parlor, vacations and cruises, a new Land Rover, rare booksm and to fund personal stock trading and gambling. Goodman represented the defendants. A judge ordered Central Sleep into receivership and issued a stay against “all civil legal proceedings” involving the defendants. The receivership closed; victims received pennies on the dollar. Goodman obtained a judgment for unpaid legal fees and submitted a claim, but also filed a lien against the proceeds of the Dachmans' state court medical-malpractice lawsuit. Neither Goodman nor the Dachmans informed the receiver or the judge of those proceedings. The receiver learned of the malpractice suit and recovered the settlement proceeds. When the receiver proposed a distribution plan, Goodman argued that his lien entitled him to be paid in full from the malpractice suit proceeds, rather than pro rata from the receivership estate like other creditors. The judge offered Goodman the opportunity to post a bond to delay distribution, pending appeal. Goodman did not post a bond. The judge approved the plan and the funds were distributed. The Seventh Circuit affirmed and granted the receiver’s motion for sanctions against Goodman. View "Duff v. Central Sleep Diagnostics, LLC" on Justia Law

The Hospital had to pay a Hospital Assessment Fee (HAF) as part of an Indiana program designed to increase Medicaid reimbursements to eligible hospitals. After it failed to pay its HAF, the Indiana Family and Social Services Administration (FSSA) began withholding Medicaid reimbursements. On June 19, 2012, the Hospital filed for Chapter 11 bankruptcy. FSSA continued to withhold reimbursements in satisfaction of its HAF debt. The Hospital filed an adversary complaint against FSSA claiming that the HAF was a pre-petition claim subject to the automatic stay. The bankruptcy court agreed, ruling the HAF was an “act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case,” 11 U.S.C. 362(a)(6), and was subject to the stay. FSSA was ordered to repay the full amount it had withheld. The district court reversed as to the HAF for fiscal year 2013. The Seventh Circuit reversed, finding that the 2013 HAF, like the 2012 HAF, is a pre-petition claim subject to the automatic stay. FSSA was aware of its claims against the Hospital—for both fiscal years 2012 and 2013—well before it filed for bankruptcy View "Unsecured Creditors' Comm. v. Ind. Family & Soc.Servs. Admin." on Justia Law

Schwartz was hired as an executive of Barclays, which lent him $400,000 and promised to forgive the loan in equal installments on the first through seventh anniversaries of his start date. Before the second anniversary, the company fired him, which made the unforgiven principal immediately due. Schwartz refused to pay. An arbitrator sided with Barclays and ordered Schwartz to pay $568,568, which included attorneys’ fees plus interest. In response, Schwartz petitioned for bankruptcy under Chapter 7. Between the announcement of the arbitration award and the filing of the bankruptcy petition the Schwartzes spent thousands of dollars on inessential consumer goods and services, including tickets to Disney World, private school tuition, and a monthly payment for a Range Rover. Learning of these expenditures, Barclays, the Schwartzes’ principal creditor and the only active opponent of granting a discharge, moved to dismiss. The court dismissed the petition under 11 U.S.C. 707(a), “for cause.” The Seventh Circuit affirmed, finding that “for cause” embraces conduct that, while not a violation of required procedures, avoids repayment of debt without an adequate reason. The Schwartzes failed to pay as much of their indebtedness as they could without hardship. View "Schwartz v. Barclays Capital, Inc." on Justia Law

The Richers filed for bankruptcy. Morehead, who had invested in commercial real estate owned by a trust controlled by Richer, filed an unsecured claim for $945,000 in the proceeding. The Richers filed an adversary action claiming that Morehead’s only lawful interest in the property was to receive a share of the net proceeds of the property if and when it was sold. The bankruptcy judge, the district court, and the Seventh Circuit upheld Morehead’s claim. The 2005 “Equity Participation Agreement” provided no security for Morehead, but did give him “the sole and exclusive option to convert his Participation Interest to a Demand Note payable within one hundred eighty (180) days of conversion.” Four years later, Morehead sent Richer by certified mail, a letter purporting to convert Morehead’s participation interest to a demand note for $700,000 (plus interest), effective the day after the letter was mailed, November 25, 2009—the anniversary date. The court rejected an argument that the letter had to be mailed or otherwise communicated to them on November 25, the anniversary date, neither before nor after. The Agreement provides that “the Conversion Option is exercised on the … anniversary date,” not that communication must occur on that date. View "Richer v. Morehead" on Justia Law

The bankruptcy court awarded a fee of $28,030.33 to the bankruptcy trustee, Lanser, in a Chapter 7 bankruptcy. The district court affirmed, over a challenge by the debtors’ principal unsecured creditor, Mohns, which had a state court judgment of $142,899 against the debtors for construction of a house. The bankruptcy proceeding lasted for more than four years; the trustee collected $498,621.56 to distribute to Mohns and the debtors’ other creditors. The amount awarded the trustee was just under the maximum amount allowable; as the result of a mistake in his fee application he had asked for slightly less than the maximum allowable amount, 11 U.S.C. 330(a)(7). The Seventh Circuit affirmed. Although $370,996.54 went to mortgagees of the debtors’ home, which the trustee had sold to raise money for the creditors, administration of an estate with such secured claims frequently presents complex issues for the trustee. View "Mohns, Inc. v. Bruce Lanser" on Justia Law

Bulk, a gasoline distributor with gas stations in Kentucky, Indiana, and Tennessee, leases stations and equipment to tenant-operators. Bulk receives monthly rent plus payment for gasoline. The Kentucky Department of Revenue (KDOR) revoked Bulk’s license as a gasoline and special fuels dealer after it asked Bulk to post additional security and Bulk failed to do so. The change affected only the way in which Kentucky collected its fuel tax. Bulk kept track of the separate line-item for the tax in the invoices it received from its suppliers (Marathon and BP) and sought refunds from KDOR for those payments. A KDOR employee emailed Bulk that “only a licensed dealer is allowed to purchase product without the Kentucky tax for export. If your license is reinstated and all outstanding tax liabilities are satisfied, consideration will be given to your refund request.” Bulk regained its license, then sought Chapter 11 bankruptcy protection. Bulk filed an adversary proceeding, seeking refund of the taxes. Kentucky filed a proof of claim. The bankruptcy court ruled in favor of Bulk, finding that Bulk had paid the taxes, which were not appropriately collected for gasoline that was consigned to destinations outside Kentucky. The district court disagreed, concluding that Bulk just paid a higher price to its suppliers. The Seventh Circuit reinstated the decision in favor of Bulk. View "Bulk Petroleum Corp. v. Ky. Dep't of Revenue" on Justia Law

Bulk, a gasoline distributor with gas stations in Kentucky, Indiana, and Tennessee, leases stations and equipment to tenant-operators. Bulk receives monthly rent plus payment for gasoline. The Kentucky Department of Revenue (KDOR) revoked Bulk’s license as a gasoline and special fuels dealer after it asked Bulk to post additional security and Bulk failed to do so. The change affected only the way in which Kentucky collected its fuel tax. Bulk kept track of the separate line-item for the tax in the invoices it received from its suppliers (Marathon and BP) and sought refunds from KDOR for those payments. A KDOR employee emailed Bulk that “only a licensed dealer is allowed to purchase product without the Kentucky tax for export. If your license is reinstated and all outstanding tax liabilities are satisfied, consideration will be given to your refund request.” Bulk regained its license, then sought Chapter 11 bankruptcy protection. Bulk filed an adversary proceeding, seeking refund of the taxes. Kentucky filed a proof of claim. The bankruptcy court ruled in favor of Bulk, finding that Bulk had paid the taxes, which were not appropriately collected for gasoline that was consigned to destinations outside Kentucky. The district court disagreed, concluding that Bulk just paid a higher price to its suppliers. The Seventh Circuit reinstated the decision in favor of Bulk. View "Bulk Petroleum Corp. v. Ky. Dep't of Revenue" on Justia Law

Tetzlaff, age 56, lives with his mother, is unemployed, and owes approximately $260,000 in student loan debt, which is guaranteed by Educational Credit Management Corporation. When Tetzlaff filed for Chapter 7 bankruptcy in 2012, he sought to have this debt discharged, claiming that repayment constituted an “undue hardship” under 11 U.S.C. 523(a)(8). The bankruptcy court held that Tetzlaff’s student debt could not be discharged. The district court and Seventh Circuit affirmed, noting that the bankruptcy court found that Tetzlaff’s financial situation has the ability to improve given that “he has an MBA, is a good writer, is intelligent, and family issues are largely over” and that “Tetzlaff is not mentally ill and is able to earn a living.” The courts rejected an argument that the bankruptcy court erred in refusing to consider Tetzlaff’s payments to Florida Coastal Law School (which were not included in the discharge action) in concluding that he had not made a good faith effort to repay the debt held by Educational Credit. View "Tetzlaff v. Educ. Credit Mgmt. Corp." on Justia Law

Taylor’s brother died in an accident. Caiarelli, the decedent’s ex-spouse and guardian of their minor child, obtained a state court declaration that the child was entitled to assets distributed to Taylor ($1.4 million). The estate assigned the judgment to Caiarelli. Taylor sought a probate court declaration that the assignment was void. Before resolution, Taylor filed for Chapter 11 bankruptcy, triggering the automatic stay. Caiarelli initiated an adversary proceeding, objecting to discharge of the judgment. The bankruptcy court dismissed, finding that Caiarelli failed to establish standing. The judgment was discharged, and Taylor’s creditors enjoined from collecting, 11 U.S.C. 524(a)(2). Caiarelli returned to probate court, which ratified the assignment. Taylor claimed that Caiarelli and her attorneys violated the discharge and plan injunctions. The bankruptcy court entered a civil contempt order and issued a damages order and judgment for $165,662.36 in attorney’s fees. While appeal was pending, Taylor notified the district court that he reached a settlement with the legal malpractice insurance carrier for Caarelli’s attorneys. The attorneys denied that a full settlement had been reached. The bankruptcy court indcated that vacatur would be approved if the parties returned to the court, so the district court denied Taylor’s motion to dismiss but reversed the contempt order, damages order, and judgment, finding no violation of the statutory discharge or plan injunctions. The Seventh Circuit affirmed, finding that the appeal was not moot. View "Taylor v. Caiarelli" on Justia Law

In 2006 plaintiff filed a Chapter 13 bankruptcy petition, but later voluntarily dismissed the petition. A credit-reporting agency received a copies from Lexis and reported the petition “dismissed.” In 2009 the plaintiff’s lawyer demanded that the agency remove all reference to her bankruptcy because it had been dismissed at her behest. The agency refused. In 2012 she told the agency: “my bankruptcy was not dismissed. It was voluntarily withdrawn prior to plan approval.” The agency then purged the reference to the bankruptcy from her file, but did so because it was seven years since she had filed the petition. Plaintiff alleged that by failing to report in 2006 that the petition had been voluntarily withdrawn, the agency had willfully violated the Fair Credit Reporting Act, and sought damages, 15 U.S.C. 1681n(a). The district court granted the credit agency summary judgment in without deciding whether to certify a class. The Seventh Circuit affirmed. An agency must report that a bankruptcy petition was withdrawn “upon receipt of documentation certifying such withdrawal” and must “follow reasonable procedures to as-sure maximum possible accuracy of the information concerning the” person who had filed for bankruptcy. In 2006, when the plaintiff’s petition was withdrawn, no documentation certifying such withdrawal was submitted to the agency. View "Childress v. Experian Information Solutions" on Justia Law