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

The Seventh Circuit upheld the bankruptcy court's ruling that the costs of plaintiff's attorney disciplinary proceedings imposed by the Wisconsin Supreme Court were not dischargeable under a provision of the Bankruptcy Code, 11 U.S.C. 523(a)(7). The court explained that, although there are several types of proceedings in which the Wisconsin Supreme Court may order costs, see Wis. S.C.R. 22.24(1), attorney discipline uniquely requires a "finding of misconduct" as a precondition for doing so. The court stated that the structure of Rule 22.24(1m) unambiguously singles out attorney discipline as a penal endeavor, and that conclusion has a statutory consequence under section 523(a)(7). Furthermore, the cost order amounts to compensation for actual pecuniary loss under section 523(a)(7). Finally, the court's conclusion that plaintiff's disciplinary costs are nondischaregable under section 523(a)(7) finds firm support in Supreme Court precedent and the court's own case law. View "Osicka v. Office of Lawyer Regulation" on Justia Law

In 2017, a bankruptcy court discharged Persinger’s debts, under 11 U.S.C. 727. A few months later, Southwest Credit began collection efforts on a pre‐petition debt of Persinger’s, including by acquiring a type of credit information called her “propensity‐to‐pay score.” Alleging that this information had been secured without a permissible purpose, Persinger sued Southwest under the Fair Credit Reporting Act (FCRA), 15 U.S.C. 1681.The district court granted Southwest summary judgment, holding that Southwest’s compliance procedures were reasonable and met FCRA’s requirements. The Seventh Circuit affirmed, first holding that Persinger has standing to sue. Southwest invaded her privacy when it reviewed her credit information but no reasonable juror could conclude that the inquiry into Persinger’s propensity‐to‐pay score resulted in actual damages. If a plaintiff cannot prove actual damages, she may still recover statutory or punitive damages by proving that the defendant willfully violated FCRA. Viewed as a whole, Southwest’s procedures for handling bankruptcy notifications and for ordering bankruptcy scrubs from LexisNexis were reasonable compliance efforts, not willful violations of the FCRA. At the time Southwest ordered the credit score, it was unaware that the debt at issue had been discharged. View "Persinger v. Southwest Credit Systems, L.P." on Justia Law

The Davises took out a mortgage on their residence in 2005. After they defaulted on the loan and filed for bankruptcy, Jerome Davis, a licensed attorney who represented himself, received a bankruptcy discharge. The bankruptcy court later held that the discharge did not extend to the debt Davis owed CitiMortgage. Rather than appeal, Davis first attempted to remove CitiMortgage’s foreclosure action to federal court, alleging that CitiMortgage’s efforts to obtain a personal deficiency judgment contravened his bankruptcy discharge. He then filed a separate suit alleging unfair debt collection practices against CitiMortgage. Davis lost in each of those proceedings. CitiMortgage was awarded attorney fees and costs, 28 U.S.C. 1447(c) when the court remanded the foreclosure proceeding for lack of federal question jurisdiction.The Seventh Circuit dismissed Davis’s appeal, stating that it lacked jurisdiction to review the remand order. Davis waived his arguments challenging the attorney fees and costs award. The court upheld the dismissal of Davis’s suit against CitiMortgage; all of Davis’s claims center on his contention that the debt owed CitiMortgage was subject to his 2018 discharge. The court took judicial notice that the bankruptcy court had held the opposite in Davis’s adversary proceeding. View "Davis v. CitiMortgage, Inc." on Justia Law

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

Big Shoulders sued the railroads (SLRG), with federal jurisdiction ostensibly based on diversity of citizenship, and requested that the district court appoint a receiver to handle SLRG’s assets. That court did so, which brought the case to the attention of several creditors. One of them, Sandton, intervened and challenged the appointment of the receiver and the district court’s jurisdiction. Sandton alleged that Big Shoulders failed to join necessary parties who, if added, would destroy diversity of citizenship. Meanwhile, other creditors (Petitioning Creditors) filed an involuntary bankruptcy petition on behalf of SLRG in federal bankruptcy court in Colorado. The receiver objected. Because the judicially approved receivership agreement contained an anti-litigation injunction, the district court initially concluded that the bankruptcy petition was void. On reconsideration, however, the district court determined that it did not have the authority to enjoin the bankruptcy. The bankruptcy continued. After Big Shoulders refused to continue to fund the receivership, the district court approved its termination.The Seventh Circuit consolidated several appeals, each of which involved questions of standing or mootness. The court concluded that those justiciability questions required the dismissal of all but Sandton’s appeal. As for Sandton’s argument that diversity jurisdiction is lacking, the court remanded to the district court for an application in the first instance of the “nerve center test” to determine if SLRG and Mt. Hood are citizens of Illinois. View "Sandton Rail Company LLC v. San Luis & Rio Grande Railroad, Inc." on Justia Law

While Appvion was in financial distress, 2012-2016, the defendants allegedly fraudulently inflated stock valuations to enrich the directors and officers, whose pay was tied to the valuations of its ERISA-covered Employee Stock Ownership Plan (ESOP). They allegedly carried out this scheme with knowing aid from the ESOP trustee, Argent, and its independent appraiser, Stout. Appvion directors allegedly provided unlawful dividends to its parent company by forgiving intercompany notes. Appvion filed for bankruptcy protection. Appvion’s bankruptcy creditors were given authority to pursue certain corporation-law claims on behalf of Appvion to recover losses from the defendants’ alleged wrongs against the corporation; they brought state law claims against the directors and officers for breaching their corporate fiduciary duties; alleged that Argent and Stout aided and abetted those breaches, and asserted state-law unlawful dividend claims. The defendants argued that their roles in Appvion’s ESOP valuations were governed by the Employee Retirement Income Security Act (ERISA), which preempted state corporation-law liability and that, despite their dual roles as corporate and ERISA fiduciaries, they acted exclusively under ERISA when carrying out ESOP activities, 29 U.S.C. 1002(21)(A). The district court agreed and dismissed.The Seventh Circuit reversed in part. ERISA does not preempt the claims against directors and officers. ERISA expressly contemplates parallel corporate liability against those who serve dual roles as both corporate and ERISA fiduciaries. ERISA preempts the claims against Argent and Stout. Corporation-law aiding and abetting liability against these defendants would interfere with the cornerstone of ERISA’s fiduciary duties—Section 404's exclusive benefit rule. View "Halperin v. Richards" on Justia Law

Algozine employed members of the Union and, pursuant to a collective bargaining agreement, was required to submit contributions to three employee benefit funds on behalf of employees who performed covered work: the Welfare Fund; the Pension Fund; and the Annuity Fund. All are multi-employer benefit funds under the Employee Retirement Income Security Act of 1974, 29 U.S.C. 1002. Algozine fell behind on its contributions and filed a Chapter 11 bankruptcy petition.The Funds filed separate proofs of claims under 11 U.S.C. 507(a)(5) for unpaid contributions. Section 507(a) affords priority status up to a specified point to certain types of unsecured claims, including claims for unpaid contributions to an employee benefit plan. The Welfare Fund sought $21,334.30, the Pension Fund sought $18,453.40, and the Annuity Fund sought $11,607.16. Algozine argued that the total should be reduced to $5,556.34 because the Funds erred by applying the priority cap that appears in section 507(a)(5) to each individual Fund’s claims rather than the Funds’ aggregate claims. The bankruptcy court, district court, and the Seventh Circuit agreed with the Funds that section 507(a)(5) does not require assessing distinct benefit plans collectively. View "In re: Algozine Masonry Restoration, Inc." on Justia Law

Bullock petitioned for Chapter 13 bankruptcy but failed to disclose on his Schedule B list of assets a pending workers’ compensation claim. On his Schedule C list of exemptions, he failed to declare an exemption for the claim. Bullock proposed a 60-month plan of reorganization to pay $148 per month plus possible tax refunds. The bankruptcy court confirmed the plan in October 2014. In 2017, Bullock received a workers’ compensation settlement award for $92,430.84. The trustee moved to compel Bullock to disclose it. Bullock then listed the settlement proceeds as personal property on Schedule B and declared the proceeds exempt on Schedule C under 820 ILCS 305/21; 735 ILCS. 5/12-1001(b). The trustee successfully moved to compel Bullock to file an amended plan under 11 U.S.C. 1329(a) that would provide for the turnover of Bullock’s workers’ compensation award for distributions to general unsecured creditors. Bullock had already spent the award proceeds. The bankruptcy court confirmed Bullock’s amended plan, requiring Bullock to pay a lump-sum of approximately $15,000 before the plan’s expiration. Bullock failed to make the final payment under the plan. An appeal from the dismissal of the bankruptcy case is pending. The Seventh Circuit affirmed the district court’s dismissal of the adversary proceeding on mootness grounds. That issue is mooted because he complied with the very order requiring the reorganization plan’s amendment that he now seeks to challenge and because his underlying bankruptcy case was dismissed. View "Bullock v. Simon" on Justia Law

Chicago assesses fines for parking and other vehicular offenses against the owner. If the owner filed bankruptcy, keeping the car in the estate meant that the automatic stay prevented the city from using collection devices such as towing or booting. The Seventh Circuit previously held 11 U.S.C. 1327(b), which provides that “confirmation of a plan vests all of the property of the estate in the debtor” precludes debtors from avoiding such fines by keeping the car in the estate except when a court enters a case-specific order, supported by good case-specific reasons. Bankruptcy judges then changed their form confirmation order, adding a checkbox through which debtors could elect a departure from the statutory presumption. The Seventh Circuit then held that vehicular fines are administrative expenses that bankruptcy estates must pay even though not listed on debtors’ 11 U.S.C.507(a)(2) schedules. Whether a car’s title returns to the owner on confirmation of the plan or remains in the estate, vehicular fines must be paid.The Seventh Circuit then reversed confirmation orders that were based only on the debtor’s choice. Immunity from traffic laws is not an outcome plausibly attributed to the Bankruptcy Code. A bankruptcy court must confirm any plan that satisfies 11 U.S.C. 1325(a) and "other applicable provisions of this title”; section 1327(b) is an applicable provision. A bankruptcy court may confirm a plan that holds property in the estate only after finding good case-specific reasons for that action. View "City of Chicago v. Kiera Cherry" on Justia Law

After filing a Chapter 13 bankruptcy petition, Bastani asked the judge to stay a pending state court foreclosure procedure. Bastani’s previous bankruptcy petition had been dismissed less than a year earlier, creating a presumption that the new filing was not in good faith, 11 U.S.C. 362(c)(3)(C)(i), and meaning that the automatic stay would end 30 days after the new proceeding began. The bankruptcy and district courts denied Bastani’s motion.The Seventh Circuit denied relief and also denied Bastani’s motion for leave to file in forma pauperis under 28 U.S.C. 1915. Chapter 13 is designed for people who can pay most of their debts; someone eligible for Chapter 13 relief cannot establish that she cannot pay judicial fees in the absence of extraordinary circumstances. The court further concluded that Bastani’s second bankruptcy petition was filed in actual bad faith; Bastani appeared to be trying to achieve a Chapter 13 benefit (keeping her home) without the detriment of having to pay her debts. View "Bastanipour v. Wells Fargo Bank, N.A." on Justia Law