bankruptcy

Oral argument: Apr. 23, 2012

Appealed from: United States Court of Appeals for the Seventh Circuit (June 28, 2011)

RadLAX Gateway Hotel, LLC and related entities obtained a secured $142 million loan in 2007 to construct the Radisson Hotel at Los Angeles International Airport. Substantially all of RadLAX’s assets were designated as collateral for this loan. However, still saddled with $120 million of debt, RadLAX filed for bankruptcy in August 2009. RadLAX proposed a Chapter 11 reorganization plan that called for an auction sale of all its assets, free and clear of liens. The plan prohibited secured lenders from credit bidding, i.e. using their loan amounts to offset the asset prices at the auction. Amalgamated Bank, representing the lender, objected to the plan, arguing that the plan violated Section 1129(b)(2)(A)(ii) of the Bankruptcy Code. The bankruptcy court agreed and rejected RadLAX’s plan. The Seventh Circuit affirmed on appeal. The Supreme Court’s resolution of this case may affect the balance of power between debtors and secured creditors in bankruptcy proceedings.

Oral argument: Nov. 29, 2011

Appealed from: United States Court of Appeals for the Ninth Circuit (Aug. 16, 2010)

Petitioners Lynwood and Brenda Hall filed for Chapter 12 bankruptcy and subsequently sold their family farm, which resulted in a postpetition tax liability of approximately $29,000. The Halls proposed to treat this tax liability as an unsecured dischargeable claim. The IRS objected to the debtors’ plan based on Internal Revenue Code requirements. At trial, the Bankruptcy Court agreed with the IRS that the tax liability was not considered an administrative expense under Bankruptcy Code Section 507(a)(2), covered by Section 1222(a)(2)(A), or entitled to treatment as unsecured dischargeable debt, and therefore that the $29,000 was required to be paid in full outside of the bankruptcy context. On appeal, the Halls argue that their postpetition tax liability should be treated as an unsecured dischargeable debt under Section 1222(a)(2)(A) because, contrary to the Bankruptcy Court’s finding, the tax liability is an administrative expense under Section 507(a)(2). Furthermore, the Halls contend that a Chapter 12 estate can incur a tax liability. Respondent United States argues that postpetition debts are not included in Chapter 12 plans, and that, even if postpetition debts were included, a Chapter 12 estate cannot incur a tax liability because it is not a separate taxable entity. In this case, the Supreme Court will determine the proper application of Section 1222(a)(2)(A) to postpetition tax liabilities.

Oral argument: Jan. 18, 2011

Appealed from: United States Court of Appeals for the Ninth Circuit (Mar. 19, 2010)

BANKRUPTCY, JURISDICTION, CHAPTER 11, COUNTERCLAIMS

In 1994, J. Howard Marshall II, a very wealthy oil executive, married Vickie Lynn Marshall (“Vickie”), a model and actress who worked under the name Anna Nicole Smith. J. Howard Marshall died shortly thereafter, leaving the bulk of his estate to his son E. Pierce Marshall (“Pierce”). Vickie filed for Chapter 11 bankruptcy protection in 1996, and Pierce brought a defamation claim against her in the bankruptcy court. Vickie made a compulsory counterclaim, alleging that Pierce had tortiously interfered with J. Howard Marshall’s intent to give her part of his estate. The bankruptcy court rendered a judgment in favor of Vickie. Pierce eventually appealed to the Ninth Circuit, which reversed the bankruptcy court’s decision on the grounds that Vickie’s counterclaim was not a “core” proceeding, and therefore was improperly before the bankruptcy court. Vickie’s estate, represented by her executor Howard K. Stern, argues that the Ninth Circuit erroneously applied 28 U.S.C. § 157(b)(2)(C) because the provision categorically establishes compulsory counterclaims as core proceedings. The estate of Pierce Marshall asserts that the counterclaim raised in this case deals with a tort claim that arises under state law, and is therefore not part of the core proceedings. The Supreme Court’s decision in this case will determine whether Congress intended for 28 U.S.C. § 157(b)(2)(C) to categorize all compulsory counterclaims as core proceedings and, if this was Congress’ intent, whether this intent is constitutional.

Appealed from the United States Court of Appeals for the Tenth Circuit (Nov. 8, 2008)

Oral argument: Mar. 22, 2010

BANKRUPTCY, CHAPTER 13, BAPCPA

This case concerns the extent of a bankruptcy court's flexibility in determining the "projected disposable income" of a debtor under 11 U.S.C. § 1325(b)(1)(B). Stephanie Kay Lanning filed for bankruptcy in October 2006 and proposed monthly payments of $144, based on her current income and expenses. Jan Hamilton, Lanning's bankruptcy trustee, objected and said that Lanning's "projected disposable income" was actually over $1,000 per month. The U.S. Bankruptcy Court for the District of Kansas overruled the objection and approved Lanning's plan. The court found that, while Hamilton's calculation of "projected disposable income" based on Lanning's income from the prior six months was correct under Form 22C, the results were inequitable because Lanning's income was artificially inflated for two months because of a buyout from her prior employer. The Bankruptcy Appeals Panel and the Tenth Circuit Court of Appeals both affirmed. Hamilton argues that the plain language of the statute mandates his “mechanical” approach, while Lanning argues that her "forward-looking" approach avoids absurd results. The Supreme Court's decision in this case will provide clarity to a statutory term that has flummoxed the lower courts, while simultaneously affecting the flexibility of bankruptcy judges.

Oral argument: Dec. 1, 2009

Appealed from: United States Court of Appeals for the Ninth Circuit (Dec. 10, 2008)

BANKRUPTCY, STUDENT LOANS, CHAPTER 13, DISCHARGE, RES JUDICATA, DUE PROCESS

Francisco J. Espinosa filed for Chapter 13 bankruptcy and proposed in his Chapter 13 reorganization plan that he would repay $13,250 in student loans to United Student Aid Funds (“Funds”). Although Funds claimed they were owed an additional $4,582.15, the U.S. Bankruptcy Court for the District of Arizona confirmed Espinosa's plan as proposed, and Funds did not object to the confirmed plan. Espinosa repaid all debts according to the Chapter 13 plan. Funds subsequently began to intercept Espinosa's income tax refunds, claiming that Espinosa had improperly discharged his student loans, because Espinosa had not initiated a statutorily required adversary proceeding to determine whether repayment of the student loans would constitute an "undue hardship." While the U.S. District Court of Arizona held that Espinosa had violated Funds' due process interests by failing to initiate an adversary proceeding and serve a complaint and summons upon Funds according to the statutory procedure, the United States Court of Appeals for the Ninth Circuit reversed, and Funds now appeals. The Supreme Court’s decision in this case will determine how student loans and other debts are collected in bankruptcy and will affect the overall relationship between debtors and creditors in America.

Oral argument: Dec. 1, 2009

Appealed from: United States Court of Appeals for the Eighth Circuit (Sept. 4, 2008)

BANKRUPTCY, FIRST AMENDMENT, FREEDOM OF SPEECH, DUE PROCESS

This case concerns the application and constitutionality of three Bankruptcy Code provisions applicable to debt relief agencies: 11 U.S.C. §§ 526(a), 528(a)(4), and 528(b)(2)(B). Minnesota law firm Milavetz, Gallop & Milavetz, P.A. claims exemption from the provisions, arguing that an attorney is not a “debt relief agency.” Furthermore, it claims that 11 U.S.C. § 526(a), which prevents a “debt relief agency” from counseling a client to incur additional debt in contemplation of bankruptcy, is an unconstitutionally overbroad restriction of free speech. Finally, Milavetz argues that 11 U.S.C. §§ 528(a)(4) and 528(b)(2)(B), which require a “debt relief agency” to make certain disclosures in their advertisements, violate the First Amendment. The United States argues that the statutes apply to attorneys and that they are reasonable and specific restrictions on speech. This case’s outcome will potentially affect bankruptcy laws, disclosure laws, and the legal advice that a lawyer may provide a client. 

Oral argument: Nov. 3, 2009

Appealed from: United States Court of Appeals for the Third Circuit (July 21, 2008)

BANKRUPTCY, CHAPTER 7, SCHEDULE C, EXEMPTIONS, “IN KIND” EXEMPTION

In 2005, Nadejda Reilly filed a Chapter 7 bankruptcy petition. On the petition she listed her business property as an exemption, demonstrating her intent to retain the entire property by declaring the property’s exemption amount to be equal to her estimation of the asset’s value. The bankruptcy trustee assigned to the case, William Schwab, did not object to Reilly’s exemption but later determined the business property had a higher value than Reilly’s estimation and sought to sell the property to recoup the difference. Reilly argued that Schwab’s failure to object within the thirty-day statutory period rendered the property exempt. Schwab countered that Reilly’s exemption was limited to the specific amount claimed and did not serve to fully exempt the property from distribution. Schwab also argued that the objection deadline applied only to the type of property claimed as exempt, not to the value. The United States Court of Appeals, Third Circuit disagreed, holding that Schwab was on notice that Reilly intended to fully exempt the property and failure to object in time rendered the property exempt. The U.S. Supreme Court’s decision will determine whether a debtor in a Chapter 7 proceeding successfully claimed a full exemption in an asset by declaring that the exemption value equals the asset’s value, and whether the thirty-day objection period applies.

Consolidated with Travelers Indemnity Company et al. v. Bailey, et al. (08-295).

Oral argument: Mar. 30, 2009

Appealed from: United States Court of Appeals, 2d Circuit (Feb. 15, 2008)