Justia Banking Opinion Summaries

This appeal arose out of a bankruptcy adversary proceeding, and centered on the ownership of a federal tax refund. The tax refund was issued by the Internal Revenue Service (IRS) to United Western Bancorp, Inc. (UWBI), a thrift holding company that had, under the terms of a written “Tax Allocation Agreement,” filed consolidated returns on behalf of itself and several subsidiary corporations. The tax refund was the result, however, of net operating losses incurred by United Western Bank (the Bank), one of UWBI’s subsidiaries. Simon Rodriguez, in his capacity as the Chapter 7 Trustee for the bankruptcy estate of UWBI, initiated this adversary proceeding against the Federal Deposit Insurance Corporation (FDIC), as receiver for the Bank, alleging that the tax refund was owned by UWBI and was thus part of the bankruptcy estate. The bankruptcy court agreed and entered summary judgment in favor of the Trustee. The FDIC appealed to the district court, which reversed the decision of the bankruptcy court. The Trustee appealed the district court’s decision. The Tenth Circuit agreed with the district court that the tax refund belonged to the FDIC, as receiver for the Bank. Consequently, the Court affirmed the district court and remanded to the bankruptcy court for further proceedings. View "Rodriguez v. FDIC" on Justia Law

The M/V Deep Blue purchased fuel from a supplier, the supplier purchased the fuel from an affiliate, and the affiliate subcontracted with Radcliff. Radcliff subsequently asserted a maritime lien on the Deep Blue in a bid to recover directly from the ship, giving rise to this litigation. The Fifth Circuit affirmed the district court's determination that Radcliff did not have a lien on the Deep Blue. Instead, a lien had arisen in favor of the global fuel supplier, and was duly assigned to ING Bank, an intervenor in the suit. View "Barcliff, LLC v. M/V Deep Blue" on Justia Law

In 2008, Purdy borrowed from Citizens First, using his dairy cattle as collateral. Purdy refinanced in 2009, executing an “Agricultural Security Agreement" that granted Citizens a purchase money security interest in “all . . . Equipment, Farm Products, [and] Livestock (including all increase and supplies) . . . currently owned [or] hereafter acquired.” Citizens perfected this security interest by filing with the Kentucky Secretary of State. Purdy and Citizens executed two similar security agreements in 2010 and 2012, which were perfected. After the 2009 refinancing, Purdy increased the size of his herd, entering into “Dairy Cow Lease” agreements with Sunshine. The parties also executed security agreements and Sunshine filed financing statements. In 2012, milk production became less profitable. Purdy sold off cattle, including many bearing Sunshine’s brand, and filed a voluntary Chapter 12 bankruptcy petition. Both Citizens and Sunshine sought relief from the stay preventing the removal of the livestock. In 2014, the Sixth Circuit held that Citizens failed to demonstrate that the "Leases” were actually security agreements in disguise. On remand, the bankruptcy court determined that all cattle sold at a 2014 auction were subject to Citizens’ security interest. The district court affirmed, awarding Citzens $402,354.54. The Sixth Circuit affirmed; the bankruptcy court did not contravene its mandate by holding a hearing on the question of ownership. View "Sunshine Heifers, LLC v. Citizens First Bank" on Justia Law

Marty and Cindy Frantz executed a series of commercial guaranties so that Idaho Independent Bank (“Bank”) would lend money to Eagle Ridge on Twin Lakes, Inc. (“Eagle Ridge”), a closely held corporation in which the Frantzes held a majority interest. Bank filed this action against the Frantzes to recover on their commercial guaranties. The Frantzes filed an answer in which they admitted the material allegations in the complaint, but asserted affirmative defenses and counterclaims against Bank. They later amended their answer to include a third-party claim against Eagle Ridge. The Frantzes initially filed a petition under chapter 11 of the bankruptcy code the day before Mr. Frantz’s deposition was to occur; the Frantzes’ bankruptcy was converted to a liquidation case under chapter 7, and a trustee was duly appointed for the estate. Less than two weeks before the trial on Bank’s adversary proceeding in the bankruptcy case, the Frantzes filed a voluntary waiver of discharge, and the bankruptcy court approved the waiver. As a result, the bankruptcy court was deprived of jurisdiction to hear the adversary proceeding, and it dismissed it without prejudice. However, the court did award sanctions in the sum of $49,477.46 against the Frantzes and their attorney, jointly and severally, for their conduct during the course of the adversary proceeding. The court found that their conduct constituted misuse of litigation tactics to cause economic injury to an opponent and its counsel in the form of increased litigation costs. Bank filed a notice in this case that because of the waiver of discharge, the automatic stay from the bankruptcy court was terminated. Bank then moved for summary judgment. The district court entered a judgment against the Frantzes “in the amount of $9,193,546.50, plus pre-judgment interest at the rate of $2,475.02 per diem from September 16, 2015, until the date this Judgment is entered.” Because the Frantzes' third-party claim against Eagle Ridge that was yet unresolved, the court certified the judgment as final pursuant to Rule 54(b) of the Idaho Rules of Civil Procedure. The Frantzes filed a motion for reconsideration, and the court denied that motion. They then timely appealed, arguing the district court erred in denying them affirmative defenses based upon an alleged breach of contract. Finding no reversible error, the Idaho Supreme Court affirmed. View "Idaho Independent Bank v. Frantz" on Justia Law

Reid founded Capitol, which owned commmunity banks, and served as its chairman and CEO. His daughter and her husband served as president and general counsel. Capitol accepted Federal Reserve oversight in 2009. In 2012, Capitol sought Chapter 11 bankruptcy reorganization and became a “debtor in possession.” In 2013, Capitol decided to liquidate and submitted proposals that released its executives from liability. The creditors’ committee objected and unsuccessfully sought derivative standing to sue the Reids for breach of their fiduciary duties. The Reids and the creditors continued negotiation. In 2014, they agreed to a liquidation plan that required Capitol to assign its legal claims to a Liquidating Trust; the Reids would have no liability for any conduct after the bankruptcy filing and their pre-petition liability was limited to insurance recovery. Capitol had a management liability insurance policy, purchased about a year before it filed the bankruptcy petition. The liquidation plan required the Reids to sue the insurer if it denied coverage. The policy excluded from coverage “any claim made against an Insured . . . by, on behalf of, or in the name or right of, the Company or any Insured,” except for derivative suits by independent shareholders and employment claims (insured-versus-insured exclusion). The Liquidation Trustee sued the Reids for $18.8 million and notified the insurer. The Sixth Circuit affirmed a declaratory judgment that the insurer had no obligation with respect to the lawsuit, which fell within the insured-versus-insured exclusion. View "Indian Harbor Insurance Co. v. Zucker" on Justia Law

A group of hotel-related businesses, as well as investors and guarantors, filed suit alleging claims of fraud against the Royal Bank and two of its subsidiaries. The district court dismissed the claims because plaintiffs had failed to list their cause of action in a schedule of assets in their now-concluded bankruptcy proceeding, they lacked standing to bring the claim, and were barred by judicial estoppel. The claims of the investor and guarantors were dismissed as untimely and barred by the law of the case. The Second Circuit affirmed on the grounds of judicial estoppel and timeliness. The court held that, under Fifth Circuit law, the kind of LIBOR-fraud claim that BPP wanted to assert was "a known cause of action" at the time of confirmation, so that BPP's failure to list it in the schedule of assets was equivalent to a representation that none existed; the bankruptcy court "adopted" BPP's position; and BPP's assertion of the claims now would allow it to enjoy an unfair advantage at the expense of its former creditors. Furthermore, plaintiffs have not shown good cause for an untimely amendment, and the district court properly denied leave to amend. View "BPP Illinois v. Royal Bank of Scotland Group PLC" on Justia Law

Debtor-landlord did not retain sufficient rights in rents assigned to lender for those rents to be included in landlord's bankruptcy estate. Town Center owns a 53-unit Shelby Township residential complex; its construction was financed by a $5.3 million loan owned by ECP. The mortgage included an assignment of rents to the creditor in the event of default. Rents from the complex are Town Center’s only income. Town Center defaulted. ECP sent notice to tenants in compliance with the agreement and with Mich. Comp. Laws 554.231, which allows creditors to collect rents directly from tenants of certain mortgaged properties. ECP recorded the notice documents as required by the statute. ECP filed a foreclosure complaint. A week later, Town Center filed for Chapter 11 bankruptcy relief, then owing ECP $5,329,329 plus fees and costs. The parties reached an agreement to allow Town Center to collect rents, with $15,000 per month to pay down the debt to ECP and the remainder for authorized expenses. Town Center’s bankruptcy petition resulted in an automatic stay on the state-court case, 11 U.S.C. 362(a). ECP unsuccessfully moved to prohibit Town Center from using rents collected after the petition was filed. The district vacated. The Sixth Circuit reversed; Town Center did not retain sufficient rights in the assigned rents under Michigan law for those rents to be included in the bankruptcy estate. View "In re: Town Center Flats, LLC" on Justia Law

The district court granted a request for entry of a charging order against a personal guarantor and judgment debtor’s transferable interest in an LLC. The judgment debtor and intervenor filed a motion to quash alleging that multiple levies and garnishments were improper. The district court granted the motion to quash. The Supreme Court affirmed in part and reversed in part, holding (1) the entry of the charging order was proper; but (2) the district court erred in granting the motion to quash because it is proper to have multiple levies and garnishments at the same time so long as they are under a single execution. Remanded. View "DuTrac Community Credit Union v. Hefel" on Justia Law

Watson, the chairman of Cyberco, created Teleservices as a “paper company” to run a Ponzi scheme. Teleservices had no separate officers, directors, or employees. Watson borrowed money and instructed lenders to send the money to Teleservices to pay for computer equipment. Watson then moved the money from Teleservices account to Cyberco’s account at Huntington. He used that money to pay salaries and earlier debts. By 2004, Cyberco owed Huntington $16 million. In September 2003, Cyberco tried to deposit a $2.3 million Teleservices check; the check bounced. Huntington employees became suspicious. In January 2004, Huntington asked Cyberco to find a new bank, noting “‘red flags.” As Huntington investigated, Cyberco paid its debt to Huntington. Later, the FBI raided Cyberco’s offices. Watson committed suicide. Cyberco’s creditors commenced an involuntary Chapter 7 proceeding; an appointed receiver filed for Teleservices’s bankruptcy. Teleservices’s bankruptcy trustee sought to recover from Huntington all direct and indirect loan repayments and excess deposits. The bankruptcy court concluded that the trustee could recover $72 million; that Huntington had received transfers in good faith until April 2004; but that Huntington gained inquiry notice of Cyberco’s fraud on September 2003. The district court affirmed. The Sixth Circuit reversed, in part. Cyberco, free to withdraw money from its account, retained “dominion and control,” despite Huntington’s security interest. Huntington gained dominion and control only over money that it received in satisfaction of Cyberco’s debt to it; Huntington was a transferee of direct and indirect loan repayments, but not of the excess deposits. Huntington failed to prove that it received transfers from Teleservices in good faith after April, but precedent does not require recoverability of earlier transfers, just because Huntington had earlier inquiry notice. View "Meoli v. Huntington National Bank" on Justia Law

BMS provides administrative services to bankruptcy trustees. It uses Rabobank as the depositary for banking services that BMS provides through its software. Crane, the trustee in the Integrated bankruptcy, hired BMS; the contract required Crane to hire Rabobank for banking services in the proceeding. In a separate contract, Crane authorized Rabobank to withdraw its monthly fee. The plaintiff, a law firm, was a creditor of Integrated and filed a bankruptcy claim, ultimately receiving a distribution of $12,472.55. It would have received $12,666.90, but for its part of Rabobank’s fee, and more had Rabobank paid interest on the estate’s deposits. Plaintiff sued under the Bank Holding Company Act, 12 U.S.C. 1972(1)(E), which states that a bank shall not "extend credit, lease or sell property of any kind, or furnish any service, or fix or vary the consideration for any of the foregoing, on the condition … that the customer shall not obtain some other credit, property, or service from a competitor of such bank … other than a condition … to assure the soundness of the credit.” The Seventh Circuit affirmed dismissal. Had Rabobank conditioned its provision of services on the trustee never hiring any other bank in any bankruptcy proceeding, it would constitute exclusive dealing. No one forced Crane to deal with BMS and Rabobank and there was no argument that the fee was exorbitant, or would have been lower with a different bank. View "McGarry & McGarry, LLC v. Rabobank, N.A." on Justia Law