Tag Archives: Bankruptcy opinions

New opinions — one habeas, one bankruptcy, both with appointed amicus counsel and both reversing [updated]

Vickers v. Superintendent — habeas corpus — reversal — Krause

The Third Circuit reversed a district court’s grant of habeas corpus relief, holding that trial counsel’s failure to secure an on-the-record waiver of his client’s right to a jury trial was deficient performance but that the defendant was not prejudiced given deference to state-court credibility findings. The opinion contains three other notable holdings: (1) that the state court’s ruling was not subject to 28 USC 2254(d)’s limitation on relief because it applied the wrong standard, (2) that prejudice was not presumed because the state court found that defendant had been informed of his jury-trial right, and (3) that the correct prejudice standard for cases like this is whether there was a reasonable probability that the defendant would have opted for a jury trial.

In a blistering footnote, the court catalogued the Washington County (PA) DA’s office’s “‘dereliction of duty'” during the habeas proceedings, noting that it was “deeply disturbed” and urging the office to act with “far greater diligence and professionalism.”

Joining Krause were Fisher and Melloy CA8 by designation. Arguing counsel were Jerome Moschetta for the Commonwealth and David Fine of K&L Gates as amicus counsel for the petitioner. The opinion thanked Fine and his co-counsel Nicholas Ranjan for accepting the court’s appointment pro bono and for the quality of their briefing and argument.

 

In re: Ross — bankruptcy — reversal — Vanaskie

A homeowner facing foreclosure twice filed bankruptcy petitions to stave off the sheriff’s sale of the home. After the second filing, the district court entered an injunction barring him from future bankruptcy filings without its permission. The district court did not explain its reasoning for imposing this injunction, which was broader than what the bank had requested and broader than what the same court had imposed in a related, similar case.

The Third Circuit held that the bankruptcy code does not prohibit courts from entering filing injunctions after a debtor moves for voluntary dismissal, but that the broad injunction here was an abuse of discretion, noting that abuse-of-discretion review is less deferential when the challenged ruling below was unexplained.

Joining Vanaskie were Krause and Nygaard. Arguing counsel were Charles Hartwell of Dethlefs Pykosh (the firm’s name is misspelled in the caption) for the bank and former Stapleton clerk William Burgess of Kirkland & Ellis as court-appointed amicus for the debtor. The court expressed its gratitude to amicus for “valuable assistance.”

New opinion — Third Circuit approves post-expiration grace periods in bankruptcy

In re: Klaas — bankruptcy — affirmance — Krause

Here is the opening paragraph from today’s Third Circuit opinion deciding an interesting little question of bankruptcy procedure:

The Bankruptcy Code sets certain limits on the amount of time that debtors may be required to remain in Chapter 13 proceedings and make payments on their debts. This case presents two questions of first impression among the Courts of Appeals: whether bankruptcy courts have discretion to grant a brief grace period and discharge debtors who cure an arrearage in their payment plan shortly after the expiration of the plan term, and if so, what factors are relevant for the bankruptcy court to consider when exercising that discretion. Because we conclude the Bankruptcy Code does permit a bankruptcy court to grant such a grace period and the Bankruptcy Court did not abuse its discretion in granting one here, we will affirm the rulings of the District Court, which in turn affirmed the relevant order and judgment of the Bankruptcy Court.

The court observed that post-expiration arrearages appeared to be a recurring problem, and it criticized the Chapter 13 trustee’s handling of the problem here.

Joining Krause were Fisher and Vanaskie. Arguing counsel were Aurelius Robleto of Pittsburgh for the appellant, Phillip Simon for two appellees, and Owen Katz for the appellee trustee.

New opinion — Third Circuit affirms non-dischargeability of tax liabilities

In re: Giacchi — bankruptcy — affirmance — Roth

Today the Third Circuit rejected a debtor’s argument that certain tax liabilities were dischargeable in bankruptcy. The opening paragraph of the opinion:

In this appeal, we must determine whether Internal Revenue Service Forms 1040, filed after the IRS has made an assessment of the taxpayer’s liability, constitute “returns” for purposes of determining the dischargeability in bankruptcy of tax debts under 11 U.S.C. § 523(a)(1)(B). Thomas Giacchi did not file tax returns on time for the years 2000, 2001, or 2002. Instead, he filed the forms years after they were due and after the Internal Revenue Service had assessed a liability against him. In 2010 and 2012, Giacchi filed for bankruptcy, and in 2013 he sought to discharge his tax liability for the years 2000, 2001, and 2002. The District Court affirmed the Bankruptcy Court’s order denying the discharge. We will affirm the District Court’s ruling.

Joining Roth were Fisher and Greenaway. The case was decided without oral argument.

Three big new opinions by Judge Hardiman

In re: Trustees of Conneaut Lake Park — civil — reversal — Hardiman

Pennsylvania law bars insurance companies from paying out fire insurance to a “named insured” if the owner of the property owes back taxes on it. The main purpose of this law, the Third Circuit noted today, is to keep property owners from profiting from arson.

This appeal arose from a fire at a beach club owned by one corporation and operated by another. The operator insured the club against fire damage, there was a fire, and the operator submitted a claim. It emerged that the owner owed taxes on the property; the non-payment happened long before the operator ever entered the picture. But the upshot was that the vast majority of the operator’s insurance payout — hundreds of thousands of dollars — went to various government bodies to pay off the owner’s back taxes, not to cover the fire losses of the operator who paid the policy. Not surprisingly, the operator sued. (The suit was transferred to bankruptcy court when the owner filed for bankruptcy.)

The district court ruled that the operator was entitled to the insurance payout because the PA statute was ambiguous and the legislative intent was to apply it only to insureds who were themselves the tax-delinquent property owners. Today, the Third Circuit reversed, holding that the plain language of the statute required it to be applied to any named insured and rejecting the operator’s argument that the outcome violated the takings clause. The court left the door open for the operator to try to recover money from the owner in the bankruptcy proceedings.

Now, I’m no insurance expert, but I suspect this holding could create a giant mess for Pennsylvania. Does the Third Circuit’s reading of PA law mean that now every would-be tenant in the state needs to research and then monitor their property owner’s property tax payments or face catastrophic loss from denial of fire-insurance proceeds they bought and paid for in perfect good faith? Is that realistic? How many PA tenants don’t even know the identity of their property owner? Do PA tenants need to insist that future property leases require the owners to be and stay current on property taxes as a lease condition? What about current leases? Unless I’m mistaken, the consequences of today’s paean to plain meaning could be broad and profoundly disruptive.

The opinion does not address these concerns, but it defends its holding with a policy argument of its own, warning that the insurer’s “interpretation could incentivize an end run around Section 638 by permitting unscrupulous owners to use the corporate form to collect insurance proceeds without satisfying their delinquent taxes.” Fair point. But, in my view, the problem the court avoids is nothing compared to the problems it creates. If the operator seeks en banc rehearing, I think it deserves a serious look.

Joining Hardiman were Fisher and Greenaway. Arguing counsel were John Mizner for the operator-insured and Arthur Martinucci of Quinn Buseck for the appellants.

 

Cazun v. AG — immigration — affirmance — Rendell

The Third Circuit today affirmed the denial of an asylum applicant’s appeal, upholding the government’s rule that aliens subject to reinstated removal orders are ineligible to apply for asylum. Although the panel was unanimous on the outcome, it divided along ideological lines on the rationale. The majority found the statute ambiguous and applied Chevron deference to the agency’s interpretation, but the concurrence in the judgment found the statute unambiguous and thus that Chevron was inapplicable.

Joining Rendell was McKee; Hardiman concurred in the judgment. Arguing counsel were Keren Zwick of the National Immigrant Justice Center for the asylum applicant and Carmel Morgan for the government.

 

US ex rel. Gerasimos Petratos v. Genentech — civil / qui tam — affirmance — Hardiman

The Third Circuit issued a significant False Claims Act ruling yesterday, affirming on alternative grounds the district court’s dismissal of a pharmaceutical qui tam action.

The appeal arose from a drug company’s marketing of its “multi-billion dollar cancer drug” Avastin; the company’s head healthcare data analyst alleged that the company concealed key information about the drug’s side effects, which resulted in doctors prescribing the drug more often and the government paying out more Medicare claims. The analyst then sued under the False Claims Act.

The district court dismissed the suit on falsity grounds based on its view that the analyst had to prove that how the drug was used had been rejected by the FDA, not by individual doctors. The Third Circuit disagreed, holding that the district court had conflated two different statutory standards. But the Third Circuit affirmed on alternative grounds, holding that the suit failed on materiality grounds under the recent USSC Escobar decision, essentially because the government continued paying out Medicare claims even after the analyst revealed his information. The court concluded, “Petratos’s allegations may be true and his concerns may be well founded—but a False Claims Act suit is not the appropriate way to address them.”

Joining Hardiman were Scirica and Rosenthal SDTX by designation. Arguing counsel were Matthew McCrary of San Francisco for the appellants, Mark Mosier of Covington & Burling for the company, and Weili Shaw for the government.

UPDATE: this post on JDSupra calls Genentech a “gift to qui tam defendants” because it relied on the government’s non-intervention as evidence that the alleged wrong was immaterial. The post asserts that the government chooses to intervene in less than 25 percent of cases, and “No authority has ever suggested … before” that non-intervention suggests immateriality.

New opinions

I’m out of the office this week, and next week is the Third Circuit conference, so my posting will be a bit irregular for a while. To wit, here are yesterday’s two published opinions.

In re: Lansaw — bankruptcy — affirmance — Melloy

The first paragraph:

The filing of a bankruptcy petition operates as an automatic stay of debt collection activities outside of bankruptcy proceedings. 11 U.S.C. § 362(a). If “an individual [is] injured by any willful violation of [the] stay,” that individual “shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.” Id. § 362(k)(1). In the present case, Frank Zokaites committed several willful violations of the automatic stay arising from Garth and Deborah Lansaw’s bankruptcy petition. Because of these violations, the Bankruptcy Court awarded the Lansaws emotional-distress damages as well as punitive damages under § 362(k)(1). The District Court affirmed the awards, and Zokaites now appeals. We conclude that § 362(k)(1) authorizes the award of emotional-distress damages and that the Lansaws presented sufficient evidence to support such an award. We also conclude that the Lansaws were properly awarded punitive damages. Accordingly, we will affirm.

Joining Melloy CA8 by designation were Fisher and Krause.

 

Andrews v. Scuilli — civil rights — reversal — Nygaard

The first paragraph:

David Andrews was found not guilty of the crimes for which he was charged. He brought suit against Officer Robert Sciulli for false arrest and malicious prosecution.1 On appeal he contends that the District Court erred by granting summary judgment, on the basis of qualified immunity, in favor of Sciulli. We agree. We will reverse the District Court’s judgment and remand the cause for trial.

Joining Nygaard were Vanaskie and Krause.

New opinion — bankruptcy blocks construction liens

In re: Linear Electric — bankruptcy — affirmance — Roth

The Third Circuit today held that a supplier may not file a construction lien under New Jersey law when the contractor has filed for bankruptcy, because doing so would violate the Bankruptcy Code’s automatic-stay provision. Construction liens allow a supplier to collect a debt owed to the contractor by a property owner in order to recoup what the contractor owes to the supplier.

Joining Roth were Shwartz and Cowen. The case was decided without oral argument.

New opinions — employment and bankruptcy

FOP Lodge 1 v. City of Camden — employment discrimination — reversal in part — McKee

Camden, NJ, adopted a policing policy they called “directed patrols,” which required officers to make brief passes through specific areas. During these passes officers were to interact with community members and try to get their names and addresses. The local police union filed suit, arguing the policy violated NJ state law barring policing quotas, that officers suffered retaliation for not complying with and protesting against it, and other claims. The district court dismissed on all counts. Today, the Third Circuit affirmed on all grounds except for claims brought under NJ’s employee-whistleblower statute, on which it reversed and remanded.

Joining McKee were Ambro and Scirica. Arguing counsel were Gregg Zeff for the police union and John Eastlack Jr. of Weir & Partners for the city.

 

In re: Energy Future Holdings Corp. — bankruptcy — reversal — Ambro

The introduction to this opinion reads:

We address what happens when one provision of an indenture for money loaned provides that the debt is accelerated if the debtor files for bankruptcy and while in bankruptcy it opts to redeem that debt when another indenture provision provides for a redemption premium. Does the premium, meant to give the lenders the interest yield they expect, fall away because the full principal amount is now due and the noteholders are barred from rescinding the acceleration of debt? We hold no.

A confession: I haven’t the foggiest what that means.

Joining Ambro were Smith and Fisher. Arguing counsel, bankruptcy specialists all, were Philip Anker of Wilmer Cutler for one appellant, Gregory Horowitz (a Stapleton clerk) of Kramer Levin for other appellants, and Andrew McGaan of Kirkland & Ellis for the appellees.

New opinion — a bankruptcy affirmance

In re: Net Pay Solutions — bankruptcy — affirmance — Hardiman

The Third Circuit today upheld a district court’s rulings in a bankruptcy case denying the debtor’s motions to avoid five preferential transfers. The debtor made five tax payments for its clients the day before it went out of business, and it sought to recover the funds in bankruptcy, but the court held that four were minimal as to each creditor and the fifth did not involve the debtor’s property because it was only held in trust.

Joining Hardiman was Smith; Sloviter had been on the panel before she assumed inactive status. Arguing counsel were Markian Slobodian as debtor’s trustee and Ivan Dale for the government.

New opinions — a rare criminal reversal and a bankruptcy reversal

US v. Lopez — criminal — reversal — Vanaskie

Criminal defendants don’t win too many Third Circuit appeals, especially by published opinion and most especially under plain-error review. But it happened today. The court vacated Victor Lopez’s conviction for being a felon in possession of a firearm, holding that the prosecution violated Doyle v. Ohio by impeaching Lopez with his post-Miranda silence and ordering a new trial despite trial counsel’s failure to object to the error. The court ruled that the error affected the outcome because the error impacted Lopez’s credibility and the case hinged on credibility.

In a footnote, the court lamented that the Doyle error was “particularly egregious” because such errors “unfortunately resurface[] too often, threatening to undermine the integrity of proceedings in our courts.” After reiterating that it remained troubled by the recurring violations, the court “commend[ed] Assistant United States Attorney Steven G. Sanders for his forthright acknowledgment of the Doyle error during oral argument,” noting, “He was a model of professionalism in apologizing for the error at trial and vowing to take steps to avoid having this type of error recur.” Audio of the oral argument is here.

For criminal defense counsel, three prejudice points bear noting:

  1. The whole record matters. In finding that the error affected the outcome, the court didn’t just look at the testimony, it also looked at how the prosecutor argued that testimony at closing and at the questions jurors asked during deliberations.
  2. The fact that the credibility contest was between a defendant and police officers did not prevent the court from finding a reasonable probability that the error affected the outcome. Nor did the fact that the dispute was over whether the cops framed the defendant. In other words, the court recognized a reasonable probability that, without the improper impeachment, the jury would have believed that the defendant was telling the truth that the cops framed him, and that two police officers were lying when they said they found the gun on him.
  3. The court rejected the government’s argument that the Doyle error did not make a difference because the jury also had valid reasons to disbelieve the defendant (he had prior felony convictions and gave a false name when arrested).

Joining Vanaskie were McKee and Jordan. Arguing counsel were Steven Sanders for the government and my former colleague Maria Pulzetti of the EDPA Federal Community Defender for Lopez.

 

In re: World Imports — bankruptcy — reversal — Jordan

The Third Circuit today reversed a district court ruling in a bankruptcy case, holding that contractual modifications to a creditor’s maritime liens were enforceable on goods in the creditor’s possession.

Joining Jordan were McKee and Vanaskie. Arguing counsel were Brendan Collins for the creditor and David Braverman for the debtor.

New opinion — Conflict panel affirms in bankruptcy case

In re: Wettach — bankruptcy — affirmance — Sentelle

A Third Circuit panel of non-Third Circuit judges today affirmed a district court’s rulings in a bankruptcy case. The Third Circuit’s judges apparently all recused due to a peripheral financial interest in the case of one of them.  I previously posted about the case here and here. The appellant’s brief raised 10 issues, several related to constructive fraudulent transfer, but the court rejected them all.

Suppose, purely hypothetically, that the losing party believed that the panel opinion here contradicted prior CA3 precedent. When a conflict panel decides an appeal, en banc review is impossible, right? That’s an odd situation, but not as odd as constituting a conflict en banc panel I suppose.

Joining Sentellle (DC Cir) were Benton (CA8) and Gilman (CA6). Arguing counsel were James Cooney of Robert Lampl & Associates for the appellants and Neil Levin for the trustee.

New opinion — bankruptcy court can void an expired union contract

In re: Trump Entertainment Resorts — bankruptcy — affirmance — Roth

The Third Circuit today upheld a bankruptcy-court ruling voiding the continuing terms of a union’s expired collective-bargaining agreement in the Trump Taj Mahal’s Chapter 11 reorganization. The court summarized its reasoning thus:

Under the policies of bankruptcy law, it is preferable to preserve jobs through a rejection of a CBA, as opposed to losing the positions permanently by requiring the debtor to comply with the continuing obligations set out by the CBA. Moreover, it is essential that the Bankruptcy Court be afforded the opportunity to evaluate those conditions that can detrimentally affect the life of a debtor, whether such encumbrances attach by operation of contract or a complex statutory framework.

The appeal had received recent attention, on this blog and elsewhere, after counsel for the casino filed a letter on January 4 asking the court to hurry up and issue an opinion. How Appealing has links to early news coverage of today’s opinion.

Joining Roth were Shwartz and Scirica. Arguing counsel were Kathy Krieger for the union and Roy Englert for the casino.