The Sixth Circuit is one of only five federal appellate courts to institute a bankruptcy appellate panel under 28 U.S.C. § 158(b).  (The others are the First, Eighth, Ninth, and Tenth circuits.) As the bankruptcy appellate panel is unfamiliar to many non-bankruptcy attorneys, this post will review the Sixth Circuit’s bankruptcy appellate panel. 

In a recent appeal to the Sixth Circuit Bankruptcy Appellate Panel, Inre Collins, 2011 WL 4445451 (6th Cir. BAP Aug. 12, 2011), the trustee sought a declaratory judgment to determine the validity, extent, and priority of liens on the debtor’s real property held by four defendants.  The trustee appealed the district court’s dismissal of his complaint as to purported holders of the debtor’s first and second mortgages on the debtor’s property.

The ability of a bankruptcy court to reorder the priority of claims or interests by means of equitable subordination or recharacterization of debt as equity is generally recognized. Even so, the Bankruptcy Code itself expressly authorizes only the former of these two remedies. Although common law uniformly acknowledges the power of a court to recast a claim asserted by a creditor as an equity interest in an appropriate case, the Bankruptcy Code is silent upon the availability of the remedy in a bankruptcy case.

The U.S. Court of Appeals for the Sixth Circuit has held that as the assignee of a debtors’ mortgage loan, a bank’s security interest was superior to the Chapter 13 Trustee’s interest as a judicial lien creditor. The ruling in Rogan v. Bank One, National Association (In re Cook), 457 F.3d 561 (6th Cir. 2006) affirmed the holdings of two lower courts. In December 2000, the debtors entered into a loan transaction with NCS Mortgage Lending Company (“NCS”), which was secured by a properly recorded mortgage.

(6th Cir. B.A.P. Apr. 26, 2016)

(Sixth Circuit Apr. 7, 2016)

One of the prerequisites to confirmation of any chapter 11 plan is that at least one “impaired” class of creditors must vote in favor of the plan. This requirement reflects the basic (but not universally accepted) principle that a plan may not be imposed on a dissident body of stakeholders of which no class has given approval. However, it is sometimes an invitation to creative machinations designed to muster the requisite votes for confirmation of the plan.

(6th Cir. Mar. 28, 2016)

The Sixth Circuit affirms the order granting summary judgment to the creditor, finding a debt nondischargeable under 11 U.S.C. § 523(a)(2)(A). Summary judgment was appropriate because the debtor was collaterally estopped from defending against the fraud claim. The creditor had obtained a default judgment against the debtor, post-petition, in another court as a sanction. The court holds that the entry of the default judgment was not a violation of the automatic stay. Opinion below.

Judge: Boggs

Attorney for Debtor: Jonathan Rudman Bunn

(6th Cir. B.A.P. Mar. 28, 2016)

The Sixth Circuit B.A.P. affirms the bankruptcy court’s order dismissing the plaintiffs’ nondischargeability complaint. The plaintiffs had suffered a loss when they purchased a condominium unit and hired a builder to complete its construction. The builder accepted funds but failed to complete the work. Each of the plaintiffs’ claims under 11 U.S.C. § 523 were properly dismissed, principally because they failed to establish that the builder was the debtors’ agent. Opinion below.

Judge: Harrison

In Providence Hall Associates Limited Partnership v. Wells Fargo Bank, N.A., the Fourth Circuit denied plaintiff’s attempt to receive a second bite at the apple, finding that plaintiff’s lawsuit was appropriately dismissed by the district court on res judicata grounds.