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Default judgments are disfavored in bankruptcy litigation, particularly when they prevent a party from presenting defenses to serious financial allegations. The strong policy preference for adjudicating cases on the merits rather than on procedural missteps was demonstrated in a recent California ruling in which a creditor successfully challenged a bankruptcy court’s refusal to set aside default in an adversary proceeding. If you are navigating a bankruptcy adversary proceeding, it is crucial to consult a knowledgeable California bankruptcy attorney to protect your rights.

Case Setting

It is reported that the debtor filed for Chapter 11 bankruptcy in August 2021. In 2022, a creditor affiliate asserted a claim against the debtor for unpaid contract obligations. The debtor then reportedly initiated adversary proceedings against that creditor and others, alleging claims such as unjust enrichment and preferential transfers. The creditor and its affiliates retained the same attorney, who allegedly failed to comply with discovery rules, missed filing deadlines, and failed to appear at hearings. Despite these issues, the same attorney was later retained to represent another related entity in a new complaint filed by the debtor in August 2023.

It is alleged that when the debtor initiated a second adversary proceeding against this related entity, the same attorney failed to file a timely answer, resulting in the entry of default in October 2023. Although the attorney filed a motion to set aside the default, it was rejected after the bankruptcy court found his conduct to be part of a broader pattern of gamesmanship. Allegedly, the attorney later filed additional motions, offering explanations including misfiling, travel-related delays, and clerical errors. Despite these submissions and the retention of new counsel, the bankruptcy court repeatedly denied all motions to set aside default. Continue reading

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Financial disputes between business partners can quickly escalate, especially when one party seeks to hold the other personally liable for alleged misconduct. It is not uncommon for one party in a business lawsuit to attempt to avoid liability by filing for bankruptcy, but whether discharge is granted depends on numerous factors, as discussed in a recent California bankruptcy case. If you are involved in a bankruptcy case with complex financial disputes, you should confer with an experienced California bankruptcy attorney who can help protect your rights.

Facts of the Case and Procedural History

It is reported that the debtor and the creditor were former law partners who also had a personal relationship. They co-founded a law firm but never formalized their business agreement in writing. Allegedly, after the firm dissolved, disputes arose over financial matters, particularly a settlement receivable. The creditor claimed the debtor improperly retained the funds instead of paying firm debts.

The creditor reportedly sued the debtor in state court for fraud, conversion, and conspiracy related to the disputed funds. However, the state court dismissed the claims. Allegedly, after the state court case concluded, the debtor filed for Chapter 7 bankruptcy. The creditor then initiated an adversary proceeding, seeking to have the debt deemed nondischargeable under 11 U.S.C. § 523(a)(2) (fraud), § 523(a)(4) (fiduciary defalcation), and § 523(a)(6) (willful and malicious injury). After a trial, the bankruptcy court ruled in favor of the debtor, finding that the creditor failed to meet the burden of proof. The creditor then filed an appeal. Continue reading

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In bankruptcy proceedings, the automatic stay and discharge injunction provides critical protections for debtors by preventing creditors from collecting on debts outside the bankruptcy process. These protections have limitations, however, particularly when a debtor’s assets have been exempted from the bankruptcy estate, as demonstrated in a recent California case. If you have debts you cannot pay, you may be eligible for bankruptcy relief, and you should talk to a California bankruptcy attorney as soon as possible.

History of the Case

It is reported that the debtors, a married couple, filed for Chapter 7 bankruptcy in 2010 in the United States Bankruptcy Court for the Central District of California. At the time of the filing, the debtor held an interest in a Delaware limited liability company. The debtors disclosed this interest in their bankruptcy schedules and claimed an exemption for its value under California law. The bankruptcy trustee did not object to the exemption, effectively removing the asset from the bankruptcy estate. The bankruptcy court later granted the debtors a discharge, and the case was closed.

It is alleged that several years after the bankruptcy case was closed, the debtor became involved in litigation in the Delaware Court of Chancery concerning his interest in the LLC. The litigation involved claims against a co-owner, including allegations of breach of fiduciary duty. The LLC intervened in the case and filed counterclaims against the debtor, alleging conversion and tortious interference with contractual rights. The Delaware court ultimately ruled that, under Delaware law, the debtor’s membership interest in the LLC had been automatically terminated upon the bankruptcy filing, leaving him with only an economic interest in the company. The Delaware Supreme Court later affirmed this ruling. Continue reading

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In civil litigation involving defendants who file for bankruptcy, automatic stays under the Bankruptcy Code can complicate the proceedings. A recent California decision illustrates how courts handle the interplay between bankruptcy stays and ongoing civil cases. If you are navigating a case involving bankruptcy, it is crucial to consult a knowledgeable California bankruptcy attorney to assess your legal options.

History of the Case

It is reported that the plaintiffs, acting as successors in interest to the decedent, filed a wrongful death action in federal court against the defendant and other parties. Allegedly, the claims arose from the decedent’s death while in custody, which the plaintiffs attributed to negligence and deliberate indifference by the defendants. The first amended complaint sought damages for violations of constitutional rights, wrongful death, and medical malpractice.

Reportedly, in November 2024, the defendant filed for Chapter 11 bankruptcy in the United States Bankruptcy Court for the Southern District of Texas. Shortly thereafter, the defendant filed a suggestion of bankruptcy and notice of stay, prompting the federal court in California to vacate a scheduling conference and consider the applicability of the automatic stay under 11 U.S.C. § 362(a). The court initially directed the plaintiffs to file a status report within ten days of any modifications to the bankruptcy stay. Continue reading

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In bankruptcy cases, courts must carefully evaluate whether debts are dischargeable under the Bankruptcy Code. This can be challenging, particularly in cases involving alleged misconduct, as demonstrated by a recent California bankruptcy ruling. If you are struggling to pay your debts, bankruptcy may be an option for you, and it is vital to consult a California bankruptcy attorney who can help you protect your financial interests.

History of the Case

It is alleged that the debtor was involved in a partnership with her close friend, the defendant, to purchase and flip properties in Florida. The defendant provided substantial funding under two joint venture agreements, expecting the debtor to oversee renovations and sales. Unbeknownst to the defendant, the debtor also entered into similar agreements with a third party for the same properties, creating overlapping obligations.

Allegedly, despite receiving significant funds, the debtor failed to perform as promised, misdirecting proceeds from property sales and retaining funds for unauthorized purposes. After the defendant discovered the debtor’s actions, she filed a state court lawsuit in Washington, alleging breach of contract and partnership dissolution. The court entered a judgment against the debtor, holding her liable for damages and awarding attorneys’ fees. Continue reading

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In bankruptcy cases, debtors are required to follow strict procedural guidelines to avoid dismissal of their appeals. Recently, a California district court reinforced this requirement by dismissing a pro se debtor’s bankruptcy appeal due to procedural lapses, serving as a reminder of the importance of adhering to court-imposed deadlines in bankruptcy matters. If you are facing bankruptcy or an appeal, it is crucial to consult a California bankruptcy attorney who can help ensure compliance with legal requirements.

Factual and Procedural Background

It is reported that the debtor filed a notice of appeal in a bankruptcy case originating in the Eastern District of California. Allegedly, the debtor, proceeding without an attorney, was required to designate the appellate record and submit a statement of issues as outlined by Federal Rule of Bankruptcy Procedure 8006. The debtor, however, reportedly failed to meet these obligations, which led to delays in the proceedings.

After her initial filing, the debtor sought the appointment of counsel and requested an extension of time to file her appellate brief. The Bankruptcy Appellate Panel (BAP) denied the appointment of counsel, reasoning that Nicole had not demonstrated exceptional circumstances or a strong likelihood of success on appeal, both of which are required for appointing counsel in civil matters. The BAP then transferred her appeal to the District Court for further handling. Continue reading

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While people have the right to be represented by an attorney in criminal cases, they rarely enjoy similar rights in civil cases. For example, in bankruptcy, debtors can seek the appointment of counsel, but their requests will only be granted in exceptional circumstances, as discussed in a recent California ruling. If you are overwhelmed with debt, you should meet with a California bankruptcy attorney to evaluate whether bankruptcy may be an option for you.

History of the Case

It is reported that the debtor filed for Chapter 13 bankruptcy. The court then granted a creditor relief from the automatic stay, which had been initiated when the debtor filed for bankruptcy. The debtor claimed that the creditor had wrongfully acquired the property at issue through fraud. The bankruptcy court also dismissed the debtor’s Chapter 13 case after the debtor failed to amend her debt adjustment plan as directed by the court. The court had ordered the debtor to omit a particular creditor from the plan, but the debtor failed to do so by the June 28, 2024, deadline, resulting in a dismissal of the case due to prejudicial delay. The debtor appealed both orders and moved for appointment of counsel in both matters.

Appointment of Counsel in Bankruptcy Cases

On appeal, the court reviewed both of the debtor’s motions for the appointment of counsel. It applied the standard for appointing counsel in civil cases, which requires a showing of “exceptional circumstances” under 28 U.S.C. § 1915(e)(1). This involves evaluating the likelihood of success on the merits and the debtor’s ability to articulate claims in light of the legal issues’ complexity. Continue reading

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One of the benefits of bankruptcy is that it prohibits creditors from pursuing claims while the bankruptcy is pending. The automatic stay does not bar all non-bankruptcy-related activities, though, as discussed in a recent California case. If you are overwhelmed with debt, you should meet with a California bankruptcy lawyer to discuss whether bankruptcy may be an option for you.

Facts and Procedure of the Case

Reportedly, in January 2022, the Superior Court appointed a receiver, managed by its president, to oversee a property located in Perris, California, which was owned by the debtor. By March 2023, the court approved the sale of this property. Shortly after, the debtor filed for Chapter 7 bankruptcy in early March 2023, initiating a bankruptcy case. In the following weeks, the receiver requested court approval to retain legal counsel for the bankruptcy case, which the court granted.

It is alleged that a motion to lift the automatic stay on the property was filed in April 2023 and granted shortly thereafter. In June 2023, the debtor filed a motion for sanctions, alleging that the receiver and an in-house attorney violated the automatic stay by filing various documents in the receivership action before the stay was lifted. The bankruptcy court heard and denied this motion in July 2023. The debtor appealed the denial, and the appeal was transferred to the appellate court in August 2023. Continue reading

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People who carry substantial debts often have difficulty making payments. Fortunately, many people are eligible to seek debt relief via bankruptcy. Once a party files a bankruptcy action, creditors are automatically stayed from pursuing claims against them. In some instances, though, the courts will find cause to lift an automatic stay. If a court makes such a decision, the debtor can file an appeal, but the federal courts can only hear appeals in cases in which they have jurisdiction, as discussed in a recent California opinion issued in a bankruptcy action. If you have significant debt that you cannot pay, you may be eligible for bankruptcy relief, and it is prudent to speak with a California bankruptcy lawyer.

Facts of the Case

It is alleged that the debtor filed for Chapter 13 bankruptcy, which resulted in an automatic stay preventing creditors from pursuing legal actions against him. The creditor, who owned the property rented by the debtor, filed a motion in bankruptcy court seeking relief from the automatic stay to proceed with an unlawful detainer action in state court. The bankruptcy court granted the creditor’s motion, allowing the state court eviction process to continue.
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Bankruptcy is an important tool that allows people to regain control of their finances and alleviate overwhelming debt obligations that they are unable to pay. Not all claims are dischargeable in bankruptcy, however. For example, the United States Supreme Court recently held that judgments against non-debtor cannot be discharged. If you are mired in debt, you may be able to seek relief by filing for bankruptcy, and it is smart to confer with a California bankruptcy lawyer.

Factual and Procedural History

It is alleged that the owner-family, known for their ownership of the debtor drug company, significantly influenced the company’s strategy and the development of OxyContin, a drug initially touted as having a low risk of addiction. However, mounting evidence of widespread abuse led to extensive legal battles involving individuals, state governments, and federal agencies suing the debtor. In 2004, the debtor board entered into a sweeping Indemnity Agreement to shield its directors and officers from financial liabilities arising from these lawsuits, providing broad protection even beyond their tenure, albeit with exceptions for bad faith actions. Beginning in 2007, the owner-family preemptively shielded assets in anticipation of personal litigation. By 2019, the debtors faced severe financial strain, prompting the debtor family to resign from the company’s board.

Reportedly, simultaneously, the Department of Justice (DOJ) filed criminal and civil charges against the debtor, resulting in a 2020 plea agreement that prioritized DOJ claims in the debtor’s bankruptcy proceedings. The agreement included a $2 billion forfeiture judgment, with $1.775 billion potentially released if certain conditions were met. While the debtors declared bankruptcy in 2019, the owner-family did not, temporarily halting litigation against both parties. The debtor’s estate was valued at approximately $1.8 billion, yet claims against the debtor and the owner-family exceeded $40 trillion. Continue reading

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