Justia Government & Administrative Law Opinion Summaries

Parts of the Puerto Rico Public Corporation Debt Enforcement and Recovery Act. mirrored Chapters 9 and 11 of the Federal Bankruptcy Code and enabled Puerto Rico’s public utility corporations to restructure their debt. The First Circuit affirmed an injunction, concluding that the Act is preempted by 11 U.S.C. 903(1). The Supreme Court affirmed, analyzing three federal municipal bankruptcy provisions. The “gateway” provision, section 109(c), requires a Chapter 9 debtor to be an insolvent municipality that is “specifically authorized” by a state “to be a debtor.” The pre-emption provision, 903(1), expressly bars states from enacting municipal bankruptcy laws. The definition of “State,” 101(52), “includes . . . Puerto Rico, except for the purpose of defining who may be a debtor under chapter 9.” The definition excludes Puerto Rico for the single purpose of defining who may be a Chapter 9 debtor, an unmistakable reference to the gateway provision. The definition of “State” does not exclude Puerto Rico from all of Chapter 9’s provisions. Puerto Rico is bound by the pre-emption provision, even though Congress removed its gateway provision authority to authorize its municipalities to seek Chapter 9 relief. An argument that the Recovery Act is not a “State law” that can be pre-empted is based on technical amendments to the terms “creditor” and “debtor” that are too “subtle” to support such a “[f]undamental chang[e] in the scope” of Chapter 9’s pre-emption provision. View "Puerto Rico v. Franklin Cal. Tax-Free Trust" on Justia Law

In 2005, Crossroads Investors, L.P. borrowed $9 million subject to a promissory note. The note was secured by a deed of trust recorded against an apartment building Crossroads owned in Woodland. Defendant Federal National Mortgage Association (Fannie Mae) was the beneficiary of the deed. The note imposed on Crossroads a prepayment premium should Crossroads pay the unpaid principal before the note’s maturity date or should Crossroads default and Fannie Mae accelerate the loan. Crossroads defaulted on the note in late 2010. Fannie Mae served Crossroads with a notice of default, and accelerated the loan. In February 2011, Fannie Mae initiated nonjudicial foreclosure proceedings. In April 2011, Crossroads entered into a contract to sell the property to Ezralow Company, LLC (Ezralow) for $10.95 million. A few weeks later, Crossroads and Ezralow proposed to Fannie Mae that Ezralow would assume Crossroads’ obligations and pay off the loan on Fannie Mae’s agreeing to waive the prepayment premium. Fannie Mae refused to waive the prepayment premium and rejected the proposal. By June, Fannie Mae recorded a notice of trustee’s sale against the property, stating the total unpaid amount of Crossroad’s obligations was estimated at more than $10.5 million. The day before the property was scheduled to be sold, Crossroads filed for Chapter 11 bankruptcy protection to protect its interest in the property. In its petition, Crossroads asserted it owed Fannie Mae $8.7 million. Fannie Mae sold the property after it was granted relief from the bankruptcy stay. Crossroads then sued Fannie Mae for wrongful foreclosure, breach of contract, fraud, and other tort and contract actions. Fannie Mae filed an anti-SLAPP motion, contending the actions on which Crossroads based its complaint were Fannie Mae’s statements in its papers filed in the bankruptcy proceeding. The trial court disagreed and denied the motion. This appeal challenged the trial court’s denial of Fannie Mae's special motion to strike the complaint under the anti-SLAPP statute. After review, the Court of Appeal affirmed the trial court’s order. "The principal thrust of Crossroads’ action was to recover for violations of state nonjudicial foreclosure law, not for any exercise of speech or petition rights by Fannie Mae. Even if protected activity was not merely incidental to the unprotected activity, Crossroads established a prima facie case showing it was likely to succeed on its causes of action." View "Crossroads Investors v. Federal National Mortgage Assn." on Justia Law

Plaintiffs filed a qui tam action against their bankruptcy trustee and others under the False Claims Act (FCA), 31 U.S.C. 3729-3733, alleging that the trustee presented fraudulent claims to the bankruptcy court in order to obtain payment of the $60 trustee's fee. The court held that the deposition of the trustee's realtor, James Grace, constitutes a public disclosure as to plaintiffs where plaintiffs were outsiders to the administrative investigation conducted by the Trustee's Office, which was entirely independent of plaintiffs' own investigation. Subject matter jurisdiction did not exist because plaintiffs were not the original source of the information under section 3730(e)(4)(B). Accordingly, the court affirmed the district court's dismissal.View "Malhotra v. Steinberg" on Justia Law

In 1996, Robinson pleaded guilty to mail fraud and aiding and abetting. The district court sentenced Robinson to 97.5 months of imprisonment and ordered him to pay criminal restitution of $286,875. A year later, Robinson pleaded guilty to a second set of criminal violations, resulting in convictions of wire fraud and aiding and abetting. The district court imposed a 24-month term of imprisonment and again ordered Robinson to pay restitution, this time $100,000. Robinson paid only $7,779.44 of the first judgment and $200 of the second before filing for bankruptcy under Chapter 13. The government, under the criminal restitution judgments, is a lien creditor. Filing for bankruptcy triggered the automatic stay, which suspends all activities related to the collection and enforcement of prepetition debts, 11 U.S.C. 362(a). The bankruptcy court denied the government’s motion to bypass the stay under 18 U.S.C. 3613(a), which provides that the government may enforce a judgment imposing restitution “notwithstanding any other Federal law.” The district court reversed, reasoning that it did not matter whether the debtor or the bankruptcy estate holds nominal title to the property because section 3613(a) allows the government to enforce a restitution order against all property of the person ordered to pay. The Sixth Circuit affirmed; section 3613 supersedes the automatic stay and allows the government to enforce restitution orders against property included in the bankruptcy estate. View "Robinson. v. United States" on Justia Law

Irwin, a holding company, entered bankruptcy when its two subsidiary banks failed. The FDIC closed both in 2009. Their asset portfolios were dominated by mortgage loans, whose value plunged in 2007-2008. Irwin’s trustee in bankruptcy sued its directors and officers (Managers). The FDIC intervened because whatever Irwin collects will be unavailable to satisfy FDIC claims. Under 12 U.S.C. 821(d)(2)(A)(i), when taking over a bank, the FDIC acquires “all rights, titles, powers, and privileges of the insured depository institution, and of any stockholder, member, accountholder, depositor, officer, or director of such institution with respect to the institution and the assets of the institution.” The claims assert that the Managers violated fiduciary duties to Irwin by not implementing additional financial controls; allowing the banks to specialize in kinds of mortgages that were especially hard-hit; allowing Irwin to pay dividends (or repurchase stock) so that it was short of capital; “capitulating” to the FDIC and so that Irwin contributed millions of dollars in new capital to the banks. The district judge concluded that all claims belong to the FDIC and dismissed. The Seventh Circuit affirmed in part, but vacated with respect to claims that concern only what the Managers did at Irwin: supporting the financial distributions, informing Irwin about the banks’ loan portfolios, and causing Irwin to invest more money in the banks after they had failed. View "Levin v. Miller" on Justia Law

In 2005 Detroit created not-for-profit corporations and issued debt instruments through those corporations, which passed the proceeds from sales of certificates on to the city, to fund pensions. The city covered the principal and interest payments. Some of the certificates had floating interest rates. To hedge that risk, the service corporations executed interest-rate swaps with banks. When interest rates fell below a threshold, the city had to pay the banks, which was offset by low interest rates owed to investors. If interest rates rose, the city would owe debtholders more interest, but received swap payments. Investors were unwilling to buy certificates and banks were unwilling to execute swaps unless an insurer guaranteed the obligations. Syncora insured the city’s obligations ($176 million in certificates; $100 million in swaps). A 2009 credit downgrade gave the banks the right to terminate the swaps and demand payment ($300 million). To avoid that, the city agreed (Syncora consented) to give the banks an optional early termination right, effectively ending the hedge protection, and established a “lockbox” system, under which the city would place excise taxes it receives from casinos into an account to be held until the city deposits its swap obligations (about $4 million per month). The agreement authorized the banks to “trap” the funds in the event of default or termination. In 2013 Syncora served notice that default had occurred. The city obtained a restraining order requiring release of the funds. The city filed for bankruptcy under Chapter 9 one week later. The bankruptcy court held that Syncora had no right to trap tax revenues, which were protected by the automatic stay under 11 U.S.C. 362(a)(3). The district court declined to consider an appeal, pending appeal of a determination that the city was an eligible debtor. The Sixth Circuit granted a petition for mandamus, requiring the court to rule. View "In re: Syncora Guar. Inc." on Justia Law

Pontiac has experienced significant economic difficulties. In 2011 Michigan’s Governor appointed Schimmel as Pontiac’s emergency manager under then-existing law (Public Act 4), in 2011, Schimmel modified the collective bargaining agreements of retired city employees and severance benefits, including pension benefits, for retirees not covered by collective bargaining agreements. Retired employees sued under the Contracts Clause, the Due Process Clause, and the Bankruptcy Clause. The district court denied an injunction. In 2013, the Sixth Circuit vacated and remanded for expedited consideration of state law issues. Michigan voters later rejected Public Act 4 by referendum. Following rehearing, en banc, the Sixth Circuit again vacated and remanded for consideration of whether, under section 903(1) of the Bankruptcy Code, Public Act 4 prescribed a method of composition of indebtedness that binds the retirees without their consent and, if so, whether principles of state sovereignty preclude application of section 903(1) in this case; whether the emergency manager’s orders were legislative acts under the Contract Clause; whether the reductions and eliminations of health care benefits were “necessary and reasonable” under the Contract Clause; whether the retirees’ procedural due process claim is viable; and, assuming the Due Process Clause’s procedural protections apply, whether the collective bargaining agreements, considered in their entireties, establish protected property rights. View "City of Pontiac Retired Emps. Ass'n v. Schimmel" on Justia Law

Former GM and Chrysler dealers, whose franchises were terminated in the 2009 bankruptcies of those companies, sued, alleging that the terminations constituted a taking because the government required them as a condition of its providing financial assistance to the companies. The Bankruptcy Code, 11 U.S.C. 363, 365, authorizes certain sales of a debtor’s assets and provides that a bankruptcy trustee “may assume or reject any executory contract or unexpired lease of the debtor.” Debtors-in-possession in chapter 11 bankruptcies, like GM and Chrysler, generally have a trustee’s powers. The Claims Court denied motions to dismiss. In interlocutory appeals, the Federal Circuit remanded for consideration of the issues of the “regulatory” impact of the government’s “coercion” and of economic impact. While the allegations of economic loss are deficient in not sufficiently alleging that the economic value of the franchises was reduced or eliminated as a result of the government’s actions, the proper remedy is to grant to leave to amend the complaints to include the necessary allegations. View "A&D Auto Sales, Inc. v. United States" on Justia Law

Starr, AIG's former principal shareholder, filed suit against the FRBNY for breach of fiduciary duty in its rescue of AIG during the fall 2008 financial crisis. The district court dismissed Starr's claims and Starr appealed. The suit challenged the extraordinary measures taken by FRBNY to rescue AIG from bankruptcy at the height of the direst financial crisis in modern times. In light of the direct conflict these measures created between the private duties imposed by Delaware fiduciary duty law and the public duties imposed by FRBNY's governing statutes and regulations, the court held that, in this suit, state fiduciary duty law was preempted by federal common law. Accordingly, the court affirmed the judgment of the district court. View "Starr Int'l Co. v. Federal Reserve Bank of New York" on Justia Law

This appeal arose from an action filed against the City of Lewiston by Tim Thompson, Janet Thompson, and Thompson's Auto Sales (collectively, Thompson). Thompson filed a claim under the Idaho Tort Claims Act (ITCA), alleging the City negligently designed and installed a storm water drain system on a city street adjacent to Thompson's property, which caused storm water runoff to flow onto Thompson's property and damage it. After suit was filed, Thompson entered bankruptcy proceedings and the bankruptcy trustee, C. Barry Zimmerman, was substituted as Plaintiff in the action. The City moved for summary judgment on the grounds of discretionary immunity and design immunity. The district court denied the motion as to design immunity, but granted the motion on the ground of discretionary immunity. Zimmerman appealed, arguing that the discretionary immunity exception to liability under the ITCA does not grant immunity from liability for damage caused by negligent design and, alternatively, that even if discretionary immunity was considered, it was inapplicable in this case because the City's actions were not discretionary within the meaning of the exception. Upon review, the Supreme Court reversed, finding that the City was not entitled to immunity from liability under any exception to the ITCA. View "Zimmerman v. City of Lewiston" on Justia Law