Articles Posted in Bankruptcy

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Morrison Informatics, Inc. (the “Company”) filed a petition for Chapter 7 Bankruptcy relief in September 2009. In May 2011, the Company and two shareholders, who also were officers of the corporation, commenced a civil action in the court of common pleas against Members 1st Federal Credit Union, Mark Zampelli, and Scott Douglass. In the ensuing complaint, the Company and the Shareholders asserted that, beginning sometime after January 2005 and continuing into 2009, the Company’s finance manager, Zampelli, had colluded with a Credit Union relationships officer, Douglass, to embezzle Company funds. The complaint advanced claims against the Credit Union, Zampelli, and Douglass variously sounding in fraud, conversion, civil conspiracy, and negligence. The question this case presented for the Supreme Court's review concerned whether a federal bankruptcy trustee could be substituted as a plaintiff in a civil action previously commenced by the debtor in bankruptcy in a Pennsylvania state court, although the statutory limitations period expired prior to the attempted substitution. "Although we recognize that the interests of a debtor and a trustee may diverge in some respects, we find it most important that trustees’ interests are derivative, and accordingly, they generally cannot assert any greater rights as against defendants than debtors could have in the first instance." The Supreme Court departed from the Superior Court’s focus on the continued “existence” of the Company after the initiation of insolvency proceedings, and the Court rejected a strict rule foreclosing a relation-back approach to substitution of a bankruptcy trustee for a debtor. Instead, the Court held that relation back in favor of a federal bankruptcy trustee was appropriate, at least where the trustee has acted in a reasonably diligent fashion to secure his or her substitution, and there is no demonstrable prejudice to defendants. View "Morrison Info. v. Members 1st FCU" on Justia Law

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This case arose from the liquidation proceedings of Reliance Insurance Company. One of Reliance's policyholders, Warrantech Consumer Products Services, Inc., submitted various proofs of claim seeking reimbursement under two insurance policies in which Reliance agreed to indemnify Warrantech for all future liabilities arising under certain warranty/service contracts Warrantech entered during the applicable policy period. The Commonwealth Court denied Warrantech's claims, holding that 40 P.S. 221.21 of the Insurance Department Act applied to terminate coverage for all "risks in effect" under a policy of insurance no later than thirty days after the respective insurer enters liquidation, notwithstanding that the relevant policies of insurance were cancelled prior to the date of liquidation. Finding no reversible error, the Supreme Court affirmed the Commonwealth Court's judgment. View "Warrantech v. Reliance Ins Co." on Justia Law

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Appellee United States Organizations for Bankruptcy Alternatives, Inc. (USOBA) and Appellant Department of Banking challenged different aspects of the Commonwealth Court's decision that the Pennsylvania Debt Management Services Act (Act 117) was unconstitutional in part. At the request of the Supreme Court, the parties addressed whether the lower court's disposition was a final order appealable pursuant to the Rules of Appellate Procedure. The General Assembly adopted Act 117 in October 2008 to regulate, in relevant part, providers of debt settlement services (“DSS”). A DSS provider negotiates with creditors on behalf of a consumer “for the purpose of the creditor forgiving part or all of the principal of the debt incurred or credit extended to that consumer.” Pursuant to Section 3(b) of Act 117, DSS providers are prohibited from operating in Pennsylvania without a license from the Banking Department, and are required to comply with the Department’s regulations. Other sections of Act 117 list licensing fees, describe the initial licensing, license renewal, revocation, and reinstatement processes, and create penalties for violations of the statute. USOBA claimed that Act 117 violates the non-delegation, equal protection, and due process provisions of the Pennsylvania and U.S. Constitutions, and requested a declaratory judgment, injunctive relief, and compensation for attorneys’ fees and costs. The Department denied the allegations, and filed an Application for Summary Relief, claiming that the contentions in the complaint were insufficient as a matter of law to state a claim. Following a hearing, the Commonwealth Court denied the Department’s application in an unpublished opinion. Upon review of the Act, the applicable legal authority and the trial record, the Supreme Court concluded that the Commonwealth Court's order was not appealable and quashed the parties' appeals. View "United States Org. for Bankruptcy Alt. v. Dept. of Banking" on Justia Law