Defalcation, Bankruptcy and Fiduciary Litigation

Last week, the United States Supreme Court issued its opinion in Bullock v. BankChampaign, N.A., which addressed the circumstances in which a breach of fiduciary duty judgment can be discharged in bankruptcy proceedings. Specifically, the Court resolved a deeply fractured Circuit split on the scope of the term “defalcation” within Section 523(a)(4) of the Federal Bankruptcy Code. That Section of the Bankruptcy Code provides that an individual cannot obtain bankruptcy discharge “for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.” For years, the lower courts had struggled with what, exactly, “defalcation” means. Wonder no longer because the Supreme Court has defined it.

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Defalcation, Bankruptcy and Fiduciary Litigation

FINR Brain Injury Center Seeks Bankruptcy as Bank Sees Default

Florida regulators are demanding that a brain-injury treatment center with patients from across the U.S. prove that it’s financially viable, as the facility seeks bankruptcy protection.

The Chapter 11 filing by the Florida Institute for Neurologic Rehabilitation Inc. followed Bloomberg News stories about the alleged abuse and neglect of patients by their caregivers at the 200-bed residential facility southeast of Tampa. It’s one of the largest in the country treating people with long-term disabilities brought on by brain trauma.
The filing came hours after Regions Bank sued the institute, known as FINR, in U.S. District Court in Tampa, claiming it’s in default on $31 million in real-estate loans. The lawsuit by the Birmingham, Alabama-based unit of Regions Financial Corp. (RF) says FINR stopped paying on the debt in August.

FINR’s owner, Joseph Brennick, said in a statement yesterday that he was “confident” the facility could properly care for the people living there while it undertakes a financial restructuring. Media coverage led to “a significant decline in revenue making FINR unable to meet is financial obligations,”Brennick said in the statement.

Negotiations with Regions Bank are “ongoing and we are making strides to resolve this successfully as we look for a long-term solution,” he said.

After the bank sent FINR a default letter in September, Brennick withdrew at least $466,000 from center coffers, the suit alleges. In addition, FINR has failed to give the government the payroll taxes withheld from employees’ wages and hasn’t paid real estate taxes and routine operating expenses, Regions Bank says in the suit.

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Brain Injury Center Seeks Bankruptcy as Bank Sees Default

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Caregivers Bloodied Patients as Complaints Drew Laughter

>Michael Mastro "Competent Again"?

>Michael R. Mastro is competent again.

The bankrupt former Seattle real-estate magnate suffered a head injury three months ago in a fall at his Palm Springs, Calif., home, prompting a bankruptcy judge to deem him incapacitated and appoint a guardian to represent his interests in court.

But the guardian, retired state Supreme Court Justice Faith Ireland, said this week her services no longer were needed.

U.S. Bankruptcy Judge Marc Barreca agreed Friday, meaning Mastro is considered competent and can be asked to testify.

Ireland’s move came after James Rigby, the trustee seeking to recover assets for Mastro’s many creditors in Washington’s largest bankruptcy, asked Barreca to order an independent medical exam and turn over all Mastro’s medical records.

Rigby has questioned for weeks whether Mastro, 85, was really incapacitated.

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Mastro Declared Competent to Testify in Bankruptcy Trial

>Mastro Guardian Wants Out

>Attorneys for bankrupt developer Michael R. Mastro and former state Supreme Court Justice Faith Ireland asked the court to release Ireland from her duties as court-appointed guardian for Mastro.

It was a surprising development — since Ireland earlier had agreed to represent Mastro throughout the trial, despite the possibility she would not be paid for her work. Reasons for the request were not given in the legal papers filed today in U.S. Bankruptcy Court in Seattle.

Ireland was appointed to represent Mastro after the developer was hospitalized for a head injury in February after falling off a ladder at his home in Palm Desert, Calif. Ireland late last month was able to reach a $7.1 million settlement with bankruptcy.

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Mastro Guardian Ireland Wants Out of the Case

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Judge Approves $7M Judgment in Mastro Case

>Judge Approves $7M Judgment in Mastro Case

>U.S. Bankruptcy Court Judge Marc Barreca has entered a $7.1 million judgment against Seattle real estate developer Michael R. Mastro. Mastro also has agreed to pay the trustee’s costs and attorneys’ fees for the proceeding.

The ruling ends the bankruptcy trustee’s dispute with Mastro over assets that the trustee claims were shielded from creditors, but does not end the trustee’s lawsuits against Mastro’s son, wife and business associates that amount to more than $20 million.

The judgment was first proposed by Mastro’s guardian ad litem Faith Ireland last week. Ireland became Mastro’s guardian after the 86-year-old developer was incapacitated by a severe head injury suffered in a fall at his Palm Desert home in February.

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Judge Approves $7m Judtment vs Mastro

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Mastro Bankruptcy Trial Opens With Offer to Settle

Mastro Case: Judge Says Guardian Can’t Be Paid With Funds for Creditors

>Mastro Case: Judge Says Guardian Can’t be Paid From Funds for Creditors

>A federal bankruptcy judge closed a short, strange chapter Tuesday in the long-running bankruptcy saga of former Seattle real-estate magnate Michael R. Mastro.

Judge Marc Barreca turned down a bid by the guardian for the now-incapacitated Mastro to pay her, and her lawyer, from funds administered by Mastro’s chief adversary, court-appointed trustee James Rigby.

That’s the same pot of money from which Mastro’s many creditors might one day recover a fraction of their losses. The bankruptcy is Washington’s largest ever, with Mastro reporting debts of $570 million.

Mastro’s guardian, former state Supreme Court Justice Faith Ireland, asked last week for compensation from Rigby’s funds because she said Mastro couldn’t pay her. She also said she needed her own lawyer because Mastro’s longtime attorney had a conflict of interest:

As guardian, she argued, she’s required to act in Mastro’s best interests. However, she added, Mastro’s lawyer is obligated to follow Mastro’s instructions from before he was incapacitated — even if they aren’t in his best interests.

Ireland’s lawyer, Mark Walters, acknowledged in court that the proposal and circumstances were “incredibly unusual — I almost can’t believe it.”

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Judge Says Mastro Guardian Can’t be Paid From Funds for Creditors

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Strange New Twist

>’Strange New Twist’

>Here’s a bizarre new twist in Michael R. Mastro’s long-running bankruptcy case, Washington’s largest ever:

The guardian appointed last month to look out for the interests of the now-incapacitated former real-estate magnate in court says she can’t use the lawyer who has represented Mastro since the proceedings began nearly two years ago — because they represent different things.

Guardian Faith Ireland said in a court filing this week that, while she is charged with representing Mastro’s best interests, attorney Thomas Bucknell is obligated to follow Mastro’s past instructions.

Even if they aren’t in his best interests.

So Ireland, a former state Supreme Court justice, has retained her own lawyer. What’s more, she wants his fees, and hers, paid out of funds administered by Mastro’s chief adversary, court-appointed trustee James Rigby.

If that doesn’t happen, Ireland wrote, she’ll have to quit.

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Mastro Bankruptcy Case has Strange New Twist

See Also:
Guardian Appointed for Real Estate Magnate Michael Mastro for Bankruptcy Case