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GACKE (12/2/10) (Unpublished)
The creditor brought an adversary proceeding and requested that her claim against the debtor be declared nondischargeable. She had borrowed money to help the debtor consolidate his debts, but he subsequently filed for bankruptcy before repaying her in full. The creditor initially alleged that the debtor had defrauded her, but withdrew those allegations at the time of trial. Given that she had not alleged any statutory basis for excepting her claim from discharge, and as her claim fell within the broad category of claims subject to discharge, the debtor’s motion to dismiss would be granted.
GALE (10/26/10) (Unpublished)
The debtor owed approximately $14,500.00 in student loans. She was 56 years old and suffered from a host of medical conditions which had resulted in a determination of permanent disability for which she collected social security disability payments. She was unemployed due to her disability. The court found that she was unable to work due to her chronic pain and disability. Her dire financial situation was likely to persist for a significant portion of the repayment period, thus satisfying the “certainty of hopelessness” mandated by the Seventh Circuit in In re Roberson, 999 F. 2d 1132 (7th Cir. 1993), and Goulet v. Educ. Credit Mgmt. Corp., 284 F. 3d 773 (7th Cir. 2002).
GARLAND (2/22/01) (Unpublished)
Debtor stipulated to judgment of divorce assigning certain marital debts to each party, including a waiver of maintenance by debtor in exchange for Section 71 payments from ex-spouse. The stipulation also set forth that the Section 71 payments could not be modified unless one party dies or the debtor received an award for child support. When debtor failed to pay her debts from the divorce judgement, ex-spouse filed contempt proceedings in state court. Ex-spouse was awarded judgment of the unpaid debts from the divorce judgment, among other awards. Debtor then sought Chapter 7 relief and subsequently received her discharge. Almost a year later the ex-spouse petitioned the state court to revise the divorce judgment requesting a reduction of the Section 71 payments to reflect debtor's non-payment of bills which were imposed upon him as a result of debtor's bankruptcy. Debtor filed a motion to reopen her case in order to bring a contempt motion and leave was granted. It was found that the ex-spouse was estopped from moving to modify the Section 71 payments. It was also found that the ex-spouse was attempting to enforce a discharged debt and was sanctioned under § 524 for debtor's actual costs incurred in enforcing the discharge injunction of her bankruptcy.
GAUSEWITZ (2/22/02) (Unpublished)
Debtor sought to obtain credit to continue the operations of a ballroom. He eventually turned to Action Mortgage and its manager, Robert Call, for a loan. Following a strange transaction, debtor ended up the confused owner of a mortgage on a house he had never offered to purchase. Debtor also gave Action Mortgage a security interest in some construction equipment and vehicles which he owned. Debtor was unable to maintain payments on the mortgage and quitclaimed the house to Robert Call. Mr. Call took possession of the house and collected rents from the lessees who occupied it, but did not credit any amount to debtor's obligation to Action Mortgage. Debtor filed for chapter 13 relief and objected to the validity of Action Mortgage's claim against him alleging that the claim was obtained by fraud. Debtor further objected to the amount of Action Mortgage's claim arguing that the quitclaim terminated all or a significant portion of his debt. Mr. Call, on behalf of Action Mortgage, disagreed with debtor's contention and testified that the quitclaim did nothing to alter the original terms of the loan. Action Mortgage further alleged that its claim against debtor had risen to include accrued interest and filed a proof of claim in that amount. Action Mortgage also obtained a default judgment in state court for replevin of specified equipment against debtor and sought relief from the automatic stay to enforce its judgment. Debtor objected to Action Mortgage's claim and his testimony supported his allegations of fraud. He also called into question the amount owed to Action Mortgage in light of the quitclaim. The final burden of persuasion rested upon Action Mortgage to prove its claim. Action Mortgage did not present evidence sufficient to carry this burden. Debtor's objection to Action Mortgage's claim was sustained and Action Mortgage's motion for relief from stay was denied.
GREDE (6/1/10) (435 BR 593)
Two utility providers moved for allowance of administrative priority claims under § 503(b)(9) for the value of electricity supplied in the ninety days pre-petition. The debtor objected, claiming that electricity was not a “good.” The court disagreed, and allowed the priority claim. The court applied the Uniform Commercial code’s definition of “goods” as all things moveable at the time of identification to the contract. The court found that the electricity was identified at the time it was metered at the debtor’s plant, and that it was moveable both before and immediately after being metered.
GREEN COUNTY v. KLINE (4/12/06) (Unpublished)
Green County filed a complaint against the debtor seeking a determination of nondischargeability of a debt pursuant to 11 U.S.C. § 523(a)(18) or 11 U.S.C. § 523(a)(5). The debt arose when a guardian ad litem was appointed to represent the best interests of the debtor’s child in a juvenile action in Green County Circuit Court. Green County did not meet its burden to prove nondishcargeability under 11 U.S.C. § 523(a)(5). Green County provided no details regarding the underlying juvenile action, however, guardian ad litem bills seemed to indicate that the fees arose from a Child in Need of Protection or Services (CHIPS) proceeding. Although the debt was incurred for the welfare of the child, the obligation to the County is not a nondischargeable debt for the purpose of § 523(a)(5) if it arose under Wis. Stat. § 48.235. Wis. Stat. § 48.235 allows the County to seek reimbursement from parents of amounts paid by the County to a guardian ad litem. If the debt arose under § 48.235, it is a debt to the County and does not meet the requirement under § 523(a)(5) that the nondischargeable debt be owed to a “spouse, former spouse, or child.” Where the debtor’s child is not seeking support, but a governmental entity is trying to enforce its rights against a parent under a state statute for reimbursement, § 523(a)(5) is not implicated. Green County did not prove nondischargeability under § 523(a)(18) either because it did not allege or argue that the debt is enforceable under Part D of Title IV of the Social Security Act. Exceptions to discharge are construed strictly against a creditor and liberally in the debtor's favor, Green County failed to meet its burden of proof.
GREEN, MICHELLE (3/28/02) (Unpublished)
Estate moved for sanctions against debtor's counsel for filing a chapter 13 petition solely to harass the estate and cause it unnecessary delay. The estate had received a judgment of foreclosure against certain real property of debtor and a sheriff's sale had been scheduled On the date of the sheriff's sale debtor filed a chapter 7 petition, staying the sheriff's sale. The estate then obtained relief from stay. A second sheriff's sale was scheduled. Debtor's counsel filed a chapter 13 petition without schedules or plan shortly before the sheriff's sale was to take place. Another automatic stay was obtained. The period in which the debtor may file a payment plan ended without any plan being filed. Debtor's counsel filed a motion to withdraw as counsel citing debtor's failure to confer with him on a payment plan and to pay his retainer fee. Counsel's motion was granted and the chapter 13 case was dismissed. The estate then filed a motion for sanctions under Bankruptcy Rule 9011. The estate claims that debtor's counsel had no legal basis for filing the chapter 13 petition before a discharge was entered in the prior chapter 7 and that the debtor's sole purpose in filing the chapter 13 was to prevent the second sheriff's sale from proceeding. The estate established that debtor's counsel had violated Rule 9011. Sanctions was ordered for fees and expenses related to filing of the chapter 13 petition.
GRIFFITH (4/15/11) (449 BR 909)
The chapter 7 trustee objected to the debtor’s exemptions, arguing that the debtor could not claim an exemption in the portion of various assets which were technically owned by the debtor’s non-filing spouse. The debtor sought to exempt all of the equity in these assets notwithstanding the fact that half of the equity belonged to the spouse. The court noted that a debtor’s interest in property is defined by state law, and under Wisconsin marital property law both the debtor and the spouse have an “undivided one-half interest in marital property.” Under the bankruptcy code, both spouses’ interests in property become property of the estate. The court rejected the idea that the debtor could assert an exemption only as to the portion of the equity which she personally owned. Instead, because each spouse had an undivided interest in the whole and the assets could not be easily divided, it was reasonable to allow the debtor to claim an exemption in the whole up to the dollar limits afforded to one debtor under applicable law.
GRIGNANO (3/21/00) (Unpublished)
Travelers Indemnity Co. and the debtor entered into a surety agreement and a workout agreement. The workout agreement provided that the debtor would sell its real estate and pay the proceeds to Travelers. Travelers commenced a state court action against the debtor seeking payment, and the state court allowed the sale of the last real estate asset owned by the debtor, but required the net proceeds from the sale be held in two joint bank accounts in the names of Travelers and the debtor until further order of the court. After the debtor filed for Chapter 7 bankruptcy relief, the trustee brought this adversary proceeding to compel turnover of the funds in those accounts. Travelers filed a Motion for Summary Judgment and the trustee filed a Cross-Motion for Summary Judgment. The court (Judge Martin) granted Travelers' motion and denied the trustee's. The court found that the state court's injunction order was akin to a pre-judgment attachment. Therefore under the injunction order, Travelers was placed in the position of a pre-judgment attachment creditor who had levied on and "caught" the proceeds from the sale of the debtor's last real estate asset. Under Wisconsin law, the attaching creditor is treated as having a lien on the property when the creditor levies upon attachment. Therefore, Travelers had a lien on the proceeds when they were placed in the accounts. The court further ruled that the trustee could not avoid Travelers' interest in the proceeds under 11 U.S.C. § 544(a), because Travelers had a contingent lien under the 1995 injunction order. However, once Travelers obtained relief from stay and a judgment in state court, Travelers' lien was converted into a judgment lien that related back to 1995, the date of the injunction order.
GROSS COMMON CARRIER V. DESOTELLE, et al. (8/14/92) (Unpublished)
Proceeds from a stop-loss insurance policy paid to debtor for services rendered by defendant hospital to wife of one of debtor's employees are not property of debtor's bankruptcy estate. Policy proceeds (in excess of $80,000) are deemed to constitute a constructive trust under Wisconsin law for the assignee health-care provider -- St. Joseph's Hospital. Representations made by the debtor to its employees concerning health-care coverage, the employer - employee relationship between the parties, general considerations of equity and the legislative history to § 541 of Bankruptcy Code support this result.
GROSS COMMON CARRIER V. GSG HOLDINGS, et al. (12/23/92) (Unpublished)
GRUETZMACHER (5/17/91) (145 B.R. 270)
Reopening of bankruptcy case does not reinstate the automatic stay of § 362. Debtor's case had been reopened solely for the limited purpose of determining whether enforcement of the stipulation between the debtor and his ex-wife was appropriate.
GUSTIN (12/6/05) (343 B.R. 909)
Debtor in a Chapter 7 asset case did not name one of her creditors in her bankruptcy schedules until debtor’s assets were fully administered and the trustee had filed a final account. As a result of the debtor’s late inclusion of this creditor, the creditor was unable to file a proof of claim and share in the distribution of assets. The creditor was pursuing an action in State court against the debtor, which was stayed while the bankruptcy was pending. Following the debtor’s discharge the proceedings in state court continued. The debtor attempted to use her discharge as a defense in the resumed state court action. The state court decided that pursuant to 11 U.S.C. § 523(a)(3)(A) the debt was not discharged because the creditor was not listed in time to file a proof of claim. The debtor then filed a motion in this court to re-open her bankruptcy case to seek contempt remedies against the creditor for pursuing the action in state court. The debtor was essentially asking this court to determine that the debt was discharged. That issue was already decided in state court, and the doctrine of issue preclusion prevents relitigation in bankruptcy court. The debtor’s motion was denied.
HAAKE (9/18/12) (483 B.R. 524)
The debtor was a Minnesota resident who purchased her home through a contract for deed. The contract called for full payment of the balance due by a specific date. After she failed to pay, the vendor served the debtor with a notice of cancellation of the contract in accordance with Minnesota law. She filed bankruptcy in an effort to save her home. The vendor moved for relief from the stay and argued that her right to “cure” the contract had expired under § 108(b) and she had no further right to the property. The court ruled that under relevant Eighth Circuit precedent, a notice of cancellation of a contract for deed created a cure period under § 108(b) that was not stayed by § 362(a); as such, the debtor’s redemption rights had expired. Even if she still held an interest in the property, the debtor could not modify the contract for deed because of the anti-modification provisions of § 1123(b)(5). The motion for relief from stay was granted.
HAHN (7/27/01) (Unpublished)
This adversary proceeding was brought by the trustee against Farmers Bank to determine the validity of Farmers Bank’s security interest in proceeds from crop support contracts between debtors and the USDA. The parties reached a stipulated resolution. In exchange, Farmers Bank released its claim on proceeds that had been paid to the estate and the trustee agreed to assist Farmers Bank in securing unpaid proceeds that the USDA had refused to pay. The USDA was then joined. The USDA argued that the PFC contracts were rejected and deemed that rejection a breach of the PFC contracts, which entitled the USDA to treat the contracts as void. The trustee and Farmers Bank argued that the PFC contracts were abandoned in the chapter 11 case, leaving nothing to be rejected either before or after the case was converted. The PFC contracts were abandoned by a proper order in the chapter 11 case. That abandonment removed the contracts from the chapter 11 estate and ended the bankruptcy court’s jurisdiction over them. The abandoned status of the contracts was not altered by the conversion of the case to chapter 7. The effect of abandonment was to return all parties to the PFC contracts to their legal positions prior to the bankruptcy filing.
HALLING (5/9/11) (449 BR 911)
HANSON (12/12/03) (Unpublished)
It was determined that the discharge order was incorrect and misstated the law. Those portions of the order were ruled void and a new discharge order was entered in the form currently in use.
HANSON (4/21/04) (Unpublished)
The debtors’ Chapter 13 plan was not confirmed. It was determined that the debtors’ plan failed to comply with 11 U.S.C. §1322(b)(5) and failed to demonstrate that its treatment of the Department of Education claim was not unfair discrimination between classed of unsecured claims. Furthermore, it was determined that the direct payment to the Department of Education was impermissible.
HARTLEY (9/11/12) (483 B.R. 700)
The debtors owned an 82-acre parcel of real estate, 40 acres of which the parties agreed constituted their homestead. The entire property was encumbered by a single mortgage. The chapter 7 trustee sought to apportion the mortgage balance between the homestead and non-homestead parcels in accordance with their relative values. The debtors objected, arguing that the trustee’s request constituted an impermissible infringement of their homestead rights. The bankruptcy court ruled that Wisconsin courts have held that under § 846.11, debtors have the right to “insist” that when a single mortgage covers both homestead and non-homestead property, the non-homestead property must be sold first. The homestead exemption is to be liberally construed and is favored above the rights of creditors. Under the circumstances, the debtors were entitled to allocate the mortgage in such a way as to maximize their homestead exemption. The complaint was dismissed.
HASEKER (4/16/93) (Unpublished)
Failure to discharge debtor's student loan debt of $15,359 would constitute an "undue hardship" pursuant to 11 U.S.C. § 523(a)(8); student loan debt is therefore dischargeable. Debtor is 57 years old, unmarried and without children. She owns no real property nor a car and she earns approximately $500 per month at part-time minimum wage jobs. Her monthly expenditures total over $800. Expense budget does not include any amounts for medical or dental expenses, insurance or recreation and entertainment. Requiring debtor to pay her student loan would therefore constitute an "undue hardship" for her.
HASS (8/18/99) (Unpublished)
Creditor filed adversary proceeding alleging that a state court judgment and criminal restitution award were nondischargeable. Both the judgment and the restitution award stemmed from the same conduct - the debtor's alleged conversion or embezzlement of funds, which the plaintiff alleged was nondischargeable under either 11 U.S.C. § 523(a)(4) or (a)(6).
The Court concluded that the restitution award was entitled to preclusive effect under principles of collateral estoppel. Despite the fact that the debtor pled guilty without admitting any wrongdoing, the state court record was replete with additional factual findings which mandated preclusive effect. The jury verdict in the civil suit, however, did not establish that the debtor's conduct was willful and malicious, in that the jury could have concluded that the debtor was guilty of mere "reckless" conduct. Summary judgment was entered under § 523(a)(4) and denied under § 523(a)(6).
HEMKER (Hoffmann v. IRS) (8/3/90) (Unpublished)
HENDERSON (2/27/04) (Unpublished)
The debtor held a one-third tenancy in common in farmland where he resided. Alliance Bank received judgment against the debtor and subsequently held an execution sale on the property, purchasing debtor’s interest in the real estate. Debtor filed for Chapter 13 bankruptcy one year later, claiming a homestead exemption of $1.00 for the property. Debtor proposed to sell a portion of the property to fund his Chapter 13 plan. Alliance objected to the plan contending that the debtor had no interest in the real estate. Debtor also moved to avoid the judicial liens of Alliance, and Alliance objected.
The debtor did not oppose the execution sale up to and through its execution, nor did he assert an exempt homestead claim. After the sale took place but prior to his bankruptcy filing, debtor then filed a motion in circuit court challenging the execution sale. The circuit court declined to hear the motion stating without written ruling or order that it had no power to hear a post-execution sale argument.
An evidentiary hearing was then held on the confirmation of the plan, the debtor’s motion to avoid the lien of Alliance, and Alliance’s objection to the claimed homestead exemption. Those issues were taken under advisement.
It was determined that the execution sale was voided and the lien held by Alliance be reduced by the $1.00 claimed exemption. The plan was not confirmed. Debtor was given 20 days to amend the plan. Alliance then moved for relief from stay. It was determined that because the proposed plan could not be confirmed, the property was not necessary to debtor’s effective reorganization. The debtor had not provided adequate protection of Alliance’s interest in the property. The stay was lifted to conduct a new execution sale or pursue the lien consistent with the memorandum decision.
HENNEKENS (3/19/01) (Unpublished)
Bank moved for stay relief under § 362(d)(1) claiming a lack of adequate protection of its interest in the stock it held under a pledge by debtor as collateral for a letter of credit, which it sought to liquidate. Bank argued lack of adequate protection principally because the stock may depreciate in value. Bank held a contingent secured claim as the DNR may demand an undetermined amount under the letter of credit. Once the DNR draw is made, Bank has the right to reimbursement from the proceeds of stocks pledged by debtor. Bank also sought relief under § 362(d)(2) and bears the initial burden of proving debtor has no equity in the stock. The presence of equity depends on the draw by the DNR under the letter of credit. It was found that because there is no part of the stock's value that is free from the contingent claim of Bank as of the date of the petition, debtor had no equity for purposes of § 362(d)(2)(A). It was also found that the maintenance of the stock was a benefit of the creditors as the cost of disposition to debtor would include a potentially substantial tax liability that would have to be paid as post-petition indebtedness which would certainly jeopardize debtor's ability to make payments on pre-petition debts. Although there may be a certain inevitablity to that expense, to permit Bank to accelerate the crisis by selling the stock before it lacks adequate protection and before the DNR draws on the letter of credit would undermine the feasibility of the plan. Bank's relief from stay was denied.
HERBST (4/11/12) (469 BR 299)
The Chapter 13 debtor alleged that Talmer Bank & Trust willfully violated the automatic stay by refusing to return equipment it repossessed prepetition. The bank had exercised its rights under a security agreement and repossessed the debtor’s equipment pursuant to a default judgment and writ of replevin. The bankruptcy court held that the bank violated 11 U.S.C. § 362(a)(3) by exercising control over property of the bankruptcy estate. The equipment had not yet been sold or transferred, and no evidence of a contract for disposition was presented. Therefore, under Wis. Stat. § 409.623(3) and Wis. Stat. § 409.617(a), the debtor retained rights in the equipment even after the bank repossessed it. Further, the judgment of replevin did not extinguish the debtor’s legal and equitable interests in the equipment. Therefore, it remained property of the estate and subject to the automatic stay. Finding the violation to be willful, the court held the bank in contempt until it returned the equipment.
HERING DISTRIBUTING COMPANY INC (1) (3/27/03) (Unpublished)
At the close of trial in this proceeding it was determined that the 1997 contract between the Plaintiff, Western Wisconsin Water, Inc. d/b/a LaCrosse Premium Water (“Western”), and the Defendant, Quality Beverages of Wisconsin, Inc. (“Quality”), gave Western a “first right of refusal” to acquire (1) all of the 469 accounts sold to Quality; and (2) all growth attributable to those accounts. Quality’s failure to offer to sell Western the accounts constituted a breach of the contract. Western was entitled to compensation for losses necessarily flowing from that breach. Those losses included anticipated profits from the resale of the accounts and from exclusive distributorship agreements into which Western would have entered. Western was also entitled to recover expenses incurred in mitigating its losses and damages as well as judgment for the account payable from Quality.
The contract provided Western a sort of option to purchase 552 accounts from Quality when Quality sold those accounts and others to Crystal Canyons in 2001. That number includes the accounts sold under the 1997 contract (469) and the proportionate increase in Quality’s accounts attributable to those original accounts (83). After the breach, Western mitigated its damages by acquiring 400 of the 552 accounts subject to its option. As to those 400 accounts, Western was entitled to be reimbursed its costs of mitigation.
HERING DISTRIBUTING COMPANY INC (2) (6/4/03) (Unpublished)
In March, 2003 this court issued a memorandum decision and judgment awarding Plaintiff, Western Wisconsin Water, Inc. d/b/a LaCrosse Premium Water (“Western”) damages against the Defendant, Quality Beverages of Wisconsin, Inc. (“Quality”) for Quality’s breach of contract to give Western a first right of refusal to acquire certain accounts. In mitigating its damages, Western recovered 400 of the 552 accounts that Quality should have offered. Western was awarded sums for lost profits based on the 152 accounts that Western did not recover and in mitigation expenses.
Western moved to amend the judgment on two theories. First, Western argued that profits from the resale of the 400 accounts that it recovered should have been included in its damages because the market for the accounts evaporated after Quality’s actions. Western stated that it showed that it could resell the 400 accounts. They further argued that the court should add to Western’s damages the difference between the value of all 552 accounts before Quality’s breach and the value of the 400 accounts recovered after Quality’s breach.
Second, Western contended that its mitigation expenses were higher than the estimated net profit Western would have realized in the future from its mitigation efforts and produced exhibits detailing its actual out-of-pocket expense in establishing its own distributorship.
Western’s first claim amounted to a request for damages that Western did not make successfully at trial. Western sought the profits that it claimed it could not realize from the resale of the recovered accounts because of the effects of Quality’s actions on the market. At trial, however, Western did not establish that Quality’s actions affected the market in the manner and to the extent claimed. Western also failed to demonstrate that the expected net profit is in fact the market price. It was determined that the potential windfall of retaining the recovered accounts and receiving the profits from the resale of the recovered accounts is inconsistent with Wisconsin’s application of the expectation interest in breaches of contract.
As to Western’s second claim, it was determined that mitigation damages in a breach of contract are an injured party’s actual expenditures made in reasonable efforts to minimize its losses. In arguing its motion, some confusion arose as to Western’s reference to its “net mitigation amount” and to its “start up costs”. It appears that a manifest factual error had been made and Western’s claimed actual cost of mitigation incurred was adopted.
HOIVIK (7/1/87) (79 B.R. 401)
Debtor's former wife's claim pursuant to 11 U.S.C. § 523(a)(5) that certain obligations incurred by debtor under the terms of divorce decree are nondischargeable is dismissed. Debtor's obligation to make two house payments for his former wife is dischargeable as being in the nature of property division. Additionally, debtor's obligation to hold former wife harmless for various marital obligations is in nature of property division and is therefore dischargeable.
HOLMDAHL (11/3/10) (439 B.R. 876)
The debtors’ home was sold at a sheriff’s sale. The successful bidder deposited the required 10% down payment of $27,500.00 but backed out of the transaction prior to confirmation of the sale. The confirmation hearing was canceled and the state court entered an order authorizing the transfer of the down payment to the creditor as a payment on its judgment claim. The debtors then filed chapter 13. Under their plan they sought to de-accelerate the mortgage debt and resume making payments. They also requested that the court apply the forfeited deposit to the arrearage the debtors owed on the mortgage, thus reducing the arrearage to be paid under the plan. The creditor objected to this treatment. The court concluded that while the debtor did not have a legal right to compel this result, the contract itself dictated that this payment be applied to the periodic payments of principal and interest as they came due - in other words, to the arrearage. The debtors’ motion was granted.
HOLTER (1/26/09) (401 B.R. 372)
The chapter 7 debtor was the beneficiary of a P.O.D. account. Between the date of filing and 180 days after filing, the owner of the P.O.D. account died. The debtor turned over the non-exempt portion of the proceeds from the P.O.D. account over to the chapter 7 trustee. Later, the debtor reconsidered and demanded that the chapter 7 trustee return the funds. The chapter 7 trustee refused, and the debtor commenced an adversary proceeding to recover the funds. The Court granted summary judgment in favor of the debtor, holding that under Wisconsin law, a P.O.D. beneficiary has no interest in a P.O.D. account during the P.O.D. account owner’s lifetime. In addition, under Wisconsin law, the proceeds were not a bequest, inheritance, or devise for purposes of § 541(a)(5)(A). Therefore, the debtor had no interest in the account at the time of filing that entered the bankruptcy estate.
HOLZHUETER (2/8/05) (321 B.R. 916)
Success in a section 523(a)(2)(A) adversary proceeding requires that the plaintiff prove the five elements of fraud. The plaintiffs waived their fraud claims for any transaction before July 1999, but the court examined the merits of those claims nonetheless. The debtor, who owned a large amount of the subject stock, failed to disclose to the plaintiffs his relationship with the corporation's insider, and that he was selling the stock away from his employing investment company. Even if the plaintiffs' pre-1999 claims had not been time barred, those claims would have failed. The debtor's omissions were immaterial to the plaintiffs, and under the unique facts in this case the plaintiffs were following the debtors lead and not his credentials when they bought the stock. The debtor also lacked the intent to deceive. The evidence indicated that the debtor sincerely believed that he was letting his friends in on a great deal. The plaintiffs also failed to demonstrate that they justifiably relied on the debtor's false statements. The plaintiffs never read the disclosure statements which were accurate assessments of the risk involved. As for the 1999 transaction, the plaintiffs had all of the information, and received no false information from the debtor upon which to rely.
HOMMERDING (3/7/02) (Unpublished)
Debtor returned to this court asking that his second amended chapter 13 plan be confirmed. Debtor initially came under this court's jurisdiction as an involuntary chapter 7 debtor and subsequently converted to a chapter 13. Debtor filed a plan of reorganization and sought its confirmation. One of debtor's petitioning creditors objected to the plan on the grounds that it did not satisfy 11 U.S.C. sec. 1325(a)(3)'s good faith requirement. Supporting its argument, the creditor pointed out that debtor owes it a potentially non-dischargeable debt. It further argued that no sum would be paid to unsecured creditors under debtor's plan and that the purpose of the debtor's plan was to thwart his unsecured creditors. The trustee also raised an issue as to the plan's feasibility noting that the original plan failed to satisfy a priority tax claim. Debtor had intended to use the proceeds from the sale of his gas station to pay that priority claim, but he did not have a full right to such proceeds at that time because his ex-wife also held a security interest in the property. This court ruled that the plan could not be confirmed for its failure to meet the requirements of sec. 1322(a)(2) and sec. 507. This court, however, granted debtor leave to amend his plan to account for the priority tax claim. Debtor then obtained consent from his ex-wife to apply her share of the gas station's sale proceeds to the tax claim and filed an amended plan. The objecting creditor renewed its objection to confirmation and the trustee also objected to this amended plan because the debtor proposed to make priority claim payments directly instead of through the trustee's office. The debtor agreed to file a second amended plan responding to the trustee's objection and the trustee moved to dismiss the case. The case was then dismissed with a 14-day stay. The debtor filed the second amended plan within the 14-day stay period with an increase in payments and an extended plan length. The trustee recommended confirmation of the second amended plan, but the creditor reasserted its prior objections. This court determined that the plan could be confirmed over the objection of the creditor since it appears that debtor has made attempts to work out a repayment plan in accord with his current employment. The fact that debtor had incurred a non-dischargeable debt to the objecting creditor would not mandate a finding of bad faith. Debtor's repayment plan appears to represent his best effort to repay his creditors and satisfies the good faith requirements for confirmation.
HOULIGAN'S (12/6/93) (Unpublished)
Debtor's motion to appoint W.J. Baumann Associates, Ltd. as its accountant during the pendency of its chapter 11 case is granted. Fact that accounting firm was a prepetition creditor of debtor in the amount of $1,504.44 does not preclude it from employment by debtor on the basis of "disinterested" requirement of 11 U.S.C. § 327(a). Courts should examine such applications on a case-by-case basis. Here, the prepetition claim was very small -- comprising 6.25% of the total unsecured debt in the estate, the only objecting party was the U.S. Trustee, the creditors' committee supported the debtor's motion, and statutory purpose behind "disinterested" requirement is not hindered by this result in this case.
HOWARD (10/31/05) (333 B.R. 826)
The debtor appeared before the court pursuant to an order to show cause as to why her current bankruptcy case should not be dismissed for failure to pay the filing fee in each of two previous bankruptcy cases she had commenced, one in 1995, and one in 1996. The court took the matter under advisement to determine whether her debt to the court warranted dismissal of the present case, and if not, how unpaid filing fees from previous bankruptcies should be treated in the pending bankruptcy. The court determined that debts for unpaid filing fees are general unsecured debts, and failure to pay the fees is not grounds for dismissal of the debtor’s current bankruptcy case.
HOWE (5/25/11) (455 B.R. 148)
Attorney for municipality failed to timely file a claim for personal property taxes due in debtors’ chapter 7 case. Attorney moved to extend the time period to file claim, which bankruptcy court denied. Because a portion of municipality’s claim was deemed “priority” and because few assets were expected to be distributed in debtors’ case, attorney’s error had negligible effect on any dividend to municipality. The court saw no reason for extension of the claim’s deadline.
INTERCITY OIL COMPANY, INC. (10/1/90) (122 B.R. 358)
Plaintiff oil company's adversary proceeding filed to compel trustee to avoid lien of IRS on debtor's vehicles, inventories and accounts receivables in order to fund plaintiff's administrative claim under 11 U.S.C. § 546(c) is dismissed. Plaintiff sold gasoline and fuel oil to debtor and sought reclamation pursuant to § 546(c) and Wis. Stat. § 402.702(2). Plaintiff did not have a right of reclamation under Wisconsin law; its petroleum products were sold by debtor to good-faith purchaser before plaintiff made its demand for reclamation.
ISAACS (4/11/13) (491 B.R. 893)
JAFARI (10/16/07) (378 BR 575) [rev'd & remanded, 385 B.R. 262 (W.D. Wis. Apr. 7, 2008)]
JAROCKI (10/28/87) (Unpublished)
Creditor Federal Land Bank's motion for relief from stay is denied. Creditor's contention that exclusive method of providing adequate protection on mortgaged farmland is to pay secured creditor the reasonable rental value of that land is in error. 11 U.S.C. § 1205 provides four alternative methods for providing adequate protection in chapter 12 cases. Debtor is complying with § 1205(b)(1) by making monthly cash payments to an escrow account to protect against any decrease in value of property securing creditor's claim.
JAYNES (7/18/07) (377 BR 880)
JAYNES (8/3/10) (unpublished)
The debtor’s attorney applied for administrative expenses incurred as he pursued a state court cause of action that resulted in a small settlement for the estate. The chapter 7 trustee objected and claimed he was entitled to the funds. The bankruptcy court held that the attorney was entitled to only a partial recovery, since 11 U.S.C. § 503(b)(3) allows administrative expenses only of those who have made a “substantial contribution” to the estate. The court reasoned that the contribution could be substantial only if it yielded funds for unsecured creditors. Accordingly, the court ordered that half the proceeds be distributed to unsecured creditors, with the remaining half divided between the debtor’s attorney and the trustee.
JOHANNSEN (9/29/93) (160 B.R. 328)
Debtor who purchased $1110.71 worth of Barbie doll items within forty days of her bankruptcy filing successfully rebutted presumption of fraudulent intent under 11 U.S.C. § 523(a)(2)(C) -- the "luxury goods" exception. Purchases were Christmas gifts for debtor's daughter; debtor's bankruptcy filing was done on advice of counsel and precipitated by ex-husband's filing; and debtor intended to pay for items in installments. This was not a case of "loading up" in anticipation of filing bankruptcy -- the type of activity which § 523(a)(2)(C) was intended to prevent. Citing J.C. Penney Co. v. Leaird (In re Leaird), 106 B.R. 177 (Bankr. W.D. Wis. 1989).
JORENBY (6/9/08) (393B.R. 663)
Complaints on dischargeability. The debtor sold the plaintiffs’ collateral without their consent. Plaintiffs separately sought to have debts declared nondischargeable for “willful and malicious injury.” As to Farmers Implement Store, there was no provision barring the sale of its collateral in the security agreement, thus there was no conversion, and its complaint was dismissed. As to Farmers Savings Bank, the debtor testified that he knew that the sale of the collateral would injure the Bank. A conversion with knowledge that injury would result is “willful and malicious,” so the debt was excepted from discharge. § 523(a)(6).
JUZWIAK (6/26/87) (78 B.R. 215)
Debtor's motion to dismiss untimely filed nondischargeability complaint of creditor is granted. Alleged lack of notice to creditor of deadline for complaints objecting to discharge did not suspend running of time period for filing objections; creditor had notice of bankruptcy more than two weeks prior to deadline for filing complaints.
KADRMAS (9/19/00) (Unpublished)
Debtors claimed a tax refund as exempt. The IRS sought to setoff its tax claim against the refund. The Court concluded that the debtors discharge did not impact the creditors right to setoff under 11 U.S.C. § 553. The Court also concluded that the right of setoff exists, even against property the debtors claim as exempt.
KANE (3/27/03) (Unpublished)
The Debtor’s son-in-law, Ronald Vogt, had been managing VATW, a satellite operation of Monroe Ag-Tech (“Monroe”). Monroe advanced operating funds on a monthly basis to VATW, including an amount designated as Mr. Vogt’s salary. Badger State Bank (“Badger”) permitted VATW to pay Mr. Vogt from accounts in which Badger had a security interest. In early 2001, VATW began having financial difficulties. Monroe stopped advancing operating funds and Mr. Vogt stopped receiving his salary. By August, 2001, VATW was insolvent and owed Mr. Vogt a substantial amount of unpaid salary. VATW closed its doors to the public and surrendered its assets to Badger. However, the assets were insufficient to satisfy VATW’s debt.
At the time VATW was closing, Mr. Vogt issued three checks in the amount of $29,000 drawn on VATW’s account to the Debtor to repay money lent to him. The parties agreed that the amount owed to Mr. Vogt was more than $29,000.
In January 2002, Badger sued the Debtor in Circuit Court seeking to recover the transfers as fraudulent under state law. The Debtor was unable to bear the costs associated with defending herself and filed for Chapter 13 protection. Her schedules did not include assets under her husband’s exclusive control.
Badger presented an elaborate objection to confirmation of Debtor’s Chapter 13 plan. Badger claimed to be a creditor of the Debtor by virtue of her having received a fraudulent transfer of property from a company at a time when that company was indebted to Badger. Badger had no other claims against Debtor. If Badger were entitled to recover the transferred property from the Debtor, complicated issues would arise as to whether the Debtor’s plan was in the creditors’ best interest.
The Debtor denied that a fraudulent transfer occurred and that Badger had a claim against her estate. She argued that neither she nor her creditors had any rights to property under her husband’s exclusive control pursuant to a marital property agreement that she and her husband signed in 1995. Badger claimed that the marital property agreement was too vague to be enforced.
It was determined that Badger’s standing to object to the plan depended upon the Debtor’s receipt of a fraudulent transfer. Badger’s transfer was not fraudulent and the Debtor was not obligated to Badger and Badger did not have standing to object to her plan. Thus, Badger’s objection based on the marital property agreement was not explored.
KARIS (3/20/97) (208 B.R. 913)
Debtors filed motion seeking to hold Farm Service Agency in contempt for purported violation of 11 U.S.C. § 362. They sought an award of damages under § 362(h) for the creditor's actions in selling certain cattle after the petition was filed. The court initially questioned whether any violation could be considered "willful" when the debtors filed on the morning of an auction and did not provide the creditor with any documentation of the filing beyond their oral statements.
The court did not reach this issue, however, as it concluded the cattle were not property of the debtor's estate under § 541 at the time the case was filed. The cattle were seized pursuant to a replevin judgment prior to the bankruptcy filing. Accordingly, the debtor's rights and ownership interests in the cattle were terminated at that time, and the subsequent bankruptcy filing could not resuscitate those rights.
KEENA (12/13/11) (Unpublished)
The debtors own two parcels of real estate, which are adjacent to one another. One parcel contains the debtors’ residence, the other parcel is a vacant lot on which the debtors occasionally hunt and gather firewood. The debtors claimed an exemption in both parcels of land under § 522(d)(1). The trustee filed an objection to the debtors’ claim of homestead exemption, contending that debtors could not claim the exemption in both their residence property and an attached vacant lot. The bankruptcy court granted summary judgment in favor of the trustee, holding that the adjoining parcel of land was not property that the debtor or a dependent of the debtor uses as a residence, and therefore, the debtors could not claim an exemption in that parcel under § 522(d)(1).
KEPLER V. SPRINGER (In re: Shane Dailey) (3/15/10) (2010 WL 1006938)
The chapter 7 trustee brought a preference avoidance action. The defendant orally agreed to guarantee a debt the debtor, owed to a third party. This guarantee was made gratuitously and orally, as a favor to his friend. When the debtor’s payment failed to clear, the defendant paid the obligation on the debtor’s behalf. The debtor then repaid the defendant. The trustee sought to avoid those repayments. The parties agreed that the elements of a preference were present. The court found no defense under § 547(c) applied, in that the guarantee was outside the ordinary course for each man. Further, there was no contemporaneous exchange for new value. When the debtor repaid the defendant, he received no new value in exchange, just cancellation of an antecedent debt.
KIRCHNER (3/9/07) (372 B.R. 459)
A chapter 7 debtor who had held title to his parents' house and transferred it to his siblings for no consideration had made a fraudulent transfer under the Uniform Fraudulent Transfer Act. Although he was holding the title for his parents' benefit, he was not holding it in trust for them, and nothing entitled them to an equitable lien against the property. All the elements of a UFTA claim having been met, the chapter 7 trustee was entitled to turnover of the property.
KLEFSTAD/CIRCLE P FARMS, INC./LENTZ/LENTZ FARMS, INC. (7/22/88) (95 B.R. 622)
Debtors sought court determination of status of real estate tax penalties in their respective chapter 11 bankruptcy cases. Generally, penalties are not in harmony with overall philosophy of bankruptcy code -- to effectuate fair and equitable distribution of estate assets to creditors. Postpetition penalty on debtors' postpetition Wisconsin real estate taxes is allowable as an administrative expense. Postpetition penalties on debtors' prepetition real estate taxes, which become a lien on real estate under Wisconsin law, are punitive in nature and are thus disallowed.
KLUG (5/27/99) (Unpublished)
Partnership which had been previously dissolved by the agreement of the partners filed bankruptcy. The primary secured creditor moved to dismiss the case, contending that (i) a dissolved partnership was not eligible to proceed under chapter 11 or 12, and (ii) that the individual partners' own prior bankruptcies prevented them from acting on behalf of the partnership. The court found that at least in the context of a family farm partnership operated solely by a husband and wife, the dissolution did not necessarily terminate the business operation or mandate that the partnership "wind up" its affairs. Rather, the agreement of the partners dictates whether the partnership can continue reorganization efforts. Likewise, while state law would normally preclude a bankrupt partner from acting on behalf of the partnership, the partners can agree otherwise. The motion to dismiss was denied.
KOGLER (3/30/07) (368 B.R. 785)
The United States Trustee brought a motion to dismiss based on the “presumption of abuse” found in 11 U.S.C. § 707(b)(2). The debtors argued that the presumption of abuse did not apply because the debtors’ deductions, including deductions for secured debt, indicated that they had no disposable income. At issue were deductions for a home and a vehicle that the debtors proposed to surrender. The Court ruled that § 707(b)(2) contemplated a “snapshot” review of the debtors’ finances as of the petition date, and that the debtors were entitled to deduct secured debt which was contractually due as of that date regardless of their subsequent intentions toward the collateral. Consequently, the motion was denied.
KOLVE (9/22/11) (459 B.R. 376)
Debtors sought a determination that certain tax obligations were discharged as they had come due more than three years prior to the petition date. The IRS contended that the statutory “lookback” period should be extended due to the debtors’ prior chapter 13 case. The court concluded that the language of the statute which references the period in which “the stay of proceedings was in effect in a prior case” only authorizes an extension of the lookback period if the automatic stay in a prior case actually precluded the IRS from pursuing collection actions. The debtors’ plan had been confirmed before the taxes came due, and as a result the IRS was not “disabled” from collecting the taxes by the prior case. The taxes were discharged.
KOWALEWSKI (10/23/86) (78 B.R. 553)
Creditor bank's objection to debtor's claim of exemption is denied. Debtors, though married, are each entitled to their own exemptions under Wis. Stat. § 815.18(6) -- the state statute exempting small tools and farm implements. $300 limitation in § 815.18(6) applies only to "small tools and implements" language and not to all of the items in the statute up to the previous semicolon.
LADDUSIRE (1) (6/6/13) (494 B.R. 373)
LADDUSIRE (2) (6/20/13) (494 B.R. 383)
When the Debtor filed bankruptcy in December 2012, an action to foreclose on her home had been pending in Oneida County Circuit Court since January 2009. She removed the foreclosure action to the bankruptcy court, and Bank of America filed a Motion to Remand, Abstain, or Dismiss. After analyzing the impact of removal and remand on the foreclosure action and the bankruptcy case in light of a fourteen-item list of factors, the bankruptcy court concluded that "permissive" abstention was appropriate under 28 U.S.C. § 1334(c)(1).
LA LONDE (5/7/10) (431 B.R. 199)
The debtor filed chapter 7, then converted to chapter 13 when the trustee pursued preference avoidance actions. The chapter 7 trustee then objected to confirmation of the chapter 13 plan, arguing that it failed to meet the best interests test because of the potential yield of avoidance actions in a chapter 7. The court held that the plan failed to meet the best interests test, because the chapter 7 trustee was reasonably likely to have avoided certain transfers as preferential. The court also held, however, that the trustee was not reasonably likely to have sold certain property, since the debtor held it in a constructive trust. Further, the court found no violation of the requirement that a plan be proposed in good faith.
LANDSINGER (7/23/12) (490 BR 827)
During the debtors’ marriage, the debtor-wife received an interest in real property from her father. The debtors later executed a mortgage note with a bank and pledged the real property as collateral. The debtors made payments on the mortgage note with marital property funds. The debtors filed for bankruptcy under Chapter 7, and each claimed an exemption in the real property under 11 U.S.C. § 522(d)(5). The Chapter 7 trustee objected, claiming that the wife’s interest in the real property was individual property under Wisconsin law, and therefore, the husband could not claim any exemption in it. The bankruptcy court found that marital property was “mixed” with the wife’s individual property under Wis. Stat. § 766.63(1) because the principal payments the debtors made on the mortgage note constituted marital property. However, because the marital property component could be traced, the real property was not reclassified to marital property. The debtor-husband was entitled to claim an exemption in his undivided one-half interest in the amount of principal payments made on the mortgage note.
LARK (8/27/10) (438 BR 652)
The debtors received their 2009 tax refunds after they filed bankruptcy. They filed amended schedules in which they sought to exempt the tax refunds as “depository accounts” under Wis. Stat. § 815.18(3)(k). The bankruptcy trustee objected to the exemption, contending that the refunds did not constitute a “depository account” as defined by § 815.18(2)(e). While recognizing that the exemption laws are to be liberally construed in favor of the debtors, the Court also noted that under Wisconsin law courts are obligated to enforce the statute as written and not create exemptions which the legislature has not authorized. While some people may use their tax withholding as a form of forced savings, a tax refund is not sufficiently akin to the sorts of accounts listed in Wis. Stat. § 815.18(2)(e), nor is the government sufficiently similar to the types of financial institutions contemplated by the statute. At the time of filing, the debtors held a right to receive a tax refund which was property of the estate and did not qualify for exemption under Wis. Stat. § 815.18(3)(k). The trustee’s objection was sustained.
Bankruptcy trustee sought to compel answers to various discovery questions which the debtor had answered in a vague and evasive fashion. The court granted the motion. Thereafter, the trustee sought answers to these questions in a hearing before the court. At the conclusion of the hearing, the trustee requested default judgment on his complaint objecting to the debtor's discharge on the basis that the debtor continued to refuse to answer the discovery questions. The court held that the debtor's failure to respond justified imposition of the extreme sanction of judgment on the pleadings. The debtor had received ample opportunity to make full disclosure to the court and the trustee. Accordingly, judgment was entered denying the debtor's discharge.
Debtor, who had previously been denied a discharge, sought to exempt approximately $450,000.00 held in a pension plan. The trustee objected to the exemption, contending that the plan was not compliant with either ERISA or the Internal Revenue Code. The court found that the insubstantial presence of one other employee as a participant in the plan did not render it ERISA-qualified; ERISA excludes plans which benefit only sole shareholders such as the debtor, and this was therefore a "plan without employees" and not covered by ERISA. Similarly, the failure to maintain or update the plan to conform with the tax laws meant that the plan was not "IRS-qualified." Accordingly, the debtor's exemption claim was denied. [Reversed on appeal, 244 B.R. 868 (S.D. Fla. 2000), Dist. Ct. aff'd, Case No. 00-11109EE (11th Cir. 2001)]
LAWRENCE (S.D Florida) (6/2/00) (Unpublished)
Trustee brought sanctions motion against former counsel for bankruptcy debtor. The debtors discharge had been denied for his conduct during the discovery process. The trustee sought sanctions against various attorneys for their participation in "scorched earth" litigation. These attorneys filed motions to dismiss and/or strike the sanctions request. The Court concluded that bankruptcy courts are "courts of the United States" for purposes of 28 U.S.C. § 1927 and can award sanctions pursuant to that statute. Further, similar power exists under 11 U.S.C. § 105(a). The motions to strike were denied, and the matter set for an evidentiary hearing.
LEAIRD (4/7/89) (106 B.R. 177)
Creditor store's adversary proceeding seeking determination that debt from debtor's purchases totaling $1,047.42 is nondischargeable pursuant to 11 U.S.C. § 523 (a)(2)(C) -- the luxury goods exception -- is dismissed. To establish a presumption of nondischargeability under § 523(a)(2)(C), a plaintiff must show: 1) a consumer debt; 2) owed to a single creditor; 3) aggregating more than $500.00; 4) for luxury goods or services; 5) incurred by an individual debtor; 6) on or within forty days before the order for relief. Citing In re Blackburn, 68 B.R. 870, 873 (Bankr. N.D. Ind. 1987). Debtors successfully rebutted the presumption by testifying that the purchases were made impulsively and that bankruptcy was not contemplated until after they received a notice of deficiency from the Veterans Administration.
LEE (12/31/86) (Unpublished)
Disclaimer executed by debtor on July 1, 1983 -- nearly two years prior to her bankruptcy filing on June 18, 1985 -- did not constitute a fraudulent conveyance pursuant to § 242.04 or § 242.07 of the Wisconsin Statutes. Debtor executed disclaimer pursuant to § 853.40 of the Wisconsin Statutes, effectively disclaiming any interest she was entitled to receive as a beneficiary of decedent's will. "Disclaimer" is not included in statutory definition of "conveyance" contained in § 242.01(2) of Wisconsin Statutes. § 853.40(7) of Wisconsin Statutes sets forth three ways in which individual's right to disclaim is barred. Insolvency is not one of them. Trustee presented no evidence that waiver was result of improper inducement or collusion by which debtor received improper benefit. Fact that devised property will vest in another family member does not constitute improper benefit.
LeRoy Lee filed two adversary actions against Harvey Haukaas, and a separate case against Harlan Haukaas to determine the nondischargeability of his claim under § 523(a)(4) and § 523(a)(6). The two cases were consolidated for trial. Just before trial, the parties agreed to submit stipulated facts, and a trial was never held. Lee argued that he was injured when the defendants transferred corporate assets to a new corporate entity, which precluded his ability to collect on an unsecured debt that he was owed by the original corporation. Based on stipulated facts, the court concluded Lee was not injured by the defendants’ conduct, because the original corporate entity that was controlled by the defendants had no assets that were unencumbered, and thus available for unsecured creditors. Accordingly, Lee failed to meet his burden under § 523(a)(6). The court also found that Lee had neither established that an express trust existed, nor that the defendants ever owed, or breached any fiduciary duties owed to Lee, as a creditor. As a result, Lee did not establish a claim under § 523(a)(4). The court dismissed Lee’s complaint.
LeNEVE (3/8/06) (S.D Florida) (341 B.R. 53)
Chapter 7 trustee brought action against defendant to recover alleged fraudulent transfer made by debtor. Creditor contended that she had invested some $700,000 in the debtor’s business ventures. The trustee sought to recover $957,000 in transfers. The court found that the trustee did not prove she recovered a $450,000 transfer. As to the remaining balance, the court concluded that she did provide “reasonably equivalent value” in the form of her investments. The fact that the debtor was apparently engaging in a fraudulent scheme did not preclude the defendant from asserting the right to recover her “investments.”
LENSER (5/15/92) (Unpublished)
Although state courts have concurrent jurisdiction to determine dischargeability issues, this Court will retain jurisdiction to determine whether the debts arising from the state court divorce decree are dischargeable in the debtor-husband's bankruptcy. Such issues are frequently determined by this Court and the debtor's bankruptcy case had not yet been closed at the time he filed this adversary proceeding. Considerations of judicial economy, efficiency and expediency warrant the Court's retention of jurisdiction in this matter.
LONG (5/10/07) (372 B.R. 467)
A chapter 13 debtor with above-median income was permitted to deduct the full ownership expense on Official Form B22C even though the debtor had encumbered both cars with one vehicle loan.
LUNDGREN (12/17/13) (503 B.R. 717)
LYREK (10/31/94) (Unpublished)
Bank objected to debtors' treatment of it in a chapter 12 plan on the basis that it held no "claim" against the debtors. The debtors were the assignees of a parcel of real property on which the bank had a mortgage. The bank contended that since it held no claim against the debtors (its only claim being against the prior owner of the property), it was not a "creditor" within the meaning of the bankruptcy code and could not be subjected to a reorganization plan.
Court held that the debtors did hold rights in the property when they filed bankruptcy. As a result, the purported lack of a "debtor-creditor" relationship was not relevant. Given the Supreme Court's decision in Johnson v. Home State Bank, 501 U.S. 78 (1991), in which the Court held that the debtor's lack of personal liability upon a mortgage debt did not preclude the reorganization of that debt, the mere fact that the Lyreks were not personally obligated to the bank also did not preclude reorganization of the mortgage debt in this case. A "claim" is a "right to payment," and the creditor had a right to payment in the form of a right to the proceeds of the sale of the debtors' property. See 11 U.S.C. § 101(4)(A).
MALLINCKRODT (S.D. Florida) (3/28/01) (260 B.R. 892)
Debtor brought adversary proceeding to determine whether his student loans should be discharged as an "undue hardship" within the meaning of 11 U.S.C. § 523(a)(8). The Court concluded that the debtors financial condition was such that he would not be able to maintain a minimal standard of living if required to repay the loans. Further, this condition was likely to persist for the foreseeable future, and the debtor had acted in good faith. There is also no basis for restructuring or deferring the debt.
MANCL (8/24/07) (375 B.R. 514)
The debtors proposed a chapter 13 plan which calculated their “disposable income” in accordance with their Form B22C. The chapter 13 trustee objected on the grounds that the income reported on the Form B22C was abnormally low because the debtor had been disabled during the six months prior to the bankruptcy filing. The trustee argued that the debtors’ actual income should be used in determining their “disposable income.” The court found that the Form B22C should be the starting point for the disposable income test but is not dispositive. If the six-month average used by the Form B22C to calculate a debtor’s “current monthly income” is not a reasonable forecast of future income, the court may consider the debtors’ actual income.
MANZANARES (S.D. Florida) (5/24/06) (345 B.R. 773)
The debtor filed an adversary proceeding against State Farm for a violation of the discharge injunction. At the time of the debtor’s bankruptcy, State Farm’s subrogation unit had two lawsuits pending against the debtor; both lawsuits stemmed from the same automobile accident. State Farm was represented by different law firms in each action. One law firm was clearly notified of the bankruptcy, and forwarded that notice to State Farm’s collection/subrogation unit. An agent in the subrogation unit thereafter directed the dismissal of that lawsuit; the other lawsuit, however, was not dismissed. The lawyer for State Farm thereafter obtained a judgment against the debtor and had the debtor’s driver’s license suspended.
The court concluded that State Farm had actual knowledge of the debtor’s bankruptcy, and that the second claim had been discharged in the debtor’s bankruptcy. The court also found that the insurer was responsible for a willful violation of the discharge injunction when it failed to supervise the attorney acting as its agent or to notify him of the pending bankruptcy. The debtor was awarded $66,629.66 for lost wages, emotional distress, and the discomfort and costs associated with the loss of his driver’s license for almost six months.
MARTINSEN (5/10/11) (449 BR 917)
Debtor moved to dismiss adversary proceeding contesting discharge as being untimely filed. The plaintiff argued that the complaint should be regarded as timely because the U.S. Trustee had sought an extension of time. Alternatively, the plaintiff argued that the complaint should not be dismissed due to doctrines of equitable estoppel or equitable tolling. The Court determined that although the U.S. Trustee initially sought to extend the deadline for objecting to discharge as to “all parties in interest,” the order entered by the court (after an objection by the debtor) only extended the deadline as to the U.S. Trustee and the chapter 7 trustee. The plaintiff had plenty of time to seek an extension and did not do so. In addition, there was no contention that the debtor attempted to prevent the plaintiff from filing the adversary, and the plaintiff was not diligent in pursuing its possible claims. The complaint was untimely and the narrow equitable defenses to the rule did not apply. The debtor’s motion to dismiss was granted.
McCLEARN (11/19/07) (384 B.R. 196)
After successfully avoiding a lien on a house, a chapter 7 trustee moved to sell the house and realize the proceeds that the holder of the avoided lien would have received in a sale. The debtor disputed the value of the house and argued that the homestead exemption primes the Trustee's position. The court found that the Trustee took the rights and priority of the holder of the avoided lien and that the Trustee would benefit sufficiently to justify the sale. The application was granted. Section 544.
McCOY (12/21/11) (464 B.R. 832)
The trustee sought turnover of the debtor’s interest in a trust, as well as turnover of an annual trust payment to which the debtor was entitled. The bankruptcy court held that the debtor’s interest in the trust was not part of the bankruptcy estate because the trust was an enforceable spendthrift trust under Wisconsin law. The court further held that the trustee was not entitled to the annual payment, notwithstanding a Wisconsin statute that authorized judgment creditors to apply for principal payments of a spendthrift trust when they have become due or payable. Because the trustee of the trust had discretion to withhold the annual payment from the debtor, it was not “due or payable,” and the bankruptcy trustee was not entitled to turnover. The court granted summary judgment in favor of the debtor.
McKITTRICK (8/24/06) (349 B.R. 569)
Debtor previously filed bankruptcy in 1998, and refiled in January 2006, shortly after the effective date of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The U.S. Trustee objected to the debtor’s discharge, contending that the debtor was not eligible to receive one under 11 U.S.C. § 727(a)(8), which as amended extended the period between chapter 7 discharges to eight years. The Court found that the debtor did not have a substantive right to receive a discharge within six years of her prior filing. As the bankruptcy amendments only affected her ability to prospectively file bankruptcy, she was subject to the statutory terms in effect when she filed the new case. Consequently, the debtor’s discharge was denied.
MIDWEST PROPERTY MANAGEMENT v. POLUS (7/6/11) (455 BR 705)
Midwest Property commenced this adversary action against the defendant to determine the nondischargeability of its claim under § 523(a)(4). The defendant served as a general contractor in a project for the construction of a log home. After receiving $119,000 from the owner, the defendant paid all subcontractors on the job, except one. While one subcontractor was left unpaid, the defendant retained $18,000 to cover the cost of his own labor and other costs on the project. The court held that the defendant’s retention of the funds did not constitute “defalcation of a fiduciary.” General contractors have a right to retain funds to cover their own costs, providing the retention of funds is proportional to any amounts paid to subcontractors. Accordingly, the defendant’s conduct could not be characterized as reckless and Midwest’s complaint for nondischargeability was discharged.
MILLER (9/11/92) (Unpublished)
For purposes of resolving a priority dispute, State of Wisconsin, Department of Agriculture, Trade & Consumer Protection's recording of a farm preservation agreement on October 13, 1985, did not create a lien as of that date against the debtor's property. Interpreting the mere recording of such an agreement to have this effect would render other portions of the statutory scheme superfluous. Wisconsin statutes provide a process through which a lien can be filed against property on the basis of a farm preservation agreement. That process was not involved here. Given the current contingent nature of any ultimate lien, Court finds it would be manifestly unfair to State Bank of Arthur (a competing creditor) to prematurely fix the value of the state's contingent lien and thereby "cram down" the amount of the bank's secured claim.
MILLER (7/8/09) (414 B.R. 481)
Debtor filed an adversary proceeding seeking damages for an alleged violation of the automatic stay. The defendant was an agency of the United States and a creditor of the debtor. The defendant had certified its judgment to the IRS pursuant to statutory provisions which allowed federal agencies to offset their claims against “tax overpayments” made by debtors. The defendant had refused to surrender a refund of $1,393.00 which it had received under this program. The debtor contended that her exemption claim trumped the agency’s setoff rights. The Court found that § 553 preserves whatever setoff rights otherwise exist, and that because the bankruptcy code does not alter or affect setoff rights, the debtor’s exemption claim could not “trump” the creditor’s rights under § 553. Judgment was granted in favor of the creditor.
MISSISSIPPI SPORTS and Recreation (6/8/12) (483 B.R. 164)
The Wisconsin Department of Natural Resources moved to dismiss the case and alleged that the debtor had not obtained confirmation of a plan within the time periods required in a small business case. The plan was filed in a timely fashion and the first hearing on confirmation occurred within 45 days of the filing of the plan. The confirmation hearing was adjourned several times, although the debtor did not file a formal motion to extend the time for confirmation. The court found that the adjournments occurred prior to the expiration of the existing deadline, parties in interest had sufficient opportunity to object to any extension, and all parties acquiesced to the adjournments. The code does not require a formal motion but simply a “demonstration” that a plan is likely to be confirmed within a reasonable time. The motion to dismiss was denied. Reversed and remanded on appeal.
MOORE (12/8/04) (318 BR 679)
Where spouses are jointly liable for prepetition debt, but only husband files bankruptcy, wife's individual property remains available to satisfy the debt. Actions by creditors against wife to separate wife's individual property from the couple's community property, which is protected by the section 524 discharge injunction, do not violate the discharge injunction.>
MORDHORST (5/31/00) (Unpublished)
The trustee brought this adversary proceeding asking the court to find (1) that the debtor's right to recover damages in a wrongful death action were property of the estate under 11 U.S.C. § 541(a); (2) that the debtor is required to turnover the settlement proceeds and the property he purchased with the proceeds under 11 U.S.C. § 542(a); and (3) that the debtor's discharge should be revoked pursuant to 11 U.S.C. § 727(d)(2). The court (Judge Martin) ruled that under Illinois law, the debtor had an interest in the wrongful death action brought for the death of his mother. This interest became property of the estate upon the filing of the debtor's bankruptcy. Because the debtor never scheduled this interest, it remained property of the estate even after the debtor's bankruptcy case was closed. The court further entered a judgment against the debtor for the amount of the wrongful death proceeds received by the debtor but not turned over to the bankruptcy estate. Finally, the court revoked the debtor's discharge pursuant to § 727(d)(2) because it was more probable than not that the debtor possessed fraudulent intent while failing to report and deliver the settlement proceeds to the trustee.
MORRISON v. MERGEN (5/1/12) (473 BR 743)
Plaintiffs Troy and Christa Morrison sought to except the debt owed them from discharge under 11 U.S.C. § 523(a)(2)(A). The plaintiffs relied on a state court jury verdict and judgment entered against the debtor. The debtor failed to answer timely, and the plaintiffs moved for default judgment. The debtor argued that the state court findings failed to establish the elements of 11 U.S.C. § 523(a)(2)(A), and was therefore not entitled to preclusive effect. Treating the matter as cross motions for summary judgment, the bankruptcy court found that the standards for collateral estoppel and issue preclusion were satisfied because the state court verdict contained findings that tracked the elements of 11 U.S.C. § 523(a)(2)(A), and the state court judgment was a final judgment on the merits of the case. The bankruptcy court concluded that the plaintiffs could not prevail under 11 U.S.C. § 523(a)(2)(A) because identical issues were litigated in state court and the jury found that the debtor lacked the requisite intent to deceive. The court granted summary judgment in favor of the debtor.
MROCZENSKI (12/16/13) (Unpublished)
MUELLER (12/15/99) (243 B.R. 346)
The debtor brought this adversary proceeding to determine whether he should be discharged from his debt to the Wisconsin Department of Workforce Development ("WDWD") for unpaid unemployment insurance contributions of his corporation. The court (Judge Martin) found the debt to be nondischargeable under either 11 U.S.C. § 523(a)(1)(A) or 11 U.S.C. § 523(a)(1)(B)(ii) of the Bankruptcy Code. Relying on the Eighth Circuit B.A.P. in In re Voightman, 239 B.R. 380 (8th Cir. B.A.P. 1999), the court found the unpaid unemployment insurance contributions to be an excise tax under § 507(a)(8)(E) of the Bankruptcy Code. According to the court, the obligation at issue was an excise tax because it was "an involuntary pecuniary burden imposed by the State of Wisconsin on employers . . . for the public purpose of creating a 'gradual and constructive solution of the unemployment problem.'" Finally, the court held that the debt was also nondischargeable under § 523(a)(1)(B)(ii) because this section "excepts from discharge any debt of an individual debtor for a tax where a return was filed late and within the two-year period prior to bankruptcy." Because the debtor was liable for the debt as a responsible party, and the returns were filed late and within the two-year period prior to bankruptcy, the debtor's debt for unpaid unemployment insurance contributions is not dischargeable under § 523(a)(1)(B)(ii).
NEALE (11/18/10) (440 B.R. 510)
The creditor filed an adversary proceeding alleging that his investment in a failed real estate development was procured by fraud on the part of the debtor/defendant. The debtors moved to dismiss the case for failure to state a claim upon which relief can be granted, and for failure to allege fraud with sufficient particularity. A complaint need not contain exhaustive factual allegations, but the plaintiff’s obligation to demonstrate relief requires more than labels and conclusions. The plaintiff’s complaint failed to provide the “content” of the alleged misrepresentation, and the failure to identify the fraudulent statements or the reasons why they were fraudulent did not satisfy the particularity requirements of the federal rules. As such, the complaint was properly dismissed. As the plaintiff had already been afforded an opportunity to amend the complaint, dismissal would be with prejudice.
NELSON (9/18/00) (254 B.R. 436)
Debtor brought proceeding to prevent state criminal proceedings. Debtor contended that the criminal prosecution was merely a pretext for collecting a debt which had been discharged in bankruptcy. The state moved to dismiss the adversary proceeding on the grounds that the Eleventh Amendment to the U.S. Constitution precluded suits against states. The state cited Seminole Tribe v. Florida, 517 U.S. 44, 116 S. Ct. 1114, 134 L. Ed. 2d 252 (1996), for support. The bankruptcy court concluded the Eleventh Amendment did not constitute a bar to the proceeding. On appeal, the district court reversed.
NORTHWEST LIQUOR INDUSTRIES, INC. (9/26/88) (107 B.R. 616)
Trustee's motion for partial summary judgment in action to recover $125,000 setoff by bank against debtor's indebtedness to it is denied. Bank did not waive its right to setoff by issuing a cashier's check; nor did purchase of a cashier's check create special account so as to destroy mutuality of obligations required for bank to exercise its right of setoff under Bankruptcy Act. Substantial issues of material fact exist as to whether payee's interest in cashier's check arose before debtor-remitter filed bankruptcy, thus precluding summary judgment.
NORTON (2/15/00) (248 B.R. 131)
Creditors filed adversary proceeding under 11 U.S.C. § 523(a)(2)(A). The debtor had been treated by the creditors for injuries she had suffered. The debtor executed a "Financial Responsibility Form" under which she agreed to repay the creditors from any personal injury settlement she received. Although she did ultimately receive a settlement, she did not pay the creditors. The creditors contended that her actions constituted fraud under § 523(a)(2)(A). They also asserted a hospital lien. The Court found that the documents in question did not rise to a lien, equitable or otherwise. Further, there was no evidence that the debtor executed the Financial Responsibility Form with an intent to deceive. Adversary proceeding dismissed.
NOVITZKE (9/28/90) (120 B.R. 483)
U.S. Trustee's objection to flat fee charged by chapter 7 debtor's attorney is dismissed. Court applies factors identified in In re Reliable Investors Corp., 60 B.R. 98 (Bankr. W.D. Wis. 1986) and determines that flat fee of $3,000 was reasonable, even though that amount exceeded by $487 what fee would have been under a hypothetical hourly rate.
O'LOUGHLIN (6/29/87) (Unpublished)
PALMER LAKE PLAZA, LLC (4/16/12) (449 B.R. 917)
A creditor moved to transfer venue. The debtor’s primary asset was an office building located in Minnesota. The debtor was organized under Minnesota law, its principal place of business was in Minnesota, and the sole member of the debtor was a Minnesota resident. The case was filed in Wisconsin based entirely upon the debtor’s affiliation” with another entity whose case was presently pending in Western Wisconsin. While venue was technically proper under the statute, the court agreed with the creditor that the case should be transferred to Minnesota. It would be far easier for all parties for the case to be heard in Minnesota, and the debtor’s connection with Wisconsin was tenuous at best. Motion granted.
PARTY CONCEPTS V. AMERICAN GREETINGS (6/26/02) (Unpublished)
Defendants filed a motion to compel the production of all documents pertaining to a stock purchase agreement and a supply agreement, the former of which was the focus of a breach of contract action against defendant. These documents contained a memorandum from counsel marked "attorney-client communication." Defendants argued that plaintiff had waived any attorney-client privilege by disclosing it to defendant. Fed. R. Civ. P. 26(b)(1) allows a court to limit discovery to the actual claims or defenses pled in a case. The court also has discretion under Fed. R. Civ P. 26(b)(2)(iii) to limit discovery if it determines that "the burden or expense of the proposed discovery outweighs its likely benefit . . . ." This court determined that even though the attorney-client privilege was waived, discovery is not compelled. Defendants' motion to compel is denied.
PAWLAK (6/3/11) (Unpublished)
Debtors moved to dismiss a portion of the plaintiffs’ second amended complaint. While the federal rules require only a “short and plain statement” of the plaintiffs’ claim, there must be enough alleged to state a claim that is “plausible on its face.” The plaintiffs sought to deny the debtors’ discharge under § 727(a)(4)(C), which relates to a debtor who knowingly, in connection with a case, gave or received something as an inducement to act (or to forebear from acting). This section essentially relates to bribery or extortion in connection with a bankruptcy case; the complaint featured no factual allegations to support such a claim. The Court also agreed with the debtors that a claim under § 523(a)(2)(A) was not plausible on its face. Both counts were dismissed.
Plaintiffs sought to prevent the discharge of a $1.1 million default judgment for breach of fiduciary duty by member and general manager of limited liability company. On summary judgment, the court found that the default judgment did not preclude the debtor from revisiting issues of liability for fraud or fraud in a fiduciary capacity. The plaintiffs alleged that the debtor had concealed the existence of a lucrative contract and attempted to obtain the contract for his own company. The court found that even presupposing that the original contract existed, it was illusory and the plaintiffs suffered no actual harm from the alleged fraud. The court also concluded that even construing the facts in the light most favorable to the plaintiff, the debtor’s fiduciary obligations under state law did not constitute a fiduciary capacity under bankruptcy law. Summary judgment was granted in favor of the debtor.
Chapter 7 trustee sought to recover $50,000 “flat fee” paid to law firm to represent debtors in potential bankruptcy adversary proceeding. The trustee alleged that payment of the fee constituted a fraudulent transfer as the debtors did not receive “reasonably equivalent value” at the time the transfer was made (i.e., prior to the bankruptcy filing). The bankruptcy court ruled that the flat fee was not property of the estate at the time of filing. However, all fees paid to attorneys in connection with a bankruptcy case (or a related adversary case) remain subject to review by the bankruptcy court. Payment of the fee constituted a pre-petition transfer of the debtors’ property, even though the funds were paid directly to the law firm as part of a settlement with a third party insurance company. The promise of future representation constituted a legally binding obligation which had value, even though there was no certainty that an adversary proceeding would be filed. Under the facts of the case, at the time of the transfer the debtor obtained rights to representation which were roughly worth about the amount they paid. The transfer could not be avoided, and judgment was entered for the defendant.
PENROSE (10/10/91) (Unpublished)
Novation of retail seller's purchase money security interest in household goods sold to debtor on credit did not occur upon the seller's assignment of the sale contract to a third-party finance company. Finance company had a close nexus with the retail seller which predated the sale of goods to the debtor. Sale was consummated by the seller in reliance on the finance company's pre-sale approval of a credit application submitted by the debtor.
PIRATES (8/19/04) (Unpublished)
The defendant answered and separately moved to dismiss the adversary proceeding to enforce a contract because plaintiff failed to allege a writing which satisfied the statute of frauds. Plaintiff contracted with the defendant to promote and hold trade shows. Plaintiff's complaint alleges that it entered into a licensing agreement with defendant for use of the venue for the years 2003 to 2012 and defendant refused to honor the contract. Plaintiff alleges that it paid consideration to defendant for the years 2003 to 2006. Plaintiff requests that defendant be enjoined from honoring any other leases it may have made and honor plaintiff's alleged contract. It was determined that plaintiff can prove sufficient facts to support claims that they are entitled to relief. Defendant's motion to dismiss is denied.
PIRATES (10/27/04) (318 BR 502)
On defendant's motion for summary judgment following denial of its motion to dismiss, the Court held that there was no contract between the parties. It was incontrovertible that plaintiff had not paid consideration to defendant for the years 2003 to 2006. Therefore, there was no part performance by plaintiff to create a contract. Defendant's motion for summary judgment is granted.
PLOVER MOTEL, INC. (3/26/96) (Unpublished)
Chapter 7 trustee brought motion to have creditor disgorge allegedly improper payments. Court examined stipulations entered into by the debtor while in chapter 11 and concluded that creditor had not acted improperly. Creditor completed construction of motel project, and debtor and certain mortgage holders had opportunity to purchase property. They were unable to do so, and that failure was unrelated to any actions of the creditor.
In a related matter, the bankruptcy court's denial of the mortgage holders' motion for an extension of time in which to file an appeal was affirmed by the district court.
PRESTWOOD (2/9/05) (322 B.R. 463)
Debtor was entitled to claim Florida homestead exemption over objection of trustee. Trustee contended that the debtor was not a Florida resident and had instead claimed a California property as his residence. Notwithstanding conflicting testimony about the status of the Florida home as a “vacation property,” the court found that the debtor did reside in Florida and had intended to remain in Florida but for marital discord over the issue.
PRETASKY (10/18/91) (Unpublished)
In an action under § 523(a)(6), the debtor is not collaterally estopped from "relitigating" the "willful and malicious" issue on the basis of a prior finding by the Equal Rights Division of the Wisconsin Department of Industry, Labor and Human Relations that he discriminated against the defendant-counterclaimant on the basis of sex (maternity).
PSI INDUSTRIES INC. (11/5/03) (306 B.R. 377)
Liquidating trustee of corporate debtor brought an action against the debtor’s former officers and directors, alleging that they “looted” the company of millions of dollars through a variety of fraudulent schemes. The court found that the evidence established a pattern of activity designed to “hinder, delay, or defraud” creditors, and that the CEO of the company was demonstrably responsible for looting the company’s assets. The trustee failed to present sufficient evidence regarding the other officers and directors.
PULASKI (7/13/12) (475 B.R. 681)
The debtors filed an adversary proceeding to avoid the defendant’s mortgage. They alleged that the mortgage was invalid due to unconscionability, lack of consideration, mistake, misrepresentation, unjust enrichment, breach of contract, and breach of the duty of good faith and fair dealing. The defendant argued that the court lacked the constitutional authority to rule on these claims under Stern v. Marshall, __ U.S. __, 131 S. Ct. 2594 (2011). The court found that the debtors’ claims all related to issues which would be resolved in the process of adjudicating the defendant’s claim, which would not be an allowed secured claim until the debtors’ claim objection (and their adversary proceeding, which was the vehicle for resolving the objection) was resolved. The request to dismiss the adversary proceeding was denied.
PUTNAM (2/4/87) (Unpublished)
Defendant Stockbridge-Munsee Indian Tribe's request for extension of time to appeal judgment entered November 7, 1986, is denied. Bankruptcy Rule 8002(c) governs extensions of time for appeal. Defendant filed request for extension within 20 days after deadline for such requests. Bankruptcy Rule 8002(c) allows for grant of request for extension of time filed within 20 days of deadline upon showing of excusable neglect. Defendant made no such showing; request is accordingly denied.