Case No. 01-34926-13
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.
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Judge Robert D. Martin
Case No. 01-34926-13
Case No. 01-34821-7
This case involves hypothetical discharge and its procedural requirements. Plaintiff filed an adversary complaint to determine whether a debt was dischargeable and the debtor answered. But the plaintiff filed the initial complaint thinking it was against debtor’s husband who has a similar first name as debtor. Plaintiff amended the complaint by adding allegations against debtor’s husband and objecting to the hypothetical discharge of his tortious debt. However, plaintiff did not seek the debtor’s or court’s consent before amending the complaint. In addition, the plaintiff did not name debtor’s spouse on the amended complaint. The time limit to object to debtor’s discharge had since passed. Debtor filed a motion to dismiss the adversary proceeding contending that any complaint seeking to deny debtor’s spouse’s hypothetical discharge is now time barred. Plaintiff responded by filing a motion to enlarge the time within which to bring the action under § 523(a)(6), which motion in itself is untimely but which was considered as a motion to further amend the complaint under Fed. R. Civ. P. 15(c). It was determined that the motion to amend the complaint to name debtor’s spouse as a defendant is granted
11 U.S.C. § 523(a)(3)
11 U.S.C. § 523(a)(6) -- Nondischargeability - willful and malicious injury
11 U.S.C. § 524(a)
Fed. R. Civ. P. Rule 15(a) -- Amendments
Fed. R. Civ. P. Rule 15(c)(3)
Case No. 98-35054-7
In 1996 debtor physically attacked plaintiff. Debtor was charged with aggravated battery with intent to cause substantial bodily harm and pled guilty. In 1998 plaintiff commenced an intentional tort action against debtor. Prior to judgment being rendered debtor filed her chapter 7 petition staying the tort action. Plaintiff filed this adversary proceeding seeking summary judgment arguing that as a result of the guilty plea in the criminal action, debtor was collaterally estopped from contesting the willful and malicious nature of the injury that gave rise to the debt. The court denied the summary judgment motion. The parties agreed to lifting the stay to permit the state tort action to proceed to judgment, which was subsequently entered. Plaintiff then moved for summary judgment for a second time contending that the tort judgment supports collateral estoppel and bars debtor from contesting the willful and malicious nature of her debt for purposes of § 523(a)(6). This court determined that she was correct and granted her motion for summary judgment.
11 U.S.C § 523(a)(6) -- Nondischargeability - willful and malicious injury
28 U.S.C. § 1738 -- State and Territorial statutes and judicial proceedings: full faith and credit
Wis. Stat. § 940.19(5)
Case No. 00-34495-7
Debtors challenged claim of First American Credit Union (“FACU”). At issue is whether a car pledged as security for a direct loan also secured a credit card debt by virtue of a dragnet clause in the loan contract. Both parties moved for summary judgment based on stipulated facts. Debtors made three arguments: that FACU never explained the meaning of the dragnet clause in the contract; that they did not read the dragnet clauses and had no intention of pledging the car as security for the credit card debt, and that the dragnet clauses in the Rules and car loan contract "were in boilerplate fine print." FACU countered that the dragnet clauses were customary and ordinary provisions and that debtors’ intent to pledge the car as security interest for the credit card debt is evident from the fact that debtors received the Rules and signed the car loan contract, both of which included dragnet clauses. FACU further argued that it had no obligation to explain the meaning or effect of the dragnet clauses to debtors. It was determined that the intent of debtors to grant FACU a security interest in the car for other debts is evident from the clear language of the dragnet clauses in the Rules and the car loan contract.
Case No. 98-36236-7
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.
11 U.S.C. § 348 -- Conversion
11 U.S.C. § 365 -- Executory contracts\
11 U.S.C. § 541 -- Property of the estate
Case No. 00-34046-13
Shortly before debtor filed for bankruptcy he filed his federal income tax return for the previous year and was entitled to a refund. Approximately one month after the tax return was filed, the IRS applied the refund to debtor's 1993 federal income tax deficiency. The IRS filed a proof of claim for unsecured priority (for 1995 and 1996) and non-priority ( for 1993 and 1994) taxes due. Debtor then brought this adversary proceeding seeking to reallocate the funds set off by the IRS and objecting to its claim of priority for the 1995 taxes. The parties agreed tht the IRS had a valid right to setoff under § 553(a). Debtor contends that it is inequitable to permit the IRS to setoff against non-priority debts, rather than priority debts, because this gives teh IRS a preference over other general creditors. However, a setoff under § 553 is a preference condoned under the Code and an exception to the bankruptcy principle of equal distribution among creditors. It was determined that the IRS had properly exercised its ability to offset in this case. It was further determined that because the due date for the debtor's 1995 tax return fell outside the three year period preceding his bankruptcy case, the 1995 taxes would ordinarily not be entitled to priority under § 507(a)(8). There was an added wrinkle in the case, however, since the debtor had previously filed bankruptcy in 1996 and was discharged in 1997. The IRS argued that the three-year period of § 507(a)(8) was tolled during the period of the prior bankruptcy case and for an additional six months thereafter. It was determined that § 6503(h) is given effect by § 108(c) and that the two provisions operate jointly to toll the three-year period in § 507(a)(8) when the taxpayer's assets are tied up in a court proceeding. It was further determined that the 1995 taxes are entitled to priority under § 507(a)(8).
11 U.S.C. § 108(c)
11 U.S.C. § 507(a)(8)
11 U.S.C. § 523(a)(1)(A) -- Nondischargeability - taxes
11 U.S.C. § 553 -- Setoff
26 U.S.C. § 6402(a) -- General Rule
26 U.S.C. § 6503(h) -- Cases under title 11 of the United States Code
Case No. 99-13921-13
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.
11 U.S.C. § 361 -- Adequate Protection
11 U.S.C. § 362(d) -- Relief from stay
11 U.S.C. § 362(g)(1)
11 U.S.C § 506(a) -- Determination of secured status
11 U.S.C. § 506(d) -- Lien valuation and strip down
11 U.S.C. § 1121(b)
11 U.S.C. § 1121(c)(2)
11 U.S.C. § 1322 -- Mortgage protection
11 U.S.C. § 1322(b)(2) -- Modification of rights of secured claimants
11 U.S.C. § 1325(a)(5)
Case No. 99-33728-7
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.