The debtors filed a Chapter 11 which was later converted to a Chapter 7. At the time of conversion, the debtors maintained a DIP account which contained $8,652.43, 100% of which was post-petition earnings of the debtors. Following conversion, the Chapter 7 trustee sought turnover of the account to the estate, while the debtors argued that under 11 U.S.C. §§ 348(a) & (f), and In re Evans, 464 B.R. 429 (Bankr. D. Colo. 2011), and In re Markosian, 506 B.R. 273 (B.A.P. 9thCir. 2014), assets of an estate at the time of conversion from Chapter 11 to 7 should be treated in the same way as assets of the estate at the time of conversion from Chapter 13 to 7. That is, only property of the estate that would have been includable in the estate at the time of the filing of the petition under the chapter to which the case has been converted would be includable post-conversion. In this instance, the debtor’s reading of the Code would have prohibited the inclusion of the DIP account in the Chapter 7 estate. Relying on In re Ford, 61 B.R. 913, 916 (Bankr. W.D. Wis. 1986), In re Lybrook, 951 F.2d 136 (7thCir. 1991), and In re Meier, 528 B.R. 162 (Bankr. N.D. Ill. 2015), the court held that absent an express statutory directive to apply the § 348(f) rule to Chapter 11 to 7 conversions, Lybrookwas still good law as to those conversions and, thus, personal income of a Chapter 11 debtor is property of the Chapter 7 estate following conversion.
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- Chief Judge Catherine J. Furay--2013-present
- Judge William V. Altenberger--2016-present
- Judge Brett H. Ludwig--2017-present
- Judge Robert D. Martin (retired)--1990-2016
- Judge Thomas S. Utschig (retired)--1986-2012
Judge Robert D. Martin
Creditors (defendants in the current action) secured a judgment against debtor in federal district court, and, in an effort to collect, filed a non-earnings garnishment action against Brian Sanderson, one of debtor’s debtors, in state court. Although Sanderson was served with the garnishment summons on December 28, 2012, 91 days before debtor filed its Chapter 11 petition, summary judgment on the garnishment complaint was not entered until March 19, 2013. On March 29, 2013, debtor filed its Chapter 11 petition (the case was converted to a Chapter 7 shortly thereafter). On March 26, 2015, the Chapter 7 trustee commenced an adversary proceeding against creditors primarily for the purpose of avoiding the Sanderson transfer under 11 U.S.C. § 547. In support of this preferential transfer action, the trustee argued that the date of transfer was the date that summary judgment on the garnishment was entered and not the date on which the summons and complaint were served. The court agreed, holding that under the Supreme Court of Wisconsin’s Commerce v. Elliot, 85 N.W. 417 (Wis. 1901), decision, creditors possessed only an equitable lien until summary judgment was entered, at which point the equitable lien became actual. Further, the court found that while the latter qualifies as a lien under 11 U.S.C. § 101(37), and thus a transfer under 11 U.S.C. § 101(54)(A), the former does not. Accordingly, the court held that the date of transfer was March 19, 2013, not December 28, 2012, and therefore that the transfer represented a preference, voidable by the trustee.
Chief Judge Catherine J. Furay
Case No. 09-11460-7
Plaintiff and Defendant are former co-owners of a tavern. The business eventually failed, and the Plaintiff alleged that the Defendant converted funds from the business to pay his personal debts and expenses. Plaintiff sued the Defendant in state court, and the parties settled the matter by submitting it to binding arbitration. The arbitration agreement contained a provision stating that any award would be nondischargeable in bankruptcy. The arbitrators awarded the Plaintiff $310,000, and the Defendant subsequently filed bankruptcy. The Plaintiff brought this adversary and summary judgment motion to declare her debt nondischargeable. Plaintiff argues that the nondischargeability provision from the arbitration agreement is binding upon the Defendant, and even if it is not, promissory or judicial estoppel should prevent him from arguing the debt is dischargeable. The Defendant argues that he did not give his attorney the authority to enter into the agreement, that he understood any award would be dischargeable, and that promissory and judicial estoppel do not apply.
The Court found that although the Defendant did not sign the arbitration agreement himself, he was bound by it because he cloaked his attorney in the authority necessary to settle the case. The Court next found that the nondischargeability provision in the arbitration agreement was not binding on the Defendant. Prepetition waivers of discharge are not allowed. The Code authorizes certain postpetition waivers, but does not authorize prepetition waivers. The Plaintiff also did not satisfy the requirements of promissory or judicial estoppel. The debt may satisfy the elements required for nondischargeability under § 523(a)(2), (4), or (6), but genuine issues of material fact remain, so the Court denied summary judgment. Lastly, the Court found that the Defendant waived the attorney-client privilege by voluntarily disclosing otherwise privileged communications with his attorneys in affidavits submitted to the Court.
11 U.S.C. § 727(a)(10) -- Waiver of discharge
Fed R. Evid. Rule 502 -- Attorney-client privilege
Case No. 13-15635-7
Creditors Thomas and Vicky Kriescher obtained a state court judgment in Minnesota and docketed it in St. Croix County, Wisconsin, just before the Debtor filed for bankruptcy. Trustee Mark Mathias filed a motion for summary judgment seeking to have the judgment set aside as a preferential transfer under 11 U.S.C. § 547. The creditors disputed whether the transfer was made while the Debtor was insolvent and whether the transfer allowed them to receive more than they would have in a chapter 7 distribution had the transfer not been made. The creditors offered amounts of Debtor’s assets and liabilities that would have made Debtor solvent. However, their liability calculation was based only on filed claims, which is not the true extent of a debtor’s liabilities. Their asset values were less than the liabilities the Debtor listed on her schedules, so the Debtor was insolvent at the time of the transfer. Because the Krieschers were unsecured creditors and this was not a 100% distribution case, any transfer would allow them to receive more than they would have without the transfer. The Court found that the elements of a preferential transfer had been satisfied and granted the motion for summary judgment.
Case No. 14-15001-7
Debtors originally filed their case as a chapter 13. Upon realizing they did not qualify for chapter 13 relief, they converted to chapter 11. The U.S. Trustee brought a motion to convert the chapter 11 to a 7 or dismiss the case. The Debtors did not oppose conversion to chapter 7. The U.S. Trustee now brings this motion to dismiss for abuse under 11 U.S.C. § 707(b). Debtors first argued the motion was barred by judicial estoppel. The Court found that judicial estoppel did not apply where the U.S. Trustee had been consistent with his position throughout the proceedings, the Court was not misled, and it would not result in an unfair advantage. Debtors next argued that section 707(b) did not apply to converted cases. The Court followed the majority rule that section 707(b) does apply to converted cases, also citing policy concerns if Debtors were able to file in chapter 13 or 11 and convert to chapter 7 to make themselves immune from section 707(b). Lastly, the Court found there was cause for abuse based upon the totality of the circumstances. The Debtors have a stable source of high income and have engaged in reckless consumer spending. Their expenses are unreasonably high and there are deficiencies with their schedules. The Court dismissed the case.
11 U.S.C. § 707 -- Dismissal
Case No. 13-16128-11
Creditor Rancho Cold Storage filed motions for summary judgment in both an adversary proceeding, asking for administrative claim status, and the main case, asking for their claim to be deemed secured. Rancho stored certain products for the Debtor and was owed for certain post-petition storage costs. Rancho eventually sold the product it was storing, but continued to charge Debtor for storage until the buyer took delivery. Debtor disputed both motions for summary judgment, arguing there was no collateral left to secure the claim and that not all of the storage charges fit the requirements of an administrative expense claim under 11 U.S.C. § 503(b)(1). The Court found that there were genuine issues of material fact regarding whether there was any collateral remaining to secure Rancho’s claim and which costs, if any, qualified for administrative expense status. The Court denied both motions for summary judgment.
Case No. 14-13531-7
Debtor Randy Netzer reopened his bankruptcy case to bring this adversary seeking to have a debt declared dischargeable. Netzer, an attorney, was disciplined by the Wisconsin Supreme Court, who assessed costs of $9,222.21. Netzer argues the costs are dischargeable because they were not levied by a governmental unit and are not fines or penalties as required by 11 U.S.C. § 523(a)(7). The Office of Lawyer Regulation argues the costs do satisfy the requirements of section 523(a)(7). The Court finds that the Office of Lawyer Regulation is a governmental unit. The Court also finds that the costs were assessed as a fine or penalty, not merely as compensation for pecuniary loss. Therefore, the costs are declared nondischargeable under section 523(a)(7).
11 U.S.C. § 523(a)(7) -- Nondischargeability - fines/penalties/forfeitures
Case No. 13-14443-13
Plaintiffs Gina and Jessie Larson filed this action to avoid the second wholly unsecured mortgage lien held by Nationstar under 11 U.S.C. § 1322(b)(2). The Supreme Court previously held in Dewsnup v. Timm, 502 U.S. 410 (1992) that a lien could not be avoided in a chapter 7 case under 11 U.S.C. § 506(d). The Supreme Court had also previously held in Nobelman v. American Sav. Bank, 508 U.S. 324 (1993), that a chapter 13 debtor could not use 11 U.S.C. § 506(a) to divide a mortgage into secured and unsecured portions in order to strip off the unsecured portion. While Nobleman did not address a wholly unsecured second lien in a chapter 13, all eight circuit courts that have addressed it have held that a wholly unsecured second lien may be avoided under 11 U.S.C. § 1322(b)(2). First the court must use 11 U.S.C. § 506(a) to determine the secured status of the lien. If there is no value to secure the lien, then § 1322(b)(2)’s anti-modification provision does not prevent the lien from being avoided. The recent Supreme Court decision in Bank of America v. Caulkett, 135 S. Ct. 1995 (2015), another chapter 7 case, does not affect this analysis. Debtors may use 11 U.S.C. § 1322(b)(2) to modify a claim that has no secured component.
11 U.S.C § 506(a) -- Determination of secured status
11 U.S.C. § 1322(b)(2) -- Modification of rights of secured claimants
28 U.S.C. § 1651(a) -- Issuance of writ
Case Number: 14-12717-7
Plaintiffs Ocean Innovations, Inc., and Jet Dock Systems, Inc., brought this action to have their judgment for patent infringement declared nondischargeable under 11 U.S.C. § 523(a)(6). Plaintiffs argued that the prior district court judgment for willful and deliberate patent infringement satisfied the willful and malicious elements of § 523(a)(6). Defendant argued that the standards were different and the debt should be discharged. The Court found that the elements of the patent judgment fulfilled the requirements for 523(a)(6). Further, all of the elements of collateral estoppel were satisfied, precluding relitigation of the issues. The Court granted summary judgment to the Plaintiffs and declared the debt nondischargeable.
11 U.S.C. §523(a)(6) -- Nondischargeability - willful and malicious injury
Case No. 15-13316-13
Debtor Paula Laddusire sought to remove a state court proceeding to the Bankruptcy Court. Defendant Northstar Cleaning & Restoration, Inc., filed a motion to remand. Debtor asserts that removing the case is necessary because it involves property of the bankruptcy estate. Defendants argued that the claim, a tort claim, is based on state law and should remain in state court. The Court found that abstention was proper under 28 U.S.C. § 1334. Further, the Court remanded the case pursuant to 28 U.S.C. § 1452(b). Based on considerations of judicial economy, comity, respect for the decision making ability of the state court, the predominance of state law issues, and the effect of remand on the administration of the bankruptcy case, the Court concluded that abstention is appropriate under 28 U.S.C. § 1334(c)(1) and remands the case to the state court under 28 U.S.C. § 1452(b).
28 U.S.C. §1334 -- Abstention