Case Summary:
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.