Case Summary:
On remand from the District Court, the Bankruptcy Court had to determine if the Debtor committed a defalcation as defined by the Supreme Court in Bullock v. BankChampaign, N.A., 133 S. Ct. 1754 (2013). On the facts admitted and proved, it was extremely unlikely that the Debtor did not have actual knowledge of his construction company’s wrongdoing. His participation in the decision not to pay the creditor demonstrated his knowledge that his company had more debts than money to pay them. Thus, every time he received a commission from the sale of the house, he was alerted to the fact that all the subcontractors were not receiving full payment. Even if the Debtor did not have actual knowledge, he was consciously disregarding the risk that he was violating his fiduciary duty. Consequently, the Court found Debtor, as a fiduciary of a trust that existed by operation of Wisconsin's theft by contractors statute, committed a defalcation for purposes of 11 U.S.C. § 523(a)(4) where, even if he was not actively cognizant of wrongdoing, he consciously disregarded the substantial and unjustifiable risk that his conduct violated his fiduciary duty.
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Judge Robert D. Martin
Case Summary:
After a trial on the dischargeability of debt under 11 U.S.C. § 523(a)(2)(A), § 523(a)(4), and 523(a)(6), the plaintiff filed a proposed bill of costs. The Debtor-Defendant objected on the grounds that the Plaintiff was not the prevailing party on all claims. The Court held that the complete lack of success on the first two claims must result in a reduction of two thirds of the total fees. As to the third claim, the Court recognized that only a state court can determine precisely who the prevailing party was. Nonetheless, the Court awarded the full one third of the fees to the Plaintiff in light of the evidence presented at trial.
Statute/Rule References:
28 U.S.C. § 1920
Fed. R. Bankr. P. 7054
Key Terms:
Fee Dispute
After confirmation of her Chapter 13 plan, the Debtor objected to the claim of the Wisconsin Department of Revenue, arguing that the claim was not entitled to priority status because her tax obligations for 2007, 2008, and 2009 came due more than three years prior to the filing of the petition. The Department of Revenue contended that the “lookback” period was tolled during the Debtor’s first Chapter 13 case (filed in 2010). Under 11 U.S.C. § 507(a)(8)(A)(i), the lookback period is tolled for any period in which the stay of proceedings was in effect in a prior case. Because the Debtor’s prior case was pending until its dismissal in February of 2013, the lookback period was tolled and Department had a valid priority claim.
Statute/Rule References:
11 U.S.C. § 507(a)(8)
11 U.S.C. § 523(a) -- Nondischargeability - Divorce Decrees
Key Terms:
Divorce Decrees - Maintenance or Property Division
Taxes - Tolling
Case Summary:
The U.S. Department of Agriculture sought stay relief to set off a debt the IRS owed to the Chapter 7 debtor for a tax refund against a debt the Debtor owed it on a home loan guaranty. Debtor argued that setoff should not be allowed because the USDA did not hold an enforceable claim against her. Debtor claimed that Chase Home Finance LLC waived any deficiency on the mortgage in a foreclosure proceeding in state court. Debtor also argued that because she was misled by the waiver of deficiency, she did not contest the entry of judgment, the sale process, the price obtained at the sale, or the costs assessed. The Court held that the claim was enforceable because it was based on an indemnity contract signed by the Debtor, and not on subrogation. The Court also found that the language in the complaint was not misleading on its face, and Debtor failed to demonstrate that unsophisticated consumers found the challenged statements to be misleading or deceptive.
Statute/Rule References:
11 U.S.C. § 553 -- Setoff
15 U.S.C. § 1692(e)
Key Terms:
Home Loan Guaranty
Setoff
Case Summary:
Debtors filed a Chapter 13 petition in November 2011. The IRS sought to offset the Debtors' 2012 income tax refund against the Debtors’ 2011 tax liability. Debtors argued that the 2011 tax liability was attributable to a 401(k) distribution that was received during the tax year and could not be offset by their post-petition tax refund for a later year. The Court allowed the setoff and held that the 2011 tax liability arose postpetition because “all events” necessary for that liability to accrue took place on the last day of the tax period, after the Debtors had filed their Chapter 13 petition.
Statute/Rule References:
11 U.S.C. § 553 -- Setoff
Key Terms:
Setoff
Taxes - Refund
Case Summary:
In a prior ruling the bankruptcy court disallowed 50 percent of BMO's fees for lack of specificity. Subsequently, BMO filed a supplemental claim asserting a claim for attorney's fees incurred post-confirmation for work done in connection with the debtor's objection to its first supplemental claim. Debtor objected that the claim was not specific, violated the creditor's obligation of good faith and fair dealing, and was not caused by debtor's default. The Court sustained Debtor’s objection and held that the fees were not reasonable because they resulted from creditor's prior insufficient itemization of attorney's fees. “The Debtor should not be penalized for BMO's failure to prepare its fee notice in compliance to these standards.”
Statute/Rule References:
11 U.S.C. § 506(b)
11 U.S.C. § 1322(e)
Key Terms:
Attorney Fees