Case Summary:
Chapter 7 Debtors Timothy and Pamela McCarthy sought an exemption for what they alleged were closely held business interests, under Wis. Stat. § 815.18(3)(B)(2), in a partnership which they claimed to have formed to operate a duplex which they purchased with their son. The Chapter 7 Trustee objected to the exemption, arguing that both the McCarthys’ formation of an LLC to operate the duplex and their failure to file partnership tax returns established that they had not intended to form a partnership. As to the former, citing McDonald v. McDonald, 192 N.W.2d 903 (Wis. 1972), the Court held that nothing prevented the McCarthy’s from utilizing an LLC as an “instrumentality of the partnership.” As to the latter, in light of the fact that the McCarthys introduced evidence establishing, per Wisconsin’s four part test for establishing the existence of a partnership discussed in Tralmer Sales and Service, Inc. v. Erikson, 521 N.W.2d 182 (Wis. Ct. App. 1994), that (1) they intended to form a bona fide partnership; (2) they had a community of interest in the capital employed; (3) they had an equal voice in the partnership’s management; and (4) they shared and distributed the partnership’s profits and losses, the Court found that “failure to file partnership tax returns, though marginally relevant, [was] insufficient to defeat the McCarthys’ assertion that they operated a partnership.”
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Opinions
The Western District of Wisconsin offers a database of opinions for the years 1986 to present, listed by year and judge. For a more detailed search, enter a keyword, statute, rule or case number in the search box above.
Opinions are also available on the Government Printing Office website for Appellate, District and Bankruptcy cases. The content of this collection dates back to April 2004, though searchable electronic holdings for some courts may be incomplete for this earlier time period.
For a direct link to the Western Wisconsin Bankruptcy Court on-line opinions, visit this link.
Judge Robert D. Martin
Case Summary:
Matthew and Jennifer Bach purchased a home financed by Countrywide Bank which took a mortgage to secure its note. Although the mortgage identified the house’s street address and tax key number, it failed to include a legal description of the house. Subsequently, Debtor purchased the house from Jennifer Bach and gave her a mortgage securing a debt of $116,000. Countrywide later assigned its mortgage to Green Tree Servicing, LLC. After the Debtor filed his bankruptcy petition, Green Tree filed a timely proof of claim asserting a security interest in the property. However, both the Debtor and the Chapter 7 Trustee objected to Green Tree’s claim on the basis that the lack of a legal description in the Countrywide mortgage made it void as against subsequent purchasers under Wis. Stat. §706.08(1). Specifically, they argued that the lack of a legal description in the mortgage made it undiscoverable in the tract index at the time debtor purchased the house. Citing Bank of New York Mellon Trust Co. v. Wittman, No. 12-C-846, 2013 WL 173801 (E.D. Wis. Jan. 16, 2013), Green Tree contended that disclosure in tract indexes is not dispositive of validity and constructive notice in Wisconsin. The Court agreed, holding that so long as the information provided in the Countrywide mortgage made it discoverable through the grantor/grantee index, a subsequent purchaser would have been on constructive notice of the existence of the mortgage. Accordingly, the Court held that Green Tree’s mortgage was valid as against both the Debtor and the Trustee.
Statute/Rule References:
Wis. Stat. § 706 -- Conveyances of Real Property, Recording, Titles
Key Terms:
Chain of Title
Grantor/Grantee Index
Land Description
Case Summary:
In her Chapter 7 schedules the Debtor claimed fee simple ownership of two pieces of real property, one located in Madison, Wisconsin, the other in Laona, Wisconsin. Although the Debtor essentially conceded that she had resided in the Madison property since 2011, she sought to exempt the Laona property as her homestead under Wis. Stat. § 815.20(1). The Chapter 7 Trustee objected to the claimed exemption, arguing that the fact that the Debtor had clearly resided in the Madison property (as evidenced by the Debtor’s driver’s license, tax filings, and the bankruptcy filing itself), precluded her from claiming the homestead exemption for the Laona property. The Debtor responded by asserting that although she had not resided in the Laona property, she had, per § 815.20(1), occupied it, as evidenced by the fact that she spent weekends and summers at the property and maintained the property with food and furnishings. Relying on In re Lackowski, No. 08-21496-pp (Bankr. E.D. Wis. Sept. 2008), the Court found in favor of the Debtor. Specifically, the Court held that although the Trustee had established that the Debtor resided in the Madison property, § 815.20(1) required only that a debtor occupy a property in order to claim the homestead exemption, and nothing prohibited a debtor from occupying two properties concurrently, only from claiming both as homesteads.
Statute/Rule References:
Wis. Stat. § 815.20
Key Terms:
Homestead Exemption
Primary Reside
Case Summary:
Following the granting of his discharge, Debtor’s Chapter 7 case was closed by the Court on September 20, 2001. On September 25, 2015, Debtor moved to reopen his case. In the period leading up to the filing of the motion, the Debtor’s student loan creditors contacted the Debtor to collect on student loan debts which he incurred in 1987. Debtor moved to reopen his bankruptcy in order for the Court to either determine that the loans were dischargeable, based upon Debtor’s minority at the time he entered into the loan agreements, or that the collection charges sought by his creditors were unreasonable. Citing Judge Easterbrook’s observation in Pettibone v. Easley, 935 F.2d 120 (7thCir. 1991), that “[o]nly a belief that bankruptcy is forever could produce a case such as this,” the Court found no justification for reopening the Debtor’s 14-year-old bankruptcy case so that the Court could exercise jurisdiction. Accordingly, Debtor’s motion was denied.
Case Summary:
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), In re Evans, 464 B.R. 429 (Bankr. D. Colo. 2011), and In re Markosian, 506 B.R. 273 (B.A.P. 9th Cir. 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, Lybrook was 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.
Chief Judge Catherine J. Furay
Case Summary:
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.
Statute/Rule References:
11 U.S.C. § 727(a)(10) -- Waiver of Discharge
Fed R. Evid. 502 -- Attorney-Client Privilege
Key Terms:
Attorney-Client Privilege
Estoppel
Waiver of Discharge
Case Summary:
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.
Statute/Rule References:
11 U.S.C. § 707 -- Dismissal
Key Terms:
Abuse
Dismissal
Estoppel
Case Summary:
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.
Statute/Rule References:
11 U.S.C. § 547 -- Preferences
Key Terms:
Preferences
Case Summary:
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.
Statute/Rule References:
11 U.S.C. § 503 -- Administrative Expenses
Key Terms:
Administrative Expenses
Case Summary:
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).
Statute/Rule References:
11 U.S.C. § 523(a)(7) -- Nondischargeability - Fines / Penalties / Forfeitures
Key Terms:
Fines - Penalties - Forfeiture
Nondischargeable Debt