Case No. 99-33737-BKC-SHF-11
Liquidating trustee of corporate debtor brought an action against the debtor’s former officers and directors, alleging that they “looted” the company of millions of dollars through a variety of fraudulent schemes. The court found that the evidence established a pattern of activity designed to “hinder, delay, or defraud” creditors, and that the CEO of the company was demonstrably responsible for looting the company’s assets. The trustee failed to present sufficient evidence regarding the other officers and directors.
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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 Thomas S. Utschig
Case No. 99-33737-BKC-SHF-11
Case No. 02-16039-7
Debtor was entitled to an exemption for retirement funds received pursuant to Qualified Domestic Relations Order executed in accordance with the debtor’s divorce decree. The funds were held in an “ERISA-qualified” pension plan and therefore excluded from the debtor’s bankruptcy estate; even if it were part of the bankruptcy estate, it fell within the Wisconsin exemption for retirement assets.
Judge Robert D. Martin
Case No. 00-34080-7
The Debtor is a graduate of the University of Wisconsin Law School who began her study of law at Marquette University School of Law (“Marquette”). In her application for admission to the Wisconsin bar, she was required to present a transcript from Marquette. Marquette conditioned its delivery of a transcript upon Debtor’s payment of past due student loans. Debtor had yet to pay Marquette or to receive her Marquette transcript and brought a motion to hold Marquette in violation of her bankruptcy discharge injunction.
As part of her student loan package at Marquette, Debtor signed a promissory note under which Marquette disbursed funds toward tuition costs, and to the Debtor directly. After receiving the loan funds and prior to the “drop deadline,” Debtor withdrew from Marquette. Marquette reversed the tuition charge leaving Debtor owing the amount paid to her directly. Marquette received one nominal payment from the Debtor in April, 1999. After receiving no further payments, the account was turned over to a collection agency.
Debtor filed a Chapter 7 petition in September, 2000. She included the debt to Marquette on her schedules designating it as “tuition.” The collection agency ceased its collection efforts. In January, 2001 Debtor received her discharge.
Debtor contends that her debt to Marquette was not a student loan and that it had been discharged. She argued that Marquette was violating the permanent injunction provision of 11 U.S.C. § 524(a). She is incorrect. Marquette is subrogated to the government entities which it reimbursed for Debtor’s student loans, and its methods of collecting from Debtor are unexceptionable as a matter of bankruptcy law.
It was determined that Marquette complied with the requirements established by the U.S. Department of Education with respect to the loans made to Debtor. As a subrogee, Marquette was entitled to all of the U.S. Department of Education’s rights against the Debtor, including the right to collect the non-dischargeable loan. Marquette was not required to release the transcripts to Debtor. Debtor’s arguments based upon Marquette’s subsequent characterization of the funds owed to it by Debtor are of no merit. The true nature of the obligation, not how it was described after it became past due, governs how the obligation is viewed in bankruptcy.
11 U.S.C. § 523(a)(8) -- Nondischargeability - student loans
11 U.S.C. §: 524(a)
34 CFR § 668.22(g) and (g)(2) -- Treatment of title IV funds when a student withdraws
34 CFR § 685.300 -- Agreements between an eligible school and the Secretary for participation in the Direct Loan Program
34 CFR § 685.306 -- Payment of a refund or return of title IV, HEA program funds to the Secretary
Case No. 02-16113-11
In March, 2003 this court issued a memorandum decision and judgment awarding Plaintiff, Western Wisconsin Water, Inc. d/b/a LaCrosse Premium Water (“Western”) damages against the Defendant, Quality Beverages of Wisconsin, Inc. (“Quality”) for Quality’s breach of contract to give Western a first right of refusal to acquire certain accounts. In mitigating its damages, Western recovered 400 of the 552 accounts that Quality should have offered. Western was awarded sums for lost profits based on the 152 accounts that Western did not recover and in mitigation expenses.
Western moved to amend the judgment on two theories. First, Western argued that profits from the resale of the 400 accounts that it recovered should have been included in its damages because the market for the accounts evaporated after Quality’s actions. Western stated that it showed that it could resell the 400 accounts. They further argued that the court should add to Western’s damages the difference between the value of all 552 accounts before Quality’s breach and the value of the 400 accounts recovered after Quality’s breach.
Second, Western contended that its mitigation expenses were higher than the estimated net profit Western would have realized in the future from its mitigation efforts and produced exhibits detailing its actual out-of-pocket expense in establishing its own distributorship.
Western’s first claim amounted to a request for damages that Western did not make successfully at trial. Western sought the profits that it claimed it could not realize from the resale of the recovered accounts because of the effects of Quality’s actions on the market. At trial, however, Western did not establish that Quality’s actions affected the market in the manner and to the extent claimed. Western also failed to demonstrate that the expected net profit is in fact the market price. It was determined that the potential windfall of retaining the recovered accounts and receiving the profits from the resale of the recovered accounts is inconsistent with Wisconsin’s application of the expectation interest in breaches of contract.
As to Western’s second claim, it was determined that mitigation damages in a breach of contract are an injured party’s actual expenditures made in reasonable efforts to minimize its losses. In arguing its motion, some confusion arose as to Western’s reference to its “net mitigation amount” and to its “start up costs”. It appears that a manifest factual error had been made and Western’s claimed actual cost of mitigation incurred
Fed. R. Evid Rule 59 -- New trials
Case No. 02-16114-11
At the close of trial in this proceeding it was determined that the 1997 contract between the Plaintiff, Western Wisconsin Water, Inc. d/b/a LaCrosse Premium Water (“Western”), and the Defendant, Quality Beverages of Wisconsin, Inc. (“Quality”), gave Western a “first right of refusal” to acquire (1) all of the 469 accounts sold to Quality; and (2) all growth attributable to those accounts. Quality’s failure to offer to sell Western the accounts constituted a breach of the contract. Western was entitled to compensation for losses necessarily flowing from that breach. Those losses included anticipated profits from the resale of the accounts and from exclusive distributorship agreements into which Western would have entered. Western was also entitled to recover expenses incurred in mitigating its losses and damages as well as judgment for the account payable from Quality.
The contract provided Western a sort of option to purchase 552 accounts from Quality when Quality sold those accounts and others to Crystal Canyons in 2001. That number includes the accounts sold under the 1997 contract (469) and the proportionate increase in Quality’s accounts attributable to those original accounts (83). After the breach, Western mitigated its damages by acquiring 400 of the 552 accounts subject to its option. As to those 400 accounts, Western was entitled to be reimbursed its costs of mitigation.
It was determined that on the remaining 152 accounts that Western did not acquire, it was entitled to recover its lost profits. Based upon the calculations outlined in the memorandum decision, Plaintiff was granted judgment against the Defendants.
Case No. 02-11588-13
The Debtor’s son-in-law, Ronald Vogt, had been managing VATW, a satellite operation of Monroe Ag-Tech (“Monroe”). Monroe advanced operating funds on a monthly basis to VATW, including an amount designated as Mr. Vogt’s salary. Badger State Bank (“Badger”) permitted VATW to pay Mr. Vogt from accounts in which Badger had a security interest. In early 2001, VATW began having financial difficulties. Monroe stopped advancing operating funds and Mr. Vogt stopped receiving his salary. By August, 2001, VATW was insolvent and owed Mr. Vogt a substantial amount of unpaid salary. VATW closed its doors to the public and surrendered its assets to Badger. However, the assets were insufficient to satisfy VATW’s debt.
At the time VATW was closing, Mr. Vogt issued three checks in the amount of $29,000 drawn on VATW’s account to the Debtor to repay money lent to him. The parties agreed that the amount owed to Mr. Vogt was more than $29,000.
In January 2002, Badger sued the Debtor in Circuit Court seeking to recover the transfers as fraudulent under state law. The Debtor was unable to bear the costs associated with defending herself and filed for Chapter 13 protection. Her schedules did not include assets under her husband’s exclusive control.
Badger presented an elaborate objection to confirmation of Debtor’s Chapter 13 plan. Badger claimed to be a creditor of the Debtor by virtue of her having received a fraudulent transfer of property from a company at a time when that company was indebted to Badger. Badger had no other claims against Debtor. If Badger were entitled to recover the transferred property from the Debtor, complicated issues would arise as to whether the Debtor’s plan was in the creditors’ best interest.
The Debtor denied that a fraudulent transfer occurred and that Badger had a claim against her estate. She argued that neither she nor her creditors had any rights to property under her husband’s exclusive control pursuant to a marital property agreement that she and her husband signed in 1995. Badger claimed that the marital property agreement was too vague to be enforced.
It was determined that Badger’s standing to object to the plan depended upon the Debtor’s receipt of a fraudulent transfer. Badger’s transfer was not fraudulent and the Debtor was not obligated to Badger and Badger did not have standing to object to her plan. Thus, Badger’s objection based on the marital property agreement was not explored.
Wis. Stat. § 242 -- Fraudulent conveyance
Case No. 01-34985-13
The debtors filed their Chapter 7 petition on August 8, 2001. An attorney for the trustee was appointed. The debtors valued certain owned real estate. The trustee’s attorney investigated that value and found that the county tax assessor valued the property substantially higher and informed the debtors. The debtors then moved to convert their case to Chapter 13 and their motion was granted. The trustee’s attorney objected to confirmation of the plan because it failed to meet the best interest of creditors’ test. The debtors amended their plan before the final confirmation hearing was held. Meanwhile attorneys fees were incurred on behalf of the trustee preparing for the hearings, hiring an appraiser, and examining the debtors at their § 341 meeting.
In December, 2002 the trustee’s attorney moved for an allowance of an administrative claim for services rendered in connection with the bankruptcy case and debtors objected. The Chapter 13 trustee did not object.
At their motion hearing, trustee’s attorney argued that it was entitled to administrative expense priority under U.S.C. § 503(b)(1). Trustee’s attorney filed a brief supporting their motion. Debtors did not file a brief.
It was determined that trustee’s attorney objected to confirmation and incurred post-conversion costs and expenses, based upon its pre-conversion investigation of the value of debtors’ real estate. The post-conversion costs and expenses were intertwined with the pre-conversion services that trustee’s attorney rendered and are reasonable in light of the benefit to creditors. Post-conversion costs and expenses should be treated as administrative expenses.
11 U.S.C. 327 -- Employment of professionals
11 U.S.C. § 329 -- Debtor's transactions with attorneys
11 U.S.C. § 330 -- Compensation of professionals
11 U.S.C. § 330 (a)(4)(A) and (B) -- Compensation of officers
11 U.S.C. § 348 -- Conversion
11 U.S.C. §503 -- Administrative expenses
11 U.S.C. § 507(a)(1) -- Priorities
11 U.S.C. § 507(b) -- Priorities
11 U.S.C. § 726 -- Distribution of property of estate
11 U.S.C. § 1306 -- Property of the Estate
11 U.S.C. § 1322(a)(2)
Fed. R. Bankr. P. Rule 2016 (a) -- Application for compensation of reimbursement
Fed. R. Bankr. P. Rule 2016 (b) -- Disclosure of compensation paid or promised to attorney for debtor
Wisconsin Supreme Court Rule 20:1:1 -- Comptenence
Wisconsin Supreme Court Rule 20:3:3 -- Candor toward the tribunal
Case No. 02-10821-7
The debtor-defendant owned and operated a business known at Faval, Inc. In late 1999, Faval was struggling financially. The plaintiff owned and operated a restaurant and two rental buildings and maintained steady employment. Plaintiff had known the debtor-defendant for over 40 years. In January, 2000 debtor-defendant and plaintiff met to discuss the Faval business, culminating in a payment made to debtor-defendant with a promise for more money in the future. In the period January, 2000 through May, 2001 plaintiff gave debtor-defendant in excess of $810,000 through loans, lines of credit, checks and cash to use in Faval. The parties agreed that debtor-defendant would make payments when due on plaintiff’s bank loans and begin to pay plaintiff for his personal loans once Faval became profitable.
During this time, and unknown to plaintiff, debtor-defendant adopted a number of unusual bookkeeping methods that made tracking Faval’s finances virtually impossible. Debtor-defendant did not keep a general ledger and generally relied on her memory instead of books and records. Debtor-defendant is unable to explain how loans were disbursed and even admitted to losing track of large loans made by other investors. Debtor-defendant also frequently dealt with cash in an effort to avoid a Wisconsin Department of Revenue levy for unpaid income taxes.
In January, 2001 plaintiff gave debtor-defendant his employer’s credit card number so she could purchase approximately $3,000 worth of materials from a supplier that would only accept a credit card. Debtor-defendant continued to use the credit card to purchase other supplies, incurring over $6,800 in charges.
In the spring of 2001 debtor-defendant contacted one of the banks with whom plaintiff took out a loan for Faval’s benefit and requested that the address be changed from plaintiff’s home address to debtor-defendant’s business address in an effort to save plaintiff the hassle of being notified when debtor-defendant was late in making payment. Debtor-defendant did not inform plaintiff of the request, instead, the bank contacted him seeking his authorization.
The plaintiff became concerned about debtor-defendant’s management of Faval and sought the assistance of his personal accountant to examine the Faval records. The accountant was unable to trace funds beyond their initial payment and sought bank records from debtor-defendant. Those records were not provided. A disturbing pattern of misappropriation and uncertainty as to the proper allocation of Faval funds was discovered. Debtor-defendant did not provide sufficient information to explain the many discrepancies.
In August, 2001 plaintiff’s attorney demanded that debtor-defendant repay his client $120,000 of the personal loans by the end of the month. Debtor-defendant failed to do so. In October, 2001 plaintiff then changed the locks on the building. In response, debtor-defendant ceased operations of Faval.
In February, 2002 debtor-defendant filed for Chapter 7 protection. At her first meeting of creditors debtor-defendant asserted her Fifth Amendment privilege as to her personal and business financial statements, dates on which she incurred debts to certain creditors, and the use to which she put those funds.
Plaintiff filed an adversary complaint arguing that the court should draw a negative inference from debtor-defendant’s use of the Fifth Amendment privilege and that the debt to him was non-dischargeable under 11 U.S.C. §§ 523(a)(2), (4), and (6). He also argued that debtor-defendant’s behavior warranted the denial of her discharge. In total he sought recovery of $657,700 of funds loaned to debtor-defendant.
The court granted debtor’s discharge before hearing plaintiff’s adversary proceeding. In the vast majority of cases, parties plead adequately in adversary proceedings and the clerk of court’s staff can determine whether a claim has been filed under § 727. If none has, the clerk follows the standard procedure of granting a debtor’s discharge 60 days after their first meeting of creditors as to all debts that are not the subject of a pending adversary proceeding brought under § 523. Plaintiff’s complaint alleged grounds for relief under § 523, not § 727. Thus, on August 19, 2002, following its standard procedure and without evaluating the substance of plaintiff’s claims, the court issued debtor-defendant’s discharge as to all debts not subject to a pending adversary proceeding. At trial it was then determined that the pleadings should be constructively amended to include the § 727 objections and that debtor-defendant should not have received her discharge.
Debtor-defendant’s discharge was revoked and denied pursuant to §§ 727(a)(2), (3), and (5). A money judgment in the amount of $657,700 was entered in favor of plaintiff.
11 U.S.C. § 105 -- Power of court
11 U.S.C.§ 523(a) -- Execptions to discharge
11 U.S.C. § 727 -- Discharge
Case No. 01-34625-11
Defendants filed a motion to compel the production of all documents pertaining to a stock purchase agreement and a supply agreement, the former of which was the focus of a breach of contract action against defendant. These documents contained a memorandum from counsel marked "attorney-client communication." Defendants argued that plaintiff had waived any attorney-client privilege by disclosing it to defendant. Fed. R. Civ. P. 26(b)(1) allows a court to limit discovery to the actual claims or defenses pled in a case. The court also has discretion under Fed. R. Civ P. 26(b)(2)(iii) to limit discovery if it determines that "the burden or expense of the proposed discovery outweighs its likely benefit . . . ." This court determined that even though the attorney-client privilege was waived, discovery is not compelled. Defendants' motion to compel is denied.
Fed. R. Evid. Rule 26(b)(1) -- Discovery Scope and Limits -- In General
Fed. R. Evid. Rule 26(b)(2) -- Discovery Scope and Limits -- Limitations
Case No. 01-34494-13
Estate moved for sanctions against debtor's counsel for filing a chapter 13 petition solely to harass the estate and cause it unnecessary delay. The estate had received a judgment of foreclosure against certain real property of debtor and a sheriff's sale had been scheduled On the date of the sheriff's sale debtor filed a chapter 7 petition, staying the sheriff's sale. The estate then obtained relief from stay. A second sheriff's sale was scheduled. Debtor's counsel filed a chapter 13 petition without schedules or plan shortly before the sheriff's sale was to take place. Another automatic stay was obtained. The period in which the debtor may file a payment plan ended without any plan being filed. Debtor's counsel filed a motion to withdraw as counsel citing debtor's failure to confer with him on a payment plan and to pay his retainer fee. Counsel's motion was granted and the chapter 13 case was dismissed. The estate then filed a motion for sanctions under Bankruptcy Rule 9011. The estate claims that debtor's counsel had no legal basis for filing the chapter 13 petition before a discharge was entered in the prior chapter 7 and that the debtor's sole purpose in filing the chapter 13 was to prevent the second sheriff's sale from proceeding. The estate established that debtor's counsel had violated Rule 9011. Sanctions was ordered for fees and expenses related to filing of the chapter 13 petition.