Chapter 11 debtor’s secured creditors (banks) held $57.6M in claims. At a valuation hearing the Court determined the value of the banks’ collateral to be $36M. However, the banks made the § 1111(b) election. Accordingly, in order to be confirmable, the Debtor’s plan was required to provide the banks with total payments under the plan equal to the amount of the banks’ claims ($57.6M), which payments were required to have a current value equaling the value of the banks’ collateral ($36M). The banks objected to confirmation of the plan arguing that: (1) the plan was not proposed in good faith as it artificially impaired a class of creditors in order to secure superficial compliance with § 1129(a)(10); (2) the debtor failed to establish feasibility of the plan; (3) the plan violated § 1129(b)’s absolute priority rule as the debtor’s sole member was allowed to retain its ownership interest; (4) the plan failed to comply with § 1129(b)(2)(A)(i)(I) because it improperly eliminated some of the creditor’s prepetition security interests; (5) the plan improperly provided for a reduction in the current value of the banks’ claims ($36M) as a result of the payment to the banks of a $3.8M debt service reserve fund held on their behalf; and (6) that the interest rate proposed by the debtor (4.65%) failed to comply with Till. Despite these objections, the Court confirmed the plan. As to (1), the Court found that “the concept of artificial impairment is a chimera.” As to (2), the banks’ protestations notwithstanding, the Court found that the Debtor had “met its burden is establishing that the proposed plan is feasible,” as “the proponent [of a plan] need not demonstrate that a plan carries a guarantee of success.” As to (3), the Court found that the banks no longer had standing to argue that the plan violated the absolute priority rule given that, as a result of their § 1111(b) election, they no longer held unsecured claims. Additionally, the Court found that the membership interest held by the Debtor’s sole member, a non-profit, was not the sort of for-profit equity interest to which the absolute priority rule would apply. As to (4), the Court found that, based upon the representations made by the Debtor’s attorney that the Debtor would assist the banks in perfecting security interests in all prepetition collateral in which the banks had perfected security interests, the plan did not violate § 1129(b)(2)(A)(i)(I). As to (5), the Court found that nothing in the record supported the banks’ argument that the Debtor was attempting to reduce the current value of the banks’ claims ($36M) as a result of the payment to the banks of the $3.8M debt reserve fund. Finally, as to (6), the Court found the opinion of the Debtor’s Till expert to be “much the more persuasive and firmly based.” In fact, the Court determine that the testimony of the banks’ Till expert appeared to “facile and predirected to a result.”
You are here
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.
- Chief Judge Catherine J. Furay -- 2013 - present
- Judge William V. Altenberger -- 2016 - present
- Judge Brett H. Ludwig -- 2017 - present
- Judge Thomas M. Lynch -- 2018 - present
- Judge Robert D. Martin (retired) -- 1990 - 2016
- Judge Thomas S. Utschig (retired) -- 1986 - 2012
Judge Robert D. Martin
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.”
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.
Wis. Stat. § 706 -- Conveyances of Real Property, Recording, Titles
Chain of Title
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.
Wis. Stat. § 815.20
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.
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
Both Defendants hold mortgages against Plaintiff’s property. Plaintiff seeks to determine priority of the liens. Associated Bank had a first mortgage on the property from 1982. This mortgage contained a future advance clause with specific requirements. United FCS received a mortgage on the property in 1993. In 2000, Associated Bank refinanced their loan by giving the Plaintiff a line of credit and received a new mortgage in return. They then satisfied the 1982 mortgage. In 2001, Associated modified the 2000 loan to extend the credit line. The property is worth significantly less than the sum of the debts. Associated filed a cross-claim against United to assert a theory of subrogation to place its 2000 mortgage in first priority ahead of United’s mortgage.
The Court found that Associated was entitled to subrogation in the amount of $5,965.49, but no more. That is the amount of the 1982 loan that Associated refinanced. All other amounts of Associate’s claim were placed behind United’s lien. Associated did not satisfy the specific requirements of the future advance clause, so it cannot rely on that to secure its 2000 loan. It also did not order a title report before granting that loan to reveal the existence of United’s lien. Subrogation under Wisconsin law is based upon equitable factors. Granting subrogation to Associated beyond the refinanced amount would place it in a position it would not have enjoyed if it had not satisfied and released the 1982 mortgage. Further, it would place United in a worse position than it otherwise would have enjoyed. Therefore, the balance of the equities on the remaining amounts of Associated’s claim beyond the refinanced amount of $5,965.49 favor United and subrogation for those amounts is denied.
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. 502 -- Attorney-Client Privilege
Waiver of Discharge
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
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.
11 U.S.C. § 547 -- Preferences