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In re Universal Electric Sign Co., Case No. 99-30673 Published: In re Universal Electric Sign Co., 255 B.R. 732 (October 2000) -- Judge McGarity

Chapter 7 trustee filed notice of his intent to compromise marshaling claim and creditors objected.  The court held that the trustee's proposed compromise of marshaling claims against secured creditor was in the best interests of the estate.  The creditor's claims were secured both by interest in assets of debtor and interest in assets of sister company, pursuant to which trustee, in return for $15,000 payment from sister company, gave up any claim he had to compel creditor to look first to assets of sister company before it tried to recover from assets of debtor's estate.


In re Krystal Papcke, Case No. 99-24700, Bruce Lanser, Trustee v. Russell Papcke, Adv. No. 99-2381 (September 2000) -- Judge McGarity

Chapter 7 trustee commenced adversary proceeding alleging a payment to the debtor's father was a preferential payment under sec. 547. Pursuant to a family court order, a workers' compensation award to the debtor was transferred the debtor's father, in exchange for his release of a lien on a vehicle awarded to the debtor's ex-spouse. The only element of sec. 547(b) the father disputed was whether the funds transferred constituted "an interest of the debtor in property."  The father reasoned that because the workers' compensation award was never available to the debtor, she did not have an interest in the property transferred.  The court found in favor of the trustee, determining that an interest in the debtor's property was transferred when the father was paid.  The court also found that none of the defenses available under sec. 547(c) applied as the consideration given by the father at the time the transfer was given to the debtor's former spouse, not to the debtor. The father's claim that the proceeds were exempt was irrelevant because that was not a defense under sec. 547(c) and only a debtor could claim exemptions.


In re Michelle Schmiedel, Case No. 94-21332 Published: In re Schmiedel, 236 B.R. 393 (July 2000) -- Judge McGarity

Chapter 7 debtor moved for contempt and sanctions against judgment creditors for their alleged violation of the discharge injunction in failing to release a lien creating a cloud on the debtor's title to community property awarded to her by the divorce court.  The bankruptcy court held that while the creditors having community claims against both the debtor and her nonfiling spouse may have received a technically deficient notice of the debtor's bankruptcy, inasmuch as the notice failed to identify the debtor's estranged husband as a nonfiling spouse, the creditors nevertheless had sufficient notice of the relationship between the parties, and were barred by the debtor's discharge from proceeding against after-acquired community property of the debtor and her spouse. However, no sanctions were imposed for the creditors' alleged violation of the discharge injunction.


In re Kenneth & Deborah Szostek, Case No. 99-23910, Bayoff Enterprises, Inc. v. Kenneth Szostek, Adv. No. 99-2206 (May 2000) -- Judge McGarity

In sec. 523(a) nondischargeability action, plaintiff alleged the chapter 7 debtor violated the Uniform Trade Secrets Act, sec. 134.90, Wis. Stats., in connection with his employment with the plaintiff, a pizza franchise.  The court found the plaintiff lacked standing to prosecute a cause of action with respect to the pizza dough recipe because the debtor obtained the recipe prior to his employment with the plaintiff.  The court also found the plaintiff failed to prove it was entitled to relief with respect to the misappropriation of its business manuals and cost calculations.  [Previously, on summary judgment, damages related to the plaintiff's cause of action for breach of fiduciary duty were excepted from the debtor's discharge under sec. 523(a)(4).]


In re Tamera Rich, Case No. 97-27648, Todd Esser, Trustee v. Arcadia Financial, Ltd., Adv. No. 99-2131 (May 2000) -- Judge McGarity

Chapter 7 trustee filed adversary proceeding seeking to avoid the debtor's transfer of a lien on a her vehicle to the defendant.  The trustee also sought turnover of the lien and postpetition payments made by the debtor to the defendant. Within 90 days prepetition, the debtor borrowed funds from the defendant to obtain the vehicle. The defendant's lien interest was not perfected until more than 20 days after the debtor took possession of the vehicle. The court avoided the defendant's security interest; however, the defendant was not required to turn over the postpetition payments made by the debtor.  Additionally, the parties' defective reaffirmation agreement did not affect the outcome of the proceeding.


In re Cezary Zawadzinski, Case No. 98-31738 (March 2000) -- Judge McGarity

Creditor filed a motion for relief from the automatic stay.  The chapter 7 trustee objected to the motion, as well as to the creditor's secured claim.  The trustee alleged the creditor did not properly perfect its lien in the debtor's vehicle and that the lien was void as to the trustee.  The creditor argued its security interest was valid because a properly perfected security interest was assigned to it from the prior lender and that perfection remained on the vehicle's title. The court found that since the release of the prior lender's lien was held by the creditor and never recorded, it was insufficient to provide notice of perfection. Because the obligation to perfect a security interest is wholly upon the secured party, the creditor's defense that the debtor failed to deliver the certificate of title was rejected. Because the lien was unperfected, it was avoidable by the trustee and the claim was deemed unsecured.


In re Lappin Electric Co., Inc., Case No. 97-26130, Patrick Noonan, Trustee v. Fremont Financial, Adv. No. 99-2204 Published: In re Lappin Elec. Co., 245 B.R. 326 (February 2000) -- Judge McGarity

Chapter 7 trustee brought adversary proceeding against oversecured creditor, alleging an early termination fee of $225,000 provided for in parties' loan agreement for debtor's line of credit and paid by the purchaser of debtor's assets was an unreasonable charge and, thus, a voidable transfer.  On cross-motions for summary judgment, the court held (2) early termination fee was a reasonable calculation of potential damages, satisfying the requirements of Illinois law and (2) early termination fee, which represented approximately 5.9% of the principal loan amount and which had been negotiated by sophisticated parties represented by competent counsel, was reasonably under the applicable provision of the Code.


In re Randy & Kristine Gomm, Case No. 97-30695 (February 2000) -- Judge McGarity

Counsel for chapter 12 oversecured creditors filed a claim for attorney's fees and other charges under sec. 506(b) and pursuant to existing loan agreements. The debtors objected to the claim, arguing they attempted to cooperate with the creditors despite the creditors' unreasonably demands for inspection of collateral and production of non-existent documents. While the court agreed with the creditors that the debtors lacked responsiveness to reasonable requests and lacked an explanation for the loss of assets or acquisition of funds, counsel for the creditors responded in a hyperactive and unproductive manner.  The court reduced the attorney's fees by 50%. 


In re Frank Pio Crivello, Case No. 92-27252, Century Shopping Center Fund I Ltd. P'ship v. Debtor, Adv. No. 94-2346 (October 1999) -- Judge McGarity

Plaintiff moved to reopen adversary proceeding and debtor objected, claiming the doctrine of res judicata or claim preclusion prevented the plaintiff from seeking judgment against him. The court found the previous order dismissing the adversary only required a judgment in state court and a motion before the bankruptcy court.  The court further found issue preclusion did not apply because no issues had been litigated in state court. The court rejected the debtor's argument that the plaintiff should have included the debtor in the state court action because the debtor had no right to dictate the plaintiff's strategy or choice of forum.


In re Shevan C. Joseph, Case No. 98-28086 (September 1999) -- Judge McGarity

Chapter 13 debtor objected to the secured status of a claim based on a judgment lien. The creditor argued the debtor could not claim a homestead exemption in property he did not reside in at the time judgment was obtained and the judgment superceded the debtor's exempt interest at the petition date. The debtor argued the creditor was precluded from objecting to the exemption since no timely objection was filed by the creditor or trustee. The court determined the debtor's homestead exemption superceded the judgment lien.  Under sec. 506(a), the claim was an allowed secured claim to the extent of the creditor's interest in the property, and was an allowed unsecured claim for the balance.


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