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In re Larry M. Watts, Case No. 01-21368, Larry M. Watts v. J.D. Griffiths Co., Adv. No. 01-2583 (December 2001) -- Judge McGarity

Defendant was hired to tear down and replace debtor's garage.  Debtor never paid for the work and the defendant obtained an unsecured construction lien. After the debtor filed a chapter 7 petition, he commenced an adversary proceeding to declare the lien void under sec. 506(d). On summary judgment, the debtor argued he was not seeking avoidance of the lien, but rather wanted the lien declared void as a matter of law. The court dismissed the adversary proceeding, finding under Dewnup v. Timm, the lien passed through bankruptcy unaffected.

In re Fox Bay Entertainment, Inc., Case No. 99-22637, John M. Scaffidi, Trustee v. Bonnie K. Smith, Adv. No. 00-2149 (February 2001) -- Judge McGarity

The chapter 7 trustee filed an adversary proceeding seeking to avoid an alleged preferential payment to an insider pursuant to sec. 547(b).  The defendant filed for summary judgment on the issue of whether the doctrine of earmarking applied to defeat avoidance by the trustee, as a matter of law.  Prepetition, the defendant had loaned the debtor $50,000, to be repaid with the proceeds from the sale of coffee shop business.  Two months later, the sale closed and the defendant was repaid.  The defendant argued the loan payment did not constitute a preferential transfer due to the equitable doctrine of earmarking.  The trustee argued earmarking was not application because the sale proceeds were paid to the president and majority shareholder of the debtor in his individual capacity, who in turn deposited the proceeds into the debtor's account before paying the defendant.  The trustee also argued the payment to the defendant diminished the estate.  The court found the estate was not diminished by payment of the debt as the money would never have come into the estate had it not been targeted for the debt to the defendant.  Because the trustee failed to meet his burden that there was a transfer of the debtor's interest in property to the creditor, the adversary proceeding was dismissed.

In re Thomas & Laura Von Eiff, Case No. 99-29495, Christiansen Building Center, Inc. v. Thomas Von Eiff, Adv. No. 99-2528 (February 2001) -- Judge McGarity

In this sec. 523(a)(4) action, the plaintiff, a material supplier, alleged the debtor, a general contractor, diverted funds due the plaintiff for goods and services rendered for a construction project, in violation of the theft by contractor statute, sec. 799.02(5), Wis. Stats. The court was satisfied that a relationship between the contractor and supplier existed and that funds for improvements passed from the owners to the contractor and did not reach the plaintiff.  The plaintiff was entitled to the same percentage of its claim as the percentage of the contract that the debtor received from the owners and was granted a nondischargeable judgment for that amount. 

In re Frank Pio Crivello, Case No. 92-27252, Century Shopping Center Fund I Ltd. P'ship v. Debtor, Adv. No. 94-2346 (January 2001) -- Judge McGarity

The plaintiff, an owner of a shopping center, alleged the debtor, a real estate developer, participated in intentional acts of conspiracy and antitrust violations to deprive it of its property or to cause great damage to its property, resulting in a nondischargeable obligation under sec. 523(a)(6). The debtor contended the plaintiff's per se analysis of the parties' business arrangement should be rejected in favor of a "rule of reason" analysis of antitrust violations and an analysis of competition enhancing factors.  Based on the debtor's own statements, the court deemed his actions against the plaintiff were willful and showed clear malice.  The court was also satisfied that the debtor's deliberate side deal with the plaintiff's anchor tenant to leave the space but retain the lease, and the resulting reduction of value of the satellite space, constituted price fixing and a per se violation of antitrust laws; therefore, the debtor's liability to the plaintiff was excepted from discharge.

In re Joseph & Mary Setnicar, Case No. 99-22360, Carol Hartson & Charlotte Nelson v. Joseph Setnicar, Adv. No. 99-2280 (December 2000) -- Judge McGarity

Plaintiffs brought an adversary proceeding against the chapter 7 debtor to except from discharge under sec. 523(a)(2)(B) an unsecured obligation arising from the sale of the plaintiffs' real estate to the debtor's LLC.  The court determined that (1) a written financial statement from the debtor was provided to the plaintiffs and was used to procure financing for the LLC from the plaintiffs, (2) the financial statement painted a substantially untruthful picture of the debtor's financial condition, (3) the plaintiffs' reliance on the financial statement was reasonable, (4) the debtor caused the financial statement to be made, and (5) the financial disclosure was provided with the intent to deceive.  The debtor's liability to the plaintiffs was excepted from discharge.

In re Harry & Bernice Pegelow, Case No. 99-25383, Scott & Kerry Mason v. Debtors, Adv. No. 99-2407 (December 2000) -- Judge McGarity

Plaintiffs, homeowners, alleged the chapter 7 debtors, doing business as a construction company, used monies paid to the latter for purposes other than paying the material supplier, in violation of the theft by contractor statute, sec. 799.02(5), Wis. Stats., resulting in a nondischargeable obligation under section 523(a)(4). The court found that because there was no contract between the plaintiffs and the material supplier, the plaintiffs had no right to sue on the material supplier's behalf.  Although the plaintiffs may have had a claim for defective product against the debtors, such a claim was dischargeable.  The adversary proceeding was dismissed.

In re Albert & Sylvia Toeller, Case No. 98-31721, Edward & Cindy Graff v. Debtors, Adv. No. 99-2072 (December 2000) -- Judge McGarity

Court entered, sua sponte, an order modifying the stay to all the plaintiffs to proceed with an action against the chapter 7 debtors in state court.  The order allowed the state court to determine liability, if any, but the plaintiffs could not execute on a judgment until the bankruptcy court determined dischargeability.  Plaintiffs subsequently filed a motion to vacate the sua sponte order and have the action heard by the bankruptcy court.  The court denied the motion as the facts pointed to the plaintiffs' forum shopping and dissatisfaction with the state court judge, which were not grounds for revoking the abstention order.

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.

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