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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.

In re Todd W. Hansen, Case No. 97-25273, Alan & Barbara Schroeder v. Debtor, Adv. No. 97-2459 (August 1999) -- Judge McGarity

The parties filed post-trial requests for reconsideration of the court's ruling on nondischargeable damages under sec. 523(a)(2)(A). The plaintiffs requested the court reconsider its denial of recovery of attorney's fees incurred as a result of the wrongful conduct of the debtor.  The debtor requested the court amend its previous award for damages. The court held that the plaintiffs' legal fees, incurred in the fraud litigation, was not recoverable. Because a portion of the damage award was a derivative of the debtor's acts against the plaintiffs' corporation, it could not be awarded to them personally and the judgment against the debtor was reduced.

In re Kenneth & Debra Beattie, Case No. 98-30856 (July 1999) -- Judge McGarity

Chapter 7 trustee objected to the debtors' exemption in potential proceeds of a personal injury lawsuit or settlement under sec. 522(d)(11)(E), stating "any loss of future earnings" should be calculated as of the date of the bankruptcy filing.  The debtors contended that the debtor-wife suffered a loss of future earnings as of her date of injury.  Under Wisconsin law, lost future earnings are determined as of the date the damages are assessed, either by verdict or settlement.  Loss of past earnings are calculated from the date of injury to the time of verdict or settlement.  In this case, the debtors' schedules reflected that the debtor-wife was not working prior to her injury.  The debtors' schedules also reflected expenses exceeded income. The statute only allowed an exemption "to the extent reasonably necessary for the support of the debtor or any dependent of the debtor."  As that amount could not be determined until the amount of the award was known, the trustee's objection was held in abeyance pending the outcome of the debtor's personal injury claim.

In re United States Leather, Inc., Case No. 98-24997 (June 1999) -- Judge McGarity

Chapter 11 debtor filed a motion for an order determining the debtor's "disbursements" for purposes of calculating the amount of post-confirmation fees owed under 28 U.S.C. sec. 1930(a)(6) included only payments made by the reorganized debtor pursuant to the plan and not any other post-confirmation payments. The U.S. Trustee objected, asserting fees due were based on all disbursements, including all operating costs, of the reorganized debtor. The debtor countered that charging it for post-confirmation operations actually undermined its chances for future success.  The court indicated the debtor may have been correct, however Congress was within its policy making authority to raise funds in the manner afforded under sec. 1930(a)(6).  The fees imposed by sec. 1930(a)(6) were thus determined by reference to all disbursements of any kind made by the debtor until the case was closed.

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