The U.S. Trustee objected to counsel for the chapter 11 official committee of unsecured creditors' application for an order approving a compromise and settlement of its amended claim. The claim was for post-confirmation fees totaling $205,607, incurred in finalizing a settlement, preparing its final fee application, defending its final fee application, and for other "supplemental administrative services." After objections to the claim were filed, the banks and post-confirmation committee agreed to settle the matter with the unsecured creditors committee counsel by allowing an administrative claim in the amount of $36,800. The court approved the settlement, finding the integrity of the negotiation process had not been compromised and all of the parties had been effectively represented.
Neighbor brought an adversary proceeding against the chapter 7 debtor-property owner, seeking determinations of liability and nondischargeability with respect to potential obligations arising from the debtor's conduct in a state court property dispute. The bankruptcy court dismissed the complaint. Under Wisconsin law, the debtor was entitled to absolute witness immunity for statements he made in an affidavit submitted in a third-party's state court against the neighbor seeking to enjoin the neighbor from building a two-story home. There was no exception to the discharge, notwithstanding the debtor's willful and malicious harm to the neighbor's interest and the substantial damage that resulted.
Chapter 7 debtor filed a motion for contempt against credit card company for violating the permanent injunction under sec. 524(a)(2) by continuing with collection activities relating to a prepetition debt. The creditor contended it was seeking to collect a postpetition obligation. The debtor had filed her petition on October 9th at 9:57 am. Also on October 9th, the debtor deposited a $750 cash advance check from the creditor at her bank. The check was honored October 11th. The court determined the transfer occurred postpetition, making the obligation postpetition, as well. Because the creditor did not violate the discharge injunction, the debtor's motion for contempt was denied.
Counsel for the chapter 11 official committee of unsecured creditors filed its final fee application in the total amount of $840,119.24, a portion of which had been approved on an interim basis. A trial was held on the creditors' and U.S. Trustee's objections. The court determined that the fees requested for committee meetings and relations was bordering on the ridiculous and reduced the amount requested by 50%. Second, the fees requested for work done on the plan and disclosure statement was reduced by 40% due to the abrasiveness of committee counsel and its unwillingness to negotiate terms. Third, the fees requested for work done on cash collateral issues was reduced by 20% as the court felt the amount requested was excessive. Fourth, the fees requested in connection with the sale and sale procedures was reduced by 20% as there were more efficient ways to have reached the end result. Finally, the court reduced counsel's blended rate on the remaining fees by 15% to put it in line with the blended rate of debtor's counsel. After the aforementioned reductions, the court awarded committee counsel final fees and costs in the amount of $641,832.22.
Chapter 7 debtor's ex-employee brought an adversary proceeding to except a debt from discharge as one for the debtor's "willful and malicious injury" to her person. On the ex-employee's motion for summary judgment based on the preclusive effect of a state agency action, the court held that the mere fact that the debtor was not represented by an attorney in the administrative proceedings before the Equal Rights Division of the Wisconsin Department of Industry, Labor and Human Relations did not prevent the bankruptcy court from giving preclusive effect the final agency decision that the debtor had sexually harassed his former employee. The agency action collaterally estopped the debtor from disputing the "willful and malicious" nature of his acts, for debt dischargeability purposes.
Chapter 7 debtors filed a motion for turnover of funds which the trustee had recovered as a preference from the bank, arguing the funds were exempt under sec. 522(g) because the bank's application of the funds to various unsecured debts was involuntary. The trustee argued the preferential prepetition transfers to the bank had been voluntary, even though the application was not. The debtors had sold a vacant lot prepetition with the understanding the sale proceeds would be used to pay down their mortgage. The court was satisfied that the allocation of the lot sale proceeds to the unsecured debt was an involuntary payment under sec. 522(g) and that the proceeds could be claimed as exempt, less the reasonable costs of collection by the trustee.
Creditors initiated two separate adversary proceedings seeking to have the chapter 7 debtor's obligations declared nondischargeable. In the first adversary, the creditor claimed the debtor made misrepresentations which caused the creditor to invest $310,000 in the debtor's business. The court found the obligation nondischargeable under sec. 523(a)(2)(A) and (a)(2)(B). In the second adversary, the creditor alleged the debtor diverted corporate funds for his own personal use. Due to the debtor's clear and callous violation of his fiduciary duty to the creditor, the obligation was deemed nondischargeable under sec. 523(a)(4).
A few months prior to the plan's completion, the chapter 13 debtors moved for an order establishing the extent of the bank's secured claim and for a determination that the secured portion of the claim had been paid in full. The bank objected to the form of the court's subsequent order, which, after finding that the secured claim had been paid in full, implied that the bank was obligated to release the mortgage lien before receiving payment of the unsecured claim under the plan. The court held that it would not be fair to deprive the bank of its security at such a late date and, thus, the bank was not required to release its lien.
Chapter 7 trustee brought an adversary proceeding against the mortgagee-bank, seeking to avoid an alleged preference received by the bank when it applied proceeds from the sale of a portion of the debtors' real property to the debtors' other outstanding loans with the bank instead of applying the entire proceeds to their mortgage note. The bank moved for summary judgment. The court held that the debtors' credit card debt was not secured by the real estate and thus, the bank's application of the sale proceeds to that debt was an avoidable preference. The debtors' ready reserve accounts were included in the mortgage's dragnet clause, so that the bank's application of the sale proceeds to the reserve accounts was not an avoidable preference. Finally, the bank's application of the sale proceeds toward the debtors' vehicle loan was not an avoidable preference.
A lumber supplier filed an adversary proceeding against the chapter 7 debtors seeking a determination that a stipulated state court judgment was nondischargeable. The debtors used the lumber in construction projects for which the owners had fully paid for, however the debtors failed to remit full payment to the supplier. The court found the amount due for the unpaid invoices was nondischargeable under sec. 523(a)(4). The attorney's fees and punitive damages portions of the judgment were nondischargeable, as well, under the doctrine of claim preclusion.