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In re J H Collectibles, Inc., Case No. 96-28214 (December 1997) -- Judge McGarity

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.

In re Isaac Wilson, Case No. 96-29993, Gaile Biggers v. Debtor, Adversary No. 97-2094 Published: In re Wilson, 216 B.R. 258 (November 1997) -- Judge McGarity

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.

In re Douglas & Ramona Hill, Case No. 96-22423 (October 1997) -- Judge McGarity

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.

In re Debra & Matthew West, Case No. 96-25374, Alby Materials, Inc. v. Debtor, Adv. No. 96-2633, Nienow Engineering Assoc., Inc. v. Debtor, Adv. No. 96-2634 (October 1997) -- Judge McGarity

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).

In re Paul & Linda Zakowski, Case No. 92-23686 Published: In re Zakowski, 213 B.R. 1003 (September 1997) -- Judge McGarity

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.

In re Douglas & Ramona Hill, Case No. 96-22423, Paul G. Swanson, Trustee v. Montello State Bank, Adv. No. 96-2615 Published: In re Hill, 210 B.R. 1016 (July 1997) -- Judge McGarity

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.

In re Richard & Mary Ellen Waite, Case No. 95-28196, Virfran, Inc. v. Debtors, Adv. No. 96-2326 (May 1997) -- Judge McGarity

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.

In re Carrie E. Elst, Case No. 97-20038 Published: In re Elst, 210 B.R. 790 (May 1997) -- Judge McGarity

Chapter 7 debtor moved to avoid the lien on certain personal goods under section 522(f)(1)(B), and the secured creditor objected.  The court held that the debtor's bicycle was not a "household good" subject to lien avoidance; however, the debtor's extra television set was a "household good" subject to lien avoidance.

In re Timothy Brahm, Case No. 96-22890, Kevin Hibl v. Debtor, Adv. No. 96-2506 (April 1997) -- Judge McGarity

Creditor commenced an adversary proceeding seeking to have a loan made to the chapter 7 debtor declared nondischargeable. The creditor had loaned the funds to the debtor to enable him to purchase a home when sale proceeds of his old home were inadequate. As realtor on both home sales, the creditor made the loan to save the sales. The creditor alleged the debtor misrepresented the amount of the mortgage on his old home and the creditor lent the money because he believed the debtor would realize sufficient proceeds from the sale of the home.  The court found the obligation was dischargeable because the creditor's reliance on the debtor's estimate of the sale proceeds was not justified. The court also granted the debtor's motion for reasonable attorney's fees because the creditor's cause of action was not substantially justified.

In re Concrete Raising Corp., Case No. 95-26272, Debtor v. Tony Zidar, Jr., et al., Adv. No. 96-2028 (April 1997) -- Judge McGarity

Chapter 11 debtor commenced an adversary proceeding to subordinate the defendant's claim, which arose from a guaranteed consulting agreement. After the parties had agreed to sever their business relationship, the debtor agreed to pay the defendant, a former officer of the debtor, for advisory and consulting services. The debtor argued the agreement rendered the debtor insolvent, the defendant's unfair competition after the claim arose led to the debtor's inability to make payments pursuant to the agreement, and the defendant provided no consideration to the debtor in connection with his claim. The court concluded the debtor received no benefit in entering into the consulting agreement with the defendant and subordinated the claim to other general unsecured creditors.

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