McDonald v. Little Limestone, Inc. (In re Powers Lake Constr. Co.), 482 B.R. 803(November 2012) -- Judge Kelley
Trustee could recover preferential payment made by Debtor contractor to subcontractor despite Wisconsin Statute creating trust fund in amounts paid by owners to contractors, because between date that Debtor received payment from owner and check to subcontractor cleared Debtor's bank, Debtor's bank account went into a negative balance. Under the "lowest intermediate balance test," this destroyed the trust fund. Subcontractor's giving of a lien release did not satisfy the contemporaneous exchange defense, but whether payment was in ordinary course of business could not be decided on summary judgment, based on the materials submitted.
Gerard v. Gerard (In re Gerard), 482 B.R. 265(November 2012) -- Judge Kelley
State court jury's determination that debtor committed slander of title was given preclusive effect, and judgment debt was nondischargeable as a willful and malicious injury under § 523(a)(6).
State court's $500 sanction award and findings regarding frivolous and abusive nature of chapter 7 debtor's state law counterclaim against plaintiff did not encompass the requisite specific intent to cause willful and malicious injury under section 523(a)(6), precluding summary judgment.
In re Thongta, 480 B.R. 317(October 2012) -- Judge Kelley
Chapter 13 Trustee is not required to provide Rule 3002.1 Notice of Final Cure Payment to Creditor that has received relief from stay and withdrawn its claim. If Trustee does provide such a Notice, the Creditor does not lose any rights by failing to respond.
Court recommended granting summary judgment dismissing adversary proceeding based upon ordinary course of business and new value defenses to the preference action. The Court took into account the seasonal variations in the debtor's business cycle when considering the parties' ordinary course of business.
In re Dorff, 480 B.R. 919 (October 2012) -- Judge Kelley
Where debtor's failure to pay the filing fee was not caused by circumstances beyond the debtor's control, Court would not vacate the order of dismissal.
A criminal judgment was entered against the debtor for money laundering, mail fraud, possession of unauthorized access devices, and conspiracy to launder funds while subject to a release order. Thereafter, the Department audited the debtor and discovered that his tax returns significantly under-reported his criminal income. The debtor later initiated an adversary proceeding seeking a determination that his tax debt owed to the Department was discharged in his chapter 7 bankruptcy case. At trial, the debtor testified that his reported income had no relation to his actual income, and was aimed only at avoiding detection of his criminal enterprise. The court held that the debtor both filed a fraudulent return and willfully attempted to evade or defeat a tax and excepted the Department’s debt from discharge under section 523(a)(1)(C).
Debtors were the sole members of an LLC which operated a cocktail lounge. Plaintiff sought to purchase the LLC from the debtors, however, when the loan process was delayed, the parties decided to transfer a 38% interest in the LLC to the plaintiff in exchange for an $84,200 investment, with the expectation that the remaining interest would be transferred once the loan was approved. The relationship between the parties quickly deteriorated and ultimately, the remaining interest was never transferred. The debtors, as majority members, voted to cease business operations shortly after the partial transfer, causing plaintiff to lose his investment, as well as causing him to become personally liable for breach of the business lease. The plaintiff sought a determination that the debt owed to him was nondischargeable under § 523(a)(6). The court dismissed the complaint finding that there was no willful and malicious intent to injure on the part of the defendants.
Creditor obtained relief from stay during debtors’ chapter 13 case and sold the collateral securing debtors’ loan resulting in a deficiency balance of over $15,000. Debtors subsequently completed their plan and were granted a discharge. Creditor then initiated an adversary proceeding seeking a determination that the deficiency balance was a nondischargeable debt under § 1328(c)(1). The court held that it was a long term debt, but that the debtors’ plan did not provide for it under § 1322(b)(5) such that it would be a nondischargeable debt under § 1328(c)(1). Creditor never objected to the debtors’ chapter 13 plan, nor did it timely file a proof of claim for the deficiency balance after sale. The court denied creditor’s motion for summary judgment and dismissed the complaint.
Creditor was denied summary judgment and sec. 523(a)(3)(A) cause of action against chapter 7 debtors was dismissed. Although creditor had not received notice of bankruptcy in time to file a timely proof of claim in asset case, it had knowledge of bankruptcy case in time to file a tardy proof of claim and fully participate in the distribution under sec. 726(a)(2)(C), but chose not to do so.