Court Minutes and Order from hearing held on 11/28/11 -- Both parties presented oral arguments. The plaintiff first argued that the rent assignment was a separate document, and a separate agreement, from the loan agreement, and should be treated as such. If one viewed the rent assignment separate and apart from the loan agreement, the plaintiff argued, one then would have to consider what that assignment agreement accomplished. The plaintiff argued that it had enforced the assignment prior to the defendant filing bankruptcy, and that the assignment transferred all of the defendant’s rights to receive the rents to the plaintiff. Because the defendant transferred all of its rights prior to the petition date, the plaintiff argued, the rents never became property of the estate. The plaintiff argued that if the Court were to construe the rent assignment merely as security for the loan, as the defendant had urged it to do, the Court would render the rent assignment superfluous.
The defendant argued that the assignment agreement clearly indicated that it was intended simply to provide additional security for the loan. The assignment document left some of the defendant’s “bundle” of property rights with the defendant, including ownership of the real property that generated the rents, as well as the ability to resume collecting the rents once the secured debt had been paid in full. For this reason, the defendant argued–because the assignment did not constitute an “absolute assignment” of all of the defendant’s rights to the plaintiff–the rents constituted property of the estate under §541(a)(1). The defendant further argued that the rents constituted property of the estate under § 541(a)(6), because they constituted the proceeds of property of the estate. The defendant pointed to recent cases from other districts supporting that conclusion.
The Court first indicated that it did not agree with the plaintiff that it needed to determine whether the assignment document constituted a separate document from the loan agreement. The Court stated that it found the critical issue to be whether the assignment was an “absolute assignment” of all of the defendant’s rights to the plaintiff. To determine that, the Court indicated, it looked at the language of the assignment agreement itself, as had the court in In re Guardian Realty Group, LLC, 205 B.R. 1 (Bankr. D.D.C. 1997). The Court found that, upon reviewing all the relevant language of the assignment document, it was clear that the assignment was intended to provide additional security for the loan, and that the right to collect the rents was to revert back to the defendant upon payment of the secured debt. The agreement also provided that title remained with the defendant, so that the defendant retained part of the “bundle” of property rights in the property.
Given this conclusion, the Court found that the assignment did not constitute an “absolute assignment.” Accordingly, the Court held the rents did constitute property of the estate under §541(a)(1). The Court further held, however, that even if somehow one could construe the assignment language as creating an absolute assignment, it agreed with those cases which held that the rents were proceeds of estate property under §541(a)(6). The Court found persuasive the reasoning in In re Las Torres Development, LLC, 408 B.R. 876 (Bankr. S.C. Texas 2009) and In re Bryant Manor, 422 B.R. 278 (Bankr. D. Kan. 2010). The Court acknowledged that there were decisions finding otherwise, but indicated that because Wisconsin is a lien theory state, and because it found that the property which produced the rents was property of the estate, it found the Las Torres/Bryant Manor line of cases more persuasive.
For all of these reasons (stated in more detail on the record), the Court concluded that the rents constituted property of the estate under both §541(a)(1) and § 541(a)(6). Accordingly, the Court denied the plaintiff’s motion for summary judgment, and awarded summary judgment in favor of the defendant as to the assignment of rents issue.
The Court noted that in its counterclaim, the defendant also had requested an award of sanctions against the plaintiff for a willful violation of the automatic stay. The Court declined to sanction the plaintiff. The Court explained that the Code required a sanctionable violation of the stay to be willful and deliberate. The Court acknowledged that the plaintiff deliberately held on to the rents, but the Court also noted that the plaintiff did so relying on a legal position that the plaintiff believed was fully supported by case law. Although there was case law that disagreed with the plaintiff’s position, the Court concluded that this was not a situation where a party deliberately chose to act in contravention of well-settled case law. Therefore, the Court denied the defendant’s request to impose sanctions for violation of the stay.
Counsel for the defendant asked the Court to reconsider its denial of sanctions. He argued that the plaintiff’s willful act did not need to be malicious in order to be a willful and deliberate violation of the stay. He stressed that the defendant had had to fight for the rents, and reminded the Court of its comment at the emergency hearing in the underlying case that when in doubt, a creditor ought seek relief from the stay rather than assuming that it was not acting in violation of the stay. Counsel acknowledged, however, that he had not briefed the issue. He indicated that if the Court was not willing to vacate its ruling today, he would file a motion to reconsider. The Court opined that it would be more appropriate for the defendant to file a motion to reconsider, which would allow both sides to fully brief their positions.
Accordingly, the Court hereby DENIES Anchor Bank’s motion for summary judgment. The Court GRANTS summary judgment in favor of the defendant, and DISMISSES the plaintiff’s complaint. The Court DENIES the defendant’s request, raised in its counterclaim, to impose sanctions against the plaintiff for a willful violation of the automatic stay. The Court ORDERS the clerk’s office to enter judgment accordingly.
Chapter 7 Trustee and creditor objected to the debtor-John Wilson’s claim of exemption to a life insurance policy insuring the life of his ex-wife. The court sustained both objections and disallowed the exemption finding that debtor’s payment of $1000/mo in maintenance to ex-wife did not render her a dependent of the debtor within the meaning of Wis. Stats. § 815.18(2)(d). Further, the court found that the debtor was not a member of the class intended to be protected by Wis. Stats. § 815.18(3)(f)(2).
Chapter 7 debtor's motion to dismiss denied. Complaint of debtor's former spouse for finding of nondischargeability under sec. 523(a)(5) and/or 523(a)(15) stated claim upon which relief could be granted, despite lack of "hold harmless" agreement in parties' marital settlement agreement.
Oral ruling on creditor/landlord's motion to have its claim for the debtor's post-petition missed rent payments classified as an administrative priority claim. The debtor's original plan had proposed to assume the lease. Before the Court confirmed that plan, the creditor obtained relief from stay to evict the debtor. The debtor amended the plan to reject the lease, the creditor did not object, and the Court confirmed that plan. The Court found that the debtor never officially assumed the lease, because it was confirmation of the plan that solidified the debtor's proposed assumption or rejection. The Court found that because the debtor had not assumed the lease pre-petition, the post-petition rejection did not constitute a breach of the lease contract under section 365(g)(1), and therefore that the missed lease payments were to be characterized as a pre-petition, general, unsecured, non-priority debt.
Bank's claim arising for IRS and Dept. of Revenue overdrafts was nondischargeable under sec. 523(a)(14) and (a)(14A) because the overdrafts were debts incurred to satisfy tax obligations that would have been nondischargeable if they had not been honored.
United States Trustee's motion pursuant to Fed. R. Civ. P. 60(a) for correction of error in order denying debtor's discharge was granted. The order improperly denying the discharge under sec. 727(a)(8), instead of section 727(a)(2), was a clerical error, not a legal error.
Chapter 13 debtors with no personal liability on accelerated loan on principal residence were not allowed to strip the mortgage down to the value of the real estate.
Court's oral ruling granting the United States Trustee's motion to dismiss under section 707(b)(3)(B) on the totality of the circumstances.
Summary judgment pursuant to doctrine of issue preclusion was not warranted because state court findings did not meet nondischargeability standards set forth in sections 523(a)(2)(A) and (a)(4).
In Chapter 13 case, junior lienholder’s secured status is not affected by the senior lienholder’s failure to file a claim within 90 days of the § 341 meeting of creditors.