OpinionsThe U.S. Trustee objected to confirmation of a nonconsensual Chapter 11, Subchapter V, plan of reorganization, asserting that the debtor should be required to extend the plan’s three-year term to five years to satisfy the “fair and equitable” test of 11 U.S.C. § 1191(c)(2)). Finding the text of the Code silent as to how bankruptcy courts should “fix” the term of a Subchapter V plan under § 1191(c)(2), the court considered analogous Code provisions applicable to Chapter 12 plans, as well as the legislative history of Subchapter V, to conclude that the debtor’s proposed three-year plan term was fair and equitable in the circumstances, as it properly balanced the risks and rewards for all stakeholders. In re Eatertainment Milwaukee, LLC, No. 21-25733 (Bankr. E.D. Wis. Nov. 19, 2021) (November 2021) -- Judge K.M. Perhach The Chapter 11 debtor was the successor to a former tenant of the Punch Bowl Social bar and restaurant in downtown Milwaukee. The new tenant of the Punch Bowl Social location filed an “Emergency Motion for Relief from the Automatic Stay, to the Extent it May Apply,” asking the Court to determine whether the debtor had abandoned property at the leased premises and, if not, what property was property of the bankruptcy estate. The new tenant argued that much of the property was a fixture, the stay did not apply to those fixtures, and the fixtures should remain at the premises. The debtor argued that almost none of the property was a fixture and that the property was property of the estate and could easily be removed. After conducting an evidentiary hearing, the Court concluded that the debtor had not abandoned any of the property at issue at the premises. The Court determined that certain property was a fixture and therefore not property of the debtor/bankruptcy estate, determined that certain other property was property of the debtor/bankruptcy estate, and found that it could not determine the status of the remaining property at issue given the evidence presented at the evidentiary hearing. In re Terrell, Case No. 18-28674 (November 2021) -- Chief Judge G.M. Halfenger The debtors’ confirmed plan required them to make payments to the trustee for five years. The debtors named the Wisconsin Department of Children and Families as a creditor in the section of the model plan designed for listing domestic support obligations owed to governmental entities that are entitled to priority under 11 U.S.C. §507(a)(1)(B). After the plan was confirmed, two events occurred: (1) the debtors modified their plan to surrender collateral and reduce the plan’s payments to secured creditors and (2) the Seventh Circuit Court of Appeals determined that claims for benefit overpayments (like the one the Wisconsin Department of Children and Families asserted in the Terrells’ case) were not domestic support obligations entitled to priority under 11 U.S.C. §507(a)(1)(B). As a result of these events, the debtors moved to modify their chapter 13 plan under 11 U.S.C. §1329(a) to reduce the time within which they had to make payments to the trustee from five years to three, and the debtors objected to the priority of the Department’s claim. In In re Terrell, Case No. 18-28674-gmh, 2021 WL 4304839 (Bankr. E.D. Wis. Sept. 21, 2021), this court sustained the debtors’ objection and determined that the Department’s claim was not entitled to priority. The Department objected to the debtors’ motion to modify their confirmed plan to reduce the plan term from five years to three. The court overruled the Department’s objection, concluding that §1329(a) permits the requested modifications. Meadows v. Ledesma (In re Ledesma), Ch. 7 Case No. 20-22941-kmp, Adv. No. 20-2129, 2021 WL 4514678, 2021 Bankr. LEXIS 2712 (Bankr. E.D. Wis. Oct. 1, 2021) (October 2021) -- Judge K.M. Perhach The plaintiff filed a motion for summary judgment on his claims to deny the debtor’s discharge pursuant to 11 U.S.C. § 727(a)(3) based on the debtor’s failure to keep records about his financial condition and business transactions and pursuant to § 727(a)(4) based on knowing and fraudulent false oaths made by the debtor. The plaintiff established that the debtor failed to keep records from which his financial condition might be ascertained, and the debtor did not offer any compelling argument or evidence that this failure was justified. Most problematically, the Debtor failed to provide any record accounting for almost $35,000 that he received through services like Cash App and Venmo. The plaintiff also established that the debtor “knowingly and fraudulently, in or in connection with the case made a false oath or account.” Although determinations about a person’s intent are often ill-suited for summary judgment, the plaintiff demonstrated a pattern of omissions and conflicting statements that led to the conclusion that the debtor acted with an intent to defraud. At the summary judgment stage, a “put up or shut up moment,” the debtor failed to file affidavits or exhibits to assert that facts were genuinely disputed as contemplated by Fed. R. Civ. P. 56(c)(1), instead relying on unsupported representations in counsel’s brief. The representations did not constitute evidence and could not defeat summary judgment. Bach v. JPMorgan Chase Bank N.A. (In re Bach), Ch. 7 Case No 20-23343-kmp, Adv. No. 21-2020 (Bankr. E.D. Wis. Oct. 1, 2021), aff’d, No. 21-CV-1394-BHL (E.D. Wis. Jan. 19, 2023) (October 2021) -- Judge K.M. Perhach Defendants JPMorgan Chase Bank, N.A. and Federal National Mortgage Association filed a motion to dismiss the debtor-plaintiff’s claims against them based on lack of subject-matter jurisdiction under the Rooker-Feldman doctrine. Because the claims had already been considered and rejected in foreclosure cases in state court, the Court granted the motion and dismissed the claims. Even if the Court had subject-matter jurisdiction, issue preclusion or claim preclusion barred the debtor-plaintiff from relitigating the claims. The district court affirmed this court’s decision and held that the doctrine of res judicata (a/k/a claim preclusion) barred the debtor-plaintiff’s claims. The district court noted that the Rooker-Feldman doctrine did not apply because the debtor did not cite state court defeats as the source of her injury and instead merely restated her losing state court arguments and sought to relitigate them. In re Hobbs, No. 20-27572-kmp (Bankr. E.D. Wis. Sept. 30, 2021) and Kasper v. Hobbs (In re Hobbs), Ch. 7 Case No. 20-27572-kmp, Adv. No. 21-2021 (Bankr. E.D. Wis. Sept. 30, 2021) (September 2021) -- Judge K.M. Perhach A creditor filed a motion to disqualify one of the debtor’s attorneys from representing the debtor in the Chapter 7 bankruptcy case and in an adversary proceeding the creditor had filed. The creditor’s claim was the largest filed in the Chapter 7 case, followed by the attorney’s claim for legal fees he incurred representing the debtor in a state court case before the filing of the bankruptcy case. The creditor argued that the lawyer had a concurrent conflict of interest because there was a significant risk that his representation of the debtor would be materially limited by his personal interest in realizing as much of his claim as possible. Even if this were the case, the creditor failed to show that the conflict was not waivable under SCR 20:1.7(b), and the Court denied the motion. Essentially, the creditor took issue with the fact that the lawyer was the creditor’s competitor when it came to the funds available for distribution to creditors in the Chapter 7 case. However, disqualification of the attorney would not result in automatic disallowance of his claim. Kasper v. Hobbs (In re Hobbs), Ch. 7 Case No. 20-27572-kmp, Adv. No. 21-2021 (Bankr. E.D. Wis. Sept. 30, 2021) (September 2021) -- Judge K.M. Perhach The plaintiff sought a determination that the debtor-defendant owed a nondischargeable debt pursuant to 11 U.S.C. § 523(a)(2)(A) and/or § 523(a)(4). The parties were involved in litigation in state court before the debtor-defendant filed the bankruptcy case. The debtor-defendant removed the action to bankruptcy court and filed a motion to dismiss both the nondischargeability action and the removed action for failure to state a claim upon which relief could be granted. The motion to dismiss asserted that the plaintiff could not establish the existence of a “debt” that was nondischargeable because the state court action was time-barred, or subject to dismissal and a new action would be time-barred. The Court denied the motion, rejecting the debtor-defendant’s contention that service in the state court action was insufficient, relying in part on an earlier denial of a motion to dismiss by the state court. Questions of fact existed as to when the plaintiff’s fraud claim accrued and whether it was barred by the statute of limitations. Because the plaintiff also had a pending claim objection, the Court stated that the issues to be decided at trial were (1) whether there was a debt; (2) the amount of the debt; (3) whether the entire debt or a portion of the debt was nondischargeable based upon false representations, fraud, fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny; and (4) the amount of the nondischargeable debt. In re Harrington, Case No. 16-25279-BEH, 2021 WL 4465568 (September 2021) -- Judge B.E. Hanan “Plan shortening” special provision in Chapter 13 plan providing that plan would end once it reached 36 months and unsecured creditors had received “not less than 1% of their respective total claims” did not conflict with separate plan provision requiring the debtor to turn over to the Chapter 13 trustee half of all net federal and state income tax refunds “received during the term of the plan.” Debtor’s obligation to make monthly plan payments to the trustee was in addition to his obligation to turn over a portion of his tax refunds, and because the debtor received his 2020 tax refunds before unsecured creditors had received at least 1% on their claims—i.e., during the term of the plan—the debtor was required to turn over the full amount to the trustee for payment to unsecured creditors, even if the resulting distribution would be greater than 1%. In re Michael Galesky, Case No. 20-25509 (September 2021) -- Chief Judge G.M. Halfenger The trustee and a creditor objected to the debtor's claim of exemptions, primarily asserting that the debtor's exemptions under Wisconsin law should be denied pursuant to a state statute that affords a court the discretion to deny exemptions if the debtor has procured or transferred assets with the intention of defrauding creditors. After an evidentiary hearing, the court found no evidence of fraud or fraudulent intent and principally reasoned that the debtor engaged in permissible transactions to convert property from non-exemptible to exemptible forms before commencing his bankruptcy case, a practice broadly accepted in relevant state and federal caselaw as not fraudulent in itself. The court overruled the objections. Weyauwega Star Dairy, Inc. v. Loehrke (In re Loehrke), Ch. 11 Case No. 20-24784-kmp, Adv. No. 20-2128, 2021 WL 4449020, 2021 Bankr. LEXIS 2650 (Bankr. E.D. Wis. Sept. 28, 2021) (September 2021) -- Judge K.M. Perhach Weyauwega Star Dairy filed a complaint accusing the debtors of defrauding it by selling it milk that was 70% water. The dairy sought a determination that the amount it overpaid the debtors, considering the amount of actual milk it received, was nondischargeable under 11 U.S.C. § 523(a)(2)(A) and/or § 523(a)(6). The debtors filed counterclaims for fraud and breach of the duty of good faith and fair dealing and sought damages in the amount of the “expected gross income from milking” and the amount they believed they should have been paid for their last load of milk. After a trial, the Court determined that the debt owed to the dairy was nondischargeable under both § 523(a)(2)(A) and § 523(a)(6). Among other things, cheese made with the debtors’ milk failed to set, later samples of the debtors’ milk contained mostly water, the debtor had asked his brother to switch a milk sample, and the debtors delivered an unusually steady volume of milk to the dairy even though their herd consisted mostly of cows not suitable to be sold as dairy cows. The debtors did not seriously dispute the damage figure the dairy asserted, and the Court awarded the full amount requested. The Court dismissed the debtors’ counterclaims, finding that they failed to prove either counterclaim or establish damages. |