The defendant committed theft by contractor when he used trust funds to pay himself and to pay the overhead expenses of his business. Accordingly, his debt to the materials supplier was nondischargeable pursuant to 11 U.S.C. section 523(a)(4). The defendant's attempt to argue that he paid the materials supplier "proportionally" was not successful; the evidence did not demonstrate either that he paid the material supplier proportionally to himself, or that he paid the supplier proportionally to what he received from the project owners. Nor was the fact that he used the funds to pay his overhead, and thus, to enable him to complete the jobs, a defense to the theft-by-contractor claims. The plaintiff, however, did not prove the necessary intent to justify treble damages.
Levine v. Ward, 08-2240 (March 2010) -- Judge P. Pepper
Plaintiff home buyers who paid contractor/seller $20,000 for post-purchase construction did not prove by a preponderance of the evidence that the defendant contractor obtained the $20,000 by false pretenses, and thus did not prove their cause of action for nondischargeability under 11 U.S.C. section 523(a)(2)(A). The plaintiffs did prove, however, that when the defendant used the $20,000 to pay the closing costs at the time of sale, rather than holding it in trust to pay subcontractors and material suppliers on the post-purchase construction, the defendant committed defalcation in a fiduciary capacity, and therefore that the debt was nondischargeable pursuant to 11 U.S.C. section 523(a)(4). The Court found, contrary to the defendant's assertions, that the plaintiffs clearly gave the defendant the $20,000 for "improvements," and that the fact that the defendant alleged that he'd told the plaintiffs he needed to use it to pay closing costs was not a defense.
George v. Travis Brothers, 09-2241 (March 2010) -- Judge P. Pepper
Granting summary judgment to the plaintiff/trustee in a preference avoidance action in which, within 90 days of the petition date, Chapter 7 debtors paid a portion of the overdue balance due a landscaping contractor who had done work on their home.
Terra Dev. Co. v. McCoy, 09-2433 (January 2010) -- Judge P. Pepper
Where a debtor converts the underlying bankruptcy case from one under Chapter 7 to one under Chapter 13 before the deadline for filing an answer to a 727 complaint objecting to discharge,the conversion does not moot the 727 cause of action. Rather, it renders that cause of action dormant. The appropriate disposition of the 727 adversary proceeding is for the court to stay the proceedings and close the adversary case, subject to a motion to reopen in the event that the underlying bankruptcy case reconverts to one under Chapter 7.
Nissan Motor Acceptance Corp. v. Smith, et al. (No. 07-C-0698 (E.D. Wis. Oct. 12, 2010) (January 2010) -- Judge P. Pepper
Scaffidi v. Barbosa, 08-2056 (June 2009) -- Judge P. Pepper
The Court granted the plaintiff trustee's motion for default judgment against the debtor's former husband. The Court agreed with the trustee that the debtor's 2007 transfer of her interest in the former marital homestead via a quitclaim deed was avoidable pursuant to 11 U.S.C. 549(a) as an unauthorized, post-petition transfer of estate property. The Court further found that the debtor's 2005 transfer of her interest in certain assets to the defendant via a Marital Settlement Agreement ("MSA") constituted a transfer in constructive fraud of her creditors pursuant to Wis. Stat. 242.04(1)(b), and therefore was avoidable under 11 U.S.C. 544(b)(1). The Court concluded that when the debtor signed the MSA and transferred to the defendant her interest in half of the marital homestead, as well as her interest in anything in the defendant's possession, she reasonably should have believed that this transfer would cause her to incur debts beyond her ability to pay as they became due. After the transfer, the debtor--unemployed and disabled--was left with no real estate, no assets other than a 14-year-old car, and only her disability income and a small maintenance payment from the defendant.
In Re Streckrich Petro Corporation, 08-31860 (June 2009) -- Judge P. Pepper
The Court granted the Chapter 11 creditor's motion to compel the debtor-in-possession to assume or reject a lease. The Court first agreed with the creditor that the agreement in question was, in fact, a lease under Missouri law, overruling the debtor-in-possession's objection that the agreement was something other than a lease. The Court then held that by filing the motion to compel before the expiration of the 120-day assumption period, the creditor had, in effect, tolled that period. The Court concluded that seven (7) days remained during which the debtor-in-possession could elect to assume or reject the lease, or could request that the Court extend the time for it to make that decision.
In Re Gwaltney, 07-29919 (March 2009) -- Judge P. Pepper
Debtor who obtained homestead property in violation of a due-on-sale clause does not impermissibly modify creditor's rights in violation of 11 U.S.C. section 1322(b)(2) in proposing to pay the arrearages on the mortgage debt through a Chapter 13 plan.
In Re Reynolds, 07-30434 (January 2009) -- Judge P. Pepper
The Court concluded that the totality of the debtors' circumstances demonstrated an abuse of the provisions of Chapter 7, and therefore granted the United States Trustee's motion to dismiss if the debtors did not convert within 30 days. The Court based its decision on the fact that the debtors appeared to have funds and assets available that gave them some ability to pay their creditors. The Court noted, however, that the fact that the debtors were contributing to a 401k plan and were repaying a 401k loan did not, by themselves, justify dismissal of the case, as those payments would be deductible in a Chapter 13 context. The Court also concluded that the United States Trustee had failed to present any evidence regarding how long the debtors would have to make the 401k loan repayments, and whether, at some point during the life of a Chapter 13 plan, those funds would become available to pay unsecured creditors.
In Re Johns, 08-24311 (July 2008) -- Judge P. Pepper
When the Court denies a serial debtor's motion to continue the stay pursuant to section 362(c)(3), the stay terminates as to the property of the estate, and not just as to the property of the debtor.