The debtor moved to enlarge the time to file a tax return required by 11 U.S.C. §1308(a) after the time to file the return expired, asserting that the debtor's failure to file the return was the result of "excusable neglect" and that an enlargement is, therefore, permitted by Federal Rule of Bankruptcy Procedure 9006(b). The court denied the motion because Rule 9006(b) only applies "when an act is required or allowed to be done at or within a specified period by these rules or by a notice given thereunder or by order of court". Fed. R. Bankr. P. 9006(b)(1) (emphasis added). Rule 9006(b) does not apply where, as here, the debtor was required to act within a period specified by a statute, such as §1308.
In re Robert and Lois Long, Case No. 19-20186 (July 2019) -- Chief Judge G.M. Halfenger
The trustee objected to confirmation of the chapter 13 debtors’ plan under 11 U.S.C. §1325(a)(9), which imposes a plan-confirmation requirement that the debtor file all tax returns “as required by” §1308. Section 1308(a) requires the debtor to file with appropriate tax authorities all tax returns for all taxable periods that ended during the four-year period preceding the filing of the petition by no later than the day before the date on which the meeting of creditors is first scheduled to be held “if the debtor was required to file a tax return under applicable nonbankruptcy law”. The court overruled the trustee’s objection, which was based on the debtors’ failure to file federal income-tax returns for the 2018 taxable year, holding that, because the meeting of creditors was first scheduled to be held before April 15, 2019, and applicable nonbankruptcy law did not require the debtors to file federal income-tax returns for 2018 until April 15, 2019, §1308(a) does not apply to those returns.
Cuene v. Peterson (In re Peterson), Case No. 18-29081-beh, Adv. No. 18-2259-beh, 604 B.R. 751 aff'd sub nom. Peterson v. Cuene, 623 B.R. 758 (E.D. Wis. 2021) (July 2019) -- Judge B.E. Hanan
A judgment creditor sought a determination that its debt was nondischargeable under 11 U.S.C. § 523(a)(2)(B) and (a)(6), as well as a denial of the debtor’s discharge under 11 U.S.C. § 727(a)(4)(A), based on the debtor’s failure to disclose his interests in real property titled to trusts that a state court judge ruled were the debtor’s alter-egos. The creditor moved for summary judgment on his claims under §§ 523(a)(2)(B) and 727(a)(4)(A), asserting that final judgments in two prior state court proceedings should be given preclusive effect in determining whether relief should be granted as a matter of law.
The Court granted summary judgment on the creditor’s claim under § 727(a)(4)(A). Recognizing that summary judgment on a fraud-based claim is rare, the Court nevertheless concluded that it was warranted in the circumstances. The debtor’s only defense to the claim was his willful refusal to recognize the state court’s “alter-ego” ruling as valid, claiming that the state court judgment was illegitimate and void because the state court lacked jurisdiction to rule on “common law, pure contract trusts.” No trial was necessary to reject the debtor’s defense as baseless.
As to the creditor’s claim under § 523(a)(2)(B), the Court alternately held that the creditor had established all elements of the claim, except for “reasonable reliance,” as a matter of law. The Court first considered whether to apply issue preclusion to a state court default judgment against the debtor for intentional misrepresentation, and found that application would not be “fundamentally unfair” in the circumstances, given the debtor’s extensive participation in the underlying proceeding and his apparent tactical decision not to present evidence at a hearing on damages. But because a claim for intentional misrepresentation under Wisconsin common law requires only justifiable, rather than reasonable, reliance, the state court judgment could not preclusively establish the reliance element of the claim.
In re Hoang and Kim Nguyen, Case No. 17-27906 (July 2019) -- Chief Judge G.M. Halfenger
The debtors failed to confirm a debt management plan. Before the court dismissed the case, debtors’ counsel applied for an award of $9,645 in compensation, an amount approaching ten times the presumptively reasonable amount in a chapter 13 case dismissed before plan confirmation. The court found that (1) neither the application nor counsel’s record of time spent on the case demonstrated that this was “an unusually complex case” that “reasonably require[d] significantly more work than the presumptively reasonable fee contemplates”, see Local Rule 2016.1 app. at 1, and (2) counsel failed to show how the services rendered “were of value to the debtors,” given that the plan was never confirmed. In re Ward, 511 B.R. 909, 914 (Bankr. E.D. Wis. 2014). Considering all relevant factors, including the nature of the services rendered and the results obtained, the court concluded that the $2,000 directly paid to counsel pre-petition reasonably compensated counsel for all actual, necessary services rendered, awarded that amount as reasonable compensation under §330(a)(1)(A), allowed that amount as an administrative expense under 11 U.S.C. § 502(b)(2), and afforded counsel 14 days to request an evidentiary hearing with respect to the disallowed compensation.
In re Michael Frantz, Case No. 19-23077 (July 2019) -- Chief Judge G.M. Halfenger
Soon after the debtor commenced this chapter 7 case, James Raders moved under 11 U.S.C. §362(d) for relief from the stay imposed by 11 U.S.C. §362(a) to allow him to continue litigating against the debtor in the U.S. District Court for the Middle District of Florida or, in the alternative, for an order confirming that the §362(a) stay does not prevent him from deposing the debtor in connection with that litigation solely in his capacity as a member or manager of two limited liability companies that are defendants in the same action. The court denied Raders’s motion for relief from stay for lack of cause under §362(d). Although Raders would benefit from litigating in Florida, his preferred venue, the debtor faces similar claims to those asserted by Raders in other courts and the purpose of the §362(a) stay is to protect debtors from having to litigate claims by a multitude of creditors in several different forums. In addition, Raders has suggested that he intends to pursue a non-dischargeability claim under 11 U.S.C. §523(a)(2) against the debtor. Section 523(c) requires Raders to litigate his nondischargeability claim in the bankruptcy court; thus, Raders will have to litigate in this court to get full relief against the debtor in all events. Finally, the court denied Raders’s motion for an order confirming that the §362(a) does not prevent him from deposing the debtor in connection with the litigation pending in Florida as too amorphous to adjudicate. The court also explained that, although the §362(a) does not generally bar actions against non-debtors, courts recognize an exception to this rule where a judgment against a non-debtor would effectively be a judgment against the debtor given the degree of identity between them. The court observed that Raders’s amended complaint in the Florida litigation attributes to the debtor the conduct of which he complains. His complaint further alleges that one of the non-debtor companies is administratively dissolved and the other is the debtor’s alter ego. As a result, Raders’ acts to continue the litigation against these companies might be an “act to collect, assess, or recover a claim against the debtor” or to “exercise control over property of the estate” in violation of §362(a)(3) or (6). The bankruptcy court left these matter for the District Court in Florida to consider in the first instance.
In re Bohland, Case No. 19-21399-beh, 2019 WL 2511735 (June 2019) -- Judge B.E. Hanan
The pro se debtor was the sole member of an LLC which had as its only asset a bed and breakfast property. After the creditor obtained a default judgment against the LLC and the creditor attempted to recover her judgment against the LLC via an order for execution, the LLC transferred the property to the debtor, and the debtor filed a Chapter 7 bankruptcy petition. Shortly before the Chapter 7 trustee abandoned the property, the creditor filed a motion for relief from stay under 11 US.C. § 362(d)(1), arguing that the property was fraudulently conveyed in an attempt to avoid creditors and the petition was filed in bad faith solely to prevent collection efforts. The debtor denied any fraud and included a motion to avoid lien, asserting that the state court judgment in the creditor’s favor impaired her ability to seek the full $75,000 exemption under Wis. Stat. § 815.20. The creditor argued the property was not the debtor’s homestead at the time the judgment lien was recorded, so the request to avoid the lien should be denied.
The Court determined there was cause to grant the creditor relief from the stay, because doing so would not harm the debtor or creditors and would not interfere with the case. The Chapter 7 trustee already abandoned the property, such that it would not be liquidated for the benefit of unsecured creditors, the debtor's discharge would occur imminently, and this was a “no asset” case.
As to the debtor’s argument that the judgment lien should be avoided because it impairs her homestead exemption, the Court held the debtor could not claim any portion of her interest in the property as exempt, because she was not the title owner of the property at the time the judgment was docketed.
In re Pansier, Case No. 18-22297-beh, 2019 WL 1495100 (aff'd sub nom. Pansier v. United States, No. 19-C-537, 2019 WL 7288952 (E.D. Wis. Dec. 30, 2019)) (April 2019) -- Judge B.E. Hanan
The debtors sought reconsideration of the Court’s February 25, 2019 decision lifting the automatic stay in favor of the Internal Revenue Service, asserting that (1) the Court erred by failing to consider the merits of their argument that the statute of limitations to collect the debtors’ 1995 through 1998 tax liabilities had expired, and (2) “newly discovered evidence” in the form of a Notice of Federal Tax Lien that the IRS filed on October 31, 2018, warranted reconsideration. Although the Court concluded that the debtors had failed to carry their burden of demonstrating that the Court overlooked any dispositive factual matters or controlling decisions of law in making its decision, or that any newly discovered evidence existed that would probably change the outcome, the Court on its own re-examined the relevant law and facts. On reconsideration, the Court determined that its prior decision that the IRS had established cause to modify the stay was correct and affirmed that portion of its prior ruling, but for equitable reasons, the Court amended its prior order to allow the IRS to enforce its levy rights with respect to only the debtors’ 1999 through 2006 and 2014 tax liabilities.
Tuttle v. ECMC (In re Tuttle), Case No. 16-28259-beh, Adv. No. 17-02116-beh, 600 B.R. 783 (March 2019) -- Judge B.E. Hanan
The unemployed 46-year-old Chapter 7 debtor brought an adversary proceeding seeking discharge of more than $59,000 in student loan debt under 11 U.S.C. § 523(a)(8) because excepting such debt from discharge would impose an undue hardship on the debtor, his wife, and their young son. The lender argued against an undue hardship discharge and also sought a determination that a trust established by the debtor's mother shortly before her death created an income stream for the debtor's benefit.
The Court analyzed whether repayment of this debtor's student loans would constitute an undue hardship under the three-part test of In re Roberson, 999 F.2d 1132, 1135 (7th Cir. 1993) and Brunner v. New York State Higher Educ. Servs. Corp., 831 F.2d 395, 396 (2d Cir. 1987): (1) that the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living if forced to repay the loans; (2) that additional circumstances exist indicating this state of affairs is likely to persist for a significant portion of the repayment period; and (3) that the debtor has made good faith efforts to repay the loans. The Court determined that the debtor satisfied the first prong because he could not presently maintain a minimum standard of living and still make his loan payment. In this consideration, the Court found that the trust created by the debtor’s mother was not available to debtor as a part of his revenue stream. With regard to the second prong, the Court decided that the debtor did not meet the “certainty of hopelessness” standard because he failed to present evidence of insurmountable circumstances making him unable to pay his student loan debt for the remainder of the payment period. Finally, the Court concluded that the debtor did not satisfy the third (good faith) prong, because he did not show that he was unemployable in other fields. For all these reasons, the debtor did not meet his burden of establishing that repayment of his student loans would impose an undue hardship under § 523(a)(8).
Schouten v. Jakubiak, Adv. Proc. No. 16-2141 (March 2019) -- Chief Judge G.M. Halfenger
The plaintiff filed an adversary complaint against the debtor-defendant, asserting that the defendant's debt was excepted from discharge by several paragraphs of section 523(a). After summary judgment one claim remained: that section 523(a)(3) excepts the debt from discharge because the debtor-defendant did not list or schedule the plaintiff as a creditor in time to permit him to file a proof of claim or commence an adversary proceeding under section 523(c). After trial the court determined that the debt was dischargeable. The parties agreed that the debtor-defendant did not schedule the debt or list it, and the plaintiff did not have notice of the case, in time to file a proof of claim or file a section 523(c) adversary proceeding. The court noted that, while section 523(a)(3), by its terms, appeared to except the debt from discharge regardless of whether the debt was of a kind specified in section 523(a)(2), (4), or (6), precedent in the Seventh Circuit required the court to determine whether an equitable exception to section 523(a)(3) applied. After reviewing the facts of the case, the court concluded that the debtor-defendant met the requirements for the equitable exception and determined that the debt was dischargeable under section 523(a)(3)(A). With respect to section 523(a)(3)(B), the court concluded that the plaintiff did not meet his burden to prove that the debt was a debt covered by section 523(a)(2) or (6) and, accordingly, the court determined that the debt was dischargeable under section 523(a)(3)(B).
Smith v. Kleynerman (In re Kleynerman), Case No. 18-26659-beh, Adv. No. 18-02220-beh, 2019 WL 1111569 (March 2019) -- Judge B.E. Hanan
The debtor-defendant filed a Chapter 7 bankruptcy petition and included on his schedules a $499,000 debt to the plaintiff arising from a Milwaukee County Circuit Court judgment. The plaintiff then filed an adversary case against the debtor-defendant to deem that judgment nondischargeable pursuant to 11 U.S.C. § 523(a)(4), because the judgment debt was based upon a breach of fiduciary duty and as a result of fraud or defalcation while acting in a fiduciary capacity. The debtor-defendant set forth three affirmative defenses: (1) issue preclusion as to misrepresentation or fraud; (2) issue preclusion as to mental competence; and (3) no fiduciary capacity for purposes of § 523(a)(4).
The Court decided two motions in limine, which asked the Court to bar evidence of the plaintiff’s mental competence and of the debtor-defendant’s alleged misrepresentations. The motions were based on the doctrine of issue preclusion or collateral estoppel, which bars relitigation of issues determined in prior court actions and applies to discharge exception proceedings. The court applied Wisconsin law, explaining that relitigation of an issue of law or fact in a subsequent action is foreclosed if two elements are present: (1) the issue was actually litigated in a prior action and was necessary to the judgment, and (2) the application of issue preclusion would be fundamentally unfair. The Court ultimately concluded that the issues of mental incompetence and the issues of six specified representations listed in Question 4 of the verdict were actually litigated and determined by a valid final judgment and that it was not fundamentally unfair to estop the plaintiff from presenting evidence on either issue.