OpinionsTwo creditors (Lenders) moved under §362(d)(2) for relief from the §362(a) stay to allow them to enforce their liens on the chapter 11 debtor’s principal asset, a hotel. Lenders’ motion turned on whether the hotel is “necessary to a successful reorganization”, as used in §362(d)(2)(B). Lenders contended that the reasonable time in which to confirm a plan had passed (thus not making the hotel essential to an effective reorganization) and the debtor’s proposed plan of reorganization is fatally flawed, principally, because it violates the absolute priority rule as codified in §1129(b). The court’s opinion, entered after several days of evidentiary hearings and subsequent briefing, rejects these contentions, principally reasoning that the Lenders failed to show that the debtor’s proposed plan is so flawed that it cannot confirm a plan in a reasonable time. In doing so, the opinion addresses the follow topics: (1) issues relating to the auctioning of the debtor’s proposed sale of equity interests in the reorganized debtor; (2) the participation of the existing owner in that process as the proposed stalking horse bidder; (3) the meaning of “property” in §1129(b)(2)(B)(ii)’s prohibition on existing owners receiving or retaining property on account of their existing ownership interests; (4) potential limitations on the sale process, including whether the process can provide that the reorganized debtor will pay the stalking horse a breakup fee and whether a creditor with a security interest in real estate owned by the debtor may credit bid for the equity interests of the reorganized debtor; (5) whether the plan treats a secured creditor whose claim is paid in full unfairly or inequitably within the meaning §1129(b) based on the possibility that existing owners may be paid a dividend from excess sale proceeds after all unsecured claims are fully paid but before completion of all plan payments to the secured creditor; and (6) whether the debtor has failed to show that the need for new value is necessary. Additionally, the opinion addresses the court’s finding of an appropriate cramdown rate for purposes of §1129(b)(2), and, in so doing, discusses the extent to which the plurality opinion in Till v. SCS Credit Corp., 541 U.S. 465 (2004), has precedential force, governs cramdown determinations in cases under chapter 11, and requires the use of the prime rate as the base rate when using the formula approach to determine an appropriate cramdown rate. The opinion explains the court’s evidentiary finding on the appropriate cramdown rate, which it made using the five-year Treasury note rate (employed by the plan and lenders in the applicable industry) as the base rate and adding risk adjustments proven by the Lenders. Swanson v. Cannella (In re Window Select LLC), Adv. No. 25-02021 (October 2025) -- Chief Judge G.M. Halfenger The liquidating trustee under the confirmed plan in the underlying chapter 11 case brought this adversary proceeding against the debtor's former principal and a revocable trust to avoid several prepetition transfers of funds from the debtor, to facilitate its former principal's purchase of residential real property from the trust, and recover the amounts transferred. The trust moved for partial summary judgment seeking a determination that, for purposes of liability and recovery under 11 U.S.C. §550(a), it was not the "initial transferee" (and is therefore not strictly liable for the return) of more than $700 thousand transferred from the debtor to Fidelity Title, Inc., which held the funds until disbursing them to the trust when the sale closed, primarily arguing that the debtor's former principal was the "initial transferee" because, while Fidelity Title held the funds, he had dominion over the funds, i.e., full control of the funds for his personal use. The court denied the trust's motion because Fidelity Title held the funds subject to its agreement to disburse the funds only if specified conditions were satisfied, in accordance with the closing statement, to the trust and others, so the debtor's former principal never had the requisite dominion over the funds. In re Kahle, Case No. 24-20054 (September 2025) -- Judge R.M. Blise Prior to filing bankruptcy, the married debtors each signed a commercial guaranty whereby they guaranteed repayment of a loan made by the bank to the debtor-husband’s company. After the debtors filed a joint chapter 7 bankruptcy case, the bank filed two proofs of claim, one for each of the guarantees. The trustee objected to the second claim, asserting that the debt owed by each debtor under the guaranties represented the same underlying unpaid loan, and the bank was entitled to just one distribution from the estate. The bank argued the claims were not duplicative because each debtor had separate liability under their separate guaranties. The Court concluded that the bank could not assert two claims because the bankruptcy estates of the married debtors were substantively consolidated pursuant to § 302(a) and Local Rule 1015, and the bank could be paid just once from the consolidated estate. The Court sustained the trustee’s objection to the second claim. Ramirez v. Knight (In re Knight), Case No. 24-22327, Adv. No. 24-2105 (September 2025) -- Judge R.M. Blise The plaintiff sought a determination that the debtor-defendant owed a nondischargeable debt for alleged misrepresentations in connection with the financing of a residential real estate "flipping" project. The plaintiff alleged the debtor misrepresented his plan regarding the sale of the property by failing to disclose his intent to refinance the debt and live in the property himself rather than offering it for sale on the open market. After trial, the Court concluded that the plaintiff had not sufficiently proven the required elements for nondischargeability under 11 U.S.C. § 523(a)(2)(A). The Court found that while the debtor knowingly created a false impression by omitting information about his intent and the plaintiff justifiably relied on that omission, the plaintiff failed to prove that the debtor intended to deceive him. In re KLE Equipment Leasing, LLC, Case No. 25-22922 (August 2025) -- Chief Judge G.M. Halfenger Kirk Ecklund, four LLCs of which he is the only member, and one corporation that he wholly owns all filed petitions for relief under chapter 11 of the Bankruptcy Code. The debtors sought joint administration of their estates, which the court granted, and approval under 11 U.S.C. §327 of each debtor's employment of Kerkman & Dunn to represent and assist them in carrying out their trustee duties as debtors in possession under 11 U.S.C. §1107. The United States trustee objected that the debtors have conflicting interests, specifically with respect to potentially avoidable pre- and post-petition preferential transfers by Ecklund to his sons and a company they own, and that each of the debtors is part of at least one debtor-creditor relationship with another debtor, such that shared representation is impermissible. The court overruled the UST's objection and approved the debtors' employment of Kerkman & Dunn, finding and concluding that Kerkman & Dunn is disinterested and does not hold or represent any interests adverse to any of the bankruptcy estates, as §327(a)'s generally requires for an estate's employment of a professional; the proposed employment does not currently involve any actual conflicts of interest, as §327(c) requires for disqualification due to counsel's representation of a creditor; and the bankruptcy estates and their creditors are most likely best served, at least for the moment, by common representation, which minimizes administrative and transaction costs. Toscano v Kahle (In re Kahle), Case No. 24-20054, Adv. No. 24-2078 (August 2025) -- Judge R.M. Blise The plaintiff alleged that the debtor-defendant fraudulently induced her to loan funds for his company and that the debt owed to him as a result was nondischargeable under 11 U.S.C. §§ 523(a)(2)(A). The Court denied the debtor's motion for summary judgment. The debtor argued that he no longer owed a debt because the plaintiff released his liability under a Settlement Agreement with the debtor’s company. The Court determined that, while the plaintiff had granted a release to the debtor, there were genuine issues of material fact regarding the scope of that release. The Court also rejected the debtor’s argument that the plaintiff was judicially estopped from pursuing her claim against him based on the position she took in a state court action, where she obtained a judgment against his company. Since the plaintiff contended that the debtor and his company were both liable for the monies borrowed under the promissory notes, the plaintiff’s position in state court – that the debtor’s company breached the Settlement Agreement – was not clearly inconsistent with her position in the nondischargeability action. Ahmed v Pathan (In re Pathan), Case No. 24-23022, Adv. No. 24-2116 (July 2025) -- Judge R.M. Blise The plaintiff alleged that the debtor-defendant fraudulently induced him to loan funds for his company and that the debt owed to him as a result was nondischargeable under 11 U.S.C. §§ 523(a)(2) and (a)(6). The Court granted in part and denied in part the defendant's motion for summary judgment. The Court denied the motion for summary judgment as to the claim under § 523(a)(2)(A). The Court determined the plaintiff could proceed with his claim under § 523(a)(2)(A) based on the debtor's representation that the funds the plaintiff loaned the debtor would be used for business purposes. The debtor's oral representations regarding his intended use of the funds from the plaintiff were actionable under § 523(a)(2)(A) if the debtor had no intent to use the funds as he represented he would. The Court determined, however, that the plaintiff could not proceed with a claim under § 523(a)(2)(A) based on the debtor's oral representations that the loan would “save his failing businesses” or that the debtor would be able to repay the loan because the businesses would be profitable. Both statements were outside of the scope of § 523(a)(2)(A) because they were statements respecting the debtor's financial condition, and a false statement respecting a debtor’s financial condition must be made in writing for a debt induced by the false statement to be nondischargeable. In addition, because the plaintiff failed to present an argument on his claim under § 523(a)(6), the Court granted summary judgment and dismissed that claim. In re Huiras, Case No. 23-24283 (July 2025) -- Chief Judge G.M. Halfenger The chapter 13 debtor's former spouse moved for dismissal of the case under 11 U.S.C. §1307(c)(11) based on the court's finding at an evidentiary hearing that the debtor is not current on post-petition child-support payments. The debtor raised many objections to dismissal of the case, including constitutional challenges to the validity and enforceability of the state-court divorce judgment requiring to make the child-support payments at issue, the state statute authorizing the state court's order, and the Bankruptcy Code provisions providing for dismissal of a chapter 13 case and barring confirmation of a chapter 13 plan based on the debtor's failure to make post-petition payments under a domestic support obligation. The court rejected the debtor's defenses to dismissal of the case because the state court's judgment is not void on its face but is, at most, voidable, meaning that this court must give it its full force and effect unless it is set aside; whether a state court could set aside that judgment in whole or in relevant part, this court lacks the jurisdiction to do that; and the challenged Code provisions are constitutional, having been enacted by Congress with a rational justification, well within congressional power under the Constitution to enact bankruptcy laws. The court afforded the debtor 30 days to cure his post-petition default in child-support payments and file proof that he has done so. In re Liukonen, Case No. 24-26139, and Johnson v. Liukonen, Adv. Proc. No. 25-2028 (June 2025) -- Chief Judge G.M. Halfenger Stephanie Johnson filed a prepetition civil action against the debtor in the Eastern District of Wisconsin. On the eve of a jury trial of her claims, the debtor filed a chapter 13 petition, which stayed Johnson's case by operation 11 U.S.C. §362(a). Moving to the bankruptcy court, Johnson filed an adversary proceeding in which she repleaded her district court claims and requested that the bankruptcy court to declare that any damages award she obtained on her claims for willful or malicious personal injuries are not dischargeable under 11 U.S.C. §1328(a)(4). Johnson also moved for relief from the automatic stay to pursue that award in the district court and requested that the district court withdraw the reference of the adversary proceeding (and, possibly, the bankruptcy case). The debtor objected to all of this. The debtor principally argued that Johnson's claims were dischargeable because §1328(a)(4) only excepts from discharge pre-bankruptcy damages awards for personal injuries, which, the debtor argued, Johnson cannot demonstrate. Consequently, the debtor further argued, the court should dismiss the adversary proceeding and deny relief from the stay. The court ruled to the contrary, reasoning that if Johnson obtained a damages award that otherwise satisfied §1328(a)(4)'s discharge-exception criteria before the debtor became eligible for discharge by completing payments under his debt-adjustment plan, the debtor would owe Johnson a debt that would not be discharged under §1328. The court thus modified the §362(a) stay to allow continuation of the district court case and stayed the adversary proceeding. The court also recommended that the district court deny Johnson's motion to withdraw the reference because the modification of the automatic stay is sufficient to grant her full relief without disrupting the efficient administration of the debtor's chapter 13 case. In re Xiong, Case No. 24-25435 (May 2025) -- Chief Judge G.M. Halfenger The chapter 7 debtors claimed an exemption in real property under Wisconsin's homestead exemption, Wis. Stat. §815.20. Judgment creditors Long Lee, Miana Lee, Unlimited Wealth, LLC, David Blong, and Mee Lee (the Lee Parties) objected to the exemption, arguing that the debtors obtained the property with converted funds and thus were not entitled to claim the exemption under Wisconsin law. The Lee Parties further argued that the court should disallow the exemption as a matter of law because the issue had already been determined in state-court proceedings. The court concluded that the state-court proceedings did not preclude the debtors from asserting the homestead exemption in their bankruptcy proceeding, and if the Lee Parties seek to argue that the debtors are not entitled to claim the exemption under Wisconsin law, they must adjudicate that issue anew in the bankruptcy proceeding. |