The trustee objected to confirmation of the chapter 13 debtor's plan, asserting that 11 U.S.C. §1325(a)(4) requires that a chapter 13 plan must pay at least as much on allowed unsecured claims as would have been paid on those claims if the case had been filed under chapter 7 and the estate had been liquidated (i.e., without regard to any administrative expenses incurred in the chapter 13 case, including attorney's fees, that would not have been incurred in a chapter 7 case). The court disagreed, concluding that, by its plain terms, §1325(a)(4) requires a determination of the amount that would have been paid on each allowed unsecured claim if the estate were liquidated under chapter 7 on the effective date of the plan (the confirmation date), which would necessarily require the payment of all allowed administrative expenses as of that date, including any attorney's fees allowed in the chapter 13 case, before payment on any lower-priority allowed unsecured claims. The court sustained the trustee's objection to confirmation of the chapter 13 plan, however, because the present value of the deferred payments on allowed unsecured claims provided for by the plan was less than the amount that would have been paid on those claims had the estate been liquidated under chapter 7 on the plan's effective date.
In re Edward and Linda Tolliver, Case No. 20-22408 (September 2020) -- Chief Judge G.M. Halfenger
A creditor objected that the chapter 13 plan could not be confirmed because it proposed to modify the creditor's rights as the holder of a claim secured only by a security interest in the debtors' principal residence, in violation of 11 U.S.C. §1322(b)(2). The debtors responded that the proposed modification of the creditor's rights was permissible under §1322(c)(2) because the last payment on the original payment schedule for the claim was due before the final payment under the plan was due. The creditor replied that the debtors had agreed to extend the original payment schedule for the claim to a date past when the final payment under the plan was due, making §1322(c)(2) inapplicable. The court sustained the creditor's objection to confirmation of the plan because, under Wisconsin law, the debtors' agreement to a new payment schedule on the debt, in exchange for being deemed current on payments, resulted in a new contract; that new contract gave rise to the creditor's "claim", defined in the Bankruptcy Code as a "right to payment"; and the original (and only) payment schedule for that claim ends after the final payment under the plan is due.
In re Saul Limon, Case No. 20-23368 (June 2020) -- Chief Judge G.M. Halfenger
A creditor objected to confirmation of the chapter 13 plan because the plan does not provide for the creditor's allowed secured claim. The court overruled the objection because no provision of the Bankruptcy Code requires that a chapter 13 plan provide for all allowed secured claims.
Cloud I Q LLC v. RADAR_Apps, Inc. (In re Cloud I Q LLC), Adv. Proc. No. 19-02110 (May 2020) -- Chief Judge G.M. Halfenger
The chapter 11 debtor brought this adversary proceeding against several individuals and entities seeking the payment of a matured debt that is property of the estate under 11 U.S.C. §542(b) and damages under Puerto Rico common law on a variety of legal theories. The defendants moved to dismiss certain of the claims against them for failure to state a claim upon which relief can be granted, based on forum-selection clauses in pertinent contracts, and for failure to join one or more required parties; for mandatory abstention under 28 U.S.C. §1334(c)(2); and for a change of venue to the U.S. District Court for the District of Puerto Rico. The court granted the defendants' motions in part, concluding that the operative complaint does not plausibly allege that defendant MIGO IQ Inc. is an alter ego of defendant Synergy, LLC, or that defendants Jonathan Kotthoff and Alan Debolin are liable to the debtor under the doctrine of culpa in contrahendo. The court otherwise denied the defendants' motions.
Gral v. Gral (In re Gral), Adv. Proc. No. 17-02277 (March 2020) -- Chief Judge G.M. Halfenger
Individuals and entities related to or associated with the chapter 7 debtor brought this adversary proceeding against the estate seeking declaratory relief. The chapter 7 trustee asserted various counterclaims, which the plaintiffs moved to dismiss for failure to state a claim upon which relief can be granted. The court dismissed the counterclaims as supported by merely conclusory allegations. The court denied the trustee leave to replead the counterclaims because the estate--represented first by a committee of unsecured creditors, when the case was a case under chapter 11, and then by the chapter 7 trustee--tried and failed multiple times to plead any cognizable claims against the plaintiffs. The court also dismissed the plaintiffs' claims as supported by merely conclusory allegations and because the relief sought by the plaintiffs appears unnecessary given the dismissal with prejudice of the trustee's counterclaims.
In re Judith Engelman, Case No. 18-26174 (March 2020) -- Chief Judge G.M. Halfenger
York Investment LLC filed a proof of claim for nearly $1.4 million owed on a note and fully secured by a mortgage on the chapter 13 debtor's real property and moved to dismiss the case under 11 U.S.C. §109(e), which provides that only an individual with prepetition debts below specified limits is eligible to proceed under chapter 13. The debtor objected that her signature was forged on the note and mortgage, so neither is valid or enforceable against her. After an evidentiary hearing, the court found that the debtor's now-deceased husband signed the note and mortgage on her behalf pursuant to a valid power of attorney for finances. The court concluded that the debtor is liable on the debt to York but that the mortgage is void under state law because it does not state that an authorized agent signed the mortgage on the debtor's behalf. Due to the debt to York, the debtor's unsecured prepetition debts exceed the limit specified for such debts in §109(e), and the debtor is not eligible to proceed under chapter 13.
Jacobson v. Wells Fargo Bank, N.A. (In re Jacobson), Adv. Proc. No. 19-02094 (March 2020) -- Chief Judge G.M. Halfenger
The debtor brought an adversary proceeding seeking to disallow a claim secured by a mortgage on her residence and to void the note and mortgage under state law alleging that her ex-husband obtained them by defrauding the U.S. Department of Veterans Affairs. The creditor moved to dismiss asserting that the debtor's claims are barred by the Rooker-Feldman doctrine and claim preclusion because the parties litigated or could have litigated the claims in prior proceedings in state court. The court granted the motion and dismissed the proceeding: Rooker-Feldman bars the bankruptcy court's consideration of the debtor's claims to the extent she seeks to set aside the state court's judgments, including her attempt to avoid the preclusive effect of a state-court foreclosure judgment in the creditor's favor by arguing that it was procured by fraud, and claim preclusion otherwise bars litigation of the debtor's claims because they arose from the same common nucleus of operative facts as the claims that were litigated in state court.
In re Greenpoint Tactical Income Fund LLC, Case No. 19-29613 (February 2020) -- Chief Judge G.M. Halfenger
The debtors in two jointly administered chapter 11 cases moved to reject a settlement agreement with Erick Hallick under 11 U.S.C. §365(a). Hallick objected that the agreement cannot be rejected under §365(a) because it is not an executory contract. The court concluded that the settlement agreement is an executory contract and granted the debtors' motion to reject it, concluding that significant unperformed obligations remain on both sides. The court also rejected Hallick's argument that the state-law doctrine of equitable conversion compels a different result, concluding that the doctrine does not apply because there was no transfer or attempted transfer of real property, the agreement is not substantially similar in structure to those to which Wisconsin's courts have applied the doctrine, and the equities do not favor applying it.
Thompson v. Roberts (In re Thompson), Case No. 19-2092 (February 2020) -- Chief Judge G.M. Halfenger
Plaintiff, a chapter 13 debtor, filed an adversary proceeding against his ex-wife who had filed a claim purporting to be fully secured by the debtor’s homestead. The plaintiff-debtor alleged that the defendant’s claim was secured only to the extent that the value of the homestead exceeded other liens on the property and his Wisconsin-law homestead exemption. The defendant contended that the divorce court had awarded her a mortgage on the residence to secure the debtor’s payment of an equalization payment and that the mortgage was not limited by the debtor’s homestead exemption.
The court ruled that the divorce judgment by its terms did not award the defendant any lien on plaintiff-debtor’s residence because the judgment awarded the residence to the debtor without a suggestion that the homestead was to serve as a means of paying the equalization amount. The court further ruled that the divorce court’s ruling on the judgment supported the conclusion that the divorce court had not awarded a lien on the debtor’s homestead.
As a result, the bankruptcy court ruled, the defendant’s only lien on the property arose as a matter of law under Wis. Stat. §806.15(1) when the defendant recorded the divorce judgment on the county judgment and lien docket. Under Wisconsin law, however, that lien does not attach to an exempt homestead up to the exemption limit. The court thus concluded that, under Wis. Stat. §815.20, the defendant’s claim is only secured to the extent that the value of the residence exceeds the sum of the higher-priority liens and $75,000 homestead exemption. The court granted the debtor-plaintiff’s motion for summary judgment in part and allowed the defendant’s claim as a partially secured claim.
In re Brian and Katie Mulder, Case No. 19-30817 (January 2020) -- Chief Judge G.M. Halfenger
The debtors moved under 11 U.S.C. sec. 522(f)(1)(B) to avoid the fixing of a lien on their interests in certain household items. The court denied the motion without prejudice because most of the items described in the motion were not properly listed in the debtors' schedules of assets and exemptions, the motion otherwise sought relief that is not available under sec. 522(f)(1)(B), and the debtors did not provide proof that the motion was served on the lien holder in the manner provided by Rule 7004(b)(3).