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).
Braatz v. Check and Cash, LLC, Adv. Proc. No. 19-02088 (December 2019) -- Chief Judge G.M. Halfenger
The debtor-plaintiff alleged that the creditor-defendant violated the automatic stay and the Wisconsin Consumer Act when it garnished funds from her paycheck approximately two weeks after she filed her chapter 7 case. The debtor acknowledged that the creditor returned the garnished funds a few weeks after the debtor filed her adversary complaint, which the creditor did not answer.
In moving for default judgment, the debtor requested compensatory damages for financial and emotional injuries and punitive damages. The court ruled that the debtor was entitled to recover reasonable attorney's fees under 11 U.S.C. §362(k)(1) because the uncontested facts showed that the creditor willfully violated the automatic stay. The court further ruled that controlling precedent commands that §362(k)(1) does not afford a right to recover damages for emotional injury, and that the alleged conduct did not justify an award of punitive damages because it was not sufficiently egregious or reprehensible. Finally, the court ruled that the debtor failed to state a claim under the Wisconsin Consumer Act, Wis. Stat. §427.104(1)(h) & (j), because the alleged acts of garnishment could not "reasonably be expected to threaten or harass" and could not constitute a "[c]laim, or attempt or threaten to enforce a right with knowledge or reason to know that the right does not exist".
In re Ryan Ebert, Case No. 18-31065 (December 2019) -- Chief Judge G.M. Halfenger
AmeriCredit Financial Services, Inc. filed a motion for relief from the automatic stay and the co-debtor stay with respect to its collateral. The motion was without merit because the debtor's confirmed chapter 13 plan surrendered the collateral and entry of the order confirming the plan immediately terminated the automatic stay with respect to the collateral, terminated the co-debtor stay, and the collateral was deemed abandoned. The debtor filed a frivolous objection to the motion for relief, stating that his non-filing co-debtor had become current with payments to AmeriCredit. The court denied the motion as moot and ordered the parties and their counsel to show cause in writing why they should not be sanctioned under Federal Rule of Bankruptcy Procedure 9011(c)(1)(B). The court noted, "[i]f ever there were a time when parties could file meritless requests for relief and demands for hearing without risk of sanction, that time has passed."
In re Dawn Schroeder, Case No. 17-27289 (September 2019) -- Chief Judge G.M. Halfenger
Before confirmation Richard Voss filed proof of a claim secured by a mortgage on the chapter 13 debtor's residence. The confirmed plan provided for mediation to modify the mortgage and either payment on Voss's claim outside of the plan, if modified, or a plan modification to address the claim, if not. About a year after confirmation, after mediation failed, Voss filed an amended proof of claim, seeking to increase the amount of his secured claim based on a post-confirmation increase in the value of the debtor's residence. The debtor objected to Voss's claim and filed a request to modify the confirmed plan to pay Voss's allowed secured claim through the plan in the amount stated in his original proof of claim and to otherwise treat his claim as an allowed unsecured claim. The court concluded that the debtor's proposed modification of the plan is permissible under 11 U.S.C. §§1322(c)(2) & 1329, disallowed Voss's amended proof of claim based on insufficient cause to amend, and sustained the debtor's objection to Voss's claim.
In re Patrick and Hope Souter, Case No. 19-21582 (September 2019) -- Chief Judge G.M. Halfenger
The court ordered the debtors to show cause why their chapter 13 case should not be dismissed or converted based on their failure to file all applicable tax returns as required by 11 U.S.C. §1308, a requirement for plan confirmation specified in 11 U.S.C. §1325(a)(9). The debtors argued that some of §1325(a)'s requirements may be mandatory—including §1325(a)(1)'s requirement that the plan must comply with all applicable provisions of the Code, United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 277 (2010)—but others are discretionary, such as §1325(a)(9)'s requirement that the debtor must comply with §1308, and the court may confirm the plan even if such a requirement is not satisfied, if no one objects. The court held that the best construction of §1325(a), given Supreme Court and Seventh Circuit authority, is that all of its requirements are mandatory. The court denied confirmation and dismissed the case.