Freeborn & Peters LLP represented the Official Committee of Equity Security Holders for Greenpoint Tactical Income Fund LLC in these jointly-administered cases. After plan confirmation Freeborn requested approval of its fees and expenses and the debtors filed a limited objection, which the court overruled.
Greenpoint Asset Management II LLC v. Hallick, Adv. Proc. No. 22-2034 (September 2022) -- Chief Judge G.M. Halfenger
Debtor-plaintiffs moved for summary judgment on their claims that charging orders and a levy order that creditor Erick Hallick obtained against them pre-petition were avoidable as preferences under 11 U.S.C. §547. Hallick filed a cross-motion for summary judgment, arguing as a matter of law that the liens created by the charging orders and levy order were created outside of the 90-day preference period, based on the holdings in Mann v. Bankruptcy Estate of Badger Lines, Inc. (In re Badger Lines, Inc.), 590 N.W.2d 270 (Wis. 1999), and Associated Bank N.A. v. Collier, 852 N.W.2d 443 (Wis. 2014).
The court denied Hallick's cross-motion for summary judgment, concluding that, for the purposes of §547(e)(1) & (2), the transfers at issue were made within the 90-day preference period. The court granted Hallick's motion for leave to conduct further discovery on the issue of insolvency pursuant to Federal Rule of Civil Procedure 56(d).
Cornerstone Pavers LLC v. Zenith Tech Inc., Adv. Proc. No. 21-2044 (July 2022) -- Chief Judge G.M. Halfenger
After Cornerstone Pavers LLC and Zenith Tech Inc. sued each other for breach of a highway construction subcontract and the duty of good faith and fair dealing, Zenith sued West Bend Mutual Insurance Company on a bond allegedly insuring the performance of that subcontract. West Bend moved for summary judgment asserting that the bond it issued does not insure the subcontract at issue and, even if it does, Zenith failed to satisfy the conditions precedent to West Bend's obligations and liability under the bond. The court denied West Bend's motion because genuine disputes of material fact remain as to whether the bond insures the performance of the relevant subcontract and, construing the bond as a matter of law against West Bend, the undisputed facts show that Zenith did satisfy the conditions precedent to West Bend's obligations and liability under the bond.
In re Antonio and Angel Terrell, Case No. 18-28674 (July 2022) -- Chief Judge G.M. Halfenger
The State of Wisconsin filed a motion to vacate two orders of this court because they are based on an earlier order recently reversed by the Court of Appeals for the Seventh Circuit. The court stayed consideration of the state's motion to await the issuance of the mandate, after the expiration of the time for the filing of a petition for rehearing in the court of appeals.
U.S. Securities and Exchange Commission v. Greenpoint Tactical Income Fund LLC (In re Greenpoint Tactical Income Fund LLC), Adv. Proc. No. 20-2005 (July 2022) -- Chief Judge G.M. Halfenger
The defendants were debtors in a chapter 11 bankruptcy case and the court confirmed their chapter 11 plan in May 2022. Before confirmation, the plaintiff sued defendants and others in the United States District Court for the Western District of Wisconsin alleging that the debtor-defendants violated certain federal securities laws that give rise to claims for disgorgement, prejudgment interest, and civil penalties. The plaintiff filed this adversary proceeding against the debtor-defendants seeking a determination that those debts are not dischargeable pursuant to 11 U.S.C. §1141(d)(6).
Before confirmation, the defendants objected to plaintiff's proofs of claim in their bankruptcy cases. After the court allowed the plaintiff's claims in the amount of $0 the defendants confirmed chapter 11 plans that provided for payment of the plaintiff's allowed $0 claim in full on the plan's effective date. Once the debtors' chapter 11 plans became effective, the defendants moved to dismiss this adversary proceeding pursuant to Federal Rule of Civil Procedure 12(b)(1) for lack of subject matter jurisdiction, arguing that this proceeding was moot because the debtor-defendants' confirmed plan satisfied the SEC's claim, and the preclusive effect of the claims-allowance order prevented any future adjudication by the Western District that disgorgement or civil penalties should be awarded in an amount greater than $0.
The court ultimately concluded that the Western District of Wisconsin is the appropriate court to determine the preclusive effect of the bankruptcy court's claims-allowance order, and it denied the debtor-defendants' motion to dismiss but stayed the remainder of the adversary proceeding until the Western District adjudicates the SEC's claims in that case.
In re Juan Sandoval, Case No. 21-24190 (March 2022) -- Chief Judge G.M. Halfenger
The chapter 13 debtor filed a plan proposing to modify a claim secured by a reverse mortgage on a duplex that he inherited from his mother. The claim holder objected to confirmation, asserting that 11 U.S.C. §1322(b)(2) bars the proposed modification of the claim because it is "secured only by a security interest in real property that is the debtor's principal residence" and that §1322(c)(2), which provides an exception to §1322(b)(2)'s bar on claim modification, does not apply because "the last payment on the original payment schedule" for the claim is not due until the note's stated maturity date, December 9, 2081, long after "the final payment under the plan is due". The debtor responded that the real property includes but is not only his principal residence (his sister rents the duplex's other unit), so §1322(b)(2) does not bar the proposed modification of the claim, and that, even if it does, §1322(c)(2) applies because the debt matured when his mother died, before the petition was filed. The court concluded that §1322(b)(2)'s anti-modification provision applies because the claim is secured only by a security interest in real property that is the debtor's principal residence (even if it is also an income-generating rental property) but that §1322(c)(2) nevertheless permits the proposed modification because the parties to the note and mortgage intended that the borrower's death would fix (but not accelerate) the contingent maturity of the debt and, as a result, the last payment on the original payment schedule for the claim has been due since the prepetition death of the debtor's mother (the borrower), which occurred "before the date on which the final payment under the plan is due". The court also considered but found unconvincing the claim holder's remaining arguments, including that permitting modification of the claim would impermissibly undermine a federal mortgage insurance program designed to increase the use of reverse mortgages, and overruled the objection to confirmation.
In re Greenpoint Tactical Income Fund LLC, Case No. 19-29613 (February 2022) -- Chief Judge G.M. Halfenger
Before the debtor filed its chapter 11 petition, one of its equity security holders commenced an arbitration against the debtor and other non-debtor entities for, among other things, rescission and securities fraud under Wis. Stat. §551.509. The debtor and non-debtor entities settled the arbitration with the equity security holder by agreeing to pay him $14 million or, if that payment was not made, transferring $15 million in assets to him. The parties did not pay the $14 million or transfer the assets. Before the equity holder could enforce the settlement agreement, the debtor filed bankruptcy and then rejected the agreement. The arbitration proceeded against the non-debtor respondents, and the arbitrator awarded the equity holder $13,625,000 in damages against the non-debtors for breaching the settlement agreement. The equity holder filed proofs of interests in the debtor's case and filed a claim against the debtor for breach of the settlement agreement. The court subordinated the equity holder's claim under §510(b).
After the equity holder obtained the $13 million award against the non-debtor entities, the debtor objected to the equity holder's proofs of interest. The debtor argued that the equity holder's request for rescission, settlement, and award of damages for non-performance of the settlement agreement defeated his ability to enforce his equity interests under nonbankruptcy law.
The court rejected this argument. It also rejected the debtor's alternative argument that the equity interests were unenforceable under the doctrine of election of remedies.
In re Terrell, Case No. 18-28674 (November 2021) -- Chief Judge G.M. Halfenger
The debtors’ confirmed plan required them to make payments to the trustee for five years. The debtors named the Wisconsin Department of Children and Families as a creditor in the section of the model plan designed for listing domestic support obligations owed to governmental entities that are entitled to priority under 11 U.S.C. §507(a)(1)(B). After the plan was confirmed, two events occurred: (1) the debtors modified their plan to surrender collateral and reduce the plan’s payments to secured creditors and (2) the Seventh Circuit Court of Appeals determined that claims for benefit overpayments (like the one the Wisconsin Department of Children and Families asserted in the Terrells’ case) were not domestic support obligations entitled to priority under 11 U.S.C. §507(a)(1)(B). As a result of these events, the debtors moved to modify their chapter 13 plan under 11 U.S.C. §1329(a) to reduce the time within which they had to make payments to the trustee from five years to three, and the debtors objected to the priority of the Department’s claim. In In re Terrell, Case No. 18-28674-gmh, 2021 WL 4304839 (Bankr. E.D. Wis. Sept. 21, 2021), this court sustained the debtors’ objection and determined that the Department’s claim was not entitled to priority. The Department objected to the debtors’ motion to modify their confirmed plan to reduce the plan term from five years to three. The court overruled the Department’s objection, concluding that §1329(a) permits the requested modifications.
In re Michael Galesky, Case No. 20-25509 (September 2021) -- Chief Judge G.M. Halfenger
The trustee and a creditor objected to the debtor's claim of exemptions, primarily asserting that the debtor's exemptions under Wisconsin law should be denied pursuant to a state statute that affords a court the discretion to deny exemptions if the debtor has procured or transferred assets with the intention of defrauding creditors. After an evidentiary hearing, the court found no evidence of fraud or fraudulent intent and principally reasoned that the debtor engaged in permissible transactions to convert property from non-exemptible to exemptible forms before commencing his bankruptcy case, a practice broadly accepted in relevant state and federal caselaw as not fraudulent in itself. The court overruled the objections.
In re Michael and Sandra Lampe, Case No. 19-30044 (September 2021) -- Chief Judge G.M. Halfenger
The trustee objected to the chapter 7 debtors' claim of real property in Wisconsin as an exempt homestead under that state's law because the debtors did not occupy the property at the relevant time as Wisconsin law requires. The court concluded that, despite Federal Rule of Bankruptcy Procedure 4003(c) assigning the burden of proof to the trustee, Wisconsin law governed that assignment under these circumstances and the debtors were required to prove that they did not impair their homestead exemptions because their removal from the property was temporary and with the intention to reoccupy the premises as a homestead. After an evidentiary hearing, the court sustained the trustee's objections, finding that the debtors failed to show that their removal from their claimed homestead was temporary or that they had a sufficiently certain intention to return and reside there.