OpinionsThe court previously denied the plaintiff’s motion for summary judgment against the joint debtor, determining that it could not apply issue preclusion to find that the state court conspiracy judgment entered in favor of the plaintiff was excepted from discharge under 11 U.S.C. § 523(a)(4) and/or § 523(a)(6). The court then held a trial and found that the plaintiff did not prove its claims against the joint debtor for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny or that there was a willful and malicious injury by the joint debtor or that the joint debtor acted with malice, wickedness, or a deliberate intent to injure the plaintiff. The court rejected the plaintiff’s contention that the evidence it presented at trial supplemented the record on summary judgment in such a way that the court could apply issue preclusion following the trial and rule in its favor. Winfield Solutions, LLC v. Ganske, No. 21-cv-134-WCG, 2022 WL 972406, 2022 U.S. Dist. LEXIS 59479 (E.D. Wis. Mar. 31, 2022) (March 2022) -- District Court The district court affirmed this court’s decision overruling a judgment lien creditor’s objection to the debtors’ homestead exemption for their Door County property. The debtors acknowledged that they spent time at both their Door County property and their Dane County property, but chose their Door County property as their homestead. In affirming the court’s decision, the district court noted that Wisconsin courts liberally construe the homestead exemption statute to protect the homeowner. The judgment lien creditor failed to show that the court’s factual findings were clearly erroneous. The district court looked at analogous cases and concluded that the debtors occupied the Door County property as their homestead even though they only lived there on a part-time basis due to demands of their employment. See In re Carter, 550 B.R. 433 (Bankr. W.D. Wis. 2016) (Martin, J.); In re Lackowski, No. 08-21496-pp, 2008 Bankr. LEXIS 5143 (Bankr. E.D. Wis. Sept. 24, 2008) (Pepper, J.); In re Broesch, 34 B.R. 554 (Bankr. E.D. Wis. 1983) (Clevert, J.). 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 Lupton Consulting LLC, Case No. 20-27482-BEH, 2022 WL 850056 (March 2022) -- Judge B.E. Hanan After the court denied confirmation of two related debtors’ joint plan of reorganization—finding that it contained impermissible nonconsensual third-party releases and injunctions, was not feasible, and was not proposed in good faith—the debtors voluntarily requested that their cases be dismissed, and the debtors’ law firm filed its final application for fees and costs. The U.S. Trustee objected, asserting that the application should be denied in its entirety because counsel failed to demonstrate that its services were necessary or reasonably likely to provide any benefit to the debtors’ estates. Specifically, the U.S. Trustee argued that counsel should have known that the reorganization would not succeed based on its stated goal of obtaining (nonconsensual) releases of guaranties for the debtors’ principal and other insiders, and that the cases were never intended to benefit the debtors’ estates, or even the debtors, but instead the debtors’ principal. As a secondary argument, the U.S. Trustee objected to discrete billing entries, asserting that they should be disallowed for being vague, containing “block-billing,” and reflecting clerical work. The court overruled the first objection, declining to find that counsel's services in pursuing confirmation were not reasonably likely to benefit the estates at the time they were rendered, or that the debtors’ pursuit of third-party releases for the benefit of its principal came at the expense of the debtors’ estates and their creditors, in part because the debtors obtained consent from several creditors for the releases. The court credited the U.S. Trustee’s second objection in part and disallowed certain discrete billing entries for the reasons described above. In re Harris, Case No. 21-26280-beh, 2022 WL 953483 (March 2022) -- Judge B.E. Hanan Under a plain reading of 11 U.S.C. § 1322(c)(2), a debtor may bifurcate an undersecured first mortgage on her principal residence that matured prepetition. Section 1322(c)(2) creates an exception to the anti-modification provision of 11 U.S.C. § 1322(b)(2) for “claim[s] secured only by a security interest in real property that is the debtor's principal residence” on which “the last payment on the original payment schedule . . . is due before the date on which the final payment under the plan is due.” For such claims, section 1322(c)(2) allows a debtor’s plan to “provide for the payment of the claim as modified pursuant to section 1325(a)(5)” of the Code—which includes the option of bifurcating the claim into secured and unsecured portions under 11 U.S.C. § 506, and paying the present value of the allowed secured claim while treating the portion of the mortgage that exceeds the value of the home as unsecured. As used in section 1322(c)(2), the verb “modify” is not limited to “payment of the claim,” but instead allows modification of the claim itself. In re Fields, Case No. 21-26203 (March 2022) -- Judge R.M. Blise The chapter 7 debtor failed to rebut the presumption under 11 U.S.C. § 524(m)(1) that her reaffirmation agreement with a car leasing company imposed an undue hardship. The debtor stated her intention in the agreement to reaffirm a $31,405.20 debt on a GMC Yukon XL and pay $1,046.84 per month for 30 months, plus all amounts due under the lease at termination. The court assumed for purposes of the decision that the debtor intended to reaffirm the debt under 11 U.S.C. § 524(c), rather than assume the lease under § 365(p), because the parties presented a reaffirmation agreement for the court's review. The debtor's schedules disclosed a net monthly income of $3,256.31 and monthly expenses of $4,080 with the lease payment, resulting in a monthly deficit of approximately $823. In disapproving the reaffirmation agreement, the court rejected the debtor's claims that she could make budget cuts to afford the payments, and her employment bonus and expected increase in work hours would cover the shortfall. The court noted that the monthly lease payment was more than 30% of the debtor's monthly income, more than triple her monthly food budget, and almost as much as she paid for rent. The debtor failed to show why it was necessary for her to retain a vehicle with such a high monthly payment when it was clear she could not afford the payment without sacrificing necessities or going into debt to cover her monthly expenses. Ryan v. Branko Prpa MD LLC, 588 F.Supp.3d 911 (E.D. Wis. 2022) (March 2022) -- District Court The district court affirmed the bankruptcy court's Order and Judgment Granting Branko Prpa MD LLC’s Motion for Summary Judgment in Branko Prpa MD LLC v. Rodney Ryan, et al, Adv. No. 19-02209-beh, and the Order of the Bankruptcy Court Sustaining Branko Prpa MD LLC’s Objection to Debtors’ Claim of Exemptions in In re Rodney Ryan, et al, Case No. 19-29833-beh. 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 Syverson, Case No. 21-26184-beh, 2022 WL 318221 (February 2022) -- Judge B.E. Hanan The court granted a mortgage creditor’s motion for in rem relief from the automatic stay under 11 U.S.C. § 362(d)(4), based on the debtor’s history of unsuccessful bankruptcy filings and lack of apparent effort to pay or to adequately address her mortgage debt. The debtor had filed six Chapter 13 cases in fewer than six years. All five of her prior cases were dismissed without a confirmed plan, and the fifth was dismissed with a 180-day bar to future bankruptcy filings. During her prior cases, the debtor neglected basic obligations under the Bankruptcy Code--including the duty to timely file her schedules and plan and to attend the § 341 meeting of creditors--and repeatedly failed to comply with court orders requiring her to timely file amended feasible plans (or successfully participate in mortgage modification mediation) and to resume payments to her mortgage creditor. When she filed her sixth case, the debtor was entering her eighth consecutive year of mortgage default. Based on this record, the court concluded that the debtor’s conduct demonstrated a scheme to delay or hinder the mortgage creditor’s efforts to protect its interest in the property, warranting in rem relief under § 362(d)(4). In re Kleynerman, Case No. 18-26659-BEH, 638 B.R. 111, aff’d sub nom. Smith v. Kleynerman, 647 B.R. 196 (E.D. Wis. 2022), aff'd sub nom. Matter of Kleynerman, No. 22-2947, 2024 WL 804103 (7th Cir. Feb. 27, 2024) (January 2022) -- Judge B.E. Hanan The court granted the debtor’s motion to reopen his case and to avoid a judicial lien where the case had been closed only two months prior and the motion was a response to a recent state court ruling construing a 2018 charging order as outside the reach of a bankruptcy discharge under applicable state law. The court found that the debtor met the criteria to avoid the lien under 11 U.S.C. § 522(f) and the relatively short passage of time did not prejudice the creditor, particularly where the creditor did not dispute the valuation of the asset while the case was open and had not previously asserted its rights under the charging order. To ameliorate potential prejudice, the court ordered the debtor to pay those fees and costs of the creditor attributable to the recent collection effort. |