OpinionsPlaintiff Cornerstone Pavers, LLC and defendant Zenith Tech, Inc. assert claims and counterclaims for breach of a subcontract between them related to a highway-construction project, and Zenith seeks to recover on a surety bond allegedly issued by third-party defendant West Bend Mutual Insurance Company to insure the performance of the subcontract. Cornerstone and West Bend both moved for summary judgment against Zenith arguing that they are entitled to judgment as a matter of law based on Zenith's purported failure to satisfy certain notice requirements in the subcontract and bond before it terminated the subcontract and replaced Cornerstone with another subcontractor. The court denied both motions because the record does not establish, beyond all genuine disputes of material fact, that Zenith cannot prevail at trial. Rogers v. TitleMax of Wisconsin, Inc. (In re Rogers), Adv. No. 22-2129, Case No. 22-25190, 2023 WL 5354417 (August 2023) -- Judge B.E. Hanan Creditor’s failure to return debtor’s repossessed vehicle for 26 days postpetition, until after the Court considered the creditor’s concerns regarding adequate protection, did not amount to an act to “exercise control” over property of the estate in violation of 11 U.S.C. section 362(a)(3), nor did the creditor’s conduct violate section 362(a)(4) (prohibiting acts to “enforce a lien against property of the estate”) or section 362(a)(6) (prohibiting acts to collect a prepetition claim). Jackson Family Dentistry, LLC v. Major Dental Partners, LLC (In re Charmoli), Adv. Proc. No. 22-02136 (August 2023) -- Chief Judge G.M. Halfenger The defendants moved for remand and abstention with respect to the claims and counterclaims pending in this adversary proceeding, which were originally asserted in state court and removed to this court under 28 U.S.C. §1452(a) after one of the plaintiffs commenced the underlying chapter 11 case with his spouse. Two of the defendants also moved in the main case for a stay of their related adversary proceeding under 11 U.S.C. §523(a)(2) & (6), for a determination as to the dischargeability of debts allegedly owed to them by the debtor-plaintiff, and for relief from the stay under 11 U.S.C. §362(a), to allow them to continue the state-court litigation after remand. The court denied the defendants' motions because all of the removed claims and counterclaims are "core proceedings" under 28 U.S.C. §157(b)(2), thus not "related to" proceedings subject to mandatory abstention under 28 U.S.C. §1334(c)(2), and the relevant factors do not weigh in favor of permissive abstention under §1334(c)(1) or remand under §1452(b), so there is no good reason to stay the defendants' dischargeability proceeding, nor is there cause to grant the defendants relief from the §362(a) stay. In re Dixson, No. 22-22589 (June 2023) -- Judge R.M. Blise The Bankruptcy Court denied confirmation of a proposed chapter 13 plan pursuant to 11 U.S.C. § 1325(a)(1), concluding that the plan was not feasible. The debtor’s amended chapter 13 plan provided for equal monthly payments to a secured creditor and to the debtor’s attorney. The monthly payment amount proposed in the plan would be just enough to cover these equal monthly payments, along with the trustee’s fee. However, the plan also provided that the debtor’s monthly payments would be spread over 26 bi-weekly payments per year under an employer wage order. This meant that in some months the debtor (through her employer) would remit less than the monthly payments provided for in the plan and in some the debtor would remit more than the monthly payment amount. In the months that the trustee received less than the full payment amount, the trustee would have insufficient funds to disburse the equal monthly payments along with the trustee’s fee. The debtor argued that the trustee could simply reduce the payments to the secured creditor and the debtor’s attorney in the months that the trustee received two bi-weekly payments and then make “catch up” payments in the months that the trustee received three bi-weekly payments. The Court disagreed and held that a plan that the trustee cannot faithfully administer is not feasible. The Court acknowledged that sometimes chapter 13 debtors fall behind on their payments, and that those defaults require the trustee to make the sort of distributions that the debtor contemplated here, with smaller payments being made in some months and “catch up” payments made when the debtor cures the default. But those cases are different because the confirmed plan does not expressly contemplate that the trustee will not be able to distribute the payments called for in the plan, and it was only the debtor’s later default that caused a problem with administration. The Court declined to confirm a plan that contemplated an issue with distributions from the outset. Moreover, the secured creditor had previously objected to the plan on the basis that it should receive equal monthly payments 11 U.S.C. § 1325(a)(5)(b)(iii) and had withdrawn that objection when the debtor proposed a plan that would pay equal monthly payments. Because the debtor would not be remitting sufficient funds to make equal payments each month, the creditor would not receive the equal payments contemplated in the plan. The Court therefore denied confirmation of the plan proposed by the debtor. Mann, Chapter 7 Trustee v. LSQ Funding Group, L.C., 71 F.4th 640 (7th Cir. 2023) (June 2023) -- Seventh Circuit Court of Appeals The Chapter 7 trustee filed an adversary complaint against a factoring company seeking to avoid and recover an alleged preference or fraudulent transfer. The trustee sought to avoid and recover a $10.3M wire transfer made by the new factoring company to the old factoring company in the weeks before the debtor filed for bankruptcy. The trustee alleged that the accounts that the new factoring company purchased were worthless and that the old factoring company conspired with the debtor to leave the new factoring company with phony accounts when the debtor’s business failed. The bankruptcy court granted the old factoring company’s motion for summary judgment, holding that the transfer was not avoidable because it did not qualify as a transfer of “an interest of the debtor in property” as required by 11 U.S.C. §§ 547, 548. The district court affirmed. The Seventh Circuit Court of Appeals affirmed the decision of the district court, holding that (1) the transfer at issue did not involve “an interest of the debtor in property” and so could not be avoided as a preference; (2) fraud alone cannot bring a transfer within the avoidance powers of the Bankruptcy Code because the Code requires a transfer of “an interest of the debtor in property”; and (3) even if fraud had occurred, the transfer at issue had no impact on the property of the debtor and thus did not fall within the Code’s avoidance provision for fraudulent transfers. In re Rios, Case No. 22-21161, 2023 WL 4055909, 2023 Bankr. LEXIS 1589 (Bankr. E.D. Wis. June 16, 2023) (June 2023) -- Judge K.M. Perhach The debtors moved to stay the court’s order modifying the automatic stay to permit the Internal Revenue Service to enforce its tax lien on the debtors’ right to Social Security benefits while they pursued an appeal of the court’s order to the district court. The court denied the debtor’s motion for a stay pending appeal. Granting a stay pending appeal would not cause the debtors to begin receiving their Social Security benefits, so the debtors did not show that they would suffer irreparable harm in the absence of a stay. The debtors also did not demonstrate that they had a likelihood of success on the merits of their appeal. The debtors intended to argue on appeal that (1) they did not acquire a “right to property” in their Social Security benefits until they survived until the end of the month and actually received funds; (2) at the time the bankruptcy case was filed, the IRS only had a lien on the Social Security benefits the debtors had actually received pre-petition; (3) during the debtors’ bankruptcy case, the automatic stay prevented the IRS’s statutory tax lien from attaching to the Social Security benefits that the debtors received post-petition; and (4) a discharge would prevent the IRS’s statutory lien from attaching to the Social Security benefits received by the debtors after their discharge. However, the IRS’s statutory lien attached to all of the debtors’ property and rights to property, including their right to receive future Social Security benefits. The lien on the right to receive future payment of Social Security benefits arose pre-petition and would survive a discharge under § 1328(a). The debtors proposed to use the Social Security benefits to make their Chapter 13 plan payments without proposing adequate protection of the IRS’s interest in the benefits, so the IRS was entitled to relief from the automatic stay. Charmoli v. Aspen American Insurance Company, Adv. Proc. No. 22-02130 (June 2023) -- Chief Judge G.M. Halfenger Defendant issued professional liability policies to plaintiff, and plaintiff filed this adversary proceeding seeking a declaration that defendant was required to defend and indemnify him from malpractice claims asserted by his former patients. After the court denied defendant’s motion to dismiss the complaint, ruling that the complaint’s factual allegations and facts of which the court could take judicial notice did not establish that defendant’s rescission was timely under Wis. Stat. section 631.11 as a matter of law, defendant filed a motion for leave to appeal to the district court. The defendant then filed a motion requesting that the bankruptcy court stay the adversary proceeding pending the district court’s action on its appeal motion. The bankruptcy court denied the motion for a stay pending appeal, concluding that defendant was not likely to succeed on the merits of the motion for leave to appeal or the appeal itself, and further concluding that defendant had not demonstrated irreparable harm. In re Mahler, Case No. 22-21674-beh, 2023 WL 3880465 (June 2023) -- Judge B.E. Hanan The Chapter 13 trustee objected to the debtor's amended plan, specifically the provision for direct payments to Freedom Mortgage Corporation. Disbursement by the trustee, however, is not mandatory. 11 U.S.C. §§ 1322(a) and 1326(c) do not prohibit direct payments. Rather, the Court may exercise its discretion to require payment via trustee disbursement. Matter of Aberegg, 961 F.2d 1307, 1308 (7th Cir. 1992). In determining whether to confirm a plan providing for debtor-direct payments, courts have devised several factors by which to apply their discretion. In re Perez, 339 B.R. 385, 409 (Bankr. S.D. Tex. 2006), aff'd sub nom., Perez v. Peake, 373 B.R. 468 (S.D. Tex. 2007). After considering the Perez factors relevant to this debtor's history and proposed amended plan—such as the debtor's reason for filing the case, whether it is a consumer loan, the number of payments to be made, and whether the trustee's ability to perform her duties will be hindered—the Court held that disbursement of payments by the trustee to Freedom Mortgage offered a greater likelihood of achieving the debtor's goals for her Chapter 13 plan. In re Teclaw, Case No. 22-24591-beh, __ B.R. __, 2023 WL 3331553 (May 2023) -- Judge B.E. Hanan The individual chapter 13 debtor scheduled an interest in several LLCs, two of which owned commercial buildings with mortgage debt owed to Summit Credit Union. Summit filed a motion for relief from the co-debtor stay under § 1301(a)(1), arguing the stay did not apply to the LLCs because they were not individual debts. Alternatively, Summit asked for adequate protection. The debtor conceded the co-debtor stay did not extend to his LLCs, but asked the Court to invoke its equitable powers under § 105(a) to find that the automatic stay of § 362(a) was in effect, arguing there were unique circumstances. The Court agreed that the co-debtor stay did not apply to the LLCs, as the debts were not incurred for a household purpose as defined in § 101(8), and LLCs are routinely distinguished from individuals, as discussed in Consol. Rail Corp. v. Gallatin State Bank, 173 B.R. 146, 147 (N.D. Ill. 1992) and In re McCormick. 381 B.R. 594, 598 (Bankr. S.D.N.Y. 2008). The Court declined to exercise its equitable powers to find the automatic stay applied to the LLCs because doing so would create a substantive right that conflicts with another applicable provision of the Bankruptcy Code (§ 1301), citing Law v. Siegel, 571 U.S. 415, 421 (2014). The Court also did not view the debtor’s circumstances as any more unusual than those that plague debtors in similar circumstances, and in any event, the LLCs had the option of filing their own bankruptcy petitions. Charmoli v. Aspen American Insurance Company, Adv. Proc. No. 22-02130 (April 2023) -- Chief Judge G.M. Halfenger The plaintiff-debtor seeks declaratory relief with respect to insurance coverage under several policies issued by the defendant. The defendant moved to dismiss the plaintiff's claims, arguing that there are no disputes of material fact with respect to whether it validly rescinded the policies at issue. The court denied the defendant’s motion because Wisconsin Statutes section 631.11, as applicable here, requires an insurer to "notif[y] the insured . . . of its intention to . . . rescind [a] policy" no later than 60 days after it "acquires knowledge of sufficient facts to constitute grounds for rescission of the policy" and the allegations in the operative complaint allow for the plausible inference to be drawn that the defendant acquired such knowledge more than 60 days before it gave the plaintiff notice of its intention to rescind the policies at issue. |