Justia U.S. 7th Circuit Court of Appeals Opinion Summaries

In 2003, Valley View and, Bedford Downs, wanted to operate “racinos,” combination horse tracks and casinos. Each would need the last harness-racing license available in Pennsylvania to do so. Valley View agreed to acquire Bedford for $55 million, with Citizens Bank acting as escrow agent. Valley View borrowed money from Credit Suisse. Valley View then obtained the harness-racing license, but failed to secure the needed gambling license and filed for Chapter 11 bankruptcy. The Trustee sued Merit, a 30% shareholder in Bedford, alleging that Bedford’s transfer to Valley View was avoidable under 11 U.S.C. 544, 548(a)(1)(b), and 550, and the money was properly part of the bankruptcy estate. Merit maintained that the transfer was protected under the safe harbor, 11 U.S.C. 546(e), which protects transfers that are “margin payment[s]” or “settlement payment[s]” “made by or to (or for the benefit of)” certain entities including commodity brokers, securities clearing agencies, and “financial institutions” and transfers “made by or to (or for the benefit of)” the same types of entities “in connection with a securities contract.” Merit relied on the involvement of Citizens Bank and Credit Suisse. The district court agreed with Merit. The Seventh Circuit reversed; section 546(e) does not protect transfers that are simply conducted through financial institutions (or the other section 546(e) entities), where the entity is neither the debtor nor the transferee but only the conduit. View "FTI Consulting, Inc. v. Merit Mgmt. Group, LP" on Justia Law

Wierzbicki owned a 40‐acre Wisconsin farm, where she lived for a time with her three minor children and their father, Griswold. In 2012 Wierzbicki gave Griswold a quitclaim deed to the farm. Fourteen months later she filed for Chapter 7 bankruptcy. The bankruptcy trustee brought an adversary proceeding to avoid the transfer as fraudulent, alleging that Wierzbicki was insolvent at the time of the transfer and that she had not received reasonably equivalent value, 11 U.S.C. 548(a)(1)(B). Wierzbicki and Griswold had been engaged in state court litigation, 2009-2012. Although a state court had dismissed Griswold’s principal appeal, Wierzbicki claims that the quitclaim deed was given in exchange for an end to the litigation. Griswold accepted liability for about $149,000 in debt secured by the property. The bankruptcy judge avoided the transfer. The district court and Seventh Circuit affirmed. The fair market value of the farm was $300,000, so Wierzbicki had equity of approximately $151,000 at the time of the transfer. Griswold’s promise to cease his “meritless appeals” in exchange for that interest had no material value. The benefit of avoiding further family conflict was too “nebulous” to “support a finding of reasonable equivalence” in the bankruptcy context, View "Griswold v. Zeddun" on Justia Law

The Koenigs filed for Chapter 7 bankruptcy protection in 2014, claiming exemptions under Wisconsin’s bankruptcy exemption statute for three annuities then worth a total of $292,185.97. The annuities had been purchased in the approximately 18 months before their bankruptcy petition. Wis. Stat. 815.18(3)(j) fully exempts retirement assets, including annuities, that meet certain requirements. Paragraph (3)(f) protects a broader category of annuities, but the exemption is limited to $150,000, except that the cap is just $4,000 for annuities issued less than 24 months before the debtor claims the exemption. The trustee argued that an annuity, to qualify for the exemption, must comply with 26 U.S.C. 401–09, which generally deal with tax‐deferred “qualified” retirement plans. The Koenigs argued that an annuity is exempt under section 815.18(3)(j) as long as the annuity qualifies for favorable tax treatment under 26 U.S.C. 72, which deals with annuities more generally. The Seventh Circuit affirmed the judgment of the bankruptcy court, in favor of the Koenigs, stating that the key statutory text is ambiguous on the decisive point, and citing the statute’s structure and purpose, along with the legislature’s instruction to construe exemptions in favor of debtors, View "Wittman v. Koenig" on Justia Law

GT owed its bank, Comerica, $7.8 million, secured by a lien on all of GT’s assets. GT filed for bankruptcy. Its assets were auctioned off. If the assets sold for more than $7.8 million, the excess would go to the estate. If the assets sold for less than $7.8 million, all of the purchase money would go to Comerica, which would have an unsecured claim for the difference. The successful bidder would take the assets free of Comerica’s lien. Arlington's $2.7 million bid was successful. The bankruptcy trustee believed that Arlington had colluded with GT insiders to keep the price down, and hired the Law Firms to pursue claims under 11 U.S.C. 363(n) to undo the sale or recover the difference. The trustee contended that GT’s assets had been worth $5 million. The GT insiders settled, but Arlington won at trial and was awarded costs. Arlington became a general unsecured creditor for about $5,000. The Law Firms asked the bankruptcy court to approve their fees. Arlington objected, contending that the Firms’ services had not been reasonably likely to benefit the estate, 11 U.S.C. 330(a)(4)(A)(ii)(I).), reasoning that the trustee did not allege that GT’s assets were worth more than $7.8 million. The bankruptcy court and district court agreed with the Law Firms and approved the fee petitions. The Seventh Circuit remanded with instructions to dismiss for lack of standing. Arlington did not show that it stands to benefit if the fees are denied. View "Arlington Capital, LLC v. Bainton McCarthy, LLP" on Justia Law

Stoller, the beneficiary of a trust that holds title to a house, assigned his beneficial interest to his daughter but reserved a “power of direction” with the right to obtain loans for himself, secured by the property. He directed the trust to rent out the property; he received the income. IStoller filed for bankruptcy. None of his filings mentioned the property. A question specifically asked about “all property owned by another person that [he] [held] or control[led].” Under penalty of perjury, he answered “none.” Stoller was charged with two counts of knowingly and fraudulently concealing property that belonged to a bankruptcy estate, 18 U.S.C. 152(1), and seven counts of knowingly and fraudulently making a false statement in a bankruptcy proceeding, 18 U.S.C. 152(3). Represented by an appointed lawyer, he pled guilty to one count of making a false statement; the government dismissed the remaining counts. Before sentencing, Stoller considered moving to withdraw his plea on the ground that he was not mentally competent. A new lawyer was appointed. Stoller was examined by a board‐certified neuropsychologist, who concluded that Stoller was competent to plead guilty. Stoller’s lawyer then unsuccessfully moved to withdraw the plea based on alleged defects in the plea colloquy. Stoller was sentenced to 20 months’ imprisonment. The Seventh Circuit affirmed. Stoller was competent to plead guilty, his plea was not coerced, the colloquy included most of the basics, and Stoller was not prejudiced by any deficiency. View "United States v. Stoller" on Justia Law

In 2011, the bankruptcy court confirmed a Chapter 13 plan, under which the debtors were to pay $660 per month to the trustee for seven months, and then, for 53 months, $758 per month, later reduced to $670 per month. From these payments, the trustee would pay the claims of secured creditors and distribute approximately $22,000 to general unsecured creditors. In 2013, the trustee received the debtors’ 2012 income tax return, showing that their income had increased by $50,000. The trustee moved to modify the plan under 11 U.S.C. 1329, to increase the monthly payments to $1,416 per month for the 23 remaining months. The bankruptcy court denied the motion, stating that the Code did not allow modification of a Chapter 13 plan for the cited reasons, and that, even if the court had the power to modify the plan, the facts did not support the request. The district court upheld the bankruptcy court’s determination that it lacked authority to grant the motion. The Seventh Circuit vacated. While section 1329 does not explicitly identify the circumstances under which modification is appropriate and no Code provision expressly permits modification when a change in financial circumstances makes an increase affordable, it does not follow that modification in this circumstance is forbidden. View "Germeraad v. Powers" on Justia Law

Dells Hospitality borrowed $12,600,000 to purchase the Lake Delton Hilton Garden Inn. Dells’ owner and president, Sobsczak-Slomczewski, agreed to indemnify the lender against all losses.. Dells defaulted. The lender filed a foreclosure action. Sobsczak‐Slomczewski directed the hotel’s independent management company to transfer $677,000 to a corporate entity he owned. After a foreclosure sale, the lender amended the complaint to add claims for theft and conversion. The district court found that Sobsczak-Slomczewski had converted and embezzled the $677,000. Sobsczak‐Slomczewski then petitioned for bankruptcy. The lender filed an adversary proceeding seeking to have the $677,000 debt found non‐dischargeable. The bankruptcy court granted the lender summary judgment, citing 11 U.S.C. 523(a)(4) and (a)(6). The district court dismissed Sobsczak‐Slomczewski’s appeal, filed 15 days after the bankruptcy court order, holding that Rule 8002(a)’s 14‐day deadline was jurisdictional. Rejecting Sobsczak‐Slomczewski’s assertion that he did not receive notice until the day of the deadline, the court explained that there are no equitable exceptions to a mandatory jurisdictional rule. The Seventh Circuit affirmed after considering recent Supreme Court pronouncements The court joined other circuits in holding that the 14‐day deadline to file a notice of appeal is rooted in the jurisdiction statute, 28 U.S.C. 158, which expressly includes a timeliness condition. Sobsczak‐Slomczewski did not timely seek additional time from the bankruptcy court. View "In re: Sobczak-Slomczewski" on Justia Law

Jason’s, a wholesaler, provided unprocessed meat to Sparrer, a sausage manufacturer. Sparrer filed Chapter 11 bankruptcy petition. During the 90-day preference period preceding the filing, Sparrer paid invoices from Jason’s totaling $586,658.10. The Unsecured Creditors Committee sought to recover those payments as avoidable preferences under 11 U.S.C. 547(b). Jason’s asserted that the transfers were made in the ordinary course of business and were nonavoidable under section 547(c)(2), or that it had provided meat to Sparrer in January-February of 2012 without receiving payment, offsetting its preference liability (section 547(c)(4)). The bankruptcy judge determined that before the preference period, Sparrer generally paid Jason’s invoices within 16-28 days. Of the 23 invoices that Sparrer paid during the preference period, 12 fell within that range. The judge concluded that those 12 payments were ordinary and nonavoidable. The remaining 11 payments, totaling $306,110.23, were not ordinary and must be returned to the bankruptcy estate. The district court affirmed. The Seventh Circuit reversed. Nothing indicated that it was unusual for Sparrer to pay Jason’s invoices within 14, 29, or 31 days of issuance. The only payments that can fairly be deemed out of the ordinary are those made 37-38 days after receipt of invoice. Jason’s preference liability is limited to those invoices and is offset by invoices Sparrer failed to pay. View "Jason's Foods, Inc. v. Unsecured Creditors Comm." on Justia Law

The Blanchards agreed to sell Marathon County property to the Hoffmans, who paid $30,000 up front. The land contract balance was due in 2015, with an option to close early by paying off the Blanchards’ new $142,000 mortgage, obtained as part of the agreement. The parties signed a separate “rental agreement,” under which the Hoffmans paid $500 per month. The land contract was not recorded. The lender obtained an Assignment of Leases and Rents as collateral, but did not obtain an Assignment of Land Contract. The bank recorded its mortgage and the Assignment. In 2014, the Blanchards filed a bankruptcy petition. The trustee filed an adversary proceeding against the lender under 11 U.S.C. 544(a)(3), which grants him the position of a bona fide purchaser of property as of the date of the bankruptcy, to step ahead of the mortgage and use the Blanchards’ interest in the land contract for the benefit of unsecured creditors. The trustee argued that a mortgage can attach a lien only to real property and that the Blanchards' interest under the land contract was personal property. The district court affirmed summary judgment in favor of the bank. The Seventh Circuit affirmed. A mortgage can attach a lien to a vendor’s interest in a land contract under Wisconsin law; this lender perfected its lien by recording in county land records rather than under UCC Article 9. View "Liebzeit v. Intercity State Bank, FSB" on Justia Law

Collazo, a real estate developer, bought apartments for conversion to condominiums and formed LLCs to hold title to the properties. In 2002, Collazo's employee, Julie Siragusa, introduced the developer to her father. The Siragusas began making loans for the developments. Collazo obtained additional financing by transferring properties among the LLCs. According to the Siragusas, the financial institutions did not realize that Collazo was indebted to them. The Siragusas accepted Collazo’s explanations for delays in repayment for many years. In 2012 Collazo petitioned for bankruptcy, seeking to discharge his debts to Siragusa (a physician), Siragusa’s employee benefit trust, and Siragusa’s three adult children. The Siragusas filed an adversary action in the bankruptcy proceeding, contending that Collazo was not entitled to a discharge of his debts to them. The bankruptcy judge and district judge allowed discharge except for Collazo’s debt to Dana and Robert Siragusa, concerning $1 million borrowed for an Arizona development project. The Seventh Circuit remanded Dana’s claim that the transfer of unsold Chicago units to new LLCs was fraudulent, and Dana’s and Robert's claim for a money judgment, but agreed that other claims were time-barred. View "Siragusa v. Collazo" on Justia Law