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

The Glenns, real estate developers, asked a loan broker (Chung) to find them a loan. Attorney Sullivan agreed to lend the Glenns $250,000 repayable in two weeks with interest of $5,000 per week. They needed the money for longer, but Chung told them and Sullivan that a bank had agreed to give the Glenns a $1 million line of credit that would be available in a few weeks. The Glenns and Chung signed promissory notes. There was no line of credit. The loan was never repaid. Chung declared bankruptcy. Sullivan filed an adversary complaint, claiming that Chung was not entitled to discharge the debt created by her note because it was her fraudulent assurance that the line of credit had been approved that had induced him to make the loan. The Bankruptcy Code bars discharge of a debt “obtained by … false pretenses, a false representation, or actual fraud,” 11 U.S.C. 523(a)(2)(A). The court denied Chung her discharge. The Glenns also declared bankruptcy. Sullivan filed adversary complaints. The bankruptcy judge found that the Glenns had not committed fraud and refused to impute Chung’s fraud to them under an agency theory. The district court and Seventh Circuit affirmed. If a debt is the result of fraud, the debtor can discharge it in bankruptcy if he was not complicit in the fraud, even if the fraud was created by his agent. View "Sullivan v. Glenn" on Justia Law

Matichak was injured at work in 2009 and filed a workers’ compensation claim. Matichak filed a Chapter 7 bankruptcy petition in 2010, disclosing the claim, valued at $7,500. About a year after the discharge, Matichak filed a tort suit against firms that, he maintained, had contributed to his injury, seeking substantial damages. Defendants sought summary judgment, because Matichak had not listed any tort claim in his bankruptcy assets. Matichak then notified the Trustee, who reopened the bankruptcy and moved to replace Matichak as the plaintiff in the tort suit. The district court allowed the substitution but held that recovery could not exceed the value of debts that had not been paid in 2010. The Seventh Circuit reversed. The judge did not find that Matichak deliberately hid the tort claim; he claims that he thought that the workers’ compensation claim was his only potential source of compensation. Allowing the tort suit to proceed without a damages cap will allow the Trustee to hire counsel to take the suit on a contingent fee. If Matichak was trying to deceive his creditors, the bankruptcy judge may decide to give the creditors a bonus, or to return any excess to the tort defendants. View "Metrou v. M.A. Mortenson Co." on Justia Law

Michael's brother, Kevin, purchased a lakefront lot. Michael was to cover expenses and ultimately purchase the lot. A dispute arose and Kevin put the lot up for sale. Kevin offered to reimburse Michael $54,049.10 and directed Michael to stop tampering with “For Sale” signs. Michael recorded a lien. Although Michael had about a 5% interest in the lot, the lien stated that Kevin “acquired title for convenience only.” Kevin sought a declaration of quiet title, and alleged slander of title, partition, and breach of contract. The jury was instructed, based on Wis. Stat. 706.13(1), which defines slander of title as submitting, entering, or recording, claim of lien, lis pendens, writ of attachment, financing statement or other instrument relating to a security interest in or the title to property, if the submitter “knows or should have known” that any part of the instrument was false, a sham, or frivolous. An interlocutory judgment of $281,000 was entered for Kevin. Michael filed a bankruptcy petition. Kevin asserted that their judgment was precluded from discharge under 11 U.S.C. 523(a)(6) as a “willful and malicious injury.” The bankruptcy court concluded that the issue was preclusively decided and entered judgment for Kevin. The district court affirmed. The Seventh Circuit reversed. The state court jury’s slander of title findings did not preclusively established that Michael acted “willfully.” The verdict could have been based on negligence. View "Gerard v. Gerard" on Justia Law

Facing financial problems and lawsuits from victims of sexual abuse, the Catholic Archdiocese of Milwaukee filed for Chapter 11 bankruptcy in 2011. A Creditors’ Committee composed of abuse victims sought to void a one-time transfer of $55 million from the Archdiocese’s general accounts to a trust, created after the settlement with victims and earmarked for maintaining cemeteries in accordance with Canon Law, as fraudulent or preferential. The district court found that the application of the Bankruptcy Code to that transfer would violate the Archbishop’s free exercise rights under the Religious Freedom Restoration Act (RFRA) and the First Amendment. The Seventh Circuit reversed in part. RFRA is not applicable. The government is not a party; the Committee does not act under “color of law” and is not the “government” for RFRA purposes. It is composed of non-governmental actors, owes a fiduciary duty to the creditors and no one else, and has other nongovernmental traits. Although the Free Exercise Clause is implicated, but does not bar application of the Code to the $55 million. The Code and its relevant provisions are generally and neutrally applicable and represent a compelling governmental interest in protecting creditors that is narrowly tailored to achieve that end. View "Official Comm. of Unsecured Creditors v. Listecki" on Justia Law

HSBC initiated a Wisconsin foreclosure action on the Rinaldi’s mortgage. The Rinaldis counterclaimed, alleging that the mortgage paperwork had been fraudulently altered and that HSBC lacked standing to enforce the mortgage. The Rinaldis lost at summary judgment and did not appeal. The court later vacated its foreclosure judgment after HSBC agreed to modify the loan. The Rinaldis filed a new state lawsuit reasserting their counterclaims. Before the court ruled on the defendants’ motion to dismiss, the Rinaldis filed for bankruptcy. In those proceedings, HSBC filed a proof of claim for the mortgage. The Rinaldis objected and filed adversary claims, alleging fraud, abuse of process, tortious interference, breach of contract, and violations of RICO and the Fair Debt Collection Practices Act. The bankruptcy court found in favor of HSBC and recommended denial of the adversarial claims. The district court agreed, noting the Rinaldis’ failure to comply with Federal Rules. The court dismissed the Rinaldis’ adversary claims as meritless and warned that the Rinaldis would face sanctions if they filed additional frivolous filings because their tactics had “vexatious and time- and resource-consuming” and their filings “nigh-unintelligible.” After additional filings of the same type, the Rinaldis voluntarily dismissed their bankruptcy. Their attorney filed additional frivolous motions. The court ordered the attorney to pay $1,000. The Seventh Circuit upheld the sanction. View "Nora v. HSBC Bank USA, N.A." on Justia Law

Sweport’s judgment creditors, represented by attorney Wolf, petitioned to place Sweports in Chapter 11 bankruptcy. Sweports became the debtor in possession. Wolf was counsel to the Official Committee of Unsecured Creditors. The court rejected plans submitted by Sweports and the Official Committee. The U.S. Trustee moved that Sweports’ bankruptcy either be converted to Chapter 7 liquidation or dismissed. Neither Sweports nor the creditors favored conversion. The court dismissed. Weeks later Wolf sought attorney’s fees and expenses of $780,000 for his work for the Official Committee. An interim request for fees and expenses of $410,000 had been granted while Sweports was in bankruptcy, but little had been paid. Wolf’s final request sought $1.13 million. The bankruptcy judge denied awards on the ground that he lacked jurisdiction, reasoning that the awards could be paid only out of the assets of the debtor’s estate, and there were no such assets after the bankruptcy was dismissed. The Seventh Circuit reversed, reasoning that while the bankruptcy court could no longer disburse estate assets, it could determine that Wolf had a valid claim in the amount he was seeking. Such a ruling would create a debt and, if Sweports refused to pay, Wolf could sue in state court. View "Sweports, Ltd. v. Much Shelist, P.C." on Justia Law

Bronk incurred debts providing his wife’s medical care before her 2007 death. He suffered a stroke in 2009. With medical debts exceeding $345,000, his assets included his home, without a mortgage, and a $42,000 certificate of deposit. On advice of counsel, Bronk borrowed $95,000, mortgaging his home, to establish college savings accounts for his grandchildren under IRC 529. Account owners control the funds in such accounts, may change beneficiaries, and may, at any time, request a 100% distribution. Bronk converted the $42,000 c.d. into an annuity, to begin making payments in 2035, including a death benefit. Bronk filed for Chapter 7 bankruptcy. The trustee objected to the college-fund and annuity transactions, citing 11 U.S.C. 727(a)(2)(A).The bankruptcy judge found no evidence that Bronk had acted with intent to hinder, delay, or defraud creditors, but interpreted section 815.18(3)(p) (exemption for college accounts) as applying only to the beneficiary’s interest, not the owner’s interest, and disallowed exemptions. The judge held that the annuity was a fully exempt retirement benefit under section 815.18(3)(j). The Seventh Circuit held that the college accounts are exempt and that the annuity satisfies the basic definition of an exempt “retirement benefit.” To qualify as a fully exempt retirement benefit, however, the plan must be either employer sponsored or comply with IRC 815.18(3)(j)2; the trustee waived that issue. View "In re: Bronk" on Justia Law

Duckworth borrowed $1,100,000 from the State Bank of Toulon. The security agreement said that Duckworth granted the Bank a security interest in crops and farm equipment. The promissory note referred to the security agreement. The security agreement said that it secured a note “dated December 13, 2008.” There was no promissory note dated December 13. Both the December 15 promissory note and the security agreement were prepared by the Bank’s loan officer. Duckworth filed a petition for Chapter 7 bankruptcy. The Bank filed adversary proceedings. The bankruptcy court held that the mistaken date in the security interest did not defeat the security interest and that the security agreement of December 13 secured the note of December 15. The bankruptcy court ruled in favor of the Bank. District courts affirmed. The Seventh Circuit reversed. The Bank was not entitled to use parol evidence against the bankruptcy trustee to correct the mistaken description of the debt to be secured, so the security agreement did not give the lender a security interest in the specified collateral that could be enforced against the trustee. View "Covey v. State Bank of Toulon" on Justia Law

Katsman, represented by an attorney, filed for Chapter 7 bankruptcy. After she filed Schedule F, on which the debtor is required to list all entities holding unsecured claims, the trustee reported that no assets were available for distribution. Before discharge was ordered, Skavysh, the son of Katsman’s ex-husband, filed an adversary proceeding invoking 11 U.S.C. 727(a)(4)(A). The bankruptcy judge conducted a trial of Skavysh’s objection to discharge and concluded that although there were omissions in Katsman’s schedules, they were not fraudulent. The only witness was Katsman; the judge decided that her testimony was truthful. The district judge reversed. The Seventh Circuit affirmed, noting that Katsman admitted that she had deliberately omitted creditors from her Schedule F: friends and family members who had lent her money during her acrimonious divorce from Skavysh’s father. She also failed to list property that she owned jointly with her ex-husband, including her home in Indiana and a time share in Las Vegas and alimony payments. The court found that “her many false statements bespeak a pattern of reckless indifference to the truth, implying fraudulent intent,” noting that despite her claims of ignorance of the law, she knows English and had competent counsel. View "Skavysh v. Katsman" on Justia Law

Doe settled his sexual abuse claims against the Archdiocese of Milwaukee for $80,000 after participating in a voluntary mediation program. He later filed a claim against the Archdiocese in its bankruptcy proceedings for the same sexual abuse. Doe responded to the Archdiocese’s motion for summary judgment by contending that his settlement was fraudulently induced. The argument depends upon statements made during the mediation, but Wisconsin law prohibits the admission in judicial proceedings of nearly all communications made during mediation. Doe argued that an exception applies here because the later action is “distinct from the dispute whose settlement is attempted through mediation,” Wis. Stat. 904.085(4)(e). The Seventh Circuit affirmed summary judgment in favor of the Archdiocese. Doe’s bankruptcy claim is not distinct from the dispute settled in mediation. The issue in both proceedings, which involved the same parties, is the Archdiocese’s responsibility for the sexual abuse Doe suffered. Doe sought damages in both the mediation and bankruptcy for the same sexual abuse; he did not seek separate or additional damages for the alleged fraudulent inducement. View "Doe v. Archdiocese of Milwaukee" on Justia Law