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

Plaintiff sued individual defendants and a bank alleging violations of Wisconsin Statute section 134.01, which prohibits conspiracies to willfully or maliciously injure the reputation, trade, business or profession of another. Defendants had caused appointment of a receiver for plaintiff's business and had sued, claiming that plaintiff "looted" the business. A jury verdict against plaintiff was reversed. The receivership is still on appeal. The district court dismissed plaintiff's subsequent suit for failure to state a claim. The Seventh Circuit affirmed. While plaintiff did plead malice adequately to support a claim, the claim was barred by issue preclusion. Plaintiff was attempting to relitigate whether the imposition and ends of the receivership were proper.

When the debtor voluntarily declared bankruptcy under Chapter 7 its petition was signed only by its president, not a lawyer. The next day the company filed an amended petition signed by a lawyer. Before the filing, the bank had sued debtor for fraud; the suit was automatically stayed, 11 U.S.C. 362(a)(1), so the bank refiled as a claim in the bankruptcy proceeding. The trustee in bankruptcy moved to rescind payments of pre-petition debts that the debtor had made to the bank, on the ground that the payments were voidable preferences because they had been made within 90 days before the filing, 11 U.S.C. 547(b), (f). The parties settled the claim conditional on a determination that the bankruptcy court had had jurisdiction over it. The bank's argument that the signature on the original petition made the proceeding void was rejected by the bankruptcy and district judges. The Seventh Circuit affirmed, finding that the rule was not jurisdictional and that application of relation-back was "obvious."

Indiana University had an Instructional Television Fixed Service license, issued by the FCC, that authorized broadcast on specified frequencies. A not-for-profit ITFS licensee can lease unused frequencies to a for-profit entity. The university was contemplating assigning frequencies to PBS, but before it did, PBS quitclaimed its rights to the debtor. Thinking that the transfer was final, debtor modified equipment at a cost of $350,000. The bankruptcy trustee filed a claim against the university, contending that it had promised PBS the license, that debtor had reasonably relied on the promise, and that the doctrine of promissory estoppel entitled debtor to damages of $116,000. The claim settled for $100,000. Because the settlement left the estate with insufficient assets to pay unsecured creditors, a creditor challenged it. The bankruptcy court, district court, and Seventh Circuit affirmed. The trustee decided that pursuing a claim for the license was hopeless and made a reasonable decision.

Claimant owned a hotel adjoining the CDC landfill. CDC hired debtor to build a system for dealing with gases generated in the landfill. In 1999, debtor was forced into bankruptcy. The landfill's gas control system failed; debtor lacked funds to fix it. The failure released foul odors that, traveling underground, entered the hotel through electrical outlets and cracks, sickening guests and employees. Claimant's hotel declared bankruptcy in 2005. The landfill was permitted to terminate its contract with debtor. Claimant filed a bankruptcy claim for the loss in value in selling the hotel, characterizing it as an administrative claim, superior to others, and brought a tort action in state court, which settled. The bankruptcy judge and district judge rejected characterization as an administrative claim. The Seventh Circuit affirmed. Administrative claims have priority because they are claims for reimbursement of expenses incurred after the declaration of bankruptcy, in order to preserve the value of the bankrupt estate for the benefit of creditors. A tort victim is a creditor, whose actions do not benefit the debtor-tortfeasor. Tort liability is an expense of doing business, like labor or material costs, and should be treated the same way.

The same day that debtor discharged his debts in a Chapter 7 bankruptcy, his mother, died, leaving debtor and his brother equal shares in an estate. Debtor signed a disclaimer of his interest, but never told the trustee about his inheritance. Following a series of transactions between the brothers and various accounts, the U.S. Attorney's office launched an investigation, and the brothers were charged with bankruptcy fraud (18 U.S.C. 157(3)). Debtor was also charged with impeding a bankruptcy trustee in the course of his duties (18 U.S.C. 152(1)) and fraudulently concealing assets. The Seventh Circuit affirmed. The circumstantial evidence was sufficient for a reasonable jury to find that the brothers engaged in a fraudulent scheme. The court also rejected a claim of ineffective assistance of counsel.

Debtor, a limited liability company, was formed by five members, who made up a Board of Managers. Forte had a 12% interest. After his requests to inspect of business records were denied, Forte sued Lynch, the member with the highest percentage interest. In the six months before filing for Chapter 11 bankruptcy, the company paid Forte $215,000 as part of the settlement. The bankruptcy court found that Forte qualified as an "insider" (11 U.S.C. 547(b)(4)(B)) and that the trustee could void and recover the transfers. The district court and Seventh Circuit affirmed. Insider status is not just a matter of title; Forte retained voting rights in the company, held a formal position on the Board, and did not resign until after he received the transferred funds.

Plaintiff, a plastics manufacturer, dealt with a container company that filed for bankruptcy in 2002, filed a creditor's claim for more than $7 million, and objected to the sale of assets and lien priorities. The debtor had pledged all of its assets as security for a line of credit with ANB, its primary lender. Plaintiff claimed that there was a fraudulent scheme under which the debtor would produce containers and not pay for them, so that that they would be part of inventory when a successor company, let by insiders, purchased the assets in bankruptcy. After its claims were rejected in the bankruptcy proceedings, plaintiff sued ANB and Gateway alleging violation of RICO (18 U.S.C. 1961) and common-law fraud. The district court dismissed as "res judicata" but denied Rule 11 sanctions. The Seventh Circuit affirmed the dismissal, citing collateral estoppel, issue preclusion. The court did not find that the claims were frivolous or designed to harass.

XMH sought Chapter 11 bankruptcy relief and obtained permission to sell a subsidiary's assets (11 U.S.C. 363), indicating that a contract between the subsidiary and WG would be assigned to purchasers. WG objected, claiming that the contract was a sublicense of a trademark and could not be assigned without permission. The bankruptcy judge agreed with WG, but allowed XMH to renegotiate so that the subsidiary would retain title to the contract but the purchasers would assume all duties and receive all fees. The district court granted a motion substituting the purchasers for XMH and ruled that the order barring assignment was erroneous. First holding that the order was appealable and that it should exercise jurisdiction despite the absence of the bankruptcy trustee as a party, the Seventh Circuit affirmed. If WG had wanted to prevent assignment, it could have identified the contract as a trademark sublicense to trigger a default rule that trademark licenses are assumed to be not assignable. The contract was not simply a sublicense: WG retained control over "all other aspects of the production and sale of the Trademarked Apparel." Such a designation would have been more effective than a clause forbidding assignment because it would have survived bankruptcy.

In 2006 creditors forced the corporation, which owned a golf course, into Chapter 11 bankruptcy and the trustee approved sale of the course to the local recreation district over the objections of the corporation's owners. The sale, at a price higher than market value, closed in 2007 and creditors were paid in full. The bankruptcy court rejected multiple allegations of fraud and closed the case in 2010. The Seventh Circuit affirmed and awarded damages and costs, calling the allegations and multiple motions, not only groundless, but "obsessive, a form of harassment, unprofessional, and an abuse of the bankruptcy court, the district court, and this court."

Defendant owned companies forced into Chapter 11 bankruptcy, but was not a debtor in the proceedings. The plan was confirmed and prohibited suits against the bankruptcy professionals and certain litigation against pre-bankruptcy creditors. Years later defendant sued plaintiff, pre-judgment creditors, and the bankruptcy professionals in an Indiana state court, based on Indiana law. The creditors removed the suit to bankruptcy court (28 U.S.C. 1452(a)) rather than asking the bankruptcy judge to enforce his order. The statute authorizes removal of any claim of which that court would have jurisdiction under 28 U.S.C. 1334, which confers on the district courts original jurisdiction of all civil proceedings arising under the Bankruptcy Code, or "arising in or related to cases under" the Code. The bankruptcy judge determined that the suit against the bankruptcy professionals was barred. Defendant filed an amended complaint eliminating all defendants except plaintiff and stating that the only claims arose from alleged violations of confidentiality agreements. The bankruptcy judge ruled that, as amended, the complaint was unrelated to the bankruptcy and ordered the suit remanded to the state court. The district judge affirmed. The Seventh Circuit concluded that the dismissal was not subject to review.