Case Summaries

(debtor was failed ethanol plant that filed Chapter 7 bankruptcy; bankruptcy trustee sought declaration against creditor that contracted corn deliveries were property of debtor's bankruptcy estate and that creditor's security interest in corn was unperfected; creditor claimed that corn was not delivered and that possession and title did not pass until corn actually weighed by debtor; creditor also claimed that it owned corn stored in bins at debtor's plant; court held that corn was property of bankruptcy estate because, under terms of contracts, delivery complete when corn physically changed hands from growers to debtor; under state (NC) law, creditor's reservation of title until corn weighed limited to security interest in corn; creditor did not perfect security interest in corn due to failure to file financing statement, and perfection did not occur via possession of corn in bins at debtor's plant that were leased to creditor; storage bins not marked so as to indicate creditor's collateral (as required by contract), hence no notice to third parties which could perfect security interest).

(plaintiff was trustee of trust established for himself and his siblings by his father which contained father's life insurance policy; plaintiff borrowed from trust on three occasions (as authorized by trust terms) and repaid loans with interest; plaintiff's siblings later sued for breach of fiduciary duty based on self-dealing and obtained judgment with court imposing constructive trust on plaintiff's interest in trust with defendant serving as trustee; after inability to obtain funds to pay court-ordered payment, plaintiff filed bankruptcy and sought discharge of state-court imposed debts to trust; defendant opposed discharge and prevailed at bankruptcy court on basis that debts were within 11 U.S.C. Sec. 523(a)(4) exception to discharge for debts that are a "defalcation" while acting in a fiduciary capacity; appellate court (7th Cir.) affirmed; issue presented was whether "defalcation" requires finding of ill intent or scienter and, if so, what kind of scienter required; Court holds that "defalcation" requires positive fraud, or fraud in fact, involving moral turpitude or intentional wrong or conscious disregard to substantial and unjustifiable risk to known fiduciary duty; appellate court applied standard of "objective recklessness"; appellate court opinion vacated and case remanded). 

(district court had held that inherited IRA funds exempt from debtor’s bankruptcy estate under 11 U.S.C. Sec. 522(b)(3)(C) because they are “retirement funds” that are tax-exempt under I.R.C. §408; decedent died about a year after establishing account which named daughter as beneficiary; daughter had own IRA and had balance of decedent’s IRA rolled into hers and then took monthly distributions from it before retiring; over nine years later daughter and husband filed Chapter 7; bankruptcy court (450 B.R. 858 (Bankr. W.D. Wis. 2011)) ruled IRA not exempt on basis that inherited IRA funds were not "retirement funds" in the hands of the debtor and, therefore, not exempt; on review, district court (466 B.R. 135 (W.D. Wis. 2012)) determined that IRA account funds need not be “retirement” funds of the debtor to qualify for exemption; district court followed majority view that direct transfers of retirement funds from tax-exempt account qualify for exemption, and immaterial that there are differences between traditional IRAs and inherited IRAs due to I.R.C. §408(e)(1); question of whether inherited IRA should be exempt up to the Congress to change the statute; on further review, circuit court reversed on basis that inherited IRAs represent opportunity for current consumption in hands of debtor and are not a fund of retirement savings; court analogized situation to that of debtor inheriting home - home only exempt if debtor lived in it, and is not exempt merely based on how prior owner used the property; court's opinion contrary to Fifth Circuit in In re Chilton, 674 F.3d 486 (5th Cir. 2012)). 

(debtor's Chapter 11 plan for farming operation denied confirmation and debtor given 30 days to file modified plan; plan failed to specify name of any creditor and class to which creditor assigned, did not provide any treatment for some claims, did not provide any treatment for current crop production loan, contained contradictory description of treatment for certain secured claim, provided reorganization plan that was impossible to perform, plan was not proposed in good faith and does not propose to actually pay the Class VII debtors anything).

(grain operator debtor and the company- also a debtor- stored grain for grain dealer; dealer discovered debtor was selling its grain and removed its grain from debtor’s possession after discovering the theft but before bankruptcy filed; trustee alleged grain seized by dealer was commingled with grain owned by debtor and constituted property of bankruptcy estate; court held because grain was seized by dealer was not in debtor’s possession during bankruptcy and dealer need not account for grain or its value; court also held that dealer was not insider because debtor had stolen more than one million bushels of grain from dealer so there should be no avoidance of a preferential transfer; for similar reasons, court held dealer’s removal of its grain was also not fraudulent; dealer’s motion to dismiss trustee’s complaint allowed).

(debtor sought appeal of bankruptcy ruling from prison while serving time for bankruptcy fraud; sought appeal of bankruptcy court’s denial to add exhibits and amend schedules due to attorney’s error; attorney had settled matter with bankruptcy trustee on conspiracy and fraud allegations relating to debtor’s bankruptcy petition; appellate court held bankruptcy court’s conclusion that debtor acted in bad faith in waiting eight years to disclose assets was not clearly erroneous).

(Chapter 12 debtors second amended confirmation plan denied by court because property distributed less than allowed amount of creditor’s claim; dispute regarding extent of creditor’s claim to property; questions still to be addressed regarding whether debtor has sufficient income to fund a confirmable plan; debtor given opportunity to amend plan to conform with decision, but if future amended plan is denied, case to be dismissed without further hearing). 

(debtor borrowed money from lender and pledged dairy cattle as collateral; lender secured interest in cattle; debtor borrowed additional money from lender pledging crops, farm products and livestock as collateral with security interest containing dragnet clause; lender secured interest; debtor later entered into "Dairy Cow Lease" with third party to allow for expansion of herd; lessor perfected its interest in the leased cattle; debtor filed bankruptcy and court determined that lease arrangement actually created a security interest rather than a true lease - lease not terminable by debtor and lease for longer than economic life of dairy cows, lessor never provided any credible evidence of ownership of cows, parties did not strictly adhere to lease terms; lender filed first and has priority to proceeds from dairy cows; lender's prior perfected security interest attaches to all cows on debtor's farm and to all milk produced post-petition and milk proceeds under 11 U.S.C. Sec. 552(b)). 

(debtor filed Chapter 12 and plaintiff objected to plan confirmation on basis that plan was not feasible, did not provide plaintiff with as much as plaintiff would receive under liquidation and was not fair and equitable to plaintiff; bankruptcy court determined that debtor's plan did project that all disposable income under the plan would be applied to payments, and confirmed plan; plaintiff claims on appeal that record insufficient to support such finding and debtor claims no proper objection made before bankruptcy court; on appeal, court determined that plaintiff's objection sufficient to put debtor on notice that debtor had to demonstrate compliance with 11 U.S.C. Sec. 1225(b)(1) that plan was fair and equitable to debtor; bankruptcy court record insufficient to explain $15,500 discrepancy in disposable income; bankruptcy court's order confirming plan reversed and case remanded). 

(chicken contract growers’ claims in bankruptcy denied – promissory estoppel claims lacked legal merit; in spite of contact language indicating otherwise, growers' claimed recovery from debtor for investment in chicken houses based on oral statements made to growers by debtors’ employees that each grower “would receive chickens as long as he met the company’s requirement” and that debtor was “here for the long haul” (debtor terminated production contracts with growers and filed bankruptcy due to downturn in poultry industry); as such, growers' claimed statements meant that contracts would remain in effect for a time period long enough for each grower to earn enough income under the contract to cover their cost of rendering performance under each contract; however, subject of statements must have been express elements of contracts; contracts specific and complete and specify that type of damages growers’ claim based on alleged oral promises not recoverable because contracts specified that either party could terminate the contract without cause between flocks (4-9 weeks), and debtor could terminate contract at any time for cause or economic necessity).

(Chapter 12 bankruptcy debtors who owned a timber business filed numerous pro se documents despite representation by counsel challenging the legitimacy of the creditors’ secured loans; despite numerous pro se filings, debtors failed to file notice of insurance policy on secured property or proposed Chapter 12 plan; court held hearing on confirmation of plan creditors’ motion to dismiss Chapter 12 filing and to impose 2 year moratorium on debtors’ filing chapter 12 action or request for adequate protection of property and debtors’ counsel’s request to withdraw; after hearing, court denied debtors confirmation plan, ordered dismissal of case with two year ban on filing by debtors, allowed withdrawal of counsel, and deemed moot remaining issues; debtors filed motion to reconsider arguing court erred in failing to allow evidence of securitization and standing issues related to creditors; motion was denied and debtors appealed; on appeal, court held that debtors never filed a valid objection to creditors’ claims because pro se filings occurred while represented by counsel and debtors objected to withdrawal of counsel; because courts do not have to give validity to pro se filings when parties represented, the court did not err in failing to set for hearing debtors’ pro se arguments against creditors’ standing; appellate court also held that bankruptcy court did not err in refusing debtors’ evidentiary requests because these were premised on request to proceed as “private attorney general” and debtors acknowledged they had no license to practice law; court also affirmed denial of confirmation plan as inadequate because they failed to include any farming expenses and historical earnings presented at varied times were wildly inconsistent; court also affirmed dismissal of the case with prejudice for a period of two years based on “bad faith”; court affirmed denial of motion to reconsider).

(court denied confirmation of Chapter 11 plan; court held debtor’s plan unfeasible as plan calls for payments of $90,000 per month by partnership leasing equipment which is majority of debtor’s projected monthly income, but debtor has no written contract with partnership and previous payments were only 60% of current projected amount; further partners in partnership were also in bankruptcy proceedings, so continued funding of partnership seemed unlikely; court also held plan was not fair and equitable to creditor; equipment securing debt was sold or transferred without creditor’s consent, additional equipment was missing, and plan failed to properly account for depreciation of equipment value; court held debtor’s plan failed to satisfy requirements of § 1129; debtor entitled to file amended plan).

(appeal from a Chapter 12 bankruptcy order allowing lifting of automatic stay on two parcels of land because debtors had no equitable interest in property; debtors entered into contract for deed with creditors whereby creditors paid off debtors' $170,000 bank loan in exchange for a warranty deed to property; debtors were to make yearly payments to creditor to buy back property; after a few years, debtors were delinquent in payments and creditor sent notice of default; under contract if default was not cured within 30 days, contract terminated and all payments  treated as rent; debtors made rental payments for a time, but eventually stopped paying rent; debtors filed bankruptcy and included property as part of the estate; appellate court affirmed because contract for deed was terminated 2 years prior to commencement of bankruptcy when default was not cured, so debtors had no legal interest in property; court also held forfeiture should not be set aside for principles of equity because creditors attempted to help debtors avoid forfeiture with favorable repayment terms and debtors still defaulted; order affirmed).

(debtors, sweet potato farmers borrowed funds from bank to plant sweet potato crops for 2007-2009 and executed promissory note granting bank security interest in crops and equipment; 2009 crop was complete failure resulting in debtors having inability to repay bank loan; bank discontinued lending agreement but did not foreclose on debtors’ assets; bank extended maturity date of loan twice; debtors planted and harvested 2010 crop with funds received from disaster payment, another corporation debtors owned, liquidation of IRAs and son’s college fund, and crop loan from another lender secured by lien on 2010 crop; debtors satisfied other lender’s lien, paid expenses and retained 2010 crop net proceeds of $410,347; debtors then filed Chapter 12 petition; bank claimed priority against buyer of 2010 crops, but buyer claimed that bank’s lacked security interest in 2010 crop due to language in financing statement; both parties moved for summary judgment; summary judgment denied for both parties – bank made whole via court order the debtors improperly retained net proceeds of 2010 crop and had to pay bank lien with proceeds; whether bank can prove that potatoes owned or grown by debtors that other party purchased for must be resolved by trial on matter, as well as issue of whether potatoes purchased violated bank’s security interest).

(bank brought summary judgment motion in Chapter 11 bankruptcy claiming entitlement to funds paid to another creditor; the security agreement securing a loan from the bank encumbered the debtor’s farm products including livestock; the bank filed a financing statement disclosing its interests; the bank alleges it is entitled to the proceeds of 192 steers in the possession of the court under state UCC; trustee and other creditors disagree; court held Food Security Act (FSA) preempts UCC codes on farm products and requires notice of security interest to buyers;  bank argued FSA did not apply because buyer was not buyer in ordinary course because it purchased steers with a dishonored check; court held whether there was a buyer in ordinary course was question of fact and law, so summary judgment denied).

(following trial on confirmation of Chapter 12 debtor’s second amended plan, court adopted creditor’s valuation prepared by certified appraiser and held creditor well over-secured, so attorney fees allowed; court also held creditor’s loans were short term loans secured by personal property, so debtor’s proposed 20-year repayment terms not appropriate; debtor’s financial projections also held to be unrealistic due to lack of consideration of transportation costs, veterinarian and training costs, and other expected costs for hay sales and horse operation; court sustained objections to plan and ordered debtors to submit amended plan).

(petition to deny debtor’s discharge for transferring or converting assets owned by company into exempt property on eve of bankruptcy; debtor sold at auction personal and real property belonging to company; debtors used proceeds from auction to purchase personal exempt homestead, which would be exempt property; court held that debtors remarkable number of errors and omissions in bankruptcy schedule and statements reveal a “calculated scheme” designed to protect their claim of exemption in the homestead; court held purposeful failure to provide sufficient disclosures regarding the purchase of the property and source of money used were material omissions and burden under statutory provision allowing denial of discharge due to making false oath or account in bankruptcy proceeding was met; discharge of debtors denied).

(debtor was grain farmer who filed Ch. 7 bankruptcy; at creditor’s meeting debtor denied ownership in company at issue in present case; debtor later pled guilty to money laundering and bankruptcy fraud for selling grain out of trust and selling grain from entities established to sell free of liens; current decision regarding trustee’s adversary proceeding against business to avoid 70 payments received from debtor’s company as unauthorized postpetition transfers; business argued it was subsequent transferee with good faith and without knowledge of voidability of transfer; trustee advanced alter ego theory that separate companies operated by debtor to defraud creditors allows avoidance of payments made to good faith transferee; court held alter ego/piercing corporate veil equitable remedy could not be used to void transfers made to good faith transferee).

(Chapter 7 case in which debtor seeks to hold bank (serving as trustee of family trust of which debtor is a beneficiary) in contempt for alleged violation of discharge injunction by offsetting 2010 trust distribution to debtor in order to satisfy debtor's obligation to trust for interest on a Nov. 7, 1985 note that debtor had failed to make payments on which hampered trustee's ability to make distributions to other beneficiaries; court holds that discharge injunction applies to note, but that the Doctrine of Recoupment applies to except note from discharge; offset authorized under trust law and state (KS) law; debtor's motion for summary judgment for contempt denied; summary judgment granted for other trust beneficiaries).

(Chapter 12 case involving issue of debtors' eligibility for Chapter 12; debtors were married couple where husband operated a sole proprietorship horse breeding and raising business, and wife operated an S corp. marketing/consulting business; farm income test of 11 U.S.C. 101(18)(A) to be determined in accordance with IRC definition of "gross income" contained in Sec. 61; gross income of S corporation, as flow-through entity, attributable to debtors; as a result, debtors not eligible for Chapter 12 because less than one-half of their income derived from farming in year preceding year petition filed). 

(debtor filed Chapter 12, but couldn’t confirm Chapter 12 plan until over a year later; under confirmation order, bank allowed two claims with one secured by personal property and one secured by real estate; debtor failed to pay on either claim and bank sought relief from automatic stay and eventually payment was made and court ordered conditional order concerning future defaults; conditional order was bilateral agreement between debtor and bank that conditioned continued effect of stay on debtor curing any default within 30 days or receiving notice of default; conditional order is not post-confirmation modification to plan; no “drop-dead” provision in original plan; conditional order is not a “plan”; conditional order anticipated chance that debtor might amend plan and such amendment would not unravel conditional order; court approved debtor’s amended motion to modify bank’s claim).

(Chapter 7 debtor was beneficiary of revocable trusts established by her parents; both trusts had spendthrift provisions; debtor’s mother died within 180 days post-petition; trustee argued debtor’s interest under trusts is property of bankruptcy estate; court held, under state law, trusts were valid inter vivos trusts enforceable according to their terms, so debtor’s beneficial interest was presumptively part of the bankruptcy estate subject to exclusion because of  spendthrift provision; court disagreed that debtor’s ability to withdraw assets automatically made trust part of bankruptcy estate because a determination of debtor’s rights and spendthrift provision is determined at time petition is filed; in this case, debtor’s mother was still alive when petition filed, so debtor had no present right to assets or income of either trust at that time; court also disagreed that mother’s death within 180 days of petition filing made bequest part of  bankruptcy estate; court held that non-testamentary inter vivos trust is not a “bequest” devise” or “inheritance” under the statute, so it did not defeat exclusion of asset by spendthrift provision; court did advise trustee he could file separate motion for specific relief due to debtor’s failure to disclose beneficial interest and lack of explanation for omission).

(Chapter 7 case; debtor's wife died and debtor entered into family settlement agreement with remaining heirs which left cattle ranch to heirs, subject to debtor retaining right to use profit from land and cattle for personal living expenses; after debtor failed to pay creditor for hay, creditor awarded judgment; debtor filed bankruptcy petition and trustee claimed that probate estate and others owed debtor funds for cattle-related expenses and for land rent; bankruptcy court rejected trustee's claim for unjust enrichment under 11 U.S.C. Sec. 542(a) because such claim beyond statute's scope; 11 U.S.C. 542(a) also required that probate estate have present possession, custody or control or property that trustee sought recovery for, and possible possession at end of debtor's life estate did not satisfy statute). 

(debtor, S corporation, paid shareholder taxes and applied payments to shareholder's personal tax returns via agreement; debtor subsequently filed bankruptcy; trustee sought recovery of taxes from IRS on basis that they were fraudulent conveyances made without consideration; court rejected trustee's position on basis that payment did not make unsecured creditors any worse off and bankruptcy estate received an amount reasonably equivalent to what it paid; debtor's taxable income was $1,559,954 and passed through to shareholders; benefit to debtor of S election was significant).