Judge Thomas M. Lynch - Opinions

Judge Thomas M. Lynch

In re David R. Faccone
February 7, 2022


18-13341 (Western District of Wisconsin), 20-00062
In this adversary proceeding, the Debtor sought declaratory judgment that claims he may have in his capacity as primary beneficiary of a spendthrift trust were outside the scope of a broad waiver and release of claims contained in the confirmed chapter 11 plan. The parties filed cross-motions for judgment on the pleadings under Fed. R. Civ. P. 12(c), with both sides arguing that the material facts were not in dispute and judgment could be entered.

In granting judgment in favor of Defendants, the court found that (1) the complaint failed to plausibly allege any facts that would show that the court was without subject matter jurisdiction to confirm a plan with the waiver and release provision, noting that section 1123(b)(3) expressly authorizes settlement of claims of the debtor; and (2) the complaint, which provided little detail about the supposed claim or claims the Debtor was trying to raise in state court, failed to plausibly state a claim for determination of any particular claim as beyond the scope of the waiver and release. The court further noted that an action for declaratory judgment does not furnish a plaintiff with a second bite at the proverbial apple or a backdoor route to evade the procedural requirements and deadlines for appeal or reconsideration of a judgment, and that the Debtor also failed to explain why the state court would not have subject matter jurisdiction to rule on whether claims brought before it had been waived or terminated.

The United States Trustee moved to dismiss the Debtor’s bankruptcy under section 707(b) arguing that granting relief would constitute an abuse of chapter 7. After an evidentiary hearing, the court found that the Debtor failed to rebut the presumption of abuse reflected in his Form 122A-2 Chapter 7 Means Test Calculation. In particular, the Debtor failed to demonstrate that his (1) travel expenses to see his out-of-state minor children, (2) vehicle gas and maintenance expenses for his job, and (3) student loan payments constitute “special circumstances” for which there is no reasonable alternative. Because the Debtor requested to convert his case to chapter 13 after the matter was taken under advisement, the U.S. Trustee’s motion was granted, in part, and the case was converted to chapter 13 with the Debtor’s consent.

19-82572, 19-96032
Creditor sought leave under Fed. R. Bankr. P. 7015 to amend its adversary complaint to add Bankruptcy Code sections 727(a)(2)(A) and (a)(4)(A) claims objecting to discharge. That request, however, came more than six months after discovery had closed, after the Credit Union’s motion for summary judgment had been denied and more than a year after the Debtor obtained his discharge, with no explanation or justification given for the delay. The court, finding that the Credit Union’s undue delay in seeking leave to amend would cause undue prejudice and burden on both the Debtor and the court, denied the motion.

16-82933, 18-96030
On cross-motions for summary judgment on the Debtor’s adversary complaint seeking declaratory relief as to the meaning and effect of three reaffirmation agreements previously authorized after notice and hearing, the court granted judgment in favor of State Bank and against the Debtor. In so ruling, the court discussed the relationship of debts to arrearages to find, among other things, that nothing in the reaffirmation agreements indicated that any portion of the indebtedness constituting an arrearage was to be discharged or cancelled.  Further finding that the reaffirmation agreements incorporated the repayment terms of the underlying note and mortgage without waiving any existing default or extending the repayment schedule or maturity date. As a result, prepetition arrearages which had not been cured as of the applicable effective dates were reaffirmed and were not subject to the discharge.

In re Osvaldo Amaro
September 30, 2020

In this chapter 7 case, the United States Trustee filed two motions to dismiss pursuant to sections 707(b)(2) and 707(b)(3) of the Bankruptcy Code. The Debtor objected to the motions and argued, as a preliminary issue of law, that the “means test” in section 707(b)(2) does not apply to cases like his that were commenced under chapter 13 and later converted to chapter 7. After reviewing a split in the authority over the meaning of the phrase “a case filed by an individual debtor under this chapter whose debts are primarily consumer debts” found in section 707(b)(1), the court agreed with the majority approach and concluded that a case originally filed under chapter 13 and subsequently converted to chapter 7 is subject to section 707(b) of the Bankruptcy Code. Declining the Debtor’s invitation to adopt the minority view, the court determined that approach would create “an enormous loophole to the means test” by limiting section 707(b) only to cases that were originally filed as chapter 7 cases.

19-82505, 20-96020
The court denied the Defendants’ motion to dismiss the adversary complaint filed by the chapter 7 trustee, which sought, pursuant to 11 U.S.C. § 544(b) and 735 ILCS 5/12-112, to avoid the Defendants’ transfer of their joint tenancy interest in their residence to a newly formed trust for which they are trustees and hold beneficiary interests in tenancy by the entirety. The complaint alleged that the transfer was done with the sole intent to avoid payment to a creditor. The court recognized that, as a matter of Illinois law, the actual intent standard of the Fraudulent Transfer Act, 740 ILCS 160/5, does not apply to property transferred by the entirety, and that the trustee was not incorrect to bring its action under 735 ILCS 5/12-112 by means of section 544(b) of the Bankruptcy Code. The court further found that the trustee’s complaint sufficiently pleaded facts to state a claim that is plausible on its face.

In re Thomas G. Gialamas
September 21, 2020

18-13341 (Western District of Wisconsin)
Prior to this bankruptcy case, a Wisconsin circuit court had appointed F. John Stark, III as the supplemental receiver in a post-judgment enforcement action by creditor Erick Hallick against the Debtor. The confirmed chapter 11 plan of reorganization proposed by a creditor provided in that plan’s section 6.13(a) that several lawsuits pending against the Debtor, including the state court “Receivership Action,” are “resolved” and the judgments docketed against the Debtor and orders “affecting the Debtor’s assets in favor of Hallick” in those cases, “shall be satisfied.” After failing to timely object to the plan at confirmation, despite notice, the receiver filed a Rule 60(b) motion to vacate the confirmation order, arguing that this court lacked subject matter jurisdiction, at least as to section 6.13(a) and its treatment of the Receivership Action. The receiver further argued that section 6.13(a) did not provide for payment of his fees in the Receivership Action, which he claimed was subject to the jurisdiction of the Wisconsin circuit court. The court denied the Rule 60(b) motion, finding that it had clear jurisdiction to confirm the Plan, including section 6.13(a). Noting that vacatur under Rule 60(b) is an extraordinary remedy granted only in exceptional circumstances, the court then held that the receiver did not meet his burden. Among other things, the court found that the receiver’s fees were to be paid from the Debtor’s interest in the creditor or its proceeds, which became property of the estate when the case commenced, and that the receiver fit the definition of a “custodian” under 11 U.S.C. § 101(11) but failed to comply with section 543, under which the court could consider a request to compensate the receiver for his services.

19-82505, 20-96006
The court denied the Defendant’s motion to dismiss the adversary complaint, which sought a denial of discharge pursuant to section 727(a)(2)(A) of the Bankruptcy Code. The court determined that the Defendant’s timeliness argument was not appropriate under Rule 12(b)(6) because the complaint was not required to plead around potential affirmative defenses. The court also concluded that the allegations in the complaint were sufficient to state a plausible claim for relief under section 727(a)(2)(A), noting among other things that under Rule 9(b) fraudulent intent may be alleged generally.

18-82365, 19-96005
In adversary proceeding brought following Plaintiff’s ouster from retail joint venture, judgment entered in favor of Debtor following trial on objections to discharge under § 523(a)(2)(A) and § 523(a)(6) after finding, among other things, that (1) Plaintiff did not establish a debt owed to her by Debtor individually, as opposed to a potential claim against the limited liability company established by Debtor; (2) Plaintiff did not show either justifiable reliance on any alleged misrepresentation made by the Debtor or actual fraud with respect to their business venture; and (3) Plaintiff failed to demonstrate a willful and malicious injury attributable to the Debtor.