17 B 06666, 17 A 00424
Dimitri Karras filed an adversary complaint against Bryce Stirlen, seeking a determination that a debt owed to him by Stirlen was not dischargeable pursuant to §§ 523(a)(2)(A), (a)(4), and (a)(6). In response, Stirlen filed a counterclaim, asserting that he was entitled to set off the alleged debt pursuant to an asset purchase agreement (the “APA”) under which his company American Weapons Components, Inc. (“AWC”) acquired the assets of Lycurgan, Inc., a corporation owned by Karras. Subsequently, Karras filed two motions to dismiss the counterclaim under subsections (b)(1) and (b)(6) of Rule 12 of the Federal Rules of Civil Procedure. As to the Rule 12(b)(6) motion, Karras argued that Stirlen’s setoff defense failed because Karras had no personal liability under the APA since he executed the agreement as Lycurgan’s agent. Karras further argued that only AWC, Stirlen’s corporate principal, could assert a setoff defense. Finding that both Karras and Stirlen were guarantors under the APA and that AWC’s registration was suspended for failure to pay taxes, the Court observed that a guarantor may raise any defense available to its principal, as well as any defenses or setoffs that the principal could have asserted had it not been unable to defend itself by virtue of its suspension. Ultimately, the Court found that Stirlen’s setoff defense was pleaded sufficiently to survive the 12(b)(6) motion and thus denied Karras’s motion to dismiss for failure to state a claim upon which relief can be granted. In his 12(b)(1) motion, Karras argued that Stirlen had no standing to assert setoff because that right became estate property when Stilen filed for bankruptcy and only the chapter 7 trustee has standing to prosecute claims belonging to the estate. Karras further argued that the Court had no jurisdiction to decide the setoff defense because that defense constituted a common law breach of contract claim, a non-core matter under Stern v. Marshall, 564 U.S. 462 (2011). The Court found that Stirlen could pursue his setoff right as an affirmative defense existing under California law (which governed the interpretation of the APA); that the “heart” of the Stern decision went to a bankruptcy court’s ability to render a final judgment which was not a matter at issue; and that even if the Court did not have plenary authority over Stirlen’s defense, resolution of the matter would fall within the Court’s ancillary jurisdiction. As such, the Court denied Karras’s 12(b)(1) motion to dismiss.

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.

19 B 33057
In reliance on a recent ruling in In re Wigfall, 606 B.R. 784, the court avoided the City of Chicago’s lien on the Debtor’s vehicle after finding that it was a judicial lien subject to avoidance under Section 522(f) of the Bankruptcy Code.  The City contended that it was a statutory lien which Section 522(f) did not apply to.  Its lien was authorized by statute but the City cannot immobilize and seize vehicles until it obtains quasi-judicial determinations that its ordinances have been violated.

19 B 15935