Commercial Banking, Collections, and Bankruptcy

Chapter 7 debtor lacked standing to appeal Dist. Ct.’s order that dismissed for lack of standing, debtor’s appeal of Bankruptcy Ct. order that approved Trustee’s $550,000 settlement of debtor’s state-court action in exchange for debtor’s dismissal of state-court action, even though debtor had valued said lawsuit at $16 million. Debtor lacked standing to challenge Bankruptcy Ct.’s order because debtor could only speculate as to value of his assets, and he could not establish that he would recover any estate assets after distribution of estate‘s assets to creditors. Moreover, record showed that debtor had at most $15 million in assets, and that he conceded that his liabilities totaled $20 million. As such, debtor could not explain for standing purposes how it was likely that any distribution from estate would likely flow to him.

Dist. Ct. did not err in dismissing plaintiff’s tort action, alleging that defendants misled plaintiff as to when it would receive payments for prior furniture orders under circumstances where plaintiff had also asserted successful breach of contract claim regarding defendants’ failure to make payments on said prior orders. Under Wisconsin law, economic loss doctrine bars recovery in tort for economic losses sustained from contractual dispute, and plaintiff’s own characterization of its fraud claim dooms instant tort action, where it alleged that defendants’ fraud induced it to continue existing contract at issue in breach of contract claim. Moreover, all fraudulent statements alleged in instant tort claim concerned promises to pay orders at issue in plaintiff’s breach of contract claim. Ct. further noted that plaintiff’s claim for lost profits or for lost business in tort claim were economic losses under Wisconsin law.

Dist. Ct. did not err in affirming Bankruptcy Ct. order dismissing as untimely creditor’s proof of claim, which was submitted five months after deadline for doing so. Record showed that: (1) debtor (USA Gymnastics) filed Chapter 11 bankruptcy petition in response to overwhelming number of claims submitted by gymnasts, who alleged that they were sexually assaulted by Larry Nassar; and (2) debtor mailed notice of deadline for filing proof of claim to individuals it viewed as potential claimants, emailed said notice to current and former members of debtor’s organization and placed information about deadline on its website, social media pages, USA Today and gymnast journals. While creditor, who also claimed that she was sexually assaulted by Nassar, stated that she did not become aware of deadline until after it had passed, and that she was entitled to actual notice of deadline, Ct. of Appeals found that creditor was entitled only to constructive notice of deadline, which debtor had provided, where creditor had failed to show that debtor had records of her medical visits with Nassar, and where Michigan law did not require that debtor possess such records. As such, creditor failed to show that she was “reasonably ascertainable creditor” for purposes of being entitled to actual notice of deadline.

Bankruptcy Ct. erred in granting debtors’ motion under Rule 60(b) to modify confirmed Chapter 13 plan by eliminating priority creditor status of State of Wisconsin and by shortening plan’s duration from 60 months to 36 months. While Rule 60(b)(1) potentially provides avenue to accommodate debtors’ request to modify confirmed Chapter 13 plan, where debtors alleged that parties and Bankruptcy Ct. were mistaken in assumption that State’s effort to recoup overpaid public benefits to debtors entitled it to priority creditor status under section 507(a)(1)(B), debtors could not use Rule 60(b)(1) to effectuate requested modification, where debtors filed modification request more than one year after confirmation of Chapter 13 plan.Moreover, Ct. found that there was no other source of authority that would allow debtors to seek instant relief.

Dist. Ct. could properly find that Bankruptcy Ct.’s approval of debtors’ Chapter 11 reorganization plan that provided for, among other things, debtors’ payment of $65,000 to creditor for its tax lien essentially knocked out creditor’s tax lien on debtors’ property, even though creditor was never served with process regarding debtors’ proposed reorganization plan. While creditor contended that plan of reorganization did not affect it’s lien, because it had not been served with process regarding said plan by time plan had been entered, record established that creditor was “party” with respect to said Bankruptcy Ct. proceedings, and thus was bound by terms of reorganization plan due to creditor’s concession that it was party, as well as due to actions taken by creditor’s counsel, which included negotiating and obtaining better terms under proposed plan and claiming rights under said plan. Ct. further noted confirmed plan knocked out any entitlement that creditor may once have had to obtain tax deed and foreclose on said lien.