Commercial Banking, Collections, and Bankruptcy

Dist. Ct. erred in dismissing plaintiffs’ claim under Fair Debt Collection Practices Act, alleging that defendant-debt collector’s dunning letter that threatened to impose “late charges and other charges” was impermissibly deceptive because said charges could not lawfully be imposed under Wisconsin law. While Dist. Ct. based instant dismissal on fact that said phrase matched safe harbor language set forth in Miller, 214 F.2d 872, defendant could not immunize itself by using said language, where said language was not accurate under circumstances of instant case.

Dist. Ct. did not err in granting plaintiff’s motion for entry of declaratory judgment that it was entitled to defer payment of $430,000 that was owed to defendant pursuant to contract to purchase defendant’s stock in plaintiff’s company, where parties had entered into agreement with plaintiff’s creditor (Bank) in which parties had acknowledged that plaintiff’s debt to defendant was subordinate to plaintiff’s debt to Bank, and that defendant would not be paid while plaintiff was in default of its obligation to Bank. Record showed that plaintiff was in default to Bank at all relevant times, and that Bank did not give plaintiff permission to pay defendant as was required by parties' agreement with Bank. As such, since plaintiff’s debt to defendant was junior to plaintiff’s debt to Bank, defendant must wait for payment from plaintiff until either Bank consents to plaintiff’s payment to defendant or until plaintiff cures its default of its debt to Bank.

In bankruptcy adversary action by creditor alleging that debtors had either hid or transferred bankruptcy estate assets to family and friends, Bankruptcy Ct. did not err in directing debtors to return $5.5 million to estate, where said funds had been transferred to Indian company one year prior to filing bankruptcy petition. While debtors argued that said transfer was legitimate because it reduced lines of credit for company that was controlled by debtors, Bankruptcy Ct. could find that said transfer was sham, where debtors failed to produce documentation to support their claim, and where there was no evidence that said company treated funds as reduction in lines of credit. Fact that Indian company was not party to instant adversary proceeding did not preclude Bankruptcy Ct. from making said finding where there was no evidence that Indian company took control over said funds. Also, Bankruptcy Ct. did not abuse its discretion in directing debtors’ children to turnover $18,577,954 based upon debtors’ instruction to company to issue stock to debtors’ children in effort to dilute debtors’ interest in said company and to divert assets to their children. While children argued that amount of turnover was erroneous, since it failed to focus on what estate lost in said transfer as opposed to what they had received, Bankruptcy Ct. had discretion to base turnover order on value of stock, and valuation method used was reasonable. Moreover, children did not otherwise challenge valuation of company prior to stock dilution.

Dist. Ct. did not err in entering judgment on pleadings in favor of defendant on breach of contract and fraud claims, where plaintiff alleged that defendant made false representations concerning potency of product used to make medical animal feed pursuant to contract calling for defendant to supply plaintiff with said feed. Prior to filing instant lawsuit, parties entered into termination agreement with respect to instant supply contract that contained clause that stated that plaintiff had released defendant “from any and all claims, whether known or unknown.” As such, Dist. Ct. could properly find that instant release included claims for breach of contract and/or fraud, and that plaintiff was precluded from proceeding on instant complaint due to unambiguous language in release. Fact that potential claims for breach of contract or fraud were not specifically mentioned in release or that alleged fraud was unknown at time of termination agreement did not require different result, especially where plaintiff was sophisticated business.

Dist. Ct. did not err in dismissing on timeliness grounds plaintiff’s action under Truth in Lending Act (TILA) to rescind mortgage he signed with defendant-bank. Record showed that plaintiff notified defendant that he was rescinding loan on August 15, 2008, April 16, 2009 and June 17, 2010, but did not file instant action until 2016, which was after state court had entered final judgment on March 23, 2016 on defendant’s foreclosure action on subject property. While section 1640(a)(1) of TILA authorizes awards of damages for violations of said Act, section 1640(e) sets one-year limitations period for any claim under section 1640. Moreover, instant limitations period began on September 4, 2008, which was 20 days after plaintiff sent defendant his first notice of rescission and when defendant had ignored said notice. Fact that plaintiff sent subsequent notices did not serve to extend limitations period.

Dist. Ct. did not err in granting defendants' motion for summary judgment in plaintiff’s action alleging that defendants breached parties’ contract to purchase assets of defendants' business that produced biodegradation products that contained bacteria designed to break down various forms of waste, where plaintiff alleged that within one year of closing on instant purchase some products of its newly acquired business were being shipped at defendant-president’s direction to customers with below-specification bacteria. Plaintiff’s breach of contract claim was untimely, where it was filed beyond applicable one year period set forth in instant purchase agreement. Moreover, while defendant-president should not have instructed employees to falsify certificates of analysis and to ship products with bacteria counts too low to meet specifications, plaintiff failed to demonstrate that president’s actions destroyed plaintiff’s contractual expectations, where: (1) plaintiff was aware that defendants had shipped defective product prior to asset purchase; and (2) plaintiff failed to present any evidence that it did not receive profitable company free from customer complaints, or that any customer had complained post-asset sale about quality of product it had received. As such, plaintiff could not establish that it incurred any customer-related damages.

Bankruptcy Ct. did not err in denying Trustee’s motion to recapture $1.9 million in payments made to defendant-creditor that occurred within 90 days of debtor filing bankruptcy petition. While creditor conceded that instant payments potentially qualified as preferential payments under 11 USC section 547(b), Bankruptcy Ct. could properly find that creditor provided debtor with new values within preferential payment period in form of additional telecommunications services so as to qualify as affirmative defense under 11 USC section 547(c). Moreover, Bankruptcy Ct. could properly use per diem method to calculate new value transferred to debtor. Fact that debtor made debt assignment to third-party did not require different result, even though said debt assignment indirectly benefited creditor.