Commercial Banking, Collections, and Bankruptcy

Dist. Ct. did not err in awarding bond company $800,000 of $1.2 million in excess insurance proceeds under circumstances where: (1) debtor was subject to $1.8 million judgment based on its failure to perform on subcontract; (2) debtor’s primary insurance company paid prevailing party $1 million policy limits on said judgment; and (3) bond company, which had posted supersedeas bond on debtor’s unsuccessful appeal of said judgment, paid prevailing party remaining $800,000 on said judgment. While Bank, which held security interest in almost all of debtor’s assets, asserted that it was entitled to all of $1.2 million in excess insurance proceeds, Dist. Ct. could properly award $800,000 of said proceeds to bond company since: (1) bond company’s payment on debtor’s judgment meant that it was subrogated to rights held by prevailing party in subcontract lawsuit; and (2) prevailing party in subcontract lawsuit could have collected $800,000 from excess insurer without impairing Bank’s security interest. Moreover, under Wisc. law, victim of insured’s wrongdoing can collect directly from insurer, even where insured is insolvent.

Dist. Ct. did not err in granting defendant-debt collector’s motion for summary judgment in action alleging that defendant violated FDCPA’s venue provision by filing collection action against plaintiff in first municipal district of Circuit Ct. of Cook County. Defendant was entitled to FDCPA’s “bona fide error” defense, where at time its collection action had been filed, defendant’s choice of venue in different district was permitted by Newsom, 76 F.3d 813. Fact that Newsom was subsequently overruled in Suesz, 757 F.3d 636 did not require different result, since defendant’s failure to foresee retroactive change of law was not mistaken legal interpretation, but rather unintentional bona fide error that precluded liability under FDCPA.

Dist. Ct. did not err in dismissing as untimely debtor’s appeal from Bankruptcy Ct.’s order finding that debtor’s 677,000 debt to creditor was not dischargeable in instant Chapter 7 bankruptcy proceeding because owner of debtor had fraudulently transferred said sum to another corporation controlled by owner. Record showed that debtor filed notice of appeal to Dist. Ct. one day after applicable 14-day deadline, and Dist. Ct. could properly find that said deadline contained in Fed. R. Bankr. P. 8002(a) was jurisdictional since said deadline was rooted in 28 USC section 158(c)(2). Moreover, although said period could be expanded by Bankruptcy Ct if request to do so is made within 21 days after expiration of 14-day deadline, debtor had failed to seek additional time from Bankruptcy Ct.

In Chapter 11 bankruptcy proceeding, Bankruptcy Ct. erred in finding that certain preferential payments made by debtor to creditor did not qualify for exception under 11 USC 547(c)(2) as payments made in ordinary course of business. While Bankruptcy Ct found that debtor had generally paid invoices to creditor within 16 to 28 days, and thus payments made prior to after said period did not qualify for said exception, Bankruptcy Ct. erred in finding that payments made more than 6 days before and after 22-day average period for payment of invoices did not qualify for said exception, where instant 16-to-28 day baseline range encompassed just 64% of invoices paid during relevant historical period. As such, only two payments, made 37 and 38 days after invoice was issued, were beyond properly calculated baseline range, and thus only such payments were subject to preference liability. However, creditor was subject to no liability, where record showed that after it had received said preference payments, it advanced debtor additional unsecured credit that had remained unpaid.