Commercial Banking, Collections, and Bankruptcy

Dist. Ct. did not err in granting defendant-Michael Keaton’s motion for summary judgment in plaintiff’s action alleging that Keaton breached terms of contract calling for him to be lead actor and director of plaintiff’s film (The Merry Gentleman), where plaintiff accused Keaton of failing to either timely produce certain preliminary versions of film, cooperate with plaintiff, and/or adequately promote said film. Dist. Ct. could properly find that plaintiff could not obtain under reliance damages theory entire $5.5 million that plaintiff spent on film, where: (1) plaintiff could not show any causal link between plaintiff’s claim for reliance damages and any breach of contract by Keaton; and (2) record showed that Keaton had substantially performed on contract by acting in movie and producing movie that had received certain critical acclaim.

Record failed to support defendant’s counterclaim seeking purely economic damages under theory of negligent misrepresentation arising out of plaintiff’s delivery of wood products purchased by defendant that did not meet defendant’s specifications, which, according to defendant, required it to cancel orders of its products made from such wood. While Dist. Ct. awarded defendant more than $2.7 million on theory that instant non-conforming goods caused complete destruction of defendant’s business, under Indiana law buyer who has received non-conforming goods cannot seek tort remedy for negligent misrepresentation to avoid economic loss doctrine, which otherwise limits defendant’s damages to contract remedy for any purely economic loss.

Bankruptcy Ct. did not err in granting creditor’s motion under 11 USC section 707 to dismiss debtors’ bankruptcy petition, where creditor argued that after arbitrator directed debtors to pay creditor $568,568, but before debtors had filed instant bankruptcy petition, debtors spent thousands of dollars on inessential consumer goods and services rather than making effort to pay off their debts. Bankruptcy Ct. could properly dismiss instant petition “for cause” under 11 USC section 707(a), where: (1) debtors had $9,500 per month in income, yet were spending $11,000 per month on items including vacation, expensive car and private education; and (2) debtors had no excuse for their failure to use otherwise available money to pay off any part of their debt owed to instant creditor.

Dist. Ct. erred in granting defendant’s motion for summary judgment in action seeking rescission with respect to series of plaintiff’s purchases of mortgage-backed securities from defendant, where plaintiff alleged that defendant made material misrepresentations as to whether underlying mortgage loans complied with applicable underwriting guidelines. Record showed that approximately 40.8% of underlying mortgage loans had violated underwriting guidelines that materially increased credit risk of loans, and reasonable fact finder could find under course-of-dealing evidence that plaintiff’s decision-maker actually relied on guidelines-compliance representations that were reasonably expected to be included in defendant’s prospectuses when purchasing instant securities. Record also contained question of fact as to whether defendant’s representative repeatedly assured plaintiff’s decision-maker that extensive due diligence had been performed on relevant loan pools, and that said assurances did not amount to mere puffery. Dist. Ct. also erred in finding that instant rescission action was subject to Wisconsin’s 6-year limitations period applicable to contracts, since instant rescission action sought to disaffirm subject contracts and not sue upon them.

In class action that resulted in settlement that gave plaintiff-class free drink vouchers to replace vouchers that defendant-airline had unilaterally terminated, Dist. Ct. did not err in awarding class counsel $1.6 million in fees based on lodestar method of calculation, rather than on value of coupons actually redeemed. Lodestar method could be used under section 1712 of Class Action Fairness Act, even though instant settlement concerned award of coupons instead of monetary relief. Moreover, instant settlement was fair to class members, where class members essentially received all relief that it could expect to get where defendant exchanged on one-for-one basis current vouchers for expired vouchers. Fact that defendant was willing to potentially pay $3 million in fees to class counsel did not mean that class members should have held out for more relief. Ct., though, eliminated $15K award to one class representative and $15K in fees to one class counsel as sanction for failure of counsel to alert Dist. Ct. to potential conflict of interest arising out of fact that representative and counsel were co-counsel in separate lawsuit.

Dist. Ct. erred in granting defendant’s motion to dismiss plaintiff’s action alleging that defendant breached terms of plaintiff’s Federal Student Loan Master Promissory Note, when it assessed plaintiff over $4,500 in collection costs after plaintiff defaulted on her student loan, but then successfully entered into alternative repayment agreement. Dist. Ct. improperly found that instant contract claim was preempted by Higher Education Act (HEA), where federal law did not preempt or displace plaintiff’s state-law contract action that did not otherwise conflict with HEA or its associated regulations. Fact that HEA did not provide plaintiff with private cause of action did not preclude plaintiff from bringing state-law breach of contract action. Also, although HEA and its regulations impose collection costs on borrowers who default on their student loans under certain circumstances, plaintiff stated viable cause of action, where HEA regulations prohibited defendant from imposing collection costs, where plaintiff was first-time defaulter who entered into rehabilitation agreement within 60 days of notice that defendant had paid default claim of plaintiff’s lender, and where plaintiff had complied with rehabilitation agreement. Ct. rejected defendant’s argument that it retained discretion to assess collection costs whenever it wanted. (Dissent filed.)

Bankruptcy Ct. did not err in upholding creditor’s unsecured claim for $945,000 arising out of agreement to purchase right to receive portion of net proceeds from sale of trust property controlled by debtors, where said agreement allowed creditor to elect to convert $700,000 (plus interest) purchase price under agreement into demand note if creditor gave debtors notice of said election on precise date set forth in agreement. Bankruptcy Ct. could properly find that creditor complied with terms of conversion option, where creditor sent said election certified mail on day before specified date in agreement. Moreover, Ct. rejected debtors’ contention that election had to be sent on specified date in order for election to be effective.

Dist. Ct. erred in dismissing defendant’s promissory estoppel counterclaim to plaintiff’s lawsuit alleging breach of contract arising out of defendant’s alleged default on four loans and in granting plaintiff’s motion for summary judgment on its claim against defendant. Defendant’s counterclaim, which alleged that plaintiff induced defendant to purchase equipment via plaintiff’s failed promise of $500,000 line of credit to fund such purchase, was sufficient to state claim of promissory estoppel that precluded Dist. Ct. from finding that such claim was “implausible” so as to support instant dismissal. Moreover, Dist. Ct. erred in granting plaintiff’s motion for summary judgment, where: (1) Dist. Ct. failed to explain rationale for said order; and (2) record suggested that said order was based on improper rejection of defendant’s promissory estoppel/prior breach of contract defenses.

Record contained sufficient evidence to support Bankruptcy Ct. order awarding Trustee $28,030.30 fee for services rendered during in instant bankruptcy petition over 4-year span. While debtors’ principal unsecured creditor alleged that said fee was excessive, said fee was within guidelines under section 326 of Bankruptcy Code based upon amount of recovered money that Trustee distributed to all creditors, and fact that $371,000 of recovered money went to secured creditors did not require subtraction in said amount so as to result in lower fee. Moreover, fee was reasonable given undisputed fact that Trustee spent at least 200 hours working on case.