Commercial Banking, Collections, and Bankruptcy

Dist. Ct. erred in permitting plaintiff to purchase for $10,000 remaining asset of defendant-corporation that had been half-owned by plaintiff and third-party in order to satisfy $242,000 default judgment (in action originally brought against corporation by another entity, but said rights to lawsuit had been purchased by plaintiff for $150,000), where Dist. Ct. should have allowed to proceed state-court action filed against plaintiff by other owner of defendant on behalf of corporation, where said case alleged that plaintiff had plundered defendant’s corporate assets for his own purposes. Instant $10,000 purchase of all of defendant’s assets (including corporation's lawsuit against plaintiff) was not one made in good faith, where: (1) purchase price was seemingly too low where record showed that third-party’s/defendant’s action against plaintiff was worth at least $150,000 that plaintiff had paid to obtain rights to lawsuit against defendant; and (2) said purchase by plaintiff improperly placed plaintiff’s claim to defendant’s corporate assets ahead of other creditors under circumstances where plaintiff was alleged in state court action to have financially destroyed defendant.

Bankruptcy Ct. did not err in finding in instant Chapter 7 bankruptcy proceeding that $589,638.10 default judgment was not dischargeable, where said judgment had been previously entered against debtor in lawsuit alleging that debtor had violated terms of settlement in underlying breach of contract and theft by contractor claim. While debtor argued that his conduct, in failing to pay creditor with money that should have been held in trust for creditor, was result of innocent mistake, Bankruptcy Ct. could properly believe that debtor, with 40 years of experience in building industry, knew of obligation to create trust account for instant creditor, but instead used money to pay other creditors. Moreover, instant debt was not dischargeable, where record showed that debtor’s conduct was reckless in that: (1) debtor admitted to making no effort to apprise himself of Wisconsin statute requiring creation of instant trust account until 18 months after being initially sued for payment of said moneys; and (2) debtor was aware that he was making false statements to purchasers of his properties that all subcontractors such as instant creditor had been paid in full.