- Case Type:
- Case Status:
- 16-4072 (7th Circuit, Aug 18,2017) Not Published
- A settlement agreement is not a judicial decision and thus, does not give rise to issue preclusion and defending a case on the basis of a release is an affirmative defense that must be raised in a party’s responsive pleading or the defense is waived.
- Procedural context:
- The district court held that a settlement agreement between a bankruptcy trustee and the debtor was not a judicial decision and thus, issue preclusion did not prevent plaintiff from seeking to execute on 440 acres of land fraudulently conveyed by debtor. The 7th Circuit affirmed stating that debtor and his son, who concocted a fraudulent transfer, tried to stiff debtor’s creditors, played games with the bankruptcy court in order to get a discharge without keeping the promise on which the discharge depended, and then thumbed their noses at the proceeding to enforce the reaffirmation agreement, had run out of chances. The standard of review was not stated.
- Plaintiff sold seed to Rose Seeding & Sodding, Inc., a company owned principally by debtor, and failed to pay plaintiff. Plaintiff sued and while the case was proceeding, debtor gave 440 acres of land (the “Land”) to his son’s company, MMR Farms LLC. Debtor filed bankruptcy and plaintiff commenced an adversary proceeding and asked that the Land be brought into the estate under § 548. The trustee made a similar request and settled with the debtor for a $100,000 payment. Plaintiff sought to have debtor’s discharged denied under § 727(a)(2) because he transferred the Land with the intent to defeat a plaintiff’s recovery. Discharge was denied and plaintiff and debtor entered into a new settlement pursuant to which, debtor reaffirmed his debt and promised to pay $15,000 immediately, which debtor paid, and debtor received a discharge. The agreement also called for an additional $85,000 payment, which debtor didn’t pay and thus, under the settlement agreement, plaintiff was entitled to a judgment of $300,000 less any payments. Plaintiff brought a new action in the district court and got a default judgment in the amount of $285,000 and relying on Indiana law, attempted to execute on the Land. The district court rejected the argument of the debtor and his son that issue preclusion prevented plaintiff’s new lawsuit and MMR appealed. On appeal, MMR also argued that the fraudulent conveyance action had been released. At oral argument, MMR was unable to produce a written release and even conceded that there had been no release. Four days later, counsel wrote the 7th Circuit saying counsel had found a release after a further search of his file. But, since the defense of release had not been raised in the responsive pleading, the defense had been waived.
- Easterbrook, Rovner, Sykes (Easterbrook)
3263 in the system
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