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The Security National Bank of Sioux City, IA v. Vera T. Welte Testamentary Trust

Summarizing by Amir Shachmurove

Generation Capital I, LLC v. Fliss (In re Fliss)

Case Type:
Business
Case Status:
Affirmed
Citation:
No. 22-1424 (7th Circuit, Nov 27,2023) Published
Tag(s):
Ruling:
The U.S. Court of Appeals for the Seventh Circuit held a bankruptcy court did not err in concluding the Rooker-Feldman doctrine and the doctrines of res judicata and collateral estoppel did not bar a debtor from objecting to a creditor's claim derived from a state court consent judgment. In part, the circuit court explained a consent judgment is "treated differently under res judicata and collateral estoppel doctrines," is "not entitled to collateral estoppel effect" as it isn't a decision on the merits, and is preclusive for res judicata only as to matters settled by that judgment.
Procedural context:
After the bankruptcy court granted the debtor's objection to the creditor's claim, and confirmed the debtor's chapter 13 plan, the creditor appealed the rulings to the U.S. District Court for the Northern District of Illinois. The district court affirmed the bankruptcy court's orders and the creditor filed a subsequent appeal to the Seventh Circuit.
Facts:
Debtor John Fliss jointly owned two companies with Larry Wojciak and Mark Barr. The companies took out a $200,000 loan with a bank, which the debtor, Wojciak, Barr, and a trust all guaranteed, After the businesses failed and defaulted on the loan, the bank filed a state court complaint. The state court then entered a consent judgment of over $208,000, holding the four guarantors jointly and severally liable. Wojciak, via entities he owned and operated, acquired the note and the judgment from the bank for $240,000. He then caused the entity taking ownership of the note and the judgment, Generation Capital I, to intervene in the state court lawsuit and pursue a supplemental proceeding to satisfy the judgment against the debtor. The state court rejected the debtor's argument that the debt was extinguished when Wojciak acquired it as Wojciak, himself, did not transfer any funds to the bank. Shortly after this ruling, the debtor filed a chapter 13 bankruptcy case in the U.S. Bankruptcy Court for the Northern District of Illinois. Generation Capital I filed a $360,000 claim in the debtor's bankruptcy case based on the state court judgment and accrued interest. The bankruptcy court granted the debtor's objection to the claim and disallowed it in its entirety. The court held Generation Capital I was an alter ego of Wojciak and, when it acquired the state court judgment, the merger doctrine extinguished the debt. The court also concluded the Rooker-Feldman doctrine did not apply and issue and claim preclusion (collateral estoppel and res judicata) did not bar the bankruptcy court from deciding whether Generation Capital I's claim should be disallowed. After disallowing the claim, the bankruptcy court confirmed the debtor's plan. Generation Capital I appealed.
Judge(s):
Flaum, Kirsch, and Jackson-Akiwumi

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