IN RE: WIGLEY

Case Type:
Consumer
Case Status:
Reversed and Remanded
Citation:
18-6004 (8th Circuit, Nov 09,2018) Published
Tag(s):
Ruling:
The bankruptcy court erred by allowing a judgment creditor's claim that arose from a judgment under the Minnesota Uniform Fraudulent Transfer Act when the claim had been satisfied by a payment by the debtor's spouse pursuant to the spouse's chapter 11 plan. The BAP thus remanded the case with the instruction that the judgment creditor's claim should be disallowed in its entirety,
Procedural context:
The bankruptcy court allowed a judgment creditor's claim, as capped in accordance with 11 U.S.C. § 502(b)(6), for a judgment that had been entered against the debtor and her spouse, jointly and severally, in a fraudulent transfer action under the Minnesota Uniform Fraudulent Transfer Act. Previously, the debtor's spouse had filed a chapter 11 petition, and had paid the allowed amount of the judgment creditor's claim pursuant to the plan. The bankruptcy court ruled that the use of 11 U.S.C. § 502(b)(6) to cap the judgment creditor's claim in the debtor's spouse's chapter 11 case did not benefit the debtor in her chapter 11 case, and that the judgment was still not satisfied. The debtor appealed.
Facts:
The debtor, Barbara A. Wigley (Barbara), filed a chapter 11 petition after her spouse (Spouse (the spouse's name is never identified in the opinion)) filed a chapter 11 case after a business failure. Spouse previously owned a restaurant. Spouse, but not Barbara, guaranteed the restaurant's obligations on its lease. The restaurant failed, and the landlord (Lariat) sued the restaurant and Spouse. The trial court entered judgment against Spouse in the amount of $2.2MM. Lariat and two other creditors filed an involuntary chapter 7 petition against Spouse. The case was dismissed, and the same three creditors filed a state court lawsuit to avoid certain allegedly fraudulent transfers from Spouse to Barbara. The trial court held Barbara and Spouse jointly and severally liable for approximately $800,000. Spouse then filed a chapter 11 petition. Lariat filed a proof of claim for more than $1.7MM, which include $817,761 for the fraudulent transfer judgment. Spouse objected. The bankruptcy court reduced and allowed the claim in the amount of $553,271.00 under 11 U.S.C. § 502(b)(6). Spouse's chapter 11 plan was confirmed. Spouse then paid Lariat the full amount of Lariat's allowed claim. Spouse received a discharge. Barbara then filed her chapter 11 petition. Lariat filed a proof of claim for approximately $1MM. This amount is based on the state-court fraudulent transfer judgment, including interest. Debtor objected, arguing that Spouse had satisfied the judgment through the payment to Lariat following confirmation of his plan.
Judge(s):
Schermer, Nail, Shodeen

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