Lariat Co. Inc. v. Wigley (In re Wigley)

Lariat Companies, Inc. v. Wigley (In re Wigley), No. 14-6043 (BAP 8th Cir. June 19, 2015)
The BAP for the 8th Circuit affirmed in part, reversed in part, and remanded to the bankruptcy court (D. Minn.-Minneapolis) after bankruptcy court sustained debtor's objection and capped creditor's lease rejection claim, Creditor appealed, arguing that bankruptcy court's capped amount was too low under 502(b)(6). BAP found that 502(b)(6) cap on lease rejection damages only applied to damages that only arose based on rejection. Thus, damages that would have been recoverable if lease wasn't terminated were not subject to the 502(b)(6) rejection cap. BAP found that 502(b)(6) did not apply to reduce creditor's claim amounts unrelated to rejection, including pre-rejection rent and CAM, attorney's fees, interests, and costs. BAP reversed bankruptcy court's finding that pre-termination unpaid rent, CAM, and late fees through eviction date were "rejection damages" subject to 502(b)(6) cap. BAP agreed with bankruptcy court finding that future rent claim, and interest theron, following eviction was subject to 502(b)(6) cap. BAP reversed bankruptcy court finding that attorney fees, costs, disbursements awarded to district court in state court action as pre-eviction lease damages, plus pre-petition interest thereon, were rejection damages subject to 502(b)(6) cap. BAP remanded question of whether additional attorney fees, costs, and disbursements were recoverable under the lease, whether they had been paid by a separate debtor, and whether they were rejection damages subject to the 502(b)(6) cap. BAP agreed with bankruptcy court finding that claim amounts related to debtor's fraudulent transfers were duplicative of creditor's claim against a co-debtor, and thus, not allowable. The BAP also found that the parties' disagreement regarding the actual amount allowed by the bankruptcy court could not be resolved by the record, and remanded to the bankruptcy court to either clarify or correct the math.
Procedural context:
Chapter 11 debtor objected to creditor's proof of claim. Bankruptcy court sustained objection, but debtor appealed to BAP for 8th Circuit.
Creditor leased commercial real property for restaurant to "Baja Sol," with 10 year lease guaranteed by "Debtor." Baja Sol defaulted, and Creditor evicted tenant after two years. Creditor sued Baja Sol and Debtor for damages and obtained judgment for $2.2 million, plus pre-and post-judgment interest, and attorney's fees. Baja Sol and Debtor appealed and state court affirmed. Further litigation ensued, and Creditor and two other creditors commenced involuntary chapter 7 petition against Debtor. The parties agreed to dismiss that case in March 2012. Creditors also commenced a state court suit against Debtor's wife asserting fraudulent transfer claims. Following dismissal of involuntary bankruptcy, plaintiff/creditors added Debtor as co-defendant to fraudulent transfer suit. Following trial, and after other plaintiff-creditors settled, state court entered judgment in favor of Creditor joint and severally against Debtor and his wife for fraudulent transfers totaling $795,000, plus interest, costs, and disbursements. Debtor subsequently sued Creditor in state court. State court dismissed suit; Debtor appealed. In 2014, Baja Sol filed bankruptcy and sued Creditor to enjoin Creditor from attempting to enforce judgment against Debtor. Bankruptcy court dismissed suit, and Baja Sol's bankruptcy was subsequently dismissed. Debtor filed his own chapter 11 bankruptcy case, and Creditor filed proof of claim for $1.7+ million. Debtor objected to Creditor's claim asserting that claim exceeded cap on rejection damages under 502(b)(6), and portion of claim related to fraudulent transfer judgment were duplicative of other portions of the claim.
Federman, Nail, Shodeen

ABI Membership is required to access the full summary. Please Sign In using your ABI Member credentials. Not a Member yet? Join ABI now - it is absolutely worth it!

About us in numbers

3355 in the system

3233 Summarized

2 Being Processed