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 Contributing Editor: Charles E. Nelson, Ballard Spahr, LLP
Judge_Fisher____In_re_Wigley.pdf

In In re Wigley, Court File No. 16-43707, the bankruptcy court ruled that lease damage claims of a real property lessor are limited by § 502(b)(6) as to both the guarantor of the lease and the transferee of a fraudulent transfer from the guarantor.

The debtor’s husband as guarantor for his restaurant Baja Sol’s lease, owed the landlord $2,238,000 pursuant to a state court judgment for past-due rent and future accruing rent. After commencement of the state court proceeding, but prior to entry of the judgment, the husband transferred assets to his wife, the debtor.  The landlord, among other creditors, sued the husband and the debtor in state court under the Minnesota Uniform Fraudulent Transfer Act and was granted a judgment against the husband and the debtor, jointly and severally, in the amount of $795,098 for the fraudulent transfer. The husband filed a chapter 11 bankruptcy petition. The landlord filed a claim in the husband’s bankruptcy case in an amount exceeding $1,000,000, but the landlord’s claim was limited by § 502(b)(6).

The landlord then filed a similar claim in the debtor’s separate chapter 11 bankruptcy case seeking damages from the termination of the Baja Sol lease from the debtor pursuant to the fraudulent transfer judgment. The debtor moved to completely disallow the landlord’s claim arguing, among other things, that because § 502(b)(6) applied in the husband’s case, and the husband paid the capped claim through his confirmed plan, such payment extinguished any claim the landlord could have had against the debtor on the lease damages under the Code.  The landlord responded that § 502(b)(6) does not apply to the debtor because the claim against the debtor is based on the fraudulent transfer judgment— not based on the lease damages—and that no part of the landlord’s claim against the debtor was satisfied by the husband’s bankruptcy estate. 

The court disagreed with both arguments and held that § 502(b)(6), the landlord cap, was applicable in both the husband’s bankruptcy case, and in the debtor’s case because the damages sought in both cases were attributable to the lease damages--including the fraudulent transfer judgment against the debtor that wouldn’t have been entered but for the lease damages.  

The court first held that pursuant to 11 U.S.C. § 524(e), the “discharge of a debt of the debtor does not affect the liability of any other entity on, or the property of any entity, for such debt.” Ultimately, the court found that § 502(b)(6) did apply in the debtor’s bankruptcy case because the fraudulent transfer judgment was derivative of the lease, and related back to the landlord’s claim as a lessor for damages that resulted from a terminated lease.  The parties had already stipulated to the amount if so capped, and the court held that the landlord’s claim was limited to $308,805 pursuant to § 502(b)(6).