Jeffrey Klobucar, Bassford Remele, P.A.
Contributing Editor: Karl Johnson, Hellmuth & Johnson, PLLC
BAP___Lariat_Companies__Inc__v__Wigley.pdf
The Bankruptcy Appellate Panel vacated the bankruptcy court’s order allowing a creditor’s claim and remanded for entry of an order disallowing the claim because the creditor’s state court judgment for fraudulent transfer was not enforceable after the transferor satisfied the predicate claim in the transferor’s bankruptcy case and an unenforceable claim is not allowed under § 502(b)(1). Lariat Companies, Inc. v. Wigley (In re Wigley), 593 B.R. 327 (B.A.P. 8th Cir. Nov. 9, 2018).
The creditor had two prepetition state court judgments, one against the debtor’s spouse and his company for damages under a commercial lease and guaranty, and the second against the debtor for fraudulent transfers from the spouse to the debtor. In the spouse’s chapter 11 case, the judgment on the guaranty was capped at $553,271 by operation of § 502(b)(6). Pursuant to the terms of his confirmed plan of reorganization, the spouse paid the full amount of the capped claim plus interest.
After the debtor filed her own petition under chapter 11, the creditor filed a proof of claim for the full amount of the fraudulent transfer judgment plus accrued interest. The bankruptcy court allowed the claim based on § 524(e), which states that “discharge of a debt of the debtor does not affect the liability of any other entity on, or the property of any other entity for, such debt,” but capped the claim at $308,805 pursuant to § 502(b)(6) because the fraudulent transfer judgment, like the guaranty judgment, was ultimately based on the commercial lease.
On appeal, the BAP noted that the Minnesota Uniform Fraudulent Transfer Act (n/k/a the Minnesota Uniform Voidable Transactions act) does not create a new claim, but rather grants an alternate remedy for protecting preexisting creditor rights against the transferor. Noting that Minn. Stat. § 513.48(b)(1) limits a creditor’s recovery to “the value of the asset transferred . . . or the amount necessary to satisfy the creditor’s claim, whichever is less,” the BAP held that the fraudulent transfer judgment is not enforceable if the predicate claim of the creditor (in this case, the guaranty judgment against the spouse) has been satisfied. Because the predicate claim was satisfied when the spouse paid the full allowed amount of the predicate claim, there was no enforceable claim against the debtor.
After the BAP issued its opinion, the creditor filed a motion for rehearing and alternative motion for stay of mandate. The BAP denied both motions. Lariat Companies, Inc. v. Wigley (In re Wigley), 592 B.R. 339 (B.A.P. 8th Cir. Nov. 20, 2018).