Bankruptcy – Unsettled Trustee Claims

Listen to this article

7^th Circuit Court of Appeals

Case Name: Caudill Seed & Warehouse Co., Inc., v. Mark D. Rose, et al.

Case No.: 16-4072

Officials: EASTERBROOK, ROVNER, and SYKES, Circuit Judges.

Focus: Bankruptcy – Unsettled Trustee Claims

MMR has appealed; Rose has not. (Matt Rose also purports to appeal, but he was not a party in the district court.) We agree with the district court’s conclusion. As the American Law Institute puts it: “When an issue of fact or law is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, the determination is conclusive in a subsequent action between the parties, whether on the same or a different claim.” Restatement (Second) of Judgments §27 (1982) (blackletter text). Whether the transfer of the 440 acres was a fraudulent conveyance was not actually litigated and decided in the bankruptcy. Instead the Trustee’s claim was settled. There was no judicial decision other than one approving the settlement—which the judge did on the ground that creditors were $100,000 to the good. The decision to approve the settlement does not resolve the question whether a fraudulent conveyance occurred. The closest the bankruptcy court came to resolving the subject was the decision in Caudill Seed’s favor denying Rose a discharge under §727(a)(2).

Release is an affirmative defense. Fed. R. Civ. P. 8(c)(1). Affirmative defenses must be raised in a party’s responsive pleading. Rose and MMR did not present the defense of release to the district court in this enforcement proceeding; their only defense was issue preclusion. So a potential defense of release was forfeited before the proceedings reached this court. Rose and MMR, who concocted a fraudulent transfer, tried to stiff Rose’s creditors, played games with the bankruptcy court in order to get a discharge without keeping the promise on which the discharge depended, and then thumbed their noses at the proceeding to enforce the reaffirmation agreement, have run out of chances.

Affirmed

Full Text

Attorney Derek A. Hawkins is the managing partner at Hawkins Law Offices LLC, where he heads up the firm’s startup law practice. He specializes in business formation, corporate governance, intellectual property protection, private equity and venture capital funding and mergers & acquisitions. Check out the website at www.hawkins-lawoffices.com or contact them at 262-737-8825.