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Statutory Interpretation – Time-barred

By: Derek Hawkins//November 28, 2018//

Statutory Interpretation – Time-barred

By: Derek Hawkins//November 28, 2018//

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WI Court of Appeals – District I

Case Name: Official Committee of Unsecured Creditors of Great Lakes Quick Lube LP V. John W. Theisen, et al.

Case No.: 2018AP333

Officials: Kessler, P.J., Brennan and Dugan, JJ.

Focus: Statutory Interpretation – Time-barred

This is an appeal of an order that granted summary judgment, and dismissed as time-barred a WIS. STAT. § 242.04(1)(a) (2015-16) claim alleging a fraudulent transfer. WISCONSIN STAT. § 893.425 bars “an action with respect to a fraudulent transfer or obligation under ch. 242” that is not commenced within one year after claimants “could reasonably have … discovered” it. This case requires us to interpret what the legislature intended by § 893.425 and to apply the statute to a motion for summary judgment. The plaintiff argues that the statute creates a discovery-of-the-fraud rule—where the clock starts to run when the fraudulent nature of the transfer could reasonably have been discovered—and that the statute had not run on creditors’ state law claims at the relevant point. The defendants argue that the statute creates a discovery-of-the-transfer rule—where the clock starts to run when the transfer could reasonably have been discovered—but that regardless of which rule is applied, the statute had run, and creditors’ state law claims had expired.

The specific question before us is whether summary judgment was properly granted to the Individual Sellers on the grounds that no individual creditor had a viable state law claim as of the date of the bankruptcy petition filing because the statute of limitations on any such claims had run. To be entitled to summary judgment, the moving party must show that all of the creditors in question could reasonably have discovered the fraudulent nature of the transfer prior to April 2, 2011, such that each creditor’s state law claim was extinguished by the date the bankruptcy petition was filed. 2 Conversely, to survive summary judgment, the Committee must show that at least one creditor (a “triggering creditor”) had a valid state law claim on the date of the bankruptcy filing, which means here that at least one creditor could not reasonably have discovered the fraudulent nature of the transfer by April 2, 2011. As to such a creditor, the statute of limitations would not have run on its claim by the time of the bankruptcy petition filing, and that creditor would have had a valid state law claim at the time of the filing and could thus pursue it.

We conclude that the trial court erred in granting summary judgment to the Individual Sellers. First, it misconstrued the statute of limitations test to be one based on discovery of the transfer, as opposed to discovery of the fraudulent nature of the transfer. Second, it erred in concluding that the moving parties (the Individual Sellers) had shown that not one creditor had a timely state law claim as of the date of the bankruptcy filing. The trial court concluded that by April 2, 2011, at the latest, the discovery period had been triggered because by that point, “a reasonable creditor exercising its duty to reasonably inquire would have discovered these notes.” It held that under either standard, the statute had run and the claims had expired. The trial court failed to apply the correct legal standard because its analysis did not apply the “triggering creditor” rule from bankruptcy law that governs this case. We therefore reverse the order for summary judgment and remand for further proceedings.

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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.

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