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In re Wigley

United States Bankruptcy Appellate Panel of the Eighth Circuit

September 21, 2016

In re: Michael Robert Wigley Debtor
v.
Michael Robert Wigley Debtor - Appellee Barbara Wigley Interested party - Appellant Lariat Companies, Inc. Creditor - Appellee

          Submitted: August 12, 2016

         Appeal from United States Bankruptcy Court for the District of Minnesota - Minneapolis.

          Before SCHERMER, NAIL and SHODEEN, Bankruptcy Judges.

          SCHERMER, BANKRUPTCY JUDGE.

         Barbara Wigley appeals from the bankruptcy court's[1]: (1) November 18, 2015 order denying confirmation of Robert Wigley's (Debtor) second modified Chapter 11 plan, establishing deadlines for the Debtor to file a modified plan, and obtain confirmation of it, and denying Lariat Companies, Inc.'s (Lariat) request to dismiss the Debtor's Chapter 11 case or to convert the case to Chapter 7;[2] (2) February 18, 2016 order confirming the Debtor's fourth modified Chapter 11 plan; and (3) order granting relief from the automatic stay to allow Lariat to exercise its rights and remedies against Barbara Wigley in state court litigation. For the reasons that follow, we dismiss this appeal based on lack of standing. To the extent that Barbara Wigley has standing to bring this appeal, we have jurisdiction over this appeal from the final orders of the bankruptcy court and we affirm.[3] See 28 U.S.C. § 158(b).

         ISSUES

         The threshold issue is whether Barbara Wigley has standing to bring this appeal. We hold that she does not and we dismiss this appeal. To the extent that Barbara Wigley has standing to bring this appeal, we address the two remaining issues on appeal, whether the bankruptcy court erred when it: (1) denied approval of a settlement in the Debtor's Chapter 11 plan, resulting in the denial of confirmation of the plan and confirmation of a later plan with a provision stating that the Debtor would not pursue any avoidance actions against his wife; and (2) entered the stay relief order. We find no error by the bankruptcy court.

         BACKGROUND

         Extensive litigation preceded the filing of the Debtor's Chapter 11 bankruptcy case, including a lawsuit holding the Debtor liable as the guarantor of a lessee's obligations under a real property lease and related proceedings, an involuntary Chapter 7 bankruptcy of the Debtor, a Chapter 11 bankruptcy of the lessee, and fraudulent transfer proceedings against the Debtor and his wife. The dispute in this appeal focuses on the fraudulent transfer action. As background, we outline the proceedings relating to the guarantee judgment against the Debtor.

         Lariat, the lessor under a lease for which the Debtor personally guaranteed the obligations of the lessee (an LLC that he had formed) obtained a state court judgment exceeding $2.2 million against the Debtor and the LLC. Non-bankruptcy attempts by the Debtor to avoid collection of that judgment proved unsuccessful. The Debtor unsuccessfully brought a state court lawsuit seeking relief from the guarantee judgement. The Debtor's lawsuit against Lariat was dismissed but the Debtor appealed the dismissal order, which remains pending due to the Debtor's bankruptcy. A separate attempt by the Debtor in the LLC's bankruptcy case to enjoin Lariat from enforcing the guarantee judgment was also unsuccessful. Ultimately, Lariat obtained a state court order (which was stayed by the Debtor's Chapter 11 filing) allowing it to liquidate the Debtor's non-exempt assets to satisfy the guarantee judgment.

         Lariat (together with other creditors) commenced a pre-petition fraudulent transfer action against the Debtor's wife in state court, and later added the Debtor as a co-defendant. Ultimately, the Debtor and his wife were held jointly and severally liable to Lariat for fraudulent transfers totaling approximately $800, 000. The Debtor and his wife later moved in the state court for amended findings in that action. On the petition date of the Debtor's Chapter 11 case, the state court had not ruled on the motion for amended findings and the Debtor believed that the automatic stay applied to the fraudulent transfer proceeding.

         The Debtor filed his bankruptcy petition on February 10, 2014. On his schedules, the Debtor listed assets exceeding the amount of his liabilities. Lariat's guarantee judgment was capped under Bankruptcy Code § 502(b)(6).[4] The Debtor filed his Second Modified Plan of Reorganization (Second Modified Plan), which proposed to release his wife, Barbara Wigley, from all claims held against her by the Debtor or the estate (eliminating the fraudulent transfer judgment against her) in exchange for her settlement payment (Settlement). Specifically, the Second Modified Plan stated:

I. DEFINED TERMS
"Barbara Wigley Settlement Payment" means the sum of $350, 000.00, to be paid pursuant to Section 4.3(A) of the Plan.
4.3. Plan Performance
A. Plan Funding.
In exchange for the release provided for in Section 4.4 of the Plan, on or before the Effective Date, Barbara Wigley shall remit the Barbara Wigley Settlement Payment to the Debtor, and the Debtor shall distribute one hundred percent of such funds to the holders of Class 1 [general unsecured] claims pursuant to the terms of the Plan. The Debtor shall be responsible for payment of all other amounts due and payable under the Plan.
4.4. Settlement and Release of Claims Against Barbara Wigley
Confirmation of the Plan shall constitute approval of a settlement agreement under which all claims that the Debtor or any other representative of the estate could have asserted against Barbara Wigley as of the Confirmation Date, including but not limited to Avoidance Actions, shall be released in exchange for payment of the Barbara Wigley Settlement Payment, which shall be due no later than the Effective Date. The settlement and release provided for herein shall be binding on all ...

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