951 F.3d 967
8th Cir.2020Background
- Lariat obtained a lease-guaranty judgment against Michael R. Wigley. A Minnesota court later found Barbara A. Wigley (his wife) jointly and severally liable under the Minnesota Uniform Fraudulent Transfer Act (MUFTA) for transfers from Michael to Barbara.
- Michael filed bankruptcy in 2014; Lariat’s claim against him was limited by 11 U.S.C. § 502(b)(6). Michael paid the capped amount and received a discharge in 2016.
- The Minnesota court ruled Michael’s discharge did not retroactively extinguish the MUFTA fraudulent-transfer judgment against Barbara.
- Barbara filed bankruptcy; the bankruptcy court allowed Lariat’s claim against her but applied the § 502(b)(6) cap, with the parties stipulating the capped amount ($308,805).
- The Bankruptcy Appellate Panel reversed, holding that because Michael paid his capped claim, Lariat’s predicate claim was satisfied and no claim remained against Barbara. The Eighth Circuit reversed the BAP and affirmed the bankruptcy court.
- Holding on remand: Michael’s discharge does not extinguish Barbara’s liability under § 524(e), but Lariat’s claim against Barbara is capped under § 502(b)(6) at $308,805 (plus applicable interest).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Michael Wigley’s bankruptcy discharge extinguished Lariat’s MUFTA-based claim against Barbara Wigley | Lariat: discharge of Michael does not affect Barbara’s independent liability | Barbara: Michael’s payment of the capped claim and discharge satisfied the predicate claim, extinguishing Barbara’s liability | Reversed BAP: § 524(e) preserves liability of other entities; Michael’s discharge did not extinguish Barbara’s liability |
| Whether 11 U.S.C. § 502(b)(6) cap applies to Lariat’s claim against Barbara (a fraudulent transferee) | Lariat: claim arises from the fraudulent transfer, not from lease termination, so § 502(b)(6) does not apply | Wigleys: claim stems from the lease-guaranty breach and thus is a lessor’s claim subject to the cap | Court: § 502(b)(6) applies because the lessor’s claim "resulted from the termination of a lease," so the cap limits recovery |
Key Cases Cited
- Butner v. United States, 440 U.S. 48 (U.S. 1979) (state law defines property interests in bankruptcy)
- Zavelo v. Reeves, 227 U.S. 625 (U.S. 1913) (bankruptcy discharge destroys the remedy, not the underlying indebtedness)
- Deford v. Soo Line R. Co., 867 F.2d 1080 (8th Cir. 1989) (MUFTA provides an alternate remedy to protect preexisting creditor rights)
- In re Modern Textile, Inc., 900 F.2d 1184 (8th Cir. 1990) (non-debtor guarantor’s liability can survive debtor’s lease rejection)
- Kathy B. Enterprises, Inc. v. United States, 779 F.2d 1413 (9th Cir. 1986) (fraudulent transferee liability may survive discharge of the transferor)
- In re Arden, 176 F.3d 1226 (9th Cir. 1999) (§502(b)(6) applies to lessor’s claims regardless of the defendant’s status)