533 B.R. 267
8th Cir. BAP2015Background
- Lariat leased commercial premises to Baja Sol; Debtor personally guaranteed Baja Sol’s lease obligations. Baja Sol defaulted and was evicted in July 2010.
- Minnesota state court awarded Lariat over $2.2M against Baja Sol and Debtor; that judgment was affirmed on appeal.
- Separate state-court litigation later found Debtor and his wife jointly liable for fraudulent transfers totaling $795,098, and awarded Lariat that sum plus interest and costs.
- Debtor filed chapter 11 in February 2014; Lariat filed an amended proof of claim for $1,610,787.00 asserting amounts from (a) unpaid pre-eviction charges, (b) future rents under 11 U.S.C. § 502(b)(6)(A), (c) attorney fees/costs, and (d) fraudulent-transfer liability.
- Debtor objected, arguing (1) § 502(b)(6) caps Lariat’s lessor claim, and (2) the fraudulent-transfer judgment duplicates the lease-based claim. Bankruptcy court capped Lariat’s claim at $445,272.93; Lariat appealed.
Issues
| Issue | Plaintiff's Argument (Lariat) | Defendant's Argument (Wigley) | Held |
|---|---|---|---|
| Whether unpaid pre-eviction charges, late fees, eviction fee, and interest are subject to § 502(b)(6) cap | These sums arise from landlord damages tied to lease termination and thus are subject to cap | These amounts accrued pre-termination and are not damages “resulting from” termination, so not capped | Court: Not subject to § 502(b)(6) — pre-termination charges and their interest are allowable outside the cap |
| Whether interest on the future-rent component is subject to § 502(b)(6) cap | Interest on the future-rent award is part of landlord’s damages | Interest on future rents arises from termination (future-rent claim) and thus is capped | Court: Interest on future rents resulted from termination and is subject to § 502(b)(6)(A) cap |
| Whether attorney fees, costs, and disbursements are subject to § 502(b)(6) cap | All attorney fees/costs arise from landlord damages and fall within the cap | At least the attorney fees/costs awarded in state-court for pre-termination claims do not result from termination and are not capped; other fees need separate entitlement analysis | Court: Fees awarded in state-court for pre-termination claims are not subject to the cap; bankruptcy court must on remand determine entitlement to remaining requested fees/costs and then whether those result from termination |
| Whether state-court fraudulent-transfer judgment creates a separate claim recoverable in bankruptcy (and thus increases Lariat’s claim) | Fraudulent-transfer judgment is a separate claim and does not duplicate lease-based damages | Minnesota UFTA provides an alternate remedy for preexisting creditor rights; fraudulent-transfer recovery duplicates underlying contract remedies absent proof of distinct additional damages | Court: Fraudulent-transfer judgment duplicates the earlier lease-based liability; counts are duplicative and cannot increase allowed claim |
Key Cases Cited
- Pierce v. Collection Assocs., Inc. v. (In re Pierce), 779 F.3d 814 (8th Cir.) (standards of review for bankruptcy legal conclusions)
- Saddleback Valley Community Church v. El Toro Materials Co. (In re El Toro Materials Co.), 504 F.3d 978 (9th Cir.) (test whether damages result from lease rejection: would claim exist if lease were assumed)
- Deford v. Soo Line R. Co., 867 F.2d 1080 (8th Cir.) (Minnesota UFTA provides an alternate remedy, not a substantive new claim)
- McClellan v. Cantrell, 217 F.3d 890 (7th Cir.) (fraud can create nondischargeable new debt only to extent of value conveyed by fraud)
- JCA Partnership v. Wenzel Plumbing & Heating, Inc., 978 F.2d 1056 (8th Cir.) (election-of-remedies analysis distinguishing separate wrongs in fraudulent conveyance vs contract claims)