Michael D. Schwartz v. Barclays Capital, Incorporated
799 F.3d 760
7th Cir.2015Background
- Michael Schwartz, hired as an executive by Barclays Capital, received a $400,000 loan forgiven in equal installments over seven years; he was fired before the second anniversary, making roughly $340,000 immediately due.
- An arbitrator awarded Barclays $568,568 (debt, attorneys’ fees, and interest); Schwartz and his wife then filed a Chapter 7 bankruptcy petition seeking discharge.
- Between the arbitration award and the bankruptcy filing the Schwartzes made significant nonessential consumer expenditures (e.g., Disney World, private school tuition, Range Rover payments) and incurred legal fees.
- Barclays moved to dismiss the bankruptcy under 11 U.S.C. § 707, principally § 707(b) (abuse for consumer-debt filers) but the bankruptcy court dismissed under § 707(a) "for cause."
- The bankruptcy court found the Schwartzes deliberately spent income and depleted assets instead of paying creditors; it dismissed the petition and retained jurisdiction to rule on trustee’s fees.
- The Schwartzes appealed directly to the Seventh Circuit after a joint certification; minor filing-signature errors by Mrs. Schwartz were excused as harmless.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §707(a) "for cause" is limited to procedural grounds | Schwartzes: §707(a)’s listed subsections are procedural; "for cause" limited to those | Barclays: "For cause" is broad and can include substantive misconduct like refusal to repay | Held: "For cause" is not limited to procedural grounds; may encompass unjustified refusal to repay debts |
| Whether the Schwartzes’ post-award expenditures justify dismissal under §707(a) | Schwartzes: expenditures did not show bad faith or justify denial of discharge | Barclays: excessive voluntary spending and failure to apply resources to debts show cause to dismiss | Held: Dismissal affirmed — deliberate depletion of assets and failure to pay creditors constituted cause |
| Role of "bad faith" as the legal standard for dismissal under §707(a) | Schwartzes: bankruptcy judge erred by not finding "bad faith" (or by emphasizing it) | Barclays: conduct need not be labeled "bad faith" if it effectively avoids repayment | Held: Court declined to require the "bad faith" label; unjustified refusal to pay is sufficient cause |
| Jurisdiction/timeliness of direct appeal to Seventh Circuit | Schwartzes: late procedural irregularities excused; joint certification allows direct appeal | Barclays: procedural deadlines control appealability | Held: Direct appeal proper — parties jointly certified under §158(d)(2)(A); signature omissions harmless |
Key Cases Cited
- Harris v. Viegelahn, 135 S. Ct. 1829 (2015) (describing purpose of bankruptcy discharge to give a fresh start)
- Peterson v. Somers Dublin Ltd., 729 F.3d 741 (7th Cir. 2013) (standards for direct appeals to circuit via joint certification)
- In re Piazza, 719 F.3d 1253 (11th Cir. 2013) (allowing dismissal for bad-faith conduct under §707)
- In re Zick, 931 F.2d 1124 (6th Cir. 1991) (identifying egregious conduct—lavish expenditures and intent to avoid large debt—as grounds for dismissal)
- In re Huckfeldt, 39 F.3d 829 (8th Cir. 1994) (recognizing refusal to pay when able may warrant dismissal)