586 B.R. 458
Bankr. E.D. Wis.2018Background
- University of Wisconsin Oshkosh Chancellor and Vice Chancellor signed memoranda of understanding (MOUs) and comfort letters promising the University would cover deficits and debt service for Foundation construction projects and two biodigester facilities.
- Foundation filed Chapter 11 adversary proceeding seeking turnover under 11 U.S.C. § 542 to enforce those promises as property of the bankruptcy estate; complaint pleads breach of contract, declaratory relief, restitution, promissory estoppel, unjust enrichment, and related claims.
- State (through Board of Regents) moved to dismiss and later for summary judgment, arguing the MOUs create "public debt" invalid under the Wisconsin Constitution/statutory procedures and that sovereign immunity bars the suit.
- Court found the MOUs meet Wisconsin's statutory definition of "public debt" and are validated by Wis. Stat. § 18.14 despite noncompliance with Chapter 18 procedures.
- Court rejected the State's procedural-waiver arguments on sovereign immunity and held Katz's in‑rem rationale permits turnover actions against states in bankruptcy, so Eleventh Amendment immunity does not bar this turnover action.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are the MOUs enforceable as public debt under Wisconsin law? | MOUs create unconditional, ascertainable obligations; thus they are property of the estate and enforceable. | MOUs are public debt that must comply with Chapter 18 procedures; absent compliance they are void under the Wisconsin Constitution. | MOUs fit Wis. Stat. § 18.01(4) definition of public debt and are validated by § 18.14 despite procedural defects. |
| Does Wis. Stat. § 18.14 operate only as a transitional savings clause? | Foundation: § 18.14 is a permanent savings provision validating post‑1969 public debt despite procedural defects. | State: § 18.14 was transitional (1969–1973) and should not render Chapter 18 optional; reading it permanent is absurd. | Court reads § 18.14 by its plain language as a permanent savings clause; no absurdity justifies rewriting it. |
| Can the State assert Eleventh Amendment sovereign immunity to bar this turnover action? | Foundation: Katz permits bankruptcy turnover actions against states because they implicate in rem jurisdiction over estate property. | State: Sovereign immunity remains available and was not explicitly waived; procedural waiver not established. | Katz controls; turnover is an in rem bankruptcy proceeding and the State cannot assert sovereign immunity to defeat it. |
| Does EAR (In re Equipment Acquisition Resources) bar recovery here because §106 does not abrogate state immunity for state-law claims? | Foundation: This is a turnover (§542) action arising under bankruptcy in rem jurisdiction (analogous to §548 claims), so Katz allows suit despite EAR. | State: EAR limits bankruptcy abrogation and distinguishes claims arising under state law that could not be brought outside bankruptcy. | Court distinguishes EAR (it involved §544(b) and non‑in rem features) and holds this turnover action is governed by Katz; sovereign immunity does not bar it. |
Key Cases Cited
- Omega Healthcare Inv'rs, Inc. v. Res-Care, Inc., 475 F.3d 853 (7th Cir. 2007) (summary judgment standard in bankruptcy context)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) (summary judgment/material fact standard)
- Koshick v. State, 287 Wis. 2d 608 (Ct. App. 2005) (distinguishing liquidated debt from unliquidated contract losses)
- Central Virginia Community College v. Katz, 546 U.S. 356 (2006) (states' sovereign immunity limited for in rem bankruptcy proceedings)
- In re Equipment Acquisition Resources, Inc., 742 F.3d 743 (7th Cir. 2014) (discussing limits on bankruptcy abrogation of state immunity; distinguished here)
- Floyd v. Thompson, 227 F.3d 1029 (7th Cir. 2000) (Eleventh Amendment sovereign immunity considerations)
- Bulk Petroleum Corp. v. Ky. Dep't of Revenue (In re Bulk Petroleum Corp.), 796 F.3d 667 (7th Cir. 2015) (proof of claim can waive Eleventh Amendment defenses)
- In re Yonikus, 996 F.2d 866 (7th Cir. 1993) (broad scope of property of the bankruptcy estate)
- Hiltpold v. T-Shirts Plus, Inc., 98 Wis. 2d 711 (Ct. App. 1980) (restitution available to party not in pari delicto under illegal or void contract)