Zeddun v. Griswold (In re Wierzbicki)
830 F.3d 683
7th Cir.2016Background
- Debtor Laura Wierzbieki owned a 40‑acre farm in Wisconsin with roughly $151,000 equity; she quitclaimed the farm to Greg Griswold in March 2012.
- Griswold had previously sued Wierzbieki; some appeals were dismissed but lingering filings remained.
- The written exchange: Wierzbieki conveyed the farm (for $1 via quitclaim) and Griswold agreed to assume about $149,000 in liens/mortgages and to drop remaining litigation; document mentioned zoning closure and children’s security.
- Fourteen months later Wierzbieki filed Chapter 7; the trustee sued Griswold under 11 U.S.C. § 548(a)(1)(B) to avoid the transfer as constructively fraudulent.
- Bankruptcy court found fair market value of the farm was $300,000, Wierzbieki’s equity about $151,000, and that Griswold provided no reasonably equivalent value (appeals/assumption promises were essentially worthless).
- District court and now the Seventh Circuit affirmed: the transfer was avoidable under § 548(a)(1)(B).
Issues
| Issue | Trustee's Argument | Griswold's Argument | Held |
|---|---|---|---|
| Whether the debtor received reasonably equivalent value for the farm under 11 U.S.C. § 548(a)(1)(B) | Wierzbieki received little or no value—transfer placed $151,000 equity beyond creditors | Griswold claimed his promise to assume liens, drop appeals, and other non‑economic benefits equaled reasonably equivalent value | Held: No; promises and benefits were worth far less than $151,000 and did not constitute reasonably equivalent value |
| Whether the lis pendens filed by Griswold reduced the farm’s value or created an encumbrance | Lis pendens meant property interest risk, lowering debtor’s value received | Griswold contended lis pendens and pending litigation diminished farm value to Wierzbieki | Held: Lis pendens only alerts third parties to litigation and is not an encumbrance; court did not reduce equity on that basis |
| Whether homestead exemptions could defeat the trustee’s avoidance claim | Trustee: exemptions do not alter fair market value or the avoidability analysis | Griswold: two $75,000 homestead exemptions would eliminate Wierzbieki’s equity | Held: Homestead exemptions benefit the debtor only and do not affect fair market valuation for § 548 analysis by a non‑debtor transferee |
| Whether non‑economic/intangible family or zoning benefits can constitute reasonably equivalent value | Trustee: intangible benefits (closure, family security) are insufficient against creditors’ interests | Griswold: closure of zoning dispute and family stability justified the transfer | Held: Intangible, nebulous benefits like family harmony or minimal nuisance‑value litigation do not constitute reasonably equivalent value in § 548 contexts |
Key Cases Cited
- In re Image Worldwide, Ltd., 139 F.3d 574 (7th Cir. 1998) (standard for reviewing bankruptcy fact findings and equivalence analysis)
- In re Smith, 811 F.3d 228 (7th Cir. 2016) (factors for reasonably equivalent value: FMV, arm’s‑length, transferee good faith)
- Trade Well Int’l v. United Cent. Bank, 778 F.3d 620 (7th Cir. 2015) (lis pendens does not create an encumbrance under Wisconsin law)
- In re Hinsley, 201 F.3d 638 (5th Cir. 2000) (intangible, non‑economic benefits are not reasonably equivalent value)
- In re Treadwell, 699 F.2d 1050 (11th Cir. 1983) (love/affection and similar intangible benefits do not constitute reasonably equivalent value)