Greenpoint Asset Mgmt. II LLC v. Hallick (In re Greenpoint Asset Mgmt. II, LLC)

646 B.R. 264

IN RE: GREENPOINT ASSET MANAGEMENT II, LLC, Michael G. Hull, Jointly Administered Debtors.

Greenpoint Asset Management II LLC, Plaintiff,

v.Erick Hallick, Defendant.

Michael G. Hull, Plaintiff,

v.Erick Hallick, Defendant.

Case No. 21-25900-gmh

Case No. 21-25901-gmh (Jointly Administered Under Case No. 21-25900)

Adv. Proc. No. 22-2034-gmh

Adv. Proc. No. 22-2035-gmh

United States Bankruptcy Court, E.D. Wisconsin.

Signed September 30, 2022

Jerome R. Kerkman, Kerkman & Dunn, Milwaukee, WI, for Plaintiffs Michael G. Hull, Greenpoint Asset Management II LLC.

Andrew H. Robinson, Mallery & Zimmerman, S.C., Milwaukee, WI, for Defendant.

DECISION AND ORDER

G. Michael Halfenger, Chief United States Bankruptcy Judge

Plaintiffs Greenpoint Asset Management II LLC ("GAM II") and Michael Hull are debtors in jointly administered chapter 11 cases. In these adversary proceedings the debtors request a judgment avoiding as preferences under § 547(b) of the Bankruptcy Code liens claimed by Erick Hallick.

The debtor-plaintiffs moved for summary judgment immediately after filing their complaints. Hallick responded by filing a cross-motion for summary judgment and, in the alternative, requesting additional discovery on the issue of the debtors’ solvency at the time he acquired the liens. See Fed. R. Civ. P. 56(d) (made applicable here by Fed. R. Bankr. P. 7056 ).

I

The following facts are either undisputed or established by judicial notice of court dockets. Before the debtors filed their bankruptcy petitions on November 11, 2021, Hallick took several actions to collect his $13.6 million judgment against them (the "Judgment"). ECF No. 10, at ¶¶10–11. Hallick docketed the Judgment in Dane County on May 3, 2021, and in Milwaukee and Waukesha counties on May 7, 2021. ECF No. 10, at ¶¶12–13. He served Hull and GAM II with orders to appear for a supplemental examination under Wis. Stat. § 816.03 on May 26, 2021, and June 3, 2021, respectively. Id. at ¶¶14–15.

On August 26, 2021, the Dane County Circuit Court ordered GAM II to turn over to Hallick funds GAM II recovers in the jointly administered chapter 11 case In re Greenpoint Tactical Income Fund LLC, Case No. 19-29613. ECF No. 10-11, at ¶¶2–4. That order also "entitle[s] [Hallick] to levy against[ ] and hold all such lien rights as are created by such levy against" any proceeds received from the debtors in In re Greenpoint Tactical Income Fund . Id. at ¶2. (This decision refers to the circuit court's August 26 order as the "Levy Order.")

On September 10, 2021, the Waukesha County Circuit Court ordered H Real Estate, LLC, an entity in which Hull has an ownership interest, to divert to Hallick all distributions payable to Hull until the Judgment is satisfied. ECF No. 10-8, at ¶2. On September 17, 2021, the Dane County Circuit Court similarly ordered two other entities in which Hull holds interests, H Global LLC, and Bluepoint Investment Counsel LLC, to direct to Hallick all payments due Hull until the Judgment is satisfied. ECF No. 10-9, at ¶2. (This decision refers to the two September orders as the "Charging Orders" and refers to the Charging Orders and the Levy Order collectively as the "State Court Orders.")

II

A

The Bankruptcy Code grants debtors in possession, like the plaintiffs here, most of the rights and powers that the Code affords trustees, including the right to avoid preferential transfers under § 547. 11 U.S.C. § 1107(a). Section 547, as relevant here, authorizes trustees to avoid certain transfers that are "(1) to or for the benefit of a creditor; (2) for or on account of an antecedent debt ...; (3) made while the debtor was insolvent; (4) made ... within 90 days before the date of the filing of the petition ...; and (5) that enables such creditor to receive more than such creditor would receive" in a chapter 7 case had the transfer not been made. 11 U.S.C. § 547(b).

The debtor-plaintiffs contend that as a matter of law the State Court Orders transfer interests in their property that are avoidable under § 547(b). In response, Hallick raises only two issues: He argues that (1) as a matter of law, the transfers were not made within 90 days before the debtors filed their petitions, and, alternatively, (2) he should be afforded an opportunity to pursue discovery into whether the debtors were insolvent at the time of the transfers.

B

The standard governing summary judgment motions is a familiar one: "[t]he court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a) ; see Fed. R. Bankr. P. 7056. For these purposes, a fact is material if a dispute about it "might affect the outcome of the suit under the governing law". Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A factual dispute is genuine "if the evidence is such that" it "may reasonably be resolved in favor of either party." Id. at 248 & 250, 106 S.Ct. 2505. A genuine dispute as to a material fact "properly can be resolved only by a finder of fact"; so, if there are any such disputes, "there is the need for a trial", and summary judgment must be denied. Id. at 250, 106 S.Ct. 2505.

III

We start with the main question in dispute: Are the State Court Orders transfers made during § 547 ’s preference period?

A

The State Court Orders are all transfers for Bankruptcy Code purposes. The State Court Orders indisputably create "charge[s] against or interest[s] in property to secure payment of a debt or performance of an obligation"; thus, they are "liens" as defined in § 101(37) of the Bankruptcy Code. As such, they are also transfers for purposes of applying § 547(b), since the Code defines "transfer" to mean, among other things, "the creation of a lien". 11 U.S.C. § 101(54)(A). No debate here.

The parties’ debate focuses on when Hallick acquired liens on the debtor-plaintiffs’ property. Hallick argues that he acquired liens that became effective under nonbankruptcy law—Wisconsin law—outside the preference period. The debtor-plaintiffs, also looking to Wisconsin law, respond that the liens arose—the transfers were made—when the State Court Orders were entered, which occurred during the preference period.

When a transfer is made for purposes of § 547(b), however, is governed by § 547(e). Section 547(e)(2) provides that the date on which a transfer is "made" depends on when it is "perfected." And the date on which a transfer of personal property, as is at issue here, is "perfected" is governed by § 547(e)(1)(B), which states, "a transfer of ... property other than real property is perfected when a creditor on a simple contract cannot acquire a judicial lien that is superior to the interest of the transferee." Once one determines when the transfer was in this sense "perfected", i.e., when under nonbankruptcy law the transferee acquired an interest superior to other potential judicial liens, then one must apply § 547(e)(2) to determine when the transfer was "made". Section 547(e)(2), as applicable here, generally provides that a transfer is made when it is effective between the transferor and the transferee if it is perfected within 30 days from the time the transfer is effective; if a transfer is not perfected within 30 days from the time it is effective between the transferor and transferee, then the transfer is made when it is perfected.¹

Section 547(e) ’s text thus channels the application of nonbankruptcy law in determining when a transfer is made for purpose of preference avoidance. Nonbankruptcy law governs when a transfer is effective between the transferor and the transferee—a consideration in determining when the transfer is "made" under § 547(e)(2)(A) —and when the transferee acquires an interest superior to potential judgment liens—a consideration in determining when the transfer is "perfected" under § 547(e)(1)(B) and thus "made" under § 547(e)(2).

There is no dispute that the State Court Orders were entered and effective between the parties within the preference period, which reaches back to August 13, 2021. The Levy Order was entered August 26, 2021, and the Charging Orders were entered on September 10 and 17, 2021. The debtor-plaintiffs contend that these facts establish conclusively that Hallick's liens are transfers made during the preference period. Hallick responds, however, that, as a matter of Wisconsin law, he acquired liens on the debtors’ personal property that arose, or are deemed to have arisen, outside of the preference period.

B

Hallick's arguments that he acquired liens on the debtors’ property outside the preference period are principally based on his reading of Mann v. Bankruptcy Estate of Badger Lines, Inc. (In re Badger Lines, Inc.) , 224 Wis.2d 646, 590 N.W.2d 270 (1999), and Associated Bank N.A. v. Collier , 355 Wis.2d 343, 852 N.W.2d 443 (2014). A discussion of those cases is necessary to put Hallick's arguments in context.

The dispute in Mann v. Badger Lines was akin to the one here. Simplifying a bit, a creditor obtained a judgment against Badger Lines from a Wisconsin circuit court in October 1991. On October 30, 1991, the creditor served Badger Lines with an order to appear at a supplemental proceeding before a court commissioner. In December 1991 the court commissioner appointed Mann as receiver to act on the creditor's behalf and ordered Badger Lines to turn over non-exempt assets to satisfy the judgment. In re Badger Lines, Inc. (Badger Lines I ), Nos. 95 C-1243, 92-20872-7, 1996 WL 33364962, at *1 (E.D. Wis. Mar. 14, 1996).

On February 11, 1992, Badger Lines filed a chapter 7 bankruptcy petition. Id . at *2. The state-court receiver, Mann, contended that Wisconsin law afforded him a lien (to collect on the creditor's behalf) that arose in October 1991 when the creditor served Badger Lines with the order requiring it to appear for a supplementary proceeding. Id. at *1–2. Mann filed a motion for turnover of funds from the...