Official Comm. of Unsecured Creditors of Great Lakes Quick Lube LP v. Theisen

384 Wis.2d 580

920 N.W.2d 356

2018 WI App 70

OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF GREAT LAKES QUICK LUBE LP, Plaintiff-Appellant,

v.John W. THEISEN, Tom Chambasian and Chester J. Bojanowski, Defendants-Respondents.^†

Appeal No. 2018AP333

Court of Appeals of Wisconsin.

Submitted on Briefs August 2, 2018

Filed October 30, 2018

On behalf of the plaintiff-appellant, the cause was submitted on the brief of Jerome R. Kerkman, Evan P. Schmit, and Gregory M. Schrieber of Kerkman Wagner & Dunn of Milwaukee.

On behalf of the defendants-respondents, the cause was submitted on the briefs of Stephen E. Kravit, Aaron H. Aizenberg, and Stuart J. Check of Kravit, Hovel & Krawczyk, s.c. of Milwaukee.

Before Kessler, P.J., Brennan and Dugan, JJ.

BRENNAN, J.

¶ 1 This is an appeal of an order that granted summary judgment and dismissed as time-barred a WIS. STAT. § 242.04(1)(a) (2015-16)¹ claim alleging a fraudulent transfer. WISCONSIN STAT. § 893.425 bars "an action with respect to a fraudulent transfer or obligation under ch. 242" that is not commenced within one year after claimants "could reasonably have ... discovered" it. This case requires us to interpret what the legislature intended by § 893.425 and to apply the statute to a motion for summary judgment. The plaintiff argues that the statute creates a discovery-of-the-fraud rule—where the clock starts to run when the fraudulent nature of the transfer could reasonably have been discovered—and that the statute had not run on creditors' state law claims at the relevant point. The defendants argue that the statute creates a discovery-of-the-transfer rule—where the clock starts to run when the transfer could reasonably have been discovered—but that regardless of which rule is applied, the statute had run, and creditors' state law claims had expired.

¶ 2 We note at the outset that this state court action arises in the context of a federal bankruptcy case. Plaintiff is the Official Committee of Unsecured Creditors of Great Lakes Quick Lube LP (the Committee), a committee appointed in a federal bankruptcy case and given the right to pursue claims on behalf of the debtor's 140 unsecured creditors. Defendants are John W. Theisen, Tom Chambasian, and Chester J. Bojanowski (the Individual Sellers), who sold a company in a leveraged buyout to an entity that later filed for bankruptcy. The Committee alleges that two transactions made in connection with the sale of that company—the issuance of a note to each Individual Seller for one million dollars and the satisfaction of the notes as the debtor's financial condition was deteriorating—were fraudulent within the meaning of WIS. STAT. § 242.04(1)(a). The Committee is attempting to recoup for unsecured creditors the three million dollars the Individual Sellers received.

¶ 3 The specific question before us is whether summary judgment was properly granted to the Individual Sellers on the grounds that no individual creditor had a viable state law claim as of the date of the bankruptcy petition filing because the statute of limitations on any such claims had run. To be entitled to summary judgment, the moving party must show that all of the creditors in question could reasonably have discovered the fraudulent nature of the transfer prior to April 2, 2011, such that each creditor's state law claim was extinguished by the date the bankruptcy petition was filed.² Conversely, to survive summary judgment, the Committee must show that at least one creditor (a "triggering creditor") had a valid state law claim on the date of the bankruptcy filing, which means here that at least one creditor could not reasonably have discovered the fraudulent nature of the transfer by April 2, 2011. As to such a creditor, the statute of limitations would not have run on its claim by the time of the bankruptcy petition filing, and that creditor would have had a valid state law claim at the time of the filing and could thus pursue it.

¶ 4 We conclude that the trial court erred in granting summary judgment to the Individual Sellers. First, it misconstrued the statute of limitations test to be one based on discovery of the transfer , as opposed to discovery of the fraudulent nature of the transfer . Second, it erred in concluding that the moving parties (the Individual Sellers) had shown that not one creditor had a timely state law claim as of the date of the bankruptcy filing. The trial court concluded that by April 2, 2011, at the latest, the discovery period had been triggered because by that point, "a reasonable creditor exercising its duty to reasonably inquire would have discovered these notes." It held that under either standard, the statute had run and the claims had expired. The trial court failed to apply the correct legal standard because its analysis did not apply the "triggering creditor" rule from bankruptcy law that governs this case. We therefore reverse the order for summary judgment and remand for further proceedings.

BACKGROUND

The parties and the underlying bankruptcy case.

¶ 5 For purposes of this appeal, we are concerned only with whether the Committee's claim is barred under the applicable statute of limitations, and not with the merits of the claim, so an extensive recitation of the facts is unnecessary. For the purpose of providing context, however, we briefly describe the circumstances surrounding the allegedly fraudulent transfer and the theory under which it is pursued.

¶ 6 The Individual Sellers are individuals who have been in the lube oil business for many years. They were owners of a company that operated oil change or "quick lube" businesses, first under the name "Speedy Lube" and later as franchisees of Valvoline Instant Oil Change. In September 2004, the Individual Sellers contracted with a buyer, Great Lakes Quick Lube LP, for the sale of their company's assets, including forty-seven quick lube stores and the real estate and leases associated with each store. The parties to this action disagree³ about the nature of the promissory notes that were issued to the Individual Sellers on November 9, 2004, but the Committee acknowledges that "[t]he Seller Notes were unquestionably issued in November 2004 as part of the larger transaction involving the defendants selling their quick lube business to the Debtor." In November 2009, Great Lakes Quick Lube LP made full payments on the promissory notes to the Individual Sellers. Great Lakes Quick Lube LP subsequently filed a bankruptcy petition on April 2, 2012. Shortly thereafter, the bankruptcy court appointed the Committee, and the amended reorganization plan, effective February 13, 2013, authorized the Committee to pursue certain causes of action, including avoidance actions, on behalf of the unsecured creditors.

The fraudulent transfer claim.

¶ 7 Pursuant to its authorization under the plan approved by the bankruptcy court, the Committee filed its complaint in this case.⁴ The Individual Sellers moved for summary judgment on the grounds that the claim was time barred.

¶ 8

The trial court granted the motion for summary judgment in an oral ruling, concluding that the statute created a discovery-of-the-transfer rule and that the action was filed more than a year after the creditors represented by the Committee could reasonably have discovered the transfer. The Committee had argued that the statute created a discovery-of-the-fraud rule. The court rejected the Committee's construction of the statute. However, it further held that under either interpretation of the discovery rule, the Individual Sellers were entitled to summary judgment because the action was time barred because it was filed more than a year after any creditor could reasonably have discovered both the transfer and the fraudulent nature of the transfer. A written order was entered, from which a timely appeal was taken.

What is and is not in dispute in this appeal.

¶ 9 It is not disputed for purposes of this appeal that the Committee, through the reorganization plan and an assignment of rights by the debtor, has the right to bring this cause of action. The parties agree that federal bankruptcy law establishes the framework under which the Committee operates and that under applicable law if any unsecured creditor represented by the Committee has a state law claim, the Committee, standing in the shoes of that creditor, can pursue that claim. See 11 U.S.C. § 544(b), In re Leonard , 125 F.3d 543, 544 (7th Cir. 1997) ("[I]f any unsecured creditor could reach an asset of the debtor outside bankruptcy, the Trustee [in this case, the Committee] can use § 544(b) to obtain that asset for the estate."). They agree that bankruptcy law recognizes a "triggering creditor" rule, which allows the Committee to attempt to avoid a transfer "if there is at least one creditor at the time who has standing under state law to challenge the transfer." Wieboldt Stores, Inc. v. Schottenstein , 94 B.R. 488, 506 (N.D. Ill. 1988). There is no dispute about the appropriateness of the venue. The parties agree that the outcome turns on the interpretation of WIS. STAT. § 893.425 and that no published Wisconsin case has addressed this question. They also agree that the discovery rule is applied using an objective rather than subjective standard. For purposes of this appeal at least, the sole point of disagreement is whether the Individual Sellers were entitled to summary judgment on the grounds that no creditor had a state law claim for fraudulent transfer at the time of the April 2, 2012 bankruptcy filing.

DISCUSSION

I. The discovery period in WIS. STAT. § 893.425 is triggered when claimants could reasonably have discovered the fraudulent nature of the transfer.

Standard of review and principles of law.

¶ 10 Whether the time limitation expired prior to the commencement of an action requires an interpretation of the relevant statutes. This is a question of law that we review de novo . K.N.K. v. Buhler , 139 Wis.2d 190, 198, 407 N.W.2d 281 (Ct. App. 1987). If we conclude that the...