Wigley v. Lariat Cos. (In re Wigley)

624 B.R. 861

IN RE: Barbara A. WIGLEY, Debtor.

Barbara A. Wigley, Plaintiff,

v.Lariat Companies, Inc., Defendant.

Court File No. 16-43707 (WJF)

Adv. No. 20-04101

United States Bankruptcy Court, D. Minnesota.

Signed January 25, 2021

Mychal A. Bruggeman, Tiede Grabarski PLLC, White Bear Lake, MN, John D. Lamey, III, Lamey Law Firm, P.A., Lamey Law Firm PA, Oakdale, MN, for Debtor.

ORDER GRANTING DEFENDANT'S MOTION TO DISMISS

William J. Fisher, United States Bankruptcy Judge

The above-entitled adversary proceeding was commenced on July 28, 2020. Plaintiff Barbara A. Wigley ("Ms. Wigley") sought: (1) to enjoin collection efforts by Defendant Lariat Companies, Inc. ("Lariat"); (2) declaratory relief regarding interpretation of Ms. Wigley's Chapter 11 plan; and (3) the application of payments made by Ms. Wigley and her spouse, Michael Wigley ("Mr. Wigley") (collectively "the Wigleys") to Ms. Wigley's indebtedness to Lariat. Dkt. No. 1. On August 26, 2020, Lariat moved for dismissal of the adversary proceeding under Fed. R. Civ. P. 12(b)(1) and (b)(6) (made applicable to this adversary proceeding by Fed. R. Bankr. P. 7012 ) and mandatory or discretionary abstention under 28 U.S.C. § 1334(c). Dkt. No. 6.

A hearing was held on the motion to dismiss on September 15, 2020. John D. Lamey, III appeared on behalf of Ms. Wigley. George E. Warner, Jr. appeared on behalf of Lariat. The parties were permitted to supplement the record following the hearing. Lariat filed documents on September 17, 2020. Dkt. No. 12. Ms. Wigley filed documents on September 24, 2020. Dkt. No. 13. The matter was taken under advisement at that time. While the matter was under advisement, Lariat filed an additional supplement on December 15, 2020 regarding decisions rendered in the Minnesota court actions. On December 20, 2020, Ms. Wigley filed a request to dismiss the case solely on Lariat's alternative ground of mandatory abstention. On December 21, 2020, Lariat opposed such relief.

Based on the pleadings, the file, and the record of the proceedings herein, the Court grants the motion to dismiss for the reasons stated below.

BACKGROUND

The facts of the dispute between Lariat and Ms. Wigley have been set forth in opinions of this Court, federal appellate courts, and state courts. For clarity, the Court provides a brief background to aid in the analysis below.

The dispute between the Wigleys and Lariat began in 2010 when a restaurant owned by an entity controlled by Mr. Wigley defaulted on its 10-year lease of commercial property owned by Lariat. As a result, Lariat received a judgment against Mr. Wigley for $2,238,064.00 based on his guaranty of the lease obligations. In 2013, a Minnesota state court held Ms. Wigley jointly and severally liable for a fraudulent transfer of Mr. Wigley's assets to Ms. Wigley, resulting in a fraudulent transfer judgment of $788,487.78. In 2014, Mr. Wigley filed for bankruptcy. Lariat filed an amended claim of $1,610,787.00 in Mr. Wigley's bankruptcy, but the claim was capped at $553,271.58 in accordance with 11 U.S.C. § 502(b)(6). In 2016, Mr. Wigley paid the capped amount and interest for a total of $637,581.07 and received a discharge in bankruptcy.

Following Mr. Wigley's discharge, the Wigleys sought to vacate the fraudulent transfer judgment against Ms. Wigley in state court. The Minnesota court denied the motion to vacate, which Ms. Wigley appealed to the Minnesota Court of Appeals. That appeal was stayed pending appeals in the bankruptcy case, but on September 14, 2020, the Minnesota Court of Appeals affirmed the Minnesota court's refusal to vacate the fraudulent transfer judgment. The Minnesota Supreme Court denied Ms. Wigley's petition for review on December 15, 2020.

Ms. Wigley filed for bankruptcy relief on December 19, 2016. Lariat filed a claim in the amount of $1,030,916.74 based on the fraudulent transfer judgment and accrued interest. This Court allowed Lariat's claim in part. The allowed claim was capped at $308,805.00 (plus interest) under 11 U.S.C. § 502(b)(6). The Eighth Circuit Court of Appeals affirmed this Court's decision. Lariat Cos. v. Wigley (In re Wigley), 951 F.3d 967 (8th Cir. 2020).

Lariat also initiated an adversary proceeding to except its fraudulent transfer judgment from discharge under 11 U.S.C. § 523(a)(2)(A). This Court entered a judgment excepting the debt owed to Lariat from discharge. The Bankruptcy Appellate Panel for the Eighth Circuit affirmed this Court's decision. Lariat Cos. v. Wigley (In re Wigley), 620 B.R. 87 (B.A.P. 8th Cir. 2020). Ms. Wigley has appealed the decision to the Eighth Circuit Court of Appeals. Ms. Wigley did not seek a stay pending the appeal of the nondischargeable judgment and the Eighth Circuit appeal is in the briefing stage.

While these issues were litigated in appellate courts, Ms. Wigley's Chapter 11 plan was confirmed. Under the terms of the plan, she agreed to pay all allowed claims in full, including Lariat's claim. After the Eighth Circuit Court of Appeals determined the capped amount of Lariat's claim to be $308,805.00, Ms. Wigley paid Lariat $361,249.07 (which included interest) on March 24, 2020 in accordance with the Chapter 11 plan.

The terms of Ms. Wigley's Chapter 11 plan included the following provision:

Treatment of Class 1

Class 1 claims, to the extent allowed pursuant to Section 502 of the Bankruptcy Code, shall be paid in full, with post-petition interest calculated at the rate of five percent (5.0%) per annum, on the Effective Date; provided, however, that:

1) To the extent that a disputed claim is not subject to a Final Order on the Effective Date:

a) The allowed claim by the bankruptcy court by order dated February 9, 2018, shall be paid in full on the Effective Date, or an appropriate, court-approved bond per the Federal Rules of Bankruptcy Procedure shall be posted and its terms followed, without prejudice to a claimant's right to receive additional payments on adjudication of the Disputed Amount;

b) Any additional amount allowed by order of the Bankruptcy Court or any appellate court shall be paid in full fifteen (15) calendar days after said order, and, conversely, any reduction in the amount of the allowed claim by a federal court shall be paid back to the Debtor fifteen (15) calendar days after said order; and any reduction in the event of a reversal or modification of a Minnesota state court judgment shall be governed by Minnesota law and procedure; and

c) Any Disputed Amount shall not be discharged prior to entry of a Final Order.

d) With respect to the Lariat claim, Lariat is enjoined from collection activity against the Debtor unless there is a payment default to it under this Plan. If there is a payment default, Lariat shall file an affidavit with this court and the Debtor will be allowed three (3) business days to file a response.

The plan defined the "Disputed Amount" as "Lariat's claim as filed on February 20, 2017 as claim number 4, and as overruled in part by Judge Fisher's Order dated February 9, 2018." In accordance with the Eighth Circuit Court of Appeal's decision, this claim amount has been determined to be allowed in the capped principal of $308,805.00.

The Chapter 11 plan purported to retain jurisdiction over certain proceedings "[t]o the full extent permitted under applicable law, until the Plan has been fully consummated." This reservation included proceedings involving "interpretation and enforcement of the terms of the Plan." The plan also permitted a discharge "after completing all payments on account of Class 1 claims as provided in the Plan, and subject to the stated limitations on the discharge of Class 1 claims." Ms. Wigley received her discharge of all debts other than Lariat's on December 6, 2018.

In May 2020, Lariat commenced collection activity against Ms. Wigley, giving notice of an intent to levy three of Ms. Wigley's bank accounts. Ms. Wigley moved this Court in her bankruptcy case to interpret the plan in an effort to stop Lariat's collection activities. On May 19, 2020, the Court denied the motion on the basis that a request for declaratory or injunctive relief is required to be brought by adversary proceeding under the Federal Rules of Bankruptcy Procedure.

On July 17, 2020, Lariat filed a motion in the Minnesota action for application of assets to judgment and post-judgment relief. Dkt. No. 12 at 36. Lariat requested that any nonexempt assets belonging to Ms. Wigley be liquidated to satisfy its fraudulent transfer judgment. Id.

Ms. Wigley filed this adversary proceeding on July 28, 2020 seeking to enjoin Lariat's collection actions. Specifically, in count one, Ms. Wigley requested "injunctive relief enforcing the terms of the Plan, and barring Defendant from undertaking collection efforts until the pending appeals in both the state and federal courts have concluded." Dkt. No. 1 at 9. In count two, Ms. Wigley sought a declaration "that, pursuant to Section II(A)(1) of the Plan, Defendant is barred from pursuing collection efforts against Debtor until the conclusion of all pending appeals and must further abide by the interest rate established by the Plan." Id. at 10. In count three, Ms. Wigley sought a declaration that "the full amount of any payment that Mr. Wigley made pursuant to his confirmed plan shall be applied to the full liability toward satisfaction of the judgment entered in the Fraudulent Transfer Action." Id. at 11.

In the Minnesota action, Ms. Wigley opposed the motion for application of assets, arguing, among other reasons, Lariat's collection activity in May and June of 2020 and the motion violated what she claimed was the plain language of Ms. Wigley's confirmed plan. Dkt. No. 12 at 545. Ms. Wigley argued the Minnesota court should, at a minimum, "hold its decision on the present motion in abeyance" while this Court considered the present adversary proceeding. Id. at 545–46. In her concluding arguments, Ms. Wigley argued Lariat's motion should be denied because, "It asks the Court to wholly...