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In re Wierzbicki

United States Court of Appeals, Seventh Circuit

July 27, 2016

In re: Laura A. Wierzbicki, Debtor,
Greg Griswold, Defendant-Appellant. Brenda L. Zeddun, Trustee in Bankruptcy, Plaintiff-Appellee,

          Submitted July 22, 2016 [*]

         Appeal from the United States District Court for the Western District of Wisconsin No. 14-cv-718-jdp James D. Peterson, Judge.

          Before Wood, Chief Judge, and Rovner and Hamilton, Circuit Judges.

          PER CURIAM.

         This appeal illustrates how courts should determine whether a debtor in bankruptcy received reasonably equivalent value in deciding whether a pre-bankruptcy transfer of the debtor's property amounted to a fraudulent transfer under 11 U.S.C. § 548(a)(1)(B). The bankruptcy court found that a transfer of a farm in this case was fraudulent and avoided the transfer. The district court affirmed, and so do we.

         I. Factual and Procedural Background

         Debtor Laura Wierzbicki owned a 40-acre farm in Cross Plains, Wisconsin, where she lived for a time with her three minor children and their father, appellant Greg Griswold. In March 2012 Wierzbicki gave Griswold a quitclaim deed to the farm. Fourteen months later she filed for Chapter 7 bankruptcy. The bankruptcy trustee brought an adversary proceeding in bankruptcy court against Griswold to avoid the transfer as fraudulent. The trustee alleged that Wierzbicki was insolvent at the time of the transfer and that she had not received reasonably equivalent value in exchange for the property. See 11 U.S.C. § 548(a)(1)(B).

         After a trial Bankruptcy Judge Martin avoided the transfer, concluding that Griswold had exchanged nothing of value for the farm. Whether a debtor has received reasonably equivalent value in an exchange of property is a question of fact, and appellate review of such a finding is deferential, asking whether the finding of fact is clearly erroneous. See In re Image Worldwide, Ltd., 139 F.3d 574, 576 (7th Cir. 1998).

         Wierzbicki and Griswold lived and worked together on the farm, where they also operated a business salvaging boats. Sometime before 2009 their personal and business relationships soured. Griswold sued Wierzbicki in state court for unjust enrichment and collateral estoppel. Wierzbicki counterclaimed for slander of title. In 2011 a state trial court sided with Wierzbicki, finding that Griswold "does not have, and has never had, any interest in or title to" the farm. Griswold appealed that decision. He also filed a second appeal challenging the trial judge's refusal to recuse himself, and a separate petition in the appellate court demanding that the State of Wisconsin be compelled to bring criminal charges against Wierzbicki for false swearing.

         In 2012 the state appellate court dismissed Griswold's principal appeal and rejected his demand for criminal charges. Wierzbicki apparently wanted an end to the litigation, and she accepted Griswold's promise to drop the rest of the litigation if she gave up the farm. Griswold set out the deal in a document providing that Wierzbicki would give him one dollar and the quitclaim deed. In exchange, Wierzbicki would receive Griswold's promise to abandon the litigation (at that point, just the recusal appeal and his petitions for review of his appellate losses in the Wisconsin Supreme Court) and to assume about $149, 000 in liabilities secured by the property. The document also said that the deal would "bring closure" to Wierzbicki's potential liability arising from a zoning dispute with the county that "continues to be directly adversely affecting their children's security and welfare." Both Wierzbicki and Griswold signed the document. Wierzbicki then executed the quitclaim deed, which Griswold recorded with the register of deeds.

         The trustee alleged in her adversary complaint that the transfer of the farm was constructively fraudulent and thus avoidable because (a) it had occurred within two years of the bankruptcy filing, (b) Wierzbicki was insolvent at the time of the transfer, and (c) she did not receive "a reasonably equivalent value in exchange for" the property. 11 U.S.C. § 548(a)(1)(B). The parties agree that the transfer fell within the two-year window and that Wierzbicki was insolvent at the time. The dispute here is about reasonably equivalent value. Griswold has argued that his promises to Wierzbicki provided reasonably equivalent value and that the farm's value to Wierzbicki at the time of the transfer was essentially nothing because of various encumbrances.

         After a trial at which both Griswold and Wierzbicki testified, the bankruptcy court concluded that the transfer was fraudulent. The court found that, at the time of the transfer, the fair market value of the farm was $300, 000. The property was encumbered by three mortgages, two judgment liens, and outstanding real estate taxes, but the court found that Wierzbicki still had equity of approximately $151, 000 at the time of the transfer to Griswold. The bankruptcy court further found that Griswold's promise to cease his "meritless appeals" in exchange for that interest had no material value. The bankruptcy court thus avoided the transfer.

         II. Analysis

         We have jurisdiction to hear Griswold's appeal from the bankruptcy court's order avoiding the transfer of the property under 28 U.S.C. § 158(d). See Peterson v. Somers Dublin Ltd., 729 F.3d 741, 747 (7th Cir. 2013) (explaining that Article III authorizes bankruptcy judges to enter final orders in avoidance actions); In re FBN Food Servs., Inc., 82 F.3d 1387, 1392 (7th Cir. 1996) (explaining that courts of appeals may hear appeals from final decisions in bankruptcy actions, including avoidance actions).

         We review the bankruptcy court's conclusions of law de novo and its findings of fact for clear error, meaning that we will uphold its findings of fact unless we are "left with the definite and firm conviction that a mistake has been committed." Unsecured Creditors Comm. of Sparrer Sausage Co. v. Jason's Food, Inc., No. 15-2356, ___F.3d ___, ___, 2016 WL 3213096, at *2 ...

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