DocketNumber: No. 2011AP838
Citation Numbers: 340 Wis. 2d 485, 2012 WI App 37
Judges: Brown, Gundrum, Reilly
Filed Date: 2/29/2012
Status: Precedential
Modified Date: 9/9/2022
¶ 1. The sole issue in this case is whether Daniel Williamson's misrepresentation claims against Hi-Liter Graphics, LLC and Craig Faust are part of his bankruptcy estate such that he had no standing to sue in state court. The alleged misrepresentations occurred prior to the bankruptcy petition being filed, but Williamson claims he did not discover that the injury had occurred until more than one year after the filing. Federal case law reveals that claims which are "sufficiently rooted in the pre-bankruptcy past" belong to the bankruptcy estate. We hold that Wisconsin's "discovery of injury" rule will not save Williamson here because that rule's purpose is to mark when the statute of limitations begins to run in state tort actions. That rationale, a judicially created exception to our state's tort statute of limitations, cannot be used by Williamson to usurp the right of the federal bankruptcy estate to bring that action. Because Williamson's financial interest in the misrepresentation claim arose prior to the filing of his bankruptcy petition, it is the property of his bankruptcy estate and he has no standing to sue. We affirm.
¶ 2. All of Williamson's misrepresentation claims are based on the same set of facts alleged in his amended complaint.
¶ 3. After the amended complaint was filed, Hi-Liter
¶ 4. Although Hi-Liter moved to dismiss, because parties on both sides submitted briefs with attached affidavits, and because the trial court reviewed that information and referenced it in its decision, we review the order as a grant of summary judgment. See Wis. Stat. § 802.06(3) (2009-10)
¶ 5. The statute governing property of a bankruptcy estate, 11 U.S.C.A. § 541(a)(1) (West 2012), creates an estate comprised of "all legal or equitable interests of the debtor in property as of the commencement of the [bankruptcy] case."
¶ 6. The parties disagree on only one issue — how to apply the temporal limitation of 11 U.S.C.A. § 541 to the facts of this case. Williamson argues that the misrepresentation claims did not accrue under state law until he suffered an injury through the 2009 assessment for unpaid withholding taxes, so it was not a property interest that he possessed when he filed for bankruptcy in 2008. Hi-Liter argues that because the ground was laid for the misrepresentation claims before Williamson filed a petition for bankruptcy, the claims were "sufficiently rooted in the pre-bankruptcy past" such that it is property of the bankruptcy estate. See Segal v. Rochelle, 382 U.S. 375, 380 (1966). Both Williamson and Hi-Liter focus on four cases to make their arguments: Segal, 382 U.S. 375; In re Plumlee, 236 B.R. 606 (E.D. Va. 1999); In re Strada Design Assocs., Inc., 326 B.R. 229 (Bankr. S.D.N.Y. 2005); and Witko, 374 F.3d 1040.
¶ 7. We begin our analysis with Segal,
¶ 8. Next, we look at cases since Segal that have applied Segal's "sufficiently rooted" rationale to 11 U.S.C.A. § 541. In Plumlee, which resembles this case most closely, Plumlee, who was president of a business, agreed to merge with a second business and become vice-president of the new business. Plumlee, 236 B.R. at 608. He came to that agreement with the president of the second business in July 1991. Id. Plumlee began working for the second business right away in July 1991, and then filed for bankruptcy at the end of 1991. Id. By that time no merger had occurred. Id. Then, in January 1992, Plumlee was fired and the merger was called off. Id. Plumlee sued the second business and its president for fraud, and the bankruptcy trustee filed a complaint on behalf of the estate to recover the proceeds of the lawsuit. Id. at 608-09. The Plumlee court ultimately held that Plumlee's fraud claim was "sufficiently rooted" in Plumlee's pre-petition past despite the fact that his termination and the collapse of the merger occurred after his petition was filed. Id. at 612. The court observed:
*492 As the bankruptcy court correctly noted, Plumlee's fraud claim rested on the activity of Cheng and ECI in the six months prior to the filing of the bankruptcy petition .... Moreover, the fact that some of Plumlee's injuries from [the] fraud did not occur until after he filed his petition does not change the result.
Id. (emphasis omitted).
¶ 9. Plainly, Williamson's case is like Plumlee— the misrepresentations and Williamson's reliance on them occurred pre-petition. Also like Plumlee, at least part of the injury occurred pre-petition, since, according to Williamson's complaint, Hi-Liter never intended to pay the outstanding withholding taxes as promised. As Hi-Liter points out, the misrepresentations were made and relied on in 2007 and they pertained to 2007 tax liability. All that occurred postpetition was the government assessment that allowed Williamson to discover that the taxes were unpaid. Therefore, as in Plumlee, the fact that some of Williamson's injuries — in this case, his being assessed by the government for the unpaid taxes — "did not occur until after he filed his petition does not change the result." See id. What matters is that Williamson's misrepresentation claims "rested on the activity of' Hi-Liter in the year "prior to the filing of the bankruptcy petition." See id. (emphasis omitted).
¶ 10. Despite the obvious applicability oí Plumlee, Williamson urges us to interpret Strada and Witko as standing for the proposition that unless a claim has fully accrued under state law before the bankruptcy petition is filed, it does not belong to the bankruptcy estate. We simply do not see that proposition in either of those cases. Strada involved a legal malpractice claim arising out of bankruptcy advice. Strada, 326 B.R. at 232. The Strada court held that the claim had fully accrued under state law at the time of the filing of the
¶ 11. Witko was also a legal malpractice claim and involved a suit against the complainant's former divorce attorney for alleged negligence in an alimony dispute. Witko, 374 F.3d at 1042. There, the court held that the complainant's malpractice suit accrued after the adverse outcome in the state court even though the negligent actions of the attorney were allegedly occurring before the bankruptcy petition. Id. at 1044. So, at first blush, it may appear as though this case would favor Williamson. But not really. The Witko court took care to differentiate the legal malpractice situation before it from other kinds of torts. The court wrote:
The machinations of legal malpractice, especially the element requiring the conclusion of judicial proceedings, distinguish legal malpractice actions from virtually all other tort claims. Although proximate harm usually occurs in close temporal proximity to tortious conduct, legal malpractice harm often arises well after the attorney's failures....
Witko did not suffer any harm from the alleged legal malpractice prior to or contemporaneous with filing his bankruptcy petition .... Witko's malpractice cause of action was unknown, not even rising to a hope; the most pessimistic curmudgeon could not anticipate that, months later, Witko would lose his alimony claim due to his attorney's malpractice.
Id.
¶ 13. Witko is important to the analysis for another reason. In Strada, the court wrote: "Although the accrual date for state law purposes is important, it is not always critical in deciding whether a cause of action will be 'property of the estate.'" Strada, 326 B.R. at 236. The Witko court's analysis of the legal malpractice action before it is a case in point. There, the court looked to Florida law in determining when a malpractice action accrued. Witko, 374 F.3d at 1043. Witko was a Florida resident who sued for malpractice in a Florida court. Under Florida law, a cause of action for legal malpractice has three elements: (1) the attorney's employment, (2) the attorney's neglect of a reasonable duty, and (3) the attorney's negligence was the proximate cause of loss to the client. Id. at 1043-44. Discussing the third element, the Florida Supreme Court unambiguously held that until the underlying action is concluded with an outcome adverse to the client, "a
Order affirmed.
The original complaint was filed on June 3, 2010, but was later amended to drop some of the claims. Both the original and amended complaints were filed by Williamson and Westwind Holdings, LLC. However, Westwind's claims against Hi-Liter and Faust were not dismissed at the trial court level and are not the subject of this appeal. We limit our discussion to the misrepresentation claims in the amended complaint that are the subject of this appeal.
We will refer to the respondents collectively as Hi-Liter for the remainder of this opinion.
All references to the Wisconsin Statutes are to the 2009-10 version unless otherwise noted.
11 U.S.C.A. § 541 (West 2012) also contains some exceptions to the broad statement of what is the property of the estate, but those exceptions are not relevant to this opinion. We additionally note that although the current version of § 541 on Westlaw shows an effective date of December 22, 2010, the parties do not dispute the applicability of the relevant language in § 541(a)(1) to this case.
As both of the parties point out, Segal v. Rochelle, 382 U.S. 375, 379 (1966), analyzed a predecessor to 11 U.S.C.A. § 541, not § 541. However, as Respondents note, Segal has continued to be applied with reference to § 541. See, e.g., In re Plumlee, 236 B.R. 606, 611 (E.D. Va. 1999); In re Witko, 374 F.3d 1040, 1043 (11th Cir. 2004); In re Strada Design Assocs., Inc., 326 B.R. 229, 236 (Bankr. S.D.N.Y 2005).
To state a claim for intentional misrepresentation, the following allegations must be made: (1) the defendant made a factual representation, (2) which was untrue, (3) the defendant either made the representation knowing it was untrue or made it recklessly without caring whether it was true or false, (4) the defendant made the representation with intent to defraud and to induce another to act upon it, and (5) the plaintiff believed the statement to be true and relied on it to his/her detriment. Ramsden v. Farm Credit Servs. of N. Cent. Wis. ACA, 223 Wis. 2d 704, 718-19, 590 N.W.2d 1 (Ct. App. 1998).