Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca7-16-01334/USCOURTS-ca7-16-01334-0/pdf.json

Parties Involved:
Greg Griswold
Appellant
Laura Wierzbicki
Not Party
Brenda L. Zeddun
Appellee

Document Text:

In the 

United States Court of Appeals 

For the Seventh Circuit ____________________

No. 16‐1334

IN RE:

LAURA A. WIERZBICKI,

Debtor,

BRENDA L. ZEDDUN, Trustee in Bankruptcy,

Plaintiff‐Appellee,

v.

GREG GRISWOLD,

Defendant‐Appellant.

____________________

Appeal from the United States District Court for the

Western District of Wisconsin

No. 14‐cv‐718‐jdp — James D. Peterson, Judge.

____________________

SUBMITTED JULY 22, 2016— DECIDED JULY 27, 2016

____________________

                                                 

 After examining the briefs and the record, we have concluded that

oral argument is unnecessary. Thus the appeal is submitted on the briefs

and the record. See Fed. R. App. P. 34(a)(2)(C).

Case: 16-1334 Document: 18 Filed: 07/27/2016 Pages: 10
2 No. 16‐1334

BeforeWOOD,Chief Judge, andROVNER and HAMILTON,Cir‐

cuit Judges.

PER CURIAM. This appeal illustrates how courts should de‐

termine whether a debtor in bankruptcy received reasonably

equivalent value in deciding whether a pre‐bankruptcy trans‐

fer 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 bank‐

ruptcy. The bankruptcy trustee brought an adversary pro‐

ceeding 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 re‐

ceived reasonably equivalent value in exchange for the prop‐

erty. See 11 U.S.C. § 548(a)(1)(B).

After a trial Bankruptcy Judge Martin avoided the trans‐

fer, concluding that Griswold had exchanged nothing of value

for the farm. Whether a debtor has received reasonably equiv‐

alent value in an exchange of property is a question of fact,

and appellate review of such a finding is deferential, asking

whetherthe finding of fact is clearly erroneous. See In re Image

Worldwide, Ltd., 139 F.3d 574, 576 (7th Cir. 1998).

Case: 16-1334 Document: 18 Filed: 07/27/2016 Pages: 10
No. 16‐1334 3

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 relation‐

ships soured. Griswold sued Wierzbicki in state court for un‐

just enrichment and collateral estoppel. Wierzbicki counter‐

claimed 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 chal‐

lenging the trial judge’s refusal to recuse himself, and a sepa‐

rate 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 litiga‐

tion, 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 dis‐

pute 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.

Case: 16-1334 Document: 18 Filed: 07/27/2016 Pages: 10
4 No. 16‐1334

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 equiva‐

lent 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 pro‐

vided reasonably equivalent value and that the farm’s value

to Wierzbicki at the time of the transfer was essentially noth‐

ing because of various encumbrances.

After a trial at which both Griswold and Wierzbicki testi‐

fied, 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 ap‐

peals” 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 au‐

thorizes bankruptcy judges to enter final orders in avoidance

actions); In re FBN Food Servs., Inc., 82 F.3d 1387, 1392 (7th Cir.

Case: 16-1334 Document: 18 Filed: 07/27/2016 Pages: 10
No. 16‐1334 5

1996) (explaining that courts of appeals may hear appeals

from final decisions in bankruptcy actions, including avoid‐

ance 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 commit‐

ted.” Unsecured Creditors Comm. of Sparrer Sausage Co. v. Jason’s

Food, Inc., No. 15‐2356, — F.3d —, —, 2016 WL 3213096, at *2

(7th Cir. June 10, 2016), quoting Kovacs v. United States, 614

F.3d 666, 672 (7th Cir. 2010).

In determining whether a debtor received “reasonably

equivalent value,” courts consider all the circumstances of the

transfer, including “the fair market value of what was trans‐

ferred and received, whether the transaction took place at

arm’s length, and the good faith of the transferee.” In re Smith,

811 F.3d 228, 240 (7th Cir. 2016); see Barber v. Golden Seed Co.,

129 F.3d 382, 387 (7th Cir. 1997). The transaction between

Wierzbicki and Griswold was not at arm’s length, and

Wierzbicki’s testimony that “the main reason” she agreed to

give Griswold the farm was to “stop the litigation”—which

was frivolous—suggests that Griswold was not negotiating in

good faith. In light of these standards, we consider Griswold’s

specific arguments.

Griswold first argues that the bankruptcy court overval‐

ued Wierzbicki’s interest in the property at the time of the

transfer by not taking into account a lis pendens that he had

filed in relation to the property. Griswold misunderstands the

significance of a lis pendens. Under Wisconsin law a lis pendens

simply alerts third parties to judicial proceedings involving

real estate. It does not create an encumbrance on the property.

Case: 16-1334 Document: 18 Filed: 07/27/2016 Pages: 10
6 No. 16‐1334

See Wis. Stat. § 840.10; Trade Well Int’l v. United Cent. Bank, 778

F.3d 620, 624 (7th Cir. 2015); Kensington Dev. Corp. v. Israel, 419

N.W.2d 241, 245 (Wis. 1988).

Griswold argues next that two separate $75,000 home‐

stead exemptions that he says would have been available to

him and Wierzbicki should have brought her equity in the

property to zero. This argument has no merit at all. State‐cre‐

ated homestead exemptions, which are incorporated into the

Bankruptcy Code by 11 U.S.C. § 522(b), facilitate fresh starts

for debtors by allowing them to shield from creditors specific

assets or amounts that otherwise would be part of the bank‐

ruptcy estate. See 4 Collier on Bankruptcy ¶ 522.01 (Alan N.

Resnick & Henry J. Sommers eds., 16th ed.) (“A fundamental

component of an individual debtor’s fresh start in bankruptcy

is the debtor’s ability to set aside certain property as exempt

from the claims of creditors.”). Griswold, however, is not the

debtor in this bankruptcy action, so he is not entitled to a

homestead exemption from Wierzbicki’s creditors. See Glad‐

stone v. U.S. Bank Corp., 811 F.3d 1133, 1142 (9th Cir. 2016) (ex‐

plaining that homestead exemption applies only for benefit of

debtor; transferee cannot assert it against creditors in avoid‐

ance action); In re Noblit, 72 F.3d 757, 758 (9th Cir. 1995)

(same). And the availability of a homestead exemption to

Wierzbicki has nothing to do with the fair market value of the

farm when she transferred it.

Griswold next argues that the bankruptcy court erred by

undervaluing his promise to drop his appeals in state court;

that his promises to assume liability for the mortgages and

other liens on the farm provided value; and that the court also

failed to consider the additional benefit to Wierzbicki in lim‐

iting her exposure to liability in a county zoning dispute and

Case: 16-1334 Document: 18 Filed: 07/27/2016 Pages: 10
No. 16‐1334 7

ensuring that their children could remain in their home. All

of these arguments fail, as well.

What Wierzbicki received for the farm was not worth

anywhere close to her $151,000 interest. Griswold’s promise

to assume liability for the mortgages and other liens on the

property was worth no more than the amount of those encum‐

brances—roughly $149,000 or half the property’s value. Those

amounts were already taken into account when the court es‐

timated that Wierzbicki’s equity was about $151,000.

The bankruptcy court also did not err by finding that Gris‐

wold’s promise to drop his state‐court appeals was essentially

worthless. When Wierzbicki gave Griswold the quitclaim

deed, the Wisconsin Court of Appeals had already dismissed

two of his three cases—his appeal of the trial court’s judgment

in favor of Wierzbicki and his petition demanding that she

face criminal charges. All that remained was his appeal of the

trial judge’s refusal to recuse himself and his petitions for dis‐

cretionary review by the state supreme court.

The bankruptcy court did not err as a matter of fact that

Griswold’s appeals had only nuisance value, obviously far be‐

low the value of Wierzbicki’s equity in the farm. Putting aside

the slim chance that Griswold would prevail in those matters,

there was an even more fundamental problem with Gris‐

wold’s theory of value. The stakes of the state‐court litigation

had been ownership of the farm. The deal was to end the liti‐

gation. According to Griswold’s theory of the value he sup‐

posedly provided, Wierzbicki gave up the farm to eliminate the

risk of losing the farm. The only real value to Wierzbicki was

saving the cost of defending against the frivolous remains of

Griswold’s litigation, but as the bankruptcy court found, that

Case: 16-1334 Document: 18 Filed: 07/27/2016 Pages: 10
8 No. 16‐1334

cost would have been minimal compared to her $151,000 in‐

terest in the farm.

As noted, the bankruptcy court’s judgment about reason‐

ably equivalent value is a question of fact. Valuing real estate

and settlements of nuisance litigation is not an exact science.

We have no trouble affirming the bankruptcy court’s judg‐

ment in this case since Wierzbicki gave up a $300,000 farm in

which she had $151,000 equity in exchange for very little

value. See Smith, 811 F.3d at 238 (concluding that purchase

price between 3.8% and 8.8% of fair market value was not rea‐

sonably equivalent to value of property); In re Lindell, 334 B.R.

249, 255–56 (Bankr. D. Minn. 2005) (concluding that arm’s‐

length sale of promissory notes valued at $130,000 for

$50,000—or for 38.5% of notes’ value—was not reasonably

equivalent value under § 548(a)(1)(B)(i) where all payments

had been made on notes in six months prior to sale); In re

McCook Metals, LLC, 319 B.R. 570, 589–90 (Bankr. N.D. Ill.

2005) (concluding that debtor‐company that transferred right

to purchase certain manufacturing equipment—a right val‐

ued at $11.1 million—to another company controlled by same

individual in exchange for note worth $7.8 million did not re‐

ceive reasonably equivalent value). Considering the totality of

the circumstances, the bankruptcy court’s finding that

Wierzbicki did not receive reasonably equivalent value was

exactly right. It certainly was not clearly erroneous.  

The bankruptcy court did not consider as part of the value

received from Griswold two purported benefits to Wierzbicki

listed in the opening recitals of the document they signed:

“bringing closure” to her zoning dispute with the county and

assurance that the couple’s children would “continue to enjoy

Case: 16-1334 Document: 18 Filed: 07/27/2016 Pages: 10
No. 16‐1334 9

the security provided them from residing at their farm home‐

stead.” The district court addressed these purported benefits

and found they were not reasonably equivalent to the value

of the farm. As for the zoning litigation, Griswold did not

promise to assume liability for the cost or consequences of the

zoning litigation. In fact, the district court found, Wierzbicki

had been fined $500 for a zoning violation even after she

transferred the property to Griswold. Griswold testified that

he had paid $32,000 to remove boats from the farm to comply

with zoning regulations, but the district court correctly recog‐

nized that this amount was not reasonably equivalent to the

value of the farm itself.

The district court also found that the benefit of avoiding

further family conflict was too “nebulous” to “support a find‐

ing of reasonable equivalence” in the bankruptcy context,

where a transfer would put an insolvent debtor’s valuable

property beyond the reach of creditors. See In re Hinsley, 201

F.3d 638, 643 (5th Cir. 2000) (explaining that under Texas Uni‐

form Fraudulent Transfer Act intangible, non‐economic ben‐

efits, such as preservation of marriage, did not constitute rea‐

sonably equivalent value); Image Worldwide, 139 F.3d at 577

(explaining that UFTA took phrase “reasonably equivalent

value” from 11 U.S.C. § 548(a)(2)); In re Bargfrede, 117 F.3d

1078, 1080 (8th Cir. 1997) (concluding that “non‐economic

benefits in the form of a release of a possible burden on the

marital relationship and the preservation of the family rela‐

tionship” are “sufficiently analogous to other intangible, psy‐

chological benefits” that they do not constitute reasonably

equivalent value under 11 U.S.C. § 548); In re Treadwell, 699

F.2d 1050, 1051 (11th Cir. 1983) (concluding that love and af‐

fection do not constitute “reasonably equivalent value” under

§ 548). As cold and unsentimental as that rule might seem, it

Case: 16-1334 Document: 18 Filed: 07/27/2016 Pages: 10
10 No. 16‐1334

is easier to understand from the perspective of creditors, most

of whom would probably be unwilling to volunteer to pro‐

vide a financial subsidy to enhance the insolvent debtor’s

family relationships by allowing the debtor to put valuable

property beyond their reach.  

AFFIRMED.

  

Case: 16-1334 Document: 18 Filed: 07/27/2016 Pages: 10