Estate of Stanley Cora v. Jahrling (In re Jahrling)

(7th Cir. Mar. 18, 2016)

The seventh circuit affirms the lower courts’ decisions finding the debt nondischargeable under 11 U.S.C. § 523(a)(4), because the debt arose from the debtor’s “defalcation while acting in a fiduciary capacity.” The debtor was an Illinois attorney that represented the plaintiff when he sold his home. The plaintiff spoke only Polish, and the attorney relied on the buyer’s attorney to translate. The sale price was far below market price and the one term the plaintiff required, a life-estate interest in a portion of the property, was not included. The plaintiff obtained a pre-petition state court judgment for the loss. The seventh circuit explains that defalcation does not require deliberate wrongdoing, but fault greater than negligence is required. In this case, the applicable standard was met. Opinion below.

Judge: Hamilton

Attorneys for Plaintiff: Bert J. Zaczek

Attorneys for Debtor: Golan & Christie, LLP, Robert R. Benjamin, Beverly A. Berneman, Anthony J D’Agostino

2016-03-18 – in re jahrling

Author: Matt Lindblom

Peterson v. McGladrey LLP

(7th Cir. July 7, 2015)

The Seventh Circuit affirms the bankruptcy court’s decision recognizing the in pari delicto defense and dismissing the trustee’s suit against the accounting firm for malpractice. The debtors were mutual funds that were essentially a vehicle for a ponzi scheme. The accounting firm argued that under Illinois law the trustee’s claims were barred by the in pari delicto doctrine. The trustee argued that Illinois courts only apply the doctrine when the parties have committed the same wrong. He argued it should not apply here, where the debtors committed fraud and the firm committed malpractice for failing to detect the fraud. The court applies the doctrine, finding Illinois law does not have such a requirement. Opinion below.

2015-07-07 – peterson v mcgladrey

Author: Matt Lindblom

Schwab v. Oscar (In re SII Liquidation Company)

(6th Cir. B.A.P. Sep. 15, 2014)

The Sixth Circuit B.A.P. affirms the bankruptcy court’s denial of a motion for relief from judgment. The movants were shareholders of the debtor corporation, which had asserted malpractice claims against the debtor’s bankruptcy attorneys. Those claims had been dismissed based on the movants’ lack of standing. One year later, the movants filed the motion for relief from that judgment, asserting new evidence of a conflict of interest in support of the motion. The court finds that the movant’s lack of standing is still dispositive, even if new evidence had surfaced, because the movant failed to appeal the earlier judgment. Opinion below.

2014-09-15 – in re sii liquidation