The following is a summary of a Minnesota bankruptcy case or a case relevant to Minnesota bankruptcy law.

Minnesota Bankruptcy Case:

In re Carlson, 414 B.R. 508 (Bankr. D. Minn. 10/09/09) (Kishel, J.).

Case Summary:

Court has no Jurisdiction over Counterclaim

The debtor, Carlson, filed a chapter 7 petition on January 19, 2009. At the time, he was being sued in state court, along with his wife and their corporation, Kodiak Homes, Inc., by Village Bank to foreclose a mortgage against real estate which was titled in the names of one or both of the Carlsons, and which had been pledged by the Carlsons to secure their personal guaranty of Kodiak’s debt. The defendants filed a joint answer and counterclaim, but the counterclaim was only pleaded by Kodiak. The bank made a motion for relief from the automatic stay under 11 U.S.C. § 362(d)(2). The trustee opposed the motion, on the basis that she believed that the counterclaim had merit, that the bank’s debt could not be determined until the counterclaim was liquidated, and that there was a bona fide dispute regarding whether there was equity in the property. The debtor did not list the real estate or counterclaim in his property schedules, or claim an exemption in either, so the court determined that they would both be property of the bankruptcy estate under § 541(a). However, the counterclaim was not the property of the debtor or his wife prior to bankruptcy. Rather, it was property of their corporation, so the right to assert the counterclaim did not pass into the bankruptcy estate. The court raised the issue of its jurisdiction sua sponte. The court determined that the counterclaim was not within the bankruptcy court’s “core proceeding” jurisdiction because 28 U.S.C. § 157(b) does not include a claim for damages brought in the name of a corporation of which the debtor is the sole shareholder. It was not likely to fall within the “any conceivable effect” jurisdiction either. The bankruptcy court decided that the state court would therefore be the more appropriate forum for the litigation. Because the trustee’s only significant argument against the bank’s motion was the benefit of dealing with the counterclaim first in the bankruptcy court, the bankruptcy court determined that relief from the stay was appropriate so long as the bank did not enforce the judgment against the debtor or the debtor’s bankruptcy estate.

Credit: The preceding was a summary of a case relevant to Minnesota bankruptcy law. The case summary was prepared by the U.S. Bankruptcy Court through Judge Robert J. Kressel & attorney Faye Knowles.