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United States District Court for the Eastern District of Wisconsin
October 27, 2022, Decided; October 27, 2022, Filed
Case No. 21-cv-1027-bhl
ORDER REVERSING AND REMANDING CASE
] Under Bankruptcy Code Section 727(b), a Chapter 7 debtor's bankruptcy discharge eliminates the debtor's liability for "all debts that arose before the date of the order for relief." 11 U.S.C. §727(b) (emphasis added). This appeal concerns the application of that provision to liabilities arising after the bankruptcy but based on the debtor's pre-bankruptcy promise to guarantee the obligations of a third party. The bankruptcy court concluded it was bound by the Seventh Circuit's decision in Saint Catherine Hospital of Indiana, LLC v. Indiana Family and Social Services Administration, 800 F.3d 312 (7th Cir. 2015) to hold the debts in this case were discharged even though it is undisputed that the transactions that gave rise to the debts did not occur until four years after the debtor filed his joint bankruptcy petition. In re Schlundt, No. 14-20454-beh, 2021 Bankr. LEXIS 2265, 2021 WL 3700401, at *2 (Bankr. E.D. Wis. Aug. 19, 2021). Because that conclusion rests on an overbroad reading of Saint Catherine and is contrary to the plain terms of the Bankruptcy Code, this Court will reverse and direct the bankruptcy court to [*2] enter declaratory judgment in favor of Reinhart.
From 2003 through 2018, David Schlundt was the owner and sole member of The Refuge, LLC, a restaurant in Antigo, Wisconsin. (ECF No. 2-2 at 29; ECF No. 2-3 at 56.) In that capacity, on September 11, 2003, Schlundt signed a supply agreement (Agreement) with Reinhart FoodService LLC (Reinhart). (ECF No. 2-3 at 56.) Under the Agreement, Reinhart agreed to provide Schlundt's restaurant with goods and services subject to enumerated conditions, including payment terms to be set by Reinhart's credit department. (Id. at 34-35.) Among other things, payments not made in accordance with those terms would be subject to a delinquency charge. (Id. at 35.)
Within the same document, Schlundt also signed an "Individual Personal Guaranty." (Id.) Under this provision, Schlundt agreed that in exchange for Reinhart's extension of credit to his restaurant, he would "personally guarantee prompt payment of any obligation" of The Refuge to Reinhart "whether now existing or hereinafter incurred." (Id.) He further promised "to pay on demand any sum which is due . . . whenever [The Refuge] fails to pay same." (Id.) And he confirmed that the guaranty was [*3] "absolute, continuing, and irrevocable." (Id.)
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2022 U.S. Dist. LEXIS 195544 *; 72 Bankr. Ct. Dec. 3; __ B.R. __; 2022 WL 15523157
REINHART FOODSERVICE LLC, Appellant, v. DAVID S SCHLUNDT, et al, Appellee.
Subsequent History: Appeal filed, 11/22/2022
Prior History: Reinhart FoodService L.L.C. v. Schlundt (In re Schlundt), 2021 Bankr. LEXIS 2265, 2021 WL 3700401 (Bankr. E.D. Wis., Aug. 19, 2021)
bankruptcy court, personal guaranty, pre-petition, bankruptcy petition, post-petition, contingent, guaranty, promise, discharged, bankruptcy discharge, restaurant, terminate, conduct test, goods and services, bankruptcy filing, legal liability, plain terms, give rise, reimbursements, contractual, automatic
Bankruptcy Law, Discharge & Dischargeability, Liquidations, Eligible Debts, Commencement of Case, Voluntary Cases, Order for Relief, Judicial Review, Standards of Review, Clear Error Review, Civil Procedure, Judgments, Summary Judgment, Entitlement as Matter of Law, De Novo Standard of Review, Appellate Review, Standards of Review, Procedural Matters, Adversary Proceedings, Judgments, Claims, Types of Claims, Definitions, Filing Requirements, Filing of Petition, Business & Corporate Compliance, Contracts Law, Types of Contracts, Guaranty Contracts