Kubly, Matter of
| Decision Date | 11 May 1987 |
| Docket Number | No. 86-2734,86-2734 |
| Citation | 818 F.2d 643 |
| Parties | Bankr. L. Rep. P 71,803 In the Matter of Richard A. KUBLY, et al., Debtors. WISCONSIN DEPARTMENT OF INDUSTRY, LABOR AND HUMAN RELATIONS, Plaintiff-Appellant, v. MARINE BANK MONROE, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Dewitt J. Strong, Asst. Atty. Gen., Dept. of Justice, Stuart D. Levitan, Dept. of Justice, Madison, Wis., for plaintiff-appellant.
Charles R. Wellington, Kittelson-Barry-Ross-Wellington, Monroe, Wis., for defendant-appellee.
Before WOOD and EASTERBROOK, Circuit Judges, and WILL, Senior District Judge. *
The Wisconsin Department of Industry, Labor and Human Relations has a dispute with Marine Bank Monroe, Wisconsin, about what to do with the proceeds of a sale of assets belonging to Kubly Construction Company, Inc. The Department believes it is entitled to some $11,000 of the money as assignee of wage claims of the Construction Co.'s employees under Wis.Stat. 109.09(2). The Bank wants to keep the whole $63,000 on the ground that it had a perfected security interest in the property sold, an interest that survived in the proceeds and trumps the Department's later-acquired interest. The statute gives the Department a super priority, to which the Bank replies that the statute is inapplicable, unconstitutional, or both. Both a bankruptcy judge and a district judge, 65 B.R. 845 (W.D.Wis.1986), concluded that the statute does not apply, although for different reasons.
We do not resolve the parties' dispute, however, because this case is not within federal jurisdiction. The case arises under state law, and the parties are not of diverse citizenship. The Department filed its claim as an adversary proceeding in the bankruptcy of Richard and Linda Kubly, who owned the Construction Co.'s stock and were co-makers of its notes to the Bank. The Construction Co. has not filed for bankruptcy. The proceeds belong to the Construction Co., the Bank, or the Department; the Kublys have not claimed them. The Department did not seek anything of the Kublys; its grievance was with the Construction Co. and the Bank. And the resolution of the Department's dispute with the Bank cannot affect either the Kublys or their other creditors. The Bank had a security interest worth about $400,000 in the Kublys' personal property, which was worth less than $140,000. An addition of $11,000 if the Bank must pay the Department, which would leave a larger deficiency on the joint notes, would not change the position of the Bank relative to any other creditor, or of any other creditors among themselves. On the day the Department filed its adversary proceeding against the Bank, it had to be apparent that only the Bank would recover money from the Kublys and that the precise amount of the Bank's claim was irrelevant to any dispute among creditors or between the Bank and the Kublys. The Kublys claimed their exemptions, turned the rest of their property over to the Bank, and were discharged. Only this adversary proceeding remains of the Kublys' bankruptcy, and like the Cheshire Cat's smile it has no visible means of support.
In re Xonics, Inc., 813 F.2d 127 (7th Cir.1987), holds that disputes among creditors of a bankrupt come within the federal bankruptcy jurisdiction only if they involve property of...
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