Weekly Case Digests December 16, 2019 December 20, 2019.

Byline: WISCONSIN LAW JOURNAL STAFF

7th Circuit Digests

7th Circuit Court of Appeals

Case Name: City of Chicago, Illinois v. Marilyn O. Marshall

Case No.: 17-3630

Officials: EASTERBROOK, ROVNER, and HAMILTON, Circuit Judges.

Focus: Bankruptcy Chapter 13 Payment Plan

In re Steenes, 918 F.3d 554 (7th Cir. 2019) (Steenes I), holds that the confirmation of a payment plan under Chapter 13 of the Bankruptcy Code causes the debtor's assets, including automobiles, to revert to the debtor's personal ownership unless the judge has made a debtor-specific finding under 11 U.S.C. 1327(b). We thought that this conclusion resolved the appeals. Although counsel briefed an additional questionwhether automotive fines incurred by estates during confirmed Chapter 13 payment plans should be treated as administrative expensesthe City of Chicago said that this question need not be answered if we decided the 1327(b) issue in its favor, as we did.

Section 1305(a) allows a city to file a proof of claim for unpaid taxeswhich means, Steenes and Dudley contend, that a city may not recover unpaid fines and penalties. Otherwise 1305(a)(1) would be surplusage, the argument runs, and it must not be read that way. See Hall v. United States, 566 U.S. 506, 517 (2012). This is a non-sequitur. Section 1305 does not mention administrative expenses, as defined in 503, or change the priority of payment laid out in 507. It does not read like an exemption from payment, so that a debtor under Chapter 13 who hired a chauffeur would not ever need to pay the employee's wages. (After all, 1305 does not mention wages any more than it mentions fines.) To the extent 1305 bears on our situation, the important subsection is 1305(a)(2), which authorizes claims for "property or services necessary for the debtor's performance under the plan." That reference to necessity kicks us back to 503(b)(1)(A), which says that necessary expenses receive administrative priority. And, as we have mentioned several times, it won't do to ask whether violating local law was itself "necessary"; the question is whether operating a vehicle is necessary to earn the money needed to perform the Chapter 13 plan. If the answer is yesand the debtors insist that cars are essentialthen the costs of operating that necessary asset are themselves necessary. That's why a debtor who must pay to park in private parking lots also must pay to park on public streets. The debtors have not cited any appellate decision holding or even suggesting that administrative expenses as defined in 503(b)(1)(A) are outside the scope of 1305(a)(2).

We hold that vehicular fines incurred during the course of a Chapter 13 bankruptcy are administrative expenses that must be paid promptly and in full.

Reversed

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7th Circuit Court of Appeals

Case Name: Steven Menzies v. Seyfarth Shaw LLP, et al.

Case No.: 18-3232

Officials: HAMILTON, SCUDDER, and ST. EVE, Circuit Judges.

Focus: RICO Claims

Insurance executive Steven Menzies sold over $64 million in his company's stock but did not report any capital gains on his 2006 federal income tax return. He alleges that his underpayment of capital gains taxes (and the related penalties and interest subsequently imposed by the Internal Revenue Service) was because of a fraudulent tax shelter peddled to him and others by a lawyer, law firm, and two financial services firms. Menzies advanced this contention in claims he brought under the Racketeer Influenced and Corrupt Organizations Act or RICO and Illinois law. The district court dismissed all claims.

Menzies's RICO claim falls short on the statute's pattern of-racketeering element. Courts have labored mightily to articulate what the pattern element requires, and Menzies's claim presents a close question. In the end, we believe Menzies failed to plead not only the particulars of how the defendants marketed the same or a similar tax shelter to other taxpayers, but also facts to support a finding that the alleged racketeering activity would continue. To conclude otherwise would allow an ordinary (albeit grave) claim of fraud to advance in the name of RICOan outcome we have time and again cautioned should not occur. In so holding, we in no way question whether a fraudulent tax shelter scheme can violate RICO. The shortcoming here is one of pleading alone, and it occurred after the district court authorized discovery to allow Menzies to develop his claims.

As for Menzies's state law claims, we hold that an Illinois statute bars as untimely the claims advanced against the lawyer and law firm defendants. The claims against the two remaining financial services defendants can proceed, however.

So we...

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