IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF WISCONSIN
ERICK HALLICK,
Plaintiff, OPINION and ORDER v.
25-cv-587-jdp LAUREN KELLY,
Defendant.
Plaintiff Erick Hallick seeks a declaratory judgment regarding 11 U.S.C. § 349(b), which addresses the effect of the dismissal of a bankruptcy case on assets that were transferred during the bankruptcy proceedings. The key issue in this case is whether the dismissal of non-party Michael Hull’s bankruptcy case voided defendant Lauren Kelly’s agreement with Hull during those proceedings to transfer her interest in the holding company H Global LLC, of which Hull used to be the sole member, back to H Global. As these opening lines suggest, this case has a convoluted backstory. The background facts shed a bit more light on the parties’ dispute. In April 2021, H Global sold a 10-percent interest in H Global to Kelly. Soon after, Hallick obtained a $13.625-million state-court judgment against Hull. Hull filed for Chapter 11 bankruptcy. During Hull’s bankruptcy proceedings, Kelly agreed to transfer back her 10-percent interest in H Global, which would mean that Hull would again have a 100-percent interest in H Global. The bankruptcy court dismissed Hull’s case. Hallick then sought to enforce his state-court judgment against Hull. In the state-court case, Hallick filed a motion to appoint a supplemental receiver, which the state court granted. Hallick conducted a supplemental examination of Hull, during which Hull apparently testified that Kelly was his right-hand person, and that she maintained the books and records of H Global. The supplemental receiver sold Hull’s interest in H Global to Hallick, which would mean that Hallick had a 100-percent interest in H Global. Hallick then asked Kelly for H Global’s books and records, but Kelly refused to give them to him. Kelly asserted that she still owned a 10-percent interest in H Global, which she contended
reverted back to her upon the dismissal of Hull’s bankruptcy case. This lawsuit followed. Hallick moves for summary judgment on the issue of whether Kelly’s agreement to transfer back her ownership interest was voided by the dismissal of Hull’s bankruptcy case. Dkt. 6 and Dkt. 17. But there is a threshold issue that the court must address before considering the merits: whether the court has subject-matter jurisdiction over the case at all. See Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 94–95 (1998). Both parties contend that the court has subject-matter jurisdiction. See Dkt. 7, at 7; Dkt. 13, at 4; Dkt. 18, at 7. But the court is
obligated to determine whether it has subject-matter jurisdiction, even in the absence of a challenge from any party. Arbaugh v. Y & H Corp., 546 U.S. 500, 514 (2006). “Subject-matter jurisdiction is not an issue that can be brushed aside or satisfied by agreement between the litigants.” DeBartolo v. Healthsouth Corp., 569 F.3d 736, 740 (7th Cir. 2009). Hallick bears the burden of establishing that the court has subject-matter jurisdiction. Travelers Prop. Cas. v. Good, 689 F.3d 714, 722 (7th Cir. 2012). The sole Count in Hallick’s complaint is under 28 U.S.C. § 2201, which is the Declaratory Judgment Act. Dkt. 1, at 5. The Act allows the court “[i]n a case of actual
controversy within its jurisdiction . . . [to] declare the rights and other legal relations of any interested party seeking such declaration.” 28 U.S.C. § 2201(a). The phrase “case of actual controversy” refers to the “Cases” and “Controversies” that are justiciable under Article III. MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007). The Declaratory Judgment Act is “not an independent source of federal subject matter jurisdiction.” GNB Battery Techs., Inc. v. Gould, Inc., 65 F.3d 615, 619 (7th Cir. 1995). Instead, the Act is “operative only in respect to controversies which are such in the constitutional sense.” Aetna Life Ins. Co. of Hartford v.
Haworth, 300 U.S. 227, 240 (1937). That’s because the Act “enlarged the range of remedies available in the federal courts but did not extend their jurisdiction.” Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671 (1950). For the court to have subject-matter jurisdiction over a declaratory judgment action, there must be an independent basis for jurisdiction. Wisconsin v. Ho-Chunk Nation, 512 F.3d 921, 935 (7th Cir. 2008); see Schilling v. Rogers, 363 U.S. 666, 677 (1960). This means that the case must be predicated on a right of action provided by some statute other than the Declaratory Judgment Act. See Alarm Detection Sys., Inc. v. Orland Fire Prot. Dist., 929 F.3d 865,
871 n.2 (7th Cir. 2019); Rueth v. U.S. EPA, 13 F.3d 227, 231 (7th Cir. 1993). The plaintiff does not have to be the party with the predicate right of action; indeed, a plaintiff can seek declaratory relief in anticipation of the defendant bringing a federal lawsuit. See Pub. Serv. Comm’n of Utah v. Wycoff Co., Inc., 344 U.S. 237, 248 (1952). A common example is when a plaintiff seeks a declaratory judgment of noninfringement in anticipation of a threatened patent infringement suit. See, e.g., Medtronic, Inc. v. Mirowski Fam. Ventures, LLC, 571 U.S. 191, 197–98 (2014). In that circumstance, the cause of action underlying the defendant’s hypothetical infringement suit serves as the basis for the plaintiff’s declaratory
judgment action, not the Declaratory Judgment Act itself. See Samuel C. Johnson 1988 Trust v. Bayfield Cnty., 520 F.3d 822, 828 (7th Cir. 2008). To determine whether the court has subject-matter jurisdiction over a declaratory judgment action, the court therefore must “dig below the surface of the complaint and look at the underlying controversy.” NewPage Wis. Sys. Inc. v. United Steel, Paper & Forestry, Rubber, Mfg. Energy Allied Indus. & Serv. Workers Int’l Union, AFL-CIO/CLC, 651 F.3d 775, 777 (7th Cir.
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IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF WISCONSIN
ERICK HALLICK,
Plaintiff, OPINION and ORDER v.
25-cv-587-jdp LAUREN KELLY,
Defendant.
Plaintiff Erick Hallick seeks a declaratory judgment regarding 11 U.S.C. § 349(b), which addresses the effect of the dismissal of a bankruptcy case on assets that were transferred during the bankruptcy proceedings. The key issue in this case is whether the dismissal of non-party Michael Hull’s bankruptcy case voided defendant Lauren Kelly’s agreement with Hull during those proceedings to transfer her interest in the holding company H Global LLC, of which Hull used to be the sole member, back to H Global. As these opening lines suggest, this case has a convoluted backstory. The background facts shed a bit more light on the parties’ dispute. In April 2021, H Global sold a 10-percent interest in H Global to Kelly. Soon after, Hallick obtained a $13.625-million state-court judgment against Hull. Hull filed for Chapter 11 bankruptcy. During Hull’s bankruptcy proceedings, Kelly agreed to transfer back her 10-percent interest in H Global, which would mean that Hull would again have a 100-percent interest in H Global. The bankruptcy court dismissed Hull’s case. Hallick then sought to enforce his state-court judgment against Hull. In the state-court case, Hallick filed a motion to appoint a supplemental receiver, which the state court granted. Hallick conducted a supplemental examination of Hull, during which Hull apparently testified that Kelly was his right-hand person, and that she maintained the books and records of H Global. The supplemental receiver sold Hull’s interest in H Global to Hallick, which would mean that Hallick had a 100-percent interest in H Global. Hallick then asked Kelly for H Global’s books and records, but Kelly refused to give them to him. Kelly asserted that she still owned a 10-percent interest in H Global, which she contended
reverted back to her upon the dismissal of Hull’s bankruptcy case. This lawsuit followed. Hallick moves for summary judgment on the issue of whether Kelly’s agreement to transfer back her ownership interest was voided by the dismissal of Hull’s bankruptcy case. Dkt. 6 and Dkt. 17. But there is a threshold issue that the court must address before considering the merits: whether the court has subject-matter jurisdiction over the case at all. See Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 94–95 (1998). Both parties contend that the court has subject-matter jurisdiction. See Dkt. 7, at 7; Dkt. 13, at 4; Dkt. 18, at 7. But the court is
obligated to determine whether it has subject-matter jurisdiction, even in the absence of a challenge from any party. Arbaugh v. Y & H Corp., 546 U.S. 500, 514 (2006). “Subject-matter jurisdiction is not an issue that can be brushed aside or satisfied by agreement between the litigants.” DeBartolo v. Healthsouth Corp., 569 F.3d 736, 740 (7th Cir. 2009). Hallick bears the burden of establishing that the court has subject-matter jurisdiction. Travelers Prop. Cas. v. Good, 689 F.3d 714, 722 (7th Cir. 2012). The sole Count in Hallick’s complaint is under 28 U.S.C. § 2201, which is the Declaratory Judgment Act. Dkt. 1, at 5. The Act allows the court “[i]n a case of actual
controversy within its jurisdiction . . . [to] declare the rights and other legal relations of any interested party seeking such declaration.” 28 U.S.C. § 2201(a). The phrase “case of actual controversy” refers to the “Cases” and “Controversies” that are justiciable under Article III. MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007). The Declaratory Judgment Act is “not an independent source of federal subject matter jurisdiction.” GNB Battery Techs., Inc. v. Gould, Inc., 65 F.3d 615, 619 (7th Cir. 1995). Instead, the Act is “operative only in respect to controversies which are such in the constitutional sense.” Aetna Life Ins. Co. of Hartford v.
Haworth, 300 U.S. 227, 240 (1937). That’s because the Act “enlarged the range of remedies available in the federal courts but did not extend their jurisdiction.” Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671 (1950). For the court to have subject-matter jurisdiction over a declaratory judgment action, there must be an independent basis for jurisdiction. Wisconsin v. Ho-Chunk Nation, 512 F.3d 921, 935 (7th Cir. 2008); see Schilling v. Rogers, 363 U.S. 666, 677 (1960). This means that the case must be predicated on a right of action provided by some statute other than the Declaratory Judgment Act. See Alarm Detection Sys., Inc. v. Orland Fire Prot. Dist., 929 F.3d 865,
871 n.2 (7th Cir. 2019); Rueth v. U.S. EPA, 13 F.3d 227, 231 (7th Cir. 1993). The plaintiff does not have to be the party with the predicate right of action; indeed, a plaintiff can seek declaratory relief in anticipation of the defendant bringing a federal lawsuit. See Pub. Serv. Comm’n of Utah v. Wycoff Co., Inc., 344 U.S. 237, 248 (1952). A common example is when a plaintiff seeks a declaratory judgment of noninfringement in anticipation of a threatened patent infringement suit. See, e.g., Medtronic, Inc. v. Mirowski Fam. Ventures, LLC, 571 U.S. 191, 197–98 (2014). In that circumstance, the cause of action underlying the defendant’s hypothetical infringement suit serves as the basis for the plaintiff’s declaratory
judgment action, not the Declaratory Judgment Act itself. See Samuel C. Johnson 1988 Trust v. Bayfield Cnty., 520 F.3d 822, 828 (7th Cir. 2008). To determine whether the court has subject-matter jurisdiction over a declaratory judgment action, the court therefore must “dig below the surface of the complaint and look at the underlying controversy.” NewPage Wis. Sys. Inc. v. United Steel, Paper & Forestry, Rubber, Mfg. Energy Allied Indus. & Serv. Workers Int’l Union, AFL-CIO/CLC, 651 F.3d 775, 777 (7th Cir.
2011). If the court has subject-matter jurisdiction to consider the underlying hypothetical controversy, then it also has subject-matter jurisdiction over the declaratory judgment action. See Union Pac. R.R. Co. v. Reg’l Transp. Auth., 74 F.4th 884, 886 (7th Cir. 2023) (jurisdiction over railroad company’s declaratory judgment action because of statutory rights of action against rail carriers). Hallick contends that there is an “actual controversy” here because the parties dispute the ownership of H Global, and a “[d]eclaratory judgment is needed to end this controversy.” Dkt. 7, at 7; Dkt. 18, at 7. But that ignores the jurisdiction issue. Hallick suggests no predicate
right of action upon which to support his declaratory judgment action. Nor does he indicate that his declaratory judgment action is based on an anticipated federal lawsuit against him by Kelly. Both parties believe that they are entitled to the 10-percent interest in H Global, and they believe that the meaning of 11 U.S.C. § 349(b) will resolve their dispute. But the court cannot think of any federal cause of action that governs their dispute; instead, it seems that a state-law claim conversion claim might be the best fit. See Wis. Stat. § 893.51; Wis. Jury Instructions § 2200.1 (refusal to return property upon demand). It appears to the court that this dispute concerns a state-law claim that might involve the interpretation of a federal statute.
But that is not enough to give this court jurisdiction over the case. Hallick has not shown that the court has subject-matter jurisdiction over the dispute. Rather than dismiss this case outright, the court will order Hallick to show cause why the court has subject-matter jurisdiction. If Hallick fails to establish subject-matter jurisdiction, the court will dismiss this case without prejudice.
ORDER IT IS ORDERED that Hallick may have until August 31, 2026, to show cause why this
court has subject-matter jurisdiction over this case; Kelly may have until September 8, 2026, to respond. Entered August 17, 2026. BY THE COURT:
/s/ ________________________________________ JAMES D. PETERSON District Judge