MEMORANDUM DECISION

ROBERT D. MARTIN, UNITED STATES BANKRUPTCY JUDGE.

This 2010 bankruptcy case has returned after the United States Supreme Court affirmed that the debtors' only significant asset, an "inherited IRA," is not exempt. To administer that asset, the trustee has objected to a state-created lien claimed by an executing judgment creditor. Avoidance of that lien was asserted by the trustee in 2012, on different grounds, but that adversary proceeding was dismissed by stipulation while the parties awaited a final ruling on the IRA exemption.

Prior to filing bankruptcy, the debtors' business was adjudged to be in breach of a personally guaranteed commercial lease. Judgment in the amount of $73,620.61 was entered against them in state court. To enforce the judgment, Resul and Zinigie Adili d/b/a Kegonsa Plaza (collectively "KP") served the debtors with an order to appear before the court commissioner for a supplemental examination. At the time, all parties believed that service of that order created a receiver's lien in favor of KP pursuant to Wis. Stat. § 816.03 and In re Badger Lines, Inc., 224 Wis.2d 646, 590 N.W.2d 270 (1999). Before the supplemental examination occurred, the debtors filed bankruptcy. KP filed a proof of claim for $85,407.98, asserting the claim was secured by all of the debtors' non-exempt assets.

While the IRA exemption issue was being pursued, the trustee filed an adversary proceeding against KP alleging that the receiver's lien constituted an avoidable preferential transfer. He also alleged that KP was not entitled to a secured claim under § 502(d) to the extent he avoided the receiver's lien. Both parties admitted that a receiver's lien arose, under the then current state law, on debtors' non-exempt assets. The contested issues were (1) whether debtors were insolvent; (2) whether debtors' property was transferred for KP's benefit; and (3) whether the transfer enabled KP to receive more than it would have received in a chapter 7 distribution. These issues largely turned on whether debtors could exempt their inherited IRA. Prior to the scheduled trial, the parties stipulated to a dismissal with prejudice. Thus, the issue of lien validity was never tried and no court ruled on it.

Very shortly after the U.S. Supreme Court rendered its decision, the Wisconsin Supreme Court issued an opinion placing a new and substantial doubt on the validity of KP's lien. Without acknowledging that it was overruling the case on which the trustee and KP relied, the Wisconsin Supreme Court undercut the foundation of In re Badger in Associated Bank v. Collier, 355 Wis.2d 343, 852 N.W.2d 443 (2014). The trustee now objects to KP's secured claim pursuant to 11 U.S.C. § 502(a) based on Associated Bank N.A. v. Collier,1 Although the claim would have been secured under previous interpretations of In re Badger, he argues Collier clarifies that there is no lien and therefore, no collateral securing KP's claim.2 McFarland State Bank ("MSB") joins in this objection as the assignee of Evergreen State Bank.

The validity of the lien depends on two determinations: (1) whether Collier applies retroactively and (2) whether this court is precluded from hearing this objection.

I. The court should apply Associated Bank v. Collier retroactively.

Associated Bank v. Collier, 355 Wis.2d 343, 852 N.W.2d 443, appears to change what is required to obtain a receiver's lien as described in In re Badger Lines, 224 Wis.2d 646, 590 N.W.2d 270. Badger Lines came before the Wisconsin Supreme Court on a certified question from the United States Court of Appeals for the Seventh Circuit. Id. at 648, 590 N.W.2d 270. "The essential question before [the] court [was] whether a creditor who initiates supplementary proceedings under chapter 816 must do more than serve a debtor with notice to appear in order to obtain a superior lien that cannot be overcome by another creditor on a simple contract." Id. at 648-49, 590 N.W.2d 270.3

Prior to bankruptcy, Badger's creditor took a number of steps to collect its claim: (1) obtained a default judgment, (2) docketed it, (3) obtained and served an order directing Badger to appear for a supplementary proceeding and enjoining Badger from transferring its assets, (4) had a supplemental receiver appointed, and (5) issued a turnover order instructing turnover of its assets and enjoining Badger from transferring its assets. Id. at 649, 590 N.W.2d 270. The bankruptcy filing prompted a preference action by the trustee. Id. While the parties were arguing about the perfection date for the purposes of a preference action, the court questioned whether perfection was even necessary. Id. at 653, 590 N.W.2d 270 ("The parties are in agreement that Wisconsin law does not specify whether a receiver's lien must be perfected and, if so, how that is to be accomplished").

Id. at 654-55, 590 N.W.2d 270. The court concluded "a creditor's lien is valid and superior against other creditors at the time the creditor serves the debtor with a summons to appear at the supplementary proceeding under Wis. Stat. § 816.03(1)(b)." Id. at 649, 590 N.W.2d 270. However, this holding must be read in conjunction with the court's other conclusion that "the appointment of a receiver is [not] the apogee of obtaining a valid lien against a debtor [because it is] nothing more than a `formal matter.'" Id. at 656, 590 N.W.2d 270. Consequently, when the court held "Wisconsin law does not require a creditor to take additional steps to perfect a receiver's lien beyond service on the debtor," the decision was generally interpreted as creating a receiver's lien at the moment a party was served with an order to appear for a supplemental examination. Id. at 661, 590 N.W.2d 270. Thus, service created a secret lien which required no general notice or perfection to gain priority over subsequent liens.4

In Associated Bank v. Collier, the Wisconsin Supreme Court decided to clarify In re Badger and held "[m]erely serving an order to appear for supplemental proceedings also will not create a common law lien on the debtor's personal property." Associated Bank, N.A. v. Collier, 355 Wis.2d at 366, 852 N.W.2d 443; see also Attorney's Title Guar. Fund, Inc. v. Town Bank, 2014 WI 63, ¶ 31, 355 Wis.2d 229, 850 N.W.2d 28 2014("The only action Town Bank took was to move for the appointment of a supplementary receiver and to grant that receiver the authority to proceed on Brophy's malpractice claim. The court never ruled on Town Bank's motions. Stated otherwise, because Town Bank did not levy before Heartland achieved statutory perfection, we conclude that Heartland has the superior interest in the proceeds. See Associated Bank, 355 Wis.2d 343, ¶ 38, 852 N.W.2d 443"). In distinguishing Badger Lines from Collier, the court notes:

Collier, 355 Wis.2d at 365-66, 852 N.W.2d 443(Discussing the fact that, in In re Badger Lines, a supplemental receiver had been appointed to administer Badger Lines' property for the benefit of the creditor before the case made its way to the court). Basically, Collier asserts that a lien is not actually created until levy occurs. Id. at 355, 852 N.W.2d 443 ("... entering a judgment in the judgment and lien docket does not create a statutory lien on the debtor's personal property, instead a judgment creditor obtains an unsecured, inchoate interest with regard to the debtor's personal property, tangible and intangible, against which to levy.") Collier did not, however, address whether a lien could "relate hack" to the date of service for priority purposes when two judgment creditors each attempt to levy. Id. at footnote 8 ("It should be noted that when two judgment creditors with docketed money judgments each attempt to levy identified, non-exempt personal property, or when a perfected secured party's rights are at issue, further analysis may be necessary to determine relative priorities"). Yet, the only way to reconcile Collier's statement that it was merely distinguishing Badger, rather than overruling it, is to infer that the lien "related back" to the date of service for the purposes of priority only.

The majority in Collier, however, may have been somewhat disingenuous when it interpreted the holding of Badger Lines. The dissent in Collier is probably correct in its assertion that Badger Lines created a secret lien at the time of service. In fact, the author of Badger Lines, Justice Ann Bradley, joined the dissent of Collier arguing the majority actually overruled Badger. Collier, 355 Wis.2d at 391, 852 N.W.2d 443 ("The Wisconsin Supreme Court, In re Badger Lines, Inc., held that service upon the debtor of an order to appear at a supplemental examination under Chapter 816 establishes at the time of service a lien in favor of the creditor without requiring the creditor to take additional steps to perfect the lien").

If Collier, in effect, overruled Badger Lines, we still must decide whether Collier should be applied retroactively.5 The Wisconsin Supreme Court has stated three factors for retroactive application: "(1) whether the holding establishes a new rule of law, either by overruling clear past precedent on which litigants may have relied, or by deciding an issue of first impression, the resolution of which was not clearly foreshadowed; (2) whether retroactive application would further or impede the operation of the new rule and (3) whether retroactive application could produce substantial inequitable results." State ex rel. Buswell v. Tomah Area Sch. Dist., 2007 WI 71, ¶ 46, 301 Wis.2d 178, 732 N.W.2d 804 2007.

Assuming Collier overruled Badger and KP would not have a lien because it never levied on debtors' assets, retroactive application of that rule would not produce substantially inequitable results. KP's argument that it relied on the previous law by litigating the IRA issue to completion is not persuasive. The IRA is the only asset in the estate. Even an unsecured creditor would have had a strong motivation to litigate that the IRA was non-exempt to increase its chances of receiving payment on its claim. Moreover, KP's role in the litigation was largely redundant to that of the trustee. In the absence of a showing of true prejudice, applying Collier retroactively furthers operation of the new rule of law. So, even if KP had a lien under Badger Lines, the Collier holding applies retroactively to remove it.

II. This court is not precluded from hearing this objection

The trustee stipulated to dismissal of his preference action and it was so ordered by this court. But that order does not preclude our taking up the question of whether KP's claim is secured by a valid lien. The validity of the lien had been admitted, but both the admission and the dismissal predated Associated Bank v. Collier. And, while the validity of the lien could have been litigated in the dismissed adversary proceeding, it was not. Nor, were the parties required to do so.6

A. The court is not precluded by res judicata because the causes of action are not identical.

"The preclusive effect of a federal-court judgment is a matter of federal common law." Firishchak v. Holder, 636 F.3d 305, 308 (7th Cir.2011)(citing Taylor v. Sturgell, 553 U.S. 880, 891, 128 S.Ct. 2161, 171 L.Ed.2d 155 (2008)). Generally, federal common law does not allow new precedent to overcome the doctrine of claim preclusion ("res judicata"). Justice v. Town of Cicero, Ill., 827 F.Supp.2d 835, 839 (N.D.Ill.2011)(citing Alvear-Velez v. Mukasey, 540 F.3d 672, 678 (7th Cir. 2008)).

In order to preclude the claim objection under the doctrine of res judicata, three elements must be met: "(1) an identity of the parties or their privies; (2) an identity of the causes of action; and (3) a final judgment on the merits in the earlier suit." Andersen v. Chrysler Corp., 99 F.3d 846, 852 (7th Cir.1996). Only the second element, identity of causes of action, has been disputed.

The United States Court of Appeals for the Seventh Circuit explained how to determine if a cause of action is similar for the purposes of res judicata:

Andersen v. Chrysler Corp., 99 F.3d at 852-53. The key inquiry is whether the claims depend on proof of the same factual allegations.

Generally, courts are split on whether a § 502 claim and § 547 claim are identical for the purposes of res judicata. Some courts cite Katchen v. Landy, 382 U.S. 323, 330-31, 86 S.Ct. 467, 15 L.Ed.2d 391 (1966), for the notion that claim allowance and avoidance actions should be brought at the same time:

In re Cambridge Indus. Holdings, Inc., 2006 WL 516764, at *2 (D.Del. Mar. 2, 2006)(Explaining the Katchen argument but ultimately concluding it only applied to jurisdiction). However, other courts decline to apply res judicata when a claim is allowed and the trustee subsequently tries to avoid the lien as a preference. See In re Popular, 395 B.R. 587, 592 (Bankr. D.N.J.2008)("The district court, however, found that `Katchen does not stand for the proposition that the trustee waives his right to initiate a preference action against a creditor if he fails to raise a preference objection during the claims-allowance process.' In re Cambridge Holdings, 2006 WL 516764 at *2. Katchen focused on the relationship between a preference action and the claim-allowance process, but simply in a jurisdictional sense. Peltz v. Gulfcoast Workstation Group (In re Bridge Info. Systems, Inc.), 293 B.R. 479, 488 (Bankr.E.D.Mo. May 28, 2003)"). I was unable to find any case where a preference action was determined and then followed by a claim objection. But, a claim objection under § 502(a) may cover a much broader factual inquiry than a preference action. If a court is not precluded from hearing a preference action after a claim is allowed, then logically, the court is not precluded from hearing a claim objection after a preference action is dismissed, unless the dismissal is based on a failure to prove the fact on which the claim objection is dependent.

The trustee's admission, that KP's lien was valid, was not included in the dismissal order or stipulation, it occurred in a pre-trial statement with no binding effect. The validity of the lien, which is central to the claim objection, was not a contested issue for the preference recovery. The facts necessary to support the preference allegations are only tenuously related. After recognizing that the creation of the lien affected a transfer of the debtors' property, the controlling issue became the debtors' financial status at the time of filing. The factual allegations of the two causes of actions, while related, are not the same. Accordingly, the claim objection is not precluded by the outcome of the preference recovery proceeding.

B. The court is not precluded based on law of the case because there is an exception for intervening precedent.

"Although we have described the `law of the case as an amorphous concept,' `as most commonly defined, the doctrine posits that when a court decides upon a rule of law, that decision should continue to govern the same issues in subsequent stages in the same case.'" Pepper v. U.S., 562 U.S. 476, 131 S.Ct. 1229, 1250, 179 L.Ed.2d 196 (2011)(citing Arizona v. California, 460 U.S. 605, 618, 103 S.Ct. 1382, 75 L.Ed.2d 318 (1983)). It is important to note, this doctrine does not limit the tribunal's power, only directs its discretion. Id.

While law of the case seems applicable, there is an exception for intervening case law. "The doctrine, however, allows some flexibility, permitting a court to revisit an issue if an intervening change in the law, or some other special circumstance, warrants reexamining the claim." United States v. Thomas, 11 F.3d 732, 736 (7th Cir.1993)(citing United States v. Mazak, 789 F.2d 580, 581 (7th Cir.1986)). As discussed earlier, either KP did not originally obtain a lien or there was a change in law. Thus, law of the case does not preclude the court from hearing this objection.

C. The court is not precluded based on estoppel by record because the admission was conditioned on the controlling precedent, In re Badger.

In general, estoppel prohibits a person from contradicting what he earlier affirmed. Caulfield v. Noonan, 229 Iowa 955, 295 N.W. 466, 471 (Iowa 1940). Estoppel by record is a concept taken from early English law. Jack Friedenthal et al., Civil Procedure, 651 (4th ed. 2005)("An incontestable presumption of truth was attached to the records made by the King's court ... In its new role, it supported the preeminence of the King's courts, which were `of record' over lower courts, which did not keep formal transcripts"). The English courts' records are no longer considered to be unimpeachable as the word of the king (now queen) and the doctrine of estoppel by record is rarely raised as a modern day preclusion argument. Id.

The trustee's admission in the pre-trial statement that the lien was valid pursuant to In re Badger does not estop his application of the change in law wrought by Collier. KP cites Mutual Life Ins. Co. of Newark v. Newton, 89 U.S. 22 Wall. 32, 22 L.Ed. 793 (1874), for the proposition that every admission is taken as a fact for the purposes of estoppel by record. The exact wording of the case, however, suggests KP has misinterpreted its application:

Id. at 35 (emphasis added). The Supreme Court made sure to highlight that the admission must be interpreted in light of any qualifications which limit, modify, or destroy its effect. The trustee based his admission on his interpretation of Badger. Debtors never agreed to give KP a lien and the trustee's admission does not create one if it did not already exist under law. Consequently, the pre-trial admission does not preclude the claim objection.

D. The court is not precluded based on laches because there is not an adequate showing of lack of diligence or prejudice.

KP argues the objectors sat on their rights and the objection is barred by the doctrine of laches. "This defense `requires proof of (1) lack of diligence by the party against whom the defense is asserted and (2) prejudice to the party asserting the defense.' Kansas v. Colorado, 514 U.S. 673, 687, 115 S.Ct. 1733, 131 L.Ed.2d 759 (1995) (quoting Costello v. United States, 365 U.S. 265, 282, 81 S.Ct. 534, 5 L.Ed.2d 551, (1961))." Pruitt v. City of Chicago, Illinois, 472 F.3d 925, 927 (7th Cir.2006).

This case is unique in that it was a "no asset" case prior to the U.S. Supreme Court's June 12, 2014 decision that an inherited IRA was not exempt. See Clark v. Rameker et al., ___ U.S. ___, 134 S.Ct. 2242, 189 L.Ed.2d 157 (2014). One month later, the Wisconsin Supreme Court decided Collier. The objectors objected on September 26, 2014, two months after the Collier decision. A two month delay is reasonable given the circumstances. Furthermore, KP was not prejudiced because the assets of the estate have yet to be distributed. The facts of this case do not indicate a lack of diligence or prejudice to KP. The doctrine of laches is not applicable.

III. Conclusion: The claim is disallowed.

The objecting party must produce evidence sufficient to rebut the presumption of a proof of claim's validity. In re Hood, 449 Fed.Appx. 507, 509-10 (7th Cir.2011). The objectors did so. Accordingly, the burden shifted to KP de novo. See In re Airadigm, 376 B.R. 903, 916 (Bankr.W.D.Wis.2007). KP asserted several theories of preclusion which are not persuasive. Therefore, KP's claim is disallowed as a secured claim and allowed as an unsecured claim without post-petition interest. It may be so ordered.