14 B 44983
This is Debtor 401 Properties Limited Partnership's second Chapter 11 case. Its first Chapter 11 case was found to have been filed in bad faith and dismissed on August 16, 2010 - case number 10 B 28114. The court found that the second case was also filed in bad faith. The Debtor's principals Leon Greenblatt and Andrew Jahelka (as well as its former general partner's representative Michael Horrell) are using the bankruptcy system to wage a battle for control of the Debtor, rather than the appropriate bankruptcy purposes of maximizing recoveries to creditors and maintaining a going concern.
Judge Jacqueline P. Cox - Opinions
Judge Jacqueline P. Cox
August 10, 2016
14 B 44983
15 B 013904, 15 A 00568
In this case a former spouse has asked that certain debts/obligations of a Chapter 7 Debtor established in a Dissolution of Marriage Judgment be held to be not dischargeable under Sections 523(a)(5) and (a)(15) of the Bankruptcy Code. The Court found that the Temporary Spousal Support, Health Care, Pension and Real Estate Tax and Assessments obligations are not dischargeable domestic support obligations. A fine for noncompliance with discovery obligations was held to be not in the nature of support and for that reason is dischargeable. The state court judgment reserved ruling on attorney's fees. When that issue gets resolved this Court will determine whether that obligation can be discharged.
April 26, 2016
09 B 05868, 12 A 00430
Following the Supreme Court’s decision in Wellness International Network v. Sharif, the Seventh Circuit affirmed a 2010 order that this Court entered which found that a Trust that the Debtor (Sharif) administered was the Debtor’s alter-ego and therefore its assets were property of his bankruptcy estate. Since the 2010 order, the Debtor, the Debtor’s sister, and, most recently, the Debtor’s other sister have made no less than 10 attempts to reclaim the Trust assets. These attempts have been well documented in over 180 pages of orders and opinions from this Court, all of which have denied their requests.
Despite all of this, two of the Debtor's sisters recently brought motions seeking to recover the Trust assets. This opinion outlines the seven-year history of the parties' efforts to reclaim the Trust assets. This latest attempt also failed. This opinion includes an Order to Show Cause why the sisters, and their attorney, Maurice J. Salem, should not be sanctioned under Rule 9011 for bringing improper and frivolous motions.
14 B 41542, 15 A 00009
The Debtor defaulted on a vehicle loan within a month of purchasing a 2015 Chevrolet Equinox. He was referred to the vehicle dealership by Uber, the ride-sharing service. AmeriCredit failed to convince the Court that the Debt was nondischargeable because the Debtor refused to reaffirm it and due to various misstatements the Debtor made on the credit application. The Court pointed out that neither Uber nor a representative of the dealership testified. Judgment was entered in favor of the debtor/defendant. The debt was discharged.
February 18, 2016
14 B 44983, 15 A 00499
Court overruled objection that a partial assignee of a note lacks standing to sue on it.
January 28, 2016
15 B 35961
In this matter, the Court granted secured creditor 36 Holdings, LLC’s Motion to Dismiss the Debtor’s Chapter 11 Case. The Debtor is a single-asset real estate entity that filed for bankruptcy on the day a receiver was appointed in a pre-petition state court foreclosure case. The Debtor argued it needed bankruptcy protection from the secured creditor because it interfered with a deal to sell the property in an attempt to acquire the property for itself and because the appointed receiver was not eligible to serve in that capacity due to a conflict of interest. The Debtor could have sought immediate review of the interlocutory receiver order pursuant to Illinois Supreme Court Rule 307(a)(2), but did not. The Court ruled that the bankruptcy case was filed in bad faith because bankruptcy objectives of maximizing value and maintaining going concerns were not implicated herein. The Debtor filed its bankruptcy petition to forum shop. In addition, the Debtor failed to timely file schedules.
November 25, 2015
09 B 05868
In this case, the sister of the Debtor, as the purported executrix of their mother’s (Soad Wattar) testamentary estate, seeks an order vacating a five-year old order directing the turnover of property (the “2010 Motion”) alleged to be the mother’s. The movant argued that the court lacked personal jurisdiction because the mother’s estate was not served with the 2010 Motion.
The movant seeks relief from the bankruptcy court, while contending that it does not consent to the court’s jurisdiction over any state court claims.
On August 5, 2010, the court ordered two financial institutions to turn over to the Chapter 7 Trustee funds held in certain investment accounts and directed the Debtor to account for and turn over to the Trustee all interests and accounts concerning him or the Soad Wattar Revocable Living Trust (the “2010 Order”). The court also ordered the Debtor and his sisters not to interfere with and to cease any act to exercise control over property of the bankruptcy estate, including life insurance policies.
The movant now argues that the 2010 Order is void, seeking redress pursuant to Federal Rule of Civil Procedure 60(b)(4), made applicable under Federal Rule of Bankruptcy Procedure 9024.
The Court denied the motion to vacate the 2010 Order. The movant did not provide evidence that it is a party that was entitled to notice of the 2010 Motion or that the property dealt with in the 2010 Order belonged to a testamentary estate. The will submitted to the Court transferred all of the decedent’s property to a revocable living trust which was held, pursuant to a default judgment in Wellness International Network Ltd. a/k/a WIN, et al. v. Sharif, adversary proceeding no. 09-00770, in 2010, to be the alter ego of the Debtor.
The Court’s finding that the trust was the Debtor’s alter ego was appealed to the District Court, the Seventh Circuit Court of Appeals and the U.S. Supreme Court.
September 24, 2015
08 B 06424
This is a case stressing the importance of counsel representing a debtor in an underlying state court action to get approval, even if retroactive, of the Bankruptcy Court under 11 U.S.C. § 327 for such representation in order to be paid from the bankruptcy estate.
Freeborn & Peters LLP (“Freeborn”) represented the debtor in a pre-petition state court action for defamation brought by a real estate developer against the debtor and two local newspaper organizations in late 2007. The case was litigated and appealed up to the Illinois Supreme Court, which remanded the case to the trial court to award the debtor reasonable attorney’s fees and costs. Ultimately, the trial court entered judgment in the amount of $339,010 in favor of the debtor and against the developer. Freeborn proceeded to attempt collection on the judgment.
Unbeknownst to Freeborn, six months after the lawsuit was filed, the debtor filed for Chapter 13 bankruptcy relief, converted his case to Chapter 7 before the judgment had been entered and eventually received a discharge. However, the debtor failed to disclose the state court lawsuit in both his Schedules and his Statement of Financial Affairs. The developer discovered the debtor’s bankruptcy filing and moved to have the judgment vacated on the basis that the debtor was judicially estopped from enforcing the judgment because he failed to disclose the lawsuit in his bankruptcy case. Rather than contact the Chapter 7 Trustee and get authorization to be employed as special counsel, Freeborn continued to litigate the case and actually argued that the judgment was not property of the bankruptcy estate.
After the developer appealed the state trial court’s denial of its motion to vacate, its counsel notified the Trustee of the civil case. The debtor’s bankruptcy case was reopened. More than a year later, in 2014, the Illinois Appellate Court dismissed the appeal and determined that the debtor’s claim against the developer belonged to the Trustee and the judgment was an asset of the bankruptcy estate. Only then did Freeborn file an application for fees and reimbursement of expenses related to services performed during the debtor’s Chapter 13 case and requested that such fees and expenses be allowed as a secured administrative expense under 11 U.S.C. § 503(b)(1)(A) or (b)(2). Both the Chapter 7 Trustee and the condominium association, which had indemnified the debtor for legal fees, objected to the fee application.
After a hearing, the Court denied Freeborn’s fee application and request for an administrative claim because it did not secure approval of its employment before performing services.
July 14, 2015
13 B 36813
The Court held evidentiary hearings over three days on the objection of the successor lessor of a downtown commercial food court to the claims for rejection damages filed by certain food court tenants to determine the amount of damages due to them pursuant to 11 U.S.C. § 365(g) and (h). The Court also considered the good faith and fair dealing doctrine under Illinois contract law regarding the timing of the formation of the leases and the rejection of the leases under the Code as some of the leases were entered into within only a few months, weeks, or even days in the case of two tenants, before the motion to reject them was filed.
As of the petition date, Debtor Dearborn Retail, LLC, owned the food court space located at 201 N. Clark Street in Chicago. Subsequently, Garvey Court, LLC, an entity controlled by Bighorn Capital, Inc. acquired the property. The Court granted Debtor’s motion, in connection with the acquisition, to reject the leases of eighteen food court tenants. As part of the rejection order, Garvey Court agreed to assume the obligations, if any, to pay damages and/or termination fees that resulted from such rejections. Neither Debtor nor Garvey Court issued a notice of early termination pursuant to the leases.
Under the terms of an agreed claims resolution order, an evidentiary hearing was held to determine the amount of damages owed to tenants whose claims were not settled. Nine of the eighteen tenants filed proofs of claim, to which Garvey Court objected; one tenant settled before the hearing. The claimants generally sought damages for build-out costs, replacement rent, advertising/promotion for the new locations, moving costs, return of security deposits and attorneys’ fees. Garvey Court argued that the claimants could not recover any damages because of their failure to pay rent and the resulting termination of the leases because of such default. Alternatively, Garvey Court generally sought to limit the build-out and replacement rent damages to only a two-year period pursuant to the early termination provision.
The Court found that the rejection damages were not limited by the early termination provision because it was never triggered. The Court also found that build-out costs, replacement rent, etc. were the proximate result of the lease rejections. Individual orders were entered for each tenant.
July 9, 2015
14 MP 90007
The United States Trustee filed a Statement of Charges against Attorney Al-Haroon Husain charging him with violating applicable disciplinary rules by systematically altering documents, reusing debtors’ signatures, signing documents on behalf of clients and causing clients to sign incomplete documents. After a five-day hearing, the Court found that the U.S. Trustee proved by a preponderance of the evidence that Mr. Husain has committed the violations as charged.
Mr. Husain will be permanently suspended from the practice of law before the Bankruptcy Court for the Northern District of Illinois due to the nature and extent of his misconduct. The suspension is effective July 31, 2015 at 5:00 p.m. Mr. Husain is also ordered to refund the fees received from the clients listed in the Memorandum Opinion.
The Order will be reported to the Executive Committee of the District Court for the Northern District of Illinois and to the Illinois Attorney Registration & Disciplinary Commission.