Defendants in eleven Lancelot-related (08-B-28225) adversary proceedings brought 17 motions for summary judgment arguing that each matter involved the straightforward application of Bankruptcy Code Sections 546(e) and (g) “safe harbor” limitations on a trustee’s avoidance powers and for that reason they were entitled to summary judgment as a matter of law regarding payments and transfers made to them. The Trustee resisted the imposition of summary judgment on two major grounds: that the safe harbor provisions do not shield payments and transfers tainted by Ponzi Scheme fraud and that avoiding the payments and transfers would not materially impact the financial markets. The Defendants suggested that the Trustee’s arguments look beyond the plain statutory text of the safe harbor provisions by reading exceptions into the Code. The Court granted summary judgment as to the Counts alleging preferential transfers and constructive fraudulent transfers under Bankruptcy Code Sections 548(a)(1)(B), 550 and 544 as well as under Illinois law, but denied summary judgment as to the actual fraudulent transfer claims asserted under Section 548(a)(1)(A). The safe harbor provisions specifically prohibit the recovery of preferential transfers, constructively fraudulent transfers and claims based on state law. The provisions do not protect actual fraudulent transfer claims. The Court declined to expand the plain meaning of the statute, and noted that Congress did not exempt all fraudulent transfers from safe harbor protection, only those involving actual fraud, claims that allege that a debtor acted “with actual intent to hinder, delay or defraud any entity” to which the debtor was indebted. Before submitting Orders on these matters, the Court invited the parties to submit supplemental briefs on whether the Orders resolve core matters on which this court may enter final orders in light of the Supreme Court’s ruling in Stern v. Marshall, 131 S.Ct. 2594 (2011) and the recent Seventh Circuit Court of Appeals ruling in Ortiz v. Aurora, 665 F.3d 906 (7th Cir. 2011).
Judge Jacqueline P. Cox - Opinions
Judge Jacqueline P. Cox
March 7, 2012
Movants, Individual Insureds of a D & O Liability Insurance Policy, sought relief from the automatic stay as necessary to allow access to liability insurance policy proceeds to fund certain defense costs. The Chapter 7 Trustee and Bank of America, NA objected to the Motion on the grounds that allowing the Individual Insureds to draw on the available policy limit could deplete the Estate’s property by diminishing the limits of the policy proceeds that might otherwise have been available to satisfy judgments rendered against the Estate or obtained against the Individual Insureds. The Court granted the Motion and noted that there was no risk of prejudice to the Estate as no claims have been filed against the Estate by third party creditors and the Trustee has not initiated any litigation against the Individual Insureds. Further, there was no showing that the $10,000,000 Limit of Liability was near depletion. The Court also expressed its reluctance prohibit Illinois National from exercising its contractual rights to pay defense costs given the circumstances present herein.
January 17, 2012
The Plaintiff filed an adversary proceeding seeking a finding that a debt reflected by a judgment in the amount of $75,000 is not dischargeable under 11 U.S.C. §§ 523(a)(2)(A), 523(a)(4)(A), and 523(a)(2)(6). The complaint alleged in part that the Defendant, a real estate developer, accepted two installment payments from the Plaintiff when he knew that he could not comply with the Plaintiff’s request to occupy the premises at the time contracted for. The Court entered judgment for the Plaintiff on the section 523(a)(2)(A) claim in the amount of $75,000 and found that the Defendant’s failure to disclose long-standing zoning problems which he knew would cause the delay in the construction of a custom built home was done with the intent and purpose of deceiving the Plaintiff.
December 12, 2011
The Defendant brought a motion to dismiss Counts I - VII of the Trustee’s First Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(1) arguing that the Court lacked subject matter jurisdiction due to the jurisdictional limits imposed on bankruptcy judges by Stern v. Marshall. In support of its argument, the Defendant suggested that even the submission of findings of fact and conclusions of law to the district court would be an impermissible exercise of judicial power reserved to the district court. The Court first noted that the Stern decision does not implicate matters of subject matter jurisdiction, and held that it had related-to jurisdiction over the claims pursuant to 28 U.S.C. § 157(c)(1), as each of the claims in Counts I - VII, if successful will bring money into the bankruptcy estate affecting the allocation of estate funds among creditors. Further, the Court declined to read the Stern opinion so expansively as to preclude the submission of proposed findings of fact and conclusions of law for de novo review to the district court. The Defendant also moved to dismiss Count VIII for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). The Court dismissed this count which sought disallowance of claims pursuant to sections 502(d) and 502(j), noting that the Defendant had not yet filed a proof of claim in the bankruptcy case.
October 17, 2011
In this Amended Memorandum Opinion, the Court granted the Defendants’ Motion to Dismiss the Chapter 7 Trustee’s Adversary Proceeding in part. The Trustee alleges in the First Amended Complaint that insiders of the Debtor engaged in a series of complex transactions by which the Debtor was stripped of its real estate, funds and business opportunities. The Court dismissed counts alleging fraudulent transfer claims under Illinois law because the transfers in issue occurred more than four years before the bankruptcy case was filed. Illinois law provides generally for a four-year limitations period for the prosecution of fraudulent transfer claims. 11 U.S.C § 544(b) allows a trustee to avoid any transfer of an interest of a debtor in property that is avoidable under applicable law by a creditor holding an allowable unsecured claim. The trustee can use that creditor's more favorable limitations period. 26 U.S.C. § 6502 allows the IRS 10 years to collect taxes under certain circumstances. Relying on a 7th Circuit ruling in In re Leonard, 125 F.3d 543, 544 (7th Cir. 1997) where that court held that "the trustee can assume the position of any one of them" in referring to 13 filed claims, the Court held that the Trustee cannot rely on 11 U.S.C. § 544(b) to take advantage of the IRS' 10-year limitations period because the IRS had not filed a proof of claim. The Court noted that Federal Rule of Bankruptcy Procedure 3004 allows a trustee or a debtor to file a proof of claim on behalf of a creditor
August 30, 2011
09 B 05868,10 A 02239
The Court granted Trustee’s Motion to Dismiss Plaintiff’s adversary complaint pursuant to Federal Rule of Civil Procedure 12(b)(6), and separately on res judicata and collateral estoppel grounds. The Court found that the Plaintiff failed to sufficiently plead her claims for conversion and declaratory judgment, and that some of the claims raised in the complaint are barred by the doctrines collateral estoppel and res judicata.
09 B 22180,10 A 01051
Plaintiff filed an adversary proceeding seeking to deny Debtor Steven Artstein (“Debtor”) a discharge under 11 U.S.C. §§ 727(a)(2) and 727(a)(4). The Court entered judgment in favor of Debtor on both counts. On Count I, the Court found that Debtor’s failure to disclose his home in his SOFA did not amount to fraud when the home was listed in Debtor’s Schedules A and D. As to Count II, the Court gave credence to Debtor’s testimony regarding certain undisclosed claims and after viewing the errors and omissions in their entirety, the Court held that Debtor did not knowingly and fraudulently make false oaths.
July 13, 2011
10 B 26209,1 0 A 02055
In this adversary proceeding, plaintiff sought a determination that a certain debt was nondischargeable pursuant to 11 § U.S.C. 523(a)(6), which provides an exception to discharge for a debt “for willful and malicious injury by the debtor to another entity or to the property of another entity.” The debt consisted primarily of an attorney’s fee award in connection with an order of protection case in state court. Because this debt arose out of the willful and malicious injury caused by the debtor, the court ruled in favor of the plaintiff and held that the attorney’s fees are nondischargeable.
June 27, 2011
11 B 08863
The Court found that the Creditor’s filing of an Objection to Discharge pursuant to 11 U.S.C. § 523(a)(6) although deficient in form, was sufficient to constitute a complaint and provided notice that Creditor objected to Debtor’s discharge based on pending sexual assault allegations.
June 6, 2011
08 B 28225, 10 A 01805
The court denied the Defendants' Motion to Dismiss as to four fraudulent conveyance Counts in Trustee Peterson's adversary complaint concerning the Premium Payment Debtors' payment of nearly $6,000,000 for insurance against the risk of certain retailers becoming insolvent. It was later revealed that Certain Petters Entities were operating a Ponzi Scheme and that the accounts receivable being insured did not exist. The court relied on the Seventh Circuit Court of Appeals ruling in Leibowitz v. Parkway Bank & Trust Co. ( In re Image Worldwide, Ltd .), 139 F.3d 574, 576 (7th Cir. 1998) in finding that such matters are issues of fact which cannot be decided on a motion to dismiss. Trustee Peterson requested rescission based on lack of consideration. The court dismissed the two rescission Counts without prejudice. The court ruled that rescission was not available as to Counts V and VI because the Premium Payment Debtors were provided with consideration in the form of insurance coverage. The Motion to Dismiss was granted with prejudice as to the Count alleging unjust enrichment. The court ruled that unjust enrichment is a quasi-contract theory of recovery that permits courts to imply the existence of a contract where none exists in order to prevent unjust results. Because the parties had an express contract, unjust enrichment as a theory of recovery is not available.