Judge Jacqueline P. Cox - Opinions

Judge Jacqueline P. Cox

In re Enyedi, et al.
July 12, 2007

06 B 08771

Debtors filed a chapter 7 bankruptcy case and obtained a discharge. The chapter 7 trustee filed a No Asset Report and the case was closed. Approximately 7 months later, the debtors’ case was re-opened for the purpose of disclosing 2 pre-petition causes of actions that were omitted from their bankruptcy schedules. The chapter 7 trustee previously assigned to the case was re-appointed as trustee. After the case was re-opened, the defendants involved in the one matter pending in state court (the other matter is a workers compensation claim) obtained an order dismissing the law suit with prejudice because the debtors failed to properly list it in the bankruptcy case. The chapter 7 trustee moved for an order of contempt against the defendants for violating the automatic stay. The court held that (1) the unscheduled lawsuit was never abandoned by the trustee and is still property of the estate protected by the automatic stay; (2) the trustee, not the debtors, hold the exclusive right to pursue the cause of action in state court; (3) the defendants violated the automatic stay and the state court order of dismissal is void ab initio; and (4) neither an order of contempt nor an award of damages were warranted based on the circumstances of the case.

07 B 03856

Chapter 11 debtors filed application to employ law firm as special litigation counsel to represent them in pending state-court litigation involving derivative claims and counterclaims the debtors’ principals filed against each other on behalf of certain debtors. The court overruled the objection from one of the debtors’ principal members and prior manager and held that the law firm’s employment was in the best interest of the estate and that the interests of the debtors’ controlling principals, who are defendants in the state court litigation, are not adverse to the estates’ interests. The court also noted that special counsel risked total denial of any requested compensation award if it failed to timely disclose the development of an adverse interest while representing the debtors.

In re Meridee Hodges
February 28, 2007

05 B 46676

The debtor objected to the claim of the Social Security Administration (SSA) that she owed it $38,878.40 for overpayment of disability benefits. The SSA's motion to dismiss the claim objection was granted because debtor did not exhaust her administrative remedies by first securing SSA's review of her position that she had not received more than she was entitled to. The Social Security Act allows review of SSA's final decisions via a civil action and deprives the courts of original jurisdiction of such matters. The court also found that even though the government violated the automatic stay by sending the debtor a demand letter after the bankruptcy petition was filed, it was questionable whether stay violation damages could be proven because the debtor pursued the government by filing its claim, objecting to it and seeking court review of the SSA's position.

05 B 13171, 05 A 1582

An attorney was ordered to produce documents sought by subpoena in relation to his representation of 2 debtors. The court declined to order disclosure based on the common interest exception to the attorney- client privilege because the clients did not jointly seek the attorney's professional services. However disclosure was ordered based on a finding that the crime-fraud exception to the attorney-client privilege was applicable.

05 B 27545, 06 A 00412

In re Teknek, LLC; Phillip Levey, Trustee v. Sheila Hamilton et al. Defendants, who are citizens of the United Kingdom, moved to dismiss Trustee’s adversary complaint for lack of personal jurisdiction or, in the alternative, on grounds of forum non conveniens. The court found under Bankruptcy Rule 7004, 28 U.S.C. § 1334(b) and the Fifth Amendment of the United States Constitution that it could exercise personal jurisdiction over the defendants. The court additionally held that even though insolvency proceedings were pending in the United Kingdom for a foreign company with essentially the same ownership structure as the chapter 7 debtor and that the United Kingdom would provide an adequate alternative forum, the balancing of private and public factors was such that dismissal based on forum non conveniens would not be appropriate.

In re Laura Flores
July 20, 2006

06 B 02169

Prior to the petition date, the debtor’s non-filing spouse obtained title to property for which he executed a note secured by a mortgage which included an anti-modification provision. He later transferred title to his wife who did not assume the payment obligations of the note or the mortgage. A default on the mortgage note ensued and the wife filed this chapter 13 case seeking to pay the arrears in her reorganization plan. Mortgagee filed a motion to lift the automatic stay citing the debtor’s lack of privity of contract. The court held that because of United States Supreme Court precedent which defines "claim" to include obligations for which a debtor has no personal liability, only in rem liability, the debtor’s interest in the property could be included in a chapter 13 plan. The court also held that inclusion of the debt in the debtor’s plan did not impermissibly modify the lender’s rights under § 1322(b)(2) but instead provided extra protection as it gives the lender an additional person from whom to seek satisfaction of the underlying obligation. The court noted that Illinois law may dictate that a creditor-debtor relationship exists between the debtor and Mortgagee based upon the Illinois Family Expense Act and under an Illinois Supreme Court case that held that a lender's acceptance of an interim grantee's payments makes the grantee the primary obligor on a debt.

05 B 27545, 06 A 00412

Defendant corporation and its four shareholders moved to vacate a temporary restraining order and the appointment of a receiver. Movants argued that the court committed legal error in justifying the receivership by applying facts pertaining to the alleged misdeeds of the other three defendants and that the court lacked subject matter jurisdiction to appoint a receiver because an appointment is a “noncore proceeding” that is merely “related to” the bankruptcy case in chief because all aspects of such appointment are governed by Illinois law. The court held that the appointment of an Illinois equity receiver was a core matter and the appointment of a limited receivership with oversight, auditing, and clearance authority was warranted to preserve value for whomever is ultimately entitled to it. The court additionally dissolved the TRO and concluded that grounds did not exist for preliminary injunctive relief.

02 B 08699, 04 A 01322

Creditor’s Trust created under a confirmed chapter 11 plan moved for partial summary judgment on its adversary proceeding seeking avoidance under 11 U.S.C. § 547(b) of three pre-petition transfers the debtor made to the defendant. The defendant argued that the transfers fell within the “ordinary course of business” and “new value” exceptions of 11 U.S.C. § 547(c) and were not subject to avoidance. Finding that the “ordinary course of business” exception applied even though the payments were technically late according to a new contract negotiated during the preference period, the court denied the motion for summary judgment and entered judgment for the defendant on its motion for summary judgment.

04 B 45177

Creditor requested an award of costs and attorneys’ fees it incurred when the debtor-in -possession filed a notice of appeal without first seeking a modification of the automatic stay imposed by 11 U.S.C. § 362(a). The court held that a trustee, or a debtor-in-possession, has the authority to unilaterally waive the protections of the automatic stay to proceed with acts of estate administration that would otherwise violate 11 U.S.C. § 362(a) if performed by anyone else. Creditor’s request was denied.

05 B 13874

In re Otha Isaac Special Note: two related, successive opinions regarding Chapter 13 plan confirmation The holder of mortgages on three separate parcels of property owned by the debtor objected to confirmation of her chapter 13 plan because it incorrectly listed the amount of the arrears, failed to provide for the payment of property taxes and insurance premiums, failed to correctly list the monthly mortgage payments coming due during the term of the plan, and failed to make provisions for a balloon payment. Aside from the debtor’s willingness to correct discrepancies in the plan, the debtor argued that her plan was feasible because the balloon payment would be satisfied when due by either refinancing the mortgage or selling the property. The plan would also provide that the automatic stay would automatically be modified if the balloon payment was not made according to these terms. The court found the debtor’s plan to be unfeasible under 11 U.S.C. § 1325(a)(6) because its success hinged upon the occurrence of a speculative and contingent event in the distant future.