Judge Jacqueline P. Cox - Opinions / Outlines

Judge Jacqueline P. Cox

In re Lunkes
July 2, 2009

09 B 00583

In this matter, the debtor claimed his interest in a trust was exempt from inclusion in his bankruptcy estate under 11 U.S.C. § 541(c)(2) because the trust was a spendthrift trust. The chapter 7 trustee objected, arguing that the trust was not a spendthrift trust. The Court agreed with the chapter 7 trustee and sustained the objection.

In re Howard
June 16, 2009

08 B 32998

The issue in this case was whether the hanging paragraph of 11 U.S.C. § 1325 applied to so-called “negative equity” in connection with the purchase of a motor vehicle that is subject to that provision. In this case, the debtor purchased a motor vehicle within 910 days of filing his bankruptcy petition for $29,798.00. Along with a $4,500.00 down payment, the debtor traded in his old car valued at $14,450.00. However, the debtor still owed $22,498.68 on the trade-in, leaving a difference of $8,048.68. This difference is referred to as “negative equity” in motor vehicle financing. The debtor entered into a financing agreement with Americredit Financial Services, Inc. (Americredit) to purchase the motor vehicle and for payment of the negative equity to pay off the debt owed on his trade-in. After the debtor filed his bankruptcy petition, Americredit filed its proof of secured claim for $34,698.07. However, the debtor’s proposed plan listed a secured claim for Americredit of $13,250.00, the motor vehicle’s current value. Americredit objected to the debtor’s plan, arguing that the debtor may not bifurcate the motor vehicle debt under the hanging paragraph of § 1325. The debtor argued that it may bifurcate the debt, stating that the negative equity component of the financing is not included under the hanging paragraph of § 1325. The Court held that the entire claim was a subject to the hanging paragraph of § 1325. The court certified the matter under 28 U.S.C. § 158 for direct appeal to the Circuit. The Seventh Circuit affirmed the ruling on March 1, 2010. See In re Howard, 597 F. 3d 852.

09 B 05868, 09 A 00384, 09 A 00385

In this matter, the Debtor and two non-debtor parties (“Respondents”) were held jointly and severally liable for attorney’s fees awarded by the U.S. District Court for the Northern District of Texas after initiating a lawsuit and failing to conduct any discovery in the case. Ultimately, summary judgment was entered against them. The judgment creditors then commenced collection proceedings to satisfy the award in both a Texas state court and in the Texas U.S. District Court. The Debtor’s bankruptcy followed. The other two respondent parties each filed adversary proceedings before this Court in an attempt to remove the collection actions from the state and federal courts in Texas to this Court. The Court agreed with the judgment creditors that there was no basis to remove the Texas proceedings and dismissed both adversary proceedings.

07 B 08526, 07 A 01058

In this case, the plaintiff moved to amend its adversary complaint. The original complaint sought to deny the debtor’s discharge under 11 U.S.C. § 727(a)(4)(A) alleging the debtor asserted a false oath at his § 341 creditors’ meeting. The amended complaint sought to add additional defendants and causes of action under 11 U.S.C. § 523(a), § 727(a)(3), civil conspiracy, and unjust enrichment. The motion was granted to amend the original § 727(a)(4)(A) count and the § 727(a)(3) count. The motion was denied as to amending the complaint to add the additional defendants and the § 523(a) claim, the civil conspiracy claim, and the unjust enrichment claim.

In re Teknek, LLC
March 13, 2009

05 B 27545

Chapter 7 trustee sought approval of a settlement agreement resolving all litigation between the defendants in an adversary proceeding for recovery of pre-petition transfers. The settlement agreement was opposed by one of the administrative creditors who argued that the settlement amount was too low. The objecting creditor argued that little of the estate’s resources would be needed to realize a potentially $4 million dollar judgment. The Court approved the settlement agreement, finding the agreement to be in the best interests of the estate.

07 B 19360, 08 A 00300

Prior to filing his chapter 7 bankruptcy petition, the debtor sought to rescind two mortgage loans from the defendants. After the bankruptcy case commenced, the chapter 7 trustee filed an adversary complaint requesting enforcement of the debtor's right to rescind the loans. The trustee alleged that the debtor did not receive two copies of the Notice of Right to Cancel in connection with each loan as was required by the Truth in Lending Act (“TILA”). The trustee asserted that the debtor properly exercised his right to rescission through written notice to the defendants within the three-year time limit provided in 15 U.S.C. § 1635(f) of TILA. The defendants filed a motion to dismiss the trustee's rescission claims as time-barred because he did not file those claims in court within three years after seeking rescission of the loans. At issue was whether a consumer who provides timely notice to a creditor is also required to file a lawsuit seeking to enforce rescission within the time limit set forth in § 1635(f). The Court found that TILA does not preclude the trustee’s suit to enforce the debtor’s right of rescission after the passing of the three-year period because the debtor timely exercised his right to rescind the loans within the three-year period. Therefore, the defendants’ motion to dismiss was denied.

08 B 01187,08 A 00237

In this chapter 11 matter, the shares of the Debtor were held in a trust. Wayne and Terry Cohen were beneficiaries of the trust and two co-trustees were named as trustees of the trust. Wayne was the President of the Debtor and Terry was its CEO. Both were the sole directors of the Debtor. Beginning in 2000, Wayne suspected Terry of looting the Debtor’s assets and notified the co-trustees on several occasions. Pursuant to the trust agreement, the co-trustees had the ability to appoint or remove directors and officers. Despite numerous assurance that they would investigate, the co-trustees did not act. Wayne eventually filed a shareholder’s derivative suit in the Chancery Court of Cook County, Illinois against Terry and the co-trustees for breach of fiduciary duty and civil conspiracy. Eventually, the Debtor was placed into bankruptcy and a creditors’ committee was formed. The committee removed the derivative action to this Court and filed its own adversary proceeding against, inter alai, Terry, Wayne, and the co-trustees. The committee’s complaint also sought relief for breach of fiduciary duty, recovery of fraudulent transfers, and other relief. Wayne eventually amended his complaint to include a RICO cause of action against Terry. The co-trustees moved to dismiss Wayne’s complaint on standing, causation, damages, and mitigation grounds. The co-trustees similarly moved against the committee. Terry moved to dismiss Wayne’s complaint on standing grounds. Wayne moved for judgment on the pleadings regarding the committee’s complaint against him alleging fraudulent transfers. The Court granted the motions to dismiss in part and denied them in part. Wayne’s motion for judgment on the pleadings was denied.

In re Orla Enterprises
January 8, 2009

08 B 27287

In this chapter 11 matter, the debtor-lessor sought to reject a non-residential lease to the extent that the lease remained unexpired. The issue focused on an option to purchase allegedly contained in the lease. The lessee alleged that an option to purchase the property existed in the lease and that it properly exercised the option. The debtor denied that the option ever existed and refused to sell the property to the lessee. The lessee then abandoned the property when the option term ended but before the end of the lease term. The issue on the option’s existence was being litigated in DuPage County Circuit Court before the filing of the bankruptcy petition and is now stayed. The Court denied the motion and held that option contract was not an executory contract since it did not meet that definition on the date of filing the bankruptcy petition. The option would have been breached at the expiration of the option term by the debtor if the option did exist. Conversely, the lease would have been terminated by the lessee when it abandoned the property before the lease term ended if no option existed. Further proceedings are needed to determine if the option existed.

08 B 01187

The movant, the Official Committee of Unsecured Creditors of Hearthside Baking Co., Inc. (the “Committee”), sought entry of an order directing the Debtor to surrender an insurance policy indemnifying the life of one of the Debtor’s principals. After hearing, the Court held that the policy belonged to a third-party and not the Debtor, precluding the Committee’s requested relief. Further, it was noted that under Federal Rule of Bankruptcy Procedure 7001(2), such relief could not be granted via a motion. The Committee’s motion was denied.

In re Teknek, LLC
October 20, 2008

05 B 27545

In this chapter 7 case, the chapter 7 trustee sought to employ Neal Levin of Freeborn Peters LLP as special counsel to pursue causes of action against certain parties affiliated with the debtor (“Teknek Parties”). Levin previously represented the chapter 7 trustee in this capacity and also represented the estate’s main creditor, Systems Division, Inc. (“SDI”) at a point during the bankruptcy case. Levin previously withdrew representation of both parties when the trustee initiated an adversary proceeding against SDI. Now, the trustee seeks to re-employ Levin for the limited purpose of pursuing causes of action against the Teknek Parties. Both the Teknek Parties and SDI object. SDI objected on the grounds that it previously withdrew its as of right and that alleged misconduct by Levin precluded his employment with the estate. The Court held that the Teknek Parties lacked standing to object to Levin’s re-employment and overruled SDI’s objection as it related to its assertion that it withdrew its claim and Levin’s alleged misconduct. However, the Court found that 11 U.S.C. 327(a) precluded Levin’s re-employment to the chapter 7 trustee in this case. Therefore, the objection was ultimately sustained.

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