Judge Jacqueline P. Cox - Opinions

Judge Jacqueline P. Cox

In re LJBV LTD
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.

In re Richard Sharif
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.

In re John F. Walsh
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.

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.

 

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.

12  B 24676, 14 A 00392
In this Chapter 7 adversary proceeding, the Trustee filed an Amended Adversary Complaint seeking to avoid and recover transfers made in connection with a commercial mortgage-backed securitization transaction. The Defendants moved to dismiss, arguing that certain of the transfers were covered by the safe harbor provision of 11 U.S.C. § 546(e).  In response, the Trustee argued that the safe harbor provision did not apply because the transactions at issue involved a two-tiered commercial mortgage loan transaction. The Trustee also disputed that the recipient was a financial institution.  The Court decided in favor of the Defendants, noting that the transactions at issue fit squarely within the broad definition of a securities contract as defined by § 741(7)(A) and used in § 546(e).

Because the parties did not consent to the Court’s entry of a final order on the fraudulent transfer claims, the Court submitted proposed findings of fact and conclusions of law to the district court pursuant to Federal Rule of Bankruptcy Procedure 9033.  On the preferential transfer claim, the Court determined that it had both statutory and constitutional authority to enter its order dismissing the claim, with prejudice.

The Court recommended dismissal of the actual fraud transfer claims without prejudice, because those claims were not plead with specificity as required by Federal Rule of Civil Procedure 9(b).

11 B 41826
In this post-confirmation Chapter 11 proceeding, the Michael Bahary & Steven Bahary Partnership (“the Reorganized Debtor”) filed a Motion for a Rule to Show Cause requiring Napleton Enterprises, LLC (“Napleton”) and its counsel to show cause why they should not be held in contempt for suing to enforce Napleton’s purported Right of First Refusal as to certain real property (the "Grand Avenue Property") in a state court action regarding transactions that ensued in this bankruptcy case in 2012. The Reorganized Debtor asserted that Napleton’s actions were inconsistent with the terms of the confirmed Amended Plan of Reorganization and the Bankruptcy Code’s discharge injunction.

Pursuant to the Confirmed Plan, the Reorganized Debtor surrendered the Grand Avenue Property to Banco Popular, its mortgagee, by giving it a Deed in Lieu of Foreclosure to satisfy Banco Popular’s secured claim.  Napleton was not scheduled as a creditor in the Reorganized Debtor’s bankruptcy and did not have notice of it.  The Court ruled that the transfer to the mortgagee was not subject to the Right of First Refusal which vested only if the Debtor, as Napleton's transferee, wanted to sell the property to a bona fide third party.  The Debtor did not sell the property in issue; it surrendered collateral to a lienholder.

In the April 1, 2015 Amended Memorandum Opinion, the Court declined to enter findings of contempt against Napleton and its attorney.

13 B 01449, 13 A 01050
Prepetition, the parties to the medical malpractice suits participated in a mediation conference presided over by a former Chief Judge of the Circuit Court of Cook County, Illinois. The mediation was successful, and resulted in the entry of a July 21, 2008 settlement order in state court.  Prior to the mediation session, one Plaintiff's claim proceeded to trial in state court, where a jury returned a verdict of $30,000,000 against the Debtor and other defendants.

The crux of the Complaint is that the Debtor falsely stated that the settlement would be secured by property at 1101 Dodge, Evanston, Illinois (“Dodge Property”) in violation of 11 U.S.C. § 523(a)(2)(A) which excepts from discharge debts incurred fraudulently under certain circumstances.  The Debtor did not arrange for the Dodge Property to be titled in a land trust as required by the 2008 court order.  The Plaintiffs also allege that the Debtor wilfully and maliciously injured them in violation of 11 U.S.C. § 523(a)(6).

The Court entered judgment in favor of the Plaintiffs, finding that the Debtor intentionally misled the Plaintiffs when he represented that he would pledge the Dodge Property to secure the settlement amount, and that fraud created the debt.  In so ruling, the Court relied, in part, on Dr. Eisenstein's admission at trial that he had no intention of having the property placed into a land trust to secure payment of the $1.275 million settlement until a formal settlement agreement got executed.  The July 21, 2008 order did not condition the settlement on the entry of a subsequent agreement.

 

11 B 41826
In this post-confirmation Chapter 11 proceeding, Michael Bahary & Steven Bahary Partnership (“the Reorganized Debtor”) filed a Motion for a Rule to Show Cause requiring Napleton Enterprises, LLC (“Napleton”) and its counsel to show cause why they should not be held in contempt for suing to enforce Napleton’s purported Right of First Refusal as to certain real property (the "Grand Avenue Property") in a state court action regarding transactions that ensued in this bankruptcy case in 2012. The Reorganized Debtor asserted that Napleton’s actions were inconsistent with the terms of the confirmed Amended Plan of Reorganization and in violation of the Bankruptcy Code’s discharge injunction, set forth in 11 U.S.C. § 524(a)(2).  
Pursuant to the Reorganized Debtor's Confirmed Plan, the Reorganized Debtor surrendered the Grand Avenue Property to Banco Popular by executing a Deed in Lieu of Foreclosure to satisfy Banco Popular’s secured claim. Napleton was not scheduled as a creditor in the Reorganized Debtor’s bankruptcy.
In the offending state court action, Napleton alleged that its Right of First Refusal was an executory contract that survived confirmation of the Plan because its claim was not scheduled therein by the Debtor and it did not get notice of the bankruptcy case.  Napleton also asserted that the Deed in Lieu of Foreclosure was a “bona fide” offer that gave it a basis to exercise its Right of First Refusal.  
The Court issued the Rule to Show Cause, and determined that although Napleton was not included in the Debtor’s bankruptcy schedules, Napleton is neither a debtor, a trustee, an indenture trustee nor a creditor to whom a debt is owed as defined by 11 U.S.C. § 101 (10) (creditor is defined as an entity who holds a claim against the debtor or the bankruptcy estate).  Napleton is neither a creditor/claim holder nor a party to an executory contract because its Right of First Refusal remained inchoate because no third party made a bona fide offer, which it could match within five days.  
The Court denied Napleton’s request to alter or amend its prior December 29, 2014 judgment under Federal Rule of Bankruptcy Procedure 9024.

 

13 B 29753, 14 A 00674
In this Chapter 13 adversary proceeding, the Debtor-Plaintiff, Samuel Brimmage, alleges that the Defendants, Quatnum3 Group LLC and Elite Recovery Acquisition, LLC, violated the Fair Debt Collection Practices Act (FDCPA) by filing a proof of claim on a debt that is otherwise time-barred. Elite Recovery Acquisition is a national debt buyer and Quantum3 Group is its agent.
The Defendants moved to dismiss the adversary proceeding by arguing that 1) filing a proof of claim is not a debt collection action subject to FDCPA and 2) that if it was a debt collection action then it would be impossible to comply with both the Bankruptcy Code and the FDCPA, and that the Code should therefore control.
The Court denied the motion, concluding that filing a proof of claim is a form of debt collection. The Seventh Circuit has held that while the statutes do overlap, enforcement of both is possible where “any debt collector can comply with both simultaneously.” Randolph v. IMBS, Inc., 368 F.3d 726, 730 (7th Cir. 2004). Agreeing with a similar decision out of the Southern District of Indiana, the Court determined that the Defendants could easily comply with both the Code and the FDCPA by simply not filing a proof of claim on a time-barred debt. See also Patrick v. PYOD,LLC, 2014 WL 4100414 (S.D.Ind. 2014). As such, the Court will be able to enforce both the FDCPA and the Code in this situation.

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