Judge Jacqueline P. Cox - Opinions / Outlines

Judge Jacqueline P. Cox

12 B 08807

In this Chapter 13 proceeding, the Court sustained Creditors’ objection to confirmation of Debtors’ Plan, holding that the Debtors’ obligations under a Settlement Agreement with a former employer (including a non-compete clause) were non-monetary in nature, and therefore were not a "claim" for bankruptcy purposes. Only claims for money can be discharged. The Settlement Agreement included language that the non-monetary provisions of Articles 3 and 4 were the essence of the agreement and that should the Debtors fail to perform the duties prescribed in those provisions, injunctive relief would be appropriate to require the Debtors to perform the duties. The Court also noted that the provision governing attorney’s fees was not a compensation remedy, but was designed to make the prevailing party whole after the resolution of disputes.

11 B 42873, 11 A 02278

4100 West Grand LLC, debtor in possession, filed this adversary proceeding against defendant, TY Grand LLC, to avoid and recover a transfer alleged to be fraudulent pursuant to 11 U.S.C. §§ 544, 548 and 740 ILL. COMP. STAT. §§ 160/5 and 160/6. As a threshold matter, the Court relied on the Stern v. Marshalldecision and its progeny in determining that the Court had authority to enter a final judgment in the adversary, as the proofs of claim filed by the defendant made clear that their resolution depended on the outcome of the debtor’s fraudulent conveyance claims. Proof of claim no. 3-5 provided that if TY Grand did not prevail in the litigation, its secured claim would be $2,722,170.34. If TY Grand prevailed, it would have no claim against the Debtor. Because the fraudulent conveyance cause of action was resolved in the process of ruling on the proofs of claim, the bankruptcy court has authority to enter a final order herein. Stern v. Marshall, —U.S.—, 131 S.Ct. 2594, 2620 (2011). In the alternative, should a reviewing court find that this court lacked authority to enter a final order, the Court held that its memorandum opinion may serve as its proposed findings of fact and conclusions of law under section 157(c)1. This adversary proceeding was initiated after TY Grand LLC recorded a deed in lieu of foreclosure for Property valued at $1.115 million after 4100 West Grand LLC defaulted under the terms of the parties’ Forbearance Agreement. During the forbearance period, TY Grand also received cash payments in the amount $485,000. Pursuant to the terms of the agreement, after the recording of the deed, TY Grand LLC waived its right to sue for non-monetary defaults under the agreement, as well as the deficiency amount of $2,510,123.90. The Court entered judgment in favor of TY Grand, holding that 4100 West Grand LLC received reasonably equivalent value in exchange for the transfer. The Court determined that TY Grand LLC received value in the amount of $2,310,000, which amount represents the value of the Property transferred ($1.115 million); $485,000 in cash payments; and a claim under the Forbearance Agreement worth approximately $710,000; whereas the Debtor received a release of a $2.5 million debt

Attorney Daniel A. Zazove and the Perkins Coie law firm filed a Motion and Application for Allowance of Compensation as Debtor's Attorney. Chapter 7 Trustee Steven Radtke and Robert Stein, a defendant in a related adversary, objected to Counsel’s Application for Compensation, arguing that subsequent to the entry of the retention order, Zazove and Perkins Coie received other compensation from an Assignee or Fifth Third Bank without leave of court as required by 11 U.S.C. § 330(a)(1). Mr. Zazove argued that those funds were for services rendered to the Assignee for the Benefit of Creditors, not the bankruptcy estate. Over Stein’s objection, the Court granted Counsel’s application for compensation. In the spirit of abstention, the Court declined to require the Assignee to submit to bankruptcy court jurisdiction after he was excused from the Section 543 delivery requirement. Bankruptcy Code Section 330(a)(1) governs compensation to professionals retained by a bankruptcy estate; it has no application to the payment of an assignee’s attorney for legal services rendered in the operation of an assignment for the benefit of creditors.

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).

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.

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.

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.

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

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.

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