11 B 40844, 13 A 00927
In this adversary proceeding, the Trustee sought recovery of $101,787 in preferential transfers made by the Debtor to his mother and brother in repayment of private loans. The Defendants asserted the ordinary course defense to preference liability under section 547(c)(2), arguing that the transfers at issue were not “loans,” but were advances made from a family investment partnership to the Debtor on account of his limited partnership interest. The Debtor and his mother and brother were general partners of the partnership.
The Court rejected the ordinary course defense, finding that the Defendants did not meet the statute’s threshold requirement that the debt being repaid was incurred in the ordinary course of business or financial affairs of the Debtor and the Defendants. The evidence established that the transactions were personal loans made between family members with checks drawn on the Defendants' personal bank accounts, not the partnership's bank account.
The Defendants' Answer admitted that the transfers to the Debtor were loans. In a later pleading the Defendants said that the transfers to the Debtor were advances from the Debtor's partnership interest. The Court granted a Motion to Strike the inconsistent assertions.
Judge Jacqueline P. Cox - Opinions
Judge Jacqueline P. Cox
July 24, 2014
11 B 40844, 13 A 00927
June 9, 2014
10 B 38275, 13 A 00299
In this Adversary Proceeding, Plaintiff sought a determination that a $32,994 debt owed by Debtors was nondischargeable under 11 U.S.C. § 523(a)(2)(A). Plaintiff alleged that Debtors, through their agent, made false representations in procuring a second mortgage loan needed to finance a Property purchased by the Debtor for a family member. The Court determined that the Debtors’ mortgage broker acted as their authorized agent in procuring the financing under an apparent agency theory of liability. The Court also determined that Debtors' agent made false representations when he informed the Plaintiff that the Debtors would reside at the Property and repay the loan when he knew this to be untrue.
March 25, 2014
13 B 25463
In this Chapter 7 proceeding, the Court sanctioned Debtor’s counsel for repeatedly seeking turn over of Debtor’s checking account without providing notice to J.P. Morgan Chase, a party in interest, as required by Federal Rule of Bankruptcy Procedure 9014(b) and Local Bankruptcy Rule 9013-1(A)(3). He was also sanctioned for falsely stating that there were no funds in the bank account.
January 24, 2014
12 B 05364
In this Chapter 11 proceeding, the Court denied Movants’ Motion for Leave to File a Claim Against Trustee’s Counsel For Fraudulent Inducement. Movants sought leave to sue the trustee’s counsel for statements allegedly made regarding a Skilled Living Facility Certificate owned by Movant, Morris Healthcare. In denying the request, the Court held that the Movants offered insufficient legal grounds and no evidence to carry their burden to demonstrate that their claim is not without foundation, i.e., that their claim is well-founded.
December 16, 2013
09 B 49094, 11 A 2395
This matter involves the former principals of Brown’s Chicken & Pasta (“Debtor”), the franchisor of Brown’s Chicken restaurants in the Chicago area. Following the dissolution of the principals’ business relationship, litigation ensued and a judgment was entered against the Debtor in the amount of $882,000,which led to the Debtor’s bankruptcy filing in 2009.
At issue in this adversary proceeding is what property was sold in a section 363 sale of Debtor’s assets. In Count I, the Plaintiff accuses the Defendants of conversion of equipment purchased in the sale, valued at $25,582.25. The Defendants claims that although the equipment was mistakenly included in Debtor’s schedules, it had previously been sold, and therefore, was not property of the bankruptcy estate. In Count II, Plaintiff requests declaratory relief, arguing that it properly assumed and accepted a 15-year franchise agreement between the Debtor and franchisee, Joli Inc. The Defendants counter that a subsequent 15-month franchise agreement is the operative document which was been terminated in accordance with its terms.
As to Count I, the Court ruled that Plaintiff justifiably relied on the representation in Schedule B that the equipment listed therein belonged to the Debtor. The Court noted that Schedule B was never amended to reflect the purported change in ownership, and concluded that the equipment was sold to Plaintiff in the section 363 sale.
As to Count II, the Court expressed doubts as to the authenticity of the shorter, 15-month franchise agreement, and concluded that the 15-year term franchise agreement had been properly assumed and assigned by the Plaintiff in accordance with the requirements of the Bankruptcy Code.
November 19, 2013
12 B 49219 (jointly administered)
The Sierra Club filed a motion seeking entry of an order confirming that the automatic stay was not in effect due to the police power exception of Bankruptcy Code section 362(b)(4), or, in the alternative, granting relief from the automatic stay to continue a regulatory action pending against Debtor, Midwest Generation, LLC before the Illinois Pollution Control Board. The Court held that the police power exception was not applicable, noting that the Sierra Club is not a “governmental unit” as defined by Section 101(27) of the Bankruptcy Code. The Court also noted that neither the Illinois Attorney General, nor the Illinois EPA intervened in the proceeding initiated by the Sierra Club. The Court determined that cause existed to lift the stay, after employing a balancing test as instructed by the Seventh Circuit in In re Fernstrom,938 F.2d 731, 735 (7th Cir. 1991). The court also considered the impact of the alleged environmental violations on the residents of Illinois.
June 19, 2013
11 B 51502
Evans Construction Company (“Evans”) filed a secured Mechanics Lien claim in the amount of $398,937.00 which represented amounts that were owed directly to Evans’ subcontractors. The Lender, Debtor's successor, objected to the claim, asserting a setoff for amounts paid directly to subcontractors and for amounts paid to correct construction work alleged to be defective. The Court reduced Evans claim to reflect amounts proven to be paid directly to subcontractors. However, after hearing the testimony of several witnesses, the Court determined that the Lender’s assertion that Evans produced faulty work was not supported by the evidence, as the defects complained of were explicitly contracted for by the parties.
April 26, 2013
09 B 42237
In this Chapter 13 proceeding, the Court granted the Debtor’s motion for sanctions, after a Mortgagee continued to collect the mortgage payments from both the Debtor and the Trustee despite the Court’s approval of a loan modification agreement. The Court’s opinion highlights the importance of parties examining whether loan modifications necessitate a subsequent chapter 13 plan amendment to accurately provide for treatment of mortgage arrears.
March 19, 2013
11 B 40944 (jointly administered)
In this memorandum opinion, the Court denied confirmation of the Debtor’s Third Amended Plan of Reorganization. The Court noted that to satisfy the Bankruptcy Code’s requirement that the Debtor’s Plan be fair and equitable, a plan must propose an interest rate adequate to assure the realization of the Bank’s claim. In this case, the Court determined that the interest rate advanced by the Debtor did not sufficiently capture the risk that the Debtor would not satisfy the Bank’s claim. The Court also determined that the Plan was not feasible because the Debtor failed to prove that the property would increase in value enough to give the Debtor sufficient equity to facilitate refinancing at the end of 7 years to fund a balloon payment to the Bank. Also, relying on the Seventh Circuit’s decision in In re Castleton Plaza, LP, No. 12-2639, 2013 WL 537269, and Bankruptcy Code Section 101(31)(B), the Court held that the nature of the plan warrants application of the absolute priority rule as the plan gave the Debtor’s insider preferential access to an investment opportunity in the Reorganized Debtor without allowing others to compete for that opportunity. The Court also granted the Bank’s request for relief from the automatic stay because the Debtor failed to show that there is a reasonable possibility of a successful reorganization.
January 10, 2013
11 B 40944 (jointly administered)
In this memorandum opinion, the Court denied confirmation of the Debtor’s Amended Plan of Reorganization. The Court noted that to satisfy the Bankruptcy Code’s requirement that the Debtor’s Plan be fair and equitable, a plan must propose an interest rate adequate to assure the realization of the Bank’s claim. In this case, the Court determined that the interest rate advanced by the Debtor did not sufficiently capture the risk that the Debtor would not satisfy the Bank’s claim. The Court also determined that the Plan was not feasible because the Debtor failed to prove that the property would increase in value enough to give the Debtor sufficient equity to facilitate refinancing at the end of 7 years to fund a balloon payment to the Bank. The Court also granted the Bank’s request for relief from the automatic stay because the Debtor failed to show that there is a reasonable possibility of a successful reorganization.