15 B 35358, 15 A 00876
The Debtor filed an adversary complaint against Walsh Construction Company and the Clerk of the Circuit Court of Cook County, seeking: (1) a determination that certain funds deposited with the Clerk pursuant to a judgment order entered by the Circuit Court are property of the bankruptcy estate, and (2) turnover of those funds to the Debtor. Walsh filed a 12(b)(6) motion to dismiss the complaint. The judgment order awarded Walsh $27,500,000 on its breach of contract claim against the Debtor, awarded the Debtor a total of about $8,300,000 on its breach of contract claim against Walsh and an interpleader claim filed by the Debtor’s subcontractor, and provided that the amounts awarded to the Debtor be set off against the amount awarded to Walsh. The Court found that the Rooker-Feldman doctrine did not bar its jurisdiction over the adversary proceeding because the Court did not need to overturn the Circuit Court’s decision to determine the interests of the parties. As to the substantive issue, the Court found that, based on applicable law and the language in the judgment order, the setoff was accomplished pre-petition, through and at the time of the entry of the order; the setoff therefore effectuated a transfer; the deposited funds were thus not property of the Debtor’s bankruptcy estate; and, as a result, the funds could not be turned over to the Debtor. Accordingly, the Court held that the Debtor failed to state a claim upon which relief can be granted and, in fact, could not assert any set of facts establishing its entitlement to the relief it sought. Therefore, the Court granted Walsh’s motion to dismiss the complaint, and the complaint was dismissed with prejudice.
Judge Janet S. Baer - Opinions
Judge Janet S. Baer
March 29, 2016
15 B 35358, 15 A 00876
13 B 38329, 14 A 00034
The Plaintiff filed an adversary complaint in the bankruptcy case of the Debtor, seeking a determination that a state court judgment debt owed to the Plaintiff by the Debtor and his former law firm is not dischargeable pursuant to 11 U.S.C. §§ 523(a)(4) and (a)(6). That judgment was based on the Debtor’s legal malpractice in connection with the preparation and execution of a will under which the Plaintiff was named as a beneficiary. Specifically, the Debtor falsely signed the name of a second witness on the signature page to the will, failed to get the will re-executed prior to the testator’s death, directed his secretary to notarize the signature page with the false signatures, and subsequently remained silent regarding his wrongful conduct while representing the Plaintiff in state court proceedings. As to § 523(a)(4), the Court found that the Debtor owed the Plaintiff a fiduciary duty in her capacity both as an intended third-party beneficiary under the will and as the executor of the probate estate. The Court further found that the Debtor committed both defalcation and fraud while acting as a fiduciary. As to § 523(a)(6), the Court found that the Debtor knew that injury to the Plaintiff was substantially certain to result from his misconduct and that his actions were wrongful and intentional, caused injury to the Plaintiff, and were done without just cause or excuse. Accordingly, the Court held that the judgment debt is nondischargeable under both §§ 523(a)(4) and (a)(6).
August 31, 2015
09 B 30029
Debtors’ financial advisor FBR Capital Markets & Co. (“FBR”) filed an amended application for compensation, which included a request for a restructuring fee and reimbursement of expenses, the majority of which were attorneys’ fees incurred in defense of FBR’s fee request. Plan transferee Bletchley Hotel at O’Hare LLC (“Bletchley”) filed an objection, asking the Court to: (1) reconsider its prior decision, which found that FBR was entitled to the restructuring fee, and (2) deny or substantially reduce both the restructuring fee and the requested attorneys’ fees for work performed in defending the original fee application. As to the restructuring fee, the Court denied the request for reconsideration because Bletchley primarily rehashed arguments already considered and rejected in the prior proceeding and, thus, failed to sustain its burden under Rule 60(b). The Court further found that, based on the express language of the governing documents, the restructuring fee was subject to review under the improvidence standard of § 328(a) and that the requested amount of the fee would not be reduced because Bletchley failed to identify any developments incapable of being anticipated at the time the order approving FBR’s retention was entered. As to the reimbursement of expenses, the Court found that FBR is not entitled to the attorneys’ fees incurred for fee-defense work because the reimbursement under the pre-approved engagement letter is subject to review under § 330 and the U.S. Supreme Court’s decision in Baker Botts L.L.P. v. ASARCO LLC held that § 330(a)(1) does not allow a bankruptcy court to award attorneys’ fees for work performed in defending a fee application. Accordingly, the Court awarded FBR a restructuring fee in the requested amount of $2,568,145.89 and reimbursement of expenses not related to the defense of FBR’s fees in the amount of $62,466.60.
April 23, 2015
13 B 43900, 14 A 00719
On the chapter 7 trustee’s motion for authority to turn over certain funds to secured creditor BCL-Capital Funding LLC (“BCL”) as alleged cash collateral proceeds, a creditor (and the Debtor’s former attorney) (“Stern”) objected, arguing that the proceeds were not BCL’s cash collateral and that turnover was, thus, improper. The trustee contended that he was bound by the terms of a pre-conversion cash collateral order (the “Order”) in which the Debtor and BCL had agreed that certain funds constituted cash collateral. The Court found that the Order did not, by its terms, foreclose consideration of Stern’s arguments regarding the validity of BCL’s claimed interest in the proceeds because the Order: (1) made no findings regarding whether the funds were cash collateral, and (2) contained broad reservations of rights. Thus, the Order was found to have no preclusive effect beyond enforcement of the Order itself. Further, the Court found that, despite an assignment of rents held by BCL, the proceeds were paid to the Debtor before the commencement of the case and while he retained control of the property at issue and that, thus, BCL could assert no interest in the proceeds by virtue of the assignment. Ultimately, the Court concluded that the proceeds at issue were not BCL’s cash collateral and, accordingly, denied the trustee’s motion.
October 30, 2014
09 B 30029
Debtors’ financial advisor filed an application for compensation that included a request for a “restructuring fee” based on the percentage of indebtedness involved in any restructuring. Plan transferee objected to the restructuring fee because the restructuring that took place in the case was based on a third party’s plan. Plan transferee argued that the agreement regarding the restructuring fee was unclear and that parol evidence explained that the financial advisor was not entitled to the restructuring fee because the plan confirmed was neither the debtors’ plan nor the result of the financial advisor’s efforts. The District Court (who originally reviewed this matter on appeal after Summary Judgment ) found that the Retention Order, which was modified by the parties after the Engagement Letter was signed and submitted, made the agreement ambiguous and remanded for trial. The Court found the agreement as such was ambiguous and allowed the parties to introduce parol evidence. The Court found, however, that the parol evidence was confusing and unhelpful. It did nothing to clarify the ambiguity in the revised Retention Order regarding the terms under which the financial advisor would be entitled to the restructuring fee. Ultimately, the Court construed the ambiguity against the party responsible for creating the ambiguity - the plan transferee. The Court therefore found that the financial advisor was entitled to the restructuring fee.
September 30, 2014
12 B 35492, 12 A 01889
Pro se debtor Gabriela Carter commenced an adversary proceeding seeking to discharge her educational loan debt owed to the Illinois Student Assistance Commission and Educational Credit Management Corporation pursuant to 11 U.S.C. § 523(a)(8). The issue addressed by the Court was whether the Debtor met the three-pronged Brunner test requiring her to show, by a preponderance of the evidence, that paying the loans would cause “undue hardship.” The Court found that the evidence demonstrated that the Debtor cannot maintain, based on current income and expenses, a minimal standard of living if forced to repay the student loans, thus satisfying the first prong of the test. The Court also found, however, that the Debtor failed to present evidence of additional, exceptional circumstances indicating that the state of affairs is likely to persist for a significant portion of the repayment period. Because the Debtor was not able to satisfy this second prong, the Court found that she did not meet her burden to prove that repayment of the loans would constitute an undue hardship under the statutory exception and held that the student loan debt is nondischargeable under § 523(a)(8).
March 6, 2014
12 B 30867
In response to a memorandum opinion allowing creditor bank costs of collection in their bankruptcy case, the debtors filed a motion to alter or amend the opinion pursuant to Federal Rule of Civil Procedure 59(e) and Federal Rule of Bankruptcy Procedure 9023, requesting that the Court reduce the amounts awarded. The debtors alleged that the Court erred by basing its opinion on the fact that numerous confirmation hearings and modified plans were required before a plan could be confirmed rather than focusing on the reasons for the delay. The Court found that because the debtors merely rehashed old matters and attempted to advance a version of the evidence that could and should have been presented prior to judgment, they failed to establish the existence of manifest errors of fact or newly discovered evidence required under Rule 59(e). Accordingly, the Court denied the debtors’ motion.
September 25, 2013
12 B 02903
Counsel for the Debtors filed an amended fee application in this chapter 13 case, requesting fees of $3,500 pursuant to the firm’s Attorney-Client Agreement for Legal Services. The Debtors objected to the application, alleging that the firm should receive no fees because its attorneys betrayed the Debtors’ trust in the representation, particularly with respect to negotiations in two lien strip adversary proceedings. The issue before the Court was whether the fees requested were reasonable compensation for actual, necessary services rendered pursuant to section 330 of the Code or whether the fees charged exceeded the reasonable value of the services provided pursuant to section 329. The Court found that the time spent by counsel in providing legal services to the Debtors was both appropriate and necessary for the administration of the case and that the rates charged for those services were commensurate with those charged by comparably skill attorneys. The Court also found, however, that a reduction in fees was justified because of the firm’s role in a miscommunication between attorney and client in the negotiation of a settlement in the lien strip adversaries. Accordingly, the Court sustained the Debtors’ objection in part, awarded counsel fees of $3,000, and disallowed the remaining fees of $500.
12 B 02903, 12 A 00440, 12 A 00441
Pro se debtors commenced two adversary proceedings to determine the value of two pieces of real property and to strip down the unsecured portions of the first mortgage liens on those properties pursuant to §§ 506(a) and 1322(b)(2). The debtors also filed a motion to strip off the creditor’s second mortgage lien from one of the properties under § 506(d). Based on the evidence presented and the credibility of the witnesses who testified at trial, the Court valued each property and gave the debtors permission to file an amended plan consistent with the Court’s ruling stripping down the first mortgages. As for the debtors’ motion to strip off the second mortgage lien under § 506(d), the Court denied the motion without prejudice, finding that the statute cited does not provide the vehicle for lien stripping in chapter 13 cases in the wake of the Seventh Circuit’s recent decision in Ryan
12 B 07352, 12 A 00765
The debtors filed an adversary proceeding to determine the nature and extent of creditor’s lien on their residence. The Court found that the creditor’s third priority lien was wholly unsecured and thus subject to being stripped off the debtors’ residence and treated as an unsecured claim. The Court found that the sales comparison approach was the appropriate method of valuation in this case and held that the petition date was the relevant date for valuation.