15 B 17676, 16 A 00020
Plaintiff City of Chicago (the “City”) filed an adversary complaint against debtor Ronald Spielman (“Spielman”), seeking a determination that a debt owed to it by Spielman by virtue of a federal district court default judgment was not dischargeable pursuant to §§ 523(a)(2)(A) and (a)(7).  The City subsequently filed a motion for summary judgment on both counts of its complaint.  No material facts were in dispute.  The City contended that the district court’s order for default judgment against Spielman under the City’s False Claims Ordinance precluded relitigation of the claims in the adversary proceeding due to principles of collateral estoppel.  Spielman argued that because a default judgment was entered, the claims were not actually litigated and that, thus, collateral estoppel could not be applied against him.  The Court found that the district court’s default judgment precluded further litigation of the claims because the district court made findings of fact, Spielman had a full and fair opportunity to litigate the claims, and, in fact, he did litigate the City’s final motion for default judgment, which was decided on its merits.  Accordingly, the Court granted the City’s motion on both counts of the complaint and entered judgment in favor of the City.

16 B 28526, 16 A 00624
Plaintiff Old Republic National Title Insurance Company (“Old Republic”) filed an adversary complaint against debtor Fares Fakhuri (“Fakhuri”), seeking a determination that a debt owed to it by Fakhuri by virtue of a state court judgment was not dischargeable pursuant to §§ 523(a)(2)(A) and (a)(2)(B).  Old Republic subsequently filed a motion for summary judgment on both counts of its complaint.  No material facts were in dispute.  Old Republic contended that the state court made findings that Fakhuri committed fraud and that Fakhuri falsely represented that the title to his property was clear, while concealing the fact that there was a lien on the property.  Fakhuri failed to contest these arguments.  The Court found that the state court’s default judgment was not preclusive as it made no findings of fact, but that Old Republic established that Fakhuri made false representations in connection with the title to the property within the meaning of § 523(a)(2)(A).  As §§ 523(a)(2)(A) and (a)(2)(B) are mutually exclusive causes of action, judgment could not also be granted as to § 523(a)(2)(B).  Accordingly, the Court granted Old Republic’s motion as to the § 523(a)(2)(A) count, entered judgment on that count in its favor, and dismissed the § 523(a)(2)(B) count.

13 B 09806, 13 A 00917
Jacob Thazhathuputhenpurac (the “Plaintiff”) filed an adversary complaint against former business partner Thomas Abraham (the “Debtor”), seeking a determination that a debt owed to him by the Debtor by virtue of a state court judgment was not dischargeable pursuant to §§ 523(a)(2)(A) and (a)(4) and objecting to the Debtor’s discharge under § 727(a)(3).  Both parties subsequently filed cross-motions for summary judgment, the Plaintiff on the two nondischargeability counts and the Debtor on all three.  No material facts were in dispute.  The Plaintiff argued that the Debtor was precluded from re-litigating the factual issues decided by the state court under the doctrine of collateral estoppel.  The Debtor contended that the elements needed to prevail pursuant to the statute under which the state court complaint had been brought were not identical to those required under §§ 523(a)(2)(A) and (a)(4) and that, thus, collateral estoppel was not applicable.  The Court found that the factual issues sought to be precluded were the same as those that came before the state court for purposes of collateral estoppel and that the state court’s findings of fact established, as a matter of law, all of the elements required for nondischargeability under §§ 523(a)(2)(A) and (a)(4).  Accordingly, the Court granted the Plaintiff’s motion, entered judgment in his favor, and denied the Debtor’s motion.

15 B 07325, 15 A 00866
Plaintiffs Estate of Rose M. Drabik, Mary Elizabeth Smith, Mary Katherine Paul, and chapter 7 trustee Brenda Porter Helms (collectively, the “Plaintiffs”) filed an adversary complaint against James T. Drabik (the “Debtor”), seeking a denial of the Debtor’s discharge pursuant to 11 U.S.C. §§ 727(a)(3) and (a)(4).  The Plaintiffs argued that the Debtor was not entitled to a discharge because he failed to keep or preserve information from which his financial condition could be ascertained and because he provided false, misleading, or inaccurate information in his initial bankruptcy petition, schedules, and statement of financial affairs.  After conducting an evidentiary hearing, the Court found that, given the documentary evidence and testimony at trial, the Debtor’s records were inadequate to allow the Court, the trustee, and the Debtor’s creditors to trace his financial dealings with any kind of accuracy and that the Debtor did not offer any reasonable justification for his failure to keep or preserve financial records.  Thus, the Court held that that failure supported denial of the Debtor’s discharge under 11 U.S.C. § 727(a)(3).  The Court further found that the Plaintiffs established that the Debtor “made a false oath or account” by filing initial bankruptcy documents with misstatements and omissions and that, together, those misrepresentations established a pattern of reckless indifference to the truth.  Accordingly, the Court also held that the Debtor was not entitled to a discharge pursuant to 11 U.S.C. § 727(a)(4)(A).  Based on these findings, the Court entered judgment in favor of the Plaintiffs and against the Debtor and, as such, denied the Debtor’s discharge.

17 B 11668
The chapter 13 trustee filed a motion to dismiss the case of Christopher V. Pratola pursuant to 11 U.S.C. § 1307(c).  The trustee asserted that there was cause for dismissal because Pratola owed educational debt of approximately $591,223 which exceeded the noncontingent, liquidated, unsecured debt limit of $394.725 set forth in 11 U.S.C. § 109(e).  Pratola argued that the educational debt was contingent and not subject to the debt limit because it was being paid under an income-based repayment plan.  The income-based repayment plan required monthly payments based on discretionary income and provided for the forgiveness of any remaining balance upon completion of a twenty-five year term.  The Court found that the educational debt was noncontingent for purposes of § 109(e) because it existed before the date of the filing of the petition and no future event needed to take place to fix its existence or amount.  Nevertheless, the Court found that there was no cause for dismissal under § 1307(c). After reviewing the relevant statutory language and case law, and determining that neither clearly required dismissal of the case, the Court examined the legislative history of § 109(e). The debt limits were created to stop owners of large business from filing under chapter 13 instead of chapter 11, not to preclude individuals with large amounts of educational debt from filing under chapter 13.  Accordingly, the Court denied the trustee’s motion to dismiss for lack of cause under § 1307(c).

16 B 29319, 17 A 00176
Mark Simon filed an adversary complaint against Constantino Joseph Boccarsi and Cari Ann Coglianese (the “Debtors”), seeking a determination that a debt owed to him by the Debtors by virtue of the entry of a state court default judgment was not dischargeable pursuant to §§ 523(a)(2)(A), (a)(4), and (a)(19).  Simon subsequently filed a motion for summary judgment on his securities fraud claim under § 523(a)(19).  He argued that the state court judgment was for securities fraud and that, thus, collateral estoppel barred the relitigation of his claim.  The Debtors contended that neither element required under § 523(a)(19) had been satisfied.  According to the Debtors, they did not commit securities fraud and the fact that the state court judgment was entered in default insulated the judgment from a finding of nondischargeability.  Based on the plain language of the statutory exception, the legislative history, and the reasoning in Meyer v. Rigdon, 36 F.3d 1375 (7th Cir. 1994), the Court found that the default judgment had preclusive effect in the nondischargeability action, because § 523(a)(19) preempted common law collateral estoppel.  The Court further found that the undisputed facts demonstrated that the two requirements of § 523(a)(19) had been satisfied through the entry of the judgment in the state judicial proceeding.  As such, the Court granted Simon’s motion for summary judgment and entered judgment in his favor.

15 B 35358, 16 A 00727
The Debtor filed an adversary complaint against Walsh Construction Company (“Walsh”), seeking to avoid and recover certain funds deposited with the Clerk of the Circuit Court of Cook County (the “Deposited Funds”) pursuant to 11 U.S.C. §§ 547(b), 548(a), 550(a), and 553(b).  Walsh filed a motion to dismiss the complaint, arguing that under the doctrine of res judicata, the dismissal of the Debtor’s prior adversary complaint seeking a declaratory judgment that the Deposited Funds were property of the bankruptcy estate and turnover of those Funds barred any further litigation arising from a judgment order (the “Judgment Order”) entered by the Circuit Court.  In the alternative, Walsh asked the Court to abstain from making a decision because the appeal of the Judgment Order is pending in the Circuit Court.  The Court found that, although the three elements required for res judicata had been met, the “Statutory Scheme Exception” to claim splitting in § 26(1)(d) of the Restatement (Second) of Judgments precluded the application of res judicata to bar the Debtor’s adversary proceeding, and, thus, Walsh’s motion to dismiss was denied.  In its discretion, the Court abstained from conducting further proceedings in connection with the adversary until the state court renders its decision on the related appeal of the Judgment Order.

16 B 31591
The Debtor, appearing pro se, proposed to pay Hale Gardens Condominium Association (the “Association”) $857 through her chapter 13 plan. The Association objected to confirmation of the Debtor’s plan because it did not provide for full payment of the Association’s alleged $14,938.25 secured claim, which claim was comprised mostly of attorneys’ fees related to the Association’s pre-petition attempts to collect assessments and fees from the Debtor. The Debtor argued that she owed the Association only $602, which the Court considered as an objection to the Association’s claim. The Court sustained in part both parties’ objections, finding that the Association had not applied the Debtor’s payments appropriately and that most of the attorneys’ fees were unreasonably incurred by the Association. The Court allowed the Association’s secured claim in the amount of $1,303.49 and held that the Debtor’s chapter 13 plan must provide for the payment of such claim in full pursuant to 11 U.S.C. §§ 1322(b)(2) and 1325(a)(5).

14 B 13155
The Debtors claimed three exemptions against $23,000 in settlement proceeds derived from a workplace discrimination and disability lawsuit initiated by Debtor James Henry Sullivan, Jr. against his former employer.  The chapter 7 trustee (the “Trustee”) objected to the Debtors’ exemptions pursuant to Bankruptcy Rule 4003(b) on the basis that they were not properly claimed under Illinois law.  The Trustee had intervened and later settled the legal claims in the lawsuit with the authorization of the Court pursuant to Bankruptcy Rule 9019(a).  Without addressing the merits of the Trustee’s objection, the Debtors argued that they had been deprived of their due process rights with respect to the Trustee’s settlement motion.  The Court found that there was no violation of due process in connection with the settlement motion and that the Debtors had not made proper claims of exemption under Illinois law.  Thus, the Court sustained the Trustee’s objection and disallowed the Debtors’ amended claims of exemption.

13 B 25078
In September 2016, John H. Sammarco filed a motion to dismiss debtor David L. Dini’s chapter 7 case pursuant to 11 U.S.C. § 707(a).  Relying on In re Schwartz, a decision issued by the Seventh Circuit in August 2015, Sammarco alleged that Dini’s case should be dismissed because he is living “lavishly” while refusing to pay his unsecured creditors.  The question before the Court was whether the equitable doctrine of laches barred Sammarco’s § 707(a) motion.  The Court found that Sammarco’s thirteen-month delay in filing the motion was both unreasonable and inexcusable under the circumstances of the case and that Dini suffered material prejudice as a result of that delay.  Accordingly, the Court concluded that Sammarco’s motion is barred by laches, and, as such, the motion was denied.

13 B 00627
The former Debtor reopened his bankruptcy case and filed a motion for rule to show cause against the Respondents, including Metropolitan Development Enterprises, Inc. (“MDE”), an entity previously owned by the Debtor. The Debtor alleged that the Respondents violated the discharge injunction under § 524(a)(2) after MDE filed suit against him in the Circuit Court of Cook County. The Debtor sought an order enjoining the state court proceeding, a finding that the Respondents were in contempt of court, and an award of damages and attorneys’ fees. The Respondents argued that the claims for which MDE sought recovery against the Debtor were not discharged in the Debtor’s bankruptcy case pursuant to § 523(a)(3)(B). The Court found that MDE’s claims against the Debtor had been discharged because, although MDE was not scheduled as a creditor, it had reasonable notice of the Debtor’s bankruptcy case that satisfied the requirements of due process. Concluding that MDE’s actions constituted a violation of the discharge injunction, the Court enjoined MDE from pursuing the Debtor on its claims in state court but denied the Debtor’s request for damages and attorneys’ fees.

13 B 25078, 13 A 01332
In the three counts that remain at issue in the adversary complaint filed by plaintiff John H. Sammarco in the bankruptcy case of debtor-defendant David L. Dini, Sammarco sought a determination that Dini is not entitled to a discharge pursuant to various provisions of 11 U.S.C. § 727(a). In Count I, Sammarco alleged that Dini’s discharge should be denied under § 727(a)(2) because Dini transferred two vehicles less than one year prior to filing his bankruptcy petition with the intent to hinder or delay Sammarco. In Count V, Sammarco objected to Dini’s discharge pursuant to § 727(a)(7), arguing that Dini knowingly made fraudulent statements in the bankruptcy schedules of his former company National Telerep Marketing Systems, Ltd. ("NTMS") while his individual bankruptcy case was pending. Finally, in Count VII, Sammarco alleged that Dini is not entitled to his discharge under § 727(a)(4), because Dini knowingly and with fraudulent intent made false statements in connection with the debt that he owes to his friend Keith Creel (the "Creel debt"). The Court found that Sammarco failed to meet his burden to establish the elements required under the applicable provisions of § 727(a). Specifically, the Court found that the evidence did not establish that Dini intended to hinder or delay Sammarco by transferring his interest in the vehicles. The Court further found that the issue of whether Dini knowingly and with fraudulent intent made false statements in NTMS’s bankruptcy schedules was previously litigated and that Sammarco is, thus, precluded from litigating that issue again. As for the allegation in connection with the Creel debt, the Court concluded that the record did not support a finding that Dini’s statements regarding that debt were false for purposes of § 727(a)(4). Accordingly, the Court held that Dini’s discharge will not be denied.

15 B 19829, 15 A 00550
The Plaintiff filed an adversary complaint against the Debtor seeking a determination that the debt owed to the Plaintiff by the Debtor in connection with an unsecured loan is not dischargeable pursuant to §§ 523(a)(2)(A) and (a)(2)(B).  The Plaintiff argued that the loan was procured by false pretenses with respect to the purpose of the loan and through actual fraud because the Debtor had not intended to repay the loan.  The Plaintiff also argued that the Debtor misrepresented her financial condition by failing to disclose a new mortgage obligation when the loan was made.  The Court found that the Plaintiff failed to meet its burden to demonstrate fraud under any of its arguments.  Accordingly, the Court held that the debt at issue is not excepted from discharge under §§ 523(a)(2)(A) or (a)(2)(B).

13 B 43900, 15 A 00140
The chapter 7 trustee (the “Trustee”) filed a six-count adversary complaint against American Express Centurion Bank, Inc. (“American Express”), seeking to avoid and recover from American Express an allegedly preferential or fraudulent transfer made by Katina Callas, the Debtor’s non-filing spouse (“Katina”), to American Express pursuant to 11 U.S.C. §§ 547(b), 548(a)(1), and 550(a).  American Express did not challenge the avoidability of the transfer; rather, it sought summary judgment only on Counts II and V, the recovery claims of the complaint.  Asserting an affirmative defense under § 550(b)(1), American Express contended that the Trustee could not recover the transfer from American Express as an immediate or subsequent transferee of Katina.  The Court concluded that there were no genuine issues of material fact in dispute and that the uncontested facts demonstrated that American Express took the transfer for value, in good faith, and without knowledge of the voidability of the transfer.  Accordingly, the Court found that American Express established a valid affirmative defense to liability under § 550(b)(1).  As such, the Court granted American Express’s motion for partial summary judgment and entered judgment on Counts II and V of the complaint in favor of American Express.

15 B 05304, 15 A 00812
The Plaintiff filed an adversary complaint in the bankruptcy case of the Debtor, seeking a determination that a debt owed to the Plaintiff by the Debtor in connection with her car is not dischargeable and that the Debtor is not entitled to a discharge.  The car in question was impounded by the City of Chicago three times, the third time post-petition.  Experiencing financial difficulties and having no money to either repair and recover the car or get it towed from the impound lot, the Debtor filed an amended chapter 13 plan which provided for surrender of the car to the Plaintiff in full satisfaction of its claim.  The Plaintiff filed an objection to confirmation, arguing that surrender was not possible because the Debtor was not in possession of the car.  While the objection was pending, the title to the car was transferred from the Debtor’s name to a company in Illinois and then, later, two more times to other entities.  Subsequently, the Debtor converted her case to a case under chapter 7.  In its complaint, the Plaintiff argued that the debt is nondischargeable under § 523(a)(6) because the Debtor abandoned the car, knowing that it would be disposed of, and that her lack of action was willful and malicious in that it caused a total loss to the Plaintiff. The Plaintiff argued, similarly, that the Debtor is not entitled to a discharge under § 727(a)(2) because she intended to hinder, delay, and defraud the Plaintiff by “refusing” to retrieve the car from the impound lot.  The Court found that the Plaintiff failed to meet its burden to demonstrate that the Debtor’s actions were either willful or malicious as required by § 523(a)(6).  The Court further found that the Plaintiff did not prove that the Debtor intended to hinder, delay, or defraud the Plaintiff for purposes of § 727(a)(2).  Accordingly, the Court held that the debt at issue is not excepted from discharge under § 523(a)(6) and that the Debtor is entitled to her discharge.

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.

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).

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.

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.

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.