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Judge A. Benjamin Goldgar

Judge Jack B. Schmetterer

14 B 11873

In re: Faye T. Pantazelos
October 29, 2015

15 B 08916

In re Robert J. Meier
September 15, 2015

14 B 10105

Judge Carol A. Doyle

Judge Janet S. Baer

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).

Judge Pamela S. Hollis

11 A 02299
Defendants were owners, managers and officers of the Debtors and various entities. The Official Committee of Unsecured Creditors alleged that Defendants breached their fiduciary duties to the Debtors, made a fraudulent transfer by settling a promissory note, and were liable for preferential transfers. After the parties gave express consent for the court to enter final judgment, a four day trial was held. Since Defendants were self-interested in the transactions at issue, they bore the burden of demonstrating that those transactions were fair and served the Debtor's best interests. The court found that Defendants met their burden, and did not breach their fiduciary duties except as to one series of payments. Further, the court found that settling the promissory note was not a fraudulent transfer under the Bankruptcy Code because the Committee did not prove a lack of reasonably equivalent value, nor was it a fraudulent transfer under Illinois law because there was no transfer of an asset. Finally, the court held that the same payments that gave rise to a breach of fiduciary duty were also preferential transfers that could be avoided and recovered.

Judge Jacqueline P. Cox

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.